§ 6047. Information relating to certain trusts and annuity plans

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1962

   Self-Employed Individuals Tax Retirement Act of 1962

   Pub. L. 87–792 § 7(m)(1) · 76 Stat. 809

   Enacted · 26 U.S.C. § 6047

   Added Pub. L. 87–792, § 7(m)(1), Oct. 10, 1962, 76 Stat. 830

   Source evidence

   Code source credit
   Added Pub. L. 87–792, § 7(m)(1), Oct. 10, 1962, 76 Stat. 830

   Enacted provision · exact public law section
   (1) In general.— Subpart B of part III of subchapter A of chapter 61 of the Internal Revenue Code of 1954 (relating to information concerning transactions with other persons) is amended by adding after section 6046 the following new section: “SEC. 6047. INFORMATION RELATING TO CERTAIN TRUSTS AND ANNUITY AND BOND PURCHASE PLANS. “(a) Trustees and Insurance Companies.— The trustee of a trust described in section 401(a) which is exempt from tax under section 501 (a) to which contributions have been paid under a plan on behalf Ante, p. 812. of any owner-employee (as defined in section 401(c)(3)), and each insurance company or other person which is the issuer of a contract purchased by such a trust, or purchased under a plan described in section 403(a), contributions for which have been paid on behalf of any owner-employee, shall file such returns (in such form and at such times), keep such records, make such identification of contracts and funds (and accounts within such funds), and supply such information, as the Secretary or his delegate shall by forms or regulations prescribe. “(b) Owner-Employees.— Every individual on whose behalf contributions have been paid as an owner-employee (as defined in section 401(c)(3))— Ante, p. 812. 26 USC 401, 501. “(1) to a trust described in section 401(a) which is exempt from tax under section 501(a), or “(2) to an insurance company or other person under a plan described in section 403(a), 26 USC 403. shall furnish the trustee, insurance company, or other person, as the case may be, such information at such times and in such form and manner as the Secretary or his delegate shall prescribe by forms or regulations. “(c) Employees Under Qualified Bond Purchase Plans.— Every individual in whose name a bond described in section 405(b)(1) is Ante, p. 826. purchased by his employer under a qualified bond purchase plan described in section 405(a), or by a trust described in section 401(a) which is exempt from tax under section 501(a), shall furnish— “(1) to his employer or to such trust, and “(2) to the Secretary (or to such person as the Secretary may by regulations prescribe), such information as the Secretary or his delegate shall by forms or regulations prescribe. “(d) Cross Reference.— “For criminal penalty for furnishing fraudulent information, see section 7207.”

2. 1974

   Employee Retirement Income Security Act of 1974

   Pub. L. 93–406 § 2002(g)(8) · 88 Stat. 829

   Redesignated · 26 U.S.C. § 6047(d)

   Pub. L. 93–406, § 2002(g)(8), added subsec. (d). Former subsec. (d) redesignated (e)

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 93–406, § 2002(g)(8), added subsec. (d). Former subsec. (d) redesignated (e).

   Enacted provision · exact public law section
   (8) Section 6047 (relating to information relating to certain 26 USC 6047. trusts and annuity and bond purchase plans) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: “(d) Other Programs.— To the extent provided by regulations prescribed by the Secretary or his delegate, the provisions of this section apply with respect to any payment described in section 219(a) and to transactions of any trust described in section 408(a) or under Ante, p. 959. an individual retirement annuity described in section 408(b).”.

3. 1974

   Employee Retirement Income Security Act of 1974

   Pub. L. 93–406 title II · 88 Stat. 829

   1. Redesignated · 26 U.S.C. § 6047(e)

      Pub. L. 93–406, §§ 1031(c)(3), 2002(g)(8), redesignated former subsec. (d) as (e)

   2. Inserted · 26 U.S.C. § 6047(e)

      Pub. L. 93–406, §§ 1031(c)(3), 2002(g)(8), inserted reference to section 6652(f) covering provisions relating to penalties for failure to file a return required by this section

   Source evidence

   Code amendment note
   Subsec. (e). Pub. L. 93–406, §§ 1031(c)(3), 2002(g)(8), redesignated former subsec. (d) as (e), and inserted reference to section 6652(f) covering provisions relating to penalties for failure to file a return required by this section.

