PART I—PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Editorial Notes
Amendments
2018—
2014—
1984—
1980—
Subpart A—General Rule
Editorial Notes
Amendments
2004—
2001—
1997—
1986—
1984—
1983—
1980—
1978—
1974—
1964—
1962—
§401. Qualified pension, profit-sharing, and stock bonus plans
(a) Requirements for qualification
A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section—
(1) if contributions are made to the trust by such employer, or employees, or both, or by another employer who is entitled to deduct his contributions under section 404(a)(3)(B) (relating to deduction for contributions to profit-sharing and stock bonus plans), or by a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section 664(g)(1)), for the purpose of distributing to such employees or their beneficiaries the corpus and income of the fund accumulated by the trust in accordance with such plan;
(2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees or their beneficiaries (but this paragraph shall not be construed, in the case of a multiemployer plan, to prohibit the return of a contribution within 6 months after the plan administrator determines that the contribution was made by a mistake of fact or law (other than a mistake relating to whether the plan is described in section 401(a) or the trust which is part of such plan is exempt from taxation under section 501(a), or the return of any withdrawal liability payment determined to be an overpayment within 6 months of such determination));
(3) if the plan of which such trust is a part satisfies the requirements of section 410 (relating to minimum participation standards); and
(4) if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees (within the meaning of section 414(q)). For purposes of this paragraph, there shall be excluded from consideration employees described in section 410(b)(3)(A) and (C).
(5)
(A)
(B)
(C)
(D)
(i)
(I) the participant's final pay with the employer, over
(II) the employer-derived retirement benefit created under Federal law attributable to service by the participant with the employer.
For purposes of this clause, the employer-derived retirement benefit created under Federal law shall be treated as accruing ratably over 35 years.
(ii)
(I) which ends during the 5-year period ending with the year in which the participant separated from service for the employer, and
(II) for which the participant's total compensation from the employer was highest.
(E) 2
(i)
(ii)
(F)
(i) the social security retirement age (as defined in section 415(b)(8)) shall be treated as a uniform retirement age, and
(ii) subsidized early retirement benefits and joint and survivor annuities shall not be treated as being unavailable to employees on the same terms merely because such benefits or annuities are based in whole or in part on an employee's social security retirement age (as so defined).
(G)
(6) A plan shall be considered as meeting the requirements of paragraph (3) during the whole of any taxable year of the plan if on one day in each quarter it satisfied such requirements.
(7) A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part satisfies the requirements of section 411 (relating to minimum vesting standards).
(8) A trust forming part of a defined benefit plan shall not constitute a qualified trust under this section unless the plan provides that forfeitures must not be applied to increase the benefits any employee would otherwise receive under the plan.
(9)
(A)
(i) will be distributed to such employee not later than the required beginning date, or
(ii) will be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of such employee or over the lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary).
(B)
(i)
(I) the distribution of the employee's interest has begun in accordance with subparagraph (A)(ii), and
(II) the employee dies before his entire interest has been distributed to him,
the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used under subparagraph (A)(ii) as of the date of his death.
(ii) 5-
(iii)
(I) any portion of the employee's interest is payable to (or for the benefit of) a designated beneficiary,
(II) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and
(III) such distributions begin not later than 1 year after the date of the employee's death or such later date as the Secretary may by regulations prescribe,
for purposes of clause (ii), the portion referred to in subclause (I) shall be treated as distributed on the date on which such distributions begin.
(iv)
(I) the regulations referred to in clause (iii)(II) shall treat the surviving spouse as if the surviving spouse were the employee,
(II) the date on which the distributions are required to begin under clause (iii)(III) shall not be earlier than the date on which the employee would have attained the applicable age, and
(III) if the surviving spouse dies before the distributions to such spouse begin, this subparagraph shall be applied as if the surviving spouse is the employee.
An election described in this clause shall be made at such time and in such manner as prescribed by the Secretary, shall include a timely notice to the plan administrator, and once made may not be revoked except with the consent of the Secretary.
(C)
(i)
(I) the calendar year in which the employee attains the applicable age, or
(II) the calendar year in which the employee retires.
(ii)
(I) except as provided in section 409(d), in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains the applicable age, or
(II) for purposes of section 408(a)(6) or (b)(3).
(iii)
(iv)
(v)
(I) In the case of an individual who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, the applicable age is 73.
(II) In the case of an individual who attains age 74 after December 31, 2032, the applicable age is 75.
(D)
(E)
(i)
(ii)
(I) the surviving spouse of the employee,
(II) subject to clause (iii), a child of the employee who has not reached majority (within the meaning of subparagraph (F)),
(III) disabled (within the meaning of section 72(m)(7)),
(IV) a chronically ill individual (within the meaning of section 7702B(c)(2), except that the requirements of subparagraph (A)(i) thereof shall only be treated as met if there is a certification that, as of such date, the period of inability described in such subparagraph with respect to the individual is an indefinite one which is reasonably expected to be lengthy in nature), or
(V) an individual not described in any of the preceding subclauses who is not more than 10 years younger than the employee.
The determination of whether a designated beneficiary is an eligible designated beneficiary shall be made as of the date of death of the employee.
(iii)
(F)
(G)
(H)
(i)
(I) shall be applied by substituting "10 years" for "5 years", and
(II) shall apply whether or not distributions of the employee's interests have begun in accordance with subparagraph (A).
(ii)
(iii)
(iv)
(I) it is to be divided immediately upon the death of the employee into separate trusts for each beneficiary, or
(II) no beneficiary (other than a 1 eligible designated beneficiary described in subclause (III) or (IV) of subparagraph (E)(ii)) has any right to the employee's interest in the plan until the death of all such eligible designated beneficiaries with respect to the trust,
for purposes of a trust described in subclause (I), clause (ii) shall be applied separately with respect to the portion of the employee's interest that is payable to any eligible designated beneficiary described in subclause (III) or (IV) of subparagraph (E)(ii); and, for purposes of a trust described in subclause (II), subparagraph (B)(iii) shall apply to the distribution of the employee's interest and any beneficiary who is not such an eligible designated beneficiary shall be treated as a beneficiary of the eligible designated beneficiary upon the death of such eligible designated beneficiary.
(v)
(I) which has more than one beneficiary,
(II) all of the beneficiaries of which are treated as designated beneficiaries for purposes of determining the distribution period pursuant to this paragraph, and
(III) at least one of the beneficiaries of which is an eligible designated beneficiary described in subclause (III) or (IV) of subparagraph (E)(ii).
For purposes of the preceding sentence, in the case of a trust the terms of which are described in clause (iv)(II), any beneficiary which is an organization described in section 408(d)(8)(B)(i) shall be treated as a designated beneficiary described in subclause (II).
(vi)
(I)
(i)
(I) a defined contribution plan which is described in this subsection or in section 403(a) or 403(b),
(II) a defined contribution plan which is an eligible deferred compensation plan described in section 457(b) but only if such plan is maintained by an employer described in section 457(e)(1)(A), or
(III) an individual retirement plan.
(ii)
(I) a required beginning date occurring in such calendar year, and
(II) such distribution not having been made before January 1, 2020.
(iii)
(I) the required beginning date with respect to any individual shall be determined without regard to this subparagraph for purposes of applying this paragraph for calendar years after 2020, and
(II) if clause (ii) of subparagraph (B) applies, the 5-year period described in such clause shall be determined without regard to calendar year 2020.
(J)
(i) annuity payments that increase by a constant percentage, applied not less frequently than annually, at a rate that is less than 5 percent per year,
(ii) a lump sum payment that—
(I) results in a shortening of the payment period with respect to an annuity or a full or partial commutation of the future annuity payments, provided that such lump sum is determined using reasonable actuarial methods and assumptions, as determined in good faith by the issuer of the contract, or
(II) accelerates the receipt of annuity payments that are scheduled to be received within the ensuing 12 months, regardless of whether such acceleration shortens the payment period with respect to the annuity, reduces the dollar amount of benefits to be paid under the contract, or results in a suspension of annuity payments during the period being accelerated,
(iii) an amount which is in the nature of a dividend or similar distribution, provided that the issuer of the contract determines such amount using reasonable actuarial methods and assumptions, as determined in good faith by the issuer of the contract, when calculating the initial annuity payments and the issuer's experience with respect to those factors, or
(iv) a final payment upon death that does not exceed the excess of the total amount of the consideration paid for the annuity payments, less the aggregate amount of prior distributions or payments from or under the contract.
(10)
(A)
(B)
(i)
(ii)
(I) which will take effect if such plan becomes a top-heavy plan, and
(II) which meet the requirements of section 416.
(iii)
(11)
(A)
(i) in the case of a vested participant who does not die before the annuity starting date, the accrued benefit payable to such participant is provided in the form of a qualified joint and survivor annuity, and
(ii) in the case of a vested participant who dies before the annuity starting date and who has a surviving spouse, a qualified preretirement survivor annuity is provided to the surviving spouse of such participant.
(B)
(i) any defined benefit plan,
(ii) any defined contribution plan which is subject to the funding standards of section 412, and
(iii) any participant under any other defined contribution plan unless—
(I) such plan provides that the participant's nonforfeitable accrued benefit (reduced by any security interest held by the plan by reason of a loan outstanding to such participant) is payable in full, on the death of the participant, to the participant's surviving spouse (or, if there is no surviving spouse or the surviving spouse consents in the manner required under section 417(a)(2), to a designated beneficiary),
(II) such participant does not elect a payment of benefits in the form of a life annuity, and
(III) with respect to such participant, such plan is not a direct or indirect transferee (in a transfer after December 31, 1984) of a plan which is described in clause (i) or (ii) or to which this clause applied with respect to the participant.
Clause (iii)(III) shall apply only with respect to the transferred assets (and income therefrom) if the plan separately accounts for such assets and any income therefrom.
(C)
(i)
(I) a tax credit employee stock ownership plan (as defined in section 409(a)), or
(II) an employee stock ownership plan (as defined in section 4975(e)(7)),
subparagraph (A) shall not apply to that portion of the employee's accrued benefit to which the requirements of section 409(h) apply.
(ii)
(D)
(E)
(F)
(i) provisions under which participants may elect to waive the requirements of this paragraph, and
(ii) other definitions and special rules for purposes of this paragraph,
see section 417.
(12) A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan after September 2, 1974, each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had then terminated). The preceding sentence does not apply to any multiemployer plan with respect to any transaction to the extent that participants either before or after the transaction are covered under a multiemployer plan to which title IV of the Employee Retirement Income Security Act of 1974 applies.
(13)
(A)
(B)
(C)
(i) the order or requirement to pay arises—
(I) under a judgment of conviction for a crime involving such plan,
(II) under a civil judgment (including a consent order or decree) entered by a court in an action brought in connection with a violation (or alleged violation) of part 4 of subtitle B of title I of the Employee Retirement Income Security Act of 1974, or
(III) pursuant to a settlement agreement between the Secretary of Labor and the participant, or a settlement agreement between the Pension Benefit Guaranty Corporation and the participant, in connection with a violation (or alleged violation) of part 4 of such subtitle by a fiduciary or any other person,
(ii) the judgment, order, decree, or settlement agreement expressly provides for the offset of all or part of the amount ordered or required to be paid to the plan against the participant's benefits provided under the plan, and
(iii) in a case in which the survivor annuity requirements of section 401(a)(11) apply with respect to distributions from the plan to the participant, if the participant has a spouse at the time at which the offset is to be made—
(I) either such spouse has consented in writing to such offset and such consent is witnessed by a notary public or representative of the plan (or it is established to the satisfaction of a plan representative that such consent may not be obtained by reason of circumstances described in section 417(a)(2)(B)), or an election to waive the right of the spouse to either a qualified joint and survivor annuity or a qualified preretirement survivor annuity is in effect in accordance with the requirements of section 417(a),
(II) such spouse is ordered or required in such judgment, order, decree, or settlement to pay an amount to the plan in connection with a violation of part 4 of such subtitle, or
(III) in such judgment, order, decree, or settlement, such spouse retains the right to receive the survivor annuity under a qualified joint and survivor annuity provided pursuant to section 401(a)(11)(A)(i) and under a qualified preretirement survivor annuity provided pursuant to section 401(a)(11)(A)(ii), determined in accordance with subparagraph (D).
A plan shall not be treated as failing to meet the requirements of this subsection, subsection (k), section 403(b), or section 409(d) solely by reason of an offset described in this subparagraph.
(D)
(i)
(I) the participant terminated employment on the date of the offset,
(II) there was no offset,
(III) the plan permitted commencement of benefits only on or after normal retirement age,
(IV) the plan provided only the minimum-required qualified joint and survivor annuity, and
(V) the amount of the qualified preretirement survivor annuity under the plan is equal to the amount of the survivor annuity payable under the minimum-required qualified joint and survivor annuity.
(ii)
(14) A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that, unless the participant otherwise elects, the payment of benefits under the plan to the participant will begin not later than the 60th day after the latest of the close of the plan year in which—
(A) the date on which the participant attains the earlier of age 65 or the normal retirement age specified under the plan,
(B) occurs the 10th anniversary of the year in which the participant commenced participation in the plan, or
(C) the participant terminates his service with the employer.
In the case of a plan which provides for the payment of an early retirement benefit, a trust forming a part of such plan shall not constitute a qualified trust under this section unless a participant who satisfied the service requirements for such early retirement benefit, but separated from the service (with any nonforfeitable right to an accrued benefit) before satisfying the age requirement for such early retirement benefit, is entitled upon satisfaction of such age requirement to receive a benefit not less than the benefit to which he would be entitled at the normal retirement age, actuarially, reduced under regulations prescribed by the Secretary.
(15) A trust shall not constitute a qualified trust under this section unless under the plan of which such trust is a part—
(A) in the case of a participant or beneficiary who is receiving benefits under such plan, or
(B) in the case of a participant who is separated from the service and who has nonforfeitable rights to benefits,
such benefits are not decreased by reason of any increase in the benefit levels payable under title II of the Social Security Act or any increase in the wage base under such title II, if such increase takes place after September 2, 1974, or (if later) the earlier of the date of first receipt of such benefits or the date of such separation, as the case may be.
(16) A trust shall not constitute a qualified trust under this section if the plan of which such trust is a part provides for benefits or contributions which exceed the limitations of section 415.
(17)
(A)
(B)
[(18) Repealed.
(19) A trust shall not constitute a qualified trust under this section if under the plan of which such trust is a part any part of a participant's accrued benefit derived from employer contributions (whether or not otherwise nonforfeitable), is forfeitable solely because of withdrawal by such participant of any amount attributable to the benefit derived from contributions made by such participant. The preceding sentence shall not apply to the accrued benefit of any participant unless, at the time of such withdrawal, such participant has a nonforfeitable right to at least 50 percent of such accrued benefit (as determined under section 411). The first sentence of this paragraph shall not apply to the extent that an accrued benefit is permitted to be forfeited in accordance with section 411(a)(3)(D)(iii) (relating to proportional forfeitures of benefits accrued before September 2, 1974, in the event of withdrawal of certain mandatory contributions).
(20) A trust forming part of a pension plan shall not be treated as failing to constitute a qualified trust under this section merely because the pension plan of which such trust is a part makes 1 or more distributions within 1 taxable year to a distributee on account of a termination of the plan of which the trust is a part, or in the case of a profit-sharing or stock bonus plan, a complete discontinuance of contributions under such plan. This paragraph shall not apply to a defined benefit plan unless the employer maintaining such plan files a notice with the Pension Benefit Guaranty Corporation (at the time and in the manner prescribed by the Pension Benefit Guaranty Corporation) notifying the Corporation of such payment or distribution and the Corporation has approved such payment or distribution or, within 90 days after the date on which such notice was filed, has failed to disapprove such payment or distribution. For purposes of this paragraph, rules similar to the rules of section 402(a)(6)(B) (as in effect before its repeal by section 521 of the Unemployment Compensation Amendments of 1992) shall apply.
[(21) Repealed.
(22) If a defined contribution plan (other than a profit-sharing plan)—
(A) is established by an employer whose stock is not readily tradable on an established market, and
(B) after acquiring securities of the employer, more than 10 percent of the total assets of the plan are securities of the employer,
any trust forming part of such plan shall not constitute a qualified trust under this section unless the plan meets the requirements of subsection (e) of section 409. The requirements of subsection (e) of section 409 shall not apply to any employees of an employer who are participants in any defined contribution plan established and maintained by such employer if the stock of such employer is not readily tradable on an established market and the trade or business of such employer consists of publishing on a regular basis a newspaper for general circulation. For purposes of the preceding sentence, subsections (b), (c), (m), and (o) of section 414 shall not apply except for determining whether stock of the employer is not readily tradable on an established market.
(23) A stock bonus plan shall not be treated as meeting the requirements of this section unless such plan meets the requirements of subsections (h) and (o) of section 409, except that in applying section 409(h) for purposes of this paragraph, the term "employer securities" shall include any securities of the employer held by the plan.
(24) Any group trust which otherwise meets the requirements of this section shall not be treated as not meeting such requirements on account of the participation or inclusion in such trust of the moneys of any plan or governmental unit described in section 818(a)(6).
(25)
(26)
(A)
(i) 50 employees of the employer, or
(ii) the greater of—
(I) 40 percent of all employees of the employer, or
(II) 2 employees (or if there is only 1 employee, such employee).
(B)
(i)
(ii)
(I) the benefits for such employees are provided under the same plan as benefits for other employees,
(II) the benefits provided to such employees are not greater than comparable benefits provided to other employees under the plan, and
(III) no highly compensated employee (within the meaning of section 414(q)) is included in the group of such employees for more than 1 year.
(C)
(D)
(E)
(F)
(G)
(H)
(I)
(i)
(I) the plan is amended—
(aa) to cease all benefit accruals, or
(bb) to provide future benefit accruals only to a closed class of participants,
(II) the plan satisfies subparagraph (A) (without regard to this subparagraph) as of the effective date of the amendment, and
(III) the amendment was adopted before April 5, 2017, or the plan is described in clause (ii).
(ii)
(iii)
(iv)
(27)
(A)
(B)
(28)
(A)
(B)
(i)
(ii)
(I) the portion of the participant's account covered by the election under clause (i) is distributed within 90 days after the period during which the election may be made, or
(II) the plan offers at least 3 investment options (not inconsistent with regulations prescribed by the Secretary) to each participant making an election under clause (i) and within 90 days after the period during which the election may be made, the plan invests the portion of the participant's account covered by the election in accordance with such election.
(iii)
(iv)
(I) the 1st plan year in which the individual first became a qualified participant, or
(II) the 1st plan year beginning after December 31, 1986.
For purposes of the preceding sentence, an employer may elect to treat an individual first becoming a qualified participant in the 1st plan year beginning in 1987 as having become a participant in the 1st plan year beginning in 1988.
(v)
(C)
(29)
(30)
(31)
(A)
(i) elects to have such distribution paid directly to an eligible retirement plan, and
(ii) specifies the eligible retirement plan to which such distribution is to be paid (in such form and at such time as the plan administrator may prescribe),
such distribution shall be made in the form of a direct trustee-to-trustee transfer to the eligible retirement plan so specified.
(B)
(i)
(I) a distribution described in clause (ii) in excess of $1,000 is made, and
(II) the distributee does not make an election under subparagraph (A) and does not elect to receive the distribution directly,
the plan administrator shall make such transfer to an individual retirement plan of a designated trustee or issuer and shall notify the distributee in writing (either separately or as part of the notice under section 402(f)) that the distribution may be transferred to another individual retirement plan.
(ii)
(C)
(i) is a qualified trust which is part of a plan which is a defined contribution plan and agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or
(ii) is an eligible retirement plan described in clause (i) or (ii) of section 402(c)(8)(B).
(D)
(E)
(32)
(A)
(B)
(i) any payment, in excess of the monthly amount paid under a single life annuity (plus any social security supplements described in the last sentence of section 411(a)(9)), to a participant or beneficiary whose annuity starting date (as defined in section 417(f)(2)) occurs during the period referred to in subparagraph (A),
(ii) any payment for the purchase of an irrevocable commitment from an insurer to pay benefits, and
(iii) any other payment specified by the Secretary by regulations.
(C)
(33)
(A)
(i) any increase in benefits,
(ii) any change in the accrual of benefits, or
(iii) any change in the rate at which benefits become nonforfeitable under the plan,
with respect to employees of the debtor, and such amendment is effective prior to the effective date of such employer's plan of reorganization.
(B)
(i) the plan, were such amendment to take effect, would have a funding target attainment percentage (as defined in section 430(d)(2)) of 100 percent or more,
(ii) the Secretary determines that such amendment is reasonable and provides for only de minimis increases in the liabilities of the plan with respect to employees of the debtor,
(iii) such amendment only repeals an amendment described in section 412(d)(2), or
(iv) such amendment is required as a condition of qualification under this part.
(C)
(D)
(34)
(35)
(A)
(B)
(C)
(i) is a participant who has completed at least 3 years of service, or
(ii) is a beneficiary of a participant described in clause (i) or of a deceased participant,
may elect to direct the plan to divest any such securities and to reinvest an equivalent amount in other investment options meeting the requirements of subparagraph (D).
(D)
(i)
(ii)
(I)
(II)
(E)
(i)
(ii)
(I) there are no contributions to such plan (or earnings thereunder) which are held within such plan and are subject to subsection (k) or (m), and
(II) such plan is a separate plan for purposes of section 414(l) with respect to any other defined benefit plan or defined contribution plan maintained by the same employer or employers.
(iii)
(iv)
(I) covered only one individual (or the individual and the individual's spouse) and the individual (or the individual and the individual's spouse) owned 100 percent of the plan sponsor (whether or not incorporated), or
(II) covered only one or more partners (or partners and their spouses) in the plan sponsor.
(F)
(i)
(ii)
(I) no employer corporation, or parent corporation of an employer corporation, has issued any publicly traded employer security, and
(II) no employer corporation, or parent corporation of an employer corporation, has issued any special class of stock which grants particular rights to, or bears particular risks for, the holder or issuer with respect to any corporation described in clause (i) which has issued any publicly traded employer security.
(iii)
(I) "controlled group of corporations" has the meaning given such term by section 1563(a), except that "50 percent" shall be substituted for "80 percent" each place it appears,
(II) "employer corporation" means a corporation which is an employer maintaining the plan, and
(III) "parent corporation" has the meaning given such term by section 424(e).
(G)
(i)
(I) any participant in the plan, and
(II) any beneficiary who has an account under the plan with respect to which the beneficiary is entitled to exercise the rights of a participant.
(ii)
(iii)
(iv)
(v)
(vi)
(H)
(i)
(I)
(II)
(ii)
| Plan year to which subparagraph (C) applies: | The applicable percentage is: |
|---|---|
| 1st | 33 |
| 2d | 66 |
| 3d and following | 100. |
(36)
(A)
(B)
(i) the trust to which subparagraph (A) applies was in existence before January 1, 1970, and
(ii) before December 31, 2011, at a time when the plan provided that distributions may be made to an employee who has attained age 55 and who is not separated from employment at the time of such distribution, the plan received at least 1 written determination from the Internal Revenue Service that the trust to which subparagraph (A) applies constituted a qualified trust under this section.
(37)
(38)
(A)
(i) qualified distributions of a lifetime income investment, or
(ii) distributions of a lifetime income investment in the form of a qualified plan distribution annuity contract,
on or after the date that is 90 days prior to the date on which such lifetime income investment is no longer authorized to be held as an investment option under the plan.
(B)
(i) the term "qualified distribution" means a direct trustee-to-trustee transfer described in paragraph (31)(A) to an eligible retirement plan (as defined in section 402(c)(8)(B)),
(ii) the term "lifetime income investment" means an investment option which is designed to provide an employee with election rights—
(I) which are not uniformly available with respect to other investment options under the plan, and
(II) which are to a lifetime income feature available through a contract or other arrangement offered under the plan (or under another eligible retirement plan (as so defined), if paid by means of a direct trustee-to-trustee transfer described in paragraph (31)(A) to such other eligible retirement plan),
(iii) the term "lifetime income feature" means—
(I) a feature which guarantees a minimum level of income annually (or more frequently) for at least the remainder of the life of the employee or the joint lives of the employee and the employee's designated beneficiary, or
(II) an annuity payable on behalf of the employee under which payments are made in substantially equal periodic payments (not less frequently than annually) over the life of the employee or the joint lives of the employee and the employee's designated beneficiary, and
(iv) the term "qualified plan distribution annuity contract" means an annuity contract purchased for a participant and distributed to the participant by a plan or contract described in subparagraph (B) of section 402(c)(8) (without regard to clauses (i) and (ii) thereof).
Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall apply only in the case of a plan to which section 411 (relating to minimum vesting standards) applies without regard to subsection (e)(2) of such section.
(b) Certain plan amendments
(1) Certain retroactive changes in plan
A stock bonus, pension, profit-sharing, or annuity plan shall be considered as satisfying the requirements of subsection (a) for the period beginning with the date on which it was put into effect, or for the period beginning with the earlier of the date on which there was adopted or put into effect any amendment which caused the plan to fail to satisfy such requirements, and ending with the time prescribed by law for filing the return of the employer for his taxable year in which such plan or amendment was adopted (including extensions thereof) or such later time as the Secretary may designate, if all provisions of the plan which are necessary to satisfy such requirements are in effect by the end of such period and have been made effective for all purposes for the whole of such period.
(2) Adoption of plan
If an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof), the employer may elect to treat the plan as having been adopted as of the last day of the taxable year. In the case of an individual who owns the entire interest in an unincorporated trade or business, and who is the only employee of such trade or business, any elective deferrals (as defined in section 402(g)(3)) under a qualified cash or deferred arrangement to which the preceding sentence applies, which are made by such individual before the time for filing the return of such individual for the taxable year (determined without regard to any extensions) ending after or with the end of the plan's first plan year, shall be treated as having been made before the end of such first plan year.
(3) Retroactive plan amendments that increase benefit accruals
If—
(A) an employer amends a stock bonus, pension, profit-sharing, or annuity plan to increase benefits accrued under the plan effective as of any date during the immediately preceding plan year (other than increasing the amount of matching contributions (as defined in subsection (m)(4)(A))),
(B) such amendment would not otherwise cause the plan to fail to meet any of the requirements of this subchapter, and
(C) such amendment is adopted before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof) which includes the date described in subparagraph (A),
the employer may elect to treat such amendment as having been adopted as of the last day of the plan year in which the amendment is effective.
(c) Definitions and rules relating to self-employed individuals and owner-employees
For purposes of this section—
(1) Self-employed individual treated as employee
(A) In general
The term "employee" includes, for any taxable year, an individual who is a self-employed individual for such taxable year.
(B) Self-employed individual
The term "self-employed individual" means, with respect to any taxable year, an individual who has earned income (as defined in paragraph (2)) for such taxable year. To the extent provided in regulations prescribed by the Secretary, such term also includes, for any taxable year—
(i) an individual who would be a self-employed individual within the meaning of the preceding sentence but for the fact that the trade or business carried on by such individual did not have net profits for the taxable year, and
(ii) an individual who has been a self-employed individual within the meaning of the preceding sentence for any prior taxable year.
(2) Earned income
(A) In general
The term "earned income" means the net earnings from self-employment (as defined in section 1402(a)), but such net earnings shall be determined—
(i) only with respect to a trade or business in which personal services of the taxpayer are a material income-producing factor,
(ii) without regard to paragraphs (4) and (5) of section 1402(c),
(iii) in the case of any individual who is treated as an employee under subparagraph (A), (C), or (D) of section 3121(d)(3), without regard to section 1402(c)(2),
(iv) without regard to items which are not included in gross income for purposes of this chapter, and the deductions properly allocable to or chargeable against such items,
(v) with regard to the deductions allowed by section 404 to the taxpayer, and
(vi) with regard to the deduction allowed to the taxpayer by section 164(f).
For purposes of this subparagraph, section 1402, as in effect for a taxable year ending on December 31, 1962, shall be treated as having been in effect for all taxable years ending before such date. For purposes of this part only (other than sections 419 and 419A), this subparagraph shall be applied as if the term "trade or business" for purposes of section 1402 included service described in section 1402(c)(6).
[(B) Repealed]
(C) Income from disposition of certain property
For purposes of this section, the term "earned income" includes gains (other than any gain which is treated under any provision of this chapter as gain from the sale or exchange of a capital asset) and net earnings derived from the sale or other disposition of, the transfer of any interest in, or the licensing of the use of property (other than good will) by an individual whose personal efforts created such property.
(3) Owner-employee
The term "owner-employee" means an employee who—
(A) owns the entire interest in an unincorporated trade or business, or
(B) in the case of a partnership, is a partner who owns more than 10 percent of either the capital interest or the profits interest in such partnership.
To the extent provided in regulations prescribed by the Secretary, such term also means an individual who has been an owner-employee within the meaning of the preceding sentence.
(4) Employer
An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each partner who is an employee within the meaning of paragraph (1).
(5) Contributions on behalf of owner-employees
The term "contribution on behalf of an owner-employee" includes, except as the context otherwise requires, a contribution under a plan—
(A) by the employer for an owner-employee, and
(B) by an owner-employee as an employee.
(6) Special rule for certain fishermen
For purposes of this subsection, the term "self-employed individual" includes an individual described in section 3121(b)(20) (relating to certain fishermen).
(d) Contribution limit on owner-employees
A trust forming part of a pension or profit-sharing plan which provides contributions or benefits for employees some or all of whom are owner-employees shall constitute a qualified trust under this section only if, in addition to meeting the requirements of subsection (a), the plan provides that contributions on behalf of any owner-employee may be made only with respect to the earned income of such owner-employee which is derived from the trade or business with respect to which such plan is established.
[(e) Repealed. Pub. L. 98–369, div. A, title VII, §713(d)(3), July 18, 1984, 98 Stat. 958 ]
(f) Certain custodial accounts and contracts
For purposes of this title, a custodial account, an annuity contract, or a contract (other than a life, health or accident, property, casualty, or liability insurance contract) issued by an insurance company qualified to do business in a State shall be treated as a qualified trust under this section if—
(1) the custodial account or contract would, except for the fact that it is not a trust, constitute a qualified trust under this section, and
(2) in the case of a custodial account the assets thereof are held by a bank (as defined in section 408(n)) or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which he will hold the assets will be consistent with the requirements of this section.
For purposes of this title, in the case of a custodial account or contract treated as a qualified trust under this section by reason of this subsection, the person holding the assets of such account or holding such contract shall be treated as the trustee thereof.
(g) Annuity defined
For purposes of this section and sections 402, 403, and 404, the term "annuity" includes a face-amount certificate, as defined in section 2(a)(15) of the Investment Company Act of 1940 (
(h) Medical, etc., benefits for retired employees and their spouses and dependents
Under regulations prescribed by the Secretary, and subject to the provisions of section 420, a pension or annuity plan may provide for the payment of benefits for sickness, accident, hospitalization, and medical expenses of retired employees, their spouses and their dependents, but only if—
(1) such benefits are subordinate to the retirement benefits provided by the plan,
(2) a separate account is established and maintained for such benefits,
(3) the employer's contributions to such separate account are reasonable and ascertainable,
(4) it is impossible, at any time prior to the satisfaction of all liabilities under the plan to provide such benefits, for any part of the corpus or income of such separate account to be (within the taxable year or thereafter) used for, or diverted to, any purpose other than the providing of such benefits,
(5) notwithstanding the provisions of subsection (a)(2), upon the satisfaction of all liabilities under the plan to provide such benefits, any amount remaining in such separate account must, under the terms of the plan, be returned to the employer, and
(6) in the case of an employee who is a key employee, a separate account is established and maintained for such benefits payable to such employee (and his spouse and dependents) and such benefits (to the extent attributable to plan years beginning after March 31, 1984, for which the employee is a key employee) are only payable to such employee (and his spouse and dependents) from such separate account.
For purposes of paragraph (6), the term "key employee" means any employee, who at any time during the plan year or any preceding plan year during which contributions were made on behalf of such employee, is or was a key employee as defined in section 416(i). In no event shall the requirements of paragraph (1) be treated as met if the aggregate actual contributions for medical benefits, when added to actual contributions for life insurance protection under the plan, exceed 25 percent of the total actual contributions to the plan (other than contributions to fund past service credits) after the date on which the account is established. For purposes of this subsection, the term "dependent" shall include any individual who is a child (as defined in section 152(f)(1)) of a retired employee who as of the end of the calendar year has not attained age 27.
(i) Certain union-negotiated pension plans
In the case of a trust forming part of a pension plan which has been determined by the Secretary to constitute a qualified trust under subsection (a) and to be exempt from taxation under section 501(a) for a period beginning after contributions were first made to or for such trust, if it is shown to the satisfaction of the Secretary that—
(1) such trust was created pursuant to a collective bargaining agreement between employee representatives and one or more employers,
(2) any disbursements of contributions, made to or for such trust before the time as of which the Secretary determined that the trust constituted a qualified trust, substantially complied with the terms of the trust, and the plan of which the trust is a part, as subsequently qualified, and
(3) before the time as of which the Secretary determined that the trust constitutes a qualified trust, the contributions to or for such trust were not used in a manner which would jeopardize the interests of its beneficiaries,
then such trust shall be considered as having constituted a qualified trust under subsection (a) and as having been exempt from taxation under section 501(a) for the period beginning on the date on which contributions were first made to or for such trust and ending on the date such trust first constituted (without regard to this subsection) a qualified trust under subsection (a).
[(j) Repealed. Pub. L. 97–248, title II, §238(b), Sept. 3, 1982, 96 Stat. 512 ]
(k) Cash or deferred arrangements
(1) General rule
A profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan shall not be considered as not satisfying the requirements of subsection (a) merely because the plan includes a qualified cash or deferred arrangement.
(2) Qualified cash or deferred arrangement
A qualified cash or deferred arrangement is any arrangement which is part of a profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan which meets the requirements of subsection (a)—
(A) under which a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash;
(B) under which amounts held by the trust which are attributable to employer contributions made pursuant to the employee's election—
(i) may not be distributable to participants or other beneficiaries earlier than—
(I) severance from employment, death, or disability,
(II) an event described in paragraph (10),
(III) in the case of a profit-sharing or stock bonus plan, the attainment of age 59½,
(IV) subject to the provisions of paragraph (14), upon hardship of the employee,
(V) in the case of a qualified reservist distribution (as defined in section 72(t)(2)(G)(iii)), the date on which a period referred to in subclause (III) of such section begins, or
(VI) except as may be otherwise provided by regulations, with respect to amounts invested in a lifetime income investment (as defined in subsection (a)(38)(B)(ii)), the date that is 90 days prior to the date that such lifetime income investment may no longer be held as an investment option under the arrangement,
(ii) will not be distributable merely by reason of the completion of a stated period of participation or the lapse of a fixed number of years, and
(iii) except as may be otherwise provided by regulations, in the case of amounts described in clause (i)(VI), will be distributed only in the form of a qualified distribution (as defined in subsection (a)(38)(B)(i)) or a qualified plan distribution annuity contract (as defined in subsection (a)(38)(B)(iv)),
(C) which provides that an employee's right to his accrued benefit derived from employer contributions made to the trust pursuant to his election is nonforfeitable, and
(D) which does not require, as a condition of participation in the arrangement, that an employee complete a period of service with the employer (or employers) maintaining the plan extending beyond the close of the earlier of—
(i) the period permitted under section 410(a)(1) (determined without regard to subparagraph (B)(i) thereof), or
(ii) subject to the provisions of paragraph (15), the first period of 3 consecutive 12-month periods during each of which the employee has at least 500 hours of service.
(3) Application of participation and discrimination standards
(A) A cash or deferred arrangement shall not be treated as a qualified cash or deferred arrangement unless—
(i) those employees eligible to benefit under the arrangement satisfy the provisions of section 410(b)(1), and
(ii) the actual deferral percentage for eligible highly compensated employees (as defined in paragraph (5)) for the plan year bears a relationship to the actual deferral percentage for all other eligible employees for the preceding plan year which meets either of the following tests:
(I) The actual deferral percentage for the group of eligible highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 1.25.
(II) The excess of the actual deferral percentage for the group of eligible highly compensated employees over that of all other eligible employees is not more than 2 percentage points, and the actual deferral percentage for the group of eligible highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 2.
If 2 or more plans which include cash or deferred arrangements are considered as 1 plan for purposes of section 401(a)(4) or 410(b), the cash or deferred arrangements included in such plans shall be treated as 1 arrangement for purposes of this subparagraph.
If any highly compensated employee is a participant under 2 or more cash or deferred arrangements of the employer, for purposes of determining the deferral percentage with respect to such employee, all such cash or deferred arrangements shall be treated as 1 cash or deferred arrangement. An arrangement may apply clause (ii) by using the plan year rather than the preceding plan year if the employer so elects, except that if such an election is made, it may not be changed except as provided by the Secretary.
(B) For purposes of subparagraph (A), the actual deferral percentage for a specified group of employees for a plan year shall be the average of the ratios (calculated separately for each employee in such group) of—
(i) the amount of employer contributions actually paid over to the trust on behalf of each such employee for such plan year, to
(ii) the employee's compensation for such plan year.
(C) A cash or deferred arrangement shall be treated as meeting the requirements of subsection (a)(4) with respect to contributions if the requirements of subparagraph (A)(ii) are met.
(D) For purposes of subparagraph (B), the employer contributions on behalf of any employee—
(i) shall include any employer contributions made pursuant to the employee's election under paragraph (2), and
(ii) under such rules as the Secretary may prescribe, may, at the election of the employer, include—
(I) matching contributions (as defined in 401(m)(4)(A)) which meet the requirements of paragraph (2)(B) and (C), and
(II) qualified nonelective contributions (within the meaning of section 401(m)(4)(C)).
(E) For purposes of this paragraph, in the case of the first plan year of any plan (other than a successor plan), the amount taken into account as the actual deferral percentage of nonhighly compensated employees for the preceding plan year shall be—
(i) 3 percent, or
(ii) if the employer makes an election under this subclause, the actual deferral percentage of nonhighly compensated employees determined for such first plan year.
(F)
(G)
(4) Other requirements
(A) Benefits (other than matching contributions) must not be contingent on election to defer
A cash or deferred arrangement of any employer shall not be treated as a qualified cash or deferred arrangement if any other benefit (other than a de minimis financial incentive (not paid for with plan assets) provided to employees who elect to have the employer make contributions under the arrangement in lieu of receiving cash) is conditioned (directly or indirectly) on the employee electing to have the employer make or not make contributions under the arrangement in lieu of receiving cash. The preceding sentence shall not apply to any matching contribution (as defined in section 401(m)) made by reason of such an election.
(B) Eligibility of State and local governments and tax-exempt organizations
(i) Tax-exempts eligible
Except as provided in clause (ii), any organization exempt from tax under this subtitle may include a qualified cash or deferred arrangement as part of a plan maintained by it.
(ii) Governments ineligible
A cash or deferred arrangement shall not be treated as a qualified cash or deferred arrangement if it is part of a plan maintained by a State or local government or political subdivision thereof, or any agency or instrumentality thereof. This clause shall not apply to a rural cooperative plan or to a plan of an employer described in clause (iii).
(iii) Treatment of Indian tribal governments
An employer which is an Indian tribal government (as defined in section 7701(a)(40)), a subdivision of an Indian tribal government (determined in accordance with section 7871(d)), an agency or instrumentality of an Indian tribal government or subdivision thereof, or a corporation chartered under Federal, State, or tribal law which is owned in whole or in part by any of the foregoing may include a qualified cash or deferred arrangement as part of a plan maintained by the employer.
(C) Coordination with other plans
Except as provided in section 401(m), any employer contribution made pursuant to an employee's election under a qualified cash or deferred arrangement shall not be taken into account for purposes of determining whether any other plan meets the requirements of section 401(a) or 410(b). This subparagraph shall not apply for purposes of determining whether a plan meets the average benefit requirement of section 410(b)(2)(A)(ii).
(5) Highly compensated employee
For purposes of this subsection, the term "highly compensated employee" has the meaning given such term by section 414(q).
(6) Pre-ERISA money purchase plan
For purposes of this subsection, the term "pre-ERISA money purchase plan" means a pension plan—
(A) which is a defined contribution plan (as defined in section 414(i)),
(B) which was in existence on June 27, 1974, and which, on such date, included a salary reduction arrangement, and
(C) under which neither the employee contributions nor the employer contributions may exceed the levels provided for by the contribution formula in effect under the plan on such date.
(7) Rural cooperative plan
For purposes of this subsection—
(A) In general
The term "rural cooperative plan" means any pension plan—
(i) which is a defined contribution plan (as defined in section 414(i)), and
(ii) which is established and maintained by a rural cooperative.
(B) Rural cooperative defined
For purposes of subparagraph (A), the term "rural cooperative" means—
(i) any organization which—
(I) is engaged primarily in providing electric service on a mutual or cooperative basis, or
(II) is engaged primarily in providing electric service to the public in its area of service and which is exempt from tax under this subtitle or which is a State or local government (or an agency or instrumentality thereof), other than a municipality (or an agency or instrumentality thereof),
(ii) any organization described in paragraph (4) or (6) of section 501(c) and at least 80 percent of the members of which are organizations described in clause (i),
(iii) a cooperative telephone company described in section 501(c)(12),
(iv) any organization which—
(I) is a mutual irrigation or ditch company described in section 501(c)(12) (without regard to the 85 percent requirement thereof), or
(II) is a district organized under the laws of a State as a municipal corporation for the purpose of irrigation, water conservation, or drainage, and
(v) an organization which is a national association of organizations described in clause (i), (ii),,2 (iii), or (iv).
(C) Special rule for certain distributions
A rural cooperative plan which includes a qualified cash or deferred arrangement shall not be treated as violating the requirements of section 401(a) or of paragraph (2) merely by reason of a hardship distribution or a distribution to a participant after attainment of age 59½. For purposes of this section, the term "hardship distribution" means a distribution described in paragraph (2)(B)(i)(IV) (without regard to the limitation of its application to profit-sharing or stock bonus plans).
(8) Arrangement not disqualified if excess contributions distributed
(A) In general
A cash or deferred arrangement shall not be treated as failing to meet the requirements of clause (ii) of paragraph (3)(A) for any plan year if, before the close of the following plan year—
(i) the amount of the excess contributions for such plan year (and any income allocable to such contributions through the end of such year) is distributed, or
(ii) to the extent provided in regulations, the employee elects to treat the amount of the excess contributions as an amount distributed to the employee and then contributed by the employee to the plan.
Any distribution of excess contributions (and income) may be made without regard to any other provision of law.
(B) Excess contributions
For purposes of subparagraph (A), the term "excess contributions" means, with respect to any plan year, the excess of—
(i) the aggregate amount of employer contributions actually paid over to the trust on behalf of highly compensated employees for such plan year, over
(ii) the maximum amount of such contributions permitted under the limitations of clause (ii) of paragraph (3)(A) (determined by reducing contributions made on behalf of highly compensated employees in order of the actual deferral percentages beginning with the highest of such percentages).
(C) Method of distributing excess contributions
Any distribution of the excess contributions for any plan year shall be made to highly compensated employees on the basis of the amount of contributions by, or on behalf of, each of such employees.
(D) Additional tax under section 72(t) not to apply
No tax shall be imposed under section 72(t) on any amount required to be distributed under this paragraph.
(E) Treatment of matching contributions forfeited by reason of excess deferral or contribution or permissible withdrawal
For purposes of paragraph (2)(C), a matching contribution (within the meaning of subsection (m)) shall not be treated as forfeitable merely because such contribution is forfeitable if the contribution to which the matching contribution relates is treated as an excess contribution under subparagraph (B), an excess deferral under section 402(g)(2)(A), a permissible withdrawal under section 414(w), or an excess aggregate contribution under section 401(m)(6)(B).
(F) Cross reference
For excise tax on certain excess contributions, see section 4979.
(9) Compensation
For purposes of this subsection, the term "compensation" has the meaning given such term by section 414(s).
(10) Distributions upon termination of plan
(A) In general
An event described in this subparagraph is the termination of the plan without establishment or maintenance of another defined contribution plan (other than an employee stock ownership plan as defined in section 4975(e)(7)).
(B) Distributions must be lump sum distributions
(i) In general
A termination shall not be treated as described in subparagraph (A) with respect to any employee unless the employee receives a lump sum distribution by reason of the termination.
(ii) Lump-sum distribution
For purposes of this subparagraph, the term "lump-sum distribution" has the meaning given such term by section 402(e)(4)(D) (without regard to subclauses (I), (II), (III), and (IV) of clause (i) thereof). Such term includes a distribution of an annuity contract from—
(I) a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501(a), or
(II) an annuity plan described in section 403(a).
(11) Adoption of simple plan to meet nondiscrimination tests
(A) In general
A cash or deferred arrangement maintained by an eligible employer shall be treated as meeting the requirements of paragraph (3)(A)(ii) if such arrangement meets—
(i) the contribution requirements of subparagraph (B),
(ii) the exclusive plan requirements of subparagraph (C), and
(iii) the vesting requirements of section 408(p)(3).
(B) Contribution requirements
(i) In general
The requirements of this subparagraph are met if, under the arrangement—
(I) an employee may elect to have the employer make elective contributions for the year on behalf of the employee to a trust under the plan in an amount which is expressed as a percentage of compensation of the employee but which in no event exceeds the amount in effect under section 408(p)(2)(A)(ii) (after the application of any election under section 408(p)(2)(E)(i)(II)),
(II) the employer is required to make a matching contribution to the trust for the year in an amount equal to so much of the amount the employee elects under subclause (I) as does not exceed 3 percent of compensation for the year,
(III) the employer may make nonelective contributions of a uniform percentage (up to 10 percent) of compensation, but not to exceed the amount in effect under section 408(p)(2)(A)(iv) in any year, for each employee who is eligible to participate in the arrangement and who has at least $5,000 of compensation from the employer for the year, and
(IV) no other contributions may be made other than contributions described in subclause (I), (II), or (III).
(ii) Employer may elect 2-percent nonelective contribution
An employer shall be treated as meeting the requirements of clause (i)(II) for any year if, in lieu of the contributions described in such clause, the employer elects (pursuant to the terms of the arrangement) to make nonelective contributions of 2 percent of compensation for each employee who is eligible to participate in the arrangement and who has at least $5,000 of compensation from the employer for the year. If an employer makes an election under this subparagraph for any year, the employer shall notify employees of such election within a reasonable period of time before the 60th day before the beginning of such year.
(iii) Administrative requirements
(I) In general
Rules similar to the rules of subparagraphs (B) and (C) of section 408(p)(5) shall apply for purposes of this subparagraph.
(II) Notice of election period
The requirements of this subparagraph shall not be treated as met with respect to any year unless the employer notifies each employee eligible to participate, within a reasonable period of time before the 60th day before the beginning of such year (and, for the first year the employee is so eligible, the 60th day before the first day such employee is so eligible), of the rules similar to the rules of section 408(p)(5)(C) which apply by reason of subclause (I).
(C) Exclusive plan requirement
The requirements of this subparagraph are met for any year to which this paragraph applies if no contributions were made, or benefits were accrued, for services during such year under any qualified plan of the employer on behalf of any employee eligible to participate in the cash or deferred arrangement, other than contributions described in subparagraph (B).
(D) Definitions and special rule
(i) Definitions
For purposes of this paragraph, any term used in this paragraph which is also used in section 408(p) shall have the meaning given such term by such section.
(ii) Coordination with top-heavy rules
A plan meeting the requirements of this paragraph for any year shall not be treated as a top-heavy plan under section 416 for such year if such plan allows only contributions required under this paragraph.
(E) Employers electing increased contributions
In the case of an employer which applies an election under section 408(p)(2)(E)(i)(II) for purposes of the contribution requirements of this paragraph under subparagraph (B)(i)(I), rules similar to the rules of subparagraphs (B)(iii), (C)(ii)(IV), and (G) of section 408(p)(2) shall apply for purposes of subparagraphs (B)(i)(II) and (B)(ii) of this paragraph.
(12) Alternative methods of meeting nondiscrimination requirements
(A) In general
A cash or deferred arrangement shall be treated as meeting the requirements of paragraph (3)(A)(ii) if such arrangement—
(i) meets the contribution requirements of subparagraph (B) and the notice requirements of subparagraph (D), or
(ii) meets the contribution requirements of subparagraph (C).
(B) Matching contributions
(i) In general
The requirements of this subparagraph are met if, under the arrangement, the employer makes matching contributions on behalf of each employee who is not a highly compensated employee in an amount equal to—
(I) 100 percent of the elective contributions of the employee to the extent such elective contributions do not exceed 3 percent of the employee's compensation, and
(II) 50 percent of the elective contributions of the employee to the extent that such elective contributions exceed 3 percent but do not exceed 5 percent of the employee's compensation.
(ii) Rate for highly compensated employees
The requirements of this subparagraph are not met if, under the arrangement, the rate of matching contribution with respect to any elective contribution of a highly compensated employee at any rate of elective contribution is greater than that with respect to an employee who is not a highly compensated employee.
(iii) Alternative plan designs
If the rate of any matching contribution with respect to any rate of elective contribution is not equal to the percentage required under clause (i), an arrangement shall not be treated as failing to meet the requirements of clause (i) if—
(I) the rate of an employer's matching contribution does not increase as an employee's rate of elective contributions increase, and
(II) the aggregate amount of matching contributions at such rate of elective contribution is at least equal to the aggregate amount of matching contributions which would be made if matching contributions were made on the basis of the percentages described in clause (i).
(C) Nonelective contributions
The requirements of this subparagraph are met if, under the arrangement, the employer is required, without regard to whether the employee makes an elective contribution or employee contribution, to make a contribution to a defined contribution plan on behalf of each employee who is not a highly compensated employee and who is eligible to participate in the arrangement in an amount equal to at least 3 percent of the employee's compensation.
(D) Notice requirement
An arrangement meets the requirements of this paragraph if, under the arrangement, each employee eligible to participate is, within a reasonable period before any year, given written notice of the employee's rights and obligations under the arrangement which—
(i) is sufficiently accurate and comprehensive to apprise the employee of such rights and obligations, and
(ii) is written in a manner calculated to be understood by the average employee eligible to participate.
(E) Other requirements
(i) Withdrawal and vesting restrictions
An arrangement shall not be treated as meeting the requirements of subparagraph (B) or (C) of this paragraph unless the requirements of subparagraphs (B) and (C) of paragraph (2) are met with respect to all employer contributions (including matching contributions) taken into account in determining whether the requirements of subparagraphs (B) and (C) of this paragraph are met.
(ii) Social security and similar contributions not taken into account
An arrangement shall not be treated as meeting the requirements of subparagraph (B) or (C) unless such requirements are met without regard to subsection (l), and, for purposes of subsection (l), employer contributions under subparagraph (B) or (C) shall not be taken into account.
(F) Timing of plan amendment for employer making nonelective contributions
(i) In general
Except as provided in clause (ii), a plan may be amended after the beginning of a plan year to provide that the requirements of subparagraph (C) shall apply to the arrangement for the plan year, but only if the amendment is adopted—
(I) at any time before the 30th day before the close of the plan year, or
(II) at any time before the last day under paragraph (8)(A) for distributing excess contributions for the plan year.
(ii) Exception where plan provided for matching contributions
Clause (i) shall not apply to any plan year if the plan provided at any time during the plan year that the requirements of subparagraph (B) or paragraph (13)(D)(i)(I) applied to the plan year.
(iii) 4-percent contribution requirement
Clause (i)(II) shall not apply to an arrangement unless the amount of the contributions described in subparagraph (C) which the employer is required to make under the arrangement for the plan year with respect to any employee is an amount equal to at least 4 percent of the employee's compensation.
(G) Other plans
An arrangement shall be treated as meeting the contribution requirements under subparagraph (B) or (C) if any other plan maintained by the employer meets such requirements with respect to employees eligible under the arrangement.
(13) Alternative method for automatic contribution arrangements to meet nondiscrimination requirements
(A) In general
A qualified automatic contribution arrangement shall be treated as meeting the requirements of paragraph (3)(A)(ii).
(B) Qualified automatic contribution arrangement
For purposes of this paragraph, the term "qualified automatic contribution arrangement" means a cash or deferred arrangement—
(i) which is described in subparagraph (D)(i)(I) and meets the applicable requirements of subparagraphs (C) through (E), or
(ii) which is described in subparagraph (D)(i)(II) and meets the applicable requirements of subparagraphs (C) and (D).
(C) Automatic deferral
(i) In general
The requirements of this subparagraph are met if, under the arrangement, each employee eligible to participate in the arrangement is treated as having elected to have the employer make elective contributions in an amount equal to a qualified percentage of compensation.
(ii) Election out
The election treated as having been made under clause (i) shall cease to apply with respect to any employee if such employee makes an affirmative election—
(I) to not have such contributions made, or
(II) to make elective contributions at a level specified in such affirmative election.
(iii) Qualified percentage
For purposes of this subparagraph, the term "qualified percentage" means, with respect to any employee, any percentage determined under the arrangement if such percentage is applied uniformly, does not exceed 15 percent (10 percent during the period described in subclause (I)), and is at least—
(I) 3 percent during the period ending on the last day of the first plan year which begins after the date on which the first elective contribution described in clause (i) is made with respect to such employee,
(II) 4 percent during the first plan year following the plan year described in subclause (I),
(III) 5 percent during the second plan year following the plan year described in subclause (I), and
(IV) 6 percent during any subsequent plan year.
(iv) Automatic deferral for current employees not required
Clause (i) may be applied without taking into account any employee who—
(I) was eligible to participate in the arrangement (or a predecessor arrangement) immediately before the date on which such arrangement becomes a qualified automatic contribution arrangement (determined after application of this clause), and
(II) had an election in effect on such date either to participate in the arrangement or to not participate in the arrangement.
(D) Matching or nonelective contributions
(i) In general
The requirements of this subparagraph are met if, under the arrangement, the employer—
(I) makes matching contributions on behalf of each employee who is not a highly compensated employee in an amount equal to the sum of 100 percent of the elective contributions of the employee to the extent that such contributions do not exceed 1 percent of compensation plus 50 percent of so much of such contributions as exceed 1 percent but do not exceed 6 percent of compensation, or
(II) is required, without regard to whether the employee makes an elective contribution or employee contribution, to make a contribution to a defined contribution plan on behalf of each employee who is not a highly compensated employee and who is eligible to participate in the arrangement in an amount equal to at least 3 percent of the employee's compensation.
(ii) Application of rules for matching contributions
The rules of clauses (ii) and (iii) of paragraph (12)(B) shall apply for purposes of clause (i)(I).
(iii) Withdrawal and vesting restrictions
An arrangement shall not be treated as meeting the requirements of clause (i) unless, with respect to employer contributions (including matching contributions) taken into account in determining whether the requirements of clause (i) are met—
(I) any employee who has completed at least 2 years of service (within the meaning of section 411(a)) has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from such employer contributions, and
(II) the requirements of subparagraph (B) of paragraph (2) are met with respect to all such employer contributions.
(iv) Application of certain other rules
The rules of subparagraphs (E)(ii) and (G) of paragraph (12) shall apply for purposes of subclauses (I) and (II) of clause (i).
(E) Notice requirements
(i) In general
The requirements of this subparagraph are met if, within a reasonable period before each plan year, each employee eligible to participate in the arrangement for such year receives written notice of the employee's rights and obligations under the arrangement which—
(I) is sufficiently accurate and comprehensive to apprise the employee of such rights and obligations, and
(II) is written in a manner calculated to be understood by the average employee to whom the arrangement applies.
(ii) Timing and content requirements
A notice shall not be treated as meeting the requirements of clause (i) with respect to an employee unless—
(I) the notice explains the employee's right under the arrangement to elect not to have elective contributions made on the employee's behalf (or to elect to have such contributions made at a different percentage),
(II) in the case of an arrangement under which the employee may elect among 2 or more investment options, the notice explains how contributions made under the arrangement will be invested in the absence of any investment election by the employee, and
(III) the employee has a reasonable period of time after receipt of the notice described in subclauses (I) and (II) and before the first elective contribution is made to make either such election.
(F) Timing of plan amendment for employer making nonelective contributions
(i) In general
Except as provided in clause (ii), a plan may be amended after the beginning of a plan year to provide that the requirements of subparagraph (D)(i)(II) shall apply to the arrangement for the plan year, but only if the amendment is adopted—
(I) at any time before the 30th day before the close of the plan year, or
(II) at any time before the last day under paragraph (8)(A) for distributing excess contributions for the plan year.
(ii) Exception where plan provided for matching contributions
Clause (i) shall not apply to any plan year if the plan provided at any time during the plan year that the requirements of subparagraph (D)(i)(I) or paragraph (12)(B) applied to the plan year.
(iii) 4-percent contribution requirement
Clause (i)(II) shall not apply to an arrangement unless the amount of the contributions described in subparagraph (D)(i)(II) which the employer is required to make under the arrangement for the plan year with respect to any employee is an amount equal to at least 4 percent of the employee's compensation.
(14) Special rules relating to hardship withdrawals
For purposes of paragraph (2)(B)(i)(IV)—
(A) Amounts which may be withdrawn
The following amounts may be distributed upon hardship of the employee:
(i) Contributions to a profit-sharing or stock bonus plan to which section 402(e)(3) applies.
(ii) Qualified nonelective contributions (as defined in subsection (m)(4)(C)).
(iii) Qualified matching contributions described in paragraph (3)(D)(ii)(I).
(iv) Earnings on any contributions described in clause (i), (ii), or (iii).
(B) No requirement to take available loan
A distribution shall not be treated as failing to be made upon the hardship of an employee solely because the employee does not take any available loan under the plan.
(C) Employee certification
In determining whether a distribution is upon the hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is—
(i) on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need, and
(ii) not in excess of the amount required to satisfy such financial need, and
that the employee has no alternative means reasonably available to satisfy such financial need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee's certification, and for procedures for addressing cases of employee misrepresentation.
(15) Special rules for participation requirement for long-term, part-time workers
For purposes of paragraph (2)(D)(ii)—
(A) Age requirement must be met
Paragraph (2)(D)(ii) shall not apply to an employee unless the employee has met the requirement of section 410(a)(1)(A)(i) by the close of the last of the 12-month periods described in such paragraph.
(B) Nondiscrimination and top-heavy rules not to apply
(i) Nondiscrimination rules
In the case of employees who are eligible to participate in the arrangement solely by reason of paragraph (2)(D)(ii)—
(I) notwithstanding subsection (a)(4), an employer shall not be required to make nonelective or matching contributions on behalf of such employees even if such contributions are made on behalf of other employees eligible to participate in the arrangement, and
(II) an employer may elect to exclude such employees from the application of subsection (a)(4), paragraphs (3), (12), and (13), paragraphs (2), (11), and (12) of subsection (m), and section 410(b).
(ii) Top-heavy rules
An employer may elect to exclude all employees who are eligible to participate in a plan maintained by the employer solely by reason of paragraph (2)(D)(ii) from the application of the vesting and benefit requirements under subsections (b) and (c) of section 416.
(iii) Vesting
For purposes of determining whether an employee described in clause (i) has a nonforfeitable right to employer contributions (other than contributions described in paragraph (3)(D)(i)) under the plan, each 12-month period for which the employee has at least 500 hours of service shall be treated as a year of service, and section 411(a)(6) shall be applied by substituting "at least 500 hours of service" for "more than 500 hours of service" in subparagraph (A) thereof.
(iv) Employees who become full-time employees
This subparagraph (other than clause (iii)) shall cease to apply to any employee as of the first plan year beginning after the plan year in which the employee meets the requirements of paragraph (2)(D) without regard to paragraph (2)(D)(ii).
(C) Exception for employees under collectively bargained plans, etc.
Paragraph (2)(D)(ii) shall not apply to employees described in section 410(b)(3).
(D) Special rules
(i) Time of participation
The rules of section 410(a)(4) shall apply to an employee eligible to participate in an arrangement solely by reason of paragraph (2)(D)(ii).
(ii) 12-month periods
12-month periods shall be determined in the same manner as under the last sentence of section 410(a)(3)(A).
(16) Starter 401(k) deferral-only plans for employers with no retirement plan
(A) In general
A starter 401(k) deferral-only arrangement maintained by an eligible employer shall be treated as meeting the requirements of paragraph (3)(A)(ii).
(B) Starter 401(k) deferral-only arrangement
For purposes of this paragraph, the term "starter 401(k) deferral-only arrangement" means any cash or deferred arrangement which meets—
(i) the automatic deferral requirements of subparagraph (C),
(ii) the contribution limitations of subparagraph (D), and
(iii) the requirements of subparagraph (E) of paragraph (13).
(C) Automatic deferral
(i) In general
The requirements of this subparagraph are met if, under the arrangement, each eligible employee is treated as having elected to have the employer make elective contributions in an amount equal to a qualified percentage of compensation.
(ii) Election out
The election treated as having been made under clause (i) shall cease to apply with respect to any employee if such employee makes an affirmative election—
(I) to not have such contributions made, or
(II) to make elective contributions at a level specified in such affirmative election.
(iii) Qualified percentage
For purposes of this subparagraph, the term "qualified percentage" means, with respect to any employee, any percentage determined under the arrangement if such percentage is applied uniformly and is not less than 3 or more than 15 percent.
(D) Contribution limitations
(i) In general
The requirements of this subparagraph are met if, under the arrangement—
(I) the only contributions which may be made are elective contributions of employees described in subparagraph (C), and
(II) the aggregate amount of such elective contributions which may be made with respect to any employee for any calendar year shall not exceed $6,000.
(ii) Cost-of-living adjustment
In the case of any calendar year beginning after December 31, 2024, the $6,000 amount under clause (i) shall be adjusted in the same manner as under section 402(g)(4), except that "2023" shall be substituted for "2005".
(iii) Catch-up contributions for individuals age 50 or over
In the case of an individual who has attained the age of 50 before the close of the taxable year, the limitation under clause (i)(II) shall be increased by the applicable amount determined under section 219(b)(5)(B)(ii) (after the application of section 219(b)(5)(C)(iii)).
(E) Eligible employer
For purposes of this paragraph—
(i) In general
The term "eligible employer" means any employer if the employer does not maintain a qualified plan with respect to which contributions are made, or benefits are accrued, for service in the year for which the determination is being made. If only individuals other than employees described in subparagraph (A) of section 410(b)(3) are eligible to participate in such arrangement, then the preceding sentence shall be applied without regard to any qualified plan in which only employees described in such subparagraph are eligible to participate.
(ii) Relief for acquisitions, etc.
Rules similar to the rules of section 408(p)(10) shall apply for purposes of clause (i).
(iii) Qualified plan
The term "qualified plan" means a plan, contract, pension, account, or trust described in subparagraph (A) or (B) of paragraph (5) of section 219(g) (determined without regard to the last sentence of such paragraph (5)).
(F) Eligible employee
For purposes of this paragraph—
(i) In general
The term "eligible employee" means any employee of the employer who meets the minimum age and service conditions described in section 410(a)(1).
(ii) Exclusions
The employer may elect to exclude from such definition any employee described in paragraph (3) or (4) of section 410(b).
(l) Permitted disparity in plan contributions or benefits
(1) In general
The requirements of this subsection are met with respect to a plan if—
(A) in the case of a defined contribution plan, the requirements of paragraph (2) are met, and
(B) in the case of a defined benefit plan, the requirements of paragraph (3) are met.
(2) Defined contribution plan
(A) In general
A defined contribution plan meets the requirements of this paragraph if the excess contribution percentage does not exceed the base contribution percentage by more than the lesser of—
(i) the base contribution percentage, or
(ii) the greater of—
(I) 5.7 percentage points, or
(II) the percentage equal to the portion of the rate of tax under section 3111(a) (in effect as of the beginning of the year) which is attributable to old-age insurance.
(B) Contribution percentages
For purposes of this paragraph—
(i) Excess contribution percentage
The term "excess contribution percentage" means the percentage of compensation which is contributed by the employer under the plan with respect to that portion of each participant's compensation in excess of the integration level.
(ii) Base contribution percentage
The term "base contribution percentage" means the percentage of compensation contributed by the employer under the plan with respect to that portion of each participant's compensation not in excess of the integration level.
(3) Defined benefit plan
A defined benefit plan meets the requirements of this paragraph if—
(A) Excess plans
(i) In general
In the case of a plan other than an offset plan—
(I) the excess benefit percentage does not exceed the base benefit percentage by more than the maximum excess allowance,
(II) any optional form of benefit, preretirement benefit, actuarial factor, or other benefit or feature provided with respect to compensation in excess of the integration level is provided with respect to compensation not in excess of such level, and
(III) benefits are based on average annual compensation.
(ii) Benefit percentages
For purposes of this subparagraph, the excess and base benefit percentages shall be computed in the same manner as the excess and base contribution percentages under paragraph (2)(B), except that such determination shall be made on the basis of benefits attributable to employer contributions rather than contributions.
(B) Offset plans
In the case of an offset plan, the plan provides that—
(i) a participant's accrued benefit attributable to employer contributions (within the meaning of section 411(c)(1)) may not be reduced (by reason of the offset) by more than the maximum offset allowance, and
(ii) benefits are based on average annual compensation.
(4) Definitions relating to paragraph (3)
For purposes of paragraph (3)—
(A) Maximum excess allowance
The maximum excess allowance is equal to—
(i) in the case of benefits attributable to any year of service with the employer taken into account under the plan, ¾ of a percentage point, and
(ii) in the case of total benefits, ¾ of a percentage point, multiplied by the participant's years of service (not in excess of 35) with the employer taken into account under the plan.
In no event shall the maximum excess allowance exceed the base benefit percentage.
(B) Maximum offset allowance
The maximum offset allowance is equal to—
(i) in the case of benefits attributable to any year of service with the employer taken into account under the plan, ¾ percent of the participant's final average compensation, and
(ii) in the case of total benefits, ¾ percent of the participant's final average compensation, multiplied by the participant's years of service (not in excess of 35) with the employer taken into account under the plan.
In no event shall the maximum offset allowance exceed 50 percent of the benefit which would have accrued without regard to the offset reduction.
(C) Reductions
(i) In general
The Secretary shall prescribe regulations requiring the reduction of the ¾ percentage factor under subparagraph (A) or (B)—
(I) in the case of a plan other than an offset plan which has an integration level in excess of covered compensation, or
(II) with respect to any participant in an offset plan who has final average compensation in excess of covered compensation.
(ii) Basis of reductions
Any reductions under clause (i) shall be based on the percentages of compensation replaced by the employer-derived portions of primary insurance amounts under the Social Security Act for participants with compensation in excess of covered compensation.
(D) Offset plan
The term "offset plan" means any plan with respect to which the benefit attributable to employer contributions for each participant is reduced by an amount specified in the plan.
(5) Other definitions and special rules
For purposes of this subsection—
(A) Integration level
(i) In general
The term "integration level" means the amount of compensation specified under the plan (by dollar amount or formula) at or below which the rate at which contributions or benefits are provided (expressed as a percentage) is less than such rate above such amount.
(ii) Limitation
The integration level for any year may not exceed the contribution and benefit base in effect under section 230 of the Social Security Act for such year.
(iii) Level to apply to all participants
A plan's integration level shall apply with respect to all participants in the plan.
(iv) Multiple integration levels
Under rules prescribed by the Secretary, a defined benefit plan may specify multiple integration levels.
(B) Compensation
The term "compensation" has the meaning given such term by section 414(s).
(C) Average annual compensation
The term "average annual compensation" means the participant's highest average annual compensation for—
(i) any period of at least 3 consecutive years, or
(ii) if shorter, the participant's full period of service.
(D) Final average compensation
(i) In general
The term "final average compensation" means the participant's average annual compensation for—
(I) the 3-consecutive year period ending with the current year, or
(II) if shorter, the participant's full period of service.
(ii) Limitation
A participant's final average compensation shall be determined by not taking into account in any year compensation in excess of the contribution and benefit base in effect under section 230 of the Social Security Act for such year.
(E) Covered compensation
(i) In general
The term "covered compensation" means, with respect to an employee, the average of the contribution and benefit bases in effect under section 230 of the Social Security Act for each year in the 35-year period ending with the year in which the employee attains the social security retirement age.
(ii) Computation for any year
For purposes of clause (i), the determination for any year preceding the year in which the employee attains the social security retirement age shall be made by assuming that there is no increase in the bases described in clause (i) after the determination year and before the employee attains the social security retirement age.
(iii) Social security retirement age
For purposes of this subparagraph, the term "social security retirement age" has the meaning given such term by section 415(b)(8).
(F) Regulations
The Secretary shall prescribe such regulations as are necessary or appropriate to carry out the purposes of this subsection, including—
(i) in the case of a defined benefit plan which provides for unreduced benefits commencing before the social security retirement age (as defined in section 415(b)(8)), rules providing for the reduction of the maximum excess allowance and the maximum offset allowance, and
(ii) in the case of an employee covered by 2 or more plans of the employer which fail to meet the requirements of subsection (a)(4) (without regard to this subsection), rules preventing the multiple use of the disparity permitted under this subsection with respect to any employee.
For purposes of clause (i), unreduced benefits shall not include benefits for disability (within the meaning of section 223(d) of the Social Security Act).
(6) Special rule for plan maintained by railroads
In determining whether a plan which includes employees of a railroad employer who are entitled to benefits under the Railroad Retirement Act of 1974 meets the requirements of this subsection, rules similar to the rules set forth in this subsection shall apply. Such rules shall take into account the employer-derived portion of the employees' tier 2 railroad retirement benefits and any supplemental annuity under the Railroad Retirement Act of 1974.
(m) Nondiscrimination test for matching contributions and employee contributions
(1) In general
A defined contribution plan shall be treated as meeting the requirements of subsection (a)(4) with respect to the amount of any matching contribution or employee contribution for any plan year only if the contribution percentage requirement of paragraph (2) of this subsection is met for such plan year.
(2) Requirements
(A) Contribution percentage requirement
A plan meets the contribution percentage requirement of this paragraph for any plan year only if the contribution percentage for eligible highly compensated employees for such plan year does not exceed the greater of—
(i) 125 percent of such percentage for all other eligible employees for the preceding plan year, or
(ii) the lesser of 200 percent of such percentage for all other eligible employees for the preceding plan year, or such percentage for all other eligible employees for the preceding plan year plus 2 percentage points.
This subparagraph may be applied by using the plan year rather than the preceding plan year if the employer so elects, except that if such an election is made, it may not be changed except as provided by the Secretary.
(B) Multiple plans treated as a single plan
If two or more plans of an employer to which matching contributions, employee contributions, or elective deferrals are made are treated as one plan for purposes of section 410(b), such plans shall be treated as one plan for purposes of this subsection. If a highly compensated employee participates in two or more plans of an employer to which contributions to which this subsection applies are made, all such contributions shall be aggregated for purposes of this subsection.
(3) Contribution percentage
For purposes of paragraph (2), the contribution percentage for a specified group of employees for a plan year shall be the average of the ratios (calculated separately for each employee in such group) of—
(A) the sum of the matching contributions and employee contributions paid under the plan on behalf of each such employee for such plan year, to
(B) the employee's compensation (within the meaning of section 414(s)) for such plan year.
Under regulations, an employer may elect to take into account (in computing the contribution percentage) elective deferrals and qualified nonelective contributions under the plan or any other plan of the employer. If matching contributions are taken into account for purposes of subsection (k)(3)(A)(ii) for any plan year, such contributions shall not be taken into account under subparagraph (A) for such year. Rules similar to the rules of subsection (k)(3)(E) shall apply for purposes of this subsection.
(4) Definitions
For purposes of this subsection—
(A) Matching contribution
The term "matching contribution" means—
(i) any employer contribution made to a defined contribution plan on behalf of an employee on account of an employee contribution made by such employee,
(ii) any employer contribution made to a defined contribution plan on behalf of an employee on account of an employee's elective deferral, and
(iii) subject to the requirements of paragraph (14), any employer contribution made to a defined contribution plan on behalf of an employee on account of a qualified student loan payment.
(B) Elective deferral
The term "elective deferral" means any employer contribution described in section 402(g)(3).
(C) Qualified nonelective contributions
The term "qualified nonelective contribution" means any employer contribution (other than a matching contribution) with respect to which—
(i) the employee may not elect to have the contribution paid to the employee in cash instead of being contributed to the plan, and
(ii) the requirements of subparagraphs (B) and (C) of subsection (k)(2) are met.
(D) Qualified student loan payment
The term "qualified student loan payment" means a payment made by an employee in repayment of a qualified education loan (as defined in section 221(d)(1)) incurred by the employee to pay qualified higher education expenses, but only—
(i) to the extent such payments in the aggregate for the year do not exceed an amount equal to—
(I) the limitation applicable under section 402(g) for the year (or, if lesser, the employee's compensation (as defined in section 415(c)(3)) for the year), reduced by
(II) the elective deferrals made by the employee for such year, and
(ii) if the employee certifies annually to the employer making the matching contribution under this paragraph that such payment has been made on such loan.
For purposes of this subparagraph, the term "qualified higher education expenses" means the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997) at an eligible educational institution (as defined in section 221(d)(2)).
(5) Employees taken into consideration
(A) In general
Any employee who is eligible to make an employee contribution (or, if the employer takes elective contributions into account, elective contributions) or to receive a matching contribution under the plan being tested under paragraph (1) shall be considered an eligible employee for purposes of this subsection.
(B) Certain nonparticipants
If an employee contribution is required as a condition of participation in the plan, any employee who would be a participant in the plan if such employee made such a contribution shall be treated as an eligible employee on behalf of whom no employer contributions are made.
(C) Special rule for early participation
If an employer elects to apply section 410(b)(4)(B) in determining whether a plan meets the requirements of section 410(b), the employer may, in determining whether the plan meets the requirements of paragraph (2), exclude from consideration all eligible employees (other than highly compensated employees) who have not met the minimum age and service requirements of section 410(a)(1)(A).
(6) Plan not disqualified if excess aggregate contributions distributed before end of following plan year
(A) In general
A plan shall not be treated as failing to meet the requirements of paragraph (1) for any plan year if, before the close of the following plan year, the amount of the excess aggregate contributions for such plan year (and any income allocable to such contributions through the end of such year) is distributed (or, if forfeitable, is forfeited). Such contributions (and such income) may be distributed without regard to any other provision of law.
(B) Excess aggregate contributions
For purposes of subparagraph (A), the term "excess aggregate contributions" means, with respect to any plan year, the excess of—
(i) the aggregate amount of the matching contributions and employee contributions (and any qualified nonelective contribution or elective contribution taken into account in computing the contribution percentage) actually made on behalf of highly compensated employees for such plan year, over
(ii) the maximum amount of such contributions permitted under the limitations of paragraph (2)(A) (determined by reducing contributions made on behalf of highly compensated employees in order of their contribution percentages beginning with the highest of such percentages).
(C) Method of distributing excess aggregate contributions
Any distribution of the excess aggregate contributions for any plan year shall be made to highly compensated employees on the basis of the amount of contributions on behalf of, or by, each such employee. Forfeitures of excess aggregate contributions may not be allocated to participants whose contributions are reduced under this paragraph.
(D) Coordination with subsection (k) and 402(g)
The determination of the amount of excess aggregate contributions with respect to a plan shall be made after—
(i) first determining the excess deferrals (within the meaning of section 402(g)), and
(ii) then determining the excess contributions under subsection (k).
(7) Treatment of distributions
(A) Additional tax of section 72(t) not applicable
No tax shall be imposed under section 72(t) on any amount required to be distributed under paragraph (6).
(B) Exclusion of employee contributions
Any distribution attributable to employee contributions shall not be included in gross income except to the extent attributable to income on such contributions.
(8) Highly compensated employee
For purposes of this subsection, the term "highly compensated employee" has the meaning given to such term by section 414(q).
(9) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection and subsection (k), including regulations permitting appropriate aggregation of plans and contributions.
(10) Alternative method of satisfying tests
A defined contribution plan shall be treated as meeting the requirements of paragraph (2) with respect to matching contributions if the plan—
(A) meets the contribution requirements of subparagraph (B) of subsection (k)(11),
(B) meets the exclusive plan requirements of subsection (k)(11)(C), and
(C) meets the vesting requirements of section 408(p)(3).
(11) Additional alternative method of satisfying tests
(A) In general
A defined contribution plan shall be treated as meeting the requirements of paragraph (2) with respect to matching contributions if the plan—
(i) meets the contribution requirements of subparagraph (B) or (C) of subsection (k)(12),
(ii) meets the notice requirements of subsection (k)(12)(D), and
(iii) meets the requirements of subparagraph (B).
(B) Limitation on matching contributions
The requirements of this subparagraph are met if—
(i) matching contributions on behalf of any employee may not be made with respect to an employee's contributions or elective deferrals in excess of 6 percent of the employee's compensation,
(ii) the rate of an employer's matching contribution does not increase as the rate of an employee's contributions or elective deferrals increase, and
(iii) the matching contribution with respect to any highly compensated employee at any rate of an employee contribution or rate of elective deferral is not greater than that with respect to an employee who is not a highly compensated employee.
(12) Alternative method for automatic contribution arrangements
A defined contribution plan shall be treated as meeting the requirements of paragraph (2) with respect to matching contributions if the plan—
(A) is a qualified automatic contribution arrangement (as defined in subsection (k)(13)),
(B) meets the notice requirements of subsection (k)(13)(E), and
(C) meets the requirements of paragraph (11)(B).
(13) Matching contributions for qualified student loan payments
(A) In general
For purposes of paragraph (4)(A)(iii), an employer contribution made to a defined contribution plan on account of a qualified student loan payment shall be treated as a matching contribution for purposes of this title if—
(i) the plan provides matching contributions on account of elective deferrals at the same rate as contributions on account of qualified student loan payments,
(ii) the plan provides matching contributions on account of qualified student loan payments only on behalf of employees otherwise eligible to receive matching contributions on account of elective deferrals,
(iii) under the plan, all employees eligible to receive matching contributions on account of elective deferrals are eligible to receive matching contributions on account of qualified student loan payments, and
(iv) the plan provides that matching contributions on account of qualified student loan payments vest in the same manner as matching contributions on account of elective deferrals.
(B) Treatment for purposes of nondiscrimination rules, etc.
(i) Nondiscrimination rules
For purposes of subparagraph (A)(iii), subsection (a)(4), and section 410(b), matching contributions described in paragraph (4)(A)(iii) shall not fail to be treated as available to an employee solely because such employee does not have debt incurred under a qualified education loan (as defined in section 221(d)(1)).
(ii) Student loan payments not treated as plan contribution.—
Except as provided in clause (iii), a qualified student loan payment shall not be treated as a contribution to a plan under this title.
(iii) Matching contribution rules
Solely for purposes of meeting the requirements of paragraph (11)(B), (12), or (13) of this subsection, or paragraph (11)(B)(i)(II), (12)(B), (13)(D), or (16)(D) of subsection (k), a plan may treat a qualified student loan payment as an elective deferral or an elective contribution, whichever is applicable.
(iv) Actual deferral percentage testing
In determining whether a plan meets the requirements of subsection (k)(3)(A)(ii) for a plan year, the plan may apply the requirements of such subsection separately with respect to all employees who receive matching contributions described in paragraph (4)(A)(iii) for the plan year.
(C) Employer may rely on employee certification
The employer may rely on an employee certification of payment under paragraph (4)(D)(ii).
(14) Cross reference
For excise tax on certain excess contributions, see section 4979.
(n) Coordination with qualified domestic relations orders
The Secretary shall prescribe such rules or regulations as may be necessary to coordinate the requirements of subsection (a)(13)(B) and section 414(p) (and the regulations issued by the Secretary of Labor thereunder) with the other provisions of this chapter.
(o) Special rules for applying nondiscrimination rules to protect older, longer service and grandfathered participants
(1) Testing of defined benefit plans with closed classes of participants
(A) Benefits, rights, or features provided to closed classes
A defined benefit plan which provides benefits, rights, or features to a closed class of participants shall not fail to satisfy the requirements of subsection (a)(4) by reason of the composition of such closed class or the benefits, rights, or features provided to such closed class, if—
(i) for the plan year as of which the class closes and the 2 succeeding plan years, such benefits, rights, and features satisfy the requirements of subsection (a)(4) (without regard to this subparagraph but taking into account the rules of subparagraph (I)),
(ii) after the date as of which the class was closed, any plan amendment which modifies the closed class or the benefits, rights, and features provided to such closed class does not discriminate significantly in favor of highly compensated employees, and
(iii) the class was closed before April 5, 2017, or the plan is described in subparagraph (C).
(B) Aggregate testing with defined contribution plans permitted on a benefits basis
(i) In general
For purposes of determining compliance with subsection (a)(4) and section 410(b), a defined benefit plan described in clause (iii) may be aggregated and tested on a benefits basis with 1 or more defined contribution plans, including with the portion of 1 or more defined contribution plans which—
(I) provides matching contributions (as defined in subsection (m)(4)(A)),
(II) provides annuity contracts described in section 403(b) which are purchased with matching contributions or nonelective contributions, or
(III) consists of an employee stock ownership plan (within the meaning of section 4975(e)(7)) or a tax credit employee stock ownership plan (within the meaning of section 409(a)).
(ii) Special rules for matching contributions
For purposes of clause (i), if a defined benefit plan is aggregated with a portion of a defined contribution plan providing matching contributions—
(I) such defined benefit plan must also be aggregated with any portion of such defined contribution plan which provides elective deferrals described in subparagraph (A) or (C) of section 402(g)(3), and
(II) such matching contributions shall be treated in the same manner as nonelective contributions, including for purposes of applying the rules of subsection (l).
(iii) Plans described
A defined benefit plan is described in this clause if—
(I) the plan provides benefits to a closed class of participants,
(II) for the plan year as of which the class closes and the 2 succeeding plan years, the plan satisfies the requirements of section 410(b) and subsection (a)(4) (without regard to this subparagraph but taking into account the rules of subparagraph (I)),
(III) after the date as of which the class was closed, any plan amendment which modifies the closed class or the benefits provided to such closed class does not discriminate significantly in favor of highly compensated employees, and
(IV) the class was closed before April 5, 2017, or the plan is described in subparagraph (C).
(C) Plans described
A plan is described in this subparagraph if, taking into account any predecessor plan—
(i) such plan has been in effect for at least 5 years as of the date the class is closed, and
(ii) during the 5-year period preceding the date the class is closed, there has not been a substantial increase in the coverage or value of the benefits, rights, or features described in subparagraph (A) or in the coverage or benefits under the plan described in subparagraph (B)(iii) (whichever is applicable).
(D) Determination of substantial increase for benefits, rights, and features
In applying subparagraph (C)(ii) for purposes of subparagraph (A)(iii), a plan shall be treated as having had a substantial increase in coverage or value of the benefits, rights, or features described in subparagraph (A) during the applicable 5-year period only if, during such period—
(i) the number of participants covered by such benefits, rights, or features on the date such period ends is more than 50 percent greater than the number of such participants on the first day of the plan year in which such period began, or
(ii) such benefits, rights, and features have been modified by 1 or more plan amendments in such a way that, as of the date the class is closed, the value of such benefits, rights, and features to the closed class as a whole is substantially greater than the value as of the first day of such 5-year period, solely as a result of such amendments.
(E) Determination of substantial increase for aggregate testing on benefits basis
In applying subparagraph (C)(ii) for purposes of subparagraph (B)(iii)(IV), a plan shall be treated as having had a substantial increase in coverage or benefits during the applicable 5-year period only if, during such period—
(i) the number of participants benefitting under the plan on the date such period ends is more than 50 percent greater than the number of such participants on the first day of the plan year in which such period began, or
(ii) the average benefit provided to such participants on the date such period ends is more than 50 percent greater than the average benefit provided on the first day of the plan year in which such period began.
(F) Certain employees disregarded
For purposes of subparagraphs (D) and (E), any increase in coverage or value or in coverage or benefits, whichever is applicable, which is attributable to such coverage and value or coverage and benefits provided to employees—
(i) who became participants as a result of a merger, acquisition, or similar event which occurred during the 7-year period preceding the date the class is closed, or
(ii) who became participants by reason of a merger of the plan with another plan which had been in effect for at least 5 years as of the date of the merger,
shall be disregarded, except that clause (ii) shall apply for purposes of subparagraph (D) only if, under the merger, the benefits, rights, or features under 1 plan are conformed to the benefits, rights, or features of the other plan prospectively.
(G) Rules relating to average benefit
For purposes of subparagraph (E)—
(i) the average benefit provided to participants under the plan will be treated as having remained the same between the 2 dates described in subparagraph (E)(ii) if the benefit formula applicable to such participants has not changed between such dates, and
(ii) if the benefit formula applicable to 1 or more participants under the plan has changed between such 2 dates, then the average benefit under the plan shall be considered to have increased by more than 50 percent only if—
(I) the total amount determined under section 430(b)(1)(A)(i) for all participants benefitting under the plan for the plan year in which the 5-year period described in subparagraph (E) ends, exceeds
(II) the total amount determined under section 430(b)(1)(A)(i) for all such participants for such plan year, by using the benefit formula in effect for each such participant for the first plan year in such 5-year period,
by more than 50 percent. In the case of a CSEC plan (as defined in section 414(y)), the normal cost of the plan (as determined under section 433(j)(1)(B)) shall be used in lieu of the amount determined under section 430(b)(1)(A)(i).
(H) Treatment as single plan
For purposes of subparagraphs (E) and (G), a plan described in section 413(c) shall be treated as a single plan rather than as separate plans maintained by each employer in the plan.
(I) Special rules
For purposes of subparagraphs (A)(i) and (B)(iii)(II), the following rules shall apply:
(i) In applying section 410(b)(6)(C), the closing of the class of participants shall not be treated as a significant change in coverage under section 410(b)(6)(C)(i)(II).
(ii) 2 or more plans shall not fail to be eligible to be aggregated and treated as a single plan solely by reason of having different plan years.
(iii) Changes in the employee population shall be disregarded to the extent attributable to individuals who become employees or cease to be employees, after the date the class is closed, by reason of a merger, acquisition, divestiture, or similar event.
(iv) Aggregation and all other testing methodologies otherwise applicable under subsection (a)(4) and section 410(b) may be taken into account.
The rule of clause (ii) shall also apply for purposes of determining whether plans to which subparagraph (B)(i) applies may be aggregated and treated as 1 plan for purposes of determining whether such plans meet the requirements of subsection (a)(4) and section 410(b).
(J) Spun-off plans
For purposes of this paragraph, if a portion of a defined benefit plan described in subparagraph (A) or (B)(iii) is spun off to another employer and the spun-off plan continues to satisfy the requirements of—
(i) subparagraph (A)(i) or (B)(iii)(II), whichever is applicable, if the original plan was still within the 3-year period described in such subparagraph at the time of the spin off, and
(ii) subparagraph (A)(ii) or (B)(iii)(III), whichever is applicable,
the treatment under subparagraph (A) or (B) of the spun-off plan shall continue with respect to such other employer.
(2) Testing of defined contribution plans
(A) Testing on a benefits basis
A defined contribution plan shall be permitted to be tested on a benefits basis if—
(i) such defined contribution plan provides make-whole contributions to a closed class of participants whose accruals under a defined benefit plan have been reduced or eliminated,
(ii) for the plan year of the defined contribution plan as of which the class eligible to receive such make-whole contributions closes and the 2 succeeding plan years, such closed class of participants satisfies the requirements of section 410(b)(2)(A)(i) (determined by applying the rules of paragraph (1)(I)),
(iii) after the date as of which the class was closed, any plan amendment to the defined contribution plan which modifies the closed class or the allocations, benefits, rights, and features provided to such closed class does not discriminate significantly in favor of highly compensated employees, and
(iv) the class was closed before April 5, 2017, or the defined benefit plan under clause (i) is described in paragraph (1)(C) (as applied for purposes of paragraph (1)(B)(iii)(IV)).
(B) Aggregation with plans including matching contributions
(i) In general
With respect to 1 or more defined contribution plans described in subparagraph (A), for purposes of determining compliance with subsection (a)(4) and section 410(b), the portion of such plans which provides make-whole contributions or other nonelective contributions may be aggregated and tested on a benefits basis with the portion of 1 or more other defined contribution plans which—
(I) provides matching contributions (as defined in subsection (m)(4)(A)),
(II) provides annuity contracts described in section 403(b) which are purchased with matching contributions or nonelective contributions, or
(III) consists of an employee stock ownership plan (within the meaning of section 4975(e)(7)) or a tax credit employee stock ownership plan (within the meaning of section 409(a)).
(ii) Special rules for matching contributions
Rules similar to the rules of paragraph (1)(B)(ii) shall apply for purposes of clause (i).
(C) Special rules for testing defined contribution plan features providing matching contributions to certain older, longer service participants
In the case of a defined contribution plan which provides benefits, rights, or features to a closed class of participants whose accruals under a defined benefit plan have been reduced or eliminated, the plan shall not fail to satisfy the requirements of subsection (a)(4) solely by reason of the composition of the closed class or the benefits, rights, or features provided to such closed class if the defined contribution plan and defined benefit plan otherwise meet the requirements of subparagraph (A) but for the fact that the make-whole contributions under the defined contribution plan are made in whole or in part through matching contributions.
(D) Spun-off plans
For purposes of this paragraph, if a portion of a defined contribution plan described in subparagraph (A) or (C) is spun off to another employer, the treatment under subparagraph (A) or (C) of the spun-off plan shall continue with respect to the other employer if such plan continues to comply with the requirements of clauses (ii) (if the original plan was still within the 3-year period described in such clause at the time of the spin off) and (iii) of subparagraph (A), as determined for purposes of subparagraph (A) or (C), whichever is applicable.
