1 

" ! HOUSE OF REPRESENTATIVES 116TH CONGRESS

1st Session 

REPT. 116–65 

Part 1 

SETTING EVERY COMMUNITY UP FOR 

RETIREMENT ENHANCEMENT ACT OF 2019 

R E P O R T 

OF THE

COMMITTEE ON WAYS AND MEANS 

HOUSE OF REPRESENTATIVES 

ON

H.R. 1994 

[Including cost estimate of the Congressional Budget Office] 

MAY 16, 2019.—Ordered to be printed 


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SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT 

ACT OF 2019 


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U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

1 

36–385 

" ! HOUSE OF REPRESENTATIVES 116TH CONGRESS

1st Session 

REPT. 116–65 

2019

Part 1 

SETTING EVERY COMMUNITY UP FOR 

RETIREMENT ENHANCEMENT ACT OF 2019 

R E P O R T 

OF THE

COMMITTEE ON WAYS AND MEANS 

HOUSE OF REPRESENTATIVES 

ON

H.R. 1994 

[Including cost estimate of the Congressional Budget Office] 

MAY 16, 2019.—Ordered to be printed 


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(III) 

C O N T E N T S 

Page 

I. SUMMARY AND BACKGROUND ................................................................. 29 

A. Purpose and Summary ......................................................................... 29 

B. Background and Need for Legislation ................................................ 30 

C. Legislative History ............................................................................... 30 

II. EXPLANATION OF THE BILL ...................................................................... 32 

TITLE I—EXPANDING AND PRESERVING RETIREMENT SAVINGS .......... 32 

A. Multiple Employer Plans and Pooled Employer Plans; Reporting 

(sec. 101 of the bill, sec. 413 of the Code, and secs. 3, 103, and 

104 of ERISA) ........................................................................................ 32 

B. Increase in 10 Percent Cap for Automatic Enrollment Safe Harbor 

After First Plan Year (sec. 102 of the bill and sec. 401(k) of the 

Code) ....................................................................................................... 44 

C. Rules Relating to Election of Safe Harbor 401(k) Status (sec. 

103 of the bill and sec. 401(k) of the Code) ......................................... 46 

D. Increase in Credit Limitation for Small Employer Pension Plan 

Startup Costs (sec. 104 of the bill and sec. 45E of the Code) ............ 49 

E. Small Employer Automatic Enrollment Credit (sec. 105 of the 

bill and new sec. 45T of the Code) ....................................................... 50 

F. Certain Taxable Non-Tuition Fellowship and Stipend Payments 

Treated as Compensation for IRA Purposes (sec. 106 of the bill 

and sec. 219 of the Code) ...................................................................... 52 

G. Repeal of Maximum Age for Traditional IRA Contributions (sec. 

107 of the bill and sec. 219 of the Code) .............................................. 53 

Present Law ............................................................................................... 53 

H. Qualified Employer Plans Prohibited From Making Loans 

Through Credit Cards and Other Similar Arrangements (sec. 108 

of the bill and sec. 72(p) of the Code) ................................................... 54 

I. Portability of Lifetime Income Options (sec. 109 of the bill and 

secs. 401(a), 401(k), 403(b), and 457(d) of the Code) .......................... 55 

J. Treatment of Custodial Accounts on Termination of Section 403(b) 

Plans (sec. 110 of the bill and sec. 403(b) of the Code) ...................... 58 

K. Clarification of Retirement Income Account Rules Relating to 

Church-Controlled Organizations (sec. 111 of the bill and sec. 

403(b)(9) of the Code) ............................................................................ 61 

L. Qualified Cash or Deferred Arrangements Must Allow Long-Term 

Employees Working More than 500 But Less than 1,000 Hours 

Per Year to Participate (sec. 112 of the bill and secs. 401(k) and 

410 of the Code) ..................................................................................... 62 

M. Penalty-Free Withdrawals from Retirement Plans for Individuals 

in Case of Birth of Child or Adoption (sec. 113 of the bill and 

secs. 72(t), 401–403, 408, 457, and 3405 of the Code) ........................ 69 

N. Increase in Age for Required Beginning Date for Mandatory Distributions (sec. 114 of the bill and sec. 401(a)(9) of the Code) ........... 71 


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IV 

TITLE I—EXPANDING AND PRESERVING RETIREMENT SAVINGS — 

Continued 

O. Election to Apply Alternative Minimum Funding Standards to 

Certain Single Employer Community Newspaper Plans (sec. 115 

of the bill, sec. 430 of the Code, and sec. 303 of ERISA) .................... 74 

P. Treating Excluded Difficulty of Care Payments as Compensation 

for Determining Retirement Contribution Limitations (sec. 116 of 

the bill and secs. 131, 408, and 415 of the Code) ................................ 78 

TITLE II—ADMINISTRATIVE IMPROVEMENTS ............................................. 80 

A. Plan Adopted by Filing Due Date for Year May be Treated as 

in Effect as of Close of Year (sec. 201 of the bill and sec. 401(b) 

of the Code) ............................................................................................ 80 

B. Combined Annual Report for Group of Plans (sec. 202 of the 

bill, sec. 6058 of the Code, and sec. 104 of ERISA) ............................. 81 

C. Disclosure Regarding Lifetime Income (sec. 203 of the bill and 

sec. 105 of ERISA) ................................................................................. 82 

D. Fiduciary Safe Harbor for Selection of Lifetime Income Provider 

(sec. 204 of the bill and sec. 404 of ERISA) ......................................... 84 

E. Modification of Nondiscrimination Rules to Protect Older, Longer 

Service Participants (sec. 205 of the bill and secs. 401(a)(4) and 

(26) of the Code) ..................................................................................... 87 

F. Modification of PBGC Premiums for CSEC Plans (sec. 206 of 

the bill and sec. 4006 of ERISA) ........................................................... 97 

TITLE III—OTHER BENEFITS ............................................................................ 99 

A. Benefits Provided to Volunteer Firefighters and Emergency Medical Responders (sec. 301 of the bill and sec. 139B of the Code) ....... 99 

B. Expansion of Section 529 Plans (sec. 302 of the bill and sec. 

529 of the Code) ..................................................................................... 100 

TITLE IV—REVENUE PROVISIONS ................................................................... 104 

A. Modification of Required Minimum Distribution Rules for Designated Beneficiaries (sec. 401 of the bill and sec. 401(a)(9) of 

the Code) ................................................................................................ 104 

B. Increase in Penalty for Failure to File (sec. 402 of the bill and 

sec. 6651(a) of the Code) ....................................................................... 112 

C. Increased Penalties for Failure to File Retirement Plan Returns 

(sec. 403 of the bill and sec. 6652(d), (e), and (h) of the Code) .......... 113 

D. Increase Information Sharing to Administer Excise Taxes (sec. 

404 of the bill and sec. 6103(o) of the Code) ........................................ 115 

III. VOTES OF THE COMMITTEE ...................................................................... 117 

IV. BUDGET EFFECTS OF THE BILL ............................................................... 117 

A. Committee Estimate of Budgetary Effects ......................................... 117 

B. Statement Regarding New Budget Authority and Tax Expenditures Budget Authority ......................................................................... 125 

C. Cost Estimate Prepared by the Congressional Budget Office ........... 125 

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE 

HOUSE .......................................................................................................... 131 

A. Committee Oversight Findings and Recommendations .................... 131 

B. Statement of General Performance Goals and Objectives ................ 132 

C. Information Relating to Unfunded Mandates .................................... 132 

D.Applicability of House Rule XXI 5(b) ................................................... 132 

E. Tax Complexity Analysis ..................................................................... 132 

F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 

Benefits ................................................................................................... 136 

G. Duplication of Federal Programs ........................................................ 136 


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V 

TITLE IV—REVENUE PROVISIONS —Continued 

H. Hearings ................................................................................................ 136 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED 136 

A. Changes in Existing Law Proposed by the Bill, as Reported ........... 136 


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116TH CONGRESS REPT. 116–65 " ! HOUSE OF REPRESENTATIVES 1st Session Part 1 

SETTING EVERY COMMUNITY UP FOR RETIREMENT 

ENHANCEMENT ACT OF 2019 

MAY 16, 2019.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. NEAL, from the Committee on Ways and Means, 

submitted the following 

R E P O R T 

[To accompany H.R. 1994] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Ways and Means, to whom was referred the 

bill (H.R. 1994) to amend the Internal Revenue Code of 1986 to encourage retirement savings, and for other purposes, having considered the same, report favorably thereon with an amendment and 

recommend that the bill as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE, ETC. 

(a) SHORT TITLE.—This Act may be cited as the ‘‘Setting Every Community Up 

for Retirement Enhancement Act of 2019’’. 

(b) TABLE OF CONTENTS.—The table of contents of this Act is as follows: 

Sec. 1. Short title, etc. 

TITLE I—EXPANDING AND PRESERVING RETIREMENT SAVINGS 

Sec. 101. Multiple employer plans; pooled employer plans. 

Sec. 102. Increase in 10 percent cap for automatic enrollment safe harbor after 1st plan year. 

Sec. 103. Rules relating to election of safe harbor 401(k) status. 

Sec. 104. Increase in credit limitation for small employer pension plan startup costs. 

Sec. 105. Small employer automatic enrollment credit. 

Sec. 106. Certain taxable non-tuition fellowship and stipend payments treated as compensation for IRA pur- poses. 

Sec. 107. Repeal of maximum age for traditional IRA contributions. 

Sec. 108. Qualified employer plans prohibited from making loans through credit cards and other similar arrangements. 

Sec. 109. Portability of lifetime income options. 

Sec. 110. Treatment of custodial accounts on termination of section 403(b) plans. 

Sec. 111. Clarification of retirement income account rules relating to church-controlled organizations. 

Sec. 112. Qualified cash or deferred arrangements must allow long-term employees working more than 500 but 

less than 1,000 hours per year to participate. 

Sec. 113. Penalty-free withdrawals from retirement plans for individuals in case of birth of child or adoption. 

Sec. 114. Increase in age for required beginning date for mandatory distributions. 

Sec. 115. Special rules for minimum funding standards for community newspaper plans. 

Sec. 116. Treating excluded difficulty of care payments as compensation for determining retirement contribution limitations. 


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TITLE II—ADMINISTRATIVE IMPROVEMENTS 

Sec. 201. Plan adopted by filing due date for year may be treated as in effect as of close of year. 

Sec. 202. Combined annual report for group of plans. 

Sec. 203. Disclosure regarding lifetime income. 

Sec. 204. Fiduciary safe harbor for selection of lifetime income provider. 

Sec. 205. Modification of nondiscrimination rules to protect older, longer service participants. 

Sec. 206. Modification of PBGC premiums for CSEC plans. 

TITLE III—OTHER BENEFITS 

Sec. 301. Benefits provided to volunteer firefighters and emergency medical responders. 

Sec. 302. Expansion of section 529 plans. 

TITLE IV—REVENUE PROVISIONS 

Sec. 401. Modification of required distribution rules for designated beneficiaries. 

Sec. 402. Increase in penalty for failure to file. 

Sec. 403. Increased penalties for failure to file retirement plan returns. 

Sec. 404. Increase information sharing to administer excise taxes. 

TITLE I—EXPANDING AND PRESERVING 

RETIREMENT SAVINGS 

SEC. 101. MULTIPLE EMPLOYER PLANS; POOLED EMPLOYER PLANS. 

(a) QUALIFICATION REQUIREMENTS.— (1) IN GENERAL.—Section 413 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: 

‘‘(e) APPLICATION OF QUALIFICATION REQUIREMENTS FOR CERTAIN MULTIPLE EM- PLOYER 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 


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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. 


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‘‘(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).’’. 

(2) CONFORMING AMENDMENT.—Section 413(c)(2) of such Code is amended by 

striking ‘‘section 401(a)’’ and inserting ‘‘sections 401(a) and 408(c)’’. 

(3) TECHNICAL AMENDMENT.—Section 408(c) of such Code is amended by inserting after paragraph (2) the following new paragraph: 

‘‘(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.’’. 

(b) NO COMMON INTEREST REQUIRED FOR POOLED EMPLOYER PLANS.—Section 3(2) 

of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(2)) is 

amended by adding at the end the following: 

‘‘(C) A pooled employer plan shall be treated as— 

‘‘(i) a single employee pension benefit plan or single pension plan; 

and 

‘‘(ii) a plan to which section 210(a) applies.’’. 

(c) POOLED EMPLOYER PLAN AND PROVIDER DEFINED.— (1) IN GENERAL.—Section 3 of the Employee Retirement Income Security Act 

of 1974 (29 U.S.C. 1002) is amended by adding at the end the following: 

‘‘(43) POOLED EMPLOYER PLAN.— 

‘‘(A) IN GENERAL.—The term ‘pooled employer plan’ means a plan— 

‘‘(i) which is an individual account plan established or maintained for 

the purpose of providing benefits to the employees of 2 or more employers; 

‘‘(ii) which is a plan described in section 401(a) of the Internal Revenue Code of 1986 which includes a trust exempt from tax under section 501(a) of such Code or a plan that consists of individual retirement 

accounts described in section 408 of such Code (including by reason of 

subsection (c) thereof); and 

‘‘(iii) the terms of which meet the requirements of subparagraph (B). 

Such term shall not include a plan maintained by employers which have 

a common interest other than having adopted the plan. 

‘‘(B) REQUIREMENTS FOR PLAN TERMS.—The requirements of this subparagraph are met with respect to any plan if the terms of the plan— 

‘‘(i) designate a pooled plan provider and provide that the pooled plan 

provider is a named fiduciary of the plan; 

‘‘(ii) designate one or more trustees meeting the requirements of section 408(a)(2) of the Internal Revenue Code of 1986 (other than an employer in the plan) to be responsible for collecting contributions to, and 

holding the assets of, the plan and require such trustees to implement 

written contribution collection procedures that are reasonable, diligent, 

and systematic; 

‘‘(iii) provide that each employer in the plan retains fiduciary responsibility for— 

‘‘(I) the selection and monitoring in accordance with section 

404(a) of the person designated as the pooled plan provider and 

any other person who, in addition to the pooled plan provider, is 

designated as a named fiduciary of the plan; and 

‘‘(II) to the extent not otherwise delegated to another fiduciary by 

the pooled plan provider and subject to the provisions of section 

404(c), the investment and management of the portion of the plan’s 

assets attributable to the employees of the employer (or beneficiaries of such employees); 

‘‘(iv) provide that employers in the plan, and participants and beneficiaries, are not subject to unreasonable restrictions, fees, or penalties 

with regard to ceasing participation, receipt of distributions, or otherwise transferring assets of the plan in accordance with section 208 or 

paragraph (44)(C)(i)(II); 

‘‘(v) require— 

‘‘(I) the pooled plan provider to provide to employers in the plan 

any disclosures or other information which the Secretary may require, including any disclosures or other information to facilitate 

the selection or any monitoring of the pooled plan provider by employers in the plan; and 

‘‘(II) each employer in the plan to take such actions as the Secretary or the pooled plan provider determines are necessary to administer the plan or for the plan to meet any requirement applicaVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00012 Fmt 6659 Sfmt 6621 E:\HR\OC\HR065P1.XXX HR065P1

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ble under this Act or the Internal Revenue Code of 1986 to a plan 

described in section 401(a) of such Code or to a plan that consists 

of individual retirement accounts described in section 408 of such 

Code (including by reason of subsection (c) thereof), whichever is 

applicable, including providing any disclosures or other information 

which the Secretary may require or which the pooled plan provider 

otherwise determines are necessary to administer the plan or to 

allow the plan to meet such requirements; and 

‘‘(vi) provide that any disclosure or other information required to be 

provided under clause (v) may be provided in electronic form and will 

be designed to ensure only reasonable costs are imposed on pooled plan 

providers and employers in the plan. 

‘‘(C) EXCEPTIONS.—The term ‘pooled employer plan’ does not include— 

‘‘(i) a multiemployer plan; or 

‘‘(ii) a plan established before the date of the enactment of the Setting Every Community Up for Retirement Enhancement Act of 2019 

unless the plan administrator elects that the plan will be treated as a 

pooled employer plan and the plan meets the requirements of this title 

applicable to a pooled employer plan established on or after such date. 

‘‘(D) TREATMENT OF EMPLOYERS AS PLAN SPONSORS.—Except with respect 

to the administrative duties of the pooled plan provider described in paragraph (44)(A)(i), each employer in a pooled employer plan shall be treated 

as the plan sponsor with respect to the portion of the plan attributable to 

employees of such employer (or beneficiaries of such employees). 

‘‘(44) POOLED PLAN PROVIDER.— 

‘‘(A) IN GENERAL.—The term ‘pooled plan provider’ means a person who— 

‘‘(i) is designated by the terms of a pooled employer plan as a named 

fiduciary, as the plan administrator, and as the person responsible for 

the performance of all administrative duties (including conducting 

proper testing with respect to the plan and the employees of each employer in the plan) which are reasonably necessary to ensure that— 

‘‘(I) the plan meets any requirement applicable under this Act or 

the Internal Revenue Code of 1986 to a plan described in section 

401(a) of such Code or to a plan that consists of individual retirement accounts described in section 408 of such Code (including by 

reason of subsection (c) thereof), whichever is applicable; and 

‘‘(II) each employer in the plan takes such actions as the Secretary or pooled plan provider determines are necessary for the 

plan to meet the requirements described in subclause (I), including 

providing the disclosures and information described in paragraph 

(43)(B)(v)(II); 

‘‘(ii) registers as a pooled plan provider with the Secretary, and provides to the Secretary such other information as the Secretary may require, before beginning operations as a pooled plan provider; 

‘‘(iii) acknowledges in writing that such person is a named fiduciary, 

and the plan administrator, with respect to the pooled employer plan; 

and 

‘‘(iv) is responsible for ensuring that all persons who handle assets 

of, or who are fiduciaries of, the pooled employer plan are bonded in 

accordance with section 412. 

‘‘(B) AUDITS, EXAMINATIONS AND INVESTIGATIONS.—The Secretary may 

perform audits, examinations, and investigations of pooled plan providers 

as may be necessary to enforce and carry out the purposes of this paragraph and paragraph (43). 

‘‘(C) GUIDANCE.—The Secretary shall issue such guidance as the Secretary determines appropriate to carry out this paragraph and paragraph 

(43), including guidance— 

‘‘(i) to identify the administrative duties and other actions required 

to be performed by a pooled plan provider under either such paragraph; 

and 

‘‘(ii) which requires in appropriate cases that if an employer in the 

plan fails to take the actions required under subparagraph (A)(i)(II)— 

‘‘(I) the assets of the plan attributable to employees of such employer (or beneficiaries of such employees) are transferred to a plan 

maintained only by such employer (or its successor), to an eligible 

retirement plan as defined in section 402(c)(8)(B) of the Internal 

Revenue Code of 1986 for each individual whose account is transferred, or to any other arrangement that the Secretary determines 

is appropriate in such guidance; and 


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‘‘(II) such employer (and not the plan with respect to which the 

failure occurred or any other employer in such plan) shall, except 

to the extent provided in such guidance, be liable for any liabilities 

with respect to such plan attributable to employees of such employer (or beneficiaries of such employees). 

The Secretary shall take into account under clause (ii) whether the failure of an employer or pooled plan provider to provide any disclosures 

or other information, or to take any other action, necessary to administer a plan or to allow a plan to meet requirements described in subparagraph (A)(i)(II) has continued over a period of time that demonstrates a lack of commitment to compliance. The Secretary may 

waive the requirements of subclause (ii)(I) in appropriate circumstances 

if the Secretary determines it is in the best interests of the employees 

of the employer referred to in such clause (and the beneficiaries of such 

employees) to retain the assets in the plan with respect to which the 

employer’s failure occurred. 

‘‘(D) GOOD FAITH COMPLIANCE WITH LAW BEFORE GUIDANCE.—An employer 

or pooled plan provider shall not be treated as failing to meet a requirement of guidance issued by the Secretary under subparagraph (C) if, before 

the issuance of such guidance, the employer or pooled plan provider complies in good faith with a reasonable interpretation of the provisions of this 

paragraph, or paragraph (43), to which such guidance relates. 

‘‘(E) AGGREGATION RULES.—For purposes of this paragraph, in determining whether a person meets the requirements of this paragraph to be 

a pooled plan provider with respect to any plan, all persons who perform 

services for the plan and who are treated as a single employer under subsection (b), (c), (m), or (o) of section 414 of the Internal Revenue Code of 

1986 shall be treated as one person.’’. 

(2) BONDING REQUIREMENTS FOR POOLED EMPLOYER PLANS.—The last sentence 

of section 412(a) of the Employee Retirement Income Security Act of 1974 (29 

U.S.C. 1112(a)) is amended by inserting ‘‘or in the case of a pooled employer 

plan (as defined in section 3(43))’’ after ‘‘section 407(d)(1))’’. 

(3) CONFORMING AND TECHNICAL AMENDMENTS.—Section 3 of the Employee 

Retirement Income Security Act of 1974 (29 U.S.C. 1002) is amended— 

(A) in paragraph (16)(B)— 

(i) by striking ‘‘or’’ at the end of clause (ii); and 

(ii) by striking the period at the end and inserting ‘‘, or (iv) in the 

case of a pooled employer plan, the pooled plan provider.’’; and 

(B) by striking the second paragraph (41). 

(d) POOLED EMPLOYER AND MULTIPLE EMPLOYER PLAN REPORTING.— 

(1) ADDITIONAL INFORMATION.—Section 103 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1023) is amended— 

(A) in subsection (a)(1)(B), by striking ‘‘applicable subsections (d), (e), and 

(f)’’ and inserting ‘‘applicable subsections (d), (e), (f), and (g)’’; and 

(B) by amending subsection (g) to read as follows: 

‘‘(g) ADDITIONAL INFORMATION WITH RESPECT TO POOLED EMPLOYER AND MULTIPLE EMPLOYER PLANS.—An annual report under this section for a plan year shall 

include— 

‘‘(1) with respect to any plan to which section 210(a) applies (including a 

pooled employer plan), a list of employers in the plan and a good faith estimate 

of the percentage of total contributions made by such employers during the plan 

year and the aggregate account balances attributable to each employer in the 

plan (determined as the sum of the account balances of the employees of such 

employer (and the beneficiaries of such employees)); and 

‘‘(2) with respect to a pooled employer plan, the identifying information for 

the person designated under the terms of the plan as the pooled plan provider.’’. 

(2) SIMPLIFIED ANNUAL REPORTS.—Section 104(a) of the Employee Retirement 

Income Security Act of 1974 (29 U.S.C. 1024(a)) is amended by striking paragraph (2)(A) and inserting the following: 

‘‘(2)(A) With respect to annual reports required to be filed with the Secretary 

under this part, the Secretary may by regulation prescribe simplified annual reports 

for any pension plan that— 

‘‘(i) covers fewer than 100 participants; or 

‘‘(ii) is a plan described in section 210(a) that covers fewer than 1,000 participants, but only if no single employer in the plan has 100 or more participants 

covered by the plan.’’. 

(e) EFFECTIVE DATE.— 

(1) IN GENERAL.—The amendments made by this section shall apply to plan 

years beginning after December 31, 2020. 


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(2) RULE OF CONSTRUCTION.—Nothing in the amendments made by subsection 

(a) shall be construed as limiting the authority of the Secretary of the Treasury 

or the Secretary’s delegate (determined without regard to such amendment) to 

provide for the proper treatment of a failure to meet any requirement applicable 

under the Internal Revenue Code of 1986 with respect to one employer (and its 

employees) in a multiple employer plan. 

SEC. 102. INCREASE IN 10 PERCENT CAP FOR AUTOMATIC ENROLLMENT SAFE HARBOR 

AFTER 1ST PLAN YEAR. 

(a) IN GENERAL.—Section 401(k)(13)(C)(iii) of the Internal Revenue Code of 1986 

is amended by striking ‘‘does not exceed 10 percent’’ and inserting ‘‘does not exceed 

15 percent (10 percent during the period described in subclause (I))’’. 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to plan 

years beginning after December 31, 2019. 

SEC. 103. RULES RELATING TO ELECTION OF SAFE HARBOR 401(k) STATUS. 

(a) LIMITATION OF ANNUAL SAFE HARBOR NOTICE TO MATCHING CONTRIBUTION

PLANS.— 

(1) IN GENERAL.—Subparagraph (A) of section 401(k)(12) of the Internal Revenue Code of 1986 is amended by striking ‘‘if such arrangement’’ and all that 

follows and inserting ‘‘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).’’. 

(2) AUTOMATIC CONTRIBUTION ARRANGEMENTS.—Subparagraph (B) of section 

401(k)(13) of such Code is amended by striking ‘‘means’’ and all that follows and 

inserting ‘‘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).’’. 

(b) NONELECTIVE CONTRIBUTIONS.—Section 401(k)(12) of the Internal Revenue 

Code of 1986 is amended by redesignating subparagraph (F) as subparagraph (G), 

and by inserting after subparagraph (E) the following new subparagraph: 

‘‘(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.’’. 

(c) AUTOMATIC CONTRIBUTION ARRANGEMENTS.—Section 401(k)(13) of the Internal 

Revenue Code of 1986 is amended by adding at the end the following : 

‘‘(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. 


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‘‘(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.’’. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to plan 

years beginning after December 31, 2019. 

SEC. 104. INCREASE IN CREDIT LIMITATION FOR SMALL EMPLOYER PENSION PLAN STARTUP 

COSTS. 

(a) IN GENERAL.—Paragraph (1) of section 45E(b) of the Internal Revenue Code 

of 1986 is amended to read as follows: 

‘‘(1) for the first credit year and each of the 2 taxable years immediately following the first credit year, the greater of— 

‘‘(A) $500, or 

‘‘(B) the lesser of— 

‘‘(i) $250 for each employee of the eligible employer who is not a highly compensated employee (as defined in section 414(q)) and who is eligible to participate in the eligible employer plan maintained by the eligible employer, or 

‘‘(ii) $5,000, and’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable 

years beginning after December 31, 2019. 

SEC. 105. SMALL EMPLOYER AUTOMATIC ENROLLMENT CREDIT. 

(a) IN GENERAL.—Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section: 

‘‘SEC. 45T. AUTO-ENROLLMENT OPTION FOR RETIREMENT SAVINGS OPTIONS PROVIDED BY 

SMALL EMPLOYERS. 

‘‘(a) IN GENERAL.—For purposes of section 38, in the case of an eligible employer, 

the retirement auto-enrollment credit determined under this section for any taxable 

year is an amount equal to— 

‘‘(1) $500 for any taxable year occurring during the credit period, and 

‘‘(2) zero for any other taxable year. 

‘‘(b) CREDIT PERIOD.—For purposes of subsection (a)— 

‘‘(1) IN GENERAL.—The credit period with respect to any eligible employer is 

the 3-taxable-year period beginning with the first taxable year for which the 

employer includes an eligible automatic contribution arrangement (as defined in 

section 414(w)(3)) in a qualified employer plan (as defined in section 4972(d)) 

sponsored by the employer. 

‘‘(2) MAINTENANCE OF ARRANGEMENT.—No taxable year with respect to an employer shall be treated as occurring within the credit period unless the arrangement described in paragraph (1) is included in the plan for such year. 

‘‘(c) ELIGIBLE EMPLOYER.—For purposes of this section, the term ‘eligible employer’ has the meaning given such term in section 408(p)(2)(C)(i).’’. 

(b) CREDIT TO BE PART OF GENERAL BUSINESS CREDIT.—Subsection (b) of section 

38 of the Internal Revenue Code of 1986 is amended by striking ‘‘plus’’ at the end 

of paragraph (31), by striking the period at the end of paragraph (32) and inserting 

‘‘, plus’’, and by adding at the end the following new paragraph: 

‘‘(33) in the case of an eligible employer (as defined in section 45T(c)), the retirement auto-enrollment credit determined under section 45T(a).’’. 

(c) CLERICAL AMENDMENT.—The table of sections for subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 45S the following new item: 

‘‘Sec. 45T. Auto-enrollment option for retirement savings options provided by small employers.’’. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2019. 

SEC. 106. CERTAIN TAXABLE NON-TUITION FELLOWSHIP AND STIPEND PAYMENTS TREATED 

AS COMPENSATION FOR IRA PURPOSES. 

(a) IN GENERAL.—Paragraph (1) of section 219(f) of the Internal Revenue Code of 

1986 is amended by adding at the end the following: ‘‘The term ‘compensation’ shall 

include any amount which is included in the individual’s gross income and paid to 

the individual to aid the individual in the pursuit of graduate or postdoctoral 

study.’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable 

years beginning after December 31, 2019. 


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SEC. 107. REPEAL OF MAXIMUM AGE FOR TRADITIONAL IRA CONTRIBUTIONS. 

(a) IN GENERAL.—Paragraph (1) of section 219(d) of the Internal Revenue Code 

of 1986 is repealed. 

(b) CONFORMING AMENDMENT.—Subsection (c) of section 408A of the Internal Revenue Code of 1986 is amended by striking paragraph (4) and by redesignating paragraphs (5), (6), and (7) as paragraphs (4), (5), and (6), respectively. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to contributions made for taxable years beginning after December 31, 2019. 

SEC. 108. QUALIFIED EMPLOYER PLANS PROHIBITED FROM MAKING LOANS THROUGH CREDIT CARDS AND OTHER SIMILAR ARRANGEMENTS. 

(a) IN GENERAL.—Paragraph (2) of section 72(p) of the Internal Revenue Code of 

1986 is amended by redesignating subparagraph (D) as subparagraph (E) and by inserting after subparagraph (C) the following new subparagraph: 

‘‘(D) PROHIBITION OF LOANS THROUGH CREDIT CARDS AND OTHER SIMILAR

ARRANGEMENTS.—Subparagraph (A) shall not apply to any loan which is 

made through the use of any credit card or any other similar arrangement.’’. 

(b) EFFECTIVE DATE.—The amendments made by subsection (a) shall apply to 

loans made after the date of the enactment of this Act. 

SEC. 109. PORTABILITY OF LIFETIME INCOME OPTIONS. 

(a) IN GENERAL.—Subsection (a) of section 401 of the Internal Revenue Code of 

1986 is amended by inserting after paragraph (37) the following new paragraph: 

‘‘(38) PORTABILITY OF LIFETIME INCOME.— ‘‘(A) IN GENERAL.—Except as may be otherwise provided by regulations, 

a trust forming part of a defined contribution plan shall not be treated as 

failing to constitute a qualified trust under this section solely by reason of 

allowing— 

‘‘(i) qualified distributions of a lifetime income investment, or 

‘‘(ii) distributions of a lifetime income investment in the form of a 

qualified plan distribution annuity contract, 

on or after the date that is 90 days prior to the date on which such lifetime 

income investment is no longer authorized to be held as an investment option under the plan. 

‘‘(B) DEFINITIONS.—For purposes of this subsection— 

‘‘(i) the term ‘qualified distribution’ means a direct trustee-to-trustee 

transfer described in paragraph (31)(A) to an eligible retirement plan 

(as defined in section 402(c)(8)(B)), 

‘‘(ii) the term ‘lifetime income investment’ means an investment option which is designed to provide an employee with election rights— 

‘‘(I) which are not uniformly available with respect to other investment options under the plan, and 

‘‘(II) which are to a lifetime income feature available through a 

contract or other arrangement offered under the plan (or under another eligible retirement plan (as so defined), if paid by means of 

a direct trustee-to-trustee transfer described in paragraph (31)(A) 

to such other eligible retirement plan), 

‘‘(iii) the term ‘lifetime income feature’ means— 

‘‘(I) a feature which guarantees a minimum level of income annually (or more frequently) for at least the remainder of the life of 

the employee or the joint lives of the employee and the employee’s 

designated beneficiary, or 

‘‘(II) an annuity payable on behalf of the employee under which 

payments are made in substantially equal periodic payments (not 

less frequently than annually) over the life of the employee or the 

joint lives of the employee and the employee’s designated beneficiary, and 

‘‘(iv) the term ‘qualified plan distribution annuity contract’ means an 

annuity contract purchased for a participant and distributed to the participant by a plan or contract described in subparagraph (B) of section 

402(c)(8) (without regard to clauses (i) and (ii) thereof).’’. 

(b) CASH OR DEFERRED ARRANGEMENT.— 

(1) IN GENERAL.—Clause (i) of section 401(k)(2)(B) of the Internal Revenue 

Code of 1986 is amended by striking ‘‘or’’ at the end of subclause (IV), by striking ‘‘and’’ at the end of subclause (V) and inserting ‘‘or’’, and by adding at the 

end the following new subclause: 

‘‘(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 


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the date that such lifetime income investment may no longer be 

held as an investment option under the arrangement, and’’. 

(2) DISTRIBUTION REQUIREMENT.—Subparagraph (B) of section 401(k)(2) of 

such Code, as amended by paragraph (1), is amended by striking ‘‘and’’ at the 

end of clause (i), by striking the semicolon at the end of clause (ii) and inserting 

‘‘, and’’, and by adding at the end the following new clause: 

‘‘(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) SECTION 403(b) PLANS.— (1) ANNUITY CONTRACTS.—Paragraph (11) of section 403(b) of the Internal 

Revenue Code of 1986 is amended by striking ‘‘or’’ at the end of subparagraph 

(B), by striking the period at the end of subparagraph (C) and inserting ‘‘, or’’, 

and by inserting after subparagraph (C) the following new subparagraph: 

‘‘(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)).’’. 

(2) CUSTODIAL ACCOUNTS.—Subparagraph (A) of section 403(b)(7) of such Code 

is amended by striking ‘‘if—’’ and all that follows and inserting ‘‘if the amounts 

are to be invested in regulated investment company stock to be held in that custodial account, and under the custodial account— 

‘‘(i) no such amounts may be paid or made available to any distributee (unless such amount is a distribution to which section 

72(t)(2)(G) applies) before— 

‘‘(I) the employee dies, 

‘‘(II) the employee attains age 591⁄2, 

‘‘(III) the employee has a severance from employment, 

‘‘(IV) the employee becomes disabled (within the meaning of section 72(m)(7)), 

‘‘(V) in the case of contributions made pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D)), 

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)).’’. 

(d) ELIGIBLE DEFERRED COMPENSATION PLANS.— 

(1) IN GENERAL.—Subparagraph (A) of section 457(d)(1) of the Internal Revenue Code of 1986 is amended by striking ‘‘or’’ at the end of clause (ii), by inserting ‘‘or’’ at the end of clause (iii), and by adding after clause (iii) the following: 

‘‘(iv) except as may be otherwise provided by regulations, in the case 

of a plan maintained by an employer described in subsection (e)(1)(A), 

with respect to amounts invested in a lifetime income investment (as 

defined in section 401(a)(38)(B)(ii)), the date that is 90 days prior to the 

date that such lifetime income investment may no longer be held as an 

investment option under the plan,’’. 

(2) DISTRIBUTION REQUIREMENT.—Paragraph (1) of section 457(d) of such Code 

is amended by striking ‘‘and’’ at the end of subparagraph (B), by striking the 

period at the end of subparagraph (C) and inserting ‘‘, and’’, and by inserting 

after subparagraph (C) the following new subparagraph: 

‘‘(D) except as may be otherwise provided by regulations, in the case of 

amounts described in subparagraph (A)(iv), such amounts will be distributed only in the form of a qualified distribution (as defined in section 

401(a)(38)(B)(i)) or a qualified plan distribution annuity contract (as defined 

in section 401(a)(38)(B)(iv)).’’. 


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(e) EFFECTIVE DATE.—The amendments made by this section shall apply to plan 

years beginning after December 31, 2019. 

SEC. 110. TREATMENT OF CUSTODIAL ACCOUNTS ON TERMINATION OF SECTION 403(b) 

PLANS. 

Not later than six months after the date of enactment of this Act, the Secretary 

of the Treasury shall issue guidance to provide that, if an employer terminates the 

plan under which amounts are contributed to a custodial account under subparagraph (A) of section 403(b)(7), the plan administrator or custodian may distribute 

an individual custodial account in kind to a participant or beneficiary of the plan 

and the distributed custodial account shall be maintained by the custodian on a taxdeferred basis as a section 403(b)(7) custodial account, similar to the treatment of 

fully-paid individual annuity contracts under Revenue Ruling 2011–7, until amounts 

are actually paid to the participant or beneficiary. The guidance shall provide further (i) that the section 403(b)(7) status of the distributed custodial account is generally maintained if the custodial account thereafter adheres to the requirements of 

section 403(b) that are in effect at the time of the distribution of the account and 

(ii) that a custodial account would not be considered distributed to the participant 

or beneficiary if the employer has any material retained rights under the account 

(but the employer would not be treated as retaining material rights simply because 

the custodial account was originally opened under a group contract). Such guidance 

shall be retroactively effective for taxable years beginning after December 31, 2008. 

SEC. 111. CLARIFICATION OF RETIREMENT INCOME ACCOUNT RULES RELATING TO CHURCHCONTROLLED ORGANIZATIONS. 

(a) IN GENERAL.—Subparagraph (B) of section 403(b)(9) of the Internal Revenue 

Code of 1986 is amended by inserting ‘‘(including an employee described in section 

414(e)(3)(B))’’ after ‘‘employee described in paragraph (1)’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to years 

beginning before, on, or after the date of the enactment of this Act. 

SEC. 112. QUALIFIED CASH OR DEFERRED ARRANGEMENTS MUST ALLOW LONG-TERM EMPLOYEES WORKING MORE THAN 500 BUT LESS THAN 1,000 HOURS PER YEAR TO 

PARTICIPATE. 

(a) PARTICIPATION REQUIREMENT.— 

(1) IN GENERAL.—Section 401(k)(2)(D) of the Internal Revenue Code of 1986 

is amended to read as follows: 

‘‘(D) which does not require, as a condition of participation in the arrangement, that an employee complete a period of service with the employer (or employers) maintaining the plan extending beyond the close of 

the earlier of— 

‘‘(i) the period permitted under section 410(a)(1) (determined without 

regard to subparagraph (B)(i) thereof), or 

‘‘(ii) subject to the provisions of paragraph (15), the first period of 3 

consecutive 12-month periods during each of which the employee has 

at least 500 hours of service.’’. 

(2) SPECIAL RULES.—Section 401(k) of such Code is amended by adding at the 

end the following new paragraph: 

‘‘(15) SPECIAL RULES FOR PARTICIPATION REQUIREMENT FOR LONG-TERM, PARTTIME WORKERS.—For purposes of paragraph (2)(D)(ii)— 

‘‘(A) AGE REQUIREMENT MUST BE MET.—Paragraph (2)(D)(ii) shall not 

apply to an employee unless the employee has met the requirement of section 410(a)(1)(A)(i) by the close of the last of the 12-month periods described 

in such paragraph. 

‘‘(B) NONDISCRIMINATION AND TOP-HEAVY RULES NOT TO APPLY.— 

‘‘(i) NONDISCRIMINATION RULES.—In the case of employees who are eligible to participate in the arrangement solely by reason of paragraph 

(2)(D)(ii)— 

‘‘(I) notwithstanding subsection (a)(4), an employer shall not be 

required to make nonelective or matching contributions on behalf 

of such employees even if such contributions are made on behalf 

of other employees eligible to participate in the arrangement, and 

‘‘(II) an employer may elect to exclude such employees from the 

application of subsection (a)(4), paragraphs (3), (12), and (13), subsection (m)(2), and section 410(b). 

‘‘(ii) TOP-HEAVY RULES.—An employer may elect to exclude all employees who are eligible to participate in a plan maintained by the employer solely by reason of paragraph (2)(D)(ii) from the application of 

the vesting and benefit requirements under subsections (b) and (c) of 

section 416. 


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‘‘(iii) VESTING.—For purposes of determining whether an employee 

described in clause (i) has a nonforfeitable right to employer contributions (other than contributions described in paragraph (3)(D)(i)) under 

the arrangement, each 12-month period for which the employee has at 

least 500 hours of service shall be treated as a year of service. 

‘‘(iv) EMPLOYEES WHO BECOME FULL-TIME EMPLOYEES.—This subparagraph shall cease to apply to any employee as of the first plan year beginning after the plan year in which the employee meets the requirements of section 410(a)(1)(A)(ii) without regard to paragraph (2)(D)(ii). 

‘‘(C) EXCEPTION FOR EMPLOYEES UNDER COLLECTIVELY BARGAINED PLANS, ETC.—Paragraph (2)(D)(ii) shall not apply to employees described in section 

410(b)(3). 

‘‘(D) SPECIAL RULES.— ‘‘(i) TIME OF PARTICIPATION.—The rules of section 410(a)(4) shall 

apply to an employee eligible to participate in an arrangement solely 

by reason of paragraph (2)(D)(ii). 

‘‘(ii) 12-MONTH PERIODS.—12-month periods shall be determined in 

the same manner as under the last sentence of section 410(a)(3)(A).’’. 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to plan 

years beginning after December 31, 2020, except that, for purposes of section 

401(k)(2)(D)(ii) of the Internal Revenue Code of 1986 (as added by such amendments), 12-month periods beginning before January 1, 2021, shall not be taken into 

account. 

SEC. 113. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS FOR INDIVIDUALS IN 

CASE OF BIRTH OF CHILD OR ADOPTION. 

(a) IN GENERAL.—Section 72(t)(2) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: 

‘‘(H) DISTRIBUTIONS FROM RETIREMENT PLANS IN CASE OF BIRTH OF CHILD

OR ADOPTION.— ‘‘(i) IN GENERAL.—Any qualified birth or adoption distribution. 

‘‘(ii) LIMITATION.—The aggregate amount which may be treated as 

qualified birth or adoption distributions by any individual with respect 

to any birth or adoption shall not exceed $5,000. 

‘‘(iii) QUALIFIED BIRTH OR ADOPTION DISTRIBUTION.—For purposes of 

this subparagraph— 

‘‘(I) IN GENERAL.—The term ‘qualified birth or adoption distribution’ means any distribution from an applicable eligible retirement 

plan to an individual if made during the 1-year period beginning 

on the date on which a child of the individual is born or on which 

the legal adoption by the individual of an eligible adoptee is finalized. 

‘‘(II) ELIGIBLE ADOPTEE.—The term ‘eligible adoptee’ means any 

individual (other than a child of the taxpayer’s spouse) who has not 

attained age 18 or is physically or mentally incapable of self-support. 

‘‘(iv) TREATMENT OF PLAN DISTRIBUTIONS.— ‘‘(I) IN GENERAL.—If a distribution to an individual would (without regard to clause (ii)) be a qualified birth or adoption distribution, a plan shall not be treated as failing to meet any requirement 

of this title merely because the plan treats the distribution as a 

qualified birth or adoption distribution, unless the aggregate 

amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the 

employer) to such individual exceeds $5,000. 

‘‘(II) CONTROLLED GROUP.—For purposes of subclause (I), the 

term ‘controlled group’ means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414. 

‘‘(v) AMOUNT DISTRIBUTED MAY BE REPAID.— ‘‘(I) IN GENERAL.—Any individual who receives a qualified birth 

or adoption distribution may make one or more contributions in an 

aggregate amount not to exceed the amount of such distribution to 

an applicable eligible retirement plan of which such individual is 

a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), 

408(d)(3), or 457(e)(16), as the case may be. 

‘‘(II) LIMITATION ON CONTRIBUTIONS TO APPLICABLE ELIGIBLE RETIREMENT PLANS OTHER THAN IRAS.—The aggregate amount of contributions made by an individual under subclause (I) to any applicable eligible retirement plan which is not an individual retirement 


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plan shall not exceed the aggregate amount of qualified birth or 

adoption distributions which are made from such plan to such individual. Subclause (I) shall not apply to contributions to any applicable eligible retirement plan which is not an individual retirement 

plan unless the individual is eligible to make contributions (other 

than those described in subclause (I)) to such applicable eligible retirement plan. 

‘‘(III) TREATMENT OF REPAYMENTS OF DISTRIBUTIONS FROM APPLI- CABLE ELIGIBLE RETIREMENT PLANS OTHER THAN IRAs.—If a contribution is made under subclause (I) with respect to a qualified 

birth or adoption distribution from an applicable eligible retirement plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be 

treated as having received such distribution in an eligible rollover 

distribution (as defined in section 402(c)(4)) and as having transferred the amount to the applicable eligible retirement plan in a 

direct trustee to trustee transfer within 60 days of the distribution. 

‘‘(IV) TREATMENT OF REPAYMENTS FOR DISTRIBUTIONS FROM

IRAS.—If a contribution is made under subclause (I) with respect to 

a qualified birth or adoption distribution from an individual retirement plan, then, to the extent of the amount of the contribution, 

such distribution shall be treated as a distribution described in section 408(d)(3) and as having been transferred to the applicable eligible retirement plan in a direct trustee to trustee transfer within 

60 days of the distribution. 

‘‘(vi) DEFINITION AND SPECIAL RULES.—For purposes of this subparagraph— 

‘‘(I) APPLICABLE ELIGIBLE RETIREMENT PLAN.—The term ‘applicable eligible retirement plan’ means an eligible retirement plan (as 

defined in section 402(c)(8)(B)) other than a defined benefit plan. 

‘‘(II) EXEMPTION OF DISTRIBUTIONS FROM TRUSTEE TO TRUSTEE

TRANSFER AND WITHHOLDING RULES.—For purposes of sections 

401(a)(31), 402(f), and 3405, a qualified birth or adoption distribution shall not be treated as an eligible rollover distribution. 

‘‘(III) TAXPAYER MUST INCLUDE TIN.—A distribution shall not be 

treated as a qualified birth or adoption distribution with respect to 

any child or eligible adoptee unless the taxpayer includes the 

name, age, and TIN of such child or eligible adoptee on the taxpayer’s return of tax for the taxable year. 

‘‘(IV) DISTRIBUTIONS TREATED AS MEETING PLAN DISTRIBUTION REQUIREMENTS.—Any qualified birth or adoption distribution shall be 

treated as meeting the requirements of sections 401(k)(2)(B)(i), 

403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A).’’. 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions made after December 31, 2019. 

SEC. 114. INCREASE IN AGE FOR REQUIRED BEGINNING DATE FOR MANDATORY DISTRIBUTIONS. 

(a) IN GENERAL.—Section 401(a)(9)(C)(i)(I) of the Internal Revenue Code of 1986 

is amended by striking ‘‘age 701⁄2’’ and inserting ‘‘age 72’’. 

(b) SPOUSE BENEFICIARIES; SPECIAL RULE FOR OWNERS.—Subparagraphs (B)(iv)(I) 

and (C)(ii)(I) of section 401(a)(9) of such Code are each amended by striking ‘‘age 

701⁄2’’ and inserting ‘‘age 72’’. 

(c) CONFORMING AMENDMENTS.— 

(1) The last sentence of section 408(b) of such Code is amended by striking 

‘‘age 701⁄2’’ and inserting ‘‘age 72’’. 

(2) Section 457(d)(1)(A)(i) of such Code is amended by striking ‘‘age 701⁄2’’ and 

inserting ‘‘age 72’’. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions required to be made after December 31, 2019, with respect to individuals 

who attain age 701⁄2 after such date. 

SEC. 115. SPECIAL RULES FOR MINIMUM FUNDING STANDARDS FOR COMMUNITY NEWSPAPER PLANS. 

(a) AMENDMENT TO INTERNAL REVENUE CODE OF 1986.—Section 430 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: 

‘‘(m) SPECIAL RULES FOR COMMUNITY NEWSPAPER PLANS.— 

‘‘(1) IN GENERAL.—The plan sponsor of a community newspaper plan under 

which no participant has had the participant’s accrued benefit increased 


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(whether because of service or compensation) after December 31, 2017, may 

elect to have the alternative standards described in paragraph (3) apply to such 

plan, and any plan sponsored by any member of the same controlled group. 

‘‘(2) ELECTION.—An election under paragraph (1) shall be made at such time 

and in such manner as prescribed by the Secretary. Such election, once made 

with respect to a plan year, shall apply to all subsequent plan years unless revoked with the consent of the Secretary. 

‘‘(3) ALTERNATIVE MINIMUM FUNDING STANDARDS.—The alternative standards 

described in this paragraph are the following: 

‘‘(A) INTEREST RATES.— ‘‘(i) IN GENERAL.—Notwithstanding subsection (h)(2)(C) and except as 

provided in clause (ii), the first, second, and third segment rates in effect for any month for purposes of this section shall be 8 percent. 

‘‘(ii) NEW BENEFIT ACCRUALS.—Notwithstanding subsection (h)(2), for 

purposes of determining the funding target and normal cost of a plan 

for any plan year, the present value of any benefits accrued or earned 

under the plan for a plan year with respect to which an election under 

paragraph (1) is in effect shall be determined on the basis of the U.S. 

Treasury obligation yield curve for the day that is the valuation date 

of such plan for such plan year. 

‘‘(iii) U.S. TREASURY OBLIGATION YIELD CURVE.—For purposes of this 

subsection, the term ‘U.S. Treasury obligation yield curve’ means, with 

respect to any day, a yield curve which shall be prescribed by the Secretary for such day on interest-bearing obligations of the United States. 

‘‘(B) SHORTFALL AMORTIZATION BASE.— 

‘‘(i) PREVIOUS SHORTFALL AMORTIZATION BASES.—The shortfall amortization bases determined under subsection (c)(3) for all plan years preceding the first plan year to which the election under paragraph (1) applies (and all shortfall amortization installments determined with respect to such bases) shall be reduced to zero under rules similar to the 

rules of subsection (c)(6). 

‘‘(ii) NEW SHORTFALL AMORTIZATION BASE.—Notwithstanding subsection (c)(3), the shortfall amortization base for the first plan year to 

which the election under paragraph (1) applies shall be the funding 

shortfall of such plan for such plan year (determined using the interest 

rates as modified under subparagraph (A)). 

‘‘(C) DETERMINATION OF SHORTFALL AMORTIZATION INSTALLMENTS.— 

‘‘(i) 30-YEAR PERIOD.—Subparagraphs (A) and (B) of subsection (c)(2) 

shall be applied by substituting ‘30-plan-year’ for ‘7-plan-year’ each 

place it appears. 

‘‘(ii) NO SPECIAL ELECTION.—The election under subparagraph (D) of 

subsection (c)(2) shall not apply to any plan year to which the election 

under paragraph (1) applies. 

‘‘(D) EXEMPTION FROM AT-RISK TREATMENT.—Subsection (i) shall not 

apply. 

‘‘(4) COMMUNITY NEWSPAPER PLAN.—For purposes of this subsection— 

‘‘(A) IN GENERAL.—The term ‘community newspaper plan’ means a plan 

to which this section applies maintained by an employer which, as of December 31, 2017— 

‘‘(i) publishes and distributes daily, either electronically or in printed 

form, 1 or more community newspapers in a single State, 

‘‘(ii) is not a company the stock of which is publicly traded (on a stock 

exchange or in an over-the-counter market), and is not controlled, directly or indirectly, by such a company, 

‘‘(iii) is controlled, directly or indirectly— 

‘‘(I) by 1 or more persons residing primarily in the State in which 

the community newspaper is published, 

‘‘(II) for not less than 30 years by individuals who are members 

of the same family, 

‘‘(III) by a trust created or organized in the State in which the 

community newspaper is published, the sole trustees of which are 

persons described in subclause (I) or (II), 

‘‘(IV) by an entity which is described in section 501(c)(3) and exempt from taxation under section 501(a), which is organized and 

operated in the State in which the community newspaper is published, and the primary purpose of which is to benefit communities 

in such State, or 

‘‘(V) by a combination of persons described in subclause (I), (III), 

or (IV), and 


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‘‘(iv) does not control, directly or indirectly, any newspaper in any 

other State. 

‘‘(B) COMMUNITY NEWSPAPER.—The term ‘community newspaper’ means a 

newspaper which primarily serves a metropolitan statistical area, as determined by the Office of Management and Budget, with a population of not 

less than 100,000. 

‘‘(C) CONTROL.—A person shall be treated as controlled by another person 

if such other person possesses, directly or indirectly, the power to direct or 

cause the direction and management of such person (including the power 

to elect a majority of the members of the board of directors of such person) 

through the ownership of voting securities. 

‘‘(5) CONTROLLED GROUP.—For purposes of this subsection, the term ‘controlled group’ means all persons treated as a single employer under subsection 

(b), (c), (m), or (o) of section 414 as of the date of the enactment of this subsection.’’. 

(b) AMENDMENT TO EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.—Section 303 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1083) 

is amended by adding at the end the following new subsection: 

‘‘(m) SPECIAL RULES FOR COMMUNITY NEWSPAPER PLANS.— 

‘‘(1) IN GENERAL.—The plan sponsor of a community newspaper plan under 

which no participant has had the participant’s accrued benefit increased 

(whether because of service or compensation) after December 31, 2017, may 

elect to have the alternative standards described in paragraph (3) apply to such 

plan, and any plan sponsored by any member of the same controlled group. 

‘‘(2) ELECTION.—An election under paragraph (1) shall be made at such time 

and in such manner as prescribed by the Secretary of the Treasury. Such election, once made with respect to a plan year, shall apply to all subsequent plan 

years unless revoked with the consent of the Secretary of the Treasury. 

‘‘(3) ALTERNATIVE MINIMUM FUNDING STANDARDS.—The alternative standards 

described in this paragraph are the following: 

‘‘(A) INTEREST RATES.— 

‘‘(i) IN GENERAL.—Notwithstanding subsection (h)(2)(C) and except as 

provided in clause (ii), the first, second, and third segment rates in effect for any month for purposes of this section shall be 8 percent. 

‘‘(ii) NEW BENEFIT ACCRUALS.—Notwithstanding subsection (h)(2), for 

purposes of determining the funding target and normal cost of a plan 

for any plan year, the present value of any benefits accrued or earned 

under the plan for a plan year with respect to which an election under 

paragraph (1) is in effect shall be determined on the basis of the U.S. 

Treasury obligation yield curve for the day that is the valuation date 

of such plan for such plan year. 

‘‘(iii) U.S. TREASURY OBLIGATION YIELD CURVE.—For purposes of this 

subsection, the term ‘U.S. Treasury obligation yield curve’ means, with 

respect to any day, a yield curve which shall be prescribed by the Secretary of the Treasury for such day on interest-bearing obligations of 

the United States. 

‘‘(B) SHORTFALL AMORTIZATION BASE.— 

‘‘(i) PREVIOUS SHORTFALL AMORTIZATION BASES.—The shortfall amortization bases determined under subsection (c)(3) for all plan years preceding the first plan year to which the election under paragraph (1) applies (and all shortfall amortization installments determined with respect to such bases) shall be reduced to zero under rules similar to the 

rules of subsection (c)(6). 

‘‘(ii) NEW SHORTFALL AMORTIZATION BASE.—Notwithstanding subsection (c)(3), the shortfall amortization base for the first plan year to 

which the election under paragraph (1) applies shall be the funding 

shortfall of such plan for such plan year (determined using the interest 

rates as modified under subparagraph (A)). 

‘‘(C) DETERMINATION OF SHORTFALL AMORTIZATION INSTALLMENTS.— 

‘‘(i) 30-YEAR PERIOD.—Subparagraphs (A) and (B) of subsection (c)(2) 

shall be applied by substituting ‘30-plan-year’ for ‘7-plan-year’ each 

place it appears. 

‘‘(ii) NO SPECIAL ELECTION.—The election under subparagraph (D) of 

subsection (c)(2) shall not apply to any plan year to which the election 

under paragraph (1) applies. 

‘‘(D) EXEMPTION FROM AT-RISK TREATMENT.—Subsection (i) shall not 

apply. 

‘‘(4) COMMUNITY NEWSPAPER PLAN.—For purposes of this subsection— 


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‘‘(A) IN GENERAL.—The term ‘community newspaper plan’ means a plan 

to which this section applies maintained by an employer which, as of December 31, 2017— 

‘‘(i) publishes and distributes daily, either electronically or in printed 

form— 

‘‘(I) a community newspaper, or 

‘‘(II) 1 or more community newspapers in the same State, 

‘‘(ii) is not a company the stock of which is publicly traded (on a stock 

exchange or in an over-the-counter market), and is not controlled, directly or indirectly, by such a company, 

‘‘(iii) is controlled, directly or indirectly— 

‘‘(I) by 1 or more persons residing primarily in the State in which 

the community newspaper is published, 

‘‘(II) for not less than 30 years by individuals who are members 

of the same family, 

‘‘(III) by a trust created or organized in the State in which the 

community newspaper is published, the sole trustees of which are 

persons described in subclause (I) or (II), 

‘‘(IV) by an entity which is described in section 501(c)(3) of the 

Internal Revenue Code of 1986 and exempt from taxation under 

section 501(a) of such Code, which is organized and operated in the 

State in which the community newspaper is published, and the primary purpose of which is to benefit communities in such State, or 

‘‘(V) by a combination of persons described in subclause (I), (III), 

or (IV), and 

‘‘(iv) does not control, directly or indirectly, any newspaper in any 

other State. 

‘‘(B) COMMUNITY NEWSPAPER.—The term ‘community newspaper’ means a 

newspaper which primarily serves a metropolitan statistical area, as determined by the Office of Management and Budget, with a population of not 

less than 100,000. 

‘‘(C) CONTROL.—A person shall be treated as controlled by another person 

if such other person possesses, directly or indirectly, the power to direct or 

cause the direction and management of such person (including the power 

to elect a majority of the members of the board of directors of such person) 

through the ownership of voting securities. 

‘‘(5) CONTROLLED GROUP.—For purposes of this subsection, the term ‘controlled group’ means all persons treated as a single employer under subsection 

(b), (c), (m), or (o) of section 414 of the Internal Revenue Code of 1986 as of 

the date of the enactment of this subsection. 

‘‘(6) EFFECT ON PREMIUM RATE CALCULATION.—Notwithstanding any other 

provision of law or any regulation issued by the Pension Benefit Guaranty Corporation, in the case of a community newspaper plan which elects the application of the alternative standards described in paragraph (3), the additional premium under section 4006(a)(3)(E) shall be determined as if such election had 

not been made.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to plan 

years ending after December 31, 2017. 

SEC. 116. TREATING EXCLUDED DIFFICULTY OF CARE PAYMENTS AS COMPENSATION FOR DETERMINING RETIREMENT CONTRIBUTION LIMITATIONS. 

(a) INDIVIDUAL RETIREMENT ACCOUNTS.— (1) IN GENERAL.—Section 408(o) of the Internal Revenue Code of 1986 is 

amended by adding at the end the following new paragraph: 

‘‘(5) SPECIAL RULE FOR DIFFICULTY OF CARE PAYMENTS EXCLUDED FROM GROSS

INCOME.—In the case of an individual who for a taxable year excludes from 

gross income under section 131 a qualified foster care payment which is a difficulty of care payment, if— 

‘‘(A) the deductible amount in effect for the taxable year under subsection 

(b), exceeds 

‘‘(B) the amount of compensation includible in the individual’s gross income for the taxable year, 

the individual may elect to increase the nondeductible limit under paragraph 

(2) for the taxable year by an amount equal to the lesser of such excess or the 

amount so excluded.’’. 

(2) EFFECTIVE DATE.—The amendments made by this subsection shall apply 

to contributions after the date of the enactment of this Act. 

(b) DEFINED CONTRIBUTION PLANS.— 

(1) IN GENERAL.—Section 415(c) of such Code is amended by adding at the 

end the following new paragraph: 


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‘‘(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 TREAT- ED 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.’’. 

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to 

plan years beginning after December 31, 2015. 

TITLE II—ADMINISTRATIVE IMPROVEMENTS 

SEC. 201. PLAN ADOPTED BY FILING DUE DATE FOR YEAR MAY BE TREATED AS IN EFFECT 

AS OF CLOSE OF YEAR. 

(a) IN GENERAL.—Subsection (b) of section 401 of the Internal Revenue Code of 

1986 is amended— 

(1) by striking ‘‘RETROACTIVE CHANGES IN PLAN.—A stock bonus’’ and inserting ‘‘PLAN AMENDMENTS.— 

‘‘(1) CERTAIN RETROACTIVE CHANGES IN PLAN.—A stock bonus’’; and 

(2) by adding at the end the following new paragraph: 

‘‘(2) ADOPTION OF PLAN.—If an employer adopts a stock bonus, pension, profitsharing, 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.’’. 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to plans 

adopted for taxable years beginning after December 31, 2019. 

SEC. 202. COMBINED ANNUAL REPORT FOR GROUP OF PLANS. 

(a) IN GENERAL.—The Secretary of the Treasury and the Secretary of Labor shall, 

in cooperation, modify the returns required under section 6058 of the Internal Revenue Code of 1986 and the reports required by section 104 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1024) so that all members of a group 

of plans described in subsection (c) may file a single aggregated annual return or 

report satisfying the requirements of both such sections. 

(b) ADMINISTRATIVE REQUIREMENTS.—In developing the consolidated return or report under subsection (a), the Secretary of the Treasury and the Secretary of Labor 

may require such return or report to include any information regarding each plan 

in the group as such Secretaries determine is necessary or appropriate for the enforcement and administration of the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974. 

(c) PLANS DESCRIBED.—A group of plans is described in this subsection if all plans 

in the group— 

(1) are individual account plans or defined contribution plans (as defined in 

section 3(34) of the Employee Retirement Income Security Act of 1974 (29 

U.S.C. 1002(34)) or in section 414(i) of the Internal Revenue Code of 1986); 

(2) have— 

(A) the same trustee (as described in section 403(a) of such Act (29 U.S.C. 

1103(a))); 

(B) the same one or more named fiduciaries (as described in section 

402(a) of such Act (29 U.S.C. 1102(a))); 

(C) the same administrator (as defined in section 3(16)(A) of such Act (29 

U.S.C. 1002(16)(A))) and plan administrator (as defined in section 414(g) of 

the Internal Revenue Code of 1986); and 

(D) plan years beginning on the same date; and 

(3) provide the same investments or investment options to participants and 

beneficiaries. 

A plan not subject to title I of the Employee Retirement Income Security Act of 1974 

shall be treated as meeting the requirements of paragraph (2) as part of a group 

of plans if the same person that performs each of the functions described in such 


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paragraph, as applicable, for all other plans in such group performs each of such 

functions for such plan. 

(d) CLARIFICATION RELATING TO ELECTRONIC FILING OF RETURNS FOR DEFERRED

COMPENSATION PLANS.— 

(1) IN GENERAL.—Section 6011(e) of the Internal Revenue Code of 1986 is 

amended by adding at the end the following new paragraph: 

‘‘(6) APPLICATION OF NUMERICAL LIMITATION TO RETURNS RELATING TO DEFERRED COMPENSATION PLANS.—For purposes of applying the numerical limitation under paragraph (2)(A) to any return required under section 6058, information regarding each plan for which information is provided on such return shall 

be treated as a separate return.’’. 

(2) EFFECTIVE DATE.—The amendment made by paragraph (1) shall apply to 

returns required to be filed with respect to plan years beginning after December 

31, 2019. 

(e) EFFECTIVE DATE.—The modification required by subsection (a) shall be implemented not later than January 1, 2022, and shall apply to returns and reports for 

plan years beginning after December 31, 2021. 

SEC. 203. DISCLOSURE REGARDING LIFETIME INCOME. 

(a) IN GENERAL.—Subparagraph (B) of section 105(a)(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025(a)(2)) is amended— 

(1) in clause (i), by striking ‘‘and’’ at the end; 

(2) in clause (ii), by striking ‘‘diversification.’’ and inserting ‘‘diversification, 

and’’; and 

(3) by inserting at the end the following: 

‘‘(iii) the lifetime income disclosure described in subparagraph (D)(i). 

In the case of pension benefit statements described in clause (i) of paragraph (1)(A), a lifetime income disclosure under clause (iii) of this subparagraph shall be required to be included in only one pension benefit statement during any one 12-month period.’’. 

(b) LIFETIME INCOME.—Paragraph (2) of section 105(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025(a)) is amended by adding at the 

end the following new subparagraph: 

‘‘(D) LIFETIME INCOME DISCLOSURE.— 

‘‘(i) IN GENERAL.— 

‘‘(I) DISCLOSURE.—A lifetime income disclosure shall set forth the 

lifetime income stream equivalent of the total benefits accrued with 

respect to the participant or beneficiary. 

‘‘(II) LIFETIME INCOME STREAM EQUIVALENT OF THE TOTAL BENEFITS ACCRUED.—For purposes of this subparagraph, the term ‘lifetime income stream equivalent of the total benefits accrued’ means 

the amount of monthly payments the participant or beneficiary 

would receive if the total accrued benefits of such participant or 

beneficiary were used to provide lifetime income streams described 

in subclause (III), based on assumptions specified in rules prescribed by the Secretary. 

‘‘(III) LIFETIME INCOME STREAMS.—The lifetime income streams 

described in this subclause are a qualified joint and survivor annuity (as defined in section 205(d)), based on assumptions specified in 

rules prescribed by the Secretary, including the assumption that 

the participant or beneficiary has a spouse of equal age, and a single life annuity. Such lifetime income streams may have a term 

certain or other features to the extent permitted under rules prescribed by the Secretary. 

‘‘(ii) MODEL DISCLOSURE.—Not later than 1 year after the date of the 

enactment of the Setting Every Community Up for Retirement Enhancement Act of 2019, the Secretary shall issue a model lifetime income disclosure, written in a manner so as to be understood by the average plan participant, which— 

‘‘(I) explains that the lifetime income stream equivalent is only 

provided as an illustration; 

‘‘(II) explains that the actual payments under the lifetime income 

stream described in clause (i)(III) which may be purchased with the 

total benefits accrued will depend on numerous factors and may 

vary substantially from the lifetime income stream equivalent in 

the disclosures; 

‘‘(III) explains the assumptions upon which the lifetime income 

stream equivalent was determined; and 


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‘‘(IV) provides such other similar explanations as the Secretary 

considers appropriate. 

‘‘(iii) ASSUMPTIONS AND RULES.—Not later than 1 year after the date 

of the enactment of the Setting Every Community Up for Retirement 

Enhancement Act of 2019, the Secretary shall— 

‘‘(I) prescribe assumptions which administrators of individual account plans may use in converting total accrued benefits into lifetime income stream equivalents for purposes of this subparagraph; 

and 

‘‘(II) issue interim final rules under clause (i). 

In prescribing assumptions under subclause (I), the Secretary may prescribe a single set of specific assumptions (in which case the Secretary 

may issue tables or factors which facilitate such conversions), or ranges 

of permissible assumptions. To the extent that an accrued benefit is or 

may be invested in a lifetime income stream described in clause (i)(III), 

the assumptions prescribed under subclause (I) shall, to the extent appropriate, permit administrators of individual account plans to use the 

amounts payable under such lifetime income stream as a lifetime income stream equivalent. 

‘‘(iv) LIMITATION ON LIABILITY.—No plan fiduciary, plan sponsor, or 

other person shall have any liability under this title solely by reason 

of the provision of lifetime income stream equivalents which are derived in accordance with the assumptions and rules described in clause 

(iii) and which include the explanations contained in the model lifetime 

income disclosure described in clause (ii). This clause shall apply without regard to whether the provision of such lifetime income stream 

equivalent is required by subparagraph (B)(iii). 

‘‘(v) EFFECTIVE DATE.—The requirement in subparagraph (B)(iii) shall 

apply to pension benefit statements furnished more than 12 months 

after the latest of the issuance by the Secretary of— 

‘‘(I) interim final rules under clause (i); 

‘‘(II) the model disclosure under clause (ii); or 

‘‘(III) the assumptions under clause (iii).’’. 

SEC. 204. FIDUCIARY SAFE HARBOR FOR SELECTION OF LIFETIME INCOME PROVIDER. 

Section 404 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 

1104) is amended by adding at the end the following: 

‘‘(e) SAFE HARBOR FOR ANNUITY SELECTION.— 

‘‘(1) IN GENERAL.—With respect to the selection of an insurer for a guaranteed 

retirement income contract, the requirements of subsection (a)(1)(B) will be 

deemed to be satisfied if a fiduciary— 

‘‘(A) engages in an objective, thorough, and analytical search for the purpose of identifying insurers from which to purchase such contracts; 

‘‘(B) with respect to each insurer identified under subparagraph (A)— 

‘‘(i) considers the financial capability of such insurer to satisfy its obligations under the guaranteed retirement income contract; and 

‘‘(ii) considers the cost (including fees and commissions) of the guaranteed retirement income contract offered by the insurer in relation to 

the benefits and product features of the contract and administrative 

services to be provided under such contract; and 

‘‘(C) on the basis of such consideration, concludes that— 

‘‘(i) at the time of the selection, the insurer is financially capable of 

satisfying its obligations under the guaranteed retirement income contract; and 

‘‘(ii) the relative cost of the selected guaranteed retirement income 

contract as described in subparagraph (B)(ii) is reasonable. 

‘‘(2) FINANCIAL CAPABILITY OF THE INSURER.—A fiduciary will be deemed to 

satisfy the requirements of paragraphs (1)(B)(i) and (1)(C)(i) if— 

‘‘(A) the fiduciary obtains written representations from the insurer that— 

‘‘(i) the insurer is licensed to offer guaranteed retirement income contracts; 

‘‘(ii) the insurer, at the time of selection and for each of the immediately preceding 7 plan years— 

‘‘(I) operates under a certificate of authority from the insurance 

commissioner of its domiciliary State which has not been revoked 

or suspended; 

‘‘(II) has filed audited financial statements in accordance with 

the laws of its domiciliary State under applicable statutory accounting principles; 


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‘‘(III) maintains (and has maintained) reserves which satisfies all 

the statutory requirements of all States where the insurer does 

business; and 

‘‘(IV) is not operating under an order of supervision, rehabilitation, or liquidation; 

‘‘(iii) the insurer undergoes, at least every 5 years, a financial examination (within the meaning of the law of its domiciliary State) by the 

insurance commissioner of the domiciliary State (or representative, designee, or other party approved by such commissioner); and 

‘‘(iv) the insurer will notify the fiduciary of any change in circumstances occurring after the provision of the representations in 

clauses (i), (ii), and (iii) which would preclude the insurer from making 

such representations at the time of issuance of the guaranteed retirement income contract; and 

‘‘(B) after receiving such representations and as of the time of selection, 

the fiduciary has not received any notice described in subparagraph (A)(iv) 

and is in possession of no other information which would cause the fiduciary to question the representations provided. 

‘‘(3) NO REQUIREMENT TO SELECT LOWEST COST.—Nothing in this subsection 

shall be construed to require a fiduciary to select the lowest cost contract. A fiduciary may consider the value of a contract, including features and benefits of 

the contract and attributes of the insurer (including, without limitation, the insurer’s financial strength) in conjunction with the cost of the contract. 

‘‘(4) TIME OF SELECTION.— 

‘‘(A) IN GENERAL.—For purposes of this subsection, the time of selection 

is— 

‘‘(i) the time that the insurer and the contract are selected for distribution of benefits to a specific participant or beneficiary; or 

‘‘(ii) if the fiduciary periodically reviews the continuing appropriateness of the conclusion described in paragraph (1)(C) with respect to a 

selected insurer, taking into account the considerations described in 

such paragraph, the time that the insurer and the contract are selected 

to provide benefits at future dates to participants or beneficiaries under 

the plan. 

Nothing in the preceding sentence shall be construed to require the fiduciary to review the appropriateness of a selection after the purchase of a 

contract for a participant or beneficiary. 

‘‘(B) PERIODIC REVIEW.—A fiduciary will be deemed to have conducted the 

periodic review described in subparagraph (A)(ii) if the fiduciary obtains the 

written representations described in clauses (i), (ii), and (iii) of paragraph 

(2)(A) from the insurer on an annual basis, unless the fiduciary receives 

any notice described in paragraph (2)(A)(iv) or otherwise becomes aware of 

facts that would cause the fiduciary to question such representations. 

‘‘(5) LIMITED LIABILITY.—A fiduciary which satisfies the requirements of this 

subsection shall not be liable following the distribution of any benefit, or the 

investment by or on behalf of a participant or beneficiary pursuant to the selected guaranteed retirement income contract, for any losses that may result to 

the participant or beneficiary due to an insurer’s inability to satisfy its financial 

obligations under the terms of such contract. 

‘‘(6) DEFINITIONS.—For purposes of this subsection— 

‘‘(A) INSURER.—The term ‘insurer’ means an insurance company, insurance service, or insurance organization, including affiliates of such companies. 

‘‘(B) GUARANTEED RETIREMENT INCOME CONTRACT.—The term ‘guaranteed 

retirement income contract’ means an annuity contract for a fixed term or 

a contract (or provision or feature thereof) which provides guaranteed benefits annually (or more frequently) for at least the remainder of the life of 

the participant or the joint lives of the participant and the participant’s designated beneficiary as part of an individual account plan.’’. 

SEC. 205. MODIFICATION OF NONDISCRIMINATION RULES TO PROTECT OLDER, LONGER 

SERVICE PARTICIPANTS. 

(a) IN GENERAL.—Section 401 of the Internal Revenue Code of 1986 is amended— 

(1) by redesignating subsection (o) as subsection (p); and 

(2) by inserting after subsection (n) the following new subsection: 

‘‘(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.— 


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‘‘(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— 


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‘‘(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. 


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‘‘(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. 


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‘‘(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).’’. 

(b) PARTICIPATION REQUIREMENTS.—Paragraph (26) of section 401(a) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: 

‘‘(I) PROTECTED PARTICIPANTS.— 

‘‘(i) IN GENERAL.—A plan shall be deemed to satisfy the requirements 

of subparagraph (A) if— 

‘‘(I) the plan is amended— 

‘‘(aa) to cease all benefit accruals, or 

‘‘(bb) to provide future benefit accruals only to a closed class 

of participants, 

‘‘(II) the plan satisfies subparagraph (A) (without regard to this 

subparagraph) as of the effective date of the amendment, and 

‘‘(III) the amendment was adopted before April 5, 2017, or the 

plan is described in clause (ii). 

‘‘(ii) PLANS DESCRIBED.—A plan is described in this clause if the plan 

would be described in subsection (o)(1)(C), as applied for purposes of 

subsection (o)(1)(B)(iii)(IV) and by treating the effective date of the 

amendment as the date the class was closed for purposes of subsection 

(o)(1)(C). 

‘‘(iii) SPECIAL RULES.—For purposes of clause (i)(II), in applying section 410(b)(6)(C), the amendments described in clause (i) shall not be 

treated as a significant change in coverage under section 

410(b)(6)(C)(i)(II). 

‘‘(iv) SPUN-OFF PLANS.—For purposes of this subparagraph, if a portion of a plan described in clause (i) is spun off to another employer, 

the treatment under clause (i) of the spun-off plan shall continue with 

respect to the other employer.’’. 

(c) EFFECTIVE DATE.— 

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made 

by this section shall take effect on the date of the enactment of this Act, without 

regard to whether any plan modifications referred to in such amendments are 

adopted or effective before, on, or after such date of enactment. 

(2) SPECIAL RULES.— 

(A) ELECTION OF EARLIER APPLICATION.—At the election of the plan sponsor, the amendments made by this section shall apply to plan years beginning after December 31, 2013. 

(B) CLOSED CLASSES OF PARTICIPANTS.—For purposes of paragraphs 

(1)(A)(iii), (1)(B)(iii)(IV), and (2)(A)(iv) of section 401(o) of the Internal Revenue Code of 1986 (as added by this section), a closed class of participants 

shall be treated as being closed before April 5, 2017, if the plan sponsor’s 

intention to create such closed class is reflected in formal written documents and communicated to participants before such date. 


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(C) CERTAIN POST-ENACTMENT PLAN AMENDMENTS.—A plan shall not be 

treated as failing to be eligible for the application of section 401(o)(1)(A), 

401(o)(1)(B)(iii), or 401(a)(26) of such Code (as added by this section) to such 

plan solely because in the case of— 

(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. 

SEC. 206. MODIFICATION OF PBGC PREMIUMS FOR CSEC PLANS. 

(a) FLAT RATE PREMIUM.—Subparagraph (A) of section 4006(a)(3) of the Employee 

Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)(3)) is amended— 

(1) in clause (i), by striking ‘‘plan,’’ and inserting ‘‘plan other than a CSEC 

plan (as defined in section 210(f)(1))’’; 

(2) in clause (v), by striking ‘‘or’’ at the end; 

(3) in clause (vi), by striking the period at the end and inserting ‘‘, or’’; and 

(4) by adding at the end the following new clause: 

‘‘(vii) in the case of a CSEC plan (as defined in section 210(f)(1)), for 

plan years beginning after December 31, 2018, for each individual who 

is a participant in such plan during the plan year an amount equal to 

the sum of— 

‘‘(I) the additional premium (if any) determined under subparagraph (E), and 

‘‘(II) $19.’’. 

(b) VARIABLE RATE PREMIUM.— 

(1) UNFUNDED VESTED BENEFITS.— 

(A) IN GENERAL.—Subparagraph (E) of section 4006(a)(3) of the Employee 

Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)(3)) is amended 

by adding at the end the following new clause: 

‘‘(v) For purposes of clause (ii), in the case of a CSEC plan (as defined 

in section 210(f)(1)), the term ‘unfunded vested benefits’ means, for plan 

years beginning after December 31, 2018, the excess (if any) of— 

‘‘(I) the funding liability of the plan as determined under section 

306(j)(5)(C) for the plan year by only taking into account vested benefits, over 

‘‘(II) the fair market value of plan assets for the plan year which are 

held by the plan on the valuation date.’’. 

(B) CONFORMING AMENDMENT.—Clause (iii) of section 4006(a)(3)(E) of 

such Act (29 U.S.C. 1306(a)(3)(E)) is amended by striking ‘‘For purposes’’ 

and inserting ‘‘Except as provided in clause (v), for purposes’’. 

(2) APPLICABLE DOLLAR AMOUNT.— 

(A) IN GENERAL.—Paragraph (8) of section 4006(a) of such Act (29 U.S.C. 

1306(a)) is amended by adding at the end the following new subparagraph: 

‘‘(E) CSEC PLANS.—In the case of a CSEC plan (as defined in section 

210(f)(1)), the applicable dollar amount shall be $9.’’. 

(B) CONFORMING AMENDMENT.—Subparagraph (A) of section 4006(a)(8) of 

such Act (29 U.S.C. 1306(a)(8)) is amended by striking ‘‘(B) and (C)’’ and 

inserting ‘‘(B), (C), and (E)’’. 

TITLE III—OTHER BENEFITS 

SEC. 301. BENEFITS PROVIDED TO VOLUNTEER FIREFIGHTERS AND EMERGENCY MEDICAL 

RESPONDERS. 

(a) INCREASE IN DOLLAR LIMITATION ON QUALIFIED PAYMENTS.—Subparagraph (B) 

of section 139B(c)(2) of the Internal Revenue Code of 1986 is amended by striking 

‘‘$30’’ and inserting ‘‘$50’’. 

(b) EXTENSION.—Section 139B(d) of the Internal Revenue Code of 1986 is amended by striking ‘‘beginning after December 31, 2010.’’ and inserting ‘‘beginning— 

‘‘(1) after December 31, 2010, and before January 1, 2020, or 

‘‘(2) after December 31, 2020.’’. 


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(c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2019. 

SEC. 302. EXPANSION OF SECTION 529 PLANS. 

(a) DISTRIBUTIONS FOR CERTAIN EXPENSES ASSOCIATED WITH REGISTERED APPRENTICESHIP PROGRAMS.—Section 529(c) of the Internal Revenue Code of 1986 is 

amended by adding at the end the following new paragraph: 

‘‘(8) TREATMENT OF CERTAIN EXPENSES ASSOCIATED WITH REGISTERED APPRENTICESHIP PROGRAMS.—Any reference in this subsection to the term ‘qualified 

higher education expense’ shall include a reference to expenses for fees, books, 

supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary 

of Labor under section 1 of the National Apprenticeship Act (29 U.S.C. 50).’’ 

(b) DISTRIBUTIONS FOR CERTAIN HOMESCHOOLING EXPENSES.—Section 529(c)(7) of 

such Code is amended by striking ‘‘include a reference to’’ and all that follows and 

inserting: ‘‘include a reference to— 

‘‘(A) expenses for tuition in connection with enrollment or attendance of 

a designated beneficiary at an elementary or secondary public, private, or 

religious school, and 

‘‘(B) expenses, with respect to a designated beneficiary, for— 

‘‘(i) curriculum and curricular materials, 

‘‘(ii) books or other instructional materials, 

‘‘(iii) online educational materials, 

‘‘(iv) tuition for tutoring or educational classes outside of the home 

(but only if the tutor or class instructor is not related (within the meaning of section 152(d)(2)) to the student), 

‘‘(v) dual enrollment in an institution of higher education, and 

‘‘(vi) educational therapies for students with disabilities, 

in connection with a homeschool (whether treated as a homeschool or a private school for purposes of applicable State law).’’. 

(c) DISTRIBUTIONS FOR QUALIFIED EDUCATION LOAN REPAYMENTS.— 

(1) IN GENERAL.—Section 529(c) of such Code, as amended by subsection (a), 

is amended by adding at the end the following new paragraph: 

‘‘(9) TREATMENT OF QUALIFIED EDUCATION LOAN REPAYMENTS.— 

‘‘(A) IN GENERAL.—Any reference in this subsection to the term ‘qualified 

higher education expense’ shall include a reference to amounts paid as principal or interest on any qualified education loan (as defined in section 

221(d)) of the designated beneficiary or a sibling of the designated beneficiary. 

‘‘(B) LIMITATION.—The amount of distributions treated as a qualified 

higher education expense under this paragraph with respect to the loans 

of any individual shall not exceed $10,000 (reduced by the amount of distributions so treated for all prior taxable years). 

‘‘(C) SPECIAL RULES FOR SIBLINGS OF THE DESIGNATED BENEFICIARY.— 

‘‘(i) SEPARATE ACCOUNTING.—For purposes of subparagraph (B) and 

subsection (d), amounts treated as a qualified higher education expense 

with respect to the loans of a sibling of the designated beneficiary shall 

be taken into account with respect to such sibling and not with respect 

to such designated beneficiary. 

‘‘(ii) SIBLING DEFINED.—For purposes of this paragraph, the term ‘sibling’ means an individual who bears a relationship to the designated 

beneficiary which is described in section 152(d)(2)(B).’’. 

(2) COORDINATION WITH DEDUCTION FOR STUDENT LOAN INTEREST.—Section 

221(e)(1) of such Code is amended by adding at the end the following: ‘‘The deduction otherwise allowable under subsection (a) (prior to the application of subsection (b)) to the taxpayer for any taxable year shall be reduced (but not below 

zero) by so much of the distributions treated as a qualified higher education expense under section 529(c)(9) with respect to loans of the taxpayer as would be 

includible in gross income under section 529(c)(3)(A) for such taxable year but 

for such treatment.’’. 

(d) DISTRIBUTIONS FOR CERTAIN ELEMENTARY AND SECONDARY SCHOOL EXPENSES

IN ADDITION TO TUITION.—Section 529(c)(7)(A) of such Code, as amended by subsection (b), is amended to read as follows: 

‘‘(A) expenses described in section 530(b)(3)(A)(i) in connection with enrollment or attendance of a designated beneficiary at an elementary or secondary public, private, or religious school, and’’. 

(e) EFFECTIVE DATES.—The amendments made by this section shall apply to distributions made after December 31, 2018. 


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TITLE IV—REVENUE PROVISIONS 

SEC. 401. MODIFICATION OF REQUIRED DISTRIBUTION RULES FOR DESIGNATED BENEFICIARIES. 

(a) MODIFICATION OF RULES WHERE EMPLOYEE DIES BEFORE ENTIRE DISTRIBU- TION.— 

(1) IN GENERAL.—Section 401(a)(9) of the Internal Revenue Code of 1986 is 

amended by adding at the end the following new subparagraph 

‘‘(H) SPECIAL RULES FOR CERTAIN DEFINED CONTRIBUTION PLANS.—In the 

case of a defined contribution plan, if an employee dies before the distribution of the employee’s entire interest— 

‘‘(i) IN GENERAL.—Except in the case of a beneficiary who is not a 

designated beneficiary, subparagraph (B)(ii)— 

‘‘(I) shall be applied by substituting ‘10 years’ for ‘5 years’, and 

‘‘(II) shall apply whether or not distributions of the employee’s 

interests have begun in accordance with subparagraph (A). 

‘‘(ii) EXCEPTION ONLY FOR ELIGIBLE DESIGNATED BENEFICIARIES.—Subparagraph (B)(iii) shall apply only in the case of an eligible designated 

beneficiary. 

‘‘(iii) RULES UPON DEATH OF ELIGIBLE DESIGNATED BENEFICIARY.—If 

an eligible designated beneficiary dies before the portion of the employee’s interest to which this subparagraph applies is entirely distributed, 

the exception under clause (iii) shall not apply to any beneficiary of 

such eligible designated beneficiary and the remainder of such portion 

shall be distributed within 10 years after the death of such eligible designated beneficiary. 

‘‘(iv) APPLICATION TO ELIGIBLE RETIREMENT PLANS.—For purposes of 

applying the provisions of this subparagraph in determining the 

amounts required to be distributed pursuant to this paragraph, all eligible retirement plans (as defined in section 402(c)(8)(B)) other than a 

defined benefit plan shall be treated as a defined contribution plan.’’. 

(2) DEFINITION OF ELIGIBLE DESIGNATED BENEFICIARY.—Section 401(a)(9)(E) of 

such Code is amended to read as follows: 

‘‘(E) DEFINITIONS AND RULES RELATING TO DESIGNATED BENEFICIARY.—For 

purposes of this paragraph— 

‘‘(i) DESIGNATED BENEFICIARY.—The term ‘designated beneficiary’ 

means any individual designated as a beneficiary by the employee. 

‘‘(ii) ELIGIBLE DESIGNATED BENEFICIARY.—The term ‘eligible designated beneficiary’ means, with respect to any employee, any designated beneficiary who is— 

‘‘(I) the surviving spouse of the employee, 

‘‘(II) subject to clause (iii), a child of the employee who has not 

reached majority (within the meaning of subparagraph (F)), 

‘‘(III) disabled (within the meaning of section 72(m)(7)), 

‘‘(IV) a chronically ill individual (within the meaning of section 

7702B(c)(2), except that the requirements of subparagraph (A)(i) 

thereof shall only be treated as met if there is a certification that, 

as of such date, the period of inability described in such subparagraph with respect to the individual is an indefinite one which is 

reasonably expected to be lengthy in nature), or 

‘‘(V) an individual not described in any of the preceding subclauses who is not more than 10 years younger than the employee. 

‘‘(iii) SPECIAL RULE FOR CHILDREN.—Subject to subparagraph (F), an 

individual described in clause (ii)(II) shall cease to be an eligible designated beneficiary as of the date the individual reaches majority and 

any remainder of the portion of the individual’s interest to which subparagraph (H)(ii) applies shall be distributed within 10 years after such 

date. 

‘‘(iv) TIME FOR DETERMINATION OF ELIGIBLE DESIGNATED BENEFICIARY.—The determination of whether a designated beneficiary is an 

eligible designated beneficiary shall be made as of the date of death of 

the employee.’’. 

(3) EFFECTIVE DATES.— 

(A) IN GENERAL.—Except as provided in this paragraph and paragraphs 

(4) and (5), the amendments made by this subsection shall apply to distributions with respect to employees who die after December 31, 2019. 

(B) COLLECTIVE BARGAINING EXCEPTION.—In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between emVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00035 Fmt 6659 Sfmt 6621 E:\HR\OC\HR065P1.XXX HR065P1

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ployee representatives and 1 or more employers ratified before the date of 

enactment of this Act, the amendments made by this subsection shall apply 

to distributions with respect to employees who die in calendar years beginning after the earlier of— 

(i) 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 

(ii) December 31, 2021. 

For purposes of clause (i)(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. 

(C) GOVERNMENTAL PLANS.—In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), subparagraph 

(A) shall be applied by substituting ‘‘December 31, 2021’’ for ‘‘December 31, 

2019’’. 

(4) EXCEPTION FOR CERTAIN EXISTING ANNUITY CONTRACTS.— 

(A) IN GENERAL.—The amendments made by this subsection shall not 

apply to a qualified annuity which is a binding annuity contract in effect 

on the date of enactment of this Act and at all times thereafter. 

(B) QUALIFIED ANNUITY.—For purposes of this paragraph, the term 

‘‘qualified annuity’’ means, with respect to an employee, an annuity— 

(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) EXCEPTION FOR CERTAIN BENEFICIARIES.— 

(A) IN GENERAL.—If an employee dies before the effective date, then, in 

applying the amendments made by this subsection to such employee’s designated beneficiary who dies after such date— 

(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.—For purposes of this paragraph, the term ‘‘effective 

date’’ means the first day of the first calendar year to which the amendments made by this subsection apply to a plan with respect to employees 

dying on or after such date. 

(b) PROVISIONS RELATING TO PLAN AMENDMENTS.— 

(1) IN GENERAL.—If this subsection applies to any plan amendment— 

(A) such plan shall be treated as being operated in accordance with the 

terms of the plan during the period described in paragraph (2)(B)(i); and 

(B) except as provided by the Secretary of the Treasury, 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 by reason of such amendment. 

(2) AMENDMENTS TO WHICH SUBSECTION APPLIES.— 


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(A) IN GENERAL.—This subsection shall apply to any amendment to any 

plan or which is made— 

(i) pursuant to any amendment made by this section or pursuant to 

any regulation issued by the Secretary of the Treasury under this section or such amendments; and 

(ii) on or before the last day of the first plan year beginning after December 31, 2021, or such later date as the Secretary of the Treasury 

may prescribe. 

In the case of a governmental or collectively bargained plan to which subparagraph (B) or (C) of subsection (a)(4) applies, clause (ii) shall be applied 

by substituting the date which is 2 years after the date otherwise applied 

under such clause. 

(B) CONDITIONS.—This subsection shall not apply to any amendment unless— 

(i) 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 amendment not required by such legislative or regulatory 

amendment, the effective date specified by the plan); and 

(II) ending on the date described in subparagraph (A)(ii) (or, if 

earlier, the date the plan amendment is adopted), 

the plan is operated as if such plan amendment were in effect; and 

(ii) such plan amendment applies retroactively for such period. 

SEC. 402. INCREASE IN PENALTY FOR FAILURE TO FILE. 

(a) IN GENERAL.—The second sentence of subsection (a) of section 6651 of the Internal Revenue Code of 1986 is amended by striking ‘‘$205’’ and inserting ‘‘$400’’. 

(b) INFLATION ADJUSTMENT.—Section 6651(j)(1) of such Code is amended by striking ‘‘$205’’ and inserting ‘‘$400’’. 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to returns the due date for which (including extensions) is after December 31, 2019. 

SEC. 403. INCREASED PENALTIES FOR FAILURE TO FILE RETIREMENT PLAN RETURNS. 

(a) IN GENERAL.—Subsection (e) of section 6652 of the Internal Revenue Code of 

1986 is amended— 

(1) by striking ‘‘$25’’ and inserting ‘‘$105’’; and 

(2) by striking ‘‘$15,000’’ and inserting ‘‘$50,000’’. 

(b) ANNUAL REGISTRATION STATEMENT AND NOTIFICATION OF CHANGES.—Subsection (d) of section 6652 of the Internal Revenue Code of 1986 is amended— 

(1) by striking ‘‘$1’’ both places it appears in paragraphs (1) and (2) and inserting ‘‘$2’’; 

(2) by striking ‘‘$5,000’’ in paragraph (1) and inserting ‘‘$10,000’’; and 

(3) by striking ‘‘$1,000’’ in paragraph (2) and inserting ‘‘$5,000’’. 

(c) FAILURE TO PROVIDE NOTICE.—Subsection (h) of section 6652 of the Internal 

Revenue Code of 1986 is amended— 

(1) by striking ‘‘$10’’ and inserting ‘‘$100’’; and 

(2) by striking ‘‘$5,000’’ and inserting ‘‘$50,000’’. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to returns, statements, and notifications required to be filed, and notices required to be 

provided, after December 31, 2019. 

SEC. 404. INCREASE INFORMATION SHARING TO ADMINISTER EXCISE TAXES. 

(a) IN GENERAL.—Section 6103(o) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: 

‘‘(3) TAXES IMPOSED BY SECTION 4481.—Returns and return information with 

respect to taxes imposed by section 4481 shall be open to inspection by or disclosure to officers and employees of United States Customs and Border Protection 

of the Department of Homeland Security whose official duties require such inspection or disclosure for purposes of administering such section.’’. 

(b) CONFORMING AMENDMENTS.—Paragraph (4) of section 6103(p) of the Internal 

Revenue Code of 1986 is amended by striking ‘‘or (o)(1)(A)’’ each place it appears 

and inserting ‘‘, (o)(1)(A), or (o)(3)’’. 

I. SUMMARY AND BACKGROUND 

A. PURPOSE AND SUMMARY

The bill, H.R. 1994, the ‘‘Setting Every Community Up for Retirement Enhancement Act of 2019’’ (the ‘‘SECURE Act’’), as orVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00037 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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dered reported by the Committee on Ways and Means on April 2, 

2019, amends the Internal Revenue Code of 1986 to encourage retirement savings, and for other purposes. 

B. BACKGROUND AND NEED FOR LEGISLATION

Employer-sponsored retirement plans and IRAs are valuable 

tools successfully used by millions of Americans to help save for retirement. The Committee believes that it should be easier for 

Americans to use these accounts to save. The Committee also believes that it should be easier for employers to offer retirement 

plans to their employees. 

H.R. 1994 addresses these issues by expanding opportunities for 

Americans to increase their savings and making administrative 

simplifications to the retirement system. Specifically, H.R. 1994: 

• increases to 72 the age after which required minimum distributions from certain retirement accounts must begin; 

• modifies requirements for multiple employer plans to 

make it easier for small businesses to offer such plans to their 

employees by allowing otherwise completely unrelated employers to join in the same plan; 

• reduces Pension Benefit Guaranty Corporation premiums 

for certain multiple employer defined benefit plans of cooperatives and charities; 

• allows penalty-free distributions from qualified retirement 

plans and IRAs for births and adoptions; 

• makes it easier for long-term, part-time employees to participate in elective deferrals; 

• allows consolidated filings of Forms 5500 for similar plans; 

• allows certain home healthcare workers to contribute to a 

defined contribution plan or IRA; 

• and makes certain other changes. 

C. LEGISLATIVE HISTORY

Background 

H.R. 1994 was introduced on March 29, 2019 and referred to the 

Committee on Ways and Means, and additionally to the Committee 

on Education and Labor. 

The legislation builds upon several different bills. One of those 

bills, H.R. 6757, was passed by the House in the 115th Congress. 

In addition, H.R. 1994 contains certain provisions similar to H.R. 

1007, the Retirement Enhancement and Savings Act of 2019 

(‘‘RESA’’), which was introduced on February 6, 2019, and referred 

to the Committee on Ways and Means, and additionally to the 

Committee on Education and Labor. Similar bills have been introduced in previous sessions of Congress. In the 114th Congress, the 

Senate companion to RESA, S. 3471 was ordered favorably reported by the Finance Committee by a vote of 26 to 0 on September 

21, 2016. In the 116th Congress, the Senate companion to RESA, 

S. 321, was introduced on February 4, 2019, and referred to the Finance Committee. RESA would, among other things, make multiple 

employer plans (a ‘‘MEP’’ or ‘‘MEPs’’) more attractive by eliminating outdated barriers to their use and by strengthening the 

standards for MEP service providers. RESA also provides relief of 


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Pension Benefit Guaranty Corporation premiums to cooperative 

and small employer charity plans. 

Provisions of H.R. 982 are similarly incorporated into H.R. 1994. 

Introduced on February 5, 2019, and referred to the Committee on 

Ways and Means, and additionally to the Committee on Education 

and the Workforce, H.R. 982 directs the Internal Revenue Service 

and the Department of Labor to effectuate the filing of a consolidated Form 5500 for similar plans. Employers file the Form 5500 

series to satisfy annual reporting requirements under Title I and 

Title IV of the Employee Retirement Income Security Act and 

under the Internal Revenue Code. 

H.R. 1241, the Volunteer Responder Incentive Protection Act of 

2019, is also largely incorporated into H.R. 1994. Introduced on 

February 14, 2019, and referred to the Committee on Ways and 

Means, H.R. 1241 would reinstate for one year the exclusions for 

qualified State or local tax benefits and qualified reimbursement 

payments provided to members of qualified volunteer emergency 

response organizations and would increase the exclusion for qualified reimbursement payments to $50 for each month during which 

a volunteer performs services. 

Additionally, H.R. 1994 includes H.R. 1874, introduced on March 

26, 2019 and referred to the Committee on Ways and Means. The 

measure would require employers maintaining a 401(k) plan to 

have a dual eligibility requirement under which an employee must 

complete either a one year of service requirement (with the 1,000- 

hour rule) or three consecutive years of service where the employee 

completes at least 500 hours of service. 

H.R. 1994 also includes H.R. 1932, introduced on March 27, 2019 

and referred to the Committee on Ways and Means. The measure 

would also allow certain home healthcare workers to contribute to 

a defined contribution plan or IRA. 

Committee hearings 

On February 6, 2019, the Committee on Ways and Means held 

a hearing on ‘‘Improving Retirement Security for America’s Workers.’’ Witnesses included Nancy Altman, President, Social Security 

Works; Andrew Biggs, Resident Scholar, American Enterprise Institute; Roger J. Crandall, Chairman, President & CEO, 

MassMutual; Robin Diamonte, Corporate Vice President, Pension 

Investments, United Technologies; Luke Huffstutter, Owner, 

Annastasia Salon and Summit Salon Academy, Portland, OR; 

Cindy McDaniel, Co-director, Missouri-Kansas City Committee to 

Protect Pensions; and Diane Oakley Executive Director, National 

Institute on Retirement Security. 

The Ways and Means Committee also held relevant hearings in 

prior Congresses. In the 113th Congress, the Subcommittee on Select Revenue Measures of the Committee on Ways and Means held 

a hearing on ‘‘Private Employer Defined Benefit Pension Plans’’ on 

September 17, 2014. Witnesses included Deborah Tully, Director of 

Compensation and Benefits Finance and Accounting Analysis, 

Raytheon; R. Dale Hall, Managing Director of Research, Society of 

Actuaries; Scott Henderson, Vice President of Pension Investment 

and Strategy, The Kroger Co.; Jeremy Gold, FSA, MAAA, Jeremy 

Gold Pensions; and Diane Oakley, Executive Director, National Institute on Retirement Security. 


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In the 114th Congress, the Subcommittee on Oversight of the 

Committee on Ways and Means held a hearing on the ‘‘Department 

of Labor’s Proposed Fiduciary Rule’’ on September 17, 2014. Witnesses included Bradford Campbell, Counsel, Drinker Biddle & 

Reath LLP, Washington, D.C.; Paul Schott Stevens, President and 

CEO, Investment Company Institute, Washington, D.C.; Judy 

VanArsdale, LPL Financial Advisor, enRich Private Wealth Management, Kildeer, IL; Kenneth Specht, Financial Services Professional, Agent, New York Life Insurance Company, Kenosha, WI; 

Patricia Owen, President, FACES DaySpa, Hilton Head Island, SC; 

and Damon Silvers, Director of Policy and Special Counsel, AFL– 

CIO, Washington, D.C. 

In the 115th Congress, the Tax Policy Subcommittee of the Committee on Ways & Means held a hearing on ‘‘How Tax Reform Will 

Simplify Our Broken Tax Code and Help Individuals and Families’’ 

on July 18, 2017. Witnesses included the Honorable Bill Archer, 

Former Chairman, Committee on Ways and Means; Bernard F. 

McKay, Chairman of the Board of Directors, Council for Electronic 

Revenue Communication Advancement; Jania Stout, Practice Leader and Co-Founder, Fiduciary Plan Advisors at HighTower; and 

Eric Rodriguez, Vice President—Office of Research, Advocacy, and 

Legislation, UnidosUS. 

Background 

H.R. 1994 was introduced on March 29, 2019, and was referred 

to the Committee on Ways and Means and the Committee on Education and Labor. 

Committee action 

The Committee on Ways and Means marked up H.R. 1994, the 

‘‘Setting Every Community Up for Retirement Enhancement Act of 

2019,’’ on April 2, 2019, and ordered the bill, as amended, favorably 

reported (with a quorum being present). 

II. EXPLANATION OF THE BILL 

TITLE I—EXPANDING AND PRESERVING RETIREMENT 

SAVINGS 

A. MULTIPLE EMPLOYER PLANS AND POOLED EMPLOYER PLANS; REPORTING (SEC. 101 OF THE BILL, SEC. 413 OF THE CODE, AND SECS. 

3, 103, AND 104 OF ERISA) 

PRESENT LAW

Retirement savings under the Code and ERISA 

Tax-favored arrangements 

The Internal Revenue Code (‘‘Code’’) provides two general vehicles for tax-favored retirement savings: employer-sponsored plans 

and individual retirement arrangements (‘‘IRAs’’). Code provisions 

are generally within the jurisdiction of the Secretary of the Treasury (‘‘Secretary’’), through his or her delegate, the Internal Revenue Service (‘‘IRS’’). 


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1Sec. 401(a). A qualified annuity plan under section 403(a) is similar to and subject to requirements similar to those applicable to qualified retirement plans. Unless otherwise stated, all section references are to the Internal Revenue Code of 1986, as amended (the ‘‘Code’’). 2Sec. 414(i). Defined contribution plans generally provide for contributions by employers and 

may include a qualified cash or deferred arrangement under a section 401(k) plan, under which 

employees may elect to contribute to the plan. 3Sec. 414(j). 

4Sec. 403(b). Private and governmental employers that are exempt from tax under section 

501(c)(3), including tax-exempt private schools, may maintain tax-deferred annuity plans. State 

and local governmental employers may maintain another type of tax-favored retirement plan, 

an eligible deferred compensation plan under section 457(b). 5Sections 219, 408 and 408A provide rules for IRAs. Under section 408(a)(2) and (n), only certain entities are permitted to be the trustee of an IRA. The trustee of an IRA generally must 

be a bank, an insured credit union, or a corporation subject to supervision and examination by 

the Commissioner of Banking or other officer in charge of the administration of the banking 

laws of the State in which it is incorporated. Alternatively, an IRA trustee may be another person who demonstrates to the satisfaction of the Secretary that the manner in which the person 

will administer the IRA will be consistent with the IRA requirements. 6Simplified employee pension (‘‘SEP’’) plans under section 408(k) and SIMPLE IRA plans 

under section 408(p) are employer-sponsored retirement plans funded using IRAs for employees. 7Sec. 408(c). 

8 ERISA applies to employee welfare benefit plans, such as health plans, of private employers, 

as well as to employer-sponsored retirement (or pension) plans. Employer-sponsored welfare and 

pension plans are both referred to under ERISA as employee benefit plans. Under ERISA sec. 

4(b)(1) and (2), governmental plans and church plans are generally exempt from ERISA. 9 29 C.F.R. 2510.3–3(b)–(c). 

The most common type of tax-favored employer-sponsored retirement plan is a qualified retirement plan,1 which may be a defined 

contribution plan or a defined benefit plan. Under a defined contribution plan, separate individual accounts are maintained for 

participants, to which accumulated contributions, earnings, and 

losses are allocated, and participants’ benefits are based on the 

value of their accounts.2 Defined contribution plans commonly 

allow participants to direct the investment of their accounts, usually by choosing among investment options offered under the plan. 

Under a defined benefit plan, benefits are determined under a plan 

formula and paid from general plan assets, rather than individual 

accounts.3 Besides qualified retirement plans, certain tax-exempt 

employers and public schools may maintain tax-deferred annuity 

plans.4

An IRA is generally established by the individual for whom the 

IRA is maintained.5 However, in some cases, an employer may establish IRAs on behalf of employees and provide retirement contributions to the IRAs.6 In addition, IRA treatment may apply to 

accounts maintained for employees under a trust created by an employer (or an employee association) for the exclusive benefit of employees or their beneficiaries, provided that the trust complies with 

the relevant IRA requirements and separate accounting is maintained for the interest of each employee or beneficiary (referred to 

herein as an ‘‘IRA trust’’).7 In that case, the assets of the trust may 

be held in a common fund for the account of all individuals who 

have an interest in the trust. 

ERISA 

Retirement plans of private employers, including qualified retirement plans and tax-deferred annuity plans, are generally subject to 

requirements under the Employee Retirement Income Security Act 

of 1974 (‘‘ERISA’’).8 A plan covering only business owners (or business owners and their spouses)—that is, it covers no other employees—is exempt from ERISA.9 Thus, a plan covering only self-employed individuals is exempt from ERISA. Tax-deferred annuity 

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10 29 C.F.R. 2510.3–2(f). 11The provisions of Title I of ERISA are codified at 29 U.S.C. 1001–734. Under Title IV of 

ERISA, defined benefit plans of private employers are generally covered by the Pension Benefit 

Guaranty Corporation’s pension insurance program. 12 ERISA sec. 3004. 13 43 Fed. Reg. 47713 (October 17, 1978). 14Secs. 414(b), (c), (m) and (o). 15Sec. 413(c). Multiple employer status does not apply if the plan is a multiemployer plan. 

Multiemployer plans are different from single employer plans and multiple employer plans. A 

multiemployer plan is defined under section 414(f) as a plan maintained pursuant to one or 

more collective bargaining agreements with two or more unrelated employers and to which the 

employers are required to contribute under the collective bargaining agreement(s). Multiemployer plans are also known as Taft-Hartley plans. 16 Rev. Proc. 2003–86, 2003–2 C.B. 1211, and Rev. Proc. 2002–21, 2002–1 C.B. 911, address 

the application of the multiple employer plan rules to qualified defined contribution plans maintained by PEOs. 17Sec. 413(c). 

ployees may be exempt from ERISA.10 IRAs are generally exempt 

from ERISA. 

The provisions of Title I of ERISA are under the jurisdiction of 

the Secretary of Labor.11 Many of the requirements under Title I 

of ERISA parallel Code requirements for qualified retirement 

plans. Under ERISA, in carrying out provisions relating to the 

same subject matter, the Secretary (of the Treasury) and the Secretary of Labor are required to consult with each other and develop 

rules, regulations, practices, and forms that, to the extent appropriate for efficient administration, are designed to reduce duplication of effort, duplication of reporting, conflicting or overlapping requirements, and the burden of compliance by plan administrators, 

employers, and participants and beneficiaries.12 In addition, interpretive jurisdiction over parallel Code and ERISA provisions relating to retirement plans is divided between the two Secretaries by 

Executive Order, referred to as the Reorganization Plan No. 4 of 

1978.13

Multiple employer plans under the Code 

In general 

Qualified retirement plans, either defined contribution or defined 

benefit plans, are categorized as single employer plans or multiple 

employer plans. A single employer plan is a plan maintained by 

one employer. For this purpose, businesses and organizations that 

are members of a controlled group of corporations, a group under 

common control, or an affiliated service group are treated as one 

employer (referred to as ‘‘aggregation’’).14

A multiple employer plan generally is a single plan maintained 

by two or more unrelated employers (that is, employers that are 

not treated as a single employer under the aggregation rules).15

Multiple employer plans are commonly maintained by employers in 

the same industry and are used also by professional employer organizations (‘‘PEOs’’) to provide qualified retirement plan benefits to 

employees working for PEO clients.16

Application of Code requirements to multiple employer plans 

and EPCRS 

Some requirements are applied to a multiple employer plan on 

a plan-wide basis.17 For example, all employees covered by the plan 

are treated as employees of all employers participating in the plan 

for purposes of the exclusive benefit rule. Similarly, an employee’s 


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18Treas. Reg. sec. 1.415(a)–1(e). 19Treas. Reg. secs. 1.413–2(a)(3)(ii)–(iii) and 1.416–1, G–2. 20Treas. Reg. secs. 1.413–2(a)(3)(iv) and 1.416–1, G–2. 21 Rev. Proc. 2016–51, 2016–42 I.R.B. 465. 22Section 10.11 of Rev. Proc. 2016–51. 

service with all participating employers is taken into account in applying the minimum participation and vesting requirements. In applying the limits on contributions and benefits, compensation, contributions, and benefits attributable to all employers are taken into 

account.18 Other requirements are applied separately, including 

the minimum coverage requirements, nondiscrimination requirements (both the general requirements and the special tests for section 401(k) plans), and the top-heavy rules.19 However, the qualified status of the plan as a whole is determined with respect to all 

employers maintaining the plan, and the failure by one employer 

(or by the plan itself) to satisfy an applicable qualification requirement may result in disqualification of the plan with respect to all 

employers (sometimes referred to as the ‘‘one bad apple’’ rule).20

Because of the complexity of the requirements for qualified retirement plans, errors in plan documents, as well as plan operation 

and administration, commonly occur. Under a strict application of 

these requirements, such an error would cause a plan to lose its 

tax-favored status, which would fall most heavily on plan participants because of the resulting current income inclusion of vested 

amounts under the plan. As a practical matter, therefore, the IRS 

rarely disqualifies a plan. Instead, the IRS has established the Employee Plans Compliance Resolution System (‘‘EPCRS’’), a formal 

program under which employers and other plan sponsors can correct compliance failures and continue to provide their employees 

with retirement benefits on a tax-favored basis.21

EPCRS has three components, providing for self-correction, voluntary correction with IRS approval, and correction on audit. The 

Self-Correction Program (‘‘SCP’’) generally permits a plan sponsor 

that has established compliance practices and procedures to correct 

certain insignificant failures at any time (including during an 

audit), and certain significant failures generally within a two-year 

period, without payment of any fee or sanction. The Voluntary Correction Program (‘‘VCP’’) permits an employer, at any time before 

an audit, to pay a limited fee and receive IRS approval of a correction. For a failure that is discovered on audit and corrected, the 

Audit Closing Agreement Program (‘‘Audit CAP’’) provides for a 

sanction that bears a reasonable relationship to the nature, extent, 

and severity of the failure and that takes into account the extent 

to which correction occurred before audit. 

Multiple employer plans are eligible for EPCRS, and certain special procedures apply.22 A VCP request with respect to a multiple 

employer plan must be submitted to the IRS by the plan administrator, rather than an employer maintaining the plan, and must be 

made with respect to the entire plan, rather than a portion of the 

plan affecting any particular employer. In addition, if a failure applies to fewer than all of the employers under the plan, the plan 

administrator may choose to have a VCP compliance fee or audit 

CAP sanction calculated separately for each employer based on the 

participants attributable to that employer, rather than having the 

compliance fee calculated based on the participants of the entire 


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23 ERISA sec. 402. 24Fiduciary is defined in ERISA section 3(21), and named fiduciary is defined in ERISA section 402(a)(2). 25 ERISA sec. 404(c). Under ERISA, a defined contribution plan is also referred to as an individual account plan. 26 ERISA sec. 412. 27 ERISA sec. 210(a). 28 ERISA secs. 3(1) and (2). 

plan. For example, the plan administrator may choose this option 

when the failure is attributable to the failure of an employer to 

provide the plan administrator with full and complete information. 

ERISA 

Fiduciary and bonding requirements 

Among other requirements, ERISA requires a plan to be established and maintained pursuant to a written instrument (that is, 

a plan document) that contains certain terms.23 The terms of the 

plan must provide for one or more named fiduciaries that jointly 

or severally have authority to control and manage the operation 

and administration of the plan.24 Among other required plan terms 

are a procedure for the allocation of responsibilities for the operation and administration of the plan and a procedure for amending 

the plan and for identifying the persons who have authority to 

amend the plan. Among other permitted terms, a plan may provide 

also that any person or group of persons may serve in more than 

one fiduciary capacity with respect to the plan (including service 

both as trustee and administrator) and that a person who is a 

named fiduciary with respect to the control or management of plan 

assets may appoint an investment manager or managers to manage plan assets. 

In general, a plan fiduciary is responsible for the investment of 

plan assets. However, ERISA section 404(c) provides a special rule 

in the case of a defined contribution plan that permits participants 

to direct the investment of their individual accounts.25 Under the 

special rule, if various requirements are met, a participant is not 

deemed to be a fiduciary by reason of directing the investment of 

the participant’s account and no person who is otherwise a fiduciary is liable for any loss, or by reason of any breach, that results 

from the participant’s investments. Defined contribution plans that 

provide for participant-directed investments commonly offer a set of 

investment options among which participants may choose. The selection of investment options to be offered under a plan is subject 

to ERISA fiduciary requirements. 

Under ERISA, any plan fiduciary or person that handles plan assets is required to be bonded, generally for an amount not to exceed 

$500,000.26 In some cases, the maximum bond amount is $1 million, rather than $500,000. 

Multiple employer plan status under ERISA 

Like the Code, ERISA contains rules for multiple employer retirement plans.27 However, a different concept of multiple employer 

plan applies under ERISA. 

Under ERISA, an employee benefit plan (whether a pension plan 

or a welfare plan) must be sponsored by an employer, by an employee organization, or by both.28 The definition of employer is any 

person acting directly as an employer, or indirectly in the interest 


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29 ERISA sec. 3(5). 30See, e.g., Department of Labor Advisory Opinions 2012–04A, 2003–17A, 2001–04A, and 

1994–07A, and other authorities cited therein. 31See, e.g., Department of Labor Advisory Opinion 2017–02AC. 32Sec. 6058. In addition, under section 6059, the plan administrator of a defined benefit plan 

subject to the minimum funding requirements is required to file an annual actuarial report. 

Under section 414(g) and ERISA section 3(16), plan administrator generally means the person 

specifically so designated by the terms of the plan document. In the absence of a designation, 

the plan administrator generally is (1) in the case of a plan maintained by a single employer, 

the employer, (2) in the case of a plan maintained by an employee organization, the employee 

organization, or (3) in the case of a plan maintained by two or more employers or jointly by 

one or more employers and one or more employee organizations, the association, committee, 

joint board of trustees, or other similar group of representatives of the parties that maintain 

the plan. Under ERISA, the party described in (1), (2), or (3) is referred to as the ‘‘plan sponsor.’’ 33 ERISA secs. 103 and 104. Under ERISA section 4065, the plan administrator of certain defined benefit plans must provide information to the PBGC. 34 Information is shared also with the PBGC, as applicable. Form 5500 filings are also publicly 

released in accordance with section 6104(b) and Treas. Reg. sec. 301.6104(b)–1 and ERISA secs. 

104(a)(1) and 106(a). 

of an employer, in relation to an employee benefit plan, and includes a group or association of employers acting for an employer 

in such capacity.29

These definitional provisions of ERISA are interpreted as permitting a multiple employer plan to be established or maintained by 

a cognizable, bona fide group or association of employers, acting in 

the interests of its employer members to provide benefits to their 

employees.30 This approach is based on the premise that the person 

or group that maintains the plan is tied to the employers and employees that participate in the plan by some common economic or 

representational interest or genuine organizational relationship unrelated to the provision of benefits. Based on the facts and circumstances, the employers that participate in the benefit program 

must, either directly or indirectly, exercise control over that program, both in form and in substance, in order to act as a bona fide 

employer group or association with respect to the program, or the 

plan is sponsored by one or more employers as defined in section 

3(5) of ERISA.31 However, an employer association does not exist 

where several unrelated employers merely execute participation 

agreements or similar documents as a means to fund benefits, in 

the absence of any genuine organizational relationship between the 

employers. In that case, each participating employer establishes 

and maintains a separate employee benefit plan for the benefit of 

its own employees, rather than a multiple employer plan. 

Form 5500 reporting 

Under the Code, an employer maintaining a qualified retirement 

plan generally is required to file an annual return containing information required under regulations with respect to the qualification, 

financial condition, and operation of the plan.32 ERISA requires the 

plan administrator of certain pension and welfare benefit plans to 

file annual reports disclosing certain information to the Department of Labor (‘‘DOL’’).33 These filing requirements are met by filing a completed Form 5500, Annual Return/Report of Employee 

Benefit Plan. Forms 5500 are filed with DOL, and information from 

Forms 5500 is shared with the IRS.34 In the case of a multiple employer plan, the annual report must include a list of participating 

employers and a good faith estimate of the percentage of total contributions made by the participating employers during the plan 

year. Certain small plans, that is, plans covering fewer than 100 

participants, are eligible for simplified reporting requirements, 


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35 ERISA sec. 104(b). 36To which section 413(c) applies. 37 Under the provision, in applying the exclusive benefit requirement under section 408(c) to 

an IRA plan with an IRA trust covering employees of unrelated employers, all employees covered by the plan are treated as employees of all employers participating in the plan. 

which are met by filing Form 5500–SF, Short Form Annual Return/ 

Report of Small Employee Benefit Plan.35

REASONS FOR CHANGE

A single, multiple employer plan can provide economies of scale 

that result in lower administrative costs than apply to a group of 

separate plans covering the employees of different employers. However, concern that a violation by one or more employers participating in the multiple employer plan may jeopardize the tax-favored status of the plan, or create liability for other employers, 

may discourage use of multiple employer plans. The Committee believes employers in such a plan should not be subject to the risk 

that any inadvertent or unintentional violation of Code requirements by a noncompliant employer in the plan could result in negative tax consequences for the employers in the plan that are compliant or for such employers’ participants. In addition, under 

ERISA, a plan covering employees of unrelated employers might 

not be eligible for multiple employer plan treatment. The Committee wishes to remove possible barriers to broader use of multiple employer plans, including by providing simplified Form 5500 

reporting in appropriate cases. Requiring the service provider of a 

plan covering employees of unrelated employers to take on fiduciary responsibilities will further the protection of participants in 

such plans. 

In the case of any multiple employer plan that, in accordance 

with the Department of Labor’s current interpretations of the definition of employer in section 3(5) of ERISA, is treated currently as 

a single employer plan under ERISA, the Committee does not intend to modify the existing definition and regulatory guidance 

thereunder, except insofar as specifically provided herein with respect to relief from disqualification (or other loss of tax-favored status) and simplified annual reports. 

EXPLANATION OF PROVISION

In general 

The provision amends the Code rules relating to multiple employer plans to provide relief from the ‘‘one bad apple’’ rule for certain plans (referred to herein as ‘‘covered multiple employer 

plans’’). A covered multiple employer plan is a multiple employer 

qualified defined contribution plan 36 or a plan that consists of 

IRAs (referred to herein as an ‘‘IRA plan’’), including under an IRA 

trust,37 that either (1) is maintained by employers which have a 

common interest other than having adopted the plan, or (2) in the 

case of a plan not described in (1), has a pooled plan provider (referred to herein as a ‘‘pooled provider plan’’), and which meets certain other requirements as described below. 

The provision outlines various requirements that apply to a 

pooled provider plan under the Code. It also outlines various requirements that apply under ERISA to a qualified defined contribution plan that is established or maintained for the purpose of 


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38With respect to plans described under proposed section 413(e)(1)(A), other than providing 

relief from the ‘‘one-bad-apple’’ rule if certain requirements are met and adding certain reporting 

requirements, the provision generally does not change present law and related guidance applicable to such multiple employer plans under the Code or ERISA. 39For this purpose, a tax-favored retirement plan means an eligible retirement plan as defined in section 402(c)(8)(B), that is, an IRA, a qualified retirement plan, a tax-deferred annuity 

plan under section 403(b), or an eligible deferred compensation plan of a State or local governmental employer under section 457(b). 40Within the meaning of ERISA section 402(a)(2). 

providing benefits to the employees of two or more employers and 

that meets certain requirements to be a ‘‘pooled employer plan,’’ 

and provides that a pooled employer plan is treated for purposes 

of ERISA as a single plan that is a multiple employer plan.38

Tax-favored status under the Code 

In general 

The provision provides relief from disqualification (or other loss 

of tax-favored status) of the entire plan merely because one or more 

participating employers fail to take actions required with respect to 

the plan (that is, relief from the ‘‘one-bad-apple’’ rule). 

Such relief under the provision does not apply to a plan unless 

the terms of the plan provide that, in the case of any employer in 

the plan failing to take required actions (referred to herein as a 

‘‘noncompliant employer’’): • plan assets attributable to employees of the noncompliant 

employer (or beneficiaries of such employees) will be transferred to a plan maintained only by that employer (or its successor), to a tax-favored retirement plan for each individual 

whose account is transferred,39 or to any other arrangement 

that the Secretary determines is appropriate, unless the Secretary determines it is in the best interests of the employees 

of the noncompliant employer (and beneficiaries of such employees) to retain the assets in the plan, and 

• the noncompliant employer (and not the plan with respect 

to which the failure occurred or any other employer in the 

plan) is, except to the extent provided by the Secretary, liable 

for any plan liabilities attributable to employees of the noncompliant employer (or beneficiaries of such employees). 

In addition, in the case of a pooled provider plan, if the pooled 

plan provider does not perform substantially all the administrative 

duties required of the provider (as described below) for any plan 

year, the Secretary may provide that the determination as to 

whether the plan meets the Code requirements for tax-favored 

treatment will be made in the same manner as would be made 

without regard to the relief under the provision. 

Pooled plan provider 

Under the provision, ‘‘pooled plan provider’’ with respect to a 

plan means a person that: 

• is designated by the terms of the plan as a named fiduciary under ERISA,40 as the plan administrator, and as the 

person responsible to perform all administrative duties (including conducting proper testing with respect to the plan and the 

employees of each employer in the plan) that are reasonably 

necessary to ensure that the plan meets the Code requirements 

for tax-favored treatment and the requirements of ERISA and 


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41 Under subsection (b), (c), (m), or (o) of section 414. 

to ensure that each employer in the plan takes actions as the 

Secretary or the pooled plan provider determines necessary for 

the plan to meet Code and ERISA requirements, including providing to the pooled plan provider any disclosures or other information that the Secretary may require or that the pooled 

plan provider otherwise determines are necessary to administer the plan or to allow the plan to meet Code and ERISA 

requirements, • registers with the Secretary as a pooled plan provider and 

provides any other information that the Secretary may require, 

before beginning operations as a pooled plan provider, • acknowledges in writing its status as a named fiduciary 

under ERISA and as the plan administrator, and • is responsible for ensuring that all persons who handle 

plan assets or are plan fiduciaries are bonded in accordance 

with ERISA requirements. 

The provision specifies that the Secretary may perform audits, 

examinations, and investigations of pooled plan providers as may 

be necessary to enforce and carry out the purposes of the provision. 

In addition, the provision provides that in determining whether 

a person meets the requirements to be a pooled plan provider with 

respect to any plan, all persons who perform services for the plan 

and who are treated as a single employer 41 are treated as one person. 

Plan sponsor 

The provision also provides that, except with respect to the administrative duties (as a named fiduciary, as the plan administrator, and as the person responsible for the performance of all administrative duties) for which the pooled plan provider is responsible as described above, each employer in a plan which has a 

pooled plan provider will be treated as the plan sponsor with respect to the portion of the plan attributable to that employer’s employees (or beneficiaries of such employees). 

Guidance 

The provision directs the Secretary to issue guidance that the 

Secretary determines appropriate to carry out the provision, including guidance (1) to identify the administrative duties and other actions required to be performed by a pooled plan provider, (2) that 

describes the procedures to be taken to terminate a plan that fails 

to meet the requirements to be a covered multiple employer plan, 

including the proper treatment of, and actions needed to be taken 

by, any employer in the plan and plan assets and liabilities attributable to employees of that employer (or beneficiaries of such employees), and (3) to identify appropriate cases in which corrective 

action will apply with respect to noncompliant employers. For purposes of (3), the Secretary is to take into account whether the failure of an employer or pooled plan provider to provide any disclosures or other information, or to take any other action, necessary 

to administer a plan or to allow a plan to meet the Code requirements for tax-favored treatment, has continued over a period of 

time that demonstrates a lack of commitment to compliance. An 


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42 Any trustee must meet the requirements under the Code to be an IRA trustee. 

employer or pooled plan provider is not treated as failing to meet 

a requirement of guidance issued by the Secretary if, before the 

issuance of such guidance, the employer or pooled plan provider 

complies in good faith with a reasonable interpretation of the provisions to which the guidance relates. 

The provision also directs the Secretary to publish model plan 

language that meets the Code and ERISA requirements under the 

provision and that may be adopted in order to be treated as a 

pooled employer plan under ERISA. 

Pooled employer plans under ERISA 

In general 

As described above, under the provision, a pooled employer plan 

is treated for purposes of ERISA as a single plan that is a multiple 

employer plan. A ‘‘pooled employer plan’’ is defined as a plan (1) 

that is an individual account plan established or maintained for the 

purpose of providing benefits to the employees of two or more employers, (2) that is a qualified retirement plan or an IRA plan, and 

(3) the terms of which meet the requirements described below. A 

pooled employer plan does not include a plan maintained by employers that have a common interest other than having adopted the 

plan. 

In order for a plan to be a pooled employer plan, the plan terms 

must: • designate a pooled plan provider and provide that the 

pooled plan provider is a named fiduciary of the plan, • designate one or more trustees (other than an employer in 

the plan 42 to be responsible for collecting contributions to, and 

holding the assets of, the plan, and require the trustees to implement written contribution collection procedures that are 

reasonable, diligent, and systematic, • provide that each employer in the plan retains fiduciary 

responsibility for the selection and monitoring, in accordance 

with ERISA fiduciary requirements, of the person designated 

as the pooled plan provider and any other person who is also 

designated as a named fiduciary of the plan, and, to the extent 

not otherwise delegated to another fiduciary by the pooled plan 

provider (and subject to the ERISA rules relating to self-directed investments), the investment and management of the 

portion of the plan’s assets attributable to the employees of 

that employer (or beneficiaries of such employees) in the plan, • provide that employers in the plan, and participants and 

beneficiaries, are not subject to unreasonable restrictions, fees, 

or penalties with regard to ceasing participation, receipt of distributions, or otherwise transferring assets of the plan in accordance with applicable rules for plan mergers and transfers, • require the pooled plan provider to provide to employers in 

the plan any disclosures or other information that the Secretary of Labor may require, including any disclosures or other 

information to facilitate the selection or any monitoring of the 

pooled plan provider by employers in the plan, and require 

each employer in the plan to take any actions that the Secretary of Labor or pooled plan provider determines are necVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00049 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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43The provision does not change existing law and guidance with respect to furnishing documents through electronic media to participants and beneficiaries. 44 In determining whether a person meets the requirements to be a pooled plan provider with 

respect to a plan, all persons who perform services for the plan and who are treated as a single 

employer under subsection (b), (c), (m), or (o) of section 414 are treated as one person. 

essary to administer the plan or to allow for the plan to meet 

the ERISA and Code requirements applicable to the plan, including providing any disclosures or other information that the 

Secretary of Labor may require or that the pooled plan provider otherwise determines are necessary to administer the 

plan or to allow the plan to meet such ERISA and Code requirements, and 

• provide that any disclosure or other information required 

to be provided as described above may be provided in electronic 

form 43 and will be designed to ensure only reasonable costs 

are imposed on pooled plan providers and employers in the 

plan. 

In the case of a fiduciary of a pooled employer plan or a person 

handling assets of a pooled employer plan, the maximum bond 

amount under ERISA is $1 million. 

The term ‘‘pooled employer plan’’ does not include a multiemployer plan. Such term also does not include a plan established before the date of enactment of the Setting Every Community Up for 

Retirement Enhancement Act of 2019 unless the plan administrator elects to have the plan treated as a pooled employer plan 

and the plan meets the ERISA requirements applicable to a pooled 

employer plan established on or after such date. 

Pooled plan provider 

The definition of pooled plan provider for ERISA purposes is generally similar to the definition under the Code portion of the provision, described above.44 The ERISA definition requires a person to 

register as a pooled plan provider with the Secretary of Labor and 

provide any other information that the Secretary of Labor may require before beginning operations as a pooled plan provider. 

The provision specifies that the Secretary of Labor may perform 

audits, examinations, and investigations of pooled plan providers 

as may be necessary to enforce and carry out the purposes of the 

provision. 

Plan sponsor 

The provision also provides that except with respect to the administrative duties (as a named fiduciary, as the plan administrator, and as the person responsible for the performance of all administrative duties) for which the pooled plan provider is responsible as described above, each employer in a pooled employer plan 

will be treated as the plan sponsor with respect to the portion of 

the plan attributable to that employer’s employees (or beneficiaries 

of such employees). 

Guidance 

The provision directs the Secretary of Labor to issue guidance 

that such Secretary determines appropriate to carry out the provision, including guidance (1) to identify the administrative duties 

and other actions required to be performed by a pooled plan proVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00050 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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45The Secretary of Labor may waive the requirement to transfer assets to another plan or 

arrangement in appropriate circumstances if the Secretary of Labor determines it is in the best 

interests of the employees of the noncompliant employer (and the beneficiaries of such employees) to retain the assets in the pooled employer plan. 

vider, and (2) that requires, in appropriate cases of a noncompliant 

employer, plan assets attributable to employees of the noncompliant employer (or beneficiaries of such employees) to be transferred 

to a plan maintained only by that employer (or its successor), to a 

tax-favored retirement plan for each individual whose account is 

transferred, or to any other arrangement that the Secretary of 

Labor determines in the guidance is appropriate,45 and the noncompliant employer (and not the plan with respect to which the 

failure occurred or any other employer in the plan) to be liable for 

any plan liabilities attributable to employees of the noncompliant 

employer (or beneficiaries of such employees), except to the extent 

provided in the guidance. For purposes of (2), the Secretary of 

Labor is to take into account whether the failure of an employer 

or pooled plan provider to provide any disclosures or other information, or to take any other action, necessary to administer a plan or 

to allow a plan to meet the requirements of ERISA and the Code 

requirements for tax-favored treatment, has continued over a period of time that demonstrates a lack of commitment to compliance. 

