Employee Retirement Income Security Act
PL 93-406 (H.R.2), enacted 09/02/1974

88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
829 
Public Law 93-406 
A N A C T 
September 2,1974 
To provide for pension reform, 
I^H. R . 2 ] 
Be it enacted hy the Senate and House of Representatives 
of the 
United States of America in Congress assembled, 
tJ^eniincfll 
Security Act of 
SHORT TITLE AND TABLE OF CONTENTS 
^^7"^-
SECTION 1. This Act may be cited as the "Employee Eetirement 
Income Security Act of 1974". 
TABLE OF 
CONTENTS 
Sec. 1. Short title and table of contents. 
TITLE I—PROTECTION OF EMPLOYEE BENEFIT RIGHTS 
Subtitle A—General Provisions 
Sec. 2. Findings and declaration of policy. 
Sec. 3. Definitions. 
Sec. 4. Coverage. 
Subtitle B—Regulatory Provisions 
PART 1—REPORTING AND DISCLOSURE 
Sec. 101. Duty of disclosure and reporting. 
Sec. 102. Plan description and summary plan description. 
Sec. 103. Annual reports. 
Sec. 104. Filing with Secretary and furnishing information to participants. 
Sec. 105. Reporting of participant's benefit rights. 
Sec. 106. Reports made public information. 
Sec. 107. Retention of records. 
Sec. 108. Reliance on administrative interpretations. 
Sec. 109. Forms. 
Sec. 110. Alternative methods of compliance. 
Sec. 111. Repeal and effective date. 
PART 2—PARTICIPATION AND VESTING 
Sec. 201, Coverage. 
Sec. 202, Minimum participation standards. 
Sec. 203. Minimum vesting standards. 
Sec. 204. Benefit accrual requirements. 
Sec. 205. Joint and survivor annuity requirement. 
Sec. 206. Other provisions relating to form and payment of benefits. 
Sec, 207, Temporary variances from certain vesting requirements. 
Sec, 208. Mergers and consolidations of plans or transfers of plan assets. 
Sec. 209. Recordkeeping and reporting requirements. 
Sec. 210. Plans maintained by more than one employer, predecessor plans, and 
employer groups. 
Sec, 211. Effective dates. 
PART 3—^FUNDING 
Sec. 301. Coverage. 
Sec. 302. Minimum funding standards. 
Sec. 303. "Variance from minimum funding standard. 
Sec. 304. Extension of amortization periods. 
Sec. 305. Alternative minimum funding standard. 
Sec, 306. Effective dates. 
PART 4—FIDUCIARY RESPONSIBIUTY 
Sec. 401. Coverage. 
Sec, 402, Establishment of plan. 
Sec, 403, Establishment of trust. 
Sec. 404. Fiduciary duties. 
Sec. 405. Liability for breach by co-fiduciary. 
Sec. 406. Prohibited transactions. 
Sec. 407. 10 percent limitation with respect to acquisition and holding of 
employer securities and employer real property by certain plans. 
29 u s e 1001 
note. 
830 
PUBLIC L
A
W 93-406-SEPT. 2, 1974 
[88 STAT. 
TABLE OF CONTENTS—Continued 
TITLE I—PROTECTION OF EMPLOYEE BENEFIT RIGHTS—Continued 
PABT 4—FiDCiABY RESPONSIBIUTT—Continued 
Sec. 408. Exemptions from prohibited transactions. 
Sec. 409. Liability for breach of fiduciary duty. 
Sec. 410. Exculpatory provisions; insurance. 
Sec. 411. Prohibition against certain persons holding certain positions. 
Sec. 412. Bonding. 
Sec. 413. Limitation on actions. 
Sec. 414. Effective date. 
PABT 5—^ADMINISTBATION AND ENFOECEMENT 
Sec. 501. Criminal penalties. 
Sec. 502. Civil enforcement. 
Sec. 503. Claims procedure. 
, 
, ,^j 
Sec. 504. Investigative authority. 
Sec. 505. Regulations. 
..^^ 
Sec. 506. Other agencies and departments. 
''••'• *' ^ * 
Sec. 507. Administration. 
Sec. 508. Appropriations. 
Sec. 509. Separability provisions. 
Sec. 510. Interference with rights protected under Act. 
Sec. 511. Coercive interference. 
Sec. 512. Advisory Council. 
Sec. 513. Research, studies, and annual report. 
Sec. 514. Effect on other laws. 
TITLE II—AMENDMENTS TO T H E INTERNAL REVENUE CODE 
RELATING TO RETIREMENT PLANS 
Sec. 1001. Amendment of Internal Revenue Code of 1954. 
Subtitle A—Participation, Vesting, Funding, Administration, Etc. 
PABT 1—PABTICIPATION, VESTING, AND FUNDING 
Sec. 1011. Minimum participation standards. 
Sec. 1012. Minimum vesting standards. 
Sec. 1013. Minimum funding standards. 
Sec. 1014. Collectively bargained plans. 
Sec. 1015. Definitions and special rules. 
Sec. 1016. Conforming and clerical amendments. 
Sec. 1017. Effective dates and transitional rules. 
PAjiT 2—CEBTAIN OTHEE PBOVISIONS RELATING TO QUALIFIED RETIREMENT 
PLANS 
Sec. 1021. Additional plan requirements. 
Sec. 1022, Miscellaneous provisions. 
Sec. 1023. Retroactive changes in plan. 
Sec. 1024. Effective dates. 
PABT 3—REGISTBATION AND INFORMATION 
Sec. 1031. Registration and information. 
Sec. 1032. Duties of Secretary of Health, Education, and Welfare. 
Sec. 1033. Reports by actuaries. 
Sec. 1034. Effective dates. 
PABT 4—DECLABATOBY JUDGMENTS RELATING TO QUALIFICATION OF CERTAIN 
RETIREMENT PLANS 
Sec. 1041. Tax Court procedure. 
PART 5—INTERNAL REVENUE SERVICE 
Sec. 1051. Establishment of Office. 
Sec. 1052. Authorization of appropriations. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
831 
TABLE OF CONTENTS—Continued 
TITLE II—AMENDMENTS TO T H E INTERNAL REVENUE CODE 
RELATING TO RETIREMENT PLANS—Continued 
Subtitle B—Other Amendments to the Internal Revenue Code Relating to 
Retirement Plans 
Sec. 2001. Contributions on behalf of self-employed individuals and shareholder-
employees. 
Sec. 2002. Deduction for retirement savings. 
Sec. 2003. Prohibited transactions. 
Sec. 2004. Limitations on benefits and contributions. 
Sec. 2005. Taxation of certain lump sum distributions. 
Sec. 2006. Salary reduction regulations. 
Sec. 2007. Rules for certain negotiated plans. 
Sec. 2008. Certain armed forces survivor annuities. 
TITLE III—JURISDICTION, ADMINISTRATION, ENFORCEMENT; JOINT 
PENSION TASK FORCE, ETC. 
Subtitle A—Jurisdiction, Administration, and Enforcement 
Sec. 3001. Procedures in connection with the issuance of certain determination 
letters by the Secretary of the Treasury. 
Sec. 3002. Procedures with respect to continued compliance with requirements 
relating to participation, vesting, and funding standards. 
Sec. 3003. Procedures in connection with prohibited transactions. 
Sec. 3004. Coordination between the Department of the Treasury and the De-
partment of Labor. 
Subtitle B—Joint Pension Task Force; Studies 
PART 
1—JOINT 
PENSION 
TASK 
FORCE 
Sec. 3021. Establishment. 
Sec. 3022. Duties. 
PART 2—OTHER STUDIES 
Sec. 3031. Congressional study. 
Sec. 3032. Protection for employees under Federal procurement, construction, 
and research contracts and grants. 
Subtitle C—Enrollment of Actuaries 
Sec. 3041. Establishment of Joint Board for the enrollment of actuaries. 
Sec. 3042. Enrollment by Joint Board. 
Sec. 3043. Amendment of Internal Revenue Code. 
TITLE IV—PLAN TERMINATION INSURANCE 
Subtitle A—Pension Benefit Guaranty Corporation 
Sec. 4001. Definitions. 
Sec. 4002. Pension Benefit Guaranty Corporation. 
Sec. 4003. Investigatory 
authority; 
cooperation 
with 
other agencies; 
civil 
actions. 
Sec. 4004. Temporary authority for initial period. 
Sec. 4005. Establishment of pension benefit guaranty funds. 
Sec. 4006. Premium rates. 
Sec. 4007. Payment of premiums. 
Sec. 4008. Report by the corporation. 
Sec. 4009. Portability assistance. 
Subtitle B—Coverage 
Sec. 4021. Plans covered. 
Sec. 4022. Benefits guaranteed. 
Sec. 4023. Contingent liability coverage. 
832 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
TABLE OF CONTENTS—Continued 
TITLE IV—PLAN TERMINATION INSURANCE—Continued 
Subtitle 
C—^Terminations 
Sec. 4041. Termination by plan administrator. 
Sec. 4042. Termination by corporation. 
Sec. 4043. Reportable events. 
Sec. 4044. Allocation of assets. 
Sec. 4045. Recapture of certain iiayments. 
Sec. 4046. Reports to trustee. 
Sec. 4047. Restoration of plans. 
Sec. 4048. Date of termination. 
Subtitle D—Liability 
Sec. 4061. Amounts payable by the corporation. 
Sec. 4062. Liability of employer. 
See. 4063. Liability of substantial employer for withdrawal. 
Sec. 4064. Liability of employers on termination of plan maintained by more 
than one employer. 
Sec. 4065. Annual report of plan administrator. 
Sec. 4066. Annual notification to substantial employers. 
Sec. 4067. Recovery of employer liability for plan termination. 
Sec. 4068. Lien for liability of employer. 
Subtitle E—Amendments to Internal Revenue Code of 1954; Effective Dates 
Sec. 4081. Amendments to Internal Revenue Code of 1954. 
Sec. 4082. Effective date; special rules. 
TITLE I—PROTECTION OF EMPLOYEE BENEFIT 
RIGHTS 
SUBTITLE A—GENERAL ' PROVISIONS 
FINDINGS AND DECLARATION OF POLICY 
29 use 1001. 
SEC. 2. (a) The Congress finds that the growth m size, scope, and 
numbers of employee benefit plans in recent years has been rapid and 
substantial; that the operational scope and economic impact of such 
plans is increasingly interstate; that the continued well-being and 
security of millions of employees and their dependents are directly 
a fleeted by these plans; that they are affected with a national public 
interest; that they have become an important factor affecting the 
stability of employment and the successful development of industrial 
relations; that they have become an important factor in commerce 
because of the interstate character of their activities, and of the activi-
ties of their participants, and the employers, employee organizations, 
and other entities by which they are established or maintained; that a 
large volume of the activities of such plans is carried on by means of 
the mails and instrumentalities of interstate commerce; that owing to 
the lack of employee information and adequate safeguards concerning 
their operation, it is desirable in the interests of employees and their 
beneficiaries, and to provide for the general welfare and the free flow 
of commerce, that disclosure be made and safeguards be provided with 
respect to the establishment, operation, and administration of such 
plans; that they substantially affect the revenues of the United States 
because they are afforded preferential Federal tax treatment; that 
despite the enormous growth in such plans many employees with long 
years of employment are losing anticipated retirement benefits owing 
to the lack of vesting provisions in such plans; that owing to the 
inadequacy of current minimum standards, the soundness and sta-
bility of plans with respect to adequate funds to pay promised benefits 
may be endangered; that owing to the termination of plans before 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
833 
requisite funds have been accumulated, employees and their bene-
ficiaries have been deprived of anticipated benefits; and that it is 
therefore desirable in the interests of employees and their beneficiaries, 
for the protection of the revenue of the United States, and to provide 
for the free flow of commerce, that minimum standards be provided 
assuring the equitable character of such plans and their financial 
soundness. 
(b) It is hereby declared to be the policy of this Act to protect inter-
state commerce and the interests of participants in employee benefit 
plans and their beneficiaries, by requiring the disclosure and report-
ing to participants and beneficiaries of financial and other information 
with respect thereto, by establishing standards of conduct, responsi-
bility, and obligation for fiduciaries of employee benefit plans, and by 
providing for appropriate remedies, sanctions, and ready access to the 
Federal courts. 
(c) It is hereby further declared to be the policy of this Act to 
protect interstate commerce, the Federal taxing power, and the inter-
ests of participants in private pension plans and their beneficiaries by 
improving the equitable character and the soundness of such plans by 
requiring them to vest the accrued benefits of employees with signifi-
cant periods of service, to meet minimum standards of funding, and 
b}' requiring plan termination insurance. 
DEFINITIONS 
SEC. 3. For purposes of this title: 
29 use 1002. 
(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 organiza-
tion, 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 Kelations Act, 1947 (other than pensions on retirement 
29 use ise. 
or death, and insurance to provide such pensions). 
(2) 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 organiza-
tion, or by both, to the extent that by its express terms or as a result 
of surrounding circumstances such plan, fund, or program— 
(A) provides retirement income to employees, or 
(B) 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. 
(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 representa-
tion 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 
834 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
matters incidental to employment relationships; or any employees' 
beneficiary association organized for the purpose in whole or in part, 
of establishing such a plan. 
(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 partic-
ipant, 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 Eico, 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, trans-
portation, 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 
29 use 141. 
meaning of the Labor Management Relations Act, 1947, or the 
45 use 151. 
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 admin-
istrator, 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 cov-
ered 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 partner-
ship, 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) ; 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
835 
(F) a relative (as defined in paragraph (15)) of any indi-
vidual described in subparagraj)h (A), (B), (C), or ( E ) ; 
(G) a corporation, partnership, or trust or estate oi which (or 
in which) 60 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 partner-
ship, 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 (Gr),or 
of the employee benefit plan; or 
(I) a 10 percent or more (directly or indirectly in capital or 
profits) partner or joint venturer oi a person described in sub-
paragraph (B), (C), (D)j (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 subparagrapn (E) and (G) and lower than 10 percent 
for subparagraph (H) or (I). The Secretary may prescribe regula-
tions for determining the ownership (direct or indirect) of profits and 
beneficial interests, and the manner in which indirect stockholdings 
are taken into account. 
(15) The term "relative" means a spouse, ancestor, lineal descend-
ant, 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 estab-
lished or maintained by an employee organization, or (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 plan. 
(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, credited 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 securitj for which there is a 
generally recognized market, either (i) the price of the security pre-
vailing on a national securities exchange which is registered under 
section 6 of the Securities Exchange Act of 1934, or (ii) if the security 
^s use 78f. 
is not traded on such a national securities exchange, a price not less 
836 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
favorable to the plan than the offering price for the security as estab-
lished by the current bid and asked prices quoted by persons independ-
ent 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 pen-
sion 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 
posf, p. 854. 
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(l)). 
(21) (A) Except as otherwise provided in subparagraph (B), a 
person is a fiduciary with respect to a plan to the extent (i) he exer-
cises any discretionary authority or discretionary control respecting 
management of such plan or exercises any authority or control respect-
ing 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 sub-
paragraph 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— 
(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 
Post, p. 878. 
15 u s e 80a-51. 
Posf, p. 858. 
88 STAT.] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
837 
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. 
(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 10th 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 avail-
able and otherwise the fair value as determined in good faith by a 
trustee or a named fiduciary (as defined in section 402(a) (2)) pursu-
ant to the terms of the plan and in accordance with regulations of the 
Secretary, assuming an orderly liquidation at the time of such deter-
mination. 
(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 par-
ticular 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 pro-
jected future benefit costs and administrative expenses for all plan 
participants and beneficiaries over the present value of future contribu-
tions for the normal cost of all applicable plan participants and 
beneficiaries. The Secretary of the Treasury may prescribe regula-
tions to carry out this paragraph. 
(30) The term "unfunded accrued liability" means the excess of the 
accrued liability, under an actuarial cost method which so provides, 
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 "actu-
arial 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 actu-
arial 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 con-
tributions required under that Act and any plan of an international 
Post, 
p. 858. 
Post, 
p. 875. 
Regulations. 
Regulations. 
Regulations. 
Regulations. 
45 u s e 215 
note, 228a. 
38-194 O - 76 - 56 Pt. 1 
838 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
22 use 288 
note. 
26 u s e 501. 
26 use 513. 
organization which is exempt from taxation under the provisions of 
the International Organizations Immunities Act (59 Stat. 669). 
(33) (A) The term "church plan"' means (i) a plan established and 
maintained for its emj)loyees by a church or by a convention or asso-
ciation of churches which is exempt from tax under section 501 of the 
Internal Revenue Code of 1954, or (ii) a plan described in subpara-
graph (C). 
(B) The term "church plan" (notwithstanding the provisions of 
subparagraph (A)) does not include a plan— 
(i) which is established and maintained primarily for the bene-
fit of employees (or their beneficiaries) of such church or conven-
tion or association of churches who are employed in connection 
with one or more unrelated trades or businesses (within the mean-
ing of section 513 of the Internal Revenue Code of 1954), or 
(ii) which is a plan maintained by more than one employer, if 
one or more of the employers in the plan is not a church (or a 
convention or association of chuiches) which is exempt from tax 
under section 501 of the Internal Revenue Code of 1954. 
(C) Notwithstanding the provisions of subparagraph (B) (ii), a 
plan in existence on January 1, 1974, shall be treated as a "church 
plan" if it is established and maintained by a church or convention or 
association of churches for its employees and employees of one or more 
agencies of such church (or convention or association) for the employ-
ees of such church (or convention or association) and the employees of 
one or more agencies of such church (or convention or associ-
ation), and if such church (or convention or association) and each 
such agency is exempt from tax under section 501 of the Internal 
Revenue Code of 1954. The first sentence of this subparagraph shall not 
apply to any plan maintained for employees of an agency with respect 
to which the plan Avas not maintained on January 1, 1974. The first 
sentence of this subparagraph shall not apply with respect to any plan 
for any plan year beginning after December 31,1982. 
(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 accoimt 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 indi-
vidual 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 partici-
pant 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 
Post, p. 979. 
imposed by section 415 of the Internal Revenue Code of 1954 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. 
Post, p. 853. 
Post, p. 85S 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
839 
(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 an employee organization and 
more than one employer, 
(iii) under which the amount of contributions made under the 
plan for a plan year by each employer making such contributions 
is less than 50 percent of the aggregate amount of contributions 
made under the plan for that plan year by all employers making 
such contributions, 
(iv) under which benefits are payable with respect to each par-
ticipant without regard to the cessation of contributions,by the 
employer who had employed that participant except to the extent 
that such benefits accrued as a result of service with the employer 
before such employer was required to contribute to such plan, and 
(v) which satisfies such other requirements as the Secretary 
may by regulations prescribe. 
(B) For purposes of this paragraph— 
(i) if a plan is a multiemployer plan within the meaning of 
subparagraph (A) for any plan year, clause (iii) of subparagraph 
(A) shall be applied by substituting "75 percent" for "50 percent" 
for each subsequent plan year until the first plan year following a 
plan year in which the plan had one employer who made contri-
butions of 75 percent or more of the aggregate amount of contri-
butions made under the plan for that plan year by all employers 
making such contributions, and 
(ii) all corporations which are members of a controlled group 
of corporations (within the meaning of section 1563(a) of the 
Internal Revenue Code of 1954, determined without regard to 
^^ "^"^ ^^63. 
section 1563(e) (3) (C) of such Code) shall be deemed to be one 
employer. 
(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 is (i) registered as an investment adviser under the 
Investment Advisers Act of 1940; (ii) is a bank, as defined in 
that Act; or (iii) 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, calendar, policy, or fiscal year on which the records 
of the plan are kept. 
COVERAGE 
SEC. 4. (a) Except as provided in subsection (b) and in sections 
^^ ^^^ ^°°^-
201, 301, and 401, this title shall apply to any employee benefit plan ggg"^?/^' *^^' 
if it is established or maintained— 
(1) by any employer engaged in commerce or in any industry 
or activity affecting commerce; or 
(2) by any employee organization or organizations representing 
employees engaged in commerce or in any industry or activity 
affecting commerce; or 
(3) by both. 
(b) The provisions of this title shall not apply to any employee 
benefit plan if— 
Post, 
p. 875. 
15 u s e 80b-20. 
840 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(1) such plan is a governmental plan (as defined in section 
3(32)); 
. 
. 
^ ^^ 
(2) such plan is a church plan (as defined in section 3(33)) 
with respect to which no election has been made under section 
Post, p. 898. 
410(d) of the Internal Revenue Code of 1954; 
(3) such plan is maintained solely for the purpose of comply-
ing with applicable workmen's compensation laws or unemploy-
ment compensation or disability insurance laws; 
(4) such plan is maintained outside of the United States pri-
marily for the benefit of persons substantially all of whom are 
nonresident aliens; or 
(5) such plan is an excess benefit plan (as defined in section 
3 (36)) and is unfunded. 
SUBTITLE B—REGULATORY PROVISIONS 
Part I—Reporting and Disclosure 
DUTY OF DISCLOSURE AND REPORTING 
29 u s e 1021. 
Terminal re-
ports. 
SEC. 101. (a) The administrator of each emplo;^ee benefit plan shall 
cause to be furnished in accordance with section 104(b) to each 
participant covered under the plan and to each beneficiary who is 
receiving benefits under the plan— 
(1) a summary plan description described in section 102 
(a)(1); and 
(2) the information described in section 104(b) (3) and 105 
(a) and (c). 
(b) The administrator shall, in accordance with section 104(a), 
file with the Secretary— 
(1) the summary plan description described in section 102 
(a)(1); 
(2) a plan description containing the matter required in section 
102(b); 
(3) modifications and changes referred to in section 102(a) 
(2); 
(4) the annual report containing the information required by 
section 103; and 
(5) terminal and supplementary reports as required by sub-
section (c) of this section. 
(c)(1) Each administrator of an employee pension benefit plan 
which is winding up its affairs (without regard to the number of 
participants remaining in the plan) shall, in accordance with regu-
lations prescribed by the Secretary, file such terminal reports as the 
Secretary may consider necessary. A copy of such report shall also 
be filed with the Pension Benefit Guaranty Corporation. 
(2) The Secretary may require terminal reports to be filed with 
regard to any employee welfare benefit plan which is winding up 
its affairs in accordance with regulations promulgated by the Secre-
tary. 
(3) The Secretary may require that a plan described in paragraph 
(1) or (2) file a supplementary or terminal report with the annual 
report in the year such plan is terminated and that a copy of such 
supplementary or terminal report in the case of a plan described 
in paragraph (1) be also filed with the Pension Benefit Guaranty 
Corporation. 
(d) 
CROSS REFERENCE.— 
For regulations relating to coordination of reports to the Secretaries 
of Labor and the Treasury, see section 3004. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
841 
PLAN DESCRIPTION AND SUMMARY PLAN 
DESCRIPTION 
SEC. 102. (a) (1) A summary plan description of any employee 
^^ "^^ ^°^^" 
benefit plan shall be furnished to participants and beneficiaries as 
provided in section 104(b). The summary plan description shall 
include the information described in subsection (b), shall be written 
in a manner calculated to be understood by the average plan par-
ticipant, and shall be sufficiently accurate and comprehensive to reason-
ably apprise such participants and beneficiaries of their rights and 
obligations under the plan. A summary of any material modification 
in the terms of the plan and any change in the information required 
under subsection (b) shall be written in a manner calculated to be 
understood by the average plan participant and shall be furnished in 
accordance with section 104(b) (1). 
(2) A plan description (containing the information required by 
subsection (b)) of any employee benefit plan shall be prepared on 
forms prescribed by the Secretary, and shall be filed with the Secre-
tary as required by section 104(a) (1). Any material modification in 
the terms of the plan and any change in the information described in 
subsection (b) shall be filed in accordance with section 104(a) (1) (D). 
(b) The plan description and summary plan description shall con-
tain the following information: The name and type of administration 
of the plan; the name and address of the person designated as agent 
for the service of legal process, if such person is not the administrator; 
the name and address of the administrator; names, titles, and addresses 
of any trustee or trustees (if they are persons different from the 
administrator); a description of the relevant provisions of any 
applicable collective bargaining agreement; the plan's requirements 
respecting eligibility for participation and benefits; a description of 
the provisions providing for nonforfeitable pension benefits; circum-
stances which may result in disqualification, ineligibility, or denial or 
loss of benefits; the source of financing of the plan and the identity of 
any organization through which benefits are provided; the date of the 
end of the plan year and whether the records of the plan are kept on 
a calendar, policy, or fiscal year basis; the procedures to be followed 
in presenting claims for benefits under the plan and the remedies 
available under the plan for the redress of claims which are denied 
in whole or in part (including procedures required under section 503 
of this Act). 
A N N U A L REPORTS 
SEC. 103. (a)(1)(A) An annual report shall be published with 
29 use 1023. 
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 applicable subsections (d) and (e) 
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 para-
graph (4) of this subsection. 
(2) If some or all of the information necessary to enable the admin-
istrator to comply with the requirements of this title is maintained 
b y - 
. 
. 
(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, 
842 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
Financial 
statements, ex-
amination. 
Waiver. 
"Qualified 
public account-
ant." 
Enrolled ac-
tuary. 
(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 adminis-
trator 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 administra-
tor 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 rec-
ords of the plan as are considered necessary by the independent quali-
fied public accountant. The independent qualified public accountant 
shall also offer his opinion as to whether the separate schedules speci-
fied 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 con-
junction 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 w^here 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 require-
ments 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 regu-
lated 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 title, the term "qualified public account-
ant" 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 sub-
ject 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 
88 
STAT.] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
843 
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 tech-
niques 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 ^lan and to reasonable expectations; and 
(li) 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 I I I of this Act. 
(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 con-
sidered 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 com-
mitments, 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 determi-
nation 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 avail-
able for plan benefits which shall include details of revenues and 
expenses and other changes aggregated by general source and applica-
tion. 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 signifi-
cant 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 aggre-
gated by categories and valued at their current value, and the 
same data displayed in comparative form for the end of the pre-
vious fiscal year of the plan; 
"Enrolled ac-
tuary." 
Post, p. 1002. 
Financial 
statement. 
Assets and 
liabilities. 
844 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
Receipts and 
disbursements. 
Assets for in-
vestment. 
Parties in in-
terest, transac-
tions. 
Loans or fixed 
income obliga-
tions in default. 
Leases in de-
fault. 
Assets and li-
abilities. 
Reportable 
transactions. 
(B) a statement of receipts and disbursements during the pre-
ceding 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 
mterest, collateral, par or maturity value, cost, and current value; 
(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 pur-
chase 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 uncoUectable 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 uncoUectable; 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 bv 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 sub-
section; 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 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
845 
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 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 trans-
action ; the cost of the asset, the current value of the asset, and the 
net gain (or loss) on each transaction. For purposes of the pre- tral^acuon^''^ 
ceding sentence, the term "reportable transaction" means a trans-
action to which the plan is a party if such transaction is— 
(i) a transaction involving an amount in excess of 3 per-
cent 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 con-
junction with such person m the plan year respecting a secu-
rity 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 informa-
tion 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 mini-
mal (determined under regulations of the Secretary) and who 
performs solely ministerial duties (determined under such regu-
lations), the name of each person (including but not limited to, 
any consultant, broker, trustee, accountant, insurance carrier, 
actuary, administrator, investment manager, or custodian who 
rendeied 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 employ-
ment he holds with any party in interest. 
(4) An explanation of the reason for any change in appoint-
ment 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. 
(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 
^°^'' P 
described both in section 4021(b) and in paragraph (1), (2), (3), 
^°^'' P- 1014 
(4), (5), (6), or (7) of section 301(a)) an annual report under this 
Actuarial state-
ment. 
868. 
846 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
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 contribu-
tions) 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, the accrued liabilities, 
an identification of benefits not included in the calculation; a 
statement of the other facts and actuarial assumptions and meth-
ods used to determine costs, and a justification for any change in 
actuarial assumptions or cost methods; and the minimum contri-
pOSf, p. 869. 
bution 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) The present value of all of the plan's liabilities for non-
forfeitable pension benefits allocated by the termination priority 
Post. p. 1025. 
categories as set forth in section 4044 of this Act, and the actuarial 
Regulations. 
assumptious used in these computations. The Secretary shall 
establish regulations defining (for purposes of this section) 
"termination priority categories" and acceptable methods, includ-
ing approximate methods, for allocating the plan's liabilities to 
such termination priority categories. 
(7) A certification of the contribution necessary to reduce the 
accumulated funding deficiency to zero. 
(8) A statement by the enrolled actuary— 
(A) that to the best of his knowledge the report is com-
plete and accurate, and 
(B) the requirements of section 302(c)(3) (relating to 
reasonable actuarial assumptions and methods) have been 
complied with. 
(9) A copy of the opinion required b^ subsection (a) (4). 
(10) Such other information regarding the plan as the Secre-
tary may by regulation require. 
(11) 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. 
pa^ny " ta"ement™ 
(^) ^^ somc 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 state-
ment from such insurance company, service, or other similar organiza-
tion covering the plan year and enumerating— 
(1) the premium rate or subscription charge and the total pre-
mium 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; divi-
dends or retroactive rate adjustments, commissions, and adminis-
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
847 
trative 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 pre-
miums; 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 rec-
ords 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 subscrip-
tion charges received from the plan, and a copy of the financial 
report of the company, service, or other organization and (B) if 
such company, service, or organization incurs specific costs in con-
nection with the acquisition or retention of any particular plan or 
plans, a detailed statement of such costs. 
FILING WITH SECRETARY AND FURNISHING INFORMATION TO PARTICIPANTS 
29 use 1024. 
SEC. 104. (a) (1) The administrator of any employee benefit plan 
subject to this part shall file with the Secretary— 
(A) the annual report for a plan year within 210 days after the 
Annual report, 
close of such year (or within such time as may be required by 
regulations promulgated by the Secretary in order to reduce dupli-
cative filing) ; 
(B) the plan description within 120 days after such plan 
becomes subject to this part and an updated plan description, no 
more frequently than once every 5 years, as the Secretary may 
require; 
(C) a copy of the summary plan description at the time such 
summary plan description is required to be furnished to partici-
pants and beneficiaries pursuant to subsection (b) (1) (B) of this 
section; and 
(D) modifications and changes referred to in section 102(a) (2) 
within 60 days after such modification or change is adopted or 
occurs, as the case may be. 
The Secretary shall make copies of such plan descriptions, summary 
plan descriptions, and annual reports available for inspection in the 
public document room of the Department of Labor. The administrator 
shall also furnish to the Secretary, upon request, any documents relat-
ing to the employee benefit plan, including but not limited to the bar-
gaining agreement, trust agreement, contract, or other instrument 
under which the plan is established or operated. 
(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. In addition, and without limiting the foregoing sentence, 
the Secretary may waive or modify the requirements of section 
103(d) (6) in such cases or categories of cases as to which he finds 
that (i) the interests of the plan participants are not harmed thereby 
and (ii) the expense of compliance with the specific requirements of 
section 103(d) (6) is not justified by the needs of the participants, the 
Pension Benefit Guaranty Corporation, and the Department of Labor 
for some portion or all of the information otherwise required under 
section 103 (d)(6). 
(B) Nothing contained in this paragraph shall preclude the Sec-
retary 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 
848 
PUBLIC LAW 93-406-SEPT. 2, 1974 
rSB STAT. 
Reporting re-
quirements, ex-
emption. 
Civil action. 
Summary plan 
descriptions and 
annual reports, 
publication. 
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 pur-
suant 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 sub-
mitted 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) brin^ 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. 
(b) Publication of the summary plan descriptions and annual 
reports shall be made to participants and beneficiaries of the partic-
ular plan as follows: 
(1) The administrator shall furnish to each participant, and each 
beneficiary receiving benefits under the p^an, a copy of the summary^ 
plan description, and all modifications and changes referred to in 
section 102 (a)(1)— 
(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 benefi-
ciary receiving benefits under the p^an, 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 amend-
ments have been made to a plan during such five-year period this 
sentence shall not apply. Notwithstanding the foregoing, the adminis-
trator shall furnish to each participant, and to each beneficiary receiv-
ing 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) 
(1), a summary description of such modification or change shall be 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
849 
furnished not later than 210 days after the end of the plan year in 
which tlie change is adopted to each participant, and to each bene-
ficiary who is receiving benefits under the plan. 
(2) The administrator shall make copies of the plan description and 
the latest annual report and the bargaining agreement, trust agree-
ment, 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 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 shall furnish to each participant, and to each beneficiary 
receiving benefits under the plan, a copy of the statements and sched-
ules, for such fiscal year, described in subparagraphs (A) and (B) 
of section 103(b) (3) and such other material as is necessary to fairly 
summarize the latest annual report. 
(4) The administrator shall, upon written request of any partici-
pant or beneficiary, furnish a copy of the latest updated summary 
plan description, 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 
change under the preceding sentence. 
(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) 
CROSS REFERENCE— 
For regulations respecting coordination of reports to the Secretaries 
of Labor and the Treasury, see section 3004. 
REPORTING OF PARTICIPANT'S BENEFIT 
RIGHTS 
SEC. 105. (a) Each administrator of an employee pension benefit 
^^ use 1025. 
plan shall furnish to any plan participant or beneficiary who so 
requests in M^-itin^, a statement indicating, on the basis of the latest 
available information— 
(1) the total benefits accrued, and 
(2) the nonforfeitable pension benefits, if any, which have 
accrued, or the earliest date on which benefits will become 
nonforfeitable. 
(b) In no case shall a participant or beneficiary be entitled under 
this section to receive more than one report described in subsection (a) 
during any one 12 month period. 
(c) Each administrator required to register under section 6057 of 
the Internal Revenue Code of 1954 shall, before the expiration of the 
^°«'' P- 943. 
time prescribed for such registration, furnish to each participant 
described in subsection (a) (2) (C) of such section, an individual state-
ment 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. 
(d) Subsection (a) of this section shall apply to a plan to which 
more than one unaffiliated employer is required to contribute only 
to the extent provided in regulations prescribed by the Secretary in 
coordination with the Secretary of the Treasury. 
850 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
REPORTS M
A
D
E PUBLIC INFORMATION 
29 use 1026. 
gj,^ iQQ^ (^g^-j Except as provided in subsection (b), the contents of 
the descriptions, annual reports, statements, and other documents filed 
with the Secretary pursuant to this part shall be public information 
and the Secretary shall make any such information and data available 
for inspection in the public document room of the Department of 
Labor. The Secretary may use the information and data for statistical 
and research purposes, and compile and publish such studies, analyses, 
reports, and surveys based thereon as he may deem appropriate. 
(b) Information described in section i05(a) and 105(c) with 
respect to a participant may be disclosed only to the extent that infor-
mation respecting that participant's benefits under title II of the 
Social Security Act may be disclosed under such Act. 
42 use 401. 
29 u s e 1027. 
RETENTION OF RECORDS 
SEC. 107. Every person subject to a requirement to file any descrip-
tion or report or to certify any information therefor under this title or 
who would be subject to such a requirement but for an exemption 
or simplified reporting requirement under section 104(a) (2) or (3) 
of this title shall maintain records on the matters of which disclosure 
is required which will provide in sufficient detail the necessary basic 
information and data from which the documents thus required may 
be verified, explained, or clarified, and checked for accuracy and com-
pleteness, and shall include vouchers, worksheets, receipts, and appli-
cable resolutions, and shall keep such records available for examination 
for a period of not less than six years after the filing date of the 
documents based on the information which they contain, or six years 
after the date on which such documents would have been filed but 
for an exemption or simplified reporting requirement under section 
104(a) (2) or (3). 
R E L I A N C E O N ADMINISTRATIVE INTERPRETATIONS 
p^o^t^^ ^ggf' 
^^^- ^^^' ^^^ *^y criminal proceeding under section 501 based on any 
Post!p!sss'. 
a,ct or omission m alleged violation of this part or section 412, no 
person shall be subject to any liability or punishment for or on 
account of the failure of such person to (1) comply with this part 
or section 412, if he pleads and proves that the act of omission com-
plained of was in good faith, in conformity with, and in reliance on 
any regulation or written ruling of the Secretary, or (2) publish 
and file any information required by any provision of this part if 
he pleads and proves that he published and filed such information 
in good faith, and in conformity with any regulation or written ruling 
of the Secretary issued under this part regarding the filing of such 
reports. Such a defense, if established, shall be a bar to the action 
or proceeding, notwithstanding that (A) after such act or omission, 
such interpretation or opinion is modified or rescinded or is determined 
by judicial authority to be invalid or of no legal effect, or (B) after 
publishing or filing the plan description, annual reports, and other 
reports required by this title, such publication or filing is determined 
by judicial authority not to be in conformity with the requirements 
of this part. 
FORMS 
29 use 1029. 
SEC. 109. (a) Except as provided in subsection (b) of this section, 
the Secretary may require that any information required under this 
title to be submitted to him, including but not limited to the informa-
tion required to be filed by the administrator pursuant to section 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
851 
103(b)(3) and (c), must be submitted on such forms as he may 
prescribe. 
(b) The financial statement and opinion required to be prepared by 
an independent qualified public accountant pursuant to section 103(a) 
(3) (A), the actuarial statement required to be prepared by an enrolled 
actuary pursuant to section 103(a)(4)(A) and the summary plan 
description required by section 102(a) shall not be required to be sub-
mitted on forms. 
(c) The Secretary may prescribe the format and content of the 
summary plan description, the summary of the annual report described 
in section 104(b) (3) and any other report, statements or docu-
ments (other than the bargaining agreement, trust agreement, 
contract, or other instrument under which the plan is established or 
operated), which are required to be furnished or made available to 
plan participants and beneficiaries receiving benefits under the plan. 
ALTERNATIVE METHODS OF COMPLIANCE 
SEC. 110. (a) The Secretar;^ on his own motion or after having 
received the petition of an administrator may prescribe an alternative 
method for satisfying any requirement of this part with respect to 
any pension plan, or class of pension plans, subject to such require-
ment if he determines— 
(1) that the use of such alternative method is consistent with 
the purposes of this title and that it provides adequate disclosure 
to the participants and beneficiaries in the plan, and adequate 
reporting to the Secretary, 
(2) that the application of such requirement of this part 
would— 
(A) increase the costs to the plan, or 
(B) impose unreasonable administrative burdens with 
respect to the operation of the plan, having regard to the 
particular characteristics of the plan or the type of plan 
involved; and 
(3) that the application of this part would be adverse to the 
interests of plan participants in the aggregate. 
(b) An alternative method may be prescribed under subsection (a) 
by regulation or otherwise. If an alternative method is prescribed 
other than by regulation, the Secretary shall provide notice and an 
opportunity for interested persons to present their views, and shall 
publish in the Federal Register the provisions of such alternative 
method. 
REPEAL AND EFFECTIVE DATE 
SEC. 111. (a) (1) The Welfare and Pension Plans Disclosure Act 
is repealed except that such Act shall continue to apply to any con-
duct and events which occurred before the effective date of this part. 
(2) (A) Section 664 of title 18, United States Code, is amended by 
striking out "any such plan subject to the provisions of the Welfare 
and Pension Plans Disclosure Act" and inserting in lieu thereof "any 
employee benefit plan subject to any provision of title I of the 
Employee Retirement Income Security Act of 1974". 
(B)(i) Section 1027 of such title 18 is amended by striking out 
"Welfare and Pension Plans Disclosure Act" and inserting in lieu 
thereof "title I o | the Employee Retirement Income Security Act of 
1974", and by striking out "Act" each place it appears and inserting 
in lieu thereof "title". 
(ii) The heading for such section is amended by striking out 
"WELFARE AND PENSION PLANS DISCLOSURE ACT" and inserting in lieu 
thereof "EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974". 
29 use 1030. 
Notice and opi-
portunity to pre-
sent views. 
Publication in 
Federal Register. 
29 u s e 1031. 
29 use 301 
note. 
Ante, p. 829. 
Effective date. 
852 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(iii) The table of sections of chapter 47 of such title 18 is amended 
by striking out "Welfare and Pension Plans Disclosure Act" in the 
item relating to section 1027 and inserting in lieu thereof "Employee 
Ketirement Income Security Act of 1974". 
(C) Section 1954 of such title 18 is amended by striking out "any 
plan subject to the provisions of the Welfare and Pension Plans Dis-
closure Act as amended" and inserting in lieu thereof "any employee 
welfare benefit plan or employee pension benefit plan, respectively, 
subject to any provision of title I of the Employee Retirement Income 
Security Act of 1974"; and by striking out "sections 3(3) and 5(b) 
(1) and (2) of the Welfare and Pension Plans Disclosure Act, as 
amended" and inserting in lieu thereof "sections 3(4) and (3) (16) 
of the Employee Retirement Income Security Act of 1974". 
(D) Section 211 of the Labor-Management Reporting ?ind Dis-
closure Act of 1959 (29 U.S.C. 441) is amended by striking out 
"Welfare and Pension Plans Disclosure Act" and inserting in lieu 
thereof "Employee Retirement Income Security Act of 1974". 
(b) (1) Except as provided in paragraph (2), this part (including 
the amendments and repeals made by subsection (a)) shall take effect 
on January 1, 1975. 
(2) In the case of a plan which has a plan year which begins before 
January 1, 1975, and ends after December 31, 1974, the Secretary 
may postpone by regulation the effective date of the repeal of any 
provision of the Welfare and Pension Plans Disclosure Act (and of 
any amendment made by subsection (a) (2)) and the effective date of 
any provision of this part, until the beginning of the first plan year 
of such plan which begins after January 1, 1975. 
(c) The provisions of this title authorizing the Secretary to promul-
gate regulations shall take effect on the date of enactment of this Act. 
PART 2—PARTICIPATION AND VESTING 
COVERAGE 
S E C 201. This part shall apply to any employee benefit plan 
described in section 4(a) (and not exempted under section 4(b)) other 
than— 
(1) an employee welfare benefit plan; 
(2) a plan which is unfunded and is maintained by an 
employer primarily for the purpose of providing deferred com-
pensation for a select group of management or highly compensated 
employees; 
(3) (A) a plan established and maintained by a society, order, 
or association described in section 501(c) (8) or (9) of the 
Internal Revenue Code of 1954, if no part of the contributions to 
or under such plan are made by employers of participants in such 
plan, or 
(B) a trust described in section 501 (c) (18) of such Code; 
* 
(4) a plan which is established and maintained by a labor 
organization described in section 501(c) (5) of the Internal Reve-
nue Code of 1954 and which does not at any time after the date 
of enactment of this Act provide for employer contributions; 
(5) any agreement providing payments to a retired partner 
or a deceased partner's successor in interest, as described in sec-
tion 736 of the Internal jReyenue Code of 1954; 
(6) an individual retirement account or annuity described in 
section 408 of the Internal Revenue Code of 1954, or a retirement 
bond described in section 409 of such Code; or 
(7) an excess benefit plan. 
29 use 1051. 
26 use 501. 
26 use 736. 
Post, p. 959. 
Post, p. 964. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
853 
M I N I M U M 
PARTICIPATION 
STANDARDS 
SEC. 202. (a) (1) (A) No pension plan may require, as a condition of 
29 use 1052. 
participation in the plan, that an employee complete a period of service 
with the employer or employers maintaining the plan extending 
beyond the later of the following dates— 
(i) the date on which the employee attains the age of 25; or 
Age and serv-
>
.
/
.
,
,
. 
i - i i 
i j - < 
J! 
• 
i c e requirements,. 
(11) the date on which he completes 1 year ot service. 
(B) (i) In the case of any plan which provides that after not more 
than 3 years of service each participant has a right to 100 percent of 
his accrued benefit under the plan which is nonforfeitable at the time 
such benefit accrues, clause (ii) of subparagraph (A) shall be applied 
by substituting "3 years of service" for "1 year of service". 
(ii) In the case of any plan maintained exclusively for employees 
of an educational institution (as defined in section 170(b) (1) (A) (ii) 
of the Internal Revenue Code of 1954) by an employer which is 
26 use 170. 
exempt from tax under section 501(a) of such Code, which provides 
^^ "^<^ ^°^-
that each participant having at least 1 year of service has a right to 
100 percent of his accrued benefit under the plan which is nonforfeit-
able at the time such benefit accrues, clause (i) of subparagraph (A) 
shall be applied by substituting "30" for "25". This clause shall not 
apply to any plan to which clause (i) applies. 
(2) No pension plan may exclude from participation (on the basis 
of age) employees who have attained a specified age, unless— 
(A) the plan is a— 
(i) defined benefit plan, or 
(ii) target benefit plan (as defined under regulations 
prescribed by the Secretary of the Treasury), and 
(B) such employees begin employment with the employer after 
they have attained a specified age which is not more than 5 years 
before the normal retirement age under the plan. 
(3) (A) For purposes of this section, the term "year of service" . "year o
f serv-
means a 12-month period during which the employee has not less than 
1,000 hours of service. For purposes of this paragraph, computation of 
any 12-month period shall be made with reference to the date on which 
the employee's employment commenced, except that, in accordance 
with regulations prescribed by the Secretary, such computation may 
be made by reference to the first day of a plan year in the case of an 
employee who does not complete 1,000 hours of service during the 
12-month period beginning on the date his employment commenced. 
(B) In the case of any seasonal industry where the customary period 
of employment is less than 1,000 hours during a calendar year, the term 
"year of service" shall be such period as may be determined under 
regulations prescribed by the Secretary. 
(C) For purposes of this section, the term "hour of service" means 
"Hour o
f serv-
a time of service determined under regulations prescribed by the '''^•" 
Secretary. 
(D) For purposes of this section, in the case of any maritime indus-
try, 125 days of service shall be treated as 1,000 hours of service. The 
R<^g"i^tions. 
Secretary may prescribe regulations to carry out the purposes of this 
subparagraph. 
(4) A plan shall be treated as not meeting the requirements of 
paragraph (1) unless it provides that any employee who has satisfied 
the minimum age and service requirements specified in such para-
graph, and who is otherwise entitled to participate in the plan, com-
mences participation in the plan no later than the earlier of— 
(A) the first day of the first plan year beginning after the date 
on which such employee satisfied such requirements, or 
(B) the date 6 months after the date on which he satisfied such 
requirements, 
38-194 O - 76 - 57 Pt. 1 
854 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
unless such employee was separated from the service before the date 
referred to in subparagraph (A) or (B), whichever is applicable. 
(b)(1) Except as otherwise provided in paragraphs (2), (3), and 
(4), all years of service with the employer or employers maintaining 
the plan shall be taken into account in computing the period of service 
for purposes of subsection (a)(1). 
(2) In the case of any employee who has any 1-year break in service 
(as defined in section 203(b)(3)(A)) under the plan to which the 
service requirements of clause (i) of subsection (a) (1) (B) apply, if 
such employee has not satisfied such requirements, service before such 
break shall not be required to be taken into account. 
(3) In computing an employee's period of service for purposes of 
subsection (a) (1) in the case of any participant who has any 1-year 
break in service (as defined in section 203(b) (3) (A)), service before 
such break shall not be required to be taken into account under the 
plan until he has completed a year of service (as defined in subsection 
(a) (3)) after his return. 
(4) In the case of an employee who does not have any nonforfeit-
able right to an accrued benefit derived from employer contributions, 
years of service with the employer or employers maintaining the plan 
before a break in service shall not be required to be taken into account 
in computing the period of service for purposes of subsection (a) (1) 
if the number of consecutive 1 -year breaks in service equals or exceeds 
the aggregate number of such years of service before such break. Such 
aggregate number of years of service before such break shall be deemed 
not to include any years of service not required to be taken into 
account under this paragraph by reason of any prior break in service. 
M I N I M U M VESTIISTG STANDARDS 
29 use 1053. 
gj,^_ 203. (a) Each pension plan shall provide that an employee's 
right to his normal retirement benefit is nonforfeitable upon the attain-
ment of normal retirement age and in addition shall satisfy the 
requirements of paragraphs (1) and (2) of this subsection. 
(1) A plan satisfies the requirements of this paragraph if an 
employee's rights in his accrued benefit derived from his own 
contributions are nonforfeitable. 
(2) A plan satisfies the requirements of this paragraph if it 
satisfies the requirements of subparagraph (A), ( B ) , o r (C). 
(A) A plan satisfies the requirements of this subparagraph 
if an employee who has at least 10 years of service has a non-
forfeitable right to 100 percent of his accrued benefit derived 
from employer contributions. 
(B) A plan satisfies the requirements of this subparagraph 
if an employee who has completed at least 5 years of service 
has a nonforfeitable right to a percentage of his accrued 
benefit derived from employer contributions which percentage 
is not less than the percentage determined under the follow-
ing table: 
^ 
J, 
. 
Nonforfeitable 
Years of service: 
percentage 
5 
25 
6 
80 
7 
35 
8 
40 
9 
45 
10 
50 
11 
60 
12 
70 
13 
80 
14 
90 
15 or more 
100. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
85: 
(C) (i) A plan satisfies the requirements of this subpara-
graph if a participant who is not separated from the service, 
who has completed at least 5 years of service, and with respect 
to whom the sum of his age and years of service equals or 
exceeds 45, has a nonforfeitable right to a percentage of his 
accrued benefit derived from employer contributions deter-
mined under the following table: 
If years of service 
equal or exceed— 
5 
6 
7 
8 
9 
10 
and sum of age 
and service 
equals or exceeds— 
45 
47 
49 — 
_ 51 -
53 
55 
then the nonforfeit-
able percentage is— 
50 
60 
70 
80 
90 
100. 
(ii) Notwithstanding clause (i), a plan shall not be treated 
as satisfying the requirements of this subparagraph unless any 
participant who has completed at least 10 years of service has a 
nonforfeitable right to not less than 50 percent of his accrued 
benefit derived from employer contributions and to not less than 
an additional 10 percent for each additional year of service there-
after. 
(3) (A) A right to an accrued benefit derived from employer con-
tributions shall not be treated as forfeitable solely because the plan 
provides that it is not payable if the participant dies (except in the 
case of a survivor annuity which is payable as provided in section 205). 
(B) A right to an accrued benefit derived from employer con-
tributions shall not be treated as forfeitable solely because the plan 
provides that the payment of benefits is suspended for such period as 
the employee is employed, subsequent to the commencement of pay-
ment of such benefits— 
(i) in the case of a plan other than a multiemployer plan, by 
an employer who maintains the plan under which such benefits 
were being paid; and 
(ii) in the case of a multiemployer plan, in the same industry, 
in the same trade or craft, and the same geographic area covered 
by the plan, as when such benefits commenced. 
The Secretary shall prescribe such regulations as may be necessary to 
Regulations. 
carry out the purposes of this subparagraph, including regulations 
with respect to the meaning of the term "employed". 
(C) A right to an accrued benefit derived from employer contribu-
tions shall not be treated as forfeitable solely because plan amend-
ments may be given retroactive application as provided in section 
302(c)(8). 
(D) (i) A right to an accrued benefit derived from employer con-
tributions shall not be treated as forfeitable solely because the plan 
provides that, in the case of a participant who does not have a non-
forfeitable right to at least 50 percent of his accrued benefit derived 
from employer contributions, such accrued benefit may be forfeited 
on account of the withdrawal by the participant of any amount 
attributable to the benefit derived from mandatory contributions (as 
defined in the last sentence of section 204(c) (2) (C)) made by such 
participant. 
(ii) Clause (i) shall not apply to a plan unless the plan provides 
that any accrued benefit forfeited under a plan provision described 
in such clause shall be restored upon repayment by the participant 
of the full amount of the withdrawal described in such clause plus, 
in the case of a defined benefit plan, interest. Such interest shall be 
computed on such amount at the rate determined for purposes of 
section 204(c) (2) (C) (if such subsection applies) on the date of such 
856 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
repayment (computed annually from the date of such withdrawal). 
In the case of a defined contribution plan the plan provision required 
under this clause may provide that such repayment must be made 
before the participant has any 1-year break in service commencing 
after the withdrawal. 
(iii) In the case of accrued benefits derived from employer con-
tributions which accrued before the date of the enactment of this 
Act, a right to such accrued benefit derived from employer contribu-
tions shall not be treated as forfeitable solely because the plan provides 
that an amount of such accrued benefit may be forfeited on account 
of the withdrawal by the participant of an amount attributable to 
the benefit derived from mandatory contributions, made by such 
participant before the date of the enactment of this Act if such amount 
forfeited is proportional to such amount withdrawn. This clause shall 
not apply to any plan to which any mandatory contribution is made 
Regulations. 
after the date of the enactment of this Act. The Secretary of the 
Treasury shall prescribe such regulations as may be necessary to carry 
out the purposes of this clause. 
(iv) For purposes of this subparagraph, in the case of any class-year 
plan, a withdrawal of employee contributions shall be treated as a 
withdrawal of such contributions on a plan year by plan year basis 
in succeeding order of time. 
(v) CROSS REFERENCE.— 
For nonforfeitably where the employee has a nonforfeitable right to 
at least 50 percent of his accrued benefit, see section 206(c). 
(b) (1) In computing the period of service under the plan for pur-
poses of determining the nonforfeitable percentage under subsection 
(a)(2), all of an employee's years of service with the employer or 
employers maintaining the plan shall be taken into account, except 
that the following may be disregarded: 
(A) years of service before age 22, except that in the case of a 
plan which does not satisfy subparagraph (A) or (B) of subsec-
tion (a) (2), the plan may not disregard any such year of service 
during which the employee was a participant; 
(B) years of service during a period for which the employee 
declined to contribute to a plan requiring employee contributions, 
(C) years of service with an employer during any period for 
which the employer did not maintain the plan or a predecessor 
plan, defined by the Secretary of the Treasury; 
(D) service not required to be taken into account under para-
graph (3) ; 
(E) years of service before January 1,1971, unless the employee 
has had at least 3 years of service after December 31, 1970; and 
(F) years of service before this part first applies to the plan 
if such service would have been disregarded under the rules of the 
plan with regard to breaks in service, as in effect on the applicable 
date. 
(2) (A) For purposes of this section, except as provided in subpara-
graph (C), the term "year of service" means a calendar year, plan year, 
or other 12-consecutive month period designated by the plan (and not 
prohibited under regulations prescribed by the Secretary) during 
which the participant has completed 1,000 hours of service. 
(BJ For purposes of this section, the term "hour of service" has the 
meaning provided by section 202(a) (3) (C). 
(C) In the case of any seasonal industry where the customary period 
of employment is less than 1,000 hours during a calendar year, the 
term "year of service" shall be such period as determined under regula-
tions of the Secretary. 
'Year of serv-
'Hour of serv-
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
857 
(D) For purposes of this section, in the case of any maritime indus-
try, 125 days of service shall be treated as 1,000 hours of service. The 
Regulations. 
Secretary may prescribe regulations to carry out the purposes of this 
subparagraph. 
(3) (A) For purposes of this paragraph, the term "1-year break in . "i-y^ar break 
service" means a calendar year, plan year, or other 12-consecutive-
month period designated by the plan (and not prohibited under regu-
lations prescribed by the Secretary) during which the participant has 
not completed more than 500 hours of service. 
(B) For purposes of paragraph (1), in the case of any employee 
who has any 1-year break in service, years of service before such break 
shall not be required to be taken into account until he has completed a 
year of service after his return. 
(C) For purposes of paragraph (1), in the case of any participant 
in an individual account plan or an insured defined benefit plan which 
satisfies the requirements of subsection 204(b)(1)(F) who has any 
1-year break in service, years of service after such break shall not be 
required to be taken into account for purposes of determining the non-
forfeitable percentage of his accrued benefit derived from employer 
contributions which accrued before such break. 
(D) For purposes of paragraph (1), in the case of a participant 
who, under the plan, does not have any nonforfeitable right to an 
accrued benefit derived from employer contributions, years of service 
before any 1-year break in service shall not be required to be taken into 
account if the number of consecutive 1-year breaks in service equals 
or exceeds the aggregate number of such years of sei'vice prior to such 
break. Such aggregate number of years of service before such break 
shall be deemed not to include any years of service not required to be 
taken into account under this subparagraph by reason of any prior 
break in service. 
(4) CROSS KEFEREXCES.— 
(A) For definitions of "accrued benefit" and "normal retirement age", 
see sections 3 (23) and (24). 
(B) For effect of certain cash out distributions, see section 204(d)(1). 
(c) (1) (A) A plan amendment changing any vesting schedule under 
^^^" amend-
the plan shall be treated as not satisfying the requirements of sub-
section (a) (2) if the nonforfeitable percentage of the accrued benefit 
derived from employer contributions (determined as of the later of 
the date such amendment is adopted, or the date such amendment 
becomes effective) of any employee who is a participant in the plan is 
less than such nonforfeitable percentage computed under the plan 
without regard to such amendment. 
(B) A plan amendment changing any vesting schedide under the 
plan shall be treated as not satisfying the requirements of subsection 
(a) (2) unless each participant having not less than 5 years of service 
is permitted to elect, within a reasonable period after adoption of 
such amendment, to have his nonforfeitable percentage computed 
under the plan without regard to such amendment. 
(2) Subsection (a) shall not apply to benefits which may not be 
provided for designated employees in the event of early termination 
of the plan under provisions of the plan adopted pursuant to regula-
tions prescribed by the Secretary of the Treasury to preclude the 
discrimination prohibited bv section 401(a) (4) of the Internal Reve-
nue Code of 1954. 
Post, p. 938. 
(3) The requirements of subsection (a) (2) shall be deemed to be 
satisfied in the case of a class ^ear plan if such plan provides that 
100 percent of each employee's right to or derived from the contribu-
tions of the employer on his behalf with respect to any plan year are 
858 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
nonforfeitable not later than the end of the 5th plan year following 
"Class year 
^]^Q plan year for which such contributions were made. For purposes 
^ ^"' 
of this part, the term "class year plan" means a profit sharing, stock 
bonus, or money purchase plan which provides for the separate non-
forfeitability of employees' rights to or derived from the contributions 
for each plan year. 
(d) A pension plan may allow for nonforfeitable benefits after a 
lesser period and in greater amounts than are required by this part. 
BENEFIT ACCRUAL 
REQUIREMENTS 
29 use 1054. 
gEc. 204. (a) Each pension plan shall satisfy the requirements of 
subsection (b) (2), and in the case of a defined benefit plan shall also 
satisfy the requirements of subsection (b)(1). 
(b) (1) (A) A defined benefit plan satisfies the requirements of this 
paragraph if the accrued benefit to which each participant is entitled 
upon his separation from the service is not less than— 
(i) 3 percent of the normal retirement benefit to which he would 
be entitled at the normal retirement age if he commenced partic-
ipation at the earliest possible entry age under the plan and served 
continuously until the earlier of age 65 or the normal retirement 
age specified under the plan, multiplied by 
(ii) the number of years (not in excess of 331^) of his partic-
ipation in the plan. 
In the case of a plan providing retirement benefits based on compensa-
tion during any period, the normal retirement benefit to which a par-
ticipant would be entitled shall be determined as if he continued to 
earn annually the average rate of compensation which he earned dur-
ing consecutive years of service, not in excess of 10, for which his 
compensation was the highest. For purposes of this suparagraph, 
social security benefits and all other relevant factors used to compute 
benefits shall be treated as remaining constant as of the current year 
for all years after such current year. 
(B) A defined benefit plan satisfies the requirements of this para-
graph of a particular plan year if under the plan the accrued benefit 
payable at the normal retirement age is equal to the normal retire-
ment benefit and the annual rate at which any individual who is or 
could be a participant can accrue the retirement benefits payable at 
normal retirement age under the plan for any later plan year is not 
more than 1331^ percent of the annual rate at which he can accrue 
benefits for any plan year beginning on or after such particular plan 
year and before such later plan year. For purposes of this sub-
paragraph— 
(i) any amendment to the j)lan which is in effect for the cur-
rent year shall be treated as in effect for all other plan years; 
(ii) any change in an accrual rate which does not apply to 
any individual who is or could be a participant in the current 
year shall be disregarded; 
(iii) the fact that benefits under the plan may be payable to 
certain employees before normal retirement age shall be disre-
garded ; and 
(iv) social security benefits and all other relevant factors used 
to compute benefits shall be treated as remaining constant as of 
the current year for all years after the current year. 
(C) A defined benefit plan satisfies the requirements of this para-
graph if the accrued benefit to which any participant is entitled upon 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
859 
his separation from the service is not less than a fraction of the annual 
benefit commencing at normal retirement age to which he would be 
entitled under the plan as in effect on the date of his separation if 
he continued to earn annually until normal retirement age the same 
rate of compensation upon which his normal retirement benefit would 
be computed under the plan, determined as if he had attained normal 
retirement age on the date any such determination is made (but 
taking into account no more than the 10 years of service immedi-
ately preceding his separation from service). Such fraction shall be a 
fraction, not exceeding 1, the numerator of which is the total number 
of his years of participation in the plan (as of the date of his separa-
tion from the service) and the denominator of which is the total num-
ber of years he would have participated in the plan if he separated 
from the service at the normal retirement age. For purposes of this 
subparagraph, social security benefits and all other relevant factors 
used to compute benefits shall be treated as remaining constant as of 
the current year for all years after such current year. 
(D) Subparagraphs (A), (B), and (C) shall not apply with respect 
to years of participation before the first plan year to which this section 
applies but a defined benefit plan satisfies the requirements of this sub-
paragraph with respect to such years of participation only if the 
accrued benefit of any participant with respect to such years of partic-
ipation is not less than the greater of— 
(i) his accrued benefit determined under the plan, as in effect 
from time to time prior to the date of the enactment of this Act, 
or 
(ii) an accrued benefit which is not less than one-half of the 
accrued benefit to which such participant would have been entitled 
if subparagraph (A), (B), or (C) applied with respect to such 
years of participation. 
(E) Notwithstanding subparagraphs (A), (B), and (C) of this 
paragraph, a plan shall not be treated as not satisfying the require-
ments of this paragraph solely because the accrual of benefits under 
the plan does not become effective until the employee has two continu-
ous years of service. For purposes of this subparagraph, the term ser^ilT^'°^ 
"years of service" has the meaning provided by section 202 (a) (3) (A). 
(F) Notwithstanding subparagraphs (A), (B), and (C), a defined 
benefit plan satisfies the requirements of this paragraph if such plan— 
(i) is funded exclusively by the purchase of insurance contracts, 
and 
(ii) satisfies the requirements of paragraphs (2) and (3) of 
section 301(b) (relating to certain insurance contract plans), 
but only if an employee's accrued benefit as of any applicable date is 
not less than the cash surrender value his insurance contracts would 
have on such applicable date if the requirements of paragraphs (4), 
(5), and (6) of section 301(b) were satisfied. 
(G) Notwithstanding the preceding subparagraphs, a defined bene-
fit plan shall be treated as not satisfying the requirements of this 
paragraph if the participant's accrued benefit is reduced on account 
of any increase in his age or service. The preceding sentence shall not 
apply to benefits under the plan commencing before benefits payable 
under title I I of the Social Security Act which benefits under the 
''^ "^^ '*°^-
plan— 
'i) do not exceed social security benefits, and 
^ii) terminate when such social security benefits commence. 
860 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"Year of parti-
cipation." 
Part time em-
ployees. 
Service less 
than 1,000 hours. 
Seasonal in-
dustry. 
Maritime in-
dustry. 
Regulations. 
(2) A plan satisfies the requirements of this paragraph if— 
(A) in the case of a defined benefit plan, the jnan requires sepa-
rate accounting for the portion of each employee's accrued bene-
fit derived from any voluntary employee contributions permitted 
under the plan; and 
(B) in the case of any plan which is not a defined benefit plan, 
the plan requires separate accounting for each employee's accrued 
benefit. 
(3) (A) For purposes of determining an employee's accrued bene-
fit, the term "year of participation" means a period of service (begin-
ning at the earliest date on which the employee is a participant in the 
plan and which is included in a period of service required to be taken 
mto account under section 202(b)) as determined under regulations 
prescribed by the Secretary which provide for the calculation of such 
period on any reasonable and consistent basis. 
(B) For purposes of this paragraph, except as provided in sub-
paragraph (C), in the case of any employee whose customary employ-
ment is less than full time, the calculation of such employee's service 
on any basis which provides less than a ratable portion of the accrued 
benefit to which he would be entitled under the plan if his customary 
employment were full time shall not be treated as made on a reason-
able and consistent basis. 
(C) For purposes of this paragraph, in the case of any employee 
whose service is less than 1,000 hours during any calendar year, plan 
year or other 12-consecutive-month period designated by the plan 
(and not prohibited under regulations prescribed by the Secretary) 
the calculation of his period of service shall not be treated as not made 
on a reasonable and consistent basis merely because such service is not 
taken into account. 
(D) In the case of any seasonal industry where the customary 
period of employment is less than 1,000 hours during a calendar year, 
the term "year of participation" shall be such period as determined 
under regulations prescribed by the Secretary. 
(E) For purposes of this subsection in the case of any maritime 
industry, 125 days of service shall be treated as a year of participation. 
The Secretary may prescribe regulations to carry out the purposes of 
this subparagraph. 
(c) (1) For purposes of this section and section 203 an employee's 
accrued benefit derived from employer contributions as of any appli-
cable date is the excess (if any) of the accrued benefit for such employee 
as of such applicable date over the accrued benefit derived from 
contributions made by such employee as of such date. 
(2) (A) In the case of a plan other than a defined benefit plan, the 
accrued benefit derived from contributions made by an employee as of 
any applicable date is— 
(i) except as provided in clause (ii), the balance of the employ-
ee's separate account consisting only of his contributions and the 
income, expenses, gains, and losses attributable thereto, or 
(ii) if a separate account is not maintained with respect to an 
employee's contributions under such a plan, the amount which 
bears the same ratio to his total accrued benefit as the total amount 
of the employee's contributions (less withdrawals) bears to the 
sum of such contributions and the contributions made on his 
behalf by the employer (less withdrawals). 
(B) (i) In the case of a defined benefit plan providing an annual 
benefit in the form of a single life annuity (without ancillary benefits) 
commencing at normal retirement age, the accrued benefit derived from 
contributions made by an employee as of any applicable date is the 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
861 
annual benefit equal to the employee's accumulated contributions multi-
plied by the appropriate conversion factor. 
(ii) For purposes of clause (i), the term "appropriate conversion 
"Appropriate 
factor" means the factor necessary to convert an amount equal to the factor." 
accumulated contributions to a single life annuity (without ancillary 
benefits) commencing at normal retirement age and shall be 10 percent 
for a normal retirement age of 65 years. For other normal retirement 
ages the conversion factor shall be determined in accordance with reg-
ulations prescribed by the Secretary of the Treasury or his delegate. 
(C) For purposes of this subsection, the term "accumulated contri- 
"Accumulated 
butions" means the total of— 
contributions." 
(i) all mandatory contributions made by the employee, 
(ii) interest (if any) under the plan to the end of the last plan 
year to which section 203(a) (2) does not apply (by reason of the 
applicable effective date), and 
(iii) interest on the sum of the amounts determined under 
clauses (i) and (ii) compounded annually at the rate of 5 percent 
per annum from the beginning of the first plan year to which 
section 203(a) (2) applies (by reason of the applicable effective 
date) to the date upon which the employee would attain normal 
retirement age. 
For purposes of this subparagraph, the term "mandatory contribu- ^J^^fbutlonT" 
tions" means amounts contributed to "the plan by the employee which 
are required as a condition of employment, as a condition of partici-
pation in such plan, or as a condition of obtaining benefits under the 
plan attributable to employer contributions. 
(D) The Secretary of the Treasury is authorized to adjust by regu- f^^°^^^^^^°^^. 
lation the conversion factor described in subparagraph (B), the rate menu' ^ 
of interest described in clause (iii) of subparagraph (C), or both, from 
time to time as he may deem necessary. The rate of interest shall bear 
the relationship to 5 percent which the Secretary of the Treasury 
determines to be comparable to the relationship which the long-term 
money rates and investment yields for the last period of 10 calendar 
years ending at least 12 months before the beginning of the plan year 
bear to the long-term money rates and investment yields for the 
10-calendar year period 1964 through 1973. No such adjustment shall be 
effective for a plan year beginning before the expiration of 1 year 
after such adjustment is determined and published. 
(E) The accrued benefit derived from employee contributions shall 
Accrued benefit, 
• 
1 , 1 
J. 
j> 
X 
^ 
limitation. 
not exceed the greater ol— 
(i) the employee's accrued benefit under the plan, or 
(ii) the accrued benefit derived from employee contributions 
determined as though the amounts calculated under clauses (ii) 
and (iii) of subparagraph (C) were zero. 
(3) For purposes of this section, in the case of any defined benefit 
plan, if an employee's accrued benefit is to be determined as an amount 
other than an annual benefit commencing at normal retirement age, 
or if the accrued benefit derived from contributions made by an 
employee is to be determined with respect to a benefit other than an 
annual benefit in the form of a single life annuity (without ancillary 
benefits) commencing at normal retirement age, the employee's accrued 
benefit, or the accrued benefits derived from contributions made by 
an employee, as the case may be, shall be the actuarial equivalent of 
such benefit or amount determined under paragraph (1) or (2). 
(4) In the case of a defined benefit plan which permits voluntary 
employee contributions, the portion of an employee's accrued benefit 
derived from such contributions shall be treated as an accrued benefit 
derived from employee contributions under a plan other than a defined 
benefit plan. 
862 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(d) Notwithstanding section 203(b)(1), for purposes of determin-
ing the employee's accrued benefit under the plan, the plan may disre-
gard service performed by the employee with respect to which he has 
received— 
(1) a distribution of the present value of his entire nonfor-
feitable benefit if such distribution was in an amount (not more 
than $1,750) permitted under regulations prescribed by the Sec-
retary of the Treasury, or 
(2) a distribution of the present value of his nonforfeitable 
benefit attributable to such service which he elected to receive. 
Paragraph (1) shall apply only if such distribution was made on 
termination of the employee's participation in the plan. Paragraph 
(2) shall apply only if such distribution was made on termination 
of the employee's participation in the plan or under such other cir-
cumstances as may be provided under regulations prescribed by the 
Secretary of the Treasury. 