(3) Definitions and special rule
For purposes of this subsection—
(A) Make-whole contributions
Except as otherwise provided in paragraph (2)(C), the term "make-whole contributions" means nonelective allocations for each employee in the class which are reasonably calculated, in a consistent manner, to replace some or all of the retirement benefits which the employee would have received under the defined benefit plan and any other plan or qualified cash or deferred arrangement under subsection (k)(2) if no change had been made to such defined benefit plan and such other plan or arrangement. For purposes of the preceding sentence, consistency shall not be required with respect to employees who were subject to different benefit formulas under the defined benefit plan.
(B) References to closed class of participants
References to a closed class of participants and similar references to a closed class shall include arrangements under which 1 or more classes of participants are closed, except that 1 or more classes of participants closed on different dates shall not be aggregated for purposes of determining the date any such class was closed.
(C) Highly compensated employee
The term "highly compensated employee" has the meaning given such term in section 414(q).
(p) Cross reference
For exemption from tax of a trust qualified under this section, see section 501(a).
(Aug. 16, 1954, ch. 736,
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table below.
Amendment of Section
"(I)
"(i) the security is the subject of priced quotations by at least 4 dealers, published and made continuously available on an interdealer quotation system (as such term is used in section 13 of the Securities Exchange Act of 1934) which has made the request described in section 6(j) of such Act to be treated as an alternative trading system,
"(ii) the security is not a penny stock (as defined by section 3(a)(51) of such Act),
"(iii) the security is issued by a corporation which is not a shell company (as such term is used in section 4(d)(6) of the Securities Act of 1933), a blank check company (as defined in section 7(b)(3) of such Act), or subject to bankruptcy proceedings,
"(iv) the security has a public float (as such term is used in section 240.12b-2 of title 17, Code of Federal Regulations) which has a fair market value of at least $1,000,000 and constitutes at least 10 percent of the total shares issued and outstanding.
"(v) in the case of a security issued by a domestic corporation, the issuer publishes, not less frequently than annually, financial statements audited by an independent auditor registered with the Public Company Accounting Oversight Board established under the Sarbanes-Oxley Act of 2002, and
"(vi) in the case of a security issued by a foreign corporation, the security is represented by a depositary share (as defined under section 240.12b-2 of title 17, Code of Federal Regulations), or is issued by a foreign corporation incorporated in Canada and readily tradeable on an established securities market in Canada, and the issuer—
"(I) is subject to, and in compliance with, the reporting requirements of section 13 or 15(d) of the Securities Exchange Act of 1934 (
"(II) is subject to, and in compliance with, the reporting requirements of section 230.257 of title 17, Code of Federal Regulations, or
"(III) is exempt from such requirements under section 240.12g3–2(b) of title 17, Code of Federal Regulations."
See 2022 Amendment note below.
(1) in paragraph (2)(D)(ii), by striking "3" and inserting "2"; and
(2) in paragraph (15)(B)(i), by inserting ", or by reason of such paragraph and section 202(c)(1)(B) of the Employee Retirement Income Security Act of 1974" after "paragraph (2)(D)(ii)".
See 2022 Amendment notes below.
(1) in subsection (a), by inserting after paragraph (38) the following new paragraph:
"(39)
"(A)
"(B)
"(i)
"(I) The amount paid by or assessed to the employee during the taxable year for or with respect to certified long-term care insurance for the employee or the employee's spouse (or other family member of the employee as provided by the Secretary by regulation).
"(II) An amount equal to 10 percent of the present value of the nonforfeitable accrued benefit of the employee under the plan.
"(III) $2,500.
"(ii)
"(I) such dollar amount, multiplied by
"(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 'calendar year 2023' for 'calendar year 2016' in subparagraph (A)(ii) thereof.
If any increase under the preceding sentence is not a multiple of $100, such amount shall be rounded to the nearest multiple of $100.
"(C)
"(i) a qualified long-term care insurance contract (as defined in section 7702B(b)) covering qualified long-term care services (as defined in section 7702B(c)),
"(ii) coverage of the risk that an insured individual would become a chronically ill individual (within the meaning of section 101(g)(4)(B)) under a rider or other provision of a life insurance contract which satisfies the requirements of section 101(g)(3) (determined without regard to subparagraph (D) thereof), or
"(iii) coverage of qualified long-term care services (as so defined) under a rider or other provision of an insurance or annuity contract which is treated as a separate contract under section 7702B(e) and satisfies the requirements of section 7702B(g),
if such coverage provides meaningful financial assistance in the event the insured needs home-based or nursing home care. For purposes of the preceding sentence, coverage shall not be deemed to provide meaningful financial assistance unless benefits are adjusted for inflation and consumer protections are provided, including protection in the event the coverage is terminated.
"(D)
"(E)
"(i)
"(ii)
"(I) the name and taxpayer identification number of such issuer,
"(II) a statement that the coverage is certified long-term care insurance,
"(III) identification of the employee as the owner of such coverage,
"(IV) identification of the individual covered and such individual's relationship to the employee,
"(V) the premiums owed for the coverage for the calendar year, and
"(VI) such other information as the Secretary may require.
"(iii)
(2) in subsection (k)(2)(B)(i), by striking "or" at the end of subclause (V), by adding "or" at the end of subclause (VI), and by adding at the end the following new subclause:
"(VII) as provided in section 401(a)(39),".
See 2022 Amendment notes below.
Editorial Notes
References in Text
The Employee Retirement Income Security Act of 1974, referred to in subsec. (a)(12), (13)(C)(i)(II), (III), (iii)(II), (33)(C), (34), (35)(G)(iii), (36)(B), is
The Social Security Act, referred to in subsecs. (a)(15), (l)(4)(C)(ii), (5)(A)(ii), (D)(ii), (E)(i), (F), is act Aug. 14, 1935, ch. 531,
Section 521 of the Unemployment Compensation Amendments of 1992, referred to in subsec. (a)(20), is section 521 of
The Railroad Retirement Act of 1974, referred to in subsec. (l)(6), is act Aug. 29, 1935, ch. 812, as amended generally by
Section 472 of the Higher Education Act of 1965, as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997, referred to in subsec. (m)(4)(D), means section 472 of
Amendments
2022—Subsec. (a)(9)(B)(iv).
"(I) the date on which the distributions are required to begin under clause (iii)(III) shall not be earlier than the date on which the employee would have attained the applicable age, and
"(II) if the surviving spouse dies before the distributions to such spouse begin, this subparagraph shall be applied as if the surviving spouse were the employee."
Subsec. (a)(9)(B)(iv)(I).
Subsec. (a)(9)(C)(i)(I).
Subsec. (a)(9)(C)(ii)(I).
Subsec. (a)(9)(C)(v).
Subsec. (a)(9)(H)(iv)(II).
Subsec. (a)(9)(H)(v).
Subsec. (a)(9)(J).
Subsec. (a)(31)(B)(ii).
Subsec. (a)(35)(I).
Subsec. (a)(39).
Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (k)(2)(B)(i)(VII).
Subsec. (k)(2)(D)(ii).
Subsec. (k)(4)(A).
Subsec. (k)(11)(B)(i)(I).
Subsec. (k)(11)(B)(i)(III), (IV).
Subsec. (k)(11)(E).
Subsec. (k)(12)(G).
Subsec. (k)(13)(D)(iv).
Subsec. (k)(14)(C).
Subsec. (k)(15)(B)(i).
Subsec. (k)(15)(B)(i)(II).
Subsec. (k)(15)(B)(iii).
Subsec. (k)(15)(B)(iv).
Subsec. (k)(16).
Subsec. (m)(4)(A)(iii).
Subsec. (m)(4)(D).
Subsec. (m)(12)(B), (C).
Subsec. (m)(13), (14).
2020—Subsec. (a)(9)(I).
Subsec. (a)(36).
2019—Subsec. (a)(9)(B)(iv)(I).
Subsec. (a)(9)(C)(i)(I).
Subsec. (a)(9)(C)(ii)(I).
Subsec. (a)(9)(E).
Subsec. (a)(9)(H).
Subsec. (a)(26)(I).
Subsec. (a)(36).
Subsec. (a)(38).
Subsec. (b).
Subsec. (k)(2)(B)(i)(VI).
Subsec. (k)(2)(B)(iii).
Subsec. (k)(2)(D).
Subsec. (k)(12)(A).
"(i) meets the contribution requirements of subparagraph (B) or (C), and
"(ii) meets the notice requirements of subparagraph (D)."
Subsec. (k)(12)(F), (G).
Subsec. (k)(13)(B).
Subsec. (k)(13)(C)(iii).
Subsec. (k)(13)(F).
Subsec. (k)(15).
Subsecs. (o), (p).
2018—Subsec. (a)(2).
Subsec. (a)(15).
Subsec. (a)(32)(A).
Subsec. (c)(2)(A)(iii).
Subsec. (k)(2)(B)(i)(IV).
Subsec. (k)(14).
2014—Subsec. (a)(9)(H).
Subsec. (a)(29).
Subsec. (a)(32)(A).
Subsec. (a)(32)(C).
Subsec. (a)(33)(C).
2010—Subsec. (h).
2008—Subsec. (a)(9)(H).
Subsec. (a)(29).
Subsec. (a)(32)(C).
Subsec. (a)(33)(B)(iii).
Subsec. (a)(33)(D).
Subsec. (a)(35)(E)(iv).
"(I) on the first day of the plan year covered only one individual (or the individual and the individual's spouse) and the individual owned 100 percent of the plan sponsor (whether or not incorporated), or covered only one or more partners (or partners and their spouses) in the plan sponsor,
"(II) meets the minimum coverage requirements of section 410(b) without being combined with any other plan of the business that covers the employees of the business,
"(III) does not provide benefits to anyone except the individual (and the individual's spouse) or the partners (and their spouses),
"(IV) does not cover a business that is a member of an affiliated service group, a controlled group of corporations, or a group of businesses under common control, and
"(V) does not cover a business that uses the services of leased employees (within the meaning of section 414(n)).
For purposes of this clause, the term 'partner' includes a 2-percent shareholder (as defined in section 1372(b)) of an S corporation."
Subsec. (a)(37).
Subsec. (k)(8)(E).
Subsec. (k)(13)(D)(i)(I).
2006—Subsec. (a)(5)(G).
Subsec. (a)(26)(G).
Subsec. (a)(28)(B)(v).
Subsec. (a)(29).
Subsec. (a)(32)(A).
Subsec. (a)(32)(C).
Subsec. (a)(33)(B)(i).
Subsec. (a)(33)(B)(iii).
Subsec. (a)(33)(D).
Subsec. (a)(35).
Subsec. (a)(36).
Subsec. (k)(2)(B)(i)(V).
Subsec. (k)(3)(G).
Subsec. (k)(8)(A)(i).
Subsec. (k)(8)(E).
Subsec. (k)(13).
Subsec. (m)(6)(A).
Subsec. (m)(12), (13).
2004—Subsec. (a)(26)(C) to (I).
2002—Subsec. (a)(30).
Subsec. (a)(31)(C)(i).
2001—Subsec. (a)(17).
Subsec. (a)(17)(B).
Subsec. (a)(31).
Subsec. (a)(31)(B).
"(i) agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or
"(ii) is an eligible retirement plan described in clause (i) or (ii) of section 402(c)(8)(B)."
Subsec. (a)(31)(C).
Subsec. (a)(31)(D), (E).
Subsec. (c)(2)(A).
Subsec. (k)(2)(B)(i)(I).
Subsec. (k)(10).
Subsec. (k)(10)(A).
Subsec. (k)(10)(B)(i).
Subsec. (k)(10)(C).
Subsec. (k)(11)(B)(i)(I).
Subsec. (k)(11)(E).
Subsec. (m)(9).
"(A) such regulations as may be necessary to prevent the multiple use of the alternative limitation with respect to any highly compensated employee, and
"(B) regulations permitting appropriate aggregation of plans and contributions.
For purposes of the preceding sentence, the term 'alternative limitation' means the limitation of section 401(k)(3)(A)(ii)(II) and the limitation of paragraph (2)(A)(ii) of this subsection."
2000—Subsec. (k)(10)(B)(ii).
"(I) a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501(a), or
"(II) an annuity plan described in section 403(a)."
1997—Subsec. (a)(1).
Subsec. (a)(5)(G).
Subsec. (a)(13)(C), (D).
Subsec. (a)(26)(H).
"(i)
"(ii)
Subsec. (k)(3)(G).
Subsec. (k)(7)(B)(iii) to (v).
Subsec. (k)(11)(B)(iii).
Subsec. (k)(11)(D)(ii).
Subsec. (k)(11)(E).
Subsec. (m)(11).
1996—Subsec. (a)(5)(D)(ii).
Subsec. (a)(5)(F).
Subsec. (a)(9)(C).
Subsec. (a)(17)(A).
Subsec. (a)(20).
Subsec. (a)(26)(A).
"(i) 50 employees of the employer, or
"(ii) 40 percent or more of all employees of the employer."
Subsec. (a)(26)(G).
Subsec. (a)(28)(B)(v).
"(v)
Subsec. (d).
Subsec. (h).
Subsec. (k)(3)(A).
Subsec. (k)(3)(E).
Subsec. (k)(3)(F).
Subsec. (k)(4)(B).
"(B)
"(i) a State or local government or political subdivision thereof, or any agency or instrumentality thereof, or
"(ii) any organization exempt from tax under this subtitle.
This subparagraph shall not apply to a rural cooperative plan."
Subsec. (k)(7)(B)(i).
"(I) is exempt from tax under this subtitle or which is a State or local government or political subdivision thereof (or agency or instrumentality thereof), and
"(II) is engaged primarily in providing electric service on a mutual or cooperative basis,".
Subsec. (k)(7)(C).
Subsec. (k)(8)(C).
Subsec. (k)(10)(B)(ii).
"(ii)
Subsec. (k)(11).
Subsec. (k)(12).
Subsec. (m)(2)(A).
Subsec. (m)(3).
Subsec. (m)(5)(C).
Subsec. (m)(6)(C).
Subsec. (m)(10).
Subsec. (m)(11).
Subsec. (m)(12).
1994—Subsec. (a)(17)(B).
"(i)
"(I) $150,000, increased by the cost-of-living adjustment for the calendar year, over
"(II) the dollar amount in effect under subparagraph (A) for taxable years beginning in the calendar year,
is equal to or greater than $10,000, then the $150,000 amount under subparagraph (A) (as previously adjusted under this subparagraph) for any taxable year beginning in any subsequent calendar year shall be increased by the amount of such excess, rounded to the next lowest multiple of $10,000.
"(ii)
Subsec. (a)(32).
Subsec. (a)(33).
Subsec. (a)(34).
1993—Subsec. (a)(17).
1992—Subsec. (a)(20).
Subsec. (a)(28)(B)(v).
"(I) a subsequent distribution is a lump-sum distribution under section 402(e)(4)(A), or
"(II) section 402(a)(5)(D)(iii) applies to a subsequent distribution."
Subsec. (a)(31).
Subsec. (k)(2)(B)(i)(IV).
Subsec. (k)(10)(B)(ii).
1990—Subsec. (h).
1989—Subsec. (a)(9)(C).
Subsec. (a)(28)(B)(ii)(II).
Subsec. (a)(29)(A)(i).
Subsec. (a)(29)(C)(i)(II).
Subsec. (a)(30).
Subsec. (h).
Subsec. (k)(4)(B).
1988—Subsec. (a)(9)(C).
Subsec. (a)(11)(E), (F).
Subsec. (a)(17).
Subsec. (a)(22).
Subsec. (a)(26)(F), (G).
Subsec. (a)(26)(H).
Subsec. (a)(26)(I).
Subsec. (a)(27).
Subsec. (a)(28)(B)(ii)(II).
Subsec. (a)(28)(B)(iv).
Subsec. (a)(28)(B)(v).
Subsec. (a)(30).
Subsec. (k)(1), (2).
Subsec. (k)(2)(B).
Subsec. (k)(2)(B)(i).
"(II) termination of the plan without establishment of a successor plan,
"(III) the date of the sale by a corporation of substantially all of the assets (within the meaning of section 409(d)(2)) used by such corporation in a trade or business of such corporation with respect to an employee who continues employment with the corporation acquiring such assets,
"(IV) the date of the sale by a corporation of such corporation's interest in a subsidiary (within the meaning of section 409(d)(3)) with respect to an employee who continues employment with such subsidiary,".
Subsec. (k)(2)(B)(ii).
Subsec. (k)(3)(A).
Subsec. (k)(3)(A)(ii).
Subsec. (k)(3)(C), (D).
Subsec. (k)(4)(A).
Subsec. (k)(4)(B).
Subsec. (k)(7).
"(A)
"(i) which is a defined contribution plan (as defined in section 414(i)), and
"(ii) which is established and maintained by a rural cooperative.
"(B)
"(i) any organization which—
"(I) is exempt from tax under this subtitle or which is a State or local government or political subdivision thereof (or agency or instrumentality thereof), and
"(II) is engaged primarily in providing electric service on a mutual or cooperative basis,
"(ii) any organization described in paragraph (4) or (6) of section 501(c) and at least 80 percent of the members of which are organizations described in clause (i), and
"(iii) an organization which is a national association of organizations described in clause (i) or (ii)."
"(A) which is a defined contribution plan (as defined in section 414(i)), and
"(B) which is established and maintained by a rural electric cooperative (as defined in section 457(d)(9)(B)) or a national association of such rural electric cooperatives."
Subsec. (k)(8)(E), (F).
Subsec. (k)(10).
Subsec. (l)(2)(B)(i), (ii).
Subsec. (l)(3)(A)(ii).
Subsec. (l)(5)(C).
"(i) the participant's final average compensation (determined without regard to subparagraph (D)(ii)), or
"(ii) the participant's highest average annual compensation for any other period of at least 3 consecutive years."
Subsec. (l)(5)(E).
Subsec. (m)(1).
Subsec. (m)(2)(B).
Subsec. (m)(3).
Subsec. (m)(4)(A)(i), (ii).
Subsec. (m)(4)(B).
Subsec. (m)(6)(C).
Subsec. (m)(7)(A).
1987—Subsec. (a)(29).
1986—Subsec. (a)(4).
"(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)(3)(A) and (C)."
Subsec. (a)(5).
Subsec. (a)(8).
Subsec. (a)(9)(C).
"(i) the calendar year in which the employee attains age 70½, or
"(ii) the calendar year in which the employee retires.
Clause (ii) shall not apply in the case of an employee who is a 5-percent owner (as defined in section 416(i)(1)(B)) at any time during the 5-plan-year period ending in the calendar year in which the employee attains age 70½. If the employee becomes a 5-percent owner during any subsequent plan year, the required beginning date shall be April 1 of the calendar year following the calendar year in which such subsequent plan year ends."
Subsec. (a)(9)(G).
Subsec. (a)(11)(A)(i).
Subsec. (a)(11)(B).
Subsec. (a)(11)(B)(iii)(I).
Subsec. (a)(11)(B)(iii)(III).
Subsec. (a)(11)(D), (E).
Subsec. (a)(17).
Subsec. (a)(20).
Subsec. (a)(21).
Subsec. (a)(22).
Subsec. (a)(23).
Subsec. (a)(26).
Subsec. (a)(27).
Subsec. (a)(28).
Subsec. (c)(2)(A)(v).
Subsec. (c)(6).
Subsec. (h).
Subsec. (k)(1), (2).
Subsec. (k)(2)(B).
Subsec. (k)(2)(C).
Subsec. (k)(2)(D).
Subsec. (k)(3).
Subsec. (k)(3)(A).
Subsec. (k)(3)(A)(i).
Subsec. (k)(3)(A)(ii).
Subsec. (k)(3)(C).
Subsec. (k)(4).
Subsec. (k)(5).
Subsec. (k)(6).
Subsec. (k)(7).
Subsec. (k)(8).
Subsec. (k)(9).
Subsec. (l).
Subsec. (m).
Subsec. (n).
Subsec. (o).
1984—Subsec. (a)(9).
Subsec. (a)(10)(B)(iii).
Subsec. (a)(11).
Subsec. (a)(13).
Subsec. (a)(21).
Subsec. (a)(22).
Subsec. (a)(23).
Subsec. (a)(24).
Subsec. (a)(25).
Subsec. (e).
Subsec. (f)(2).
Subsec. (h)(6).
Subsec. (k)(1), (2).
Subsec. (k)(2)(B).
Subsec. (k)(3)(A).
Subsec. (k)(5).
1983—Subsec. (a)(21).
Subsec. (c)(2)(A)(vi).
Subsec. (d)(2).
Subsec. (d)(5).
Subsec. (j)(3).
1982—Subsec. (a)(9).
Subsec. (a)(10).
Subsec. (a)(10)(B).
Subsec. (a)(17), (18).
Subsec. (a)(24).
Subsec. (c)(1).
Subsec. (c)(2)(A).
Subsec. (d).
Subsec. (j).
Subsecs. (l), (o).
1981—Subsec. (a)(17).
Subsec. (a)(22).
Subsec. (a)(23).
Subsec. (d)(4).
Subsec. (d)(5).
Subsec. (e).
Subsec. (j).
1980—Subsec. (a)(2).
Subsec. (a)(4).
Subsec. (a)(12).
Subsec. (a)(20).
Subsec. (a)(21).
Subsec. (a)(22)(B).
Subsec. (a)(23).
Subsec. (d)(3)(B).
1978—Subsec. (a)(5).
Subsec. (a)(21).
Subsec. (a)(22).
Subsecs. (k), (l).
1976—Subsec. (a).
Subsec. (a)(20).
Subsecs. (b), (c), (d).
Subsec. (f).
Subsecs. (h), (i), (j).
1974—Subsec. (a).
Subsec. (a)(3).
Subsec. (a)(4).
Subsec. (a)(5).
Subsec. (a)(7).
Subsec. (a)(10)(A).
Subsec. (a)(11).
Subsec. (a)(12).
Subsec. (a)(13).
Subsec. (a)(14).
Subsec. (a)(15).
Subsec. (a)(16).
Subsec. (a)(17).
Subsec. (a)(18).
Subsec. (a)(19).
Subsec. (b).
Subsec. (d)(1).
Subsec. (d)(3).
Subsec. (d)(4)(B).
Subsec. (d)(5).
Subsec. (d)(8).
Subsec. (e).
Subsec. (f).
Subsecs. (j), (k).
1971—Subsec. (i).
1966—Subsec. (a)(10)(A)(ii).
Subsec. (c)(2)(A).
Subsec. (c)(2)(B).
Subsec. (c)(2)(C).
Subsecs. (d)(5)(A), (B), (d)(6)(A), (e)(1)(A), (B)(i), (3).
1965—Subsec. (d)(4)(B).
1964—Subsecs. (i), (j).
1962—Subsec. (a)(5).
Subsec. (a)(7) to (10).
Subsecs. (c) to (g).
Subsec. (h).
Subsec. (i).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
"(1)
"(2)
Amendment by section 334(a), (b)(1) of
Amendment by section 401(a)(1), (2), (b)(2), (3) of
Effective Date of 2020 Amendment
"(1)
"(2)
"(A)
"(i) such plan or contract shall not fail to be treated as being operated in accordance with the terms of the plan during the period described in subparagraph (B)(ii) solely because the plan operates in accordance with this section, and
"(ii) except as provided by the Secretary of the Treasury (or the Secretary's delegate), such plan or contract shall not fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code of 1986 and section 204(g) of the Employee Retirement Income Security Act of 1974 [
"(B)
"(i)
"(I) is made pursuant to the amendments made by this section, and
"(II) is made on or before the last day of the first plan year beginning on or after January 1, 2025.
In the case of a governmental plan, subclause (II) shall be applied by substituting '2027' for '2025'.
"(ii)
Effective Date of 2019 Amendment
"(1)
"(2)
"(A)
"(B)
"(C)
"(i) such section 401(o)(1)(A), the plan was amended before the date of the enactment of this Act to eliminate 1 or more benefits, rights, or features, and is further amended after such date of enactment to provide such previously eliminated benefits, rights, or features to a closed class of participants, or
"(ii) such section 401(o)(1)(B)(iii) or section 401(a)(26), the plan was amended before the date of the enactment of this Act to cease all benefit accruals, and is further amended after such date of enactment to provide benefit accruals to a closed class of participants.
Any such section shall only apply if the plan otherwise meets the requirements of such section and in applying such section, the date the class of participants is closed shall be the effective date of the later amendment."
"(1)
"(2)
"(A) the later of—
"(i) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof agreed to on or after the date of the enactment of this Act), or
"(ii) December 31, 2019, or
"(B) December 31, 2021.
For purposes of subparagraph (A)(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 added by this section shall not be treated as a termination of such collective bargaining agreement.
"(3)
"(4)
"(A)
"(B)
"(i) which is a commercial annuity (as defined in section 3405(e)(6) of the Internal Revenue Code of 1986);
"(ii) under which the annuity payments are made over the life of the employee or over the joint lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the joint life expectancy of such employee and a designated beneficiary) in accordance with the regulations described in section 401(a)(9)(A)(ii) of such Code (as in effect before such amendments) and which meets the other requirements of section 401(a)(9) of such Code (as so in effect) with respect to such payments; and
"(iii) with respect to which—
"(I) annuity payments to the employee have begun before the date of enactment of this Act, and the employee has made an irrevocable election before such date as to the method and amount of the annuity payments to the employee or any designated beneficiaries; or
"(II) if subclause (I) does not apply, the employee has made an irrevocable election before the date of enactment of this Act as to the method and amount of the annuity payments to the employee or any designated beneficiaries.
"(5)
"(A)
"(i) such amendments shall apply to any beneficiary of such designated beneficiary; and
"(ii) the designated beneficiary shall be treated as an eligible designated beneficiary for purposes of applying section 401(a)(9)(H)(ii) of the Internal Revenue Code of 1986 (as in effect after such amendments).
"(B)
Effective Date of 2018 Amendment
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
Amendment by sections 101(d)(2)(A)–(C) and 109(a)–(b)(2) of
"(1)
"(2)
"(A)
"(B)
"(i)
"(I) is made pursuant to the amendments made by this section, and
"(II) is made on or before the last day of the first plan year beginning on or after January 1, 2011.
In the case of a governmental plan, subclause (II) shall be applied by substituting '2012' for '2011'.
"(ii)
"(1)
"(2)
"(A)
"(B)
"(i)
"(I) pursuant to the amendments made by subsection (a) [amending this section] or pursuant to any regulation issued by the Secretary of the Treasury under subsection (a), and
"(II) on or before the last day of the first plan year beginning on or after January 1, 2010.
In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), this clause shall be applied by substituting '2012' for '2010' in subclause (II).
"(ii)
"(I) the plan or contract is operated as if such plan or contract amendment were in effect for the period described in clause (iii), and
"(II) such plan or contract amendment applies retroactively for such period.
"(iii)
"(I) beginning on the effective date specified by the plan, and
"(II) ending on the date described in clause (i)(II) (or, if earlier, the date the plan or contract amendment is adopted)."
Effective Date of 2006 Amendment
"(1)
"(2)
Amendment by section 827(b)(1) of
"(1)
"(2)
"(A) the later of—
"(i) December 31, 2007, or
"(ii) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after such date of enactment), or
"(B) December 31, 2008.
"(3)
"(A)
"(i) December 31, 2007, or
"(ii) the first date on which the fair market value of such securities exceeds the guaranteed minimum value described in subparagraph (B)(ii).
"(B)
"(i) consist of preferred stock, and
"(ii) are within an employee stock ownership plan (as defined in section 4975(e)(7) of the Internal Revenue Code of 1986), the terms of which provide that the value of the securities cannot be less than the guaranteed minimum value specified by the plan on such date.
"(C)
Effective Date of 2004 Amendment
Effective Date of 2002 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by section 611(c), (f)(3), (g)(1) of
Amendment by section 641(e)(3) of
Effective Date of 2000 Amendment
Amendment by
Effective Date of 1997 Amendment
"(1)
"(2)
Amendment by section 1601(d)(2)(A), (B), (3) of
Effective Date of 1996 Amendment
Amendment by section 1401(b)(5), (6) of
Amendment by section 1431(b)(2) of
"(1)
"(2)
"(1)
"(2)
Effective Date of 1994 Amendment
"(1)
"(2)
"(1)
"(2)
Amendment by section 776(d) of
Effective Date of 1993 Amendment
"(1)
"(2)
"(A) the latest of—
"(i) January 1, 1994,
"(ii) the date on which the last of such collective bargaining agreements terminates (without regard to any extension, amendment, or modification of such agreements on or after such date of enactment), or
"(iii) in the case of a plan maintained pursuant to collective bargaining under the Railway Labor Act [
"(B) January 1, 1997.
"(3)
"(A)
"(B)
"(i) the plan year in which the plan is amended to reflect the amendments made by this section, or
"(ii) December 31, 1995.
"(C)
Effective Date of 1992 Amendment
Amendment by section 521(b)(5)–(8) of
"(1)
"(2)
"(A) 90 days after the first day after July 1, 1992, on which such transfer is allowed under State law, or
"(B) January 1, 1994."
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1989 Amendment
"(1)
"(2)
"(A) the employer requested before October 3, 1989, a private letter ruling or determination letter with respect to the qualification of the plan maintaining the account under section 401(h) of the Internal Revenue Code of 1986,
"(B) the request sets forth a method under which the amount of contributions to the account are to be determined on the basis of cost,
"(C) such method is permissible under section 401(h) of such Code under the provisions of General Counsel Memorandum 39785, and
"(D) the Internal Revenue Service issued before October 4, 1989, a private letter ruling, determination letter, or other letter providing that the specific plan involved qualifies under section 401(a) of such Code when such method is used, that contributions to the account are deductible, or acknowledging that the account would not adversely affect the qualified status of the plan (contingent on all phases of the particular plan being approved)."
Amendment by sections 7811(g)(1), (h)(3) and 7816(l) of
Amendment by
Effective Date of 1988 Amendment
"(i) Except as provided in clause (ii), the amendments made by this paragraph [amending this section and
"(ii) In the case of a plan described in section 1105(c)(2) of the Reform Act [section 1105(c)(2) of
"(I) the later of January 1, 1988, or the date on which the last of such agreements terminates (determined without regard to any extension thereof after February 28, 1986), or
"(II) January 1, 1989."
"(i) Subparagraph (A)(i) of section 401(k)(10) of the 1986 Code (as added by subparagraph (B)) shall apply to distributions after October 16, 1987.
"(ii) Subparagraph (B) of section 401(k)(10) of the 1986 Code (as added by subparagraph (B)) shall apply to distributions after March 31, 1988."
Amendment by sections 1011(d)(4), (e)(3), (g)(1)–(3), (h)(3), (k)(1)(A), (B), (2)–(7), (9), (l)(1)–(4), (6), (7), 1011A(j), (l), and 1011B(j)(1), (2), (6), (k)(1), (2) of
Effective Date of 1987 Amendment
"(1)
"(2)
Effective Date of 1986 Amendment
Amendment by section 1106(d)(1) of
"(1)
"(2)
"(3)
"(A) the later of—
"(i) January 1, 1989, or
"(ii) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after February 28, 1986), or
"(B) January 1, 1991."
"(1)
"(2)
"(A) the later of—
"(i) January 1, 1989, or
"(ii) the date on which the last of such collective bargaining agreement terminates (determined without regard to any extension thereof after February 28, 1986), or
"(B) January 1, 1991.
"(3)
"(A)
"(i) a plan is in existence on August 16, 1986,
"(ii) such plan would fail to meet the requirements of section 401(a)(26) of the Internal Revenue Code of 1986 (as added by subsection (b)) if such section were in effect for the plan year including August 16, 1986, and
"(iii) there is no transfer of assets to or liabilities from the plan or spinoff or merger involving such plan after August 16, 1986,
then no tax shall be imposed under section 4980 of such Code on any employer reversion by reason of the termination or merger of such plan before the 1st year to which the amendment made by subsection (b) applies.
"(B)
"(i)
"(I) the applicable rate under the plan's method in effect under the plan on August 16, 1986,
"(II) the highest rate (as of the date of the termination, transfer, or distribution) determined under any of the methods applicable under the plan at any time after August 15, 1986, and before the termination, transfer, or distribution in calculating the present value of the accrued benefit of an employee who is not a highly compensated employee under the plan (or any other plan used in determining whether the plan meets the requirements of section 401 of the Internal Revenue Code of 1986), or
"(III) 5 percent.
"(ii)
"(I) may be rolled over under section 402(a)(5) of such Code,
"(II) is eligible for income averaging under section 402(e)(1) of such Code, or capital gains treatment under section 402(a)(2) or 403(a)(2) of such Code (as in effect before this Act), or
"(III) may be transferred to another plan without inclusion in gross income.
"(iii)
"(I) the amount distributed to a highly compensated employee by reason of such termination or distribution, over
"(II) the amount determined by using the interest rate applicable under clause (i).
"(iv)
"(I) the purchase price of such contract, over
"(II) the present value of the benefits payable under such contract determined by using the interest rate applicable under clause (i).
Such excess shall not be taken into account for purposes of sections 72(t) and 4980A of such Code.
"(v)
"(4)
Amendment by section 1114(b)(7) of
"(1)
"(2)
"(A)
"(B)
"(i) a State or local government or political subdivision thereof, or any agency or instrumentality thereof, before May 6, 1986, or
"(ii) a tax-exempt organization before July 2, 1986.
In the case of an arrangement described in clause (i), the amendments made by subsections (a), (b)(4), and (d) shall apply to years beginning after December 31, 1988. If clause (i) or (ii) applies to any arrangement adopted by a governmental unit, then any cash or deferred arrangement adopted by such unit on or after the date referred to in the applicable clause shall be treated as adopted before such date.
"(3)
"(4)
"(A)
"(i) the later of—
"(I) January 1, 1989, or
"(II) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after February 28, 1986), or
"(ii) January 1, 1991.
"(B)
"(i) the date determined under subparagraph (A)(i)(II), or
"(ii) January 1, 1989.
"(5)
"(A)
"(B)
"(i) The benefit under the defined benefit plan is directly and uniformly conditioned on the initial elective deferrals (up to 4 percent of compensation).
"(ii) The benefit provided under the defined benefit plan (before the offset) is at least 60 percent of an employee's cumulative elective deferrals (up to 4 percent of compensation).
"(iii) The benefit under the defined benefit plan is reduced by the benefit attributable to the employee's elective deferrals under the plan (up to 4 percent of compensation) and the income allocable thereto. The interest rate used to calculate the reduction shall not exceed the greater of the rate under section 411(a)(11)(B)(ii) of such Code or the interest rate applicable under section 411(c)(2)(C)(iii) of such Code, taking into account section 411(c)(2)(D) of such Code.
For purposes of applying section 401(k)(3) of such Code to the cash or deferred arrangement, the benefits under the defined benefit plan conditioned on initial elective deferrals may be treated as matching contributions under such rules as the Secretary of the Treasury or his delegate may prescribe. The Secretary shall provide rules for the application of this paragraph in the case of successor plans.
"(C)
"(6)
"(7)
"(A)
"(B)
"(i)
"(ii)
"(1)
"(2)
"(A) January 1, 1989, or
"(B) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after February 28, 1986).
"(3)
"(A) the amendments made by this section shall apply to plan years beginning after December 31, 1988, and
"(B) in the case of a collective bargaining agreement described in paragraph (2), the amendments made by this section shall not apply to years beginning before the earlier of—
"(i) the later of—
"(I) January 1, 1989, or
"(II) the date determined under paragraph (2)(B), or
"(ii) January 1, 1991.
"(4)
"(A)
"(B)
"(i)
"(ii)
"(1)
"(2)
"(3)
"(A) the later of—
"(i) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after February 28, 1986), or
"(ii) January 1, 1989, or
"(B) January 1, 1991.
"(4)
"(A) The amendments made by subsections (a) and (b) [amending this section and
"(B)(i) Except as provided in clause (ii), the amendment made by subsection (b) [amending this section] shall not apply in the case of any individual who has attained age 70½ before January 1, 1988.
"(ii) Clause (i) shall not apply to any individual who is a 5-percent owner (as defined in section 416(i) of the Internal Revenue Code of 1986), at any time during—
"(I) the plan year ending with or within the calendar year in which such owner attains age 66½, and
"(II) any subsequent plan year.
"(5)
Amendment by section 1171(b)(5) of
Amendment by sections 1848(b) and 1852(a)(4)(A), (6), (b)(8), (g), (h)(1) of
Effective Date of 1984 Amendment
Amendment by section 203(a) of
Nothing in amendment by section 203(a) of
Amendment by section 211(b)(5) of
Amendment by section 474(r)(13) of
"(1)
"(2)
"(3)
"(4)
"(5)
"(A) 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
"(B) January 1, 1988.
For purposes of subparagraph (A), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section shall not be treated as a termination of such collective bargaining agreement."
"(1)
"(A)
"(B)
"(i) which was maintained by a State on June 8, 1984, and
"(ii) with respect to which a determination letter had been issued by the Secretary on December 6, 1982.
"(2)
"(A)
"(B)
Amendment by section 713 of
Effective Date of 1983 Amendment
Amendment by
Amendment by
Effective Date of 1982 Amendment
Amendment by sections 237, 238, and 240 of
Effective Date of 1981 Amendment
Amendment by section 312(b)(1), (c)(2)–(4), (e)(2) of
Effective Date of 1980 Amendment
Amendment by section 208(a), (e) of
Amendment by
Effective Date of 1978 Amendment
Amendment by section 141(f)(3) of
Amendment by section 152(e) of
Effective Date of 1976 Amendment
Amendment by section 803(b)(2) of
Amendment by section 1901(a)(56) of
Effective Date of 1974 Amendment
Amendment by sections 1012(b) and 1016(a)(2) of
"(2) The amendments made by subsection (c) [amending this section] apply to
"(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) [of this title] as in effect on the day before the date of the enactment of this Act [Sept. 2, 1974].
"(3) The amendments made by subsection (d) [amending this section] apply to taxable years beginning after December 31, 1975.
"(4) The amendments made by subsections (e) and (f) [enacting
Amendment by section 2001(h)(1) of
Amendment by section 2004(a)(1) of
Effective Date of 1971 Amendment
Effective Date of 1966 Amendment
Effective Date of 1965 Amendment
Amendment by
Effective Date of 1964 Amendment
Effective Date of 1962 Amendment
Amendment by
Short Title of 1962 Amendment
Regulations
"(1) permitting a plan to make matching contributions for qualified student loan payments, as defined in sections 401(m)(4)(D) and 408(p)(2)(F) of the Internal Revenue Code of 1986, as added by this section, at a different frequency than matching contributions are otherwise made under the plan, provided that the frequency is not less than annually;
"(2) permitting employers to establish reasonable procedures to claim matching contributions for such qualified student loan payments under the plan, including an annual deadline (not earlier than 3 months after the close of each plan year) by which a claim must be made; and
"(3) promulgating model amendments which plans may adopt to implement matching contributions on such qualified student loan payments for purposes of sections 401(m), 408(p), 403(b), and 457(b) of the Internal Revenue Code of 1986."
"(a)
"(1)
"(2)
"(A)
"(B)
"(3)
"(A) provides that the former spouse is entitled to the survivor benefits under the contract;
"(B) provides that the former spouse is treated as a surviving spouse for purposes of the contract;
"(C) does not modify the treatment of the former spouse as the beneficiary under the contract who is entitled to the survivor benefits; or
"(D) does not modify the treatment of the former spouse as the measuring life for the survivor benefits under the contract.
"(4)
"(b)
"(1) a decree of divorce or separate maintenance or a written instrument incident to such a decree;
"(2) a written separation agreement; or
"(3) a decree (not described in paragraph (1)) requiring a spouse to make payments for the support or maintenance of the other spouse.
"(c)
"(1)
"(A) Paragraphs (1) and (2) of subsection (a) shall be effective with respect to contracts purchased or received in an exchange on or after the date of the enactment of this Act.
"(B) Paragraphs (3) and (4) of subsection (a) shall be effective with respect to contracts purchased or received in an exchange on or after July 2, 2014.
"(2)
"(A) the Secretary (or delegate) shall administer and enforce the law in accordance with subsection (a) and the effective dates in paragraph (1) of this subsection; and
"(B) taxpayers may rely upon their reasonable good faith interpretations of subsection (a).
"(d)
"(a)
"(b)
"(1)
"(2)
"(c)
"(d)
"(1) all applicable laws shall be applied in all respects as though the actions which the Secretary of the Treasury (or the Secretary's delegate) is required to take under such subsections had been taken, and
"(2) until such time as such actions are taken, taxpayers may rely upon their reasonable good faith interpretations of this section."
"(1) includes the required content;
"(2) clearly identifies the issues addressed therein;
"(3) is furnished at the time and with the frequency required for each such notice; and
"(4) is presented in a manner that is reasonably calculated to be understood by the average plan participant and that does not obscure or fail to highlight the primary information required for each notice.
This section shall not be interpreted as preventing the consolidation of any other notices required under the Employee Retirement Income Security Act of 1974 [
"(a)
"(1) delete the 6-month prohibition on contributions imposed by paragraph (2) thereof, and
"(2) make any other modifications necessary to carry out the purposes of section 401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986.
"(b)
"(1) a hardship for purposes of section 403(b)(11)(B) of such Code; or
"(2) an unforeseen financial emergency for purposes of sections 409A(a)(2)(A)(vi), 409A(a)(2)(B)(ii), and 457(d)(1)(A)(iii) of such Code."
"(A)
"(B)
"(1) section 1111 [amending this section], relating to application of nondiscrimination rules to integrated plans,
"(2) section 1112 [amending this section and
"(3) section 1113 [amending
"(4) section 1114 [amending this section,
"(5) section 1115 [amending
"(6) section 1116 [amending this section], relating to rules for section 401(k) plans,
"(7) section 1117 [enacting
"(8) section 1120 [amending
"(9) section 1133 [enacting section 4981A [now 4980A] of this title], relating to tax on excess distributions."
Reports by Secretary
"(1)
"(2)
"(A) the number of plans described in section 408(p) or 401(k)(11) of the Internal Revenue Code of 1986 that are maintained or established during a year;
"(B) the number of participants eligible to participate in such plans for such year;
"(C) median contribution amounts for the participants described in subparagraph (B);
"(D) the types of investments that are most common under such plans; and
"(E) the fee levels charged in connection with the maintenance of accounts under such plans.
Such data and information shall be collected separately for each type of plan. For purposes of collecting such data, the Secretary of the Treasury may use such data as is otherwise available to the Secretary for publication and may use such approaches as are appropriate under the circumstances, including the use of voluntary surveys and collaboration on studies."
Expansion of Employee Plans Compliance Resolution System
"(a)
"(b)
"(1) such failure may be self-corrected under subsection (a) according to the rules of section 6.07 of Revenue Procedure 2021–30 (or any successor guidance), including the provisions related to whether a deemed distribution must be reported on Form 1099–R,
"(2) the Secretary of Labor shall treat any such failure which is so self-corrected under subsection (a) as meeting the requirements of the Voluntary Fiduciary Correction Program of the Department of Labor if, with respect to the violation of the fiduciary standards of the Employee Retirement Income Security Act of 1974 [
"(3) the Secretary of Labor may impose reporting or other procedural requirements with respect to parties that intend to rely on the Voluntary Fiduciary Correction Program for self-corrections described in paragraph (2).
"(c)
"(1) waivers of the excise tax which would otherwise apply under section 4974 of the Internal Revenue Code of 1986, and
"(2) rules permitting a nonspouse beneficiary to return distributions to an inherited individual retirement plan described in section 408(d)(3)(C) of the Internal Revenue Code of 1986 in a case where, due to an inadvertent error by a service provider, the beneficiary had reason to believe that the distribution could be rolled over without inclusion in income of any part of the distributed amount.
"(d)
"(e)
"(1)
"(A) satisfy the standards set forth in section 4.04 of Revenue Procedure 2021–30 (or any successor guidance), or
"(B) satisfy similar standards in the case of an individual retirement plan.
"(2)
"(f)
"(g)
Disclosure to Treasury of Long-Term Care Insurance Products
Special Rules for Multiple Employer Plans of Certain Cooperatives
"(a)
"(1) the first plan year for which the plan ceases to be an eligible cooperative plan or an eligible charity plan, or
"(2) January 1, 2017.
"(b)
"(c)
"(1) rural cooperatives (as defined in section 401(k)(7)(B) of such Code without regard to clause (iv) thereof), or
"(2) organizations which are—
"(A) cooperative organizations described in section 1381(a) of such Code which are more than 50-percent owned by agricultural producers or by cooperatives owned by agricultural producers, or
"(B) more than 50-percent owned, or controlled by, one or more cooperative organizations described in subparagraph (A).
A plan shall also be treated as an eligible cooperative plan for any plan year for which it is described in section 210(a) of the Employee Retirement Income Security Act of 1974 [
"(d)
"(1)
"(2)
"(3)
"(A) A plan sponsor that makes the election described in paragraph (2) may elect for a plan to apply the rules described in subparagraphs (B), (C), and (D) for plan years beginning after December 31, 2013. Such election shall be made at such time and in such form and manner as shall be prescribed by the Secretary of the Treasury. Any such election may be revoked only with the consent of the Secretary of the Treasury.
"(B) Under the rules described in this subparagraph, for the first plan year beginning after December 31, 2013, a plan has—
"(i) an 11-year shortfall amortization base,
"(ii) a 12-year shortfall amortization base, and
"(iii) a 7-year shortfall amortization base.
"(C) Under the rules described in this subparagraph, section 303(c)(2)(A) and (B) of the Employee Retirement Income Security Act of 1974 [
"(i) in the case of an 11-year shortfall amortization base, substituting '11-plan-year period' for '7-plan-year period' wherever such phrase appears, and
"(ii) in the case of a 12-year shortfall amortization base, substituting '12-plan-year period' for '7-plan-year period' wherever such phrase appears.
"(D) Under the rules described in this subparagraph, section 303(c)(7) of the Employee Retirement Income Security Act of 1974 [
"(i) The first plan year beginning after December 31, 2013, shall be treated as an election year, and no other plan years shall be so treated.
"(ii) All references in section 303(c)(7) of such Act [
"(E) For purposes of this paragraph, the 11-year amortization base is an amount, determined for the first plan year beginning after December 31, 2013, equal to the unamortized principal amount of the shortfall amortization base (as defined in section 303(c)(3) of the Employee Retirement Income Security Act of 1974 [
"(i) the plan had never been an eligible charity plan,
"(ii) the plan sponsor had made the election described in section 303(c)(2)(D)(i) of the Employee Retirement Income Security Act of 1974 [
"(iii) no event had occurred under paragraph (6) or (7) of section 303(c) of such Act [
"(F) For purposes of this paragraph, the 12-year amortization base is an amount, determined for the first plan year beginning after December 31, 2013, equal to the unamortized principal amount of the shortfall amortization base (as defined in section 303(c)(3) of the Employee Retirement Income Security Act of 1974 [
"(i) the plan had never been an eligible charity plan,
"(ii) the plan sponsor had made the election described in section 303(c)(2)(D)(i) of the Employee Retirement Income Security Act of 1974 [
"(iii) no event had occurred under paragraph (6) or (7) of section 303(c) of such Act [
"(G) For purposes of this paragraph, the 7-year shortfall amortization base is an amount, determined for the first plan year beginning after December 31, 2013, equal to—
"(i) the shortfall amortization base for the first plan year beginning after December 31, 2013, without regard to this paragraph, minus
"(ii) the sum of the 11-year shortfall amortization base and the 12-year shortfall amortization base.
"(4)
[
Temporary Relief for Certain PBGC Settlement Plans
"(a)
"(b)
"(c) PBGC
"(1) which was sponsored by an employer which was in bankruptcy, giving rise to a claim by the Pension Benefit Guaranty Corporation of not greater than $150,000,000, and the sponsorship of which was assumed by another employer that was not a member of the same controlled group as the bankrupt sponsor and the claim of the Pension Benefit Guaranty Corporation was settled or withdrawn in connection with the assumption of the sponsorship, or
"(2) which, by agreement with the Pension Benefit Guaranty Corporation, was spun off from a plan subsequently terminated by such Corporation under section 4042 of the Employee Retirement Income Security Act of 1974 [
Special Rules for Plans of Certain Government Contractors
"(a)
"(1) the first plan year for which the plan ceases to be an eligible government contractor plan,
"(2) the effective date of the Cost Accounting Standards Pension Harmonization Rule, or
"(3) January 1, 2011.
"(b)
"(c)
"(d)
Application of Extended Amortization Periods to Plans With Delayed Effective Date
"(a)
"(b)
"(1) 2-
"(2)
"(A) in the case of the increased unfunded new liability of the plan, the applicable percentage described in section 302(d)(4)(C) of such Act [
"(B) in the case of the excess of the unfunded new liability over the increased unfunded new liability, such applicable percentage shall be determined without regard to this section.
"(c)
"(1) in the case of the increased unfunded new liability of the plan, the applicable percentage described in section 302(d)(4)(C) of such Act [
"(A) the annual installments payable in each year if the increased unfunded new liability for such plan year were amortized over 15 years, using an interest rate equal to the third segment rate described in sections 104(b), 105(b), and 106(b) of this Act, to
"(B) the increased unfunded new liability for such plan year, and
"(2) in the case of the excess of the unfunded new liability over the increased unfunded new liability, such applicable percentage shall be determined without regard to this section.
"(d)
"(1)
"(2)
"(3)
"(e)
"(1)
"(2)
"(3)
"(4)
Grandfather Rule for Church Plans Which Self-Annuitize
"(a)
"(b)
"(1) is a church plan (as defined in section 414(e) of such Code) with respect to which the election provided by section 410(d) of such Code has not been made, and
"(2) was in existence on April 17, 2002."
New Technologies in Retirement Plans
"(a)
"(1) interpret the notice, election, consent, disclosure, and time requirements (and related recordkeeping requirements) under the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 [
"(2) clarify the extent to which writing requirements under the Internal Revenue Code of 1986 relating to retirement plans shall be interpreted to permit paperless transactions.
"(b)
Treatment of Qualified Football Coaches Plan
"(1)
"(A) shall be treated as a multiemployer collectively bargained plan, and
"(B) notwithstanding section 401(k)(4)(B) of such Code, may include a qualified cash and deferred arrangement under section 401(k) of such Code.
"(2)
"(A) which is described in section 501(c) of such Code,
"(B) the membership of which consists entirely of individuals who primarily coach football as full-time employees of 4-year colleges or universities described in section 170(b)(1)(A)(ii) of such Code, and
"(C) which was in existence on September 18, 1986.
"(3)
Applicability of Subsection (a)(26)
Coordination of Internal Revenue Code of 1986 With Employee Retirement Income Security Act of 1974
Plan Amendments Not Required Until January 1, 1998
"(1) during the period after such amendment takes effect and before such first plan year, the plan or contract is operated in accordance with the requirements of such amendment, and
"(2) such amendment applies retroactively to such period.
In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), this section shall be applied by substituting '2000' for '1998'."
Plan Amendments Not Required Until January 1, 1994
"(1) during the period after such amendment takes effect and before such first plan year, the plan is operated in accordance with the requirements of such amendment, and
"(2) such plan amendment applies retroactively to such period."
Plan Amendments Not Required Until January 1, 1989
"(a)
"(1) during the period after such amendment takes effect and before such first plan year, the plan is operated in accordance with the requirements of such amendment or in accordance with an amendment prescribed by the Secretary and adopted by the plan, and
"(2) such plan amendment applies retroactively to the period after such amendment takes effect and such first plan year.
A pension plan shall not be treated as failing to provide definitely determinable benefits or contributions, or to be operated in accordance with the provisions of the plan, merely because it operates in accordance with this provision.
"(b)
"(1)
"(A) which requires an amendment to such plan, and
"(B) is effective before the first plan year beginning after December 31, 1988.
"(2)
"(c)
"(1) December 31, 1988, or
"(2) the earlier of—
"(A) December 31, 1990, or
"(B) the date on which the last of such collective bargaining agreements terminate (without regard to any extension after February 28, 1986).
For purposes of paragraph (1)(B) [(2)(B)] and any other provision of this title [see Tables for classification], an agreement shall not be treated as terminated merely because the plan is amended pursuant to such agreement to meet the requirements of any amendment made by this title or title XVIII of this Act."
Secretary To Accept Applications With Respect to Section 401(k) Plans
Treatment of Individuals Having Beginning Date Affected by Pub. L. 99–514
Distribution Requirements for Accounts and Annuities of an Insurer in a Rehabilitation Proceeding
"(a)
"(1) a trust, custodial account, or annuity or other contract forming part of a pension or profit-sharing plan, or a retirement annuity, or
"(2) a grantor of an individual retirement account or an individual retirement annuity,
shall not be treated as failing to meet the requirements of such sections if such account, annuity, or contract was issued by an insurance company which, on March 15, 1984, was a party to a rehabilitation proceeding under the applicable State insurance law.
"(b)
"(1) the insurance company continues to be a party to the proceeding described in subsection (a), and
"(2) distributions under the trust, custodial account, or annuity or other contract may not be made by reason of such proceeding."
Qualification Requirements Modified if Regulations Not Issued
"(1)
"(2)
"(3)
"(A) such plan is amended to incorporate such requirements by reference, except that
"(B) in the case of any optional requirement under section 416 of such Code, if such amendment does not specify the manner in which such requirement will be met, the employer shall be treated as having elected the requirement with respect to each employee which provides the maximum vested accrued benefit for such employee."
Transitional Rule
"(A) the qualification of the plan and the trust under section 401 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954];
"(B) the exemption of the trust under section 501(a) of such Code;
"(C) the taxable year of inclusion in gross income of the employee of any amount so contributed by the employer to the trust; and
"(D) the excludability of the interest of the employee in the trust under sections 2039 and 2517 of such Code,
shall be determined for plan years beginning before January 1, 1980 in a manner consistent with Revenue Ruling 56–497 (1956–2 C.B. 284), Revenue Ruling 63–180 (1963–2 C.B. 189), and Revenue Ruling 68–89 (1968–1 C.B. 402)."
Salary Reduction Regulations
"(a)
"(b)
"(1) provided for contributions to an employee's trust described in section 401(a), 403(a), or 405(a) of the Internal Revenue Code of 1986 [subsec. (a) of this section,
"(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 1986 [this title].
"(c)
"(1)
"(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)
"(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)
"(1) for purposes of
"(2) for purposes of
"(e)
[
Inflation Adjusted Items for Certain Years
Provisions relating to inflation adjustment of items in
2023—Internal Revenue Notice 2022–55.
2022—Internal Revenue Notice 2021–61.
2021—Internal Revenue Notice 2020–79.
2020—Internal Revenue Notice 2019–59.
2019—Internal Revenue Notice 2018–83.
2018—Internal Revenue Notice 2017–64.
2017—Internal Revenue Notice 2016–62.
2016—Internal Revenue Notice 2015–75.
2015—Internal Revenue Notice 2014–70.
2014—Internal Revenue Notice 2013–73.
2013—Internal Revenue Notice 2012–67.
2012—Internal Revenue Notice 2011–90.
2011—Internal Revenue Notice 2010–78.
2010—Internal Revenue Notice 2009–94.
2009—Internal Revenue Notice 2008–102.
2008—Internal Revenue Notice 2007–87.
2007—Internal Revenue Notice 2006–98.
2006—Internal Revenue Notice 2005–75.
2005—Internal Revenue Notice 2004–72.
2004—Internal Revenue Notice 2003–73.
2003—Internal Revenue Notice 2002–71.
2002—Internal Revenue Notice 2001–84.
2001—Internal Revenue Notice 2000–66.
2000—Internal Revenue Notice 99–55.
1999—Internal Revenue Notice 98–53.
1998—Internal Revenue Notice 97–58.
1997—Internal Revenue Notice 96–55.
1 So in original. Probably should be "an".
§402. Taxability of beneficiary of employees' trust
(a) Taxability of beneficiary of exempt trust
Except as otherwise provided in this section, any amount actually distributed to any distributee by any employees' trust described in section 401(a) which is exempt from tax under section 501(a) shall be taxable to the distributee, in the taxable year of the distributee in which distributed, under section 72 (relating to annuities).
(b) Taxability of beneficiary of nonexempt trust
(1) Contributions
Contributions to an employees' trust made by an employer during a taxable year of the employer which ends with or within a taxable year of the trust for which the trust is not exempt from tax under section 501(a) shall be included in the gross income of the employee in accordance with section 83 (relating to property transferred in connection with performance of services), except that the value of the employee's interest in the trust shall be substituted for the fair market value of the property for purposes of applying such section.
(2) Distributions
The amount actually distributed or made available to any distributee by any trust described in paragraph (1) shall be taxable to the distributee, in the taxable year in which so distributed or made available, under section 72 (relating to annuities), except that distributions of income of such trust before the annuity starting date (as defined in section 72(c)(4)) shall be included in the gross income of the employee without regard to section 72(e)(5) (relating to amounts not received as annuities).
(3) Grantor trusts
A beneficiary of any trust described in paragraph (1) shall not be considered the owner of any portion of such trust under subpart E of part I of subchapter J (relating to grantors and others treated as substantial owners).
(4) Failure to meet requirements of section 410(b)
(A) Highly compensated employees
If 1 of the reasons a trust is not exempt from tax under section 501(a) is the failure of the plan of which it is a part to meet the requirements of section 401(a)(26) or 410(b), then a highly compensated employee shall, in lieu of the amount determined under paragraph (1) or (2) include in gross income for the taxable year with or within which the taxable year of the trust ends an amount equal to the vested accrued benefit of such employee (other than the employee's investment in the contract) as of the close of such taxable year of the trust.
(B) Failure to meet coverage tests
If a trust is not exempt from tax under section 501(a) for any taxable year solely because such trust is part of a plan which fails to meet the requirements of section 401(a)(26) or 410(b), paragraphs (1) and (2) shall not apply by reason of such failure to any employee who was not a highly compensated employee during—
(i) such taxable year, or
(ii) any preceding period for which service was creditable to such employee under the plan.
(C) Highly compensated employee
For purposes of this paragraph, the term "highly compensated employee" has the meaning given such term by section 414(q).
(c) Rules applicable to rollovers from exempt trusts
(1) Exclusion from income
If—
(A) any portion of the balance to the credit of an employee in a qualified trust is paid to the employee in an eligible rollover distribution,
(B) the distributee transfers any portion of the property received in such distribution to an eligible retirement plan, and
(C) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed,
then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.
(2) Maximum amount which may be rolled over
In the case of any eligible rollover distribution, the maximum amount transferred to which paragraph (1) applies shall not exceed the portion of such distribution which is includible in gross income (determined without regard to paragraph (1)). The preceding sentence shall not apply to such distribution to the extent—
(A) such portion is transferred in a direct trustee-to-trustee transfer to a qualified trust or to an annuity contract described in section 403(b) and such trust or contract provides for separate accounting for amounts so transferred (and earnings thereon), including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or
(B) such portion is transferred to an eligible retirement plan described in clause (i) or (ii) of paragraph (8)(B).
In the case of a transfer described in subparagraph (A) or (B), the amount transferred shall be treated as consisting first of the portion of such distribution that is includible in gross income (determined without regard to paragraph (1)).
(3) Time limit on transfers
(A) In general
Except as provided in subparagraphs (B) and (C), paragraph (1) shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed.
(B) Hardship exception
The Secretary may waive the 60-day requirement under subparagraph (A) where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.
(C) Rollover of certain plan loan offset amounts
(i) In general
In the case of a qualified plan loan offset amount, paragraph (1) shall not apply to any transfer of such amount made after the due date (including extensions) for filing the return of tax for the taxable year in which such amount is treated as distributed from a qualified employer plan.
(ii) Qualified plan loan offset amount
For purposes of this subparagraph, the term "qualified plan loan offset amount" means a plan loan offset amount which is treated as distributed from a qualified employer plan to a participant or beneficiary solely by reason of—
(I) the termination of the qualified employer plan, or
(II) the failure to meet the repayment terms of the loan from such plan because of the severance from employment of the participant.
(iii) Plan loan offset amount
For purposes of clause (ii), the term "plan loan offset amount" means the amount by which the participant's accrued benefit under the plan is reduced in order to repay a loan from the plan.
(iv) Limitation
This subparagraph shall not apply to any plan loan offset amount unless such plan loan offset amount relates to a loan to which section 72(p)(1) does not apply by reason of section 72(p)(2).
(v) Qualified employer plan
For purposes of this subsection, the term "qualified employer plan" has the meaning given such term by section 72(p)(4).
(4) Eligible rollover distribution
For purposes of this subsection, the term "eligible rollover distribution" means any distribution to an employee of all or any portion of the balance to the credit of the employee in a qualified trust; except that such term shall not include—
(A) any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made—
(i) for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and the employee's designated beneficiary, or
(ii) for a specified period of 10 years or more,
(B) any distribution to the extent such distribution is required under section 401(a)(9), and
(C) any distribution which is made upon hardship of the employee.
If all or any portion of a distribution during 2020 is treated as an eligible rollover distribution but would not be so treated if the minimum distribution requirements under section 401(a)(9) had applied during 2020, such distribution shall not be treated as an eligible rollover distribution for purposes of section 401(a)(31) or 3405(c) or subsection (f) of this section.
(5) Transfer treated as rollover contribution under section 408
For purposes of this title, a transfer to an eligible retirement plan described in clause (i) or (ii) of paragraph (8)(B) resulting in any portion of a distribution being excluded from gross income under paragraph (1) shall be treated as a rollover contribution described in section 408(d)(3).
(6) Sales of distributed property
For purposes of this subsection—
(A) Transfer of proceeds from sale of distributed property treated as transfer of distributed property
The transfer of an amount equal to any portion of the proceeds from the sale of property received in the distribution shall be treated as the transfer of property received in the distribution.
(B) Proceeds attributable to increase in value
The excess of fair market value of property on sale over its fair market value on distribution shall be treated as property received in the distribution.
(C) Designation where amount of distribution exceeds rollover contribution
In any case where part or all of the distribution consists of property other than money—
(i) the portion of the money or other property which is to be treated as attributable to amounts not included in gross income, and
(ii) the portion of the money or other property which is to be treated as included in the rollover contribution,
shall be determined on a ratable basis unless the taxpayer designates otherwise. Any designation under this subparagraph for a taxable year shall be made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). Any such designation, once made, shall be irrevocable.
(D) Nonrecognition of gain or loss
No gain or loss shall be recognized on any sale described in subparagraph (A) to the extent that an amount equal to the proceeds is transferred pursuant to paragraph (1).
(7) Special rule for frozen deposits
(A) In general
The 60-day period described in paragraph (3) shall not—
(i) include any period during which the amount transferred to the employee is a frozen deposit, or
(ii) end earlier than 10 days after such amount ceases to be a frozen deposit.
(B) Frozen deposits
For purposes of this subparagraph, the term "frozen deposit" means any deposit which may not be withdrawn because of—
(i) the bankruptcy or insolvency of any financial institution, or
(ii) any requirement imposed by the State in which such institution is located by reason of the bankruptcy or insolvency (or threat thereof) of 1 or more financial institutions in such State.
A deposit shall not be treated as a frozen deposit unless on at least 1 day during the 60-day period described in paragraph (3) (without regard to this paragraph) such deposit is described in the preceding sentence.
(8) Definitions
For purposes of this subsection—
(A) Qualified trust
The term "qualified trust" means an employees' trust described in section 401(a) which is exempt from tax under section 501(a).
(B) Eligible retirement plan
The term "eligible retirement plan" means—
(i) an individual retirement account described in section 408(a),
(ii) an individual retirement annuity described in section 408(b) (other than an endowment contract),
(iii) a qualified trust,
(iv) an annuity plan described in section 403(a),
(v) an eligible deferred compensation plan described in section 457(b) which is maintained by an eligible employer described in section 457(e)(1)(A), and
(vi) an annuity contract described in section 403(b).
If any portion of an eligible rollover distribution is attributable to payments or distributions from a designated Roth account (as defined in section 402A), an eligible retirement plan with respect to such portion shall include only another designated Roth account and a Roth IRA.
(9) Rollover where spouse receives distribution after death of employee
If any distribution attributable to an employee is paid to the spouse of the employee after the employee's death, the preceding provisions of this subsection shall apply to such distribution in the same manner as if the spouse were the employee.
(10) Separate accounting
Unless a plan described in clause (v) of paragraph (8)(B) agrees to separately account for amounts rolled into such plan from eligible retirement plans not described in such clause, the plan described in such clause may not accept transfers or rollovers from such retirement plans.
(11) Distributions to inherited individual retirement plan of nonspouse beneficiary
(A) In general
If, with respect to any portion of a distribution from an eligible retirement plan described in paragraph (8)(B)(iii) of a deceased employee, a direct trustee-to-trustee transfer is made to an individual retirement plan described in clause (i) or (ii) of paragraph (8)(B) established for the purposes of receiving the distribution on behalf of an individual who is a designated beneficiary (as defined by section 401(a)(9)(E)) of the employee and who is not the surviving spouse of the employee—
(i) the transfer shall be treated as an eligible rollover distribution,
(ii) the individual retirement plan shall be treated as an inherited individual retirement account or individual retirement annuity (within the meaning of section 408(d)(3)(C)) for purposes of this title, and
(iii) section 401(a)(9)(B) (other than clause (iv) thereof) shall apply to such plan.
(B) Certain trusts treated as beneficiaries
For purposes of this paragraph, to the extent provided in rules prescribed by the Secretary, a trust maintained for the benefit of one or more designated beneficiaries shall be treated in the same manner as a designated beneficiary.
(12) In the case of an inadvertent benefit overpayment from a plan to which section 414(aa)(1) applies that is transferred to an eligible retirement plan by or on behalf of a participant or beneficiary—
(A) the portion of such overpayment with respect to which recoupment is not sought on behalf of the plan shall be treated as having been paid in an eligible rollover distribution if the payment would have been an eligible rollover distribution but for being an overpayment, and
(B) the portion of such overpayment with respect to which recoupment is sought on behalf of the plan shall be permitted to be returned to such plan and in such case shall be treated as an eligible rollover distribution transferred to such plan by the participant or beneficiary who received such overpayment (and the plans making and receiving such transfer shall be treated as permitting such transfer).
(13) Recontributions of withdrawals for home purchases
(A) General rule
(i) In general
Any individual who received a qualified distribution may, during the applicable period, make one or more contributions in an aggregate amount not to exceed the amount of such qualified distribution to an eligible retirement plan (as defined in paragraph (8)(B)) of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under subsection (c) or section 403(a)(4), 403(b)(8), or 408(d)(3), as the case may be.
(ii) Treatment of repayments
Rules similar to the rules of clauses (ii) and (iii) of section 72(t)(11)(C) shall apply for purposes of this subsection.
(B) Qualified distribution
For purposes of this paragraph, the term "qualified distribution" means any distribution—
(i) described in section 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(i)(V), or 403(b)(11)(B),
(ii) which was to be used to purchase or construct a principal residence in a qualified disaster area, but which was not so used on account of the qualified disaster with respect to such area, and
(iii) which was received during the period beginning on the date which is 180 days before the first day of the incident period of such qualified disaster and ending on the date which is 30 days after the last day of such incident period.
(C) Definitions
For purposes of this paragraph—
(i) the terms "qualified disaster", "qualified disaster area", and "incident period" have the meaning given such terms under section 72(t)(11), and
(ii) the term "applicable period" has the meaning given such term under section 72(t)(8)(F).
(d) Taxability of beneficiary of certain foreign situs trusts
For purposes of subsections (a), (b), and (c), a stock bonus, pension, or profit-sharing trust which would qualify for exemption from tax under section 501(a) except for the fact that it is a trust created or organized outside the United States shall be treated as if it were a trust exempt from tax under section 501(a).
(e) Other rules applicable to exempt trusts
(1) Alternate payees
(A) Alternate payee treated as distributee
For purposes of subsection (a) and section 72, an alternate payee who is the spouse or former spouse of the participant shall be treated as the distributee of any distribution or payment made to the alternate payee under a qualified domestic relations order (as defined in section 414(p)).
(B) Rollovers
If any amount is paid or distributed to an alternate payee who is the spouse or former spouse of the participant by reason of any qualified domestic relations order (within the meaning of section 414(p)), subsection (c) shall apply to such distribution in the same manner as if such alternate payee were the employee.
(2) Distributions by United States to nonresident aliens
The amount includible under subsection (a) in the gross income of a nonresident alien with respect to a distribution made by the United States in respect of services performed by an employee of the United States shall not exceed an amount which bears the same ratio to the amount includible in gross income without regard to this paragraph as—
(A) the aggregate basic pay paid by the United States to such employee for such services, reduced by the amount of such basic pay which was not includible in gross income by reason of being from sources without the United States, bears to
(B) the aggregate basic pay paid by the United States to such employee for such services.
In the case of distributions under the civil service retirement laws, the term "basic pay" shall have the meaning provided in
(3) Cash or deferred arrangements
For purposes of this title, contributions made by an employer on behalf of an employee to a trust which is a part of a qualified cash or deferred arrangement (as defined in section 401(k)(2)) or which is part of a salary reduction agreement under section 403(b) shall not be treated as distributed or made available to the employee nor as contributions made to the trust by the employee merely because the arrangement includes provisions under which the employee has an election whether the contribution will be made to the trust or received by the employee in cash.
(4) Net unrealized appreciation
(A) Amounts attributable to employee contributions
For purposes of subsection (a) and section 72, in the case of a distribution other than a lump sum distribution, the amount actually distributed to any distributee from a trust described in subsection (a) shall not include any net unrealized appreciation in securities of the employer corporation attributable to amounts contributed by the employee (other than deductible employee contributions within the meaning of section 72(o)(5)). This subparagraph shall not apply to a distribution to which subsection (c) applies.
(B) Amounts attributable to employer contributions
For purposes of subsection (a) and section 72, in the case of any lump sum distribution which includes securities of the employer corporation, there shall be excluded from gross income the net unrealized appreciation attributable to that part of the distribution which consists of securities of the employer corporation. In accordance with rules prescribed by the Secretary, a taxpayer may elect, on the return of tax on which a lump sum distribution is required to be included, not to have this subparagraph apply to such distribution.
(C) Determination of amounts and adjustments
For purposes of subparagraphs (A) and (B), net unrealized appreciation and the resulting adjustments to basis shall be determined in accordance with regulations prescribed by the Secretary.
(D) Lump-sum distribution
For purposes of this paragraph—
(i) In general
The term "lump-sum distribution" means the distribution or payment within one taxable year of the recipient of the balance to the credit of an employee which becomes payable to the recipient—
(I) on account of the employee's death,
(II) after the employee attains age 59½,
(III) on account of the employee's separation from service, or
(IV) after the employee has become disabled (within the meaning of section 72(m)(7)),
from a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501 or from a plan described in section 403(a). Subclause (III) of this clause shall be applied only with respect to an individual who is an employee without regard to section 401(c)(1), and subclause (IV) shall be applied only with respect to an employee within the meaning of section 401(c)(1). For purposes of this clause, a distribution to two or more trusts shall be treated as a distribution to one recipient. For purposes of this paragraph, the balance to the credit of the employee does not include the accumulated deductible employee contributions under the plan (within the meaning of section 72(o)(5)).
(ii) Aggregation of certain trusts and plans
For purposes of determining the balance to the credit of an employee under clause (i)—
(I) all trusts which are part of a plan shall be treated as a single trust, all pension plans maintained by the employer shall be treated as a single plan, all profit-sharing plans maintained by the employer shall be treated as a single plan, and all stock bonus plans maintained by the employer shall be treated as a single plan, and
(II) trusts which are not qualified trusts under section 401(a) and annuity contracts which do not satisfy the requirements of section 404(a)(2) shall not be taken into account.
(iii) Community property laws
The provisions of this paragraph shall be applied without regard to community property laws.
(iv) Amounts subject to penalty
This paragraph shall not apply to amounts described in subparagraph (A) of section 72(m)(5) to the extent that section 72(m)(5) applies to such amounts.
(v) Balance to credit of employee not to include amounts payable under qualified domestic relations order
For purposes of this paragraph, the balance to the credit of an employee shall not include any amount payable to an alternate payee under a qualified domestic relations order (within the meaning of section 414(p)).
(vi) Transfers to cost-of-living arrangement not treated as distribution
For purposes of this paragraph, the balance to the credit of an employee under a defined contribution plan shall not include any amount transferred from such defined contribution plan to a qualified cost-of-living arrangement (within the meaning of section 415(k)(2)) under a defined benefit plan.
(vii) Lump-sum distributions of alternate payees
If any distribution or payment of the balance to the credit of an employee would be treated as a lump-sum distribution, then, for purposes of this paragraph, the payment under a qualified domestic relations order (within the meaning of section 414(p)) of the balance to the credit of an alternate payee who is the spouse or former spouse of the employee shall be treated as a lump-sum distribution. For purposes of this clause, the balance to the credit of the alternate payee shall not include any amount payable to the employee.
(E) Definitions relating to securities
For purposes of this paragraph—
(i) Securities
The term "securities" means only shares of stock and bonds or debentures issued by a corporation with interest coupons or in registered form.
(ii) Securities of the employer
The term "securities of the employer corporation" includes securities of a parent or subsidiary corporation (as defined in subsections (e) and (f) of section 424) of the employer corporation.
[(5) Repealed. Pub. L. 104–188, title I, §1401(b)(13), Aug. 20, 1996, 110 Stat. 1789 ]
(6) Direct trustee-to-trustee transfers
Any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of such transfer.
(f) Written explanation to recipients of distributions eligible for rollover treatment
(1) In general
The plan administrator of any plan shall, within a reasonable period of time before making an eligible rollover distribution, provide a written explanation to the recipient—
(A) of the provisions under which the recipient may have the distribution directly transferred to an eligible retirement plan and that the automatic distribution by direct transfer applies to certain distributions in accordance with section 401(a)(31)(B),
(B) of the provision which requires the withholding of tax on the distribution if it is not directly transferred to an eligible retirement plan,
(C) of the provisions under which the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date on which the recipient received the distribution,
(D) if applicable, of the provisions of subsections (d) and (e) of this section, and
(E) of the provisions under which distributions from the eligible retirement plan receiving the distribution may be subject to restrictions and tax consequences which are different from those applicable to distributions from the plan making such distribution.
(2) Definitions
For purposes of this subsection—
(A) Eligible rollover distribution
The term "eligible rollover distribution" has the same meaning as when used in subsection (c) of this section, paragraph (4) of section 403(a), subparagraph (A) of section 403(b)(8), or subparagraph (A) of section 457(e)(16). Such term shall include any distribution to a designated beneficiary which would be treated as an eligible rollover distribution by reason of subsection (c)(11), or section 403(a)(4)(B), 403(b)(8)(B), or 457(e)(16)(B), if the requirements of subsection (c)(11) were satisfied.
(B) Eligible retirement plan
The term "eligible retirement plan" has the meaning given such term by subsection (c)(8)(B).
(g) Limitation on exclusion for elective deferrals
(1) In general
(A) Limitation
Notwithstanding subsections (e)(3) and (h)(1)(B), the elective deferrals of any individual for any taxable year shall be included in such individual's gross income to the extent the amount of such deferrals for the taxable year exceeds the applicable dollar amount. The preceding sentence shall not apply to the portion of such excess as does not exceed the designated Roth contributions of the individual for the taxable year.
(B) Applicable dollar amount
For purposes of subparagraph (A), the applicable dollar amount is $15,000.
(2) Distribution of excess deferrals
(A) In general
If any amount (hereinafter in this paragraph referred to as "excess deferrals") is included in the gross income of an individual under paragraph (1) (or would be included but for the last sentence thereof) for any taxable year—
(i) not later than the 1st March 1 following the close of the taxable year, the individual may allocate the amount of such excess deferrals among the plans under which the deferrals were made and may notify each such plan of the portion allocated to it, and
(ii) not later than the 1st April 15 following the close of the taxable year, each such plan may distribute to the individual the amount allocated to it under clause (i) (and any income allocable to such amount through the end of such taxable year).
The distribution described in clause (ii) may be made notwithstanding any other provision of law.
(B) Treatment of distribution under section 401(k)
Except to the extent provided under rules prescribed by the Secretary, notwithstanding the distribution of any portion of an excess deferral from a plan under subparagraph (A)(ii), such portion shall, for purposes of applying section 401(k)(3)(A)(ii), be treated as an employer contribution.
(C) Taxation of distribution
In the case of a distribution to which subparagraph (A) applies—
(i) except as provided in clause (ii), such distribution shall not be included in gross income, and
(ii) any income on the excess deferral shall, for purposes of this chapter, be treated as earned and received in the taxable year in which such income is distributed.
No tax shall be imposed under section 72(t) on any distribution described in the preceding sentence.
(D) Partial distributions
If a plan distributes only a portion of any excess deferral and income allocable thereto, such portion shall be treated as having been distributed ratably from the excess deferral and the income.
(3) Elective deferrals
For purposes of this subsection, the term "elective deferrals" means, with respect to any taxable year, the sum of—
(A) any employer contribution under a qualified cash or deferred arrangement (as defined in section 401(k)) to the extent not includible in gross income for the taxable year under subsection (e)(3) (determined without regard to this subsection),
(B) any employer contribution to the extent not includible in gross income for the taxable year under subsection (h)(1)(B) (determined without regard to this subsection),
(C) any employer contribution to purchase an annuity contract under section 403(b) under a salary reduction agreement (within the meaning of section 3121(a)(5)(D)), and
(D) any elective employer contribution under section 408(p)(2)(A)(i).
An employer contribution shall not be treated as an elective deferral described in subparagraph (C) if under the salary reduction agreement such contribution is made pursuant to a one-time irrevocable election made by the employee at the time of initial eligibility to participate in the agreement or is made pursuant to a similar arrangement involving a one-time irrevocable election specified in regulations.
(4) Cost-of-living adjustment
In the case of taxable years beginning after December 31, 2006, the Secretary shall adjust the $15,000 amount under paragraph (1)(B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2005, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.
(5) Disregard of community property laws
This subsection shall be applied without regard to community property laws.
(6) Coordination with section 72
For purposes of applying section 72, any amount includible in gross income for any taxable year under this subsection but which is not distributed from the plan during such taxable year shall not be treated as investment in the contract.
(7) Special rule for certain organizations
(A) In general
In the case of a qualified employee of a qualified organization, with respect to employer contributions described in paragraph (3)(C) made by such organization, the limitation of paragraph (1) for any taxable year shall be increased by whichever of the following is the least:
(i) $3,000,
(ii) $15,000 reduced by the sum of—
(I) the amounts not included in gross income for prior taxable years by reason of this paragraph, plus
(II) the aggregate amount of designated Roth contributions (as defined in section 402A(c)) permitted for prior taxable years by reason of this paragraph, or
(iii) the excess of $5,000 multiplied by the number of years of service of the employee with the qualified organization over the employer contributions described in paragraph (3) made by the organization on behalf of such employee for prior taxable years (determined in the manner prescribed by the Secretary).
(B) Qualified organization
For purposes of this paragraph, the term "qualified organization" means any educational organization, hospital, home health service agency, health and welfare service agency, church, or convention or association of churches. Such term includes any organization described in section 414(e)(3)(B)(ii). Terms used in this subparagraph shall have the same meaning as when used in section 415(c)(4) (as in effect before the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001).
(C) Qualified employee
For purposes of this paragraph, the term "qualified employee" means any employee who has completed 15 years of service with the qualified organization.
(D) Years of service
For purposes of this paragraph, the term "years of service" has the meaning given such term by section 403(b).
(8) Matching contributions on behalf of self-employed individuals not treated as elective employer contributions
Except as provided in section 401(k)(3)(D)(ii), any matching contribution described in section 401(m)(4)(A) which is made on behalf of a self-employed individual (as defined in section 401(c)) shall not be treated as an elective employer contribution under a qualified cash or deferred arrangement (as defined in section 401(k)) for purposes of this title.
(h) Special rules for simplified employee pensions
For purposes of this chapter—
(1) In general
Except as provided in paragraph (2), contributions made by an employer on behalf of an employee to an individual retirement plan pursuant to a simplified employee pension (as defined in section 408(k))—
(A) shall not be treated as distributed or made available to the employee or as contributions made by the employee,
(B) if such contributions are made pursuant to an arrangement under section 408(k)(6) under which an employee may elect to have the employer make contributions to the simplified employee pension on behalf of the employee, shall not be treated as distributed or made available or as contributions made by the employee merely because the simplified employee pension includes provisions for such election, and
(C) in the case of any contributions pursuant to a simplified employer pension which are made to an individual retirement plan designated as a Roth IRA, such contribution shall not be excludable from gross income.
(2) Limitations on employer contributions
Contributions made by an employer to a simplified employee pension with respect to an employee for any year shall be treated as distributed or made available to such employee and as contributions made by the employee to the extent such contributions exceed the lesser of—
(A) 25 percent of the compensation (within the meaning of section 414(s)) from such employer includible in the employee's gross income for the year (determined without regard to the employer contributions to the simplified employee pension), or
(B) the limitation in effect under section 415(c)(1)(A), reduced in the case of any highly compensated employee (within the meaning of section 414(q)) by the amount taken into account with respect to such employee under section 408(k)(3)(D).
(3) Distributions
Any amount paid or distributed out of an individual retirement plan pursuant to a simplified employee pension shall be included in gross income by the payee or distributee, as the case may be, in accordance with the provisions of section 408(d) (or section 408A(d) in the case of an individual retirement plan designated as a Roth IRA).
(i) Treatment of self-employed individuals
For purposes of this section, except as otherwise provided in subsection (e)(4)(D)(i), the term "employee" includes a self-employed individual (as defined in section 401(c)(1)(B)) and the employer of such individual shall be the person treated as his employer under section 401(c)(4).
(j) Effect of disposition of stock by plan on net unrealized appreciation
(1) In general
For purposes of subsection (e)(4), in the case of any transaction to which this subsection applies, the determination of net unrealized appreciation shall be made without regard to such transaction.
(2) Transaction to which subsection applies
This subsection shall apply to any transaction in which—
(A) the plan trustee exchanges the plan's securities of the employer corporation for other such securities, or
(B) the plan trustee disposes of securities of the employer corporation and uses the proceeds of such disposition to acquire securities of the employer corporation within 90 days (or such longer period as the Secretary may prescribe), except that this subparagraph shall not apply to any employee with respect to whom a distribution of money was made during the period after such disposition and before such acquisition.
(k) Treatment of simple retirement accounts
Rules similar to the rules of paragraphs (1) and (3) of subsection (h) shall apply to contributions and distributions with respect to a simple retirement account under section 408(p).
(l) Distributions from governmental plans for health and long-term care insurance
(1) In general
In the case of an employee who is an eligible retired public safety officer who makes the election described in paragraph (6) with respect to any taxable year of such employee, gross income of such employee for such taxable year does not include any distribution from an eligible retirement plan maintained by the employer described in paragraph (4)(B) to the extent that the aggregate amount of such distributions does not exceed the amount paid by such employee for qualified health insurance premiums for such taxable year.
(2) Limitation
The amount which may be excluded from gross income for the taxable year by reason of paragraph (1) shall not exceed $3,000.
(3) Distributions must otherwise be includible
(A) In general
An amount shall be treated as a distribution for purposes of paragraph (1) only to the extent that such amount would be includible in gross income without regard to paragraph (1).
(B) Application of section 72
Notwithstanding section 72, in determining the extent to which an amount is treated as a distribution for purposes of subparagraph (A), the aggregate amounts distributed from an eligible retirement plan in a taxable year (up to the amount excluded under paragraph (1)) shall be treated as includible in gross income (without regard to subparagraph (A)) to the extent that such amount does not exceed the aggregate amount which would have been so includible if all amounts to the credit of the eligible public safety officer in all eligible retirement plans maintained by the employer described in paragraph (4)(B) were distributed during such taxable year and all such plans were treated as 1 contract for purposes of determining under section 72 the aggregate amount which would have been so includible. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.
(4) Definitions
For purposes of this subsection—
(A) Eligible retirement plan
For purposes of paragraph (1), the term "eligible retirement plan" means a governmental plan (within the meaning of section 414(d)) which is described in clause (iii), (iv), (v), or (vi) of subsection (c)(8)(B).
(B) Eligible retired public safety officer
The term "eligible retired public safety officer" means an individual who, by reason of disability or attainment of normal retirement age, is separated from service as a public safety officer with the employer who maintains the eligible retirement plan from which distributions subject to paragraph (1) are made.
(C) Public safety officer
The term "public safety officer" shall have the same meaning given such term by section 1204(9)(A) of the Omnibus Crime Control and Safe Streets Act of 1968 (
(D) Qualified health insurance premiums
The term "qualified health insurance premiums" means premiums for coverage for the eligible retired public safety officer, his spouse, and dependents (as defined in section 152), by an accident or health plan or qualified long-term care insurance contract (as defined in section 7702B(b)).
(5) Special rules
For purposes of this subsection—
(A) Direct payment to insurer permitted
(i) In general
Paragraph (1) shall apply to a distribution without regard to whether payment of the premiums is made directly to the provider of the accident or health plan or qualified long-term care insurance contract by deduction from a distribution from the eligible retirement plan, or is made to the employee.
(ii) Reporting
In the case of a payment made to the employee as described in clause (i), the employee shall include with the return of tax for the taxable year in which the distribution is made an attestation that the distribution does not exceed the amount paid by the employee for qualified health insurance premiums for such taxable year.
(B) Related plans treated as 1
All eligible retirement plans of an employer shall be treated as a single plan.
(6) Election described
(A) In general
For purposes of paragraph (1), an election is described in this paragraph if the election is made by an employee after separation from service with respect to amounts not distributed from an eligible retirement plan to have amounts from such plan distributed in order to pay for qualified health insurance premiums.
(B) Special rule
A plan shall not be treated as violating the requirements of section 401, or as engaging in a prohibited transaction for purposes of section 503(b), merely because it provides for an election with respect to amounts that are otherwise distributable under the plan or merely because of a distribution made pursuant to an election described in subparagraph (A).
(7) Coordination with medical expense deduction
The amounts excluded from gross income under paragraph (1) shall not be taken into account under section 213.
(8) Coordination with deduction for health insurance costs of self-employed individuals
The amounts excluded from gross income under paragraph (1) shall not be taken into account under section 162(l).
(Aug. 16, 1954, ch. 736,
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table under
Editorial Notes
References in Text
Section 415(c)(4) (as in effect before the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001), referred to in subsec. (g)(7)(B), means
Section 1204(9)(A) of the Omnibus Crime Control and Safe Streets Act of 1968 (
Amendments
2022—Subsec. (c)(12).
Subsec. (c)(13).
Subsec. (g)(1)(C).
Subsec. (h)(1)(C).
Subsec. (h)(3).
Subsec. (l)(5)(A).
2020—Subsec. (c)(4).
2018—Subsec. (i).
2017—Subsec. (c)(3).
Subsec. (c)(3)(A).
Subsec. (c)(3)(C).
2014—Subsec. (g)(1)(B).
2013—Subsec. (l)(4)(C).
2008—Subsec. (c)(4).
Subsec. (c)(11)(A).
Subsec. (c)(11)(A)(i).
Subsec. (c)(11)(B).
Subsec. (f)(2)(A).
Subsec. (g)(2)(A)(ii).
Subsec. (l)(1).
Subsec. (l)(3)(B).
Subsec. (l)(4)(D).
Subsec. (l)(5)(A).
2007—Subsec. (g)(7)(A)(ii)(II).
2006—Subsec. (c)(2)(A).
Subsec. (c)(11).
Subsec. (l).
2005—Subsec. (g)(1)(A).
Subsec. (g)(7)(A)(ii).
2002—Subsec. (c)(2).
Subsec. (g)(1)(C).
Subsec. (g)(7)(B).
Subsec. (h)(2)(A).
2001—Subsec. (c)(2).
"(A) such portion is transferred in a direct trustee-to-trustee transfer to a qualified trust which is part of a plan which is a defined contribution plan and which agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or
"(B) such portion is transferred to an eligible retirement plan described in clause (i) or (ii) of paragraph (8)(B)."
Subsec. (c)(3).
Subsec. (c)(4)(C).
Subsec. (c)(8)(B).
Subsec. (c)(8)(B)(v).
Subsec. (c)(8)(B)(vi).
Subsec. (c)(9).
Subsec. (c)(10).
Subsec. (f)(1).
Subsec. (f)(1)(A).
Subsec. (f)(1)(B).
Subsec. (f)(1)(E).
Subsec. (f)(2)(A).
Subsec. (g)(1).
Subsec. (g)(1)(A).
Subsec. (g)(2)(A).
Subsec. (g)(4).
Subsec. (g)(5).
Subsec. (g)(6).
Subsec. (g)(7).
Subsec. (g)(7)(B).
Subsec. (g)(8), (9).
1998—Subsec. (c)(4)(C).
1997—Subsec. (g)(9).
1996—Subsec. (c)(10).
"(10)
Subsec. (d).
Subsec. (e)(3).
Subsec. (e)(4)(D).
"(D)
Subsec. (e)(5).
"(5)
Subsec. (g)(3)(A).
Subsec. (g)(3)(D).
Subsec. (k).
1994—Subsec. (g)(5).
1992—Subsecs. (a) to (d).
Subsec. (e).
Subsec. (e)(6).
Subsec. (f).
Subsec. (g)(1).
Subsec. (i).
Subsec. (j)(1).
1990—Subsec. (a)(3)(B).
Subsec. (a)(6)(B)(i).
1989—Subsec. (e)(7).
Subsec. (g)(3).
1988—Subsec. (a)(1).
Subsec. (a)(4).
Subsec. (a)(5)(D)(i).
Subsec. (a)(5)(D)(i)(I).
Subsec. (a)(5)(D)(iii).
Subsec. (a)(5)(F).
Subsec. (a)(6)(C).
Subsec. (a)(6)(E)(ii).
Subsec. (a)(6)(G).
Subsec. (a)(6)(H)(ii).
Subsec. (a)(6)(I).
Subsec. (b)(2)(A).
Subsec. (b)(2)(B).
Subsec. (e)(1)(A).
Subsec. (e)(1)(B).
