I 

108TH CONGRESS 

2D SESSION H. R. 4849

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 HOUSE OF REPRESENTATIVES 

JULY 15, 2004

Mrs. JOHNSON of Connecticut (for herself, Mr. TANNER, Mr. ENGLISH, and 

Mrs. JONES of Ohio) introduced the following bill; which was referred to 

the Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to encourage 

guaranteed lifetime income payments 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 2004’’. 

6 SEC. 2. FINDINGS. 

7 The Congress finds the following: 
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1 (1) Just over half of all United States workers 

2 actively participate in tax-deferred retirement sav3 ings plans which are comprised of assets of nearly 

4 $5,000,000,000,000. 

5 (2) Congress has historically promoted policies 

6 that will encourage greater private savings for retire7 ment, but has not devoted the same attention to de8 veloping policies that will help people manage the 

9 savings once they reach retirement age; 

10 (3) Qualified retirement savings plans are the 

11 product of such policies and provide Americans with 

12 valuable resources for their later years. 

13 (4) Non-qualified plans provide an additional 

14 retirement benefit. 

15 (5) 77,000,000 members of the baby boom gen16 eration are approaching retirement age and demo17 graphic data indicate that members of this genera18 tion can expect to live on average an additional 20 

19 to 30 years after retirement. 

20 (6) The commitment of Congress to creating in21 centives to promote private savings and to manage 

22 accumulated savings does not supercede the respon23 sibility of Congress to reduce the national debt and 

24 bring the Federal budget back into balance. 
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1 (7) Failure to address long term savings issues 

2 will only serve to increase the strain on Federal pro3 grams such as social security, medicare, and med4 icaid. 

5 (8) The national debt and annual budget defi6 cits pose a significant risk not only to national secu7 rity but also to the long-term solvency of the social 

8 security and medicare programs. 

9 (9) Encouraging the prudent management of 

10 accumulated savings and personal responsibility for 

11 retirement income security will reduce the potential 

12 financial threat to well-established entitlement pro13 grams for senior citizens. 

14 (10) The budget impact of this Act will be miti15 gated through the legislative process so that the en16 actment of this Act will not add to the $7.2 trillion 

17 national debt. 

18 SEC. 3. EXCLUSION FOR LIFETIME ANNUITY PAYMENTS. 

19 (a) LIFETIME ANNUITY PAYMENTS UNDER ANNUITY

20 CONTRACTS.—Subsection (b) of section 72 of the Internal 

21 Revenue Code (relating to annuities) is amended by add22 ing at the end thereof the following new paragraph: 

23 ‘‘(5) EXCLUSION FOR LIFETIME ANNUITY PAY24 MENTS.—
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1 ‘‘(A) IN GENERAL.—In the case of lifetime 

2 annuity payments received under one or more 

3 annuity contracts in any taxable year, gross in4 come shall not include 50 percent of the portion 

5 of lifetime annuity payments otherwise includ6 ible (without regard to this paragraph) in gross 

7 income under this section. For purposes of the 

8 preceding sentence, the amount excludible from 

9 gross income in any taxable year shall not ex10 ceed $20,000. 

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

12 the case of taxable years beginning after De13 cember 31, 2005, the $20,000 amounts in sub14 paragraph (A) shall be increased by an amount 

15 equal to—

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

17 ‘‘(ii) the cost-of-living adjustment de18 termined under section 1(f)(3) for the cal19 endar year in which the taxable year be20 gins, determined by substituting ‘calendar 

21 year 2004’ for ‘calendar year 1992’ in sub22 paragraph (B) thereof. 

23 If any amount as increased under the preceding 

24 sentence is not a multiple of $500, such amount 
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1 shall be rounded to the next lower multiple of 

2 $500. 