(e) For purposes of determining the employee's accrued benefit, 
the plan shall not disregard service as provided in subsection (d) 
unless the plan provides an opportunity for the participant to repay 
the full amount of a distribution described in subsection (d) with, 
in the case of a defined benefit plan, interest at the rate determined 
for purposes of subsection (c) (2) (C) and provides that upon such 
repayment the employee's accrued benefit shall be recomputed by 
taking into account service so disregarded. This subsection shall apply 
only in the case of a participant who— 
(1) received such a distribution in any plan year to which this 
section applies, which distribution was less than the present value 
of his accrued benefit, 
(2) resumes employment covered under the plan, and 
(3) repays the full amount of such distribution with, in the 
case of a defined benefit plan, interest at the rate determined for 
purposes of subsection (c) (2) (C). 
In the case of a defined contribution plan, the plan provision required 
under this subsection may provide that such repayment must be 
made before the participant has any 1-year break in service com-
mencing after such withdrawal. 
(f) For the purposes of this part, an employer shall be treated as 
maintaining a plan if any employee of such employer accrues benefits 
under such plan by reason of service with such employer. 
(g) The accrued benefit of a participant under a plan may not be 
decreased by an amendment of the plan, other than an amendment 
described in section 302(c) (8). 
(h) CROSS REFERENCE.— 
For special rules relating to class year plans and plan provisions 
adopted to preclude discrimination, see sections 203(c) (2) and (3). 
29 use 1055. 
JOINT AND SURVIVOR ANNUITY REQUIREMENT 
SEC. 205. (a) If a pension plan provides for the payment of benefits 
in the form of an annuity, such plan shall provide for the payment of 
annuity benefits in a form having the effect of a qualified joint and 
survivor annuity. 
(b) In the case of a plan which provides for the payment of benefits 
before the normal retirement age as defined in section 3(24), the plan 
is not required to provide for the payment of annuity benefits in a 
form having the effect of a qualified joint and survivor annuity during 
the period beginning on the date on which the employee enters into 
the plan as a participant and ending on the later of— 
(1) the date the employee reaches the earliest retirement age, 
or 
^ 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
863 
(2) the first day of the 120th month beginning before the date 
on which the employee reaches normal retirement age. 
(c) (1) A plan described in subsection (b) does not meet the require-
ments of subsection (a) unless, under the plan, a participant has a 
reasonable period in which he may elect the qualified joint and sur-
vivor annuity form with respect to the period beginning on the date 
on which the period described in subsection (b) ends and ending on 
the date on which he reaches normal retirement age if he continues his 
employment during that period. 
(2) A plan does not meet the requirements of this subsection unless, 
in the case of such election, the payments under the survivor annuity 
are not less than the payments which would have been made under the 
joint annuity to which the participant would have been entitled if he 
had made an election under this subsection immediately prior to his 
retirement and if his retirement had occurred on the date immediately 
preceding the date of his death and within the period within which 
an election can be made. 
(d) A plan shall not be treated as not satisfying the requirements 
of this section solely because the spouse of the participant is not 
entitled to receive a survivor annuity (whether or not an election has 
been made under subsection (c)) unless the participant and his spouse 
have been married throughout the 1-year period ending on the date 
of such participant's death. 
(e) A plan shall not be treated as satisfying the requirements of 
this section unless, under the plan, each participant has a reasonable 
period (as prescribed by the Secretary of the Treasury by regula-
tions) before the annuity starting date during which he may elect 
in writing (after having received a written explanation of the terms 
and conditions of the. joint and survivor annuity and the effect of 
an election under this subsection) not to take such joint and survivor 
annuity. 
(f) A plan shall not be treated as not satisfying the requirements 
of this section solely because, under the plan there is a provision that 
any election under subsection (c) or (e), and any revocation of any 
such election, does not become effective (or ceases to be effective) if 
the participant dies within a period (not in excess of 2 years) begin-
ning on the date of such election or revocation, as the case may be. 
The preceding sentence does not apply unless the plan provision 
described in the preceding sentence also provides that such an election 
or revocation will be given effect in any case in which— 
(1) the participant dies from accidental causes, 
(2) a failure to give effect to the election or revocation would 
deprive the participant's survivor of a survivor annuity, and 
(3) such election or revocation is made before such accident 
occurred. 
(g) For purposes of this section: 
Definitions. 
(1) The term "annuity starting date" means the first day of 
the first period for which an amount is received as an annuity 
(whether by reason of retirement or by reason of disability). 
(2) The term "earliest retirement age" means the earliest date 
on which, under the plan, the participant could elect to receive 
retirement benefits. 
(3) The term "qualified joint and survivor annuity" means an 
annuity for the life of the participant with a survivor annuity 
for the life of his spouse which is not less than one-half of, or 
greater than, the amount of the annuity payable during the joint 
lives of the participant and his spouse and which is the actuarial 
equivalent of a single annuity for the life of the participant. 
864 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(h) For the purposes of this section, a plan may take into account 
in any equitable fashion (as determined by the Secretary of the 
Treasury) any increased costs resulting from providing joint and 
survivor annuitjr benefits under an election made under subsection (c). 
(i) This section shall apply only if— 
(1) the annuity starting date did not occur before the effective 
date of this section, and 
(2) the participant was an active participant in the plan on or 
after such effective date. 
29 u s e 1056. 
OTHER PROVISIONS RELATING TO FORM AND PAYMENT OF BENEFITS 
SEC. 206. (a) Each pension plan shall provide that unless the par-
ticipant otherwise elects, the payment of benefits under the plan to 
the participant shall begin not later than the 60th day after the latest 
of the close of the plan year in which—• 
(1) the date on which the participant attains the earlier of 
age 65 or the normal retirement age specified under the plan, 
(2) occurs the 10th anniversary of the year in which the 
participant commenced participation in the plan, or 
(3) the participant terminates his service with the employer. 
In the case of a plan which provides for the payment of an early 
retirement benefit, such plan shall provide that 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 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 of the Treasury. 
(b) 
I f -
(1) a participant or beneficiary is receiving benefits under a 
pension plan, or 
(2) a participant is separated from the service and has non-
forfeitable rights to benefits, 
a plan may not decrease benefits of such a participant by reason of 
any increase in the benefit levels payable under title I I of the Social 
45 use 228a. 
Sccurity Act or the Railroad Retirement Act of 1937, or any increase 
in the wage base under such title II, if such increase takes place 
after the date of the enactment of this Act or (if later) the earlier 
of the date of first entitlement of such benefits or the date of such 
separation. 
(c) No pension plan may provide that any part of a participant's 
accrued benefit derived from employer contributions (whether or not 
otherwise nonforfeitable) is forfeitable solely because of withdrawal 
by such participant of any amount attributable to the benefit derived 
from contributions made by such participant. The preceding sentence 
shall not apply (1) to the accrued benefit of any participant unless, at 
the time of such withdrawal, such participant has a nonforfeitable 
right to at least 50 percent of such accrued benefit, or (2) to the extent 
that an accrued benefit is permitted to be forfeited in accordance with 
section 203(a) (3) (D) (iii). 
(d)(1) Each pension plan shall provide that benefits provided under 
the plan may not be assigned or alienated. 
(2) For the purposes of paragraph (1) of this subsection, there 
shall not be taken into account any voluntary and revocable assign-
ment of not to exceed 10 percent of any benefit payment, or of any 
irrevocable assignment or alienation of benefits executed before the 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
865 
date of enactment of this Act. The preceding sentence shall not apply 
to any assignment or alienation made for the 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 non-
forfeitable benefit and is exempt from the tax imposed by section 4975 
of the Internal Revenue Code of 1954 (relating to tax on prohibited 
transactions) by reason of section 4975(d) (1) of such Code. 
Post, 
p. 971, 
TEMPORARY VARIANCES FROM CERTAIN VESTING 
REQUIREMENTS 
SEC. 207. In the case of any plan maintained on January 1, 1974, if, 
29 use ios7. 
not later than 2 years after the date of enactment of this Act, the 
administrator petitions the Secretary, the Secretary may prescribe an 
alternate method which shall be treated as satisfying the requirements 
of section 203(a)(2) or 204(b)(1) (other than subparagraph (D) 
thereof) or both for a period of not more than 4 years. The Secretary 
may prescribe such alternate method only v^^hen he finds that— 
(1) the application of such requirements would increase the 
costs of the plan to such an extent that there would result a sub-
stantial risk to the voluntary continuation of the plan or a sub-
stantial curtailment of benefit levels or the levels of employees' 
compensation, 
(2) the application of such requirements or discontinuance of 
the plan would be adverse to the interests of plan participants in 
the aggregate, and 
(3) a waiver or extension of time granted under section 303 or 
304 of this Act would be inadequate. 
^ ^P°^ *> PP-
In the case of any plan with respect to which an alternate method has 
been prescribed under the preceding provisions of this subsection for a 
period of not more than 4 years, if, not later than 1 year before the 
expiration of such period, the administrator petitions the Secretary 
for an extension of such alternate method, and the Secretary makes 
the findings required by the preceding sentence, such alternate method 
may be extended for not more than 3 years. 
873. 
MERGERS AND CONSOLIDATIONS OF PLANS OR TRANSFERS OF PLAN ASSETS 
SEC. 208. A pension plan may not merge or consolidate with, or 
transfer its assets or liabilities to, any other plan after the date of 
the enactment of this Act, unless 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 termi-
nated). This paragraph shall apply in the case of a multiemployer 
plan only to the extent determined by the Pension Benefit Guaranty 
Corporation. 
RECORDKEEPING AND REPORTING REQUIREMENTS 
SEC. 209. (a) (1) Except as provided by paragraph (2) every 
employer shall, in accordance with regulations prescribed by the Sec-
retary, maintain records with respect to each of his employees suf-
ficient to determine the benefits due or which may become due to such 
employees. The plan administrator shall make a report, in such manner 
and at such time as may be provided in regulations prescribed by the 
29 
use 
1058. 
29 
use 
1059. 
866 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
Secretary, to each employee who is a participant under the plan and 
Avho— 
(A) requests such report, in such manner and at such time 
as may be provided in such regulations, 
(B) terminates his service with the employer, or 
(C) has a 1-year break in service (as defined in section 203 
(b)(3)(A)). 
The employer shall furnish to the plan administrator the information 
necessary for the administrator to make the reports required by the 
preceding sentence. Not more than one report shall be required under 
subparagraph (A) in any 12-month period. Not more than one report 
shall be required under subparagraph (C) with respect to consecutive 
1-year breaks in service. The report required under this paragraph 
shall be sufficient to inform the employee of his accrued benefits under 
the plan and the percentage of such benefits which are nonforfeitable 
under the plan. 
(2) If more than one employer adopts a plan, each such employer 
shall, in accordance with regulations prescribed by the Secretary, 
furnish to the plan administrator the information necessary for the 
administrator to maintain the records and make the reports required 
by paragraph (1). Such administrator shall maintain the records and, 
to the extent provided under regulations prescribed by the Secretary, 
make the reports, required by paragraph (1). 
^Noncompliance, 
^j^^ j£ g^j^y persou who is required, under subsection (a), to furnish 
information or maintain records for any plan year fails to comply 
with such requirement, he shall pay to the Secretary a civil penalty 
of $10 for each employee with respect to whom such failure occurs, 
unless it is shown that such failure is due to reasonable cause. 
PLANS MAINTAINED BY MORE T H A N ONE EMPLOYER, PREDECESSOR PLANS, 
AND EMPLOYER GROUPS 
2 9 use 1060. 
gj,^^ 210. (a) Notwithstanding any other provision of this part or 
part 3, the following provisions of this subsection shall apply to a 
plan maintained by more than one employer: 
(1) Section 202 shall be applied as if all employees of each of 
the employers were employed by a single employer. 
(2) Sections 203 and 204 shall be applied as if all such employers 
constituted a single employer, except that the application of any 
rules with respect to breaks in service shall be made under regula-
tions prescribed by the Secretary. 
(3) The minimum funding standard provided by section 302 
shall be determined as if all participants in the plan were employed 
by a single employer. 
(b) For purposes of this part and part 3— 
(1) in any case in which the employer maintains a plan of a 
predecessor employer, service for such predecessor shall be treated 
as service for the employer, and 
(2) in any case in which the employer maintains a plan which 
is not the plan maintained by a predecessor employer, service for 
such predecessor shall, to the extent provided in regulations pre-
scribed by the Secretary of the Treasury, be treated as service for 
the employer. 
(c) For purposes of sections 202, 203, and 204, all employees of all 
corporations which are members of a controlled group of corporations 
(within the meaning of section 1563(a) of the Internal Revenue Code 
use 1563. 
Qf ]L954^ determined without regard to section 1563(a) (4) and (e) (3) 
(C) of such code) shall be treated as employed by a single employer. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
867 
With respect to a plan adopted by more than one such corporation, the 
minimum funding standard of section 302 shall be determined as if 
all such employers were a single employer, and allocated to each 
employer in accordance with regulations prescribed by the Secretary 
of the Treasury. 
(d) For purposes of sections 202, 203, and 204, under regulations 
prescribed by the Secretary of the Treasury, all employees of trades 
or businesses (whether or not incorporated) which are under common 
control shall be treated as employed by a single employer. The regula-
tions prescribed under this subsection shall be based on principles 
similar to the principles which apply in the case of subsection (c). 
EFFECTIVE DATES 
29 u s e 1061. 
SEC. 211. (a) Except as otherwise provided in this section, this part 
shall apply in the case of plan years beginning after the date of the 
enactment of this Act. 
(b)(1) Except as otherwise provided in subsection (d), sections 
205, 206(d), and 208 shall apply with respect to plan years beginning 
after December 31,1975. 
(2) Except as otherwise provided in subsections (c) and (d) in the 
case of a plan in existence on January 1, 1974, this part shall apply 
in the case of plan years beginning after December 31,1975. 
(c) (1) In the case of a plan maintained on January 1,1974, pursu-
ant to one or more agreements which the Secretary finds to be collec-
tive bargaining agreements between employee organizations and one 
or more employers, no plan shall be treated as not meeting the require-
ments of sections 204 and 205 solely by reason of a supplementary or 
special plan provision (within the meaning of paragraph (2)) for any 
plan year before the year which begins after the earlier of— 
(A) the date on which the last of such agreements relating to 
the plan terminates (determined without regard to any extension 
thereof agreed to after the date of the enactment of this Act), or 
(B) December 31,1980. 
For purposes of subparagraph (A) and section 306(c), any plan 
amendment made pursuant to a collective bargaining agreement relat-
ing to the plan which amends the plan solely to conform to any require-
ment contained in this Act or the Internal Revenue Code of 1954 
26 use i et 
shall not be treated as a termination of such collective bargaining ^^^* 
agreement. This paragraph shall not apply unless the Secretary deter-
mines that the participation and vesting rules in effect on the date of 
enactment of this Act are not less favorable to participants, in the 
aggregate, than the rules provided under sections 202, 203, and 204. 
(2) For purposes of paragraph (1), the term "supplementary or 
"Supplementary 
• ^ 
^ 
'- 
^ • ' 
M 
c 5 j . \ / 7 
_^ 
trr 
j 
or special plan 
special plan provision" means any plan provision which— 
provision." 
(A) provides supplementary benefits, not in excess of one-third 
of the basic benefit, in the form of an annuity for the life of the 
participant, or 
(B) provides that, under a contractual agreement based on 
medical evidence as to the effects of working in an adverse environ-
ment for an extended period of time, a participant having 25 
years of service is to be treated as having 30 years of service. 
(3) This subsection shall apply with respect to a plan if (and only 
if) the application of this subsection results in a later effective date 
for this part than the effective date required by subsection (b). 
(d) If the administrator of a plan elects under section 1017(d) of 
this Act to make applicable to a plan year and to all subsequent plan 
^°«'' P- ^32. 
years the provisions of the Internal Revenue Code of 1954 relating to 
868 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
participation, vesting, funding, and form of benefit, this part shall 
apply to the first plan year to which such election applies and to 
all subsequent plan years. 
(e)(1) No pension plan to Avhich section 202 applies may make effec-
tive any plan amendment with respect to breaks in service (which 
amendment is made or becomes effective after January 1, 1974, and 
before the date on which section 202 first becomes effective with respect 
to such plan) which provides that any employee's participation in the 
plan would commence at any date later than the later of— 
(A) the date on which his participation would commence under 
the break in service rules of section 202 (b), or 
(B) the date on which his participation would commence under 
the plan as in effect on January 1,1974. 
(2) No pension plan to which section 203 applies may make effective 
any plan amendment with respect to breaks in service (which amend-
ment is made or becomes effective after January 1, 1974, and before 
the date on which section 203 first becomes effective with respect to 
such plan) if such amendment provides that the nonforfeitable benefit 
derived from employer contributions to which an}'^ employee would be 
entitled is less than the lesser of the nonforfeitable benefit derived 
from employer contributions to which he would be entitled under-— 
(A) the break in service rules of section 202(b) (3), or 
(B) the plan as in effect on January 1,1974. 
Subparagraph (B) shall not apply if the break in service rules under 
the plan would have been in violation of any law or rule of law in 
effect on January 1,1974. 
PART 3—FUNDING 
COVERAGE 
2 use 1081. 
g^^ g
Q
-
j
^ ^^^ This part shall apply to any employee pension benefit 
plan described in section 4(a), (and not exempted under section 4(b)), 
other than— 
(1) an employee welfare benefit plan; 
(2) an insurance contract plan described in subsection (b); 
(3) a plan which is unfunded and is maintained by an employer 
primarily for the purpose of providing deferred compensa-
tion for a select group of management or highly compensated 
employees; 
(4) (A) a plan which is established and maintained by a society, 
order, or association described in section 501(c) (8) or (9) of the 
Internal Eevenue Code of 1954, if no part of the contributions to 
or under such plan are made by employers of participants in such 
plan; or 
(B) a trust described in section 501(c) (18) of such Code; 
(5) a plan which has not at any time after the date of enact-
ment of this Act provided for employer contributions; 
(6) an agreement providing payments to a retired partner or 
deceased partner or a deceased partner's successor in interest as 
26 use 736. 
described in section 736 of the Internal Revenue Code of 1954; 
(7) an individual retirement account or annuity as described 
in section 408(a) of the Internal Revenue Code of 1954, or a 
Post, p. 959. 
retirement bond described in section 409 of such Code; 
(8) an individual account plan (other than a money purchase 
plan) and a defined benefit plan to the extent it is treated as an 
individual account plan (other than a money purchase plan) 
under section 3 (35) (B) of this title; or 
(9) an excess benefit plan. 
26 use 501, 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
869 
(b) For the purposes of paragraph (2) of subsection (a) a plan is tract"pi*an"" '^°"" 
an "insurance contract plan" if— 
(1) the plan is funded exclusively by the purchase of indi-
vidual insurance contracts, 
(2) such contracts provide for level annual premium payments 
to be paid extending not later than the retirement age for each 
individual participating in the plan, and commencing with the 
date the individual became a participant in the plan (or, in the 
case of an increase in benefits, commencing at the time such 
increase becomes effective), 
(3) benefits provided by the plan are equal to the benefits 
provided under each contract at normal retirement age under the 
plan and are guaranteed by an insurance carrier (licensed under 
the laws of a State to do business with the plan) to the extent 
premiums have been paid, 
(4) premiums payable for the plan year, and all prior plan 
years under such contracts have been paid before lapse or there 
IS reinstatement of the policy, 
(5) no rights under such contracts have been subject to a secu-
rity interest at any time during the plan year, and 
(6) no policy loans are outstanding at any time during the 
plan year. 
A plan funded exclusively by the purchase of group insurance con-
tracts which is determined under regulations prescribed by the Sec-
retary of the Treasury to have the same characteristics as contracts 
described in the preceding sentence shall be treated as a plan described 
in this subsection. 
M I N I M U M 
FUNDING 
STANDARDS 
SEC. 302. (a)(1) Every employee pension benefit plan subject to 
^9 use io82. 
this part shall satisfy the minimum funding standard (or the alterna-
tive minimum funding standard under section 305) for any plan year 
to which this part applies. A plan to which this part applies shall have 
satisfied the minimum funding standard for such plan for a plan year 
if as of the end of such plan year the plan does not have an accumulated 
funding deficiency. 
,^ 
(2) For the purposes of this part, the term "accumulated funding fun<fingX"^^*^'^ 
deficiency" means for any plan the excess of the total charges to the ficiency." 
funding standard account for all plan years (beginning with the first 
plan year to which this part applies) over the total credits to such 
account for such years or, if less, the excess of the total charges to the 
alternative minimum funding standard account for such plan years 
over the total credits to such account for such years. 
(b)(1) Each plan to which this part applies shall establish and 
J""ding stand-
• 
i 
• 
i> 
T 
i 
1 
1 
r 
ip( 
1 
1 
m 1 
T 
1 ^""^ account. 
maintain a funding standard account, huch account shall be credited 
and charged solely as provided in this section. 
(2) For a plan year, the funding standard account shall be charged 
with the sum of 
^
— 
(A) the normal cost of the plan for the plan year, 
(B) the amounts necessary to amortize in equal annual install-
ments (until fully amortized) — 
(i) in the case of a plan in existence on January 1,1974, the 
unfunded past service liability under the plan on the first day 
of the first plan year to which this part applies, over a period 
of 40 plan years, 
(ii) in the case of a plan which comes into existence after 
January 1, 1974, the unfunded past service liability under 
the plan on the first day of the first plan year to which this 
870 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
part applies, over a period of 30 plan years (40 plan years 
in the case of a multiemployer plan), 
(iii) separately, with respect to each plan year, the net in-
crease (if any) in unfunded past service liability under the 
plan arising from plan amendments adopted in such year, 
over a period of 30 plan years (40 plan years in the case of a 
multiemployer plan), 
(iv) separately, with respect to each plan year, the net 
experience loss (if any) under the plan, over a period of 15 
plan years (20 plan years in the case of a multiemployer 
plan), and 
(v) separately, with respect to each plan year, the net loss 
(if any) resulting from changes in actuarial assumptions 
used under the plan, over a period of 30 plan years, 
(C) the amount necessary to amortize each waived funding 
deficiency (within the meaning of section 303 (c)) for each prior 
plan year in equal annual installments (until fully amortized) 
over a period of 15 plan years, and 
(D) the amount necessary to amortize in equal annual install-
ments (until fully amortized) over a period of 5 plan years any 
amount credited to the funding standard account under para-
graph (3) (D). 
(3) For a plan year, the funding standard account shall be credited 
with the sum of— 
(A) the amount considered contributed by the employer to or 
under the plan for the plan year, 
(B) the amount necessary to amortize in equal annual install-
ments (until fully amortized)— 
(i) separately, with respect to each plan year, the net 
decrease (if any) in unfunded past service liability under the 
plan arising from plan amendments adopted in such year, 
over a period of 30 plan years (40 plan years in the case of a 
multiemployer plan), 
(ii) separately, with respect to each plan year, the net 
experience gain (if any) under the plan, over a period of 15 
plan years (20 plan years in the case of a multiemployer 
plan), and 
(iii) separately, with respect to each plan year, the net 
gain (if any) resulting from changes in actuarial assump-
tions used under the plan, over a period of 30 plan years. 
(C) the amount of the waived funding deficiency (within the 
meaning of section 303(c)) for the plan year, and 
(D) in the case of a plan year for which the accumulated fund-
ing deficiency is determined under the funding standard account 
if such plan year follows a plan year for which such deficiency was 
determined under the alternative minimum funding standard, the 
excess (if any) of any debit balance in the funding standard 
, 
account (determined without regard to this subparagraph) over 
any debit balance in the alternative minimum funding standard 
account. 
(4) Under regulations prescribed by the Secretary of the Treasury, 
amounts required to be amortized under paragraph (2) or paragraph 
(3), as the case may be— 
(A) may be combined into one amount under such para-
graph to be amortized over a period determined on the basis of 
the remaining amortization period for all items entering into such 
combined amount, and 
(B) may be offset against amounts required to be amortized 
under the other such paragraph, wdth the resulting amount to be 
amortized over a period determined on the basis of the remaining 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
871 
amortization periods for all items entering into whichever of the 
two amounts being offset is the greater. 
(5) The funding standard account (and items therein) shall be 
charged or credited (as determined under regulations prescribed by 
the Secretary of the Treasury) with interest at the appropriate rate 
consistent with the rate or rates of interest used under the plan to 
determine costs. 
(c) (1) For purposes of this part, normal costs, accrued liability, 
past service liabilities, and experience gains and losses shall be deter-
mined under the funding method used to determine costs under the 
plan. 
(2) (A) For purposes of this part, the value of the plan's assets 
shall be determined on the basis of any reasonable actuarial method 
of valuation which takes into account fair market value and which is 
permitted under regulations prescribed by the Secretary of the 
Treasury. 
(B) For purposes of this part, the value of a bond or other evidence 
of indebtedness which is not in default as to principal or interest may, 
at the election of the plan administrator, be determined on an amor-
tized basis running from initial cost at purchase to par value at 
maturity or earliest call date. Any election under this subparagraph 
shall be made at such time and in such manner as the Secretary of the 
Treasury shall by regulations provide, shall apply to all such evi-
dences of indebtedness, and may be revoked only with the consent of 
the Secretary of the Treasury. 
(3) For purposes of this part, all costs, liabilities, rates of inter-
est, and other factors under the plan shall be determined on the basis 
of actuarial assumptions and methods which, in the aggregate, are 
reasonable (taking into account the experience of the plan and reason-
able expectations) and which, in combination, offer the actuary's best 
estimate of anticipated experience under the plan. 
(4) For purposes of this section, if— 
(A) a change in benefits under the Social Security Act or in 
'*^ ^^^ ^^°^* 
other retirement benefits created under Federal or State law, or 
(B) a change in the definition of the term "wages" under sec-
tion 3121 of the Internal Revenue Code of 1954, or a change in 
26 use 3121. 
the amount of such wages taken into account under regulations 
prescribed for purposes of section 401 (a)(5) of the Internal Rev-
enue Code of 1954, 
26 use 401. 
results in an increase or decrease in accrued liability under a plan, 
such increase or decrease shall be treated as an experience loss or gain. 
(5) If the funding method for a plan is changed, the new funding 
method shall become the funding method used to determine costs and 
liabilitievS under the plan only if the change is approved by the Secre-
tary of the Treasury. If the plan year for a plan is changed, the new 
plan year shall become the plan year for the plan only if the change 
is approved by the Secretary of the Treasury. 
(6) If, as of the close of a plan year, a plan would (without regard 
to this paragraph) have an accumulated funding deficiency (deter-
mined without regard to the alternative minimum funding standard 
account permitted under subsection (g)) in excess of the full funding 
limitation— 
(A) the funding standard account shall be credited with the 
amount of such excess, and 
(B) all amounts described in paragraphs (2), (B), (C), and 
(D) and (3) (B) of subsection (b) which are required to be amor-
tized shall be considered fully amortized for purposes of such 
paragraphs. 
872 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
" F u l l fundi 
limitation," 
Post, 
p. 914. 
(7) For purposes of paragraph (6), the term "full funding limita-
tion" means the excess (if any) of— 
(A) the accrued liability (including normal cost) under the 
plan (determined under the entry age normal funding method if 
such accrued liability cannot be directly calculated under the 
funding method used for the plan), over 
(B) the lesser of the fair market value of the plan's assets or the 
value of such assets determined under paragraph (2). 
(8) For purposes of this part, any amendment applying to a plan 
year which— 
(A) is adopted after the close of such plan year but no later 
than 21/^ months after the close of the plan year (or, in the case 
of a multiemployer plan, no later than 2 years after the close of 
such plan year), 
(B) does not reduce the accrued benefit of any participant deter-
mined as of the beginning of the first plan year to which the 
amendment applies, and 
(C) does not reduce the accrued benefit of any participant deter-
mined as of the time of adoption except to the extent required by 
the circumstances, 
shall, at the election of the plan administrator, be deemed to have been 
made on the first day of such plan year. No amendment described in 
this paragraph which reduces the accrued benefits of any participant 
shall take effect unless the plan administrator files a notice with the 
Secretary notifying him of such amendment and the Secretary has 
approved such amendment or, within 90 days after the date on which 
such notice was filed, failed to disapprove such amendment. No amend-
ment described in this subsection shall be approved by the Secretary 
unless he determines that such amendment is necessary because of a 
substantial business hardship (as determined under section 303(b)) 
and that waiver under section 303(a) is unavailable or inadequate. 
(9) For purposes of this part, a determination of experience gains 
and losses and a valuation of the plan's liability shall be made not less 
frequently than once every 3 years, except that such determination 
shall be made more frequently to the extent required in particular cases 
under regulations prescribed by the Secretary of the Treasury. 
(10) For purposes of this part, any contributions for a plan year 
made by an employer after the last day of such plan year, but not later 
than 21/^ months after such day, shall be deemed to have been made 
on such last day. For purposes of this paragraph, such 21/^ month 
period may be extended for not more than 6 months under regulations 
prescribed by the Secretary of the Treasury. 
(d) CROSS REFERENCE.—For alternative amortization method for 
certain multiemployer plans see section 1013(d) of this Act. 
2 9 u s e 1083. 
Waiver. 
Substantial 
business hard-
ship. 
VARIANCE FROM M I N I M U M FUNDING 
STANDARD 
SEC. 303. (a) If an employer, or in the case of a multiemployer plan, 
10 percent or more of the number of employers contributing to or 
under the plan are unable to satisfy the minimum funding standard 
for a plan year without substantial business hardship and if applica-
tion of the standard would be adverse to the interests of plan partici-
pants in the aggregate, the Secretary of the Treasury may waive the 
requirements of section 302(a) for such year with respect to all or 
any portion of the minimum funding standard other than the por-
tion thereof determined under section 302(b) (2) (C). The Secretary 
of the Treasury shall not waive the minimum funding standard with 
respect to a plan for more than 5 of any 15 consecutive plan years. 
(b) For purposes of this part, the factors taken into account in 
determining substantial business hardship shall include (but shall not 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
873 
be limited to) whether— 
(1) the employer is operating at an economic loss, 
(2) there is substantial unemployment or underemployment in 
the trade or business and in the industry concerned, 
(3) the sales and profits of the industry concerned are depressed 
or declining, and 
(4) it is reasonable to expect that the plan will be continued 
only if the waiver is granted. 
(c) For purposes of this part, the term "waived funding defi- 
"waived funding 
ciency" means the portion of the minimum funding standard (deter- ^ i^^i^^cy. 
mined without regard to subsection (b)(3)(C) of section 302) for a 
plan year waived by the Secretary of the Treasury and not satisfied 
by employer contributions. 
(d) CROSS REFERENCE.— 
For corresponding duties of the Secretary of the Treasury with regard 
to implementation of the Internal Revenue Code of 1954, see section 
412(d) of such Code. 
EXTENSION or AMORTIZATION PERIODS 
SEC. 304, (a) The period of years required to amortize any unfunded 
29 use 1084. 
liability (described in any clause of subsection (b)(2)(B) of section 
302) of any plan may be extended by the Secretary for a period of 
time (not in excess of 10 years) if he determines that such exten-
sion would carry out the purposes of this Act and would provide ade-
quate protection for participants under the plan and their beneficiaries 
and if he determines that the failure to permit such extension would— 
(1) result in— 
(A) a substantial risk to the voluntary continuation of 
the plan, or 
(B) a substantial curtailment of pension benefit levels 
or employee compensation, and 
(2) be adverse to the interests of plan participants in the 
aggregate. 
(b)(1) No amendment of the plan which increases the liabilities 
of the plan by reason of any increase in benefits, any change in the 
accrual of benefits, or any change in the rate at which benefits become 
nonforfeitable under the plan shall be adopted if a waiver under 
section 303(a) or an extension of time under subsection (a) of this 
section is in effect with respect to the plan, or if a plan amendment 
described in section 302(c)(8) has been made at any time in the 
preceding 12 months (24 months in the case of a multiemployer 
plan). If a plan is amended in violation of the preceding sentence, 
any such waiver, or extension of time, shall not apply to any plan 
year ending on or after the date on which such amendment is adopted. 
(2) Paragraph (1) shall not apply to any plan amendment which— 
NonappUca-
(A) the Secretary determines to be reasonable and which pro- ^'^^^y* 
vides for only de mmimis increases in the liabilities of the plan. 
(B) only repeals an amendment described in section 302(c) 
(C) is required as a condition of qualification under part I 
of subchapter D, of chapter 1, of the Internal Eevenue Code of 
1954. 
Post, pp. 959, 
AI.TERNATIVE M I N I M U M FUNDING STANDARD 
9^g| ^^^' ^^'*' 
, 
.
2
6 
u s e 401. 
SEC. 305. (a) A plan which uses a funding method that requires 
29 use loss. 
contributions in all years not less than those required under the 
entry age normal funding method may maintain an alternative mini-
mum funding standard account for any plan year. Such account shall 
be credited and charged solely as provided in this section. 
(b) For a plan year the alternative minimum funding standard 
874 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
accounts shall be— 
(1) charged with the sum of— 
(A) the lesser of normal cost under the funding method 
used under the plan or normal cost determined under the 
unit credit method, 
(B) the excess, if any, of the present value of accrued 
benefits under the plan over the fair market value of the 
assets, and 
(C) an amount equal to the excess, if any, of credits to 
the alternative minimum funding standard account for all 
prior plan years over charges to such account for all such 
years, and 
(2) credited with the amount considered contributed by the 
employer to or under the plan (within the meaning of section 
302(c) (10)) for the plan year. 
(c) The alternative minimum funding standard account (and items 
therein) shall be charged or credited with interest in the manner pro-
vided under section 302(b) (5) with respect to the funding standard 
account. 
EFFECTIVE DATES 
2 9 use 1086. 
gjjQ^ 3()g_ (^2i) Except as otherwise provided in this section, this 
part shall apply in the case of plan years beginning after the date of 
the enactment of this Act. 
(b) Except as otherwise provided in subsections (c) and (d), in 
the case of a plan in existence on January 1, 1974, this part shall 
apply in the case of plan years beginning after December 31, 1975. 
(c) (1) In the case of a plan maintained on January 1, 1974, pur-
suant to one or more agreements which the Secretary finds to be 
collective bargaining agreements between employee representatives 
and one or more employers, this part shall apply only with respect to 
plan years beginning after the earlier of the date specified in sub-
paragraph (A) or (B) of section 211(c) (1). 
(2) This subsection shall apply with respect to a plan if (and only 
if) the application of this subsection results in a later effective date 
for this part than the effective date required by subsection (b). 
(d) In the case of a plan the administrator of which elects under 
Post, p. 932. 
section 1017(d) of this Act to have the provisions of the Internal 
Revenue Code of 1954 relating to participation, vesting, funding, and 
form of benefit to apply to a plan year and to all subsequent plan 
years, this part shall apply to plan years beginning on the earlier of 
the first plan year to which such election applies or the first plan 
year determined under subsections (a), (b), and (c) of this section. 
(e) In the case of a plan maintained by a labor organization which 
is exempt from tax under section 501(c) (5) of the Internal Revenue 
Code of 1954 exclusively for the benefit of its employees and their 
beneficiaries, this part shall be applied by substituting for the term 
"December 31, 1975" in subsection (b), the earlier of— 
(1) the date on which the second convention of such labor 
organization held after the date of the enactment of this Act 
ends, or 
(2) December 31, 1980, 
but in no event shall a date earlier than the later of December 31,1975, 
or the date determined under subsection (c) be substituted. 
PART 4—FIDUCIARY RESPONSIBILITY 
COVERAGE 
29 use 1101. 
g^j. 401. (a) This part shall apply to any employee benefit plan 
Ante, p. 11. 
described in section 4(a) (and not exempted under section 4(b)), 
26 use 501, 
26 use 736. 
15 use 80a-51. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
875 
other than— 
(1) a plan which is unfunded and is maintained by an 
employer primarily for the purpose of providing deferred com-
pensation for a select group of management or highly compensated 
employees; or 
(2) any agreement described in section 736 of the Internal 
Revenue Code of 1954, which provides payments to a retired 
partner or deceased partner or a deceased partner's successor in 
interest. 
(b) For purposes of this part: 
(1) In the case of a plan which invests in any security issued 
by an investment company registered under the Investment Com-
pany Act of 1940, the assets of such plan shall be deemed to 
include such security but shall not, solely by reason of such invest-
ment, be deemed to include any assets of such investment company. 
(2) In the case of a plan to which a guaranteed benefit policy 
is issued by an insurer, the assets of such plan shall be deemed to 
include such policy, but shall not, solely by reason of the issuance 
of such policy, be deemed to include any assets of such insurer. 
For purposes of this paragraph: 
(A) The term "insurer" means an insurance company, 
"insurer." 
insurance service, or insurance organization, qualified to do 
business in a State. 
(B) The term "guaranteed benefit policy" means an insur- 
"Guaranteed 
ance policy or contract to the extent that such policy or con-
tract provides for benefits the amount of which is guaranteed 
by the insurer. Such term includes any surplus in a separate 
account, but excludes any other portion of a separate account. 
benefit policy. 
ESTABLISHMENT OF PLAN 
SEC. 402. (a) (1) Every employee benefit plan shall be established 
and maintained pursuant to a written instrument. Such instrument 
shall provide for one or more named fiduciaries who jointly or sev-
erally shall have authority to control and manage the operation and 
administration of the plan. 
(2) For purposes of this title, the term "named fiduciary" means 
a fiduciary who is named in the plan instrument, or who, pursuant to a 
procedure specified in the plan, is identified as a fiduciary (A) by a 
person who is an employer or employee organization with respect to 
the plan or (B) by such an employer and such an employee organiza-
tion acting jointly. 
(b) Every employee benefit plan shall— 
(1) provide a procedure for establishing and carrying out a 
funding policy and method consistent with the objectives of the 
plan and the requirements of this title, 
(2) describe any procedure under the plan for the allocation 
of responsibilities for the operation and administration of the 
plan (including any procedure described in section 405(c) (1)), 
(3) provide a procedure for amending such plan, and for iden-
tifying the persons who have authority to amend the plan, and 
(4) specify the basis on which payments are made to and from 
the plan. 
(c) Any employee benefit plan may provide— 
(1) 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); 
(2) i/hat a named fiduciary, or a fiduciary designated by a named 
fiduciary pursuant to a plan procedure described in section 405 
(c) (1), may employ one or more persons to render advice with 
regard to any responsibility such fiduciary has under the plan; or 
29 use 1102. 
"Named fidu-
ciary." 
876 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(3) that a person who is a named fiduciary with respect to con-
trol or management of the assets of the plan may appoint an 
investment manager or managers to manage (including the power 
to acquire and dispose of) any assets of a plan. 
ESTABLISHMENT OF TRUST 
29 use 1103. 
g^^^ ^Qg^ ^^^ Except as provided in subsection (b), all assets of an 
employee benefit plan shall be held in trust by one or more trustees. 
Such trustee or trustees shall be either named in the trust instrument 
or in the plan instrument described in section 402(a) or appointed by 
a person who is a named fiduciary, and upon acceptance of being named 
or appointed, the trustee or trustees shall have exclusive authority and 
discretion to manage and control the assets of the plan, except to the 
extent that— 
(1) the plan expressly provides that the trustee or trustees are 
subject to the direction of a named fiduciary who is not a trustee, 
in which case the trustees shall be subject to proper directions of 
such fiduciary w^hich are made in accordance with the terms of 
the plan and which are not contrary to this title, or 
(2) authority to manage, acquire, or dispose of assets of the 
plan is delegated to one or more investment managers pursuant to 
section 402(c) (3). 
(b) The requirements of subsection (a) of this section shall not 
(1) to any assets of a plan which consist of insurance contracts 
or policies issued by an insurance company qualified to do busi-
ness in a State; 
(2) to any assets of such an insurance company or any assets 
of a plan which are held by such an insurance company; 
(3) to apian— 
(i) some or all of the participants of which are employees 
described in section 401(c) (1) of the Internal Kevenue Code 
of 1954; or 
(ii) which consists of one or more individual retirement 
accounts described in section 408 of the Internal Revenue 
Code of 1954, to the extent that such plan's assets are held in 
one or more custodial accounts which qualify under sec-
tion 401(f) or 408(h) of such Code, whichever is applicable; 
(4) to a plan which the Secretary exempts from the require-
ment of subsection (a) and which is not subject to any of the 
following provisions of this Act— 
(A) part 2 of this subtitle, 
(B) part 3 of this subtitle, or 
(C) title IV of this Act; or 
(5) to a contract established and maintained under section 403 
(b) of the Internal Revenue Code of 1954 to the extent that the 
assets of the contract are held in one or more custodial accounts 
pursuant to section 403 (b) (7) of such Code. 
(c)(1) Except as provided in paragraph (2) or (3) or subsection 
(d), or under section 4042 and 4044 (relating to termination of insured 
plans), the assets of a plan shall never inure to the benefit of any 
employer and shall be held for the exclusive purposes of providing 
benefits to participants in the plan and their beneficiaries and defray-
ing reasonable expenses of administering the plan. 
(2) (A) In the case of a contribution which is made by an employer 
by a mistake of fact, paragraph (1) shall not prohibit the return of 
such contribution to the employer within one year after the payment 
of the contribution. 
26 use 401, 
Post, p. 959. 
Ante, 
Ante, 
Post, 
Post, 
p . 
p . 
p . 
p . 
26 use 
Post, 
Post, 
1025. 
p . 
852. 
868. 
1003. 
986. 
403. 
940. 
pp. 1021, 
26 u s e 401, 
403, 405. 
Post, 
p. 955. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
877 
(B) If a contribution is conditioned on qualification of the plan 
under section 401, 403(a), or 405(a) of the Internal Revenue Code of 
1954, and if the plan does not qualify, then paragraph (1) shall not 
prohibit the return of such contribution to the employer within one 
year after the date of denial of qualification of the plan. 
(C) If a contribution is conditioned upon the deductibility of the 
contribution under section 404 of the Internal Revenue Code of 1954, 
^"^^ P- 92I. 
then, to the extent the deduction is disallowed, paragraph (1) shall 
not prohibit the return to the employer of such contribution (to the 
extent disallowed) within one year after the disallowance of the 
deduction. 
(3) In the case of a contribution which would otherwise be an excess 
contribution (as defined in section 4972(b) of the Internal Revenue 
Code of 1954) paragraph (1) shall not prohibit a correcting distribu-
tion with respect to such contribution from the plan to the employer 
to the extent permitted in such section to avoid payment of an excise 
tax on excess contributions under such section. 
(d) (1) Upon termination of a pension plan to which section 4021 
does not apply at the time of termination and to which this part 
applies (other than a plan to which no employer contributions have 
been made) the assets of the plan shall be allocated in accordance with 
the provisions of section 4044 of this Act, except as otherwise provided 
^°^*' ^' ^°^^' 
in regulations of the Secretary. 
(2) The assets of a welfare plan which terminates shall be dis-
tributed in accordance with the terms of the plan, except as otherwise 
provided in regulations of the Secretary. 
FIDUCIARY DUTIES' 
SEC. 404. (a) (1) Subject to sections 403 (c) and (d), 4042, and 4044, 
H^^^l^^^il' 
a fiduciary shall discharge his duties with respect to a plan solely in Post, pp.'1021', 
the interest of the participants and beneficiaries and— 
^°25. 
(A) for the exclusive purpose of: 
(i) providing benefits to participants and their benefici-
aries; and 
(ii) defraying reasonable expenses of administering the 
plan; 
(B) with the care, skill, prudence, and diligence under the 
circurnstances 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 gov-
erning the plan insofar as such documents and instruments are 
consistent with the provisions of this title. 
(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 fidu-
ciary may maintain the indicia of ownership of any assets of a plan 
outside the jurisdiction of the district courts of the United States. 
(c) 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 con-
878 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
trol over the assets in his account (as determined under regulations 
of the Secretary)— 
(1) such participant or beneficiary shall not be deemed to be a 
fiduciary by reason of such exercise, and 
(2) 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. 
29 use 1105. 
LIABILITY FOR BREACH BY CO-riDUCIARY 
SEC. 405. (a) In addition to any liability which he may have under 
any other provision of this part, a fiduciary with respect to a plan 
shall be liable for a breach of fiduciary responsibility of another fidu-
ciary with respect to the same plan in the following circumstances: 
(1) if he participates knowingly in, or knowingly undertakes 
to conceal, an act or omission of such other fiduciary, knowing 
such act or omission is a breach; 
(2) if, by his failure to comply with section 404(a) (1) in the 
administration of his specific responsibilities which give rise to 
his status as a fiduciary, he has enabled such other fiduciary to 
commit a breach; or 
(3) if he has knowledge of a breach by such other fiduciary, 
unless he makes reasonable efforts under the circumstances to 
remedy the breach. 
(b) (1) Except as otherwise provided in subsection (d) and in 
section 403(a) (1) and (2), if the assets of a plan are held by two 
or more trustees— 
(A) each shall use reasonable care to prevent a co-trustee from 
committing a breach; and 
(B) they shall jointly manage and control the assets of the 
plan, except that nothing in this subparagraph (B) shall pre-
clude any agreement, authorized by the trust instrument, allo-
cating specific responsibilities, obligations, or duties among 
trustees, in which event a trustee to whom certain responsibilities, 
obligations, or duties have not been allocated shall not be liable 
by reason of this subparagraph (B) either individually or as a 
trustee for any loss resulting to the plan arising from the acts or 
omissions on the part of another trustee to whom such responsi-
bilities, obligations, or duties have been allocated. 
(2) Nothing in this subsection shall limit any liability that a fidu-
ciary may have under subsection (a) or any other provision of this 
part, 
(3) (A) In the case of a plan the assets of which are held in more 
than one trust, a trustee shall not be liable under paragraph (1) 
except with respect to an act or omission of a trustee of a trust of 
which he is a trustee. 
(B) No trustee shall be liable under this subsection for following 
instructions referred to in section 403(a)(1). 
(c) (1) The instrument under which a plan is maintained may 
expressly provide for procedures (A) for allocating fiduciary respon-
sibilities (other than trustee responsibilities) among named fiduciaries, 
and (B) for named fiduciaries to designate persons other than named 
fiduciaries to carry out fiduciary responsibilities (other than trustee 
responsibilities) under the plan. 
(2) If a plan expressly provides for a procedure described in para-
graph (1), and pursuant to such procedure any fiduciary responsibility 
of a named fiduciary is allocated to any person, or a person is desig-
nated to carry out any such responsibility, then such named fiduciary 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
879 
shall not be liable for an act or omission of such person in carrying 
out such responsibility except to the extent that— 
(A) the named fiduciary violated section 404(a) (1)— 
(i) with respect to such allocation or designation, 
(ii) with respect to the establishment or implementation 
of the procedure under paragraph (1), or 
(iii) in continuing the allocation or designation; or 
(B) the named fiduciary would otherwise be liable in accord-
ance with subsection (a). 
(3) For purposes of this subsection, the term "trustee responsibility" 
means any responsibility provided in the plan's trust instrument (if 
any) to manage or control the assets of the plan, other than a power 
under the trust instrument of a named fiduciary to appoint an invest-
ment manager in accordance with section 402(c) (3). 
(d) (1) If an investment manager or managers have been appointed 
Liability 
under section 402(c)(3), then, notwithstanding subsections (a) (2) 
and (3) and subsection (b), no trustee shall be liable for the acts or 
omissions of such investment manager or managers, or be under an 
obligation to invest or otherwise manage any asset of the plan which 
is subject to the management of such investment manager. 
(2) Nothing in this subsection shall relieve any trustee of any liabil-
ity under this part for any act of such trustee. 
"Trustee re-
sponsibility." 
PROHIBITED TRANSACTIONS 
SEC, 406. (a) Except as provided in section 408: 
(1) A fiduciary with respect to a plan shall not cause the plan 
to engage in a transaction, if he knows or should know that such 
transaction constitutes a direct or indirect— 
(A) sale or exchange, or leasing, of any property between 
the plan and a party in interest; 
(B) lending of money or other extension of credit between 
the plan and a party in interest; 
(C) furnishing of goods, services, or facilities between the 
plan and a party in interest; 
(D) transfer to, or use by or for the benefit of, a party in 
interest, of any assets of the plan; or 
(E) acquisition, on behalf of the plan, of any employer 
security or employer real property in violation of section 
407(a). 
(2) No fiduciary who has authority or discretion to control or 
manage the assets of a plan shall permit the plan to hold any 
employer security or employer real property if he knows or 
should know that holding such security or real property violates 
section 407(a). 
(b) A fiduciary with respect to a plan shall not— 
(1) deal with the assets of the plan in his own interest or for 
his own account, 
(2) in his individual or in any other capacity act in any trans-
action involving the plan on behalf of a party (or represent a 
party) whose interests are adverse to the interests of the plan or 
the interests of its participants or beneficiaries, or 
(3) receive any consideration for his own personal account 
from any party dealing with such plan in connection with a trans-
action involving the assets of the plan. 
(c) A transfer of real or personal property by a party in interest to 
a plan shall be treated as a sale or exchange if the property is sub-
ject to a mortgage or similar lien which the plan assumes or if it is 
subject to a mortgage or similar lien which a party-in-interest placed 
29 use 1106. 
880 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
on the property within the 10-year period ending on the date of the 
transfer. 
10 PERCENT LIMITATION W I T H RESPECT TO ACQUISITION AND HOLDING OF 
EMPLOYER SECURITIES AND EMPLOYER REAL PROPERTY BY CERTAIN PLANS 
29 use 1107. 
gg^^ ^Q^^ ^^^ Except as otherwise provided in this section and sec-
tion 414: 
(1) A plan may not acquire or hold— 
(A) any employer security which is not a qualifying 
employer security, or 
(B) any employer real property which is not qualifying 
employer real property. 
(2) A plan may not acquire any qualifying employer security 
or qualifying employer real property, if immediately after such 
acquisition the aggregate fair market value of employer securities 
and employer real property held by the plan exceeds 10 percent 
of the fair market value of the assets of the plan. 
(3) (A) After December 31, 1984, a plan may not hold any 
qualifying employer securities or qualifying employer real prop-
erty (or both) to the extent that the aggregate fair market value 
of such securities and property determined on December 31,1984, 
exceeds 10 percent of the greater of— 
(i) the fair market value of the assets of the plan, deter-
mined on December 31,1984, or 
(ii) the fair market value of the assets of the plan deter-
mined on January 1,1975. 
(B) Subparagraph (A) of this paragraph shall not apply to 
any plan which on any date after December 31, 1974; and before 
January 1, 1985, did not hold employer securities or employer 
real property (or both) the aggregate fair market value of which 
determined on such date exceeded 10 percent of the greater of 
(i) the fair market value of the assets of the plan, deter-
mined on such date, or 
(ii) the fair market value of the assets of the plan deter-
mined on January 1,1975. 
(4) (A) After December 31, 1979, a plan may not hold any 
employer securities or employer real property in excess of the 
amount specified in regulations under subparagraph (B). This 
subparagraph shall not apply to a plan after the earliest date 
after December 31, 1974, on which it complies with such regula-
tions. 
Regulations. 
^g) ^^^ j^^^j, ^^^^^ Deccmbcr 31, 1976, the Secretary shall pre-
scribe regulations which shall have the effect of requiring that 
a plan divest itself of 50 percent of the holdings of employer 
securities and employer real property which the plan would be 
required to divest before January 1, 1985, under paragraph (2) 
or subsection (c) (whichever is applicable), 
(b) (1) Subsection (a) of this section shall not apply to any acquisi-
tion or holding of qualifying employer securities or qualifying 
employer real property by an eligible individual account plan. 
(2) CROSS REFERENCES.— 
(A) For exemption from diversification requirements for holding of 
qualifying employer securities and qualifying employer real property 
by eligihle individual account plans, see section 404(a)(2). 
(B) For exemption from prohibited transactions for certain acqui-
sitions of qualifying employer securities and qualifying employer real 
property which are not in violation of 10 percent limitation, see section 
408(e). 
(C) For transitional rules respecting securities or real property sub-
ject to binding contracts in effect on June 30, 1974, see section 414(c). 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
881 
(c) (1) A plan which makes the election, under paragraph (3) shall 
be treated as satisfying the requirement of subsection (a) (3) if and 
only if employer securities held on any date after December 31, 1974 
and before January 1,1985 have a fair market value, determined as of 
December 31, 1974, not in excess of 10 percent of the lesser of— 
(A) the fair market value of the assets of the plan determined 
on such date (disregarding any portion of the fair market value 
of employer securities which is attributable to appreciation of 
such securities after December 31, 1974) but not less than the fair 
market value of plan assets on January 1,1975, or 
(B) an amount equal to the sum of (i) the total amount of the 
contributions to the plan received after December 31, 1974, and 
prior to such date, plus (ii) the fair market value of the assets 
of the plan, determined on January 1,1975. 
(2) For purposes of this subsection, in the case of an employer 
security held by a plan after January 1, 1975, the ownership of which 
is derived from ownership of employer securities held by the plan 
on January 1, 1975, or from the exercise of rights derived from such 
ownership, the value of such security held after January 1, 1975, shall 
be based on the value as of January 1,1975, of the security from which 
ownership was derived. The Secretary shall prescribe regulations to 
carry out this j)aragraph. 
(3) An election under this paragraph may not be made after Decem-
ber 31, 1975. Such an election shall be made in accordance with regu-
lations prescribed by the Secretary, and shall be irrevocable. A plan 
may make an election under this paragraph only if on January 1,1975, 
the plan holds no employer real property. After such election and 
before January 1, 1985 the plan may not acquire any employer real 
p r o p e r t y , 
Definltl ns 
(d) For purposes of this section— 
(1) The term "employer security" means a security issued by an 
employer of employees covered by the plan, or by an affiliate of 
such employer. A contract to which section 408(b)(5) applies 
shall not be treated as a security for purposes of this section. 
(2) The term "employer real property" means real property 
(and related personal property) which is leased to an employer of 
employees covered by the plan, or to an affiliate of such employer. 
For purposes of determining the time at which a plan acquires 
employer real property for purposes of this section, such prop-
erty shall be deemed to be acquired by the plan on the date on 
which the plan acquires the property or on the date on which the 
lease to the employer (or affiliate) is entered into, whichever is 
later. 
(3) (A) The term "eligible individual account plan" means an 
individual account plan which is (i) a profit-sharing, stoclc bonus, 
thrift, or savings plan; (ii) an employee stock ownership plan; 
or (iii) a money purchase plan which was in existence on the date 
of enactment of this Act and which on such date invested primar-
ily in qualifying employer securities. Such term excludes an indi-
vidual retirement account or annuity described in section 408 of 
the Internal Revenue Code of 1954. 
Post, p. 959. 
(B) Notwithstanding subparagraph (A), a plan shall be 
treated as an eligible individual account plan with respect to the 
acquisition or holding of qualifying employer real property or 
qualifying employer securities only if such plan explicitly pro-
vides for acquisition and holding of qualifying employer securi-
ties or qualifying employer real property (as the case may be). 
In the case of a plan in existence on the date of enactment of this 
Act, this subparagraph shall not take effect until January 1,1976. 
26 use 401. 
882 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(4) The term "qualifying employer real property" means par-
cels of employer real property— 
(A) if a substantial number of the parcels are dispersed 
geographically; 
(B) if each parcel of real property and the improvements 
thereon are suitable (or adaptable without excessive cost) for 
more than one use; 
(C) even if all of such real property is leased to one lessee 
(which may be an employer, or an affiliate of an employer) ; 
and 
(D) if the acquisition and retention of such property com-
ply with the provisions of this part (other than section 404 
(a) (1) (B) to the extent it requires diversificaJtion, and sec-
tions 404(a) (1) (C), 406, and subsection (a) of this section). 
(5) The term "qualifying employer security" means an 
employer security which is stock or a marketable obligation (as 
defined in subsection (e)). 
(6) The term "employee stock ownership plan" means an indi-
vidual account plan— 
(A) which is a stock bonus plan which is qualified, or a 
stock bonus plan and money purchase both of which are 
qualified, under section 401 of the Internal Revenue Code 
of 1954, and which is designed to invest primarily in qualify-
ing employee securities, and 
(B) which meets such other requirements as the Secretary 
of the Treasury may prescribe by regulation. 
(7) A corporation is an affiliate of an employer if it is a member 
of any controlled group of corporations (as defined in section 
26 use 1563. 
1563(a) of the Internal Revenue Code of 1954, except that "appli-
cable percentage" shall be substituted for "80 percent" wherever 
the latter percentage appears in such section) of which the 
employer who maintains the plan is a member. For purposes of the 
preceding sentence, the term "applicable percentage" means 50 
percent, or such lower percentage as the Secretary may prescribe 
by regulation. A person other than a corporation shall be treated 
as an affiliate of an employer to the extent provided in regulations 
of the Secretary. An employer which is a person other than a 
corporation shall be treated as affiliated with another person to 
the extent provided by regulations of the Secretary. Regulations 
under this paragraph shall be prescribed only after consultation 
and coordination with the Secretary of the Treasury. 
Regulations. 
^g^ -pj^g Sccrctary may prescribe regulations specifying the 
extent to which conversions, splits, the exercise of rights, and 
similar transactions are not treated as acquisitions, 
(e) For purposes of subsection (d)(5), the term "marketable obliga-
tion" means a bond, debenture, note, or certificate, or other evidence 
of indebtedness (hereinafter in this subsection referred to as "obliga-
tion") if— 
(1) such obligation is acquired— 
(A) on the market, either (i) at the price of the obligation 
prevailing on a national securities exchange which is regis-
tered with the Securities and Exchange Commission, or (ii) 
if the obligation is not traded on such a national securities 
exchange, at a price not less favorable to the plan than the 
offering price for the obligation as established by current bid 
and asked prices quoted by persons independent of the issuer; 
(B) from an underwriter, at a price (i) not in excess of the 
public offering price for the obligation as set forth in a 
prospectus or offering circular filed with the Securities and 
"Marketable 
obligation." 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
883 
Exchange Commission, and (ii) at which a substantial por-
tion of the same issue is acquired by persons independent of 
the issuer; or 
(C) directly from the issuer, at a price not less favorable 
to the plan than the price paid currently for a substantial 
portion of the same issue by persons independent of the 
issuer; 
(2) immediately following acquisition of such obligation— 
(A) not more than 25 percent of the aggregate amount of 
obligations issued in such issue and outstanding at the time 
of acquisition is held by the plan, and 
(B) at least 50 percent or the aggregate amount referred to 
in subparagraph (A) is held by persons independent of the 
issuer; and 
(3) immediately following acquisition of the obligation, not 
more than 25 percent of the assets of the plan is invested in obliga-
tions of the employer or an affiliate of the employer. 
EXEMPTIONS FROM PROHIBITED TRANSACTIONS 
29 u s e 1108. 
Federal Register, 
SEC. 408. (a) The Secretary shall establish an exemption procedure 
for purposes of this subsection. Pursuant to such procedure, he may 
grant a conditional or unconditional exemption of any fiduciary or 
transaction, or class of fiduciaries or transactions, from all or part of 
the restrictions imposed by sections 406 and 407(a). Action under 
this subsection may be taken only after consultation and coordina-
tion with the Secretary of the Treasury. An exemption granted under 
this section shall not relieve a fiduciary from any other applicable 
provision of this Act. The Secretary may not grant an exemption 
under this subsection unless he finds that such exemption is— 
(1) administratively feasible, 
(2) in the interests of the plan and of its participants and 
beneficiaries, and 
(3) protective of the rights of participants and beneficiaries 
of such plan. 
Before granting an exemption under this subsection from section 406 
Publication in 
(a) or 407(a), the b'ecretary shall publish notice in the Federal Reg-
ister of the pendency of the exemption, shall require that adequate 
notice be given to interested persons, and shall aft'ord interested persons 
opportunity to present views. The Secretary may not grant an exemp-
tion under this subsection from section 406(b) unless he affords an 
opportunity for a hearing and makes a determination on the record 
with respect to the findings required by paragraphs (1), (2), and (3) 
of this subsection. 
(b) The prohibitions provided in section 406 shall not apply to Nonappuca-
any of the following transactions: 
(1) Any loans made by the plan to parties in interest who are 
participants or beneficiaries of the plan if such loans (A) are 
available to all such participants and beneficiaries on a reasonably 
equivalent basis, (B) are not made available to highly compen-
sated employees, officers, or shareholders in an amount greater 
than the amount made available to other employees, (C) are 
made in accordance with specific provisions regarding such loans 
set forth in the plan, (D) bear a reasonable rate of interest, 
and (E) are adequately secured. 
(2) Contracting or making reasonable arrangements with a 
party in interest for office space, or legal, accounting, or other 
services necessary for the establishment or operation of the plan, 
if no more than reasonable compensation is paid therefor. 
bility. 
884 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(3) A loan to an employee stock ownership plan (as defined in 
section 407 (d)(6)), if— 
(A) such loan is primarily for the benefit of participants 
and beneficiaries of the plan, and 
(B) such loan is at an interest rate which is not in excess 
of a reasonable rate. 
If the plan gives collateral to a party in interest for such loan, 
such collateral may consist only of qualifying employer securities 
(as defined in section 407 (d)(5)). 
(4) The investment of all or part of a plan's assets in deposits 
which bear a reasonable interest rate in a bank or similar financial 
institution supervised by the United States or a State, if such 
bank or other institution is a fiduciary of such plan and if— 
(A) the plan covers only employees of such bank or other 
institution and employees of affiliates of such bank or other 
institution, or 
(B) such investment is expressly authorized by a provi-
sion of the plan or by a fiduciary (other than such bank or 
institution or affiliate thereof) who is expressly empowered 
by the plan to so instruct the trustee with respect to such 
investment. 
(5) Any contract for life insurance, health insurance, or 
annuities Avith one or more insurers which are qualified to do busi-
ness in a State, if the plan pays no more than adequate considera-
tion, and if each such insurer or insurers is— 
(A) tlie employer maintaining the plan, or 
(B) a party in interest wliich is wholly owned (directly or 
indirectly) by the employer maintaining the plan, or by any 
person which is a party in interest with respect to the plan, 
but only if the total premiums and annuity considerations 
written by such insurers for life insurance, health insurance, 
or annuities for all plans (and their employers) with respect-
to which such insurers are parties in interest (not including 
premiums or annuity considerations written by the employer 
maintaining the plan) do not exceed 5 percent of the total 
premiums and annuity considerations written for all lines of 
insurance in that year by such insurers (not including pre-
miums or annuity considerations written by the employer 
maintaining the plan). 
(6) The providing of any ancillary service by a bank or similar 
financial institution supervised by the United States or a State, 
if such bank or other institution is a fiduciary of such plan, and 
(A) such bank or similar financial institution has adopted 
adequate internal safeguards which assure that the providing 
of such ancillary service is consistent with sound banking 
and financial practice, as determined by Federal or State 
supervisory authority, and 
(B) the extent to which such ancillary service is provided 
is subject to specific guidelines issued by such bank or similar 
financial institution (as determined by the Secretary after 
consultation with Federal and State supervisory authority), 
and adherence to such guidelines would reasonably preclude 
such bank or similar financial institution from providing 
such ancillary service (i) in an excessive or unreasonable 
manner, and (ii) in a manner that would be inconsistent with 
the best interests of participants and beneficiaries of 
employee benefit plans. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
885 
Such ancillary services shall not be provided at more than reason-
able compensation. 
(7) The exercise of a privilege to convert securities, to the 
extent provided in regulations of the Secretary, but only if the 
plan receives no less than adequate consideration pursuant to such 
conversion. 
(8) Any transaction between a plan and (i) a common or col-
lective trust fund or pooled investment fund maintained by a 
party in interest which is a bank or trust company supervised by 
a State or Federal agency or (ii) a pooled investment fund of an 
insurance company qualified to do business in a State, if— 
(A) the transaction is a sale or purchase of an interest in 
the fund, 
(B) the bank, trust company, or insurance company 
receives not more than reasonable compensation, and 
(C) such transaction is expressly permitted by the instru-
ment under which the plan is maintained, or by a fiduciary 
(other than the bank, trust company, or insurance company, 
or an affiliate thereof) who has authority to manage and con-
trol the assets of the plan. 
(9) The making by a fiduciary of a distribution of the assets 
of the plan in accordance with the terms of the plan if such assets 
are distributed in the same manner as provided under section 
4044 of this Act (relating to allocation of assets), 
Post, p. 1025. 
(c) Nothing in section 406 shall be construed to prohibit any fidu-
ciary from— 
(1) receiving any benefit to which he may be entitled as a par-
ticipant or beneficiary in the plan, so long as the benefit is com-
puted and paid on a basis which is consistent with the terms of 
the plan as applied to all other participants and beneficiaries ; 
(2) receiving any reasonable compensation for services rend-
ered, or for the reimbursement of expenses properly and actually 
incurred, in the performance of his duties with the plan; except 
that no person so serving who already receives full-time pay from 
an employer or an association of employers, whose employees are 
participants in the plan, or from an employee organization whose 
members are participants in such plan shall receive compensation 
from such plan, except for reimbursement of expenses properly 
and actually incurred; or 
(3) serving as a fiduciary in addition to being an officer, 
employee, agent, or other representative of a party in interest. 
(d) Section 407(b) and subsections (a), (b), (c), and (e) of this 
section shall not apply to any transaction in which a plan, directly 
or indirectly— 
(1) lends any part of the corpus or income of the plan to; 
(2) pays any compensation for personal services rendeied to 
the plan to; or 
(3) acquires for the plan any property from or sells any 
property to; 
any person who is with respect to the plan an owner-employee (as 
defined in section 401(c) (3) of the Internal Kevenue Code of 1954), 
^^ "^^ ^o^-
a member of the family (as defined in section 267(c) (4) of such Code) 
^^ ^^'^ ^^'^• 
of any such owner-employee, or a corporation controlled by any such 
owner-employee through the ownership, directly or indirectly, of 50 
percent or more of the total combined voting power of all classes of 
stock entitled to vote or 50 percent or more of the total value of shares 
of all classes of stock of the corporation. For purposes of this subsec-
tion a shareholder employee (as defined in section 1379 of the Internal 
-194 O - 76 - 59 Pt. 1 
886 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
26 use 1379. 
Revenue Code of 1954) and a participant or beneficiary of an individ-
ual retirement account, individual retirement annuity, or an individual 
retirement bond (as defined in section 408 or 409 of the Internal Reve-
964^ ' ^^' 
' 
nue Code of 1954) and an employer or association of employers which 
establishes such an account or annuity under section 408(c) of such 
code shall be deemed to be an owner-employee. 
(e) Sections 406 and 407 shall not apply to the acquisition or sale by 
a plan of qualifying employer securities (as defined in section 407 
(d) (5)) or acquisition, sale or lease by a plan of qualifying employer 
real property (as defined in section 407(d) (4))— 
(1) if such acquisition, sale, or lease is for adequate considera-
tion (or in the case of a marketable obligation, at a price not less 
favorable to the plan than the price determined under Section 
407(e)(1)), 
(2) if no commission is charged with respect thereto, and 
(3) 
i f -
(A) the plan is an eligible individual account plan (as 
defined in section 407 (d) (3)), or 
(B) in the case of an acquisition or lease of qualifying 
employer real property by a plan which is not an eligible 
individual account plan, or of an acquisition of qualifying 
employer securities by such a plan, the lease or acquisition is 
not prohibited by section 407(a). 
29 use 1109. 
2 9 use 1110. 
LIABILITY FOR BREACH OF FIDUCIARY DUTY 
SEC. 409. (a) Any person who is a fiduciary with respect to a plan 
who breaches any of the responsibilities, obligations, or duties imposed 
upon fiduciaries by this title shall be personally liable to make good 
to such plan any losses to the plan resulting from each such breach, and 
to restore to such plan any profits of such fiduciary which have been 
made through use of assets of the plan by the fiduciary, and shall be 
subject to such other equitable or remedial relief as "the court may 
deem appropriate, including removal of such fiduciary. A fiduciary 
may also be removed for a violation of section 411 of this Act. 
(b) No fiduciary shall be liable with respect to a breach of fiduciary 
duty under this title if such breach was committed before he became 
a fiduciary or after he ceased to be a fiduciary. 
EXCULPATORY PROVISIONS; INSURANCE 
SEC. 410. (a^ Except as provided in sections 405(b) (1) and 405(d), 
any provision in an agreement or instrument which purports to relieve 
a fiduciary from responsibility or liability for any responsibility, 
obligation, or duty under this part shall be void as against public 
policy. 
(b) Nothing in this subpart shall preclude— 
(1) a plan from purchasing insurance for its fiduciaries or for 
itself to cover liability or losses occurring by reason of the act or 
omission of a fiduciary, if such insurance permits recourse by 
the insurer against the fiduciary in the case of a breach of a fidu-
ciary oblijjation by such fiduciary; 
(2) a fiduciary from purchasing insurance to cover liability 
under this part from and for his own account; or 
(3) an employer or an employee organization from purchasing 
insurance to cover potential liability of one or more persons who 
serve in a fiduciary capacity with regard to an employee benefit 
plan. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
887 
PROHIBITION AGAINST CERTAIN PERSONS HOLDING CERTAIN POSITIONS 
2 9 use nil. 
21 use 802. 
18 use 1341. 