   Enacted provision · exact public law
   TITLE II— AMENDMENTS TO THE INTERNAL REVENUE CODE RELATING TO RETIREMENT PLANS SEC. 1001. AMENDMENT OF INTERNAL REVENUE CODE OF 1954. Except as otherwise expressly provided, whenever in this title an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1954. 26 USC 1 et seq. Subtitle A— Participation, Vesting, Funding, Administration, Etc. PART 1— PARTICIPATION, VESTING, AND FUNDING SEC. 1011. MINIMUM PARTICIPATION STANDARDS. Part I of subchapter D of chapter 1 (relating to pension, profit-sharing, stock bonus, plans, etc.) is amended by addmg at the end thereof the following: “Subpart B— Special Rules “Sec. 410. Minimum participation standards. “Sec. 411. Minimum vesting standards. “Sec. 412. Minimum funding standards. “Sec. 413. Collectively bargained plans. “Sec. 414. Definitions and special rules. “Sec. 415. Limitations on benefits and contributions under qualified plans. “SEC. 410. MINIMUM PARTICIPATION STANDARDS. “(a) Participation.— “(1) Minimum age and service conditions.— “(A) General rule.— A trust shall not constitute a qualified trust under section 401(a) if the plan of which it is a part requires, as a condition of participation in the plan, that an employee complete a period of service with the employer or employers maintaining the plan extending beyond the later of the following dates— “(i) the date on which the employee attains the age of 25; or “(ii) the date on which he completes 1 year of service. “(B) Special rules for certain plans.— “(i) In the case of any plan which provides that after not more than 3 years of service each participant has a right to 100 percent of his accrued benefit under the plan which is nonforfeitable (within the meaning of section 411) at the time such benefit accrues, clause (ii) of subparagraph Post, p. 901. (A) shall be applied by substituting ‘3 years of service’ for ‘1 year of service’. “(ii) In the case of any plan maintained exclusively for employees of an educational institution (as defined 26 USC 170. 26 USC 501. in section 170(b)(1)(A)(ii)) by an employer which is exempt from tax under section 501(a) which provides that each participant having at least 1 year of service has a right to 100 percent of his accrued benefit under the plan which is nonforfeitable (within the meaning of section 411) at the time such benefit accrues, clause (i) of Post, p. 901. subparagraph (A) shall be applied by substituting ‘30’ for ‘25’. This clause shall not apply to any plan to which clause (i) applies. “(2) Maximum age conditions.— A trust shall not constitute a qualified trust under section 401(a) if the plan of which it is a 26 USC 401. part excludes from participation (on the basis of age) employees who have attained a specified age, unless— “(A) the plan is a— “(i) defined benefit plan, or “(ii) target benefit plan (as defined under regulations prescribed by the Secretary or his delegate), and “(B) such employees begin employment with the employer after they have attained a specified age which is not more than 5 years before the normal retirement age under the plan. “(3) Definition of year of service.— “(A) General rule.— For purposes of this subsection, the term ‘year of service’ means a 12-month period during which the employee has not less than 1,000 hours of service. For purposes of this paragraph, computation of any 12-month period shall be made with reference to the date on which the employee’s employment commenced, except that, under regulations prescribed by the Secretary of Labor, such computation may be made by reference to the first day of a plan year in the case of an employee who does not complete 1,000 hours of service during the 12-month period beginning on the date his employment commenced. “(B) Seasonal industries.— 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 may be determined under regulations prescribed by the Secretary of Labor. “(C) Hours of service.— For purposes of this subsection, the term ‘hour of service’ means a time of service determined under regulations prescribed by the Secretary of Labor. “(D) Maritime industries.— For purposes of this subsection, in the case of any maritime industry, 125 days of service shall be treated as 1,000 hours of service. The Secretary of Labor may prescribe regulations to carry out this subparagraph. “(4) Time of participation.— A plan shall be treated as not meeting the requirements of paragraph (1) unless it provides that any employee who has satisfied the minimum age and service requirements specified in such paragraph, and who is otherwise entitled to participate in the plan, commences participation in the plan no later than the earlier of— “(A) the first day of the first plan year beginning after the date on which such employee satisfied such requirements, or “(B) the date 6 months after the date on which he satisfied such requirements, unless such employee was separated from the service before the date referred to in subparagraph (A) or (B), whichever is applicable. “(5) Breaks in service.— “(A) General rule.— Except as otherwise provided in subparagraphs (B), (C), and (D), all years of service with the employer or employers maintaining the plan shall be taken into account in computing the period of service for purposes of paragraph (1). “(B) Employees under 3-year 100 percent vesting.— In the case of any employee who has any 1-year break in service (as defined in section 411(a)(6)(A)) under a plan to Post, p. 901. which the service requirements of clause (i) of paragraph (1)(B) apply, if such employee has not satisfied such requirements, service before such break shall not be required to be taken into account. “(C) 1-year break in service.— In computing an employee’s period of service for purposes of subsection (a)(1) in the case of any participant who has any 1-year break in service (as defined in section 411(a)(6)(A)), service before such break shall not be required to be taken into account under the plan until he has completed a year of service (as defined in paragraph (3)) after his return. “(D) Nonvested participants.— In the case of a participant who does not have any nonforfeitable right to an accrued benefit derived from employer contributions, years of service with the employer or employers maintaining the plan before a break in service shall not be required to be taken into account in computing the period of service for purposes of subsection (a)(1) if the number of consecutive 1-year breaks in service equals or exceeds the aggregate number of such years of service before such break. Such aggregate number of years of service before such break shall be deemed not to include any years of service not required to be taken into account under this subparagraph by reason of any prior break in service. “(b) Eligibility.— “(1) In general.— A trust shall not constitute a qualified trust under section 401(a) unless the trust, or two or more trusts, or 26 USC 401. the trust or trusts and annuity plan or plans are designated by the employer as constituting parts of a plan intended to qualify under section 401(a) which benefits either— “(A) 70 percent or more of all employees, or 80 percent or more of all the employees who are eligible to benefit under the plan if 70 percent or more of all the employees are eligible to benefit under the plan, excluding in each case employees who have not satisfied the minimum age and service requirements, if any, prescribed by the plan as a condition of participation, or “(B) such employees as qualify under a classification set up by the employer and found by the Secretary or his delegate not to be discriminatory in favor of employees who are officers, shareholders, or highly compensated. “(2) Exclusion of certain employees.— For purposes of paragraph (1), there shall be excluded from consideration— “(A) employees not included in the plan 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 one 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, “(B) in the case of a trust established or maintained pursuant to an agreement which the Secretary of Labor finds to be a collective bargaining agreement between air pilots represented in accordance with title II of the Railway Labor Act and one or more employers, all employees not covered 45 USC 181. by such agreement, and “(C) employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(b)) 26 USC 911. from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)). Subparagraph (B) shall not apply in the case of a plan which provides contributions or benefits for employees whose principal duties are not customarily performed aboard aircraft in flight. “(c) Application of Participation Standards to Certain Plans.— “(1) The provisions of this section (other than paragraph (2) of this subsection) shall not apply to— “(A) a governmental plan (within the meaning of section 414(d)), Post, p. 925. “(B) a church plan (within the meaning of section 414(e)) with respect to which the election provided by subsection (d) of this section has not been made, “(C) a plan which has not at any time after the date of the enactment of the Employee Retirement Income Security Act of 1974 provided for employer contributions, and “(D) a plan established and maintained by a society, order, or association described in section 501(c)(8) or (9) if no 26 USC 501. part of the contributions to or under such plan are made by employers of participants in such plan. “(2) A plan described in paragraph (1) shall be treated as meeting the requirements of this section, for purposes of section 401(a), if such plan meets the requirements of section 401(a)(3) 26 USC 401. as in effect on the day before the date of the enactment of this section. “(d) Election by Church to Have Paarticipation, Vesting, Funding, Etc., Provisions Apply.— “(1) In general.— If the church or convention or association of churches which maintains any church plan makes an election under this subsection (in such form and manner as the Secretary or his delegate may by regulations prescribe), then the provisions of this title relating to participation, vesting, funding, etc. (as in effect from time to time) shall apply to such church plan as if such provisions did not contain an exclusion for church plans. “(2) Election irrevocable.— An election under this subsection with respect to any church plan shall be binding with respect to such plan, and, once made, shall be irrevocable.” SEC. 1012. MINIMUM VESTING STANDARDS. (a) In General.— Subpart B of part I of subchapter D of chapter 1 is amended by adding after section 410 the following new section: “SEC. 411. MINIMUM VESTING STANDARDS. “(a) General Rule.— A trust shall not constitute a qualified trust under section 401(a) unless the plan of which such trust is a part provides that an employee’s right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age (as defined in subsection (a)(8)) and in addition satisfies the requirements of paragraphs (1) and (2) of this subsection and the requirements of paragraph (2) of subsection (b), and in the case of a defined benefit plan, also satisfies the requirements of paragraph (1) of subsection (b). “(1) Employee contributions.— 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) Employer contributions.— A plan satisfies the requirements of this paragraph if it satisfies the requirements of subparagraph (A), (B), or (C). “(A) 10-year vesting.— A plan satisfies the requirements of this subparagraph if an employee who has at least 10 years of service has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions. “(B) 5- to 15-year vesting.— A plan satisfies the requirements of this subparagraph if an employee who has completed at least 5 years of service has a nonforfeitable right to a percentage of his accrued benefit derived from employer contributions which percentage is not less than the percentage determined under the following table: “Years of service: Nonforfeitable percentage 5 25 6 30 7 35 8 40 9 45 10 50 11 60 12 70 13 80 14 90 15 or more 100. “(C) Rule of 45.— “(i) A plan satisfies the requirements of this subparagraph if an employee who is not separated from the service, who has completed at least 5 years of service, and with respect to whom the sum of his age and years of service equals or exceeds 45, has a nonforfeitable right to a percentage of his accrued benefit derived from employer contributions determined under the following table: “If years of service equal or exceed— and sum of age and service equals or exceeds— then the nonforfeitable percentage is— 5 45 50 6 47 60 7 49 70 8 51 80 9 53 90 10 55 100. “(ii) Notwithstanding clause (i), a plan shall not be treated as satisfying the requirements of this subparagraph unless any employee who has completed at least 10 years of service has a nonforfeitable right to not less than 50 percent of his accrued benefit derived from employer contributions and to not less than an additional 10 percent for each additional year of service thereafter. “(3) Certain permitted forfeitures, suspensions, etc.— For purposes of this subsection— “(A) Forfeiture on account of death.— 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 401(a)(11)). Post, p. 935. “(B) Suspension of benefits upon reemployment of retiree.— 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 the 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, the same trade or craft, and the same geographic area covered by the plan as when such benefits commenced. The Secretary of Labor shall prescribe such regulations as Regulations. may be necessary to carry out the purposes of this subparagraph, including regulations with respect to the meaning of the term ‘employed’. “(C) Effect of retroactive plan amendments.— 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 412(c)(8). Post, p. 914. “(D) Withdrawal of mandatory contribution.— “(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 subsection (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 subsection (c)(2)(C) on the date of such repayment (computed annually from the date of such withdrawal). In the case of a defined contribution plan, the plan provision required under this clause may provide that such repayment must be made before the participant has any one-year break in service commencing after the withdrawal. “(iii) In the case of accrued benefits derived from employer contributions which accrued before the date of the enactment of the Employee Retirement Income Security Act of 1974, a right to such accrued benefit Ante, p. 829. 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 (as defined in subsection (c)(2)(C)) made by such participant before the date of the enactment of the 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 such Act. The Secretary or Regulations. his delegate 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) For nonforfeitability where the employee has a nonforfeitable right to at least 50 percent of his accrued benefit, see section 401(a)(19). 26 USC 401. “(4) Service included in determination of nonforfeitable percentage.— In computing the period of service under the plan for purposes of determining the nonforfeitable percentage under paragraph (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 22, except that in the case of a plan which does not satisfy subparagraph (A) or (B) of paragraph (2), the plan may not disregard any such year of service during which the employee was a participant; “(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 (as defined under regulations prescribed by the Secretary or his delegate); “(D) service not required to be taken into account under paragraph (6); “(E) years of service before January 1, 1971, unless the employee has had at least 3 years of service after December 31, 1970; and “(F) years of service before the first plan year to which this section applies, 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. “(5) Year of service.— “(A) General rule.— For purposes of this subsection, 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 of Labor) during which the participant has completed 1,000 hours of service. “(B) Hours of service.— For purposes of this subsection, the term ‘hours of service’ has the meaning provided by section 410(a)(3)(C). Ante, p. 898. “(C) Seasonal industries.— 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 may be determined under regulations prescribed by the Secretary of Labor. “(D) Maritime industries.— For purposes of this subsection, in the case of any maritime industry, 125 days of service shall be treated as 1,000 hours of service. The Secretary of Labor may prescribe regulations to carry out the purposes of this subparagraph. “(6) Breaks in service.— “(A) Definition of 1-year break in service.— 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 of Labor) during which the participant has not completed more than 500 hours of service. “(B) 1 year of service after 1-year break in service.— For purposes of paragraph (4), 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) 1-year break in service under defined contribution plan.— For purposes of paragraph (4), in the case of any participant in a defined contribution plan, or an insured defined benefit plan which satisfies the requirements of subsection (b)(1)(F), who has any 1-year break in service, years of service after such break 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) Nonvested participants.— For purposes of paragraph (4), in the case of a participant who, under the plan, does not have any nonforfeitable right to an accrued benefit derived from employer contributions, years of service before any 1-year break in service shall not be required to be taken into account if the number of consecutive 1-year breaks in service equals or exceeds the aggregate number of such years of service prior to such break. Such aggregate number of years of service before such break shall be deemed not to include any years of service not required to be taken into account under this subparagraph by reason of any prior break in service. “(7) Accrued benefit.— “(A) In general.— For purposes of this section, the term ‘accrued benefit’ means— “(i) in the case of a defined benefit plan, the employee’s accrued benefit determined under the plan and, except as provided in subsection (c)(3), expressed in the form of an annual benefit commencing at normal retirement age, or “(ii) in the case of a plan which is not a defined benefit plan, the balance of the employee’s account. “(B) Effect of certain distributions.— Notwithstanding paragraph (4), for purposes of determining the employee’s accrued benefit under the plan, the plan may disregard service performed by the employee with respect to which he has received— “(i) a distribution of the present value of his entire nonforfeitable benefit if such distribution was in an amount (not more than $1,750) permitted under regulations prescribed by the Secretary or his delegate, or “(ii) a distribution of the present value of his nonforfeitable benefit attributable to such service which he elected to receive. Clause (i) of this subparagraph shall apply only if such distribution was made on termination of the employee’s participation in the plan. Clause (ii) of this subparagraph shall apply only if such distribution was made on termination of the employee’s participation in the plan or under such other circumstances as may be provided under regulations prescribed by the Secretary or his delegate. “(C) Repayment of subparagraph (b) distributions.— For purposes of determining the employee’s accrued benefit under a plan, the plan may not disregard service as provided in subparagraph (B) unless the plan provides an opportunity for the participant to repay the full amount of the distribution described in such subparagraph (B) with, in the case of a defined benefit plan, interest at the rate determined for purposes of subsection (c)(2)(C) and provides that upon such repayment the employee’s accrued benefit shall be recomputed by taking into account service so disregarded. This subparagraph shall apply only in the case of a participant who— “(i) received such a distribution in any plan year to which this section applies, which distribution was less than the present value of his accrued benefit, “(ii) resumes employment covered under the plan, and “(iii) repays the full amount of such distribution with, in the case of a defined benefit plan, interest at the rate determined for purposes of subsection (c)(2)(C). In the case of a defined contribution plan, the plan provision required under this subparagraph may provide that such repayment must be made before the participant has any one-year break in service commencing after such withdrawal. “(8) Normal retirement age.— For purposes of this section, 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 10th anniversary of the time a plan participant commenced participation in the plan. “(9) Normal retirement benefit.— For purposes of this section, 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 benefits commencing before benefits payable under title II of the Social Security Act become payable which— 42 USC 401. “(i) do not exceed such social security benefits, and “(ii) terminate when such social security benefits commence. “(10) Changes in vesting schedule.— “(A) General rule.— A plan amendment changing any vesting schedule under the plan shall be treated as not satisfy-ing the requirements of paragraph (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) Election of former schedule.— A plan amendment changing any vesting schedule under the plan shall be treated as not satisfying the requirements of paragraph (2) unless each participant having not less than 5 years of service is permitted to elect, within a reasonable period after the adoption of such amendment, to have his nonforfeitable percentage computed under the plan without regard to such amendment. “(b) Accrued Benefit Requirements.— “(1) General rules.— “(A) 3-percent method.— A defined benefit plan satisfies the requirements of this paragraph if the accrued benefit to which each participant is entitled upon his separation from the service is not less than— “(i) 3 percent of the normal retirement benefit to which he would be entitled if he commenced participation at the earliest possible entry age under the plan and served continuously until the earlier of age 65 or the normal retirement age specified under the plan, multiplied by “(ii) the number of years (not in excess of 33⅓) of his participation in the plan. In the case of a plan providing retirement benefits based on compensation during any period, the normal retirement benefit to which a participant would be entitled shall be determined as if he continued to earn annually the average rate of compensation which he earned during consecutive years of service, not in excess of 10, for which his compensation was the highest. For purposes of this subparagraph, social security benefits and all other relevant factors used to compute benefits shall be treated as remaining constant as of the current year for all years after such current year. “(B) 133⅓ percent rule.— A defined benefit plan satisfies the requirements of this paragraph for a particular plan year if under the plan the accrued benefit payable at the normal retirement age is equal to the normal retirement benefit and the annual rate at which any individual who is or could be a participant can accrue the retirement benefits payable at normal retirement age under the plan for any later plan year is not more than 133⅓ percent of the annual rate at which he can accrue benefits for any plan year beginning on or after such particular plan year and before such later plan year. For purposes of this subparagraph— “(i) any amendment to the plan which is in effect for the current year shall be treated as in effect for all other plan years; “(ii) any change in an accrual rate which does not apply to any individual who is or could be a participant in the current year shall be disregarded; “(iii) the fact that benefits under the plan may be payable to certain employees before normal retirement age shall be disregarded; and “(iv) social security benefits and all other relevant factors used to compute benefits shall be treated as remaining constant as of the current year for all years after the current year. “(C) Fractional rule.— A defined benefit plan satisfies the requirements of this paragraph if the accrued benefit to which any participant is entitled upon his separation from the service is not less than a fraction of the annual benefit commencing at normal retirement age to which he would be entitled under the plan as in effect on the date of his separation if he continued to earn annually until normal retirement age the same rate of compensation upon which his normal retirement benefit would be computed under the plan, determined as if he had attained normal retirement age on the date on which any such determination is made (but taking into account no more than the 10 years of service immediately preceding his separation from service). Such fraction shall be a fraction, not exceeding 1, the numerator of which is the total number of his years of participation in the plan (as of the date of his separation from the service) and the denominator of which is the total number of years he would have participated in the plan if he separated from the service at the normal retirement age. For purposes of this subparagraph, social security benefits and all other relevant factors used to compute benefits shall be treated as remaining constant as of the current year for all years after such current year. “(D) Accrual for service before effective date.— Subparagraphs (A), (B), and (C) shall not apply with respect to years of participation before the first plan year to which this section applies, but a defined benefit plan satisfies the requirements of this subparagraph with respect to such years of participation only if the accrued benefit of any participant with respect to such years of participation is not less than the greater of— “(i) his accrued benefit determined under the plan, as in effect from time to time prior to the date of the enactment of the Employee Retirement Income Security Act of 1974, or “(ii) an accrued benefit which is not less than one-half of the accrued benefit to which such participant would have been entitled if subparagraph (A), (B), or (C) applied with respect to such years of participation. “(E) First two years of service.— Notwithstanding subparagraphs (A), (B), and (C) of this paragraph, a plan shall not be treated as not satisfying the requirements of this paragraph solely because the accrual of benefits under the plan does not become effective until the employee has two continuous years of service. For purposes of this subparagraph, the term ‘years of service’ has the meaning provided by section 410(a)(3)(A). Ante, p. 898. “(F) Certain insured defined benefit plans.— Notwithstanding subparagraphs (A), (B), and (C), a defined benefit plan satisfies the requirements of this paragraph if such plan— “(i) is funded exclusively by the purchase of insurance contracts, and “(ii) satisfishes the requirements of paragraphs (2) and (3) of section 412(i) (relating to certain insurance Post, p. 914. contract plans), but only if an employee’s accrued benefit as of any applicable date is not less than the cash surrender value his insurance contracts would have on such applicable date if the requirements of paragraphs (4), (5), and (6) of section 412(i) were satisfied. “(G) Accrued benefit may not decrease on account of increasing age or service.— Notwithstanding the preceding subparagraphs, a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if the participant’s accrued benefit is reduced on account of any increase in his age or service. The preceding sentence shall not apply to benefits under the plan commencing before entitlement to benefits payable under title II of the Social Security Act 42 USC 401. which benefits under the plan— “(i) do not exceed such social security benefits, and “(ii) terminate when such social security benefits commence. “(2) Separate accounting required in certain cases.— A plan satisfies the requirements of this paragraph if— “(A) in the case of a defined benefit plan, the plan requires separate accounting for the portion of each employee’s accrued benefit derived from any voluntary employee contributions permitted under the plan; and “(B) in the case of any plan which is not a defined benefit plan, the plan requires separate accounting for each employee’s accrued benefit. “(3) Year of participation.— “(A) Definition.— For purposes of determining an employee’s accrued benefit, the term ‘year of participation’ means a period of service (beginning at the earliest date on which the employee is a participant in the plan and which is included in a period of service required to be taken into account under section 410(a)(5)) as determined under regulations Ante, p. 898. prescribed by the Secretary of Labor which provide for the calculation of such period on any reasonable and consistent basis. “(B) Less than full time service.— For purposes of this paragraph, except as provided in subparagraph (C), in the case of any employee whose customary employment is less than full time, the calculation of such employee’s service on any basis which provides less than a ratable portion of the accrued benefit to which he would be entitled under the plan if his customary employment were full time shall not be treated as made on a reasonable and consistent basis. “(C) Less than 1,000 hours of service during year.— For purposes of this paragraph, in the case of any employee whose service is less than 1,000 hours during any calendar year, plan year or other 12-consecutive month period designated by the plan (and not prohibited under regulations prescribed by the Secretary of Labor) the calculation of his period of service shall not be treated as not made on a reasonable and consistent basis solely because such service is not taken into account. “(D) Seasonal industries.— 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 participation’ shall be such period as determined under regulations prescribed by the Secretary of Labor. “(E) Maritime industries.— For purposes of this subsection, in the case of any maritime industry, 125 days of service shall be treated as a year of participation. The Secretary Regulations. of Labor may prescribe regulations to carry out the purposes of this subparagraph. “(c) Allocation of Accrued Benefits Between Employer and Employee Contributions.— “(1) Accrued benefit derived from employer contributions.— For purposes of this section, an employee’s accrued benefit derived from employer contributions as of any applicable date is the excess, if any, of the accrued benefit for such employee as of such applicable date over the accrued benefit derived from contributions made by such employee as of such date. “(2) Accrued benefit derived from employee contributions.— “(A) Plans other than defined benefit plans.— In the case of a plan other than a defined benefit plan, the accrued benefit derived from contributions made by an employee as of any applicable date is— “(i) except as provided in clause (ii), the balance of the employee’s separate account consisting only of his contributions and the income, expenses, gains, and losses attributable thereto, or “(ii) if a separate account is not maintained with respect to an employee’s contributions under such a plan, the amount which bears the same ratio to his total accrued benefit as the total amount of the employee’s contributions (less withdrawals) bears to the sum of such contributions and the contributions made on his behalf by the employer (less withdrawals). “(B) Defined benefit plans.— “(i) In general.— In the case of a defined benefit plan providing an annual benefit in the form of a single life annuity (without ancillary benefits) commencing at normal retirement age, the accrued benefit derived from contributions made by an employee as of any applicable date is the annual benefit equal to the employee’s accumulated contributions multiplied by the appropriate conversion factor. “(ii) Appropriate conversion factor.— For purposes of clause (i), the term ‘appropriate conversion factor’ means the factor necessary to convert an amount equal to the accumulated contributions to a single life annuity (without ancillary benefits) commencing at normal retirement age and shall be 10 percent for a normal retirement age of 65 years. For other normal retirement ages the conversion factor shall be determined in accordance with regulations prescribed by the Secretary or his delegate. “(C) Definition of accumulated contributions.— For purposes of this subsection, the term ‘accumulated contributions’ means the total of— “(i) all mandatory contributions made by the employee, “(ii) interest (if any) under the plan to the end of the last plan year to which subsection (a)(2) does not apply (by reason of the applicable effective date), and “(iii) interest on the sum of the amounts determined under clauses (i) and (ii) compounded annually at the rate of 5 percent per annum from the beginning of the first plan year to which subsection (a)(2) applies (by reason of the applicable effective date) to the date upon which the employee would attain normal retirement age. For purposes of this subparagraph, the term ‘mandatory contributions’ “Mandatory contributions.” means amounts contributed to the plan by the employee which are required as a condition of employment, as a condition of participation in such plan, or as a condition of obtaining benefits under the plan attributable to employer contributions. “(D) Adjustments.— The Secretary or his delegate is authorized to adjust by regulation the conversion factor described in subparagraph (B), the rate of interest described in clause (iii) of subparagraph (C), or both, from time to time as he may deem necessary. The rate of interest shall bear the relationship to 5 percent which the Secretary or his delegate determines to be comparable to the relationship which the long-term money rates and investment yields for the last period of 10 calendar years ending at least 12 months before the beginning of the plan year bear to the long-term money rates and investment yields for the 10-calendar year period 1964 through 1973. No such adjustment shall be effective for a plan year beginning before the expiration of 1 year after such adjustment is determined and published. “(E) Limitation.— The accrued benefit derived from employee contributions shall not exceed the greater of— “(i) the employee’s accrued benefit under the plan, or “(ii) the accrued benefit derived from employee contributions determined as though the amounts calculated under clauses (ii) and (iii) of subparagraph (C) were zero. “(3) Actuarial adjustment.— For purposes of this section, in the case of any defined benefit plan, if an employee’s accrued benefit is to be determined as an amount other than an annual benefit commencing at normal retirement age, or if the accrued benefit derived from contributions made by an employee is to be determined with respect to a benefit other than an annual benefit in the form of a single life annuity (without ancillary benefits) commencing at normal retirement age, the employee’s accrued benefit, or the accrued benefits derived from contributions made by an employee, as the case may be, shall be the actuarial equivalent of such benefit or amount determined under paragraph (1) or (2). “(d) Special Rules.— “(1) Coordination with section 401(a)(4).— A plan which satisfies the requirements of this section shall be treated as satisfying any vesting requirements resulting from the application of section 401(a)(4) unless— Post, p. 938. “(A) there has been a pattern of abuse under the plan (such as a dismissal of employees before their accrued benefits become nonforfeitable) tending to discriminate in favor of employees who are officers, shareholders, or highly compensated, or “(B) there have been, or there is reason to believe there will be, an accrual of benefits or forfeitures tending to discriminate in favor of employees who are officers, shareholders, or highly compensated. “(2) Prohibited discrimination.— 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 or his delegate to preclude the discrimination prohibited by section 401(a)(4). Post, p. 938. “(3) Termination or partial termination; discontinuance of contributions.— Notwithstanding the provisions of subsection (a), a trust shall not constitute a qualified trust under section 401(a) unless the plan of which such trust is a part provides that— “(A) upon its termination or partial termination, or “(B) in the case of a plan to which section 412 does not Post, p. 914. apply, upon complete discontinuance of contributions under the plan, the rights of all affected employees to benefits accrued to the date of such termination, partial termination, or discontinuance, to the extent funded as of such date, or the amounts credited to the employees’ accounts, are nonforfeitable. This paragraph shall not apply to benefits or contributions which, under provisions of the plan adopted pursuant to regulations prescribed by the Secretary or his delegate to preclude the discrimination prohibited by section 401(a)(4), may not be used for designated employees in the event of early termination of the plan. “(4) Class year plans.— The requirements of subsection (a)(2) shall be deemed to be satisfied in the case of a class year plan if such plan provides that 100 percent of each employee’s right to or derived from the contributions of the employer on his behalf with respect to any plan year are nonforfeitable not later than the end of the 5th plan year following the plan year for which such contributions were made. For purposes of this section, the term ‘class year plan’ means a profit-sharing, stock bonus, or money purchase plan which provides for the separate nonforfeitability of employees’ rights to or derived from the contributions for each plan year. “(5) Treatment of voluntary employee contributions.— In the case of a defined benefit plan which permits voluntary employee contributions, the portion of an employee’s accrued benefit derived from such contributions shall be treated as an accrued benefit derived from employee contributions under a plan other than a defined benefit plan. “(6) Accrued benefit not to be decreased by amendment.— A plan shall be treated as not satisfying the requirements of this section if the accrued benefit of a participant is decreased by an amendment of the plan, other than an amendment described in section 412(c)(8). “(e) Application of Vesting Standards to Certain Plans.— “(1) The provisions of this section (other than paragraph (2)) shall not apply to— “(A) a governmental plan (within the meaning of section 414(d)), Post, p. 925. “(B) a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) Ante, p. 898. has not been made, “(C) a plan which has not, at any time after the date of the enactment of the Employee Retirement Income Security Act of 1974, provided for employer contributions, and “(D) a plan established and maintained by a society, order, or association described in section 501(c) (8) or (9), if no 26 USC 501. part of the contributions to or under such plan are made by employers of participants in such plan. “(2) A plan described in paragraph (1) shall be treated as meeting the requirements of this section, for purposes of section 401(a), if such plan meets the vesting requirements resulting from the application of sections 401(a)(4) and 401(a)(7) as in Post, p. 938. 26 USC 401. effect on the day before the date of the enactment of the Employee Retirement Income Security Act of 1974.” (b) Comparability of Plans.— Section 401(a) (relating to requirements for qualification) is amended by adding at the end of paragraph (5) the following: “For purposes of determining whether two or more plans of an employer satisfy the requirements of paragraph (4) when considered as a single plan, 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 total compensation, or the basic or regular rate of compensation, 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. For the purposes of determining whether two or more plans of an employer satisfy the requirements of paragraph (4) when considered as a single plan, 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 or his delegate to take account of the differences in such rates, the plans shall not be considered discriminatory merely because of the difference in such rates.” (c) Variations From Certain Vesting and Accrued Benefits Requirements.— In the case of any plan maintained on January 1, 1974, if, not later than 2 years after the date of the enactment of this Act, the plan administrator petitions the Secretary of Labor, the Secretary of Labor may prescribe an alternate method which shall be treated as satisfying the requirements of subsection (a)(2) of section 411 of the Internal Revenue Code of 1954, or of subsection (b)(1) Ante, p. 901. (other than subparagraph (D) thereof) of such section 411, or of both such provisions for a period of not more than 4 years. The Secretary may prescribe such alternate method only when he finds that— (1) the application of such requirements would increase the costs of the plan to such an extent that there would result a substantial risk to the voluntary continuation of the plan or a substantial curtailment of benefit levels or the levels of employees’ compensation, (2) the application of such requirements or discontinuance of the plan would be adverse to the interests of plan participants in the aggregate, and (3) a waiver or extension of time granted under section 412(d) Post, p. 914. or (e) would be inadequate. In the case of any plan with respect to which an alternate method has been prescribed under the preceding provisions of this subsection for a period of not more than 4 years, if, not later than 1 year before the expiration of such period, the plan administrator petitions the Secretary of Labor for an extension of such alternate method, and the Secretary makes the findings required by the preceding sentence, such alternate method may be extended for not more than 3 years. SEC. 1013. MINIMUM FUNDING STANDARDS. (a) In General.— Subpart B of part I of subchapter D of chapter 1 is amended by adding after section 411 the following new section: “SEC. 412. MINIMUM FUNDING STANDARDS. “(a) General Rule.