Subsec. (e)(3).
Subsec. (e)(4)(A).
Subsec. (e)(4)(B)(i).
Subsec. (e)(4)(I).
Subsec. (e)(4)(J).
Subsec. (e)(4)(L).
Subsec. (e)(4)(M).
Subsec. (e)(4)(O).
Subsec. (e)(5).
Subsec. (e)(6)(C).
"(i) is taxed under this subsection by reason of an election under paragraph (4)(B), or
"(ii) is treated as long-term capital gain under subsection (a)(2) of this section or section 403(a)(2)."
Subsec. (f)(1).
Subsec. (g).
Subsec. (g)(2).
Subsec. (g)(2)(C).
Subsec. (g)(2)(D).
Subsec. (g)(3).
Subsec. (g)(8)(A)(iii).
Subsec. (g)(8)(D).
Subsec. (i).
Subsec. (j).
1986—Subsec. (a)(2).
Subsec. (a)(5)(D)(i).
"(I) by substituting '50 percent of the balance to the credit of an employee' for 'the balance to the credit of an employee',
"(II) without regard to clause (ii) thereof, the second sentence thereof, and subparagraph (B) of subsection (e)(4).
Any distribution described in section 401(a)(28)(B)(ii) shall be treated as meeting the requirements of this clause." This amendment was repealed by
Subsec. (a)(5)(D)(ii).
Subsec. (a)(5)(D)(iii).
"(I) paragraph (2) of this subsection,
"(II) paragraphs (1) and (3) of subsection (e), and
"(III) paragraph (2) of section 403(a),
shall not apply to any distribution (paid after such partial distribution) of the balance to the credit of such employee under the plan under which such partial distribution was made (or under any other plan which, under subsection (e)(4)(C), would be aggregated with such plan)."
Subsec. (a)(5)(E)(v).
Subsec. (a)(5)(F).
"(i) Transfer treated as rollover contribution under section 408
"For purposes of this title, a transfer resulting in any portion of a distribution being excluded from gross income under subparagraph (A) to an eligible retirement plan described in subclause (I) or (II) of subparagraph (E)(iv) shall be treated as a rollover contribution described in section 408(d)(3).
"(ii) 5-percent owners
"An eligible retirement plan described in subclause (III) or (IV) of subparagraph (E)(iv) shall not be treated as an eligible retirement plan for the transfer of a distribution if the employee is a 5-percent owner at the time such distribution is made. For purposes of the preceding sentence, the term '5-percent owner' means any individual who is a 5-percent owner (as defined in section 416(i)(1)(B)) at any time during the 5 plan years preceding the plan year in which the distribution is made."
Subsec. (a)(5)(G).
Subsec. (a)(6)(D)(v).
Subsec. (a)(6)(F).
Subsec. (a)(6)(G).
Subsec. (a)(6)(H).
Subsec. (a)(7).
Subsec. (a)(9).
Subsec. (b).
Subsec. (e)(1)(B).
Subsec. (e)(1)(C) to (E).
Subsec. (e)(3).
Subsec. (e)(4)(B).
Subsec. (e)(4)(E).
Subsec. (e)(4)(F).
Subsec. (e)(4)(H).
Subsec. (e)(4)(J).
Subsec. (e)(4)(N).
Subsec. (e)(6).
Subsec. (f)(1).
Subsec. (f)(2).
Subsec. (g).
Subsec. (h).
1984—Subsec. (a)(2).
Subsec. (a)(5)(A)(i).
Subsec. (a)(5)(B).
Subsec. (a)(5)(D).
Subsec. (a)(5)(D)(iv)(III)–(V).
Subsec. (a)(5)(E).
Subsec. (a)(5)(E)(i).
Subsec. (a)(5)(E)(ii)(II).
Subsec. (a)(5)(E)(v).
Subsec. (a)(5)(F).
Subsec. (a)(5)(F)(i).
Subsec. (a)(5)(F)(ii).
Subsec. (a)(6)(A), (B).
Subsec. (a)(6)(D)(iii), (iv).
Subsec. (a)(6)(E)(i).
Subsec. (a)(6)(F).
Subsec. (a)(7).
Subsec. (a)(9).
Subsec. (e)(4)(L).
Subsec. (e)(4)(M).
Subsec. (e)(5).
Subsec. (f).
1983—Subsec. (a)(5)(D)(v).
Subsec. (e)(1)(C).
Subsec. (e)(4)(A).
Subsec. (e)(4)(J).
1981—Subsec. (a)(1).
Subsec. (a)(5).
Subsec. (e)(4).
1980—Subsec. (a)(6)(D)(iii).
Subsec. (a)(6)(E).
Subsec. (a)(7)(A)(i).
1978—Subsec. (a)(5).
Subsec. (a)(5)(D)(i)(II).
Subsec. (a)(6).
Subsec. (a)(6)(D).
Subsec. (a)(7).
Subsec. (a)(8).
Subsec. (e)(1)(C).
1977—Subsec. (e)(1)(C).
1976—Subsec. (a)(1).
Subsec. (a)(2).
Subsec. (a)(4).
Subsec. (a)(5).
Subsec. (a)(5)(A).
Subsec. (a)(6).
Subsec. (a)(6)(A).
Subsec. (d).
Subsec. (e)(2).
Subsec. (e)(4)(A).
Subsec. (e)(4)(B), (J).
Subsec. (e)(4)(L).
1974—Subsec. (a)(2).
Subsec. (a)(3)(C).
Subsec. (a)(5).
Subsec. (e).
1969—Subsec. (a)(5).
Subsec. (b).
1964—Subsec. (a)(1).
Subsec. (a)(3)(B).
Subsecs. (b), (d).
1962—Subsec. (a)(2).
1960—Subsec. (a)(1).
Subsec. (a)(4).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by section 331(b)(2) of
Effective Date of 2020 Amendment
Amendment by
Effective Date of 2017 Amendment
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2013 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment by sections 108(f)(1)–(2)(B), (j) and 109(b)(3) of
Amendment by section 201(b) of
Effective Date of 2007 Amendment
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Effective Date of 2002 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by section 611(d)(1)–(3)(A) of
Amendment by section 632(a)(3)(G) of
"(1)
"(2)
"(3)
Amendment by section 643(a) of
Amendment by section 657(b) of
Effective Date of 1998 Amendment
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
"(1)
"(2)
Amendment by section 1421(b)(3)(A), (9)(B) of
Amendment by section 1450(a)(2) of
Effective Date of 1994 Amendment
Amendment by
Effective Date of 1992 Amendment
"(1)
"(2)
Amendment by section 522(c)(1) of
Effective Date of 1989 Amendment
Amendment by section 7811(g)(2) of
Effective Date of 1988 Amendment
Amendment by sections 1011(c)(1)–(6)(B), (11), (h)(4), 1011A(a)(1), (b)(4)(A)–(D), (5)–(8), (10), (c)(9), and 1018(t)(8)(A), (C), (u)(1), (6), (7) of
Effective Date of 1986 Amendment
Amendment by section 104(b)(5) of
"(1)
"(2)
"(A) the date on which such agreement terminates (determined without regard to any extension thereof after February 28, 1986), or
"(B) January 1, 1989.
Such contributions shall be taken into account for purposes of applying the amendment made by this section to other plans.
"(3)
"(A)
"(B)
"(i)
"(ii)
"(4)
"(5)
"(A) the employee makes an election with respect to such contribution before January 1, 1987, and
"(B) the employer identifies the amount of such contribution before January 1, 1987.
"(6)
Amendment by section 1106(c)(2) of
Amendment by section 1108(b) of
Amendment by section 1112(c) of
Amendment by section 1121(c)(1) of
"(1)
"(2)
"(A)
"(B)
"(C)
"(3)
"(A)
"(i) the existing capital gains provisions shall continue to apply, and
"(ii) the requirement of subparagraph (B) of section 402(e)(4) of the Internal Revenue Code of 1986 (as amended by subsection (a)) that the distribution be received after attaining age 59½ shall not apply.
"(B)
"(i) the tax imposed by such section 1 on the taxable income of the taxpayer (reduced by the portion of such lump sum distribution to which clause (ii) applies), plus
"(ii) 20 percent of the portion of such lump sum distribution to which the existing capital gains provisions continue to apply by reason of this paragraph.
"(C)
"(i) such lump sum distribution is received by an employee who has attained age 50 before January 1, 1986 or by an individual, estate, or trust with respect to such an employee, and
"(ii) the taxpayer makes an election under this paragraph.
Not more than 1 election may be made under this paragraph with respect to an employee. An election under this subparagraph shall be treated as an election under section 402(e)(4)(B) of such Code for purposes of such Code.
"(4) 5
"(A) Notwithstanding the amendment made by subsection (b) [amending this section and
"(B) For purposes of this paragraph—
| "In the case of distributions during calendar year: | The phase-out percentage is: |
|---|---|
| 1987 | 100 |
| 1988 | 95 |
| 1989 | 75 |
| 1990 | 50 |
| 1991 | 25. |
"(C) No more than 1 election may be made under this paragraph with respect to an employee. An election under this paragraph shall be treated as an election under section 402(e)(4)(B) of the Internal Revenue Code of 1986 for purposes of such Code.
"(5)
"(6)
"(7)
"(8)
"(9)
"(A) without regard to the phrase 'before separation from service' in paragraph (8)(D), and
"(B) by treating any amount received (other than as an annuity) before or with the 1st annuity payment as having been received before the annuity starting date."
Amendment by section 1852(a)(5)(A), (b)(1)–(7), (c)(5) of
Amendment by section 1898(a)(2), (3), (c)(7)(A)(i), (e) of
Amendment by section 1898(c)(1)(A) of
Amendment by
Effective Date of 1984 Amendment
Amendment by section 204 of
Amendment by section 491(d)(9)–(11) of
Amendment by section 1001(b)(3) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by section 311(b)(2), (3)(A), (c) of
Effective Date of 1980 Amendments
"(1)
"(2)
Amendment by
Effective Date of 1978 Amendment
Amendment by section 101(d) of
Amendment by section 135(b) of
Effective Date of 1978 Amendment; Certain Rollovers Validated
"(1)
"(2)
"(A) attempted to comply with the requirements of section 402(a)(5) or 403(a)(4) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] for a taxable year beginning before the date of the enactment of this Act, [Oct. 14, 1978], and
"(B) failed to meet the requirements of such section that all property received in the distribution be transferred,
such section (as amended by this section) shall be applied by treating any transfer of property made on or before December 31, 1978, as if it were made on or before the 60th day after the day on which the taxpayer received such property. For purposes of the preceding sentence, a transfer of money shall be treated as a transfer of property received in a distribution to the extent that the amount of the money transferred does not exceed the highest fair market value of the property distributed during the 60-day period beginning on the date on which the taxpayer received such property."
Effective Date of 1977 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1974 Amendment
Effective Date of 1969 Amendment
Amendment by section 321(b)(1) of
Effective Date of 1964 Amendment
Amendment by section 221(c)(1) of
Amendment by section 232(e)(1)–(3) of
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1960 Amendment
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1112 of
Savings Provision
For provisions that nothing in amendment by
Certain Actions Before Date of Enactment of Pub. L. 117–328
"(1) a reasonable good faith interpretation of then existing administrative guidance for inadvertent benefit overpayment recoupments and recoveries that commenced before the date of enactment of this Act [Dec. 29, 2022], and
"(2) determinations made before the date of enactment of this Act by the responsible plan fiduciary, in the exercise of its fiduciary discretion, not to seek recoupment or recovery of all or part of an inadvertent benefit overpayment.
In the case of a benefit overpayment that occurred prior to the date of enactment of this Act, any installment payments by the participant or beneficiary to the plan or any reduction in periodic benefit payments to the participant or beneficiary, which were made in recoupment of such overpayment and which commenced prior to such date, may continue after such date. Nothing in this subsection shall relieve a fiduciary from responsibility for an overpayment that resulted from a breach of its fiduciary duties."
Clarification of Disqualification Rules Relating to Acceptance of Rollover Contributions
Model Explanation
Incorporation by Reference of Subsection (g) Limitations
Applicability of Subsection (a)(5)(F)(ii)
Applicability of Subsection (a)(5)(D)(i)(II)
Election To Treat Certain Lump Sum Distributions Received During 1987 as Received During 1986
"(a)
"(b)
"(c)
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Treatment of Certain Distributions From Qualified Terminated Plan
"(a)
"(1) a distribution was made from a qualified terminated plan to an employee on December 16, 1976, and on January 6, 1977, such employee transferred all of the property received in such distribution to an individual retirement account (within the meaning of section 408(a) of such Code) established for the benefit of such employee, and
"(2) the remaining balance to the credit of such employee in such qualified terminated plan was distributed to such employee on January 21, 1977, and all the property received by such employee in such distribution was transferred by such employee to such individual retirement account on January 21, 1977,
then such distributions shall be treated as qualifying rollover distributions (within the meaning of section 402(a)(5) of such Code) and shall not be includible in the gross income of such employee for the taxable year in which paid.
"(b)
"(1) with respect to which a notice of sufficiency was issued by the Pension Benefit Guaranty Corporation on December 2, 1976, and
"(2) which was terminated by corporate action on February 20, 1976.
"(c)
Transitional Rule in Case of Rollover Contributions to Employee Trusts or Annuities
Transitional Rules Relating to Period for Rollover Contribution
"(1)
"(A)
"(B)
(i)
"(ii)
"(C)
"(i) the period provided by the Internal Revenue Code of 1986 for the assessment of any deficiency for the taxable year in which the payment described in subparagraph (A) was made and each subsequent taxable year for which tax is determined by reference to the treatment of such payment under such Code or the status under such Code of any trust, plan, account, annuity, or bond described in subparagraph (A) shall, to the extent attributable to such treatment, not expire before the expiration of 3 years from the date the Secretary of the Treasury or his delegate is notified by the individual (in such manner as the Secretary of the Treasury or his delegate may prescribe) that such individual has made (or failed to make) the contribution of the remaining portion of the payment within the period specified in subparagraph (B)(i), and
"(ii) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of section 6212(c) of such Code or the provisions of any other law or rule of law which would otherwise prevent such assessment.
"(2)
"(3)
1 See References in Text note below.
§402A. Optional treatment of elective deferrals as Roth contributions
(a) General rule
If an applicable retirement plan includes a qualified Roth contribution program—
(1) any designated Roth contribution made by an employee pursuant to the program shall be treated as an elective deferral for purposes of this chapter, except that such contribution shall not be excludable from gross income,
(2) any designated Roth contribution which pursuant to the program is made by the employer on the employee's behalf on account of the employee's contribution, elective deferral, or (subject to the requirements of section 401(m)(13)) qualified student loan payment shall be treated as a matching contribution for purposes of this chapter, except that such contribution shall not be excludable from gross income,
(3) any designated Roth contribution which pursuant to the program is made by the employer on the employee's behalf and which is a nonelective contribution shall be nonforfeitable and shall not be excludable from gross income, and
(4) such plan (and any arrangement which is part of such plan) shall not be treated as failing to meet any requirement of this chapter solely by reason of including such program.
(b) Qualified Roth contribution program
For purposes of this section—
(1) In general
The term "qualified Roth contribution program" means a program under which an employee may elect to make, or to have made on the employee's behalf, designated Roth contributions in lieu of all or a portion of elective deferrals the employee is otherwise eligible to make, or of matching contributions or nonelective contributions which may otherwise be made on the employee's behalf, under the applicable retirement plan.
(2) Separate accounting required
A program shall not be treated as a qualified Roth contribution program unless the applicable retirement plan—
(A) establishes separate accounts ("designated Roth accounts") for the designated Roth contributions of each employee and any earnings properly allocable to the contributions, and
(B) maintains separate recordkeeping with respect to each account.
(c) Definitions and rules relating to designated Roth contributions
For purposes of this section—
(1) Designated Roth contribution
The term "designated Roth contribution" means any elective deferral, matching contribution, or nonelective contribution which—
(A) is excludable from gross income of an employee without regard to this section, and
(B) the employee designates (at such time and in such manner as the Secretary may prescribe) as not being so excludable.
(2) Designation limits
The amount of elective deferrals which an employee may designate under paragraph (1) shall not exceed the excess (if any) of—
(A) the maximum amount of elective deferrals excludable from gross income of the employee for the taxable year (without regard to this section), over
(B) the aggregate amount of elective deferrals of the employee for the taxable year which the employee does not designate under paragraph (1).
(3) Rollover contributions
(A) In general
A rollover contribution of any payment or distribution from a designated Roth account which is otherwise allowable under this chapter may be made only if the contribution is to—
(i) another designated Roth account of the individual from whose account the payment or distribution was made, or
(ii) a Roth IRA of such individual.
(B) Coordination with limit
Any rollover contribution to a designated Roth account under subparagraph (A) shall not be taken into account for purposes of paragraph (1).
(4) Taxable rollovers to designated Roth accounts
(A) In general
Notwithstanding sections 402(c), 403(b)(8), and 457(e)(16), in the case of any distribution to which this paragraph applies—
(i) there shall be included in gross income any amount which would be includible were it not part of a qualified rollover contribution,
(ii) section 72(t) shall not apply, and
(iii) unless the taxpayer elects not to have this clause apply, any amount required to be included in gross income for any taxable year beginning in 2010 by reason of this paragraph shall be so included ratably over the 2-taxable-year period beginning with the first taxable year beginning in 2011.
Any election under clause (iii) for any distributions during a taxable year may not be changed after the due date for such taxable year.
(B) Distributions to which paragraph applies
In the case of an applicable retirement plan which includes a qualified Roth contribution program, this paragraph shall apply to a distribution from such plan other than from a designated Roth account which is contributed in a qualified rollover contribution (within the meaning of section 408A(e)) to the designated Roth account maintained under such plan for the benefit of the individual to whom the distribution is made.
(C) Coordination with limit
Any distribution to which this paragraph applies shall not be taken into account for purposes of paragraph (1).
(D) Other rules
The rules of subparagraphs (D), (E), and (F) of section 408A(d)(3) (as in effect for taxable years beginning after 2009) shall apply for purposes of this paragraph.
(E) Special rule for certain transfers
In the case of an applicable retirement plan which includes a qualified Roth contribution program—
(i) the plan may allow an individual to elect to have the plan transfer any amount not otherwise distributable under the plan to a designated Roth account maintained for the benefit of the individual,
(ii) such transfer shall be treated as a distribution to which this paragraph applies which was contributed in a qualified rollover contribution (within the meaning of section 408A(e)) to such account, and
(iii) the plan shall not be treated as violating the provisions of section 401(k)(2)(B)(i), 403(b)(7)(A)(ii),1 403(b)(11), or 457(d)(1)(A), or of
(d) Distribution rules
For purposes of this title—
(1) Exclusion
Any qualified distribution from a designated Roth account shall not be includible in gross income.
(2) Qualified distribution
For purposes of this subsection—
(A) In general
The term "qualified distribution" has the meaning given such term by section 408A(d)(2)(A) (without regard to clause (iv) thereof).
(B) Distributions within nonexclusion period
A payment or distribution from a designated Roth account shall not be treated as a qualified distribution if such payment or distribution is made within the 5-taxable-year period beginning with the earlier of—
(i) the first taxable year for which the individual made a designated Roth contribution to any designated Roth account established for such individual under the same applicable retirement plan, or
(ii) if a rollover contribution was made to such designated Roth account from a designated Roth account previously established for such individual under another applicable retirement plan, the first taxable year for which the individual made a designated Roth contribution to such previously established account.
(C) Distributions of excess deferrals and contributions and earnings thereon
The term "qualified distribution" shall not include any distribution of any excess deferral under section 402(g)(2) or any excess contribution under section 401(k)(8), and any income on the excess deferral or contribution.
(3) Treatment of distributions of certain excess deferrals
Notwithstanding section 72, if any excess deferral under section 402(g)(2) attributable to a designated Roth contribution is not distributed on or before the 1st April 15 following the close of the taxable year in which such excess deferral is made, the amount of such excess deferral shall—
(A) not be treated as investment in the contract, and
(B) be included in gross income for the taxable year in which such excess is distributed.
(4) Aggregation rules
Section 72 shall be applied separately with respect to distributions and payments from a designated Roth account and other distributions and payments from the plan.
(5) Mandatory distribution rules not to apply before death
Notwithstanding sections 403(b)(10) and 457(d)(2), the following provisions shall not apply to any designated Roth account:
(A) Section 401(a)(9)(A).
(B) The incidental death benefit requirements of section 401(a).
(e) Pension-linked emergency savings accounts
(1) In general
An applicable retirement plan—
(A) may—
(i) include a pension-linked emergency savings account established pursuant to section 801 of the Employee Retirement Income Security Act of 1974, which, except as otherwise provided in this subsection, shall be treated for purposes of this title as a designated Roth account, and
(ii) either—
(I) offer to enroll an eligible participant in such pension-linked emergency savings account, or
(II) automatically enroll an eligible participant in such account pursuant to an automatic contribution arrangement described in paragraph (4), and
(B) shall—
(i) separately account for contributions to such account and any earnings properly allocable to the contributions,
(ii) maintain separate recordkeeping with respect to each such account, and
(iii) allow withdrawals from such account in accordance with paragraph (7).
(2) Eligible participant
(A) In general
For purposes of this subsection, the term "eligible participant", with regard to a defined contribution plan, means an individual, without regard to whether the individual is otherwise a participant in such plan, who—
(i) meets any age, service, and other eligibility requirements of the plan, and
(ii) is not a highly compensated employee (as defined in section 414(q)).
(B) Eligible participant who becomes a highly compensated employee
Notwithstanding subparagraph (A)(ii), an individual on whose behalf a pension-linked emergency savings account is established who thereafter becomes a highly compensated employee (as so defined) may not make further contributions to such account, but retains the right to withdraw any account balance of such account in accordance with paragraphs (7) and (8).
(3) Contribution limitation
(A) In general
Subject to subparagraph (B), no contribution shall be accepted to a pension-linked emergency savings account to the extent such contribution would cause the portion of the account balance attributable to participant contributions to exceed the lesser of—
(i) $2,500; or
(ii) an amount determined by the plan sponsor of the pension-linked emergency savings account.
In the case of contributions made in taxable years beginning after December 31, 2024, the Secretary shall adjust the amount under clause (i) at the same time and in the same manner as the adjustment made under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2023. Any increase under the preceding sentence which is not a multiple of $100 shall be rounded to the next lowest multiple of $100.
(B) Excess contributions
To the extent any contribution to the pension-linked emergency savings account of a participant for a taxable year would exceed the limitation of subparagraph (A)—
(i) in the case of an eligible participant with another designated Roth account under the defined contribution plan, the plan may provide that—
(I) the participant may elect to increase the participant's contribution to such other account, and
(II) in the absence of such a participant election, the participant is deemed to have elected to increase the participant's contributions to such account at the rate at which contributions were being made to the pension-linked emergency savings account, and
(ii) in any other case, such plan shall provide that such excess contributions will not be accepted.
(4) Automatic contribution arrangement
For purposes of this section—
(A) In general
An automatic contribution arrangement described in this paragraph is an arrangement under which an eligible participant is treated as having elected to have the plan sponsor make elective contributions to a pension-linked emergency savings account at a participant contribution rate that is not more than 3 percent of the compensation of the eligible participant, unless the eligible participant, at any time (subject to such reasonable advance notice as is required by the plan administrator), affirmatively elects to—
(i) make contributions at a different rate, or
(ii) opt out of such contributions.
(B) Participant contribution rate
For purposes of an automatic contribution arrangement described in subparagraph (A), the plan sponsor—
(i) shall select a participant contribution rate under such automatic contribution arrangement which meets the requirements of subparagraph (A), and
(ii) may amend such rate (prior to the plan year for which such amendment would take effect) not more than once annually.
(5) Disclosure by plan sponsor
(A) In general
With respect to a defined contribution plan which includes a pension-linked emergency savings account, the administrator of the plan shall, not less than 30 days and not more than 90 days prior to the date of the first contribution to the pension-linked emergency savings account, including any contribution under an automatic contribution arrangement described in section 801(d)(2) of the Employee Retirement Income Security Act of 1974, or the date of any adjustment to the participant contribution rate under section 801(d)(2)(B)(ii) of such Act, and not less than annually thereafter, shall furnish to the participant a notice describing—
(i) the purpose of the account, which is for short-term, emergency savings;
(ii) the limits on, and tax treatment of, contributions to the pension-linked emergency savings account of the participant;
(iii) any fees, expenses, restrictions, or charges associated with such pension-linked emergency savings account;
(iv) procedures for electing to make contributions or opting out of the pension-linked emergency savings account, changing participant contribution rates for such account, and making participant withdrawals from such pension-linked emergency savings account, including any limits on frequency;
(v) the amount of the intended contribution or the change in the percentage of the compensation of the participant of such contribution, if applicable;
(vi) the amount in the pension-linked emergency savings account and the amount or percentage of compensation that a participant has contributed to such account;
(vii) the designated investment option under section 801(c)(1)(A)(iii) of the Employee Retirement Income Security Act of 1974 for amounts contributed to the pension-linked emergency savings account;
(viii) the options under section 801(e) of such Act for the account balance of the pension-linked emergency savings account after termination of the employment of the participant; and
(ix) the ability of a participant who becomes a highly compensated employee (as such term is defined in section 414(q)) to, as described in section 801(b)(2) of the Employee Retirement Income Security Act of 1974, withdraw any account balance from a pension-linked emergency savings account and the restriction on the ability of such a participant to make further contributions to the pension-linked emergency savings account.
(B) Notice requirements
A notice furnished to a participant under subparagraph (A) shall be—
(i) sufficiently accurate and comprehensive to apprise the participant of the rights and obligations of the participant with regard to the pension-linked emergency savings account of the participant; and
(ii) written in a manner calculated to be understood by the average participant.
(C) Consolidated notices
The required notices under subparagraph (A) may be included with any other notice under the Employee Retirement Income Security Act of 1974, including under section 404(c)(5)(B) or 514(e)(3) of such Act, or under section 401(k)(13)(E) or 414(w)(4), if such other notice is provided to the participant at the time required for such notice.
(6) Employer matching contributions to a defined contribution plan for employee contributions to a pension-linked emergency savings account
(A) In general
If an employer makes any matching contributions to a defined contribution plan of which a pension-linked emergency savings account is part, subject to the limitations of paragraph (3), the employer shall make matching contributions on behalf of an eligible participant on account of the participant's contributions to the pension-linked emergency savings account at the same rate as any other matching contribution on account of an elective contribution by such participant. The matching contributions shall be made to the participant's account under the defined contribution plan which is not the pension-linked emergency savings account. Such matching contributions on account of contributions to the pension-linked emergency savings account shall not exceed the maximum account balance under paragraph (3)(A) for such plan year.
(B) Coordination rule
For purposes of any applicable limitation on matching contributions, any matching contributions made under the plan shall be treated first as attributable to the elective deferrals of the participant other than contributions to a pension-linked emergency savings account.
(C) Matching contributions
For purposes of subparagraph (A), the term "matching contribution" has the meaning given such term in section 401(m)(4).
(7) Distributions
(A) In general
A pension-linked emergency savings account shall allow for withdrawal by the participant on whose behalf the account is established of the account balance, in whole or in part at the discretion of the participant, at least once per calendar month and for distribution of such withdrawal to the participant as soon as practicable after the date on which the participant elects to make such withdrawal.
(B) Treatment of distributions
Any distribution from a pension-linked emergency savings account in accordance with subparagraph (A)—
(i) shall be treated as a qualified distribution for purposes of subsection (d), and
(ii) shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A).
(8) Account balance after termination
(A) In general
Upon termination of employment of the participant, or termination by the plan sponsor of the pension-linked emergency savings account, the pension-linked emergency savings account of such participant in a defined contribution plan shall—
(i) allow, at the election of the participant, for transfer by the participant of the account balance of such account, in whole or in part, into another designated Roth account of the participant under the defined contribution plan; and
(ii) for any amounts in such account not transferred under paragraph (1), make such amounts available within a reasonable time to the participant.
(B) Prohibition of certain transfers
No amounts shall be transferred by the participant from another account of the participant under any plan of the employer into the pension-linked emergency savings account of the participant.
(C) Coordination with section 72
Subparagraph (F) of section 408A(d)(3) shall not apply (including by reason of subsection (c)(4)(D) of this section) to any rollover contribution of amounts in a pension-linked emergency savings account under subparagraph (A).
(9) Coordination with distribution of excess deferrals
If any excess deferrals are distributed under section 402(g)(2)(A) to a participant, such amounts shall be distributed first from any pension-linked emergency savings account of the participant to the extent contributions were made to such account for the taxable year.
(10) Treatment of account balances
(A) In general
Except as provided in subparagraph (B), a distribution from a pension-linked emergency savings account shall not be treated as an eligible rollover distribution for purposes of sections 401(a)(31), 402(f), and 3405.
(B) Termination
In the case of termination of employment of the participant, or termination by the plan sponsor of the pension-linked emergency savings account, except for purposes of 401(a)(31)(B), a distribution from a pension-linked emergency savings account which is contributed as provided in paragraph (8)(A)(i) shall be treated as an eligible rollover distribution.
(11) Exception to plan amendment rules
Notwithstanding section 411(d)(6), a plan which includes a pension-linked emergency savings account may cease to offer such accounts at any time.
(12) Anti-abuse rules
A plan of which a pension-linked emergency savings account is part—
(A) may employ reasonable procedures to limit the frequency or amount of matching contributions with respect to contributions to such account, solely to the extent necessary to prevent manipulation of the rules of the plan to cause matching contributions to exceed the intended amounts or frequency, and
(B) shall not be required to suspend matching contributions following any participant withdrawal of contributions, including elective deferrals and employee contributions, whether or not matched and whether or not made pursuant to an automatic contribution arrangement described in paragraph (4).
The Secretary, in consultation with the Secretary of Labor, shall issue regulations or other guidance not later than 12 months after the date of the enactment of the SECURE 2.0 Act of 2022 with respect to the anti-abuse rules described in the preceding sentence.
(f) Other definitions
For purposes of this section—
(1) Applicable retirement plan
The term "applicable retirement plan" means—
(A) an employees' trust described in section 401(a) which is exempt from tax under section 501(a),
(B) a plan under which amounts are contributed by an individual's employer for an annuity contract described in section 403(b), and
(C) an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).
(2) Elective deferral
The term "elective deferral" means—
(A) any elective deferral described in subparagraph (A) or (C) of section 402(g)(3), and
(B) any elective deferral of compensation by an individual under an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).
(3) Matching contribution
The term "matching contribution" means—
(A) any matching contribution described in section 401(m)(4)(A), and
(B) any contribution to an eligible deferred compensation plan (as defined in section 457(b)) by an eligible employer described in section 457(e)(1)(A) on behalf of an employee and on account of such employee's elective deferral under such plan,
but only if such contribution is nonforfeitable at the time received.
(Added
Editorial Notes
References in Text
Section 403(b)(7)(A)(ii), referred to in subsec. (c)(4)(E)(iii), probably means
The Employee Retirement Income Security Act of 1974, referred to in subsec. (e)(1)(A)(i), (5)(A), (C), is
The date of the enactment of the SECURE 2.0 Act of 2022, referred to in subsec. (e)(12), is the date of enactment of div. T of
Amendments
2022—Subsec. (a).
Subsec. (b)(1).
Subsec. (c)(1).
Subsec. (d)(5).
Subsec. (e).
Subsec. (f).
Subsec. (f)(3).
2014—Subsec. (c)(4)(E)(iii).
2013—Subsec. (c)(4)(E).
2010—Subsec. (c)(4).
Subsec. (e)(1)(C).
Subsec. (e)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by section 127 of
"(1)
"(2)
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date
Section applicable to taxable years beginning after Dec. 31, 2005, see section 617(f) of
Regulatory Authority
"(1) adjustment of the limitation under section 801(d)(1) of the Employee Retirement Income Security Act of 1974 [
"(2) expansion of corrections programs, if necessary;
"(3) model plan language and notices relating to pension-linked emergency savings accounts; and
"(4) with regard to interactions with section 401(k)(13) of the Internal Revenue Code of 1986."
1 See References in Text note below.
§403. Taxation of employee annuities
(a) Taxability of beneficiary under a qualified annuity plan
(1) Distributee taxable under section 72
If an annuity contract is purchased by an employer for an employee under a plan which meets the requirements of section 404(a)(2) (whether or not the employer deducts the amounts paid for the contract under such section), the amount actually distributed to any distributee under the contract shall be taxable to the distributee (in the year in which so distributed) under section 72 (relating to annuities).
(2) Special rule for health and long-term care insurance
To the extent provided in section 402(l), paragraph (1) shall not apply to the amount distributed under the contract which is otherwise includible in gross income under this subsection.
(3) Self-employed individuals
For purposes of this subsection, the term "employee" includes an individual who is an employee within the meaning of section 401(c)(1), and the employer of such individual is the person treated as his employer under section 401(c)(4).
(4) Rollover amounts
(A) General rule
If—
(i) any portion of the balance to the credit of an employee in an employee annuity described in paragraph (1) is paid to him in an eligible rollover distribution (within the meaning of section 402(c)(4)),
(ii) the employee transfers any portion of the property he receives in such distribution to an eligible retirement plan, and
(iii) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed,
then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.
(B) Certain rules made applicable
The rules of paragraphs (2) through (7) and (11) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A).
(5) Direct trustee-to-trustee transfer
Any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of such transfer.
(b) Taxability of beneficiary under annuity purchased by section 501(c)(3) organization or public school
(1) General rule
If—
(A) an annuity contract is purchased—
(i) for an employee by an employer described in section 501(c)(3) which is exempt from tax under section 501(a),
(ii) for an employee (other than an employee described in clause (i)), who performs services for an educational organization described in section 170(b)(1) (A)(ii), by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing, or
(iii) for the minister described in section 414(e)(5)(A) by the minister or by an employer,
(B) such annuity contract is not subject to subsection (a),
(C) the employee's rights under the contract are nonforfeitable, except for failure to pay future premiums,
(D) except in the case of a contract purchased by a church, such contract is purchased under a plan which meets the nondiscrimination requirements of paragraph (12), and
(E) in the case of a contract purchased under a salary reduction agreement, the contract meets the requirements of section 401(a)(30),
then contributions and other additions by such employer for such annuity contract shall be excluded from the gross income of the employee for the taxable year to the extent that the aggregate of such contributions and additions (when expressed as an annual addition (within the meaning of section 415(c)(2))) does not exceed the applicable limit under section 415. The amount actually distributed to any distributee under such contract shall be taxable to the distributee (in the year in which so distributed) under section 72 (relating to annuities). For purposes of applying the rules of this subsection to contributions and other additions by an employer for a taxable year, amounts transferred to a contract described in this paragraph by reason of a rollover contribution described in paragraph (8) of this subsection or section 408(d)(3)(A)(ii) shall not be considered contributed by such employer.
(2) Special rule for health and long-term care insurance
To the extent provided in section 402(l), paragraph (1) shall not apply to the amount distributed under the contract which is otherwise includible in gross income under this subsection.
(3) Includible compensation
For purposes of this subsection, the term "includible compensation" means, in the case of any employee, the amount of compensation which is received from the employer described in paragraph (1)(A), and which is includible in gross income (computed without regard to section 911) for the most recent period (ending not later than the close of the taxable year) which under paragraph (4) may be counted as one year of service, and which precedes the taxable year by no more than five years. Such term does not include any amount contributed by the employer for any annuity contract to which this subsection applies. Such term includes—
(A) any elective deferral (as defined in section 402(g)(3)), and
(B) any amount which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125, 132(f)(4), or 457.
(4) Years of service
In determining the number of years of service for purposes of this subsection, there shall be included—
(A) one year for each full year during which the individual was a full-time employee of the organization purchasing the annuity for him, and
(B) a fraction of a year (determined in accordance with regulations prescribed by the Secretary) for each full year during which such individual was a part-time employee of such organization and for each part of a year during which such individual was a full-time or part-time employee of such organization.
In no case shall the number of years of service be less than one.
(5) Application to more than one annuity contract
If for any taxable year of the employee this subsection applies to 2 or more annuity contracts purchased by the employer, such contracts shall be treated as one contract.
[(6) Repealed. Pub. L. 107–147, title IV, §411(p)(2), Mar. 9, 2002, 116 Stat. 50 ]
(7) Custodial accounts
(A) Amounts paid treated as contributions
For purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which satisfies the requirements of section 401(f)(2) shall be treated as amounts contributed by him for an annuity contract for his employee if the amounts are to be held in that custodial account and are invested in regulated investment company stock or a group trust intended to satisfy the requirements of Internal Revenue Service Revenue Ruling 81–100 (or any successor guidance), and under the custodial account—
(i) no such amounts may be paid or made available to any distributee (unless such amount is a distribution to which section 72(t)(2)(G) applies) before—
(I) the employee dies,
(II) the employee attains age 59½,
(III) the employee has a severance from employment,
(IV) the employee becomes disabled (within the meaning of section 72(m)(7)),
(V) subject to the provisions of paragraph (17), the employee encounters financial hardship, or
(VI) except as may be otherwise provided by regulations, with respect to amounts invested in a lifetime income investment (as defined in section 401(a)(38)(B)(ii)), the date that is 90 days prior to the date that such lifetime income investment may no longer be held as an investment option under the contract, and
(ii) in the case of amounts described in clause (i)(VI), such amounts will be distributed only in the form of a qualified distribution (as defined in section 401(a)(38)(B)(i)) or a qualified plan distribution annuity contract (as defined in section 401(a)(38)(B)(iv)).
(B) Account treated as plan
For purposes of this title, a custodial account which satisfies the requirements of section 401(f)(2) shall be treated as an organization described in section 401(a) solely for purposes of subchapter F and subtitle F with respect to amounts received by it (and income from investment thereof).
(C) Regulated investment company
For purposes of this paragraph, the term "regulated investment company" means a domestic corporation which is a regulated investment company within the meaning of section 851(a).
(D) Employee certification
In determining whether a distribution is upon the financial hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is—
(i) on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need, and
(ii) not in excess of the amount required to satisfy such financial need, and
that the employee has no alternative means reasonably available to satisfy such financial need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee's certification, and for procedures for addressing cases of employee misrepresentation.
(8) Rollover amounts
(A) General rule
If—
(i) any portion of the balance to the credit of an employee in an annuity contract described in paragraph (1) is paid to him in an eligible rollover distribution (within the meaning of section 402(c)(4)),
(ii) the employee transfers any portion of the property he receives in such distribution to an eligible retirement plan described in section 402(c)(8)(B), and
(iii) in the case of a distribution of property other than money, the property so transferred consists of the property distributed,
then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.
(B) Certain rules made applicable
The rules of paragraphs (2) through (7), (9), and (11) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A), except that section 402(f) shall be applied to the payor in lieu of the plan administrator.
(9) Retirement income accounts provided by churches, etc.
(A) Amounts paid treated as contributions
For purposes of this title—
(i) a retirement income account shall be treated as an annuity contract described in this subsection, and
(ii) amounts paid by an employer described in paragraph (1)(A) to a retirement income account shall be treated as amounts contributed by the employer for an annuity contract for the employee on whose behalf such account is maintained.
(B) Retirement income account
For purposes of this paragraph, the term "retirement income account" means a defined contribution program established or maintained by a church, or a convention or association of churches, including an organization described in section 414(e)(3)(A), to provide benefits under section 403(b) for an employee described in paragraph (1) (including an employee described in section 414(e)(3)(B)) or his beneficiaries.
(10) Distribution requirements
Under regulations prescribed by the Secretary, this subsection shall not apply to any annuity contract (or to any custodial account described in paragraph (7) or retirement income account described in paragraph (9)) unless requirements similar to the requirements of sections 401(a)(9) and 401(a)(31) are met (and requirements similar to the incidental death benefit requirements of section 401(a) are met) with respect to such annuity contract (or custodial account or retirement income account). Any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of the transfer.
(11) Requirement that distributions not begin before age 59½, severance from employment, death, or disability
This subsection shall not apply to any annuity contract unless under such contract distributions attributable to contributions made pursuant to a salary reduction agreement (within the meaning of section 402(g)(3)(C)) may be paid only—
(A) when the employee attains age 59½, has a severance from employment, dies, or becomes disabled (within the meaning of section 72(m)(7)),
(B) subject to the provisions of paragraph (17), in the case of hardship,
(C) for distributions to which section 72(t)(2)(G) applies, or
(D) except as may be otherwise provided by regulations, with respect to amounts invested in a lifetime income investment (as defined in section 401(a)(38)(B)(ii))—
(i) on or after the date that is 90 days prior to the date that such lifetime income investment may no longer be held as an investment option under the contract, and
(ii) in the form of a qualified distribution (as defined in section 401(a)(38)(B)(i)) or a qualified plan distribution annuity contract (as defined in section 401(a)(38)(B)(iv)).
In determining whether a distribution is upon hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need and is not in excess of the amount required to satisfy such financial need, and that the employee has no alternative means reasonably available to satisfy such financial need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee's certification, and for procedures for addressing cases of employee misrepresentation.
(12) Nondiscrimination requirements
(A) In general
For purposes of paragraph (1)(D), a plan meets the nondiscrimination requirements of this paragraph if—
(i) with respect to contributions not made pursuant to a salary reduction agreement, such plan meets the requirements of paragraphs (4), (5), (17), and (26) of section 401(a), section 401(m), and section 410(b) in the same manner as if such plan were described in section 401(a), and
(ii) all employees of the organization may elect to have the employer make contributions of more than $200 pursuant to a salary reduction agreement if any employee of the organization may elect to have the organization make contributions for such contracts pursuant to such agreement.
For purposes of clause (i), a contribution shall be treated as not made pursuant to a salary reduction agreement if under the agreement it is made pursuant to a 1-time irrevocable election made by the employee at the time of initial eligibility to participate in the agreement or is made pursuant to a similar arrangement involving a one-time irrevocable election specified in regulations. For purposes of clause (ii), there may be excluded any employee who is a participant in an eligible deferred compensation plan (within the meaning of section 457) or a qualified cash or deferred arrangement of the organization or another annuity contract described in this subsection. Any nonresident alien described in section 410(b)(3)(C) may also be excluded. Subject to the conditions applicable under section 410(b)(4), there may be excluded for purposes of this subparagraph employees who are students performing services described in section 3121(b)(10) and employees who normally work less than 20 hours per week. The fact that the employer offers matching contributions on account of qualified student loan payments as described in section 401(m)(13) shall not be taken into account in determining whether the arrangement satisfies the requirements of clause (ii) (and any regulation thereunder).1 A plan shall not fail to satisfy clause (ii) solely by reason of offering a de minimis financial incentive (not derived from plan assets) to employees to elect to have the employer make contributions pursuant to a salary reduction agreement.
(B) Church
For purposes of paragraph (1)(D), the term "church" has the meaning given to such term by section 3121(w)(3)(A). Such term shall include any qualified church-controlled organization (as defined in section 3121(w)(3)(B)).
(C) State and local governmental plans
For purposes of paragraph (1)(D), the requirements of subparagraph (A)(i) (other than those relating to section 401(a)(17)) shall not apply to a governmental plan (within the meaning of section 414(d)) maintained by a State or local government or political subdivision thereof (or agency or instrumentality thereof).
(13) Trustee-to-trustee transfers to purchase permissive service credit
No amount shall be includible in gross income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) if such transfer is—
(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or
(B) a repayment to which section 415 does not apply by reason of subsection (k)(3) thereof.
(14) Death benefits under USERRA-qualified active military service
This subsection shall not apply to an annuity contract unless such contract meets the requirements of section 401(a)(37).
(15) Multiple employer plans
(A) In general
Except in the case of a church plan, this subsection shall not be treated as failing to apply to an annuity contract solely by reason of such contract being purchased under a plan maintained by more than 1 employer.
(B) Treatment of employers failing to meet requirements of plan
(i) In general
In the case of a plan maintained by more than 1 employer, this subsection shall not be treated as failing to apply to an annuity contract held under such plan merely because of one or more employers failing to meet the requirements of this subsection if such plan satisfies rules similar to the rules of section 413(e)(2) with respect to any such employer failure.
(ii) Additional requirements in case of non-governmental plans
A plan shall not be treated as meeting the requirements of this subparagraph unless the plan satisfies rules similar to the rules of subparagraph (A) or (B) of section 413(e)(1), except in the case of a multiple employer plan maintained solely by any of the following: A State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing.
(16) Safe harbor deferral-only plans for employers with no retirement plan
(A) In general
A safe harbor deferral-only plan maintained by an eligible employer shall be treated as meeting the requirements of paragraph (12).
(B) Safe harbor deferral-only plan
For purposes of this paragraph, the term "safe harbor deferral-only plan" means any plan which meets—
(i) the automatic deferral requirements of subparagraph (C),
(ii) the contribution limitations of subparagraph (D), and
(iii) the requirements of subparagraph (E) of section 401(k)(13).
(C) Automatic deferral
(i) In general
The requirements of this subparagraph are met if, under the plan, each eligible employee is treated as having elected to have the employer make elective contributions in an amount equal to a qualified percentage of compensation.
(ii) Election out
The election treated as having been made under clause (i) shall cease to apply with respect to any eligible employee if such eligible employee makes an affirmative election—
(I) to not have such contributions made, or
(II) to make elective contributions at a level specified in such affirmative election.
(iii) Qualified percentage
For purposes of this subparagraph, the term "qualified percentage" means, with respect to any employee, any percentage determined under the plan if such percentage is applied uniformly and is not less than 3 or more than 15 percent.
(D) Contribution limitations
(i) In general
The requirements of this subparagraph are met if, under the plan—
(I) the only contributions which may be made are elective contributions of eligible employees, and
(II) the aggregate amount of such elective contributions which may be made with respect to any employee for any calendar year shall not exceed $6,000.
(ii) Cost-of-living adjustment
In the case of any calendar year beginning after December 31, 2024, the $6,000 amount under clause (i) shall be adjusted in the same manner as under section 402(g)(4), except that "2023" shall be substituted for "2005".
(iii) Catch-up contributions for individuals age 50 or over
In the case of an individual who has attained the age of 50 before the close of the taxable year, the limitation under clause (i)(II) shall be increased by the applicable amount determined under section 219(b)(5)(B)(ii) (after the application of section 219(b)(5)(C)(iii)).
(E) Eligible employer
For purposes of this paragraph—
(i) In general
The term "eligible employer" means any employer if the employer does not maintain a qualified plan with respect to which contributions are made, or benefits are accrued, for service in the year for which the determination is being made. If only individuals other than employees described in subparagraph (A) of section 410(b)(3) are eligible to participate in such arrangement, then the preceding sentence shall be applied without regard to any qualified plan in which only employees described in such subparagraph are eligible to participate.
(ii) Relief for acquisitions, etc.
Rules similar to the rules of section 408(p)(10) shall apply for purposes of clause (i).
(iii) Qualified plan
The term "qualified plan" means a plan, contract, pension, account, or trust described in subparagraph (A) or (B) of paragraph (5) of section 219(g) (determined without regard to the last sentence of such paragraph (5)).
(F) Eligible employee
For purposes of this paragraph, the term "eligible employee" means any employee of the employer other than an employee who is permitted to be excluded under paragraph (12)(A).
(17) Special rules relating to hardship withdrawals
For purposes of paragraphs (7) and (11)—
(A) Amounts which may be withdrawn
The following amounts may be distributed upon hardship of the employee:
(i) Contributions made pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D)).
(ii) Qualified nonelective contributions (as defined in section 401(m)(4)(C)).
(iii) Qualified matching contributions described in section 401(k)(3)(D)(ii)(I).
(iv) Earnings on any contributions described in clause (i), (ii), or (iii).
(B) No requirement to take available loan
A distribution shall not be treated as failing to be made upon the hardship of an employee solely because the employee does not take any available loan under the plan.
(c) Taxability of beneficiary under nonqualified annuities or under annuities purchased by exempt organizations
Premiums paid by an employer for an annuity contract which is not subject to subsection (a) shall be included in the gross income of the employee in accordance with section 83 (relating to property transferred in connection with performance of services), except that the value of such contract shall be substituted for the fair market value of the property for purposes of applying such section. The preceding sentence shall not apply to that portion of the premiums paid which is excluded from gross income under subsection (b). In the case of any portion of any contract which is attributable to premiums to which this subsection applies, the amount actually paid or made available under such contract to any beneficiary which is attributable to such premiums shall be taxable to the beneficiary (in the year in which so paid or made available) under section 72 (relating to annuities).
(Aug. 16, 1954, ch. 736,
Amendment of Section
(1) in the last sentence of subparagraph (A), by inserting "and section 202(c) of the Employee Retirement Income Security Act of 1974" after "under section 410(b)(4)"; and
(2) by adding at the end the following new subparagraph:
"(D) Rules relating to certain part-time employees
"(i) In general
"In the case of employees who are eligible to participate in the agreement solely by reason of section 202(c)(1)(B) of the Employee Retirement Income Security Act of 1974—
"(I) notwithstanding section 401(a)(4), an employer shall not be required to make nonelective or matching contributions on behalf of such employees even if such contributions are made on behalf of other employees eligible to participate in the plan, and
"(II) the employer may elect to exclude such employees from the application of subsections (a)(4), (k)(3), (k)(12), (k)(13), and (m)(2) of section 401 and section 410(b)."
See 2022 Amendment notes below.
(1) in subsection (a), by adding at the end the following new paragraph:
(6) Qualified long-term care distributions
"An annuity contract shall not fail to be subject to this subsection solely by reason of allowing distributions to which section 401(a)(39) applies."; and
(2) in subsection (b)—
(A) in paragraph (7)(A)(i), by striking "or" at the end of subclause (V), by striking "and" at the end of subclause (VI) and inserting "or", and by adding at the end the following new subclause:
"(VII) as provided for distributions to which section 401(a)(39) applies, and"; and
(B) in paragraph (11), by striking "or" at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting ", or", and by inserting after subparagraph (D) the following new subparagraph:
"(E) for distributions to which section 401(a)(39) applies."
See 2022 Amendment notes below.
Editorial Notes
Amendments
2022—Subsec. (a)(6).
Subsec. (b)(7).
Subsec. (b)(7)(A).
Subsec. (b)(7)(A)(i)(V).
Subsec. (b)(7)(A)(i)(VII).
Subsec. (b)(7)(D).
Subsec. (b)(11).
Subsec. (b)(11)(B).
Subsec. (b)(11)(E).
Subsec. (b)(12)(A).
Subsec. (b)(12)(D).
Subsec. (b)(15).
Subsec. (b)(16).
Subsec. (b)(17).
2019—Subsec. (b)(7)(A).
"(i) the amounts are to be invested in regulated investment company stock to be held in that custodial account, and
"(ii) under the custodial account no such amounts may be paid or made available to any distributee (unless such amount is a distribution to which section 72(t)(2)(G) applies) before the employee dies, attains age 59½, has a severance from employment, becomes disabled (within the meaning of section 72(m)(7)), or in the case of contributions made pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D)), encounters financial hardship."
Subsec. (b)(9)(B).
Subsec. (b)(11)(D).
2008—Subsec. (b)(14).
2006—Subsec. (a)(2).
Subsec. (a)(4)(B).
Subsec. (b)(2).
Subsec. (b)(7)(A)(ii).
Subsec. (b)(8)(B).
Subsec. (b)(11)(C).
2005—Subsec. (b)(9)(B).
2004—Subsec. (a)(4)(B).
Subsec. (b)(7)(A)(ii).
2002—Subsec. (b)(1).
Subsec. (b)(3).
Subsec. (b)(6).
2001—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (b)(7)(A)(ii).
Subsec. (b)(8)(A)(ii).
Subsec. (b)(8)(B).
Subsec. (b)(11).
Subsec. (b)(11)(A).
Subsec. (b)(13).
2000—Subsec. (b)(3)(B).
1998—Subsec. (b)(8)(B).
1997—Subsec. (b)(1)(A)(iii).
Subsec. (b)(3).
Subsec. (b)(12)(C).
1996—Subsec. (b)(1)(E).
Subsec. (b)(10).
1992—Subsec. (a)(4)(A)(i).
Subsec. (a)(4)(B).
Subsec. (a)(5).
Subsec. (b)(8)(A)(i).
Subsec. (b)(8)(B) to (D).
Subsec. (b)(10).
1990—Subsec. (b)(12)(A).
1988—Subsec. (b)(1)(D).
Subsec. (b)(1)(E).
Subsec. (b)(10).
Subsec. (b)(12).
Subsec. (b)(12)(A).
1986—Subsec. (a)(1).
Subsec. (a)(2).
"(A) General rule
"If—
"(i) an annuity contract is purchased by an employer for an employee under a plan described in paragraph (1);
"(ii) such plan requires that refunds of contributions with respect to annuity contracts purchased under such plan be used to reduce subsequent premiums on the contracts under the plan; and
"(iii) a lump sum distribution (as defined in section 402(e)(4)(A)) is paid to the recipient,
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 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)."
Subsec. (a)(4)(B).
Subsec. (b)(1).
Subsec. (b)(1)(D).
Subsec. (b)(7)(A)(ii).
Subsec. (b)(7)(D).
Subsec. (b)(8)(C).
Subsec. (b)(8)(D).
Subsec. (b)(10).
Subsec. (b)(11).
Subsec. (c).
1984—Subsec. (a)(2)(A).
Subsec. (a)(4)(A)(i).
Subsec. (a)(4)(B).
Subsec. (b)(1).
Subsec. (b)(7)(D).
Subsec. (b)(8)(A)(i).
Subsec. (b)(8)(B).
Subsec. (b)(8)(C).
1983—Subsec. (b)(3).
Subsec. (b)(8)(C).
1982—Subsec. (b)(2)(B).
Subsec. (b)(2)(C), (D).
Subsec. (b)(9).
1981—Subsec. (b)(8)(B)(i).
1980—Subsec. (b).
1978—Subsec. (a)(4).
Subsec. (a)(5).
Subsec. (b)(1).
Subsec. (b)(7)(A).
Subsec. (b)(8).
1976—Subsec. (a)(2)(A).
Subsec. (a)(4).
Subsec. (a)(4)(A).
Subsec. (a)(5).
Subsec. (b)(1)(A)(ii).
Subsec. (b)(4)(B).
Subsec. (b)(7)(C).
1974—Subsec. (a)(2).
Subsec. (a)(4).
Subsec. (b)(2).
Subsec. (b)(7).
1969—Subsec. (a)(2)(C).
Subsec. (c).
Subsec. (d).
1964—Subsecs. (a)(1), (b)(1), (c).
1962—Subsec. (a)(2)(A).
Subsec. (a)(3).
1961—Subsec. (b).
Subsec. (b)(1)(A).
Subsec. (b)(3).
1958—Subsec. (a)(1).
Subsecs. (b) to (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by section 110(e) of
Amendment by section 113(b) of
Amendment by section 121(b) of
Amendment by section 125(a)(2)(A), (B)(i) of
Amendment by section 312(b) of
Amendment by section 334(b)(2)–(4) of
Effective Date of 2019 Amendment
Amendment by section 109(c) of
Effective Date of 2008 Amendment
Amendment by
Effective Date of 2006 Amendment
Amendment by section 827(b)(2), (3) of
Amendment by section 829(a)(2), (3) of
Amendment by section 845(b)(1), (2) of
Effective Date of 2004 Amendment
Amendment by section 404(e) of
Effective Date of 2002 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by section 632(a)(2) of
Amendment by section 641(b)(1), (e)(7) of
Amendment by section 642(b)(1) of
Amendment by section 646(a)(2) of
Effective Date of 2000 Amendment
Amendment by
Effective Date of 1998 Amendment
Amendment by section 6005 of
Effective Date of 1997 Amendment
Amendment by section 1505(c) of
Amendment by section 1601(d)(6)(B) of
Effective Date of 1996 Amendment
Effective Date of 1992 Amendment
Amendment by section 521(b)(12), (13) of
Amendment by section 522(a)(3), (c)(2), (3) of
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1011(c)(7)(B) of
Amendment by section 1011(c)(12), (m)(1), (2) of
Effective Date of 1986 Amendment
"(1)
"(2)
"(A) January 1, 1991, or
"(B) the later of—
"(i) January 1, 1989, or
"(ii) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after February 28, 1986)."
Amendment by section 1122(b)(1)(B), (d) of
Amendment by section 1123(c) of
Amendment by section 1852(a)(5)(B), (b)(10) of
Effective Date of 1984 Amendment
Amendment by section 491(d)(12) of
Amendment by section 521(c) of
Amendment by section 522 of
Amendment by section 1001(b)(4) of
Effective Date of 1983 Amendment
Amendment by
Amendment by
Effective Date of 1982 Amendment
"(1)
"(2)
"(3)
"(4)
"(5)
[
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Amendment by section 157(g)(2) of
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(58), (b)(8)(A) of
Amendment by
Effective Date of 1974 Amendment
Amendment by section 2002(g)(6) of
Amendment by section 2004(c)(4) of
Amendment by section 2005(b)(2) of
Effective Date of 1969 Amendment
Amendment by section 321(b)(2) of
Amendment by section 515(a)(2) of
Effective Date of 1964 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1961 Amendment
Effective Dates of 1958 Amendment
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1120 of
Rule of Construction
No Inference With Respect to Church Plans
Treatment of Custodial Accounts on Termination of Section 403(b) Plans
Election To Modify Section 403(b) Exclusion Allowance To Conform to Section 415 Modification
Modifications of Subsection (b) of This Section
"(A) Paragraphs (7)(A)(ii) and (11) of section 403(b) of the Internal Revenue Code of 1986 shall not apply with respect to a distribution from a contract described in section 1450(b)(1) of such Act [
"(i) in the case of distributions before January 1, 1998, section 403(b)(8) or (b)(10) of such Code (determined after the application of section 1450(b)(2) of such Act [
"(ii) in the case of distributions on and after such date, such section 403(b)(10).
"(B) This paragraph shall apply as if included in section 1450 of the Small Business Job Protection Act of 1996 [
"(a)
"(1)
"(2)
"(3)
"(b)
"(1)
"(2)
Sampling To Determine Whether Plan Meets Subsection (b)(12) Requirements
"(1) the sampling is conducted by an independent person in a manner not inconsistent with regulations prescribed by the Secretary, and
"(2) the statistical method and sample size result in a 95 percent probability that the results will have a margin of error not greater than 3 percent."
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Correction Period for Church Plans
"(1) by reason of any change in any law, regulation, ruling, or otherwise such plan is required to be amended to meet such requirements, and
"(2) such plan is so amended at the next earliest church convention or such other time as the Secretary of the Treasury or his delegate may prescribe."
Transitional Rule for Making Section 403(b)(8) Rollover in the Case of Payments During 1978
Transitional Rule in Case of Rollover Contributions to Employee Trusts or Annuities
Applicable period specified in
§404. Deduction for contributions of an employer to an employees' trust or annuity plan and compensation under a deferred-payment plan
(a) General rule
If contributions are paid by an employer to or under a stock bonus, pension, profit-sharing, or annuity plan, or if compensation is paid or accrued on account of any employee under a plan deferring the receipt of such compensation, such contributions or compensation shall not be deductible under this chapter; but, if they would otherwise be deductible, they shall be deductible under this section, subject, however, to the following limitations as to the amounts deductible in any year:
(1) Pension trusts
(A) In general
In the taxable year when paid, if the contributions are paid into a pension trust (other than a trust to which paragraph (3) applies), 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 the case of a defined benefit plan other than a multiemployer plan, in an amount determined under subsection (o), and in the case of any other plan in an amount determined as follows:
(i) the amount necessary to satisfy the minimum funding standard provided by section 412(a) for plan 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, 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, plus, if past service or other supplementary pension or annuity credits are provided by the plan, an amount necessary to amortize the unfunded costs attributable to such credits in equal annual payments (until fully amortized) over 10 years, as determined under regulations prescribed by the Secretary.
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 431, and the maximum amount deductible for such year shall be an amount equal to the full funding limitation for such year determined under section 431.
(B) Special rule in case of certain amendments
In the case of a multiemployer 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), if the full funding limitation determined under section 431(c)(6) for such year is zero, if as a result of any plan amendment applying to such plan year, the amount determined under section 431(c)(6)(A)(ii) exceeds the amount determined under section 431(c)(6)(A)(i), and if the funding method and the actuarial assumptions used are those used for such year under section 431, 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 431(c)(6) 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 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 168(i)(10)(C), with respect to which the rates have 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 the purposes 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) Amount determined on basis of unfunded current liability
In the case of a defined benefit plan which is a multiemployer plan, except as provided in regulations, the maximum amount deductible under the limitations of this paragraph shall not be less than the excess (if any) of—
(i) 140 percent of the current liability of the plan determined under section 431(c)(6)(D), over
(ii) the value of the plan's assets determined under section 431(c)(2).
(E) 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) Employees' annuities
In the taxable year when paid, in an amount determined in accordance with paragraph (1), if the contributions are paid toward the purchase of retirement annuities, or retirement annuities and medical benefits as described in section 401(h), and such purchase is part of a plan which meets the requirements of section 401(a)(3), (4), (5), (6), (7), (8), (9), (11), (12), (13), (14), (15), (16), (17),1 (19), (20), (22), (26), (27), (31), and (37) and, if applicable, the requirements of section 401(a)(10) and of section 401(d), and if refunds of premiums, if any, are applied within the current taxable year or next succeeding taxable year toward the purchase of such retirement annuities, or such retirement annuities and medical benefits.
(3) Stock bonus and profit-sharing trusts
(A) Limits on deductible contributions
(i) In general
In the taxable year when paid, if the contributions are paid into a stock bonus or profit-sharing trust, and if such taxable year ends within or with a taxable year of the trust with respect to which the trust is exempt under section 501(a), in an amount not in excess of the greater of—
(I) 25 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under the stock bonus or profit-sharing plan, or
(II) the amount such employer is required to contribute to such trust under section 401(k)(11) for such year.
(ii) Carryover of excess contributions
Any amount paid into the trust in any taxable year in excess of the limitation of clause (i) (or the corresponding provision of prior law) shall be deductible in the succeeding taxable years in order of time, but the amount so deductible under this clause in any 1 such succeeding taxable year together with the amount allowable under clause (i) shall not exceed the amount described in subclause (I) or (II) of clause (i), whichever is greater, with respect to such taxable year.
(iii) Certain retirement plans excluded
For purposes of this subparagraph, the term "stock bonus or profit-sharing trust" shall not include any trust designed to provide benefits upon retirement and covering a period of years, if under the plan the amounts to be contributed by the employer can be determined actuarially as provided in paragraph (1).
(iv) 2 or more trusts treated as 1 trust
If the contributions are made to 2 or more stock bonus or profit-sharing trusts, such trusts shall be considered a single trust for purposes of applying the limitations in this subparagraph.
(v) Defined contribution plans subject to the funding standards
Except as provided by the Secretary, a defined contribution plan which is subject to the funding standards of section 412 shall be treated in the same manner as a stock bonus or profit-sharing plan for purposes of this subparagraph.
(B) Profit-sharing plan of affiliated group
In the case of a profit-sharing plan, or a stock bonus plan in which contributions are determined with reference to profits, of a group of corporations which is an affiliated group within the meaning of section 1504, if any member of such affiliated group is prevented from making a contribution which it would otherwise have made under the plan, by reason of having no current or accumulated earnings or profits or because such earnings or profits are less than the contributions which it would otherwise have made, then so much of the contribution which such member was so prevented from making may be made, for the benefit of the employees of such member, by the other members of the group, to the extent of current or accumulated earnings or profits, except that such contribution by each such other member shall be limited, where the group does not file a consolidated return, to that proportion of its total current and accumulated earnings or profits remaining after adjustment for its contribution deductible without regard to this subparagraph which the total prevented contribution bears to the total current and accumulated earnings or profits of all the members of the group remaining after adjustment for all contributions deductible without regard to this subparagraph. Contributions made under the preceding sentence shall be deductible under subparagraph (A) of this paragraph by the employer making such contribution, and, for the purpose of determining amounts which may be carried forward and deducted under the second sentence of subparagraph (A) of this paragraph in succeeding taxable years, shall be deemed to have been made by the employer on behalf of whose employees such contributions were made.
(4) Trusts created or organized outside the United States
If a stock bonus, pension, or profit-sharing trust would qualify for exemption under section 501(a) except for the fact that it is a trust created or organized outside the United States, contributions to such a trust by an employer which is a resident, or corporation, or other entity of the United States, shall be deductible under the preceding paragraphs.
(5) Other plans
If the plan is not one included in paragraph (1), (2), or (3), in the taxable year in which an amount attributable to the contribution is includible in the gross income of employees participating in the plan, but, in the case of a plan in which more than one employee participates only if separate accounts are maintained for each employee. For purposes of this section, any vacation pay which is treated as deferred compensation shall be deductible for the taxable year of the employer in which paid to the employee.
(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).
(7) Limitation on deductions where combination of defined contribution plan and defined benefit plan
(A) In general
If amounts are deductible under the foregoing paragraphs of this subsection (other than paragraph (5)) in connection with 1 or more defined contribution plans and 1 or more defined benefit plans or in connection with trusts or plans described in 2 or more of such paragraphs, the total amount deductible in a taxable year under such plans shall not exceed the greater of—
(i) 25 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans, or
(ii) the amount of contributions made to or under the defined benefit 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 with respect to any such defined benefit plans for the plan year which ends with or within such taxable year (or for any prior plan year).
A defined contribution plan which is a pension plan shall not be treated as failing to provide definitely determinable benefits merely by limiting employer contributions to amounts deductible under this section. In the case of a defined benefit plan which is a single employer plan, the amount necessary to satisfy the minimum funding standard provided by section 412 shall not be less than the excess (if any) of the plan's funding target (as defined in section 430(d)(1)) over the value of the plan's assets (as determined under section 430(g)(3)).
(B) Carryover of contributions in excess of the deductible limit
Any amount paid under the plans in any taxable year in excess of the limitation of subparagraph (A) shall be deductible in the succeeding taxable years in order of time, but the amount so deductible under this subparagraph in any 1 such succeeding taxable year together with the amount allowable under subparagraph (A) shall not exceed 25 percent of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plans.
(C) Paragraph not to apply in certain cases
(i) Beneficiary test
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 1 trust or under a trust and an annuity plan.
(ii) Elective deferrals
If, in connection with 1 or more defined contribution plans and 1 or more defined benefit plans, no amounts (other than elective deferrals (as defined in section 402(g)(3))) are contributed to any of the defined contribution plans for the taxable year, then subparagraph (A) shall not apply with respect to any of such defined contribution plans and defined benefit plans.
(iii) Limitation
In the case of employer contributions to 1 or more defined contribution plans—
(I) if such contributions do not exceed 6 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans, this paragraph shall not apply to such contributions or to employer contributions to the defined benefit plans to which this paragraph would otherwise apply by reason of contributions to the defined contribution plans, and
(II) if such contributions exceed 6 percent of such compensation, this paragraph shall be applied by only taking into account such contributions to the extent of such excess.
For purposes of this clause, amounts carried over from preceding taxable years under subparagraph (B) shall be treated as employer contributions to 1 or more defined contributions plans to the extent attributable to employer contributions to such plans in such preceding taxable years.
(iv) Guaranteed plans
In applying this paragraph, any single-employer plan covered under section 4021 of the Employee Retirement Income Security Act of 1974 shall not be taken into account.
(v) Multiemployer plans
In applying this paragraph, any multiemployer plan shall not be taken into account.
(D) Insurance contract plans
For purposes of this paragraph, a plan described in section 412(e)(3) shall be treated as a defined benefit plan.
(8) Self-employed individuals
In the case of a plan included in paragraph (1), (2), or (3) which provides contributions or benefits for employees some or all of whom are employees within the meaning of section 401(c)(1), for purposes of this section—
(A) the term "employee" includes an individual who is an employee within the meaning of section 401(c)(1), and the employer of such individual is the person treated as his employer under section 401(c)(4);
(B) the term "earned income" has the meaning assigned to it by section 401(c)(2);
(C) the contributions to such plan on behalf of an individual who is an employee within the meaning of section 401(c)(1) shall be considered to satisfy the conditions of section 162 or 212 to the extent that such contributions do not exceed the earned income of such individual (determined without regard to the deductions allowed by this section) derived from the trade or business with respect to which such plan is established, and to the extent that such contributions are not allocable (determined in accordance with regulations prescribed by the Secretary) to the purchase of life, accident, health, or other insurance; and
(D) any reference to compensation shall, in the case of an individual who is an employee within the meaning of section 401(c)(1), be considered to be a reference to the earned income of such individual derived from the trade or business with respect to which the plan is established.
(9) Certain contributions to employee stock ownership plans
(A) Principal payments
Notwithstanding the provisions of paragraphs (3) and (7), if contributions are paid into a trust which forms a part of an employee stock ownership plan (as described in section 4975(e)(7)), and such contributions are, on or before the time prescribed in paragraph (6), applied by the plan to the repayment of the principal of a loan incurred for the purpose of acquiring qualifying employer securities (as described in section 4975(e)(8)), such contributions shall be deductible under this paragraph for the taxable year determined under paragraph (6). The amount deductible under this paragraph shall not, however, exceed 25 percent of the compensation otherwise paid or accrued during the taxable year to the employees under such employee stock ownership plan. Any amount paid into such trust in any taxable year in excess of the amount deductible under this paragraph 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 preceding sentence.
(B) Interest payment
Notwithstanding the provisions of paragraphs (3) and (7), if contributions are made to an employee stock ownership plan (described in subparagraph (A)) and such contributions are applied by the plan to the repayment of interest on a loan incurred for the purpose of acquiring qualifying employer securities (as described in subparagraph (A)), such contributions shall be deductible for the taxable year with respect to which such contributions are made as determined under paragraph (6).
(C) S corporations
This paragraph shall not apply to an S corporation.
(D) Qualified gratuitous transfers
A qualified gratuitous transfer (as defined in section 664(g)(1)) shall have no effect on the amount or amounts otherwise deductible under paragraph (3) or (7) or under this paragraph.
(10) Contributions by certain ministers to retirement income accounts
In the case of contributions made by a minister described in section 414(e)(5) to a retirement income account described in section 403(b)(9) and not by a person other than such minister, such contributions—
(A) shall be treated as made to a trust which is exempt from tax under section 501(a) and which is part of a plan which is described in section 401(a), and
(B) shall be deductible under this subsection to the extent such contributions do not exceed the limit on elective deferrals under section 402(g) or the limit on annual additions under section 415.
For purposes of this paragraph, all plans in which the minister is a participant shall be treated as one plan.
(11) Determinations relating to deferred compensation
For purposes of determining under this section—
(A) whether compensation of an employee is deferred compensation; and
(B) when deferred compensation is paid,
no amount shall be treated as received by the employee, or paid, until it is actually received by the employee.
(12) Definition of compensation
For purposes of paragraphs (3), (7), (8), and (9) and subsection (h)(1)(C), the term "compensation" shall include amounts treated as "participant's compensation" under subparagraph (C) or (D) of section 415(c)(3).
(b) Method of contributions, etc., having the effect of a plan; certain deferred benefits
(1) Method of contributions, etc., having the effect of a plan
If—
(A) there is no plan, but
(B) there is a method or arrangement of employer contributions or compensation which has the effect of a stock bonus, pension, profit-sharing, or annuity plan, or other plan deferring the receipt of compensation (including a plan described in paragraph (2)),
subsection (a) shall apply as if there were such a plan.
(2) Plans providing certain deferred benefits
(A) In general
For purposes of this section, any plan providing for deferred benefits (other than compensation) for employees, their spouses, or their dependents shall be treated as a plan deferring the receipt of compensation. In the case of such a plan, for purposes of this section, the determination of when an amount is includible in gross income shall be made without regard to any provisions of this chapter excluding such benefits from gross income.
(B) Exception
Subparagraph (A) shall not apply to any benefit provided through a welfare benefit fund (as defined in section 419(e)).
(c) Certain negotiated plans
If contributions are paid by an employer—
(1) under a plan under which such contributions are held in trust for the purpose of paying (either from principal or income or both) for the benefit of employees and their families and dependents at least medical or hospital care, or pensions on retirement or death of employees; and
(2) such plan was established prior to January 1, 1954, as a result of an agreement between employee representatives and the Government of the United States during a period of Government operation, under seizure powers, of a major part of the productive facilities of the industry in which such employer is engaged,
such contributions shall not be deductible under this section nor be made nondeductible by this section, but the deductibility thereof shall be governed solely by section 162 (relating to trade or business expenses). 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 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 organizations in transactions with members) does not apply to any trust described in this subsection. The first and third sentences of this subsection shall have no application with respect to amounts contributed to a trust on or after any date on which such trust is qualified for exemption from tax under section 501(a).
(d) Deductibility of payments of deferred compensation, etc., to independent contractors
If a plan would be described in so much of subsection (a) as precedes paragraph (1) thereof (as modified by subsection (b)) but for the fact that there is no employer-employee relationship, the contributions or compensation—
(1) shall not be deductible by the payor thereof under this chapter, but
(2) shall (if they would be deductible under this chapter but for paragraph (1)) be deductible under this subsection for the taxable year in which an amount attributable to the contribution or compensation is includible in the gross income of the persons participating in the plan.
(e) Contributions allocable to life insurance protection for self-employed individuals
In the case of a self-employed individual described in section 401(c)(1), contributions which are allocable (determined under regulations prescribed by the Secretary) to the purchase of life, accident, health, or other insurance shall not be taken into account under paragraph (1), (2), or (3) of subsection (a).
[(f) Repealed. Pub. L. 98–369, div. A, title VII, §713(b)(3), July 18, 1984, 98 Stat. 957 ]
(g) Certain employer liability payments considered as contributions
(1) In general
For purposes of this section, any amount paid by an employer under section 4041(b), 4062, 4063, or 4064, or part 1 of subtitle E of title IV of the Employee Retirement Income Security Act of 1974 shall be treated as a contribution to which this section applies by such employer to or under a stock bonus, pension, profit-sharing, or annuity plan.
(2) Controlled group deductions
In the case of a payment described in paragraph (1) made by an entity which is liable because it is a member of a commonly controlled group of corporations, trades, or businesses, within the meaning of subsection (b) or (c) of section 414, the fact that the entity did not directly employ participants of the plan with respect to which the liability payment was made shall not affect the deductibility of a payment which otherwise satisfies the conditions of section 162 (relating to trade or business expenses) or section 212 (relating to expenses for the production of income).
(3) Timing of deduction of contributions
(A) In general
Except as otherwise provided in this paragraph, any payment described in paragraph (1) shall (subject to the last sentence of subsection (a)(1)(A)) be deductible under this section when paid.
(B) Contributions under standard terminations
Subparagraph (A) shall not apply (and subsection (a)(1)(A) shall apply) to any payments described in paragraph (1) which are paid to terminate a plan under section 4041(b) of the Employee Retirement Income Security Act of 1974 to the extent such payments result in the assets of the plan being in excess of the total amount of benefits under such plan which are guaranteed by the Pension Benefit Guaranty Corporation under section 4022 of such Act.
(C) Contributions to certain trusts
Subparagraph (A) shall not apply to any payment described in paragraph (1) which is made under section 4062(c) of such Act and such payment shall be deductible at such time as may be prescribed in regulations which are based on principles similar to the principles of subsection (a)(1)(A).
(4) References to Employee Retirement Income Security Act of 1974
For purposes of this subsection, any reference to a section of the Employee Retirement Income Security Act of 1974 shall be treated as a reference to such section as in effect on the date of the enactment of the Retirement Protection Act of 1994.
(h) Special rules for simplified employee pensions
(1) In general
Employer contributions to a simplified employee pension shall be treated as if they are made to a plan subject to the requirements of this section. Employer contributions to a simplified employee pension are subject to the following limitations:
(A) Contributions made for a year are deductible—
(i) in the case of a simplified employee pension maintained on a calendar year basis, for the taxable year with or within which the calendar year ends, or
(ii) in the case of a simplified employee pension which is maintained on the basis of the taxable year of the employer, for such taxable year.
(B) Contributions shall be treated for purposes of this subsection as if they were made for a taxable year if such contributions are made on account of such taxable year and are made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).
(C) The amount deductible in a taxable year for a simplified employee pension shall not exceed 25 percent of the compensation paid to the employees during the calendar year ending with or within the taxable year (or during the taxable year in the case of a taxable year described in subparagraph (A)(ii)). The excess of the amount contributed over the amount deductible for a taxable year shall be deductible in the succeeding taxable years in order of time, subject to the 25 percent limit of the preceding sentence.
(2) Effect on certain trusts
For any taxable year for which the employer has a deduction under paragraph (1), the otherwise applicable limitations in subsection (a)(3)(A) shall be reduced by the amount of the allowable deductions under paragraph (1) with respect to participants in the trust subject to subsection (a)(3)(A).
(3) Coordination with subsection (a)(7)
For purposes of subsection (a)(7), a simplified employee pension shall be treated as if it were a separate stock bonus or profit-sharing trust.
[(i) Repealed. Pub. L. 99–514, title XI, §1171(b)(6), Oct. 22, 1986, 100 Stat. 2513 ]
(j) Special rules relating to application with section 415
(1) No deduction in excess of section 415 limitation
In computing the amount of any deduction allowable under paragraph (1), (2), (3), (4), (7), or (9) of subsection (a) for any year—
(A) in the case of a defined benefit plan, there shall not be taken into account any benefits for any year in excess of any limitation on such benefits under section 415 for such year, or
(B) in the case of a defined contribution plan, the amount of any contributions otherwise taken into account shall be reduced by any annual additions in excess of the limitation under section 415 for such year.
(2) No advance funding of cost-of-living adjustments
For purposes of clause (i), (ii) or (iii) of subsection (a)(1)(A), and in computing the full funding limitation, there shall not be taken into account any adjustments under section 415(d)(1) for any year before the year for which such adjustment first takes effect.
(k) Deduction for dividends paid on certain employer securities
(1) General rule
In the case of a C corporation, there shall be allowed as a deduction for a taxable year the amount of any applicable dividend paid in cash by such corporation with respect to applicable employer securities. Such deduction shall be in addition to the deductions allowed under subsection (a).
(2) Applicable dividend
For purposes of this subsection—
(A) In general
The term "applicable dividend" means any dividend which, in accordance with the plan provisions—
(i) is paid in cash to the participants in the plan or their beneficiaries,
(ii) is paid to the plan and is distributed in cash to participants in the plan or their beneficiaries not later than 90 days after the close of the plan year in which paid,
(iii) is, at the election of such participants or their beneficiaries—
(I) payable as provided in clause (i) or (ii), or
(II) paid to the plan and reinvested in qualifying employer securities, or
(iv) is used to make payments on a loan described in subsection (a)(9) the proceeds of which were used to acquire the employer securities (whether or not allocated to participants) with respect to which the dividend is paid.
(B) Limitation on certain dividends
A dividend described in subparagraph (A)(iv) which is paid with respect to any employer security which is allocated to a participant shall not be treated as an applicable dividend unless the plan provides that employer securities with a fair market value of not less than the amount of such dividend are allocated to such participant for the year which (but for subparagraph (A)) such dividend would have been allocated to such participant.
(3) Applicable employer securities
For purposes of this subsection, the term "applicable employer securities" means, with respect to any dividend, employer securities which are held on the record date for such dividend by an employee stock ownership plan which is maintained by—
(A) the corporation paying such dividend, or
(B) any other corporation which is a member of a controlled group of corporations (within the meaning of section 409(l)(4)) which includes such corporation.
(4) Time for deduction
(A) In general
The deduction under paragraph (1) shall be allowable in the taxable year of the corporation in which the dividend is paid or distributed to a participant or his beneficiary.
(B) Reinvestment dividends
For purposes of subparagraph (A), an applicable dividend reinvested pursuant to clause (iii)(II) of paragraph (2)(A) shall be treated as paid in the taxable year of the corporation in which such dividend is reinvested in qualifying employer securities or in which the election under clause (iii) of paragraph (2)(A) is made, whichever is later.
(C) Repayment of loans
In the case of an applicable dividend described in clause (iv) of paragraph (2)(A), the deduction under paragraph (1) shall be allowable in the taxable year of the corporation in which such dividend is used to repay the loan described in such clause.
(5) Other rules
For purposes of this subsection—
(A) Disallowance of deduction
The Secretary may disallow the deduction under paragraph (1) for any dividend if the Secretary determines that such dividend constitutes, in substance, an avoidance or evasion of taxation.
(B) Plan qualification
A plan shall not be treated as violating the requirements of section 401, 409, or 4975(e)(7), or as engaging in a prohibited transaction for purposes of section 4975(d)(3), merely by reason of any payment or distribution described in paragraph (2)(A).
(6) Definitions
For purposes of this subsection—
(A) Employer securities
The term "employer securities" has the meaning given such term by section 409(l).
(B) Employee stock ownership plan
The term "employee stock ownership plan" has the meaning given such term by section 4975(e)(7). Such term includes a tax credit employee stock ownership plan (as defined in section 409).
(7) Full vesting
In accordance with section 411, an applicable dividend described in clause (iii)(II) of paragraph (2)(A) shall be subject to the requirements of section 411(a)(1).
(l) Limitation on amount of annual compensation taken into account
For purposes of applying the limitations of this section, the amount of annual compensation of each employee taken into account under the plan for any year shall not exceed $200,000. The Secretary shall adjust the $200,000 amount at the same time, and by the same amount, as any adjustment under section 401(a)(17)(B). For purposes of clause (i), (ii), or (iii) of subsection (a)(1)(A), and in computing the full funding limitation, any adjustment under the preceding sentence shall not be taken into account for any year before the year for which such adjustment first takes effect.
(m) Special rules for simple retirement accounts
(1) In general
Employer contributions to a simple retirement account shall be treated as if they are made to a plan subject to the requirements of this section.
(2) Timing
(A) Deduction
Contributions described in paragraph (1) shall be deductible in the taxable year of the employer with or within which the calendar year for which the contributions were made ends.
(B) Contributions after end of year
For purposes of this subsection, contributions shall be treated as made for a taxable year if they are made on account of the taxable year and are made not later than the time prescribed by law for filing the return for the taxable year (including extensions thereof).
(n) Elective deferrals not taken into account for purposes of deduction limits
Elective deferrals (as defined in section 402(g)(3)) shall not be subject to any limitation contained in paragraph (3), (7), or (9) of subsection (a) or paragraph (1)(C) of subsection (h) and such elective deferrals shall not be taken into account in applying any such limitation to any other contributions.
(o) Deduction limit for single-employer plans
For purposes of subsection (a)(1)(A)—
(1) In general
In the case of a defined benefit plan to which subsection (a)(1)(A) applies (other than a multiemployer plan), the amount determined under this subsection for any taxable year shall be equal to the greater of—
(A) the sum of the amounts determined under paragraph (2) with respect to each plan year ending with or within the taxable year, or
(B) the sum of the minimum required contributions under section 430 for such plan years.
(2) Determination of amount
(A) In general
The amount determined under this paragraph for any plan year shall be equal to the excess (if any) of—
(i) the sum of—
(I) the funding target for the plan year,
(II) the target normal cost for the plan year, and
(III) the cushion amount for the plan year, over
(ii) the value (determined under section 430(g)(3)) of the assets of the plan which are held by the plan as of the valuation date for the plan year.
(B) Special rule for certain employers
If section 430(i) does not apply to a plan for a plan year, the amount determined under subparagraph (A)(i) for the plan year shall in no event be less than the sum of—
(i) the funding target for the plan year (determined as if section 430(i) applied to the plan), plus
(ii) the target normal cost for the plan year (as so determined).
(3) Cushion amount
For purposes of paragraph (2)(A)(i)(III)—
(A) In general
The cushion amount for any plan year is the sum of—
(i) 50 percent of the funding target for the plan year, and
(ii) the amount by which the funding target for the plan year would increase if the plan were to take into account—
(I) increases in compensation which are expected to occur in succeeding plan years, or
(II) if the plan does not base benefits for service to date on compensation, increases in benefits which are expected to occur in succeeding plan years (determined on the basis of the average annual increase in benefits over the 6 immediately preceding plan years).
(B) Limitations
(i) In general
In making the computation under subparagraph (A)(ii), the plan's actuary shall assume that the limitations under subsection (l) and section 415(b) shall apply.
(ii) Expected increases
In the case of a plan year during which a plan is covered under section 4021 of the Employee Retirement Income Security Act of 1974, the plan's actuary may, notwithstanding subsection (l), take into account increases in the limitations which are expected to occur in succeeding plan years.
(4) Special rules for plans with 100 or fewer participants
(A) In general
For purposes of determining the amount under paragraph (3) for any plan year, in the case of a plan which has 100 or fewer participants for the plan year, the liability of the plan attributable to benefit increases for highly compensated employees (as defined in section 414(q)) resulting from a plan amendment which is made or becomes effective, whichever is later, within the last 2 years shall not be taken into account in determining the target liability.
(B) Rule for determining number of participants
For purposes of determining the number of plan participants, all defined benefit plans maintained by the same employer (or any member of such employer's controlled group (within the meaning of section 412(d)(3)) shall be treated as one plan, but only participants of such member or employer shall be taken into account.
(5) Special rule for terminating plans
In the case of a plan which, subject to section 4041 of the Employee Retirement Income Security Act of 1974, terminates during the plan year, the amount determined under paragraph (2) shall in no event be less than the amount required to make the plan sufficient for benefit liabilities (within the meaning of section 4041(d) of such Act).
(6) Actuarial assumptions
Any computation under this subsection for any plan year shall use the same actuarial assumptions which are used for the plan year under section 430 (determined by not taking into account any adjustment under clause (iv) of subsection (h)(2)(C) thereof).
(7) Definitions
Any term used in this subsection which is also used in section 430 shall have the same meaning given such term by section 430.
(8) CSEC plans
Solely for purposes of this subsection, a CSEC plan shall be treated as though section 430 applied to such plan and the minimum required contribution for any plan year shall be the amount described in section 412(a)(2)(D).
(Aug. 16, 1954, ch. 736,
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table under
Editorial Notes
References in Text
The Social Security Act, referred to in subsec. (a)(1)(C), is act Aug. 14, 1935, ch. 531,
Section 401(a)(17), referred to in subsec. (a)(2), was repealed by
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (a)(3)(A)(v)(II), is the date of enactment of
The Employee Retirement Income Security Act of 1974, referred to in subsecs. (a)(1)(D)(iv), (7)(C)(iv), (g)(1), (3)(B), (C), (4), and (o)(3)(B)(ii), (5), is
The date of the enactment of the Retirement Protection Act of 1994, referred to in subsec. (g)(4), is the date of enactment of subtitle F (§§750–781) of title VII of
Amendments
2014—Subsec. (o)(8).
2012—Subsec. (o)(6).
2008—Subsec. (a)(1)(D)(i).
Subsec. (a)(2).
Subsec. (a)(7)(A).
Subsec. (a)(7)(C)(iii).
Subsec. (o)(2)(A)(ii).
Subsec. (o)(4)(B).
2006—Subsec. (a)(1)(A).
Subsec. (a)(1)(B).
Subsec. (a)(1)(D).
Subsec. (a)(1)(D)(i).
Subsec. (a)(1)(F).
Subsec. (a)(7)(A).
Subsec. (a)(7)(C)(iii).
Subsec. (a)(7)(C)(iv).
Subsec. (a)(7)(C)(v).
Subsec. (a)(7)(D).
Subsec. (o).
2004—Subsec. (a)(1)(F).
2002—Subsec. (a)(1)(D)(iv).
Subsec. (a)(7)(C).
Subsec. (a)(12).
Subsec. (k)(1).
Subsec. (k)(2)(B).
Subsec. (k)(4)(B), (C).
Subsec. (k)(7).
Subsec. (n).
2001—Subsec. (a)(1)(A).
Subsec. (a)(1)(D).
Subsec. (a)(3)(A)(i)(I).
Subsec. (a)(3)(A)(v).
Subsec. (a)(3)(B).
Subsec. (a)(10)(B).
Subsec. (a)(12).
Subsec. (h)(1)(C).
Subsec. (h)(2).
Subsec. (k)(2)(A)(iii), (iv).
Subsec. (k)(5)(A).
Subsec. (l).
Subsec. (n).
1998—Subsec. (a)(9)(C), (D).
Subsec. (a)(11).
1997—Subsec. (a)(3)(A)(i).
Subsec. (a)(3)(A)(ii).
Subsec. (a)(9)(C).
1996—Subsec. (a)(2).
Subsec. (a)(9)(C).
Subsec. (a)(10).
Subsec. (j)(1).
Subsec. (k)(1).
Subsec. (l).
Subsec. (m).
1994—Subsec. (g)(4).
1993—Subsec. (l).
1992—Subsec. (a)(2).
1990—Subsec. (a)(1)(C).
1989—Subsec. (g)(1).
Subsec. (k).
1988—Subsec. (a)(1)(D).
Subsec. (a)(7)(A).
Subsec. (a)(8)(D).
Subsec. (h)(1)(C).
Subsec. (h)(3).
Subsec. (k).
Subsec. (l).
1987—Subsec. (a)(1)(A)(iii).
Subsec. (a)(1)(D), (E).
Subsec. (a)(5).
Subsec. (b)(2)(B).
"(i) any benefit provided through a welfare benefit fund (as defined in section 419(e)), or
"(ii) any benefit with respect to which an election under section 463 applies."
1986—Subsec. (a).
Subsec. (a)(2).
Subsec. (a)(3)(A).
Subsec. (a)(7).
Subsec. (a)(8)(C).
Subsec. (a)(8)(D).
Subsec. (b).
Subsec. (b)(2).
Subsec. (d).
Subsec. (g)(3).
Subsec. (g)(4).
Subsec. (h)(1)(A), (B).
"(A) Contributions made for a calendar year are deductible for the taxable year with which or within which the calendar year ends.
