II 

111TH CONGRESS 

1ST SESSION S. 1297 

To amend the Internal Revenue Code of 1986 to encourage guaranteed 

lifetime income payments from annuities and similar payments of life 

insurance proceeds at dates later than death by excluding from income 

a portion of such payments. 

IN THE SENATE OF THE UNITED STATES 

JUNE 18, 2009 

Mr. CONRAD (for himself and Mr. ROBERTS) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to encourage 

guaranteed lifetime income payments from annuities and 

similar payments of life insurance proceeds at dates later 

than death by excluding from income a portion of such 

payments. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Retirement Security 

5 for Life Act of 2009’’. 


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1 SEC. 2. EXCLUSION FOR LIFETIME ANNUITY PAYMENTS. 

2 (a) LIFETIME ANNUITY PAYMENTS UNDER ANNUITY

3 CONTRACTS.—Section 72(b) of the Internal Revenue Code 

4 of 1986 is amended by adding at the end the following 

5 new paragraph: 

6 ‘‘(5) EXCLUSION FOR LIFETIME ANNUITY PAY7 MENTS.— 

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

9 annuity payments received under one or more 

10 annuity contracts in any taxable year, gross in11 come shall not include 50 percent of the portion 

12 of lifetime annuity payments otherwise includ13 ible (without regard to this paragraph) in gross 

14 income under this section. For purposes of the 

15 preceding sentence, the amount excludible from 

16 gross income in any taxable year shall not ex17 ceed $20,000. 

18 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—In 

19 the case of taxable years beginning after De20 cember 31, 2010, the $20,000 amount in sub21 paragraph (A) shall be increased by an amount 

22 equal to— 

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

24 ‘‘(ii) the cost-of-living adjustment de25 termined under section 1(f)(3) for the cal26 endar year in which the taxable year beVerDate Nov 24 2008 23:53 Jun 18, 2009 Jkt 079200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1297.IS S1297

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1 gins, determined by substituting ‘calendar 

2 year 2009’ for ‘calendar year 1992’ in sub3 paragraph (B) thereof. 

4 If any amount as increased under the preceding 

5 sentence is not a multiple of $500, such amount 

6 shall be rounded to the next lower multiple of 

7 $500. 

8 ‘‘(C) APPLICATION OF PARAGRAPH.—Sub9 paragraph (A) shall not apply to— 

10 ‘‘(i) any amount received under an eli11 gible deferred compensation plan (as de12 fined in section 457(b)) or under a quali13 fied retirement plan (as defined in section 

14 4974(c)), 

15 ‘‘(ii) any amount paid under an annu16 ity contract that is received by the bene17 ficiary under the contract— 

18 ‘‘(I) after the death of the annu19 itant in the case of payments de20 scribed in subsection (c)(5)(A)(ii)(III), 

21 unless the beneficiary is the surviving 

22 spouse of the annuitant, or 

23 ‘‘(II) after the death of the annu24 itant and joint annuitant in the case 

25 of payments described in subsection 


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1 (c)(5)(A)(ii)(IV), unless the bene2 ficiary is the surviving spouse of the 

3 last to die of the annuitant and the 

4 joint annuitant, or 

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

6 qualified funding asset (as defined in sec7 tion 130(d)), but without regard to wheth8 er there is a qualified assignment. 

9 ‘‘(D) INVESTMENT IN THE CONTRACT.— 

10 For purposes of this section, the investment in 

11 the contract shall be determined without regard 

12 to this paragraph.’’. 

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

14 the Internal Revenue Code of 1986 is amended by adding 

15 at the end the following new paragraph: 

16 ‘‘(5) LIFETIME ANNUITY PAYMENT.— 

17 ‘‘(A) IN GENERAL.—For purposes of sub18 section (b)(5), the term ‘lifetime annuity pay19 ment’ means any amount received as an annu20 ity under any portion of an annuity contract, 

21 but only if— 

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

23 case of payments described in subclause 

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

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


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1 other legally enforceable means) to receive 

2 such amount during the life of the annu3 itant or joint annuitant is such annuitant 

4 or joint annuitant, and 

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

6 of substantially equal periodic payments 

7 made not less frequently than annually 

8 over— 

9 ‘‘(I) the life of the annuitant, 

10 ‘‘(II) the lives of the annuitant 

11 and a joint annuitant, but only if the 

12 annuitant is the spouse of the joint 

13 annuitant as of the annuity starting 

14 date or the difference in age between 

15 the annuitant and joint annuitant is 

16 15 years or less, 

17 ‘‘(III) the life of the annuitant 

18 with a minimum period of payments 

19 or with a minimum amount that must 

20 be paid in any event, or 

21 ‘‘(IV) the lives of the annuitant 

22 and a joint annuitant with a minimum 

23 period of payments or with a min24 imum amount that must be paid in 

25 any event, but only if the annuitant is 


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1 the spouse of the joint annuitant as of 

2 the annuity starting date or the dif3 ference in age between the annuitant 

4 and joint annuitant is 15 years or 

5 less. 