— Except as provided in subsection (h), this section applies to a plan if, for any plan year beginning on or after the effective date of this section for such plan— “(1) such plan included a trust which qualified (or was determined by the Secretary or his delegate to have qualified) under section 401(a), or 26 USC 401. “(2) such plan satisfied (or was determined by the Secretary or his delegate to have satisfied) the requirements of section 403(a) or 405(a). Post, pp. 969, 991. A plan to which this section applies shall have satisfied the minimum 26 USC 405. funding standard for such plan for a plan year if as of the end of such plan year, the plan does not have an accumulated funding deficiency. For purposes of this section and section 4971, the term ‘accumulated “Accumulated funding deficiency.” Post, p. 920. funding deficiency’ means for any plan the excess of the total charges to the funding standard account for all plan years (beginning with the first plan year to which this section applies) over the total credits to such account for such years or, if less, the excess of the total charges to the alternative minimum funding standard account for such plan years over the total credits to such account for such years. “(b) Funding Standard Account.— “(1) Account required.— Each plan to which this section applies shall establish and maintain a funding standard account. Such account shall be credited and charged solely as provided in this section. “(2) Charges to account.— For a plan year, the funding standard account shall be charged with the sum of— “(A) the normal cost of the plan for the plan year, “(B) the amounts necessary to amortize in equal annual installments (until fully amortized)— “(i) in the case of a plan in existence on January 1, 1974, the unfunded past service liability under the plan on the first day of the first plan year to which this section applies, over a period of 40 plan years, “(ii) in the case of a plan which comes into existence after January 1, 1974, the unfunded past service liability under the plan on the first day of the first plan year to which this section applies, over a period of 30 plan years (40 plan years in the case of a multiemployer plan), “(iii) separately, with respect to each plan year, the net increase (if any) in unfunded past service liability under the plan arising from plan amendments adopted in such year, over a period of 30 plan years (40 plan years in the case of a multiemployer plan), “(iv) separately, with respect to each plan year, the net experience loss (if any) under the plan, over a period of 15 plan years (20 plan years in the case of a multiemployer plan), and “(v) separately, with respect to each plan year, the net loss (if any) resulting from changes in actuarial assumptions used under the plan, over a period of 30 plan years, “(C) the amount necessary to amortize each waived funding deficiency (within the meaning of subsection (d)(3)) for each prior plan year in equal annual installments (until fully amortized) over a period of 15 plan years, and “(D) the amount necessary to amortize in equal annual installments (until fully amortized) over a period of 5 plan years any amount credited to the funding standard account under paragraph (3)(D). “(3) Credits to account.— For a plan year, the funding standard account shall be credited with the sum of— “(A) the amount considered contributed by the employer to or under the plan for the plan year, “(B) the amount necessary to amortize in equal annual installments (until fully amortized)— “(i) separately, with respect to each plan year, the net decrease (if any) in unfunded past service liability under the plan arising from plan amendments adopted in such year, over a period of 30 plan years (40 plan years in the case of a multiemployer plan), “(ii) separately, with respect to each plan year, the net experience gain (if any) under the plan, over a period of 15 plan years (20 plan years in the case of a multiemployer plan), and “(iii) separately, with respect to each plan year, the net gain (if any) resulting from changes in actuarial assumptions used under the plan, over a period of 30 plan years, “(C) the amount of the waived funding deficiency (within the meaning of subsection (d)(3)) for the plan year, and “(D) in the case of a plan year for which the accumulated funding deficiency is determined under the funding standard account if such plan year follows a plan year for which such deficiency was determined under the alternative minimum funding standard, the excess (if any) of any debit balance in the funding standard account (determined without regard to this subparagraph) over any debit balance in the alternative minimum funding standard account. “(4) Combining and offsetting amounts to be amortized.— Under regulations prescribed by the Secretary or his delegate, amounts required to be amortized under paragraph (2) or paragraph (3), as the case may be— “(A) may be combined into one amount under such paragraph to be amortized over a period determined on the basis of the remaining amortization period for all items entering into such combined amount, and “(B) may be offset against amounts required to be amortized under the other such paragraph, with the resulting amount to be amortized over a period determined on the basis of the remaining amortization periods for all items entering into whichever of the two amounts being offset is the greater. “(5) Interest.— The funding standard account (and items therein) shall be charged or credited (as determined under regulations prescribed by the Secretary or his delegate) with interest at the appropriate rate consistent with the rate or rates of interest used under the plan to determine costs. “(c) Special Rules.— “(1) Determinations to be made under funding method.— For purposes of this section, normal costs, accrued liability, past service liabilities, and experience gains and losses shall be determined under the funding method used to determine costs under the plan. “(2) Valuation of assets.— “(A) In general.— For purposes of this section, the value of the plan’s assets shall be determined on the basis of any reasonable actuarial method of valuation which takes into account fair market value and which is permitted under regulations prescribed by the Secretary or his delegate. “(B) Election with respect to bonds.— The value of a bond or other evidence of indebtedness which is not in default as to principal or interest may, at the election of the plan administrator, be determined on an amortized basis running from initial cost at purchase to par value at maturity or earliest call date. Any election under this subparagraph shall be made at such time and in such manner as the Secretary or his delegate shall by regulations provide, shall apply to all such evidences of indebtedness, and may be revoked only with the consent of the Secretary or his delegate. “(3) Actuarial assumptions must be reasonable.— For purposes of this section, all costs, liabilities, rates of interest, and other factors under the plan shall be determined on the basis of actuarial assumptions and methods which, in the aggregate, are reasonable (taking into account the experience of the plan and reasonable expectations) and which, in combination, offer the actuary’s best estimate of anticipated experience under the plan. “(4) Treatment of certain changes as experience gain or loss.— For purposes of this section, if— “(A) a change in benefits under the Social Security Act 42 USC 1305. or in other retirement benefits created under Federal or State law, or “(B) a change in the definition of the term ‘wages’ under section 3121, or a change in the amount of such wages taken 26 USC 3121. 26 USC 401. into account under regulations prescribed for purposes of section 401(a)(5), results in an increase or decrease in accrued liability under a plan, such increase or decrease shall be treated as an experience loss or gain. “(5) Change in funding method or in plan year requires approval.— If the funding method for a plan is changed, the new funding method shall become the funding method used to determine costs and liabilities under the plan only if the change is approved by the Secretary or his delegate. If the plan year for a plan is changed, the new plan year shall become the plan year for the plan only if the change is approved by the Secretary or his delegate. “(6) Full funding.— If, as of the close of a plan year, a plan would (without regard to this paragraph) have an accumulated funding deficiency (determined without regard to the alternative minimum funding standard account permitted under subsection (g)) in excess of the full funding limitation— “(A) the funding standard account shall be credited with the amount of such excess, and “(B) all amounts described in paragraphs (2) (B), (C), and (D) and (3)(B) of subsection (b) which are required to be amortized shall be considered fully amortized for purposes of such paragraphs. “(7) Full funding limitation.— For purposes of paragraph (6), the term ‘full funding limitation’ means the excess (if any) of— “(A) the accrued liability (including normal cost) under the plan (determined under the entry age normal funding method if such accrued liability cannot be directly calculated under the funding method used for the plan), over “(B) the lesser of the fair market value of the plan’s assets or the value of such assets determined under paragraph (2). “(8) Certain retroactive plan amendments.— For purposes of this section, any amendment applying to a plan year which— “(A) is adopted after the close of such plan year but no later than 2 and one-half months after the close of the plan year (or, in the case of a multiemployer plan, no later than 2 years after the close of such plan year), “(B) does not reduce the accrued benefit of any participant determined as of the beginning of the first plan year to which the amendment applies, and “(C) does not reduce the accrued benefit of any participant determined as of the time of adoption except to the extent required by the circumstances, shall, at the election of the plan administrator, be deemed to have been made on the first day of such plan year. No amendment Notifiction of amendment. described in this paragraph which reduces the accrued benefits of any participant shall take effect unless the plan administrator files a notice with the Secretary of Labor notifying him of such amendment and the Secretary of Labor has approved such amendment, or within 90 days after the date on which such notice was filed, failed to disapprove such amendment. No Approval. amendment described in this subsection shall be approved by the Secretary of Labor unless he determines that such amendment is necessary because of a substantial business hardship (as determined under subsection (d)(2)) and that a waiver under subsection (d)(1) is unavailable or inadequate. “(9) 3-year valuation.— For purposes of this section, a determination of experience gains and losses and a valuation of the plan’s liability shall be made not less frequently than once every 3 years, except that such determination shall be made more frequently to the extent required in particular cases under regulations prescribed by the Secretary or his delegate. “(10) Time when certain contributions deemed made.— For purposes of this section, any contributions for a plan year made by an employer after the last day of such plan year, but not later than two and one-half months after such day, shall be deemed to have been made on such last day. For purposes of this paragraph, such two and one-half month period may be extended for not more than six months under regulations prescribed by the Secretary or his delegate. “(d) Variance From Minimum Funding Standard.— “(1) Waiver in case of substantial business hardship.— If an employer or in the case of a multiemployer plan, 10 percent or more of the number of employers contributing to or under the plan, are unable to satisfy the minimum funding standard for a plan year without substantial business hardship and if application of the standard would be adverse to the interests of plan participants in the aggregate, the Secretary or his delegate may waive the requirements of subsection (a) for such year with respect to all or any portion of the minimum funding standard other than the portion thereof determined under subsection (b)(2)(C). The Secretary or his delegate shall not waive the mini-mum funding standard with respect to a plan for more than 5 of any 15 consecutive plan years. “(2) Determination of substantial business hardship.— For purposes of this section, the factors taken into account in determining substantial business hardship shall include (but shall not be limited to) whether or not— “(A) the employer is operating at an economic loss, “(B) there is substantial unemployment or underemployment in the trade or business and in the industry concerned, “(C) the sales and profits of the industry concerned are depressed or declining, and “(D) it is reasonable to expect that the plan will be continued only if the waiver is granted. “(3) Waived funding deficiency.— For purposes of this section, the term ‘waived funding deficiency’ means the portion of the minimum funding standard (determined without regard to subsection (b)(3)(C)) for a plan year waived by the Secretary or his delegate and not satisfied by employer contributions. “(e) Extension of Amortization Periods.— The period of years required to amortize any unfunded liability (described in any clause of subsection (b)(2)(B)) of any plan may be extended by the Secretary of Labor for a period of time (not in excess of 10 years) if he determines that such extension would carry out the purposes of the Employee Retirement Income Security Act of 1974 and would provide Ante, p. 829. adequate protection for participants under the plan and their beneficiaries and if he determines that the failure to permit such extension would— “(1) result in— “(A) a substantial risk to the voluntary continuation of the plan, or “(B) a substantial curtailment of pension benefit levels or employee compensation, and “(2) be adverse to the interests of plan participants in the aggregate. “(f) Benefits May Not Be Increased During Waiver or Extension Period.— “(1) In general.— No amendment of the plan which increases the liabilities of the plan by reason of any increase in benefits, any change in the accrual of benefits, or any change in the rate at which benefits become nonforfeitable under the plan shall be adopted if a waiver under subsection (d)(1) or an extension of time under subsection (e) is in effect with respect to the plan, or if a plan amendment described in subsection (c)(8) has been made at any time in the preceding 12 months (24 months for multiemployer plans). If a plan is amended in violation of the preceding sentence, any such waiver or extension of time shall not apply to any plan year ending on or after the date on which such amendment is adopted. “(2) Exception.— Paragraph (1) shall not apply to any plan amendment which— “(A) the Secretary of Labor determines to be reasonable and which provides for only de minimis increases in the liabilities of the plan, “(B) only repeals an amendment described in subsection (c)(8), or “(C) is required as a condition of qualification under this part. “(g) Alternative Minimum Funding Standard.— “(1) In general.— A plan which uses a funding method that requires contributions in all years not less than those required under the entry age normal funding method may maintain an alternative minimum funding standard account for any plan year. Such account shall be credited and charged solely as provided in this subsection. “(2) Charges and credits to account.— For a plan year the alternative minimum funding standard account shall be— “(A) charged with the sum of— “(i) the lesser of normal cost under the funding method used under the plan or normal cost determined under the unit credit method, “(ii) the excess, if any, of the present value of accrued benefits under the plan over the fair market value of the assets, and “(iii) an amount equal to the excess (if any) of credits to the alternative minimum standard account for all prior plan years over charges to such account for all such years, and “(B) credited with the amount considered contributed by the employer to or under the plan for the plan year. “(3) Special rules.— The alternative minimum funding standard account (and items therein) shall be charged or credited with interest in the manner provided under subsection (b)(5) with respect to the funding standard account. “(h) Exceptions.— This section shall not apply to— “(1) any profit-sharing or stock bonus plan, “(2) any insurance contract plan described in subsection (i), “(3) any governmental plan (within the meaning of section 414(d)), Post, p. 925. “(4) any church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) Ante, p. 898. has not been made, “(5) any plan which has not, at any time after the date of the enactment of the Employee Retirement Income Security Act of 1974, provided for employer contributions, or Ante, p. 829. “(6) any plan established and maintained by a society, order, or association described in section 501(c) (8) or (9), if no part of 26 USC 501. the contributions to or under such plan are made by employers of participants in such plan. No plan described in paragraph (3), (4), or (6) shall be treated as a qualified plan for purposes of section 401(a) unless such plan meets 26 USC 401. the requirements of section 401(a)(7) as in effect on the day before the date of the enactment of the Employee Retirement Income Security Act of 1974. “(i) Certain Insurance Contract Plans.— A plan is described in this subsection if— “(1) the plan is funded exclusively by the purchase of individual insurance contracts. “(2) such contracts provide for level annual premium payments to be paid extending not later than the retirement age for each individual participating in the plan, and commencing with the date the individual became a participant in the plan (or, in the case of an increase in benefits, commencing at the time such increase becomes effective), “(3) benefits provided by the plan are equal to the benefits provided under each contract at normal retirement age under the plan and are guaranteed by an insurance carrier (licensed under the laws of a State to do business with the plan) to the extent premiums have been paid, “(4) premiums payable for the plan year, and all prior plan years, under such contracts have been paid before lapse or there is reinstatement of the policy, “(5) no rights under such contracts have been subject to a security interest at any time during the plan year, and “(6) no policy loans are outstanding at any time during the plan year. A plan funded exclusively by the purchase of group insurance contracts which is determined under regulations prescribed by the Secretary or his delegate to have the same characteristics as contracts described in the preceding sentence shall be treated as a plan described in this subsection.” (b) Excise Tax on Failure To Meet Minimum Funding Standards.— Subtitle D (relating to miscellaneous excise taxes) is amended by adding at the end thereof the following new chapter: “Chapter 43— Qualified Pension, Etc., Plans “Sec. 4971. Taxes on failure to meet minimum funding standards. “SEC. 4971. TAXES ON FAILURE TO MEET MINIMUM FUNDING STANDARDS. “(a) Initial Tax.— For each taxable year of an employer who maintains a plan to which section 412 applies, there is hereby imposed Ante, p. 914. a tax of 5 percent on the amount of the accumulated funding deficiency under the plan, determined as of the end of the plan year ending with or within such taxable year. The tax imposed by this subsection shall be paid by the employer responsible for contributing to or under the plan the amount described in section 412(b)(3)(A). “(b) Additional Tax.— In any case in which an initial tax is imposed by subsection (a) on an accumulated funding deficiency and such accumulated funding deficiency is not corrected within the correction period, there is hereby imposed a tax equal to 100 percent of such accumulated funding deficiency to the extent not corrected. The tax imposed by this subsection shall be paid by the employer described in subsection (a). “(c) Definitions.— For purposes of this section— “(1) Accumulated funding deficiency.— The term ‘accumulated funding deficiency’ has the meaning given to such term by section 412(a). “(2) Correct.— The term ‘correct’ means, with respect to an accumulated funding deficiency, the contribution, to or under the plan, of the amount necessary to reduce such accumulated funding deficiency as of the end of a plan year to zero. “(3) Correction period.— The term ‘correction period’ means, with respect to an accumulated funding deficiency, the period beginning with the end of a plan year in which there is an accumulated funding deficiency and ending 90 days after the date of mailing of a notice of deficiency under section 6212 with respect to the 26 USC 6212. tax imposed by subsection (b),extended— “(A) by any period in which a deficiency cannot be assessed undersection 6213(a), and 26 USC 6213. “(B) by any other period which the Secretary or his delegate determines is reasonable and necessary to permit a reduction of the accumulated funding deficiency to zero under this section. “(d) Notification of Secretary of Labor.— Before issuing a notice of deficiency with respect to the tax imposed by subsection (a) or (b), the Secretary or his delegate shall notify the Secretary of Labor and provide him a reasonable opportunity (but not more than 60 days)— “(1) to require the employer responsible for contributing to or under the plan to eliminate the accumulated funding deficiency, or “(2) to comment on the imposition of such tax, and “(e) Cross References.— “For disallowance of deduction for taxes paid under this section, see section 275. “For liability for tax in case of an employer party to collective bargaining agreement, see section 413(b)(6). “For provisions concerning notification of Secretary of Labor of imposition of tax under this section, waiver of the tax imposed by subsection (b), and other coordination between Secretary of the Treasury and Secretary of Labor with respect to compliance with this section, see section 3002(b) of title III of the Employee Retirement Income Security Act of 1974.”. (c) Amendments to Section 404.— (1) Paragraph (1) of section 404(a) (relating to deduction for 26 USC 404. employer contributions to pension trusts) is amended to read as follows: “(1) Pension trusts. “(A) In general.— In the taxable year when paid, if the contributions are paid into a pension trust, and if such taxable year ends within or with a taxable year of the trust for which the trust is exempt under section 501(a), in an 26 USC 501. amount determined as follows: “(i) the amount necessary to satisfy the minimum funding standard provided by section 412(a) for plan Ante, p. 914. years ending within or with such taxable year (or for any prior plan year), if such amount is greater than the amount determined under clause (ii) or (iii) (whichever is applicable with respect to the plan), “(ii) the amount necessary to provide with respect to all of the employees under the trust the remaining unfunded cost of their past and current service credits distributed as a level amount, or a level percentage of compensation, over the remaining future service of each such employee, as determined under regulations prescribed by the Secretary or his delegate, but if such remaining unfunded cost with respect to any 3 individuals is more than 50 percent of such remaining unfunded cost, the amount of such unfunded cost attributable to such individuals shall be distributed over a period of at least 5 taxable years. “(iii) an amount equal to the normal cost of the plan, as determined under regulations prescribed by the Secretary or his delegate, plus, if past service or other supplementary pension or annuity credits are provided by the plan, an amount necessary to amortize such credits in equal annual payments (until fully amortized) over 10 years, as determined under regulations prescribed by the Secretary or his delegate. In determining the amount deductible in such year under the foregoing limitations the funding method and the actuarial assumptions used shall be those used for such year under section 412, and the maximum amount deductible for such Ante, p. 914. year shall be an amount equal to the full funding limitation for such year determined under section 412. “(B) Special rule in case of certain amendments.— In the case of a plan which the Secretary of Labor finds to be collectively bargained which makes an election under this subparagraph (in such manner and at such time as may be provided under regulations prescribed by the Secretary or his delegate), if the full funding limitation determined under section 412(c)(7) for such year is zero, if as a result of any plan amendment applying to such plan year, the amount determined under section 412(c)(7)(B) exceeds the amount determined under section 412(c)(7)(A), and if the funding method and the actuarial assumptions used are those used for such year under section 412, the maximum amount deductible in such year under the limitations of this paragraph shall be an amount equal to the lesser of— “(i) the full funding limitation for such year determined by applying section 412(c)(7) but increasing the amount referred to in subparagraph (A) thereof by the decrease in the present value of all unamortized liabilities resulting from such amendment, or “(ii) the normal cost under the plan reduced by the amount necessary to amortize in equal annual installments over 10 years (until fully amortized) the decrease described in clause (i). In the case of any election under this subparagraph, the amount deductible under the limitations of this paragraph with respect to any of the plan years following the plan year for which such election was made shall be determined as provided under such regulations as may be prescribed by the Secretary or his delegate to carry out the purposes of this subparagraph. “(C) Certain collectively-bargained plans.— In the case of a plan which the Secretary of Labor finds to be collectively bargained, established or maintained by an employer doing business in not less than 40 States and engaged in the trade or business of furnishing or selling services described in section 167(1)(3)(A)(iii), with respect to which the rates have 26 USC 167. been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof, and in the case of any employer which is a member of a controlled group with such employer, subparagraph (B) shall be applied by substituting for the words ‘plan amendment’ the words ‘plan amendment or increase in benefits payable under title II of the Social Security Act’. For purposes 42 USC 401. “Controlled group.” 26 USC 1563. of this subparagraph, the term ‘controlled group’ has the meaning provided by section 1563(a), determined without regard to section 1563(a)(4) and (e)(3)(C). “(D) Carryover.— Any amount paid in a taxable year in excess of the amount deductible in such year under the foregoing limitations shall be deductible in the succeeding taxable years in order of time to the extent of the difference between the amount paid and deductible in each such succeeding year and the maximum amount deductible for such year under the foregoing limitations.” (2) Paragraph (6) of section 404(a) (relating to taxpayers 26 USC 404. on accrual basis) is amended to read as follows: “(6) Time when contributions deemed made.— For purposes of paragraphs (1), (2), and (3), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is 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 (including extensions thereof).” (3) Paragraph (7) of section 404(a) (relating to limit on deductions) is amended to read as follows: “(7) Limit on deductions.— If amounts are deductible under paragraphs (1) and (3), or (2) and (3), or (1), (2), and (3), in connection with two or more trusts, or one or more trusts and an annuity plan, the total amount deductible in a taxable year under such trusts and plans shall not exceed the greater of 25 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries of the trusts or plans, or the amount of contributions made to or under the trusts or plans to the extent such contributions do not exceed the amount of employer contributions necessary to satisfy the minimum funding standard provided by section 412 for the plan year which ends with or Ante, p. 914. within such taxable year (or for any prior plan year). In addition, any amount paid into such trust or under such annuity plans in any taxable year in excess of the amount allowable with respect to such year under the preceding provisions of this paragraph shall be deductible in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any one such succeeding taxable year together with the amount allowable under the first sentence of this paragraph shall not exceed 25 percent of the compensation otherwise paid or accrued during such taxable years to the beneficiaries under the trusts or plans. This paragraph shall not have the effect of reducing the amount otherwise deductible under paragraphs (1), (2), and (3), if no employee is a beneficiary under more than one trust or a trust and an annuity plan.” (d) Alternative Amortization Method for Certain Multiemployer Plans.— (1) General rule.— In the case of any multiemployer plan (as defined in section 414(f) of the Internal Revenue Code of 1954) Post, p. 925. to which section 412 of such Code applies, if— (A) on January 1, 1974, the contributions under the plan were based on a percentage of pay, (B) the actuarial assumptions with respect to pay are reasonably related to past and projected experience, and (C) the rates of interest under the plan are determined on the basis of reasonable actuarial assumptions, the plan may elect (in such manner and at such time as may be provided under regulations prescribed by the Secretary of the Treasury or his delegate) to fund the unfunded past service liability under the plan existing as of the date 12 months following the first date on which such section 412 first applies to the plan by charging the funding standard account with an equal annual percentage of the aggregate pay of all participants in the plan in lieu of the level dollar charges to such account required under clauses (i), (ii), and (iii) of section 412(b)(2)(B) of such Code and section 302(b)(2)(B)(i), (ii), and (iii) of this Act. (2) Limitation.— In the case of a plan which makes an election under paragraph (1), the aggregate of the charges required under such paragraph for a plan year shall not be less than the interest on the unfunded past service liabilities described in clauses (i), (ii), and (iii) of section 412(b)(2)(B) of the Internal Revenue Ante, p. 914. Code of 1954. SEC. 1014. COLLECTIVELY BARGAINED PLANS, ETC. Subpart B of part I of subchapter D of chapter 1 (relating to special rules) is amended by inserting after section 412 the following new section: “SEC. 413. COLLECTIVELY BARGAINED PLANS, ETC. “(a) Application of Subsection (b).— Subsection (b) applies to— “(1) a plan maintained pursuant to an agreement which the Secretary of Labor finds to be a collective-bargaining agreement between employee representatives and one or more employers, and “(2) each trust which is a part of such plan. “(b) General Rule.— If this subsection applies to a plan, notwithstanding any other provision of this title— “(1) Participation.— Section 410 shall be applied as if all Ante, p. 898. employees of each of the employers who are parties to the collective-bargaining agreement and who are subject to the same benefit computation formula under the plan were employed by a single employer. “(2) Discrimination, etc.— Sections 401(a)(4) and 411(d)(3) Post, p. 938; Ante, p. 901. shall be applied as if all participants who are subject to the same benefit computation formula and who are employed by employers who are parties to the collective bargaining agreement were employed by a single employer. “(3) Exclusive benefit.— For purposes of section 401(a), in determining whether the plan of an employer is for the exclusive benefit of his employees and their beneficiaries, all plan participants shall be considered to be his employees. “(4) Vesting.— Section 411 (other than subsection (d)(3)) shall be applied as if all employers who have been parties to the collective-bargaining agreement constituted a single employer, except that the application of any rules with respect to breaks in service shall be made under regulations prescribed by the Secretary of Labor. “(5) Funding.— The minimum funding standard provided by section 412 shall be determined as if all participants in the plan were employed by a single employer. “(6) Liability for funding tax.— For a plan year the liability Ante, p. 920. under section 4971 of each employer who is a party to the collective bargaining agreement shall be determined in a reasonable manner not inconsistent with regulations prescribed by the Secretary or his delegate— “(A) first on the basis of their respective delinquencies in meeting required employer contributions under the plan, and “(B) then on the basis of their respective liabilities for contributions under the plan. “(7) Deduction limitations.— Each applicable limitation provided 26 USC 404. by section 404(a) shall be determined as if all participants in the plan were employed by a single employer. The amounts contributed to or under the plan by each employer who is a party to the agreement, for the portion of his taxable year which is included within such a plan year, shall be considered not to exceed such a limitation if the anticipated employer contributions for such plan year (determined in a manner consistent with the manner in which actual employer contributions for such plan year are determined) do not exceed such limitation. If such anticipated contributions exceed such a limitation, the portion of each such employer’s contributions which is not deductible under section 404 shall be determined in accordance with regulations prescribed by the Secretary or his delegate. “(8) Employees of labor unions.— For purposes of this subsection, employees of employee representatives shall be treated as employees of an employer described in subsection (a)(1) if such representatives meet the requirements of sections 401(a)(4) and 410 with respect to such employees. Post, p. 938; Ante, p. 898. “(c) Plans Maintained by More Than One Employer.— In the case of a plan maintained by more than one employer— “(1) Participation.— Section 410(a) shall be applied as if all employees of each of the employers who maintain the plan were employed by a single employer. “(2) Exclusive benefit.— For purposes of section 401(a), in determining whether the plan of an employer is for the exclusive benefit of his employees and their beneficiaries all plan participants shall be considered to be his employees. “(3) Vesting.— Section 411 shall be applied as if all employers Ante, p. 901. who maintain the plan constituted a single employer, except that the application of any rules with respect to breaks in service shall be made under regulations prescribed by the Secretary of Labor. “(4) Funding.— The minimum funding standard provided by section 412 shall be determined as if all participants in the plan Ante, p. 914. were employed by a single employer. “(5) Liability for funding tax.— For a plan year the liability under section 4971 of each employer who maintains the plan shall Ante, p. 920. be determined in a reasonable manner not inconsistent with regulations prescribed by the Secretary or his delegate— “(A) first on the basis of their respective delinquencies in meeting required employer contributions under the plan, and “(B) then on the basis of their respective liabilities for contributions under the plan. “(6) Deduction limitations.— Each applicable limitation provided by section 404(a) shall be determined as if all participants in the plan were employed by a single employer. The amounts contributed to or under the plan by each employer who maintains the plan, for the portion of this taxable year which is included within such a plan year, shall be considered not to exceed such a limitation if the anticipated employer contributions for such plan year (determined in a reasonable manner not inconsistent with regulations prescribed by the Secretary or his delegate) do not exceed such limitation. If such anticipated contributions exceed such a limitation, the portion of each such employer’s contributions which is not deductible under section 404 shall be determined in accordance with regulations prescribed by the Secretary or his delegate. Allocations of amounts under paragraphs (4), (5), and (6), among the employers maintaining the plan, shall not be inconsistent with regulations prescribed for this purpose by the Secretary or his delegate.” SEC. 1015. DEFINITIONS AND SPECIAL RULES. Subpart B of part I of subchapter D of chapter 1 is amended by inserting after section 413 the following new section: “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 or his delegate, be treated as service for the employer. “(b) Employees of Controlled Group of Corporations.— For purposes of sections 401, 410, 411, and 415, all employees of all corporations 26 USC 401. Ante, pp. 898, 901; Post, p. 979. 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 26 USC 1563. by a single employer. With respect to a plan adopted by more than one such corporation, the minimum funding standard of section 412, the tax imposed by section 4971, and the applicable limitations provided Ante, p. 920. 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 or his delegate. “(c) Employees of Partnerships, Proprietorships, Etc., Which Are Under Common Control.— For purposes of sections 401, 410, 411, and 415, under regulations prescribed by the Secretary or his delegate, 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). “(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 45 USC 215–228 notes, 228a. 22 USC 288 note. 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). “(e) Church Plan.— “(1) In general.— For purposes of this part the term ‘church plan’ means— “(A) a plan established and maintained for its employees by a church or by a convention or association of churches which is exempt from tax under section 501, or 26 USC 501. “(B) a plan described in paragraph (3). “(2) Certain unrelated business or multiemployer plans.— 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) which is a plan maintained by more than one employer, if one or more of the employers in the plan is not a church (or a convention or association of churches) which is exempt from tax under section 501. “(3) Special temporary rule for certain church agencies under church plan.— “(A) Notwithstanding the provisions of paragraph (2)(B), a plan in existence on January 1, 1974, shall be treated as a church plan if it is established and maintained by a church or convention or association of churches and one or more agencies of such church (or convention or association) for the employees of such church (or convention or association) and the employees of one or more agencies of such church (or convention or association), and if such church (or convention or association) and each such agency is exempt from tax under section 501. 26 USC 501. “(B) Subparagraph (A) shall not apply to any plan maintained for employees of an agency with respect to which the plan was not maintained on January 1, 1974. “(C) Subparagraph (A) shall not apply with respect to any plan for any plan year beginning after December 31, 1982. “(f) Multiemployer Plan.— “(1) In general.— 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 a collective-bargaining agreement between employee representatives and more than one employer, “(C) under which the amount of contributions made under the plan for a plan year by each employer making such contributions is less than 50 percent of the aggregate amount of contributions made under the plan for that plan year by all employers making such contributions, “(D) under which benefits are payable with respect to each participant without regard to the cessation of contributions by the employer who employed that participant except to the extent that such benefits accrued as a result of service with the employer before such employer was required to contribute to such plan, and “(E) which satisfies such other requirements as the Secretary of Labor may by regulations prescribe. “(2) Special rules.— For purposes of this subsection— “(A) If a plan is a multiemployer plan within the meaning of paragraph (1) for any plan year, subparagraph (C) of paragraph (1) shall be applied by substituting ‘75 percent’ for ‘50 percent’ for each subsequent plan year until the first plan year following a plan year in which the plan had one employer who made contributions of 75 percent or more of the aggregate amount of contributions made under the plan for that plan year by all employers making such contributions. “(B) All corporations which are members of a controlled group of corporations (within the meaning of section 1563 26 USC 1563. (a), determined without regard to section 1563(e)(3)(C)) shall be deemed to be one employer. “(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 or his delegate 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 26 USC 401. “(B) under a plan described in section 403(a) or 405(a), 26 USC 403, 405. 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, 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 Ante, p. 898. standards), be treated as a defined contribution plan, “(2) for purposes of sections 411(a)(7)(A) (relating to minimum Ante, p. 901. Post, p. 979. vesting standards) and 415 (relating to limitations on benefits and contributions under qualified plans), 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 Post, p. 971. transactions), be treated as a defined benefit plan. “(l) Mergers and Consolidations of Plans or Transfers of Plan Assets.— 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) or 405 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 the date of the enactment of the Employee Retirement Income Security Act of 1974, each participant in the plan would (if the plan then terminated) Ante, p. 829. 