"(B) Contributions made within 3½ months after the close of a calendar year are treated as if they were made on the last day of such calendar year if they are made on account of such calendar year."
Subsec. (i).
Subsec. (k).
Subsec. (k)(2)(A), (B).
Subsec. (k)(2)(C).
Subsec. (l).
1984—Subsec. (a)(8)(D).
Subsec. (a)(9), (10).
Subsec. (b).
Subsec. (e).
Subsec. (f).
Subsec. (h)(4).
Subsec. (i).
Subsec. (k).
1982—Subsec. (a)(2).
Subsec. (a)(3)(B).
Subsec. (e).
Subsec. (j).
1981—Subsec. (a)(10).
Subsec. (e).
Subsec. (i).
1980—Subsec. (g).
Subsec. (h).
1978—Subsec. (a)(2).
Subsec. (b).
Subsec. (d).
Subsec. (h).
1976—Subsec. (a)(1)(B), (8)(C).
Subsec. (a)(2).
Subsec. (d).
Subsec. (e)(2)(B), (3).
Subsec. (e)(4).
1974—Subsec. (a)(1).
Subsec. (a)(2).
Subsec. (a)(3)(A).
Subsec. (a)(6).
Subsec. (a)(7).
Subsec. (a)(9)(B)(ii).
Subsec. (c).
Subsec. (e)(1).
Subsec. (e)(2)(A).
Subsec. (e)(4).
Subsec. (g).
1969—Subsec. (a)(5).
1966—Subsec. (a).
Subsec. (e).
1962—Subsec. (a)(2).
Subsec. (a)(8) to (10).
Subsecs. (e), (f).
1958—Subsec. (a).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2012 Amendment
"(1)
"(2)
"(A)
"(i) for all purposes for which such amendments apply, or
"(ii) solely for purposes of determining the adjusted funding target attainment percentage under sections 436 of the Internal Revenue Code of 1986 and 206(g) of the Employee Retirement Income Security Act of 1974 [
A plan shall not be treated as failing to meet the requirements of sections 204(g) of such Act [
"(B)
Effective Date of 2008 Amendment
Amendment by
Amendment by
Effective Date of 2006 Amendment
"(1)
"(2)
Effective Date of 2004 Amendment
"(1)
"(2)
"(3)
Effective Date of 2002 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by section 611(c)(1) of
Amendment by section 632(a)(3)(B) of
Effective Date of 1998 Amendment
Amendment by section 6015(d) of
"(1)
"(2)
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as made with the consent of the Secretary of the Treasury; and
"(C) the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 shall be taken into account ratably over the 3-taxable year period beginning with such first taxable year."
Effective Date of 1997 Amendment
Amendment by section 1530(c)(2) of
Amendment by section 1601(d)(2)(C) of
Effective Date of 1996 Amendment
Amendment by section 1316(d)(1), (2) of
Amendment by section 1421(b)(2) of
Amendment by section 1431(b)(3) of
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1989 Amendment
"(1)
"(2)
"(A) with the proceeds of any loan which was made pursuant to a binding written commitment in effect on August 4, 1989, and at all times thereafter before such loan is made, and
"(B) pursuant to a written binding contract (or tender offer registered with the Securities and Exchange Commission) in effect on August 4, 1989, and at all times thereafter before such securities are acquired."
Effective Date of 1988 Amendment
Amendment by sections 1011(d)(1), (4), (f)(6), 1011A(e)(4), 1011B(h)(3), (6), and 1018(t)(4)(A), (5) of
Effective Date of 1987 Amendment
"(1)
"(2)
Effective Date of 1986 Amendments
Amendment by section 1106(d)(2) of
Amendment by section 1108(c) of
Amendment by section 1112(d)(2) of
"(1)
"(2)
"(A) January 1, 1989, or
"(B) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after February 28, 1986)."
Amendment by section 1171(b)(6) of
Amendment by sections 1848(c), 1851(b)(2)(A)–(C)(ii), and 1854(b)(3)–(5) of
Amendment by section 1854(b)(2) of
Effective Date of 1984 Amendment
Amendment by section 474(r)(14) of
"(1)
"(2)
"(A) between employee representatives and 1 or more employers, and
"(B) in effect on June 22, 1984,
the amendments made by this section shall not apply before the date on which such collective bargaining agreement terminates (determined without regard to any extension thereof agreed to after June 22, 1984). For purposes of the preceding sentence, any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section shall not be treated as a termination of such collective bargaining agreement."
Amendment by section 713 of
Effective Date of 1982 Amendment
Amendment by section 235(f) of
Amendment by sections 237 and 238 of
Effective Date of 1981 Amendment
Amendment by section 312(a) of
Effective Date of 1980 Amendments
Amendment by
Amendment by
Effective Date of 1978 Amendment
"(1)
"(2)
"(A)
"(B)
"(i) which defers the payment of amounts credited by such company to separate accounts for members of such company in consideration of their issuance of policies of title insurance, and
"(ii) under which no part of such amounts is payable to or withdrawable by the members until after the period for the adverse possession of real property under applicable State law.
"(C)
"(i) which is engaged in the business of providing title insurance coverage on interests in and liens upon real property obtained by clients of the members of such company, and
"(ii) which is subject to tax under section 831 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]."
Amendment by section 141(f)(9) of
Amendment by section 152(f) of
Effective Date of 1976 Amendments
Amendment by section 1502(a)(2) of
Amendment by section 1901(a)(59) of
Amendment by
Effective Date of 1974 Amendment
Amendment by sections 1013(c) and 1016(a)(3) of
Amendment by section 2001(g)(2)(E), (F) of
Amendment by section 2004(b), (c)(1) of
Amendment by section 4081(a) of
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1962 Amendments
Amendment by
Amendment by
Effective Date of 1958 Amendment
Amendment by
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1112 of
Savings Provision
For provisions that nothing in amendment by
Clarification of Treatment of Contributions to Multiemployer Plan
"(a)
"(b)
"(c)
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Coordination of Repeals of Certain Sections
Deductibility of Payments to Plan by Corporation Operating Public Transportation System Acquired by State
"(a) For purposes of subsection (g) of section 404 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to certain employer liability payments considered as contributions), as amended by section 205 of this Act, any payment made to a plan covering employees of a corporation operating a public transportation system shall be treated as a payment described in paragraph (1) of such subsection if—
"(1) such payment is made to fund accrued benefits under the plan in conjunction with an acquisition by a State (or agency or instrumentality thereof) of the stock or assets of such corporation, and
"(2) such acquisition is pursuant to a State public transportation law enacted after June 30, 1979, and before January 1, 1980.
"(b) The provisions of this section shall apply to payments made after June 29, 1980."
Year of Deduction for Certain Employer Contributions for Severance Payments Required by Foreign Law
"(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 1986 [formerly I.R.C. 1954] the taxable year in which any 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."
1 See References in Text note below.
§404A. Deduction for certain foreign deferred compensation plans
(a) General rule
Amounts paid or accrued by an employer under a qualified foreign plan—
(1) shall not be allowable as a deduction under this chapter, but
(2) if they would otherwise be deductible, shall be allowed as a deduction under this section for the taxable year for which such amounts are properly taken into account under this section.
(b) Rules for qualified funded plans
For purposes of this section—
(1) In general
Except as otherwise provided in this section, in the case of a qualified funded plan contributions are properly taken into account for the taxable year in which paid.
(2) Payment after close of taxable year
For purposes of paragraph (1), a payment made after the close of a taxable year shall be treated as made on the last day of such year if the payment is made—
(A) on account of such year, and
(B) not later than the time prescribed by law for filing the return for such year (including extensions thereof).
(3) Limitations
In the case of a qualified funded plan, the amount allowable as a deduction for the taxable year shall be subject to—
(A) in the case of—
(i) a plan under which the benefits are fixed or determinable, limitations similar to those contained in clauses (ii) and (iii) of subparagraph (A) of section 404(a)(1) (determined without regard to the last sentence of such subparagraph (A)), or
(ii) any other plan, limitations similar to the limitations contained in paragraph (3) of section 404(a), and
(B) limitations similar to those contained in paragraph (7) of section 404(a).
(4) Carryover
If—
(A) the aggregate of the contributions paid during the taxable year reduced by any contributions not allowable as a deduction under paragraphs (1) and (2) of subsection (g), exceeds
(B) the amount allowable as a deduction under subsection (a) (determined without regard to subsection (d)),
such excess shall be treated as an amount paid in the succeeding taxable year.
(5) Amounts must be paid to qualified trust, etc.
In the case of a qualified funded plan, a contribution shall be taken into account only if it is paid—
(A) to a trust (or the equivalent of a trust) which meets the requirements of section 401(a)(2),
(B) for a retirement annuity, or
(C) to a participant or beneficiary.
(c) Rules relating to qualified reserve plans
For purposes of this section—
(1) In general
In the case of a qualified reserve plan, the amount properly taken into account for the taxable year is the reasonable addition for such year to a reserve for the taxpayer's liability under the plan. Unless otherwise required or permitted in regulations prescribed by the Secretary, the reserve for the taxpayer's liability shall be determined under the unit credit method modified to reflect the requirements of paragraphs (3) and (4). All benefits paid under the plan shall be charged to the reserve.
(2) Income item
In the case of a plan which is or has been a qualified reserve plan, an amount equal to that portion of any decrease for the taxable year in the reserve which is not attributable to the payment of benefits shall be included in gross income.
(3) Rights must be nonforfeitable, etc.
In the case of a qualified reserve plan, an item shall be taken into account for a taxable year only if—
(A) there is no substantial risk that the rights of the employee will be forfeited, and
(B) such item meets such additional requirements as the Secretary may by regulations prescribe as necessary or appropriate to ensure that the liability will be satisfied.
(4) Spreading of certain increases and decreases in reserves
There shall be amortized over a 10-year period any increase or decrease to the reserve on account of—
(A) the adoption of the plan or a plan amendment,
(B) experience gains and losses,
(C) any change in actuarial assumptions,
(D) changes in the interest rate under subsection (g)(3)(B), and
(E) such other factors as may be prescribed by regulations.
(d) Amounts taken into account must be consistent with amounts allowed under foreign law
(1) General rule
In the case of any plan, the amount allowed as a deduction under subsection (a) for any taxable year shall equal—
(A) the lesser of—
(i) the cumulative United States amount, or
(ii) the cumulative foreign amount, reduced by
(B) the aggregate amount determined under this section for all prior taxable years.
(2) Cumulative amounts defined
For purposes of paragraph (1)—
(A) Cumulative United States amount
The term "cumulative United States amount" means the aggregate amount determined with respect to the plan under this section for the taxable year and for all prior taxable years to which this section applies. Such determination shall be made for each taxable year without regard to the application of paragraph (1).
(B) Cumulative foreign amount
The term "cumulative foreign amount" means the aggregate amount allowed as a deduction under the appropriate foreign tax laws for the taxable year and all prior taxable years to which this section applies.
(3) Effect on earnings and profits, etc.
In determining the earnings and profits and accumulated profits of any foreign corporation with respect to a qualified foreign plan, except as provided in regulations, the amount determined under paragraph (1) with respect to any plan for any taxable year shall in no event exceed the amount allowed as a deduction under the appropriate foreign tax laws for such taxable year.
(e) Qualified foreign plan
For purposes of this section, the term "qualified foreign plan" means any written plan of an employer for deferring the receipt of compensation but only if—
(1) such plan is for the exclusive benefit of the employer's employees or their beneficiaries,
(2) 90 percent or more of the amounts taken into account for the taxable year under the plan are attributable to services—
(A) performed by nonresident aliens, and
(B) the compensation for which is not subject to tax under this chapter, and
(3) the employer elects (at such time and in such manner as the Secretary shall by regulations prescribe) to have this section apply to such plan.
(f) Funded and reserve plans
For purposes of this section—
(1) Qualified funded plan
The term "qualified funded plan" means a qualified foreign plan which is not a qualified reserve plan.
(2) Qualified reserve plan
The term "qualified reserve plan" means a qualified foreign plan with respect to which an election made by the taxpayer is in effect for the taxable year. An election under the preceding sentence shall be made in such manner and form as the Secretary may by regulations prescribe and, once made, may be revoked only with the consent of the Secretary.
(g) Other special rules
(1) No deduction for certain amounts
Except as provided in section 404(a)(5), no deduction shall be allowed under this section for any item to the extent such item is attributable to services—
(A) performed by a citizen or resident of the United States who is a highly compensated employee (within the meaning of section 414(q)), or
(B) performed in the United States the compensation for which is subject to tax under this chapter.
(2) Taxpayer must furnish information
(A) In general
No deduction shall be allowed under this section with respect to any plan for any taxable year unless the taxpayer furnishes to the Secretary with respect to such plan (at such time as the Secretary may by regulations prescribe)—
(i) a statement from the foreign tax authorities specifying the amount of the deduction allowed in computing taxable income under foreign law for such year with respect to such plan,
(ii) if the return under foreign tax law shows the deduction for plan contributions or reserves as a separate, identifiable item, a copy of the foreign tax return for the taxable year, or
(iii) such other statement, return, or other evidence as the Secretary prescribes by regulation as being sufficient to establish the amount of the deduction under foreign law.
(B) Redetermination where foreign tax deduction is adjusted
If the deduction under foreign tax law is adjusted, the taxpayer shall notify the Secretary of such adjustment on or before the date prescribed by regulations, and the Secretary shall redetermine the amount of the tax for the year or years affected. In any case described in the preceding sentence, rules similar to the rules of subsection (c) of section 905 shall apply.
(3) Actuarial assumptions must be reasonable; full funding
(A) In general
Except as provided in subparagraph (B), principles similar to those set forth in paragraphs (3) and (6) of section 431(c) shall apply for purposes of this section.
(B) Interest rate for reserve plan
(i) In general
In the case of a qualified reserve plan, in lieu of taking rates of interest into account under subparagraph (A), the rate of interest for the plan shall be the rate selected by the taxpayer which is within the permissible range.
(ii) Rate remains in effect so long as it falls within permissible range
Any rate selected by the taxpayer for the plan under this subparagraph shall remain in effect for such plan until the first taxable year for which such rate is no longer within the permissible range. At such time, the taxpayer shall select a new rate of interest which is within the permissible range applicable at such time.
(iii) Permissible range
For purposes of this subparagraph, the term "permissible range" means a rate of interest which is not more than 20 percent above, and not more than 20 percent below, the average rate of interest for long-term corporate bonds in the appropriate country for the 15-year period ending on the last day before the beginning of the taxable year.
(4) Accounting method
Any change in the method (but not the actuarial assumptions) used to determine the amount allowed as a deduction under subsection (a) shall be treated as a change in accounting method under section 446(e).
(5) Section 481 applies to election
For purposes of section 481, any election under this section shall be treated as a change in the taxpayer's method of accounting. In applying section 481 with respect to any such election, the period for taking into account any increase or decrease in accumulated profits, earnings and profits or taxable income resulting from the application of section 481(a)(2) shall be the year for which the election is made and the fourteen succeeding years.
(h) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section (including regulations providing for the coordination of the provisions of this section with section 404 in the case of a plan which has been subject to both of such sections).
(Added
Editorial Notes
Amendments
2018—Subsec. (c)(4)(B).
2006—Subsec. (g)(3)(A).
1988—Subsec. (d)(3).
1986—Subsec. (a).
Subsec. (g)(1)(A).
Statutory Notes and Related Subsidiaries
Effective Date of 2006 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1114(b)(8) of
Amendment by section 1851(b)(2)(C)(iii) of
Effective Date
"(1)
"(2)
"(A)
"(B)
"(C)
"(D)
"(E)
"(3)
"(A)
"(i) the taxpayer elects to have this paragraph apply, and
"(ii) the taxpayer agrees to the assessment of all deficiencies (including interest thereon) arising from all erroneous deductions,
then an amount equal to 1/15th of the aggregate of the prior deductions which would have been allowable if the amendments made by this section [enacting this section and
"(B)
"(i) which the taxpayer claimed for a taxable year (or could have claimed if the amendments made by this section [enacting this section and
"(ii) which was not allowable, and
"(iii) with respect to which, on December 1, 1980, the assessment of a deficiency was not barred by any law or rule of law.
"(4)
"(A)
"(B)
[
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
[§405. Repealed. Pub. L. 98–369, div. A, title IV, §491(a), July 18, 1984, 98 Stat. 848 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to obligations issued after Dec. 31, 1983, see section 491(f)(1) of
Rollover of Existing Bonds Into Qualified Employer Plans
"(A)
"(i) any qualified bond is redeemed,
"(ii) any portion of the excess of the proceeds from such redemption over the basis of such bond is transferred to an individual retirement plan which is maintained for the benefit of the individual redeeming such bond, or to a qualified trust (as defined in section 402(a)(5)(D)(iii)) for the benefit of such individual, and
"(iii) such transfer is made on or before the 60th day after the individual received the proceeds of such redemption,
then gross income shall not include the proceeds to the extent so transferred and the transfer shall be treated as a rollover contribution described in section 408(d)(3)."
Bonds Under Qualified Bond Purchase Plans Redeemable at any Time After July 18, 1984
"(A) subparagraph (D) of section 405(b)(1) of the Internal Revenue Code of 1954 (as in effect before its repeal by this section) [see above], and
"(B) the terms of any bond described in subsection (b) of such section 405,
such a bond may be redeemed at any time after the date of the enactment of this Act [July 18, 1984] in the same manner as if the individual redeeming the bond had attained age 59½."
§406. Employees of foreign affiliates covered by section 3121(l) agreements
(a) Treatment as employees of American employer
For purposes of applying this part with respect to a pension, profit-sharing, or stock bonus plan described in section 401(a) or an annuity plan described in section 403(a), of an American employer (as defined in section 3121(h)), an individual who is a citizen or resident of the United States and who is an employee of a foreign affiliate (as defined in section 3121(l)(6)) of such American employer shall be treated as an employee of such American employer, if—
(1) such American employer has entered into an agreement under section 3121(l) which applies to the foreign affiliate of which such individual is an employee;
(2) the plan of such American employer expressly provides for contributions or benefits for individuals who are citizens or residents of the United States and who are employees of its foreign affiliates to which an agreement entered into by such American employer under section 3121(l) applies; and
(3) contributions under a funded plan of deferred compensation (whether or not a plan described in section 401(a) or 403(a)) are not provided by any other person with respect to the remuneration paid to such individual by the foreign affiliate.
(b) Special rules for application of section 401(a)
(1) Nondiscrimination requirements
For purposes of applying section 401(a)(4) and section 410(b) with respect to an individual who is treated as an employee of an American employer under subsection (a)—
(A) if such individual is a highly compensated employee (within the meaning of section 414(q)), he shall be treated as having such capacity with respect to such American employer; and
(B) the determination of whether such individual is a highly compensated employee (as so defined) shall be made by treating such individual's total compensation (determined with the application of paragraph (2) of this subsection) as compensation paid by such American employer and by determining such individual's status with regard to such American employer.
(2) Determination of compensation
For purposes of applying paragraph (5) of section 401(a) with respect to an individual who is treated as an employee of an American employer under subsection (a)—
(A) the total compensation of such individual shall be the remuneration paid to such individual by the foreign affiliate which would constitute his total compensation if his services had been performed for such American employer, and the basic or regular rate of compensation of such individual shall be determined under regulations prescribed by the Secretary; and
(B) such individual shall be treated as having paid the amount paid by such American employer which is equivalent to the tax imposed by section 3101.
[(c) Repealed. Pub. L. 104–188, title I, §1401(b)(7), Aug. 20, 1996, 110 Stat. 1789 ]
(d) Deductibility of contributions
For purposes of applying section 404 with respect to contributions made to or under a pension, profit-sharing, stock bonus, or annuity plan by an American employer, or by another taxpayer which is entitled to deduct its contributions under section 404(a)(3)(B), on behalf of an individual who is treated as an employee of such American employer under subsection (a)—
(1) except as provided in paragraph (2), no deduction shall be allowed to such American employer or to any other taxpayer which is entitled to deduct its contributions under such sections,
(2) there shall be allowed as a deduction to the foreign affiliate of which such individual is an employee an amount equal to the amount which (but for paragraph (1)) would be deductible under section 404 by the American employer if he were an employee of the American employer, and
(3) any reference to compensation shall be considered to be a reference to the total compensation of such individual (determined with the application of subsection (b)(2)).
Any amount deductible by a foreign affiliate under this subsection shall be deductible for its taxable year with or within which the taxable year of such American employer ends.
(e) Treatment as employee under related provisions
An individual who is treated as an employee of an American employer under subsection (a) shall also be treated as an employee of such American employer, with respect to the plan described in subsection (a)(2), for purposes of applying the following provisions of this title:
(1) Section 72(f) (relating to special rules for computing employees' contributions).
(2) Section 2039 (relating to annuities).
(Added
Editorial Notes
Amendments
1996—Subsec. (c).
Subsec. (e)(2), (3).
1992—Subsec. (c).
1989—Subsec. (a).
Subsec. (b)(1)(A).
Subsec. (c).
Subsec. (c)(3).
1988—Subsec. (c).
Subsec. (e).
1986—Subsec. (b)(1).
Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (e)(5).
1984—Subsec. (a).
Subsec. (a)(3).
Subsec. (d).
Subsec. (d)(2).
1983—
Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (c)(3).
Subsec. (d).
Subsec. (e).
1976—Subsec. (b)(2)(A).
1974—Subsec. (b)(1).
Subsec. (c).
1969—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 1996 Amendment
Amendment by section 1401(b)(7) of
Amendment by section 1402(b)(2) of
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by section 7811(g)(3) of
Amendment by section 7831(f) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1112(d)(3) of
Amendment by section 1114(b)(9)(A), (C) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1983 Amendment
"(1)(A) The amendments made by this section [amending this section and
"(B) At the election of any American employer, the amendments made by this section (other than subsection (d)) shall also apply to any agreement entered into on or before the date of the enactment of this Act. Any such election shall be made at such time and in such manner as the Secretary may by regulations prescribe.
"(2)(A) The amendments made by subsection (d) [amending
"(B) At the election of any domestic parent corporation the amendments made by subsection (d) shall also apply to any plan established on or before the date of the enactment of this Act. Any such election shall be made at such time and in such manner as the Secretary may by regulations prescribe."
Effective Date of 1974 Amendment
Amendment by section 1016(a)(4) of
Amendment by section 2005(c)(12) of
Effective Date of 1969 Amendment
Amendment by
Effective Date
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by sections 1112 and 1114 of
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§407. Certain employees of domestic subsidiaries engaged in business outside the United States
(a) Treatment as employees of domestic parent corporation
(1) In general
For purposes of applying this part with respect to a pension, profit-sharing, or stock bonus plan described in section 401(a) or an annuity plan described in section 403(a), of a domestic parent corporation, an individual who is a citizen or resident of the United States and who is an employee of a domestic subsidiary (within the meaning of paragraph (2)) of such domestic parent corporation shall be treated as an employee of such domestic parent corporation, if—
(A) the plan of such domestic parent corporation expressly provides for contributions or benefits for individuals who are citizens or residents of the United States and who are employees of its domestic subsidiaries; and
(B) contributions under a funded plan of deferred compensation (whether or not a plan described in section 401(a) or 403(a)) are not provided by any other person with respect to the remuneration paid to such individual by the domestic subsidiary.
(2) Definitions
For purposes of this section—
(A) Domestic subsidiary
A corporation shall be treated as a domestic subsidiary for any taxable year only if—
(i) such corporation is a domestic corporation 80 percent or more of the outstanding voting stock of which is owned by another domestic corporation;
(ii) 95 percent or more of its gross income for the three-year period immediately preceding the close of its taxable year which ends on or before the close of the taxable year of such other domestic corporation (or for such part of such period during which the corporation was in existence), was derived from sources without the United States; and
(iii) 90 percent or more of its gross income for such period (or such part) was derived from the active conduct of a trade or business.
If for the period (or part thereof) referred to in clauses (ii) and (iii) such corporation has no gross income, the provisions of clauses (ii) and (iii) shall be treated as satisfied if it is reasonable to anticipate that, with respect to the first taxable year thereafter for which such corporation has gross income, the provisions of such clauses will be satisfied.
(B) Domestic parent corporation
The domestic parent corporation of any domestic subsidiary is the domestic corporation which owns 80 percent or more of the outstanding voting stock of such domestic subsidiary.
(b) Special rules for application of section 401(a)
(1) Nondiscrimination requirements
For purposes of applying section 401(a)(4) and section 410(b) with respect to an individual who is treated as an employee of a domestic parent corporation under subsection (a)—
(A) if such individual is a highly compensated employee (within the meaning of section 414(q)), he shall be treated as having such capacity with respect to such domestic parent corporation; and
(B) the determination of whether such individual is a highly compensated employee (as so defined) shall be made by treating such individual's total compensation (determined with the application of paragraph (2) of this subsection) as compensation paid by such domestic parent corporation and by determining such individual's status with regard to such domestic parent corporation.
(2) Determination of compensation
For purposes of applying paragraph (5) of section 401(a) with respect to an individual who is treated as an employee of a domestic parent corporation under subsection (a), the total compensation of such individual shall be the remuneration paid to such individual by the domestic subsidiary which would constitute his total compensation if his services had been performed for such domestic parent corporation, and the basic or regular rate of compensation of such individual shall be determined under regulations prescribed by the Secretary.
[(c) Repealed. Pub. L. 104–188, title I, §1401(b)(8), Aug. 20, 1996, 110 Stat. 1789 ]
(d) Deductibility of contributions
For purposes of applying section 404 with respect to contributions made to or under a pension, profit-sharing, stock bonus, or annuity plan by a domestic parent corporation, or by another corporation which is entitled to deduct its contributions under section 404(a)(3)(B), on behalf of an individual who is treated as an employee of such domestic corporation under subsection (a)—
(1) except as provided in paragraph (2), no deduction shall be allowed to such domestic parent corporation or to any other corporation which is entitled to deduct its contributions under such sections,
(2) there shall be allowed as a deduction to the domestic subsidiary of which such individual is an employee an amount equal to the amount which (but for paragraph (1)) would be deductible under section 404 by the domestic parent corporation if he were an employee of the domestic parent corporation, and
(3) any reference to compensation shall be considered to be a reference to the total compensation of such individual (determined with the application of subsection (b)(2)).
Any amount deductible by a domestic subsidiary under this subsection shall be deductible for its taxable year with or within which the taxable year of such domestic parent corporation ends.
(e) Treatment as employee under related provisions
An individual who is treated as an employee of a domestic parent corporation under subsection (a) shall also be treated as an employee of such domestic parent corporation, with respect to the plan described in subsection (a)(1)(A), for purposes of applying the following provisions of this title:
(1) Section 72(f) (relating to special rules for computing employees' contributions).
(2) Section 2039 (relating to annuities).
(Added
Editorial Notes
Amendments
1996—Subsec. (c).
Subsec. (e)(2), (3).
1992—Subsec. (c).
1989—Subsec. (b)(1)(A).
Subsec. (c).
1988—Subsec. (c).
Subsec. (e).
1986—Subsec. (b)(1).
Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (e)(5).
1984—Subsec. (a)(1).
Subsec. (a)(1)(B).
Subsec. (d).
Subsec. (d)(2).
1983—Subsec. (a)(1).
1976—Subsec. (b)(2).
1974—Subsec. (b)(1).
Subsec. (c).
1969—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 1996 Amendment
Amendment by section 1401(b)(8) of
Amendment by section 1402(b)(2) of
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by section 7811(g)(3) of
Amendment by section 7831(f) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1112(d)(3) of
Amendment by section 1114(b)(9)(B), (C) of
Amendment by section 1852(e)(2)(D) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1974 Amendment
Amendment by section 1016(a)(5) of
Amendment by section 2005(c)(13) of
Effective Date of 1969 Amendment
Amendment by
Effective Date
Section applicable to taxable years ending after Dec. 31, 1963, see section 220(d) of
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by sections 1112 and 1114 of
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§408. Individual retirement accounts
(a) Individual retirement account
For purposes of this section, the term "individual retirement account" means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements:
(1) Except in the case of a rollover contribution described in subsection (d)(3) or in section 402(c), 403(a)(4), 403(b)(8), or 457(e)(16), no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year on behalf of any individual in excess of the amount in effect for such taxable year under section 219(b)(1)(A).
(2) The trustee is a bank (as defined in subsection (n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.
(3) No part of the trust funds will be invested in life insurance contracts.
(4) The interest of an individual in the balance in his account is nonforfeitable.
(5) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.
(6) Under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) and the incidental death benefit requirements of section 401(a) shall apply to the distribution of the entire interest of an individual for whose benefit the trust is maintained.
(b) Individual retirement annuity
For purposes of this section, the term "individual retirement annuity" means an annuity contract, or an endowment contract (as determined under regulations prescribed by the Secretary), issued by an insurance company which meets the following requirements:
(1) The contract is not transferable by the owner.
(2) Under the contract—
(A) the premiums are not fixed,
(B) the annual premium on behalf of any individual will not exceed the dollar amount in effect under section 219(b)(1)(A), and
(C) any refund of premiums will be applied before the close of the calendar year following the year of the refund toward the payment of future premiums or the purchase of additional benefits.
(3) Under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) and the incidental death benefit requirements of section 401(a) shall apply to the distribution of the entire interest of the owner.
(4) The entire interest of the owner is nonforfeitable.
Such term does not include such an annuity contract for any taxable year of the owner in which it is disqualified on the application of subsection (e) or for any subsequent taxable year. For purposes of this subsection, no contract shall be treated as an endowment contract if it matures later than the taxable year in which the individual in whose name such contract is purchased attains the applicable age (determined under section 401(a)(9)(C)(v) for the calendar year in which such taxable year begins); if it is not for the exclusive benefit of the individual in whose name it is purchased or his beneficiaries; or if the aggregate annual premiums under all such contracts purchased in the name of such individual for any taxable year exceed the dollar amount in effect under section 219(b)(1)(A).
(c) Accounts established by employers and certain associations of employees
A trust created or organized in the United States by an employer for the exclusive benefit of his employees or their beneficiaries, or by an association of employees (which may include employees within the meaning of section 401(c)(1)) for the exclusive benefit of its members or their beneficiaries, shall be treated as an individual retirement account (described in subsection (a)), but only if the written governing instrument creating the trust meets the following requirements:
(1) The trust satisfies the requirements of paragraphs (1) through (6) of subsection (a).
(2) There is a separate accounting for the interest of each employee or member (or spouse of an employee or member).
(3) There is a separate accounting for any interest of an employee or member (or spouse of an employee or member) in a Roth IRA.
The assets of the trust may be held in a common fund for the account of all individuals who have an interest in the trust.
(d) Tax treatment of distributions
(1) In general
Except as otherwise provided in this subsection, any amount paid or distributed out of an individual retirement plan shall be included in gross income by the payee or distributee, as the case may be, in the manner provided under section 72.
(2) Special rules for applying section 72
For purposes of applying section 72 to any amount described in paragraph (1)—
(A) all individual retirement plans shall be treated as 1 contract,
(B) all distributions during any taxable year shall be treated as 1 distribution, and
(C) the value of the contract, income on the contract, and investment in the contract shall be computed as of the close of the calendar year in which the taxable year begins.
For purposes of subparagraph (C), the value of the contract shall be increased by the amount of any distributions during the calendar year.
(3) Rollover contribution
An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).
(A) In general
Paragraph (1) does not apply to any amount paid or distributed out of an individual retirement account or individual retirement annuity to the individual for whose benefit the account or annuity is maintained if—
(i) the entire amount received (including money and any other property) is paid into an individual retirement account or individual retirement annuity (other than an endowment contract) for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution; or
(ii) the entire amount received (including money and any other property) is paid into an eligible retirement plan for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to this paragraph).
For purposes of clause (ii), the term "eligible retirement plan" means an eligible retirement plan described in clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B).
(B) Limitation
This paragraph does not apply to any amount described in subparagraph (A)(i) received by an individual from an individual retirement account or individual retirement annuity if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in that subparagraph from an individual retirement account or an individual retirement annuity which was not includible in his gross income because of the application of this paragraph.
(C) Denial of rollover treatment for inherited accounts, etc.
(i) In general
In the case of an inherited individual retirement account or individual retirement annuity—
(I) this paragraph shall not apply to any amount received by an individual from such an account or annuity (and no amount transferred from such account or annuity to another individual retirement account or annuity shall be excluded from gross income by reason of such transfer), and
(II) such inherited account or annuity shall not be treated as an individual retirement account or annuity for purposes of determining whether any other amount is a rollover contribution.
(ii) Inherited individual retirement account or annuity
An individual retirement account or individual retirement annuity shall be treated as inherited if—
(I) the individual for whose benefit the account or annuity is maintained acquired such account by reason of the death of another individual, and
(II) such individual was not the surviving spouse of such other individual.
(D) Partial rollovers permitted
(i) In general
If any amount paid or distributed out of an individual retirement account or individual retirement annuity would meet the requirements of subparagraph (A) but for the fact that the entire amount was not paid into an eligible plan as required by clause (i) or (ii) of subparagraph (A), such amount shall be treated as meeting the requirements of subparagraph (A) to the extent it is paid into an eligible plan referred to in such clause not later than the 60th day referred to in such clause.
(ii) Eligible plan
For purposes of clause (i), the term "eligible plan" means any account, annuity, contract, or plan referred to in subparagraph (A).
(E) Denial of rollover treatment for required distributions
This paragraph shall not apply to any amount to the extent such amount is required to be distributed under subsection (a)(6) or (b)(3).
(F) Frozen deposits
For purposes of this paragraph, rules similar to the rules of section 402(c)(7) (relating to frozen deposits) shall apply.
(G) Simple retirement accounts
In the case of any payment or distribution out of a simple retirement account (as defined in subsection (p)) to which section 72(t)(6)(A) applies, this paragraph shall not apply unless such payment or distribution is paid into another simple retirement account.
(H) Application of section 72
(i) In general
If—
(I) a distribution is made from an individual retirement plan, and
(II) a rollover contribution is made to an eligible retirement plan described in section 402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to all or part of such distribution,
then, notwithstanding paragraph (2), the rules of clause (ii) shall apply for purposes of applying section 72.
(ii) Applicable rules
In the case of a distribution described in clause (i)—
(I) section 72 shall be applied separately to such distribution,
(II) notwithstanding the pro rata allocation of income on, and investment in, the contract to distributions under section 72, the portion of such distribution rolled over to an eligible retirement plan described in clause (i) shall be treated as from income on the contract (to the extent of the aggregate income on the contract from all individual retirement plans of the distributee), and
(III) appropriate adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.
(I) Waiver of 60-day requirement
The Secretary may waive the 60-day requirement under subparagraphs (A) and (D) where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.
(4) Contributions returned before due date of return
Paragraph (1) does not apply to the distribution of any contribution paid during a taxable year to an individual retirement account or for an individual retirement annuity if—
(A) such distribution is received on or before the day prescribed by law (including extensions of time) for filing such individual's return for such taxable year,
(B) no deduction is allowed under section 219 with respect to such contribution, and
(C) such distribution is accompanied by the amount of net income attributable to such contribution.
In the case of such a distribution, for purposes of section 61, any net income described in subparagraph (C) shall be deemed to have been earned and receivable in the taxable year in which such contribution is made.
(5) Distributions of excess contributions after due date for taxable year and certain excess rollover contributions
(A) In general
In the case of any individual, if the aggregate contributions (other than rollover contributions) paid for any taxable year to an individual retirement account or for an individual retirement annuity do not exceed the dollar amount in effect under section 219(b)(1)(A), paragraph (1) shall not apply to the distribution of any such contribution to the extent that such contribution exceeds the amount allowable as a deduction under section 219 for the taxable year for which the contribution was paid—
(i) if such distribution is received after the date described in paragraph (4),
(ii) but only to the extent that no deduction has been allowed under section 219 with respect to such excess contribution.
If employer contributions on behalf of the individual are paid for the taxable year to a simplified employee pension, the dollar limitation of the preceding sentence shall be increased by the lesser of the amount of such contributions or the dollar limitation in effect under section 415(c)(1)(A) for such taxable year.
(B) Excess rollover contributions attributable to erroneous information
If—
(i) the taxpayer reasonably relies on information supplied pursuant to subtitle F for determining the amount of a rollover contribution, but
(ii) the information was erroneous,
subparagraph (A) shall be applied by increasing the dollar limit set forth therein by that portion of the excess contribution which was attributable to such information.
For purposes of this paragraph, the amount allowable as a deduction under section 219 shall be computed without regard to section 219(g).
(6) Transfer of account incident to divorce
The transfer of an individual's interest in an individual retirement account or an individual retirement annuity to his spouse or former spouse under a divorce or separation instrument described in clause (i) of section 121(d)(3)(C) is not to be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest at the time of the transfer is to be treated as an individual retirement account of such spouse, and not of such individual. Thereafter such account or annuity for purposes of this subtitle is to be treated as maintained for the benefit of such spouse.
(7) Special rules for simplified employee pensions or simple retirement accounts
(A) Transfer or rollover of contributions prohibited until deferral test met
Notwithstanding any other provision of this subsection or section 72(t), paragraph (1) and section 72(t)(1) shall apply to the transfer or distribution from a simplified employee pension of any contribution under a salary reduction arrangement described in subsection (k)(6) (or any income allocable thereto) before a determination as to whether the requirements of subsection (k)(6)(A)(iii) are met with respect to such contribution.
(B) Certain exclusions treated as deductions
For purposes of paragraphs (4) and (5) and section 4973, any amount excludable or excluded from gross income under section 402(h) or 402(k) shall be treated as an amount allowable or allowed as a deduction under section 219.
(8) Distributions for charitable purposes
(A) In general
So much of the aggregate amount of qualified charitable distributions with respect to a taxpayer made during any taxable year which does not exceed $100,000 shall not be includible in gross income of such taxpayer for such taxable year. The amount of distributions not includible in gross income by reason of the preceding sentence for a taxable year (determined without regard to this sentence) shall be reduced (but not below zero) by an amount equal to the excess of—
(i) the aggregate amount of deductions allowed to the taxpayer under section 219 for all taxable years ending on or after the date the taxpayer attains age 70½, over
(ii) the aggregate amount of reductions under this sentence for all taxable years preceding the current taxable year.
(B) Qualified charitable distribution
For purposes of this paragraph, the term "qualified charitable distribution" means any distribution from an individual retirement plan (other than a plan described in subsection (k) or (p))—
(i) which is made directly by the trustee to an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)), and
(ii) which is made on or after the date that the individual for whose benefit the plan is maintained has attained age 70½.
A distribution shall be treated as a qualified charitable distribution only to the extent that the distribution would be includible in gross income without regard to subparagraph (A).
(C) Contributions must be otherwise deductible
For purposes of this paragraph, a distribution to an organization described in subparagraph (B)(i) shall be treated as a qualified charitable distribution only if a deduction for the entire distribution would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph).
(D) Application of section 72
Notwithstanding section 72, in determining the extent to which a distribution is a qualified charitable distribution, the entire amount of the distribution shall be treated as includible in gross income without regard to subparagraph (A) to the extent that such amount does not exceed the aggregate amount which would have been so includible if all amounts in all individual retirement plans of the individual were distributed during such taxable year and all such plans were treated as 1 contract for purposes of determining under section 72 the aggregate amount which would have been so includible. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.
(E) Denial of deduction
Qualified charitable distributions which are not includible in gross income pursuant to subparagraph (A) shall not be taken into account in determining the deduction under section 170.
(F) One-time election for qualified charitable distribution to split-interest entity
(i) In general
A taxpayer may for a taxable year elect under this subparagraph to treat as meeting the requirement of subparagraph (B)(i) any distribution from an individual retirement account which is made directly by the trustee to a split-interest entity, but only if—
(I) an election is not in effect under this subparagraph for a preceding taxable year,
(II) the aggregate amount of distributions of the taxpayer with respect to which an election under this subparagraph is made does not exceed $50,000, and
(III) such distribution meets the requirements of clauses (iii) and (iv).
(ii) Split-interest entity
For purposes of this subparagraph, the term "split-interest entity" means—
(I) a charitable remainder annuity trust (as defined in section 664(d)(1)), but only if such trust is funded exclusively by qualified charitable distributions,
(II) a charitable remainder unitrust (as defined in section 664(d)(2)), but only if such unitrust is funded exclusively by qualified charitable distributions, or
(III) a charitable gift annuity (as defined in section 501(m)(5)), but only if such annuity is funded exclusively by qualified charitable distributions and commences fixed payments of 5 percent or greater not later than 1 year from the date of funding.
(iii) Contributions must be otherwise deductible
A distribution meets the requirements of this clause only if—
(I) in the case of a distribution to a charitable remainder annuity trust or a charitable remainder unitrust, a deduction for the entire value of the remainder interest in the distribution for the benefit of a specified charitable organization would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph), and
(II) in the case of a charitable gift annuity, a deduction in an amount equal to the amount of the distribution reduced by the value of the annuity described in section 501(m)(5)(B) would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph).
(iv) Limitation on income interests
A distribution meets the requirements of this clause only if—
(I) no person holds an income interest in the split-interest entity other than the individual for whose benefit such account is maintained, the spouse of such individual, or both, and
(II) the income interest in the split-interest entity is nonassignable.
(v) Special rules
(I) Charitable remainder trusts
Notwithstanding section 664(b), distributions made from a trust described in subclause (I) or (II) of clause (ii) shall be treated as ordinary income in the hands of the beneficiary to whom the annuity described in section 664(d)(1)(A) or the payment described in section 664(d)(2)(A) is paid.
(II) Charitable gift annuities
Qualified charitable distributions made to fund a charitable gift annuity shall not be treated as an investment in the contract for purposes of section 72(c).
(G) Inflation adjustment
(i) In general
In the case of any taxable year beginning after 2023, each of the dollar amounts in subparagraphs (A) and (F) shall be increased by an amount equal to—
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2022" for "calendar year 2016" in subparagraph (A)(ii) thereof.
(ii) Rounding
If any dollar amount increased under clause (i) is not a multiple of $1,000, such dollar amount shall be rounded to the nearest multiple of $1,000.
(9) Distribution for health savings account funding
(A) In general
In the case of an individual who is an eligible individual (as defined in section 223(c)) and who elects the application of this paragraph for a taxable year, gross income of the individual for the taxable year does not include a qualified HSA funding distribution to the extent such distribution is otherwise includible in gross income.
(B) Qualified HSA funding distribution
For purposes of this paragraph, the term "qualified HSA funding distribution" means a distribution from an individual retirement plan (other than a plan described in subsection (k) or (p)) of the employee to the extent that such distribution is contributed to the health savings account of the individual in a direct trustee-to-trustee transfer.
(C) Limitations
(i) Maximum dollar limitation
The amount excluded from gross income by subparagraph (A) shall not exceed the excess of—
(I) the annual limitation under section 223(b) computed on the basis of the type of coverage under the high deductible health plan covering the individual at the time of the qualified HSA funding distribution, over
(II) in the case of a distribution described in clause (ii)(II), the amount of the earlier qualified HSA funding distribution.
(ii) One-time transfer
(I) In general
Except as provided in subclause (II), an individual may make an election under subparagraph (A) only for one qualified HSA funding distribution during the lifetime of the individual. Such an election, once made, shall be irrevocable.
(II) Conversion from self-only to family coverage
If a qualified HSA funding distribution is made during a month in a taxable year during which an individual has self-only coverage under a high deductible health plan as of the first day of the month, the individual may elect to make an additional qualified HSA funding distribution during a subsequent month in such taxable year during which the individual has family coverage under a high deductible health plan as of the first day of the subsequent month.
(D) Failure to maintain high deductible health plan coverage
(i) In general
If, at any time during the testing period, the individual is not an eligible individual, then the aggregate amount of all contributions to the health savings account of the individual made under subparagraph (A)—
(I) shall be includible in the gross income of the individual for the taxable year in which occurs the first month in the testing period for which such individual is not an eligible individual, and
(II) the tax imposed by this chapter for any taxable year on the individual shall be increased by 10 percent of the amount which is so includible.
(ii) Exception for disability or death
Subclauses (I) and (II) of clause (i) shall not apply if the individual ceased to be an eligible individual by reason of the death of the individual or the individual becoming disabled (within the meaning of section 72(m)(7)).
(iii) Testing period
The term "testing period" means the period beginning with the month in which the qualified HSA funding distribution is contributed to a health savings account and ending on the last day of the 12th month following such month.
(E) Application of section 72
Notwithstanding section 72, in determining the extent to which an amount is treated as otherwise includible in gross income for purposes of subparagraph (A), the aggregate amount distributed from an individual retirement plan shall be treated as includible in gross income to the extent that such amount does not exceed the aggregate amount which would have been so includible if all amounts from all individual retirement plans were distributed. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.
(e) Tax treatment of accounts and annuities
(1) Exemption from tax
Any individual retirement account is exempt from taxation under this subtitle unless such account has ceased to be an individual retirement account by reason of paragraph (2) or (3). Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).
(2) Loss of exemption of account where employee engages in prohibited transaction
(A) In general
If, during any taxable year of the individual for whose benefit any individual retirement account is established, that individual or his beneficiary engages in any transaction prohibited by section 4975 with respect to such account, such account ceases to be an individual retirement account 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,
(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, and
(iii) each individual retirement plan of the individual shall be treated as a separate contract.
(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).
[(f) Repealed. Pub. L. 99–514, title XI, §1123(d)(2), Oct. 22, 1986, 100 Stat. 2475 ]
(g) Community property laws
This section shall be applied without regard to any community property laws.
(h) Custodial accounts
For purposes of this section, a custodial account shall be treated as a trust if the assets of such account are held by a bank (as defined in subsection (n)) or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which he will administer the account will be consistent with the requirements of this section, and if the custodial account would, except for the fact that it is not a trust, constitute an individual retirement account described in subsection (a). For purposes of this title, in the case of a custodial account treated as a trust by reason of the preceding sentence, the custodian of such account shall be treated as the trustee thereof.
(i) Reports
The trustee of an individual retirement account and the issuer of an endowment contract described in subsection (b) or an individual retirement annuity shall make such reports regarding such account, contract, or annuity to the Secretary and to the individuals for whom the account, contract, or annuity is, or is to be, maintained with respect to contributions (and the years to which they relate), distributions aggregating $10 or more in any calendar year, and such other matters as the Secretary may require. The reports required by this subsection—
(1) shall be filed at such time and in such manner as the Secretary prescribes, and
(2) shall be furnished to individuals—
(A) not later than January 31 of the calendar year following the calendar year to which such reports relate, and
(B) in such manner as the Secretary prescribes.
In the case of a simple retirement account under subsection (p), only one report under this subsection shall be required to be submitted each calendar year to the Secretary (at the time provided under paragraph (2)) but, in addition to the report under this subsection, there shall be furnished, within 31 days after each calendar year, to the individual on whose behalf the account is maintained a statement with respect to the account balance as of the close of, and the account activity during, such calendar year.
(j) Increase in maximum limitations for simplified employee pensions
In the case of any simplified employee pension, subsections (a)(1) and (b)(2) of this section shall be applied by increasing the amounts contained therein by the amount of the limitation in effect under section 415(c)(1)(A).
(k) Simplified employee pension defined
(1) In general
For purposes of this title, the term "simplified employee pension" means an individual retirement account or individual retirement annuity—
(A) with respect to which the requirements of paragraphs (2), (3), (4), and (5) of this subsection are met, and
(B) if such account or annuity is part of a top-heavy plan (as defined in section 416), with respect to which the requirements of section 416(c)(2) are met.
(2) Participation requirements
This paragraph is satisfied with respect to a simplified employee pension for a year only if for such year the employer contributes to the simplified employee pension of each employee who—
(A) has attained age 21,
(B) has performed service for the employer during at least 3 of the immediately preceding 5 years, and
(C) received at least $450 in compensation (within the meaning of section 414(q)(4)) from the employer for the year.
For purposes of this paragraph, there shall be excluded from consideration employees described in subparagraph (A) or (C) of section 410(b)(3). For purposes of any arrangement described in subsection (k)(6), any employee who is eligible to have employer contributions made on the employee's behalf under such arrangement shall be treated as if such a contribution was made.
(3) Contributions may not discriminate in favor of the highly compensated, etc.
(A) In general
The requirements of this paragraph are met with respect to a simplified employee pension for a year if for such year the contributions made by the employer to simplified employee pensions for his employees do not discriminate in favor of any highly compensated employee (within the meaning of section 414(q)).
(B) Special rules
For purposes of subparagraph (A), there shall be excluded from consideration employees described in subparagraph (A) or (C) of section 410(b)(3).
(C) Contributions must bear uniform relationship to total compensation
For purposes of subparagraph (A), and except as provided in subparagraph (D), employer contributions to simplified employee pensions (other than contributions under an arrangement described in paragraph (6)) shall be considered discriminatory unless contributions thereto bear a uniform relationship to the compensation (not in excess of the first $200,000) of each employee maintaining a simplified employee pension.
(D) Permitted disparity
For purposes of subparagraph (C), the rules of section 401(l)(2) shall apply to contributions to simplified employee pensions (other than contributions under an arrangement described in paragraph (6)).
(4) Withdrawals must be permitted
A simplified employee pension meets the requirements of this paragraph only if—
(A) employer contributions thereto are not conditioned on the retention in such pension of any portion of the amount contributed, and
(B) there is no prohibition imposed by the employer on withdrawals from the simplified employee pension.
(5) Contributions must be made under written allocation formula
The requirements of this paragraph are met with respect to a simplified employee pension only if employer contributions to such pension are determined under a definite written allocation formula which specifies—
(A) the requirements which an employee must satisfy to share in an allocation, and
(B) the manner in which the amount allocated is computed.
(6) Employee may elect salary reduction arrangement
(A) Arrangements which qualify
(i) In general
A simplified employee pension shall not fail to meet the requirements of this subsection for a year merely because, under the terms of the pension, an employee may elect to have the employer make payments—
(I) as elective employer contributions to the simplified employee pension on behalf of the employee, or
(II) to the employee directly in cash.
(ii) 50 percent of eligible employees must elect
Clause (i) shall not apply to a simplified employee pension unless an election described in clause (i)(I) is made or is in effect with respect to not less than 50 percent of the employees of the employer eligible to participate.
(iii) Requirements relating to deferral percentage
Clause (i) shall not apply to a simplified employee pension for any year unless the deferral percentage for such year of each highly compensated employee eligible to participate is not more than the product of—
(I) the average of the deferral percentages for such year of all employees (other than highly compensated employees) eligible to participate, multiplied by
(II) 1.25.
(iv) Limitations on elective deferrals
Clause (i) shall not apply to a simplified employee pension unless the requirements of section 401(a)(30) are met.
(B) Exception where more than 25 employees
This paragraph shall not apply with respect to any year in the case of a simplified employee pension maintained by an employer with more than 25 employees who were eligible to participate (or would have been required to be eligible to participate if a pension was maintained) at any time during the preceding year.
(C) Distributions of excess contributions
(i) In general
Rules similar to the rules of section 401(k)(8) shall apply to any excess contribution under this paragraph. Any excess contribution under a simplified employee pension shall be treated as an excess contribution for purposes of section 4979.
(ii) Excess contribution
For purposes of clause (i), the term "excess contribution" means, with respect to a highly compensated employee, the excess of elective employer contributions under this paragraph over the maximum amount of such contributions allowable under subparagraph (A)(iii).
(D) Deferral percentage
For purposes of this paragraph, the deferral percentage for an employee for a year shall be the ratio of—
(i) the amount of elective employer contributions actually paid over to the simplified employee pension on behalf of the employee for the year, to
(ii) the employee's compensation (not in excess of the first $200,000) for the year.
(E) Exception for State and local and tax-exempt pensions
This paragraph shall not apply to a simplified employee pension maintained by—
(i) a State or local government or political subdivision thereof, or any agency or instrumentality thereof, or
(ii) an organization exempt from tax under this title.
(F) Exception where pension does not meet requirements necessary to insure distribution of excess contributions
This paragraph shall not apply with respect to any year for which the simplified employee pension does not meet such requirements as the Secretary may prescribe as are necessary to insure that excess contributions are distributed in accordance with subparagraph (C), including—
(i) reporting requirements, and
(ii) requirements which, notwithstanding paragraph (4), provide that contributions (and any income allocable thereto) may not be withdrawn from a simplified employee pension until a determination has been made that the requirements of subparagraph (A)(iii) have been met with respect to such contributions.
(G) Highly compensated employee
For purposes of this paragraph, the term "highly compensated employee" has the meaning given such term by section 414(q).
(H) Termination
This paragraph shall not apply to years beginning after December 31, 1996. The preceding sentence shall not apply to a simplified employee pension of an employer if the terms of simplified employee pensions of such employer, as in effect on December 31, 1996, provide that an employee may make the election described in subparagraph (A).
(7) Roth contribution election
An individual retirement plan which is designated as a Roth IRA shall not be treated as a simplified employee pension under this subsection unless the employee elects for such plan to be so treated (at such time and in such manner as the Secretary may provide).
(8) Definitions
For purposes of this subsection and subsection (l)—
(A) Employee, employer, or owner-employee
The terms "employee", "employer", and "owner-employee" shall have the respective meanings given such terms by section 401(c).
(B) Compensation
Except as provided in paragraph (2)(C), the term "compensation" has the meaning given such term by section 414(s).
(C) Year
The term "year" means—
(i) the calendar year, or
(ii) if the employer elects, subject to such terms and conditions as the Secretary may prescribe, to maintain the simplified employee pension on the basis of the employer's taxable year.
(9) Cost-of-living adjustment
The Secretary shall adjust the $450 amount in paragraph (2)(C) at the same time and in the same manner as under section 415(d) and shall adjust the $200,000 amount in paragraphs (3)(C) and (6)(D)(ii) at the same time, and by the same amount, as any adjustment under section 401(a)(17)(B); except that any increase in the $450 amount which is not a multiple of $50 shall be rounded to the next lowest multiple of $50.
(10) Cross reference
For excise tax on certain excess contributions, see section 4979.
(l) Simplified employer reports
(1) In general
An employer who makes a contribution on behalf of an employee to a simplified employee pension shall provide such simplified reports with respect to such contributions as the Secretary may require by regulations. The reports required by this subsection shall be filed at such time and in such manner, and information with respect to such contributions shall be furnished to the employee at such time and in such manner, as may be required by regulations.
(2) Simple retirement accounts
(A) No employer reports
Except as provided in this paragraph, no report shall be required under this section by an employer maintaining a qualified salary reduction arrangement under subsection (p).
(B) Summary description
The trustee of any simple retirement account established pursuant to a qualified salary reduction arrangement under subsection (p) and the issuer of an annuity established under such an arrangement shall provide to the employer maintaining the arrangement, each year a description containing the following information:
(i) The name and address of the employer and the trustee or issuer.
(ii) The requirements for eligibility for participation.
(iii) The benefits provided with respect to the arrangement.
(iv) The time and method of making elections with respect to the arrangement.
(v) The procedures for, and effects of, withdrawals (including rollovers) from the arrangement.
(C) Employee notification
The employer shall notify each employee immediately before the period for which an election described in subsection (p)(5)(C) may be made of the employee's opportunity to make such election. Such notice shall include a copy of the description described in subparagraph (B).
(m) Investment in collectibles treated as distributions
(1) In general
The acquisition by an individual retirement account or by an individually-directed account under a plan described in section 401(a) of any collectible shall be treated (for purposes of this section and section 402) as a distribution from such account in an amount equal to the cost to such account of such collectible.
(2) Collectible defined
For purposes of this subsection, the term "collectible" means—
(A) any work of art,
(B) any rug or antique,
(C) any metal or gem,
(D) any stamp or coin,
(E) any alcoholic beverage, or
(F) any other tangible personal property specified by the Secretary for purposes of this subsection.
(3) Exception for certain coins and bullion
For purposes of this subsection, the term "collectible" shall not include—
(A) any coin which is—
(i) a gold coin described in paragraph (7), (8), (9), or (10) of
(ii) a silver coin described in
(iii) a platinum coin described in
(iv) a coin issued under the laws of any State, or
(B) any gold, silver, platinum, or palladium bullion of a fineness equal to or exceeding the minimum fineness that a contract market (as described in section 5 of the Commodity Exchange Act,
if such bullion is in the physical possession of a trustee described under subsection (a) of this section.1
(n) Bank
For purposes of subsection (a)(2), the term "bank" means—
(1) any bank (as defined in section 581),
(2) an insured credit union (within the meaning of paragraph (6) or (7) of section 101 of the Federal Credit Union Act), and
(3) a corporation which, under the laws of the State of its incorporation, is subject to supervision and examination by the Commissioner of Banking or other officer of such State in charge of the administration of the banking laws of such State.
(o) Definitions and rules relating to nondeductible contributions to individual retirement plans
(1) In general
Subject to the provisions of this subsection, designated nondeductible contributions may be made on behalf of an individual to an individual retirement plan.
(2) Limits on amounts which may be contributed
(A) In general
The amount of the designated nondeductible contributions made on behalf of any individual for any taxable year shall not exceed the nondeductible limit for such taxable year.
(B) Nondeductible limit
For purposes of this paragraph—
(i) In general
The term "nondeductible limit" means the excess of—
(I) the amount allowable as a deduction under section 219 (determined without regard to section 219(g)), over
(II) the amount allowable as a deduction under section 219 (determined with regard to section 219(g)).
(ii) Taxpayer may elect to treat deductible contributions as nondeductible
If a taxpayer elects not to deduct an amount which (without regard to this clause) is allowable as a deduction under section 219 for any taxable year, the nondeductible limit for such taxable year shall be increased by such amount.
(C) Designated nondeductible contributions
(i) In general
For purposes of this paragraph, the term "designated nondeductible contribution" means any contribution to an individual retirement plan for the taxable year which is designated (in such manner as the Secretary may prescribe) as a contribution for which a deduction is not allowable under section 219.
(ii) Designation
Any designation under clause (i) shall be made on the return of tax imposed by
(3) Time when contributions made
In determining for which taxable year a designated nondeductible contribution is made, the rule of section 219(f)(3) shall apply.
(4) Individual required to report amount of designated nondeductible contributions
(A) In general
Any individual who—
(i) makes a designated nondeductible contribution to any individual retirement plan for any taxable year, or
(ii) receives any amount from any individual retirement plan for any taxable year,
shall include on his return of the tax imposed by
(B) Information required to be supplied
The following information is described in this subparagraph:
(i) The amount of designated nondeductible contributions for the taxable year.
(ii) The amount of distributions from individual retirement plans for the taxable year.
(iii) The excess (if any) of—
(I) the aggregate amount of designated nondeductible contributions for all preceding taxable years, over
(II) the aggregate amount of distributions from individual retirement plans which was excludable from gross income for such taxable years.
(iv) The aggregate balance of all individual retirement plans of the individual as of the close of the calendar year in which the taxable year begins.
(v) Such other information as the Secretary may prescribe.
(C) Penalty for reporting contributions not made
For penalty where individual reports designated nondeductible contributions not made, see section 6693(b).
(5) Special rule for difficulty of care payments excluded from gross income
In the case of an individual who for a taxable year excludes from gross income under section 131 a qualified foster care payment which is a difficulty of care payment, if—
(A) the deductible amount in effect for the taxable year under section 219(b), exceeds
(B) the amount of compensation includible in the individual's gross income for the taxable year,
the individual may elect to increase the nondeductible limit under paragraph (2) for the taxable year by an amount equal to the lesser of such excess or the amount so excluded.
(p) Simple retirement accounts
(1) In general
For purposes of this title, the term "simple retirement account" means an individual retirement plan (as defined in section 7701(a)(37))—
(A) with respect to which the requirements of paragraphs (3), (4), and (5) are met; and
(B) except in the case of a rollover contribution described in subsection (d)(3)(G) or a rollover contribution otherwise described in subsection (d)(3) or in section 402(c), 403(a)(4), 403(b)(8), or 457(e)(16), which is made after the 2-year period described in section 72(t)(6), with respect to which the only contributions allowed are contributions under a qualified salary reduction arrangement.
(2) Qualified salary reduction arrangement
(A) In general
For purposes of this subsection, the term "qualified salary reduction arrangement" means a written arrangement of an eligible employer under which—
(i) an employee eligible to participate in the arrangement may elect to have the employer make payments—
(I) as elective employer contributions to a simple retirement account on behalf of the employee, or
(II) to the employee directly in cash,
(ii) the amount which an employee may elect under clause (i) for any year is required to be expressed as a percentage of compensation and may not exceed a total of the applicable dollar amount for any year,
(iii) the employer is required to make a matching contribution to the simple retirement account for any year in an amount equal to so much of the amount the employee elects under clause (i)(I) as does not exceed the applicable percentage of compensation for the year,
(iv) the employer may make nonelective contributions of a uniform percentage (up to 10 percent) of compensation for each employee who is eligible to participate in the arrangement, and who has at least $5,000 of compensation from the employer for the year, but such contributions with respect to any employee shall not exceed $5,000 for the year, and
(v) no contributions may be made other than contributions described in clause (i), (iii), or (iv).
The compensation taken into account under clause (iv) for any year shall not exceed the limitation in effect for such year under section 401(a)(17).
(B) Employer may elect 2-percent nonelective contribution
(i) In general
An employer shall be treated as meeting the requirements of subparagraph (A)(iii) for any year if, in lieu of the contributions described in such clause, the employer elects to make nonelective contributions of 2 percent of compensation for each employee who is eligible to participate in the arrangement and who has at least $5,000 of compensation from the employer for the year. If an employer makes an election under this subparagraph for any year, the employer shall notify employees of such election within a reasonable period of time before the 60-day period for such year under paragraph (5)(C).
(ii) Compensation limitation
The compensation taken into account under clause (i) for any year shall not exceed the limitation in effect for such year under section 401(a)(17).
(iii) Special rule for electing larger employers
In the case of an employer which had more than 25 employees who received at least $5,000 of compensation from the employer for the preceding year, and which makes the election under subparagraph (E)(i)(II) for any year, clause (i) shall be applied for such year by substituting "3 percent" for "2 percent".
(C) Definitions
For purposes of this subsection—
(i) Eligible employer
(I) In general
The term "eligible employer" means, with respect to any year, an employer which had no more than 100 employees who received at least $5,000 of compensation from the employer for the preceding year.
(II) 2-year grace period
An eligible employer who establishes and maintains a plan under this subsection for 1 or more years and who fails to be an eligible employer for any subsequent year shall be treated as an eligible employer for the 2 years following the last year the employer was an eligible employer. If such failure is due to any acquisition, disposition, or similar transaction involving an eligible employer, the preceding sentence shall not apply.
(ii) Applicable percentage
(I) In general
Except as provided in subclause (IV), the term "applicable percentage" means 3 percent.
(II) Election of lower percentage
An employer may elect to apply a lower percentage (not less than 1 percent) for any year for all employees eligible to participate in the plan for such year if the employer notifies the employees of such lower percentage within a reasonable period of time before the 60-day election period for such year under paragraph (5)(C). An employer may not elect a lower percentage under this subclause for any year if that election would result in the applicable percentage being lower than the applicable percentage in more than 2 of the years in the 5-year period ending with such year.
(III) Special rule for years arrangement not in effect
If any year in the 5-year period described in subclause (II) is a year prior to the first year for which any qualified salary reduction arrangement is in effect with respect to the employer (or any predecessor), the employer shall be treated as if the level of the employer matching contribution was at the applicable percentage of compensation for such prior year.
(IV) Special rule for electing larger employers
In the case of an employer which had more than 25 employees who received at least $5,000 of compensation from the employer for the preceding year, and which makes the election under subparagraph (E)(i)(II) for any year, subclause (I) shall be applied for such year by substituting "4 percent" for "3 percent".
(D) Arrangement may be only plan of employer
(i) In general
An arrangement shall not be treated as a qualified salary reduction arrangement for any year if the employer (or any predecessor employer) maintained a qualified plan with respect to which contributions were made, or benefits were accrued, for service in any year in the period beginning with the year such arrangement became effective and ending with the year for which the determination is being made. If only individuals other than employees described in subparagraph (A) of section 410(b)(3) are eligible to participate in such arrangement, then the preceding sentence shall be applied without regard to any qualified plan in which only employees so described are eligible to participate.
(ii) Qualified plan
For purposes of this subparagraph, the term "qualified plan" means a plan, contract, pension, or trust described in subparagraph (A) or (B) of section 219(g)(5).
(E) Applicable dollar amount; cost-of-living adjustment
(i) In general
For purposes of subparagraph (A)(ii), the applicable dollar amount is—
(I) the adjusted dollar amount in the case of an eligible employer described in clause (iii) which had not more than 25 employees who received at least $5,000 of compensation from the employer for the preceding year,
(II) the adjusted dollar amount in the case of an eligible employer described in clause (iii) which is not described in subclause (I) and which elects, at such time and in such manner as prescribed by the Secretary, the application of this subclause for the year, and
(III) $10,000 in any other case.
(ii) Adjusted dollar amount
For purposes of clause (i), the adjusted dollar amount is an amount equal to 110 percent of the dollar amount in effect under clause (i)(III) for calendar year 2024.
(iii) Cost-of-living adjustment
(I) Certain large employers
In the case of a year beginning after December 31, 2005, the Secretary shall adjust the $10,000 amount under clause (i)(III) at the same time and in the same manner as under section 415(d), except that the base period taken into account shall be the calendar quarter beginning July 1, 2004, and any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple of $500.
(II) Other employers
In the case of a year beginning after December 31, 2024, the Secretary shall adjust annually the adjusted dollar amount under clause (ii) in the manner provided under subclause (I) of this clause, except that the base period taken into account shall be the calendar quarter beginning July 1, 2023.
(iv) Employer has not had another plan within 3 years
An eligible employer is described in this clause only if, during the 3-taxable-year period immediately preceding the 1st year the employer maintains the qualified salary reduction arrangement under this paragraph, neither the employer nor any member of any controlled group including the employer (or any predecessor of either) established or maintained any plan described in clause (i), (ii), or (iv) of section 219(g)(5)(A) with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are eligible to participate in such qualified salary reduction arrangement.
(F) Matching contributions for qualified student loan payments
(i) In general
Subject to the rules of clause (iii), an arrangement shall not fail to be treated as meeting the requirements of subparagraph (A)(iii) solely because under the arrangement, solely for purposes of such subparagraph, qualified student loan payments are treated as amounts elected by the employee under subparagraph (A)(i)(I) to the extent such payments do not exceed—
(I) the applicable dollar amount under subparagraph (E) (after application of section 414(v)) for the year (or, if lesser, the employee's compensation (as defined in section 415(c)(3)) for the year), reduced by
(II) any other amounts elected by the employee under subparagraph (A)(i)(I) for the year.
(ii) Qualified student loan payment
For purposes of this subparagraph—
(I) In general
The term "qualified student loan payment" means a payment made by an employee in repayment of a qualified education loan (as defined in section 221(d)(1)) incurred by the employee to pay qualified higher education expenses, but only if the employee certifies to the employer making the matching contribution that such payment has been made on such a loan.
(II) Qualified higher education expenses
The term "qualified higher education expenses" has the same meaning as when used in section 401(m)(4)(D).
(iii) Applicable rules
Clause (i) shall apply to an arrangement only if, under the arrangement—
(I) matching contributions on account of qualified student loan payments are provided only on behalf of employees otherwise eligible to elect contributions under subparagraph (A)(i)(I), and
(II) all employees otherwise eligible to participate in the arrangement are eligible to receive matching contributions on account of qualified student loan payments.
(G) Adjustment for inflation
In the case of taxable years beginning after December 31, 2024, the $5,000 amount in subparagraph (A)(iv)(II) shall be increased by an amount equal to—
(i) such amount, multiplied by
(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "2023" for "2016" in subparagraph (A)(ii) thereof.
If any amount as adjusted under the preceding sentence is not a multiple of $100, such amount shall be rounded to the nearest multiple of $100.
(H) 2-year grace period
An eligible employer which had not more than 25 employees who received at least $5,000 of compensation from the employer for 1 or more years, and which has more than 25 such employees for any subsequent year, shall be treated for purposes of subparagraph (E)(i) as having 25 such employees for the 2 years following the last year the employer had not more than 25 such employees, and not as having made the election under subparagraph (E)(i)(II) for such 2 years. Rules similar to the second sentence of subparagraph (C)(i)(II) shall apply for purposes of this subparagraph.
(3) Vesting requirements
The requirements of this paragraph are met with respect to a simple retirement account if the employee's rights to any contribution to the simple retirement account are nonforfeitable. For purposes of this paragraph, rules similar to the rules of subsection (k)(4) shall apply.
(4) Participation requirements
(A) In general
The requirements of this paragraph are met with respect to any simple retirement account for a year only if, under the qualified salary reduction arrangement, all employees of the employer who—
(i) received at least $5,000 in compensation from the employer during any 2 preceding years, and
(ii) are reasonably expected to receive at least $5,000 in compensation during the year,
are eligible to make the election under paragraph (2)(A)(i) or receive the nonelective contribution described in paragraph (2)(B).
(B) Excludable employees
An employer may elect to exclude from the requirement under subparagraph (A) employees described in section 410(b)(3).
(5) Administrative requirements
The requirements of this paragraph are met with respect to any simple retirement account if, under the qualified salary reduction arrangement—
(A) an employer must—
(i) make the elective employer contributions under paragraph (2)(A)(i) not later than the close of the 30-day period following the last day of the month with respect to which the contributions are to be made, and
(ii) make the matching contributions under paragraph (2)(A)(iii) or the nonelective contributions under paragraph (2)(B) not later than the date described in section 404(m)(2)(B),
(B) an employee may elect to terminate participation in such arrangement at any time during the year, except that if an employee so terminates, the arrangement may provide that the employee may not elect to resume participation until the beginning of the next year, and
(C) each employee eligible to participate may elect, during the 60-day period before the beginning of any year (and the 60-day period before the first day such employee is eligible to participate), to participate in the arrangement, or to modify the amounts subject to such arrangement, for such year.
(6) Definitions
For purposes of this subsection—
(A) Compensation
(i) In general
The term "compensation" means amounts described in paragraphs (3) and (8) of section 6051(a). For purposes of the preceding sentence, amounts described in section 6051(a)(3) shall be determined without regard to section 3401(a)(3).
(ii) Self-employed
In the case of an employee described in subparagraph (B), the term "compensation" means net earnings from self-employment determined under section 1402(a) without regard to any contribution under this subsection. The preceding sentence shall be applied as if the term "trade or business" for purposes of section 1402 included service described in section 1402(c)(6).
(B) Employee
The term "employee" includes an employee as defined in section 401(c)(1).
(C) Year
The term "year" means the calendar year.
(7) Use of designated financial institution
A plan shall not be treated as failing to satisfy the requirements of this subsection or any other provision of this title merely because the employer makes all contributions to the individual retirement accounts or annuities of a designated trustee or issuer. The preceding sentence shall not apply unless each plan participant is notified in writing (either separately or as part of the notice under subsection (l)(2)(C)) that the participant's balance may be transferred without cost or penalty to another individual account or annuity in accordance with subsection (d)(3)(G).
(8) Coordination with maximum limitation
In the case of any simple retirement account—
(A) subsection (a)(1) shall be applied by substituting for "the amount in effect for such taxable year under section 219(b)(1)(A)" the following: "the sum of the dollar amount in effect under subsection (p)(2)(A)(ii), the employer contribution required under subsection (p)(2)(A)(iii) or (p)(2)(B)(i), whichever is applicable, and a contribution which meets the requirement of subsection (p)(2)(A)(iv) with respect to the employee", and
(B) subsection (b)(2)(B) shall be applied by substituting for "the dollar amount in effect under section 219(b)(1)(A)" the following: "the sum of the dollar amount in effect under subsection (p)(2)(A)(ii), the employer contribution required under subsection (p)(2)(A)(iii) or (p)(2)(B)(i), whichever is applicable, and a contribution which meets the requirement of subsection (p)(2)(A)(iv) with respect to the employee".
(9) Matching contributions on behalf of self-employed individuals not treated as elective employer contributions
Any matching contribution described in paragraph (2)(A)(iii) which is made on behalf of a self-employed individual (as defined in section 401(c)) shall not be treated as an elective employer contribution to a simple retirement account for purposes of this title.
(10) Special rules for acquisitions, dispositions, and similar transactions
(A) In general
An employer which fails to meet any applicable requirement by reason of an acquisition, disposition, or similar transaction shall not be treated as failing to meet such requirement during the transition period if—
(i) the employer satisfies requirements similar to the requirements of section 410(b)(6)(C)(i)(II); and
(ii) the qualified salary reduction arrangement maintained by the employer would satisfy the requirements of this subsection after the transaction if the employer which maintained the arrangement before the transaction had remained a separate employer.
(B) Applicable requirement
For purposes of this paragraph, the term "applicable requirement" means—
(i) the requirement under paragraph (2)(A)(i) that an employer be an eligible employer;
(ii) the requirement under paragraph (2)(D) that an arrangement be the only plan of an employer; and
(iii) the participation requirements under paragraph (4).
(C) Transition period
For purposes of this paragraph, the term "transition period" means the period beginning on the date of any transaction described in subparagraph (A) and ending on the last day of the second calendar year following the calendar year in which such transaction occurs.
(11) Replacement of simple retirement accounts with safe harbor plans during plan year
(A) In general
Subject to the requirements of this paragraph, an employer may elect (in such form and manner as the Secretary may prescribe) at any time during a year to terminate the qualified salary reduction arrangement under paragraph (2), but only if the employer establishes and maintains (as of the day after the termination date) a safe harbor plan to replace the terminated arrangement.
(B) Combined limits on contributions
The terminated arrangement and safe harbor plan shall both be treated as violating the requirements of paragraph (2)(A)(ii) or section 401(a)(30) (whichever is applicable) if the aggregate elective contributions of the employee under the terminated arrangement during its last plan year and under the safe harbor plan during its transition year exceed the sum of—
(i) the applicable dollar amount for such arrangement (determined on a full-year basis) under this subsection (after the application of section 414(v)) with respect to the employee for such last plan year multiplied by a fraction equal to the number of days in such plan year divided by 365, and
(ii) the applicable dollar amount (as so determined) under section 402(g)(1) for such safe harbor plan on such elective contributions during the transition year multiplied by a fraction equal to the number of days in such transition year divided by 365.
(C) Transition year
For purposes of this paragraph, the transition year is the period beginning after the termination date and ending on the last day of the calendar year during which the termination occurs.
(D) Safe harbor plan
For purposes of this paragraph, the term "safe harbor plan" means a qualified cash or deferred arrangement which meets the requirements of paragraph (11), (12), (13), or (16) of section 401(k).
(12) Roth contribution election
An individual retirement plan which is designated as a Roth IRA shall not be treated as a simple retirement account under this subsection unless the employee elects for such plan to be so treated (at such time and in such manner as the Secretary may provide).
(q) Deemed IRAs under qualified employer plans
(1) General rule
If—
(A) a qualified employer plan elects to allow employees to make voluntary employee contributions to a separate account or annuity established under the plan, and
(B) under the terms of the qualified employer plan, such account or annuity meets the applicable requirements of this section or section 408A for an individual retirement account or annuity,
then such account or annuity shall be treated for purposes of this title in the same manner as an individual retirement plan and not as a qualified employer plan (and contributions to such account or annuity as contributions to an individual retirement plan and not to the qualified employer plan). For purposes of subparagraph (B), the requirements of subsection (a)(5) shall not apply.
(2) Special rules for qualified employer plans
For purposes of this title, a qualified employer plan shall not fail to meet any requirement of this title solely by reason of establishing and maintaining a program described in paragraph (1).
(3) Definitions
For purposes of this subsection—
(A) Qualified employer plan
The term "qualified employer plan" has the meaning given such term by section 72(p)(4)(A)(i); except that such term shall also include an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).
(B) Voluntary employee contribution
The term "voluntary employee contribution" means any contribution (other than a mandatory contribution within the meaning of section 411(c)(2)(C))—
(i) which is made by an individual as an employee under a qualified employer plan which allows employees to elect to make contributions described in paragraph (1), and
(ii) with respect to which the individual has designated the contribution as a contribution to which this subsection applies.
(r) Cross references
(1) For tax on excess contributions in individual retirement accounts or annuities, see section 4973.
(2) For tax on certain accumulations in individual retirement accounts or annuities, see section 4974.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table under
Editorial Notes
References in Text
Paragraph (6) or (7) of section 101 of the Federal Credit Union Act, referred to in subsec. (n)(2), is classified to
Amendments
2022—Subsec. (b).
Subsec. (d)(3)(G).
Subsec. (d)(8)(F).
Subsec. (d)(8)(G).
Subsec. (e)(2)(A)(iii).
Subsec. (k)(7) to (10).
Subsec. (o)(5)(A).
Subsec. (p)(2)(A).
Subsec. (p)(2)(A)(iv).
Subsec. (p)(2)(A)(v).
Subsec. (p)(2)(B)(iii).
Subsec. (p)(2)(C)(ii)(I).
Subsec. (p)(2)(C)(ii)(II), (III).
Subsec. (p)(2)(C)(ii)(IV).
Subsec. (p)(2)(E)(i) to (iii).
Subsec. (p)(2)(E)(iv).
Subsec. (p)(2)(F).
Subsec. (p)(2)(G).
Subsec. (p)(2)(H).
Subsec. (p)(8).
Subsec. (p)(11).
Subsec. (p)(12).
2019—Subsec. (b).
Subsec. (c)(3).
Subsec. (d)(8)(A).
Subsec. (o)(5).
2018—Subsec. (a)(1).
Subsec. (m)(3)(B).
2017—Subsec. (d)(6).
2015—Subsec. (d)(8)(F).
Subsec. (p)(1)(B).
2014—Subsec. (d)(8)(F).
Subsec. (p)(2)(E)(i).
2013—Subsec. (d)(8)(F).
2010—Subsec. (d)(8)(F).
2008—Subsec. (d)(8)(F).
2007—Subsec. (d)(8)(D).
2006—Subsec. (d)(8).
Subsec. (d)(9).
2004—Subsec. (a)(1).
Subsec. (n)(2).
Subsec. (p)(6)(A)(i).
2002—Subsec. (k)(2)(C).
Subsec. (k)(8).
Subsec. (q)(3)(A).
2001—Subsec. (a)(1).
Subsec. (b).
Subsec. (b)(2)(B).
Subsec. (d)(3)(A).
"(ii) no amount in the account and no part of the value of the annuity is attributable to any source other than a rollover contribution (as defined in section 402) from an employee's trust described in section 401(a) which is exempt from tax under section 501(a) or from an annuity plan described in section 403(a) (and any earnings on such contribution), and the entire amount received (including property and other money) is paid (for the benefit of such individual) into another such trust or annuity plan not later than the 60th day on which the individual receives the payment or the distribution; or
"(iii)(I) the entire amount received (including money and other property) represents the entire interest in the account or the entire value of the annuity,
"(II) 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 annuity contract described in section 403(b) and any earnings on such rollover, and
"(III) the entire amount thereof is paid into another annuity contract described in section 403(b) (for the benefit of such individual) not later than the 60th day after he receives the payment or distribution."
Subsec. (d)(3)(D)(i).
Subsec. (d)(3)(G).
"(i) it is paid into another simple retirement account, or
"(ii) in the case of any payment or distribution to which section 72(t)(6) does not apply, it is paid into an individual retirement plan."
Subsec. (d)(3)(H).
Subsec. (d)(3)(I).
Subsec. (j).
Subsec. (k)(3)(C), (6)(D)(ii), (8).
Subsec. (p)(2)(A)(ii).
Subsec. (p)(2)(E).
Subsec. (p)(6)(A)(ii).
Subsec. (p)(8).
Subsecs. (q), (r).
2000—Subsec. (d)(5).
1998—Subsec. (d)(7).
Subsec. (d)(7)(B).
Subsec. (p)(2)(C)(i)(II).
Subsec. (p)(2)(D)(i).
Subsec. (p)(2)(D)(iii).
Subsec. (p)(8), (9).
Subsec. (p)(10).
1997—Subsec. (i).
Subsec. (k)(6)(H).
Subsec. (l)(2)(B).
Subsec. (m)(3).
"(A) any gold coin described in paragraph (7), (8), (9), or (10) of
"(B) any silver coin described in
"(C) any coin issued under the laws of any State."
Subsec. (p)(2)(D)(i).
Subsec. (p)(2)(D)(iii).
Subsec. (p)(5).
Subsec. (p)(8).
1996—Subsec. (d)(3)(G).
Subsec. (d)(5)(A).
Subsec. (i).
Subsec. (k)(2)(C).
Subsec. (k)(6)(H).
Subsec. (l).
Subsecs. (p), (q).
1994—Subsec. (k)(8).
1993—Subsec. (k)(3)(C), (6)(D)(ii).
Subsec. (k)(8).
1992—Subsec. (a)(1).
Subsec. (d)(3)(A)(ii).
Subsec. (d)(3)(B).
Subsec. (d)(3)(F).
1989—Subsecs. (a)(6), (b)(3).
Subsec. (d)(6).
1988—Subsec. (d)(2)(C).
Subsec. (d)(3)(A).
Subsec. (d)(3)(E).
Subsec. (d)(4).
Subsec. (d)(5).
Subsec. (d)(7).
Subsec. (k)(3)(B).
"(i) there shall be excluded from consideration employees described in subparagraph (A) or (C) of section 410(b)(3), and
"(ii) an individual shall be considered a shareholder if he owns (with the application of section 318) more than 10 percent of the value of the stock of the employer."
Subsec. (k)(3)(C).
Subsec. (k)(6)(A).
"(i) an employee may elect to have the employer make payments—
"(I) as elective employer contributions to the simplified employee pension on behalf of the employee, or
"(II) to the employee directly in cash,
"(ii) an election described in clause (i)(I) is made or is in effect with respect to not less than 50 percent of the employees of the employer, and
"(iii) the deferral percentage for such year of each highly compensated employee eligible to participate is not more than the product derived by multiplying the average of the deferral percentages for such year of all employees (other than highly compensated employees) eligible to participate by 1.25."
Subsec. (k)(6)(A)(iv).
Subsec. (k)(6)(B).
Subsec. (k)(6)(D)(ii).
Subsec. (k)(6)(F), (G).
Subsec. (k)(7)(B).
Subsec. (k)(8).
Subsec. (m)(3).
Subsec. (o)(4)(B)(iv).
1986—Subsecs. (a)(6), (b)(3).
Subsec. (c)(1).
Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (d)(3)(A).
Subsec. (d)(3)(A)(ii).
Subsec. (d)(3)(E).
Subsec. (d)(3)(F).
Subsec. (d)(5).
Subsec. (d)(5)(A).
Subsec. (f).
Subsec. (i).
Subsec. (k)(2).
"(A) has attained age 21, and
"(B) has performed service for the employer during at least 3 of the immediately preceding 5 calendar years.
For purposes of this paragraph, there shall be excluded from consideration employees described in subparagraph (A) or (C) of section 410(b)(3)."
Subsec. (k)(2)(A).
Subsec. (k)(3)(A).
"(i) an officer,
"(ii) a shareholder,
"(iii) a self-employed individual, or
"(iv) highly compensated".
Subsec. (k)(3)(C).
Subsec. (k)(3)(D), (E).
Subsec. (k)(6).
Subsec. (k)(7)(C).
Subsec. (k)(8).
Subsec. (k)(9).
Subsec. (m)(3).
Subsecs. (o), (p).
1984—Subsec. (a)(1).
Subsec. (a)(6).
Subsec. (a)(7).
Subsec. (b)(3).
Subsec. (b)(4), (5).
Subsec. (d)(3)(A)(i).
Subsec. (d)(3)(A)(ii).
Subsec. (d)(3)(B).
Subsec. (d)(3)(C), (D).
Subsec. (d)(3)(D)(ii).
Subsec. (d)(6).
Subsec. (h).
Subsec. (i).
Subsec. (k)(1).
Subsec. (k)(3)(C).
Subsec. (k)(3)(D).
Subsec. (k)(3)(E).
1983—Subsec. (j).
Subsec. (k)(3)(C)(ii).
Subsecs. (m), (n).
1982—Subsec. (a)(2).
Subsec. (a)(7).
Subsec. (b)(4).
Subsec. (d)(3)(C).
Subsec. (j).
Subsec. (k)(1).
Subsec. (k)(3)(C).
Subsec. (k)(6).
Subsecs. (n), (o).
1981—Subsec. (a)(1).
Subsec. (b).
Subsec. (d)(4).
Subsec. (d)(5)(A).
Subsec. (j).
Subsec. (k)(3)(C).
Subsecs. (m), (n).
1980—Subsec. (a)(1).
Subsec. (d)(5).
Subsec. (j)(3).
Subsec. (k).
Subsec. (k)(2), (3)(B)(i).
1978—Subsec. (a)(1).
Subsec. (b)(2).
Subsec. (d)(3)(A)(iii).
Subsec. (d)(3)(B).
Subsec. (d)(4).
Subsec. (d)(5), (6).
Subsecs. (j) to (m).
1976—Subsecs. (a)(2), (6), (b).
Subsec. (c)(2).
Subsec. (d)(1).
Subsec. (d)(4).
Subsecs. (h), (i).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by section 107(d) of
Amendment by section 110(d) of
Amendment by section 116(a), (b)(1) of
Amendment by section 117(a), (c)–(f) of
"(1)
"(2)
Amendment by section 332(a), (b)(2) of
Amendment by section 401(b)(4) of
Amendment by section 601(b)(3), (c)(1) of
Effective Date of 2019 Amendment
"(1)
"(2)
Amendment by section 107(b) of
Amendment by section 114(c) of
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Amendment by section 221(a)(53) of
Effective Date of 2013 Amendment
"(1)
"(2)
"(A) any qualified charitable distribution made after December 31, 2012, and before February 1, 2013, shall be deemed to have been made on December 31, 2012, and
"(B) any portion of a distribution from an individual retirement account to the taxpayer after November 30, 2012, and before January 1, 2013, may be treated as a qualified charitable distribution to the extent that—
"(i) such portion is transferred in cash after the distribution to an organization described in section 408(d)(8)(B)(i) before February 1, 2013, and
"(ii) such portion is part of a distribution that would meet the requirements of section 408(d)(8) but for the fact that the distribution was not transferred directly to an organization described in section 408(d)(8)(B)(i)."
Effective Date of 2010 Amendment
"(1)
"(2)
Effective Date of 2008 Amendment
Effective Date of 2007 Amendment
Amendment by
Effective Date of 2006 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by section 404(d) of
Effective Date of 2002 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by section 601(b) of
Amendment by section 611(c)(1), (f)(1), (2), (g)(2) of
Amendment by section 641(e)(8) of
"(1)
"(2)
Amendment by section 643(c) of
Amendment by section 644(b) of
Effective Date of 1998 Amendment
Amendment by section 6018(b) of
Amendment by sections 6015(a) and 6016(a)(1) of
Effective Date of 1997 Amendment
Amendment by section 302(d) of
Amendment by section 1601(d)(1)(A)–(C)(i), (D)–(G) of
Effective Date of 1996 Amendment
Amendment by section 1421(a), (b)(3)(B), (5), (6), (c) of
Amendment by section 1427(b)(3) of
Amendment by section 1431(c)(1)(B) of
Effective Date of 1994 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by section 7811(m)(7) of
Effective Date of 1988 Amendment
Amendment by section 1011(c)(7)(C) of
Amendment by sections 1011(b)(1)–(3), (f)(1)–(5), (10), (i)(5) and 1018(t)(3)(D) of
Effective Date of 1986 Amendment
Amendment by section 1102(a), (b)(2), (c), (e)(2) of
Amendment by section 1108(a), (d)–(g)(1), (4), (6) of
Amendment by section 1121(c)(2) of
Amendment by section 1122(e)(2)(B) of
Amendment by section 1123(d)(2) of
Amendment by sections 1852(a)(1), (5)(C), (7)(A) and 1875(c)(8) of
Amendment by section 1875(c)(6)(A) of
Effective Date of 1984 Amendment
Amendment by section 147(a) of
Amendment by section 491(d)(19)–(24) of
Amendment by section 521(b) of
Amendment by section 522(d)(12) of
Amendment by section 713 of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by sections 237 and 238 of
Effective Date of 1981 Amendment
Amendment by section 311(g)(1)(A)–(C), (2), (h)(2) of
Amendment by section 312(b)(2), (c)(5) of
Amendment by section 313(b)(2) of
Effective Date of 1980 Amendment
Amendment by
Amendment by
Effective Date of 1978 Amendment
Amendment by section 156(c)(1), (3) of
Amendment by section 157(h)(2) of
Amendment by section 157(g)(3) of
Amendment by section 703(c)(4) of
Effective Date of 1976 Amendment
Amendment by section 1501(b)(2), (5), (10) of
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1974, see section 2002(i)(1) of
Treasury Guidance on Rollovers
"(a)
"(1) guidance in the form of sample forms (including relevant procedures and protocols) for rollovers of eligible rollover distributions from a retirement to an eligible retirement plan which—
"(A) are written in a manner calculated to be understood by the average person, and
"(B) can be used by both distributing eligible retirement plans and receiving retirement plans, and
"(2) guidance in the form of sample forms (including relevant procedures and protocols) for trustee-to-trustee transfers of amounts from an individual retirement plan to another individual retirement plan which—
"(A) are written in a manner calculated to be understood by the average person, and
"(B) can be used by both transferring individual retirement plans and individual retirement plans receiving the transfer.
"(b)
Rollover of Amounts Received in Airline Carrier Bankruptcy
"(a)
"(1)
"(2)
"(3)
"(4)
"(A)
"(i) 90 percent of the aggregate airline payment amounts received by the qualified airline employee during the taxable year and all preceding taxable years, over
"(ii) the aggregate amount of such transfers to which paragraphs (1) and (2) applied for all preceding taxable years.