3 ‘‘(C) APPLICATION OF PARAGRAPH.—Sub4 paragraph (A) shall not apply to—

5 ‘‘(i) any amount received under an eli6 gible deferred compensation plan (as de7 fined in section 457(b)) or under a quali8 fied retirement plan (as defined in section 

9 4974(c)), 

10 ‘‘(ii) any amount paid under an annu11 ity contract that is received by the bene12 ficiary under the contract—

13 ‘‘(I) after the death of the annu14 itant in the case of payments de15 scribed in subsection (c)(5)(A)(ii)(III), 

16 unless the beneficiary is the surviving 

17 spouse of the annuitant, or 

18 ‘‘(II) after the death of the annu19 itant and joint annuitant in the case 

20 of payments described in subsection 

21 (c)(5)(A)(ii)(IV), unless the bene22 ficiary is the surviving spouse of the 

23 last to die of the annuitant and the 

24 joint annuitant, or 
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1 ‘‘(iii) any annuity contract that is a 

2 qualified funding asset (as defined in sec3 tion 130(d)), but without regard to wheth4 er there is a qualified assignment. 

5 ‘‘(D) INVESTMENT IN THE CONTRACT.—

6 For purposes of this section, the investment in 

7 the contract shall be determined without regard 

8 to this paragraph.’’. 

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

10 such Code is amended by adding at the end thereof the 

11 following new paragraph: 

12 ‘‘(5) LIFETIME ANNUITY PAYMENT.—

13 ‘‘(A) IN GENERAL.—For purposes of sub14 section (b)(5), the term ‘lifetime annuity pay15 ment’ means any amount received as an annu16 ity under any portion of an annuity contract, 

17 but only if—

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

19 case of payments described in subclause 

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

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

22 other legally enforceable means) to receive 

23 such amount during the life of the annu24 itant or joint annuitant is such annuitant 

25 or joint annuitant, and 
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1 ‘‘(ii) such amount is part of a series 

2 of substantially equal periodic payments 

3 made not less frequently than annually 

4 over—

5 ‘‘(I) the life of the annuitant, 

6 ‘‘(II) the lives of the annuitant 

7 and a joint annuitant, but only if the 

8 annuitant is the spouse of the joint 

9 annuitant as of the annuity starting 

10 date or the difference in age between 

11 the annuitant and joint annuitant is 

12 15 years or less, 

13 ‘‘(III) the life of the annuitant 

14 with a minimum period of payments 

15 or with a minimum amount that must 

16 be paid in any event, or 

17 ‘‘(IV) the lives of the annuitant 

18 and a joint annuitant with a minimum 

19 period of payments or with a min20 imum amount that must be paid in 

21 any event, but only if the annuitant is 

22 the spouse of the joint annuitant as of 

23 the annuity starting date or the dif24 ference in age between the annuitant 
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1 and joint annuitant is 15 years or 

2 less. 

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

4 clause (ii), annuity payments shall not fail 

5 to be treated as part of a series of substan6 tially equal periodic payments—

7 ‘‘(I) because the amount of the 

8 periodic payments may vary in accord9 ance with investment experience, re10 allocations among investment options, 

11 actuarial gains or losses, cost of living 

12 indices, a constant percentage applied 

13 not less frequently than annually, or 

14 similar fluctuating criteria, 

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

16 modification of the duration of, a pro17 vision in the contract permitting a 

18 lump sum withdrawal after the annu19 ity starting date, or 

20 ‘‘(III) because the period between 

21 each such payment is lengthened or 

22 shortened, but only if at all times 

23 such period is no longer than one cal24 endar year. 
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1 ‘‘(B) ANNUITY CONTRACT.—For purposes 

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

3 (w), the term ‘annuity contract’ means a com4 mercial annuity (as defined by section 

5 3405(e)(6)), other than an endowment or life 

6 insurance contract. 

7 ‘‘(C) MINIMUM PERIOD OF PAYMENTS.—

8 For purposes of subparagraph (A), the term 

9 ‘minimum period of payments’ means a guaran10 teed term of payments that does not exceed the 

11 greater of 10 years or—

12 ‘‘(i) the life expectancy of the annu13 itant as of the annuity starting date, in the 

14 case of lifetime annuity payments de15 scribed in subparagraph (A)(ii)(III), or 

16 ‘‘(ii) the life expectancy of the annu17 itant and joint annuitant as of the annuity 

18 starting date, in the case of lifetime annu19 ity payments described in subparagraph 

20 (A)(ii)(IV). 

21 For purposes of this subparagraph, life expect22 ancy shall be computed with reference to the ta23 bles prescribed by the Secretary under para24 graph (3). For purposes of subsection 

25 (w)(1)(C)(ii), the permissible minimum period 
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1 of payments shall be determined as of the annu2 ity starting date and reduced by one for each 

3 subsequent year. 

