I 

111TH CONGRESS 

1ST SESSION H. R. 2748 

To amend the Internal Revenue Code of 1986 to encourage guaranteed 

lifetime income payments by excluding from income a portion of such 

payments. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 8, 2009 

Mr. POMEROY (for himself and Ms. GINNY BROWN-WAITE of Florida) introduced the following bill; which was referred to the Committee on Ways 

and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to encourage 

guaranteed lifetime income payments by excluding from 

income a portion of such payments. 

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

3 SECTION 1. SHORT TITLE. 

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

5 Needs Lifetime Pay Act of 2009’’. 

6 SEC. 2. EXCLUSION FOR LIFETIME INCOME PAYMENTS. 

7 (a) LIFETIME INCOME PAYMENTS UNDER ANNUITY

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


hsrobinson on PROD1PC76 with BILLS
2 

•HR 2748 IH

1 Revenue Code of 1986 is amended by adding at the end 

2 the following new paragraph: 

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

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

6 income payments received under one or more 

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

9 year, gross income shall not include 50 percent 

10 of the portion of such payments which would 

11 (without regard to this paragraph) be includible 

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

15 shall not exceed $10,000. 

16 ‘‘(B) LOWER PERCENTAGE EXCLUSION

17 AND SEPARATE LIMITATION FOR ANNUITIES

18 PROVIDED UNDER CERTAIN RETIREMENT

19 PLANS.—In the case of lifetime income pay20 ments received under any qualified retirement 

21 plan (as defined in section 4974(c)), or any eli22 gible deferred compensation plan (as defined in 

23 section 457(b)) of an eligible employer de24 scribed in section 457(e)(1)(A), gross income 

25 shall not include 25 percent of the portion of 


hsrobinson on PROD1PC76 with BILLS
3 

•HR 2748 IH

1 such payments which would (without regard to 

2 this paragraph) be includible in gross income 

3 under this section. For purposes of the pre4 ceding sentence, the amount excludible from 

5 gross income in any taxable year shall not ex6 ceed $5,000 (twice such amount in the case of 

7 a joint return). 

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

9 the case of taxable years beginning after De10 cember 31, 2010, the dollar amounts in sub11 paragraphs (A) and (B) shall each be increased 

12 by an amount equal to— 

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

14 ‘‘(ii) the cost-of-living adjustment de15 termined under section 1(f)(3) for the cal16 endar year in which the taxable year be17 gins, determined by substituting ‘calendar 

18 year 2009’ for ‘calendar year 1992’ in sub19 paragraph (B) thereof. 

20 If any amount as increased under the preceding 

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

22 shall be rounded to the next lower multiple of 

23 $100. 

24 ‘‘(D) APPLICATION OF PARAGRAPH.—Sub25 paragraphs (A) and (B) shall not apply to— 


hsrobinson on PROD1PC76 with BILLS
4 

•HR 2748 IH

1 ‘‘(i) any amount received under a de2 fined benefit plan, 

3 ‘‘(ii) any amount paid under an annu4 ity contract that is received by the bene5 ficiary under the contract— 

6 ‘‘(I) after the death of the annu7 itant in the case of payments de8 scribed in subsection (c)(5)(A)(ii)(III), 

9 unless the beneficiary is the surviving 

10 spouse of the annuitant, or 

11 ‘‘(II) after the death of the annu12 itant and joint annuitant in the case 

13 of payments described in subsection 

14 (c)(5)(A)(ii)(IV), unless the bene15 ficiary is the surviving spouse of the 

16 last to die of the annuitant and the 

17 joint annuitant, or 

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

19 qualified funding asset (as defined in sec20 tion 130(d)), but without regard to wheth21 er there is a qualified assignment. 