"(B)
"(i) any airline payment amount received by the surviving spouse of any qualified employee, and any amount transferred to a traditional IRA by such spouse under subsection (d), shall be treated as an amount received or transferred by the qualified employee, and
"(ii) any amount transferred to a traditional IRA which is attributable to net income described in paragraph (2) shall not be taken into account.
"(5)
"(6)
"(b)
"(c)
"(1)
"(A)
"(i) under the approval of an order of a Federal bankruptcy court in a case filed after September 11, 2001, and before January 1, 2007, or filed on November 29, 2011, and
"(ii) in respect of the qualified airline employee's interest in a bankruptcy claim against the carrier, any note of the carrier (or amount paid in lieu of a note being issued), or any other fixed obligation of the carrier to pay a lump sum amount.
The amount of such payment shall be determined without regard to any requirement to deduct and withhold tax from such payment under sections 3102(a) of the Internal Revenue Code of 1986 and 3402(a) of such Code.
"(B)
"(2)
"(A) is a plan described in section 401(a) of the Internal Revenue Code of 1986 which includes a trust exempt from tax under section 501(a) of such Code, and
"(B) was terminated, became subject to the restrictions contained in paragraphs (2) and (3) of section 402(b) of the Pension Protection Act of 2006 [
"(3)
"(4)
"(d)
"(e)
[
Direct Payment of Tax Refunds to Individual Retirement Plans
"(a)
"(b)
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Transitional Rule for Contributions for Taxable Years Beginning Before January 1, 1978
Exchange of Fixed Premium Annuity or Endowment Contract Issued On or Before Nov. 6, 1978, for Individual Retirement Annuity
1 So in original. Concluding provisions probably should be part of subpar. (B).
§408A. Roth IRAs
(a) General rule
Except as provided in this section, a Roth IRA shall be treated for purposes of this title in the same manner as an individual retirement plan.
(b) Roth IRA
For purposes of this title, the term "Roth IRA" means an individual retirement plan (as defined in section 7701(a)(37)) which is designated (in such manner as the Secretary may prescribe) at the time of establishment of the plan as a Roth IRA. Such designation shall be made in such manner as the Secretary may prescribe.
(c) Treatment of contributions
(1) No deduction allowed
No deduction shall be allowed under section 219 for a contribution to a Roth IRA.
(2) Contribution limit
The aggregate amount of contributions for any taxable year to all Roth IRAs maintained for the benefit of an individual shall not exceed the excess (if any) of—
(A) the maximum amount allowable as a deduction under section 219 with respect to such individual for such taxable year (computed without regard to subsection (g) of such section), over
(B) the aggregate amount of contributions for such taxable year to all other individual retirement plans (other than Roth IRAs) maintained for the benefit of the individual.
(3) Limits based on modified adjusted gross income
(A) Dollar limit
The amount determined under paragraph (2) for any taxable year shall not exceed an amount equal to the amount determined under paragraph (2)(A) for such taxable year, reduced (but not below zero) by the amount which bears the same ratio to such amount as—
(i) the excess of—
(I) the taxpayer's adjusted gross income for such taxable year, over
(II) the applicable dollar amount, bears to
(ii) $15,000 ($10,000 in the case of a joint return or a married individual filing a separate return).
The rules of subparagraphs (B) and (C) of section 219(g)(2) shall apply to any reduction under this subparagraph.
(B) Definitions
For purposes of this paragraph—
(i) adjusted gross income shall be determined in the same manner as under section 219(g)(3), except that any amount included in gross income under subsection (d)(3) shall not be taken into account, and
(ii) the applicable dollar amount is—
(I) in the case of a taxpayer filing a joint return, $150,000,
(II) in the case of any other taxpayer (other than a married individual filing a separate return), $95,000, and
(III) in the case of a married individual filing a separate return, zero.
(C) Marital status
Section 219(g)(4) shall apply for purposes of this paragraph.
(D) Inflation adjustment
In the case of any taxable year beginning in a calendar year after 2006, the dollar amounts in subclauses (I) and (II) of subparagraph (B)(ii) shall each be increased by an amount equal to—
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2005" for "calendar year 2016" in subparagraph (A)(ii) thereof.
Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $1,000.
(E) Special rule for certain transfers from qualified tuition programs
The amount determined under subparagraph (A) shall be increased by the lesser of—
(i) the amount of contributions described in section 529(c)(3)(E) for the taxable year, or
(ii) the amount of the reduction determined under such subparagraph (determined without regard to this subparagraph).
(4) Mandatory distribution rules not to apply before death
Notwithstanding subsections (a)(6) and (b)(3) of section 408 (relating to required distributions), the following provisions shall not apply to any Roth IRA:
(A) Section 401(a)(9)(A).
(B) The incidental death benefit requirements of section 401(a).
(5) Rollover contributions
(A) In general
No rollover contribution may be made to a Roth IRA unless it is a qualified rollover contribution.
(B) Coordination with limit
(i) In general
A qualified rollover contribution shall not be taken into account for purposes of paragraph (2).
(ii) Exception for rollovers from qualified tuition programs
Clause (i) shall not apply to any qualified rollover contribution described in subsection (e)(1)(C).
(6) Time when contributions made
For purposes of this section, the rule of section 219(f)(3) shall apply.
(d) Distribution rules
For purposes of this title—
(1) Exclusion
Any qualified distribution from a Roth IRA shall not be includible in gross income.
(2) Qualified distribution
For purposes of this subsection—
(A) In general
The term "qualified distribution" means any payment or distribution—
(i) made on or after the date on which the individual attains age 59½,
(ii) made to a beneficiary (or to the estate of the individual) on or after the death of the individual,
(iii) attributable to the individual's being disabled (within the meaning of section 72(m)(7)), or
(iv) which is a qualified special purpose distribution.
(B) Distributions within nonexclusion period
A payment or distribution from a Roth IRA shall not be treated as a qualified distribution under subparagraph (A) if such payment or distribution is made within the 5-taxable year period beginning with the first taxable year for which the individual made a contribution to a Roth IRA (or such individual's spouse, or employer in the case of a simple retirement account (as defined in section 408(p)) or simplified employee pension (as defined in section 408(k)), made a contribution to a Roth IRA) established for such individual.
(C) Distributions of excess contributions and earnings
The term "qualified distribution" shall not include any distribution of any contribution described in section 408(d)(4) and any net income allocable to the contribution.
(3) Rollovers from an eligible retirement plan other than a Roth IRA
(A) In general
Notwithstanding sections 402(c), 403(b)(8), 408(d)(3), and 457(e)(16), in the case of any distribution to which this paragraph applies—
(i) there shall be included in gross income any amount which would be includible were it not part of a qualified rollover contribution,
(ii) section 72(t) shall not apply, and
(iii) unless the taxpayer elects not to have this clause apply, any amount required to be included in gross income for any taxable year beginning in 2010 by reason of this paragraph shall be so included ratably over the 2-taxable-year period beginning with the first taxable year beginning in 2011.
Any election under clause (iii) for any distributions during a taxable year may not be changed after the due date for such taxable year.
(B) Distributions to which paragraph applies
This paragraph shall apply to a distribution from an eligible retirement plan (as defined by section 402(c)(8)(B)) maintained for the benefit of an individual which is contributed to a Roth IRA maintained for the benefit of such individual in a qualified rollover contribution. This paragraph shall not apply to a distribution which is a qualified rollover contribution from a Roth IRA or a qualified rollover contribution from a designated Roth account which is a rollover contribution described in section 402A(c)(3)(A).
(C) Conversions
The conversion of an individual retirement plan (other than a Roth IRA) to a Roth IRA shall be treated for purposes of this paragraph as a distribution to which this paragraph applies.
(D) Additional reporting requirements
Trustees of Roth IRAs, trustees of individual retirement plans, persons subject to section 6047(d)(1), or all of the foregoing persons, whichever is appropriate, shall include such additional information in reports required under section 408(i) or 6047 as the Secretary may require to ensure that amounts required to be included in gross income under subparagraph (A) are so included.
(E) Special rules for contributions to which 2-year averaging applies
In the case of a qualified rollover contribution to a Roth IRA of a distribution to which subparagraph (A)(iii) applied, the following rules shall apply:
(i) Acceleration of inclusion
(I) In general
The amount otherwise required to be included in gross income for any taxable year beginning in 2010 or the first taxable year in the 2-year period under subparagraph (A)(iii) shall be increased by the aggregate distributions from Roth IRAs for such taxable year which are allocable under paragraph (4) to the portion of such qualified rollover contribution required to be included in gross income under subparagraph (A)(i).
(II) Limitation on aggregate amount included
The amount required to be included in gross income for any taxable year under subparagraph (A)(iii) shall not exceed the aggregate amount required to be included in gross income under subparagraph (A)(iii) for all taxable years in the 2-year period (without regard to subclause (I)) reduced by amounts included for all preceding taxable years.
(ii) Death of distributee
(I) In general
If the individual required to include amounts in gross income under such subparagraph dies before all of such amounts are included, all remaining amounts shall be included in gross income for the taxable year which includes the date of death.
(II) Special rule for surviving spouse
If the spouse of the individual described in subclause (I) acquires the individual's entire interest in any Roth IRA to which such qualified rollover contribution is properly allocable, the spouse may elect to treat the remaining amounts described in subclause (I) as includible in the spouse's gross income in the taxable years of the spouse ending with or within the taxable years of such individual in which such amounts would otherwise have been includible. Any such election may not be made or changed after the due date for the spouse's taxable year which includes the date of death.
(F) Special rule for applying section 72
(i) In general
If—
(I) any portion of a distribution from a Roth IRA is properly allocable to a qualified rollover contribution described in this paragraph; and
(II) such distribution is made within the 5-taxable year period beginning with the taxable year in which such contribution was made,
then section 72(t) shall be applied as if such portion were includible in gross income.
(ii) Limitation
Clause (i) shall apply only to the extent of the amount of the qualified rollover contribution includible in gross income under subparagraph (A)(i).
(4) Aggregation and ordering rules
(A) Aggregation rules
Section 408(d)(2) shall be applied separately with respect to Roth IRAs and other individual retirement plans.
(B) Ordering rules
For purposes of applying this section and section 72 to any distribution from a Roth IRA, such distribution shall be treated as made—
(i) from contributions to the extent that the amount of such distribution, when added to all previous distributions from the Roth IRA, does not exceed the aggregate contributions to the Roth IRA; and
(ii) from such contributions in the following order:
(I) Contributions other than qualified rollover contributions to which paragraph (3) applies.
(II) Qualified rollover contributions to which paragraph (3) applies on a first-in, first-out basis.
Any distribution allocated to a qualified rollover contribution under clause (ii)(II) shall be allocated first to the portion of such contribution required to be included in gross income.
(5) Qualified special purpose distribution
For purposes of this section, the term "qualified special purpose distribution" means any distribution to which subparagraph (F) of section 72(t)(2) applies.
(6) Taxpayer may make adjustments before due date
(A) In general
Except as provided by the Secretary, if, on or before the due date for any taxable year, a taxpayer transfers in a trustee-to-trustee transfer any contribution to an individual retirement plan made during such taxable year from such plan to any other individual retirement plan, then, for purposes of this chapter, such contribution shall be treated as having been made to the transferee plan (and not the transferor plan).
(B) Special rules
(i) Transfer of earnings
Subparagraph (A) shall not apply to the transfer of any contribution unless such transfer is accompanied by any net income allocable to such contribution.
(ii) No deduction
Subparagraph (A) shall apply to the transfer of any contribution only to the extent no deduction was allowed with respect to the contribution to the transferor plan.
(iii) Conversions
Subparagraph (A) shall not apply in the case of a qualified rollover contribution to which subsection (d)(3) applies (including by reason of subparagraph (C) thereof).
(7) Due date
For purposes of this subsection, the due date for any taxable year is the date prescribed by law (including extensions of time) for filing the taxpayer's return for such taxable year.
(e) Qualified rollover contribution
For purposes of this section—
(1) In general
The term "qualified rollover contribution" means a rollover contribution—
(A) to a Roth IRA from another such account,
(B) from an eligible retirement plan, but only if—
(i) in the case of an individual retirement plan, such rollover contribution meets the requirements of section 408(d)(3), and
(ii) in the case of any eligible retirement plan (as defined in section 402(c)(8)(B) other than clauses (i) and (ii) thereof), such rollover contribution meets the requirements of section 402(c), 403(b)(8), or 457(e)(16), as applicable, and
"(C) from a qualified tuition program to the extent provided in section 529(c)(3)(E).
For purposes of section 408(d)(3)(B), there shall be disregarded any qualified rollover contribution from an individual retirement plan (other than a Roth IRA) to a Roth IRA. The earnings and contributions of any qualified tuition program from which a qualified rollover contribution is made under subparagraph (C) shall be treated in the same manner as the earnings and contributions of a Roth IRA from which a qualified rollover contribution is made under subparagraph (A).
(2) Military death gratuity
(A) In general
The term "qualified rollover contribution" includes a contribution to a Roth IRA maintained for the benefit of an individual made before the end of the 1-year period beginning on the date on which such individual receives an amount under
(i) the sum of the amounts received during such period by such individual under such sections with respect to such person, reduced by
(ii) the amounts so received which were contributed to a Coverdell education savings account under section 530(d)(9).
(B) Annual limit on number of rollovers not to apply
Section 408(d)(3)(B) shall not apply with respect to amounts treated as a rollover by subparagraph (A).
(C) Application of section 72
For purposes of applying section 72 in the case of a distribution which is not a qualified distribution, the amount treated as a rollover by reason of subparagraph (A) shall be treated as investment in the contract.
(3) Simple retirement accounts
In the case of any payment or distribution out of a simple retirement account (as defined in section 408(p)) with respect to which an election has been made under section 408(p)(12) and to which 72(t)(6) applies, the term "qualified rollover contribution" shall not include any payment or distribution paid into an account other than another simple retirement account (as so defined).
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
Amendments
2022—Subsec. (c)(2)(A).
Subsec. (c)(3)(E).
Subsec. (c)(5)(B).
Subsec. (d)(2)(B).
Subsec. (e)(1).
Subsec. (e)(1)(C).
Subsec. (e)(3).
Subsec. (f).
"(1) a simplified employee pension or a simple retirement account may not be designated as a Roth IRA; and
"(2) contributions to any such pension or account shall not be taken into account for purposes of subsection (c)(2)(B)."
2019—Subsec. (c)(4) to (7).
2018—Subsec. (d)(3)(B).
Subsec. (e)(2)(B).
2017—Subsec. (c)(3)(D)(ii).
Subsec. (d)(6)(B)(iii).
2008—Subsec. (c)(3)(B).
Subsec. (c)(3)(C), (E).
Subsec. (d)(3)(B).
Subsec. (e).
"(1) to a Roth IRA from another such account,
"(2) from an eligible retirement plan, but only if—
"(A) in the case of an individual retirement plan, such rollover contribution meets the requirements of section 408(d)(3), and
"(B) in the case of any eligible retirement plan (as defined in section 402(c)(8)(B) other than clauses (i) and (ii) thereof), such rollover contribution meets the requirements of section 402(c), 403(b)(8), or 457(e)(16), as applicable.
For purposes of section 408(d)(3)(B), there shall be disregarded any qualified rollover contribution from an individual retirement plan (other than a Roth IRA) to a Roth IRA."
"(1)
"(2)
"(A)
"(i) the sum of the amounts received during such period by such individual under such sections with respect to such person, reduced by
"(ii) the amounts so received which were contributed to a Coverdell education savings account under section 530(d)(9).
"(B)
"(C)
2006—Subsec. (c)(3)(B).
"(i) the taxpayer's adjusted gross income exceeds $100,000, or
"(ii) the taxpayer is a married individual filing a separate return.
This subparagraph shall not apply to a qualified rollover contribution from a Roth IRA or to a qualified rollover contribution from a designated Roth account which is a rollover contribution described in section 402A(c)(3)(A)." See Effective Date of 2006 Amendment note below.
Subsec. (c)(3)(B)(i).
"(I) any amount included in gross income under subsection (d)(3) shall not be taken into account; and
"(II) any amount included in gross income by reason of a required distribution under a provision described in paragraph (5) shall not be taken into account for purposes of subparagraph (B)(i), and".
Subsec. (c)(3)(C).
Subsec. (c)(3)(D), (E).
Subsec. (d)(3).
Subsec. (d)(3)(A).
Subsec. (d)(3)(A)(iii).
Subsec. (d)(3)(B).
Subsec. (d)(3)(D).
Subsec. (d)(3)(E).
Subsec. (d)(3)(E)(i).
"(I)
"(II)
Subsec. (e).
2001—Subsec. (e).
1998—Subsec. (c)(3)(A).
Subsec. (c)(3)(A)(ii).
Subsec. (c)(3)(B).
Subsec. (c)(3)(B)(i).
Subsec. (c)(3)(C)(i).
Subsec. (c)(3)(C)(i)(II).
Subsec. (d)(1).
"(A)
"(B)
Subsec. (d)(2)(B).
"(i) it is made within the 5-taxable year period beginning with the 1st taxable year for which the individual made a contribution to a Roth IRA (or such individual's spouse made a contribution to a Roth IRA) established for such individual, or
"(ii) in the case of a payment or distribution properly allocable (as determined in the manner prescribed by the Secretary) to a qualified rollover contribution from an individual retirement plan other than a Roth IRA (or income allocable thereto), it is made within the 5-taxable year period beginning with the taxable year in which the rollover contribution was made."
Subsec. (d)(2)(C).
Subsec. (d)(3)(A).
Subsec. (d)(3)(D).
Subsec. (d)(3)(E).
Subsec. (d)(3)(F).
Subsec. (d)(3)(G).
Subsec. (d)(4).
Subsec. (d)(6).
Subsec. (d)(7).
Subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by section 401(b)(5) of
Amendment by section 601(a), (c)(2), (d) of
Effective Date of 2019 Amendment
Amendment by
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(W) of
Effective Date of 2008 Amendment
Amendment by
"(1)
"(2)
"(3)
Effective Date of 2006 Amendment
Amendment by section 833(c) of
Effective Date of 2001 Amendment
Amendment by
Effective Date of 1998 Amendments
Amendment by
Amendment by section 6005(b)(1)–(7), (9) of
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1997, see section 302(f) of
Rollover of Amounts Received in Airline Carrier Bankruptcy to Roth IRAs
"(a)
"(b)
"(1)
"(A)
"(i) under the approval of an order of a Federal bankruptcy court in a case filed after September 11, 2001, and before January 1, 2007, and
"(ii) in respect of the qualified airline employee's interest in a bankruptcy claim against the carrier, any note of the carrier (or amount paid in lieu of a note being issued), or any other fixed obligation of the carrier to pay a lump sum amount.
The amount of such payment shall be determined without regard to any requirement to deduct and withhold tax from such payment under sections 3102(a) and 3402(a).
"(B)
"(2)
"(A) is a plan described in section 401(a) of the Internal Revenue Code of 1986 which includes a trust exempt from tax under section 501(a) of such Code, and
"(B) was terminated or became subject to the restrictions contained in paragraphs (2) and (3) of section 402(b) of the Pension Protection Act of 2006 [
"(3)
"(A) to the Secretary of the Treasury, the names of the qualified airline employees to whom such amounts were paid, and
"(B) to the Secretary and to such employees, the years and the amounts of the payments.
Such reports shall be in such form, and contain such additional information, as the Secretary may prescribe.
"(c)
§409. Qualifications for tax credit employee stock ownership plans
(a) Tax credit employee stock ownership plan defined
Except as otherwise provided in this title, for purposes of this title, the term "tax credit employee stock ownership plan" means a defined contribution plan which—
(1) meets the requirements of section 401(a),
(2) is designed to invest primarily in employer securities, and
(3) meets the requirements of subsections (b), (c), (d), (e), (f), (g), (h), and (o) of this section.
(b) Required allocation of employer securities
(1) In general
A plan meets the requirements of this subsection if—
(A) the plan provides for the allocation for the plan year of all employer securities transferred to it or purchased by it (because of the requirements of section 41(c)(1)(B)) 1 to the accounts of all participants who are entitled to share in such allocation, and
(B) for the plan year the allocation to each participant so entitled is an amount which bears substantially the same proportion to the amount of all such securities allocated to all such participants in the plan for that year as the amount of compensation paid to such participant during that year bears to the compensation paid to all such participants during that year.
(2) Compensation in excess of $100,000 disregarded
For purposes of paragraph (1), compensation of any participant in excess of the first $100,000 per year shall be disregarded.
(3) Determination of compensation
For purposes of this subsection, the amount of compensation paid to a participant for any period is the amount of such participant's compensation (within the meaning of section 415(c)(3)) for such period.
(4) Suspension of allocation in certain cases
Notwithstanding paragraph (1), the allocation to the account of any participant which is attributable to the basic employee plan credit or the credit allowed under section 41 1 (relating to the employee stock ownership credit) may be extended over whatever period may be necessary to comply with the requirements of section 415.
(c) Participants must have nonforfeitable rights
A plan meets the requirements of this subsection only if it provides that each participant has a nonforfeitable right to any employer security allocated to his account.
(d) Employer securities must stay in the plan
A plan meets the requirements of this subsection only if it provides that no employer security allocated to a participant's account under subsection (b) (or allocated to a participant's account in connection with matched employer and employee contributions) may be distributed from that account before the end of the 84th month beginning after the month in which the security is allocated to the account. To the extent provided in the plan, the preceding sentence shall not apply in the case of—
(1) death, disability, separation from service, or termination of the plan;
(2) a transfer of a participant to the employment of an acquiring employer from the employment of the selling corporation in the case of a sale to the acquiring corporation of substantially all of the assets used by the selling corporation in a trade or business conducted by the selling corporation, or
(3) with respect to the stock of a selling corporation, a disposition of such selling corporation's interest in a subsidiary when the participant continues employment with such subsidiary.
This subsection shall not apply to any distribution required under section 401(a)(9) or to any distribution or reinvestment required under section 401(a)(28).
(e) Voting rights
(1) In general
A plan meets the requirements of this subsection if it meets the requirements of paragraph (2) or (3), whichever is applicable.
(2) Requirements where employer has a registration-type class of securities
If the employer has a registration-type class of securities, the plan meets the requirements of this paragraph only if each participant or beneficiary in the plan is entitled to direct the plan as to the manner in which securities of the employer which are entitled to vote and are allocated to the account of such participant or beneficiary are to be voted.
(3) Requirement for other employers
If the employer does not have a registration-type class of securities, the plan meets the requirements of this paragraph only if each participant or beneficiary in the plan is entitled to direct the plan as to the manner in which voting rights under securities of the employer which are allocated to the account of such participant or beneficiary are to be exercised with respect to any corporate matter which involves the voting of such shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as the Secretary may prescribe in regulations.
(4) Registration-type class of securities defined
For purposes of this subsection, the term, "registration-type class of securities" means—
(A) a class of securities required to be registered under section 12 of the Securities Exchange Act of 1934, and
(B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g)(2)(H) of such section 12.
(5) 1 vote per participant
A plan meets the requirements of paragraph (3) with respect to an issue if—
(A) the plan permits each participant 1 vote with respect to such issue, and
(B) the trustee votes the shares held by the plan in the proportion determined after application of subparagraph (A).
(f) Plan must be established before employer's due date
(1) In general
A plan meets the requirements of this subsection only if it is established on or before the due date (including any extension of such date) for the filing of the employer's tax return for the first taxable year of the employer for which an employee plan credit is claimed by the employer with respect to the plan.
(2) Special rule for first year
A plan which otherwise meets the requirements of this section shall not be considered to have failed to meet the requirements of section 401(a) merely because it was not established by the close of the first taxable year of the employer for which an employee plan credit is claimed by the employer with respect to the plan.
(g) Transferred amounts must stay in plan even though investment credit is redetermined or recaptured
A plan meets the requirement of this subsection only if it provides that amounts which are transferred to the plan (because of the requirements of section 48(n)(1) or 41(c)(1)(B)) 1 shall remain in the plan (and, if allocated under the plan, shall remain so allocated) even though part or all of the employee plan credit or the credit allowed under section 41 1 (relating to employee stock ownership credit) is recaptured or redetermined. For purposes of the preceding sentence, the references to section 48(n)(1) 1 and the employee plan credit shall refer to such section and credit as in effect before the enactment of the Tax Reform Act of 1984.
(h) Right to demand employer securities; put option
(1) In general
A plan meets the requirements of this subsection if a participant who is entitled to a distribution from the plan—
(A) has a right to demand that his benefits be distributed in the form of employer securities, and
(B) if the employer securities are not readily tradable on an established market, has a right to require that the employer repurchase employer securities under a fair valuation formula.
(2) Plan may distribute cash in certain cases
(A) In general
A plan which otherwise meets the requirements of this subsection or of section 4975(e)(7) shall not be considered to have failed to meet the requirements of section 401(a) merely because under the plan the benefits may be distributed in cash or in the form of employer securities.
(B) Exception for certain plans restricted from distributing securities
(i) In general
A plan to which this subparagraph applies shall not be treated as failing to meet the requirements of this subsection or section 401(a) merely because it does not permit a participant to exercise the right described in paragraph (1)(A) if such plan provides that the participant entitled to a distribution has a right to receive the distribution in cash, except that such plan may distribute employer securities subject to a requirement that such securities may be resold to the employer under terms which meet the requirements of paragraph (1)(B).
(ii) Applicable plans
This subparagraph shall apply to a plan which otherwise meets the requirements of this subsection or section 4975(e)(7) and which is established and maintained by—
(I) an employer whose charter or bylaws restrict the ownership of substantially all outstanding employer securities to employees or to a trust described in section 401(a), or
(II) an S corporation.
(3) Special rule for banks
In the case of a plan established and maintained by a bank (as defined in section 581) which is prohibited by law from redeeming or purchasing its own securities, the requirements of paragraph (1)(B) shall not apply if the plan provides that participants entitled to a distribution from the plan shall have a right to receive a distribution in cash.
(4) Put option period
An employer shall be deemed to satisfy the requirements of paragraph (1)(B) if it provides a put option for a period of at least 60 days following the date of distribution of stock of the employer and, if the put option is not exercised within such 60-day period, for an additional period of at least 60 days in the following plan year (as provided in regulations promulgated by the Secretary).
(5) Payment requirement for total distribution
If an employer is required to repurchase employer securities which are distributed to the employee as part of a total distribution, the requirements of paragraph (1)(B) shall be treated as met if—
(A) the amount to be paid for the employer securities is paid in substantially equal periodic payments (not less frequently than annually) over a period beginning not later than 30 days after the exercise of the put option described in paragraph (4) and not exceeding 5 years, and
(B) there is adequate security provided and reasonable interest paid on the unpaid amounts referred to in subparagraph (A).
For purposes of this paragraph, the term "total distribution" means the distribution within 1 taxable year to the recipient of the balance to the credit of the recipient's account.
(6) Payment requirement for installment distributions
If an employer is required to repurchase employer securities as part of an installment distribution, the requirements of paragraph (1)(B) shall be treated as met if the amount to be paid for the employer securities is paid not later than 30 days after the exercise of the put option described in paragraph (4).
(7) Exception where employee elected diversification
Paragraph (1)(A) shall not apply with respect to the portion of the participant's account which the employee elected to have reinvested under section 401(a)(28)(B) or subparagraph (B) or (C) of section 401(a)(35).
(i) Reimbursement for expenses of establishing and administering plan
A plan which otherwise meets the requirements of this section shall not be treated as failing to meet such requirements merely because it provides that—
(1) Expenses of establishing plan
As reimbursement for the expenses of establishing the plan, the employer may withhold from amounts due the plan for the taxable year for which the plan is established (or the plan may pay) so much of the amounts paid or incurred in connection with the establishment of the plan as does not exceed the sum of—
(A) 10 percent of the first $100,000 which the employer is required to transfer to the plan for that taxable year under section 41(c)(1)(B),1 and
(B) 5 percent of any amount so required to be transferred in excess of the first $100,000; and
(2) Administrative expenses
As reimbursement for the expenses of administering the plan, the employer may withhold from amounts due the plan (or the plan may pay) so much of the amounts paid or incurred during the taxable year as expenses of administering the plan as does not exceed the lesser of—
(A) the sum of—
(i) 10 percent of the first $100,000 of the dividends paid to the plan with respect to stock of the employer during the plan year ending with or within the employer's taxable year, and
(ii) 5 percent of the amount of such dividends in excess of $100,000 or
(B) $100,000.
(j) Conditional contributions to the plan
A plan which otherwise meets the requirements of this section shall not be treated as failing to satisfy such requirements (or as failing to satisfy the requirements of
(1) the contribution to the plan is conditioned on a determination by the Secretary that such plan meets the requirements of this section,
(2) the application for a determination described in paragraph (1) is filed with the Secretary not later than 90 days after the date on which an employee plan credit is claimed, and
(3) the contribution is returned within 1 year after the date on which the Secretary issues notice to the employer that such plan does not satisfy the requirements of this section.
(k) Requirements relating to certain withdrawals
Notwithstanding any other law or rule of law—
(1) the withdrawal from a plan which otherwise meets the requirements of this section by the employer of an amount contributed for purposes of the matching employee plan credit shall not be considered to make the benefits forfeitable, and
(2) the plan shall not, by reason of such withdrawal, fail to be for the exclusive benefit of participants or their beneficiaries,
if the withdrawn amounts were not matched by employee contributions or were in excess of the limitations of section 415. Any withdrawal described in the preceding sentence shall not be considered to violate the provisions of section 403(c)(1) of the Employee Retirement Income Security Act of 1974. For purposes of this subsection, the reference to the matching employee plan credit shall refer to such credit as in effect before the enactment of the Tax Reform Act of 1984.
(l) Employer securities defined
For purposes of this section—
(1) In general
The term "employer securities" means common stock issued by the employer (or by a corporation which is a member of the same controlled group) which is readily tradable on an established securities market.
(2) Special rule where there is no readily tradable common stock
If there is no common stock which meets the requirements of paragraph (1), the term "employer securities" means common stock issued by the employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of—
(A) that class of common stock of the employer (or of any other such corporation) having the greatest voting power, and
(B) that class of common stock of the employer (or of any other such corporation) having the greatest dividend rights.
(3) Preferred stock may be issued in certain cases
Noncallable preferred stock shall be treated as employer securities if such stock is convertible at any time into stock which meets the requirements of paragraph (1) or (2) (whichever is applicable) and if such conversion is at a conversion price which (as of the date of the acquisition by the tax credit employee stock ownership plan) is reasonable. For purposes of the preceding sentence, under regulations prescribed by the Secretary, preferred stock shall be treated as noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of the preceding sentence.
(4) Application to controlled group of corporations
(A) In general
For purposes of this subsection, the term "controlled group of corporations" has the meaning given to such term by section 1563(a) (determined without regard to subsections (a)(4) and (e)(3)(C) of section 1563).
(B) Where common parent owns at least 50 percent of first tier subsidiary
For purposes of subparagraph (A), if the common parent owns directly stock possessing at least 50 percent of the voting power of all classes of stock and at least 50 percent of each class of nonvoting stock in a first tier subsidiary, such subsidiary (and all other corporations below it in the chain which would meet the 80 percent test of section 1563(a) if the first tier subsidiary were the common parent) shall be treated as includible corporations.
(C) Where common parent owns 100 percent of first tier subsidiary
For purposes of subparagraph (A), if the common parent owns directly stock possessing all of the voting power of all classes of stock and all of the nonvoting stock, in a first tier subsidiary, and if the first tier subsidiary owns directly stock possessing at least 50 percent of the voting power of all classes of stock, and at least 50 percent of each class of nonvoting stock, in a second tier subsidiary of the common parent, such second tier subsidiary (and all other corporations below it in the chain which would meet the 80 percent test of section 1563(a) if the second tier subsidiary were the common parent) shall be treated as includible corporations.
(5) Nonvoting common stock may be acquired in certain cases
Nonvoting common stock of an employer described in the second sentence of section 401(a)(22) shall be treated as employer securities if an employer has a class of nonvoting common stock outstanding and the specific shares that the plan acquires have been issued and outstanding for at least 24 months.
(m) Nonrecognition of gain or loss on contribution of employer securities to tax credit employee stock ownership plan
No gain or loss shall be recognized to the taxpayer with respect to the transfer of employer securities to a tax credit employee stock ownership plan maintained by the taxpayer to the extent that such transfer is required under section 41(c)(1)(B),1 or subparagraph (A) or (B) of section 48(n)(1).1
(n) Securities received in certain transactions
(1) In general
A plan to which section 1042 applies and an eligible worker-owned cooperative (within the meaning of section 1042(c)) shall provide that no portion of the assets of the plan or cooperative attributable to (or allocable in lieu of) employer securities acquired by the plan or cooperative in a sale to which section 1042 applies may accrue (or be allocated directly or indirectly under any plan of the employer meeting the requirements of section 401(a))—
(A) during the nonallocation period, for the benefit of—
(i) any taxpayer who makes an election under section 1042(a) with respect to employer securities,
(ii) any individual who is related to the taxpayer (within the meaning of section 267(b)), or
(B) for the benefit of any other person who owns (after application of section 318(a)) more than 25 percent of—
(i) any class of outstanding stock of the corporation which issued such employer securities or of any corporation which is a member of the same controlled group of corporations (within the meaning of subsection (l)(4)) as such corporation, or
(ii) the total value of any class of outstanding stock of any such corporation.
For purposes of subparagraph (B), section 318(a) shall be applied without regard to the employee trust exception in paragraph (2)(B)(i).
(2) Failure to meet requirements
If a plan fails to meet the requirements of paragraph (1)—
(A) the plan shall be treated as having distributed to the person described in paragraph (1) the amount allocated to the account of such person in violation of paragraph (1) at the time of such allocation,
(B) the provisions of section 4979A shall apply, and
(C) the statutory period for the assessment of any tax imposed by section 4979A shall not expire before the date which is 3 years from the later of—
(i) the 1st allocation of employer securities in connection with a sale to the plan to which section 1042 applies, or
(ii) the date on which the Secretary is notified of such failure.
(3) Definitions and special rules
For purposes of this subsection—
(A) Lineal descendants
Paragraph (1)(A)(ii) shall not apply to any individual if—
(i) such individual is a lineal descendant of the taxpayer, and
(ii) the aggregate amount allocated to the benefit of all such lineal descendants during the nonallocation period does not exceed more than 5 percent of the employer securities (or amounts allocated in lieu thereof) held by the plan which are attributable to a sale to the plan by any person related to such descendants (within the meaning of section 267(c)(4)) in a transaction to which section 1042 applied.
(B) 25-percent shareholders
A person shall be treated as failing to meet the stock ownership limitation under paragraph (1)(B) if such person fails such limitation—
(i) at any time during the 1-year period ending on the date of sale of qualified securities to the plan or cooperative, or
(ii) on the date as of which qualified securities are allocated to participants in the plan or cooperative.
(C) Nonallocation period
The term "nonallocation period" means the period beginning on the date of the sale of the qualified securities and ending on the later of—
(i) the date which is 10 years after the date of sale, or
(ii) the date of the plan allocation attributable to the final payment of acquisition indebtedness incurred in connection with such sale.
(o) Distribution and payment requirements
A plan meets the requirements of this subsection if—
(1) Distribution requirement
(A) In general
The plan provides that, if the participant and, if applicable pursuant to sections 401(a)(11) and 417, with the consent of the participant's spouse elects, the distribution of the participant's account balance in the plan will commence not later than 1 year after the close of the plan year—
(i) in which the participant separates from service by reason of the attainment of normal retirement age under the plan, disability, or death, or
(ii) which is the 5th plan year following the plan year in which the participant otherwise separates from service, except that this clause shall not apply if the participant is reemployed by the employer before distribution is required to begin under this clause.
(B) Exception for certain financed securities
For purposes of this subsection, the account balance of a participant shall not include any employer securities acquired with the proceeds of the loan described in section 404(a)(9) until the close of the plan year in which such loan is repaid in full.
(C) Limited distribution period
The plan provides that, unless the participant elects otherwise, the distribution of the participant's account balance will be in substantially equal periodic payments (not less frequently than annually) over a period not longer than the greater of—
(i) 5 years, or
(ii) in the case of a participant with an account balance in excess of $800,000, 5 years plus 1 additional year (but not more than 5 additional years) for each $160,000 or fraction thereof by which such balance exceeds $800,000.
(2) Cost-of-living adjustment
The Secretary shall adjust the dollar amounts under paragraph (1)(C) at the same time and in the same manner as under section 415(d).
(p) Prohibited allocations of securities in an S corporation
(1) In general
An employee stock ownership plan holding employer securities consisting of stock in an S corporation shall provide that no portion of the assets of the plan attributable to (or allocable in lieu of) such employer securities may, during a nonallocation year, accrue (or be allocated directly or indirectly under any plan of the employer meeting the requirements of section 401(a)) for the benefit of any disqualified person.
(2) Failure to meet requirements
(A) In general
If a plan fails to meet the requirements of paragraph (1), the plan shall be treated as having distributed to any disqualified person the amount allocated to the account of such person in violation of paragraph (1) at the time of such allocation.
(B) Cross reference
For excise tax relating to violations of paragraph (1) and ownership of synthetic equity, see section 4979A.
(3) Nonallocation year
For purposes of this subsection—
(A) In general
The term "nonallocation year" means any plan year of an employee stock ownership plan if, at any time during such plan year—
(i) such plan holds employer securities consisting of stock in an S corporation, and
(ii) disqualified persons own at least 50 percent of the number of shares of stock in the S corporation.
(B) Attribution rules
For purposes of subparagraph (A)—
(i) In general
The rules of section 318(a) shall apply for purposes of determining ownership, except that—
(I) in applying paragraph (1) thereof, the members of an individual's family shall include members of the family described in paragraph (4)(D), and
(II) paragraph (4) thereof shall not apply.
(ii) Deemed-owned shares
Notwithstanding the employee trust exception in section 318(a)(2)(B)(i), an individual shall be treated as owning deemed-owned shares of the individual.
Solely for purposes of applying paragraph (5), this subparagraph shall be applied after the attribution rules of paragraph (5) have been applied.
(4) Disqualified person
For purposes of this subsection—
(A) In general
The term "disqualified person" means any person if—
(i) the aggregate number of deemed-owned shares of such person and the members of such person's family is at least 20 percent of the number of deemed-owned shares of stock in the S corporation, or
(ii) in the case of a person not described in clause (i), the number of deemed-owned shares of such person is at least 10 percent of the number of deemed-owned shares of stock in such corporation.
(B) Treatment of family members
In the case of a disqualified person described in subparagraph (A)(i), any member of such person's family with deemed-owned shares shall be treated as a disqualified person if not otherwise treated as a disqualified person under subparagraph (A).
(C) Deemed-owned shares
(i) In general
The term "deemed-owned shares" means, with respect to any person—
(I) the stock in the S corporation constituting employer securities of an employee stock ownership plan which is allocated to such person under the plan, and
(II) such person's share of the stock in such corporation which is held by such plan but which is not allocated under the plan to participants.
(ii) Person's share of unallocated stock
For purposes of clause (i)(II), a person's share of unallocated S corporation stock held by such plan is the amount of the unallocated stock which would be allocated to such person if the unallocated stock were allocated to all participants in the same proportions as the most recent stock allocation under the plan.
(D) Member of family
For purposes of this paragraph, the term "member of the family" means, with respect to any individual—
(i) the spouse of the individual,
(ii) an ancestor or lineal descendant of the individual or the individual's spouse,
(iii) a brother or sister of the individual or the individual's spouse and any lineal descendant of the brother or sister, and
(iv) the spouse of any individual described in clause (ii) or (iii).
A spouse of an individual who is legally separated from such individual under a decree of divorce or separate maintenance shall not be treated as such individual's spouse for purposes of this subparagraph.
(5) Treatment of synthetic equity
For purposes of paragraphs (3) and (4), in the case of a person who owns synthetic equity in the S corporation, except to the extent provided in regulations, the shares of stock in such corporation on which such synthetic equity is based shall be treated as outstanding stock in such corporation and deemed-owned shares of such person if such treatment of synthetic equity of 1 or more such persons results in—
(A) the treatment of any person as a disqualified person, or
(B) the treatment of any year as a nonallocation year.
For purposes of this paragraph, synthetic equity shall be treated as owned by a person in the same manner as stock is treated as owned by a person under the rules of paragraphs (2) and (3) of section 318(a). If, without regard to this paragraph, a person is treated as a disqualified person or a year is treated as a nonallocation year, this paragraph shall not be construed to result in the person or year not being so treated.
(6) Definitions
For purposes of this subsection—
(A) Employee stock ownership plan
The term "employee stock ownership plan" has the meaning given such term by section 4975(e)(7).
(B) Employer securities
The term "employer security" has the meaning given such term by section 409(l).
(C) Synthetic equity
The term "synthetic equity" means any stock option, warrant, restricted stock, deferred issuance stock right, or similar interest or right that gives the holder the right to acquire or receive stock of the S corporation in the future. Except to the extent provided in regulations, synthetic equity also includes a stock appreciation right, phantom stock unit, or similar right to a future cash payment based on the value of such stock or appreciation in such value.
(7) Regulations and guidance
(A) In general
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection.
(B) Avoidance or evasion
The Secretary may, by regulation or other guidance of general applicability, provide that a nonallocation year occurs in any case in which the principal purpose of the ownership structure of an S corporation constitutes an avoidance or evasion of this subsection.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table under
Editorial Notes
References in Text
Section 41, referred to in subsecs. (b)(1)(A), (4), (g), (i)(1)(A), and (m), which related to employee stock ownership credit, was repealed by
Section 12 of the Securities Exchange Act of 1934, referred to in subsec. (e)(4), is classified to
Section 403(c)(1) of the Employee Retirement Income Security Act of 1974, referred to in subsecs. (j) and (k), is classified to
The enactment of the Tax Reform Act of 1984, referred to in subsecs. (g) and (k), means the enactment of div. A of
Subsec. (n) of section 48, referred to in subsecs. (g) and (m), was repealed by section 474(o)(15) of
Prior Provisions
A prior section 409, added
Amendments
2018—Subsec. (n)(1)(A)(i).
2014—Subsec. (q).
2006—Subsec. (h)(7).
2002—Subsec. (o)(1)(C)(ii).
2001—Subsecs. (p), (q).
1997—Subsec. (h)(2).
1989—Subsec. (l)(5).
Subsec. (n)(1).
Subsec. (n)(1)(A)(i).
Subsec. (n)(1)(A)(ii).
Subsec. (n)(2)(C)(i), (3)(A)(ii).
1988—Subsec. (d).
Subsec. (e)(5).
Subsec. (h)(2).
Subsec. (h)(7).
Subsec. (l)(4), (5).
Subsec. (n)(1).
Subsec. (n)(2)(C)(i), (3)(A)(ii).
Subsec. (n)(3)(C).
"(i) the date of the sale of the qualified securities, or
"(ii) the date of the plan allocation attributable to the final payment of acquisition indebtedness incurred in connection with such sale."
Subsec. (o)(1)(A).
Subsec. (o)(1)(A)(ii).
1986—Subsec. (a)(3).
Subsec. (d).
Subsec. (d)(1).
Subsec. (e)(2).
Subsec. (e)(3).
Subsec. (e)(5).
Subsec. (h)(2).
Subsec. (h)(5), (6).
Subsec. (l)(4).
Subsec. (n).
Subsec. (n)(1).
Subsec. (o).
Subsec. (p).
1984—Subsec. (b)(1)(A).
Subsec. (b)(4).
Subsec. (g).
Subsec. (i)(1)(A).
Subsec. (k).
Subsec. (m).
Subsec. (n)(3).
1983—Subsec. (d)(2).
Subsec. (h)(2).
1981—Subsec. (b).
Subsec. (d).
Subsec. (g).
Subsec. (h)(2).
Subsec. (h)(3), (4).
Subsec. (i)(1)(A).
Subsec. (m).
Subsec. (n)(2), (3).
1980—
Subsec. (a).
Subsec. (b)(4).
Subsec. (d).
Subsec. (f)(1).
Subsec. (f)(2).
Subsec. (g).
Subsec. (h)(2).
Subsecs. (j)(2), (k)(1).
Subsec. (l)(2)(B).
Subsec. (l)(3).
Subsec. (l)(4).
Subsec. (m).
Subsec. (n).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2006 Amendment
Amendment by
Effective Date of 2002 Amendment
Amendment by
Effective Date of 2001 Amendment
"(1)
"(2)
"(A) employee stock ownership plan established after March 14, 2001, or
"(B) employee stock ownership plan established on or before such date if employer securities held by the plan consist of stock in a corporation with respect to which an election under section 1362(a) of the Internal Revenue Code of 1986 is not in effect on such date,
the amendments made by this section shall apply to plan years ending after March 14, 2001."
Effective Date of 1997 Amendment
Effective Date of 1989 Amendment
Amendment by section 7811(h)(1) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1176(b) of
Amendment by section 1852(a)(4)(B) of
"(i) Except as provided in clause (ii), the amendments made by this paragraph [amending this section and
"(ii) A taxpayer or executor may elect to have section 1042(b)(3) of the Internal Revenue Code of 1954 (as in effect before the amendment made by subparagraph (B)) apply to sales before the date of the enactment of this Act as if such section included the last sentence of section 409(n)(1) of the Internal Revenue Code of 1986 (as added by subparagraph (A))."
"(A) The amendments made by paragraph (1)(A) and (3) [amending this section and
"(B) The amendments made by subparagraphs (B), (C), and (D) of paragraph (1) [amending this section] shall apply after December 31, 1986, to stock acquired after December 31, 1979."
Effective Date of 1984 Amendment
Amendment by section 474(r)(15) of
Redesignation of section 409A as 409 by section 491(e)(1) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by section 331(c)(1) of
Amendment by sections 334 and 336 of
Effective Date of 1980 Amendments
Amendment by
Effective Date
"(1)
"(2)
"(3)
"(4)
"(5)
"(6)
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
1 See References in Text note below.
§409A. Inclusion in gross income of deferred compensation under nonqualified deferred compensation plans
(a) Rules relating to constructive receipt
(1) Plan failures
(A) Gross income inclusion
(i) In general
If at any time during a taxable year a nonqualified deferred compensation plan—
(I) fails to meet the requirements of paragraphs (2), (3), and (4), or
(II) is not operated in accordance with such requirements,
all compensation deferred under the plan for the taxable year and all preceding taxable years shall be includible in gross income for the taxable year to the extent not subject to a substantial risk of forfeiture and not previously included in gross income.
(ii) Application only to affected participants
Clause (i) shall only apply with respect to all compensation deferred under the plan for participants with respect to whom the failure relates.
(B) Interest and additional tax payable with respect to previously deferred compensation
(i) In general
If compensation is required to be included in gross income under subparagraph (A) for a taxable year, the tax imposed by this chapter for the taxable year shall be increased by the sum of—
(I) the amount of interest determined under clause (ii), and
(II) an amount equal to 20 percent of the compensation which is required to be included in gross income.
(ii) Interest
For purposes of clause (i), the interest determined under this clause for any taxable year is the amount of interest at the underpayment rate plus 1 percentage point on the underpayments that would have occurred had the deferred compensation been includible in gross income for the taxable year in which first deferred or, if later, the first taxable year in which such deferred compensation is not subject to a substantial risk of forfeiture.
(2) Distributions
(A) In general
The requirements of this paragraph are met if the plan provides that compensation deferred under the plan may not be distributed earlier than—
(i) separation from service as determined by the Secretary (except as provided in subparagraph (B)(i)),
(ii) the date the participant becomes disabled (within the meaning of subparagraph (C)),
(iii) death,
(iv) a specified time (or pursuant to a fixed schedule) specified under the plan at the date of the deferral of such compensation,
(v) to the extent provided by the Secretary, a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation, or
(vi) the occurrence of an unforeseeable emergency.
(B) Special rules
(i) Specified employees
In the case of any specified employee, the requirement of subparagraph (A)(i) is met only if distributions may not be made before the date which is 6 months after the date of separation from service (or, if earlier, the date of death of the employee). For purposes of the preceding sentence, a specified employee is a key employee (as defined in section 416(i) without regard to paragraph (5) thereof) of a corporation any stock in which is publicly traded on an established securities market or otherwise.
(ii) Unforeseeable emergency
For purposes of subparagraph (A)(vi)—
(I) In general
The term "unforeseeable emergency" means a severe financial hardship to the participant resulting from an illness or accident of the participant, the participant's spouse, or a dependent (as defined in section 152(a)) of the participant, loss of the participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant.
(II) Limitation on distributions
The requirement of subparagraph (A)(vi) is met only if, as determined under regulations of the Secretary, the amounts distributed with respect to an emergency do not exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the participant's assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).
(C) Disabled
For purposes of subparagraph (A)(ii), a participant shall be considered disabled if the participant—
(i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or
(ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the participant's employer.
(3) Acceleration of benefits
The requirements of this paragraph are met if the plan does not permit the acceleration of the time or schedule of any payment under the plan, except as provided in regulations by the Secretary.
(4) Elections
(A) In general
The requirements of this paragraph are met if the requirements of subparagraphs (B) and (C) are met.
(B) Initial deferral decision
(i) In general
The requirements of this subparagraph are met if the plan provides that compensation for services performed during a taxable year may be deferred at the participant's election only if the election to defer such compensation is made not later than the close of the preceding taxable year or at such other time as provided in regulations.
(ii) First year of eligibility
In the case of the first year in which a participant becomes eligible to participate in the plan, such election may be made with respect to services to be performed subsequent to the election within 30 days after the date the participant becomes eligible to participate in such plan.
(iii) Performance-based compensation
In the case of any performance-based compensation based on services performed over a period of at least 12 months, such election may be made no later than 6 months before the end of the period.
(C) Changes in time and form of distribution
The requirements of this subparagraph are met if, in the case of a plan which permits under a subsequent election a delay in a payment or a change in the form of payment—
(i) the plan requires that such election may not take effect until at least 12 months after the date on which the election is made,
(ii) in the case of an election related to a payment not described in clause (ii), (iii), or (vi) of paragraph (2)(A), the plan requires that the payment with respect to which such election is made be deferred for a period of not less than 5 years from the date such payment would otherwise have been made, and
(iii) the plan requires that any election related to a payment described in paragraph (2)(A)(iv) may not be made less than 12 months prior to the date of the first scheduled payment under such paragraph.
(b) Rules relating to funding
(1) Offshore property in a trust
In the case of assets set aside (directly or indirectly) in a trust (or other arrangement determined by the Secretary) for purposes of paying deferred compensation under a nonqualified deferred compensation plan, for purposes of section 83 such assets shall be treated as property transferred in connection with the performance of services whether or not such assets are available to satisfy claims of general creditors—
(A) at the time set aside if such assets (or such trust or other arrangement) are located outside of the United States, or
(B) at the time transferred if such assets (or such trust or other arrangement) are subsequently transferred outside of the United States.
This paragraph shall not apply to assets located in a foreign jurisdiction if substantially all of the services to which the nonqualified deferred compensation relates are performed in such jurisdiction.
(2) Employer's financial health
In the case of compensation deferred under a nonqualified deferred compensation plan, there is a transfer of property within the meaning of section 83 with respect to such compensation as of the earlier of—
(A) the date on which the plan first provides that assets will become restricted to the provision of benefits under the plan in connection with a change in the employer's financial health, or
(B) the date on which assets are so restricted,
whether or not such assets are available to satisfy claims of general creditors.
(3) Treatment of employer's defined benefit plan during restricted period
(A) In general
If—
(i) during any restricted period with respect to a single-employer defined benefit plan, assets are set aside or reserved (directly or indirectly) in a trust (or other arrangement as determined by the Secretary) or transferred to such a trust or other arrangement for purposes of paying deferred compensation of an applicable covered employee under a nonqualified deferred compensation plan of the plan sponsor or member of a controlled group which includes the plan sponsor, or
(ii) a nonqualified deferred compensation plan of the plan sponsor or member of a controlled group which includes the plan sponsor provides that assets will become restricted to the provision of benefits under the plan to an applicable covered employee in connection with such restricted period (or other similar financial measure determined by the Secretary) with respect to the defined benefit plan, or assets are so restricted,
such assets shall, for purposes of section 83, be treated as property transferred in connection with the performance of services whether or not such assets are available to satisfy claims of general creditors. Clause (i) shall not apply with respect to any assets which are so set aside before the restricted period with respect to the defined benefit plan.
(B) Restricted period
For purposes of this section, the term "restricted period" means, with respect to any plan described in subparagraph (A)—
(i) any period during which the plan is in at-risk status (as defined in section 430(i)),
(ii) any period the plan sponsor is a debtor in a case under
(iii) the 12-month period beginning on the date which is 6 months before the termination date of the plan if, as of the termination date, the plan is not sufficient for benefit liabilities (within the meaning of section 4041 of the Employee Retirement Income Security Act of 1974).
(C) Special rule for payment of taxes on deferred compensation included in income
If an employer provides directly or indirectly for the payment of any Federal, State, or local income taxes with respect to any compensation required to be included in gross income by reason of this paragraph—
(i) interest shall be imposed under subsection (a)(1)(B)(i)(I) on the amount of such payment in the same manner as if such payment was part of the deferred compensation to which it relates,
(ii) such payment shall be taken into account in determining the amount of the additional tax under subsection (a)(1)(B)(i)(II) in the same manner as if such payment was part of the deferred compensation to which it relates, and
(iii) no deduction shall be allowed under this title with respect to such payment.
(D) Other definitions
For purposes of this section—
(i) Applicable covered employee
The term "applicable covered employee" means any—
(I) covered employee of a plan sponsor,
(II) covered employee of a member of a controlled group which includes the plan sponsor, and
(III) former employee who was a covered employee at the time of termination of employment with the plan sponsor or a member of a controlled group which includes the plan sponsor.
(ii) Covered employee
The term "covered employee" means an individual described in section 162(m)(3) or an individual subject to the requirements of section 16(a) of the Securities Exchange Act of 1934.
(4) Income inclusion for offshore trusts and employer's financial health
For each taxable year that assets treated as transferred under this subsection remain set aside in a trust or other arrangement subject to paragraph (1), (2), or (3), any increase in value in, or earnings with respect to, such assets shall be treated as an additional transfer of property under this subsection (to the extent not previously included in income).
(5) Interest on tax liability payable with respect to transferred property
(A) In general
If amounts are required to be included in gross income by reason of paragraph (1), (2), or (3) for a taxable year, the tax imposed by this chapter for such taxable year shall be increased by the sum of—
(i) the amount of interest determined under subparagraph (B), and
(ii) an amount equal to 20 percent of the amounts required to be included in gross income.
(B) Interest
For purposes of subparagraph (A), the interest determined under this subparagraph for any taxable year is the amount of interest at the underpayment rate plus 1 percentage point on the underpayments that would have occurred had the amounts so required to be included in gross income by paragraph (1), (2), or (3) been includible in gross income for the taxable year in which first deferred or, if later, the first taxable year in which such amounts are not subject to a substantial risk of forfeiture.
(c) No inference on earlier income inclusion or requirement of later inclusion
Nothing in this section shall be construed to prevent the inclusion of amounts in gross income under any other provision of this chapter or any other rule of law earlier than the time provided in this section. Any amount included in gross income under this section shall not be required to be included in gross income under any other provision of this chapter or any other rule of law later than the time provided in this section.
(d) Other definitions and special rules
For purposes of this section:
(1) Nonqualified deferred compensation plan
The term "nonqualified deferred compensation plan" means any plan that provides for the deferral of compensation, other than—
(A) a qualified employer plan, and
(B) any bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefit plan.
(2) Qualified employer plan
The term "qualified employer plan" means—
(A) any plan, contract, pension, account, or trust described in subparagraph (A) or (B) of section 219(g)(5) (without regard to subparagraph (A)(iii)),
(B) any eligible deferred compensation plan (within the meaning of section 457(b)), and
(C) any plan described in section 415(m).
(3) Plan includes arrangements, etc.
The term "plan" includes any agreement or arrangement, including an agreement or arrangement that includes one person.
(4) Substantial risk of forfeiture
The rights of a person to compensation are subject to a substantial risk of forfeiture if such person's rights to such compensation are conditioned upon the future performance of substantial services by any individual.
(5) Treatment of earnings
References to deferred compensation shall be treated as including references to income (whether actual or notional) attributable to such compensation or such income.
(6) Aggregation rules
Except as provided by the Secretary, rules similar to the rules of subsections (b) and (c) of section 414 shall apply.
(7) Treatment of qualified stock
An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) shall not be treated as a nonqualified deferred compensation plan with respect to such employee solely because of such employee's election, or ability to make an election, to defer recognition of income under section 83(i).
(e) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations—
(1) providing for the determination of amounts of deferral in the case of a nonqualified deferred compensation plan which is a defined benefit plan,
(2) relating to changes in the ownership and control of a corporation or assets of a corporation for purposes of subsection (a)(2)(A)(v),
(3) exempting arrangements from the application of subsection (b) if such arrangements will not result in an improper deferral of United States tax and will not result in assets being effectively beyond the reach of creditors,
(4) defining financial health for purposes of subsection (b)(2), and
(5) disregarding a substantial risk of forfeiture in cases where necessary to carry out the purposes of this section.
(Added
Editorial Notes
References in Text
Section 4041 of the Employee Retirement Income Security Act of 1974, referred to in subsec. (b)(3)(B)(iii), is classified to
Section 16(a) of the Securities Exchange Act of 1934, referred to in subsec. (b)(3)(D)(ii), is classified to
Prior Provisions
A prior section 409A was renumbered
Amendments
2018—Subsec. (b)(3)(B)(i).
2017—Subsec. (d)(7).
2008—Subsec. (b)(3)(A)(ii).
2006—Subsec. (b)(3).
Subsec. (b)(4), (5).
2005—Subsec. (a)(4)(C)(ii).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment by
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Amendment by
Effective Date
"(1)
"(2)
"(A)
"(B)
"(3)
"(A) which was in existence on May 1, 2004,
"(B) which was providing nonelective deferred compensation described in such section 457(e)(12) on such date, and
"(C) which is established or maintained by an organization incorporated on July 2, 1974.
If, after May 1, 2004, a plan described in the preceding sentence adopts a plan amendment which provides a material change in the classes of individuals eligible to participate in the plan, this paragraph shall not apply to any nonelective deferred compensation provided under the plan on or after the date of the adoption of the amendment."
Applicability of Amendments by Subtitles A and B of Title I of Pub. L. 109–280
For special rules on applicability of amendments by subtitles A (§§101–108) and B (§§111–116) of title I of
Guidance Relating to Conformance With Funding Rules
Guidance Relating to Change of Ownership or Control
Guidance Relating to Termination of Certain Existing Arrangements
"(1) to provide that a participant may terminate participation in the plan, or cancel an outstanding deferral election with regard to amounts deferred after December 31, 2004, but only if amounts subject to the termination or cancellation are includible in income of the participant as earned (or, if later, when no longer subject to substantial risk of forfeiture), and
"(2) to conform to the requirements of such section 409A with regard to amounts deferred after December 31, 2004."
Subpart B—Special Rules
Editorial Notes
Amendments
2022—
2018—
1984—
1982—
1974—
§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 21; 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 2 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 (A) shall be applied by substituting "2 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 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 subparagraph (A) shall be applied by substituting "26" for "21". 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 part excludes from participation (on the basis of age) employees who have attained a specified age.
(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 2-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 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 paragraph (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
(i) In general
For purposes of paragraph (1), in the case of a nonvested participant, years of service with the employer or employers maintaining the plan before any period of consecutive 1-year breaks in service shall not be required to be taken into account in computing the period of service if the number of consecutive 1-year breaks in service within such period equals or exceeds the greater of—
(I) 5, or
(II) the aggregate number of years of service before such period.
(ii) Years of service not taken into account
If any years of service are not required to be taken into account by reason of a period of breaks in service to which clause (i) applies, such years of service shall not be taken into account in applying clause (i) to a subsequent period of breaks in service.
(iii) Nonvested participant defined
For purposes of clause (i), the term "nonvested participant" means a participant who does not have any nonforfeitable right under the plan to an accrued benefit derived from employer contributions.
(E) Special rule for maternity or paternity absences
(i) General rule
In the case of each individual who is absent from work for any period—
(I) by reason of the pregnancy of the individual,
(II) by reason of the birth of a child of the individual,
(III) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or
(IV) for purposes of caring for such child for a period beginning immediately following such birth or placement,
the plan shall treat as hours of service, solely for purposes of determining under this paragraph whether a 1-year break in service (as defined in section 411(a)(6)(A)) has occurred, the hours described in clause (ii).
(ii) Hours treated as hours of service
The hours described in this clause are—
(I) the hours of service which otherwise would normally have been credited to such individual but for such absence, or
(II) in any case in which the plan is unable to determine the hours described in subclause (I), 8 hours of service per day of such absence,
except that the total number of hours treated as hours of service under this clause by reason of any such pregnancy or placement shall not exceed 501 hours.
(iii) Year to which hours are credited
The hours described in clause (ii) shall be treated as hours of service as provided in this subparagraph—
(I) only in the year in which the absence from work begins, if a participant would be prevented from incurring a 1-year break in service in such year solely because the period of absence is treated as hours of service as provided in clause (i); or
(II) in any other case, in the immediately following year.
(iv) Year defined
For purposes of this subparagraph, the term "year" means the period used in computations pursuant to paragraph (3).
(v) Information required to be filed
A plan shall not fail to satisfy the requirements of this subparagraph solely because it provides that no credit will be given pursuant to this subparagraph unless the individual furnishes to the plan administrator such timely information as the plan may reasonably require to establish—
(I) that the absence from work is for reasons referred to in clause (i), and
(II) the number of days for which there was such an absence.
(b) Minimum coverage requirements
(1) In general
A trust shall not constitute a qualified trust under section 401(a) unless such trust is designated by the employer as part of a plan which meets 1 of the following requirements:
(A) The plan benefits at least 70 percent of employees who are not highly compensated employees.
(B) The plan benefits—
(i) a percentage of employees who are not highly compensated employees which is at least 70 percent of
(ii) the percentage of highly compensated employees benefiting under the plan.
(C) The plan meets the requirements of paragraph (2).
(2) Average benefit percentage test
(A) In general
A plan shall be treated as meeting the requirements of this paragraph if—
(i) the plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated employees, and
(ii) the average benefit percentage for employees who are not highly compensated employees is at least 70 percent of the average benefit percentage for highly compensated employees.
(B) Average benefit percentage
For purposes of this paragraph, the term "average benefit percentage" means, with respect to any group, the average of the benefit percentages calculated separately with respect to each employee in such group (whether or not a participant in any plan).
(C) Benefit percentage
For purposes of this paragraph—
(i) In general
The term "benefit percentage" means the employer-provided contribution or benefit of an employee under all qualified plans maintained by the employer, expressed as a percentage of such employee's compensation (within the meaning of section 414(s)).
(ii) Period for computing percentage
At the election of an employer, the benefit percentage for any plan year shall be computed on the basis of contributions or benefits for—
(I) such plan year, or
(II) any consecutive plan year period (not greater than 3 years) which ends with such plan year and which is specified in such election.
An election under this clause, once made, may be revoked or modified only with the consent of the Secretary.
(D) Employees taken into account
For purposes of determining who is an employee for purposes of determining the average benefit percentage under subparagraph (B)—
(i) except as provided in clause (ii), paragraph (4)(A) shall not apply, or
(ii) if the employer elects, paragraph (4)(A) shall be applied by using the lowest age and service requirements of all qualified plans maintained by the employer.
(E) Qualified plan
For purposes of this paragraph, the term "qualified plan" means any plan which (without regard to this subsection) meets the requirements of section 401(a).
(3) Exclusion of certain employees
For purposes of this subsection, there shall be excluded from consideration—
(A) employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and 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 by such agreement, and
(C) employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).
Subparagraph (A) shall not apply with respect to coverage of employees under a plan pursuant to an agreement under such subparagraph. For purposes of subparagraph (B), management pilots who are not represented in accordance with title II of the Railway Labor Act shall be treated as covered by a collective bargaining agreement described in such subparagraph if the management pilots manage the flight operations of air pilots who are so represented and the management pilots are, pursuant to the terms of the agreement, included in the group of employees benefitting under the trust described in such subparagraph. 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 an aircraft in flight (other than management pilots described in the preceding sentence).
(4) Exclusion of employees not meeting age and service requirements
(A) In general
If a plan—
(i) prescribes minimum age and service requirements as a condition of participation, and
(ii) excludes all employees not meeting such requirements from participation,
then such employees shall be excluded from consideration for purposes of this subsection.
(B) Requirements may be met separately with respect to excluded group
If employees not meeting the minimum age or service requirements of subsection (a)(1) (without regard to subparagraph (B) thereof) are covered under a plan of the employer which meets the requirements of paragraph (1) separately with respect to such employees, such employees may be excluded from consideration in determining whether any plan of the employer meets the requirements of paragraph (1).
(C) Requirements not treated as being met before entry date
An employee shall not be treated as meeting the age and service requirements described in this paragraph until the first date on which, under the plan, any employee with the same age and service would be eligible to commence participation in the plan.
(5) Line of business exception
(A) In general
If, under section 414(r), an employer is treated as operating separate lines of business for a year, the employer may apply the requirements of this subsection for such year separately with respect to employees in each separate line of business.
(B) Plan must be nondiscriminatory
Subparagraph (A) shall not apply with respect to any plan maintained by an employer unless such plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated employees.
(6) Definitions and special rules
For purposes of this subsection—
(A) Highly compensated employee
The term "highly compensated employee" has the meaning given such term by section 414(q).
(B) Aggregation rules
An employer may elect to designate—
(i) 2 or more trusts,
(ii) 1 or more trusts and 1 or more annuity plans, or
(iii) 2 or more annuity plans,
as part of 1 plan intended to qualify under section 401(a) to determine whether the requirements of this subsection are met with respect to such trusts or annuity plans. If an employer elects to treat any trusts or annuity plans as 1 plan under this subparagraph, such trusts or annuity plans shall be treated as 1 plan for purposes of section 401(a)(4).
(C) Special rules for certain dispositions or acquisitions
(i) In general
If a person becomes, or ceases to be, a member of a group described in subsection (b), (c), (m), or (o) of section 414, then the requirements of this subsection shall be treated as having been met during the transition period with respect to any plan covering employees of such person or any other member of such group if—
(I) such requirements were met immediately before each such change, and
(II) the coverage under such plan is not significantly changed during the transition period (other than by reason of the change in members of a group) or such plan meets such other requirements as the Secretary may prescribe by regulation.
(ii) Transition period
For purposes of clause (i), the term "transition period" means the period—
(I) beginning on the date of the change in members of a group, and
(II) ending on the last day of the 1st plan year beginning after the date of such change.
(D) Special rule for certain employee stock ownership plans
A trust which is part of a tax credit employee stock ownership plan which is the only plan of an employer intended to qualify under section 401(a) shall not be treated as not a qualified trust under section 401(a) solely because it fails to meet the requirements of this subsection if—
(i) such plan benefits 50 percent or more of all the employees who are eligible under a nondiscriminatory classification under the plan, and
(ii) the sum of the amounts allocated to each participant's account for the year does not exceed 2 percent of the compensation of that participant for the year.
(E) Eligibility to contribute
In the case of contributions which are subject to section 401(k) or 401(m), employees who are eligible to contribute (or elect to have contributions made on their behalf) shall be treated as benefiting under the plan (other than for purposes of paragraph (2)(A)(ii)).
(F) Employers with only highly compensated employees
A plan maintained by an employer which has no employees other than highly compensated employees for any year shall be treated as meeting the requirements of this subsection for such year.
(G) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
(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)),
(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 September 2, 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 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), except that in the case of a plan described in subparagraph (B), (C), or (D) of paragraph (1), this paragraph shall apply only if such plan meets the requirements of section 401(a)(3) (as in effect on September 1, 1974).
(d) Election by church to have participation, 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 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.
(Added
Editorial Notes
References in Text
The Railway Labor Act, referred to in subsec. (b)(3), is act May 20, 1926, ch. 347,
Amendments
2006—Subsec. (b)(3).
1997—Subsec. (c)(2).
1989—Subsec. (a)(2).
1988—Subsec. (b)(4)(B).
Subsec. (b)(4)(C).
Subsec. (b)(6)(C)(i)(II).
Subsec. (b)(6)(F), (G).
1986—Subsec. (a)(1)(B)(i).
Subsec. (a)(2).
"(A) the plan is a—
"(i) defined benefit plan, or
"(ii) target benefit plan (as defined under regulations prescribed by the Secretary), 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."
Subsec. (a)(5)(B).
Subsec. (b).
1984—Subsec. (a)(1)(A)(i).
Subsec. (a)(1)(B)(ii).
Subsec. (a)(5)(D).
Subsec. (a)(5)(E).
1981—Subsec. (b)(3)(C).
1980—Subsec. (b)(2), (3).
1976—Subsec. (a)(2)(A)(ii).
Subsec. (a)(5)(C), (D).
Subsec. (b)(1)(B).
Subsec. (c)(1)(C).
Subsec. (c)(2).
Subsec. (d)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2006 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1011(h)(1), (2), (11) of
Amendment by section 3021(a)(13)(B) of
Effective Date of 1986 Amendments
Amendment by section 1112(a) of
Amendment by section 1113(c), (d)(A) of
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(61) of
Effective Date; Transitional Rules
"(a)
"(b)
"(c)
"(1)
"(A)
"(B)
"(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 [Sept. 2, 1974]), 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 [see Short Title note set out under
"(C)
"(D)
"(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)
"(A)
"(B)
"(C)
"(i) the date on which the second convention of such labor organization held after the date of the enactment of this Act [Sept. 2, 1974] 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)
"(e)
"(f)
"(1)
"(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 shall not constitute a qualified trust under section 401(a) of such Code.
"(2)
"(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-
"(h)(1) Except as provided in paragraph (2), section 413 of the Internal Revenue Code of 1986 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) 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 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.
"(i)
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by sections 1112 and 1113 of
Secretary of Labor, Secretary of the Treasury, and Equal Employment Opportunity Commission shall each issue before Feb. 1, 1988, final regulations to carry out amendments made by section 9203 of
Deemed Election
"(1) the plan was established before January 1, 2014;
"(2) the plan falls within the definition of a CSEC plan;
"(3) the plan sponsor does not make an election under section 210(f)(3)(A) of the Employee Retirement Income Security Act of 1974 [
"(4) the plan, plan sponsor, administrator, or fiduciary remits one or more premium payments for the plan to the Pension Benefit Guaranty Corporation for a plan year beginning after December 31, 2013."
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
For provisions directing that if any amendments made by section 9203(a)(2) of
§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 paragraph (8)) and in addition satisfies the requirements of paragraphs (1), (2), and (11) of this subsection and the requirements of subsection (b)(3), and also satisfies, in the case of a defined benefit plan, the requirements of subsection (b)(1) and, in the case of a defined contribution plan, the requirements of subsection (b)(2).
(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) Defined benefit plans
(i) In general
In the case of a defined benefit plan, a plan satisfies the requirements of this paragraph if it satisfies the requirements of clause (ii) or (iii).
(ii) 5-year vesting
A plan satisfies the requirements of this clause if an employee who has completed at least 5 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions.
(iii) 3 to 7 year vesting
A plan satisfies the requirements of this clause if an employee has a nonforfeitable right to a percentage of the employee's accrued benefit derived from employer contributions determined under the following table:
| Years of service: | The nonforfeitable percentage is: |
|---|---|
| 3 | 20 |
| 4 | 40 |
| 5 | 60 |
| 6 | 80 |
| 7 or more | 100. |
(B) Defined contribution plans
(i) In general
In the case of a defined contribution plan, a plan satisfies the requirements of this paragraph if it satisfies the requirements of clause (ii) or (iii).
(ii) 3-year vesting
A plan satisfies the requirements of this clause if an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions.
(iii) 2 to 6 year vesting
A plan satisfies the requirements of this clause if an employee has a nonforfeitable right to a percentage of the employee's accrued benefit derived from employer contributions determined under the following table:
| Years of service: | The nonforfeitable percentage is: |
|---|---|
| 2 | 20 |
| 3 | 40 |
| 4 | 60 |
| 5 | 80 |
| 6 or more | 100. |
(3) 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)).
(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 multi-employer 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 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(d)(2).
(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). The plan provision required under this clause may provide that such repayment must be made (I) in the case of a withdrawal on account of separation from service, before the earlier of 5 years after the first date on which the participant is subsequently re-employed by the employer, or the close of the first period of 5 consecutive 1-year breaks in service commencing after the withdrawal; or (II) in the case of any other withdrawal, 5 years after the date of the withdrawal.
(iii) In the case of accrued benefits derived from employer contributions which accrued before September 2, 1974, a right to such accrued benefit derived from employer contributions shall not be treated as forfeitable solely because the plan provides that an amount of such accrued benefit may be forfeited on account of the withdrawal by the participant of an amount attributable to the benefit derived from mandatory contributions (as defined in subsection (c)(2)(C)) made by such participant before September 2, 1974 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 September 2, 1974. The Secretary 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).
(E) Cessation of contributions under a multiemployer plan
A right to an accrued benefit derived from employer contributions under a multiemployer plan shall not be treated as forfeitable solely because the plan provides that benefits accrued as a result of service with the participant's employer before the employer had an obligation to contribute under the plan may not be payable if the employer ceases contributions to the multiemployer plan.
(F) Reduction and suspension of benefits by a multiemployer plan
A participant's right to an accrued benefit derived from employer contributions under a multiemployer plan shall not be treated as forfeitable solely because—
(i) the plan is amended to reduce benefits under section 4281 of the Employee Retirement Income Security Act of 1974, or
(ii) benefit payments under the plan may be suspended under section 418E or under section 4281 of the Employee Retirement Income Security Act of 1974.
(G) Treatment of matching contributions forfeited by reason of excess deferral or contribution or permissible withdrawal
A matching contribution (within the meaning of section 401(m)) shall not be treated as forfeitable merely because such contribution is forfeitable if the contribution to which the matching contribution relates is treated as an excess contribution under section 401(k)(8)(B), an excess deferral under section 402(g)(2)(A), a permissible withdrawal under section 414(w), or an excess aggregate contribution under section 401(m)(6)(B).
(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 18;
(B) years of service during a period for which the employee declined to contribute to a plan requiring employee contributions;
(C) years of service with an employer during any period for which the employer did not maintain the plan or a predecessor plan (as defined under regulations prescribed by the Secretary);
(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;
(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; and
(G) in the case of a multiemployer plan, years of service—
(i) with an employer after—
(I) a complete withdrawal of that employer from the plan (within the meaning of section 4203 of the Employee Retirement Income Security Act of 1974), or
(II) to the extent permitted in regulations prescribed by the Secretary, a partial withdrawal described in section 4205(b)(2)(A)(i) of such Act in conjunction with the decertification of the collective bargaining representative, and
(ii) with any employer under the plan after the termination date of the plan under section 4048 of such Act.
(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).
(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) 5 consecutive 1-year breaks 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 5 consecutive 1-year breaks in service, years of service after such 5-year period shall not be required to be taken into account for purposes of determining the nonforfeitable percentage of his accrued benefit derived from employer contributions which accrued before such 5-year period.
(D) Nonvested participants
(i) In general
For purposes of paragraph (4), in the case of a nonvested participant, years of service with the employer or employers maintaining the plan before any period of consecutive 1-year breaks in service shall not be required to be taken into account if the number of consecutive 1-year breaks in service within such period equals or exceeds the greater of—
(I) 5, or
(II) the aggregate number of years of service before such period.
(ii) Years of service not taken into account
If any years of service are not required to be taken into account by reason of a period of breaks in service to which clause (i) applies, such years of service shall not be taken into account in applying clause (i) to a subsequent period of breaks in service.
(iii) Nonvested participant defined
For purposes of clause (i), the term "nonvested participant" means a participant who does not have any nonforfeitable right under the plan to an accrued benefit derived from employer contributions.
(E) Special rule for maternity or paternity absences
(i) General rule
In the case of each individual who is absent from work for any period—
(I) by reason of the pregnancy of the individual,
(II) by reason of the birth of a child of the individual,
(III) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or
(IV) for purposes of caring for such child for a period beginning immediately following such birth or placement,
the plan shall treat as hours of service, solely for purposes of determining under this paragraph whether a 1-year break in service has occurred, the hours described in clause (ii).
(ii) Hours treated as hours of service
The hours described in this clause are—
(I) the hours of service which otherwise would normally have been credited to such individual but for such absence, or
(II) in any case in which the plan is unable to determine the hours described in subclause (I), 8 hours of service per day of absence,
except that the total number of hours treated as hours of service under this clause by reason of any such pregnancy or placement shall not exceed 501 hours.
(iii) Year to which hours are credited
The hours described in clause (ii) shall be treated as hours of service as provided in this subparagraph—
(I) only in the year in which the absence from work begins, if a participant would be prevented from incurring a 1-year break in service in such year solely because the period of absence is treated as hours of service as provided in clause (i); or
(II) in any other case, in the immediately following year.
(iv) Year defined
For purposes of this subparagraph, the term "year" means the period used in computations pursuant to paragraph (5).
(v) Information required to be filed
A plan shall not fail to satisfy the requirements of this subparagraph solely because it provides that no credit will be given pursuant to this subparagraph unless the individual furnishes to the plan administrator such timely information as the plan may reasonably require to establish—
(I) that the absence from work is for reasons referred to in clause (i), and
(II) the number of days for which there was such an absence.
(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 the dollar limit under section 411(a)(11)(A)) permitted under regulations prescribed by the Secretary, 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.
(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).
The plan provision required under this subparagraph may provide that such repayment must be made (I) in the case of a withdrawal on account of separation from service, before the earlier of 5 years after the first date on which the participant is subsequently re-employed by the employer, or the close of the first period of 5 consecutive 1-year breaks in service commencing after the withdrawal; or (II) in the case of any other withdrawal, 5 years after the date of the withdrawal.
(D) Accrued benefit attributable to employee contributions
The accrued benefit of an employee shall not be less than the amount determined under subsection (c)(2)(B) with respect to the employee's accumulated contributions.
(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 5th 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—
(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 satisfying 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 3 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.
(11) Restrictions on certain mandatory distributions
(A) In general
If the present value of any nonforfeitable accrued benefit exceeds $7,000, a plan meets the requirements of this paragraph only if such plan provides that such benefit may not be immediately distributed without the consent of the participant.
(B) Determination of present value
For purposes of subparagraph (A), the present value shall be calculated in accordance with section 417(e)(3).
(C) Dividend distributions of ESOPS arrangement
This paragraph shall not apply to any distribution of dividends to which section 404(k) applies.
(D) Special rule for rollover contributions
A plan shall not fail to meet the requirements of this paragraph if, under the terms of the plan, the present value of the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to rollover contributions (and earnings allocable thereto). For purposes of this subparagraph, the term "rollover contributions" means any rollover contribution under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).
[(12) Repealed. Pub. L. 109–280, title IX, §904(a)(2), Aug. 17, 2006, 120 Stat. 1049 ]
(13) Special rules for plans computing accrued benefits by reference to hypothetical account balance or equivalent amounts
(A) In general
An applicable defined benefit plan shall not be treated as failing to meet—
(i) subject to subparagraph (B), the requirements of subsection (a)(2), or
(ii) the requirements of subsection (a)(11) or (c), or the requirements of section 417(e), with respect to accrued benefits derived from employer contributions,
solely because the present value of the accrued benefit (or any portion thereof) of any participant is, under the terms of the plan, equal to the amount expressed as the balance in the hypothetical account described in subparagraph (C) or as an accumulated percentage of the participant's final average compensation.
(B) 3-year vesting
In the case of an applicable defined benefit plan, such plan shall be treated as meeting the requirements of subsection (a)(2) only if an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions.
(C) Applicable defined benefit plan and related rules
For purposes of this subsection—
(i) In general
The term "applicable defined benefit plan" means a defined benefit plan under which the accrued benefit (or any portion thereof) is calculated as the balance of a hypothetical account maintained for the participant or as an accumulated percentage of the participant's final average compensation.
(ii) Regulations to include similar plans
The Secretary shall issue regulations which include in the definition of an applicable defined benefit plan any defined benefit plan (or any portion of such a plan) which has an effect similar to an applicable defined benefit plan.
(b) Accrued benefit requirements
(1) Defined benefit plans
(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 331/3) 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) 1331/3 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 1331/3 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 benefits 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 September 2, 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).
(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) satisfies the requirements of subparagraphs (B) and (C) of section 412(e)(3) (relating to certain insurance 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 subparagraphs (D), (E), and (F) of section 412(e)(3) 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 which benefits under the plan—
(i) do not exceed such social security benefits, and
(ii) terminate when such social security benefits commence.
(H) Continued accrual beyond normal retirement age
(i) In general
Notwithstanding the preceding subparagraphs, a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee's benefit accrual is ceased, or the rate of an employee's benefit accrual is reduced, because of the attainment of any age.
(ii) Certain limitations permitted
A plan shall not be treated as failing to meet the requirements of this subparagraph solely because the plan imposes (without regard to age) a limitation on the amount of benefits that the plan provides or a limitation on the number of years of service or years of participation which are taken into account for purposes of determining benefit accrual under the plan.
(iii) Adjustments under plan for delayed retirement taken into account
In the case of any employee who, as of the end of any plan year under a defined benefit plan, has attained normal retirement age under such plan—
(I) if distribution of benefits under such plan with respect to such employee has commenced as of the end of such plan year, then any requirement of this subparagraph for continued accrual of benefits under such plan with respect to such employee during such plan year shall be treated as satisfied to the extent of the actuarial equivalent of inservice distribution of benefits, and
(II) if distribution of benefits under such plan with respect to such employee has not commenced as of the end of such year in accordance with section 401(a)(14)(C), and the payment of benefits under such plan with respect to such employee is not suspended during such plan year pursuant to subsection (a)(3)(B), then any requirement of this subparagraph for continued accrual of benefits under such plan with respect to such employee during such plan year shall be treated as satisfied to the extent of any adjustment in the benefit payable under the plan during such plan year attributable to the delay in the distribution of benefits after the attainment of normal retirement age.
The preceding provisions of this clause shall apply in accordance with regulations of the Secretary. Such regulations may provide for the application of the preceding provisions of this clause, in the case of any such employee, with respect to any period of time within a plan year.
(iv) Disregard of subsidized portion of early retirement benefit
A plan shall not be treated as failing to meet the requirements of clause (i) solely because the subsidized portion of any early retirement benefit is disregarded in determining benefit accruals.
(v) Coordination with other requirements
The Secretary shall provide by regulation for the coordination of the requirements of this subparagraph with the requirements of subsection (a), sections 404, 410, and 415, and the provisions of this subchapter precluding discrimination in favor of highly compensated employees.
(2) Defined contribution plans
(A) In general
A defined contribution plan satisfies the requirements of this paragraph if, under the plan, allocations to the employee's account are not ceased, and the rate at which amounts are allocated to the employee's account is not reduced, because of the attainment of any age.
(B) Application to target benefit plans
The Secretary shall provide by regulation for the application of the requirements of this paragraph to target benefit plans.
(C) Coordination with other requirements
The Secretary may provide by regulation for the coordination of the requirements of this paragraph with the requirements of subsection (a), sections 404, 410, and 415, and the provisions of this subchapter precluding discrimination in favor of highly compensated employees.
(3) Separate accounting required in certain cases
A plan satisfies the requirements of this paragraph if—
(A) in the case of the 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.
(4) 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), determined without regard to section 410(a)(5)(E)) as determined under regulations 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 of Labor may prescribe regulations to carry out the purposes of this subparagraph.
(5) Special rules relating to age
(A) Comparison to similarly situated younger individual
(i) In general
A plan shall not be treated as failing to meet the requirements of paragraph (1)(H)(i) if a participant's accrued benefit, as determined as of any date under the terms of the plan, would be equal to or greater than that of any similarly situated, younger individual who is or could be a participant.
(ii) Similarly situated
For purposes of this subparagraph, a participant is similarly situated to any other individual if such participant is identical to such other individual in every respect (including period of service, compensation, position, date of hire, work history, and any other respect) except for age.
(iii) Disregard of subsidized early retirement benefits
In determining the accrued benefit as of any date for purposes of this subparagraph, the subsidized portion of any early retirement benefit or retirement-type subsidy shall be disregarded.
(iv) Accrued benefit
For purposes of this subparagraph, the accrued benefit may, under the terms of the plan, be expressed as an annuity payable at normal retirement age, the balance of a hypothetical account, or the current value of the accumulated percentage of the employee's final average compensation.
(B) Applicable defined benefit plans
(i) Interest credits
(I) In general
An applicable defined benefit plan shall be treated as failing to meet the requirements of paragraph (1)(H) unless the terms of the plan provide that any interest credit (or an equivalent amount) for any plan year shall be at a rate which is not greater than a market rate of return. A plan shall not be treated as failing to meet the requirements of this subclause merely because the plan provides for a reasonable minimum guaranteed rate of return or for a rate of return that is equal to the greater of a fixed or variable rate of return.
(II) Preservation of capital
An applicable defined benefit plan shall be treated as failing to meet the requirements of paragraph (1)(H) unless the plan provides that an interest credit (or equivalent amount) of less than zero shall in no event result in the account balance or similar amount being less than the aggregate amount of contributions credited to the account.
(III) Market rate of return
The Secretary may provide by regulation for rules governing the calculation of a market rate of return for purposes of subclause (I) and for permissible methods of crediting interest to the account (including fixed or variable interest rates) resulting in effective rates of return meeting the requirements of subclause (I).
(ii) Special rule for plan conversions
If, after June 29, 2005, an applicable plan amendment is adopted, the plan shall be treated as failing to meet the requirements of paragraph (1)(H) unless the requirements of clause (iii) are met with respect to each individual who was a participant in the plan immediately before the adoption of the amendment.
(iii) Rate of benefit accrual
Subject to clause (iv), the requirements of this clause are met with respect to any participant if the accrued benefit of the participant under the terms of the plan as in effect after the amendment is not less than the sum of—
(I) the participant's accrued benefit for years of service before the effective date of the amendment, determined under the terms of the plan as in effect before the amendment, plus
(II) the participant's accrued benefit for years of service after the effective date of the amendment, determined under the terms of the plan as in effect after the amendment.
(iv) Special rules for early retirement subsidies
For purposes of clause (iii)(I), the plan shall credit the accumulation account or similar amount 1 with the amount of any early retirement benefit or retirement-type subsidy for the plan year in which the participant retires if, as of such time, the participant has met the age, years of service, and other requirements under the plan for entitlement to such benefit or subsidy.
(v) Applicable plan amendment
For purposes of this subparagraph—
(I) In general
The term "applicable plan amendment" means an amendment to a defined benefit plan which has the effect of converting the plan to an applicable defined benefit plan.
(II) Special rule for coordinated benefits
If the benefits of 2 or more defined benefit plans established or maintained by an employer are coordinated in such a manner as to have the effect of the adoption of an amendment described in subclause (I), the sponsor of the defined benefit plan or plans providing for such coordination shall be treated as having adopted such a plan amendment as of the date such coordination begins.
(III) Multiple amendments
The Secretary shall issue regulations to prevent the avoidance of the purposes of this subparagraph through the use of 2 or more plan amendments rather than a single amendment.
(IV) Applicable defined benefit plan
For purposes of this subparagraph, the term "applicable defined benefit plan" has the meaning given such term by section 411(a)(13).
(vi) Termination requirements
An applicable defined benefit plan shall not be treated as meeting the requirements of clause (i) unless the plan provides that, upon the termination of the plan—
(I) if the interest credit rate (or an equivalent amount) under the plan is a variable rate, the rate of interest used to determine accrued benefits under the plan shall be equal to the average of the rates of interest used under the plan during the 5-year period ending on the termination date, and
(II) the interest rate and mortality table used to determine the amount of any benefit under the plan payable in the form of an annuity payable at normal retirement age shall be the rate and table specified under the plan for such purpose as of the termination date, except that if such interest rate is a variable rate, the interest rate shall be determined under the rules of subclause (I).
(C) Certain offsets permitted
A plan shall not be treated as failing to meet the requirements of paragraph (1)(H)(i) solely because the plan provides offsets against benefits under the plan to the extent such offsets are otherwise allowable in applying the requirements of section 401(a).
(D) Permitted disparities in plan contributions or benefits
A plan shall not be treated as failing to meet the requirements of paragraph (1)(H) solely because the plan provides a disparity in contributions or benefits with respect to which the requirements of section 401(l) are met.
(E) Indexing permitted
(i) In general
A plan shall not be treated as failing to meet the requirements of paragraph (1)(H) solely because the plan provides for indexing of accrued benefits under the plan.
(ii) Protection against loss
Except in the case of any benefit provided in the form of a variable annuity, clause (i) shall not apply with respect to any indexing which results in an accrued benefit less than the accrued benefit determined without regard to such indexing.
(iii) Indexing
For purposes of this subparagraph, the term "indexing" means, in connection with an accrued benefit, the periodic adjustment of the accrued benefit by means of the application of a recognized investment index or methodology.
(F) Early retirement benefit or retirement-type subsidy
For purposes of this paragraph, the terms "early retirement benefit" and "retirement-type subsidy" have the meaning given such terms in subsection (d)(6)(B)(i).
(G) Benefit accrued to date
For purposes of this paragraph, any reference to the accrued benefit shall be a reference to such benefit accrued to date.
(6) Projected interest crediting rate
For purposes of subparagraphs (A), (B), and (C) of paragraph (1), in the case of an applicable defined benefit plan (as defined in subsection (a)(13)(C)) which provides variable interest crediting rates, the interest crediting rate which is treated as in effect and as the projected interest crediting rate shall be a reasonable projection of such variable interest crediting rate, not to exceed 6 percent.