SEC. 411, (a) No person who Has been convicted of, or has been 
imprisoned as a result of his conviction of, robbery, bribery, extortion, 
embezzlement, fraud, grand larceny, burglary, arson, a felony viola-
tion of Federal or State law involving substances defined in section 
102(6) of the Comprehensive Drug Abuse Prevention and Control Act 
of 1970, murder, rape, kidnaping, perjury, assault with intent to kill, 
any crime described in section 9(a) (1) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-9(a) (1) h a violation of any provision of 
this Act, a violation of section 302 of the Labor-Management Relations 
Act, 1947 (29 U.S.C. 186), a violation of chapter 63 of title 18, United 
States Code, a violation of section 874,1027,1503,1505,1506,1510,1951, 
or 1954 of title 18, United States Code, a violation of the Labor-Man-
agement Reporting and Disclosure Act of 1959 (29 U.S.C. 401), or con- J^^ use 40i 
spiracy to commit any such crimes or attempt to commit any such 
crimes, or a crime in which any of the foregoing crimes is an element, 
shall serve or be permitted to serve— 
(1) as an administrator, fiduciary, officer, trustee, custodian, 
counsel, agent, or employee of any employee benefit plan, or 
(2) as a consultant to any employee benefit plan, 
during or for five years after such conviction or after the end of such 
imprisonment, whichever is the later, unless prior to the end of such 
five-year period, in the case of a person so convicted or imprisoned, 
(A) his citizenship rights, having been revoked as a result of such 
conviction, have been fully restored, or (B) the Board of Parole of 
the United States Department of Justice determines that such per-
son's service in any capacity referred to in paragraph (1) or (2) 
would not be contrary to the purposes of this title. Prior to making 
any such determination the Board shall hold an administrative hear-
ing and shall give notice of such proceeding by certified mail to the 
State, county, and Federal prosecuting officials in the jurisdiction 
or jurisdictions in which such person was convicted. The Board's 
determination in any such proceeding shall be final. No person shall 
knowingly permit any other person to serve in any capacity referred 
to in paragraph (1) or (2) m violation of this subsection. Notwith-
standing the preceding provisions of this subsection, no corporation 
or partnership will be precluded from acting as an administrator, 
fiduciary, officer, trustee, custodian, counsel, agent, or employee, of 
any employee benefit plan or as a consultant to any employee bene-
fit plan without a notice, hearing, and determination by such Board of 
Parole that such service would be inconsistent with the intention of 
this section. 
(b) Any person who intentionally violates this section shall be fined P^"«^*y-
not more than $10,000 or imprisoned for not more than one year, or 
both. 
(c) For the purposes of this section: 
Definitions. 
(1) A person shall be deemed to have been "convicted" and 
under the disability of "conviction" from the date of the judgment 
of the trial court or the date of the final sustaining of such judg-
ment on appeal, whichever is the later event. 
(2) The term "consultant" means any person who, for compen-
sation, advises or represents an employee benefit plan or who pro- • 
vides other assistance to such plan, concerning the establishment 
or operation of such plan. 
(3) A period of parole shall not be considered as part of a 
period of imprisonment. 
888 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
BONDING 
2 9 u s e 1112. 
Limitation. 
SEC. 112. (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, and 
(2) 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 Corpora-
tion, 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 prede-
cessor 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 protection 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 cor-
porate 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. 
(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 iJene-
fit 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. 
STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
889 
(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 per-
son, 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 neces-
sary 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 adminis-
trator of a plan offers adequate evidence of the financial responsibility 
of the plan, or that other bonding arrangements would provide ade-
quate protection of the beneficiaries and participants, he may exempt 
such plan from the requirements of this section. 
Regulations. 
LIMITATION ON ACTIONS 
SEC. 413. (a) No action may be commenced under this title with 
29 use 1113. 
respect to a fiduciary's breach of any responsibility, duty, or obliga-
tion under this part, or with respect to a violation of this part, after the 
earlier of— 
(1) six years after (A) the date of the last action which con-
stituted a part of the breach or violation, or (B) in the case of an 
omission, the latest date on which the fiduciary could have cured 
the breach or violation, or 
(2) three years after the earliest date (A) on which the plaintiff 
had actual knowledge of the breach or violation, or (B) on which 
a report from which he could reasonably be expected to have 
obtained knowledge of such breach or violation was filed with the 
Secretary under this title; 
except that in the case of fraud or concealment, such action may be 
commenced not later than six years after the date of discovery of such 
breach or violation. 
EFFECTIVE DATE 
SEC. 414. (a) Except as provided in subsections (b), (c), and (d), 
this part shall take effect on January 1,1975. 
(b) (1) The provisions of this part authorizing the Secretary to 
promulgate regulations shall take effect on the date of enactment of 
this Act. 
(2) Upon application of a plan, the Secretary may postpone until 
not later than January 1, 1976, the applicability of any provision of 
sections 402, 403 (other than 403(c)), 405 (other than 405 (a) and 
(d)), and 410(a), as it applies to any plan in existence on the date 
of enactment of this Act if he determines such postponement is (A) 
necessary to amend the instrument establishing the plan under which 
the plan is maintained and (B) not adverse to the interest of partici-
pants and beneficiaries. 
(3) This part shall take effect on the date of enactment of this Act 
with respect to a plan which terminates after June 30, 1974, and 
before January 1,1975, and to which at the time of termination section 
4021 applies. 
29 u s e 1114. 
Post, 
p. 1014. 
890 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(c) Section 406 and 407(a) (relating to prohibited transactions) 
shall not apply— 
(1) until June 30, 1984, to a loan of money or other extension 
of credit between a plan and a party in interest under a binding 
contract in eflfect on July 1,1974 (or pursuant to renewals of such 
a contract), if such loan or other extension of credit remains at 
least as favorable to the plan as an arm's-length transaction with 
an unrelated party would be, and if the execution of the contract, 
the making of the loan, or the extension of credit was not, at the 
time of such execution, making, or extension, a prohibited trans-
action (within the meaning of section 503(b) of the Internal 
26 use 503. 
Revenue Code of 1954 or the corresponding provisions of prior 
law); 
(2) until June 30, 1984, to a lease or joint use of property 
involving the plan and a party in interest pursuant to a binding 
contract in effect on July 1, 1974 (or pursuant to renewals of 
such a contract), if such lease or joint use remains at least as 
favorable to the plan as an arm's-length transaction with an 
unrelated party would be and if the execution of the contract 
was not, at the time of such execution, a prohibited transaction 
(within the meaning of section 503(b) of the Internal Revenue 
Code of 1954) or the corresponding provisions of prior law; 
(3) until June 30, 1984, to the sale, exchange, or other disposi-
tion of property described in paragraph (2) between a plan and 
a party in interest if— 
(A) in the case of a sale, exchange, or other disposition of 
the property by the plan to the party in interest, the plan 
receives an amount which is not less than the fair market 
value of the property at the time of such disposition; and 
(B) in the case of the acquisition of the property by the 
plan, the plan pays an amount which is not in excess of the 
fair market value of the property at the time of such 
acquisition; 
(4) Until June 30, 1977, to the provision of services, to which 
paragraphs (1), (2), and (3) do not apply between a plan and 
a party in interest— 
(A) under a binding contract in effect on July 1, 1974 (or 
pursuant to renewals of such contract), or 
(B) if the party in interest ordinarily and customarily 
furnished such services on June 30, 1974, if such provision 
of services remains at least as favorable to the plan as an 
arm's-length transaction with an unrelated party would be 
and if such provision of services was not, at the time of such 
provision, a prohibited transaction (within the meaning of 
section 503(b) of the Internal Revenue Code of 1954) or the 
corresponding provisions of prior law; or 
(5) the sale, exchange, or other disposition of property which 
is owned by a plan on June 30, 1974, and all times thereafter, 
to a party in interest, if such plan is required to dispose of such 
property in order to comply with the provisions of section 407(a) 
(relating to the prohibition against holding excess employer secu-
rities and employer real property), and if the plan receives not 
less than adequate consideration. 
(d) Any election, or failure to elect, by a disqualified person under 
Post, p. 971. 
section 20b3(c) (1) (B) of this Act shall be treated for purposes of 
this part (but not for purposes of section 514) as an act or omission 
occurring before the effective date of this part. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
«91 
PART 5—^ADMINISTRATION AND ENFORCEMENT 
CRIMINAL PENALTIES 
SEC. 501. Any person who willfully violates any provision of part 1 
^^^^^^^ ^g^^; 
of this subtitle, or any regulation or order issued under any such 
provision, shall upon conviction be fined not more than $5,000 or 
imprisoned not more than one year, or both; except that in the case 
of such violation by a person not an individual, the fine imposed upon 
such person shall be a fine not exceeding $100,000. 
CIVIL ENFORCEMENT 
29 use 1132. 
Ante, p. 849. 
S E C 502. (a) A civil action may be brought— 
(1) by a participant or beneficiary— 
(A) for the relief provided for in subsection (c) of this 
section, or 
(B) to recover benefits due to him under the terms of his 
plan, to enforce his rights under the terms of the plan, or 
to clarify his rights to future benefits under the terms of the 
plan; 
(2) by the Secretary, or by a participant, beneficiary or fiduci-
ary for appropriate relief under section 409; 
(3) by a participant, beneficiary, or fiduciary (A) to enjoin 
any act or practice which violates any provision of this title or 
the terms of the plan, or (B) to obtain other appropriate equitable 
relief (i) to redress such violations or (ii) to enforce any provi-
sions of this title or the terms of the plan; 
(4) by the Secretary, or by a participant, or beneficiary for 
appropriate relief in the case of a violation of 105 (c); 
(5) except as otherwise provided in subsection (b), by the 
Secretary (A) to enjoin any act or practice which violates any 
provision of this title, or (B) to obtain other appropriate equita-
ble relief (i) to redress such violation or (ii) to enforce any provi-
sion of this title; or 
(6) by the Secretary to collect any civil penalty under subsec-
tion (i). 
(b) In the case of a plan which is qualified under section 401(a), 
403(a), or 405(a) of the Internal Revenue Code of 1954 (or with 403^ ^05^ "*"' 
respect to which an application to so qualify has been filed and has not 
been finally determined) the Secretary may exercise his authority 
under subsection (a) (5) with respct to a violation of, or the enforce-
ment of, parts 2 and 3 of this subtitle (relating to participation, vest- gel?'^' ^^' ^^^ 
ing, and funding), only if— 
(1) requested by the Secretary of the Treasury, or 
(2) one or more participants, beneficiaries, or fiduciaries, of 
such plan request in writing (in such manner as the Secretary 
shall prescribe by regulation) that he exercise such authority on 
their behalf. In the case of such a request under this paragraph 
he may exercise such authority only if he determines that such 
violation aifects, or such enforcement is necessary to protect, 
claims of participants or beneficiaries to benefits under the plan. 
(c) Any administrator who fails or refuses to comply with a request 
for any information which such administrator is required by this title 
to furnish to a participant or beneficiary (unless such failure or refusal 
results f 
rorn matters reasonably beyond the control of the administra-
tor) by mailing the material requested to the last known address of 
the requesting participant or beneficiary within 30 days after such 
request may in the court's discretion be personally li^ible to such par-
ticipant or beneficiary in the amount of up to $100 a day from the 
Jurisdiction. 
892 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
date of such failure or refusal, and the court may in its discretion order 
such other relief as it deems proper. 
(d) (1) An employee benefit plan may sue or be sued under this 
title as an entity. Service of summons, subpena, or other legal process 
of a court upon a trustee or an administrator of an employee benefit 
plan in his capacity as such shall constitute service upon the employee 
benefit plan. In a case where a plan has not designated in the summary 
plan description of the plan an individual as agent for the service of 
legal process, service upon the Secretary shall constitute such service. 
The Secretary, not later than 15 days after receipt of service under the 
preceding sentence, shall notify the administrator or any trustee of 
the plan of receipt of such service. 
(2) Any money judgment under this title against an employee bene-
fit plan shall be enforceable only against the plan as an entity and shall 
not be enforceable against any other person unless liability against 
such person is established in his individual capacity under this title. 
(e) (1) Except for actions under subsection (a)(1)(B) of this 
section, the district courts of the United States shall have exclusive 
jurisdiction of civil actions under this title brought by the Secreitary 
or by a participant, beneficiary, or fiduciary. State courts of competent 
jurisdiction and district courts of the L'nited States shall have con-
current jurisdiction of actions under subsection (a)(1)(B) of this 
section. 
(2) Where an action under this title is brought in a district court 
of the United States, it may be brought in the district whei'e the plan 
is administered, where the breach took place, or where a defendant 
I'esides or may be found, and process may be served in any other dis-
trict where a defendant resides or may be found. 
(f) The district courts of the United States shall have jurisdiction, 
without respect to the amount in controversy or the citizenship of the 
parties, to grant the relief provided for in subsection (a) of this 
section in any action. 
(g) In any action under this title by a participant, beneficiary, or 
fiduciary, the court in its discretion may allow a reasonable attorney's 
fee and costs of action to either part5^ 
(h) A copy of the complaint in any action under this title by a 
participant, beneficiary, or fiduciary (other than an action brought 
by one or more participants or beneficiaries under subsection 
(a)(1)(B) which is solely for the purpose of recovering benefits due 
such participants under the terms of the plan) shall be served upon the 
Secretary and the Secretary of the Treasury by certified mail. Either 
Secretary shall have the right in his discretion to intervene in any 
action, except that the Secretary of the Treasury may not intervene 
in any action under part 4 of this subtitle. If the Secretary brings 
an action under subsection (a) on behalf of a participant or bene-
ficiary, he shall notify the Secretary of the Treasury. 
^^^^^^y- 
(i) In the case of a transaction prohibited by section 406 by a party 
in interest with respect to a plan to which this part applies, the Sec-
retary may assess a civil penalty against such party in interest. The 
amount of such penalty may not exceed 5 percent of the amount 
involved (as defined in section 4975(f)(4) of the Internal Revenue 
Post, p. 971. 
Code of 1954); except that if the transaction is not corrected (in such 
manner as the Secretary shall prescribe by regulation, which r e f l a -
tions shall be consistent with section 4975(f) (5) of such Code) within 
90 days after notice from the Secretary (or such longer period as the 
Secretary may permit), such penalty may be in an amount not more 
than 100 percent of the amount invoh^'ed. This subsection shall not 
Ante, p. 874. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
893 
apply to a transaction with respect to a plan described in section 4975 
(e) (1) of such Code. 
P°«'. P- ^vi. 
(j) In all ciAdl actions under this title, attorneys appointed by the 
Secretary may represent the Secretary (except as provided in section 
518(a) of title 28, United States Code), but all such litigation shall 
be subject to the direction and control of the Attorney General. 
(k) Suits by an administrator, fiduciary, participant, or beneficiary 
of an employee benefit plan to review a final order of the Secretary, to 
restrain the Secretary from taking any action contrary to the provi-
sions of this Act, or to compel him to take action required under this 
title, may be brought in the district court of the United States for the 
district where the plan has its principal office, or in the United States 
District Court for the District of Columbia. 
29 u s e 1133,. 
CLAIMS PROCEDURE 
SEC. 503. In accordance with regulations of the Secretary, every 
employee benefit plan shall— 
(1) provide adequate notice in writing to any participant or 
beneficiary whose claim for benefits under the plan has been 
denied, setting forth the specific reasons for such denial, written 
in a manner calculated to be understood by the participant, and 
(2) afford a reasonable opportunity to any participant whose 
claim for benefits has been denied for a full and fair review by 
the appropriate named fiduciary of the decision denying the 
claim. 
INVESTIGATIVE AUTHORITY 
SEC. 504. (a) The Secretary shall have the power, in order to deter- 
^^ "^^^ ^^^'*' 
mine whether any person has violated or is about to violate any pro-
vision of this title or any regulation or order thereunder— 
(1) to make an investigation, and in connection therewith to 
require the submission of reports, books, and records, and the 
filing of data in support of any information required to be filed 
with the Secretary under this title, and 
(2) to enter such places, inspect such books and records and 
question such persons as he may deem necessary to enable him to 
determine the facts relative to such investigation, if he has rea-
sonable cause to believe there may exist a violation of this title 
or any rule or regulation issued thereunder or if the entry is 
pursuant to an agreement with the plan. 
The Secretary may make available to any person actually affected by 
any matter which is the subject of an investigation under this sec-
tion, and to any department or agency of the United States, 
information concerning any matter which may be the subject of such 
investigation; except that any information obtained by the Secretary 
pursuant to section 6103(g) of the Internal Eevenue Code of 1954 
Post, p. g4\. 
shall be made available only in accordance with regulations prescribed 
by the Secretary of the Treasury. 
(b) The Secretary may not under the authority of this section 
Books or 
require any plan to submit to the Secretary any books or records of Lbliity!' ^'"'^^^" 
the plan more than once in any 12 month period, unless the Secretary 
has reasonable cause to believe there may exist a violation of this title 
or any regulation or order thereunder. 
(c) For the purposes of any investigation provided for in this title, 
the provisions of sections 9 and 10 (relating to the attendance of wit-
nesses and the production of books, records, and documents) of the 
Federal Trade Commission Act (15 U.S.C. 49, 50) are hereby made 
applicable (without regard to any limitation in such sections respect-
894 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
ing persons, partnerships, banks, or common carriers) to the juris-
diction, powers, and duties of the Secretary or any officers designated 
by him. To the extent he considers appropriate, the Secretary may 
delegate his investigative functions under this section with respect to 
insured banks acting as fiduciaries of employee benefit plans to the 
appropriate Federal banking agency (as defined in section 3(q) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813 (q)). 
REGULATIONS 
^Po^t^'^ ^95^* 
^^^" ^^^' Subject to title I I I and section 109, the Secretary may 
Ante, p. 850. ' 
prcscribe such regulations as he finds necessary or appropriate to carry 
out the provisions of this title. Among other things, such regulations 
ma^ define accounting, technical and.trade terms used in such pro-
visions; may prescribe forms; and may provide for the keeping of 
books and records, and for the inspection of such books and records 
(subject to section 504 (a) and (b)). 
OTHER AGENCIES AND DEPARTMENTS 
29 use 1136. 
gj,Q_ 5(}g jj^ order to avoid unnecessary expense and duplication of 
functions among Government agencies, the Secretary may make such 
arrangements or agreements for cooperation or mutual assistance in 
the performance of his functions under this title and the functions 
of any such agency as he may find to be practicable and consistent with 
law. The Secretary may utilize, on a reimbursable or other basis, the 
facilities or services of any department, agency, or establishment of 
the United States or of any State or political subdivision of a State, 
including the services of any of its employees, with the lawful consent 
of such department, agency, or establishment; and each department, 
agency, or establishment of the United States is authorized and 
directed to cooperate with the Secretary and, to the extent permitted 
by law, to provide such information and facilities as he may request 
for his assistance in the performance of his functions under this title. 
The Attorney General or his representative shall receive from the 
Secretary for appropriate action such evidence developed in the per-
formance of his functions under this title as may be found to warrant 
consideration for criminal prosecution under the provisions of this 
title or other Federal law. 
ADMINISTRATION 
29 use 1137. 
gj,(.^ 5
Q
/
j
r
^ (^^ Subchapter II of chapter 5, and chapter 7, of title 5, 
5 use 551. 
United States Code (relating to administrative procedure), shall be 
applicable to this title, 
(b) Section 5108 of title 5, United States Code, is amended by 
adding at the end thereof the following new subsection: 
"(f) In addition to the number of positions authorized by subsec-
tion (a), the Secretary of Labor is authorized, without regard to any 
other provision of this section, to place 1 position in the Department 
of Labor in grade GS-18, and a total of 20 positions in the Department 
of Labor in grades GS-16 and 17." 
(c) No employee of the Department of Labor or the Department 
of the Treasury shall administer or enforce this title or the Internal 
Revenue Code of 1954 with respect to any employee benefit plan under 
which he is a participant or beneficiary, any employee organization 
of which he is a member, or any employer organization in which he 
has an interest. This subsection does not apply to an employee benefit 
plan which covers only employees of the United States. 
701. 
26 u s e 1 et 
seq. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
895 
APPROPRIATIONS 
SEC. 508. There are hereby authorized to be appropriated such 
sums as may be necessary to enable the Secretary to carry out his 
functions and duties under this Act. 
29 use 1138. 
SEPARABILITY PROVISIONS 
SEC. 509. If any provision of this Act, or the application of such 
provision to any person or circumstances, shall be held invalid, the 
remainder of this Act, or the application of such provision to persons 
or circumstances other than those as to which it is held invalid, shall 
not be affected thereby. 
29 use 1139. 
INTERFERENCE WITH RIGHTS PROTECTED UNDER ACT 
SEC. 510. It shall be unlawful for any person to discharge, fine, 
suspend, expel, discipline, or discriminate against a participant or 
beneficiary for exercising any right to which he is entitled under the 
provisions of an employee benefit plan, this title, section 3001, or the 
Welfare and Pension Plans Disclosure Act, or for the purpose of 
interfering with the attainment of any right to which such participant 
may become entitled under the plan, this title, or the Welfare and 
Pension Plans Disclosure Act. It shall be unlawful for any person to 
discharge, fine, suspend, expel, or discriminate against any person 
because he has given information or has testified or is about to testify in 
any inquiry or proceeding relating to this Act or the Welfare and 
Pensio;i Plans Disclosure Act, The provisions of section 502 shall be 
applicable in the enforcement of this section. 
29 use 1140. 
Post, p. 995. 
29 use 301 
note. 
29 use 1141. 
Penalty. 
COERCIVE I N T E R F E R E N C E 
SEC. 511. It shall be unlawful for any person through the use of 
fraud, force, violence, or threat of the use of force or violence, to 
restrain, coerce, intimidate, or attempt to restrain, coerce, or intimi-
date any participant or beneficiary for the purpose of interfering 
with or preventing the exercise of any right to which he is or may 
become entitled under the plan, this title, section 3001, or the Welfare 
and Pension Plans Disclosure Act. Any person who willfully violates 
this section shall be fined $10,000 or imprisoned for not more than one 
year, or both. 
ADVISORY COUNCIL 
SEC. 512. (a) (1) There is hereby established an Advisory Council cu1,n'E°mpi^yer 
on Employee Welfare and Pension Benefit Plans (hereinafter in this welfare and Pen-
section referred to as the "Council") consisting of fifteen members ^i°^f 
®"^^'* 
appointed by the Secretary. Not more than eight members of the 
Council shall be members of the same political party. 
(2) Members shall be persons qualified to appraise the programs 
instituted under this Act. 
(3) Of the members appointed, three shall be representatives of 
employee organizations (at least one of whom shall be representative of 
any organization members of which are participants in a multiem-
ployer plan); three shall be representatives of employers (at least 
one of whom shall be representative of employers maintaining or con-
tributing to multiemployer plans) ; three representatives shall be 
appointed from the general public, one of whom shall be a person repre-
senting those receiving benefits from a pension plan; and there shall 
Establishment. 
29 use 1142. 
Membership. 
Duties. 
896 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
be one representative each from the fields of insurance, corporate trust, 
actuarial counseling, investment counseling, investment management, 
and the accounting field. 
(4) Members shall serve for terms of three years except that of those 
first appointed, five shall be appointed for terms of one year, five shall 
be appointed for terms of two years, and five shall be appointed for 
terms of three years. A member may be reappointed. A member 
appointed to fill a vacancy shall be appointed only for the remainder 
of such term. A majority of members shall constitute a quorum and 
action shall be taken only by a majority vote of those present and 
voting. 
(b) It shall be the duty of the Council to advise the Secretary with 
respect to the carrying out of his functions under this Act and to 
submit to the Secretary recommendations with respect thereto. The 
Council shall meet at least four times each year and at such other times 
as the Secretary requests. In his annual report submitted pursuant to 
section 513(b), the Secretary shall include each recommendation which 
he has received from the Council during the preceding calendar year. 
(c) The Secretary shall furnish to the Council an executive secre-
tary and such secretarial, clerical, and other services as are deemed 
necessary to conduct its business. The Secretary may call upon other 
agencies of the Government for statistical data, reports, and other 
information which will assist the Council in the performance of its 
duties. 
(d) (1) Members of the Council shall each be entitled to receive the 
daily equivalent of the annual rate of basic pay in effect for grade 
GS-18 of the General Schedule for each day (including travel time) 
during which they are engaged in the actual performance of duties 
vested in the Council. 
(2) While away from their homes or regular places of business in 
the performance of services for Council, members of the Council shall 
be allowed travel expenses, including per diem in lieu of subsistence, 
in the same manner as persons employed intermittently in the Govern-
ment service are allowed expenses under section 5703(b) of title 5 of 
the United States Code. 
(e) Section 14(a) of the Federal Advisory Committee Act (relat-
ing to termination) shall not apply to the Council. 
5 u s e 5332 
and note. 
Travel ex-
penses. 
5 use app. 14. 
29 use 1143. 
RESEARCH, STUDIES, AND ANNUAL REPORT 
SEC. 513. (a) (1) The Secretary is authorized to undertake research 
and surveys and in connection therewith to collect, compile, analyze 
and publish data, information, and statistics relating to employee bene-
fit plans, including retirement, deferred compensation, and welfare 
plans, and types of plans not subject to this Act. 
(2) The Secretary is authorized and directed to undertake research 
studies relating to pension plans, including but not limited to (A) 
the effects of this title upon the provisions and costs of pension plans, 
(B) the role of private pensions in meeting the economic security 
needs of the Nation, and (C) the operation of private pension plans 
including types and levels of benefits, degree of reciprocity or porta-
bility, and financial and actuarial characteristics and practices, and 
methods of encouraging the growth of the private pension system. 
(3) The Secretary may, as he deems appropriate or necessary, 
undertake other studies relating to employee benefit plans, the matters 
regulated by this title, and the enforcement procedures provided for 
under this title. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
897 
(4) The research, surveys, studies, and publications referred to in 
this subsection may be conducted directly, or indirectly through grant 
or contract arrangements. 
(b) The Secretary shall submit annually a report to the Congress ^f^^°J^J'° 
covering his administration of this title for the preceding year, and 
°"^''^^^-
including (1) an explanation of any variances or extensions granted 
under section 110, 207, 303, or 304 and the projected date for terminat- 
Ante, pp. ssi, 
ing the variance; (2) the status of cases in enforcement status; (3) ^^^' *^^' ^^^' 
recommendations received from the Advisory Council during the pre-
ceding year; and (4) such information, data, research findings, studies, 
and recommendations for further legislation in connection with the 
matters covered by this title as he may find advisable. 
(c) The Secretary is authorized and directed to cooperate with the 
Congress and its appropriate committees, subcommittees, and staff in 
supplying data and any other information, and personnel and services, 
required by the Congress in any study, examination, or report by the 
Congress relating to pension benefit plans established or maintained 
by States or their political subdivisions. 
EFFECT ON OTHER LAWS 
SEC. 514. (a) Except as provided in subsection (b) of this section, 
29 use 1144. 
the provisions of this title and title IV shall supersede any and all 
P°^^> ?• 1003. 
State laws insofar as they may now or hereafter relate to any employee 
benefit plan described in section 4(a) and not exempt under section 
^"'^' P- 83^. 
4(b). This section shall take effect on January 1, 1975. 
(b) (1) This section shall not apply with respect to any cause of 
action which arose, or any act or omission which occurred, before 
January 1,1975. 
(2) (A) Except as provided in subparagraph (B), nothing in this 
title shall be construed to exempt or relieve any person from any law 
of any State which regulates insurance, bankmg, or securities. 
(B) Neither an employee benefit plan described in section 4(a), 
which is not exempt under section 4(b) (other than a plan established 
primarily for the purpose of providing death benefits), nor any trust 
established under such a plan, shall be deemed to be an insurance 
company or other insurer, bank, trust company, or investment company 
or to be engaged in the business of insurance or banking for purposes of 
any law of any State purporting to regulate insurance companies, 
insurance contracts, banks, trust companies, or investment companies. 
(3) Nothing in this section shall be construed to prohibit use by the 
Secretary of services or facilities of a State agency as permitted under 
section 506 of this Act. 
(4) Subsection (a) shall not apply to any generally applicable 
criminal law of a State. 
(c) For purposes of this section: 
(1) The term "State law" includes all laws, decisions, rules, "state law." 
regulations, or other State action having the effect of law, of any 
State. A law of the United States applicable only to the District 
of Columbia shall be treated as a State law rather than a law of 
the United States. 
(2) The term "State" includes a State, any political subdivi- 
"state." 
sions thereof, or any agency or instrumentality of either, which 
purports to regulate, directly or indirectly, the terms and condi-
tions of employee benefit plans covered by this title. 
(d) Nothing in this title shall be construed to alter, amend, modify, 
invalidate, impair, or supersede any law of the United States (except 
as provided in sections 111 and 507(b)) or any rule or regulation issued ggl"'^' ^^" ^^^' 
under any such law. 
898 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
TITLE II—AMENDMENTS TO THE INTER-
NAL REVENUE CODE RELATING TO 
RETIREMENT PLANS 
SEC. 1001. AMENDMENT OF INTERNAL REVENUE CODE OF 1954. 
Except as otherwise expressly provided, whenever in this title an 
amendment or repeal is expressed in terms of an amendment to, or 
repeal of, a section or other provision, the reference shall be considered 
to be made to a section or other provision of the Internal Revenue Code 
of 1954. 
26 u s e 1 et 
seq. 
26 use 410. 
Subtitle A—Participation, Vesting, Funding, 
Administration, Etc. 
PART 1—PARTICIPATION, VESTING, AND FUNDING 
SEC. 1011. MINIMUM PARTICIPATION STANDARDS. 
Part I of subchapter D of chapter 1 (relating to pension, profit-
sharing, stock bonus, plans, etc.) is amended by addmg at the end 
thereof the following: 
"Subpart B—Special Rules 
"Sec. 410. Minimum participation standards. 
"Sec. 411. Minimum vesting standards. 
"Sec. 412. Minimum funding standards. 
"Sec. 413. Collectively bargained plans. 
"Sec. 414. Definitions and special rules. 
"Sec. 415. Limitations on benefits and contributions under qualified 
plans. 
"SEC. 410. MINIMUM PARTICIPATION STANDARDS. 
" ( a ) 
PARTICIPATION.— 
"(1) 
M I N I M U M AGE AND SERVICE CONDITIONS.— 
" (A) GENERAL RULE.—A trust shall not constitute a quali-
fied trust under section 401 (a) if the plan of which it is a part 
requires, as a condition of participation in the plan, that an 
employee complete a period of service with the employer or 
employers maintaining the plan extending beyond the later 
of the following dates— 
"(i) the date on which the employee attains the age 
of 25; or 
" (ii) the date on which he completes 1 year of service. 
"(B) 
SPECIAL RULES FOR CERTAIN PLANS.— 
"(i) In the case of any plan which provides that after 
not more than 3 years of service each participant has a 
right to 100 percent of his accrued benefit under the plan 
which is nonforfeitable (within the meaning of section 
Post, p. 901. 
^^^y^ ^^ ^YiQ time such benefit accrues, clause (ii) of sub-
paragraph (A) shall be applied by substituting '3 years 
of service' for '1 year of service'. 
"(ii) In the case of any plan maintained exclusively 
for employees of an educational institution (as defined 
^^ ^^^ '^°- 
in section 170(b) (1) (A) (ii)) by an employer which is 
26 use 501. 
exempt from tax under section 501(a) which provides 
that each participant having at least 1 year of service has 
a right to 100 percent of his accrued benefit under the 
plan which is nonforfeitable (within the meaning of sec-
Post, p. 901. 
^ion 411) at the time such benefit accrues, clause (i) of 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
899 
subparagraph (A) shall be applied by substituting '30' 
for '25'. This clause shall not apply to any plan to which 
clause (i) applies. 
"(2) MAXIMUM A
G
E CONDITIONS.—A trust shall not constitute a 
qualified trust under section 401(a) if the plan of which it is a 
^e use 401. 
part excludes from participation (on the basis of age) employees 
who have attained a specified age, unless— 
" (A) the plan is a— 
"(i) defined benefit plan, or 
"(ii) target benefit plan (as defined under regulations 
prescribed by the Secretary or his delegate), and 
"(B) such employees begin employment with the employer 
after they have attained a specified age which is not more 
than 5 years before the normal retirement age under the plan. 
"(3) DEFINITION OF YEAR OF SERVICE.— 
" (A) GENERAL RULE.—For purposes of this subsection, the 
term 'year of service' means a 12-month period during which 
the employee has not less than 1,000 hours of service. For 
purposes of this paragraph, computation of any 12-month 
period shall be made with reference to the date on which the 
employee's employment commenced, except that, under regu-
lations prescribed by the Secretary of Labor, such computa-
tion may be made by reference to the first day of a plan year 
in the case of an employee who does not complete 1,000 hours 
of service during the 12-month period beginning on the date 
bis employment commenced. 
"(B) SEASONAL INDUSTRIES.—In the case of any seasonal 
industry where the customary period of employment is less 
than 1,000 hours during a calendar year, the term 'year of 
service' shall be such period as may be determined under 
regulations prescribed by the Secretary of Labor. 
"(C) HOURS OF SERVICE.—For purposes of this subsection, 
the term 'hour of service' means a time of service determined 
under regulations prescribed by the Secretary of Labor. 
"(D) MARITIME INDUSTRIES.—For purposes of this sub-
section, in the case of any maritime industry, 125 days of 
service shall be treated as 1,000 hours of service. The Secre-
tary of Labor may prescribe regulations to carry out this 
subparagraph. 
"(4) TIME OF PARTICIPATION.—A plan shall be treated as not 
meeting the requirements of paragraph (1) unless it provides 
that any employee who has satisfied the minimum age and service 
requirements specified in such paragraph, and who is otherwise 
entitled to participate in the plan, commences participation in the 
plan no later than the earlier of— 
" (A) the first day of the first plan year beginning after the 
date on which such employee satisfied such requirements, or 
"(B) the date 6 months after the date on which he satisfied 
such requirements, 
unless such employee was separated from the service before the 
date referred to in subparagraph (A) or (B), whichever is 
applicable. 
" (5) BREAKS IN SERVICE.— 
"(A) GENERAL RULE.—Except as otherwise provided in 
subparagraphs (B), (C), and (D), all years of service with 
the employer or employers maintaining the plan shall be taken 
into account in computing the period of service for purposes 
of paragraph (1). 
900 
PUBLIC L
A
W 93-406-SEPT. 2, 1974 
[88 STAT. 
"(B) 
EMPLOYEES UNDER 3-YEAR loo PERCENT VESTING.— 
In the case of any employee who has any 1-year break in serv-
Post, p. 901. 
{QQ (as defined m section 411(a)(6)(A)) under a plan to 
which the service requirements of clause (i) of paragraph (1) 
(B) apply, if such employee has not satisfied such require-
ments, service before such break shall not be required to be 
taken into account. 
"(C) 1-YEAR BREAK IN SERVICE.—In Computing an employ-
ee's period of service for purposes of subsection (a) (1) in 
the case of any participant who has any 1-year break in 
service (as defined in section 411(a)(6)(A)), service before 
such break shall not be required to be taken into account under 
the plan until he has completed a year of service (as defined 
in paragraph (3)) after his return. 
"(D) NoNVESTED PARTICIPANTS.^—In the case of a partici-
pant who does not have any nonforfeitable right to an 
accrued benefit derived from employer contributions, years 
of service with the employer or employers maintaining the 
plan before a break in service shall not be required to be 
taken into account in computing the period of service for 
purposes of subsection (a) (1) if the number of consecutive 
1-year breaks in service equals or exceeds the aggregate num-
ber of such years of service before such break. Such aggregate 
number of years of service before such break shall be deemed 
not to include any years of service not required to be taken 
into account under this subparagraph by reason of any prior 
break in service. 
"(b) 
ELIGIBILITY.— 
" (1) I N GENERAL,—A trust shall not constitute a qualified trust 
26 use 401. 
under section 401(a) unless the trust, or two or more trusts, or 
the trust or trusts and annuity plan or plans are designated by the 
employer as constituting parts of a plan intended to qualify under 
section 401 (a) which benefits either— 
" (A) 70 percent or more of all employees, or 80 percent or 
more of all the employees who are eligible to benefit under the 
plan if 70 percent or more of all the employees are eligible to 
benefit under the plan, excluding in each case employees who 
have not satisfied the minimum age and service requirements, 
if any, prescribed by the plan as a condition of participation, 
or 
"(B) such employees as qualify under a classification set 
up by the employer and found by the Secretary or his dele-
gate not to be discriminatory in favor of employees who are 
officers, shareholders, or highly compensated. 
" (2) EXCLUSION OF CERTAIN EMPLOYEES.—For purposes of para-
graph (1), there shall be excluded from consideration— 
" (A) employees not included in the plan who are included 
in a unit of employees covered by an agreement which the 
Secretary of Labor finds to be a collective bargaining agree-
ment between employee representatives and one or more 
employers, if there is evidence that retirement benefits were 
the subject of good faith bargaining between such employee 
representatives and such employer or employers, 
"(B) in the case of a trust established or maintained pur-
suant to an agreement which the Secretary of Labor finds 
to be a collective bargaining agreement between air pilots 
represented in accordance with title I I of the Railway Labor 
45 use 181. 
^Q^^ a^j^jj Qj^g QY jjiore employers, all employees not covered 
by such agreement, and 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
901 
26 use 911. 
26 use 861. 
"(C) employees who are nonresident aliens and who receive 
no earned income (within the meaning of section 911(b)) 
from the employer which constitutes income from sources 
within the United States (within the meaning of section 
861(a)(3)). 
Subparagraph (B) shall not apply in the case of a plan which 
provides contributions or benefits for employees whose principal 
duties are not customarily performed aboard aircraft in flight. 
"(c) 
APPLICATION 
OF 
PARTICIPATION 
STANDARDS 
TO 
CERTAIN 
PLANS.— 
"(1) The provisions of this section (other than paragraph (2) 
of this subsection) shall not apply to— 
"(A) a governmental plan (within the meaning of section 
4 1 4 ( d ) ) , 
Post. p. 925. 
"(B) a church plan (within the meaning of section 414 (e)) 
with respect to which the election provided by subsection (d) 
of this section has not been made, 
"(C) a plan which has not at any time after the date of 
the enactment of the Employee Retirement Income Security 
Act of 1974 provided for employer contributions, and 
"(D) a plan established and maintained by a society, order, 
or association described in-section 501(c)(8) or (9) if no 
26use5oi. 
part of the contributions to or under such plan are made by 
employers of participants in such plan. 
"(2) A plan described in paragraph (1) shall be treated as 
meeting the requirements of this section, for purposes of section 
401 (a), if such plan meets the requirements of section 401 (a)(3) 
^6 use 4oi. 
as in effect on the day before the date of the enactment of this 
section. 
"(d) 
ELECTION BY CHURCH TO HAVE PARTICIPATION, VESTING, 
FUNDING, ETC., PROVISIONS APPLY.— 
" (1) I N GENERAL.—If the church or convention or association 
of churches which maintains any church plan makes an election 
under this subsection (in such form and manner as the Secretary 
or his delegate may by regulations prescribe), then the provisions 
of this title relating to participation, vesting, funding, etc. (as in 
effect from time to time) shall apply to such church plan as if 
such provisions did not contain an exclusion for church plans. 
" (2) ELECTION IRREVOCABLE.—An election under this subsection 
with respect to any church plan shall be binding with respect to 
such plan, and, once made, shall be irrevocable." 
SEC. 1012. MINIMUM VESTING STANDARDS. 
(a) I N GENERAL.—Subpart B of part I of subchapter D of chapter 
1 is amended by adding after section 410 the following new section: 
"SEC. 411. MINIMUM VESTING STANDARDS. 
26 use 4ii. 
"(a) GENERAL RULE.—A trust shall not constitute a qualified trust 
under section 401(a) unless the plan of which such trust is a part 
provides that an employee's right to his normal retirement benefit is 
nonforfeitable upon the attainment of normal retirement age (as 
defined in subsection (a)(8)) and in addition satisfies the requirements 
of paragraphs (1) and (2) of this subsection and the requirements of 
paragraph (2) of subsection (b), and in the case of a defined benefit 
plan, also satisfies the requirements of paragraph (1) of subsection 
(b). 
"(1) EMPLOYEE CONTRIBUTIONS.—A plan satisfies the require-
ments of this paragraph if an employee's rights in his accrued 
benefit derived from his own contributions are nonforfeitable. 
<«R.104 n - 7fi - RO T>t 
1 
902 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(2) EMPLOYER CONTRIBUTIONS.—^A plan satisfies the require-
ments of this paragraph if it satisfies the requirements of sub-
paragraph (A), (B),or (C). 
"(A) 10-YEAR VESTING.—A plan satisfies the requirements 
of this subparagraph if an employee who has at least 10 years 
of service has a nonforfeitable right to 100 percent of his 
accrued benefit derived from employer contributions. 
"(B) 5- T
O 15-YEAR VESTING.—A plan Satisfies the require-
ments of this subparagraph if an employee who has completed 
at least 5 vears of service has a nonforfeitable right to a per-
centage of his accrued benefit derived from employer contri-
butions which percentage is not less than the percentage 
determined under the following table: 
„ 
. 
. 
Nonforfeitable 
"Years of service: 
percentage 
5 
25 
6 
30 
7 
~ 
35 
8 
- 
- 
40 
9 
45 
10 
50 
11 
60 
12 
- 70 
13 
80 
14 
90 
15 or more 
100. 
"(C) 
RULE OF 45,— 
"(i) A plan satisfies the requirements of this subpar-
agraph if an employee who is not separated from the serv-
ice, who has completed at least 5 years of service, and 
with respect to whom the sum of his age and years of 
service equals or exceeds 45, has a nonforfeitable right 
to a percentage of his accrued benefit derived from 
employer contributions determined under the following 
table: 
"If years of 
and sum of age 
then the 
service equal 
and service equals 
nonforfeitable 
or exceed— 
or exceeds— 
percentage is— 
5 
45 
50 
6 
47 
60 
7 
49 
70 
8 
51 
80 
9 
53 
90 
10 
55 
100. 
"(ii) Notwithstanding clause (i), a plan shall not be 
treated as satisfying the requirements of this subpara-
graph unless any employee who has completed at least 10 
years of service has a nonforfeitable right to not less than 
50 percent of his accrued benefit derived from employer 
contributions and to not less than an additional 10 per-
cent for each additional year of service thereafter. 
"(3) 
CERTAIN 
PERMITTED FORFEITURES, SUSPENSIONS, ETC.— 
For purposes of this subsection— 
"(A) FORFEITURE ON ACCOUNT OF DEATH.—A right to an 
accrued benefit derived from employer contributions shall not 
be treated ns forfeitable solely because the plan provides that 
it is not payable if the participant dies (except in the case of 
a survivor annuity which is payable as provided in section 
Post. p. 935. 
401(a) (11)). 
"(B) 
SUSPENSION OF BENEFITS UPON REEMPLOYMENT OF 
RETIREE.—A right to an accrued benefit derived from employer 
88 STAT.] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
903 
contributions shall not be treated as forfeitable solely because 
the plan provides that the payment of benefits is suspended 
for such period as the employee is employed, subsequent to 
the commencement of payment of such benefits— 
"(i) in the case of a plan other than a multiemployer 
plan, by the employer who maintains the plan under 
which such benefits were being paid; and 
"(ii) in the case of a multiemployer plan, in the same 
industry, the same trade or craft, and the same geo-
graphic area covered by the plan as when such benefits 
commenced. 
The Secretary of Labor shall prescribe such regulations as 
may be necessary to carry out the purposes of this subpara-
graph, including regulations with respect to the meaning of 
the term'employed'. 
"(C) EFFECT OF RETROACTIVE PLAN AMENDMENTS.—A right 
to an accrued benefit derived from employer contributions 
shall not be treated as forfeitable solely because plan amend-
ments may be given retroactive application as provided in 
section 412 (c)(8). 
"(D) 
WITHDRAWAL, or MANDATORY CONTRIBUTION.— 
"(i) A right to an accrued benefit derived from 
employer contributions shall not be treated as forfeitable 
solely because the plan provides that, in the case of a 
participant who does not have a nonforfeitable right to 
at least 50 percent of his accrued benefit derived from 
employer contributions, such accrued benefit may be for-
feited on account of the withdrawal by the participant 
of any amount attributable to the benefit derived f 
i-om 
mandatory contributions (as defined in subsection (c) 
(2) (C)) made by such participant. 
"(ii) Clause (i) shall not apply to a plan unless the 
plan provides that any accrued benefit forfeited under 
a plan provision described in such clause shall be restored 
upon repayment by the participant of the full amount of 
the withdrawal described in such clause plus, in the case 
of a defined benefit plan, interest. Such interest shall be 
computed on such amount at the rate determined for pur-
poses of subsection (c)(2)(C) on the date of such repay-
ment (computed annually from the date of such with-
drawal). In the case of a defined contribution plan, the 
plan provision required under this clause may provide 
that such repayment must be made before the participant 
has any one-year break in service commencing after the 
withdrawal. 
"(iii) In the case of accrued benefits derived from 
employer contributions which accrued before the date 
of the enactment of the Employee Retirement Income 
Security Act of 1974,^ a right to such accrued benefit 
derived from employer contributions shall not be treated 
as forfeitable solely because the plan provides that an 
amount of such accrued benefit may be forfeited on 
account of the withdrawal by the participant of an 
amount attributable to the benefit derived from manda-
tory contributions (as defined in subsection (c)(2)(C)) 
made by such participant before the date of the enactment 
of the Act if such amount forfeited is proportional to such 
amount withdrawn. This clause shall not apply to any 
plan to which any mandatory contribution is made after 
the date of the enactment of such Act. The Secretary or 
Regulations. 
Post, 
p. 914. 
Ante, 
p. 829. 
Regulations. 
904 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
his delegate shall prescribe such regulations as may be 
necessary to carry out the purposes of this clause. 
"(iv) For purposes of this subparagraph, in the case 
of any class-year plan, a withdrawal of employee con-
tributions shall be treated as a withdrawal of such con-
tributions on a plan year by plan year basis in succeeding 
order of time. 
"(v) For nonforfeitability where the employee has a 
nonforfeitable right to at least 50 percent of his accrued 
^^ "^^ ''°^- 
benefit, see section 401 (a) (19). 
"(4) 
SERVICE INCLUDED IN DETERMINATION OF NONFORFEITABLE 
PERCENTAGE.—In Computing the period of service under the plan 
for purposes of determining the nonforfeitable percentage under 
paragraph (2), all of an employee's years of service with the 
employer or employers maintaining the plan shall be taken into 
account, except that the following may be disregarded: 
"(A) years of service before age 22, except that in the case 
of a plan which does not satisfy subparagraph (A) or (B) 
of paragraph (2), the plan may not disregard any such year 
of service during which the employee was a participant; 
"(B) years of service during a period for which the 
employee declined to contribute to a plan requiring employee 
contributions; 
"(C) years of service with an employer during any period 
for which the employer did not maintain the plan or a prede-
cessor plan (as defined under regulations prescribed by the 
Secretary or his delegate) ; 
"(D) service not required to be taken into account under 
paragraph (6) ; 
"(E) years of service before January 1, 1971, unless the 
employee has had at least 3 years of service after December 31, 
1970; and 
"(F) years of service before the first plan year to which this 
section applies, if such service would have been disregarded 
under the rules of the plan with regard to breaks in service as 
in effect on the applicable date. 
" ( 5 ) 
Y E A R OF SERVICE.— 
"(A) GENERAL RULE.—For purposes of this subsection, 
except as provided in subparagraph (C), the term 'year of 
service' means a calendar year, plan year, or other 12-consec-
utive month period designated by the plan (and not prohibited 
under regulations prescribed by the Secretary of Labor) dur-
ing which the participant has completed 1,000 hours of service. 
"(B) HOURS OF SERVICE.—For purposes of this subsection, 
the term 'hours of service' has the meaning provided by sec-
tion 410(a) (3) (C). 
"(C) SEASONAL INDUSTRIES.—In the case of any seasonal 
industry where the customary period of employment is less 
than 1,000 hours during a calendar year, the term 'year of 
service' shall be such period as may be determined under reg-
ulations prescribed by the Secretary of Labor. 
"(D) MARITIME INDUSTRIES.—For purposes of this sub-
section, in the case of any maritime industry, 125 days of serv-
ice shall be treated as 1,000 hours of service. The Secretary 
of Labor may prescribe regulations to carry out the purposes 
of this subparagraph. 
"(6) 
BREAKS IN SERVICE.— 
"(A) DEFINITION OF I-YEAR BREAK IN SERVICE.—For pur-
poses of this paragraph, the term '1-year break in service' 
Ante, 
p. 898. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
905 
means a calendar year, plan year, or other 12-consecutive-
month period, designated by the plan (and not prohibited 
under regulations prescribed by the Secretary of Labor) dur-
ing which the participant has not completed more than 500 
hours of service. 
"(B) 1 Y
E
A
R or SERVICE AFTER 1-YEAR BREAK IN SERV-
ICE.—For purposes of paragraph (4), in the case of any 
employee who has any 1-year break in service, years of service 
before such break shall not be required to be taken into 
account until he has completed a year of service after his 
return. 
" ( C ) 
1-YEAR BREAK I N SERVICE UNDER DEFINED CONTRIBUTION 
PLAN.—For purposes of paragraph (4), in the case of any 
participant in a defined contribution plan, or an insured 
defined benefit plan which satisfies the requirements of sub-
section (b)(1)(F), who has any 1-year break in service, years 
of service after such break shall not be required to be taken 
into account for purposes of determining the nonforfeitable 
percentage of his accrued benefit derived from employer con-
tributions which accrued before such break. 
"(D) NoNVESTED PARTICIPANTS.—For purposcs of para-
graph (4), in the case of a participant who, under the plan, 
does not have any nonforfeitable right to an accrued benefit 
derived from employer contributions, years of service before 
any 1-year break in service shall not be required to be taken 
into account if the number of consecutive 1-year breaks in 
service equals or exceeds the aggregate number of such years 
of service prior to such break. Such aggregate number of 
years of service before such break shall be deemed not to 
include any years of service not required to be taken into 
account under this subparagraph by reason of any prior 
break in service. 
"(7) ACCRUED BENEFIT.— 
"(A) I N GENERAL.—For purposes of this section, the term 
'accrued benefit' means— 
"(i) in the case of a defined benefit plan, the employ-
ee's accrued benefit determined under the plan and, except 
as provided in subsection (c) (3), expressed in the form 
of an annual benefit commencing at normal retirement 
age, or 
" (ii) in the case of a plan which is not a defined benefit 
plan, the balance of the employee's account. 
"(B) EFFECT OF CERTAIN DISTRIBUTIONS.—Notwithstand-
ing paragraph (4), for purposes of determining the employ-
ee's accrued benefit under the plan, the plan may disregard 
service performed by the employee with respect to which 
he has received— 
"(i) a distribution of the present value of his entire 
nonforfeitable benefit if such distribution was in an 
amount (not more than $1,750) permitted under regula-
tions prescribed by the Secretary or his delegate, or 
"(ii) a distribution of the present value of his non-
forfeitable benefit attributable to such service which he 
elected to receive. 
Clause (i) of this subparagraph shall apply only if such dis-
tribution was made on termination of the employee's Dartici-
pation in the plan. Clause (ii) of this subparagraph shall 
apply only if such distribution was made on termination of 
the employee's participation in the plan or under such other 
906 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
circumstances as may be provided under regulations pre-
scribed by the Secretary or his delegate. 
"(C) REPAYMENT OF SUBPARAGRAPH (b) DISTRIBUTIONS.— 
For purposes of determining the employee's accrued benefit 
under a plan, the plan may not disregard service as provided 
in subparagraph (B) unless the plan provides an opportunity 
for the participant to repay the full amount of the distribu-
tion described m such subparagraph (B) with, in the case of a 
defined benefit plan, interest at the rate determined for pur-
poses of subsection (c) (2) (C) and provides that upon such 
repayment the employee's accrued benefit shall be recom-
puted by taking into account service so disregarded. This sub-
paragraph shall apply only in the case of a participant Avho— 
"(i) received such a distribution in any plan year 
to which this section applies, which distribution was 
less than the present value of his accrued benefit, 
"(ii) resumes employment covered under the plan, 
and 
" (iii) repays the full amount of such distribution with, 
in the case of a defined benefit plan, interest at the rate 
determined for purposes of subsection (c)(2)(C). 
In the case of a defined contribution plan, the plan provi-
sion required under this subparagraph may provide that such 
repayment must be made before the participant has any one-
year break in service commencing after such withdrawal. 
"(8) NORMAL RETIREMENT AGE.—For purposes of this section, 
the term 'normal retirement age' means the earlier of— 
"(A) the time a plan participant attains normal retire-
ment age under the plan, or 
"(B) the later of— 
"(i) the time a plan participant attains age 65, or 
"(ii) the 10th anniversary of the time a plan partici-
pant commenced participation in the plan. 
"(9) NORMAL RETIREMENT BENEFIT.—For purposes of this sec-
tion, 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— 
" (A) medical benefits, and 
"(B) disability benefits not in excess of the qualified dis-
ability 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 pur-
poses of this paragraph, the early retirement benefit under a 
plan shall be determined without regard to any benefits com-
mencing before benefits payable under title I I of the Social 
Security Act become payable which— 
"(i) do not exceed such social security benefits, and 
"(ii) terminate when such social security benefits com-
mence. 
" (10) CHANGES IN VESTING SCHEDULE.— 
"(A) GENERAL RULE.—A plan amendment changing any 
vesting schedule under the plan shall be treated as not satisfy-
42 use 401, 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
907 
ing the requirements of paragraph (2) if the nonforfeitable 
percentage of the accrued benefit derived from employer 
contributions (determined as of the later of the date such 
amendment is adopted, or the date such amendment becomes 
effective) of any employee who is a participant in the plan is 
less than such nonforfeitable percentage computed under the 
plan without regard to such amendment. 
"(B) ELECTION or FORMER SCHEDULE.—A plan amend-
ment changing any vesting schedule under the plan shall be 
treated as not satisfying the requirements of paragraph (2) 
unless each participant having not less than 5 years of serv-
ice is permitted to elect, within a reasonable period after the 
adoption of such amendment, to have his nonforfeitable per-
centage computed under the plan without regard to such 
amendment. 
"(b) 
ACCRUED BENEFIT REQUIREMENTS.— 
(1) GENERAL RULES.— 
"(A) 3-PERCENT METHOD.—A defined benefit plan satisfies 
the requirements of this paragraph if the accrued benefit to 
which each participant is entitled upon his separation from 
the service is not less than— 
"(i) 3 percent of the normal retirement benefit to 
which he would be entitled if he commenced participation 
at the earliest possible entry age under the plan and 
served continuously until the earlier of age 65 or the nor-
mal retirement age specified under the plan, multiplied 
by .. 
"(ii) thenumber of years (not in excess of 3314) of his 
participation in the plan. 
In the case of a plan providing retirement benefits based 
on compensation during any period, the normal retirement 
benefit to which a participant would be entitled shall be deter-
mined as if he continued to earn annually the average rate 
of compensation which he earned during consecutive years of 
service, not in excess of 10, for which his compensation was the 
highest. For purposes of this subparagraph, social security 
benefits and all other relevant factors used to compute bene-
fits shall be treated as remaining constant as of the current 
year for all years after such current year. 
"(B) 1331/^ PERCENT RULE.—A defined benefit plan satisfies 
the requirements of this paragraph for a particular plan year 
if under the plan the accrued benefit payable at the normal 
retirement age is equal to the normal retirement benefit and 
the annual rate at which any individual who is or could be a 
participant can accrue the retirement benefits payable at 
normal retirement age under the plan for any later plan year 
is not more than I33I/3 percent of the annual rate at which he 
can accrue benefits for any plan year beginning on or after 
such particular plan year and before such later plan year. For 
purposes of this subparagraph— 
"(i) any amendment to the plan which is in effect for 
the current year shall be treated as in effect for all other 
plan years; 
"(ii) any change in an accrual rate which does not 
apply to any individual who is or could be a participant 
in the current year shall be disregarded; 
908 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(iii) the fact that benefits under the plan may be 
payable to certain employees before normal retirement 
age shall be disregarded; and 
"(iv) social security benefits and all other relevant fac-
tors used to compute benefits shall be treated as remaining 
constant as of the current year for all years after the 
current year. 
"(C) FRACTIONAL RULE.—A defined benefit plan satisfies the 
requirements of this paragraph if the accrued benefit to which 
any participant is entitled upon his separation from the 
service is not less than a fraction of the annual benefit com-
mencing at normal retirement age to which he would be 
entitled under the plan as in efi'ect on the date of his separation 
if he continued to earn annually until normal retirement age 
the same rate of compensation upon which his normal retire-
ment benefit would be computed under the plan, determined 
as if he had attained normal retirement age on the date on 
which any such determination is made (but taking into 
account no more than the 10 years of service immediately pre-
ceding his separation from service). Such fraction shall be 
a fraction, not exceeding 1, the numerator of which is the 
total number of his years of participation in the plan (as of 
the date of his separation from the service) and the denomina-
tor of which is the total number of years he would have par-
ticipated in the plan if he separated from the service at the 
normal retirement age. For purposes of this subparagraph, 
social security benefits and all other relevant factors used to 
compute benefits shall be treated as remaining constant as of 
the current year for all years after such current year. 
"(D) 
ACCRUAL FOR SERVICE BEFORE EFFECTIVE DATE.— 
Subparagraphs (A), (B), and (C) shall not apply with 
respect to years of participation before the first plan year to 
which this section applies, but a defined benefit plan satisfies 
the requirements of this subparagraph with respect to such 
years of participation only if the accrued benefit of any par-
ticipant with respect to such years of participation is not less 
than the greater of— 
"(i) his accrued benefit determined under the plan, as 
in effect from time to time prior to the date of the enact-
ment of the Employee Retirement Income Security Act 
of 1974, or 
" (ii) an accrued benefit which is not less than one-half 
of the accrued benefit to which such participant would 
have been entitled if subparagraph (A), (B), or (C) 
applied with respect to such years of participation. 
"(E) FIRST TWO YEARS OF SERVICE.—Notwithstanding sub-
paragraphs (A), (B), and (C) of this paragraph, a plan 
shall not be treated as not satisfying the requirements of 
this paragraph solely because the accrual of benefits under 
the plan does not become effective until the employee has two 
continuous years of service. For purposes of this subpara-
graph, the term 'years of service' has the meaning provided by 
Ante, p. 898. 
section 410(a) (3) (A). 
"(F) 
CERTAIN INSURED DEFINED BENEFIT PLANS.—Notwith-
standing subparagraphs (A), (B), and (C), a defined benefit 
42 use 401. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
909 
plan satisfies the requirements of this paragraph if such 
plan— 
"(i) is funded exclusively by the purchase of insur-
ance contracts, and 
"(ii) satisfies the requirements of paragraphs (2) and 
(3) of section 412(i) (relating to certain insurance 
POS^, p. 914. 
contract plans), 
but only if an employee's accrued benefit as of any applicable 
date is not less than the cash surrender value his insurance 
contracts would have on such applicable date if the require-
ments of paragraphs (4), (5), and (6) of section 412(i) 
were satisfied. 
"(G) 
ACCRUED BENEFIT MAY NOT DECREASE ON ACCOUNT OF 
INCREASING A
G
E O
R SERVICE.—Notwithstanding the preceding 
subparagraphs, a defined benefit plan shall be treated as not 
satisfying the requirements of this paragraph if the partici-
pant's accrued benefit is reduced on account of any increase in 
his age or service. The preceding sentence shall not apply to 
benefits under the plan commencing before entitlement to 
benefits payable under title I I of the Social Security Act 
which benefits under the plan— 
"(i) do not exceed such social security benefits, and 
"(ii) terminate when such social security benefits 
commence. 
"(2) 
SEPARATE ACCOUNTING REQUIRED IN CERTAIN CASES.—^A 
plan satisfies the requirements of this paragraph if— 
"(A) in the case of a defined benefit plan, the plan requires 
separate accounting for the portion of each employee's accrued 
benefit derived from any voluntary employee contributions 
permitted under the plan; and 
"(B) in the case of any plan which is not a defined benefit 
plan, the plan requires separate accounting for 
each 
employee's accrued benefit. 
"(3) 
YEAR OF PARTICIPATION.— 
"(A) 
DEFINITION.—For purposes of determining 
an 
employee's accrued benefit, the term 'year of participation' 
means a period of service (beginning at the earliest date on 
which the employee is a participant in the plan and which is 
included in a period of service required to be taken into 
account under section 410(a) (5)) as determined under regu- 
'*"'^' P* *^** 
lations prescribed by the Secretary of Labor which provide 
for the calculation of such period on any reasonable and 
consistent basis. 
"(B) LESS THAN FULL TIME SERVICE.—For purposes of this 
paragraph, except as provided in subparagraph (C), in the 
case of any employee whose customary employment is less 
than full time, the calculation of such employee's service on 
any basis which provides less than a ratable portion of the 
accrued benefit to which he w^ould be entitled under the plan 
if his customary employment were full time shall not be 
treated as made on a reasonable and consistent basis. 
"(C) 
LESS THAN 1,000 HOURS OF SERVICE DURING YEAR.—For 
purposes of this paragraph, in the case of any employee 
whose service is less than 1,000 hours during any calendar 
year, plan year or other 12-consecutive month period desig-
nated by the plan (and not prohibited under regulations 
prescribed by the Secretary of Labor) the calculation of his 
period of service shall not be treated as not made on a rea-
sonable and consistent basis solely because such service is 
not taken into account. 
910 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(D) SEASONAL INDUSTRIES.—In the case of any seasonal 
industry where the customary period of employment is less 
than 1,000 hours during a calendar year, the term 'year of 
participation' shall be such period as determined under regu-
lations prescribed by the Secretary of Labor. 
"(E) 
MARITIME INDUSTRIES.—For purposes of this sub-
section, in the case of any maritime industry, 125 days of 
Regulations. 
servicc shall be treated as a year of participation. The Sec-
retary of Labor may prescribe regulations to carry out the 
purposes of this subparagraph. 
"(c) 
ALLOCATION OF ACCRUED BENEFITS BETWEEN EMPLOYER AND 
EMPLOYEE CONTRIBUTIONS.— 
"(1) 
ACCRUED BENEFIT DERIVED FROM EMPLOYER CONTRIBU-
TIONS.—For purposes of this section, an employee's accrued benefit 
derived from employer contributions as of any applicable date 
is the excess, if any, of the accrued benefit for such employee as 
of such applicable date over the accrued benefit derived from 
contributions made by such employee as of such date. 
"(2) 
ACCRUED BENEFIT DERIVED FROM EMPLOYEE CONTRIBU-
TIONS.— 
"(A) 
PLANS OTHER THAN DEFINED BENEFIT PLANS.—In the 
case of a plan other than a defined benefit plan, the accrued 
benefit derived from contributions made by an employee as 
of any applicable date is— 
"(i) except as provided in clause (ii), the balance of 
the employee's separate account consisting only of his 
contributions and the income, expenses, gains, and losses 
attributable thereto, or 
"(ii) if a separate account is not maintained with 
respect to an employee's contributions under such a plan, 
the amount which bears the same ratio to his total accrued 
benefit as the total amount of the employee's contributions 
(less withdrawals) bears to the sum of such contributions 
and the contributions made on his behalf by the employer 
(less withdrawals). 
" ( B ) 
DEFINED BENEFIT PLANS.— 
" (i) I N GENERAL.—In the case of a defined benefit plan 
providing an annual benefit in the form of a single life 
annuity (without ancillary benefits) commencing at nor-
mal retirement age, the accrued benefit derived from 
contributions made by an employee as of any applicable 
date is the annual benefit equal to the employee's accu-
mulated contributions multiplied by the appropriate 
conversion factor. 
"(ii) 
APPROPRIATE CONVERSION FACTOR.—For purposes 
of clause (i), the term 'appropriate conversion factor' 
means the factor necessary to convert an amount equal 
to the accumulated contributions to a smgle life annuity 
(without ancillary benefits) commencing at normal 
retirement age and shall be 10 percent for a normal 
retirement age of 65 years. For other normal retirement 
ages the conversion factor shall be determined in accord-
ance \^ith regulations prescribed by the Secretary or his 
delegate. 
"(C) 
DEFINITION OF ACCUMULATED CONTRIBUTIONS.—For 
purposes of this subsection, the term 'accumulated contribu-
tions' means the total of— 
"(i) 
all mandatory 
contributions 
made by 
the 
employee, 
88 STAT. ] 
PUBLIC LAW 93.406-SEPT. 2, 1974 
911 
"(ii) interest (if any) under the plan to the end of 
the last plan year to which subsecition (a) (2) does not 
apply (by reason of the applicable effective date), and 
"(iii) interest on the sum of the amounts determined 
under clauses (i) and (ii) compounded annually at the 
rate of 5 percent per annum from the beginning of the 
first plan year to which subsection (a) (2) applies (by 
reason of the applicable effective date) to the date upon 
which the employee would attain normal retirement age. 
For purposes of this subparagraph, the term 'mandatory con- 
"Mandatory 
tributions' means amounts contributed to the plan by the '^°"t"butions." 
employee which are required as a condition of employment, 
as la condition of participation in such plan, or as a condition 
of obtaining benefits under the plan attributable to employer 
contributions. 
"(D) ADJUSTMENTS.—The Secretary or his delegate is 
authorized to adjust by regulation the conversion factor 
described in subparagraph (B), the rate of interest des<;ribed 
in clause (iii) of subparagraph (C), or both, from time to 
time as he may deem necessary. The rate of interest shall bear 
the relationship to 5 percent which the Secretary or his dele-
gate determines to be comparable to the relationship which 
the long-term money rates and investment yields for the last 
period of 10 calendar years ending at least 12 months before 
the beginning of the plan year bear to the long-term money 
rates and investment yields for the 10-calendar year period 
1964 through 1973. No such adjustment shall be effective for 
a plan year beginning before the expiration of 1 year after 
such adjustment is determined and published. 
"(E) LIMITATION.—^The accrued benefit derived 
from 
employee contributions shall not exceed the greater of— 
"(i) the employee's accrued benefit under the plan, or 
"(ii) the accrued benefit derived from employee con-
tributions determined as though the amounts calculated 
under clauses (ii) and (iii) of subparagraph (C) were 
zero. 
"(3) ACTUARIAL ADJUSTMENT.—For purposes of this section, 
in the case of any defined benefit plan, if an employee's accrued 
benefit is to be determined as an amount other than an annual 
benefit commencing at normal retirement age, or if the accrued 
benefit derived from contributions made by an employee is to be 
determined with respect to a benefit 6ther than an annual benefit 
in the form of a single life annuity (without ancillary benefits) 
commencing at normal retirement age, the employee's accrued 
benefit, or the accrued benefits derived from contributions made 
by an employee, as the case may be, shall be the actuarial equiva-
lent of such benefit or amount determined under paragraph (1) 
or (2). 
"(d) 
SPECIAL RULES.— 
"(1) COORDINATION WITH SECTION 40i(a)(4).—A plan which 
satisfies the requirements of this section shall be treated as satis-
fying any vesting requirements resulting from the application of 
section 401(a) (4) unless— 
^°«'' p- ^38. 
"(A) there has been a pattern of abuse under the plan 
(such as a dismissal of employees before their accrued benefits 
become nonforfeitable) tending to discriminate in favor of 
employees who are officers, shareholders, or highly compen-
sated, or 
Post, p. 938. 
912 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
" ( B ) there have been, or there is reason to believe there will 
be, an accrual of benefits or forfeitures tending to discrimi-
nate in favor of employees who are officers, shareholders, or 
highly compensated. 
"(2) 
PROHIBITED DISCRIMINATION.—^Subsection 
(a) 
shall not 
apply to benefits which may not be provided for designated 
employees in the event of early termination of the plan under 
provisions of the plan adopted pursuant to regulations prescribed 
by the Secretary or his delega;te to preclude the discrimination 
prohibited by section 401 (a) (4). 
"(3) 
TERMINATION OR PARTIAL TERMINATION; DISCONTINUANCE 
OF CONTRIBUTIONS.—Notwithstanding the provisions of subsection 
' a ) , a trust shall not constitute a qualified trust under section 401 
^a) unless the plan of which such trust is a part provides that— 
" ( A ) upon its termination or partial termination, or 
Post, p. 914. 
" ( B ) in the case of a plan to which section 412 does not 
apply, upon complete discontinuance of contributions under 
the plan, 
the rights of all affected employees to benefits accrued to the date 
of such termination, partial termination, or discontinuance, to 
the extent funded as of such date, or the amounts credited to the 
employees' accounts, are nonforfeitable. This paragraph shall hot 
apply to benefits or contributions which, under provisions of the 
plan adopted pursuant to regulations prescribed by the Secretary 
or his delegate to preclude the discrimination prohibited by sec-
tion 401(a) (4), may not be used for designated employees in the 
event of early termination of the plan. 
" ( 4 ) 
CLASS 
YEAR 
PLANS.—The 
requirements 
of 
subsection 
(a) (2) shall be deemed to be satisfied in the case of a class year 
plan if such plan provides that 100 percent of each employee's 
right to or derived from the contributions of the employer on his 
behalf with respect to any plan year are nonforfeitable not later 
than the end of the 5th plan year following the plan year for 
which such contributions were made. F o r purposes of this section, 
the term 'class year plan' means a profit-sharing, stock bonus, or 
money purchase plan which provides for the separate nonforfeit-
ability of employees' rights to or derived from the contributions 
for each plan year. 
"(5) 
TREATMENT OF VOLUNTARY EMPLOYEE CONTRIBUTIONS.—In 
the case of a defined benefit plan which permits 
voluntary 
employee contributions, the portion of an employee's accrued 
benefit derived from such contributions shall be treated as an 
accrued benefit derived from employee contributions under a plan 
other than a defined benefit plan. 
" (6) 
ACCRUED BENEFIT NOT TO BE DECREASED BY AMENDMENT.—A 
plan shall be treated as not satisfying the requirements of this 
section if the accrued benefit of a participant is deci-eased by an 
amendment of the plan, other than an amendment described in 
section 412(c) (8). 
"(e) 
APPLICATION OF VESTING STANDARDS TO CERTAIN P L A N S . — 
"(1) The provisions of this section (other than paragraph (2)) 
shall not apply to— 
" ( A ) a governmental plan (within the meaning of section 
Post. p. 925. 