An employer or pooled plan provider is not treated as failing to 

meet a requirement of guidance issued by the Secretary if, before 

the issuance of such guidance, the employer or pooled plan provider 

complies in good faith with a reasonable interpretation of the provisions to which the guidance relates. 

Form 5500 reporting 

Under the provision, the Form 5500 filing for a multiple employer plan (including a pooled employer plan) must include a list 

of the employers in the plan, a good faith estimate of the percentage of total contributions made by such employers during the plan 

year, and the aggregate account balances attributable to each employer in the plan (determined as the sum of the account balances 

of the employees of each employer (and the beneficiaries of such 

employees)); and with respect to a pooled employer plan, the identifying information for the person designated under the terms of the 

plan as the pooled plan provider. In addition, the provision adds, 

to the list of pension plans to which simplified reporting may be 

prescribed by the Secretary of Labor, a multiple employer plan that 

covers fewer than 1,000 participants, but only if no single employer 

in the plan has 100 or more participants covered by the plan. 

EFFECTIVE DATE

The provision applies to plan years beginning after December 31, 

2020, including reporting for purposes of Forms 5500 for plan years 

beginning after December 31, 2020. 

Nothing in the Code amendments made by the provision is to be 

construed as limiting the authority of the Secretary (or the Secretary’s delegate) to provide for the proper treatment of a failure 

to meet any Code requirement with respect to any employer (and 

its employees) in a multiple employer plan. 


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46 Elective deferrals generally are made on a pretax basis and distributions attributable to 

elective deferrals are includible in income. However, a section 401(k) plan is permitted to include a ‘‘qualified Roth contribution program’’ that permits a participant to elect to have all or 

a portion of the participant’s elective deferrals under the plan treated as after-tax Roth contributions. Certain distributions from a designated Roth account are excluded from income, even 

though they include earnings not previously taxed. 47Sec. 402(g). 48Sec. 414(v). 49Treas. Reg. sec. 1.401(k)–1(e)(2)(ii). 50Sec. 401(k)(3). 

B. INCREASE IN 10 PERCENT CAP FOR AUTOMATIC ENROLLMENT

SAFE HARBOR AFTER FIRST PLAN YEAR (SEC. 102 OF THE BILL

AND SEC. 401(k) OF THE CODE) 

PRESENT LAW

Section 401(k) plans 

A qualified defined contribution plan may include a qualified 

cash or deferred arrangement, under which employees may elect to 

have contributions made to the plan (referred to as ‘‘elective deferrals’’) rather than receive the same amount as current compensation (referred to as a ‘‘section 401(k) plan’’).46 The maximum annual amount of elective deferrals that can be made by an employee 

for a year is $19,000 (for 2019) or, if less, the employee’s compensation.47 For an employee who attains age 50 by the end of the year, 

the dollar limit on elective deferrals is increased by $6,000 (for 

2019) (called catch-up contributions).48 An employee’s elective deferrals must be fully vested. A section 401(k) plan may also provide 

for employer matching and nonelective contributions. 

Automatic enrollment 

A section 401(k) plan must provide each eligible employee with 

an effective opportunity to make or change an election to make 

elective deferrals at least once each plan year.49 Whether an employee has an effective opportunity is determined based on all the 

relevant facts and circumstances, including the adequacy of notice 

of the availability of the election, the period of time during which 

an election may be made, and any other conditions on elections. 

Section 401(k) plans are generally designed so that an employee 

will receive cash compensation unless the employee affirmatively 

elects to make elective deferrals to the section 401(k) plan. Alternatively, a plan may provide that elective deferrals are made at a 

specified rate (referred to as a ‘‘default rate’’) when an employee becomes eligible to participate unless the employee elects otherwise 

(that is, affirmatively elects not to make contributions or to make 

contributions at a different rate). This plan design is referred to as 

automatic enrollment. 

Nondiscrimination test and automatic enrollment safe harbor 

An annual nondiscrimination test, called the actual deferral percentage test (the ‘‘ADP’’ test) applies to elective deferrals under a 

section 401(k) plan.50 The ADP test generally compares the average rate of deferral for highly compensated employees to the average rate of deferral for nonhighly compensated employees and requires that the average deferral rate for highly compensated employees not exceed the average rate for nonhighly compensated employees by more than certain specified amounts. If a plan fails to 


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51Sec. 401(k)(8). 52Sec. 401(k)(12) and (13). If certain additional requirements are met, matching contributions 

under 401(k) safe harbor plan may also satisfy a nondiscrimination test applicable under section 

401(m). 

satisfy the ADP test for a plan year based on the deferral elections 

of highly compensated employees, the plan is permitted to distribute deferrals to highly compensated employees (‘‘excess deferrals’’) in a sufficient amount to correct the failure. The distribution 

of the excess deferrals must be made by the close of the following 

plan year.51

The ADP test is deemed to be satisfied if a section 401(k) plan 

includes certain minimum matching or nonelective contributions 

under either of two plan designs (a ‘‘401(k) safe harbor plan’’), as 

well as certain required rights and features and satisfies a notice 

requirement.52 One type of 401(k) safe harbor includes automatic 

enrollment. 

An automatic enrollment safe harbor plan must provide that, unless an employee elects otherwise, the employee is treated as electing to make elective deferrals at a default rate equal to a percentage of compensation as stated in the plan and at least (1) three 

percent of compensation for the first year the deemed election applies to the participant, (2) four percent during the second year, (3) 

five percent during the third year, and (4) six percent during the 

fourth year and thereafter. Although an automatic enrollment safe 

harbor plan generally may provide for default rates higher than 

these minimum rates, the default rate cannot exceed 10 percent for 

any year. 

REASONS FOR CHANGE

The 10-percent cap on the default rate that may be used under 

an automatic enrollment safe harbor plan reflects a concern that 

too high a default rate may be in excess of what employees prefer, 

which may cause employees to elect out and not contribute at all, 

thus undercutting the purpose of the safe harbor. An initial default 

rate that is too high may have that effect. In addition, a high default rate for automatically enrolled employees, especially in the 

period they are first enrolled, may result in a relatively high reduction in take-home pay. However, these effects likely are lessened 

with respect to automatic increases in default rates for years after 

default contributions have begun. In such a case, the cap may instead have the effect of limiting how much is contributed and, thus, 

also limiting retirement savings. The Committee therefore believes 

the cap should be increased to 15 percent for years after default 

contributions have begun. 

EXPLANATION OF PROVISION

Under the provision, the 10-percent limitation on the default 

rates under an automatic enrollment safe harbor plan is increased 

to 15 percent after the first year that an employee’s deemed election applies. 

EFFECTIVE DATE

The provision applies to plan years beginning after December 31, 

2019. 


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53 Elective deferrals generally are made on a pretax basis and distributions attributable to 

elective deferrals are includible in income. However, a section 401(k) plan is permitted to include a ‘‘qualified Roth contribution program’’ that permits a participant to elect to have all or 

a portion of the participant’s elective deferrals under the plan treated as after-tax Roth contributions. Certain distributions from a designated Roth account are excluded from income, even 

though they include earnings not previously taxed. 54Sec. 402(g). 55Sec. 414(v). 56Treas. Reg. sec. 1.401(k)–1(e)(2)(ii). 57Sec. 401(k)(3). 

C. RULES RELATING TO ELECTION OF SAFE HARBOR 401(k) STATUS

(SEC. 103 OF THE BILL AND SEC. 401(k) OF THE CODE) 

PRESENT LAW

Section 401(k) plans 

A qualified defined contribution plan may include a qualified 

cash or deferred arrangement, under which employees may elect to 

have contributions made to the plan (referred to as ‘‘elective deferrals’’) rather than receive the same amount as current compensation (referred to as a ‘‘section 401(k) plan’’).53 The maximum annual amount of elective deferrals that can be made by an employee 

for a year is $19,000 (for 2019) or, if less, the employee’s compensation.54 For an employee who attains age 50 by the end of the year, the dollar limit on elective deferrals is increased by $6,000 (for 

2019) (called catch-up contributions).55 An employee’s elective deferrals must be fully vested. A section 401(k) plan may also provide 

for employer matching and nonelective contributions. 

Automatic enrollment 

A section 401(k) plan must provide each eligible employee with 

an effective opportunity to make or change an election to make 

elective deferrals at least once each plan year.56 Whether an employee has an effective opportunity is determined based on all the 

relevant facts and circumstances, including the adequacy of notice 

of the availability of the election, the period of time during which 

an election may be made, and any other conditions on elections. 

Section 401(k) plans are generally designed so that an employee 

will receive cash compensation unless the employee affirmatively 

elects to make elective deferrals to the section 401(k) plan. Alternatively, a plan may provide that elective deferrals are made at a 

specified rate when an employee becomes eligible to participate unless the employee elects otherwise (that is, affirmatively elects not 

to make contributions or to make contributions at a different rate). 

This plan design is referred to as automatic enrollment. 

Nondiscrimination test 

General rule and design-based safe harbors 

An annual nondiscrimination test, called the actual deferral percentage test (the ‘‘ADP’’ test) applies to elective deferrals under a 

section 401(k) plan.57 The ADP test generally compares the average rate of deferral for highly compensated employees to the average rate of deferral for nonhighly compensated employees and requires that the average deferral rate for highly compensated employees not exceed the average rate for nonhighly compensated employees by more than certain specified amounts. If a plan fails to 

satisfy the ADP test for a plan year based on the deferral elections 


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58Sec. 401(k)(8). 59Sec. 401(k)(12) and (13). If certain additional requirements are met, matching contributions 

under 401(k) safe harbor plan may also satisfy a nondiscrimination test applicable under section 

401(m). 60These automatic increases in default contribution rates are required for plans using the safe 

harbor. Rev. Rul. 2009–30, 2009-39 I.R.B. 391, provides guidance for including automatic increases in other plans using automatic enrollment, including under a plan that includes an eligible automatic contribution arrangement. 

of highly compensated employees, the plan is permitted to distribute deferrals to highly compensated employees (‘‘excess deferrals’’) in a sufficient amount to correct the failure. The distribution 

of the excess deferrals must be made by the close of the following 

plan year.58

The ADP test is deemed to be satisfied if a section 401(k) plan 

includes certain minimum matching or nonelective contributions 

under either of two plan designs (‘‘401(k) safe harbor plan’’), described below, as well as certain required rights and features and 

satisfies a notice requirement.59

Safe harbor contributions 

Under one type of 401(k) safe harbor plan (‘‘basic 401(k) safe harbor plan’’), the plan either (1) satisfies a matching contribution requirement (‘‘matching contribution basic 401(k) safe harbor plan’’) 

or (2) provides for a nonelective contribution to a defined contribution plan of at least three percent of an employee’s compensation 

on behalf of each nonhighly compensated employee who is eligible 

to participate in the plan (‘‘nonelective basic 401(k) safe harbor 

plan’’). The matching contribution requirement under the matching 

contribution basic 401(k) safe harbor requires a matching contribution equal to at least 100 percent of elective contributions of the 

employee for contributions not in excess of three percent of compensation, and 50 percent of elective contributions for contributions 

that exceed three percent of compensation but do not exceed five 

percent, for a total matching contribution of up to four percent of 

compensation. The required matching contributions and the three 

percent nonelective contribution under the basic 401(k) safe harbor 

must be immediately nonforfeitable (that is, 100 percent vested) 

when made. 

Another safe harbor applies for a section 401(k) plan that include 

automatic enrollment (‘‘automatic enrollment 401(k) safe harbor’’). 

Under an automatic enrollment 401(k) safe harbor, unless an employee elects otherwise, the employee is treated as electing to make 

elective deferrals equal to a percentage of compensation as stated 

in the plan, not in excess of 10 percent and at least (1) three percent of compensation for the first year the deemed election applies 

to the participant, (2) four percent during the second year, (3) five 

percent during the third year, and (4) six percent during the fourth 

year and thereafter.60 Under the automatic enrollment 401(k) safe 

harbor, the matching contribution requirement is 100 percent of 

elective contributions of the employee for contributions not in excess of one percent of compensation, and 50 percent of elective contributions for contributions that exceed one percent of compensation but do not exceed six percent, for a total matching contribution 

of up to 3.5 percent of compensation (‘‘matching contribution automatic enrollment 401(k) safe harbor’’). The rate of nonelective contribution under the automatic enrollment 401(k) safe harbor plan 


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is three percent, as under the basic 401(k) safe harbor (‘‘nonelective 

contribution automatic enrollment 401(k) safe harbor’’). However, 

under the automatic enrollment 401(k) safe harbors, the matching 

and nonelective contributions are allowed to become 100 percent 

vested only after two years of service (rather than being required 

to be immediately vested when made). 

Safe harbor notice 

The notice requirement for a 401(k) safe harbor plan is satisfied 

if each employee eligible to participate is given, within a reasonable 

period before any year, written notice of the employee’s rights and 

obligations under the arrangement and the notice meets certain 

content and timing requirements (‘‘safe harbor notice’’). To meet 

the content requirements, a safe harbor notice must be sufficiently 

accurate and comprehensive to inform an employee of the employee’s rights and obligations under the plan, and be written in a 

manner calculated to be understood by the average employee eligible to participate in the plan. A safe harbor notice must provide 

certain information, including the plan’s safe harbor contributions, 

any other plan contributions, the type and amount of compensation 

that may be deferred under the plan, how to make cash or deferred 

elections, the plan’s withdrawal and vesting provisions, and specified contact information. In addition, a safe harbor notice for an 

automatic enrollment 401(k) safe harbor must describe certain additional information items, including the deemed deferral elections 

under the plan if the employee does not make an affirmative election and how contributions will be invested. 

Delay in adopting nonelective 401(k) safe harbor 

Generally the plan provisions for the requirements that must be 

satisfied to be a 401(k) safe harbor plan must be adopted before the 

first day of the plan year and remain in effect for an entire 12- 

month plan year. However, in the case of a nonelective 401(k) safe 

harbor plan (but not the matching contribution 401(k) safe harbor), 

a plan may be amended after the first day of the plan year but no 

later than 30 days before the end of the plan year to adopt the safe 

harbor plan provisions including providing the 3 percent of compensation nonelective contribution. The plan must also provide a 

contingent and follow-up notice. The contingent notice must be provided before the beginning of the plan year and specify that the 

plan may be amended to include the safe harbor nonelective contribution and, if it is so amended, a follow-up notice will be provided. If the plan is amended, the follow-up notice must be provided no later than 30 days before the end of the plan year stating 

that the safe harbor nonelective contribution will be provided. 

REASONS FOR CHANGE

A nonelective contribution 401(k) safe harbor plan is beneficial to 

employees because it provides employer contributions regardless of 

whether employees make contributions. However, some aspects of 

the current procedural rules relating to adoption of the nonelective 

contribution 401(k) safe harbor, intended to protect employees, may 

serve as a barrier. The Committee believes that more flexible rules, 

combined with employee protections, will better facilitate the adoption of nonelective contribution 401(k) safe harbor plans. 


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61 A nonhighly compensated employee is an employee who is not a highly compensated employee as defined under section 414(q). 

EXPLANATION OF PROVISION

In general 

The provision makes a number of changes to the rules for the 

nonelective contribution 401(k) safe harbor. 

Elimination of notice requirement 

The provision eliminates the safe harbor notice requirement with 

respect to nonelective 401(k) safe harbor plans. However, the general rule under present law requiring a section 401(k) plan to provide each eligible employee with an effective opportunity to make 

or change an election to make elective deferrals at least once each 

plan year still applies. As described above, relevant factors used in 

determining if this requirement is satisfied include the adequacy of 

notice of the availability of the election and the period of time during which an election may be made. 

Delay in adopting provisions for nonelective 401(k) safe harbor 

Under the provision, a plan can be amended to become a nonelective 401(k) safe harbor plan for a plan year (that is, amended to 

provide the required nonelective contributions and thereby satisfy 

the safe harbor requirements) at any time before the 30th day before the close of the plan year. 

Further, the provision allows a plan to be amended after the 

30th day before the close of the plan year to become a nonelective 

contribution 401(k) safe harbor plan for the plan year if (1) the 

plan is amended to provide for a nonelective contribution of at least 

four percent of compensation (rather than at least three percent) 

for all eligible employees for that plan year and (2) the plan is 

amended no later than the last day for distributing excess contributions for the plan year (generally, by the close of following plan 

year). 

EFFECTIVE DATE

The provision applies to plan years beginning after December 31, 

2019. 

D. INCREASE IN CREDIT LIMITATION FOR SMALL EMPLOYER PENSION

PLAN STARTUP COSTS (SEC. 104 OF THE BILL AND SEC. 45E OF THE

CODE) 

PRESENT LAW

A nonrefundable income tax credit is available for qualified startup costs of an eligible small employer that adopts a new qualified 

retirement plan, SIMPLE IRA plan, or SEP (referred to as an eligible employer plan), provided that the plan covers at least one nonhighly compensated employee.61 Qualified startup costs are expenses connected with the establishment or administration of the 

plan or retirement-related education for employees with respect to 

the plan. The credit is the lesser of (1) a flat dollar amount of $500 

per year or (2) 50 percent of the qualified startup costs. The credit 

applies for up to three years beginning with the year the plan is 


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62Secs. 52(a) or (b) and 414(m) or (o). 63Sec. 45E. A nonhighly compensated employee is an employee who is not a highly compensated employee as defined under section 414(q). 

first effective, or, at the election of the employer, with the year preceding the first plan year. 

An eligible employer is an employer that, for the preceding year, 

had no more than 100 employees, each with compensation of 

$5,000 or more. In addition, the employer must not have had a 

plan covering substantially the same employees as the new plan 

during the three years preceding the first year for which the credit 

would apply. Members of controlled groups and affiliated service 

groups are treated as a single employer for purposes of these requirements.62 All eligible employer plans of an employer are treated as a single plan. 

No deduction is allowed for the portion of qualified startup costs 

paid or incurred for the taxable year equal to the amount of the 

credit. 

REASONS FOR CHANGE

Studies show that small employers are less likely to offer retirement plans than large employers. The credit for small employer 

pension plan startup costs is intended to encourage small employers to adopt plans. The Committee believes that increasing the 

amount of the credit will encourage more small employers to adopt 

plans. 

EXPLANATION OF PROVISION

The provision changes the calculation of the flat dollar amount 

limit on the credit. The flat dollar amount for a taxable year is the 

greater of (1) $500 or (2) the lesser of (a) $250 multiplied by the 

number of nonhighly compensated employees of the eligible employer who are eligible to participate in the plan or (b) $5,000. As 

under present law, the credit applies for up to three years. 

EFFECTIVE DATE

The provision applies to taxable years beginning after December 

31, 2019. 

E. SMALL EMPLOYER AUTOMATIC ENROLLMENT CREDIT (SEC. 105 OF

THE BILL AND NEW SEC. 45T OF THE CODE) 

PRESENT LAW

Small employer startup credit 

A nonrefundable income tax credit is available for qualified startup costs of an eligible small employer that adopts a new qualified 

retirement plan, SIMPLE IRA plan or SEP (referred to as an eligible employer plan), provided that the plan covers at least one nonhighly compensated employee.63 Qualified startup costs are expenses connected with the establishment or administration of the 

plan or retirement-related education for employees with respect to 

the plan. The credit is the lesser of (1) a flat dollar amount of $500 

per year or (2) 50 percent of the qualified startup costs. The credit 

applies for up to three years beginning with the year the plan is 


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64Secs. 52(a) or (b) and 414(m) or (o). 65Sec. 408(p). 

first effective, or, at the election of the employer, with the year preceding the first plan year. 

An eligible employer is an employer that, for the preceding year, 

had no more than 100 employees with compensation of $5,000 or 

more. In addition, the employer must not have had a plan covering 

substantially the same employees as the new plan during the three 

years preceding the first year for which the credit would apply. 

Members of controlled groups and affiliated service groups are 

treated as a single employer for purposes of these requirements.64

All eligible employer plans of an employer are treated as a single 

plan. 

No deduction is allowed for the portion of qualified startup costs 

paid or incurred for the taxable year equal to the amount of the 

credit. 

Automatic enrollment 

A qualified defined contribution plan may include a qualified 

cash or deferred arrangement under which employees may elect to 

have plan contributions (‘‘elective deferrals’’) made rather than receive cash compensation (commonly called a ‘‘section 401(k) plan’’). 

A SIMPLE IRA plan is an employer-sponsored retirement plan 

funded with individual retirement arrangements (‘‘IRAs’’) that also 

allows employees to make elective deferrals.65 Section 401(k) plans 

and SIMPLE IRA plans may be designed so that the employee will 

receive cash compensation unless the employee affirmatively elects 

to make elective deferrals to the plan. Alternatively, a plan may 

provide that elective deferrals are made at a specified rate (when 

the employee becomes eligible to participate) unless the employee 

elects otherwise (i.e., affirmatively elects not to make contributions 

or to make contributions at a different rate). This alternative plan 

design is referred to as automatic enrollment. 

REASONS FOR CHANGE

Studies show that automatic enrollment increases employee participation in section 401(k) and SIMPLE IRA plans, resulting in 

higher retirement savings. The Committee believes that providing 

a credit to small employers may encourage more employers to use 

an automatic enrollment design. 

EXPLANATION OF PROVISION

Under the provision, an eligible employer is allowed a credit of 

$500 per year for up to three years for startup costs for new section 

401(k) plans and SIMPLE IRA plans that include automatic enrollment, in addition to the plan startup credit allowed under present 

law. An eligible employer is also allowed a credit of $500 per year 

for up to three years if it converts an existing plan to an automatic 

enrollment design. 

EFFECTIVE DATE

The provision applies to taxable years beginning after December 

31, 2019. 


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66Secs. 408 and 408A. 67Sec. 219(b)(2) and (5), as referenced in secs. 408(a)(1) and (b)(2)(B) and 408A(c)(2). Under 

section 4973, IRA contributions in excess of the applicable limit are generally subject to an excise tax of six percent per year until withdrawn. 68Sec. 219(g). 69Sec. 408A(c)(3). 70 Under a special rule in section 219(f)(1), alimony that is includible in gross income under 

section 71 is treated as compensation for IRA contribution purposes. 

F. CERTAIN TAXABLE NON-TUITION FELLOWSHIP AND STIPEND PAY- MENTS TREATED AS COMPENSATION FOR IRA PURPOSES (SEC. 106 

OF THE BILL AND SEC. 219 OF THE CODE) 

PRESENT LAW

There are two general types of individual retirement arrangements (‘‘IRAs’’): traditional IRAs and Roth IRAs.66 The total 

amount that an individual may contribute to one or more IRAs for 

a year is generally limited to the lesser of: (1) a dollar amount 

($6,000 for 2019); and (2) the amount of the individual’s compensation that is includible in gross income for the year.67 In the case 

of an individual who has attained age 50 by the end of the year, 

the dollar amount is increased by $1,000. In the case of a married 

couple, contributions can be made up to the dollar limit for each 

spouse if the combined compensation of the spouses that is includible in gross income is at least equal to the contributed amount. 

An individual may make contributions to a traditional IRA (up 

to the contribution limit) without regard to his or her adjusted 

gross income. An individual may deduct his or her contributions to 

a traditional IRA if neither the individual nor the individual’s 

spouse is an active participant in an employer-sponsored retirement plan. If an individual or the individual’s spouse is an active 

participant in an employer-sponsored retirement plan, the deduction is phased out for taxpayers with adjusted gross income over 

certain levels.68

Individuals with adjusted gross income below certain levels may 

make contributions to a Roth IRA (up to the contribution limit).69

Contributions to a Roth IRA are not deductible. 

As described above, an individual’s IRA contributions generally 

cannot exceed the amount of his or her compensation that is includible in gross income. Subject to the rule for spouses, described 

above, an individual who has no includible compensation income 

generally is not eligible to make IRA contributions, even if the individual has other income that is includible in gross income.70

REASONS FOR CHANGE

Graduate and postdoctoral students often receive stipends and 

similar amounts that are not treated as compensation and thus 

cannot be the basis for IRA contributions. This delays the ability 

to accumulate tax-favored retirement savings, in some cases for a 

number of years. The Committee believes that treating such 

amounts that are includible in gross income as compensation for 

IRA contribution purposes will enable some graduate and 

postdoctoral students to begin saving for retirement. 

EXPLANATION OF PROVISION

Under the provision, an amount includible in an individual’s income and paid to the individual to aid the individual in the pursuit 


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71Sec. 219. 72Sec. 219(g). 73Sec. 408(o). The annual contribution limit for IRAs is coordinated so that the maximum 

amount that can be contributed to all of an individual’s IRAs (both traditional and Roth) for 

a taxable year is the lesser of a certain dollar amount ($6,000 for 2019) or the individual’s compensation. 74Sec. 219(d)(1). 75Sec. 408A(c)(4). 

of graduate or postdoctoral study or research (such as a fellowship, 

stipend, or similar amount) is treated as compensation for purposes 

of IRA contributions. 

EFFECTIVE DATE

The provision applies to taxable years beginning after December 

31, 2019. 

G. REPEAL OF MAXIMUM AGE FOR TRADITIONAL IRA CONTRIBUTIONS

(SEC. 107 OF THE BILL AND SEC. 219 OF THE CODE) 

PRESENT LAW

An individual may make deductible contributions to a traditional 

IRA up to the IRA contribution limit if neither the individual nor 

the individual’s spouse is an active participant in an employersponsored retirement plan.71 If an individual (or the individual’s 

spouse) is an active participant in an employer-sponsored retirement plan, the deduction is phased out for taxpayers with adjusted 

gross income (‘‘AGI’’) for the taxable year over certain indexed levels.72 To the extent an individual cannot or does not make deductible contributions to a traditional IRA, the individual may make 

nondeductible contributions to a traditional IRA (without regard to 

AGI limits). Alternatively, subject to AGI limits, an individual may 

make nondeductible contributions to a Roth IRA.73

An individual who has attained age 701⁄2 by the close of a year 

is not permitted to make contributions to a traditional IRA.74 This 

restriction does not apply to contributions to a Roth IRA.75 In addition, employees over age 701⁄2 are not precluded from contributing 

to employer-sponsored plans. 

REASONS FOR CHANGE

As Americans live longer, increasing numbers of Americans are 

continuing to work past traditional retirement ages. This provides 

such working individuals with current income, as well as the potential for additional retirement savings. An individual working 

past age 701⁄2 may contribute to an employer-sponsored retirement 

plan, if available, or to a Roth IRA, but not to a traditional IRA. 

The Committee wishes to remove this impediment to retirement 

savings. 

EXPLANATION OF PROVISION

The provision repeals the prohibition on contributions to a traditional IRA by an individual who has attained age 701⁄2. 

EFFECTIVE DATE

The provision applies to contributions made for taxable years beginning after December 31, 2019. 


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76Sec. 72(p). 

H. QUALIFIED EMPLOYER PLANS PROHIBITED FROM MAKING LOANS

THROUGH CREDIT CARDS AND OTHER SIMILAR ARRANGEMENTS

(SEC. 108 OF THE BILL AND SEC. 72(p) OF THE CODE) 

PRESENT LAW

Employer-sponsored retirement plans may provide loans to participants. Unless the loan satisfies certain requirements in both 

form and operation, the amount of a retirement plan loan is a 

deemed distribution from the retirement plan. Among the requirements that the loan must satisfy are that the loan amount must 

not exceed the lesser of 50 percent of the participant’s account balance or $50,000 (generally taking into account outstanding balances of previous loans), and the loan’s terms must provide for a 

repayment period of not more than five years (except for a loan 

specifically to purchase a home) and for level amortization of loan 

payments to be made not less frequently than quarterly.76 Thus, if 

an employee stops making payments on a loan before the loan is 

repaid, a deemed distribution of the outstanding loan balance generally occurs. A deemed distribution of an unpaid loan balance generally is taxed as though an actual distribution occurred, including 

being subject to a 10-percent early distribution tax, if applicable. A 

deemed distribution is not eligible for rollover to another eligible 

retirement plan. Subject to the limit on the amount of loans, which 

precludes any additional loan that would cause the limit to be exceeded, the rules relating to loans do not limit the number of loans 

an employee may obtain from a plan. Some arrangements have developed under which an employee can access plan loans through 

the use of a credit card or similar mechanism. 

REASONS FOR CHANGE

The availability of plan loans may encourage employees to contribute to a retirement plan with the knowledge that funds may be 

accessed if needed. However, loans that are not repaid have the effect of depleting retirement savings. Easy access to plan loans 

through credit or debit cards and similar arrangements may lead 

to the use of retirement plan assets for routine or small purchases 

and, over time, result in an accumulated loan balance that an employee cannot repay. The Committee believes that appropriate limits should be placed on such arrangements. 

EXPLANATION OF PROVISION

Under the provision, a plan loan that is made through the use 

of a credit card or similar arrangement does not meet the requirements for loan treatment applicable to qualified retirement plans, 

and is therefore a deemed distribution. 

EFFECTIVE DATE

The provision applies to loans made after the date of enactment. 


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77Secs. 401(a), 403(a) and (b), and 457(b) and (e)(1)(A). 78Sec. 401(k)(2)(B). Similar restrictions apply to certain other contributions, such as employer 

matching or nonelective contributions required under the nondiscrimination safe harbors under 

section 401(k). 79The Bipartisan Budget Act of 2018, Pub. L. No. 115–123 (‘‘BBA’’), amends certain hardship 

distribution rules applicable to 401(k) plans, effective for plan years beginning after December 

31, 2018. One such amendment under BBA section 41114 permits earnings on elective deferrals 

Continued 

I. PORTABILITY OF LIFETIME INCOME OPTIONS (SEC. 109 OF THE BILL

AND SECS. 401(a), 401(k), 403(b), AND 457(d) OF THE CODE) 

PRESENT LAW

Distribution restrictions for accounts under employer-sponsored 

plans 

Types of plans and contributions 

Tax-favored employer-sponsored retirement plans under which 

individual accounts are maintained for employees include qualified 

defined contribution plans, tax-deferred annuity plans (referred to 

as ‘‘section 403(b)’’ plans), and eligible deferred compensation plans 

of State and local government employers (referred to as ‘‘governmental section 457(b)’’ plans).77

Contributions to a qualified defined contribution plan or section 

403(b) plan may include some or all of the following types of contributions: • pretax elective deferrals (that is, pretax contributions 

made at the election of an employee in lieu of receiving cash 

compensation), • after-tax designated Roth contributions (that is, elective 

deferrals made on an after-tax basis to a Roth account under 

the plan), • after-tax employee contributions (other than designated 

Roth contributions), • pretax employer matching contributions (that is, employer 

contributions made as a result of an employee’s elective deferrals, designated Roth contributions, or after-tax contributions), 

and • pretax employer nonelective contributions (that is, employer contributions made without regard to whether an employee makes elective deferrals, designated Roth contributions, 

or after-tax contributions). 

Contributions to a governmental section 457(b) plan generally 

consist of pretax elective deferrals and, if provided for under the 

plan, designated Roth contributions. 

Restrictions on in-service distributions 

The terms of an employer-sponsored retirement plan generally 

determine when distributions are permitted. However, in some 

cases, statutory restrictions on distributions may apply. 

Elective deferrals under a qualified defined contribution plan are 

subject to statutory restrictions on distribution before severance 

from employment, referred to as ‘‘in-service’’ distributions.78 Inservice distributions of elective deferrals (and related earnings) 

generally are permitted only after attainment of age 591⁄2 or termination of the plan. In-service distributions of elective deferrals (but 

not related earnings) are also permitted in the case of hardship.79


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under a section 401(k) plan, as well as qualified nonelective contributions and qualified matching contributions (and attributable earnings), to be distributed on account of hardship. 80 Rev. Rul. 71–295, 1971–2 C.B. 184, and Treas. Reg. sec. 1.401–1(b)(1)(ii). Similar rules 

apply to a stock bonus plan. Treas. Reg. sec. 1.401–1(b)(1)(iii). 81Sec. 401(a)(36) and Treas. Reg. secs. 1.401–1(b)(1)(i) and 1.401(a)–1(b). 82Sec. 403(b)(7)(A)(ii) and (11). 83Sec. 457(d)(1)(A). 84Secs. 402(a), 403(b)(1), and 457(a)(1). Under section 402A(d), a qualified distribution from 

a designated Roth account under an employer-sponsored plan is not includible in income. 85Sec. 72(t). 86Secs. 402(c), 402A(c)(3), 403(b)(8), and 457(e)(16). 

Other distribution restrictions may apply to contributions under 

certain types of qualified defined contribution plans. A profit-sharing plan generally may allow an in-service distribution of an 

amount contributed to the plan only after a fixed number of years 

(not less than two).80 A money purchase pension plan generally 

may not allow an in-service distribution before attainment of age 

62 (or attainment of normal retirement age under the plan if earlier) or termination of the plan.81

Elective deferrals under a section 403(b) plan are subject to inservice distribution restrictions similar to those applicable to elective deferrals under a qualified defined contribution plan, and, in 

some cases, other contributions to a section 403(b) plan are subject 

to similar restrictions.82 Deferrals under a governmental section 

457(b) plan are subject to in-service distribution restrictions similar 

to those applicable to elective deferrals under a qualified defined 

contribution plan, except that in-service distributions under a governmental section 457(b) plan apply until age 701⁄2 (rather than 

age 591⁄2).83

Distributions and rollovers 

A distribution from an employer-sponsored retirement plan is 

generally includible in income except for any portion attributable 

to after-tax contributions, which result in basis.84 Unless an exception applies, in the case of a distribution before age 591⁄2 from a 

qualified retirement plan or a section 403(b) plan, any amount included in income is subject to an additional 10-percent tax, referred 

to as the ‘‘early withdrawal’’ tax.85

A distribution from an employer-sponsored retirement plan generally may be rolled over on a nontaxable basis to another such 

plan or to an individual retirement arrangement (‘‘IRA’’), either by 

a direct transfer to the recipient plan or IRA or by contributing the 

distribution to the recipient plan or IRA within 60 days of receiving 

the distribution.86 If the distribution from an employer-sponsored 

retirement plan consists of property, the rollover is accomplished 

by a transfer or contribution of the property to the recipient plan 

or IRA. 

Investment of accounts under employer-sponsored plans 

Qualified defined contribution plans, section 403(b) plans, and 

governmental section 457(b) plans commonly allow employees to direct the manner in which their accounts are invested. Employees 

may be given a choice among specified lifetime investments, such 

as a choice of specified mutual funds, and, in some cases, may be 

able to direct the investment of their accounts in any product, instrument or investment offered in the market. 


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87 In the case of a plan subject to ERISA, a participant’s exercise of control over the investment of the assets in his or her account by choosing among the investment options offered under 

the plan does not relieve a plan fiduciary from the duty to prudently select and monitor the 

investment options offered to participants. 29 C.F.R. sec. 2550.404c–1(d)(2)(iv) (2010); Tibble v. Edison International, No. 13–550, 135 S. Ct. 1823 (2015). The duty to monitor investment options may result in a change in the options offered. 

The investment options under a particular employer-sponsored 

retirement plan may change at times.87 Similarly, a plan that allows employees to direct the investment of their accounts in any 

product, instrument or investment offered in the market may be 

amended to limit the investments that can be held in the plan. In 

these cases, employees may be required to change the investments 

held within their accounts. 

The terms of some investments impose a charge or fee when the 

investment is liquidated, particularly if the investment is liquidated within a particular period after acquisition. For example, 

a lifetime income product, such as an annuity contract, may impose 

a surrender charge if the investment is discontinued. 

If an employee has to liquidate an investment held in an employer-sponsored retirement plan because of a change in investment options or a limit on investments held in the plan, the employee may be subject to a charge or fee as described above. In addition, restrictions on in-service distributions may prevent the employee from preserving the investment through a rollover. 

REASONS FOR CHANGE

The terms of some investments impose a charge or fee when the 

investment is liquidated, particularly if the investment is liquidated within a particular period after acquisition. For example, 

a lifetime income product, such as an annuity contract, may impose 

a surrender charge if the investment is discontinued. If an employee has to liquidate an investment held in an employer-sponsored retirement plan, for example, because of a change in investment options or a limit on investments held in the plan, the employee may be subject to such a charge or fee. Restrictions on inservice distributions may prevent the employee from avoiding such 

a charge or fee, and also from preserving the investment, through 

a distribution or rollover of the existing investment. The Committee wishes to allow distributions and rollovers in such cases. 

EXPLANATION OF PROVISION

Under the provision, if a lifetime income investment is no longer 

authorized to be held as an investment option under a qualified defined contribution plan, section 403(b) plan, or governmental section 457(b) plan, except as otherwise provided in guidance, the plan 

does not fail to satisfy the Code requirements applicable to the plan 

solely by reason of allowing (1) qualified distributions of a lifetime 

income investment, or (2) distributions of a lifetime income investment in the form of a qualified plan distribution annuity contract. 

Such a distribution must be made within the 90-day period ending 

on the date when the lifetime income investment is no longer authorized to be held as an investment option under the plan. 

For purposes of the provision, a qualified distribution is a direct 

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88For this purpose, an employer-sponsored retirement plan or IRA means such a plan or IRA 

that is an eligible retirement plan under section 402(c)(8)(B). 89For this purpose, an employer-sponsored retirement plan contract is an annuity contract 

distributed from an eligible retirement plan described in section 402(c)(8)(B) other than an IRA 

or individual retirement annuity. 90Sec. 402A. 91Sec. 403(b)(7). 

ment plan or IRA.88 A lifetime income investment is an investment 

option designed to provide an employee with election rights (1) that 

are not uniformly available with respect to other investment options under the plan and (2) that are rights to a lifetime income 

feature available through a contract or other arrangement offered 

under the plan (or under another employer-sponsored retirement 

plan or IRA through a direct trustee-to-trustee transfer). A lifetime 

income feature is (1) a feature that 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 (2) 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. Finally, a qualified plan distribution annuity contract is an annuity contract purchased for a 

participant and distributed to the participant by an employer-sponsored retirement plan or an employer-sponsored retirement plan 

contract.89

EFFECTIVE DATE

The provision applies to plan years beginning after December 31, 

2019. 

J. TREATMENT OF CUSTODIAL ACCOUNTS ON TERMINATION OF SECTION 403(b) PLANS (SEC. 110 OF THE BILL AND SEC. 403(b) OF THE

CODE) 

PRESENT LAW

Tax-sheltered annuities (section 403(b) plans) 

Section 403(b) plans are a form of tax-favored employer-sponsored plan that provide tax benefits similar to qualified retirement 

plans. Section 403(b) plans may be maintained only by (1) charitable tax-exempt organizations, and (2) educational institutions of 

State or local governments (that is, public schools, including colleges and universities). Many of the rules that apply to section 

403(b) plans are similar to the rules applicable to qualified retirement plans, including section 401(k) plans. Employers may make 

nonelective or matching contributions to such plans on behalf of 

their employees, and the plan may provide for employees to make 

pretax elective deferrals, designated Roth contributions (held in 

designated Roth accounts) 90 or other after-tax contributions. Generally section 403(b) plans provide for contributions toward the 

purchase of annuity contracts or provide for contributions to be 

held in custodial accounts for each employee. In the case of contributions to custodial accounts under a section 403(b) plan, the 

amounts must be invested only in regulated investment company 

stock.91 Contributions to a custodial account are not permitted to 


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92Treas. Reg. sec. 1.403(b)–10(a). 93Sec. 403(b)(8). Similar rules apply to distributions from qualified retirement plans and governmental section 457(b) plans. 94 Under section 402(c)(11), any distribution to a beneficiary other than the participant’s surviving spouse is only permitted to be rolled over to an IRA using a direct rollover; 60-day rollovers are not available to nonspouse beneficiaries. 95Sec. 402(c)(4). Treas. Reg. sec. 1.402(c)–1 identifies certain other payments that are not eligible for rollover, including, for example, certain corrective distributions, loans that are treated 

as deemed distributions under section 72(p), and dividends on employer securities as described 

in section 404(k). 96Sec. 408A(d)(3). Similar rules apply to qualified retirement plans and governmental section 

457(b) plans. 97Sec. 402A(d)(4). Similar rules apply to qualified retirement plans and governmental section 

457(b) plans. 

be distributed before the employee dies, attains age 591⁄2, has a 

severance from employment, or, in the case of elective deferrals, encounters financial hardship. 

A section 403(b) plan is permitted to contain provision for plan 

termination and that allow accumulated benefits to be distributed 

on termination.92 In order for a plan termination to be effectuated, 

however, all plan assets must be distributed to participants. 

Rollovers 

A distribution from a section 403(b) plan that is an eligible rollover distribution may be rolled over to an eligible retirement plan 

(which include another 403(b) plan, a qualified retirement plan, 

and an IRA).93 The rollover generally can be achieved by direct 

rollover (direct payment from the distributing plan to the recipient 

plan) or by contributing the distribution to the eligible retirement 

plan within 60 days of receiving the distribution (‘‘60-day rollover’’).94

Amounts that are rolled over are usually not included in gross 

income. Generally, a distribution of any portion of the balance to 

the credit of a participant is an eligible rollover distribution with 

exceptions, for example, certain periodic payments, required minimum distributions, and hardship distributions.95

Roth conversions 

Distributions from section 403(b) plans may be rolled into a Roth 

IRA.96 Distributions from these plans that are rolled over into a 

Roth IRA and that are not distributions from a designated Roth account must be included in gross income. Further, a section 403(b) 

plan that allows employees to make designated Roth contributions 

may also allow employees to elect to transfer amounts held in accounts that are not designated Roth accounts into designated Roth 

accounts, but the amount transferred must be included in income 

as though it were distributed.97

Approved nonbank trustees required for IRAs 

An IRA can be a trust, a custodial account, or an annuity contract. The Code requires that the trustee or custodian of an IRA 

be a bank (which is generally subject to Federal or State supervision) or an IRS-approved nonbank trustee, that an annuity contract be issued by an insurance company (which is subject to State 

supervision), and that an IRA trust or custodial account be created 

and organized in the United States. 

In order for a trustee or custodian that is not a bank to be an 

IRA trustee or custodian, the entity must apply to the IRS for apVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00067 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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98Treas. Reg. sec. 1.408–2(e). 99 2011–10 I.R.B. 534 (March 7, 2011). 

proval. Treasury Regulations list a number of factors that are 

taken into account in approving an applicant to be a nonbank 

trustee.98 The applicant must demonstrate fiduciary ability (ability 

to act within accepted rules of fiduciary conduct including continuity and diversity of ownership), capacity to account (experience 

and competence with other activities normally associated with handling of retirement funds), and ability to satisfy other rules of fiduciary conduct which includes a net worth requirement. Because it 

is an objective requirement that may be difficult for some applicants to satisfy, the net worth requirement is the most significant 

of the requirements for nonbank trustees. 

To be approved, the entity must have a net worth of at least 

$250,000 at the time of the application. There is a maintenance 

rule that varies depending on whether the trustee is an active 

trustee or a passive trustee and that includes minimum dollar 

amounts and minimum amounts as a percentage of assets held in 

fiduciary accounts. A special rule is provided for nonbank trustees 

that are members of the Security Investor Protection Corporation 

(‘‘SIPC’’). 

REASONS FOR CHANGE

In general, assets of section 403(b) plans can be invested only in 

annuity contracts or mutual funds. Unlike most qualified defined 

contribution plans, under which assets are held in a trust, historically, assets associated with section 403(b) plans have often consisted of annuity contracts issued in the name of the particular 

participant or mutual funds held in a custodial account in the participant’s name. In many cases, this prevents an employer from distributing these assets in order to effectuate a plan termination. The 

Committee wishes to provide a mechanism under which the plan 

termination may proceed while keeping assets that cannot otherwise be distributed in a tax-favored retirement savings vehicle. 

EXPLANATION OF PROVISION

Under the provision, the Secretary of the Treasury is directed to 

issue guidance within six months after the date of enactment to 

provide that, if an employer terminates a section 403(b) plan under 

which amounts are contributed to custodial accounts, the plan administrator or custodian may distribute an individual custodial account in kind to a participant or beneficiary of the plan and the 

distributed custodial account must be maintained by the custodian 

on a tax-deferred basis as a section 403(b)(7) custodial account, 

similar to the treatment of fully-paid individual annuity contracts 

under Revenue Ruling 2011–7,99 until amounts are actually paid to 

the participant or beneficiary. In addition, such guidance must provide that (1) the section 403(b)(7) status of the distributed custodial 

account is generally maintained if such account thereafter adheres 

to the requirements of section 403(b) in effect at the time of the account’s distribution, and (2) a custodial account is not considered 

distributed to the participant or beneficiary if the employer has any 

material retained rights under the account (the employer, however, 


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100Sec. 403(b)(1)(A) and (7). 101Sec. 403(b)(9)(B), referring to organizations exempt from tax under section 501(c)(3). For 

this purpose, a church or a convention or association of churches includes an organization described in section 414(e)(3)(A), that is, an organization, the principal purpose or function of 

which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association 

of churches, provided that the organization is controlled by or associated with a church or a convention or association of churches. 102Sec. 403(b)(1)(D) and (12). 

is not treated as retaining material rights simply because the custodial account was originally opened under a group contract). 

The provision directs such guidance to apply retroactively for 

taxable years beginning after December 31, 2008. 

EFFECTIVE DATE

The provision is effective upon date of enactment. 

K. CLARIFICATION OF RETIREMENT INCOME ACCOUNT RULES RELATING TO CHURCH-CONTROLLED ORGANIZATIONS (SEC. 111 OF THE

BILL AND SEC. 403(b)(9) OF THE CODE) 

PRESENT LAW

Assets of a tax-sheltered annuity plan (a ‘‘section 403(b)’’ plan), 

generally must be invested in annuity contracts or mutual 

funds.100 However, the restrictions on investments do not apply to 

a retirement income account, which is a defined contribution program established or maintained by a church, or a convention or association of churches, to provide benefits under the plan to employees of a religious, charitable or similar tax-exempt organization.101

Certain rules prohibiting discrimination in favor of highly compensated employees, which apply to section 403(b) plans generally, 

do not apply to a plan maintained by a church or qualified churchcontrolled organization.102 For this purpose, church means a 

church, a convention or association of churches, or an elementary 

or secondary school that is controlled, operated, or principally supported by a church or by a convention or association of churches, 

and includes a qualified church-controlled organization. A qualified 

church-controlled organization is any church-controlled tax-exempt 

organization other than an organization that (1) offers goods, services, or facilities for sale, other than on an incidental basis, to the 

general public, other than goods, services, or facilities that are sold 

at a nominal charge substantially less than the cost of providing 

the goods, services, or facilities, and (2) normally receives more 

than 25 percent of its support from either governmental sources, or 

receipts from admissions, sales of merchandise, performance of 

services, or furnishing of facilities, in activities that are not unrelated trades or businesses, or from both. Church-controlled organizations that are not qualified church-controlled organizations are 

generally referred to as ‘‘nonqualified church-controlled organizations.’’ 

In recent years, a question has arisen as to whether employees 

of nonqualified church-controlled organizations may be covered 

under a section 403(b) plan that consists of a retirement income account. 


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103These individuals are described in section 414(e)(3)(B) and (E). 104Defined contribution plans include money purchase pension plans, profit-sharing plans, 

and stock bonus plans. Certain pre-ERISA money purchase plans and rural cooperative plans 

may also include a qualified cash or deferred arrangement. Except for certain grandfathered 

plans, a State or local governmental employer may not maintain a section 401(k) plan. 105 Elective deferrals are generally made on a pretax basis, excludable from the participant’s 

gross income when contributed but includable with attributable earnings when distributed. 

However, under section 402A, a section 401(k) plan is permitted to include a ‘‘qualified Roth 

contribution program’’ that permits a participant to elect to have all or a portion of the participant’s elective deferrals under the plan treated as designated Roth contributions. Designated 

Roth contributions are not excludable from the participant’s gross income when contributed, but 

qualified distributions of designated Roth contributions and attributable earnings are excluded 

from gross income (even though the earnings are not previously taxed). A qualified distribution 

is a distribution made after the end of a specified period (generally five years after the participant’s first designated Roth contribution) and that is (1) made on or after the date on which 

the participant attains age 591⁄2, (2) made to a beneficiary (or to the estate of the participant) 

on or after the death of the participant, or (3) attributable to the participant’s being disabled. 

REASONS FOR CHANGE

The Committee wishes to clarify the individuals who may be covered by a retirement income account. 

EXPLANATION OF PROVISION

The provision clarifies that a retirement income account may 

cover a duly ordained, commissioned, or licensed minister of a 

church in the exercise of his ministry, regardless of the source of 

his compensation; an employee of an organization, whether a civil 

law corporation or otherwise, that is exempt from tax under section 

501 and is controlled by or associated with a church or a convention or association of churches; and an employee who is included 

in a church plan under certain circumstances after separation from 

the service of a church, a convention or association of churches, or 

an organization described above.103

EFFECTIVE DATE

The provision applies to years beginning before, on, or after the 

date of enactment. 

L. QUALIFIED CASH OR DEFERRED ARRANGEMENTS MUST ALLOW

LONG-TERM EMPLOYEES WORKING MORE THAN 500 BUT LESS

THAN 1,000 HOURS PER YEAR TO PARTICIPATE (SEC. 112 OF THE

BILL AND SECS. 401(k) AND 410 OF THE CODE) 

PRESENT LAW

Qualified retirement plans 

Qualified retirement plans are of two general types: defined benefit plans, under which benefits are determined under a plan formula and paid from general plan assets, rather than individual accounts; and defined contribution plans which include section 401(k) 

plans, under which benefits are based on a separate account for 

each participant, to which are allocated contributions, earnings and 

losses. 

A section 401(k) plan legally is not a separate type of plan, but 

is a profit-sharing or stock bonus plan 104 that contains a qualified 

cash or deferred arrangement under which employees may make 

elective deferrals.105 Section 401(k) plans may be designed so that 

elective deferrals are made only if the employee affirmatively elects 

them. Alternatively, a section 401(k) plan may provide for ‘‘automatic enrollment,’’ under which elective deferrals are made at a 


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106Secs. 402(g) and 414(v). 107Sec. 401(m). Matching contributions can also be made on account of after-tax employee contributions. 108Secs. 401(a)(3) and 410(a)(1). Parallel requirements generally apply to plans of private employers under section 202 of the Employee Retirement Income Security Act of 1974 (‘‘ERISA). 

Governmental plans under section 414(d) and church plans under section 414(e) are generally 

exempt from these Code requirements and from ERISA. 109Sec. 410(a)(2). 110Sec. 401(k)(2)(D). 111Secs. 401(a)(7) and 411. Governmental plans and church plans are generally exempt from 

these Code requirements. Parallel requirements generally apply to plans of private employers 

under sections 203–204 of ERISA. 112Secs. 411(a)(1) and 401(k)(2)(C). Certain nonelective contributions under a section 401(k) 

plan and employer matching contributions with respect to elective deferrals must also be nonforfeitable at all times. 

specified rate (referred to as a ‘‘default rate’’) when an employee becomes eligible to participate unless the employee affirmatively 

elects not to make contributions or to make contributions at a different rate. Other special rules apply to such arrangements. The 

maximum annual amount of elective deferrals that can be made by 

an employee to a section 401(k) plan for a year is $19,000 (for 

2019) plus $6,000 for employees age 50 or older (catch-up contribution amount) or, if less, the employee’s compensation.106 Section 

401(k) plans may provide for matching contributions, which are 

made on account of elective deferrals,107 and may provide for employer nonelective contributions. 

Participation requirement 

A qualified retirement plan generally can delay participation in 

the plan based on attainment of age or completion of years of service but not beyond the later of completion of one year of service 

(that is, a 12-month period with at least 1,000 hours of service) or 

attainment of age 21.108 A plan also cannot exclude an employee 

from participation (on the basis of age) when that employee has attained a specified age.109 Employees can be excluded from plan 

participation on other bases, such as job classification, as long as 

the other basis is not an indirect age or service requirement. A 

plan can provide that an employee is not entitled to an allocation 

of employer nonelective or matching contributions for a plan year 

unless the employee completes either 1,000 hours of service during 

the plan year or is employed on the last day of the year even if the 

employee previously completed 1,000 hours of service in a prior 

year. However, once an employee has completed 1,000 hours of 

service during a plan year, an employee cannot be precluded from 

making elective deferrals based on a service requirement.110

Vesting 

Qualified retirement plans are subject to requirements as to the 

period of service after which a participant’s right to his or her accrued benefit must be nonforfeitable (that is, ‘‘vested’’).111 Generally, a year of vesting service is only required to be credited if 

an employee completes 1,000 hours of service during the year. 

In the case of a defined contribution plan, a participant’s accrued 

benefit is the balance of his or her account under the plan. The portion of an employee’s account balance attributable to employee 

after-tax contributions and elective deferrals must be nonforfeitable 

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113Sec. 411(a)(2)(B). Section 411(a)(3) provides certain permitted forfeitures for accrued benefits that are otherwise 100 percent vested, including, for example, forfeiture upon the participant’s death or withdrawal of mandatory employee contributions and suspension of benefits 

upon reemployment. 114Sections 401(a)(3) and 410(b) deal with the minimum coverage requirement; section 

401(a)(4) deals with the general nondiscrimination requirements, with related rules in section 

401(a)(5). Detailed regulations implement the statutory requirements. Governmental plans are 

generally exempt from these requirements. 115Sec. 414(q). At the election of the employer, employees who are highly compensated based 

on compensation may be limited to the top 20 percent highest paid employees. A nonhighly compensated employee is an employee other than a highly compensated employee. 116 A plan or portion of a plan covering collectively bargained employees is generally deemed 

to satisfy the nondiscrimination requirements. 

come nonforfeitable after the completion of a specified number of 

years of service in accordance with one of two minimum vesting 

schedules.113 Under the first vesting schedule, the participant’s accrued benefit derived from employer contributions must become 

100 percent vested upon completion of no more than three years of 

service (often referred to as ‘‘three year cliff vesting’’). Under the 

second vesting schedule (referred to as ‘‘graduated vesting’’), the 

participant’s accrued benefit derived from employer contributions 

must become vested ratably at least over the period from two to six 

years of service. 

Minimum coverage and nondiscrimination requirements 

In general 

A qualified retirement plan is prohibited from discriminating in 

favor of highly compensated employees, referred to as the nondiscrimination requirements. These requirements are intended to 

ensure that a qualified retirement plan provides meaningful benefits to an employer’s rank-and-file employees as well as highly compensated employees, so that qualified retirement plans achieve the 

goal of retirement security for both lower-paid and higher-paid employees. The nondiscrimination requirements consist of a minimum 

coverage requirement and general nondiscrimination requirements.114 For purposes of these requirements, an employee generally is treated as highly compensated if the employee (1) was a 

five-percent owner of the employer at any time during the year or 

the preceding year, or (2) had compensation for the preceding year 

in excess of $125,000 (for 2019).115

The minimum coverage and general nondiscrimination requirements apply annually on the basis of the plan year. In applying 

these requirements, employees of all members of a controlled group 

or affiliated service group are treated as employed by a single employer. Employees who have not satisfied minimum age and service 

conditions under the plan, certain nonresident aliens, and employees covered by a collective bargaining agreement are generally disregarded.116 However, a plan that covers employees with less than 

a year of service or who are under age 21 must generally include 

those employees in any nondiscrimination test for the year but can 

test the plan for nondiscrimination in two parts: (1) by separately 

testing the portion of the plan covering employees who have not 

completed a year of service or are under age 21 and treating all of 

the employer’s employees with less than a year of service or under 

age 21 as the only employees of the employer; and (2) then testing 

the rest of the plan taking into account the rest of the employees 

of the employer and excluding those employees. If a plan does not 


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117Treas. Reg. sec. 1.401(a)(4)–1. With respect to the amount of contributions, employee elective deferrals under a section 401(k) plan and employer matching contributions and after-tax 

employee contributions to a defined contribution plan are subject to special testing rules, rather 

than being included in applying the general nondiscrimination requirements. In addition, the 

amount of employer contributions to an ESOP is tested separately from other employer contributions. Rules applicable to benefits, rights and features and the timing of plan amendments are 

provided in Treas. Reg. secs. 1. 401(a)(4)–4 and –5 respectively. 118These approaches are explained in Treas. Reg. secs. 1.401(a)(4)–2 and –3 and –8. Sections 

401(a)(5)(C)–(D) and 401(l) and Treas. Reg. secs. 1.401(a)(4)–7 and 1.401(l)–1 through –6 provide 

rules under which nondiscrimination testing may take into account the employer-paid portion 

of social security taxes or benefits, referred to as permitted disparity. 

satisfy the nondiscrimination requirements on its own, it may in 

some circumstances be aggregated with another plan, and the two 

plans tested together as a single plan. 

Minimum coverage requirement 

Under the minimum coverage requirement, the plan’s coverage of 

employees must be nondiscriminatory. This is determined by calculating the plan’s ratio percentage, that is, the ratio of the percentage of nonhighly compensated employees (of all nonhighly compensated employees in the workforce) covered under the plan over 

the percentage of highly compensated employees covered. In the 

case of a section 401(k) plan, the right to make elective deferrals, 

the right to receive matching contributions, and the allocation of 

nonelective contributions are each tested separately for nondiscriminatory coverage as though provided under separate plans. 

If the plan’s ratio percentage is 70 percent or greater, the plan 

satisfies the minimum coverage requirement. If the plan’s ratio 

percentage is less than 70 percent, a multi-part test applies. First, 

the plan must cover a group (or ‘‘classification’’) of employees that 

is reasonable and established under objective business criteria, 

such as hourly or salaried employees (referred to as a reasonable 

classification), and the plan’s ratio percentage must be at or above 

a specific level specified in the regulations. In addition, the average 

benefit percentage test must be satisfied. Under the average benefit percentage test, the average rate of contributions or benefit accruals for all nonhighly compensated employees in the workforce 

(taking into account all plans of the employer) must be at least 70 

percent of the average contribution or accrual rate of all highly 

compensated employees. 

General nondiscrimination requirements 

Nondiscrimination in the amount of contributions or benefits 

There are two general approaches to testing the amount of contributions or benefits under a qualified retirement plan: 117 (1) design-based safe harbors under which the benefit formula under a 

defined benefit plan, or the formula for allocating employer nonelective contributions under a defined contribution plan to participants’ accounts, satisfies certain uniformity standards; and (2) a 

mechanical general test under which the distribution of the rates 

of benefit among highly compensated and nonhighly compensated 

employees within a plan is tested for nondiscrimination by applying a modified version of the minimum coverage requirement.118

The safe harbors and general test may include cross-testing of 


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119Treas. Reg. sec. 1.401(a)(4)–8 120Sec. 401(a)(5)(B). 121Sec. 401(k)(3). 122Sec. 401(m)(2). 123The safe harbors that only require certain matching contributions potentially allow satisfaction of the nondiscrimination requirement with respect to elective and matching contributions 

under a 401(k) plan for a year even though no contributions are ultimately provided to nonhighly compensated employees under the plan for the year due to a lack of voluntary participation. 

equivalent accruals or allocations.119 A plan is not discriminatory 

merely because benefit accruals or allocations for highly compensated and nonhighly compensated employees are provided as a 

percentage of compensation (up to $280,000 for 2019).120 Thus, the 

various testing approaches are generally applied to the amount of 

contributions or benefits provided as a percentage of compensation 

(expressed as allocation or accrual rates). 

Special nondiscrimination tests for section 401(k) plans 

A special annual nondiscrimination test, called the actual deferral percentage test (the ‘‘ADP’’ test) applies to test the amount of 

elective deferrals under a section 401(k) plan.121 The ADP test generally compares the average rate of deferral for highly compensated 

employees to the average rate of deferral for nonhighly compensated employees. The ADP test allows the average deferral rate 

for highly compensated employees to exceed that for nonhighly 

compensated employees within limits: (1) the average deferral rate 

for highly compensated employees can be up to 125 percent of the 

average deferral rate for nonhighly compensated employees; or (2) 

the average deferral rate for highly compensated employees can be 

two percentage points greater than the average deferral rate for 

nonhighly compensated employees or, if less, twice the average deferral rate for nonhighly compensated employees. Employer matching contributions and after-tax employee contributions are subject 

to a similar special nondiscrimination test (the actual contribution 

percentage test or ‘‘ACP test’’) which compares the average rate of 

matching and after-tax contributions to the plan of the two 

groups.122

If the ADP test is not satisfied, a mechanism is provided for the 

employer to make immediately vested additional contributions for 

nonhighly compensated employees (and certain other corrections) 

or to distribute deferrals of highly compensated employees to such 

employees, so that the ADP test is satisfied. Similar correction 

mechanisms apply for purposes of satisfying the ACP test. 

There are also designed-based safe harbor methods of satisfying 

the ADP and ACP tests. These safe harbors are based on the 

premise that, for a 401(k) plan with certain design features with 

respect to contributions (elective, matching, and nonelective) and 

enrollment (one of the safe harbors is combined with automatic enrollment), satisfaction of the minimum coverage requirement is a 

sufficient test of the amount of whether the amount elective deferrals and matching contributions are nondiscriminatory.123

Top heavy rules 

Top-heavy rules apply to limit the extent to which accumulated 

benefits or account balances under a qualified retirement plan can 


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124Secs. 401(a)(10)(B) and 416. The nature of the top-heavy test is such that a plan of a large 

business with many employees is unlikely to be top-heavy. The top-heavy requirements are 

therefore viewed as primarily affecting plans of smaller employers in which the owners participate. 125These are organizations exempt from tax under section 501(c)(3). Section 403(b) plans of 

private, tax-exempt employers may be subject to ERISA as well as the requirements of section 

403(b). 126Sec. 403(b). 127These requirements do not apply to a governmental section 403(b) plan or a section 403(b) 

plan maintained by a church or a qualified church-controlled organization as defined in section 

3121(w). 

be concentrated with key employees.124 Whereas the general nondiscrimination requirements are designed to test annual contributions or benefits for highly compensated employees, compared to 

those of nonhighly compensated employees, the top-heavy rules test 

the portion of the total plan contributions or benefits that have accumulated for the benefit of key employees as a group. If a plan 

is top-heavy, minimum contributions or benefits are required for 

participants who are non-key employees, and, in some cases, faster 

vesting is required. Non-key employees who have become participants in a defined contribution plan, but who subsequently fail to 

complete 1,000 hours of service (or the equivalent) for an accrual 

computation period must receive the top-heavy defined contribution 

minimum. 

For this purpose, a key employee is an officer with annual com- pensation greater than $180,000 (for 2019), a five-percent owner, or 

a one-percent owner with compensation in excess of $150,000. A defined benefit plan generally is top-heavy if the present value of cumulative accrued benefits for key employees exceeds 60 percent of 

the cumulative accrued benefits for all employees. A defined contribution plan is top-heavy if the aggregate of accounts for key employees exceeds 60 percent of the aggregate accounts for all employees. 

Section 403(b) and governmental 457(b) plans 

Tax-deferred annuity plans (referred to as section 403(b) plans) 

are generally similar to qualified defined contribution plans, but 

may be maintained only by (1) tax-exempt charitable organizations,125 and (2) educational institutions of State or local governments (that is, public schools, including colleges and universities).126 Section 403(b) plans may provide for employees to make 

elective deferrals (in pretax or designated Roth form), including 

catch-up contributions, or other after-tax employee contributions, 

and employers may make nonelective or matching contributions on 

behalf of employees. Contributions to a section 403(b) plan are generally subject to the same contribution limits applicable to qualified 

defined contribution plans, including the limits on elective deferrals. 

Contributions to a section 403(b) plan must be fully vested. The 

minimum coverage and general nondiscrimination requirements 

applicable to a qualified retirement plan generally apply to a section 403(b) plan and to employer matching and nonelective contributions and after-tax employee contributions to the plan.127 If a 

section 403(b) plan provides for elective deferrals, the plan is subject to a ‘‘universal availability’’ requirement under which all employees must be given the opportunity to make deferrals of more 

than $200. In applying this requirement, nonresident aliens, stuVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00075 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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128For this purpose, nonresident has the meaning in section 410(b)(3)(C), and student has the 

meaning in section 3121(b)(10). The universal availability requirement does not apply to a section 403(b) plan maintained by a church or a qualified church-controlled organization. 

dents, and employees who normally work less than 20 hours per 

week may be excluded.128

An eligible deferred compensation plan of a governmental employer (referred to as a governmental section 457(b) plan) is generally similar to a qualified cash-or deferred arrangement under a 

section 401(k) plan in that it consists of elective deferrals, that is, 

contributions (in pretax or designated Roth form) made at the election of an employee, including catch-up contributions. Deferrals 

under a governmental section 457(b) plan are generally subject to 

the same limits as elective deferrals under a section 401(k) plan or 

a section 403(b) plan. 

REASONS FOR CHANGE

For long-term part-time workers who work for a number of years 

with the same employer but do not reach the 1,000 hours of service 

requirement to become eligible to participate in their employer’s 

qualified retirement plans, present law can prevent, or limit, such 

employees’ ability to save for retirement in an employer-sponsored 

plan. The Committee wishes to provide a means for such long-term 

part-time employees to save for retirement by providing eligibility 

to make elective deferrals in such plans if an employee has worked 

for at least 500 hours per year with an employer for at least three 

consecutive years and has met certain other conditions. 

EXPLANATION OF PROVISION

The provision requires a section 401(k) plan to permit an employee to make elective deferrals if the employee has worked at 

least 500 hours per year with the employer for at least three consecutive years and has met the age requirement (age 21) by the 

end of the three consecutive year period (for this provision, an employee is referred to as a ‘‘long-term part-time employee’’ after having completed this period of service). Thus, a long-term part-time 

employee could not be excluded from the plan because the employee has not completed a year of service as defined under the 

participation requirements described above (a 12-month period 

with at least 1,000 hours of service). Once a long-term part-time 

employee meets the age and service requirements, such employee 

must be able to commence participation no later than the earlier 

of (1) the first day of the first plan year beginning after the date 

on which the employee satisfied the age and service requirements 

or (2) the date 6 months after the date on which the individual satisfied those requirements. Employers may, but are not required to, 

allow long-term part-time employees to participate in the design 

based safe harbors (including the automatic enrollment safe harbor). If an employer does permit a long-term part-time employee to 

participate in such an automatic enrollment 401(k) plan, that employee would have elective deferrals automatically made at the default rate unless the employee affirmatively elects not to make contributions or to make contributions at a different rate. 

The provision does not require a long-term part-time employee to 

be otherwise eligible to participate in the plan. Thus, the plan can 


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129Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 3405, distributions from these 

plans are generally subject to income tax withholding unless the recipient elects otherwise. In 

addition, certain distributions from a qualified retirement plan, a section 403(b) plan, or a governmental section 457(b) plan are subject to mandatory income tax withholding at a 20-percent 

rate unless the distribution is rolled over. 130Sec. 72(t). Under present law, the 10-percent early withdrawal tax does not apply to distributions from a governmental section 457(b) plan. 

continue to treat a long-term part-time employee as ineligible 

under the plan for employer nonelective and matching contributions based on not having completed a year of service. However, for 

a plan that does provide employer contributions for long-term parttime employees, the provision requires a plan to credit, for each 

year in which such an employee worked at least 500 hours, a year 

of service for purposes of vesting in any employer contributions. 

With respect to long-term part-time employees, employers would 

receive nondiscrimination testing relief (similar to the present-law 

rules for plans covering otherwise excludable employees), including 

permission to exclude these employees from top-heavy vesting and 

top-heavy benefit requirements. However, the relief from the nondiscrimination rules ceases to apply to any employee who becomes 

a full-time employee (as of the first plan year beginning after the 

plan year in which the employee completes a 12-month period with 

at least 1,000 hours of service). 

This provision does not apply to collectively bargained employees. 

EFFECTIVE DATE

The provision applies to plan years beginning after December 31, 

2020, except that for determining whether the three consecutive 

year period has been met, 12-month periods beginning before January 1, 2021 will not be taken into account. 

M. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS FOR INDIVIDUALS IN CASE OF BIRTH OF CHILD OR ADOPTION (SEC. 113 

OF THE BILL AND SECS. 72(t), 401–403, 408, 457, AND 3405 OF THE

CODE) 

PRESENT LAW

Distributions from tax-favored retirement plans 

A distribution from a qualified retirement plan, a tax-sheltered 

annuity plan (a ‘‘section 403(b) plan’’), an eligible deferred compensation plan of a State or local government employer (a ‘‘governmental section 457(b) plan’’), or an IRA generally is included in income for the year distributed.129 These plans are referred to collectively as ‘‘eligible retirement plans.’’ In addition, unless an exception applies, a distribution from a qualified retirement plan, a section 403(b) plan, or an IRA received before age 591⁄2 is subject to 

a 10-percent additional tax (referred to as the ‘‘early withdrawal 

tax’’) on the amount includible in income.130

In general, a distribution from an eligible retirement plan may 

be rolled over to another eligible retirement plan within 60 days, 

in which case the amount rolled over generally is not includible in 

income. The IRS has the authority to waive the 60-day requirement 

if failure to waive the requirement would be against equity or good 

conscience, including cases of casualty, disaster or other events beyond the reasonable control of the individual. 


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131 A qualified birth or adoption distribution is subject to income tax withholding unless the 

recipient elects otherwise. Mandatory 20-percent withholding does not apply. 

The terms of a qualified retirement plan, section 403(b) plan, or 

governmental section 457(b) plan generally determine when distributions are permitted. However, in some cases, restrictions may 

apply to distributions before an employee’s termination of employment, referred to as ‘‘in-service’’ distributions. Despite such restrictions, an in-service distribution may be permitted in the case of financial hardship or an unforeseeable emergency. 

REASONS FOR CHANGE

Births and adoptions are important life events that can come 

with significant financial costs for a family. The Committee believes that, in these situations, individuals should have access to 

portions of their retirement savings to help pay for these costs. The 

ability to access retirement savings on a penalty-free basis at the 

time of the birth of a child or adoption will provide such flexibility. 

As a result, the Committee believes this will encourage younger 

workers to save earlier for their retirement, whether through participation in an employer-sponsored plan or an IRA. 

EXPLANATION OF PROVISION

In general 

Under the provision, an exception to the 10-percent early withdrawal tax applies in the case of a qualified birth or adoption distribution from an applicable eligible retirement plan (as defined). 

In addition, qualified birth or adoption distributions may be recontributed to an individual’s applicable eligible retirement plans, 

subject to certain requirements. 

Distributions from applicable eligible retirement plans 

A qualified birth or adoption distribution is a permissible distribution from an applicable eligible retirement plan which, for this 

purpose, encompasses eligible retirement plans other than defined 

benefit plans, including qualified retirement plans, section 403(b) 

plans, governmental section 457(b) plans, and IRAs.131

A qualified birth or adoption distribution is a distribution from 

an applicable eligible retirement plan to an individual if made during the one-year period beginning on the date on which a child of 

the individual is born or on which the legal adoption by the individual of an eligible adoptee is finalized. An eligible adoptee means 

any individual (other than a child of the taxpayer’s spouse) who 

has not attained age 18 or is physically or mentally incapable of 

self-support. The provision requires the name, age, and taxpayer 

identification number of the child or eligible adoptee to which any 

qualified birth or adoption distribution relates to be provided on 

the tax return of the individual taxpayer for the taxable year. 

The maximum aggregate amount which may be treated as qualified birth or adoption distributions by any individual with respect 

to a birth or adoption is $5,000. The maximum aggregate amount 

applies on an individual basis. Therefore, each spouse separately 

may receive a maximum aggregate amount of $5,000 of qualified 

birth or adoption distributions (with respect to a birth or adoption) 


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132The term ‘‘controlled group’’ means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414. 

from applicable eligible retirement plans in which each spouse participates or holds accounts. 

An employer plan is not treated as violating any Code requirement merely because it treats a distribution (that would otherwise 

be a qualified birth or adoption distribution) to an individual as a 

qualified birth or adoption distribution, provided that the aggregate 

amount of such distributions to that individual from plans maintained by the employer and members of the employer’s controlled 

group 132 does not exceed $5,000. Thus, under such circumstances 

an employer plan is not treated as violating any Code requirement 

merely because an individual might receive total distributions in 

excess of $5,000 as a result of distributions from plans of other employers or IRAs. 

Recontributions to applicable eligible retirement plans 

Generally, any portion of a qualified birth or adoption distribution may, at any time after the date on which the distribution was 

received, be recontributed to an applicable eligible retirement plan 

to which a rollover can be made. Such a recontribution is treated 

as a rollover and thus is not includible in income. If an employer 

adds the ability for plan participants to receive qualified birth or 

adoption distributions from a plan, the plan must permit an employee who has received qualified birth or adoption distributions 

from that plan to recontribute only up to the amount that was distributed from that plan to that employee, provided the employee 

otherwise is eligible to make contributions (other than recontributions of qualified birth or adoption distributions) to that plan. Any 

portion of a qualified birth or adoption distribution from an individual’s applicable eligible retirement plans (whether employer plans 

or IRAs) may be recontributed to an IRA held by such an individual which is an applicable eligible retirement plan to which a 

rollover can be made. 

EFFECTIVE DATE

The provision applies to distributions made after December 31, 

2019. 

N. INCREASE IN AGE FOR REQUIRED BEGINNING DATE FOR MANDATORY DISTRIBUTIONS (SEC. 114 OF THE BILL AND SEC. 401(a)(9) OF

THE CODE) 

PRESENT LAW

Required minimum distributions 

Employer-provided qualified retirement plans, traditional IRAs, 

and individual retirement annuities are subject to required minimum distribution rules. A qualified retirement plan for this purpose means a tax-qualified plan described in section 401(a) (such 

as a defined benefit pension plan or a section 401(k) plan), employee retirement annuities described in section 403(a), tax-sheltered annuities described in section 403(b), and a plan described in 


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133The required minimum distribution rules also apply to section 457(b) plans maintained by 

tax-exempt employers other than governmental employers. 134Sec. 414(i). 135Treas. Reg. sec. 1.401(a)(9)–5. 136Treas. Reg. sec. 1.401(a)(9)–9. 137Treas. Reg. sec. 1.401(a)(9)–5, A–5(a). 

section 457(b) that is maintained by a governmental employer.133

An employer-provided qualified retirement plan that is a defined 

contribution plan is a plan which provides (1) an individual account 

for each participant and (2) for benefits based on the amount contributed to the participant’s account, and any income, expenses, 

gains, losses, and forfeitures of accounts of other participants which 

may be allocated to such participant’s account.134

Required minimum distributions generally must begin by April 1 

of the calendar year following the calendar year in which the individual (employee or IRA owner) reaches age 701⁄2. However, in the 

case of an employer-provided qualified retirement plan, the required minimum distribution date for an individual who is not a 

5-percent owner of the employer maintaining the plan may be delayed to April 1 of the year following the year in which the individual retires if the plan provides for this later distribution date. 

For all subsequent years, including the year in which the individual was paid the first required minimum distribution by April 

1, the individual must take the required minimum distribution by 

December 31 of the year. 

For IRAs and defined contributions plans, the required minimum 

distribution for each year generally is determined by dividing the 

account balance as of the end of the prior year by a distribution 

period,135 generally a number in the uniform lifetime table.136 This 

table is based on joint life expectancies of the individual and a hypothetical beneficiary 10 years younger than the individual. For an 

individual with a spouse as designated beneficiary who is more 

than 10 years younger (and thus the number of years in the couple’s joint life expectancy is greater than the uniform life time 

table), the joint life expectancy of the couple is used. There are special rules in the case of annuity payments from an insurance contract. 

If an individual dies on or after the individual’s required beginning date, the required minimum distribution is also determined by 

dividing the account balance as of the end of the prior year by a 

distribution period. The distribution period is equal to the remaining years of the beneficiary’s life expectancy or, if there is no designated beneficiary, a distribution period equal to the remaining 

years of the deceased individual’s single life expectancy, using the 

age of the deceased individual in the year of death.137

In the case of an individual who dies before the individual’s required beginning date, there are two methods for satisfying the 

after death required minimum distribution rules, the life expectancy rule or the five year rule. Under the life expectancy rule, annual required minimum distributions must begin no later than December 31 of the calendar year immediately following the calendar 

year in which the individual died. This rule is only available if the 

designated beneficiary is an individual (e.g., not the individual’s estate or a charity). If the designated beneficiary is the individual’s 

spouse, commencement of distributions can be delayed until December 31 of the calendar year in which the deceased individual 


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138Treas. Reg. sec. 1.401(a)(9)–5, A–5(b). 139Treas. Reg. sec. 1.401(a)(9)–3, Q&As 1, 2. 140Sec. 4974(a). 141Sec. 4974(d). 142Sec. 402(c)(4). Distributions that are not eligible rollover distributions also include distributions made upon hardship of the employee and any qualified disaster relief distribution (within 

the meaning of section 72(t)(2)(G)). 143Sec. 401(a)(31). 144Sec. 402(f). 

would have attained age 701⁄2. The required minimum distribution 

for each year is also determined by dividing the account balance as 

of the end of the prior year by a distribution period, which is determined by reference to the beneficiary’s life expectancy.138 Under 

the five-year rule, the individual’s entire account must be distributed no later than December 31 of the calendar year containing the 

fifth anniversary of the individual’s death.139

A special after-death rule applies for an IRA if the beneficiary of 

the IRA is the surviving spouse. The surviving spouse is permitted 

to choose to calculate required minimum distributions while the 

spouse is alive, and after the spouse’s death, as though the spouse 

is the IRA owner, rather than a beneficiary. 

Roth IRAs are not subject to the minimum distribution rules during the IRA owner’s lifetime. However, Roth IRAs are subject to 

the post-death minimum distribution rules that apply to traditional 

IRAs. For Roth IRAs, the IRA owner is treated as having died before the individual’s required beginning date. Thus only the life expectancy rule and the five year rule apply. 

Failure to make a required minimum distribution triggers a 50- 

percent excise tax, payable by the individual or the individual’s 

beneficiary. The tax is imposed during the taxable year that begins 

with or within the calendar year during which the distribution was 

required.140 The tax may be waived if the distribution did not occur 

because of reasonable error and reasonable steps are taken to remedy the violation.141

Eligible rollover distributions 

With certain exceptions, distributions from an employer-provided 

qualified retirement plan are eligible to be rolled over tax free into 

another employer-provided qualified retirement plan or an IRA. 

This can be achieved by contributing the amount of the distribution 

to the other plan or IRA within 60 days of the distribution, or by 

a direct payment by the plan to the other plan or IRA (referred to 

as a ‘‘direct rollover’’). Distributions that are not eligible for rollover 

include (i) any distribution that is one of a series of periodic payments generally for a period of 10 years or more (or, if a shorter 

period, certain life expectancies) and (ii) any distribution to the extent that the distribution is a required minimum distribution.142

For any distribution that is eligible for rollover, an employer-provided tax-qualified retirement plan must offer the distributee the 

right to have the distribution made in a direct rollover 143 and, before making the distribution, the plan administrator must provide 

the distributee with a written explanation of the direct rollover 

right and related tax consequences.144 If a distributee does not 

choose to have the distribution made in a direct rollover, the disVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00081 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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145Sec. 3405(c). This mandatory withholding does not apply to a distributee that is a beneficiary other than a surviving spouse of an employee. 146Sec. 2(2) of the Self-Employed Individuals Tax Retirement Act of 1962, Pub. Law. No. 87– 

792. 147Special funding rules may apply to certain categories of single employer plans. For example, special rules apply to certain plans maintained by commercial passenger airlines, under section 402 of the Pension Protection Act of 2006 (‘‘PPA’’), Pub. L. No. 109–280. If an election is 

made by a commercial passenger airline described in section 402(a)(1) of PPA, then in determining the plan’s minimum required contribution under section 430, the airline may use an interest rate of 8.85% to amortize the unfunded liability of the plan in equal installments over 

the remaining part of the 17-year amortization period. See Treas. Reg. sec. 1.430(a)–1(b)(4)(ii). 

tribution is generally subject to mandatory 20-percent income tax 

withholding.145

REASONS FOR CHANGE

When mandatory distributions from qualified retirement plans 

based on age were added to the Code in 1962,146 the life expectancy 

of Americans was shorter. In addition, increasing numbers of 

Americans are continuing to work past traditional retirement ages. 

The Committee believes it is appropriate to therefore increase the 

age by which required minimum distributions must be made to 

more accurately reflect present-day circumstances. 

EXPLANATION OF PROVISION

The provision changes the age on which the required beginning 

date for required minimum distributions is based, from the calendar year in which the employee or IRA owner attains 701⁄2 years 

to the calendar year in which the employee or IRA owner attains 

72 years. Under the provision, present law continues to apply to 

employees and IRA owners who attain age 701⁄2 prior to January 

1, 2020. 

In addition, the present law requirement to actuarially adjust an 

employee’s accrued benefit for an employee who retires in a calendar year after the year the employee attains age 701⁄2, to take 

into account the period after age 701⁄2 in which the employee was 

not receiving any benefits under the plan, is not changed. 

EFFECTIVE DATE

The provision is effective for distributions required to be made 

after December 31, 2019, for employees and IRA owners who attain 

age 701⁄2 after December 31, 2019. 

O. ELECTION TO APPLY ALTERNATIVE MINIMUM FUNDING STAND- ARDS TO CERTAIN SINGLE EMPLOYER COMMUNITY NEWSPAPER

PLANS (SEC. 115 OF THE BILL, SEC. 430 OF THE CODE, AND SEC. 303 OF ERISA) 

PRESENT LAW

The Internal Revenue Code of 1986 (‘‘Code’’) and the Employee 

Retirement Income Security Act of 1974 (‘‘ERISA’’) apply minimum 

funding requirements 147 to defined benefit retirement plans maintained by private-sector employers for their employees (referred to 

as ‘‘single employer’’ plans), for purposes of which employers that 

are members of a controlled group are considered a single employer. 

Under these rules, a minimum contribution is required for a plan 

year if the value of the plan’s assets is less than the plan’s ‘‘funding 


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148 In some cases, a plan may be ‘‘frozen’’ as to service and/or compensation. When a plan is 

frozen with respect to both service and compensation, participants are entitled to previously 

earned benefits but do not accrue or earn additional benefits. 149For an at-risk plan, the specified assumptions generally are as follows: All employees who 

are not otherwise assumed to retire as of the valuation date but who will be eligible to elect 

benefits during the plan year and the next 10 plan years must be assumed to retire at the earliest retirement date under the plan but not before the end of the plan year for which the ‘‘atrisk funding target’’ and ‘‘at-risk normal cost’’ are being determined. Also, all employees must 

be assumed to elect the retirement benefit available under the plan at the assumed retirement 

age (determined as above) that would result in the highest present value of benefits. The atrisk funding target is the present value of all benefits accrued or earned under the plan as of 

the beginning of the plan year using the actuarial assumptions set forth in the Code and regulations for single employer plans, with the addition of a loading factor which arises when the plan 

has been in at-risk status for at least two of the four preceding plan years. This loading factor 

is equal to the sum of (1) $700 multiplied by the number of participants in the plan and (2) 

four percent of the funding target (determined without regard to the definition of at-risk funding 

target). The at-risk normal cost for a plan year generally represents the excess of the sum of 

(1) the present value of all benefits which are expected to accrue or to be earned under the plan 

during the plan year using the at-risk assumptions described above plus (2) the amount of plan 

related expenses expected to be paid from plan assets during the plan year, over (3) the amount 

of mandatory employee contributions expected to be made during the plan year. In addition, 

where the plan has been in at-risk status for at least two of the four preceding plan years, a 

loading factor is added, which is equal to four percent of the target normal cost (the excess of 

the sum of (1) the present value of all benefits which are expected to accrue or to be earned 

under the plan during the plan year plus (2) the amount of plan-related expenses expected to 

be aid from plan assets during the plan year, over (3) the amount of mandatory employee contributions expected to be made during the plan year) with respect to the plan for the plan year. 150Pub. L. No. 109–280. 151 Each segment rate is a single interest rate determined monthly by the Secretary of the 

Treasury, on the basis of a corporate bond yield curve, taking into account only the portion of 

the yield curve based on corporate bonds maturing during the particular segment rate period. 

The corporate bond yield curve used for this purpose reflects the average, for the 24-month period ending with the preceding month, of yields on investment grade corporate bonds with varying maturities and that are in the top three quality levels available. Solely for purposes of determining minimum required contributions, in lieu of the segment rates, an employer may elect 

to use interest rates on a yield curve based on the yields on investment grade corporate bonds 

for the month preceding the month in which the plan year begins (that is, without regard to 

the 24-month averaging described above) (‘‘monthly yield curve’’). If an election to use a monthly 

yield curve is made, it cannot be revoked without Internal Revenue Service approval. 

target,’’ that is, the present value, determined actuarially, of all 

benefits earned as of the beginning of the year. If the value of plan 

assets is less than the plan’s funding target, such that the plan has 

a funding shortfall, the shortfall is generally required to be funded 

by contributions, with interest, over seven years, taking into account the remaining installments attributable to shortfalls from 

preceding years. In addition, if participants earn additional benefits for the year,148 the required contribution must include the 

amount of the plan’s ‘‘target normal cost,’’ that is, the present 

value, determined actuarially, of benefits expected to be earned for 

the year. In the case of a plan funded below a certain level, referred to as an ‘‘at-risk’’ plan, specified assumptions must be used 

in determining the plan’s funding target and target normal cost.149

The minimum funding rules enacted in the Pension Protection 

Act of 2006 (‘‘PPA’’) 150 specify the interest rates used to determine 

a plan’s funding target and target normal cost for a year, consisting 

of three ‘‘segment’’ rates, each of which applies to benefit payments 

expected to be made from the plan during a certain period.151 The 

first segment rate applies to benefits reasonably determined to be 

payable during the five-year period beginning on the first day of 

the year; the second segment rate applies to benefits reasonably determined to be payable during the 15-year period following the initial five-year period; and the third segment rate applies to benefits 

reasonably determined to be payable at the end of the 15-year period. The first, second, and third segment rates are based on the 


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152Pub. L. No. 112–141. The Highway Transportation and Funding Act of 2014 (Pub. L. No. 

113–159) made changes to the applicable minimum and maximum percentage ranges for determining whether a segment rate must be adjusted upward or downward, as well as the periods 

for determining such segment rates. 153Pub. L. No. 114–74. 154 Notice 2019–29, 2019–19 I.R.B. These rates are determined and published monthly by the 

Internal Revenue Service by notice and on its website. See https://www.irs.gov/retirement-plans/ 

minimum-present-value-segment-rates. 

corresponding portion of a corporate bond yield curve with certain 

adjustments. 

Under the Moving Ahead for Progress in the 21st Century Act,152

for plan years beginning after December 31, 2011, a segment rate 

determined under the PPA rules is adjusted if it falls outside a 

specified percentage range of the average segment rates for a preceding period. In particular, if a segment rate determined under 

the PPA rules is less than the applicable minimum percentage in 

the specified range, the segment rate is adjusted upward to match 

the minimum percentage. If a segment rate determined under the 

PPA rules is more than the applicable maximum percentage in the 

specified range, the segment rate is adjusted downward to match 

the maximum percentage. 

The specified percentage range (that is, the range from the applicable minimum percentage to the applicable maximum percentage 

of average segment rates), as most recently modified in the Bipartisan Budget Act of 2015,153 for determining whether a segment 

rate must be adjusted upward or downward for a plan year is determined by reference to the calendar year in which the plan year 

begins as follows: 

• 90 percent to 110 percent for 2012 through 2020, 

• 85 percent to 115 percent for 2021, 

• 80 percent to 120 percent for 2022, 

• 75 percent to 125 percent for 2023, and 

• 70 percent to 130 percent for 2024 or later. 

For March 2019, the first, second, and third segment rates after 

adjustment are 2.86 percent, 4.00 percent, and 4.42 percent, respectively.154

REASONS FOR CHANGE

The Committee believes that providing relief to sponsors of community newspaper pension plans with funding shortfalls will allow 

sponsors of such plans to maintain and meet plan obligations to 

covered employees. The Committee understands that the period 

over which a funding shortfall must be funded affects the amount 

of the required contribution for a year in that a shorter period results in a higher required contribution for the year and a longer 

period results in a lower required contribution. Similarly, the interest rates used to determine a plan’s funding target and target normal cost affect the amount of required contributions in that lower 

interest rates result in a higher funding target and target normal 

cost and, therefore, higher required contributions. Alternatively, 

higher interest rates result in a lower funding target and target 

normal cost and, therefore, lower required contributions. Therefore, 

the relief provided under the provision extends the period over 

which contributions are required to be made to ameliorate funding 

shortfalls, and permits the use of a generally lower interest rate to 

determine the plan’s funding target and target normal cost. 


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155For this purpose, the controlled group means all persons treated as a single employer 

under subsection (b), (c), (m), or (o) of section 414 as of the date of enactment. 156 Under section 430(c)(3). 

EXPLANATION OF PROVISION

Under the provision, an employer maintaining a ‘‘community 

newspaper plan’’ (as defined below) under which no participant has 

had the participant’s accrued benefit increased (whether because of 

service or compensation) after December 31, 2017, may elect to 

apply certain alternative funding rules to the plan and any other 

plan sponsored by any member of the controlled group (determined 

as of the date of enactment).155 An election under the provision to 

apply the alternative funding rules is to be made at such time and 

in such manner as prescribed by the Secretary of the Treasury, and 

once made with respect to a plan year, applies to all subsequent 

years unless revoked with the consent of the Secretary of the 

Treasury. 

Under the alternative funding rules, an interest rate of eight percent is used to determine a plan’s funding target and target normal 

cost, rather than the first, second, and third segment rates. However, if new benefits are accrued or earned under a plan for a plan 

year in which the election is in effect, the present value of such 

benefits must be determined on the basis of the U.S. Treasury obligation yield curve for the day that is the valuation date of such 

plan for such plan year. In addition, if the value of plan assets is 

less than the plan’s funding target, such that the plan has a funding shortfall, the shortfall is required to be funded by contributions, 

with interest, over 30 years, rather than over seven years. The 

shortfall amortization bases determined 156 for all plan years preceding the first plan year to which the election applies (and all related shortfall amortization installments) are reduced to zero. Further, the assumptions applicable to an ‘‘at-risk’’ plan do not apply. 

Under the provision, a ‘‘community newspaper plan’’ is a plan to 

which the new provision applies, which is maintained by an employer that, as of December 31, 2017: 

• publishes and distributes daily, either electronically or in 

printed form, one or more community newspapers (as defined 

below) in a single State, 

• is not a company the stock of which is publicly traded on 

a stock exchange or in an over-the-counter market, and is not 

controlled, directly or indirectly, by such a company, 

• is controlled, directly or indirectly (a) by one or more persons residing primarily in the State in which the community 

newspaper is published; (b) for at least 30 years by individuals 

who are members of the same family; (c) by a trust created or 

organized in the State in which the community newspaper is 

published, the sole trustees of which are persons described in 

(a) or (b); (d) by an entity described in section 501(c)(3) and exempt from tax under section 501(a) that is organized and operated in the State in which the community newspaper is published, and the primary purpose of which is to benefit communities in the State; or (e) by a combination of persons described 

in (a), (c), or (d), and 

• does not control, directly or indirectly, any newspaper in 

any other State. 


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157The provision adds a new subsection (m) to section 430, and a new subsection (m) to section 303 of ERISA. However, the term community newspaper plan for ERISA purposes includes 

one that publishes and distributes daily, either electronically or in printed form, either a community newspaper or one or more community newspapers in the same State. Additionally, in 

the case of a plan to which the election has been made, the provision does not change the basis 

for calculating underfunding for purposes of Pension Benefit Guaranty Corporation variable rate 

premiums. 158Sec. 131(a) 159Sec. 131(b)(1). 160Sec. 131(b)(2). 161Sec. 131(b)(3). 

A ‘‘community newspaper’’ means a newspaper that primarily 

serves a metropolitan statistical area, as determined by the Office 

of Management and Budget, with a population of not less than 

100,000. For purposes of the provision, a person (the ‘‘first’’ person) 

is treated as controlled by another person if the other person possesses, directly or indirectly, the power to direct or cause the direction and management of the first person (including the power to 

elect a majority of the members of the board of directors of the first 

person) through the ownership of voting securities. 

The provision makes the above-described amendments to both 

the Code and ERISA.157

EFFECTIVE DATE

The provision applies the amendments to plan years ending after 

December 31, 2017. 

P. TREATING EXCLUDED DIFFICULTY OF CARE PAYMENTS AS COMPENSATION FOR DETERMINING RETIREMENT CONTRIBUTION LIMITATIONS (SEC. 116 OF THE BILL AND SECS. 131, 408, AND 415 OF

THE CODE) 

PRESENT LAW

Difficulty of care payments 

Gross income does not include amounts received by a foster care 

provider during the taxable year as qualified foster care payments.158 Qualified foster care payments include any payment 

made pursuant to a foster care program of a State or political subdivision which is paid by (1) a State or political subdivision thereof 

or (2) a qualified foster care placement agency, and which is either 

(1) paid to the foster care provider for caring for a qualified foster 

individual in the foster care provider’s home, or (2) a ‘‘difficulty of 

care’’ payment.159 A ‘‘qualified foster individual’’ is any individual 

who is living in a foster family home in which the individual was 

placed by either an agency of a State (or a political subdivision 

thereof) or a qualified foster care placement agency.160 A qualified 

foster care placement agency is any placement agency which is licensed or certified by a State (or political subdivision thereof) or an 

entity designated by a State (or political subdivision thereof).161

A ‘‘difficulty of care’’ payment is compensation for providing the 

additional care needed for certain qualified foster individuals. Such 

payments are provided when a qualified foster individual has a 

physical, mental or emotional disability for which the State has determined that (1) there is a need for additional compensation to 

care for the individual, (2) the care is provided in the home of the 

foster care provider, and (3) the payments are designated by the 


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162Pursuant to section 131(c)(2), in the case of any foster home, difficulty of care payments 

for any period to which such payments relate are not excludable from gross income to the extent 

such payments are made for more than 10 qualified foster individuals who have not attained 

age 19 and five qualified foster individuals who have attained age 19. 163Sec. 415(c)(1). 164Sec. 415(c)(3)(A). 165Sec. 415(c)(3)(B). 166See secs. 219, 408, and 408A. 

payor as compensation for such purpose.162 An applicant must request an assessment of need from the State agency administering 

the program and submit a medical evaluation which is reassessed 

every year. 

In the case of a tax-qualified defined contribution plan, such a 

plan will not satisfy the tax qualification requirements unless contributions made by a participant to the plan (as well as other additions such as employer contributions and forfeitures) do not exceed 

the lesser of (1) $40,000 or (2) 100 percent of the participant’s compensation.163 A participant’s compensation is defined generally as 

the compensation of the participant from the employer for the 

year.164 A special rule applies for self-employed individuals providing that a participant’s compensation is the participant’s earned 

income.165 Similar rules apply for contributions made to an individual retirement account.166

Since ‘‘difficulty of care’’ payments are excluded from gross income, home healthcare workers receiving only such payments are 

unable to participate in tax-qualified retirement plans or individual 

retirement accounts because ‘‘difficulty of care’’ payments are not 

considered compensation or earnings upon which contributions to 

such plans or accounts may be made. 

REASONS FOR CHANGE

Contributions based on difficulty of care payments cannot be 

made to qualified retirement plans and individual retirement accounts. As a result home healthcare workers receiving such payments are unable to participate in qualified retirement plans or individual retirement accounts with respect to such remuneration. 

The Committee believes that home healthcare workers should be 

able to participate in qualified retirement plans and individual retirement accounts based on amounts received as difficulty of care 

payments. 

EXPLANATION OF PROVISION

The provision amends sections 415(c)(3) and 408(o) to increase 

the contribution limit to qualified retirement plans and individual 

retirement accounts to include ‘‘difficulty of care’’ payments. 

EFFECTIVE DATE

With respect to defined contribution plans, the provision applies 

to plan years beginning after December 31, 2015, and with respect 

to individual retirement accounts, the provision applies to contributions after the date of enactment. 


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167 Rev. Rul. 76–28, 1976–1 C.B. 106. 168 Rev. Rul. 81–114, 1981–1 C.B. 207. 169Sec. 404(a)(6). 170Sec. 401(b). 171Treas. Reg. sec. 1.401(b)–1(a). 

TITLE II—ADMINISTRATIVE IMPROVEMENTS 

A. PLAN ADOPTED BY FILING DUE DATE FOR YEAR MAY BE TREATED

AS IN EFFECT AS OF CLOSE OF YEAR (SEC. 201 OF THE BILL AND

SEC. 401(B) of the Code) 

PRESENT LAW

In order for a qualified retirement plan to be treated as maintained for a taxable year, the plan must be adopted by the last day 

of the taxable year.167 However, the trust under the plan will not 

fail to be treated as in existence due to lack of corpus merely because it holds no assets on the last day of the taxable year.168 Contributions made by the due date (plus extensions) of the tax return 

for the employer maintaining the plan for a taxable year are treated as contributed on account of that taxable year.169 Thus a plan 

can be established on the last day of a taxable year even though 

the first contribution is not made until the due date of the employer’s return of tax for the taxable year. Further, if the terms of a 

plan adopted during an employer’s taxable year fail to satisfy the 

qualification requirements that apply to the plan for the year, the 

plan may also be amended retroactively by the due date (including 

extensions) of the employer’s return, provided that the amendment 

is made retroactively effective.170 However, this provision does not 

allow a plan to be adopted after the end of a taxable year and 

made retroactively effective, for qualification purposes, for the taxable year prior to the taxable year in which the plan was adopted 

by the employer.171

REASONS FOR CHANGE

An employer, particularly a small employer, might not know 

until after the end of a taxable year (the ‘‘preceding year’’) that its 

profits for the preceding year are sufficient to support the expenses 

and contributions associated with the establishment of a retirement plan. However, under present law, a plan established at that 

time can be effective only for the current year, not for the preceding year. The Committee believes that providing employers with 

more time to establish a retirement plan for their employees will 

facilitate more employers, especially small employers, establishing 

such plans, thus leading to more retirement savings by employees. 

Furthermore, the Committee believes that allowing a plan to be effective for the preceding year provides the opportunity for employees to receive contributions for that earlier year and begin to accumulate retirement savings. 

EXPLANATION OF PROVISION

Under the provision, if an employer adopts a qualified retirement 

plan after the close of a taxable year but before the time prescribed 

by law for filing the return of tax of the employer for the taxable 

year (including extensions thereof), the employer may elect to treat 


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172Treas. Reg. sec. 1.401(k)–1(e)(2)(ii). 173Sec. 6058. In addition, under section 6059, the plan administrator of a defined benefit plan 

subject to the minimum funding requirements is required to file an annual actuarial report. 

Under section 414(g) and ERISA section 3(16), plan administrator generally means the person 

specifically so designated by the terms of the plan document. In the absence of a designation, 

the plan administrator generally is (1) in the case of a plan maintained by a single employer, 

the employer, (2) in the case of a plan maintained by an employee organization, the employee 

organization, or (3) in the case of a plan maintained by two or more employers or jointly by 

one or more employers and one or more employee organizations, the association, committee, 

joint board of trustees, or other similar group of representatives of the parties that maintain 

the plan. Under ERISA, the party described in (1), (2) or (3) is referred to as the ‘‘plan sponsor.’’ 174 ERISA secs. 103 and 104. Under ERISA section 4065, the plan administrator of certain 

defined benefit plans must provide information to the PBGC. 175 Information is shared also with the PBGC, as applicable. Form 5500 filings are also publicly released in accordance with section 6104(b) and Treas. Reg. sec. 301.6104(b)–1 and ERISA 

secs. 104(a)(1) and 106(a). 176 Under section 6011(a) and (e), the IRS is required to provide standards for electronically 

filed returns, but may not require a person to file a return electronically unless the person is 

required to file at least 250 returns during the calendar year (‘‘250 return threshold for electronic filing’’). Under Treas. Reg. sec. 301.6058–2, Form 5500 for a plan year must be filed electronically if the filer is required to file at least 250 tax returns (including information returns) 

during the calendar year that includes the first day of the plan year. 

the plan as having been adopted as of the last day of the taxable 

year. 

The provision does not override rules requiring certain plan provisions to be in effect during a plan year, such as the provision for 

elective deferrals under a qualified cash or deferral arrangement 

(‘‘generally referred to as a 401(k) plan’’).172

EFFECTIVE DATE

The provision applies to plans adopted for taxable years beginning after December 31, 2019. 

B. COMBINED ANNUAL REPORT FOR GROUP OF PLANS (SEC. 202 OF

THE BILL, SEC. 6058 OF THE CODE, AND SEC. 104 OF ERISA) 

PRESENT LAW

Under the Code, an employer maintaining a qualified retirement 

plan generally is required to file an annual return containing information required under regulations with respect to the qualification, 

financial condition, and operation of the plan.173 ERISA requires 

the plan administrator of certain pension and welfare benefit plans 

to file annual reports disclosing certain information to the Department of Labor (‘‘DOL’’).174 These filing requirements are met by filing a completed Form 5500, Annual Return/Report of Employee 

Benefit Plan. Forms 5500 are filed with DOL, and information from 

Forms 5500 is shared with the IRS.175 A separate Form 5500 is required for each plan.176

REASONS FOR CHANGE

Forms 5500 provide valuable information about plans to plan 

participants, administrative agencies, and the public, including researchers. However, the preparation of Form 5500 also involves administrative costs that increase plan expenses. The Committee believes that, in the case of identical plans (that is, plans with the 

same plan year, trustee, administrator and investments) maintained by unrelated employers, permitting a single Form 5500, containing information specific to each plan, rather than requiring a 

separate Form 5500 for each plan as under present law, can reduce 

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177 Under the provision, for purposes of applying the 250 return threshold for electronic filing 

to Forms 5500 for plan years beginning after December 31, 2019, information regarding each 

plan for which information is provided on the Form 5500 is treated as a separate return. 178 ERISA sec. 105. Benefits statements are required also with respect to defined benefit 

plans. A civil penalty may apply for a failure to provide a required benefit statement. 

ers to sponsor a retirement plan and thus improving retirement 

savings. 

EXPLANATION OF PROVISION

The provision directs the IRS and DOL to work together to modify Form 5500 so that all members of a group of plans described 

below may file a single consolidated Form 5500. In developing the 

consolidated Form 5500, IRS and DOL may require it to include all 

information for each plan in the group as IRS and DOL determine 

is necessary or appropriate for the enforcement and administration 

of the Code and ERISA.177

For purposes of the provision, a group of plans is eligible for a 

consolidated Form 5500 if all the plans in the group (1) are defined 

contribution plans, (2) have the same trustee, the same named fiduciary (or named fiduciaries) under ERISA, and the same administrator, (3) use the same plan year, and (4) provide the same investments or investment options to participants and beneficiaries. 

A plan not subject to ERISA may be included in the group if the 

same person that performs each of the previous functions, as applicable, for all the other plans in the group performs each of the 

functions for the plan not subject to ERISA. 

EFFECTIVE DATE

The consolidated Form 5500 is to be implemented not later than 

January 1, 2022, and shall be effective for returns and reports for 

plan years beginning after December 31, 2021. 

C. DISCLOSURE REGARDING LIFETIME INCOME (SEC. 203 OF THE BILL

AND SEC. 105 OF ERISA) 

PRESENT LAW

ERISA requires the administrator of a defined contribution plan 

to provide benefit statements to participants.178 In the case of a 

participant who has the right to direct the investment of the assets 

in his or her account, a benefit statement must be provided at least 

quarterly. Benefit statements must be provided at least annually 

to other participants. 

Among other items, a benefit statement provided with respect to 

a defined contribution plan generally must include (1) the participant’s total benefits accrued, that is, the participant’s account balance, (2) the vested portion of the account balance or the earliest 

date on which the account balance will become vested, and (3) the 

value of each investment to which assets in the participant’s account are allocated. A quarterly benefit statement provided to a 

participant who has the right to direct investments must provide 

additional information, including information relating to investment principles. 

In May 2013, the Department of Labor issued an advance notice 

of proposed rulemaking providing rules under which a benefit provided to a defined contribution plan participant would include an 


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179 78 Fed. Reg. 26727 (May 8, 2013). 

estimated lifetime income stream of payments based on the participant’s account balance.179 However, information about lifetime income that might be provided by funds in a defined contribution 

plan is not currently required to be included in a benefit statement. 

REASONS FOR CHANGE

Defined contribution plans provide a valuable source of retirement savings, generally in the form of a participant’s account balance. But generally, defined contribution plans do not offer benefits 

in the form of annuities or other distribution forms that provide 

lifetime income. In contrast, defined benefit plans are generally required to provide annuities to plan participants, although such 

plans may also allow plan participants to choose another form of 

benefit such as a lump sum. In addition, many plan participants 

do not understand how to correlate their account balance in a defined contribution plan with an annuity or other lifetime income 

form. The Committee wishes to require information on equivalent 

lifetime income to be included in benefit statements with respect 

to defined contribution plan accounts, in a manner that is both useful to participants and practicable for plan administrators. 

EXPLANATION OF PROVISION

The provision requires a benefit statement provided to a defined 

contribution plan participant to include a lifetime income disclosure as described in the provision. However, the lifetime income 

disclosure is required to be included in only one benefit statement 

during any 12-month period. 

A lifetime income disclosure is required to set forth the lifetime 

income stream equivalent of the participant’s total account balance 

under the plan. The lifetime income stream equivalent to the account balance is the amount of monthly payments the participant 

would receive if the total account balance were used to provide lifetime income streams, based on assumptions specified in guidance 

prescribed by the Secretary of Labor (referred to as the ‘‘Secretary’’ 

in this explanation). The required lifetime income streams are (1) 

a qualified joint and survivor annuity for the participant and the 

participant’s surviving spouse, based on assumptions specified in 

guidance, including the assumption that the participant has a 

spouse of equal age, and (2) a single life annuity. The lifetime income streams may have a term certain or other features to the extent permitted under guidance. 

The Secretary is directed to issue, not later than a year after the 

provision is enacted, a model lifetime income disclosure, written in 

a manner to be understood by the average plan participant. The 

model must include provisions to (1) explain that the lifetime income stream equivalent is only provided as an illustration, (2) explains that the actual payments under the lifetime income stream 

that may be purchased with the account balance will depend on numerous factors and may vary substantially from the lifetime income stream equivalent in the disclosure, (3) explain the assumptions on which the lifetime income stream equivalent is determined, and (4) provides other similar explanations as the Secretary 

considers appropriate. 


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180 29 C.F.R. sec. 2550.404a–4. 

In addition, the Secretary is directed, not later than a year after 

the provision is enacted, (1) to prescribe assumptions that defined 

contribution plan administrators may use in converting account 

balances into lifetime income stream equivalents, and (2) issue interim final rules under the provision. In prescribing assumptions, 

the Secretary may prescribe a single set of specific assumptions (in 

which case the Secretary may issue tables or factors that facilitate 

conversions of account balances) or ranges of permissible assumptions. To the extent that an account balance is or may be invested 

in a lifetime income stream, the prescribed assumptions are to 

allow, to the extent appropriate, plan administrators to use the 

amounts payable under the lifetime income stream as a lifetime income stream equivalent. 

Under the provision, no plan fiduciary, plan sponsor, or other 

person has any liability under ERISA solely by reason of the provision of lifetime income stream equivalents that are derived in accordance with the assumptions and guidance under the provision 

and that include the explanations contained in model disclosure. 

This protection applies without regard to whether the lifetime income stream equivalent is required to be provided. 

EFFECTIVE DATE

The requirement to provide a lifetime income disclosure applies 

with respect to benefit statements provided more than 12 months 

after the latest of the issuance by the Secretary of (1) interim final 

rules, (2) the model disclosure, or (3) prescribed assumptions. 

D. FIDUCIARY SAFE HARBOR FOR SELECTION OF LIFETIME INCOME

PROVIDER (SEC. 204 OF THE BILL AND SEC. 404 OF ERISA) 

PRESENT LAW

ERISA imposes certain standards of care with respect to the actions of a plan fiduciary. Specifically, a fiduciary is required to discharge its duties with respect to the plan solely in the interest of 

the participants and beneficiaries, for the exclusive purpose of providing benefits to participants and beneficiaries and defraying reasonable administration expenses of the plan, with the care, skill, 

prudence, and diligence under the circumstances then prevailing 

that a prudent man acting in a like capacity and familiar with relevant matters would use in the conduct of an enterprise of a like 

character and with like aims (the ‘‘prudent man’’ requirement), by 

diversifying plan investments so as to minimize the risk of large 

losses unless, under the circumstances, it is clearly prudent not to 

do so, and in accordance with plan documents and governing instruments insofar as the documents and instruments are consistent 

with ERISA. 

Department of Labor regulations provide a safe harbor for a fiduciary to satisfy the prudent man requirement in selecting an annuity provider and a contract for benefit distributions from a defined 

contribution plan.180


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REASONS FOR CHANGE

Unlike defined benefit plans, defined contribution plans generally 

do not offer benefits in the form of annuities or other distribution 

forms that provide lifetime income, which, under a defined contribution plan, generally must be provided through a contract 

issued by an insurance company. In the case of a defined contribution plan subject to ERISA, the selection of a lifetime income provider (such as an insurance company) is a fiduciary act. Uncertainty about the applicable fiduciary standard may discourage plan 

sponsors and administrators from offering lifetime income benefit 

options under a defined contribution plan. 

EXPLANATION OF PROVISION

The provision specifies measures that a plan fiduciary may take 

with respect to the selection of an insurer for a guaranteed retirement income contract in order to assure that the fiduciary meets 

the prudent man requirement. The measures under the provision 

are an optional means by which a fiduciary will be considered to 

satisfy the prudent man requirement with respect to the selection 

of insurers for guaranteed retirement income contracts and do not 

establish minimum requirements or the exclusive means for satisfying the prudent man requirement. The provision applies to the 

selection of the insurance company for purposes of determining if 

the insurer is financially capable of satisfying its obligations under 

the guaranteed retirement income contract. The provision does not 

extend to the underlying insurance contract, and therefore the fiduciary must conduct a separate fiduciary analysis of the prudence 

and terms and conditions of the guaranteed retirement income contract based on present law and guidance. 

For purposes of the provision, an insurer is an insurance company, insurance service or insurance organization qualified to do 

business in a State and includes affiliates of those entities to the 

extent the affiliate is licensed to offer guaranteed retirement income contracts. A guaranteed retirement income contract is an annuity contract for a fixed term or a contract (or provision or feature 

thereof) designed to provide a participant guaranteed benefits annually (or more frequently) for at least the remainder of the life of 

the participant or joint lives of the participant and the participant’s 

designated beneficiary as part of a defined contribution plan. 

With respect to the selection of an insurer for a guaranteed retirement income contract (as defined below), the prudent man requirement will be deemed met if a fiduciary: 

• engages in an objective, thorough and analytical search for 

the purpose of identifying insurers from which to purchase 

guaranteed retirement income contracts, 

• with respect to each insurer identified through the search, 

considers the financial capability of the insurer to satisfy its 

obligations under the guaranteed retirement income contract 

and considers the cost (including fees and commissions) of the 

guaranteed retirement income contract offered by the insurer 

in relation to the benefits and product features of the contract 

and administrative services to be provided under the contract, 

and 


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• on the basis of the foregoing, concludes that, at the time 

of the selection (as described below), the insurer is financially 

capable of satisfying its obligations under the guaranteed retirement income contract and that the cost (including fees and 

commissions) of the selected guaranteed retirement income 

contract is reasonable in relation to the benefits and product 

features of the contract and the administrative services to be 

provided under the contract. 

A fiduciary will be deemed to satisfy the requirements above 

with respect to the financial capability of the insurer if: 

• the fiduciary obtains written representations from the insurer that it is licensed to offer guaranteed retirement income 

contracts; that the insurer, at the time of selection and for each 

of the immediately preceding seven years operates under a certificate of authority from the Insurance Commissioner of its 

domiciliary State that has not been revoked or suspended, has 

filed audited financial statements in accordance with the laws 

of its domiciliary State under applicable statutory accounting 

principles, maintains (and has maintained) reserves that satisfy all the statutory requirements of all States where the insurer does business, and is not operating under an order of supervision, rehabilitation, or liquidation; and that the insurer 

undergoes, at least every five years, a financial examination 

(within the meaning of the law of its domiciliary State) by the 

Insurance Commissioner of the domiciliary State (or representative, designee, or other party approved thereby); 

• in the case that, following the issuance of the insurer representations described above, there is any change that would 

preclude the insurer from making the same representations at 

the time of issuance of the guaranteed retirement income contract, the insurer is required to notify the fiduciary, in advance 

of the issuance of any guaranteed retirement income contract, 

that the fiduciary can no longer rely on one or more of the representations; and 

• the fiduciary has not received such a notification and has 

no other facts that would cause it to question the insurer representations. 

The provision specifies that nothing in these requirements is to 

be construed to require a fiduciary to select the lowest cost contract. Accordingly, a fiduciary may consider the value, including 

features and benefits of the contract and attributes of the insurer 

in conjunction with the contract’s cost. For this purpose, attributes 

of the insurer that may be considered include, without limitation, 

the issuer’s financial strength. 

For purposes of the provision, the time of selection may be either 

the time that the insurer for the contract is selected for distribution of benefits to a specific participant or beneficiary or the time 

that the insurer for the contract is selected to provide benefits at 

future dates to participants or beneficiaries, provided that the selecting fiduciary periodically reviews the continuing appropriateness of its conclusions with respect to the insurer’s financial capability and cost, taking into account the considerations described 


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181 However, a fiduciary is not required to review the appropriateness of its conclusions following the purchase of any contract or contracts for specific participants or beneficiaries. 182Secs. 401(a)(3)–(5) and 410(b). Detailed rules are provided in Treas. Reg. secs. 1.401(a)(4)– 

1 through 13 and secs. 1.410(b)–2 through 10. In applying the nondiscrimination requirements, 

certain employees, such as those under age 21 or with less than a year of service, generally may 

be disregarded. In addition, employees of controlled groups and affiliated service groups under 

the aggregation rules of section 414(b), (c), (m) and (o) are treated as employed by a single employer. 183Sec. 401(a)(26). 

above.181 A fiduciary will be deemed to have conducted a periodic 

review of the financial capability of the insurer if the fiduciary obtains the written representations described above on an annual 

basis unless, in the interim, the fiduciary has received notification 

from the insurer that representations cannot be relied on or the fiduciary otherwise becomes aware of facts that would cause it to 

question the representations. 

A fiduciary that satisfies the requirements of the provision is not 

liable following the distribution of any benefit, or the investment 

by or on behalf of a participant or beneficiary pursuant to the selected guaranteed retirement income contract, for any losses that 

may result to the participant or beneficiary due to an insurer’s inability to satisfy its financial obligations under the terms of the 

contract. 

EFFECTIVE DATE

The provision is effective on the date of enactment. 

E. MODIFICATION OF NONDISCRIMINATION RULES TO PROTECT

OLDER, LONGER SERVICE PARTICIPANTS (SEC. 205 OF THE BILL

AND SECS. 401(A)(4) and (26) of the Code) 

PRESENT LAW

In general 

Qualified retirement plans are subject to nondiscrimination requirements, under which the group of employees covered by a plan 

(‘‘plan coverage’’) and the contributions or benefits provided to employees, including benefits, rights, and features under the plan, 

must not discriminate in favor of highly compensated employees.182

The timing of plan amendments must also not have the effect of 

discriminating significantly in favor of highly compensated employees. In addition, in the case of a defined benefit plan, the plan must 

benefit at least the lesser of (1) 50 employees of the employer, or 

(2) the greater of (a) 40 percent of all employees of the employer 

or (b) two employees (or one employee if there is only one employee), referred to as the ‘‘minimum participation’’ requirements.183 These requirements are designed to help ensure that 

qualified retirement plans achieve the goal of retirement security 

for both lower and higher paid employees. 

For nondiscrimination purposes, an employee generally is treated 

as highly compensated if the employee (1) was a five-percent owner 

of the employer at any time during the year or the preceding year, 

or (2) had compensation for the preceding year in excess of 


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184Section 414(q). At the election of the employer, employees who are highly compensated 

based on the amount of their compensation may be limited to employees who were among the 

top 20 percent of employees based on compensation. 185 Elective deferrals are contributions that an employee elects to have made to a defined contribution plan that includes a qualified cash or deferred arrangement (a section 401(k) plan) 

rather than receive the same amount as current compensation. Employer matching contributions are contributions made by an employer only if an employee makes elective deferrals or 

after-tax employee contributions. Employer nonelective contributions are contributions made by 

an employer regardless of whether an employee makes elective deferrals or after-tax employee 

contributions. Under section 4975(e)(7), an ESOP is a defined contribution plan, or portion of 

a defined contribution plan, that is designated as an ESOP and is designed to invest primarily 

in employer stock. 186 Contribution and benefit rates are generally determined under the rules for nondiscriminatory contributions or benefit accruals, described below. These rules are generally based on 

benefit accruals under a defined benefit plan, other than accruals attributable to after-tax employee contributions, and contributions allocated to participants’ accounts under a defined contribution plan, other than allocations attributable to after-tax employee contributions. (Under 

these rules, contributions allocated to participants’ accounts are referred to as ‘‘allocations,’’ with 

the related rates referred to as ‘‘allocation rates,’’ but ‘‘contribution rates’’ is used herein for convenience.) However, as discussed below, benefit accruals can be converted to actuarially equivalent contributions, and contributions can be converted to actuarially equivalent benefit accruals. 

$125,000 (for 2019).184 Employees who are not highly compensated 

are referred to as nonhighly compensated employees. 

Nondiscriminatory plan coverage 

Whether plan coverage of employees is nondiscriminatory is determined by calculating a plan’s ratio percentage, that is, the ratio 

of the percentage of nonhighly compensated employees covered 

under the plan to the percentage of highly compensated employees 

covered. For this purpose, certain portions of a defined contribution 

plan are treated as separate plans to which the plan coverage requirements are applied separately, referred to as mandatory 

disaggregation. Specifically, the following, if provided under a plan, 

are treated as separate plans: the portion of a plan consisting of 

employee elective deferrals, the portion consisting of employer 

matching contributions, the portion consisting of employer nonelective contributions, and the portion consisting of an employee stock 

ownership plan (‘‘ESOP’’).185 Subject to mandatory disaggregation, 

different qualified retirement plans may otherwise be aggregated 

and tested together as a single plan, provided that they use the 

same plan year. The plan determined under these rules for plan 

coverage purposes generally is also treated as the plan for purposes 

of applying the other nondiscrimination requirements. 

A plan’s coverage is nondiscriminatory if the ratio percentage, as 

determined above, is 70 percent or greater. If a plan’s ratio percentage is less than 70 percent, a multi-part test applies, referred 

to as the average benefit test. First, the plan must meet a ‘‘nondiscriminatory classification requirement,’’ that is, it must cover a 

group of employees that is reasonable and established under objective business criteria and the plan’s ratio percentage must be at or 

above a level specified in the regulations, which varies depending 

on the percentage of nonhighly compensated employees in the employer’s workforce. In addition, the average benefit percentage test 

must be satisfied. 

Under the average benefit percentage test, in general, the average rate of employer-provided contributions or benefit accruals for 

all nonhighly compensated employees under all plans of the employer must be at least 70 percent of the average contribution or 

accrual rate of all highly compensated employees.186 In applying 

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187 It is for the period beginning on date of the transaction and ending on the last day of the 

first plan year beginning after the date of the transaction. 188Sec. 410(b)(6)(C). 189Secs. 401(k) and (m), the latter of which applies also to after-tax employee contributions 

under a defined contribution plan. 190For this purpose, under section 401(a)(17), annual compensation generally is limited to 

$280,000 per year (for 2019). 191See sections 401(a)(5)(C) and (D) and 401(l) and Treas. Reg. section 1.401(a)(4)–7 and 

1.401(l)–1 through –6 for rules for determining the amount of contributions or benefits that can 

be attributed to the employer-paid portion of Social Security taxes or benefits. 

ployees, as well as employer matching and nonelective contributions, are taken into account. Generally, all plans maintained by 

the employer are taken into account, including ESOPs, regardless 

of whether plans use the same plan year. 

Under a transition rule applicable in the case of the acquisition 

or disposition of a business, or portion of a business, or a similar 

transaction, a plan that satisfied the plan coverage requirements 

before the transaction is deemed to continue to satisfy them for a 

period after the transaction,187 provided coverage under the plan is 

not significantly changed during that period.188

Nondiscriminatory contributions or benefit accruals 

In general 

There are three general approaches to testing the amount of benefits under qualified retirement plans: (1) design-based safe harbors under which the plan’s contribution or benefit accrual formula 

satisfies certain uniformity standards, (2) a general test, described 

below, and (3) cross-testing of equivalent contributions or benefit 

accruals. Employee elective deferrals and employer matching contributions under defined contribution plans are subject to special 

testing rules and generally are not permitted to be taken into account in determining whether other contributions or benefits are 

nondiscriminatory.189

The nondiscrimination rules allow contributions and benefit accruals to be provided to highly compensated and nonhighly compensated employees at the same percentage of compensation.190

Thus, the various testing approaches described below are generally 

applied to the amount of contributions or accruals provided as a 

percentage of compensation, referred to as a contribution rate or 

accrual rate. In addition, under the ‘‘permitted disparity’’ rules, in 

calculating an employee’s contribution or accrual rate, credit may 

be given for the employer paid portion of Social Security taxes or 

benefits.191 The permitted disparity rules do not apply in testing 

whether elective deferrals, matching contributions, or ESOP contributions are nondiscriminatory. 

The general test is generally satisfied by measuring the rate of 

contribution or benefit accrual for each highly compensated employee to determine if the group of employees with the same or 

higher rate (a ‘‘rate’’ group) is a nondiscriminatory group, using the 

nondiscriminatory plan coverage standards described above. For 

this purpose, if the ratio percentage of a rate group is less than 70 

percent, a simplified standard applies, which includes disregarding 

the reasonable classification requirement, but requires satisfaction 

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Cross-testing 

Cross-testing involves the conversion of contributions under a defined contribution plan or benefit accruals under a defined benefit 

plan to actuarially equivalent accruals or contributions, with the 

resulting equivalencies tested under the general test. However, employee elective deferrals and employer matching contributions 

under defined contribution plans are not permitted to be taken into 

account for this purpose, and cross-testing of contributions under 

a defined contribution plan, or cross-testing of a defined contribution plan aggregated with a defined benefit plan, is permitted only 

if certain threshold requirements are satisfied. 

In order for a defined contribution plan to be tested on an equivalent benefit accrual basis, one of the following three threshold conditions must be met: • The plan has broadly available allocation rates, that is, 

each allocation rate under the plan is available to a nondiscriminatory group of employees (disregarding certain permitted additional contributions provided to employees as a replacement for benefits under a frozen defined benefit plan, as 

discussed below); • The plan provides allocations that meet prescribed designs 

under which allocations gradually increase with age or service 

or are expected to provide a target level of annuity benefit; or • The plan satisfies a minimum allocation gateway, under 

which each nonhighly compensated employee has an allocation 

rate of (a) at least one-third of the highest rate for any highly 

compensated employee, or (b) if less, at least five percent. 

In order for an aggregated defined contribution and defined benefit plan to be tested on an aggregate equivalent benefit accrual 

basis, one of the following three threshold conditions must be met: • The plan must be primarily defined benefit in character, 

that is, for more than fifty percent of the nonhighly compensated employees under the plan, their accrual rate under 

the defined benefit plan exceeds their equivalent accrual rate 

under the defined contribution plan; • The plan consists of broadly available separate defined 

benefit and defined contribution plans, that is, the defined benefit plan and the defined contribution plan would separately 

satisfy simplified versions of the minimum coverage and nondiscriminatory amount requirements; or • The plan satisfies a minimum aggregate allocation gateway, under which each nonhighly compensated employee has 

an aggregate allocation rate (consisting of allocations under the 

defined contribution plan and equivalent allocations under the 

defined benefit plan) of (a) at least one-third of the highest aggregate allocation rate for any nonhighly compensated employee, or (b) if less, at least five percent in the case of a highest nonhighly compensated employee’s rate up to 25 percent, 

increased by one percentage point for each five-percentagepoint increment (or portion thereof) above 25 percent, subject 

to a maximum of 7.5 percent. 

Benefits, rights, and features 

Each benefit, right, or feature offered under the plan generally 

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192Sec. 413(c). Multiple employer status does not apply if the plan is a multiemployer plan, 

defined under sec. 414(f) as a plan maintained pursuant to one or more collective bargaining 

agreements with two or more unrelated employers and to which the employers are required to 

contribute under the collective bargaining agreement(s). Multiemployer plans are also known as 

Taft-Hartley plans. 193Treas. Reg. sec. 1.413–2(a)(3)(ii)–(iii). 194Sec. 403(b). These plans are available to employers that are tax-exempt under section 

501(c)(3), as well as to employers that are educational institutions of State or local governments. 195Treas. Reg. sec. 1.410(b)–7(f). 

age that satisfies the minimum coverage requirements, including 

the reasonable classification requirement if applicable, except that 

the average benefit percentage test does not have to be met, even 

if the ratio percentage is less than 70 percent. 

Multiple employer and section 403(b) plans 

A multiple employer plan generally is a single plan maintained 

by two or more unrelated employers, that is, employers that are 

not treated as a single employer under the aggregation rules for related entities.192 The plan coverage and other nondiscrimination 

requirements are applied separately to the portions of a multiple 

employer plan covering employees of different employers.193

Certain tax-exempt charitable organizations may offer their employees a tax-deferred annuity plan (‘‘section 403(b) plan’’).194 The 

nondiscrimination requirements, other than the requirements applicable to elective deferrals, generally apply to section 403(b) plans 

of private tax-exempt organizations. For purposes of applying the 

nondiscrimination requirements to a section 403(b) plan, subject to 

mandatory disaggregation, a qualified retirement plan may be combined with the section 403(b) plan and treated as a single plan.195

However, a section 403(b) plan and qualified retirement plan may 

not be treated as a single plan for purposes of applying the nondiscrimination requirements to the qualified retirement plan. 

Closed and frozen defined benefit plans 

A defined benefit plan may be amended to limit participation in 

the plan to individuals who are employees as of a certain date. 

That is, employees hired after that date are not eligible to participate in the plan. Such a plan is sometimes referred to as a ‘‘closed’’ 

defined benefit plan (that is, closed to new entrants). In such a 

case, it is common for the employer also to maintain a defined contribution plan and to provide employer matching or nonelective 

contributions only to employees not covered by the defined benefit 

plan or at a higher rate to such employees. 

Over time, the group of employees continuing to accrue benefits 

under the defined benefit plan may come to consist more heavily 

of highly compensated employees, for example, because of greater 

turnover among nonhighly compensated employees or because increasing compensation causes nonhighly compensated employees to 

become highly compensated. In that case, the defined benefit plan 

may have to be combined with the defined contribution plan and 

tested on a benefit accrual basis. However, under the regulations, 

if none of the threshold conditions is met, testing on a benefits 

basis may not be available. Notwithstanding the regulations, recent 

IRS guidance provides relief for a limited period, allowing certain 

closed defined benefit plans to be aggregated with a defined contribution plan and tested on an aggregate equivalent benefits basis 


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196 Notice 2014–5, 2014-2 I.R.B. 276, December 13, 2013 extended by Notice 2015–28, 2015– 

14 I.R.B. 848, March 19, 2015, Notice 2016–57, 2016–40 I.R.B. 432, September 19, 2016, and 

most recently by Notice 2017–45, 2017–38 I.R.B. 232, August 31, 2017. Proposed regulations revising the nondiscrimination requirements for closed plans were also issued in 2016, subject to 

various conditions. 81 Fed. Reg. 4976 (January 29, 2016). 197 References under the provision to a closed class of participants and similar references to 

a closed class include arrangements under which one or more classes of participants are closed, 

except that one or more classes of participants closed on different dates are not aggregated for 

purposes of determining the date any such class was closed. 

without meeting any of the threshold conditions.196 When the 

group of employees continuing to accrue benefits under a closed defined benefit plan consists more heavily of highly compensated employees, the benefits, rights, and features provided under the plan 

may also fail the tests under the existing nondiscrimination rules. 

In some cases, if a defined benefit plan is amended to cease future accruals for all participants, referred to as a ‘‘frozen’’ defined 

benefit plan, additional contributions to a defined contribution plan 

may be provided for participants, in particular for older participants, in order to make up in part for the loss of the benefits they 

expected to earn under the defined benefit plan (‘‘make-whole’’ contributions). As a practical matter, testing on a benefit accrual basis 

may be required in that case, but may not be available because the 

defined contribution plan does not meet any of the threshold conditions. 