(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
In the case of a defined benefit plan, the accrued benefit derived from contributions made by an employee as of any applicable date is the amount equal to the employee's accumulated contributions expressed as an annual benefit commencing at normal retirement age, using an interest rate which would be used under the plan under section 417(e)(3) (as of the determination date).
(C) Definition of accumulated contributions
For purposes of this subsection, the term "accumulated contribution" 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—
(I) at the rate of 120 percent of the Federal mid-term rate (as in effect under section 1274 for the 1st month of a plan year) for the period beginning with the 1st plan year to which subsection (a)(2) applies (by reason of the applicable effective date) and ending with the date on which the determination is being made, and
(II) at the interest rate which would be used under the plan under section 417(e)(3) (as of the determination date) for the period beginning with the determination date and ending on the date on which the employee attains normal retirement age.
For purposes of this subparagraph, the term "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 is authorized to adjust by regulation the conversion factor described in subparagraph (B) from time to time as he may deem necessary. No such adjustment shall be effective for a plan year beginning before the expiration of 1 year after such adjustment is determined and published.
(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—
(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 highly compensated employees (within the meaning of section 414(q)), 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 highly compensated employees (within the meaning of section 414(q)).
(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 to preclude the discrimination prohibited by section 401(a)(4).
(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 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 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. For purposes of this paragraph, in the case of the complete discontinuance of contributions under a profit-sharing or stock bonus plan, such plan shall be treated as having terminated on the day on which the plan administrator notifies the Secretary (in accordance with regulations) of the discontinuance.
[(4) Repealed. Pub. L. 99–514, title XI, §1113(b), Oct. 22, 1986, 100 Stat. 2447 ]
(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) In general
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(d)(2), or section 4281 of the Employee Retirement Income Security Act of 1974.
(B) Treatment of certain plan amendments
For purposes of subparagraph (A), a plan amendment which has the effect of—
(i) eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in regulations), or
(ii) eliminating an optional form of benefit,
with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits. In the case of a retirement-type subsidy, the preceding sentence shall apply only with respect to a participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy. The Secretary shall by regulations provide that this subparagraph shall not apply to any plan amendment which reduces or eliminates benefits or subsidies which create significant burdens or complexities for the plan and plan participants, unless such amendment adversely affects the rights of any participant in a more than de minimis manner. The Secretary may by regulations provide that this subparagraph shall not apply to a plan amendment described in clause (ii) (other than a plan amendment having an effect described in clause (i)).
(C) Special rule for ESOPS
For purposes of this paragraph, any—
(i) tax credit employee stock ownership plan (as defined in section 409(a)), or
(ii) employee stock ownership plan (as defined in section 4975(e)(7)),
shall not be treated as failing to meet the requirements of this paragraph merely because it modifies distribution options in a nondiscriminatory manner.
(D) Plan transfers
(i) In general
A defined contribution plan (in this subparagraph referred to as the "transferee plan") shall not be treated as failing to meet the requirements of this subsection merely because the transferee plan does not provide some or all of the forms of distribution previously available under another defined contribution plan (in this subparagraph referred to as the "transferor plan") to the extent that—
(I) the forms of distribution previously available under the transferor plan applied to the account of a participant or beneficiary under the transferor plan that was transferred from the transferor plan to the transferee plan pursuant to a direct transfer rather than pursuant to a distribution from the transferor plan,
(II) the terms of both the transferor plan and the transferee plan authorize the transfer described in subclause (I),
(III) the transfer described in subclause (I) was made pursuant to a voluntary election by the participant or beneficiary whose account was transferred to the transferee plan,
(IV) the election described in subclause (III) was made after the participant or beneficiary received a notice describing the consequences of making the election, and
(V) the transferee plan allows the participant or beneficiary described in subclause (III) to receive any distribution to which the participant or beneficiary is entitled under the transferee plan in the form of a single sum distribution.
(ii) Special rule for mergers, etc.
Clause (i) shall apply to plan mergers and other transactions having the effect of a direct transfer, including consolidations of benefits attributable to different employers within a multiple employer plan.
(E) Elimination of form of distribution
Except to the extent provided in regulations, a defined contribution plan shall not be treated as failing to meet the requirements of this section merely because of the elimination of a form of distribution previously available thereunder. This subparagraph shall not apply to the elimination of a form of distribution with respect to any participant unless—
(i) a single sum payment is available to such participant at the same time or times as the form of distribution being eliminated, and
(ii) such single sum payment is based on the same or greater portion of the participant's account as the form of distribution being eliminated.
(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)),
(B) a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made,
(C) a plan which has not, at any time after September 2, 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 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 effect on September 1, 1974.
(f) Special rule for determining normal retirement age for certain existing defined benefit plans
(1) In general
Notwithstanding subsection (a)(8), an applicable plan shall not be treated as failing to meet any requirement of this subchapter, or as failing to have a uniform normal retirement age for purposes of this subchapter, solely because the plan provides for a normal retirement age described in paragraph (2).
(2) Applicable plan
For purposes of this subsection—
(A) In general
The term "applicable plan" means a defined benefit plan the terms of which, on or before December 8, 2014, provided for a normal retirement age which is the earlier of—
(i) an age otherwise permitted under subsection (a)(8), or
(ii) the age at which a participant completes the number of years (not less than 30 years) of benefit accrual service specified by the plan.
A plan shall not fail to be treated as an applicable plan solely because the normal retirement age described in the preceding sentence only applied to certain participants or only applied to employees of certain employers in the case of a plan maintained by more than 1 employer.
(B) Expanded application
Subject to subparagraph (C), if, after December 8, 2014, an applicable plan is amended to expand the application of the normal retirement age described in subparagraph (A) to additional participants or to employees of additional employers maintaining the plan, such plan shall also be treated as an applicable plan with respect to such participants or employees.
(C) Limitation on expanded application
A defined benefit plan shall be an applicable plan only with respect to an individual who—
(i) is a participant in the plan on or before January 1, 2017, or
(ii) is an employee at any time on or before January 1, 2017, of any employer maintaining the plan, and who becomes a participant in such plan after such date.
(Added
Editorial Notes
References in Text
Section 4281 of the Employee Retirement Income Security Act of 1974, referred to in subsecs. (a)(3)(F)(i), (ii) and (d)(6)(A), is classified to
Section 4203 of the Employee Retirement Income Security Act of 1974, referred to in subsec. (a)(4)(G)(i)(I), is classified to
Section 4205(b)(2)(A)(i) of such Act, referred to in subsec. (a)(4)(G)(i)(II), is classified to
Section 4048 of such Act, referred to in subsec. (a)(4)(G)(ii), is classified to
The Social Security Act, referred to in subsecs. (a)(9) and (b)(1)(G), is act Aug. 14, 1935, ch. 531,
Amendments
2022—Subsec. (a)(11)(A).
Subsec. (b)(6).
2018—Subsec. (a)(3)(F)(i).
Subsec. (a)(4)(A).
2014—Subsec. (f).
2008—Subsec. (a)(3)(C).
Subsec. (a)(3)(G).
Subsec. (a)(13)(A).
Subsec. (b)(5)(A)(iii).
Subsec. (b)(5)(B)(i)(II).
Subsec. (b)(5)(C).
Subsec. (d)(6)(A).
2006—Subsec. (a)(2).
Subsec. (a)(3)(C).
Subsec. (a)(3)(G).
Subsec. (a)(12).
Subsec. (a)(13).
Subsec. (b)(1)(F).
Subsec. (b)(5).
Subsec. (d)(6)(A).
2004—Subsec. (a)(12)(B).
2001—Subsec. (a)(2).
Subsec. (a)(11)(D).
Subsec. (a)(12).
Subsec. (d)(6)(B).
Subsec. (d)(6)(D), (E).
1997—Subsec. (a)(7)(B)(i).
Subsec. (a)(11)(A).
1996—Subsec. (a)(2).
"(i) the plan is a multiemployer plan (within the meaning of section 414(f)), and
"(ii) under the plan—
"(I) an employee who is covered pursuant to a collective bargaining agreement described in section 414(f)(1)(B) and who has completed at least 10 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions, and
"(II) the requirements of subparagraph (A) or (B) are met with respect to employees not described in subclause (I)."
1994—Subsec. (a)(11)(B).
"(i)
"(I) by using an interest rate no greater than the applicable interest rate if the vested accrued benefit (using such rate) is not in excess of $25,000, and
"(II) by using an interest rate no greater than 120 percent of the applicable interest rate if the vested accrued benefit exceeds $25,000 (as determined under subclause (I)).
In no event shall the present value determined under subclause (II) be less than $25,000.
"(ii)
1992—Subsec. (d)(3).
1989—Subsec. (a)(3)(G).
Subsec. (a)(4)(A).
Subsec. (a)(7)(D).
Subsec. (a)(8)(B).
"(i) the time a plan participant attains age 65,
"(ii) in the case of a plan participant who commences participation in the plan within 5 years before attaining normal retirement age under the plan, the 5th anniversary of the time the plan participant commences participation in the plan, or
"(iii) in the case of a plan participant not described in clause (ii), the 10th anniversary of the time the plan participant commences participation in the plan."
Subsec. (b)(2)(B).
Subsec. (b)(2)(C), (D).
Subsec. (c)(2)(B).
"(i)
"(ii)
Subsec. (c)(2)(C)(iii).
Subsec. (c)(2)(E).
"(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."
1988—Subsec. (a)(11)(A).
1987—Subsec. (c)(2)(C)(iii).
Subsec. (c)(2)(D).
1986—Subsec. (a).
Subsec. (a)(2).
Subsec. (a)(3)(D)(ii).
Subsec. (a)(7)(C).
Subsec. (a)(8)(B).
"(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."
Subsec. (a)(10)(B).
Subsec. (a)(11)(A).
Subsec. (a)(11)(B).
Subsec. (a)(11)(C).
Subsec. (b)(1).
Subsec. (b)(2) to (4).
Subsec. (d)(1)(A), (B).
Subsec. (d)(4).
Subsec. (d)(6)(C).
1984—Subsec. (a)(4)(A).
Subsec. (a)(6)(C).
Subsec. (a)(6)(D).
Subsec. (a)(6)(E).
Subsec. (a)(7)(B)(i).
Subsec. (a)(7)(C).
Subsec. (a)(11).
Subsec. (b)(3)(A).
Subsec. (d)(6).
1980—Subsec. (a).
Subsec. (d)(6).
1976—Subsec. (a).
Subsec. (b)(1)(D)(i).
Subsecs. (c)(2)(B)(ii), (D), (d)(2), (3).
Subsec. (e)(1)(C).
Subsec. (e)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by section 304(a) of
Effective Date of 2014 Amendment
Effective Date of 2008 Amendment
Amendment by
Effective Date of 2006 Amendment
Amendment by section 114(b) of
"(1)
"(2)
"(3)
"(4)
"(A) the later of—
"(i) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof on or after such date of enactment), or
"(ii) January 1, 2008, or
"(B) January 1, 2010.
"(5)
"(6)
"(A) shall not apply to a participant who does not have an hour of service after the effective date of such requirements (as otherwise determined under this subsection); and
"(B) in the case of a plan other than a plan described in paragraph (3) or (4), shall apply to plan years ending on or after June 29, 2005."
[
Amendment by section 902(d)(2)(A), (B) of
"(1)
"(2)
"(A) the later of—
"(i) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof on or after such date of the enactment); or
"(ii) January 1, 2007; or
"(B) January 1, 2009.
"(3)
"(4)
"(A) the date on which the loan is fully repaid, or
"(B) the date on which the loan was, as of September 26, 2005, scheduled to be fully repaid."
Effective Date of 2001 Amendment
"(1)
"(2)
"(A) the later of—
"(i) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof on or after such date of the enactment); or
"(ii) January 1, 2002; or
"(B) January 1, 2006.
"(3)
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
"(1) the later of—
"(A) January 1, 1997, or
"(B) the date on which the last of the collective bargaining agreements pursuant to which the plan is maintained terminates (determined without regard to any extension thereof after the date of the enactment of this Act [Aug. 20, 1996]), or
"(2) January 1, 1999.
Such amendments shall not apply to any individual who does not have more than 1 hour of service under the plan on or after the 1st day of the 1st plan year to which such amendments apply."
Effective Date of 1994 Amendment
"(1)
"(2)
"(3)
"(A)
"(i) the later of the date a plan amendment applying the amendments made by subsection (b) is adopted or made effective, or
"(ii) the first day of the first limitation year beginning after December 31, 1999.
Determinations under section 415(b)(2)(E) of the Internal Revenue Code of 1986 before such earlier date shall be made with respect to such benefits on the basis of such section as in effect on December 7, 1994, and the provisions of the plan as in effect on December 7, 1994, but only if such provisions of the plan meet the requirements of such section (as so in effect).
"(B)
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by section 7861(a)(5)(A), (6)(A) of
Amendment by section 7881(m)(1) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
"(1)
"(2)
"(A) the later of—
"(i) January 1, 1989, or
"(ii) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after February 28, 1986), or
"(B) January 1, 1991.
"(3)
"(4)
"(A) such plan amendment would reduce the nonforfeitable right of such employee for such year, and
"(B) such employee has at least 1 hour of service before the adoption of such plan amendment and after the beginning of such 1st plan year.
This paragraph shall not apply to an employee who has 5 consecutive 1-year breaks in service (as defined in section 411(a)(6)(A) of the Internal Revenue Code of 1986) which include the 1st day of the 1st plan year to which the amendments made by subsection (b) and (e)(2) apply. A plan shall not be treated as failing to meet the requirements of section 401(a)(26) of such Code by reason of complying with the provisions of this paragraph."
Amendment by section 1114(b)(10) of
"(1)
"(2)
"(A)
"(i) adopts a plan amendment before the close of the first plan year beginning on or after January 1, 1989, which provides for the calculation of the present value of the accrued benefits in the manner provided by the amendments made by this section, and
"(ii) the plan reduces the accrued benefits for any plan year to which such plan amendment applies in accordance with such plan amendment,
such reduction shall not be treated as a violation of section 411(d)(6) of the Internal Revenue Code of 1986 or section 204(g) of the Employee Retirement Income Security Act of 1974 (
"(B)
"(i) such plan may be amended to remove the option of an employee to receive a lump sum distribution (within the meaning of section 402(e)(5) of such Code) if such amendment—
"(I) is adopted within 1 year of the date of the enactment of this Act [Oct. 22, 1986], and
"(II) is not effective until 2 years after the employees are notified of such amendment, and
"(ii) the present value of any vested accrued benefit of such plan determined during the 3-year period beginning on the date of the enactment of this Act shall be determined under the applicable interest rate (within the meaning of section 411(a)(11)(B)(ii) of such Code), except that if such value (as so determined) exceeds $50,000, then the value of any excess over $50,000 shall be determined by using the interest rate specified in the plan as of August 16, 1986."
Amendment by section 1898(a)(4)(A), (d)(1)(A), (2)(A), (f)(1)(A) of
Amendment by section 9202(b) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(62) of
Effective Date
Section applicable, except as otherwise provided in section 1017(c) through (i) of
Regulations
"(1)
"(2)
"(A)
"(B)
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by sections 1113 and 1114 of
Secretary of Labor, Secretary of the Treasury, and Equal Employment Opportunity Commission shall each issue before Feb. 1, 1988, final regulations to carry out amendments made by sections 9202 and 9203 of
Savings Provision
For provisions that nothing in amendment by
Construction of 2006 Amendment
"(1) the treatment of applicable defined benefit plans or conversions to applicable defined benefit plans under sections 204(b)(1)(H) of the Employee Retirement Income Security Act of 1974 [
"(2) the determination of whether an applicable defined benefit plan fails to meet the requirements of sections 203(a)(2), 204(c), or 205(g) of the Employee Retirement Income Security Act of 1974 [
For purposes of this subsection, the term 'applicable defined benefit plan' has the meaning given such term by section 203(f)(3) of the Employee Retirement Income Security Act of 1974 [
Temporary Rule Preventing Partial Plan Termination
Applicability of Amendments by Subtitles A and B of Title I of Pub. L. 109–280
For special rules on applicability of amendments by subtitles A (§§101–108) and B (§§111–116) of title I of
Provisions Relating to Plan Amendments
"(a)
"(1) such pension plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in subsection (b)(2)(A), and
"(2) except as provided by the Secretary of the Treasury, such pension plan shall not fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code of 1986 and section 204(g) of the Employee Retirement Income Security Act of 1974 [
"(b)
"(1)
"(A) pursuant to any amendment made by this Act [see Tables for classification] or pursuant to any regulation issued by the Secretary of the Treasury or the Secretary of Labor under this Act, and
"(B) on or before the last day of the first plan year beginning on or after January 1, 2009.
In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), this paragraph shall be applied by substituting '2011' for '2009'.
"(2)
"(A) during the period—
"(i) beginning on the date the legislative or regulatory amendment described in paragraph (1)(A) takes effect (or in the case of a plan or contract amendment not required by such legislative or regulatory amendment, the effective date specified by the plan), and
"(ii) ending on the date described in paragraph (1)(B) (or, if earlier, the date the plan or contract amendment is adopted), the plan or contract is operated as if such plan or contract amendment were in effect; and
"(B) such plan or contract amendment applies retroactively for such period."
"(1)
"(A) such plan or contract shall be treated as being operated in accordance with the terms of the plan or contract during the period described in paragraph (2)(B)(i), and
"(B) except as provided by the Secretary of the Treasury, such plan shall not fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code of 1986 and section 204(g) of the Employee Retirement Income Security Act of 1974 [
"(2)
"(A)
"(i) pursuant to any amendment made by this section [amending
"(ii) on or before the last day of the first plan year beginning on or after January 1, 2009.
"(B)
"(i) during the period beginning on the date the amendment described in subparagraph (A)(i) takes effect and ending on the date described in subparagraph (A)(ii) (or, if earlier, the date the plan or contract amendment is adopted), the plan or contract is operated as if such plan or contract amendment were in effect; and
"(ii) such plan or contract amendment applies retroactively for such period."
"(a)
"(1) such plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in subsection (b)(2)(A), and
"(2) such plan shall not fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code of 1986 or section 204(g) of the Employee Retirement Income Security Act of 1974 [
"(b)
"(1)
"(A) pursuant to any amendment made by this title [enacting
"(B) before the first day of the first plan year beginning on or after January 1, 1999.
In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), this paragraph shall be applied by substituting '2001' for '1999'.
"(2)
"(A) during the period—
"(i) beginning on the date the legislative amendment described in paragraph (1)(A) takes effect (or in the case of a plan or contract amendment not required by such legislative amendment, the effective date specified by the plan), and
"(ii) ending on the date described in paragraph (1)(B) (or, if earlier, the date the plan or contract amendment is adopted),
the plan or contract is operated as if such plan or contract amendment were in effect, and
"(B) such plan or contract amendment applies retroactively for such period."
Transitional Rule: Certain Plan Amendments Adopted or Effective On or Before August 20, 1996
"(1) a plan amendment was adopted or made effective on or before the date of the enactment of this Act [Aug. 20, 1996] applying the amendments made by section 767 of the Uruguay Round Agreements Act [
"(2) within 1 year after the date of the enactment of this Act [Aug. 20, 1996], a plan amendment is adopted which repeals the amendment referred to in paragraph (1),
the amendment referred to in paragraph (1) shall not be taken into account in applying section 767(d)(3)(A) of the Uruguay Round Agreements Act, as amended by subsection (a)."
Plan Amendments Reflecting Amendments by Section 7881(m) of Pub. L. 101–239 Not Treated as Reducing Accrued Benefits
For provisions directing that if during the period beginning Dec. 22, 1987, and ending June 21, 1988, a plan was amended to reflect the amendments by section 9346 of
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
For provisions directing that if any amendments made by sections 9202(b) and 9203(b)(2) of
Alternate Methods of Satisfying Requirements for Vesting and Accrued Benefits
"(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 [former] section 412(d) 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."
1 So in original. Probably should be "similar account".
§412. Minimum funding standards
(a) Requirement to meet minimum funding standard
(1) In general
A plan to which this section applies shall satisfy the minimum funding standard applicable to the plan for any plan year.
(2) Minimum funding standard
For purposes of paragraph (1), a plan shall be treated as satisfying the minimum funding standard for a plan year if—
(A) in the case of a defined benefit plan which is not a multiemployer plan or a CSEC plan, the employer makes contributions to or under the plan for the plan year which, in the aggregate, are not less than the minimum required contribution determined under section 430 for the plan for the plan year,
(B) in the case of a money purchase plan which is not a multiemployer plan, the employer makes contributions to or under the plan for the plan year which are required under the terms of the plan,
(C) in the case of a multiemployer plan, the employers make contributions to or under the plan for any plan year which, in the aggregate, are sufficient to ensure that the plan does not have an accumulated funding deficiency under section 431 as of the end of the plan year, and
(D) in the case of a CSEC plan, the employers make contributions to or under the plan for any plan year which, in the aggregate, are sufficient to ensure that the plan does not have an accumulated funding deficiency under section 433 as of the end of the plan year.
(b) Liability for contributions
(1) In general
Except as provided in paragraph (2), the amount of any contribution required by this section (including any required installments under paragraphs (3) and (4) of section 430(j) or under section 433(f)) shall be paid by the employer responsible for making contributions to or under the plan.
(2) Joint and several liability where employer member of controlled group
If the employer referred to in paragraph (1) is a member of a controlled group, each member of such group shall be jointly and severally liable for payment of such contributions.
(3) Multiemployer plans in critical status
Paragraph (1) shall not apply in the case of a multiemployer plan for any plan year in which the plan is in critical status pursuant to section 432. This paragraph shall only apply if the plan sponsor adopts a rehabilitation plan in accordance with section 432(e) and complies with such rehabilitation plan (and any modifications of the plan).
(c) Variance from minimum funding standards
(1) Waiver in case of business hardship
(A) In general
If—
(i) an employer is (or in the case of a multiemployer plan or a CSEC 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 temporary substantial business hardship (substantial business hardship in the case of a multiemployer plan), and
(ii) application of the standard would be adverse to the interests of plan participants in the aggregate,
the Secretary may, subject to subparagraph (C), waive the requirements of subsection (a) for such year with respect to all or any portion of the minimum funding standard. The Secretary shall not waive the minimum funding standard with respect to a plan for more than 3 of any 15 (5 of any 15 in the case of a multiemployer plan) consecutive plan years.
(B) Effects of waiver
If a waiver is granted under subparagraph (A) for any plan year—
(i) in the case of a defined benefit plan which is not a multiemployer plan or a CSEC plan, the minimum required contribution under section 430 for the plan year shall be reduced by the amount of the waived funding deficiency and such amount shall be amortized as required under section 430(e),
(ii) in the case of a multiemployer plan, the funding standard account shall be credited under section 431(b)(3)(C) with the amount of the waived funding deficiency and such amount shall be amortized as required under section 431(b)(2)(C), and
(iii) in the case of a CSEC plan, the funding standard account shall be credited under section 433(b)(3)(C) with the amount of the waived funding deficiency and such amount shall be amortized as required under section 433(b)(2)(C).
(C) Waiver of amortized portion not allowed
The Secretary may not waive under subparagraph (A) any portion of the minimum funding standard under subsection (a) for a plan year which is attributable to any waived funding deficiency for any preceding plan year.
(2) Determination of business hardship
For purposes of this subsection, the factors taken into account in determining temporary substantial business hardship (substantial business hardship in the case of a multiemployer plan) 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 and part III of this subchapter, the term "waived funding deficiency" means the portion of the minimum funding standard under subsection (a) (determined without regard to the waiver) for a plan year waived by the Secretary and not satisfied by employer contributions.
(4) Security for waivers for single-employer plans, consultations
(A) Security may be required
(i) In general
Except as provided in subparagraph (C), the Secretary may require an employer maintaining a defined benefit plan which is a single-employer plan (within the meaning of section 4001(a)(15) of the Employee Retirement Income Security Act of 1974) to provide security to such plan as a condition for granting or modifying a waiver under paragraph (1) or for granting an extension under section 433(d).
(ii) Special rules
Any security provided under clause (i) may be perfected and enforced only by the Pension Benefit Guaranty Corporation, or at the direction of the Corporation, by a contributing sponsor (within the meaning of section 4001(a)(13) of the Employee Retirement Income Security Act of 1974), or a member of such sponsor's controlled group (within the meaning of section 4001(a)(14) of such Act).
(B) Consultation with the Pension Benefit Guaranty Corporation
Except as provided in subparagraph (C), the Secretary shall, before granting or modifying a waiver under this subsection or an extension under section 433(d) with respect to a plan described in subparagraph (A)(i)—
(i) provide the Pension Benefit Guaranty Corporation with—
(I) notice of the completed application for any waiver, modification, or extension, and
(II) an opportunity to comment on such application within 30 days after receipt of such notice, and
(ii) consider—
(I) any comments of the Corporation under clause (i)(II), and
(II) any views of any employee organization (within the meaning of section 3(4) of the Employee Retirement Income Security Act of 1974) representing participants in the plan which are submitted in writing to the Secretary in connection with such application.
Information provided to the Corporation under this subparagraph shall be considered tax return information and subject to the safeguarding and reporting requirements of section 6103(p).
(C) Exception for certain waivers or extensions
(i) In general
The preceding provisions of this paragraph shall not apply to any plan with respect to which the sum of—
(I) the aggregate unpaid minimum required contributions (within the meaning of section 4971(c)(4)) for the plan year and all preceding plan years, or the accumulated funding deficiency under section 433, whichever is applicable,
(II) the present value of all waiver amortization installments determined for the plan year and succeeding plan years under section 430(e)(2) or 433(b)(2)(C), whichever is applicable, and
(III) the total amounts not paid by reason of an extension in effect under section 433(d),
is less than $1,000,000.
(ii) Treatment of waivers or extensions for which applications are pending
The amount described in clause (i)(I) shall include any increase in such amount which would result if all applications for waivers or extensions with respect to the minimum funding standard under this subsection which are pending with respect to such plan were denied.
(5) Special rules for single-employer plans
(A) Application must be submitted before date 2½ months after close of year
In the case of a defined benefit plan which is not a multiemployer plan, no waiver may be granted under this subsection with respect to any plan for any plan year unless an application therefor is submitted to the Secretary not later than the 15th day of the 3rd month beginning after the close of such plan year.
(B) Special rule if employer is member of controlled group
In the case of a defined benefit plan which is not a multiemployer plan, if an employer is a member of a controlled group, the temporary substantial business hardship requirements of paragraph (1) shall be treated as met only if such requirements are met—
(i) with respect to such employer, and
(ii) with respect to the controlled group of which such employer is a member (determined by treating all members of such group as a single employer).
The Secretary may provide that an analysis of a trade or business or industry of a member need not be conducted if the Secretary determines such analysis is not necessary because the taking into account of such member would not significantly affect the determination under this paragraph.
(6) Advance notice
(A) In general
The Secretary shall, before granting a waiver under this subsection, require each applicant to provide evidence satisfactory to the Secretary that the applicant has provided notice of the filing of the application for such waiver to each affected party (as defined in section 4001(a)(21) of the Employee Retirement Income Security Act of 1974). Such notice shall include a description of the extent to which the plan is funded for benefits which are guaranteed under title IV of the Employee Retirement Income Security Act of 1974 and for benefit liabilities.
(B) Consideration of relevant information
The Secretary shall consider any relevant information provided by a person to whom notice was given under subparagraph (A).
(7) Restriction on plan amendments
(A) In general
No amendment of a 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 this subsection or an extension of time under section 431(d) or section 433(d) is in effect with respect to the plan, or if a plan amendment described in subsection (d)(2) which reduces the accrued benefit of any participant has been made at any time in the preceding 12 months (24 months in the case of a multiemployer plan). 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.
(B) Exception
Subparagraph (A) shall not apply to any plan amendment which—
(i) the Secretary determines to be reasonable and which provides for only de minimis increases in the liabilities of the plan,
(ii) only repeals an amendment described in subsection (d)(2), or
(iii) is required as a condition of qualification under part I of subchapter D of
(d) Miscellaneous rules
(1) Change in method or year
If the funding method or a plan year for a plan is changed, the change shall take effect only if approved by the Secretary.
(2) 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 2½ 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 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 notifying him of such amendment and the Secretary has approved such amendment, or within 90 days after the date on which such notice was filed, failed to disapprove such amendment. No amendment described in this subsection shall be approved by the Secretary unless the Secretary determines that such amendment is necessary because of a temporary substantial business hardship (as determined under subsection (c)(2)) or a substantial business hardship (as so determined) in the case of a multiemployer plan and that a waiver under subsection (c) (or, in the case of a multiemployer plan or a CSEC plan, any extension of the amortization period under section 431(d) or section 433(d)) is unavailable or inadequate.
(3) Controlled group
For purposes of this section, the term "controlled group" means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414.
(e) Plans to which section applies
(1) In general
Except as provided in paragraphs (2) and (4), this section applies to a plan if, for any plan year beginning on or after the effective date of this section for such plan under the Employee Retirement Income Security Act of 1974—
(A) such plan included a trust which qualified (or was determined by the Secretary to have qualified) under section 401(a), or
(B) such plan satisfied (or was determined by the Secretary to have satisfied) the requirements of section 403(a).
(2) Exceptions
This section shall not apply to—
(A) any profit-sharing or stock bonus plan,
(B) any insurance contract plan described in paragraph (3),
(C) any governmental plan (within the meaning of section 414(d)),
(D) any church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made,
(E) any plan which has not, at any time after September 2, 1974, provided for employer contributions, or
(F) any plan established and maintained by a society, order, or association described in section 501(c)(8) or (9), if no part of the contributions to or under such plan are made by employers of participants in such plan.
No plan described in subparagraph (C), (D), or (F) shall be treated as a qualified plan for purposes of section 401(a) unless such plan meets the requirements of section 401(a)(7) as in effect on September 1, 1974.
(3) Certain insurance contract plans
A plan is described in this paragraph if—
(A) the plan is funded exclusively by the purchase of individual insurance contracts,
(B) 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),
(C) 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,
(D) 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,
(E) no rights under such contracts have been subject to a security interest at any time during the plan year, and
(F) 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 to have the same characteristics as contracts described in the preceding sentence shall be treated as a plan described in this paragraph.
(4) Certain terminated multiemployer plans
This section applies with respect to a terminated multiemployer plan to which section 4021 of the Employee Retirement Income Security Act of 1974 applies until the last day of the plan year in which the plan terminates (within the meaning of section 4041A(a)(2) of such Act).
(Added
Editorial Notes
References in Text
The Employee Retirement Income Security Act of 1974, referred to in subsecs. (c)(4)(A), (B)(ii)(II), (6)(A), and (e)(1), (4), is
The effective date of this section, referred to in subsec. (e)(1), probably means the effective date of
Amendments
2018—Subsec. (c)(1)(A).
Subsec. (c)(4)(B).
Subsec. (c)(7)(B)(iii).
2014—Subsec. (a)(2)(A).
Subsec. (a)(2)(D).
Subsec. (b)(1).
Subsec. (c)(1)(A)(i).
Subsec. (c)(1)(B)(i).
Subsec. (c)(1)(B)(iii).
Subsec. (c)(4)(A)(i).
Subsec. (c)(4)(B).
Subsec. (c)(4)(B)(i)(I).
Subsec. (c)(4)(C).
Subsec. (c)(4)(C)(i)(I).
Subsec. (c)(4)(C)(i)(II).
Subsec. (c)(4)(C)(i)(III).
Subsec. (c)(4)(C)(ii).
Subsec. (c)(7)(A).
Subsec. (d)(2).
2008—Subsec. (b)(3).
Subsec. (c)(1)(A)(i).
Subsec. (c)(7)(A).
Subsec. (d)(1).
2006—
Subsec. (b)(3).
Subsec. (b)(5)(B)(ii)(II).
Subsec. (l)(7)(C)(i)(IV).
2005—Subsec. (m)(4)(B)(i).
2004—Subsec. (b)(5)(B)(ii)(I).
Subsec. (b)(5)(B)(ii)(II), (III).
Subsec. (b)(7)(F).
Subsec. (l)(7)(C)(i)(IV).
Subsec. (l)(12).
Subsec. (m)(7).
2002—Subsec. (c)(9)(B)(ii).
Subsec. (c)(9)(B)(iv).
Subsec. (l)(7)(C)(i)(III).
Subsec. (m)(7).
2001—Subsec. (c)(7)(A)(i)(I).
Subsec. (c)(7)(F).
Subsec. (c)(9).
1997—Subsec. (b)(2)(E).
Subsec. (c)(7)(A)(i)(I).
Subsec. (c)(7)(D).
Subsec. (c)(7)(F).
Subsec. (m)(5)(E)(ii)(II).
1994—Subsec. (c)(5).
Subsec. (c)(7)(A)(i)(I).
Subsec. (c)(7)(B).
Subsec. (c)(7)(E).
Subsec. (c)(12).
Subsec. (l)(1).
Subsec. (l)(1)(A)(ii).
Subsec. (l)(2)(C).
Subsec. (l)(2)(D).
Subsec. (l)(3)(D), (E).
Subsec. (l)(4)(B)(i).
Subsec. (l)(4)(C).
Subsec. (l)(5)(A).
Subsec. (l)(5)(A)(iii).
Subsec. (l)(5)(E).
Subsec. (l)(7)(C).
Subsec. (l)(9).
Subsec. (l)(10).
Subsec. (l)(11).
Subsec. (m)(1).
Subsec. (m)(4)(D)(ii).
Subsec. (m)(4)(D)(ii)(III).
Subsec. (m)(5), (6).
Subsec. (n)(2).
Subsec. (n)(3).
"(A) the amount by which the unpaid balances described in paragraph (1)(B) (including interest) exceed $1,000,000, or
"(B) the aggregate unpaid balance of required installments and other payments required under this section (including interest)—
"(i) for plan years beginning after 1987, and
"(ii) for which payment has not been made before the due date."
Subsec. (n)(4)(B).
1989—Subsec. (b)(5)(B)(iii).
Subsec. (c)(9).
Subsec. (c)(10)(A).
Subsec. (c)(10)(B).
Subsec. (d)(1)(A)(ii).
Subsec. (f)(4)(A).
Subsec. (l)(3)(C)(ii)(II).
Subsec. (l)(4)(B)(i).
Subsec. (l)(5)(C).
Subsec. (l)(7)(D)(iii)(III).
Subsec. (l)(7)(D)(iv).
Subsec. (l)(8)(A)(ii).
Subsec. (l)(8)(E).
Subsec. (m)(1).
Subsec. (m)(1)(B).
Subsec. (m)(4)(D).
"(i) such liabilities shall not be taken into account in computing the required annual payment under subparagraph (B), and
"(ii) each required installment shall be increased by the greater of—
"(I) the amount of benefits described in subsection (l)(5)(A)(i) paid during the 3-month period preceding the month in which the due date for such installment occurs, or
"(II) 25 percent of the amount determined under subsection (l)(5)(A)(ii) for the plan year."
1988—Subsec. (l)(3)(C)(i), (iii).
1987—Subsec. (b)(2).
Subsec. (b)(2)(B)(iv).
Subsec. (b)(2)(B)(v).
Subsec. (b)(2)(C), (3)(B)(ii).
Subsec. (b)(3)(B)(iii).
Subsec. (b)(5).
Subsec. (c)(2)(B).
Subsec. (c)(3).
Subsec. (c)(7).
"(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)."
Subsec. (c)(10).
Subsec. (c)(11).
Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (d)(4).
Subsec. (d)(5).
Subsec. (e).
Subsec. (f)(3)(C)(i).
Subsec. (f)(4)(A).
Subsec. (l).
Subsec. (m).
Subsec. (n).
1986—Subsec. (d)(1).
Subsec. (e).
Subsec. (f).
1984—Subsec. (a)(2).
1980—Subsec. (a).
Subsec. (b).
Subsecs. (j), (k).
1976—Subsecs. (a) to (d).
Subsec. (h).
Subsec. (i).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment by
Effective Date of 2006 Amendment
"(1)
"(2)
"(3)
"(A) with respect to which benefits were reduced pursuant to a plan amendment adopted on or after January 1, 2002, and before June 30, 2005, and
"(B) which, pursuant to the plan document, the trust agreement, or a formal written communication from the plan sponsor to participants provided before June 30, 2005, provided for the restoration of such benefits,
the amendments made by this section shall not apply to such benefit restorations to the extent that any restriction on the providing or accrual of such benefits would otherwise apply by reason of such amendments."
[
Effective Date of 2004 Amendment
Amendment by section 101(b)(1)–(3) of
Effective Date of 2002 Amendment
Amendment by section 411(v)(1) of
Effective Date of 2001 Amendment
Effective Date of 1997 Amendment
Effective Date of 1994 Amendment
Amendment by section 751(a)(1)–(9)(A), (10) of
"(1)
"(2)
"(A) such change would have required the approval of the Secretary of the Treasury had such amendment applied to such change, and
"(B) such change is not so approved."
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
"(1)
"(2)
"(1)
"(2)
"(3)
"(A)
"(i) the required percentage of the current liability under such plan, plus
"(ii) the amount determined under subparagraph (C)(i) for such plan year.
"(B)
"(i) the sum of—
"(I) the funded current liability percentage as of the beginning of the 1st plan year beginning after December 31, 1988 (determined without regard to any plan amendment adopted after June 30, 1987), plus
"(II) 1 percentage point for the plan year for which the determination under this paragraph is being made and for each prior plan year beginning after December 31, 1988, over
"(ii) the funded current liability percentage as of the beginning of the plan year for which such determination is being made.
"(C)
"(i)
"(ii)
"(I) the unpredictable contingent event benefit liability, or
"(II) any amount contributed to the plan which is attributable to clause (i) (and any income allocable to such amount).
"(D)
"(i) such plan is maintained by a steel company, and
"(ii) substantially all of the employees covered by such plan are employees of such company.
"(E)
"(i)
"(ii)
"(F)
"(1)
"(A) any application submitted after December 17, 1987, and
"(B) any waiver granted pursuant to such an application.
"(2)
"(A)
"(B)
"(3)
"(4)
Amendment by section 9307(a)(1), (b)(1), (e)(1) of
Effective Date of 1986 Amendment
Amendment by sections 11015(b)(2) and 11016(c)(4) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(63) of
Effective Date
Section applicable, except as otherwise provided in section 1017(c) through (i) of
Regulations
"(a)
"(1) a plan which is, on the date of enactment of this Act [Dec. 8, 1994], subject to a restoration payment schedule order issued by the Pension Benefit Guaranty Corporation that meets the requirements of section 1.412(c)(1)–3 of the Treasury Regulations, or
"(2) a plan established by an affected air carrier (as defined under section 4001(a)(14)(C)(ii)(I) of such Act [
"(b)
[
[
[
[
Applicability of Amendments by Subtitles A and B of Title I of Pub. L. 109–280
For special rules on applicability of amendments by subtitles A (§§101–108) and B (§§111–116) of title I of
Special Rule for Certain Benefits Funded Under an Agreement Approved by the Pension Benefit Guaranty Corporation
"(1) increases benefits, and
"(2) provides for special withdrawal liability rules under section 4203(f) of the Employee Retirement Income Security Act of 1974 (
the amendments made by sections 201, 202, 211, and 212 of this Act [enacting
Applicability of Section to Certain Plans Maintained by Commercial Airlines
For special rules on applicability of this section to certain plans maintained by commercial airlines, see section 402 of
Effect of Election
Special Rule for Unamortized Balances Under Existing Law
"(A) 20 years, over
"(B) the number of years since the amortization base was established."
Alternative Amortization Method for Certain Multiemployer Plans
"(1)
"(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 [former] section 412(b)(2)(B) of such Code and section 302(b)(2)(B)(i), (ii), and (iii) of this Act [section 1082(b)(2)(B)(i), (ii), and (iii) of Title 29, Labor].
"(2)
§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 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) 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 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—
(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.
For purposes of this subsection and section 4971(e), an employer's withdrawal liability under part 1 of subtitle E of title IV of the Employee Retirement Income Security Act of 1974 shall not be treated as a liability for contributions under the plan.
(7) 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 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.
(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.
(9) Plans covering a professional employee
Notwithstanding subsection (a), in the case of a plan (and trust forming part thereof) which covers any professional employee, paragraph (1) shall be applied by substituting "section 410(a)" for "section 410", and paragraph (2) shall not apply.
(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 sections 401(a) and 408(c), 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 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
(A) In general
In the case of a plan established after December 31, 1988, each employer shall be treated as maintaining a separate plan for purposes of section 412 unless such plan uses a method for determining required contributions which provides that any employer contributes not less than the amount which would be required if such employer maintained a separate plan.
(B) Other plans
In the case of a plan not described in subparagraph (A), the requirements of section 412 shall be determined as if all participants in the plan were employed by a single employer unless the plan administrator elects not later than the close of the first plan year of the plan beginning after the date of enactment of the Technical and Miscellaneous Revenue Act of 1988 to have the provisions of subparagraph (A) apply. An election under the preceding sentence shall take effect for the plan year in which made and, once made, may be revoked only with the consent of the Secretary.
(5) Liability for funding tax
For a plan year the liability under section 4971 of each employer who maintains the plan shall be determined in a reasonable manner not inconsistent with regulations prescribed by the Secretary—
(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
(A) In general
In the case of a plan established after December 31, 1988, each applicable limitation provided by section 404(a) shall be determined as if each employer were maintaining a separate plan.
(B) Other plans
(i) In general
In the case of a plan not described in subparagraph (A), each applicable limitation provided by section 404(a) shall be determined as if all participants in the plan were employed by a single employer, except that if an election is made under paragraph (4)(B), subparagraph (A) shall apply to such plan.
(ii) Special rule
If this subparagraph applies, the amounts contributed to or under the plan by each employer who maintains the plan (for the portion of the taxable year included within a plan year) shall be considered not to exceed any such limitation if the anticipated employer contributions for such plan year (determined in a reasonable manner not inconsistent with regulations prescribed by the Secretary) 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.
(7) Allocations
(A) In general
Except as provided in subparagraph (B), 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.
(B) Assets and liabilities of plan
For purposes of applying paragraphs (4)(A) and (6)(A), the assets and liabilities of each plan shall be treated as the assets and liabilities which would be allocated to a plan maintained by the employer if the employer withdrew from the multiple employer plan.
(d) CSEC plans
Notwithstanding any other provision of this section, in the case of a CSEC plan—
(1) Funding
The requirements of section 412 shall be determined as if all participants in the plan were employed by a single employer.
(2) Application of provisions
Paragraphs (1), (2), (3), and (5) of subsection (c) shall apply.
(3) 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 the taxable year included within a plan year) shall be considered not to exceed such applicable limitation if the anticipated employer contributions for such plan year of all employers (determined in a reasonable manner not inconsistent with regulations prescribed by the Secretary) do not exceed such limitation. If such anticipated contributions exceed such 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.
(4) Allocations
Allocations of amounts under paragraph (3) and subsection (c)(5) among the employers maintaining the plan shall not be inconsistent with the regulations prescribed for this purpose by the Secretary.
(e) Application of qualification requirements for certain multiple employer plans with pooled plan providers
(1) In general
Except as provided in paragraph (2), if a defined contribution plan to which subsection (c) applies—
(A) is maintained by employers which have a common interest other than having adopted the plan, or
(B) in the case of a plan not described in subparagraph (A), has a pooled plan provider,
then the plan shall not be treated as failing to meet the requirements under this title applicable to a plan described in section 401(a) or to a plan that consists of individual retirement accounts described in section 408 (including by reason of subsection (c) thereof), whichever is applicable, merely because one or more employers of employees covered by the plan fail to take such actions as are required of such employers for the plan to meet such requirements.
(2) Limitations
(A) In general
Paragraph (1) shall not apply to any plan unless the terms of the plan provide that in the case of any employer in the plan failing to take the actions described in paragraph (1)—
(i) the assets of the plan attributable to employees of such employer (or beneficiaries of such employees) will be transferred to a plan maintained only by such employer (or its successor), to an eligible retirement plan as defined in section 402(c)(8)(B) for each individual whose account is transferred, or to any other arrangement that the Secretary determines is appropriate, unless the Secretary determines it is in the best interests of the employees of such employer (and the beneficiaries of such employees) to retain the assets in the plan, and
(ii) such employer (and not the plan with respect to which the failure occurred or any other employer in such plan) shall, except to the extent provided by the Secretary, be liable for any liabilities with respect to such plan attributable to employees of such employer (or beneficiaries of such employees).
(B) Failures by pooled plan providers
If the pooled plan provider of a plan described in paragraph (1)(B) does not perform substantially all of the administrative duties which are required of the provider under paragraph (3)(A)(i) for any plan year, the Secretary may provide that the determination as to whether the plan meets the requirements under this title applicable to a plan described in section 401(a) or to a plan that consists of individual retirement accounts described in section 408 (including by reason of subsection (c) thereof), whichever is applicable, shall be made in the same manner as would be made without regard to paragraph (1).
(3) Pooled plan provider
(A) In general
For purposes of this subsection, the term "pooled plan provider" means, with respect to any plan, a person who—
(i) is designated by the terms of the plan as a named fiduciary (within the meaning of section 402(a)(2) of the Employee Retirement Income Security Act of 1974), as the plan administrator, and as the person responsible to perform all administrative duties (including conducting proper testing with respect to the plan and the employees of each employer in the plan) which are reasonably necessary to ensure that—
(I) the plan meets any requirement applicable under the Employee Retirement Income Security Act of 1974 or this title to a plan described in section 401(a) or to a plan that consists of individual retirement accounts described in section 408 (including by reason of subsection (c) thereof), whichever is applicable, and
(II) each employer in the plan takes such actions as the Secretary or such person determines are necessary for the plan to meet the requirements described in subclause (I), including providing to such person any disclosures or other information which the Secretary may require or which such person otherwise determines are necessary to administer the plan or to allow the plan to meet such requirements,
(ii) registers as a pooled plan provider with the Secretary, and provides such other information to the Secretary as the Secretary may require, before beginning operations as a pooled plan provider,
(iii) acknowledges in writing that such person is a named fiduciary (within the meaning of section 402(a)(2) of the Employee Retirement Income Security Act of 1974), and the plan administrator, with respect to the plan, and
(iv) is responsible for ensuring that all persons who handle assets of, or who are fiduciaries of, the plan are bonded in accordance with section 412 of the Employee Retirement Income Security Act of 1974.
(B) Audits, examinations and investigations
The Secretary may perform audits, examinations, and investigations of pooled plan providers as may be necessary to enforce and carry out the purposes of this subsection.
(C) Aggregation rules
For purposes of this paragraph, in determining whether a person meets the requirements of this paragraph to be a pooled plan provider with respect to any plan, all persons who perform services for the plan and who are treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as one person.
(D) Treatment of employers as plan sponsors
Except with respect to the administrative duties of the pooled plan provider described in subparagraph (A)(i), each employer in a plan which has a pooled plan provider shall be treated as the plan sponsor with respect to the portion of the plan attributable to employees of such employer (or beneficiaries of such employees).
(4) Guidance
(A) In general
The Secretary shall issue such guidance as the Secretary determines appropriate to carry out this subsection, including guidance—
(i) to identify the administrative duties and other actions required to be performed by a pooled plan provider under this subsection,
(ii) which describes the procedures to be taken to terminate a plan which fails to meet the requirements to be a plan described in paragraph (1), including the proper treatment of, and actions needed to be taken by, any employer in the plan and the assets and liabilities of the plan attributable to employees of such employer (or beneficiaries of such employees), and
(iii) identifying appropriate cases to which the rules of paragraph (2)(A) will apply to employers in the plan failing to take the actions described in paragraph (1).
The Secretary shall take into account under clause (iii) whether the failure of an employer or pooled plan provider to provide any disclosures or other information, or to take any other action, necessary to administer a plan or to allow a plan to meet requirements applicable to the plan under section 401(a) or 408, whichever is applicable, has continued over a period of time that demonstrates a lack of commitment to compliance.
(B) Good faith compliance with law before guidance
An employer or pooled plan provider shall not be treated as failing to meet a requirement of guidance issued by the Secretary under this paragraph if, before the issuance of such guidance, the employer or pooled plan provider complies in good faith with a reasonable interpretation of the provisions of this subsection to which such guidance relates.
(5) Model plan
The Secretary shall publish model plan language which meets the requirements of this subsection and of paragraphs (43) and (44) of section 3 of the Employee Retirement Income Security Act of 1974 and which may be adopted in order for a plan to be treated as a plan described in paragraph (1)(B).
(Added
Editorial Notes
References in Text
The Employee Retirement Income Security Act of 1974, referred to in subsecs. (b)(6) and (e), is
The date of enactment of the Technical and Miscellaneous Revenue Act of 1988, referred to in subsec. (c)(4)(B), is the date of enactment of
Amendments
2019—Subsec. (c)(2).
Subsec. (e).
2018—Subsec. (b)(6).
2014—Subsec. (d).
1990—Subsec. (c)(7)(B).
1988—Subsec. (b)(9).
Subsec. (c).
Subsec. (c)(4).
Subsec. (c)(6).
Subsec. (c)(7).
1980—Subsec. (b)(6).
1976—Subsecs. (b), (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2019 Amendment; Construction
Amendment by
Effective Date of 2014 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1011(h)(10) of
Effective Date of 1980 Amendment
Amendment by
Effective Date
Section applicable, except as otherwise provided in section 1017(c) through (i) of
Modification of Model Plan Language, Etc.
"(1)
"(2)
"(3)
§414. Definitions and special rules
(a) Service for predecessor employer
For purposes of this part—
(1) in any case in which the employer maintains a plan of a predecessor employer, service for such predecessor shall be treated as service for the employer, and
(2) in any case in which the employer maintains a plan which is not the plan maintained by a predecessor employer, service for such predecessor shall, to the extent provided in regulations prescribed by the Secretary, be treated as service for the employer.
(b) Employees of controlled group of corporations
(1) In general
For purposes of sections 401, 408(k), 408(p), 410, 411, 415, and 416, all employees of all corporations which are members of a controlled group of corporations (within the meaning of section 1563(a), determined without regard to section 1563(a)(4) and (e)(3)(C)) shall be treated as employed by a single employer. With respect to a plan adopted by more than one such corporation, the applicable limitations provided by section 404(a) shall be determined as if all such employers were a single employer, and allocated to each employer in accordance with regulations prescribed by the Secretary.
(2) Special rules for applying family attribution
For purposes of applying the attribution rules under section 1563 with respect to paragraph (1), the following rules apply:
(A) Community property laws shall be disregarded for purposes of determining ownership.
(B) Except as provided by the Secretary, stock of an individual not attributed under section 1563(e)(5) to such individual's spouse shall not be attributed to such spouse by reason of the combined application of paragraphs (1) and (6)(A) of section 1563(e).
(C) Except as provided by the Secretary, in the case of stock in different corporations that is attributed to a child under section 1563(e)(6)(A) from each parent, and is not attributed to such parents as spouses under section 1563(e)(5), such attribution to the child shall not by itself result in such corporations being members of the same controlled group.
(3) Plan shall not fail to be treated as satisfying this section
If application of paragraph (2) causes 2 or more entities to be a controlled group or to no longer be in a controlled group, such change shall be treated as a transaction to which section 410(b)(6)(C) applies.
(c) Employees of partnerships, proprietorships, etc., which are under common control
(1) In general
Except as provided in paragraph (2), for purposes of sections 401, 408(k), 408(p), 410, 411, 415, and 416, under regulations prescribed by the Secretary, all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer. The regulations prescribed under this subsection shall be based on principles similar to the principles which apply in the case of subsection (b).
(2) Special rules relating to church plans
(A) General rule
Except as provided in subparagraphs (B) and (C), for purposes of this subsection and subsection (m), an organization that is otherwise eligible to participate in a church plan shall not be aggregated with another such organization and treated as a single employer with such other organization for a plan year beginning in a taxable year unless—
(i) one such organization provides (directly or indirectly) at least 80 percent of the operating funds for the other organization during the preceding taxable year of the recipient organization, and
(ii) there is a degree of common management or supervision between the organizations such that the organization providing the operating funds is directly involved in the day-to-day operations of the other organization.
(B) Nonqualified church-controlled organizations
Notwithstanding subparagraph (A), for purposes of this subsection and subsection (m), an organization that is a nonqualified church-controlled organization shall be aggregated with 1 or more other nonqualified church-controlled organizations, or with an organization that is not exempt from tax under section 501, and treated as a single employer with such other organization, if at least 80 percent of the directors or trustees of such other organization are either representatives of, or directly or indirectly controlled by, such nonqualified church-controlled organization. For purposes of this subparagraph, the term "nonqualified church-controlled organization" means a church-controlled tax-exempt organization described in section 501(c)(3) that is not a qualified church-controlled organization (as defined in section 3121(w)(3)(B)).
(C) Permissive aggregation among church-related organizations
The church or convention or association of churches with which an organization described in subparagraph (A) is associated (within the meaning of subsection (e)(3)(D)), or an organization designated by such church or convention or association of churches, may elect to treat such organizations as a single employer for a plan year. Such election, once made, shall apply to all succeeding plan years unless revoked with notice provided to the Secretary in such manner as the Secretary shall prescribe.
(D) Permissive disaggregation of church-related organizations
For purposes of subparagraph (A), in the case of a church plan, an employer may elect to treat churches (as defined in section 403(b)(12)(B)) separately from entities that are not churches (as so defined), without regard to whether such entities maintain separate church plans. Such election, once made, shall apply to all succeeding plan years unless revoked with notice provided to the Secretary in such manner as the Secretary shall prescribe.
(d) Governmental plan
For purposes of this part, the term "governmental plan" means a plan established and maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing. The term "governmental plan" also includes any plan to which the Railroad Retirement Act of 1935 or 1937 applies and which is financed by contributions required under that Act and any plan of an international organization which is exempt from taxation by reason of the International Organizations Immunities Act (
(e) Church plan
(1) In general
For purposes of this part, the term "church plan" means a plan established and maintained (to the extent required in paragraph (2)(B)) for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501.
(2) Certain plans excluded
The term "church plan" does not include a plan—
(A) which is established and maintained primarily for the benefit of employees (or their beneficiaries) of such church or convention or association of churches who are employed in connection with one or more unrelated trades or businesses (within the meaning of section 513); or
(B) if less than substantially all of the individuals included in the plan are individuals described in paragraph (1) or (3)(B) (or their beneficiaries).
(3) Definitions and other provisions
For purposes of this subsection—
(A) Treatment as church plan
A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.
(B) Employee defined
The term employee of a church or a convention or association of churches shall include—
(i) a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry, regardless of the source of his compensation;
(ii) an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 501 and which is controlled by or associated with a church or a convention or association of churches; and
(iii) an individual described in subparagraph (E).
(C) Church treated as employer
A church or a convention or association of churches which is exempt from tax under section 501 shall be deemed the employer of any individual included as an employee under subparagraph (B).
(D) Association with church
An organization, whether a civil law corporation or otherwise, is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church or convention or association of churches.
(E) Special rule in case of separation from plan
If an employee who is included in a church plan separates from the service of a church or a convention or association of churches or an organization described in clause (ii) of paragraph (3)(B), the church plan shall not fail to meet the requirements of this subsection merely because the plan—
(i) retains the employee's accrued benefit or account for the payment of benefits to the employee or his beneficiaries pursuant to the terms of the plan; or
(ii) receives contributions on the employee's behalf after the employee's separation from such service, but only for a period of 5 years after such separation, unless the employee is disabled (within the meaning of the disability provisions of the church plan or, if there are no such provisions in the church plan, within the meaning of section 72(m)(7)) at the time of such separation from service.
(4) Correction of failure to meet church plan requirements
(A) In general
If a plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 fails to meet one or more of the requirements of this subsection and corrects its failure to meet such requirements within the correction period, the plan shall be deemed to meet the requirements of this subsection for the year in which the correction was made and for all prior years.
(B) Failure to correct
If a correction is not made within the correction period, the plan shall be deemed not to meet the requirements of this subsection beginning with the date on which the earliest failure to meet one or more of such requirements occurred.
(C) Correction period defined
The term "correction period" means—
(i) the period, ending 270 days after the date of mailing by the Secretary of a notice of default with respect to the plan's failure to meet one or more of the requirements of this subsection;
(ii) any period set by a court of competent jurisdiction after a final determination that the plan fails to meet such requirements, or, if the court does not specify such period, any reasonable period determined by the Secretary on the basis of all the facts and circumstances, but in any event not less than 270 days after the determination has become final; or
(iii) any additional period which the Secretary determines is reasonable or necessary for the correction of the default,
whichever has the latest ending date.
(5) Special rules for chaplains and self-employed ministers
(A) Certain ministers may participate
For purposes of this part—
(i) In general
A duly ordained, commissioned, or licensed minister of a church is described in paragraph (3)(B) if, in connection with the exercise of their ministry, the minister—
(I) is a self-employed individual (within the meaning of section 401(c)(1)(B), or
(II) is employed by an organization other than an organization which is described in section 501(c)(3) and with respect to which the minister shares common religious bonds.
(ii) Treatment as employer and employee
For purposes of sections 403(b)(1)(A) and 404(a)(10), a minister described in clause (i)(I) shall be treated as employed by the minister's own employer which is an organization described in section 501(c)(3) and exempt from tax under section 501(a).
(B) Special rules for applying section 403(b) to self-employed ministers
In the case of a minister described in subparagraph (A)(i)(I)—
(i) the minister's includible compensation under section 403(b)(3) shall be determined by reference to the minister's earned income (within the meaning of section 401(c)(2)) from such ministry rather than the amount of compensation which is received from an employer, and
(ii) the years (and portions of years) in which such minister was a self-employed individual (within the meaning of section 401(c)(1)(B)) with respect to such ministry shall be included for purposes of section 403(b)(4).
(C) Effect on non-denominational plans
If a duly ordained, commissioned, or licensed minister of a church in the exercise of his or her ministry participates in a church plan (within the meaning of this section) and in the exercise of such ministry is employed by an employer not otherwise participating in such church plan, then such employer may exclude such minister from being treated as an employee of such employer for purposes of applying sections 401(a)(3), 401(a)(4), and 401(a)(5), as in effect on September 1, 1974, and sections 401(a)(4), 401(a)(5), 401(a)(26), 401(k)(3), 401(m), 403(b)(1)(D) (including section 403(b)(12)), and 410 to any stock bonus, pension, profit-sharing, or annuity plan (including an annuity described in section 403(b) or a retirement income account described in section 403(b)(9)). The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purpose of, and prevent the abuse of, this subparagraph.
(D) Compensation taken into account only once
If any compensation is taken into account in determining the amount of any contributions made to, or benefits to be provided under, any church plan, such compensation shall not also be taken into account in determining the amount of any contributions made to, or benefits to be provided under, any other stock bonus, pension, profit-sharing, or annuity plan which is not a church plan.
(E) Exclusion
In the case of a contribution to a church plan made on behalf of a minister described in subparagraph (A)(i)(II), such contribution shall not be included in the gross income of the minister to the extent that such contribution would not be so included if the minister was an employee of a church.
(f) Multiemployer plan
(1) Definition
For purposes of this part, the term "multiemployer plan" means a plan—
(A) to which more than one employer is required to contribute,
(B) which is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer, and
(C) which satisfies such other requirements as the Secretary of Labor may prescribe by regulation.
(2) Cases of common control
For purposes of this subsection, all trades or businesses (whether or not incorporated) which are under common control within the meaning of subsection (c) are considered a single employer.
(3) Continuation of status after termination
Notwithstanding paragraph (1), a plan is a multiemployer plan on and after its termination date under title IV of the Employee Retirement Income Security Act of 1974 if the plan was a multiemployer plan under this subsection for the plan year preceding its termination date.
(4) Transitional rule
For any plan year which began before the date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, the term "multiemployer plan" means a plan described in this subsection as in effect immediately before that date.
(5) Special election
Within one year after the date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, a multiemployer plan may irrevocably elect, pursuant to procedures established by the Pension Benefit Guaranty Corporation and subject to the provisions of section 4403(b) and (c) of the Employee Retirement Income Security Act of 1974, that the plan shall not be treated as a multiemployer plan for any purpose under such Act or this title, if for each of the last 3 plan years ending prior to the effective date of the Multiemployer Pension Plan Amendments Act of 1980—
(A) the plan was not a multiemployer plan because the plan was not a plan described in section 3(37)(A)(iii) of the Employee Retirement Income Security Act of 1974 and section 414(f)(1)(C) (as such provisions were in effect on the day before the date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980); and
(B) the plan had been identified as a plan that was not a multiemployer plan in substantially all its filings with the Pension Benefit Guaranty Corporation, the Secretary of Labor and the Secretary.
(6) Election with regard to multiemployer status
(A) Within 1 year after the enactment of the Pension Protection Act of 2006—
(i) An election under paragraph (5) may be revoked, pursuant to procedures prescribed by the Pension Benefit Guaranty Corporation, if, for each of the 3 plan years prior to the date of the enactment of that Act, the plan would have been a multiemployer plan but for the election under paragraph (5), and
(ii) a plan that meets the criteria in subparagraph (A) and (B) of paragraph (1) of this subsection or that is described in subparagraph (E) may, pursuant to procedures prescribed by the Pension Benefit Guaranty Corporation, elect to be a multiemployer plan, if—
(I) for each of the 3 plan years immediately preceding the first plan year for which the election under this paragraph is effective with respect to the plan, the plan has met those criteria or is so described,
(II) substantially all of the plan's employer contributions for each of those plan years were made or required to be made by organizations that were exempt from tax under section 501, and
(III) the plan was established prior to September 2, 1974.
(B) An election under this paragraph shall be effective for all purposes under this Act 1 and under the Employee Retirement Income Security Act of 1974, starting with any plan year beginning on or after January 1, 1999, and ending before January 1, 2008, as designated by the plan in the election made under subparagraph (A)(ii).
(C) Once made, an election under this paragraph shall be irrevocable, except that a plan described in subparagraph (A)(ii) shall cease to be a multiemployer plan as of the plan year beginning immediately after the first plan year for which the majority of its employer contributions were made or required to be made by organizations that were not exempt from tax under section 501.
(D) The fact that a plan makes an election under subparagraph (A)(ii) does not imply that the plan was not a multiemployer plan prior to the date of the election or would not be a multiemployer plan without regard to the election.
(E) A plan is described in this subparagraph if it is a plan sponsored by an organization which is described in section 501(c)(5) and exempt from tax under section 501(a) and which was established in Chicago, Illinois, on August 12, 1881.
(F)
(g) Plan administrator
For purposes of this part, the term "plan administrator" means—
(1) the person specifically so designated by the terms of the instrument under which the plan is operated;
(2) in the absence of a designation referred to in paragraph (1)—
(A) in the case of a plan maintained by a single employer, such employer,
(B) in the case of a plan maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who maintained the plan, or
(C) in any case to which subparagraph (A) or (B) does not apply, such other person as the Secretary may by regulation, prescribe.
(h) Tax treatment of certain contributions
(1) In general
Effective with respect to taxable years beginning after December 31, 1973, for purposes of this title, any amount contributed—
(A) to an employees' trust described in section 401(a), or
(B) under a plan described in section 403(a), shall not be treated as having been made by the employer if it is designated as an employee contribution.
(2) Designation by units of government
For purposes of paragraph (1), in the case of any plan established by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing, or a governmental plan described in the last sentence of section 414(d) (relating to plans of Indian tribal governments), where the contributions of employing units are designated as employee contributions but where any employing unit picks up the contributions, the contributions so picked up shall be treated as employer contributions.
(i) Defined contribution plan
For purposes of this part, the term "defined contribution plan" means a plan which provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's account.
(j) Defined benefit plan
For purposes of this part, the term "defined benefit plan" means any plan which is not a defined contribution plan.
(k) Certain plans
A defined benefit plan which provides a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant shall—
(1) for purposes of section 410 (relating to minimum participation standards), be treated as a defined contribution plan,
(2) for purposes of sections 72(d) (relating to treatment of employee contributions as separate contract), 411(a)(7)(A) (relating to minimum vesting standards), 415 (relating to limitations on benefits and contributions under qualified plans), and 401(m) (relating to nondiscrimination tests for matching requirements and employee contributions), be treated as consisting of a defined contribution plan to the extent benefits are based on the separate account of a participant and as a defined benefit plan with respect to the remaining portion of benefits under the plan, and
(3) for purposes of section 4975 (relating to tax on prohibited transactions), be treated as a defined benefit plan.
(l) Merger and consolidations of plans or transfers of plan assets
(1) In general
A trust which forms a part of a plan shall not constitute a qualified trust under section 401 and a plan shall be treated as not described in section 403(a) unless in the case of any merger or consolidation of the plan with, or in the case of any transfer of assets or liabilities of such plan to, any other trust plan after September 2, 1974, each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had then terminated). The preceding sentence does not apply to any multiemployer plan with respect to any transaction to the extent that participants either before or after the transaction are covered under a multiemployer plan to which Title IV of the Employee Retirement Income Security Act of 1974 applies.
(2) Allocation of assets in plan spin-offs, etc.
(A) In general
In the case of a plan spin-off of a defined benefit plan, a trust which forms part of—
(i) the original plan, or
(ii) any plan spun off from such plan,
shall not constitute a qualified trust under this section unless the applicable percentage of excess assets are allocated to each of such plans.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable percentage" means, with respect to each of the plans described in clauses (i) and (ii) of subparagraph (A), the percentage determined by dividing—
(i) the excess (if any) of—
(I) the sum of the funding target and target normal cost determined under section 430, over
(II) the amount of the assets required to be allocated to the plan after the spin-off (without regard to this paragraph), by
(ii) the sum of the excess amounts determined separately under clause (i) for all such plans.
(C) Excess assets
For purposes of subparagraph (A), the term "excess assets" means an amount equal to the excess (if any) of—
(i) the fair market value of the assets of the original plan immediately before the spin-off, over
(ii) the amount of assets required to be allocated after the spin-off to all plans (determined without regard to this paragraph).
(D) Certain spun-off plans not taken into account
(i) In general
A plan involved in a spin-off which is described in clause (ii), (iii), or (iv) shall not be taken into account for purposes of this paragraph, except that the amount determined under subparagraph (C)(ii) shall be increased by the amount of assets allocated to such plan.
(ii) Plans transferred out of controlled groups
A plan is described in this clause if, after such spin-off, such plan is maintained by an employer who is not a member of the same controlled group as the employer maintaining the original plan.
(iii) Plans transferred out of multiple employer plans
A plan as described in this clause if, after the spin-off, any employer maintaining such plan (and any member of the same controlled group as such employer) does not maintain any other plan remaining after the spin-off which is also maintained by another employer (or member of the same controlled group as such other employer) which maintained the plan in existence before the spin-off.
(iv) Terminated plans
A plan is described in this clause if, pursuant to the transaction involving the spin-off, the plan is terminated.
(v) Controlled group
For purposes of this subparagraph, the term "controlled group" means any group treated as a single employer under subsection (b), (c), (m), or (o).
(E) Paragraph not to apply to multiemployer plans
This paragraph does not apply to any multiemployer plan with respect to any spin-off to the extent that participants either before or after the spin-off are covered under a multiemployer plan to which title IV of the Employee Retirement Income Security Act of 1974 applies.
(F) Application to similar transaction
Except as provided by the Secretary, rules similar to the rules of this paragraph shall apply to transactions similar to spin-offs.
(G) Special rules for bridge depository institutions
For purposes of this paragraph, in the case of a bridge depository institution established under section 11(i) of the Federal Deposit Insurance Act (
(i) such bank shall be treated as a member of any controlled group which includes any insured bank (as defined in section 3(h) of such Act (
(I) which maintains a defined benefit plan,
(II) which is closed by the appropriate bank regulatory authorities, and
(III) any asset and liabilities of which are received by the bridge depository institution, and
(ii) the requirements of this paragraph shall not be treated as met with respect to such plan unless during the 180-day period beginning on the date such insured bank is closed—
(I) the bridge depository institution has the right to require the plan to transfer (subject to the provisions of this paragraph) not more than 50 percent of the excess assets (as defined in subparagraph (C)) to a defined benefit plan maintained by the bridge depository institution with respect to participants or former participants (including retirees and beneficiaries) in the original plan employed by the bridge depository institution or formerly employed by the closed bank, and
(II) no other merger, spin-off, termination, or similar transaction involving the portion of the excess assets described in subclause (I) may occur without the prior written consent of the bridge depository institution.
(m) Employees of an affiliated service group
(1) In general
For purposes of the employee benefit requirements listed in paragraph (4), except to the extent otherwise provided in regulations, all employees of the members of an affiliated service group shall be treated as employed by a single employer.
(2) Affiliated service group
For purposes of this subsection, the term "affiliated service group" means a group consisting of a service organization (hereinafter in this paragraph referred to as the "first organization") and one or more of the following:
(A) any service organization which—
(i) is a shareholder or partner in the first organization, and
(ii) regularly performs services for the first organization or is regularly associated with the first organization in performing services for third persons, and
(B) any other organization if—
(i) a significant portion of the business of such organization is the performance of services (for the first organization, for organizations described in subparagraph (A), or for both) of a type historically performed in such service field by employees, and
(ii) 10 percent or more of the interests in such organization is held by persons who are highly compensated employees (within the meaning of section 414(q)) of the first organization or an organization described in subparagraph (A).
(3) Service organizations
For purposes of this subsection, the term "service organization" means an organization the principal business of which is the performance of services.
(4) Employee benefit requirements
For purposes of this subsection, the employee benefit requirements listed in this paragraph are—
(A) paragraphs (3), (4), (7), (16), (17), and (26) of section 401(a), and
(B) sections 408(k), 408(p), 410, 411, 415, and 416.
(5) Certain organizations performing management functions
For purposes of this subsection, the term "affiliated service group" also includes a group consisting of—
(A) an organization the principal business of which is performing, on a regular and continuing basis, management functions for 1 organization (or for 1 organization and other organizations related to such 1 organization), and
(B) the organization (and related organizations) for which such functions are so performed by the organization described in subparagraph (A).
For purposes of this paragraph, the term "related organizations" has the same meaning as the term "related persons" when used in section 144(a)(3).
(6) Other definitions
For purposes of this subsection—
(A) Organization defined
The term "organization" means a corporation, partnership, or other organization.
(B) Ownership
(i) In general
In determining ownership, the principles of section 318(a) shall apply, except that community property laws shall be disregarded for purposes of determining ownership.
(ii) Special rules for applying family attribution
For purposes of applying the attribution rules under section 318 with respect to clause (i), the following rules apply:
(I) Community property laws shall be disregarded for purposes of determining ownership.
(II) Except as provided by the Secretary, stock of an individual not attributed under section 318(a)(1)(A)(i) to such individual's spouse shall not be attributed by reason of the combined application of paragraphs (1)(A)(ii) and (4) of section 318(a) to such spouse from a child who has not attained the age of 21 years.
(III) Except as provided by the Secretary, in the case of stock in different organizations which is attributed under section 318(a)(1)(A)(ii) from each parent to a child who has not attained the age of 21 years, and is not attributed to such parents as spouses under section 318(a)(1)(A)(i), such attribution to the child shall not by itself result in such organizations being members of the same affiliated service group.
(iii) Plan shall not fail to be treated as satisfying this section
If the application of clause (ii) causes two or more entities to be an affiliated service group, or to no longer be in an affiliated service group, such change shall be treated as a transaction to which section 410(b)(6)(C) applies.
(n) Employee leasing
(1) In general
For purposes of the requirements listed in paragraph (3), with respect to any person (hereinafter in this subsection referred to as the "recipient") for whom a leased employee performs services—
(A) the leased employee shall be treated as an employee of the recipient, but
(B) contributions or benefits provided by the leasing organization which are attributable to services performed for the recipient shall be treated as provided by the recipient.
(2) Leased employee
For purposes of paragraph (1), the term "leased employee" means any person who is not an employee of the recipient and who provides services to the recipient if—
(A) such services are provided pursuant to an agreement between the recipient and any other person (in this subsection referred to as the "leasing organization"),
(B) such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, and
(C) such services are performed under primary direction or control by the recipient.
(3) Requirements
For purposes of this subsection, the requirements listed in this paragraph are—
(A) paragraphs (3), (4), (7), (16), (17), and (26) of section 401(a),
(B) sections 408(k), 408(p), 410, 411, 415, and 416, and
(C) sections 79, 106, 117(d), 125, 127, 129, 132, 137, 274(j), 505, and 4980B.
(4) Time when first considered as employee
(A) In general
In the case of any leased employee, paragraph (1) shall apply only for purposes of determining whether the requirements listed in paragraph (3) are met for periods after the close of the period referred to in paragraph (2)(B).
(B) Years of service
In the case of a person who is an employee of the recipient (whether by reason of this subsection or otherwise), for purposes of the requirements listed in paragraph (3), years of service for the recipient shall be determined by taking into account any period for which such employee would have been a leased employee but for the requirements of paragraph (2)(B).
(5) Safe harbor
(A) In general
In the case of requirements described in subparagraphs (A) and (B) of paragraph (3), this subsection shall not apply to any leased employee with respect to services performed for a recipient if—
(i) such employee is covered by a plan which is maintained by the leasing organization and meets the requirements of subparagraph (B), and
(ii) leased employees (determined without regard to this paragraph) do not constitute more than 20 percent of the recipient's nonhighly compensated work force.
(B) Plan requirements
A plan meets the requirements of this subparagraph if—
(i) such plan is a money purchase pension plan with a nonintegrated employer contribution rate for each participant of at least 10 percent of compensation,
(ii) such plan provides for full and immediate vesting, and
(iii) each employee of the leasing organization (other than employees who perform substantially all of their services for the leasing organization) immediately participates in such plan.
Clause (iii) shall not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000.
(C) Definitions
For purposes of this paragraph—
(i) Highly compensated employee
The term "highly compensated employee" has the meaning given such term by section 414(q).
(ii) Nonhighly compensated work force
The term "nonhighly compensated work force" means the aggregate number of individuals (other than highly compensated employees)—
(I) who are employees of the recipient (without regard to this subsection) and have performed services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, or
(II) who are leased employees with respect to the recipient (determined without regard to this paragraph).
(iii) Compensation
The term "compensation" has the same meaning as when used in section 415; except that such term shall include—
(I) any employer contribution under a qualified cash or deferred arrangement to the extent not included in gross income under section 402(e)(3) or 402(h)(1)(B),
(II) any amount which the employee would have received in cash but for an election under a cafeteria plan (within the meaning of section 125), and
(III) any amount contributed to an annuity contract described in section 403(b) pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D)).
(6) Other rules
For purposes of this subsection—
(A) Related persons
The term "related persons" has the same meaning as when used in section 144(a)(3).
(B) Employees of entities under common control
The rules of subsections (b), (c), (m), and (o) shall apply.
(o) Regulations
The Secretary shall prescribe such regulations (which may provide rules in addition to the rules contained in subsections (m) and (n)) as may be necessary to prevent the avoidance of any employee benefit requirement listed in subsection (m)(4) or (n)(3) or any requirement under section 457 through the use of—
(1) separate organizations,
(2) employee leasing, or
(3) other arrangements.
The regulations prescribed under subsection (n) shall include provisions to minimize the recordkeeping requirements of subsection (n) in the case of an employer which has no top-heavy plans (within the meaning of section 416(g)) and which uses the services of persons (other than employees) for an insignificant percentage of the employer's total workload.
(p) Qualified domestic relations order defined
For purposes of this subsection and section 401(a)(13)—
(1) In general
(A) Qualified domestic relations order
The term "qualified domestic relations order" means a domestic relations order—
(i) which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and
(ii) with respect to which the requirements of paragraphs (2) and (3) are met.
(B) Domestic relations order
The term "domestic relations order" means any judgment, decree, or order (including approval of a property settlement agreement) which—
(i) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant, and
(ii) is made pursuant to a State or Tribal domestic relations law (including a community property law).
For purposes of clause (ii), the term "Tribal" with respect to a domestic relations law means such a law which is issued by or under the laws of an Indian tribal government, a subdivision of such an Indian tribal government, or an agency or instrumentality of either.
(2) Order must clearly specify certain facts
A domestic relations order meets the requirements of this paragraph only if such order clearly specifies—
(A) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,
(B) the amount or percentage of the participant's benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
(C) the number of payments or period to which such order applies, and
(D) each plan to which such order applies.
(3) Order may not alter amount, form, etc., of benefits
A domestic relations order meets the requirements of this paragraph only if such order—
(A) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan,
(B) does not require the plan to provide increased benefits (determined on the basis of actuarial value), and
(C) does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.
(4) Exception for certain payments made after earliest retirement age
(A) In general
A domestic relations order shall not be treated as failing to meet the requirements of subparagraph (A) of paragraph (3) solely because such order requires that payment of benefits be made to an alternate payee—
(i) in the case of any payment before a participant has separated from service, on or after the date on which the participant attains (or would have attained) the earliest retirement age,
(ii) as if the participant had retired on the date on which such payment is to begin under such order (but taking into account only the present value of the benefits actually accrued and not taking into account the present value of any employer subsidy for early retirement), and
(iii) in any form in which such benefits may be paid under the plan to the participant (other than in the form of a joint and survivor annuity with respect to the alternate payee and his or her subsequent spouse).
For purposes of clause (ii), the interest rate assumption used in determining the present value shall be the interest rate specified in the plan or, if no rate is specified, 5 percent.
(B) Earliest retirement age
For purposes of this paragraph, the term "earliest retirement age" means the earlier of—
(i) the date on which the participant is entitled to a distribution under the plan, or
(ii) the later of—
(I) the date the participant attains age 50, or
(II) the earliest date on which the participant could begin receiving benefits under the plan if the participant separated from service.
(5) Treatment of former spouse as surviving spouse for purposes of determining survivor benefits
To the extent provided in any qualified domestic relations order—
(A) the former spouse of a participant shall be treated as a surviving spouse of such participant for purposes of sections 401(a)(11) and 417 (and any spouse of the participant shall not be treated as a spouse of the participant for such purposes), and
(B) if married for at least 1 year, the surviving former spouse shall be treated as meeting the requirements of section 417(d).
(6) Plan procedures with respect to orders
(A) Notice and determination by administrator
In the case of any domestic relations order received by a plan—
(i) the plan administrator shall promptly notify the participant and each alternate payee of the receipt of such order and the plan's procedures for determining the qualified status of domestic relations orders, and
(ii) within a reasonable period after receipt of such order, the plan administrator shall determine whether such order is a qualified domestic relations order and notify the participant and each alternate payee of such determination.
(B) Plan to establish reasonable procedures
Each plan shall establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders.
(7) Procedures for period during which determination is being made
(A) In general
During any period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined (by the plan administrator, by a court of competent jurisdiction, or otherwise), the plan administrator shall separately account for the amounts (hereinafter in this paragraph referred to as the "segregated amounts") which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order.
(B) Payment to alternate payee if order determined to be qualified domestic relations order
If within the 18-month period described in subparagraph (E) the order (or modification thereof) is determined to be a qualified domestic relations order, the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons entitled thereto.
(C) Payment to plan participant in certain cases
If within the 18-month period described in subparagraph (E)—
(i) it is determined that the order is not a qualified domestic relations order, or
(ii) the issue as to whether such order is a qualified domestic relations order is not resolved,
then the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons who would have been entitled to such amounts if there had been no order.
(D) Subsequent determination or order to be applied prospectively only
Any determination that an order is a qualified domestic relations order which is made after the close of the 18-month period described in subparagraph (E) shall be applied prospectively only.
(E) Determination of 18-month period
For purposes of this paragraph, the 18-month period described in this subparagraph is the 18-month period beginning with the date on which the first payment would be required to be made under the domestic relations order.
(8) Alternate payee defined
The term "alternate payee" means any spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant.
(9) Subsection not to apply to plans to which section 401(a)(13) does not apply
This subsection shall not apply to any plan to which section 401(a)(13) does not apply. For purposes of this title, except as provided in regulations, any distribution from an annuity contract under section 403(b) pursuant to a qualified domestic relations order shall be treated in the same manner as a distribution from a plan to which section 401(a)(13) applies.
(10) Waiver of certain distribution requirements
With respect to the requirements of subsections (a) and (k) of section 401, section 403(b), section 409(d), and section 457(d), a plan shall not be treated as failing to meet such requirements solely by reason of payments to an alternative payee pursuant to a qualified domestic relations order.
(11) Application of rules to certain other plans
For purposes of this title, a distribution or payment from a governmental plan (as defined in subsection (d)) or a church plan (as described in subsection (e)) or an eligible deferred compensation plan (within the meaning of section 457(b)) shall be treated as made pursuant to a qualified domestic relations order if it is made pursuant to a domestic relations order which meets the requirement of clause (i) of paragraph (1)(A).
(12) Tax treatment of payments from a section 457 plan
If a distribution or payment from an eligible deferred compensation plan described in section 457(b) is made pursuant to a qualified domestic relations order, rules similar to the rules of section 402(e)(1)(A) shall apply to such distribution or payment.
(13) Consultation with the Secretary
In prescribing regulations under this subsection and section 401(a)(13), the Secretary of Labor shall consult with the Secretary.
(q) Highly compensated employee
(1) In general
The term "highly compensated employee" means any employee who—
(A) was a 5-percent owner at any time during the year or the preceding year, or
(B) for the preceding year—
(i) had compensation from the employer in excess of $80,000, and
(ii) if the employer elects the application of this clause for such preceding year, was in the top-paid group of employees for such preceding year.
The Secretary shall adjust the $80,000 amount under subparagraph (B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter ending September 30, 1996.
(2) 5-percent owner
An employee shall be treated as a 5-percent owner for any year if at any time during such year such employee was a 5-percent owner (as defined in section 416(i)(1)) of the employer.
(3) Top-paid group
An employee is in the top-paid group of employees for any year if such employee is in the group consisting of the top 20 percent of the employees when ranked on the basis of compensation paid during such year.
(4) Compensation
For purposes of this subsection, the term "compensation" has the meaning given such term by section 415(c)(3).
(5) Excluded employees
For purposes of subsection (r) and for purposes of determining the number of employees in the top-paid group, the following employees shall be excluded—
(A) employees who have not completed 6 months of service,
(B) employees who normally work less than 17½ hours per week,
(C) employees who normally work during not more than 6 months during any year,
(D) employees who have not attained age 21, and
(E) except to the extent provided in regulations, employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and the employer.
Except as provided by the Secretary, the employer may elect to apply subparagraph (A), (B), (C), or (D) by substituting a shorter period of service, smaller number of hours or months, or lower age for the period of service, number of hours or months, or age (as the case may be) than that specified in such subparagraph.
(6) Former employees
A former employee shall be treated as a highly compensated employee if—
(A) such employee was a highly compensated employee when such employee separated from service, or
(B) such employee was a highly compensated employee at any time after attaining age 55.
(7) Coordination with other provisions
Subsections (b), (c), (m), (n), and (o) shall be applied before the application of this subsection.
(8) Special rule for nonresident aliens
For purposes of this subsection and subsection (r), employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)) shall not be treated as employees.
(9) Certain employees not considered highly compensated and excluded employees under pre-ERISA rules for church plans
In the case of a church plan (as defined in subsection (e)), no employee shall be considered an officer, a person whose principal duties consist of supervising the work of other employees, or a highly compensated employee for any year unless such employee is a highly compensated employee under paragraph (1) for such year.
(r) Special rules for separate line of business
(1) In general
For purposes of sections 129(d)(8) and 410(b), an employer shall be treated as operating separate lines of business during any year if the employer for bona fide business reasons operates separate lines of business.
(2) Line of business must have 50 employees, etc.
A line of business shall not be treated as separate under paragraph (1) unless—
(A) such line of business has at least 50 employees who are not excluded under subsection (q)(5),
(B) the employer notifies the Secretary that such line of business is being treated as separate for purposes of paragraph (1), and
(C) such line of business meets guidelines prescribed by the Secretary or the employer receives a determination from the Secretary that such line of business may be treated as separate for purposes of paragraph (1).
(3) Safe harbor rule
(A) In general
The requirements of subparagraph (C) of paragraph (2) shall not apply to any line of business if the highly compensated employee percentage with respect to such line of business is—
(i) not less than one-half, and
(ii) not more than twice,
the percentage which highly compensated employees are of all employees of the employer. An employer shall be treated as meeting the requirements of clause (i) if at least 10 percent of all highly compensated employees of the employer perform services solely for such line of business.
(B) Determination may be based on preceding year
The requirements of subparagraph (A) shall be treated as met with respect to any line of business if such requirements were met with respect to such line of business for the preceding year and if—
(i) no more than a de minimis number of employees were shifted to or from the line of business after the close of the preceding year, or
(ii) the employees shifted to or from the line of business after the close of the preceding year contained a substantially proportional number of highly compensated employees.
(4) Highly compensated employee percentage defined
For purposes of this subsection, the term "highly compensated employee percentage" means the percentage which highly compensated employees performing services for the line of business are of all employees performing services for the line of business.
(5) Allocation of benefits to line of business
For purposes of this subsection, benefits which are attributable to services provided to a line of business shall be treated as provided by such line of business.
(6) Headquarters personnel, etc.
The Secretary shall prescribe rules providing for—
(A) the allocation of headquarters personnel among the lines of business of the employer, and
(B) the treatment of other employees providing services for more than 1 line of business of the employer or not in lines of business meeting the requirements of paragraph (2).
(7) Separate operating units
For purposes of this subsection, the term "separate line of business" includes an operating unit in a separate geographic area separately operated for a bona fide business reason.
(8) Affiliated service groups
This subsection shall not apply in the case of any affiliated service group (within the meaning of section 414(m)).
(s) Compensation
For purposes of any applicable provision—
(1) In general
Except as provided in this subsection, the term "compensation" has the meaning given such term by section 415(c)(3).
(2) Employer may elect not to treat certain deferrals as compensation
An employer may elect not to include as compensation any amount which is contributed by the employer pursuant to a salary reduction agreement and which is not includible in the gross income of an employee under section 125, 132(f)(4), 402(e)(3), 402(h), or 403(b).
(3) Alternative determination of compensation
The Secretary shall by regulation provide for alternative methods of determining compensation which may be used by an employer, except that such regulations shall provide that an employer may not use an alternative method if the use of such method discriminates in favor of highly compensated employees (within the meaning of subsection (q)).
(4) Applicable provision
For purposes of this subsection, the term "applicable provision" means any provision which specifically refers to this subsection.
(t) Application of controlled group rules to certain employee benefits
(1) In general
All employees who are treated as employed by a single employer under subsection (b), (c), or (m) shall be treated as employed by a single employer for purposes of an applicable section. The provisions of subsection (o) shall apply with respect to the requirements of an applicable section.
(2) Applicable section
For purposes of this subsection, the term "applicable section" means section 79, 106, 117(d), 125, 127, 129, 132, 137, 274(j), 505, or 4980B.
(u) Special rules relating to veterans' reemployment rights under USERRA and to differential wage payments to members on active duty
(1) Treatment of certain contributions made pursuant to veterans' reemployment rights
If any contribution is made by an employer or an employee under an individual account plan with respect to an employee, or by an employee to a defined benefit plan that provides for employee contributions, and such contribution is required by reason of such employee's rights under
(A) such contribution shall not be subject to any otherwise applicable limitation contained in section 402(g), 402(h), 403(b), 404(a), 404(h), 408, 415, or 457, and shall not be taken into account in applying such limitations to other contributions or benefits under such plan or any other plan, with respect to the year in which the contribution is made,
(B) such contribution shall be subject to the limitations referred to in subparagraph (A) with respect to the year to which the contribution relates (in accordance with rules prescribed by the Secretary), and
(C) such plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 408(p), 410(b), or 416 by reason of the making of (or the right to make) such contribution.
For purposes of the preceding sentence, any elective deferral or employee contribution made under paragraph (2) shall be treated as required by reason of the employee's rights under such
(2) Reemployment rights under USERRA with respect to elective deferrals
(A) In general
For purposes of this subchapter and section 457, if an employee is entitled to the benefits of
(i) permits such employee to make additional elective deferrals under such plan (in the amount determined under subparagraph (B) or such lesser amount as is elected by the employee) during the period which begins on the date of the reemployment of such employee with such employer and has the same length as the lesser of—
(I) the product of 3 and the period of qualified military service which resulted in such rights, and
(II) 5 years, and
(ii) makes a matching contribution with respect to any additional elective deferral made pursuant to clause (i) which would have been required had such deferral actually been made during the period of such qualified military service.
(B) Amount of makeup required
The amount determined under this subparagraph with respect to any plan is the maximum amount of the elective deferrals that the individual would have been permitted to make under the plan in accordance with the limitations referred to in paragraph (1)(A) during the period of qualified military service if the individual had continued to be employed by the employer during such period and received compensation as determined under paragraph (7). Proper adjustment shall be made to the amount determined under the preceding sentence for any elective deferrals actually made during the period of such qualified military service.
(C) Elective deferral
For purposes of this paragraph, the term "elective deferral" has the meaning given such term by section 402(g)(3); except that such term shall include any deferral of compensation under an eligible deferred compensation plan (as defined in section 457(b)).
(D) After-tax employee contributions
References in subparagraphs (A) and (B) to elective deferrals shall be treated as including references to employee contributions.
(3) Certain retroactive adjustments not required
For purposes of this subchapter and subchapter E, no provision of
(A) any crediting of earnings to an employee with respect to any contribution before such contribution is actually made, or
(B) any allocation of any forfeiture with respect to the period of qualified military service.
(4) Loan repayment suspensions permitted
If any plan suspends the obligation to repay any loan made to an employee from such plan for any part of any period during which such employee is performing service in the uniformed services (as defined in
(5) Qualified military service
For purposes of this subsection, the term "qualified military service" means any service in the uniformed services (as defined in
(6) Individual account plan
For purposes of this subsection, the term "individual account plan" means any defined contribution plan (including any tax-sheltered annuity plan under section 403(b), any simplified employee pension under section 408(k), any qualified salary reduction arrangement under section 408(p), and any eligible deferred compensation plan (as defined in section 457(b))).
