ployee, the surviving spouse of the em-
ployee, and an alternate payee who is the 
spouse or former spouse of the employee. 
‘‘(iii) LIMITATION.—With respect to 
any qualified distributee, subparagraph (A) 
shall not apply to any lifetime annuity pay-
ment to the extent that such payments, 
when added to all previous payments under 
such annuity to such qualified distributee 
during the taxable year, exceed 50 percent 
of the applicable amount for such year 
under section 415(c)(1)(A). For purposes 
of this clause, all lifetime annuity pay-
ments received by a qualified distributee 
shall be taken into account to the extent 
that such payments are subject to this 
paragraph or to rules similar to the rules 
of this paragraph. 
‘‘(C) RECAPTURE TAX.—
‘‘(i) IN GENERAL.—If—
‘‘(I) a portion of a lifetime annu-
ity payment is not includible in gross
income by reason of subparagraph 
(A), and
‘‘(II) the series of payments of 
which such payment is a part is sub-
sequently modified (other than by rea-
son of death or disability) so that 
some or all future payments are not 
lifetime annuity payments, 
the qualified distributee’s gross income for 
the first taxable year in which such modi-
fication occurs shall be increased by an 
amount, determined under rules prescribed 
by the Secretary, equal to the amount 
which (but for subparagraph (A)) would 
have been includible in the qualified 
distributee’s gross income if the modifica-
tion had been in effect at all times, plus in-
terest for the deferral period. 
‘‘(ii) DEFERRAL
PERIOD.—For pur-
poses of clause (i), the term ‘deferral pe-
riod’ means the period beginning with the 
taxable year in which (without regard to 
subparagraph (A)) the payment would 
have been includible in gross income and 
ending with the taxable year in which the 
modification described in clause (i)(II) oc-
curs.’’.
(b) SECTION 403(a) PLANS.—Paragraph (4) of sec-
tion 403(a) of such Code (relating to qualified annuity 
plans) is amended by adding at the end the following new 
subparagraph: 
‘‘(C) EXCLUSION
OF
PERCENTAGE
OF 
LIFETIME ANNUITY PAYMENTS.—Rules similar 
to the rules of section 402(e)(7) shall apply to 
distributions under any annuity contract to 
which this subsection applies.’’. 
(c) SECTION 403(b) PLANS.—Section 403(b) of such 
Code (relating to purchased annuities) is amended by add-
ing at the end the following new paragraph: 
‘‘(14) EXCLUSION OF PERCENTAGE OF LIFE-
TIME
ANNUITY
PAYMENTS.—Rules similar to the 
rules of section 402(e)(7) shall apply to distributions 
under any annuity contract to which this subsection 
applies.’’. 
(d) IRAS.—Section 408(d) of such Code (relating to 
tax treatment of distributions) is amended by adding at 
the end the following new paragraph: 
‘‘(8) EXCLUSION OF PERCENTAGE OF LIFETIME 
ANNUITY PAYMENTS.—Rules similar to the rules of 
section 402(e)(7) shall apply to distributions out of 
an individual retirement plan.’’.
(e) SECTION 457 PLANS.—Section 457(e) of such 
Code (relating to special rules for deferred compensation 
plans) is amended by adding at the end the following new 
paragraph: 
‘‘(18) EXCLUSION OF PERCENTAGE OF LIFE-
TIME
ANNUITY
PAYMENTS.—Rules similar to the 
rules of section 402(e)(7) shall apply to distributions 
from an eligible deferred compensation plan of an el-
igible employer described in subsection (e)(1)(A).’’. 
(f ) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions made after Decem-
ber 31, 2003. 
SEC. 3. NOTICE OF EQUIVALENT ANNUITY. 
(a) IN GENERAL.—Paragraph (1) of section 402(f) 
of the Internal Revenue Code of 1986 is amended by strik-
ing ‘‘and’’ at the end of subparagraph (D), by striking 
the period at the end of subparagraph (E) and inserting 
‘‘and’’, and by inserting after subparagraph (E) the fol-
lowing new subparagraph: 
‘‘(F) in the case of a participant receiving 
a benefit to which section 401(a)(11)(A) does 
not apply, in accordance with rules prescribed 
by the Secretary, of the amount of a lifetime 
annuity 
payment 
(as 
defined 
in 
section
402(e)(7)(D)) that is the actuarial equivalent of 
account balances specified in such rules.’’. 
(b) RULES AND MODEL NOTICE.—The Secretary of 
the Treasury shall, within 180 days of the date of enact-
ment of this Act, issue rules and a model notice provision 
under section 402(f)(1)(F) of the Internal Revenue Code 
of 1986. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions made after the 
date that is one year after the date of enactment of this 
Act.
Æ