I 

108TH CONGRESS 

1ST SESSION H. R. 2458

To amend the Internal Revenue Code of 1986 to exclude from gross income 

a percentage of lifetime annuity payments, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 12, 2003

Mr. POMEROY (for himself, Mr. ISAKSON, Mr. ENGLISH, and Mr. ANDREWS) 

introduced the following bill; which was referred to the Committee on 

Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to exclude 

from gross income a percentage of lifetime annuity payments, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Secure Annuity Income 

5 for Life Act of 2003’’.

6 SEC. 2. EXCLUSION OF PERCENTAGE OF LIFETIME ANNU7 ITY PAYMENTS. 

8 (a) QUALIFIED PLANS.—Subsection (e) of section 

9 402 of the Internal Revenue Code of 1986 (relating to 
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1 exempt trusts) is amended by adding at the end the fol2 lowing: 

3 ‘‘(7) EXCLUSION OF PERCENTAGE OF LIFETIME

4 ANNUITY PAYMENTS.—

5 ‘‘(A) IN GENERAL.—In the case of a life6 time annuity payment from a qualified trust 

7 (within the meaning of subsection (c)(8)(A)) to 

8 a qualified distributee, gross income shall not 

9 include 15 percent of the amount otherwise in10 cludible in gross income (determined without re11 gard to this paragraph). 

12 ‘‘(B) DEFINITIONS AND SPECIAL RULES.—

13 For purposes of this paragraph—

14 ‘‘(i) LIFETIME ANNUITY PAYMENT.—

15 ‘‘(I) IN GENERAL.—The term 

16 ‘lifetime annuity payment’ means a 

17 distribution which is a part of a series 

18 of substantially equal periodic pay19 ments (made not less frequently than 

20 annually) made over the life of the 

21 qualified distributee or the joint lives 

22 of the qualified distributee and the 

23 qualified distributee’s designated ben24 eficiary. 
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1 ‘‘(II) EXCEPTIONS.—Annuity 

2 payments shall not fail to be treated 

3 as part of a series of substantially 

4 equal periodic payments because the 

5 amount of the periodic payments may 

6 vary in accordance with investment 

7 experience, reallocations among in8 vestment options, actuarial gains or 

9 losses, cost of living indices, or similar 

10 fluctuating criteria. The availability of 

11 a commutation benefit, a minimum 

12 period of payments certain, or a min13 imum amount to be paid in any event 

14 shall not affect the treatment of a dis15 tribution as a lifetime annuity pay16 ment. In the case of lifetime annuity 

17 payments being made to a qualified 

18 trust, payments by the qualified trust 

19 to a qualified distributee of the entire 

20 amount received by the qualified trust 

21 with respect to the qualified dis22 tributee shall constitute lifetime annu23 ity payments. 

24 ‘‘(ii) QUALIFIED DISTRIBUTEE.—The 

25 term ‘qualified distributee’ means the em-
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1 ployee, the surviving spouse of the em2 ployee, and an alternate payee who is the 

3 spouse or former spouse of the employee. 

4 ‘‘(iii) LIMITATION.—With respect to 

5 any qualified distributee, subparagraph (A) 

6 shall not apply to any lifetime annuity pay7 ment to the extent that such payments, 

8 when added to all previous payments under 

9 such annuity to such qualified distributee 

10 during the taxable year, exceed 50 percent 

11 of the applicable amount for such year 

12 under section 415(c)(1)(A). For purposes 

13 of this clause, all lifetime annuity pay14 ments received by a qualified distributee 

15 shall be taken into account to the extent 

16 that such payments are subject to this 

17 paragraph or to rules similar to the rules 

18 of this paragraph. 