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). This paragraph shall apply in the case of a multiemployer plan only to the extent determined by the Pension Benefit Guaranty Corporation.” SEC. 1016. CONFORMING AND CLERICAL AMENDMENTS. (a) Conforming Amendments.— (1) Section 275(a) (relating to denial of deduction for certain 26 USC 275. taxes) is amended by adding at the end thereof the following new paragraph: “(6) Taxes imposed by chapter 42 and chapter 43.” 26 USC 4940. Ante, p. 920. (2) Section 401(a) (relating to requirements for qualification) 26 USC 401. is amended— (A) by striking out paragraph (3) and inserting in lieu thereof: “(3) if the plan of which such trust is a part satisfies the requirements of section 410 (relating to minimum participation Ante, p. 898. standards); and”, (B) by striking out “paragraph (3)(B) or (4)” in paragraph (5) and inserting in lieu thereof “paragraph (4) or section 410(b) (without regard to paragraph (1)(A) thereof),” and (C) by striking out paragraph (7) and inserting in lieu thereof: “(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 Ante, p. 901. standards).” (3) Section 404(a)(2) (relating to deduction for contributions 26 USC 404. of an employer to an employee’s annuity plan) is amended by striking out “and (8),” and inserting in lieu thereof “(8), (11), (12), (13), (14), and (15)”. (4) Section 406(b)(1) (relating to certain employees of foreign 26 USC 406. subsidiaries) is amended by striking out “paragraphs (3)(B) and (4) of section 401(a)” and inserting in lieu thereof “section 401(a)(4) and section 410(b) (without regard to paragraph (1)(A) thereof)”. (5) Section 407(b)(1) (relating to certain employees of 26 USC 407. domestic subsidiaries engaged in business outside the United States) is amended by striking out “paragraph (3)(B) and (4) of section 401(a)” and inserting in lieu thereof “section 401(a)(4) and section 410(b) (without regard to paragraph (1)(A) thereof)”. (6) Section 805(d)(1)(C) (relating to definition of pension 26 USC 805. plan reserves) is amended by striking out “and (8)” and inserting in lieu thereof “(8), (11), (12), (13), (14), and (15)”. (7) Section 6161(b)(1) (relating to extensions of time for paying 26 USC 6161. tax) is amended by striking out “or 42” and inserting in lieu thereof “42 or 43”. The second sentence of section 6161(b) is amended by striking out “or 42” and inserting in lieu thereof “42, or chapter 43”. (8) Section 6201(d) (relating to assessment authority) is 26 USC 6201. amended by striking out “and chapter 42” and inserting in lieu thereof “, chapter 42, and chapter 43”. (9) Section 6211 (defining deficiency) is amended— 26 USC 6211. (A) by striking out so much of subsection (a) as precedes paragraph (1) thereof and inserting in lieu thereof the following: “(a) In General.— For purposes of this title in the case of income, estate, and gift taxes imposed by subtitles A and B and excise taxes 26 USC 1, 2001. imposed by chapters 42 and 43, the term ‘deficiency’ means the amount by which the tax imposed by subtitle A or B, or chapter 42 or 43, exceeds the excess of—”; and (B) by striking out “chapter 42” in subsection (b)(2) and inserting in lieu thereof “chapter 42 or 43”. (10) Section 6212 (relating to notice of deficiency) is amended— 26 USC 6212. (A) by striking out “chapter 42” in subsection (a) and inserting in lieu thereof “chapter 42 or 43”, (B) by striking out “or chapter 42” in subsection (b)(1) and inserting in lieu thereof “chapter 42, or chapter 43”, (C) by striking out “chapter 42, and this chapter” in subsection (b)(1) and inserting in lieu thereof “chapter 42, chapter 43, and this chapter”, and (D) by striking out “of the same decedent,” in subsection (c) and inserting in lieu thereof “of the same decedent, of chapter 43 tax for the same taxable years,”. (11) Section 6213 (relating to restrictions applicable to deficiencies and petition to Tax Court) is amended— (A) by striking out “or chapter 42” in subsection (a) and inserting in lieu thereof “, chapter 42 or 43”, (B) by striking out the heading of subsection (e) and inserting in lieu thereof: “(e) Suspension or Filing Period for Certain Excise Taxes.—”, (C) by striking out “or 4945 (relating to taxes on taxable expenditures)” in subsection (e) and inserting in lieu thereof “4945 (relating to taxes on taxable expenditures), 4971 Ante, p. 920. (relating to excise taxes on failure to meet minimum funding standard), 4975 (relating to excise taxes on prohibited transactions)”; and (D) by striking out “or 4945(h)(2)” in subsection (e) and inserting in lieu thereof “, 4945(i)(2), 4971(c)(3), or 4975(f)(4),”. (12) Section 6214 (relating to determinations by Tax Court) is amended— (A) by amending the heading of subsection (c) to read as follows: “(c) Taxes Imposed by Section 507 or Chapter 42 or 43.—”, (B) by inserting after “chapter 42” each place it appears in subsection (c) “or 43”; and (C) by striking out “chapter 42” in subsection (d) and inserting in lieu thereof “chapter 42 or 43”. (13) Section 6344(a)(1) (relating to cross references) is 26 USC 6344. amended by striking out “chapter 42” and inserting in lieu thereof “chapter 42 or 43”. (14) Section 6501(e)(3) (relating to limitations on assessment 26 USC 6501. and collection) is amended by striking out “chapter 42” and inserting in lieu thereof “chapter 42 or 43”. (15) Section 6503 (relating to suspension of running of period 26 USC 6503. of limitations) is amended— (A) by striking out “chapter 42 taxes)” in subsection (a)(1) and inserting in lieu thereof “certain excise taxes)”, and (B) by inserting after “section 507” in subsection (h) “or section 4971 or section 4975”, and by striking out “or 4945(h)(2)” in subsection (h) and inserting in lieu thereof “4945(i)(2), 4971(c)(3), or 4975(f)(4)”. (16) Section 6512 (relating to limitations in case of petition to 26 USC 6512. Tax Court) is amended by striking out “chapter 42” each place it appears therein and inserting in lieu thereof “chapter 42 or 43”. (17) Section 6601(d) (relating to interest on underpayment, 26 USC 6601. nonpayment, or extensions of time for payment of tax) is amended by— (A) striking out in the heading thereof “Chapter 42” and inserting in lieu thereof “Chapter 42 or 43”, and 26 USC 4940. Ante, p. 920. (B) striking out “chapter 42” and inserting in lieu thereof “certain excise”. (18) Section 6653(c)(1) (relating to income, estate, gift, and 26 USC 6653. chapter 42 taxes) is amended by striking out “chapter 42” each place it appears therein (including the heading) and inserting in lieu thereof “certain excise”. (19) Section 6659(b) (relating to applicable rules) is amended 26 USC 6659. by striking out “chapter 42” and inserting in lieu thereof “certain excise”. (20) Section 6676(b) (relating to failure to supply identifying 26 USC 6676. numbers) is amended by striking out “chapter 42” and inserting in lieu thereof “and certain excise”. (21) Section 6677(b) (relating to failure to file information 26 USC 6677. returns with respect to certain foreign trusts) is amended by striking out “chapter 42” and inserting in lieu thereof “and certain excise”. (22) Section 6679(b) (relating to failure to file returns as to 26 USC 6679. organization or reorganization of foreign corporations and as to acquisitions of their stock) is amended by striking out “chapter 42” and inserting in lieu thereof “and certain excise”. (23) Section 6682(b) (relating to false information with 26 USC 6682. respect to withholding allowances based on itemized deductions) is amended by striking out “chapter 42” and inserting in lieu thereof “and certain excise”. (24) The heading of section 6861 (relating to jeopardy assessments 26 USC 6861. of income, estate, and gift taxes) is amended by striking out “and gift taxes.”, and inserting in lieu thereof “, gift, and certain excise taxes.”. (25) Section 6862 (relating to jeopardy assessment of taxes 26 USC 6862. other than income, estate, and gift taxes) is amended— (A) by striking out “and Gift Taxes.”, in the heading and inserting in lieu thereof “, Gift, and Certain Excise Taxes.”, (B) by striking out “and gift tax)” in subsection (a) and inserting in lieu thereof “gift tax, and certain excise taxes)”. (26) Section 7422 (relating to civil actions for refund) is 26 USC 7422. amended— (A) by striking out “chapter 42” and inserting in lieu thereof “chapter 42 or 43” in subsection (e), (B) by striking out “Chapter 42” in the heading of subsection (g) and inserting in lieu thereof “Chapter 42 or 43”. (C) by striking out “or 4945” in subsection (g)(1) and inserting in lieu thereof “4945, 4971, or 4975”, 26 USC 4945. Ante, p. 920; Post, p. 971. (D) by striking out “section 4945(a) (relating to initial taxes on taxable expenditures)” in subsection (g)(1) and inserting in lieu thereof “section 4945(a) (relating to initial taxes on taxable expenditures), 4971(a) (relating to initial tax on failure to meet minimum funding standard), 4975(a) (relating to initial tax on prohibited transactions)”, (E) by striking out “or section 4945(b) (relating to additional taxes on taxable expenditures)” in subsection (g)(1) and inserting in lieu thereof “section 4945(b) (relating to additional taxes on taxable expenditures), section 4971(b) (relating to additional tax on failure to meet minimum fund-ing standard), or section 4975(b) (relating to additional tax on prohibited transactions)”, and (F) by striking out “or 4945” in paragraphs (2) and (3) of subsection (g) and inserting in lieu thereof “4945, 4971, or 4975”. 26 USC 4945. Ante, p. 920; Post, p. 971. (27) Section 6204(b) (relating to supplemental assessments) is amended by striking out “and gift taxes” and inserting in lieu 26 USC 6204. thereof “gift, and certain excise taxes”. (b) Clerical Amendments.— (1) Part I of subchapter D of chapter 1 is amended by inserting after the heading and before the table of sections the following: “Subpart A. General rule. “Subpart B. Special rules. “Subpart A— General Rule”. (2) The table of chapters for subtitle D is amended by adding at the end thereof the following new item: “Chapter 43. Qualified pension, etc., plans.” (3) The table of sections for subchapter B of chapter 68 is amended by striking out the item relating to the section captioned “Assessable penalties with respect to information required to be furnished under section 7654” and inserting in lieu thereof: “Sec. 6688. Assessable penalties with respect to information required to be furnished under section 7654.” (4) Subchapter B of chapter 68 is amended by striking out the heading of the section immediately preceding section 6689 and inserting in lieu thereof: “SEC. 6688. ASSESSABLE PENALTIES WITH RESPECT TO INFORMATION REQUIRED TO BE FURNISHED UNDER SECTION 7654.” (5) The table of sections for part II of subchapter A of chapter 70 is amended by striking out “and gift taxes” in the items relating to sections 6861 and 6862 and inserting in lieu thereof 26 USC 6861, 6862. “gift, and certain excise taxes”. SEC. 1017. EFFECTIVE DATES AND TRANSITIONAL RULES. (a) General Rule.— Except as otherwise provided in this section, the amendments made by this part shall apply for plan years beginning after the date of the enactment of this Act. (b) Existing Plans.— Except as otherwise provided in subsections (c) through (h), in the case of a plan in existence on January 1, 1974, the amendments made by this part shall apply for plan years beginning after December 31, 1975. (c) Existing Plans Under Collective Bargaining Agreements.— (1) Application of vesting rules to certain plan provisions.— (A) Waiver of application.— In the case of a plan maintained on January 1, 1974, pursuant to one or more agreements which the Secretary of Labor finds to be collective bargaining agreements between employee representatives and one or more employers, during the special temporary waiver period the plan shall not be treated as not meeting the requirements of section 411(b)(1) or (2) of the Internal Revenue Code of 1954 solely by reason of a supplementary or special plan Ante, p. 901. provision (within the meaning of subparagraph (D)). (B) Special temporary waiver period.— For purposes of this paragraph, the term ‘special temporary waiver period’ means plan years beginning after December 31, 1975, and before the earlier of— (i) the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after the date of the enactment of this Act), or (ii) January 1, 1981. For purposes of clause (i), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement contained in this Act shall not be treated as a termination of such collective bargaining agreement. (C) Determination by secretary of labor required.— Subparagraph (A) shall not apply unless the Secretary of Labor determines that the participation and vesting rules in effect on the date of the enactment of this Act are not less favorable to the employees, in the aggregate, than the rules provided under sections 410 and 411 of the Internal Revenue Code of 1954. Ante, pp. 898, 901. (D) Supplementary or special plan provisions.— For purposes of this paragraph, the term “supplementary or special plan provision” means any plan provision which— (i) provides supplementary benefits, not in excess of one-third of the basic benefit, in the form of an annuity for the life of the participant, or (ii) provides that, under a contractual agreement based on medical evidence as to the effects of working in an adverse environment for an extended period of time, a participant having 25 years of service is to be treated as having 30 years of service. (2) Application of funding rules.— (A) In general.— In the case of a plan maintained on January 1, 1974, pursuant to one or more agreements which the Secretary of Labor finds to be collective bargaining agreements between employee representatives and one or more employers, section 412 of the Internal Revenue Code of 1954, Ante, p. 914. and other amendments made by this part to the extent such amendments relate to such section 412, shall not apply during the special temporary waiver period (as defined in paragraph (1)(B)). (B) Waiver of underfunding.— In the case of a plan maintained on January 1, 1974, pursuant to one or more agreements which the Secretary of Labor finds to be collective bargaining agreements between employee representatives and one or more employers, if by reason of subparagraph (A) the requirements of section 401(a)(7) of the Internal Revenue Code of 1954 apply without regard to the amendment of such 26 USC 401. Ante, p. 929. section 401(a)(7) by section 1016(a)(2)(C) of this Act, the plan shall not be treated as not meeting such requirements solely by reason of the application of the amendments made by sections 1011 and 1012 of this Act or related amendments made by this part. (C) Labor organization conventions.— In the case of a plan maintained by a labor organization, which is exempt from tax under section 501(c)(5) of the Internal Revenue Code of 1954, exclusively for the benefit of its employees and 26 USC 501. Ante, p. 914. their beneficiaries, section 412 of such Code and other amendments made by this part to the extent such amendments relate to such section 412, shall be applied by substituting for the term “December 31, 1975” in subsection (b), the earlier of— (i) the date on which the second convention of such labor organization held after the date of the enactment of this Act ends, or (ii) December 31, 1980, but in no event shall a date earlier than the later of December 31, 1975, or the date determined under subparagraph (A) or (B) be substituted. (d) Existing Plans May Elect New Provisions.— In the case of a plan in existence on January 1, 1974, the provisions of the Internal Revenue Code of 1954 relating to participation, vesting, funding, and 26 USC 1 et seq. form of benefit (as in effect from time to time) shall apply in the case of the plan year (which begins after the date of the enactment of this Act but before the applicable effective date determined under subsection (b) or (c)) selected by the plan administrator and to all subsequent plan years, if the plan administrator elects (in such manner and at such time as the Secretary of the Treasury or his delegate shall by regulations prescribe) to have such provisions so apply. Any election made under this subsection, once made, shall be irrevocable. (e) Certain Definitions and Special Rules.— Section 414 of the Internal Revenue Code of 1954 (other than subsections (b) and (c) of Ante, p. 925. such section 414), as added by section 1015(a) of this Act, shall take effect on the date of the enactment of this Act. (f) Transitional Rules With Respect to Breaks in Service.— (1) Participation.— In the case of a plan to which section 410 of the Internal Revenue Code of 1954 applies, if any plan amendment Ante, p. 898. with respect to breaks in service (which amendment is made or becomes effective after January 1, 1974, and before the date on which such section 410 first becomes effective with respect to such plan) provides that any employee’s participation in the plan would commence at any date later than the later of— (A) the date on which his participation would commence under the break in service rules of section 410(a)(5) of such Code, or (B) the date on which his participation would commence under the plan as in effect on January 1, 1974, such plan shall not constitute a plan described in section 403(a) or 405(a) of such Code and a trust forming a part of such plan 26 USC 403, 405. 26 USC 401. shall not constitute a qualified trust under section 401(a) of such Code. (2) Vesting.— In the case of a plan to which section 411 of the Internal Revenue Code of 1954 applies, if any plan amendment Ante, p. 901. with respect to breaks in service (which amendment is made or becomes effective after January 1, 1974, and before the date on which such section 411 first becomes effective with respect to such plan) provides that the nonforfeitable benefit derived from employer contributions to which any employee would be entitled is less than the lesser of the nonforfeitable benefit derived from employer contributions to which he would be entitled under— (A) the break in service rules of section 411(a)(6) of such Code, or (B) the plan as in effect on January 1, 1974, such plan shall not constitute a plan described in section 403(a) or 405(a) of such Code and a trust forming a part of such plan shall not constitute a qualified trust under section 401(a) of such Code. Subparagraph (B) shall not apply if the break in service rules under the plan would have been in violation of any law or rule of law in effect on January 1, 1974. (g) 3-Year Delay for Certain Provisions.— Subparagraphs (B) and (C) of section 404(a)(1) shall apply only in the case of plan years Ante, p. 921. beginning on or after 3 years after the date of the enactment of this Act. (h) (1) Except as provided in paragraph (2), section 413 of the Ante, p. 924. Internal Revenue Code of 1954 shall apply to plan years beginning after December 31, 1953. (2) (A) For plan years beginning before the applicable effective date of section 410 of such Code, the provisions of paragraphs (1) Ante, p. 898. and (8) of subsection (b) of such section 413 shall be applied by substituting “401(a)(3)” for “410”. (B) For plan years beginning before the applicable effective date of section 411 of such Code, the provisions of subsection (b)(2) of Ante, p. 901. such section 413 shall be applied by substituting “401(a)(7)” for “411(d)(3)”. (C) (i) The provisions of subsection (b)(4) of such section 413 shall not apply to plan years beginning before the applicable effective date of section 411 of such Code. (ii) The provisions of subsection (b)(5) (other than the second sentence thereof) of such section 413 shall not apply to plan years beginning before the applicable effective date of section 412 of such Code. Ante, p. 914. PART 2— CERTAIN OTHER PROVISIONS RELATING TO QUALIFIED RETIREMENT PLANS SEC. 1021. ADDITIONAL PLAN REQUIREMENTS. (a) Joint and Survivor Annuity Requirement.— (1) In general.— Effective with respect to plan years beginning 26 USC 401 note. 26 USC 401. after December 31, 1975, section 401(a) (relating to requirements for qualification) is amended by inserting after paragraph (10) the following new paragraph: “(11) (A) A trust shall not constitute a qualified trust under this section if the plan of which such trust is a part provides for the payment of benefits in the form of an annuity unless such plan provides for the payment of annuity benefits in a form having the effect of a qualified joint and survivor annuity. “(B) Notwithstanding the provisions of subparagraph (A), in the case of a plan which provides for the payment of benefits before the normal retirement age (as defined in section 411(a)(8)), the plan is not required to provide for the payment of annuity benefits in a form having the effect of a qualified joint and survivor annuity during the period beginning on the date on which the employee enters into the plan as a participant and ending on the later of— “(i) the date the employee reaches the earliest retirement age under the plan, or “(ii) the first day of the 120th month beginning before the date on which the employee reaches normal retirement age. “(C) A plan described in subparagraph (B) does not meet the requirements of subparagraph (A) unless, under the plan, a participant has a reasonable period during which he may elect the qualified joint and survivor annuity form with respect to the period beginning on the date on which the period described in subparagraph (B) ends and ending on the date on which he reaches normal retirement age (as defined in section 411(a)(8)) if he continues his employment during that period. A plan does not meet the requirements of this subparagraph unless, in the case of such an election, the payments under the survivor annuity are not less than the payments which would have been made under the joint annuity to which the participant would have been entitled if he made an election described in this subparagraph immediately prior to his retirement and if his retirement had occurred on the day before his death and within the period within which an election can be made. “(D) A plan shall not be treated as not satisfying the requirements of this paragraph solely because the spouse of the participant is not entitled to receive a survivor annuity (whether or not an election described in subparagraph (C)) has been made under subparagraph (C)) unless the participant and his spouse have been married throughout the 1-year period ending on the date of such participant’s death. “(E) A plan shall not be treated as satisfying the requirements of this paragraph unless, under the plan, each participant has a reasonable period (as described by the Secretary or his delegate by regulations) before the annuity starting date during which he may elect in writing (after having received a written explanation of the terms and conditions of the joint and survivor annuity and the effect of an election under this subparagraph) not to take such joint and survivor annuity. “(F) A plan shall not be treated as not satisfying the requirements of this paragraph solely because under the plan there is a provision that any election described in subparagraph (C) or (E), and any revocation of any such election, does not become effective (or ceases to be effective) if the participant dies within a period (not in excess of 2 years) beginning on the date of such election or revocation, as the case may be. The preceding sentence does not apply unless the plan provision described in the preceding sentence also provides that such an election or revocation will be given effect in any case in which— “(i) the participant dies from accidental causes, “(ii) a failure to give effect to the election or revocation would deprive the participant’s survivor of a survivor annuity, and “(iii) such election or revocation is made before such accident occurred. “(G) For purposes of this paragraph— Definitions. “(i) the term ‘annuity starting date’ means the first day of the first period for which an amount is received as an annuity (whether by reason of retirement or by reason of disability), “(ii) the term ‘earliest retirement age’ means the earliest date on which, under the plan, the participant could elect to receive retirement benefits, and “(iii) the term ‘qualified joint and survivor annuity’ means an annuity for the life of the participant with a survivor annuity for the life of his spouse which is not less than one-half of, or greater than, the amount of the annuity payable during the joint lives of the participant and his spouse and which is the actuarial equivalent of a single life annuity for the life of the participant. For purposes of this paragraph, a plan may take into account in any equitable manner (as determined by the Secretary or his delegate) any increased costs resulting from providing joint and survivor annuity benefits. “(H) This paragraph shall apply only if— “(i) the annuity starting date did not occur before the effective date of this paragraph, and “(ii) the participant was an active participant in the plan on or after such effective date.” (2) Certain additional requirements apply only to plans to which vesting requirements apply.— Section 401(a) (relating 26 USC 401. to requirements for qualification) is amended by adding at the end thereof the following new sentence: “Paragraphs (11), (12), (13), (14), (15), and (19) shall apply only in the case of a plan to which section 411 (relating to minimum vesting standards) Ante, p. 901. applies without regard to subsection (e)(2) of such section.” (b) Requirements in Case of Mergers and Consolidations of Plans or Transfers of Plan Assets.— Effective with respect to plan years beginning after December 31, 1975, section 401(a) is amended by inserting after paragraph (11) the following new paragraph: “(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 the date of the enactment of the Employee Retirement Income Security Act of 1974, each Ante, p. 829. 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). This paragraph shall apply in the case of a multiemployer plan only to the extent determined by the Pension Benefit Guaranty Corporation.” (c) Retirement Benefits May Not Be Assigned or Alienated.— Section 401(a) is amended by inserting after paragraph (12) the following Supra. new paragraph: “(13) 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 Post, p. 971. 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 the date of the enactment of the Employee Retirement Income Security Act of 1974.” (d) Requirement That Payment of Benefits Begin Not Later Than When the Participant Attains Age 65 or Has Completed 10 Years of Participation.— Section 401(a) is amended by inserting after paragraph (13) the following new paragraph: Supra. “(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 or his delegate.” (e) Requirement That Plan Benefits Are Not Decreased by Certain Social Security Increases.— Section 401(a) is amended by inserting after paragraph (14) the following new paragraph: Ante, p. 937. “(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 42 USC 401. any increase in the wage base under such title II, if such increase takes place after the date of the enactment of the Employee Retirement Income Security Act of 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.” (f) Requirement of Nonforfeitability in Case of Certain Withdrawals.— Section 401(a) is amended by inserting after paragraph (18) the following new paragraph: Post, p. 953. “(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 Ante, p. 901. of benefits accrued before enactment of the Employee Retirement Income Security Act of 1974, in the event of withdrawal of certain mandatory contributions).” SEC. 1022. MISCELLANEOUS PROVISIONS. (a) Requirement That Plan Not Be Discriminatory.— Section 401(a)(4) (disqualifying discriminatory plans) is amended to read 26 USC 401. as follows: “(4) If the contributions or the benefits provided under the plan do not discriminate in favor of employees who are— “(A) officers, “(B) shareholders, or “(C) highly compensated. For purposes of this paragraph, there shall be excluded from consideration employees described in section 410(b)(2)(A) and Ante, p. 898. (C).” (b) Amendments Relating to Self-Employed Individuals and Owner-Employees.— (1) Amendment of section (401)(a)(10).— So much of subparagraph (A) of section 401(a)(10) as precedes clause (i) 26 USC 401. thereof is amended to read as follows: “(A) paragraph (3), the first and second sentences of paragraph (5), and section 410 shall not apply, but—”. (2) Amendment of section (401)(d)(3).— Section 401(d)(3) (relating to additional requirements for qualification of trusts and and plans benefiting owner-employees) is amended to read as follows: “(3) (A) The plan benefits each employee having 3 or more years of service (within the meaning of section 410(a)(3)). “(B) For purposes of subparagraph (A), the term ‘employee’ does not include— “(i) any employee included in a unit of employees covered by a collective-bargaining agreement described in section 410(b)(2)(A), and “(ii) any employee who is a nonresident alien individual described in section 410(b)(2)(C).” (c) Persons Other Than Banks May Be Trustees of Trusts Benefitting Owner-Employees.— (1) The first sentence of section 401(d)(1) is amended to read as follows: “In the case of a trust which is created on or after October 10, 1962, or which was created before such date but is not exempt from tax under section 501(a) as an organization 26 USC 501. described in subsection (a) on the day before such date, the assets thereof are held by a bank or other person who demonstrates to the satisfaction of the Secretary or his delegate that the manner in which he will administer the trust will be consistent with the requirements of this section. A trust shall not be disqualified under this paragraph merely because a person (including the employer) other than the trustee or custodian so administering the trust may be granted, under the trust instrument, the power to control the investment of the trust funds either by directing investments (including reinvestments, disposals, and exchanges) or by disapproving proposed investments (including reinvestments, disposals, or exchanges).” (2) The second sentence of section 401(d)(1) is amended by striking out “the date of the enactment of this subsection” and inserting in lieu thereof “October 10, 1962,”. (d) Certain Custodial Accounts.— Effective as of January 1, 26 USC 401 note. 1974, subsection (f) of section 401 (relating to certain custodial accounts) is amended to read as follows: “(f) Certain Custodial Accounts and Annuity Contracts.— For purposes of this title, a custodial account or an annuity contract shall be treated as a qualified trust under this section if— “(1) the custodial account or annuity 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 subsection (d)(1)) or another person who demonstrates, to the satisfaction of the Secretary or his delegate, 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 annuity 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.” (e) Custodial Accounts for Regulated Investment Company Stock.— Effective as of January 1, 1974, section 408(b) (relating to 26 USC 403 and note. 26 USC 501. taxability of beneficiary under annuity purchased by section 501(c)(3) organization or public school) is amended by adding at the end thereof the following new paragraph: “(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 Ante, p. 939. amounts contributed by him for an annuity contract for his employee if the amounts are paid to provide a retirement benefit for that employee and are to be invested in regulated investment company stock to be held in that custodial account. “(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), and which 26 USC 851. issues only redeemable stock.” (f) Insured Credit Unions.— Effective as of January 1, 1974, the 26 USC 401 and note. last sentence of section 401(d)(1) is amended by striking out “section 581,” and inserting in lieu thereof “section 581, an insured credit union (within the meaning of section 101(6) of the Federal Credit Union Act),”. (g) Public Inspection of Certain Information With Respect to Pension, Profit-Sharing, and Stock Bonus Plans.— (1) Amendment of section 6104(a).— Paragraph (1) of section 6104(a) (relating to public inspection of applications for 26 USC 6104. tax exemption) is amended— (A) by redesignating subparagraph (B) as subparagraph (D) and by inserting after subparagraph (A) the following new subparagraphs: “(B) Pension, etc., plans.— The following shall be open to public inspection at such times and in such places as the Secretary or his delegate may prescribe: “(i) any application filed with respect to the qualification of a pension, profit-sharing, or stock bonus plan under section 401(a), 403(a), or 405(a), an individual 26 USC 401, 403, 405. 26 USC 408. retirement account described in section 408(a), or an individual retirement annuity described in section 408 (b), “(ii) any application filed with respect to the exemption from tax under section 501(a) of an organization 26 USC 501. forming part of a plan or account referred to in clause (i), “(iii) any papers submitted in support of an application referred to in clause (i) or (ii), and “(iv) any letter or other document issued by the Internal Revenue Service and dealing with the qualification referred to in clause (i) or the exemption from tax referred to in clause (ii). Except in the case of a plan participant, this subparagraph shall not apply to any plan referred to in clause (i) having not more than 25 participants. “(C) Certain names and compensation not to be opened to public inspection.— In the case of any application, document, or other papers, referred to in subparagraph (B), information from which the compensation (including deferred compensation) of any individual may be ascertained shall not be open to public inspection under subparagraph (B).” (B) The heading of subparagraph (A) of section 6104(a)(1) 26 USC 6104. is amended to read as follows: “(A) Organizations described in section 501.—”. (C) The heading of subparagraph (D) of section 6104(a) (1) as redesignated by subparagraph (A) of this paragraph is amended to read as follows: “(D) Withholding of certain other information.—”. (D) Subparagraph (D) of section 6104(a)(1) (as so redesignated) is amended by striking out “subparagraph (A)” each place it appears and inserting in lieu thereof “subparagraph (A) or (B)”. (2) Amendment of section 6104(a)(2).— Subparagraph (A) of section 6104(a)(2) is amended by adding at the end thereof “any application referred to in subparagraph (B) of subsection (a)(1) of this section, and”. (3) Amendment of section 6104(b).— Section 6104(b) (relating to inspection of annual information returns) is amended by striking out “and 6056” and inserting in lieu thereof “6056, and 6058”. (4) Effective date.— The amendments made by this subsection 26 USC 6104 note. shall apply to applications filed (or documents issued) after the date of enactment of this Act. (h) Publicity of Returns.— Effective on the date of the enactment 26 USC 6103 and note. of this Act, section 6103 (relating to publicity of returns and disclosure of information as to persons filing income tax returns) is amended by adding at the end thereof a new subsection (g) to read as follows: “(g) Disclosure of Information With Respect to Deferred Compensation Plans.— The Secretary or his delegate is authorized to furnish— “(1) returns with respect to any tax imposed by this title or information with respect to such returns to the proper officers and employees of the Department of Labor and the Pension Benefit Guaranty Corporation for purposes of administration of Titles I and IV of the Employee Retirement Income Security Act of Ante, p. 832. Post, p. 1003. 1974, and “(2) registration statements (as described in section 6057) and 26 USC 6057. information with respect to such statements to the proper officers and employees of the Department of Health, Education, and Welfare for purposes of administration of section 1131 of the Social Security Act.” (i) Certain Puerto Rican Pension, Etc., Plans To Be Exempt From Tax Under Section 501(a).— (1) General rule.— Effective for taxable years beginning after 26 USC 501 and note. 26 USC 501. December 31, 1973, for purposes of section 501(a) of the Internal Revenue Code of 1954 (relating to exemption from tax), any trust forming part of a pension, profit-sharing, or stock bonus plan all of the participants of which are residents of the Commonwealth of Puerto Rico shall be treated as an organization described in section 401(a) of such Code if such trust— (A) forms part of a pension, profit-sharing, or stock bonus plan, and (B) is exempt from income tax under the laws of the Commonwealth of Puerto Rico. (2) Election to have provisions of, and amendments made by, title ii of this act apply.— (A) If the administrator of a pension, profit-sharing, or stock bonus plan which is created or organized in Puerto Rico elects, at such time and in such manner as the Secretary of the Treasury may require, to have the provisions of this paragraph apply, for plan years beginning after the date of election any trust forming a part of such plan shall be treated as a trust created or organized in the United States for purposes of section 401(a) of the Internal Revenue Code of 1954. (B) An election under subparagraph (A), once made, is irrevocable. (C) This paragraph applies to plan years beginning after the date of enactment of this Act. (D) The source of any distributions made under a plan which makes an election under this paragraph to participants and beneficiaries residing outside of the United States shall be determined, for purposes of subchapter N of chapter 1 of the Internal Revenue Code of 1954, by the Secretary of the Treasury in accordance with regulations prescribed by him. For purposes of this subparagraph the United States means the United States as defined in section 7701(a)(9) of the Internal Revenue Code of 1954. 26 USC 7701. (j) Year of Deduction for Certain Employer Contributions for Severance Payments Required by Foreign Law.— Effective for taxable years beginning after December 31, 1973, if— (1) an employer is engaged in a trade or business in a foreign country, (2) such employer is required by the laws of that country to make payments, based on periods of service, to its employees or their beneficiaries after the employees’ retirement, death, or other separation from the service, and (3) such employer establishes a trust (whether organized within or outside the United States) for the purpose of funding the payments required by such law, then, in determining for purposes of paragraph (5) of section 404(a) of the Internal Revenue Code of 1954 the taxable year in which any 26 USC 404. contribution to or under the plan is includible in the gross income of the nonresident alien employees of such employer, such paragraph (5) shall be treated as not requiring that separate accounts be maintained for such nonresident alien employees. (k) Receipts for Employees.— Section 6051 (relating to receipts 26 USC 6051. for employees) is amended by inserting after “exemption,” in subsection (a) the following: “or every employer engaged in a trade or business who pays remuneration for services performed by an employee, including the cash value of such remuneration paid in any medium other than cash,”. SEC. 1023. RETROACTIVE CHANGES IN PLAN. Section 401(b) (relating to certain retroactive changes in plan) is amended to read as follows: “(b) 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 or his delegate 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.” SEC. 1024. EFFECTIVE DATES. Except as otherwise provided in section 1021, the amendments made by section 1021 shall apply to plan years to which part I applies. Except as otherwise provided in section 1022, the amendments made by section 1022 shall apply to plan years to which part I applies. Section 1023 shall take effect on the date of the enactment of this Act. PART 3— REGISTRATION AND INFORMATION SEC. 1031. REGISTRATION AND INFORMATION. (a) Annual Registration and Information Returns.— Part III of subchapter A of chapter 61 (relating to information returns) is amended by adding at the end thereof the following new subpart: “SUBPART E— REGISTRATION OF AND INFORMATION CONCERNING PENSION, ETC., PLANS “Sec. 6057. Annual registration, etc. “Sec. 6058. Information required in connection with certain plans of deferred compensation. “Sec. 6059. Periodic report by actuary. “SEC. 6057. ANNUAL REGISTRATION, ETC. “(a) Annual Registration.— “(1) General Rule.— Within such period after the end of a plan year as the Secretary or his delegate 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 Ante, p. 925. Ante, p. 854. 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 or his delegate. “(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, separated from the service covered by the plan, “(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) such other information as the Secretary or his delegate may require. At the time he files the registration statement under this subsection, the plan administrator shall furnish evidence satisfactory to the Secretary or his delegate 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 or his delegate, 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 or his delegate, the Secretary or his delegate 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)), Ante, p. 925. 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 Secretary of Health, Education, and Welfare.— The Secretary or his delegate shall transmit copies of any statements, notifications, reports, or other information obtained by him under this section to the Secretary of Health, Education, and Welfare. “(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. “(f) Regulations.— “(1) In general.— The Secretary, after consultation with the Secretary of Health, Education, and Welfare, 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) Cross References.— “For provisions relating to penalties for failure to register or furnish statements required by this section, see section 6652(e) 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 26 USC 401. Ante, p. 925. administrator (within the meaning of section 414(g)) of the plan, shall file an annual return stating such information as the Secretary or his delegate may by regulations prescribe with respect to the qualification, financial condition, and operations of the plan; except that, in the discretion of the Secretary or his delegate, 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). Ante, p. 937. “(c) Employer.