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

23 For purposes of this section, the investment in 

24 the contract shall be determined without regard 

25 to this paragraph.’’. 


hsrobinson on PROD1PC76 with BILLS
5 

•HR 2748 IH

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

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

3 new paragraph: 

4 ‘‘(5) LIFETIME INCOME PAYMENTS.— 

5 ‘‘(A) IN GENERAL.—For purposes of sub6 sections (b) and (x), the term ‘lifetime income 

7 payment’ means any amount received as an an8 nuity under any portion of an annuity contract, 

9 but only if— 

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

11 case of payments described in subclause 

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

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

14 other legally enforceable means) to receive 

15 such amount during the life of the annu16 itant or joint annuitant is such annuitant 

17 or joint annuitant, and 

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

19 of substantially equal periodic payments 

20 made not less frequently than annually 

21 over— 

22 ‘‘(I) the life of the annuitant, 

23 ‘‘(II) the lives of the annuitant 

24 and a joint annuitant, but only to the 


hsrobinson on PROD1PC76 with BILLS
6 

•HR 2748 IH

1 extent that the requirement of sub2 paragraph (D) is met, 

3 ‘‘(III) the life of the annuitant 

4 with a minimum period of payments 

5 or with a minimum amount that must 

6 be paid in any event, or 

7 ‘‘(IV) the lives of the annuitant 

8 and a joint annuitant with a minimum 

9 period of payments or with a min10 imum amount that must be paid in 

11 any event, but only to the extent that 

12 the requirement of subparagraph (D) 

13 is met. 

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

15 clause (ii), annuity payments shall not fail 

16 to be treated as part of a series of substan17 tially equal periodic payments— 

18 ‘‘(I) because the amount of the 

19 periodic payments may vary in accord20 ance with investment experience, re21 allocations among investment options, 

22 actuarial gains or losses, cost-of-living 

23 indices, a constant percentage (not 

24 less than zero) applied not less freVerDate Nov 24 2008 02:28 Jun 10, 2009 Jkt 079200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H2748.IH H2748

hsrobinson on PROD1PC76 with BILLS
7 

•HR 2748 IH

1 quently than annually, or similar fluc2 tuating criteria, 

3 ‘‘(II) due to the existence of, or 

4 modification of the duration of, a pro5 vision in the contract permitting a 

6 lump sum withdrawal after the annu7 ity starting date, 

8 ‘‘(III) because the period between 

9 each such payment is lengthened or 

10 shortened, but only if at all times 

11 such period is no longer than one cal12 endar year, 

13 ‘‘(IV) because the payments are 

14 reduced on account of a qualified do15 mestic relations order (within the 

16 meaning of section 414(p)) which be17 comes effective after the commence18 ment of the annuity payments, or 

19 ‘‘(V) because, in the case of an 

20 annuity payable over the lives of the 

21 annuitant and a joint annuitant, the 

22 amounts paid after the death of the 

23 annuitant or joint annuitant are less 

24 than the amounts payable during 

25 their joint lives. 


hsrobinson on PROD1PC76 with BILLS
8 

•HR 2748 IH

1 ‘‘(B) MINIMUM PERIOD OF PAYMENTS.— 

2 For purposes of subparagraph (A), the term 

3 ‘minimum period of payments’ means a guaran4 teed term of payments that does not exceed the 

5 greater of 10 years or— 

6 ‘‘(i) the life expectancy of the annu7 itant as of the annuity starting date, in the 

8 case of lifetime income payments described 

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

10 ‘‘(ii) the life expectancy of the annu11 itant and joint annuitant as of the annuity 

12 starting date, in the case of lifetime in13 come payments described in subparagraph 

14 (A)(ii)(IV). 

15 For purposes of this subparagraph, life expect16 ancy shall be computed with reference to the ta17 bles prescribed by the Secretary under para18 graph (3). For purposes of subsection 

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

20 shall be determined as of the annuity starting 

21 date and reduced by one for each subsequent 

22 year. 