(7) Compensation
For purposes of sections 403(b)(3), 415(c)(3), and 457(e)(5), an employee who is in qualified military service shall be treated as receiving compensation from the employer during such period of qualified military service equal to—
(A) the compensation the employee would have received during such period if the employee were not in qualified military service, determined based on the rate of pay the employee would have received from the employer but for absence during the period of qualified military service, or
(B) if the compensation the employee would have received during such period was not reasonably certain, the employee's average compensation from the employer during the 12-month period immediately preceding the qualified military service (or, if shorter, the period of employment immediately preceding the qualified military service).
(8) USERRA requirements for qualified retirement plans
For purposes of this subchapter and section 457, an employer sponsoring a retirement plan shall be treated as meeting the requirements of
(A) An individual reemployed under such chapter is treated with respect to such plan as not having incurred a break in service with the employer maintaining the plan by reason of such individual's period of qualified military service.
(B) Each period of qualified military service served by an individual is, upon reemployment under such chapter, deemed with respect to such plan to constitute service with the employer maintaining the plan for the purpose of determining the nonforfeitability of the individual's accrued benefits under such plan and for the purpose of determining the accrual of benefits under such plan.
(C) An individual reemployed under such chapter is entitled to accrued benefits that are contingent on the making of, or derived from, employee contributions or elective deferrals only to the extent the individual makes payment to the plan with respect to such contributions or deferrals. No such payment may exceed the amount the individual would have been permitted or required to contribute had the individual remained continuously employed by the employer throughout the period of qualified military service. Any payment to such plan shall be made during the period beginning with the date of reemployment and whose duration is 3 times the period of the qualified military service (but not greater than 5 years).
(9) Treatment in the case of death or disability resulting from active military service
(A) In general
For benefit accrual purposes, an employer sponsoring a retirement plan may treat an individual who dies or becomes disabled (as defined under the terms of the plan) while performing qualified military service with respect to the employer maintaining the plan as if the individual has resumed employment in accordance with the individual's reemployment rights under
(B) Nondiscrimination requirement
Subparagraph (A) shall apply only if all individuals performing qualified military service with respect to the employer maintaining the plan (as determined under subsections (b), (c), (m), and (o)) who die or became disabled as a result of performing qualified military service prior to reemployment by the employer are credited with service and benefits on reasonably equivalent terms.
(C) Determination of benefits
The amount of employee contributions and the amount of elective deferrals of an individual treated as reemployed under subparagraph (A) for purposes of applying paragraph (8)(C) shall be determined on the basis of the individual's average actual employee contributions or elective deferrals for the lesser of—
(i) the 12-month period of service with the employer immediately prior to qualified military service, or
(ii) if service with the employer is less than such 12-month period, the actual length of continuous service with the employer.
(10) Plans not subject to title 38
This subsection shall not apply to any retirement plan to which
(11) References
For purposes of this section, any reference to
(12) Treatment of differential wage payments
(A) In general
Except as provided in this paragraph, for purposes of applying this title to a retirement plan to which this subsection applies—
(i) an individual receiving a differential wage payment shall be treated as an employee of the employer making the payment,
(ii) the differential wage payment shall be treated as compensation, and
(iii) the plan shall not be treated as failing to meet the requirements of any provision described in paragraph (1)(C) by reason of any contribution or benefit which is based on the differential wage payment.
(B) Special rule for distributions
(i) In general
Notwithstanding subparagraph (A)(i), for purposes of section 401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii), 403(b)(11)(A), or 457(d)(1)(A)(ii),2 an individual shall be treated as having been severed from employment during any period the individual is performing service in the uniformed services described in section 3401(h)(2)(A).
(ii) Limitation
If an individual elects to receive a distribution by reason of clause (i), the plan shall provide that the individual may not make an elective deferral or employee contribution during the 6-month period beginning on the date of the distribution.
(C) Nondiscrimination requirement
Subparagraph (A)(iii) shall apply only if all employees of an employer (as determined under subsections (b), (c), (m), and (o)) performing service in the uniformed services described in section 3401(h)(2)(A) are entitled to receive differential wage payments on reasonably equivalent terms and, if eligible to participate in a retirement plan maintained by the employer, to make contributions based on the payments on reasonably equivalent terms. For purposes of applying this subparagraph, the provisions of paragraphs (3), (4), and (5) of section 410(b) shall apply.
(D) Differential wage payment
For purposes of this paragraph, the term "differential wage payment" has the meaning given such term by section 3401(h)(2).
(v) Catch-up contributions for individuals age 50 or over
(1) In general
An applicable employer plan shall not be treated as failing to meet any requirement of this title solely because the plan permits an eligible participant to make additional elective deferrals in any plan year.
(2) Limitation on amount of additional deferrals
(A) In general
A plan shall not permit additional elective deferrals under paragraph (1) for any year in an amount greater than the lesser of—
(i) the applicable dollar amount, or
(ii) the excess (if any) of—
(I) the participant's compensation (as defined in section 415(c)(3)) for the year, over
(II) any other elective deferrals of the participant for such year which are made without regard to this subsection.
(B) Applicable dollar amount
For purposes of this paragraph—
(i) In the case of an applicable employer plan other than a plan described in section 401(k)(11) or 408(p), the applicable dollar amount is $5,000.
(ii) In the case of an applicable employer plan described in section 401(k)(11) or 408(p), except as provided in clause (iii), the applicable dollar amount is $2,500.
(iii) In the case of an applicable employer plan—
(I) which is maintained by an eligible employer described in section 408(p)(2)(E)(i)(I), or
(II) to which an election under section 408(p)(2)(E)(i)(II) applies for the year (including a plan described in section 401(k)(11) which is maintained by an eligible employer described in section 408(p)(2)(E)(i)(II) and to which such election applies by reason of subparagraphs (B)(i)(I) and (E) of section 401(k)(11)),
the applicable dollar amount is an amount equal to 110 percent of the dollar amount in effect under clause (ii) for calendar year 2024.
(C) Cost-of-living adjustment
(i) Certain large employers
In the case of a year beginning after December 31, 2006, the Secretary shall adjust annually the $5,000 amount in subparagraph (B)(i) and the $2,500 amount in subparagraph (B)(ii) for increases in the cost-of-living at the same time and in the same manner as adjustments under section 415(d); except that the base period taken into account shall be the calendar quarter beginning July 1, 2005, and any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple of $500.
(ii) Other employers
In the case of a year beginning after December 31, 2024, the Secretary shall adjust annually the dollar amount described in subparagraph (B)(iii) in the manner provided under clause (i) of this subparagraph, except that the base period taken into account shall be the calendar quarter beginning July 1, 2023.
(D) Aggregation of plans
For purposes of this paragraph, plans described in clauses (i), (ii), and (iv) of paragraph (6)(A) that are maintained by the same employer (as determined under subsection (b), (c), (m) or (o)) shall be treated as a single plan, and plans described in clause (iii) of paragraph (6)(A) that are maintained by the same employer shall be treated as a single plan.
(3) Treatment of contributions
In the case of any contribution to a plan under paragraph (1)—
(A) such contribution shall not, with respect to the year in which the contribution is made—
(i) be subject to any otherwise applicable limitation contained in sections 401(a)(30), 402(h), 403(b), 408, 415(c), and 457(b)(2) (determined without regard to section 457(b)(3)), or
(ii) be taken into account in applying such limitations to other contributions or benefits under such plan or any other such plan, and
(B) except as provided in paragraph (4), such plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(k)(3), 401(k)(11), 403(b)(12), 408(k), 410(b), or 416 by reason of the making of (or the right to make) such contribution.
(4) Application of nondiscrimination rules
(A) In general
An applicable employer plan shall be treated as failing to meet the nondiscrimination requirements under section 401(a)(4) with respect to benefits, rights, and features unless the plan allows all eligible participants to make the same election with respect to the additional elective deferrals under this subsection.
(B) Aggregation
For purposes of subparagraph (A), all plans maintained by employers who are treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 plan, except that a plan described in clause (i) of section 410(b)(6)(C) shall not be treated as a plan of the employer until the expiration of the transition period with respect to such plan (as determined under clause (ii) of such section).
(5) Eligible participant
For purposes of this subsection, the term "eligible participant" means a participant in a plan—
(A) who would attain age 50 by the end of the taxable year,
(B) with respect to whom no other elective deferrals may (without regard to this subsection) be made to the plan for the plan (or other applicable) year by reason of the application of any limitation or other restriction described in paragraph (3) or comparable limitation or restriction contained in the terms of the plan.
(6) Other definitions and rules
For purposes of this subsection—
(A) Applicable employer plan
The term "applicable employer plan" means—
(i) an employees' trust described in section 401(a) which is exempt from tax under section 501(a),
(ii) a plan under which amounts are contributed by an individual's employer for an annuity contract described in section 403(b),
(iii) an eligible deferred compensation plan under section 457 of an eligible employer described in section 457(e)(1)(A), and
(iv) an arrangement meeting the requirements of section 408(k) or (p).
(B) Elective deferral
The term "elective deferral" has the meaning given such term by subsection (u)(2)(C).
(C) Exception for section 457 plans
This subsection shall not apply to a participant for any year for which a higher limitation applies to the participant under section 457(b)(3).
(7) Certain deferrals must be Roth contributions
(A) In general
Except as provided in subparagraph (C), in the case of an eligible participant whose wages (as defined in section 3121(a)) for the preceding calendar year from the employer sponsoring the plan exceed $145,000, paragraph (1) shall apply only if any additional elective deferrals are designated Roth contributions (as defined in section 402A(c)(1)) made pursuant to an employee election.
(B) Roth option
In the case of an applicable employer plan with respect to which subparagraph (A) applies to any participant for a plan year, paragraph (1) shall not apply to the plan unless the plan provides that any eligible participant may make the participant's additional elective deferrals as designated Roth contributions.
(C) Exception
Subparagraph (A) shall not apply in the case of an applicable employer plan described in paragraph (6)(A)(iv).
(D) Election to change deferrals
The Secretary may provide by regulations that an eligible participant may elect to change the participant's election to make additional elective deferrals if the participant's compensation is determined to exceed the limitation under subparagraph (A) after the election is made.
(E) Cost of living adjustment
In the case of a year beginning after December 31, 2024, the Secretary shall adjust annually the $145,000 amount in subparagraph (A) for increases in the cost-of-living at the same time and in the same manner as adjustments under 415(d); except that the base period taken into account shall be the calendar quarter beginning July 1, 2023, and any increase under this subparagraph which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.
(w) Special rules for certain withdrawals from eligible automatic contribution arrangements
(1) In general
If an eligible automatic contribution arrangement allows an employee to elect to make permissible withdrawals—
(A) the amount of any such withdrawal shall be includible in the gross income of the employee for the taxable year of the employee in which the distribution is made,
(B) no tax shall be imposed under section 72(t) with respect to the distribution, and
(C) the arrangement shall not be treated as violating any restriction on distributions under this title solely by reason of allowing the withdrawal.
In the case of any distribution to an employee by reason of an election under this paragraph, employer matching contributions shall be forfeited or subject to such other treatment as the Secretary may prescribe.
(2) Permissible withdrawal
For purposes of this subsection—
(A) In general
The term "permissible withdrawal" means any withdrawal from an eligible automatic contribution arrangement meeting the requirements of this paragraph which—
(i) is made pursuant to an election by an employee, and
(ii) consists of elective contributions described in paragraph (3)(B) (and earnings attributable thereto).
(B) Time for making election
Subparagraph (A) shall not apply to an election by an employee unless the election is made no later than the date which is 90 days after the date of the first elective contribution with respect to the employee under the arrangement.
(C) Amount of distribution
Subparagraph (A) shall not apply to any election by an employee unless the amount of any distribution by reason of the election is equal to the amount of elective contributions made with respect to the first payroll period to which the eligible automatic contribution arrangement applies to the employee and any succeeding payroll period beginning before the effective date of the election (and earnings attributable thereto).
(3) Eligible automatic contribution arrangement
For purposes of this subsection, the term "eligible automatic contribution arrangement" means an arrangement under an applicable employer plan—
(A) under which a participant may elect to have the employer make payments as contributions under the plan on behalf of the participant, or to the participant directly in cash,
(B) under which the participant is treated as having elected to have the employer make such contributions in an amount equal to a uniform percentage of compensation provided under the plan until the participant specifically elects not to have such contributions made (or specifically elects to have such contributions made at a different percentage), and
(C) which meets the requirements of paragraph (4).
(4) Notice requirements
(A) In general
The administrator of a plan containing an arrangement described in paragraph (3) shall, within a reasonable period before each plan year, give to each employee to whom an arrangement described in paragraph (3) applies for such plan year notice of the employee's rights and obligations under the arrangement which—
(i) is sufficiently accurate and comprehensive to apprise the employee of such rights and obligations, and
(ii) is written in a manner calculated to be understood by the average employee to whom the arrangement applies.
(B) Time and form of notice
A notice shall not be treated as meeting the requirements of subparagraph (A) with respect to an employee unless—
(i) the notice includes an explanation of the employee's right under the arrangement to elect not to have elective contributions made on the employee's behalf (or to elect to have such contributions made at a different percentage),
(ii) the employee has a reasonable period of time after receipt of the notice described in clause (i) and before the first elective contribution is made to make such election, and
(iii) the notice explains how contributions made under the arrangement will be invested in the absence of any investment election by the employee.
(5) Applicable employer plan
For purposes of this subsection, the term "applicable employer plan" means—
(A) an employees' trust described in section 401(a) which is exempt from tax under section 501(a),
(B) a plan under which amounts are contributed by an individual's employer for an annuity contract described in section 403(b),
(C) an eligible deferred compensation plan described in section 457(b) which is maintained by an eligible employer described in section 457(e)(1)(A),
(D) a simplified employee pension the terms of which provide for a salary reduction arrangement described in section 408(k)(6), and
(E) a simple retirement account (as defined in section 408(p)).
(6) Special rule
A withdrawal described in paragraph (1) (subject to the limitation of paragraph (2)(C)) shall not be taken into account for purposes of section 401(k)(3) or for purposes of applying the limitation under section 402(g)(1).
(x) Special rules for eligible combined defined benefit plans and qualified cash or deferred arrangements
(1) General rule
Except as provided in this subsection, the requirements of this title shall be applied to any defined benefit plan or applicable defined contribution plan which is part of an eligible combined plan in the same manner as if each such plan were not a part of the eligible combined plan. In the case of a termination of the defined benefit plan and the applicable defined contribution plan forming part of an eligible combined plan, the plan administrator shall terminate each such plan separately.
(2) Eligible combined plan
For purposes of this subsection—
(A) In general
The term "eligible combined plan" means a plan—
(i) which is maintained by an employer which, at the time the plan is established, is a small employer,
(ii) which consists of a defined benefit plan and an applicable defined contribution plan,
(iii) the assets of which are held in a single trust forming part of the plan and are clearly identified and allocated to the defined benefit plan and the applicable defined contribution plan to the extent necessary for the separate application of this title under paragraph (1), and
(iv) with respect to which the benefit, contribution, vesting, and nondiscrimination requirements of subparagraphs (B), (C), (D), (E), and (F) are met.
For purposes of this subparagraph, the term "small employer" has the meaning given such term by section 4980D(d)(2), except that such section shall be applied by substituting "500" for "50" each place it appears.
(B) Benefit requirements
(i) In general
The benefit requirements of this subparagraph are met with respect to the defined benefit plan forming part of the eligible combined plan if the accrued benefit of each participant derived from employer contributions, when expressed as an annual retirement benefit, is not less than the applicable percentage of the participant's final average pay. For purposes of this clause, final average pay shall be determined using the period of consecutive years (not exceeding 5) during which the participant had the greatest aggregate compensation from the employer.
(ii) Applicable percentage
For purposes of clause (i), the applicable percentage is the lesser of—
(I) 1 percent multiplied by the number of years of service with the employer, or
(II) 20 percent.
(iii) Special rule for applicable defined benefit plans
If the defined benefit plan under clause (i) is an applicable defined benefit plan as defined in section 411(a)(13)(B) which meets the interest credit requirements of section 411(b)(5)(B)(i), the plan shall be treated as meeting the requirements of clause (i) with respect to any plan year if each participant receives a pay credit for the year which is not less than the percentage of compensation determined in accordance with the following table:
| If the participant's age as of the beginning of the year is— | The percentage is— |
|---|---|
| 30 or less | 2 |
| Over 30 but less than 40 | 4 |
| 40 or over but less than 50 | 6 |
| 50 or over | 8. |
(iv) Years of service
For purposes of this subparagraph, years of service shall be determined under the rules of paragraphs (4), (5), and (6) of section 411(a), except that the plan may not disregard any year of service because of a participant making, or failing to make, any elective deferral with respect to the qualified cash or deferred arrangement to which subparagraph (C) applies.
(C) Contribution requirements
(i) In general
The contribution requirements of this subparagraph with respect to any applicable defined contribution plan forming part of an eligible combined plan are met if—
(I) the qualified cash or deferred arrangement included in such plan constitutes an automatic contribution arrangement, and
(II) the employer is required to make matching contributions on behalf of each employee eligible to participate in the arrangement in an amount equal to 50 percent of the elective contributions of the employee to the extent such elective contributions do not exceed 4 percent of compensation.
Rules similar to the rules of clauses (ii) and (iii) of section 401(k)(12)(B) shall apply for purposes of this clause.
(ii) Nonelective contributions
An applicable defined contribution plan shall not be treated as failing to meet the requirements of clause (i) because the employer makes nonelective contributions under the plan but such contributions shall not be taken into account in determining whether the requirements of clause (i)(II) are met.
(D) Vesting requirements
The vesting requirements of this subparagraph are met if—
(i) in the case of a defined benefit plan forming part of an eligible combined plan an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit under the plan derived from employer contributions, and
(ii) in the case of an applicable defined contribution plan forming part of eligible combined plan—
(I) an employee has a nonforfeitable right to any matching contribution made under the qualified cash or deferred arrangement included in such plan by an employer with respect to any elective contribution, including matching contributions in excess of the contributions required under subparagraph (C)(i)(II), and
(II) an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived under the arrangement from nonelective contributions of the employer.
For purposes of this subparagraph, the rules of section 411 shall apply to the extent not inconsistent with this subparagraph.
(E) Uniform provision of contributions and benefits
In the case of a defined benefit plan or applicable defined contribution plan forming part of an eligible combined plan, the requirements of this subparagraph are met if all contributions and benefits under each such plan, and all rights and features under each such plan, must be provided uniformly to all participants.
(F) Requirements must be met without taking into account social security and similar contributions and benefits or other plans
(i) In general
The requirements of this subparagraph are met if the requirements of clauses (ii) and (iii) are met.
(ii) Social security and similar contributions
The requirements of this clause are met if—
(I) the requirements of subparagraphs (B) and (C) are met without regard to section 401(l), and
(II) the requirements of sections 401(a)(4) and 410(b) are met with respect to both the applicable defined contribution plan and defined benefit plan forming part of an eligible combined plan without regard to section 401(l).
(iii) Other plans and arrangements
The requirements of this clause are met if the applicable defined contribution plan and defined benefit plan forming part of an eligible combined plan meet the requirements of sections 401(a)(4) and 410(b) without being combined with any other plan.
(3) Nondiscrimination requirements for qualified cash or deferred arrangement
(A) In general
A qualified cash or deferred arrangement which is included in an applicable defined contribution plan forming part of an eligible combined plan shall be treated as meeting the requirements of section 401(k)(3)(A)(ii) if the requirements of paragraph (2)(C) are met with respect to such arrangement.
(B) Matching contributions
In applying section 401(m)(11) to any matching contribution with respect to a contribution to which paragraph (2)(C) applies, the contribution requirement of paragraph (2)(C) and the notice requirements of paragraph (5)(B) shall be substituted for the requirements otherwise applicable under clauses (i) and (ii) of section 401(m)(11)(A).
(4) Satisfaction of top-heavy rules
A defined benefit plan and applicable defined contribution plan forming part of an eligible combined plan for any plan year shall be treated as meeting the requirements of section 416 for the plan year.
(5) Automatic contribution arrangement
For purposes of this subsection—
(A) In general
A qualified cash or deferred arrangement shall be treated as an automatic contribution arrangement if the arrangement—
(i) provides that each employee eligible to participate in the arrangement is treated as having elected to have the employer make elective contributions in an amount equal to 4 percent of the employee's compensation unless the employee specifically elects not to have such contributions made or to have such contributions made at a different rate, and
(ii) meets the notice requirements under subparagraph (B).
(B) Notice requirements
(i) In general
The requirements of this subparagraph are met if the requirements of clauses (ii) and (iii) are met.
(ii) Reasonable period to make election
The requirements of this clause are met if each employee to whom subparagraph (A)(i) applies—
(I) receives a notice explaining the employee's right under the arrangement to elect not to have elective contributions made on the employee's behalf or to have the contributions made at a different rate, and
(II) has a reasonable period of time after receipt of such notice and before the first elective contribution is made to make such election.
(iii) Annual notice of rights and obligations
The requirements of this clause are met if each employee eligible to participate in the arrangement is, within a reasonable period before any year, given notice of the employee's rights and obligations under the arrangement.
The requirements of clauses (i) and (ii) of section 401(k)(12)(D) shall be met with respect to the notices described in clauses (ii) and (iii) of this subparagraph.
(6) Coordination with other requirements
(A) Treatment of separate plans
Section 414(k) shall not apply to an eligible combined plan.
(B) Reporting
An eligible combined plan shall be treated as a single plan for purposes of sections 6058 and 6059.
(7) Applicable defined contribution plan
For purposes of this subsection—
(A) In general
The term "applicable defined contribution plan" means a defined contribution plan which includes a qualified cash or deferred arrangement.
(B) Qualified cash or deferred arrangement
The term "qualified cash or deferred arrangement" has the meaning given such term by section 401(k)(2).
(y) Cooperative and small employer charity pension plans
(1) In general
For purposes of this title, except as provided in this subsection, a CSEC plan is a defined benefit plan (other than a multiemployer plan)—
(A) to which section 104 of the Pension Protection Act of 2006 applies, without regard to—
(i) section 104(a)(2) of such Act;
(ii) the amendments to such section 104 by section 202(b) of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010; and
(iii) paragraph (3)(B);
(B) that, as of June 25, 2010, was maintained by more than one employer and all of the employers were organizations described in section 501(c)(3);
(C) that, as of June 25, 2010, was maintained by an employer—
(i) described in section 501(c)(3),
(ii) chartered under part B of subtitle II of
(iii) with employees in at least 40 States, and
(iv) whose primary exempt purpose is to provide services with respect to children; or
(D) that, as of January 1, 2000, was maintained by an employer—
(i) described in section 501(c)(3),
(ii) who has been in existence since at least 1938,
(iii) who conducts medical research directly or indirectly through grant making, and
(iv) whose primary exempt purpose is to provide services with respect to mothers and children.
(2) Aggregation
All employers that are treated as a single employer under subsection (b) or (c) shall be treated as a single employer for purposes of determining if a plan was maintained by more than one employer under subparagraphs (B) and (C) of paragraph (1).
(3) Election
(A) In general
If a plan falls within the definition of a CSEC plan under this subsection (without regard to this paragraph), such plan shall be a CSEC plan unless the plan sponsor elects not later than the close of the first plan year of the plan beginning after December 31, 2013, not to be treated as a CSEC plan. An election under the preceding sentence shall take effect for such plan year and, once made, may be revoked only with the consent of the Secretary.
(B) Special rule
If a plan described in subparagraph (A) is treated as a CSEC plan, section 104 of the Pension Protection Act of 2006, as amended by the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, shall cease to apply to such plan as of the first date as of which such plan is treated as a CSEC plan.
(z) Certain plan transfers and mergers
(1) In general
Under rules prescribed by the Secretary, except as provided in paragraph (2), no amount shall be includible in gross income by reason of—
(A) a transfer of all or a portion of the accrued benefit of a participant or beneficiary, whether or not vested, from a church plan that is a plan described in section 401(a) or an annuity contract described in section 403(b) to an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches,
(B) a transfer of all or a portion of the accrued benefit of a participant or beneficiary, whether or not vested, from an annuity contract described in section 403(b) to a church plan that is a plan described in section 401(a), if such plan and annuity contract are both maintained by the same church or convention or association of churches, or
(C) a merger of a church plan that is a plan described in section 401(a), or an annuity contract described in section 403(b), with an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches.
(2) Limitation
Paragraph (1) shall not apply to a transfer or merger unless the participant's or beneficiary's total accrued benefit immediately after the transfer or merger is equal to or greater than the participant's or beneficiary's total accrued benefit immediately before the transfer or merger, and such total accrued benefit is nonforfeitable after the transfer or merger.
(3) Qualification
A plan or annuity contract shall not fail to be considered to be described in section 401(a) or 403(b) merely because such plan or annuity contract engages in a transfer or merger described in this subsection.
(4) Definitions
For purposes of this subsection—
(A) Church or convention or association of churches
The term "church or convention or association of churches" includes an organization described in subparagraph (A) or (B)(ii) of subsection (e)(3).
(B) Annuity contract
The term "annuity contract" includes a custodial account described in section 403(b)(7) and a retirement income account described in section 403(b)(9).
(C) Accrued benefit
The term "accrued benefit" means—
(i) in the case of a defined benefit plan, the employee's accrued benefit determined under the plan, and
(ii) in the case of a plan other than a defined benefit plan, the balance of the employee's account under the plan.
(aa) Special rules applicable to benefit overpayments
(1) In general
A plan shall not fail to be treated as described in clause (i), (ii), (iii), or (iv) of section 219(g)(5)(A) (and shall not fail to be treated as satisfying the requirements of section 401(a) or 403) merely because—
(A) the plan fails to obtain payment from any participant, beneficiary, employer, plan sponsor, fiduciary, or other party on account of any inadvertent benefit overpayment made by the plan, or
(B) the plan sponsor amends the plan to increase past, or decrease future, benefit payments to affected participants and beneficiaries in order to adjust for prior inadvertent benefit overpayments.
(2) Reduction in future benefit payments and recovery from responsible party
Paragraph (1) shall not fail to apply to a plan merely because, after discovering a benefit overpayment, such plan—
(A) reduces future benefit payments to the correct amount provided for under the terms of the plan, or
(B) seeks recovery from the person or persons responsible for such overpayment.
(3) Employer funding obligations
Nothing in this subsection shall relieve an employer of any obligation imposed on it to make contributions to a plan to meet the minimum funding standards under sections 412 and 430 or to prevent or restore an impermissible forfeiture in accordance with section 411.
(4) Observance of benefit limitations
Notwithstanding paragraph (1), a plan to which paragraph (1) applies shall observe any limitations imposed on it by section 401(a)(17) or 415. The plan may enforce such limitations using any method approved by the Secretary for recouping benefits previously paid or allocations previously made in excess of such limitations.
(5) Coordination with other qualification requirements
The Secretary may issue regulations or other guidance of general applicability specifying how benefit overpayments and their recoupment or non-recoupment from a participant or beneficiary shall be taken into account for purposes of satisfying any requirement applicable to a plan to which paragraph (1) applies.
(bb) Eliminating unnecessary plan requirements related to unenrolled participants
(1) In general
Notwithstanding any other provision of this title, with respect to any defined contribution plan, no disclosure, notice, or other plan document (other than the notices and documents described in subparagraphs (A) and (B)) shall be required to be furnished under this title to any unenrolled participant if the unenrolled participant is furnished—
(A) an annual reminder notice of such participant's eligibility to participate in such plan and any applicable election deadlines under the plan, and
(B) any document requested by such participant that the participant would be entitled to receive notwithstanding this subsection.
(2) Unenrolled participant
For purposes of this subsection, the term "unenrolled participant" means an employee who—
(A) is eligible to participate in a defined contribution plan,
(B) has been furnished—
(i) the summary plan description pursuant to section 104(b) of the Employee Retirement Income Security Act of 1974, and
(ii) any other notices related to eligibility under the plan and required to be furnished under this title, or the Employee Retirement Income Security Act of 1974, in connection with such participant's initial eligibility to participate in such plan,
(C) is not participating in such plan, and
(D) satisfies such other criteria as the Secretary of the Treasury may determine appropriate, as prescribed in guidance issued in consultation with the Secretary of Labor.
For purposes of this subsection, any eligibility to participate in the plan following any period for which such employee was not eligible to participate shall be treated as initial eligibility.
(3) Annual reminder notice
For purposes of this subsection, the term "annual reminder notice" means the notice described in section 111(c) of the Employee Retirement Income Security Act of 1974.
(cc) Correcting automatic contribution errors
(1) In general
Any plan or arrangement shall not fail to be treated as a plan described in sections 401(a), 403(b), 408, or 457(b), as applicable, solely by reason of a corrected error.
(2) Corrected error defined
For purposes of this subsection, the term "corrected error" means a reasonable administrative error—
(A)(i) made in implementing an automatic enrollment or automatic escalation feature with respect to an eligible employee (or an affirmative election made by an eligible employee covered by such feature), or
(ii) made by failing to afford an eligible employee the opportunity to make an affirmative election because such employee was improperly excluded from the plan], and
(B) that is corrected prospectively by implementing an automatic enrollment or automatic escalation feature with respect to an eligible employee (or an affirmative election made by an eligible employee) determined in accordance with the terms of an eligible automatic contribution arrangement (as defined under subsection (w)(3)), provided that—
(i) such implementation error is corrected not later than—
(I) the date of the first payment of compensation made by the employer to the employee on or after the last day of the 9½ month-period after the end of the plan year during which such error with respect to the employee first occurred, or
(II) if earlier in the case of an employee who notifies the plan sponsor of such error, the date of the first payment of compensation made by the employer to the employee on or after the last day of the month following the month in which such notification was made,
(ii) in the case of an employee who would have been entitled to additional matching contributions had any missed elective deferral been made, the plan sponsor makes a corrective allocation, not later than the deadline specified by the Secretary in regulations or other guidance prescribed under paragraph (3), of matching contributions on behalf of the employee in an amount equal to the additional matching contributions to which the employee would have been so entitled (adjusted to account for earnings had the missed elective deferrals been made).
(iii) such implementation error is of a type which is so corrected for all similarly situated participants in a nondiscriminatory manner,
(iv) notice of such error is given to the employee not later than 45 days after the date on which correct deferrals begin, and
(v) the notice under clause (iv) satisfies such regulations or other guidance as the Secretary prescribes under paragraph (4).
Such correction may occur before or after the participant has terminated employment and may occur without regard to whether the error is identified by the Secretary.
(3) No obligation for employer to restore missed elective deferrals
If the requirements of paragraph (2)(B) are satisfied, the employer will not be required to provide eligible employees with the missed amount of elective deferrals resulting from a reasonable administrative error described in paragraph (2)(A)(i) or (ii) through a qualified nonelective contribution, or otherwise.
(4) Regulations and guidance for favorable correction methods
The Secretary shall by regulations or other guidance of general applicability prescribe—
(A) the deadline for making a corrective allocation of matching contributions required by paragraph (2)(B)(ii),
(B) the content of the notice required by paragraph (2)(B)(iv),
(C) the manner in which the amount of the corrective allocation under paragraph (2)(B)(ii) is determined,
(D) the manner of adjustment to account for earnings on matching contributions under paragraph (2)(B)(ii), and
(E) such other rules as are necessary to carry out the purposes of the subsection.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table under
Amendment of Subsection (v)(2)
(1) in subparagraph (B)—
(A) in clause (i), by inserting the following before the period: "(the adjusted dollar amount, in the case of an eligible participant who would attain age 60 but would not attain age 64 before the close of the taxable year)"; and
(B) in clause (ii), by inserting the following before the period: "(the adjusted dollar amount, in the case of an eligible participant who would attain age 60 but would not attain age 64 before the close of the taxable year)";
(2) in subparagraph (C), by adding at the end the following: "In the case of a year beginning after December 31, 2025, the Secretary shall adjust annually the adjusted dollar amounts applicable under clauses (i) and (ii) of subparagraph (E) for increases in the cost-of-living at the same time and in the same manner as adjustments under the preceding sentence; except that the base period taken into account shall be the calendar quarter beginning July 1, 2024."; and
(3) by adding at the end the following new subparagraph:
(E) Adjusted dollar amount
For purposes of subparagraph (B), the adjusted dollar amount is—
(i) in the case of clause (i) of subparagraph (B), the greater of—
(I) $10,000, or
(II) an amount equal to 150 percent of the dollar amount which would be in effect under such clause for 2024 for eligible participants not described in the parenthetical in such clause, or
(ii) in the case of clause (ii) of subparagraph (B), the greater of—
(I) $5,000, or
(II) an amount equal to equal to 150 percent of the dollar amount which would be in effect under such clause for 2025 for eligible participants not described in the parenthetical in such clause.
See 2022 Amendment notes below.
Editorial Notes
References in Text
The Railroad Retirement Act of 1935 or 1937, referred to in subsec. (d), means act Aug. 29, 1935, ch. 812,
The International Organizations Immunities Act (
The Employee Retirement Income Security Act of 1974, referred to in subsecs. (f)(3), (5), (6)(B), (F), (l)(1), (2)(E), and (bb)(2)(B), (3), is
The date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, referred to in subsec. (f)(4), (5), means the date of the enactment of
Effective date of the Multiemployer Pension Plan Amendments Act of 1980, referred to in subsec. (f)(5), probably means the date of enactment of the Multiemployer Pension Plan Amendments Act of 1980, which was approved Sept. 26, 1980.
The Pension Protection Act of 2006, referred to in subsecs. (f)(6)(A) and (y)(1)(A), (3)(B), is
Section 403(b)(7)(A)(ii), referred to in subsec. (u)(12)(B)(i), probably means
The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, referred to in subsec. (y)(1)(A)(ii), (3)(B), is
Amendments
2022—Subsec. (b).
Subsec. (m)(6)(B).
Subsec. (m)(6)(B)(i).
Subsec. (p)(1)(B).
Subsec. (p)(1)(B)(ii).
Subsec. (v)(2)(B)(i).
Subsec. (v)(2)(B)(ii).
Subsec. (v)(2)(B)(iii).
Subsec. (v)(2)(C).
Subsec. (v)(2)(E).
Subsec. (v)(7).
Subsec. (aa).
Subsec. (bb).
Subsec. (cc).
2020—Subsec. (y)(1)(D).
2018—Subsec. (l)(2)(G).
Subsec. (u)(6).
Subsec. (x)(1).
Subsec. (y)(1)(C)(i).
Subsec. (y)(2).
2015—Subsec. (c).
Subsec. (z).
2014—Subsec. (n)(3)(C).
Subsec. (t)(2).
Subsec. (v)(2)(B)(i), (ii).
Subsec. (y).
Subsec. (y)(1)(C).
Subsec. (y)(2).
Subsec. (y)(3).
2008—Subsec. (l)(2)(B)(i)(I).
Subsec. (l)(2)(G).
Subsec. (u).
Subsec. (u)(9) to (11).
Subsec. (u)(12).
Subsec. (w)(3)(B) to (D).
Subsec. (w)(5)(D), (E).
Subsec. (w)(6).
Subsec. (x)(1).
2007—Subsec. (f)(6)(A)(ii)(I).
Subsec. (f)(6)(B).
Subsec. (f)(6)(E).
"(i) that was established in Chicago, Illinois, on August 12, 1881; and
"(ii) sponsored by an organization described in section 501(c)(5) and exempt from tax under section 501(a)."
Subsec. (f)(6)(F).
2006—Subsec. (d).
Subsec. (f)(6).
Subsec. (h)(2).
Subsec. (l)(2)(B)(i)(I).
Subsec. (w).
Subsec. (x).
2004—Subsec. (q)(7).
2002—Subsec. (v)(2)(D).
Subsec. (v)(3)(A)(i).
Subsec. (v)(3)(B).
Subsec. (v)(4)(B).
Subsec. (v)(5).
Subsec. (v)(5)(A).
Subsec. (v)(5)(B).
Subsec. (v)(6)(C).
2001—Subsec. (p)(10).
Subsec. (p)(11).
Subsec. (p)(12), (13).
Subsec. (v).
2000—Subsec. (s)(2).
1998—Subsec. (q)(5).
1997—Subsec. (e)(5)(A).
"(i)
"(I) is a self-employed individual (within the meaning of section 401(c)(1)(B)), or
"(II) is employed by an organization other than an organization described in section 501(c)(3).
"(ii)
"(I)
"(II)
Subsec. (e)(5)(C).
Subsec. (e)(5)(E).
Subsec. (n)(3)(C).
Subsec. (q)(7), (9).
Subsec. (t)(2).
1996—Subsecs. (b), (c).
Subsec. (e)(5).
Subsec. (m)(4)(B).
Subsec. (n)(2)(C).
Subsec. (n)(3)(B).
Subsec. (q)(1).
"(A) was at any time a 5-percent owner,
"(B) received compensation from the employer in excess of $75,000,
"(C) received compensation from the employer in excess of $50,000 and was in the top-paid group of employees for such year, or
"(D) was at any time an officer and received compensation greater than 50 percent of the amount in effect under section 415(b)(1)(A) for such year.
The Secretary shall adjust the $75,000 and $50,000 amounts under this paragraph at the same time and in the same manner as under section 415(d)."
Subsec. (q)(2), (3).
Subsec. (q)(4).
"(A)
"(B)
"(i) without regard to sections 125, 402(e)(3), and 402(h)(1)(B), and
"(ii) in the case of employer contributions made pursuant to a salary reduction agreement, without regard to section 403(b)."
Subsec. (q)(5).
"(A)
"(B)
Subsec. (q)(6).
Subsec. (q)(7).
Subsec. (q)(8) to (12).
Subsec. (r)(2)(A).
Subsec. (s)(2).
Subsec. (u).
1992—Subsec. (n)(5)(C)(iii)(I).
Subsec. (q)(7)(B)(i).
Subsec. (s)(2).
1990—Subsec. (n)(2)(B).
1989—Subsec. (n)(3)(C).
Subsec. (p)(10).
Subsec. (p)(11).
Subsec. (r)(1).
Subsec. (t)(2).
1988—Subsec. (k)(2).
Subsec. (l).
Subsec. (l)(2)(G).
Subsec. (m)(4)(A).
Subsec. (m)(4)(C), (D).
"(C) section 105(h), and
"(D) section 125."
Subsec. (n)(3)(A).
Subsec. (n)(3)(C).
Subsec. (o).
Subsec. (p)(4)(B).
Subsec. (p)(9).
Subsec. (p)(10).
Subsec. (q)(1).
Subsec. (q)(1)(D).
Subsec. (q)(6)(C).
Subsec. (q)(8).
Subsec. (q)(8)(F).
Subsec. (q)(11).
Subsec. (q)(12).
Subsec. (r)(3).
"(A) not less than one-half, and
"(B) not more than twice,
the percentage which highly compensated employees are of all employees of the employer. An employer shall be treated as meeting the requirements of subparagraph (A) if at least 10 percent of all highly compensated employees of the employer perform services solely for such line of business."
Subsec. (s).
Subsec. (s)(1).
Subsec. (s)(2) to (4).
Subsec. (t)(1).
Subsec. (t)(2).
1987—Subsec. (b).
1986—Subsec. (k)(2).
Subsec. (m)(2)(B)(ii).
Subsec. (m)(5).
Subsec. (m)(7).
Subsec. (n)(1).
Subsec. (n)(2)(B).
Subsec. (n)(3).
Subsec. (n)(4).
Subsec. (n)(5).
"(A) is a money purchase pension plan with a nonintegrated employer contribution rate of at least 7½ percent, and
"(B) provides for immediate participation and for full and immediate vesting."
Subsec. (n)(6).
Subsec. (o).
Subsec. (p)(1)(B)(i).
Subsec. (p)(3)(B).
Subsec. (p)(4)(A).
Subsec. (p)(4)(B).
Subsec. (p)(5).
Subsec. (p)(5)(A).
Subsec. (p)(5)(B).
Subsec. (p)(6)(A)(i).
Subsec. (p)(7)(A).
Subsec. (p)(7)(B).
Subsec. (p)(7)(C).
Subsec. (p)(7)(D).
Subsec. (p)(7)(E).
Subsec. (p)(9).
Subsec. (p)(10).
Subsec. (p)(11).
Subsec. (q).
Subsecs. (r), (s).
Subsec. (t).
1984—Subsec. (h)(1)(B).
Subsec. (l).
Subsec. (m)(6)(B).
Subsec. (m)(7).
Subsec. (n)(2).
Subsec. (o).
Subsec. (p).
1982—Subsecs. (b), (c).
Subsec. (m)(4)(B).
Subsec. (m)(5) to (7).
Subsec. (n).
1980—Subsec. (e).
Subsec. (f).
Subsec. (l).
Subsec. (m).
1978—Subsecs. (b), (c).
1976—Subsecs. (a) to (c).
Subsec. (f).
Subsec. (g)(2)(C).
Subsec. (l).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by section 117(b) of
Amendment by section 603(a) of
Effective Date of 2020 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Amendment by
Amendment by section 201 of
Effective Date of 2008 Amendment
Amendment by
Amendment by section 104(b) of
Amendment by section 105(b)(1) of
Effective Date of 2007 Amendment
Effective Date of 2006 Amendment
Amendment by section 114(c) of
Amendment by section 902(d)(1) of
Effective Date of 2002 Amendment
Amendment by
Effective Date of 2001 Amendment
Effective Date of 2000 Amendment
Amendment by
Effective Date of 1998 Amendment
Amendment by section 6018 of
Effective Date of 1997 Amendment
Amendment by section 1601(d)(6)(A), (7), (h)(2)(D)(i), (ii) of
Effective Date of 1996 Amendment
Amendment by section 1421(b)(9)(C) of
"(1)
"(2)
Amendment by section 1461(a) of
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1990 Amendment
Effective Date of 1989 Amendments
Amendment by sections 7811(m)(5) and 7813(b) of
Amendment by section 7841(a)(2) of
Amendment by section 203(a)(6) of
Amendment by section 204(b)(2) of
Effective Date of 1988 Amendment
Amendment by sections 1011(d)(8), (e)(4), (h)(5), (i)(1)–(4)(A), (j)(1), (2), 1011A(b)(3), 1011B(a)(16), (17), (19), (20), and 1018(t)(8)(E)–(G) of
"(A) Except as provided in subparagraph (B), the amendments made by this subsection [amending this section] shall apply with respect to transactions occurring after July 26, 1988.
"(B) The amendments made by this subsection shall not apply to any transaction occurring after July 26, 1988, if on or before such date the board of directors of the employer, approves such transaction or the employer took similar binding action."
Amendment by section 3011(b)(4), (5) of
Amendment by section 3021(b)(1), (2)(A) of
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
"(1)
"(2)
"(3)
[
Amendment by section 1117(c) of
"(1)
"(2)
"(3)
Amendment by section 1151(e)(1), (i) of
Amendment by section 1301(j)(4) of
Amendment by section 1852(f) of
Amendment by section 1898(c)(2)(A), (4)(A), (6)(A), (7)(A)(ii)–(vii) of
Effective Date of 1984 Amendment
Amendment by
Amendment by section 491(d)(26), (27) of
Amendment by section 713(i) of
Effective Date of 1982 Amendment
Amendment by section 240(c) of
Effective Date of 1980 Amendment
"(1)
"(2)
Amendment by sections 207 and 208(a) of
Effective Date of 1978 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(64) of
Effective Date
Section applicable, except as otherwise provided in section 1017(c) through (i) of
Regulations
"(1) a domestic relations order otherwise meeting the requirements to be a qualified domestic relations order, including the requirements of section 206(d)(3)(D) of such Act and section 414(p)(3) of such Code, shall not fail to be treated as a qualified domestic relations order solely because—
"(A) the order is issued after, or revises, another domestic relations order or qualified domestic relations order; or
"(B) of the time at which it is issued; and
"(2) any order described in paragraph (1) shall be subject to the same requirements and protections which apply to qualified domestic relations orders, including the provisions of section 206(d)(3)(H) of such Act and section 414(p)(7) of such Code."
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by sections 1114, 1115, and 1117 of
Provisions Relating to Plan Amendments Pursuant to Pub. L. 117–328
"(a)
"(1) such retirement plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in subsection (b)(2)(A); and
"(2) except as provided by the Secretary of the Treasury (or the Secretary's delegate), such retirement plan shall not fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code of 1986 and section 204(g) of the Employee Retirement Income Security Act of 1974 [
"(b)
"(1)
"(A) pursuant to any amendment made by this Act or pursuant to any regulation issued by the Secretary of the Treasury or the Secretary of Labor (or a delegate of either such Secretary) under this Act [div. T of
"(B) on or before the last day of the first plan year beginning on or after January 1, 2025, or such later date as the Secretary of the Treasury may prescribe.
In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), or an applicable collectively bargained plan, this paragraph shall be applied by substituting '2027' for '2025'. For purposes of the preceding sentence, the term 'applicable collectively bargained plan' means a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified before the date of enactment of this Act [Dec. 29, 2022].
"(2)
"(A) during the period—
"(i) beginning on the date the legislative or regulatory amendment described in paragraph (1)(A) takes effect (or in the case of a plan or contract amendment not required by such legislative or regulatory amendment, the effective date specified by the plan); and
"(ii) ending on the date described in paragraph (1)(B) (as modified by the second sentence of paragraph (1)) (or, if earlier, the date the plan or contract amendment is adopted),
the plan or contract is operated as if such plan or contract amendment were in effect; and
"(B) such plan or contract amendment applies retroactively for such period."
Provisions Relating to Plan Amendments Pursuant to Pub. L. 116–94
"(a)
"(1) such retirement plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in subsection (b)(2)(A); and
"(2) except as provided by the Secretary of the Treasury (or the Secretary's delegate), such retirement plan shall not fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code of 1986 and section 204(g) of the Employee Retirement Income Security Act of 1974 [
"(b)
"(1)
"(A) pursuant to any amendment made by this Act or pursuant to any regulation issued by the Secretary of the Treasury or the Secretary of Labor (or a delegate of either such Secretary) under this Act [div. O of
"(B) on or before the last day of the first plan year beginning on or after January 1, 2025, or such later date as the Secretary of the Treasury may prescribe.
In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), or an applicable collectively bargained plan in the case of section 401 (and the amendments made thereby), this paragraph shall be applied by substituting '2027' for '2025'. For purposes of the preceding sentence, the term 'applicable collectively bargained plan' means a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified before the date of enactment of this Act [Dec. 20, 2019].
"(2)
"(A) during the period—
"(i) beginning on the date the legislative or regulatory amendment described in paragraph (1)(A) takes effect (or in the case of a plan or contract amendment not required by such legislative or regulatory amendment, the effective date specified by the plan); and
"(ii) ending on the date described in paragraph (1)(B) (as modified by the second sentence of paragraph (1)) (or, if earlier, the date the plan or contract amendment is adopted),
the plan or contract is operated as if such plan or contract amendment were in effect; and
"(B) such plan or contract amendment applies retroactively for such period."
Provisions Relating to Plan Amendments Pursuant to Pub. L. 110–245
"(1)
"(2)
"(A)
"(i) pursuant to any amendment made by subsection (b)(1) [amending this section], and
"(ii) on or before the last day of the first plan year beginning on or after January 1, 2010.
In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), this subparagraph shall be applied by substituting '2012' for '2010' in clause (ii).
"(B)
"(i) during the period beginning on the date the amendment described in subparagraph (A)(i) takes effect and ending on the date described in subparagraph (A)(ii) (or, if earlier, the date the plan or contract amendment is adopted), the plan or contract is operated as if such plan or contract amendment were in effect, and
"(ii) such plan or contract amendment applies retroactively for such period."
Clarification Relating to Application of Anti-Abuse Rule
Automatic Enrollment by Church Plans
"(1)
"(2)
"(A) under which a participant may elect to have the plan sponsor or the employer make payments as contributions under the plan on behalf of the participant, or to the participant directly in cash,
"(B) under which a participant is treated as having elected to have the plan sponsor or the employer make such contributions in an amount equal to a uniform percentage of compensation provided under the plan until the participant specifically elects not to have such contributions made (or specifically elects to have such contributions made at a different percentage), and
"(C) under which the notice and election requirements of paragraph (3), and the investment requirements of paragraph (4), are satisfied.
"(3)
"(A)
"(i) is sufficiently accurate and comprehensive to apprise the participant of such rights and obligations, and
"(ii) is written in a manner calculated to be understood by the average participant to whom the arrangement applies.
"(B)
"(i) the notice includes an explanation of the participant's right under the arrangement not to have elective contributions made on the participant's behalf (or to elect to have such contributions made at a different percentage),
"(ii) the participant has a reasonable period of time, after receipt of the explanation described in clause (i) and before the first elective contribution is made, to make such election, and
"(iii) the notice explains how contributions made under the arrangement will be invested in the absence of any investment election by the participant.
"(4)
"(5)
Investments by Church Plans in Collective Trusts
"(1)
"(A) a church plan (as defined in section 414(e) of the Internal Revenue Code of 1986), including a plan described in section 401(a) of such Code and a retirement income account described in section 403(b)(9) of such Code, and
"(B) an organization described in section 414(e)(3)(A) of such Code the principal purpose or function of which is the administration of such a plan or account,
the assets of such plan, account, or organization (including any assets otherwise permitted to be commingled for investment purposes with the assets of such a plan, account, or organization) may be invested in a group trust otherwise described in Internal Revenue Service Revenue Ruling 81–100 (as modified by Internal Revenue Service Revenue Rulings 2004–67, 2011–1, and 2014–24), or any subsequent revenue ruling that supersedes or modifies such revenue ruling, without adversely affecting the tax status of the group trust, such plan, account, or organization, or any other plan or trust that invests in the group trust.
"(2)
Applicability of Amendments by Subtitles A and B of Title I of Pub. L. 109–280
For special rules on applicability of amendments by subtitles A (§§101–108) and B (§§111–116) of title I of
Sample Language for Spousal Consent and Qualified Domestic Relations Forms
"(a)
"(1) sample language for inclusion in a form for the spousal consent required under section 417(a)(2) of the Internal Revenue Code of 1986 and section 205(c)(2) of the Employee Retirement Income Security Act of 1974 [
"(A) is written in a manner calculated to be understood by the average person, and
"(B) discloses in plain form—
"(i) whether the waiver to which the spouse consents is irrevocable, and
"(ii) whether such waiver may be revoked by a qualified domestic relations order, and
"(2) sample language for inclusion in a form for a qualified domestic relations order described in section 414(p)(1)(A) of such Code and section 206(d)(3)(B)(i) of such Act [
"(A) meets the requirements contained in such sections, and
"(B) the provisions of which focus attention on the need to consider the treatment of any lump sum payment, qualified joint and survivor annuity, or qualified preretirement survivor annuity.
"(b)
Safeharbor Authority
Application of Line of Business Test for Period Before Guidelines Issued
[
Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99–514 for Fiscal Year 1990
No monies appropriated by
Study Reflecting Allocation of Assets
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
1 So in original. Probably should be "title".
2 See References in Text note below.
§414A. Requirements related to automatic enrollment
(a) In general
Except as otherwise provided in this section—
(1) an arrangement shall not be treated as a qualified cash or deferred arrangement described in section 401(k) unless such arrangement meets the automatic enrollment requirements of subsection (b), and
(2) an annuity contract otherwise described in section 403(b) which is purchased under a salary reduction agreement shall not be treated as described in such section unless such agreement meets the automatic enrollment requirements of subsection (b).
(b) Automatic enrollment requirements
(1) In general
An arrangement or agreement meets the requirements of this subsection if such arrangement or agreement is an eligible automatic contribution arrangement (as defined in section 414(w)(3)) which meets the requirements of paragraphs (2) through (4).
(2) Allowance of permissible withdrawals
An eligible automatic contribution arrangement meets the requirements of this paragraph if such arrangement allows employees to make permissible withdrawals (as defined in section 414(w)(2)).
(3) Minimum contribution percentage
(A) In general
An eligible automatic contribution arrangement meets the requirements of this paragraph if—
(i) the uniform percentage of compensation contributed by the participant under such arrangement during the first year of participation is not less than 3 percent and not more than 10 percent (unless the participant specifically elects not to have such contributions made or to have such contributions made at a different percentage), and
(ii) effective for the first day of each plan year starting after each completed year of participation under such arrangement such uniform percentage is increased by 1 percentage point (to at least 10 percent, but not more than 15 percent) unless the participant specifically elects not to have such contributions made or to have such contributions made at a different percentage.
(B) Initial reduced ceiling for certain plans
In the case of any eligible automatic contribution arrangement (other than an arrangement that meets the requirements of paragraph (12) or (13) of section 401(k)), for plan years ending before January 1, 2025, subparagraph (A)(ii) shall be applied by substituting "10 percent" for "15 percent".
(4) Investment requirements
An eligible automatic contribution arrangement meets the requirements of this paragraph if amounts contributed pursuant to such arrangement, and for which no investment is elected by the participant, are invested in accordance with the requirements of section 2550.404c-5 of title 29, Code of Federal Regulations (or any successor regulations).
(c) Exceptions
For purposes of this section—
(1) Simple plans
Subsection (a) shall not apply to any simple plan (within the meaning of section 401(k)(11)).
(2) Exception for plans or arrangements established before enactment of section
(A) In general
Subsection (a) shall not apply to—
(i) any qualified cash or deferred arrangement established before the date of the enactment of this section, or
(ii) any annuity contract purchased under a plan established before the date of the enactment of this section.
(B) Post-enactment adoption of multiple employer plan
Subparagraph (A) shall not apply in the case of an employer adopting after such date of enactment a plan maintained by more than one employer, and subsection (a) shall apply with respect to such employer as if such plan were a single plan.
(3) Exception for governmental and church plans
Subsection (a) shall not apply to any governmental plan (within the meaning of section 414(d)) or any church plan (within the meaning of section 414(e)).
(4) Exception for new and small businesses
(A) New business
Subsection (a) shall not apply to any qualified cash or deferred arrangement, or any annuity contract purchased under a plan, while the employer maintaining such plan (and any predecessor employer) has been in existence for less than 3 years.
(B) Small businesses
Subsection (a) shall not apply to any qualified cash or deferred arrangement, or any annuity contract purchased under a plan, earlier than the date that is 1 year after the close of the first taxable year with respect to which the employer maintaining the plan normally employed more than 10 employees.
(C) Treatment of multiple employer plans
In the case of a plan maintained by more than 1 employer, subparagraphs (A) and (B) shall be applied separately with respect to each such employer, and all such employers to which subsection (a) applies (after the application of this paragraph) shall be treated as maintaining a separate plan for purposes of this section.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, and such date of enactment, referred to in subsec. (c)(2), is the date of enactment of
Statutory Notes and Related Subsidiaries
Effective Date
§415. Limitations on benefits and contribution under qualified plans
(a) General rule
(1) Trusts
A trust which is a part of a pension, profitsharing, or stock bonus plan shall not constitute a qualified trust under section 401(a) if—
(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), or
(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).
(2) Section applies to certain annuities and accounts
In the case of—
(A) an employee annuity plan described in section 403(a),
(B) an annuity contract described in section 403(b), or
(C) a simplified employee pension described in section 408(k),
such a contract, plan, or pension shall not be considered to be described in section 403(a), 403(b), or 408(k), as the case may be, unless it satisfies the 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.
(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) $160,000, 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(c), 403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16)) are made.
(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(c), 403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16)), 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 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 417) shall not be taken into account.
(C) Adjustment to $160,000 limit where benefit begins before age 62
If the retirement income benefit under the plan begins before age 62, the determination as to whether the $160,000 limitation set forth in paragraph (1)(A) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary, by reducing the limitation of paragraph (1)(A) so that such limitation (as so reduced) equals an annual benefit (beginning when such retirement income benefit begins) which is equivalent to a $160,000 annual benefit beginning at age 62.
(D) Adjustment to $160,000 limit where benefit begins after age 65
If the retirement income benefit under the plan begins after age 65, the determination as to whether the $160,000 limitation set forth in paragraph (1)(A) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary, by increasing the limitation of paragraph (1)(A) so that such limitation (as so increased) equals an annual benefit (beginning when such retirement income benefit begins) which is equivalent to a $160,000 annual benefit beginning at age 65.
(E) Limitation on certain assumptions
(i) For purposes of adjusting any limitation under subparagraph (C) and, except as provided in clause (ii), for purposes of adjusting any benefit under subparagraph (B), the interest rate assumption shall not be less than the greater of 5 percent or the rate specified in the plan.
(ii) For purposes of adjusting any benefit under subparagraph (B) for any form of benefit subject to section 417(e)(3), the interest rate assumption shall not be less than the greatest of—
(I) 5.5 percent,
(II) the rate that provides a benefit of not more than 105 percent of the benefit that would be provided if the applicable interest rate (as defined in section 417(e)(3)) were the interest rate assumption, or
(III) the rate specified under the plan.
(iii) For purposes of adjusting any limitation under subparagraph (D), the interest rate assumption shall not be greater than the lesser of 5 percent or the rate specified in the plan.
(iv) For purposes of this subsection, no adjustments under subsection (d)(1) shall be taken into account before the year for which such adjustment first takes effect.
(v) For purposes of adjusting any benefit or limitation under subparagraph (B), (C), or (D), the mortality table used shall be the applicable mortality table (within the meaning of section 417(e)(3)(B)).
(vi) In the case of a plan maintained by an eligible employer (as defined in section 408(p)(2)(C)(i)), clause (ii) shall be applied without regard to subclause (II) thereof.
[(F) Repealed. Pub. L. 107–16, title VI, §611(a)(5)(A), June 7, 2001, 115 Stat. 97 ]
(G) Special limitation for qualified police or firefighters
In the case of a qualified participant, subparagraph (C) of this paragraph shall not apply.
(H) Qualified participant defined
For purposes of subparagraph (G), the term "qualified participant" means a participant—
(i) in a defined benefit plan which is maintained by a State, Indian tribal government (as defined in section 7701(a)(40)), or any political subdivision thereof,
(ii) with respect to whom the period of service taken into account in determining the amount of the benefit under such defined benefit plan includes at least 15 years of service of the participant—
(I) as a full-time employee of any police department or fire department which is organized and operated by the State, Indian tribal government (as so defined), or any political subdivision maintaining such defined benefit plan to provide police protection, firefighting services, or emergency medical services for any area within the jurisdiction of such State, Indian tribal government (as so defined), or any political subdivision, or
(II) as a member of the Armed Forces of the United States.
(I) Exemption for survivor and disability benefits provided under governmental plans
Subparagraph (C) of this paragraph and paragraph (5) shall not apply to—
(i) income received from a governmental plan (as defined in section 414(d)) as a pension, annuity, or similar allowance as the result of the recipient becoming disabled by reason of personal injuries or sickness, or
(ii) amounts received from a governmental plan by the beneficiaries, survivors, or the estate of an employee as the result of the death of the employee.
(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 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 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 participation or service of less than 10 years
(A) Dollar limitation
In the case of an employee who has less than 10 years of participation in a defined benefit plan, the limitation referred to in paragraph (1)(A) shall be the limitation determined under such paragraph (without regard to this paragraph) multiplied by a fraction—
(i) the numerator of which is the number of years (or part thereof) of participation in the defined benefit plan of the employer, and
(ii) the denominator of which is 10.
(B) Compensation and benefits limitations
The provisions of subparagraph (A) shall apply to the limitations under paragraphs (1)(B) and (4), except that such subparagraph shall be applied with respect to years of service with an employer rather than years of participation in a plan.
(C) Limitation on reduction
In no event shall subparagraph (A) or (B) reduce the limitations referred to in paragraphs (1) and (4) to an amount less than 1/10 of such limitation (determined without regard to this paragraph).
(D) Application to changes in benefit structure
To the extent provided in regulations, subparagraph (A) shall be applied separately with respect to each change in the benefit structure of a plan.
(6) Computation of benefits and contributions
The computation of—
(A) benefits under a defined contribution plan, for purposes of section 401(a)(4),
(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 section
shall not be made on a basis inconsistent with regulations prescribed by the Secretary.
(7) Benefits under certain collectively bargained plans
For a year, the limitation referred to in paragraph (1)(B) shall not apply to benefits with respect to a participant under a defined benefit plan (other than a multiemployer plan)—
(A) which is maintained for such year pursuant to a collective bargaining agreement between employee representatives and one or more employers,
(B) which, at all times during such year, has at least 100 participants,
(C) under which benefits are determined solely by reference to length of service, the particular years during which service was rendered, age at retirement, and date of retirement,
(D) which provides that an employee who has at least 4 years of service has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions, and
(E) which requires, as a condition of participation in the plan, that an employee complete a period of not more than 60 consecutive days of service with the employer or employers maintaining the plan.
This paragraph shall not apply to a participant whose compensation for any 3 years during the 10-year period immediately preceding the year in which he separates from service exceeded the average compensation for such 3 years of all participants in such plan. This paragraph shall not apply to a participant for any period for which he is a participant under another plan to which this section applies which is maintained by an employer maintaining this plan. For any year for which the paragraph applies to benefits with respect to a participant, paragraph (1)(A) and subsection (d)(1)(A) shall be applied with respect to such participant by substituting one-half the amount otherwise applicable for such year under paragraph (1)(A) for "$160,000".
(8) Social security retirement age defined
For purposes of this subsection, the term "social security retirement age" means the age used as the retirement age under section 216(l) of the Social Security Act, except that such section shall be applied—
(A) without regard to the age increase factor, and
(B) as if the early retirement age under section 216(l)(2) of such Act were 62.
(9) Special rule for commercial airline pilots
(A) In general
Except as provided in subparagraph (B), in the case of any participant who is a commercial airline pilot, if, as of the time of the participant's retirement, regulations prescribed by the Federal Aviation Administration require an individual to separate from service as a commercial airline pilot after attaining any age occurring on or after age 60 and before age 62, paragraph (2)(C) shall be applied by substituting such age for age 62.
(B) Individuals who separate from service before age 60
If a participant described in subparagraph (A) separates from service before age 60, the rules of paragraph (2)(C) shall apply.
(10) Special rule for State, Indian tribal, and local government plans
(A) Limitation to equal accrued benefit
In the case of a plan maintained for its employees by any State or political subdivision thereof, or by any agency or instrumentality of the foregoing, or a governmental plan described in the last sentence of section 414(d) (relating to plans of Indian tribal governments), the limitation with respect to a qualified participant under this subsection shall not be less than the accrued benefit of the participant under the plan (determined without regard to any amendment of the plan made after October 14, 1987).
(B) Qualified participant
For purposes of this paragraph, the term "qualified participant" means a participant who first became a participant in the plan maintained by the employer before January 1, 1990.
(C) Election
(i) In general
This paragraph shall not apply to any plan unless each employer maintaining the plan elects before the close of the 1st plan year beginning after December 31, 1989, to have this subsection (other than paragraph (2)(G)).
(ii) Revocation of election
An election under clause (i) may be revoked not later than the last day of the third plan year beginning after the date of the enactment of this clause. The revocation shall apply to all plan years to which the election applied and to all subsequent plan years. Any amount paid by a plan in a taxable year ending after the revocation shall be includible in income in such taxable year under the rules of this chapter in effect for such taxable year, except that, for purposes of applying the limitations imposed by this section, any portion of such amount which is attributable to any taxable year during which the election was in effect shall be treated as received in such taxable year.
(11) Special limitation rule for governmental and multiemployer plans
In the case of a governmental plan (as defined in section 414(d)) or a multiemployer plan (as defined in section 414(f)), subparagraph (B) of paragraph (1) shall not apply. Subparagraph (B) of paragraph (1) shall not apply to a plan maintained by an organization described in section 3121(w)(3)(A) except with respect to highly compensated benefits. For purposes of this paragraph, the term "highly compensated benefits" means any benefits accrued for an employee in any year on or after the first year in which such employee is a highly compensated employee (as defined in section 414(q)) of the organization described in section 3121(w)(3)(A). For purposes of applying paragraph (1)(B) to highly compensated benefits, all benefits of the employee otherwise taken into account (without regard to this paragraph) shall be taken into account.
(12) Special rule for certain employees of rural electric cooperatives
(A) In general
Subparagraph (B) of paragraph (1) shall not apply to a participant in an eligible rural electric cooperative plan, except in the case of a participant who was a highly compensated employee (as defined in section 414(q)) of an employer maintaining such plan for the earlier of—
(i) the plan year in which the participant terminated employment with such employer, or
(ii) the plan year in which distributions commence under the plan with respect to the participant, or
for any of the 5 plan years immediately preceding such earlier plan year.
(B) Eligible rural electric cooperative plan
For purposes of this paragraph—
(i) In general
The term "eligible rural electric cooperative plan" means a plan maintained by more than 1 employer, with respect to which at least 85 percent of the employers maintaining the plan are rural cooperatives described in clause (i) or (ii) of section 401(k)(7)(B) or are a national association of such a rural cooperative.
(ii) Election
An employer maintaining an eligible rural cooperative plan may elect not to have subparagraph (A) apply to its employees.
(C) Regulations
The Secretary shall prescribe such regulations and other guidance as are necessary to limit the application of subparagraph (A) such that it does not result in increased benefits for highly compensated employees.
(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) $40,000, or
(B) 100 percent of the participant's compensation.
(2) Annual addition
For purposes of paragraph (1), the term "annual addition" means the sum of any year of—
(A) employer contributions,
(B) 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(c), 403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section 408(k)(6). Subparagraph (B) of paragraph (1) shall not apply to any contribution for medical benefits (within the meaning of section 419A(f)(2)) after separation from service which is treated as an annual addition.
(3) Participant's compensation
For purposes of paragraph (1)—
(A) In general
The term "participant's compensation" means the compensation of the participant from the employer for the year.
(B) Special rule for self-employed individuals
In the case of an employee within the meaning of section 401(c)(1), subparagraph (A) shall be applied by substituting "the participant's earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911)" for "compensation of the participant from the employer".
(C) Special rules for permanent and total disability
In the case of a participant in any defined contribution plan—
(i) who is permanently and totally disabled (as defined in section 22(e)(3)),
(ii) who is not a highly compensated employee (within the meaning of section 414(q)), and
(iii) with respect to whom the employer elects, at such time and in such manner as the Secretary may prescribe, to have this subparagraph apply,
the term "participant's compensation" means the compensation the participant would have received for the year if the participant was paid at the rate of compensation paid immediately before becoming permanently and totally disabled. This subparagraph shall apply only if contributions made with respect to amounts treated as compensation under this subparagraph are nonforfeitable when made. If a defined contribution plan provides for the continuation of contributions on behalf of all participants described in clause (i) for a fixed or determinable period, this subparagraph shall be applied without regard to clauses (ii) and (iii).
(D) Certain deferrals included
The term "participant's compensation" shall include—
(i) any elective deferral (as defined in section 402(g)(3)), and
(ii) any amount which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125, 132(f)(4), or 457.
(E) Annuity contracts
In the case of an annuity contract described in section 403(b), the term "participant's compensation" means the participant's includible compensation determined under section 403(b)(3).
[(4) Repealed. Pub. L. 107–16, title VI, §632(a)(3)(E), June 7, 2001, 115 Stat. 114 ]
[(5) Repealed. Pub. L. 97–248, title II, §238(d)(5), Sept. 3, 1982, 96 Stat. 513 ]
(6) Special rule for employee stock ownership plans
If no more than one-third of the employer contributions to an employee stock ownership plan (as described in section 4975(e)(7)) for a year which are deductible under paragraph (9) of section 404(a) are allocated to highly compensated employees (within the meaning of section 414(q)), the limitations imposed by this section shall not apply to—
(A) forfeitures of employer securities (within the meaning of section 409) under such an employee stock ownership plan if such securities were acquired with the proceeds of a loan (as described in section 404(a)(9)(A)), or
(B) employer contributions to such an employee stock ownership plan which are deductible under section 404(a)(9)(B) and charged against the participant's account.
The amount of any qualified gratuitous transfer (as defined in section 664(g)(1)) allocated to a participant for any limitation year shall not exceed the limitations imposed by this section, but such amount shall not be taken into account in determining whether any other amount exceeds the limitations imposed by this section.
(7) Special rules relating to church plans
(A) Alternative contribution limitation
(i) In general
Notwithstanding any other provision of this subsection, at the election of a participant who is an employee of a church or a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), contributions and other additions for an annuity contract or retirement income account described in section 403(b) with respect to such participant, when expressed as an annual addition to such participant's account, shall be treated as not exceeding the limitation of paragraph (1) if such annual addition is not in excess of $10,000.
(ii) $40,000 aggregate limitation
The total amount of additions with respect to any participant which may be taken into account for purposes of this subparagraph for all years may not exceed $40,000.
(B) Number of years of service for duly ordained, commissioned, or licensed ministers or lay employees
For purposes of this paragraph—
(i) all years of service by—
(I) a duly ordained, commissioned, or licensed minister of a church, or
(II) a lay person,
as an employee of a church, a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), shall be considered as years of service for 1 employer, and
(ii) all amounts contributed for annuity contracts by each such church (or convention or association of churches) or such organization during such years for such minister or lay person shall be considered to have been contributed by 1 employer.
(C) Foreign missionaries
In the case of any individual described in subparagraph (B) performing services outside the United States, contributions and other additions for an annuity contract or retirement income account described in section 403(b) with respect to such employee, when expressed as an annual addition to such employee's account, shall not be treated as exceeding the limitation of paragraph (1) if such annual addition is not in excess of $3,000. This subparagraph shall not apply with respect to any taxable year to any individual whose adjusted gross income for such taxable year (determined separately and without regard to community property laws) exceeds $17,000.
(D) Annual addition
For purposes of this paragraph, the term "annual addition" has the meaning given such term by paragraph (2).
(E) Church, convention or association of churches
For purposes of this paragraph, the terms "church" and "convention or association of churches" have the same meaning as when used in section 414(e).
(8) Special rule for difficulty of care payments excluded from gross income
(A) In general
For purposes of paragraph (1)(B), in the case of an individual who for a taxable year excludes from gross income under section 131 a qualified foster care payment which is a difficulty of care payment, the participant's compensation, or earned income, as the case may be, shall be increased by the amount so excluded.
(B) Contributions allocable to difficulty of care payments treated as after-tax
Any contribution by the participant which is allowable due to such increase—
(i) shall be treated for purposes of this title as investment in the contract, and
(ii) shall not cause a plan (and any arrangement which is part of such plan) to be treated as failing to meet any requirements of this chapter solely by reason of allowing any such contributions.
(d) Cost-of-living adjustments
(1) In general
The Secretary shall adjust annually—
(A) the $160,000 amount in subsection (b)(1)(A),
(B) in the case of a participant who is separated from service, the amount taken into account under subsection (b)(1)(B), and
(C) the $40,000 amount in subsection (c)(1)(A),
for increases in the cost-of-living in accordance with regulations prescribed by the Secretary.
(2) Method
The regulations prescribed under paragraph (1) shall provide for—
(A) an adjustment with respect to any calendar year based on the increase in the applicable index for the calendar quarter ending September 30 of the preceding calendar year over such index for the base period, and
(B) adjustment procedures which are similar to the procedures used to adjust benefit amounts under section 215(i)(2)(A) of the Social Security Act.
(3) Base period
For purposes of paragraph (2)—
(A) $160,000 amount
The base period taken into account for purposes of paragraph (1)(A) is the calendar quarter beginning July 1, 2001.
(B) Separations after December 31, 1994
The base period taken into account for purposes of paragraph (1)(B) with respect to individuals separating from service with the employer after December 31, 1994, is the calendar quarter beginning July 1 of the calendar year preceding the calendar year in which such separation occurs.
(C) Separations before January 1, 1995
The base period taken into account for purposes of paragraph (1)(B) with respect to individuals separating from service with the employer before January 1, 1995, is the calendar quarter beginning October 1 of the calendar year preceding the calendar year in which such separation occurs.
(D) $40,000 amount
The base period taken into account for purposes of paragraph (1)(C) is the calendar quarter beginning July 1, 2001.
(4) Rounding
(A) $160,000 amount
Any increase under subparagraph (A) of paragraph (1) which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000. This subparagraph shall also apply for purposes of any provision of this title that provides for adjustments in accordance with the method contained in this subsection, except to the extent provided in such provision.
(B) $40,000 amount
Any increase under subparagraph (C) of paragraph (1) which is not a multiple of $1,000 shall be rounded to the next lowest multiple of $1,000.
[(e) Repealed. Pub. L. 104–188, title I, §1452(a), Aug. 20, 1996, 110 Stat. 1816 ]
(f) Combining of plans
(1) In general
For purposes of applying the limitations of subsections (b) and (c)—
(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) Exception for multiemployer plans
Notwithstanding paragraph (1) and subsection (g), a multiemployer plan (as defined in section 414(f)) shall not be combined or aggregated—
(A) with any other plan which is not a multiemployer plan for purposes of applying subsection (b)(1)(B) to such other plan, or
(B) with any other multiemployer plan for purposes of applying the limitations established in this section.
(g) Aggregation of plans
Except as provided in subsection (f)(2), the Secretary, 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 regulations prescribed by the Secretary, 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 subsection (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).
(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 may by regulations prescribe alternate methods for determining the amounts to be taken into account for such period.
(j) Regulations; definition of year
The Secretary 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 trust which is exempt from tax under section 501(a),
(B) an annuity plan described in section 403(a),
(C) an annuity contract described in section 403(b), or
(D) a simplified employee pension.
(2) Contributions to provide cost-of-living protection under defined benefit plans
(A) In general
In the case of a defined benefit plan which maintains a qualified cost-of-living arrangement—
(i) any contribution made directly by an employee under such an arrangement shall not be treated as an annual addition for purposes of subsection (c), and
(ii) any benefit under such arrangement which is allocable to an employer contribution which was transferred from a defined contribution plan and to which the requirements of subsection (c) were applied shall, for purposes of subsection (b), be treated as a benefit derived from an employee contribution (and subsection (c) shall not again apply to such contribution by reason of such transfer).
(B) Qualified cost-of-living arrangement defined
For purposes of this paragraph, the term "qualified cost-of-living arrangement" means an arrangement under a defined benefit plan which—
(i) provides a cost-of-living adjustment to a benefit provided under such plan or a separate plan subject to the requirements of section 412, and
(ii) meets the requirements of subparagraphs (C), (D), (E), and (F) and such other requirements as the Secretary may prescribe.
(C) Determination of amount of benefit
An arrangement meets the requirement of this subparagraph only if the cost-of-living adjustment of participants is based—
(i) on increases in the cost-of-living after the annuity starting date, and
(ii) on average cost-of-living increases determined by reference to 1 or more indexes prescribed by the Secretary, except that the arrangement may provide that the increase for any year will not be less than 3 percent of the retirement benefit (determined without regard to such increase).
(D) Arrangement elective; time for election
An arrangement meets the requirements of this subparagraph only if it is elective, it is available under the same terms to all participants, and it provides that such election may at least be made in the year in which the participant—
(i) attains the earliest retirement age under the defined benefit plan (determined without regard to any requirement of separation from service), or
(ii) separates from service.
(E) Nondiscrimination requirements
An arrangement shall not meet the requirements of this subparagraph if the Secretary finds that a pattern of discrimination exists with respect to participation.
(F) Special rules for key employees
(i) In general
An arrangement shall not meet the requirements of this paragraph if any key employee is eligible to participate.
(ii) Key employee
For purposes of this subparagraph, the term "key employee" has the meaning given such term by section 416(i)(1), except that in the case of a plan other than a top-heavy plan (within the meaning of section 416(g)), such term shall not include an individual who is a key employee solely by reason of section 416(i)(1)(A)(i).
(3) Repayments of cashouts under governmental plans
In the case of any repayment of contributions (including interest thereon) to the governmental plan with respect to an amount previously refunded upon a forfeiture of service credit under the plan or under another governmental plan maintained by a State or local government employer within the same State, any such repayment shall not be taken into account for purposes of this section.
(4) Special rules for sections 403(b) and 408
For purposes of this section, any annuity contract described in section 403(b) 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)). For purposes of this section, any contribution by an employer to a simplified employee pension plan for an individual for a taxable year shall be treated as an employer contribution to a defined contribution plan for such individual for such year.
(l) Treatment of certain medical benefits
(1) In general
For purposes of this section, contributions allocated to any individual medical benefit account which is part of a pension or annuity plan shall be treated as an annual addition to a defined contribution plan for purposes of subsection (c). Subparagraph (B) of subsection (c)(1) shall not apply to any amount treated as an annual addition under the preceding sentence.
(2) Individual medical benefit account
For purposes of paragraph (1), the term "individual medical benefit account" means any separate account—
(A) which is established for a participant under a pension or annuity plan, and
(B) from which benefits described in section 401(h) are payable solely to such participant, his spouse, or his dependents.
(m) Treatment of qualified governmental excess benefit arrangements
(1) Governmental plan not affected
In determining whether a governmental plan (as defined in section 414(d)) meets the requirements of this section, benefits provided under a qualified governmental excess benefit arrangement shall not be taken into account. Income accruing to a governmental plan (or to a trust that is maintained solely for the purpose of providing benefits under a qualified governmental excess benefit arrangement) in respect of a qualified governmental excess benefit arrangement shall constitute income derived from the exercise of an essential governmental function upon which such governmental plan (or trust) shall be exempt from tax under section 115.
(2) Taxation of participant
For purposes of this chapter—
(A) the taxable year or years for which amounts in respect of a qualified governmental excess benefit arrangement are includible in gross income by a participant, and
(B) the treatment of such amounts when so includible by the participant,
shall be determined as if such qualified governmental excess benefit arrangement were treated as a plan for the deferral of compensation which is maintained by a corporation not exempt from tax under this chapter and which does not meet the requirements for qualification under section 401.
(3) Qualified governmental excess benefit arrangement
For purposes of this subsection, the term "qualified governmental excess benefit arrangement" means a portion of a governmental plan if—
(A) such portion is maintained solely for the purpose of providing to participants in the plan that part of the participant's annual benefit otherwise payable under the terms of the plan that exceeds the limitations on benefits imposed by this section,
(B) under such portion no election is provided at any time to the participant (directly or indirectly) to defer compensation, and
(C) benefits described in subparagraph (A) are not paid from a trust forming a part of such governmental plan unless such trust is maintained solely for the purpose of providing such benefits.
(n) Special rules relating to purchase of permissive service credit
(1) In general
If a participant makes 1 or more contributions to a defined benefit governmental plan (within the meaning of section 414(d)) to purchase permissive service credit under such plan, then the requirements of this section shall be treated as met only if—
(A) the requirements of subsection (b) are met, determined by treating the accrued benefit derived from all such contributions as an annual benefit for purposes of subsection (b), or
(B) the requirements of subsection (c) are met, determined by treating all such contributions as annual additions for purposes of subsection (c).
(2) Application of limit
For purposes of—
(A) applying paragraph (1)(A), the plan shall not fail to meet the reduced limit under subsection (b)(2)(C) solely by reason of this subsection, and
(B) applying paragraph (1)(B), the plan shall not fail to meet the percentage limitation under subsection (c)(1)(B) solely by reason of this subsection.
(3) Permissive service credit
For purposes of this subsection—
(A) In general
The term "permissive service credit" means service credit—
(i) recognized by the governmental plan for purposes of calculating a participant's benefit under the plan,
(ii) which such participant has not received under such governmental plan, and
(iii) which such participant may receive only by making a voluntary additional contribution, in an amount determined under such governmental plan, which does not exceed the amount necessary to fund the benefit attributable to such service credit.
Such term may include service credit for periods for which there is no performance of service, and, notwithstanding clause (ii), may include service credited in order to provide an increased benefit for service credit which a participant is receiving under the plan.
(B) Limitation on nonqualified service credit
A plan shall fail to meet the requirements of this section if—
(i) more than 5 years of nonqualified service credit are taken into account for purposes of this subsection, or
(ii) any nonqualified service credit is taken into account under this subsection before the employee has at least 5 years of participation under the plan.
(C) Nonqualified service credit
For purposes of subparagraph (B), the term "nonqualified service credit" means permissive service credit other than that allowed with respect to—
(i) service (including parental, medical, sabbatical, and similar leave) as an employee of the Government of the United States, any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing (other than military service or service for credit which was obtained as a result of a repayment described in subsection (k)(3)),
(ii) service (including parental, medical, sabbatical, and similar leave) as an employee (other than as an employee described in clause (i)) of an educational organization described in section 170(b)(1)(A)(ii) which is a public, private, or sectarian school which provides elementary or secondary education (through grade 12), or a comparable level of education, as determined under the applicable law of the jurisdiction in which the service was performed,
(iii) service as an employee of an association of employees who are described in clause (i), or
(iv) military service (other than qualified military service under section 414(u)) recognized by such governmental plan.
In the case of service described in clause (i), (ii), or (iii), such service will be nonqualified service if recognition of such service would cause a participant to receive a retirement benefit for the same service under more than one plan.
(D) Special rules for trustee-to-trustee transfers
In the case of a trustee-to-trustee transfer to which section 403(b)(13)(A) or 457(e)(17)(A) applies (without regard to whether the transfer is made between plans maintained by the same employer)—
(i) the limitations of subparagraph (B) shall not apply in determining whether the transfer is for the purchase of permissive service credit, and
(ii) the distribution rules applicable under this title to the defined benefit governmental plan to which any amounts are so transferred shall apply to such amounts and any benefits attributable to such amounts.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table under
Editorial Notes
References in Text
The Social Security Act, referred to in subsecs. (b)(8) and (d)(2)(B), is act Aug. 14, 1935, ch. 531,
The date of the enactment of this clause, referred to in subsec. (b)(10)(C)(ii), is the date of enactment of
Amendments
2022—Subsec. (b)(12).
2019—Subsec. (c)(8).
2018—Subsec. (g).
2008—Subsec. (b)(2)(E)(v).
Subsec. (b)(2)(E)(vi).
Subsec. (b)(10).
Subsec. (f)(2), (3).
2006—Subsec. (b)(2)(E)(ii).
Subsec. (b)(2)(H)(i).
Subsec. (b)(2)(H)(ii)(I).
Subsec. (b)(3).
Subsec. (b)(10).
Subsec. (b)(10)(A).
Subsec. (b)(11).
Subsec. (n)(1).
Subsec. (n)(3)(A).
Subsec. (n)(3)(B)(i), (ii).
Subsec. (n)(3)(C).
Subsec. (n)(3)(C)(ii).
Subsec. (n)(3)(D).
2005—Subsec. (c)(7)(C).
Subsec. (l)(1).
Subsec. (n)(3)(C).
2004—Subsec. (b)(2)(E)(ii).
Subsec. (c)(7)(C).
Subsec. (d)(4)(A).
2002—Subsec. (c)(7).
2001—Subsec. (a)(2).
Subsec. (b)(1)(A).
Subsec. (b)(2)(A), (B).
Subsec. (b)(2)(C).
Subsec. (b)(2)(D).
Subsec. (b)(2)(F).
Subsec. (b)(7).
Subsec. (b)(9).
Subsec. (b)(10)(C)(i).
Subsec. (b)(11).
Subsec. (c)(1)(A).
Subsec. (c)(1)(B).
Subsec. (c)(2).
Subsec. (c)(3)(E).
Subsec. (c)(4).
Subsec. (c)(7).
Subsec. (d)(1)(A).
Subsec. (d)(1)(C).
Subsec. (d)(3)(A).
Subsec. (d)(3)(D).
Subsec. (d)(4).
Subsec. (f)(3).
Subsec. (g).
Subsec. (k)(4).
2000—Subsec. (c)(3)(D)(ii).
1997—Subsec. (b)(2)(G).
"(i) subparagraph (C) shall not reduce the limitation of paragraph (1)(A) to an amount less than $50,000, and
"(ii) the rules of subparagraph (F) shall apply.
The Secretary shall adjust the $50,000 amount in clause (i) at the same time and in the same manner as under section 415(d)."
Subsec. (c)(6).
Subsec. (e)(6), (7).
Subsec. (k)(3).
Subsec. (n).
1996—Subsec. (a)(1).
Subsec. (b)(2)(E)(i).
Subsec. (b)(2)(E)(ii).
Subsec. (b)(2)(I).
Subsec. (b)(5)(B).
Subsec. (b)(10)(C).
Subsec. (b)(11).
Subsec. (c)(3)(C).
Subsec. (c)(3)(D).
Subsec. (e).
Subsec. (f)(1).
Subsec. (g).
Subsec. (k)(1)(C) to (F).
"(D) an individual retirement account described in section 408(a),
"(E) an individual retirement annuity described in section 408(b), or".
Subsec. (k)(2)(A)(i).
"(I) shall not be treated as an annual addition for purposes of subsection (c), but
"(II) shall be so treated for purposes of subsection (e), and".
Subsec. (k)(2)(A)(ii).
Subsec. (m).
1994—Subsec. (b)(2)(E).
Subsec. (c)(1)(A).
Subsec. (d).
1992—Subsecs. (b)(2)(A), (B), (c)(2).
1989—Subsec. (c)(6).
1988—Subsec. (b)(2)(H)(ii).
Subsec. (b)(5)(B).
Subsec. (b)(5)(D).
Subsec. (b)(10).
Subsec. (c)(6)(A).
Subsec. (k).
Subsec. (k)(2)(C)(ii).
Subsec. (k)(2)(D).
"(i) the year in which the participant—
"(I) attains the earliest retirement age under the defined benefit plan (determined without regard to any requirement of separation from service), or
"(II) separates from service, or
"(ii) both such years."
Subsec. (l)(1).
1986—Subsec. (b)(2)(B).
Subsec. (b)(2)(C).
"(i) if the benefit begins at or after age 55, $75,000, or
"(ii) if the benefit begins before age 55, the amount which is the equivalent of the $75,000 limitation for age 55."
Subsec. (b)(2)(D).
Subsec. (b)(2)(E)(iii).
Subsec. (b)(2)(F) to (H).
Subsec. (b)(5).
Subsec. (b)(8).
Subsec. (b)(9).
Subsec. (c)(1)(A).
Subsec. (c)(2).
Subsec. (c)(2)(B).
"(i) the amount of the employee contributions in excess of 6 percent of his compensation, or
"(ii) one-half of the employee contributions, and".
Subsec. (c)(3)(C).
Subsec. (c)(3)(C)(i).
Subsec. (c)(3)(C)(ii).
Subsec. (c)(4)(A) to (C).
Subsec. (c)(6)(A).
Subsec. (c)(6)(B)(iii), (iv).
"(iii) an employee described in this clause is any participant whose compensation for a year exceeds an amount equal to twice the amount described in paragraph (1)(A) for such year (as adjusted for such year pursuant to subsection (d)(1)), determined without regard to subparagraph (A) of this paragraph, and
"(iv) an individual shall be considered to own more than 10 percent of the employer's stock if, without regard to stock held under the employee stock ownership plan, he owns (after application of section 1563(e)) more than 10 percent of the total combined voting power of all classes of stock entitled to vote or more than 10 percent of the total value of shares of all classes of stock."
Subsec. (c)(6)(C).
Subsec. (d)(1)(B), (C).
Subsec. (d)(2)(A).
Subsec. (d)(2)(B).
Subsec. (d)(3).
Subsec. (k).
Subsec. (k)(2).
Subsec. (l).
1984—Subsec. (a)(2).
Subsec. (b)(2)(A), (B).
Subsec. (b)(2)(C).
Subsec. (b)(2)(D).
Subsec. (b)(2)(E).
Subsec. (c)(2).
Subsec. (c)(3)(C).
Subsec. (c)(6)(B)(ii).
Subsec. (c)(6)(C).
Subsec. (c)(7), (8).
Subsec. (d)(2)(A).
Subsec. (d)(3).
Subsec. (e)(3)(B)(ii)(II).
Subsec. (e)(6)(C).
Subsec. (k)(1).
Subsec. (l).
1983—Subsec. (c)(3)(C)(i).
1982—Subsec. (b)(1)(A).
Subsec. (b)(2)(C).
Subsec. (b)(2)(D), (E).
Subsec. (b)(7).
Subsec. (c)(1)(A).
Subsec. (c)(3).
Subsec. (c)(4).
Subsec. (c)(5).
Subsec. (c)(8).
Subsec. (d)(1).
Subsec. (d)(2)(A).
Subsec. (d)(3).
Subsec. (e)(1).
Subsec. (e)(2)(B).
Subsec. (e)(3)(B).
Subsec. (e)(6).
1981—Subsec. (a)(2).
Subsec. (a)(3).
Subsec. (c)(2).
Subsec. (c)(6)(C).
Subsec. (e)(5).
1980—Subsec. (b)(7).
Subsec. (c)(6)(A).
Subsec. (c)(6)(B)(i).
Subsec. (e)(5).
1978—Subsec. (a)(2).
Subsec. (b)(7).
Subsec. (c)(6)(B)(i).
Subsec. (c)(6)(B)(ii).
Subsec. (e)(5).
Subsec. (k)(1)(G), (H).
1976—Subsec. (a)(2).
Subsec. (a)(3).
Subsec. (b)(2)(A).
Subsec. (b)(2)(B).
Subsec. (b)(2)(C), (6).
Subsec. (c)(4).
Subsec. (c)(5).
Subsec. (c)(6).
Subsec. (c)(7).
Subsec. (d)(1).
Subsec. (e)(3)(B).
Subsec. (e)(5).
Subsecs. (g), (i), (j).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Effective Date of 2019 Amendment
Effective Date of 2008 Amendment
"(I) Except as provided in subclause (II), the amendment made by clause (i) [amending this section] shall apply to years beginning after December 31, 2008.
"(II) A plan sponsor may elect to have the amendment made by clause (i) apply to any year beginning after December 31, 2007, and before January 1, 2009, or to any portion of any such year."
