I 

109TH CONGRESS 

1ST SESSION H. R. 2951 

To amend the Internal Revenue Code of 1986 to encourage guaranteed 

lifetime income payments by excluding from income a portion of such 

payments. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 16, 2005 

Mr. POMEROY 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 encourage 

guaranteed lifetime income payments by excluding from 

income a portion of such payments. 

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 ‘‘Lifetime Pension An5 nuity for You Act of 2005’’. 

6 SEC. 2. EXCLUSION FOR LIFETIME INCOME PAYMENTS. 

7 (a) LIFETIME INCOME PAYMENTS UNDER ANNUITY

8 CONTRACTS.—Subsection (b) of section 72 of the Internal 
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1 Revenue Code of 1986 is amended by adding at the end 

2 the following new paragraph: 

3 ‘‘(5) EXCLUSION FOR LIFETIME INCOME PAY4 MENTS.— 

5 ‘‘(A) IN GENERAL.—In the case of lifetime 

6 income payments received under one or more 

7 annuity contracts (which are not taken into ac8 count under subparagraph (B)) in any taxable 

9 year, gross income shall not include 50 percent 

10 of the portion of such payments which would 

11 (without regard to this paragraph) be includible 

12 in gross income under this section. For pur13 poses of the preceding sentence, the amount ex14 cludible from gross income in any taxable year 

15 shall not exceed $5,000 (twice such amount in 

16 the case of joint return). 

17 ‘‘(B) LOWER PERCENTAGE EXCLUSION

18 AND SEPARATE LIMITATION FOR ANNUITIES

19 PROVIDED UNDER CERTAIN RETIREMENT

20 PLANS.—In the case of lifetime income pay21 ments received under any qualified retirement 

22 plan (as defined in section 4974(c)), or any eli23 gible deferred compensation plan (as defined in 

24 section 457(b)) of an eligible employer de25 scribed in section 457(e)(1)(A), gross income 
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1 shall not include 25 percent of the portion of 

2 such payments which would (without regard to 

3 this paragraph) be includible in gross income 

4 under this section. For purposes of the pre5 ceding sentence, the amount excludible from 

6 gross income in any taxable year shall not ex7 ceed $5,000 (twice such amount in the case of 

8 a joint return). 

9 ‘‘(C) COST-OF-LIVING ADJUSTMENT.—In 

10 the case of taxable years beginning after De11 cember 31, 2006, the $5,000 amounts in sub12 paragraphs (A) and (B) shall each be increased 

13 by an amount equal to— 

14 ‘‘(i) such dollar amount, multiplied by 

15 ‘‘(ii) the cost-of-living adjustment de16 termined under section 1(f)(3) for the cal17 endar year in which the taxable year be18 gins, determined by substituting ‘calendar 

19 year 2005’ for ‘calendar year 1992’ in sub20 paragraph (B) thereof. 

21 If any amount as increased under the preceding 

22 sentence is not a multiple of $100, such amount 

23 shall be rounded to the next lower multiple of 

24 $100. 
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1 ‘‘(D) APPLICATION OF PARAGRAPH.—Sub2 paragraphs (A) and (B) shall not apply to— 

3 ‘‘(i) any amount received under a de4 fined benefit plan, 

5 ‘‘(ii) any amount paid under an annu6 ity contract that is received by the bene7 ficiary under the contract— 

8 ‘‘(I) after the death of the annu9 itant in the case of payments de10 scribed in subsection (c)(5)(A)(ii)(III), 

11 unless the beneficiary is the surviving 

12 spouse of the annuitant, or 

13 ‘‘(II) after the death of the annu14 itant and joint annuitant in the case 

15 of payments described in subsection 

16 (c)(5)(A)(ii)(IV), unless the bene17 ficiary is the surviving spouse of the 

18 last to die of the annuitant and the 

19 joint annuitant, or 

20 ‘‘(iii) any annuity contract that is a 

21 qualified funding asset (as defined in sec22 tion 130(d)), but without regard to wheth23 er there is a qualified assignment. 