4 1 4 ( d ) ) , 
" ( B ) a church plan (within the meaning of section 414(e)) 
Ante, p. 898. 
^ ^ ^ j ^ rcspcct to which the election provided by section 410(d) 
has not been made. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
913 
"(C) a plan which has not, at any time after the date of the 
enactment of the Employee Retirement Income Security Act 
of 1974, provided for employer contributions, and 
"(D) a plan established and maintained by a society, order, 
or association described in section 501(c) (8) or (9), if no 
26 use soi. 
part of the contributions to or under such plan are made by 
employers of participants in such plan. 
"(2) A plan described in paragraph (1) shall be treated as 
meeting the requirements of this section, for purposes of section 
401(a), if such plan meets the vesting requirements resulting 
from the application of sections 401(a) (4) and 401(a) (7) as in 
Post, p. 938. 
effect on the day before the date of the enactment of the Employee 
26 use 401. 
Retirement Income Security Act of 1974." 
(b) COMPARABILITY 
OF 
PLANS.—Section 
401(a) 
(relating 
to 
requirements for qualification) is amended by adding at the end of 
paragraph (5) the following: "For purposes of determining whether 
two or more plans of an employer satisfy the requirements of para-
graph (4) when considered as a single plan, if the amount of contribu-
tions 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 total compensation, or the basic or 
regular rate of compensation, 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. For the purposes of 
determining whether two or more plans of an employer satisfy the 
requirements of paragraph (4) when considered as a single plan, if 
the employees' rights to benefits under the separate plans do not 
become nonforfeitable at the same rate, but the levels of benefits pro-
vided by the separate plans satisfy the requirements of regulations 
prescribed by the Secretary or his delegate to take account of the dif-
ferences in such rates, the plans shall not be considered discriminatory 
merely because of the difference in such rates." 
(c) 
VARIATIONS FROM CERTAIN VESTING AND ACCRUED BENEFITS 
26 use 411 
REQUIREMENTS.—In the case of any plan maintained on January 1, "°*^' 
1974, if, not later than 2 years after the date of the enactment of this 
Act, the plan administrator petitions the Secretary of Labor, the Sec-
retary of Labor may prescribe an alternate method which shall be 
treated as satisfying the requirements of subsection (a) (2) of section 
411 of the Internal Revenue Code of 1954, or of subsection (b) (1) 
^"'^' P- ^°^-
(other than subparagraph (D) thereof) of such section 411, or of both 
such provisions for a period of not more than 4 years. The Secretary 
may prescribe such alternate method only when he finds that— 
(1) the application of such requirements would increase the 
costs of the plan to such an extent that there would result a sub-
stantial risk to the voluntary continuation of the plan or a syb-
stantial curtailment of benefit levels or the levels of employees' 
compensation, 
(2) the application of such requirements or discontinuance of 
the plan would be adverse to the interests of plan participants 
in the aggregate, and 
(3) a waiver or extension of time granted under section 412(d) 
^°^'' ^' ^^'*" 
or (e) would be inadequate. 
In the case of any plan with respect to which an alternate method has 
been prescribed under the preceding: provisions of this subsection for 
a period of not more than 4 years, if, not later than 1 year before the 
expiration of such period, the plan administrator petitions the Secre-
tary of Labor for an extension of such alternate method, and the 
Secretary makes the findings required by the preceding sentence, such 
alternate method may be extended for not more than 3 years. 
914 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
26 u s e 412. 
26 u s e 401, 
Post, pp. 969, 
991. 
26 u s e 405. 
"Accumulated 
funding defi-
ciency." 
Post, p. 920. 
SEC. 1013. MINIMUM FUNDING STANDARDS. 
(a) I N GENERAL.—Subpart B of part I of subchapter D of chapter 
1 is amended by adding after section 411 the following new section: 
"SEC. 412. MINIMUM FUNDING STANDARDS, 
"(a) GENERAL RULE.—Except as provided in subsection (h), this 
section applies to a plan if, for any plan year beginning on or after 
the effective date of this section for such plan— 
"(1) such plan included a trust which qualified (or was deter-
mined by the Secretary or his delegate to have qualified) under 
section 401 (a), or 
"(2) such plan satisfied (or was determined by the Secretary 
or his delegate to have satisfied) the requirements of section 403 
(a) or 405(a). 
A plan to which this section applies shall have satisfied the minimum 
funding standard for such plan for a plan year if as of the end of such 
plan year, the plan does not have an accumulated funding deficiency. 
For purposes of this section and section 4971, the term 'accumulated 
funding deficiency' means for any plan the excess of the total charges 
to the funding standard account for all plan years (beginning with 
the first plan year to which this section applies) over the total credits 
to such account for such years or, if less, the excess of the total charges 
to the alternative minimum funding standard account for such plan 
years over the total credits to such account for such years. 
"(b) 
FUNDING STANDARD ACCOUNT.— 
"(1) ACCOUNT REQUIRED.—Each plan to which this section 
applies shall establish and maintain a funding standard account. 
Such account shall be credited and charged solely as provided in 
this section. 
"(2) CHARGES TO ACCOUNT.—For a plan year, the funding 
standard account shall be charged with the sum of— 
"(A) the normal cost of the plan for the plan year, 
"(B) the amounts necessary to amortize m equal annual 
installments (until fully amortized) — 
"(i) in the case of a plan in existence on January 1, 
1974, the unfunded past service liability under the plan 
on the first day of the first plan year to which this section 
applies, over a period of 40 plan years, 
"(ii) in the case of a plan which comes into existence 
' 
after January 1,1974, the unfunded past service liability 
under the plan on the first day of the first plan year to 
which this section applies, over a period of 30 plan years 
(40 plan years in the case of a multiemployer plan), 
"(iii) separately, with respect to each plan year, the 
net increase (if any) in unfunded past service liability 
under the plan arising from plan amendments adopted 
in such year, over a period of 30 plan years (40 plan 
years in the case of a multiemployer plan), 
"(iv) separately, with respect to each plan year, the 
net experience loss (if any) under the plan, over a period 
of 15 plan years (20 plan years in the case of a multi-
employer plan), and 
"(v) separately, with respect to each plan year, the net 
loss (if any) resulting from changes in actuarial assump-
tions used under the plan, over a period of 30 plan years, 
"(C) the amount necessary to amortize each waived fund-
ing deficiency (within the meaning of subsection (d)(3)) 
for each prior plan year in equal annual installments (until 
fully amortized) over a period of 15 plan years, and 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
915 
"(D) the amount necessary to amortize in equal annual 
installments (until fully amortized) over a period of 5 plan 
years any amount credited to the funding standard account 
under paragraph (3) (D). 
"(3) CREDITS TO ACCOUNT.—For a plan year, the funding 
standard account shall be credited with the sum of— 
"(A) the amount considered contributed by the employer 
to or under the plan for the plan year, 
"(B) the amount necessary to amortize in equal annual 
installments (until fully amortized)— 
" (i) separately, with respect to each plan year, the net 
decrease (if any) in unfunded past service liability under 
the plan arising from plan amendments adopted in such 
year, over a period of 30 plan years (40 plan years in 
the case of a multiemployer plan), 
"(ii) separately, with respect to each plan year, the 
net experience gain (if any) under the plan, over a 
period of 15 plan years (20 plan years in the case of a 
multiemployer plan), and 
• 
"(iii) separately, with respect to each plan year, the 
net gam (if any) resulting from changes in actuarial 
assumptions used under the plan, over a period of 30 plan 
years, 
"(C) the amount of the waived funding deficiency (within 
the meaning of subsection (d) (3) for the plan year, and 
"(D) in the case of a plan year for which the accumulated 
funding deficiency is determined under the funding standard 
account if such plan year follows a plan year for which such 
deficiency was determined under the alternative minimum 
funding standard, the excess (if any) of any debit balance 
in the funding standard account (determined without regard 
to this subparagraph) 
over any debit balance in the 
alternative minimum funding standard account. 
"(4) 
COMBINING AND OFFSETTING AMOUNTS TO BE AMORTIZED,— 
Under regulations prescribed by the Secretary or his delegate, 
amounts required to be amortized under paragraph (2) or 
paragraph (3), as the case may be—• 
"(A) may be combined into one amount under such 
paragraph to be amortized over a period determined on the 
basis of the remaining amortization period for all items 
entering into such combined amount, and 
"(B) may be offset against amounts required to be 
amortized under the other such paragraph, with the resulting 
amount to be amortized over a period determined on the basis 
of the remaining amortization periods for all items entering 
into whichever of the two amounts being offset is the greater. 
"(5) INTEREST.—The funding standard account (and items 
therein) shall be charged or credited (as determined under 
regulations prescribed by the Secretary or his delegate) with 
interest at the appropriate rate consistent with the rate or rates of 
interest used under the plan to determine costs. 
" (c) 
SPECIAL RUUES.— 
"(1) 
DETERMINATIONS TO BE MADE UNDER FUNDING METHOD,— 
For purposes of this section, normal costs, accrued liability, past 
service liabilities, and experience gains and losses shall be deter-
mined under the funding method used to determine costs under 
the plan. 
916 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
" (2) VALUATION OF ASSETS.— 
" (A) I N GENERAL.—For purposes of this section, the value 
of the plan's assets shall be determined on the basis of any 
reasonable actuarial method of valuation which takes into 
account fair market value and which is permitted under 
regulations prescribed by the Secretary or his delegate. 
"(B) ELECTION WITH RESPECT TO BONDS.—The value of a 
bond or other evidence of indebtedness which is not in 
default as to principal or interest may, at the election of the 
plan administrator, be determined on an amortized basis 
running from initial cost at purchase to par value at maturity 
or earliest call date. Any election under this subparagraph 
shall be made at such time and in such manner as the 
Secretary or his delegate shall by regulations provide, shall 
apply to all such evidences of indebtedness, and may be 
revoked only with the consent of the Secretary or his 
delegate. 
"(3) ACTUARIAL 
ASSUMPTIONS 
MUST 
BE REASONABLE.—For 
purposes of this section, all costs, liabilities, rates of interest, and 
other factors under the plan shall be determined on the basis of 
actuarial assumptions and methods which, in the aggregate, are 
reasonable (taking into account the experience of the plan and 
reasonable expectations) and which, in combination, offer the 
actuary's best estimate of anticipated experience under the plan. 
"(4) TREATMENT OF CERTAIN CHANGES AS EXPERIENCE GAIN 
O
R LOSS.—For purposes of this section, if— 
"(A) a change in benefits under the Social Security Act 
or in other retirement benefits created under Federal or State 
law, or 
"(B) a change in the definition of the term 'wages' under 
section 3121, or a change in the amount of such wages taken 
into account under regulations prescribed for purposes of 
section 401(a) (5), 
results in an increase or decrease in accrued liability under a plan, 
such increase or decrease shall be treated as an experience loss or 
gain. 
"(5) CHANGE IN FUNDING METHOD OR IN PLAN YEAR REQUIRES 
APPROVAL.—If the funcing method for a plan is changed, the new 
funding method shall become the funding method used to 
determine costs and liabilities under the plan only if the change is 
approved by the Secretary or his delegate. If the plan year for 
a plan is changed, the new plan year shall become the plan year 
for the plan only if the change is approved by the Secretary or his 
delegate. 
"(6) FULL FUNDING.—If, as of the close of a plan year, a plan 
would (without regard to this paragraph) have an accumulated 
funding deficiency (determined without regard to the alternative 
minimum funding standard account permitted under subsection 
(g)) in excess of the full funding limitation— 
"(j^ ) the funding standard account shall be credited with 
the amount of such excess, and 
"(B) all amounts described in paragraphs (2) (B), (C), 
and (D) and (3) (B) of subsection (b) which are required 
to be amortized shall be considered fully amortized for 
purposes of such paragraphs. 
"(7) FULL FUNDING LIMITATION.—For purposes of paragraph 
42 
use 1305. 
26 
use 3121. 
26 
use 401. 
Notification of 
amendment. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
917 
(6), the term 'full funding limitation' means the excess (if any) 
of— 
"(A) the accrued liability (including normal cost) under 
the plan (determined under the entry age normal funding 
method if such accrued liability cannot be directly calculated 
under the funding method used for the plan), over 
"(B) the lesser of the fair market value of the plan's assets 
or the value of such assets determined under paragraph (2). 
"(8) 
CERTAIN RETROACTIVE PLAN AMENDMENTS.—For purposes 
of this section, any amendment applying to a plan year which— 
"(A) is adopted after the close of such plan year but no 
later than 2 and one-half months after the close of the plan 
year (or, in the case of a multiemployer plan, no later than 2 
years after the close of such plan year), 
"(B) does not reduce the accrued benefit of any partic-
ipant determined as of the beginning of the first plan year to 
which the amendment applies, and 
" (C) does not reduce the accrued benefit of any participant 
determined as of the time of adoption except to the extent 
required by the circumstances, 
shall, at the election of the plan administrator, be deemed to 
have been made on the first day of such plan year. No amendment 
described in this paragraph which reduces the accrued benefits 
of any participant shall take effect unless the plan administrator 
files a notice with the Secretary of Labor notifying him of such 
amendment and the Secretary of Labor has approved such 
amendment, or within 90 days after the date on which such 
notice was filed, failed to disapprove such amendment. No 
Approval. 
amendment described in this subsection shall be approved bv 
the 
Secretary 
of 
Labor 
unless he determines that 
such 
amendment is necessary because of a substantial business hardship 
(as determined under subsection (d)(2)) and that a waiver under 
subsection (d) (1) is unavailable or inadequate. 
"(9) 3-YEAR VALUATION.—FoT purposes of this section, a deter-
mination of experience gains and losses and a valuation of the 
plan's liability shall be made not less frequently than once every 
3 years, except that such determination shall be made more fre-
quently to the extent required in particular cases under regula-
tions prescribed by the Secretary or his delegate, 
"(10) 
TIME WHEN CERTAIN CONTRIBUTIONS DEEMED MADE.— 
For purposes of this section, any contributions for a plan year 
made by an employer after the last day of such plan year, but 
not later than two and one-half months after such day, shall be 
deemed to have been made on such last day. For purposes of 
this paragraph, such two and one-half month period may be 
extended for not more than six months under regulations pre-
scribed by the Secretary or his delegate. 
"(d) 
VARIANCE FROM MINIMUM FUNDING STANDARD.— 
"(1) 
WAIVER IN CASE OF SUBSTANTIAL BUSINESS HARDSHIP.— 
If a employer or in the case of a multiemployer plan, 10 per-
cent or more of the number of employers contributing to or under 
the plan, are unable to satisfy the minimum funding standard 
for a plan year without substantial business hardship and if appli-
cation of the standard would be adverse to the interests of 
plan participants in the aggregate, the Secretary or his delegate 
may waive the requirements of subsection (a) for such year with 
respect to all or any portion of the minimum funding standard 
other than the portion thereof determined under subsection (b) 
(2) (C). The Secretary or his delegate shall not waive the mini-
38-194 O - 76 - 61 Pt. 1 
918 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
mum funding standard with respect to a plan for more than 5 of 
any 15 consecutive plan years. 
"(2) 
DETERMINATION OF SUBSTANTIAL BUSINESS HARDSHIP.— 
For purposes of this section, the factors taken into account in 
determining substantial business hardship shall include (but shall 
not be limited to) whether or not— 
" (A) the employer is operating at an economic loss, 
"(B) there is substantial unemployment or underemploy-
ment in the trade pr business and in the industry concerned, 
"(C) the sales and profits of the industry concerned are 
depressed or declining,^ and 
"(D) it is reasonable to expect that the plan will be con-
tinued only if the waiver is granted. 
"(3) WAIVED FUNDING DEFICIENCY.—For purposes of this sec-
tion, the term 'waived funding deficiency' means the portion of 
the minimum funding standard (determined without regard to 
subsection (b) (3) (C)) for a plan year waived by the Secretary 
or his delegate and not satisfied by employer contributions. 
"(e) EXTENSION OF AMORTIZATION PERIODS.—The period of years 
required to amortize any unfunded liability (described in any clause 
of subsection (b) (2) (B)) of any plan may be extended by the Secre-
tary of Labor for a period of time (not in excess of 10 years) if he 
determines that such extension would carry out the purposes of the 
Ante, p. 829. 
Employee Retirement Income Security Act of 1974 and would provide 
adequate protection for participants under the plan and their benefici-
aries and if he determines that the failure to permit such extension 
would— 
"(1) result in— 
"(A) a substantial risk to the voluntary continuation of 
the plan, or 
"(B) a substantial curtailment of pension benefit levels or 
employee compensation, and 
"(2) be adverse to the interests of plan participants in the 
aggregate. 
"(f) BENEFITS MAY NOT B E INCREASED DURING WAIVER OR EXTEN-
SION PERIOD.— 
"(1) I N GENERAL.—No amendment of the plan which increases 
the liabilities of the plan by reason of any increase in benefits, any 
change in the accrual of benefits, or any change in the rate at which 
benefits become nonforfeitable under the plan shall be adopted if 
a waiver under subsection (d) (1) or an extension of time under 
subsection (e) is in effect with respect to the plan, or if a plan 
amendment described in subsection (c) (8) has been made at any 
time in the preceding 12 months (24 months for multiemployer 
plans). If a plan is amended in violation of the preceding sen-
tence, any such waiver or extension of time shall not apply to 
any plan year ending on or after the date on which such amend-
ment is adopted. 
"(2) EXCEPTION.—Paragraph (1) shall not apply to any plan 
amendment which— 
"(A) the Secretary of Labor determines to be reasonable 
and which provides for only de minimis increases in the lia-
bilities of the plan, 
"(B) only repeals an amendment described in subsection 
(c)(8), or 
"(C) is required as a condition of qualification under this 
part. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
919 
" (g) ALTERNATIVE MINIMUM FUNDING STANDARD.— 
"(1) I N GENERAL.—A plan which uses a funding method that 
requires contributions in all years not less than those required 
under the entry age normal funding method may maintain an 
alternative minimum funding standard account for any plan 
year. Such account shall be credited and charged solely as pro-
vided in this subsection. 
"(2) CHARGES AND CREDITS TO ACCOUNT.—For a plan year the 
alternative minimum funding standard account shall be— 
" (A) charged with the sum of— 
"(i) the lesser of normal cost under the funding 
method used under the plan or normal cost determined 
under the unit credit method, 
"(ii) the excess, if any, of the present value of accrued 
benefits under the plan over the fair market value of the 
assets, and 
" (iii) an amount equal to the excess (if any) of credits 
to the alternative minimum standard account for all prior 
plan years over charges to such account for all such years, 
and 
"(B) credited with the amount considered contributed by 
the employer to or under the plan for the plan year. 
"(3) 
SPECIAL RULES.—The alternative minimum 
funding 
standard account (and items therein) shall be charged or credited 
with interest in the manner provided under subsection (b) (5) 
with respect to the funding standard account. 
" (h) EXCEPTIONS.—This section shall not apply to— 
" (1 ^ any profit-sharing or stock bonus plan, 
"(2) any insurance contract plan described in subsection (i), 
"(3) any governmental plan (within the meaning of section 
414(d)), 
"(4) any church plan (within the meaning of section 414(e)) 
with respect to which the election provided by section 410(d) 
^"'e, p. 898. 
has not been made, 
"(5) any plan which has not, at any time after the date of the 
enactment of the Employee Retirement Income Security Act of 
1974, provided for employer contributions, or 
^"'^' P- ^29. 
"(6) any plan established and maintained by a society, order, 
or association described in section 501 (c) (8) or (9), if no part of 
26 use soi. 
the contributions to or under such plan are made by employers of 
participants in such plan. 
No plan described in paragraph (3), (4), or (6) shall be treated as 
a qualified plan for purposes of section 401(a) unless such plan meets 
26 use 40i. 
the requirements of section 401(a) (7) as in effect on the day before 
the date of the enactment of the Employee Retirement Income 
Security Act of 1974. 
"(i) CERTAIN INSURANCE CONTRACT PLANS.—A plan is described in 
this subsection if— 
" (1) the plan is funded exclusively by the purchase of individual 
insurance contracts, 
"(2) such contracts provide for level annual premium payments 
to be paid extending not later than the retirement age for each 
individual participating in the plan, and commencing with the 
date the individual became a participant in the plan (or, in the 
case of an increase in benefits, commencing at the time such 
increase becomes effective), 
Post, p. 92 5. 
920 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(3) benefits provided by the plan are equal to the benefits pro-
vided under each contract at normal retirement age under the plan 
and are guaranteed by an insurance carrier (licensed under the 
laws of a State to do business with the plan) to the extent premi-
ums have been paid, 
"(4) premiums payable for the plan year, and all prior plan 
years, under such contracts have been paid before lapse or there is 
reinstatement of the policy, 
" (5) no rights under such contracts have been subject to a secu-
rity interest at any time during the plan year, and 
"(6) no policy loans are outstanding at any time during the 
plan year. 
A plan funded exclusively by the purchase of group insurance con-
tracts which is determined under regulations prescribed by the Secre-
tary or his delegate to have the same characteristics as contracts 
described in the preceding sentence shall be treated as a plan described 
in this subsection." 
(b) 
EXCISE TAX ON FAILURE To MEET MINIMUM FUNDING STAND-
ARDS.—Subtitle D (relating to miscellaneous excise taxes) is amended 
by adding at the end thereof the following new chapter: 
"CHAPTER 43—QUAHFIED PENSION, ETC., PLANS 
"Sec. 4971. Taxes on failure to meet minimum funding standards. 
26 use 4971. 
"SEC. 4971. TAXES ON FAILURE TO MEET MINIMUM FUNDING STAND-
ARDS. 
"(a) INITIAL TAX.—For each taxable year of an employer who 
Ante, p. 914. 
maintains a plan to which section 412 applies, there is hereby imposed 
a tax of 5 percent on the amount of the accumulated 
funding 
deficiencj^ under the plan, determined as of the end of the plan year 
ending with or within such taxable year. The tax imposed by this sub-
section shall be paid by the employer responsible for contributing to 
or under the plan the amount described in section 412(b) (3) (A). 
"(b) ADDITIONAL TAX.—In any case in which an initial tax is 
imposed by subsection (a) on an accumulated funding deficiency and 
such accumulated funding deficiency is not corrected within the cor-
rection period, there is hereby imposed a tax equal to 100 percent of 
such accumulated funding deficiency to the extent not corrected. The 
tax imposed by this subsection shall be paid by the employer described 
in subsection (a). 
" (c) DEFINITIONS.—For purposes of this section— 
"(1) ACCUMULATED FUNDING DEFICIENCY.—The term 'accumu-
lated funding deficiency' has the meaning given to such term by 
the last sentence of section 412 (a). 
"(2) CORRECT.—The term 'correct' means, with respect to an 
accumulated funding deficiency, the contribution, to or under the 
plan, of the amount necessary to reduce such accumulated funding 
deficiency as of the end of a plan year in which such deficiency 
arose to zero. 
"(3) CORRECTION PERIOD.—The term 'correction period' means, 
with respect to an accumulated funding deficiency, the period 
beginning with the end of a plan year in which there is an accumu-
V 
lated funding deficiency and ending 90 days after the date of mail-
26 use 6212. 
jjjg of a notice of deficiency under section 6212 with respect to the 
tax imposed by subsection (b),extended— 
" (A) by any period in which a deficiency cannot be assessed 
26 use 6213. 
undersection 6213(a), and 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
921 
"(B) by any other period which the Secretary or his dele-
gate determines is reasonable and necessary to permit a reduc-
tion of the accumulated funding deficiency to zero under this 
section. 
"(d) NOTIFICATION OF THE SECRETARY OF LABOR.—Before issuing a 
notice of deficiency with respect to the tax imposed by subsection (a) 
or (b), the Secretary or his delegate shall notify the Secretary of 
Labor and provide him a reasonable opportunity (but not more than 60 
days)— 
"(1) to require the employer responsible for contributing to or 
under the plan to eliminate the accumulated funding deficiency, or 
" (2) to comment on the imposition of such tax. 
"(e) CROSS REFERENCES.— 
"For disallowance of deduction for taxes paid under this section, see 
section 275. 
"For liability for tax in case of an employer party to collective bargain-
ing agreement, see section 413(b)(6). 
"For provisions concerning notification of Secretary of Labor of 
imposition of tax under this section, waiver of the tax imposed by sub-
section (b), and other coordination between Secretary of the Treasury 
and Secretary of Labor with respect to compliance with this section, 
see section 3002(b) of title III of the Employee Retirement Income 
Security Act of 1974.". 
(c) AMENDMENTS TO SECTION 404.— 
(1) Paragraph (1) of section 404(a) (relating to deduction for 
^^ "^^ '*°'*-
employer contributions to pension trusts) is amended to read as 
follows: 
"(1) PENSION TRUSTS. 
"(A) I N GENERAL.—In tlie taxable year when paid, if the 
contributions are paid into a pension trust, and if such tax-
able year ends within or with a taxable year of the trust 
for which the trust is exempt under section 501(a), in an 
26 use soi. 
amount determined as follows: 
"(i) the amount necessary to satisfy the minimum 
funding standard provided by section 412(a) for plan 
Ante, p. 9i4. 
years ending within or with such taxable year (or for 
any prior plan year), if such amount is greater than the 
amount determined under clause (ii) or (iii) (whichever 
is applicable with respect to the plan), 
"(ii) the amount necessary to provide with respect 
to all of the employees under the trust the remaining 
unfunded cost of their past and current service credits 
distributed as a level amount, or a level percentage of 
compensation, over the remaining future service of each 
such employee, as determined under regulations pre-
scribed by the Secretary or his delegate, but if such 
remaining unfunded cost with respect to any 3 individ-
uals is more than 50 percent of such remaining unfunded 
cost, the amount of such unfunded cost attributable to 
such individuals shall be distributed over a period of 
at least 5 taxable years. 
"(iii) an amount equal to the normal cost of the plan, 
as determined under regulations prescribed by the Sec-
retary or his delegate, plus, if past service or other 
supplementary pension or annuity credits are provided 
by the plan, an amount necessary to amortize such credits 
in equal annual payments (until fully amortized) over 
10 years, as determined under regulations prescribed 
by the Secretary or his delegate. 
In determining the amount deductible in such year under the 
foregoing limitations the funding method and the actuarial 
assumptions used shall be those used for such year under 
922 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
Ante, p. 914. 
sGction 412, and the maximum amomit deductible for such 
year shall be an amount equal to the full funding limitation 
for such year determined under section 412. 
"(B) 
SPECIAL RULE IN CASE or CERTAIN AMENDMENTS.—In 
the case of a plan which the Secretary of Labor finds to be 
collectively bargained which makes an election under this sub-
paragraph (in such manner and at such time as may be pro-
vided under regulations prescribed by the Secretary or his 
delegate), if the full funding limitation determined under 
section 412(c) (7) for such year is zero, if as a result of any 
plan amendment applying to such plan year, the amount 
determined under section 412(c) (7) (B) exceeds the amount 
determined under section 412(c) (7) (A), and if the funding 
method and the actuarial assumptions used are those used for 
such year under section 412, the maximum amoimt deductible 
in such year under the limitations of this paragraph shall be 
an amount equal to the lesser of— 
"(i) the full funding limitation for such year deter-
mined by applying section 412(c) (7) but increasing the 
amount referred to in subparagraph (A) thereof by the 
decrease in the present value of all unamortized liabili-
ties resulting from such amendment, or 
"(ii) the normal cost under the plan reduced by the 
amount necessary to amortize in equal annual install-
ments over 10 years (until fully amortized) the decrease 
described in clause (i). 
In the case of any election under this subparagraph, the 
amount deductible under the limitations of this paragraph 
with respect to any of the plan years following the plan year 
for which such election was made shall be determined as pro-
vided under such regulations as may be prescribed by the 
Secretary or his delegate to carry out the purposes of this 
subparagraph. 
"(C) CERTAIN COLLECTIVELY-BARGAINED PLANS.—In the case 
of a plan which the Secretary of Labor finds to be collectively 
bargained, established or maintained by an employer doing 
business in not less than 40 States and engaged in the trade 
or business of furnishing or selling services described in sec-
tion 167(1) (3) (A) (iii), with respect to which the rates have 
been established or approved by a State or political subdivi-
sion thereof, by any agency or instrumentality of the United 
States, or by a public service or public utility commission or 
other similar body of any State or political subdivision 
thereof, and in the case of any employer which is a member 
of a controlled group with such employer, subparagraph (B) 
shall be applied by substituting for the words 'plan amend-
ment' the words 'plan amendment or increase in benefits pay-
42 use 401. 
able under title II of the Social Security Act'. For purposes 
'1^°""^°"^'^ 
of this subparagraph, the term 'controlled group' has the 
meaning provided by section 1563(a), determined without 
26 use 1563. 
regard to section 1563(a) (4) and (e) (3) (C). 
"(D) CARRYOVER.—Any amount paid in a taxable year in 
excess of the amount deductible in such year under the fore-
going limitations shall be deductible in the succeeding tax-
able years in order of time to the extent of the difference 
between the amount paid and deductible in each such suc-
ceeding year and the maximum amount deductible for such 
year under the foregoing limitations." 
26 use 167. 
group 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
923 
26 use 404. 
(2) Paragraph (6) of section 404(a) (relating to taxpayers 
on accrual basis) is amended to read as follows: 
"(6) TIME WHEN CONTRIBUTIONS DEEMED MADE.—For purposes 
of paragraphs (1), (2), and (3), a taxpayer shall be deemed to 
have made a payment on the last day of the preceding taxable year 
if the payment is 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 (including extensions thereof)." 
(3) Paragraph (7) of section 404(a) (relating to limit on 
deductions) is amended to read as follows: 
"(7) LIMIT ON DEDUCTIONS.—If amounts are deductible under 
paragraphs (1) and (3), or (2) and (3), or (1), (2), and (3), in 
connection with two or more trusts, or one or more trusts and an 
annuity plan, the total amount deductible in a taxable year under 
such trusts and plans shall not exceed the greater of 25 percent of 
the compensation otherwise paid or accrued during the taxable 
year to the beneficiaries of the trusts or plans, or the amount of 
contributions made to or under the trusts or plans to the extent 
such contributions do not exceed the amount of employer con-
tributions necessary to satisfy the minimum funding standard 
provided by section 412 for the plan year which ends with or ^"'^» P- ^i^. 
within such taxable year (or for any prior plan year). In addi-
tion, any amount paid into such trust or under such annuity plans 
in any taxable year in excess of the amount allowable with respect 
to such year under the preceding provisions of this paragraph 
shall be deductible in the succeeding taxable years in order of time, 
but the amount so deductible under this sentence in any one such 
succeeding taxable year together with the amount allowable 
under the first sentence of this paragraph shall not exceed 25 
percent of the compensation otherwise paid or accrued during 
such taxable years to the beneficiaries under the trusts or plans. 
This paragraph shall not have the effect of reducing the amount 
otherwise deductible under paragraphs (1), (2), and (3), if no 
employee is a beneficiary under more than one trust or a trust 
and an annuity plan." 
(d) ALTERNATIA^ 
AMORTIZATION METHOD FOR CERTAIN MULTI- no^te."^^ ^^^ 
EMPLOYER PLANS.— 
(1) GENERAL RULE.—In the case of any multiemployer plan (as 
defined in section 414(f) of the Internal Kevenue Code of 1954) 
^°^*> p- ^25. 
to which section 412 of such Code applies, if— 
(A) on January 1, 1974, the contributions under the plan 
were based on a percentage of pay, 
(B) the actuarial assumptions with respect to pay are 
reasonably related to past and projected experience, and 
(C) the rates of interest under the plan are determined on 
the basis of reasonable actuarial assumptions, 
the plan may elect (in such manner and at such time as may be 
provided under regulations prescribed by the Secretary of the 
Treasury or his delegate) to fund the unfunded past service lia-
bility under the plan existing as of the date 12 months following 
the first date on which such section 412 first applies to the plan by 
charging the funding standard account with an equal annual per-
centage of the aggregate pay of all participants in the plan in lieu 
of the level dollar charges to such account required under clauses 
(i), (ii), and (iii) of section 412(b) (2) (B) of such Code and sec-
tion 302(b) (2) (B) (i), (ii), and (iii) of this Act. 
(2) LIMITATION.—In the case of a plan which makes an election 
under paragraph (1), the aggregate of the charges required under 
such paragraph for a plan year shall not be less than the interest 
924 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
Ante, p. 914. 
Ante, p. 901, 
on the unfunded past service liabilities described in clauses ( i ) , 
(ii), and (iii) of section 412(b) (2) (B) of the Internal Kevenue 
Code of 1954. 
SEC. 1014. COLLECTIVELY BARGAINED PLANS, ETC. 
Subpart B of part I of subchapter D of chapter 1 (relating to spe-
cial rules) is amended by inserting after section 412 the following new 
section: 
26 use 413. 
"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 p a r t of such plan. 
" (b) GENERAL R U L E . — I f this subsection applies to a plan, notwith-
standing any other provision of this title— 
An<e, p. 898. 
"(1) PARTICIPATION.—Scctiou 410 shall bc applied as if all 
employees of each of the employers who are parties to the collec-
tive-bargaining agreement and who are subject to the same benefit 
computation formula under the plan were employed by a single 
employer. 
ZT:. "om^*' 
" (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 partici-
pants shall be considered to be his employees. 
"(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 Secre-
tary of Labor. 
"(5) F U N D I N G . — T h e 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 collec-
tive bargaining agreement shall be determined in a reasonable 
manner not inconsistent with regulations prescribed by the Sec-
retary or his delegate— 
" ( 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. 
" (7) 
DEDUCTION LIMITATIONS.—Each applicable limitation pro-
vided 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 man-
ner 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 
Ante, p. 920. 
26 use 404. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
925 
404 shall be determined in accordance with regulations prescribed 
^e use 404. 
by the Secretary or his delegate. 
"(8) EMPLOYEES OF LABOR UNIONS.—For purposes of this sub-
section, 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. 
AntV^' ^898^^' 
"(c) PLANS MAINTAINED BY MORE THAN ONE EMPLOYER.—In the 
" ^' P-
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 section 401(a), in 
determining whether the plan of an employer is for the exclusive 
benefit of his employees and their beneficiaries all plan partici-
pants shall be considered to be his employees. 
"(3) VESTING.—Section 411 shall be applied as if all employers 
^"'e- P- 9OI-
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 hj the Secretary of Labor. 
" (4) FUNDING.—The minimum funding standard provided by 
section 412 shall be determined as if all participants in the plan 
'^"^^' P- ^'^^• 
were employed by a single employer. 
" (5) LIABILITY FOR FUNDING TAX.—For a plan year the liability 
under section 4971 of each employer who maintains the plan shall 
^"'^- P- ^20. 
, be determined in a reasonable manner not inconsistent with regula-
tions prescribed by the Secretary or his delegate— 
"(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.—Each applicable limitation 
provided by section 404(a) shall be determined as if all partici-
pants 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 this 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 reasonable manner not incon-
sistent with regulations prescribed by the Secretary or his dele-
gate) do not exceed such limitation. If such anticipated contribu-
tions 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 or his delegate. 
Allocations of amounts under paragraphs (4), (5), and (6), among the 
employers maintaining the plan, shall not be inconsistent with regula-
tions prescribed for this purpose by the Secretary or his delegate." 
SEC. 1015. DEFINITIONS AND SPECIAL RULES. 
Subpart B of part I of subchapter D of chapter 1 is amended by 
inserting after section 413 the following new section: 
"SEC. 414. DEFINITIONS AND SPECIAL RULES. 
26 use 414. 
"(a) SERVICE FOR PREDECESSOR EMPLOYER.—For purposes of this 
part— 
926 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(1) in any case in which the employer maintains a plan of a 
predecessor employer, service for such predecessor shall be treated 
as service for the employer, and 
"(2) in any case in which the employer maintains a plan which 
is not the plan maintained by a predecessor employer, service for 
such predecessor shall, to the extent provided in regulations pre-
scribed by the Secretary or his delegate, be treated as service for 
the employer. 
"(b) 
EMPLOYEES OF CONTROLLED GROUP OF CORPORATIONS.—For 
Infef pp^°898, 
purposcs of scctious 401, 410, 411, and 415, all employees of all corpo-
901; p'os(, p. 979. ratious which are members of a controlled group of corporations 
(within the meaning of section 1563(a), determined without regard 
26 use 1563. 
^Q section 1563(a) (4) and (e) (3) (C)) shall be treated as employed 
by a single employer. With respect to a plan adopted by more than one 
such corporation, the minimum funding standard of section 412, the 
Ante, p. 920. 
tax imposed by section 4971, and the applicable limitations provided 
by section 404(a) shall be determined as if all such employers were 
a single employer, and allocated to each employer in accordance with 
regulations prescribed by the Secretary or his delegate. 
"(c) 
EMPLOYISES OF PARTNERSHIPS, PROPRIETORSHIPS, ETC., W H I C H 
ARE UNDER COMMON CONTROL.—For purposes of sections 401,410,411, 
and 415, under regulations prescribed by the Secretary or his delegate, 
all employees of trades or businesses (whether or not incorporated) 
which are under common control shall be treated as employed by a 
single employer. The regulations prescribed under this subsection 
shall be based on principles similar to the principles which apply in 
the case of subsection (b). 
"(d) GOVERNMENTAL PLAN.—For purposes of this part, the term 
'governmental plan' means a plan established and maintained for its 
employees by tlie Government of the United States, by the govern-
ment 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 
45 use 215-228 1935 or 1937 applies and which is financed by contributions required 
notes, 228a. 
uudcT that Act aud any plan of an international organization which 
is exempt from taxation by reason of the International Organiza-
22 use 288 
tions Immunities Act (59 Stat. 669). 
"(e) 
CHURCH PLAN.— 
"(1) I N GENERAL.—For purposes of this part the term 'church 
plan' means— 
"(A) a plan established and maintained for its employees 
by a church or by a convention or association of churches 
26 use 501. 
which is exempt from tax under section 501, or 
"(B) a plan described in paragraph (3). 
" (2) 
CERTAIN UNRELATED BUSINESS OR MULTIEMPLOYER PLANS.— 
The term 'church plan' does not include a plan— 
"(A) 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), or 
"(B) which is a plan maintained by more than one 
employer, if one or more of the employers in the plan is not a 
church (or a convention or association of churches) which is 
exempt from tax under section 501. 
"(3) 
SPECIAL TEMPORARY RULE FOR CERTAIN CHURCH AGENCIES 
UNDER CHURCH PLAN. 
"(A) Notwithstanding 
the 
provisions 
of 
paragraph 
(2)(B), a plan in existence on January 1, 1974, shall be 
note 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
927 
treated as a church plan if it is established and maintained 
by a church or convention or association of churches and 
one or more agencies of such church (or convention or asso-
ciation) for the employees of such church (or convention 
or association) and the employees of one or more agencies of 
such church (or convention or association), and if such church 
(or convention or association) and each such agency is exempt 
from tax under section 501. 
26 use soi. 
"(B) Subparagraph (A) shall not apply to any plan main-
tained for employees of an agency with respect to which the 
plan was not maintained on January 1, 1974, 
"(C) Subparagraph (A) shall not apply with respect to 
any plan for any plan year beginning after December 31, 
1982. 
" ( f ) 
MULITIEMPLOYER 
P L A N . — 
"(1) I N GENERAL.—For purposes of this part, the term 'multi-
employer plan' means a plan— 
"(A) to which more than one employer is required to 
contribute, 
"(B) which is maintained pursuant to a collective-bargain-
ing agreement between employee representatives and more 
than one employer, 
"(C) under which the amount of contributions made under 
the plan for a plan year by each employer making such con-
tributions is less than 50 percent of the aggregate amount of 
contributions made under the plan for that plan year by all 
employers making such contributions, 
(D) under which benefits are payable with respect to each 
participant without regard to the cessation of contributions 
by the employer who employed that participant except to 
the extent that such benefits accrued as a result of service with 
the employer before such employer was required to contribute 
to such plan, and 
"(E) which satisfies such other requirements as the Secre-
tary of Labor may by regulations prescribe. 
" (2) SPECIAL RULES.—For purposes of this subsection— 
"(A) If a plan is a multiemployer plan within the mean-
ing of paragraph (1) for any plan year, subparagraph (C) 
of paragraph (1) shall be applied by substituting '75 per-
cent' for '50 percent' for each subsequent plan year until the 
first plan year following a plan year in which the plan had 
one employer who made contributions of 75 percent or more 
of the aggregate amount of contributions made under the 
plan for that plan year by all employers making such con-
tributions. 
"(B) All corporations which are members of a controlled 
group of corporations (within the meaning of section 1563 
26 use isea. 
(a), determined without regard to section 1563(e)(3)(C)) 
shall be deemed to be one employer. 
"(g) PLAN ADMINISTRATOR.—For purposes of this part, the term 
'plan administrator' means— 
"(1) the person specifically so designated by the terms of the 
instrument under which the plan is operated; 
"(2) in the absence of a designation referred to in paragraph 
" (A) in the case of a plan maintained by a single employer, 
such employer, 
"(B) in the case of a plan maintained by two or more 
employers or jointly by one or more employers and one or 
26 u s e 401. 
26 u s e 403, 
405. 
92»' 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
more employee organizations, the association, committee, joint 
board, of trustees, or other similar group of representatives of 
the parties who maintained the plan, or 
"(C) in any case to which subparagraph (A) or (B) does 
not apply, such other person as the Secretary or his delegate 
may by regulation, prescribe. 
" (h) TAX TREATMENT OF CERTAIN CONTRIBUTIONS.— 
"(1) I N GENERAL.—Effective with respect to taxable years 
beginning after December 31, 1973, for purposes of this title, any 
amount contributed— 
" (A) to an employees' trust described in section 401 (a), or 
"(B) under a plan described in section 403(a) or 405(a), 
shall not be treated as having been made by the employer if 
it is designated as an employee contribution. 
"(2) DESIGNATION BY UNITS OF GOVERNMENT.—For purposes 
of paragraph (1), in the case of any plan established by the gov-
ernment of any State or political subdivision thereof, or by any 
agency or instrumentality of any of the foregoing, where the con-
tributions of employing units are designated as employee contri-
butions but where any employing unit picks up the contributions, 
the contributions so picked up shall be treated as employer 
contributions, 
"(i) DEFINED CONTRIBUTION PLAN.—For purposes of this part, the 
term 'defined contribution plan' means a plan which provides for an 
individual account for each participant and for benefits based solely 
on the amount contributed to the participant's account, and any in-
come, expenses, gains and losses, and any forfeitures of accounts of 
other participants which may be allocated to such participant's 
account. 
"(j) DEFINED BENEFIT PLAN.—For purposes of this part, the term 
'defined benefit plan' means any plan which is not a defined contribu-
tion plan. 
"(k) CERTAIN PLANS.—A defined benefit plan which provides a 
benefit derived from employer contributions which is based partly on 
the balance of the separate account of a participant shall— 
Ante, p. 898. 
u^]^^ ^^j. purposes of scctiou 410 (relating to minimum partici-
pation standards), be treated as a defined contribution plan, 
^"'^' "• ^
*
^
^
- 
" (2) for purposes of sections 411 (a) (7) (A) (relating to mini-
Post, p. 979. 
mum vesting standards) and 415 (relating to limitations on 
benefits and contributions under qualified plans), be treated as 
consisting of a defined contribution plan to the extent benefits are 
based on the separate account of a participant and as a defined 
benefit plan with respect to the remaining portion of benefits under 
the plan, and 
" (3) for purposes of section 4975 (relating to tax on prohibited 
transactions), be treated as a defined benefit plan. 
"(1) 
MERGERS AND CONSOLIDATIONS OF PLANS OR TRANSFERS OF 
PLAN ASSETS.—A trust which forms a part of a plan shall not con-
stitute a qualified trust under section 401 and a plan shall be treated 
as not described in section 403(a) or 405 unless in the case of any 
merger or consolidation of the plan with, or in the case of any transfer 
of assets or liabilities of such plan to, any other trust plan after the 
date of t] e enactment of the Employee Ketirement Income Security 
Act of 1974, each participant in the plan would (if the plan then ter-
minated) receive a benefit immediately after the merger, consolida-
tion, or transfer which is equal to or greater than the benefit he would 
have been entitled to receive immediately before the merger, consolida-
tion, or transfer (if the plan had then terminated). This paragraph 
Post, p. 971. 
Ante, p. 829. 
Ante, p. 898. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
929 
shall apply in the case of a multiemployer plan only to the extent 
determined by the Pension Benefit Guaranty Corporation." 
SEC. 1016. CONFORMING AND CLERICAL AMENDMENTS. 
(a) CONFORMING AMENDMENTS.— 
(1) Section 2Y5(a) (relating to denial of deduction for certain 
26 use 275. 
taxes) is amended by adding at the end thereof the following new 
paragraph: 
" (6) Taxes imposed by chapter 42 and chapter 43." 
^ 
^
^
^ use 4940. 
(2) Section 401 (a) (relating to requirements for qualification) 
26 use"401.* 
is amended— 
(A) by striking out paragraph (3) and inserting in lieu 
thereof: 
"(3) if the plan of which such trust is a part satisfies the 
requirements of section 410 (relating to minimum participation 
standards); and", 
(B) by striking out "paragraph (3) (B) or (4)" in para-
graph (5) and inserting in lieu thereof "paragraph (4) or 
section 410(b) 
(without regard to paragraph 
(1) (A) 
thereof)", and 
(C) by striking out paragraph (7) and inserting in lieu 
thereof: 
"(7) A trust shall not constitute a qualified tnist under this 
section unless the plan of which such trust is a part satisfies the 
requirements of section 411 (relating to minimum vesting 
^"'''' P- ^oi-
standards)." 
(3) Section 404(a) (2) (relating to deduction for contributions 
26 use 404. 
of an employer to an employee's annuity plan) is amended by 
striking out "and (8)," and inserting in lieu thereof "(8), (11), 
(12),(13),.(14).and(15)". 
_ 
_ 
, , . . . , „ . 
(4) Section 406 (b) (1) (relating to certain employees of foreign 
^f'use 4U6. 
subsidiaries) is amended by striking out "paragraphs (3) (B) 
and (4) of section 401(a)" and inserting in lieu thereof "section 
401(a)(4) and section 410(b) (without regard to paragraph 
^°«''?• ^ss. 
(1)(A) thereof)". 
(5) Section 407(b)(1) 
(relating to certain employees of 
26 use 407. 
domestic subsidiaries engaged in business outside the United 
States) is amended by striking out "paragraph (3) (B) and (4) of 
section 401(a)" and inserting in lieu thereof "section 401(a) (4) 
and section 410(b) 
(without regard to paragraph 
(1) (A) 
thereof)". 
(6) Section 805(d) (1) (C) (relating to definition of pension 
^6 use 805. 
plan reserves) is amended by striking out "and (8)" and inserting 
in lieu thereof "(8), (11), (12), (13), (14), and (15)". 
(7) Section 6161 (b) (1) (relating to extensions of time for pay- 
^e use eiei. 
ing tax) is amended by striking out "or 42" and inserting in lieu 
thereof "42 or 43". The second sentence of section 6161(b) is 
amended by striking out "or 42" and inserting in lieu thereof ", 42, 
or chapter 43". 
(8) Section 6201(d) 
(relating to assessment authority) is 
26 use 6201, 
amended by striking out "and chapter 42" and inserting in lieu 
thereof ", chapter 42, and chapter 43". 
(9) Section 6211 (defining deficiency) is amended— 
26 use 6211, 
(A) by striking out so much of subsection (a) as precedes 
paragraph (1) thereof and inserting in lieu thereof the 
following: 
"(a) I N GENERAL.—For purposes of this title in the case of income, 
estate, and gift taxes imposed by subtitles A and B and excise taxes 
26 use 1, 2001. 
imposed by chapters 42 and 43, the term 'deficiency' means the amount 
930 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
200^1 ^4^940.' 
^y "^hich the tax imposed by subtitle A or B, or chapter 42 or 43, 
Ante, p. 920. 
cxcecds the excess of—"; and 
(B) by striking out "chapter 42'* in subsection (b) (2) and 
inserting in lieu thereof "chapter 42 or 43". 
26 use 6212. 
^-^Q^ Section 6212 (relating to notice of deficiency) is amended— 
(A) by striking out "chapter 42" in subsection (a) and 
inserting in lieu thereof "chapter 42 or 43", 
(B) by striking out "or chapter 42" in subsection (b) (1) 
and inserting in lieu thereof "chapter 42, or chapter 43", 
(C) by striking out "chapter 42, and this chapter" in sub-
section (b) (1) and inserting in lieu thereof "chapter 42, chap-
ter 43, and this chapter", and 
(D) by striking out "of the same decedent," in subsection 
(c) and inserting in lieu thereof "of the same decedent, of 
chapter 43 tax for the same taxable years,". 
(11) Section 6213 (relating to restrictions applicable to 
deficiencies and petition to Tax Court) is amended— 
(A) by striking out "or chapter 42" in subsection (a) and 
inserting in lieu thereof ", chapter 42 or 43", 
(B) by striking out the heading of subsection (e) and 
inserting in lieu thereof: 
"(e) 
SUSPENSION or FILING PERIOD FOR CERTAIN EXCISE TAXES.—", 
(C) by striking out "or 4945 (relating to taxes on taxable 
expenditures)" in subsection (e) and inserting in lieu thereof 
^"'^'^•^20. 
"4945 (relating to taxes on taxable expenditures), 4971 
(relating to excise taxes on failure to meet minimum funding 
Post, p. 971. 
standard), 4975 (relating to excise taxes on prohibited trans-
actions)"; and 
(D) by striking out "or 4945 (h) (2)" in subsection (e) and 
inserting in lieu thereof ", 4945(1) (2), 4971(c) (3), or 4975 
(f)(4)/'- 
. 
. 
. 
(12) Section 6214 (relating to determinations by Tax Court) 
is amended— 
(A) by amending the heading of subsection (c) to read 
as follows: 
"(c) TAXES IMPOSED BY SECTION 507 OR CHAPTER 42 OR 43.—", 
(B) by inserting after "chapter 42" each place it appears 
in subsection (c) "or 43"; and 
(C) by striking out "chapter 42" in subsection (d) and 
inserting in lieu thiBreof "chapter 42 or 43". 
(13) Section 6344(a)(1) 
(relating to cross references) 
is 
amended by striking out "chapter 42" and inserting in lieu thereof 
"chapter 42 or 43". 
(14) Section 6501 (e) (3) (relating to limitations on assessment 
and collection) is amended by striking out "chapter 42" and 
inserting in lieu thereof "chapter 42 or 43". 
26 use 6503. 
^ j^g^ Sectiou 6503 (relating to suspension of running of period 
of limitations) is amended— 
(A) by striking out "chapter 42 taxes)" in subsection (a) 
(1) and inserting in lieu thereof "certain excise taxes)", and 
(B) by inserting after "section 507" in subsection (h) "or 
section 4971 or section 4975", and by striking out "or 4945(h) 
(2)" in subsection (h) and inserting in lieu thereof "4945 (i) 
(2),4971(c) (3),or4975(f) (4)"._ 
(16) Section 6512 (relating to limitations in case of petition to 
Tax Court) is amended by striking out "chapter 42" each place 
it appears therein and inserting in lieu thereof "chapter 42 or 43". 
(17) Section 6601(d) (relating to interest on underpayment, 
26 use 6344. 
26 use 6501, 
26 use 6512. 
26 use 6601. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
^>31 
nonpayment, or extensions of time for payment of tax) is 
amended by— 
(A) striking out in the heading thereof "CHAPTER 42" and 
inserting in lieu thereof "CHAPTER 42 OR 43", and 
26 use 494o. 
(B) striking out "chapter 42" and inserting in lieu thereof 
"'^' ^' ^^°' 
"certain excise". 
(18) Section 6653(c) (1) (relating to income, estate, gift, and 
26 use 6653, 
chapter 42 taxes) is amended by striking out "chapter 42" each 
place it appears therein (including the heading) and inserting in 
lieu thereof "certain excise". 
(19) Section 6659(b) (relating to applicable rules) is amended 
26 use 6659, 
by striking out "chapter 42" and inserting in lieu thereof "certain 
excise". 
(20) Section 6676(b) (relating to failure to supply identify- 
26 use 6676. 
ing numbers) is amended by striking out "chapter 42" and insert-
ing in lieu thereof "and certain excise". 
(21) Section 6677(b) (relating to failure to file information 
26 use 6677, 
returns with respect to certain foreign trusts) is amended by 
striking out "chapter 42" and inserting in lieu thereof "and 
certain excise". 
(22) Section 6679(b) (relating to failure to file returns as to 
26 use 6679. 
organization or reorganization of foreign corporations and as to 
acquisitions of their stock) is amended by striking out "chapter 
42" and inserting in lieu thereof "and certain excise". 
(23) Section 6682(b) 
(relating to false information with 
26 use 6682. 
respect to withholding allowances based on itemized deductions) 
is amended by striking out "chapter 42" and inserting in lieu 
thereof "and certain excise". 
(24) The heading of section 6861 (relating to jeopardy assess- 
^^ ^^^ ^^^^• 
ments of income, estate, and gift taxes) is amended by striking 
out "and gift taxes.", and inserting in lieu thereof ", gift, and 
certain excise taxes.". 
(25) Section 6862 (relating to jeopardy assessment of taxes 
26 use 6862. 
other than income, estate, and gift taxes) is amended— 
(A) by striking out "and Gift Taxes.", in the heading 
and inserting in lieu thereof ", Gift, and Certain Excise 
Taxes.", 
(B) by striking out "and gift tax)" in subsection (a) and 
inserting in lieu thereof "gift tax, and certain excise taxes)". 
(26) Section 7422 (relating to civil actions for refund) is 
26 use 7422. 
amended— 
(A) by striking out "chapter 42" and inserting in lieu 
thereof "chapter 42 or 43" in subsection (e), 
(B) by striking out "CHAPTER 42" in the heading of sub-
section (g) and inserting in lieu thereof "CHAPTER 42 or 43", 
(C) by striking out "or 4945" in subsection (g) (1) and 
inserting in lieu thereof "4945, 4971, or 4975", 
ILYf p.\^20;: 
(D) by striking out "section 4945(a) (relating to initial ^ost, p. 971. 
taxes on taxable expenditures)" in subsection (g)(1) and 
inserting in lieu thereof "section 4945(a) (relating to initial 
taxes on taxable expenditures), 4971(a) (relating to initial 
tax on failure to meet minimum funding standard), 4975(a) 
(relating to initial tax on prohibited transactions)", 
(E) by striking out "or section 4945(b) (relating to ad-
ditional taxes on taxable expenditures)" in subsection (g) 
(1) and inserting in lieu thereof "section 4945(b) (relating 
to additional taxes on taxable expenditures), section 4971(b) 
(relating to additional tax on failure to meet minimum fund-
932 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
ing standard), or section 4975 (b) (relating to additional tax 
on prohibited transactions)", and. 
( F ) by striking out "or 4945" in paragraphs (2) and (3) 
of subsection (g) and inserting in lieu thereof "4945, 4971, or 
26 use 4945. 
4975". 
Pos"/p.^97i. ' 
(27) Section 6204(b) (relating to supplemental assessments) 
26 use 6204. 
is amended by striking out "and gift taxes" and inserting in lieu 
thereof "gift, and certain excise taxes", 
(b) 
CLERICAL A M E N D M E N T S . — 
(1) P a r t I of subchapter D of chapter 1 is amended by in-
serting after the heading and before the table of sections the 
following: 
"Subpart A. General rule. 
"Subpart B. Special rules. 
"Subpart A—General Rule". 
(2) The table of chapters for subtitle D is amended by adding 
at the end thereof the following new item: 
"CHAPTER 43. Qualified pension, etc., plans." 
(3) The table of sections for subchapter B of chapter 68 is 
amended by striking out the item relating to the section cap-
tioned "Assessable penalties with respect to information required 
to be furnished under section 7654" and inserting in lieu thereof: 
"Sec. 6688. Assessable penalties with respect to information required to be 
furnished under section 7654." 
(4) Subchapter B of chapter 68 is amended by striking out the 
heading of the section immediately preceding section 6689 and 
inserting in lieu thereof : 
26 use 6688. 
"ggc. gggg. ASSESSABLE PENALTIES WITH RESPECT TO INFORMA-
TION REQUIRED TO BE FURNISHED UNDER SECTION 
7654." 
(6) T h e table of sections for part I I of subchapter A of chap-
ter 70 is amended by striking out "and gift taxes" in the items 
26 use 6861, 
relating to sections 6861 and 6862 and inserting in lieu thereof 
"gift, and certain excise taxes". 
26 use 410 
gEc 1Q17 EFFECTIVE DATES AND TRANSITIONAL RULES. 
(a) GENERAL RULE.—Except as otherwise provided in this section, 
the amendments made by this part shall apply for plan 
years 
beginning after the date of the enactment of this Act. 
(b) EXISTING PLANS.—Except as otherwise provided in subsections 
(c) through ( h ) , in the case of a plan in existence on J a n u a r y 1, 1974, 
the amendments made by this part shall apply for plan 
years 
beginning after December 31,1976. 
(c) 
EXISTING 
P L A N S 
UNDER 
COLLECTIVE 
BARGAINING 
AGREE-
MENTS.— 
(1) 
APPLICATION OF VESTING 
RULES TO CERTAIN 
PLAN 
PRO-
VISIONS.— 
(A) WAIVER or APPLICATION.—In the case of a plan main-
tained on January 1,1974, pursuant to one or more agreements 
which the Secretary of Labor finds to be collective bargaining 
agreements between employee representatives and one or more 
employers, during the special temporary waiver period the 
plan shall not be treated as not meeting the requirements of 
section 411(b) (1) or (2) of the Internal Revenue Code of 
note. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
933 
1954 solely by reason of a supplementary or special plan 
^"'^' ^' ^°^-
provision (within the meaning of subparagraph (D)). 
(B) SPECIAL TEMPORARY WAIVER PERIOD.—For purposes of 
this paragraph, the term "special temporary waiver period" 
means plan years beginning after December 31, 1975, and 
before the earlier of—• 
(i) the date on which the last of the collective bar-
gaining agreements relating to the plan terminates (de-
termined without regard to any extension thereof agreed 
to after the date of the enactment of this Act), or 
(ii) January 1,1981. 
For purposes of clause (i), any plan amendment made pur-
suant to a collective bargaining agreement relating to the 
plan which amends the plan solely to conform to any re-
quirement contained in this Act shall not be treated as a 
termination of such collective bargaining agreement. 
(C) 
DETERMINATION BY SECRETARY OP LABOR REQUIRED.— 
Subparagraph (A) shall not apply unless the Secretary of 
Labor determines that the participation and vesting rules 
in effect on the date of the enactment of this Act are not less 
favorable to the employees, in the aggregate, than the rules 
provided under sections 410 and 411 of the Internal Revenue 
Code of 1954. 
^"'e, pp. 898, 
(D) 
SUPPLEMENTARY OR SPECIAL PLAN PROVISIONS.—For ^°^* 
purposes of this paragraph, the term "supplementary or spe-
cial plan provision" means any plan provision which— 
(i) provides supplementary benefits, not in excess of 
one-third of the basic benefit, in the form of an annuity 
for the life of the participant, or 
(ii) provides that, under a contractual agreement 
based, on medical evidence as to the effects of working 
in an adverse environment for an extended period of 
time, a participant having 25 years of service is to be 
treated as having 30 years of service. 
(2) APPLICATION OP FUNDING RULES.—• 
(A) I N GENERAL.—In the case of a plan maintained on 
January 1, 1974, pursuant to one or more agreements which 
the Secretary of Labor finds to be collective bargaining agree-
ments between employee representatives and one or more 
employers, section 412 of the Internal Revenue Code of 1954, '^"f^' P- 914. 
and other amendments made by this part to the extent such 
amendments relate to such section 412, shall not apply during 
the special temporary waiver period (as defined in paragraph 
(1)(B)). 
(B) WAIVER OF UNDERFUNDING.—In the case of a plan main-
tained on January 1,1974, pureuant to one or more agreements 
which the Secretary of Labor finds to be collective bargaining 
agreements between employee representatives and one or 
more employers, if by reason of subparagraph (A) the 
requirements of section 401(a) (7) of the Internal Revenue 
Code of 1954 apply without regard to the amendment of such 
26 use 40i. 
section 401(a) (7) by section 1016(a) (2) (C) of this Act, the 
^"'^' P- ^29. 
plan shall not be treated as not meeting such requirements 
solely by reason of the application of the amendments made 
by sections 1011 and 1012 of this Act or related amendment« 
^"'^' PP-
made by this part. 
(C) LABOR ORGANIZATION CONVENTIONS.—In the case of a 
plan maintained, by a labor organization, which is exempt 
from tax under section 501(c)(5) of the Internal Revenue 
901, 
38-194 O - 76 - 62 Pt. 1
934 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
26 use 501. 
Ante, p. 914. 
26 use 1 et 
seq. 
Ante, p. 925. 
Code of 1954, exclusively for the benefit of its employees and 
their beneficiaries, section 412 of such Code and other amend-
ments made by this part to the extent such amendments relate 
to such section 412, shall be applied by substituting for the 
term "December 31, 1976" in subsection (b), the earlier of— 
(i) the date on which the second convention of such 
labor organization held after the date of the enactment 
of this Act ends, or 
(ii) December 31,1980, 
but in no event shall a date earlier than the later of December 31,1975, 
or the date determined under subparagraph (A) or (B) be substituted. 
(d) EXISTING PLANS MAY ELECT NEW PROVISIONS.—In the case of 
a plan in existence on January 1, 1974, the provisions of the Internal 
Revenue Code of 1954 relating to participation, vesting, funding, and 
form of benefit (as in effect from time to time) shall apply in the case 
of the plan year (which begins after the date of the enactment of this 
Act but before the applicable effective date determined under subsec-
tion (b) or (c)) selected by the plan administrator and to all sub-
sequent plan years, if the plan administrator elects (in such manner 
and at such time as the Secretary of the Treasury or his delegate shall 
by regulations prescribe) to have such provisions so apply. Any elec-
tion made under this subsection, once made, shall be irrevocable. 
(e) CERTAIN DEFINITIONS AND SPECIAL HULES.—Section 414 of the 
Internal Revenue Code of 1954 (other than subsections (b) and (c) of 
such section 414), as added by section 1015(a) of this Act, shall take 
effect on the date of the enactment of this Act. 
(f) 
TRANSITIONAL RULES W I T H RESPECT TO BREAKS IN SERVICE.— 
(1) PARTICIPATION.—In the case of a plan to which section 410 
Ante, p. 898. 
^^ ^j^g Internal Revenue Code of 1954 applies, if any plan amend-
ment with respect to breaks in service (which amendment is made 
or becomes effective after January 1,1974, and before the date on 
which such section 410 first becomes effective with respect to such 
plan) provides that any employee's participation in the plan 
would commence at any date later than the later of— 
(A) the date on which his participation would commence 
under the break in service rules of section 410(a) (5) of such 
Code, or 
(B) the date on which his participation would commence 
under the plan as in effect on January 1,1974, 
such plan shall not constitute a plan described in section 403(a) 
26 use 403,405. 
or 405(a) of such Code and a trust forming a part of such plan 
shall not constitute a qualified trust under section 401(a) of such 
26 use 401. 
Code. 
(2) VESTING.—In the case of a plan to which section 411 of the 
Ante, p. 901. 
Internal Revenue Code of 1954 applies, if any plan amendment 
with respect to breaks in service (which amendment is made or 
becomes effective after January 1, 1974, and before the date on 
which such section 411 first becomes effective with respect to such 
plan) provides that the nonforfeitable benefit derived from 
employer contributions to which any employee would be entitled 
is less than the lesser of the nonforfeitable benefit derived from 
employer contributions to which he would be entitled under— 
(A) the break in service rules of section 411 (a) (6) of such 
Code, or 
(B) the plan as in effect on January 1,1974, 
such plan shall not constitute a plan described in section 403(a) 
or 405(a) of such Code and a trust forming a part of such plan 
shall not constitute a qualified trust under section 401 (a) of such 
Code. Subparagraph (B) shall not apply if the break in service 
rules under the plan would have been in violation of any law or 
rule of law in effect on January 1,1974. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
5i35 
(g) 3-YEAR DELAY FOR CERTAIN PROVISIONS.—Subparagraphs (B) 
and (C) of section 404(a) (1) shall apply only in the case of plan years 
Ante, p. 921. 
beginning on or after 3 years after the date of the enactment of this 
Act. 
(h)(1) Except as provided in paragraph (2), section 413 of the ^"'^' P- ^2'*-
Internal Revenue Code of 1954 shall apply to plan years beginning 
after December 31,1953. 
(2) (A) For plan years beginning before the applicable effective 
date of section 410 of such Code, the provisions of paragraphs (1) 
'^"'^' P- ^^^• 
and (8) of subsection (b) of such section 413 shall be applied by 
substituting "401 (a) (3)" for "410". 
(B) For plan years beginning before the applicable effective date 
of section 411 of such Cwie, the provisions of subsection (b) (2) of 
^"'«' P- ^oi-
such section 413 shall be applied by substituting "401(a)(7)" for 
"411(d)(3)". 
(C) (i) The provisions of subsection (b) (4) of such section 413 
shall not apply to plan years beginning before the applicable effective 
date of section 411 of such Code. 
(ii) The provisions of subsection (b) (5) (other than the second 
sentence thereof) of such section 413 shall not apply to plan years 
beginning before the applicable effective date of section 412 of such 
Code. 
^"'"' P- ^1^-
PART 2—CERTAIN OTHER PROVISIONS RELATING TO 
QUALIFIED RETIREMENT PLANS 
SEC. 1021. ADDITIONAL PLAN REQUIREMENTS. 
(a) JOINT AND SURVIVOR ANNUITY REQUIREMENT,— 
(1) I N GENERAL.—Effective with rcspect to plan years beginning 
after December 31,1975, section 401(a) (relating to requirements 
ie'usc 401 
for qualification) is amended by inserting after paragraph (10) 
the following new paragraph: 
"(11) (A) A trust shall not constitute a qualified trust under 
this section if the plan of which such trust is a part provides for 
the payment of benefits in the form of an annuity unless such plan 
provides for the payment of annuity benefits in a form having the 
effect of a qualified joint and survivor annuity. 
"(B) Notwithstanding the provisions of subparagraph (A), in 
the case of a plan which provides for the payment of benefits 
before the normal retirement age (as defined in section 411 
(a) (8)), the plan is not required to provide for the payment of 
annuity benefits in a form having the effect of a qualified joint and 
survivor annuity during the period beginnimr on the date on which 
the employee enters into the plan as a participant and ending on 
the later of— 
"(i) the date the employee reaches the earliest retirement 
age under the plan, or 
" (ii) the first day of the 120th month beginning before the 
date on which the employee reaches normal retirement age. 
"(C) A plan described in subparagraph (B) does not meet the 
requirements of subparagraph (A) unless, under the plan, a par-
ticipant has a reasonable period during which he may elect the 
qualified joint and survivor annuity form with respect to the 
period beginning on the date on which the period described in 
subparagraph (B) ends and ending on the date on which he 
reaches normal retirement age (as defined in section 411(a) (8)) 
if he continues his employment during that period. A plan does 
not meet the requirements of this subparagraph unless, in the case 
of such an election, the payments under the survivor annuity are 
not less than the payments which would have been made under the 
26 use 401 
note. 
936 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
joint annuity to which the participant would have been entitled 
if he made an election described in this subparagraph immediately 
prior to his retirement and if his retirement had occurred on the 
day before his death and within the period within which an 
election can be made. 
"(D) A plan shall not be treated as not satisfying the require-
ments of this paragraph solely because the spouse of the partici-
pant is not entitled to receive a survivor annuity (whether or not 
an election described in subparagraph (C) has been made under 
subparagraph (C)) unless the participant and his spouse have 
been married throughout the 1-year period ending on the date 
of such participant's death. 
"(E) A plan shall not be treated as satisfying the requirements 
of this paragraph unless, under the plan, each participant has a 
reasonable period (as described by the Secretary or his delegate 
by regulations) before the annuity starting date during which he 
may elect in writing (after having received a written explanation 
of the terms and conditions of the joint and survivor annuity and 
the effect of an election under this subparagraph) not to take such 
joint and survivor annuity. 
"(F) A plan shall not be treated as not satisfying the require-
ments of this paragraph solely because under the plan there is 
a provision that any election described in subparagraph (C) or 
(E), and any revocation of any such election, does not become 
effective (or ceases to be effective) if the participant dies within 
a period (not in excess of 2 years) beginning on the date of such 
election or revocation, as the case may be. The preceding sentence 
does not apply unless the plan provision described in the preced-
ing sentence also provides that such an election or revocation 
will be given effect in any case in which— 
"(i) the participant dies from accidental causes, 
"(ii) a failure to give effect to the election or revocation 
would deprive the participant's survivor of a survivor annu-
ity, and 
"(iii) such election or revocation is made before such acci-
dent occurred. 
D efiniti on s. 
" ( G
T ) For purposcs of this paragraph— 
"(i) the term 'annuity starting date' means the first day 
of the first period for which an amount is received as an 
annuity (whether by reason of retirement or by reason of 
disability), 
"(ii) the term 'earliest retirement age' means the earliest 
date on which, under the plan, the participant could elect to 
receive retirement benefits, and 
"(iii) the term 'qualified joint and survivor annuity' means 
an annuity for the life of the participant with a survivor 
annuity for the life of his spouse which is not less than one-
half of, or greater than, the amount of the annuity payable 
during the joint lives of the participant and his spouse and 
which is the actuarial equivalent of a single life annuity for 
the life of the participant. 
For purposes of this paragraph, a plan may take into account 
in any equitable manner (as determmed by the Secretary or his 
delegate) any increased costs resulting from providing joint and 
survivor annuity benefits. 