REASONS FOR CHANGE

Some employers that sponsor defined benefit plans have closed 

such plans to new employees and offer new employees alternative 

retirement savings plans. Existing employees continue to earn benefits under the defined benefit plan, consistent with their expectations as to retirement income, which is particularly important for 

employees close to retirement. However, without greater flexibility 

in the nondiscrimination rules, employers may be forced to freeze 

their defined benefit plans, thus preventing employees from earning their expected benefits. When a defined benefit plan is frozen, 

make-whole contributions can offset some of the resulting benefit 

loss for employees. However, in that case, too, greater flexibility in 

the nondiscrimination rules is needed. The Committee wishes to 

provide such flexibility in order to protect benefits for older, longerservice employees. 

EXPLANATION OF PROVISION

Closed or frozen defined benefit plans 

In general 

The provision provides nondiscrimination relief with respect to 

benefits, rights, and features for a closed class of participants 

(‘‘closed class’’),197 and with respect to benefit accruals for a closed 

class, under a defined benefit plan that meets the requirements described below (referred to herein as an ‘‘applicable’’ defined benefit 

plan). In addition, the provision treats a closed or frozen applicable 

defined benefit plan as meeting the minimum participation requirements if the plan met the requirements as of the effective date of 

the plan amendment by which the plan was closed or frozen. 

If a portion of an applicable defined benefit plan eligible for relief 

under the provision is spun off to another employer, and if the 


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198Other testing options available under present law are also available for this purpose. 199This rule applies also for purposes of applying the plan coverage and other nondiscrimination requirements to an applicable defined benefit plan and one or more defined contributions 

that, under the provision, may be treated as a single plan as described below. 200Other testing options available under present law are also available for this purpose. 

spun-off plan continues to satisfy any ongoing requirements applicable for the relevant relief as described below, the relevant relief 

for the spun-off plan will continue with respect to the other employer. 

Benefits, rights, or features for a closed class 

Under the provision, an applicable defined benefit plan that provides benefits, rights, or features to a closed class does not fail the 

nondiscrimination requirements by reason of the composition of the 

closed class, or the benefits, rights, or features provided to the 

closed class, if (1) for the plan year as of which the class closes and 

the two succeeding plan years, the benefits, rights, and features 

satisfy the nondiscrimination requirements without regard to the 

relief under the provision, but taking into account the special testing rules described below,198 and (2) after the date as of which the 

class was closed, any plan amendment modifying the closed class 

or the benefits, rights, and features provided to the closed class 

does not discriminate significantly in favor of highly compensated 

employees. 

For purposes of requirement (1) above, the following special testing rules apply: 

• In applying the plan coverage transition rule for business 

acquisitions, dispositions, and similar transactions, the closing 

of the class of participants is not treated as a significant 

change in coverage; 

• Two or more plans do not fail to be eligible to be a treated 

as a single plan solely by reason of having different plan 

years; 199 and 

• Changes in employee population are 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. 

Benefit accruals for a closed class 

Under the provision, an applicable defined benefit plan that provides benefits to a closed class may be aggregated, that is, treated 

as a single plan, and tested on a benefit accrual basis with one or 

more defined contribution plans (without having to satisfy the 

threshold conditions under present law) if (1) for the plan year as 

of which the class closes and the two succeeding plan years, the 

plan satisfies the plan coverage and nondiscrimination requirements without regard to the relief under the provision, but taking 

into account the special testing rules described above,200 and (2) 

after the date as of which the class was closed, any plan amendment modifying the closed class or the benefits provided to the 

closed class does not discriminate significantly in favor of highly 

compensated employees. 

Under the provision, defined contribution plans that may be aggregated with an applicable defined benefit plan and treated as a 

single plan include the portion of one or more defined contribution 


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plans consisting of matching contributions, an ESOP, or matching 

or nonelective contributions under a section 403(b) plan. If an applicable defined benefit plan is aggregated with the portion of a defined contribution plan consisting of matching contributions, any 

portion of the defined contribution plan consisting of elective deferrals must also be aggregated. In addition, the matching contributions are treated in the same manner as nonelective contributions, 

including for purposes of permitted disparity. 

Applicable defined benefit plan 

An applicable defined benefit plan to which relief under the provision applies is a defined benefit plan under which the class was 

closed (or the plan frozen) before April 5, 2017, or that meets the 

following alternative conditions: (1) taking into account any predecessor plan, the plan has been in effect for at least five years as 

of the date the class is closed (or the plan is frozen) and (2) under 

the plan, during the five-year period preceding that date, (a) for 

purposes of the relief provided with respect to benefits, rights, and 

features for a closed class, there has not been a substantial increase in the coverage or value of the benefits, rights, or features, 

or (b) for purposes of the relief provided with respect to benefit accruals for a closed class or the minimum participation requirements, there has not been a substantial increase in the coverage 

or benefits under the plan. 

For purposes of (2)(a) above, a plan is treated as having a substantial increase in coverage or value of benefits, rights, or features 

only if, during the applicable five-year period, either the number of 

participants covered by the benefits, rights, or features on the date 

the period ends is more than 50 percent greater than the number 

on the first day of the plan year in which the period began, or the 

benefits, rights, and features have been modified by one or more 

plan amendments in such a way that, as of the date the class is 

closed, the value of the benefits, rights, and features to the closed 

class as a whole is substantially greater than the value as of the 

first day of the five-year period, solely as a result of the amendments. 

For purposes of (2)(b) above, a plan is treated as having had a 

substantial increase in coverage or benefits only if, during the applicable five-year period, either the number of participants benefiting under the plan on the date the period ends is more than 50 

percent greater than the number of participants on the first day of 

the plan year in which the period began, or the average benefit 

provided to participants on the date the period ends is more than 

50 percent greater than the average benefit provided on the first 

day of the plan year in which the period began. In applying this 

requirement, the average benefit provided to participants under the 

plan is treated as having remained the same between the two relevant dates if the benefit formula applicable to the participants has 

not changed between the dates and, if the benefit formula has 

changed, the average benefit under the plan is considered to have 

increased by more than 50 percent only if the target normal cost 

for all participants benefiting under the plan for the plan year in 

which the five-year period ends exceeds the target normal cost for 

all such participants for that plan year if determined using the 

benefit formula in effect for the participants for the first plan year 


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201 Under the funding requirements applicable to defined benefit plans, target normal cost for 

a plan year (defined in section 430(b)(1)(A)(i)) is generally the sum of the present value of the 

benefits expected to be earned under the plan during the plan year plus the amount of planrelated expenses to be paid from plan assets during the plan year. Under the provision, in applying this average benefit rule to certain defined benefit plans maintained by cooperative organizations and charities, referred to as CSEC plans (defined in section 414(y)), which are subject 

to different funding requirements, the CSEC plan’s normal cost under section 433(j)(1)(B) is 

used instead of target normal cost. 

in the five-year period by more than 50 percent.201 In applying 

these rules, a multiple employer plan is treated as a single plan, 

rather than as separate plans separately covering the employees of 

each participating employer. 

In applying these standards, any increase in coverage or value, 

or in coverage or benefits, whichever is applicable, is generally disregarded if it is attributable to coverage and value, or coverage and 

benefits, provided to employees who (1) became participants as a 

result of a merger, acquisition, or similar event that occurred during the 7-year period preceding the date the class was closed, or (2) 

became participants by reason of a merger of the plan with another 

plan that had been in effect for at least five years as of the date 

of the merger and, in the case of benefits, rights, or features for 

a closed class, under the merger, the benefits, rights, or features 

under one plan were conformed to the benefits, rights, or features 

under the other plan prospectively. 

Make-whole contributions under a defined contribution plan 

Under the provision, a defined contribution plan is permitted to 

be tested on an equivalent benefit accrual basis (without having to 

satisfy the threshold conditions under present law) if the following 

requirements are met: • The plan provides make-whole contributions to a closed 

class of participants whose accruals under a defined benefit 

plan have been reduced or ended (‘‘make-whole class’’); • For the plan year of the defined contribution plan as of 

which the make-whole class closes and the two succeeding plan 

years, the make-whole class satisfies the nondiscriminatory 

classification requirement under the plan coverage rules, taking into account the special testing rules described above; • After the date as of which the class was closed, any 

amendment to the defined contribution plan modifying the 

make-whole class or the allocations, benefits, rights, and features provided to the make-whole class does not discriminate 

significantly in favor of highly compensated employees; and 

• Either the class was closed before April 5, 2017, or the defined benefit plan is an applicable defined benefit plan under 

the alternative conditions applicable for purposes of the relief 

provided with respect to benefit accruals for a closed class. 

With respect to one or more defined contribution plans meeting 

the requirements above, in applying the plan coverage and nondiscrimination requirements, the portion of the plan providing 

make-whole or other nonelective contributions may also be aggregated and tested on an equivalent benefit accrual basis with the 

portion of one or more other defined contribution plans consisting 

of matching contributions, an ESOP, or matching or nonelective 

contributions under a section 403(b) plan. If the plan is aggregated 

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202For this purpose, consistency is not required with respect to employees who were subject 

to different benefit formulas under the defined benefit plan. 

ing contributions, any portion of the defined contribution plan consisting of elective deferrals must also be aggregated. In addition, 

the matching contributions are treated in the same manner as nonelective contributions, including for purposes of permitted disparity. 

Under the provision, ‘‘make-whole contributions’’ generally 

means nonelective contributions for each employee in the makewhole class that are reasonably calculated, in a consistent manner, 

to replace some or all of the retirement benefits that the employee 

would have received under the defined benefit plan and any other 

plan or qualified cash or deferred arrangement under a section 

401(k) plan if no change had been made to the defined benefit plan 

and other plan or arrangement.202 However, under a special rule, 

in the case of a defined contribution plan that 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 will not fail to satisfy the nondiscrimination requirements 

solely by reason of the composition of the closed class, or the benefits, rights, or features provided to the closed class, if the defined 

contribution plan and defined benefit plan otherwise meet the requirements described above but for the fact that the make-whole 

contributions under the defined contribution plan are made in 

whole or in part through matching contributions. 

If a portion of a defined contribution plan eligible for relief under 

the provision is spun off to another employer, and if the spun-off 

plan continues to satisfy any ongoing requirements applicable for 

the relevant relief as described above, the relevant relief for the 

spun-off plan will continue with respect to the other employer. 

EFFECTIVE DATE

The provision is generally effective on the date of enactment, 

without regard to whether any plan modifications referred to in the 

provision are adopted or effective before, on, or after the date of enactment. 

However, at the election of a plan sponsor, the provision will 

apply to plan years beginning after December 31, 2013. For purposes of the provision, a closed class of participants under a defined 

benefit plan is treated as being closed before April 5, 2017, if the 

plan sponsor’s intention to create the closed class is reflected in formal written documents and communicated to participants before 

that date. In addition, a plan does not fail to be eligible for the relief under the provision solely because (1) in the case of benefits, 

rights, or features for a closed class under a defined benefit plan, 

the plan was amended before the date of enactment to eliminate 

one or more benefits, rights, or features and is further amended 

after the date of enactment to provide the previously eliminated 

benefits, rights, or features to a closed class of participants, or (2) 

in the case of benefit accruals for a closed class under a defined 

benefit plan or application of the minimum benefit requirements to 

a closed or frozen defined benefit plan, the plan was amended before the date of the enactment to cease all benefit accruals and is 

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203 A third type of plan is a multiemployer plan, defined under sec. 414(f) as a plan maintained pursuant to one or more collective bargaining agreements with two or more unrelated 

employers and to which the employers are required to contribute under the collective bargaining 

agreement(s). Multiemployer plans are also known as Taft-Hartley plans. Multiemployer plans 

are subject to different minimum funding requirements from those applicable to single employer 

plans and multiple employer plans, as well as to different PBGC premium and benefit guarantee 

structures. 204For this purpose, businesses and organizations that are members of a controlled group of 

corporations, a group under common control, or an affiliated service group are treated as one 

employer (referred to as ‘‘aggregation’’). Secs. 414(b), (c), (m) and (o). 205Sec. 413(c). Multiple employer plan status does not apply if the plan is a multiemployer 

plan. 206Secs. 412 and 430–433 and ERISA secs. 301–306. Unless a funding waiver is obtained, an 

employer may be subject to a two-tier excise tax under section 4971 if the funding requirements 

are not met. 207Pub. L. No. 109–280. 208Pub. L. No. 113–197. 209 As defined in section 414(y) and ERISA section 210(f), CSEC plans include defined benefit 

plans maintained by certain cooperative organizations, such as rural electric or telephone cooperatives, or by certain tax-exempt organizations. 210Title IV of ERISA. 

cruals to a closed class of participants. In either case, the relevant 

relief applies only if the plan otherwise meets the requirements for 

the relief, and, in applying the relevant relief, the date the class 

of participants is closed is the effective date of the later amendment. 

F. MODIFICATION OF PBGC PREMIUMS FOR CSEC PLANS (SEC. 206 

OF THE BILL AND SEC. 4006 OF ERISA) 

PRESENT LAW

Qualified retirement plans, including defined benefit plans, are 

categorized as single employer plans or multiple employer plans.203

A single employer plan is a plan maintained by one employer.204

A multiple employer plan generally is a single plan maintained by 

two or more unrelated employers (that is, employers that are not 

treated as a single employer under the aggregation rules).205

Defined benefit plans maintained by private employers are generally subject to minimum funding requirements.206 Historically, 

single employer and multiple employer defined benefit plans have 

been subject to the same minimum funding requirements. However, when the funding requirements for single employer plans 

were substantially revised by the Pension Protection Act of 2006,207

effective 2008, a delayed effective date was provided for certain 

multiple employer plans in order to allow time for further congressional consideration of appropriate rules for these plans. Such consideration resulted in the enactment in 2014 of the Cooperative 

and Small Employer Charity Pension Flexibility Act (‘‘CSEC 

Act’’),208 which provides specific funding rules for certain multiple 

employer plans, referred to as CSEC plans.209

Private defined benefit plans are also covered by the Pension 

Benefit Guaranty Corporation (‘‘PBGC’’) insurance program, under 

which the PBGC guarantees the payment of certain plan benefits, 

and plans are required to pay annual premiums to the PBGC.210

Plan sponsors of single employer plans and multiemployer plans 

must participate in the PBGC insurance program. Single employer 

plans and multiple employer plans, including CSEC plans, are subject to the same PBGC premium requirements, consisting of flatrate, per participant premiums and variable rate premiums, based 


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211The same PBGC benefit guarantee structure also applies to single employer plans and multiple employer plans. 212These premium rates have been increased several times by legislation since 2005 and are 

subject to automatic increases to reflect inflation (referred to as ‘‘indexing’’). 213 Corporate bond rates are used for PBGC liability measurement purposes. For funding purposes, single employer plans are required to use the 24-month average segment rates (before 

adjustment) determined under Section 430(h)(2), as amended by the ‘‘Moving Ahead for Progress 

in the 21st Century Act’’ (MAP–21), Pub. L. No. 112–141, the ‘‘Highway and Transportation 

Funding Act of 2014’’ (HATFA), Pub. L. No.113–159 and the Bipartisan Budget Act of 2015 

(BBA), Pub. L. No. 114–74. However, a plan sponsor is permitted to elect to use the monthly 

yield curve under section 430(h)(2)(D)(ii) in place of the segment rates. CSEC plans may use 

the third segment rate to determine current liability. Sec. 433(h)(3). CSEC plans were also able 

to elect (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 so that the same interest rates that apply to single 

employer plans would apply to CSEC plans. 214These are the premium rates that applied to single employer plans and multiple employer 

plans in 2005 and are not subject to indexing. 

on the unfunded vested benefits under the plan.211 For 2019, flatrate premiums are $80 per participant, and variable rate premiums 

are $43 for each $1,000 of unfunded vested benefits, subject to a 

limit of $541 multiplied by the number of plan participants.212 For 

this purpose, unfunded vested benefits under a plan for a plan year 

is the excess (if any) of (1) the plan’s funding target for the plan 

year, determined by taking into account only vested benefits and 

using specified interest rates 213, over (2) the fair market value of 

plan assets. 

Under the funding rules applicable to single employer plans, a 

plan’s funding target is the present value of all benefits accrued or 

earned under the plan as of the beginning of the plan year, determined using certain specified actuarial assumptions, including 

specified interest rates and mortality. A single employer plan’s 

funding target is a factor taken into account in determining required contributions for the plan. Although a CSEC plan’s funding 

target is used under present law to determine variable rate premiums, it does not apply in determining required contributions for 

a CSEC plan. Instead, a CSEC plan’s funding liability applies, 

which is the present value of all benefits accrued or earned under 

the plan as of the beginning of the plan year, determined using 

reasonable actuarial assumptions chosen by the plan’s actuary. 

REASONS FOR CHANGE

In 2014, Congress passed legislation resulting in different sets of 

funding rules for three types of pension plans: single employer 

plans, multiemployer plans, and CSEC plans. In line with this 

change, the Committee believes that the three types of pension 

plans also should have individualized rules for calculating PBGC 

premiums. 

EXPLANATION OF PROVISION

Under the provision, for CSEC plans, flat-rate premiums are $19 

per participant, and variable rate premiums are $9 for each $1,000 

of unfunded vested benefits.214 In addition, for purposes of determining a CSEC plan’s variable rate premiums, unfunded vested 

benefits for a plan year is the excess (if any) of (1) the plan’s funding liability, determined by taking into account only vested benefits, over (2) the fair market value of plan assets. 

The provision applies to such plans with plan years beginning 

after December 31, 2018. 


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215 IRS Chief Counsel Advice 200302045 (December 3, 2002). 216Sec. 139B. Under section 3121(a)(23), the exclusion applied also for purposes of taxes under 

the Federal Insurance Contributions Act (‘‘FICA’’). 217Secs. 164(a) and 170. 

EFFECTIVE DATE

The provision is effective on date of enactment. 

TITLE III—OTHER BENEFITS 

A. BENEFITS PROVIDED TO VOLUNTEER FIREFIGHTERS AND EMERGENCY MEDICAL RESPONDERS (SEC. 301 OF THE BILL AND SEC. 

139B OF THE CODE) 

PRESENT LAW

Benefits for volunteer firefighters and emergency medical responders 

In general, a reduction in property tax by persons who volunteer 

their services as emergency responders under a State law program 

is includible in gross income.215 However, for taxable years beginning after December 31, 2007, and before January 1, 2011, an exclusion applied for any qualified State or local tax benefit and any 

qualified reimbursement payment provided to members of qualified 

volunteer emergency response organizations.216

A qualified volunteer emergency response organization is a volunteer organization that is organized and operated to provide firefighting or emergency medical services for persons in a State or a 

political subdivision and is required (by written agreement) by the 

State or political subdivision to furnish firefighting or emergency 

medical services in the State or political subdivision. 

A qualified State or local tax benefit is any reduction or rebate 

of certain taxes provided by a State or local government on account 

of services performed by individuals as members of a qualified volunteer emergency response organization. These taxes are limited to 

State or local income taxes, State or local real property taxes, and 

State or local personal property taxes. A qualified reimbursement 

payment is a payment provided by a State or political subdivision 

thereof on account of reimbursement for expenses incurred in connection with the performance of services as a member of a qualified 

volunteer emergency response organization. The amount of excludible qualified reimbursement payments is limited to $30 for each 

month during which a volunteer performs services. 

Itemized deductions 

Subject to certain limitations, individuals are allowed itemized 

deductions for (1) State and local income taxes, real property taxes, 

and personal property taxes, and (2) contributions to charitable organizations, including unreimbursed expenses incurred in performing volunteer services for such an organization.217

The amount of State or local taxes taken into account in determining the deduction for taxes is reduced by the amount of any excludible qualified State or local tax benefit. Similarly, expenses 

paid or incurred by an individual in connection with the performance of services as a member of a qualified volunteer emergency response organization are taken into account for purposes of the 


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218For purposes of this description, the term ‘‘account’’ is used interchangeably to refer to a 

prepaid tuition benefit contract or a tuition savings account established pursuant to a qualified 

tuition program. 

charitable deduction only to the extent the expenses exceed the 

amount of any excludible qualified reimbursement payment. 

REASONS FOR CHANGE

Emergency response volunteers provide valuable services to their 

communities. In return, communities sometimes provide tax discounts or rebates and modest stipends to cover volunteer expenses. 

The Committee wishes to relieve the administrative and financial 

burden associated with applying Federal tax to these benefits by 

reinstating the exclusion for a limited period and increasing the exclusion for expense reimbursements. 

EXPLANATION OF PROVISION

The provision reinstates for one year the exclusions for qualified 

State or local tax benefits and qualified reimbursement payments 

provided to members of qualified volunteer emergency response organizations. The provision also increases the exclusion for qualified 

reimbursement payments to $50 for each month during which a 

volunteer performs services. Under the provision, the exclusions for 

qualified State or local tax benefits and qualified reimbursement 

payments do not apply for taxable years beginning after December 

31, 2020. 

EFFECTIVE DATE

The provision is effective for taxable years beginning after December 31, 2019. As described above, the exclusions do not apply 

for taxable years beginning after December 31, 2020. Thus, the exclusions apply only for taxable years beginning during 2020. 

B. EXPANSION OF SECTION 529 PLANS (SEC. 302 OF THE BILL AND

SEC. 529 OF THE CODE) 

PRESENT LAW

In general 

A qualified tuition program (often referred to as a ‘‘529 plan’’) is 

a program established and maintained by a State or agency or instrumentality thereof, or by one or more eligible educational institutions, which satisfies certain requirements and under which a 

person may purchase tuition credits or certificates on behalf of a 

designated beneficiary that entitle the beneficiary to the waiver or 

payment of qualified higher education expenses of the beneficiary 

(‘‘prepaid tuition contract’’). In the case of a program established 

and maintained by a State or agency or instrumentality thereof, a 

qualified tuition program also includes a program under which a 

person may make contributions to an account that is established 

for the purpose of satisfying the qualified higher education expenses of the designated beneficiary of the account, provided it satisfies certain specified requirements (‘‘tuition savings account’’). 

Section 529 provides specified income tax and transfer tax rules for 

the treatment of accounts and contracts established under qualified 

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219Section 529 refers to contributors and designated beneficiaries, but does not define or otherwise refer to the term ‘‘account owner,’’ which is a commonly used term among qualified tuition programs. 

grams, a contributor establishes an account for the benefit of a particular designated beneficiary to provide for that beneficiary’s higher education expenses. 

In general, prepaid tuition contracts and tuition savings accounts 

established under a qualified tuition program involve prepayments 

or contributions made by one or more individuals for the benefit of 

a designated beneficiary. Decisions with respect to the contract or 

account may be made by an individual who is not the designated 

beneficiary. Qualified tuition accounts or contracts generally require the designation of a person (generally referred to as an ‘‘account owner’’) 219 whom the program administrator (oftentimes a 

third-party administrator retained by the State or by the educational institution that established the program) may look to for 

decisions, recordkeeping, and reporting with respect to the account 

established for a designated beneficiary. The person or persons who 

make the contributions to the account also need not be the same 

person who is regarded as the account owner for purposes of administering the account or the designated beneficiary. Under many 

qualified tuition programs, the account owner generally has control 

over the account or contract, including the ability to change designated beneficiaries and to withdraw funds at any time and for 

any purpose. Thus, in practice, qualified tuition accounts or contracts generally involve a contributor, a designated beneficiary, an 

account owner (all three of whom may be the same person or different people), and an administrator of the account or contract. 

Qualified higher education expenses 

Distributions for the purpose of meeting the designated beneficiary’s higher education expenses are generally not subject to tax. 

For purposes of receiving a distribution from a qualified tuition 

program that qualifies for this favorable tax treatment, the term 

qualified higher education expenses means tuition, fees, books, supplies, and equipment required for the enrollment or attendance of 

a designated beneficiary at an eligible educational institution, and 

expenses for special needs services in the case of a special needs 

beneficiary that are incurred in connection with such enrollment or 

attendance. Qualified higher education expenses generally also include room and board for students who are enrolled at least halftime. Qualified higher education expenses include the purchase of 

any computer technology or equipment, or Internet access or related services, if such technology or services are to be used primarily by the beneficiary during any of the years a beneficiary is 

enrolled at an eligible institution. 

For distributions made after December 31, 2017, a designated 

beneficiary may, on an annual basis, receive up to $10,000 in aggregate 529 distributions to be used in connection with expenses 

for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school. To the extent such distributions do not exceed $10,000, they are treated in 

the same manner as distributions for qualified higher education expenses. 


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220Sec. 221. 

Contributions to qualified tuition programs 

Contributions to a qualified tuition program must be made in 

cash. Section 529 does not impose a specific dollar limit on the 

amount of contributions, account balances, or prepaid tuition benefits relating to a qualified tuition account or contract; however, the 

program is required to have adequate safeguards to prevent contributions in excess of amounts necessary to provide for the beneficiary’s qualified higher education expenses. Contributions generally are treated as a completed gift that is subject to the gift tax 

but is eligible for the gift tax annual exclusion. Contributions are 

not tax deductible for Federal income tax purposes, although they 

may be deductible for State income tax purposes. Amounts in the 

account accumulate on a tax-free basis (i.e., income on accounts in 

the plan is not subject to current Federal income tax). 

A qualified tuition program may not permit any contributor to, 

or designated beneficiary under, the program to direct (directly or 

indirectly) the investment of any contributions (or earnings thereon) more than two times in any calendar year, and must provide 

separate accounting for each designated beneficiary. A qualified 

tuition program may not allow any interest in an account or contract (or any portion thereof) to be used as security for a loan. 

Deduction for interest on education loans 

Certain individuals who have paid interest on qualified education 

loans may claim an above-the-line deduction for such interest expenses, subject to a maximum annual deduction limit of $2,500.220

For 2019, the deduction is phased out ratably for taxpayers with 

modified AGI between $70,000 and $85,000 ($140,000 and $170,000 

for married taxpayers filing a joint return). The income phaseout 

ranges are indexed for inflation. 

A qualified education loan generally is defined as any indebtedness incurred solely to pay for the costs of attendance (including 

room and board) of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred in attending on at least a half-time basis (1) eligible educational institutions, or (2) institutions conducting internship or 

residency programs leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility conducting postgraduate training. The cost of attendance is reduced by 

any amount excluded from gross income under the exclusions for 

qualified scholarships and tuition reductions, employer-provided 

educational assistance, interest earned on education savings bonds, 

qualified tuition programs, and Coverdell education savings accounts, as well as the amount of certain other scholarships and 

similar payments. 

REASONS FOR CHANGE

The Committee believes that expanding 529 plans will help families save for educational expenses that meet each family’s unique 

needs. By allowing tax-free distributions for apprenticeship expenses, homeschooling expenses, student loan repayments, and elementary and secondary expenses in addition to tuition, families can 


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221 29 U.S.C. 50. 222The $10,000 per beneficiary limit applies to the combined distributions used for either (i) 

elementary and secondary school tuition or (ii) homeschool expenses. 223This limitation applies to such distributions from all 529 accounts. Thus, an individual 

may not avoid the limitation by receiving separate $10,000 distributions from multiple 529 accounts. 

customize the use of their education savings to make education 

more affordable. 

EXPLANATION OF PROVISION

The provision makes four modifications to section 529 plans. 

First, the provision allows tax-free treatment applicable to distributions for higher education expenses to apply to expenses for 

fees, books, supplies, and equipment required for the participation 

of a designated beneficiary in an apprenticeship program. The apprenticeship program must be registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship 

Act.221

Second, the provision allows tax-free treatment to apply to distributions made for certain expenses in connection with a 

homeschool. Under the provision, distributions for certain 

homeschool expenses are treated in the same manner as distributions for qualified higher education expenses, and like distributions 

for elementary and secondary school tuition, are also subject to an 

annual limit of $10,000 in aggregate 529 distributions, per beneficiary.222 For these purposes, qualifying homeschool expenses are 

those expenses, with respect to a beneficiary, which are incurred in 

connection with a homeschool and are for: (i) curriculum and curricular materials; (ii) books or other instructional materials; (iii) 

online educational materials; (iv) tuition for tutoring or educational 

classes outside of the home if the tutor or instructor is unrelated 

to the student; (v) dual enrollment in an institution of higher education; and (vi) educational therapies for students with disabilities. 

Third, the provision allows tax-free treatment to apply to distributions of certain amounts used to make payments on principal 

or interest of a qualified education loan. No individual may receive 

more than $10,000 of such distributions, in aggregate, over the 

course of the individual’s lifetime.223 To the extent that an individual receives in excess of $10,000 of such distributions, they are 

subject to the usual tax treatment of 529 distributions (i.e., the 

earnings are included in income and subject to a 10-percent penalty). The provision contains a special rule allowing such amounts 

to be distributed to a sibling of a designated beneficiary (i.e., a 

brother, sister, stepbrother, or stepsister). This rule allows a 529 

account holder to make a student loan distribution to a sibling of 

the designated beneficiary without changing the designated beneficiary of the account. For purposes of the $10,000 lifetime limit on 

student loan distributions, a distribution to a sibling of a designated beneficiary is applied towards the sibling’s lifetime limit, 

and not the designated beneficiary’s lifetime limit. The deduction 

available for interest paid by the taxpayer during the taxable year 

on any qualified education loan is disallowed to the extent such interest was paid from a tax-free distribution from a 529 plan. 

Fourth, the provision allows tax-free treatment to apply to distributions made for certain additional qualifying expenses on beVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00111 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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224Secs. 401(a)(9), 403(b)(1), 408(a)(6), 408(b)(3), and 457(d)(2). Tax-favored employer-sponsored retirement plans include qualified retirement plans and annuities under sections 401(a) 

and 403(a), tax-deferred annuity plans under section 403(b), and governmental eligible deferred 

compensation plans under section 457(b). Minimum distribution requirements also apply to eligible deferred compensation plans under section 457(b) of tax-exempt employers. 225Sec. 408A(c)(5). 226 Reflecting the directive in section 823 of the Pension Protection Act of 2006 (Pub. L. No. 

109–280), pursuant to Treas. Reg. sec. 1.401(a)(9)–1, A–2(d), a governmental plan within the 

meaning of section 414(d) or a governmental eligible deferred compensation plan is treated as 

having complied with the statutory minimum distribution rules if the plan complies with a reasonable and good faith interpretation of those rules. 227Sec. 4974. 

half of designated beneficiaries attending elementary or secondary 

school. Under the provision, in addition to tuition, tax-free treatment would apply to a distribution made for expenses for fees, academic tutoring, special needs services, books, supplies, and other 

equipment, incurred in connection with enrollment or attendance 

at such elementary or secondary school. 

EFFECTIVE DATE

The provision applies to distributions made after December 31, 

2018. 

TITLE IV—REVENUE PROVISIONS 

A. MODIFICATION OF REQUIRED MINIMUM DISTRIBUTION RULES FOR

DESIGNATED BENEFICIARIES (SEC. 401 OF THE BILL AND SEC. 

401(a)(9) OF THE CODE) 

PRESENT LAW

In general 

Minimum distribution rules apply to tax-favored employer-sponsored retirement plans and IRAs.224 Employer-sponsored retirement plans are of two general types: defined benefit plans, under 

which benefits are determined under a plan formula and paid from 

general plan assets, rather than individual accounts; and defined 

contribution plans, under which benefits are based on a separate 

account for each participant, to which are allocated contributions, 

earnings and losses. 

In general, under the minimum distribution rules, distribution of 

minimum benefits must begin to an employee (or IRA owner) no 

later than a required beginning date and a minimum amount must 

be distributed each year (sometimes referred to as ‘‘lifetime’’ minimum distribution requirements). These lifetime requirements do 

not apply to a Roth IRA.225 Minimum distribution rules also apply 

to benefits payable with respect to an employee (or IRA owner) who 

has died (sometimes referred to as ‘‘after-death’’ minimum distribution requirements). The regulations provide a methodology for calculating the required minimum distribution from an individual account under a defined contribution plan or from an IRA.226 In the 

case of annuity payments under a defined benefit plan or an annuity contract, the regulations provide requirements that the stream 

of annuity payments must satisfy. 

Failure to comply with the minimum distribution requirement 

results in an excise tax imposed on the individual who was required to take the distributions equal to 50 percent of the required 

minimum amount not distributed for the year.227 The excise tax 


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228Sec. 401(a)(9)(A). 229Treas. Reg. sec. 1.401(a)(9)–5. This table is based on the joint life and last survivor expectancy of the individual and a hypothetical beneficiary 10 years younger. For an individual with 

a spouse as designated beneficiary who is more than 10 years younger (and thus the number 

of years in the couple’s joint life and last survivor expectancy is greater than the uniform lifetime table), the joint life expectancy and last survivor expectancy of the couple (calculated using 

the table in the regulations) is used. For this purpose and other special rules that apply to the 

surviving spouse as beneficiary, a former spouse to whom all or a portion of an employee’s benefit is payable pursuant to a qualified domestic relations order (within the meaning of section 

414(p)) is treated as the spouse (including a surviving spouse) of the employee for purposes of 

section 401(a)(9). 230 In the case of amounts for which the employee or IRA owner’s surviving spouse is the beneficiary, the surviving spouse generally is permitted to do a tax-free rollover of such amounts 

into an IRA (or account of a tax-favored employer-sponsored plan of the spouse’s employer) established in the surviving spouse’s name as IRA owner or employee. The rules applicable to the 

Continued 

may be waived in certain cases. For employer-sponsored retirement 

plans, satisfying the minimum distribution requirement under the 

plan terms and in operation is also a requirement for tax-favored 

treatment. 

Required beginning date 

For traditional IRAs, the required beginning date is April 1 following the calendar year in which the employee (or IRA owner) attains age 701⁄2. For employer-sponsored retirement plans, for an 

employee other than an employee who is a five-percent owner in 

the year the employee attains age 701⁄2, the required beginning 

date is April 1 after the later of the calendar year in which the employee attains age 701⁄2 or retires. For an employee who is a fivepercent owner under an employer-sponsored tax-favored retirement 

plan in the year the employee attains age 701⁄2, the required beginning date is the same as for IRAs even if the employee continues 

to work past age 701⁄2. 

Lifetime rules 

While an employee (or IRA owner) is alive, distributions of the 

individual’s interest are required to be made (in accordance with 

regulations) over the life or life expectancy of the employee (or IRA 

owner), or over the joint lives or joint life expectancy of the employee (or IRA owner) and a designated beneficiary.228 For defined 

contribution plans and IRAs, the required minimum distribution 

for each year is determined by dividing the account balance as of 

the end of the prior year by a distribution period which, while the 

employee (or IRA owner) is alive, is the factor for the employee (or 

IRA owner’s) age from the uniform lifetime table included in the 

Treasury regulations.229 The distribution period for annuity payments under a defined benefit plan or annuity contract (to the extent not limited to the life of the employee (or IRA owner) or the 

joint lives of the employee (or IRA owner) and a designated beneficiary) is generally subject to the same limitations as apply to individual accounts. 

After-death rules 

Payments over a distribution period 

The after-death minimum distributions rules vary depending on 

(i) whether an employee (or IRA owner) dies on or after the required beginning date or before the required beginning date, and 

(ii) whether there is a designated beneficiary for the benefit.230


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rollover account, including the minimum distribution rules, are the same rules that apply to an 

IRA owner or employee. In the case of an IRA for which the spouse is sole beneficiary, this can 

be accomplished by simply renaming the IRA as an IRA held by the spouse as IRA owner rather 

than as a beneficiary. 231Treas. Reg. sec. 1.401(a)(9)–4, A–1. The individual need not be named as long as the individual is identifiable under the terms of the plan (or IRA). There are special rules for multiple 

beneficiaries and for trusts named as beneficiary (where the beneficiaries of the trust are individuals). However, the fact that an interest under a plan or IRA passes to a certain individual 

under a will or otherwise under State law does not make that individual a designated beneficiary unless the individual is designated as a beneficiary under the plan or IRA. 232Sec. 401(a)(9)(B)(i). 233Treas. Reg. sec. 1.401(a)(9)–5, A–5(a)(2). 234Treas. Reg. sec. 1.401(a)(9)–5, A–5(a)(1). 235Treas. Reg. sec. 1.401(a)(9)–5, A–5(b). 

Under the regulations, a designated beneficiary is an individual 

designated as a beneficiary under the plan or IRA.231 Similar to 

the lifetime rules, for defined contribution plans and IRAs (‘‘individual accounts’’), the required minimum distribution for each year 

after the death of the employee (or IRA owner) is generally determined by dividing the account balance as of the end of the prior 

year by a distribution period. 

If an employee (or IRA owner) dies on or after the required beginning date, the basic statutory rule is that the remaining interest 

must be distributed at least as rapidly as under the method of distribution being used before death.232 Under the regulations, for individual accounts, this rule is also interpreted as requiring the 

minimum required distribution to be calculated using a distribution period. If there is no designated beneficiary, the distribution 

period is equal to the remaining years of the employee’s (or IRA 

owner’s) life, as of the year of death.233 If there is a designated 

beneficiary, the distribution period (if longer) is the beneficiary’s 

life expectancy calculated using the life expectancy table in the regulations, determined in the year after the year of death.234

If an employee (or IRA owner) dies before the required beginning 

date and any portion of the benefit is payable to a designated beneficiary, the statutory rule is that distributions are generally required to begin within one year of the employee’s (or IRA owner’s) 

death (or such later date as prescribed in regulations) and are permitted to be paid (in accordance with regulations) over the life or 

life expectancy of the designated beneficiary. If the beneficiary of 

the employee (or IRA owner) is the individual’s surviving spouse, 

distributions are not required to commence until the year in which 

the employee (or IRA owner) would have attained age 701⁄2. If the 

surviving spouse dies before the employee (or IRA owner) would 

have attained age 701⁄2, the after-death rules apply after the death 

of the spouse as though the spouse were the employee (or IRA 

owner). Under the regulations, for individual accounts, the required 

minimum distribution for each year is determined using a distribution period and the period is measured by the designated beneficiary’s life expectancy, calculated in the same manner as if the individual died on or after the required beginning date.235

In cases where distribution after death is based on life expectancy (either the remaining life expectancy of the employee (or IRA 

owner) or a designated beneficiary), the distribution period generally is fixed at the employee’s (or IRA owner’s) death and then 

reduced by one for each year that elapses after the year in which 

it is calculated. If the designated beneficiary dies during the disVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00114 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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236 If the distribution period is based on the surviving spouse’s life expectancy (whether the 

employee or IRA owner’s death is before or after the required beginning date), the spouse’s life 

expectancy generally is recalculated each year while the spouse is alive and then fixed the year 

after the spouse’s death. 237Section 401(a)(9)(B)(ii) provides that the entire interest must be distributed within five 

years of the employee’s death. Treas. Reg. sec. 1.401(a)(9)–3, A–2, provides that this requirement is satisfied if the entire interest is distributed by the end of the fifth calendar year following the employee’s death. There are provisions in the regulations allowing a designated beneficiary to take advantage of the five-year rule. See Treas. Reg. secs. 1.401(a)(9)–4, A–4, and 

1.4974–2, A–7(b). 238Treas. Reg. sec. 1.401(a)(9)–6, A–14. 239Sec. 401(b). 

tribution period, distributions continue to the subsequent beneficiaries over the remaining years in the distribution period.236

The distribution period for annuity payments under a defined 

benefit plan or annuity contract (to the extent not limited to the 

life of a designated beneficiary) is generally subject to the same 

limitations as apply to individual accounts. 

Five-year rule 

If an employee (or IRA owner) dies before the required beginning 

date and there is no designated beneficiary, then the entire remaining interest of the employee (or IRA owner) must generally be 

distributed by the end of the fifth calendar year following the individual’s death.237

Defined benefit plans and annuity distributions 

The regulations provide rules for the amount of annuity distributions from a defined benefit plan, or from an annuity purchased by 

the plan from an insurance company, that are paid over life or life 

expectancy. Annuity distributions are generally required to be nonincreasing with certain exceptions, which include, for example, (i) 

increases to the extent of certain specified cost-of-living indices, (ii) 

a constant percentage increase (for a qualified defined benefit plan, 

the constant percentage cannot exceed five percent per year), (iii) 

certain accelerations of payments, and (iv) increases to reflect when 

an annuity is converted to a single life annuity after the death of 

the beneficiary under a joint and survivor annuity or after termination of the survivor annuity under a qualified domestic relations 

order.238 If distributions are in the form of a joint and survivor annuity and the survivor annuitant both is not the surviving spouse 

and is younger than the employee (or IRA owner), the survivor annuity benefit is limited to a percentage of the life annuity benefit 

for the employee (or IRA owner). The survivor benefit as a percentage of the benefit of the primary annuitant is required to be smaller (but not required to be less than 52 percent) as the difference 

in the ages of the primary annuitant and the survivor annuitant 

become greater. 

Plan amendment and anti-cut-back requirements 

Present law provides a remedial amendment period during 

which, under certain circumstances, a qualified retirement plan 

may be amended retroactively in order to comply with the qualification requirements.239 In general, plan amendments to reflect 

changes in the law generally must be made by the time prescribed 

by law for filing the income tax return of the employer for the employer’s taxable year in which the change in law occurs. The SecVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00115 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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240Sec. 411(d)(6) and ERISA sec. 204(g). 241Sec. 402(c)(8)(B). 

retary may extend the time by which plan amendments need to be 

made. 

The Code and ERISA generally prohibit plan amendment that reduce accrued benefits, including amendments that eliminate or reduce optional forms of benefit with respect to benefits already accrued except to the extent prescribed in regulations.240 This prohibition on the reduction of accrued benefits is commonly referred to 

as the ‘‘anti-cut-back rule.’’ 

REASONS FOR CHANGE

The tax subsidy for retirement savings is intended to encourage 

individuals and families to forgo some consumption during their 

working years in favor of savings to provide for consumption during 

retirement. Because of the uncertainty as to how much income will 

be needed during retirement, individuals may accumulate more 

than it turns out is actually needed during the individual’s lifetime 

(and surviving spouse’s lifetime, if applicable), leaving some 

amount to other surviving beneficiaries. Present law generally allows such other beneficiaries to withdraw inherited amounts from 

a tax-favored account or plan over the beneficiary’s lifetime. The 

Committee believes that the tax subsidy for retirement savings 

should phase down after the lives of the individual and surviving 

spouse, except in the case of certain other beneficiaries. 

EXPLANATION OF PROVISION

Change in after-death rules for defined contribution plans 

The provision changes the after-death required minimum distribution rules applicable to defined contribution plans, as defined, 

with respect to required minimum distributions to designated beneficiaries. A defined contribution plan for this purpose means an eligible retirement plan 241 (qualified retirement plans, section 403(b) 

plans, governmental section 457(b) plans, and IRAs) other than a 

defined benefit plan. 

Ten-year after-death rule for defined contributions plans 

In general 

Under the provision, the five-year rule is expanded to become a 

10-year period instead of five years (‘‘10-year rule’’), such that the 

10-year rule is the general rule for distributions to designated 

beneficiaries after death (regardless of whether the employee (or 

IRA owner) dies before, on, or after the required beginning date) 

unless the designated beneficiary is an eligible beneficiary as defined in the provision. Thus, in the case of an ineligible beneficiary, 

distribution of the employee (or IRA owner’s) entire benefit is required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death. 

Eligible beneficiaries 

For eligible beneficiaries, an exception to the 10-year rule (for 

death before the required beginning date under present law) applies whether or not the employee (or IRA owner) dies before, on, 


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242 As in the case of the present law special rule in section 401(a)(9)(B)(iv) for surviving 

spouses, spouse is not defined in the provision. Under Treas. Reg. sec. 1.401(a)(9)–8, A–5, a 

spouse is the employee’s spouse under applicable State law. In the case of a special rule for a 

surviving spouse, that determination is generally made based on the employee’s marital status 

on the date of death. An exception is provided in Treas. Reg. sec. 1.401(a)(9)–6, A–6, under 

which a former spouse to whom all or a portion of the employee’s benefits is payable pursuant 

to a qualified domestics relations order as defined in section 414(p) is treated as the employee’s 

spouse (including a surviving spouse). In the case of a qualified joint and survivor annuity under 

section 401(a)(11) and 417, the spouse is generally determined as of the annuity starting date. 243The measurement period is the life expectancy of the child calculated for the child’s age 

in the year after the employee’s (or IRA owner’s) death (age 21 (20 plus 1)). 244The definition of disabled in section 72(m)(7) is incorporated by reference. 

or after the required beginning date. The exception (similar to 

present law) generally allows distributions over life or life expectancy of an eligible beneficiary beginning in the year following the 

year of death. Eligible beneficiaries include any beneficiary who, as 

of the date of death, is the surviving spouse of the employee (or 

IRA owner),242 is disabled, is a chronically ill individual, is an individual who is not more than 10 years younger than the employee 

(or IRA owner), or is a child of the employee (or IRA owner) who 

has not reached the age of majority. In the case of a child who has 

not reached the age of majority, calculation of the minimum required distribution under this exception is only allowed through 

the year that the child reaches the age of majority. 

Further, under the provision, the 10-year rule also applies after 

the death of an eligible beneficiary or after a child reaches the age 

of majority. Thus, for example, if a disabled child of an employee 

(or IRA owner) is an eligible beneficiary of a parent who dies when 

the child is age 20 and the child dies at age 30, even though 52.1 

years remain in measurement period,243 the disabled child’s remaining beneficiary interest must be distributed by the end of the 

tenth year following the death of the disabled child. If a child is 

an eligible beneficiary based on having not reached the age of majority before the employee’s (or IRA owner’s) death, the 10-year 

rule applies beginning with the earlier of the date of the child’s 

death or the date that the child reaches the age of majority. The 

child’s entire interest must be distributed by the end of the tenth 

year following that date. 

As under present law, if the surviving spouse is the beneficiary, 

a special rule allows the commencement of distribution to be delayed until end of the year that the employee (or IRA owner) would 

have attained age 701⁄2. If the spouse dies before distributions were 

required to begin to the spouse, the surviving spouse is treated as 

the employee (or IRA owner) in determining the required distributions to beneficiaries of the surviving spouse. 

Definitions of disabled and chronically ill individual 

Under the provision, disabled means unable to engage in any 

substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to 

end in death or to be for long-continued and indefinite duration.244

Further, under the definition, an individual is not considered to be 

disabled unless proof of the disability is furnished in such form and 

manner as the Secretary may require. Substantial gainful activity 

for this purpose is the activity, or a comparable activity, in which 

the individual customarily engaged prior to the arising of the disVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00117 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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245Treas. Reg. sec. 1.72–17(f). Under the regulations, in determining whether an individual 

is disabled, primary consideration is given to the nature and severity of the individual’s impairment. However, consideration is also given to other factors such as the individual’s education, 

training, and work experience. Whether an impairment in a particular case constitutes a disability is determined with reference to all the facts in the case. 246Sec. 7702B(c)(2). 247Section 7702B(c) only requires this period to be at least 90 days. 248 A collectively bargained plan is a plan maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers. 

ability (or prior to retirement if the individual was retired at the 

time the disability arose).245

Under the provision, the definition of a chronically ill individual 

for purposes of qualified long-term care insurance 246 is incorporated by reference with a modification. Under this definition, a 

chronically ill individual is any individual who (1) is unable to perform (without substantial assistance from another individual) at 

least two activities of daily living for an indefinite period (expected 

to be lengthy in nature) 247 due to a loss of functional capacity, (2) 

has a level of disability similar (as determined under regulations 

prescribed by the Secretary in consultation with the Secretary of 

Health and Human Services) to the level of disability described 

above requiring assistance with daily living based on loss of functional capacity, or (3) requires substantial supervision to protect 

the individual from threats to health and safety due to severe cognitive impairment. The activities of daily living for which assistance is needed for purposes of determining loss of functional capacity are eating, toileting, transferring, bathing, dressing, and continence. 

Annuity payments under commercial annuities 

The provision applies to after-death required minimum distributions under defined contribution plans and IRAs, including annuity 

contracts purchased from insurance companies under defined contribution plans or IRAs. 

EFFECTIVE DATE

General effective date 

In determining required minimum distributions after the death 

of an employee (or IRA owner), the provision is generally effective 

for required minimum distributions with respect to employees (or 

IRA owners) with a date of death after December 31, 2019. 

Delayed effective date for governmental and collectively bargained 

plans 

In the case of a governmental plan (as defined in section 414(d)), 

in determining required minimum distributions after the death of 

an employee, the provision applies to distributions with respect to 

employees who die after December 31, 2021. 

In the case of a collectively bargained plan,248 in determining required minimum distributions after the death of an employee, the 

provision applies to distributions with respect to employees who die 

in calendar years beginning after the earlier of two dates. The first 

date is the later of (1) the date on which the last collective bargaining agreement ratified before date of enactment of the proviVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00118 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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249The date that the last agreement terminates is determined without regard to any extension 

thereof agreed to on or after the date of enactment of the provision. Further, any plan amendment made pursuant to a collective bargaining agreement relating to the plan that amends the 

plan solely to conform to any requirement added by the provision shall not be treated as a termination of the collective bargaining agreement. 250For this purpose, commercial annuity is defined in section 3405(e)(6). 

sion terminates,249 or (2) December 31, 2019. The second date is 

December 31, 2021. 

10-year rule after the death of a beneficiary 

In the case of an employee (or IRA owner) who dies before the 

effective date (as described below) for the plan (or IRA), if the designated beneficiary of the employee (or IRA owner) dies on or after 

the effective date, the provision applies to any beneficiary of the 

designated beneficiary as though the designated beneficiary were 

an eligible beneficiary. Thus, the entire interest must be distributed by the end of the tenth calendar year after the death of the 

designated beneficiary. For this purpose, the effective date is the 

date of death of the employee (or IRA owner) used to determine 

when the provision applies to the plan (or IRA), for example, before 

January 1, 2020, under the general effective date. 

Certain annuities grandfathered 

The modification to the after-death minimum distribution rules 

does not apply to a qualified annuity that is a binding annuity contract in effect on the date of enactment of the provision and at all 

times thereafter. A qualified annuity with respect to an individual 

is a commercial annuity,250 under which the annuity payments are 

made over the lives of the individual and a designated beneficiary 

(or over a period not extending beyond the life expectancy of the 

individual or the life expectancy of the individual and a designated 

beneficiary) in accordance with the required minimum distribution 

regulations for annuity payments as in effect before enactment of 

this provision. In addition to these requirements, annuity payments to the individual must begin before the date of enactment, 

and the individual must have made an irrevocable election before 

that date as to the method and amount of the annuity payments 

to the individual or any designated beneficiaries. Alternatively, if 

an annuity is not a qualified annuity solely based on annuity payments not having begun irrevocably before the date of enactment, 

an annuity can be a qualified annuity if the individual has made 

an irrevocable election before the date of enactment as to the method and amount of the annuity payments to the individual or any 

designated beneficiaries. 

Plan amendments made pursuant to the provision 

A plan amendment made pursuant to the enacted provision (or 

regulations issued thereunder) may be retroactively effective and 

(except as provided by the Secretary) will not violate the anti-cutback rule, if, in addition to meeting the other applicable requirements described below, the amendment is made on or before the 

last day of the first plan year beginning after December 31, 2021 

(or in the case of a governmental or collectively bargained plan, December 31, 2023), or a later date prescribed by the Secretary. In 

addition, the plan will be treated as operated in accordance with 

plan terms during the period beginning with the date that the proVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00119 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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251See United States v. Boyle, 469 U.S. 241, 245 (1985). 252Sec. 6651(a)(1). 253Sec. 6651(f). 254Sec. 6651(b)(1). 255Sec. 6651(a)(1). 256The $205 is adjusted for inflation. 257Sec. 6651(a)(1) (flush language). For this minimum penalty to apply, the Tax Court has 

held, and the IRS acquiesced, that there must be an underpayment of tax. See Patronik-Holder 

v. Commissioner, 100 T.C. 374 (1993) (citing the Conference Report to the Tax Equity and Fiscal 

Responsibility Act of 1982), AOD 1994–03, 1993–2 C.B. 1. 

vision or regulations take effect (or the date specified by the plan 

if the amendment is not required by the provision or regulations) 

and ending on the last permissible date for the amendment (or, if 

earlier, the date the amendment is adopted). 

A plan amendment will not be considered to be pursuant to the 

provision (or applicable regulations) if it has an effective date before the effective date of the provision (or regulations) to which it 

relates. Similarly, the provision does not provide relief from the 

anti-cut-back rule for periods prior to the effective date of the relevant portion of the provision (or regulations) or the plan amendment. In order for an amendment to be retroactively effective and 

not violate the anti-cut-back rule, the plan amendment must apply 

retroactively for the period described in the preceding paragraph, 

and the plan must be operated in accordance with the amendment 

during that period. 

B. INCREASE IN PENALTY FOR FAILURE TO FILE (SEC. 402 OF THE

BILL AND SEC. 6651(a) OF THE CODE) 

PRESENT LAW

The Federal tax system is one of ‘‘self-assessment,’’ i.e., taxpayers 

are required to declare their income, expenses, and ultimate tax 

due, while the IRS has the ability to propose subsequent changes. 

This voluntary system requires that taxpayers comply with deadlines and adhere to the filing requirements. While taxpayers may 

obtain extensions of time in which to file their returns, the Federal 

tax system consists of specific due dates of returns. In order to foster compliance in meeting these deadlines, Congress has enacted a 

penalty for the failure to timely file tax returns.251

A taxpayer who fails to file a tax return on or before its due date 

is subject to a penalty equal to five percent of the net amount of 

tax due for each month that the return is not filed, up to a maximum of 25 percent of the net amount.252 If the failure to file a return is fraudulent, the taxpayer is subject to a penalty equal to 15 

percent of the net amount of tax due for each month the return is 

not filed, up to a maximum of 75 percent of the net amount.253 The 

net amount of tax due is the amount of tax required to be shown 

on the return reduced by the amount of any part of the tax that 

is paid on or before the date prescribed for payment of the tax and 

by the amount of any credits against tax that may be claimed on 

the return.254 The penalty will not apply if it is shown that the failure to file was due to reasonable cause and not willful neglect.255

If a return is filed more than 60 days after its due date, and unless it is shown that such failure is due to reasonable cause, then 

the failure to file penalty may not be less than the lesser of 

$205 256 or 100 percent of the amount required to be shown as tax 

on the return.257 If a penalty for failure to file and a penalty for 


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258Sec. 6651(c)(1). 259 Ibid. 260Sec. 6651(a)(1). 261Sec. 6651(e). 262Sec. 6058. 

failure to pay tax shown on a return both apply for the same 

month, the amount of the penalty for failure to file for such month 

is reduced by the amount of the penalty for failure to pay tax 

shown on a return.258 If a return is filed more than 60 days after 

its due date, then the penalty for failure to pay tax shown on a return may not reduce the penalty for failure to file below the lesser 

of $205 or 100 percent of the amount required to be shown on the 

return.259

The failure to file penalty applies to all returns required to be 

filed under subchapter A of Chapter 61 (relating to income tax returns of an individual, fiduciary of an estate or trust, or corporation; self-employment tax returns, and estate and gift tax returns), 

subchapter A of chapter 51 (relating to distilled spirits, wines, and 

beer), subchapter A of chapter 52 (relating to tobacco, cigars, cigarettes, and cigarette papers and tubes), and subchapter A of chapter 53 (relating to machine guns and certain other firearms).260

The failure to file penalty is adjusted annually to account for inflation. The failure to file penalty does not apply to any failure to pay 

estimated tax required to be paid by sections 6654 or 6655.261

REASONS FOR CHANGE

The Committee notes that the penalties for failing to file tax returns have not been increased in several years. The Committee believes that increasing the penalties will encourage the filing of 

timely and accurate returns which, in turn, will improve overall 

tax administration. 

EXPLANATION OF PROVISION

Under the provision, if a return is filed more than 60 days after 

its due date, then the failure to file penalty may not be less than 

the lesser of $400 (adjusted for inflation) or 100 percent of the 

amount required to be shown as tax on the return. 

EFFECTIVE DATE

The provision applies to returns with filing due dates (including 

extensions) after December 31, 2019. 

C. INCREASED PENALTIES FOR FAILURE TO FILE RETIREMENT PLAN

RETURNS (SEC. 403 OF THE BILL AND SEC. 6652(d), (e), AND (h) OF

THE CODE) 

PRESENT LAW

Form 5500 

An employer that maintains a pension, annuity, stock bonus, 

profit-sharing or other funded deferred compensation plan (or the 

plan administrator of the plan) is required to file an annual return 

containing information required under regulations with respect to 

the qualification, financial condition, and operation of the plan.262

The plan administrator of a defined benefit plan subject to the minVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00121 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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263Sec. 412. Most governmental plans (defined in section 414(d)) and church plans (defined 

in section 414(e)) are exempt from the minimum funding requirements. 264Sec. 6059. 265Treas. Reg. secs. 301.6058–1(a) and 301.6059–1. 266Sec. 6652(e). The failure to file penalties in section 6652 generally apply to certain information returns, including retirement plan returns. The failure to file penalties in section 

6651(a)(1), discussed above in section 502 of the bill, generally apply to income, estate, gift, employment and self-employment, and certain excise tax returns. 267Sec. 6057(a). Under section 6057(e) and ERISA section 105(c), similar information must be 

provided to the separated participant. 268Sec. 6652(d)(1). 269Sec. 6652(d)(2). 270Sec. 3405. 

imum funding requirements 263 is required to file an annual actuarial report.264 These filing requirements are met by filing an Annual Return/Report of Employee Benefit Plan, Form 5500 series, 

and providing the information as required on the form and related 

instructions.265 A failure to file Form 5500 generally results in a civil penalty of $25 for each day during which the failure continues, 

subject to a maximum penalty of $15,000.266 This penalty may be 

waived if it is shown that the failure is due to reasonable cause. 

Annual registration statement and notification of changes 

In the case of a plan subject to the vesting requirements under 

the Employee Retirement Income Security Act of 1974 (‘‘ERISA’’), 

the plan administrator is required to file a registration statement 

with the IRS with respect to any plan participant who (1) separated from service during the year and (2) has a vested benefit 

under the plan, but who was not paid the benefit during the year 

(a ‘‘deferred vested’’ benefit).267 The registration statement must 

include the name of the plan, the name and address of the plan administrator, the name and taxpayer identification number of the 

separated participant, and the nature, amount, and form of the 

participant’s deferred vested benefit. A failure to file a registration 

statement as required generally results in a civil penalty of $1 for 

each participant with respect to whom the failure applies, multiplied by the number of days during which the failure continues, 

subject to a maximum penalty of $5,000 for a failure with respect 

to any plan year.268 This penalty may be waived if it is shown that 

the failure is due to reasonable cause. 

A plan administrator is also required to notify the IRS if certain 

information in a registration changes, specifically, any change in 

the name of the plan or in the name or address of the plan administrator, the termination of the plan, or the merger or consolidation 

of the plan with any other plan or its division into two or more 

plans. A failure to file a required notification of change generally 

results in a penalty of $1 for each day during which the failure continues, subject to a maximum penalty of $1,000 for any failure.269

This penalty may be waived if it is shown that the failure is due 

to reasonable cause. 

Withholding notices 

Withholding requirements apply to distributions from tax-favored 

employer-sponsored retirement plans and IRAs, but, except in the 

case of certain distributions, payees may generally elect not to have 

withholding apply.270 A plan administrator or IRA custodian is required to provide payees with notices of the right to elect no withholding. A failure to provide a required notice generally results in 


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271Sec. 6652(h). 

a civil penalty of $10 for each failure, subject to a maximum penalty of $5,000 for all failures during any calendar year.271 This penalty may be waived if it is shown that the failure is due to reasonable cause and not to willful neglect. 

REASONS FOR CHANGE

The Committee notes that the penalties for failing to file certain 

retirement plan returns and statements or provide certain notices 

have not been increased in many years. The Committee believes 

the present law penalties are too low to discourage noncompliance. 

The Committee believes that increasing these penalties will encourage the filing of timely and accurate information returns and statements and the provision of required notices, which, in turn, will 

improve overall tax administration. 

EXPLANATION OF PROVISION

Form 5500 

Under the provision, a failure to file Form 5500 generally results 

in a penalty of $105 for each day during which the failure continues, subject to a maximum but the total amount imposed under 

this subsection on any person for failure to file any return shall not 

exceed $50,000. 

Annual registration statement and notification of changes 

Under the provision, a failure to file a registration statement as 

required generally results in a penalty of $2 for each participant 

with respect to whom the failure applies, multiplied by the number 

of days during which the failure continues, subject to a maximum 

penalty of $10,000 for a failure with respect to any plan year. A 

failure to file a required notification of change generally results in 

a penalty of $2 for each day during which the failure continues, 

subject to a maximum penalty of $5,000 for any failure. 

Withholding notices 

Under the provision, a failure to provide a required withholding 

notice generally results in a penalty of $100 for each failure, subject to a maximum penalty of $50,000 for all failures during any 

calendar year. 

EFFECTIVE DATE

The provision is effective for returns, statements and notifications required to be filed, and withholding notices required to be 

provided, after December 31, 2019. 

D. INCREASE INFORMATION SHARING TO ADMINISTER EXCISE TAXES

(SEC. 404 OF THE BILL AND SEC. 6103(O) OF THE CODE) 

PRESENT LAW

Generally, tax returns and return information (‘‘tax information’’) 

are confidential and may not be disclosed unless authorized in the 


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272Sec. 6103(a). 273Sec. 7431. 274Sec. 4481(a). 275Treas. Reg. 41.6001–3(a). 276Treas. Reg. 41.6001–3(b). 277The Homeland Security Act of 2002, Pub. L. No. 107–296 (‘‘Homeland Security Act’’), enacted November 25, 2002 established the U.S. Department of Homeland Security. Several agencies were combined under this new department. 

Code.272 Return information includes data received, collected or 

prepared by the Secretary with respect to the determination of the 

existence or possible existence of liability of any person under the 

Code for any tax, penalty, interest, fine, forfeiture, or other imposition or offense. Criminal penalties apply for the unauthorized inspection or disclosure of tax information. Willful unauthorized disclosure is a felony under section 7213 and the willful unauthorized 

inspection of tax information is a misdemeanor under section 

7213A. Taxpayers may also pursue a civil cause of action for disclosures and inspections not authorized by section 6103.273

Section 6103 provides exceptions to the general rule of confidentiality, detailing permissible disclosures. Under section 6103(h)(1), 

tax information is open to inspection by or disclosure to Treasury 

officers and employees whose official duties require the inspection 

or disclosure for tax administration purposes. 

The heavy vehicle use tax, an annual highway use tax, is imposed on the use of any highway motor vehicle that has a gross 

weight of 55,000 pounds or more.274 Proof of payment of the heavy 

vehicle use tax must be presented to customs officials upon entry 

into the United States of any highway motor vehicle subject to the 

tax and that has a base in a contiguous foreign country.275 If the 

operator of the vehicle is unable to present proof of payment of the 

tax with respect to the vehicle, entry into the United States may 

be denied.276

Prior to 2003, customs officials who had responsibility for enforcing and/or collecting excise taxes were employees of the U.S. Department of the Treasury (‘‘Treasury’’). Thus, prior to 2003, section 

6103(h)(1) allowed disclosure of tax information by the IRS to these 

customs officials in the performance of their duties. In 2003, U.S. 

Customs and Border Protection became an official agency of the 

U.S. Department of Homeland Security.277 At that time, customs 

officials were transferred from Treasury to the Department of 

Homeland Security. 

REASONS FOR CHANGE

Allowing limited disclosures of tax information will facilitate tax 

administration and improve compliance with the heavy vehicle use 

tax by allowing customs officials to confirm payment or nonpayment of the tax. 

EXPLANATION OF PROVISION

The provision allows the IRS to share returns and return information with employees of U.S. Customs and Border Protection 

whose official duties require such inspection or disclosure for purposes of administering and collecting the heavy vehicle use tax. 

EFFECTIVE DATE

The provision is effective on date of enactment. 


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III. VOTES OF THE COMMITTEE 

In compliance with clause 3(b) of rule XIII of the Rules of the 

House of Representatives, the following statement is made concerning the vote of the Committee on Ways and Means in its consideration of H.R. 1994, ‘‘Setting Every Community Up for Retirement Enhancement Act of 2019’’ on April 2, 2019. 

The Chairman’s amendment in the nature of a substitute was 

adopted by voice vote (with a quorum being present). 

The bill, H.R. 1994, was ordered favorably reported to the House 

of Representatives as amended by voice vote (with a quorum being 

present). 

IV. BUDGET EFFECTS OF THE BILL 

A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS

In compliance with clause 3(d) of rule XIII of the Rules of the 

House of Representatives, the following statement is made concerning the effects on the budget of the bill, H.R. 1994, as reported. 

The bill, as reported, is estimated to increase Federal fiscal year 

budget receipts by $9 million dollars for the period 2019 through 

2029. 


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ESTIMATED BUDGET EFFECTS OF H.R. 1994, THE ‘‘SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT (‘SECURE’) ACT OF 2019,’’ AS REPORTED BY THE 

COMMITTEE ON WAYS AND MEANS 

Fiscal Years 2019–2029—(Millions of Dollars) 

Provision Effective 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2019–24 2019–29 

I. Expanding and Preserving Retirement 

Savings 

A. Multiple Employer Plans and 

Pooled Employer Plans; Report [1].

pyba 12/31/20 – – – ¥29 ¥74 ¥161 ¥251 ¥342 ¥437 ¥511 ¥523 ¥541 ¥553 ¥857 ¥3,421 

B. Increase in 10-Percent Cap for 

Automatic enrollment Safe Harbor After First Plan year.

pyba 12/31/19 Negligible Revenue Effect 

C. Rules Relating to Election of 

Safe Harbor 401(k) Status.

pyba 12/31/19 Negligible Revenue Effect 

D. Increase in Credit Limitation for 

Small Employer Plan Start-Up Costs.

tyba 12/31/19 – – – ¥1 ¥3 ¥3 ¥3 ¥3 ¥3 ¥3 ¥3 ¥3 ¥3 ¥13 ¥29 

E. Small Employer Automatic Enrollment Credit. tyba 12/31/19 – – – [2] [2] [2] ¥1 ¥1 ¥1 ¥1 ¥1 ¥1 ¥1 ¥2 ¥5 

F. Certain Taxable Non-tuition Fellowship and Stipend Payments 

Treated as Compensation for IRA Purpose.

tyba 12/31/19 – – – [2] [2] [2] [2] [2] [2] [2] ¥1 ¥1 ¥1 ¥1 ¥3 

G. Repeal Maximum Age for Traditional IRA Contributions. cmf tybe 12/31/19. – – – ¥3 ¥5 ¥6 ¥7 ¥8 ¥9 ¥10 ¥11 ¥12 ¥12 ¥29 ¥83 

H. Qualified Employer Plans Prohibited from Making Loans 

Through Credit Cards and Other Similar Arrangements.

ima DOE .......... Negligible Revenue Effect 

I. Portability of Lifetime Income 

Options.

pyba 12/31/19 Negligible Revenue Effect 

J. Treatment of Custodial Accounts 

on Termination of Section 403(b) Plans.

[3] ................... Negligible Revenue Effect 

K. Clarification of Retirement Income Account Rules Relating to 

Church-Controlled Organizations.

ybbo/a DOE ..... Negligible Revenue Effect 


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L. Qualified Cash or Deferred Arrangements Must Allow 

Long-Term Employees Working More Than 500 but Less Than 1,000 Hours Per Year to Participate [4].

[5] ................... – – – ¥30 ¥44 ¥51 ¥57 ¥64 ¥73 ¥92 ¥110 ¥119 ¥129 ¥246 ¥769 

M. Penalty-Free Withdrawal and 

Recontribution from Retirement Plans for Birth of Child or Adoption (distributions limited to $5,000 per individual) [6].

dma 12/31/19 – – – ¥8 ¥23 ¥44 ¥69 ¥100 ¥134 ¥181 ¥193 ¥204 ¥215 ¥244 ¥1,171 

N. Increase Age of Required Beginning Date for Required Minimum Distributions to 72. [7] ................... – – – ¥737 ¥869 ¥885 ¥902 ¥877 ¥866 ¥953 ¥944 ¥903 ¥923 ¥4,269 ¥8,859 

O. Special Rules for Minimum 

Funding Standards for Community Newspaper Plans [8][9].

pyea 12/31/17 – – – – – – – – – [10] [10] [10] 1 2 2 2 2 [10] 9 

P. Treating Excluded Difficulty of 

Care Payments as Compensation for Determining Retirement Contribution Limitations.

pyba 12/21/15 

& Ica DOE.

– – – ¥10 ¥7 ¥10 ¥15 ¥20 ¥25 ¥31 ¥37 ¥43 ¥51 ¥62 ¥249 

Total of Expanding and Preserving 

Retirement Savings.

......................... [11] ¥818 ¥1,025 ¥1,160 ¥1,305 ¥1,415 ¥1,547 ¥1,780 ¥1,821 ¥1,825 ¥1,886 ¥5,723 ¥14,580 

II. Administrative Improvements 

A. Plan Adopted by Filing Due 

Date for Year May Be Treated as in Effect as of Close of Year.

paf tyba 

12/31/19.

– – – – – – ¥9 ¥10 ¥11 ¥12 ¥13 ¥14 ¥15 ¥15 ¥16 ¥41 ¥113 

B. Combined Annual Report for 

Group of Plans.

rrtbfwrt pyba 

12/31/19 & ararf pyba 12/31/21.

Negligible Revenue Effect 

C. Disclosure Regarding Lifetime 

Income [12].

[13] ................. No Budget Effect 

D. Fiduciary Safe Harbor for Selection of Lifetime Income Provider 

[12].

DOE ................. No Budget Effect 

E. Modification of Nondiscrimination Rules to Protect Older, 

Longer Service Participation.

DOE ................. Negligible Revenue Effect 


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ESTIMATED BUDGET EFFECTS OF H.R. 1994, THE ‘‘SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT (‘SECURE’) ACT OF 2019,’’ AS REPORTED BY THE 

COMMITTEE ON WAYS AND MEANS—Continued 

Fiscal Years 2019–2029—(Millions of Dollars) 

Provision Effective 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2019–24 2019–29 

F. Modification of PBGC Premiums 

for Cooperative and Small Employer Charity (‘‘CSEC’’) Plans [8][12].

[14] ................. – – – ¥110 ¥114 ¥119 ¥124 ¥129 ¥134 ¥138 ¥144 ¥150 ¥156 ¥596 ¥1,318 

Total of Administrative Improvements. ......................... [11] ¥110 ¥123 ¥129 ¥135 ¥141 ¥147 ¥152 ¥159 ¥165 ¥172 ¥637 ¥1,431 

III. Other Benefits 

A. Benefits for Volunteer Firefighters and Emergency Medical 

Responders (sunset 12/31/20) [15].

tyba 12/31/19 – – – ¥24 ¥8 – – – – – – – – – – – – – – – – – – – – – – – – ¥32 ¥32 

B. Expansion of Section 529 plans dma 12/31/18 – – – ¥5 ¥22 ¥25 ¥26 ¥26 ¥27 ¥27 ¥28 ¥29 ¥30 ¥104 ¥245 

Total of Other Benefits ............. ......................... – – – ¥29 ¥30 ¥25 ¥26 ¥26 ¥27 ¥27 ¥28 ¥29 ¥30 ¥136 ¥277 

IV. Revenue Provisions 

A. Modification of Required Distribution Rules for Designated 

Beneficiaries.

[16] ................. – – – 212 643 1,026 1,295 1,508 1,704 2,024 2,326 2,458 2,552 4,685 15,749 

B. Increase in Penalty for Failure 

to File.

rwfddiea 

12/31/19.

– – – 6 25 25 26 27 28 29 30 30 31 109 257 

C. Increased Penalties for Failure 

to File Retirement Plan Returns.

[17] ................. – – – [10] 7 14 14 15 15 15 16 16 16 50 128 

D. Increase Information Sharing to 

Administer Excise Taxes.

DOE ................. 1 4 9 14 16 17 19 20 21 21 21 62 163 

Total of Revenue Provisions ...... ......................... 1 222 684 1,079 1,351 1,567 1,766 2,088 2,393 2,525 2,620 4,906 16,297 

NET TOTAL ............................. ......................... 1 ¥735 ¥494 ¥235 ¥115 ¥15 45 129 385 506 532 ¥1,590 9 

Joint Committee on Taxation NOTE: Details may not add to totals due to rounding. Legend for ‘‘Effective’’ column: ararf = annual returns and reports for, cmf = contributions made for, DOE = date of enactment, dma = distributions made after, Ica = IRA contributions after, lma = loans made after, paf = plans adopted for, pyba = plan years beginning after, pyea = plan years ending after, rrtbfwrt = returns required to be filed with respect to, rwfddiea = returns with filing due dates (including extensions) after, tyba = taxable years beginning after, 

ybbo/a = years beginning before, on, or after. 


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Footnotes for the Table: 1 Estimate includes the following budget effects: ...... 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2019–24 2019–29 

Total Revenue Effect .... – – – ¥29 ¥74 ¥161 ¥251 ¥342 ¥437 ¥511 ¥523 ¥541 ¥553 ¥857 ¥3,421 

On-budget effects – – – ¥26 ¥68 ¥148 ¥230 ¥315 ¥402 ¥469 ¥480 ¥497 ¥510 ¥787 ¥3,145 

Off-budget effects 18 ¥2 ¥6 ¥13 ¥20 ¥28 ¥35 ¥42 ¥42 ¥43 ¥43 ¥70 ¥276 2 Loss of less than $500,000. 

3 Effective for date of enactment. Guidance must 

apply for taxable years beginning after December 31, 2008. 4 Estimate includes the following budget effects: 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2019–24 2019–29 

Total Revenue Effect .... – – – ¥30 ¥44 ¥51 ¥57 ¥64 ¥73 ¥92 ¥110 ¥119 ¥129 ¥246 ¥769 

On-budget effects – – – ¥27 ¥40 ¥46 ¥52 ¥59 ¥66 ¥84 ¥99 ¥108 ¥117 ¥224 ¥698 

Off-budget effects – – – ¥3 ¥4 ¥5 ¥5 ¥6 ¥7 ¥8 ¥11 ¥11 ¥12 ¥22 ¥71 5 Generally effective for plan 

years beginning after December 31, 2020, except that for purposes of section 401(k)(2)(D)(ii), 12- month periods beginning before January 1, 2021 shall not be taken into account. 6 Estimate includes the following budget effects: ...... 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2019–24 2019–29 

Total Revenue Effect .... – – – ¥8 ¥23 ¥44 ¥69 ¥100 ¥134 ¥181 ¥193 ¥204 ¥215 ¥244 ¥1,171 

On-budget effects – – – ¥8 ¥23 ¥42 ¥66 ¥96 ¥129 ¥174 ¥186 ¥197 ¥207 ¥234 ¥1,127 

Off-budget effects – – – – – – ¥1 ¥2 ¥3 ¥4 ¥5 ¥7 ¥7 ¥7 ¥8 ¥10 ¥44 


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7 Effective for distributions 

required to be made after December 31, 2019, for employee and IRA owners who attain age 701

⁄2 after 

December 31, 2019. 8 Estimate includes the following outlay effects: ....... 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2019–24 2019–29 

Modification of PBGC 

Premiums for Cooperative and Small Employer Charity (‘‘CSEC’’) Plans 12. .. – – – 110 114 119 124 129 134 138 144 150 156 596 1,318 

Special rules for minimum funding standards for community 

newspaper plans 9 ... – – – – – – – – – (19) (19) (19) (19) 1 1 1 1 (19) 4 


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9 Estimate provided by the 

Joint Committee on Taxation and the Congressional Budget Office. 

10 Gain of less than 

$500,000. 

11 Negligible revenue effect. 12 Estimate provided by the 

Congressional Budget Office. 

13 Effective with respect to 

benefit statements provided more than 12 months after the latest of the issuance by the Secretary of Labor of (1) interim final rules, (2) the model disclosure, or (3) prescribed assumptions. 

14 Effective upon enactment, 

applies for plan years beginning after December 31, 2018. 

15 Estimate includes the following budget effects: ...... 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2019–24 2019–29 

Total Revenue Effect .... – – – ¥24 ¥8 – – – – – – – – – – – – – – – – – – – – – – – – ¥32 ¥32 

On-budget effects ........ – – – ¥15 ¥5 – – – – – – – – – – – – – – – – – – – – – – – – ¥20 ¥20 

Off-budget effects ........ – – – ¥9 ¥3 – – – – – – – – – – – – – – – – – – – – – – – – ¥12 ¥12 


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16 Generally effective for distributions with respect to 

employees who die after December 31, 2019; require distributions to be distributed within 10 years. 

17 Effective for returns, statements and notifications 

required to be filed, and withholding notices required to be provided, after December 31, 2019. 

18 Decrease in outlays of less 

than $500,000. 

19 Increase in outlays of less 

than $500,000. 


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B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX

EXPENDITURES BUDGET AUTHORITY

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee states that the bill involves no new or increased budget authority. The Committee further states that no revenue-reducing tax provision involves a new 

tax expenditure. 

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET

OFFICE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the 

House of Representatives, requiring a cost estimate prepared by 

the CBO, the following statement by CBO is provided. 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, April 5, 2019. 

Hon. RICHARD NEAL, 

Chairman, Committee on Ways and Means, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1994, the Setting Every 

Community Up for Retirement Enhancement Act of 2019. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Kathleen Burke. 

Sincerely, 

KEITH HALL, Director. 

Enclosure. 


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1For JCT’s estimates of the provisions that include detail beyond the summary presented 

below, see Joint Committee on Taxation, Estimated Revenue Effects of the Chairman’s Amendment in the Nature of a Substitute to the ‘‘Setting Every Community Up For Retirement Enhancement (Secure) Act of 2019,’’ JCX–14–19 (April 1, 2019), https://go.usa.gov/xmxmH. 

The bill would: 

• Modify the required distribution rules for beneficiaries of 

tax-favored employer-sponsored retirement plans or traditional 

individual retirement arrangements after the death of the employee or account-holder, generally requiring full distribution 

of those plans within 10 years. 

• Increase to 72 the age after which required minimum distributions from certain retirement accounts must begin. 

• Modify requirements for multiple-employer and pooled-employer pension plans to make it easier for businesses to maintain such plans. 

• Reduce Pension Benefit Guaranty Corporation premiums 

for certain multiple-employer plans of cooperatives or charities. 

• Allow penalty-free distributions from qualified retirement 

plans for births and adoptions. 

• Make it easier for long-term, part-time employees to participate in elective deferrals. 

• Increase penalties for failing to file individual and retirement plan returns. 

• Require administrators of pension and benefit plans to disclose the plan’s lifetime income stream to beneficiaries. 

The Congressional Budget Act of 1974, as amended, stipulates 

that revenue estimates provided by the staff of the Joint Committee on Taxation (JCT) are the official estimates for all tax legislation considered by the Congress. CBO therefore incorporates such 

estimates into its cost estimates of the effects of legislation. Most 

of the estimates for the provisions of H.R. 1994 were provided by 

JCT. 

Bill summary: H.R. 1994 would amend the tax code to modify requirements for tax-favored savings accounts and employer-provided 

retirement plans. The most significant provisions include changes 

to the rules governing multiple-employer and pooled-employer retirement plans; an increase in the age at which distributions must 

be taken from defined contribution retirement plans or traditional 

individual retirement arrangements (IRAs); and, after the death of 

an employee with a defined contribution retirement plan or traditional IRA account, establishing a 10-year timetable for full distribution of the plan or account to beneficiaries. 

Estimated Federal cost: The estimated budgetary effects of H.R. 

1994 are shown in Table 1. The costs of the bill fall within budget 

function 600. 

Basis of estimate: The Congressional Budget Act of 1974, as 

amended, stipulates that revenue estimates provided by the staff 

of the Joint Committee on Taxation (JCT) will be the official estimates for all tax legislation considered by the Congress. CBO 

therefore incorporates those estimates into its cost estimates of the 

effects of legislation. Most of the estimates for the provisions of 

H.R. 1994 were provided by JCT.1


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TABLE 1—ESTIMATED BUDGETARY EFFECTS OF H.R. 1994 

By fiscal year, millions of dollars— 

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2019–2024 2019–2029 

Increases or Decreases (¥) in Revenues 

Title I. Expanding and Preserving Retirement Savings ............ 0 ¥818 ¥1,025 ¥1,160 ¥1,305 ¥1,415 ¥1,547 ¥1,781 ¥1,822 ¥1,826 ¥1,887 ¥5,723 ¥14,584 

Title II. Administrative Improvements ....................................... 0 0 ¥9 ¥10 ¥11 ¥12 ¥13 ¥14 ¥15 ¥15 ¥16 ¥41 ¥113 

Title III. Other Benefits .............................................................. 0 ¥29 ¥30 ¥25 ¥26 ¥26 ¥27 ¥27 ¥28 ¥29 ¥30 ¥136 ¥277 

Title IV. Revenue Provisions ...................................................... 1 222 684 1,079 1,351 1,567 1,766 2,088 2,393 2,525 2,620 4,906 16,297 

Total Revenues ................................................................. 1 ¥625 ¥380 ¥116 9 114 179 266 528 655 687 ¥994 1,323 

On-Budget ................................................................ 1 ¥611 ¥366 ¥96 37 152 226 323 588 716 750 ¥880 1,726 

Off-Budgeta .............................................................. 0 ¥14 ¥14 ¥20 ¥28 ¥38 ¥47 ¥57 ¥60 ¥61 ¥63 ¥114 ¥403 

Increases or Decreases (¥) in Direct Spending 

Title I. Expanding and Preserving Retirement Savings 

Estimated Budget Authority ............................................. 0 0 0 * * * * ¥1 ¥1 ¥1 ¥1 * ¥4 

Estimated Outlays ............................................................ 0 0 0 * * * * ¥1 ¥1 ¥1 ¥1 * ¥4 

Title II. Administrative Improvements 

Estimated Budget Authority ............................................. 0 110 114 119 124 129 134 138 144 150 156 596 1,318 Estimated Outlays ............................................................ 0 110 114 119 124 129 134 138 144 150 156 596 1,318 

Total Direct Spending 

Estimated Budget Authority ............................................. 0 110 114 119 124 129 134 137 143 149 155 596 1,314 Estimated Outlays ............................................................ 0 110 114 119 124 129 134 137 143 149 155 596 1,314 

Net Increase or Decrease (¥) in the Deficit From Changes in Direct Spending and Revenues 

Effect on the Deficit .................................................................. ¥1 735 494 235 115 15 ¥45 ¥129 ¥385 ¥506 ¥532 1,590 ¥9 

On-Budget Deficit ............................................................. ¥1 721 480 215 87 ¥23 ¥92 ¥186 ¥445 ¥567 ¥595 1,476 ¥412 

Off-Budget Deficit ............................................................ 0 14 14 20 28 38 47 57 60 61 63 114 403 

Sources: Congressional Budget Office; staff of the Joint Committee on Taxation. Components may not sum to totals because of rounding; * = between ¥$500,000 and $500,000. a Off-budget revenues result from changes in Social Security payroll tax receipts. 


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Revenues 

Title I. Expanding and Preserving Retirement Savings. H.R. 

1994 would change tax law relating to the treatment of retirement 

plans that JCT estimates would reduce revenues by $14.6 billion 

over the 2019 to 2029 period. Three provisions in this section would 

affect off-budget revenues, reducing them by $391 million, JCT estimates. The provisions in title I with the largest effects are: 

• Increase the age after which required minimum distributions must begin. After reaching the age of 70 years and 6 

months, a person with a defined contribution retirement plan 

or traditional IRA must begin withdrawing a given amount 

each year—the required minimum distribution. H.R. 1994 

would increase the age that triggers required minimum distributions to 72 and would apply to employees and IRA account 

holders who reach 70 years and 6 months after December 31, 

2019. JCT estimates that the change would reduce revenues by 

$8.9 billion over the 2019–2029 period. 

• Modify requirements for multiple-employer and pooled-employer plans. Under current law, employers may join together 

to maintain a qualified retirement plan if they share a nexus 

(for example, a common industry) outside of the retirement 

benefit they jointly provide. Additionally, if one participating 

employer in a multiple-employer plan violates a requirement, 

under the ‘‘bad apple rule,’’ the entire plan can be disqualified. 

H.R. 1994 would allow multiple employers without a nexus to 

jointly maintain a qualified retirement plan, a pooled-employer 

plan, and allow multiple-employer and pooled-employer plans 

to maintain their qualified status as a whole if one employer 

in the group failed to satisfy qualification requirements. This 

provision would take effect in calendar year 2021. JCT estimates that the change would reduce revenues by $3.4 billion 

over the 2019–2029 period. 

• Allow penalty-free retirement distributions for births and 

adoptions. Distributions from qualified retirement plans before 

the age of 59 years and 6 months generally face a 10 percent 

early-withdrawal tax. H.R. 1994 would exempt distributions of 

up to $5,000 from the 10 percent penalty in the case of a birth 

or adoption, starting with distributions made in calendar year 

2020. JCT estimates that the change would reduce revenues by 

$1.2 billion over the 2019–2029 period. 

• Allow long-term, part-time employees to participate in 

elective deferrals. A section 401(k) retirement plan may require that employees reach 1,000 hours of service in a 12- 

month period before they are allowed to participate. H.R. 1994 

would change that requirement to allow employees who have 

worked for the employer at least 500 hours per year for at 

least three consecutive years to contribute to those plans. It 

does not require those employees to be eligible for nonelective 

or matching contributions. This provision would take effect in 

calendar year 2021, although for determining whether the 

three-consecutive-year period has been met, employment before 

January 1, 2021, would not be taken into account. JCT estimates that the change would reduce revenues by $769 million 

over the 2019–2029 period. 


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• Treat excluded difficulty-of-care payments as compensation 

for determining retirement contribution limitations. A difficulty-of-care payment is compensation for providing additional care to a qualified foster individual. Those payments are 

excluded from gross income, and thus are not considered compensation upon which contributions to defined contribution 

plans or IRAs can be made. H.R. 1994 would treat those payments as compensation for the purpose of calculating contribution limits to defined contribution plans and IRAs, effective for 

contributions after December 31, 2015. JCT estimates that the 

change would reduce revenues by $249 million over the 2019– 

2029 period. 

Title II. Administrative Improvements. H.R. 1994 would make 

several administrative changes affecting revenues, including permitting businesses that adopt a retirement plan before the due 

date of their tax return to treat the plan as adopted by the last day 

of the tax year. JCT estimates that the provisions would reduce 

revenues by $113 million over the 2019–2029 period. 

H.R. 1994 also would make several administrative changes that 

have either no budgetary effects or negligible revenue effects. 

Those changes include a requirement that the annual benefit statements of defined contribution plans include a lifetime income disclosure, a calculation of the monthly income a participant’s retirement savings could provide. That provision would take effect 12 

months after the Secretary of Labor issued rules on calculating the 

lifetime income stream. 

Title III. Other Benefits. H.R. 1994 would expand allowable uses 

of college savings plans authorized under section 529 of the Internal Revenue Code for distributions made after December 31, 2018. 

It also would allow a partial exclusion from gross income of state 

and local tax reductions received by volunteer firefighters and 

emergency medical responders for taxable years beginning in 2020, 

which would reduce off-budget revenue by $12 million. In total, 

JCT estimates, those provisions would reduce revenues by $277 

million over the 2019–2029 period. 

Title IV. Revenue Provisions. H.R. 1994 includes several provisions that JCT estimates would increase revenue by $16.3 billion 

over the 2019–2029 period. Those provisions would: 

• Modify the required-distribution rules for designated beneficiaries. If a person with a defined contribution retirement 

plan or traditional IRA dies, the beneficiary of that plan or account must comply with after-death minimum distribution requirements. The period over which a full distribution of the 

plan must be made varies on the basis of the age of the deceased and certain characteristics of the beneficiary. H.R. 1994 

would make full distribution within 10 calendar years of the 

death of the plan holder the general rule, with exceptions for 

surviving spouses and disabled or child beneficiaries. That 

would apply to employees and IRA account-holders who die 

after December 31, 2019. JCT estimates that change would increase revenues by $15.7 billion over the 2019–2029 period. 

• Increase the penalty for failure to file individual and retirement plan returns. The penalty for failing to file an individual return is the lesser of a flat dollar amount or 100 percent of the unpaid tax. H.R. 1994 would increase the flat dollar 


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amount from $205 to $400. Employers maintaining qualified 

retirement plans must file annual actuarial reports with the 

Department of Labor, file annual registration statements with 

the Internal Revenue Service (IRS), and send annual notices to 

plan participants stating the right to waive withholding. Penalties for failing to file or provide notice are calculated as a dollar amount per failure, up to a maximum amount. H.R. 1994 

would increase both the per-failure penalty and the maximum 

penalty. Those increased penalties would apply to returns filed 

after December 31, 2019. JCT estimates that those provisions 

would increase revenues by $385 million over the 2019–2029 

period. 

• Increase information sharing to administer excise taxes. 

H.R. 1994 would allow the IRS to share returns and return information with employees of U.S. Customs and Border Protection, which administers the heavy-vehicle use tax. This provision would be effective on the date of enactment, and JCT estimates that it would increase revenues by $163 million over the 

2019–2029 period. 

Direct spending 

Title II of H.R. 1994 would reduce Pension Benefit Guaranty 

Corporation (PBGC) premiums for certain multiple-employer plans 

of cooperatives or charities. Those premiums are classified as offsetting receipts, so CBO estimates that implementing that provision would increase direct spending by $1.3 billion over the 2019– 

2029 period. 

Title I would allow the single-employer pension plans of some 

community newspapers to reduce contributions. That would increase taxable corporate income, thereby increasing federal revenues by $5 million over the 2019–2029 period. Underfunded singleemployer pensions are required to pay variable-rate premiums to 

PBGC. With lower funding, the affected plans would pay more in 

variable-rate premiums, which are classified as offsetting receipts. 

As a result, direct spending would decrease by $4 million over the 

same period. 

Uncertainty 

These budgetary estimates are uncertain because they rely on 

underlying projections and other estimates that are uncertain. Specifically, estimates for many of the provisions in this bill rely on 

projections of retirement plan contributions and participation, 

which are based on CBO’s economic projections for the next decade 

under current law and on estimates of the way taxpayers would 

change their saving behavior in response to changes in retirement 

plan rules. 

Pay-As-You-Go considerations: The Statutory Pay-As-You-Go Act 

of 2010 establishes budget-reporting and enforcement procedures 

for legislation affecting direct spending or revenues. The net 

changes in outlays and revenues that are subject to those pay-asyou-go procedures are shown in Table 2. Only on-budget changes 

to outlays or revenues are subject to pay-as-you-go procedures. 


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TABLE 2—CBO’S ESTIMATE OF PAY-AS-YOU-GO EFFECTS UNDER H.R. 1994 

By fiscal year, millions of dollars— 

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2019– 

2024 

2019– 

2029 

Net Increase or Decrease (¥) in the On-Budget Deficit 

Statutory PayAs-You-Go 

Effect ........ ¥1 721 480 215 87 ¥23 ¥92 ¥186 ¥445 ¥567 ¥595 1,476 ¥412 

Memorandum: 

Changes 

in 

Outlays .. 0 110 114 119 124 129 134 137 143 149 155 596 1,314 

Changes 

in 

Revenues 1 ¥611 ¥366 ¥96 37 152 226 323 588 716 750 ¥880 1,726 

Increase in long-term deficits: CBO and JCT estimate that enacting H.R. 1994 would not increase on-budget deficits by more than 

$5 billion in any of the four consecutive 10-year periods beginning 

in 2030. 

Mandates: CBO and JCT have determined that H.R. 1994 would 

impose no intergovernmental mandates as defined in the Unfunded 

Mandates Reform Act (UMRA). 

CBO and JCT have determined that H.R. 1994 would impose two 

private-sector mandates as defined in UMRA. On the basis of information from JCT, CBO estimates that the aggregate direct cost of 

the mandates imposed by H.R. 1994 would exceed the annual private-sector threshold established in UMRA ($164 million in 2019, 

adjusted annually for inflation). 

Specifically, the tax provisions of the bill impose a private-sector 

mandate by modifying the rules that require distribution of retirement plan assets to surviving beneficiaries upon the death of the 

plan holder. 

The nontax provisions of the bill would require administrators of 

pension and benefit plans to disclose the plan’s lifetime income 

stream, as defined by the bill, in statements provided to beneficiaries. Because the mandate imposes a minor administrative burden, CBO estimates that the cost to comply would be small. 

Estimate prepared by: Federal Revenues: Staff of the Joint Committee on Taxation and Kathleen Burke; Federal Costs: Noah 

Meyerson; Mandates: Staff of the Joint Committee on Taxation and 

Andrew Laughlin. 

Estimate reviewed by: Joshua Shakin, Chief, Revenue Estimating Unit; Sheila Dacey, Chief, Income Security and Education 

Cost Estimates Unit; Susan Willie, Chief, Mandates Unit; H. Samuel Papenfuss, Deputy Assistant Director for Budget Analysis; 

John McClelland, Assistant Director for Tax Analysis. 

V. OTHER MATTERS TO BE DISCUSSED UNDER THE 

RULES OF THE HOUSE 

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee advises that the findings and 


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recommendations of the Committee, based on oversight activities 

under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated into the description portions of this 

report. 

B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

With respect to clause 3(c)(4) of rule XIII of the Rules of the 

House of Representatives, the Committee advises that the bill contains no measure that authorizes funding, so no statement of general performance goals and objectives for which any measure authorizes funding is required. 

C. INFORMATION RELATING TO UNFUNDED MANDATES

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104–4). 

The Committee has determined that the bill does not contain 

Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental 

mandate on State, local, or tribal governments. 

D. APPLICABILITY OF HOUSE RULE XXI 5(b)

Clause 5(b) of rule XXI of the Rules of the House of Representatives provides, in part, that ‘‘It shall not be in order to consider a 

bill, joint resolution, amendment, or conference report carrying a 

retroactive Federal income tax rate increase.’’ The Committee has 

carefully reviewed the bill and states that the bill does not involve 

any retroactive Federal income tax rate increases within the meaning of the rule. 

E. TAX COMPLEXITY ANALYSIS

Section 4022(b) of the Internal Revenue Service Restructuring 

and Reform Act of 1998 requires the staff of the Joint Committee 

on Taxation (in consultation with the Internal Revenue Service and 

the Treasury Department) to provide a tax complexity analysis. 

The complexity analysis is required for all legislation reported by 

the Senate Committee on Finance, the House Committee on Ways 

and Means, or any committee of conference if the legislation includes a provision that directly or indirectly amends the Internal 

Revenue Code of 1986 and has widespread applicability to individuals or small businesses. 

Pursuant to clause 3(h)(1) of rule XIII of the Rules of the House 

of Representatives, for each such provision identified by the staff 

of the Joint Committee on Taxation, a summary description of the 

provision is provided below along with an estimate of the number 

and type of affected taxpayers, and a discussion regarding the relevant complexity and administrative issues. 

Following the analysis of the staff of the Joint Committee on 

Taxation are the comments of the IRS and Treasury regarding each 

provision included in the complexity analysis. 


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Repeal of maximum age for traditional IRA contributions (sec. 107 

of the bill) 

Summary description of the provision 

The provision repeals the prohibition on contributions to a traditional IRA by an individual who has attained age 701⁄2. 

Number of affected taxpayers 

It is estimated that the provision will affect over 10 percent of 

taxpayers during the budget window. 

Discussion 

The provision may contribute to tax complexity by adding an additional tax-advantaged savings option for the impacted taxpayers 

who are still employees. Such taxpayers may be unsure whether 

they can continue to contribute to their employer plan and also 

contribute to a traditional IRA, and require communications and 

education on how the limits interact. Similarly, taxpayers who are 

self-employed and currently contributing to a Roth IRA would need 

to consider whether they should continue to contribute to the Roth 

IRA or instead a traditional IRA. Additionally, affected taxpayers 

may be unsure how the required minimum distribution rules interact with their ability to contribute to employer plans versus IRAs, 

including the interaction with section 114 of the bill (discussed 

below) which delays the age for required minimum distributions to 

age 72 for those taxpayers who attain age 701⁄2 after December 31, 

2019. The various rules that result in these items of complexity 

may cause taxpayers to seek professional tax advice, potentially 

raising the cost of tax compliance to individual taxpayers. 

The provision will require the IRS to create new forms and publications regarding this change. Additionally, both taxpayers and the 

IRS will need to monitor contributions, so as to ensure that taxpayer contributions do not exceed the limits that apply between 

IRA types and between IRAs and employer qualified plans. Disputes between taxpayers and the IRS may increase in the case of 

discrepancies between these records. 

Penalty-Free Withdrawals from Retirement Plans for Individuals in 

Case of Birth of Child or Adoption (sec. 113 of the bill) 

Summary description of the provision 

Distributions from applicable eligible retirement plans 

A qualified birth or adoption distribution is a permissible distribution from an applicable eligible retirement plan which, for this 

purpose, encompasses eligible retirement plans other than defined 

benefit plans, including qualified retirement plans, section 403(b) 

plans, governmental section 457(b) plans, and IRAs. 

A qualified birth or adoption distribution is a distribution from 

an applicable eligible retirement plan to an individual if made during the one-year period beginning on the date on which a child of 

the individual is born or on which the legal adoption by the individual of an eligible adoptee is finalized. An eligible adoptee means 

any individual (other than a child of the taxpayer’s spouse) who 

has not attained age 18 or is physically or mentally incapable of 

self-support. The proposal requires the name, age, and taxpayer 


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identification number of the child or eligible adoptee to which any 

qualified birth or adoption distribution relates to be provided on 

the tax return of the individual taxpayer for the taxable year. 

The maximum aggregate amount that may be treated as qualified birth or adoption distributions by any individual with respect 

to a birth or adoption is $5,000 (not indexed for inflation). The 

maximum aggregate amount applies on an individual basis. Therefore, each spouse separately may receive a maximum aggregate 

amount of $5,000 of qualified birth or adoption distributions (with 

respect to a birth or adoption) from applicable eligible retirement 

plans in which each spouse participates or holds accounts. 

An employer plan is not treated as violating any Code requirement merely because it treats a distribution (that would otherwise 

be a qualified birth or adoption distribution) to an individual as a 

qualified birth or adoption distribution, provided the aggregate 

amount of such distributions to that individual from plans maintained by the employer and members of the employer’s controlled 

group does not exceed $5,000. 

Recontributions to applicable eligible retirement plans 

Generally, any portion of a qualified birth or adoption distribution may, at any time after the date on which the distribution was 

received, be recontributed to an applicable eligible retirement plan 

to which a rollover can be made. Such a recontribution is treated 

as a rollover and thus is not includible in income. If an employer 

adds the ability for plan participants to receive qualified birth or 

adoption distributions from a plan, the plan must permit an employee who has received qualified birth or adoption distributions 

from that plan to recontribute only up to the amount that was distributed from that plan to that employee, provided the employee 

otherwise is eligible to make contributions (other than recontributions of qualified birth or adoption distributions) to that plan. Any 

portion of a qualified birth or adoption distribution from an individual’s applicable eligible retirement plans (whether employer plans 

or IRAs) may be recontributed to an IRA held by such an individual that is an applicable eligible retirement plan to which a rollover can be made. 

Number of affected taxpayers 

It is estimated that the provision will affect over 10 percent of 

taxpayers during the budget window and will continue to increase 

over time. 

Discussion 

The provision creates complexity for IRAs and employer plans 

that choose to allow qualified birth or adoption distributions. Specifically, plan administrators and IRA trustees will be required to 

monitor eligibility for qualified birth or adoption distributions, and 

employers will be required to obtain certifications and track such 

distributions and recontributions under the special rules that apply 

to employer plans. The ability to recontribute with no time limit 

over the lifetime of an individual, and not necessarily to the plan 

or IRA from which the related distribution was made, will require 

tracking of recontributions to ensure amounts so denominated do 

not exceed the aggregate lifetime qualified birth or adoption disVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00142 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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tributions from all plans of an individual. Tracking these amounts 

will require that plan administrators and IRA trustees, plan participants and IRA owners, and the IRS, keep accurate and detailed 

records of distributions and recontributions for an indefinite number of years. 

The provision will require the IRS to create or update its forms 

and publications to address qualified birth and adoption distributions. Additionally, both taxpayers and the IRS will need to monitor not just distributions resulting from this new rule, but in particular recontributions which have no time limit. Disputes between 

taxpayers and the IRS may increase in the case of discrepancies 

between these records. 

Increase in Age for Required Beginning Date for Mandatory Distributions (sec. 114 of the bill) 

Summary description of the provision 

The provision changes the age on which the required beginning 

date for required minimum distributions is based, from the calendar year in which the employee or IRA owner attains age 701⁄2

to the calendar year in which the employee or IRA owner attains 

age 72. Under the provision, present law continues to apply to employees and IRA owners who attain age 701⁄2 prior to January 1, 

2020. The provision does not change the present law requirement 

to actuarially adjust an employee’s accrued benefit for an employee 

who retires in a calendar year after the year the employee attains 

age 701⁄2, to take into account the period after age 701⁄2 in which 

the employee was not receiving any benefits under the plan. 

Number of affected taxpayers 

It is estimated that the provision will affect over 10 percent of 

taxpayers during the budget window. 

Discussion 

The provision may contribute to tax complexity by adding a new 

rule where age 72 applies with respect to required minimum distributions, while not changing the present law age 701⁄2 rules for 

purposes of actuarial adjustments for taxpayers who continue to 

work and participate in their employers’ defined benefit plans, as 

well as the ability to treat qualified plan distributions as tax-exempt qualified charitable distributions. Initially, there will also be 

bifurcation between those individuals who continue to be subject to 

the age 701⁄2 rule for required minimum distributions and those 

who are subject to the new age 72 rule. Taxpayers may need communication and education to assist them in making decisions due 

to the changes in rules based on age 72 versus unchanged rules 

based on age 701⁄2. For example, an individual approaching age 

701⁄2 who participates in a defined contribution plan may make a 

different decision than an individual participating in a defined benefit plan who wishes to continue to have actuarial adjustments 

made. The interaction with section 107 of the bill (discussed above) 

which permits contributions beyond age 701⁄2 to a traditional IRA 

adds another layer of decision-making. Individuals who have IRA 

balances as well as employer plan balances would need to understand the different rules to make educated decisions regarding conVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00143 Fmt 6659 Sfmt 6602 E:\HR\OC\HR065P1.XXX HR065P1

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tinued accruals (in defined benefit plans), continued contributions 

(in defined contribution plans and IRAs), and types of distributions 

(required minimum distributions, regular retirement distributions, 

and qualified charitable distributions) from such plans and accounts. This complexity may cause taxpayers to seek professional 

tax advice, potentially raising the cost of tax compliance to individual taxpayers. 

The provision will require the IRS to create new forms and publications regarding this new rule. Additionally, both taxpayers and 

the IRS will need to monitor required minimum distributions as 

well as claimed qualified charitable distributions based on the potential mismatch created by the age requirements. Disputes between taxpayers and the IRS may increase in the case of discrepancies between these records. 

F. CONGRESSIONAL EARMARKS, LIMITED TAX BENEFITS, AND

LIMITED TARIFF BENEFITS

With respect to clause 9 of rule XXI of the Rules of the House 

of Representatives, the Committee has carefully reviewed the provisions of the bill and states that the provisions of the bill do not 

contain any congressional earmarks, limited tax benefits, or limited 

tariff benefits within the meaning of the rule. 

G. DUPLICATION OF FEDERAL PROGRAMS

In compliance with clause 3(c)(5) of rule XIII of the Rules of the 

House of Representatives, the Committee states that no provision 

of the bill establishes or reauthorizes: (1) a program of the Federal 

Government known to be duplicative of another Federal program, 

(2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public 

Law 111–139, or (3) a program related to a program identified in 

the most recent Catalog of Federal Domestic Assistance, published 

pursuant to section 6104 of title 31, United States Code. 

H. HEARINGS

In compliance with Sec. 103(i) of H. Res. 6 (116th Congress) the 

following hearing was used to develop or consider H.R. 1994: Improving Retirement Security for America’s Workers, held on February 6, 2019. 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS 

REPORTED 

A. CHANGES IN EXISTING LAW PROPOSED BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law proposed by the 

bill, as reported, are shown as follows (existing law proposed to be 

omitted is enclosed in black brackets, new matter is printed in 

italics, existing law in which no change is proposed is shown in 

roman):2 


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CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

and existing law in which no change is proposed is shown in 

roman): 

INTERNAL REVENUE CODE OF 1986 

* * * * * * * 

Subtitle A—Income Taxes 

* * * * * * * 

CHAPTER 1—NORMAL TAXES AND SURTAXES 

* * * * * * * 

Subchapter A—DETERMINATION OF TAX 

LIABILITY 

* * * * * * * 

PART IV—CREDITS AGAINST TAX 

* * * * * * * 

Subpart D—BUSINESS RELATED CREDITS 

* * * * * * * 

Sec. 38. General business credit. 

* * * * * * * 

Sec. 45T. Auto-enrollment option for retirement savings options provided by small 

employers. 

SEC. 38. GENERAL BUSINESS CREDIT. 

(a) ALLOWANCE OF CREDIT.—There shall be allowed as a credit 

against the tax imposed by this chapter for the taxable year an 

amount equal to the sum of— 

(1) the business credit carryforwards carried to such taxable 

year, 

(2) the amount of the current year business credit, plus 

(3) the business credit carrybacks carried to such taxable 

year. 

(b) CURRENT YEAR BUSINESS CREDIT.—For purposes of this subpart, the amount of the current year business credit is the sum of 

the following credits determined for the taxable year: 

(1) the investment credit determined under section 46, 

(2) the work opportunity credit determined under section 

51(a), 

(3) the alcohol fuels credit determined under section 40(a), 

(4) the research credit determined under section 41(a), 


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(5) the low-income housing credit determined under section 

42(a), 

(6) the enhanced oil recovery credit under section 43(a), 

(7) in the case of an eligible small business (as defined in 

section 44(b)), the disabled access credit determined under section 44(a), 

(8) the renewable electricity production credit under section 

45(a), 

(9) the empowerment zone employment credit determined 

under section 1396(a), 

(10) the Indian employment credit as determined under section 45A(a), 

(11) the employer social security credit determined under 

section 45B(a), 

(12) the orphan drug credit determined under section 45C(a), 

(13) the new markets tax credit determined under section 

45D(a), 

(14) in the case of an eligible employer (as defined in section 

45E(c)), the small employer pension plan startup cost credit determined under section 45E(a), 

(15) the employer-provided child care credit determined 

under section 45F(a), 

(16) the railroad track maintenance credit determined under 

section 45G(a), 

(17) the biodiesel fuels credit determined under section 

40A(a), 

(18) the low sulfur diesel fuel production credit determined 

under section 45H(a), 

(19) the marginal oil and gas well production credit determined under section 45I(a), 

(20) the distilled spirits credit determined under section 

5011(a), 

(21) the advanced nuclear power facility production credit determined under section 45J(a), 

(22) the nonconventional source production credit determined 

under section 45K(a), 

(23) the new energy efficient home credit determined under 

section 45L(a), 

(24) the portion of the alternative motor vehicle credit to 

which section 30B(g)(1) applies, 

(25) the portion of the alternative fuel vehicle refueling property credit to which section 30C(d)(1) applies, 

(26) the mine rescue team training credit determined under 

section 45N(a), 

(27) in the case of an eligible agricultural business (as defined in section 45O(e)), the agricultural chemicals security 

credit determined under section 45O(a), 

(28) the differential wage payment credit determined under 

section 45P(a), 

(29) the carbon dioxide sequestration credit determined 

under section 45Q(a), 

(30) the portion of the new qualified plug-in electric drive 

motor vehicle credit to which section 30D(c)(1) applies, 

(31) the small employer health insurance credit determined 

under section 45R, øplus¿ 


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(32) in the case of an eligible employer (as defined in section 

45S(c)), the paid family and medical leave credit determined 

under section 45S(a)ø.¿, plus 

(33) in the case of an eligible employer (as defined in section 

45T(c)), the retirement auto-enrollment credit determined under 

section 45T(a). 

(c) LIMITATION BASED ON AMOUNT OF TAX.— 

(1) IN GENERAL.—The credit allowed under subsection (a) for 

any taxable year shall not exceed the excess (if any) of the taxpayer’s net income tax over the greater of— 

(A) the tentative minimum tax for the taxable year, or 

(B) 25 percent of so much of the taxpayer’s net regular 

tax liability as exceeds $25,000. 

For purposes of the preceding sentence, the term ‘‘net income 

tax’’ means the sum of the regular tax liability and the tax imposed by section 55, reduced by the credits allowable under 

subparts A and B of this part, and the term ‘‘net regular tax 

liability’’ means the regular tax liability reduced by the sum of 

the credits allowable under subparts A and B of this part. 

(2) EMPOWERMENT ZONE EMPLOYMENT CREDIT MAY OFFSET 25

PERCENT OF MINIMUM TAX.— 

(A) IN GENERAL.—In the case of the empowerment zone 

employment credit— 

(i) this section and section 39 shall be applied separately with respect to such credit, and 

(ii) for purposes of applying paragraph (1) to such 

credit— 

(I) 75 percent of the tentative minimum tax 

shall be substituted for the tentative minimum 

tax under subparagraph (A) thereof, and 

(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable 

year (other than the empowerment zone employment credit and the specified credits). 

(B) EMPOWERMENT ZONE EMPLOYMENT CREDIT.—For purposes of this paragraph, the term ‘‘empowerment zone employment credit’’ means the portion of the credit under 

subsection (a) which is attributable to the credit determined under section 1396 (relating to empowerment zone 

employment credit). 

(4) SPECIAL RULES FOR SPECIFIED CREDITS.— 

(A) IN GENERAL.—In the case of specified credits— 

(i) this section and section 39 shall be applied separately with respect to such credits, and 

(ii) in applying paragraph (1) to such credits— 

(I) the tentative minimum tax shall be treated 

as being zero, and 

(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable 

year (other than the specified credits). 

(B) SPECIFIED CREDITS.—For purposes of this subsection, 

the term ‘‘specified credits’’ means— 


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(i) for taxable years beginning after December 31, 

2004, the credit determined under section 40, 

(ii) the credit determined under section 41 for the 

taxable year with respect to an eligible small business 

(as defined in paragraph (5)(A) after application of the 

rules of paragraph (5)(B)), 

(iii) the credit determined under section 42 to the 

extent attributable to buildings placed in service after 

December 31, 2007, 

(iv) the credit determined under section 45 to the extent that such credit is attributable to electricity or refined coal produced— 

(I) at a facility which is originally placed in 

service after the date of the enactment of this 

paragraph, and 

(II) during the 4-year period beginning on the 

date that such facility was originally placed in 

service, 

(v) the credit determined under section 45 to the extent that such credit is attributable to section 45(e)(10) 

(relating to Indian coal production facilities), 

(vi) the credit determined under section 45B, 

(vii) the credit determined under section 45G, 

(viii) the credit determined under section 45R, 

(ix) the credit determined under section 45S, 

(x) the credit determined under section 46 to the extent that such credit is attributable to the energy credit determined under section 48, 

(xi) the credit determined under section 46 to the extent that such credit is attributable to the rehabilitation credit under section 47, but only with respect to 

qualified rehabilitation expenditures properly taken 

into account for periods after December 31, 2007, and 

(xii) the credit determined under section 51. 

(5) RULES RELATED TO ELIGIBLE SMALL BUSINESSES.— 

(A) ELIGIBLE SMALL BUSINESS.—For purposes of this subsection, the term ‘‘eligible small business’’ means, with respect to any taxable year— 

(i) a corporation the stock of which is not publicly 

traded, 

(ii) a partnership, or 

(iii) a sole proprietorship, 

if the average annual gross receipts of such corporation, 

partnership, or sole proprietorship for the 3-taxable-year 

period preceding such taxable year does not exceed 

$50,000,000. For purposes of applying the test under the 

preceding sentence, rules similar to the rules of paragraphs (2) and (3) of section 448(c) shall apply. 

(B) TREATMENT OF PARTNERS AND S CORPORATION SHAREHOLDERS.—For purposes of paragraph (4)(B)(ii), any credit 

determined under section 41 with respect to a partnership 

or S corporation shall not be treated as a specified credit 

by any partner or shareholder unless such partner or 

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graph (A) for the taxable year in which such credit is 

treated as a current year business credit. 

(6) SPECIAL RULES.— (A) MARRIED INDIVIDUALS.—In the case of a husband or 

wife who files a separate return, the amount specified 

under subparagraph (B) of paragraph (1) shall be $12,500 

in lieu of $25,000. This subparagraph shall not apply if the 

spouse of the taxpayer has no business credit carryforward 

or carryback to, and has no current year business credit 

for, the taxable year of such spouse which ends within or 

with the taxpayer’s taxable year. 

(B) CONTROLLED GROUPS.—In the case of a controlled 

group, the $25,000 amount specified under subparagraph 

(B) of paragraph (1) shall be reduced for each component 

member of such group by apportioning $25,000 among the 

component members of such group in such manner as the 

Secretary shall by regulations prescribe. For purposes of 

the preceding sentence, the term ‘‘controlled group’’ has 

the meaning given to such term by section 1563(a). 

(C) LIMITATIONS WITH RESPECT TO CERTAIN PERSONS.—In 

the case of a person described in subparagraph (A) or (B) 

of section 46(e)(1) (as in effect on the day before the date 

of the enactment of the Revenue Reconciliation Act of 

1990), the $25,000 amount specified under subparagraph 

(B) of paragraph (1) shall equal such person’s ratable 

share (as determined under section 46(e)(2) (as so in effect) 

of such amount. 

(D) ESTATES AND TRUSTS.—In the case of an estate or 

trust, the $25,000 amount specified under subparagraph 

(B) of paragraph (1) shall be reduced to an amount which 

bears the same ratio to $25,000 as the portion of the income of the estate or trust which is not allocated to beneficiaries bears to the total income of the estate or trust. 

(E) CORPORATIONS.—In the case of a corporation, this 

subsection shall be applied by treating the corporation as 

having a tentative minimum tax of zero. 

(d) ORDERING RULES.—For purposes of any provision of this title 

where it is necessary to ascertain the extent to which the credits 

determined under any section referred to in subsection (b) are used 

in a taxable year or as a carryback or carryforward— 

(1) IN GENERAL.—The order in which such credits are used 

shall be determined on the basis of the order in which they are 

listed in subsection (b) as of the close of the taxable year in 

which the credit is used. 

(2) COMPONENTS OF INVESTMENT CREDIT.—The order in 

which the credits listed in section 46 are used shall be determined on the basis of the order in which such credits are listed 

in section 46 as of the close of the taxable year in which the 

credit is used. 

* * * * * * * 

SEC. 45E. SMALL EMPLOYER PENSION PLAN STARTUP COSTS. 

(a) GENERAL RULE.—For purposes of section 38, in the case of an 

eligible employer, the small employer pension plan startup cost 

credit determined under this section for any taxable year is an 


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amount equal to 50 percent of the qualified startup costs paid or 

incurred by the taxpayer during the taxable year. 

(b) DOLLAR LIMITATION.—The amount of the credit determined 

under this section for any taxable year shall not exceed— 

ø(1) $500 for the first credit year and each of the 2 taxable 

years immediately following the first credit year, and¿ 

(1) for the first credit year and each of the 2 taxable years immediately following the first credit year, the greater of— 

(A) $500, or 

(B) the lesser of— 

(i) $250 for each employee of the eligible employer 

who is not a highly compensated employee (as defined 

in section 414(q)) and who is eligible to participate in 

the eligible employer plan maintained by the eligible 

employer, or 

(ii) $5,000, and 

(2) zero for any other taxable year. 

(c) ELIGIBLE EMPLOYER.—For purposes of this section— 

(1) IN GENERAL.—The term ‘‘eligible employer’’ has the meaning given such term by section 408(p)(2)(C)(i). 

(2) REQUIREMENT FOR NEW QUALIFIED EMPLOYER PLANS.— 

Such term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for 

which the credit under this section is otherwise allowable for 

a qualified employer plan of the employer, the employer or any 

member of any controlled group including the employer (or any 

predecessor of either) established or maintained a qualified 

employer plan with respect to which contributions were made, 

or benefits were accrued, for substantially the same employees 

as are in the qualified employer plan. 

(d) OTHER DEFINITIONS.—For purposes of this section— 

(1) QUALIFIED STARTUP COSTS.— 

(A) IN GENERAL.—The term ‘‘qualified startup costs’’ 

means any ordinary and necessary expenses of an eligible 

employer which are paid or incurred in connection with— 

(i) the establishment or administration of an eligible 

employer plan, or 

(ii) the retirement-related education of employees 

with respect to such plan. 

(B) PLAN MUST HAVE AT LEAST 1 PARTICIPANT.—Such 

term shall not include any expense in connection with a 

plan that does not have at least 1 employee eligible to participate who is not a highly compensated employee. 

(2) ELIGIBLE EMPLOYER PLAN.—The term ‘‘eligible employer 

plan’’ means a qualified employer plan within the meaning of 

section 4972(d). 

(3) FIRST CREDIT YEAR.—The term ‘‘first credit year’’ means— 

(A) the taxable year which includes the date that the eligible employer plan to which such costs relate becomes effective, or 

(B) at the election of the eligible employer, the taxable 

year preceding the taxable year referred to in subparagraph (A). 

(e) SPECIAL RULES.—For purposes of this section— 


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(1) AGGREGATION RULES.—All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection 

(m) or (o) of section 414, shall be treated as one person. All eligible employer plans shall be treated as 1 eligible employer 

plan. 

(2) DISALLOWANCE OF DEDUCTION.—No deduction shall be allowed for that portion of the qualified startup costs paid or incurred for the taxable year which is equal to the credit determined under subsection (a). 

(3) ELECTION NOT TO CLAIM CREDIT.—This section shall not 

apply to a taxpayer for any taxable year if such taxpayer elects 

to have this section not apply for such taxable year. 

* * * * * * * 

SEC. 45T. AUTO-ENROLLMENT OPTION FOR RETIREMENT SAVINGS OPTIONS PROVIDED BY SMALL EMPLOYERS. 

(a) IN GENERAL.—For purposes of section 38, in the case of an eligible employer, the retirement auto-enrollment credit determined 

under this section for any taxable year is an amount equal to— 

(1) $500 for any taxable year occurring during the credit period, and 

(2) zero for any other taxable year. 

(b) CREDIT PERIOD.—For purposes of subsection (a)— 

(1) IN GENERAL.—The credit period with respect to any eligible employer is the 3-taxable-year period beginning with the 

first taxable year for which the employer includes an eligible 

automatic contribution arrangement (as defined in section 

414(w)(3)) in a qualified employer plan (as defined in section 

4972(d)) sponsored by the employer. 

(2) MAINTENANCE OF ARRANGEMENT.—No taxable year with 

respect to an employer shall be treated as occurring within the 

credit period unless the arrangement described in paragraph (1) 

is included in the plan for such year. 

(c) ELIGIBLE EMPLOYER.—For purposes of this section, the term 

‘‘eligible employer’’ has the meaning given such term in section 

408(p)(2)(C)(i). 

* * * * * * * 

Subchapter B—COMPUTATION OF TAXABLE 

INCOME 

* * * * * * * 

PART II—ITEMS SPECIFICALLY INCLUDED IN GROSS 

INCOME 

* * * * * * * 

SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE 

INSURANCE CONTRACTS. 

(a) GENERAL RULES FOR ANNUITIES.— (1) INCOME INCLUSION.—Except as otherwise provided in this 

chapter, gross income includes any amount received as an annuity (whether for a period certain or during one or more lives) 

under an annuity, endowment, or life insurance contract. 


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(2) PARTIAL ANNUITIZATION.—If any amount is received as an 

annuity for a period of 10 years or more or during one or more 

lives under any portion of an annuity, endowment, or life insurance contract— 

(A) such portion shall be treated as a separate contract 

for purposes of this section, 

(B) for purposes of applying subsections (b), (c), and (e), 

the investment in the contract shall be allocated pro rata 

between each portion of the contract from which amounts 

are received as an annuity and the portion of the contract 

from which amounts are not received as an annuity, and 

(C) a separate annuity starting date under subsection 

(c)(4) shall be determined with respect to each portion of 

the contract from which amounts are received as an annuity. 

(b) EXCLUSION RATIO.— 

(1) IN GENERAL.—Gross income does not include that part of 

any amount received as an annuity under an annuity, endowment, or life insurance contract which bears the same ratio to 

such amount as the investment in the contract (as of the annuity starting date) bears to the expected return under the contract (as of such date). 

(2) EXCLUSION LIMITED TO INVESTMENT.—The portion of any 

amount received as an annuity which is excluded from gross 

income under paragraph (1) shall not exceed the unrecovered 

investment in the contract immediately before the receipt of 

such amount. 

(3) DEDUCTION WHERE ANNUITY PAYMENTS CEASE BEFORE ENTIRE INVESTMENT RECOVERED.— 

(A) IN GENERAL.—If— 

(i) after the annuity starting date, payments as an 

annuity under the contract cease by reason of the 

death of an annuitant, and 

(ii) as of the date of such cessation, there is unrecovered investment in the contract, 

the amount of such unrecovered investment (in excess of 

any amount specified in subsection (e)(5) which was not included in gross income) shall be allowed as a deduction to 

the annuitant for his last taxable year. 

(B) PAYMENTS TO OTHER PERSONS.—In the case of any 

contract which provides for payments meeting the requirements of subparagraphs (B) and (C) of subsection (c)(2), 

the deduction under subparagraph (A) shall be allowed to 

the person entitled to such payments for the taxable year 

in which such payments are received. 

(C) NET OPERATING LOSS DEDUCTIONS PROVIDED.—For 

purposes of section 172, a deduction allowed under this 

paragraph shall be treated as if it were attributable to a 

trade or business of the taxpayer. 

(4) UNRECOVERED INVESTMENT.—For purposes of this subsection, the unrecovered investment in the contract as of any 

date is— 

(A) the investment in the contract (determined without 

regard to subsection (c)(2)) as of the annuity starting date, 

reduced by 


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(B) the aggregate amount received under the contract on 

or after such annuity starting date and before the date as 

of which the determination is being made, to the extent 

such amount was excludable from gross income under this 

subtitle. 

(c) DEFINITIONS.— (1) INVESTMENT IN THE CONTRACT.—For purposes of subsection (b), the investment in the contract as of the annuity 

starting date is— 

(A) the aggregate amount of premiums or other consideration paid for the contract, minus 

(B) the aggregate amount received under the contract 

before such date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws. 

(2) ADJUSTMENT IN INVESTMENT WHERE THERE IS REFUND

FEATURE.—If— 

(A) the expected return under the contract depends in 

whole or in part on the life expectancy of one or more individuals; 

(B) the contract provides for payments to be made to a 

beneficiary (or to the estate of an annuitant) on or after 

the death of the annuitant or annuitants; and 

(C) such payments are in the nature of a refund of the 

consideration paid, 

then the value (computed without discount for interest) of such 

payments on the annuity starting date shall be subtracted 

from the amount determined under paragraph (1). Such value 

shall be computed in accordance with actuarial tables prescribed by the Secretary. For purposes of this paragraph and 

of subsection (e)(2)(A), the term ‘‘refund of the consideration 

paid’’ includes amounts payable after the death of an annuitant by reason of a provision in the contract for a life annuity 

with minimum period of payments certain, but (if part of the 

consideration was contributed by an employer) does not include 

that part of any payment to a beneficiary (or to the estate of 

the annuitant) which is not attributable to the consideration 

paid by the employee for the contract as determined under 

paragraph (1)(A). 

(3) EXPECTED RETURN.—For purposes of subsection (b), the 

expected return under the contract shall be determined as follows: 

(A) LIFE EXPECTANCY.—If the expected return under the 

contract, for the period on and after the annuity starting 

date, depends in whole or in part on the life expectancy of 

one or more individuals, the expected return shall be computed with reference to actuarial tables prescribed by the 

Secretary. 

(B) INSTALLMENT PAYMENTS.—If subparagraph (A) does 

not apply, the expected return is the aggregate of the 

amounts receivable under the contract as an annuity. 

(4) ANNUITY STARTING DATE.—For purposes of this section, 

the annuity starting date in the case of any contract is the first 

day of the first period for which an amount is received as an 

annuity under the contract. 


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(d) SPECIAL RULES FOR QUALIFIED EMPLOYER RETIREMENT

PLANS.— 

(1) SIMPLIFIED METHOD OF TAXING ANNUITY PAYMENTS.— 

(A) IN GENERAL.—In the case of any amount received as 

an annuity under a qualified employer retirement plan— 

(i) subsection (b) shall not apply, and 

(ii) the investment in the contract shall be recovered 

as provided in this paragraph. 

(B) METHOD OF RECOVERING INVESTMENT IN CONTRACT.— 

(i) IN GENERAL.—Gross income shall not include so 

much of any monthly annuity payment under a qualified employer retirement plan as does not exceed the 

amount obtained by dividing— 

(I) the investment in the contract (as of the annuity starting date), by 

(II) the number of anticipated payments determined under the table contained in clause (iii) (or, 

in the case of a contract to which subsection 

(c)(3)(B) applies, the number of monthly annuity 

payments under such contract). 

(ii) CERTAIN RULES MADE APPLICABLE.—Rules similar to the rules of paragraphs (2) and (3) of subsection 

(b) shall apply for purposes of this paragraph. 

(iii) NUMBER OF ANTICIPATED PAYMENTS.—If the annuity is payable over the life of a single individual, the 

number of anticipated payments shall be determined 

as follows: 

(iv) NUMBER OF ANTICIPATED PAYMENTS WHERE

MORE THAN ONE LIFE.—If the annuity is payable over 

the lives of more than 1 individual, the number of anticipated payments shall be determined as follows: 

(C) ADJUSTMENT FOR REFUND FEATURE NOT APPLICABLE.—For purposes of this paragraph, investment in the 

contract shall be determined under subsection (c)(1) without regard to subsection (c)(2). 

(D) SPECIAL RULE WHERE LUMP SUM PAID IN CONNECTION

WITH COMMENCEMENT OF ANNUITY PAYMENTS.—If, in connection with the commencement of annuity payments 

under any qualified employer retirement plan, the taxpayer receives a lump-sum payment— 

(i) such payment shall be taxable under subsection 

(e) as if received before the annuity starting date, and 

(ii) the investment in the contract for purposes of 

this paragraph shall be determined as if such payment 

had been so received. 

(E) EXCEPTION.—This paragraph shall not apply in any 

case where the primary annuitant has attained age 75 on 

the annuity starting date unless there are fewer than 5 

years of guaranteed payments under the annuity. 

(F) ADJUSTMENT WHERE ANNUITY PAYMENTS NOT ON

MONTHLY BASIS.—In any case where the annuity payments 

are not made on a monthly basis, appropriate adjustments 

in the application of this paragraph shall be made to take 


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into account the period on the basis of which such payments are made. 

(G) QUALIFIED EMPLOYER RETIREMENT PLAN.—For purposes of this paragraph, the term ‘‘qualified employer retirement plan’’ means any plan or contract described in 

paragraph (1), (2), or (3) of section 4974(c). 

(2) TREATMENT OF EMPLOYEE CONTRIBUTIONS UNDER DEFINED

CONTRIBUTION PLANS.—For purposes of this section, employee 

contributions (and any income allocable thereto) under a defined contribution plan may be treated as a separate contract. 

(e) AMOUNTS NOT RECEIVED AS ANNUITIES.— (1) APPLICATION OF SUBSECTION.— 

(A) IN GENERAL.—This subsection shall apply to any 

amount which— 

(i) is received under an annuity, endowment, or life 

insurance contract, and 

(ii) is not received as an annuity, 

if no provision of this subtitle (other than this subsection) 

applies with respect to such amount. 

(B) DIVIDENDS.—For purposes of this section, any 

amount received which is in the nature of a dividend or 

similar distribution shall be treated as an amount not received as an annuity. 

(2) GENERAL RULE.—Any amount to which this subsection 

applies— 

(A) if received on or after the annuity starting date, 

shall be included in gross income, or 

(B) if received before the annuity starting date— 

(i) shall be included in gross income to the extent allocable to income on the contract, and 

(ii) shall not be included in gross income to the extent allocable to the investment in the contract. 

(3) ALLOCATION OF AMOUNTS TO INCOME AND INVESTMENT.— For purposes of paragraph (2)(B)— 

(A) ALLOCATION TO INCOME.—Any amount to which this 

subsection applies shall be treated as allocable to income 

on the contract to the extent that such amount does not 

exceed the excess (if any) of— 

(i) the cash value of the contract (determined without regard to any surrender charge) immediately before the amount is received, over 

(ii) the investment in the contract at such time. 

(B) ALLOCATION TO INVESTMENT.—Any amount to which 

this subsection applies shall be treated as allocable to investment in the contract to the extent that such amount 

is not allocated to income under subparagraph (A). 