24 ‘‘(E) INVESTMENT IN THE CONTRACT.— 

25 For purposes of this section, the investment in 
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1 the contract shall be determined without regard 

2 to this paragraph.’’. 

3 (b) DEFINITIONS.—Subsection (c) of section 72 of 

4 such Code is amended by adding at the end the following 

5 new paragraph: 

6 ‘‘(5) LIFETIME INCOME PAYMENTS.— 

7 ‘‘(A) IN GENERAL.—For purposes of sub8 sections (b) and (x), the term ‘lifetime income 

9 payment’ means any amount received as an an10 nuity under any portion of an annuity contract, 

11 but only if— 

12 ‘‘(i) the only person (or persons in the 

13 case of payments described in subclause 

14 (II) or (IV) of clause (ii)) legally entitled 

15 (by operation of the contract, a trust, or 

16 other legally enforceable means) to receive 

17 such amount during the life of the annu18 itant or joint annuitant is such annuitant 

19 or joint annuitant, and 

20 ‘‘(ii) such amount is part of a series 

21 of substantially equal periodic payments 

22 made not less frequently than annually 

23 over— 

24 ‘‘(I) the life of the annuitant, 
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1 ‘‘(II) the lives of the annuitant 

2 and a joint annuitant, but only to the 

3 extent that the requirement of sub4 paragraph (D) is met, 

5 ‘‘(III) the life of the annuitant 

6 with a minimum period of payments 

7 or with a minimum amount that must 

8 be paid in any event, or 

9 ‘‘(IV) the lives of the annuitant 

10 and a joint annuitant with a minimum 

11 period of payments or with a min12 imum amount that must be paid in 

13 any event, but only to the extent that 

14 the requirement of subparagraph (D) 

15 is met. 

16 ‘‘(iii) EXCEPTIONS.—For purposes of 

17 clause (ii), annuity payments shall not fail 

18 to be treated as part of a series of substan19 tially equal periodic payments— 

20 ‘‘(I) because the amount of the 

21 periodic payments may vary in accord22 ance with investment experience, re23 allocations among investment options, 

24 actuarial gains or losses, cost of living 

25 indices, a constant percentage (not 
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1 less than zero) applied not less fre2 quently than annually, or similar fluc3 tuating criteria, 

4 ‘‘(II) due to the existence of, or 

5 modification of the duration of, a pro6 vision in the contract permitting a 

7 lump sum withdrawal after the annu8 ity starting date, 

9 ‘‘(III) because the period between 

10 each such payment is lengthened or 

11 shortened, but only if at all times 

12 such period is no longer than one cal13 endar year, 

14 ‘‘(IV) because the payments are 

15 reduced on account of a qualified do16 mestic relations order (within the 

17 meaning of section 414(p)) which be18 comes effective after the commence19 ment of the annuity payments, or 

20 ‘‘(V) because, in the case of an 

21 annuity payable over the lives of the 

22 annuitant and a joint annuitant, the 

23 amounts paid after the death of the 

24 annuitant or joint annuitant are less 
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1 than the amounts payable during 

2 their joint lives. 

3 ‘‘(B) MINIMUM PERIOD OF PAYMENTS.— 

4 For purposes of subparagraph (A), the term 

5 ‘minimum period of payments’ means a guaran6 teed term of payments that does not exceed the 

7 greater of 10 years or— 

8 ‘‘(i) the life expectancy of the annu9 itant as of the annuity starting date, in the 

10 case of lifetime income payments described 

11 in subparagraph (A)(ii)(III), or 

12 ‘‘(ii) the life expectancy of the annu13 itant and joint annuitant as of the annuity 

14 starting date, in the case of lifetime in15 come payments described in subparagraph 

16 (A)(ii)(IV). 