— For purposes of this section, the term ‘employer’ includes a person described in section 401(c)(4) and an individual who 26 USC 401. 26 USC 408. establishes an individual retirement account or annuity described in section 408. “(d) Cross References.— “For provisions relating to penalties for failure to file a return required by this section, see section 6652(f). “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.”. (b) Sanctions.— (1) Failure to file registration statements or notification of change in status.— (A) Section 6652 (relating to failure to file certain information 26 USC 6652. returns) is amended by redesignating subsection (e) as subsection (g) and by inserting after subsection (d) the following new subsections: “(e) 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 Ante, p. 943. 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 or his delegate and in the same manner as tax) by the person failing so to file, an amount equal to $1 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 $5,000. “(2) Notification of change of status.— In the case of failure to file a notification required under section 6057(b) (relating Ante, p. 943. 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 or his delegate and in the same manner as tax) by the person failing so to file, $1 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 $1,000. “(f) Information Required in Connection With Certain Plans of Deferred Compensation.— In the case of failure to file a return or statement required under section 6058 (relating to information Ante, p. 945. required in connection with certain plans of deferred compensation) or 6047 (relating to information relating to certain trusts and annuity Post, p. 970. 26 USC 6047. and bond purchase 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 or his delegate 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 amount imposed under this subsection on any person for failure to file any return shall not exceed $5,000.” (B) (i) The section heading for section 6652 is amended by 26 USC 6652. adding “, Registration Statements, etc.” before the period at the end thereof. (ii) The item relating to section 6652 in the table of contents for subchapter A of chapter 68 is amended by adding “, registration statements, etc.” before the period of the end thereof. (2) Failure to furnish statement to participant.— (A) Subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end thereof the following new section: “SEC. 6690. FRAUDULENT STATEMENT OR FAILURE TO FURNISH STATEMENT TO PLAN PARTICIPANT. “Any person required under section 6057(e) to furnish a statement to a participant who willfully furnishes a false or fraudulent statement, or who willfully fails to furnish a statement in the manner, at the time, and showing the information required under section 6057(e), or regulations prescribed thereunder, shall for each such act, or for each such failure, be subject to a penalty under this subchapter of $50, which shall be assessed and collected in the same manner as the tax on employers imposed by section 3111.” 26 USC 3111. (B) The table of sections for such subchapter B is amended by adding at the end thereof the following new item: “Sec. 6690. Fraudulent statement or failure to furnish statement to plan participant.” (c) Clerical Amendments.— (1) The table of subparts for such part III is amended by adding at the end thereof the following: “Subpart E. Registration of and information concerning pension, etc., plans.” (2) Section 6033(c) (relating to cross references) is amended 26 USC 6033. by adding at the end thereof the following: “For provisions relating to information required in connection with certain plans of deferred compensation, see section 6058.” (3) Subsection (d) of section 6047 (relating to information 26 USC 6047. with respect to certain trusts and annuity and bond purchase plans) is amended to read as follows: “(d) Cross References.— “(1) For provisions relating to penalties for failure to file a return required by this section, see section 6652(f). “(2) For criminal penalty for furnishing fraudulent information, see section 7207.” SEC. 1032. DUTIES OF SECRETARY OF HEALTH, EDUCATION, AND WELFARE. Title XI of the Social Security Act (relating to general provisions) is amended by adding at the end of part A thereof the following new section: “Sec. 1131. “notification of social security claimant with respect to deferred vested benefits “(a) Whenever— “(1) the Secretary makes a finding of fact and a decision as to— “(A) the entitlement of any individual to monthly benefits under section 202, 223, or 228, 42 USC 402, 423, 428. “(B) the entitlement of any individual to a lump-sum death payment payable under section 202(i) on account of the death of any person to whom such individual is related by blood, marriage, or adoption, or “(C) the entitlement under section 226 of any individual 42 USC 426. 42 USC 1395c. to hospital insurance benefits under part A of title XVIII, or “(2) the Secretary is requested to do so— “(A) by any individual with respect to whom the Secretary holds information obtained under section 6057 of the Internal Revenue Code of 1954, or Ante, p. 943. “(B) in the case of the death of the individual referred to in subparagraph (A), by the individual who would be entitled to payment under section 204(d) of this Act. 42 USC 404. he shall transmit to the individual referred to in paragraph (1) or the individual making the request under paragraph (2) any information, as reported by the employer, regarding any deferred vested benefit transmitted to the Secretary pursuant to such section 6057 with respect to the individual referred to in paragraph (1) or (2)(A) or the person on whose wages and self-employment income entitlement (or claim of entitlement) is based. “(b) “(1) For purposes of section 201(g)(1), expenses incurred in 42 USC 401. the administration of subsection (a) shall be deemed to be expenses incurred for the administration of title II. “(2) There are hereby authorized to be appropriated to the Federal Appropriation. Old-Age and Survivors Insurance Trust Fund for each fiscal year (commencing with the fiscal year ending June 30, 1974) such sums as the Secretary deems necessary on account of additional administrative expenses resulting from the enactment of the provisions of subsection (a).” SEC. 1033. REPORTS BY ACTUARIES. (a) Reports by Actuaries.— Subpart E of part III of subchapter A of chapter 61 (relating to registration of and information concerning pension, etc., plans) as added by section 1031(a) of this Act, is Ante, p. 943. amended by adding at the end thereof the following new section: “SEC. 6059. PERIODIC REPORT OF ACTUARY. “(a) General Rule.— The actuarial report described in subsection (b) shall be filed by the plan administrator (as defined in section 414(g) of eacli defined benefit plan to which section 412 applies, for Ante, pp. 925, 914. the first plan year for which section 412 applies to the plan and for each third plan year thereafter (or more frequently if the Secretary or his delegate determines that more frequent reports are necessary). “(b) Actuarial Report.— The actuarial report of a plan required by subsection (a) shall be prepared and signed by an enrolled actuary (within the meaning of section 7701(a)(35)) and shall contain— 26 USC 7701. “(1) a description of the funding method and actuarial assumptions used to determine costs under the plan, “(2) a certification of the contribution necessary to reduce the accumulated funding deficiency (as defined in section 412(a)) to zero, “(3) a statement— “(A) that to the best of his knowledge the report is complete and accurate, and “(B) the requirements of section 412(c) (relating to reasonable actuarial assumptions) have been complied with, “(4) such other information as may be necessary to fully and fairly disclose the actuarial position of the plan, and “(5) such other information regarding the plan as the Secretary or his delegate may by regulations require. “(c) Time and Manner of Filing.— The actuarial report and statement required by this section shall be filed at the time and in the manner provided by regulations prescribed by the Secretary or his delegate. “(d) Cross Reference.— “For coordination between the Department of the Treasury and the Department of Labor with respect to the report required to be filed under this section, see section 3004 of title III of the Employee Retirement Income Security Act of 1974.”. (b) Assessable Penalties.— Subchapter B of chapter 68 (relating Ante, p. 946. to assessable penalties) is amended by adding at the end thereof the following new section: “SEC. 6692. FAILURE TO FILE ACTUARIAL REPORT. “The plan administrator (as defined in section 414(g)) of each Ante, p. 925. Ante, p. 914. Ante, p. 947. defined benefit plan to which section 412 applies who fails to file the report required by section 6059 at the time and in the manner required by section 6059, shall pay a penalty of $1,000 for each such failure unless it is shown that such failure is due to reasonable cause.” (c) Consolidation of Actuarial Reports.— The Secretary of the 26 USC 6059 note. Treasury and the Secretary of Labor shall take such steps as may be necessary to assure coordination to the maximum extent feasible between the actuarial reports required by section 6059 of the Internal Revenue Code of 1954 and by section 103(d) of title I of the Employee Retirement Income Security Act of 1974. (d) Clerical Amendment.— The table of sections for subchapter B of chapter 68 is amended by adding at the end thereof the following new item: “Sec. 6692. Failure to file actuarial report.”. SEC. 1034. EFFECTIVE DATES. This part shall take effect upon the date of the enactment of this Act; except that— (1) the requirements of section 6059 of the Internal Revenue Code of 1954 shall apply only with respect to plan years to which part I of this title applies, (2) the requirements of section 6057 of such Code shall apply Ante, p. 943. only with respect to plan years beginning after December 31, 1975, (3) the requirements of section 6058(a) of such Code shall Ante, p. 945. apply only with respect to plan years beginning after the date of the enactment of this Act, and (4) the amendments made by section 1032 shall take effect on January 1, 1978. PART 4— DECLARATORY JUDGMENTS RELATING TO QUALIFICATION OF CERTAIN RETIREMENT PLANS SEC. 1041. TAX COURT PROCEDURE. (a) In General.— Subchapter O of chapter 76 (relating to the Tax Court, is amended by adding at the end thereof the following new part: “PART IV— DECLARATORY JUDGMENTS RELATING TO QUALIFICATION OF CERTAIN RETIREMENT PLANS “Sec. 7476. Declaratory judgments. “SEC. 7476. DECLARATORY JUDGMENTS. “(a) Creation of Remedy.— In a case of actual controversy involving— “(1) a determination by the Secretary or his delegate with respect to the initial qualification or continuing qualification of a retirement plan under subchapter D of chapter I, or “(2) a failure by the Secretary or his delegate to make a determination with respect to— “(A) such initial qualification, or “(B) such continuing qualification if the controversy arises from a plan amendment or plan termination, upon the filing of an appropriate pleading, the United States Tax Court may make a declaration with respect to such initial qualification or continuing qualification. Any such declaration shall have the force and effect of a decision of the Tax Court and shall be reviewable as such. “(b) Limitations.— “(1) Petitioner.— A pleading may be filed under this section only by a petitioner who is the employer, the plan administrator, an employee who has qualified under regulations prescribed by the Secretary or his delegate as an interested party for purposes of pursuing administrative remedies within the Internal Revenue Service, or the Pension Benefit Guaranty Corporation. “(2) Notice.— For purposes of this section, the filing of a pleading by any petitioner may be held by the Tax Court to be premature, unless the petitioner establishes to the satisfaction of the court that he has complied with the requirements prescribed by regulations of the Secretary or his delegate with respect to notice to other interested parties of the filing of the request for a determination referred to in subsection (a). “(3) Exhaustion of administrative remedies.— The Tax Court shall not issue a declaratory judgment or decree under this section in any proceeding unless it determines that the petitioner has exhausted administrative remedies available to him within the Internal Revenue Service. A petitioner shall not be deemed to have exhausted his administrative remedies with respect to a failure by the Secretary or his delegate to make a determination with respect to initial qualification or continuing qualification of a retirement plan before the expiration of 270 days after the request for such determination was made. “(4) Plan put into effect.— No proceeding may be maintained under this section unless the plan (and, in the case of a controversy involving the continuing qualification of the plan because of an amendment to the plan, the amendment) with respect to which a decision of the Tax Court is sought has been put into effect before the filing of the pleading. A plan or amendment shall not be treated as not being in effect merely because under the plan the funds contributed to the plan may be refunded if the plan (or the plan as so amended) is found to be not qualified. “(5) Time for bringing action.— If the Secretary or his delegate sends by certified or registered mail notice of his determination with respect to the qualification of the plan to the persons referred to in paragraph (1) (or, in the case of employees referred to in paragraph (1), to any individual designated under regulations prescribed by the Secretary or his delegate as a representative of such employee), no proceeding may be initiated under this section by any person unless the pleading is filed before the ninety-first day after the day after such notice is mailed to such person (or to his designated representative, in the case of an employee). “(c) Commissioners.— The chief judge of the Tax Court may assign proceedings under this section to be heard by the commissioners of the court, and the court may authorize a commissioner to make the decision of the court with respect to such proceeding, subject to such conditions and review as the court may by rule provide. “(d) Retirement Plan.— For purposes of this section, the term ‘retirement plan’ means— “(1) a pension, profit-sharing, or stock bonus plan described in section 401(a) or a trust which is part of such a plan, 26 USC 401. “(2) an annuity plan described in section 403(a), or 26 USC 403. “(3) a bond purchase plan described in section 405(a). 26 USC 405. “(e) Cross Reference.— “For provisions concerning intervention by Pension Benefit Guaranty Corporation and Secretary of Labor in actions brought under this section and right of Pension Benefit Guaranty Corporation to bring action, see section 301(c) of subtitle A of title III of the Employee Retirement Income Security Act of 1974.” (b) Technical and Conforming Amendments.— (1) Fee for filing petition.— Section 7451 (relating to fee 26 USC 7451. for filing petition) is amended by striking out “deficiency” and inserting in lieu thereof “deficiency or for a declaratory judgment under part IV of this subchapter”. (2) Date of decision.— Section 7459(c) (relating to date of 26 USC 7459. decision) is amended by inserting before the period at the end of the first sentence the following: “or, in the case of a declaratory judgment proceeding under part IV of this subchapter, the date of the court’s order entering the decision”. (3) Venue for appeal of decision.— (A) Section 7482(b)(1) (relating to venue) is amended by 26 USC 7482. striking out the period at the end of subparagraph (B) and inserting in lieu thereof “, or” and by inserting after subparagraph (B) the following new subparagraph: “(C) in the case of a person seeking a declaratory decision Ante, p. 949. under section 7476, the principal place of business, or principal office or agency of the employer.” (B) Section 7482(b)(1) is further amended— (i) by striking out “neither subparagraph (A) nor (B) applies” and inserting in lieu thereof “subparagraph (A), (B), and (C) do not apply”; and (ii) by inserting before the period at the end of the last sentence thereof the following: “or as of the time the petition seeking a declaratory decision under section 7476 was filed with the Tax Court”. Ante, p. 949. (c) Clerical Amendment.— The table of parts for subchapter C of chapter 76 (relating to the Tax Court) is amended by adding at the end thereof the following new item: “Part IV. Declaratory judgments relating to qualification of certain retirement plans.”. (d) Effective Date.— The amendments made by this section shall 26 USC 7476 note. apply to pleadings filed more than 1 year after the date of the enactment of this Act. PART 5— INTERNAL REVENUE SERVICE SEC. 1051. ESTABLISHMENT OF OFFICE. (a) In General.— Section 7802 (relating to Commissioner of Internal 26 USC 7802. Revenue) is amended to read as follows: “SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; ASSISTANT COMMISSIONER (EMPLOYEE PLANS AND EXEMPT ORGANIZATIONS). “(a) Commissioner of Internal Revenue.— There shall be in the Department of the Treasury a Commissioner of Internal Revenue, who shall be appointed by the President, by and with the advice and consent of the Senate. The Commissioner of Internal Revenue shall have such duties and powers as may be prescribed by the Secretary. “(b) Assistant Commissioner for Employee Plans and Exempt Organizations.— There is established within the Internal Revenue Office of Employee Plans and Exempt Organizations. Establishment. Service an office to be known as the ‘Office of Employee Plans and Exempt Organizations’ to be under the supervision and direction of an Assistant Commissioner of Internal Revenue. As head of the Office, the Assistant Commissioner shall be responsible for carrying out such functions as the Secretary or his delegate may prescribe with respect to organizations exempt from tax under section 501(a) and with respect 26 USC 501. to plans to which part I of subchapter D of chapter 1 applies (and with respect to organizations designed to be exempt under such section and plans designed to be plans to which such part applies).” (b) Salaries.— (1) Assistant commissioner.— Section 5109 of title 5, United States Code, is amended by adding at the end thereof the following new subsection: “(c) The position held by the employee appointed under section 7802(b) of the Internal Revenue Code of 1954 is classified at GS–18, Supra. and is in addition to the number of positions authorized by section 5108(a) of this title.” 5 USC 5108. (2) Classification of positions at gs–16 and 17.— Section 5108 of title 5, United States Code, is amended by adding at the end thereof the following new subsection: “(e) In addition to the number of positions authorized by subsection (a), the Commissioner of Internal Revenue is authorized, without regard to any other provision of this section, to place a total of 20 positions in the Internal Revenue Service in GS–16 and 17.”. (c) Clerical Amendments.— The item relating to section 7802 in the table of sections for subchapter A of chapter 80 is amended to read as follows: “Sec. 7802. Commissioner of Internal Revenue; Assistant Commissioner (Employee Plans and Exempt Organizations).” (d) Effective Date.— The amendments made by this section shall 26 USC 7802 note. take effect on the 90th day after the date of the enactment of this Act. SEC. 1052. AUTHORIZATION OF APPROPRIATIONS. There is authorized to be appropriated to the Department of the Treasury for the purpose of carrying out all functions of the Office of Employee Plans and Exempt Organizations for each fiscal year beginning after June 30, 1974, an amount equal to the sum of— (1) so much of the collections from the taxes imposed under section 4940 of such Code (relating to excise tax based on investment 26 USC 4940. income) as would have been collected if the rate of tax under such section was 2 percent during the second preceding fiscal year, and (2) the greater of— (A) an amount equal to the amount described in paragraph (1), or (B) $30,000,000. Subtitle B— Other Amendments to the Internal Revenue Code Relating to Retirement Plans SEC. 2001. CONTRIBUTIONS ON BEHALF OF SELF-EMPLOYED INDIVIDUALS AND SHAREHOLDER-EMPLOYEES. (a) Increase in Maximum Amount Deductible for Self-Employed Individuals— (1) Paragraph (1) of section 404(e) (relating to special limitations 26 USC 404. for self-employed individuals) is amended— (A) by striking out “$2,500, or 10 percent” and inserting in lieu thereof “$7,500, or 15 percent”, and (B) by striking out “subject to the provisions of paragraph (2)” and inserting in lieu thereof “subject to paragraphs (2) and (4)”. (2) Paragraph (2)(A) of section 404(e) is amended by striking out “shall not exceed $2,500, or 10 percent” and inserting in lieu thereof “shall (subject to paragraph (4)) not exceed $7,500, or 15 percent”. (3) Section 404(e) is amended by adding at the end thereof the following new paragraph: “(4) Limitations cannot be lower than $750 or 100 percent of earned income.— The limitations under paragraphs (1) and (2)(A) for any employee shall not be less than the lesser of— “(A) $750, or “(B) 100 percent of the earned income derived by such employee from the trades or businesses taken into account for purposes of paragraph (1) or (2)(A) as the case may be.”. (b) Increase in Maximum Amount Deductible for Shareholder-Employees.— Paragraph (1) of section 1379(b) (relating to 26 USC 1379. taxability of shareholder-employees) is amended— (1) by striking out “10 percent” in subparagraph (A) and inserting in lieu thereof “15 percent”, and (2) by striking out “$2,500” in subparagraph (B) and inserting in lieu thereof “$7,500”. (c) Only First $100,000 of Annual Compensation To Be Taken Into Account.— Subsection (a) of section 401 (relating to requirements 26 USC 401. for qualification) is amended by inserting after paragraph (16) the following new paragraph: “(17) In the case of a plan which provides contributions or benefits for employees some or all of whom are employees within the meaning of subsection (c)(1), or are shareholder-employees within the meaning of section 1379(d), only if the annual compen-sation of each employee taken into account under the plan does not exceed the first $100,000 of such compensation.” (d) Defined Benefit Plans for Self-Employed Individuals.— (1) Subsection (a) of section 401 is amended by inserting after paragraph (17) the following new paragraph: Ante, p. 952. “(18) In the case of a trust which is part of a plan providing a defined benefit for employees some or all of whom are employees within the meaning of subsection (c)(1), or are shareholder-employees within the meaning of section 1379(d), only if such 26 USC 1379. plan satisfies the requirements of subsection (j).” (2) Section 401 (relating to qualified pension, profit-sharing, 26 USC 401. and stock bonus plans) is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection: “(j) Defined Benefit Plans Providing Benefits for Self-Employed Individuals and Shareholder-Employees.— “(1) In general.— A defined benefit plan satisfies the requirements of this subsection only if the basic benefit accruing under the plan for each plan year of participation by an employee within the meaning of subsection (c)(1) (or a shareholder-employee) is permissible under regulations prescribed by the Secretary or his delegate under this subsection to insure that there will be reasonable comparability (assuming level funding) between the maximum retirement benefits which may be provided with favorable tax treatment under this title for such employees under— “(A) defined contribution plans, “(B) defined benefit plans, and “(C) a combination of defined contribution plans and defined benefit plans. “(2) Guidelines for regulations.— The regulations prescribed under this subsection shall provide that a plan does not satisfy the requirements of this subsection if, under the plan, the basic benefit of any employee within the meaning of subsection (c)(1) (or a shareholder-employee) may exceed the sum of the products for each plan year of participation of— “(A) his annual compensation (not in excess of $50,000) for such year, and “(B) the applicable percentage determined under paragraph (3). “(3) Applicable percentage.— “(A) Table.— For purposes of paragraph (2), the applicable percentage for any individual for any plan year shall be based on the percentage shown on the following table opposite his age when his current period of participation in the plan began. “Age when participation began: Applicable percentage 30 or less 6.5 35 5.4 40 4.4 45 3.6 50 3.0 55 2.5 60 or over 2.0 “(B) Additional requirements.— The regulations prescribed under this subsection shall include provisions— “(i) for applicable percentages for ages between any two ages shown on the table, “(ii) for adjusting the applicable percentages in the case of plans providing benefits other than a basic benefit, “(iii) that any increase in the rate of accrual, and any increase in the compensation base which may be taken into account, shall, with respect only to such increase, begin a new period of participation in the plan, and “(iv) when appropriate, in the case of periods beginning after December 31, 1977, for adjustments in the applicable percentages based on changes in prevailing interest and mortality rates occurring after 1973. “(4) Certain contributions and benefits may not be taken into account.— A defined benefit plan which provides contributions or benefits for owner-employees does not satisfy the requirements of this subsection unless such plan meets the requirements of subsection (a)(4) without taking into account contributions or benefits under chapter 2 (relating to tax on self-employment 26 USC 1401. 26 USC 3101. 26 USC 401. income), chapter 21 (relating to Federal Insurance Contributions Act), title II of the Social Security Act, or any other Federal or State law. “(5) Definitions.— For purposes of this subsection— “(A) Basic benefit.— The term ‘basic benefit’ means a benefit in the form of a straight life annuity commencing at the later of— “(i) age 65, or “(ii) the day 5 years after the day the participant’s current period of participation began under a plan which provides no ancillary benefits and to which employees do not contribute. “(B) Shareholder-employee.— The term ‘shareholder-employee’ has the same meaning as when used in section 1379(d). 26 USC 1379. “(C) Compensation.— The term ‘compensation’ means— “(i) in the case of an employee within the meaning of subsection (c)(1), the earned income of such individual, or “(ii) in the case of a shareholder-employee, the compensation received or accrued by the individual from the electing small business corporation. “(6) Special rules.— Section 404(e) (relating to special limitations Ante, p. 952. for self-employed individuals) and section 1379(b) (relating to taxability of shareholder-employee beneficiaries) do not apply to a trust to which this subsection applies.” (e) Repeal of Existing Tax Treatment of Excess Contributions.— (1) The last sentence of section 401(d)(5) is amended to read 26 USC 401. as follows: “Subparagraphs (A) and (B) do not apply to contributions described in subsection (e).” (2) Paragraph (8) of section 401(d) is repealed. Repeal. (3) Subsection (e) of section 401 is amended to read as follows: “(e) Contributions for Premiums on Annuity, Etc., Contracts.— A contribution by the employer on behalf of an owner-employee is described in this subsection if— “(1) under the plan such contribution is required to be applied (directly or through a trustee) to pay premiums or other consideration for one or more annuity, endowment, or life insurance contracts on the life of such owner-employee issued under the plan, “(2) the amount of such contribution exceeds the amount deductible under section 404 with respect to contributions made by the employer on behalf of such owner-employee under the plan, and “(3) the amount of such contribution does not exceed the average of the amounts which were deductible under section 404 with respect to contributions made by the employer on behalf of such owner-employee under the plan (or which would have been deductible if such section had been in effect) for the first three taxable years (A) preceding the year in which the last such annuity, endowment, or life insurance contract was issued under the plan, and (B) in which such owner-employee derived earned income from the trade or business with respect to which the plan is established, or for so many of such taxable years as such owner-employee was engaged in such trade or business and derived earned income therefrom. In the case of any individual on whose behalf contributions described in paragraph (1) are made under more than one plan as an owner-employee during any taxable year, the preceding sentence does not apply if the amount of such contributions under all such plans for all such years exceeds $7,500. Any contribution which is described in this subsection shall, for purposes of section 4972(b), be taken into Infra. 26 USC 404. account as a contribution made by such owner-employee as an employee to the extent that the amount of such contribution is not deductible under section 404 for the taxable year, but only for the purpose of applying section 4972(b) to other contributions made by such owner-employee as an employee.” (4) Clause (ii) of section 401(a)(10)(A) is amended by striking 26 USC 401. out “subsection (e)(3)(A)” and inserting in lieu thereof “subsection (e)”. (5) Subparagraph (A) of section 72(m)(5)(A) is amended— 26 USC 72. (A) by inserting “and” at the end of clause (i), (B) by striking out the comma at the end of clause (ii) and the word “and” following that comma, and inserting in lieu thereof a period, and (C) by striking out clause (iii). (f) Tax on Excess Contributions.— (1) Chapter 43 (relating to qualified pension, etc., plans) is amended by inserting after section 4971 the following new section: “SEC. 4972. TAX ON EXCESS CONTRIBUTIONS FOR SELF-EMPLOYED INDIVIDUALS. “(a) Tax Imposed.— In the case of a plan which provides contributions or benefits for employees some or all of whom are employees within the meaning of section 401(c)(1), there is imposed, for each taxable year of the employer who maintains such plan, a tax in an amount equal to 6 percent of the amount of the excess contributions under the plan (determined as of the close of the taxable year). The tax imposed by this subsection shall be paid by the employer who maintains the plan. This section applies only to plans which include a trust described in section 401(a), which are described in section 403(a), or which are described in section 405(a). 26 USC 401,403, 405. “(b) Excess Contributions.— “(1) In general.— For purposes of this section, the term ‘excess “Excess contributions.” contributions’ means the sum of the amounts (if any) determined under paragraphs (2), (3), and (4), reduced by the sum of the correcting distributions (as defined in paragraph (5)) made in all prior taxable years beginning after December 31, 1975. For purposes of this subsection the amount of any contribution which is allocable (determined under regulations prescribed by the Secretary or his delegate) to the purchase of life, accident, health, or other insurance shall not be taken into account. “(2) Contributions by owner-employees.— The amount determined under this paragraph, in the case of a plan which provides contributions or benefits for employees some or all of whom are owner-employees (within the meaning of section 401(c)(3)), is 26 USC 401. the sum of— “(A) the excess (if any) of— “(i) the amount contributed under the plan by each owner-employee (as an employee) for the taxable year, over “(ii) the amount permitted to be contributed by each owner-employee (as an employee) for such year, and “(B) the amount determined under this paragraph for the preceding taxable year of the employer, reduced by the excess (if any) of the amount described in subparagraph (A)(ii) over the amount described in subparagraph (A)(i). “(3) Defined benefit plans.— The amount determined under this paragraph, in the case of a defined benefit plan, is the amount contributed under the plan by the employer during the taxable year or any prior taxable year beginning after December 31, 1975, if— “(A) as of the close of the taxable year, the full funding limitation of the plan (determined under section 412(c)(7)) is zero, and “(B) such amount has not been deductible for the taxable year or any prior taxable year. “(4) Defined contribution plans.— The amount determined under this paragraph, in the case of a plan other than a defined benefit plan, is the portion of the amounts contributed under the plan by the employer during the taxable year and each prior taxable year beginning after December 31, 1975, which has not been deductible for the taxable year or any prior taxable year. “(5) Correcting distribution.— For purposes of this subsection the term ‘correcting distribution’ means— “(A) in the case of a contribution made by an owner-employee as an employee, regardless of the type of plan, the amount determined under paragraph (2) distributed to the owner-employee who contributed such amount, “(B) in the case of a defined benefit plan, the amount determined under paragraph (3) which is distributed from the plan to the employer, and “(C) in the case of a defined contribution plan, the amount determined under paragraph (4) which is distributed from the plan to the employer or to the employee to the account of whom the amount described was contributed. “(c) Amount Permitted To Be Contributed by Owner-Employee.— For purposes of subsection (b)(2), the amount permitted to be contributed under a plan by an owner-employee (as an employee) for any taxable year is the smallest of the following: “(1) $2,500, “(2) 10 percent of the earned income (as defined in section 401(c)(2)) for such taxable year derived by such owner-employee from the trade or business with respect to which the plan is established, or “(3) the amount of the contribution which would be contributed by the owner-employee (as an employee) if such contribution were made at the rate of contributions permitted to be made by employees other than owner-employees. In any case in which there are no employees other than owner-employees, the amount determined under the preceding sentence shall be zero. “(d) Cross Reference.— “For disallowance of deduction for taxes paid under this section, see section 275.”. (2) Clerical amendment.— The table of sections for chapter 43 is amended by inserting after the item relating to section 4971 the following new item: “Sec. 4972. Tax on excess contributions for self-employed individuals.”. (g) Premature Distributions to Owner-Employees.— (1) In general.— Subparagraph (B) of section 72(m)(5) 26 USC 72. (relating to penalties applicable to certain amounts received by owner-employees) is amended to read as follows: “(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.” (2) Conforming amendments.— (A) Subparagraphs (C), (D), and (E) of section 72(m)(5) Repeals. are repealed. (B) The second sentence of section 46(a)(3) and the second 26 USC 46. 26 USC 50A. Post, p. 987. sentence of section 50A(a)(3), as each is amended by section 2005(c)(4) of this Act, are each amended by inserting after “tax preferences,” the following: “section 72(m)(5) (B) (relating to 10 percent tax on premature distributions to owner-employees),”. (C) The third sentence of section 901(a), as amended by 26 USC 901. section 2005(c)(5) of this Act, is amended by striking out “tax preferences,” and inserting in lieu thereof “tax preferences), against the tax imposed for the taxable year under section 72(m)(5)(B) (relating to 10 percent tax on premature distributions to owner-employees),”. (D) Subparagraph (A) of section 56(a)(2) and paragraph 26 USC 56. (1) of section 56(c), as each is amended by section 2005(c)(7) of this Act, are each amended by striking out “402(e)” and inserting in lieu thereof “72(m)(5)(B), 402(e)”. (E) Section 404(a)(2) is amended by striking out “(16)” 26 USC 404. and inserting in lieu thereof “(16),(17),(18)”. (F) Clause (ii) of section 404(a)(9)(B) is amended to read as follows: “(ii) without regard to the second sentence of paragraph (3); and”. (h) Withdrawal of Employee Contributions of Owner-Employees.— (1) Section 401(d)(4)(B) (relating to additional requirements 26 USC 401. for qualification of trusts and plans benefiting owner-employees) is amended by inserting “in excess of contributions made by an owner-employee as an employee” after “benefits”. (2) Paragraph (1) of section 72(m) (relating to certain Repeal. amounts received before annuity starting date) is repealed. (3) Section 72(m)(5)(A)(i) is amended by striking out “(whether or not paid by him)” and inserting in lieu thereof the following: “(other than contributions made by him as an owner-employee)”. (i) Effective Dates.— (1) The amendments made by subsections (a) and (b) apply to taxable years beginning after December 31, 1973. (2) The amendments made by subsection (c) apply to— 26 USC 401 note. (A) taxable years beginning after December 31, 1975, and (B) any other taxable years beginning after December 31, 1973, for which contributions were made under the plan in excess of the amounts permitted to be made under sections 404(e) and 1379(b) as in effect on the day before the date of Ante, p. 952. 26 USC 1379. the enactment of this Act. (3) The amendments made by subsection (d) apply to taxable 26 USC 401 note. years beginning after December 31, 1975. (4) The amendments made by subsections (e) and (f) apply 26 USC 401 note. to contributions made in taxable years beginning after December 31, 1975. (5) The amendments made by subsection (g) apply to distributions 26 USC 72 note. made in taxable years beginning after December 31, 1975. (6) The amendments made by subsection (h) apply to taxable 26 USC 72 note. years ending after the date of enactment of this Act. SEC. 2002. DEDUCTION FOR RETIREMENT SAVINGS. (a) Allowance of Deduction.— (1) In General.— Part VII of subchapter B of chapter 1 (relating 26 USC 211. to additional itemized deductions for individuals) is amended by redesignating section 219 as 220 and by inserting after section 218 the following new section: 26 USC 220. “SEC. 219. RETIREMENT SAVINGS. “(a) Deduction Allowed.— In the case of an individual, there is allowed as a deduction amounts paid in cash during the taxable year by or on behalf of such individual for his benefit— “(1) to an individual retirement account described in section 26 USC 408. 408(a), “(2) for an individual retirement annuity described in section 408(b), or “(3) for a retirement bond described in section 409 (but only 26 USC 409. if the bond is not redeemed within 12 months of the date of its issuance). For purposes of this title, any amount paid by an employer to such a retirement account or for such a retirement annuity or retirement bond constitutes 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, whether 26 USC 401. or not a deduction for such payment is allowable under this section to the employee after the application of subsection (b). “(b) Limitations and Restrictions.— “(1) Maximum deduction.— The amount allowable as a deduction under subsection (a) to an individual for any taxable year may not exceed an amount equal to 15 percent of the compensation includible in his gross income for such taxable year, or $1,500, whichever is less. “(2) Covered by certain other plans.— No deduction is allowed under subsection (a) for an individual for the taxable year if for any part of such year— “(A) he was an active participant in— “(i) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a), 26 USC 501. “(ii) an annuity plan described in section 403(a), 26 USC 403. “(iii) a qualified bond purchase plan described in section 405(a), or 26 USC 405. “(iv) a plan established for its employees by the United States, by a State or political division thereof, or by an agency or instrumentality of any of the foregoing, or “(B) amounts were contributed by his employer for an annuity contract described in section 403(b) (whether or not 26 USC 403. his rights in such contract are nonforfeitable).” “(3) Contributions after age 70½— No deduction is allowed under subsection (a) with respect to any payment described in subsection (a) which is made during the taxable year of an individual who has attained age 70½ before the close of such taxable year. “(4) Recontributed amounts.— No deduction is allowed under this section with respect to a rollover contribution described in section 402(a)(5), 403(a)(4), 408(d)(3), or 409(b)(3)(C). Post, pp. 991, 969, 964. “(5) Amounts contributed under endowment contract.— In the case of an endowment contract described in section 408(b), Infra. no deduction is allowed under subsection (a) for that portion of the amounts paid under the contract for the taxable year properly allocable, under regulations prescribed by the Secretary or his delegate, to the cost of life insurance. “(c) Definitions and Special Rules.— “(1) Compensation.— For purposes of this section, the term ‘compensation’ includes earned income as defined in section 401(c)(2). 26 USC 401. “(2) Married individuals.— The maximum deduction under subsection (b)(1) shall be computed separately for each individual, and this section shall be applied without regard to any community property laws.”. (2) Deduction allowed in arriving at adjusted gross income.— Section 62 (defining adjusted gross income) is amended by inserting after paragraph (9) the following new paragraph: “(10) Retirement savings.— The deduction allowed by section 219 (relating to deduction of certain retirement savings).”. Ante, p. 958. (b) Individual Retirement Accounts.