23 ‘‘(C) MINIMUM AMOUNT THAT MUST BE

24 PAID IN ANY EVENT.—For purposes of subpara25 graph (A), the term ‘minimum amount that 


hsrobinson on PROD1PC76 with BILLS
9 

•HR 2748 IH

1 must be paid in any event’ means an amount 

2 payable to the designated beneficiary under an 

3 annuity contract that is in the nature of a re4 fund and does not exceed the greater of the 

5 amount applied to produce the lifetime income 

6 payments under the contract or the amount, if 

7 any, available for withdrawal under the contract 

8 on the date of death. 

9 ‘‘(D) SPECIAL RULES FOR JOINT ANNU10 ITANTS.—For purposes of subclauses (II) and 

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

12 of this subparagraph is met only to the extent 

13 that— 

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

15 joint annuitant as of the annuity starting 

16 date, 

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

18 annuitant and joint annuitant is 15 years 

19 or less, 

20 ‘‘(iii) in the case of any payment re21 ceived under an annuity contract described 

22 in subsection (b)(5)(A), such payment is 

23 made to or for the benefit of the individual 

24 who furnished the consideration for such 

25 annuity contract, or 


hsrobinson on PROD1PC76 with BILLS
10 

•HR 2748 IH

1 ‘‘(iv) in the case of any payment re2 ceived under a plan described in subsection 

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

4 the benefit of the employee or the indi5 vidual for whose benefit the plan was es6 tablished. 

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

8 paragraph (5) and subsection (b)(5), the term ‘an9 nuity contract’ means a commercial annuity (as de10 fined by section 3405(e)(6)), other than an endow11 ment or life insurance contract.’’. 

12 (c) RECAPTURE TAX FOR LIFETIME INCOME PAY13 MENTS.—Section 72 of such Code is amended by redesig14 nating subsection (x) as subsection (y) and by inserting 

15 after subsection (w) the following new subsection: 

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

17 REDUCTIONS IN LIFETIME INCOME PAYMENTS.— 

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

19 under an annuity contract is excluded from income 

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

21 for lifetime income payments), and— 

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

23 contract is subsequently modified so any future 

24 payments are not lifetime income payments, 


hsrobinson on PROD1PC76 with BILLS
11 

•HR 2748 IH

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

2 lifetime income payment under the contract an 

3 annuitant receives a lump sum and thereafter is 

4 to receive annuity payments in a reduced 

5 amount under the contract, or 

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

7 lifetime income payment under the contract the 

8 dollar amount of any subsequent annuity pay9 ment is reduced and a lump sum is not paid in 

10 connection with the reduction, unless such re11 duction is— 

12 ‘‘(i) due to an event described in sub13 section (c)(5)(A)(iii), or 

14 ‘‘(ii) due to the addition of, or in15 crease in, a minimum period of payments 

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

17 or a minimum amount that must be paid 

18 in any event (within the meaning of sub19 section (c)(5)(C)), 

20 then gross income for the first taxable year in 

21 which such modification or reduction occurs 

22 shall be increased by the recapture amount. 

23 ‘‘(2) RECAPTURE AMOUNT.— 

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

25 subsection, the recapture amount shall be the 


hsrobinson on PROD1PC76 with BILLS
12 

•HR 2748 IH

1 amount, determined under rules prescribed by 

2 the Secretary, equal to the excess of— 

3 ‘‘(i) the amount that was excluded 

4 from the taxpayer’s gross income under 

5 subsection (b)(5) before the modification 

6 or reduction described in paragraph (1), 

7 over 

8 ‘‘(ii) the amount that would have been 

9 excludible under such subsection if such 

10 modification or reduction had been in ef11 fect at all times, 

12 plus interest for the deferral period at the un13 derpayment rate established by section 6621. 

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

15 of this subsection, the term ‘deferral period’ 

16 means the period beginning with the taxable 

17 year in which (without regard to subsection 

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

19 in gross income and ending with the taxable 

20 year in which the modification described in 

21 paragraph (1) occurs. 