17 For purposes of this subparagraph, life expect18 ancy shall be computed with reference to the ta19 bles prescribed by the Secretary under para20 graph (3). For purposes of subsection 

21 (x)(1)(C)(ii), the minimum period of payments 

22 shall be determined as of the annuity starting 

23 date and reduced by one for each subsequent 

24 year. 
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1 ‘‘(C) MINIMUM AMOUNT THAT MUST BE

2 PAID IN ANY EVENT.—For purposes of subpara3 graph (A), the term ‘minimum amount that 

4 must be paid in any event’ means an amount 

5 payable to the designated beneficiary under an 

6 annuity contract that is in the nature of a re7 fund and does not exceed the greater of the 

8 amount applied to produce the lifetime income 

9 payments under the contract or the amount, if 

10 any, available for withdrawal under the contract 

11 on the date of death. 

12 ‘‘(D) SPECIAL RULES FOR JOINT ANNU13 ITANTS.—For purposes of subclauses (II) and 

14 (IV) of subparagraph (A)(ii), the requirement 

15 of this subparagraph is met only to the extent 

16 that— 

17 ‘‘(i) the annuitant is the spouse of the 

18 joint annuitant as of the annuity starting 

19 date, 

20 ‘‘(ii) the difference in age between the 

21 annuitant and joint annuitant is 15 years 

22 or less, 

23 ‘‘(iii) in the case of any payment re24 ceived under an annuity contract described 

25 in subsection (b)(5)(A), such payment is 
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1 made to or for the benefit of the individual 

2 who furnished the consideration for such 

3 annuity contract, or 

4 ‘‘(iv) in the case of any payment re5 ceived under a plan described in subsection 

6 (b)(5)(B), such payment is made to or for 

7 the benefit of the employee or the indi8 vidual for whose benefit the plan was es9 tablished. 

10 ‘‘(6) ANNUITY CONTRACT.—For purposes of 

11 paragraph (5) and subsection (b)(5), the term ‘an12 nuity contract’ means a commercial annuity (as de13 fined by section 3405(e)(6)), other than an endow14 ment or life insurance contract.’’. 

15 (c) RECAPTURE TAX FOR LIFETIME INCOME PAY16 MENTS.—Section 72 of such Code is amended by redesig17 nating subsection (x) as subsection (y) and by inserting 

18 after subsection (v) the following new subsection: 

19 ‘‘(x) RECAPTURE TAX FOR MODIFICATIONS TO OR

20 REDUCTIONS IN LIFETIME INCOME PAYMENTS.— 

21 ‘‘(1) IN GENERAL.—If any amount received 

22 under an annuity contract is excluded from income 

23 by reason of subsection (b)(5) (relating to exclusion 

24 for lifetime income payments), and— 
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1 ‘‘(A) the series of payments under such 

2 contract is subsequently modified so any future 

3 payments are not lifetime income payments, 

4 ‘‘(B) after the date of receipt of the first 

5 lifetime income payment under the contract an 

6 annuitant receives a lump sum and thereafter is 

7 to receive annuity payments in a reduced 

8 amount under the contract, or 

9 ‘‘(C) after the date of receipt of the first 

10 lifetime income payment under the contract the 

11 dollar amount of any subsequent annuity pay12 ment is reduced and a lump sum is not paid in 

13 connection with the reduction, unless such re14 duction is— 

15 ‘‘(i) due to an event described in sub16 section (c)(5)(A)(iii), or 

17 ‘‘(ii) due to the addition of, or in18 crease in, a minimum period of payments 

19 within the meaning of subsection (c)(5)(B) 

20 or a minimum amount that must be paid 

21 in any event (within the meaning of sub22 section (c)(5)(C)), 

23 then gross income for the first taxable year in 

24 which such modification or reduction occurs 

25 shall be increased by the recapture amount. 
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1 ‘‘(2) RECAPTURE AMOUNT.— 

2 ‘‘(A) IN GENERAL.—For purposes of this 

3 subsection, the recapture amount shall be the 

4 amount, determined under rules prescribed by 

5 the Secretary, equal to the amount that (but for 

6 subsection (b)(5)) would have been includible in 

7 the taxpayer’s gross income if the modification 

8 or reduction described in paragraph (1) had 

9 been in effect at all times, plus interest for the 

10 deferral period at the underpayment rate estab11 lished by section 6621. 