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

7 clause (ii), annuity payments shall not fail 

8 to be treated as part of a series of substan9 tially equal periodic payments— 

10 ‘‘(I) because the amount of the 

11 periodic payments may vary in accord12 ance with investment experience, re13 allocations among investment options, 

14 actuarial gains or losses, cost of living 

15 indices, a constant percentage applied 

16 not less frequently than annually, or 

17 similar fluctuating criteria, 

18 ‘‘(II) due to the existence of, or 

19 modification of the duration of, a pro20 vision in the contract permitting a 

21 lump sum withdrawal after the annu22 ity starting date, 

23 ‘‘(III) because the period between 

24 each such payment is lengthened or 

25 shortened, but only if at all times 


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1 such period is no longer than one cal2 endar year, or 

3 ‘‘(IV) because, in the case of an 

4 annuity payable over the life of an an5 nuitant and a joint annuitant, the 

6 amounts paid to the surviving annu7 itant after the death of the first annu8 itant are less than the amounts pay9 able during the joint lives of the two 

10 annuitants. 

11 ‘‘(B) ANNUITY CONTRACT.—For purposes 

12 of subparagraph (A) and subsections (b)(5) and 

13 (x), the term ‘annuity contract’ means a com14 mercial annuity (as defined by section 

15 3405(e)(6)), other than an endowment or life 

16 insurance contract. 

17 ‘‘(C) MINIMUM PERIOD OF PAYMENTS.— 

18 For purposes of subparagraph (A), the term 

19 ‘minimum period of payments’ means a guaran20 teed term of payments that does not exceed the 

21 greater of 10 years or— 

22 ‘‘(i) the life expectancy of the annu23 itant as of the annuity starting date, in the 

24 case of lifetime annuity payments de25 scribed in subparagraph (A)(ii)(III), or 


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1 ‘‘(ii) the life expectancy of the annu2 itant and joint annuitant as of the annuity 

3 starting date, in the case of lifetime annu4 ity payments described in subparagraph 

5 (A)(ii)(IV). 

6 For purposes of this subparagraph, life expect7 ancy shall be computed with reference to the ta8 bles prescribed by the Secretary under para9 graph (3). For purposes of subsection 

10 (x)(1)(C)(ii), the permissible minimum period of 

11 payments shall be determined as of the annuity 

12 starting date and reduced by one for each sub13 sequent year. 

14 ‘‘(D) MINIMUM AMOUNT THAT MUST BE

15 PAID IN ANY EVENT.—For purposes of subpara16 graph (A), the term ‘minimum amount that 

17 must be paid in any event’ means an amount 

18 payable to the designated beneficiary under an 

19 annuity contract that is in the nature of a re20 fund and does not exceed the greater of the 

21 amount applied to produce the lifetime annuity 

22 payments under the contract or the amount, if 

23 any, available for withdrawal under the contract 

24 on the date of death.’’. 


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1 (c) RECAPTURE TAX FOR LIFETIME ANNUITY PAY2 MENTS.—Section 72 of the Internal Revenue Code of 

3 1986 is amended by redesignating subsection (x) as sub4 section (y) and by inserting after subsection (w) the fol5 lowing new subsection: 

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

7 REDUCTIONS IN LIFETIME ANNUITY PAYMENTS.— 

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

9 under an annuity contract is excluded from income 

10 by reason of subsection (b)(5), and— 

11 ‘‘(A) the series of payments under such 

12 contract is subsequently modified so that any 

13 future payments are not lifetime annuity pay14 ments, 

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

16 lifetime annuity payment under the contract an 

17 annuitant receives a lump sum and thereafter is 

18 to receive annuity payments in a reduced 

19 amount under the contract, or 

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

21 lifetime annuity payment under the contract the 

22 dollar amount of any subsequent annuity pay23 ment is reduced and a lump sum is not paid in 

24 connection with the reduction, unless such re25 duction is— 


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1 ‘‘(i) due to an event described in sub2 section (c)(5)(A)(iii), or 

3 ‘‘(ii) due to the addition of, or in4 crease in, a minimum period of payments 

5 within the meaning of subsection (c)(5)(C) 

6 or a minimum amount that must be paid 

7 in any event (within the meaning of sub8 section (c)(5)(D)), 

9 then gross income for the first taxable year in 

10 which such modification or reduction occurs 

11 shall be increased by the recapture amount. 