"(H) This paragraph shall apply only if— 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
937 
"(i) the annuity starting date did not occur before the 
effective date of this paragraph, and 
"(ii) the participant was an active participant in the plan 
on or after such effective date." 
(2) CERTAIN ADDITIONAL REQUIREMENTS APPLY ONLY TO PLANS 
TO WHICH VESTING REQUIREMENTS APPLY. 
SectioU 401 ( a ) ( r e l a t i n g 
26 use 401. 
to requirements for qualification) is amended by adding at the end 
thereof the following new sentence: "Paragraphs (11), (12), 
(13), (14), (15), and (19) shall apply only in the case of a plan 
to which section 411 (relating to minimum vesting standards) 
^"^^' P- '*^^-
applies without regard to subsection (e) (2) of such section." 
(b) REQUIREMENTS IN CASE or MERGERS AND CONSOLIDATIONS or 
26 use 401 
PLANS OR TRANSFERS or PLAN ASSETS.—Effective with respect to plan "°'^' 
years beginning after December 31, 1975, section 401(a) is amended 
^"te, p. 935. 
by inserting after paragraph (11) the following new paragraph: 
"(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 as-
sets or liabilities to, any other plan after the date of the enactment 
of the Employee Retirement Income Security Act of 1974, each 
^"'e, p. 829. 
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, consoli-
dation, or transfer (if the plan had then terminated). This para-
graph shall apply in the case of a multiemployer plan only to the 
extent determined by the Pension Benefit Guaranty Corporation." 
(c) RETIREMENT BENEFITS MAY NOT B E ASSIGNED OR ALIENATED.— 
Section 401(a) is amended by inserting after paragraph (12) the fol- ^^pra-
lowing new paragraph: 
"(13) 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 (relat- 
P"®'' P- 97I. 
ing to tax on prohibited transactions) by reason of section 4975 
(d) (1). This paragraph shall take effect on January 1, 1976 and 
shall not apply to assignments which were irrevocable on the date 
of the enactment of the Employee Retirement Income Security 
Act of 1974." 
(d) REQUIREMENT THAT PAYMENT OF BENEFITS BEGIN NOT LATER 
THAN W H E N THE PARTICIPANT ATTAINS AGE 65 OR HAS COMPLETED 
10 YEARS OF PARTICIPATION.—Section 401(a) is amended by inserting 
after paragraph (13) the following new paragraph: 
Supra. 
"(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— 
938 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(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 the age requirement 
for such earlj^ retirement benefit, is entitled upon satisfaction of 
such age i-equirement to receive a benefit not less than the benefit 
to which he would be entitled at the normal retirement age, actu-
arially, reduced under regulations prescribed by the Secretary or 
his delegate." 
(e) REQUIREMENT THAT PLAN BENEFITS ARE NOT DECREASED BY 
CERTAIN SOCIAL SECURITY INCREASES.—Section 401(a) is amended by 
Ante, p. 937. 
inserting after paragraph (14) the following new paragraph: 
"(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 
42 use 401. 
benefit levels payable under title I I of the Social Security Act or 
any increase in the wage base under such title II, if such increase 
takes place after the date of the enactment of the Employee 
Retirement Income Security Act of 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." 
(f) REQUIREMENT OF NONFORFEITABILITY IN CASE OF CERTAIN 
WITHDRAWALS.—Section 401(a) is amended by inserting 
after 
' ^osf, p. 953. 
paragraph (18) the following new paragraph: 
"(19) A trust shall not constitute a qualified trust under this 
section if under the plan of which such trust is a part any part of 
a participant's accrued benefit derived from employer contribu-
tions (whether or not otherwise nonforfeitable), is forfeitable 
solely because of withdrawal by such participant of any amount 
attributable to the benefit derived from contributions made by 
such participant. The preceding sentence shall not apply to the 
accrued benefit of any participant unless, at the time of such with-
drawal, such participant has a nonforfeitable right to at least 50 
percent of such accrued benefit (as determined under section 411). 
The first sentence of this paragraph shall not apply to the extent 
that an accrued benefit is permitted to be forfeited in accordance 
Ante, p. 901. 
y^\t\i section 411(a) (3) (D) (iii) (relating to proportional for-
feitures of benefits accrued before enactment of the Employee 
Retirement Income Security Act of 1974, in the event of 
withdrawal of certain mandatory contributions)." 
SEC. 1022. MISCELLANEOUS PROVISIONS. 
(a) REQUIREMENT THAT PLAN NOT B E DISCRIMINATORY.—Section 
26 use 401. 
401(a) (4) (disqualifying discriminatory plans) is amended to read 
as follows: 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
939 
"(4) If the contributions or the benefits provided under the 
plan do not discriminate in favor of employees who are— 
(A) 
officers, 
"(B) shareholders, or 
"(C) highly compensated. 
For purposes of this paragraph, there shall be excluded from 
consideration employees described in section 410(b) (2) (A) and ^"'^' P- 898. 
(C)." 
(b) AMENDMENTS RELATING TO SELF-EMPLOTED INDIVBDUALS AND 
OWNER-EMPLOYEES.— 
(1) AMENDMENT OF SECTION (40I) (a) (lo).—So much of sub-
paragraph (A) of section 401(a) (10) as precedes clause (i) 
26usc40i. 
thereof is amended to read as follows: 
"(A) paragraph (3), the first and second sentences of para-
graph (5), and section 410 shall not apply, but—". 
(2) AMENDMENT or SECTION (4OI) (d) (3).—Section 401(d) (3) 
(relating to additional requirements for qualification of trusts and 
and plans benefiting owner-employees) is amended to read as 
follows: 
"(3) (A) The plan benefits each employee having 3 or more 
years of service (within the meaning of section 410(a) (3)). 
"(B) For purposes of subparagraph (A), the term 'employee' 
does not include— 
"(i) any employee included in a unit of employees covered 
by a collective-bargaining agreement described in section 
410(b) (2) (A),and 
"(ii) any employee who is a nonresident alien individual 
described in section 410(b) (2) (C)." 
(c) PERSONS OTHER THAN BANKS M A T B E TRUSTEES OF TRUSTS 
BENEFITTING OWNER-EMPLOYEES.— 
(1) The first sentence of section 401(d) (1) is amended to read 
as follows: "In the case of a trust which is created on or after 
October 10, 1962, or which was created before such date but is 
not exempt from tax under section 501(a) as an organization 
2 6 use soi. 
described in subsection (a) on the day before such date, the assets 
thereof are held by a bank or other person who demonstrates to 
the satisfaction of the Secretary or his delegate that the manner 
in which he will administer the trust will be consistent with the 
requirements of this section. A trust shall not be disqualified under 
this paragraph merely because a person (including the employer) 
other than the trustee or custodian so administering the trust may 
be granted, under the trust instrument, the power to control the 
investment of the trust funds either by directing investments 
(including reinvestments, disposals, and exchanges) or by disap-
proving proposed investments (including reinvestments, dis-
posals, or exchanges)." 
(2) The second sentence of section 401(d)(1) is amended by 
striking out "the date of the enactment of this subsection" and 
inserting in lieu thereof "October 10, 1962,". 
(d) CERTAIN CUSTODIAL ACCOUNTS.—Effective as of January 1, ^^^^ ^-^'^ '^^^ 
1974, subsection (f) of section 401 (relating to certain custodial 
accounts) is amended to read as follows: 
"(f) CERTAIN CUSTODIAL ACCOUNTS AND ANNUITY CONTRACTS.—For 
purposes of this title, a custodial account or an annuity contract shall 
be treated as a qualified trust under this section if— 
note. 
26 u s e 403 and 
note. 
940 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(1) the custodial account or annuity 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 subsection (d) (1)) or another per-
son who demonstrates, to the satisfaction of the Secretary or his 
delegate, 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 annuity 
contract treated as a qualified trust under this section by reason of 
this subsection, the person holding the assets of such account or hold-
ing such contract shall be treated as the trustee thereof." 
(e) 
CUSTODIAL ACCOUNTS FOR REGULATED INVESTMENT COMPANY 
STOCK.—Effective as of January 1, 1974, section 403(b) (relating to 
taxability of beneficiary under annuity purchased by section 501(c) 
26 use 501. 
(3^ organization or public school) is amended by adding at the end 
thereof the following new paragraph: 
"(7) 
CUSTODIAL ACCOUNTS FOR REGULATED INVESTMENT 
COM-
PANY STOCK.— 
"(A) AMOUNTS PAID TREATED AS CONTRIBUTIONS.—For pur-
poses of this title, amounts paid by an employer described 
in paragraph (1)(A) to a custodial account which satisfies 
Ante, p. 939. 
^^iQ requirements of section 401(f)(2) shall be treated as 
amounts contributed by him for an annuity contract for his 
employee if the amounts are paid to provide a retirement 
benefit for that employee and are to be invested in regulated 
investment company stock to be held in that custodial account. 
"(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), and which 
issues only redeemable stock." 
(f) 
INSURED CREDIT UNIONS.—Effective as of January 1, 1974, the 
last sentence of section 401(d) (1) is amended by striking out "sec-
tion 581," and inserting in lieu thereof "section 581, an insured credit 
union (within the meaning of section 101(6) of the Federal Credit 
Union Act),". 
(g) 
PUBLIC INSPECTION OF CERTAIN INFORMATION W I T H RESPECT 
T
O PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.— 
(1) AMENDMENT or SECTION 6104(a).—Paragraph (1) of sec-
tion 6104(a) (relating to public inspection of applications for 
tax exemption) is amended— 
(A) by redesignating subparagraph (B) as subparagraph 
(D) and by inserting after subparagraph (A) the following 
new subparagraphs; 
"(B) PENSION, ETC., PLANS.—The following shall be open 
to public inspection at such times and in such places as the 
Secretary or his delegate may prescribe: 
"(1) any application filed with respect to the qualifica' 
tion of a pension, profit-sharing, or stock bonus plan 
26 u s e 851. 
26 u s e 401 an 
note. 
12 use 
26 u s e 
1752. 
6104. 
d 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
941 
under section 401(a), 403(a), or 405(a), an individual J^^ jsc 4oi, 
retirement account described in section 408(a), or an 
26 use 408, 
individual retirement annuity described in section 408 
"(ii) any application filed with respect to the exemp-
tion from tax under section 501(a) of an organization 
26 use soi. 
forming part of a plan or account referred to in 
clause (i), 
"(iii) any papers submitted in support of an applica-
tion referred to in clause (i) or (ii), and 
"(iv) any letter or other document issued by the 
Internal Revenue Service and dealing with the qualifi-
cation referred to in clause (i) or the exemption from 
tax referred to in clause (ii). 
Except in the case of a plan participant, this subparagraph 
shall not apply to any plan referred to in clause (i) having 
not more than 25 participants. 
"(C) 
CERTAIN NAMES AND COMPENSATION NOT TO BE OPENED 
T
O PUBLIC INSPECTION.—In the case of any application, docu-
ment, or other papers, referred to in subparagraph (B), 
information 
from 
which 
the 
compensation 
(including 
deferred compensation) of any individual may be ascer-
tained shall not be open to public inspection under subpara-
graph (B)." 
(B) The heading of subparagraph (A) of section 6104(a) 
26 use 6i04. 
(1) is amended to read as follows: 
"(A) 
ORGANIZATIONS DESCRIBED IN SECTION 50I.—". 
(C) The heading of subparagraph (D) of section 6104(a) 
(1) as redesignated by subparagraph (A) of this paragraph 
is amended to read as follows: 
"(D) 
WITHHOLDING or CERTAIN OTHER INFORMATION.—". 
(D) Subparagraph (D) of section 6104(a) (1) (as so 
redesignated) is amended by striking out "subparagraph 
(A)" each place it appears and inserting in lieu thereof "sub-
paragraph (A) or (B)". 
(2) AMENDMENT OF SECTION 6104(a)(2).—Subparagraph (A) 
of section 6104(a) (2) is amended by adding at the end thereof 
"any application referred to in subparagraph (B) of subsection 
(a) (1) of this section, and". 
(3) AMENDMENT OF SECTION 6104(b).—Section 6104(b) (relat-
ing to inspection of annual information returns) is amended by 
striking out "and 6056" and inserting in lieu thereof "6956, and 
6058". 
(4) EFFECTIVE DATE.—The amendments made by this subsection 
26 use 6104 
shall apph to applications filed (or documents issued) after the "°*^' 
date of er c^ctment of this Act. 
(h) PUBLICITY OF RETURNS.—Effective on the date of the enactment ^^^^^^^ ^^°^ 
of this Act, section 6103 (relating to publicity of returns and disclosure 
of information as to persons filing income tax returns) is amended by 
adding at the end thereof a new subsection (g) to read as follows: 
"(g) 
DISCLOSURE OF INFORMATION W I T H RESPECT TO DEFERRED 
COMPENSATION PLANS.—The Secretary or his delegate is authorized 
to furnish— 
"(1) returns with respect to any tax imposed by this title or 
information with respect to such returns to the proper officers and 
employees of the Department of Labor and the Pension Benefit 
An te, p 
Post, p 
26 use 
Post, p 
26 
note 
26 
26 
use 
use 
use 
. 832. 
1003. 
6057. 
. 947, 
501 and 
501. 
401, 
942 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
Guaranty Corporation for purjjoses of administration of Titles I 
and IV of the Employee Retirement Income Security Act of 
1974, and 
"(2) registration statements (as described in section 6057) and 
information with respect to such statements to the proper officers 
and employees of the Department of Health, Education, and 
Welfare for purposes of administration of section 1131 of the 
Social Security Act." 
(i) 
CERTAIN PUERTO RICAN PENSION, ETC., PLANS To B E EXEMPT 
FROM TAX UNDER SECTION 501 (a).— 
(1) GENERAL RULE.—Effective for taxable years beginning after 
December 31,1973, for purposes of section 501 (a) of the Internal 
Revenue Code of 1954 (relating to exemption from tax), any 
trust forming part of a pension, profit-sharing, or stock bonus 
plan all of the participants of which are residents of the Com-
monwealth of Puerto Rico shall be treated as an organization 
described in section 401 (a) of such Code if such trust— 
(A) forms part of a pension, profit-sharing, or stock 
bonus plan, and 
(B) is exempt from income tax under the laws of the 
Commonwealth of Puerto Rico. 
(2) ELECTION TO HAVE PROVISIONS OF, AND AMENDMENTS MADE 
BY, T I T L E II OF T H I S ACT APPLY. 
(A) If the administrator of a pension, profit-sharing, or 
stock bonus plan which is created or organized in Puerto 
Rico elects, at such time and in such manner as the Secre-
tary of the Treasury may require, to have the provisions of 
this paragraph apply, for plan years beginning after the date 
of election any trust forming a part of such plan shall be 
treated as a trust created or organized in the United States 
for purposes of section 401(a) of the Internal Revenue Code 
of 1954. 
(B) An election under subparagraph (A), once made, is 
irrevocable. 
(C) This paragraph applies to plan years beginning after 
the date of enactment of this Act. 
(D) The source of any distributions made under a plan 
which makes an election under this paragraph to participants 
and beneficiaries residing outside of the United States shall 
be determined, for purposes of subchapter N of chapter 1 of 
the Internal Revenue Code of 1954, by the Secretary of the 
Treasury in accordance with regulations prescribed by him. 
For purposes of this subparagraph the United States means 
the United States as defined in section 7701(a)(9) of the 
26 use 7701. 
Internal Revenue Code of 1954. 
26 use 404 
Q'^ YEAR OF DEDUCTION FOR CERTAIN EMPLOYER 
CONTRIBUTIONS 
F
O
R SEVERANCE PAYMENTS 
REQUIRED BY FOREIGN 
LAW.—Effective 
for taxable years beginning after December 31, 1973, if— 
(1) an employer is engaged in a trade or business in a foreign 
country, 
(2) such employer is required by the laws of that country to 
make payments, based on periods of service, to its employees or 
their beneficiaries after the employees' retirement, death, or other 
separation from the service, and 
(3) such employer establishes a trust (whether organized 
26 use 404. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
943 
within or outside the United States) for the purpose of funding-
the payments required by such law, 
then, in determining for purposes of paragraph (5) of section 404(a) 
of the Internal Revenue Code of 1954 the taxable year in which any 
contribution to or under the plan is includible in the gross income of 
the nonresident alien employees of such employer, such paragraph 
(5) shall be treated as not requiring that separate accounts be main-
tained for such nonresident alien employees. 
(k) RECEIPTS FOR EMPLOYEES.—Section 6051 (relating to receipts 
26 use 6051. 
for employees) is amended by inserting after "exemption," in subsec-
tion (a) the following: "or every employer engaged in a trade or 
business who pays remuneration for services performed by an 
employee, including the cash value of such remuneration paid in any 
medium other than cash,". 
SEC. 1023. RETROACTIVE CHANGES IN PLAN. 
Section 401(b) (relating to certain retroactive changes in plan) is 
^^ ^^^ '*°^-
amended to read as follows: 
"(b) 
CERTAIN RETROACTIVE CHANGES IN PLAN.—A stock bonus, 
pension, profit-sharing, or annuity plan shall be considered as satisfy-
ing 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 or his delegate 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." 
SEC. 1024. EFFECTIVE DATES. 
26 use 401 
Except as otherwise provided in section 1021, the amendments made "°'^' 
by section 1021 shall apply to plan years to which part I applies. 
Except as otherwise provided in section 1022, the amendments made 
by section 1022 shall apply to plan years to which part I applies. 
Section 1023 shall take effect on the date of the enactment of this Act. 
PART 3—REGISTRATION AND INFORMATION 
SEC. 1031. REGISTRATION AND INFORMATION. 
(a) 
ANNUAL 
REGISTRATION AND INFORMATION 
RETURNS.—Part 
I I I of subchapter A of chapter 61 (relating to information returns) 
is amended by adding at the end thereof the following new subpart: 
"SUBPART E—REGISTRATION OF AND 
INFORMATION 
CONCERNING PENSION, ETC., PLANS 
"Sec. 6057. Annual registration, etc. 
"Sec. 6058. Information required in connection witli certain plans of deferred 
compensation. 
"Sec. 6059. Periodic report by actuary. 
"SEC. 6057. ANNUAL REGISTRATION, ETC. 
2 6 use 6057. 
" ( a ) 
A N N U A L R E G I S T R A T I O N . — 
"(1) GENERAL RULE.—Within such period after the end of a 
plan year as the Secretary or his delegate may by regulations pre-
scribe, the plan administrator (within the meaning of section 
414(g)) of each plan to which the vesting standards of section 203 
"^"^e, p. 925. 
of part 2 of subtitle B of title I of the Employee Retirement 
Income Security Act of 1974 applies for such plan year shall file ^"'^' P- ^54. 
a registration statement with the Secretary or his delegate. 
944 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(2) CONTENTS.—The registration statement required by para-
graph (1) shall set forth— 
" (A) the name of the plan, 
"(B) the name and address of the plan administrator, 
"(C) the name and taxpayer identifying number of each 
participant in the plan— 
"(i) who, during such plan year, separated from the 
service covered by the plan, 
"(ii) who is entitled to a deferred vested benefit under 
the plan as of the end of such plan year, and 
"(iii) with respect to whom retirement benefits were 
not paid under the plan during such plan year, 
"(D) the nature, amount, and form of the deferred vested 
benefit to which such participant is entitled, and 
"(E) such other information as the Secretary or his dele-
gate may require. 
At the time he files the registration statement under this subsec-
tion, the plan administrator shall furnish evidence satisfactory to 
the Secretary or his delegate that he has complied with the require-
ment contained in subsection (e). 
" (b) NOTIFICATION or CHANGE IN STATUS.—Any plan administrator 
required to register under subsection (a) shall also notify the Secre-
tary or his delegate, at such time as may be prescribed by regulations, 
of— 
" (1) any change in the name of the plan, 
"(2) any change in the name or address of the plan adminis-
trator, 
" (3) the termination of the plan, or 
"(4) the merger or consolidation of the plan with any other 
plan or its division into two or more plans. 
"(c) VOLUNTARY REPORTS.—To the extent provided in regulations 
prescribed by the Secretary or his delegate, the Secretary or his dele-
gate may receive from— 
" (1) any plan to which subsection (a) applies, and 
"(2) any other plan (including any governmental plan or 
church plan (within the meaning of section 414)), 
such information (including information relating to plan years begin-
ning before January 1, 1974) as the plan administrator may wish to 
file with respect to the deferred vested benefit rights of any participant 
separated from the service covered by the plan during any plan year. 
"(d) 
TRANSMISSION OF INFORMATION TO SECRETARY OF HEALTH, 
EDUCATION, AND WELFARE.—The Secretary or his delegate shall trans-
mit copies of any statements, notifications, reports, or other informa-
tion obtained by him under this section to the Secretary of Health, 
Education, and Welfare. 
"(e) INDIVIDUAL STATEMENT TO PARTICIPANT.—Each plan admin-
istrator required to file a registration statement under subsection (a) 
shall, before the expiration of the time prescribed for the filing of 
such registration statement, also furnish to each participant described 
in subsection (a)(2)(C) an individual statement setting forth the 
information with respect to such participant required to be contained 
in such registration statement. 
"(f) 
REGULATIONS.— 
"(1) I N GENERAL.—The Secretary, after consultation with the 
Secretary of Health, Education, and Welfare, may prescribe such 
regulations as may be necessary to carry out the provisions of this 
section. 
" (2) PLANS TO WHICH MORE THAN ONE EMPLOYER CONTRIBUTES.— 
This section shall apply to any plan to which more than one 
Ante, 
p. 925. 
26 use 401. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
945 
employer is required to contribute only to the extent provided in 
regulations prescribed under this subsection. 
" ( g ) 
CROSS REFERENCES.— 
"For provisions relating to penalties for failure to register or furnish 
statements required by this section, see section 6652(e) and section 
6690. 
"For coordination between Department of the Treasury and the 
Department of Labor with regard to administration of this section, see 
section 3004 of the Employee Retirement Income Security Act of 1974. 
"SEC. 6058. INFORMATION REQUIRED IN CONNECTION WITH CERTAIN 
2 6 use 6058. 
PLANS OF DEFERRED COMPENSATION. 
" (a) I N GENERAL.—Every employer who maintains a pension, annu-
ity, stock bonus, profit-sharing, or other funded plan of deferred com-
pensation described in part I of subchapter D of chapter 1, or the plan 
administrator (within the meaning of section 414(g)) of the plan, 
^"f©' P- 925. 
shall file an annual return stating such information as the Secretary 
or his delegate may by regulations prescribe with respect to the quali-
fication, financial condition, and operations of the plan; except that, 
in the discretion of the Secretary or his delegate, the employer may be 
relieved from stating in its return any information which is reported 
in other returns. 
" ( b ) 
ACTUARIAL STATEMENT I N CASE OF MERGERS^ E T C . — N o t less 
than 30 days before a merger, consolidation, or transfer of assets or 
liabilities of a plan described in subsection (a) to another plan, the 
plan administrator (within the meaning of section 414(g)) shall file 
an actuarial statement of valuation evidencing compliance with the 
requirements of section 401 (a) (12). 
^"'e, p. 937. 
"(c) EMPLOYER.—For purposes of this section, the term 'employer' 
includes a person described in section 401 (c) (4) and an individual who 
^^ "^^ '*°^-
establishes an individual retirement account or annuity described in 
section408. 
26 use 408. 
" ( d ) 
CROSS EEFERENCES.— 
"For provisions relating to penalties for failure to file a return 
required by this section, see section 6652(f). 
"For coordination between the Department of the Treasury and the 
Department of Labor with respect to the information required under 
this section, see section 3004 of title III of the Employee Retirement 
Income Security Act of 1974.". 
(b) 
SANCTIONS.— 
(1) 
FAILURE TO FILE REGISTRATION STATEMENTS OR NOTIFICATION 
OF CHANGE I N STATUS.— 
(A) Section 6652 (relating to failure to file certain infor- 
26 use 6652. 
mation returns) is amended by redesignating subsection (e) 
as subsection (g) and by inserting after subsection (d) the 
following new subsections: 
"(e) 
A N N U A L REGISTRATION AND O T H E R NOTIFICATION BY P E N -
SION P L A N . — 
"(1) REGISTRATION.—In the case of any failure to file a regis-
tration statement required under section 6057(a) 
(relating to 
^"'^' P- ^43. 
annual registration of certain plans) which includes all partici-
pants required to be included in such statement, on the date pre-
scribed therefor (determined without regard to any extension of 
time for filing), unless it is shown that such failure is due to rea-
sonable cause, there shall be paid (on notice and demand by the 
Secretary or his delegate and in the same manner as tax) by the 
person failing so to file, an amount equal to $1 for each partici-
pant 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 
$5,000. 
946 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
Ante, p. 943. 
"(2) NOTIFICATION OF CHANGE OF STATUS.—In the case of fail-
ure to file a notification required under section 6057(b) (relat-
ing to notification of change of status) 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 Secre-
tary or his delegate and in the same manner as tax) by the person 
failing so to file, $1 for each day during which such failure con-
tinues, but the total amounts imposed under this paragraph on 
any person for failure to file any notification shall not exceed 
$1,000. 
"(f) INFORMATION REQUIRED IN CONNECTION W I T H CERTAIN PLANS 
OF DEFERRED COMPENSATION.—In the case of failure to file a return or 
Ante, p. 945. 
statcmcut rcqulred under section 6058 (relating to information 
required in connection with certain plans of deferred compensation) 
P°^*'P- 970 
Qj, ^047 (relating to information relating to certain trusts and annu-
ity and bond purchase plans) on the date and in the manner pre-
scribed 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 or his 
delegate and in the same manner as tax) by the person failing so to 
file, $10 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 $5,000." 
26 use 6652. 
^g^ ^j) "j^j^g sectiou heading for section 6652 is amended by 
adding ", Registration Statements, etc." before the period at 
the end thereof. 
(ii) The item relating to section 6652 in the table of con-
tents for subchapter A of chapter 68 is amended by adding 
", registration statements, etc." before the period of the end 
thereof. 
(2) FAILURE TO FURNISH STATEMENT TO PARTICIPANT.— 
(A) Subchapter B of chapter 68 (relating to assessable 
penalties) is amended by adding at the end thereof the fol-
lowing new section: 
26 use 6690. 
«gEC. 6690. FRAUDULENT STATEMENT OR FAILURE TO FURNISH 
STATEMENT TO PLAN PARTICIPANT. 
"Any person required under section 6057(e) to furnish a statement 
to a participant who willfully furnishes a false or fraudulent state-
ment, or who willfully fails to furnish a statement in the manner, at 
the time, and showing the information required under section 6057(e), 
or regulations prescribed thereunder, shall for each such act, or for 
each such failure, be subject to a penalty under this subchapter of $50, 
which shall be assessed and collected in the same manner as the tax on 
26 use 3111. 
employers imposed by Section 3111." 
(B) The table of sections for such subchapter B is amended 
by adding at the end thereof the following new item: 
"Sec. 6690. Fraudulent statement or failure to furnish statement to plan 
participant." 
(c) CLERICAL AMENDMENTS.— 
(1) The table of subparts for such part I I I is amended by 
adding at the end thereof the following: 
"Subpart B. Registration of and information concerning pension, etc., 
plans." 
26 use 6033. 
(2) Section 6033(c) (relating to cross references) is amended 
by adding at the end thereof the following: 
"For provisions relating to information required in connection with 
certain plans of deferred compensation, see section 6058." 
88 STAT.] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
947 
(3) Subsection (d) of section 6047 (relating to information 
with respect to certain trusts and annuity and bond purchase 
plans) is amended to read as follows: 
"(d) 
CROSS REFERENCES.— 
"(1) For provisions relating to penalties for failure to file a return 
required by this section, see section 6652(f). 
"(2) For criminal penalty for furnishing fraudulent information, see 
section 7207." 
SEC. 1032. DUTIES OF SECRETARY OF HEALTH, EDUCATION, AND 
WELFARE. 
Title X I of the Social Security Act (relating to general provisions) 
is amended by adding at the end of part A thereof the following new 
section: 
26 u s e 6047. 
NOTIFICATION OF SOCIAL SECURITY CLAIMANT W I T H RESPECT TO DEFERRED 
VESTED BENEFITS 
"SEC. 1131. (a) Whenever— 
"(1) the Secretary makes a finding of fact and a decision 
as to— 
"(A) the entitlement of any individual to monthly benefits 
under section 202,223, or 228, 
"(B) the entitlement of any individual to a lump-sum 
death payment payable under section 202(i) on account of 
the death of any person to whom such individual is related 
by blood, marriage, or adoption, or 
"(C) the entitlement under section 226 of any individual 
to hospital insurance benefits under part A of title XVIII, or 
" (2) the Secretary is requested to do so— 
"(A) by any individual with respect to whom the Secre-
tary holds information obtained under rection 6057 of the 
Internal Revenue Code of 1954. or 
"(B) in the case of the death of the individual referred 
to in subparagraph (A), by the individual who would be 
entitled to payment under section 204 (cl) of this Act. 
he shall transmit to the individual referred to in paragraph (1) 
or the individual making the request under paragraph (2) any 
information, as reported by the employer-, regarding any deferred 
vested benefit transmitted to the Secretary i^ursuant to such sec-
tion 6057 with respect to the individual leforred to in paragraph 
(1) or (2) (A) or the person on whose wages and self-employment 
income entitlement (or claim of entitlement) is based. 
"(b)(1) For purposes of section 201(g)(1), expenses incurred in 
the administration of subsection (a) shall be deemed to be expenses 
incurred for the administration of title II. 
"(2) There are hereby authorized to be appropriated to the Federal 
Old-Age and Survivors Insurance Trust Fund for each fiscal year 
(commencing with the fiscal year ending June 30, 1974) such sums 
as the Secretary deems necessary on account of additional adminis-
trative expenses resulting from the enactment of the provisions of sub-
section (a)." 
SEC. 1033. REPORTS BY ACTUARIES. 
(a) REPORTS BY ACTUARIES.—Subpart E of part I I I of subchapter 
A of chapter 61 (relating to registration of and information concern-
ing pension, etc., plans) as added by section 1031(a) of this Act, is 
amended by adding at the end thereof the following new section: 
"SEC. 6059. PERIODIC REPORT OF ACTUARY. 
"(a) GENERAL RULE.—The actuarial report described in subsection 
(b) shall be filed by the plan administrator (as defined in section 
42 
use 1320b-1.. 
42 
use 
402, 
423, 428. 
42 
use 426. 
42 
use 1395c. 
Ante, p. 943. 
42 
use 
404. 
42 
use 
401. 
Appropriation. 
Ante, 
p. 943. 
26 u s e 6059. 
948 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
^^i4nfe, pp. 925, 
414(g) of eacli defined benefit plan to which section 412 applies, for 
the first plan year for which section 412 applies to the plan and for 
each third plan year thereafter (or more frequently if the Secretary 
or his delegate determines that more frequent reports are necessary). 
" ( b ) ACTUARIAL REPORT.—The actuarial report of a plan required 
by subsection (a) shall be prepared and signed by an enrolled actuary 
26 use 7701. 
(within the meaning of section 7701(a) (35)) and shall contain— 
"(1) a description of the funding 
method and actuarial 
assumptions used to determine costs under the plan, 
"(2) a certification of the contribution necessary to reduce the 
accumulated funding deficiency (as defined in section 412(a)) 
to zero, 
" (3) a statement— 
" ( A ) that to the best of his knowledge the report is com-
plete and accurate, and 
" ( B ) the requirements of section 412(c) (relating to rea-
sonable actuarial assumptions) have been complied with, 
"(4) such other information as may be necessary to fully and 
fairly disclose the actuarial position of the plan, and 
"(5) such other information regarding the plan as the Secre-
tary or his delegate may by regulations require. 
"(c) 
T I M E AND M A N N E R OF F I L I N G . — T h e actuarial report 
and 
statement required by this section shall be filed at the time and in the 
manner provided by regulations prescribed by the Secretary or his 
delegate. 
" ( d ) 
CROSS REFERENCE.— 
"For coordination between the Department of the Treasury and the 
Department of Labor with respect to the report required to be filed 
under this section, see section 3004 of title III of the Employee Retire-
ment Income Security Act of 1974.". 
(b) ASSESSABLE PENALTIES.—Subchapter B of chapter 68 (relating 
to assessable penalties) is amended by adding at the end thereof the 
following new section: 
"SEC. 6692. FAILURE TO FILE ACTUARIAL REPORT. 
"The plan administrator (as defined in section 414(g)) of each 
defined benefit plan to which section 412 applies who fails to file the 
report required by section 6059 at the time and in the manner required 
by section 6059, shall pay a penalty of $1,000 for each such failure 
unless it is shown that such failure is due to reasonable cause." 
(c) CONSOLIDATION o r ACTUARIAL REPORTS.—The Secretary of the 
Treasury and the Secretary of Labor shall take such steps as may be 
necessary to assure coordination to the maximum extent 
feasible 
between the actuarial reports required by section 6059 of the Internal 
Revenue Code of 1954 and by section 103(d) of title I of the Employee 
Retirement Income Security Act of 1974. 
(d) 
CLERICAL A M E N D M E N T . — T h e table of sections for subchapter 
B of chapter 68 is amended by adding at the end thereof the following 
new.item: 
"Sec. 6692. Failure to file actuarial report.", 
notf use 605 7 
gEc. 1034. EFFECTIVE DATES. 
This part shall take effect upon the date of the enactment of this 
Act; except that— 
(1) the requirements of section 6059 of the Internal Revenue 
Code of 1954 shall apply only with respect to plan years to wliich 
part I of this title applies, 
Ante, p. 943. 
(2) the requirements of section 6057 of such Code shall apply 
only with respect to plan years beginning after December 31,1975, 
Ante, p 
26 u s e 
Ante, p 
Ante, p 
Ante, p. 
26 u s e 
note. 
946. 
6692. 
925. 
914. 
947. 
6059 
Ante, p. 841. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
949 
(3) the requirements of section 6058(a) of such Code shall 
^"'«' P- ^^S. 
apply only with respect to plan years beginning after the date of 
the enactment of this Act, and 
(4) the amendments made by section 1032 shall take effect on 
January 1,1978. 
PART 4—DECLARATORY 
JUDGMENTS 
RELATING TO 
QUALIFICATION OF CERTAIN RETIREMENT PLANS 
SEC. 1041. TAX COURT PROCEDURE. 
(a) I N GENERAL.—Subchapter C of chapter 76 (relating to the Tax 
Court, is amended by adding at the end thereof the following new 
part: 
"PART IV—DECLARATORY JUDGMENTS RELATING TO 
QUALIFICATION OF CERTAIN RETIREMENT PLANS 
"Sec. 7476. Declaratory judgments. 
"SEC. 7476. DECLARATORY JUDGMENTS. 
26 use 7476. 
"(a) CREATION OF REMEDY.—In a case of actual controversy 
involving— 
' 
"(1) a determination by the Secretary or his delegate with 
respect to the initial qualification or continuing qualification of a 
retirement plan under subchapter D of chapter 1, or 
"(2) a failure by the Secretary or his delegate to make a deter-
mination with respect to— 
" ^ A) such initial qualification, or 
"(B) such continumg qualification if the controversy arises 
from a plan amendment or plan termination, 
upon the filing of an appropriate pleading, the United States Tax 
Court may make a declaration with respect to such initial quali-
fication or continuing qualification. Any such declaration shall 
have the force and effect of a decision of the Tax Court and shall 
be reviewable as such. 
"(b) 
LIMITATIONS.— 
"(1) PETITIONER.—A pleading may be filed under this section 
only by a petitioner who is the employer, the plan administrator, 
an employee who has qualified under regulations prescribed by the 
Secretary or his delegate as an interested party for purposes of 
pursuing administrative remedies within the In|:ernal Revenue 
Service, or the Pension Benefit Guaranty Corporation. 
" (2) NOTICE.—For purposes of this section, the filing of a plead-
ing by any petitioner may be held by the Tax Court to be prema-
ture, unless the petitioner establishes to the satisfaction of the court 
that he has complied with the requirements prescribed by regula-
tions of the Secretary or his delegate with respect to notice to 
other interested parties of the filing of the request for a determi-
nation referred to in subsection (a). 
"(3) EXHAUSTION 
OF ADMINISTRATE^ REMEDIES.—The 
Tax 
Court shall not issue a declaratory judgment or decree under this 
section in any proceeding unless it determines that the petitioner 
has exhausted administrative remedies available to him within the 
Internal Revenue Service. A petitioner shall not be deemed to 
have exhausted his administrative remedies with respect to a 
failure by the Secretary or his delegate to make a determination 
with respect to initial qualification or continuin.qr qualification of 
a retirement plan before the expiration of 270 days after the 
request for such determination was made. 
38-194 O - 76 - 63 Pt. 1 
950 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(4) 
P L A N PUT INTO EFFECT.—No proceeding may be main-
tained under this section unless the plan (and, in the case of a con-
troversy involving the continuing qualification of the plan because 
of an amendment to the plan, the amendment) with respect to 
which a decision of the Tax Court is sought has been put into 
effect before the filing of the pleading. A plan or amendment shall 
not be treated as not being in effect merely because under the plan 
the funds contributed to the plan may be refunded if the plan 
(or the plan as so amended) is found to be not qualified. 
" ( 5 ) 
T I M E FOR BRINGING ACTION.—If the Secretary or 
his 
delegate sends by certified or registered mail notice of his deter-
mination with respect to the qualification of the plan to the per-
sons referred to in paragraph (1) (or, in the case of employees 
referred to in paragraph (1), to any individual designated under 
regulations prescrijbed by the Secretalry or his delegate as a repre-
sentative of such employee), no proceeding may be initiated under 
this section by any person unless the pleading is filed before the 
ninety-first day after the day after such notice is mailed to such 
person (or to his designated representative, in the case of an 
employee). 
" (c) COMMISSIONERS.—The chief judge of the T a x Court may assign 
proceedinofs under this section to be heard by the commissioners of <
"
^
^
e 
court, and the court may authorize a commissioner to make the deci-
sion of the court with respect to such proceeding, subject to such condi-
tions and review as the court may by rule provide. 
" ( d ) 
KETIREMENT P L A N . — F o r purposes of this section, the term 
'retirement plan' means— 
"(1) a pension, profit-sharing, or stock bonus plan described 
26 use 401. 
jj^ section 401 (a) or a trust which is part of such a plan, 
"" ""'^ '"" 
"(2) an annuity plan described in section 403(a), or 
"(3) a bond purchase plan described in section 405(a). 
" ( e ) 
CROSS REFERENCE.— 
"For provisions concerning intervention by Pension Benefit Guaranty 
Corporation and Secretary of Labor in actions brought under this section 
and right of Pension Benefit Guaranty Corporation to bring action, spe 
section 3001(c) of subtitle A of title III of the Employee Retirement 
Income Security Act of 1974." 
(b) TECHNICAL AND CONFORMING A M E N D M E N T S . — 
(1) F E E FOR FILING PETITION.—Section 7451 (relating to fee 
for filing petition) is amended by striking out "deficiency" and 
inserting in lieu thereof "deficiency or for a declaratory judgment 
under part I V of this subchapter". 
(2) D A T E OF DECISION.—Section 7459(c) (relating to date of 
decision) is amended by inserting before the period at the end of 
the first sentence the following: "or, in the case of a declaratory 
judgment proceeding under part I V of this subchapter, the date 
of the court's order entering the decision". 
(3) 
V E N U E FOR APPEAL OF DECISION.— 
26 use 7482. 
^^^ Soctiou 7482(b) (1) (relating to vcnue) is amended by 
striking out the period at the end of subparagraph (B) and 
inserting in lieu thereof ", or" and by inserting after subpara-
graph ( B ) the following new subparagraph: 
" (C) in the case of a person seeking a declaratory decision 
under section 7476, the principal place of business, or prin-
cipal office or agency of the employer." 
(B) Section 7482(b) (1) is further amended— 
(i) by striking out "neither subparagraph ( A ) nor 
(B) applies" and inserting in lieu thereof "subpara-
graph ( A ) , ( B ) , and (C) do not apply"; and 
26 use 403. 
26 use 405. 
26 use 7451. 
26 use 7459. 
Ante, p. 949. 
88 STAT.] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
951 
(ii) by inserting:; before the period at the end of the 
last sentence thereof the following: "or as of the time 
the petition seeking a declaratory decision under section 
7476 was filed with the Tax Court". 
^"'^' P- '^49. 
(c) CLERICAL AMENDMENT.—The table of parts for subchapter C of 
chapter 76 (relating to the Tax Court) is amended by adding at the 
end thereof the following new item: 
"PART IV. Declaratory judgments relating to qualification of certain retire-
ment plans.". 
(d) EFFECTIVE DATE.—^The amendments made by this section shall ^^^^ 
apply to pleadings filed more than 1 year after the date of the enact-
ment of this Act. 
26 use 7476 
PART 
5—INTERNAL 
REVENUE 
SERVICE 
SEC. 1051. ESTABLISHMENT OF OFFICE. 
(a) I N GENERAL.—Section 7802 (relating to Commissioner of Inter-
nal Revenue) is amended to read as follows: 
"SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; ASSISTANT COM-
MISSIONER (EMPLOYEE PLANS AND EXEMPT ORGANI-
ZATIONS). 
"(a) CoiviiMissioNER OF INTERNAL REVENUE.—There shall be in the 
Department of the Treasury a Commissioner of Internal Revenue, 
who shall be appointed by the President, by and with the advice and 
consent of the Senate, The Commissioner of Internal Revenue shall 
have such duties and powers as may be prescribed by the Secretary. 
"(b) 
ASSISTANT COMMISSIONER FOR EMPLOYEE PLANS AND EXEMPT 
ORGANrzATiONS.—There is established within the Internal Revenue 
Service an office to be known as the 'Office of Employee Plans and 
Exempt Organizations' to be under the supervision and direction of an 
Assistant Commissioner of Internal Revenue. As head of the Office, 
the Assistant Commissioner shall be responsible for carrying out such 
functions as the Secretary or his delegate may prescribe with respect to 
organizations exempt from tax under section 501(a) and with respect 
to plans to which part I of subchapter D of chapter 1 applies 
(and Avith I'espect to organizations designed to be exempt under such 
section and plans designed to be plans to which such part applies)." 
(b) 
SALARIES.— 
(1) ASSISTANT COMMISSIONER.—Section 5109 of title 5, United 
States Code, is amended by adding at the end thereof the follow-
ing new subsection: 
"(c) The position held by the employee appointed under section 
7802(b) of the Internal Revenue Code of 1954 is classified at GS-18, 
and is in addition to the number of positions authorized by section 
5108(a) of this title." 
(2) CliASSIFICATION OF POSITIONS AT GS-1 6 AND 3 7. 
S c c t i o n 
5108 of title 5, TTnited States Code, is amended by adding at the 
end thereof the following new subsection : 
"(e) In addition to the number of positions authorized by subsec-
tion (a), the Commissioner of Internal Revenue is authorized, without 
regard to any other provision of this section, to place a total of 20 
positions in the Internal Revenue Service in GS-16 and 17.". 
(c) CLERICAL AMENDMENTS.—The item relating to section 7802 in 
the table of sections for subchapter A of chapter 80 is amended to read 
as follows: 
"Sec. 7802. Commissioner of Internal Revenue; Assistant Commissioner 
(Employee Plans and Exempt Organizations)." 
(d) EFFECTIVE DATE.-—The amendments made by this section shall 
take effect on the 90th dav after the date of the enactment of this Act. 
26 use 7802. 
Office of Em-
ployee Plans and 
Exempt Organi-
zations. 
Establishment. 
26 use 501. 
5 use 5108. 
26 use 7802 
note. 
952 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
31 use 1037. 
26 use 4940. 
26 use 404. 
26 use 1379. 
26 use 401. 
SEC. 1052. AUTHORIZATION OF APPROPRIATIONS. 
There is authorized to be appropriated to the Department of the 
Treasury for the purpose of carrying out all functions of the OiRce of 
Employee Plans and Exempt "Organizations for each fiscal year 
beginning after June 30,1974, an amount equal to the sum of— 
(1) so much of the collections from the taxes imposed under 
section 4940 of such Code (relating to excise tax based on invest-
ment income) as would have been collected if the rate of tax under 
such section was 2 percent during the second preceding fiscal year, 
and 
(2) the greater of— 
(A) an amount equal to the amount described in para-
graph (1), or 
(B) $30,000,000. 
Subtitle B—Other Amendments to the Internal 
Revenue Code Relating to Retirement Plans 
SEC. 2001. CONTRIBUTIONS ON BEHALF OF SELF-EMPLOYED INDI-
VIDUALS AND SHAREHOLDER-EMPLOYEES. 
(a) 
INCREASE 
IN 
MAXIMUM 
AMOUNT 
DEDUCTIBLE 
FOR 
SELF-
EMPLOYED INDIVIDUALS.— 
(1) Paragraph (1) of section 404(e) (relating to special limi-
tations for self-employed individuals) is amended— 
(A) by striking out "$2,500, or 10 percent" and inserting 
in lieu thereof "$7,500, or 15 percent", and 
(B) by striking out "subject to the provisions of para-
graph (2)" and inserting in lieu thereof "subject to para-
graphs (2) and (4)". 
(2) Paragraph (2) (A) of section 404(e) is amended by strik-
ing out "shall not exceed $2,500, or 10 percent" and inserting in 
lieu thereof "shall (subject to paragraph (4)) not exceed $7,500, 
or 15 percent". 
(3) Section 404(e) is amended by adding at the end thereof 
the following new paragraph: 
"(4) LIMITATIONS CANNOT BE LOWER THAN $750 OR 100 PERCENT 
OF EARNED INCOME.—The limitations under paragraphs (1) and 
(2) (A) for any employee shall not be less than the lesser of— 
"(A) $750,or 
"(B) 100 percent of the earned income derived by such 
employee from the trades or businesses taken into account for 
purposes of paragraph (1) or (2) (A) as the case may be.". 
(b) 
INCREASE IN MAXIMUM 
AMOUNT DEDUCTIBLE FOR SHARE-
HOLDER-EMPLOYEES.—Paragraph (1) of section 1379(b) (relating to 
taxability of shareholder-employees) is amended— 
CI) by striking Out "10 percent" in subparagraph (A) and 
inserting in lieu thereof "15 percent", and 
(2) by striking out "$2,500" in subparagraph (B) and inserting 
in lieu thereof "$7,500". 
(c) 
ONLY FIRST $100,000 of ANNUAL COMPENSATION To B E TAKEN 
INTO ACCOUNT.—Subsection (a) of section 401 (relating to require-
ments for qualification) is amended by inserting after paragraph (16) 
the following new paragraph: 
"(17) In the case of a plan which provides contributions or 
benefits for employees some or all of whom are employees within 
the meaning of subsection (c) (1), or are shareholder-employees 
within the meaning of section 1379 (d), only if the annual com 
pen-
26 use 401. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
953 
sation of each employee taken into account under the plan does 
not exceed the first $100,000 of such compensation." 
(d) 
DEFINED BENEFIT PLANS FOR SELF-EMPLOYED INDIVIDUALS.— 
(1) Subsection (a) of section 401 is amended by inserting after 
paragraph (IT) the following new paragraph: 
^"'^' P- "^52. 
" (18) In the case of a trust which is part of a plan providing a 
defined benefit for employees some or all of whom are employees 
within the meaning of subsection (c)(1), or are shareholder-
employees within the meaning of section 1379(d), only if such 
26 use 1379. 
plan satisfies the requirements of subsection (j)." 
(2) Section 401 (relating to qualified pension, profit-sharing, 
and stock bonus plans) is amended by redesignating subsection 
(j) as subsection (k) and by inserting after subsection (i) the 
following new subsection: 
"(j) 
DEFINED BENEFIT PLANS PROVIDING BENEFITS FOR SELF-
EMPLOYED INDIVIDUALS AND SHAREHOLDER-EMPLOYEES.— 
"(1) I N GENERAL.—A defined benefit plan satisfies the require-
ments of this subsection only if the basic benefit accruing under 
the plan for each plan year of participation by an employee within 
the meaning of subsection (c) (1) (or a shareholder-employee) is 
permissible under regulations prescribed by the Secretary or his 
delegate under this subsection to insure that there will be reason-
able comparability (assuming level funding) between the maxi-
mum retirement benefits which may be provided with favorable 
tax treatment under this title for such employees under— 
"(A) defined contribution plans, 
"(B) defined benefit plans, and 
"(C) a combination of defined contribution plans and 
defined benefit plans. 
"(2) GUIDELINES 
FOR 
REGULATIONS.—The 
regulations pre-
scribed under this subsection shall provide that a plan does not 
satisfy the requirements of this subsection if, under the plan, the 
basic benefit of any employee within the meaning of subsection 
(c)(1) (of" a shareholder-employee) may exceed the sum of the 
products for each plan year of participation of— 
"(A) his annual compensation (not in excess of $50,000) 
for such year, and 
"(B) the applicable percentage determined under para-
graph (3). 
" (3) APPLICABLE PERCENTAGE.— 
"(A) TABLE.—For purposes of paragraph (2), the appli-
cable percentage for any individual for any plan year shall 
be based on the percentage shown on the following table 
opposite his age when his current period of participation in 
the plan began. 
,, . 
. 
i.. • 
i.- 
V
, 
Applicable 
"Age when participation began : 
percentage 
30 or less 
6.5 
35 
5.4 
40 
4.4 
45 
3.6 
50 
3.0 
55 
2.5 
60 or over 
, 
2. 0 
"(B) 
ADDITIONAL REQUIREMENTS.—The regulations pre-
scribed under this subsection shall include provisions— 
"(i) for applicable percentages for ages between any 
two ages shown on the table, 
"(ii) for adjusting the applicable percentages in the 
case of plans providing benefits other than a basic benefit. 
954 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
26 use 1401. 
26 use 3101. 
42 u s e 401. 
26 use 1379. 
Ante, p. 952. 
26 use 401. 
Repeal. 
"(iii) that any increase in the rate of accrual, and any 
increase in the compensation base which may be taken 
into account, shall, with respect only to such increase, 
begin a new period of participation in the plan, and 
"(iv) when appropriate, in the case of periods begin-
ning after December 31, 1977, for adjustments in the 
applicable percentages based on changes in prevailing 
interest and mortality rates occurring after 1973. 
"(4) 
CERTAIN 
CONTRIBUTIONS AND BENEFITS MAY NOT BE 
TAKEN INTO ACCOUNT,—A defined benefit plan which provides 
contributions or benefits for owner-employees does not satisfy 
the requirements of this subsection unless such plan meets the 
requirements of subsection (a) (4) without taking into account 
contributions or benefits under chapter 2 (relating to tax on self-
employment income), chapter 21 (relating to Federal Insurance 
Contributions Act), title II of the Social Security Act, or any 
other Federal or State law. 
'' (5) DEFINITIONS.—For purposes of this subsection— 
"(A) BASIC BENEFIT.—The term 'basic benefit' means a 
benefit in the form of a straight life annuity commencing at 
the later of— 
"(i) age 65, or 
"(ii) the day 5 years after the day the participant's 
current period of participation began 
under a plan which provides no ancillary benefits and to 
which employees do not contribute. 
"(B) 
SHAREHOLDER-EMPLOYEE.—The 
term 
'shareholder-
employee' has the same meaning as when used in section 1379(d). 
"(C) COMPENSATION.—The term 'compensation' means— 
"(i) in the case of an employee within the meaning of sub-
section (c) (1), the earned income of such individual, or 
"(ii) in the case of a shareholder-employee, the compensa-
tion received or accrued by the individual from the electing 
small business corporation. 
" (6) SPECIAL RULES.—Section 404 (e) (relating to special limita-
tions for self-employed individuals) and section 1379 (b) (relating 
to taxability of shareholder-employee beneficiaries) do not apply 
to a trust to which this subsection applies.", 
(e) 
REPEAL or 
EXISTING TAX TREATMENT OF EXCESS CONTRI-
BUTIONS.— 
(1) The last sentence of section 401(d) (5) is amended to read 
as follows: "Subparagraphs (A) and (B) do not apply to contri-
butions described in subsection (e)." 
(2) Paragraph (8) of section 401(d) is repealed. 
(3) Subsection (e) of section 401 is amended to read as follows: 
"(e) 
CONTRIBUTIONS FOR PREMIUMS ON ANNUITY, ETC., CON-
TRACTS.—A contribution by the employer on behalf of an owner-
employee is described in this subsection if— 
" (1) under the plan such contribution is required to be applied 
(directly or through a trustee) to pay premiums or other consid-
eration for one or more annuity, endowment, or life insurance 
contracts on the life of such owner-employee issued under the 
plan, 
"(2) the amount of such contribution exceeds the amount 
deductible under section 404 with respect to contributions made 
by the employer on behalf of such owner-employee under the 
plan, and 
" (S) the amount of such contribution does not exceed the aver-
age 01 the amounts which were deductible under section 404 with 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
955 
respect to contributions made by the employer on behalf of such 
owner-employee under the plan (or which would have been 
deductible if such section had been in effect) for the first three 
taxable years (A) preceding the year in which the last such 
annuity, endowment, or life insurance contract was issued under 
the plan, and (B) in which such owner-employee derived earned 
income from the trade or business with respect to which the plan 
is established, or for so many of such taxable years as such owner-
employee was engaged in such trade or business and derived 
earned income therefrom. 
In the case of any individual on whose behalf contributions described 
in paragraph (1) are made under more than one plan as an owner-
employee during any taxable year, the preceding sentence does not 
apply if the amount of such contributions under all such plans for all 
such years exceeds $7,500. Any contribution which is described in this 
subsection shall, for purposes of section 4972(b), be taken into 
^"^'•^• 
account as a contribution made by such owner-employee as an 
employee to the extent that the amount of suoh contribution is not 
deductible under section 404 for the taxable year, but only for the 
26 use 404. 
purpose of applying section 4972(b) to other contributions made by 
such owner-employee as an employee." 
(4) Clause (ii) of section 401(a) (10) (A) is amended by strik- 
26 use 40i. 
ing out "subsection (e)(3)(A)" and inserting in lieu thereof 
"subsection (e)". 
(5) Subparagraph (A) of section 72(m) (5) (A) is amended— 
^^ use 72. 
^A) by inserting "and" at the end of clause (i), 
'" 
(B) by striking out the comma at the end of clause (ii) 
and the word "and" following that comma, and inserting in 
lieu thereof a period, and 
(C) by striking out clause (iii). 
(f) TAX ON EXCESS CONTRIBUTIONS.— 
(1) Chapter 43 (relating to qualified pension, etc., plans) is 
amended by inserting after section 4971 the following new section: 
"SEC. 4972. TAX ON EXCESS CONTRIBUTIONS FOR SELF-EMPLOYED 
26 use 4972. 
INDIVIDUALS. 
"(a) TAX IMPOSED.—In the case of a plan which provides contribu-
tions or benefits for employees some or all of whom are employees 
within the meaning of section 401(c) (1), there is imposed, for each 
taxable year of the employer who maintains such plan, a tax in an 
amount equal to 6 percent of the amount of the excess contributions 
under the plan (determined as of the close of the taxable year). The 
tax imposed by this subsection shall be paid by the employer who main-
tains the plan. This section applies only to plans which include a trust 
described in section 401(a), which are described in section 403(a), or 
which are described in section 405 (a). 
2^ use 401, 
"(b) 
EXCESS CONTRIBUTIONS.— 
"(1) I N GENERAL.—For purposes of this section, the term'excess 
''Excess con-
contributions' means the sum of the amounts (if any) determined 
" 
' 
under paragraphs (2), (3), and (4), reduced by the sum of the 
correcting distributions (as defined in paragraph (5)) made in all 
prior taxable years beginning after December 31, 1975. For pur-
poses of this subsection the amount of any contribution which is 
allocable (determined under regulations prescribed by the Secre-
tary or his delegate) to the purchase of life, accident, health, or 
other insurance shall not be taken into account. 
" (2) CONTRIBUTIONS BY OWNER-EMPLOYEES.—The amount deter-
mined under this paragraph, in the case of a plan which provides 
contributions or benefits for employees some or all of whom are 
tributions. 
956 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
26 use 401. 
owner-employees (within the meaning of section 401(c) (3)), is 
the sum of— 
"(A) the excess (if any) of— 
"(i) the amount contributed under the plan by each 
owner-employee (as an employee) for the taxable year, 
over 
"(ii) the amount permitted to be contributed by each 
owner-employee (as an employee) for such year, and 
" (B) the amount determined under this paragraph for the 
preceding taxable year of the employer, 
reduced by the excess (if any) of the amount described in sub-
paragraph (A) (ii) over the amount described in subparagraph 
(A)(i). 
"(3) DEFINED BENEFIT PLANS.—The amount determined under 
this paragraph, in the case of a defined benefit plan, is the 
amount contributed under the plan by the employer during the 
taxable year or any prior taxable year beginning after Decem-
ber 31,1975, if— 
"(A) as of the close of the taxable year, the full funding 
limitation of the plan (determined under section 412(c) (7)) 
is zero, and 
"(B) such amount has not been deductible for the taxable 
year or any prior taxable year. 
"(4) DEFINED CONTRIBUTION PLANS.—The amount determined 
under this paragraph, in the case of a plan other than a defined 
benefit plan, is the portion of the amounts contributed under the 
plan by the employer during the taxable year and each prior 
taxable year beginning after December 31, 1975, which has not 
been deductible for the taxable year or any prior taxable year. 
"(5) CORRECTING DISTRIBUTION.—For purposes of this subsec-
tion the term 'correcting distribution' means— 
"(A) in the case of a contribution made by an owner-
employee as an employee, regardless of the type of plan, the 
amount determined under paragraph (2) distributed to the 
owner-employee who contributed such amount, 
"(B) in the case of a defined benefit plan, the amount 
determined under paragraph (3) which is distributed from 
the plan to the employer, and 
"(C) in the case of a defined contribution plan, the amount 
determined under paragraph (4) which is distributed from 
the plan to the employer or to the employee to the account of 
whom the amount described was contributed. 
"(c) 
AMOUNT 
PERMITTED 
To 
B E 
CONTRIBUTED 
BY 
OWNER-
EMPLOYEE.—For purposes of subsection (b) (2), the amount permitted 
to be contributed under a plan by an owner-employee (as an 
employee) for any taxable year is the smallest of the following: 
"(1) $2,500, 
"(2) 10 percent of the earned income (as defined in section 
401(c)(2)) 
for such taxable year derived by such owner-
employee from the trade or business with respect to Avhich the 
plan is established, or 
"(3) the amount of the contribution which would be contrib-
uted by the owner-employee (as an employee) if such contribution 
were made at the rate of contributions permitted to be made by 
employees other than owner-employees. 
In any case in which there are no employees other than owner-
employees, the amount determined under the preceding sentence shall 
be zero. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
957 
"(d) CROSS KEFERENCE.— 
"For disallowance of deduction for taxes paid under this section, see 
section 275.". 
(2) CLERICAL AMENDMENT.—The table of sections for chapter 43 
is amended by inserting after the item relating to section 4971 
the following new item: 
"Sec, 4972. Tax on excess contributions for self-employed individuals.". 
(g) PREMATURE DISTRIBUTIONS TO OWNER-EMPLOYEES.— 
(1) I N GENERAL.—Subparagraph (B) of section 72(m)(5) 
26 use 72. 
(relating to penalties applicable to certain amounts received by 
owner-employees) is amended to read as follows: 
"(B) If a person receives an amount to which this para-
graph 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 tax-
able year." 
(2) CONFORMING AMENDMENTS.— 
(A) Subparagraphs (C), (D), and (E) of section 72(m) 
Repeals. 
(5) are repealed. 
(B) The second sentence of section 46(a) (3) and the sec- 
26 use 46. 
ond sentence of section 50A(a) (3), as each is amended by 
26 use 5OA. 
section 2005 (c) (4) of this Act, are each amended by inserting 
Post, p. 987. 
after "tax preferences)," the following: "section 72(m)(5) 
(B) (relating to 10 percent tax on premature distributions 
supra. 
to owner-employees),". 
(C) The third sentence of section 901(a), as amended by 
^^ ^^'^ ^°^* 
section 2005(c) (5) of this Act, is amended by striking out 
"tax preferences)," and inserting in lieu thereof "tax prefer-
ences), against the tax imposed for the taxable year under 
section 72(m) (5) (B) (relating to 10 percent tax on prema-
ture distributions to owner-employees),". 
(D) Subparagraph (A) of section 56(a)(2) and para- 
26 use 56. 
graph (1) of section 56(c), as each is amended by section 
2005(c)(7) of this Act, are each amended by striking out 
"402(e)" and inserting in lieu thereof "72(m) (5) (B), 402 
(E) Section 404(a) (2) is amended hy striking out "(16)" 
^^ "^^ ^°^-
and inserting in lieu thereof "(16), (17), (18)". 
(F) Clause (ii) of section 404(a)(9)(B) is amended to 
read as follows: 
"(ii) without regard to the second sentence of para-
graph (3); and", 
(h) 
WITHDRAWAL 
OF EMPLOYEE 
CONTRIBUTIONS 
or 
OWNER-
EMPLOYEES.— 
(1) Section 401(d)(4)(B) 
(relating to additional require- 
26use4oi. 
ments for qualification of trusts and plans benefiting owner-
employees) is amended by inserting "in excess of contributions 
made by an owner-employee as an employee" after "benefits". 
(2) Paragraph (1) of section 72(m) (relating to certain 
Repeal. 
amounts received before annuity starting date) is repealed. 
(3) Section 72(m) (5) (A) (i) is amended by striking out 
"(whether or not paid by him)" and inserting in lieu thereof the 
following: "(other than contributions made by him as an owner-
employee)". 
(i) 
EFFECTIVE D A T E S . — 
26 use 404 
(1) The amendments made by subsections (a) and (b) apply 
to taxable years beginning after December 31,1973. 
note. 
958 
PUBLIC L
A
W 93-406-SEPT. 2, 1974 
[88 STAT. 
note 
note 
note 
26 use 220. 
26 use 401 
(2) The amendments made by subsection (c) apply to— 
(A) taxable years beginning after December 31, 1975, and 
(B) any other taxable years beginning after December 31, 
1973, for which contributions were made under the plan in 
excess of the amounts permitted to be made under sections 
Ante, p. 952. 
404(e) aud 1379(b) as in effect on the day before the date of 
the enactment of this Act. 
26 use 401 
(3^ The amendments made by subsection (d) apply to taxable 
years beginning after December 31,1975. 
26 use 401 
' ^4^ -j^jjg amendments made by subsections (e) and (f) apply 
to contributions made in taxable years beginning after Decem-
ber 31, 1975. 
26 use 72 note. 
(5) xhc amendments made by subsection (g) apply to distribu-
tions made in taxable years beginning after December 31, 1975. 
26 use 72 note. 
^g^ jj^g amendments made by subsection (h) apply to taxable 
years ending after the date of enactment of this Act. 
SEC. 2002. DEDUCTION FOR RETIREMENT SAVINGS. 
(a) 
ALLOWANCE OF DEDUCTION.— 
26 use 211. 
(1) I N GENERAL.—Part VII of subchapter B of chapter 1 (relat-
ing to additional itemized deductions for individuals) is amended 
by redesignating section 219 as 220 and by inserting after section 
218 the following new section : 
26 use 219. 
..§£(. 219. RETIREMENT SAVINGS. 
"(a) DEDUCTION ALLOWED.—In the case of an individual, there is 
allowed as a deduction amounts paid in cash during the taxable year 
by or on behalf of such individual for his benefit— 
26 use 408. 
"(^2) to an individual retirement account described in section 
408(a), 
"(2) for an individual retirement annuity described in section 
408(b), or 
"(3) for a retirement bond described in section 409 (but only 
if the bond is not redeemed within 12 months of the date of its 
issuance). 
For purposes of this title, any amount paid by an employer to such a 
retirement account or for such a retirement annuity or retirement 
bond constitutes payment of compensation to the employee (other 
than a self-employed individual who is an employee within the mean-
ing of section 401(c) (1) includible in his gross income, whether or 
not a deduction for such payment is allowable under this section to 
the employee after the application of subsection (b). 
"(b) 
LIMITATIONS A
N
D RESTRICTIONS.— 
" (1) MAXIMUM DEDUCTION.—The amount allowable as a deduc-
tion under subsection (a) to an individual for any taxable year 
may not exceed an amount equal to 15 percent of the compensa-
tion includible in his gross income for such taxable year, or $1,500, 
whichever is less. 
"(2) 
COVERED BY CERTAIN OTHER PLANS.—No deduction 
is 
allowed under subsection (a) for an individual for the taxable 
year if for any part of such year— 
" (A) he was 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 qualified bond purchase plan described in sec-
tion 405(a), or 
"(iv) a plan established for its employees by the 
United States, by a State or political division thereof, or 
26 use 409. 
26 use 401, 
26 use 501 
26 use 403 
26 use 405. 
26 use 403. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
959 
by an agency or instrumentality of any of the foregoing, 
or 
"(B) amounts were contributed by his employer for an 
annuity contract described in section 403(b) (whether or not 
his rights in such contract are nonforfeitable). 
"(3) CONTRIBUTIONS AFITIR AGE TOJ.—No deduction is allowed 
under subsection (a) with respect to any payment described in 
subsection (a) which is made during the taxable year of an indi-
vidual who has attained age TOi^ before the close of such taxable 
year. 
"(4) EECONTRIBUTED AMOUNTS.—No deduction is allowed under 
this section with respect to a rollover contribution described in 
section 402(a) (5), 403(a) (4), 408(d) (3), or 409(b) (3) (C). 
J,%'u'''" ' ' ' ' 
"(5) AMOUNTS CONTRIBUTED UNDER ENDOWMENT CONTRACT.— 
In the case of an endowment contract described in section 408 (b), 
^"^'•°-
no deduction is allowed under subsection (a) for that portion of 
the amounts paid under the contract for the taxable year prop-
erly allocable, under regulations prescribed by the Secretary or 
his delegate, to the cost of life insurance. 
"(c) DEFINITIONS AND SPECIAL RULES.— 
"(1) COMPENSATION.—For purposes of this section, the term 
'compensation' includes earned income as defined in section 
4 0 1 ( c ) ( 2 ) . 
26 use 401. 
"(2) MARRIED INDIVIDUALS.—The maximum deduction under 
subsection (b) (1) shall be computed separately for each indi-
vidual, and this section shall be applied without regard to any 
community property laws.". 
(2) 
DEDUCTION ALLOWED IN ARRIVING AT ADJUSTED GROSS 
INCOME.—Section 62 (defining adjusted gross income) is amended 
by inserting after paragraph (9) the following new paragraph: 
"(10) RETIREMENT SAVINGS.—The deduction allowed by sec-
tion 219 (relating to deduction of certain retirement savings).". 
^"'^' P- ^^^• 
(b) INDIVIDUAL RETIREMENT ACCOUNTS.—Subpart A of part I of 
subchapter D of chapter 1 (relating to retirement plans) is amended 
^^ ^^*^ '*°^-
by adding at the end thereof the following new section: 
"SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS. 
26 use 408. 
"(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 indi-
vidual or his beneficiaries, but only if the written governing instru-
ment creating the trust meets the following requirements: 
"(1) Except in the case of a rollover contribution described 
in subsection (d)(3) in section 402(a)(5), 403(a)(4), or 409 
(b) (3) (C), no contribution will be accepted unless it is in cash, 
and contributions will not be accepted for the taxable year in 
excess of $1,500 on behalf of any individual. 
"(2) The trustee is a bank (as defined in section 401(d) (1)) 
or such other person who demonstrates to the satisfaction of the 
Secretary or his delegate 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. 
960 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(6) The entire interest of an individual for whose benefit the 
trust is maintained will be distributed to him not later than 
the close of his taxable year in which he attains age 701/^, or 
will be distributed, commencing before the close of such taxable 
year, in accordance with regulations prescribed by the Secre-
tary or his delegate, over— 
"(A) the life of such individual or the lives of such indi-
vidual and his spouse, or 
"(B) a period not extending beyond the life expectancy of 
such individual or the life expectancy of such individual 
and his spouse. 
"(7) If an individual for whose benefit the trust is maintained 
dies before his entire interest has been distributed to him, or if 
distribution has been commenced as provided in paragraph (6) 
to his surviving spouse and such surviving spouse dies before 
the entire interest has been distributed to such spouse, the entire 
interest (or the remaining part of such interest if distribution 
thereof has comnjenced) will, within 5 years after his death 
(or the death of the surviving spouse), be distributed, or applied 
to the purchase of an immediate annuity for his beneficiary or 
beneficiaries (or the beneficiary or beneficiaries of his surviving 
spouse) which will be payable for the life of such beneficiary 
or beneficiaries (or for a term certain not extending beyond the 
life expectancy of such beneficiary or beneficiaries) and which 
annuity will be immediately distributed to such beneficiary or 
beneficiaries. The preceding sentence does not apply if distribu-
tions over a term certain commenced before the death of the indi-
vidual for whose benefit the trust was maintained and the term 
certain is for a period permitted under paragraph (6). 
"(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 or his dele^^ate), issued by an insurance 
company which meets the following requirements: 
" (1) The contract is not transferable by the owner. 
"(2) The annual premium under the contract will not exceed 
$1,500 and 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) The entire interest of the owner will be distributed to him 
not later than the close of his taxable year in which he attains age 
7014, or will be distributed, in accordance with regulations pre-
scribed by the Secretary or his delegate, over— 
" (A) the life of such owner or the lives of such owner and 
his spouse, or 
"(B) a period not extending beyond the life expectancy of 
such owner or the life expectancy of such owner and his 
spouse. 