— Subpart A of part I of subchapter D of chapter 1 (relating to retirement plans) is amended 26 USC 401. by adding at the end thereof the following new section: “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) in section 402(a)(5), 403(a)(4), or 409(b)(3)(C), no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year in excess of $1,500 on behalf of any individual. “(2) The trustee is a bank (as defined in section 401(d)(1)) or such other person who demonstrates to the satisfaction of the Secretary or his delegate 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) The entire interest of an individual for whose benefit the trust is maintained will be distributed to him not later than the close of his taxable year in which he attains age 70½, or will be distributed, commencing before the close of such taxable year, in accordance with regulations prescribed by the Secretary or his delegate, over— “(A) the life of such individual or the lives of such individual and his spouse, or “(B) a period not extending beyond the life expectancy of such individual or the life expectancy of such individual and his spouse. “(7) If an individual for whose benefit the trust is maintained dies before his entire interest has been distributed to him, or if distribution has been commenced as provided in paragraph (6) to his surviving spouse and such surviving spouse dies before the entire interest has been distributed to such spouse, the entire interest (or the remaining part of such interest if distribution thereof has commenced) will, within 5 years after his death (or the death of the surviving spouse), be distributed, or applied to the purchase of an immediate annuity for his beneficiary or beneficiaries (or the beneficiary or beneficiaries of his surviving spouse) which will be payable for the life of such beneficiary or beneficiaries (or for a term certain not extending beyond the life expectancy of such beneficiary or beneficiaries) and which annuity will be immediately distributed to such beneficiary or beneficiaries. The preceding sentence does not apply if distributions over a term certain commenced before the death of the individual for whose benefit the trust was maintained and the term certain is for a period permitted under paragraph (6). “(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 or his delegate), issued by an insurance company which meets the following requirements: “(1) The contract is not transferable by the owner. “(2) The annual premium under the contract will not exceed $1,500 and 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) The entire interest of the owner will be distributed to him not later than the close of his taxable year in which he attains age 70½, or will be distributed, in accordance with regulations prescribed by the Secretary or his delegate, over— “(A) the life of such owner or the lives of such owner and his spouse, or “(B) a period not extending beyond the life expectancy of such owner or the life expectancy of such owner and his spouse. “(4) If the owner dies before his entire interest has been distributed to him, or if distribution has been commenced as provided in paragraph (3) to his surviving spouse and such surviving spouse dies before the entire interest has been distributed to such spouse, the entire interest (or the remaining part of such interest if distribution thereof has commenced) will, within 5 years after his death (or the death of the surviving spouse), be distributed, or applied to the purchase of an immediate annuity for his beneficiary or beneficiaries (or the beneficiary or beneficiaries of his surviving spouse) which will be payable for the life of such bene-ficiary or beneficiaries (or for a term certain not extending beyond the life expectancy of such beneficiary or beneficiaries) and which annuity will be immediately distributed to such beneficiary or beneficiaries. The preceding sentence shall have no application if distributions over a term certain commenced before the death of the owner and the term certain is for a period permitted under paragraph (3). “(5) 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 70½; 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 $1,500. “(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 26 USC 401. 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 (7) of subsection (a). “(2) There is a separate accounting for the interest of each employee or member. 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 account or under an individual retirement annuity shall be included in gross income by the payee or distributee, as the case may be, for the taxable year in which the payment or distribution is received. The basis of any person in such an account or annuity is zero. “(2) Distributions of annuity contracts.— Paragraph (1) does not apply to any annuity contract which meets the requirements of paragraphs (1), (3), (4), and (5) of subsection (b) and which is distributed from an individual retirement account. Section 72 applies to any such annuity contract, and for purposes 26 USC 72. of section 72 the investment in such contract is zero. “(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) or retirement bond 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) represents the entire amount in the account or the entire value of the annuity and no amount in the account and no part of the value of the annuity is attributable to any source other than a rollover contribution from an employees’ trust described in section 401(a) which is exempt from tax under section 501(a) 26 USC 401, 501. (other than a trust forming part of a plan under which the individual was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan), or an annuity plan described in section 403(a) (other than a plan under which the 26 USC 403. individual was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan) and any earnings on such sums and the entire amount thereof is paid into another such trust (for the benefit of such individual) or annuity plan not later than the 60th day on which he receives the payment or distribution. “(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 3-year period ending on the day of such receipt such individual received any other amount described in that subparagraph from an individual retirement account, individual retirement annuity, or a retirement bond which was not includible in his gross income because of the application of this paragraph. “(4) Excess 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 to the extent that such contribution exceeds the amount allowable as a deduction under section 219 if— Ante, p. 958. “(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 excess contribution, and “(C) such distribution is accompanied by the amount of net income attributable to such excess contribution. Any net income described in subparagraph (C) shall be included in the gross income of the individual for the taxable year in which received. “(5) Transfer of account incident to divorce.— The transfer of an individual’s interest in an individual retirement account, individual retirement annuity, or retirement bond to his former spouse under a divorce decree or under a written instrument incident to such divorce 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, annuity, or bond for purposes of this subtitle is to be treated as maintained for the benefit of such spouse. “(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 26 USC 511. 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 Post, p. 971. such account, such account ceases to be an individual retirement account 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.— In any case in which any account ceases to be an individual retirement account by reason of 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 (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). 26 USC 501, 401. “(f) Additional Tax on Certain Amounts Included in Gross Income Before Age 59½.— “(1) Early distributions from an individual retirement account, etc.— If a distribution from an individual retirement account or under an individual retirement annuity to the individual for whose benefit such account or annuity was established is made before such individual attains age 59½, his tax under this chapter for the taxable year in which such distribution is received shall be increased by an amount equal to 10 percent of the amount of the distribution which is includible in his gross income for such taxable year. “(2) Disqualification cases.— If an amount is includible in gross income for a taxable year under subsection (e) and the taxpayer has not attained age 59½ before the beginning of such taxable year, his tax under this chapter for such taxable year shall be increased by an amount equal to 10 percent of such amount so required to be included in his gross income. “(3) Disability cases.— Paragraphs (1) and (2) do not apply if the amount paid or distributed, or the disqualification of the account or annuity under subsection (e), is attributable to the taxpayer becoming disabled within the meaning of section 72(m)(7). “(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 section 401(d)(1)) or another person who demonstrates, to the satisfaction of the Secretary or his delegate, 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 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 or his delegate and to the individuals for whom the account, contract, or annuity is, or is to be, maintained with respect to contributions, distributions, and such other matters as the Secretary or his delegate may require under regulations. The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by those regulations. “(j) 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.” (c) Retirement Bonds.— Subpart A of part I of subchapter D of chapter I (relating to retirement plans) is amended by inserting after section 408 the following new section: Ante, p. 959. “SEC. 409. RETIREMENT BONDS. “(a) Retirement Bond.— For purposes of this section and section 219(a), the term ‘retirement bond’ means a bond issued under the Ante, p. 958. Second Liberty Bond Act, as amended, which by its terms, or by 31 USC 774. regulations prescribed by the Secretary or his delegate under such Act— “(1) provides for payment of interest, or investment yield, only on redemption; “(2) provides that no interest, or investment yield, is payable if the bond is redeemed within 12 months after the date of its issuance; “(3) provides that it ceases to bear interest, or provide investment yield on the earlier of— “(A) the date on which the individual in whose name it is purchased (hereinafter in this section referred to as the ‘registered owner’) attains age 70½; or “(B) 5 years after the date on which the registered owner dies, but not later than the date on which he would have attained the age 70½ had he lived; “(4) provides that, except in the case of a rollover contribution described in subsection (b)(3)(C) or in section 402(a)(5), Post, p. 991, Post, p. 969, Ante, p. 959. 403(a)(4), or 408(d)(3) the registered owner may not contribute for the purchase of such bonds in excess of $1,500 in any taxable year; and “(5) is not transferable. “(b) Income Tax Treatment of Bonds.— “(1) In general.— Except as otherwise provided in this subsection, on the redemption of a retirement bond the entire proceeds shall be included in the gross income of the taxpayer entitled to the proceeds on redemption. If the registered owner has not tendered it for redemption before the close of the taxable year in which he attains age 70½, such individual shall include in his gross income for such taxable year the amount of proceeds he would have received if the bond had been redeemed at age 70½. The provisions of section 72 (relating to annuities) and section 26 USC 72. 1232 (relating to bonds and other evidences of indebtedness) shall not apply to a retirement bond. “(2) Basis.— The basis of a retirement bond is zero. “(3) Exceptions.— “(A) Redemption within 12 months.— If a retirement bond is redeemed within 12 months after the date of its issuance, the proceeds are excluded from gross income if no deduction is allowed under section 219 on account of the Ante, p. 958. purchase of such bond. “(B) Redemption after age 70½.— If a retirement bond is redeemed after the close of the taxable year in which the registered owner attains age 70½, the proceeds from the redemption of the bond are excluded from the gross income of the registered owner to the extent that such proceeds were includible in his gross income for such taxable year. “(C) Rollover into an individual retirement account or annuity or a qualified plan.— If a retirement bond is redeemed at any time before the close of the taxable year in which the registered owner attains age 70½, and the registered owner transfers the entire amount of the proceeds from the redemption of the bond to an individual retirement account described in section 408(a) or to an individual retirement Ante, p. 959. annuity described in section 408(b) (other than an endowment contract) which is maintained for the benefit of the registered owner of the bond, or to an employees’ trust described in section 401(a) which is exempt from tax under 26 USC 401. 26 USC 501, 403. asection 501(a), or an annuity plan described in section 403(a) for the benefit of the registered owner, on or before the 60th day after the day on which he received the proceeds of such redemption, then the proceeds shall be excluded from gross income and the transfer shall be treated as a rollover contribution described in section 403(d)(3). This subparagraph does 26 USC 403. not apply in the case of a transfer to such an employees’ trust or such an annuity plan unless no part of the value of such proceeds is attributable to any source other than a rollover contribution from such an employees’ trust or annuity plan (other than an annuity plan or a trust forming part of a plan under which the individual was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan). “(c) Additional Tax on Certain Redemptions Before Age 59½.— “(1) Early redemption of bond.— If a retirement bond is redeemed by the registered owner before he attains age 59½, his tax under this chapter for the taxable year in which the bond is redeemed shall be increased by an amount equal to 10 percent of the amount of the proceeds of the redemption includible in his gross income for the taxable year. “(2) Disability cases.— Paragraph (1) does not apply for any taxable year during which the retirement bond is redeemed if, for that taxable year, the registered owner is disabled within the meaning of section 72(m)(7). 26 USC 72. “(3) Redemption within one year.— Paragraph (1) does not apply if the registered owner tenders the bond for redemption within 12 months after the date of its issuance.”. (d) Excise Tax on Excess Contributions.— Chapter 43 (relating to qualified pension, etc., plans) is amended by inserting after section 4972 the following new section: “SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO INDIVIDUAL RETIREMENT ACCOUNTS, CERTAIN SECTION 493(b) CONTRACTS, CERTAIN INDIVIDUAL RETIREMENT ANNUITIES, AND CERTAIN RETIREMENT BONDS. “(a) Tax Imposed.— In the case of— “(1) an individual retirement account (within the meaning of section 408(a)), Ante, p. 959. “(2) 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 Ante, p. 940. for regulated investment company stock), or “(3) a retirement bond (within the meaning of section 409), Ante, p. 964. established for the benefit of any individual, 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, annuities, or bonds (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, annuity, or bond (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, individual retirement annuities, or bonds, 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 or bonds (other than a rollover contribution described in section 402(a)(5), 403(a)(4), 408(d)(3)), Post, pp. 991, 969; Ante, pp. 959, 964. or 409(b)(3)(C), 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 excess (if any) of the maximum amount allowable as a deduction under section 219 for the Ante, p. 958. taxable year over the amount contributed to the accounts or for the annuities or bonds for the taxable year and reduced by the sum of the distributions out of the account (for all prior taxable years) which were included in the gross income of the payee under section 408(d)(1). for purposes of this paragraph, any contribution which is distributed out of the individual retirement account, individual retirement annuity, or bond in a distribution to which section 408(d)(4) applies shall be treated as an amount not contributed.” “(c) Section 403(b) Contracts.— For purposes of this section, in “Excess contributions.” 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, over the lesser of the amount excludable from gross income under section 403(b) or the amount permitted 26 USC 403. Post, p. 979. 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).” 26 USC 72. (e) Excise Tax on Excessive Accumulations.— Chapter 43 is amended by inserting after section 4973 the following new section: “SEC. 4974. EXCISE TAX ON CERTAIN ACCUMULATIONS IN INDIVIDUAL RETIREMENT ACCOUNTS OR ANNUITIES. “(a) Imposition of Tax.— If, in the case of an individual retirement account or individual retirement annuity, the amount distributed during the taxable year of the payee is less than the minimum amount required to be distributed under section 408(a)(6) or (7), or 408(b)(3) Ante, p. 959. or (4) during such year, there is imposed a tax equal to 50 percent of the amount by which the minimum amount required to be distributed during such year exceeds the amount actually distributed during the year. The tax imposed by this section shall be paid by such payee. “(b) Regulations.— For purposes of this section, the minimum amount required to be distributed during a taxable year under section 408(a)(6) or (7) or 408(b)(3) or (4) shall be determined under regulations prescribed by the Secretary or his delegate.”. (f) Penalty for Failure To Provide Reports on Individual Retirement Accounts.— Subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end thereof the following new section: “SEC. 6693. FAILURE TO PROVIDE REPORTS ON INDIVIDUAL RETIREMENT ACCOUNTS OR ANNUITIES. “(a) The person required by section 408(i) to file a report regarding Penalty. Ante, p. 959. an individual retirement account or individual retirement annuity at the time and in the manner required by section 408(i) shall pay a penalty of $10 for each failure unless it is shown that such failure is due to reasonable cause. “(b) Deficiency Procedures Not To Apply.— Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, 26 USC 6211. and certain excise taxes) does not apply to the assessment or collection of any penalty imposed by subsection (a).”. (g) Conforming Amendments.— (1) Section 37(c)(1) (defining retirement income) is amended— 26 USC 37. (A) by striking out “and” at the end of subparagraph (D), (B) by adding at the end of subparagraph (E) the following: “retirement bonds described in section 409, and”, and (C) by adding at the end thereof the following new paragraph: “(F) an individual retirement account described in section 408(a) or an individual retirement annuity described in section 408(b), or”. (2) The second sentence of section 46(a)(3) and the second sentence of section 50A(a)(3), as each is amended by sections 2001(g)(2)(B) 26 USC 46, 50A. Ante, p. 952, Post, p. 987. and 2005(c)(4) of this Act, are each amended by inserting after “owner-employees,” the following: “section 408(e) (relating to additional tax on income from certain retirement accounts),”. (3) The third sentence of section 901(a), as amended by section 26 USC 901. 2005(c)(5) of this Act, is amended by inserting “against the tax imposed for the taxable year by section 408(f) (relating to additional tax on income from certain retirement accounts),” before “against the tax imposed by section 531”. (4) Subparagraph (A) of section 56(a)(2) and paragraph (1) 26 USC 56. of section 56(c) are each amended by striking out “531” and inserting in lieu thereof “408(f), 531,”. (5) Section 402(a) (relating to taxability of beneficiary of 26 USC 402. exempt trust), as amended by section 2005(c)(2) of this Act, is amended by inserting after paragraph (5) the following new paragraph: “(5) Rollover amounts.— In the case of an employees’ trust described in section 401(a) which is exempt from tax under section 501(a), 26 USC 401. 26 USC 501. if— “(A) the balance to the credit of an employee is paid to him on one or more distributions which constitute a lump sum distribution within the meaning of subsection (e)(4)(A) (determined without reference to subsection (e)(4)(B)), “(B) (i) the employee transfers all the property he receives in such distribution to an individual retirement account described in section 408(a), an individual retirement annuity described in section 408(b) (other than an endowment contract), or a retirement bond described in section 409, on or before the 60th day after the day on which he received such property, to the extent the fair market value of such property exceeds the amount referred to in subsection (e)(4)(D)(i), or “(ii) the employee transfers all the property he receives in such distribution to an employees’ trust described in section 401(a) which is exempt from tax under section 501(a), or to an annuity plan described in section 403(a) on or before 26 USC 403. the 60th day after the day on which he received such property, to the extent the fair market value of such property exceeds the amount referred to in subsection (e)(4)(D)(i), and “(C) the amount so transferred consists of the property (other than money) distributed, to the extent that the fair market value of such property does not exceed the amount required to be transferred pursuant to subparagraph (B), then such distributions are not includible in gross income for the year in which paid. For purposes of this title, a transfer described in subparagraph (B)(i) shall be treated as a rollover contribution as described in section 408(d)(3). Subparagraph (B)(ii) Ante, p. 959. does not apply in the case of a transfer to an employees’ trust, or annuity plan if any part of the lump sum distribution described in subparagraph (A) is attributable to a trust forming part of a plan under which the employee was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan.” (6) Section 403(a) (relating to taxation of employee annuities) is amended by adding after paragraph (3) the following new paragraph: “(4) Rollover amounts.— In the case of an employee annuity described in 403(a), if— “(A) the balance to the credit of an employee is paid to him in one or more distributions which constitute a lump sum distribution within the meaning of section 402(e)(4)(A) 26 USC 402. determined without reference to section 402(e)(4)(B), “(B) (i) the employee transfers all the property he receives in such distribution to an individual account described in section 408(a), an individual retirement annuity described in section 408(b) (other than an endowment contract), or a retirement bond described in section 409, on Ante, p. 964. or before the 60th day after the day on which he received such property to the extent the fair market value of such property exceeds the amount referred to in section 402(e)(4)(D)(i), or “(ii) the employee transfers all the property he receives in such distribution to an employees’ trust described in section 401(a) which is exempt from tax under section 501(a), or to an annuity plan described in subsection (a) on or before the 60th day after the day on which he received such property to the extent the fair market value of such property exceeds the amount referred to in section 402(e)(4)(D)(i), and “(C) the amount so transferred consists of the property distributed to the extent that the fair market value of such property does not exceed the amount required to be transferred pursuant to subparagraph (B), then such distribution is not includible in gross income for the year in which paid. For purposes of this title, a transfer described in subparagraph (B)(i) shall be treated as a rollover contribution described in section 408(d)(3). Subparagraph (B)(ii) does not apply in the case of a transfer to an employees’ trust, or annuity plan if any part of the lump sum distribution described in subparagraph (A) is attributable to an annuity plan under which the employee was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan.”. (7) Section 3401(a)(12) (relating to exemption from collection 26 USC 3401. of income tax at source on certain wages) is amended by adding at the end thereof the following new subparagraph: “(D) for a payment described in section 219(a) if, at the Ante, p. 958. time of such payment, it is reasonable to believe that the employee will be entitled to a deduction under such section for payment; or”. (8) Section 6047 (relating to information relating to certain 26 USC 6047. trusts and annuity and bond purchase plans) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: “(d) Other Programs.— To the extent provided by regulations prescribed by the Secretary or his delegate, the provisions of this section apply with respect to any payment described in section 219(a) and to transactions of any trust described in section 408(a) or under Ante, p. 959. an individual retirement annuity described in section 408(b).”. (9) Section 805(d)(1) (relating to definition of pension plan Pension plan reserves. 26 USC 805. reserves) is amended by striking out “or” at the end of subparagraph (C), by striking out “foregoing.” at the end of subparagraph (D) and inserting in lieu thereof “foregoing; or”, and by adding at the end thereof the following new subparagraph: “(E) purchased under contracts entered into with trusts which (at the time the contracts were entered into) were individual retirement accounts described in section 408(a) or under contracts entered into with individual retirement annuities described in section 408(b).” (10) Section 72 (relating to annuities) is amended— 26 USC 72. (A) by inserting after “501(a)” in subsection (m)(4)(A) “, an individual retirement amount described in section 408(a), an individual retirement annuity described in section 408(b)”. (B) by striking out at the end of subsection (m)(6) “401(c)(3)” and inserting in lieu thereof “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”. (11) Section 801(g)(7) (relating to basis of assets held for 26 USC 801. qualified pension plan contracts) is amended by striking out “or (D)” and inserting in lieu thereof “(D), or (E)”. (h) Clerical Amendments.— (1) The table of sections for part VII of subchapter B of chapter 1 is amended by striking out the item relating to section 219 and inserting in lieu thereof the following: “Sec. 219. Retirement savings. “Sec. 220. Cross references.”. (2) The table of sections for subpart A of part I of subchapter D of chapter 1 is amended by adding at the end thereof the following: “Sec. 408. Individual retirement accounts. “Sec. 409. Retirement bonds.”. (3) The table of sections for chapter 43 is amended by inserting after the item relating to section 4972 the following new items: “Sec. 4973. Tax on excess contributions to individual retirement accounts, certain 403(b) contracts, certain individual retirement annuities, and certain retirement bonds. “Sec. 4974. Tax on certain accumulations in individual retirement accounts. “Sec. 4975. Tax on prohibited transactions.”, (4) The table of sections for subchapter B of chapter 68 is amended by adding at the end thereof the following new item: “Sec. 6693. Failure to provide reports on individual retirement accounts or annuities.”. (i) Effective Dates.— (1) The amendments made by subsections (a), (b), and (c) 26 USC 219 note. apply to taxable years beginning after December 31, 1974. (2) The amendments made by subsections (d) through (h) 26 USC 4973 note. except subsection (g)(5) and (6) shall take effect on January 1, 1975. (3) The amendments made by subsection (g)(5) and (6) 26 USC 402 note. shall apply on and after the date of enactment of this Act with respect to contributions to an employees’ trust described in section 401(a) of the Internal Revenue Code of 1954 which is exempt from tax under section 501(a) of such Code or an annuity plan described in section 403(a) of such Code. SEC. 2003. PROHIBITED TRANSACTIONS. (a) Excise Tax on Prohibited Transactions.— Chapter 43 (relating to qualified pension, etc., plans) is amended by adding after section 4974 the following new section: “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 5 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 correction 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 or his delegate 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 Exemption. or his delegate 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 Notice, publication in Federal Register. or his delegate 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 or his delegate 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 or his delegate 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 for 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. “(d) Exemptions.— 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, officers, or shareholders 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 an 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 or his delegate 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 or his delegate, 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 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 the plan shall receive compensation from such plan, 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); or Post, p. 1025. “(13) any transaction which is exempt from section 406 of such 26 USC 406. Ante, p. 959. Act by reason of section 408(e) of such Act (or which would be so exempt if such section 406 applied to such transaction). The exemptions provided by this subsection (other than paragraphs (9) and (12) shall not apply to any transaction with respect to 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)) in which a plan directly or indirectly lends any part of the corpus or income of the plan to, pays any compensation for personal services rendered to the plan to, or 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 a corporation controlled 26 USC 267. by any such owner-employee through the ownership, directly or indirectly, of 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. For purposes of the preceding sentence, a shareholder-employee (as defined in section 1379), a participant or beneficiary of an individual retirement 26 USC 1379. account, individual retirement annuity, on an individual retirement bond (as defined in section 408 or 409), and an employer or association of employees which establishes such an account or annuity under section 408(c) shall be deemed to be an owner-employee. “(e) Definitions.— “(1) Plan.— For purposes of this section, the term ‘plan’ means a trust described in section 401(a) which forms a part of a plan, or a plan described in section 403(a), or 405(a), which trust or Ante, p. 969. 26 USC 405. Ante, p. 959. plan is exempt from tax under section 501(a), an individual retirement account described in section 408(a), or an individual retirement annuity described in section 408(b) or a retirement bond described in section 409 (or a trust, plan, account, annuity, or bond which, at any time, has been determined by the Secretary or his delegate to be such a trust, plan, account, or bond). “(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. Ante, p. 878. “(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), 26 USC 267. 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 interest 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 plan and money purchase plan both of which are qualified under section 401(a), and which are designed to Ante, p. 953. invest primarily in qualifying employer securities; and “(B) which is otherwise defined in regulations prescribed by the Secretary or his delegate. “(8) Qualifying employer security.— The term ‘qualifying employer security’ means an employer security which is— “(A) stock or otherwise an equity security, or “(B) a bond, debenture, note, or certificate or other evidence of indebtedness which is described in paragraphs (1), 26 USC 503. (2), and (3) of section 503(e). 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 15 USC 80a–51. 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. “(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 earlier of— “(A) the date of mailing of a notice of deficiency pursuant to section 6212, with respect to the tax imposed by subsection 26 USC 6212. (a), or “(B) the date on which correction of the prohibited transaction is completed. “(3) Sale or exchange; encumbered property.— A transfer of 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— 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 correction 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) Correction period.— The term ‘correction period’ means, with respect to a prohibited transaction, the period beginning with the date on which the prohibited transaction occurs and ending 90 days after the date of mailing of a notice of deficiency with respect to the tax imposed by subsection (b) under section 6212, extended by— “(A) any period in which a deficiency cannot be assessed under section 6213(a), and “(B) any other period which the Secretary or his delegate determines is reasonable and necessary to bring about the correction of the prohibited transaction. “(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 Ante, p. 874. 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 Ante, p. 925. “(3) to a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has Ante, p. 898. 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, 15 USC 80a–51. 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 or his delegate 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 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.” (b) Amendment of Section 503.— Section 503 (relating to requirements 26 USC 503. for exemption) is amended— (1) by striking out “or (18)” in subsection (a)(1)(A), (2) by amending subsection (a)(1)(B) by inserting “which is referred to in section 4975(g) (2) or (3)” after “described in section 401(a)”, (3) by striking out “or section 401” in subsection (a)(2) and inserting in lieu thereof “or paragraph (1)(B)”, (4) by striking out “or section 401” in subsection (c) and inserting in lieu thereof “or subsection (a)(1)(B)”, and (5) by striking out subsection (g). (c) Effective Date and Savings Provisions.— (1) (A) The amendments made by this section shall take effect on January 1, 1975. (B) If, before the amendments made by this section take effect, an organization described in section 401(a) of the Internal Revenue Code of 1954 is denied exemption under section 501(a) Ante, p. 935. 26 USC 501. of such Code by reason of section 503 of such Code, the denial of such exemption shall not apply if the disqualified person elects (in such manner and at such time as the Secretary or his delegate shall by regulations prescribe) to pay, with respect to the prohibited transaction (within the meaning of section 503 (b) or (g)) which resulted in such denial of exemption, a tax in the amount and in the manner provided with respect to the tax imposed under section 4975 of such Code. An election made under Ante, p. 971. Regulations. this subparagraph, once made, shall be irrevocable. The Secretary of the Treasury or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph. (2) Section 4975 of the Internal Revenue Code of 1954 (relating to tax on prohibited transactions) shall not apply to— (A) a loan of money or other extension of credit between a plan and a disqualified person under a binding contract in effect on July 1, 1974 (or pursuant to renewals of such a contract), until June 30, 1984, if such loan or other extension of credit remains at least as favorable to the plan as an arm’s-length transaction with an unrelated party would be, and if the execution of the contract, the making of the loan, or the extension of credit was not, at the time of such execution, making, or extension, a prohibited transaction (within the meaning of section 503(b) of such Code or the corresponding provisions of prior law); (B) a lease or joint use of property involving the plan and a disqualified person pursuant to a binding contract in effect on July 1, 1974 (or pursuant to renewals of such a contract), until June 30, 1984, if such lease or joint use remains at least as favorable to the plan as an arm’s-length transaction with an unrelated party would be and if the execution of the contract was not, at the time of such execution, a prohibited transaction (within the meaning of section 503(b) of such Code) or the corresponding provisions of prior law; 26 USC 503. (C) the sale, exchange, or other disposition of property described in subparagraph (B) between a plan and a disqualified person before June 30, 1984, if— (i) in the case of a sale, exchange, or other disposition of the property by the plan to the disqualified person, the plan receives an amount which is not less than the fair market value of the property at the time of such disposition; and (ii) in the case of the acquisition of the property by the plan, the plan pays an amount which is not in excess of the fair market value of the property at the time of such acquisition; (D) Until June 30, 1977, the provision of services to which subparagraphs (A), (B), and (C) do not apply between a plan and a disqualified person (i) under a binding contract in effect on July 1, 1974 (or pursuant to renewals of such contract), or (ii) if the disqualified person ordinarily and customarily furnished such services on June 30, 1974, if such provision of services remains at least as favorable to the plan as an arm’s-length transaction with an unrelated party would be and if the provision of services was not, at the time of such provision, a prohibited transaction (within the meaning of section 503(b) of such Code) or the corresponding provisions of prior law; or (E) the sale, exchange, or other disposition of property which is owned by a plan on June 30, 1974, and all times thereafter, to a disqualified person, if such plan is required to dispose of such property in order to comply with the provisions of section 407(a)(2)(A) (relating to the prohibition against holding excess employer securities and employer real property) of the Employee Retirement Income Security Act of 1974, and if the plan receives not less than adequate Ante, p. 880. consideration. For the purposes of this paragraph, the term “disqualified person” has the meaning provided by section 4975(e)(2) of the Internal Revenue Code of 1954. Ante, p. 971. SEC. 2004. LIMITATIONS ON BENEFITS AND CONTRIBUTIONS. (a) Plan Requirements.— (1) Section 401(a) (relating to requirements for qualification) is amended by inserting after paragraph (15) the following new Ante, p. 938. paragraph: “(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.” Infra. (2) Subpart B of part I of subchapter D of chapter 1 is amended by inserting after section 414 the following new section: “SEC. 415. LIMITATIONS ON BENEFITS AND CONTRIBUTION UNDER QUALIFIED PLANS. “(a) General Rule.— “(1) Trusts.— A trust which is a part of a pension, profit-sharing, or stock bonus plan shall not constitute a qualified trust under section 401(a) if— Ante, p. 935. “(A) in the case of a defined benefit plan, the plan provides for the payment of benefits with respect to a participant which exceed the limitation of subsection (b), “(B) in the case of a defined contribution plan, contributions and other additions under the plan with respect to any participant for any taxable year exceed the limitation of subsection (c), or “(C) in any case in which an individual is a participant in both a defined benefit plan and a defined contribution plan maintained by the employer, the trust has been disqualified under subsection (g). “(2) Section applies to certain annuities and accounts.— in the case of— “(A) an employee annuity plan described in section 403(a), Ante, p. 969. “(B) an annuity contract described in section 403(b), 26 USC 403. “(C) an individual retirement account described in section 408(a), Ante, p. 959. “(D) an individual retirement annuity described in section 408(b), “(E) a plan described in section 405(a), or 26 USC 405. “(F) a retirement bond described in section 409, Ante, p. 964. such contract, annuity plan, account, annuity, plan, or bond shall not be considered to be described in section 403(a), 403(b), 405(a), 408(a), 408(b), or 409, as the case may be, unless it satisfies the Ante, p. 959. requirements of subparagraph (A) or subparagraph (B) of paragraph (1), whichever is appropriate, and has not been disqualified under subsection (g). In the case of an annuity contract described in section 403(b), the preceding sentence shall apply only to the portion of the annuity contract which exceeds the limitation of subsection (b) or the limitation of subsection (c), whichever is appropriate, and the amount of the contribution for such portion shall reduce the exclusion allowance as provided in section 403(b)(2). “(b) Limitation for Defined Benefit Plans.— “(1) In general.— Benefits with respect to a participant exceed the limitation of this subsection if, when expressed as an annual benefit (within the meaning of paragraph (2)), such annual benefit is greater than the lesser of— “(A) $75,000, or “(B) 100 percent of the participant’s average compensation for his high 3 years. “(2) Annual benefit.— “(A) In general.— For purposes of paragraph (1), the term ‘annual benefit’ means a benefit payable annually in the form of a straight life annuity (with no ancillary benefits) under a plan to which employees do not contribute and under which no rollover contributions (as defined in sections 402(a)(5), 403(a)(4), 408(d)(3), and 409(b)(3)(C)) are made. Ante, pp. 968, 969. “(B) Adjustment for certain other forms of benefit.