4 ‘‘(D) MINIMUM AMOUNT THAT MUST BE

5 PAID IN ANY EVENT.—For purposes of subpara6 graph (A), the term ‘minimum amount that 

7 must be paid in any event’ means an amount 

8 payable to the designated beneficiary under an 

9 annuity contract that is in the nature of a re10 fund and does not exceed the greater of the 

11 amount applied to produce the lifetime annuity 

12 payments under the contract or the amount, if 

13 any, available for withdrawal under the contract 

14 on the date of death.’’. 

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

18 subsection (v) the following new subsection (w): 

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

20 REDUCTIONS IN LIFETIME ANNUITY PAYMENTS.—

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

22 under an annuity contract is excluded from income 

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

24 annuity payments), and—
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1 ‘‘(A) the series of payments under such 

2 contract is subsequently modified so any future 

3 payments are not lifetime annuity payments, 

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

5 lifetime annuity payment under the contract an 

6 annuitant receives a lump sum and thereafter is 

7 to receive annuity payments in a reduced 

8 amount under the contract, or 

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

10 lifetime annuity payment under the contract the 

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

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

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

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

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

20 or a minimum amount that must be paid 

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

23 then gross income for the first taxable year in 

24 which such modification or reduction occurs 

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

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

3 subsection, the recapture amount shall be the 

4 amount, determined under rules prescribed by 

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

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

7 the taxpayer’s gross income if the modification 

8 or reduction described in paragraph (1) had 

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

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

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

13 of this subsection, the term ‘deferral period’ 

14 means the period beginning with the taxable 

15 year in which (without regard to subsection 

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

17 in gross income and ending with the taxable 

18 year in which the modification described in 

19 paragraph (1) occurs. 

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

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

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

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

3 ‘‘(C) encounters hardship.’’. 

4 (d) LIFETIME DISTRIBUTIONS OF LIFE INSURANCE

5 DEATH BENEFITS.—

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

7 101 of such Code (relating to life insurance pro8 ceeds) is amended by adding at the end thereof the 

9 following new paragraph: 

10 ‘‘(4) EXCLUSION FOR LIFETIME ANNUITY PAY11 MENTS.—

12 ‘‘(A) IN GENERAL.—In the case of 

13 amounts to which this subsection applies, gross 

14 income shall not include the lesser of—

15 ‘‘(i) 50 percent of the portion of life16 time annuity payments otherwise includible 

17 in gross income under this section (deter18 mined without regard to this paragraph), 

19 or 

20 ‘‘(ii) the amount in effect under sec21 tion 72(b)(5). 

22 ‘‘(B) RULES OF SECTION 72(B)(5) TO

23 APPLY.—For purposes of this paragraph, rules 

24 similar to the rules of section 72(b)(5) and sec25 tion 72(w) shall apply, substituting the term 
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1 ‘beneficiary of the life insurance contract’ for 

2 the term ‘annuitant’ wherever it appears, and 

3 substituting the term ‘life insurance contract’ 

4 for the term ‘annuity contract’ wherever it ap5 pears.’’. 

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

7 of subsection (d) of section 101 of such Code is 

8 amended by adding ‘‘or paragraph (4)’’ after ‘‘to the 

9 extent not excluded by the preceding sentence’’. 

10 (e) EFFECTIVE DATE.—

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

12 this section shall apply to amounts received in cal13 endar years beginning after the date of the enact14 ment of this Act. 

15 (2) SPECIAL RULE FOR EXISTING CON16 TRACTS.—In the case of a contract in force on the 

17 date of the enactment of this Act that does not sat18 isfy the requirements of section 72(c)(5)(A) of the 

19 Internal Revenue Code of 1986 (as added by this 

20 section), or requirements similar to such section 

21 72(c)(5)(A) in the case of a life insurance contract), 

22 any modification to such contract (including a 

23 change in ownership) or to the payments thereunder 

24 that is made to satisfy the requirements of such sec25 tion (or similar requirements) shall not result in the 
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1 recognition of any gain or loss, any amount being in2 cluded in gross income, or any addition to tax that 

3 otherwise might result from such modification, but 

4 only if the modification is completed prior to the 

5 date that is 2 years after the date of the enactment 

6 of this Act.

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