22 ‘‘(3) EXCEPTIONS TO RECAPTURE TAX.—Para23 graph (1) shall not apply in the case of any modi24 fication or reduction that occurs because an annu25 itant— 


hsrobinson on PROD1PC76 with BILLS
13 

•HR 2748 IH

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

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

3 ‘‘(B) becomes a chronically ill individual 

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

5 ‘‘(C) encounters hardship.’’. 

6 (d) LIFETIME DISTRIBUTIONS OF LIFE INSURANCE

7 DEATH BENEFITS.— 

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

9 101 of such Code (relating to payment of life insur10 ance proceeds at a date later than death) is amend11 ed by redesignating paragraph (3) as paragraph (4) 

12 and inserting after paragraph (2) the following new 

13 paragraph: 

14 ‘‘(3) EXCLUSION FOR LIFETIME INCOME PAY15 MENTS.— 

16 ‘‘(A) IN GENERAL.—In the case of 

17 amounts to which this subsection applies, gross 

18 income shall not include the lesser of— 

19 ‘‘(i) 50 percent of the portion of life20 time income payments (within the meaning 

21 of section 72(c)(5), applied with the substi22 tutions described in subparagraph (B)) 

23 otherwise includible in gross income under 

24 this section (determined without regard to 

25 this paragraph), or 


hsrobinson on PROD1PC76 with BILLS
14 

•HR 2748 IH

1 ‘‘(ii) the amount in effect under sec2 tion 72(b)(5)(A). 

3 ‘‘(B) RECAPTURE AND OTHER SPECIAL

4 RULES.—For purposes of this paragraph, rules 

5 similar to the rules of subparagraphs (D) and 

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

7 be applied by substituting ‘beneficiary of the 

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

9 insurance contract’ for ‘annuity contract’ there10 in.’’. 

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

12 of section 101(d) of such Code is amended by insert13 ing ‘‘or paragraph (3)’’ after ‘‘to the extent not ex14 cluded by the preceding sentence’’. 

15 (e) EFFECTIVE DATE.— 

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

17 this section shall apply to amounts received in tax18 able years beginning after the date of the enactment 

19 of this Act. 

20 (2) SPECIAL RULE FOR EXISTING CON21 TRACTS.—In the case of a contract in force on the 

22 date of the enactment of this Act that does not sat23 isfy the requirements of section 72(c)(5)(A) of the 

24 Internal Revenue Code of 1986 (as added by this 

25 section), or requirements similar to such section 


hsrobinson on PROD1PC76 with BILLS
15 

•HR 2748 IH

1 72(c)(5)(A) in the case of a life insurance contract, 

2 any modification to such contract (including a 

3 change in ownership) or to the payments thereunder 

4 that is made to satisfy the requirements of such sec5 tion (or similar requirements) shall not result in the 

6 recognition of any gain or loss, any amount being in7 cluded in gross income, or any addition to tax that 

8 otherwise might result from such modification, but 

9 only if the modification is completed prior to the 

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

11 of this Act. 

12 SEC. 3. FACILITATING LONGEVITY INSURANCE. 

13 (a) IN GENERAL.—Paragraph (9) of section 401(a) 

14 of the Internal Revenue Code of 1986 is amended by in15 serting after subparagraph (H) the following new subpara16 graph: 

17 ‘‘(I) LONGEVITY INSURANCE.— 

18 ‘‘(i) IN GENERAL.—For purposes of 

19 this paragraph, any value attributable to 

20 longevity insurance shall be disregarded in 

21 determining the value of an employee’s in22 terest under a plan prior to the first date 

23 that payments are made under the lon24 gevity insurance. 


hsrobinson on PROD1PC76 with BILLS
16 

•HR 2748 IH

1 ‘‘(ii) LONGEVITY INSURANCE DE2 FINED.—For purposes of this subpara3 graph, the term ‘longevity insurance’ 