(4) SPECIAL RULES FOR APPLICATION OF PARAGRAPH (2)(B).— 

For purposes of paragraph (2)(B)— 

(A) LOANS TREATED AS DISTRIBUTIONS.—If, during any 

taxable year, an individual— 

(i) receives (directly or indirectly) any amount as a 

loan under any contract to which this subsection applies, or 

(ii) assigns or pledges (or agrees to assign or pledge) 

any portion of the value of any such contract, 


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such amount or portion shall be treated as received under 

the contract as an amount not received as an annuity. The 

preceding sentence shall not apply for purposes of determining investment in the contract, except that the investment in the contract shall be increased by any amount included in gross income by reason of the amount treated as 

received under the preceding sentence. 

(B) TREATMENT OF POLICYHOLDER DIVIDENDS.—Any 

amount described in paragraph (1)(B) shall not be included 

in gross income under paragraph (2)(B)(i) to the extent 

such amount is retained by the insurer as a premium or 

other consideration paid for the contract. 

(C) TREATMENT OF TRANSFERS WITHOUT ADEQUATE CONSIDERATION.— 

(i) IN GENERAL.—If an individual who holds an annuity contract transfers it without full and adequate 

consideration, such individual shall be treated as receiving an amount equal to the excess of— 

(I) the cash surrender value of such contract at 

the time of transfer, over 

(II) the investment in such contract at such 

time, 

under the contract as an amount not received as an annuity. 

(ii) EXCEPTION FOR CERTAIN TRANSFERS BETWEEN

SPOUSES OR FORMER SPOUSES.—Clause (i) shall not 

apply to any transfer to which section 1041(a) (relating to transfers of property between spouses or incident to divorce) applies. 

(iii) ADJUSTMENT TO INVESTMENT IN CONTRACT OF

TRANSFEREE.—If under clause (i) an amount is included in the gross income of the transferor of an annuity contract, the investment in the contract of the 

transferee in such contract shall be increased by the 

amount so included. 

(5) RETENTION OF EXISTING RULES IN CERTAIN CASES.— 

(A) IN GENERAL.—In any case to which this paragraph 

applies— 

(i) paragraphs (2)(B) and (4)(A) shall not apply, and 

(ii) if paragraph (2)(A) does not apply, 

the amount shall be included in gross income, but only to 

the extent it exceeds the investment in the contract. 

(B) EXISTING CONTRACTS.—This paragraph shall apply to 

contracts entered into before August 14, 1982. Any amount 

allocable to investment in the contract after August 13, 

1982, shall be treated as from a contract entered into after 

such date. 

(C) CERTAIN LIFE INSURANCE AND ENDOWMENT CONTRACTS.—Except as provided in paragraph (10) and except 

to the extent prescribed by the Secretary by regulations, 

this paragraph shall apply to any amount not received as 

an annuity which is received under a life insurance or endowment contract. 


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(D) CONTRACTS UNDER QUALIFIED PLANS.—Except as provided in paragraph (8), this paragraph shall apply to any 

amount received— 

(i) from a trust described in section 401(a) which is 

exempt from tax under section 501(a), 

(ii) from a contract— 

(I) purchased by a trust described in clause (i), 

(II) purchased as part of a plan described in section 403(a), 

(III) described in section 403(b), or 

(IV) provided for employees of a life insurance 

company under a plan described in section 

818(a)(3), or 

(iii) from an individual retirement account or an individual retirement annuity. 

Any dividend described in section 404(k) which is received 

by a participant or beneficiary shall, for purposes of this 

subparagraph, be treated as paid under a separate contract to which clause (ii)(I) applies. 

(E) FULL REFUNDS, SURRENDERS, REDEMPTIONS, AND MA- TURITIES.—This paragraph shall apply to— 

(i) any amount received, whether in a single sum or 

otherwise, under a contract in full discharge of the obligation under the contract which is in the nature of 

a refund of the consideration paid for the contract, and 

(ii) any amount received under a contract on its 

complete surrender, redemption, or maturity. 

In the case of any amount to which the preceding sentence 

applies, the rule of paragraph (2)(A) shall not apply. 

(6) INVESTMENT IN THE CONTRACT.—For purposes of this subsection, the investment in the contract as of any date is— 

(A) the aggregate amount of premiums or other consideration paid for the contract before such date, minus 

(B) the aggregate amount received under the contract 

before such date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws. 

(8) EXTENSION OF PARAGRAPH (2)(B) TO QUALIFIED PLANS.— (A) IN GENERAL.—Notwithstanding any other provision 

of this subsection, in the case of any amount received before the annuity starting date from a trust or contract described in paragraph (5)(D), paragraph (2)(B) shall apply 

to such amounts. 

(B) ALLOCATION OF AMOUNT RECEIVED.—For purposes of 

paragraph (2)(B), the amount allocated to the investment 

in the contract shall be the portion of the amount described in subparagraph (A) which bears the same ratio to 

such amount as the investment in the contract bears to 

the account balance. The determination under the preceding sentence shall be made as of the time of the distribution or at such other time as the Secretary may prescribe. 

(C) TREATMENT OF FORFEITABLE RIGHTS.—If an employee 

does not have a nonforfeitable right to any amount under 

any trust or contract to which subparagraph (A) applies, 


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such amount shall not be treated as part of the account 

balance. 

(D) INVESTMENT IN THE CONTRACT BEFORE 1987.—In the 

case of a plan which on May 5, 1986, permitted withdrawal of any employee contributions before separation 

from service, subparagraph (A) shall apply only to the extent that amounts received before the annuity starting 

date (when increased by amounts previously received 

under the contract after December 31, 1986) exceed the investment in the contract as of December 31, 1986. 

(9) EXTENSION OF PARAGRAPH (2)(B) TO QUALIFIED TUITION

PROGRAMS AND COVERDELL EDUCATION SAVINGS ACCOUNTS.— 

Notwithstanding any other provision of this subsection, paragraph (2)(B) shall apply to amounts received under a qualified 

tuition program (as defined in section 529(b)) or under a Coverdell education savings account (as defined in section 530(b)). 

The rule of paragraph (8)(B) shall apply for purposes of this 

paragraph. 

(10) TREATMENT OF MODIFIED ENDOWMENT CONTRACTS.— 

(A) IN GENERAL.—Notwithstanding paragraph (5)(C), in 

the case of any modified endowment contract (as defined 

in section 7702A)— 

(i) paragraphs (2)(B) and (4)(A) shall apply, and 

(ii) in applying paragraph (4)(A), ‘‘any person’’ shall 

be substituted for ‘‘an individual’’. 

(B) TREATMENT OF CERTAIN BURIAL CONTRACTS.—Notwithstanding subparagraph (A), paragraph (4)(A) shall not 

apply to any assignment (or pledge) of a modified endowment contract if such assignment (or pledge) is solely to 

cover the payment of expenses referred to in section 

7702(e)(2)(C)(iii) and if the maximum death benefit under 

such contract does not exceed $25,000. 

(11) SPECIAL RULES FOR CERTAIN COMBINATION CONTRACTS

PROVIDING LONG-TERM CARE INSURANCE.—Notwithstanding 

paragraphs (2), (5)(C), and (10), in the case of any charge 

against the cash value of an annuity contract or the cash surrender value of a life insurance contract made as payment for 

coverage under a qualified long-term care insurance contract 

which is part of or a rider on such annuity or life insurance 

contract— 

(A) the investment in the contract shall be reduced (but 

not below zero) by such charge, and 

(B) such charge shall not be includible in gross income. 

(12) ANTI-ABUSE RULES.— 

(A) IN GENERAL.—For purposes of determining the 

amount includible in gross income under this subsection— 

(i) all modified endowment contracts issued by the 

same company to the same policyholder during any 

calendar year shall be treated as 1 modified endowment contract, and 

(ii) all annuity contracts issued by the same company to the same policyholder during any calendar 

year shall be treated as 1 annuity contract. 

The preceding sentence shall not apply to any contract described in paragraph (5)(D). 


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(B) REGULATORY AUTHORITY.—The Secretary may by regulations prescribe such additional rules as may be necessary or appropriate to prevent avoidance of the purposes 

of this subsection through serial purchases of contracts or 

otherwise. 

(f) SPECIAL RULES FOR COMPUTING EMPLOYEES’ CONTRIBUTIONS.— 

In computing, for purposes of subsection (c)(1)(A), the aggregate 

amount of premiums or other consideration paid for the contract, 

and for purposes of subsection (e)(6), the aggregate premiums or 

other consideration paid, amounts contributed by the employer 

shall be included, but only to the extent that— 

(1) such amounts were includible in the gross income of the 

employee under this subtitle or prior income tax laws; or 

(2) if such amounts had been paid directly to the employee 

at the time they were contributed, they would not have been 

includible in the gross income of the employee under the law 

applicable at the time of such contribution. 

Paragraph (2) shall not apply to amounts which were contributed 

by the employer after December 31, 1962, and which would not 

have been includible in the gross income of the employee by reason 

of the application of section 911 if such amounts had been paid directly to the employee at the time of contribution. The preceding 

sentence shall not apply to amounts which were contributed by the 

employer, as determined under regulations prescribed by the Secretary, to provide pension or annuity credits, to the extent such 

credits are attributable to services performed before January 1, 

1963, and are provided pursuant to pension or annuity plan provisions in existence on March 12, 1962, and on that date applicable 

to such services, or to the extent such credits are attributable to 

services performed as a foreign missionary (within the meaning of 

section 403(b)(2)(D)(iii), as in effect before the enactment of the 

Economic Growth and Tax Relief Reconciliation Act of 2001). 

(g) RULES FOR TRANSFEREE WHERE TRANSFER WAS FOR VALUE.— 

Where any contract (or any interest therein) is transferred (by assignment or otherwise) for a valuable consideration, to the extent 

that the contract (or interest therein) does not, in the hands of the 

transferee, have a basis which is determined by reference to the 

basis in the hands of the transferor, then— 

(1) for purposes of this section, only the actual value of such 

consideration, plus the amount of the premiums and other consideration paid by the transferee after the transfer, shall be 

taken into account in computing the aggregate amount of the 

premiums or other consideration paid for the contract; 

(2) for purposes of subsection (c)(1)(B), there shall be taken 

into account only the aggregate amount received under the 

contract by the transferee before the annuity starting date, to 

the extent that such amount was excludable from gross income 

under this subtitle or prior income tax laws; and 

(3) the annuity starting date is the first day of the first period for which the transferee received an amount under the 

contract as an annuity. 

For purposes of this subsection, the term ‘‘transferee’’ includes a 

beneficiary of, or the estate of, the transferee. 

(h) OPTION TO RECEIVE ANNUITY IN LIEU OF LUMP SUM.—If— 


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(1) a contract provides for payment of a lump sum in full discharge of an obligation under the contract, subject to an option 

to receive an annuity in lieu of such lump sum; 

(2) the option is exercised within 60 days after the day on 

which such lump sum first became payable; and 

(3) part or all of such lump sum would (but for this subsection) be includible in gross income by reason of subsection 

(e)(1), 

then, for purposes of this subtitle, no part of such lump sum shall 

be considered as includible in gross income at the time such lump 

sum first became payable. 

(j) INTEREST.—Notwithstanding any other provision of this section, if any amount is held under an agreement to pay interest 

thereon, the interest payments shall be included in gross income. 

(l) FACE-AMOUNT CERTIFICATES.—For purposes of this section, the 

term ‘‘endowment contract’’ includes a face-amount certificate, as 

defined in section 2(a)(15) of the Investment Company Act of 1940 

(15 U.S.C., sec. 80a–2), issued after December 31, 1954. 

(m) SPECIAL RULES APPLICABLE TO EMPLOYEE ANNUITIES AND DISTRIBUTIONS UNDER EMPLOYEE PLANS.— 

(2) COMPUTATION OF CONSIDERATION PAID BY THE EMPLOYEE.—In computing— 

(A) the aggregate amount of premiums or other consideration paid for the contract for purposes of subsection 

(c)(1)(A) (relating to the investment in the contract), and 

(B) the aggregate premiums or other consideration paid 

for purposes of subsection (e)(6) (relating to certain 

amounts not received as an annuity), 

any amount allowed as a deduction with respect to the contract 

under section 404 which was paid while the employee was an 

employee within the meaning of section 401(c)(1) shall be treated as consideration contributed by the employer, and there 

shall not be taken into account any portion of the premiums 

or other consideration for the contract paid while the employee 

was an owner-employee which is properly allocable (as determined under regulations prescribed by the Secretary) to the 

cost of life, accident, health, or other insurance. 

(3) LIFE INSURANCE CONTRACTS.— 

(A) This paragraph shall apply to any life insurance contract— 

(i) purchased as a part of a plan described in section 

403(a), or 

(ii) purchased by a trust described in section 401(a) 

which is exempt from tax under section 501(a) if the 

proceeds of such contract are payable directly or indirectly to a participant in such trust or to a beneficiary 

of such participant. 

(B) Any contribution to a plan described in subparagraph (A)(i) or a trust described in subparagraph (A)(ii) 

which is allowed as a deduction under section 404, and 

any income of a trust described in subparagraph (A)(ii), 

which is determined in accordance with regulations prescribed by the Secretary to have been applied to purchase 

the life insurance protection under a contract described in 


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subparagraph (A), is includible in the gross income of the 

participant for the taxable year when so applied. 

(C) In the case of the death of an individual insured 

under a contract described in subparagraph (A), an 

amount equal to the cash surrender value of the contract 

immediately before the death of the insured shall be treated as a payment under such plan or a distribution by such 

trust, and the excess of the amount payable by reason of 

the death of the insured over such cash surrender value 

shall not be includible in gross income under this section 

and shall be treated as provided in section 101. 

(5) PENALTIES APPLICABLE TO CERTAIN AMOUNTS RECEIVED BY

5-PERCENT OWNERS.— 

(A) This paragraph applies to amounts which are received from a qualified trust described in section 401(a) or 

under a plan described in section 403(a) at any time by an 

individual who is, or has been, a 5-percent owner, or by a 

successor of such an individual, but only to the extent such 

amounts are determined, under regulations prescribed by 

the Secretary, to exceed the benefits provided for such individual under the plan formula. 

(B) If a person receives an amount to which this paragraph applies, his tax under this chapter for the taxable 

year in which such amount is received shall be increased 

by an amount equal to 10 percent of the portion of the 

amount so received which is includible in his gross income 

for such taxable year. 

(C) For purposes of this paragraph, the term ‘‘5-percent 

owner’’ means any individual who, at any time during the 

5 plan years preceding the plan year ending in the taxable 

year in which the amount is received, is a 5-percent owner 

(as defined in section 416(i)(1)(B)). 

(6) OWNER-EMPLOYEE DEFINED.—For purposes of this subsection, the term ‘‘owner-employee’’ has the meaning assigned 

to it by section 401(c)(3) and includes an individual for whose 

benefit an individual retirement account or annuity described 

in section 408(a) or (b) is maintained. For purposes of the preceding sentence, the term ‘‘owner-employee’’ shall include an 

employee within the meaning of section 401(c)(1). 

(7) MEANING OF DISABLED.—For purposes of this section, an 

individual shall be considered to be disabled if he is unable to 

engage in any substantial gainful activity by reason of any 

medically determinable physical or mental impairment which 

can be expected to result in death or to be of long-continued 

and indefinite duration. An individual shall not be considered 

to be disabled unless he furnishes proof of the existence thereof 

in such form and manner as the Secretary may require. 

(10) DETERMINATION OF INVESTMENT IN THE CONTRACT IN

THE CASE OF QUALIFIED DOMESTIC RELATIONS ORDERS.—Under 

regulations prescribed by the Secretary, in the case of a distribution or payment made to an alternate payee who is the 

spouse or former spouse of the participant pursuant to a qualified domestic relations order (as defined in section 414(p)), the 

investment in the contract as of the date prescribed in such 

regulations shall be allocated on a pro rata basis between the 


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present value of such distribution or payment and the present 

value of all other benefits payable with respect to the participant to which such order relates. 

(n) ANNUITIES UNDER RETIRED SERVICEMAN’S FAMILY PROTECTION

PLAN OR SURVIVOR BENEFIT PLAN.—Subsection (b) shall not apply in 

the case of amounts received after December 31, 1965, as an annuity under chapter 73 of title 10 of the United States Code, but all 

such amounts shall be excluded from gross income until there has 

been so excluded (under section 122(b)(1) or this section, including 

amounts excluded before January 1, 1966) an amount equal to the 

consideration for the contract (as defined by section 122(b)(2)), plus 

any amount treated pursuant to section 101(b)(2)(D) (as in effect on 

the day before the date of the enactment of the Small Business Job 

Protection Act of 1996) as additional consideration paid by the employee. Thereafter all amounts so received shall be included in 

gross income. 

(o) SPECIAL RULES FOR DISTRIBUTIONS FROM QUALIFIED PLANS TO

WHICH EMPLOYEE MADE DEDUCTIBLE CONTRIBUTIONS.— (1) TREATMENT OF CONTRIBUTIONS.—For purposes of this section and sections 402 and 403, notwithstanding section 414(h), 

any deductible employee contribution made to a qualified employer plan or government plan shall be treated as an amount 

contributed by the employer which is not includible in the 

gross income of the employee. 

(3) AMOUNTS CONSTRUCTIVELY RECEIVED.— (A) IN GENERAL.—For purposes of this subsection, rules 

similar to the rules provided by subsection (p) (other than 

the exception contained in paragraph (2) thereof) shall 

apply. 

(B) PURCHASE OF LIFE INSURANCE.—To the extent any 

amount of accumulated deductible employee contributions 

of an employee are applied to the purchase of life insurance contracts, such amount shall be treated as distributed 

to the employee in the year so applied. 

(4) SPECIAL RULE FOR TREATMENT OF ROLLOVER AMOUNTS.— For purposes of sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3), 

and 457(e)(16), the Secretary shall prescribe regulations providing for such allocations of amounts attributable to accumulated deductible employee contributions, and for such other 

rules, as may be necessary to insure that such accumulated deductible employee contributions do not become eligible for additional tax benefits (or freed from limitations) through the use 

of rollovers. 

(5) DEFINITIONS AND SPECIAL RULES.—For purposes of this 

subsection— 

(A) DEDUCTIBLE EMPLOYEE CONTRIBUTIONS.—The term 

‘‘deductible employee contributions’’ means any qualified 

voluntary employee contribution (as defined in section 

219(e)(2)) made after December 31, 1981, in a taxable year 

beginning after such date and made for a taxable year beginning before January 1, 1987, and allowable as a deduction under section 219(a) for such taxable year. 

(B) ACCUMULATED DEDUCTIBLE EMPLOYEE CONTRIBUTIONS.—The term ‘‘accumulated deductible employee contributions’’ means the deductible employee contributions— 


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(i) increased by the amount of income and gain allocable to such contributions, and 

(ii) reduced by the sum of the amount of loss and expense allocable to such contributions and the amounts 

distributed with respect to the employee which are attributable to such contributions (or income or gain allocable to such contributions). 

(C) QUALIFIED EMPLOYER PLAN.—The term ‘‘qualified 

employer plan’’ has the meaning given to such term by 

subsection (p)(3)(A)(i). 

(D) GOVERNMENT PLAN.—The term ‘‘government plan’’ 

has the meaning given such term by subsection (p)(3)(B). 

(6) ORDERING RULES.—Unless the plan specifies otherwise, 

any distribution from such plan shall not be treated as being 

made from the accumulated deductible employee contributions, 

until all other amounts to the credit of the employee have been 

distributed. 

(p) LOANS TREATED AS DISTRIBUTIONS.—For purposes of this section— 

(1) TREATMENT AS DISTRIBUTIONS.— 

(A) LOANS.—If during any taxable year a participant or 

beneficiary receives (directly or indirectly) any amount as 

a loan from a qualified employer plan, such amount shall 

be treated as having been received by such individual as 

a distribution under such plan. 

(B) ASSIGNMENTS OR PLEDGES.—If during any taxable 

year a participant or beneficiary assigns (or agrees to assign) or pledges (or agrees to pledge) any portion of his interest in a qualified employer plan, such portion shall be 

treated as having been received by such individual as a 

loan from such plan. 

(2) EXCEPTION FOR CERTAIN LOANS.— 

(A) GENERAL RULE.—Paragraph (1) shall not apply to 

any loan to the extent that such loan (when added to the 

outstanding balance of all other loans from such plan 

whether made on, before, or after August 13, 1982), does 

not exceed the lesser of— 

(i) $50,000, reduced by the excess (if any) of— 

(I) the highest outstanding balance of loans 

from the plan during the 1-year period ending on 

the day before the date on which such loan was 

made, over 

(II) the outstanding balance of loans from the 

plan on the date on which such loan was made, or 

(ii) the greater of (I) one-half of the present value of 

the nonforfeitable accrued benefit of the employee 

under the plan, or (II) $10,000. 

For purposes of clause (ii), the present value of the nonforfeitable accrued benefit shall be determined without regard to any accumulated deductible employee contributions (as defined in subsection (o)(5)(B)). 

(B) REQUIREMENT THAT LOAN BE REPAYABLE WITHIN 5

YEARS.— 


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(i) IN GENERAL.—Subparagraph (A) shall not apply 

to any loan unless such loan, by its terms, is required 

to be repaid within 5 years. 

(ii) EXCEPTION FOR HOME LOANS.—Clause (i) shall 

not apply to any loan used to acquire any dwelling 

unit which within a reasonable time is to be used (determined at the time the loan is made) as the principal residence of the participant. 

(C) REQUIREMENT OF LEVEL AMORTIZATION.—Except as 

provided in regulations, this paragraph shall not apply to 

any loan unless substantially level amortization of such 

loan (with payments not less frequently than quarterly) is 

required over the term of the loan. 

(D) PROHIBITION OF LOANS THROUGH CREDIT CARDS AND

OTHER SIMILAR ARRANGEMENTS.—Subparagraph (A) shall 

not apply to any loan which is made through the use of any 

credit card or any other similar arrangement. 

ø(D)¿ (E) RELATED EMPLOYERS AND RELATED PLANS.— 

For purposes of this paragraph— 

(i) the rules of subsections (b), (c), and (m) of section 

414 shall apply, and 

(ii) all plans of an employer (determined after the 

application of such subsections) shall be treated as 1 

plan. 

(3) DENIAL OF INTEREST DEDUCTIONS IN CERTAIN CASES.— 

(A) IN GENERAL.—No deduction otherwise allowable 

under this chapter shall be allowed under this chapter for 

any interest paid or accrued on any loan to which paragraph (1) does not apply by reason of paragraph (2) during 

the period described in subparagraph (B). 

(B) PERIOD TO WHICH SUBPARAGRAPH (A) APPLIES.—For 

purposes of subparagraph (A), the period described in this 

subparagraph is the period— 

(i) on or after the 1st day on which the individual 

to whom the loan is made is a key employee (as defined in section 416(i)), or 

(ii) such loan is secured by amounts attributable to 

elective deferrals described in subparagraph (A) or (C) 

of section 402(g)(3). 

(4) QUALIFIED EMPLOYER PLAN, ETC..—For purposes of this 

subsection— 

(A) QUALIFIED EMPLOYER PLAN.— 

(i) IN GENERAL.—The term ‘‘qualified employer plan’’ 

means— 

(I) a plan described in section 401(a) which includes a trust exempt from tax under section 

501(a), 

(II) an annuity plan described in section 403(a), 

and 

(III) a plan under which amounts are contributed by an individual’s employer for an annuity 

contract described in section 403(b). 

(ii) SPECIAL RULE.—The term ‘‘qualified employer 

plan’’ shall include any plan which was (or was deterVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00164 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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mined to be) a qualified employer plan or a government plan. 

(B) GOVERNMENT PLAN.—The term ‘‘government plan’’ 

means any plan, whether or not qualified, established and 

maintained for its employees by the United States, by a 

State or political subdivision thereof, or by an agency or 

instrumentality of any of the foregoing. 

(5) SPECIAL RULES FOR LOANS, ETC., FROM CERTAIN CON- TRACTS.—For purposes of this subsection, any amount received 

as a loan under a contract purchased under a qualified employer plan (and any assignment or pledge with respect to such 

a contract) shall be treated as a loan under such employer 

plan. 

(q) 10-PERCENT PENALTY FOR PREMATURE DISTRIBUTIONS FROM

ANNUITY CONTRACTS.— 

(1) IMPOSITION OF PENALTY.—If any taxpayer receives any 

amount under an annuity contract, the taxpayer’s tax under 

this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of 

the portion of such amount which is includible in gross income. 

(2) SUBSECTION NOT TO APPLY TO CERTAIN DISTRIBUTIONS.— Paragraph (1) shall not apply to any distribution— 

(A) made on or after the date on which the taxpayer attains age 591/2, 

(B) made on or after the death of the holder (or, where 

the holder is not an individual, the death of the primary 

annuitant (as defined in subsection (s)(6)(B))), 

(C) attributable to the taxpayer’s becoming disabled 

within the meaning of subsection (m)(7), 

(D) which is a part of a series of substantially equal 

periodic payments (not less frequently than annually) 

made for the life (or life expectancy) of the taxpayer or the 

joint lives (or joint life expectancies) of such taxpayer and 

his designated beneficiary, 

(E) from a plan, contract, account, trust, or annuity described in subsection (e)(5)(D), 

(F) allocable to investment in the contract before August 

14, 1982, or 

(G) under a qualified funding asset (within the meaning 

of section 130(d), but without regard to whether there is 

a qualified assignment), 

(H) to which subsection (t) applies (without regard to 

paragraph (2) thereof), 

(I) under an immediate annuity contract (within the 

meaning of section 72(u)(4)), or 

(J) which is purchased by an employer upon the termination of a plan described in section 401(a) or 403(a) and 

which is held by the employer until such time as the employee separates from service. 

(3) CHANGE IN SUBSTANTIALLY EQUAL PAYMENTS.—If— 

(A) paragraph (1) does not apply to a distribution by reason of paragraph (2)(D), and 

(B) the series of payments under such paragraph are 

subsequently modified (other than by reason of death or 

disability)— 


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(i) before the close of the 5-year period beginning on 

the date of the first payment and after the taxpayer 

attains age 591/2, or 

(ii) before the taxpayer attains age 591/2, 

the taxpayer’s tax for the 1st taxable year in which such modification occurs shall be increased by an amount, determined 

under regulations, equal to the tax which (but for paragraph 

(2)(D)) would have been imposed, plus interest for the deferral 

period (within the meaning of subsection (t)(4)(B)). 

(r) CERTAIN RAILROAD RETIREMENT BENEFITS TREATED AS RE- CEIVED UNDER EMPLOYER PLANS.— (1) IN GENERAL.—Notwithstanding any other provision of 

law, any benefit provided under the Railroad Retirement Act 

of 1974 (other than a tier 1 railroad retirement benefit) shall 

be treated for purposes of this title as a benefit provided under 

an employer plan which meets the requirements of section 

401(a). 

(2) TIER 2 TAXES TREATED AS CONTRIBUTIONS.— (A) IN GENERAL.—For purposes of paragraph (1)— 

(i) the tier 2 portion of the tax imposed by section 

3201 (relating to tax on employees) shall be treated as 

an employee contribution, 

(ii) the tier 2 portion of the tax imposed by section 

3211 (relating to tax on employee representatives) 

shall be treated as an employee contribution, and 

(iii) the tier 2 portion of the tax imposed by section 

3221 (relating to tax on employers) shall be treated as 

an employer contribution. 

(B) TIER 2 PORTION.—For purposes of subparagraph 

(A)— 

(i) AFTER 1984.—With respect to compensation paid 

after 1984, the tier 2 portion shall be the taxes imposed by sections 3201(b), 3211(b), and 3221(b). 

(ii) AFTER SEPTEMBER 30, 1981, AND BEFORE 1985.— 

With respect to compensation paid before 1985 for 

services rendered after September 30, 1981, the tier 2 

portion shall be— 

(I) so much of the tax imposed by section 3201 

as is determined at the 2 percent rate, and 

(II) so much of the taxes imposed by sections 

3211 and 3221 as is determined at the 11.75 percent rate. 

With respect to compensation paid for services rendered 

after December 31, 1983, and before 1985, subclause (I) 

shall be applied by substituting ‘‘2.75 percent’’ for ‘‘2 percent’’, and subclause (II) shall be applied by substituting 

‘‘12.75 percent’’ for ‘‘11.75 percent’’. 

(iii) BEFORE OCTOBER 1, 1981.—With respect to compensation paid for services rendered during any period 

before October 1, 1981, the tier 2 portion shall be the 

excess (if any) of— 

(I) the tax imposed for such period by section 

3201, 3211, or 3221, as the case may be (other 

than any tax imposed with respect to man-hours), 

over 


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(II) the tax which would have been imposed by 

such section for such period had the rates of the 

comparable taxes imposed by chapter 21 for such 

period applied under such section. 

(C) CONTRIBUTIONS NOT ALLOCABLE TO SUPPLEMENTAL

ANNUITY OR WINDFALL BENEFITS.—For purposes of paragraph (1), no amount treated as an employee contribution 

under this paragraph shall be allocated to— 

(i) any supplemental annuity paid under section 2(b) 

of the Railroad Retirement Act of 1974, or 

(ii) any benefit paid under section 3(h), 4(e), or 4(h) 

of such Act. 

(3) TIER 1 RAILROAD RETIREMENT BENEFIT.—For purposes of 

paragraph (1), the term ‘‘tier 1 railroad retirement benefit’’ has 

the meaning given such term by section 86(d)(4). 

(s) REQUIRED DISTRIBUTIONS WHERE HOLDER DIES BEFORE ENTIRE

INTEREST IS DISTRIBUTED.— 

(1) IN GENERAL.—A contract shall not be treated as an annuity contract for purposes of this title unless it provides that— 

(A) if any holder of such contract dies on or after the annuity starting date and before the entire interest in such 

contract has been distributed, the remaining portion of 

such interest will be distributed at least as rapidly as 

under the method of distributions being used as of the 

date of his death, and 

(B) if any holder of such contract dies before the annuity 

starting date, the entire interest in such contract will be 

distributed within 5 years after the death of such holder. 

(2) EXCEPTION FOR CERTAIN AMOUNTS PAYABLE OVER LIFE OF

BENEFICIARY.—If— 

(A) any portion of the holder’s interest is payable to (or 

for the benefit of) a designated beneficiary, 

(B) such portion will be distributed (in accordance with 

regulations) over the life of such designated beneficiary (or 

over a period not extending beyond the life expectancy of 

such beneficiary), and 

(C) such distributions begin not later than 1 year after 

the date of the holder’s death or such later date as the Secretary may by regulations prescribe, 

then for purposes of paragraph (1), the portion referred to in 

subparagraph (A) shall be treated as distributed on the day on 

which such distributions begin. 

(3) SPECIAL RULE WHERE SURVIVING SPOUSE BENEFICIARY.— 

If the designated beneficiary referred to in paragraph (2)(A) is 

the surviving spouse of the holder of the contract, paragraphs 

(1) and (2) shall be applied by treating such spouse as the holder of such contract. 

(4) DESIGNATED BENEFICIARY.—For purposes of this subsection, the term ‘‘designated beneficiary’’ means any individual designated a beneficiary by the holder of the contract. 

(5) EXCEPTION FOR CERTAIN ANNUITY CONTRACTS.—This subsection shall not apply to any annuity contract— 

(A) which is provided— 

(i) under a plan described in section 401(a) which includes a trust exempt from tax under section 501, or 


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(ii) under a plan described in section 403(a), 

(B) which is described in section 403(b), 

(C) which is an individual retirement annuity or provided under an individual retirement account or annuity, 

or 

(D) which is a qualified funding asset (as defined in section 130(d), but without regard to whether there is a qualified assignment). 

(6) SPECIAL RULE WHERE HOLDER IS CORPORATION OR OTHER

NON-INDIVIDUAL.— (A) IN GENERAL.—For purposes of this subsection, if the 

holder of the contract is not an individual, the primary annuitant shall be treated as the holder of the contract. 

(B) PRIMARY ANNUITANT.—For purposes of subparagraph 

(A), the term ‘‘primary annuitant’’ means the individual, 

the events in the life of whom are of primary importance 

in affecting the timing or amount of the payout under the 

contract. 

(7) TREATMENT OF CHANGES IN PRIMARY ANNUITANT WHERE

HOLDER OF CONTRACT IS NOT AN INDIVIDUAL.—For purposes of 

this subsection, in the case of a holder of an annuity contract 

which is not an individual, if there is a change in a primary 

annuitant (as defined in paragraph (6)(B)), such change shall 

be treated as the death of the holder. 

(t) 10-PERCENT ADDITIONAL TAX ON EARLY DISTRIBUTIONS FROM

QUALIFIED RETIREMENT PLANS.— (1) IMPOSITION OF ADDITIONAL TAX.—If any taxpayer receives 

any amount from a qualified retirement plan (as defined in 

section 4974(c)), the taxpayer’s tax under this chapter for the 

taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of 

such amount which is includible in gross income. 

(2) SUBSECTION NOT TO APPLY TO CERTAIN DISTRIBUTIONS.— Except as provided in paragraphs (3) and (4), paragraph (1) 

shall not apply to any of the following distributions: 

(A) IN GENERAL.—Distributions which are— 

(i) made on or after the date on which the employee 

attains age 591/2, 

(ii) made to a beneficiary (or to the estate of the employee) on or after the death of the employee, 

(iii) attributable to the employee’s being disabled 

within the meaning of subsection (m)(7), 

(iv) part of a series of substantially equal periodic 

payments (not less frequently than annually) made for 

the life (or life expectancy) of the employee or the joint 

lives (or joint life expectancies) of such employee and 

his designated beneficiary, 

(v) made to an employee after separation from service after attainment of age 55, 

(vi) dividends paid with respect to stock of a corporation which are described in section 404(k), 

(vii) made on account of a levy under section 6331 

on the qualified retirement plan, or 

(viii) payments under a phased retirement annuity 

under section 8366a(a)(5) or 8412a(a)(5) of title 5, 


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United States Code, or a composite retirement annuity 

under section 8366a(a)(1) or 8412a(a)(1) of such title. 

(B) MEDICAL EXPENSES.—Distributions made to the employee (other than distributions described in subparagraph 

(A), (C), or (D)) to the extent such distributions do not exceed the amount allowable as a deduction under section 

213 to the employee for amounts paid during the taxable 

year for medical care (determined without regard to 

whether the employee itemizes deductions for such taxable 

year). 

(C) PAYMENTS TO ALTERNATE PAYEES PURSUANT TO

QUALIFIED DOMESTIC RELATIONS ORDERS.—Any distribution 

to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1)). 

(D) DISTRIBUTIONS TO UNEMPLOYED INDIVIDUALS FOR

HEALTH INSURANCE PREMIUMS.— 

(i) IN GENERAL.—Distributions from an individual 

retirement plan to an individual after separation from 

employment— 

(I) if such individual has received unemployment compensation for 12 consecutive weeks 

under any Federal or State unemployment compensation law by reason of such separation, 

(II) if such distributions are made during any 

taxable year during which such unemployment 

compensation is paid or the succeeding taxable 

year, and 

(III) to the extent such distributions do not exceed the amount paid during the taxable year for 

insurance described in section 213(d)(1)(D) with 

respect to the individual and the individual’s 

spouse and dependents (as defined in section 152, 

determined without regard to subsections (b)(1), 

(b)(2), and (d)(1)(B) thereof). 

(ii) DISTRIBUTIONS AFTER REEMPLOYMENT.—Clause 

(i) shall not apply to any distribution made after the 

individual has been employed for at least 60 days after 

the separation from employment to which clause (i) 

applies. 

(iii) SELF-EMPLOYED INDIVIDUALS.—To the extent 

provided in regulations, a self-employed individual 

shall be treated as meeting the requirements of clause 

(i)(I) if, under Federal or State law, the individual 

would have received unemployment compensation but 

for the fact the individual was self-employed. 

(E) DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS

FOR HIGHER EDUCATION EXPENSES.—Distributions to an individual from an individual retirement plan to the extent 

such distributions do not exceed the qualified higher education expenses (as defined in paragraph (7)) of the taxpayer for the taxable year. Distributions shall not be taken 

into account under the preceding sentence if such distributions are described in subparagraph (A), (C), or (D) or to 

the extent paragraph (1) does not apply to such distributions by reason of subparagraph (B). 


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(F) DISTRIBUTIONS FROM CERTAIN PLANS FOR FIRST HOME

PURCHASES.—Distributions to an individual from an individual retirement plan which are qualified first-time homebuyer distributions (as defined in paragraph (8)). Distributions shall not be taken into account under the preceding 

sentence if such distributions are described in subparagraph (A), (C), (D), or (E) or to the extent paragraph (1) 

does not apply to such distributions by reason of subparagraph (B). 

(G) DISTRIBUTIONS FROM RETIREMENT PLANS TO INDIVIDUALS CALLED TO ACTIVE DUTY.— 

(i) IN GENERAL.—Any qualified reservist distribution. 

(ii) AMOUNT DISTRIBUTED MAY BE REPAID.—Any individual who receives a qualified reservist distribution 

may, at any time during the 2-year period beginning 

on the day after the end of the active duty period, 

make one or more contributions to an individual retirement plan of such individual in an aggregate 

amount not to exceed the amount of such distribution. 

The dollar limitations otherwise applicable to contributions to individual retirement plans shall not 

apply to any contribution made pursuant to the preceding sentence. No deduction shall be allowed for any 

contribution pursuant to this clause. 

(iii) QUALIFIED RESERVIST DISTRIBUTION.—For purposes of this subparagraph, the term ‘‘qualified reservist distribution’’ means any distribution to an individual if— 

(I) such distribution is from an individual retirement plan, or from amounts attributable to employer contributions made pursuant to elective deferrals described in subparagraph (A) or (C) of section 402(g)(3) or section 501(c)(18)(D)(iii), 

(II) such individual was (by reason of being a 

member of a reserve component (as defined in section 101 of title 37, United States Code)) ordered 

or called to active duty for a period in excess of 

179 days or for an indefinite period, and 

(III) such distribution is made during the period 

beginning on the date of such order or call and 

ending at the close of the active duty period. 

(iv) APPLICATION OF SUBPARAGRAPH.—This subparagraph applies to individuals ordered or called to active 

duty after September 11, 2001. In no event shall the 

2-year period referred to in clause (ii) end before the 

date which is 2 years after the date of the enactment 

of this subparagraph. 

(H) DISTRIBUTIONS FROM RETIREMENT PLANS IN CASE OF

BIRTH OF CHILD OR ADOPTION.— 

(i) IN GENERAL.—Any qualified birth or adoption distribution. 

(ii) LIMITATION.—The aggregate amount which may 

be treated as qualified birth or adoption distributions 


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by any individual with respect to any birth or adoption 

shall not exceed $5,000. 

(iii) QUALIFIED BIRTH OR ADOPTION DISTRIBUTION.— 

For purposes of this subparagraph— 

(I) IN GENERAL.—The term ‘‘qualified birth or 

adoption distribution’’ means any distribution 

from an applicable eligible retirement plan to an 

individual if made during the 1-year period beginning on the date on which a child of the individual 

is born or on which the legal adoption by the individual of an eligible adoptee is finalized. 

(II) ELIGIBLE ADOPTEE.—The term ‘‘eligible 

adoptee’’ means any individual (other than a child 

of the taxpayer’s spouse) who has not attained age 

18 or is physically or mentally incapable of selfsupport. 

(iv) TREATMENT OF PLAN DISTRIBUTIONS.— 

(I) IN GENERAL.—If a distribution to an individual would (without regard to clause (ii)) be a 

qualified birth or adoption distribution, a plan 

shall not be treated as failing to meet any requirement of this title merely because the plan treats the 

distribution as a qualified birth or adoption distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group 

which includes the employer) to such individual 

exceeds $5,000. 

(II) CONTROLLED GROUP.—For purposes of subclause (I), the term ‘‘controlled group’’ means any 

group treated as a single employer under subsection (b), (c), (m), or (o) of section 414. 

(v) AMOUNT DISTRIBUTED MAY BE REPAID.— 

(I) IN GENERAL.—Any individual who receives a 

qualified birth or adoption distribution may make 

one or more contributions in an aggregate amount 

not to exceed the amount of such distribution to an 

applicable eligible retirement plan of which such 

individual is a beneficiary and to which a rollover 

contribution of such distribution could be made 

under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), 

or 457(e)(16), as the case may be. 

(II) LIMITATION ON CONTRIBUTIONS TO APPLICABLE ELIGIBLE RETIREMENT PLANS OTHER THAN

IRAS.—The aggregate amount of contributions 

made by an individual under subclause (I) to any 

applicable eligible retirement plan which is not an 

individual retirement plan shall not exceed the aggregate amount of qualified birth or adoption distributions which are made from such plan to such 

individual. Subclause (I) shall not apply to contributions to any applicable eligible retirement 

plan which is not an individual retirement plan 

unless the individual is eligible to make contribuVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00171 Fmt 6659 Sfmt 6603 E:\HR\OC\HR065P1.XXX HR065P1

rfrederick on DSKBCBPHB2PROD with HEARING
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tions (other than those described in subclause (I)) 

to such applicable eligible retirement plan. 

(III) TREATMENT OF REPAYMENTS OF DISTRIBU- TIONS FROM APPLICABLE ELIGIBLE RETIREMENT

PLANS OTHER THAN IRAS.—If a contribution is 

made under subclause (I) with respect to a qualified birth or adoption distribution from an applicable eligible retirement plan other than an individual retirement plan, then the taxpayer shall, to 

the extent of the amount of the contribution, be 

treated as having received such distribution in an 

eligible rollover distribution (as defined in section 

402(c)(4)) and as having transferred the amount to 

the applicable eligible retirement plan in a direct 

trustee to trustee transfer within 60 days of the 

distribution. 

(IV) TREATMENT OF REPAYMENTS FOR DISTRIBU- TIONS FROM IRAS.—If a contribution is made under 

subclause (I) with respect to a qualified birth or 

adoption distribution from an individual retirement plan, then, to the extent of the amount of the 

contribution, such distribution shall be treated as 

a distribution described in section 408(d)(3) and as 

having been transferred to the applicable eligible 

retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. 

(vi) DEFINITION AND SPECIAL RULES.—For purposes 

of this subparagraph— 

(I) APPLICABLE ELIGIBLE RETIREMENT PLAN.— 

The term ‘‘applicable eligible retirement plan’’ 

means an eligible retirement plan (as defined in 

section 402(c)(8)(B)) other than a defined benefit 

plan. 

(II) EXEMPTION OF DISTRIBUTIONS FROM TRUSTEE TO TRUSTEE TRANSFER AND WITHHOLDING

RULES.—For purposes of sections 401(a)(31), 402(f), 

and 3405, a qualified birth or adoption distribution shall not be treated as an eligible rollover distribution. 

(III) TAXPAYER MUST INCLUDE TIN.—A distribution shall not be treated as a qualified birth or 

adoption distribution with respect to any child or 

eligible adoptee unless the taxpayer includes the 

name, age, and TIN of such child or eligible 

adoptee on the taxpayer’s return of tax for the taxable year. 

(IV) DISTRIBUTIONS TREATED AS MEETING PLAN

DISTRIBUTION REQUIREMENTS.—Any qualified 

birth or adoption distribution shall be treated as 

meeting the requirements of sections 

401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), and 

457(d)(1)(A). 

(3) LIMITATIONS.— 

(A) CERTAIN EXCEPTIONS NOT TO APPLY TO INDIVIDUAL

RETIREMENT PLANS.—Subparagraphs (A)(v) and (C) of 


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paragraph (2) shall not apply to distributions from an individual retirement plan. 

(B) PERIODIC PAYMENTS UNDER QUALIFIED PLANS MUST

BEGIN AFTER SEPARATION.—Paragraph (2)(A)(iv) shall not 

apply to any amount paid from a trust described in section 

401(a) which is exempt from tax under section 501(a) or 

from a contract described in section 72(e)(5)(D)(ii) unless 

the series of payments begins after the employee separates 

from service. 

(4) CHANGE IN SUBSTANTIALLY EQUAL PAYMENTS.— 

(A) IN GENERAL.—If— 

(i) paragraph (1) does not apply to a distribution by 

reason of paragraph (2)(A)(iv), and 

(ii) the series of payments under such paragraph are 

subsequently modified (other than by reason of death 

or disability or a distribution to which paragraph (10) 

applies)— 

(I) before the close of the 5-year period beginning with the date of the first payment and after 

the employee attains age 591/2, or 

(II) before the employee attains age 591/2, 

the taxpayer’s tax for the 1st taxable year in which such 

modification occurs shall be increased by an amount, determined under regulations, equal to the tax which (but for 

paragraph (2)(A)(iv)) would have been imposed, plus interest for the deferral period. 

(B) DEFERRAL PERIOD.—For purposes of this paragraph, 

the term ‘‘deferral period’’ means the period beginning 

with the taxable year in which (without regard to paragraph (2)(A)(iv)) the distribution would have been includible in gross income and ending with the taxable year in 

which the modification described in subparagraph (A) occurs. 

(5) EMPLOYEE.—For purposes of this subsection, the term 

‘‘employee’’ includes any participant, and in the case of an individual retirement plan, the individual for whose benefit such 

plan was established. 

(6) SPECIAL RULES FOR SIMPLE RETIREMENT ACCOUNTS.—In 

the case of any amount received from a simple retirement account (within the meaning of section 408(p)) during the 2-year 

period beginning on the date such individual first participated 

in any qualified salary reduction arrangement maintained by 

the individual’s employer under section 408(p)(2), paragraph 

(1) shall be applied by substituting ‘‘25 percent’’ for ‘‘10 percent’’. 

(7) QUALIFIED HIGHER EDUCATION EXPENSES.—For purposes 

of paragraph (2)(E)— 

(A) IN GENERAL.—The term ‘‘qualified higher education 

expenses’’ means qualified higher education expenses (as 

defined in section 529(e)(3)) for education furnished to— 

(i) the taxpayer, 

(ii) the taxpayer’s spouse, or 

(iii) any child (as defined in section 152(f)(1)) or 

grandchild of the taxpayer or the taxpayer’s spouse, 


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at an eligible educational institution (as defined in section 

529(e)(5)). 

(B) COORDINATION WITH OTHER BENEFITS.—The amount 

of qualified higher education expenses for any taxable year 

shall be reduced as provided in section 25A(g)(2). 

(8) QUALIFIED FIRST-TIME HOMEBUYER DISTRIBUTIONS.—For 

purposes of paragraph (2)(F)— 

(A) IN GENERAL.—The term ‘‘qualified first-time homebuyer distribution’’ means any payment or distribution received by an individual to the extent such payment or distribution is used by the individual before the close of the 

120th day after the day on which such payment or distribution is received to pay qualified acquisition costs with 

respect to a principal residence of a first-time homebuyer 

who is such individual, the spouse of such individual, or 

any child, grandchild, or ancestor of such individual or the 

individual’s spouse. 

(B) LIFETIME DOLLAR LIMITATION.—The aggregate 

amount of payments or distributions received by an individual which may be treated as qualified first-time homebuyer distributions for any taxable year shall not exceed 

the excess (if any) of— (i) $10,000, over 

(ii) the aggregate amounts treated as qualified firsttime homebuyer distributions with respect to such individual for all prior taxable years. 

(C) QUALIFIED ACQUISITION COSTS.—For purposes of this 

paragraph, the term ‘‘qualified acquisition costs’’ means 

the costs of acquiring, constructing, or reconstructing a 

residence. Such term includes any usual or reasonable settlement, financing, or other closing costs. 

(D) FIRST-TIME HOMEBUYER; OTHER DEFINITIONS.—For 

purposes of this paragraph— 

(i) FIRST-TIME HOMEBUYER.—The term ‘‘first-time 

homebuyer’’ means any individual if— 

(I) such individual (and if married, such individual’s spouse) had no present ownership interest in 

a principal residence during the 2-year period 

ending on the date of acquisition of the principal 

residence to which this paragraph applies, and 

(II) subsection (h) or (k) of section 1034 (as in 

effect on the day before the date of the enactment 

of this paragraph) did not suspend the running of 

any period of time specified in section 1034 (as so 

in effect) with respect to such individual on the 

day before the date the distribution is applied pursuant to subparagraph (A). 

(ii) PRINCIPAL RESIDENCE.—The term ‘‘principal residence’’ has the same meaning as when used in section 

121. 

(iii) DATE OF ACQUISITION.—The term ‘‘date of acquisition’’ means the date— 

(I) on which a binding contract to acquire the 

principal residence to which subparagraph (A) applies is entered into, or 


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(II) on which construction or reconstruction of 

such a principal residence is commenced. 

(E) SPECIAL RULE WHERE DELAY IN ACQUISITION.—If any 

distribution from any individual retirement plan fails to 

meet the requirements of subparagraph (A) solely by reason of a delay or cancellation of the purchase or construction of the residence, the amount of the distribution may 

be contributed to an individual retirement plan as provided in section 408(d)(3)(A)(i) (determined by substituting 

‘‘120th day’’ for ‘‘60th day’’ in such section), except that— 

(i) section 408(d)(3)(B) shall not be applied to such 

contribution, and 

(ii) such amount shall not be taken into account in 

determining whether section 408(d)(3)(B) applies to 

any other amount. 

(9) SPECIAL RULE FOR ROLLOVERS TO SECTION 457 PLANS.—For 

purposes of this subsection, a distribution from an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A) shall be treated as a distribution from a qualified retirement plan described 

in 4974(c)(1) to the extent that such distribution is attributable 

to an amount transferred to an eligible deferred compensation 

plan from a qualified retirement plan (as defined in section 

4974(c)). 

(10) DISTRIBUTIONS TO QUALIFIED PUBLIC SAFETY EMPLOYEES

IN GOVERNMENTAL PLANS.— 

(A) IN GENERAL.—In the case of a distribution to a qualified public safety employee from a governmental plan 

(within the meaning of section 414(d)), paragraph (2)(A)(v) 

shall be applied by substituting ‘‘age 50’’ for ‘‘age 55’’. 

(B) QUALIFIED PUBLIC SAFETY EMPLOYEE.—For purposes 

of this paragraph, the term ‘‘qualified public safety employee’’ means— 

(i) any employee of a State or political subdivision of 

a State who provides police protection, firefighting 

services, or emergency medical services for any area 

within the jurisdiction of such State or political subdivision, or 

(ii) any Federal law enforcement officer described in 

section 8331(20) or 8401(17) of title 5, United States 

Code, any Federal customs and border protection officer described in section 8331(31) or 8401(36) of such 

title, any Federal firefighter described in section 

8331(21) or 8401(14) of such title, any air traffic controller described in 8331(30) or 8401(35) of such title, 

any nuclear materials courier described in section 

8331(27) or 8401(33) of such title, any member of the 

United States Capitol Police, any member of the Supreme Court Police, or any diplomatic security special 

agent of the Department of State. 

(u) TREATMENT OF ANNUITY CONTRACTS NOT HELD BY NATURAL

PERSONS.— 

(1) IN GENERAL.—If any annuity contract is held by a person 

who is not a natural person— 


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(A) such contract shall not be treated as an annuity contract for purposes of this subtitle (other than subchapter 

L), and 

(B) the income on the contract for any taxable year of 

the policyholder shall be treated as ordinary income received or accrued by the owner during such taxable year. 

For purposes of this paragraph, holding by a trust or other entity as an agent for a natural person shall not be taken into 

account. 

(2) INCOME ON THE CONTRACT.— (A) IN GENERAL.—For purposes of paragraph (1), the 

term ‘‘income on the contract’’ means, with respect to any 

taxable year of the policyholder, the excess of— 

(i) the sum of the net surrender value of the contract 

as of the close of the taxable year plus all distributions 

under the contract received during the taxable year or 

any prior taxable year, reduced by 

(ii) the sum of the amount of net premiums under 

the contract for the taxable year and prior taxable 

years and amounts includible in gross income for prior 

taxable years with respect to such contract under this 

subsection. 

Where necessary to prevent the avoidance of this subsection, the Secretary may substitute ‘‘fair market value of 

the contract’’ for ‘‘net surrender value of the contract’’ each 

place it appears in the preceding sentence. 

(B) NET PREMIUMS.—For purposes of this paragraph, the 

term ‘‘net premiums’’ means the amount of premiums paid 

under the contract reduced by any policyholder dividends. 

(3) EXCEPTIONS.—This subsection shall not apply to any annuity contract which— 

(A) is acquired by the estate of a decedent by reason of 

the death of the decedent, 

(B) is held under a plan described in section 401(a) or 

403(a), under a program described in section 403(b), or 

under an individual retirement plan, 

(C) is a qualified funding asset (as defined in section 

130(d), but without regard to whether there is a qualified 

assignment), 

(D) is purchased by an employer upon the termination of 

a plan described in section 401(a) or 403(a) and is held by 

the employer until all amounts under such contract are 

distributed to the employee for whom such contract was 

purchased or the employee’s beneficiary, or 

(E) is an immediate annuity. 

(4) IMMEDIATE ANNUITY.—For purposes of this subsection, 

the term ‘‘immediate annuity’’ means an annuity— 

(A) which is purchased with a single premium or annuity consideration, 

(B) the annuity starting date (as defined in subsection 

(c)(4)) of which commences no later than 1 year from the 

date of the purchase of the annuity, and 

(C) which provides for a series of substantially equal 

periodic payments (to be made not less frequently than annually) during the annuity period. 


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(v) 10-PERCENT ADDITIONAL TAX FOR TAXABLE DISTRIBUTIONS

FROM MODIFIED ENDOWMENT CONTRACTS.— (1) IMPOSITION OF ADDITIONAL TAX.—If any taxpayer receives 

any amount under a modified endowment contract (as defined 

in section 7702A), the taxpayer’s tax under this chapter for the 

taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of 

such amount which is includible in gross income. 

(2) SUBSECTION NOT TO APPLY TO CERTAIN DISTRIBUTIONS.— Paragraph (1) shall not apply to any distribution— 

(A) made on or after the date on which the taxpayer attains age 591/2, 

(B) which is attributable to the taxpayer’s becoming disabled (within the meaning of subsection (m)(7)), or 

(C) which is part of a series of substantially equal periodic payments (not less frequently than annually) made for 

the life (or life expectancy) of the taxpayer or the joint 

lives (or joint life expectancies) of such taxpayer and his 

beneficiary. 

(w) APPLICATION OF BASIS RULES TO NONRESIDENT ALIENS.— 

(1) IN GENERAL.—Notwithstanding any other provision of 

this section, for purposes of determining the portion of any distribution which is includible in gross income of a distributee 

who is a citizen or resident of the United States, the investment in the contract shall not include any applicable nontaxable contributions or applicable nontaxable earnings. 

(2) APPLICABLE NONTAXABLE CONTRIBUTION.—For purposes of 

this subsection, the term ‘‘applicable nontaxable contribution’’ 

means any employer or employee contribution— 

(A) which was made with respect to compensation— 

(i) for labor or personal services performed by an 

employee who, at the time the labor or services were 

performed, was a nonresident alien for purposes of the 

laws of the United States in effect at such time, and 

(ii) which is treated as from sources without the 

United States, and 

(B) which was not subject to income tax (and would have 

been subject to income tax if paid as cash compensation 

when the services were rendered) under the laws of the 

United States or any foreign country. 

(3) APPLICABLE NONTAXABLE EARNINGS.—For purposes of this 

subsection, the term ‘‘applicable nontaxable earnings’’ means 

earnings— 

(A) which are paid or accrued with respect to any employer or employee contribution which was made with respect to compensation for labor or personal services performed by an employee, 

(B) with respect to which the employee was at the time 

the earnings were paid or accrued a nonresident alien for 

purposes of the laws of the United States, and 

(C) which were not subject to income tax under the laws 

of the United States or any foreign country. 

(4) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this 

subsection, including regulations treating contributions and 


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earnings as not subject to tax under the laws of any foreign 

country where appropriate to carry out the purposes of this 

subsection. 

(x) CROSS REFERENCE.—For limitation on adjustments to basis of 

annuity contracts sold, see section 1021. 

* * * * * * * 

PART III—ITEMS SPECIFICALLY EXCLUDED FROM 

GROSS INCOME 

* * * * * * * 

SEC. 139B. BENEFITS PROVIDED TO VOLUNTEER FIREFIGHTERS AND 

EMERGENCY MEDICAL RESPONDERS. 

(a) IN GENERAL.—In the case of any member of a qualified volunteer emergency response organization, gross income shall not include— 

(1) any qualified State and local tax benefit, and 

(2) any qualified payment. 

(b) DENIAL OF DOUBLE BENEFITS.—In the case of any member of 

a qualified volunteer emergency response organization— 

(1) the deduction under 164 shall be determined with regard 

to any qualified State and local tax benefit, and 

(2) expenses paid or incurred by the taxpayer in connection 

with the performance of services as such a member shall be 

taken into account under section 170 only to the extent such 

expenses exceed the amount of any qualified payment excluded 

from gross income under subsection (a). 

(c) DEFINITIONS.—For purposes of this section— 

(1) QUALIFIED STATE AND LOCAL TAX BENEFIT.—The term 

‘‘qualified state and local tax benefit’’ means any reduction or 

rebate of a tax described in paragraph (1), (2), or (3) of section 

164(a) provided by a State or political division thereof on account of services performed as a member of a qualified volunteer emergency response organization. 

(2) QUALIFIED PAYMENT.— 

(A) IN GENERAL.—The term ‘‘qualified payment’’ means 

any payment (whether reimbursement or otherwise) provided by a State or political division thereof on account of 

the performance of services as a member of a qualified volunteer emergency response organization. 

(B) APPLICABLE DOLLAR LIMITATION.—The amount determined under subparagraph (A) for any taxable year shall 

not exceed ø$30¿ $50 multiplied by the number of months 

during such year that the taxpayer performs such services. 

(3) QUALIFIED VOLUNTEER EMERGENCY RESPONSE ORGANIZATION.—The term ‘‘qualified volunteer emergency response organization’’ means any volunteer organization— 

(A) which is organized and operated to provide firefighting or emergency medical services for persons in the 

State or political subdivision, as the case may be, and 

(B) which is required (by written agreement) by the 

State or political subdivision to furnish firefighting or 

emergency medical services in such State or political subdivision. 


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(d) TERMINATION.—This section shall not apply with respect to 

taxable years øbeginning after December 31, 2010.¿ beginning— 

(1) after December 31, 2010, and before January 1, 2020, or 

(2) after December 31, 2020. 

* * * * * * * 

PART VII—ADDITIONAL ITEMIZED DEDUCTIONS FOR 

INDIVIDUALS 

* * * * * * * 

SEC. 219. RETIREMENT SAVINGS. 

(a) ALLOWANCE OF DEDUCTION.—In the case of an individual, 

there shall be allowed as a deduction an amount equal to the qualified retirement contributions of the individual for the taxable year. 

(b) MAXIMUM AMOUNT OF DEDUCTION.— (1) IN GENERAL.—The amount allowable as a deduction 

under subsection (a) to any individual for any taxable year 

shall not exceed the lesser of— 

(A) the deductible amount, or 

(B) an amount equal to the compensation includible in 

the individual’s gross income for such taxable year. 

(2) SPECIAL RULE FOR EMPLOYER CONTRIBUTIONS UNDER SIM- PLIFIED EMPLOYEE PENSIONS.—This section shall not apply 

with respect to an employer contribution to a simplified employee pension. 

(3) PLANS UNDER SECTION 501(C)(18).—Notwithstanding paragraph (1), the amount allowable as a deduction under subsection (a) with respect to any contributions on behalf of an 

employee to a plan described in section 501(c)(18) shall not exceed the lesser of— 

(A) $7,000, or 

(B) an amount equal to 25 percent of the compensation 

(as defined in section 415(c)(3)) includible in the individual’s gross income for such taxable year. 

(4) SPECIAL RULE FOR SIMPLE RETIREMENT ACCOUNTS.—This 

section shall not apply with respect to any amount contributed 

to a simple retirement account established under section 

408(p). 

(5) DEDUCTIBLE AMOUNT.—For purposes of paragraph 

(1)(A)— 

(A) IN GENERAL.—The deductible amount is $5,000. 

(B) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS 50 OR

OLDER.— 

(i) IN GENERAL.—In the case of an individual who 

has attained the age of 50 before the close of the taxable year, the deductible amount for such taxable year 

shall be increased by the applicable amount. 

(ii) APPLICABLE AMOUNT.—For purposes of clause (i), 

the applicable amount is $1,000. 

(C) COST-OF-LIVING ADJUSTMENT.— 

(i) IN GENERAL.—In the case of any taxable year beginning in a calendar year after 2008, the $5,000 

amount under subparagraph (A) shall be increased by 

an amount equal to— 

(I) such dollar amount, multiplied by 


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(II) the cost-of-living adjustment determined 

under section 1(f)(3) for the calendar year in 

which the taxable year begins, determined by substituting ‘‘calendar year 2007’’ for ‘‘calendar year 

2016’’ in subparagraph (A)(ii) thereof. 

(ii) ROUNDING RULES.—If any amount after adjust- ment under clause (i) is not a multiple of $500, such 

amount shall be rounded to the next lower multiple of 

$500. 

(c) KAY BAILEY HUTCHISON SPOUSAL IRA.— 

(1) IN GENERAL.—In the case of an individual to whom this 

paragraph applies for the taxable year, the limitation of paragraph (1) of subsection (b) shall be equal to the lesser of— 

(A) the dollar amount in effect under subsection (b)(1)(A) 

for the taxable year, or 

(B) the sum of— 

(i) the compensation includible in such individual’s 

gross income for the taxable year, plus 

(ii) the compensation includible in the gross income 

of such individual’s spouse for the taxable year reduced by— 

(I) the amount allowed as a deduction under 

subsection (a) to such spouse for such taxable 

year, 

(II) the amount of any designated nondeductible 

contribution (as defined in section 408(o)) on behalf of such spouse for such taxable year, and 

(III) the amount of any contribution on behalf of 

such spouse to a Roth IRA under section 408A for 

such taxable year. 

(2) INDIVIDUALS TO WHOM PARAGRAPH (1) APPLIES.—Paragraph (1) shall apply to any individual if— 

(A) such individual files a joint return for the taxable 

year, and 

(B) the amount of compensation (if any) includible in 

such individual’s gross income for the taxable year is less 

than the compensation includible in the gross income of 

such individual’s spouse for the taxable year. 

(d) OTHER LIMITATIONS AND RESTRICTIONS.— ø(1) BENEFICIARY MUST BE UNDER AGE 701/2.—No deduction 

shall be allowed under this section with respect to any qualified retirement contribution for the benefit of an individual if 

such individual has attained age 701/2 before the close of such 

individual’s taxable year for which the contribution was 

made.¿ 

(2) RECONTRIBUTED AMOUNTS.—No deduction shall be allowed under this section with respect to a rollover contribution 

described in section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 

457(e)(16). 

(3) AMOUNTS CONTRIBUTED UNDER ENDOWMENT CONTRACT.— In the case of an endowment contract described in section 

408(b), no deduction shall be allowed under this section for 

that portion of the amounts paid under the contract for the 

taxable year which is properly allocable, under regulations prescribed by the Secretary, to the cost of life insurance. 


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(4) DENIAL OF DEDUCTION FOR AMOUNT CONTRIBUTED TO IN- HERITED ANNUITIES OR ACCOUNTS.—No deduction shall be allowed under this section with respect to any amount paid to 

an inherited individual retirement account or individual retirement annuity (within the meaning of section 408(d)(3)(C)(ii)). 

(e) QUALIFIED RETIREMENT CONTRIBUTION.—For purposes of this 

section, the term ‘‘qualified retirement contribution’’ means— 

(1) any amount paid in cash for the taxable year by or on behalf of an individual to an individual retirement plan for such 

individual’s benefit, and 

(2) any amount contributed on behalf of any individual to a 

plan described in section 501(c)(18). 

(f) OTHER DEFINITIONS AND SPECIAL RULES.— 

(1) COMPENSATION.—For purposes of this section, the term 

‘‘compensation’’ includes earned income (as defined in section 

401(c)(2)). The term ‘‘compensation’’ does not include any 

amount received as a pension or annuity and does not include 

any amount received as deferred compensation. The term 

‘‘compensation’’ shall include any amount includible in the individual’s gross income under section 71 with respect to a divorce or separation instrument described in subparagraph (A) 

of section 71(b)(2). For purposes of this paragraph, section 

401(c)(2) shall be applied as if the term trade or business for 

purposes of section 1402 included service described in subsection (c)(6). The term ‘‘compensation’’ includes any differential wage payment (as defined in section 3401(h)(2)). The term 

‘‘compensation’’ shall include any amount which is included in 

the individual’s gross income and paid to the individual to aid 

the individual in the pursuit of graduate or postdoctoral study. 

(2) MARRIED INDIVIDUALS.—The maximum deduction under 

subsection (b) shall be computed separately for each individual, 

and this section shall be applied without regard to any community property laws. 

(3) TIME WHEN CONTRIBUTIONS DEEMED MADE.—For purposes 

of this section, a taxpayer shall be deemed to have made a contribution to an individual retirement plan on the last day of 

the preceding taxable year if the contribution is made on account of such taxable year and is made not later than the time 

prescribed by law for filing the return for such taxable year 

(not including extensions thereof). 

(5) EMPLOYER PAYMENTS.—For purposes of this title, any 

amount paid by an employer to an individual retirement plan 

shall be treated as payment of compensation to the employee 

(other than a self-employed individual who is an employee 

within the meaning of section 401(c)(1)) includible in his gross 

income in the taxable year for which the amount was contributed, whether or not a deduction for such payment is allowable 

under this section to the employee. 

(6) EXCESS CONTRIBUTIONS TREATED AS CONTRIBUTION MADE

DURING SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED

LIMITATION.— (A) IN GENERAL.—If for the taxable year the maximum 

amount allowable as a deduction under this section for 

contributions to an individual retirement plan exceeds the 

amount contributed, then the taxpayer shall be treated as 


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having made an additional contribution for the taxable 

year in an amount equal to the lesser of— 

(i) the amount of such excess, or 

(ii) the amount of the excess contributions for such 

taxable year (determined under section 4973(b)(2) 

without regard to subparagraph (C) thereof). 

(B) AMOUNT CONTRIBUTED.—For purposes of this paragraph, the amount contributed— 

(i) shall be determined without regard to this paragraph, and 

(ii) shall not include any rollover contribution. 

(C) SPECIAL RULE WHERE EXCESS DEDUCTION WAS ALLOWED FOR CLOSED YEAR.—Proper reduction shall be made 

in the amount allowable as a deduction by reason of this 

paragraph for any amount allowed as a deduction under 

this section for a prior taxable year for which the period 

for assessing deficiency has expired if the amount so allowed exceeds the amount which should have been allowed 

for such prior taxable year. 

(7) SPECIAL RULE FOR COMPENSATION EARNED BY MEMBERS

OF THE ARMED FORCES FOR SERVICE IN A COMBAT ZONE..—For 

purposes of subsections (b)(1)(B) and (c), the amount of compensation includible in an individual’s gross income shall be 

determined without regard to section 112. 

(8) ELECTION NOT TO DEDUCT CONTRIBUTIONS.—For election 

not to deduct contributions to individual retirement plans, see 

section 408(o)(2)(B)(ii). 

(g) LIMITATION ON DEDUCTION FOR ACTIVE PARTICIPANTS IN CERTAIN PENSION PLANS.— 

(1) IN GENERAL.—If (for any part of any plan year ending 

with or within a taxable year) an individual or the individual’s 

spouse is an active participant, each of the dollar limitations 

contained in subsections (b)(1)(A) and (c)(1)(A) for such taxable 

year shall be reduced (but not below zero) by the amount determined under paragraph (2). 

(2) AMOUNT OF REDUCTION.— 

(A) IN GENERAL.—The amount determined under this 

paragraph with respect to any dollar limitation shall be 

the amount which bears the same ratio to such limitation 

as— 

(i) the excess of— 

(I) the taxpayer’s adjusted gross income for such 

taxable year, over 

(II) the applicable dollar amount, bears to 

(ii) $10,000 ($20,000 in the case of a joint return). 

(B) NO REDUCTION BELOW $200 UNTIL COMPLETE PHASEOUT.—No dollar limitation shall be reduced below $200 

under paragraph (1) unless (without regard to this subparagraph) such limitation is reduced to zero. 

(C) ROUNDING.—Any amount determined under this 

paragraph which is not a multiple of $10 shall be rounded 

to the next lowest $10. 

(3) ADJUSTED GROSS INCOME; APPLICABLE DOLLAR AMOUNT.— 

For purposes of this subsection— 


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(A) ADJUSTED GROSS INCOME.—Adjusted gross income of 

any taxpayer shall be determined— 

(i) after application of sections 86 and 469, and 

(ii) without regard to sections 135, 137, 221, 222, 

and 911 or the deduction allowable under this section. 

(B) APPLICABLE DOLLAR AMOUNT.—The term ‘‘applicable 

dollar amount’’ means the following: 

(i) In the case of a taxpayer filing a joint return, $80,000. 

(ii) In the case of any other taxpayer (other than a married individual filing a separate return), $50,000. 

(iii) In the case of a married individual filing a separate return, zero. 

(4) SPECIAL RULE FOR MARRIED INDIVIDUALS FILING SEPARATELY AND LIVING APART.—A husband and wife who— 

(A) file separate returns for any taxable year, and 

(B) live apart at all times during such taxable year, 

shall not be treated as married individuals for purposes of this 

subsection. 

(5) ACTIVE PARTICIPANT.—For purposes of this subsection, 

the term ‘‘active participant’’ means, with respect to any plan 

year, an individual— 

(A) who is an active participant in— 

(i) a plan described in section 401(a) which includes 

a trust exempt from tax under section 501(a), 

(ii) an annuity plan described in section 403(a), 

(iii) a plan established for its employees by the 

United States, by a State or political subdivision 

thereof, or by an agency or instrumentality of any of 

the foregoing, 

(iv) an annuity contract described in section 403(b), 

(v) a simplified employee pension (within the meaning of section 408(k)), or 

(vi) any simple retirement account (within the 

meaning of section 408(p)), or 

(B) who makes deductible contributions to a trust described in section 501(c)(18). 

The determination of whether an individual is an active participant shall be made without regard to whether or not such individual’s rights under a plan, trust, or contract are nonforfeitable. An eligible deferred compensation plan (within the meaning of section 457(b)) shall not be treated as a plan described 

in subparagraph (A)(iii). 

(6) CERTAIN INDIVIDUALS NOT TREATED AS ACTIVE PARTICIPANTS.—For purposes of this subsection, any individual described in any of the following subparagraphs shall not be 

treated as an active participant for any taxable year solely because of any participation so described: 

(A) MEMBERS OF RESERVE COMPONENTS.—Participation 

in a plan described in subparagraph (A)(iii) of paragraph 

(5) by reason of service as a member of a reserve component of the Armed Forces (as defined in section 10101 of 

title 10), unless such individual has served in excess of 90 

days on active duty (other than active duty for training) 

during the year. 


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(B) VOLUNTEER FIREFIGHTERS.—A volunteer firefighter— 

(i) who is a participant in a plan described in subparagraph (A)(iii) of paragraph (5) based on his activity as a volunteer firefighter, and 

(ii) whose accrued benefit as of the beginning of the 

taxable year is not more than an annual benefit of 

$1,800 (when expressed as a single life annuity commencing at age 65). 

(7) SPECIAL RULE FOR SPOUSES WHO ARE NOT ACTIVE PARTICI- PANTS.—If this subsection applies to an individual for any taxable year solely because their spouse is an active participant, 

then, in applying this subsection to the individual (but not 

their spouse)— 

(A) the applicable dollar amount under paragraph (3)(B)(i) shall be $150,000; and 

(B) the amount applicable under paragraph (2)(A)(ii) shall be $10,000. 

(8) INFLATION ADJUSTMENT.—In the case of any taxable year 

beginning in a calendar year after 2006, each of the dollar 

amounts in paragraphs (3)(B)(i), (3)(B)(ii), and (7)(A) shall be 

be increased by an amount equal to— 

(A) such dollar amount, multiplied by 

(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year 

begins, determined by substituting ‘‘calendar year 2005’’ 

for ‘‘calendar year 2016’’ in subparagraph (A)(ii) thereof. 

Any increase determined under the preceding sentence shall be 

rounded to the nearest multiple of $1,000. 

* * * * * * * 

SEC. 221. INTEREST ON EDUCATION LOANS. 

(a) ALLOWANCE OF DEDUCTION.—In the case of an individual, 

there shall be allowed as a deduction for the taxable year an 

amount equal to the interest paid by the taxpayer during the taxable year on any qualified education loan. 

(b) MAXIMUM DEDUCTION.— (1) IN GENERAL.—Except as provided in paragraph (2), the 

deduction allowed by subsection (a) for the taxable year shall 

not exceed $2,500. 

(2) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME.— 

(A) IN GENERAL.—The amount which would (but for this 

paragraph) be allowable as a deduction under this section 

shall be reduced (but not below zero) by the amount determined under subparagraph (B). 

(B) AMOUNT OF REDUCTION.—The amount determined 

under this subparagraph is the amount which bears the 

same ratio to the amount which would be so taken into account as— 

(i) the excess of— 

(I) the taxpayer’s modified adjusted gross income for such taxable year, over 

(II) $50,000 ($100,000 in the case of a joint return), bears to 

(ii) $15,000 ($30,000 in the case of a joint return). 


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(C) MODIFIED ADJUSTED GROSS INCOME.—The term 

‘‘modified adjusted gross income’’ means adjusted gross income determined— 

(i) without regard to this section and sections 222, 

911, 931, and 933, and 

(ii) after application of sections 86, 135, 137, 219, 

and 469. 

(c) DEPENDENTS NOT ELIGIBLE FOR DEDUCTION.—No deduction 

shall be allowed by this section to an individual for the taxable 

year if a deduction under section 151 with respect to such individual is allowed to another taxpayer for the taxable year beginning in the calendar year in which such individual’s taxable year 

begins. 

(d) DEFINITIONS.—For purposes of this section— 

(1) QUALIFIED EDUCATION LOAN.—The term ‘‘qualified education loan’’ means any indebtedness incurred by the taxpayer 

solely to pay qualified higher education expenses— 

(A) which are incurred on behalf of the taxpayer, the 

taxpayer’s spouse, or any dependent of the taxpayer as of 

the time the indebtedness was incurred, 

(B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, 

and 

(C) which are attributable to education furnished during 

a period during which the recipient was an eligible student. 

Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term 

‘‘qualified education loan’’ shall not include any indebtedness 

owed to a person who is related (within the meaning of section 

267(b) or 707(b)(1)) to the taxpayer or to any person by reason 

of a loan under any qualified employer plan (as defined in section 72(p)(4)) or under any contract referred to in section 

72(p)(5). 

(2) QUALIFIED HIGHER EDUCATION EXPENSES.—The term 

‘‘qualified higher education expenses’’ means the cost of attendance (as defined in section 472 of the Higher Education Act of 

1965, 20 U.S.C. 1087ll, as in effect on the day before the date 

of the enactment of the Taxpayer Relief Act of 1997) at an eligible educational institution, reduced by the sum of— 

(A) the amount excluded from gross income under section 127, 135, 529, or 530 by reason of such expenses, and 

(B) the amount of any scholarship, allowance, or payment described in section 25A(g)(2). 

For purposes of the preceding sentence, the term ‘‘eligible educational institution’’ has the same meaning given such term by 

section 25A(f)(2), except that such term shall also include an 

institution conducting an internship or residency program 

leading to a degree or certificate awarded by an institution of 

higher education, a hospital, or a health care facility which offers postgraduate training. 

(3) ELIGIBLE STUDENT.—The term ‘‘eligible student’’ has the 

meaning given such term by section 25A(b)(3). 


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(4) DEPENDENT.—The term ‘‘dependent’’ has the meaning 

given such term by section 152 (determined without regard to 

subsections (b)(1), (b)(2), and (d)(1)(B) thereof). 

(e) SPECIAL RULES.— (1) DENIAL OF DOUBLE BENEFIT.—No deduction shall be allowed under this section for any amount for which a deduction 

is allowable under any other provision of this chapter. The deduction otherwise allowable under subsection (a) (prior to the 

application of subsection (b)) to the taxpayer for any taxable 

year shall be reduced (but not below zero) by so much of the distributions treated as a qualified higher education expense under 

section 529(c)(9) with respect to loans of the taxpayer as would 

be includible in gross income under section 529(c)(3)(A) for such 

taxable year but for such treatment. 

(2) MARRIED COUPLES MUST FILE JOINT RETURN.—If the taxpayer is married at the close of the taxable year, the deduction 

shall be allowed under subsection (a) only if the taxpayer and 

the taxpayer’s spouse file a joint return for the taxable year. 

(3) MARITAL STATUS.—Marital status shall be determined in 

accordance with section 7703. 

(f) INFLATION ADJUSTMENTS.— (1) IN GENERAL.—In the case of a taxable year beginning after 2002, the $50,000 and $100,000 amounts in subsection 

(b)(2) shall each be increased by an amount equal to— 

(A) such dollar amount, multiplied by 

(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year 

begins, determined by substituting ‘‘calendar year 2001’’ 

for ‘‘calendar year 2016’’ in subparagraph (A)(ii) thereof. 

(2) ROUNDING.—If any amount as adjusted under paragraph 

(1) is not a multiple of $5,000, such amount shall be rounded 

to the next lowest multiple of $5,000. 

* * * * * * * 

Subchapter D—DEFERRED COMPENSATION, 

ETC. 

* * * * * * * 

PART I—PENSION, PROFIT-SHARING, STOCK BONUS 

PLANS, ETC. 

* * * * * * * 

Subpart A—GENERAL RULE 

* * * * * * * 

SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS 

PLANS. 

(a) REQUIREMENTS FOR QUALIFICATION.—A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit 

of his employees or their beneficiaries shall constitute a qualified 

trust under this section— 


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(1) if contributions are made to the trust by such employer, 

or employees, or both, or by another employer who is entitled 

to deduct his contributions under section 404(a)(3)(B) (relating 

to deduction for contributions to profit-sharing and stock bonus 

plans), or by a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section 664(g)(1)), for the 

purpose of distributing to such employees or their beneficiaries 

the corpus and income of the fund accumulated by the trust in 

accordance with such plan; 

(2) if under the trust instrument it is impossible, at any time 

prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the 

corpus or income to be (within the taxable year or thereafter) 

used for, or diverted to, purposes other than for the exclusive 

benefit of his employees or their beneficiaries (but this paragraph shall not be construed, in the case of a multiemployer 

plan, to prohibit the return of a contribution within 6 months 

after the plan administrator determines that the contribution 

was made by a mistake of fact or law (other than a mistake 

relating to whether the plan is described in section 401(a) or 

the trust which is part of such plan is exempt from taxation 

under section 501(a), or the return of any withdrawal liability 

payment determined to be an overpayment within 6 months of 

such determination)); 

(3) if the plan of which such trust is a part satisfies the requirements of section 410 (relating to minimum participation 

standards); and 

(4) if the contributions or benefits provided under the plan 

do not discriminate in favor of highly compensated employees 

(within the meaning of section 414(q)). For purposes of this 

paragraph, there shall be excluded from consideration employees described in section 410(b)(3)(A) and (C). 

(5) SPECIAL RULES RELATING TO NONDISCRIMINATION RE- QUIREMENTS.— 

(A) SALARIED OR CLERICAL EMPLOYEES.—A classification 

shall not be considered discriminatory within the meaning 

of paragraph (4) or section 410(b)(2)(A)(i) merely because 

it is limited to salaried or clerical employees. 

(B) CONTRIBUTIONS AND BENEFITS MAY BEAR UNIFORM

RELATIONSHIP TO COMPENSATION.—A plan shall not be considered discriminatory within the meaning of paragraph 

(4) merely because the contributions or benefits of, or on 

behalf of, the employees under the plan bear a uniform relationship to the compensation (within the meaning of section 414(s)) of such employees. 

(C) CERTAIN DISPARITY PERMITTED.—A plan shall not be 

considered discriminatory within the meaning of paragraph (4) merely because the contributions or benefits of, 

or on behalf of, the employees under the plan favor highly 

compensated employees (as defined in section 414(q)) in 

the manner permitted under subsection (l). 

(D) INTEGRATED DEFINED BENEFIT PLAN.— (i) IN GENERAL.—A defined benefit plan shall not be 

considered discriminatory within the meaning of paragraph (4) merely because the plan provides that the 


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employer-derived accrued retirement benefit for any 

participant under the plan may not exceed the excess 

(if any) of— 

(I) the participant’s final pay with the employer, 

over 

(II) the employer-derived retirement benefit created under Federal law attributable to service by 

the participant with the employer. 

For purposes of this clause, the employer-derived retirement benefit created under Federal law shall be treated as 

accruing ratably over 35 years. 

(ii) FINAL PAY.—For purposes of this subparagraph, 

the participant’s final pay is the compensation (as defined in section 414(q)(4)) paid to the participant by 

the employer for any year— 

(I) which ends during the 5-year period ending 

with the year in which the participant separated 

from service for the employer, and 

(II) for which the participant’s total compensation from the employer was highest. 

(E) 2 OR MORE PLANS TREATED AS SINGLE PLAN.—For 

purposes of determining whether 2 or more plans of an 

employer satisfy the requirements of paragraph (4) when 

considered as a single plan— 

(i) CONTRIBUTIONS.—If the amount of contributions 

on behalf of the employees allowed as a deduction 

under section 404 for the taxable year with respect to 

such plans, taken together, bears a uniform relationship to the compensation (within the meaning of section 414(s)) of such employees, the plans shall not be 

considered discriminatory merely because the rights of 

employees to, or derived from, the employer contributions under the separate plans do not become nonforfeitable at the same rate. 

(ii) BENEFITS.—If the employees’ rights to benefits 

under the separate plans do not become nonforfeitable 

at the same rate, but the levels of benefits provided by 

the separate plans satisfy the requirements of regulations prescribed by the Secretary to take account of 

the differences in such rates, the plans shall not be 

considered discriminatory merely because of the difference in such rates. 

(F) SOCIAL SECURITY RETIREMENT AGE.—For purposes of 

testing for discrimination under paragraph (4)— 

(i) the social security retirement age (as defined in 

section 415(b)(8)) shall be treated as a uniform retirement age, and 

(ii) subsidized early retirement benefits and joint 

and survivor annuities shall not be treated as being 

unavailable to employees on the same terms merely 

because such benefits or annuities are based in whole 

or in part on an employee’s social security retirement 

age (as so defined). 


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(G) GOVERNMENTAL PLANS.—Paragraphs (3) and (4) shall 

not apply to a governmental plan (within the meaning of 

section 414(d)). 

(6) A plan shall be considered as meeting the requirements 

of paragraph (3) during the whole of any taxable year of the 

plan if on one day in each quarter it satisfied such requirements. 

(7) A trust shall not constitute a qualified trust under this 

section unless the plan of which such trust is a part satisfies 

the requirements of section 411 (relating to minimum vesting 

standards). 

(8) A trust forming part of a defined benefit plan shall not 

constitute a qualified trust under this section unless the plan 

provides that forfeitures must not be applied to increase the 

benefits any employee would otherwise receive under the plan. 

(9) REQUIRED DISTRIBUTIONS.— 

(A) IN GENERAL.—A trust shall not constitute a qualified 

trust under this subsection unless the plan provides that 

the entire interest of each employee— 

(i) will be distributed to such employee not later 

than the required beginning date, or 

(ii) will be distributed, beginning not later than the 

required beginning date, in accordance with regulations, over the life of such employee or over the lives 

of such employee and a designated beneficiary (or over 

a period not extending beyond the life expectancy of 

such employee or the life expectancy of such employee 

and a designated beneficiary). 

(B) REQUIRED DISTRIBUTION WHERE EMPLOYEE DIES BEFORE ENTIRE INTEREST IS DISTRIBUTED.— 

(i) WHERE DISTRIBUTIONS HAVE BEGUN UNDER SUBPARAGRAPH (A)(II).—A trust shall not constitute a 

qualified trust under this section unless the plan provides that if— 

(I) the distribution of the employee’s interest 

has begun in accordance with subparagraph 

(A)(ii), and 

(II) the employee dies before his entire interest 

has been distributed to him, 

the remaining portion of such interest will be distributed 

at least as rapidly as under the method of distributions 

being used under subparagraph (A)(ii) as of the date of his 

death. 

(ii) 5-YEAR RULE FOR OTHER CASES.—A trust shall 

not constitute a qualified trust under this section unless the plan provides that, if an employee dies before 

the distribution of the employee’s interest has begun 

in accordance with subparagraph (A)(ii), the entire interest of the employee will be distributed within 5 

years after the death of such employee. 

(iii) EXCEPTION TO 5-YEAR RULE FOR CERTAIN

AMOUNTS PAYABLE OVER LIFE OF BENEFICIARY.—If— 

(I) any portion of the employee’s interest is payable to (or for the benefit of) a designated beneficiary, 


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(II) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending 

beyond the life expectancy of such beneficiary), 

and 

(III) such distributions begin not later than 1 

year after the date of the employee’s death or such 

later date as the Secretary may by regulations 

prescribe, 

for purposes of clause (ii), the portion referred to in subclause (I) shall be treated as distributed on the date on 

which such distributions begin. 

(iv) SPECIAL RULE FOR SURVIVING SPOUSE OF EMPLOYEE.—If the designated beneficiary referred to in 

clause (iii)(I) is the surviving spouse of the employee— 

(I) the date on which the distributions are required to begin under clause (iii)(III) shall not be 

earlier than the date on which the employee 

would have attained age ø701/2¿ 72 , and 

(II) if the surviving spouse dies before the distributions to such spouse begin, this subparagraph 

shall be applied as if the surviving spouse were 

the employee. 

(C) REQUIRED BEGINNING DATE.—For purposes of this 

paragraph— 

(i) IN GENERAL.—The term ‘‘required beginning date’’ 

means April 1 of the calendar year following the later 

of— 

(I) the calendar year in which the employee attains age ø701/2¿ 72 , or 

(II) the calendar year in which the employee retires. 

(ii) EXCEPTION.—Subclause (II) of clause (i) shall not 

apply— 

(I) except as provided in section 409(d), in the 

case of an employee who is a 5-percent owner (as 

defined in section 416) with respect to the plan 

year ending in the calendar year in which the employee attains age ø701/2¿ 72 , or 

(II) for purposes of section 408(a)(6) or (b)(3). 

(iii) ACTUARIAL ADJUSTMENT.—In the case of an employee to whom clause (i)(II) applies who retires in a 

calendar year after the calendar year in which the employee attains age 701/2, the employee’s accrued benefit shall be actuarially increased to take into account 

the period after age 701/2 in which the employee was 

not receiving any benefits under the plan. 

(iv) EXCEPTION FOR GOVERNMENTAL AND CHURCH

PLANS.—Clauses (ii) and (iii) shall not apply in the 

case of a governmental plan or church plan. For purposes of this clause, the term ‘‘church plan’’ means a 

plan maintained by a church for church employees, 

and the term ‘‘church’’ means any church (as defined 

in section 3121(w)(3)(A)) or qualified church-controlled 

organization (as defined in section 3121(w)(3)(B)). 


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(D) LIFE EXPECTANCY.—For purposes of this paragraph, 

the life expectancy of an employee and the employee’s 

spouse (other than in the case of a life annuity) may be redetermined but not more frequently than annually. 

ø(E) DESIGNATED BENEFICIARY.—For purposes of this 

paragraph, the term ‘‘designated beneficiary’’ means any 

individual designated as a beneficiary by the employee.¿ 

(E) DEFINITIONS AND RULES RELATING TO DESIGNATED

BENEFICIARY.—For purposes of this paragraph— 

(i) DESIGNATED BENEFICIARY.—The term ‘‘designated 

beneficiary’’ means any individual designated as a beneficiary by the employee. 

(ii) ELIGIBLE DESIGNATED BENEFICIARY.—The term 

‘‘eligible designated beneficiary’’ means, with respect to 

any employee, any designated beneficiary who is— 

(I) the surviving spouse of the employee, 

(II) subject to clause (iii), a child of the employee 

who has not reached majority (within the meaning 

of subparagraph (F)), 

(III) disabled (within the meaning of section 

72(m)(7)), 

(IV) a chronically ill individual (within the 

meaning of section 7702B(c)(2), except that the requirements of subparagraph (A)(i) thereof shall 

only be treated as met if there is a certification 

that, as of such date, the period of inability described in such subparagraph with respect to the 

individual is an indefinite one which is reasonably 

expected to be lengthy in nature), or 

(V) an individual not described in any of the 

preceding subclauses who is not more than 10 

years younger than the employee. 

(iii) SPECIAL RULE FOR CHILDREN.—Subject to subparagraph (F), an individual described in clause 

(ii)(II) shall cease to be an eligible designated beneficiary as of the date the individual reaches majority 

and any remainder of the portion of the individual’s 

interest to which subparagraph (H)(ii) applies shall be 

distributed within 10 years after such date. 

(iv) TIME FOR DETERMINATION OF ELIGIBLE DESIGNATED BENEFICIARY.—The determination of whether 

a designated beneficiary is an eligible designated beneficiary shall be made as of the date of death of the employee. 

(F) TREATMENT OF PAYMENTS TO CHILDREN.—Under regulations prescribed by the Secretary, for purposes of this 

paragraph, any amount paid to a child shall be treated as 

if it had been paid to the surviving spouse if such amount 

will become payable to the surviving spouse upon such 

child reaching majority (or other designated event permitted under regulations). 

(G) TREATMENT OF INCIDENTAL DEATH BENEFIT DISTRIBUTIONS.—For purposes of this title, any distribution required under the incidental death benefit requirements of 


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this subsection shall be treated as a distribution required 

under this paragraph. 

(H) SPECIAL RULES FOR CERTAIN DEFINED CONTRIBUTION

PLANS.—In the case of a defined contribution plan, if an 

employee dies before the distribution of the employee’s entire interest— 

(i) IN GENERAL.—Except in the case of a beneficiary 

who is not a designated beneficiary, subparagraph 

(B)(ii)— 

(I) shall be applied by substituting ‘‘10 years’’ for 

‘‘5 years’’, and 

(II) shall apply whether or not distributions of 

the employee’s interests have begun in accordance 

with subparagraph (A). 

(ii) EXCEPTION ONLY FOR ELIGIBLE DESIGNATED

BENEFICIARIES.—Subparagraph (B)(iii) shall apply 

only in the case of an eligible designated beneficiary. 

(iii) RULES UPON DEATH OF ELIGIBLE DESIGNATED

BENEFICIARY.—If an eligible designated beneficiary 

dies before the portion of the employee’s interest to 

which this subparagraph applies is entirely distributed, the exception under clause (iii) shall not apply to 

any beneficiary of such eligible designated beneficiary 

and the remainder of such portion shall be distributed 

within 10 years after the death of such eligible designated beneficiary. 

(iv) APPLICATION TO ELIGIBLE RETIREMENT PLANS.— 

For purposes of applying the provisions of this subparagraph in determining the amounts required to be 

distributed pursuant to this paragraph, all eligible retirement plans (as defined in section 402(c)(8)(B)) other 

than a defined benefit plan shall be treated as a defined contribution plan. 

(10) OTHER REQUIREMENTS.— 

(A) PLANS BENEFITING OWNER-EMPLOYEES.—In the case 

of any plan which provides contributions or benefits for 

employees some or all of whom are owner-employees (as 

defined in subsection (c)(3)), a trust forming part of such 

plan shall constitute a qualified trust under this section 

only if the requirements of subsection (d) are also met. 

(B) TOP-HEAVY PLANS.— 

(i) IN GENERAL.—In the case of any top-heavy plan, 

a trust forming part of such plan shall constitute a 

qualified trust under this section only if the requirements of section 416 are met. 

(ii) PLANS WHICH MAY BECOME TOP-HEAVY.—Except 

to the extent provided in regulations, a trust forming 

part of a plan (whether or not a top-heavy plan) shall 

constitute a qualified trust under this section only if 

such plan contains provisions— 

(I) which will take effect if such plan becomes a 

top-heavy plan, and 

(II) which meet the requirements of section 416. 


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(iii) EXEMPTION FOR GOVERNMENTAL PLANS.—This 

subparagraph shall not apply to any governmental 

plan. 

(11) REQUIREMENT OF JOINT AND SURVIVOR ANNUITY AND

PRERETIREMENT SURVIVOR ANNUITY.— (A) IN GENERAL.—In the case of any plan to which this 

paragraph applies, except as provided in section 417, a 

trust forming part of such plan shall not constitute a 

qualified trust under this section unless— 

(i) in the case of a vested participant who does not 

die before the annuity starting date, the accrued benefit payable to such participant is provided in the form 

of a qualified joint and survivor annuity, and 

(ii) in the case of a vested participant who dies before the annuity starting date and who has a surviving 

spouse, a qualified preretirement survivor annuity is 

provided to the surviving spouse of such participant. 

(B) PLANS TO WHICH PARAGRAPH APPLIES.—This paragraph shall apply to— 

(i) any defined benefit plan, 

(ii) any defined contribution plan which is subject to 

the funding standards of section 412, and 

(iii) any participant under any other defined contribution plan unless— 

(I) such plan provides that the participant’s 

nonforfeitable accrued benefit (reduced by any security interest held by the plan by reason of a 

loan outstanding to such participant) is payable in 

full, on the death of the participant, to the participant’s surviving spouse (or, if there is no surviving spouse or the surviving spouse consents in 

the manner required under section 417(a)(2), to a 

designated beneficiary), 

(II) such participant does not elect a payment of 

benefits in the form of a life annuity, and 

(III) with respect to such participant, such plan 

is not a direct or indirect transferee (in a transfer 

after December 31, 1984) of a plan which is described in clause (i) or (ii) or to which this clause 

applied with respect to the participant. 

Clause (iii)(III) shall apply only with respect to the transferred assets (and income therefrom) if the plan separately 

accounts for such assets and any income therefrom. 

(C) EXCEPTION FOR CERTAIN ESOP BENEFITS.— 

(i) IN GENERAL.—In the case of— 

(I) a tax credit employee stock ownership plan 

(as defined in section 409(a)), or 

(II) an employee stock ownership plan (as defined in section 4975(e)(7)), 

subparagraph (A) shall not apply to that portion of the employee’s accrued benefit to which the requirements of section 409(h) apply. 

(ii) NONFORFEITABLE BENEFIT MUST BE PAID IN FULL, 

ETC.—In the case of any participant, clause (i) shall 

apply only if the requirements of subclauses (I), (II), 


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and (III) of subparagraph (B)(iii) are met with respect 

to such participant. 

(D) SPECIAL RULE WHERE PARTICIPANT AND SPOUSE MARRIED LESS THAN 1 YEAR.—A plan shall not be treated as 

failing to meet the requirements of subparagraphs (B)(iii) 

or (C) merely because the plan provides that benefits will 

not be payable to the surviving spouse of the participant 

unless the participant and such spouse had been married 

throughout the 1-year period ending on the earlier of the 

participant’s annuity starting date or the date of the participant’s death. 

(E) EXCEPTION FOR PLANS DESCRIBED IN SECTION 404(C).— 

This paragraph shall not apply to a plan which the Secretary has determined is a plan described in section 404(c) 

(or a continuation thereof) in which participation is substantially limited to individuals who, before January 1, 

1976, ceased employment covered by the plan. 

(F) CROSS REFERENCE.—For— 

(i) provisions under which participants may elect to 

waive the requirements of this paragraph, and 

(ii) other definitions and special rules for purposes of 

this paragraph, 

see section 417. 

(12) A trust shall not constitute a qualified trust under this 

section unless the plan of which such trust is a part provides 

that in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan after September 2, 

1974, each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the 

benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had then 

terminated). The preceding sentence does not apply to any 

multiemployer plan with respect to any transaction to the extent that participants either before or after the transaction are 

covered under a multiemployer plan to which title IV of the 

Employee Retirement Income Security Act of 1974 applies. 

(13) ASSIGNMENT AND ALIENATION.— 

(A) IN GENERAL.—A trust shall not constitute a qualified 

trust under this section unless the plan of which such 

trust is a part provides that benefits provided under the 

plan may not be assigned or alienated. For purposes of the 

preceding sentence, there shall not be taken into account 

any voluntary and revocable assignment of not to exceed 

10 percent of any benefit payment made by any participant who is receiving benefits under the plan unless the 

assignment or alienation is made for purposes of defraying 

plan administration costs. For purposes of this paragraph 

a loan made to a participant or beneficiary shall not be 

treated as an assignment or alienation if such loan is secured by the participant’s accrued nonforfeitable benefit 

and is exempt from the tax imposed by section 4975 (relating to tax on prohibited transactions) by reason of section 

4975(d)(1). This paragraph shall take effect on January 1, 


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1976 and shall not apply to assignments which were irrevocable on September 2, 1974. 

(B) SPECIAL RULES FOR DOMESTIC RELATIONS ORDERS.— Subparagraph (A) shall apply to the creation, assignment, 

or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations 

order, except that subparagraph (A) shall not apply if the 

order is determined to be a qualified domestic relations 

order. 

(C) SPECIAL RULE FOR CERTAIN JUDGMENTS AND SETTLE- MENTS.—Subparagraph (A) shall not apply to any offset of 

a participant’s benefits provided under a plan against an 

amount that the participant is ordered or required to pay 

to the plan if— 

(i) the order or requirement to pay arises— 

(I) under a judgment of conviction for a crime 

involving such plan, 

(II) under a civil judgment (including a consent 

order or decree) entered by a court in an action 

brought in connection with a violation (or alleged 

violation) of part 4 of subtitle B of title I of the 

Employee Retirement Income Security Act of 

1974, or 

(III) pursuant to a settlement agreement between the Secretary of Labor and the participant, 

or a settlement agreement between the Pension 

Benefit Guaranty Corporation and the participant, 

in connection with a violation (or alleged violation) 

of part 4 of such subtitle by a fiduciary or any 

other person, 

(ii) the judgment, order, decree, or settlement agreement expressly provides for the offset of all or part of 

the amount ordered or required to be paid to the plan 

against the participant’s benefits provided under the 

plan, and 

(iii) in a case in which the survivor annuity requirements of section 401(a)(11) apply with respect to distributions from the plan to the participant, if the participant has a spouse at the time at which the offset 

is to be made— 

(I) either such spouse has consented in writing 

to such offset and such consent is witnessed by a 

notary public or representative of the plan (or it 

is established to the satisfaction of a plan representative that such consent may not be obtained 

by reason of circumstances described in section 

417(a)(2)(B)), or an election to waive the right of 

the spouse to either a qualified joint and survivor 

annuity or a qualified preretirement survivor annuity is in effect in accordance with the requirements of section 417(a), 

(II) such spouse is ordered or required in such 

judgment, order, decree, or settlement to pay an 

amount to the plan in connection with a violation 

of part 4 of such subtitle, or 


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(III) in such judgment, order, decree, or settlement, such spouse retains the right to receive the 

survivor annuity under a qualified joint and survivor annuity provided pursuant to section 

401(a)(11)(A)(i) and under a qualified preretirement survivor annuity provided pursuant to section 401(a)(11)(A)(ii), determined in accordance 

with subparagraph (D). 

A plan shall not be treated as failing to meet the requirements of this subsection, subsection (k), section 403(b), or 

section 409(d) solely by reason of an offset described in 

this subparagraph. 

(D) SURVIVOR ANNUITY.— 

(i) IN GENERAL.—The survivor annuity described in 

subparagraph (C)(iii)(III) shall be determined as if— 

(I) the participant terminated employment on 

the date of the offset, 

(II) there was no offset, 

(III) the plan permitted commencement of benefits only on or after normal retirement age, 

(IV) the plan provided only the minimum-required qualified joint and survivor annuity, and 

(V) the amount of the qualified preretirement 

survivor annuity under the plan is equal to the 

amount of the survivor annuity payable under the 

minimum-required qualified joint and survivor annuity. 

(ii) DEFINITION.—For purposes of this subparagraph, 

the term ‘‘minimum-required qualified joint and survivor annuity’’ means the qualified joint and survivor 

annuity which is the actuarial equivalent of the participant’s accrued benefit (within the meaning of section 411(a)(7)) and under which the survivor annuity 

is 50 percent of the amount of the annuity which is 

payable during the joint lives of the participant and 

the spouse. 

(14) A trust shall not constitute a qualified trust under this 

section unless the plan of which such trust is a part provides 

that, unless the participant otherwise elects, the payment of 

benefits under the plan to the participant will begin not later 

than the 60th day after the latest of the close of the plan year 

in which— 

(A) the date on which the participant attains the earlier 

of age 65 or the normal retirement age specified under the 

plan, 

(B) occurs the 10th anniversary of the year in which the 

participant commenced participation in the plan, or 

(C) the participant terminates his service with the employer. 

In the case of a plan which provides for the payment of an 

early retirement benefit, a trust forming a part of such plan 

shall not constitute a qualified trust under this section unless 

a participant who satisfied the service requirements for such 

early retirement benefit, but separated from the service (with 

any nonforfeitable right to an accrued benefit) before satisfying 


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the age requirement for such early retirement benefit, is entitled upon satisfaction of such age requirement to receive a benefit not less than the benefit to which he would be entitled at 

the normal retirement age, actuarially, reduced under regulations prescribed by the Secretary. 

(15) A trust shall not constitute a qualified trust under this 

section unless under the plan of which such trust is a part— 

(A) in the case of a participant or beneficiary who is receiving benefits under such plan, or 

(B) in the case of a participant who is separated from 

the service and who has nonforfeitable rights to benefits, 

such benefits are not decreased by reason of any increase in 

the benefit levels payable under title II of the Social Security 

Act or any increase in the wage base under such title II, if 

such increase takes place after September 2, 1974, or (if later) 

the earlier of the date of first receipt of such benefits or the 

date of such separation, as the case may be. 

(16) A trust shall not constitute a qualified trust under this 

section if the plan of which such trust is a part provides for 

benefits or contributions which exceed the limitations of section 415. 

(17) COMPENSATION LIMIT.— 

(A) IN GENERAL.—A trust shall not constitute a qualified 

trust under this section unless, under the plan of which 

such trust is a part, the annual compensation of each employee taken into account under the plan for any year does 

not exceed $200,000. 

(B) COST-OF-LIVING ADJUSTMENT.—The Secretary shall 

adjust annually the $200,000 amount in subparagraph (A) 

for increases in the cost-of-living at the same time and in 

the same manner as adjustments under section 415(d); except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase which is not a multiple of $5,000 shall be rounded to the next lowest multiple 

of $5,000. 

(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. 


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(22) If a defined contribution plan (other than a profit-sharing plan)— 

(A) is established by an employer whose stock is not 

readily tradable on an established market, and 

(B) after acquiring securities of the employer, more than 

10 percent of the total assets of the plan are securities of 

the employer, 

any trust forming part of such plan shall not constitute a 

qualified trust under this section unless the plan meets the requirements of subsection (e) of section 409. The requirements 

of subsection (e) of section 409 shall not apply to any employees of an employer who are participants in any defined contribution plan established and maintained by such employer if 

the stock of such employer is not readily tradable on an established market and the trade or business of such employer consists of publishing on a regular basis a newspaper for general 

circulation. For purposes of the preceding sentence, subsections 

(b), (c), (m), and (o) of section 414 shall not apply except for 

determining whether stock of the employer is not readily 

tradable on an established market. 

(23) A stock bonus plan shall not be treated as meeting the 

requirements of this section unless such plan meets the requirements of subsections (h) and (o) of section 409, except that 

in applying section 409(h) for purposes of this paragraph, the 

term ‘‘employer securities’’ shall include any securities of the 

employer held by the plan. 

(24) Any group trust which otherwise meets the requirements of this section shall not be treated as not meeting such 

requirements on account of the participation or inclusion in 

such trust of the moneys of any plan or governmental unit described in section 818(a)(6). 

(25) REQUIREMENT THAT ACTUARIAL ASSUMPTIONS BE SPECIFIED.—A defined benefit plan shall not be treated as providing 

definitely determinable benefits unless, whenever the amount 

of any benefit is to be determined on the basis of actuarial assumptions, such assumptions are specified in the plan in a way 

which precludes employer discretion. 

(26) ADDITIONAL PARTICIPATION REQUIREMENTS.— (A) IN GENERAL.—In the case of a trust which is a part 

of a defined benefit plan, such trust shall not constitute a 

qualified trust under this subsection unless on each day of 

the plan year such trust benefits at least the lesser of— 

(i) 50 employees of the employer, or 

(ii) the greater of— 

(I) 40 percent of all employees of the employer, 

or 

(II) 2 employees (or if there is only 1 employee, 

such employee). 

(B) TREATMENT OF EXCLUDABLE EMPLOYEES.— (i) IN GENERAL.—A plan may exclude from consideration under this paragraph employees described in 

paragraphs (3) and (4)(A) of section 410(b). 

(ii) SEPARATE APPLICATION FOR CERTAIN EXCLUDABLE

EMPLOYEES.—If employees described in section 

410(b)(4)(B) are covered under a plan which meets the 


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requirements of subparagraph (A) separately with respect to such employees, such employees may be excluded from consideration in determining whether any 

plan of the employer meets such requirements if— 

(I) the benefits for such employees are provided 

under the same plan as benefits for other employees, 

(II) the benefits provided to such employees are 

not greater than comparable benefits provided to 

other employees under the plan, and 

(III) no highly compensated employee (within 

the meaning of section 414(q)) is included in the 

group of such employees for more than 1 year. 

(C) SPECIAL RULE FOR COLLECTIVE BARGAINING UNITS.— 

Except to the extent provided in regulations, a plan covering only employees described in section 410(b)(3)(A) may 

exclude from consideration any employees who are not included in the unit or units in which the covered employees 

are included. 

(D) PARAGRAPH NOT TO APPLY TO MULTIEMPLOYER

PLANS.—Except to the extent provided in regulations, this 

paragraph shall not apply to employees in a multiemployer 

plan (within the meaning of section 414(f)) who are covered by collective bargaining agreements. 

(E) SPECIAL RULE FOR CERTAIN DISPOSITIONS OR ACQUISI- TIONS.—Rules similar to the rules of section 410(b)(6)(C) 

shall apply for purposes of this paragraph. 

(F) SEPARATE LINES OF BUSINESS.—At the election of the 

employer and with the consent of the Secretary, this paragraph may be applied separately with respect to each separate line of business of the employer. For purposes of this 

paragraph, the term ‘‘separate line of business’’ has the 

meaning given such term by section 414(r) (without regard 

to paragraph (2)(A) or (7) thereof). 

(G) EXCEPTION FOR GOVERNMENTAL PLANS.—This paragraph shall not apply to a governmental plan (within the 

meaning of section 414(d)). 

(H) REGULATIONS.—The Secretary may by regulation 

provide that any separate benefit structure, any separate 

trust, or any other separate arrangement is to be treated 

as a separate plan for purposes of applying this paragraph. 

(I) PROTECTED PARTICIPANTS.— 

(i) IN GENERAL.—A plan shall be deemed to satisfy 

the requirements of subparagraph (A) if— 

(I) the plan is amended— 

(aa) to cease all benefit accruals, or 

(bb) to provide future benefit accruals only 

to a closed class of participants, 

(II) the plan satisfies subparagraph (A) (without 

regard to this subparagraph) as of the effective 

date of the amendment, and 

(III) the amendment was adopted before April 5, 

2017, or the plan is described in clause (ii). 

(ii) PLANS DESCRIBED.—A plan is described in this 

clause if the plan would be described in subsection 


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(o)(1)(C), as applied for purposes of subsection 

(o)(1)(B)(iii)(IV) and by treating the effective date of the 

amendment as the date the class was closed for purposes of subsection (o)(1)(C). 

(iii) SPECIAL RULES.—For purposes of clause (i)(II), 

in applying section 410(b)(6)(C), the amendments described in clause (i) shall not be treated as a significant change in coverage under section 

410(b)(6)(C)(i)(II). 

(iv) SPUN-OFF PLANS.—For purposes of this subparagraph, if a portion of a plan described in clause (i) is 

spun off to another employer, the treatment under 

clause (i) of the spun-off plan shall continue with respect to the other employer. 

(27) DETERMINATIONS AS TO PROFIT-SHARING PLANS.— 

(A) CONTRIBUTIONS NEED NOT BE BASED ON PROFITS.— 

The determination of whether the plan under which any 

contributions are made is a profit-sharing plan shall be 

made without regard to current or accumulated profits of 

the employer and without regard to whether the employer 

is a tax-exempt organization. 

(B) PLAN MUST DESIGNATE TYPE.—In the case of a plan 

which is intended to be a money purchase pension plan or 

a profit-sharing plan, a trust forming part of such plan 

shall not constitute a qualified trust under this subsection 

unless the plan designates such intent at such time and in 

such manner as the Secretary may prescribe. 

(28) ADDITIONAL REQUIREMENTS RELATING TO EMPLOYEE

STOCK OWNERSHIP PLANS.— 

(A) IN GENERAL.—In the case of a trust which is part of 

an employee stock ownership plan (within the meaning of 

section 4975(e)(7)) or a plan which meets the requirements 

of section 409(a), such trust shall not constitute a qualified 

trust under this section unless such plan meets the requirements of subparagraphs (B) and (C). 

(B) DIVERSIFICATION OF INVESTMENTS.— 

(i) IN GENERAL.—A plan meets the requirements of 

this subparagraph if each qualified participant in the 

plan may elect within 90 days after the close of each 

plan year in the qualified election period to direct the 

plan as to the investment of at least 25 percent of the 

participant’s account in the plan (to the extent such 

portion exceeds the amount to which a prior election 

under this subparagraph applies). In the case of the 

election year in which the participant can make his 

last election, the preceding sentence shall be applied 

by substituting ‘‘50 percent’’ for ‘‘25 percent’’. 

(ii) METHOD OF MEETING REQUIREMENTS.—A plan 

shall be treated as meeting the requirements of clause 

(i) if— 

(I) the portion of the participant’s account covered by the election under clause (i) is distributed 

within 90 days after the period during which the 

election may be made, or 


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(II) the plan offers at least 3 investment options 

(not inconsistent with regulations prescribed by 

the Secretary) to each participant making an election under clause (i) and within 90 days after the 

period during which the election may be made, 

the plan invests the portion of the participant’s 

account covered by the election in accordance with 

such election. 

(iii) QUALIFIED PARTICIPANT.—For purposes of this 

subparagraph, the term ‘‘qualified participant’’ means 

any employee who has completed at least 10 years of 

participation under the plan and has attained age 55. 

(iv) QUALIFIED ELECTION PERIOD.—For purposes of 

this subparagraph, the term ‘‘qualified election period’’ 

means the 6-plan-year period beginning with the later 

of— 

(I) the 1st plan year in which the individual 

first became a qualified participant, or 

(II) the 1st plan year beginning after December 

31, 1986. 

For purposes of the preceding sentence, an employer may 

elect to treat an individual first becoming a qualified participant in the 1st plan year beginning in 1987 as having 

become a participant in the 1st plan year beginning in 

1988. 

(v) EXCEPTION.—This subparagraph shall not apply 

to an applicable defined contribution plan (as defined 

in paragraph (35)(E)). 

(C) USE OF INDEPENDENT APPRAISER.—A plan meets the 

requirements of this subparagraph if all valuations of employer securities which are not readily tradable on an established securities market with respect to activities carried on by the plan are by an independent appraiser. For 

purposes of the preceding sentence, the term ‘‘independent 

appraiser’’ means any appraiser meeting requirements 

similar to the requirements of the regulations prescribed 

under section 170(a)(1). 

(29) BENEFIT LIMITATIONS.—In the case of a defined benefit 

plan (other than a multiemployer plan or a CSEC plan) to 

which the requirements of section 412 apply, the trust of which 

the plan is a part shall not constitute a qualified trust under 

this subsection unless the plan meets the requirements of section 436. 

(30) LIMITATIONS ON ELECTIVE DEFERRALS.—In the case of a 

trust which is part of a plan under which elective deferrals 

(within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall 

not constitute a qualified trust under this subsection unless 

the plan provides that the amount of such deferrals under such 

plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of 

the limitation in effect under section 402(g)(1)(A) for taxable 

years beginning in such calendar year. 

(31) DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS.— 


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(A) IN GENERAL.—A trust shall not constitute a qualified 

trust under this section unless the plan of which such 

trust is a part provides that if the distributee of any eligible rollover distribution— 

(i) elects to have such distribution paid directly to 

an eligible retirement plan, and 

(ii) specifies the eligible retirement plan to which 

such distribution is to be paid (in such form and at 

such time as the plan administrator may prescribe), 

such distribution shall be made in the form of a direct 

trustee-to-trustee transfer to the eligible retirement plan 

so specified. 

(B) CERTAIN MANDATORY DISTRIBUTIONS.— 

(i) IN GENERAL.—In case of a trust which is part of 

an eligible plan, such trust shall not constitute a 

qualified trust under this section unless the plan of 

which such trust is a part provides that if— 

(I) a distribution described in clause (ii) in excess of $1,000 is made, and 

(II) the distributee does not make an election 

under subparagraph (A) and does not elect to receive the distribution directly, 

the plan administrator shall make such transfer to an individual retirement plan of a designated trustee or issuer 

and shall notify the distributee in writing (either separately or as part of the notice under section 402(f)) that the 

distribution may be transferred to another individual retirement plan. 

(ii) ELIGIBLE PLAN.—For purposes of clause (i), the 

term ‘‘eligible plan’’ means a plan which provides that 

any nonforfeitable accrued benefit for which the 

present value (as determined under section 411(a)(11)) 

does not exceed $5,000 shall be immediately distributed to the participant. 

(C) LIMITATION.—Subparagraphs (A) and (B) shall apply 

only to the extent that the eligible rollover distribution 

would be includible in gross income if not transferred as 

provided in subparagraph (A) (determined without regard 

to sections 402(c), 403(a)(4), 403(b)(8), and 457(e)(16)). The 

preceding sentence shall not apply to such distribution if 

the plan to which such distribution is transferred— 

(i) is a qualified trust which is part of a plan which 

is a defined contribution plan and agrees to separately 

account for amounts so transferred, including separately accounting for the portion of such distribution 

which is includible in gross income and the portion of 

such distribution which is not so includible, or 

(ii) is an eligible retirement plan described in clause 

(i) or (ii) of section 402(c)(8)(B). 

(D) ELIGIBLE ROLLOVER DISTRIBUTION.—For purposes of 

this paragraph, the term ‘‘eligible rollover distribution’’ has 

the meaning given such term by section 402(f)(2)(A). 

(E) ELIGIBLE RETIREMENT PLAN.—For purposes of this 

paragraph, the term ‘‘eligible retirement plan’’ has the 

meaning given such term by section 402(c)(8)(B), except 


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that a qualified trust shall be considered an eligible retirement plan only if it is a defined contribution plan, the 

terms of which permit the acceptance of rollover distributions. 

(32) TREATMENT OF FAILURE TO MAKE CERTAIN PAYMENTS IF

PLAN HAS LIQUIDITY SHORTFALL.— (A) IN GENERAL.—A trust forming part of a pension plan 

to which section 430(j)(4) or 433(f)(5) applies shall not be 

treated as failing to constitute a qualified trust under this 

section merely because such plan ceases to make any payment described in subparagraph (B) during any period 

that such plan has a liquidity shortfall (as defined in section 430(j)(4) or 433(f)(5)). 

(B) PAYMENTS DESCRIBED.—A payment is described in 

this subparagraph if such payment is— 

(i) any payment, in excess of the monthly amount 

paid under a single life annuity (plus any social security supplements described in the last sentence of section 411(a)(9)), to a participant or beneficiary whose 

annuity starting date (as defined in section 417(f)(2)) 

occurs during the period referred to in subparagraph 

(A), 

(ii) any payment for the purchase of an irrevocable 

commitment from an insurer to pay benefits, and 

(iii) any other payment specified by the Secretary by 

regulations. 

(C) PERIOD OF SHORTFALL.—For purposes of this paragraph, a plan has a liquidity shortfall during the period 

that there is an underpayment of an installment under 

section 430(j)(3) or 433(f) by reason of section 430(j)(4)(A) 

or 433(f)(5), respectively. 

(33) PROHIBITION ON BENEFIT INCREASES WHILE SPONSOR IS

IN BANKRUPTCY.— (A) IN GENERAL.—A trust which is part of a plan to 

which this paragraph applies shall not constitute a qualified trust under this section if an amendment to such plan 

is adopted while the employer is a debtor in a case under 

title 11, United States Code, or similar Federal or State 

law, if such amendment increases liabilities of the plan by 

reason of— 

(i) any increase in benefits, 

(ii) any change in the accrual of benefits, or 

(iii) any change in the rate at which benefits become 

nonforfeitable under the plan, 

with respect to employees of the debtor, and such amendment is effective prior to the effective date of such employer’s plan of reorganization. 

(B) EXCEPTIONS.—This paragraph shall not apply to any 

plan amendment if— 

(i) the plan, were such amendment to take effect, 

would have a funding target attainment percentage 

(as defined in section 430(d)(2)) of 100 percent or 

more, 

(ii) the Secretary determines that such amendment 

is reasonable and provides for only de minimis inVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00203 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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creases in the liabilities of the plan with respect to 

employees of the debtor, 

(iii) such amendment only repeals an amendment 

described in section 412(d)(2), or 

(iv) such amendment is required as a condition of 

qualification under this part. 

(C) PLANS TO WHICH THIS PARAGRAPH APPLIES.—This 

paragraph shall apply only to plans (other than multiemployer plans or CSEC plans) covered under section 4021 of 

the Employee Retirement Income Security Act of 1974. 

(D) EMPLOYER.—For purposes of this paragraph, the 

term ‘‘employer’’ means the employer referred to in section 

412(b)(1), without regard to section 412(b)(2). 

(34) BENEFITS OF MISSING PARTICIPANTS ON PLAN TERMINATION.—In the case of a plan covered by title IV of the Employee Retirement Income Security Act of 1974, a trust forming 

part of such plan shall not be treated as failing to constitute 

a qualified trust under this section merely because the pension 

plan of which such trust is a part, upon its termination, transfers benefits of missing participants to the Pension Benefit 

Guaranty Corporation in accordance with section 4050 of such 

Act. 

(35) DIVERSIFICATION REQUIREMENTS FOR CERTAIN DEFINED

CONTRIBUTION PLANS.— (A) IN GENERAL.—A trust which is part of an applicable 

defined contribution plan shall not be treated as a qualified trust unless the plan meets the diversification requirements of subparagraphs (B), (C), and (D). 

(B) EMPLOYEE CONTRIBUTIONS AND ELECTIVE DEFERRALS

INVESTED IN EMPLOYER SECURITIES.—In the case of the 

portion of an applicable individual’s account attributable to 

employee contributions and elective deferrals which is invested in employer securities, a plan meets the requirements of this subparagraph if the applicable individual 

may elect to direct the plan to divest any such securities 

and to reinvest an equivalent amount in other investment 

options meeting the requirements of subparagraph (D). 

(C) EMPLOYER CONTRIBUTIONS INVESTED IN EMPLOYER

SECURITIES.—In the case of the portion of the account attributable to employer contributions other than elective deferrals which is invested in employer securities, a plan 

meets the requirements of this subparagraph if each applicable individual who— 

(i) is a participant who has completed at least 3 

years of service, or 

(ii) is a beneficiary of a participant described in 

clause (i) or of a deceased participant, 

may elect to direct the plan to divest any such securities 

and to reinvest an equivalent amount in other investment 

options meeting the requirements of subparagraph (D). 

(D) INVESTMENT OPTIONS.— (i) IN GENERAL.—The requirements of this subparagraph are met if the plan offers not less than 3 investment options, other than employer securities, to which 

an applicable individual may direct the proceeds from 


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the divestment of employer securities pursuant to this 

paragraph, each of which is diversified and has materially different risk and return characteristics. 

(ii) TREATMENT OF CERTAIN RESTRICTIONS AND CON- DITIONS.— 

(I) TIME FOR MAKING INVESTMENT CHOICES.—A 

plan shall not be treated as failing to meet the requirements of this subparagraph merely because 

the plan limits the time for divestment and reinvestment to periodic, reasonable opportunities occurring no less frequently than quarterly. 

(II) CERTAIN RESTRICTIONS AND CONDITIONS NOT

ALLOWED.—Except as provided in regulations, a 

plan shall not meet the requirements of this subparagraph if the plan imposes restrictions or conditions with respect to the investment of employer 

securities which are not imposed on the investment of other assets of the plan. This subclause 

shall not apply to any restrictions or conditions 

imposed by reason of the application of securities 

laws. 

(E) APPLICABLE DEFINED CONTRIBUTION PLAN.—For purposes of this paragraph— 

(i) IN GENERAL.—The term ‘‘applicable defined contribution plan’’ means any defined contribution plan 

which holds any publicly traded employer securities. 

(ii) EXCEPTION FOR CERTAIN ESOPS.—Such term does 

not include an employee stock ownership plan if— 

(I) there are no contributions to such plan (or 

earnings thereunder) which are held within such 

plan and are subject to subsection (k) or (m), and 

(II) such plan is a separate plan for purposes of 

section 414(l) with respect to any other defined 

benefit plan or defined contribution plan maintained by the same employer or employers. 

(iii) EXCEPTION FOR ONE PARTICIPANT PLANS.—Such 

term does not include a one-participant retirement 

plan. 

(iv) ONE-PARTICIPANT RETIREMENT PLAN.—For purposes of clause (iii), the term ‘‘one-participant retirement plan’’ means a retirement plan that on the first 

day of the plan year— 

(I) covered only one individual (or the individual 

and the individual’s spouse) and the individual (or 

the individual and the individual’s spouse) owned 

100 percent of the plan sponsor (whether or not 

incorporated), or 

(II) covered only one or more partners (or partners and their spouses) in the plan sponsor. 

(F) CERTAIN PLANS TREATED AS HOLDING PUBLICLY TRAD- ED EMPLOYER SECURITIES.— (i) IN GENERAL.—Except as provided in regulations 

or in clause (ii), a plan holding employer securities 

which are not publicly traded employer securities shall 

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ties if any employer corporation, or any member of a 

controlled group of corporations which includes such 

employer corporation, has issued a class of stock which 

is a publicly traded employer security. 

(ii) EXCEPTION FOR CERTAIN CONTROLLED GROUPS

WITH PUBLICLY TRADED SECURITIES.—Clause (i) shall 

not apply to a plan if— 

(I) no employer corporation, or parent corporation of an employer corporation, has issued any 

publicly traded employer security, and 

(II) no employer corporation, or parent corporation of an employer corporation, has issued any 

special class of stock which grants particular 

rights to, or bears particular risks for, the holder 

or issuer with respect to any corporation described 

in clause (i) which has issued any publicly traded 

employer security. 

(iii) DEFINITIONS.—For purposes of this subparagraph, the term— 

(I) ‘‘controlled group of corporations’’ has the 

meaning given such term by section 1563(a), except that ‘‘50 percent’’ shall be substituted for ‘‘80 

percent’’ each place it appears, 

(II) ‘‘employer corporation’’ means a corporation 

which is an employer maintaining the plan, and 

(III) ‘‘parent corporation’’ has the meaning given 

such term by section 424(e). 

(G) OTHER DEFINITIONS.—For purposes of this paragraph— 

(i) APPLICABLE INDIVIDUAL.—The term ‘‘applicable 

individual’’ means— 

(I) any participant in the plan, and 

(II) any beneficiary who has an account under 

the plan with respect to which the beneficiary is 

entitled to exercise the rights of a participant. 

(ii) ELECTIVE DEFERRAL.—The term ‘‘elective deferral’’ means an employer contribution described in section 402(g)(3)(A). 

(iii) EMPLOYER SECURITY.—The term ‘‘employer security’’ has the meaning given such term by section 

407(d)(1) of the Employee Retirement Income Security 

Act of 1974. 

(iv) EMPLOYEE STOCK OWNERSHIP PLAN.—The term 

‘‘employee stock ownership plan’’ has the meaning 

given such term by section 4975(e)(7). 

(v) PUBLICLY TRADED EMPLOYER SECURITIES.—The 

term ‘‘publicly traded employer securities’’ means employer securities which are readily tradable on an established securities market. 

(vi) YEAR OF SERVICE.—The term ‘‘year of service’’ 

has the meaning given such term by section 411(a)(5). 

(H) TRANSITION RULE FOR SECURITIES ATTRIBUTABLE TO

EMPLOYER CONTRIBUTIONS.— 

(i) RULES PHASED IN OVER 3 YEARS.— 


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(I) IN GENERAL.—In the case of the portion of an 

account to which subparagraph (C) applies and 

which consists of employer securities acquired in 

a plan year beginning before January 1, 2007, 

subparagraph (C) shall only apply to the applicable percentage of such securities. This subparagraph shall be applied separately with respect to 

each class of securities. 

(II) EXCEPTION FOR CERTAIN PARTICIPANTS AGED

55 OR OVER.—Subclause (I) shall not apply to an 

applicable individual who is a participant who has 

attained age 55 and completed at least 3 years of 

service before the first plan year beginning after 

December 31, 2005. 

(ii) APPLICABLE PERCENTAGE.—For purposes of 

clause (i), the applicable percentage shall be determined as follows: 

(36) DISTRIBUTIONS DURING WORKING RETIREMENT.—A trust 

forming part of a pension plan shall not be treated as failing 

to constitute a qualified trust under this section solely because 

the plan provides that a distribution may be made from such 

trust to an employee who has attained age 62 and who is not 

separated from employment at the time of such distribution. 

(37) DEATH BENEFITS UNDER USERRA-QUALIFIED ACTIVE MILITARY SERVICE.—A trust shall not constitute a qualified trust 

unless the plan provides that, in the case of a participant who 

dies while performing qualified military service (as defined in 

section 414(u)), the survivors of the participant are entitled to 

any additional benefits (other than benefit accruals relating to 

the period of qualified military service) provided under the 

plan had the participant resumed and then terminated employment on account of death. 

(38) PORTABILITY OF LIFETIME INCOME.— 

(A) IN GENERAL.—Except as may be otherwise provided 

by regulations, a trust forming part of a defined contribution plan shall not be treated as failing to constitute a 

qualified trust under this section solely by reason of allowing— 

(i) qualified distributions of a lifetime income investment, or 

(ii) distributions of a lifetime income investment in 

the form of a qualified plan distribution annuity contract, 

on or after the date that is 90 days prior to the date on 

which such lifetime income investment is no longer authorized to be held as an investment option under the plan. 

(B) DEFINITIONS.—For purposes of this subsection— 

(i) the term ‘‘qualified distribution’’ means a direct 

trustee-to-trustee transfer described in paragraph 

(31)(A) to an eligible retirement plan (as defined in section 402(c)(8)(B)), 

(ii) the term ‘‘lifetime income investment’’ means an 

investment option which is designed to provide an employee with election rights— 


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(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 øRETROACTIVE CHANGES IN PLAN.—¿ øA stock bonus¿ 

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. 


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(c) DEFINITIONS AND RULES RELATING TO SELF-EMPLOYED INDIVID- UALS AND OWNER-EMPLOYEES.—For purposes of this section— 

(1) SELF-EMPLOYED INDIVIDUAL TREATED AS EMPLOYEE.— (A) IN GENERAL.—The term ‘‘employee’’ includes, for any 

taxable year, an individual who is a self-employed individual for such taxable year. 

(B) SELF-EMPLOYED INDIVIDUAL.—The term ‘‘self-employed individual’’ means, with respect to any taxable year, 

an individual who has earned income (as defined in paragraph (2)) for such taxable year. To the extent provided in 

regulations prescribed by the Secretary, such term also includes, for any taxable year— 

(i) an individual who would be a self-employed individual within the meaning of the preceding sentence 

but for the fact that the trade or business carried on 

by such individual did not have net profits for the taxable year, and 

(ii) an individual who has been a self-employed individual within the meaning of the preceding sentence 

for any prior taxable year. 

(2) EARNED INCOME.— (A) IN GENERAL.—The term ‘‘earned income’’ means the 

net earnings from self-employment (as defined in section 

1402(a)), but such net earnings shall be determined— 

(i) only with respect to a trade or business in which 

personal services of the taxpayer are a material income-producing factor, 

(ii) without regard to paragraphs (4) and (5) of section 1402(c), 

(iii) in the case of any individual who is treated as 

an employee under subparagraph (A), (C), or (D) of 

section 3121(d)(3), without regard to section 1402(c)(2), 

(iv) without regard to items which are not included 

in gross income for purposes of this chapter, and the 

deductions properly allocable to or chargeable against 

such items, 

(v) with regard to the deductions allowed by section 

404 to the taxpayer, and 

(vi) with regard to the deduction allowed to the taxpayer by section 164(f). 

For purposes of this subparagraph, section 1402, as in effect for a taxable year ending on December 31, 1962, shall 

be treated as having been in effect for all taxable years 

ending before such date. For purposes of this part only 

(other than sections 419 and 419A), this subparagraph 

shall be applied as if the term ‘‘trade or business’’ for purposes of section 1402 included service described in section 

1402(c)(6). 