12 ‘‘(2) RECAPTURE AMOUNT.— 

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

14 subsection, the recapture amount shall be the 

15 amount, determined under rules prescribed by 

16 the Secretary, equal to the sum of— 

17 ‘‘(i) the excess of— 

18 ‘‘(I) the amount that was ex19 cluded from the taxpayer’s gross in20 come under subsection (b)(5) for all 

21 taxable years prior to the modification 

22 or reduction described in paragraph 

23 (1), over 

24 ‘‘(II) the amount that would have 

25 been excludible under such subsection 


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1 for such taxable years had such modi2 fications or reductions been in effect 

3 at all times, plus 

4 ‘‘(ii) interest for the deferral period at 

5 the underpayment rate established by sec6 tion 6621. 

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

8 of this subsection, the term ‘deferral period’ 

9 means the period beginning with the taxable 

10 year in which (without regard to subsection 

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

12 in gross income and ending with the taxable 

13 year in which the modification described in 

14 paragraph (1) occurs. 

15 ‘‘(3) EXCEPTIONS TO RECAPTURE TAX.—Para16 graph (1) shall not apply in the case of any modi17 fication or reduction that occurs because an annu18 itant— 

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

20 meaning of subsection (m)(7)), 

21 ‘‘(B) becomes a chronically ill individual 

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

23 ‘‘(C) encounters hardship.’’. 

24 (d) LIFETIME DISTRIBUTIONS OF LIFE INSURANCE

25 DEATH BENEFITS.— 


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1 (1) IN GENERAL.—Section 101(d) of the Inter2 nal Revenue Code of 1986 (relating to payment of 

3 life insurance proceeds at a date later than death) 

4 is amended by adding at the end the following new 

5 paragraph: 

6 ‘‘(4) EXCLUSION FOR LIFETIME ANNUITY PAY7 MENTS.— 

8 ‘‘(A) IN GENERAL.—In the case of 

9 amounts to which this subsection applies, gross 

10 income shall not include the lesser of— 

11 ‘‘(i) 50 percent of the portion of life12 time annuity payments otherwise includible 

13 in gross income under this section (deter14 mined without regard to this paragraph), 

15 or 

16 ‘‘(ii) the amount determined under 

17 section 72(b)(5). 

18 ‘‘(B) RULES OF SECTION 72(b)(5) TO

19 APPLY.—For purposes of this paragraph, rules 

20 similar to the rules of section 72(b)(5) and sec21 tion 72(x) shall apply, substituting the term 

22 ‘beneficiary of the life insurance contract’ for 

23 the term ‘annuitant’ wherever it appears, and 

24 substituting the term ‘life insurance contract’ 


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1 for the term ‘annuity contract’ wherever it ap2 pears.’’. 

3 (2) CONFORMING AMENDMENT.—Section 

4 101(d)(1) of such Code is amended by inserting ‘‘or 

5 paragraph (4)’’ after ‘‘to the extent not excluded by 

6 the preceding sentence’’. 

7 (e) EFFECTIVE DATE.— 

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

9 this section shall apply to amounts received in cal10 endar years beginning after the date of the enact11 ment of this Act. 

12 (2) SPECIAL RULE FOR EXISTING CON13 TRACTS.—In the case of a contract in force on the 

14 date of the enactment of this Act that does not sat15 isfy the requirements of section 72(c)(5)(A) of the 

16 Internal Revenue Code of 1986 (as added by this 

17 section), or requirements similar to such section in 

18 the case of a life insurance contract, any modifica19 tion to such contract (including a change in owner20 ship) or to the payments thereunder that is made to 

21 satisfy the requirements of such section (or similar 

22 requirements) shall not result in the recognition of 

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

24 income, or any addition to tax that otherwise might 

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1 fication is completed prior to the date that is 2 years 

2 after the date of the enactment of this Act. 

Æ 


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