" (4) If the owner dies before his entire interest has been distrib-
uted to him, or if distribution has been commenced as provided in 
paragraph (3) to his surviving spouse and such surviving spouse 
dies before the entire interest has been distributed to such spouse, 
the entire interest (or the remaining Dart of such interest if dis-
tribution thereof has commenced) will, within 5 years after his 
death (or the death of the surviving spouse), be distributed, or 
applied to the purchase of an immediate annuity for his bene-
ficiary or beneficiaries (or the beneficiary or beneficiaries of his 
surviving spouse) which will be payable for the life of such bene-
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
951 
ficiary or beneficiaries (or for a term certain not extending 
beyond the life expectancy of such beneficiary or beneficiaries) 
and which annuity will be immediately distributed to such bene-
ficiary or beneficiaries. The preceding sentence shall have no 
application if distributions over a term certain commenced before 
the death of the owner and the term certain is for a period per-
mitted under paragraph (3). 
" (5) 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 sub-
section (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 701/^; 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 $1,500. 
"(c) 
ACCOUNTS ESTABLISHED BY EMPLOYERS AND CERTAIN ASSO-
CIATIONS or 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 (7) of subsection (a). 
"(2) There is a separate accounting for the interest of each 
employee or member. 
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) I N GENERAL.—Except as otherwise provided in this sub-
section, any amount paid or distributed out of an individual 
retirement account or under an individual retirement annuity 
shall be included in gross income by the payee or distributee, as 
the case may be, for the taxable year in which the payment or dis-
tribution is received. The basis of any person in such an account 
or annuity is zero. 
"(2) 
DISTRIBUTIONS or ANNUITY CONTRACTS.—Paragraph 
(1) 
does not apply to any annuity contract which meets the require-
ments of paragraphs (1), (3), (4), and (5) of subsection (b) 
and which is distributed from an individual retirement account. 
Section 72 applies to any such annuity contract, and for pur- 
2 6 use 72. 
poses of section 72 the investment in such contract is zero. 
"(3) ROLLOVER CONTRIBUTION.—An amount is described in this 
paragraph as a rollover contribution if it meets the require-
ments of subparagraphs (A) and (B). 
"(A) I N 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) or retirement bond 
26 use 401 
501. 
962 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
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) represents the entire amount in the 
account or the entire value of the annuity and no amount 
in the account and no part of the value of the annuity 
is attributable to any source other than a rollover con-
tribution from an employees' trust described in section 
401(a) which is exempt from tax under section 501(a) 
(other than a trust forming part of a plan under which 
the individual was an employee within the meaning of 
section 401 (c) (1) at the time contributions were made on 
his behalf under the plan), or an annuity plan described 
26 use 403. 
[YI section 403(a) (other than a plan under which the 
individual was an employee within the meaning of sec-
tion 401(c)(1) at the time contributions were made on 
his behalf under the plan) and any earnings on such 
sums and the entire amount thereof is paid into another 
such trust (for the benefit of such individual) or annuity 
plan not later than the 60th day on which he receives 
the payment or distribution. 
"(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 individ-
ual retirement annuity if at any time during the 3-year period 
ending on the day of such receipt such individual received 
any other amount described in that subparagraph from an 
individual retirement account, individual retirement annuity, 
or a retirement bond which was not includible in his gross 
income because of the application of this paragraph. 
"(4) 
EXCESS 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 to the 
extent that such contribution exceeds the amount allowable as a 
Ante, p. 958. 
deductlou uuder section 219 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 excess contribution, and 
"(C) such distribution is accompanied by the amount of 
net income attributable to such excess contribution. 
Any net income described in subparagraph (C) shall be included 
in the gross income of the individual for the taxable year in which 
received. 
"(5) TRANSFER OF ACCOUNT INCIDENT TO DIVORCE.—The trans-
fer of an individual's interest in an individual retirement account, 
individual retirement annuity, or retirement bond to his former 
spouse under a divorce decree or under a written instrument in-
cident to such divorce 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, annuity, or bond 
for purposes of this subtitle is to be treated as maintained for the 
benefit of such spouse. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
963 
" (e) TAX TREATMENT OF ACCOUNTS AND ANNUITIES.— 
"(1) EXEMPTION FROM TAX.—Any individual retirement ac-
count is exempt from taxation under this subtitle unless such 
account has ceased to be an individual retirement account by rea-
son 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 
26 use sii. 
income of charitable, etc. organizations). 
" (2) L o s s OF EXEMPTION OF ACCOUNT WHERE EMPLOYEE ENGAGES 
IN PROHIBITED TRANSACTION.— 
"(A) I N GENERAL.—If, during any taxable year of the in-
dividual 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 
^osf, p. 971. 
such account, such account ceases to be an individual retire-
ment 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 ASSETS.— 
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 individual 
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 RETIRE-
MENT 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 subsec-
tion (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 
26 use 501, 
401. 
964 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
individual retirement account assets which is exempt from taxa-
tion 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). 
"(f) 
ADDITIONAL TAX ON CERTAIN AMOUNTS INCLUDED IN GROSS 
INCOME BEFORE AGE 591/^— 
"(1) 
EARLY DISTRIBUTIONS FROM AN INDIVIDUAL RETIREMENT 
ACCOUNT, ETC.—If a distribution from an individual retirement 
account or under an individual retirement annuity to the indi-
vidual for whose benefit such account or annuity was established 
is made before such individual attains age 591/^, his tax under 
this chapter for the taxable year in which such distribution is 
received shall be increased by an amount equal to 10 percent of 
the amount of the distribution which is includible in his gross 
income for such taxable year. 
"(2) DISQUALIFICATION CASES.—If an amount is includible in 
gross income for a taxable year under subsection (e) and the tax-
payer has not attained age 591/^ before the beginning of such tax-
able year, his tax under this chapter for such taxable year shall 
be increased by an amount equal to 10 percent of such amount so 
required to be included in his gross income. 
"(3) DISABILITY CASES.—Paragraphs (1) and (2) do not apply 
if the amount paid or distributed, or the disqualification of the 
account or annuity under subsection (e), is attributable to the tax-
payer becoming disabled within the meaning of section 72(m) 
"(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 cus-
todial account shall be treated as a trust if the assets of such account 
are held by a bank (as defined in section 401 (d) (1)) or another person 
who demonstrates, to the satisfaction of the Secretary or his delegate, 
that the manner in which he will administer the account will be con-
sistent 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 pur-
/ 
poses of this title, in the case of a custodial account treated as a trust 
l3y 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 or his delegate and to 
the individuals for whom the account, contract, or annuity is, or is 
to be, maintained with respect to contributions, distributions, and such 
other matters as the Secretary or his delegate may require under 
regulations. The reports required by this subsexition 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 those regulations. 
" (j) 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." 
(c) RETIREMENT BONDS.—Subpart A of part I of subchapter D of 
chapter 1 (relating to retirement plans) is amended by inserting after 
Ante, p. 959. 
sBctiou 408 the followiug new section: 
26 use 409. 
«gEC. 409. RETIREMENT BONDS. 
"(a) RETIREMENT BOND.—For purposes of this section and section 
Anfe, p. 95 8. 
219(a), thc term 'retirement bond' means a bond issued under the 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
965 
Second Liberty Bond Act, as amended, which by its terms, or by ^i use 774. 
regulations prescribed by the Secretary or his delegate under such 
Act— 
"(1) provides for payment of interest, or investment yield, 
only on redemption; 
"(2) provides that no interest, or investment yield, is payable 
if the bond is redeemed within 12 months after the date of its 
issuance; 
"(3) provides that it ceases to bear interest, or provide invest-
ment yield on the earlier of— 
"(A) the date on which the individual in whose name it is 
purchased (hereinafter in this section referred to as the 
'registered owner') attains age 701/2; or 
"(B) 5 years after the date on which the registered owner 
dies, but not later than the date on which he would have 
attained the age 70i/^ had he lived; 
"(4) provides that, except in the case of a rollover contribution 
described in subsection (b)(3)(C) or in section 402(a) (5), ^J^°«''p^^^^^i, 
403(a) (4), or 408(d) (3) the registered owner may not contribute ^°^i| p
.
* 959.' 
for the purchase of such bonds in excess of $1,500 in any taxable 
year; and 
"(5) is not transferable. 
"(b) INCOME TAX TREATMENT OF BONDS.— 
"(1) I N GENERAL.—Except as otherwise provided in this sub-
section, on the redemption of a retirement bond the entire pro-
ceeds shall be included in the gross income of the taxpayer entitled 
to the proceeds on redemption. If the registered owner has not 
tendered it for redemption before the close of the taxable year in 
Avhich he attains age 701^, such individual shall include in his 
gross income for such taxable year the amount of proceeds he 
would have received if the bond had been redeemed at age 701^. 
The provisions of section 72 (relating to annuities) and section 
^^ "^^ ^2-
1232 (relating to bonds and other evidences of indebtedness) shall 
not apply to a retirement bond. 
" (2) BASIS.—The basis of a retirement bond is zero. 
"(3) EXCEPTIONS.— 
"(A) REDEMPTION WITHIN 12 MONTHS.—If a retirement 
bond is redeemed within 12 months after the date of its issu-
ance, the proceeds are excluded from gross income if no 
deduction is allowed under section 219 on account of the ^"*^' P- ^^^• 
purchase of such bond. 
"(B) REDEMPTION AFTER AGE 70i.—If a retirement bond is 
redeemed after the close of the taxable year in which the 
registered owner attains age 701/^, the proceeds from the 
redemption of the bond are excluded from the gross income 
of the registered owner to the extent that such proceeds were 
includible in his gross income for such taxable year. 
"(C) ROLLOVER INTO AN INDIVIDUAL RETIREMENT ACCOUNT 
O
R ANNUITY OR A QUALIFIED PLAN.—If a retirement bond is 
redeemed at any time before the close of the taxable year in 
which the registered owner attains age 70i/^, and the reg-
istered owner transfers the entire amount of the proceeds 
from the redemption of the bond to an individual retirement 
account described in section 408 (a) or to an individual retire- 
Ante, p. 959. 
ment annuity described in section 408(b) (other than an 
endowment contract) which is maintained for the benefit of 
the registered owner of the bond, or to an employees' trust 
described in section 401(a) which is exempt from tax under 
section 501 (a), or an annuity plan described in section 403 (a) 
26 use 401, 
26 use 501, 
403. 
966 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
for the benefit of the registered owner, on or before the 60th 
day after the day on which he received the proceeds of such 
redemption, then the proceeds shall be excluded from gross 
income and the transfer shall be treated as a rollover contribu-
26 use 403. 
tJQj^ described in section 403(d) (3). This subparagraph does 
not apply in the case of a transfer to such an employees' trust 
or such an annuity plan unless no part of the value of such 
proceeds is attributable to any source other than a rollover 
contribution from such an employees' trust or annuity plan 
(other than an annuity plan or a trust forming part of a plan 
under which the individual was an employee within the 
26 use 401, 
meaning of section 401(c) (1) at the time contributions were 
made on his behalf under the plan). 
"(c) ADDITIONAL TAX ON CERTAIN REDEMPTIONS BEFORE AGE 591/^.— 
"(1) 
EARLY REDEMPTION or BOND.—If a retirement bond is 
redeemed by the registered owner before he attains age 591^, his 
tax under this chapter for the taxable year in which the bond is 
redeemed shall be increased by an amount equal to 10 percent of 
the amount of the proceeds of the redemption includible in his 
gross income for the taxable year. 
"(2) DISABILITY CASES.—Paragraph (1) does not apply for any 
taxable year during which the retirement bond is redeemed if, for 
that taxable year, the registered owner is disabled within the 
26 use 72. 
meaning of section 72 (m) (7). 
"(3) REDEMPTION WITHIN ONE YEAR.—Paragraph (1) does not 
apply if the registered owner tenders the bond for redemption 
within 12 months after the date of its issuance.", 
(d) EXCISE TAX ON EXCESS CONTRIBUTIONS.—Chapter 43 (relating 
to qualified pension, etc., plans) is amended by inserting after section 
4972 the following new section: 
26 use 4973. 
«gj,(. 4973 rp^^ ON EXCESS CONTRIBUTIONS TO INDIVIDUAL RETIRE-
MENT ACCOUNTS, CERTAIN SECTION 403(b) CONTRACTS, 
CERTAIN INDIVIDUAL RETIREMENT ANNUITIES, AND 
CERTAIN RETIREMENT BONDS. 
" (a) TAX IMPOSED.—In the case of— 
"(1) an individual retirement account (within the meaning 
^n.e.p. 959. 
of section 4p8 (a)), 
"(2) an individual retirement annuity (within the meaning of 
section 408(b)), a custodial account treated as an annuity con-
Ante, p. 940. 
|.j.g^^^ under section 403(b) (7) (A) (relating to custodial accounts 
for regulated investment company stock), or 
Ante, p. 964. 
u (^^>^ ^ retirement bond (within the meaning of section 409), 
established for the benefit of any individual, there is imposed for 
each taxable year a tax in an amount equal to 6 percent of the 
amount of the excess contributions to such individual's accounts, 
annuities, or bonds (determined as of the close of the taxable 
year). The amount of such tax for any taxable year shall not 
exceed 6 percent of the value of the account, annuity, or bond 
(determined as of the close of the taxable year). In the case of an 
endowment contract described in section 408(b), the tax imposed 
by this section does not apply to any amount allocable to life, 
health, accident, or other insurance under such contract. The tax 
imposed by this subsection shall be paid by such individual, 
"(b) EXCESS CONTRIBUTIONS.—For purposes of this section, in the 
case of individual retirement accounts, individual retirement annui-
ties, or bonds, the term 'excess contributions' means the sum of— 
"(1) the excess (if any) of— 
"Excess con-
tributions." 
26 use 403. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
967 
"(A) the amount contributed for the taxable year to the 
accounts or for the annuities or bonds (other than a rollover 
contribution described in section 402(a) (5), 403(a) (4), 408 
^°«;. PP. 99I. 
(d)(3)),or409(b)(3)(C),over 
_ 
959; g e t " ' " 
"(B) the amount allowable as a deduction under section 
219 for such contributions, and 
"(2) the amount determined under this subsection for the pre-
ceding taxable year, reduced by the excess (if any) of the maxi-
mum amount allowable as a deduction under section 219 for the 
^"'^' P- ^^^• 
taxable year over the amount contributed to the accounts or for 
the annuities or bonds for the taxable year and reduced by the 
sum of the distributions out of the account (for all prior taxable 
years) which were included in the gross income of the payee under 
section 408(d) (1). For purposes of this paragraph, any contribu-
tion which is distributed out of the individual retirement account, 
individual retirement annuity, or bond in a distribution to which 
section 408(d)(4) applies shall be treated as an amount not 
contributed. 
"(c) SECTION 403(b) CONTRACTS.—For purposes of this section, in 
the case of a custodial account referred to in subsection (a) (3), the 
term 'excess contributions' means the sum of— 
"(1) the excess (if any) of the amount contributed for the tax-
able year to such account, over the lesser of the amount excludable 
from gross income under section 403(b) or the amount permitted 
to be contributed under the limitations contained in section 415 
^osf, p. 979. 
(or under whichever such section is applicable, if only one is 
applicable), and 
"(2) the amount determined under this subsection for the pre-
ceding taxable year, reduced by— 
"(A) the excess (if any) of the lesser of (i) the amount 
excludable from gross income under section 403(b) or (ii) the 
amount permitted to be contributed under the limitations con-
tained in section 415 over the amount contributed to the 
account for the taxable year (or under whichever such section 
is applicable, if only one is applicable), and 
"(B) the sum of the distributions out of the account (for 
all prior taxable years) w^hich are included in gross income 
under section 72(e)." 
26 use 72. 
(e) 
EXCISE TAX ON EXCESSIVE ACCUMULATIONS.—Chapter 43 
is 
amended by inserting after section 4973 the following new section: 
"SEC. 4974. EXCISE TAX ON CERTAIN ACCUMULATIONS IN INDIVIDUAL 
26 use 4974. 
RETIREMENT ACCOUNTS OR ANNUITIES. 
" (a) IMPOSITION OF TAX.—If, in the case of an individual retirement 
account or individual retirement annuity, the amount distributed dur-
ing the taxable year of the payee is less than the minimum amount 
required to be distributed under section 408(a) (6) or (7), or 408(b) 
"*"'*' P" ^^^' 
(3) or (4) during such year, there is imposed a tax equal to 50 percent 
of the amount by which the minimum amount required to be distrib-
uted during such year exceeds the amount actually distributed during 
the year. The tax imposed by this section shall be paid by such payee. 
"(b) REGULATIONS.—For purposes of this section, the minimum 
amount required to be distributed during a taxable year under section 
408(a) (6) or (7) or 408(b) (3) or (4) shall be determined under 
regulations prescribed by the Secretary or his delegate.". 
(f) 
PENALTY FOR FAILURE To 
PROVIDE REPORTS ON INDIVIDUAL 
RETIREMENT ACCOUNTS.—Subchapter B of chapter 68 (relating to 
assessable penalties) is amended by adding at the end thereof the fol-
lowins: new section: 
968 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
26 use 6693. 
«SEC. 6693. FAILURE TO PROVIDE REPORTS ON INDIVIDUAL RETIRE-
MENT ACCOUNTS OR ANNUITIES. 
An"e/*p.' 959. 
" (^) The persoii required by section 408 (i) to file a report regarding 
an individual retirement account or individual retirement annuity at 
the time and in the manner required by section 408(i) shall pay a 
penalty of $10 for each failure unless it is shown that such failure is 
/ 
due to reasonable cause. 
"(b) 
DEFICIENCY PROCEDURES NOT To APPLY.—Subchapter B of 
26 use 6211. 
chapter 63 (relating to deficiency procedures for income, estate, gift, 
and certain excise taxes) does not apply to the assessment or collection 
of any penalty imposed by subsection (a).". 
(g) 
CONFORMING AMENDMENTS.— 
26 use 37. 
(2) Section 
37(c)(1) 
(defining 
retirement 
income) 
is 
amended— 
(A) by striking out "and" at the end of subparagraph (D), 
(B) by adding at the end of subparagraph (E) the fol-
lowing: "retirement bonds described in section 409, and", and 
(C) by adding at the end thereof the following new para-
graph : 
"(F) an individual retirement account described in 
section 408(a) or an individual retirement annuity 
described in section 408(b), or". 
(2) The second sentence of section 46 (a) (3) and the second sen-
26 use 46. 50A. 
tence of section 50A(a) (3), as each is amended by sections 2001 
tT:^os,V^' 
(g)(2)(B) and 2005(c)(4) of this Act, are each amended by 
inserting after "owner-employees)," the following: "section 408 
(e) (relating to additional tax on income fiom certain retirement 
accounts),". 
(3) The third sentence of section 901(a), as amended by sec-
tion 2005(c) (5) of this Act, is amended by inserting "against the 
tax imposed for the taxable year by section 408(f) (relating to 
additional tax on income from certain retirement accounts)," 
before "against the tax imposed by section 531". 
26 use 56. 
^^.'j Subparagraph (A) of section 56(a) (2) and paragraph (1) 
of section 56(c) are each amended by striking out "531" and 
inserting in lieu thereof "408(f), 531,". 
(5) Section 402(a) (relating to taxability of beneficiary of 
exempt trust), as amended by section 2005(c)(2) of this Act, 
is amended by inserting after paragraph (5) the following new 
paragraph: 
"(5) ROLLOVER AMOUNTS.—In the case of an employees' trust 
described in section 401(a) which is exempt from tax under sec-
tion 501 (a), if— 
"(A) the balance to the credit of an employee is paid to 
him on one or more distributions which constitute a lump 
sum distribution within the meaning of subsection (e) (4) (A) 
(determined without reference to subsection (e) (4) (B)), 
"(B) (i) the employee transfers all the property he 
receives in such distribution to an individual retirement 
account described in section 408(a), an individual retirement 
annuity described in section 408(b) (other than an endow-
ment contract), or a retirement bond described in section 409, 
on or before the 60th day after the day on which he received 
such property, to the extent the fair market value of such 
property exceeds the amount referred to in subsection (e) (4) 
(D)Oi),or 
"(ii) the employee transfers all the property he receives 
in such distribution to an employees' trust described in sec-
tion 401(a) which is exempt from tax under section 501(a), 
Post, p. 987. 
26 use 901. 
26 use 402. 
26 use 401 
26 use 501 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
969 
or to an annuity plan described in section 403(a) on or before 
26 use 403. 
the 60th day after the day on which he received such prop-
erty, to the extent the fair market value of such property 
exceeds the amount referred to in subsection (e) (4) (D) (i), 
and 
"(C) the amount so transferred consists of the property 
(other than money) distributed, to the extent that the fair 
market value of such property does not exceed the amount 
required to be transferred pursuant to subparagraph (B), 
then such distributions are not includible in gross income for the 
year in which paid. For purposes of this title, a transfer described 
in subparagraph (B) (i) shall be treated as a rollover contribu-
tion as described in section 408(d)(3). Subparagraph (B) (ii) 
^"'e. P-959. 
does not apply in the case of a transfer to an employees' trust, or 
annuity plan if any part of the lump sum distribution described 
in subparagraph (A) is attributable to a trust forming part of a 
plan under which the employee was an employee within the mean-
ing of section 401(c) (1) at the time contributions were made on 
his behalf under the plan." 
(6) Section 403(a) (relating to taxation of employee annui-
ties) is amended by adding after paragraph (3) the following 
new paragraph: 
"(4) ROLLOVER AMOUNTS.—In the case of an employee annuity 
described in 403 (a), if— 
"(A) the balance to the credit of an employee is paid to 
him in one or more distributions which constitute a lump sum 
distribution within the meaning of section 402(e)(4)(A) 
26 use 402. 
determined without reference to section 402(e) (4) (B), 
"(B) (i) 
the 
employee 
transfers 
all 
the 
property 
he receives in such distribution to an individual account 
described in section 408(a), an individual retirement annuity 
described in section 408(b) 
(other than an endowment 
contract), or a retirement bond described in section 409, on '*"'^' ^' ^^'*' 
or before the 60th day after the day on which he received 
such property to the extent the fair market value of such 
property 
exceeds the 
amount 
referred 
to 
in 
section 
402(e)(4)(D)(i),or 
"(ii) the employee transfers all the property he receives 
in such distribution to an employees' trust described in 
section 401(a) which is exempt from tax under section 
601(a), or to an annuity plan described in subsection (a) on 
or before the 60th day after the day on which he received 
such property to the extent the fair market value of such 
property 
exceeds the 
amount 
referred 
to in 
section 
402(e) (4) (D)(i), and 
"(C) the amount so transferred consists of the property 
distributed to the extent that the fair market value of such 
property does not exceed the amount required to be 
transferred pursuant to subparagraph (B), 
then such distribution is not includible in gross income for 
the year in which paid. For purposes of this title, a transfer 
described in subparagraph (B)(i) shall be treated as a rollover 
contribution described in section 408(d) (3). 
Subparagraph (B) (ii) does not apply in the case of a transfer to 
an employees' trust, or annuity plan if any part of the lump sum 
distribution described in subparagraph (A) is attributable to an 
annuity plan under which the employee was an employee within 
the meaning of section 401(c) (1) at the time contributions were 
made on his behalf under the plan.". 
26 use 6047. 
970 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
^^ "^^ ^'*°^- 
(Y) Section 3401(a) (12) (relating to exemption from collec-
tion of income tax at source on certain wages) is amended by 
adding at the end thereof the following new subparagraph: 
Ante, p. 958. 
"(D) for a pajmcut described in section 219(a) if, at the 
time of such payment, it is reasonable to believe that the 
employee will be entitled to a deduction under such section 
for payment; or", 
(8) Section 6047 (relating to information relating to certain 
trusts and annuity and bond purchase plans) is amended by 
redesignating subsection (d) as subsection (e) and by inserting 
after subsection (c) the following new subsection: 
"(d) OTHER PROGRAMS.—To the extent provided by regulations 
prescribed by the Secretary or his delegate, the provisions of this 
section apply with respect to any payment described in section 219(a) 
Ante, p. 959. 
g
^
j
^
^
j ^Q trausactious of any trust described in section 408(a) or under 
an individual retirement annuitv described in section 408(b).". 
ferves°" '''^" 
(9) Sectiou 805(d) (1) (relating to definition of pension plan 
26 use 805. 
reserves) is amended by striking out "or" at the end of subpara-
graph (C), by striking out "foregoing." at the end of subpara-
graph (D) and inserting in lieu thereof "foregoing; or", and by 
adding at the end thereof the following new subparagraph: 
"(E) purchased under contracts entered into with trusts 
which (at the time the contracts were entered into) were indi-
vidual retirement accounts described in section 408(a) or 
under contracts entered into with individual retirement annu-
ities described in section 408 (b)." 
26 use 72. 
^iQ^ Section 72 (relating to annuities) is amended— 
(A) by inserting after "501 (a)" in subsection (m) (4) (A) 
", an individual retirement amount described in section 
408(a), an individual retirement annuitv described in sec-
tion 408(b)"._ 
(B) by striking out at the end of subsection (m) (6) "401 
(c) (3)" and inserting in lieu thereof "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". 
26 use 801. 
(11) Section 801(g) (7) (relating to basis of assets held for 
qualified pension plan contracts) is amended by striking out "or 
(D)" and inserting in lieu thereof " (D), or (E)". 
(h) 
CLERTCAL AMENDMENTS.— 
(1) The table of sections for part VII of subchapter B of chap-
ter 1 is amended by striking out the item relating to section 219 
and inserting in lieu thereof the following: 
"Sec. 219. Retirement savings. 
"Sec. 220. Cross references.'". 
(2) The table of sections for subpart A of part I of subchap-
ter D of chapter 1 is amended by adding at the end thereof the 
following: 
"Sec. 408. Individual retirement accounts. 
"Sec. 409. Retirement bonds.". 
(3) The table of sections for chapter 43 is amended by inserting 
afte^" the item relating to section 4972 the following new items : 
"Sec. 4973. Tax on excess contributions to individual retirement 
accounts, certain 403(b) contracts, certain individual 
retirement annuities, and certain retirement bonds. 
"Sec. 4974. Tax on certain accumulations in individual retirement 
accounts. 
"Sec. 4975. Tax on prohibited transactions.". 
26 
note, 
26 
note, 
26 
note, 
use 
use 
use 
219 
4973 
4 02 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
971 
(4) The table of sections for subchapter B of chapter 68 is 
amended by adding at the end thereof the following new item: 
"Sec. 6693. Failure to provide reports on individual retirement 
accounts or annuities.". 
(i) EFFECTIVE DATES.— 
(1) The amendments made by subsections (a), (b), and (c) 
apply to taxable years beginning after December 31,1974. 
(2) The amendments made by subsections (d) through (h) 
except subsection (g) (5) and (6) shall take effect on January 1, 
1975. 
(3) The amendments made by subsection (g) (5) and (6) 
shall apply on and after the date of enactment of this Act with 
respect to contributions to an employees' trust described in section 
401(a) of the Internal Eevenue Code of 1954 which is exempt 
from tax under section 501(a) of such Code or an annuity plan 
described in section 403 (a) of such Code. 
SEC. 2003. PROHIBITED TRANSACTIONS. 
(a) EXCISE TAX ON PROHIBITED TRANSACTIONS.—Chapter 43 (relat-
ing to qualified pension, etc., plans) is amended by adding after section 
4974 the following new section: 
"SEC. 4975. TAX ON PROHIBITED TRANSACTIONS. 
26 use 4975. 
"(a) INITIAL TAXES ON DISQUALIFIED PERSON.—There is hereby 
imposed a tax on each prohibited transaction. The rate of tax shall be 
equal to 5 percent of the amount involved with respect to the prohib-
ited transaction for each year (or part thereof) in the taxable period. 
The tax imposed by this subsection shall be paid by any disqualified 
person who participates in the prohibited transaction (other than a 
fiduciary acting only as such). 
"(b) ADDITIONAL TAXES ON DISQUALIFIED PERSON.—In any case in 
which an initial tax is imposed by subsection (a) on a prohibited trans-
action and the transaction is not corrected within the correction period, 
there is hereby imposed a tax equal to 100 percent of the amount 
involved. The tax imposed by this subsection shall be paid by any dis-
qualified person who participated in the prohibited transaction 
(other than a fiduciary acting only as such). 
"(c) PROHIBITED TRANSACTION.— 
"(1) GENERAL RULE.—For purposes of this section, the term 
'prohibited transaction' means any direct or indirect— 
"(A) sale or exchange, or leasing, of any property between 
a plan and a disqualified person; 
" (B) lending of money or other extension of credit between 
a plan and a disqualified person; 
"(C) furnishing of goods, services, or facilities between 
a plan and a disqualified person; 
"(D) transfer to, or use by or for the benefit of, a disquali-
fied person of the income or assets of a plan; 
"(E) act by a disqualified person who is a 
fiduciary 
whereby he deals with the income or assets of a plan in his 
own interest or for his own account; or 
"(F) receipt of any consideration for his own personal 
account by any disqualified person who is a fiduciary from any 
party dealing with the plan in connection with a trans-
action involving the income or assets of the plan. 
"(2) SPECIAL EXEMPTION.—The Secretary or his delegate shall 
establish an exemption procedure for purposes of this subsection. 
Pursuant to such procedure, he may grant a conditional or uncon-
ditional exemption of any disqualified person or transaction, 
972 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
orders of disqualified persons or transaxjtions, from all or part of 
the restrictions imposed by paragraph (1) of this subsection. 
Action under this subj)aragraph may be taken only after con-
Exemption. 
sultatiou and coordination with the Secretary of Labor. The Sec-
retary or his delegate may not grant an exemption under this 
paragraph unless he finds that such exemption is— 
" (A) administratively feasible, 
"(B) in the interests of the plan and of its participants 
and beneficiaries, and 
"(C) protective of the rights of participants and bene-
ficiaries of the plan. 
ti<^°in''Fedemi'^^" 
Before granting an exemption under this paragraph, the Secre-
Regis'ter.^ ^^^ 
tary or his delegate shall require adequate notice to be given to 
interested persons and shall publish notice in the Federal Register 
of the pendency of such exemption and shall afford interested per-
sons an opportunity to present views. No exemption may be 
granted under this paragraph with respect to a transaction 
described in subparagraph (E) or (F) of paragraph (1) unless 
the Secretary or his delegate affords an opportunity for a hearing 
and makes a determination on the record with respect to the find-
ings required under subparagraphs (A), (B), and (C) of this 
paragraph, except that in lieu of such hearing the Secretary or 
his delegate may accept an^ record made b j the Secretary of Labor 
with respect to an application for exemption under section 408(a) 
of title I of the Employee Retirement Income Security Act of 
Ante, p. 883. 
1974. 
"(3) 
SPECIAL RULE FOR INDIVIDUAL RETIREMENT ACCOUNTS.—An 
individual for whose benefit an individual retirement account is 
established and his beneficiaries shall be exempt for the tax 
imposed by this section with respect to any transaction concerning 
such account (which would otherwise be taxable under this sec-
tion) if, with respect to such transaction, the account ceases to 
be an individual retirement account by reason of the application 
of section 408(e) (2) (A) or if section 408(e) (4) applies to such 
account. 
"(d) EXEMPTIONS.—The prohibitions provided in subsection (c) 
shall not apply to— 
" (1) any loan made by the plan to a disqualified person who is 
a participant or beneficiary of the plan if such loan— 
" (A) is available to all such participants or beneficiaries on 
a reasonably equivalent basis, 
"(B) is not made available to highly compensated employ-
ees, officers, or shareholders in an amount greater than the 
amount made available to other employees, 
"(C) is made in accordance with specific provisions regard-
ing such loans set forth in the plan, 
"(D) bears a reasonable rate of interest, and 
"(E) is adequately secured; 
"(2) any contract, or reasonable arrangement, made with a dis-
qualified person for office space, or legal, accounting, or other 
services necessary for the establishment or operation of the plan, 
if no more than reasonable compensation is paid therefor; 
"(3) any loan to an employee stock ownership plan (as defined 
in subsection (e) (7)),if— 
"(A) such loan is primarily for the benefit of participants 
and beneficiaries of the plan, and 
"(B) such loan is at a reasonable rate of interest, and any 
collateral which is given to a disqualified person by the plan 
consists only of qualifying employer securities (as defined in 
subsection (e) (8)); 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
973 
"(4) the investment of all or part of a plan's assets in deposits 
which bear a reasonable interest rate in a bank or similar financial 
institution supervised by the United States or a State, if such 
bank or other institution is a fiduciary of such plan and if— 
" (A) the plan covers only employees of such bank or other 
institution and employees of affiliates of such bank or other 
institution, or 
"(B) such investment is expressly authorized by a provi-
sion of the plan or by a fiduciary (other than such bank or 
institution or affiliates thereof) who is expressly empowered 
by the plan to so instruct the trustee with respect to such 
investment; 
"(5) any contract for life insurance, health insurance, or 
annuities with one or more insurers which are qualified to do 
business in a State if the plan pays no more than adequate con-
sideration, and if each such insurer or insurers is— 
" (A) the employer maintaining the plan, or 
"(B) a disqualified person which is wholly owned (directly 
or indirectly) by the employer establishing the plan, or by 
any person which is a disqualified person with respect to the 
plan, but only if the total premiums and annuity considera-
tions written by such insurers for life insurance, health insur-
ance, or annuities for all plans (and their employers) with 
respect to which such insurers are disqualified persons (not 
including premiums or annuity considerations written by the 
employer maintaining the plan) do not exceed 5 percent of 
the total premiums and annuity considerations written for all 
lines of insurance in that year by such insurers (not including 
premiums or annuity considerations written by the employer 
maintaining the plan); 
"(6) the provision of any ancillary service by a bank or similar 
financial institution supervised by the United States or a State, if 
such service is provided at not more than reasonable compensa-
tion, if such bank or other institution is a fiduciary of such plan, 
and if— 
" (A) such bank or similar financial institution has adopted 
adequate internal safeguards which assure that the provision 
of such ancillary service is consistent with sound banking and 
financial practice, as determined by Federal or State super-
visory authority, and 
"(B) the extent to which such ancillary service is provided 
is subject to specific guidelines issued by such bank or similar 
financial institution (as determined by the Secretary or his 
delegate after consultation with Federal and State super-
visory authority), and under such guidelines the bank or 
similar financial institution does not provide such ancillary 
service— 
" (i) in an excessive or unreasonable manner, and 
"(ii) in a manner that would be inconsistent with the 
best interests of participants and beneficiaries of em-
ployee benefit plans; 
"(7) the exercise of a privilege to convert securities, to the ex-
tent provided in regulations of the Secretary or his delegate, but 
only if the plan receives no less than adequate consideration pursu-
ant to such conversion; 
" (8) any transaction between a plan and a common or collective 
trust fund or pooled investment fund maintained by a disqualified 
person which is a bank or trust company supervised by a State or 
974 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
Federal agency or between a plan and a pooled investment fund 
of an insurance company qualified to do business in a State if— 
"(A) the transaction is a sale or purchase of an interest in 
the fund, 
"(B) the bank, trust company, or insurance company 
receives not more than reasonable compensation, and 
"(C) such transaction is expressly permitted by the instru-
ment under which the plan is maintained, or by a fiduciary 
(other than the bank, trust company, or insurance company, 
or an affiliate thereof) who has authority to manage and 
control the assets of the plan; 
" (9) receipt by a disqualified person of any benefit to which he 
may be entitled as a participant or beneficiary in the plan, so long 
as the benefit is computed and paid on a basis which is consistent 
with the terms of the plan as applied to all other participants and 
beneficiaries; 
"(10) receipt by a disqualified person of any reasonable com-
pensation for services rendered, or for the reimbursement of ex-
penses properly and actually incurred, in the performance of his 
duties with the plan, but no person so serving who already receives 
full-time pay from an employer or an association of employers, 
whose employees are participants in the plan or from an employee 
organization whose members are participants in such plan shall 
receive compensation from such fund, except for reimbursement 
of expenses properly and actually incurred; 
" (11) service by a disqualified person as a fiduciary in addition 
to being an officer, employee, agent, or other representative of a 
disqualified person; 
"(12) the making by a fiduciary of a distribution of the assets 
of the trust in accordance with the terms of the plan if such 
assets are distributed in the same manner as provided under sec-
tion 4044 of title IV of the Employee Retirement Income Security 
Post, p. 1025. 
Act of 1974 (relating to allocation of assets); or 
26 use 406. 
"(13) any transaction which is exempt from section 406 of such 
Ante, p. 959. 
^^^ j^y yg^son of scctlou 408(e) of such Act (or which would 
be so exempt if such section 406 applied to such transaction). 
The exemptions provided by this subsection (other than paragraphs 
(9) and (12) shall not apply to any transaction with respect to a 
trust described in section 401(a) which is part of a plan providing 
contributions or benefits for employees some or all of whom are owner-
employees (as defined in section 401(c) (3)) in which a plan directly 
or indirectly lends any part of the corpus or income of the plan to, 
pays any compensation for personal services rendered to the plan to, or 
acquires for the plan any property from or sells any property to, any 
such owner-employee, a member of the family (as defined in section 
267(c) (4)) of any such owner-employee, or a corporation controlled 
by any such owner-employee through the ownership, directly or 
indirectly, of 50 percent or more of the total combined voting power 
of all classes of stock entitled to vote or 50 percent or more of the total 
value of shares of all classes of stock of the corporation. For purposes 
of the preceding sentence, a shareholder-employee (as defined in sec-
tion 1379), a participant or beneficiary of an individual retirement 
account, individual retirement annuity, on an individual retirement 
bond (as defined in section 408 or 409), and an employer or association 
of employees which establishes such an account or annuity under sec-
tion 408(c) shall be deemed to be an owner-employee. 
"(e) DEFINITIONS.— 
" (1) PLAN.—For purposes of this section, the term 'plan' means 
a trust described in section 401(a) which forms a part of a plan. 
26 use 267. 
26 use 1379. 
Ante, p, 964. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
975 
or a plan described in section 403(a) or 405(a), which trust or ^6"usc'/o^5!' 
plan is exempt from tax under section 501 (a), an individual retire-
ment account described in section 408(a) or an individual retire- 
^"*^> p- ^59. 
ment annuity described in section 408(b) or a retirement bond 
described in section 409 (or a trust, plan, accoimt, annuity, or bond 
which, at any time, has been determined by the Secretary or his 
delegate to be such a trust, plan, account, or bond). 
"(^) DISQUALIFIED PERSON.—For purposes of this section, the 
term 'disqualified person' means a person who is— 
"(A) a fiduciary; 
"(B) a person providing services to the plan; 
"(C) an employer any of whose employees are covered by 
the plan; 
"(D) an employee organization any of whose members are 
covered by the 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 unincorpo-
rated enterprise, 
which is an employer or an employee organization described 
in subparagraph (C) or (D) ; 
"(F) a member of the family (as defined in paragraph 
(6)) of any individual described in subparagraph (A), (B), 
(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 officer, director (or an individual having powers 
or responsibilities similar to those of officers or directors), 
a 10 percent or more shareholder, or a highly compensated 
employee (earning 10 percent or more of the yearly wages of 
an employer) of a person described in subparagraph (C), 
( D ) , ( E ) , o / ( G ) ; o r 
"(I) a 10 percent or more (in capital or profits) partner 
or ioint venturer of a person described in subparagraph (C), 
( D ) , ( E ) , o r ( G ) . 
The Secretary, after consultation and coordination with the Sec-
retary of Labor or his delegate, may by regulation prescribe a 
percentage lower than 50 percent for subparagraphs (E) and (G) 
and lower than 10 percent for subparagraphs (H) and (I). 
" (3) FIDUCIARY.—For purposes of this section, the term 'fiduci-
ary' means any person who— 
"(A) exercises any discretionary authority or discretion-
ary control respecting management of such plan or exercises 
any authority or control respecting management or disposi-
tion of its assets. 
976 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(B) renders investment advice for a fee or other compen-
sation, direct or indirect, with respect to any moneys or other 
property of such plan, or has any authority or responsibility 
to do so, or 
"(C) 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) of the Employee Retirement Income Security Act of 
Ante, p. 878. 
1974 
^ 
^ 
"^ 
"^ 
" (4) STOCKHOLDINGS.—For purposes of paragraphs (2) (E) (i) 
and (G) (i) there shall be taken into account indirect stockhold-
26 use 267. 
-j^gg -^i^i(.}j would bc takcu into account under section 267(c), 
except that, for purposes of this paragraph, section 267(c)(4) 
shall be treated as providing that the members of the family of an 
individual are the members within the meaning of paragraph (6). 
"(5) PARTNERSHIPS; TRUSTS.—For purposes of paragraphs (2) 
(E) (ii) and (iii), (G) (ii) and (iii), and (I) the ownership of 
profits or beneficial interests shall be determined in accordance 
with the rules for constructive ownership of stock provided in 
section 267(c) (other than paragraph (3) thereof), except that 
section 267(c) (4) shall be treated as providing that the members 
of the family of an individual are the members within the mean-
ing of paragraph (6). 
"(6) MEMBER OF FAMILY.—For purposes of paragraph (2) ( F ) , 
the family of any individual shall include his spouse, ancestor, 
lineal descendant, and any spouse of a lineal descendant. 
"(7) EMPLOYEE STOCK OWNERSHIP PLAN.—The term 'employee 
stock ownership plan' means a defined contribution plan— 
"(A) which is a stock bonus plan which is qualified, or 
a stock bonus and a money purchase plan both of which are 
Ante, p. 953. 
qualified under section 401 (a), and which are designed to 
invest primarily in qualifying employer securities; and 
"(B) which is otherwise defined in regulations prescribed 
by the Secretary or his delegate. 
"(8) QUALIFYING EMPLOYER SECURITY.—The term 'qualifying 
employer security' means an employer security which is— 
" (A) stock or otherwise an equity security, or 
"(B) a bond, debenture, note, or certificate or other evi-
dence of indebtedness which is described in paragraphs (1), 
(2), and (3) of section 503(e). 
If any moneys or other property of a plan are invested in shares 
of an investment company registered under the Investment Com-
pany Act of 1940, the investment shall not cause that investment 
company or that investment company's investment adviser or 
principal underwriter to be treated as a fiduciary or a disqualified 
person for purposes of this section, except when an investment 
company or its investment adviser or principal underwriter acts 
in connection with a plan covering employees of the investment 
company, its investment adviser, or its principal underwriter. 
"(f) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of 
this section— 
"(1) JOINT AND SEVERAL LIABILITY.—If more than one person 
is liable under subsection (a) or (b) with respect to any one 
prohibited transaction, all such persons shall be jointly and 
severally liable under such subsection with respect to such 
transaction. 
"(2) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to any prohibited transaction, the period beginning with 
26 use 503. 
15 use 80a-51, 
26 u s e 6212. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
977 
the date on which the prohibited transaction occurs and ending 
on the earlier of— 
" (A) the date of mailing of a notice of deficiency pursuant 
to section 6212, with respect to the tax imposed by subsec-
tion (a), or 
"(B) the date on which correction of the prohibited trans-
action is completed. 
"(3) SALE OR EXCHANGE; ENCUMBERED PROPERTY.—A transfer 
of real or personal property by a disqualified person to a plan 
shall be treated as a sale or exchange if the property is subject 
to a mortgage or similar lien which the plan assumes or if it is 
subject to a mortgage or similar lien which a disqualified person 
placed on the property within the 10-year period ending on the 
date of the transfer. 
"(4) AMOUNT INVOLVED.—The term 'amount involved' means, 
with respect to a prohibited transaction, the greater of the amount 
of money and the fair market value of the other property given 
or the amount of money and the fair market value of the other 
property received; except that, in the case of services described 
in paragraphs (2) and (10) of subsection (d) the amount involved 
shall be only the excess compensation. For purposes of the preced-
ing sentence, the fair market value— 
^^ir market 
"(A) in the case of the tax imposed by subsection (a), "^ "^* 
shall be determined as of the date on which the prohibited 
transaction occurs; and 
"(B) in the case of the tax imposed by subsection (b), shall 
be the highest fair market value during the correction period. 
"(5) CORRECTION.—The terms 'correction' and 'correct' mean, 
with respect to a prohibited transaction, undoing the transaction 
to the extent possible, but in any case placing the plan in a finan-
cial position not worse than that in which it would be if the dis-
qualified person were acting under the highest fiduciary standards. 
"(6) CORRECTION PERIOD.—The term 'correction period' means, 
with respect to a prohibited transaction, the period beginning 
with the date on which the prohibited transaction occurs and end-
ing 90 days after the date of mailing of a notice of deficiency with 
respect to the tax imposed by subsection (b) under section 6212, 
extended by— 
"(A) any period in which a deficiency cannot be assessed 
under section 6213 (a), and 
"(B) any other period which the Secretary or his delegate 
determines is reasonable and necessary to bring about the 
correction of the prohibited transaction. 
" (g) APPLICATION OF SECTION.—This section shall not apply— 
"(1) in the case of a plan to which a guaranteed benefit policy 
(as defined in section 401(b) (2) (B) of the Employee Retirement 
Income Security Act of 1974) is issued, to any assets of the insur- 
^"^^' P- ^74. 
ance company, insurance service, or insurance organization merely 
because of its issuance of such policy; 
"(2) to a governmental plan (within the meaning of section 
414(d)); or 
Ante, p. 925. 
"(3) to a church plan (within the meaning of section 414(e)) 
with respect to which the election provided by section 410(d) has 
^"'^' P- ^^^• 
not been made. 
In the case of a plan which invests in any security issued by an invest-
ment company registered under the Investment Company Act of 1940, 
^ ^ "
^
^
"
^ soa-si 
the assets of such plan shall be deemed to include such security but 
shall not, by reason of such investment, be deemed to include any assets 
of such company. 
978 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(h) NOTIFICATION OF SECRETARY OF LABOR.—Before sending a 
notice of deficiency with respect to the tax imposed by subsection (a) 
or (b), the Secretary or his delegate shall notify the Secretary of 
Labor and provide him a reasonable opportunity to obtain a correc-
tion of the prohibited transaction or to comment on the imposition of 
such tax. 
"(i) CROSS KEFERENCE.— 
"For provisions concerning coordination procedures between Sec-
retary of Labor and Secretary of Treasury with respect to application 
of tax imposed by this section and for authority to waive imposition 
of the tax imposed by subsection (b), see section 3003 of the Employee 
Retirement Income Security Act of 1974.". 
26 use 503. 
26 use 4975 
note. 
26 use 501, 
(b) AMENDMENT OF SECTION 503.—Section 503 (relating to require-
ments for exemption) is amended— 
(1) by striking out "or (18)" in subsection (a) (1) (A), 
(2) by amending subsection (a)(1)(B) by inserting "which 
is referred to in section 4975(g) (2) or (3)" after "described in 
section 401 (a)", 
(3) by striking out "or section 401" in subsection (a) (2) and 
inserting in lieu thereof "or paragraph (1) (B)", 
(4) by striking out "or section 401" in subsection (c) and insert-
ing in lieu thereof "or subsection (a) (1) (B)", and 
(5) by striking out subsection (g). 
(c) EFFECTIVE DATE AND SAVINGS PROVISIONS.— 
(1) (A) The amendments made by this section shall take effect 
on January 1,1975. 
(B) If, before the amendments made by this section take effect, 
an organization described in section 401(a) of the Internal Reve-
Anfe, p. 935. 
nuc Codc of 1954 is denied exemption under section 501(a) of 
such Code by reason of section 503 of such Code, the denial of 
such exemption shall not apply if the disqualified person elects 
(in such manner and at such time as the Secretary or his dele-
gate shall by regulations prescribe) to pay, with respect to the 
prohibited transaction (within the meaning of section 503 (b) or 
(g)) which resulted in such denial of exemption, a tax in the 
amount and in the manner provided with respect to the tax 
imposed under section 4975 of such Code. An election made under 
Regulations. 
^j^jg Subparagraph, once made, shall be irrevocable. The Secretary 
of the Treasury or his delegate shall prescribe such regulations as 
may be necessary to carry out the purposes of this subparagraph. 
(2) Section 4975 of the Internal Revenue Code of 1954 (relat-
ing to tax on prohibited transactions) shall not apply to— 
(A) a loan of money or other extension of credit between 
a plan and a disqualified person under a binding contract in 
effect on July 1, 1974 (or pursuant to renewals of such a con-
tract), until June 30, 1984, if such loan or other extension of 
credit remains at least as favorable to the plan as an arm's-
length transaction with an unrelated party would be, and if 
the execution of the contract, the making of the loan, or the 
extension of credit was not, at the time of such execution, 
making, or extension, a prohibited transaction (within the 
meaning of section 503(b) of such Code or the corresponding 
provisions of prior law); 
(B) a lease or joint use of property involving the plan and 
a disqualified person pursuant to a binding contract in effect 
on July 1,1974 (or pursuant to renewals of such a contract), 
until June 30, 1984, if such lease or joint use remains at least 
as favorable to the plan as an arm's-length transaction with 
an unrelated party would be and if the execution of the con-
tract was not, at the time of such execution, a prohibited 
Ante, p. 971. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
979 
transaction (within the meaning of section 503(b) of such 
Code) or the corresponding provisions of prior law; 
^^ ^^^ ^°3. 
(C) the sale, exchange, or other disposition of property 
described in subparagraph (B) between a plan and a disquali-
fied person before June 30,1984, if— 
(i) in the case of a sale, exchange, or other disposition 
of the property by the plan to the disqualified person, the 
plan receives an amount which is not less than the fair 
market value of the property at the time of such dis-
position ; and 
(ii) in the case of the acquisition of the property by 
the plan, the plan pays an amount which is not in excess 
of the fair market value of the property at the time of 
such acquisition; 
(D) Until June 30,1977, the provision of services to which 
subparagraphs (A), (B), and (C) do not apply between a 
plan and a disqualified person (i) under a binding contract in 
effect on July 1, 1974 (or pursuant to renewals of such con-
tract), or (ii) if the disqualified person ordinarily and cus-
tomarily furnished such services on June 30, 1974, if such 
provision of services remains at least as favorable to the plan 
as an arm's-length transaction with an unrelated party would 
be and if the provision of services was not, at the time of 
such provision, a prohibited transaction (within the meaning 
of section 503(b) of such Code) or the corresponding provi-
sions of prior law; or 
(E) the sale, exchange, or other disposition of property 
which is owned by a plan on June 30, 1974, and all times 
thereafter, to a disqualified person, if such plan is required to 
dispose of such property in order to comply with the provi-
sions of section 407(a) (2) (A) (relating to the prohibition 
against holding excess employer securities and employer real 
property) of the Employee Retirement Income Security Act 
of 1974, and if the plan receives not less than adequate 
^"'e, p. sso. 
consideration. 
For the purposes of this paragraph, the term "disqualified per-
son" has the meaning provided by section 4975 (e) (2) of the Inter-
nal Revenue Code of 1954. 
^nte, p. 971. 
SEC. 2004. LIMITATIONS ON BENEFITS AND CONTRIBUTIONS. 
(a) PLAN REQUIREMENTS.— 
(1) Section 401(a) (relating to requirements for qualification) 
is amended by inserting after paragraph (15) the following new 
^"^^> P- 938. 
paragraph: 
"(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." 
infra. 
(2) Subpart B of part I of subchapter D of chapter 1 is 
amended by inserting after section 414 the following new section: 
"SEC. 415. LIMITATIONS ON BENEFITS AND CONTRIBUTION UNDER 
2 6 use 415. 
QUALIFIED PLANS. 
"(a) GENERALRuiiE.— 
"(1) TRUSTS.—A trust which is a part of a pension, profit-
sharing, or stock bonus plan shall not constitute a qualified trust 
under section 401 (a) if— 
^"'^' P- ^^S. 
" (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), 
"(B) in the case of a defined contribution plan, contribu-
tions and other additions under the plan with respect to any 
Ante, p. 969. 
26 u s e 403. 
Ante, p. 959. 
26 u s e 405. 
980 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
participant for any taxable year exceed the limitation of sub-
section (c), or 
"(C) in any case in which an individual is a participant in 
both a defined benefit plan and a defined contribution plan 
maintained by the employer, the trust has been disqualified 
under subsection (g). 
"(2) SECTION APPLIES TO CERTAIN ANNUITIES AND ACCOUNTS.— 
in the case of— 
"(A) an employee annuity plan described in section 403 
"(B) an annuity contract described in section 403(b), 
"(C) an individual retirement account described in section 
408(a), 
"(D) an individual retirement annuity described in sec-
tion 408(b), 
"(E) a plan described in section 405 (a), or 
^"'^•p-^^^- 
" ( F ) a retirement bond described in section 409, 
such contract, annuity plan, account, annuity, plan, or bond shall 
not be considered to be described in section 403 (a), 403 (b), 405 (a), 
Ante. p. 959. 
408(a), 408(b), or 409, as the case may be, unless it satisfies the 
requirements of subparagraph (A) or subparagraph (B) of para-
graph (1), whichever is appropriate, and has not been disqualified 
under subsection (g). In the case of an annuit}" contract described 
in section 403(b), the preceding 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, and the amount of the contribution for such portion 
shall reduce the exclusion allowance as provided in section 403 
(b)(2). 
"(b) LIMITATION FOR DEFINED BENEFIT PLANS.— 
" (1) I N 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 bene-
fit is greater than the lesser of— 
"(A) $75,000,or 
"(B) 100 percent of the participant's average compensa-
tion for his high 3 years. 
"(2) ANNUAL BENEFIT.— 
"(A) I N 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 
(a) (5), 403(a) (4), 408(d) (3), and 409(b) (3) (C) are made. 
"(B) ADJUSTIMENT FOR CERTAIN OTHER FORMS or BENEFIT.— 
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 contribu-
tions (as defined in sections402(a) (5),403(a) (4),408(d) (3) 
and 409 (b)(3)(C)), 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 or his delegate, 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 
Ante, pp. 968, 
969. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
981 
survivor annuity (as defined in section 401(a) (11) (H) (iii)) 
^"'^' P* ^^S. 
shall not be taken into account. 
"(C) 
ADJUSTMENT 
TO $75,000 
LIMIT 
WHERE 
BENEFIT 
BEGINS BEFORE A
G
E 5 5.—If the retirement income benefit under 
the plan begins before age 55, the determination as to 
whether the $75,000 limitation set forth in paragraph (1) (A) 
has been satisfied shall be made, in accordance with 
regulations prescribed by the Secretary or his delegate, by 
adjusting such benefit so that it is equivalent to such a 
benefit beginning at age 55. 
"(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 both was an active participant in the plan 
and 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 
26 use 4oi. 
for 'compensation from the employer' the following: 'the partic-
ipant's earned income (within the meaning of section 401(c) (2) 
but determined without regard to any exclusion under section 
911)'. 
26 use 911. 
"(4) 
TOTAL ANNUAL BENEFITS NOT IN EXCESS OF $IO,OOO.—Not-
withstanding 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 SERVICE LESS THAN lo YEARS.—In 
the 
case of an employee who has less than 10 years of service with the 
employer, the limitation referred to in paragraph (1), and the 
limitation referred to in paragraph (4), shall be the limitation 
determined under such paragraph 
(without regard to this 
paragraph), multiplied by a fraction, the numerator of which 
is the number of years (or part thereof) of service with the 
employer and the denominator of which is 10. 
' (6) 
COMPUTATION 
OF BENEFITS 
AND 
CONTRIBUTIONS.—The 
computation of— 
"(A) benefits under a defined contribution plan, for pur-
poses of section 401 (a) (4), 
^"^^' p- ^38. 
"(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 
Ante, p. 925. 
section 
shall not be made on a basis inconsistent with regulations pre-
scribed by the Secretary or his delegate. 
"(c) 
LIMITATION FOR DEFINED CONTRIBUTION PLANS.— 
"(1) I N 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 
38-194 O - 76 - 65 Pt. 1 
982 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(paragraph (2)) to the participant's account, such annual addition 
is greater than the lesser of— 
"(A) $25,000, or 
"(B) 25 percent of the participant's compensation. 
"(2) ANNUAL ADDITION.—For purposes of paragraph (1), the 
term 'annual addition' means the sum for any year of— 
"(A) employer contributions, 
"(B) the lesser of— 
"(i) the amount of the employee contributions in 
excess of 6 percent of his compensation, or 
"(ii) one-half of the employee contributions, and 
"(C) forfeitures. 
For the purposes of this paragraph, employee contributions under 
subparagraph (B) are determined without regard to any rollover 
„.^"'^'PP-^/^' 
contributions (as defined in sections 402fa) (5), 403(a) (4), 
' 
' 
408(d) (3), and 409(b)(3)(C)). 
"(3) PARTICIPANT'S COMPENSATION.—For purposes of para-
graph (1), the term 'participant's compensation' means the com-
pensation of the participant from the employer for the year. In 
26 use 401. 
^YiQ case of an employee within the meaning of section 401(c) (1), 
the preceding sentence shall be applied by substituting for 'com-
pensation of the participant 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 ) 
S P E C I A L 
E L E C T I O N 
FOR S E C T I O N 
4 0 3 ( b ) 
CONTRACTS 
P U R -
CHASED BY EDUCATIONAL 
INSTITUTIONS, HOSPITALS, AND HOME 
HEALTH SERVICE AGENCIES.— 
"(A) In the case of amounts contributed for an annuity 
26 use 403. 
contract described in section 403(b) for the year in which 
occurs a participant's separation from the service with an 
educational institution, a hospital, or a home health service 
agency, at the election of the participant there is substituted 
for the amount specified in paragraph (1) (B) the amount of 
the exclusion allowance which would be determined under 
Post, p. 986. 
section 403(b)(2) (without regard to this section) for the 
participant's taxable year in which such separation occurs if 
the participant's years of service were computed only by tak-
ing into account his service for the employer during the 
period of years (not exceeding ten) ending on the date of 
such separation. 
"(B) In the case of amounts contributed for an annuity 
contract described in section 403(b) for any year in the case 
of a participant who is an employee of an educational insti-
tution, a hospital, or a home health service agency, at the 
election of the participant there is substituted for the amount 
specified in paragraph (1) (B) the least of— 
"(i) 25 percent of the participant's includible com-
pensation (as defined in section 403(b) (3)) plus $4,000, 
"(ii) the amount of the exclusion allowance deter-
mined for the year under section 403 (b) (2), or 
"(iii) $15,000. 
"(C) In the case of amounts contributed for an annuity 
contract described in section 403(b) for any year for a par-
ticipant who is an employee of an educational institution, a 
hospital, or a home health service agency, at the election of 
the participant the provisions of section 403(b) (2) (A) shall 
not apply. 
'Educational 
institution." 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
983 
"(D) (i) The provisions of this paragraph apply only if 
the participant elects its application at the time and in the 
manner provided under regulations prescribed by the Sec-
retary or his delegate. Not more than one election may be 
made under subparagraph (A) by any participant, A partici-
pant who elects to have the provisions of subparagraph (A), 
(B), or (C) of this paragraph apply to him may not elect 
to have any other subparagraph of this paragraph apply to 
him. Any election made under this paragraph is irrevocable. 
" (ii) For purposes of this paragraph the term 'educational 
institution' means an educational institution as defined in sec-
tion 151(e) (4). 
26 use 151. 
"(iii) For purposes of this paragraph the term 'home 
"Home health 
health service agency' means an organization described in ^^'"''^''^ agency.' 
subsection 501(c) (3) which is exempt from tax under section 
26 use soi. 
501(a) and which has been determined by the Secretary of 
Health, Education, and Welfare to be a home health agency 
(as defined in section 1861 (o) of the Social Security Act). "^^ ^^^ isgsx. 
" ( d ) CosT-OF-LiviNG 
ADJUSTMENTS.— 
"(1) I N GENERAL.—The Secretary or his delegate shall adjust 
annually— 
" (A) the $75,000 amount in subsection (b) (1) (A), 
"(B) the $25,000 amount in subsection (c)(1)(A), and 
"(C) in the case of a participant who is separated from 
service, the amount taken into account under subsection (b) 
for increases m the cost of living in accordance with regulations 
prescribed by the Secretary or his delegate. Such regulations shall 
provide for adjustment procedures which are similar to the pro-
cedures used to adjust primary insurance amounts under section 
215 (i) (2) (A) of the Social Security Act. 
42 use 4i5. 
"(2) BASE PERIODS.—The base period taken into account— 
"(A) for purposes of subparagraphs (A) and (B) of para-
graph (1) is the calendar quarter beginning October 1, 1974, 
and 
"(B) for purposes of subparagraph (C) of paragraph (1) 
is the last calendar quarter of the calendar year before the 
calendar year in which the participant is separated from 
service. 
"(e) LIMITATION IN CASE OF DEFINED BENEFIT PLAN AND DEFINED 
CONTRIBUTION PLAN FOR SAME EMPLOYEE.— 
"(1) I N GENERAL.—In any case in which an individual is a 
participant in both a defined benefit plan and a defined contribu-
tion plan maintained by the same employer, the sum of the defined 
benefit plan fraction and the defined contribution plan fraction 
for any year may not exceed 1.4. 
"(2) DEFINED BENEFIT PLAN FRACTION.—For purposes of this 
subsection, the defined benefit plan fraction for any year is a 
fraction— 
" (A) the numerator of which is the projected annual bene-
fit of the participant under the plan (determined as of the 
close of the year), and 
"(B) the denominator of which is the projected annual 
benefit of the participant under the plan (determined as of 
the close of the year) if the plan provided the maximum bene-
fit allowable under subsection (b). 
"(3) DEFINED CONTRIBUTION PLAN FRACTION.—For purposes 
of this subsection, the defined contribution plan fraction for any 
year is a fraction— 
984 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
" (A) the numerator of which is the sum of the annual addi-
tions to the participant's account as of the close of the year, 
and 
"(B) the denominator of which is the sum of the maximum 
amount of annual additions to such account which could have 
been made under subsection (c) for such year and for each 
prior year of service with the employer. 
"(4) 
SPECIAL TRANSITION RULES FOR DEFINED CONTRIBUTION 
FRACTION.—In applying paragraph (3) with respect to years 
beginning before January 1,1976— 
" (A) the aggregate amount taken into account under para-
graph (3) (A) may not exceed the aggregate amount taken 
into account under paragraph (3) (B), and 
"(B) the amount taken into account under subsection (c) 
(2)(B)(i) for any year concerned is an amount equal to— 
"(i) the excess of the aggregate amount of employee 
contributions for all years beginning before January 1, 
1976, during which the employee was an active partici-
pant of the plan, over 10 percent of the employee's aggre-
gate compensation for all such years, multiplied by 
"(ii) a fraction the numerator of which is 1 and the 
denominator of which is the number of years beginning 
before January 1, 1976, during which the employee was 
an active participant in the plan. 
Employee contributions made on or after October 2, 1973, shall 
be taken into account under subparagraph (B) of the preceding 
sentence only to the extent that the amount of such contributions 
does not exceed the maximum amount of contributions permissible 
under the plan as in effect on October 2,1973. 
Tnti^'^ '^gs^g 
" (^) SPECIAL RULES FOR SECTIONS 403 (b) and 408.—For purposes 
of this subsection, any annuity contract described in section 403 
(b) (except in the case of a participant who has elected under 
subsection (c)(4)(D) to have the provisions of subsection (c) 
(4) (C) apply), any individual retirement account described in 
section 408(a), any individual retirement annuity described in 
section 408(b), and any retirement bond described in section 409, 
for the benefit of a participant shall be treated as a defined con-
tribution 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)). In the case of 
any annuity contract described in section 403(b), the amount of 
the contribution disqualified by reason of subsection (g) shall 
reduce the exclusion allowance as provided in section 403(b) (2). 
"(f) 
COMBINING OF PLANS.— 
" (1) I N GENERAL.—For purposes of applying the limitations of 
subsections (b), (c),and (e) — 
" (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 termi-
nated) of an employer are to be treated as one defined con-
tribution plan. 
"(2) 
ANNUAL COMPENSATION TAKEN INTO ACCOUNT FOR DEFINED 
BENEFIT PLANS.—If the employer has more th^n one defined benefit 
plan— 
"(A) subsection (b)(1)(B) shall be applied separately 
with respect to each such plan, but 
Ante, p. 925. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
985 
"(B) ill applying subsection (b) (1) (B) to the aggregate 
of such defined benefit plans for purposes of this subsection, 
the high 3 years of compensation taken into account shall be 
the period of consecutive calendar years (not more than 3) 
during which the individual had the greatest aggregate com-
pensation from the employer. 
"(g) AGGREGATION or PLANS,—The Secretary or his delegate, 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), vi^ith respect to which the participant has the control required 
under section 414 (b) or (c), as modified by subsection (h), shall, under 
Ante, p. 925. 
regulations prescribed by the Secretary or his delegate, disqualify 
one or more trusts, plans, contracts, accounts, or bonds, or any com-
bination 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 
subsections (e) and (f), the regulations prescribed under this para-
graph 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). 
26 use isea. 
"(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 or his delegate may by regula-
tions prescribe alternative methods lor determining the amounts to 
be taken into account for such period. 
"(j) 
REGULATIONS; DEFINITION OF YEAR.—The Secretary or 
his 
delegate shall prescribe such regulations as may be necessary to carry 
out the purposes of this section, including, but not limited to, regu-
lations 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 benefit plan (within 
the meaning of section 414(j)), whichever applies, which is— 
"(A) a plan described in section 401(a) which includes a 
26 use 401. 
trust which is exempt from tax under section 501 (a), 
26 use 501. 
"(B) an annuity plan described in section 403(a), 
2 6 use 403. 
"(C) a qualified bond purchase plan described in section 
405(a), 
26 use 405. 
"(D) an annuity a contract described in section 403(b), 
"(E) an individual retirement account described in sec-
tion 408 (a), 
Ante. p. 959. 
"(F) an individual retirement annuity described in section 
408(b), or 
"(G) an individual retirement bond described in section 
409.". 
Ante, p. 964. 
(3) 
SPECIAL RULE FOR CERTAIN PLANS I N EFFECT ON DATE OF 
26 use 415 
ENACTMENT.—In any case in which, on the date of enactment of "°*^* 
this Act, an individual is a participant in both a defined benefit 
26 use 401. 
986 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
plan and a defined contribution plan maintained by the same 
employer, and the sum of the defined benefit plan fraction and 
the defined contribution plan fraction for the year during which 
such date occurs exceeds 1.4, the sum of such fractions may con-
tinue to exceed 1.4 if— 
(A) the defined benefit plan fraction is not increased, by 
amendment of the plan or otherwise, after the date of enact-
ment of this Act, and 
(B) no contributions are made under the defined contribu-
tion plan after such date. 
A trust which is part of a pension, profit-sharing, or stock bonus 
plan described in the preceding sentence shall not be treated as 
not constituting a qualified trust under section 401(a) of the 
Internal Revenue Code of 1954 on account of the provisions of sec-
Ante, p. 979. 
tiou 415 (e) of sucli Code, as long as it is described in the preceding 
sentence of this subsection. 
(b) LIMIT ON EMPLOYER DEDUCTIONS.—The second sentence of sec-
26 use 404. 
^[Q^ 404(a)(3)(A) (relating to limits on deductible contributions) 
is amended by striking out "beneficiaries under the plan.'^ and insert-
ing in lieu thereof "beneficiaries under the plan, but the amount so 
deductible under this sentence in any one succeeding taxable year 
together with the amount so deductible under the first sentence of this 
subparagraph shall not exceed 25 percent of the compensation other-
wise paid or accrued during such taxable year to the beneficiaries 
under the plan.". 
(c) 
CERTAIN ANNUITY AND BOND PURCHASE PLANS.— 
(1) Section 404(a) (2) (relating to the general rule for deduc-
tion for employee annuities) is amended by striking out "(15)" 
and inserting in lieu thereof "(15), (16), and (19)" and by strik-
ing out "(a) (9) and (10)" and inserting in lieu thereof "(a) (9), 
(10), (17),and (18)". 
(2) Section 405(a) (1) (relating to requirements for qualified 
bond purchase plans) is amended by striking out "and (8)," and 
inserting in lieu thereof "(8), (16), and (19)". 
(3) Section 805(d) (1) (C) (relating to pension plan reserves) 
is amended by striking out "and (15)" and inserting in lieu 
thereof "(15), (16), and (19)". 
(4) Section 403(b)(2) (relating to exclusion allowance) is 
amended to read as follows: 
"(2) 
EXCLUSION ALLOWANCE.— 
"(A) I N GENERAL.—For purposes of this subsection, the 
exclusion allowance for any employee for the taxable year is 
an amount equal to the excess, if any, of— 
" (i) the amount determined by multiplying 20 percent 
of his includible compensation by the number of years of 
service, over 
" (ii) the aggregate of the amoimts contributed by the 
employer for annuity contracts and excludible from the 
gross income of the employee for any prior taxable year. 
"(B) 
ELECTION TO HAVE ALLOWANCE DETERMINED UNDER 
SECTION 415 RULES.—In the case of an employee who makes an 
election under section 415 (c) (4) (D) to have the provisions of 
section 415(c)(4)(C) (relating to special rule for section 
403(b) contracts purchased by educational institutions, hos-
pitals, and home health service agencies) apply, the exclusion 
allowance for any such employee for the taxable year is the 
amount which could be contributed (under section 415) by 
his employer under a plan described in section 403(a) if the 
26 use 805. 
26 use 403. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
98^ 
annuity contract for the benefit of such employee were treated 
as a defined contribution plan maintained by the employer.", 
(d) EFFECTIVE DATE.— 
no'te."^"" "'' 
(1) GENERAL RULE.—The amendments made by this section shall 
apply to years beginning after December 31, 1975. The Secretary 
of the Treasury shall prescribe such regulations as may be neces-
sary to carry out the provisions of this paragraph. 