(C) INCOME FROM DISPOSITION OF CERTAIN PROPERTY.— For purposes of this section, the term ‘‘earned income’’ includes gains (other than any gain which is treated under 

any provision of this chapter as gain from the sale or exchange of a capital asset) and net earnings derived from 

the sale or other disposition of, the transfer of any interest 

in, or the licensing of the use of property (other than good 


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will) by an individual whose personal efforts created such 

property. 

(3) OWNER-EMPLOYEE.—The term ‘‘owner-employee’’ means 

an employee who— 

(A) owns the entire interest in an unincorporated trade 

or business, or 

(B) in the case of a partnership, is a partner who owns 

more than 10 percent of either the capital interest or the 

profits interest in such partnership. 

To the extent provided in regulations prescribed by the Secretary, such term also means an individual who has been an 

owner-employee within the meaning of the preceding sentence. 

(4) EMPLOYER.—An individual who owns the entire interest 

in an unincorporated trade or business shall be treated as his 

own employer. A partnership shall be treated as the employer 

of each partner who is an employee within the meaning of 

paragraph (1). 

(5) CONTRIBUTIONS ON BEHALF OF OWNER-EMPLOYEES.—The 

term ‘‘contribution on behalf of an owner-employee’’ includes, 

except as the context otherwise requires, a contribution under 

a plan— 

(A) by the employer for an owner-employee, and 

(B) by an owner-employee as an employee. 

(6) SPECIAL RULE FOR CERTAIN FISHERMEN.—For purposes of 

this subsection, the term ‘‘self-employed individual’’ includes 

an individual described in section 3121(b)(20) (relating to certain fishermen). 

(d) CONTRIBUTION LIMIT ON OWNER-EMPLOYEES.—A trust forming 

part of a pension or profit-sharing plan which provides contributions or benefits for employees some or all of whom are owner-employees shall constitute a qualified trust under this section only if, 

in addition to meeting the requirements of subsection (a), the plan 

provides that contributions on behalf of any owner-employee may 

be made only with respect to the earned income of such owner-employee which is derived from the trade or business with respect to 

which such plan is established. 

(f) CERTAIN CUSTODIAL ACCOUNTS AND CONTRACTS.—For purposes 

of this title, a custodial account, an annuity contract, or a contract 

(other than a life, health or accident, property, casualty, or liability 

insurance contract) issued by an insurance company qualified to do 

business in a State shall be treated as a qualified trust under this 

section if— 

(1) the custodial account or contract would, except for the 

fact that it is not a trust, constitute a qualified trust under this 

section, and 

(2) in the case of a custodial account the assets thereof are 

held by a bank (as defined in section 408(n)) or another person 

who demonstrates, to the satisfaction of the Secretary, that the 

manner in which he will hold the assets will be consistent with 

the requirements of this section. 

For purposes of this title, in the case of a custodial account or contract treated as a qualified trust under this section by reason of 

this subsection, the person holding the assets of such account or 

holding such contract shall be treated as the trustee thereof. 


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(g) ANNUITY DEFINED.—For purposes of this section and sections 

402, 403, and 404, the term ‘‘annuity’’ includes a face-amount certificate, as defined in section 2(a)(15) of the Investment Company 

Act of 1940 (15 U.S.C., sec. 80a–2); but does not include any contract or certificate issued after December 31, 1962, which is transferable, if any person other than the trustee of a trust described 

in section 401(a) which is exempt from tax under section 501(a) is 

the owner of such contract or certificate. 

(h) MEDICAL, ETC., BENEFITS FOR RETIRED EMPLOYEES AND THEIR

SPOUSES AND DEPENDENTS.—Under regulations prescribed by the 

Secretary, and subject to the provisions of section 420, a pension 

or annuity plan may provide for the payment of benefits for sickness, accident, hospitalization, and medical expenses of retired employees, their spouses and their dependents, but only if— 

(1) such benefits are subordinate to the retirement benefits 

provided by the plan, 

(2) a separate account is established and maintained for such 

benefits, 

(3) the employer’s contributions to such separate account are 

reasonable and ascertainable, 

(4) it is impossible, at any time prior to the satisfaction of 

all liabilities under the plan to provide such benefits, for any 

part of the corpus or income of such separate account to be 

(within the taxable year or thereafter) used for, or diverted to, 

any purpose other than the providing of such benefits, 

(5) notwithstanding the provisions of subsection (a)(2), upon 

the satisfaction of all liabilities under the plan to provide such 

benefits, any amount remaining in such separate account 

must, under the terms of the plan, be returned to the employer, and 

(6) in the case of an employee who is a key employee, a separate account is established and maintained for such benefits 

payable to such employee (and his spouse and dependents) and 

such benefits (to the extent attributable to plan years beginning after March 31, 1984, for which the employee is a key employee) are only payable to such employee (and his spouse and 

dependents) from such separate account. 

For purposes of paragraph (6), the term ‘‘key employee’’ means any 

employee, who at any time during the plan year or any preceding 

plan year during which contributions were made on behalf of such 

employee, is or was a key employee as defined in section 416(i). In 

no event shall the requirements of paragraph (1) be treated as met 

if the aggregate actual contributions for medical benefits, when 

added to actual contributions for life insurance protection under 

the plan, exceed 25 percent of the total actual contributions to the 

plan (other than contributions to fund past service credits) after 

the date on which the account is established. For purposes of this 

subsection, the term ‘‘dependent’’ shall include any individual who 

is a child (as defined in section 152(f)(1)) of a retired employee who 

as of the end of the calendar year has not attained age 27. 

(i) CERTAIN UNION-NEGOTIATED PENSION PLANS.—In the case of a 

trust forming part of a pension plan which has been determined by 

the Secretary to constitute a qualified trust under subsection (a) 

and to be exempt from taxation under section 501(a) for a period 


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beginning after contributions were first made to or for such trust, 

if it is shown to the satisfaction of the Secretary that— 

(1) such trust was created pursuant to a collective bargaining agreement between employee representatives and one 

or more employers, 

(2) any disbursements of contributions, made to or for such 

trust before the time as of which the Secretary determined 

that the trust constituted a qualified trust, substantially complied with the terms of the trust, and the plan of which the 

trust is a part, as subsequently qualified, and 

(3) before the time as of which the Secretary determined that 

the trust constitutes a qualified trust, the contributions to or 

for such trust were not used in a manner which would jeopardize the interests of its beneficiaries, 

then such trust shall be considered as having constituted a qualified trust under subsection (a) and as having been exempt from 

taxation under section 501(a) for the period beginning on the date 

on which contributions were first made to or for such trust and 

ending on the date such trust first constituted (without regard to 

this subsection) a qualified trust under subsection (a). 

(k) CASH OR DEFERRED ARRANGEMENTS.— (1) GENERAL RULE.—A profit-sharing or stock bonus plan, a 

pre-ERISA money purchase plan, or a rural cooperative plan 

shall not be considered as not satisfying the requirements of 

subsection (a) merely because the plan includes a qualified 

cash or deferred arrangement. 

(2) QUALIFIED CASH OR DEFERRED ARRANGEMENT.—A qualified cash or deferred arrangement is any arrangement which 

is part of a profit-sharing or stock bonus plan, a pre-ERISA 

money purchase plan, or a rural cooperative plan which meets 

the requirements of subsection (a)— 

(A) under which a covered employee may elect to have 

the employer make payments as contributions to a trust 

under the plan on behalf of the employee, or to the employee directly in cash; 

(B) under which amounts held by the trust which are attributable to employer contributions made pursuant to the 

employee’s election— 

(i) may not be distributable to participants or other 

beneficiaries earlier than— 

(I) severance from employment, death, or disability, 

(II) an event described in paragraph (10), 

(III) in the case of a profit-sharing or stock 

bonus plan, the attainment of age 591/2, 

(IV) in the case of contributions to a profit-sharing or stock bonus plan to which section 402(e)(3) 

applies, upon hardship of the employee, øor¿ 

(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, øand¿or 

(VI) except as may be otherwise provided by regulations, with respect to amounts invested in a lifetime income investment (as defined in subsection 


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(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, and 

(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 yearsø;¿, 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 

ø(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 period permitted under 

section 410(a)(1) (determined without regard to subparagraph (B)(i) thereof).¿ 

(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 


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compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 2. 

If 2 or more plans which include cash or deferred arrangements are considered as 1 plan for purposes of section 

401(a)(4) or 410(b), the cash or deferred arrangements included in such plans shall be treated as 1 arrangement for 

purposes of this subparagraph. 

If any highly compensated employee is a participant under 

2 or more cash or deferred arrangements of the employer, 

for purposes of determining the deferral percentage with 

respect to such employee, all such cash or deferred arrangements shall be treated as 1 cash or deferred arrangement. An arrangement may apply clause (ii) by using the 

plan year rather than the preceding plan year if the employer so elects, except that if such an election is made, it 

may not be changed except as provided by the Secretary. 

(B) For purposes of subparagraph (A), the actual deferral 

percentage for a specified group of employees for a plan 

year shall be the average of the ratios (calculated separately for each employee in such group) of— 

(i) the amount of employer contributions actually 

paid over to the trust on behalf of each such employee 

for such plan year, to 

(ii) the employee’s compensation for such plan year. 

(C) A cash or deferred arrangement shall be treated as 

meeting the requirements of subsection (a)(4) with respect 

to contributions if the requirements of subparagraph (A)(ii) 

are met. 

(D) For purposes of subparagraph (B), the employer contributions on behalf of any employee— 

(i) shall include any employer contributions made 

pursuant to the employee’s election under paragraph 

(2), and 

(ii) under such rules as the Secretary may prescribe, 

may, at the election of the employer, include— 

(I) matching contributions (as defined in 

401(m)(4)(A)) which meet the requirements of 

paragraph (2)(B) and (C), and 

(II) qualified nonelective contributions (within 

the meaning of section 401(m)(4)(C)). 

(E) For purposes of this paragraph, in the case of the 

first plan year of any plan (other than a successor plan), 

the amount taken into account as the actual deferral percentage of nonhighly compensated employees for the preceding plan year shall be— 

(i) 3 percent, or 

(ii) if the employer makes an election under this 

subclause, the actual deferral percentage of nonhighly 

compensated employees determined for such first plan 

year. 

(F) SPECIAL RULE FOR EARLY PARTICIPATION.—If an employer elects to apply section 410(b)(4)(B) in determining 

whether a cash or deferred arrangement meets the requirements of subparagraph (A)(i), the employer may, in 


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determining whether the arrangement meets the requirements of subparagraph (A)(ii), exclude from consideration 

all eligible employees (other than highly compensated employees) who have not met the minimum age and service 

requirements of section 410(a)(1)(A). 

(G) GOVERNMENTAL PLAN.—A governmental plan (within 

the meaning of section 414(d)) shall be treated as meeting 

the requirements of this paragraph. 

(4) OTHER REQUIREMENTS.— 

(A) BENEFITS (OTHER THAN MATCHING CONTRIBUTIONS)

MUST NOT BE CONTINGENT ON ELECTION TO DEFER.—A cash 

or deferred arrangement of any employer shall not be 

treated as a qualified cash or deferred arrangement if any 

other benefit 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). 


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(5) HIGHLY COMPENSATED EMPLOYEE.—For purposes of this 

subsection, the term ‘‘highly compensated employee’’ has the 

meaning given such term by section 414(q). 

(6) PRE-ERISA MONEY PURCHASE PLAN.—For purposes of this 

subsection, the term ‘‘pre-ERISA money purchase plan’’ means 

a pension plan— 

(A) which is a defined contribution plan (as defined in 

section 414(i)), 

(B) which was in existence on June 27, 1974, and which, 

on such date, included a salary reduction arrangement, 

and 

(C) under which neither the employee contributions nor 

the employer contributions may exceed the levels provided 

for by the contribution formula in effect under the plan on 

such date. 

(7) RURAL COOPERATIVE PLAN.—For purposes of this subsection— 

(A) IN GENERAL.—The term ‘‘rural cooperative plan’’ 

means any pension plan— 

(i) which is a defined contribution plan (as defined 

in section 414(i)), and 

(ii) which is established and maintained by a rural 

cooperative. 

(B) RURAL COOPERATIVE DEFINED.—For purposes of subparagraph (A), the term ‘‘rural cooperative’’ means— 

(i) any organization which— 

(I) is engaged primarily in providing electric 

service on a mutual or cooperative basis, or 

(II) is engaged primarily in providing electric 

service to the public in its area of service and 

which is exempt from tax under this subtitle or 

which is a State or local government (or an agency 

or instrumentality thereof), other than a municipality (or an agency or instrumentality thereof), 

(ii) any organization described in paragraph (4) or 

(6) of section 501(c) and at least 80 percent of the 

members of which are organizations described in 

clause (i), 

(iii) a cooperative telephone company described in 

section 501(c)(12), 

(iv) any organization which— 

(I) is a mutual irrigation or ditch company described in section 501(c)(12) (without regard to the 

85 percent requirement thereof), or 

(II) is a district organized under the laws of a 

State as a municipal corporation for the purpose 

of irrigation, water conservation, or drainage, and 

(v) an organization which is a national association of 

organizations described in clause (i), (ii),, (iii), or (iv). 

(C) SPECIAL RULE FOR CERTAIN DISTRIBUTIONS.—A rural 

cooperative plan which includes a qualified cash or deferred arrangement shall not be treated as violating the 

requirements of section 401(a) or of paragraph (2) merely 

by reason of a hardship distribution or a distribution to a 

participant after attainment of age 591/2. For purposes of 


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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. 


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(9) COMPENSATION.—For purposes of this subsection, the 

term ‘‘compensation’’ has the meaning given such term by section 414(s). 

(10) DISTRIBUTIONS UPON TERMINATION OF PLAN.— 

(A) IN GENERAL.—An event described in this subparagraph is the termination of the plan without establishment 

or maintenance of another defined contribution plan (other 

than an employee stock ownership plan as defined in section 4975(e)(7)). 

(B) DISTRIBUTIONS MUST BE LUMP SUM DISTRIBUTIONS.— 

(i) IN GENERAL.—A termination shall not be treated 

as described in subparagraph (A) with respect to any 

employee unless the employee receives a lump sum 

distribution by reason of the termination. 

(ii) LUMP-SUM DISTRIBUTION.—For purposes of this 

subparagraph, the term ‘‘lump-sum distribution’’ has 

the meaning given such term by section 402(e)(4)(D) 

(without regard to subclauses (I), (II), (III), and (IV) of 

clause (i) thereof). Such term includes a distribution of 

an annuity contract from— 

(I) a trust which forms a part of a plan described in section 401(a) and which is exempt 

from tax under section 501(a), or 

(II) an annuity plan described in section 403(a). 

(11) ADOPTION OF SIMPLE PLAN TO MEET NONDISCRIMINATION

TESTS.— 

(A) IN GENERAL.—A cash or deferred arrangement maintained by an eligible employer shall be treated as meeting 

the requirements of paragraph (3)(A)(ii) if such arrangement meets— 

(i) the contribution requirements of subparagraph 

(B), 

(ii) the exclusive plan requirements of subparagraph 

(C), and 

(iii) the vesting requirements of section 408(p)(3). 

(B) CONTRIBUTION REQUIREMENTS.— 

(i) IN GENERAL.—The requirements of this subparagraph are met if, under the arrangement— 

(I) an employee may elect to have the employer 

make elective contributions for the year on behalf 

of the employee to a trust under the plan in an 

amount which is expressed as a percentage of 

compensation of the employee but which in no 

event exceeds the amount in effect under section 

408(p)(2)(A)(ii), 

(II) the employer is required to make a matching contribution to the trust for the year in an 

amount equal to so much of the amount the employee elects under subclause (I) as does not exceed 3 percent of compensation for the year, and 

(III) no other contributions may be made other 

than contributions described in subclause (I) or 

(II). 


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(ii) EMPLOYER MAY ELECT 2-PERCENT NONELECTIVE

CONTRIBUTION.—An employer shall be treated as meeting the requirements of clause (i)(II) for any year if, in 

lieu of the contributions described in such clause, the 

employer elects (pursuant to the terms of the arrangement) to make nonelective contributions of 2 percent 

of compensation for each employee who is eligible to 

participate in the arrangement and who has at least 

$5,000 of compensation from the employer for the 

year. If an employer makes an election under this subparagraph for any year, the employer shall notify employees of such election within a reasonable period of 

time before the 60th day before the beginning of such 

year. 

(iii) ADMINISTRATIVE REQUIREMENTS.— 

(I) IN GENERAL.—Rules similar to the rules of 

subparagraphs (B) and (C) of section 408(p)(5) 

shall apply for purposes of this subparagraph. 

(II) NOTICE OF ELECTION PERIOD.—The requirements of this subparagraph shall not be treated as 

met with respect to any year unless the employer 

notifies each employee eligible to participate, 

within a reasonable period of time before the 60th 

day before the beginning of such year (and, for the 

first year the employee is so eligible, the 60th day 

before the first day such employee is so eligible), 

of the rules similar to the rules of section 

408(p)(5)(C) which apply by reason of subclause 

(I). 

(C) EXCLUSIVE PLAN REQUIREMENT.—The requirements 

of this subparagraph are met for any year to which this 

paragraph applies if no contributions were made, or benefits were accrued, for services during such year under any 

qualified plan of the employer on behalf of any employee 

eligible to participate in the cash or deferred arrangement, 

other than contributions described in subparagraph (B). 

(D) DEFINITIONS AND SPECIAL RULE.— (i) DEFINITIONS.—For purposes of this paragraph, 

any term used in this paragraph which is also used in 

section 408(p) shall have the meaning given such term 

by such section. 

(ii) COORDINATION WITH TOP-HEAVY RULES.—A plan 

meeting the requirements of this paragraph for any 

year shall not be treated as a top-heavy plan under 

section 416 for such year if such plan allows only contributions required under this paragraph. 

(12) ALTERNATIVE METHODS OF MEETING NONDISCRIMINATION

REQUIREMENTS.— 

(A) IN GENERAL.—A cash or deferred arrangement shall 

be treated as meeting the requirements of paragraph 

(3)(A)(ii) øif such arrangement— 

ø(i) meets the contribution requirements of subparagraph (B) or (C), and 

ø(ii) meets the notice requirements of subparagraph 

(D).¿ if such arrangement— 


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(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 emVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00220 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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ployee’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. 

ø(F)¿ (G) OTHER PLANS.—An arrangement shall be treated as meeting the requirements under subparagraph (A)(i) 

if any other plan maintained by the employer meets such 

requirements with respect to employees eligible under the 

arrangement. 

(13) ALTERNATIVE METHOD FOR AUTOMATIC CONTRIBUTION ARRANGEMENTS TO MEET NONDISCRIMINATION REQUIREMENTS.— 


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(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’’ ømeans any cash or 

deferred arrangement which meets the requirements of 

subparagraphs (C) through (E).¿ 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, ødoes not exceed 10 percent¿ 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 arrangeVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00222 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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ment (determined after application of this clause), 

and 

(II) had an election in effect on such date either 

to participate in the arrangement or to not participate in the arrangement. 

(D) MATCHING OR NONELECTIVE CONTRIBUTIONS.— 

(i) IN GENERAL.—The requirements of this subparagraph are met if, under the arrangement, the employer— 

(I) makes matching contributions on behalf of 

each employee who is not a highly compensated 

employee in an amount equal to the sum of 100 

percent of the elective contributions of the employee to the extent that such contributions do not 

exceed 1 percent of compensation plus 50 percent 

of so much of such contributions as exceed 1 percent but do not exceed 6 percent of compensation, 

or 

(II) is required, without regard to whether the 

employee makes an elective contribution or employee contribution, to make a contribution to a 

defined contribution plan on behalf of each employee who is not a highly compensated employee 

and who is eligible to participate in the arrangement in an amount equal to at least 3 percent of 

the employee’s compensation. 

(ii) APPLICATION OF RULES FOR MATCHING CONTRIBUTIONS.—The rules of clauses (ii) and (iii) of paragraph 

(12)(B) shall apply for purposes of clause (i)(I). 

(iii) WITHDRAWAL AND VESTING RESTRICTIONS.—An 

arrangement shall not be treated as meeting the requirements of clause (i) unless, with respect to employer contributions (including matching contributions) taken into account in determining whether the 

requirements of clause (i) are met— 

(I) any employee who has completed at least 2 

years of service (within the meaning of section 

411(a)) has a nonforfeitable right to 100 percent of 

the employee’s accrued benefit derived from such 

employer contributions, and 

(II) the requirements of subparagraph (B) of 

paragraph (2) are met with respect to all such employer contributions. 

(iv) APPLICATION OF CERTAIN OTHER RULES.—The 

rules of subparagraphs (E)(ii) and (F) of paragraph 

(12) shall apply for purposes of subclauses (I) and (II) 

of clause (i). 

(E) NOTICE REQUIREMENTS.— 

(i) IN GENERAL.—The requirements of this subparagraph are met if, within a reasonable period before 

each plan year, each employee eligible to participate in 

the arrangement for such year receives written notice 

of the employee’s rights and obligations under the arrangement which— 


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(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. 

(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 


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the close of the last of the 12-month periods described in 

such paragraph. 

(B) NONDISCRIMINATION AND TOP-HEAVY RULES NOT TO

APPLY.— 

(i) NONDISCRIMINATION RULES.—In the case of employees who are eligible to participate in the arrangement solely by reason of paragraph (2)(D)(ii)— 

(I) notwithstanding subsection (a)(4), an employer shall not be required to make nonelective or 

matching contributions on behalf of such employees even if such contributions are made on behalf 

of other employees eligible to participate in the arrangement, and 

(II) an employer may elect to exclude such employees from the application of subsection (a)(4), 

paragraphs (3), (12), and (13), subsection (m)(2), 

and section 410(b). 

(ii) TOP-HEAVY RULES.—An employer may elect to exclude all employees who are eligible to participate in a 

plan maintained by the employer solely by reason of 

paragraph (2)(D)(ii) from the application of the vesting 

and benefit requirements under subsections (b) and (c) 

of section 416. 

(iii) VESTING.—For purposes of determining whether 

an employee described in clause (i) has a nonforfeitable 

right to employer contributions (other than contributions described in paragraph (3)(D)(i)) under the arrangement, each 12-month period for which the employee has at least 500 hours of service shall be treated 

as a year of service. 

(iv) EMPLOYEES WHO BECOME FULL-TIME EMPLOYEES.—This subparagraph shall cease to apply to any 

employee as of the first plan year beginning after the 

plan year in which the employee meets the requirements of section 410(a)(1)(A)(ii) without regard to paragraph (2)(D)(ii). 

(C) EXCEPTION FOR EMPLOYEES UNDER COLLECTIVELY

BARGAINED PLANS, ETC.—Paragraph (2)(D)(ii) shall not 

apply to employees described in section 410(b)(3). 

(D) SPECIAL RULES.— 

(i) TIME OF PARTICIPATION.—The rules of section 

410(a)(4) shall apply to an employee eligible to participate in an arrangement solely by reason of paragraph 

(2)(D)(ii). 

(ii) 12-MONTH PERIODS.—12-month periods shall be 

determined in the same manner as under the last sentence of section 410(a)(3)(A). 

(l) PERMITTED DISPARITY IN PLAN CONTRIBUTIONS OR BENEFITS.— 

(1) IN GENERAL.—The requirements of this subsection are 

met with respect to a plan if— 

(A) in the case of a defined contribution plan, the requirements of paragraph (2) are met, and 

(B) in the case of a defined benefit plan, the requirements of paragraph (3) are met. 


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(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 


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(ii) benefits are based on average annual compensation. 

(4) DEFINITIONS RELATING TO PARAGRAPH (3).—For purposes 

of paragraph (3)— 

(A) MAXIMUM EXCESS ALLOWANCE.—The maximum excess allowance is equal to— 

(i) in the case of benefits attributable to any year of 

service with the employer taken into account under 

the plan, 3/4 of a percentage point, and 

(ii) in the case of total benefits, 3/4 of a percentage 

point, multiplied by the participant’s years of service 

(not in excess of 35) with the employer taken into account under the plan. 

In no event shall the maximum excess allowance exceed 

the base benefit percentage. 

(B) MAXIMUM OFFSET ALLOWANCE.—The maximum offset 

allowance is equal to— 

(i) in the case of benefits attributable to any year of 

service with the employer taken into account under 

the plan, 3/4 percent of the participant’s final average 

compensation, and 

(ii) in the case of total benefits, 3/4 percent of the 

participant’s final average compensation, multiplied by 

the participant’s years of service (not in excess of 35) 

with the employer taken into account under the plan. 

In no event shall the maximum offset allowance exceed 50 

percent of the benefit which would have accrued without 

regard to the offset reduction. 

(C) REDUCTIONS.— 

(i) IN GENERAL.—The Secretary shall prescribe regulations requiring the reduction of the 3/4 percentage 

factor under subparagraph (A) or (B)— 

(I) in the case of a plan other than an offset 

plan which has an integration level in excess of 

covered compensation, or 

(II) with respect to any participant in an offset 

plan who has final average compensation in excess of covered compensation. 

(ii) BASIS OF REDUCTIONS.—Any reductions under 

clause (i) shall be based on the percentages of compensation replaced by the employer-derived portions of 

primary insurance amounts under the Social Security 

Act for participants with compensation in excess of 

covered compensation. 

(D) OFFSET PLAN.—The term ‘‘offset plan’’ means any 

plan with respect to which the benefit attributable to employer contributions for each participant is reduced by an 

amount specified in the plan. 

(5) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of 

this subsection— 

(A) INTEGRATION LEVEL.— (i) IN GENERAL.—The term ‘‘integration level’’ means 

the amount of compensation specified under the plan 

(by dollar amount or formula) at or below which the 

rate at which contributions or benefits are provided 


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(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 


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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, 


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all such contributions shall be aggregated for purposes of 

this subsection. 

(3) CONTRIBUTION PERCENTAGE.—For purposes of paragraph 

(2), the contribution percentage for a specified group of employees for a plan year shall be the average of the ratios (calculated separately for each employee in such group) of— 

(A) the sum of the matching contributions and employee 

contributions paid under the plan on behalf of each such 

employee for such plan year, to 

(B) the employee’s compensation (within the meaning of 

section 414(s)) for such plan year. 

Under regulations, an employer may elect to take into account 

(in computing the contribution percentage) elective deferrals 

and qualified nonelective contributions under the plan or any 

other plan of the employer. If matching contributions are taken 

into account for purposes of subsection (k)(3)(A)(ii) for any plan 

year, such contributions shall not be taken into account under 

subparagraph (A) for such year. Rules similar to the rules of 

subsection (k)(3)(E) shall apply for purposes of this subsection. 

(4) DEFINITIONS.—For purposes of this subsection— 

(A) MATCHING CONTRIBUTION.—The term ‘‘matching contribution’’ means— 

(i) any employer contribution made to a defined contribution plan on behalf of an employee on account of 

an employee contribution made by such employee, and 

(ii) any employer contribution made to a defined 

contribution plan on behalf of an employee on account 

of an employee’s elective deferral. 

(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. 

(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 


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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 


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be included in gross income except to the extent attributable to income on such contributions. 

(8) HIGHLY COMPENSATED EMPLOYEE.—For purposes of this 

subsection, the term ‘‘highly compensated employee’’ has the 

meaning given to such term by section 414(q). 

(9) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this 

subsection and subsection (k), including regulations permitting 

appropriate aggregation of plans and contributions. 

(10) ALTERNATIVE METHOD OF SATISFYING TESTS.—A defined 

contribution plan shall be treated as meeting the requirements 

of paragraph (2) with respect to matching contributions if the 

plan— 

(A) meets the contribution requirements of subparagraph (B) of subsection (k)(11), 

(B) meets the exclusive plan requirements of subsection 

(k)(11)(C), and 

(C) meets the vesting requirements of section 408(p)(3). 

(11) ADDITIONAL ALTERNATIVE METHOD OF SATISFYING

TESTS.— 

(A) IN GENERAL.—A defined contribution plan shall be 

treated as meeting the requirements of paragraph (2) with 

respect to matching contributions if the plan— 

(i) meets the contribution requirements of subparagraph (B) or (C) of subsection (k)(12), 

(ii) meets the notice requirements of subsection 

(k)(12)(D), and 

(iii) meets the requirements of subparagraph (B). 

(B) LIMITATION ON MATCHING CONTRIBUTIONS.—The requirements of this subparagraph are met if— 

(i) matching contributions on behalf of any employee 

may not be made with respect to an employee’s contributions or elective deferrals in excess of 6 percent of 

the employee’s compensation, 

(ii) the rate of an employer’s matching contribution 

does not increase as the rate of an employee’s contributions or elective deferrals increase, and 

(iii) the matching contribution with respect to any 

highly compensated employee at any rate of an employee contribution or rate of elective deferral is not 

greater than that with respect to an employee who is 

not a highly compensated employee. 

(12) ALTERNATIVE METHOD FOR AUTOMATIC CONTRIBUTION ARRANGEMENTS.—A defined contribution plan shall be treated as 

meeting the requirements of paragraph (2) with respect to 

matching contributions if the plan— 

(A) is a qualified automatic contribution arrangement 

(as defined in subsection (k)(13)), and 

(B) meets the requirements of paragraph (11)(B). 

(13) CROSS REFERENCE.—For excise tax on certain excess 

contributions, see section 4979. 

(n) COORDINATION WITH QUALIFIED DOMESTIC RELATIONS OR- DERS.—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 SecVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00232 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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retary of Labor thereunder) with the other provisions of this chapter. 

(o) SPECIAL RULES FOR APPLYING NONDISCRIMINATION RULES TO

PROTECT OLDER, LONGER SERVICE AND GRANDFATHERED PARTICI- PANTS.— 

(1) TESTING OF DEFINED BENEFIT PLANS WITH CLOSED CLASS- ES 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). 


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(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 


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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: 


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(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 spunoff 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 makewhole 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 makewhole 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 


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paragraph (1)(C) (as applied for purposes of paragraph 

(1)(B)(iii)(IV)). 

(B) AGGREGATION WITH PLANS INCLUDING MATCHING CON- TRIBUTIONS.— (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 makewhole 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 benVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00237 Fmt 6659 Sfmt 6603 E:\HR\OC\HR065P1.XXX HR065P1

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efits 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). 

ø(o)(p) CROSS REFERENCE.—For exemption from tax of a trust 

qualified under this section, see section 501(a). 

* * * * * * * 

SEC. 403. TAXATION OF EMPLOYEE ANNUITIES. 

(a) TAXABILITY OF BENEFICIARY UNDER A QUALIFIED ANNUITY

PLAN.— 

(1) DISTRIBUTEE TAXABLE UNDER SECTION 72.—If an annuity 

contract is purchased by an employer for an employee under a 

plan which meets the requirements of section 404(a)(2) (whether or not the employer deducts the amounts paid for the contract under such section), the amount actually distributed to 

any distributee under the contract shall be taxable to the distributee (in the year in which so distributed) under section 72 

(relating to annuities). 

(2) SPECIAL RULE FOR HEALTH AND LONG-TERM CARE INSURANCE.—To the extent provided in section 402(l), paragraph (1) 

shall not apply to the amount distributed under the contract 

which is otherwise includible in gross income under this subsection. 

(3) SELF-EMPLOYED INDIVIDUALS.—For purposes of this subsection, the term ‘‘employee’’ includes an individual who is an 

employee within the meaning of section 401(c)(1), and the employer of such individual is the person treated as his employer 

under section 401(c)(4). 

(4) ROLLOVER AMOUNTS.— 

(A) GENERAL RULE.—If— 

(i) any portion of the balance to the credit of an employee in an employee annuity described in paragraph 

(1) is paid to him in an eligible rollover distribution 

(within the meaning of section 402(c)(4)), 

(ii) the employee transfers any portion of the property he receives in such distribution to an eligible retirement plan, and 

(iii) in the case of a distribution of property other 

than money, the amount so transferred consists of the 

property distributed, 


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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 


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which is otherwise includible in gross income under this subsection. 

(3) INCLUDIBLE COMPENSATION.—For purposes of this subsection, the term ‘‘includible compensation’’ means, in the case 

of any employee, the amount of compensation which is received 

from the employer described in paragraph (1)(A), and which is 

includible in gross income (computed without regard to section 

911) for the most recent period (ending not later than the close 

of the taxable year) which under paragraph (4) may be counted 

as one year of service, and which precedes the taxable year by 

no more than five years. Such term does not include any 

amount contributed by the employer for any annuity contract 

to which this subsection applies. Such term includes— 

(A) any elective deferral (as defined in section 402(g)(3)), 

and 

(B) any amount which is contributed or deferred by the 

employer at the election of the employee and which is not 

includible in the gross income of the employee by reason 

of section 125, 132(f)(4), or 457. 

(4) YEARS OF SERVICE.—In determining the number of years 

of service for purposes of this subsection, there shall be included— 

(A) one year for each full year during which the individual was a full-time employee of the organization purchasing the annuity for him, and 

(B) a fraction of a year (determined in accordance with 

regulations prescribed by the Secretary) for each full year 

during which such individual was a part-time employee of 

such organization and for each part of a year during which 

such individual was a full-time or part-time employee of 

such organization. 

In no case shall the number of years of service be less than 

one. 

(5) APPLICATION TO MORE THAN ONE ANNUITY CONTRACT.—If 

for any taxable year of the employee this subsection applies to 

2 or more annuity contracts purchased by the employer, such 

contracts shall be treated as one contract. 

(7) CUSTODIAL ACCOUNTS FOR REGULATED INVESTMENT COM- PANY STOCK.— (A) AMOUNTS PAID TREATED AS CONTRIBUTIONS.—For 

purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which 

satisfies the requirements of section 401(f)(2) shall be 

treated as amounts contributed by him for an annuity contract for his employee øif—¿ 

ø(i) the amounts are to be invested in regulated investment company stock to be held in that custodial 

account, and 

ø(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 591/2, 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 reVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00240 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

rfrederick on DSKBCBPHB2PROD with HEARING
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duction agreement (within the meaning of section 

3121(a)(5)(D)), encounters financial hardship.¿ if the 

amounts are to be invested in regulated investment 

company stock to be held in that custodial account, 

and under the custodial account— 

(i) no such amounts may be paid or made available 

to any distributee (unless such amount is a distribution 

to which section 72(t)(2)(G) applies) before— 

(I) the employee dies, 

(II) the employee attains age 591/2, 

(III) the employee has a severance from employment, 

(IV) the employee becomes disabled (within the 

meaning of section 72(m)(7)), 

(V) in the case of contributions made pursuant to 

a salary reduction agreement (within the meaning 

of section 3121(a)(5)(D)), 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). 

(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. 


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(B) CERTAIN RULES MADE APPLICABLE.—The rules of 

paragraphs (2) through (7), (9), and (11) of section 402(c) 

and section 402(f) shall apply for purposes of subparagraph (A), except that section 402(f) shall be applied to the 

payor in lieu of the plan administrator. 

(9) RETIREMENT INCOME ACCOUNTS PROVIDED BY CHURCHES, ETC..— (A) AMOUNTS PAID TREATED AS CONTRIBUTIONS.—For 

purposes of this title— 

(i) a retirement income account shall be treated as 

an annuity contract described in this subsection, and 

(ii) amounts paid by an employer described in paragraph (1)(A) to a retirement income account shall be 

treated as amounts contributed by the employer for an 

annuity contract for the employee on whose behalf 

such account is maintained. 

(B) RETIREMENT INCOME ACCOUNT.—For purposes of this 

paragraph, the term ‘‘retirement income account’’ means a 

defined contribution program established or maintained by 

a church, or a convention or association of churches, including an organization described in section 414(e)(3)(A), 

to provide benefits under section 403(b) for an employee 

described in paragraph (1) (including an employee described in section 414(e)(3)(B)) or his beneficiaries. 

(10) DISTRIBUTION REQUIREMENTS.—Under regulations prescribed by the Secretary, this subsection shall not apply to any 

annuity contract (or to any custodial account described in paragraph (7) or retirement income account described in paragraph 

(9)) unless requirements similar to the requirements of sections 

401(a)(9) and 401(a)(31) are met (and requirements similar to 

the incidental death benefit requirements of section 401(a) are 

met) with respect to such annuity contract (or custodial account or retirement income account). Any amount transferred 

in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the 

taxable year of the transfer. 

(11) REQUIREMENT THAT DISTRIBUTIONS NOT BEGIN BEFORE

AGE 591/2, SEVERANCE FROM EMPLOYMENT, DEATH, OR DIS- ABILITY.—This subsection shall not apply to any annuity contract unless under such contract distributions attributable to 

contributions made pursuant to a salary reduction agreement 

(within the meaning of section 402(g)(3)(C)) may be paid only— 

(A) when the employee attains age 591/2, has a severance from employment, dies, or becomes disabled (within 

the meaning of section 72(m)(7)), 

(B) in the case of hardship, øor¿ 

(C) for distributions to which section 72(t)(2)(G) 

appliesø.¿, 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 


rfrederick on DSKBCBPHB2PROD with HEARING
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(ii) in the form of a qualified distribution (as defined 

in section 401(a)(38)(B)(i)) or a qualified plan distribution annuity contract (as defined in section 

401(a)(38)(B)(iv)). 

Such contract may not provide for the distribution of any income attributable to such contributions in the case of hardship. 

(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. 

(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 deVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00243 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

rfrederick on DSKBCBPHB2PROD with HEARING
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fined 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). 

(c) TAXABILITY OF BENEFICIARY UNDER NONQUALIFIED ANNUITIES

OR UNDER ANNUITIES PURCHASED BY EXEMPT ORGANIZATIONS.—Premiums paid by an employer for an annuity contract which is not 

subject to subsection (a) shall be included in the gross income of 

the employee in accordance with section 83 (relating to property 

transferred in connection with performance of services), except that 

the value of such contract shall be substituted for the fair market 

value of the property for purposes of applying such section. The 

preceding sentence shall not apply to that portion of the premiums 

paid which is excluded from gross income under subsection (b). In 

the case of any portion of any contract which is attributable to premiums to which this subsection applies, the amount actually paid 

or made available under such contract to any beneficiary which is 

attributable to such premiums shall be taxable to the beneficiary 

(in the year in which so paid or made available) under section 72 

(relating to annuities). 

* * * * * * * 

SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS. 

(a) INDIVIDUAL RETIREMENT ACCOUNT.—For purposes of this section, the term ‘‘individual retirement account’’ means a trust created or organized in the United States for the exclusive benefit of 

an individual or his beneficiaries, but only if the written governing 

instrument creating the trust meets the following requirements: 

(1) Except in the case of a rollover contribution described in 

subsection (d)(3) or in section 402(c), 403(a)(4), 403(b)(8), or 

457(e)(16), no contribution will be accepted unless it is in cash, 

and contributions will not be accepted for the taxable year on 

behalf of any individual in excess of the amount in effect for 

such taxable year under section 219(b)(1)(A). 

(2) The trustee is a bank (as defined in subsection (n)) or 

such other person who demonstrates to the satisfaction of the 

Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of 

this section. 

(3) No part of the trust funds will be invested in life insurance contracts. 

(4) The interest of an individual in the balance in his account 

is nonforfeitable. 

(5) The assets of the trust will not be commingled with other 

property except in a common trust fund or common investment 

fund. 

(6) Under regulations prescribed by the Secretary, rules 

similar to the rules of section 401(a)(9) and the incidental 

death benefit requirements of section 401(a) shall apply to the 


rfrederick on DSKBCBPHB2PROD with HEARING
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distribution of the entire interest of an individual for whose 

benefit the trust is maintained. 

(b) INDIVIDUAL RETIREMENT ANNUITY.—For purposes of this section, the term ‘‘individual retirement annuity’’ means an annuity 

contract, or an endowment contract (as determined under regulations prescribed by the Secretary), issued by an insurance company 

which meets the following requirements: 

(1) The contract is not transferable by the owner. 

(2) Under the contract— 

(A) the premiums are not fixed, 

(B) the annual premium on behalf of any individual will 

not exceed the dollar amount in effect under section 

219(b)(1)(A), and 

(C) any refund of premiums will be applied before the 

close of the calendar year following the year of the refund 

toward the payment of future premiums or the purchase of 

additional benefits. 

(3) Under regulations prescribed by the Secretary, rules 

similar to the rules of section 401(a)(9) and the incidental 

death benefit requirements of section 401(a) shall apply to the 

distribution of the entire interest of the owner. 

(4) The entire interest of the owner is nonforfeitable. 

Such term does not include such an annuity contract for any taxable year of the owner in which it is disqualified on the application 

of subsection (e) or for any subsequent taxable year. For purposes 

of this subsection, no contract shall be treated as an endowment 

contract if it matures later than the taxable year in which the individual in whose name such contract is purchased attains age ø701/ 

2¿ 72 ; 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 


rfrederick on DSKBCBPHB2PROD with HEARING
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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— 


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(I) this paragraph shall not apply to any 

amount received by an individual from such an account or annuity (and no amount transferred from 

such account or annuity to another individual retirement account or annuity shall be excluded 

from gross income by reason of such transfer), and 

(II) such inherited account or annuity shall not 

be treated as an individual retirement account or 

annuity for purposes of determining whether any 

other amount is a rollover contribution. 

(ii) INHERITED INDIVIDUAL RETIREMENT ACCOUNT OR

ANNUITY.—An individual retirement account or individual retirement annuity shall be treated as inherited 

if— 

(I) the individual for whose benefit the account 

or annuity is maintained acquired such account by 

reason of the death of another individual, and 

(II) such individual was not the surviving 

spouse of such other individual. 

(D) PARTIAL ROLLOVERS PERMITTED.— 

(i) IN GENERAL.—If any amount paid or distributed 

out of an individual retirement account or individual 

retirement annuity would meet the requirements of 

subparagraph (A) but for the fact that the entire 

amount was not paid into an eligible plan as required 

by clause (i) or (ii) of subparagraph (A), such amount 

shall be treated as meeting the requirements of subparagraph (A) to the extent it is paid into an eligible 

plan referred to in such clause not later than the 60th 

day referred to in such clause. 

(ii) ELIGIBLE PLAN.—For purposes of clause (i), the 

term ‘‘eligible plan’’ means any account, annuity, contract, or plan referred to in subparagraph (A). 

(E) DENIAL OF ROLLOVER TREATMENT FOR REQUIRED DISTRIBUTIONS.—This paragraph shall not apply to any 

amount to the extent such amount is required to be distributed under subsection (a)(6) or (b)(3). 

(F) FROZEN DEPOSITS.—For purposes of this paragraph, 

rules similar to the rules of section 402(c)(7) (relating to 

frozen deposits) shall apply. 

(G) SIMPLE RETIREMENT ACCOUNTS.—In the case of any 

payment or distribution out of a simple retirement account 

(as defined in subsection (p)) to which section 72(t)(6) applies, this paragraph shall not apply unless such payment 

or distribution is paid into another simple retirement account. 

(H) APPLICATION OF SECTION 72.— 

(i) IN GENERAL.—If— 

(I) a distribution is made from an individual retirement plan, and 

(II) a rollover contribution is made to an eligible 

retirement plan described in section 

402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to all 

or part of such distribution, 


rfrederick on DSKBCBPHB2PROD with HEARING
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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), 


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(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 subparagraph (A) of section 71(b)(2) 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 PROHIB- ITED 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. 


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(B) QUALIFIED CHARITABLE DISTRIBUTION.—For purposes 

of this paragraph, the term ‘‘qualified charitable distribution’’ means any distribution from an individual retirement 

plan (other than a plan described in subsection (k) or 

(p))— 

(i) which is made directly by the trustee to an organization described in section 170(b)(1)(A) (other than 

any organization described in section 509(a)(3) or any 

fund or account described in section 4966(d)(2)), and 

(ii) which is made on or after the date that the individual for whose benefit the plan is maintained has attained age 701/2. 

A distribution shall be treated as a qualified charitable 

distribution only to the extent that the distribution would 

be includible in gross income without regard to subparagraph (A). 

(C) CONTRIBUTIONS MUST BE OTHERWISE DEDUCTIBLE.— 

For purposes of this paragraph, a distribution to an organization described in subparagraph (B)(i) shall be treated 

as a qualified charitable distribution only if a deduction for 

the entire distribution would be allowable under section 

170 (determined without regard to subsection (b) thereof 

and this paragraph). 

(D) APPLICATION OF SECTION 72.—Notwithstanding section 72, in determining the extent to which a distribution 

is a qualified charitable distribution, the entire amount of 

the distribution shall be treated as includible in gross income without regard to subparagraph (A) to the extent 

that such amount does not exceed the aggregate amount 

which would have been so includible if all amounts in all 

individual retirement plans of the individual were distributed during such taxable year and all such plans were 

treated as 1 contract for purposes of determining under 

section 72 the aggregate amount which would have been 

so includible. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year 

and subsequent taxable years. 

(E) DENIAL OF DEDUCTION.—Qualified charitable distributions which are not includible in gross income pursuant to subparagraph (A) shall not be taken into account in 

determining the deduction under section 170. 

(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 distribuVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00250 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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tion 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 


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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 EN- GAGES 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, 

and 

(ii) the separate account for any individual within 

an individual retirement account maintained by an 

employer or association of employees is treated as a 

separate individual retirement account. 

(B) ACCOUNT TREATED AS DISTRIBUTING ALL ITS AS- SETS.—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 indiVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00252 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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vidual 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 RE- TIREMENT ACCOUNT.—If the assets of an individual retirement 

account or any part of such assets are used to purchase an endowment contract for the benefit of the individual for whose 

benefit the account is established— 

(A) to the extent that the amount of the assets involved 

in the purchase are not attributable to the purchase of life 

insurance, the purchase is treated as a rollover contribution described in subsection (d)(3), and 

(B) to the extent that the amount of the assets involved 

in the purchase are attributable to the purchase of life, 

health, accident, or other insurance, such amounts are 

treated as distributed to that individual (but the provisions of subsection (f) do not apply). 

(6) COMMINGLING INDIVIDUAL RETIREMENT ACCOUNT

AMOUNTS IN CERTAIN COMMON TRUST FUNDS AND COMMON INVESTMENT FUNDS.—Any common trust fund or common investment fund of individual retirement account assets which is exempt from taxation under this subtitle does not cease to be exempt on account of the participation or inclusion of assets of 

a trust exempt from taxation under section 501(a) which is described in section 401(a). 

(g) COMMUNITY PROPERTY LAWS.—This section shall be applied 

without regard to any community property laws. 

(h) CUSTODIAL ACCOUNTS.—For purposes of this section, a custodial account shall be treated as a trust if the assets of such account 

are held by a bank (as defined in subsection (n)) or another person 

who demonstrates, to the satisfaction of the Secretary, that the 

manner in which he will administer the account will be consistent 

with the requirements of this section, and if the custodial account 

would, except for the fact that it is not a trust, constitute an individual retirement account described in subsection (a). For purposes 

of this title, in the case of a custodial account treated as a trust 

by reason of the preceding sentence, the custodian of such account 

shall be treated as the trustee thereof. 

(i) REPORTS.—The trustee of 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 subVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00253 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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mitted 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 comVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00254 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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pensation (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. 


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(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 REQUIRE- MENTS NECESSARY TO INSURE DISTRIBUTION OF EXCESS CON- TRIBUTIONS.—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). 


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(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) DEFINITIONS.—For purposes of this subsection and subsection (l)— 

(A) EMPLOYEE, EMPLOYER, OR OWNER-EMPLOYEE.—The 

terms ‘‘employee’’, ‘‘employer’’, and ‘‘owner-employee’’ shall 

have the respective meanings given such terms by section 

401(c). 

(B) COMPENSATION.—Except as provided in paragraph 

(2)(C), the term ‘‘compensation’’ has the meaning given 

such term by section 414(s). 

(C) YEAR.—The term ‘‘year’’ means— 

(i) the calendar year, or 

(ii) if the employer elects, subject to such terms and 

conditions as the Secretary may prescribe, to maintain 

the simplified employee pension on the basis of the 

employer’s taxable year. 

(8) COST-OF-LIVING ADJUSTMENT.—The Secretary shall adjust the $450 amount in paragraph (2)(C) at the same time and in 

the same manner as under section 415(d) and shall adjust the 

$200,000 amount in paragraphs (3)(C) and (6)(D)(ii) at the 

same time, and by the same amount, as any adjustment under 

section 401(a)(17)(B); except that any increase in the $450 

amount which is not a multiple of $50 shall be rounded to the 

next lowest multiple of $50. 

(9) 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. 


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(ii) The requirements for eligibility for participation. 

(iii) The benefits provided with respect to the arrangement. 

(iv) The time and method of making elections with 

respect to the arrangement. 

(v) The procedures for, and effects of, withdrawals 

(including rollovers) from the arrangement. 

(C) EMPLOYEE NOTIFICATION.—The employer shall notify 

each employee immediately before the period for which an 

election described in subsection (p)(5)(C) may be made of 

the employee’s opportunity to make such election. Such notice shall include a copy of the description described in 

subparagraph (B). 

(m) INVESTMENT IN COLLECTIBLES TREATED AS DISTRIBUTIONS.— 

(1) IN GENERAL.—The acquisition by an individual retirement 

account or by an individually-directed account under a plan described in section 401(a) of any collectible shall be treated (for 

purposes of this section and section 402) as a distribution from 

such account in an amount equal to the cost to such account 

of such collectible. 

(2) COLLECTIBLE DEFINED.—For purposes of this subsection, 

the term ‘‘collectible’’ means— 

(A) any work of art, 

(B) any rug or antique, 

(C) any metal or gem, 

(D) any stamp or coin, 

(E) any alcoholic beverage, or 

(F) any other tangible personal property specified by the 

Secretary for purposes of this subsection. 

(3) EXCEPTION FOR CERTAIN COINS AND BULLION.—For purposes of this subsection, the term ‘‘collectible’’ shall not include— 

(A) any coin which is— 

(i) a gold coin described in paragraph (7), (8), (9), or 

(10) of section 5112(a) of title 31, United States Code, 

(ii) a silver coin described in section 5112(e) of title 

31, United States Code, 

(iii) a platinum coin described in section 5112(k) of 

title 31, United States Code, or 

(iv) a coin issued under the laws of any State, or 

(B) any gold, silver, platinum, or palladium bullion of a 

fineness equal to or exceeding the minimum fineness that 

a contract market (as described in section 5 of the Commodity Exchange Act, 7 U.S.C. 7) requires for metals 

which may be delivered in satisfaction of a regulated futures contract, 

if such bullion is in the physical possession of a trustee described under subsection (a) of this section. 

(n) BANK.—For purposes of subsection (a)(2), the term ‘‘bank’’ 

means— 

(1) any bank (as defined in section 581), 

(2) an insured credit union (within the meaning of paragraph 

(6) or (7) of section 101 of the Federal Credit Union Act), and 


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(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 CON- TRIBUTIONS 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 CON- TRIBUTIONS AS NONDEDUCTIBLE.—If a taxpayer elects 

not to deduct an amount which (without regard to this 

clause) is allowable as a deduction under section 219 

for any taxable year, the nondeductible limit for such 

taxable year shall be increased by such amount. 

(C) DESIGNATED NONDEDUCTIBLE CONTRIBUTIONS.— (i) IN GENERAL.—For purposes of this paragraph, the 

term ‘‘designated nondeductible contribution’’ means 

any contribution to an individual retirement plan for 

the taxable year which is designated (in such manner 

as the Secretary may prescribe) as a contribution for 

which a deduction is not allowable under section 219. 

(ii) DESIGNATION.—Any designation under clause (i) 

shall be made on the return of tax imposed by chapter 

1 for the taxable year. 

(3) TIME WHEN CONTRIBUTIONS MADE.—In determining for 

which taxable year a designated nondeductible contribution is 

made, the rule of section 219(f)(3) shall apply. 

(4) INDIVIDUAL REQUIRED TO REPORT AMOUNT OF DESIGNATED

NONDEDUCTIBLE CONTRIBUTIONS.— 

(A) IN GENERAL.—Any individual who— 

(i) makes a designated nondeductible contribution to 

any individual retirement plan for any taxable year, or 

(ii) receives any amount from any individual retirement plan for any taxable year, 

shall include on his return of the tax imposed by chapter 

1 for such taxable year and any succeeding taxable year 

(or on such other form as the Secretary may prescribe for 

any such taxable year) information described in subparagraph (B). 


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(B) INFORMATION REQUIRED TO BE SUPPLIED.—The following information is described in this subparagraph: 

(i) The amount of designated nondeductible contributions for the taxable year. 

(ii) The amount of distributions from individual retirement plans for the taxable year. 

(iii) The excess (if any) of— 

(I) the aggregate amount of designated nondeductible contributions for all preceding taxable 

years, over 

(II) the aggregate amount of distributions from 

individual retirement plans which was excludable 

from gross income for such taxable years. 

(iv) The aggregate balance of all individual retirement plans of the individual as of the close of the calendar year in which the taxable year begins. 

(v) Such other information as the Secretary may 

prescribe. 

(C) PENALTY FOR REPORTING CONTRIBUTIONS NOT

MADE.—For penalty where individual reports designated 

nondeductible contributions not made, see section 6693(b). 

(5) SPECIAL RULE FOR DIFFICULTY OF CARE PAYMENTS EXCLUDED FROM GROSS INCOME.—In the case of an individual 

who for a taxable year excludes from gross income under section 

131 a qualified foster care payment which is a difficulty of care 

payment, if— 

(A) the deductible amount in effect for the taxable year 

under subsection (b), exceeds 

(B) the amount of compensation includible in the individual’s gross income for the taxable year, 

the individual may elect to increase the nondeductible limit 

under paragraph (2) for the taxable year by an amount equal 

to the lesser of such excess or the amount so excluded. 

(p) SIMPLE RETIREMENT ACCOUNTS.— 

(1) IN GENERAL.—For purposes of this title, the term ‘‘simple 

retirement account’’ means an individual retirement plan (as 

defined in section 7701(a)(37))— 

(A) with respect to which the requirements of paragraphs (3), (4), and (5) are met; and 

(B) except in the case of a rollover contribution described 

in subsection (d)(3)(G) or a rollover contribution otherwise 

described in subsection (d)(3) or in section 402(c), 403(a)(4), 

403(b)(8), or 457(e)(16), which is made after the 2-year period described in section 72(t)(6), with respect to which the 

only contributions allowed are contributions under a qualified salary reduction arrangement. 

(2) QUALIFIED SALARY REDUCTION ARRANGEMENT.— 

(A) IN GENERAL.—For purposes of this subsection, the 

term ‘‘qualified salary reduction arrangement’’ means a 

written arrangement of an eligible employer under 

which— 

(i) an employee eligible to participate in the arrangement may elect to have the employer make payments— 


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(I) as elective employer contributions to a simple retirement account on behalf of the employee, 

or 

(II) to the employee directly in cash, 

(ii) the amount which an employee may elect under 

clause (i) for any year is required to be expressed as 

a percentage of compensation and may not exceed a 

total of the applicable dollar amount for any year, 

(iii) the employer is required to make a matching 

contribution to the simple retirement account for any 

year in an amount equal to so much of the amount the 

employee elects under clause (i)(I) as does not exceed 

the applicable percentage of compensation for the 

year, and 

(iv) no contributions may be made other than contributions described in clause (i) or (iii). 

(B) EMPLOYER MAY ELECT 2-PERCENT NONELECTIVE CONTRIBUTION.— 

(i) IN GENERAL.—An employer shall be treated as 

meeting the requirements of subparagraph (A)(iii) for 

any year if, in lieu of the contributions described in 

such clause, the employer elects to make nonelective 

contributions of 2 percent of compensation for each 

employee who is eligible to participate in the arrangement and who has at least $5,000 of compensation 

from the employer for the year. If an employer makes 

an election under this subparagraph for any year, the 

employer shall notify employees of such election within a reasonable period of time before the 60-day period 

for such year under paragraph (5)(C). 

(ii) COMPENSATION LIMITATION.—The compensation 

taken into account under clause (i) for any year shall 

not exceed the limitation in effect for such year under 

section 401(a)(17). 

(C) DEFINITIONS.—For purposes of this subsection— 

(i) ELIGIBLE EMPLOYER.— 

(I) IN GENERAL.—The term ‘‘eligible employer’’ 

means, with respect to any year, an employer 

which had no more than 100 employees who received at least $5,000 of compensation from the 

employer for the preceding year. 

(II) 2-YEAR GRACE PERIOD.—An eligible employer 

who establishes and maintains a plan under this 

subsection for 1 or more years and who fails to be 

an eligible employer for any subsequent year shall 

be treated as an eligible employer for the 2 years 

following the last year the employer was an eligible employer. If such failure is due to any acquisition, disposition, or similar transaction involving 

an eligible employer, the preceding sentence shall 

not apply. 

(ii) APPLICABLE PERCENTAGE.— 

(I) IN GENERAL.—The term ‘‘applicable percentage’’ means 3 percent. 


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(II) ELECTION OF LOWER PERCENTAGE.—An employer may elect to apply a lower percentage (not 

less than 1 percent) for any year for all employees 

eligible to participate in the plan for such year if 

the employer notifies the employees of such lower 

percentage within a reasonable period of time before the 60-day election period for such year under 

paragraph (5)(C). An employer may not elect a 

lower percentage under this subclause for any 

year if that election would result in the applicable 

percentage being lower than 3 percent in more 

than 2 of the years in the 5-year period ending 

with such year. 

(III) SPECIAL RULE FOR YEARS ARRANGEMENT

NOT IN EFFECT.—If any year in the 5-year period 

described in subclause (II) is a year prior to the 

first year for which any qualified salary reduction 

arrangement is in effect with respect to the employer (or any predecessor), the employer shall be 

treated as if the level of the employer matching 

contribution was at 3 percent of compensation for 

such prior year. 

(D) ARRANGEMENT MAY BE ONLY PLAN OF EMPLOYER.— 

(i) IN GENERAL.—An arrangement shall not be treated as a qualified salary reduction arrangement for any 

year if the employer (or any predecessor employer) 

maintained a qualified plan with respect to which contributions were made, or benefits were accrued, for 

service in any year in the period beginning with the 

year such arrangement became effective and ending 

with the year for which the determination is being 

made. If only individuals other than employees described in subparagraph (A) of section 410(b)(3) are eligible to participate in such arrangement, then the 

preceding sentence shall be applied without regard to 

any qualified plan in which only employees so described are eligible to participate. 

(ii) QUALIFIED PLAN.—For purposes of this subparagraph, the term ‘‘qualified plan’’ means a plan, contract, pension, or trust described in subparagraph (A) 

or (B) of section 219(g)(5). 

(E) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT.— 

(i) IN GENERAL.—For purposes of subparagraph 

(A)(ii), the applicable amount is $10,000. 

(ii) COST-OF-LIVING ADJUSTMENT.—In the case of a 

year beginning after December 31, 2005, the Secretary 

shall adjust the $10,000 amount under clause (i) at 

the same time and in the same manner as under section 415(d), except that the base period taken into account shall be the calendar quarter beginning July 1, 

2004, and any increase under this subparagraph 

which is not a multiple of $500 shall be rounded to the 

next lower multiple of $500. 


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(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 

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tion under this subsection. The preceding sentence 

shall be applied as if the term ‘‘trade or business’’ for 

purposes of section 1402 included service described in 

section 1402(c)(6). 

(B) EMPLOYEE.—The term ‘‘employee’’ includes an employee as defined in section 401(c)(1). 

(C) YEAR.—The term ‘‘year’’ means the calendar year. 

(7) USE OF DESIGNATED FINANCIAL INSTITUTION.—A plan 

shall not be treated as failing to satisfy the requirements of 

this subsection or any other provision of this title merely because the employer makes all contributions to the individual 

retirement accounts or annuities of a designated trustee or 

issuer. The preceding sentence shall not apply unless each plan 

participant is notified in writing (either separately or as part 

of the notice under subsection (l)(2)(C)) that the participant’s 

balance may be transferred without cost or penalty to another 

individual account or annuity in accordance with subsection 

(d)(3)(G). 

(8) COORDINATION WITH MAXIMUM LIMITATION UNDER SUBSECTION (A).—In the case of any simple retirement account, 

subsections (a)(1) and (b)(2) shall be applied by substituting 

‘‘the sum of the dollar amount in effect under paragraph 

(2)(A)(ii) of this subsection and the employer contribution required under subparagraph (A)(iii) or (B)(i) of paragraph (2) of 

this subsection, whichever is applicable’’ for ‘‘the dollar amount 

in effect under section 219(b)(1)(A)’’. 

(9) MATCHING CONTRIBUTIONS ON BEHALF OF SELF-EMPLOYED

INDIVIDUALS NOT TREATED AS ELECTIVE EMPLOYER CONTRIBUTIONS.—Any matching contribution described in paragraph 

(2)(A)(iii) which is made on behalf of a self-employed individual 

(as defined in section 401(c)) shall not be treated as an elective 

employer contribution to a simple retirement account for purposes of this title. 

(10) SPECIAL RULES FOR ACQUISITIONS, DISPOSITIONS, AND

SIMILAR TRANSACTIONS.— (A) IN GENERAL.—An employer which fails to meet any 

applicable requirement by reason of an acquisition, disposition, or similar transaction shall not be treated as failing to meet such requirement during the transition period 

if— 

(i) the employer satisfies requirements similar to the 

requirements of section 410(b)(6)(C)(i)(II); and 

(ii) the qualified salary reduction arrangement 

maintained by the employer would satisfy the requirements of this subsection after the transaction if the 

employer which maintained the arrangement before 

the transaction had remained a separate employer. 

(B) APPLICABLE REQUIREMENT.—For purposes of this 

paragraph, the term ‘‘applicable requirement’’ means— 

(i) the requirement under paragraph (2)(A)(i) that 

an employer be an eligible employer; 

(ii) the requirement under paragraph (2)(D) that an 

arrangement be the only plan of an employer; and 

(iii) the participation requirements under paragraph 

(4). 


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(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. 

(q) DEEMED IRAS UNDER QUALIFIED EMPLOYER PLANS.— (1) GENERAL RULE.—If— 

(A) a qualified employer plan elects to allow employees 

to make voluntary employee contributions to a separate account or annuity established under the plan, and 

(B) under the terms of the qualified employer plan, such 

account or annuity meets the applicable requirements of 

this section or section 408A for an individual retirement 

account or annuity, 

then such account or annuity shall be treated for purposes of 

this title in the same manner as an individual retirement plan 

and not as a qualified employer plan (and contributions to such 

account or annuity as contributions to an individual retirement 

plan and not to the qualified employer plan). For purposes of 

subparagraph (B), the requirements of subsection (a)(5) shall 

not apply. 

(2) SPECIAL RULES FOR QUALIFIED EMPLOYER PLANS.—For 

purposes of this title, a qualified employer plan shall not fail 

to meet any requirement of this title solely by reason of establishing and maintaining a program described in paragraph (1). 

(3) DEFINITIONS.—For purposes of this subsection— 

(A) QUALIFIED EMPLOYER PLAN.—The term ‘‘qualified 

employer plan’’ has the meaning given such term by section 72(p)(4)(A)(i); except that such term shall also include 

an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 

457(e)(1)(A). 

(B) VOLUNTARY EMPLOYEE CONTRIBUTION.—The term 

‘‘voluntary employee contribution’’ means any contribution 

(other than a mandatory contribution within the meaning 

of section 411(c)(2)(C))— 

(i) which is made by an individual as an employee 

under a qualified employer plan which allows employees to elect to make contributions described in paragraph (1), and 

(ii) with respect to which the individual has designated the contribution as a contribution to which 

this subsection applies. 

(r) CROSS REFERENCES.— 

(1) For tax on excess contributions in individual retirement accounts or annuities, see section 4973. 

(2) For tax on certain accumulations in individual retirement accounts or annuities, see section 4974. 

SEC. 408A. ROTH IRAS. 

(a) GENERAL RULE.—Except as provided in this section, a Roth 

IRA shall be treated for purposes of this title in the same manner 

as an individual retirement plan. 

(b) ROTH IRA.—For purposes of this title, the term ‘‘Roth IRA’’ 

means an individual retirement plan (as defined in section 


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7701(a)(37)) which is designated (in such manner as the Secretary 

may prescribe) at the time of establishment of the plan as a Roth 

IRA. Such designation shall be made in such manner as the Secretary may prescribe. 

(c) TREATMENT OF CONTRIBUTIONS.— (1) NO DEDUCTION ALLOWED.—No deduction shall be allowed 

under section 219 for a contribution to a Roth IRA. 

(2) CONTRIBUTION LIMIT.—The aggregate amount of contributions for any taxable year to all Roth IRAs maintained for the 

benefit of an individual shall not exceed the excess (if any) of— 

(A) the maximum amount allowable as a deduction 

under section 219 with respect to such individual for such 

taxable year (computed without regard to subsection (d)(1) 

or (g) of such section), over 

(B) the aggregate amount of contributions for such taxable year to all other individual retirement plans (other 

than Roth IRAs) maintained for the benefit of the individual. 

(3) LIMITS BASED ON MODIFIED ADJUSTED GROSS INCOME.— 

(A) DOLLAR LIMIT.—The amount determined under paragraph (2) for any taxable year shall not exceed an amount 

equal to the amount determined under paragraph (2)(A) 

for such taxable year, reduced (but not below zero) by the 

amount which bears the same ratio to such amount as— 

(i) the excess of— 

(I) the taxpayer’s adjusted gross income for such 

taxable year, over 

(II) the applicable dollar amount, bears to 

(ii) $15,000 ($10,000 in the case of a joint return or 

a married individual filing a separate return). 

The rules of subparagraphs (B) and (C) of section 219(g)(2) 

shall apply to any reduction under this subparagraph. 

(B) DEFINITIONS.—For purposes of this paragraph— 

(i) adjusted gross income shall be determined in the 

same manner as under section 219(g)(3), except that 

any amount included in gross income under subsection 

(d)(3) shall not be taken into account, and 

(ii) the applicable dollar amount is— 

(I) in the case of a taxpayer filing a joint return, $150,000, 

(II) in the case of any other taxpayer (other 

than a married individual filing a separate return), $95,000, and 

(III) in the case of a married individual filing a 

separate return, zero. 

(C) MARITAL STATUS.—Section 219(g)(4) shall apply for 

purposes of this paragraph. 

(D) INFLATION ADJUSTMENT.—In the case of any taxable 

year beginning in a calendar year after 2006, the dollar 

amounts in subclauses (I) and (II) of subparagraph (B)(ii) 

shall each be increased by an amount equal to— 

(i) such dollar amount, multiplied by 

(ii) the cost-of-living adjustment determined under 

section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘‘calendar 


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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. 

ø(4) CONTRIBUTIONS PERMITTED AFTER AGE 701/2.—Contributions to a Roth IRA may be made even after the individual for 

whom the account is maintained has attained age 701/2.¿ 

ø(5)¿ (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). 

ø(6)¿ (5) ROLLOVER CONTRIBUTIONS.— 

(A) IN GENERAL.—No rollover contribution may be made 

to a Roth IRA unless it is a qualified rollover contribution. 

(B) COORDINATION WITH LIMIT.—A qualified rollover contribution shall not be taken into account for purposes of 

paragraph (2). 

ø(7)¿ (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 591/2, 

(ii) made to a beneficiary (or to the estate of the individual) on or after the death of the individual, 

(iii) attributable to the individual’s being disabled 

(within the meaning of section 72(m)(7)), or 

(iv) which is a qualified special purpose distribution. 

(B) DISTRIBUTIONS WITHIN NONEXCLUSION PERIOD.—A 

payment or distribution from a Roth IRA shall not be 

treated as a qualified distribution under subparagraph (A) 

if such payment or distribution is made within the 5-taxable year period beginning with the first taxable year for 

which the individual made a contribution to a Roth IRA 

(or such individual’s spouse 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— 


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(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 IN- CLUDED.—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 


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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. 


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Any distribution allocated to a qualified rollover contribution under clause (ii)(II) shall be allocated first to the portion of such contribution required to be included in gross 

income. 

(5) QUALIFIED SPECIAL PURPOSE DISTRIBUTION.—For purposes 

of this section, the term ‘‘qualified special purpose distribution’’ 

means any distribution to which subparagraph (F) of section 

72(t)(2) applies. 

(6) TAXPAYER MAY MAKE ADJUSTMENTS BEFORE DUE DATE.— 

(A) IN GENERAL.—Except as provided by the Secretary, 

if, on or before the due date for any taxable year, a taxpayer transfers in a trustee-to-trustee transfer any contribution to an individual retirement plan made during 

such taxable year from such plan to any other individual 

retirement plan, then, for purposes of this chapter, such 

contribution shall be treated as having been made to the 

transferee plan (and not the transferor plan). 

(B) SPECIAL RULES.— 

(i) TRANSFER OF EARNINGS.—Subparagraph (A) shall 

not apply to the transfer of any contribution unless 

such transfer is accompanied by any net income allocable to such contribution. 

(ii) NO DEDUCTION.—Subparagraph (A) shall apply 

to the transfer of any contribution only to the extent 

no deduction was allowed with respect to the contribution to the transferor plan. 

(iii) CONVERSIONS.—Subparagraph (A) shall not 

apply in the case of a qualified rollover contribution to 

which subsection (d)(3) applies (including by reason of 

subparagraph (C) thereof). 

(7) DUE DATE.—For purposes of this subsection, the due date 

for any taxable year is the date prescribed by law (including 

extensions of time) for filing the taxpayer’s return for such taxable year. 

(e) QUALIFIED ROLLOVER CONTRIBUTION.—For purposes of this 

section— 

(1) IN GENERAL.—The term ‘‘qualified rollover contribution’’ 

means a rollover contribution— 

(A) to a Roth IRA from another such account, 

(B) from an eligible retirement plan, but only if— 

(i) in the case of an individual retirement plan, such 

rollover contribution meets the requirements of section 

408(d)(3), and 

(ii) in the case of any eligible retirement plan (as defined in section 402(c)(8)(B) other than clauses (i) and 

(ii) thereof), such rollover contribution meets the requirements of section 402(c), 403(b)(8), or 457(e)(16), 

as applicable. 

For purposes of section 408(d)(3)(B), there shall be disregarded any qualified rollover contribution from an individual retirement plan (other than a Roth IRA) to a Roth 

IRA. 

(2) MILITARY DEATH GRATUITY.— 


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(A) IN GENERAL.—The term ‘‘qualified rollover contribution’’ includes a contribution to a Roth IRA maintained for 

the benefit of an individual made before the end of the 1- 

year period beginning on the date on which such individual receives an amount under section 1477 of title 10, 

United States Code, or section 1967 of title 38 of such 

Code, with respect to a person, to the extent that such contribution does not exceed— 

(i) the sum of the amounts received during such period by such individual under such sections with respect to such person, reduced by 

(ii) the amounts so received which were contributed 

to a Coverdell education savings account under section 

530(d)(9). 

(B) ANNUAL LIMIT ON NUMBER OF ROLLOVERS NOT TO

APPLY.—Section 408(d)(3)(B) shall not apply with respect 

to amounts treated as a rollover by subparagraph (A). 

(C) APPLICATION OF SECTION 72.—For purposes of applying section 72 in the case of a distribution which is not a 

qualified distribution, the amount treated as a rollover by 

reason of subparagraph (A) shall be treated as investment 

in the contract. 

(f) INDIVIDUAL RETIREMENT PLAN.—For purposes of this section— 

(1) a simplified employee pension or a simple retirement account may not be designated as a Roth IRA; and 

(2) contributions to any such pension or account shall not be 

taken into account for purposes of subsection (c)(2)(B). 

* * * * * * * 

Subpart B—SPECIAL RULES 

* * * * * * * 

SEC. 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. 


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(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 øsection 401(a)¿ 

sections 401(a) and 408(c) , in determining whether the plan of 

an employer is for the exclusive benefit of his employees and 


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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 


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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 subVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00274 Fmt 6659 Sfmt 6603 E:\HR\OC\HR065P1.XXX HR065P1

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section (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 (inVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00275 Fmt 6659 Sfmt 6603 E:\HR\OC\HR065P1.XXX HR065P1

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cluding 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 


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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). 

* * * * * * * 

SEC. 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 preVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00277 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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ceding 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 BEN- EFIT.—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 BE- GINS 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. 


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(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. 

(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 


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(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 


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paragraphs (1) and (4) to an amount less than ? 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 


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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. 


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(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL AND MUL- TIEMPLOYER 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. 

(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 DIS- ABILITY.—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)), 


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(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). 

(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 deVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00284 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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scribed 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. 


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(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. 


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(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. 

(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 


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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-ofliving 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 subparaVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00288 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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graph 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 proVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00289 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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viding 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 SERV- ICE 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. 


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(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 retireVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00291 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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ment 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. 

* * * * * * * 

PART III—RULES RELATING TO MINIMUM FUNDING 

STANDARDS AND BENEFIT LIMITATIONS 

* * * * * * * 

Subpart A—MINIMUM FUNDING STANDARDS FOR 

PENSION PLANS 

SEC. 430. MINIMUM FUNDING STANDARDS FOR SINGLE-EMPLOYER DEFINED BENEFIT PENSION PLANS. 

(a) MINIMUM REQUIRED CONTRIBUTION.—For purposes of this section and section 412(a)(2)(A), except as provided in subsection (f), 

the term ‘‘minimum required contribution’’ means, with respect to 

any plan year of a defined benefit plan which is not a multiemployer plan— 

(1) in any case in which the value of plan assets of the plan 

(as reduced under subsection (f)(4)(B)) is less than the funding 

target of the plan for the plan year, the sum of— 

(A) the target normal cost of the plan for the plan year, 

(B) the shortfall amortization charge (if any) for the plan 

for the plan year determined under subsection (c), and 

(C) the waiver amortization charge (if any) for the plan 

for the plan year as determined under subsection (e); 

(2) in any case in which the value of plan assets of the plan 

(as reduced under subsection (f)(4)(B)) equals or exceeds the 

funding target of the plan for the plan year, the target normal 

cost of the plan for the plan year reduced (but not below zero) 

by such excess. 

(b) TARGET NORMAL COST.—For purposes of this section: 

(1) IN GENERAL.—Except as provided in subsection (i)(2) with 

respect to plans in at-risk status, the term ‘‘target normal cost’’ 

means, for any plan year, the excess of— 

(A) the sum of— 

(i) the present value of all benefits which are expected to accrue or to be earned under the plan during 

the plan year, plus 

(ii) the amount of plan-related expenses expected to 

be paid from plan assets during the plan year, over 


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(B) the amount of mandatory employee contributions expected to be made during the plan year. 

(2) SPECIAL RULE FOR INCREASE IN COMPENSATION.—For purposes of this subsection, if any benefit attributable to services 

performed in a preceding plan year is increased by reason of 

any increase in compensation during the current plan year, the 

increase in such benefit shall be treated as having accrued during the current plan year. 

(c) SHORTFALL AMORTIZATION CHARGE.— 

(1) IN GENERAL.—For purposes of this section, the shortfall 

amortization charge for a plan for any plan year is the aggregate total (not less than zero) of the shortfall amortization installments for such plan year with respect to any shortfall amortization base which has not been fully amortized under this 

subsection. 

(2) SHORTFALL AMORTIZATION INSTALLMENT.—For purposes of 

paragraph (1)— 

(A) DETERMINATION.—The shortfall amortization installments are the amounts necessary to amortize the shortfall 

amortization base of the plan for any plan year in level annual installments over the 7-plan-year period beginning 

with such plan year. 

(B) SHORTFALL INSTALLMENT.—The shortfall amortization installment for any plan year in the 7-plan-year period under subparagraph (A) with respect to any shortfall 

amortization base is the annual installment determined 

under subparagraph (A) for that year for that base. 

(C) SEGMENT RATES.—In determining any shortfall amortization installment under this paragraph, the plan 

sponsor shall use the segment rates determined under subparagraph (C) of subsection (h)(2), applied under rules 

similar to the rules of subparagraph (B) of subsection 

(h)(2). 

(D) SPECIAL ELECTION FOR ELIGIBLE PLAN YEARS.— 

(i) IN GENERAL.—If a plan sponsor elects to apply 

this subparagraph with respect to the shortfall amortization base of a plan for any eligible plan year (in this 

subparagraph and paragraph (7) referred to as an 

‘‘election year’’), then, notwithstanding subparagraphs 

(A) and (B)— 

(I) the shortfall amortization installments with 

respect to such base shall be determined under 

clause (ii) or (iii), whichever is specified in the 

election, and 

(II) the shortfall amortization installment for 

any plan year in the 9-plan-year period described 

in clause (ii) or the 15-plan-year period described 

in clause (iii), respectively, with respect to such 

shortfall amortization base is the annual installment determined under the applicable clause for 

that year for that base. 

(ii) 2 PLUS 7 AMORTIZATION SCHEDULE.—The shortfall 

amortization installments determined under this 

clause are— 


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(I) in the case of the first 2 plan years in the 9- 

plan-year period beginning with the election year, 

interest on the shortfall amortization base of the 

plan for the election year (determined using the 

effective interest rate for the plan for the election 

year), and 

(II) in the case of the last 7 plan years in such 

9-plan-year period, the amounts necessary to amortize the remaining balance of the shortfall amortization base of the plan for the election year in 

level annual installments over such last 7 plan 

years (using the segment rates under subparagraph (C) for the election year). 

(iii) 15-YEAR AMORTIZATION.—The shortfall amortization installments determined under this subparagraph 

are the amounts necessary to amortize the shortfall 

amortization base of the plan for the election year in 

level annual installments over the 15-plan-year period 

beginning with the election year (using the segment 

rates under subparagraph (C) for the election year). 

(iv) ELECTION.— (I) IN GENERAL.—The plan sponsor of a plan 

may elect to have this subparagraph apply to not 

more than 2 eligible plan years with respect to the 

plan, except that in the case of a plan described 

in section 106 of the Pension Protection Act of 

2006, the plan sponsor may only elect to have this 

subparagraph apply to a plan year beginning in 

2011. 

(II) AMORTIZATION SCHEDULE.—Such election 

shall specify whether the amortization schedule 

under clause (ii) or (iii) shall apply to an election 

year, except that if a plan sponsor elects to have 

this subparagraph apply to 2 eligible plan years, 

the plan sponsor must elect the same schedule for 

both years. 

(III) OTHER RULES.—Such election shall be 

made at such time, and in such form and manner, 

as shall be prescribed by the Secretary, and may 

be revoked only with the consent of the Secretary. 

The Secretary shall, before granting a revocation 

request, provide the Pension Benefit Guaranty 

Corporation an opportunity to comment on the 

conditions applicable to the treatment of any portion of the election year shortfall amortization 

base that remains unamortized as of the revocation date. 

(v) ELIGIBLE PLAN YEAR.—For purposes of this subparagraph, the term ‘‘eligible plan year’’ means any 

plan year beginning in 2008, 2009, 2010, or 2011, except that a plan year shall only be treated as an eligible plan year if the due date under subsection (j)(1) for 

the payment of the minimum required contribution for 

such plan year occurs on or after the date of the enactment of this subparagraph. 


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(vi) REPORTING.—A plan sponsor of a plan who 

makes an election under clause (i) shall— 

(I) give notice of the election to participants and 

beneficiaries of the plan, and 

(II) inform the Pension Benefit Guaranty Corporation of such election in such form and manner 

as the Director of the Pension Benefit Guaranty 

Corporation may prescribe. 

(vii) INCREASES IN REQUIRED INSTALLMENTS IN CERTAIN CASES.—For increases in required contributions 

in cases of excess compensation or extraordinary dividends or stock redemptions, see paragraph (7). 

(3) SHORTFALL AMORTIZATION BASE.—For purposes of this 

section, the shortfall amortization base of a plan for a plan 

year is— 

(A) the funding shortfall of such plan for such plan year, 

minus 

(B) the present value (determined using the segment 

rates determined under subparagraph (C) of subsection 

(h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2)) of the aggregate total of the 

shortfall amortization installments and waiver amortization installments which have been determined for such 

plan year and any succeeding plan year with respect to the 

shortfall amortization bases and waiver amortization bases 

of the plan for any plan year preceding such plan year. 

(4) FUNDING SHORTFALL.—For purposes of this section, the 

funding shortfall of a plan for any plan year is the excess (if 

any) of— 

(A) the funding target of the plan for the plan year, over 

(B) the value of plan assets of the plan (as reduced 

under subsection (f)(4)(B)) for the plan year which are held 

by the plan on the valuation date. 

(5) EXEMPTION FROM NEW SHORTFALL AMORTIZATION BASE.— 

In any case in which the value of plan assets of the plan (as 

reduced under subsection (f)(4)(A)) is equal to or greater than 

the funding target of the plan for the plan year, the shortfall 

amortization base of the plan for such plan year shall be zero. 

(6) EARLY DEEMED AMORTIZATION UPON ATTAINMENT OF

FUNDING TARGET.—In any case in which the funding shortfall 

of a plan for a plan year is zero, for purposes of determining 

the shortfall amortization charge for such plan year and succeeding plan years, the shortfall amortization bases for all preceding plan years (and all shortfall amortization installments 

determined with respect to such bases) shall be reduced to 

zero. 

(7) INCREASES IN ALTERNATE REQUIRED INSTALLMENTS IN

CASES OF EXCESS COMPENSATION OR EXTRAORDINARY DIVIDENDS

OR STOCK REDEMPTIONS.— 

(A) IN GENERAL.—If there is an installment acceleration 

amount with respect to a plan for any plan year in the restriction period with respect to an election year under 

paragraph (2)(D), then the shortfall amortization installment otherwise determined and payable under such paraVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00295 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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graph for such plan year shall, subject to the limitation 

under subparagraph (B), be increased by such amount. 

(B) TOTAL INSTALLMENTS LIMITED TO SHORTFALL BASE.— 

Subject to rules prescribed by the Secretary, if a shortfall 

amortization installment with respect to any shortfall amortization base for an election year is required to be increased for any plan year under subparagraph (A)— 

(i) such increase shall not result in the amount of 

such installment exceeding the present value of such 

installment and all succeeding installments with respect to such base (determined without regard to such 

increase but after application of clause (ii)), and 

(ii) subsequent shortfall amortization installments 

with respect to such base shall, in reverse order of the 

otherwise required installments, be reduced to the extent necessary to limit the present value of such subsequent shortfall amortization installments (after application of this paragraph) to the present value of the 

remaining unamortized shortfall amortization base. 

(C) INSTALLMENT ACCELERATION AMOUNT.—For purposes 

of this paragraph— 

(i) IN GENERAL.—The term ‘‘installment acceleration 

amount’’ means, with respect to any plan year in a restriction period with respect to an election year, the 

sum of— 

(I) the aggregate amount of excess employee 

compensation determined under subparagraph (D) 

with respect to all employees for the plan year, 

plus 

(II) the aggregate amount of extraordinary dividends and redemptions determined under subparagraph (E) for the plan year. 

(ii) ANNUAL LIMITATION.—The installment acceleration amount for any plan year shall not exceed the excess (if any) of— 

(I) the sum of the shortfall amortization installments for the plan year and all preceding plan 

years in the amortization period elected under 

paragraph (2)(D) with respect to the shortfall amortization base with respect to an election year, 

determined without regard to paragraph (2)(D) 

and this paragraph, over 

(II) the sum of the shortfall amortization installments for such plan year and all such preceding 

plan years, determined after application of paragraph (2)(D) (and in the case of any preceding 

plan year, after application of this paragraph). 

(iii) CARRYOVER OF EXCESS INSTALLMENT ACCELERATION AMOUNTS.— 

(I) IN GENERAL.—If the installment acceleration 

amount for any plan year (determined without regard to clause (ii)) exceeds the limitation under 

clause (ii), then, subject to subclause (II), such excess shall be treated as an installment acceleraVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00296 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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tion amount with respect to the succeeding plan 

year. 

(II) CAP TO APPLY.—If any amount treated as an 

installment acceleration amount under subclause 

(I) or this subclause with respect any succeeding 

plan year, when added to other installment acceleration amounts (determined without regard to 

clause (ii)) with respect to the plan year, exceeds 

the limitation under clause (ii), the portion of such 

amount representing such excess shall be treated 

as an installment acceleration amount with respect to the next succeeding plan year. 

(III) LIMITATION ON YEARS TO WHICH AMOUNTS

CARRIED FOR.—No amount shall be carried under 

subclause (I) or (II) to a plan year which begins 

after the first plan year following the last plan 

year in the restriction period (or after the second 

plan year following such last plan year in the case 

of an election year with respect to which 15-year 

amortization was elected under paragraph (2)(D)). 

(IV) ORDERING RULES.—For purposes of applying subclause (II), installment acceleration 

amounts for the plan year (determined without regard to any carryover under this clause) shall be 

applied first against the limitation under clause 

(ii) and then carryovers to such plan year shall be 

applied against such limitation on a first-in, firstout basis. 

(D) EXCESS EMPLOYEE COMPENSATION.—For purposes of 

this paragraph— 

(i) IN GENERAL.—The term ‘‘excess employee compensation’’ means, with respect to any employee for 

any plan year, the excess (if any) of— 

(I) the aggregate amount includible in income 

under this chapter for remuneration during the 

calendar year in which such plan year begins for 

services performed by the employee for the plan 

sponsor (whether or not performed during such 

calendar year), over 

(II) $1,000,000. 

(ii) AMOUNTS SET ASIDE FOR NONQUALIFIED DEFERRED COMPENSATION.—If during any calendar year 

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, by a plan sponsor for purposes of paying 

deferred compensation of an employee under a nonqualified deferred compensation plan (as defined in 

section 409A) of the plan sponsor, then, for purposes 

of clause (i), the amount of such assets shall be treated 

as remuneration of the employee includible in income 

for the calendar year unless such amount is otherwise 

includible in income for such year. An amount to 

which the preceding sentence applies shall not be 


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taken into account under this paragraph for any subsequent calendar year. 

(iii) ONLY REMUNERATION FOR CERTAIN POST-2009

SERVICES COUNTED.—Remuneration shall be taken 

into account under clause (i) only to the extent attributable to services performed by the employee for the 

plan sponsor after February 28, 2010. 

(iv) EXCEPTION FOR CERTAIN EQUITY PAYMENTS.— 

(I) IN GENERAL.—There shall not be taken into 

account under clause (i)(I) any amount includible 

in income with respect to the granting after February 28, 2010, of service recipient stock (within 

the meaning of section 409A) that, upon such 

grant, is subject to a substantial risk of forfeiture 

(as defined under section 83(c)(1)) for at least 5 

years from the date of such grant. 

(II) SECRETARIAL AUTHORITY.—The Secretary 

may by regulation provide for the application of 

this clause in the case of a person other than a 

corporation. 

(v) OTHER EXCEPTIONS.—The following amounts includible in income shall not be taken into account 

under clause (i)(I): 

(I) COMMISSIONS.—Any remuneration payable 

on a commission basis solely on account of income 

directly generated by the individual performance 

of the individual to whom such remuneration is 

payable. 

(II) CERTAIN PAYMENTS UNDER EXISTING CONTRACTS.—Any remuneration consisting of nonqualified deferred compensation, restricted stock, 

stock options, or stock appreciation rights payable 

or granted under a written binding contract that 

was in effect on March 1, 2010, and which was not 

modified in any material respect before such remuneration is paid. 

(vi) SELF-EMPLOYED INDIVIDUAL TREATED AS EMPLOYEE.—The term ‘‘employee’’ includes, with respect 

to a calendar year, a self-employed individual who is 

treated as an employee under section 401(c) for the 

taxable year ending during such calendar year, and 

the term ‘‘compensation’’ shall include earned income 

of such individual with respect to such self-employment. 

(vii) INDEXING OF AMOUNT.—In the case of any calendar year beginning after 2010, the dollar amount 

under clause (i)(II) shall be increased by an amount 

equal to— 

(I) such dollar amount, multiplied by 

(II) the cost-of-living adjustment determined 

under section 1(f)(3) for the calendar year, determined by substituting ‘‘calendar year 2009’’ for 

‘‘calendar year 2016’’ in subparagraph (A)(ii) 

thereof. 


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If the amount of any increase under clause (i) is not a multiple of $1,000, such increase shall be rounded to the next 

lowest multiple of $1,000. 

(E) EXTRAORDINARY DIVIDENDS AND REDEMPTIONS.— (i) IN GENERAL.—The amount determined under this 

subparagraph for any plan year is the excess (if any) 

of the sum of the dividends declared during the plan 

year by the plan sponsor plus the aggregate amount 

paid for the redemption of stock of the plan sponsor 

redeemed during the plan year over the greater of— 

(I) the adjusted net income (within the meaning 

of section 4043 of the Employee Retirement Income Security Act of 1974) of the plan sponsor for 

the preceding plan year, determined without regard to any reduction by reason of interest, taxes, 

depreciation, or amortization, or 

(II) in the case of a plan sponsor that determined and declared dividends in the same manner 

for at least 5 consecutive years immediately preceding such plan year, the aggregate amount of 

dividends determined and declared for such plan 

year using such manner. 

(ii) ONLY CERTAIN POST-2009 DIVIDENDS AND REDEMP- TIONS COUNTED.—For purposes of clause (i), there 

shall only be taken into account dividends declared, 

and redemptions occurring, after February 28, 2010. 

(iii) EXCEPTION FOR INTRA-GROUP DIVIDENDS.—Dividends paid by one member of a controlled group (as 

defined in section 412(d)(3)) to another member of 

such group shall not be taken into account under 

clause (i). 

(iv) EXCEPTION FOR CERTAIN REDEMPTIONS.—Redemptions that are made pursuant to a plan maintained with respect to employees, or that are made on 

account of the death, disability, or termination of employment of an employee or shareholder, shall not be 

taken into account under clause (i). 

(v) EXCEPTION FOR CERTAIN PREFERRED STOCK.— (I) IN GENERAL.—Dividends and redemptions 

with respect to applicable preferred stock shall not 

be taken into account under clause (i) to the extent that dividends accrue with respect to such 

stock at a specified rate in all events and without 

regard to the plan sponsor’s income, and interest 

accrues on any unpaid dividends with respect to 

such stock. 

(II) APPLICABLE PREFERRED STOCK.—For purposes of subclause (I), the term ‘‘applicable preferred stock’’ means preferred stock which was 

issued before March 1, 2010 (or which was issued 

after such date and is held by an employee benefit 

plan subject to the provisions of title I of the Employee Retirement Income Security Act of 1974). 

(F) OTHER DEFINITIONS AND RULES.—For purposes of this 

paragraph— 


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(i) PLAN SPONSOR.—The term ‘‘plan sponsor’’ includes any member of the plan sponsor’s controlled 

group (as defined in section 412(d)(3)). 

(ii) RESTRICTION PERIOD.—The term ‘‘restriction period’’ means, with respect to any election year— 

(I) except as provided in subclause (II), the 3- 

year period beginning with the election year (or, if 

later, the first plan year beginning after December 

31, 2009), and 

(II) if the plan sponsor elects 15-year amortization for the shortfall amortization base for the 

election year, the 5-year period beginning with the 

election year (or, if later, the first plan year beginning after December 31, 2009). 

(iii) ELECTIONS FOR MULTIPLE PLANS.—If a plan 

sponsor makes elections under paragraph (2)(D) with 

respect to 2 or more plans, the Secretary shall provide 

rules for the application of this paragraph to such 

plans, including rules for the ratable allocation of any 

installment acceleration amount among such plans on 

the basis of each plan’s relative reduction in the plan’s 

shortfall amortization installment for the first plan 

year in the amortization period described in subparagraph (A) (determined without regard to this paragraph). 

(iv) MERGERS AND ACQUISITIONS.—The Secretary 

shall prescribe rules for the application of paragraph 

(2)(D) and this paragraph in any case where there is 

a merger or acquisition involving a plan sponsor making the election under paragraph (2)(D). 

(d) RULES RELATING TO FUNDING TARGET.—For purposes of this 

section— 

(1) FUNDING TARGET.—Except as provided in subsection (i)(1) 

with respect to plans in at-risk status, the funding target of a 

plan for a plan year is the present value of all benefits accrued 

or earned under the plan as of the beginning of the plan year. 

(2) FUNDING TARGET ATTAINMENT PERCENTAGE.—The ‘‘funding target attainment percentage’’ of a plan for a plan year is 

the ratio (expressed as a percentage) which— 

(A) the value of plan assets for the plan year (as reduced 

under subsection (f)(4)(B)), bears to 

(B) the funding target of the plan for the plan year (determined without regard to subsection (i)(1)). 

(e) WAIVER AMORTIZATION CHARGE.— 

(1) DETERMINATION OF WAIVER AMORTIZATION CHARGE.—The 

waiver amortization charge (if any) for a plan for any plan year 

is the aggregate total of the waiver amortization installments 

for such plan year with respect to the waiver amortization 

bases for each of the 5 preceding plan years. 

(2) WAIVER AMORTIZATION INSTALLMENT.—For purposes of 

paragraph (1)— 

(A) DETERMINATION.—The waiver amortization installments are the amounts necessary to amortize the waiver 

amortization base of the plan for any plan year in level anVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00300 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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nual installments over a period of 5 plan years beginning 

with the succeeding plan year. 

(B) WAIVER INSTALLMENT.—The waiver amortization installment for any plan year in the 5-year period under subparagraph (A) with respect to any waiver amortization 

base is the annual installment determined under subparagraph (A) for that year for that base. 

(3) INTEREST RATE.—In determining any waiver amortization 

installment under this subsection, the plan sponsor shall use 

the segment rates determined under subparagraph (C) of subsection (h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2). 

(4) WAIVER AMORTIZATION BASE.—The waiver amortization 

base of a plan for a plan year is the amount of the waived 

funding deficiency (if any) for such plan year under section 

412(c). 

(5) EARLY DEEMED AMORTIZATION UPON ATTAINMENT OF

FUNDING TARGET.—In any case in which the funding shortfall 

of a plan for a plan year is zero, for purposes of determining 

the waiver amortization charge for such plan year and succeeding plan years, the waiver amortization bases for all preceding plan years (and all waiver amortization installments determined with respect to such bases) shall be reduced to zero. 

(f) REDUCTION OF MINIMUM REQUIRED CONTRIBUTION BY

PREFUNDING BALANCE AND FUNDING STANDARD CARRYOVER BALANCE.— 

(1) ELECTION TO MAINTAIN BALANCES.— 

(A) PREFUNDING BALANCE.—The plan sponsor of a defined benefit plan which is not a multiemployer plan may 

elect to maintain a prefunding balance. 

(B) FUNDING STANDARD CARRYOVER BALANCE.— 

(i) IN GENERAL.—In the case of a defined benefit 

plan (other than a multiemployer plan) described in 

clause (ii), the plan sponsor may elect to maintain a 

funding standard carryover balance, until such balance is reduced to zero. 

(ii) PLANS MAINTAINING FUNDING STANDARD ACCOUNT IN 2007.—A plan is described in this clause if 

the plan— 

(I) was in effect for a plan year beginning in 

2007, and 

(II) had a positive balance in the funding standard account under section 412(b) as in effect for 

such plan year and determined as of the end of 

such plan year. 

(2) APPLICATION OF BALANCES.—A prefunding balance and a 

funding standard carryover balance maintained pursuant to 

this paragraph— 

(A) shall be available for crediting against the minimum 

required contribution, pursuant to an election under paragraph (3), 

(B) shall be applied as a reduction in the amount treated 

as the value of plan assets for purposes of this section, to 

the extent provided in paragraph (4), and 


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(C) may be reduced at any time, pursuant to an election 

under paragraph (5). 

(3) ELECTION TO APPLY BALANCES AGAINST MINIMUM RE- QUIRED CONTRIBUTION.— (A) IN GENERAL.—Except as provided in subparagraphs 

(B) and (C), in the case of any plan year in which the plan 

sponsor elects to credit against the minimum required contribution for the current plan year all or a portion of the 

prefunding balance or the funding standard carryover balance for the current plan year (not in excess of such minimum required contribution), the minimum required contribution for the plan year shall be reduced as of the first 

day of the plan year by the amount so credited by the plan 

sponsor. For purposes of the preceding sentence, the minimum required contribution shall be determined after taking into account any waiver under section 412(c). 

(B) COORDINATION WITH FUNDING STANDARD CARRYOVER

BALANCE.—To the extent that any plan has a funding 

standard carryover balance greater than zero, no amount 

of the prefunding balance of such plan may be credited 

under this paragraph in reducing the minimum required 

contribution. 

(C) LIMITATION FOR UNDERFUNDED PLANS.—The preceding provisions of this paragraph shall not apply for any 

plan year if the ratio (expressed as a percentage) which— 

(i) the value of plan assets for the preceding plan 

year (as reduced under paragraph (4)(C)), bears to 

(ii) the funding target of the plan for the preceding 

plan year (determined without regard to subsection 

(i)(1)), 

is less than 80 percent. In the case of plan years beginning 

in 2008, the ratio under this subparagraph may be determined using such methods of estimation as the Secretary 

may prescribe. 

(D) SPECIAL RULE FOR CERTAIN YEARS OF PLANS MAIN- TAINED BY CHARITIES.— (i) IN GENERAL.—For purposes of applying subparagraph (C) for plan years beginning after August 31, 

2009, and before September 1, 2011, the ratio determined under such subparagraph for the preceding 

plan year of a plan shall be the greater of— 

(I) such ratio, as determined without regard to 

this subsection, or 

(II) the ratio for such plan for the plan year beginning after August 31, 2007 and before September 1, 2008, as determined under rules prescribed by the Secretary. 

(ii) SPECIAL RULE.—In the case of a plan for which 

the valuation date is not the first day of the plan 

year— 

(I) clause (i) shall apply to plan years beginning 

after December 31, 2007, and before January 1, 

2010, and 

(II) clause (i)(II) shall apply based on the last 

plan year beginning before September 1, 2007, as 


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determined under rules prescribed by the Secretary. 

(iii) LIMITATION TO CHARITIES.—This subparagraph 

shall not apply to any plan unless such plan is maintained exclusively by one or more organizations described in section 501(c)(3). 

(4) EFFECT OF BALANCES ON AMOUNTS TREATED AS VALUE OF

PLAN ASSETS.—In the case of any plan maintaining a 

prefunding balance or a funding standard carryover balance 

pursuant to this subsection, the amount treated as the value 

of plan assets shall be deemed to be such amount, reduced as 

provided in the following subparagraphs: 

(A) APPLICABILITY OF SHORTFALL AMORTIZATION BASE.— 

For purposes of subsection (c)(5), the value of plan assets 

is deemed to be such amount, reduced by the amount of 

the prefunding balance, but only if an election under paragraph (3) applying any portion of the prefunding balance 

in reducing the minimum required contribution is in effect 

for the plan year. 

(B) DETERMINATION OF EXCESS ASSETS, FUNDING SHORT- FALL, AND FUNDING TARGET ATTAINMENT PERCENTAGE.— (i) IN GENERAL.—For purposes of subsections (a), 

(c)(4)(B), and (d)(2)(A), the value of plan assets is 

deemed to be such amount, reduced by the amount of 

the prefunding balance and the funding standard carryover balance. 

(ii) SPECIAL RULE FOR CERTAIN BINDING AGREEMENTS

WITH PBGC.—For purposes of subsection (c)(4)(B), the 

value of plan assets shall not be deemed to be reduced 

for a plan year by the amount of the specified balance 

if, with respect to such balance, there is in effect for 

a plan year a binding written agreement with the Pension Benefit Guaranty Corporation which provides 

that such balance is not available to reduce the minimum required contribution for the plan year. For purposes of the preceding sentence, the term ‘‘specified 

balance’’ means the prefunding balance or the funding 

standard carryover balance, as the case may be. 

(C) AVAILABILITY OF BALANCES IN PLAN YEAR FOR CRED- ITING AGAINST MINIMUM REQUIRED CONTRIBUTION.—For 

purposes of paragraph (3)(C)(i) of this subsection, the value 

of plan assets is deemed to be such amount, reduced by 

the amount of the prefunding balance. 

(5) ELECTION TO REDUCE BALANCE PRIOR TO DETERMINATIONS

OF VALUE OF PLAN ASSETS AND CREDITING AGAINST MINIMUM

REQUIRED CONTRIBUTION.— 

(A) IN GENERAL.—The plan sponsor may elect to reduce 

by any amount the balance of the prefunding balance and 

the funding standard carryover balance for any plan year 

(but not below zero). Such reduction shall be effective prior 

to any determination of the value of plan assets for such 

plan year under this section and application of the balance 

in reducing the minimum required contribution for such 

plan for such plan year pursuant to an election under 

paragraph (2). 


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(B) COORDINATION BETWEEN PREFUNDING BALANCE AND

FUNDING STANDARD CARRYOVER BALANCE.—To the extent 

that any plan has a funding standard carryover balance 

greater than zero, no election may be made under subparagraph (A) with respect to the prefunding balance. 

(6) PREFUNDING BALANCE.— 

(A) IN GENERAL.—A prefunding balance maintained by a 

plan shall consist of a beginning balance of zero, increased 

and decreased to the extent provided in subparagraphs (B) 

and (C), and adjusted further as provided in paragraph (8). 

(B) INCREASES.— 

(i) IN GENERAL.—As of the first day of each plan 

year beginning after 2008, the prefunding balance of a 

plan shall be increased by the amount elected by the 

plan sponsor for the plan year. Such amount shall not 

exceed the excess (if any) of— 

(I) the aggregate total of employer contributions 

to the plan for the preceding plan year, over— 

(II) the minimum required contribution for such 

preceding plan year. 

(ii) ADJUSTMENTS FOR INTEREST.—Any excess contributions under clause (i) shall be properly adjusted 

for interest accruing for the periods between the first 

day of the current plan year and the dates on which 

the excess contributions were made, determined by 

using the effective interest rate for the preceding plan 

year and by treating contributions as being first used 

to satisfy the minimum required contribution. 

(iii) CERTAIN CONTRIBUTIONS NECESSARY TO AVOID

BENEFIT LIMITATIONS DISREGARDED.—The excess described in clause (i) with respect to any preceding plan 

year shall be reduced (but not below zero) by the 

amount of contributions an employer would be required to make under subsection (b), (c), or (e) of section 436 to avoid a benefit limitation which would otherwise be imposed under such paragraph for the preceding plan year. Any contribution which may be 

taken into account in satisfying the requirements of 

more than 1 of such paragraphs shall be taken into account only once for purposes of this clause. 

(C) DECREASES.—The prefunding balance of a plan shall 

be decreased (but not below zero) by— 

(i) as of the first day of each plan year after 2008, 

the amount of such balance credited under paragraph 

(2) (if any) in reducing the minimum required contribution of the plan for the preceding plan year, and 

(ii) as of the time specified in paragraph (5)(A), any 

reduction in such balance elected under paragraph (5). 

(7) FUNDING STANDARD CARRYOVER BALANCE.— 

(A) IN GENERAL.—A funding standard carryover balance 

maintained by a plan shall consist of a beginning balance 

determined under subparagraph (B), decreased to the extent provided in subparagraph (C), and adjusted further as 

provided in paragraph (8). 


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(B) BEGINNING BALANCE.—The beginning balance of the 

funding standard carryover balance shall be the positive 

balance described in paragraph (1)(B)(ii)(II). 

(C) DECREASES.—The funding standard carryover balance of a plan shall be decreased (but not below zero) by— 

(i) as of the first day of each plan year after 2008, 

the amount of such balance credited under paragraph 

(2) (if any) in reducing the minimum required contribution of the plan for the preceding plan year, and 

(ii) as of the time specified in paragraph (5)(A), any 

reduction in such balance elected under paragraph (5). 

(8) ADJUSTMENTS FOR INVESTMENT EXPERIENCE.—In determining the prefunding balance or the funding standard carryover balance of a plan as of the first day of the plan year, the 

plan sponsor shall, in accordance with regulations prescribed 

by the Secretary, adjust such balance to reflect the rate of return on plan assets for the preceding plan year. Notwithstanding subsection (g)(3), such rate of return shall be determined on the basis of fair market value and shall properly take 

into account, in accordance with such regulations, all contributions, distributions, and other plan payments made during 

such period. 

(9) ELECTIONS.—Elections under this subsection shall be 

made at such times, and in such form and manner, as shall be 

prescribed in regulations of the Secretary. 

(g) VALUATION OF PLAN ASSETS AND LIABILITIES.— (1) TIMING OF DETERMINATIONS.—Except as otherwise provided under this subsection, all determinations under this section for a plan year shall be made as of the valuation date of 

the plan for such plan year. 

(2) VALUATION DATE.—For purposes of this section— 

(A) IN GENERAL.—Except as provided in subparagraph 

(B), the valuation date of a plan for any plan year shall be 

the first day of the plan year. 

(B) EXCEPTION FOR SMALL PLANS.—If, on each day during the preceding plan year, a plan had 100 or fewer participants, the plan may designate any day during the plan 

year as its valuation date for such plan year and succeeding plan years. For purposes of this subparagraph, all 

defined benefit plans (other than multiemployer plans) 

maintained by the same employer (or any member of such 

employer’s controlled group) shall be treated as 1 plan, but 

only participants with respect to such employer or member 

shall be taken into account. 

(C) APPLICATION OF CERTAIN RULES IN DETERMINATION

OF PLAN SIZE.—For purposes of this paragraph— 

(i) PLANS NOT IN EXISTENCE IN PRECEDING YEAR.—In 

the case of the first plan year of any plan, subparagraph (B) shall apply to such plan by taking into account the number of participants that the plan is reasonably expected to have on days during such first 

plan year. 

(ii) PREDECESSORS.—Any reference in subparagraph 

(B) to an employer shall include a reference to any 

predecessor of such employer. 


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(3) DETERMINATION OF VALUE OF PLAN ASSETS.—For purposes 

of this section— 

(A) IN GENERAL.—Except as provided in subparagraph 

(B), the value of plan assets shall be the fair market value 

of the assets. 

(B) AVERAGING ALLOWED.—A plan may determine the 

value of plan assets on the basis of the averaging of fair 

market values, but only if such method— 

(i) is permitted under regulations prescribed by the 

Secretary, 

(ii) does not provide for averaging of such values 

over more than the period beginning on the last day 

of the 25th month preceding the month in which the 

valuation date occurs and ending on the valuation 

date (or a similar period in the case of a valuation 

date which is not the 1st day of a month), and 

(iii) does not result in a determination of the value 

of plan assets which, at any time, is lower than 90 

percent or greater than 110 percent of the fair market 

value of such assets at such time. 

Any such averaging shall be adjusted for contributions, 

distributions, and expected earnings (as determined by the 

plan’s actuary on the basis of an assumed earnings rate 

specified by the actuary but not in excess of the third segment rate applicable under subsection (h)(2)(C)(iii)), as 

specified by the Secretary. 

(4) ACCOUNTING FOR CONTRIBUTION RECEIPTS.—For purposes 

of determining the value of assets under paragraph (3)— 

(A) PRIOR YEAR CONTRIBUTIONS.—If— 

(i) an employer makes any contribution to the plan 

after the valuation date for the plan year in which the 

contribution is made, and 

(ii) the contribution is for a preceding plan year, 

the contribution shall be taken into account as an asset of 

the plan as of the valuation date, except that in the case 

of any plan year beginning after 2008, only the present 

value (determined as of the valuation date) of such contribution may be taken into account. For purposes of the 

preceding sentence, present value shall be determined 

using the effective interest rate for the preceding plan year 

to which the contribution is properly allocable. 

(B) SPECIAL RULE FOR CURRENT YEAR CONTRIBUTIONS

MADE BEFORE VALUATION DATE.—If any contributions for 

any plan year are made to or under the plan during the 

plan year but before the valuation date for the plan year, 

the assets of the plan as of the valuation date shall not include— 

(i) such contributions, and 

(ii) interest on such contributions for the period between the date of the contributions and the valuation 

date, determined by using the effective interest rate 

for the plan year. 

(h) ACTUARIAL ASSUMPTIONS AND METHODS.— 

(1) IN GENERAL.—Subject to this subsection, the determination of any present value or other computation under this secVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00306 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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tion shall be made on the basis of actuarial assumptions and 

methods— 

(A) each of which is reasonable (taking into account the 

experience of the plan and reasonable expectations), and 

(B) which, in combination, offer the actuary’s best estimate of anticipated experience under the plan. 

(2) INTEREST RATES.— (A) EFFECTIVE INTEREST RATE.—For purposes of this section, the term ‘‘effective interest rate’’ means, with respect 

to any plan for any plan year, the single rate of interest 

which, if used to determine the present value of the plan’s 

accrued or earned benefits referred to in subsection (d)(1), 

would result in an amount equal to the funding target of 

the plan for such plan year. 

(B) INTEREST RATES FOR DETERMINING FUNDING TARGET.—For purposes of determining the funding target and 

target normal cost of a plan for any plan year, the interest 

rate used in determining the present value of the benefits 

of the plan shall be— 

(i) in the case of benefits reasonably determined to 

be payable during the 5-year period beginning on the 

valuation date for the plan year, the first segment rate 

with respect to the applicable month, 

(ii) in the case of benefits reasonably determined to 

be payable during the 15-year period beginning at the 

end of the period described in clause (i), the second 

segment rate with respect to the applicable month, 

and 

(iii) in the case of benefits reasonably determined to 

be payable after the period described in clause (ii), the 

third segment rate with respect to the applicable 

month. 

(C) SEGMENT RATES.—For purposes of this paragraph— 

(i) FIRST SEGMENT RATE.—The term ‘‘first segment 

rate’’ means, with respect to any month, the single 

rate of interest which shall be determined by the Secretary for such month on the basis of the corporate 

bond yield curve for such month, taking into account 

only that portion of such yield curve which is based on 

bonds maturing during the 5-year period commencing 

with such month. 

(ii) SECOND SEGMENT RATE.—The term ‘‘second segment rate’’ means, with respect to any month, the single rate of interest which shall be determined by the 

Secretary for such month on the basis of the corporate 

bond yield curve for such month, taking into account 

only that portion of such yield curve which is based on 

bonds maturing during the 15-year period beginning 

at the end of the period described in clause (i). 

(iii) THIRD SEGMENT RATE.—The term ‘‘third segment rate’’ means, with respect to any month, the single rate of interest which shall be determined by the 

Secretary for such month on the basis of the corporate 

bond yield curve for such month, taking into account 

only that portion of such yield curve which is based on 


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bonds maturing during periods beginning after the period described in clause (ii). 

(iv) SEGMENT RATE STABILIZATION.— 

(I) IN GENERAL.—If a segment rate described in 

clause (i), (ii), or (iii) with respect to any applicable month (determined without regard to this 

clause) is less than the applicable minimum percentage, or more than the applicable maximum 

percentage, of the average of the segment rates 

described in such clause for years in the 25-year 

period ending with September 30 of the calendar 

year preceding the calendar year in which the 

plan year begins, then the segment rate described 

in such clause with respect to the applicable 

month shall be equal to the applicable minimum 

percentage or the applicable maximum percentage 

of such average, whichever is closest. The Secretary shall determine such average on an annual 

basis and may prescribe equivalent rates for years 

in any such 25-year period for which the rates described in any such clause are not available. 

(II) APPLICABLE MINIMUM PERCENTAGE; APPLICABLE MAXIMUM PERCENTAGE.—For purposes of subclause (I), the applicable minimum percentage and 

the applicable maximum percentage for a plan 

year beginning in a calendar year shall be determined in accordance with the following table: 

(D) CORPORATE BOND YIELD CURVE.—For purposes of this 

paragraph— 

(i) IN GENERAL.—The term ‘‘corporate bond yield 

curve’’ means, with respect to any month, a yield 

curve which is prescribed by the Secretary for such 

month and which reflects the average, for the 24- 

month period ending with the month preceding such 

month, of monthly yields on investment grade corporate bonds with varying maturities and that are in 

the top 3 quality levels available. 

(ii) ELECTION TO USE YIELD CURVE.—Solely for purposes of determining the minimum required contribution under this section, the plan sponsor may, in lieu 

of the segment rates determined under subparagraph 

(C), elect to use interest rates under the corporate 

bond yield curve. For purposes of the preceding sentence such curve shall be determined without regard 

to the 24-month averaging described in clause (i). 

Such election, once made, may be revoked only with 

the consent of the Secretary. 

(E) APPLICABLE MONTH.—For purposes of this paragraph, the term ‘‘applicable month’’ means, with respect to 

any plan for any plan year, the month which includes the 

valuation date of such plan for such plan year or, at the 

election of the plan sponsor, any of the 4 months which 

precede such month. Any election made under this subparagraph shall apply to the plan year for which the elecVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00308 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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tion is made and all succeeding plan years, unless the election is revoked with the consent of the Secretary. 

(F) PUBLICATION REQUIREMENTS.—The Secretary shall 

publish for each month the corporate bond yield curve (and 

the corporate bond yield curve reflecting the modification 

described in section 417(e)(3)(D) for such month) and each 

of the rates determined under subparagraph (C) and the 

averages determined under subparagraph (C)(iv) for such 

month. The Secretary shall also publish a description of 

the methodology used to determine such yield curve and 

such rates which is sufficiently detailed to enable plans to 

make reasonable projections regarding the yield curve and 

such rates for future months based on the plan’s projection 

of future interest rates. 

(3) MORTALITY TABLES.— 

(A) IN GENERAL.—Except as provided in subparagraph 

(C) or (D), the Secretary shall by regulation prescribe mortality tables to be used in determining any present value 

or making any computation under this section. Such tables 

shall be based on the actual experience of pension plans 

and projected trends in such experience. In prescribing 

such tables, the Secretary shall take into account results 

of available independent studies of mortality of individuals 

covered by pension plans. 

(B) PERIODIC REVISION.—The Secretary shall (at least 

every 10 years) make revisions in any table in effect under 

subparagraph (A) to reflect the actual experience of pension plans and projected trends in such experience. 

(C) SUBSTITUTE MORTALITY TABLE.— 

(i) IN GENERAL.—Upon request by the plan sponsor 

and approval by the Secretary, a mortality table which 

meets the requirements of clause (iii) shall be used in 

determining any present value or making any computation under this section during the period of consecutive plan years (not to exceed 10) specified in the 

request. 

(ii) EARLY TERMINATION OF PERIOD.—Notwithstanding clause (i), a mortality table described in 

clause (i) shall cease to be in effect as of the earliest 

of— 

(I) the date on which there is a significant 

change in the participants in the plan by reason 

of a plan spinoff or merger or otherwise, or 

(II) the date on which the plan actuary determines that such table does not meet the requirements of clause (iii). 

(iii) REQUIREMENTS.—A mortality table meets the 

requirements of this clause if— 

(I) there is a sufficient number of plan participants, and the pension plans have been maintained for a sufficient period of time, to have credible information necessary for purposes of subclause (II), and 


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(II) such table reflects the actual experience of 

the pension plans maintained by the sponsor and 

projected trends in general mortality experience. 

(iv) ALL PLANS IN CONTROLLED GROUP MUST USE SEPARATE TABLE.—Except as provided by the Secretary, a 

plan sponsor may not use a mortality table under this 

subparagraph for any plan maintained by the plan 

sponsor unless— 

(I) a separate mortality table is established and 

used under this subparagraph for each other plan 

maintained by the plan sponsor and if the plan 

sponsor is a member of a controlled group, each 

member of the controlled group, and 

(II) the requirements of clause (iii) are met separately with respect to the table so established for 

each such plan, determined by only taking into account the participants of such plan, the time such 

plan has been in existence, and the actual experience of such plan. 

(v) DEADLINE FOR SUBMISSION AND DISPOSITION OF

APPLICATION.— 

(I) SUBMISSION.—The plan sponsor shall submit 

a mortality table to the Secretary for approval 

under this subparagraph at least 7 months before 

the 1st day of the period described in clause (i). 

(II) DISPOSITION.—Any mortality table submitted to the Secretary for approval under this 

subparagraph shall be treated as in effect as of 

the 1st day of the period described in clause (i) 

unless the Secretary, during the 180-day period 

beginning on the date of such submission, disapproves of such table and provides the reasons 

that such table fails to meet the requirements of 

clause (iii). The 180-day period shall be extended 

upon mutual agreement of the Secretary and the 

plan sponsor. 

(D) SEPARATE MORTALITY TABLES FOR THE DISABLED.— 

Notwithstanding subparagraph (A)— 

(i) IN GENERAL.—The Secretary shall establish mortality tables which may be used (in lieu of the tables 

under subparagraph (A)) under this subsection for individuals who are entitled to benefits under the plan 

on account of disability. The Secretary shall establish 

separate tables for individuals whose disabilities occur 

in plan years beginning before January 1, 1995, and 

for individuals whose disabilities occur in plan years 

beginning on or after such date. 

(ii) SPECIAL RULE FOR DISABILITIES OCCURRING

AFTER 1994.—In the case of disabilities occurring in 

plan years beginning after December 31, 1994, the tables under clause (i) shall apply only with respect to 

individuals described in such subclause who are disabled within the meaning of title II of the Social Security Act and the regulations thereunder. 


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(iii) PERIODIC REVISION.—The Secretary shall (at 

least every 10 years) make revisions in any table in effect under clause (i) to reflect the actual experience of 

pension plans and projected trends in such experience. 

(4) PROBABILITY OF BENEFIT PAYMENTS IN THE FORM OF LUMP

SUMS OR OTHER OPTIONAL FORMS.—For purposes of determining any present value or making any computation under 

this section, there shall be taken into account— 

(A) the probability that future benefit payments under 

the plan will be made in the form of optional forms of benefits provided under the plan (including lump sum distributions, determined on the basis of the plan’s experience 

and other related assumptions), and 

(B) any difference in the present value of such future 

benefit payments resulting from the use of actuarial assumptions, in determining benefit payments in any such 

optional form of benefits, which are different from those 

specified in this subsection. 

(5) APPROVAL OF LARGE CHANGES IN ACTUARIAL ASSUMPTIONS.— 

(A) IN GENERAL.—No actuarial assumption used to determine the funding target for a plan to which this paragraph 

applies may be changed without the approval of the Secretary. 

(B) PLANS TO WHICH PARAGRAPH APPLIES.—This paragraph shall apply to a plan only if— 

(i) the plan is a defined benefit plan (other than a 

multiemployer plan) to which title IV of the Employee 

Retirement Income Security Act of 1974 applies, 

(ii) the aggregate unfunded vested benefits as of the 

close of the preceding plan year (as determined under 

section 4006(a)(3)(E)(iii) of the Employee Retirement 

Income Security Act of 1974) of such plan and all 

other plans maintained by the contributing sponsors 

(as defined in section 4001(a)(13) of such Act) and 

members of such sponsors’ controlled groups (as defined in section 4001(a)(14) of such Act) which are covered by title IV (disregarding plans with no unfunded 

vested benefits) exceed $50,000,000, and 

(iii) the change in assumptions (determined after 

taking into account any changes in interest rate and 

mortality table) results in a decrease in the funding 

shortfall of the plan for the current plan year that exceeds $50,000,000, or that exceeds $5,000,000 and that 

is 5 percent or more of the funding target of the plan 

before such change. 

(i) SPECIAL RULES FOR AT-RISK PLANS.— 

(1) FUNDING TARGET FOR PLANS IN AT-RISK STATUS.— 

(A) IN GENERAL.—In the case of a plan which is in atrisk status for a plan year, the funding target of the plan 

for the plan year shall be equal to the sum of— 

(i) the present value of all benefits accrued or 

earned under the plan as of the beginning of the plan 

year, as determined by using the additional actuarial 

assumptions described in subparagraph (B), and 


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(ii) in the case of a plan which also has been in atrisk status for at least 2 of the 4 preceding plan years, 

a loading factor determined under subparagraph (C). 

(B) ADDITIONAL ACTUARIAL ASSUMPTIONS.—The actuarial 

assumptions described in this subparagraph are as follows: 

(i) All employees who are not otherwise assumed to 

retire as of the valuation date but who will be eligible 

to elect benefits during the plan year and the 10 succeeding plan years shall be assumed to retire at the 

earliest retirement date under the plan but not before 

the end of the plan year for which the at-risk funding 

target and at-risk target normal cost are being determined. 

(ii) All employees shall be assumed to elect the retirement benefit available under the plan at the assumed retirement age (determined after application of 

clause (i)) which would result in the highest present 

value of benefits. 

(C) LOADING FACTOR.—The loading factor applied with 

respect to a plan under this paragraph for any plan year 

is the sum of— 

(i) $700, times the number of participants in the 

plan, plus 

(ii) 4 percent of the funding target (determined without regard to this paragraph) of the plan for the plan 

year. 

(2) TARGET NORMAL COST OF AT-RISK PLANS.—In the case of 

a plan which is in at-risk status for a plan year, the target normal cost of the plan for such plan year shall be equal to the 

sum of— 

(A) the excess of— 

(i) the sum of— 

(I) the present value of all benefits which are 

expected to accrue or to be earned under the plan 

during the plan year, determined using the additional actuarial assumptions described in paragraph (1)(B), plus 

(II) the amount of plan-related expenses expected to be paid from plan assets during the plan 

year, over 

(ii) the amount of mandatory employee contributions 

expected to be made during the plan year, plus 

(B) in the case of a plan which also has been in at-risk 

status for at least 2 of the 4 preceding plan years, a loading factor equal to 4 percent of the amount determined 

under subsection (b)(1)(A)(i) with respect to the plan for 

the plan year. 

(3) MINIMUM AMOUNT.—In no event shall— 

(A) the at-risk funding target be less than the funding 

target, as determined without regard to this subsection, or 

(B) the at-risk target normal cost be less than the target 

normal cost, as determined without regard to this subsection. 

(4) DETERMINATION OF AT-RISK STATUS.—For purposes of this 

subsection— 


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(A) IN GENERAL.—A plan is in at-risk status for a plan 

year if— 

(i) the funding target attainment percentage for the 

preceding plan year (determined under this section 

without regard to this subsection) is less than 80 percent, and 

(ii) the funding target attainment percentage for the 

preceding plan year (determined under this section by 

using the additional actuarial assumptions described 

in paragraph (1)(B) in computing the funding target) 

is less than 70 percent. 

(B) TRANSITION RULE.—In the case of plan years beginning in 2008, 2009, and 2010, subparagraph (A)(i) shall be 

applied by substituting the following percentages for ‘‘80 

percent’’: 

(i) 65 percent in the case of 2008. 

(ii) 70 percent in the case of 2009. 

(iii) 75 percent in the case of 2010. 

In the case of plan years beginning in 2008, the funding 

target attainment percentage for the preceding plan year 

under subparagraph (A) may be determined using such 

methods of estimation as the Secretary may provide. 

(C) SPECIAL RULE FOR EMPLOYEES OFFERED EARLY RE- TIREMENT IN 2006.— (i) IN GENERAL.—For purposes of subparagraph 

(A)(ii), the additional actuarial assumptions described 

in paragraph (1)(B) shall not be taken into account 

with respect to any employee if— 

(I) such employee is employed by a specified 

automobile manufacturer, 

(II) such employee is offered a substantial 

amount of additional cash compensation, substantially enhanced retirement benefits under the 

plan, or materially reduced employment duties on 

the condition that by a specified date (not later 

than December 31, 2010) the employee retires (as 

defined under the terms of the plan), 

(III) such offer is made during 2006 and pursuant to a bona fide retirement incentive program 

and requires, by the terms of the offer, that such 

offer can be accepted not later than a specified 

date (not later than December 31, 2006), and 

(IV) such employee does not elect to accept such 

offer before the specified date on which the offer 

expires. 

(ii) SPECIFIED AUTOMOBILE MANUFACTURER.—For 

purposes of clause (i), the term ‘‘specified automobile 

manufacturer’’ means— 

(I) any manufacturer of automobiles, and 

(II) any manufacturer of automobile parts which 

supplies such parts directly to a manufacturer of 

automobiles and which, after a transaction or series of transactions ending in 1999, ceased to be 

a member of a controlled group which included 

such manufacturer of automobiles. 


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(5) TRANSITION BETWEEN APPLICABLE FUNDING TARGETS AND

BETWEEN APPLICABLE TARGET NORMAL COSTS.— 

(A) IN GENERAL.—In any case in which a plan which is 

in at-risk status for a plan year has been in such status 

for a consecutive period of fewer than 5 plan years, the applicable amount of the funding target and of the target 

normal cost shall be, in lieu of the amount determined 

without regard to this paragraph, the sum of— 

(i) the amount determined under this section without regard to this subsection, plus 

(ii) the transition percentage for such plan year of 

the excess of the amount determined under this subsection (without regard to this paragraph) over the 

amount determined under this section without regard 

to this subsection. 

(B) TRANSITION PERCENTAGE.—For purposes of subparagraph (A), the transition percentage shall be determined in 

accordance with the following table: 

(C) YEARS BEFORE EFFECTIVE DATE.—For purposes of 

this paragraph, plan years beginning before 2008 shall not 

be taken into account. 

(6) SMALL PLAN EXCEPTION.—If, on each day during the preceding plan year, a plan had 500 or fewer participants, the 

plan shall not be treated as in at-risk status for the plan year. 

For purposes of this paragraph, all defined benefit plans (other 

than multiemployer plans) maintained by the same employer 

(or any member of such employer’s controlled group) shall be 

treated as 1 plan, but only participants with respect to such 

employer or member shall be taken into account and the rules 

of subsection (g)(2)(C) shall apply. 

(j) PAYMENT OF MINIMUM REQUIRED CONTRIBUTIONS.— 

(1) IN GENERAL.—For purposes of this section, the due date 

for any payment of any minimum required contribution for any 

plan year shall be 81/2 months after the close of the plan year. 

(2) INTEREST.—Any payment required under paragraph (1) 

for a plan year that is made on a date other than the valuation 

date for such plan year shall be adjusted for interest accruing 

for the period between the valuation date and the payment 

date, at the effective rate of interest for the plan for such plan 

year. 

(3) ACCELERATED QUARTERLY CONTRIBUTION SCHEDULE FOR

UNDERFUNDED PLANS.— 

(A) FAILURE TO TIMELY MAKE REQUIRED INSTALLMENT.— 

In any case in which the plan has a funding shortfall for 

the preceding plan year, the employer maintaining the 

plan shall make the required installments under this paragraph and if the employer fails to pay the full amount of 

a required installment for the plan year, then the amount 

of interest charged under paragraph (2) on the underpayment for the period of underpayment shall be determined by using a rate of interest equal to the rate otherwise used under paragraph (2) plus 5 percentage points. In 

the case of plan years beginning in 2008, the funding 

shortfall for the preceding plan year may be determined 


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using such methods of estimation as the Secretary may 

provide. 

(B) AMOUNT OF UNDERPAYMENT, PERIOD OF UNDER- PAYMENT.—For purposes of subparagraph (A)— 

(i) AMOUNT.—The amount of the underpayment 

shall be the excess of— 

(I) the required installment, over 

(II) the amount (if any) of the installment contributed to or under the plan on or before the due 

date for the installment. 

(ii) PERIOD OF UNDERPAYMENT.—The period for 

which any interest is charged under this paragraph 

with respect to any portion of the underpayment shall 

run from the due date for the installment to the date 

on which such portion is contributed to or under the 

plan. 

(iii) ORDER OF CREDITING CONTRIBUTIONS.—For purposes of clause (i)(II), contributions shall be credited 

against unpaid required installments in the order in 

which such installments are required to be paid. 

(C) NUMBER OF REQUIRED INSTALLMENTS; DUE DATES.— For purposes of this paragraph— 

(i) PAYABLE IN 4 INSTALLMENTS.—There shall be 4 

required installments for each plan year. 

(ii) TIME FOR PAYMENT OF INSTALLMENTS.—The due 

dates for required installments are set forth in the following table: 

(D) AMOUNT OF REQUIRED INSTALLMENT.—For purposes 

of this paragraph— 

(i) IN GENERAL.—The amount of any required installment shall be 25 percent of the required annual 

payment. 

(ii) REQUIRED ANNUAL PAYMENT.—For purposes of 

clause (i), the term ‘‘required annual payment’’ means 

the lesser of— 

(I) 90 percent of the minimum required contribution (determined without regard to this subsection) to the plan for the plan year under this 

section, or 

(II) 100 percent of the minimum required contribution (determined without regard to this subsection or to any waiver under section 412(c)) to 

the plan for the preceding plan year. 

Subclause (II) shall not apply if the preceding plan year referred to in such clause was not a year of 12 months. 

(E) FISCAL YEARS, SHORT YEARS, AND YEARS WITH ALTERNATE VALUATION DATE.— 

(i) FISCAL YEARS.—In applying this paragraph to a 

plan year beginning on any date other than January 

1, there shall be substituted for the months specified 

in this paragraph, the months which correspond thereto. 

(ii) SHORT PLAN YEAR.—This subparagraph shall be 

applied to plan years of less than 12 months in accordance with regulations prescribed by the Secretary. 


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(iii) PLAN WITH ALTERNATE VALUATION DATE.—The 

Secretary shall prescribe regulations for the application of this paragraph in the case of a plan which has 

a valuation date other than the first day of the plan 

year. 