— If the benefit under the plan is payable in any form other than the form described in subparagraph (A), or if the employees contribute to the plan or make rollover contributions (as defined in sections 402(a)(5), 403(a)(4), 408(d)(3) and 409(b)(3)(C)), the determinations as to whether the limitation described in paragraph (1) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary or his delegate, by adjusting such benefit so that it is equivalent to the benefit described in subparagraph (A). For purposes of this subparagraph, any ancillary benefit which is not directly related to retirement income benefits shall not be taken into account; and that portion of any joint and survivor annuity which constitutes a qualified joint and survivor annuity (as defined in section 401(a)(11)(H)(iii)) Ante, p. 935. shall not be taken into account. “(C) Adjustment to $75,000 limit where benefit begins before age 55.— If the retirement income benefit under the plan begins before age 55, the determination as to whether the $75,000 limitation set forth in paragraph (1)(A) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary or his delegate, by adjusting such benefit so that it is equivalent to such a benefit beginning at age 55. “(3) Average compensation for high 3 years.— For purposes of paragraph (1), a participant’s high 3 years shall be the period of consecutive calendar years (not more than 3) during which the participant both was an active participant in the plan and had the greatest aggregate compensation from the employer. In the case of an employee within the meaning of section 401(c)(1), the preceding sentence shall be applied by substituting 26 USC 401. for ‘compensation from the employer’ the following: ‘the participant’s earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911). “(4) Total annual benefits not in excess of $10,000.— Notwithstanding the preceding provisions of this subsection, the benefits payable with respect to a participant under any defined benefit plan shall be deemed not to exceed the limitation of this subsection if— “(A) the retirement benefits payable with respect to such participant under such plan and under all other defined benefit plans of the employer do not exceed $10,000 for the plan year, or for any prior plan year, and “(B) the employer has not at any time maintained a defined contribution plan in which the participant participated. “(5) Reduction for service less than 10 years.— In the case of an employee who has less than 10 years of service with the employer, the limitation referred to in paragraph (1), and the limitation referred to in paragraph (4), shall be the limitation determined under such paragraph (without regard to this paragraph), multiplied by a fraction, the numerator of which is the number of years (or part thereof) of service with the employer and the denominator of which is 10. “(6) Computation of benefits and contributions.— The computation of— “(A) benefits under a defined contribution plan, for purposes of section 401(a)(4), Ante, p. 938. “(B) contributions made on behalf of a participant in a defined benefit plan, for purposes of section 401(a)(4), and “(C) contributions and benefits provided for a participant in a plan described in section 414(k), for purposes of this Ante, p. 925. section shall not be made on a basis inconsistent with regulations prescribed by the Secretary or his delegate. “(c) Limitation for Defined Contribution Plans.— “(1) In general.— Contributions and other additions with respect to a participant exceed the limitation of this subsection if when expressed as an annual addition (within the meaning of paragraph (2)) to the participant’s account, such annual addition is greater than the lesser of— “(A) $25,000, or “(B) 25 percent of the participant’s compensation. “(2) Annual addition.— For purposes of paragraph (1), the term ‘annual addition’ means the sum for any year of— “(A) employer contributions, “(B) the lesser of— “(i) the amount of the employee contributions in excess of 6 percent of his compensation, or “(ii) one-half of the employee contributions, and “(C) forfeitures. For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections 402(a)(5), 403(a)(4), Ante, pp. 968, 969, 959, 964. 408(d)(3), and 409(b)(3)(C)). “(3) Participant’s compensation.— For purposes of paragraph (1), the term ‘participant’s compensation’ means the compensation of the participant from the employer for the year. In the case of an employee within the meaning of section 401(c)(1), 26 USC 401. the preceding sentence shall be applied by substituting for ‘compensation of the participant from the employer’ the following: ‘the participant’s earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911)’. “(4) Special election for section 403(b) contracts purchased by educational institutions, hospitals, and home health service agencies.— “(A) In the case of amounts contributed for an annuity contract described in section 403(b) for the year in which 26 USC 403. occurs a participant’s separation from the service with an educational institution, a hospital, or a home health service agency, at the election of the participant there is substituted for the amount specified in paragraph (1)(B) the amount of the exclusion allowance which would be determined under section 403(b)(2) (without regard to this section) for the Post, p. 986. participant’s taxable year in which such separation occurs if the participant’s years of service were computed only by taking into account his service for the employer during the period of years (not exceeding ten) ending on the date of such separation. “(B) In the case of amounts contributed for an annuity contract described in section 403(b) for any year in the case of a participant who is an employee of an educational institution, a hospital, or a home health service agency, at the election of the participant there is substituted for the amount specified in paragraph (1)(B) the least of— “(i) 25 percent of the participant’s includible compensation (as defined in section 403(b)(3)) plus $4,000, “(ii) the amount of the exclusion allowance determined for the year under section 403(b)(2), or “(iii) $15,000. “(C) In the case of amounts contributed for an annuity contract described in section 403(b) for any year for a participant who is an employee of an educational institution, a hospital, or a home health service agency, at the election of the participant the provisions of section 403(b)(2)(A) shall not apply. “(D) (i) The provisions of this paragraph apply only if the participant elects its application at the time and in the manner provided under regulations prescribed by the Secretary or his delegate. Not more than one election may be made under subparagraph (A) by any participant. A participant who elects to have the provisions of subparagraph (A), (B), or (C) of this paragraph apply to him may not elect to have any other subparagraph of this paragraph apply to him. Any election made under this paragraph is irrevocable. “(ii) For purposes of this paragraph the term ‘educational “Educational institution.” 26 USC 151. institution’ means an educational institution as defined in section 151(e)(4). “(iii) For purposes of this paragraph the term ‘home “Home health service agency.” 26 USC 501. health service agency’ means an organization described in subsection 501(c)(3) which is exempt from tax under section 501(a) and which has been determined by the Secretary of Health, Education, and Welfare to be a home health agency (as defined in section 1861(o) of the Social Security Act). “(d) Cost-of-Living Adjustments.— “(1) In general.— The Secretary or his delegate shall adjust annually— “(A) the $75,000 amount in subsection (b)(1)(A), “(B) the $25,000 amount in subsection (c)(1)(A), and “(C) in the case of a participant who is separated from service, the amount taken into account under subsection (b)(1)(B), for increases in the cost of living in accordance with regulations prescribed by the Secretary or his delegate. Such regulations shall provide for adjustment procedures which are similar to the procedures used to adjust primary insurance amounts under section 215(i)(2)(A) of the Social Security Act. 42 USC 415. “(2) Base periods.— The base period taken into account— “(A) for purposes of subparagraphs (A) and (B) of paragraph (1) is the calendar quarter beginning October 1, 1974, and “(B) for purposes of subparagraph (C) of paragraph (1) is the last calendar quarter of the calendar year before the calendar year in which the participant is separated from service. “(e) Limitation in Case of Defined Benefit Plan and Defined Contribution Plan for Same Employee.— “(1) In general.— In any case in which an individual is a participant in both a defined benefit plan and a defined contribution plan maintained by the same employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any year may not exceed 1.4. “(2) Defined benefit plan fraction.— For purposes of this subsection, the defined benefit plan fraction for any year is a fraction— “(A) the numerator of which is the projected annual benefit of the participant under the plan (determined as of the close of the year), and “(B) the denominator of which is the projected annual benefit of the participant under the plan (determined as of the close of the year) if the plan provided the maximum benefit allowable under subsection (b). “(3) Defined contribution plan fraction.— For purposes of this subsection, the defined contribution plan fraction for any year is a fraction— “(A) the numerator of which is the sum of the annual additions to the participant’s account as of the close of the year, and “(B) the denominator of which is the sum of the maximum amount of annual additions to such account which could have been made under subsection (c) for such year and for each prior year of service with the employer. “(4) Special transition rules for defined contribution fraction.— In applying paragraph (3) with respect to years beginning before January 1, 1976— “(A) the aggregate amount taken into account under paragraph (3)(A) may not exceed the aggregate amount taken into account under paragraph (3)(B), and “(B) the amount taken into account under subsection (c)(2)(B)(i) for any year concerned is an amount equal to— “(i) the excess of the aggregate amount of employee contributions for all years beginning before January 1, 1976, during which the employee was an active participant of the plan, over 10 percent of the employee’s aggregate compensation for all such years, multiplied by “(ii) a fraction the numerator of which is 1 and the denominator of which is the number of years beginning before January 1, 1976, during which the employee was an active participant in the plan. Employee contributions made on or after October 2, 1973, shall be taken into account under subparagraph (B) of the preceding sentence only to the extent that the amount of such contributions does not exceed the maximum amount of contributions permissible under the plan as in effect on October 2, 1973. “(5) Special rules for sections 403(b) and 408.— For purposes 26 USC 403. Ante, p. 959. of this subsection, any annuity contract described in section 403(b) (except in the case of a participant who has elected under subsection (c)(4)(D) to have the provisions of subsection (c)(4)(C) apply), any individual retirement account described in section 408(a), any individual retirement annuity described in section 408(b), and any retirement bond described in section 409, for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (h)). In the case of Ante, p. 925. any annuity contract described in section 403(b), the amount of the contribution disqualified by reason of subsection (g) shall reduce the exclusion allowance as provided in section 403(b)(2). “(f) Combining of Plans.— “(1) In general.— For purposes of applying the limitations of subsections (b), (c), and (e)— “(A) all defined benefit plans (whether or not terminated) of an employer are to be treated as one defined benefit plan, and “(B) all defined contribution plans (whether or not terminated) of an employer are to be treated as one defined contribution plan. “(2) Annual compensation taken into account for defined benefit plans.— If the employer has more than one defined benefit plan— “(A) subsection (b)(1)(B) shall be applied separately with respect to each such plan, but “(B) in applying subsection (b)(1)(B) to the aggregate of such defined benefit plans for purposes of this subsection, the high 3 years of compensation taken into account shall be the period of consecutive calendar years (not more than 3) during which the individual had the greatest aggregate compensation from the employer. “(g) Aggregation of Plans.— The Secretary or his delegate, in applying the provisions of this section to benefits or contributions under more than one plan maintained by the same employer, and to any trusts, contracts, accounts, or bonds referred to in subsection (a)(2), with respect to which the participant has the control required under section 414(b) or (c), as modified by subsection (h), shall, under Ante, p. 925. regulations prescribed by the Secretary or his delegate, disqualify one or more trusts, plans, contracts, accounts, or bonds, or any combination thereof until such benefits or contributions do not exceed the limitations contained in this section. In addition to taking into account such other factors as may be necessary to carry out the purposes of subsections (e) and (f), the regulations prescribed under this paragraph shall provide that no plan which has been terminated shall be disqualified until all other trusts, plans, contracts, accounts, or bonds have been disqualified. “(h) 50 Percent Control.— For purposes of applying subsections (b) and (c) of section 414 to this section, the phrase ‘more than 50 percent’ shall be substituted for the phrase ‘at least 80 percent’ each place it appears in section 1563(a)(1). 26 USC 1563. “(i) Records Not Available for Past Periods.— Where for the period before January 1, 1976, or (if later) the first day of the first plan year of the plan, the records necessary for the application of this section are not available, the Secretary or his delegate may by regulations prescribe alternative methods for determining the amounts to be taken into account for such period. “(j) Regulations; Definition of Year.— The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section, including, but not limited to, regulations defining the term ‘year’ for purposes of any provision of this section. “(k) Special Rules.— “(1) Defined benefit plan and defined contribution plan.— For purposes of this title, the term ‘defined contribution plan’ or ‘defined benefit plan’ means a defined contribution plan (within the meaning of section 414(i)) or a defined benefit plan (within the meaning of section 414(j)), whichever applies, which is— “(A) a plan described in section 401(a) which includes a 26 USC 401. 26 USC 501. trust which is exempt from tax under section 501(a), “(B) an annuity plan described in section 403(a), 26 USC 403. “(C) a qualified bond purchase plan described in section 405(a), 26 USC 405. “(D) an annuity contract described in section 403(b), “(E) an individual retirement account described in section 408(a), Ante, p. 959. “(F) an individual retirement annuity described in section 408(b), or “(G) an individual retirement bond described in section 409.”. Ante, p. 964. (3) Special rule for certain plans in effect on date of enactment.— In any case in which, on the date of enactment of this Act, an individual is a participant in both a defined benefit plan and a defined contribution plan maintained by the same employer, and the sum of the defined benefit plan fraction and the defined contribution plan fraction for the year during which such date occurs exceeds 1.4, the sum of such fractions may continue to exceed 1.4 if— (A) the defined benefit plan fraction is not increased, by amendment of the plan or otherwise, after the date of enactment of this Act, and (B) no contributions are made under the defined contribution plan after such date. A trust which is part of a pension, profit-sharing, or stock bonus plan described in the preceding sentence shall not be treated as not constituting a qualified trust under section 401(a) of the Internal Revenue Code of 1954 on account of the provisions of section 26 USC 401. Ante, p. 979. 415(e) of such Code, as long as it is described in the preceding sentence of this subsection. (b) Limit on Employer Deductions.— The second sentence of section 404(a)(3)(A) (relating to limits on deductible contributions) 26 USC 404. is amended by striking out “beneficiaries under the plan.” and inserting in lieu thereof “beneficiaries under the plan, but the amount so deductible under this sentence in any one succeeding taxable year together with the amount so deductible under the first sentence of this subparagraph shall not exceed 25 percent of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plan.”. (c) Certain Annuity and Bond Purchase Plans.— (1) Section 404(a)(2) (relating to the general rule for deduction for employee annuities) is amended by striking out “(15)” and inserting in lieu thereof “(15), (16), and (19)” and by striking out “(a)(9) and (10)” and inserting in lieu thereof “(a)(9), (10), (17), and (18)”. (2) Section 405(a)(1) (relating to requirements for qualified bond purchase plans) is amended by striking out “and (8),” and inserting in lieu thereof “(8), (16), and (19)”. (3) Section 805(d)(1)(C) (relating to pension plan reserves) 26 USC 805. is amended by striking out “and (15)” and inserting in lieu thereof “(15), (16), and (19)”. (4) Section 403(b)(2) (relating to exclusion allowance) is 26 USC 403. amended to read as follows: “(2) Exclusion allowance.— “(A) In general.— For purposes of this subsection, the exclusion allowance for any employee for the taxable year is an amount equal to the excess, if any, of— “(i) the amount determined by multiplying 20 percent of his includible compensation by the number of years of service, over “(ii) the aggregate of the amounts contributed by the employer for annuity contracts and excludible from the gross income of the employee for any prior taxable year. “(B) Election to have allowance determined under section 415 rules.— In the case of an employee who makes an election under section 415(c)(4)(D) to have the provisions of section 415(c)(4)(C) (relating to special rule for section 408(b) contracts purchased by educational institutions, hospitals, and home health service agencies) apply, the exclusion allowance for any such employee for the taxable year is the amount which could be contributed (under section 415) by his employer under a plan described in section 408(a) if the annuity contract for the benefit of such employee were treated as a defined contribution plan maintained by the employer.” (d) Effective date.— (1) General rule.— The amendments made by this section shall apply to years beginning after December 31, 1975. The Secretary of the Treasury shall prescribe such regulations as may be necessary to carry out the provisions of this paragraph. (2) Transition rule for defined benefit plans.— In the case of an individual who was an active participant in a defined benefit plan before October 3, 1973, if— (A) the annual benefit (within the meaning of section 415(b)(2) of the Internal Revenue Code of 1954) payable Ante, p. 979. to such participant on retirement does not exceed 100 percent of his annual rate of compensation on the earlier of (i) October 2, 1973, or (ii) the date on which he separated from the service of the employer, (B) such annual benefit is no greater than the annual benefit which would have been payable to such participant on retirement if (i) all the terms and conditions of such plan in existence on such date had remained in existence until such retirement, and (ii) his compensation taken into account for any period after October 2, 1973, had not exceeded his annual rate of compensation on such date, and (C) in the case of a participant who separated from the service of the employer prior to October 2, 1973, such annual benefit is no greater than his vested accrued benefit as of the date he separated from the service, then such annual benefit shall be treated as not exceeding the limitation of subsection (b) of section 415 of the Internal Revenue Code of 1954. SEC. 2005. TAXATION OF CERTAIN LUMP SUM DISTRIBUTIONS. (a) Treatment of total distributions.— Section 402(e) (relating 26 USC 402. to certain plan terminations) is amended to read as follows: “(e) Tax on Lump Sum Distributions.— (1) Imposition of separate tax on lump sum distributions.— “(A) Separate tax.— There is hereby imposed a tax (in the amount determined under subparagraph (B)) on the ordinary income portion of a lump sum distribution. “(B) Amount of tax.— The amount of tax imposed by subparagraph (A) for any taxable year shall be an amount equal to the amount of the initial separate tax for such taxable year multiplied by a fraction, the numerator of which is the ordinary income portion of the lump sum distribution for the taxable year and the denominator of which is the total taxable amount of such distribution for such year. “(C) Initial separate tax.— The initial separate tax for any taxable year is an amount equal to 10 times the tax which would be imposed by subsection (c) of section 1 if the recipient were an individual referred to in such subsection and the taxable income were an amount equal to one-tenth of the excess of— “(i) the total taxable amount of the lump sum distribution for the taxable year, over “(ii) the minimum distribution allowance. “(D) Minimum distribution allowance.— For purposes of this paragraph, the minimum distribution allowance for the taxable year is an amount equal to— “(i) the lesser of $10,000 or one-half of the total taxable amount of the lump sum distribution for the taxable year, reduced (but not below zero) by “(ii) 20 percent of the amount (if any) by which such total taxable amount exceeds $20,000. “(E) Liability for tax.— The recipient shall be liable for the tax imposed by this paragraph. “(2) Multiple distributions and distributions of annuity contracts.— In the case of any recipient of a lump sum distribution for the taxable year with respect to whom during the 6-taxable-year period ending on the last day of the taxable year there has been one or more other lump sum distributions after December 31, 1973, or if the distribution (or any part thereof) is an annuity contract, in computing the tax imposed by paragraph (1) (A), the total taxable amounts of all such distributions during such 6-taxable-year period shall be aggregated, but the amount of tax so computed shall be reduced (but not below zero) by the sum of— “(A) the amount of the tax imposed by paragraph (1)(A) paid with respect to such other distributions, plus “(B) that portion of the tax on the aggregated total taxable amounts which is attributable to annuity contracts. For purposes of this paragraph, a beneficiary of a trust to which a lump sum distribution is made shall be treated as the recipient of such distribution if the beneficiary is an employee (including an employee within the meaning of section 401(c)(1)) with respect 26 USC 401. to the plan under which the distribution is made or if the beneficiary is treated as the owner of such trust for purposes of subpart E of part I of subchapter J. In the case of the distribution 26 USC 671. of an annuity contract, the taxable amount of such distribution shall be deemed to be the current actuarial value of the contract, determined on the date of such distribution. In the case of a lump sum distribution with respect to any individual which is made only to two or more trusts, the tax imposed by paragraph (1)(A) shall be computed as if such distribution was made to a single trust, but the liability for such tax shall be apportioned among such trusts according to the relative amounts received by each. The Secretary or his delegate shall prescribe such regulations Regulations. as may be necessary to carry out the purposes of this paragraph. “(3) Allowance of deduction.— The ordinary income portion of a lump sum distribution for the taxable year shall be allowed as a deduction from gross income for such taxable year, but only to the extent included in the taxpayer’s gross income for such taxable year. “(4) Definitions and special rules.— “(A) Lump sum distribution.— For purposes of this section and section 403, the term ‘lump sum distribution’ 26 USC 403. 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 59½, “(iii) on account of the employee’s separation from the service, or “(iv) after the employee has become disabled (within the meaning of section 72 (m) (7)) 26 USC 72. from a trust which forms a part of a plan described in section 26 USC 401, 501. 26 USC 403. 401(a) and which is exempt from tax under section 501 or from a plan described in section 403(a). Clause (iii) of this subparagraph shall be applied only with respect to an individual who is an employee without regard to section 401 (c) (1), and clause (iv) shall be applied only with respect to an employee within the meaning of section 401(c)(1). For purposes of this subparagraph, a distribution of an annuity contract from a trust or annuity plan referred to in the first sentence of this subparagraph shall be treated as a lump sum distribution. For purposes of this subparagraph, a distribution to two or more trusts shall be treated as a distribution to one recipient. “(B) Election of lump sum treatment.— For purposes of this section and section 403, no amount which is not an annuity contract may be treated as a lump sum distribution under subparagraph (A) unless the taxpayer elects for the taxable year to have all such amounts received during such year so treated at the time and in the manner provided under regulations prescribed by the Secretary or his delegate. Not more than one election may be made under this subparagraph with respect to any individual after such individual has attained age 59½. No election may be made under this subparagraph by any taxpayer other than an individual, an estate, or a trust. In the case of a lump sum distribution made with respect to an employee to two or more trusts, the election under this subparagraph shall be made by the personal representative of the employee. “(C) Aggregation of certain trusts and plans.— For purposes of determining the balance to the credit of an employee under subparagraph (A)— “(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 26 USC 404. into account. “(D) Total taxable amount.— For purposes of this section and section 403, the term ‘total taxable amount’ means, with respect to a lump sum distribution, the amount of such distribution which exceeds the sum of— “(i) the amounts considered contributed by the employee (determined by applying section 72(f)), which employee contributions shall be reduced by any amounts theretofore distributed to him which were not includible in gross income, and “(ii) the net unrealized appreciation attributable to that part of the distribution which consists of the securities of the employer corporation so distributed. “(E) Ordinary income portion.— For purposes of this section, the term ‘ordinary income portion’ means, with respect to a lump sum distribution, so much of the total taxable amount of such distribution as is equal to the product of such total taxable amount multiplied by a fraction— “(i) the numerator of which is the number of calendar years of active participation by the employee in such plan after December 31, 1973, and “(ii) the denominator of which is the number of calendar years of active participation by the employee in such plan. “(F) Employee.— For purposes of this subsection and subsection (a)(2), except as otherwise provided in subparagraph (A), the term ‘employee’ includes an individual who is an employee within the meaning of section 401(c)(1) and 26 USC 401. the employer of such individual is the person treated as his employer under section 401(c)(4). “(G) Community property laws.— The provisions of this subsection, other than paragraph (3), shall be applied without regard to community property laws. “(H) Minimum period of service.— For purposes of this subsection (but not for purposes of subsection (a)(2) or section 403(a)(2)(A)), no amount distributed to an employee 26 USC 403. from or under a plan may be treated as a lump sum distribution under subparagraph (A) unless he has been a participant in the plan for 5 or more taxable years before the taxable year in which such amounts are distributed. “(I) Amounts subject to penalty.— This subsection shall not apply to amounts described in clause (ii) of subparagraph (A) of section 72(m)(5) to the extent that section 72(m)(5) applies to such amounts. “(J) Unrealized appreciation of employer securities.— In the case of any distribution including securities of the employer corporation which, without regard to the requirement of subparagraph (H), would be treated as a lump sum distribution under subparagraph (A), 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 so distributed. In the case of any such distribution or any lump sum distribution including securities of the employer corporation, the amount of net unrealized appreciation of such securities and the resulting adjustments to the basis of such securities shall be determined under regulations prescribed by the Secretary or his delegate. “(K) Securities.— For purposes of this subsection, the terms ‘securities’ and ‘securities of the employer corporation’ have the respective meanings provided by subsection (a)(3).” (b) Phaseout of Capital Gains Treatment.— (1) In general.— Section 402(a)(2) (relating to capital gains 26 USC 402. treatment for certain distributions) is amended to read as follows: “(2) Capital gains treatment for portion of lump sum distributions.— In the case of an employee trust described in section 401(a), which is exempt from tax under section 501(a), 26 USC 401, 501. Ante, p. 987. so much of the total taxable amount (as defined in subparagraph (D) of subsection (e)(4)) of a lump sum distribution as is equal to the product of such total taxable amount multiplied by a fraction— “(A) the numerator of which is the number of calendar years of active participation by the employee in such plan before January 1, 1974, and “(B) the denominator of which is the number of calendar years of active participation by the employee in such plan, shall be treated as a gain from the sale or exchange of a capital asset held for more than 6 months. For purposes of computing the Regulations. fraction described in this paragraph and the fraction under subsection (e)(4)(E), the Secretary or his delegate may prescribe Ante, p. 987. regulations under which plan years may be used in lieu of calendar years. For purposes of this paragraph, in the case of an individual who is an employee without regard to section 401(c)(1), 26 USC 401. determination of whether or not any distribution is a lump sum distribution shall be made without regard to the requirement that an election be made under subsection (e)(4)(B), but no distribution to any taxpayer other than an individual, estate, or trust may be treated as a lump sum distribution under this paragraph.” (2) Amendment of section 403.— That part of paragraph (2) of section 403(a) which follows clause (ii) of subparagraph (A) 26 USC 403. thereof is amended to read as follows: “(iii) a lump sum distribution (as defined in section 402(e)(4)(A)) is paid to the recipient, Ante, p. 987. so much of the total taxable amount (as defined in section 402(e)(4)(D)) of such distribution as is equal to the product of such total taxable amount multiplied by the fraction described in section 402(a)(2) shall be treated as a gain from Ante, p. 990. the sale or exchange of a capital asset held for more than 6 months. For purposes of this paragraph, in the case of an individual who is an employee without regard to section 401(c)(1), determination of whether or not any distribution is a lump sum distribution shall be made without regard to the requirement that an election be made under subsection (e)(4)(B) of section 402, but no distribution to any taxpayer other than an individual, estate, or trust may be treated as a lump sum distribution under this paragraph. “(B) Cross reference.— “For imposition of separate tax on ordinary income portion of lump sum distribution, see section 402(e).” (c) Conforming Amendments.— (1) Subparagraph (C) of section 402(a)(3) is repealed. Repeals. 26 USC 402. (2) Paragraph (5) (as in effect on December 31, 1973) of section 402(a) is repealed. (3) Section 72 is amended by striking out subsection (n) thereof 26 USC 72. and by redesignating subsections (o) and (p) as (n) and (o), respectively. (4) The second sentence of section 46(a)(3) and the second 26 USC 46. 26 USC 50. sentence of section 50A(a)(3) are each amended by inserting after “tax preferences),” the following: “section 402(e) (relating to tax on lump sum distributions),”. (5) The third sentence of section 901(a) is amended by inserting 26 USC 901. “against the tax imposed by section 402(e) (relating to tax on lump sum distributions),” before “against the tax imposed by section 531”. (6) Subsection 1304(b)(2) (relating to special rules) is 26 USC 1304. amended by striking out paragraph (2) and by redesignating paragraphs (3), (4), (5), and (6) as paragraphs (2), (3), (4), and (5), respectively. (7) Subparagraph (A) of section 56(a)(2) and paragraph (1) 26 USC 56. of section 56(c) are each amended by inserting before “531” the following: “402(e),”. (8) Sections 871(b)(1) and 877(b) are each amended by inserting 26 USC 871, 877. Ante, p. 987. “, 402(e)(1),” after “section 1”. (9) Section 62 (defining adjusted gross income), is amended by Ante, p. 959. inserting after paragraph (10) the following new paragraph: “(11) Certain portion of lump-sum distributions from pension plans taxed under section 402(e).— The deduction allowed by section 402(e)(3).” (10) Section 122(b)(2) (relating to consideration for the contract) 26 USC 122. is amended by striking out “72(o)” and inserting “72(n)”. (11) Section 405(e) (relating to capital gains treatment and 26 USC 405. limitation of tax not to apply to bonds distributed by trusts) is amended by striking out “Section 72(n) and section 402(a)(2)” and inserting “Subsections (a)(2) and (e) of section 402”. (12) Section 406(c) (relating to termination of status as 26 USC 406. deemed employee, etc.) is amended by striking out “section 72(n), section 402(a)(2)” and inserting “subsections (a)(2) and (e) of section 402”. (13) Section 407(c) (relating to termination of status as 26 USC 407. deemed employee, etc.) is amended by striking out “section 72(n), section 402(a)(2)” and inserting “subsections (a)(2) and (e) of section 402”. (14) Section 1348(b)(1) (relating to earned income) is 26 USC 1348. amended by striking out “72(n), 402(a)(2)” and inserting “402(a)(2), 402(e)”. (15) Section 101(b)(2)(B) is amended by striking out “total 26 USC 101. distributions payable (as defined in section 402(a)(3)) which are paid to a distribute within one taxable year of the distribute by reason of the employee’s death” and inserting in lieu thereof “a lump sum distribution (as defined in section 402(e)(4))”. (d) Effective Date.— The amendments made by this section shall 26 USC 402 note. apply only with respect to distributions or payments made after December 31, 1973, in taxable years beginning after such date. SEC. 2006. SALARY REDUCTION REGULATIONS. (a) Inclusion of Certain Contributions in Income.— Except in the case of plans or arrangements in existence on June 27, 1974, a contribution made before January 1, 1977, to an employees’ trust described in section 401(a), 403(a), or 405(a) of the Internal Revenue Code of 1954 which is exempt from tax under section 501(a) of such 26 USC 401, 403, 405. 26 USC 501. Code, or under an arrangement which, but for the fact that it was not in existence on June 27, 1974, would be an arrangement described in subsection (b)(2) of this section, shall be treated as a contribution made by an employee if the contribution is made under an arrangement under which the contribution will be made only if the employee elects to receive a reduction in his compensation or to forego an increase in his compensation. (b) Administration in the Case of Certain Qualified Pension or Profit-Sharing Plans, Etc., in Existence on June 27, 1974.— No salary reduction regulations may be issued by the Secretary of the Treasury in final form before January 1, 1977, with respect to an arrangement which was in existence on June 27, 1974, and which, on that date— (1) provided for contributions to an employees’ trust described in section 401(a), 403(a), or 405(a) of the Internal Revenue Code of 1954 which is exempt from tax under section 501(a) of such Code, or (2) was maintained as part of an arrangement under which an employee was permitted to elect to receive part of his compensation in one or more alternative forms if one of such forms results in the inclusion of amounts in income under the Internal Revenue Code of 1954. 26 USC 1 et seq. (c) Administration of Law With Respect to Certain Plans.— (1) Administration in the case of plans described in subsection (b).— Until salary reduction regulations have been issued in final form, the law with respect to plans or arrangements described in subsection (b) shall be administered— (A) without regard to the proposed salary reduction regulations (37 FR 25938) and without regard to any other proposed salary reduction regulations, and (B) in the manner in which such law was administered before January 1, 1972. (2) Administration in the case of qualified profit-sharing plans.— In the case of plans or arrangements described in subsection (b), in applying this section to the tax treatment of contributions to qualified profit-sharing plans where the contributed amounts are distributable only after a period of deferral, the law shall be administered in a manner consistent with— (A) Revenue Ruling 56–497 (1956—2 C.B. 284), (B) Revenue Ruling 63–180 (1963—2 C.B. 189), and (C) Revenue Ruling 68–89 (1968—1 C.B. 402). (d) Limitation on Retroactivity of Final Regulations.— In the case of any salary reduction regulations which become final after December 31, 1976— (1) for purposes of chapter 1 of the Internal Revenue Code of 1954 (relating to normal taxes and surtaxes), such regulations 26 USC 1. shall not apply before January 1, 1977; and (2) for purposes of chapter 21 of such Code (relating to Federal Insurance Contributions Act) and for purposes of chapter 24 26 USC 3101. 26 USC 3401. of such Code (relating to collection of income tax at source on wages), such regulations shall not apply before the day on which such regulations are issued in final form. (e) Salary Reduction Regulations Defined.— For purposes of this section, the term “salary reduction regulations” means regulations dealing with the ineludibility in gross income (at the time of contribution) of amounts contributed to a plan which includes a trust that qualifies under section 401(a), or a plan described in section 403(a) 26 USC 401, 403. 26 USC 405. or 405(a), including plans or arrangements described in subsection (b)(2), if the contribution is made under an arrangement under which the contribution will be made only if the employee elects to receive a reduction in his compensation or to forego an increase in his compensation, or under an arrangement under which the employee is permitted to elect to receive part of his compensation in one or more alternative forms (if one of such forms results in the inclusion of amounts in income under the Internal Revenue Code of 1954). SEC. 2008. CERTAIN ARMED FORCES SURVIVOR ANNUITIES. (a) Treatment of Certain Participants in the Plan.— Section 404(c) (relating to certain negotiated plans) is amended by inserting 26 USC 404. after the first sentence the following new sentences: “For purposes of this chapter and subtitle B, in the case of any individual who before July 1, 1974, was a participant in a plan described in the preceding sentence— “(A) such individual, if he is or was an employee within the meaning of section 401(c)(1), shall be treated (with respect to 26 USC 401. service covered by the plan) as being an employee other than an employee within the meaning of section 401(c)(1) and as being an employee of a participating employer under the plan, “(B) earnings derived from service covered by the plan shall be treated as not being earned income within the meaning of section 401(c)(2), and “(C) such individual shall be treated as an employee of a participating employer under the plan with respect to service before July 1, 1975, covered by the plan. Section 277 (relating to deductions incurred by certain membership 26 USC 277. organizations in transactions with members) does not apply to any trust described in this subsection.”. (b) Other Amendments to Section 404(c)(1).— (1) Paragraph (1) of the first sentence of section 404(c) is amended by striking out “and pensions” and inserting in lieu thereof “or pensions”. (2) The last sentence of section 404(c) is amended by striking out “This subsection” and inserting in lieu thereof “The first and third sentences of this subsection”. (c) Effective Date.— The amendments made by this section shall 26 USC 404 note. apply to taxable years ending on or after June 30, 1972. SEC. 2007. RULES FOR CERTAIN NEGOTIATED PLANS. (a) In General.— Section 122(a) (relating to certain reduced uniformed 26 USC 122. services retired pay) is amended to read as follows: “(a) General Rule.— In the case of a member or former member of the uniformed services of the United States, gross income does not include the amount of any reduction in his retired or retainer pay pursuant to the provisions of chapter 73 of title 10, United States Code.”. 10 USC 1431. (b) Technical Amendments.— (1) Section 122(b)(2) is amended by striking out “section 1438” in subparagraph (B) and inserting in lieu thereof “section 1438 or 1452(d)”. (2) Section 72(o) is amended by inserting after “Plan” in the Ante, p. 991. heading of such section “or Survivor Benefit Plan”. (3) Section 101(b)(2)(D) is amended by striking out “if the 26 USC 101. individual who made the election under such chapter” and inserting in lieu thereof “if the member or former member of the uniformed services by reason of whose death such annuity is payable”. (4) Section 2039(c) is amended by striking out “section 1438” 26 USC 2039. in the last sentence and inserting in lieu thereof “section 1438 or 1452(d)”. (c) Effective Dates.— The amendments made by this section apply 26 USC 122 note. to taxable years ending on or after September 21, 1972. The amendments made by paragraphs (3) and (4) of subsection (b) apply with respect to individuals dying on or after such date.