19 ‘‘(C) RECAPTURE TAX.—

20 ‘‘(i) IN GENERAL.—If—

21 ‘‘(I) a portion of a lifetime annu22 ity payment is not includible in gross

23 income by reason of subparagraph 

24 (A), and 
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1 ‘‘(II) the series of payments of 

2 which such payment is a part is sub3 sequently modified (other than by rea4 son of death or disability) so that 

5 some or all future payments are not 

6 lifetime annuity payments, 

7 the qualified distributee’s gross income for 

8 the first taxable year in which such modi9 fication occurs shall be increased by an 

10 amount, determined under rules prescribed 

11 by the Secretary, equal to the amount 

12 which (but for subparagraph (A)) would 

13 have been includible in the qualified 

14 distributee’s gross income if the modifica15 tion had been in effect at all times, plus in16 terest for the deferral period. 

17 ‘‘(ii) DEFERRAL PERIOD.—For pur18 poses of clause (i), the term ‘deferral pe19 riod’ means the period beginning with the 

20 taxable year in which (without regard to 

21 subparagraph (A)) the payment would 

22 have been includible in gross income and 

23 ending with the taxable year in which the 

24 modification described in clause (i)(II) oc25 curs.’’. 
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1 (b) SECTION 403(a) PLANS.—Paragraph (4) of sec2 tion 403(a) of such Code (relating to qualified annuity 

3 plans) is amended by adding at the end the following new 

4 subparagraph: 

5 ‘‘(C) EXCLUSION OF PERCENTAGE OF

6 LIFETIME ANNUITY PAYMENTS.—Rules similar 

7 to the rules of section 402(e)(7) shall apply to 

8 distributions under any annuity contract to 

9 which this subsection applies.’’. 

10 (c) SECTION 403(b) PLANS.—Section 403(b) of such 

11 Code (relating to purchased annuities) is amended by add12 ing at the end the following new paragraph: 

13 ‘‘(14) EXCLUSION OF PERCENTAGE OF LIFE14 TIME ANNUITY PAYMENTS.—Rules similar to the 

15 rules of section 402(e)(7) shall apply to distributions 

16 under any annuity contract to which this subsection 

17 applies.’’. 

18 (d) IRAS.—Section 408(d) of such Code (relating to 

19 tax treatment of distributions) is amended by adding at 

20 the end the following new paragraph: 

21 ‘‘(8) EXCLUSION OF PERCENTAGE OF LIFETIME

22 ANNUITY PAYMENTS.—Rules similar to the rules of 

23 section 402(e)(7) shall apply to distributions out of 

24 an individual retirement plan.’’. 
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1 (e) SECTION 457 PLANS.—Section 457(e) of such 

2 Code (relating to special rules for deferred compensation 

3 plans) is amended by adding at the end the following new 

4 paragraph: 

5 ‘‘(18) EXCLUSION OF PERCENTAGE OF LIFE6 TIME ANNUITY PAYMENTS.—Rules similar to the 

7 rules of section 402(e)(7) shall apply to distributions 

8 from an eligible deferred compensation plan of an el9 igible employer described in subsection (e)(1)(A).’’. 

10 (f ) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to distributions made after Decem12 ber 31, 2003. 

13 SEC. 3. NOTICE OF EQUIVALENT ANNUITY. 

14 (a) IN GENERAL.—Paragraph (1) of section 402(f) 

15 of the Internal Revenue Code of 1986 is amended by strik16 ing ‘‘and’’ at the end of subparagraph (D), by striking 

17 the period at the end of subparagraph (E) and inserting 

18 ‘‘and’’, and by inserting after subparagraph (E) the fol19 lowing new subparagraph: 

20 ‘‘(F) in the case of a participant receiving 

21 a benefit to which section 401(a)(11)(A) does 

22 not apply, in accordance with rules prescribed 

23 by the Secretary, of the amount of a lifetime 

24 annuity payment (as defined in section 
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1 402(e)(7)(D)) that is the actuarial equivalent of 

2 account balances specified in such rules.’’. 

3 (b) RULES AND MODEL NOTICE.—The Secretary of 

4 the Treasury shall, within 180 days of the date of enact5 ment of this Act, issue rules and a model notice provision 

6 under section 402(f)(1)(F) of the Internal Revenue Code 

7 of 1986. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to distributions made after the 

10 date that is one year after the date of enactment of this 

11 Act.

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