(F) QUARTERLY CONTRIBUTIONS NOT TO INCLUDE CERTAIN

INCREASED CONTRIBUTIONS.—Subparagraph (D) shall be 

applied without regard to any increase under subsection 

(c)(7). 

(4) LIQUIDITY REQUIREMENT IN CONNECTION WITH QUARTERLY

CONTRIBUTIONS.— (A) IN GENERAL.—A plan to which this paragraph applies shall be treated as failing to pay the full amount of 

any required installment under paragraph (3) to the extent 

that the value of the liquid assets paid in such installment 

is less than the liquidity shortfall (whether or not such liquidity shortfall exceeds the amount of such installment 

required to be paid but for this paragraph). 

(B) PLANS TO WHICH PARAGRAPH APPLIES.—This paragraph shall apply to a plan (other than a plan described 

in subsection (g)(2)(B)) which— 

(i) is required to pay installments under paragraph 

(3) for a plan year, and 

(ii) has a liquidity shortfall for any quarter during 

such plan year. 

(C) PERIOD OF UNDERPAYMENT.—For purposes of paragraph (3)(A), any portion of an installment that is treated 

as not paid under subparagraph (A) shall continue to be 

treated as unpaid until the close of the quarter in which 

the due date for such installment occurs. 

(D) LIMITATION ON INCREASE.—If the amount of any required installment is increased by reason of subparagraph 

(A), in no event shall such increase exceed the amount 

which, when added to prior installments for the plan year, 

is necessary to increase the funding target attainment percentage of the plan for the plan year (taking into account 

the expected increase in funding target due to benefits accruing or earned during the plan year) to 100 percent. 

(E) DEFINITIONS.—For purposes of this paragraph— 

(i) LIQUIDITY SHORTFALL.—The term ‘‘liquidity shortfall’’ means, with respect to any required installment, 

an amount equal to the excess (as of the last day of 

the quarter for which such installment is made) of— 

(I) the base amount with respect to such quarter, over 

(II) the value (as of such last day) of the plan’s 

liquid assets. 

(ii) BASE AMOUNT.— 

(I) IN GENERAL.—The term ‘‘base amount’’ 

means, with respect to any quarter, an amount 

equal to 3 times the sum of the adjusted disbursements from the plan for the 12 months ending on 

the last day of such quarter. 

(II) SPECIAL RULE.—If the amount determined 

under subclause (I) exceeds an amount equal to 2 


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times the sum of the adjusted disbursements from 

the plan for the 36 months ending on the last day 

of the quarter and an enrolled actuary certifies to 

the satisfaction of the Secretary that such excess 

is the result of nonrecurring circumstances, the 

base amount with respect to such quarter shall be 

determined without regard to amounts related to 

those nonrecurring circumstances. 

(iii) DISBURSEMENTS FROM THE PLAN.—The term 

‘‘disbursements from the plan’’ means all disbursements from the trust, including purchases of annuities, payments of single sums and other benefits, and 

administrative expenses. 

(iv) ADJUSTED DISBURSEMENTS.—The term ‘‘adjusted 

disbursements’’ means disbursements from the plan 

reduced by the product of— 

(I) the plan’s funding target attainment percentage for the plan year, and 

(II) the sum of the purchases of annuities, payments of single sums, and such other disbursements as the Secretary shall provide in regulations. 

(v) LIQUID ASSETS.—The term ‘‘liquid assets’’ means 

cash, marketable securities, and such other assets as 

specified by the Secretary in regulations. 

(vi) QUARTER.—The term ‘‘quarter’’ means, with respect to any required installment, the 3-month period 

preceding the month in which the due date for such 

installment occurs. 

(F) REGULATIONS.—The Secretary may prescribe such 

regulations as are necessary to carry out this paragraph. 

(k) IMPOSITION OF LIEN WHERE FAILURE TO MAKE REQUIRED CONTRIBUTIONS.— 

(1) IN GENERAL.—In the case of a plan to which this subsection applies (as provided under paragraph (2)), if— 

(A) any person fails to make a contribution payment required by section 412 and this section before the due date 

for such payment, and 

(B) the unpaid balance of such payment (including interest), when added to the aggregate unpaid balance of all 

preceding such payments for which payment was not made 

before the due date (including interest), exceeds 

$1,000,000, 

then there shall be a lien in favor of the plan in the amount 

determined under paragraph (3) upon all property and rights 

to property, whether real or personal, belonging to such person 

and any other person who is a member of the same controlled 

group of which such person is a member. 

(2) PLANS TO WHICH SUBSECTION APPLIES.—This subsection 

shall apply to a defined benefit plan (other than a multiemployer plan) covered under section 4021 of the Employee Retirement Income Security Act of 1974 for any plan year for 

which the funding target attainment percentage (as defined in 

subsection (d)(2)) of such plan is less than 100 percent. 


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(3) AMOUNT OF LIEN.—For purposes of paragraph (1), the 

amount of the lien shall be equal to the aggregate unpaid balance of contribution payments required under this section and 

section 412 for which payment has not been made before the 

due date. 

(4) NOTICE OF FAILURE; LIEN.— 

(A) NOTICE OF FAILURE.—A person committing a failure 

described in paragraph (1) shall notify the Pension Benefit 

Guaranty Corporation of such failure within 10 days of the 

due date for the required contribution payment. 

(B) PERIOD OF LIEN.—The lien imposed by paragraph (1) 

shall arise on the due date for the required contribution 

payment and shall continue until the last day of the first 

plan year in which the plan ceases to be described in paragraph (1)(B). Such lien shall continue to run without regard to whether such plan continues to be described in 

paragraph (2) during the period referred to in the preceding sentence. 

(C) CERTAIN RULES TO APPLY.—Any amount with respect 

to which a lien is imposed under paragraph (1) shall be 

treated as taxes due and owing the United States and 

rules similar to the rules of subsections (c), (d), and (e) of 

section 4068 of the Employee Retirement Income Security 

Act of 1974 shall apply with respect to a lien imposed by 

subsection (a) and the amount with respect to such lien. 

(5) ENFORCEMENT.—Any lien created under paragraph (1) 

may be perfected and enforced only by the Pension Benefit 

Guaranty Corporation, or at the direction of the Pension Benefit Guaranty Corporation, by the contributing sponsor (or any 

member of the controlled group of the contributing sponsor). 

(6) DEFINITIONS.—For purposes of this subsection— 

(A) CONTRIBUTION PAYMENT.—The term ‘‘contribution 

payment’’ means, in connection with a plan, a contribution 

payment required to be made to the plan, including any required installment under paragraphs (3) and (4) of subsection (j). 

(B) DUE DATE; REQUIRED INSTALLMENT.—The terms ‘‘due 

date’’ and ‘‘required installment’’ have the meanings given 

such terms by subsection (j). 

(C) CONTROLLED GROUP.—The term ‘‘controlled group’’ 

means any group treated as a single employer under subsections (b), (c), (m), and (o) of section 414. 

(l) QUALIFIED TRANSFERS TO HEALTH BENEFIT ACCOUNTS.—In the 

case of a qualified transfer (as defined in section 420), any assets 

so transferred shall not, for purposes of this section, be treated as 

assets in the plan. 

(m) SPECIAL RULES FOR COMMUNITY NEWSPAPER PLANS.— 

(1) IN GENERAL.—The plan sponsor of a community newspaper plan under which no participant has had the participant’s accrued benefit increased (whether because of service or 

compensation) after December 31, 2017, may elect to have the 

alternative standards described in paragraph (3) apply to such 

plan, and any plan sponsored by any member of the same controlled group. 


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(2) ELECTION.—An election under paragraph (1) shall be 

made at such time and in such manner as prescribed by the 

Secretary. Such election, once made with respect to a plan year, 

shall apply to all subsequent plan years unless revoked with the 

consent of the Secretary. 

(3) ALTERNATIVE MINIMUM FUNDING STANDARDS.—The alternative standards described in this paragraph are the following: 

(A) INTEREST RATES.— 

(i) IN GENERAL.—Notwithstanding subsection 

(h)(2)(C) and except as provided in clause (ii), the first, 

second, and third segment rates in effect for any month 

for purposes of this section shall be 8 percent. 

(ii) NEW BENEFIT ACCRUALS.—Notwithstanding subsection (h)(2), for purposes of determining the funding 

target and normal cost of a plan for any plan year, the 

present value of any benefits accrued or earned under 

the plan for a plan year with respect to which an election under paragraph (1) is in effect shall be determined on the basis of the U.S. Treasury obligation 

yield curve for the day that is the valuation date of 

such plan for such plan year. 

(iii) U.S. TREASURY OBLIGATION YIELD CURVE.—For 

purposes of this subsection, the term ‘‘U.S. Treasury obligation yield curve’’ means, with respect to any day, a 

yield curve which shall be prescribed by the Secretary 

for such day on interest-bearing obligations of the 

United States. 

(B) SHORTFALL AMORTIZATION BASE.— 

(i) PREVIOUS SHORTFALL AMORTIZATION BASES.—The 

shortfall amortization bases determined under subsection (c)(3) for all plan years preceding the first plan 

year to which the election under paragraph (1) applies 

(and all shortfall amortization installments determined 

with respect to such bases) shall be reduced to zero 

under rules similar to the rules of subsection (c)(6). 

(ii) NEW SHORTFALL AMORTIZATION BASE.—Notwithstanding subsection (c)(3), the shortfall amortization 

base for the first plan year to which the election under 

paragraph (1) applies shall be the funding shortfall of 

such plan for such plan year (determined using the interest rates as modified under subparagraph (A)). 

(C) DETERMINATION OF SHORTFALL AMORTIZATION INSTALLMENTS.— 

(i) 30-YEAR PERIOD.—Subparagraphs (A) and (B) of 

subsection (c)(2) shall be applied by substituting ‘‘30- 

plan-year’’ for ‘‘7-plan-year’’ each place it appears. 

(ii) NO SPECIAL ELECTION.—The election under subparagraph (D) of subsection (c)(2) shall not apply to 

any plan year to which the election under paragraph 

(1) applies. 

(D) EXEMPTION FROM AT-RISK TREATMENT.—Subsection 

(i) shall not apply. 

(4) COMMUNITY NEWSPAPER PLAN.—For purposes of this subsection— 


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(A) IN GENERAL.—The term ‘‘community newspaper plan’’ 

means a plan to which this section applies maintained by 

an employer which, as of December 31, 2017— 

(i) publishes and distributes daily, either electronically or in printed form, 1 or more community newspapers in a single State, 

(ii) is not a company the stock of which is publicly 

traded (on a stock exchange or in an over-the-counter 

market), and is not controlled, directly or indirectly, by 

such a company, 

(iii) is controlled, directly or indirectly— 

(I) by 1 or more persons residing primarily in 

the State in which the community newspaper is 

published, 

(II) for not less than 30 years by individuals who 

are members of the same family, 

(III) by a trust created or organized in the State 

in which the community newspaper is published, 

the sole trustees of which are persons described in 

subclause (I) or (II), 

(IV) by an entity which is described in section 

501(c)(3) and exempt from taxation under section 

501(a), which is organized and operated in the 

State in which the community newspaper is published, and the primary purpose of which is to benefit communities in such State, or 

(V) by a combination of persons described in 

subclause (I), (III), or (IV), and 

(iv) does not control, directly or indirectly, any newspaper in any other State. 

(B) COMMUNITY NEWSPAPER.—The term ‘‘community 

newspaper’’ means a newspaper which primarily serves a 

metropolitan statistical area, as determined by the Office of 

Management and Budget, with a population of not less 

than 100,000. 

(C) CONTROL.—A person shall be treated as controlled by 

another person if such other person possesses, directly or 

indirectly, the power to direct or cause the direction and 

management of such person (including the power to elect a 

majority of the members of the board of directors of such 

person) through the ownership of voting securities. 

(5) CONTROLLED GROUP.—For purposes of this subsection, the 

term ‘‘controlled group’’ means all persons treated as a single 

employer under subsection (b), (c), (m), or (o) of section 414 as 

of the date of the enactment of this subsection. 

* * * * * * * 

Subchapter E—ACCOUNTING PERIODS AND 

METHODS OF ACCOUNTING 

* * * * * * * 

PART II—METHODS OF ACCOUNTING 

* * * * * * * 


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Subpart B—TAXABLE YEAR FOR WHICH ITEMS OF 

GROSS INCOME INCLUDED 

* * * * * * * 

SEC. 457. DEFERRED COMPENSATION PLANS OF STATE AND LOCAL 

GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS. 

(a) YEAR OF INCLUSION IN GROSS INCOME.— (1) IN GENERAL.—Any amount of compensation deferred 

under an eligible deferred compensation plan, and any income 

attributable to the amounts so deferred, shall be includible in 

gross income only for the taxable year in which such compensation or other income— 

(A) is paid to the participant or other beneficiary, in the 

case of a plan of an eligible employer described in subsection (e)(1)(A), and 

(B) is paid or otherwise made available to the participant or other beneficiary, in the case of a plan of an eligible employer described in subsection (e)(1)(B). 

(2) SPECIAL RULE FOR ROLLOVER AMOUNTS.—To the extent 

provided in section 72(t)(9), section 72(t) shall apply to any 

amount includible in gross income under this subsection. 

(3) SPECIAL RULE FOR HEALTH AND LONG-TERM CARE INSURANCE.—In the case of a plan of an eligible employer described 

in subsection (e)(1)(A), to the extent provided in section 402(l), 

paragraph (1) shall not apply to amounts otherwise includible 

in gross income under this subsection. 

(b) ELIGIBLE DEFERRED COMPENSATION PLAN DEFINED.—For purposes of this section, the term ‘‘eligible deferred compensation plan’’ 

means a plan established and maintained by an eligible employer— 

(1) in which only individuals who perform service for the employer may be participants, 

(2) which provides that (except as provided in paragraph (3)) 

the maximum amount which may be deferred under the plan 

for the taxable year (other than rollover amounts) shall not exceed the lesser of— 

(A) the applicable dollar amount, or 

(B) 100 percent of the participant’s includible compensation, 

(3) which may provide that, for 1 or more of the participant’s 

last 3 taxable years ending before he attains normal retirement age under the plan, the ceiling set forth in paragraph (2) 

shall be the lesser of— 

(A) twice the dollar amount in effect under subsection 

(b)(2)(A), or 

(B) the sum of— 

(i) the plan ceiling established for purposes of paragraph (2) for the taxable year (determined without regard to this paragraph), plus 

(ii) so much of the plan ceiling established for purposes of paragraph (2) for taxable years before the taxable year as has not previously been used under paragraph (2) or this paragraph, 

(4) which provides that compensation will be deferred for any 

calendar month only if an agreement providing for such deferral has been entered into before the beginning of such month, 


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(5) which meets the distribution requirements of subsection 

(d), and 

(6) except as provided in subsection (g), which provides 

that— 

(A) all amounts of compensation deferred under the 

plan, 

(B) all property and rights purchased with such 

amounts, and 

(C) all income attributable to such amounts, property, or 

rights, 

shall remain (until made available to the participant or other 

beneficiary) solely the property and rights of the employer 

(without being restricted to the provision of benefits under the 

plan), subject only to the claims of the employer’s general 

creditors. 

A plan which is established and maintained by an employer which 

is described in subsection (e)(1)(A) and which is administered in a 

manner which is inconsistent with the requirements of any of the 

preceding paragraphs shall be treated as not meeting the requirements of such paragraph as of the 1st plan year beginning more 

than 180 days after the date of notification by the Secretary of the 

inconsistency unless the employer corrects the inconsistency before 

the 1st day of such plan year. 

(c) LIMITATION.—The maximum amount of the compensation of 

any one individual which may be deferred under subsection (a) during any taxable year shall not exceed the amount in effect under 

subsection (b)(2)(A) (as modified by any adjustment provided under 

subsection (b)(3)). 

(d) DISTRIBUTION REQUIREMENTS.— 

(1) IN GENERAL.—For purposes of subsection (b)(5), a plan 

meets the distribution requirements of this subsection if— 

(A) under the plan amounts will not be made available 

to participants or beneficiaries earlier than— 

(i) the calendar year in which the participant attains 

age ø701/2¿ 72 , 

(ii) when the participant has a severance from employment with the employer, øor¿ 

(iii) when the participant is faced with an unforeseeable emergency (determined in the manner prescribed 

by the Secretary in regulations), or 

(iv) except as may be otherwise provided by regulations, in the case of a plan maintained by an employer 

described in subsection (e)(1)(A), with respect to 

amounts invested in a lifetime income investment (as 

defined in section 401(a)(38)(B)(ii)), the date that is 90 

days prior to the date that such lifetime income investment may no longer be held as an investment option 

under the plan, 

(B) the plan meets the minimum distribution requirements of paragraph (2), øand¿ 

(C) in the case of a plan maintained by an employer described in subsection (e)(1)(A), the plan meets requirements similar to the requirements of section 401(a)(31)ø.¿, 

and 


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(D) except as may be otherwise provided by regulations, 

in the case of amounts described in subparagraph (A)(iv), 

such amounts will be distributed only in the form of a 

qualified distribution (as defined in section 

401(a)(38)(B)(i)) or a qualified plan distribution annuity 

contract (as defined in section 401(a)(38)(B)(iv)). 

Any amount transferred in a direct trustee-to-trustee transfer 

in accordance with section 401(a)(31) shall not be includible in 

gross income for the taxable year of transfer. 

(2) MINIMUM DISTRIBUTION REQUIREMENTS.—A plan meets 

the minimum distribution requirements of this paragraph if 

such plan meets the requirements of section 401(a)(9). 

(3) SPECIAL RULE FOR GOVERNMENT PLAN.—An eligible deferred compensation plan of an employer described in subsection (e)(1)(A) shall not be treated as failing to meet the requirements of this subsection solely by reason of making a distribution described in subsection (e)(9)(A). 

(e) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this 

section— 

(1) ELIGIBLE EMPLOYER.—The term ‘‘eligible employer’’ 

means— 

(A) a State, political subdivision of a State, and any 

agency or instrumentality of a State or political subdivision of a State, and 

(B) any other organization (other than a governmental 

unit) exempt from tax under this subtitle. 

(2) PERFORMANCE OF SERVICE.—The performance of service 

includes performance of service as an independent contractor 

and the person (or governmental unit) for whom such services 

are performed shall be treated as the employer. 

(3) PARTICIPANT.—The term ‘‘participant’’ means an individual who is eligible to defer compensation under the plan. 

(4) BENEFICIARY.—The term ‘‘beneficiary’’ means a beneficiary of the participant, his estate, or any other person whose 

interest in the plan is derived from the participant. 

(5) INCLUDIBLE COMPENSATION.—The term ‘‘includible compensation’’ has the meaning given to the term ‘‘participant’s 

compensation’’ by section 415(c)(3). 

(6) COMPENSATION TAKEN INTO ACCOUNT AT PRESENT

VALUE.—Compensation shall be taken into account at its 

present value. 

(7) COMMUNITY PROPERTY LAWS.—The amount of includible 

compensation shall be determined without regard to any community property laws. 

(8) INCOME ATTRIBUTABLE.—Gains from the disposition of 

property shall be treated as income attributable to such property. 

(9) BENEFITS OF TAX EXEMPT ORGANIZATION PLANS NOT

TREATED AS MADE AVAILABLE BY REASON OF CERTAIN ELEC- TIONS, ETC..—In the case of an eligible deferred compensation 

plan of an employer described in subsection (e)(1)(B)— 

(A) TOTAL AMOUNT PAYABLE IS DOLLAR LIMIT OR LESS.— The total amount payable to a participant under the plan 

shall not be treated as made available merely because the 

participant may elect to receive such amount (or the plan 


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may distribute such amount without the participant’s consent) if— 

(i) the portion of such amount which is not attributable to rollover contributions (as defined in section 

411(a)(11)(D)) does not exceed the dollar limit under 

section 411(a)(11)(A), and 

(ii) such amount may be distributed only if— 

(I) no amount has been deferred under the plan 

with respect to such participant during the 2-year 

period ending on the date of the distribution, and 

(II) there has been no prior distribution under 

the plan to such participant to which this subparagraph applied. 

A plan shall not be treated as failing to meet the distribution requirements of subsection (d) by reason of a distribution to which this subparagraph applies. 

(B) ELECTION TO DEFER COMMENCEMENT OF DISTRIBUTIONS.—The total amount payable to a participant under 

the plan shall not be treated as made available merely because the participant may elect to defer commencement of 

distributions under the plan if— 

(i) such election is made after amounts may be 

available under the plan in accordance with subsection 

(d)(1)(A) and before commencement of such distributions, and 

(ii) the participant may make only 1 such election. 

(10) TRANSFERS BETWEEN PLANS.—A participant shall not be 

required to include in gross income any portion of the entire 

amount payable to such participant solely by reason of the 

transfer of such portion from 1 eligible deferred compensation 

plan to another eligible deferred compensation plan. 

(11) CERTAIN PLANS EXCLUDED.— 

(A) IN GENERAL.—The following plans shall be treated as 

not providing for the deferral of compensation: 

(i) Any bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death 

benefit plan. 

(ii) Any plan paying solely length of service awards 

to bona fide volunteers (or their beneficiaries) on account of qualified services performed by such volunteers. 

(B) SPECIAL RULES APPLICABLE TO LENGTH OF SERVICE

AWARD PLANS.— 

(i) BONA FIDE VOLUNTEER.—An individual shall be 

treated as a bona fide volunteer for purposes of subparagraph (A)(ii) if the only compensation received by 

such individual for performing qualified services is in 

the form of— 

(I) reimbursement for (or a reasonable allowance for) reasonable expenses incurred in the performance of such services, or 

(II) reasonable benefits (including length of 

service awards), and nominal fees for such services, customarily paid by eligible employers in conVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00324 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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nection with the performance of such services by 

volunteers. 

(ii) LIMITATION ON ACCRUALS.—A plan shall not be 

treated as described in subparagraph (A)(ii) if the aggregate amount of length of service awards accruing 

with respect to any year of service for any bona fide 

volunteer exceeds $6,000. 

(iii) COST OF LIVING ADJUSTMENT.—In the case of 

taxable years beginning after December 31, 2017, the 

Secretary shall adjust the $6,000 amount under clause 

(ii) at the same time and in the same manner as 

under section 415(d), except that the base period shall 

be the calendar quarter beginning July 1, 2016, and 

any increase under this paragraph that is not a multiple of $500 shall be rounded to the next lowest multiple of $500. 

(iv) SPECIAL RULE FOR APPLICATION OF LIMITATION

ON ACCRUALS FOR CERTAIN PLANS.—In the case of a 

plan described in subparagraph (A)(ii) which is a defined benefit plan (as defined in section 414(j)), the 

limitation under clause (ii) shall apply to the actuarial 

present value of the aggregate amount of length of 

service awards accruing with respect to any year of 

service. Such actuarial present value with respect to 

any year shall be calculated using reasonable actuarial 

assumptions and methods, assuming payment will be 

made under the most valuable form of payment under 

the plan with payment commencing at the later of the 

earliest age at which unreduced benefits are payable 

under the plan or the participant’s age at the time of 

the calculation. 

(C) QUALIFIED SERVICES.—For purposes of this paragraph, the term ‘‘qualified services’’ means fire fighting 

and prevention services, emergency medical services, and 

ambulance services. 

(D) CERTAIN VOLUNTARY EARLY RETIREMENT INCENTIVE

PLANS.— 

(i) IN GENERAL.—If an applicable voluntary early retirement incentive plan— 

(I) makes payments or supplements as an early 

retirement benefit, a retirement-type subsidy, or a 

benefit described in the last sentence of section 

411(a)(9), and 

(II) such payments or supplements are made in 

coordination with a defined benefit plan which is 

described in section 401(a) and includes a trust 

exempt from tax under section 501(a) and which 

is maintained by an eligible employer described in 

paragraph (1)(A) or by an education association 

described in clause (ii)(II), 

such applicable plan shall be treated for purposes of subparagraph (A)(i) as a bona fide severance pay plan with respect to such payments or supplements to the extent such 

payments or supplements could otherwise have been proVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00325 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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vided under such defined benefit plan (determined as if 

section 411 applied to such defined benefit plan). 

(ii) APPLICABLE VOLUNTARY EARLY RETIREMENT IN- CENTIVE PLAN.—For purposes of this subparagraph, 

the term ‘‘applicable voluntary early retirement incentive plan’’ means a voluntary early retirement incentive plan maintained by— 

(I) a local educational agency (as defined in section 8101 of the Elementary and Secondary Education Act of 1965), or 

(II) an education association which principally 

represents employees of 1 or more agencies described in subclause (I) and which is described in 

section 501(c)(5) or (6) and exempt from tax under 

section 501(a). 

(12) EXCEPTION FOR NONELECTIVE DEFERRED COMPENSATION

OF NONEMPLOYEES.— 

(A) IN GENERAL.—This section shall not apply to nonelective deferred compensation attributable to services not performed as an employee. 

(B) NONELECTIVE DEFERRED COMPENSATION.—For purposes of subparagraph (A), deferred compensation shall be 

treated as nonelective only if all individuals (other than 

those who have not satisfied any applicable initial service 

requirement) with the same relationship to the payor are 

covered under the same plan with no individual variations 

or options under the plan. 

(13) SPECIAL RULE FOR CHURCHES.—The term ‘‘eligible employer’’ shall not include a church (as defined in section 

3121(w)(3)(A)) or qualified church-controlled organization (as 

defined in section 3121(w)(3)(B)). 

(14) TREATMENT OF QUALIFIED GOVERNMENTAL EXCESS BENEFIT ARRANGEMENTS.—Subsections (b)(2) and (c)(1) shall not 

apply to any qualified governmental excess benefit arrangement (as defined in section 415(m)(3)), and benefits provided 

under such an arrangement shall not be taken into account in 

determining whether any other plan is an eligible deferred 

compensation plan. 

(15) APPLICABLE DOLLAR AMOUNT.— (A) IN GENERAL.—The applicable dollar amount is 

$15,000. 

(B) COST-OF-LIVING ADJUSTMENTS.—In the case of taxable years beginning after December 31, 2006, the Secretary shall adjust the $15,000 amount under subparagraph (A) at the same time and in the same manner as 

under section 415(d), except that the base period shall be 

the calendar quarter beginning July 1, 2005, and any increase under this paragraph which is not a multiple of 

$500 shall be rounded to the next lowest multiple of $500. 

(16) ROLLOVER AMOUNTS.— (A) GENERAL RULE.—In the case of an eligible deferred 

compensation plan established and maintained by an employer described in subsection (e)(1)(A), if— 

(i) any portion of the balance to the credit of an employee in such plan is paid to such employee in an eliVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00326 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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gible rollover distribution (within the meaning of section 402(c)(4)), 

(ii) the employee transfers any portion of the property such employee receives in such distribution to an 

eligible retirement plan described in section 

402(c)(8)(B), and 

(iii) in the case of a distribution of property other 

than money, the amount so transferred consists of the 

property distributed, 

then such distribution (to the extent so transferred) shall 

not be includible in gross income for the taxable year in 

which paid. 

(B) CERTAIN RULES MADE APPLICABLE.—The rules of 

paragraphs (2) through (7), (9), and (11) of section 402(c) 

and section 402(f) shall apply for purposes of subparagraph (A). 

(C) REPORTING.—Rollovers under this paragraph shall be 

reported to the Secretary in the same manner as rollovers 

from qualified retirement plans (as defined in section 

4974(c)). 

(17) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMIS- SIVE SERVICE CREDIT.—No amount shall be includible in gross 

income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) 

if such transfer is— 

(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or 

(B) a repayment to which section 415 does not apply by 

reason of subsection (k)(3) thereof. 

(18) COORDINATION WITH CATCH-UP CONTRIBUTIONS FOR INDI- VIDUALS AGE 50 OR OLDER.—In the case of an individual who 

is an eligible participant (as defined by section 414(v)) and who 

is a participant in an eligible deferred compensation plan of an 

employer described in paragraph (1)(A), subsections (b)(3) and 

(c) shall be applied by substituting for the amount otherwise 

determined under the applicable subsection the greater of— 

(A) the sum of— 

(i) the plan ceiling established for purposes of subsection (b)(2) (without regard to subsection (b)(3)), plus 

(ii) the applicable dollar amount for the taxable year 

determined under section 414(v)(2)(B)(i), or 

(B) the amount determined under the applicable subsection (without regard to this paragraph). 

(f) TAX TREATMENT OF PARTICIPANTS WHERE PLAN OR ARRANGEMENT OF EMPLOYER IS NOT ELIGIBLE.— 

(1) IN GENERAL.—In the case of a plan of an eligible employer providing for a deferral of compensation, if such plan is 

not an eligible deferred compensation plan, then— 

(A) the compensation shall be included in the gross income of the participant or beneficiary for the 1st taxable 

year in which there is no substantial risk of forfeiture of 

the rights to such compensation, and 

(B) the tax treatment of any amount made available 

under the plan to a participant or beneficiary shall be determined under section 72 (relating to annuities, etc.). 


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(2) EXCEPTIONS.—Paragraph (1) shall not apply to— 

(A) a plan described in section 401(a) which includes a 

trust exempt from tax under section 501(a), 

(B) an annuity plan or contract described in section 403, 

(C) that portion of any plan which consists of a transfer 

of property described in section 83, 

(D) that portion of any plan which consists of a trust to 

which section 402(b) applies, 

(E) a qualified governmental excess benefit arrangement 

described in section 415(m), and 

(F) that portion of any applicable employment retention 

plan described in paragraph (4) with respect to any participant. 

(3) DEFINITIONS.—For purposes of this subsection— 

(A) PLAN INCLUDES ARRANGEMENTS, ETC..—The term 

‘‘plan’’ includes any agreement or arrangement. 

(B) SUBSTANTIAL RISK OF FORFEITURE.—The rights of a 

person to compensation are subject to a substantial risk of 

forfeiture if such person’s rights to such compensation are 

conditioned upon the future performance of substantial 

services by any individual. 

(4) EMPLOYMENT RETENTION PLANS.—For purposes of paragraph (2)(F)— 

(A) IN GENERAL.—The portion of an applicable employment retention plan described in this paragraph with respect to any participant is that portion of the plan which 

provides benefits payable to the participant not in excess 

of twice the applicable dollar limit determined under subsection (e)(15). 

(B) OTHER RULES.— 

(i) LIMITATION.—Paragraph (2)(F) shall only apply to 

the portion of the plan described in subparagraph (A) 

for years preceding the year in which such portion is 

paid or otherwise made available to the participant. 

(ii) TREATMENT.—A plan shall not be treated for 

purposes of this title as providing for the deferral of 

compensation for any year with respect to the portion 

of the plan described in subparagraph (A). 

(C) APPLICABLE EMPLOYMENT RETENTION PLAN.—The 

term ‘‘applicable employment retention plan’’ means an 

employment retention plan maintained by— 

(i) a local educational agency (as defined in section 

8101 of the Elementary and Secondary Education Act 

of 1965 (20 U.S.C. 7801)), or 

(ii) an education association which principally represents employees of 1 or more agencies described in 

clause (i) and which is described in section 501(c)(5) or 

(6) and exempt from taxation under section 501(a). 

(D) EMPLOYMENT RETENTION PLAN.—The term ‘‘employment retention plan’’ means a plan to pay, upon termination of employment, compensation to an employee of a 

local educational agency or education association described 

in subparagraph (C) for purposes of— 

(i) retaining the services of the employee, or 


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(ii) rewarding such employee for the employee’s 

service with 1 or more such agencies or associations. 

(g) GOVERNMENTAL PLANS MUST MAINTAIN SET-ASIDES FOR EXCLU- SIVE BENEFIT OF PARTICIPANTS.— (1) IN GENERAL.—A plan maintained by an eligible employer 

described in subsection (e)(1)(A) shall not be treated as an eligible deferred compensation plan unless all assets and income 

of the plan described in subsection (b)(6) are held in trust for 

the exclusive benefit of participants and their beneficiaries. 

(2) TAXABILITY OF TRUSTS AND PARTICIPANTS.—For purposes 

of this title— 

(A) a trust described in paragraph (1) shall be treated as 

an organization exempt from taxation under section 

501(a), and 

(B) notwithstanding any other provision of this title, 

amounts in the trust shall be includible in the gross income of participants and beneficiaries only to the extent, 

and at the time, provided in this section. 

(3) CUSTODIAL ACCOUNTS AND CONTRACTS.—For purposes of 

this subsection, custodial accounts and contracts described in 

section 401(f) shall be treated as trusts under rules similar to 

the rules under section 401(f). 

(4) DEATH BENEFITS UNDER USERRA-QUALIFIED ACTIVE MILI- TARY SERVICE.—A plan described in paragraph (1) shall not be 

treated as an eligible deferred compensation plan unless such 

plan meets the requirements of section 401(a)(37). 

* * * * * * * 

Subchapter F—EXEMPT ORGANIZATIONS 

* * * * * * * 

PART VIII—CERTAIN SAVINGS ENTITIES 

* * * * * * * 

SEC. 529. QUALIFIED TUITION PROGRAMS. 

(a) GENERAL RULE.—A qualified tuition program shall be exempt 

from taxation under this subtitle. Notwithstanding the preceding 

sentence, such program shall be subject to the taxes imposed by 

section 511 (relating to imposition of tax on unrelated business income of charitable organizations). 

(b) QUALIFIED TUITION PROGRAM.—For purposes of this section— 

(1) IN GENERAL.—The term ‘‘qualified tuition program’’ 

means a program established and maintained by a State or 

agency or instrumentality thereof or by 1 or more eligible educational institutions— 

(A) under which a person— 

(i) may purchase tuition credits or certificates on behalf of a designated beneficiary which entitle the beneficiary to the waiver or payment of qualified higher 

education expenses of the beneficiary, or 

(ii) in the case of a program established and maintained by a State or agency or instrumentality thereof, 

may make contributions to an account which is established for the purpose of meeting the qualified higher 


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education expenses of the designated beneficiary of the 

account, and 

(B) which meets the other requirements of this subsection. 

Except to the extent provided in regulations, a program established and maintained by 1 or more eligible educational institutions shall not be treated as a qualified tuition program unless such program provides that amounts are held in a qualified trust and such program has received a ruling or determination that such program meets the applicable requirements 

for a qualified tuition program. For purposes of the preceding 

sentence, the term ‘‘qualified trust’’ means a trust which is created or organized in the United States for the exclusive benefit 

of designated beneficiaries and with respect to which the requirements of paragraphs (2) and (5) of section 408(a) are met. 

(2) CASH CONTRIBUTIONS.—A program shall not be treated as 

a qualified tuition program unless it provides that purchases 

or contributions may only be made in cash. 

(3) SEPARATE ACCOUNTING.—A program shall not be treated 

as a qualified tuition program unless it provides separate accounting for each designated beneficiary. 

(4) LIMITED INVESTMENT DIRECTION.—A program shall not be 

treated as a qualified tuition program unless it provides that 

any contributor to, or designated beneficiary under, such program may, directly or indirectly, direct the investment of any 

contributions to the program (or any earnings thereon) no more 

than 2 times in any calendar year. 

(5) NO PLEDGING OF INTEREST AS SECURITY.—A program 

shall not be treated as a qualified tuition program if it allows 

any interest in the program or any portion thereof to be used 

as security for a loan. 

(6) PROHIBITION ON EXCESS CONTRIBUTIONS.—A program 

shall not be treated as a qualified tuition program unless it 

provides adequate safeguards to prevent contributions on behalf of a designated beneficiary in excess of those necessary to 

provide for the qualified higher education expenses of the beneficiary. 

(c) TAX TREATMENT OF DESIGNATED BENEFICIARIES AND CONTRIBU- TORS.— 

(1) IN GENERAL.—Except as otherwise provided in this subsection, no amount shall be includible in gross income of— 

(A) a designated beneficiary under a qualified tuition 

program, or 

(B) a contributor to such program on behalf of a designated beneficiary, 

with respect to any distribution or earnings under such program. 

(2) GIFT TAX TREATMENT OF CONTRIBUTIONS.—For purposes 

of chapters 12 and 13— 

(A) IN GENERAL.—Any contribution to a qualified tuition 

program on behalf of any designated beneficiary— 

(i) shall be treated as a completed gift to such beneficiary which is not a future interest in property, and 

(ii) shall not be treated as a qualified transfer under 

section 2503(e). 


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(B) TREATMENT OF EXCESS CONTRIBUTIONS.—If the aggregate amount of contributions described in subparagraph 

(A) during the calendar year by a donor exceeds the limitation for such year under section 2503(b), such aggregate 

amount shall, at the election of the donor, be taken into 

account for purposes of such section ratably over the 5- 

year period beginning with such calendar year. 

(3) DISTRIBUTIONS.— 

(A) IN GENERAL.—Any distribution under a qualified tuition program shall be includible in the gross income of the 

distributee in the manner as provided under section 72 to 

the extent not excluded from gross income under any other 

provision of this chapter. 

(B) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION

EXPENSES.—For purposes of this paragraph— 

(i) IN-KIND DISTRIBUTIONS.—No amount shall be includible in gross income under subparagraph (A) by 

reason of a distribution which consists of providing a 

benefit to the distributee which, if paid for by the distributee, would constitute payment of a qualified higher education expense. 

(ii) CASH DISTRIBUTIONS.—In the case of distributions not described in clause (i), if— 

(I) such distributions do not exceed the qualified 

higher education expenses (reduced by expenses 

described in clause (i)), no amount shall be includible in gross income, and 

(II) in any other case, the amount otherwise includible in gross income shall be reduced by an 

amount which bears the same ratio to such 

amount as such expenses bear to such distributions. 

(iii) EXCEPTION FOR INSTITUTIONAL PROGRAMS.—In 

the case of any taxable year beginning before January 

1, 2004, clauses (i) and (ii) shall not apply with respect 

to any distribution during such taxable year under a 

qualified tuition program established and maintained 

by 1 or more eligible educational institutions. 

(iv) TREATMENT AS DISTRIBUTIONS.—Any benefit furnished to a designated beneficiary under a qualified 

tuition program shall be treated as a distribution to 

the beneficiary for purposes of this paragraph. 

(v) COORDINATION WITH AMERICAN OPPORTUNITY

AND LIFETIME LEARNING CREDITS.—The total amount 

of qualified higher education expenses with respect to 

an individual for the taxable year shall be reduced— 

(I) as provided in section 25A(g)(2), and 

(II) by the amount of such expenses which were 

taken into account in determining the credit allowed to the taxpayer or any other person under 

section 25A. 

(vi) COORDINATION WITH COVERDELL EDUCATION

SAVINGS ACCOUNTS.—If, with respect to an individual 

for any taxable year— 


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(I) the aggregate distributions to which clauses 

(i) and (ii) and section 530(d)(2)(A) apply, exceed 

(II) the total amount of qualified higher education expenses otherwise taken into account 

under clauses (i) and (ii) (after the application of 

clause (v)) for such year, 

the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the 

exclusion under clauses (i) and (ii) and section 

530(d)(2)(A). 

(C) CHANGE IN BENEFICIARIES OR PROGRAMS.— 

(i) ROLLOVERS.—Subparagraph (A) shall not apply to 

that portion of any distribution which, within 60 days 

of such distribution, is transferred— 

(I) to another qualified tuition program for the 

benefit of the designated beneficiary, 

(II) to the credit of another designated beneficiary under a qualified tuition program who is a 

member of the family of the designated beneficiary with respect to which the distribution was 

made, or 

(III) before January 1, 2026, to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of 

the designated beneficiary. 

Subclause (III) shall not apply to so much of a distribution 

which, when added to all other contributions made to the 

ABLE account for the taxable year, exceeds the limitation 

under section 529A(b)(2)(B)(i). 

(ii) CHANGE IN DESIGNATED BENEFICIARIES.—Any 

change in the designated beneficiary of an interest in 

a qualified tuition program shall not be treated as a 

distribution for purposes of subparagraph (A) if the 

new beneficiary is a member of the family of the old 

beneficiary. 

(iii) LIMITATION ON CERTAIN ROLLOVERS.—Clause 

(i)(I) shall not apply to any transfer if such transfer occurs within 12 months from the date of a previous 

transfer to any qualified tuition program for the benefit of the designated beneficiary. 

(D) SPECIAL RULE FOR CONTRIBUTIONS OF REFUNDED

AMOUNTS.—In the case of a beneficiary who receives a refund of any qualified higher education expenses from an 

eligible educational institution, subparagraph (A) shall not 

apply to that portion of any distribution for the taxable 

year which is recontributed to a qualified tuition program 

of which such individual is a beneficiary, but only to the 

extent such recontribution is made not later than 60 days 

after the date of such refund and does not exceed the refunded amount. 

(4) ESTATE TAX TREATMENT.— 

(A) IN GENERAL.—No amount shall be includible in the 

gross estate of any individual for purposes of chapter 11 by 

reason of an interest in a qualified tuition program. 


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(B) AMOUNTS INCLUDIBLE IN ESTATE OF DESIGNATED BEN- EFICIARY IN CERTAIN CASES.—Subparagraph (A) shall not 

apply to amounts distributed on account of the death of a 

beneficiary. 

(C) AMOUNTS INCLUDIBLE IN ESTATE OF DONOR MAKING

EXCESS CONTRIBUTIONS.—In the case of a donor who makes 

the election described in paragraph (2)(B) and who dies before the close of the 5-year period referred to in such paragraph, notwithstanding subparagraph (A), the gross estate 

of the donor shall include the portion of such contributions 

properly allocable to periods after the date of death of the 

donor. 

(5) OTHER GIFT TAX RULES.—For purposes of chapters 12 and 

13— 

(A) TREATMENT OF DISTRIBUTIONS.—Except as provided 

in subparagraph (B), in no event shall a distribution from 

a qualified tuition program be treated as a taxable gift. 

(B) TREATMENT OF DESIGNATION OF NEW BENEFICIARY.— The taxes imposed by chapters 12 and 13 shall apply to a 

transfer by reason of a change in the designated beneficiary under the program (or a rollover to the account of 

a new beneficiary) unless the new beneficiary is— 

(i) assigned to the same generation as (or a higher 

generation than) the old beneficiary (determined in accordance with section 2651), and 

(ii) a member of the family of the old beneficiary. 

(6) ADDITIONAL TAX.—The tax imposed by section 530(d)(4) 

shall apply to any payment or distribution from a qualified tuition program in the same manner as such tax applies to a payment or distribution from a Coverdell education savings account. This paragraph shall not apply to any payment or distribution in any taxable year beginning before January 1, 

2004, which is includible in gross income but used for qualified 

higher education expenses of the designated beneficiary. 

(7) TREATMENT OF ELEMENTARY AND SECONDARY TUITION.— Any reference in this subsection to the term ‘‘qualified higher 

education expense’’ shall øinclude a reference to expenses for 

tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.¿ include a reference to— 

(A) expenses described in section 530(b)(3)(A)(i) in connection with enrollment or attendance of a designated beneficiary at an elementary or secondary public, private, or religious school, and 

(B) expenses, with respect to a designated beneficiary, 

for— 

(i) curriculum and curricular materials, 

(ii) books or other instructional materials, 

(iii) online educational materials, 

(iv) tuition for tutoring or educational classes outside 

of the home (but only if the tutor or class instructor is 

not related (within the meaning of section 152(d)(2)) to 

the student), 

(v) dual enrollment in an institution of higher education, and 


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(vi) educational therapies for students with disabilities, 

in connection with a homeschool (whether treated as a 

homeschool or a private school for purposes of applicable 

State law). 

(8) TREATMENT OF CERTAIN EXPENSES ASSOCIATED WITH REGISTERED APPRENTICESHIP PROGRAMS.—Any reference in this 

subsection to the term ‘‘qualified higher education expense’’ 

shall include a reference to expenses for fees, books, supplies, 

and equipment required for the participation of a designated 

beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act (29 U.S.C. 50). 

(9) TREATMENT OF QUALIFIED EDUCATION LOAN REPAYMENTS.— 

(A) IN GENERAL.—Any reference in this subsection to the 

term ‘‘qualified higher education expense’’ shall include a 

reference to amounts paid as principal or interest on any 

qualified education loan (as defined in section 221(d)) of 

the designated beneficiary or a sibling of the designated 

beneficiary. 

(B) LIMITATION.—The amount of distributions treated as 

a qualified higher education expense under this paragraph 

with respect to the loans of any individual shall not exceed 

$10,000 (reduced by the amount of distributions so treated 

for all prior taxable years). 

(C) SPECIAL RULES FOR SIBLINGS OF THE DESIGNATED

BENEFICIARY.— 

(i) SEPARATE ACCOUNTING.—For purposes of subparagraph (B) and subsection (d), amounts treated as 

a qualified higher education expense with respect to the 

loans of a sibling of the designated beneficiary shall be 

taken into account with respect to such sibling and not 

with respect to such designated beneficiary. 

(ii) SIBLING DEFINED.—For purposes of this paragraph, the term ‘‘sibling’’ means an individual who 

bears a relationship to the designated beneficiary 

which is described in section 152(d)(2)(B). 

(d) REPORTS.—Each officer or employee having control of the 

qualified tuition program or their designee shall make such reports 

regarding such program to the Secretary and to designated beneficiaries with respect to contributions, distributions, and such other 

matters as the Secretary may require. The reports required by this 

subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as 

may be required by the Secretary. 

(e) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this 

section— 

(1) DESIGNATED BENEFICIARY.—The term ‘‘designated beneficiary’’ means— 

(A) the individual designated at the commencement of 

participation in the qualified tuition program as the beneficiary of amounts paid (or to be paid) to the program, 


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(B) in the case of a change in beneficiaries described in 

subsection (c)(3)(C), the individual who is the new beneficiary, and 

(C) in the case of an interest in a qualified tuition program purchased by a State or local government (or agency 

or instrumentality thereof) or an organization described in 

section 501(c)(3) and exempt from taxation under section 

501(a) as part of a scholarship program operated by such 

government or organization, the individual receiving such 

interest as a scholarship. 

(2) MEMBER OF FAMILY.—The term ‘‘member of the family’’ 

means, with respect to any designated beneficiary— 

(A) the spouse of such beneficiary; 

(B) an individual who bears a relationship to such beneficiary which is described in subparagraphs (A) through 

(G) of section 152(d)(2); 

(C) the spouse of any individual described in subparagraph (B); and 

(D) any first cousin of such beneficiary. 

(3) QUALIFIED HIGHER EDUCATION EXPENSES.— 

(A) IN GENERAL.—The term ‘‘qualified higher education 

expenses’’ means— 

(i) tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution, 

(ii) expenses for special needs services in the case of 

a special needs beneficiary which are incurred in connection with such enrollment or attendance, and 

(iii) expenses for the purchase of computer or peripheral equipment (as defined in section 168(i)(2)(B)), 

computer software (as defined in section 197(e)(3)(B)), 

or Internet access and related services, if such equipment, software, or services are to be used primarily by 

the beneficiary during any of the years the beneficiary 

is enrolled at an eligible educational institution. 

Clause (iii) shall not include expenses for computer software designed for sports, games, or hobbies unless the 

software is predominantly educational in nature. The 

amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to 

a beneficiary during any taxable year shall, in the aggregate, include not more than $10,000 in expenses described 

in subsection (c)(7) incurred during the taxable year. 

(B) ROOM AND BOARD INCLUDED FOR STUDENTS WHO ARE

AT LEAST HALF-TIME.— 

(i) IN GENERAL.—In the case of an individual who is 

an eligible student (as defined in section 25A(b)(3)) for 

any academic period, such term shall also include reasonable costs for such period (as determined under the 

qualified tuition program) incurred by the designated 

beneficiary for room and board while attending such 

institution. For purposes of subsection (b)(6), a designated beneficiary shall be treated as meeting the requirements of this clause. 


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(ii) LIMITATION.—The amount treated as qualified 

higher education expenses by reason of clause (i) shall 

not exceed— 

(I) the allowance (applicable to the student) for 

room and board included in the cost of attendance 

(as defined in section 472 of the Higher Education 

Act of 1965 (20 U.S.C. 1087ll), as in effect on the 

date of the enactment of the Economic Growth 

and Tax Relief Reconciliation Act of 2001) as determined by the eligible educational institution for 

such period, or 

(II) if greater, the actual invoice amount the 

student residing in housing owned or operated by 

the eligible educational institution is charged by 

such institution for room and board costs for such 

period. 

(4) APPLICATION OF SECTION 514.—An interest in a qualified 

tuition program shall not be treated as debt for purposes of 

section 514. 

(5) ELIGIBLE EDUCATIONAL INSTITUTION.—The term ‘‘eligible 

educational institution’’ means an institution— 

(A) which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in effect on the date 

of the enactment of this paragraph, and 

(B) which is eligible to participate in a program under 

title IV of such Act. 

(f) REGULATIONS.—Notwithstanding any other provision of this 

section, the Secretary shall prescribe such regulations as may be 

necessary or appropriate to carry out the purposes of this section 

and to prevent abuse of such purposes, including regulations under 

chapters 11, 12, and 13 of this title. 

* * * * * * * 

Subtitle F—Procedure and Administration 

* * * * * * * 

CHAPTER 61—INFORMATION AND RETURNS 

* * * * * * * 

Subchapter A—RETURNS AND RECORDS 

* * * * * * * 

PART II—TAX RETURNS OR STATEMENTS 

* * * * * * * 

Subpart A—GENERAL REQUIREMENT 

* * * * * * * 


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SEC. 6011. GENERAL REQUIREMENT OF RETURN, STATEMENT, OR 

LIST. 

(a) GENERAL RULE.—When required by regulations prescribed by 

the Secretary any person made liable for any tax imposed by this 

title, or with respect to the collection thereof, shall make a return 

or statement according to the forms and regulations prescribed by 

the Secretary. Every person required to make a return or statement shall include therein the information required by such forms 

or regulations. 

(b) IDENTIFICATION OF TAXPAYER.—The Secretary is authorized to 

require such information with respect to persons subject to the 

taxes imposed by chapter 21 or chapter 24 as is necessary or helpful in securing proper identification of such persons. 

(c) RETURNS, ETC., OF DISCS AND FORMER DISCS AND FORMER

FSC’S.— 

(1) RECORDS AND INFORMATION.—A DISC, former DISC, or 

former FSC (as defined in section 922 as in effect before its repeal by the FSC Repeal and Extraterritorial Income Exclusion 

Act of 2000) shall for the taxable year— 

(A) furnish such information to persons who were shareholders at any time during such taxable year, and to the 

Secretary, and 

(B) keep such records, as may be required by regulations 

prescribed by the Secretary. 

(2) RETURNS.—A DISC shall file for the taxable year such returns as may be prescribed by the Secretary by forms or regulations. 

(d) AUTHORITY TO REQUIRE INFORMATION CONCERNING SECTION

912 ALLOWANCES.—The Secretary may by regulations require any 

individual who receives allowances which are excluded from gross 

income under section 912 for any taxable year to include on his return of the taxes imposed by subtitle A for such taxable year such 

information with respect to the amount and type of such allowances as the Secretary determines to be appropriate. 

(e) REGULATIONS REQUIRING RETURNS ON MAGNETIC MEDIA, 

ETC..— 

(1) IN GENERAL.—The Secretary shall prescribe regulations 

providing standards for determining which returns must be 

filed on magnetic media or in other machine-readable form. Except as provided in paragraph (3), the Secretary may not require returns of any tax imposed by subtitle A on individuals, 

estates, and trusts to be other than on paper forms supplied 

by the Secretary. 

(2) REQUIREMENTS OF REGULATIONS.—In prescribing regulations under paragraph (1), the Secretary— 

(A) shall not require any person to file returns on magnetic media unless such person is required to file at least 

250 returns during the calendar year, and 

(B) shall take into account (among other relevant factors) the ability of the taxpayer to comply at reasonable 

cost with the requirements of such regulations. 

(3) SPECIAL RULE FOR TAX RETURN PREPARERS.— 

(A) IN GENERAL.—The Secretary shall require that any 

individual income tax return prepared by a tax return preparer be filed on magnetic media if— 


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(i) such return is filed by such tax return preparer, 

and 

(ii) such tax return preparer is a specified tax return 

preparer for the calendar year during which such return is filed. 

(B) SPECIFIED TAX RETURN PREPARER.—For purposes of 

this paragraph, the term ‘‘specified tax return preparer’’ 

means, with respect to any calendar year, any tax return 

preparer unless such preparer reasonably expects to file 10 

or fewer individual income tax returns during such calendar year. 

(C) INDIVIDUAL INCOME TAX RETURN.—For purposes of 

this paragraph, the term ‘‘individual income tax return’’ 

means any return of the tax imposed by subtitle A on individuals, estates, or trusts. 

(4) SPECIAL RULE FOR RETURNS FILED BY FINANCIAL INSTITUTIONS WITH RESPECT TO WITHHOLDING ON FOREIGN TRANSFERS.—The numerical limitation under paragraph (2)(A) shall 

not apply to any return filed by a financial institution (as defined in section 1471(d)(5)) with respect to tax for which such 

institution is made liable under section 1461 or 1474(a). 

(5) SPECIAL RULES FOR PARTNERSHIPS.— 

(A) PARTNERSHIPS PERMITTED TO BE REQUIRED TO FILE

ON MAGNETIC MEDIA.—In the case of a partnership, paragraph (2)(A) shall be applied by substituting for ‘‘250’’ the 

following amount: 

(i) In the case of returns and statements relating to 

calendar year 2018, ‘‘200’’. 

(ii) In the case of returns and statements relating to 

calendar year 2019, ‘‘150’’. 

(iii) In the case of returns and statements relating 

to calendar year 2020, ‘‘100’’. 

(iv) In the case of returns and statements relating to 

calendar year 2021, ‘‘50’’. 

(v) In the case of returns and statements relating to 

calendar years after 2021, ‘‘20’’. 

(B) PARTNERSHIPS REQUIRED TO FILE ON MAGNETIC

MEDIA.—Notwithstanding subparagraph (A) and paragraph 

(2)(A), the Secretary shall require partnerships having 

more than 100 partners to file returns on magnetic media. 

(6) APPLICATION OF NUMERICAL LIMITATION TO RETURNS RELATING TO DEFERRED COMPENSATION PLANS.—For purposes of 

applying the numerical limitation under paragraph (2)(A) to 

any return required under section 6058, information regarding 

each plan for which information is provided on such return 

shall be treated as a separate return. 

(f) PROMOTION OF ELECTRONIC FILING.— 

(1) IN GENERAL.—The Secretary is authorized to promote the 

benefits of and encourage the use of electronic tax administration programs, as they become available, through the use of 

mass communications and other means. 

(2) INCENTIVES.—The Secretary may implement procedures 

to provide for the payment of appropriate incentives for electronically filed returns. 


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(g) DISCLOSURE OF REPORTABLE TRANSACTION TO TAX-EXEMPT ENTITY.—Any taxable party to a prohibited tax shelter transaction (as 

defined in section 4965(e)(1)) shall by statement disclose to any 

tax-exempt entity (as defined in section 4965(c)) which is a party 

to such transaction that such transaction is such a prohibited tax 

shelter transaction. 

(h) INCOME, ESTATE, AND GIFT TAXES.—For requirement that returns of income, estate, and gift taxes be made whether or not 

there is tax liability, see subparts B and C. 

Subchapter B—MISCELLANEOUS PROVISIONS 

* * * * * * * 

SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN INFORMATION. 

(a) GENERAL RULE.—Returns and return information shall be 

confidential, and except as authorized by this title— 

(1) no officer or employee of the United States, 

(2) no officer or employee of any State, any local law enforcement agency receiving information under subsection (i)(1)(C) or 

(7)(A), any local child support enforcement agency, or any local 

agency administering a program listed in subsection (l)(7)(D) 

who has or had access to returns or return information under 

this section or section 6104(c), and 

(3) no other person (or officer or employee thereof) who has 

or had access to returns or return information under subsection (e)(1)(D)(iii), subsection (k)(10), paragraph (6), (10), 

(12), (16), (19), (20), or (21) of subsection (l), paragraph (2) or 

(4)(B) of subsection (m), or subsection (n), 

shall disclose any return or return information obtained by him in 

any manner in connection with his service as such an officer or an 

employee or otherwise or under the provisions of this section. For 

purposes of this subsection, the term ‘‘officer or employee’’ includes 

a former officer or employee. 

(b) DEFINITIONS.—For purposes of this section— 

(1) RETURN.—The term ‘‘return’’ means any tax or information return, declaration of estimated tax, or claim for refund 

required by, or provided for or permitted under, the provisions 

of this title which is filed with the Secretary by, on behalf of, 

or with respect to any person, and any amendment or supplement thereto, including supporting schedules, attachments, or 

lists which are supplemental to, or part of, the return so filed. 

(2) RETURN INFORMATION.—The term ‘‘return information’’ 

means— 

(A) a taxpayer’s identity, the nature, source, or amount 

of his income, payments, receipts, deductions, exemptions, 

credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, 

whether the taxpayer’s return was, is being, or will be examined or subject to other investigation or processing, or 

any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a 

return or with respect to the determination of the existence, or possible existence, of liability (or the amount 


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thereof) of any person under this title for any tax, penalty, 

interest, fine, forfeiture, or other imposition, or offense, 

(B) any part of any written determination or any background file document relating to such written determination (as such terms are defined in section 6110(b)) which 

is not open to public inspection under section 6110, 

(C) any advance pricing agreement entered into by a taxpayer and the Secretary and any background information 

related to such agreement or any application for an advance pricing agreement, and 

(D) any agreement under section 7121, and any similar 

agreement, and any background information related to 

such an agreement or request for such an agreement, 

but such term does not include data in a form which cannot 

be associated with, or otherwise identify, directly or indirectly, 

a particular taxpayer. Nothing in the preceding sentence, or in 

any other provision of law, shall be construed to require the 

disclosure of standards used or to be used for the selection of 

returns for examination, or data used or to be used for determining such standards, if the Secretary determines that such 

disclosure will seriously impair assessment, collection, or enforcement under the internal revenue laws. 

(3) TAXPAYER RETURN INFORMATION.—The term ‘‘taxpayer return information’’ means return information as defined in 

paragraph (2) which is filed with, or furnished to, the Secretary by or on behalf of the taxpayer to whom such return information relates. 

(4) TAX ADMINISTRATION.—The term ‘‘tax administration’’— 

(A) means— 

(i) the administration, management, conduct, direction, and supervision of the execution and application 

of the internal revenue laws or related statutes (or 

equivalent laws and statutes of a State) and tax conventions to which the United States is a party, and 

(ii) the development and formulation of Federal tax 

policy relating to existing or proposed internal revenue 

laws, related statutes, and tax conventions, and 

(B) includes assessment, collection, enforcement, litigation, publication, and statistical gathering functions under 

such laws, statutes, or conventions. 

(5) STATE.— 

(A) IN GENERAL.—The term ‘‘State’’ means— 

(i) any of the 50 States, the District of Columbia, the 

Commonwealth of Puerto Rico, the Virgin Islands, 

Guam, American Samoa, and the Commonwealth of 

the Northern Mariana Islands, 

(ii) for purposes of subsections (a)(2), (b)(4), (d)(1), 

(h)(4), and (p), any municipality— 

(I) with a population in excess of 250,000 (as determined under the most recent decennial United 

States census data available), 

(II) which imposes a tax on income or wages, 

and 


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(III) with which the Secretary (in his sole discretion) has entered into an agreement regarding 

disclosure, and 

(iii) for purposes of subsections (a)(2), (b)(4), (d)(1), 

(h)(4), and (p), any governmental entity— 

(I) which is formed and operated by a qualified 

group of municipalities, and 

(II) with which the Secretary (in his sole discretion) has entered into an agreement regarding disclosure. 

(B) REGIONAL INCOME TAX AGENCIES.—For purposes of 

subparagraph (A)(iii)— 

(i) QUALIFIED GROUP OF MUNICIPALITIES.—The term 

‘‘qualified group of municipalities’’ means, with respect 

to any governmental entity, 2 or more municipalities— 

(I) each of which imposes a tax on income or 

wages, 

(II) each of which, under the authority of a 

State statute, administers the laws relating to the 

imposition of such taxes through such entity, and 

(III) which collectively have a population in excess of 250,000 (as determined under the most recent decennial United States census data available). 

(ii) REFERENCES TO STATE LAW, ETC..—For purposes 

of applying subparagraph (A)(iii) to the subsections referred to in such subparagraph, any reference in such 

subsections to State law, proceedings, or tax returns 

shall be treated as references to the law, proceedings, 

or tax returns, as the case may be, of the municipalities which form and operate the governmental entity 

referred to in such subparagraph. 

(iii) DISCLOSURE TO CONTRACTORS AND OTHER

AGENTS.—Notwithstanding any other provision of this 

section, no return or return information shall be disclosed to any contractor or other agent of a governmental entity referred to in subparagraph (A)(iii) unless such entity, to the satisfaction of the Secretary— 

(I) has requirements in effect which require 

each such contractor or other agent which would 

have access to returns or return information to 

provide safeguards (within the meaning of subsection (p)(4)) to protect the confidentiality of such 

returns or return information, 

(II) agrees to conduct an on-site review every 3 

years (or a mid-point review in the case of contracts or agreements of less than 3 years in duration) of each contractor or other agent to determine compliance with such requirements, 

(III) submits the findings of the most recent review conducted under subclause (II) to the Secretary as part of the report required by subsection 

(p)(4)(E), and 


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(IV) certifies to the Secretary for the most recent annual period that such contractor or other 

agent is in compliance with all such requirements. 

The certification required by subclause (IV) shall include 

the name and address of each contractor and other agent, 

a description of the contract or agreement with such contractor or other agent, and the duration of such contract 

or agreement. The requirements of this clause shall not 

apply to disclosures pursuant to subsection (n) for purposes of Federal tax administration and a rule similar to 

the rule of subsection (p)(8)(B) shall apply for purposes of 

this clause. 

(6) TAXPAYER IDENTITY.—The term ‘‘taxpayer identity’’ 

means the name of a person with respect to whom a return is 

filed, his mailing address, his taxpayer identifying number (as 

described in section 6109), or a combination thereof. 

(7) INSPECTION.—The terms ‘‘inspected’’ and ‘‘inspection’’ 

mean any examination of a return or return information. 

(8) DISCLOSURE.—The term ‘‘disclosure’’ means the making 

known to any person in any manner whatever a return or return information. 

(9) FEDERAL AGENCY.—The term ‘‘Federal agency’’ means an 

agency within the meaning of section 551(1) of title 5, United 

States Code. 

(10) CHIEF EXECUTIVE OFFICER.—The term ‘‘chief executive 

officer’’ means, with respect to any municipality, any elected official and the chief official (even if not elected) of such municipality. 

(11) TERRORIST INCIDENT, THREAT, OR ACTIVITY.—The term 

‘‘terrorist incident, threat, or activity’’ means an incident, 

threat, or activity involving an act of domestic terrorism (as defined in section 2331(5) of title 18, United States Code) or 

international terrorism (as defined in section 2331(1) of such 

title). 

(c) DISCLOSURE OF RETURNS AND RETURN INFORMATION TO DES- IGNEE OF TAXPAYER.—The Secretary may, subject to such requirements and conditions as he may prescribe by regulations, disclose 

the return of any taxpayer, or return information with respect to 

such taxpayer, to such person or persons as the taxpayer may designate in a request for or consent to such disclosure, or to any other 

person at the taxpayer’s request to the extent necessary to comply 

with a request for information or assistance made by the taxpayer 

to such other person. However, return information shall not be disclosed to such person or persons if the Secretary determines that 

such disclosure would seriously impair Federal tax administration. 

(d) DISCLOSURE TO STATE TAX OFFICIALS AND STATE AND LOCAL

LAW ENFORCEMENT AGENCIES.— 

(1) IN GENERAL.—Returns and return information with respect to taxes imposed by chapters 1, 2, 6, 11, 12, 21, 23, 24, 

31, 32, 44, 51, and 52 and subchapter D of chapter 36 shall be 

open to inspection by, or disclosure to, any State agency, body, 

or commission, or its legal representative, which is charged 

under the laws of such State with responsibility for the administration of State tax laws for the purpose of, and only to the 

extent necessary in, the administration of such laws, including 


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any procedures with respect to locating any person who may 

be entitled to a refund. Such inspection shall be permitted, or 

such disclosure made, only upon written request by the head 

of such agency, body, or commission, and only to the representatives of such agency, body, or commission designated in such 

written request as the individuals who are to inspect or to receive the returns or return information on behalf of such agency, body, or commission. Such representatives shall not include 

any individual who is the chief executive officer of such State 

or who is neither an employee or legal representative of such 

agency, body, or commission nor a person described in subsection (n). However, such return information shall not be disclosed to the extent that the Secretary determines that such 

disclosure would identify a confidential informant or seriously 

impair any civil or criminal tax investigation. 

(2) DISCLOSURE TO STATE AUDIT AGENCIES.— 

(A) IN GENERAL.—Any returns or return information obtained under paragraph (1) by any State agency, body, or 

commission may be open to inspection by, or disclosure to, 

officers and employees of the State audit agency for the 

purpose of, and only to the extent necessary in, making an 

audit of the State agency, body, or commission referred to 

in paragraph (1). 

(B) STATE AUDIT AGENCY.—For purposes of subparagraph (A), the term ‘‘State audit agency’’ means any State 

agency, body, or commission which is charged under the 

laws of the State with the responsibility of auditing State 

revenues and programs. 

(3) EXCEPTION FOR REIMBURSEMENT UNDER SECTION 7624.— 

Nothing in this section shall be construed to prevent the Secretary from disclosing to any State or local law enforcement 

agency which may receive a payment under section 7624 the 

amount of the recovered taxes with respect to which such a 

payment may be made. 

(4) AVAILABILITY AND USE OF DEATH INFORMATION.— (A) IN GENERAL.—No returns or return information may 

be disclosed under paragraph (1) to any agency, body, or 

commission of any State (or any legal representative thereof) during any period during which a contract meeting the 

requirements of subparagraph (B) is not in effect between 

such State and the Secretary of Health and Human Services. 

(B) CONTRACTUAL REQUIREMENTS.—A contract meets the 

requirements of this subparagraph if— 

(i) such contract requires the State to furnish the 

Secretary of Health and Human Services information 

concerning individuals with respect to whom death 

certificates (or equivalent documents maintained by 

the State or any subdivision thereof) have been officially filed with it, and 

(ii) such contract does not include any restriction on 

the use of information obtained by such Secretary pursuant to such contract, except that such contract may 

provide that such information is only to be used by the 

Secretary (or any other Federal agency) for purposes 


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of ensuring that Federal benefits or other payments 

are not erroneously paid to deceased individuals. 

Any information obtained by the Secretary of Health and 

Human Services under such a contract shall be exempt 

from disclosure under section 552 of title 5, United States 

Code, and from the requirements of section 552a of such 

title 5. 

(C) SPECIAL EXCEPTION.—The provisions of subparagraph (A) shall not apply to any State which on July 1, 

1993, was not, pursuant to a contract, furnishing the Secretary of Health and Human Services information concerning individuals with respect to whom death certificates 

(or equivalent documents maintained by the State or any 

subdivision thereof) have been officially filed with it. 

(5) DISCLOSURE FOR COMBINED EMPLOYMENT TAX REPORTING.— 

(A) IN GENERAL.—The Secretary may disclose taxpayer 

identity information and signatures to any agency, body, 

or commission of any State for the purpose of carrying out 

with such agency, body, or commission a combined Federal 

and State employment tax reporting program approved by 

the Secretary. Subsections (a)(2) and (p)(4) and sections 

7213 and 7213A shall not apply with respect to disclosures 

or inspections made pursuant to this paragraph. 

(B) TERMINATION.—The Secretary may not make any 

disclosure under this paragraph after December 31, 2007. 

(6) LIMITATION ON DISCLOSURE REGARDING REGIONAL INCOME

TAX AGENCIES TREATED AS STATES.—For purposes of paragraph 

(1), inspection by or disclosure to an entity described in subsection (b)(5)(A)(iii) shall be for the purpose of, and only to the 

extent necessary in, the administration of the laws of the member municipalities in such entity relating to the imposition of 

a tax on income or wages. Such entity may not redisclose any 

return or return information received pursuant to paragraph 

(1) to any such member municipality. 

(e) DISCLOSURE TO PERSONS HAVING MATERIAL INTEREST.— 

(1) IN GENERAL.—The return of a person shall, upon written 

request, be open to inspection by or disclosure to— 

(A) in the case of the return of an individual— 

(i) that individual, 

(ii) the spouse of that individual if the individual 

and such spouse have signified their consent to consider a gift reported on such return as made one-half 

by him and one-half by the spouse pursuant to the 

provisions of section 2513; or 

(iii) the child of that individual (or such child’s legal 

representative) to the extent necessary to comply with 

the provisions of section 1(g); 

(B) in the case of an income tax return filed jointly, either of the individuals with respect to whom the return is 

filed; 

(C) in the case of the return of a partnership, any person 

who was a member of such partnership during any part of 

the period covered by the return; 


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(D) in the case of the return of a corporation or a subsidiary thereof— 

(i) any person designated by resolution of its board 

of directors or other similar governing body, 

(ii) any officer or employee of such corporation upon 

written request signed by any principal officer and attested to by the secretary or other officer, 

(iii) any bona fide shareholder of record owning 1 

percent or more of the outstanding stock of such corporation, 

(iv) if the corporation was an S corporation, any person who was a shareholder during any part of the period covered by such return during which an election 

under section 1362(a) was in effect, or 

(v) if the corporation has been dissolved, any person 

authorized by applicable State law to act for the corporation or any person who the Secretary finds to 

have a material interest which will be affected by information contained therein; 

(E) in the case of the return of an estate— 

(i) the administrator, executor, or trustee of such estate, and 

(ii) any heir at law, next of kin, or beneficiary under 

the will, of the decedent, but only if the Secretary 

finds that such heir at law, next of kin, or beneficiary 

has a material interest which will be affected by information contained therein; and 

(F) in the case of the return of a trust— 

(i) the trustee or trustees, jointly or separately, and 

(ii) any beneficiary of such trust, but only if the Secretary finds that such beneficiary has a material interest which will be affected by information contained 

therein. 

(2) INCOMPETENCY.—If an individual described in paragraph 

(1) is legally incompetent, the applicable return shall, upon 

written request, be open to inspection by or disclosure to the 

committee, trustee, or guardian of his estate. 

(3) DECEASED INDIVIDUALS.—The return of a decedent shall, 

upon written request, be open to inspection by or disclosure 

to— 

(A) the administrator, executor, or trustee of his estate, 

and 

(B) any heir at law, next of kin, or beneficiary under the 

will, of such decedent, or a donee of property, but only if 

the Secretary finds that such heir at law, next of kin, beneficiary, or donee has a material interest which will be affected by information contained therein. 

(4) TITLE 11 CASES AND RECEIVERSHIP PROCEEDINGS.—If— 

(A) there is a trustee in a title 11 case in which the debtor is the person with respect to whom the return is filed, 

or 

(B) substantially all of the property of the person with 

respect to whom the return is filed is in the hands of a receiver, 


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such return or returns for prior years of such person shall, 

upon written request, be open to inspection by or disclosure to 

such trustee or receiver, but only if the Secretary finds that 

such trustee or receiver, in his fiduciary capacity, has a material interest which will be affected by information contained 

therein. 

(5) INDIVIDUAL’S TITLE 11 CASE.— (A) IN GENERAL.—In any case to which section 1398 applies (determined without regard to section 1398(b)(1)), 

any return of the debtor for the taxable year in which the 

case commenced or any preceding taxable year shall, upon 

written request, be open to inspection by or disclosure to 

the trustee in such case. 

(B) RETURN OF ESTATE AVAILABLE TO DEBTOR.—Any return of an estate in a case to which section 1398 applies 

shall, upon written request, be open to inspection by or 

disclosure to the debtor in such case. 

(C) SPECIAL RULE FOR INVOLUNTARY CASES.—In an involuntary case, no disclosure shall be made under subparagraph (A) until the order for relief has been entered by the 

court having jurisdiction of such case unless such court 

finds that such disclosure is appropriate for purposes of 

determining whether an order for relief should be entered. 

(6) ATTORNEY IN FACT.—Any return to which this subsection 

applies shall, upon written request, also be open to inspection 

by or disclosure to the attorney in fact duly authorized in writing by any of the persons described in paragraph (1), (2), (3), 

(4), (5), (8), or (9) to inspect the return or receive the information on his behalf, subject to the conditions provided in such 

paragraphs. 

(7) RETURN INFORMATION.—Return information with respect 

to any taxpayer may be open to inspection by or disclosure to 

any person authorized by this subsection to inspect any return 

of such taxpayer if the Secretary determines that such disclosure would not seriously impair Federal tax administration. 

(8) DISCLOSURE OF COLLECTION ACTIVITIES WITH RESPECT TO

JOINT RETURN.—If any deficiency of tax with respect to a joint 

return is assessed and the individuals filing such return are no 

longer married or no longer reside in the same household, upon 

request in writing by either of such individuals, the Secretary 

shall disclose in writing to the individual making the request 

whether the Secretary has attempted to collect such deficiency 

from such other individual, the general nature of such collection activities, and the amount collected. The preceding sentence shall not apply to any deficiency which may not be collected by reason of section 6502. 

(9) DISCLOSURE OF CERTAIN INFORMATION WHERE MORE THAN

1 PERSON SUBJECT TO PENALTY UNDER SECTION 6672.—If the 

Secretary determines that a person is liable for a penalty 

under section 6672(a) with respect to any failure, upon request 

in writing of such person, the Secretary shall disclose in writing to such person— 

(A) the name of any other person whom the Secretary 

has determined to be liable for such penalty with respect 

to such failure, and 


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(B) whether the Secretary has attempted to collect such 

penalty from such other person, the general nature of such 

collection activities, and the amount collected. 

(10) LIMITATION ON CERTAIN DISCLOSURES UNDER THIS SUB- SECTION.—In the case of an inspection or disclosure under this 

subsection relating to the return of a partnership, S corporation, trust, or an estate, the information inspected or disclosed 

shall not include any supporting schedule, attachment, or list 

which includes the taxpayer identity information of a person 

other than the entity making the return or the person conducting the inspection or to whom the disclosure is made. 

(11) DISCLOSURE OF INFORMATION REGARDING STATUS OF INVESTIGATION OF VIOLATION OF THIS SECTION.—In the case of a 

person who provides to the Secretary information indicating a 

violation of section 7213, 7213A, or 7214 with respect to any 

return or return information of such person, the Secretary may 

disclose to such person (or such person’s designee)— 

(A) whether an investigation based on the person’s provision of such information has been initiated and whether it 

is open or closed, 

(B) whether any such investigation substantiated such a 

violation by any individual, and 

(C) whether any action has been taken with respect to 

such individual (including whether a referral has been 

made for prosecution of such individual). 

(f) DISCLOSURE TO COMMITTEES OF CONGRESS.— (1) COMMITTEE ON WAYS AND MEANS, COMMITTEE ON FI- NANCE, AND JOINT COMMITTEE ON TAXATION.—Upon written 

request from the chairman of the Committee on Ways and 

Means of the House of Representatives, the chairman of the 

Committee on Finance of the Senate, or the chairman of the 

Joint Committee on Taxation, the Secretary shall furnish such 

committee with any return or return information specified in 

such request, except that any return or return information 

which can be associated with, or otherwise identify, directly or 

indirectly, a particular taxpayer shall be furnished to such 

committee only when sitting in closed executive session unless 

such taxpayer otherwise consents in writing to such disclosure. 

(2) CHIEF OF STAFF OF JOINT COMMITTEE ON TAXATION.— Upon written request by the Chief of Staff of the Joint Committee on Taxation, the Secretary shall furnish him with any 

return or return information specified in such request. Such 

Chief of Staff may submit such return or return information to 

any committee described in paragraph (1), except that any return or return information which can be associated with, or 

otherwise identify, directly or indirectly, a particular taxpayer 

shall be furnished to such committee only when sitting in 

closed executive session unless such taxpayer otherwise consents in writing to such disclosure. 

(3) OTHER COMMITTEES.—Pursuant to an action by, and upon 

written request by the chairman of, a committee of the Senate 

or the House of Representatives (other than a committee specified in paragraph (1)) specially authorized to inspect any return or return information by a resolution of the Senate or the 

House of Representatives or, in the case of a joint committee 


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(other than the joint committee specified in paragraph (1)) by 

concurrent resolution, the Secretary shall furnish such committee, or a duly authorized and designated subcommittee 

thereof, sitting in closed executive session, with any return or 

return information which such resolution authorizes the committee or subcommittee to inspect. Any resolution described in 

this paragraph shall specify the purpose for which the return 

or return information is to be furnished and that such information cannot reasonably be obtained from any other source. 

(4) AGENTS OF COMMITTEES AND SUBMISSION OF INFORMATION

TO SENATE OR HOUSE OF REPRESENTATIVES.— (A) COMMITTEES DESCRIBED IN PARAGRAPH (1).—Any committee described in paragraph (1) or the Chief of Staff of 

the Joint Committee on Taxation shall have the authority, 

acting directly, or by or through such examiners or agents 

as the chairman of such committee or such chief of staff 

may designate or appoint, to inspect returns and return information at such time and in such manner as may be determined by such chairman or chief of staff. Any return or 

return information obtained by or on behalf of such committee pursuant to the provisions of this subsection may 

be submitted by the committee to the Senate or the House 

of Representatives, or to both. The Joint Committee on 

Taxation may also submit such return or return information to any other committee described in paragraph (1), except that any return or return information which can be 

associated with, or otherwise identify, directly or indirectly, a particular taxpayer shall be furnished to such 

committee only when sitting in closed executive session 

unless such taxpayer otherwise consents in writing to such 

disclosure. 

(B) OTHER COMMITTEES.—Any committee or subcommittee described in paragraph (3) shall have the right, 

acting directly, or by or through no more than four examiners or agents, designated or appointed in writing in 

equal numbers by the chairman and ranking minority 

member of such committee or subcommittee, to inspect returns and return information at such time and in such 

manner as may be determined by such chairman and 

ranking minority member. Any return or return information obtained by or on behalf of such committee or subcommittee pursuant to the provisions of this subsection 

may be submitted by the committee to the Senate or the 

House of Representatives, or to both, except that any return or return information which can be associated with, 

or otherwise identify, directly or indirectly, a particular 

taxpayer, shall be furnished to the Senate or the House of 

Representatives only when sitting in closed executive session unless such taxpayer otherwise consents in writing to 

such disclosure. 

(5) DISCLOSURE BY WHISTLEBLOWER.—Any person who otherwise has or had access to any return or return information 

under this section may disclose such return or return information to a committee referred to in paragraph (1) or any individual authorized to receive or inspect information under paraVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00348 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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graph (4)(A) if such person believes such return or return information may relate to possible misconduct, maladministration, 

or taxpayer abuse. 

(g) DISCLOSURE TO PRESIDENT AND CERTAIN OTHER PERSONS.— 

(1) IN GENERAL.—Upon written request by the President, 

signed by him personally, the Secretary shall furnish to the 

President, or to such employee or employees of the White 

House Office as the President may designate by name in such 

request, a return or return information with respect to any 

taxpayer named in such request. Any such request shall 

state— 

(A) the name and address of the taxpayer whose return 

or return information is to be disclosed, 

(B) the kind of return or return information which is to 

be disclosed, 

(C) the taxable period or periods covered by such return 

or return information, and 

(D) the specific reason why the inspection or disclosure 

is requested. 

(2) DISCLOSURE OF RETURN INFORMATION AS TO PRESIDENTIAL APPOINTEES AND CERTAIN OTHER FEDERAL GOVERNMENT APPOINTEES.—The Secretary may disclose to a duly authorized representative of the Executive Office of the President 

or to the head of any Federal agency, upon written request by 

the President or head of such agency, or to the Federal Bureau 

of Investigation on behalf of and upon written request by the 

President or such head, return information with respect to an 

individual who is designated as being under consideration for 

appointment to a position in the executive or judicial branch 

of the Federal Government. Such return information shall be 

limited to whether such individual— 

(A) has filed returns with respect to the taxes imposed 

under chapter 1 for not more than the immediately preceding 3 years; 

(B) has failed to pay any tax within 10 days after notice 

and demand, or has been assessed any penalty under this 

title for negligence, in the current year or immediately preceding 3 years; 

(C) has been or is under investigation for possible criminal offenses under the internal revenue laws and the results of any such investigation; or 

(D) has been assessed any civil penalty under this title 

for fraud. 

Within 3 days of the receipt of any request for any return information with respect to any individual under this paragraph, 

the Secretary shall notify such individual in writing that such 

information has been requested under the provisions of this 

paragraph. 

(3) RESTRICTION ON DISCLOSURE.—The employees to whom 

returns and return information are disclosed under this subsection shall not disclose such returns and return information 

to any other person except the President or the head of such 

agency without the personal written direction of the President 

or the head of such agency. 


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(4) RESTRICTION ON DISCLOSURE TO CERTAIN EMPLOYEES.— 

Disclosure of returns and return information under this subsection shall not be made to any employee whose annual rate 

of basic pay is less than the annual rate of basic pay specified 

for positions subject to section 5316 of title 5, United States 

Code. 

(5) REPORTING REQUIREMENTS.—Within 30 days after the 

close of each calendar quarter, the President and the head of 

any agency requesting returns and return information under 

this subsection shall each file a report with the Joint Committee on Taxation setting forth the taxpayers with respect to 

whom such requests were made during such quarter under this 

subsection, the returns or return information involved, and the 

reasons for such requests. The President shall not be required 

to report on any request for returns and return information 

pertaining to an individual who was an officer or employee of 

the executive branch of the Federal Government at the time 

such request was made. Reports filed pursuant to this paragraph shall not be disclosed unless the Joint Committee on 

Taxation determines that disclosure thereof (including identifying details) would be in the national interest. Such reports 

shall be maintained by the Joint Committee on Taxation for a 

period not exceeding 2 years unless, within such period, the 

Joint Committee on Taxation determines that a disclosure to 

the Congress is necessary. 

(h) DISCLOSURE TO CERTAIN FEDERAL OFFICERS AND EMPLOYEES

FOR PURPOSES OF TAX ADMINISTRATION, ETC..— 

(1) DEPARTMENT OF THE TREASURY.—Returns and return information shall, without written request, be open to inspection 

by or disclosure to officers and employees of the Department 

of the Treasury whose official duties require such inspection or 

disclosure for tax administration purposes. 

(2) DEPARTMENT OF JUSTICE.—In a matter involving tax administration, a return or return information shall be open to 

inspection by or disclosure to officers and employees of the Department of Justice (including United States attorneys) personally and directly engaged in, and solely for their use in, any 

proceeding before a Federal grand jury or preparation for any 

proceeding (or investigation which may result in such a proceeding) before a Federal grand jury or any Federal or State 

court, but only if— 

(A) the taxpayer is or may be a party to the proceeding, 

or the proceeding arose out of, or in connection with, determining the taxpayer’s civil or criminal liability, or the collection of such civil liability in respect of any tax imposed 

under this title; 

(B) the treatment of an item reflected on such return is 

or may be related to the resolution of an issue in the proceeding or investigation; or 

(C) such return or return information relates or may relate to a transactional relationship between a person who 

is or may be a party to the proceeding and the taxpayer 

which affects, or may affect, the resolution of an issue in 

such proceeding or investigation. 


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(3) FORM OF REQUEST.—In any case in which the Secretary 

is authorized to disclose a return or return information to the 

Department of Justice pursuant to the provisions of this subsection— 

(A) if the Secretary has referred the case to the Department of Justice, or if the proceeding is authorized by subchapter B of chapter 76, the Secretary may make such disclosure on his own motion, or 

(B) if the Secretary receives a written request from the 

Attorney General, the Deputy Attorney General, or an Assistant Attorney General for a return of, or return information relating to, a person named in such request and 

setting forth the need for the disclosure, the Secretary 

shall disclose return or return the information so requested. 

(4) DISCLOSURE IN JUDICIAL AND ADMINISTRATIVE TAX PROCEEDINGS.—A return or return information may be disclosed in 

a Federal or State judicial or administrative proceeding pertaining to tax administration, but only— 

(A) if the taxpayer is a party to the proceeding, or the 

proceeding arose out of, or in connection with, determining 

the taxpayer’s civil or criminal liability, or the collection of 

such civil liability, in respect of any tax imposed under 

this title; 

(B) if the treatment of an item reflected on such return 

is directly related to the resolution of an issue in the proceeding; 

(C) if such return or return information directly relates 

to a transactional relationship between a person who is a 

party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding; or 

(D) to the extent required by order of a court pursuant 

to section 3500 of title 18, United States Code, or rule 16 

of the Federal Rules of Criminal Procedure, such court 

being authorized in the issuance of such order to give due 

consideration to congressional policy favoring the confidentiality of returns and return information as set forth in 

this title. 

However, such return or return information shall not be disclosed as provided in subparagraph (A), (B), or (C) if the Secretary determines that such disclosure would identify a confidential informant or seriously impair a civil or criminal tax 

investigation. 

(5) WITHHOLDING OF TAX FROM SOCIAL SECURITY BENEFITS.— 

Upon written request of the payor agency, the Secretary may 

disclose available return information from the master files of 

the Internal Revenue Service with respect to the address and 

status of an individual as a nonresident alien or as a citizen 

or resident of the United States to the Social Security Administration or the Railroad Retirement Board (whichever is appropriate) for purposes of carrying out its responsibilities for withholding tax under section 1441 from social security benefits (as 

defined in section 86(d)). 

(6) INTERNAL REVENUE SERVICE OVERSIGHT BOARD.— 


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(A) IN GENERAL.—Notwithstanding paragraph (1), and 

except as provided in subparagraph (B), no return or return information may be disclosed to any member of the 

Oversight Board described in subparagraph (A) or (D) of 

section 7802(b)(1) or to any employee or detailee of such 

Board by reason of their service with the Board. Any request for information not permitted to be disclosed under 

the preceding sentence, and any contact relating to a specific taxpayer, made by any such individual to an officer or 

employee of the Internal Revenue Service shall be reported 

by such officer or employee to the Secretary, the Treasury 

Inspector General for Tax Administration, and the Joint 

Committee on Taxation. 

(B) EXCEPTION FOR REPORTS TO THE BOARD.—If— 

(i) the Commissioner or the Treasury Inspector General for Tax Administration prepares any report or 

other matter for the Oversight Board in order to assist 

the Board in carrying out its duties; and 

(ii) the Commissioner or such Inspector General determines it is necessary to include any return or return information in such report or other matter to enable the Board to carry out such duties, 

such return or return information (other than information 

regarding taxpayer identity) may be disclosed to members, 

employees, or detailees of the Board solely for the purpose 

of carrying out such duties. 

(i) DISCLOSURE TO FEDERAL OFFICERS OR EMPLOYEES FOR ADMINISTRATION OF FEDERAL LAWS NOT RELATING TO TAX ADMINISTRATION.— 

(1) DISCLOSURE OF RETURNS AND RETURN INFORMATION FOR

USE IN CRIMINAL INVESTIGATIONS.— 

(A) IN GENERAL.—Except as provided in paragraph (6), 

any return or return information with respect to any specified taxable period or periods shall, pursuant to and upon 

the grant of an ex parte order by a Federal district court 

judge or magistrate judge under subparagraph (B), be open 

(but only to the extent necessary as provided in such 

order) to inspection by, or disclosure to, officers and employees of any Federal agency who are personally and directly engaged in— 

(i) preparation for any judicial or administrative 

proceeding pertaining to the enforcement of a specifically designated Federal criminal statute (not involving tax administration) to which the United States or 

such agency is or may be a party, or pertaining to the 

case of a missing or exploited child, 

(ii) any investigation which may result in such a 

proceeding, or 

(iii) any Federal grand jury proceeding pertaining to 

enforcement of such a criminal statute to which the 

United States or such agency is or may be a party, or 

to such a case of a missing or exploited child, 

solely for the use of such officers and employees in such 

preparation, investigation, or grand jury proceeding. 


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(B) APPLICATION FOR ORDER.—The Attorney General, the 

Deputy Attorney General, the Associate Attorney General, 

any Assistant Attorney General, any United States attorney, any special prosecutor appointed under section 593 of 

title 28, United States Code, or any attorney in charge of 

a criminal division organized crime strike force established 

pursuant to section 510 of title 28, United States Code, 

may authorize an application to a Federal district court 

judge or magistrate judge for the order referred to in subparagraph (A). Upon such application, such judge or magistrate judge may grant such order if he determines on the 

basis of the facts submitted by the applicant that— 

(i) there is reasonable cause to believe, based upon 

information believed to be reliable, that a specific 

criminal act has been committed, 

(ii) there is reasonable cause to believe that the return or return information is or may be relevant to a 

matter relating to the commission of such act, and 

(iii) the return or return information is sought exclusively for use in a Federal criminal investigation or 

proceeding concerning such act (or any criminal investigation or proceeding, in the case of a matter relating 

to a missing or exploited child), and the information 

sought to be disclosed cannot reasonably be obtained, 

under the circumstances, from another source. 

(C) DISCLOSURE TO STATE AND LOCAL LAW ENFORCEMENT

AGENCIES IN THE CASE OF MATTERS PERTAINING TO A MISSING OR EXPLOITED CHILD.— 

(i) IN GENERAL.—In the case of an investigation pertaining to a missing or exploited child, the head of any 

Federal agency, or his designee, may disclose any return or return information obtained under subparagraph (A) to officers and employees of any State or 

local law enforcement agency, but only if— 

(I) such State or local law enforcement agency is 

part of a team with the Federal agency in such investigation, and 

(II) such information is disclosed only to such officers and employees who are personally and directly engaged in such investigation. 

(ii) LIMITATION ON USE OF INFORMATION.—Information disclosed under this subparagraph shall be solely 

for the use of such officers and employees in locating 

the missing child, in a grand jury proceeding, or in 

any preparation for, or investigation which may result 

in, a judicial or administrative proceeding. 

(iii) MISSING CHILD.—For purposes of this subparagraph, the term ‘‘missing child’’ shall have the meaning given such term by section 403 of the Missing 

Children’s Assistance Act (42 U.S.C. 5772). 

(iv) EXPLOITED CHILD.—For purposes of this subparagraph, the term ‘‘exploited child’’ means a minor 

with respect to whom there is reason to believe that 

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tion 111(7) of the Sex Offender Registration and Notification Act (42 U.S.C. 16911(7))) 1 has or is occurring. 

(2) DISCLOSURE OF RETURN INFORMATION OTHER THAN TAX- PAYER RETURN INFORMATION FOR USE IN CRIMINAL INVESTIGA- TIONS.— 

(A) IN GENERAL.—Except as provided in paragraph (6), 

upon receipt by the Secretary of a request which meets the 

requirements of subparagraph (B) from the head of any 

Federal agency or the Inspector General thereof, or, in the 

case of the Department of Justice, the Attorney General, 

the Deputy Attorney General, the Associate Attorney General, any Assistant Attorney General, the Director of the 

Federal Bureau of Investigation, the Administrator of the 

Drug Enforcement Administration, any United States attorney, any special prosecutor appointed under section 593 

of title 28, United States Code, or any attorney in charge 

of a criminal division organized crime strike force established pursuant to section 510 of title 28, United States 

Code, the Secretary shall disclose return information 

(other than taxpayer return information) to officers and 

employees of such agency who are personally and directly 

engaged in— 

(i) preparation for any judicial or administrative 

proceeding described in paragraph (1)(A)(i), 

(ii) any investigation which may result in such a 

proceeding, or 

(iii) any grand jury proceeding described in paragraph (1)(A)(iii), 

solely for the use of such officers and employees in such 

preparation, investigation, or grand jury proceeding. 

(B) REQUIREMENTS.—A request meets the requirements 

of this subparagraph if the request is in writing and sets 

forth— 

(i) the name and address of the taxpayer with respect to whom the requested return information relates; 

(ii) the taxable period or periods to which such return information relates; 

(iii) the statutory authority under which the proceeding or investigation described in subparagraph (A) 

is being conducted; and 

(iv) the specific reason or reasons why such disclosure is, or may be, relevant to such proceeding or investigation. 

(C) TAXPAYER IDENTITY.—For purposes of this paragraph, a taxpayer’s identity shall not be treated as taxpayer return information. 

(3) DISCLOSURE OF RETURN INFORMATION TO APPRISE APPROPRIATE OFFICIALS OF CRIMINAL OR TERRORIST ACTIVITIES OR

EMERGENCY CIRCUMSTANCES.— (A) POSSIBLE VIOLATIONS OF FEDERAL CRIMINAL LAW.— (i) IN GENERAL.—Except as provided in paragraph 

(6), the Secretary may disclose in writing return information (other than taxpayer return information) 

which may constitute evidence of a violation of any 


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Federal criminal law (not involving tax administration) to the extent necessary to apprise the head of the 

appropriate Federal agency charged with the responsibility of enforcing such law. The head of such agency 

may disclose such return information to officers and 

employees of such agency to the extent necessary to 

enforce such law. 

(ii) TAXPAYER IDENTITY.—If there is return information (other than taxpayer return information) which 

may constitute evidence of a violation by any taxpayer 

of any Federal criminal law (not involving tax administration), such taxpayer’s identity may also be disclosed under clause (i). 

(B) EMERGENCY CIRCUMSTANCES.— 

(i) DANGER OF DEATH OR PHYSICAL INJURY.—Under 

circumstances involving an imminent danger of death 

or physical injury to any individual, the Secretary may 

disclose return information to the extent necessary to 

apprise appropriate officers or employees of any Federal or State law enforcement agency of such circumstances. 

(ii) FLIGHT FROM FEDERAL PROSECUTION.—Under 

circumstances involving the imminent flight of any individual from Federal prosecution, the Secretary may 

disclose return information to the extent necessary to 

apprise appropriate officers or employees of any Federal law enforcement agency of such circumstances. 

(C) TERRORIST ACTIVITIES, ETC..— (i) IN GENERAL.—Except as provided in paragraph 

(6), the Secretary may disclose in writing return information (other than taxpayer return information) that 

may be related to a terrorist incident, threat, or activity to the extent necessary to apprise the head of the 

appropriate Federal law enforcement agency responsible for investigating or responding to such terrorist 

incident, threat, or activity. The head of the agency 

may disclose such return information to officers and 

employees of such agency to the extent necessary to 

investigate or respond to such terrorist incident, 

threat, or activity. 

(ii) DISCLOSURE TO THE DEPARTMENT OF JUSTICE.— 

Returns and taxpayer return information may also be 

disclosed to the Attorney General under clause (i) to 

the extent necessary for, and solely for use in preparing, an application under paragraph (7)(D). 

(iii) TAXPAYER IDENTITY.—For purposes of this subparagraph, a taxpayer’s identity shall not be treated 

as taxpayer return information. 

(4) USE OF CERTAIN DISCLOSED RETURNS AND RETURN INFOR- MATION IN JUDICIAL OR ADMINISTRATIVE PROCEEDINGS.— (A) RETURNS AND TAXPAYER RETURN INFORMATION.—Except as provided in subparagraph (C), any return or taxpayer return information obtained under paragraph (1) or 

(7)(C) may be disclosed in any judicial or administrative 

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ignated Federal criminal statute or related civil forfeiture 

(not involving tax administration) to which the United 

States or a Federal agency is a party— 

(i) if the court finds that such return or taxpayer return information is probative of a matter in issue relevant in establishing the commission of a crime or the 

guilt or liability of a party, or 

(ii) to the extent required by order of the court pursuant to section 3500 of title 18, United States Code, 

or rule 16 of the Federal Rules of Criminal Procedure. 

(B) RETURN INFORMATION (OTHER THAN TAXPAYER RETURN INFORMATION).—Except as provided in subparagraph 

(C), any return information (other than taxpayer return information) obtained under paragraph (1), (2), (3)(A) or (C), 

or (7) may be disclosed in any judicial or administrative 

proceeding pertaining to enforcement of a specifically designated Federal criminal statute or related civil forfeiture 

(not involving tax administration) to which the United 

States or a Federal agency is a party. 

(C) CONFIDENTIAL INFORMANT; IMPAIRMENT OF INVESTIGATIONS.—No return or return information shall be admitted into evidence under subparagraph (A)(i) or (B) if 

the Secretary determines and notifies the Attorney General or his delegate or the head of the Federal agency that 

such admission would identify a confidential informant or 

seriously impair a civil or criminal tax investigation. 

(D) CONSIDERATION OF CONFIDENTIALITY POLICY.—In ruling upon the admissibility of returns or return information, and in the issuance of an order under subparagraph 

(A)(ii), the court shall give due consideration to congressional policy favoring the confidentiality of returns and return information as set forth in this title. 

(E) REVERSIBLE ERROR.—The admission into evidence of 

any return or return information contrary to the provisions 

of this paragraph shall not, as such, constitute reversible 

error upon appeal of a judgment in the proceeding. 

(5) DISCLOSURE TO LOCATE FUGITIVES FROM JUSTICE.— 

(A) IN GENERAL.—Except as provided in paragraph (6), 

the return of an individual or return information with respect to such individual shall, pursuant to and upon the 

grant of an ex parte order by a Federal district court judge 

or magistrate judge under subparagraph (B), be open (but 

only to the extent necessary as provided in such order) to 

inspection by, or disclosure to, officers and employees of 

any Federal agency exclusively for use in locating such individual. 

(B) APPLICATION FOR ORDER.—Any person described in 

paragraph (1)(B) may authorize an application to a Federal district court judge or magistrate judge for an order 

referred to in subparagraph (A). Upon such application, 

such judge or magistrate judge may grant such order if he 

determines on the basis of the facts submitted by the applicant that— 


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(i) a Federal arrest warrant relating to the commission of a Federal felony offense has been issued for an 

individual who is a fugitive from justice, 

(ii) the return of such individual or return information with respect to such individual is sought exclusively for use in locating such individual, and 

(iii) there is reasonable cause to believe that such 

return or return information may be relevant in determining the location of such individual. 

(6) CONFIDENTIAL INFORMANTS; IMPAIRMENT OF INVESTIGA- TIONS.—The Secretary shall not disclose any return or return 

information under paragraph (1), (2), (3)(A) or (C), (5), (7), or 

(8) if the Secretary determines (and, in the case of a request 

for disclosure pursuant to a court order described in paragraph 

(1)(B) or (5)(B), certifies to the court) that such disclosure 

would identify a confidential informant or seriously impair a 

civil or criminal tax investigation. 

(7) DISCLOSURE UPON REQUEST OF INFORMATION RELATING TO

TERRORIST ACTIVITIES, ETC..— 

(A) DISCLOSURE TO LAW ENFORCEMENT AGENCIES.— 

(i) IN GENERAL.—Except as provided in paragraph 

(6), upon receipt by the Secretary of a written request 

which meets the requirements of clause (iii), the Secretary may disclose return information (other than 

taxpayer return information) to officers and employees 

of any Federal law enforcement agency who are personally and directly engaged in the response to or investigation of any terrorist incident, threat, or activity. 

(ii) DISCLOSURE TO STATE AND LOCAL LAW ENFORCEMENT AGENCIES.—The head of any Federal law enforcement agency may disclose return information obtained under clause (i) to officers and employees of any 

State or local law enforcement agency but only if such 

agency is part of a team with the Federal law enforcement agency in such response or investigation and 

such information is disclosed only to officers and employees who are personally and directly engaged in 

such response or investigation. 

(iii) REQUIREMENTS.—A request meets the requirements of this clause if— 

(I) the request is made by the head of any Federal law enforcement agency (or his delegate) involved in the response to or investigation of any 

terrorist incident, threat, or activity, and 

(II) the request sets forth the specific reason or 

reasons why such disclosure may be relevant to a 

terrorist incident, threat, or activity. 

(iv) LIMITATION ON USE OF INFORMATION.—Information disclosed under this subparagraph shall be solely 

for the use of the officers and employees to whom such 

information is disclosed in such response or investigation. 

(v) TAXPAYER IDENTITY.—For purposes of this subparagraph, a taxpayer’s identity shall not be treated 

as taxpayer return information. 


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(B) DISCLOSURE TO INTELLIGENCE AGENCIES.— (i) IN GENERAL.—Except as provided in paragraph 

(6), upon receipt by the Secretary of a written request 

which meets the requirements of clause (ii), the Secretary may disclose return information (other than 

taxpayer return information) to those officers and employees of the Department of Justice, the Department 

of the Treasury, and other Federal intelligence agencies who are personally and directly engaged in the 

collection or analysis of intelligence and counterintelligence information or investigation concerning any 

terrorist incident, threat, or activity. For purposes of 

the preceding sentence, the information disclosed 

under the preceding sentence shall be solely for the 

use of such officers and employees in such investigation, collection, or analysis. 

(ii) REQUIREMENTS.—A request meets the requirements of this subparagraph if the request— 

(I) is made by an individual described in clause 

(iii), and 

(II) sets forth the specific reason or reasons why 

such disclosure may be relevant to a terrorist incident, threat, or activity. 

(iii) REQUESTING INDIVIDUALS.—An individual described in this subparagraph is an individual— 

(I) who is an officer or employee of the Department of Justice or the Department of the Treasury 

who is appointed by the President with the advice 

and consent of the Senate or who is the Director 

of the United States Secret Service, and 

(II) who is responsible for the collection and 

analysis of intelligence and counterintelligence information concerning any terrorist incident, 

threat, or activity. 

(iv) TAXPAYER IDENTITY.—For purposes of this subparagraph, a taxpayer’s identity shall not be treated 

as taxpayer return information. 

(C) DISCLOSURE UNDER EX PARTE ORDERS.— (i) IN GENERAL.—Except as provided in paragraph 

(6), any return or return information with respect to 

any specified taxable period or periods shall, pursuant 

to and upon the grant of an ex parte order by a Federal district court judge or magistrate under clause 

(ii), be open (but only to the extent necessary as provided in such order) to inspection by, or disclosure to, 

officers and employees of any Federal law enforcement 

agency or Federal intelligence agency who are personally and directly engaged in any investigation, response to, or analysis of intelligence and counterintelligence information concerning any terrorist incident, 

threat, or activity. Return or return information 

opened to inspection or disclosure pursuant to the preceding sentence shall be solely for the use of such officers and employees in the investigation, response, or 

analysis, and in any judicial, administrative, or grand 


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jury proceedings, pertaining to such terrorist incident, 

threat, or activity. 

(ii) APPLICATION FOR ORDER.—The Attorney General, 

the Deputy Attorney General, the Associate Attorney 

General, any Assistant Attorney General, or any 

United States attorney may authorize an application 

to a Federal district court judge or magistrate for the 

order referred to in clause (i). Upon such application, 

such judge or magistrate may grant such order if he 

determines on the basis of the facts submitted by the 

applicant that— 

(I) there is reasonable cause to believe, based 

upon information believed to be reliable, that the 

return or return information may be relevant to a 

matter relating to such terrorist incident, threat, 

or activity, and 

(II) the return or return information is sought 

exclusively for use in a Federal investigation, 

analysis, or proceeding concerning any terrorist 

incident, threat, or activity. 

(D) SPECIAL RULE FOR EX PARTE DISCLOSURE BY THE

IRS.— 

(i) IN GENERAL.—Except as provided in paragraph 

(6), the Secretary may authorize an application to a 

Federal district court judge or magistrate for the order 

referred to in subparagraph (C)(i). Upon such application, such judge or magistrate may grant such order if 

he determines on the basis of the facts submitted by 

the applicant that the requirements of subparagraph 

(C)(ii)(I) are met. 

(ii) LIMITATION ON USE OF INFORMATION.—Information disclosed under clause (i)— 

(I) may be disclosed only to the extent necessary 

to apprise the head of the appropriate Federal law 

enforcement agency responsible for investigating 

or responding to a terrorist incident, threat, or activity, and 

(II) shall be solely for use in a Federal investigation, analysis, or proceeding concerning any 

terrorist incident, threat, or activity. 

The head of such Federal agency may disclose such information to officers and employees of such agency to the extent necessary to investigate or respond to such terrorist 

incident, threat, or activity. 

(8) COMPTROLLER GENERAL.— 

(A) RETURNS AVAILABLE FOR INSPECTION.—Except as 

provided in subparagraph (C), upon written request by the 

Comptroller General of the United States, returns and return information shall be open to inspection by, or disclosure to, officers and employees of the Government Accountability Office for the purpose of, and to the extent 

necessary in, making— 

(i) an audit of the Internal Revenue Service, the Bureau of Alcohol, Tobacco, Firearms, and Explosives, 

Department of Justice, or the Tax and Trade Bureau, 


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Department of the Treasury, which may be required 

by section 713 of title 31, United States Code, or 

(ii) any audit authorized by subsection (p)(6), 

except that no such officer or employee shall, except to the 

extent authorized by subsection (f) or (p)(6), disclose to any 

person, other than another officer or employee of such office whose official duties require such disclosure, any return or return information described in section 4424(a) in 

a form which can be associated with, or otherwise identify, 

directly or indirectly, a particular taxpayer, nor shall such 

officer or employee disclose any other return or return information, except as otherwise expressly provided by law, 

to any person other than such other officer or employee of 

such office in a form which can be associated with, or otherwise identify, directly or indirectly, a particular taxpayer. 

(B) AUDITS OF OTHER AGENCIES.— 

(i) IN GENERAL.—Nothing in this section shall prohibit any return or return information obtained under 

this title by any Federal agency (other than an agency 

referred to in subparagraph (A)) or by a Trustee as defined in the District of Columbia Retirement Protection Act of 1997, for use in any program or activity 

from being open to inspection by, or disclosure to, officers and employees of the Government Accountability 

Office if such inspection or disclosure is— 

(I) for purposes of, and to the extent necessary 

in, making an audit authorized by law of such 

program or activity, and 

(II) pursuant to a written request by the Comptroller General of the United States to the head of 

such Federal agency. 

(ii) INFORMATION FROM SECRETARY.—If the Comptroller General of the United States determines that 

the returns or return information available under 

clause (i) are not sufficient for purposes of making an 

audit of any program or activity of a Federal agency 

(other than an agency referred to in subparagraph 

(A)), upon written request by the Comptroller General 

to the Secretary, returns and return information (of 

the type authorized by subsection (l) or (m) to be made 

available to the Federal agency for use in such program or activity) shall be open to inspection by, or disclosure to, officers and employees of the Government 

Accountability Office for the purpose of, and to the extent necessary in, making such audit. 

(iii) REQUIREMENT OF NOTIFICATION UPON COMPLETION OF AUDIT.—Within 90 days after the completion 

of an audit with respect to which returns or return information were opened to inspection or disclosed under 

clause (i) or (ii), the Comptroller General of the United 

States shall notify in writing the Joint Committee on 

Taxation of such completion. Such notice shall include— 


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(I) a description of the use of the returns and return information by the Federal agency involved, 

(II) such recommendations with respect to the 

use of returns and return information by such 

Federal agency as the Comptroller General deems 

appropriate, and 

(III) a statement on the impact of any such recommendations on confidentiality of returns and 

return information and the administration of this 

title. 

(iv) CERTAIN RESTRICTIONS MADE APPLICABLE.—The 

restrictions contained in subparagraph (A) on the disclosure of any returns or return information open to 

inspection or disclosed under such subparagraph shall 

also apply to returns and return information open to 

inspection or disclosed under this subparagraph. 

(C) DISAPPROVAL BY JOINT COMMITTEE ON TAXATION.— 

Returns and return information shall not be open to inspection or disclosed under subparagraph (A) or (B) with 

respect to an audit— 

(i) unless the Comptroller General of the United 

States notifies in writing the Joint Committee on Taxation of such audit, and 

(ii) if the Joint Committee on Taxation disapproves 

such audit by a vote of at least two-thirds of its members within the 30-day period beginning on the day 

the Joint Committee on Taxation receives such notice. 

(j) STATISTICAL USE.— (1) DEPARTMENT OF COMMERCE.—Upon request in writing by 

the Secretary of Commerce, the Secretary shall furnish— 

(A) such returns, or return information reflected thereon, 

to officers and employees of the Bureau of the Census, and 

(B) such return information reflected on returns of corporations to officers and employees of the Bureau of Economic Analysis, 

as the Secretary may prescribe by regulation for the purpose 

of, but only to the extent necessary in, the structuring of censuses and national economic accounts and conducting related 

statistical activities authorized by law. 

(2) FEDERAL TRADE COMMISSION.—Upon request in writing 

by the Chairman of the Federal Trade Commission, the Secretary shall furnish such return information reflected on any 

return of a corporation with respect to the tax imposed by 

chapter 1 to officers and employees of the Division of Financial 

Statistics of the Bureau of Economics of such commission as 

the Secretary may prescribe by regulation for the purpose of, 

but only to the extent necessary in, administration by such division of legally authorized economic surveys of corporations. 

(3) DEPARTMENT OF TREASURY.—Returns and return information shall be open to inspection by or disclosure to officers 

and employees of the Department of the Treasury whose official duties require such inspection or disclosure for the purpose 

of, but only to the extent necessary in, preparing economic or 

financial forecasts, projections, analyses, and statistical studies 

and conducting related activities. Such inspection or disclosure 


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shall be permitted only upon written request which sets forth 

the specific reason or reasons why such inspection or disclosure 

is necessary and which is signed by the head of the bureau or 

office of the Department of the Treasury requesting the inspection or disclosure. 

(4) ANONYMOUS FORM.—No person who receives a return or 

return information under this subsection shall disclose such return or return information to any person other than the taxpayer to whom it relates except in a form which cannot be associated with, or otherwise identify, directly or indirectly, a 

particular taxpayer. 

(5) DEPARTMENT OF AGRICULTURE.—Upon request in writing 

by the Secretary of Agriculture, the Secretary shall furnish 

such returns, or return information reflected thereon, as the 

Secretary may prescribe by regulation to officers and employees of the Department of Agriculture whose official duties require access to such returns or information for the purpose of, 

but only to the extent necessary in, structuring, preparing, and 

conducting the census of agriculture pursuant to the Census of 

Agriculture Act of 1997 (Public Law 105–113). 

(6) CONGRESSIONAL BUDGET OFFICE.—Upon written request 

by the Director of the Congressional Budget Office, the Secretary shall furnish to officers and employees of the Congressional Budget Office return information for the purpose of, but 

only to the extent necessary for, long-term models of the social 

security and medicare programs. 

(k) DISCLOSURE OF CERTAIN RETURNS AND RETURN INFORMATION

FOR TAX ADMINISTRATION PURPOSES.— (1) DISCLOSURE OF ACCEPTED OFFERS-IN-COMPROMISE.—Return information shall be disclosed to members of the general 

public to the extent necessary to permit inspection of any accepted offer-in-compromise under section 7122 relating to the 

liability for a tax imposed by this title. 

(2) DISCLOSURE OF AMOUNT OF OUTSTANDING LIEN.—If a notice of lien has been filed pursuant to section 6323(f), the 

amount of the outstanding obligation secured by such lien may 

be disclosed to any person who furnishes satisfactory written 

evidence that he has a right in the property subject to such 

lien or intends to obtain a right in such property. 

(3) DISCLOSURE OF RETURN INFORMATION TO CORRECT

MISSTATEMENTS OF FACT.—The Secretary may, but only following approval by the Joint Committee on Taxation, disclose 

such return information or any other information with respect 

to any specific taxpayer to the extent necessary for tax administration purposes to correct a misstatement of fact published 

or disclosed with respect to such taxpayer’s return or any 

transaction of the taxpayer with the Internal Revenue Service. 

(4) DISCLOSURE TO COMPETENT AUTHORITY UNDER TAX CONVENTION.—A return or return information may be disclosed to 

a competent authority of a foreign government which has an 

income tax or gift and estate tax convention, or other convention or bilateral agreement relating to the exchange of tax information, with the United States but only to the extent provided in, and subject to the terms and conditions of, such convention or bilateral agreement. 


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(5) STATE AGENCIES REGULATING TAX RETURN PREPARERS.— Taxpayer identity information with respect to any tax return 

preparer, and information as to whether or not any penalty 

has been assessed against such tax return preparer under section 6694, 6695, or 7216, may be furnished to any agency, 

body, or commission lawfully charged under any State or local 

law with the licensing, registration, or regulation of tax return 

preparers. Such information may be furnished only upon written request by the head of such agency, body, or commission 

designating the officers or employees to whom such information is to be furnished. Information may be furnished and used 

under this paragraph only for purposes of the licensing, registration, or regulation of tax return preparers. 

(6) DISCLOSURE BY CERTAIN OFFICERS AND EMPLOYEES FOR

INVESTIGATIVE PURPOSES.—An internal revenue officer or employee and an officer or employee of the Office of Treasury Inspector General for Tax Administration may, in connection 

with his official duties relating to any audit, collection activity, 

or civil or criminal tax investigation or any other offense under 

the internal revenue laws, disclose return information to the 

extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect 

to the correct determination of tax, liability for tax, or the 

amount to be collected or with respect to the enforcement of 

any other provision of this title. Such disclosures shall be made 

only in such situations and under such conditions as the Secretary may prescribe by regulation. 

(7) DISCLOSURE OF EXCISE TAX REGISTRATION INFORMATION.— To the extent the Secretary determines that disclosure is necessary to permit the effective administration of subtitle D, the 

Secretary may disclose— 

(A) the name, address, and registration number of each 

person who is registered under any provision of subtitle D 

(and, in the case of a registered terminal operator, the address of each terminal operated by such operator), and 

(B) the registration status of any person. 

(8) LEVIES ON CERTAIN GOVERNMENT PAYMENTS.— (A) DISCLOSURE OF RETURN INFORMATION IN LEVIES ON

FINANCIAL MANAGEMENT SERVICE.—In serving a notice of 

levy, or release of such levy, with respect to any applicable 

government payment, the Secretary may disclose to officers and employees of the Financial Management Service— 

(i) return information, including taxpayer identity 

information, 

(ii) the amount of any unpaid liability under this 

title (including penalties and interest), and 

(iii) the type of tax and tax period to which such unpaid liability relates. 

(B) RESTRICTION ON USE OF DISCLOSED INFORMATION.— Return information disclosed under subparagraph (A) may 

be used by officers and employees of the Financial Management Service only for the purpose of, and to the extent 

necessary in, transferring levied funds in satisfaction of 

the levy, maintaining appropriate agency records in regard 


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to such levy or the release thereof, notifying the taxpayer 

and the agency certifying such payment that the levy has 

been honored, or in the defense of any litigation ensuing 

from the honor of such levy. 

(C) APPLICABLE GOVERNMENT PAYMENT.—For purposes of 

this paragraph, the term ‘‘applicable government payment’’ 

means— 

(i) any Federal payment (other than a payment for 

which eligibility is based on the income or assets (or 

both) of a payee) certified to the Financial Management Service for disbursement, and 

(ii) any other payment which is certified to the Financial Management Service for disbursement and 

which the Secretary designates by published notice. 

(9) DISCLOSURE OF INFORMATION TO ADMINISTER SECTION

6311.—The Secretary may disclose returns or return information to financial institutions and others to the extent the Secretary deems necessary for the administration of section 6311. 

Disclosures of information for purposes other than to accept 

payments by checks or money orders shall be made only to the 

extent authorized by written procedures promulgated by the 

Secretary. 

(10) DISCLOSURE OF CERTAIN RETURNS AND RETURN INFORMA- TION TO CERTAIN PRISON OFFICIALS.— (A) IN GENERAL.—Under such procedures as the Secretary may prescribe, the Secretary may disclose to officers 

and employees of the Federal Bureau of Prisons and of any 

State agency charged with the responsibility for administration of prisons any returns or return information with 

respect to individuals incarcerated in Federal or State 

prison systems whom the Secretary has determined may 

have filed or facilitated the filing of a false or fraudulent 

return to the extent that the Secretary determines that 

such disclosure is necessary to permit effective Federal tax 

administration. 

(B) DISCLOSURE TO CONTRACTOR-RUN PRISONS.—Under 

such procedures as the Secretary may prescribe, the disclosures authorized by subparagraph (A) may be made to contractors responsible for the operation of a Federal or State 

prison on behalf of such Bureau or agency. 

(C) RESTRICTIONS ON USE OF DISCLOSED INFORMATION.— 

Any return or return information received under this paragraph shall be used only for the purposes of and to the extent necessary in taking administrative action to prevent 

the filing of false and fraudulent returns, including administrative actions to address possible violations of administrative rules and regulations of the prison facility and in 

administrative and judicial proceedings arising from such 

administrative actions. 

(D) RESTRICTIONS ON REDISCLOSURE AND DISCLOSURE TO

LEGAL REPRESENTATIVES.—Notwithstanding subsection 

(h)— 

(i) RESTRICTIONS ON REDISCLOSURE.—Except as provided in clause (ii), any officer, employee, or contractor 

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cy charged with the responsibility for administration 

of prisons shall not disclose any information obtained 

under this paragraph to any person other than an officer or employee or contractor of such Bureau or agency personally and directly engaged in the administration of prison facilities on behalf of such Bureau or 

agency. 

(ii) DISCLOSURE TO LEGAL REPRESENTATIVES.—The 

returns and return information disclosed under this 

paragraph may be disclosed to the duly authorized 

legal representative of the Federal Bureau of Prisons, 

State agency, or contractor charged with the responsibility for administration of prisons, or of the incarcerated individual accused of filing the false or fraudulent 

return who is a party to an action or proceeding described in subparagraph (C), solely in preparation for, 

or for use in, such action or proceeding. 

(11) DISCLOSURE OF RETURN INFORMATION TO DEPARTMENT

OF STATE FOR PURPOSES OF PASSPORT REVOCATION UNDER SECTION 7345.— 

(A) IN GENERAL.—The Secretary shall, upon receiving a 

certification described in section 7345, disclose to the Secretary of State return information with respect to a taxpayer who has a seriously delinquent tax debt described in 

such section. Such return information shall be limited to— 

(i) the taxpayer identity information with respect to 

such taxpayer, and 

(ii) the amount of such seriously delinquent tax 

debt. 

(B) RESTRICTION ON DISCLOSURE.—Return information 

disclosed under subparagraph (A) may be used by officers 

and employees of the Department of State for the purposes 

of, and to the extent necessary in, carrying out the requirements of section 32101 of the FAST Act. 

(12) QUALIFIED TAX COLLECTION CONTRACTORS.—Persons providing services pursuant to a qualified tax collection contract 

under section 6306 may, if speaking to a person who has identified himself or herself as having the name of the taxpayer to 

which a tax receivable (within the meaning of such section) relates, identify themselves as contractors of the Internal Revenue Service and disclose the business name of the contractor, 

and the nature, subject, and reason for the contact. Disclosures 

under this paragraph shall be made only in such situations 

and under such conditions as have been approved by the Secretary. 

(l) DISCLOSURE OF RETURNS AND RETURN INFORMATION FOR PURPOSES OTHER THAN TAX ADMINISTRATION.— 

(1) DISCLOSURE OF CERTAIN RETURNS AND RETURN INFORMATION TO SOCIAL SECURITY ADMINISTRATION AND RAILROAD RETIREMENT BOARD.—The Secretary may, upon written request, 

disclose returns and return information with respect to— 

(A) taxes imposed by chapters 2, 21, and 24, to the Social Security Administration for purposes of its administration of the Social Security Act; 


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(B) a plan to which part I of subchapter D of chapter 1 

applies, to the Social Security Administration for purposes 

of carrying out its responsibility under section 1131 of the 

Social Security Act, limited, however to return information 

described in section 6057(d); and 

(C) taxes imposed by chapter 22, to the Railroad Retirement Board for purposes of its administration of the Railroad Retirement Act. 

(2) DISCLOSURE OF RETURNS AND RETURN INFORMATION TO

THE DEPARTMENT OF LABOR AND PENSION BENEFIT GUARANTY

CORPORATION.—The Secretary may, upon written request, furnish returns and return information to the proper officers and 

employees of the Department of Labor and the Pension Benefit 

Guaranty Corporation for purposes of, but only to the extent 

necessary in, the administration of titles I and IV of the Employee Retirement Income Security Act of 1974. 

(3) DISCLOSURE THAT APPLICANT FOR FEDERAL LOAN HAS TAX

DELINQUENT ACCOUNT.— 

(A) IN GENERAL.—Upon written request, the Secretary 

may disclose to the head of the Federal agency administering any included Federal loan program whether or not 

an applicant for a loan under such program has a tax delinquent account. 

(B) RESTRICTION ON DISCLOSURE.—Any disclosure under 

subparagraph (A) shall be made only for the purpose of, 

and to the extent necessary in, determining the creditworthiness of the applicant for the loan in question. 

(C) INCLUDED FEDERAL LOAN PROGRAM DEFINED.—For 

purposes of this paragraph, the term ‘‘included Federal 

loan program’’ means any program under which the 

United States or a Federal agency makes, guarantees, or 

insures loans. 

(4) DISCLOSURE OF RETURNS AND RETURN INFORMATION FOR

USE IN PERSONNEL OR CLAIMANT REPRESENTATIVE MATTERS.— 

The Secretary may disclose returns and return information— 

(A) upon written request— 

(i) to an employee or former employee of the Department of the Treasury, or to the duly authorized legal 

representative of such employee or former employee, 

who is or may be a party to any administrative action 

or proceeding affecting the personnel rights of such 

employee or former employee; or 

(ii) to any person, or to the duly authorized legal 

representative of such person, whose rights are or may 

be affected by an administrative action or proceeding 

under section 330 of title 31, United States Code, 

solely for use in the action or proceeding, or in preparation 

for the action or proceeding, but only to the extent that the 

Secretary determines that such returns or return information is or may be relevant and material to the action or 

proceeding; or 

(B) to officers and employees of the Department of the 

Treasury for use in any action or proceeding described in 

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ceeding, to the extent necessary to advance or protect the 

interests of the United States. 

(5) SOCIAL SECURITY ADMINISTRATION.—Upon written request by the Commissioner of Social Security, the Secretary 

may disclose information returns filed pursuant to part III of 

subchapter A of chapter 61 of this subtitle for the purpose of— 

(A) carrying out, in accordance with an agreement entered into pursuant to section 232 of the Social Security 

Act, an effective return processing program; or 

(B) providing information regarding the mortality status 

of individuals for epidemiological and similar research in 

accordance with section 1106(d) of the Social Security Act. 

(6) DISCLOSURE OF RETURN INFORMATION TO FEDERAL, STATE, 

AND LOCAL CHILD SUPPORT ENFORCEMENT AGENCIES.— 

(A) RETURN INFORMATION FROM INTERNAL REVENUE

SERVICE.—The Secretary may, upon written request, disclose to the appropriate Federal, State, or local child support enforcement agency— 

(i) available return information from the master files 

of the Internal Revenue Service relating to the social 

security account number (or numbers, if the individual 

involved has more than one such number), address, filing status, amounts and nature of income, and the 

number of dependents reported on any return filed by, 

or with respect to, any individual with respect to 

whom child support obligations are sought to be established or enforced pursuant to the provisions of part D 

of title IV of the Social Security Act and with respect 

to any individual to whom such support obligations 

are owing, and 

(ii) available return information reflected on any return filed by, or with respect to, any individual described in clause (i) relating to the amount of such individual’s gross income (as defined in section 61) or 

consisting of the names and addresses of payors of 

such income and the names of any dependents reported on such return, but only if such return information is not reasonably available from any other source. 

(B) DISCLOSURE TO CERTAIN AGENTS.—The following information disclosed to any child support enforcement agency under subparagraph (A) with respect to any individual 

with respect to whom child support obligations are sought 

to be established or enforced may be disclosed by such 

agency to any agent of such agency which is under contract with such agency to carry out the purposes described 

in subparagraph (C): 

(i) The address and social security account number 

(or numbers) of such individual. 

(ii) The amount of any reduction under section 

6402(c) (relating to offset of past-due support against 

overpayments) in any overpayment otherwise payable 

to such individual. 

(C) RESTRICTION ON DISCLOSURE.—Information may be 

disclosed under this paragraph only for purposes of, and to 

the extent necessary in, establishing and collecting child 


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support obligations from, and locating, individuals owing 

such obligations. 

(7) DISCLOSURE OF RETURN INFORMATION TO FEDERAL, STATE, 

AND LOCAL AGENCIES ADMINISTERING CERTAIN PROGRAMS

UNDER THE SOCIAL SECURITY ACT, THE FOOD AND NUTRITION

ACT OF 2008, OR TITLE 38, UNITED STATES CODE, OR CERTAIN

HOUSING ASSISTANCE PROGRAMS.— 

(A) RETURN INFORMATION FROM SOCIAL SECURITY ADMINISTRATION.—The Commissioner of Social Security shall, 

upon written request, disclose return information from returns with respect to net earnings from self-employment 

(as defined in section 1402), wages (as defined in section 

3121(a) or 3401(a)), and payments of retirement income, 

which have been disclosed to the Social Security Administration as provided by paragraph (1) or (5) of this subsection, to any Federal, State, or local agency administering a program listed in subparagraph (D). 

(B) RETURN INFORMATION FROM INTERNAL REVENUE

SERVICE.—The Secretary shall, upon written request, disclose current return information from returns with respect 

to unearned income from the Internal Revenue Service 

files to any Federal, State, or local agency administering 

a program listed in subparagraph (D). 

(C) RESTRICTION ON DISCLOSURE.—The Commissioner of 

Social Security and the Secretary shall disclose return information under subparagraphs (A) and (B) only for purposes of, and to the extent necessary in, determining eligibility for, or the correct amount of, benefits under a program listed in subparagraph (D). 

(D) PROGRAMS TO WHICH RULE APPLIES.—The programs 

to which this paragraph applies are: 

(i) a State program funded under part A of title IV 

of the Social Security Act; 

(ii) medical assistance provided under a State plan 

approved under title XIX of the Social Security Act or 

subsidies provided under section 1860D–14 of such 

Act; 

(iii) supplemental security income benefits provided 

under title XVI of the Social Security Act, and federally administered supplementary payments of the type 

described in section 1616(a) of such Act (including payments pursuant to an agreement entered into under 

section 212(a) of Public Law 93–66); 

(iv) any benefits provided under a State plan approved under title I, X, XIV, or XVI of the Social Security Act (as those titles apply to Puerto Rico, Guam, 

and the Virgin Islands); 

(v) unemployment compensation provided under a 

State law described in section 3304 of this title; 

(vi) assistance provided under the Food and Nutrition Act of 2008; 

(vii) State-administered supplementary payments of 

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ment entered into under section 212(a) of Public Law 

93–66); 

(viii)(I) any needs-based pension provided under 

chapter 15 of title 38, United States Code, or under 

any other law administered by the Secretary of Veterans Affairs; 

(II) parents’ dependency and indemnity compensation provided under section 1315 of title 38, 

United States Code; 

(III) health-care services furnished under sections 1710(a)(2)(G), 1710(a)(3), and 1710(b) of such 

title; and 

(IV) compensation paid under chapter 11 of title 

38, United States Code, at the 100 percent rate 

based solely on unemployability and without regard to the fact that the disability or disabilities 

are not rated as 100 percent disabling under the 

rating schedule; and 

(ix) any housing assistance program administered by 

the Department of Housing and Urban Development 

that involves initial and periodic review of an applicant’s or participant’s income, except that return information may be disclosed under this clause only on 

written request by the Secretary of Housing and 

Urban Development and only for use by officers and 

employees of the Department of Housing and Urban 

Development with respect to applicants for and participants in such programs. 

Only return information from returns with respect to net 

earnings from self-employment and wages may be disclosed under this paragraph for use with respect to any 

program described in clause (viii)(IV). 

(8) DISCLOSURE OF CERTAIN RETURN INFORMATION BY SOCIAL

SECURITY ADMINISTRATION TO FEDERAL, STATE, AND LOCAL

CHILD SUPPORT ENFORCEMENT AGENCIES.— 

(A) IN GENERAL.—Upon written request, the Commissioner of Social Security shall disclose directly to officers 

and employees of a Federal or State or local child support 

enforcement agency return information from returns with 

respect to social security account numbers, net earnings 

from self-employment (as defined in section 1402), wages 

(as defined in section 3121(a) or 3401(a)), and payments of 

retirement income which have been disclosed to the Social 

Security Administration as provided by paragraph (1) or 

(5) of this subsection. 

(B) RESTRICTION ON DISCLOSURE.—The Commissioner of 

Social Security shall disclose return information under 

subparagraph (A) only for purposes of, and to the extent 

necessary in, establishing and collecting child support obligations from, and locating, individuals owing such obligations. For purposes of the preceding sentence, the term 

‘‘child support obligations’’ only includes obligations which 

are being enforced pursuant to a plan described in section 

454 of the Social Security Act which has been approved by 


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the Secretary of Health and Human Services under part D 

of title IV of such Act. 

(C) STATE OR LOCAL CHILD SUPPORT ENFORCEMENT AGENCY.—For purposes of this paragraph, the term ‘‘State or 

local child support enforcement agency’’ means any agency 

of a State or political subdivision thereof operating pursuant to a plan described in subparagraph (B). 