12 ‘‘(B) DEFERRAL PERIOD.—For purposes 

13 of this subsection, the term ‘deferral period’ 

14 means the period beginning with the taxable 

15 year in which (without regard to subsection 

16 (b)(5)) the payment would have been includible 

17 in gross income and ending with the taxable 

18 year in which the modification described in 

19 paragraph (1) occurs. 

20 ‘‘(3) EXCEPTIONS TO RECAPTURE TAX.—Para21 graph (1) shall not apply in the case of any modi22 fication or reduction that occurs because an annu23 itant— 

24 ‘‘(A) dies or becomes disabled (within the 

25 meaning of subsection (m)(7)), 
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1 ‘‘(B) becomes a chronically ill individual 

2 within the meaning of section 7702B(c)(2), or 

3 ‘‘(C) encounters hardship.’’. 

4 (d) LIFETIME DISTRIBUTIONS OF LIFE INSURANCE

5 DEATH BENEFITS.— 

6 (1) IN GENERAL.—Subsection (d) of section 

7 101 of such Code (relating to payment of life insur8 ance proceeds at a date later than death) is amend9 ed by redesignating paragraph (3) as paragraph (4) 

10 and inserting after paragraph (2) the following new 

11 paragraph: 

12 ‘‘(3) EXCLUSION FOR LIFETIME INCOME PAY13 MENTS.— 

14 ‘‘(A) IN GENERAL.—In the case of 

15 amounts to which this subsection applies, gross 

16 income shall not include the lesser of— 

17 ‘‘(i) 50 percent of the portion of life18 time income payments (within the meaning 

19 of section 72(c)(5), applied with the substi20 tutions described in subparagraph (B)) 

21 otherwise includible in gross income under 

22 this section (determined without regard to 

23 this paragraph), or 

24 ‘‘(ii) the amount in effect under sec25 tion 72(b)(5)(A). 
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1 ‘‘(B) RECAPTURE AND OTHER SPECIAL

2 RULES.—For purposes of this paragraph, rules 

3 similar to the rules of subparagraphs (D) and 

4 (E) of section 72(b)(5) and section 72(x) shall 

5 be applied by substituting ‘beneficiary of the 

6 life insurance contract’ for ‘annuitant’ and ‘life 

7 insurance contract’ for ‘annuity contract’ there8 in.’’. 

9 (2) CONFORMING AMENDMENT.—Paragraph (1) 

10 of section 101(d) of such Code is amended by insert11 ing ‘‘or paragraph (3)’’ after ‘‘to the extent not ex12 cluded by the preceding sentence’’. 

13 (e) EFFECTIVE DATE.— 

14 (1) IN GENERAL.—The amendments made by 

15 this section shall apply to amounts received in cal16 endar years beginning after the date of the enact17 ment of this Act. 

18 (2) SPECIAL RULE FOR EXISTING CON19 TRACTS.—In the case of a contract in force on the 

20 date of the enactment of this Act that does not sat21 isfy the requirements of section 72(c)(5)(A) of the 

22 Internal Revenue Code of 1986 (as added by this 

23 section), any modification to such contract (includ24 ing a change in ownership) or to the payments 

25 thereunder that is made to satisfy the requirements 
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1 of such section shall not result in the recognition of 

2 any gain or loss, any amount being included in gross 

3 income, or any addition to tax that otherwise might 

4 result from such modification, but only if the modi5 fication is completed prior to the date that is 2 years 

6 after the date of the enactment of this Act. 

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