(2) 
TRANSITION RULE FOR DEFINED BENEFIT PLANS.—In the 
case of an individual who was an active participant in a defined 
benefit plan before October 3,1973, if— 
(A) the annual benefit (within the meaning of section 
415(b)(2) of the Internal Revenue Code of 1954) payable 
Ante. ^.919. 
to such participant on retirement does not exceed 100 percent 
of his annual rate of compensation on the earlier of (i) Octo-
ber 2, 1973, or (ii) the date on which he separated from the 
service of the employer, 
(B) such annual benefit is no greater than the annual bene-
fit which would have been payable to such participant on 
retirement if (i) all the terms and conditions of such plan in 
existence on such date had remained in existence until such 
retirement, and (ii) his compensation taken into account for 
any period after October 2,1973, had not exceeded his annual 
rate of compensation on such date, and 
(C) in the case of a participant who separated from the 
service of the employer prior to October 2,1973, such annual 
benefit is no greater than his vested accrued benefit as of the 
date he separated from the service, 
then such annual benefit shall be treated as not exceeding the limi-
tation of subsection (b) of section 415 of the Internal Revenue 
Code of 1954. 
SEC. 2005. TAXATION OF CERTAIN LUMP SUM DISTRIBUTIONS. 
(a) TREATMENT OF TOTAL DISTRIBUTIONS.—Section 402(e) (relat- 
^^ ^^^ '^^'^• 
ing to certain plan terminations) is amended to read as follows: 
"'(e) TAX ON LUMP SUM DISTRIBUTIONS.— 
(1) IMPOSITION OF SEPARATE TAX ON LUMP SUM DISTRIBUTIONS.— 
"(A) SEPARATE TAX.—There is hereby imposed a tax (in 
the amount determined under subparagraph (B)) on the 
ordinary income portion of a lump sum distribution. 
"(B) AMOUNT OF TAX.—The amount of tax imposed by 
subparagraph (A) for any taxable year shall be an amount 
equal to the amount of the initial separate tax for such taxable 
year multiplied by a fraction, the numerator of which is the 
ordinary income portion of the lump sum distribution for the 
taxable year and the denominator of which is the total tax-
able amount of such distribution for such year. 
"(C) INITIAL SEPARATE TAX.—The initial separate tax for 
any taxable year is an amount equal to 10 times the tax which 
would be imposed by subsection (c) of section 1 if the recipi-
ent were an individual referred to in such subsection and the 
taxable income were an amount equal to one-tenth of the 
excess of— 
"(i) the total taxable amount of the lump sum distri-
bution for the taxable year, over 
" (ii) the minimum distribution allowance. 
988 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(D) MINIMUM DISTRIBUTION ALLOWANCE.—For purposes 
of this paragraph, the minimum distribution allowance for 
the taxable year is an amount equal to— 
"(i) the lesser of $10,000 or one-half of the total tax-
able amount of the lump sum distribution for the tax-
able year, reduced (but not below zero) by 
"(ii) 20 percent of the amount (if any) by which such 
total taxable amount exceeds $20,000. 
'' (E) LIABILITY FOR TAX,—The recipient shall be liable for 
the tax imposed by this paragraph. 
"(2) MULTIPLE DISTRIBUTIONS AND DISTRIBUTIONS or ANNUITY 
CONTRACTS.—In the case of any recipient of a lump sum distribu-
tion for the taxable year with respect to whom during the 6-tax-
able-year period ending on the last day of the taxable year there 
has been one or more other lump sum distributions after Decem-
ber 31, 1973, or if the distribution (or any part thereof) is an 
annuity contract, in computing the tax imposed by paragraph (1) 
(A), the total taxable amounts of all such distributions during 
such 6-taxable-year period shall be aggregated, but the amount of 
tax so computed shall be reduced (but not below zero) by the 
sum of— 
" (A) the amount of the tax imposed by paragraph (1) (A) 
paid with respect to such other distributions, plus 
"(B) that portion of the tax on the aggregated total tax-
able amounts which is attributable to annuity contracts. 
For purposes of this paragraph, a beneficiary of a trust to which 
a lump sum distribution is made shall be treated as the recipient 
of such distribution if the beneficiary is an employee (including 
26 use 401. 
^j^ employee within the meaning of section 401(c) (1)) with re-
spect to the plan under which the distribution is made or if the 
beneficiary is treated as the owner of such trust for purposes of 
26 use 671, 
subpart E of part I of subchapter J. In the case of the distribu-
tion of an annuity contract, the taxable amount of such distribu-
tion shall be deemed to be the current actuarial value of the con-
tract, determined on the date of such distribution. In the case of 
a lump sum distribution with respect to any individual which is 
made only to two or more trusts, the tax imposed by paragraph 
(1) (A) shall be computed as if such distribution was made to a 
single trust, but the liability for such tax shall be apportioned 
among such trusts according to the relative amounts received by 
Regulations. 
each. Thc Secretary or his delegate shall prescribe such regula-
tions as may be necessary to carry out the purposes of this 
paragraph. 
"(3) AxiLOWANCE or DEDUCTION,—The ordinary income portion 
of a lump sum distribution for the taxable year shall be allowed 
as a deduction from gross income for such taxable year, but only 
to the extent included in the taxpayer's gross income for such 
taxable year. 
" (4) DEFINITIONS AND SPECIAL RULES.— 
"(A) 
LUMP SUM DISTRIBUTION.—For purposes of this 
26 use 403. 
section and section 403, the term 'lump sum distribution' 
means the distribution or payment within one taxable year 
of the recipient of the balance to the credit of an employee 
which becomes payable to the recipient— 
" (i) on account of the employee's death, 
" (ii) after the employee attains age 591^, 
"(iii) on account of the employee's separation from 
the service, or 
26 
26 
501. 
26 
use 
use 
use 
7 2 . 
401, 
403. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
989 
"(iv) after the employee has become disabled (within 
the meaning of section 72 (m) (7)) 
from a trust which forms a part of a plan described in sec-
tion 401(a) and which is exempt from tax under section 501 
or from a plan described in section 403(a). Clause (iii) of 
this subparagraph shall be applied only with respect to an 
individual who is an employee without regard to section 
401 (c) (1), and clause (iv) shall be applied only with respect 
to an employee within the meaning of section 401(c)(1). 
For purposes of this subparagraph, a distribution of an 
annuity contract from a trust or annuity plan referred to in 
the first sentence of this subparagraph shall be treated as a 
lump sum distribution. For purposes of this subparagraph, 
a distribution to two or more trusts shall be treated as a 
distribution to one recipient. 
"(B) ELECTION OF LUMP SUM TREATMENT.—For purposes 
of this section and section 403, no amount which is not an 
annuity contract may be treated as a lump sum distribution 
under subparagraph (A) unless the taxpayer elects for the 
taxable year to have all such amounts received during such 
year so treated at the time and in the manner provided under 
regulations prescribed by the Secretary or his delegate. Not 
more than one election may be made under this subparagraph 
with respect to any individual after such individual has 
attained age 591/^. No election may be made under this sub-
paragraph by any taxpayer other than an individual, an 
estate, or a trust. In the case of a lump sum distribution made 
with respect to an employee to two or more trusts, the election 
under this subparagraph shall be made by the personal 
representative of the employee. 
"(C) AGGREGATION OF CERTAIN TRUSTS AND PLANS.—For 
purposes of determining the balance to the credit of an 
employee under subparagraph (A) — 
"(i) all trusts which are part of a plan shall be treated 
as a single trust, all pension plans maintained by the 
employer shall be treated as a single plan, all profit-
sharing plans maintained by the employer shall be 
treated as a single plan, and all stock bonus plans main-
tained by the employer shall be treated as a single plan, 
and 
"(ii) trusts which are not qualified trusts under sec-
tion 401(a) and annuity contracts which do not satisfy 
the requirements of section 404(a) (2) shall not be taken 
26 use 404. 
into account. 
"(D) TOTAL TAXABLE AMOUNT.—For purposes of this 
section and section 403, the term 'total taxable amount' 
means, with respect to a lump sum distribution, the amount 
of such distribution which exceeds the sum of— 
"(i) the amounts considered contributed by the 
employee (determined by applying section 72(f)), which 
employee contributions shall be reduced by any amounts 
theretofore distributed to him which were not includ-
ible in gross income, and 
"(ii) the net unrealized appreciation attributable to 
that part of the distribution which consists of the secu-
rities of the employer corporation so distributed. 
"(E) ORDINARY INCOME PORTION.—For purposes of this 
section, the term 'ordinary income portion' means, with 
990 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
respect to a lump sum distribution, so much of the total taxa-
ble amount of such distribution as is equal to the product of 
such total taxable amount multiplied by a fraction— 
"(i) the numerator of which is the number of calendar 
years of active participation by the employee in such 
plan after December 31,1973, and 
"(ii) the denominator of which is the number of cal-
endar years of active participation by the employee in 
such plan. 
"(F) EMPLOYEE.—For purposes of this subsection and sub-
section (a)(2), except as otherwise provided in subpara-
graph (A), the term 'employee' includes an individual who 
26 use 401. 
jg j^jj 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). 
"(G) COMMUNITY PROPERTY LAWS.—The provisions of this 
subsection, other than paragraph (3), shall be applied with-
out regard to Community property laws. 
"(H) MINIMUM PERIOD or SERVICE.—For purposes of this 
subsection (but not for purposes of subsection (a) (2) or sec-
26 use 403. 
^JQjj 403(a) (2) (A)), no amount distributed to an employee 
from or under a plan may be treated as a lump sum distrib-
uted under subparagraph (A) unless he has been a partici-
pant in the plan for 5 or more taxable years before the taxable 
year in which such amounts are distributed. 
" (I) AMOUNTS SUBJECT TO PENALTY.—This subsection shall 
not apply to amounts described in clause (ii) of subpara-
graph (A) of section 72(m)(5) to the extent that section 
72 (m) (5) applies to such amounts. 
"(J) 
UNREALIZED 
APPRECIATION 
OF 
EMPLOYER 
SECURI-
TIES.—In the case of any distribution including securities of 
the employer corporation which, without regard to the 
requirement of subparagraph (H), would be treated as a lump 
sum distribution under subparagraph (A), there shall be 
excluded from gross income the net unrealized appreciation 
attributable to that part of the distribution which consists 
of securities of the employer corporation so distributed. In 
the case of any such distribution or any lump sum distribu-
tion including securities of the employer corporation, the 
amount of net unrealized appreciation of such securities and 
the resulting adjustments to the basis of such securities shall 
be determined under regulations prescribed by the Secretary 
or his delegate. 
"(K) SECURITIES.—For purposes of this subsection, the 
terms 'securities' and 'securities of the employer corporation' 
have the respective meanings provided by subsection (a) (3)." 
(b) PHASEOUT OF CAPITAL GAINS TREATMENT.— 
26 use 402. 
^2^ I N GENERAL.—Section 402(a) (2) (relating to capital gains 
treatment for certain distributions) is amended to read as follows: 
"(2) 
CAPITAL GAINS TREATMENT FOR PORTION or 
LUMP SUM 
DISTRIBUTIONS.—lu the casc of an employee trust described in 
section 401(a), which is exempt from tax under section 501(a), 
so much of the total taxable amount (as defined in subparagraph 
(D) of subsection (e) (4)) of a lump sum distribution as is equal 
to the product of such total taxable amount multiplied by a frac-
tion— 
"(A) the numerator of which is the number of calendar 
years of active participation by the employee in such plan 
before January 1,1974, and 
26 u s e 401, 
501. 
Ante, 
p. 987. 
Ante, p. 987. 
26 u s e 401. 
Ante, p. 987. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
991 
"(B) the denominator of which is the number of calendar 
years of active participation by the employee in such plan, 
shall be treated as a gain from the sale or exchange of a capital 
asset held for more than 6 months. For purposes of computing the 
Regulations. 
fraction described in this paragraph and the fraction under sub-
section (e) (4) (E), the Secretary or his delegate may prescribe 
regulations under which plan years may be used in lieu of cal-
endar years. For purposes of this paragraph, in the case of an 
individual who is an employee without regard to section 401(c) 
(1), determination of whether or not any distribution is a lump 
sum distribution shall be made without regard to the requirement 
that an election be made under subsection (e) (4) (B), but no dis-
tribution to any taxpayer other than an individual, estate, or trust 
may be treated as a lump sum distribution under this paragraph." 
(2) AMENDMENT or SECTION 4 03.—That part of paragraph (2) 
of section 403(a) which follows clause (ii) of subparagraph (A) 
^6 use 403. 
thereof is amended to read as follows: 
"(iii) a lump sum distribution (as defined in section 
402(e) (4) (A)) is paid to the recipient, 
so much of the total taxable amount (as defined in section 
402(e) (4) (D)) of such distribution as is equal to the prod-
uct of such total taxable amount multiplied by the fraction 
described in section 402(a) (2) shall be treated as a gain from 
^"^^' P- ^^°-
the sale or exchange of a capital asset held for more than 6 
months. For purposes of this paragraph, in the case of an 
- r;i. 
individual who is an employee without regard to section 401 
(c) (1), determination of whether or not any distribution is 
a lump sum distribution shall be made without regard to the 
requirement that an election be made under subsection (e) 
(4)(B) of section 402, but no distribution to any taxpayer 
other than an individual, estate, or trust may be treated as a 
lump sum distribution under this paragraph. 
"(B) CROSS REFERENCE.— 
"For imposition of separate tax on ordinary income portion of lump 
sum distribution, see section 402(e).". 
(c) CONFORMING A M E N D M E N T S . — 
(1) Subparagraph (C) of section 402 (a) (3) is repealed. 
^
e
^ uTc%02. 
(2) Paragraph (5) (as in effect on December 31, 1973) of sec-
tion 402 (a) is repealed. 
(3) Section 72 is amended by striking out subsection (n) thereof 
26 use 72. 
and by redesignating subsections (o) and (p) as (n) and (o), 
respectively. 
(4) The second sentence of section 46(a)(3) and the second 
26 use 46. 
sentence of section 50A(a)(3) are each amended by inserting 
26 use so. 
after "tax preferences)," the following: "section 402(e) (relat-
ing to tax on lump sum distributions),". 
(5) The third sentence of section 901(a) is amended by insert- 
^^ "^^ ^°^-
ing "against the tax imposed by section 402(e) (relating to tax 
on lump sum distributions)," before "against the tax imposed by 
section 531". 
' 
26 use S3i. 
(6) Subsection _ 1304(b) (2) 
(relating to special rules) is 
26 use i304. 
amended by striking out paragraph (2) and by redesignating 
paragraphs (3), (4), (5), and (6) as paragraphs (2), (3), (4), 
and (5), respective! 
y. 
(7) Subparagraph (A) of section 56(a) (2) and paragraph (1) 
^^ "^"^ ^*^' 
of section 56(c) are each amended by inserting before "531" the 
following: "402(e),". 
26 use 122. 
26 use 405. 
992 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
26 use 871, 
(8) Sections 871 (b) (1) and 877(b) are each amended by insert-
Ante. p. 987. 
Ing",402(e) (1),"after"section 1". 
Ante, p. 959. 
(9) Section 62 (defining adjusted gross income), is amended by 
inserting after paragraph (10) the following new paragraph: 
"(11) 
CERTAIN PORTION or LUMP-SUM DISTRIBUTIONS FROM PEN-
SION PLANS TAXED UNDER SECTION 402 (e).—The deduction allowed 
by section 402(e) (3)." 
(10) Section 122(b) (2) (relating to consideration for the con-
tract) is amended by striking out "72(o)" and inserting "72(n)". 
(11) Section 405(e) (relating to capital gains treatment and 
limitation of tax not to apply to bonds distributed by trusts) is 
amended by striking out "Section 72(n) and section 402(a) (2)" 
and inserting "Subsections (a) (2) and (e) of section 402". 
26 use 406. 
(12) Section 406(c) 
(relating to termination of status as 
deemed employee, etc.) is amended by striking out "section 72 (n), 
section 402(a) (2)" and inserting "subsections (a) (2) and (e) of 
section 402". 
(13) Section 407(c) 
(relating to termination of status as 
deemed employee, etc.) is amended by striking out "section 72(n), 
section 402(a) (2)" and inserting "subsections (a) (2) and (e) of 
section 402". 
(14) Section 1348(b)(1) 
(relating to earned income) is 
amended by striking out "72(n), 402(a) (2)" and inserting "402 
(a) (2), 402(e)". 
(15) Section 101(b) (2) (B) is amended by striking out "total 
distributions payable (as defined in section 402(a) (3)) which are 
paid to a distributee within one taxable year of the distributee by 
reason of the employee's death" and inserting in lieu thereof "a 
lump sum distribution (as defined in section 402(e)(4))". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply only with respect to distributions or payments made after 
December 31,1973, in taxable years beginning after such date. 
26 use 407. 
26 use 1348. 
26 use 101. 
26 use 402 
note. 
26 u s e 401 
note. 
SEC. 2006. SALARY REDUCTION REGULATIONS. 
(a) INCLUSION OF CERTAIN CONTRIBUTIONS IN INCOME.—Except in 
the case of plans or arrangements in existence on June 27, 1974, a 
contribution made before January 1, 1977, to an employees' trust 
described in section 401 (a), 403 (a), or 405 (a) of the Internal Revenue 
403^ 405^ ^°^' 
Code of 1954 which is exempt from tax under section 501(a) of such 
26 use 501. 
Code, or under an arrangement which, but for the fact that it was not 
in existence on June 27, 1974, would be an arrangement described in 
subsection (b) (2) of this section, shall be treated as a contribution 
made by an employee if the contribution is made under an arrange-
ment under which the contribution will be made only if the employee 
elects to receive a reduction in his compensation or to forego an 
increase in his compensation. 
(b) 
ADMINISTRATION IN THE CASE OF CERTAIN QUALIFIED PENSION 
O
R PROFIT-SHARING PLANS, ETC., IN EXISTENCE ON JUNE 27, 1974.— 
No salary reduction regulations may be issued by the Secretary of the 
Treasury in final form before January 1, 1977, with respect to an 
arrangement which was in existence on June 27, 1974, and which, on 
that date— 
(1) provided for contributions to an employees' trust described 
in section 401 (a), 403(a), or 405 (a) of the Intemaf Revenue Code 
of 1954 which is exempt from tax under section 501(a) of such 
Code, or 
(2) was maintained as part of an arrangement under which an 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
993 
employee was permitted to elect to receive part of his compensa-
tion in one or more alternative forms if one of such forms results 
in the inclusion of amounts in income under the Internal Revenue 
Code of 1954. 
26 use i et 
(c) ADMINISTRATION OF LAW W I T H RESPECT TO CERTAIN PLANS.— 
^^^' 
(1) 
ADMINISTRATION IN THE CASE OF PLANS DESCRIBED IN 
SUBSECTION (b).—Until salary reduction regulations have been 
issued in final form, the law with respect to plans or arrangements 
described in subsection (b) shall be administered— 
(A) without regard to the proposed salary reduction regu-
lations (37 FR 25938) and without regard to any other 
proposed salary reduction regulations, and 
(B) in the manner in Avhich such law was administered 
before January 1,1972. 
(2) ADMINISTRATION IN THE CASE OF QUALIFIED PROFIT-SHARING 
PLANS.—In the case of plans or arrangements described in sub-
section (b), in applying this section to the tax treatment of 
contributions to qualified profit-sharing plans where the contrib-
uted amounts are distributable only after a period of deferral, the 
law shall be administered in a manner consistent with— 
(A) Revenue Ruling 56-497 (1956—2 C.B. 284), 
(B) Revenue Ruling 63-180 (1963—2 C.B. 189), and 
(C) Revenue Ruling 68-89 (1968—1 C.B. 402). 
(d) 
LIMITATION ON RETROACTIVITY OF FINAL REGULATIONS.—In 
the case of any salary reduction regulations which become final after 
December 31,1976— 
(1) for purposes of chapter 1 of the Internal Revenue Code of 
1954 (relating to normal taxes and surtaxes), such regulations 
^6 use i. 
shall not apply before January 1, 1977; and 
(2) for purposes of chapter 21 of such Code (relating to Fed-
eral Insurance Contributions Act) and for purposes of chapter 24 
26 use 3101. 
of such Code (relating to collection of income tax at source on 
26 use 3401. 
wages), such regulations shall not apply before the day on which 
such regulations are issued in final form. 
(e) SALARY REDUCTION REGULATIONS DEFINED.—For purposes of 
this section, the term "salary reduction regulations" means regulations 
dealing with the includibility in gross income (at the time of contribu-
tion) of amounts contributed to a plan which includes a trust that 
qualifies under section 401(a), or a plan described in section 403(a) ^^26 use 401, 
or 405 (a), including plans or arrangements described in subsection (b) 
26 use 405. 
(2), if the contribution is made under an arrangement under which 
the contribution will be made only if the employee elects to receive a 
reduction in his compensation or to forego an increase in his compen-
sation, or under an arrangement under which the employee is per-
mitted to elect to receive part of his compensation in one or more 
alternative forms (if one of such forms results in the inclusion of 
amounts in income under the Internal Revenue Code of 1954). 
SEC. 2008. CERTAIN ARMED FORCES SURVIVOR ANNUITIES. 
(a) TREATMENT OF CERTAIN PARTICIPANTS IN THE PLAN.—Section 
404(c) (relating to certain negotiated plans) is amended by inserting 
26 use 404. 
after the first sentence the following new sentences: "For purposes of 
this chapter and subtitle B, in the case of any individual who before 
July 1, 1974, was a participant in a plan described in the preceding 
sentence— 
994 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
26 use 401. 
26 use 277. 
26 use 404. 
26 
1 
note 
26 
use 
use 
404 
122 
1 
10 
An 
26 
26 
26 
note 
use 
te, p 
use 
use 
use 
1431. 
991. 
101. 
2039. 
122 
"(A) such individual, if he is or was an employee within the 
meaning of section 401(c) (1), shall be treated (with respect to 
service covered by the plan) as being an employee other than an 
employee within the meaning of section 401(c) (1) and as being 
an employee of a participating employer under the plan, 
"(B) earnings derived from service covered by the plan shall 
be treated as not being earned income within the meaning of sec-
tion 401 (c) (2), and 
"(C) such individual shall be treated as an employee of a par-
ticipating employer under the plan with respect to service before 
July 1,1975, covered by the plan. 
Section 277 (relating to deductions incurred by certain membership 
organizations in transactions with members) does not apply to any 
trust described in this subsection.". 
(b) OTHER AMENDMENTS TO SECTION 404(C) (1).— 
(1) Paragraph (1) of the first sentence of section 404(c) is 
amended by striking out "and pensions" and inserting in lieu 
thereof "or pensions". 
(2) The last sentence of section 404(c) is amended by striking 
out "This subsection" and inserting in lieu thereof "The first and 
third sentences of this subsection". 
(c) EFFECTIVE DATE.—The amendments m.ade by this section shall 
apply to taxable years ending on or after June 30, 1972. 
SEC. 2007. RULES FOR CERTAIN NEGOTIATED PLANS. 
(a) I N GENERAL.—Section 122(a) (relating to certain reduced uni-
formed services retired pay) is amended to read as follows: 
"(a) GENERAL RULE.—In the case of a member or former member of 
the uniformed services of the United States, gross income does not 
include the amount of any reduction in his retired or retainer pay 
pursuant to the provisions of chapter 73 of title 10, United States 
Code.". 
(b) TECHNICAL AMENDMENTS.— 
(1) Section 122(b)(2) is amended by striking out "section 
1438" in subparagraph (B) and inserting in lieu thereof "section 
1438 or 1452(d)". 
(2) Section 72(o) is amended by inserting after "Plan" in the 
heading of such section "or Survivor Benefit Plan". 
(3) Section 101(b) (2) (D) is amended by striking out ''if the 
individual who made the election under such chapter" and insert-
ing in lieu thereof "if the member or former member of the uni-
formed services by reason of whose death such annuity is payable". 
(4) Section 2039(c) is amended by striking out "section 1438" 
in the last sentence and inserting in lieu thereof "section 1438 or 
1452(d)". 
(c) EFFECTIVE DATES.—The amendments made by this section apply 
to taxable years ending on or after September 21, 1972. The amend-
ments made by paragraphs (3) and (4) of subsection (b) apply with 
respect to individuals dying on or after such date. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
995 
TITLE III—JURISDICTION, ADMINISTRA-
TION, ENFORCEMENT; JOINT PENSION 
TASK FORCE, ETC. 
Subtitle A—Jurisdiction, Administration, and 
Enforcement 
PROCEDURP:S I N C O N N E C T I O N W I T H T H E I S S U A N C E O F C E R T A I N D E T E R M I N A -
T I O N LETTERS BY THE SECRETARY OF THE TREASURY 
29 use 1201. 
SEC. 3001.(a) Before issuing an advance determination of whether 
a pension, profit-sharing, or stock bonus plan, a trust which is a part of 
such a plan, or an annuity or bond purchase plan meets the require-
ments of part I of subchapter D of chapter 1 of the Internal Revenue 
Code of 1954, the Secretary of the Treasury shall require the person 
26 use 401. 
applying for the determination to provide, in addition to any material 
and information necessary for such determination, such other material 
and information as may reasonably be made available at the time 
such application is made as the Secretary of Labor may require under 
title I of this Act for the administration of that title. The Secretary of 
^"'^' P- ^^2. 
the Treasury shall also require that the applicant provide evidence 
satisfactory to the Secretary that the applicant has notified each 
employee who qualifies as an interested party (within the meaning of 
regulations prescribed under section 7476(b) (1) of such Code (relat- 
'^"'^' P" ^'^'^' 
ing to declaratory judgments in connection with the qualification of 
certain retirement plans)) of the application for a determination. 
(b)(1) Whenever an application is made to the Secretary of the 
Treasury for a determination of whether a pension, profit-sharing, or 
stock bonus plan, a trust which is a part of such a plan, or an annuity or 
bond purchase plan meets the requirements of part I of subchapter D 
of chapter 1 of the Internal Revenue Code of 1954, the Secretary shall 
upon request afford an opportunity to comment on the application at 
any time within 45 days after receipt thereof to— 
(A) any employee or class of employee qualifying as an inter-
ested party within the meaning of the regulations referred to in 
subsection (a). 
(B) the Secretary of Labor, and 
(C) the Pension Benefit Guaranty Corporation. 
(2) The Secretary of Labor may not request an opportunity to com-
ment upon such an application unless he has been requested in writing 
to do so by the Pension Benefit Guaranty Corporation or by the lesser 
of— 
(A) 10 employees, or 
(B) 10 percent of the employees 
who qualify as interested parties within the meaning of the regula-
tions referred to in subsection (a). Upon receiving such a request, the 
Secretary of Labor shall furnish a copy of the request to the Secretary 
of the Treasurv within 5 days (excluding Saturdays, Sundays, and 
legal public holidays (as set forth in section 6103 of title 5, United 
States Code)). 
(3) Upon receiving such a request from the Secretary of Labor, 
the Secretary of the Treasury shall furnish to the Secretary of Labor 
such information held by the Secretary of the Treasury relating to the 
application as the Secretary of Labor mav request. 
(4) The Secretary of Labor shall, within 30 days after receiving a 
request from the Pension Benefit Guaranty Corporation or from the 
26 u s e 401. 
996 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
necessary number of employees who qualify as interested parties, 
notify the Secretary of the Treasury, the Pension Benefit Guaranty 
Corporation, and such employees with respect to whether he is going 
to comment on the application to which the request relates and with 
respect to any matters raised in such request on which he is not going 
to comment. If the Secretary of Labor indicates in the notice required 
under the preceding sentence that he is not going to comment on all or 
part of the matters raised in such request, the Secretary of the Treas-
ury shall afford the corporation, and such employees, an opportunity 
to comment on the application with respect to any matter on which the 
Secretary of Labor has declined to comment. 
(c) The Pension Benefit Guaranty Corporation and, upon petition 
of a group of employees referred to in subsection (b)(2), the Secretary 
of Labor, may intervene in any action brought for declaratory judg-
Ante. p. 949. 
^^^^ ^^^^^. g^^.^'^^j^ ^^^^Q ^f ^J^g Internal Revenue Code of i9'54 in 
accordance with the provisions of such section. The Pension Benefit 
Guaranty Coi'poration is permitted to bring an action under such 
section 7476 under such rules as may be prescribed by the United States 
Tax Court. 
(d) If tlie Secretary of the Treasury determines tliat a plan or trust 
to which this section applies meets the applicable re<|iiirements of part 
I of subchapter D of chapter 1 of the Internal Revenue Code of 1954 
and issues a determination letter to the applicant, the Secretary shall 
notify the Secretary of Labor of his determination and furnish such 
information and material relating to the application and determina-
tion held by the Secretary of the Treasury as the Secretary of Labor 
Ante, p. 832. 
^^^^ rcqucst for the proper administration of title I of this Act. The 
Secretary of Labor shall accept the determination of the Secretary 
of the Treasury as prima facie evidence of initial compliance by the 
plan with the standards of parts 2, 3, and 4 of subtitle B of title I 
86t"8^74^^' ^^^' 
of this Act. If an application for such a determination is withdrawn, 
or if the Secretary of the Treasury issues a determination that the 
^ 
plan or tnist does not meet the requirements of such part I, the Secre-
tary shall notify the Secretary of Labor of the withdrawal or 
determination. 
(e) This section does not apply with respect to an application for 
any plan received by the Secretary of the Treasury before the date 
Ante, p. 898. 
^j^ which sectiou 410 of the Internal Reveruie Code of 1954 applies to 
the plan, or on which such section will apply if the plan is determined 
by the Secretary to be a qualified plan. 
PROCEDURES WITH RESPECT TO CONTINUED COMPLIANCE WITH REQUIRE-
MENTS RELATING TO PARTICIPATION, VESTING, AND FUNDING STANDARDS 
SFC. 3002. (a) In carrying out the provisions of part I of subchapter 
D of chapter 1 of the Internal Revenue Code of 1954 with respect to 
whether a plan or a trust meets the requirements of section 410 (a) or 
411 of such Code (relating to minimum participation standards and 
minimum vesting standards, respectively), the Secretary of the Treas-
ury shall notify the Secretary of Labor when the Secretary of the 
Treasury issues a preliminary notice of intent to disqualify related to 
the plan or trust or, if earlier, at the time of commencing any proceed-
ing to determine whether the plan or trust satisfies such requirements. 
Unless the Secretary of the Treasury finds that the collection of a tax 
imposed under the Internal Revenue Code of 1954 is in jeopardy, the 
Secretary of the Treasury shall not issue a determination that the 
plan or trust does not satisfy the requirements of such section until 
29 use 1202. 
Ante, p. 901. 
26 use 1 et 
seq. 
Notice of 
deficiency. 
88 STAT. ] 
PUBLIC LAW 93^06-SEPT. 2, 1974 
997 
the expiration of a period of 60 days after the date on which he noti-
fies the Secretary of Labor of such review. The Secretary of the Treas-
ury, in his discretion, may extend the 60-day period referred to in the 
preceding sentence if he determines that such an extension would 
enable the Secretary of Labor to obtain compliance with such require-
ments by the plan within the extension period. Except as otherwise 
provided in this Act, the Secretary of Labor shall not generally apply 
part 2 of title I of this Act to any plan or trust subject to sections 
^^fe, p. 852. 
410(a) and 411 of such Code, but shall refer alleged general violations g^^"'"'' PP- ^^^' 
of the vesting or participation standards to the Secretary of the Treas-
ury. (The preceding sentence shall not apply to matters relating to 
individuals benefits.) 
(b) Unless the Secretary of the Treasury finds that the collection of 
a tax is in jeopardy, in carrying out the provisions of section 4971 of 
the Internal Revenue Code of 1954 (relating to taxes on the failure to 
^"'^' P- ^^^'• 
meet minimum funding standards), the Secretary of the Treasury shall 
notify the Secretary of Labor before sending a notice of deficiency 
with respect to any tax imposed under that section on an employer, 
and, in accordance with the provisions of subsection (d) of that sec-
tion, afford the Secretary of Labor an opportunity to comment on the 
imposition of the tax in the case. The Secretary of the Treasury may 
waiver. 
waive the imposition of the tax imposed under section 4971(b) of 
such Code in appropriate cases. Upon receiving a written request from 
the Secretary of Labor or from the Pension Benefit Guaranty Cor-
poration, the Secretary of the Treasury shall cause an investigation to 
be commenced expeditiously with respect to whether the tax imposed 
under section 4971 of such Code should be applied with respect to anj^ 
employer to which the request relates. The Secretary of the Treasury 
and the Secretary of Labor shall consult with each other from time 
to time with respect to the provisions of section 412 of the Internal 
Revenue Code of 1954 (relating to minimum funding standards) and 
^"^^' P- ^i'^-
with respect to the funding standards applicable under title I of this 
Act in order to coordinate the rules applicable under such standards. 
(c) Regulations prescribed by the Secretary of the Treasury under 
sections 410(a), 411, and 412 of the Internal Revenue Code of 1954 
(relating to minimum participation standards, minimum vesting 
standards, and minimum funding standards, respectively) shall also 
apply to the minimum participation, vesting, and funding standards 
set forth in parts 2 and 3 of subtitle B of title I of this Act. Except 
Ante, pp. 852, 
as otherwise expressly provided in this Act, the Secretary of Labor 
shall not prescribe other regulations under such parts, or apply the 
regulations prescribed by the Secretary of the Treasury under sec-
tions 410(a), 411, 412 of the Internal Revenue Code of 1954 and 
applicable to the minimum participation, vesting, and funding stand-
ards under such parts in a manner inconsistent with the way such 
regulations apply under sections 410(a), 411, and 412 of such Code. 
(d) The Secretary of Labor and the Pension Benefit Guaranty 
Corporation, before filing briefs in any case involving the construc-
tion or application of minimum participation standards, minimum 
vesting standards, or minimum funding standards under title I of 
this Act, shall afford the Secretary of the Treasury a reasonable 
opportunity to review any such brief. The Secretary of the Treasury 
shall have the right to intervene in any such case. 
868. 
Review 
briefs. 
Ante, 
p . 
of 
832 
998 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
PROCEDURES IX 
COXNECTIOX W I T H 
rROIHBITED 
TRANSACTIONS 
29 u s e 1203, 
Ante, p. 971. 
SEC. 3003. (a) Unless the Secretary of the Treasury finds that the 
collection of a tax is in jeopardy, in carrying out the provisions of 
section 4975 of the Internal Revenue Code of 1954 (relating to tax on 
prohibited transactions) the Secretary of the Treasury shall, in 
accordance with the provisions of subsection (h) of such section, notify 
the Secretary of Labor before sending a notice of deficiency with 
respect to the tax imposed by subsection (a) or (b) of such section, 
and, in accordance with the provisions of subsection (h) of such sec-
tion, afford the Secretary an opportunity to comment on the imposi-
tion of the tax in any case. The Secretary of the Treasury shall have 
authority to waive the imposition of the tax imposed under section 
4975(b) in appropriate cases. Upon receiving a written request from 
the Secretary of Labor or from the Pension Benefit Guaranty Cor-
poration, the Secretary of the Treasury shall cause an investigation 
to be carried out with respect to whether the tax imposed by section 
4975 of such Code should be applied to any person referred to in the 
request. 
(b) The Secretary of the Treasury and the Secretary of Labor 
shall consult with each other from time to time with respect to the 
provisions of section 4975 of the Internal Revenue Code of 1954 
(relating to tax on prohibited transactions) and with respect to the 
provisions of title I of this Act relating to prohibited transactions and 
exemptions therefrom in order to coordinate the rules applicable under 
such standards. 
(c) Whenever the Secretary of Labor obtains information indicat-
ing that a party-in-interest or disqualified person is violating section 
Ante, p. 879. 
^QQ Qf ^^jjjg j^^f^^ ]jg gljall transmit such information to the Secretary 
of the Treasury. 
COORDINATION BETWEEN T H E DEPARTMENT OF THE TREASURY AND 
T H E 
DEPARTMENT OF LABOR 
Ante, p. 832. 
29 u s e 1204. 
SEC. 3004. (a) Whenever in this Act or in any provision of law 
amended by this Act the Secretary of the Treasury and the Secretary 
of Labor are required to carry out provisions relating to the same 
subject matter (as determined by them) they shall consult with each 
other and shall develop rules, regulations, practices, and forms which, 
to the extent appropriate for the efficient administration of such pro-
visions, are designed to reduce duplication of effort, duplication of 
reporting, conflicting or overlapping requirements, and the burden of 
compliance with such provisions by plan administrators, employers, 
and participants and beneficiaries. 
(b) In order to avoid unnecessary expense and duplication of func-
tions among Government agencies, the Secretary of the Treasury and 
the Secretary of Labor may make such arrangements or agreements for 
cooperation or mutual assistance in the performance of their func-
tions under this Act, and the functions of any such agency as they find 
to be practicable and consistent with law. The Secretary of the Treas-
ury and the Secretary of Labor may utilize, on a reimbursable or other 
basis, the facilities or services, of any department, agency, or establish-
ment of the United States or of any State or political subdivision of a 
State, including the services, of any of its employees, with the lawful 
consent of such department, agency, or establishment; and each depart-
ment, agency, or establishment of the United States is authorized and 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
999 
directed to cooperate with the Secretary of the Treasury and the Secre-
tary of Labor and, to the extent permitted by law, to provide such 
information and facilities as they may request for their assistance in 
the performance of their functions under this Act. The Attorney 
General or his representative shall receive from the Secretary of the 
Treasury and the Secretary of Labor for appropriate action such 
evidence developed in the performance of their functions under this 
Act as may be found to warrant consideration for criminal prosecution 
under the provisions of this title or other Federal law. 
Subtitle B—Joint Pension Task Force; Studies 
PART 1—JOINT PENSION TASK FORCE 
ESTABLISHMENT 
SEC. 3021. The staffs of the Committee on Ways and Means and the 
29 use 1221. 
Committee on Education and Labor of the House of Representatives, 
the Joint Committee on Internal Revenue Taxation, and the Commit-
tee on Finance and the Committee on Labor and Public Welfare of the 
Senate shall carry out the duties assigned under this title to the Joint 
Pension Task Force. By agreement among the chairmen of such Com-
mittees, the Joint Pension Task Force shall be furnished with office 
space, clerical personnel, and such supplies and equipment as may be 
necessary for the Joint Pension Task Force to carry out its duties under 
this title. 
DUTIES 
SEC. 3022. (a) The Joint Pension Task Force shall, within 24 months 
29 use 1222. 
after the date of enactment of this Act, make a full study and review 
of— 
(1) the eft'ect of the requirements of section 411 of the Internal 
Revenue Code of 1954 and of section 203 of this Act to determine 
Ante, pp. 901, 
the extent of discrimination, if any, among employees in various ^^^' 
age groups resulting from the application of such requirements; 
(2) means of providing for t^e portability of pension rights 
among different pension plans; 
(3) the appropriate treatment under title IV of this Act (relat- 
^°sf, p. 1003. 
ing to termination insurance) of plans established and maintained 
by small employers; 
(4) the effects and desirability of the Federal preemption of 
State and local law with respect to matters relating to pension 
and similar plans; and 
(5) such other matter as any of the committees referred to in 
section 3021 may refer to it. 
Supra. 
(b) The Joint Pension Task Force shall report the results of its 
study and i-eview to each of the committees referred to in section 3021. 
PART 2—OTHER STUDIES 
CONGRESSIONAL STUDY 
SEC. 3031. (a) The Committee on Education and Labor and the 
Committee on Ways and Means of the House of Representatives and 
the Committee on Finance and the Committee on Labor and Public 
Welfare of the Senate shall study retirement plans established and 
maintained or ifinanced (directly or indirectly) by the Government of 
29 u s e 1231. 
1000 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
the United States, by any State (including the District of Columbia) 
or political subdivision thereof, or by any agency or instrumentality 
of any of the foregoing. Such study shall include an analysis of;— 
(1) the adequacy of existing levels of participation, vesting, 
and financing ari-angements, 
(2) existing fiduciary standards, and 
(3) the necessity for Federal legislation and standards with 
respect to such plans. 
In determining whether any such plan is adequately financed, each 
committee shall consider the necessity for minimum funding stand-
ards, as well as the taxing power of the government maintaining the 
plan. 
Hou1e°and°senate. 
0^) ^^t later tliau December 31, 1976, the Committee on Education 
and Labor and the Committee on Ways and Means shall each submit 
to the House of Representatives the results of the studies conducted 
under this section, together with such recommendations as they deem 
appropriate. The Committee on Finance and the Committee on Labor 
and Public Welfare shall each submit to the Senate the results of the 
studies conducted under this section together with such recommenda-
tions as they deem appropriate not later than such date. 
PROTECTION FOR EMPLOYEES TJNDER FEDERAL PROCUREMENT, 
CONSTRUCTION, AND RESEARCH CONTRACTS AND GRANTS 
29 u s e 1232. 
SEC. 3032. (a) The Secretary of Labor shall, during the 2-year period 
beginning on the date of the enactment of this Act, conduct a full 
and complete study and investigation of the steps necessary to be taken 
to insure that professional, scientific, and technical personnel and 
others working in associated occupations employed under Federal 
procurement, construction, or research contracts or grants will, to the 
extent feasible, be protected against forfeitures of pension or retire-
ment rights or benefits, otherwise provided, as a consequence of job 
transfers or loss of employment resulting from terminations or 
modifications of Federal contracts, grants, or procurement policies. 
C(^^^esV° 
"^^^ Secretary of Labor shall report the results of his study and 
investigation to the Congress within 2 years after the date of the 
enactment of this Act. The Secretary of Labor is authorized, to the 
extent provided by law, to obtain the services of private research 
institutions and such other persons by contract or other arrangement 
as he determines necessary in carrying out the provisions of this 
section. 
(b) In the course of conducting the study and investigation 
described in subsection (a), and in developing the regulations referred 
to in subsection (c), the Secretary of Labor shall consult— 
(1) with appropriate professional societies, business organiza-
tions, and labor organizations, and 
(2) with the heads of interested Federal departments and 
agencies. 
Regulations. 
^^^ Wlthiu 1 year after the date on which he submits his report to 
the Congress under subsection (a), the Secretary of Labor shall, if he 
determines it to be feasible, develop regulations which will provide the 
protection of pension and retirement rights and benefits referred to in 
subsection (a). 
(d) (1) Any regulations developed pursuant to subsection (c) shall 
take effect if, and only if— 
(A) the Secretary of Labor, not later than the day which is 3 
years after the date of the enactment of this Act, delivers a copy 
of such regulations to the House of Representatives and a copy 
to the Senate, and 
"Resolution of 
disapproval." 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1001 
(B) before the close of the 120-day period which begins on the 
day on which the copies of such regulations are delivered to the 
House of Representatives and to the Senate, neither the House of 
Representatives nor the Senate adopts, by an affirmative vote of 
a majority of those present and voting in that House, a resolution 
of disapproval. 
(2) For purposes of this subsection, the term "resolution of disap-
proval" means only a resolution of either House of Congress, the mat-
ter after the resolving clause of which is as follows: "That the 
does not favor the taking effect of the regulations transmitted to the 
Congress by the Secretary of Labor on 
", the first blank space 
therein being filled with the name of the resolving House and the 
second blank space therein being filled with the day and year. 
(3) A resolution of disapproval in the House of Representatives 
shall be referred to the Committee on Education and Labor. A resolu-
tion of disapproval in the Senate shall be referred to the Committee 
on Labor and Public Welfare. 
(4) (A) If the committee to which a resolution of disapproval has 
been referred has not reported it at the end of 7 calendar days after its 
introduction, it is in order to move either to discharge the committee 
from further consideration of the resolution or to discharge the 
committee from further consideration of any other resolution of dis-
approval which has been referred to the committee. 
(B) A motion to discharge may be made only by an individual 
favoring the resolution, is highly privileged (except that it may not 
be made after the committee has reported a resolution of disapproval), 
and debate thereon shall be limited to not more than 1 hour, to be 
divided equally between those favoring and those opposing the resolu-
tion. 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. 
(C) 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 of disapproval. 
(5) (A) When the committee has reported, or has been discharged 
from further consideration of, a resolution of disapproval, 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. 
(B) Debate on the resolution of disapproval 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. 
(6) (A) Motions to postpone, made with respect to the discharge 
from committee or the consideration of a resolution of disapproval, 
and motions to proceed to the consideration of other business, shall be 
decided without debate. 
(B) Appeals from the decisions of the Chair relating to the appli- 
Appeals. 
cation of the rules of the House of Representatives or the Senate, as 
the case may be, to the procedure relating to any resolution of disap-
proval shall be decided without debate. 
(7) Whenever the Secretary of Labor transmits copies of the regu- H<!lte"andTenl'te. 
lations to the Congress, a copy of such regulations shall be delivered to 
1002 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
each House of Congress on the same day and shall be delivered to the 
Clerk of the House of Representatives if the House is not in session 
and to the Secretary of the Senate if the Senate is not in session. 
(8) The 120 day period referred to in paragraph (1) siiall be 
computed by excluding— 
(A) the days on which either House is not in session because of 
an adjournment of more than 3 days to a day certain or an 
adjournment of the Congress sine die, and 
(B) any Saturday and Sunday, not excluded under subpara-
graph (A), when either House is not in session. 
(9) This subsection is enacted by the Congress— 
(A) as an exercise of the rulemaking power of the House of 
Representatives and the Senate, respectively, and as such they 
are 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 of disapproval described in 
paragraph (2); and they supersede other rules only to the extent 
that they are inconsistent therewith; and 
(B) with full recognition of the constitutional right of either 
House to change the rules (so far as relating to the procedures of 
that House) at any time, in the same manner and to the same 
extent as in the case of any other rule of that House. 
Subtitle C—Enrollment of Actuaries 
ESTABLISHMENT OF J O I N T BOARD FOR T H E ENROLLMENT OF ACTUARIES 
29 use 1241. 
gj,(._ 3041. The Secretary of Labor and the Secretary of the Treasury 
shall, not later than the last day of the first calendar month beginning 
after the date of the enactment of this Act, establish a Joint Board 
for the Enrollment of Actuaries (hereinafter in this part referred to 
as the "Joint Board"). 
ENROLLMENT BY J O I N T BOARD 
uaUffcaUonT'^ 
^^^- ^^^^- (^) '^'^^ Jolnt Boai'd shall, by regulations, establish rea-
''"29 use 1242. 
sonable standards and qualifications for persons performing actuarial 
services Avith respect to plans in which this Act applies and, upon 
application by any individual, shall enroll such individual if the Joint 
Board finds that such individual satisfies such standards and qualifi-
cations. With respect to individuals applying for enrollment before 
January 1, 1976, such standards and qualifications shall include a 
requirement for an appropriate period of responsible actuarial experi-
ence relating to pension plans. With respect to individuals applying 
for enrollment on or after January 1, 1976, such standards and quali-
fications shall include— 
(1) education and training in actuarial mathematics and meth-
odology, as evidenced by— 
(A) a degree in actuarial mathematics or its equivalent 
from an accredited college or university, 
' 
(B) successful completion of an examination in actuarial 
mathematics and methodology to be given by the Joint 
Board, or 
(C) successful completion of other actuarial examinations 
deemed adequate by the Joint Board, and 
(2) an appropriate period of responsible actuarial experience. 
Notwithstanding the preceding provisions of this subsection, the Joint 
Board may provide for the temporary enrollment for the period end-
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1003 
ing on January 1,1976, of actuaries under such interim standards as 
it deems adequate. 
(b) The Joint Board may, after notice and an opportunity for a 
hearing, suspend or terminate the enrollment of an individual under 
this section if the Joint Board finds that such individual— 
(1) has failed to discharge his duties under this Act, or 
(2) does not satisfy the requirements for enrollment as in ejffect 
at the time of his enrollment. 
The Joint Board may also, after notice and opportunity for hearing, 
suspend or terminate the temporary enrollment of an individual who 
fails to discharge his duties under this Act or Avho does not satisfy 
the interim enrollment standards. 
Enrollment 
termination. 
Notice and 
hearing. 
AMENDMENT OF INTERNAL REVENUE 
CODE 
26 u s e 7701, 
SEC. 3043. Section 7701(a) of the Internal Revenue Code of 1954 
(relating to definitions) is amended by adding at the end thereof the 
following new paragraph: 
" (35) ENROLLED ACTUARY.—The term 'enrolled actuary' means a 
person who is enrolled by the Joint Board for the Enrollment of 
Actuaries established under subtitle C of the title I I I of the 
Employee Retirement Income Security Act of 1974." 
^"'^' P- ^ °°^ 
TITLE IV—PLAN TERMINATION 
INSURANCE 
Subtitle A—Pension Benefit Guaranty 
Corporation 
DEFINITIONS 
29 u s e 1301, 
SEC. 4001. (a) For purposes of this title, the term— 
(1) "administrator" means the person or persons described in 
paragraph (16) of section 3 of this Act; 
^"^^' P- ^^3-
(2) "substantial employer" means for any plan year an 
employer (treating employers who are members of the same affil-
iated group, within the meaning of section 1563 (a) of the Internal 
Revenue Code of 1954, determined without regard to section 
26 use 1563. 
1563(a) (4) and (e) (3) (C) of such Code, as one employer) who 
has made contributions to or under a plan under which more 
than one employer makes contributions for each of— 
(A) the two immediately preceding plan years, or 
(B) the second and third preceding plan years, 
equaling or exceeding 10 percent of all employer contributions 
paid to or under that plan for each such year; 
(3) "multiemployer plan" means a multiemployer plan as 
defined in section 414(f) of the Internal Revenue Code of 1954 (as ^"'®' P- ^^^ 
added by this Act but without regard to whether such section is 
in effect on the date of enactment of this Act); 
(4) "corporation", except where the context clearly requires 
otherwise, means the Pension Benefit Guaranty Corporation estab-
lished under section 4002; 
Post. p. 1004. 
(5) "fund" means the appropriate fund established under 
section 4005; 
Post, p. 1009. 
(6) "basic benefits" means benefits guaranteed under section 
4022 other than under section 4022 (c) ; and 
^°s^» p- 1016. 
1004 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
Post, 
p. 1016. 
26 u s e 401. 
Ante, 
p. 925. 
(7) "non-basic benefits" means benefits guaranteed under sec-
tion 4022(c). 
(b) An individual who owns the entire interest in an unincorporated 
trade or business is treated as his own employer, and a partnership 
is treated as the employer of each partner who is an employee within 
the meaning of section 401(c) (1) of the Internal Revenue Code of 
1954. For purposes of this title, under regulations prescribed by the 
corporation, all employees of trades or businesses (whether or not 
incorporated) which are under common control shall be treated as 
employed by a single employer and all such trades and businesses as a 
single employer. The regulations prescribed under the preceding sen-
tence shall be consistent and coextensive with regulations prescribed 
for similar purposes by the Secretary of the Treasury under section 
414(c) of the Internal Revenue Code of 1954. 
PENSION BENEFIT GUARANTY CORPORATION 
Establishment. 
29 u s e 1302. 
Post, 
p. 1010.. 
Functions. 
D.C. eode 29-
1001. 
SEC. 4002. (a) There is established within the Department of Labor 
a body corporate to be known as the Pension Benefit Guaranty Cor-
poration. In carrying out its functions under this title, the corpora-
tion shall be administered by the chairman of the board of directors 
in accordance with policies established by the board. The purposes 
of this title, which are to be carried out by the corporation, are— 
(1) to encourage the continuation and maintenance of volun-
tary private pension plans for the benefit of their participants, 
(2) to provide for the timely and uninterrupted payment of 
pension benefits to participants and beneficiaries under plans to 
w^hich this title applies, and 
(3) to maintain premiums established by the corporation under 
section 4006 at the lowest level consistent with carrying out its 
obligations under this title. 
(b) To carry out the purposes of this title, the corporation has the 
powers conferred on a nonprofit corporation under the District of 
Columbia Nonprofit Corporation Act and, in addition to any specific 
power granted to the corporation elsewhere in this title or under that 
Act, the corporation has the power— 
(1) to sue and be sued, complain and defend, in its coi'porate 
name and through its own counsel, in any court, State or Federal; 
(2) to adopt, alter, and use a corporate seal, which shall be 
judicially noticed; 
(3) to adopt, amend, and repeal, by the board of directors, 
bylaws, rules, and regulations relating to the conduct of its busi-
ness and the exercise of all other rights and powers granted to it 
by this Act; 
(4) to conduct its business (including the carrying on of opera-
tions and the maintenance of offices) and to exercise all other 
rights and powers granted to it by this Act in any State or other 
jurisdiction without regard to qualification, licensing, or other 
requirements imposed by law in such State or other jurisdiction; 
(5) to lease, purchase, accept gifts or donations of, or otherwise 
to acquire, to own, hold, improve, use, or otherwise deal in or with, 
and to sell, convey, mortgage, pledge, lease, exchange, or otherwise 
dispose of, any property, real, personal, or mixed, or any interest 
therein wherever situated; 
(6) to appoint and fix the compensation of such officers, attor-
neys, employees, and agents as may be required, to determine their 
qualifications, to define their duties, and, to the extent desired by 
the corporation, require bonds for them and fix the penalty 
88 STAT. ] 
PUBLIC LAW 93^06-SEPT. 2, 1974 
1005 
thereof, and to appoint and fix the compensation of experts and 
consultants in accordance with the provisions of section 3109 of 
title 5, United States Code; 
(7) to utilize the personnel and facilities of any other agency 
or department of the United States Government, with or without 
reimbursement, with the consent of the head of such agency or 
department; and 
(8) to enter into contracts, to execute instruments, to incur lia-
bilities, and to do any and all other acts and things as may be 
necessary or incidental to the conduct of its business and the 
exercise of all other rights and powers granted to the corporation 
by this Act. 
(c) Section 5108 of title 5, United States Code, is amended by 
adding at the end thereof the following new subsection: 
" (g) In addition to the number of positions authorized by subsec-
tion (a), the Pension Benefit Guaranty Corporation is authorized, 
without regard to any other provision of this section, to place one 
position in the corporation at GS-18 and a total of 10 positions in the 
corporation at GS-16 and 17.". 
(d) The board of directors of the corporation consists of the Secre- 
Membership. 
tary of the Treasury, the Secretary of Labor, and the Secretary of 
Commerce. Member's of the board shall serve without compensation, 
but shall be reimbursed for travel, subsistence, and other necessary 
expenses incurred in the performance of their duties as members of the 
board. The Secretary of Labor is the chairman of the board of 
directors. 
(e) The board of directors shall meet at the call of its chairman, 
or as otherwise provided by the bylaws of the corporation. 
(f) As soon as practicable, but not later than 180 days after the 
Bylaws and 
date of enactment of this Act, the board of directors shall adopt initial '^"^^^• 
bylaws and rules relating to the conduct of the business of the corpora-
tion. Thereafter, the board of directors may alter, supplement, or 
repeal any existing bylaw or rule, and may adopt additional bylaws 
and rules from time to time as may be necessary. The chairman of the 
Publication in 
board shall cause a copy of the bylaws of the corporation to be pub- ^^'^^''''^ Register. 
lished in the Federal Register not less often than once each year. 
(g) (1) The corporation, its property, its franchise, capital, reserves. 
Tax exemption. 
surplus, and its income (including, but not limited to, any income 
of any fund established under section 4005), shall be exempt from 
all taxation now oi- hereafter imposed by any State or local taxing 
authority, except that any real property and any tangible personal 
property (other than cash and securities) of the corporation shall be 
subject to State and local taxation to the same extent according to its 
value as other real and tangible personal property is taxed. 
(2) The receipts and disbursements of the corporation in the dis-
charge of its functions shall not be included in the totals of the budget 
of the United States Government and shall be exempt from any gen-
eral limitations imposed by statute on budget outlays of the United 
States. Except as explicitly provided in this title, the United States 
is not liable for any obligation or liability incurred by the corporation. 
(3) Section 101 of the Government Corporation Control Act (31 
U.S.C. 846) is amended by inserting before the period a semicolon and 
the following: "and Pension Benefit Guaranty Corporation". 
(h) (1) There is established an advisory committ-ee to the corpora- 
Advisory com-
tion, for the purpose of advising the corporation as to its policies and ""Es^tabiishment. 
procedvrres relating to (A) the appointment of trustees in termination 
proceedings, (B) investment of moneys, (C) whether plans being ter-
minated should be liquidated immediately or continued in operation 
under a trustee, and (D) such other issues as the corporation may 
1006 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
request from time to time. The advisory committee may also recom-
mend persons for appointment as trustees in termination proceedings, 
make recommendations with respect to the investment of moneys in the 
funds, and advise the corporation as to whether a plan subject to being 
terminated should be liquidated immediately or continued in opera-
tion under a trustee. 
Membership. 
^2) The advisory committee consists of seven members appointed, 
from among individuals recommended by the board of directors, by 
the President. Of the seven members, two shall repr-esent the interests 
of employee organizations, two shall represent the interests of 
employer's who maint-ain pension plans, and three shall represent the 
interests of the general public. The President shall designate one 
member as chairman at the time of the appointment of that member. 
'^^'"'"s- 
(3) Members shall serve for terms of o years each, except that, of 
the members first appointed, one of the members representing the 
interests of employee organizations, one of the members representing 
the interests of employers, and one of the members representing the 
interests of the general public shall be appointed for terms of 2 years 
each, one of the membei'S representing the interests of the general 
public shall be appointed for a term of 1 year, and the other members 
shall be appointed to full 3-year terms. The advisory committee shall 
meet at least six times each year and at such other times as may be 
determined by the chairman or requested by any thi-ee members of the 
advisory committee. 
(4) Members shall be chosen on the basis of their experience with 
employee organizations, with employers who maintain pension plans, 
with the administration of pension plans, or otherwise on account of 
outstanding demonstrated ability in related fields. Of the members 
serving on the advisory committee at any time, no more than four 
shall be affiliated with the same political party. 
(5) An individual appointed to fill a vacancy occurring other than 
by the expiration of a term of office shall be appointed only for the 
unexpired term of the member he succeeds. Any vacancy occurring 
in the office of a membei- of the advisory committee shall be filled in the 
manner in which that office was originally filled. 
Compensation. 
(^Q^ ^-'jjg advisory committce shall appoint and fix the compensation 
of such employees as it determines necessary to discharge its duties, 
including experts and consultants in accordance with the provisions 
of section 3109 of title 5, United States Code. The corporation shall 
furnish to the advisory committee such professional, secretarial, and 
other services as the committee may request. 
(T) Members of the advisory committee shall, for each day (includ-
ing traveltime) during which they are attending meetings or con-
ferences of the committee or otherwise engaged in the business of the 
committee, be compensated at a rate fixed by the corporation which is 
not in excess of the daily ecpiivalent of the annual rate of basic pay 
in effect for grade GS-IS of the General Schedule, and while away 
from their homes or r-egular places of business they may be allowed 
travel expenses, including per diem in lieu of subsistence, as author-
ized by section 5703 of title 5, United States Code. 
5 use app. I. 
^g^ rpj^g Federal Advisory Committee Act does not apply to the 
advisory committee established by this subsection. 
INVESTIGATORY AUTHORITY ; COOPKRATION WITH OTHER AGENCIES; 
CIVIL ACTIONS 
SEC. 4003. (a) The corporation may make such investigations as it 
deems necessary to determine whether any person has violated or is 
about to violate any provision of this title or any rule or regulation 
thereunder, and may require or permit any person to file with it a 
5 use 5332 
note. 
29 use 1303. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1007 
statement in writing, under oath or otherM-ise as the corporation shall 
determine, as to all the facts and circumstances concerning the matter 
to be investigated. 
(b) For the purpose of any such investigation, or any other pro-
ceeding under this title, any member of the board of directors of the 
corporation, or any officer designated by the chairman, may admin-
ister oaths and affirmations, subpena witnesses, compel their attend-
ance, take evidence, and require the production of any books, papers, 
correspondence, memoranda, or other records which the corporation 
deems relevant or material to the inquiry. 
(c) In case of contumacy by, or refusal to obey a subpena issued to, 
any person, the corporation may invoke the aid of any court of the 
United States within the jurisdiction of which such investigation or 
proceeding is carried on, or Avhere such person resides or carries on 
business, in requiring the attendance and testimony of witnesses and 
the production of books, papers, correspondence, memoranda, and 
other records. The court may issue an order requiring such person to 
appear before the corporation, or member or officer designated by the 
corporation, and to produce records or to give testimony related to the 
matter under investigation or in question. Any failure to obey such 
order of the court may be punished by the court as a contempt thereof. 
All process in any such case may be served in the judicial district in 
which such person is an inhabitant or may be found. 
(d) In order to avoid unnecessary expense and duplication of func-
tions among government agencies, the corporation may make such 
arrangements or agreements for cooperation or mutual assistance in 
the performance of its functions under this title as is practicable and 
cohsistent with law. The corporation may utilize the facilities or serv-
ices of any department, agency, or establishment of the United States 
or of any State or political subdivision of a State, including the serv-
ices of any of its employees, with the lawful consent of such depart-
ment, agency, or establishment. The head of each department, agency, 
or establishment of the United States shall cooperate with the corpora-
tion and, to the extent permitted by law, provide such infoi-mation 
and facilities as it may request for its assistance in the perform-
ance of its functions under this title. The Attorney General or his 
representative shall receive from the corporation for appropriate 
action such evidence developed in the performance of its functions 
under this title as may be found to warrant consideration for criminal 
prosecution under the provisions of this or any other Federal law. 
(e) (1) Civil actions may be brought by the corporation for appro-
priate relief, legal or equitable or both, to redress violations of the 
provisions of this title. 
(2) Except as otherwise provided in this title, where such an action 
is brought in a district court of the United States, it may be brought 
in the district where the plan is administered, where the violation took 
place, or where a defendant resides or may be found, and process may 
be served in any other district where a defendant resides or may be 
found. 
(3) The district courts of the United States shall have jurisdiction 
jurisdiction. 
of actions brought by the corporation under this title without regard 
to the amount in controversy in any such action. 
(4) Upon application by the corporation to a court of the United 
States for expedited handling of any case in which the corporation is 
a party, it is the duty of that court to assign such case for hearing at 
the earliest practical date and to cause such case to be in every way 
expedited. 
(5) In any action brought under this title, whether to collect pre-
miums, penalties, and interest under section 4007 or for any other 
1008 
PUBLIC LA\^ 93-406-SEPT. 2, 1974 
[88 STAT. 
purpose, the court may award to the corporation all or a portion of 
the costs of litigation incurred by the corporation in connection with 
such action, 
(f) Any participant, beneficiary, plan administrator, or employee 
adversely affected by any action of the corporation, or by a receiver 
or trustee appointed by the corporation, with respect to a plan in 
which such participant, beneficiary, plan administrator or employer 
has an interest, may bring an action against the corporation, receiver, 
or trustee in the appropriate court. For purposes of this subsection 
the term "appropriate court" means the United States district court 
Posf, pp. 1020, before which proceedings under section 4041 or 4042 of this title are 
being conducted, or if no such proceedings are being conducted the 
United States district court for the district in which the plan has 
its principal office, or the United States district court for the District 
of Columbia. The district courts of the United States have jurisdiction 
of actions brought under this subsection without regard to the amount 
in controversy. 
29 u s e 1304. 
Ante, p. 874. 
TEMPORARY AUTHORITY FOR INITIAL 
PERIOD 
SEC. 4004. (a) Notwithstanding anything to the contrary in this 
title, the corporation may, upon receipt of notice that a plan is to be 
terminated or upon making a determination described in section 4042, 
appoint a receiver whose powers shall take effect immediately. The 
receiver shall assume control of such plan and its assets, protecting 
the interests of all interested persons during subsequent proceedings. 
(b) (1) Within a reasonable time, not exceeding 20 days, after the 
appointment of a receiver under subsection (a), the corporation shall 
apply to an appropriate United States district court for a decree 
approving such appointment. The court to which application is made 
shall issue a decree approving such appointment unless it determines 
that such approval would not be in the best interests of the participants 
and beneficiaries of the plan. 
(2) If the court to which application is made under paragraph (1) 
dismisses the application with prejudice, or if the corporation fails to 
apply for a decree under paragraph (1) within 20 days after the 
appointment of the receiver, the receiver shall transfer all assets 
and records of the plan held by him to the plan administrator within 
3 business days after such dismissal or the expiration of the 20 day 
period. The receiver shall not be liable to the plan or to any other 
person for his acts as receiver other than for willful misconduct, or 
for conduct in violation of the provisions of part 4 of subpart B of 
title I of this Act (except to the extent that the provisions of section 
4042(d) (1) (A) provide otherwise). 
(c) The corporation is authorized, as an alternative to appointing a 
receiver under subsection (a), to direct a plan administrator to apply 
to a district court of the United States for the appointment of a 
receiver to assume control of the plan and its assets for the purpose of 
protecting the interests of all interested persons until the plan can be 
terminated under the provisions of this title. 
(d) A receiver appointed under this section has the powers of a 
trustee under section 4042(d) (1) (A) and (B), and shall report to 
the corporation and the court on the plan from time to time as re-
quired by either the corporation or the court. As soon as practicable 
after his appointment, a receiver appointed under this section shall 
determine whether the assets of the plan are sufficient to discharge 
when due all obligations of the plan with respect to benefits guaranteed 
Post, p. 1025. 
under this title in accordance with the requirements of section 4044. 
If the determination of the receiver is approved by the corporation and 
the court, the receiver shall proceed as if he were a trustee appointed 
under section 4042. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1TO9 
(e) A receiver may not be appointed under this section more than 
270 days after the date of enactment of this Act. 
(f) In addition to its other powers under this title, for only the first 
270 days after the date of enactment of this Act the corporation may— 
(1) contract for printing without regard to the provisions of 
chapter 5 of title 44, TJnited States Code, 
44 use soi. 
(2) waive any notice required under this title if the corporation 
finds that a waiver is necessary or appropriate, 
(3) extend the 90-day period referred to in section 4041 (a) for 
^''^'' P- 1020. 
an additional 90 days without the agreement of the plan adminis-
trator and without application to a court as required under section 
4041(d), and 
(4) waive the application of the provisions of sections 4062, 
4063, and 4064 to, or reduce the liability imposed under such sec- jo^o^i'osT ^°^^' 
tions on, any employer with respect to a plan terminating during 
that 270 day period if the corporation determines that such waiver 
or reduction is necessary to avoid unreasonable hardship in any 
case in which the employer was not able, as a practical matter, to 
continue the plan. 
ESTABLISHMENT OF PENSION BENEEIT GUARANTY FUNDS 
SEC. 4005. (a) There are established on the books of the Treasury 
of the United States four revolving funds to be used by the corporation 
in carrying out its duties under this title. One of the funds shall be 
used in connection with benefits guaranteed under sections 4022 and 
4023 (but not non-basic benefits) with respect to plans other than 
multiemployer plans, one of the funds shall be used with respect to 
such benefits guaranteed under such sections (other than non-basic 
benefits) for multiemployer plans, one of the funds shall be used with 
respect to non-basic benefits, if any are guaranteed by the corporation 
under section 4022, for plans which are not multiemployer plans, and 
the remaining fund shall be used with respect to non-basic benefits, 
if any are guaranteed by the corporation under section 4022, for multi-
employer plans. Whenever in this title reference is made to the term 
"fund" the reference shall be considered to refer to the appropriate 
fund established under this subsection. 
(b) (1) Each fund established under this section shall be credited 
with the appropriate portion of— 
(A) funds borrowed under subsection (c), 
(B) premiums, penalties, interest, and charges collected under 
this title, 
(C) the value of the assets of a plan administered under section 
4042 by a trustee to the extent that they exceed the liabilities of 
such plan, 
(D) the amount of any employer liability payments under 
subtitle D, to the extent that such payments exceed liabilities of 
the plan (taking into account all other plan assets), 
(E) earnings on investments of the fund or on assets credited 
to the fund under this subsection, and 
(F) receipts from any other operations under this title. 
(2) Subject to the provisions of subsection (a), each fund shall be 
available— 
(A) for making such payments as the corporation determines 
are necessary to pay benefits guaranteed under section 4022, 
(B) ior making such payments as the corporation determines 
are necessarv under section 4023, 
29 use 1305. 
1010 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(C) to purchase assets from a plan being terminated by the 
corporation when the corporation determines such purchase will 
best protect the interests of the corporation, participants in the 
plan being terminated, and other insured plans, 
(D) to repay to the Secretary of the Treasury such sums as 
may be borrowed (together with interest thereon) under subsec-
tion (c), and 
(E) to pay the operational and administrative expenses of the 
corporation, including reimbursement of the expenses incurred by 
the Department of the Treasury in maintaining the funds, and the 
Comptroller General in auditing the corporation. 
(3) Whenever the corporation determines that the moneys of any 
fund are in excess of current needs, it may request the investment of 
such amounts as it determines advisable by the Secretary of the Treas-
ury in obligations issued or guaranteed by the United States but, until 
all borrowings under subsection (c) have been repaid, the obligations 
in which such excess moneys are invested may not yield a rate of return 
in excess of the rate of interest payable on such borrowings. 
(c) The corporation is authorized to issue to the Secretary of the 
Treasury notes or other obligations in an aggregate amount of not to 
exceed $100,000,000, in such forms and denominations, bearing such 
maturities, and subject to such terms and conditions as may be pre-
scribed by the Secretary of the Treasury. Such notes or other obliga-
tions shall bear interest at a rate determined by the Secretary of the 
Treasury, taking into consideration the current average market yield 
on outstanding marketable obligations of the United States of com-
parable maturities during the month pi-eceding the issuance of such 
notes or other obligations of the corporation. The Secretary of the 
Treasury is authorized and directed to purchase any notes or other 
obligations issued by the corporation under this subsection, and for 
that purpose he is authorized to use as a public debt transaction the 
proceeds from the sale of any securities issued under the Second Lib-
31 use 774. 
gp^y j^QYY^ ^f.^^ ^g amended, and the purposes for which securities may 
be issued under that Act, as amended, are extended to include any 
purchase of such notes and obligations. The Secretary of the Treasury 
may at any time sell any of the notes or other obligations acquired by 
him under this subsection. All redemptions, purchases, and sales by 
the Secretary of the Treasury of such notes or other obligations shall 
be treated as public debt transactions of the United States. 