4. 1976

   Pub. L. 94–455 § 1906(b)(13)(A) · 90 Stat. 1520

   Struck · 26 U.S.C. § 6047(a)(d)

   Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary” wherever appearing

   Source evidence

   Code amendment note
   Subsecs. (a) to (d). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary” wherever appearing.

   Enacted provision · exact public law section
   (A) The Internal Revenue Code of 1954, as amended by this Act, is amended by striking out “Secretary or his delegate” each place it appears and inserting in lieu thereof “Secretary”.

5. 1976

   Pub. L. 94–455 § 1501(b)(9) · 90 Stat. 1520

   Inserted · 26 U.S.C. § 6047(d)

   Pub. L. 94–455, § 1501(b)(9), inserted “or 220(a)” after “section 219(a)”

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 94–455, § 1501(b)(9), inserted “or 220(a)” after “section 219(a)”.

   Enacted provision · exact public law section
   (9) Subsection (d) of section 6047 (relating to other programs) 26 USC 6047. is amended by inserting “or 220(a)” after “219(a)”.

6. 1981

   Economic Recovery Tax Act of 1981

   Pub. L. 97–34 title III § 311(h)(8) · 95 Stat. 175

   Substituted · 26 U.S.C. § 6047(d)

   Pub. L. 97–34 substituted “section 219(a)” for “section 219(a) or 220(a)”

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 97–34 substituted “section 219(a)” for “section 219(a) or 220(a)”.

   Enacted provision · exact public law section
   (8) Subsection (d) of section 6047 is amended by striking out “section 219(a) or 220(a)” and inserting in lieu thereof “section 219(a)”.

7. 1982

   Pub. L. 97–248 title III § 334(b) · 96 Stat. 324

   1. Added · 26 U.S.C. § 6047(e); 26 U.S.C. § 6047(f)

      Pub. L. 97–248 added subsec. (e)

   2. Redesignated · 26 U.S.C. § 6047(e); 26 U.S.C. § 6047(f)

      Pub. L. 97–248 redesignated former subsec. (e) as (f)

   Source evidence

   Code amendment note
   Subsecs. (e), (f). Pub. L. 97–248 added subsec. (e) and redesignated former subsec. (e) as (f).

   Enacted provision · exact public law section
   (b) Filing of Reports.— Section 6047 (relating to information 26 USC 6047. concerning certain trusts and annuity and bond purchase plans) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection: “(e) Reports by Employers, Plan Administrators, Etc.— “(1) In general.— The Secretary shall by forms or regulations require that— “(A) the employer maintaining, or the plan administrator (within the meaning of section 414(g)) of, a plan from which designated distributions (as defined in section 3405(d)(1)) may be made, and “(B) any person issuing any contract under which designated distributions (as so defined) may be made, make returns and reports regarding such plan (or contract) to the Secretary, to the participants and beneficiaries of such plan (or contract), and to such other persons as the Secretary may by regulations prescribe. “(2) Form, Etc., of Reports.— Such reports shall be in such form, made at such time, and contain such information as the Secretary may prescribe by forms or regulations.”

8. 1983

   Pub. L. 97–448 title I § 103(c)(12)(C) · 96 Stat. 2365

   Substituted · 26 U.S.C. § 6047(d)

   Pub. L. 97–448 substituted “section 219” for “section 219(a)”

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 97–448 substituted “section 219” for “section 219(a)”.

   Enacted provision · exact public law section
   (C) Subsection (d) of section 6047 is amended by striking 26 USC 6047. out “section 219(a)” and inserting in lieu thereof “section 219”.

9. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 § 491(d)(57) · 98 Stat. 494

   Struck · 26 U.S.C. § 6047

   Pub. L. 98–369, § 491(d)(57), struck out “and bond purchase” after “trusts and annuity” in section catchline

   Source evidence

   Code amendment note
   Pub. L. 98–369, § 491(d)(57), struck out “and bond purchase” after “trusts and annuity” in section catchline.

   Enacted provision · exact public law section
   (57) The section heading for section 6047 is amended by striking out “AND BOND PURCHASE”.

10. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 491(d)(47) · 98 Stat. 494

    1. Redesignated · 26 U.S.C. § 6047(c)(f)

       Pub. L. 98–369, § 491(d)(47), redesignated former subsecs. (d) to (f) as (c) to (e), respectively

    2. Struck · 26 U.S.C. § 6047(c)(f)

       Pub. L. 98–369, § 491(d)(47), struck out former subsec. (c) which related to information to be supplied by employees under qualified bond purchase plans

    Source evidence

    Code amendment note
    Subsecs. (c) to (f). Pub. L. 98–369, § 491(d)(47), redesignated former subsecs. (d) to (f) as (c) to (e), respectively, and struck out former subsec. (c) which related to information to be supplied by employees under qualified bond purchase plans.

    Enacted provision · exact public law section
    (47) Section 6047 is amended by striking out subsection (c) and by redesignating subsections (d), (e), and (f) as subsections (c), (d), and (e), respectively.

11. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1501(d)(1)(D) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 6047(e)(1)

    Pub. L. 99–514, § 1501(d)(1)(D), substituted “section 6652(e)” for “section 6652(f)”

    Source evidence

    Code amendment note
    Subsec. (e)(1). Pub. L. 99–514, § 1501(d)(1)(D), substituted “section 6652(e)” for “section 6652(f)”.

    Enacted provision · exact public law section
    (D) Sections 6047(e)(1) and 6058(f) are each amended by striking out “section 6652(b)” and inserting in lieu thereof “section 6652(e)”.

12. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1848(e)(2) · 100 Stat. 2085

    Added · 26 U.S.C. § 6047(e)(3)

    Pub. L. 99–514, § 1848(e)(2), added par. (3)

    Source evidence

    Code amendment note
    Subsec. (e)(3). Pub. L. 99–514, § 1848(e)(2), added par. (3).

    Enacted provision · exact public law section
    (2) Subsection (e) of section 6047 is amended by adding at the end thereof the following new paragraph: “(3) For provisions relating to penalty for failure to comply with the provisions of subsection (d}, see section 6704.”

13. 1989

    Revenue Reconciliation Act of 1989

    Pub. L. 101–239 title VII § 7301(e) · 103 Stat. 2106

    1. Added · 26 U.S.C. § 6047(e); 26 U.S.C. § 6047(f)

       Pub. L. 101–239 added subsec. (e)

    2. Redesignated · 26 U.S.C. § 6047(e); 26 U.S.C. § 6047(f)

       Pub. L. 101–239 redesignated former subsec. (e) as (f)

    Source evidence

    Code amendment note
    Subsecs. (e), (f). Pub. L. 101–239 added subsec. (e) and redesignated former subsec. (e) as (f).

    Enacted provision · exact public law section
    (e) Reporting Requirements.— Section 6047 (relating to information reports relating to certain trusts or annuity plans) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection: “(e) Employee Stock Ownership Plans.— The Secretary shall require— “(1) any employer maintaining, or the plan administrator (within the meaning of section 414(g)) of, an employee stock ownership plan— “(A) which acquired stock in a transaction to which section 133 applies, or “(B) which holds stock with respect to which section 404(k) applies to dividends paid on such stock, “(2) any person making or holding a loan to which section 133 applies, or “(3) both such employer or plan administrator and such person, to make returns and reports regarding such plan, transaction, or loan to the Secretary and to such other persons as the Secretary may prescribe. Such returns and reports shall be made in such form, shall be made at such time, and shall contain such information as the Secretary may prescribe.”

14. 1992

    Unemployment Compensation Amendments of 1992

    Pub. L. 102–318 § 522(b)(2)(E) · 106 Stat. 290

    Substituted · 26 U.S.C. § 6047(d)(1)(A)

    Pub. L. 102–318, § 522(b)(2)(E), which directed the substitution of “section 3405(d)(3)” for “section 3405(d)(1)”, could not be executed because of the prior amendment by Pub. L. 102–318, § 522(b)(2)(D). See below

    Source evidence

    Code amendment note
    Subsec. (d)(1)(A). Pub. L. 102–318, § 522(b)(2)(E), which directed the substitution of “section 3405(d)(3)” for “section 3405(d)(1)”, could not be executed because of the prior amendment by Pub. L. 102–318, § 522(b)(2)(D). See below.

    Enacted provision · exact public law section
    (E) Section 6047(d)(1)(A) is amended by striking “section 3405(d)(1)” and inserting “section 3405(d)(3)”.

15. 1992

    Unemployment Compensation Amendments of 1992

    Pub. L. 102–318 § 522(b)(2)(D) · 106 Stat. 290

    Substituted · 26 U.S.C. § 6047(d)(1)(A)

    Pub. L. 102–318, § 522(b)(2)(D), substituted “3405(e)(1)” for “3405(d)(1)”

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 102–318, § 522(b)(2)(D), substituted “3405(e)(1)” for “3405(d)(1)”.

    Enacted provision · exact public law section
    (D) Sections 3402(o)(6) and 6047(d)(1) are each amended by striking “section 3405(d)(1)” and inserting “section 3405(e)(1)”.

16. 1996

    Small Business Job Protection Act of 1996

    Pub. L. 104–188 § 1455(b)(2) · 110 Stat. 1755

    Inserted · 26 U.S.C. § 6047(d)(1)

    Pub. L. 104–188, § 1455(b)(2), inserted at end “No return or report may be required under the preceding sentence with respect to distributions to any person during any year unless such distributions aggregate $10 or more.”

    Source evidence

    Code amendment note
    Subsec. (d)(1). Pub. L. 104–188, § 1455(b)(2), inserted at end “No return or report may be required under the preceding sentence with respect to distributions to any person during any year unless such distributions aggregate $10 or more.”

    Enacted provision · exact public law section
    (2) Section 6047.— Paragraph (1) of section 6047(d) (relating to reports by employers, plan administrators, etc.) is amended by adding at the end the following new sentence: “No return or report may be required under the pre,;eding sentence with respect to distributions to any person during any year unless such distributions aggregate $10 or more.”.

17. 1996

    Small Business Job Protection Act of 1996

    Pub. L. 104–188 § 1602(b)(6) · 110 Stat. 1755

    1. Added · 26 U.S.C. § 6047(e)(1)(3)

       Pub. L. 104–188, § 1602(b)(6), added pars. (1) and (2)

    2. Struck · 26 U.S.C. § 6047(e)(1)(3)

       Pub. L. 104–188, § 1602(b)(6), struck out former pars. (1) to (3) which read as follows:

    Source evidence

    Code amendment note
    Subsec. (e)(1) to (3). Pub. L. 104–188, § 1602(b)(6), added pars. (1) and (2) and struck out former pars. (1) to (3) which read as follows:

    “(1) any employer maintaining, or the plan administrator (within the meaning of section 414(g)) of, an employee stock ownership plan— “(A) which acquired stock in a transaction to which section 133 applies, or “(B) which holds stock with respect to which section 404(k) applies to dividends paid on such stock, “(2) any person making or holding a loan to which section 133 applies, or “(3) both such employer or plan administrator and such person,”.

    Enacted provision · exact public law section
    (6) Subsection (e) of section 6047 is amended by striking paragraphs (1), (2), and (3) and inserting the following new paragraphs: “(1) any employer maintaining, or the plan administrator (within the meaning of section 414(g)) of, an employee stock ownership plan which holds stock with respect to which section 404(k) applies to dividends paid on such stock, or “(2) both such employer or plan administrator,”.

18. 1996

    Small Business Job Protection Act of 1996

    Pub. L. 104–188 § 1455(d)(1) · 110 Stat. 1755

    Amended · 26 U.S.C. § 6047(f)(1)

    Pub. L. 104–188, § 1455(d)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “For provisions relating to penalties for failure to file a return required by this section, see section 6652(e).”

    Source evidence

    Code amendment note
    Subsec. (f)(1). Pub. L. 104–188, § 1455(d)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “For provisions relating to penalties for failure to file a return required by this section, see section 6652(e).”

    Enacted provision · exact public law section
    (1) Paragraph (1) of section 6047(f) is amended to read as follows: “(1) For provisions relating to penalties for failures to file returns and reports required under this section, see sections 6652(e), 6721, and 6722.”.

19. 2001

    Pub. L. 107–16 title VI § 617(d)(2) · 115 Stat. 38

    1. Added · 26 U.S.C. § 6047(f); 26 U.S.C. § 6047(g)

       Pub. L. 107–16 added subsec. (f)

    2. Redesignated · 26 U.S.C. § 6047(f); 26 U.S.C. § 6047(g)

       Pub. L. 107–16 redesignated former subsec. (f) as (g)

    Source evidence

    Code amendment note
    Subsecs. (f), (g). Pub. L. 107–16 added subsec. (f) and redesignated former subsec. (f) as (g).

    Enacted provision · exact public law section
    (2) Information.— Section 6047 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Designated Roth Contributions.— The Secretary shall require the plan administrator of each applicable retirement plan (as defined in section 402A) to make such returns and reports regarding designated Roth contributions (as defined in section 402A) to the Secretary, participants and beneficiaries of the plan, and such other persons as the Secretary may prescribe.”.

20. 2017

    Pub. L. 115–97 § 13520(c)(2)(B) · 131 Stat. 2054

    Redesignated · 26 U.S.C. § 6047(g)

    Pub. L. 115–97, § 13520(c)(2)(B), added subsec. (g). Former subsec. (g) redesignated (h)

    Source evidence

    Code amendment note
    Subsec. (g). Pub. L. 115–97, § 13520(c)(2)(B), added subsec. (g). Former subsec. (g) redesignated (h).

    Enacted provision · exact public law section
    (B) by inserting after subsection (f) the following new subsection: “(g) Information Relating to Life Insurance Contract Transactions.— This section shall not apply to any information which is required to be reported under section 6050Y.” , and

    Effective date note
    Pub. L. 115–97, title I, § 13520(d), Dec. 22, 2017, 131 Stat. 2151, provided that: “The amendments made by this section [enacting section 6050Y of this title and amending this section and section 6724 of this title] shall apply to—

21. 2017

    Pub. L. 115–97 § 13520(c)(2)(A) · 131 Stat. 2054

    Redesignated · 26 U.S.C. § 6047(h)

    Pub. L. 115–97, § 13520(c)(2)(A), redesignated subsec. (g) as (h)

    Source evidence

    Code amendment note
    Subsec. (h). Pub. L. 115–97, § 13520(c)(2)(A), redesignated subsec. (g) as (h).

    Enacted provision · exact public law section
    (A) by redesignating subsection (g) as subsection (h),

    Effective date note
    Pub. L. 115–97, title I, § 13520(d), Dec. 22, 2017, 131 Stat. 2151, provided that: “The amendments made by this section [enacting section 6050Y of this title and amending this section and section 6724 of this title] shall apply to—

22. 2017

    Pub. L. 115–97 § 13520(c)(2)(C) · 131 Stat. 2054

    Added · 26 U.S.C. § 6047(h)(4)

    Pub. L. 115–97, § 13520(c)(2)(C), added par. (4). Text was editorially conformed to match the style of pars. (1) to (3)

    Source evidence

    Code amendment note
    Subsec. (h)(4). Pub. L. 115–97, § 13520(c)(2)(C), added par. (4). Text was editorially conformed to match the style of pars. (1) to (3).

    Enacted provision · exact public law section
    (C) by adding at the end of subsection (h), as so redesignated, the following new paragraph: “(4) For provisions requiring reporting of information relating to certain life insurance contract transactions, see section 6050Y.” .

    Effective date note
    Pub. L. 115–97, title I, § 13520(d), Dec. 22, 2017, 131 Stat. 2151, provided that: “The amendments made by this section [enacting section 6050Y of this title and amending this section and section 6724 of this title] shall apply to—

26 of 28 references resolved to an enrolled provision · 2 partial