Amendment by sections 108(g) and 109(d)(1) of
Effective Date of 2006 Amendment
"(1)
"(2)
Amendment by section 906(b)(1)(A), (B) of
Effective Date of 2005 Amendment
Amendment by section 407(b) of
Effective Date of 2004 Amendments
Amendment by section 404(b)(2) of
Amendment by
Effective Date of 2002 Amendment
Amendment by
Effective Date of 2001 Amendment
"(1)
"(2)
"(3)
"(A) is adopted on or before June 30, 2002,
"(B) reduces benefits to the level that would have applied without regard to the amendments made by subsection (a) of this section, and
"(C) is effective no earlier than the years described in paragraph (2)."
Amendment by section 632(a)(1), (3)(C)–(F) of
"(A)
"(B)
Amendment by section 641(e)(9), (10) of
Effective Date of 2000 Amendment
Amendment by
Effective Date of 1997 Amendment
"(1)
"(2)
"(A)
"(B)
Amendment by section 1530(c)(3), (4) of
Effective Date of 1996 Amendment
Amendment by section 1434(a) of
"(1)
"(2)
"(1)
"(2)
Effective Date of 1994 Amendment
Amendment by section 732(b) of
Amendment by section 767(b) of
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1989 Amendment
Effective Date of 1988 Amendment
Amendment by sections 1011(d)(2), (3), (6), (7) and 1018(t)(3)(B), (8)(D) of
"(1)
"(2)
Effective Date of 1986 Amendment
"(1)
"(2)
"(3)
"(A)
"(B)
"(i)
"(ii)
"(I) no change in the terms and conditions of the plan after May 5, 1986, and
"(II) no cost-of-living adjustment occurring after May 5, 1986,
shall be taken into account. For purposes of subclause (I), any change in the terms and conditions of the plan pursuant to a collective bargaining agreement ratified before May 6, 1986, shall be treated as a change made before May 6, 1986.
"(4)
"(5)
"(A)
"(B)
"(i) the later of—
"(I) the date determined under paragraph (2)(A), or
"(II) January 1, 1989, or
"(ii) January 1, 1991.
"(6)
[
Amendment by section 1108(g)(5) of
Amendment by section 1114(b)(12) of
Amendment by sections 1847(b)(4), 1852(h)(2), (3), and 1875(c)(9), (11) of
Amendment by section 1898(b)(15)(C) of
Effective Date of 1984 Amendment
Amendment by section 15 of
Amendment by section 491(d)(28)–(32) of
Amendment by section 491(e)(6) of
Amendment by section 528(a) of
Amendment by section 713 of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1982 Amendment
"(1)
"(A)
"(B)
"(i) In the case of any plan which is in existence on July 1, 1982, the amendments made by this section [amending this section and
"(ii)
"(2)
"(A)
"(B)
"(3)
"(4)
"(A)
"(B)
"(i)
"(ii)
"(I) no change in the terms and conditions of the plan after July 1, 1982, and
"(II) no cost-of-living adjustment occurring after July 1, 1982,
shall be taken into account. For purposes of subclause (I), any change in the terms and conditions of the plan pursuant to a collective bargaining agreement entered into before July 1, 1982, and ratified before September 3, 1982, shall be treated as a change made before July 1, 1982.
"(5)
"(A) 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 [Sept. 3, 1982]), or
"(B) January 1, 1986.
For purposes of subparagraph (A), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section and section 242 shall not be treated as a termination of such collective bargaining agreement."
Amendment by section 238(d)(5) of
Amendment by section 251(c)(1), (2) of
Amendment by section 253(a) of
Effective Date of 1981 Amendment
Amendment by section 311(g)(4), (h)(3) of
Effective Date of 1980 Amendments
Amendment by section 101(a)(7)(L)(i)(VII), (iv)(i), (10)(J)(iii), (11) of
Effective Date of 1978 Amendment
Amendment by section 141(f)(7) of
Amendment by section 152(g) of
Effective Date of 1976 Amendment
Amendment by section 803(b)(4), (f) of
Amendment by section 1501(b)(3) of
Amendment by section 1901(a)(65), (b)(8)(D) of
Effective Date; Transition Provisions
"(1)
"(2)
"(A) the annual benefit (within the meaning of section 415(b)(2) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) payable 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 1986."
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of
Savings Provision
For provisions that nothing in amendment by
Plans May Incorporate Section 415 Limitations by Reference
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Special Rule for Certain Plans in Effect on September 2, 1974
"(A) the defined benefit plan fraction is not increased, by amendment of the plan or otherwise, after
"(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 1986 [formerly I.R.C. 1954] on account of the provisions of section 415(e) of such Code, as long as it is described in the preceding sentence of this subsection."
§416. Special rules for top-heavy plans
(a) General rule
A trust shall not constitute a qualified trust under section 401(a) for any plan year if the plan of which it is a part is a top-heavy plan for such plan year unless such plan meets—
(1) the vesting requirements of subsection (b), and
(2) the minimum benefit requirements of subsection (c).
(b) Vesting requirements
(1) In general
A plan satisfies the requirements of this subsection if it satisfies the requirements of either of the following subparagraphs:
(A) 3-year vesting
A plan satisfies the requirements of this subparagraph if an employee who has completed at least 3 years of service with the employer or employers maintaining the plan has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions.
(B) 6-year graded vesting
A plan satisfies the requirements of this subparagraph if an employee has a nonforfeitable right to a percentage of his accrued benefit derived from employer contributions determined under the following table:
| Years of service | The nonforfeitable percentage is: |
|---|---|
| 2 | 20 |
| 3 | 40 |
| 4 | 60 |
| 5 | 80 |
| 6 or more | 100 |
(2) Certain rules made applicable
Except to the extent inconsistent with the provisions of this subsection, the rules of section 411 shall apply for purposes of this subsection.
(c) Plan must provide minimum benefits
(1) Defined benefit plans
(A) In general
A defined benefit plan meets the requirements of this subsection if the accrued benefit derived from employer contributions of each participant who is a non-key employee, when expressed as an annual retirement benefit, is not less than the applicable percentage of the participant's average compensation for years in the testing period.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable percentage" means the lesser of—
(i) 2 percent multiplied by the number of years of service with the employer, or
(ii) 20 percent.
(C) Years of service
For purposes of this paragraph—
(i) In general
Except as provided in clause (ii) or (iii), years of service shall be determined under the rules of paragraphs (4), (5), and (6) of section 411(a).
(ii) Exception for years during which plan was not top-heavy
A year of service with the employer shall not be taken into account under this paragraph if—
(I) the plan was not a top-heavy plan for any plan year ending during such year of service, or
(II) such year of service was completed in a plan year beginning before January 1, 1984.
(iii) Exception for plan under which no key employee (or former key employee) benefits for plan year
For purposes of determining an employee's years of service with the employer, any service with the employer shall be disregarded to the extent that such service occurs during a plan year when the plan benefits (within the meaning of section 410(b)) no key employee or former key employee.
(D) Average compensation for high 5 years
For purposes of this paragraph—
(i) In general
A participant's testing period shall be the period of consecutive years (not exceeding 5) during which the participant had the greatest aggregate compensation from the employer.
(ii) Year must be included in year of service
The years taken into account under clause (i) shall be properly adjusted for years not included in a year of service.
(iii) Certain years not taken into account
Except to the extent provided in the plan, a year shall not be taken into account under clause (i) if—
(I) such year ends in a plan year beginning before January 1, 1984, or
(II) such year begins after the close of the last year in which the plan was a top-heavy plan.
(E) Annual retirement benefit
For purposes of this paragraph, the term "annual retirement benefit" means a benefit payable annually in the form of a single life annuity (with no ancillary benefits) beginning at the normal retirement age under the plan.
(2) Defined contribution plans
(A) In general
A defined contribution plan meets the requirements of the subsection if the employer contribution for the year for each participant who is a non-key employee is not less than 3 percent of such participant's compensation (within the meaning of section 415). Employer matching contributions (as defined in section 401(m)(4)(A)) shall be taken into account for purposes of this subparagraph (and any reduction under this sentence shall not be taken into account in determining whether section 401(k)(4)(A) applies).
(B) Special rule where maximum contribution less than 3 percent
(i) In general
The percentage referred to in subparagraph (A) for any year shall not exceed the percentage at which contributions are made (or required to be made) under the plan for the year for the key employee for whom such percentage is the highest for the year.
(ii) Treatment of aggregation groups
(I) For purposes of this subparagraph, all defined contribution plans required to be included in an aggregation group under subsection (g)(2)(A)(i) shall be treated as one plan.
(II) This subparagraph shall not apply to any plan required to be included in an aggregation group if such plan enables a defined benefit plan required to be included in such group to meet the requirements of section 401(a)(4) or 410.
(C) Application to employees not meeting age and service requirements
Any employees not meeting the age or service requirements of section 410(a)(1) (without regard to subparagraph (B) thereof) may be excluded from consideration in determining whether any plan of the employer meets the requirements of subparagraphs (A) and (B).
[(d) Repealed. Pub. L. 99–514, title XI, §1106(d)(3)(B)(i), Oct. 22, 1986, 100 Stat. 2424 ]
(e) Plan must meet requirements without taking into account social security and similar contributions and benefits
A top-heavy plan shall not be treated as meeting the requirement of subsection (b) or (c) unless such plan meets such requirement without taking into account contributions or benefits under
(f) Coordination where employer has 2 or more plans
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section where the employer has 2 or more plans including (but not limited to) regulations to prevent inappropriate omissions or required duplication of minimum benefits or contributions.
(g) Top-heavy plan defined
For purposes of this section—
(1) In general
(A) Plans not required to be aggregated
Except as provided in subparagraph (B), the term "top-heavy plan" means, with respect to any plan year—
(i) any defined benefit plan if, as of the determination date, the present value of the cumulative accrued benefits under the plan for key employees exceeds 60 percent of the present value of the cumulative accrued benefits under the plan for all employees, and
(ii) any defined contribution plan if, as of the determination date, the aggregate of the accounts of key employees under the plan exceeds 60 percent of the aggregate of the accounts of all employees under such plan.
(B) Aggregated plans
Each plan of an employer required to be included in an aggregation group shall be treated as a top-heavy plan if such group is a top-heavy group.
(2) Aggregation
For purposes of this subsection—
(A) Aggregation group
(i) Required aggregation
The term "aggregation group" means—
(I) each plan of the employer in which a key employee is a participant, and
(II) each other plan of the employer which enables any plan described in subclause (I) to meet the requirements of section 401(a)(4) or 410.
(ii) Permissive aggregation
The employer may treat any plan not required to be included in an aggregation group under clause (i) as being part of such group if such group would continue to meet the requirements of sections 401(a)(4) and 410 with such plan being taken into account.
(B) Top-heavy group
The term "top-heavy group" means any aggregation group if—
(i) the sum (as of the determination date) of—
(I) the present value of the cumulative accrued benefits for key employees under all defined benefit plans included in such group, and
(II) the aggregate of the accounts of key employees under all defined contribution plans included in such group,
(ii) exceeds 60 percent of a similar sum determined for all employees.
(3) Distributions during last year before determination date taken into account
(A) In general
For purposes of determining—
(i) the present value of the cumulative accrued benefit for any employee, or
(ii) the amount of the account of any employee,
such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group.
(B) 5-year period in case of in-service distribution
In the case of any distribution made for a reason other than severance from employment, death, or disability, subparagraph (A) shall be applied by substituting "5-year period" for "1-year period".
(4) Other special rules
For purposes of this subsection—
(A) Rollover contributions to plan not taken into account
Except to the extent provided in regulations, any rollover contribution (or similar transfer) initiated by the employee and made after December 31, 1983, to a plan shall not be taken into account with respect to the transferee plan for purposes of determining whether such plan is a top-heavy plan (or whether any aggregation group which includes such plan is a top-heavy group).
(B) Benefits not taken into account if employee ceases to be key employee
If any individual is a non-key employee with respect to any plan for any plan year, but such individual was a key employee with respect to such plan for any prior plan year, any accrued benefit for such employee (and the account of such employee) shall not be taken into account.
(C) Determination date
The term "determination date" means, with respect to any plan year—
(i) the last day of the preceding plan year, or
(ii) in the case of the first plan year of any plan, the last day of such plan year.
(D) Years
To the extent provided in regulations, this section shall be applied on the basis of any year specified in such regulations in lieu of plan years.
(E) Benefits not taken into account if employee not employed for last year before determination date
If any individual has not performed services for the employer maintaining the plan at any time during the 1-year period ending on the determination date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account.
(F) Accrued benefits treated as accruing ratably
The accrued benefit of any employee (other than a key employee) shall be determined—
(i) under the method which is used for accrual purposes for all plans of the employer, or
(ii) if there is no method described in clause (i), as if such benefit accrued not more rapidly than the slowest accrual rate permitted under section 411(b)(1)(C).
(G) Simple retirement accounts
The term "top-heavy plan" shall not include a simple retirement account under section 408(p).
(H) Cash or deferred arrangements or plans using alternative methods of meeting nondiscrimination requirements
The term "top-heavy plan" shall not include a plan which consists solely of—
(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13) and matching contributions with respect to which the requirements of paragraph (11), (12), or (13) of section 401(m) are met, or
(ii) a starter 401(k) deferral-only arrangement described in section 401(k)(16)(B) or a safe harbor deferral-only plan described in section 403(b)(16).
Such term shall not include a plan solely because such plan does not provide nonelective or matching contributions to employees described in section 401(k)(15)(B)(i). If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection (c)(2).
[(h) Repealed. Pub. L. 104–188, title I, §1452(c)(7), Aug. 20, 1996, 110 Stat. 1816 ]
(i) Definitions
For purposes of this section—
(1) Key employee
(A) In general
The term "key employee" means an employee who, at any time during the plan year, is—
(i) an officer of the employer having an annual compensation greater than $130,000,
(ii) a 5-percent owner of the employer, or
(iii) a 1-percent owner of the employer having an annual compensation from the employer of more than $150,000.
For purposes of clause (i), no more than 50 employees (or, if lesser, the greater of 3 or 10 percent of the employees) shall be treated as officers. In the case of plan years beginning after December 31, 2002, the $130,000 amount in clause (i) shall be adjusted at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000. Such term shall not include any officer or employee of an entity referred to in section 414(d) (relating to governmental plans). For purposes of determining the number of officers taken into account under clause (i), employees described in section 414(q)(5) shall be excluded.
(B) Percentage owners
(i) 5-percent owner
For purposes of this paragraph, the term "5-percent owner" means—
(I) if the employer is a corporation, any person who owns (or is considered as owning within the meaning of section 318) more than 5 percent of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation, or
(II) if the employer is not a corporation, any person who owns more than 5 percent of the capital or profits interest in the employer.
(ii) 1-percent owner
For purposes of this paragraph, the term "1-percent owner" means any person who would be described in clause (i) if "1 percent" were substituted for "5 percent" each place it appears in clause (i).
(iii) Constructive ownership rules
For purposes of this subparagraph—
(I) subparagraph (C) of section 318(a)(2) shall be applied by substituting "5 percent" for "50 percent", and
(II) in the case of any employer which is not a corporation, ownership in such employer shall be determined in accordance with regulations prescribed by the Secretary which shall be based on principles similar to the principles of section 318 (as modified by subclause (I)).
(C) Aggregation rules do not apply for purposes of determining ownership in the employer
The rules of subsections (b), (c), and (m) of section 414 shall not apply for purposes of determining ownership in the employer.
(D) Compensation
For purposes of this paragraph, the term "compensation" has the meaning given such term by section 414(q)(4).
(2) Non-key employee
The term "non-key employee" means any employee who is not a key employee.
(3) Self-employed individuals
In the case of a self-employed individual described in section 401(c)(1)—
(A) such individual shall be treated as an employee, and
(B) such individual's earned income (within the meaning of section 401(c)(2)) shall be treated as compensation.
(4) Treatment of employees covered by collective bargaining agreements
The requirements of subsections (b), (c), and (d) shall not apply with respect to any employee included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and 1 or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers.
(5) Treatment of beneficiaries
The terms "employee" and "key employee" include their beneficiaries.
(6) Treatment of simplified employee pensions
(A) Treatment as defined contribution plans
A simplified employee pension shall be treated as a defined contribution plan.
(B) Election to have determinations based on employer contributions
In the case of a simplified employee pension, at the election of the employer, paragraphs (1)(A)(ii) and (2)(B) of subsection (g) shall be applied by taking into account aggregate employer contributions in lieu of the aggregate of the accounts of employees.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table under
Editorial Notes
References in Text
The Federal Insurance Contributions Act, referred to in subsec. (e), is act Aug. 16, 1954, ch. 736, §§3101, 3102, 3111, 3112, 3121 to 3128,
The Social Security Act, referred to in subsec. (e), is act Aug. 14, 1935, ch. 531,
Amendments
2022—Subsec. (c)(2)(C).
Subsec. (g)(4)(H).
2006—Subsec. (g)(4)(H)(i).
Subsec. (g)(4)(H)(ii).
2004—Subsec. (i)(1)(A).
2002—Subsec. (c)(1)(C)(iii).
Subsec. (g)(3)(B).
2001—Subsec. (c)(1)(C)(i).
Subsec. (c)(1)(C)(iii).
Subsec. (c)(2)(A).
Subsec. (g)(3).
"(A) the present value of the cumulative accrued benefit for any employee, or
"(B) the amount of the account of any employee,
such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 5-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group."
Subsec. (g)(4)(E).
Subsec. (g)(4)(H).
Subsec. (i)(1)(A).
Subsec. (i)(1)(A)(i).
Subsec. (i)(1)(A)(ii)–(iv).
Subsec. (i)(1)(B)(iii).
1996—Subsec. (g)(4)(G).
Subsec. (h).
Subsec. (i)(1)(A).
Subsec. (i)(1)(D).
1988—Subsec. (i)(1)(A).
Subsec. (i)(1)(A)(i).
Subsec. (i)(1)(D).
1986—Subsec. (a)(3).
Subsec. (c)(2)(B)(ii), (iii).
Subsec. (d).
Subsec. (g)(4)(E).
Subsec. (g)(4)(F).
Subsec. (i)(1)(A).
1984—Subsec. (c)(2)(C).
Subsec. (d)(2).
Subsec. (f).
Subsec. (g)(3).
Subsec. (g)(4)(E).
Subsec. (i)(1)(A).
Subsec. (i)(1)(A)(i).
Subsec. (i)(1)(A)(ii).
Subsec. (i)(1)(B)(iii).
Subsec. (i)(1)(C).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by section 121(c) of
Amendment by section 125(e) of
Effective Date of 2006 Amendment
Amendment by
Effective Date of 2002 Amendment
Amendment by
Effective Date of 2001 Amendment
Effective Date of 1996 Amendment
Amendment by section 1421(b)(7) of
Amendment by section 1431(c)(1)(B), (C) of
Amendment by section 1452(c)(7) of
Effective Date of 1988 Amendment
Amendment by section 1011(d)(8), (i)(4)(B) of
Effective Date of 1986 Amendment
Amendment by section 1106(d)(3)(A), (B) of
Amendment by section 1852(d) of
Effective Date of 1984 Amendment
Amendment by section 713 of
Effective Date
"(a)
"(b)
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§417. Definitions and special rules for purposes of minimum survivor annuity requirements
(a) Election to waive qualified joint and survivor annuity or qualified preretirement survivor annuity
(1) In general
A plan meets the requirements of section 401(a)(11) only if—
(A) under the plan, each participant—
(i) may elect at any time during the applicable election period to waive the qualified joint and survivor annuity form of benefit or the qualified preretirement survivor annuity form of benefit (or both),
(ii) if the participant elects a waiver under clause (i), may elect the qualified optional survivor annuity at any time during the applicable election period, and
(iii) may revoke any such election at any time during the applicable election period, and
(B) the plan meets the requirements of paragraphs (2), (3), and (4) of this subsection.
(2) Spouse must consent to election
Each plan shall provide that an election under paragraph (1)(A)(i) shall not take effect unless—
(A)(i) the spouse of the participant consents in writing to such election, (ii) such election designates a beneficiary (or a form of benefits) which may not be changed without spousal consent (or the consent of the spouse expressly permits designations by the participant without any requirement of further consent by the spouse), and (iii) the spouse's consent acknowledges the effect of such election and is witnessed by a plan representative or a notary public, or
(B) it is established to the satisfaction of a plan representative that the consent required under subparagraph (A) may not be obtained because there is no spouse, because the spouse cannot be located, or because of such other circumstances as the Secretary may by regulations prescribe.
Any consent by a spouse (or establishment that the consent of a spouse may not be obtained) under the preceding sentence shall be effective only with respect to such spouse.
(3) Plan to provide written explanations
(A) Explanation of joint and survivor annuity
Each plan shall provide to each participant, within a reasonable period of time before the annuity starting date (and consistent with such regulations as the Secretary may prescribe), a written explanation of—
(i) the terms and conditions of the qualified joint and survivor annuity and of the qualified optional survivor annuity,
(ii) the participant's right to make, and the effect of, an election under paragraph (1) to waive the joint and survivor annuity form of benefit,
(iii) the rights of the participant's spouse under paragraph (2), and
(iv) the right to make, and the effect of, a revocation of an election under paragraph (1).
(B) Explanation of qualified preretirement survivor annuity
(i) In general
Each plan shall provide to each participant, within the applicable period with respect to such participant (and consistent with such regulations as the Secretary may prescribe), a written explanation with respect to the qualified preretirement survivor annuity comparable to that required under subparagraph (A).
(ii) Applicable period
For purposes of clause (i), the term "applicable period" means, with respect to a participant, whichever of the following periods ends last:
(I) The period beginning with the first day of the plan year in which the participant attains age 32 and ending with the close of the plan year preceding the plan year in which the participant attains age 35.
(II) A reasonable period after the individual becomes a participant.
(III) A reasonable period ending after paragraph (5) ceases to apply to the participant.
(IV) A reasonable period ending after section 401(a)(11) applies to the participant.
In the case of a participant who separates from service before attaining age 35, the applicable period shall be a reasonable period after separation.
(4) Requirement of spousal consent for using plan assets as security for loans
Each plan shall provide that, if section 401(a)(11) applies to a participant when part or all of the participant's accrued benefit is to be used as security for a loan, no portion of the participant's accrued benefit may be used as security for such loan unless—
(A) the spouse of the participant (if any) consents in writing to such use during the 90-day period ending on the date on which the loan is to be so secured, and
(B) requirements comparable to the requirements of paragraph (2) are met with respect to such consent.
(5) Special rules where plan fully subsidizes costs
(A) In general
The requirements of this subsection shall not apply with respect to the qualified joint and survivor annuity form of benefit or the qualified preretirement survivor annuity form of benefit, as the case may be, if such benefit may not be waived (or another beneficiary selected) and if the plan fully subsidizes the costs of such benefit.
(B) Definition
For purposes of subparagraph (A), a plan fully subsidizes the costs of a benefit if under the plan the failure to waive such benefit by a participant would not result in a decrease in any plan benefits with respect to such participant and would not result in increased contributions from such participant.
(6) Applicable election period defined
For purposes of this subsection, the term "applicable election period" means—
(A) in the case of an election to waive the qualified joint and survivor annuity form of benefit, the 180-day period ending on the annuity starting date, or
(B) in the case of an election to waive the qualified preretirement survivor annuity, the period which begins on the first day of the plan year in which the participant attains age 35 and ends on the date of the participant's death.
In the case of a participant who is separated from service, the applicable election period under subparagraph (B) with respect to benefits accrued before the date of such separation from service shall not begin later than such date.
(7) Special rules relating to time for written explanation
Notwithstanding any other provision of this subsection—
(A) Explanation may be provided after annuity starting date
(i) In general
A plan may provide the written explanation described in paragraph (3)(A) after the annuity starting date. In any case to which this subparagraph applies, the applicable election period under paragraph (6) shall not end before the 30th day after the date on which such explanation is provided.
(ii) Regulatory authority
The Secretary may by regulations limit the application of clause (i), except that such regulations may not limit the period of time by which the annuity starting date precedes the provision of the written explanation other than by providing that the annuity starting date may not be earlier than termination of employment.
(B) Waiver of 30-day period
A plan may permit a participant to elect (with any applicable spousal consent) to waive any requirement that the written explanation be provided at least 30 days before the annuity starting date (or to waive the 30-day requirement under subparagraph (A)) if the distribution commences more than 7 days after such explanation is provided.
(b) Definition of qualified joint and survivor annuity
For purposes of this section and section 401(a)(11), the term "qualified joint and survivor annuity" means an annuity—
(1) for the life of the participant with a survivor annuity for the life of the spouse which is not less than 50 percent of (and is not greater than 100 percent of) the amount of the annuity which is payable during the joint lives of the participant and the spouse, and
(2) which is the actuarial equivalent of a single annuity for the life of the participant.
Such term also includes any annuity in a form having the effect of an annuity described in the preceding sentence.
(c) Definition of qualified preretirement survivor annuity
For purposes of this section and section 401(a)(11)—
(1) In general
Except as provided in paragraph (2), the term "qualified preretirement survivor annuity" means a survivor annuity for the life of the surviving spouse of the participant if—
(A) the payments to the surviving spouse under such annuity are not less than the amounts which would be payable as a survivor annuity under the qualified joint and survivor annuity under the plan (or the actuarial equivalent thereof) if—
(i) in the case of a participant who dies after the date on which the participant attained the earliest retirement age, such participant had retired with an immediate qualified joint and survivor annuity on the day before the participant's date of death, or
(ii) in the case of a participant who dies on or before the date on which the participant would have attained the earliest retirement age, such participant had—
(I) separated from service on the date of death,
(II) survived to the earliest retirement age,
(III) retired with an immediate qualified joint and survivor annuity at the earliest retirement age, and
(IV) died on the day after the day on which such participant would have attained the earliest retirement age, and
(B) under the plan, the earliest period for which the surviving spouse may receive a payment under such annuity is not later than the month in which the participant would have attained the earliest retirement age under the plan.
In the case of an individual who separated from service before the date of such individual's death, subparagraph (A)(ii)(I) shall not apply.
(2) Special rule for defined contribution plans
In the case of any defined contribution plan or participant described in clause (ii) or (iii) of section 401(a)(11)(B), the term "qualified preretirement survivor annuity" means an annuity for the life of the surviving spouse the actuarial equivalent of which is not less than 50 percent of the portion of the account balance of the participant (as of the date of death) to which the participant had a nonforfeitable right (within the meaning of section 411(a)).
(3) Security interests taken into account
For purposes of paragraphs (1) and (2), any security interest held by the plan by reason of a loan outstanding to the participant shall be taken into account in determining the amount of the qualified preretirement survivor annuity.
(d) Survivor annuities need not be provided if participant and spouse married less than 1 year
(1) In general
Except as provided in paragraph (2), a plan shall not be treated as failing to meet the requirements of section 401(a)(11) merely because the plan provides that a qualified joint and survivor annuity (or a qualified preretirement survivor annuity) will not be provided unless the participant and spouse had been married throughout the 1-year period ending on the earlier of—
(A) the participant's annuity starting date, or
(B) the date of the participant's death.
(2) Treatment of certain marriages within 1 year of annuity starting date for purposes of qualified joint and survivor annuities
For purposes of paragraph (1), if—
(A) a participant marries within 1 year before the annuity starting date, and
(B) the participant and the participant's spouse in such marriage have been married for at least a 1-year period ending on or before the date of the participant's death,
such participant and such spouse shall be treated as having been married throughout the 1-year period ending on the participant's annuity starting date.
(e) Restrictions on cash-outs
(1) Plan may require distribution if present value not in excess of dollar limit
A plan may provide that the present value of a qualified joint and survivor annuity or a qualified preretirement survivor annuity will be immediately distributed if such value does not exceed the amount that can be distributed without the participant's consent under section 411(a)(11). No distribution may be made under the preceding sentence after the annuity starting date unless the participant and the spouse of the participant (or where the participant has died, the surviving spouse) consents in writing to such distribution.
(2) Plan may distribute benefit in excess of dollar limit only with consent
If—
(A) the present value of the qualified joint and survivor annuity or the qualified preretirement survivor annuity exceeds the amount that can be distributed without the participant's consent under section 411(a)(11), and
(B) the participant and the spouse of the participant (or where the participant has died, the surviving spouse) consent in writing to the distribution,
the plan may immediately distribute the present value of such annuity.
(3) Determination of present value
(A) In general
For purposes of paragraphs (1) and (2), the present value shall not be less than the present value calculated by using the applicable mortality table and the applicable interest rate.
(B) Applicable mortality table
For purposes of subparagraph (A), the term "applicable mortality table" means a mortality table, modified as appropriate by the Secretary, based on the mortality table specified for the plan year under subparagraph (A) of section 430(h)(3) (without regard to subparagraph (C) or (D) of such section).
(C) Applicable interest rate
For purposes of subparagraph (A), the term "applicable interest rate" means the adjusted first, second, and third segment rates applied under rules similar to the rules of section 430(h)(2)(C) (determined by not taking into account any adjustment under clause (iv) thereof) for the month before the date of the distribution or such other time as the Secretary may by regulations prescribe.
(D) Applicable segment rates
For purposes of subparagraph (C), the adjusted first, second, and third segment rates are the first, second, and third segment rates which would be determined under section 430(h)(2)(C) (determined by not taking into account any adjustment under clause (iv) thereof) if section 430(h)(2)(D) were applied by substituting the average yields for the month described in subparagraph (C) for the average yields for the 24-month period described in such section.
(f) Other definitions and special rules
For purposes of this section and section 401(a)(11)—
(1) Vested participant
The term "vested participant" means any participant who has a nonforfeitable right (within the meaning of section 411(a)) to any portion of such participant's accrued benefit.
(2) Annuity starting date
(A) In general
The term "annuity starting date" means—
(i) the first day of the first period for which an amount is payable as an annuity, or
(ii) in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the participant to such benefit.
(B) Special rule for disability benefits
For purposes of subparagraph (A), the first day of the first period for which a benefit is to be received by reason of disability shall be treated as the annuity starting date only if such benefit is not an auxiliary benefit.
(3) Earliest retirement age
The term "earliest retirement age" means the earliest date on which, under the plan, the participant could elect to receive retirement benefits.
(4) Plan may take into account increased costs
A plan may take into account in any equitable manner (as determined by the Secretary) any increased costs resulting from providing a qualified joint or survivor annuity or a qualified preretirement survivor annuity.
(5) Distributions by reason of security interests
If the use of any participant's accrued benefit (or any portion thereof) as security for a loan meets the requirements of subsection (a)(4), nothing in this section or section 411(a)(11) shall prevent any distribution required by reason of a failure to comply with the terms of such loan.
(6) Requirements for certain spousal consents
No consent of a spouse shall be effective for purposes of subsection (e)(1) or (e)(2) (as the case may be) unless requirements comparable to the requirements for spousal consent to an election under subsection (a)(1)(A) are met.
(7) Consultation with the Secretary of Labor
In prescribing regulations under this section and section 401(a)(11), the Secretary shall consult with the Secretary of Labor.
(g) Definition of qualified optional survivor annuity
(1) In general
For purposes of this section, the term "qualified optional survivor annuity" means an annuity—
(A) for the life of the participant with a survivor annuity for the life of the spouse which is equal to the applicable percentage of the amount of the annuity which is payable during the joint lives of the participant and the spouse, and
(B) which is the actuarial equivalent of a single annuity for the life of the participant.
Such term also includes any annuity in a form having the effect of an annuity described in the preceding sentence.
(2) Applicable percentage
(A) In general
For purposes of paragraph (1), if the survivor annuity percentage—
(i) is less than 75 percent, the applicable percentage is 75 percent, and
(ii) is greater than or equal to 75 percent, the applicable percentage is 50 percent.
(B) Survivor annuity percentage
For purposes of subparagraph (A), the term "survivor annuity percentage" means the percentage which the survivor annuity under the plan's qualified joint and survivor annuity bears to the annuity payable during the joint lives of the participant and the spouse.
(Added
Editorial Notes
Amendments
2014—Subsec. (e)(3)(D).
"(i) section 430(h)(2)(D)"
and "described in such section." for "described in such section," and struck out cls. (ii) and (iii) which applied
2012—Subsec. (e)(3)(C), (D).
2008—Subsec. (e)(3)(D)(i).
2006—Subsec. (a)(1)(A)(ii), (iii).
Subsec. (a)(3)(A)(i).
Subsec. (a)(6)(A).
Subsec. (e)(3).
Subsec. (g).
2002—Subsec. (e)(1).
Subsec. (e)(2)(A).
1997—Subsec. (e)(1), (2).
1996—Subsec. (a)(7).
1994—Subsec. (e)(3).
1989—Subsec. (a)(3)(B)(ii).
1988—Subsec. (e)(3)(A).
1986—Subsec. (a)(1).
Subsec. (a)(1)(B).
Subsec. (a)(2)(A).
Subsec. (a)(3)(B).
Subsec. (a)(4).
Subsec. (a)(5), (6).
Subsec. (c)(1).
Subsec. (c)(2).
Subsec. (c)(3).
Subsec. (e)(3).
Subsec. (f)(1).
Subsec. (f)(2).
Subsec. (f)(5).
Subsec. (f)(6), (7).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2012 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment by
Effective Date of 2006 Amendment
"(1)
"(2)
"(A) the later of—
"(i) January 1, 2008, or
"(ii) the date on which the last collective bargaining agreement related to the plan terminates (determined without regard to any extension thereof after the date of enactment of this Act), or
"(B) January 1, 2009."
Effective Date of 2002 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1996 Amendment
Effective Date of 1994 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1139(b) of
"(i) The amendments made by this paragraph [amending this section and
"(ii) In the case of any loan which was made on or before August 18, 1985, and which is secured by a portion of the participant's accrued benefit, nothing in the amendments made by sections 103 and 203 of the Retirement Equity Act of 1984 [sections 103 and 203 of
"(iii) For purposes of this subparagraph, any loan which is revised, extended, renewed, or renegotiated after August 18, 1985, shall be treated as made after August 18, 1985."
Amendment by section 1898(b)(1)(A), (5)(A), (9)(A), (10)(A), (11)(A), (12)(A), (15)(A), (B) of
Effective Date
Section applicable to plan years beginning after Dec. 31, 1984, except as otherwise provided, see sections 302 and 303 of
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Subpart C—Insolvent Plans
Editorial Notes
Amendments
2014—
1980—
[§§418 to 418D. Repealed. Pub. L. 113–235, div. O, title I, §108(b)(1), Dec. 16, 2014, 128 Stat. 2787 ]
Section 418, added
Section 418A, added
Section 418B, added
Section 418C, added
Section 418D, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
§418E. Insolvent plans
(a) Suspension of certain benefit payments
Notwithstanding section 411, in any case in which benefit payments under an insolvent multiemployer plan exceed the resource benefit level, any such payments of benefits which are not basic benefits shall be suspended, in accordance with this section, to the extent necessary to reduce the sum of such payments and the payments of such basic benefits to the greater of the resource benefit level or the level of basic benefits, unless an alternative procedure is prescribed by the Pension Benefit Guaranty Corporation under section 4022A(g)(5) of the Employee Retirement Income Security Act of 1974.
(b) Definitions
For purposes of this section, for a plan year—
(1) Insolvency
A multiemployer plan is insolvent if the plan's available resources are not sufficient to pay benefits under the plan when due for the plan year, or if the plan is determined to be insolvent under subsection (d).
(2) Resource benefit level
The term "resource benefit level" means the level of monthly benefits determined under subsections (c)(1) and (3) and (d)(3) to be the highest level which can be paid out of the plan's available resources.
(3) Available resources
The term "available resources" means the plan's cash, marketable assets, contributions, withdrawal liability payments, and earnings, less reasonable administrative expenses and amounts owed for such plan year to the Pension Benefit Guaranty Corporation under section 4261(b)(2) of the Employee Retirement Income Security Act of 1974.
(4) Insolvency year
The term "insolvency year" means a plan year in which a plan is insolvent.
(c) Benefit payments under insolvent plans
(1) Determination of resource benefit level
The plan sponsor of a plan in critical status, as described in section 432(b)(2), shall determine in writing the plan's resource benefit level for each insolvency year, based on the plan sponsor's reasonable projection of the plan's available resources and the benefits payable under the plan.
(2) Uniformity of the benefit suspension
(A) The suspension of benefit payments under this section shall, in accordance with regulations prescribed by the Secretary, apply in substantially uniform proportions to the benefits of all persons in pay status under the plan, except that the Secretary may prescribe rules under which benefit suspensions for different participant groups may be varied equitably to reflect variations in contribution rates and other relevant factors including differences in negotiated levels of financial support for plan benefit obligations.
(B) For purposes of this paragraph—
(i) the term "person in pay status" means—
(I) a participant or beneficiary on the last day of the base plan year who, at any time during such year, was paid an early, late, normal, or disability retirement benefit (or a death benefit related to a retirement benefit), and
(II) to the extent provided in regulations prescribed by the Secretary of the Treasury, any other person who is entitled to such a benefit under the plan.
(ii) the base plan year for any plan year is—
(I) if there is a relevant collective bargaining agreement, the last plan year ending at least 6 months before the relevant effective date, or
(II) if there is no relevant collective bargaining agreement, the last plan year ending at least 12 months before the beginning of the plan year.
(iii) a relevant collective bargaining agreement is a collective bargaining agreement—
(I) which is in effect for at least 6 months during the plan year, and
(II) which has not been in effect for more than 36 months as of the end of the plan year.
(iv) the relevant effective date is the earliest of the effective dates for the relevant collective bargaining agreements.
(3) Resource benefit level below level of basic benefits
Notwithstanding paragraph (2), if a plan sponsor determines in writing a resource benefit level for a plan year which is below the level of basic benefits, the payment of all benefits other than basic benefits shall be suspended for that plan year.
(4) Excess resources
(A) In general
If, by the end of an insolvency year, the plan sponsor determines in writing that the plan's available resources in that insolvency year could have supported benefit payments above the resource benefit level for that insolvency year, the plan sponsor shall distribute the excess resources to the participants and beneficiaries who received benefit payments from the plan in that insolvency year, in accordance with regulations prescribed by the Secretary.
(B) Excess resources
For purposes of this paragraph, the term "excess resources" means available resources above the amount necessary to support the resource benefit level, but no greater than the amount necessary to pay benefits for the plan year at the benefit levels under the plan.
(5) Unpaid benefits
If, by the end of an insolvency year, any benefit has not been paid at the resource benefit level, amounts up to the resource benefit level which were unpaid shall be distributed to the participants and beneficiaries, in accordance with regulations prescribed by the Secretary, to the extent possible taking into account the plan's total available resources in that insolvency year.
(6) Retroactive payments
Except as provided in paragraph (4) or (5), a plan is not required to make retroactive benefit payments with respect to that portion of a benefit which was suspended under this section.
(d) Plan sponsor determination
(1) Triennial test
As of the end of the first plan year in which a plan is in critical status, as described in section 432(b)(2), and at least every 3 plan years thereafter (unless the plan is no longer in critical status, as described in section 432(b)(2)), the plan sponsor shall compare the value of plan assets for that plan year with the total amount of benefit payments made under the plan for that plan year. Unless the plan sponsor determines that the value of plan assets exceeds 3 times the total amount of benefit payments, the plan sponsor shall determine whether the plan will be insolvent in any of the next 5 plan years. If the plan sponsor makes such a determination that the plan will be insolvent in any of the next 5 plan years, the plan sponsor shall make the comparison under this paragraph at least annually until the plan sponsor makes a determination that the plan will not be insolvent in any of the next 5 plan years.
(2) Determination of insolvency
If, at any time, the plan sponsor of a plan in critical status, as described in section 432(b)(2), reasonably determines, taking into account the plan's recent and anticipated financial experience, that the plan's available resources are not sufficient to pay benefits under the plan when due for the next plan year, the plan sponsor shall make such determination available to interested parties.
(3) Determination of resource benefit level
The plan sponsor of a plan in critical status, as described in section 432(b)(2), shall determine in writing for each insolvency year the resource benefit level and the level of basic benefits no later than 3 months before the insolvency year.
(4) For purposes of this subsection, the value of plan assets shall be the value of the available plan assets determined under regulations prescribed by the Secretary of the Treasury.
(e) Notice requirements
(1) Impending insolvency
If the plan sponsor of a plan in critical status, as described in section 432(b)(2), determines under subsection (d)(1) or (2) that the plan may become insolvent (within the meaning of subsection (b)(1)), the plan sponsor shall—
(A) notify the Secretary and the parties described in section 101(f)(1) of the Employee Retirement Income Security Act of 1974 of that determination, and
(B) inform the parties described in section 101(f)(1) of the Employee Retirement Income Security Act of 1974 that if insolvency occurs certain benefit payments will be suspended, but that basic benefits will continue to be paid.
(2) Resource benefit level
No later than 2 months before the first day of each insolvency year, the plan sponsor of a plan in critical status, as described in section 432(b)(2), shall notify the Secretary, the Pension Benefit Guaranty Corporation, the parties described in section 418A(a)(2), and the plan participants and beneficiaries of the resource benefit level determined in writing for that insolvency year.
(3) Potential need for financial assistance
In any case in which the plan sponsor anticipates that the resource benefit level for an insolvency year may not exceed the level of basic benefits, the plan sponsor shall notify the Pension Benefit Guaranty Corporation.
(4) Regulations
Notice required by this subsection shall be given in accordance with regulations prescribed by the Pension Benefit Guaranty Corporation, except that notice to the Secretary shall be given in accordance with regulations prescribed by the Secretary.
(5) Corporation may prescribe time
The Pension Benefit Guaranty Corporation may prescribe a time other than the time prescribed by this section for the making of a determination or the filing of a notice under this section.
(f) Financial assistance
(1) Permissive application
If the plan sponsor of an insolvent plan for which the resource benefit level is above the level of basic benefits anticipates that, for any month in an insolvency year, the plan will not have funds sufficient to pay basic benefits, the plan sponsor may apply for financial assistance from the Pension Benefit Guaranty Corporation under section 4261 of the Employee Retirement Income Security Act of 1974.
(2) Mandatory application
A plan sponsor who has determined a resource benefit level for an insolvency year which is below the level of basic benefits shall apply for financial assistance from the Pension Benefit Guaranty Corporation under section 4261 of the Employee Retirement Income Security Act of 1974.
(g) Financial assistance
Any amount of any financial assistance from the Pension Benefit Guaranty Corporation to any plan, and any repayment of such amount, shall be taken into account under this subpart in such manner as determined by the Secretary.
(h) Subsections (a) and (c) shall not apply to a plan that, for the plan year, is operating under section 432(e)(9), regarding benefit suspensions by certain multiemployer plans in critical and declining status.
(Added
Editorial Notes
References in Text
Section 4022A(g)(5) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (a), is classified to
Section 4261 of the Employee Retirement Income Security Act of 1974, referred to in subsecs. (b)(3) and (f), is classified to
Section 101(f)(1) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (e)(1), is classified to
Amendments
2018—
Subsec. (d)(1).
Subsec. (e)(1)(A).
2014—Subsec. (c)(1).
Subsec. (c)(2).
Subsec. (d).
Subsec. (d)(1).
Subsec. (d)(4).
Subsec. (e)(1).
Subsec. (e)(1)(A).
Subsec. (e)(1)(B).
Subsec. (e)(2).
Subsec. (h).
2006—Subsec. (d)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2006 Amendment
Effective Date
Section effective, with respect to each plan, on the first day of the first plan year beginning on or after the earlier of the date on which the last collective-bargaining agreement providing for employer contributions under the plan, which was in effect on Sept. 26, 1980, expires, without regard to extensions agreed to after such date, or 3 years after Sept. 26, 1980, see section 210 of
Subpart D—Treatment of Welfare Benefit Funds
§419. Treatment of funded welfare benefit plans
(a) General rule
Contributions paid or accrued by an employer to a welfare benefit fund—
(1) shall not be deductible under this chapter, but
(2) if they would otherwise be deductible, shall (subject to the limitation of subsection (b)) be deductible under this section for the taxable year in which paid.
(b) Limitation
The amount of the deduction allowable under subsection (a)(2) for any taxable year shall not exceed the welfare benefit fund's qualified cost for the taxable year.
(c) Qualified cost
For purposes of this section—
(1) In general
Except as otherwise provided in this subsection, the term "qualified cost" means, with respect to any taxable year, the sum of—
(A) the qualified direct cost for such taxable year, and
(B) subject to the limitation of section 419A(b), any addition to a qualified asset account for the taxable year.
(2) Reduction for funds after-tax income
In the case of any welfare benefit fund, the qualified cost for any taxable year shall be reduced by such fund's after-tax income for such taxable year.
(3) Qualified direct cost
(A) In general
The term "qualified direct cost" means, with respect to any taxable year, the aggregate amount (including administrative expenses) which would have been allowable as a deduction to the employer with respect to the benefits provided during the taxable year, if—
(i) such benefits were provided directly by the employer, and
(ii) the employer used the cash receipts and disbursements method of accounting.
(B) Time when benefits provided
For purposes of subparagraph (A), a benefit shall be treated as provided when such benefit would be includible in the gross income of the employee if provided directly by the employer (or would be so includible but for any provision of this chapter excluding such benefit from gross income).
(C) 60-month amortization of child care facilities
(i) In general
In determining qualified direct costs with respect to any child care facility for purposes of subparagraph (A), in lieu of depreciation the adjusted basis of such facility shall be allowable as a deduction ratably over a period of 60 months beginning with the month in which the facility is placed in service.
(ii) Child care facility
The term "child care facility" means any tangible property which qualifies under regulations prescribed by the Secretary as a child care center primarily for children of employees of the employer; except that such term shall not include any property—
(I) not of a character subject to depreciation; or
(II) located outside the United States.
(4) After-tax income
(A) In general
The term "after-tax income" means, with respect to any taxable year, the gross income of the welfare benefit fund reduced by the sum of—
(i) the deductions allowed by this chapter which are directly connected with the production of such gross income, and
(ii) the tax imposed by this chapter on the fund for the taxable year.
(B) Treatment of certain amounts
In determining the gross income of any welfare benefit fund—
(i) contributions and other amounts received from employees shall be taken into account, but
(ii) contributions from the employer shall not be taken into account.
(5) Item only taken into account once
No item may be taken into account more than once in determining the qualified cost of any welfare benefit fund.
(d) Carryover of excess contributions
If—
(1) the amount of the contributions paid (or deemed paid under this subsection) by the employer during any taxable year to a welfare benefit fund, exceeds
(2) the limitation of subsection (b),
such excess shall be treated as an amount paid by the employer to such fund during the succeeding taxable year.
(e) Welfare benefit fund
For purposes of this section—
(1) In general
The term "welfare benefit fund" means any fund—
(A) which is part of a plan of an employer, and
(B) through which the employer provides welfare benefits to employees or their beneficiaries.
(2) Welfare benefit
The term "welfare benefit" means any benefit other than a benefit with respect to which—
(A) section 83(h) applies,
(B) section 404 applies (determined without regard to section 404(b)(2)), or
(C) section 404A applies.
(3) Fund
The term "fund" means—
(A) any organization described in paragraph (7), (9), or (17) of section 501(c),
(B) any trust, corporation, or other organization not exempt from the tax imposed by this chapter, and
(C) to the extent provided in regulations, any account held for an employer by any person.
(4) Treatment of amounts held pursuant to certain insurance contracts
(A) In general
Notwithstanding paragraph (3)(C), the term "fund" shall not include amounts held by an insurance company pursuant to an insurance contract if—
(i) such contract is a life insurance contract described in section 264(a)(1), or
(ii) such contract is a qualified nonguaranteed contract.
(B) Qualified nonguaranteed contract
(i) In general
For purposes of this paragraph, the term "qualified nonguaranteed contract" means any insurance contract (including a reasonable premium stabilization reserve held thereunder) if—
(I) there is no guarantee of a renewal of such contract, and
(II) other than insurance protection, the only payments to which the employer or employees are entitled are experience rated refunds or policy dividends which are not guaranteed and which are determined by factors other than the amount of welfare benefits paid to (or on behalf of) the employees of the employer or their beneficiaries.
(ii) Limitation
In the case of any qualified nonguaranteed contract, subparagraph (A) shall not apply unless the amount of any experience rated refund or policy dividend payable to an employer with respect to a policy year is treated by the employer as received or accrued in the taxable year in which the policy year ends.
(f) Method of contributions, etc., having the effect of a plan
If—
(1) there is no plan, but
(2) there is a method or arrangement of employer contributions or benefits which has the effect of a plan,
this section shall apply as if there were a plan.
(g) Extension to plans for independent contractors
If any fund would be a welfare benefit fund (as modified by subsection (f)) but for the fact that there is no employee-employer relationship—
(1) this section shall apply as if there were such a relationship, and
(2) any reference in this section to the employer shall be treated as a reference to the person for whom services are provided, and any reference in this section to an employee shall be treated as a reference to the person providing the services.
(Added
Editorial Notes
Amendments
2018—Subsec. (e)(3)(A).
1988—Subsec. (a)(1).
1987—Subsec. (e)(2)(D).
1986—Subsec. (a)(1).
Subsec. (a)(2).
Subsec. (e)(4).
Subsec. (g)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date
"(1)
"(2)
"(A) between employee representatives and 1 or more employers, and
"(B) in effect on July 1, 1985 (or ratified on or before such date),
the amendments made by this section shall not apply to years beginning before 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 July 1, 1985).
"(3)
"(4)
"(A) any contribution after June 22, 1984, of a facility to a welfare benefit fund, and
"(B) any other contribution after June 22, 1984, to a welfare benefit fund to be used to acquire or improve a facility.
"(5)
"(A) which is acquired or improved by the fund (or contributed to the fund) pursuant to a binding contract in effect on June 22, 1984, and at all times thereafter, or
"(B) the construction of which by or for the fund began before June 22, 1984.
"(6)
"(7)
Savings Provision
For provisions that nothing in amendment by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Effective Date of Regulations
§419A. Qualified asset account; limitation on additions to account
(a) General rule
For purposes of this subpart and section 512, the term "qualified asset account" means any account consisting of assets set aside to provide for the payment of—
(1) disability benefits,
(2) medical benefits,
(3) SUB or severance pay benefits, or
(4) life insurance benefits.
(b) Limitation on additions to account
No addition to any qualified asset account may be taken into account under section 419(c)(1)(B) to the extent such addition results in the amount in such account exceeding the account limit.
(c) Account limit
For purposes of this section—
(1) In general
Except as otherwise provided in this subsection, the account limit for any qualified asset account for any taxable year is the amount reasonably and actuarially necessary to fund—
(A) claims incurred but unpaid (as of the close of such taxable year) for benefits referred to in subsection (a), and
(B) administrative costs with respect to such claims.
(2) Additional reserve for post-retirement medical and life insurance benefits
The account limit for any taxable year may include a reserve funded over the working lives of the covered employees and actuarially determined on a level basis (using assumptions that are reasonable in the aggregate) as necessary for—
(A) post-retirement medical benefits to be provided to covered employees (determined on the basis of current medical costs), or
(B) post-retirement life insurance benefits to be provided to covered employees.
(3) Amount taken into account for SUB or severance pay benefits
(A) In general
The account limit for any taxable year with respect to SUB or severance pay benefits is 75 percent of the average annual qualified direct costs for SUB or severance pay benefits for any 2 of the immediately preceding 7 taxable years (as selected by the fund).
(B) Special rule for certain new plans
In the case of any new plan for which SUB or severance pay benefits are not available to any key employee, the Secretary shall, by regulations, provide for an interim amount to be taken into account under paragraph (1).
(4) Limitation on amounts to be taken into account
(A) Disability benefits
For purposes of paragraph (1), disability benefits payable to any individual shall not be taken into account to the extent such benefits are payable at an annual rate in excess of the lower of—
(i) 75 percent of such individual's average compensation for his high 3 years (within the meaning of section 415(b)(3)), or
(ii) the limitation in effect under section 415(b)(1)(A).
(B) Limitation on SUB or severance pay benefits
For purposes of paragraph (3), any SUB or severance pay benefit payable to any individual shall not be taken into account to the extent such benefit is payable at an annual rate in excess of 150 percent of the limitation in effect under section 415(c)(1)(A).
(5) Special limitation where no actuarial certification
(A) In general
Unless there is an actuarial certification of the account limit determined under this subsection for any taxable year, the account limit for such taxable year shall not exceed the sum of the safe harbor limits for such taxable year.
(B) Safe harbor limits
(i) Short-term disability benefits
In the case of short-term disability benefits, the safe harbor limit for any taxable year is 17.5 percent of the qualified direct costs (other than insurance premiums) for the immediately preceding taxable year with respect to such benefits.
(ii) Medical benefits
In the case of medical benefits, the safe harbor limit for any taxable year is 35 percent of the qualified direct costs (other than insurance premiums) for the immediately preceding taxable year with respect to medical benefits.
(iii) SUB or severance pay benefits
In the case of SUB or severance pay benefits, the safe harbor limit for any taxable year is the amount determined under paragraph (3).
(iv) Long-term disability or life insurance benefits
In the case of any long-term disability benefit or life insurance benefit, the safe harbor limit for any taxable year shall be the amount prescribed by regulations.
(6) Additional reserve for medical benefits of bona fide association plans
(A) In general
An applicable account limit for any taxable year may include a reserve in an amount not to exceed 35 percent of the sum of—
(i) the qualified direct costs, and
(ii) the change in claims incurred but unpaid,
for such taxable year with respect to medical benefits (other than post-retirement medical benefits).
(B) Applicable account limit
For purposes of this subsection, the term "applicable account limit" means an account limit for a qualified asset account with respect to medical benefits provided through a plan maintained by a bona fide association (as defined in section 2791(d)(3) of the Public Health Service Act (
(d) Requirement of separate accounts for post-retirement medical or life insurance benefits provided to key employees
(1) In general
In the case of any employee who is a key employee—
(A) a separate account shall be established for any medical benefits or life insurance benefits provided with respect to such employee after retirement, and
(B) medical benefits and life insurance benefits provided with respect to such employee after retirement may only be paid from such separate account.
The requirements of this paragraph shall apply to the first taxable year for which a reserve is taken into account under subsection (c)(2) and to all subsequent taxable years.
(2) Coordination with section 415
For purposes of section 415, any amount attributable to medical benefits allocated to an account established under paragraph (1) shall be treated as an annual addition to a defined contribution plan for purposes of section 415(c). Subparagraph (B) of section 415(c)(1) shall not apply to any amount treated as an annual addition under the preceding sentence.
(3) Key employee
For purposes of this section, the term "key employee" means any employee who, at any time during the plan year or any preceding plan year, is or was a key employee as defined in section 416(i).
(e) Special limitations on reserves for medical benefits or life insurance benefits provided to retired employees
(1) Reserve must be nondiscriminatory
No reserve may be taken into account under subsection (c)(2) for post-retirement medical benefits or life insurance benefits to be provided to covered employees unless the plan meets the requirements of section 505(b) with respect to such benefits (whether or not such requirements apply to such plan). The preceding sentence shall not apply to any plan maintained pursuant to an agreement between employee representatives and 1 or more employers if the Secretary finds that such agreement is a collective bargaining agreement and that post-retirement medical benefits or life insurance benefits were the subject of good faith bargaining between such employee representatives and such employer or employers.
(2) Limitation on amount of life insurance benefits
Life insurance benefits shall not be taken into account under subsection (c)(2) to the extent the aggregate amount of such benefits to be provided with respect to the employee exceeds $50,000.
(f) Definitions and other special rules
For purposes of this section—
(1) SUB or severance pay benefit
The term "SUB or severance pay benefit" means—
(A) any supplemental unemployment compensation benefit (as defined in section 501(c)(17)(D)), and
(B) any severance pay benefit.
(2) Medical benefit
The term "medical benefit" means a benefit which consists of the providing (directly or through insurance) of medical care (as defined in section 213(d)).
(3) Life insurance benefit
The term "life insurance benefit" includes any other death benefit.
(4) Valuation
For purposes of this section, the amount of the qualified asset account shall be the value of the assets in such account (as determined under regulations).
(5) Special rule for collective bargained and employee pay-all plans
No account limits shall apply in the case of any qualified asset account under a separate welfare benefit fund—
(A) under a collective bargaining agreement, or
(B) an employee pay-all plan under section 501(c)(9) if—
(i) such plan has at least 50 employees (determined without regard to subsection (h)(1)), and
(ii) no employee is entitled to a refund with respect to amounts in the fund, other than a refund based on the experience of the entire fund.
(6) Exception for 10-or-more employer plans
(A) In general
This subpart shall not apply in the case of any welfare benefit fund which is part of a 10 or more employer plan. The preceding sentence shall not apply to any plan which maintains experience-rating arrangements with respect to individual employers.
(B) 10 or more employer plan
For purposes of subparagraph (A), the term "10 or more employer plan" means a plan—
(i) to which more than 1 employer contributes, and
(ii) to which no employer normally contributes more than 10 percent of the total contributions contributed under the plan by all employers.
(7) Adjustments for existing excess reserves
(A) Increase in account limit
The account limit for any of the first 4 taxable years to which this section applies shall be increased by the applicable percentage of any existing excess reserves.
(B) Applicable percentage
For purposes of subparagraph (A)—
| In the case of: | The applicable percentage is: |
|---|---|
| The first taxable year to which this section applies | 80 |
| The second taxable year to which this section applies | 60 |
| The third taxable year to which this section applies | 40 |
| The fourth taxable year to which this section applies | 20. |
(C) Existing excess reserve
For purposes of computing the increase under subparagraph (A) for any taxable year, the term "existing excess reserve" means the excess (if any) of—
(i) the amount of assets set aside at the close of the first taxable year ending after July 18, 1984, for purposes described in subsection (a), over
(ii) the account limit determined under this section (without regard to this paragraph) for the taxable year for which such increase is being computed.
(D) Funds to which paragraph applies
This paragraph shall apply only to a welfare benefit fund which, as of July 18, 1984, had assets set aside for purposes described in subsection (a).
(g) Employer taxed on income of welfare benefit fund in certain cases
(1) In general
In the case of any welfare benefit fund which is not an organization described in paragraph (7), (9), or (17) of section 501(c), the employer shall include in gross income for any taxable year an amount equal to such fund's deemed unrelated income for the fund's taxable year ending within the employer's taxable year.
(2) Deemed unrelated income
For purposes of paragraph (1), the deemed unrelated income of any welfare benefit fund shall be the amount which would have been its unrelated business taxable income under section 512(a)(3) if such fund were an organization described in paragraph (7), (9), or (17) of section 501(c).
(3) Coordination with section 419
If any amount is included in the gross income of an employer for any taxable year under paragraph (1) with respect to any welfare benefit fund—
(A) the amount of the tax imposed by this chapter which is attributable to the amount so included shall be treated as a contribution paid to such welfare benefit fund on the last day of such taxable year, and
(B) the tax so attributable shall be treated as imposed on the fund for purposes of section 419(c)(4)(A).
(h) Aggregation rules
For purposes of this subpart—
(1) Aggregation of funds
(A) Mandatory aggregation
For purposes of subsections (c)(4), (d)(2), and (e)(2), all welfare benefit funds of an employer shall be treated as 1 fund.
(B) Permissive aggregation for purposes not specified in subparagraph (A)
For purposes of this section (other than the provisions specified in subparagraph (A)), at the election of the employer, 2 or more welfare benefit funds of such employer may (to the extent not inconsistent with the purposes of this subpart and section 512) be treated as 1 fund.
(2) Treatment of related employers
Rules similar to the rules of subsections (b), (c), (m), and (n) of section 414 shall apply.
(i) Regulations
The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subpart. Such regulations may provide that the plan administrator of any welfare benefit fund which is part of a plan to which more than 1 employer contributes shall submit such information to the employers contributing to the fund as may be necessary to enable the employers to comply with the provisions of this section.
(Added
Editorial Notes
Amendments
2018—Subsec. (c)(6)(B).
Subsec. (g)(1), (2).
2006—Subsec. (c)(6).
1996—Subsec. (c)(3).
1988—Subsec. (a).
Subsec. (f)(5).
1986—Subsec. (a).
Subsec. (c)(5)(A).
Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (e).
"(A) such benefit is includible in gross income under section 79, or
"(B) such benefit would be includible in gross income under section 101(b) (determined by substituting '$50,000' for '$5,000')."
Subsec. (f)(5).
Subsec. (f)(7)(C), (D).
"(i) the amount of assets set aside for purposes described in subsection (a) as of the close of the first taxable year ending after the date of the enactment of the Tax Reform Act of 1984, over
"(ii) the account limit which would have applied under this section to such taxable year if this section had applied to such taxable year."
Subsec. (g)(3).
Subsec. (h)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2006 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Savings Provision
For provisions that nothing in amendment by section 401(b)(21)(B), (C) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Application of Section 419A(e) to Group-Term Life Insurance
Subpart E—Treatment of Transfers to Retiree Health Accounts
§420. Transfers of excess pension assets to retiree health accounts
(a) General rule
If there is a qualified transfer of any excess pension assets of a defined benefit plan to a health benefits account, or an applicable life insurance account, which is part of such plan—
(1) a trust which is part of such plan shall not be treated as failing to meet the requirements of subsection (a) or (h) of section 401 solely by reason of such transfer (or any other action authorized under this section),
(2) no amount shall be includible in the gross income of the employer maintaining the plan solely by reason of such transfer,
(3) such transfer shall not be treated—
(A) as an employer reversion for purposes of section 4980, or
(B) as a prohibited transaction for purposes of section 4975, and
(4) the limitations of subsection (d) shall apply to such employer.
(b) Qualified transfer
For purposes of this section—
(1) In general
The term "qualified transfer" means a transfer—
(A) of excess pension assets of a defined benefit plan to a health benefits account, or an applicable life insurance account, which is part of such plan,
(B) which does not contravene any other provision of law, and
(C) with respect to which the following requirements are met in connection with the plan—
(i) the use requirements of subsection (c)(1),
(ii) the vesting requirements of subsection (c)(2), and
(iii) the minimum cost requirements of subsection (c)(3).
(2) Only 1 transfer per year
No more than 1 transfer with respect to any plan during a taxable year may be treated as a qualified transfer for purposes of this section. If there is a transfer from a defined benefit plan to both a health benefits account and an applicable life insurance account during any taxable year, such transfers shall be treated as 1 transfer for purposes of this paragraph.
(3) Limitation on amount transferred
The amount of excess pension assets which may be transferred to an account in a qualified transfer shall not exceed the amount which is reasonably estimated to be the amount the employer maintaining the plan will pay (whether directly or through reimbursement) out of such account during the taxable year of the transfer for qualified current retiree liabilities.
(4) Expiration
No transfer made after December 31, 2032, shall be treated as a qualified transfer.
(c) Requirements of plans transferring assets
(1) Use of transferred assets
(A) In general
Any assets transferred to a health benefits account, or an applicable life insurance account, in a qualified transfer (and any income allocable thereto) shall be used only to pay qualified current retiree liabilities (other than liabilities of key employees not taken into account under subsection (e)(1)(E)) for the taxable year of the transfer (whether directly or through reimbursement). In the case of a qualified future transfer or collectively bargained transfer to which subsection (f) applies, any assets so transferred may also be used to pay liabilities described in subsection (f)(2)(C).
(B) Amounts not used to pay for health benefits or life insurance
(i) In general
Any assets transferred to a health benefits account, or an applicable life insurance account, in a qualified transfer (and any income allocable thereto) which are not used as provided in subparagraph (A) shall be transferred out of the account to the transferor plan.
(ii) Tax treatment of amounts
Any amount transferred out of an account under clause (i)—
(I) shall not be includible in the gross income of the employer for such taxable year, but
(II) shall be treated as an employer reversion for purposes of section 4980 (without regard to subsection (d) thereof).
(C) Ordering rule
For purposes of this section, any amount paid out of a health benefits account, or an applicable life insurance account, shall be treated as paid first out of the assets and income described in subparagraph (A).
(2) Requirements relating to pension benefits accruing before transfer
The requirements of this paragraph are met if the plan provides that the accrued pension benefits of any participant or beneficiary under the plan become nonforfeitable in the same manner which would be required if the plan had terminated immediately before the qualified transfer (or in the case of a participant who separated during the 1-year period ending on the date of the transfer, immediately before such separation).
(3) Minimum cost requirements
(A) In general
The requirements of this paragraph are met if each group health plan or arrangement under which applicable health benefits are provided, and each group-term life insurance plan under which applicable life insurance benefits are provided, provides that the applicable employer cost for each taxable year during the cost maintenance period shall not be less than the higher of the applicable employer costs for each of the 2 taxable years immediately preceding the taxable year of the qualified transfer or, in the case of a transfer which involves a plan maintained by an employer described in subsection (f)(2)(E)(i)(III), if the plan meets the requirements of subsection (f)(2)(D)(i)(II).
(B) Applicable employer cost
For purposes of this paragraph, the term "applicable employer cost" means, with respect to any taxable year, the amount determined by dividing—
(i) the qualified current retiree liabilities of the employer for such taxable year determined—
(I) separately with respect to applicable health benefits and applicable life insurance benefits,
(II) without regard to any reduction under subsection (e)(1)(B), and
(III) in the case of a taxable year in which there was no qualified transfer, in the same manner as if there had been such a transfer at the end of the taxable year, by
(ii) the number of individuals to whom coverage was provided during such taxable year for the benefits with respect to which the determination under clause (i) is made.
(C) Election to compute cost separately
An employer may elect to have this paragraph applied separately for applicable health benefits with respect to individuals eligible for benefits under title XVIII of the Social Security Act at any time during the taxable year and with respect to individuals not so eligible, and separately for applicable life insurance benefits with respect to individuals age 65 or older at any time during the taxable year and with respect to individuals under age 65 during the taxable year.
(D) Cost maintenance period
For purposes of this paragraph, the term "cost maintenance period" means the period of 5 taxable years (7 taxable years in the case of a transfer to which subsection (e)(7) applies) beginning with the taxable year in which the qualified transfer occurs. If a taxable year is in two or more overlapping cost maintenance periods, this paragraph shall be applied by taking into account the highest applicable employer cost required to be provided under subparagraph (A) for such taxable year.
(E) Regulations
(i) In general
The Secretary shall prescribe such regulations as may be necessary to prevent an employer who significantly reduces retiree health coverage or retiree life insurance coverage, as the case may be, during the cost maintenance period from being treated as satisfying the minimum cost requirement of this subsection.
(ii) Insignificant cost reductions for retiree health coverage permitted
(I) In general
An eligible employer shall not be treated as failing to meet the requirements of this paragraph for any taxable year if, in lieu of any reduction of retiree health coverage permitted under the regulations prescribed under clause (i), the employer reduces applicable employer cost by an amount not in excess of the reduction in costs which would have occurred if the employer had made the maximum permissible reduction in retiree health coverage under such regulations. In applying such regulations to any subsequent taxable year, any reduction in applicable employer cost under this clause shall be treated as if it were an equivalent reduction in retiree health coverage.
(II) Eligible employer
For purposes of subclause (I), an employer shall be treated as an eligible employer for any taxable year if, for the preceding taxable year, the qualified current retiree liabilities of the employer with respect to applicable health benefits were at least 5 percent of the gross receipts of the employer. For purposes of this subclause, the rules of paragraphs (2), (3)(B), and (3)(C) of section 448(c) shall apply in determining the amount of an employer's gross receipts.
(d) Limitations on employer
For purposes of this title—
(1) Deduction limitations
No deduction shall be allowed—
(A) for the transfer of any amount to a health benefits account, or an applicable life insurance account, in a qualified transfer (or any retransfer to the plan under subsection (c)(1)(B)),
(B) for qualified current retiree liabilities paid out of the assets (and income) described in subsection (c)(1), or
(C) for any amounts to which subparagraph (B) does not apply and which are paid for qualified current retiree liabilities for the taxable year to the extent such amounts are not greater than the excess (if any) of—
(i) the amount determined under subparagraph (A) (and income allocable thereto), over
(ii) the amount determined under subparagraph (B).
(2) No contributions allowed
An employer may not contribute any amount to a health benefits account or welfare benefit fund (as defined in section 419(e)(1)) with respect to qualified current retiree liabilities for which transferred assets are required to be used under subsection (c)(1).
(e) Definition and special rules
For purposes of this section—
(1) Qualified current retiree liabilities
For purposes of this section—
(A) In general
The term "qualified current retiree liabilities" means, with respect to any taxable year, the aggregate amounts (including administrative expenses) which would have been allowable as a deduction to the employer for such taxable year with respect to applicable health benefits and applicable life insurance benefits provided during such taxable year if—
(i) such benefits were provided directly by the employer, and
(ii) the employer used the cash receipts and disbursements method of accounting.
For purposes of the preceding sentence, the rule of section 419(c)(3)(B) shall apply.
(B) Reductions for amounts previously set aside
The amount determined under subparagraph (A) shall be reduced by the amount (determined separately for applicable health benefits and applicable life insurance benefits) which bears the same ratio to such amount as—
(i) the value (as of the close of the plan year preceding the year of the qualified transfer) of the assets in all health benefits accounts or applicable life insurance accounts or welfare benefit funds (as defined in section 419(e)(1)) set aside to pay for the qualified current retiree liability, bears to
(ii) the present value of the qualified current retiree liabilities for all plan years (determined without regard to this subparagraph).
(C) Applicable health benefits
The term "applicable health benefits" means health benefits or coverage which are provided to—
(i) retired employees who, immediately before the qualified transfer, are entitled to receive such benefits by reason of retirement and who are entitled to pension benefits under the plan, and
(ii) their spouses and dependents.
(D) Applicable life insurance benefits
The term "applicable life insurance benefits" means group-term life insurance coverage provided to retired employees who, immediately before the qualified transfer, are entitled to receive such coverage by reason of retirement and who are entitled to pension benefits under the plan, but only to the extent that such coverage is provided under a policy for retired employees and the cost of such coverage is excludable from the retired employee's gross income under section 79.
(E) Key employees excluded
If an employee is a key employee (within the meaning of section 416(i)(1)) with respect to any plan year ending in a taxable year, such employee shall not be taken into account in computing qualified current retiree liabilities for such taxable year or in calculating applicable employer cost under subsection (c)(3)(B).
(2) Excess pension assets
The term "excess pension assets" means the excess (if any) of—
(A) the lesser of—
(i) the fair market value of the plan's assets (reduced by the prefunding balance and funding standard carryover balance determined under section 430(f)), or
(ii) the value of plan assets as determined under section 430(g)(3) after reduction under section 430(f), over
(B) 125 percent of the sum of the funding target and the target normal cost determined under section 430 for such plan year.
(3) Health benefits account
The term "health benefits account" means an account established and maintained under section 401(h).
(4) Applicable life insurance account
The term "applicable life insurance account" means a separate account established and maintained for amounts transferred under this section for qualified current retiree liabilities based on premiums for applicable life insurance benefits.
(5) Coordination with sections 430 and 433
In the case of a qualified transfer, any assets so transferred shall not, for purposes of this section and sections 430 and 433, be treated as assets in the plan.
(6) Application to multiemployer plans
In the case of a multiemployer plan, this section shall be applied to any such plan—
(A) by treating any reference in this section to an employer as a reference to all employers maintaining the plan (or, if appropriate, the plan sponsor), and
(B) in accordance with such modifications of this section (and the provisions of this title relating to this section) as the Secretary determines appropriate to reflect the fact the plan is not maintained by a single employer.
(7) Special rule for de minimis transfers
(A) In general
In the case of a transfer of an amount which is not more than 1.75 percent of the amount determined under paragraph (2)(A) by a plan which meets the requirements of subparagraph (B), paragraph (2)(B) shall be applied by substituting "110 percent" for "125 percent".
(B) Two-year lookback requirement
A plan is described in this subparagraph if, as of any valuation date in each of the 2 plan years immediately preceding the plan year in which the transfer occurs, the amount determined under paragraph (2)(A) exceeded 110 percent of the sum of the funding target and the target normal cost determined under section 430 for each such plan year.
(f) Qualified transfers to cover future retiree costs and collectively bargained retiree benefits
(1) In general
An employer maintaining a defined benefit plan (other than a multiemployer plan) may, in lieu of a qualified transfer, elect for any taxable year to have the plan make—
(A) a qualified future transfer, or
(B) a collectively bargained transfer.
Except as provided in this subsection, a qualified future transfer and a collectively bargained transfer shall be treated for purposes of this title and the Employee Retirement Income Security Act of 1974 as if it were a qualified transfer.
(2) Qualified future and collectively bargained transfers
For purposes of this subsection—
(A) In general
The terms "qualified future transfer" and "collectively bargained transfer" mean a transfer which meets all of the requirements for a qualified transfer, except that—
(i) the determination of excess pension assets shall be made under subparagraph (B),
(ii) the limitation on the amount transferred shall be determined under subparagraph (C),
(iii) the minimum cost requirements of subsection (c)(3) shall be modified as provided under subparagraph (D), and
(iv) in the case of a collectively bargained transfer, the requirements of subparagraph (E) shall be met with respect to the transfer.
(B) Excess pension assets
(i) In general
(I) Determination
In determining excess pension assets for purposes of this subsection, subsection (e)(2)(B) shall be applied by substituting "120 percent" for "125 percent".
(II) Special rule for collectively bargained transfers
In determining excess pension assets for purposes of a collectively bargained transfer, subsection (e)(7) shall not apply.
(ii) Requirement to maintain funded status
If, as of any valuation date of any plan year in the transfer period, the amount determined under subsection (e)(2)(B) (after application of clause (i)) exceeds the amount determined under subsection (e)(2)(A), either—
(I) the employer maintaining the plan shall make contributions to the plan in an amount not less than the amount required to reduce such excess to zero as of such date, or
(II) there is transferred from the health benefits account or applicable life insurance account, as the case may be, to the plan an amount not less than the amount required to reduce such excess to zero as of such date.
(C) Limitation on amount transferred
Notwithstanding subsection (b)(3), the amount of the excess pension assets which may be transferred—
(i) in the case of a qualified future transfer shall be equal to the sum of—
(I) if the transfer period includes the taxable year of the transfer, the amount determined under subsection (b)(3) for such taxable year, plus
(II) in the case of all other taxable years in the transfer period, the sum of the qualified current retiree liabilities which the plan reasonably estimates, in accordance with guidance issued by the Secretary, will be incurred for each of such years, and
(ii) in the case of a collectively bargained transfer, shall not exceed the amount which is reasonably estimated, in accordance with the provisions of the collective bargaining agreement and generally accepted accounting principles, to be the amount the employer maintaining the plan will pay (whether directly or through reimbursement) out of such account during the collectively bargained cost maintenance period for collectively bargained retiree liabilities.
(D) Minimum cost requirements
(i) In general
The requirements of subsection (c)(3) shall be treated as met if—
(I) in the case of a qualified future transfer, each group health plan or arrangement under which applicable health benefits are provided, and each group-term life insurance plan or arrangement under which applicable life insurance benefits are provided, provides applicable health benefits or applicable life insurance benefits, as the case may be, during the period beginning with the first year of the transfer period and ending with the last day of the 4th year (the 6th year in the case of a transfer to which subsection (e)(7) applies) following the transfer period such that the annual average amount of the applicable employer cost during such period is not less than the applicable employer cost determined under subsection (c)(3)(A) with respect to the transfer, and
(II) in the case of a collectively bargained transfer, each collectively bargained plan under which collectively bargained health benefits or collectively bargained life insurance benefits are provided provides that the collectively bargained employer cost for each taxable year during the collectively bargained cost maintenance period shall not be less than the amount specified by the collective bargaining agreement.
(ii) Election to maintain benefits for future transfers
An employer may elect, in lieu of the requirements of clause (i)(I), to meet the requirements of subsection (c)(3) with respect to applicable health benefits or applicable life insurance benefits by meeting the requirements of such subsection (as in effect before the amendments made by section 535 of the Tax Relief Extension Act of 1999) for each of the years described in the period under clause (i)(I). Such election may be made separately with respect to applicable health benefits and applicable life insurance benefits. In the case of an election with respect to applicable life insurance benefits, the first sentence of this clause shall be applied as if subsection (c)(3) as in effect before the amendments made by such Act applied to such benefits.
(iii) Collectively bargained employer cost
For purposes of this subparagraph, the term "collectively bargained employer cost" means the average cost per covered individual of providing collectively bargained health benefits, collectively bargained life insurance benefits, or both, as the case may be, as determined in accordance with the applicable collective bargaining agreement. Such agreement may provide for an appropriate reduction in the collectively bargained employer cost to take into account any portion of the collectively bargained health benefits, collectively bargained life insurance benefits, or both, as the case may be, that is provided or financed by a government program or other source.
(E) Special rules for collectively bargained transfers
(i) In general
A collectively bargained transfer shall only include a transfer which—
(I) is made in accordance with a collective bargaining agreement,
(II) before the transfer, the employer designates, in a written notice delivered to each employee organization that is a party to the collective bargaining agreement, as a collectively bargained transfer in accordance with this section, and
(III) involves a defined benefit plan maintained by an employer which, in its taxable year ending in 2005, provided health benefits or coverage to retirees and their spouses and dependents under all of the health benefit plans maintained by the employer, but only if the aggregate cost (including administrative expenses) of such benefits or coverage which would have been allowable as a deduction to the employer (if such benefits or coverage had been provided directly by the employer and the employer used the cash receipts and disbursements method of accounting) is at least 5 percent of the gross receipts of the employer (determined in accordance with the last sentence of subsection (c)(3)(E)(ii)(II)) for such taxable year, or a plan maintained by a successor to such employer.
(ii) Use of assets
Any assets transferred to a health benefits account, or an applicable life insurance account, in a collectively bargained transfer (and any income allocable thereto) shall be used only to pay collectively bargained retiree liabilities (other than liabilities of key employees not taken into account under paragraph (6)(B)(iii)) for the taxable year of the transfer or for any subsequent taxable year during the collectively bargained cost maintenance period (whether directly or through reimbursement).
(3) Coordination with other transfers
In applying subsection (b)(3) to any subsequent transfer during a taxable year in a transfer period or collectively bargained cost maintenance period, qualified current retiree liabilities shall be reduced by any such liabilities taken into account with respect to the qualified future transfer or collectively bargained transfer to which such period relates.
(4) Special deduction rules for collectively bargained transfers
In the case of a collectively bargained transfer—
(A) the limitation under subsection (d)(1)(C) shall not apply, and
(B) notwithstanding subsection (d)(2), an employer may contribute an amount to a health benefits account or welfare benefit fund (as defined in section 419(e)(1)) with respect to collectively bargained retiree liabilities for which transferred assets are required to be used under subsection (c)(1)(B), and the deductibility of any such contribution shall be governed by the limits applicable to the deductibility of contributions to a welfare benefit fund under a collective bargaining agreement (as determined under section 419A(f)(5)(A)) without regard to whether such contributions are made to a health benefits account or welfare benefit fund and without regard to the provisions of section 404 or the other provisions of this section.
The Secretary shall provide rules to ensure that the application of this paragraph does not result in a deduction being allowed more than once for the same contribution or for 2 or more contributions or expenditures relating to the same collectively bargained retiree liabilities.
(5) Transfer period
For purposes of this subsection, the term "transfer period" means, with respect to any transfer, a period of consecutive taxable years (not less than 2) specified in the election under paragraph (1) which begins and ends during the 10-taxable-year period beginning with the taxable year of the transfer.
(6) Terms relating to collectively bargained transfers
For purposes of this subsection—
(A) Collectively bargained cost maintenance period
The term "collectively bargained cost maintenance period" means, with respect to each covered retiree and his covered spouse and dependents, the shorter of—
(i) the remaining lifetime of such covered retiree and, in the case of a transfer to a health benefits account, his covered spouse and dependents, or
(ii) the period of coverage provided by the collectively bargained plan (determined as of the date of the collectively bargained transfer) with respect to such covered retiree and, in the case of a transfer to a health benefits account, his covered spouse and dependents.
(B) Collectively bargained retiree liabilities
(i) In general
The term "collectively bargained retiree liabilities" means the present value, as of the beginning of a taxable year and determined in accordance with the applicable collective bargaining agreement, of all collectively bargained health benefits, and collectively bargained life insurance benefits, (including administrative expenses) for such taxable year and all subsequent taxable years during the collectively bargained cost maintenance period.
(ii) Reduction for amounts previously set aside
The amount determined under clause (i) shall be reduced by the value (as of the close of the plan year preceding the year of the collectively bargained transfer) of the assets in all health benefits accounts, applicable life insurance accounts, or welfare benefit funds (as defined in section 419(e)(1)) set aside to pay for the collectively bargained retiree liabilities. The preceding sentence shall be applied separately for collectively bargained health benefits and collectively bargained life insurance benefits.
(iii) Key employees excluded
If an employee is a key employee (within the meaning of section 416(i)(1)) with respect to any plan year ending in a taxable year, such employee shall not be taken into account in computing collectively bargained retiree liabilities for such taxable year or in calculating collectively bargained employer cost under subsection (c)(3)(C).
(C) Collectively bargained health benefits
The term "collectively bargained health benefits" means health benefits or coverage—
(i) which are provided to retired employees who, immediately before the collectively bargained transfer, are entitled to receive such benefits by reason of retirement and who are entitled to pension benefits under the plan, and their spouses and dependents, and
(ii) if specified by the provisions of the collective bargaining agreement governing the collectively bargained transfer, which will be provided at retirement to employees who are not retired employees at the time of the transfer and who are entitled to receive such benefits and who are entitled to pension benefits under the plan, and their spouses and dependents.
(D) Collectively bargained life insurance benefits
The term "collectively bargained life insurance benefits" means, with respect to any collectively bargained transfer—
(i) applicable life insurance benefits which are provided to retired employees who, immediately before the transfer, are entitled to receive such benefits by reason of retirement, and
(ii) if specified by the provisions of the collective bargaining agreement governing the transfer, applicable life insurance benefits which will be provided at retirement to employees who are not retired employees at the time of the transfer.
(E) Collectively bargained plan
The term "collectively bargained plan" means a group health plan or arrangement for retired employees and their spouses and dependents, or a group-term life insurance plan or arrangement for retired employees, that is maintained pursuant to 1 or more collective bargaining agreements.
(7) Election to end transfer period
(A) In general
In the case of an employer maintaining a plan which has made a qualified future transfer under this subsection, such employer may, not later than December 31, 2021, elect to terminate the transfer period with respect to such transfer effective as of any taxable year specified by the taxpayer that begins after the date of such election.
(B) Amounts transferred to plan on termination
Any assets transferred to a health benefits account, or an applicable life insurance account, in a qualified future transfer (and any income allocable thereto) which are not used as of the effective date of the election to terminate the transfer period with respect to such transfer under subparagraph (A), shall be transferred out of the account to the transferor plan within a reasonable period of time. The transfer required by this subparagraph shall be treated as an employer reversion for purposes of section 4980 (other than subsection (d) thereof), unless before the end of the 5-year period beginning after the original transfer period an equivalent amount is transferred back to such health benefits account, or applicable life insurance account, as the case may be. Any such transfer back pursuant to the preceding sentence may be made without regard to section 401(h)(1).
(C) Minimum cost requirements continue
The requirements of subsection (c)(3) and paragraph (2)(D) shall apply with respect to a qualified future transfer without regard to any election under subparagraph (A) with respect to such transfer.
(D) Modified maintenance of funded status during original transfer period
The requirements of paragraph (2)(B) shall apply without regard to any such election, and clause (i) thereof shall be applied by substituting "100 percent" for "120 percent" during the original transfer period.
(E) Continued maintenance of funding status after original transfer period
(i) In general
In the case of a plan with respect to which there is an excess described in paragraph (2)(B)(ii) as of the valuation date of the plan year in the last year of the original transfer period, paragraph (2)(B) shall apply for 5 years after the original transfer period in the same manner as during a transfer period by substituting the applicable percentage for "120 percent" in clause (i) thereof.
(ii) Applicable percentage
For purposes of this subparagraph, the applicable percentage shall be determined under the following table:
| For the valuation date of the plan year in the following year after the original transfer period: | The applicable percentage is: |
|---|---|
| 1st | 104 percent |
| 2nd | 108 percent |
| 3rd | 112 percent |
| 4th | 116 percent |
| 5th | 120 percent |
(iii) Early termination of continued maintenance period when 120 percent funding reached
If, as of the valuation date of any plan year in the first 4 years after the original transfer period with respect to a qualified future transfer, there would be no excess determined under this subparagraph were the applicable percentage 120 percent, then this subparagraph shall cease to apply with respect to the plan.
(F) Original transfer period
For purposes of this paragraph, the term "original transfer period" means the transfer period under this subsection with respect to a qualified future transfer determined without regard to the election under subparagraph (A).
(g) Segment rates determined without pension stabilization
For purposes of this section, section 430 shall be applied without regard to subsection (h)(2)(C)(iv) thereof.
(Added
Editorial Notes
References in Text
The Social Security Act, referred to in subsec. (c)(3)(C), is act Aug. 14, 1935, ch. 531,
The Employee Retirement Income Security Act of 1974, referred to in subsec. (f)(1), is
Subsection (c)(3) as in effect before the amendments made by section 535 of the Tax Relief Extension Act of 1999, referred to in subsec. (f)(2)(D)(ii), is subsec. (c)(3) of this section prior to its general amendment by section 535(b)(1) of
Amendments
2022—Subsec. (b)(4).
Subsec. (c)(3)(D).
Subsec. (e)(7).
Subsec. (f)(2)(B)(i).
Subsec. (f)(2)(D)(i)(I).
2020—Subsec. (f)(7).
2018—Subsec. (c)(1)(A).
2015—Subsec. (b)(4).
2014—Subsec. (e)(5).
2012—
Subsec. (a).
Subsec. (b)(1)(A).
Subsec. (b)(2).
Subsec. (b)(2)(A).
Subsec. (b)(3).
Subsec. (b)(4).
Subsec. (b)(5).
Subsec. (c)(1)(A).
Subsec. (c)(1)(B).
Subsec. (c)(1)(B)(i).
Subsec. (c)(1)(C).
Subsec. (c)(2).
Subsec. (c)(3)(A).
Subsec. (c)(3)(B)(i).
Subsec. (c)(3)(B)(ii).
Subsec. (c)(3)(C).
Subsec. (c)(3)(E)(i).
Subsec. (c)(3)(E)(ii).
Subsec. (c)(3)(E)(ii)(II).
Subsec. (d)(1)(A).
Subsec. (d)(2).
Subsec. (e)(1).
Subsec. (e)(1)(A).
Subsec. (e)(1)(B).
Subsec. (e)(1)(B)(i).
Subsec. (e)(1)(C)(i).
Subsec. (e)(1)(D), (E).
Subsec. (e)(4) to (6).
Subsec. (f).
Subsec. (f)(2)(B)(ii)(II).
Subsec. (f)(2)(C)(ii).
Subsec. (f)(2)(D)(i)(I).
Subsec. (f)(2)(D)(i)(II).
Subsec. (f)(2)(D)(ii).
Subsec. (f)(2)(D)(iii).
Subsec. (f)(2)(E)(i)(III).
Subsec. (f)(2)(E)(ii).
Subsec. (f)(4).
Subsec. (f)(6)(A)(i).
Subsec. (f)(6)(A)(ii).
Subsec. (f)(6)(B).
Subsec. (f)(6)(B)(i).
Subsec. (f)(6)(B)(ii).
Subsec. (f)(6)(B)(iii).
Subsec. (f)(6)(C).
Subsec. (f)(6)(C)(i).
Subsec. (f)(6)(C)(ii).
Subsec. (f)(6)(D).
Subsec. (f)(6)(E).
Subsec. (g).
2008—Subsec. (c)(1)(A).
Subsec. (f)(2)(D)(i)(I).
2007—Subsec. (c)(3)(A).
Subsec. (e)(2)(B).
Subsec. (f)(2)(E)(i)(III).
2006—Subsec. (a).
Subsec. (e)(2).
"(A) the amount determined under section 412(c)(7)(A)(ii), over
"(B) the greater of—
"(i) the amount determined under section 412(c)(7)(A)(i), or
"(ii) 125 percent of current liability (as defined in section 412(c)(7)(B)).
The determination under this paragraph shall be made as of the most recent valuation date of the plan preceding the qualified transfer."
Subsec. (e)(4).
"(A) any assets transferred in a plan year on or before the valuation date for such year (and any income allocable thereto) shall, for purposes of section 412, be treated as assets in the plan as of the valuation date for such year, and
"(B) the plan shall be treated as having a net experience loss under section 412(b)(2)(B)(iv) in an amount equal to the amount of such transfer (reduced by any amounts transferred back to the pension plan under subsection (c)(1)(B)) and for which amortization charges begin for the first plan year after the plan year in which such transfer occurs, except that such section shall be applied to such amount by substituting '10 plan years' for '5 plan years'."
Subsec. (e)(5).
Subsec. (f).
2004—Subsec. (b)(5).
Subsec. (c)(3)(E).
1999—Subsec. (b)(1)(C)(iii).
Subsec. (b)(5).
Subsec. (c)(3).
Subsec. (e)(1)(D).
1996—
Subsec. (e)(1)(C).
1994—Subsec. (b)(1)(C)(iii).
Subsec. (b)(5).
Subsec. (c)(3).
Subsec. (e)(1)(B).
Subsec. (e)(1)(D).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Effective Date of 2020 Amendment
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2012 Amendment
Amendment by section 40211(a)(2)(D) of
"(1)
"(2)
Effective Date of 2008 Amendment
Amendment by
Effective Date of 2007 Amendment
Effective Date of 2006 Amendment
Amendment by section 114(d) of
Effective Date of 2004 Amendment
Effective Date of 1999 Amendment
"(1)
"(2)
Effective Date of 1994 Amendment
"(1)
"(2)
Effective Date
"(1)
"(2)
Applicability of Amendments by Subtitles A and B of Title I of Pub. L. 109–280
For special rules on applicability of amendments by subtitles A (§§101–108) and B (§§111–116) of title I of