(9) DISCLOSURE OF ALCOHOL FUEL PRODUCERS TO ADMINISTRATORS OF STATE ALCOHOL LAWS.—Notwithstanding any other 

provision of this section, the Secretary may disclose— 

(A) the name and address of any person who is qualified 

to produce alcohol for fuel use under section 5181, and 

(B) the location of any premises to be used by such person in producing alcohol for fuel, 

to any State agency, body, or commission, or its legal representative, which is charged under the laws of such State 

with responsibility for administration of State alcohol laws 

solely for use in the administration of such laws. 

(10) DISCLOSURE OF CERTAIN INFORMATION TO AGENCIES REQUESTING A REDUCTION UNDER SUBSECTION (C), (D), (E), OR (F) OF

SECTION 6402.— 

(A) RETURN INFORMATION FROM INTERNAL REVENUE

SERVICE.—The Secretary may, upon receiving a written request, disclose to officers and employees of any agency 

seeking a reduction under subsection (c), (d), (e), or (f) of 

section 6402, to officers and employees of the Department 

of Labor for purposes of facilitating the exchange of data 

in connection with a notice submitted under subsection 

(f)(5)(C) of section 6402, and to officers and employees of 

the Department of the Treasury in connection with such 

reduction— 

(i) taxpayer identity information with respect to the 

taxpayer against whom such a reduction was made or 

not made and with respect to any other person filing 

a joint return with such taxpayer, 

(ii) the fact that a reduction has been made or has 

not been made under such subsection with respect to 

such taxpayer, 

(iii) the amount of such reduction, 

(iv) whether such taxpayer filed a joint return, and 

(v) the fact that a payment was made (and the 

amount of the payment) to the spouse of the taxpayer 

on the basis of a joint return. 

(B) RESTRICTION ON USE OF DISCLOSED INFORMATION.— 

(i) Any officers and employees of an agency receiving return information under subparagraph (A) shall use such 

information only for the purposes of, and to the extent necessary in, establishing appropriate agency records, locating 

any person with respect to whom a reduction under subsection (c), (d), (e), or (f) of section 6402 is sought for purposes of collecting the debt with respect to which the reduction is sought, or in the defense of any litigation or administrative procedure ensuing from a reduction made 

under subsection (c), (d), (e), or (f) of section 6402. 


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(ii) Notwithstanding clause (i), return information 

disclosed to officers and employees of the Department 

of Labor may be accessed by agents who maintain and 

provide technological support to the Department of Labor’s Interstate Connection Network (ICON) solely for 

the purpose of providing such maintenance and support. 

(11) DISCLOSURE OF RETURN INFORMATION TO CARRY OUT

FEDERAL EMPLOYEES’ RETIREMENT SYSTEM.— 

(A) IN GENERAL.—The Commissioner of Social Security 

shall, on written request, disclose to the Office of Personnel Management return information from returns with 

respect to net earnings from self-employment (as defined 

in section 1402), wages (as defined in section 3121(a) or 

3401(a)), and payments of retirement income, which have 

been disclosed to the Social Security Administration as 

provided by paragraph (1) or (5). 

(B) RESTRICTION ON DISCLOSURE.—The Commissioner of 

Social Security shall disclose return information under 

subparagraph (A) only for purposes of, and to the extent 

necessary in, the administration of chapters 83 and 84 of 

title 5, United States Code. 

(12) DISCLOSURE OF CERTAIN TAXPAYER IDENTITY INFORMATION FOR VERIFICATION OF EMPLOYMENT STATUS OF MEDICARE

BENEFICIARY AND SPOUSE OF MEDICARE BENEFICIARY.— 

(A) RETURN INFORMATION FROM INTERNAL REVENUE

SERVICE.—The Secretary shall, upon written request from 

the Commissioner of Social Security, disclose to the Commissioner available filing status and taxpayer identity information from the individual master files of the Internal 

Revenue Service relating to whether any medicare beneficiary identified by the Commissioner was a married individual (as defined in section 7703) for any specified year 

after 1986, and, if so, the name of the spouse of such individual and such spouse’s TIN. 

(B) RETURN INFORMATION FROM SOCIAL SECURITY ADMINISTRATION.—The Commissioner of Social Security shall, 

upon written request from the Administrator of the Centers for Medicare & Medicaid Services, disclose to the Administrator the following information: 

(i) The name and TIN of each medicare beneficiary 

who is identified as having received wages (as defined 

in section 3401(a)), above an amount (if any) specified 

by the Secretary of Health and Human Services, from 

a qualified employer in a previous year. 

(ii) For each medicare beneficiary who was identified 

as married under subparagraph (A) and whose spouse 

is identified as having received wages, above an 

amount (if any) specified by the Secretary of Health 

and Human Services, from a qualified employer in a 

previous year— 

(I) the name and TIN of the medicare beneficiary, and 

(II) the name and TIN of the spouse. 


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(iii) With respect to each such qualified employer, 

the name, address, and TIN of the employer and the 

number of individuals with respect to whom written 

statements were furnished under section 6051 by the 

employer with respect to such previous year. 

(C) DISCLOSURE BY CENTERS FOR MEDICARE & MEDICAID

SERVICES.—With respect to the information disclosed 

under subparagraph (B), the Administrator of the Centers 

for Medicare & Medicaid Services may disclose— 

(i) to the qualified employer referred to in such subparagraph the name and TIN of each individual identified under such subparagraph as having received 

wages from the employer (hereinafter in this subparagraph referred to as the ‘‘employee’’) for purposes of 

determining during what period such employee or the 

employee’s spouse may be (or have been) covered 

under a group health plan of the employer and what 

benefits are or were covered under the plan (including 

the name, address, and identifying number of the 

plan), 

(ii) to any group health plan which provides or provided coverage to such an employee or spouse, the 

name of such employee and the employee’s spouse (if 

the spouse is a medicare beneficiary) and the name 

and address of the employer, and, for the purpose of 

presenting a claim to the plan— 

(I) the TIN of such employee if benefits were 

paid under title XVIII of the Social Security Act 

with respect to the employee during a period in 

which the plan was a primary plan (as defined in 

section 1862(b)(2)(A) of the Social Security Act), 

and 

(II) the TIN of such spouse if benefits were paid 

under such title with respect to the spouse during 

such period, and 

(iii) to any agent of such Administrator the information referred to in subparagraph (B) for purposes of 

carrying out clauses (i) and (ii) on behalf of such Administrator. 

(D) SPECIAL RULES.— 

(i) RESTRICTIONS ON DISCLOSURE.—Information may 

be disclosed under this paragraph only for purposes of, 

and to the extent necessary in, determining the extent 

to which any medicare beneficiary is covered under 

any group health plan. 

(ii) TIMELY RESPONSE TO REQUESTS.—Any request 

made under subparagraph (A) or (B) shall be complied 

with as soon as possible but in no event later than 120 

days after the date the request was made. 

(E) DEFINITIONS.—For purposes of this paragraph— 

(i) MEDICARE BENEFICIARY.—The term ‘‘medicare 

beneficiary’’ means an individual entitled to benefits 

under part A, or enrolled under part B, of title XVIII 

of the Social Security Act, but does not include such 

an individual enrolled in part A under section 1818. 


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(ii) GROUP HEALTH PLAN.—The term ‘‘group health 

plan’’ means any group health plan (as defined in section 5000(b)(1)). 

(iii) QUALIFIED EMPLOYER.—The term ‘‘qualified employer’’ means, for a calendar year, an employer which 

has furnished written statements under section 6051 

with respect to at least 20 individuals for wages paid 

in the year. 

(13) DISCLOSURE OF RETURN INFORMATION TO CARRY OUT IN- COME CONTINGENT REPAYMENT OF STUDENT LOANS.— (A) IN GENERAL.—The Secretary may, upon written request from the Secretary of Education, disclose to officers 

and employees of the Department of Education return information with respect to a taxpayer who has received an 

applicable student loan and whose loan repayment 

amounts are based in whole or in part on the taxpayer’s 

income. Such return information shall be limited to— 

(i) taxpayer identity information with respect to 

such taxpayer, 

(ii) the filing status of such taxpayer, and 

(iii) the adjusted gross income of such taxpayer. 

(B) RESTRICTION ON USE OF DISCLOSED INFORMATION.— Return information disclosed under subparagraph (A) may 

be used by officers and employees of the Department of 

Education only for the purposes of, and to the extent necessary in, establishing the appropriate income contingent 

repayment amount for an applicable student loan. 

(C) APPLICABLE STUDENT LOAN.—For purposes of this 

paragraph, the term ‘‘applicable student loan’’ means— 

(i) any loan made under the program authorized 

under part D of title IV of the Higher Education Act 

of 1965, and 

(ii) any loan made under part B or E of title IV of 

the Higher Education Act of 1965 which is in default 

and has been assigned to the Department of Education. 

(D) TERMINATION.—This paragraph shall not apply to 

any request made after December 31, 2007. 

(14) DISCLOSURE OF RETURN INFORMATION TO UNITED STATES

CUSTOMS SERVICE.—The Secretary may, upon written request 

from the Commissioner of the United States Customs Service, 

disclose to officers and employees of the Department of the 

Treasury such return information with respect to taxes imposed by chapters 1 and 6 as the Secretary may prescribe by 

regulations, solely for the purpose of, and only to the extent 

necessary in— 

(A) ascertaining the correctness of any entry in audits as 

provided for in section 509 of the Tariff Act of 1930 (19 

U.S.C. 1509), or 

(B) other actions to recover any loss of revenue, or to collect duties, taxes, and fees, determined to be due and 

owing pursuant to such audits. 

(15) DISCLOSURE OF RETURNS FILED UNDER SECTION 6050I.— 

The Secretary may, upon written request, disclose to officers 

and employees of— 


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(A) any Federal agency, 

(B) any agency of a State or local government, or 

(C) any agency of the government of a foreign country, 

information contained on returns filed under section 6050I. 

Any such disclosure shall be made on the same basis, and subject to the same conditions, as apply to disclosures of information on reports filed under section 5313 of title 31, United 

States Code; except that no disclosure under this paragraph 

shall be made for purposes of the administration of any tax 

law. 

(16) DISCLOSURE OF RETURN INFORMATION FOR PURPOSES OF

ADMINISTERING THE DISTRICT OF COLUMBIA RETIREMENT PROTECTION ACT OF 1997.— 

(A) IN GENERAL.—Upon written request available return 

information (including such information disclosed to the 

Social Security Administration under paragraph (1) or (5) 

of this subsection), relating to the amount of wage income 

(as defined in section 3121(a) or 3401(a)), the name, address, and identifying number assigned under section 

6109, of payors of wage income, taxpayer identity (as defined in section 6103(b)(6)), and the occupational status reflected on any return filed by, or with respect to, any individual with respect to whom eligibility for, or the correct 

amount of, benefits under the District of Columbia Retirement Protection Act of 1997, is sought to be determined, 

shall be disclosed by the Commissioner of Social Security, 

or to the extent not available from the Social Security Administration, by the Secretary, to any duly authorized officer or employee of the Department of the Treasury, or a 

Trustee or any designated officer or employee of a Trustee 

(as defined in the District of Columbia Retirement Protection Act of 1997), or any actuary engaged by a Trustee 

under the terms of the District of Columbia Retirement 

Protection Act of 1997, whose official duties require such 

disclosure, solely for the purpose of, and to the extent necessary in, determining an individual’s eligibility for, or the 

correct amount of, benefits under the District of Columbia 

Retirement Protection Act of 1997. 

(B) DISCLOSURE FOR USE IN JUDICIAL OR ADMINISTRATIVE

PROCEEDINGS.—Return information disclosed to any person 

under this paragraph may be disclosed in a judicial or administrative proceeding relating to the determination of an 

individual’s eligibility for, or the correct amount of, benefits under the District of Columbia Retirement Protection 

Act of 1997. 

(17) DISCLOSURE TO NATIONAL ARCHIVES AND RECORDS ADMINISTRATION.—The Secretary shall, upon written request from 

the Archivist of the United States, disclose or authorize the 

disclosure of returns and return information to officers and employees of the National Archives and Records Administration 

for purposes of, and only to the extent necessary in, the appraisal of records for destruction or retention. No such officer 

or employee shall, except to the extent authorized by subsection (f), (i)(8), or (p), disclose any return or return information disclosed under the preceding sentence to any person 


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other than to the Secretary, or to another officer or employee 

of the National Archives and Records Administration whose official duties require such disclosure for purposes of such appraisal. 

(18) DISCLOSURE OF RETURN INFORMATION FOR PURPOSES OF

CARRYING OUT A PROGRAM FOR ADVANCE PAYMENT OF CREDIT

FOR HEALTH INSURANCE COSTS OF ELIGIBLE INDIVIDUALS.—The 

Secretary may disclose to providers of health insurance for any 

certified individual (as defined in section 7527(c)) return information with respect to such certified individual only to the extent necessary to carry out the program established by section 

7527 (relating to advance payment of credit for health insurance costs of eligible individuals). 

(19) DISCLOSURE OF RETURN INFORMATION FOR PURPOSES OF

PROVIDING TRANSITIONAL ASSISTANCE UNDER MEDICARE DISCOUNT CARD PROGRAM.— 

(A) IN GENERAL.—The Secretary, upon written request 

from the Secretary of Health and Human Services pursuant to carrying out section 1860D–31 of the Social Security 

Act, shall disclose to officers, employees, and contractors of 

the Department of Health and Human Services with respect to a taxpayer for the applicable year— 

(i)(I) whether the adjusted gross income, as modified 

in accordance with specifications of the Secretary of 

Health and Human Services for purposes of carrying 

out such section, of such taxpayer and, if applicable, 

such taxpayer’s spouse, for the applicable year, exceeds the amounts specified by the Secretary of Health 

and Human Services in order to apply the 100 and 135 

percent of the poverty lines under such section, (II) 

whether the return was a joint return, and (III) the 

applicable year, or 

(ii) if applicable, the fact that there is no return filed 

for such taxpayer for the applicable year. 

(B) DEFINITION OF APPLICABLE YEAR.—For the purposes 

of this subsection, the term ‘‘applicable year’’ means the 

most recent taxable year for which information is available 

in the Internal Revenue Service’s taxpayer data information systems, or, if there is no return filed for such taxpayer for such year, the prior taxable year. 

(C) RESTRICTION ON USE OF DISCLOSED INFORMATION.— 

Return information disclosed under this paragraph may be 

used only for the purposes of determining eligibility for 

and administering transitional assistance under section 

1860D–31 of the Social Security Act. 

(20) DISCLOSURE OF RETURN INFORMATION TO CARRY OUT

MEDICARE PART B PREMIUM SUBSIDY ADJUSTMENT AND PART D 

BASE BENEFICIARY PREMIUM INCREASE.— 

(A) IN GENERAL.—The Secretary shall, upon written request from the Commissioner of Social Security, disclose to 

officers, employees, and contractors of the Social Security 

Administration return information of a taxpayer whose 

premium (according to the records of the Secretary) may 

be subject to adjustment under section 1839(i) or increase 


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under section 1860D–13(a)(7) of the Social Security Act. 

Such return information shall be limited to— 

(i) taxpayer identity information with respect to 

such taxpayer, 

(ii) the filing status of such taxpayer, 

(iii) the adjusted gross income of such taxpayer, 

(iv) the amounts excluded from such taxpayer’s 

gross income under sections 135 and 911 to the extent 

such information is available, 

(v) the interest received or accrued during the taxable year which is exempt from the tax imposed by 

chapter 1 to the extent such information is available, 

(vi) the amounts excluded from such taxpayer’s 

gross income by sections 931 and 933 to the extent 

such information is available, 

(vii) such other information relating to the liability 

of the taxpayer as is prescribed by the Secretary by 

regulation as might indicate in the case of a taxpayer 

who is an individual described in subsection 

(i)(4)(B)(iii) of section 1839 of the Social Security Act 

that the amount of the premium of the taxpayer under 

such section may be subject to adjustment under subsection (i) of such section or increase under section 

1860D–13(a)(7) of such Act and the amount of such 

adjustment, and 

(viii) the taxable year with respect to which the preceding information relates. 

(B) RESTRICTION ON USE OF DISCLOSED INFORMATION.— 

(i) IN GENERAL.—Return information disclosed under 

subparagraph (A) may be used by officers, employees, 

and contractors of the Social Security Administration 

only for the purposes of, and to the extent necessary 

in, establishing the appropriate amount of any premium adjustment under such section 1839(i) or increase under such section 1860D–13(a)(7) or for the 

purpose of resolving taxpayer appeals with respect to 

any such premium adjustment or increase. 

(ii) DISCLOSURE TO OTHER AGENCIES.—Officers, employees, and contractors of the Social Security Administration may disclose— 

(I) the taxpayer identity information and the 

amount of the premium subsidy adjustment or 

premium increase with respect to a taxpayer described in subparagraph (A) to officers, employees, 

and contractors of the Centers for Medicare and 

Medicaid Services, to the extent that such disclosure is necessary for the collection of the premium 

subsidy amount or the increased premium 

amount, 

(II) the taxpayer identity information and the 

amount of the premium subsidy adjustment or the 

increased premium amount with respect to a taxpayer described in subparagraph (A) to officers 

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ment and the Railroad Retirement Board, to the 

extent that such disclosure is necessary for the 

collection of the premium subsidy amount or the 

increased premium amount, 

(III) return information with respect to a taxpayer described in subparagraph (A) to officers 

and employees of the Department of Health and 

Human Services to the extent necessary to resolve 

administrative appeals of such premium subsidy 

adjustment or increased premium, and 

(IV) return information with respect to a taxpayer described in subparagraph (A) to officers 

and employees of the Department of Justice for 

use in judicial proceedings to the extent necessary 

to carry out the purposes described in clause (i). 

(21) DISCLOSURE OF RETURN INFORMATION TO CARRY OUT ELIGIBILITY REQUIREMENTS FOR CERTAIN PROGRAMS.— 

(A) IN GENERAL.—The Secretary, upon written request 

from the Secretary of Health and Human Services, shall 

disclose to officers, employees, and contractors of the Department of Health and Human Services return information of any taxpayer whose income is relevant in determining any premium tax credit under section 36B or any 

cost-sharing reduction under section 1402 of the Patient 

Protection and Affordable Care Act or eligibility for participation in a State medicaid program under title XIX of the 

Social Security Act, a State’s children’s health insurance 

program under title XXI of the Social Security Act, or a 

basic health program under section 1331 of Patient Protection and Affordable Care Act. Such return information 

shall be limited to— 

(i) taxpayer identity information with respect to 

such taxpayer, 

(ii) the filing status of such taxpayer, 

(iii) the number of individuals for whom a deduction 

is allowed under section 151 with respect to the taxpayer (including the taxpayer and the taxpayer’s 

spouse), 

(iv) the modified adjusted gross income (as defined 

in section 36B) of such taxpayer and each of the other 

individuals included under clause (iii) who are required to file a return of tax imposed by chapter 1 for 

the taxable year, 

(v) such other information as is prescribed by the 

Secretary by regulation as might indicate whether the 

taxpayer is eligible for such credit or reduction (and 

the amount thereof), and 

(vi) the taxable year with respect to which the preceding information relates or, if applicable, the fact 

that such information is not available. 

(B) INFORMATION TO EXCHANGE AND STATE AGENCIES.— The Secretary of Health and Human Services may disclose 

to an Exchange established under the Patient Protection 

and Affordable Care Act or its contractors, or to a State 

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paragraph (A) or its contractors, any inconsistency between the information provided by the Exchange or State 

agency to the Secretary and the information provided to 

the Secretary under subparagraph (A). 

(C) RESTRICTION ON USE OF DISCLOSED INFORMATION.— Return information disclosed under subparagraph (A) or 

(B) may be used by officers, employees, and contractors of 

the Department of Health and Human Services, an Exchange, or a State agency only for the purposes of, and to 

the extent necessary in— 

(i) establishing eligibility for participation in the Exchange, and verifying the appropriate amount of, any 

credit or reduction described in subparagraph (A), 

(ii) determining eligibility for participation in the 

State programs described in subparagraph (A). 

(22) DISCLOSURE OF RETURN INFORMATION TO DEPARTMENT

OF HEALTH AND HUMAN SERVICES FOR PURPOSES OF ENHANC- ING MEDICARE PROGRAM INTEGRITY.— (A) IN GENERAL.—The Secretary shall, upon written request from the Secretary of Health and Human Services, 

disclose to officers and employees of the Department of 

Health and Human Services return information with respect to a taxpayer who has applied to enroll, or reenroll, 

as a provider of services or supplier under the Medicare 

program under title XVIII of the Social Security Act. Such 

return information shall be limited to— 

(i) the taxpayer identity information with respect to 

such taxpayer; 

(ii) the amount of the delinquent tax debt owed by 

that taxpayer; and 

(iii) the taxable year to which the delinquent tax 

debt pertains. 

(B) RESTRICTION ON DISCLOSURE.—Return information 

disclosed under subparagraph (A) may be used by officers 

and employees of the Department of Health and Human 

Services for the purposes of, and to the extent necessary 

in, establishing the taxpayer’s eligibility for enrollment or 

reenrollment in the Medicare program, or in any administrative or judicial proceeding relating to, or arising from, 

a denial of such enrollment or reenrollment, or in determining the level of enhanced oversight to be applied with 

respect to such taxpayer pursuant to section 1866(j)(3) of 

the Social Security Act. 

(C) DELINQUENT TAX DEBT.—For purposes of this paragraph, the term ‘‘delinquent tax debt’’ means an outstanding debt under this title for which a notice of lien has 

been filed pursuant to section 6323, but the term does not 

include a debt that is being paid in a timely manner pursuant to an agreement under section 6159 or 7122, or a 

debt with respect to which a collection due process hearing 

under section 6330 is requested, pending, or completed and 

no payment is required. 

(m) DISCLOSURE OF TAXPAYER IDENTITY INFORMATION.— 

(1) TAX REFUNDS.—The Secretary may disclose taxpayer 

identity information to the press and other media for purposes 


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of notifying persons entitled to tax refunds when the Secretary, 

after reasonable effort and lapse of time, has been unable to 

locate such persons. 

(2) FEDERAL CLAIMS.— 

(A) IN GENERAL.—Except as provided in subparagraph 

(B), the Secretary may, upon written request, disclose the 

mailing address of a taxpayer for use by officers, employees, or agents of a Federal agency for purposes of locating 

such taxpayer to collect or compromise a Federal claim 

against the taxpayer in accordance with sections 3711, 

3717, and 3718 of title 31. 

(B) SPECIAL RULE FOR CONSUMER REPORTING AGENCY.— 

In the case of an agent of a Federal agency which is a consumer reporting agency (within the meaning of section 

603(f) of the Fair Credit Reporting Act (15 U.S.C. 

1681a(f))), the mailing address of a taxpayer may be disclosed to such agent under subparagraph (A) only for the 

purpose of allowing such agent to prepare a commercial 

credit report on the taxpayer for use by such Federal agency in accordance with sections 3711, 3717, and 3718 of title 

31. 

(3) NATIONAL INSTITUTE FOR OCCUPATIONAL SAFETY AND

HEALTH.—Upon written request, the Secretary may disclose 

the mailing address of taxpayers to officers and employees of 

the National Institute for Occupational Safety and Health solely for the purpose of locating individuals who are, or may have 

been, exposed to occupational hazards in order to determine 

the status of their health or to inform them of the possible 

need for medical care and treatment. 

(4) INDIVIDUALS WHO OWE AN OVERPAYMENT OF FEDERAL

PELL GRANTS OR WHO HAVE DEFAULTED ON STUDENT LOANS ADMINISTERED BY THE DEPARTMENT OF EDUCATION.— 

(A) IN GENERAL.—Upon written request by the Secretary 

of Education, the Secretary may disclose the mailing address of any taxpayer— 

(i) who owes an overpayment of a grant awarded to 

such taxpayer under subpart 1 of part A of title IV of 

the Higher Education Act of 1965, or 

(ii) who has defaulted on a loan— 

(I) made under part B, D, or E of title IV of the 

Higher Education Act of 1965, or 

(II) made pursuant to section 3(a)(1) of the Migration and Refugee Assistance Act of 1962 to a 

student at an institution of higher education, 

for use only by officers, employees, or agents of the Department of Education for purposes of locating such taxpayer 

for purposes of collecting such overpayment or loan. 

(B) DISCLOSURE TO EDUCATIONAL INSTITUTIONS, ETC..— 

Any mailing address disclosed under subparagraph (A)(i) 

may be disclosed by the Secretary of Education to— 

(i) any lender, or any State or nonprofit guarantee 

agency, which is participating under part B or D of 

title IV of the Higher Education Act of 1965, or 


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(ii) any educational institution with which the Secretary of Education has an agreement under subpart 

1 of part A, or part D or E, of title IV of such Act, 

for use only by officers, employees, or agents of such lender, guarantee agency, or institution whose duties relate to 

the collection of student loans for purposes of locating individuals who have defaulted on student loans made under 

such loan programs for purposes of collecting such loans. 

(5) INDIVIDUALS WHO HAVE DEFAULTED ON STUDENT LOANS

ADMINISTERED BY THE DEPARTMENT OF HEALTH AND HUMAN

SERVICES.— 

(A) IN GENERAL.—Upon written request by the Secretary 

of Health and Human Services, the Secretary may disclose 

the mailing address of any taxpayer who has defaulted on 

a loan made under part C 1 of title VII of the Public 

Health Service Act or under subpart II of part B of title 

VIII of such Act, for use only by officers, employees, or 

agents of the Department of Health and Human Services 

for purposes of locating such taxpayer for purposes of collecting such loan. 

(B) DISCLOSURE TO SCHOOLS AND ELIGIBLE LENDERS.— 

Any mailing address disclosed under subparagraph (A) 

may be disclosed by the Secretary of Health and Human 

Services to— 

(i) any school with which the Secretary of Health 

and Human Services has an agreement under subpart 

II 1 of part C of title VII of the Public Health Service 

Act or subpart II 1 of part B of title VIII of such Act, 

or 

(ii) any eligible lender (within the meaning of section 737(4) 1 of such Act) participating under subpart 

I 1 of part C of title VII of such Act, 

for use only by officers, employees, or agents of such school 

or eligible lender whose duties relate to the collection of 

student loans for purposes of locating individuals who have 

defaulted on student loans made under such subparts for 

the purposes of collecting such loans. 

(6) BLOOD DONOR LOCATOR SERVICE.— 

(A) IN GENERAL.—Upon written request pursuant to section 1141 of the Social Security Act, the Secretary shall 

disclose the mailing address of taxpayers to officers and 

employees of the Blood Donor Locator Service in the Department of Health and Human Services. 

(B) RESTRICTION ON DISCLOSURE.—The Secretary shall 

disclose return information under subparagraph (A) only 

for purposes of, and to the extent necessary in, assisting 

under the Blood Donor Locator Service authorized persons 

(as defined in section 1141(h)(1) of the Social Security Act) 

in locating blood donors who, as indicated by donated blood 

or products derived therefrom or by the history of the subsequent use of such blood or blood products, have or may 

have the virus for acquired immune deficiency syndrome, 

in order to inform such donors of the possible need for 

medical care and treatment. 


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(C) SAFEGUARDS.—The Secretary shall destroy all related blood donor records (as defined in section 1141(h)(2) 

of the Social Security Act) in the possession of the Department of the Treasury upon completion of their use in making the disclosure required under subparagraph (A), so as 

to make such records undisclosable. 

(7) SOCIAL SECURITY ACCOUNT STATEMENT FURNISHED BY SO- CIAL SECURITY ADMINISTRATION.—Upon written request by the 

Commissioner of Social Security, the Secretary may disclose 

the mailing address of any taxpayer who is entitled to receive 

a social security account statement pursuant to section 1143(c) 

of the Social Security Act, for use only by officers, employees 

or agents of the Social Security Administration for purposes of 

mailing such statement to such taxpayer. 

(n) CERTAIN OTHER PERSONS.—Pursuant to regulations prescribed 

by the Secretary, returns and return information may be disclosed 

to any person, including any person described in section 7513(a), to 

the extent necessary in connection with the processing, storage, 

transmission, and reproduction of such returns and return information, the programming, maintenance, repair, testing, and procurement of equipment, and the providing of other services, for purposes of tax administration. 

(o) DISCLOSURE OF RETURNS AND RETURN INFORMATION WITH RE- SPECT TO CERTAIN TAXES.— (1) TAXES IMPOSED BY SUBTITLE E.— 

(A) IN GENERAL.—Returns and return information with 

respect to taxes imposed by subtitle E (relating to taxes on 

alcohol, tobacco, and firearms) shall be open to inspection 

by or disclosure to officers and employees of a Federal 

agency whose official duties require such inspection or disclosure. 

(B) USE IN CERTAIN PROCEEDINGS.—Returns and return 

information disclosed to a Federal agency under subparagraph (A) may be used in an action or proceeding (or in 

preparation for such action or proceeding) brought under 

section 625 of the American Jobs Creation Act of 2004 for 

the collection of any unpaid assessment or penalty arising 

under such Act. 

(2) TAXES IMPOSED BY CHAPTER 35.—Returns and return information with respect to taxes imposed by chapter 35 (relating 

to taxes on wagering) shall, notwithstanding any other provision of this section, be open to inspection by or disclosure only 

to such person or persons and for such purpose or purposes as 

are prescribed by section 4424. 

(3) TAXES IMPOSED BY SECTION 4481.—Returns and return 

information with respect to taxes imposed by section 4481 shall 

be open to inspection by or disclosure to officers and employees 

of United States Customs and Border Protection of the Department of Homeland Security whose official duties require such 

inspection or disclosure for purposes of administering such section. 

(p) PROCEDURE AND RECORDKEEPING.— (1) MANNER, TIME, AND PLACE OF INSPECTIONS.—Requests for 

the inspection or disclosure of a return or return information 

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ner and at such time and place as shall be prescribed by the 

Secretary. 

(2) PROCEDURE.— (A) REPRODUCTION OF RETURNS.—A reproduction or certified reproduction of a return shall, upon written request, 

be furnished to any person to whom disclosure or inspection of such return is authorized under this section. A reasonable fee may be prescribed for furnishing such reproduction or certified reproduction. 

(B) DISCLOSURE OF RETURN INFORMATION.—Return information disclosed to any person under the provisions of this 

title may be provided in the form of written documents, reproductions of such documents, films or photoimpressions, 

or electronically produced tapes, disks, or records, or by 

any other mode or means which the Secretary determines 

necessary or appropriate. A reasonable fee may be prescribed for furnishing such return information. 

(C) USE OF REPRODUCTIONS.—Any reproduction of any 

return, document, or other matter made in accordance 

with this paragraph shall have the same legal status as 

the original, and any such reproduction shall, if properly 

authenticated, be admissible in evidence in any judicial or 

administrative proceeding as if it were the original, whether or not the original is in existence. 

(3) RECORDS OF INSPECTION AND DISCLOSURE.— (A) SYSTEM OF RECORDKEEPING.—Except as otherwise 

provided by this paragraph, the Secretary shall maintain 

a permanent system of standardized records or accountings of all requests for inspection or disclosure of returns 

and return information (including the reasons for and 

dates of such requests) and of returns and return information inspected or disclosed under this section and section 

6104(c). Notwithstanding the provisions of section 552a(c) 

of title 5, United States Code, the Secretary shall not be 

required to maintain a record or accounting of requests for 

inspection or disclosure of returns and return information, 

or of returns and return information inspected or disclosed, under the authority of subsection (c), (e), (f)(5), 

(h)(1), (3)(A), or (4), (i)(4), or (8)(A)(ii), (k)(1), (2), (6), (8), 

or (9), (l)(1), (4)(B), (5), (7), (8), (9), (10), (11), (12), (13), 

(14), (15), (16), (17), or (18), (m), or (n). The records or accountings required to be maintained under this paragraph 

shall be available for examination by the Joint Committee 

on Taxation or the Chief of Staff of such joint committee. 

Such record or accounting shall also be available for examination by such person or persons as may be, but only to 

the extent, authorized to make such examination under 

section 552a(c)(3) of title 5, United States Code. 

(B) REPORT BY THE SECRETARY.—The Secretary shall, 

within 90 days after the close of each calendar year, furnish to the Joint Committee on Taxation a report with respect to, or summary of, the records or accountings described in subparagraph (A) in such form and containing 

such information as such joint committee or the Chief of 

Staff of such joint committee may designate. Such report 


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or summary shall not, however, include a record or accounting of any request by the President under subsection 

(g) for, or the disclosure in response to such request of, any 

return or return information with respect to any individual 

who, at the time of such request, was an officer or employee of the executive branch of the Federal Government. 

Such report or summary, or any part thereof, may be disclosed by such joint committee to such persons and for 

such purposes as the joint committee may, by record vote 

of a majority of the members of the joint committee, determine. 

(C) PUBLIC REPORT ON DISCLOSURES.—The Secretary 

shall, within 90 days after the close of each calendar year, 

furnish to the Joint Committee on Taxation for disclosure 

to the public a report with respect to the records or accountings described in subparagraph (A) which— 

(i) provides with respect to each Federal agency, 

each agency, body, or commission described in subsection (d), (i)(3)(B)(i) or (7)(A)(ii), or (l)(6), and the 

Government Accountability Office the number of— 

(I) requests for disclosure of returns and return 

information, 

(II) instances in which returns and return information were disclosed pursuant to such requests 

or otherwise, 

(III) taxpayers whose returns, or return information with respect to whom, were disclosed pursuant to such requests, and 

(ii) describes the general purposes for which such requests were made. 

(4) SAFEGUARDS.—Any Federal agency described in subsection (h)(2), (h)(5), (i)(1), (2), (3), (5), or (7), (j)(1), (2), or (5), 

(k)(8), (10), or (11), (l)(1), (2), (3), (5), (10), (11), (13), (14), (17), 

or (22) or ø(o)(1)(A)¿, (o)(1)(A), or (o)(3) , the Government Accountability Office, the Congressional Budget Office, or any 

agency, body, or commission described in subsection (d), 

(i)(1)(C), (3)(B)(i), or (7)(A)(ii), or (k)(10), (l)(6), (7), (8), (9), (12), 

(15), or (16), any appropriate State officer (as defined in section 

6104(c)), or any other person described in subsection (k)(10), 

subsection (l)(10), (16), (18), (19), or (20), or any entity described in subsection (l)(21), shall, as a condition for receiving 

returns or return information— 

(A) establish and maintain, to the satisfaction of the Secretary, a permanent system of standardized records with 

respect to any request, the reason for such request, and 

the date of such request made by or of it and any disclosure of return or return information made by or to it; 

(B) establish and maintain, to the satisfaction of the Secretary, a secure area or place in which such returns or return information shall be stored; 

(C) restrict, to the satisfaction of the Secretary, access to 

the returns or return information only to persons whose 

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(D) provide such other safeguards which the Secretary 

determines (and which he prescribes in regulations) to be 

necessary or appropriate to protect the confidentiality of 

the returns or return information; 

(E) furnish a report to the Secretary, at such time and 

containing such information as the Secretary may prescribe, which describes the procedures established and utilized by such agency, body, or commission, the Government Accountability Office, or the Congressional Budget 

Office for ensuring the confidentiality of returns and return information required by this paragraph; and 

(F) upon completion of use of such returns or return information— 

(i) in the case of an agency, body, or commission described in subsection (d), (i)(3)(B)(i), (k)(10), or (l)(6), 

(7), (8), (9), or (16), any appropriate State officer (as 

defined in section 6104(c)), or any other person described in subsection (k)(10) or subsection (l)(10), (16), 

(18), (19), or (20) return to the Secretary such returns 

or return information (along with any copies made 

therefrom) or make such returns or return information 

undisclosable in any manner and furnish a written report to the Secretary describing such manner, 

(ii) in the case of an agency described in subsection 

(h)(2), (h)(5), (i)(1), (2), (3), (5) or (7), (j)(1), (2), or (5), 

(k)(8), (10), or (11), (l)(1), (2), (3), (5), (10), (11), (12), 

(13), (14), (15), (17), or (22), or ø(o)(1)(A)¿, (o)(1)(A), or 

(o)(3) or any entity described in subsection (l)(21), the 

Government Accountability Office, or the Congressional Budget Office, either— 

(I) return to the Secretary such returns or return information (along with any copies made 

therefrom), 

(II) otherwise make such returns or return information undisclosable, or 

(III) to the extent not so returned or made 

undisclosable, ensure that the conditions of subparagraphs (A), (B), (C), (D), and (E) of this paragraph continue to be met with respect to such returns or return information, and 

(iii) in the case of the Department of Health and 

Human Services for purposes of subsection (m)(6), destroy all such return information upon completion of 

its use in providing the notification for which the information was obtained, so as to make such information undisclosable; 

except that the conditions of subparagraphs (A), (B), (C), (D), 

and (E) shall cease to apply with respect to any return or return information if, and to the extent that, such return or return information is disclosed in the course of any judicial or 

administrative proceeding and made a part of the public record 

thereof. If the Secretary determines that any such agency, 

body, or commission, including an agency, an appropriate State 

officer (as defined in section 6104(c)), or any other person described in subsection (k)(10) or subsection (l)(10), (16), (18), 


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(19), or (20) or any entity described in subsection (l)(21), or the 

Government Accountability Office or the Congressional Budget 

Office, has failed to, or does not, meet the requirements of this 

paragraph, he may, after any proceedings for review established under paragraph (7), take such actions as are necessary 

to ensure such requirements are met, including refusing to disclose returns or return information to such agency, body, or 

commission, including an agency, an appropriate State officer 

(as defined in section 6104(c)), or any other person described 

in subsection (k)(10) or subsection (l)(10), (16), (18), (19), or 

(20) or any entity described in subsection (l)(21), or the Government Accountability Office or the Congressional Budget Office, until he determines that such requirements have been or 

will be met. In the case of any agency which receives any mailing address under paragraph (2), (4), (6), or (7) of subsection 

(m) and which discloses any such mailing address to any agent 

or which receives any information under paragraph (6)(A), (10), 

(12)(B), or (16) of subsection (l) and which discloses any such 

information to any agent, or any person including an agent described in subsection (l)(10) or (16), this paragraph shall apply 

to such agency and each such agent or other person (except 

that, in the case of an agent, or any person including an agent 

described in subsection (l)(10) or (16), any report to the Secretary or other action with respect to the Secretary shall be 

made or taken through such agency). For purposes of applying 

this paragraph in any case to which subsection (m)(6) applies, 

the term ‘‘return information’’ includes related blood donor 

records (as defined in section 1141(h)(2) of the Social Security 

Act). 

(5) REPORT ON PROCEDURES AND SAFEGUARDS.—After the 

close of each calendar year, the Secretary shall furnish to each 

committee described in subsection (f)(1) a report which describes the procedures and safeguards established and utilized 

by such agencies, bodies, or commissions, the Government Accountability Office, and the Congressional Budget Office for ensuring the confidentiality of returns and return information as 

required by this subsection. Such report shall also describe instances of deficiencies in, and failure to establish or utilize, 

such procedures. 

(6) AUDIT OF PROCEDURES AND SAFEGUARDS.— 

(A) AUDIT BY COMPTROLLER GENERAL.—The Comptroller 

General may audit the procedures and safeguards established by such agencies, bodies, or commissions and the 

Congressional Budget Office pursuant to this subsection to 

determine whether such safeguards and procedures meet 

the requirements of this subsection and ensure the confidentiality of returns and return information. The Comptroller General shall notify the Secretary before any such 

audit is conducted. 

(B) RECORDS OF INSPECTION AND REPORTS BY THE COMP- TROLLER GENERAL.—The Comptroller General shall— 

(i) maintain a permanent system of standardized 

records and accountings of returns and return information inspected by officers and employees of the Government Accountability Office under subsection 


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(i)(8)(A)(ii) and shall, within 90 days after the close of 

each calendar year, furnish to the Secretary a report 

with respect to, or summary of, such records or accountings in such form and containing such information as the Secretary may prescribe, and 

(ii) furnish an annual report to each committee described in subsection (f) and to the Secretary setting 

forth his findings with respect to any audit conducted 

pursuant to subparagraph (A). 

The Secretary may disclose to the Joint Committee any report furnished to him under clause (i). 

(7) ADMINISTRATIVE REVIEW.—The Secretary shall by regulations prescribe procedures which provide for administrative review of any determination under paragraph (4) that any agency, body, or commission described in subsection (d) has failed 

to meet the requirements of such paragraph. 

(8) STATE LAW REQUIREMENTS.— 

(A) SAFEGUARDS.—Notwithstanding any other provision 

of this section, no return or return information shall be 

disclosed after December 31, 1978, to any officer or employee of any State which requires a taxpayer to attach to, 

or include in, any State tax return a copy of any portion 

of his Federal return, or information reflected on such Federal return, unless such State adopts provisions of law 

which protect the confidentiality of the copy of the Federal 

return (or portion thereof) attached to, or the Federal return information reflected on, such State tax return. 

(B) DISCLOSURE OF RETURNS OR RETURN INFORMATION IN

STATE RETURNS.—Nothing in subparagraph (A) shall be 

construed to prohibit the disclosure by an officer or employee of any State of any copy of any portion of a Federal 

return or any information on a Federal return which is required to be attached or included in a State return to another officer or employee of such State (or political subdivision of such State) if such disclosure is specifically authorized by State law. 

(q) REGULATIONS.—The Secretary is authorized to prescribe such 

other regulations as are necessary to carry out the provisions of 

this section. 

* * * * * * * 

CHAPTER 68—ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE PENALTIES 

* * * * * * * 

Subchapter A—ADDITIONS TO THE TAX AND 

ADDITIONAL AMOUNTS 

* * * * * * * 


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PART I—GENERAL PROVISIONS 

* * * * * * * 

SEC. 6651. FAILURE TO FILE TAX RETURN OR TO PAY TAX. 

(a) ADDITION TO THE TAX.—In case of failure— 

(1) to file any return required under authority of subchapter 

A of chapter 61 (other than part III thereof), subchapter A of 

chapter 51 (relating to distilled spirits, wines, and beer), or of 

subchapter A of chapter 52 (relating to tobacco, cigars, cigarettes, and cigarette papers and tubes), or of subchapter A of 

chapter 53 (relating to machine guns and certain other firearms), on the date prescribed therefor (determined with regard 

to any extension of time for filing), unless it is shown that such 

failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown 

as tax on such return 5 percent of the amount of such tax if 

the failure is for not more than 1 month, with an additional 

5 percent for each additional month or fraction thereof during 

which such failure continues, not exceeding 25 percent in the 

aggregate; 

(2) to pay the amount shown as tax on any return specified 

in paragraph (1) on or before the date prescribed for payment 

of such tax (determined with regard to any extension of time 

for payment), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be 

added to the amount shown as tax on such return 0.5 percent 

of the amount of such tax if the failure is for not more than 

1 month, with an additional 0.5 percent for each additional 

month or fraction thereof during which such failure continues, 

not exceeding 25 percent in the aggregate; or 

(3) to pay any amount in respect of any tax required to be 

shown on a return specified in paragraph (1) which is not so 

shown (including an assessment made pursuant to section 

6213(b)) within 21 calendar days from the date of notice and 

demand therefor (10 business days if the amount for which 

such notice and demand is made equals or exceeds $100,000), 

unless it is shown that such failure is due to reasonable cause 

and not due to willful neglect, there shall be added to the 

amount of tax stated in such notice and demand 0.5 percent of 

the amount of such tax if the failure is for not more than 1 

month, with an additional 0.5 percent for each additional 

month or fraction thereof during which such failure continues, 

not exceeding 25 percent in the aggregate. 

In the case of a failure to file a return of tax imposed by chapter 

1 within 60 days of the date prescribed for filing of such return (determined with regard to any extensions of time for filing), unless 

it is shown that such failure is due to reasonable cause and not due 

to willful neglect, the addition to tax under paragraph (1) shall not 

be less than the lesser of ø$205¿ $400 or 100 percent of the amount 

required to be shown as tax on such return. 

(b) PENALTY IMPOSED ON NET AMOUNT DUE.—For purposes of— 

(1) subsection (a)(1), the amount of tax required to be shown 

on the return shall be reduced by the amount of any part of 

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ment of the tax and by the amount of any credit against the 

tax which may be claimed on the return, 

(2) subsection (a)(2), the amount of tax shown on the return 

shall, for purposes of computing the addition for any month, be 

reduced by the amount of any part of the tax which is paid on 

or before the beginning of such month and by the amount of 

any credit against the tax which may be claimed on the return, 

and 

(3) subsection (a)(3), the amount of tax stated in the notice 

and demand shall, for the purpose of computing the addition 

for any month, be reduced by the amount of any part of the 

tax which is paid before the beginning of such month. 

(c) LIMITATIONS AND SPECIAL RULE.— 

(1) ADDITIONS UNDER MORE THAN ONE PARAGRAPH.—With respect to any return, the amount of the addition under paragraph (1) of subsection (a) shall be reduced by the amount of 

the addition under paragraph (2) of subsection (a) for any 

month (or fraction thereof) to which an addition to tax applies 

under both paragraphs (1) and (2). In any case described in the 

last sentence of subsection (a), the amount of the addition 

under paragraph (1) of subsection (a) shall not be reduced 

under the preceding sentence below the amount provided in 

such last sentence. 

(2) AMOUNT OF TAX SHOWN MORE THAN AMOUNT REQUIRED TO

BE SHOWN.—If the amount required to be shown as tax on a 

return is less than the amount shown as tax on such return, 

subsections (a)(2) and (b)(2) shall be applied by substituting 

such lower amount. 

(d) INCREASE IN PENALTY FOR FAILURE TO PAY TAX IN CERTAIN

CASES.— 

(1) IN GENERAL.—In the case of each month (or fraction 

thereof) beginning after the day described in paragraph (2) of 

this subsection, paragraphs (2) and (3) of subsection (a) shall 

be applied by substituting ‘‘1 percent’’ for ‘‘0.5 percent’’ each 

place it appears. 

(2) DESCRIPTION.—For purposes of paragraph (1), the day described in this paragraph is the earlier of— 

(A) the day 10 days after the date on which notice is 

given under section 6331(d), or 

(B) the day on which notice and demand for immediate 

payment is given under the last sentence of section 

6331(a). 

(e) EXCEPTION FOR ESTIMATED TAX.—This section shall not apply 

to any failure to pay any estimated tax required to be paid by section 6654 or 6655. 

(f) INCREASE IN PENALTY FOR FRAUDULENT FAILURE TO FILE.—If 

any failure to file any return is fraudulent, paragraph (1) of subsection (a) shall be applied— 

(1) by substituting ‘‘15 percent’’ for ‘‘5 percent’’ each place it 

appears, and 

(2) by substituting ‘‘75 percent’’ for ‘‘25 percent’’. 

(g) TREATMENT OF RETURNS PREPARED BY SECRETARY UNDER SECTION 6020(B).—In the case of any return made by the Secretary 

under section 6020(b)— 


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(1) such return shall be disregarded for purposes of determining the amount of the addition under paragraph (1) of subsection (a), but 

(2) such return shall be treated as the return filed by the 

taxpayer for purposes of determining the amount of the addition under paragraphs (2) and (3) of subsection (a). 

(h) LIMITATION ON PENALTY ON INDIVIDUAL’S FAILURE TO PAY FOR

MONTHS DURING PERIOD OF INSTALLMENT AGREEMENT.—In the case 

of an individual who files a return of tax on or before the due date 

for the return (including extensions), paragraphs (2) and (3) of subsection (a) shall each be applied by substituting ‘‘0.25’’ for ‘‘0.5’’ 

each place it appears for purposes of determining the addition to 

tax for any month during which an installment agreement under 

section 6159 is in effect for the payment of such tax. 

(i) APPLICATION TO IMPUTED UNDERPAYMENT.—For purposes of 

this section, any failure to comply with section 6226(b)(4)(A)(ii) 

shall be treated as a failure to pay the amount described in subclause (II) thereof and such amount shall be treated for purposes 

of this section as an amount shown as tax on a return specified in 

subsection (a)(1). 

(j) ADJUSTMENT FOR INFLATION.— 

(1) IN GENERAL.—In the case of any return required to be 

filed in a calendar year beginning after 2014, the ø$205¿ $400 

dollar amount under subsection (a) shall be increased by an 

amount equal to such dollar amount multiplied by the cost-ofliving adjustment determined under section 1(f)(3) for the calendar year determined by substituting ‘‘calendar year 2013’’ for 

‘‘calendar year 2016’’ in subparagraph (A)(ii) thereof. 

(2) ROUNDING.—If any amount adjusted under paragraph (1) 

is not a multiple of $5, such amount shall be rounded to the 

next lowest multiple of $5. 

SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS, REGISTRATION STATEMENTS, ETC. 

(a) RETURNS WITH RESPECT TO CERTAIN PAYMENTS AGGREGATING

LESS THAN $10.—In the case of each failure to file a statement of 

a payment to another person required under the authority of— 

(1) section 6042(a)(2) (relating to payments of dividends aggregating less than $10), or 

(2) section 6044(a)(2) (relating to payments of patronage dividends aggregating less than $10), 

on the date prescribed therefor (determined with regard to any extension of time for filing), unless it is shown that such failure is 

due to reasonable cause and not to willful neglect, there shall be 

paid (upon notice and demand by the Secretary and in the same 

manner as tax) by the person failing to so file the statement, $1 

for each such statement not so filed, but the total amount imposed 

on the delinquent person for all such failures during the calendar 

year shall not exceed $1,000. 

(b) FAILURE TO REPORT TIPS.—In the case of failure by an employee to report to his employer on the date and in the manner prescribed therefor any amount of tips required to be so reported by 

section 6053(a) which are wages (as defined in section 3121(a)) or 

which are compensation (as defined in section 3231(e)), unless it is 

shown that such failure is due to reasonable cause and not due to 

willful neglect, there shall be paid by the employee, in addition to 


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the tax imposed by section 3101 or section 3201 (as the case may 

be) with respect to the amount of tips which he so failed to report, 

an amount equal to 50 percent of such tax. 

(c) RETURNS BY EXEMPT ORGANIZATIONS AND BY CERTAIN

TRUSTS.— 

(1) ANNUAL RETURNS UNDER SECTION 6033(A)(1) OR 6012(A)(6).— 

(A) PENALTY ON ORGANIZATION.—In the case of— 

(i) a failure to file a return required under section 

6033(a)(1) (relating to returns by exempt organizations) or section 6012(a)(6) (relating to returns by political organizations) on the date and in the manner 

prescribed therefor (determined with regard to any extension of time for filing), or 

(ii) a failure to include any of the information required to be shown on a return filed under section 

6033(a)(1) or section 6012(a)(6) or to show the correct 

information, 

there shall be paid by the exempt organization $20 for 

each day during which such failure continues. The maximum penalty under this subparagraph on failures with 

respect to any 1 return shall not exceed the lesser of 

$10,000 or 5 percent of the gross receipts of the organization for the year. In the case of an organization having 

gross receipts exceeding $1,000,000 for any year, with respect to the return required under section 6033(a)(1) or 

section 6012(a)(6) for such year, in applying the first sentence of this subparagraph, the amount of the penalty for 

each day during which a failure continues shall be $100 in 

lieu of the amount otherwise specified, and, in lieu of applying the second sentence of this subparagraph, the maximum penalty under this subparagraph shall not exceed 

$50,000. 

(B) MANAGERS.— 

(i) IN GENERAL.—The Secretary may make a written 

demand on any organization subject to penalty under 

subparagraph (A) specifying therein a reasonable future date by which the return shall be filed (or the information furnished) for purposes of this subparagraph. 

(ii) FAILURE TO COMPLY WITH DEMAND.—If any person fails to comply with any demand under clause (i) 

on or before the date specified in such demand, there 

shall be paid by the person failing to so comply $10 for 

each day after the expiration of the time specified in 

such demand during which such failure continues. The 

maximum penalty imposed under this subparagraph 

on all persons for failures with respect to any 1 return 

shall not exceed $5,000. 

(C) PUBLIC INSPECTION OF ANNUAL RETURNS AND RE- PORTS.—In the case of a failure to comply with the requirements of section 6104(d) with respect to any annual return 

on the date and in the manner prescribed therefor (determined with regard to any extension of time for filing) or 

report required under section 527(j), there shall be paid by 


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the person failing to meet such requirements $20 for each 

day during which such failure continues. The maximum 

penalty imposed under this subparagraph on all persons 

for failures with respect to any 1 return or report shall not 

exceed $10,000. 

(D) PUBLIC INSPECTION OF APPLICATIONS FOR EXEMPTION

AND NOTICE OF STATUS.—In the case of a failure to comply 

with the requirements of section 6104(d) with respect to 

any exempt status application materials (as defined in 

such section) or notice materials (as defined in such section) on the date and in the manner prescribed therefor, 

there shall be paid by the person failing to meet such requirements $20 for each day during which such failure 

continues. 

(E) NO PENALTY FOR CERTAIN ANNUAL NOTICES.—This 

paragraph shall not apply with respect to any notice required under section 6033(i). 

(2) RETURNS UNDER SECTION 6034 OR 6043(B).— (A) PENALTY ON ORGANIZATION OR TRUST.—In the case of 

a failure to file a return required under section 6034 (relating to returns by certain trusts) or section 6043(b) (relating to terminations, etc., of exempt organizations), on 

the date and in the manner prescribed therefor (determined with regard to any extension of time for filing), 

there shall be paid by the exempt organization or trust 

failing so to file $10 for each day during which such failure 

continues, but the total amount imposed under this subparagraph on any organization or trust for failure to file 

any 1 return shall not exceed $5,000. 

(B) MANAGERS.—The Secretary may make written demand on an organization or trust failing to file under subparagraph (A) specifying therein a reasonable future date 

by which such filing shall be made for purposes of this 

subparagraph. If such filing is not made on or before such 

date, there shall be paid by the person failing so to file $10 

for each day after the expiration of the time specified in 

the written demand during which such failure continues, 

but the total amount imposed under this subparagraph on 

all persons for failure to file any 1 return shall not exceed 

$5,000. 

(C) SPLIT-INTEREST TRUSTS.—In the case of a trust which 

is required to file a return under section 6034(a), subparagraphs (A) and (B) of this paragraph shall not apply and 

paragraph (1) shall apply in the same manner as if such 

return were required under section 6033, except that— 

(i) the 5 percent limitation in the second sentence of 

paragraph (1)(A) shall not apply, 

(ii) in the case of any trust with gross income in excess of $250,000, in applying the first sentence of 

paragraph (1)(A), the amount of the penalty for each 

day during which a failure continues shall be $100 in 

lieu of the amount otherwise specified, and in lieu of 

applying the second sentence of paragraph (1)(A), the 

maximum penalty under paragraph (1)(A) shall not 

exceed $50,000, and 


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(iii) the third sentence of paragraph (1)(A) shall be 

disregarded. 

In addition to any penalty imposed on the trust pursuant 

to this subparagraph, if the person required to file such return knowingly fails to file the return, such penalty shall 

also be imposed on such person who shall be personally 

liable for such penalty. 

(3) DISCLOSURE UNDER SECTION 6033(A)(2).— 

(A) PENALTY ON ENTITIES.—In the case of a failure to file 

a disclosure required under section 6033(a)(2), there shall 

be paid by the tax-exempt entity (the entity manager in 

the case of a tax-exempt entity described in paragraph (4), 

(5), (6), or (7) of section 4965(c)) $100 for each day during 

which such failure continues. The maximum penalty under 

this subparagraph on failures with respect to any 1 disclosure shall not exceed $50,000. 

(B) WRITTEN DEMAND.— 

(i) IN GENERAL.—The Secretary may make a written 

demand on any entity or manager subject to penalty 

under subparagraph (A) specifying therein a reasonable future date by which the disclosure shall be filed 

for purposes of this subparagraph. 

(ii) FAILURE TO COMPLY WITH DEMAND.—If any entity or manager fails to comply with any demand under 

clause (i) on or before the date specified in such demand, there shall be paid by such entity or manager 

failing to so comply $100 for each day after the expiration of the time specified in such demand during 

which such failure continues. The maximum penalty 

imposed under this subparagraph on all entities and 

managers for failures with respect to any 1 disclosure 

shall not exceed $10,000. 

(C) DEFINITIONS.—Any term used in this section which 

is also used in section 4965 shall have the meaning given 

such term under section 4965. 

(4) NOTICES UNDER SECTION 506.— 

(A) PENALTY ON ORGANIZATION.—In the case of a failure 

to submit a notice required under section 506(a) (relating 

to organizations required to notify Secretary of intent to 

operate as 501(c)(4)) on the date and in the manner prescribed therefor, there shall be paid by the organization 

failing to so submit $20 for each day during which such 

failure continues, but the total amount imposed under this 

subparagraph on any organization for failure to submit 

any one notice shall not exceed $5,000. 

(B) MANAGERS.—The Secretary may make written demand on an organization subject to penalty under subparagraph (A) specifying in such demand a reasonable future date by which the notice shall be submitted for purposes of this subparagraph. If such notice is not submitted 

on or before such date, there shall be paid by the person 

failing to so submit $20 for each day after the expiration 

of the time specified in the written demand during which 

such failure continues, but the total amount imposed 


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under this subparagraph on all persons for failure to submit any one notice shall not exceed $5,000. 

(5) REASONABLE CAUSE EXCEPTION.—No penalty shall be imposed under this subsection with respect to any failure if it is 

shown that such failure is due to reasonable cause. 

(6) OTHER SPECIAL RULES.— (A) TREATMENT AS TAX.—Any penalty imposed under 

this subsection shall be paid on notice and demand of the 

Secretary and in the same manner as tax. 

(B) JOINT AND SEVERAL LIABILITY.—If more than 1 person is liable under this subsection for any penalty with respect to any failure, all such persons shall be jointly and 

severally liable with respect to such failure. 

(C) PERSON.—For purposes of this subsection, the term 

‘‘person’’ means any officer, director, trustee, employee, or 

other individual who is under a duty to perform the act in 

respect of which the violation occurs. 

(7) ADJUSTMENT FOR INFLATION.— (A) IN GENERAL.—In the case of any failure relating to 

a return required to be filed in a calendar year beginning 

after 2014, each of the dollar amounts under paragraphs 

(1), (2), and (3) shall be increased by an amount equal to 

such dollar amount multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar 

year determined by substituting ‘‘calendar year 2013’’ for 

‘‘calendar year 2016’’ in subparagraph (A)(ii) thereof. 

(B) ROUNDING.—If any amount adjusted under subparagraph (A)— (i) is not less than $5,000 and is not a multiple of $500, such amount shall be rounded to the next lowest 

multiple of $500, and 

(ii) is not described in clause (i) and is not a multiple of $5, such amount shall be rounded to the next 

lowest multiple of $5. 

(d) ANNUAL REGISTRATION AND OTHER NOTIFICATION BY PENSION

PLAN.— 

(1) REGISTRATION.—In the case of any failure to file a registration statement required under section 6057(a) (relating to 

annual registration of certain plans) which includes all participants required to be included in such statement, on the date 

prescribed therefor (determined without regard to any extension of time for filing), unless it is shown that such failure is 

due to reasonable cause, there shall be paid (on notice and demand by the Secretary and in the same manner as tax) by the 

person failing so to file, an amount equal to ø$1¿ $2 for each 

participant with respect to whom there is a failure to file, multiplied by the number of days during which such failure continues, but the total amount imposed under this paragraph on 

any person for any failure to file with respect to any plan year 

shall not exceed ø$5,000¿ $10,000 . 

(2) NOTIFICATION OF CHANGE OF STATUS.—In the case of failure to file a notification required under section 6057(b) (relating to notification of change of status) on the date prescribed 

therefor (determined without regard to any extension of time 

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able cause, there shall be paid (on notice and demand by the 

Secretary and in the same manner as tax) by the person failing 

so to file, ø$1¿ $2 for each day during which such failure continues, but the total amounts imposed under this paragraph on 

any person for failure to file any notification shall not exceed 

ø$1,000¿ $5,000 . (e) INFORMATION REQUIRED IN CONNECTION WITH CERTAIN PLANS

OF DEFERRED COMPENSATION, ETC..—In the case of failure to file a 

return or statement required under section 6058 (relating to information required in connection with certain plans of deferred compensation), 6047 (relating to information relating to certain trusts 

and annuity and bond purchase plans), or 6039D (relating to returns and records with respect to certain fringe benefit plans) on 

the date and in the manner prescribed therefor (determined with 

regard to any extension of time for filing), unless it is shown that 

such failure is due to reasonable cause, there shall be paid (on notice and demand by the Secretary and in the same manner as tax) 

by the person failing so to file, ø$25¿ $105 for each day during 

which such failure continues, but the total amount imposed under 

this subsection on any person for failure to file any return shall not 

exceed ø$15,000¿ $50,000 . This subsection shall not apply to any 

return or statement which is an information return described in 

section 6724(d)(1)(C)(ii) or a payee statement described in section 

6724(d)(2)(AA). 

(f) RETURNS REQUIRED UNDER SECTION 6039C.— 

(1) IN GENERAL.—In the case of each failure to make a return 

required by section 6039C which contains the information required by such section on the date prescribed therefor (determined with regard to any extension of time for filing), unless 

it is shown that such failure is due to reasonable cause and not 

to willful neglect, the amount determined under paragraph (2) 

shall be paid (upon notice and demand by the Secretary and 

in the same manner as tax) by the person failing to make such 

return. 

(2) AMOUNT OF PENALTY.—For purposes of paragraph (1), the 

amount determined under this paragraph with respect to any 

failure shall be $25 for each day during which such failure continues. 

(3) LIMITATION.—The amount determined under paragraph 

(2) with respect to any person for failing to meet the requirements of section 6039C for any calendar year shall not exceed 

the lesser of— 

(A) $25,000, or 

(B) 5 percent of the aggregate of the fair market value 

of the United States real property interests owned by such 

person at any time during such year. 

For purposes of the preceding sentence, fair market value shall 

be determined as of the end of the calendar year (or, in the 

case of any property disposed of during the calendar year, as 

of the date of such disposition). 

(h) FAILURE TO GIVE NOTICE TO RECIPIENTS OF CERTAIN PENSION, ETC., DISTRIBUTIONS.—In the case of each failure to provide notice 

as required by section 3405(e)(10)(B), at the time prescribed therefor, unless it is shown that such failure is due to reasonable cause 

and not to willful neglect, there shall be paid, on notice and deVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00394 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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mand of the Secretary and in the same manner as tax, by the person failing to provide such notice, an amount equal to ø$10¿ $100 

for each such failure, but the total amount imposed on such person 

for all such failures during any calendar year shall not exceed 

ø$5,000¿ $50,000 . (i) FAILURE TO GIVE WRITTEN EXPLANATION TO RECIPIENTS OF

CERTAIN QUALIFYING ROLLOVER DISTRIBUTIONS.—In the case of each 

failure to provide a written explanation as required by section 

402(f), at the time prescribed therefor, unless it is shown that such 

failure is due to reasonable cause and not to willful neglect, there 

shall be paid, on notice and demand of the Secretary and in the 

same manner as tax, by the person failing to provide such written 

explanation, an amount equal to $100 for each such failure, but the 

total amount imposed on such person for all such failures during 

any calendar year shall not exceed $50,000. 

(j) FAILURE TO FILE CERTIFICATION WITH RESPECT TO CERTAIN

RESIDENTIAL RENTAL PROJECTS.—In the case of each failure to provide a certification as required by section 142(d)(7) at the time prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall be paid, on notice and demand of the Secretary and in the same manner as tax, 

by the person failing to provide such certification, an amount equal 

to $100 for each such failure. 

(k) FAILURE TO MAKE REPORTS REQUIRED UNDER SECTION 1202.— 

In the case of a failure to make a report required under section 

1202(d)(1)(C) which contains the information required by such section on the date prescribed therefor (determined with regard to any 

extension of time for filing), there shall be paid (on notice and demand by the Secretary and in the same manner as tax) by the person failing to make such report, an amount equal to $50 for each 

report with respect to which there was such a failure. In the case 

of any failure due to negligence or intentional disregard, the preceding sentence shall be applied by substituting ‘‘$100’’ for ‘‘$50’’. 

In the case of a report covering periods in 2 or more years, the penalty determined under preceding provisions of this subsection shall 

be multiplied by the number of such years. No penalty shall be imposed under this subsection on any failure which is shown to be 

due to reasonable cause and not willful neglect. 

(l) FAILURE TO FILE RETURN WITH RESPECT TO CERTAIN COR- PORATE TRANSACTIONS.—In the case of any failure to make a return 

required under section 6043(c) containing the information required 

by such section on the date prescribed therefor (determined with 

regard to any extension of time for filing), unless it is shown that 

such failure is due to reasonable cause, there shall be paid (on notice and demand by the Secretary and in the same manner as tax) 

by the person failing to file such return, an amount equal to $500 

for each day during which such failure continues, but the total 

amount imposed under this subsection with respect to any return 

shall not exceed $100,000. 

(m) ALCOHOL AND TOBACCO TAXES.—For penalties for failure to 

file certain information returns with respect to alcohol and tobacco 

taxes, see, generally, subtitle E. 

(n) FAILURE TO MAKE REPORTS REQUIRED UNDER SECTIONS 3511, 

6053(C)(8), AND 7705.—In the case of a failure to make a report required under section 3511, 6053(c)(8), or 7705 which contains the 


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information required by such section on the date prescribed therefor (determined with regard to any extension of time for filing), 

there shall be paid (on notice and demand by the Secretary and in 

the same manner as tax) by the person failing to make such report, 

an amount equal to $50 for each report with respect to which there 

was such a failure. In the case of any failure due to negligence or 

intentional disregard the preceding sentence shall be applied by 

substituting ‘‘$100’’ for ‘‘$50’’. 

(o) FAILURE TO PROVIDE NOTICES WITH RESPECT TO QUALIFIED

SMALL EMPLOYER HEALTH REIMBURSEMENT ARRANGEMENTS.—In the 

case of each failure to provide a written notice as required by section 9831(d)(4), unless it is shown that such failure is due to reasonable cause and not willful neglect, there shall be paid, on notice 

and demand of the Secretary and in the same manner as tax, by 

the person failing to provide such written notice, an amount equal 

to $50 per employee per incident of failure to provide such notice, 

but the total amount imposed on such person for all such failures 

during any calendar year shall not exceed $2,500. 

(p) FAILURE TO PROVIDE NOTICE UNDER SECTION 83(I).—In the 

case of each failure to provide a notice as required by section 

83(i)(6), at the time prescribed therefor, unless it is shown that 

such failure is due to reasonable cause and not to willful neglect, 

there shall be paid, on notice and demand of the Secretary and in 

the same manner as tax, by the person failing to provide such notice, an amount equal to $100 for each such failure, but the total 

amount imposed on such person for all such failures during any 

calendar year shall not exceed $50,000. 

* * * * * * * 

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 

1974 

* * * * * * * 

TITLE I—PROTECTION OF EMPLOYEE BENEFIT RIGHTS 

SUBTITLE A—GENERAL PROVISIONS

* * * * * * * 

DEFINITIONS

SEC. 3. For purposes of this title: 

(1) The terms ‘‘employee welfare benefit plan’’ and ‘‘welfare plan’’ 

mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee 

organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing 

for its participants or their beneficiaries, through the purchase of 

insurance or otherwise, (A) medical, surgical, or hospital care or 

benefits, or benefits in the event of sickness, accident, disability, 

death or unemployment, or vacation benefits, apprenticeship or 

other training programs, or day care centers, scholarship funds, or 

prepaid legal services, or (B) any benefit described in section 302(c) 

of the Labor Management Relations Act, 1947 (other than pensions 

on retirement or death, and insurance to provide such pensions). 


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(2)(A) Except as provided in subparagraph (B), the terms ‘‘employee pension benefit plan’’ and ‘‘pension plan’’ mean any plan, 

fund, or program which was heretofore or is hereafter established 

or maintained by an employer or by an employee organization, or 

by both, to the extent that by its express terms or as a result of 

surrounding circumstances such plan, fund, or program— 

(i) provides retirement income to employees, or 

(ii) results in a deferral of income by employees for periods 

extending to the termination of covered employment or beyond, 

regardless of the method of calculating the contributions made to 

the plan, the method of calculating the benefits under the plan or 

the method of distributing benefits from the plan. A distribution 

from a plan, fund, or program shall not be treated as made in a 

form other than retirement income or as a distribution prior to termination of covered employment solely because such distribution is 

made to an employee who has attained age 62 and who is not separated from employment at the time of such distribution. 

(B) The Secretary may by regulation prescribe rules consistent 

with the standards and purposes of this Act providing one or more 

exempt categories under which— 

(i) severance pay arrangements, and 

(ii) supplemental retirement income payments, under which 

the pension benefits of retirees or their beneficiaries are supplemented to take into account some portion or all of the increases in the cost of living (as determined by the Secretary of 

Labor) since retirement, 

shall, for purposes of this title, be treated as welfare plans rather 

than pension plans. In the case of any arrangement or payment a 

principal effect of which is the evasion of the standards or purposes 

of this Act applicable to pension plans, such arrangement or payment shall be treated as a pension plan. An applicable voluntary 

early retirement incentive plan (as defined in section 

457(e)(11)(D)(ii) of the Internal Revenue Code of 1986) making payments or supplements described in section 457(e)(11)(D)(i) of such 

Code, and an applicable employment retention plan (as defined in 

section 457(f)(4)(C) of such Code) making payments of benefits described in section 457(f)(4)(A) of such Code, shall, for purposes of 

this title, be treated as a welfare plan (and not a pension plan) 

with respect to such payments and supplements. 

(C) A pooled employer plan shall be treated as— 

(i) a single employee pension benefit plan or single pension 

plan; and 

(ii) a plan to which section 210(a) applies. 

(3) The term ‘‘employee benefit plan’’ or ‘‘plan’’ means an employee welfare benefit plan or an employee pension benefit plan or 

a plan which is both an employee welfare benefit plan and an employee pension benefit plan. 

(4) The term ‘‘employee organization’’ means any labor union or 

any organization of any kind, or any agency or employee representation committee, association, group, or plan, in which employees 

participate and which exists for the purpose, in whole or in part, 

of dealing with employers concerning an employee benefit plan, or 

other matters incidental to employment relationships; or any employees’ beneficiary association organized for the purpose in whole 

or in part, of establishing such a plan. 


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(5) The term ‘‘employer’’ means any person acting directly as an 

employer, or indirectly in the interest of an employer, in relation 

to an employee benefit plan; and includes a group or association of 

employers acting for an employer in such capacity. 

(6) The term ‘‘employee’’ means any individual employed by an 

employer. 

(7) The term ‘‘participant’’ means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or 

whose beneficiaries may be eligible to receive any such benefit. 

(8) The term ‘‘beneficiary’’ means a person designated by a participant, or by the terms of an employee benefit plan, who is or 

may become entitled to a benefit thereunder. 

(9) The term ‘‘person’’ means an individual, partnership, joint 

venture, corporation, mutual company, joint-stock company, trust, 

estate, unincorporated organization, association, or employee organization. 

(10) The term ‘‘State’’ includes any State of the United States, 

the District of Columbia, Puerto Rico, the Virgin Islands, American 

Samoa, Guam, Wake Island, and the Canal Zone. The term ‘‘United 

States’’ when used in the geographic sense means the States and 

the Outer Continental Shelf lands defined in the Outer Continental 

Shelf Lands Act (43 U.S.C. 1331–1343). 

(11) The term ‘‘commerce’’ means trade, traffic, commerce, transportation, or communication between any State and any place outside thereof. 

(12) The term ‘‘industry or activity affecting commerce’’ means 

any activity, business, or industry in commerce or in which a labor 

dispute would hinder or obstruct commerce or the free flow of commerce, and includes any activity or industry ‘‘affecting commerce’’ 

within the meaning of the Labor Management Relations Act, 1947, 

or the Railway Labor Act. 

(13) The term ‘‘Secretary’’ means the Secretary of Labor. 

(14) The term ‘‘party in interest’’ means, as to an employee benefit plan— 

(A) any fiduciary (including, but not limited to, any administrator, officer, trustee, or custodian), counsel, or employee of 

such employee benefit plan; 

(B) a person providing services to such plan; 

(C) an employer any of whose employees are covered by such 

plan; 

(D) an employee organization any of whose members are covered by such plan; 

(E) an owner, direct or indirect, of 50 percent or more of— 

(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of 

stock of a corporation, 

(ii) the capital interest or the profits interest of a partnership, or 

(iii) the beneficial interest of a trust or unincorporated 

enterprise, 

which is an employer or an employee organization described in 

subparagraph (C) or (D); 


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(F) a relative (as defined in paragraph (15)) of any individual 

described in subparagraph (A), (B), (C), or (E); 

(G) a corporation, partnership, or trust or estate of which (or 

in which) 50 percent or more of— 

(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of 

stock of such corporation, 

(ii) the capital interest or profits interest of such partnership, or 

(iii) the beneficial interest of such trust or estate, 

is owned directly or indirectly, or held by persons described in 

subparagraph (A), (B), (C), (D), or (E); 

(H) an employee, officer, director (or an individual having 

powers or responsibilities similar to those of officers or directors), or a 10 percent or more shareholder directly or indirectly, 

of a person described in subparagraph (B), (C), (D), (E), or (G), 

or of the employee benefit plan; or 

(I) a 10 percent or more (directly or indirectly in capital or 

profits) partner or joint venturer of a person described in subparagraph (B), (C), (D), (E), or (G). 

The Secretary, after consultation and coordination with the Secretary of the Treasury, may by regulation prescribe a percentage 

lower than 50 percent for subparagraph (E) and (G) and lower than 

10 percent for subparagraph (H) or (I). The Secretary may prescribe regulations for determining the ownership (direct or indirect) 

of profits and beneficial interests, and the manner in which indirect stockholdings are taken into account. Any person who is a 

party in interest with respect to a plan to which a trust described 

in section 501(c)(22) of the Internal Revenue Code of 1986 is permitted to make payments under section 4223 shall be treated as 

a party in interest with respect to such trust. 

(15) The term ‘‘relative’’ means a spouse, ancestor, lineal descendant, or spouse of a lineal descendant. 

(16)(A) The term ‘‘administrator’’ means— 

(i) the person specifically so designated by the terms of the 

instrument under which the plan is operated; 

(ii) if an administrator is not so designated, the plan sponsor; 

or 

(iii) in the case of a plan for which an administrator is not 

designated and a plan sponsor cannot be identified, such other 

person as the Secretary may by regulation prescribe. 

(B) The term ‘‘plan sponsor’’ means (i) the employer in the case 

of an employee benefit plan established or maintained by a single 

employer, (ii) the employee organization in the case of a plan established or maintained by an employee organization, øor¿ (iii) in the 

case of a plan established or maintained by two or more employers 

or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or 

other similar group of representatives of the parties who establish 

or maintain the planø.¿, or (iv) in the case of a pooled employer 

plan, the pooled plan provider. 

(17) The term ‘‘separate account’’ means an account established 

or maintained by an insurance company under which income, 

gains, and losses, whether or not realized, from assets allocated to 

such account, are, in accordance with the applicable contract, credVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00399 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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ited to or charged against such account without regard to other income, gains, or losses of the insurance company. 

(18) The term ‘‘adequate consideration’’ when used in part 4 of 

subtitle B means (A) in the case of a security for which there is 

a generally recognized market, either (i) the price of the security 

prevailing on a national securities exchange which is registered 

under section 6 of the Securities Exchange Act of 1934, or (ii) if the 

security is not traded on such a national securities exchange, a 

price not less favorable to the plan than the offering price for the 

security as established by the current bid and asked prices quoted 

by persons independent of the issuer and of any party in interest; 

and (B) in the case of an asset other than a security for which 

there is a generally recognized market, the fair market value of the 

asset as determined in good faith by the trustee or named fiduciary 

pursuant to the terms of the plan and in accordance with regulations promulgated by the Secretary. 

(19) The term ‘‘nonforfeitable’’ when used with respect to a pension benefit or right means a claim obtained by a participant or his 

beneficiary to that part of an immediate or deferred benefit under 

a pension plan which arises from the participant’s service, which 

is unconditional, and which is legally enforceable against the plan. 

For purposes of this paragraph, a right to an accrued benefit derived from employer contributions shall not be treated as forfeitable merely because the plan contains a provision described in section 203(a)(3). 

(20) The term ‘‘security’’ has the same meaning as such term has 

under section 2(1) of the Securities Act of 1933 (15 U.S.C. 77b(1)). 

(21)(A) Except as otherwise provided in subparagraph (B), a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting 

management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, 

with respect to any moneys or other property of such plan, or has 

any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan. Such term includes any person designated under 

section 405(c)(1)(B). 

(B) If any money or other property of an employee benefit plan 

is invested in securities issued by an investment company registered under the Investment Company Act of 1940, such investment shall not by itself cause such investment company or such investment company’s investment adviser or principal underwriter to 

be deemed to be a fiduciary or a party in interest as those terms 

are defined in this title, except insofar as such investment company 

or its investment adviser or principal underwriter acts in connection with an employee benefit plan covering employees of the investment company, the investment adviser, or its principal underwriter. Nothing contained in this subparagraph shall limit the duties imposed on such investment company, investment adviser, or 

principal underwriter by any other law. 

(22) The term ‘‘normal retirement benefit’’ means the greater of 

the early retirement benefit under the plan, or the benefit under 

the plan commencing at normal retirement age. The normal retirement benefit shall be determined without regard to— 


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(A) medical benefits, and 

(B) disability benefits not in excess of the qualified disability 

benefit. 

For purposes of this paragraph, a qualified disability benefit is a 

disability benefit provided by a plan which does not exceed the benefit which would be provided for the participant if he separated 

from the service at normal retirement age. For purposes of this 

paragraph, the early retirement benefit under a plan shall be determined without regard to any benefit under the plan which the 

Secretary of the Treasury finds to be a benefit described in section 

204(b)(1)(G). 

(23) The term ‘‘accrued benefit’’ means— 

(A) in the case of a defined benefit plan, the individual’s accrued benefit determined under the plan and, except as provided in section 204(c)(3), expressed in the form of an annual 

benefit commencing at normal retirement age, or 

(B) in the case of a plan which is an individual account plan, 

the balance of the individual’s account. 

The accrued benefit of an employee shall not be less than the 

amount determined under section 204(c)(2)(B) with respect to the 

employee’s accumulated contribution. 

(24) The term ‘‘normal retirement age’’ means the earlier of— 

(A) the time a plan participant attains normal retirement 

age under the plan, or 

(B) the later of— 

(i) the time a plan participant attains age 65, or 

(ii) the 5th anniversary of the time a plan participant 

commenced participation in the plan. 

(25) The term ‘‘vested liabilities’’ means the present value of the 

immediate or deferred benefits available at normal retirement age 

for participants and their beneficiaries which are nonforfeitable. 

(26) The term ‘‘current value’’ means fair market value where 

available and otherwise the fair value as determined in good faith 

by a trustee or a named fiduciary (as defined in section 402(a)(2)) 

pursuant to the terms of the plan and in accordance with regulations of the Secretary, assuming an orderly liquidation at the time 

of such determination. 

(27) The term ‘‘present value’’, with respect to a liability, means 

the value adjusted to reflect anticipated events. Such adjustments 

shall conform to such regulations as the Secretary of the Treasury 

may prescribe. 

(28) The term ‘‘normal service cost’’ or ‘‘normal cost’’ means the 

annual cost of future pension benefits and administrative expenses 

assigned, under an actuarial cost method, to years subsequent to 

a particular valuation date of a pension plan. The Secretary of the 

Treasury may prescribe regulations to carry out this paragraph. 

(29) The term ‘‘accrued liability’’ means the excess of the present 

value, as of a particular valuation date of a pension plan, of the 

projected future benefit costs and administrative expenses for all 

plan participants and beneficiaries over the present value of future 

contributions for the normal cost of all applicable plan participants 

and beneficiaries. The Secretary of the Treasury may prescribe regulations to carry out this paragraph. 

(30) The term ‘‘unfunded accrued liability’’ means the excess of 

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vides, over the present value of the assets of a pension plan. The 

Secretary of the Treasury may prescribe regulations to carry out 

this paragraph. 

(31) The term ‘‘advance funding actuarial cost method’’ or ‘‘actuarial cost method’’ means a recognized actuarial technique utilized 

for establishing the amount and incidence of the annual actuarial 

cost of pension plan benefits and expenses. Acceptable actuarial 

cost methods shall include the accrued benefit cost method (unit 

credit method), the entry age normal cost method, the individual 

level premium cost method, the aggregate cost method, the attained age normal cost method, and the frozen initial liability cost 

method. The terminal funding cost method and the current funding 

(pay-as-you-go) cost method are not acceptable actuarial cost methods. The Secretary of the Treasury shall issue regulations to further define acceptable actuarial cost methods. 

(32) The term ‘‘governmental plan’’ means a plan established or 

maintained for its employees by the Government of the United 

States, by the government of any State or political subdivision 

thereof, or by any agency or instrumentality of any of the foregoing. The term ‘‘governmental plan’’ also includes any plan to 

which the Railroad Retirement Act of 1935 or 1937 applies, and 

which is financed by contributions required under that Act and any 

plan of an international organization which is exempt from taxation under the provisions of the International Organizations Immunities Act (59 Stat. 669). The term ‘‘governmental plan’’ includes 

a plan which is established and maintained by an Indian tribal 

government (as defined in section 7701(a)(40) of the Internal Revenue Code of 1986), a subdivision of an Indian tribal government 

(determined in accordance with section 7871(d) of such Code), or an 

agency or instrumentality of either, and all of the participants of 

which are employees of such entity substantially all of whose services as such an employee are in the performance of essential governmental functions but not in the performance of commercial activities (whether or not an essential government function) 

(33)(A) The term ‘‘church plan’’ means a plan established and 

maintained (to the extent required in clause (ii) of subparagraph 

(B)) for its employees (or their beneficiaries) by a church or by a 

convention or association of churches which is exempt from tax 

under section 501 of the Internal Revenue Code of 1986. 

(B) The term ‘‘church plan’’ does not include a plan— 

(i) which is established and maintained primarily for the 

benefit of employees (or their beneficiaries) of such church or 

convention or association of churches who are employed in connection with one or more unrelated trades or businesses (within the meaning of section 513 of the Internal Revenue Code of 

1986), or 

(ii) if less than substantially all of the individuals included 

in the plan are individuals described in subparagraph (A) or in 

clause (ii) of subparagraph (C) (or their beneficiaries). 

(C) For purposes of this paragraph— 

(i) A plan established and maintained for its employees (or 

their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal 

purpose or function of which is the administration or funding 


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of a plan or program for the provision of retirement benefits or 

welfare benefits, or both, for the employees of a church or a 

convention or association of churches, if such organization is 

controlled by or associated with a church or a convention or association of churches. 

(ii) The term employee of a church or a convention or association of churches includes— 

(I) a duly ordained, commissioned, or licensed minister 

of a church in the exercise of his ministry, regardless of 

the source of his compensation; 

(II) an employee of an organization, whether a civil law 

corporation or otherwise, which is exempt from tax under 

section 501 of the Internal Revenue Code of 1986 and 

which is controlled by or associated with a church or a convention or association of churches; and 

(III) an individual described in clause (v). 

(iii) A church or a convention or association of churches 

which is exempt from tax under section 501 of the Internal 

Revenue Code of 1986 shall be deemed the employer of any individual included as an employee under clause (ii). 

(iv) An organization, whether a civil law corporation or otherwise, is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church or convention or association of 

churches. 

(v) If an employee who is included in a church plan separates from the service of a church or a convention or association of churches or an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 

501 of the Internal Revenue Code of 1986 and which is controlled by or associated with a church or a convention or association of churches, the church plan shall not fail to meet the 

requirements of this paragraph merely because the plan— 

(I) retains the employee’s accrued benefit or account for 

the payment of benefits to the employee or his beneficiaries pursuant to the terms of the plan; or 

(II) receives contributions on the employee’s behalf after 

the employee’s separation from such service, but only for 

a period of 5 years after such separation, unless the employee is disabled (within the meaning of the disability 

provisions of the church plan or, if there are no such provisions in the church plan, within the meaning of section 

72(m)(7) of the Internal Revenue Code of 1986) at the time 

of such separation from service. 

(D)(i) If a plan established and maintained for its employees (or 

their beneficiaries) by a church or by a convention or association 

of churches which is exempt from tax under section 501 of the Internal Revenue Code of 1986 fails to meet one or more of the requirements of this paragraph and corrects its failure to meet such 

requirements within the correction period, the plan shall be 

deemed to meet the requirements of this paragraph for the year in 

which the correction was made and for all prior years. 

(ii) If a correction is not made within the correction period, the 

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graph beginning with the date on which the earliest failure to meet 

one or more of such requirements occurred. 

(iii) For purposes of this subparagraph, the term ‘‘correction period’’ means— 

(I) the period ending 270 days after the date of mailing by 

the Secretary of the Treasury of a notice of default with respect 

to the plan’s failure to meet one or more of the requirements 

of this paragraph; or 

(II) any period set by a court of competent jurisdiction after 

a final determination that the plan fails to meet such requirements, or, if the court does not specify such period, any reasonable period determined by the Secretary of the Treasury on the 

basis of all the facts and circumstances, but in any event not 

less than 270 days after the determination has become final; 

or 

(III) any additional period which the Secretary of the Treasury determines is reasonable or necessary for the correction of 

the default, 

whichever has the latest ending date. 

(34) The term ‘‘individual account plan’’ or ‘‘defined contribution 

plan’’ means a pension plan which provides for an individual account for each participant and for benefits based solely upon the 

amount contributed to the participant’s account, and any income, 

expenses, gains and losses, and any forfeitures of accounts of other 

participants which may be allocated to such participant’s account. 

(35) The term ‘‘defined benefit plan’’ means a pension plan other 

than an individual account plan; except that a pension plan which 

is not an individual account plan and which provides a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant— 

(A) for the purposes of section 202, shall be treated as an individual account plan, and 

(B) for the purposes of paragraph (23) of this section and section 204, shall be treated as an individual account plan to the 

extent benefits are based upon the separate account of a participant and as a defined benefit plan with respect to the remaining portion of benefits under the plan. 

(36) The term ‘‘excess benefit plan’’ means a plan maintained by 

an employer solely for the purpose of providing benefits for certain 

employees in excess of the limitations on contributions and benefits 

imposed by section 415 of the Internal Revenue Code of 1986 on 

plans to which that section applies, without regard to whether the 

plan is funded. To the extent that a separable part of a plan (as 

determined by the Secretary of Labor) maintained by an employer 

is maintained for such purpose, that part shall be treated as a separate plan which is an excess benefit plan. 

(37)(A) The term ‘‘multiemployer plan’’ means a plan— 

(i) to which more than one employer is required to contribute, 

(ii) which is maintained pursuant to one or more collective 

bargaining agreements between one or more employee organizations and more than one employer, and 

(iii) which satisfies such other requirements as the Secretary 

may prescribe by regulation. 


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(B) For purposes of this paragraph, all trades or businesses 

(whether or not incorporated) which are under common control 

within the meaning of section 4001(b)(1) are considered a single 

employer. 

(C) Notwithstanding subparagraph (A), a plan is a multiemployer 

plan on and after its termination date if the plan was a multiemployer plan under this paragraph for the plan year preceding its 

termination date. 

(D) For purposes of this title, notwithstanding the preceding provisions of this paragraph, for any plan year which began before the 

date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, the term ‘‘multiemployer plan’’ means a plan described in section 3(37) of this Act as in effect immediately before 

such date. 

(E) Within one year after the date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, a multiemployer 

plan may irrevocably elect, pursuant to procedures established by 

the corporation and subject to the provisions of sections 4403(b) 

and (c), that the plan shall not be treated as a multiemployer plan 

for all purposes under this Act or the Internal Revenue Code of 

1954 if for each of the last 3 plan years ending prior to the effective 

date of the Multiemployer Pension Plan Amendments Act of 1980— 

(i) the plan was not a multiemployer plan because the plan 

was not a plan described in section 3(37)(A)(iii) of this Act and 

section 414(f)(1)(C) of the Internal Revenue Code of 1954 (as 

such provisions were in effect on the day before the date of the 

enactment of the Multiemployer Pension Plan Amendments 

Act of 1980 ); and 

(ii) the plan had been identified as a plan that was not a 

multiemployer plan in substantially all its filings with the corporation, the Secretary of Labor and the Secretary of the 

Treasury. 

(F)(i) For purposes of this title a qualified football coaches plan— 

(I) shall be treated as a multiemployer plan to the extent not 

inconsistent with the purposes of this subparagraph; and 

(II) notwithstanding section 401(k)(4)(B) of the Internal Revenue Code of 1986, may include a qualified cash and deferred 

arrangement. 

(ii) For purposes of this subparagraph, the term ‘‘qualified football coaches plan’’ means any defined contribution plan which is established and maintained by an organization— 

(I) which is described in section 501(c) of such Code; 

(II) the membership of which consists entirely of individuals 

who primarily coach football as full-time employees of 4-year 

colleges or universities described in section 170(b)(1)(A)(ii) of 

such Code; and 

(III) which was in existence on September 18, 1986. 

(G)(i) Within 1 year after the enactment of the Pension Protection Act of 2006— 

(I) an election under subparagraph (E) may be revoked, 

pursuant to procedures prescribed by the Pension Benefit 

Guaranty Corporation, if, for each of the 3 plan years prior 

to the date of the enactment of that Act, the plan would 

have been a multiemployer plan but for the election under 

subparagraph (E), and 


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(II) a plan that meets the criteria in clauses (i) and (ii) 

of subparagraph (A) of this paragraph or that is described 

in clause (vi) may, pursuant to procedures prescribed by 

the Pension Benefit Guaranty Corporation, elect to be a 

multiemployer plan, if— 

(aa) for each of the 3 plan years immediately preceding the first plan year for which the election under 

this paragraph is effective with respect to the plan, 

the plan has met those criteria or is so described, 

(bb) substantially all of the plan’s employer contributions for each of those plan years were made or 

required to be made by organizations that were exempt from tax under section 501 of the Internal Revenue Code of 1986, and 

(cc) the plan was established prior to September 2, 

1974. 

(ii) An election under this subparagraph shall be effective for 

all purposes under this Act and under the Internal Revenue 

Code of 1986, starting with any plan year beginning on or after 

January 1, 1999, and ending before January 1, 2008, as designated by the plan in the election made under clause (i)(II). 

(iii) Once made, an election under this subparagraph shall be 

irrevocable, except that a plan described in clause (i)(II) shall 

cease to be a multiemployer plan as of the plan year beginning 

immediately after the first plan year for which the majority of 

its employer contributions were made or required to be made 

by organizations that were not exempt from tax under section 

501 of the Internal Revenue Code of 1986. 

(iv) The fact that a plan makes an election under clause 

(i)(II) does not imply that the plan was not a multiemployer 

plan prior to the date of the election or would not be a multiemployer plan without regard to the election. 

(v)(I) No later than 30 days before an election is made under 

this subparagraph, the plan administrator shall provide notice 

of the pending election to each plan participant and beneficiary, each labor organization representing such participants 

or beneficiaries, and each employer that has an obligation to 

contribute to the plan, describing the principal differences between the guarantee programs under title IV and the benefit 

restrictions under this title for single employer and multiemployer plans, along with such other information as the plan administrator chooses to include. 

(II) Within 180 days after the date of enactment of the Pension Protection Act of 2006, the Secretary shall prescribe a 

model notice under this clause. 

(III) A plan administrator’s failure to provide the notice required under this subparagraph shall be treated for purposes 

of section 502(c)(2) as a failure or refusal by the plan administrator to file the annual report required to be filed with the 

Secretary under section 101(b)(1). 

(vi) A plan is described in this clause if it is a plan sponsored 

by an organization which is described in section 501(c)(5) of the 

Internal Revenue Code of 1986 and exempt from tax under section 501(a) of such Code and which was established in Chicago, 

Illinois, on August 12, 1881. 


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(vii) For purposes of this Act and the Internal Revenue Code of 

1986, a plan making an election under this subparagraph shall be 

treated as maintained pursuant to a collective bargaining agreement if a collective bargaining agreement, expressly or otherwise, 

provides for or permits employer contributions to the plan by one 

or more employers that are signatory to such agreement, or participation in the plan by one or more employees of an employer that 

is signatory to such agreement, regardless of whether the plan was 

created, established, or maintained for such employees by virtue of 

another document that is not a collective bargaining agreement. 

(38) The term ‘‘investment manager’’ means any fiduciary (other 

than a trustee or named fiduciary, as defined in section 

402(a)(2))— 

(A) who has the power to manage, acquire, or dispose of any 

asset of a plan; 

(B) who (i) is registered as an investment adviser under the 

Investment Advisers Act of 1940; (ii) is not registered as an investment adviser under such Act by reason of paragraph (1) of 

section 203A(a) of such Act, is registered as an investment adviser under the laws of the State (referred to in such paragraph (1)) in which it maintains its principal office and place 

of business, and, at the time the fiduciary last filed the registration form most recently filed by the fiduciary with such 

State in order to maintain the fiduciary’s registration under 

the laws of such State, also filed a copy of such form with the 

Secretary; (iii) is a bank, as defined in that Act; or (iv) is an 

insurance company qualified to perform services described in 

subparagraph (A) under the laws of more than one State; and 

(C) has acknowledged in writing that he is a fiduciary with 

respect to the plan. 

(39) The terms ‘‘plan year’’ and ‘‘fiscal year of the plan’’ mean, 

with respect to a plan, the calendar, policy, or fiscal year on which 

the records of the plan are kept. 

(40)(A) The term ‘‘multiple employer welfare arrangement’’ 

means an employee welfare benefit plan, or any other arrangement 

(other than an employee welfare benefit plan), which is established 

or maintained for the purpose of offering or providing any benefit 

described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their 

beneficiaries, except that such term does not include any such plan 

or other arrangement which is established or maintained— 

(i) under or pursuant to one or more agreements which the 

Secretary finds to be collective bargaining agreements, 

(ii) by a rural electric cooperative, or 

(iii) by a rural telephone cooperative association. 

(B) For purposes of this paragraph— 

(i) two or more trades or businesses, whether or not incorporated, shall be deemed a single employer if such trades or 

businesses are within the same control group, 

(ii) the term ‘‘control group’’ means a group of trades or businesses under common control, 

(iii) the determination of whether a trade or business is 

under ‘‘common control’’ with another trade or business shall 

be determined under regulations of the Secretary applying 

principles similar to the principles applied in determining 


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whether employees of two or more trades or businesses are 

treated as employed by a single employer under section 

4001(b), except that, for purposes of this paragraph, common 

control shall not be based on an interest of less than 25 percent, 

(iv) the term ‘‘rural electric cooperative’’ means— 

(I) any organization which is exempt from tax under section 501(a) of the Internal Revenue Code of 1986 and 

which is engaged primarily in providing electric service on 

a mutual or cooperative basis, and 

(II) any organization described in paragraph (4) or (6) of 

section 501(c) of the Internal Revenue Code of 1986 which 

is exempt from tax under section 501(a) of such Code and 

at least 80 percent of the members of which are organizations described in subclause (I), and 

(v) the term ‘‘rural telephone cooperative association’’ means 

an organization described in paragraph (4) or (6) of section 

501(c) of the Internal Revenue Code of 1986 which is exempt 

from tax under section 501(a) of such Code and at least 80 percent of the members of which are organizations engaged primarily in providing telephone service to rural areas of the 

United States on a mutual, cooperative, or other basis. 

(41) SINGLE-EMPLOYER PLAN.—The term ‘‘single-employer plan’’ 

means an employee benefit plan other than a multiemployer plan. 

ø(41) The term ‘‘single-employer plan’’ means a plan which is not 

a multiemployer plan.¿ 

(42) the term ‘‘plan assets’’ means plan assets as defined by such 

regulations as the Secretary may prescribe, except that under such 

regulations the assets of any entity shall not be treated as plan assets if, immediately after the most recent acquisition of any equity 

interest in the entity, less than 25 percent of the total value of each 

class of equity interest in the entity is held by benefit plan investors. For purposes of determinations pursuant to this paragraph, 

the value of any equity interest held by a person (other than such 

a benefit plan investor) who has discretionary authority or control 

with respect to the assets of the entity or any person who provides 

investment advice for a fee (direct or indirect) with respect to such 

assets, or any affiliate of such a person, shall be disregarded for 

purposes of calculating the 25 percent threshold. An entity shall be 

considered to hold plan assets only to the extent of the percentage 

of the equity interest held by benefit plan investors. For purposes 

of this paragraph, the term ‘‘benefit plan investor’’ means an employee benefit plan subject to part 4, any plan to which section 

4975 of the Internal Revenue Code of 1986 applies, and any entity 

whose underlying assets include plan assets by reason of a plan’s 

investment in such entity. 

(43) POOLED EMPLOYER PLAN.— 

(A) IN GENERAL.—The term ‘‘pooled employer plan’’ means a 

plan— 

(i) which is an individual account plan established or 

maintained for the purpose of providing benefits to the employees of 2 or more employers; 

(ii) which is a plan described in section 401(a) of the Internal Revenue Code of 1986 which includes a trust exempt 

from tax under section 501(a) of such Code or a plan that 


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consists of individual retirement accounts described in section 408 of such Code (including by reason of subsection (c) 

thereof); and 

(iii) the terms of which meet the requirements of subparagraph (B). 

Such term shall not include a plan maintained by employers 

which have a common interest other than having adopted the 

plan. 

(B) REQUIREMENTS FOR PLAN TERMS.—The requirements of 

this subparagraph are met with respect to any plan if the terms 

of the plan— 

(i) designate a pooled plan provider and provide that the 

pooled plan provider is a named fiduciary of the plan; 

(ii) designate one or more trustees meeting the requirements of section 408(a)(2) of the Internal Revenue Code of 

1986 (other than an employer in the plan) to be responsible 

for collecting contributions to, and holding the assets of, the 

plan and require such trustees to implement written contribution collection procedures that are reasonable, diligent, 

and systematic; 

(iii) provide that each employer in the plan retains fiduciary responsibility for— 

(I) the selection and monitoring in accordance with 

section 404(a) of the person designated as the pooled 

plan provider and any other person who, in addition to 

the pooled plan provider, is designated as a named fiduciary of the plan; and 

(II) to the extent not otherwise delegated to another 

fiduciary by the pooled plan provider and subject to the 

provisions of section 404(c), the investment and management of the portion of the plan’s assets attributable 

to the employees of the employer (or beneficiaries of 

such employees); 

(iv) provide that employers in the plan, and participants 

and beneficiaries, are not subject to unreasonable restrictions, fees, or penalties with regard to ceasing participation, 

receipt of distributions, or otherwise transferring assets of 

the plan in accordance with section 208 or paragraph 

(44)(C)(i)(II); 

(v) require— 

(I) the pooled plan provider to provide to employers 

in the plan any disclosures or other information which 

the Secretary may require, including any disclosures or 

other information to facilitate the selection or any monitoring of the pooled plan provider by employers in the 

plan; and 

(II) each employer in the plan to take such actions as 

the Secretary or the pooled plan provider determines 

are necessary to administer the plan or for the plan to 

meet any requirement applicable under this Act or the 

Internal Revenue Code of 1986 to a plan described in 

section 401(a) of such Code or to a plan that consists 

of individual retirement accounts described in section 

408 of such Code (including by reason of subsection (c) 

thereof), whichever is applicable, including providing 


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any disclosures or other information which the Secretary may require or which the pooled plan provider 

otherwise determines are necessary to administer the 

plan or to allow the plan to meet such requirements; 

and 

(vi) provide that any disclosure or other information required to be provided under clause (v) may be provided in 

electronic form and will be designed to ensure only reasonable costs are imposed on pooled plan providers and employers in the plan. 

(C) EXCEPTIONS.—The term ‘‘pooled employer plan’’ does not 

include— 

(i) a multiemployer plan; or 

(ii) a plan established before the date of the enactment of 

the Setting Every Community Up for Retirement Enhancement Act of 2019 unless the plan administrator elects that 

the plan will be treated as a pooled employer plan and the 

plan meets the requirements of this title applicable to a 

pooled employer plan established on or after such date. 

(D) TREATMENT OF EMPLOYERS AS PLAN SPONSORS.—Except 

with respect to the administrative duties of the pooled plan provider described in paragraph (44)(A)(i), each employer in a 

pooled employer plan shall be treated as the plan sponsor with 

respect to the portion of the plan attributable to employees of 

such employer (or beneficiaries of such employees). 

(44) POOLED PLAN PROVIDER.— 

(A) IN GENERAL.—The term ‘‘pooled plan provider’’ means a 

person who— 

(i) is designated by the terms of a pooled employer plan 

as a named fiduciary, as the plan administrator, and as 

the person responsible for the performance of all administrative duties (including conducting proper testing with respect to the plan and the employees of each employer in the 

plan) which are reasonably necessary to ensure that— 

(I) the plan meets any requirement applicable under 

this Act or the Internal Revenue Code of 1986 to a plan 

described in section 401(a) of such Code or to a plan 

that consists of individual retirement accounts described in section 408 of such Code (including by reason of subsection (c) thereof), whichever is applicable; 

and 

(II) each employer in the plan takes such actions as 

the Secretary or pooled plan provider determines are 

necessary for the plan to meet the requirements described in subclause (I), including providing the disclosures and information described in paragraph 

(43)(B)(v)(II); 

(ii) registers as a pooled plan provider with the Secretary, 

and provides to the Secretary such other information as the 

Secretary may require, before beginning operations as a 

pooled plan provider; 

(iii) acknowledges in writing that such person is a named 

fiduciary, and the plan administrator, with respect to the 

pooled employer plan; and 


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(iv) is responsible for ensuring that all persons who handle assets of, or who are fiduciaries of, the pooled employer 

plan are bonded in accordance with section 412. 

(B) AUDITS, EXAMINATIONS AND INVESTIGATIONS.—The Secretary may perform audits, examinations, and investigations of 

pooled plan providers as may be necessary to enforce and carry 

out the purposes of this paragraph and paragraph (43). 

(C) GUIDANCE.—The Secretary shall issue such guidance as 

the Secretary determines appropriate to carry out this paragraph and paragraph (43), including guidance— 

(i) to identify the administrative duties and other actions 

required to be performed by a pooled plan provider under 

either such paragraph; and 

(ii) which requires in appropriate cases that if an employer in the plan fails to take the actions required under 

subparagraph (A)(i)(II)— 

(I) the assets of the plan attributable to employees of 

such employer (or beneficiaries of such employees) are 

transferred to a plan maintained only by such employer (or its successor), to an eligible retirement plan 

as defined in section 402(c)(8)(B) of the Internal Revenue Code of 1986 for each individual whose account 

is transferred, or to any other arrangement that the 

Secretary determines is appropriate in such guidance; 

and 

(II) such employer (and not the plan with respect to 

which the failure occurred or any other employer in 

such plan) shall, except to the extent provided in such 

guidance, be liable for any liabilities with respect to 

such plan attributable to employees of such employer 

(or beneficiaries of such employees). 

The Secretary shall take into account under clause (ii) 

whether the failure of an employer or pooled plan provider 

to provide any disclosures or other information, or to take 

any other action, necessary to administer a plan or to allow 

a plan to meet requirements described in subparagraph 

(A)(i)(II) has continued over a period of time that demonstrates a lack of commitment to compliance. The Secretary may waive the requirements of subclause (ii)(I) in 

appropriate circumstances if the Secretary determines it is 

in the best interests of the employees of the employer referred to in such clause (and the beneficiaries of such employees) to retain the assets in the plan with respect to 

which the employer’s failure occurred. 

(D) GOOD FAITH COMPLIANCE WITH LAW BEFORE GUIDANCE.— 

An employer or pooled plan provider shall not be treated as 

failing to meet a requirement of guidance issued by the Secretary under subparagraph (C) if, before the issuance of such 

guidance, the employer or pooled plan provider complies in 

good faith with a reasonable interpretation of the provisions of 

this paragraph, or paragraph (43), to which such guidance relates. 

(E) AGGREGATION RULES.—For purposes of this paragraph, in 

determining whether a person meets the requirements of this 

paragraph to be a pooled plan provider with respect to any 


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plan, all persons who perform services for the plan and who are 

treated as a single employer under subsection (b), (c), (m), or (o) 

of section 414 of the Internal Revenue Code of 1986 shall be 

treated as one person. 

* * * * * * * 

SUBTITLE B—REGULATORY PROVISIONS

PART 1—REPORTING AND DISCLOSURE

* * * * * * * 

ANNUAL REPORTS

SEC. 103. (a)(1)(A) An annual report shall be published with respect to every employee benefit plan to which this part applies. 

Such report shall be filed with the Secretary in accordance with 

section 104(a), and shall be made available and furnished to participants in accordance with section 104(b). 

(B) The annual report shall include the information described in 

subsections (b) and (c) and where øapplicable subsections (d), (e), 

and (f)¿ applicable subsections (d), (e), (f), and (g) and shall also include— 

(i) a financial statement and opinion, as required by paragraph (3) of this subsection, and 

(ii) an actuarial statement and opinion, as required by paragraph (4) of this subsection. 

(2) If some or all of the information necessary to enable the administrator to comply with the requirements of this title is maintained by— 

(A) an insurance carrier or other organization which provides 

some or all of the benefits under the plan, or holds assets of 

the plan in a separate account, 

(B) a bank or similar institution which holds some or all of 

the assets of the plan in a common or collective trust or a separate trust, or custodial account, or 

(C) a plan sponsor as defined in section 3(16)(B), 

such carrier, organization, bank, institution, or plan sponsor shall 

transmit and certify the accuracy of such information to the administrator within 120 days after the end of the plan year (or such 

other date as may be prescribed under regulations of the Secretary). 

(3)(A) Except as provided in subparagraph (C), the administrator 

of an employee benefit plan shall engage, on behalf of all plan participants, an independent qualified public accountant, who shall 

conduct such an examination of any financial statements of the 

plan, and of other books and records of the plan, as the accountant 

may deem necessary to enable the accountant to form an opinion 

as to whether the financial statements and schedules required to 

be included in the annual report by subsection (b) of this section 

are presented fairly in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Such examination shall be conducted in accordance 

with generally accepted auditing standards, and shall involve such 

tests of the books and records of the plan as are considered necessary by the independent qualified public accountant. The indeVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00412 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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pendent qualified public accountant shall also offer his opinion as 

to whether the separate schedules specified in subsection (b)(3) of 

this section and the summary material required under section 

104(b)(3) present fairly, and in all material respects the information contained therein when considered in conjunction with the financial statements taken as a whole. The opinion by the independent qualified public accountant shall be made a part of the annual report. In a case where a plan is not required to file an annual report, the requirements of this paragraph shall not apply. In 

a case where by reason of section 104(a)(2) a plan is required only 

to file a simplified annual report, the Secretary may waive the requirements of this paragraph. 

(B) In offering his opinion under this section the accountant may 

rely on the correctness of any actuarial matter certified to by an 

enrolled actuary, if he so states his reliance. 

(C) The opinion required by subparagraph (A) need not be expressed as to any statements required by subsection (b)(3)(G) prepared by a bank or similar institution or insurance carrier regulated and supervised and subject to periodic examination by a State 

or Federal agency if such statements are certified by the bank, 

similar institution, or insurance carrier as accurate and are made 

a part of the annual report. 

(D) For purposes of this subchapter, the term ‘‘qualified public 

accountant’’ means— 

(i) a person who is a certified public accountant, certified by 

a regulatory authority of a State; 

(ii) a person who is a licensed public accountant licensed by 

a regulatory authority of a State; or 

(iii) a person certified by the Secretary as a qualified public 

accountant in accordance with regulations published by him for 

a person who practices in States where there is no certification 

or licensing procedure for accountants. 

(4)(A) The administrator of an employee pension benefit plan 

subject to the reporting requirement of subsection (d) of this section 

shall engage, on behalf of all plan participants, an enrolled actuary 

who shall be responsible for the preparation of the materials comprising the actuarial statement required under subsection (d) of 

this section. In a case where a plan is not required to file an annual report, the requirement of this paragraph shall not apply, 

and, in a case where by reason of section 104(a)(2), a plan is required only to file a simplified report, the Secretary may waive the 

requirement of this paragraph. 

(B) The enrolled actuary shall utilize such assumptions and techniques as are necessary to enable him to form an opinion as to 

whether the contents of the matters reported under subsection (d) 

of this section— 

(i) are in the aggregate reasonably related to the experience 

of the plan and to reasonable expectations; and 

(ii) represent his best estimate of anticipated experience 

under the plan. 

The opinion by the enrolled actuary shall be made with respect to, 

and shall be made a part of, each annual report. 

(C) For purposes of this title the term ‘‘enrolled actuary’’ means 

an actuary enrolled under subtitle C of title III of this Act. 


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(D) In making a certification under this section the enrolled actuary may rely on the correctness of any accounting matter under 

section 103(b) as to which any qualified public accountant has expressed an opinion, if he so states his reliance. 

(b) An annual report under this section shall include a financial 

statement containing the following information: 

(1) With respect to an employee welfare benefit plan: a statement 

of assets and liabilities; a statement of changes in fund balance; 

and a statement of changes in financial position. In the notes to financial statements, disclosures concerning the following items shall 

be considered by the accountant: a description of the plan including 

any significant changes in the plan made during the period and the 

impact of such changes on benefits; a description of material lease 

commitments, other commitments, and contingent liabilities; a description of agreements and transactions with persons known to be 

parties in interest; a general description of priorities upon termination of the plan; information concerning whether or not a tax ruling or determination letter has been obtained; and any other matters necessary to fully and fairly present the financial statements 

of the plan. 

(2) With respect to an employee pension benefit plan: a statement of assets and liabilities, and a statement of changes in net 

assets available for plan benefits which shall include details of revenues and expenses and other changes aggregated by general 

source and application. In the notes to financial statements, disclosures concerning the following items shall be considered by the accountant: a description of the plan including any significant 

changes in the plan made during the period and the impact of such 

changes on benefits; the funding policy (including policy with respect to prior service cost), and any changes in such policies during 

the year; a description of any significant changes in plan benefits 

made during the period; a description of material lease commitments, other commitments, and contingent liabilities; a description 

of agreements and transactions with persons known to be parties 

in interest; a general description of priorities upon termination of 

the plan; information concerning whether or not a tax ruling or determination letter has been obtained; and any other matters necessary to fully and fairly present the financial statements of such 

pension plan. 

(3) With respect to all employee benefit plans, the statement required under paragraph (1) or (2) shall have attached the following 

information in separate schedules: 

(A) a statement of the assets and liabilities of the plan aggregated by categories and valued at their current value, and 

the same data displayed in comparative form for the end of the 

previous fiscal year of the plan; 

(B) a statement of receipts and disbursements during the 

preceding twelve-month period aggregated by general sources 

and applications; 

(C) a schedule of all assets held for investment purposes aggregated and identified by issuer, borrower, or lessor, or similar party to the transaction (including a notation as to whether 

such party is known to be a party in interest), maturity date, 

rate of interest, collateral, par or maturity value, cost, and current value; 


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(D) a schedule of each transaction involving a person known 

to be party in interest, the identity of such party in interest 

and his relationship or that of any other party in interest to 

the plan, a description of each asset to which the transaction 

relates; the purchase or selling price in case of a sale or purchase, the rental in case of a lease, or the interest rate and 

maturity date in case of a loan; expenses incurred in connection with the transaction; the cost of the asset, the current 

value of the asset, and the net gain (or loss) on each transaction; 

(E) a schedule of all loans or fixed income obligations which 

were in default as of the close of the plan’s fiscal year or were 

classified during the year as uncollectable and the following information with respect to each loan on such schedule (including a notation as to whether parties involved are known to be 

parties in interest): the original principal amount of the loan, 

the amount of principal and interest received during the reporting year, the unpaid balance, the identity and address of 

the obligor, a detailed description of the loan (including date of 

making and maturity, interest rate, the type and value of collateral, and other material terms), the amount of principal and 

interest overdue (if any) and an explanation thereof; 

(F) a list of all leases which were in default or were classified 

during the year as uncollectable; and the following information 

with respect to each lease on such schedule (including a notation as to whether parties involved are known to be parties in 

interest): the type of property leased (and, in the case of fixed 

assets such as land, buildings, leasehold, and so forth, the location of the property), the identity of the lessor or lessee from 

or to whom the plan is leasing, the relationship of such lessors 

and lessees, if any, to the plan, the employer, employee organization, or any other party in interest, the terms of the lease 

regarding rent, taxes, insurance, repairs, expenses, and renewal options; the date the leased property was purchased and 

its cost, the date the property was leased and its approximate 

value at such date, the gross rental receipts during the reporting period, expenses paid for the leased property during the reporting period, the net receipts from the lease, the amounts in 

arrears, and a statement as to what steps have been taken to 

collect amounts due or otherwise remedy the default; 

(G) if some or all of the assets of a plan or plans are held 

in a common or collective trust maintained by a bank or similar institution or in a separate account maintained by an insurance carrier or a separate trust maintained by a bank as 

trustee, the report shall include the most recent annual statement of assets and liabilities of such common or collective 

trust, and in the case of a separate account or a separate trust, 

such other information as is required by the administrator in 

order to comply with this subsection; and 

(H) a schedule of each reportable transaction, the name of 

each party to the transaction (except that, in the case of an acquisition or sale of a security on the market, the report need 

not identify the person from whom the security was acquired 

or to whom it was sold) and a description of each asset to 

which the transaction applies; the purchase or selling price in 


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case of a sale or purchase, the rental in case of a lease, or the 

interest rate and maturity date in case of a loan; expenses incurred in connection with the transaction; the cost of the asset, 

the current value of the asset, and the net gain (or loss) on 

each transaction. For purposes of the preceding sentence, the 

term ‘‘reportable transaction’’ means a transaction to which the 

plan is a party if such transaction is— 

(i) a transaction involving an amount in excess of 3 percent of the current value of the assets of the plan; 

(ii) any transaction (other than a transaction respecting 

a security) which is part of a series of transactions with or 

in conjunction with a person in a plan year, if the aggregate amount of such transactions exceeds 3 percent of the 

current value of the assets of the plan; 

(iii) a transaction which is part of a series of transactions respecting one or more securities of the same 

issuer, if the aggregate amount of such transactions in the 

plan year exceeds 3 percent of the current value of the assets of the plan; or 

(iv) a transaction with or in conjunction with a person 

respecting a security, if any other transaction with or in 

conjunction with such person in the plan year respecting 

a security is required to be reported by reason of clause (i). 

(4) The Secretary may, by regulation, relieve any plan from filing 

a copy of a statement of assets and liabilities (or other information) 

described in paragraph (3)(G) if such statement and other information is filed with the Secretary by the bank or insurance carrier 

which maintains the common or collective trust or separate account. 

(c) The administrator shall furnish as a part of a report under 

this section the following information: 

(1) The number of employees covered by the plan. 

(2) The name and address of each fiduciary. 

(3) Except in the case of a person whose compensation is 

minimal (determined under regulations of the Secretary) and 

who performs solely ministerial duties (determined under such 

regulations), the name of each person (including but not limited to, any consultant, broker, trustee, accountant, insurance 

carrier, actuary, administrator, investment manager, or custodian who rendered services to the plan or who had transactions with the plan) who received directly or indirectly compensation from the plan during the preceding year for services 

rendered to the plan or its participants, the amount of such 

compensation, the nature of his services to the plan or its participants, his relationship to the employer of the employees 

covered by the plan, or the employee organization, and any 

other office, position, or employment he holds with any party 

in interest. 

(4) An explanation of the reason for any change in appointment of trustee, accountant, insurance carrier, enrolled actuary, administrator, investment manager, or custodian. 

(5) Such financial and actuarial information including but 

not limited to the material described in subsections (b) and (d) 

of this section as the Secretary may find necessary or appropriate. 


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(d) With respect to an employee pension benefit plan (other than 

(A) a profit sharing, savings, or other plan, which is an individual 

account plan, (B) a plan described in section 301(b), or (C) a plan 

described both in section 4021(b) and in paragraph (1), (2), (3), (4), 

(5), (6), or (7) of section 301(a)) an annual report under this section 

for a plan year shall include a complete actuarial statement applicable to the plan year which shall include the following: 

(1) The date of the plan year, and the date of the actuarial 

valuation applicable to the plan year for which the report is 

filed. 

(2) The date and amount of the contribution (or contributions) received by the plan for the plan year for which the report is filed and contributions for prior plan years not previously reported. 

(3) The following information applicable to the plan year for 

which the report is filed: the normal costs or target normal 

costs, the accrued liabilities or funding target, an identification 

of benefits not included in the calculation; a statement of the 

other facts and actuarial assumptions and methods used to determine costs, and a justification for any change in actuarial 

assumptions or cost methods; and the minimum contribution 

required under section 302. 

(4) The number of participants and beneficiaries, both retired and nonretired, covered by the plan. 

(5) The current value of the assets accumulated in the plan, 

and the present value of the assets of the plan used by the actuary in any computation of the amount of contributions to the 

plan required under section 302 and a statement explaining 

the basis of such valuation of present value of assets. 

(6) Information required in regulations of the Pension Benefit Guaranty Corporation with respect to: 

(A) the current value of the assets of the plan, 

(B) the present value of all nonforfeitable benefits for 

participants and beneficiaries receiving payments under 

the plan, 

(C) the present value of all nonforfeitable benefits for all 

other participants and beneficiaries, 

(D) the present value of all accrued benefits which are 

not nonforfeitable (including a separate accounting of such 

benefits which are benefit commitments, as defined in section 4001(a)(16)), and 

(E) the actuarial assumptions and techniques used in determining the values described in subparagraphs (A) 

through (D). 

(7) A certification of the contribution necessary to reduce the 

minimum required contribution determined under section 303, 

or the accumulated funding deficiency determined under section 304, to zero. 

(8) A statement by the enrolled actuary— 

(A) that to the best of his knowledge the report is complete and accurate, and 

(B) the applicable requirements of sections 303(h), 

304(c)(3), and 306(c)(3) (relating to reasonable actuarial assumptions and methods) have been complied with. 

(9) A copy of the opinion required by subsection (a)(4). 


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(10) A statement by the actuary which discloses— 

(A) any event which the actuary has not taken into account, and 

(B) any trend which, for purposes of the actuarial assumptions used, was not assumed to continue in the future, 

but only if, to the best of the actuary’s knowledge, such event 

or trend may require a material increase in plan costs or required contribution rates. 

(11) If the current value of the assets of the plan is less than 

70 percent of— 

(A) in the case of a single-employer plan, the funding 

target (as defined in section 303(d)(1)) of the plan, or 

(B) in the case of a multiemployer plan, the current liability (as defined in section 304(c)(6)(D)) under the plan, 

the percentage which such value is of the amount described in 

subparagraph (A) or (B). 

(12) A statement explaining the actuarial assumptions and 

methods used in projecting future retirements and forms of 

benefit distributions under the plan. 

(13) Such other information regarding the plan as the Secretary may by regulation require. 

(14) Such other information as may be necessary to fully and 

fairly disclose the actuarial position of the plan. 

Such actuary shall make an actuarial valuation of the plan for 

every third plan year, unless he determines that a more frequent 

valuation is necessary to support his opinion under subsection 

(a)(4) of this section. 

(e) If some or all of the benefits under the plan are purchased 

from and guaranteed by an insurance company, insurance service, 

or other similar organization, a report under this section shall include a statement from such insurance company, service, or other 

similar organization covering the plan year and enumerating— 

(1) the premium rate or subscription charge and the total 

premium or subscription charges paid to each such carrier, insurance service, or other similar organization and the approximate number of persons covered by each class of such benefits; 

and 

(2) the total amount of premiums received, the approximate 

number of persons covered by each class of benefits, and the 

total claims paid by such company, service, or other organization; dividends or retroactive rate adjustments, commissions, 

and administrative service or other fees or other specific acquisition costs paid by such company, service, or other organization; any amounts held to provide benefits after retirement; the 

remainder of such premiums; and the names and addresses of 

the brokers, agents, or other persons to whom commissions or 

fees were paid, the amount paid to each, and for what purpose. 

If any such company, service, or other organization does not 

maintain separate experience records covering the specific 

groups it serves, the report shall include in lieu of the information required by the foregoing provisions of this paragraph (A) 

a statement as to the basis of its premium rate or subscription 

charge, the total amount of premiums or subscription charges 

received from the plan, and a copy of the financial report of the 


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company, service, or other organization and (B) if such company, service, or organization incurs specific costs in connection with the acquisition or retention of any particular plan or 

plans, a detailed statement of such costs. 

(f) ADDITIONAL INFORMATION WITH RESPECT TO DEFINED BENEFIT

PLANS.— 

(1) LIABILITIES UNDER 2 OR MORE PLANS.— 

(A) IN GENERAL.—In any case in which any liabilities to 

participants or their beneficiaries under a defined benefit 

plan as of the end of a plan year consist (in whole or in 

part) of liabilities to such participants and beneficiaries 

under 2 or more pension plans as of immediately before 

such plan year, an annual report under this section for 

such plan year shall include the funded percentage of each 

of such 2 or more pension plans as of the last day of such 

plan year and the funded percentage of the plan with respect to which the annual report is filed as of the last day 

of such plan year. 

(B) FUNDED PERCENTAGE.—For purposes of this paragraph, the term ‘‘funded percentage’’— 

(i) in the case of a single-employer plan, means the 

funding target attainment percentage, as defined in 

section 303(d)(2), and 

(ii) in the case of a multiemployer plan, has the 

meaning given such term in section 305(i)(2). 

(2) ADDITIONAL INFORMATION FOR MULTIEMPLOYER PLANS.— 

With respect to any defined benefit plan which is a multiemployer plan, an annual report under this section for a plan year 

shall include, in addition to the information required under 

paragraph (1), the following, as of the end of the plan year to 

which the report relates: 

(A) The number of employers obligated to contribute to 

the plan. 

(B) A list of the employers that contributed more than 

5 percent of the total contributions to the plan during such 

plan year. 

(C) The number of participants under the plan on whose 

behalf no contributions were made by an employer as an 

employer of the participant for such plan year and for each 

of the 2 preceding plan years. 

(D) The ratios of— 

(i) the number of participants under the plan on 

whose behalf no employer had an obligation to make 

an employer contribution during the plan year, to 

(ii) the number of participants under the plan on 

whose behalf no employer had an obligation to make 

an employer contribution during each of the 2 preceding plan years. 

(E) Whether the plan received an amortization extension 

under section 304(d) of this Act or section 431(d) of the Internal Revenue Code of 1986 for such plan year and, if so, 

the amount of the difference between the minimum required contribution for the year and the minimum required contribution which would have been required withVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00419 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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out regard to the extension, and the period of such extension. 

(F) Whether the plan used the shortfall funding method 

(as such term is used in section 305) for such plan year 

and, if so, the amount of the difference between the minimum required contribution for the year and the minimum 

required contribution which would have been required 

without regard to the use of such method, and the period 

of use of such method. 

(G) Whether the plan was in critical or endangered status under section 305 for such plan year, and if so, a summary of any funding improvement or rehabilitation plan 

(or modification thereto) adopted during the plan year, and 

the funded percentage of the plan. 

(H) The number of employers that withdrew from the 

plan during the preceding plan year and the aggregate 

amount of withdrawal liability assessed, or estimated to be 

assessed, against such withdrawn employers. 

(I) In the case of a multiemployer plan that has merged 

with another plan or to which assets and liabilities have 

been transferred, the actuarial valuation of the assets and 

liabilities of each affected plan during the year preceding 

the effective date of the merger or transfer, based upon the 

most recent data available as of the day before the first 

day of the plan year, or other valuation method performed 

under standards and procedures as the Secretary may prescribe by regulation. 

ø(g) ADDITIONAL INFORMATION WITH RESPECT TO MULTIPLE EM- PLOYER PLANS.—With respect to any multiple employer plan, an 

annual report under this section for a plan year shall include a list 

of participating employers and a good faith estimate of the percentage of total contributions made by such participating employers 

during the plan year.¿ 

(g) ADDITIONAL INFORMATION WITH RESPECT TO POOLED EM- PLOYER AND MULTIPLE EMPLOYER PLANS.—An annual report under 

this section for a plan year shall include— 

(1) with respect to any plan to which section 210(a) applies 

(including a pooled employer plan), a list of employers in the 

plan and a good faith estimate of the percentage of total contributions made by such employers during the plan year and 

the aggregate account balances attributable to each employer in 

the plan (determined as the sum of the account balances of the 

employees of such employer (and the beneficiaries of such employees)); and 

(2) with respect to a pooled employer plan, the identifying information for the person designated under the terms of the plan 

as the pooled plan provider. 

FILING WITH SECRETARY AND FURNISHING INFORMATION TO

PARTICIPANTS AND CERTAIN EMPLOYERS

SEC. 104. (a)(1) The administrator of any employee benefit plan 

subject to this part shall file with the Secretary the annual report 

for a plan year within 210 days after the close of such year (or 

within such time as may be required by regulations promulgated 

by the Secretary in order to reduce duplicative filing). The SecVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00420 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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retary shall make copies of such annual reports available for inspection in the public document room of the Department of Labor. 

ø(2)(A) With respect to annual reports required to be filed with 

the Secretary under this part, he may by regulation prescribe simplified annual reports for any pension plan which covers less than 

100 participants.¿ 

(2)(A) With respect to annual reports required to be filed with 

the Secretary under this part, the Secretary may by regulation 

prescribe simplified annual reports for any pension plan that— 

(i) covers fewer than 100 participants; or 

(ii) is a plan described in section 210(a) that covers fewer 

than 1,000 participants, but only if no single employer in 

the plan has 100 or more participants covered by the plan. 

(B) Nothing contained in this paragraph shall preclude the Secretary from requiring any information or data from any such plan 

to which this part applies where he finds such data or information 

is necessary to carry out the purposes of this title nor shall the Secretary be precluded from revoking provisions for simplified reports 

for any such plan if he finds it necessary to do so in order to carry 

out the objectives of this title. 

(3) The Secretary may by regulation exempt any welfare benefit 

plan from all or part of the reporting and disclosure requirements 

of this title or may provide for simplified reporting and disclosure 

if he finds that such requirements are inappropriate as applied to 

welfare benefit plans. 

(4) The Secretary may reject any filing under this section— 

(A) if he determines that such filing is incomplete for purposes of this part; or 

(B) if he determines that there is any material qualification 

by an accountant or actuary contained in an opinion submitted 

pursuant to section 103(a)(3)(A) or section 103(a)(4)(B). 

(5) If the Secretary rejects a filing of a report under paragraph 

(4) and if a revised filing satisfactory to the Secretary is not submitted within 45 days after the Secretary makes his determination 

under paragraph (4) to reject the filing, and if the Secretary deems 

it in the best interest of the participants, he may take any one or 

more of the following actions— 

(A) retain an independent qualified public accountant (as defined in section 103(a)(3)(D)) on behalf of the participants to 

perform an audit, 

(B) retain an enrolled actuary (as defined in section 

103(a)(4)(C) of this Act) on behalf of the plan participants, to 

prepare an actuarial statement, 

(C) bring a civil action for such legal or equitable relief as 

may be appropriate to enforce the provisions of this part, or 

(D) take any other action authorized by this title. 

The administrator shall permit such accountant or actuary to inspect whatever books and records of the plan are necessary for 

such audit. The plan shall be liable to the Secretary for the expenses for such audit or report, and the Secretary may bring an action against the plan in any court of competent jurisdiction to recover such expenses. 

(6) The administrator of any employee benefit plan subject to this 

part shall furnish to the Secretary, upon request, any documents 

relating to the employee benefit plan, including but not limited to, 


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the latest summary plan description (including any summaries of 

plan changes not contained in the summary plan description), and 

the bargaining agreement, trust agreement, contract, or other instrument under which the plan is established or operated. 

(b) Publication of the summary plan descriptions and annual reports shall be made to participants and beneficiaries of the particular plan as follows: 

(1) The administrator shall furnish to each participant, and each 

beneficiary receiving benefits under the plan, a copy of the summary plan description, and all modifications and changes referred 

to in section 102(a)— 

(A) within 90 days after he becomes a participant, or (in the 

case of a beneficiary) within 90 days after he first receives benefits, or 

(B) if later, within 120 days after the plan becomes subject 

to this part. 

The administrator shall furnish to each participant, and each beneficiary receiving benefits under the plan, every fifth year after the 

plan becomes subject to this part an updated summary plan description described in section 102 which integrates all plan amendments made within such five-year period, except that in a case 

where no amendments have been made to a plan during such fiveyear period this sentence shall not apply. Notwithstanding the foregoing, the administrator shall furnish to each participant, and to 

each beneficiary receiving benefits under the plan, the summary 

plan description described in section 102 every tenth year after the 

plan becomes subject to this part. If there is a modification or 

change described in section 102(a) (other than a material reduction 

in covered services or benefits provided in the case of a group 

health plan (as defined in section 733(a)(1))), a summary description of such modification or change shall be furnished not later 

than 210 days after the end of the plan year in which the change 

is adopted to each participant, and to each beneficiary who is receiving benefits under the plan. If there is a modification or change 

described in section 102(a) that is a material reduction in covered 

services or benefits provided under a group health plan (as defined 

in section 733(a)(1)), a summary description of such modification or 

change shall be furnished to participants and beneficiaries not 

later than 60 days after the date of the adoption of the modification 

or change. In the alternative, the plan sponsors may provide such 

description at regular intervals of not more than 90 days. The Secretary shall issue regulations within 180 days after the date of enactment of the Health Insurance Portability and Accountability Act 

of 1996, providing alternative mechanisms to delivery by mail 

through which group health plans (as so defined) may notify participants and beneficiaries of material reductions in covered services or benefits. 