P R E M I U M RATES 
29 use 1306. 
gjjQ 4006. (a) (1) The corporation shall prescribe such insurance 
premiilm rates and such coverage schedules for the application of 
those rates as may be necessary to provide sufficient revenue to the 
fund for the 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 such section. The pre-
mium rates charged by the corporation for any period for non-basic 
benefits guaranteed by it shall be uniform by category of non-basic 
benefit guaranteed, shall be based on the risk insured in each category, 
and shall reflect the experience of the corporation (including reason-
ably anticipated experience) in guaranteeing such benefits. 
(2) The corporation shall maintain separate coverage schedules 
for— 
(A) basic benefits guaranteed by it under section 4022 for— 
(i) plans which are multiemployer plans, and 
(ii) plans which are not multiemployer plans, 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1011 
(B) employers insured under section 4023 against liability 
under subtitle D of this title, and 
(C) non-basic benefits. 
Except as provided in paragraph (3), the corporation may revise 
such schedules whenever it determines that revised rates are necessary, 
but a revised schedule described in subparagraph (A) shall apply only 
to plan years beginning more than 30 days after the date on which the 
Congress approves such revised schedule by a concurrent resolution. 
(3) Except as provided in paragraph (4), the rate for all plans for 
benefits guaranteed under section 4022 (other than non-basic benefits) 
with respect to plan years ending no more than 35 months after the 
effective date of this title is — 
(A) in the case of each plan which is not a multiemployer plan, 
an amount equal to one dollar for each individual who is a par-
ticipant in such plan at any time during the plan year; and 
(B) in the case of a multiemployer plan, an amount equal to 
fifty cents for each individual who is a participant in such plan 
at any time during such plan year. 
The rate applicable under this paragraph to any plan the plan year 
of which does not begin on the date of enactment of this Act is a frac-
tion of the rate described in the preceding sentence, the numerator of 
which is the number of months which end before the date on which 
the new plan year commences and the denominator of which is 12. The 
corporation is authorized to prescribe regulations under which the 
rate described in subparagraph (B) M'il] not apply to the same partici-
pant in any multiemployer plan more than once for any plan year. 
(4) Upon notification filed with the corporation not less than 60 
days after the date on which the corporation publishes the rates appli-
cable under paragraph (5), at the election of a plan the rate applicable 
to that plan with respect to the second full plan year to which this 
section applies beginning after the date of enactment of this Act shall 
be the greater of — 
(A) an alternative rate determined under paragraph (5), or 
(B) one-half of the rate applicable to the plan under paragraph 
In the case of a multiemployer plan, the rate prescribed by this para-
graph (at the election of a plan) for the second full plan year is also 
the applicable rate for plan years succeeding the second full plan 
year and ending before the full plan year first commencing after 
becember 31,1977. 
(5) In carrying out its authority under paragraph (1) to establish 
premium rates and bases for basic benefits guaranteed under section 
4022 the corporation shall establish such rates and bases in coverage 
schedules for plan years beginning 24 months or more after the date 
of enactment of this Act in accordance with the provisions of this 
paragraph. The corporation shall publish the rate schedules first appli-
cable under this paragraph in the Federal Register not later than 270 
days after the date of enactment of this Act. 
(A) The corporation may establish annual premiums composed 
of— 
(i) 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 for plans which are not multiemployer plans and not 
m excess of 0.025 percent for multiemployer plans, and 
(ii) an additional charge based on the rate applicable to 
the present value of the basic benefits of the plan which are 
guaranteed, determined separately for multiemployer plans 
and for plans which are not multiemployer plans. 
Publication in 
Federal Register. 
1012 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
The rate for the additional charge referred to in clause (ii) shall 
be set by the corporation for every year at a level (determined 
separately for multiemployer plans and for plans which are not 
multiemployer plans) which the corporation estimates will jdeld 
total revenue approximately equal to the total revenue to be 
derived by the corporation from the premiums referred to in 
clause (i) of this subparagraph, 
(B) The corporation may establish annual premiums 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 under subparagraph (A) (i), or 
(iii) total guaranteed basic benefits, but such premium 
rates may not exceed the rates determined under subpara-
graph (A)(ii). 
If the corporation uses 2 or more of the rate bases described in 
this subparagraph, the premium rates shall be designed to pro-
(hice a[)proximate]y equal amounts of aggregate premium revenue 
f lom each of the rate bases used. 
Regulations. 
^('^ -^pj^g corporatlou shall by regulation define the terms "value 
of the assets" and "present value of the benefits of the plan which 
are guaranteed" in a manner consistent with the purposes of this 
title aud the provisions of this section. 
res^sT*^'\°c^o^." 
(^)(1) ^^^ ordcr to place a revised coverage schedule (other than 
mittees. 
a schedulc described in subsection (a) (2) (B) or (C) in effect, 
the corporation shall transmit the proposed schedule, its proposed 
eli'ective date, and the reasons for its proposal to the Committee on 
Ways and Means and the Committee on Education and Labor of the 
House ol' Representatives, and to the Committee on Finance and the 
Committee on Labor and Public Welfare 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 I louse of Representatives, respectively, and as such they shall be 
deemed a part of the rules of each House, respectively, but appli-
cable only with respect to the procedure to be followed in that House 
in tlie case of resolutions described in paragraph (3). They shall 
supei'sede 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 
procedui'e 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. 
"Resolution." 
(3) jfor thc purposc of the succeeding paragraphs of this sub-
section, "resolution" means only a concurrent resolution, the matter 
after- tlie resolving clause of which is as follows: "That the Congress 
favors the proposed revised coverage schedule transmitted to Con-
gress by the Pension Benefit Guaranty Corporation on 
.", the 
blank space therein being filled with the date on which the corpora-
tion's message proposing the rate was delivered. 
(4) A resolution shall be referred to the Committee on Ways anil 
Means and the Committee on Education and Labor of the House of 
Representatives and to the Committee on Finance and the Committee 
on IjaboT- and Public Welfare of the Senate. 
(6) If a committee to which has been referred a resolution has not 
reported it before the expiration of 10 calendar days after its intro-
duction, it shall then (but not before) be in order to move to dis-
charge the committee from further consideration of that resolution, 
or to discharge the committee from further consideration of any other 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
10L3 
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 in order to move to I'econsider 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 conmiittee 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 recon-
sider 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. 
PAYMENT OF PREMIUMS 
SEC. 4007. (a) The plan administrator of each plan shall pay the 
premiums imposed by the corporation under this title with respect to 
that plan when they are due. Any emploj^er obtaining contingent lia-
bility coverage under section 4023 shall pay the premiums imposed 
by the corporation under that section when due. Premiums under this 
title are payable at the time, and on an estimated, advance, or other 
basis, as determined by the corporation. Premiums imposed by this 
title on the date of enactment (applicable to that portion of any plan 
year during which such date occurs) are due within 30 days after such 
date. Premiums imposed by this title on the first plan year commenc-
ing after the date of enactment of this Act are due within 30 days after 
such plan year commences. Premiums shall continue to accrue 
until a plan's assets are distributed pursuant to a termination 
procedure, or until a trustee is appointed pursuant to section 4042, 
whichever is earlier. 
(b) If any basic benefit premium is not paid M-hen it is due the 
corporation is authorized to as?ess a late payment charge of not more 
than 100 percent of the premium payment wliich was not timely paid. 
The preceding: sentence shall not apply to any payment of premium 
made within 60 days after the date on which payment is due, if before 
such date, the plan administrator obtains a waiver from the 
corporation based upon a showing of substantial hardship arising 
29 use 1307. 
S8-194 O - 76 - 67 Pt. 1 
26 u s e 6601. 
1014 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
from the timely payment of the premium. The corporation is 
authorized 
to 
grant 
a 
waiver 
under 
this 
subsection 
upon 
application made by the plan administrator, but the corporation may 
not grant a waiver if it appears that the plan administrator will be 
unable to pay the premium within 60 days after the date on which 
it is due. If any premium is not paid by the last date prescribed for 
a payment, interest on the amount of such premium at the rate 
imposed under section 6601(a) of the Internal Revenue Code of 1954 
(relating to interest on underpayment, nonpayment, or extensions of 
time for payment of tax) sliall be paid for the period from such last 
date to the date paid. 
(c) If any plan administrator fails to pay a premium when due, the 
corporation is authorized to bring a civil action in any district court 
of the United States within the jurisdiction of which the plan assets 
are located, the plan is administered, or in which a defendant resides 
or is found for the recovery of the amount of the premium penalty, 
and interest, and process may be served in any other district. The 
district courts of the United States shall have jurisdiction over actions 
brought under this subsection by the corporation without regard 
to the amount in controversy. 
(d) The corporation shall not cease to guarantee basic benefits on 
account of the failure of a plan administrator to pay any premium 
when due. 
REPORT BY T H E 
CORPORATION 
29 use 1308. 
gj,Q^ 4008. As soon as practicable after the close of each fiscal year 
the corporation shall transmit to the President and the Congress a 
report relative to the conduct of its business under this title for that 
fiscal year. The report shall include financial statements setting forth 
the finances of the corporation at the end of such fiscal year and the 
result of its operations (including the source and application of its 
funds) for the fiscal year and shall include an actuarial evaluation of 
the expected operations and status of the funds established under sec-
tion 4005 for the next five years (including a detailed statement of the 
actuarial assumptions and methods used in making such evaluation). 
PORTABILITY ASSISTANCE 
29 use 1309. 
gj,(^_ 4009. The corporation shall provide advice and assistance to 
individuals with respect to evaluating the economic desirability of 
establishing individual retirement accounts or other forms of individ-
ual retirement savings for which a deduction is allowable under section 
Ante. p. 958. 
g^g ^^ ^^^^ Internal Revenue Code of 1954 and with respect to evaluat-
ing the desirability, in particular cases, of transferring amounts 
representing an employee's interest in a qualified plan to such an 
account upon the employee's separation from service with an employer. 
Subtitle B—Coverage 
29 u s e 1321, 
PLANS COVERED 
SEC. 4021. (a) Except as provided in subsection (b), this section 
applies to any plan (including a successor plan) which, for a plan 
year— 
(1) is an employee pension benefit plan 
(as defined in 
Ante, p. 833. 
paragraph 
(2) 
of section 3 of this Act) 
established 
or 
maintained— 
(A) by an employer engaged in commerce or in any 
industry or activity affecting commerce, or 
26 use 401, 
45 use 215-228 
notes, 228a-
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
10L5 
(B) 
by any employee organization, or 
organization 
representing employees, engaged in commerce or in any 
industry or activity affecting commerce, or 
(C) by both, 
which has, in practice, met the requirements of part I of sub-
chapter D of chapter 1 of the Internal Revenue Code of 1954 (as 
in effect for the preceding 5 plan years of the plan) applicable to 
plans described in paragraph (2) for the preceding 5 plan years; 
or 
(2) is, or has been determined by the Secretary of the Treasury 
to be, a plan described in section 401(a) of the Internal Revenue 
Code of 1954, or which meets, or has been determined by the Sec-
retary of the Treasury to meet, the requirements of section 404 (a) 
(2) of such Code. 
For purposes of this title, a successor plan is considered to be a con-
tinuation of a predecessor plan. For this purpose, a successor plan is a 
plan which covers a group of employees which includes substantially 
the same employees as a previously established plan, and provides 
substantially the same benefits as that plan provided, 
(b) This section does not apply to any plan— 
(1) which is an individual account plan, as defined in 
paragraph (34) of section 3 of this Act, 
^"'''' P- ^^^ 
(2) established and maintained for its employees by the Gov-
ernment of the L^nited States, by the government of any State 
or political subdivision thereof, or by any agency or instrumental-
ity of any of the foregoing, or to which the Railroad Retirement 
Act of 1935 or 1937 applies and which is financed by contributions 
required under that Act, 
228"s-2. 
(3) which is a church plan as defined in section 414(e) of the 
Internal Revenue Code of 1954, unless that plan has made an 
^"'^' P- ^2 5 
election under section 410(d) of such Code, and has notified the 
'^"^^' ^' ^^^ 
corporation in accordance with procedures prescribed by the 
corporation, that it wishes to have the provisions of this part 
apply to it, 
(4) (A) established and maintained by a society, order, or asso-
ciation described in section 501(c) (8) or (9) of the Internal 
Revenue Code of 1954, if no part of the contributions to or under 
^e use 501. 
the plan is made by employers of participants in the plan, or 
(B) of which a trust described in section 501(c) (18) of such 
Code is a part; 
(5) which has not at any time after the date of enactment of 
this Act provided for employer contributions; 
(6) which is unfunded and which is maintained by an employer 
primarily for the purpose of providing deferred compensation 
for a select group of management or highly compensated 
employees; 
(7) which is established and maintained outside of the United 
States primarily for the benefit of individuals substantially all of 
whom are nonresident aliens; 
(8) which is maintained by an employer solely for the purpose 
of providing benefits for certain employees in excess of the limita-
tions on contributions and benefits imposed by section 415 of the 
Internal Revenue Code of 1954 on plans to which that section 
^"'e, p. 979 
applies, without regard to whether the plan is funded, and, to 
the extent that a separable part of a plan (as determined by the 
corporation) maintained by an employer is maintained for such 
purpose, that part shall be treated for purposes of this title, as 
a separate plan which is an excess benefit plan; 
1016 
PUBLIC LAW 93-406~SEPT. 2, 1974 
[88 STAT. 
22 u s e 288 
note. 
Ante, 
p. 833. 
"Individual ac-
count plan." 
"Professional 
service em-
ployer." 
"Professional 
individuals." 
(9) which is established and maintained exclusively for sub-
stantial owners as defined in section 4022 (b) (6) ; 
(10) of an international organization which is exempt from 
taxation under the International Organizations Immunities Act; 
(11) maintained solely for the purpose of complying with appli-
cable Avorkmen's compensation laws or unemployment com-
pensation or disability insurance laws; 
(12) which is a defined benefit plan, to the extent that it is 
treated as an individual account plan under paragraph (o5) (B) 
of section 3 of this Act; or 
(13) established and maintained by a professional service 
employer which does not at any time after the date of enactment of 
this Act have more than 25 active participants in the plan. 
(c)(1) For purposes of subsection (b)(1), the term "individual 
account plan" does not include a plan under which a fixed benefit is 
promised if the employer or his representative participated in the 
determination of that benefit. 
(2) For purposes of this paragraph and for purposes of subsection 
( b ) ( 1 3 ) -
(A) the term "professional service employer" means any pro-
prietorship, partnership, corporation, or other association or 
organization (i) owned or controlled by professional individuals 
or by executors or administrators of professional individuals, (ii) 
the principal business of which is the performance of professional 
services, and 
(B) the term "professional individuals" includes but is not lim-
ited to, physicians, dentists, chiropractors, osteopaths, optome-
trists, other licensed practitioners of the healing arts, attorneys at 
law, public accountants, public engineers, architects, draftsmen, 
actuaries, psychologists, social or physical scientists, and per-
forming artists. 
(3) In the case of a plan established and maintained by more than 
one professional service employer, the plan shall not be treated as a 
plan described in subsection (b)(13) if, at any time after the date 
of enactment of this xVct the plan has more than 25 active participants. 
29 u s e 1322. 
BENEFITS GUARANTEED 
SEC. 4022. (a) Subject to the limitations contained in subsection (b), 
the corporation shall guarantee the payment of all nonforfeitable 
benefits (other than benefits becoming nonforfeitable solely on account 
of the termination of a plan) under the terms of a plan which termi-
nates at a time when section 4021 applies to it. 
(b)(1) Except to the extent provided in paragraph (8)— 
(A) no benefits provided by a plan which has been in effect for 
less than 60 months at the time the plan terminates shall be guar-
anteed under this section, and 
(B) any increase in the amount of benefits under a plan result-
ing from a plan amendment which was made, or became effec-
tive, whichever is later, within 60 months before the date on which 
the plan terminates shall be disregarded. 
(2) For purposes of this subsection, the time a successor plan (within 
the meaning of section 4021(a)) has been in effect inckides the time 
a previously established plan (within the meaning of section 4021 (a)) 
was in effect. For purposes of determining what benefits are guaran-
teed under this section in the case of a plan to which section 4021 does 
not apply on the day after the date of enactment of this Act, the 
60 month period referred to in paragraph (1) shall be computed 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1017 
beginning on the first date on which such section does apply to the 
plan. 
(3) The amount of monthly benefits described in subsection (a) 
provided by a plan, which are guaranteed under this section with 
respect to a participant, shall not have an actuarial value which exceeds 
the actuarial value of a monthly benefit in the form of a life annuity 
commencing at age 65 equal to the lesser of— 
(A) his average monthly gross income from his employer dur-
ing the 5 consecutive calendar year period (or, if less, during the 
number of calendar years in such period in which he actively par-
ticipates in the plan) during which his gross income from that 
employer was greater than during any other such period with 
that employer determined by dividing 1/12 of the sum of all such 
gross income by the number of such calendar years in which he 
had such gross income, or 
(B) $750 multiplied by a fraction, the numerator of which is 
the contribution and benefit base (determined under section 230 
of the Social Security Act) in effect at the time the plan termi- 
'*^ "^^ ^^°^" 
nates and the denominator of which is such contribution and bene-
fit base in effect in calendar year 1974. 
The provisions of this paragraph do not apply to non-basic benefits. 
(4) (A) The actuarial value of a benefit, for purposes of this sub-
section, shall be determined in accordance with regulations prescribed 
by the corporation. 
(B) For purposes of paragraph (3)— 
(i) the term "gross income" means "earned income" within the 
meaning of section 911(b) of the Internal Revenue Code of 1954 
26 use 9ii. 
(determined without regard to any community property laws), 
(ii) in the case of a participant in a plan under which contri-
butions are made by more than one employer, amounts received 
as gross income from any employer under that plan shall be 
aggregated with amounts received from any other employer under 
that plan during the same period, and 
(iii) any non-basic benefit shall be disregarded. 
(5) Notwithstanding paragraph (3), no person shall receive from 
the corporation for basic benefits with respect to a participant an 
amount, or amounts, with an actuarial value which exceeds a monthly 
benefit in the form of a life annuity commencing at age 65 equal to the 
amount determined under paragraph (3) (B) at the time of the last 
plan termination. 
(6) (A) For purposes of this title, the term "substantial owner" 
"substantial 
• 
-f • 
" 1 
1 
1 
owner* 
means an individual who— 
(i) owns the entire interest in an unincorporated trade or 
business, 
(ii) in the case of a partnership, is a partner who owns, directly 
or indirectly, more than 10 percent of either the capital interest 
or the profits interest in such partnership, or 
(iii) in the case of a corporation, owns, directly or indirectly, 
more than 10 percent in value of either the voting stock of that 
corporation or all the stock of that corporation. 
For purposes of clause (iii) the constructive ownership rules of section 
1563(e) of the Internal Revenue Code of 1954 shall apply (determined 
without regard to section 1563(e)(3)(C)). For purposes of this 
title an individual is also treated as a substantial owner with respect 
to a plan if, at any time within the 60 months preceding the date on 
which the determination is made, he was a substantial owner under the 
plan. 
26 use 1563. 
1018 
PUBLIC LAW 93-406--SEPT. 2, 1974 
[88 STAT. 
(B) In the case of a participant in a plan under which benefits have 
not been increased by reason of any plan amendments and who is 
covered by the plan as a substantial owner, the amount of benefits 
guaranteed under this section shall not exceed the product of— 
(i) a fraction (not to exceed 1) the numerator of which is the 
number of years the substantial owner was an active participant 
in the plan, and the denominator of which is 30, and 
(ii) the amount of the substantial owner's monthly benefits 
guaranteed under subsection (a) (as limited under paragraph (3) 
of this subsection). 
(C) In the case of a participant in a plan, other than a plan 
described in subparagraph (B), who is covered by the plan as a 
substantial owner, the amount of the benefit guaranteed under this 
section shall, under regulations prescribed by the corporation, treat 
each benefit increase attributable to a plan amendment as if it were 
provided under a new plan. The benefits guaranteed under this sec-
tion with respect to all such amendments shall not exceed the amount 
which would be determined under subparagraph (B) if subpara-
graph (B) applied. 
(7) (A) No benefits accrued under a plan after the date on which 
the Secretary of the Treasury issues notice that he has determined that 
any trust which is a part of a plan does not meet the requirements of 
26 use 401. 
section 401 (a) of the Internal Kevenue Code of 1954, or that the plan 
26 use 404. 
(Joes uot mcct the requirements of section 404(a) (2) of such Code, 
are guaranteed under this section unless such determination is erro-
neous. This subparagraph does not apply if the Secretary subsequently 
issues a notice that such trust meets the requirements of section 401 (a) 
of such Code or that the plan meets the requirements of section 404 
(a) (2) of such Code and if the Secretary determines that the trust or 
plan has taken action necessary to meet such requirements during the 
period between the issuance of the notice referred to in the preceding 
sentence and the issuance of the notice referred to in this sentence. 
(B) Mo benefits accrued under a plan after the date on which an 
amendment of the plan is adopted which causes the Secretary of the 
Treasury to determine that any trust under the plan has ceased to meet 
the requirements of section 401(a) of the Intei-nal Revenue Code of 
1954 or that the plan has ceased to meet the requirements of section 
404(a) (2) of such Code, are guaranteed imder this section unless such 
determination is erroneous. This subparagraph shall not apply if the 
amendment is revoked as of the date it was first effective or amended 
to comply with such requirements. 
(8) Benefits described in paragraph (1) are guaranteed only to the 
extent of the greater of— 
(A) 20 percent of tb.e amount which, but for the fact that the 
plan or amendment lias not been in effect for 60 months or more, 
would be guaranteed under this section, or 
(B) $20 per month, 
multiplied by the number of years (but not more than 5) the plan 
or amendment, as the case may be, has been in effect. In determining 
how many years a plan or amendment has been in effect for purposes 
of this paragraph, the first 12 months following the date on which the 
plan or am.endment is made or first becomes effective (whichever is 
later) constitutes one year, and each consecutive period of 12 months 
thereafter constitutes an additional year. This paragraph does not 
apply to benefits payable under a plan unless the corporation finds 
substantial evidence that the plan was terminated for a reasonable 
business purpose and not for the purpose of obtaining the payment 
of benefits by the corporation under this title. 
88 STAT. ] 
PUBLIC LA\^ 93-406-SEPT. 2, 1974 
1019 
(c) The corporation is authorized to guarantee the payment of such 
other classes of benefits and to establish the terms and conditions under 
which such other classes of benefits are guaranteed as it determines to 
be appropriate. 
CONTINGENT LIABILITY COVERAGE 
29 u s e 1323. 
SEC. 4023. (a) The corporation shall insure any employer who main-
tains or contributes to or under a plan to which section 4021 applies 
against the payment of any liability imposed on him under subtitle D 
of this title in the event of a termination of that plan. The corporation 
^°^'* P- ^°^^' 
may develop arrangements with persons engaged in the business of 
providing insurance under which the insurance coverage described in 
the preceding sentence could be provided in whole or in part by such 
private insurers. In developing such arrangements the corporation 
shall devise a system under which risks are equitably disti'ibuted 
between the corporation and private insurers with respect to the classes 
of employers insured by each. 
(b) The corporation is authorized to prescribe and collect in such 
manner as it determines to be appropriate premiums for insui'ance 
offered under subsection (a). If the corporation requires all employei'S 
to which this title applies to purchase coverage under this section, the 
provisions of section 4007 (b) and (c) apply to the collection of pre-
miums under this section. The premiums shall be determined by the 
corporation and revised by it from time to time as may be necessar-y, 
and shall be chargeable at a rate sufficient to fund any payment by the 
corporation becoming necessary under such coverage. 
(c) If the corporation is, in its determination, able to develop a 
satisfactory arrangement with private insurers, within 36 months 
after the date of enactment of this Act, to carry out the progr-am of 
insurance authorized by this section in whole or in part, the corpoi-a-
tion is authorized to require employers to elect coverage by such pri-
vate insurance or by the corporation at such times and in such manner 
as the corporation determines necessary. 
(d) No payment may be made by the corporation under any insur-
ance provided by it under this section unless the premiums on such 
insurance have been paid by the employer and the insurance has been 
in effect (with respect to any benefit) for more than 60 months. The 
corporation is authorized to prescribe conditions under which no pay-
ment will be made by it under any insurance offered under this section 
without regard to whether premiums for such insurance have been 
paid. 
(e) Nothing in this section precludes the purchase by the employer 
of insurance from any other person, or limits the circumstances under 
which that insurance is payable, or in any way limits the terms and 
conditions of such insurance, except that the corporation may prescribe 
as a condition precedent to the purchase of such insurance the payment 
of a reinsurance premium or other reasonable fee under this section 
determined by the corporation to be necessary to assure the liquidity 
and adequacy of any fund or funds established to carry out the pro-
visions of this section. 
(f) In carrying out its duties under subsection (a) to develop 
arrangements with private insurers the corporation shall consider as 
an alternative or as a supplement to private insurance the feasibility 
of using private industry guarantees, indemnities, or letters of credit. 
1020 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
Subtitle C—Terminations 
29 u s e 1341. 
TERMINATIOlsr BY PLAN ADMINISTRATOR 
SEC. 4041. (a) Before the effective date of the termination of a plan, 
the plan administrator shall file a notice with the corporation that the 
plan is to be terminated on a proposed date (which may not be earlier 
than 10 days after the filing of the notice), and for a period of 90 days 
after the proposed termination date the plan administrator shall pay 
no amount pursuant to the termination procedure of the plan unless, 
before the expiration of such period, he receives a notice of sufficiency 
under subsection (b). Upon receiving such a notice, the plan admin-
istrator may proceed with the termination of the plan in a manner con-
sistent with this subtitle. 
(b) If the corporation determines that, after application of section 
4044, the assets held under the plan are sufficient to discharge when due 
all obligations of the plan with respect to basic benefits, it shall notify 
the plan administrator of such determination as soon as practicable. 
(c) If, within such 90-day period, the corporation finds that it is 
unable to determine that, if the assets of the plan are allocated in 
accordance with the provisions of section 4044, the assets held under 
the plan are sufficient to discharge when due all obligations of the plan 
with respect to basic benefits, it shall notify the plan administrator 
within such 90-day period of that finding. When the corporation issues 
a notice under this subsection, it shall commence proceedings in accord-
ance with the provisions of section 4042. Upon receiving a notice under 
this subsection, the plan administrator shall refrain from taking any 
action under the proposed termination. 
(d) The corporation and the plan administrator may agree to 
extend the 90-day period provided by this section by a written agree-
ment signed by the corporation and the plan administrator before the 
expiration of the 90-day period, or the corporation may apply to an 
appropriate court (as defined in section 4042(g)) for an order extend-
ing the 90-day period provided by this section. The 90-day period 
shall be extended as provided in the agreement or in any court order 
obtained by the corporation. The 90-day period may be further 
extended by subsequent written agreements signed by the corporation 
and the plan administrator made before the expiration of a previously 
agreed upon extension of the 90-day period, or by subsequent order of 
the court. Any extension may be made upon such terms and conditions 
(including the payment of benefits) as are agreed upon by the corpora-
tion and the plan administrator or as specified in the court order. 
(e) If, after the plan administrator has begun to terminate the plan 
as authorized by this section, the corporation or the plan administrator 
finds that the plan is unable, or will be unable, to pay basic benefits 
when due, the plan administrator shall notify the corporation of such 
finding as soon as practicable thereafter. If the corporation makes 
such a finding or concurs with the finding of the plan administrator, 
it shall institute appropriate proceedings under section 4042. The plan 
administrator terminating a plan shall furnish such reports to the cor-
poration as it may require for purposes of its duties under this section. 
(f) For purposes of subsection (a), a plan with respect to which 
basic benefits are guaranteed shall be treated as terminated upon the 
adoption of an amendment to such plan, if, after giving effect to such 
amendment, the plan is a plan described in section 4021 (b)(1). 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1021 
(g) Notwithstanding any other provision of this title, a plan admin-
istrator or the corporation may petition the appropriate court for the 
appointment of a trustee in accordance with the provisions of section 
4042 if the interests of the participants and beneficiaries would be 
better served by the appointment of the trustee. 
TERMINATION BY CORPORATION 
29 u s e 1342. 
SEC. 4042. (a) The corporation may institute proceedings under this 
section to terminate a plan whenever it determines that— 
(1) the plan has not met the minimum funding standard 
required under section 412 of the Internal Kevenue Code of 1954, ^"'^> P- ^i^. 
or has been notified by the Secretary of the Treasury that a notice 
of deficiency under section 6212 of such Code has been mailed with 
^^ "^^ ^^^^• 
respect to the tax imposed under section 4971(a) of such Code, 
^"*^' P- ^^°-
(2) the plan is unable to pay benefits when due, 
(3) the reportable event described in section 4043(b)(7) has 
P°^t> P- 1024. 
occurred, or 
(4) the possible long-run loss of the corporation with respect 
to the plan may reasonably be expected to increase unreasonably 
if the plan is not terminated. 
The corporation may prescribe a simplified procedure to follow in 
terminating small plans as long as that procedure includes substantial 
safeguards for the rights of the participants and beneficiaries under 
the plans, and for the employers who maintain such plans (including 
the requirement for a court decree under subsection (c)). The cor-
poration is authorized to pool the assets of such small plans for pur-
poses of administration and such other purposes, not inconsistent with 
its duties to the plan participants and the employer maintaining the 
plan under this title, as it determines to be required for the efficient 
administration of this title. 
(b) Whenever the corporation makes a determination under subsec-
tion (a) with respect to a plan it may, upon notice to the plan, apply 
to the appropriate United States district court for the appointment of 
a trustee to administer the plan with respect to which the determina-
tion is made pending the issuance of a decree under subsection (c) 
ordering the termination of the plan. If within 3 business days after 
the filing of an application under this subsection, or such other period 
as the court may order, the administrator of the plan consents to the 
appointment of a trustee, or fails to show why a trustee should not be 
appointed, the court may grant the application and appoint a trustee 
to administer the plan in accordance with its terms until the corpora-
tion determines that the plan should be terminated or that termination 
is unnecessary. The corporation may request that it be appointed as 
trustee of a plan in any case. 
(c) If the corporation has issued a notice under this section to a 
plan administrator and (whether or not a trustee has been appointed 
under subsection (b)) has determined that the plan should be termi-
nated, it may, upon notice to the plan administrator, apply to the 
appropriate United States district court for a decree adjudicating that 
the plan must be terminated in order to protect the interests of the 
participants and to avoid any further deterioration of the financial 
condition of the plan or any further increase in the liability of the 
fund. If the trustee appointed under subsection (b) disagrees with 
the determination of the corporation under the preceding sentence 
he may intervene in the proceeding relating to the application for the 
decree, or make application for such decree himself. Upon granting 
a decree for which the corporation or trustee has applied under this 
1022 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
subsection the court shall authorize the trustee appointed under sub-
section (b) (or appoint a trustee if one has not been appointed under 
such subsection and authorize him) to terminate the plan in accord-
ance with the provisions of this subtitle. If the corporation and the 
plan administrator agree that a plan should be terminated and agree 
to the appointment of a trustee without proceeding in accoi'dance with 
the requirements of this subsection (other than this sentence) the 
trustee shall have the power described in subsection (d) (1) and, in 
addition to any other duties imposed on the trustee under law or by 
agreement between the corporation and the plan administrator, the 
trustee is subject to the duties described in subsection (d) (3). When-
ever a trustee appointed under this title is operating a plan with dis-
cretion as to the date upon which final distribution of the assets is to 
be commenced, the trustee shall notify the corporation at least 10 days 
before the date on which he proposes to commence such distribution. 
(d)(1)(A) A ti*ustee appointed under subsection (b) shall have 
the power—• 
(i) to do any act authorized by the plan or this title to be done 
by the plan administrator or any trustee of the plan ; 
(ii) to require the transfer of all (or any part) of the assets 
and records of the plan to himself as trustee; 
(iii) to invest any assets of the plan which he holds in accord-
ance with the provisions of the plan, regulations of the corpora-
tion, and applicable rules of law; 
(iv) to limit payment of benefits under the plan to basic benefits 
or to continue payment of some or all of the benefits which were 
being paid prior to his appointment; and 
(v) to do such other acts as he deems necessary to continue 
operation of the plan without increasing the potential liability 
of the corporation, if such acts may be done under the provisions 
of the plan. 
If the court to which application is made under subsection (c) dis-
misses the application with prejudice, or if the corporation fails to 
apply for a decree under subsection (c) within 30 days after the date 
on which the trustee is appointed under subsection (b), the trustee 
shall transfer all assets and records of the plan held by him to the 
plan administrator within 3 business days after such dismissal or the 
expiration of such 30-day period, and shall not be liable to the plan 
or any other person for his acts as trustee except for willful miscon-
duct, or for conduct in violation of the provisions of part 4 of subtitle 
Ante. p. 874. 
j ^ ^f ^-^j^ j ^f ^j^-g ^^^ (except as provided in subsection (d) (1) (A) 
(v)). The 30-day period referred to in this subparagraph may be 
extended as provided by agreement between the plan administrator 
and the corporation or by court order obtained by the corporation. 
(B) If the court to which an application is made under subsection 
(c) issues the decree requested in such application, in addition to the 
powers described in subparagraph (A), the trustee shall have the 
power— 
(i) to pay benefits under the plan in accordance with the allo-
cation requirements of section 4044; 
(ii) to collect for the plan any amounts due the plan; 
(iii) to receive any payment made by the corporation to the 
plan under this title; 
(iv) to commence, prosecute, or defend on behalf of the plan 
any suit or proceeding involving the plan, except to the extent 
that the corporation is an adverse party in a suit or proceeding; 
Post, 
p. 1025. 
"Interested 
party." 
11 use 75. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1023 
(v) to issue, publish, or file such notices, statements, and 
reports as may be required by the corporation or any order of 
the court; 
(vi) to liquidate the plan assets; 
fvii) to recover payments under section 4045(a) ; and 
(viii) to do such other acts as may be necessary to comply with 
this title or any order of the court and to protect the interests 
of plan participants and beneficiaries. 
(2) As soon as practicable after his appointment, the trustee shall 
give notice to interested parties of the institution of proceedings 
under this title to determine whether the plan should be terminated 
or to terminate the plan, whichever is applicable. For purposes of this 
paragraph, the term "interested party" means— 
(A) the plan administrator, 
(B) each participant in the plan and each beneficiary of a 
deceased participant, and 
(C) each employer who may be subject to liability under 
section 4062, 4063, or 4064. 
(3) Except to the extent inconsistent with the provisions of this 
Act, or as may be otherwise ordered by the court, a trustee appointed 
under this section shall be subject to the same duties as a trustee 
appointed under section 47 of the Bankruptcy Act, and shall be, with 
respect to the plan, a fiduciary within the meaning: of paragraph (21) 
of section 3 of this Act and under section 4975(e) of the Internal 
'^"^^' P- ^^^• 
Revenue Code of 1954 (except to the extent that the provisions of this 
^"'®' P- ^'^^• 
title are inconsistent with the requirements applicable under part 4 
of subtitle B of title I of this Act and of such section 4975). 
^"'^' P- S^^-
(e) An application by the corporation under this section may be 
filed notwithstanding the pendency in the same or any other court of 
any bankruptcy, mortgage foreclosure, or equity receivership proceed-
ing, or any proceeding to reorganize, conserve, or liquidate such plan 
or its property, or any proceeding to enforce a lien against property 
of the plan. 
(f) Upon the filing of an application for the appointment of a 
trustee or the issuance of a decree under this section, the court to 
which an application is made shall have exclusive jurisdiction of the 
plan involved and its property wherever located with the powers, to 
the extent consistent with the purposes of this section, of a court of 
bankruptcy and of a court in a proceeding under chapter X of the 
Bankruptcy Act. Pending an adjudication under subsection (c) such 
^
^ use soi. 
court shall stay, and upon appointment by it of a trustee, as provided 
in this section such court shall continue the stay of, any pending bank-
ruptcy, mortgage foreclosure, equity receivership, or other proceeding 
to reorganize, conserve, or licjuidate the plan or its property and 
any other suit against any receiver, conservator, or trustee of the plan 
or its property. Pending such adjudication and upon the appoint-
ment by it of such trustee, the court may stay any proceeding to 
enforce a lien against property of the plan or any other suit against 
the plan. 
(g) An action under this subsection may be brought in the judicial 
district where the plan administrator resides or does business or 
where any asset of the plan is situated. A district court in which such 
action is brought may issue process with respect to such action in any 
other judicial district. 
(h) (1) The amount of compensation paid to each trustee appointed appr^^l?^^''""' 
under the provisions of this title shall require the prior approval of 
the corporation, and, in the case of a trustee appointed by a court, the 
consent of that court. 
1024 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(2) Trustees shall appoint, retain, and compensate accountants, 
actuaries, and other professional service personnel in accordance with 
regulations prescribed by the corporation. 
REPORTABLE EVENTS 
29 u s e 1343. 
Ante, p. 832, 
SEC. 4043. (a) Within 30 days after the plan administrator knows 
or has reason to know that a reportable event described in subsection 
(b) has occurred, he shall notify the corporation that such event has 
occurred. The corporation is authorized to waive the requirement of 
the preceding sentence with respect to any or all reportable events with 
respect to any plan, and to require the notification to be made by 
including the event in the annual report made by the plan. Whenever 
an employer making contributions under a plan to which section 4021 
applies knows or has reason to know that a reportable event has 
occurred he shall notify the plan administrator immediately. 
(b) For purposes of this section a reportable event occurs— 
(1) when the Secretary of the Treasury issues notice that a 
plan has ceased to be a plan described in section 4021(a) (2), or 
when the Secretary of Labor determines the plan is not in com-
pliance with title I of this Act; 
(2) when an amendment of the plan is adopted if, under the 
amendment, the benefit payable with respect to any participant 
may be decreased; 
(3) when the number of active participants is less than 80 per-
cent of the number of such participants at the beginning of the 
plan year, or is less than Y5 percent of the number of such partici-
pants at the beginning of the previous plan year; 
(4) when the Secretary of the Treasury determines that there 
has been a termination or partial termination of the plan within 
the meaning of section 411(d) (3) of the Internal Revenue Code 
Ante, p. 901. 
^£ 1954, but the occurrence of such a termination or partial termi-
nation does not, by itself, constitute or require a termination of a 
plan under this title; 
(5) when the plan fails to meet the minimum funding stand-
Ante, p. 914. 
^^.^g y^fjgp section 412 of such Code (without regard to whether 
Ante, p. 1014. 
^j^g p|^j^ jg ^ p\g^ji dcscrlbed in section 4021(a) (2) of this Act) or 
>in^e. p. 869. 
uuder sectlou 302 of this Act; 
(6) when the plan is unable to pay benefits thereunder when 
due; 
(7) when there is a distribution under the plan to a participant 
who is a substantial owner as defined in section 4022(b) (6) if— 
(A) such distribution has a value of $10,000 or more; 
(B) such distribution is not made by reason of the death 
of the participant; and 
(C) immediately after the distribution, the plan has non-
forfeitable benefits which are not funded ; 
(8) when a plan merges, consolidates, or transfers its assets 
Ante, p. 865. 
uuder section 208 of this Act, or when an alternative method of 
compliance is prescribed by the Secretary o^ Labor under section 
Ante. p. 851. 
110 of this Act; Or 
(9) when any other event occurs which the corporation deter-
mines may be indicative of a need to terminate the plan. 
For purposes of paragraph (7), all distributions to a participant 
within any 24-month period are treated as a single distribution. 
(c) The Secretary of the Treasury shall notify the corporation— 
(1) whenever a reportable event described in paragraph (1), 
(4), or (5) of subsection (b) occurs, or 
1 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1025 
(2) whenever any other event occurs which the Secretary of 
the Treasury believes indicates that the plan may not be sound, 
(d) The Secretary of Labor shall notify the corporation— 
(1) whenever a reportable event described in paragraph (1), 
(5), or (8) of subsection (b) occurs, or 
(2) whenever any other event occurs which the Secretary of 
Labor believes indicates that the plan may not be sound. 
ALLOCATION OF ASSETS 
SEC. 4044. (a) In the case of the termination of a define.! benefit 
plan, the plan administrator shall allocate the assets of the plan (avail-
able to provide benefits) among the participants and beneficiaries of 
the plan in the following order: 
(1) First, to that portion of each individual's accured benefit 
which is derived from the participant's contributions to the plan 
which were not mandatory contributions. 
(2) Second, to that portion of each individual's accrued benefit 
which is derived from the participant's mandatory contributions. 
(3) Third, in the case of benefits payable as an annuity— 
(A) in the case of the benefit of a participant or beneficiary 
which was in pay status as of the beginning of the 3-year 
period ending on the termination date of the plan, to each 
such benefit, based on the provisions of the plan (as in effect 
during the 5-year period ending on such date) under which 
such benefit would be the least, 
(B) in the case of a participant's or beneficiary's benefit 
(other than a benefit described in subparagraph (A)) which 
would have been in pay status as of the beginning of such 
3-year period if tlie participant had retired prior to the 
beginning of the 3-year period and if his benefits had com-
menced (in the normal form of annuity under the plan) as 
of the beginning of such period, to each such benefit based 
on the provisions of the plan (as in effect during the 5-year 
period ending on such date) under which such benefit would 
be the least. 
For purposes of subparagraph (A), the lowest benefit in pay 
status during a 3-year period shall be considered the benefit in pay 
status for such period. 
(4) Fourth— 
(A) to all other benefits (if any) of individuals under the 
plan guaranteed under this title (determined without regard 
to section 4022(b) (5)), and 
(B) to the additional benefits (if any) which would be 
determined under subparagraph (A) if section 4022(b)(6) 
did not apply. 
For purposes of this paragraph, section 4021 shall be applied 
without regard to subsection (c) thereof. 
(5) Fifth, to all other nonforfeitable benefits under the plan. 
(6) Sixth, to all other benefits under the plan, 
(b) For purposes of subsection (a) — 
(1) The amount allocated under any paragraph of subsection 
(a) with respect to any benefit shall be properly adjusted for any 
allocation of assets with respect to that benefit under a prior para-
graph of subsection (a). 
(2) If the assets available for allocation under any pai-agraph 
of subsection (a) (other than paragraphs (5) and (6)) are insuf-
ficient to satisfy in full the benefits of all individuals which are 
29 u s e 1344. 
1026 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
described in that paragraph, the assets shall be allocated pro rata 
among such individuals on the basis of the present value (as of 
the termination date) of their respective benefits described in that 
paragraph. 
(3) This paragraph applies if the assets available for alloca-
tion under paragraph (5) of subsection (a) are not sufficient to 
satisfy in full the benefits of individuals described in that 
paragraph. 
(A) If this paragraph applies, except as provided in sub-
paragraph (B), the assets shall be allocated to the benefits 
of individuals described in such paragraph (5) on the basis 
of the benefits of individuals which would have been described 
in such paragraph (5) under the plan as in effect at the 
beginning of the 5-year period ending on the date of plan 
termination. 
(B) If the assets available for allocation under sub-
paragraph (A) are sufficient to satisfy in full the benefits 
described in such subparagraph (without regard to this sub-
paragraph) , then for purposes of subparagraph (A), benefits 
of individuals described in such subparagraph shall be deter-
mined on the basis of the plan as amended by the most 
recent plan amendment effective during such 5-year period 
under which the assets available for allocation are sufficient 
to satisfy in full the benefits of individuals described in sub-
paragraph (A) and any assets remaining to be allocated 
under such subparagraph shall be allocated under subpara-
graph (A) on the basis of the plan as amended by the next 
succeeding plan amendment effective during such period. 
(4) If the Secretary of the Treasury determines that the allo-
cation made pursuant to this section (without regard to this para-
graph) results in discrimination prohibited by section 401(a) (4) 
Ante, p. 938. 
^£ ^j^^ Internal Eevenue Code of 1954 then, if required to prevent 
the disqualification of the plan (or any trust under the plan) 
40^5! "^^ ''°^' 
^^'^^^ section 401(a), 403(a), or 405(a) of such Code, the assets 
allocated under subsections (a)(4)(B), (a)(5), and 
(a)(6) 
shall be reallocated to the extent necessary to avoid such 
discrimination. 
"Mandatory 
/5\ ^pj^g term "mandatory contributions" means amounts con-
tributed to the plan by a participant which are required as a con-
dition of employment, as a condition of participation in such plan, 
or as a condition of obtaining benefits under the plan attributable 
to employer contributions. For this purpose, the total amount of 
mandatory contributions of a participant is the amount of such 
contributions reduced (but not below zero) by the sum of the 
amounts paid or distributed to him under the plan before its 
termination. 
(6) A plan may establish subclasses and categories within the 
classes described in paragraphs (1) through (6) of subsection (a) 
in accordance with regulations prescribed by the corporation, 
(c) Any increase or decrease in the value of the assets of a plan 
occurring during the period beginning on the later of (1) the date 
Ante, p. 1021. 
^ trustee is appointed under section 4042(b) or (2) the date on which 
the plan is terminated is to be allocated between the plan and the cor-
poration in the manner determined by the court (in the case of a court-
appointed trustee) or as agreed upon by the corporation and the plan 
administrator in any other case. Any increase or decrease in the value 
of the assets of a plan occurring after the date on which the plan is 
terminated shall be credited to, or suffered by, the corporation. 
contributions.' 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1027 
(d) (1) Any residual assets of a plan may be distributed to the 
employer if— 
(A) all liabilities of the plan to participants and their bene-
iiciaries have been satisfied, 
(B) the distribution does not contravene any provision of 
law, and 
(C) the plan provides for such a distribution in these circum-
stances. 
(2) Notwithstanding the provisions of paragraph (1), if any assets 
of the plan attributable to employee contributions, remain after all 
liabilities of the plan to participants and their beneficiaries have been 
satisfied, such assets shall be equitably distributed to the employees 
who made such contributions (or their beneficiaries) in accordance 
with their rate of contributions. 
RECAPTURE OF CERTAIN 
PAYMENTS 
29 u s e 1345. 
SEC. 4045. (a) Except as provided in subsection (c), the trustee is 
authorized to recover for the benefit of a plan from a participant the 
recoverable amount (as defined in subsection (b)) of all payments 
from the plan to him which commenced within the 3-year period imme-
diately preceding the time the plan is terminated. 
(b) For purposes of subsection (a) the recoverable amount is the 
excess of the amount determined under paragraph (1) over the 
amount determined under paragraph (2). 
(1) The amount determined under this paragraph is the sum 
of the amount of the actual payments received by the participant 
within the 3-year period. 
(2) The amount determined under this paragraph is the sum 
of— 
(A) the sum of the amount such participant would have 
received during each consecutive 12-month period within the 
3 years if the participant received the benefit in the form 
described in paragraph (3), 
(B) the sum for each of the consecutive 12-month periods 
of the lesser of— 
(i) the excess, if any, of $10,000 over the benefit in 
the form described in paragraph (3), or 
(ii) the excess of the actual payment, if any, over the 
benefit in the form described in paragraph (3), and 
(C) the present value at the time of termination of the 
participant's future benefits guaranteed under this title as if 
the benefits commenced in the form described in paragraph 
(3) The form of benefit for purposes of this subsection shall be 
the monthly benefit the participant would have received during 
the consecutive 12-month period, if he had elected at the time of 
the first payment made during the 3-year period, to receive his 
interest in the plan as a monthly benefit in the form of a life 
annuity commencing at the time of such first payment. 
(c) (1) In the event of a distribution described in section 4043(b) 
(7) the 3-year period referred to in subsection (b) shall not end sooner 
than the date on which the corporation is notified of the distribution. 
(2) The trustee shall not recover any payment made from a plan 
after or on account of the death of a participant, or to a participant 
who is disabled (within the meaning of section 72(m) (7) of the 
Internal Revenue Code of 1954). 
26 use 72. 
1028 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
^^i^^'^- 
(3) The corporation is authorized to waive, in whole or in part, the 
recovery of any amount which the trustee is authorized to recover for 
the benefit of a plan under this section in any case in which it deter-
mines that substantial economic hardship would result to the par-
ticipant or his beneficiaries from whom such amount is recoverable. 
29 u s e 1346. 
29 u s e 1347. 
29 u s e 1348. 
REPORTS TO TRUSTEE 
SEC. 4046. The corporation and the plan administrator of any plan 
to be terminated under this subtitle shall furnish to the trustee such 
information as the corporation or the plan administrator has and, to 
the extent practicable, can obtain regarding— 
(1) the amount of benefits payable with respect to each par-
ticipant under a plan to be terminated, 
(2) the amount of benefits guaranteed under section 4022 which 
are payable with respect to each participant in the plan, 
(3) the present value, as of the time of termination, of the 
aggregate amount of benefits payable under section 4022 (deter-
mined without regard to section 4022(b) (5)), 
(4) the fair market value of the assets of the plan at the time 
of termination, 
(5) the computations under section 4044, and all actuarial 
assumptions under which the items described in paragraphs (1) 
through (4) were computed, and 
(6) any other information with respect to the plan the trustee 
may require in order to terminate the plan. 
RESTORATION OF PLANS 
SEC. 4047. Whenever the corporation determines that a plan which 
is to be terminated, or which is in the process of being terminated, 
under this subtitle should not be terminated as a result of such circum-
stances as the corporation determines to be relevant, the corporation 
is authorized to cease any activities undertaken to terminate the plan, 
and to take whatever action is necessary and within its power to restore 
the plan to its status prior to the determination that the plan was to 
be terminated. In the case of a plan which has been terminated under 
section 4042 the corporation is authorized in any such case in which the 
corporation determines such action to be appropriate and consistent 
with its duties under this title, to take such action as may be necessary 
to restore the plan to its pretermination status, including, but not 
limited to, the transfer to the employer or a plan administrator of 
control of part or all of the remaining assets and liabilities of the plan. 
DATE OF TERMINATION 
SEC. 4048. For purposes of this title the date of termination is— 
(1) in the case of a plan terminated in accordance with the 
provisions of section 4041, the date established by the plan admin-
istrator and agreed to by the corporation, 
(2) in the case of a plan terminated in accordance with the 
provisions of section 4042, the date established by the corporation 
and agreed to by the plan administrator, or 
(3) in the case of a plan terminated in accordance with the 
provisions of either section in any case in which no agreement is 
reached between the plan administrator and the corporation (or 
the trustee), the date established by the court. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1029 
Subtitle D—Liability 
AMOUNTS PAYABLE BY THE CORPORATION 
29 u s e 1361. 
Ante, 
p. 1014. 
SEC. 4061. The corporation shall pay benefits under a plan termi-
nated under this title subject to the limitations and requirements of 
subtitle B of this title. Amounts guaranteed by the corporation under 
section 4022 shall be paid by the corporation out of the appropriate 
^"'^' P- ^°'^-
fund. 
LIABILITY OF EMPLOYER 
SEC. 4062. (a) This section applies to any employer who maintained 
29 use 136:2. 
a plan (other than a multiemployer plan) at the time it was termi-
nated, but does not apply— 
(1) to an employer who maintained a plan with respect to which 
he paid the annual premium described in section 4006(a) (2) (B) 
^"*e, p. loio. 
for each of the 5 plan years immediately preceding the plan year 
during which the plan terminated unless the conditions imposed 
by the corporation on the payment of coverage under section 
4023 do not permit such coverage to apply under the circum-
stances, or 
(2) to the extent of any liability arising out of the insolvency 
of an insurance company with respect to an insurance contract. 
(b) Any employer to which this section applies shall be liable to the 
corporation, in an amount equal to the lesser of— 
(1) the excess of— 
(A) the current value of the plan's benefits guaranteed 
under this title on the date of termination over 
(B) the current value of the plan's assets allocable to such 
benefits on the date of termination, or 
(2) 30 percent of the net worth of the employer determined as 
of a day, chosen by the corporation but not more than 120 days 
prior to the date of termination, computed without regard to any 
liability under this section. 
(c) For purposes of subsection (b) (2) the net worth of an employer 
is— 
(1) determined on whatever basis best reflects, in the determina-
tion of the corporation, the current status of the employer's oper-
ations and prospects at the time chosen for determining the net 
worth of the employer, and 
(2) increased by the amount of any transfers of assets made by 
the employer determined by the corporation to be improper under 
the circumstances, including any such transfers which would be 
inappropriate under the Bankruptcy Act if the employer were the 
subject of a proceeding under that Act. 
(d) For purposes of this section the following rules apply in the 
case of certain corporate reorganizations: 
(1) If an employer ceases to exist by reason of a reorganization 
which involves a mere change in identity, form, or place of organi-
zation, however effected, a successor corporation resulting from 
such reorganization shall be treated as the employer to whom this 
section applies. 
(2) If an employer ceases to exist by reason of a liquidation into 
a parent corporation, the parent corporation shall be treated as the 
employer to whom this section applies. 
(3) If an employer ceases to exist by reason of a merger, con-
solidation, or division, the successor corporation or corporations 
shall be treated as the employer to whom this section applies. 
11 u s e 1 note. 
38-194 O - 76 - 68 Pt. 1 
1030 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
(e) If an employer ceases operations at a facility in any location 
and, as a result of such cessation of operations, more than 20 percent 
of the total number of his employees who are participants under a plan 
established and maintained by him are separated from employment, 
the employer shall be treated with respect to that plan as if he were a 
substantial employer under a plan under which more than one 
employer makes contributions and the provisions of sections 4063, 
4064, and 4065 shall apply. 
29 u s e 1363. 
Ante, p. 1014. 
LIABILITY 
OF SUBSTANTIAL 
EMPLOYER 
TOR 
WITHDRAWAL 
SEC. 4063. (a) Except as provided in subsection (d), the plan admin-
istrator of a plan under which more than one emploj^er makes 
contributions— 
(1) shall notify the corporation of the withdrawal of a substan-
tial employer from the plan, within 60 days after such with-
drawal, and 
(2) request that the corporation determine the liability of such 
employer under this subtitle with respect to such withdrawal. 
The corporation shall, as soon as practicable thereafter, determine 
whether such employer is liable for any amount under this subtitle 
with respect to the withdrawal and notify such employer of such 
liability. 
(b) Except as provided in subsection (c), an employer who with-
draws from a plan to which section 4021 applies, during a plan year 
for which he was a substantial employer, and who is notified by the 
corporation as provided by subsection (a), shall be liable to the corpo-
ration in accordance with the provisions of section 4062 and this sec-
tion. The amount of such employer's liability shall be computed on the 
basis of an amount determined by the corporation to be the amount 
described in section 4062 for the entire plan, as if the plan had been 
terminated by the corporation on the date of the employer's with-
drawal, multiplied by a fraction— 
(1) the numerator of which is the total amount required to be 
contributed to the plan by such employer for the last 5 years end-
ing prior to the withdrawal, and 
(2) the denominator of which is the total amount required to 
be contributed to the plan by all employers for such last 5 years. 
In addition to and in lieu of the manner prescribed in the preceding 
sentence, the corporation may also determine the liability of each such 
employer on any other equitable basis prescribed by the corporation in 
regulations. Any amount collected by the corporation under this sub-
section shall be held in escrow subject to disposition in accordance 
with the provisions of paragraphs (2) and (3) of subsection (c). 
(c)(1) In lieu of payment of his liability under this section the 
employer may be required to furnish a bond to the corporation in an 
amount not exceeding 150 percent of his liability to insure payment of 
his liability under this section. The 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 under 
sections 6 through 13 of title 6, United States Code. Any such 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. 
(2) If the plan is not terminated within the 5-year period commenc-
ing on the day of withdrawal, the liability of such employer is 
abated and any pavment held in escrow shall be refunded without 
interest to the employer (or his bond cancelled) in accordance with 
bylaws or rules prescribed by the corporation. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1031 
(3) If the plan terminates within the 5-year period commencing on 
the day of withdrawal, the corporation shall— 
(A) demand payment or realize on the bond and hold such 
amount in escrow for the benefit of the plan; 
(B) treat any escrowed payments under this section as if they 
were plan assets and apply them in a manner consistent with this 
subtitle; and 
(C) refund any amount to the employer which is not required 
to meet any obligation of the corporation with respect to the plan. 
(d) The provisions of this subsection apply in the case of a with-
drawal described in subsection (a), and the provisions of subsections 
(b) and (c) shall not apply, if the corporation determines that the 
procedure provided for under this subsection is consistent with the 
purposes of this section and section 4064 and is more appropriate in the 
particular case. Upon a showing by the plan administrator of a plan 
that the withdrawal from the plan by any employer or employers 
has resulted, or will result, in a significant reduction in the amount of 
aggregate contributions to or under the plan by employers, the cor-
poration may— 
(1) require the plan fund to be equitably allocated between 
those participants no longer working in covered service under 
the plan as a result of their employer's withdrawal, and those par-
ticipants who remain in covered service under the plan; 
(2) treat that portion of the plan funds allocable under para-
graph (1) to participants no longer in covered service as a termi-
nation; and 
(3) treat that portion of the plan fund allocable to participants 
remaining in covered service as a separate plan. 
(e) The corporation is authorized to waive the application of the 
waiver. 
provisions of subsections (b), (c), and (d) of this section to any 
employer or plan administrator whenever it determines that there is an 
indemnity agreement in effect among all other employers under the 
plan which is adequate to satisfy the purposes of this section and of 
section 4064. 
LIABILITY o r EMPLOYERS ON TERMINATION OP PLAN MAINTAINED BY MORE 
THAN ONE EMPLOYER 
SEC. 4064. (a) This section applies to all employers who maintain a 
plan under which more than one employer makes contributions at the 
time such plan is terminated, or who, at any time within the 5 plan 
years preceding the date of termination, made contributions under the 
plan. 
(b) The corporation shall determine the liability of each such 
employer in a manner consistent with section 4062 except that the 
amount of the liability determined under section 4062(b)(1) with 
respect to the entire plan shall be allocated to each employer by multi-
plying such amounts by a fraction— 
(1) the numerator of which is the amount required to be 
contributed to the plan by each employer for the last 5 plan years 
ending prior to the termination, and 
(2) the denominator of which is the total amount required to 
be contributed to the plan by all such employers for such last 5 
years, 
and the limitation described in section 4062(b)(2) shall be applied 
separately to each employer. The corporation may also determine the 
liability of each such employer on any other equitable basis prescribed 
by the corporation in regulations. 
29 use 1364. 
1032 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
29 use 1365. 
29 use 1366. 
29 use 1367. 
29 use 1368. 
26 use 6323. 
ANNUAL REPORT OF PLAN ADMINISTRATOR 
SEC. 4065. For each plan year for which section 4021 applies to a 
plan, the plan administrator shall file with the corporation, on a form 
prescribed by the corporation, an annual report which identifies the 
plan and plan administrator and which includes— 
(1) a copy of each notification required under section 4063 with 
respect to such year, and 
(2) a statement disclosing whether any reportable event 
(described in section 4043(b)) occurred during the plan year. 
The report shall be filed within 6 months after the close of the plan 
year to which it relates. The corporation shall cooperate with the Sec-
retary of the Treasury and the Secretary of Labor in an endeavor to 
coordinate the timing and content, and possibly obtain the combina-
tion, of reports under this section with reports required to be made 
by plan administrators to such Secretaries. 
ANNUAL NOTIFICATION TO SUBSTANTIAL EMPLOYERS 
SEC. 4066. The plan administrator of each plan under which contri-
butions are made by more than one employer shall notify, within 6 
months after the close of each plan year, any employer making con-
Ante, p. 1003. 
tributious uudcr that plan who is described in section 4001 (a) (2) that 
he is a substantial employer for that year. 
RECOVERY O F E M P L O Y E R L I A B I L I T Y FOR P L A N TERMINATION 
SEC. 4067. The corporation is authorized to make arrangements 
with employers who are liable under section 4062, 4063, or 4064 for 
payment of their liability, including arrangements for deferred pay-
ment on such terms and for such periods as the corporation deems 
equitable and appropriate. 
LIEN FOR LIABILITY OF EMPLOYER 
SEC. 4068. (a) If any employer or employers liable to the corpora-
tion under section 4062, 4063, or 4064 neglect or refuse to pay, after 
demand, the amount of such liability (including interest), there shall 
be a lien in favor of the corporation upon all property and rights to 
property, whether real or personal, belonging to such employer or 
employers. 
(b) The lien imposed by subsection (a) arises on the date of termina-
tion of a plan, and continues until the liability imposed under section 
4062, 4063, or 4064 is satisfied or becomes unenforceable by reason of 
lapse of time. 
(c)(1) Except as otherwise provided under this section, the priority 
of the lien imposed under subsection (a) shall be determined in the 
same manner as under section 6323 of the Internal Revenue Code of 
1954. Such section 6323 shall be applied by substituting "lien imposed 
by section 4068 of the Employee Retirement Income Security Act of 
1974" for "lien imposed by section 6321"; "corporation" for "Secretary 
or his delegate"; "employer liability lien" for "tax lien"; "employer" 
for "taxpayer"; "lien arising under section 4068(a) of the Employee 
26 use 6332. 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1033 
Eetirement Income Security Act of 1974" for "assessment of the tax"; 
and "payment of the loan value is made to the corporation" for "satis-
faction of a levy pursuant to section 6332(b)"; each place such terms 
appear. 
(2) In the case of bankruptcy or insolvency proceedings, the lien 
imposed under subsection (a) shall be treated in the same manner as a 
tax due and owing to the United States for purposes of the Bank-
ruptcy Act or section 3466 of the Revised Statutes (31 U.S.C. 191). 
H use i note. 
(3) For purposes of applying section 6323 (a) of the Internal Reve-
nue Code of 1954 to determine the priority between the lien imposed 
^^ ^^"^ ^^^^• 
imder subsection (a) and a Federal tax lien, each lien shall be treated 
as a judgment lien arising as of the time notice of such lien is filed. 
(4) For purposes of this subsection, notice of the lien imposed by 
subsection (a) shall be filed in the same manner as under section 6323 
(f) and (g) of the Internal Revenue Code of 1954. 
(d)(1) In any case where there has been a refusal or neglect to pay 
the liability imposed under section 4062, 4063, or 4064, the corporation ^^^1*^' PP- ^°^''" 
may bring civil action in a district court of the United States to 
enforce the lien of the corporation under this section with respect to 
such liability or to subject any property, of whatever nature, of the 
employer, or in which he has any right, title, or interest to the payment 
of such liability. 
(2) The liability imposed by section 4062,4063, or 4064 may be col-
lected by a proceeding in court if the proceeding is commenced within 
6 years after the date upon which the plan was terminated or prior to 
the expiration of any period for collection agreed upon in writing by 
the corporation and the employer before the expiration of such 6-year 
period. The period of limitations provided under this paragraph shall 
be suspended for the period the assets of the employer are in the con-
trol or custody of any court of the United States, or of any State, or 
of the District of Columbia, and for 6 months thereafter, and for any 
period during which the employer is outside the United States if such 
period of absence is for a continuous period of at least 6 months. 
(e) If the corporation determines, with the consent of the board of 
directors, that release of the lien or subordination of the lien to any 
other creditor of the employer or employers would not adversely 
affect the collection of the liability imposed under section 4062, 4063, 
or 4064, or that the amount realizable by the corporation from the 
property to which the lien attaches will ultimately be increased by 
such release or subordination, and that the ultimate collection of the 
liability will be facilitated by such release or subordination, the cor-
poration may issue a certificate of release or subordination of the lien 
with respect to such property, or any part thereof. 
Subtitle E—Amendments to Internal Revenue 
Code of 1954; Effective Dates 
AMENDMENTS TO INTERNAL REVENUE CODE OF 1954 
SEC. 4081. (a) Section 404 of the Internal Revenue Code of 1954 
(relating to deduction for contributions of an employer to employees' 
trust or annuity plan in compensation under a deferred-payment plan) 
is amended by adding at the end thereof the following new subsection: 
26 use 404. 
1034 
PUBLIC LAW 93-406-SEPT. 2, 1974 
[88 STAT. 
"(g) 
CERTAIN EMPLOYER LIABILITY PAYMENTS CONSIDERED AS CON-
TRIBUTIONS.—For purposes of this section any amount paid by an 
employer under section 4062, 4063, or 4064 of the Employee Retire-
103".^' ^^' 
' ment Income Security Act of 1974 shall be treated as a contribution 
to which this section applies by such employer to or under a stock 
bonus, pension, profit-sharing, or annuity plan.". 
26 use 6511. 
(I,) Section 6511 (d) of the Internal Revenue Code of 1954 (relating 
to special rules applicable to income taxes) is amended by adding at 
the end thereof the following new paragraph: 
"(8) 
SPECIAL PERIOD OF LIMITATION WITH RESPECT TO AMOUNTS 
INCLUDED IN INCOME SUBSEQUENTLY RECAPTURED UNDER QUALI-
FIED PLAN TERMINATION.—If the claim for credit or refund relates 
to an overpayment of tax imposed by subtitle A on account of the 
recapture, under section 4045 of the Employee Retirement Income 
Ante, p. 1027. 
Sccurity Act of 1974, of amounts included in income for a prior 
taxable year, the 3-year period of limitation prescribed in subsec-
tion (a) shall be extended, for purposes of permitting a credit or 
refund of the amount of the recapture, until the date which occurs 
one year after the date on which such recaptured amount is paid 
by the taxpayer.". 
29 u s e 1381, 
Ante, p. 1014. 
Ante, p. 1029. 
EFFECTIVE DATE ; SPECIAL RULES 
SEC. 4082. (a) The provisions of this title take effect on the date of 
enactment of this Act. 
(b) Notwithstanding the provisions of subsection (a), the corpora-
tion shall pay benefits guaranteed under this title with respect to any 
plan— 
(1) which is not a multiemployer plan, 
(2) which terminates after June 30, 1974, and before the date 
of enactment of this Act, 
(3) to which section 4021 would apply if that section were effec-
tive beginning on July 1,1974, and 
(4) with respect to which a notice is filed with the Secretary of 
Labor and received by him not later than 10 days after the date 
of enactment of this Act, except that, for reasonable cause shown, 
such notice may be filed with the Secretary of Labor and received 
by him not later than October 31, 1974, stating that the plan is a 
plan described in paragraphs (1), (2), and (3). 
The corporation shall not pay benefits guaranteed under this title with 
respect to a plan described in the preceding sentence unless the corpo-
ration finds substantial evidence that the plan was terminated for a 
reasonable business purpose and not for the purpose of obtaining the 
payment of benefits by the corporation under this title or for the 
purpose of avoiding the liability which might be imposed under sub-
title D if the plan terminated on or after the date of enactment of 
this Act. The provisions of subtitle D do not apply in the case of such a 
plan which terminates before the date of enactment of this Act. For 
purposes of determining whether a plan is a plan described in para-
graph (2), the provisions of section 4048 shall not apply, but the 
corporation shall make the determination on the basis of the date on 
which benefits ceased to accrue or on any other reasonable basis con-
sistent with the purposes of this subsection. 
(c)(1) Except as provided in paragraphs (2), (3), and (4), the 
corporation shall not pay benefits guaranteed under this title with 
respect to a multiemployer plan which terminates before January 1, 
88 STAT. ] 
PUBLIC LAW 93-406-SEPT. 2, 1974 
1035 
1978. Whenever the cor-poration exercises the authority granted under ^Notice to con-
paragraph (2) or (3), the corporation shall notify the Committee on mutee°?^ 
Education and Labor and the Committee on Ways and Means of the 
House of Representatives, and the Committee on Labor and Public 
Welfare and the Committee on Finance of the Senate. 
(2) The corporation may, in its discretion, pay benefits guaranteed 
under this title with respect to a multiemployer plan which terminates 
after the date of enactment of this Act and before January 1,1978, if— 
(A) the plan was maintained during the 60 months immedi-
ately preceding the date on which the plan terminates, and 
(B) the corporation detennines that the payment by the corpo-
ration of benefits guaranteed under this title with respect to that 
plan will not jeopardize the payments the corporation anticipates 
it may be required to make in connection with benefits guaranteed 
under this title with respect to multiemployer plans which ter-
minate after December 31, 1977. 
(3) Notwithstanding any provision of section 4021 or 4022 which ^f^^*^' PP- ^°^'*' 
would prevent such payments, the corporation, in carrying out its 
authority under paragraph (2), may pay benefits guaranteed under 
this title with respect to a multiemployer plan described in paragraph 
(2) in any case in which those benefits would otherwise not be payable 
if— 
(A) the plan has been in effect for at least 5 years, 
(B) the plan has been in substantial compliance with the fund-
ing requirements for a qualified plan with respect to the 
employees and former employees in those employment units on the 
basis of which the participating employers have contributed to 
the plan for the preceding 5 years, and 
(C) the participating employers and employee organization or 
organizations had no reasonable recourse other than termination. 
(4) If the corporation determines, under paragraph (2) or (3), 
that it will pay benefits guaranteed under this title with respect to 
a multiemployer plan which terminates before January 1, 1978, the 
corporation— 
(A) may establish requirements for the continuation of pay-
ments which commenced before January 2, 1974, with respect to 
retired participants under the plan, 
(B) may not, notwithstanding any other provision of this title, 
make payments with respect to any participant under such a plan 
who, on January 1, 1974, was receiving payment of retirement 
benefits, in excess of the amounts and rates payable with respect 
to such participant on that date, 
(C) may not make any payments with respect to benefits 
guaranteed under this title in connection with such a plan which 
are derived, directly or indirectly, from amounts borrowed under 
section 4005(c), and 
^"'«' p- ^oo^. 
S
)) shall review from time to time payments made imder the 
ority granted to it by paragraphs (2) and (3), and reduce 
or tenninate such payments to the extent necessary to avoid jeop-
ardizing the ability of the corporation to make payments of bene-
fits guaranteed mider this title in connection with multiemployer 
plans which terminate after December 31,1977, without increas-
ing premium rates for such plans. 
Approved September 2, 1974.