4 means an annuity payable on behalf of the 

5 employee under which— 

6 ‘‘(I) payments commence not 

7 later than 12 months following the 

8 calendar month in which the employee 

9 attains age 85 (or would have at10 tained age 85), 

11 ‘‘(II) payments are made in sub12 stantially equal periodic payments 

13 (not less frequently than annually) 

14 over the life of the employee or the 

15 joint lives of the employee and the 

16 employee’s designated beneficiary, 

17 taking into account the rules of clause 

18 (i) of section 402(e)(7)(D), except as 

19 otherwise provided in subclause (III) 

20 of such section, 

21 ‘‘(III) prior to the death of the 

22 employee, the annuity does not make 

23 available any commutation benefit, 

24 cash surrender value, or other similar 

25 feature, and 


hsrobinson on PROD1PC76 with BILLS
17 

•HR 2748 IH

1 ‘‘(IV) except as provided in rules 

2 prescribed by the Secretary, in the 

3 case of an employee’s death prior to 

4 the date that payments commence, the 

5 value of any death benefits paid may 

6 not exceed the premiums paid for 

7 such annuity, plus interest com8 pounded annually at 3 percent. 

9 ‘‘(iii) ADJUSTING AGE.—For purposes 

10 of clause (ii)(I), the Secretary shall annu11 ally increase age 85 to reflect increases in 

12 life expectancy (as determined by the Sec13 retary) that occur on or after January 1, 

14 2009, except that any such increased age 

15 which is not a whole number shall be 

16 rounded to the next lower whole number.’’. 

17 (b) RULES.—Not later than one year after the date 

18 of enactment of this Act, the Secretary of the Treasury 

19 shall prescribe rules under which all or a portion of a par20 ticipant’s benefits under any plan described in section 

21 402(c)(8)(B) of the Internal Revenue Code of 1986 may 

22 be treated as longevity insurance under the rules of section 

23 401(a)(9)(H) of such Code. 


hsrobinson on PROD1PC76 with BILLS
18 

•HR 2748 IH

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

2 this section shall apply to years beginning after December 

3 31, 2010. 

4 SEC. 4. SPECIAL RULES FOR ANNUITIES RECEIVED FROM 

5 ONLY A PORTION OF A CONTRACT. 

6 (a) IN GENERAL.—Subsection (a) of section 72 of the 

7 Internal Revenue Code of 1986 is amended to read as fol8 lows: 

9 ‘‘(a) GENERAL RULE FOR ANNUITIES.—If any 

10 amount is received as an annuity (whether for a period 

11 certain or during one or more lives) under any portion 

12 of an annuity, endowment, or life insurance contract— 

13 ‘‘(1) except as otherwise provided in this chap14 ter, gross income includes such amount, 

15 ‘‘(2) such portion shall be treated as a separate 

16 contract for purposes of this section, 

17 ‘‘(3) for purposes of applying subsections (b), 

18 (c), and (e), the investment in the contract shall be 

19 allocated pro rata between each portion of the con20 tract from which amounts are received as an annuity 

21 and the portion of the contract from which amounts 

22 are not received as an annuity, and 

23 ‘‘(4) a separate annuity starting date under 

24 subsection (c)(4) shall be determined with respect to 


hsrobinson on PROD1PC76 with BILLS
19 

•HR 2748 IH

1 each portion of the contract from which amounts are 

2 received as an annuity.’’. 

3 (b) EFFECTIVE DATE.— 

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

5 this section shall apply to amounts received in tax6 able years beginning after the date of the enactment 

7 of this Act. 

8 (2) NO INFERENCE AS TO PRIOR YEARS.— 

9 Nothing in the amendments made by this section 

10 shall create an inference as to the treatment of 

11 amounts received under any portion of an annuity, 

12 endowment, or life insurance contract in any taxable 

13 year beginning on or before the date of the enact14 ment of this Act. 

Æ 


hsrobinson on PROD1PC76 with BILLS