(2) The administrator shall make copies of the latest updated 

summary plan description and the latest annual report and the 

bargaining agreement, trust agreement, contract, or other instruments under which the plan was established or is operated available for examination by any plan participant or beneficiary in the 

principal office of the administrator and in such other places as 

may be necessary to make available all pertinent information to all 


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participants (including such places as the Secretary may prescribe 

by regulations). 

(3) Within 210 days after the close of the fiscal year of the plan, 

the administrator (other than an administrator of a defined benefit 

plan to which the requirements of section 101(f) applies) shall furnish to each participant, and to each beneficiary receiving benefits 

under the plan, a copy of the statements and schedules, for such 

fiscal year, described in subparagraphs (A) and (B) of section 

103(b)(3) and such other material (including the percentage determined under section 103(d)(11)) as is necessary to fairly summarize 

the latest annual report. 

(4) The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary 

plan description,, and the latest annual report, any terminal report, 

the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated. The administrator may make a reasonable charge to cover the cost of furnishing such complete copies. The Secretary may by regulation prescribe the maximum amount which will constitute a reasonable 

charge under the preceding sentence. 

(5) Identification and basic plan information and actuarial information included in the annual report for any plan year shall be 

filed with the Secretary in an electronic format which accommodates display on the Internet, in accordance with regulations which 

shall be prescribed by the Secretary. The Secretary shall provide 

for display of such information included in the annual report, within 90 days after the date of the filing of the annual report, on an 

Internet website maintained by the Secretary and other appropriate media. Such information shall also be displayed on any 

Intranet website maintained by the plan sponsor (or by the plan 

administrator on behalf of the plan sponsor) for the purpose of communicating with employees and not the public, in accordance with 

regulations which shall be prescribed by the Secretary. 

(c) The Secretary may by regulation require that the administrator of any employee benefit plan furnish to each participant and 

to each beneficiary receiving benefits under the plan a statement 

of the rights of participants and beneficiaries under this title. 

(d) FURNISHING SUMMARY PLAN INFORMATION TO EMPLOYERS AND

EMPLOYEE REPRESENTATIVES OF MULTIEMPLOYER PLANS.— (1) IN GENERAL.—With respect to a multiemployer plan subject to this section, within 30 days after the due date under 

subsection (a)(1) for the filing of the annual report for the fiscal 

year of the plan, the administrators shall furnish to each employee organization and to each employer with an obligation to 

contribute to the plan a report that contains— 

(A) a description of the contribution schedules and benefit formulas under the plan, and any modification to such 

schedules and formulas, during such plan year; 

(B) the number of employers obligated to contribute to 

the plan; 

(C) a list of the employers that contributed more than 5 

percent of the total contributions to the plan during such 

plan year; 

(D) the number of participants under the plan on whose 

behalf no contributions were made by an employer as an 


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employer of the participant for such plan year and for each 

of the 2 preceding plan years; 

(E) whether the plan was in critical or endangered status under section 305 for such plan year and, if so, include— 

(i) a list of the actions taken by the plan to improve 

its funding status; and 

(ii) a statement describing how a person may obtain 

a copy of the plan’s funding improvement or rehabilitation plan, as applicable, adopted under section 305 

and the actuarial and financial data that demonstrate 

any action taken by the plan toward fiscal improvement; 

(F) the number of employers that withdrew from the 

plan during the preceding plan year and the aggregate 

amount of withdrawal liability assessed, or estimated to be 

assessed, against such withdrawn employers, as reported 

on the annual report for the plan year to which the report 

under this subsection relates; 

(G) in the case of a multiemployer plan that has merged 

with another plan or to which assets and liabilities have 

been transferred, the actuarial valuation of the assets and 

liabilities of each affected plan during the year preceding 

the effective date of the merger or transfer, based upon the 

most recent data available as of the day before the first 

day of the plan year, or other valuation method performed 

under standards and procedures as the Secretary may prescribe by regulation; 

(H) a description as to whether the plan— 

(i) sought or received an amortization extension 

under section 304(d) of this Act or section 431(d) of the 

Internal Revenue Code of 1986 for such plan year; or 

(ii) used the shortfall funding method (as such term 

is used in section 305) for such plan year; and 

(I) notification of the right under this section of the recipient to a copy of the annual report filed with the Secretary under subsection (a), summary plan description, 

summary of any material modification of the plan, upon 

written request, but that— 

(i) in no case shall a recipient be entitled to receive 

more than one copy of any such document described 

during any one 12-month period; and 

(ii) the administrator may make a reasonable charge 

to cover copying, mailing, and other costs of furnishing 

copies of information pursuant to this subparagraph. 

(2) EFFECT OF SUBSECTION.—Nothing in this subsection 

waives any other provision under this title requiring plan administrators to provide, upon request, information to employers that have an obligation to contribute under the plan. 

(e) CROSS REFERENCE.—For regulations respecting coordination 

of reports to the Secretaries of Labor and the Treasury, see section 

3004. 


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REPORTING OF PARTICIPANT’S BENEFIT RIGHTS

SEC. 105. (a) REQUIREMENTS TO PROVIDE PENSION BENEFIT

STATEMENTS.— 

(1) REQUIREMENTS.— 

(A) INDIVIDUAL ACCOUNT PLAN.—The administrator of an 

individual account plan (other than a one-participant retirement plan described in section 101(i)(8)(B)) shall furnish a pension benefit statement— 

(i) at least once each calendar quarter to a participant or beneficiary who has the right to direct the investment of assets in his or her account under the 

plan, 

(ii) at least once each calendar year to a participant 

or beneficiary who has his or her own account under 

the plan but does not have the right to direct the investment of assets in that account, and 

(iii) upon written request to a plan beneficiary not 

described in clause (i) or (ii). 

(B) DEFINED BENEFIT PLAN.—The administrator of a defined benefit plan (other than a one-participant retirement 

plan described in section 101(i)(8)(B)) shall furnish a pension benefit statement— 

(i) at least once every 3 years to each participant 

with a nonforfeitable accrued benefit and who is employed by the employer maintaining the plan at the 

time the statement is to be furnished, and 

(ii) to a participant or beneficiary of the plan upon 

written request. 

Information furnished under clause (i) to a participant 

may be based on reasonable estimates determined under 

regulations prescribed by the Secretary, in consultation 

with the Pension Benefit Guaranty Corporation. 

(2) STATEMENTS.— 

(A) IN GENERAL.—A pension benefit statement under 

paragraph (1)— 

(i) shall indicate, on the basis of the latest available 

information— 

(I) the total benefits accrued, and 

(II) the nonforfeitable pension benefits, if any, 

which have accrued, or the earliest date on which 

benefits will become nonforfeitable, 

(ii) shall include an explanation of any permitted 

disparity under section 401(l) of the Internal Revenue 

Code of 1986 or any floor-offset arrangement that may 

be applied in determining any accrued benefits described in clause (i), 

(iii) shall be written in a manner calculated to be 

understood by the average plan participant, and 

(iv) may be delivered in written, electronic, or other 

appropriate form to the extent such form is reasonably 

accessible to the participant or beneficiary. 

(B) ADDITIONAL INFORMATION.—In the case of an individual account plan, any pension benefit statement under 

clause (i) or (ii) of paragraph (1)(A) shall include— 


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(i) the value of each investment to which assets in 

the individual account have been allocated, determined as of the most recent valuation date under the 

plan, including the value of any assets held in the 

form of employer securities, without regard to whether 

such securities were contributed by the plan sponsor 

or acquired at the direction of the plan or of the participant or beneficiary, øand¿ 

(ii) in the case of a pension benefit statement under 

paragraph (1)(A)(i)— 

(I) an explanation of any limitations or restrictions on any right of the participant or beneficiary 

under the plan to direct an investment, 

(II) an explanation, written in a manner calculated to be understood by the average plan participant, of the importance, for the long-term retirement security of participants and beneficiaries, 

of a well-balanced and diversified investment portfolio, including a statement of the risk that holding more than 20 percent of a portfolio in the security of one entity (such as employer securities) 

may not be adequately diversified, and 

(III) a notice directing the participant or beneficiary to the Internet website of the Department 

of Labor for sources of information on individual 

investing and ødiversification.¿ diversification, 

and 

(iii) the lifetime income disclosure described in subparagraph (D)(i). 

In the case of pension benefit statements described in clause 

(i) of paragraph (1)(A), a lifetime income disclosure under 

clause (iii) of this subparagraph shall be required to be included in only one pension benefit statement during any 

one 12-month period. 

(C) ALTERNATIVE NOTICE.—The requirements of subparagraph (A)(i)(II) are met if, at least annually and in accordance with requirements of the Secretary, the plan— 

(i) updates the information described in such paragraph which is provided in the pension benefit statement, or 

(ii) provides in a separate statement such information as is necessary to enable a participant or beneficiary to determine their nonforfeitable vested benefits. 

(D) LIFETIME INCOME DISCLOSURE.— 

(i) IN GENERAL.— 

(I) DISCLOSURE.—A lifetime income disclosure 

shall set forth the lifetime income stream equivalent of the total benefits accrued with respect to the 

participant or beneficiary. 

(II) LIFETIME INCOME STREAM EQUIVALENT OF

THE TOTAL BENEFITS ACCRUED.—For purposes of 

this subparagraph, the term ‘‘lifetime income 

stream equivalent of the total benefits accrued’’ 

means the amount of monthly payments the particVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00426 Fmt 6659 Sfmt 6603 E:\HR\OC\HR065P1.XXX HR065P1

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ipant or beneficiary would receive if the total accrued benefits of such participant or beneficiary 

were used to provide lifetime income streams described in subclause (III), based on assumptions 

specified in rules prescribed by the Secretary. 

(III) LIFETIME INCOME STREAMS.—The lifetime 

income streams described in this subclause are a 

qualified joint and survivor annuity (as defined in 

section 205(d)), based on assumptions specified in 

rules prescribed by the Secretary, including the assumption that the participant or beneficiary has a 

spouse of equal age, and a single life annuity. 

Such lifetime income streams may have a term certain or other features to the extent permitted under 

rules prescribed by the Secretary. 

(ii) MODEL DISCLOSURE.—Not later than 1 year after 

the date of the enactment of the Setting Every Community Up for Retirement Enhancement Act of 2019, the 

Secretary shall issue a model lifetime income disclosure, written in a manner so as to be understood by the 

average plan participant, which— 

(I) explains that the lifetime income stream 

equivalent is only provided as an illustration; 

(II) explains that the actual payments under the 

lifetime income stream described in clause (i)(III) 

which may be purchased with the total benefits accrued will depend on numerous factors and may 

vary substantially from the lifetime income stream 

equivalent in the disclosures; 

(III) explains the assumptions upon which the 

lifetime income stream equivalent was determined; 

and 

(IV) provides such other similar explanations as 

the Secretary considers appropriate. 

(iii) ASSUMPTIONS AND RULES.—Not later than 1 

year after the date of the enactment of the Setting 

Every Community Up for Retirement Enhancement Act 

of 2019, the Secretary shall— 

(I) prescribe assumptions which administrators 

of individual account plans may use in converting 

total accrued benefits into lifetime income stream 

equivalents for purposes of this subparagraph; and 

(II) issue interim final rules under clause (i). 

In prescribing assumptions under subclause (I), the 

Secretary may prescribe a single set of specific assumptions (in which case the Secretary may issue tables or 

factors which facilitate such conversions), or ranges of 

permissible assumptions. To the extent that an accrued 

benefit is or may be invested in a lifetime income 

stream described in clause (i)(III), the assumptions prescribed under subclause (I) shall, to the extent appropriate, permit administrators of individual account 

plans to use the amounts payable under such lifetime 

income stream as a lifetime income stream equivalent. 


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(iv) LIMITATION ON LIABILITY.—No plan fiduciary, 

plan sponsor, or other person shall have any liability 

under this title solely by reason of the provision of lifetime income stream equivalents which are derived in 

accordance with the assumptions and rules described 

in clause (iii) and which include the explanations contained in the model lifetime income disclosure described in clause (ii). This clause shall apply without 

regard to whether the provision of such lifetime income 

stream equivalent is required by subparagraph (B)(iii). 

(v) EFFECTIVE DATE.—The requirement in subparagraph (B)(iii) shall apply to pension benefit statements 

furnished more than 12 months after the latest of the 

issuance by the Secretary of— 

(I) interim final rules under clause (i); 

(II) the model disclosure under clause (ii); or 

(III) the assumptions under clause (iii). 

(3) DEFINED BENEFIT PLANS.— 

(A) ALTERNATIVE NOTICE.—In the case of a defined benefit plan, the requirements of paragraph (1)(B)(i) shall be 

treated as met with respect to a participant if at least once 

each year the administrator provides to the participant notice of the availability of the pension benefit statement and 

the ways in which the participant may obtain such statement. Such notice may be delivered in written, electronic, 

or other appropriate form to the extent such form is reasonably accessible to the participant. 

(B) YEARS IN WHICH NO BENEFITS ACCRUE.—The Secretary may provide that years in which no employee or 

former employee benefits (within the meaning of section 

410(b) of the Internal Revenue Code of 1986) under the 

plan need not be taken into account in determining the 3- 

year period under paragraph (1)(B)(i). 

(b) LIMITATION ON NUMBER OF STATEMENTS.—In no case shall a 

participant or beneficiary of a plan be entitled to more than 1 

statement described in subparagraph (A)(iii) or (B)(ii) of subsection 

(a)(1), whichever is applicable, in any 12-month period. 

(c) Each administrator required to register under section 6057 of 

the Internal Revenue Code of 1986 shall, before the expiration of 

the time prescribed for such registration, furnish to each participant described in subsection (a)(2)(C) of such section, an individual 

statement setting forth the information with respect to such participant required to be contained in the registration statement required by section 6057(a)(2) of such Code. Such statement shall 

also include a notice to the participant of any benefits which are 

forfeitable if the participant dies before a certain date. 

* * * * * * * 

PART 3—FUNDING

* * * * * * * 

SEC. 303. MINIMUM FUNDING STANDARDS FOR SINGLE-EMPLOYER DEFINED BENEFIT PENSION PLANS. 

(a) MINIMUM REQUIRED CONTRIBUTION.—For purposes of this section and section 302(a)(2)(A), except as provided in subsection (f), 


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the term ‘‘minimum required contribution’’ means, with respect to 

any plan year of a single-employer plan— 

(1) in any case in which the value of plan assets of the plan 

(as reduced under subsection (f)(4)(B)) is less than the funding 

target of the plan for the plan year, the sum of— 

(A) the target normal cost of the plan for the plan year, 

(B) the shortfall amortization charge (if any) for the plan 

for the plan year determined under subsection (c), and 

(C) the waiver amortization charge (if any) for the plan 

for the plan year as determined under subsection (e); or 

(2) in any case in which the value of plan assets of the plan 

(as reduced under subsection (f)(4)(B)) equals or exceeds the 

funding target of the plan for the plan year, the target normal 

cost of the plan for the plan year reduced (but not below zero) 

by such excess. 

(b) TARGET NORMAL COST.—For purposes of this section: 

(1) IN GENERAL.—Except as provided in subsection (i)(2) with 

respect to plans in at-risk status, the term ‘‘target normal cost’’ 

means, for any plan year, the excess of— 

(A) the sum of— 

(i) the present value of all benefits which are expected to accrue or to be earned under the plan during 

the plan year, plus 

(ii) the amount of plan-related expenses expected to 

be paid from plan assets during the plan year, over 

(B) the amount of mandatory employee contributions expected to be made during the plan year. 

(2) SPECIAL RULE FOR INCREASE IN COMPENSATION.—For purposes of this subsection, if any benefit attributable to services 

performed in a preceding plan year is increased by reason of 

any increase in compensation during the current plan year, the 

increase in such benefit shall be treated as having accrued during the current plan year. 

(c) SHORTFALL AMORTIZATION CHARGE.— 

(1) IN GENERAL.—For purposes of this section, the shortfall 

amortization charge for a plan for any plan year is the aggregate total (not less than zero) of the shortfall amortization installments for such plan year with respect to any shortfall amortization base which has not been fully amortized under this 

subsection. 

(2) SHORTFALL AMORTIZATION INSTALLMENT.—For purposes of 

paragraph (1)— 

(A) DETERMINATION.—The shortfall amortization installments are the amounts necessary to amortize the shortfall 

amortization base of the plan for any plan year in level annual installments over the 7-plan-year period beginning 

with such plan year. 

(B) SHORTFALL INSTALLMENT.—The shortfall amortization installment for any plan year in the 7-plan-year period under subparagraph (A) with respect to any shortfall 

amortization base is the annual installment determined 

under subparagraph (A) for that year for that base. 

(C) SEGMENT RATES.—In determining any shortfall amortization installment under this paragraph, the plan 

sponsor shall use the segment rates determined under subVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00429 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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paragraph (C) of subsection (h)(2), applied under rules 

similar to the rules of subparagraph (B) of subsection 

(h)(2). 

(D) SPECIAL ELECTION FOR ELIGIBLE PLAN YEARS.— (i) IN GENERAL.—If a plan sponsor elects to apply 

this subparagraph with respect to the shortfall amortization base of a plan for any eligible plan year (in this 

subparagraph and paragraph (7) referred to as an 

‘‘election year’’), then, notwithstanding subparagraphs 

(A) and (B)— 

(I) the shortfall amortization installments with 

respect to such base shall be determined under 

clause (ii) or (iii), whichever is specified in the 

election, and 

(II) the shortfall amortization installment for 

any plan year in the 9-plan-year period described 

in clause (ii) or the 15-plan-year period described 

in clause (iii), respectively, with respect to such 

shortfall amortization base is the annual installment determined under the applicable clause for 

that year for that base. 

(ii) 2 PLUS 7 AMORTIZATION SCHEDULE.—The shortfall 

amortization installments determined under this 

clause are— 

(I) in the case of the first 2 plan years in the 9- 

plan-year period beginning with the election year, 

interest on the shortfall amortization base of the 

plan for the election year (determined using the 

effective interest rate for the plan for the election 

year), and 

(II) in the case of the last 7 plan years in such 

9-plan-year period, the amounts necessary to amortize the remaining balance of the shortfall amortization base of the plan for the election year in 

level annual installments over such last 7 plan 

years (using the segment rates under subparagraph (C) for the election year). 

(iii) 15-YEAR AMORTIZATION.—The shortfall amortization installments determined under this subparagraph 

are the amounts necessary to amortize the shortfall 

amortization base of the plan for the election year in 

level annual installments over the 15-plan-year period 

beginning with the election year (using the segment 

rates under subparagraph (C) for the election year). 

(iv) ELECTION.— 

(I) IN GENERAL.—The plan sponsor of a plan 

may elect to have this subparagraph apply to not 

more than 2 eligible plan years with respect to the 

plan, except that in the case of a plan described 

in section 106 of the Pension Protection Act of 

2006, the plan sponsor may only elect to have this 

subparagraph apply to a plan year beginning in 

2011. 

(II) AMORTIZATION SCHEDULE.—Such election 

shall specify whether the amortization schedule 


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under clause (ii) or (iii) shall apply to an election 

year, except that if a plan sponsor elects to have 

this subparagraph apply to 2 eligible plan years, 

the plan sponsor must elect the same schedule for 

both years. 

(III) OTHER RULES.—Such election shall be 

made at such time, and in such form and manner, 

as shall be prescribed by the Secretary of the 

Treasury, and may be revoked only with the consent of the Secretary of the Treasury. The Secretary of the Treasury shall, before granting a 

revocation request, provide the Pension Benefit 

Guaranty Corporation an opportunity to comment 

on the conditions applicable to the treatment of 

any portion of the election year shortfall amortization base that remains unamortized as of the revocation date. 

(v) ELIGIBLE PLAN YEAR.—For purposes of this subparagraph, the term ‘‘eligible plan year’’ means any 

plan year beginning in 2008, 2009, 2010, or 2011, except that a plan year shall only be treated as an eligible plan year if the due date under subsection (j)(1) for 

the payment of the minimum required contribution for 

such plan year occurs on or after the date of the enactment of this subparagraph. 

(vi) REPORTING.—A plan sponsor of a plan who 

makes an election under clause (i) shall— 

(I) give notice of the election to participants and 

beneficiaries of the plan, and 

(II) inform the Pension Benefit Guaranty Corporation of such election in such form and manner 

as the Director of the Pension Benefit Guaranty 

Corporation may prescribe. 

(vii) INCREASES IN REQUIRED INSTALLMENTS IN CERTAIN CASES.—For increases in required contributions 

in cases of excess compensation or extraordinary dividends or stock redemptions, see paragraph (7). 

(3) SHORTFALL AMORTIZATION BASE.—For purposes of this 

section, the shortfall amortization base of a plan for a plan 

year is— 

(A) the funding shortfall of such plan for such plan year, 

minus 

(B) the present value (determined using the segment 

rates determined under subparagraph (C) of subsection 

(h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2)) of the aggregate total of the 

shortfall amortization installments and waiver amortization installments which have been determined for such 

plan year and any succeeding plan year with respect to the 

shortfall amortization bases and waiver amortization bases 

of the plan for any plan year preceding such plan year. 

(4) FUNDING SHORTFALL.—For purposes of this section, the 

funding shortfall of a plan for any plan year is the excess (if 

any) of— 

(A) the funding target of the plan for the plan year, over 


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(B) the value of plan assets of the plan (as reduced 

under subsection (f)(4)(B)) for the plan year which are held 

by the plan on the valuation date. 

(5) EXEMPTION FROM NEW SHORTFALL AMORTIZATION BASE.— 

In any case in which the value of plan assets of the plan (as 

reduced under subsection (f)(4)(A)) is equal to or greater than 

the funding target of the plan for the plan year, the shortfall 

amortization base of the plan for such plan year shall be zero. 

(6) EARLY DEEMED AMORTIZATION UPON ATTAINMENT OF

FUNDING TARGET.—In any case in which the funding shortfall 

of a plan for a plan year is zero, for purposes of determining 

the shortfall amortization charge for such plan year and succeeding plan years, the shortfall amortization bases for all preceding plan years (and all shortfall amortization installments 

determined with respect to such bases) shall be reduced to 

zero. 

(7) INCREASES IN ALTERNATE REQUIRED INSTALLMENTS IN

CASES OF EXCESS COMPENSATION OR EXTRAORDINARY DIVIDENDS

OR STOCK REDEMPTIONS.— 

(A) IN GENERAL.—If there is an installment acceleration 

amount with respect to a plan for any plan year in the restriction period with respect to an election year under 

paragraph (2)(D), then the shortfall amortization installment otherwise determined and payable under such paragraph for such plan year shall, subject to the limitation 

under subparagraph (B), be increased by such amount. 

(B) TOTAL INSTALLMENTS LIMITED TO SHORTFALL BASE.— 

Subject to rules prescribed by the Secretary of the Treasury, if a shortfall amortization installment with respect to 

any shortfall amortization base for an election year is required to be increased for any plan year under subparagraph (A)— 

(i) such increase shall not result in the amount of 

such installment exceeding the present value of such 

installment and all succeeding installments with respect to such base (determined without regard to such 

increase but after application of clause (ii)), and 

(ii) subsequent shortfall amortization installments 

with respect to such base shall, in reverse order of the 

otherwise required installments, be reduced to the extent necessary to limit the present value of such subsequent shortfall amortization installments (after application of this paragraph) to the present value of the 

remaining unamortized shortfall amortization base. 

(C) INSTALLMENT ACCELERATION AMOUNT.—For purposes 

of this paragraph— 

(i) IN GENERAL.—The term ‘‘installment acceleration 

amount’’ means, with respect to any plan year in a restriction period with respect to an election year, the 

sum of— 

(I) the aggregate amount of excess employee 

compensation determined under subparagraph (D) 

with respect to all employees for the plan year, 

plus 


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(II) the aggregate amount of extraordinary dividends and redemptions determined under subparagraph (E) for the plan year. 

(ii) ANNUAL LIMITATION.—The installment acceleration amount for any plan year shall not exceed the excess (if any) of— 

(I) the sum of the shortfall amortization installments for the plan year and all preceding plan 

years in the amortization period elected under 

paragraph (2)(D) with respect to the shortfall amortization base with respect to an election year, 

determined without regard to paragraph (2)(D) 

and this paragraph, over 

(II) the sum of the shortfall amortization installments for such plan year and all such preceding 

plan years, determined after application of paragraph (2)(D) (and in the case of any preceding 

plan year, after application of this paragraph). 

(iii) CARRYOVER OF EXCESS INSTALLMENT ACCELERATION AMOUNTS.— 

(I) IN GENERAL.—If the installment acceleration 

amount for any plan year (determined without regard to clause (ii)) exceeds the limitation under 

clause (ii), then, subject to subclause (II), such excess shall be treated as an installment acceleration amount with respect to the succeeding plan 

year. 

(II) CAP TO APPLY.—If any amount treated as an 

installment acceleration amount under subclause 

(I) or this subclause with respect any succeeding 

plan year, when added to other installment acceleration amounts (determined without regard to 

clause (ii)) with respect to the plan year, exceeds 

the limitation under clause (ii), the portion of such 

amount representing such excess shall be treated 

as an installment acceleration amount with respect to the next succeeding plan year. 

(III) LIMITATION ON YEARS TO WHICH AMOUNTS

CARRIED FOR.—No amount shall be carried under 

subclause (I) or (II) to a plan year which begins 

after the first plan year following the last plan 

year in the restriction period (or after the second 

plan year following such last plan year in the case 

of an election year with respect to which 15-year 

amortization was elected under paragraph (2)(D)). 

(IV) ORDERING RULES.—For purposes of applying subclause (II), installment acceleration 

amounts for the plan year (determined without regard to any carryover under this clause) shall be 

applied first against the limitation under clause 

(ii) and then carryovers to such plan year shall be 

applied against such limitation on a first-in, firstout basis. 

(D) EXCESS EMPLOYEE COMPENSATION.—For purposes of 

this paragraph— 


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(i) IN GENERAL.—The term ‘‘excess employee compensation’’ means, with respect to any employee for 

any plan year, the excess (if any) of— 

(I) the aggregate amount includible in income 

under chapter 1 of the Internal Revenue Code of 

1986 for remuneration during the calendar year in 

which such plan year begins for services performed by the employee for the plan sponsor 

(whether or not performed during such calendar 

year), over 

(II) $1,000,000. 

(ii) AMOUNTS SET ASIDE FOR NONQUALIFIED DEFERRED COMPENSATION.—If during any calendar year 

assets are set aside or reserved (directly or indirectly) 

in a trust (or other arrangement as determined by the 

Secretary of the Treasury), or transferred to such a 

trust or other arrangement, by a plan sponsor for purposes of paying deferred compensation of an employee 

under a nonqualified deferred compensation plan (as 

defined in section 409A of such Code) of the plan sponsor, then, for purposes of clause (i), the amount of such 

assets shall be treated as remuneration of the employee includible in income for the calendar year unless such amount is otherwise includible in income for 

such year. An amount to which the preceding sentence 

applies shall not be taken into account under this 

paragraph for any subsequent calendar year. 

(iii) ONLY REMUNERATION FOR CERTAIN POST-2009

SERVICES COUNTED.—Remuneration shall be taken 

into account under clause (i) only to the extent attributable to services performed by the employee for the 

plan sponsor after February 28, 2010. 

(iv) EXCEPTION FOR CERTAIN EQUITY PAYMENTS.— 

(I) IN GENERAL.—There shall not be taken into 

account under clause (i)(I) any amount includible 

in income with respect to the granting after February 28, 2010, of service recipient stock (within 

the meaning of section 409A of the Internal Revenue Code of 1986) that, upon such grant, is subject to a substantial risk of forfeiture (as defined 

under section 83(c)(1) of such Code) for at least 5 

years from the date of such grant. 

(II) SECRETARIAL AUTHORITY.—The Secretary of 

the Treasury may by regulation provide for the 

application of this clause in the case of a person 

other than a corporation. 

(v) OTHER EXCEPTIONS.—The following amounts includible in income shall not be taken into account 

under clause (i)(I): 

(I) COMMISSIONS.—Any remuneration payable 

on a commission basis solely on account of income 

directly generated by the individual performance 

of the individual to whom such remuneration is 

payable. 


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(II) CERTAIN PAYMENTS UNDER EXISTING CONTRACTS.—Any remuneration consisting of nonqualified deferred compensation, restricted stock, 

stock options, or stock appreciation rights payable 

or granted under a written binding contract that 

was in effect on March 1, 2010, and which was not 

modified in any material respect before such remuneration is paid. 

(vi) SELF-EMPLOYED INDIVIDUAL TREATED AS EMPLOYEE.—The term ‘‘employee’’ includes, with respect 

to a calendar year, a self-employed individual who is 

treated as an employee under section 401(c) of such 

Code for the taxable year ending during such calendar 

year, and the term ‘‘compensation’’ shall include 

earned income of such individual with respect to such 

self-employment. 

(vii) INDEXING OF AMOUNT.—In the case of any calendar year beginning after 2010, the dollar amount 

under clause (i)(II) shall be increased by an amount 

equal to— 

(I) such dollar amount, multiplied by 

(II) the cost-of-living adjustment determined 

under section 1(f)(3) of such Code for the calendar 

year, determined by substituting ‘‘calendar year 

2009’’ for ‘‘calendar year 1992’’ in subparagraph 

(B) thereof. 

If the amount of any increase under clause (i) is not 

a multiple of $1,000, such increase shall be rounded to 

the next lowest multiple of $1,000. 

(E) EXTRAORDINARY DIVIDENDS AND REDEMPTIONS.— 

(i) IN GENERAL.—The amount determined under this 

subparagraph for any plan year is the excess (if any) 

of the sum of the dividends declared during the plan 

year by the plan sponsor plus the aggregate amount 

paid for the redemption of stock of the plan sponsor 

redeemed during the plan year over the greater of— 

(I) the adjusted net income (within the meaning 

of section 4043) of the plan sponsor for the preceding plan year, determined without regard to 

any reduction by reason of interest, taxes, depreciation, or amortization, or 

(II) in the case of a plan sponsor that determined and declared dividends in the same manner 

for at least 5 consecutive years immediately preceding such plan year, the aggregate amount of 

dividends determined and declared for such plan 

year using such manner. 

(ii) ONLY CERTAIN POST-2009 DIVIDENDS AND REDEMPTIONS COUNTED.—For purposes of clause (i), there 

shall only be taken into account dividends declared, 

and redemptions occurring, after February 28, 2010. 

(iii) EXCEPTION FOR INTRA-GROUP DIVIDENDS.—Dividends paid by one member of a controlled group (as 

defined in section 302(d)(3)) to another member of 


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such group shall not be taken into account under 

clause (i). 

(iv) EXCEPTION FOR CERTAIN REDEMPTIONS.—Redemptions that are made pursuant to a plan maintained with respect to employees, or that are made on 

account of the death, disability, or termination of employment of an employee or shareholder, shall not be 

taken into account under clause (i). 

(v) EXCEPTION FOR CERTAIN PREFERRED STOCK.— 

(I) IN GENERAL.—Dividends and redemptions 

with respect to applicable preferred stock shall not 

be taken into account under clause (i) to the extent that dividends accrue with respect to such 

stock at a specified rate in all events and without 

regard to the plan sponsor’s income, and interest 

accrues on any unpaid dividends with respect to 

such stock. 

(II) APPLICABLE PREFERRED STOCK.—For purposes of subclause (I), the term ‘‘applicable preferred stock’’ means preferred stock which was 

issued before March 1, 2010 (or which was issued 

after such date and is held by an employee benefit 

plan subject to the provisions of this title). 

(F) OTHER DEFINITIONS AND RULES.—For purposes of this 

paragraph— 

(i) PLAN SPONSOR.—The term ‘‘plan sponsor’’ includes any member of the plan sponsor’s controlled 

group (as defined in section 302(d)(3)). 

(ii) RESTRICTION PERIOD.—The term ‘‘restriction period’’ means, with respect to any election year— 

(I) except as provided in subclause (II), the 3- 

year period beginning with the election year (or, if 

later, the first plan year beginning after December 

31, 2009), and 

(II) if the plan sponsor elects 15-year amortization for the shortfall amortization base for the 

election year, the 5-year period beginning with the 

election year (or, if later, the first plan year beginning after December 31, 2009). 

(iii) ELECTIONS FOR MULTIPLE PLANS.—If a plan 

sponsor makes elections under paragraph (2)(D) with 

respect to 2 or more plans, the Secretary of the Treasury shall provide rules for the application of this paragraph to such plans, including rules for the ratable allocation of any installment acceleration amount among 

such plans on the basis of each plan’s relative reduction in the plan’s shortfall amortization installment for 

the first plan year in the amortization period described in subparagraph (A) (determined without regard to this paragraph). 

(iv) MERGERS AND ACQUISITIONS.—The Secretary of 

the Treasury shall prescribe rules for the application 

of paragraph (2)(D) and this paragraph in any case 

where there is a merger or acquisition involving a 


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plan sponsor making the election under paragraph 

(2)(D). 

(d) RULES RELATING TO FUNDING TARGET.—For purposes of this 

section— 

(1) FUNDING TARGET.—Except as provided in subsection (i)(1) 

with respect to plans in at-risk status, the funding target of a 

plan for a plan year is the present value of all benefits accrued 

or earned under the plan as of the beginning of the plan year. 

(2) FUNDING TARGET ATTAINMENT PERCENTAGE.—The ‘‘funding target attainment percentage’’ of a plan for a plan year is 

the ratio (expressed as a percentage) which— 

(A) the value of plan assets for the plan year (as reduced 

under subsection (f)(4)(B)), bears to 

(B) the funding target of the plan for the plan year (determined without regard to subsection (i)(1)). 

(e) WAIVER AMORTIZATION CHARGE.— 

(1) DETERMINATION OF WAIVER AMORTIZATION CHARGE.—The 

waiver amortization charge (if any) for a plan for any plan year 

is the aggregate total of the waiver amortization installments 

for such plan year with respect to the waiver amortization 

bases for each of the 5 preceding plan years. 

(2) WAIVER AMORTIZATION INSTALLMENT.—For purposes of 

paragraph (1)— 

(A) DETERMINATION.—The waiver amortization installments are the amounts necessary to amortize the waiver 

amortization base of the plan for any plan year in level annual installments over a period of 5 plan years beginning 

with the succeeding plan year. 

(B) WAIVER INSTALLMENT.—The waiver amortization installment for any plan year in the 5-year period under subparagraph (A) with respect to any waiver amortization 

base is the annual installment determined under subparagraph (A) for that year for that base. 

(3) INTEREST RATE.—In determining any waiver amortization 

installment under this subsection, the plan sponsor shall use 

the segment rates determined under subparagraph (C) of subsection (h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2). 

(4) WAIVER AMORTIZATION BASE.—The waiver amortization 

base of a plan for a plan year is the amount of the waived 

funding deficiency (if any) for such plan year under section 

302(c). 

(5) EARLY DEEMED AMORTIZATION UPON ATTAINMENT OF

FUNDING TARGET.—In any case in which the funding shortfall 

of a plan for a plan year is zero, for purposes of determining 

the waiver amortization charge for such plan year and succeeding plan years, the waiver amortization bases for all preceding plan years (and all waiver amortization installments determined with respect to such bases) shall be reduced to zero. 

(f) REDUCTION OF MINIMUM REQUIRED CONTRIBUTION BY

PREFUNDING BALANCE AND FUNDING STANDARD CARRYOVER BAL- ANCE.— 

(1) ELECTION TO MAINTAIN BALANCES.— 

(A) PREFUNDING BALANCE.—The plan sponsor of a singleemployer plan may elect to maintain a prefunding balance. 


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(B) FUNDING STANDARD CARRYOVER BALANCE.— (i) IN GENERAL.—In the case of a single-employer 

plan described in clause (ii), the plan sponsor may 

elect to maintain a funding standard carryover balance, until such balance is reduced to zero. 

(ii) PLANS MAINTAINING FUNDING STANDARD AC- COUNT IN 2007.—A plan is described in this clause if 

the plan— 

(I) was in effect for a plan year beginning in 

2007, and 

(II) had a positive balance in the funding standard account under section 302(b) as in effect for 

such plan year and determined as of the end of 

such plan year. 

(2) APPLICATION OF BALANCES.—A prefunding balance and a 

funding standard carryover balance maintained pursuant to 

this paragraph— 

(A) shall be available for crediting against the minimum 

required contribution, pursuant to an election under paragraph (3), 

(B) shall be applied as a reduction in the amount treated 

as the value of plan assets for purposes of this section, to 

the extent provided in paragraph (4), and 

(C) may be reduced at any time, pursuant to an election 

under paragraph (5). 

(3) ELECTION TO APPLY BALANCES AGAINST MINIMUM RE- QUIRED CONTRIBUTION.— (A) IN GENERAL.—Except as provided in subparagraphs 

(B) and (C), in the case of any plan year in which the plan 

sponsor elects to credit against the minimum required contribution for the current plan year all or a portion of the 

prefunding balance or the funding standard carryover balance for the current plan year (not in excess of such minimum required contribution), the minimum required contribution for the plan year shall be reduced as of the first 

day of the plan year by the amount so credited by the plan 

sponsor. For purposes of the preceding sentence, the minimum required contribution shall be determined after taking into account any waiver under section 302(c). 

(B) COORDINATION WITH FUNDING STANDARD CARRYOVER

BALANCE.—To the extent that any plan has a funding 

standard carryover balance greater than zero, no amount 

of the prefunding balance of such plan may be credited 

under this paragraph in reducing the minimum required 

contribution. 

(C) LIMITATION FOR UNDERFUNDED PLANS.—The preceding provisions of this paragraph shall not apply for any 

plan year if the ratio (expressed as a percentage) which— 

(i) the value of plan assets for the preceding plan 

year (as reduced under paragraph (4)(C)), bears to 

(ii) the funding target of the plan for the preceding 

plan year (determined without regard to subsection 

(i)(1)), 

is less than 80 percent. In the case of plan years beginning 

in 2008, the ratio under this subparagraph may be deterVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00438 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

rfrederick on DSKBCBPHB2PROD with HEARING
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mined using such methods of estimation as the Secretary 

of the Treasury may prescribe. 

(D) SPECIAL RULE FOR CERTAIN YEARS OF PLANS MAIN- TAINED BY CHARITIES.— (i) IN GENERAL.—For purposes of applying subparagraph (C) for plan years beginning after August 31, 

2009, and before September 1, 2011, the ratio determined under such subparagraph for the preceding 

plan year shall be the greater of— 

(I) such ratio, as determined without regard to 

this subparagraph, or 

(II) the ratio for such plan for the plan year beginning after August 31, 2007, and before September 1, 2008, as determined under rules prescribed by the Secretary of the Treasury. 

(ii) SPECIAL RULE.—In the case of a plan for which 

the valuation date is not the first day of the plan 

year— 

(I) clause (i) shall apply to plan years beginning 

after December 31, 2008, and before January 1, 

2011, and 

(II) clause (i)(II) shall apply based on the last 

plan year beginning before September 1, 2007, as 

determined under rules prescribed by the Secretary of the Treasury. 

(iii) LIMITATION TO CHARITIES.—This subparagraph 

shall not apply to any plan unless such plan is maintained exclusively by one or more organizations described in section 501(c)(3) of the Internal Revenue 

Code of 1986. 

(4) EFFECT OF BALANCES ON AMOUNTS TREATED AS VALUE OF

PLAN ASSETS.—In the case of any plan maintaining a 

prefunding balance or a funding standard carryover balance 

pursuant to this subsection, the amount treated as the value 

of plan assets shall be deemed to be such amount, reduced as 

provided in the following subparagraphs: 

(A) APPLICABILITY OF SHORTFALL AMORTIZATION BASE.— For purposes of subsection (c)(5), the value of plan assets 

is deemed to be such amount, reduced by the amount of 

the prefunding balance, but only if an election under paragraph (3) applying any portion of the prefunding balance 

in reducing the minimum required contribution is in effect 

for the plan year. 

(B) DETERMINATION OF EXCESS ASSETS, FUNDING SHORTFALL, AND FUNDING TARGET ATTAINMENT PERCENTAGE.— 

(i) IN GENERAL.—For purposes of subsections (a), 

(c)(4)(B), and (d)(2)(A), the value of plan assets is 

deemed to be such amount, reduced by the amount of 

the prefunding balance and the funding standard carryover balance. 

(ii) SPECIAL RULE FOR CERTAIN BINDING AGREEMENTS

WITH PBGC.—For purposes of subsection (c)(4)(B), the 

value of plan assets shall not be deemed to be reduced 

for a plan year by the amount of the specified balance 

if, with respect to such balance, there is in effect for 


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a plan year a binding written agreement with the Pension Benefit Guaranty Corporation which provides 

that such balance is not available to reduce the minimum required contribution for the plan year. For purposes of the preceding sentence, the term ‘‘specified 

balance’’ means the prefunding balance or the funding 

standard carryover balance, as the case may be. 

(C) AVAILABILITY OF BALANCES IN PLAN YEAR FOR CRED- ITING AGAINST MINIMUM REQUIRED CONTRIBUTION.—For 

purposes of paragraph (3)(C)(i) of this subsection, the value 

of plan assets is deemed to be such amount, reduced by 

the amount of the prefunding balance. 

(5) ELECTION TO REDUCE BALANCE PRIOR TO DETERMINATIONS

OF VALUE OF PLAN ASSETS AND CREDITING AGAINST MINIMUM

REQUIRED CONTRIBUTION.— 

(A) IN GENERAL.—The plan sponsor may elect to reduce 

by any amount the balance of the prefunding balance and 

the funding standard carryover balance for any plan year 

(but not below zero). Such reduction shall be effective prior 

to any determination of the value of plan assets for such 

plan year under this section and application of the balance 

in reducing the minimum required contribution for such 

plan for such plan year pursuant to an election under 

paragraph (2). 

(B) COORDINATION BETWEEN PREFUNDING BALANCE AND

FUNDING STANDARD CARRYOVER BALANCE.—To the extent 

that any plan has a funding standard carryover balance 

greater than zero, no election may be made under subparagraph (A) with respect to the prefunding balance. 

(6) PREFUNDING BALANCE.— 

(A) IN GENERAL.—A prefunding balance maintained by a 

plan shall consist of a beginning balance of zero, increased 

and decreased to the extent provided in subparagraphs (B) 

and (C), and adjusted further as provided in paragraph (8). 

(B) INCREASES.— (i) IN GENERAL.—As of the first day of each plan 

year beginning after 2008, the prefunding balance of a 

plan shall be increased by the amount elected by the 

plan sponsor for the plan year. Such amount shall not 

exceed the excess (if any) of— 

(I) the aggregate total of employer contributions 

to the plan for the preceding plan year, over— 

(II) the minimum required contribution for such 

preceding plan year. 

(ii) ADJUSTMENTS FOR INTEREST.—Any excess contributions under clause (i) shall be properly adjusted 

for interest accruing for the periods between the first 

day of the current plan year and the dates on which 

the excess contributions were made, determined by 

using the effective interest rate for the preceding plan 

year and by treating contributions as being first used 

to satisfy the minimum required contribution. 

(iii) CERTAIN CONTRIBUTIONS NECESSARY TO AVOID

BENEFIT LIMITATIONS DISREGARDED.—The excess described in clause (i) with respect to any preceding plan 


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year shall be reduced (but not below zero) by the 

amount of contributions an employer would be required to make under paragraph (1), (2), or (4) of section 206(g) to avoid a benefit limitation which would 

otherwise be imposed under such paragraph for the 

preceding plan year. Any contribution which may be 

taken into account in satisfying the requirements of 

more than 1 of such paragraphs shall be taken into account only once for purposes of this clause. 

(C) DECREASE.—The prefunding balance of a plan shall 

be decreased (but not below zero) by— 

(i) as of the first day of each plan year after 2008, 

the amount of such balance credited under paragraph 

(2) (if any) in reducing the minimum required contribution of the plan for the preceding plan year, and 

(ii) as of the time specified in paragraph (5)(A), any 

reduction in such balance elected under paragraph (5). 

(7) FUNDING STANDARD CARRYOVER BALANCE.— 

(A) IN GENERAL.—A funding standard carryover balance 

maintained by a plan shall consist of a beginning balance 

determined under subparagraph (B), decreased to the extent provided in subparagraph (C), and adjusted further as 

provided in paragraph (8). 

(B) BEGINNING BALANCE.—The beginning balance of the 

funding standard carryover balance shall be the positive 

balance described in paragraph (1)(B)(ii)(II). 

(C) DECREASES.—The funding standard carryover balance of a plan shall be decreased (but not below zero) by— 

(i) as of the first day of each plan year after 2008, 

the amount of such balance credited under paragraph 

(2) (if any) in reducing the minimum required contribution of the plan for the preceding plan year, and 

(ii) as of the time specified in paragraph (5)(A), any 

reduction in such balance elected under paragraph (5). 

(8) ADJUSTMENTS FOR INVESTMENT EXPERIENCE.—In determining the prefunding balance or the funding standard carryover balance of a plan as of the first day of the plan year, the 

plan sponsor shall, in accordance with regulations prescribed 

by the Secretary of the Treasury, adjust such balance to reflect 

the rate of return on plan assets for the preceding plan year. 

Notwithstanding subsection (g)(3), such rate of return shall be 

determined on the basis of fair market value and shall properly take into account, in accordance with such regulations, all 

contributions, distributions, and other plan payments made 

during such period. 

(9) ELECTIONS.—Elections under this subsection shall be 

made at such times, and in such form and manner, as shall be 

prescribed in regulations of the Secretary of the Treasury. 

(g) VALUATION OF PLAN ASSETS AND LIABILITIES.— 

(1) TIMING OF DETERMINATIONS.—Except as otherwise provided under this subsection, all determinations under this section for a plan year shall be made as of the valuation date of 

the plan for such plan year. 

(2) VALUATION DATE.—For purposes of this section— 


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(A) IN GENERAL.—Except as provided in subparagraph 

(B), the valuation date of a plan for any plan year shall be 

the first day of the plan year. 

(B) EXCEPTION FOR SMALL PLANS.—If, on each day during the preceding plan year, a plan had 100 or fewer participants, the plan may designate any day during the plan 

year as its valuation date for such plan year and succeeding plan years. For purposes of this subparagraph, all 

defined benefit plans which are single-employer plans and 

are maintained by the same employer (or any member of 

such employer’s controlled group) shall be treated as 1 

plan, but only participants with respect to such employer 

or member shall be taken into account. 

(C) APPLICATION OF CERTAIN RULES IN DETERMINATION

OF PLAN SIZE.—For purposes of this paragraph— 

(i) PLANS NOT IN EXISTENCE IN PRECEDING YEAR.—In 

the case of the first plan year of any plan, subparagraph (B) shall apply to such plan by taking into account the number of participants that the plan is reasonably expected to have on days during such first 

plan year. 

(ii) PREDECESSORS.—Any reference in subparagraph 

(B) to an employer shall include a reference to any 

predecessor of such employer. 

(3) DETERMINATION OF VALUE OF PLAN ASSETS.—For purposes 

of this section— 

(A) IN GENERAL.—Except as provided in subparagraph 

(B), the value of plan assets shall be the fair market value 

of the assets. 

(B) AVERAGING ALLOWED.—A plan may determine the 

value of plan assets on the basis of the averaging of fair 

market values, but only if such method— 

(i) is permitted under regulations prescribed by the 

Secretary of the Treasury, 

(ii) does not provide for averaging of such values 

over more than the period beginning on the last day 

of the 25th month preceding the month in which the 

valuation date occurs and ending on the valuation 

date (or a similar period in the case of a valuation 

date which is not the 1st day of a month), and 

(iii) does not result in a determination of the value 

of plan assets which, at any time, is lower than 90 

percent or greater than 110 percent of the fair market 

value of such assets at such time. 

Any such averaging shall be adjusted for contributions, 

distributions, and expected earnings (as determined by the 

plan’s actuary on the basis of an assumed earnings rate 

specified by the actuary but not in excess of the third segment rate applicable under subsection (h)(2)(C)(iii)), as 

specified by the Secretary of the Treasury. 

(4) ACCOUNTING FOR CONTRIBUTION RECEIPTS.—For purposes 

of determining the value of assets under paragraph (3)— 

(A) PRIOR YEAR CONTRIBUTIONS.—If— 


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(i) an employer makes any contribution to the plan 

after the valuation date for the plan year in which the 

contribution is made, and 

(ii) the contribution is for a preceding plan year, 

the contribution shall be taken into account as an asset of 

the plan as of the valuation date, except that in the case 

of any plan year beginning after 2008, only the present 

value (determined as of the valuation date) of such contribution may be taken into account. For purposes of the 

preceding sentence, present value shall be determined 

using the effective interest rate for the preceding plan year 

to which the contribution is properly allocable. 

(B) SPECIAL RULE FOR CURRENT YEAR CONTRIBUTIONS

MADE BEFORE VALUATION DATE.—If any contributions for 

any plan year are made to or under the plan during the 

plan year but before the valuation date for the plan year, 

the assets of the plan as of the valuation date shall not include— 

(i) such contributions, and 

(ii) interest on such contributions for the period between the date of the contributions and the valuation 

date, determined by using the effective interest rate 

for the plan year. 

(h) ACTUARIAL ASSUMPTIONS AND METHODS.— 

(1) IN GENERAL.—Subject to this subsection, the determination of any present value or other computation under this section shall be made on the basis of actuarial assumptions and 

methods— 

(A) each of which is reasonable (taking into account the 

experience of the plan and reasonable expectations), and 

(B) which, in combination, offer the actuary’s best estimate of anticipated experience under the plan. 

(2) INTEREST RATES.— 

(A) EFFECTIVE INTEREST RATE.—For purposes of this section, the term ‘‘effective interest rate’’ means, with respect 

to any plan for any plan year, the single rate of interest 

which, if used to determine the present value of the plan’s 

accrued or earned benefits referred to in subsection (d)(1), 

would result in an amount equal to the funding target of 

the plan for such plan year. 

(B) INTEREST RATES FOR DETERMINING FUNDING TARGET.—For purposes of determining the funding target and 

normal cost of a plan for any plan year, the interest rate 

used in determining the present value of the benefits of 

the plan shall be— 

(i) in the case of benefits reasonably determined to 

be payable during the 5-year period beginning on the 

valuation date for the plan year, the first segment rate 

with respect to the applicable month, 

(ii) in the case of benefits reasonably determined to 

be payable during the 15-year period beginning at the 

end of the period described in clause (i), the second 

segment rate with respect to the applicable month, 

and 


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(iii) in the case of benefits reasonably determined to 

be payable after the period described in clause (ii), the 

third segment rate with respect to the applicable 

month. 

(C) SEGMENT RATES.—For purposes of this paragraph— 

(i) FIRST SEGMENT RATE.—The term ‘‘first segment 

rate’’ means, with respect to any month, the single 

rate of interest which shall be determined by the Secretary of the Treasury for such month on the basis of 

the corporate bond yield curve for such month, taking 

into account only that portion of such yield curve 

which is based on bonds maturing during the 5-year 

period commencing with such month. 

(ii) SECOND SEGMENT RATE.—The term ‘‘second segment rate’’ means, with respect to any month, the single rate of interest which shall be determined by the 

Secretary of the Treasury for such month on the basis 

of the corporate bond yield curve for such month, taking into account only that portion of such yield curve 

which is based on bonds maturing during the 15-year 

period beginning at the end of the period described in 

clause (i). 

(iii) THIRD SEGMENT RATE.—The term ‘‘third segment rate’’ means, with respect to any month, the single rate of interest which shall be determined by the 

Secretary of the Treasury for such month on the basis 

of the corporate bond yield curve for such month, taking into account only that portion of such yield curve 

which is based on bonds maturing during periods beginning after the period described in clause (ii). 

(iv) SEGMENT RATE STABILIZATION.— 

(I) IN GENERAL.—If a segment rate described in 

clause (i), (ii), or (iii) with respect to any applicable month (determined without regard to this 

clause) is less than the applicable minimum percentage, or more than the applicable maximum 

percentage, of the average of the segment rates 

described in such clause for years in the 25-year 

period ending with September 30 of the calendar 

year preceding the calendar year in which the 

plan year begins, then the segment rate described 

in such clause with respect to the applicable 

month shall be equal to the applicable minimum 

percentage or the applicable maximum percentage 

of such average, whichever is closest. The Secretary of the Treasury shall determine such average on an annual basis and may prescribe equivalent rates for years in any such 25-year period for 

which the rates described in any such clause are 

not available. 

(II) APPLICABLE MINIMUM PERCENTAGE; APPLICABLE MAXIMUM PERCENTAGE.—For purposes of subclause (I), the applicable minimum percentage and 

the applicable maximum percentage for a plan 


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year beginning in a calendar year shall be determined in accordance with the following table: 

If the calendar year 

is: 

The applicable minimum percentage is: The applicable maximum percentage is: 

2012, 2013, 2014, 

2015, 2016, 2017, 

2018, 2019, or 

2020..

90% ........................... 110% 

2021 .......................... 85% ........................... 115% 

2022 .......................... 80% ........................... 120% 

2023 .......................... 75% ........................... 125% 

After 2023 ................ 70% ........................... 130% 

(D) CORPORATE BOND YIELD CURVE.—For purposes of this 

paragraph— 

(i) IN GENERAL.—The term ‘‘corporate bond yield 

curve’’ means, with respect to any month, a yield 

curve which is prescribed by the Secretary of the 

Treasury for such month and which reflects the average, for the 24-month period ending with the month 

preceding such month, of monthly yields on investment grade corporate bonds with varying maturities 

and that are in the top 3 quality levels available. 

(ii) ELECTION TO USE YIELD CURVE.—Solely for purposes of determining the minimum required contribution under this section, the plan sponsor may, in lieu 

of the segment rates determined under subparagraph 

(C), elect to use interest rates under the corporate 

bond yield curve. For purposes of the preceding sentence such curve shall be determined without regard 

to the 24-month averaging described in clause (i). 

Such election, once made, may be revoked only with 

the consent of the Secretary of the Treasury. 

(E) APPLICABLE MONTH.—For purposes of this paragraph, the term ‘‘applicable month’’ means, with respect to 

any plan for any plan year, the month which includes the 

valuation date of such plan for such plan year or, at the 

election of the plan sponsor, any of the 4 months which 

precede such month. Any election made under this subparagraph shall apply to the plan year for which the election is made and all succeeding plan years, unless the election is revoked with the consent of the Secretary of the 

Treasury. 

(F) PUBLICATION REQUIREMENTS.—The Secretary of the 

Treasury shall publish for each month the corporate bond 

yield curve (and the corporate bond yield curve reflecting 

the modification described in section 205(g)(3)(B)(iii)(I) for 

such month) and each of the rates determined under subparagraph (C) and the averages determined under subparagraph (C)(iv) for such month. The Secretary of the 


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Treasury shall also publish a description of the methodology used to determine such yield curve and such rates 

which is sufficiently detailed to enable plans to make reasonable projections regarding the yield curve and such 

rates for future months based on the plan’s projection of 

future interest rates. 

(3) MORTALITY TABLES.— (A) IN GENERAL.—Except as provided in subparagraph 

(C) or (D), the Secretary of the Treasury shall by regulation prescribe mortality tables to be used in determining 

any present value or making any computation under this 

section. Such tables shall be based on the actual experience of pension plans and projected trends in such experience. In prescribing such tables, the Secretary of the 

Treasury shall take into account results of available independent studies of mortality of individuals covered by pension plans. 

(B) PERIODIC REVISION.—The Secretary of the Treasury 

shall (at least every 10 years) make revisions in any table 

in effect under subparagraph (A) to reflect the actual experience of pension plans and projected trends in such experience. 

(C) SUBSTITUTE MORTALITY TABLE.— (i) IN GENERAL.—Upon request by the plan sponsor 

and approval by the Secretary of the Treasury, a mortality table which meets the requirements of clause 

(iii) shall be used in determining any present value or 

making any computation under this section during the 

period of consecutive plan years (not to exceed 10) 

specified in the request. 

(ii) EARLY TERMINATION OF PERIOD.—Notwithstanding clause (i), a mortality table described in 

clause (i) shall cease to be in effect as of the earliest 

of— 

(I) the date on which there is a significant 

change in the participants in the plan by reason 

of a plan spinoff or merger or otherwise, or 

(II) the date on which the plan actuary determines that such table does not meet the requirements of clause (iii). 

(iii) REQUIREMENTS.—A mortality table meets the 

requirements of this clause if— 

(I) there is a sufficient number of plan participants, and the pension plans have been maintained for a sufficient period of time, to have credible information necessary for purposes of subclause (II), and 

(II) such table reflects the actual experience of 

the pension plans maintained by the sponsor and 

projected trends in general mortality experience. 

(iv) ALL PLANS IN CONTROLLED GROUP MUST USE SEP- ARATE TABLE.—Except as provided by the Secretary of 

the Treasury, a plan sponsor may not use a mortality 

table under this subparagraph for any plan maintained by the plan sponsor unless— 


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(I) a separate mortality table is established and 

used under this subparagraph for each other plan 

maintained by the plan sponsor and if the plan 

sponsor is a member of a controlled group, each 

member of the controlled group, and 

(II) the requirements of clause (iii) are met separately with respect to the table so established for 

each such plan, determined by only taking into account the participants of such plan, the time such 

plan has been in existence, and the actual experience of such plan. 

(v) DEADLINE FOR SUBMISSION AND DISPOSITION OF

APPLICATION.— 

(I) SUBMISSION.—The plan sponsor shall submit 

a mortality table to the Secretary of the Treasury 

for approval under this subparagraph at least 7 

months before the 1st day of the period described 

in clause (i). 

(II) DISPOSITION.—Any mortality table submitted to the Secretary of the Treasury for approval under this subparagraph shall be treated 

as in effect as of the 1st day of the period described in clause (i) unless the Secretary of the 

Treasury, during the 180-day period beginning on 

the date of such submission, disapproves of such 

table and provides the reasons that such table 

fails to meet the requirements of clause (iii). The 

180-day period shall be extended upon mutual 

agreement of the Secretary of the Treasury and 

the plan sponsor. 

(D) SEPARATE MORTALITY TABLES FOR THE DISABLED.— 

Notwithstanding subparagraph (A)— 

(i) IN GENERAL.—The Secretary of the Treasury shall 

establish mortality tables which may be used (in lieu 

of the tables under subparagraph (A)) under this subsection for individuals who are entitled to benefits 

under the plan on account of disability. The Secretary 

of the Treasury shall establish separate tables for individuals whose disabilities occur in plan years beginning before January 1, 1995, and for individuals 

whose disabilities occur in plan years beginning on or 

after such date. 

(ii) SPECIAL RULE FOR DISABILITIES OCCURRING

AFTER 1994.—In the case of disabilities occurring in 

plan years beginning after December 31, 1994, the tables under clause (i) shall apply only with respect to 

individuals described in such subclause who are disabled within the meaning of title II of the Social Security Act and the regulations thereunder. 

(iii) PERIODIC REVISION.—The Secretary of the 

Treasury shall (at least every 10 years) make revisions 

in any table in effect under clause (i) to reflect the actual experience of pension plans and projected trends 

in such experience. 


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(4) PROBABILITY OF BENEFIT PAYMENTS IN THE FORM OF LUMP

SUMS OR OTHER OPTIONAL FORMS.—For purposes of determining any present value or making any computation under 

this section, there shall be taken into account— 

(A) the probability that future benefit payments under 

the plan will be made in the form of optional forms of benefits provided under the plan (including lump sum distributions, determined on the basis of the plan’s experience 

and other related assumptions), and 

(B) any difference in the present value of such future 

benefit payments resulting from the use of actuarial assumptions, in determining benefit payments in any such 

optional form of benefits, which are different from those 

specified in this subsection. 

(5) APPROVAL OF LARGE CHANGES IN ACTUARIAL ASSUMPTIONS.— 

(A) IN GENERAL.—No actuarial assumption used to determine the funding target for a plan to which this paragraph 

applies may be changed without the approval of the Secretary of the Treasury. 

(B) PLANS TO WHICH PARAGRAPH APPLIES.—This paragraph shall apply to a plan only if— 

(i) the plan is a single-employer plan to which title 

IV applies, 

(ii) the aggregate unfunded vested benefits as of the 

close of the preceding plan year (as determined under 

section 4006(a)(3)(E)(iii)) of such plan and all other 

plans maintained by the contributing sponsors (as defined in section 4001(a)(13)) and members of such 

sponsors’ controlled groups (as defined in section 

4001(a)(14)) which are covered by title IV (disregarding plans with no unfunded vested benefits) exceed $50,000,000, and 

(iii) the change in assumptions (determined after 

taking into account any changes in interest rate and 

mortality table) results in a decrease in the funding 

shortfall of the plan for the current plan year that exceeds $50,000,000, or that exceeds $5,000,000 and that 

is 5 percent or more of the funding target of the plan 

before such change. 

(i) SPECIAL RULES FOR AT-RISK PLANS.— 

(1) FUNDING TARGET FOR PLANS IN AT-RISK STATUS.— 

(A) IN GENERAL.—In the case of a plan which is in atrisk status for a plan year, the funding target of the plan 

for the plan year shall be equal to the sum of— 

(i) the present value of all benefits accrued or 

earned under the plan as of the beginning of the plan 

year, as determined by using the additional actuarial 

assumptions described in subparagraph (B), and 

(ii) in the case of a plan which also has been in atrisk status for at least 2 of the 4 preceding plan years, 

a loading factor determined under subparagraph (C). 

(B) ADDITIONAL ACTUARIAL ASSUMPTIONS.—The actuarial 

assumptions described in this subparagraph are as follows: 


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(i) All employees who are not otherwise assumed to 

retire as of the valuation date but who will be eligible 

to elect benefits during the plan year and the 10 succeeding plan years shall be assumed to retire at the 

earliest retirement date under the plan but not before 

the end of the plan year for which the at-risk funding 

target and at-risk target normal cost are being determined. 

(ii) All employees shall be assumed to elect the retirement benefit available under the plan at the assumed retirement age (determined after application of 

clause (i)) which would result in the highest present 

value of benefits. 

(C) LOADING FACTOR.—The loading factor applied with 

respect to a plan under this paragraph for any plan year 

is the sum of— 

(i) $700, times the number of participants in the 

plan, plus 

(ii) 4 percent of the funding target (determined without regard to this paragraph) of the plan for the plan 

year. 

(2) TARGET NORMAL COST OF AT-RISK PLANS.—In the case of 

a plan which is in at-risk status for a plan year, the target normal cost of the plan for such plan year shall be equal to the 

sum of— 

(A) the excess of— 

(i) the sum of— 

(I) the present value of all benefits which are 

expected to accrue or to be earned under the plan 

during the plan year, determined using the additional actuarial assumptions described in paragraph (1)(B), plus 

(II) the amount of plan-related expenses expected to be paid from plan assets during the plan 

year, over 

(ii) the amount of mandatory employee contributions 

expected to be made during the plan year, plus 

(B) in the case of a plan which also has been in at-risk 

status for at least 2 of the 4 preceding plan years, a loading factor equal to 4 percent of the amount determined 

under subsection (b)(1)(A)(i) with respect to the plan for 

the plan year. 

(3) MINIMUM AMOUNT.—In no event shall— 

(A) the at-risk funding target be less than the funding 

target, as determined without regard to this subsection, or 

(B) the at-risk target normal cost be less than the target 

normal cost, as determined without regard to this subsection. 

(4) DETERMINATION OF AT-RISK STATUS.—For purposes of this 

subsection— 

(A) IN GENERAL.—A plan is in at-risk status for a plan 

year if— 

(i) the funding target attainment percentage for the 

preceding plan year (determined under this section 


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without regard to this subsection) is less than 80 percent, and 

(ii) the funding target attainment percentage for the 

preceding plan year (determined under this section by 

using the additional actuarial assumptions described 

in paragraph (1)(B) in computing the funding target) 

is less than 70 percent. 

(B) TRANSITION RULE.—In the case of plan years beginning in 2008, 2009, and 2010, subparagraph (A)(i) shall be 

applied by substituting the following percentages for ‘‘80 

percent’’: 

(i) 65 percent in the case of 2008. 

(ii) 70 percent in the case of 2009. 

(iii) 75 percent in the case of 2010. 

In the case of plan years beginning in 2008, the funding 

target attainment percentage for the preceding plan year 

under subparagraph (A) may be determined using such 

methods of estimation as the Secretary of the Treasury 

may provide. 

(C) SPECIAL RULE FOR EMPLOYEES OFFERED EARLY RETIREMENT IN 2006.— 

(i) IN GENERAL.—For purposes of subparagraph 

(A)(ii), the additional actuarial assumptions described 

in paragraph (1)(B) shall not be taken into account 

with respect to any employee if— 

(I) such employee is employed by a specified 

automobile manufacturer, 

(II) such employee is offered a substantial 

amount of additional cash compensation, substantially enhanced retirement benefits under the 

plan, or materially reduced employment duties on 

the condition that by a specified date (not later 

than December 31, 2010) the employee retires (as 

defined under the terms of the plan), 

(III) such offer is made during 2006 and pursuant to a bona fide retirement incentive program 

and requires, by the terms of the offer, that such 

offer can be accepted not later than a specified 

date (not later than December 31, 2006), and 

(IV) such employee does not elect to accept such 

offer before the specified date on which the offer 

expires. 

(ii) SPECIFIED AUTOMOBILE MANUFACTURER.—For 

purposes of clause (i), the term ‘‘specified automobile 

manufacturer’’ means— 

(I) any manufacturer of automobiles, and 

(II) any manufacturer of automobile parts which 

supplies such parts directly to a manufacturer of 

automobiles and which, after a transaction or series of transactions ending in 1999, ceased to be 

a member of a controlled group which included 

such manufacturer of automobiles. 

(5) TRANSITION BETWEEN APPLICABLE FUNDING TARGETS AND

BETWEEN APPLICABLE TARGET NORMAL COSTS.— 


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(A) IN GENERAL.—In any case in which a plan which is 

in at-risk status for a plan year has been in such status 

for a consecutive period of fewer than 5 plan years, the applicable amount of the funding target and of the target 

normal cost shall be, in lieu of the amount determined 

without regard to this paragraph, the sum of— 

(i) the amount determined under this section without regard to this subsection, plus 

(ii) the transition percentage for such plan year of 

the excess of the amount determined under this subsection (without regard to this paragraph) over the 

amount determined under this section without regard 

to this subsection. 

(B) TRANSITION PERCENTAGE.—For purposes of subparagraph (A), the transition percentage shall be determined in 

accordance with the following table: 

If the consecutive number of 

years (including the plan year) The transition 

the plan is in at-risk status is— percentage is— 

1 ........................................................................................................................ 20

2 ........................................................................................................................ 40

3 ........................................................................................................................ 60

4 ........................................................................................................................ 80. 

(C) YEARS BEFORE EFFECTIVE DATE.—For purposes of 

this paragraph, plan years beginning before 2008 shall not 

be taken into account. 

(6) SMALL PLAN EXCEPTION.—If, on each day during the preceding plan year, a plan had 500 or fewer participants, the 

plan shall not be treated as in at-risk status for the plan year. 

For purposes of this paragraph, all defined benefit plans (other 

than multiemployer plans) maintained by the same employer 

(or any member of such employer’s controlled group) shall be 

treated as 1 plan, but only participants with respect to such 

employer or member shall be taken into account and the rules 

of subsection (g)(2)(C) shall apply. 

(j) PAYMENT OF MINIMUM REQUIRED CONTRIBUTIONS.— (1) IN GENERAL.—For purposes of this section, the due date 

for any payment of any minimum required contribution for any 

plan year shall be 81⁄2 months after the close of the plan year. 

(2) INTEREST.—Any payment required under paragraph (1) 

for a plan year that is made on a date other than the valuation 

date for such plan year shall be adjusted for interest accruing 

for the period between the valuation date and the payment 

date, at the effective rate of interest for the plan for such plan 

year. 

(3) ACCELERATED QUARTERLY CONTRIBUTION SCHEDULE FOR

UNDERFUNDED PLANS.— 

(A) FAILURE TO TIMELY MAKE REQUIRED INSTALLMENT.— 

In any case in which the plan has a funding shortfall for 

the preceding plan year, the employer maintaining the 

plan shall make the required installments under this paragraph and if the employer fails to pay the full amount of 

a required installment for the plan year, then the amount 

of interest charged under paragraph (2) on the underpayment for the period of underpayment shall be determined by using a rate of interest equal to the rate otherVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00451 Fmt 6659 Sfmt 9001 E:\HR\OC\HR065P1.XXX HR065P1

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wise used under paragraph (2) plus 5 percentage points. In 

the case of plan years beginning in 2008, the funding 

shortfall for the preceding plan year may be determined 

using such methods of estimation as the Secretary of the 

Treasury may provide. 

(B) AMOUNT OF UNDERPAYMENT, PERIOD OF UNDER- PAYMENT.—For purposes of subparagraph (A)— 

(i) AMOUNT.—The amount of the underpayment 

shall be the excess of— 

(I) the required installment, over 

(II) the amount (if any) of the installment contributed to or under the plan on or before the due 

date for the installment. 

(ii) PERIOD OF UNDERPAYMENT.—The period for 

which any interest is charged under this paragraph 

with respect to any portion of the underpayment shall 

run from the due date for the installment to the date 

on which such portion is contributed to or under the 

plan. 

(iii) ORDER OF CREDITING CONTRIBUTIONS.—For purposes of clause (i)(II), contributions shall be credited 

against unpaid required installments in the order in 

which such installments are required to be paid. 

(C) NUMBER OF REQUIRED INSTALLMENTS; DUE DATES.— For purposes of this paragraph— 

(i) PAYABLE IN 4 INSTALLMENTS.—There shall be 4 

required installments for each plan year. 

(ii) TIME FOR PAYMENT OF INSTALLMENTS.—The due 

dates for required installments are set forth in the following table: 


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445 

In the case of the following required installment: The due date is: 

1st ................................................................................................................. April 15 2nd ................................................................................................................ July 15 3rd ................................................................................................................. October 15 4th ................................................................................................................. January 15 of the following 

year. 


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(D) AMOUNT OF REQUIRED INSTALLMENT.—For purposes 

of this paragraph— 

(i) IN GENERAL.—The amount of any required installment shall be 25 percent of the required annual 

payment. 

(ii) REQUIRED ANNUAL PAYMENT.—For purposes of 

clause (i), the term ‘‘required annual payment’’ means 

the lesser of— 

(I) 90 percent of the minimum required contribution (determined without regard to this subsection) to the plan for the plan year under this 

section, or 

(II) 100 percent of the minimum required contribution (determined without regard to this subsection or to any waiver under section 302(c)) to 

the plan for the preceding plan year. 

Subclause (II) shall not apply if the preceding plan 

year referred to in such clause was not a year of 12 

months. 

(E) FISCAL YEARS, SHORT YEARS, AND YEARS WITH ALTER- NATE VALUATION DATE.— (i) FISCAL YEARS.—In applying this paragraph to a 

plan year beginning on any date other than January 

1, there shall be substituted for the months specified 

in this paragraph, the months which correspond thereto. 

(ii) SHORT PLAN YEAR.—This subparagraph shall be 

applied to plan years of less than 12 months in accordance with regulations prescribed by the Secretary of 

the Treasury. 

(iii) PLAN WITH ALTERNATE VALUATION DATE.—The 

Secretary of the Treasury shall prescribe regulations 

for the application of this paragraph in the case of a 

plan which has a valuation date other than the first 

day of the plan year. 

(F) QUARTERLY CONTRIBUTIONS NOT TO INCLUDE CERTAIN

INCREASED CONTRIBUTIONS.—Subparagraph (D) shall be 

applied without regard to any increase under subsection 

(c)(7). 

(4) LIQUIDITY REQUIREMENT IN CONNECTION WITH QUARTERLY

CONTRIBUTIONS.— 

(A) IN GENERAL.—A plan to which this paragraph applies shall be treated as failing to pay the full amount of 

any required installment under paragraph (3) to the extent 

that the value of the liquid assets paid in such installment 

is less than the liquidity shortfall (whether or not such liquidity shortfall exceeds the amount of such installment 

required to be paid but for this paragraph). 

(B) PLANS TO WHICH PARAGRAPH APPLIES.—This paragraph shall apply to a plan (other than a plan described 

in subsection (g)(2)(B)) which— 

(i) is required to pay installments under paragraph 

(3) for a plan year, and 

(ii) has a liquidity shortfall for any quarter during 

such plan year. 


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(C) PERIOD OF UNDERPAYMENT.—For purposes of paragraph (3)(A), any portion of an installment that is treated 

as not paid under subparagraph (A) shall continue to be 

treated as unpaid until the close of the quarter in which 

the due date for such installment occurs. 

(D) LIMITATION ON INCREASE.—If the amount of any required installment is increased by reason of subparagraph 

(A), in no event shall such increase exceed the amount 

which, when added to prior installments for the plan year, 

is necessary to increase the funding target attainment percentage of the plan for the plan year (taking into account 

the expected increase in funding target due to benefits accruing or earned during the plan year) to 100 percent. 

(E) DEFINITIONS.—For purposes of this paragraph— 

(i) LIQUIDITY SHORTFALL.—The term ‘‘liquidity shortfall’’ means, with respect to any required installment, 

an amount equal to the excess (as of the last day of 

the quarter for which such installment is made) of— 

(I) the base amount with respect to such quarter, over 

(II) the value (as of such last day) of the plan’s 

liquid assets. 

(ii) BASE AMOUNT.— (I) IN GENERAL.—The term ‘‘base amount’’ 

means, with respect to any quarter, an amount 

equal to 3 times the sum of the adjusted disbursements from the plan for the 12 months ending on 

the last day of such quarter. 

(II) SPECIAL RULE.—If the amount determined 

under subclause (I) exceeds an amount equal to 2 

times the sum of the adjusted disbursements from 

the plan for the 36 months ending on the last day 

of the quarter and an enrolled actuary certifies to 

the satisfaction of the Secretary of the Treasury 

that such excess is the result of nonrecurring circumstances, the base amount with respect to such 

quarter shall be determined without regard to 

amounts related to those nonrecurring circumstances. 

(iii) DISBURSEMENTS FROM THE PLAN.—The term 

‘‘disbursements from the plan’’ means all disbursements from the trust, including purchases of annuities, payments of single sums and other benefits, and 

administrative expenses. 

(iv) ADJUSTED DISBURSEMENTS.—The term ‘‘adjusted 

disbursements’’ means disbursements from the plan 

reduced by the product of— 

(I) the plan’s funding target attainment percentage for the plan year, and 

(II) the sum of the purchases of annuities, payments of single sums, and such other disbursements as the Secretary of the Treasury shall provide in regulations. 

(v) LIQUID ASSETS.—The term ‘‘liquid assets’’ means 

cash, marketable securities, and such other assets as 


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specified by the Secretary of the Treasury in regulations. 

(vi) QUARTER.—The term ‘‘quarter’’ means, with respect to any required installment, the 3-month period 

preceding the month in which the due date for such 

installment occurs. 

(F) REGULATIONS.—The Secretary of the Treasury may 

prescribe such regulations as are necessary to carry out 

this paragraph. 

(k) IMPOSITION OF LIEN WHERE FAILURE TO MAKE REQUIRED

CONTRIBUTIONS.— (1) IN GENERAL.—In the case of a plan to which this subsection applies (as provided under paragraph (2)), if— 

(A) any person fails to make a contribution payment required by section 302 and this section before the due date 

for such payment, and 

(B) the unpaid balance of such payment (including interest), when added to the aggregate unpaid balance of all 

preceding such payments for which payment was not made 

before the due date (including interest), exceeds 

$1,000,000, 

then there shall be a lien in favor of the plan in the amount 

determined under paragraph (3) upon all property and rights 

to property, whether real or personal, belonging to such person 

and any other person who is a member of the same controlled 

group of which such person is a member. 

(2) PLANS TO WHICH SUBSECTION APPLIES.—This subsection 

shall apply to a single-employer plan covered under section 

4021 for any plan year for which the funding target attainment 

percentage (as defined in subsection (d)(2)) of such plan is less 

than 100 percent. 

(3) AMOUNT OF LIEN.—For purposes of paragraph (1), the 

amount of the lien shall be equal to the aggregate unpaid balance of contribution payments required under this section and 

section 302 for which payment has not been made before the 

due date. 

(4) NOTICE OF FAILURE; LIEN.— (A) NOTICE OF FAILURE.—A person committing a failure 

described in paragraph (1) shall notify the Pension Benefit 

Guaranty Corporation of such failure within 10 days of the 

due date for the required contribution payment. 

(B) PERIOD OF LIEN.—The lien imposed by paragraph (1) 

shall arise on the due date for the required contribution 

payment and shall continue until the last day of the first 

plan year in which the plan ceases to be described in paragraph (1)(B). Such lien shall continue to run without regard to whether such plan continues to be described in 

paragraph (2) during the period referred to in the preceding sentence. 

(C) CERTAIN RULES TO APPLY.—Any amount with respect 

to which a lien is imposed under paragraph (1) shall be 

treated as taxes due and owing the United States and 

rules similar to the rules of subsections (c), (d), and (e) of 

section 4068 shall apply with respect to a lien imposed by 

subsection (a) and the amount with respect to such lien. 


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(5) ENFORCEMENT.—Any lien created under paragraph (1) 

may be perfected and enforced only by the Pension Benefit 

Guaranty Corporation, or at the direction of the Pension Benefit Guaranty Corporation, by the contributing sponsor (or any 

member of the controlled group of the contributing sponsor). 

(6) DEFINITIONS.—For purposes of this subsection— 

(A) CONTRIBUTION PAYMENT.—The term ‘‘contribution 

payment’’ means, in connection with a plan, a contribution 

payment required to be made to the plan, including any required installment under paragraphs (3) and (4) of subsection (j). 

(B) DUE DATE; REQUIRED INSTALLMENT.—The terms ‘‘due 

date’’ and ‘‘required installment’’ have the meanings given 

such terms by subsection (j). 

(C) CONTROLLED GROUP.—The term ‘‘controlled group’’ 

means any group treated as a single employer under subsections (b), (c), (m), and (o) of section 414 of the Internal 

Revenue Code of 1986. 

(l) QUALIFIED TRANSFERS TO HEALTH BENEFIT ACCOUNTS.—In 

the case of a qualified transfer (as defined in section 420 of the Internal Revenue Code of 1986), any assets so transferred shall not, 

for purposes of this section, be treated as assets in the plan. 

(m) SPECIAL RULES FOR COMMUNITY NEWSPAPER PLANS.— (1) IN GENERAL.—The plan sponsor of a community newspaper plan under which no participant has had the participant’s accrued benefit increased (whether because of service or 

compensation) after December 31, 2017, may elect to have the 

alternative standards described in paragraph (3) apply to such 

plan, and any plan sponsored by any member of the same controlled group. 

(2) ELECTION.—An election under paragraph (1) shall be 

made at such time and in such manner as prescribed by the 

Secretary of the Treasury. Such election, once made with respect 

to a plan year, shall apply to all subsequent plan years unless 

revoked with the consent of the Secretary of the Treasury. 

(3) ALTERNATIVE MINIMUM FUNDING STANDARDS.—The alternative standards described in this paragraph are the following: 

(A) INTEREST RATES.— (i) IN GENERAL.—Notwithstanding subsection 

(h)(2)(C) and except as provided in clause (ii), the first, 

second, and third segment rates in effect for any month 

for purposes of this section shall be 8 percent. 

(ii) NEW BENEFIT ACCRUALS.—Notwithstanding subsection (h)(2), for purposes of determining the funding 

target and normal cost of a plan for any plan year, the 

present value of any benefits accrued or earned under 

the plan for a plan year with respect to which an election under paragraph (1) is in effect shall be determined on the basis of the U.S. Treasury obligation 

yield curve for the day that is the valuation date of 

such plan for such plan year. 

(iii) U.S. TREASURY OBLIGATION YIELD CURVE.—For 

purposes of this subsection, the term ‘‘U.S. Treasury obligation yield curve’’ means, with respect to any day, a 

yield curve which shall be prescribed by the Secretary 


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of the Treasury for such day on interest-bearing obligations of the United States. 

(B) SHORTFALL AMORTIZATION BASE.— (i) PREVIOUS SHORTFALL AMORTIZATION BASES.—The 

shortfall amortization bases determined under subsection (c)(3) for all plan years preceding the first plan 

year to which the election under paragraph (1) applies 

(and all shortfall amortization installments determined 

with respect to such bases) shall be reduced to zero 

under rules similar to the rules of subsection (c)(6). 

(ii) NEW SHORTFALL AMORTIZATION BASE.—Notwithstanding subsection (c)(3), the shortfall amortization 

base for the first plan year to which the election under 

paragraph (1) applies shall be the funding shortfall of 

such plan for such plan year (determined using the interest rates as modified under subparagraph (A)). 

(C) DETERMINATION OF SHORTFALL AMORTIZATION IN- STALLMENTS.— (i) 30-YEAR PERIOD.—Subparagraphs (A) and (B) of 

subsection (c)(2) shall be applied by substituting ‘‘30- 

plan-year’’ for ‘‘7-plan-year’’ each place it appears. 

(ii) NO SPECIAL ELECTION.—The election under subparagraph (D) of subsection (c)(2) shall not apply to 

any plan year to which the election under paragraph 

(1) applies. 

(D) EXEMPTION FROM AT-RISK TREATMENT.—Subsection 

(i) shall not apply. 

(4) COMMUNITY NEWSPAPER PLAN.—For purposes of this subsection— 

(A) IN GENERAL.—The term ‘‘community newspaper plan’’ 

means a plan to which this section applies maintained by 

an employer which, as of December 31, 2017— 

(i) publishes and distributes daily, either electronically or in printed form— 

(I) a community newspaper, or 

(II) 1 or more community newspapers in the 

same State, 

(ii) is not a company the stock of which is publicly 

traded (on a stock exchange or in an over-the-counter 

market), and is not controlled, directly or indirectly, by 

such a company, 

(iii) is controlled, directly or indirectly— 

(I) by 1 or more persons residing primarily in 

the State in which the community newspaper is 

published, 

(II) for not less than 30 years by individuals who 

are members of the same family, 

(III) by a trust created or organized in the State 

in which the community newspaper is published, 

the sole trustees of which are persons described in 

subclause (I) or (II), 

(IV) by an entity which is described in section 

501(c)(3) of the Internal Revenue Code of 1986 and 

exempt from taxation under section 501(a) of such 

Code, which is organized and operated in the State 


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in which the community newspaper is published, 

and the primary purpose of which is to benefit 

communities in such State, or 

(V) by a combination of persons described in 

subclause (I), (III), or (IV), and 

(iv) does not control, directly or indirectly, any newspaper in any other State. 

(B) COMMUNITY NEWSPAPER.—The term ‘‘community 

newspaper’’ means a newspaper which primarily serves a 

metropolitan statistical area, as determined by the Office of 

Management and Budget, with a population of not less 

than 100,000. 

(C) CONTROL.—A person shall be treated as controlled by 

another person if such other person possesses, directly or 

indirectly, the power to direct or cause the direction and 

management of such person (including the power to elect a 

majority of the members of the board of directors of such 

person) through the ownership of voting securities. 

(5) CONTROLLED GROUP.—For purposes of this subsection, the 

term ‘‘controlled group’’ means all persons treated as a single 

employer under subsection (b), (c), (m), or (o) of section 414 of 

the Internal Revenue Code of 1986 as of the date of the enactment of this subsection. 

(6) EFFECT ON PREMIUM RATE CALCULATION.—Notwithstanding any other provision of law or any regulation issued by 

the Pension Benefit Guaranty Corporation, in the case of a community newspaper plan which elects the application of the alternative standards described in paragraph (3), the additional 

premium under section 4006(a)(3)(E) shall be determined as if 

such election had not been made. 

* * * * * * * 

PART 4—FIDUCIARY RESPONSIBILITY

* * * * * * * 

FIDUCIARY DUTIES

SEC. 404. (a)(1) Subject to sections 403(c) and (d), 4042, and 

4044, a fiduciary shall discharge his duties with respect to a plan 

solely in the interest of the participants and beneficiaries and— 

(A) for the exclusive purpose of: 

(i) providing benefits to participants and their beneficiaries; and 

(ii) defraying reasonable expenses of administering the 

plan; 

(B) with the care, skill, prudence, and diligence under the 

circumstances then prevailing that a prudent man acting in a 

like capacity and familiar with such matters would use in the 

conduct of an enterprise of a like character and with like aims; 

(C) by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances 

it is clearly prudent not to do so; and 

(D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments 

are consistent with the provisions of this title and title IV. 


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(2) In the case of an eligible individual account plan (as defined 

in section 407(d)(3)), the diversification requirement of paragraph 

(1)(C) and the prudence requirement (only to the extent that it requires diversification) of paragraph (1)(B) is not violated by acquisition or holding of qualifying employer real property or qualifying 

employer securities (as defined in section 407(d)(4) and (5)). 

(b) Except as authorized by the Secretary by regulation, no fiduciary may maintain the indicia of ownership of any assets of a plan 

outside the jurisdiction of the district courts of the United States. 

(c)(1)(A) In the case of a pension plan which provides for individual accounts and permits a participant or beneficiary to exercise 

control over assets in his account, if a participant or beneficiary exercises control over the assets in his account (as determined under 

regulations of the Secretary)— 

(i) such participant or beneficiary shall not be deemed to be 

a fiduciary by reason of such exercise, and 

(ii) no person who is otherwise a fiduciary shall be liable 

under this part for any loss, or by reason of any breach, which 

results from such participant’s or beneficiary’s exercise of control, except that this clause shall not apply in connection with 

such participant or beneficiary for any blackout period during 

which the ability of such participant or beneficiary to direct the 

investment of the assets in his or her account is suspended by 

a plan sponsor or fiduciary. 

(B) If a person referred to in subparagraph (A)(ii) meets the requirements of this title in connection with authorizing and implementing the blackout period, any person who is otherwise a fiduciary shall not be liable under this title for any loss occurring during such period. 

(C) For purposes of this paragraph, the term ‘‘blackout period’’ 

has the meaning given such term by section 101(i)(7). 

(2) In the case of a simple retirement account established 

pursuant to a qualified salary reduction arrangement under 

section 408(p) of the Internal Revenue Code of 1986, a participant or beneficiary shall, for purposes of paragraph (1), be 

treated as exercising control over the assets in the account 

upon the earliest of— 

(A) an affirmative election among investment options 

with respect to the initial investment of any contribution, 

(B) a rollover to any other simple retirement account or 

individual retirement plan, or 

(C) one year after the simple retirement account is established. 

No reports, other than those required under section 101(g), 

shall be required with respect to a simple retirement account 

established pursuant to such a qualified salary reduction arrangement. 

(3) In the case of a pension plan which makes a transfer to 

an individual retirement account or annuity of a designated 

trustee or issuer under section 401(a)(31)(B) of the Internal 

Revenue Code of 1986, the participant or beneficiary shall, for 

purposes of paragraph (1), be treated as exercising control over 

the assets in the account or annuity upon— 

(A) the earlier of— 


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(i) a rollover of all or a portion of the amount to another individual retirement account or annuity; or 

(ii) one year after the transfer is made; or 

(B) a transfer that is made in a manner consistent with 

guidance provided by the Secretary. 

(4)(A) In any case in which a qualified change in investment 

options occurs in connection with an individual account plan, 

a participant or beneficiary shall not be treated for purposes of 

paragraph (1) as not exercising control over the assets in his 

account in connection with such change if the requirements of 

subparagraph (C) are met in connection with such change. 

(B) For purposes of subparagraph (A), the term ‘‘qualified 

change in investment options’’ means, in connection with an individual account plan, a change in the investment options offered to the participant or beneficiary under the terms of the 

plan, under which— 

(i) the account of the participant or beneficiary is reallocated among one or more remaining or new investment options which are offered in lieu of one or more investment 

options offered immediately prior to the effective date of 

the change, and 

(ii) the stated characteristics of the remaining or new investment options provided under clause (i), including characteristics relating to risk and rate of return, are, as of immediately after the change, reasonably similar to those of 

the existing investment options as of immediately before 

the change. 

(C) The requirements of this subparagraph are met in connection with a qualified change in investment options if— 

(i) at least 30 days and no more than 60 days prior to 

the effective date of the change, the plan administrator 

furnishes written notice of the change to the participants 

and beneficiaries, including information comparing the existing and new investment options and an explanation 

that, in the absence of affirmative investment instructions 

from the participant or beneficiary to the contrary, the account of the participant or beneficiary will be invested in 

the manner described in subparagraph (B), 

(ii) the participant or beneficiary has not provided to the 

plan administrator, in advance of the effective date of the 

change, affirmative investment instructions contrary to the 

change, and 

(iii) the investments under the plan of the participant or 

beneficiary as in effect immediately prior to the effective 

date of the change were the product of the exercise by such 

participant or beneficiary of control over the assets of the 

account within the meaning of paragraph (1). 

(5) DEFAULT INVESTMENT ARRANGEMENTS.— 

(A) IN GENERAL.—For purposes of paragraph (1), a participant or beneficiary in an individual account plan meeting the notice requirements of subparagraph (B) shall be 

treated as exercising control over the assets in the account 

with respect to the amount of contributions and earnings 

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ance with regulations prescribed by the Secretary. The regulations under this subparagraph shall provide guidance 

on the appropriateness of designating default investments 

that include a mix of asset classes consistent with capital 

preservation or long-term capital appreciation, or a blend 

of both. 

(B) NOTICE REQUIREMENTS.— (i) IN GENERAL.—The requirements of this subparagraph are met if each participant or beneficiary— 

(I) receives, within a reasonable period of time 

before each plan year, a notice explaining the employee’s right under the plan to designate how 

contributions and earnings will be invested and 

explaining how, in the absence of any investment 

election by the participant or beneficiary, such 

contributions and earnings will be invested, and 

(II) has a reasonable period of time after receipt 

of such notice and before the beginning of the plan 

year to make such designation. 

(ii) FORM OF NOTICE.—The requirements of clauses 

(i) and (ii) of section 401(k)(12)(D) of the Internal Revenue Code of 1986 shall apply with respect to the notices described in this subparagraph. 

(d)(1) If, in connection with the termination of a pension plan 

which is a single-employer plan, there is an election to establish or 

maintain a qualified replacement plan, or to increase benefits, as 

provided under section 4980(d) of the Internal Revenue Code of 

1986, a fiduciary shall discharge the fiduciary’s duties under this 

title and title IV in accordance with the following requirements: 

(A) In the case of a fiduciary of the terminated plan, any requirement— 

(i) under section 4980(d)(2)(B) of such Code with respect 

to the transfer of assets from the terminated plan to a 

qualified replacement plan, and 

(ii) under section 4980(d)(2)(B)(ii) or 4980(d)(3) of such 

Code with respect to any increase in benefits under the 

terminated plan. 

(B) In the case of a fiduciary of a qualified replacement plan, 

any requirement— 

(i) under section 4980(d)(2)(A) of such Code with respect 

to participation in the qualified replacement plan of active 

participants in the terminated plan, 

(ii) under section 4980(d)(2)(B) of such Code with respect 

to the receipt of assets from the terminated plan, and 

(iii) under section 4980(d)(2)(C) of such Code with respect to the allocation of assets to participants of the qualified replacement plan. 

(2) For purposes of this subsection— 

(A) any term used in this subsection which is also used in 

section 4980(d) of the Internal Revenue Code of 1986 shall 

have the same meaning as when used in such section, and 

(B) any reference in this subsection to the Internal Revenue 

Code of 1986 shall be a reference to such Code as in effect immediately after the enactment of the Omnibus Budget Reconciliation Act of 1990. 


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(e) SAFE HARBOR FOR ANNUITY SELECTION.— 

(1) IN GENERAL.—With respect to the selection of an insurer 

for a guaranteed retirement income contract, the requirements 

of subsection (a)(1)(B) will be deemed to be satisfied if a fiduciary— 

(A) engages in an objective, thorough, and analytical 

search for the purpose of identifying insurers from which to 

purchase such contracts; 

(B) with respect to each insurer identified under subparagraph (A)— 

(i) considers the financial capability of such insurer 

to satisfy its obligations under the guaranteed retirement income contract; and 

(ii) considers the cost (including fees and commissions) of the guaranteed retirement income contract offered by the insurer in relation to the benefits and 

product features of the contract and administrative 

services to be provided under such contract; and 

(C) on the basis of such consideration, concludes that— 

(i) at the time of the selection, the insurer is financially capable of satisfying its obligations under the 

guaranteed retirement income contract; and 

(ii) the relative cost of the selected guaranteed retirement income contract as described in subparagraph 

(B)(ii) is reasonable. 

(2) FINANCIAL CAPABILITY OF THE INSURER.—A fiduciary will 

be deemed to satisfy the requirements of paragraphs (1)(B)(i) 

and (1)(C)(i) if— 

(A) the fiduciary obtains written representations from the 

insurer that— 

(i) the insurer is licensed to offer guaranteed retirement income contracts; 

(ii) the insurer, at the time of selection and for each 

of the immediately preceding 7 plan years— 

(I) operates under a certificate of authority from 

the insurance commissioner of its domiciliary 

State which has not been revoked or suspended; 

(II) has filed audited financial statements in accordance with the laws of its domiciliary State 

under applicable statutory accounting principles; 

(III) maintains (and has maintained) reserves 

which satisfies all the statutory requirements of all 

States where the insurer does business; and 

(IV) is not operating under an order of supervision, rehabilitation, or liquidation; 

(iii) the insurer undergoes, at least every 5 years, a 

financial examination (within the meaning of the law 

of its domiciliary State) by the insurance commissioner 

of the domiciliary State (or representative, designee, or 

other party approved by such commissioner); and 

(iv) the insurer will notify the fiduciary of any 

change in circumstances occurring after the provision 

of the representations in clauses (i), (ii), and (iii) which 

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tations at the time of issuance of the guaranteed retirement income contract; and 

(B) after receiving such representations and as of the 

time of selection, the fiduciary has not received any notice 

described in subparagraph (A)(iv) and is in possession of 

no other information which would cause the fiduciary to 

question the representations provided. 

(3) NO REQUIREMENT TO SELECT LOWEST COST.—Nothing in 

this subsection shall be construed to require a fiduciary to select 

the lowest cost contract. A fiduciary may consider the value of 

a contract, including features and benefits of the contract and 

attributes of the insurer (including, without limitation, the insurer’s financial strength) in conjunction with the cost of the 

contract. 

(4) TIME OF SELECTION.— 

(A) IN GENERAL.—For purposes of this subsection, the 

time of selection is— 

(i) the time that the insurer and the contract are selected for distribution of benefits to a specific participant or beneficiary; or 

(ii) if the fiduciary periodically reviews the continuing appropriateness of the conclusion described in 

paragraph (1)(C) with respect to a selected insurer, taking into account the considerations described in such 

paragraph, the time that the insurer and the contract 

are selected to provide benefits at future dates to participants or beneficiaries under the plan. 

Nothing in the preceding sentence shall be construed to require the fiduciary to review the appropriateness of a selection after the purchase of a contract for a participant or 

beneficiary. 

(B) PERIODIC REVIEW.—A fiduciary will be deemed to 

have conducted the periodic review described in subparagraph (A)(ii) if the fiduciary obtains the written representations described in clauses (i), (ii), and (iii) of paragraph 

(2)(A) from the insurer on an annual basis, unless the fiduciary receives any notice described in paragraph (2)(A)(iv) 

or otherwise becomes aware of facts that would cause the 

fiduciary to question such representations. 

(5) LIMITED LIABILITY.—A fiduciary which satisfies the requirements of this subsection shall not be liable following the 

distribution of any benefit, or the investment by or on behalf of 

a participant or beneficiary pursuant to the selected guaranteed 

retirement income contract, for any losses that may result to the 

participant or beneficiary due to an insurer’s inability to satisfy 

its financial obligations under the terms of such contract. 

(6) DEFINITIONS.—For purposes of this subsection— 

(A) INSURER.—The term ‘‘insurer’’ means an insurance 

company, insurance service, or insurance organization, including affiliates of such companies. 

(B) GUARANTEED RETIREMENT INCOME CONTRACT.—The 

term ‘‘guaranteed retirement income contract’’ means an 

annuity contract for a fixed term or a contract (or provision 

or feature thereof) which provides guaranteed benefits annually (or more frequently) for at least the remainder of the 


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life of the participant or the joint lives of the participant 

and the participant’s designated beneficiary as part of an 

individual account plan. 

* * * * * * * 

BONDING

SEC. 412. (a) Every fiduciary of an employee benefit plan and 

every person who handles funds or other property of such a plan 

(hereafter in this section referred to as ‘‘plan official’’) shall be 

bonded as provided in this section; except that— 

(1) where such plan is one under which the only assets from 

which benefits are paid are the general assets of a union or of 

an employer, the administrator, officers, and employees of such 

plan shall be exempt from the bonding requirements of this 

section, 

(2) no bond shall be required of any entity which is registered as a broker or a dealer under section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) if the broker or 

dealer is subject to the fidelity bond requirements of a self-regulatory organization (within the meaning of section 3(a)(26) of 

such Act (15 U.S.C. 78c(a)(26)). 

(3) no bond shall be required of a fiduciary (or of any director, officer, or employee of such fiduciary) if such fiduciary— 

(A) is a corporation organized and doing business under 

the laws of the United States or of any State; 

(B) is authorized under such laws to exercise trust powers or to conduct an insurance business; 

(C) is subject to supervision or examination by Federal 

or State authority; and 

(D) has at all times a combined capital and surplus in 

excess of such a minimum amount as may be established 

by regulations issued by the Secretary, which amount shall 

be at least $1,000,000. Paragraph (2) shall apply to a bank 

or other financial institution which is authorized to exercise trust powers and the deposits of which are not insured 

by the Federal Deposit Insurance Corporation, only if such 

bank or institution meets bonding or similar requirements 

under State law which the Secretary determines are at 

least equivalent to those imposed on banks by Federal law. 

The amount of such bond shall be fixed at the beginning of each 

fiscal year of the plan. Such amount shall be not less than 10 per 

centum of the amount of funds handled. In no case shall such bond 

be less than $1,000 nor more than $500,000, except that the Secretary, after due notice and opportunity for hearing to all interested parties, and after consideration of the record, may prescribe 

an amount in excess of $500,000, subject to the 10 per centum limitation of the preceding sentence. For purposes of fixing the amount 

of such bond, the amount of funds handled shall be determined by 

the funds handled by the person, group, or class to be covered by 

such bond and by their predecessor or predecessors, if any, during 

the preceding reporting year, or if the plan has no preceding reporting year, the amount of funds to be handled during the current 

reporting year by such person, group, or class, estimated as provided in regulations of the Secretary. Such bond shall provide proVerDate Sep 11 2014 10:18 May 17, 2019 Jkt 036385 PO 00000 Frm 00465 Fmt 6659 Sfmt 6601 E:\HR\OC\HR065P1.XXX HR065P1

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tection to the plan against loss by reason of acts of fraud or dishonesty on the part of the plan official, directly or through connivance 

with others. Any bond shall have as surety thereon a corporate surety company which is an acceptable surety on Federal bonds under 

authority granted by the Secretary of the Treasury pursuant to sections 6 through 13 of title 6, United States Code. Any bond shall 

be in a form or of a type approved by the Secretary, including individual bonds or schedule or blanket forms of bonds which cover a 

group or class. In the case of a plan that holds employer securities 

(within the meaning of section 407(d)(1)) or in the case of a pooled 

employer plan (as defined in section 3(43)) , this subsection shall 

be applied by substituting ‘‘$1,000,000’’ for ‘‘$500,000’’ each place it 

appears. 

(b) It shall be unlawful for any plan official to whom subsection 

(a) applies, to receive, handle, disburse, or otherwise exercise custody or control of any of the funds or other property of any employee benefit plan, without being bonded as required by subsection 

(a) and it shall be unlawful for any plan official of such plan, or 

any other person having authority to direct the performance of 

such functions, to permit such functions, or any of them, to be performed by any plan official, with respect to whom the requirements 

of subsection (a) have not been met. 

(c) It shall be unlawful for any person to procure any bond required by subsection (a) from any surety or other company or 

through any agent or broker in whose business operations such 

plan or any party in interest in such plan has any control or significant financial interest, direct or indirect. 

(d) Nothing in any other provision of law shall require any person, required to be bonded as provided in subsection (a) because he 

handles funds or other property of an employee benefit plan, to be 

bonded insofar as the handling by such person of the funds or other 

property of such plan is concerned. 

(e) The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section including exempting a plan from the requirements of this section where he finds 

that (1) other bonding arrangements or (2) the overall financial 

condition of the plan would be adequate to protect the interests of 

the beneficiaries and participants. When, in the opinion of the Secretary, the administrator of a plan offers adequate evidence of the 

financial responsibility of the plan, or that other bonding arrangements would provide adequate protection of the beneficiaries and 

participants, he may exempt such plan from the requirements of 

this section. 

* * * * * * * 

TITLE IV—PLAN TERMINATION INSURANCE 

SUBTITLE A—PENSION BENEFIT GUARANTY CORPORATION

* * * * * * * 

PREMIUM RATES

SEC. 4006. (a)(1) The corporation shall prescribe such schedules 

of premium rates and bases for the application of those rates as 

may be necessary to provide sufficient revenue to the fund for the 


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corporation to carry out its functions under this title. The premium 

rates charged by the corporation for any period shall be uniform for 

all plans, other than multiemployer plans, insured by the corporation with respect to basic benefits guaranteed by it under section 

4022, and shall be uniform for all multiemployer plans with respect 

to basic benefits guaranteed by it under section 4022A. 

(2) The corporation shall maintain separate schedules of premium rates, and bases for the application of those rates, for— 

(A) basic benefits guaranteed by it under section 4022 for 

single-employer plans, 

(B) basic benefits guaranteed by it under section 4022A for 

multiemployer plans, 

(C) nonbasic benefits guaranteed by it under section 4022 for 

single-employer plans, 

(D) nonbasic benefits guaranteed by it under section 4022A 

for multiemployer plans, and 

(E) reimbursements of uncollectible withdrawal liability 

under section 4222. 

The corporation may revise such schedules whenever it determines 

that revised schedules are necessary. Except as provided in section 

4022A(f), in order to place a revised schedule described in subparagraph (A) or (B) in effect, the corporation shall proceed in accordance with subsection (b)(1), and such schedule shall apply only to 

plan years beginning more than 30 days after the date on which 

a joint resolution approving such revised schedule is enacted. 

(3)(A) Except as provided in subparagraph (C), the annual premium rate payable to the corporation by all plans for basic benefits 

guaranteed under this title is— 

(i) in the case of a single-employer øplan,¿ plan other than 

a CSEC plan (as defined in section 210(f)(1)) an amount for 

each individual who is a participant in such plan during the 

plan year equal to the sum of the additional premium (if any) 

determined under subparagraph (E) and— 

(I) for plan years beginning after December 31, 2005, 

and before January 1, 2013, $30; 

(II) for plan years beginning after December 31, 2012, 

and before January 1, 2014, $42; 

(III) for plan years beginning after December 31, 2013 

and before January 1, 2015,, $49. 

(IV) for plan years beginning after December 31, 2014, 

and before January 1, 2016, $57; 

(V) for plan years beginning after December 31, 2015, 

and before January 1, 2017, $64; 

(VI) for plan years beginning after December 31, 2016, 

and before January 1, 2018, $69; 

(VII) for plan years beginning after December 31, 2017, 

and before January 1, 2019, $74; and 

(VIII) for plan years beginning after December 31, 2018, 

$80. 

(ii) in the case of a multiemployer plan, for the plan year 

within which the date of enactment of the Multiemployer Pension Plan Amendments Act of 1980 falls, an amount for each 

individual who is a participant in such plan for such plan year 

equal to the sum of— 


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(I) 50 cents, multiplied by a fraction the numerator of 

which is the number of months in such year ending on or 

before such date and the denominator of which is 12, and 

(II) $1.00, multiplied by a fraction equal to 1 minus the 

fraction determined under clause (i), 

(iii) in the case of a multiemployer plan, for plan years beginning after the date of enactment of the Multiemployer Pension Plan Amendments Act of 1980, and before January 1, 

2006, an amount equal to— 

(I) $1.40 for each participant, for the first, second, third, 

and fourth plan years, 

(II) $1.80 for each participant, for the fifth and sixth 

plan years, 

(III) $2.20 for each participant, for the seventh and 

eighth plan years, and 

(IV) $2.60 for each participant, for the ninth plan year, 

and for each succeeding plan year, 

(iv) in the case of a multiemployer plan, for plan years beginning after December 31, 2005, and before January 1, 2013, 

$8.00 for each individual who is a participant in such plan during the applicable plan year, 

(v) in the case of a multiemployer plan, for plan years beginning after December 31, 2012, and before January 1, 2015, 

$12.00 for each individual who is a participant in such plan 

during the applicable plan year, øor¿ 

(vi) in the case of a multiemployer plan, for plan years beginning after December 31, 2014, $26 for each individual who is 

a participant in such plan during the applicable plan yearø.¿, 

or 

(vii) in the case of a CSEC plan (as defined in section 

210(f)(1)), for plan years beginning after December 31, 2018, for 

each individual who is a participant in such plan during the 

plan year an amount equal to the sum of— 

(I) the additional premium (if any) determined under 

subparagraph (E), and 

(II) $19. 

(B) The corporation may prescribe by regulation the extent to 

which the rate described in subparagraph (A)(i) applies more than 

once for any plan year to an individual participating in more than 

one plan maintained by the same employer, and the corporation 

may prescribe regulations under which the rate described in clause 

(iii) or (iv) of subparagraph (A) will not apply to the same participant in any multiemployer plan more than once for any plan year. 

(C)(i) If the sum of— 

(I) the amounts in any fund for basic benefits guaranteed for 

multiemployer plans, and 

(II) the value of any assets held by the corporation for payment of basic benefits guaranteed for multiemployer plans, 

is for any calendar year less than 2 times the amount of basic 

benefits guaranteed by the corporation under this title for multiemployer plans which were paid out of any such fund or assets during the preceding calendar year, the annual premium 

rates under subparagraph (A) shall be increased to the next 

highest premium level necessary to insure that such sum will 


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be at least 2 times greater than such amount during the following calendar year. 

(ii) If the board of directors of the corporation determines that an 

increase in the premium rates under subparagraph (A) is necessary 

to provide assistance to plans which are receiving assistance under 

section 4261 and to plans the board finds are reasonably likely to 

require such assistance, the board may order such increase in the 

premium rates. 

(iii) The maximum annual premium rate which may be estab- lished under this subparagraph is $2.60 for each participant. 

(iv) The provisions of this subparagraph shall not apply if the an- nual premium rate is increased to a level in excess of $2.60 per 

participant under any other provisions of this title. 

(D)(i) Not later than 120 days before the date on which an increase under subparagraph (C)(ii) is to become effective, the corporation shall publish in the Federal Register a notice of the determination described in subparagraph (C)(ii), the basis for the determination, the amount of the increase in the premium, and the anticipated increase in premium income that would result from the 

increase in the premium rate. The notice shall invite public comment, and shall provide for a public hearing if one is requested. 

Any such hearing shall be commenced not later than 60 days before the date on which the increase is to become effective. 

(ii) The board of directors shall review the hearing record established under clause (i) and shall, not later than 30 days before the 

date on which the increase is to become effective, determine (after 

consideration of the comments received) whether the amount of the 

increase should be changed and shall publish its determination in 

the Federal Register. 

(E)(i) Except as provided in subparagraph (H), the additional premium determined under this subparagraph with respect to any 

plan for any plan year— 

(I) shall be an amount equal to the amount determined 

under clause (ii) divided by the number of participants in such 

plan as of the close of the preceding plan year; 

(II) in the case of plan years beginning in a calendar year 

after 2012 and before 2016, shall not exceed $400 and 

(III) in the case of plan years beginning in a calendar year 

after 2015, shall not exceed $500. 

(ii) The amount determined under this clause for any plan year 

shall be an amount equal to the applicable dollar amount under 

paragraph (8) for each $1,000 (or fraction thereof) of unfunded vested benefits under the plan as of the close of the preceding plan 

year. 

(iii) øFor purposes¿ Except as provided in clause (v), for purposes 

of clause (ii), the term ‘‘unfunded vested benefits’’ means, for a plan 

year, the excess (if any) of— 

(I) the funding target of the plan as determined under section 303(d) for the plan year by only taking into account vested 

benefits and by using the interest rate described in clause (iv), 

over 

(II) the fair market value of plan assets for the plan year 

which are held by the plan on the valuation date. 

(iv) The interest rate used in valuing benefits for purposes of 

subclause (I) of clause (iii) shall be equal to the first, second, or 


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third segment rate for the month preceding the month in which the 

plan year begins, which would be determined under section 

303(h)(2)(C) (notwithstanding any regulations issued by the corporation, determined by not taking into account any adjustment 

under clause (iv) thereof) if section 303(h)(2)(D) were applied by 

using the monthly yields for the month preceding the month in 

which the plan year begins on investment grade corporate bonds 

with varying maturities and in the top 3 quality levels rather than 

the average of such yields for a 24-month period. 

(v) For purposes of clause (ii), in the case of a CSEC plan (as 

defined in section 210(f)(1)), the term ‘‘unfunded vested benefits’’ 

means, for plan years beginning after December 31, 2018, the 

excess (if any) of— 

(I) the funding liability of the plan as determined under 

section 306(j)(5)(C) for the plan year by only taking into account vested benefits, over 

(II) the fair market value of plan assets for the plan year 

which are held by the plan on the valuation date. 

(F) For each plan year beginning in a calendar year after 2006 

and before 2013, there shall be substituted for the premium rate 

specified in clause (i) of subparagraph (A) an amount equal to the 

greater of— 

(i) the product derived by multiplying the premium rate 

specified in clause (i) of subparagraph (A) by the ratio of— 

(I) the national average wage index (as defined in section 209(k)(1) of the Social Security Act) for the first of the 

2 calendar years preceding the calendar year in which 

such plan year begins, to 

(II) the national average wage index (as so defined) for 

2004 (2012 in the case of plan years beginning after calendar year 2014); and 

(ii) the premium rate in effect under clause (i) of subparagraph (A) for plan years beginning in the preceding calendar 

year. 

If the amount determined under this subparagraph is not a multiple of $1, such product shall be rounded to the nearest multiple 

of $1. 

(G) For each plan year beginning in a calendar year after 2019, 

there shall be substituted for the premium rate specified in clause 

(i) of subparagraph (A) an amount equal to the greater of— 

(i) the product derived by multiplying the premium rate 

specified in clause (i) of subparagraph (A) by the ratio of— 

(I) the national average wage index (as defined in section 209(k)(1) of the Social Security Act) for the first of the 

2 calendar years preceding the calendar year in which 

such plan year begins, to 

(II) the national average wage index (as so defined) for 

2017; and 

(ii) the premium rate in effect under clause (i) of subparagraph (A) for plan years beginning in the preceding calendar 

year. 

If the amount determined under this subparagraph is not a multiple of $1, such product shall be rounded to the nearest multiple 

of $1. 


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(H) For each plan year beginning in a calendar year after 2006, 

there shall be substituted for the premium rate specified in clause 

(iv) of subparagraph (A) an amount equal to the greater of— 

(i) the product derived by multiplying the premium rate 

specified in clause (iv) of subparagraph (A) by the ratio of— 

(I) the national average wage index (as defined in section 209(k)(1) of the Social Security Act) for the first of the 

2 calendar years preceding the calendar year in which 

such plan year begins, to 

(II) the national average wage index (as so defined) for 

2004; and 

(ii) the premium rate in effect under clause (iv) of subparagraph (A) for plan years beginning in the preceding calendar 

year. 

If the amount determined under this subparagraph is not a multiple of $1, such product shall be rounded to the nearest multiple 

of $1. 

(I)(i) In the case of an employer who has 25 or fewer employees 

on the first day of the plan year, the additional premium determined under subparagraph (E) for each participant shall not exceed $5 multiplied by the number of participants in the plan as of 

the close of the preceding plan year. 

(ii) For purposes of clause (i), whether an employer has 25 or 

fewer employees on the first day of the plan year is determined by 

taking into consideration all of the employees of all members of the 

contributing sponsor’s controlled group. In the case of a plan maintained by two or more contributing sponsors, the employees of all 

contributing sponsors and their controlled groups shall be aggregated for purposes of determining whether the 25-or-fewer-employees limitation has been satisfied. 

(J) For each plan year beginning in a calendar year after 2013, 

there shall be substituted for the premium rate specified in clause 

(v) of subparagraph (A) an amount equal to the greater of— 

(i) the product derived by multiplying the premium rate 

specified in clause (v) of subparagraph (A) by the ratio of— 

(I) the national average wage index (as defined in section 209(k)(1) of the Social Security Act) for the first of the 

2 calendar years preceding the calendar year in which 

such plan year begins, to 

(II) the national average wage index (as so defined) for 

2011; and 

(ii) the premium rate in effect under clause (v) of subparagraph (A) for plan years beginning in the preceding calendar 

year. 

If the amount determined under this subparagraph is not a multiple of $1, such product shall be rounded to the nearest multiple 

of $1. 

(K) For each plan year beginning in a calendar year after 2013 

and before 2016, there shall be substituted for the dollar amount 

specified in subclause (II) of subparagraph (E)(i) an amount equal 

to the greater of— 

(i) the product derived by multiplying such dollar amount by 

the ratio of— 

(I) the national average wage index (as defined in section 209(k)(1) of the Social Security Act) for the first of the 


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2 calendar years preceding the calendar year in which 

such plan year begins, to 

(II) the national average wage index (as so defined) for 

2011; and 

(ii) such dollar amount for plan years beginning in the preceding calendar year. 

If the amount determined under this subparagraph is not a multiple of $1, such product shall be rounded to the nearest multiple 

of $1. 

(L) For each plan year beginning in a calendar year after 2016, 

there shall be substituted for the dollar amount specified in subclause (III) of subparagraph (E)(i) an amount equal to the greater 

of— 

(i) the product derived by multiplying such dollar amount by 

the ratio of— 

(I) the national average wage index (as defined in section 209(k)(1) of the Social Security Act) for the first of the 

2 calendar years preceding the calendar year in which 

such plan year begins, to 

(II) the national average wage index (as so defined) for 

2014; and 

(ii) such dollar amount for plan years beginning in the preceding calendar year. 

If the amount determined under this subparagraph is not a multiple of $1, such product shall be rounded to the nearest multiple 

of $1. 

(M) For each plan year beginning in a calendar year after 2015, 

there shall be substituted for the dollar amount specified in clause 

(vi) of subparagraph (A) an amount equal to the greater of— 

(i) the product derived by multiplying such dollar amount by 

the ratio of— 

(I) the national average wage index (as defined in section 209(k)(1) of the Social Security Act) for the first of the 

2 calendar years preceding the calendar year in which 

such plan year begins, to 

(II) the national average wage index (as so defined) for 

2013; and 

(ii) such dollar amount for plan years beginning in the preceding calendar year. 

If the amount determined under this subparagraph is not a multiple of $1, such product shall be rounded to the nearest multiple 

of $1. 

(4) The corporation may prescribe, subject to the enactment of a 

joint resolution in accordance with this section or section 4022A(f), 

alternative schedules of premium rates, and bases for the application of those rates, for basic benefits guaranteed by it under sections 4022 and 4022A based, in whole or in part, on the risks insured by the corporation in each plan. 

(5)(A) In carrying out its authority under paragraph (1) to establish schedules of premium rates, and bases for the application of 

those rates, for nonbasic benefits guaranteed under sections 4022 

and 4022A the premium rates charged by the corporation for any 

period for nonbasic benefits guaranteed shall— 

(i) be uniform by category of nonbasic benefits guaranteed, 

(ii) be based on the risks insured in each category, and 


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(iii) reflect the experience of the corporation (including experience which may be reasonably anticipated) in guaranteeing 

such benefits. 

(B) Notwithstanding subparagraph (A), premium rates charged 

to any multiemployer plan by the corporation for any period for 

supplemental guarantees under section 4022A(g)(2) may reflect any 

reasonable considerations which the corporation determines to be 

appropriate. 

(6)(A) In carrying out its authority under paragraph (1) to establish premium rates and bases for basic benefits guaranteed under 

section 4022 with respect to single-employer plans, the corporation 

shall establish such rates and bases in coverage schedules in accordance with the provisions of this paragraph. 

(B) The corporation may establish annual premiums for singleemployer plans composed of the sum of— 

(i) a charge based on a rate applicable to the excess, if any, 

of the present value of the basic benefits of the plan which are 

guaranteed over the value of the assets of the plan, not in excess of 0.1 percent, and 

(ii) an additional charge based on a rate applicable to the 

present value of the basic benefits of the plan which are guaranteed. 

The rate for the additional charge referred to in clause (ii) shall be 

set by the corporation for every year at a level which the corporation estimates will yield total revenue approximately equal to the 

total revenue to be derived by the corporation from the charges referred to in clause (i) of this subparagraph. 

(C) The corporation may establish annual premiums for singleemployer plans based on— 

(i) the number of participants in a plan, but such premium 

rates shall not exceed the rates described in paragraph (3), 

(ii) unfunded basic benefits guaranteed under this title, but 

such premium rates shall not exceed the limitations applicable 

to charges referred to in subparagraph (B)(i), or 

(iii) total guaranteed basic benefits, but such premium rates 

shall not exceed the rates for additional charges referred to in 

subparagraph (B)(ii). 

If the corporation uses two or more of the rate bases described in 

this subparagraph, the premium rates shall be designed to produce 

approximately equal amounts of aggregate premium revenue from 

each of the rate bases used. 

(D) For purposes of this paragraph, the corporation shall by regulation define the terms ‘‘value of assets’’ and ‘‘present value of the 

benefits of the plan which are guaranteed’’ in a manner consistent 

with the purposes of this title and the provisions of this section. 

(7) PREMIUM RATE FOR CERTAIN TERMINATED SINGLE-EMPLOYER

PLANS.— 

(A) IN GENERAL.—If there is a termination of a single-employer plan under clause (ii) or (iii) of section 4041(c)(2)(B) or 

section 4042, there shall be payable to the corporation, with respect to each applicable 12-month period, a premium at a rate 

equal to $1,250 multiplied by the number of individuals who 

were participants in the plan immediately before the termination date. Such premium shall be in addition to any other 

premium under this section. 


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(B) SPECIAL RULE FOR PLANS TERMINATED IN BANKRUPTCY RE- ORGANIZATION.—In the case of a single-employer plan terminated under section 4041(c)(2)(B)(ii) or under section 4042 during pendency of any bankruptcy reorganization proceeding 

under chapter 11 of title 11, United States Code, or under any 

similar law of a State or a political subdivision of a State (or 

a case described in section 4041(c)(2)(B)(i) filed by or against 

such person has been converted, as of such date, to such a case 

in which reorganization is sought), subparagraph (A) shall not 

apply to such plan until the date of the discharge or dismissal 

of such person in such case. 

(C) APPLICABLE 12-MONTH PERIOD.—For purposes of subparagraph (A)— 

(i) IN GENERAL.—The term ‘‘applicable 12-month period’’ 

means— 

(I) the 12-month period beginning with the first 

month following the month in which the termination 

date occurs, and 

(II) each of the first two 12-month periods immediately following the period described in subclause (I). 

(ii) PLANS TERMINATED IN BANKRUPTCY REORGANIZA- TION.—In any case in which the requirements of subparagraph (B) are met in connection with the termination of 

the plan with respect to 1 or more persons described in 

such subparagraph, the 12-month period described in 

clause (i)(I) shall be the 12-month period beginning with 

the first month following the month which includes the 

earliest date as of which each such person is discharged or 

dismissed in the case described in such clause in connection with such person. 

(D) COORDINATION WITH SECTION 4007.— (i) Notwithstanding section 4007— 

(I) premiums under this paragraph shall be due 

within 30 days after the beginning of any applicable 

12-month period, and 

(II) the designated payor shall be the person who is 

the contributing sponsor as of immediately before the 

termination date. 

(ii) The fifth sentence of section 4007(a) shall not apply 

in connection with premiums determined under this paragraph. 

(8) APPLICABLE DOLLAR AMOUNT FOR VARIABLE RATE PREMIUM.—For purposes of paragraph (3)(E)(ii)— 

(A) IN GENERAL.—Except as provided in subparagraphs 

ø(B) and (C)¿ (B), (C), and (E), the applicable dollar 

amount shall be— 

(i) $9 for plan years beginning in a calendar year before 2015; 

(ii) for plan years beginning in calendar year 2015, 

the amount in effect for plan years beginning in 2014 

(determined after application of subparagraph (C)); 

(iii) for plan years beginning after calendar year 

2015, the amount in effect for plan years beginning in 

2015 (determined after application of subparagraph 

(C)); 


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(iv) for plan years beginning after calendar year 

2016, the amount in effect for plan years beginning in 

2016 (determined after application of subparagraph 

(C)); 

(v) for plan years beginning after calendar year 

2017, the amount in effect for plan years beginning in 

2017 (determined after application of subparagraph 

(C)); 

(vi) for plan years beginning after calendar year 

2018, the amount in effect for plan years beginning in 

2018 (determined after application of subparagraph 

(C)); and 

(vii) for plan years beginning after calendar year 

2019, the amount in effect for plan years beginning in 

2019 (determined after application of subparagraph 

(C)). 

(B) ADJUSTMENT FOR INFLATION.—For each plan year beginning in a calendar year after 2012, there shall be substituted for the applicable dollar amount specified under 

subparagraph (A) an amount equal to the greater of— 

(i) the product derived by multiplying such applicable dollar amount for plan years beginning in that calendar year by the ratio of— 

(I) the national average wage index (as defined 

in section 209(k)(1) of the Social Security Act) for 

the first of the 2 calendar years preceding the calendar year in which such plan year begins, to 

(II) the national average wage index (as so defined) for the base year; and 

(ii) such applicable dollar amount in effect for plan 

years beginning in the preceding calendar year. 

If the amount determined under this subparagraph is not 

a multiple of $1, such product shall be rounded to the 

nearest multiple of $1. 

(C) ADDITIONAL INCREASES.—The applicable dollar 

amount determined under subparagraph (A) (after the application of subparagraph (B)) shall be increased— 

(i) in the case of plan years beginning in calendar year 2014, by $4; 

(ii) in the case of plan years beginning in calendar year 2015, by $10; 

(iii) in the case of plan years beginning in calendar year 2016, by $5; 

(iv) in the case of plan years beginning in calendar year 2017, by $3; 

(v) in the case of plan years beginning in calendar year 2018, by $4; and 

(vi) in the case of plan years beginning in calendar year 2019, by $4. 

(D) BASE YEAR.—For purposes of subparagraph (B), the 

base year is— 

(i) 2010, in the case of plan years beginning in calendar year 2013 or 2014; 

(ii) 2012, in the case of plan years beginning in calendar year 2015; 


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(iii) 2013, in the case of plan years beginning after 

calendar year 2015; 

(iv) 2014, in the case of plan years beginning after 

calendar year 2016; 

(v) 2015, in the case of plan years beginning after 

calendar year 2017; 

(vi) 2016, in the case of plan years beginning after 

calendar year 2018; and 

(vii) 2017, in the case of plan years beginning after 

calendar year 2019. 

(E) CSEC PLANS.—In the case of a CSEC plan (as defined in section 210(f)(1)), the applicable dollar amount 

shall be $9. 

(b)(1) In order to place a revised schedule (other than a schedule 

described in subsection (a)(2)(C), (D), or (E)) in effect, the corporation shall transmit the proposed schedule, its proposed effective 

date, and the reasons for its proposal to the Committee on Ways 

and Means and the Committee on Education and Labor of the 

House of Representatives, and to the Committee on Finance and 

the Committee on Labor and Human Resources of the Senate. 

(2) The succeeding paragraphs of this subsection are enacted by 

Congress as an exercise of the rulemaking power of the Senate and 

the House of Representatives, respectively, and as such they shall 

be deemed a part of the rules of each House, respectively, but applicable only with respect to the procedure to be followed in that 

House in the case of resolutions described in paragraph (3). They 

shall supersede other rules only to the extent that they are inconsistent therewith. They are enacted with full recognition of the constitutional right of either House to change the rules (so far as relating to the procedure of that House) at any time, in the same manner and to the same extent as in the case of any rule of that House. 

(3) For the purpose of the succeeding paragraphs of this subsection, ‘‘resolution’’ means only a joint resolution, the matter after 

the resolving clause of which is as follows: ‘‘The proposed revised 

schedule transmitted to Congress by the Pension Benefit Guaranty 

Corporation on llllll is hereby approved.’’, the blank space 

therein being filled with the date on which the corporation’s message proposing the rate was delivered. 

(4) A resolution shall be referred to the Committee on Ways and 

Means and the Committee on Education and Labor of the House 

of Representatives and to the Committee on Finance and the Committee on Labor and Human Resources of the Senate. 

(5) If a committee to which has been referred a resolution has 

not reported it before the expiration of 10 calendar days after its 

introduction, it shall then (but not before) be in order to move to 

discharge the committee from further consideration of that resolution, or to discharge the committee from further consideration of 

any other resolution with respect to the proposed adjustment which 

has been referred to the committee. The motion to discharge may 

be made only by a person favoring the resolution, shall be highly 

privileged (except that it may not be made after the committee has 

reported a resolution with respect to the same proposed rate), and 

debate thereon shall be limited to not more than 1 hour, to be divided equally between those favoring and those opposing the resolution. An amendment to the motion is not in order, and it is not 


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in order to move to reconsider the vote by which the motion is 

agreed to or disagreed to. If the motion to discharge is agreed to 

or disagreed to, the motion may not be renewed, nor may another 

motion to discharge the committee be made with respect to any 

other resolution with respect to the same proposed rate. 

(6) When a committee has reported, or has been discharged from 

further consideration of a resolution, it is at any time thereafter in 

order (even though a previous motion to the same effect has been 

disagreed to) to move to proceed to the consideration of the resolution. The motion is highly privileged and is not debatable. An 

amendment to the motion is not in order, and it is not in order to 

move to reconsider the vote by which the motion is agreed to or disagreed to. Debate on the resolution shall be limited to not more 

than 10 hours, which shall be divided equally between those favoring and those opposing the resolution. A motion further to limit debate is not debatable. An amendment to, or motion to recommit, 

the resolution is not in order, and it is not in order to move to reconsider the vote by which the resolution is agreed to or disagreed 

to. 

(7) Motions to postpone, made with respect to the discharge from 

committee, or the consideration of, a resolution and motions to proceed to the consideration of other business shall be decided without 

debate. Appeals from the decisions of the Chair relating to the application of the rules of the Senate or the House of Representatives, 

as the case may be, to the procedure relating to a resolution shall 

be decided without debate. 

(c)(1) Except as provided in subsection (a)(3), and subject to paragraph (2), the rate for all plans for basic benefits guaranteed under 

this title with respect to plan years ending after September 2, 

1974, is— 

(A) in the case of each plan which was not a multiemployer 

plan in a plan year— 

(i) with respect to each plan year beginning before January 1, 1978, an amount equal to $1 for each individual who 

was a participant in such plan during the plan year, 

(ii) with respect to each plan year beginning after December 31, 1977, and before January 1, 1986, an amount 

equal to $2.60 for each individual who was a participant 

in such plan during the plan year, and 

(iii) with respect to each plan year beginning after December 31, 1985, and before January 1, 1988, an amount 

equal to $8.50 for each individual who was a participant 

in such plan during the plan year, and 

(iv) with respect to each plan year beginning after December 31, 1987, and before January 1, 1991, an amount 

equal to $16 for each individual who was a participant in 

such plan during the plan year, and 

(B) in the case of each plan which was a multiemployer plan 

in a plan year, an amount equal to 50 cents for each individual 

who was a participant in such plan during the plan year. 

(2) The rate applicable under this subsection for the plan year 

preceding September 1, 1975, is the product of— 

(A) the rate described in the preceding sentence; and 

(B) a fraction— 


rfrederick on DSKBCBPHB2PROD with HEARING
470 

(i) the numerator of which is the number of calendar 

months in the plan year which ends after September 2, 

1974, and before the date on which the new plan year commences, and 

(ii) the denominator of which is 12. 

* * * * * * * 

Æ 


rfrederick on DSKBCBPHB2PROD with HEARING