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Page:United States Statutes at Large Volume 98 Part 1.djvu/905

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 857

419(c)(1)(B) to the extent such addition results in the amount in such Ante, p. 854. account exceeding the account Hmit. "(c) ACCOUNT LIMIT.—For purposes of this section— "(1) IN GENERAL.—Except as otherwise provided in this subsection, the account limit for any qualified asset account for any taxable year is the amount reasonably and actuarially necessary to fund— "(A) claims incurred but unpaid (as of the close of such taxable year) for benefits referred to in subsection (a), and "(B) administrative costs with respect to such claims. "(2) ADDITIONAL RESERVE FOR POST-RETIREMENT MEDICAL AND

LIFE INSURANCE BENEFITS.—The account limit for any taxable year may include a reserve funded over the working lives of the covered employees and actuarially determined on a level basis (using assumptions that are reasonable in the aggregate) as necessary for— "(A) post-retirement medical benefits to be provided to covered employees (determined on the basis of current medical costs), or "(B) post-retirement life insurance benefits to be provided to covered employees. "(3) AMOUNT TAKEN INTO ACCOUNT FOR SUB OR SEVERENCE PAY BENEFITS.—

"(A) IN GENERAL.—The account limit for any taxable year with respect to SUB or severance pay benefits is 75 percent of the average annual qualified direct costs for SUB or severance pay benefits for any 2 of the immediately preceding 7 taxable years (as selected by the fund). "(B) SPECIAL RULE FOR CERTAIN NEW PLANS.—In the case of any new plan for which SUB or severance pay benefits are not available to any key employee, the Secretary shall, by regulations, provide for an interim amount to be taken into account under paragraph (1). "(4) LIMITATION ON AMOUNTS TO BE TAKEN INTO ACCOUNT.— "(A) DISABILITY BENEFITS,—For purposes of paragraph (1),

disability benefits payable to any individual shall not be taken into account to the extent such benefits are payable at an annual rate in excess of the lower of— "(i) 75 percent of such individual's average compensation for his high 3 years (within the meaning of section 415(b)(3)), or "(ii) the limitation in effect under section 415(b)(1)(A). "(B) LIMITATION ON SUB OR SEVERANCE PAY BENEFITS.—For

purposes of paragraph (3), any SUB or severance pay benefit payable to any individual shall not be taken into account to the extent such benefit is payable at an annual rate in excess of 150 percent of the limitation in effect under section 415(c)(1)(A). "(5) SPECIAL LIMITATION WHERE NO ACTUARIAL CERTIFICATION.—

"(A) IN GENERAL.—Unless there is an actuarial certification of the account limit determined under paragraph (1) for any taxable year, the account limit for such taxable year shall not exceed the sum of the safe harbor limits for such taxable year. "(B) SAFE HARBOR LIMITS.—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/906

 98 STAT. 858

PUBLIC LAW 98-369—JULY 18, 1984 "(i) SHORT-TERM DISABILITY BENEFITS.—In the case of short-term disability benefits, the safe harbor limit for any taxable year is 17.5 percent of the qualified direct costs (other than insurance premiums) for the immediately preceding taxable year with respect to such benefits. "(ii) MEDICAL BENEFITS.—In the case of medical benefits, the safe harbor limit for any taxable year is 35 percent of the qualified direct costs (other than insurance premiums) for the immediately preceding taxable year with respect to medical benefits. "(iii) SUB OR SEVERANCE PAY BENEFITS.—In the case of SUB or severance pay benefits, the safe harbor limit for any taxable year is the amount determined under paragraph (3). "(iv) LONG-TERM DISABILITY OR LIFE INSURANCE BENE-

FITS.—In the case of any long-term disability benefit or life insurance benefit, the safe harbor limit for any taxable year shall be the amount prescribed by regulations. "(d) REQUIREMENT OF SEPARATE ACCOUNTS FOR POST RETIREMENT MEDICAL OR LIFE INSURANCE BENEFITS PROVIDED TO KEY EMPLOYEES.—

"(1) IN GENERAL.—In the case of any employee who is a key employee— "(A) a separate account shall be established for any medical benefits or life insurance benefits provided with respect to such employee after retirement, and "(B) medical benefits and life insurance benefits provided with respect to such employee after retirement may only be paid from such separate account. "(2) COORDINATION WITH SECTION 415.—For purposes of section

415, any amount attributable to medical benefits allocated to an account established under paragraph (1) shall be treated as an annual addition to a defined contribution plan for purposes of section 415(c). "(3) KEY EMPLOYEE.—For purposes of this section, the term 'key employee' means any employee who, at any time during the plan year or any preceding plan year, is or was a key employee as defined in section 416(i). "(e) SPECIAL LIMITATIONS ON RESERVES FOR MEDICAL BENEFITS OR LIFE INSURANCE BENEFITS PROVIDED TO RETIRED EMPLOYEES.— "(1) BENEFITS MUST BE NONDISCRIMINATORY.—No reserve may

Post, p. 864.

be taken into account under subsection (c)(2) for post-retirement medical benefits or life insurance benefits to be provided to covered employees unless the plan meets the requirements of section 505(b)(1) with respect to such benefits. "(2) TAXABLE U F E

INSURANCE BENEFITS NOT TAKEN INTO

ACCOUNT.—No life insurance benefit may be taken into account under subsection (c)(2) to the extent— "(A) such benefit is includible in gross income under section 79, or "(B) such benefit would be includible in gross income under section 101(b) (determined by substituting '$50,000' for '$5,000'). "(f) DEFINITIONS AND OTHER SPECIAL RULES.—For purposes of this section—

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license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


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Page:United States Statutes at Large Volume 98 Part 1.djvu/907

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 869

"(1) SUB O SEVERANCE PAY BENEFIT.—The term 'SUB or R severance pay benefit' means— "(A) any supplemental unemployment compensation benefit (as defined in section 501(c)(17)(D)), and "(B) any severance pay benefit. "(2) MEDICAL BENEFIT.—The term 'medical benefit' means a benefit which consists of the providing (directly or through insurance) of medical care (as defined in section 213(d)). "(3) LIFE INSURANCE BENEFIT.—The term 'life insurance benefit' includes any other death benefit. "(4) VALUATION.—For purposes of this section, the amount of the qualified asset account shall be the value of the assets in such account (as determined under regulations). "(5) HIGHER LIMIT IN CASE OF COLLECTIVELY BARGAINED

PLANS.—Not later than July 1, 1985, the Secretary shall by regulations provide for special account limits in the case of any qualified asset account under a welfare benefit fund established under a collective bargaining agreement. "(6) EXCEPTION FOR IO-OR-MORE EMPLOYER PLANS.—

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"(A) IN GENERAL.—This subpart shall not apply in the case of any welfare benefit fund which is part of a 10 or more employer plan. The preceding sentence shall not apply to any plan which maintains experience-rating arrangements with respect to individual employers. "(B) 10 OR MORE EMPLOYER PLAN.—For purposes of subparagraph (A), the term '10 or more employer plan' means a plan— "(i) to which more than 1 employer contributes, and "(ii) to which no employer normally contributes more than 10 percent of the total contributions contributed under the plan by all employers.

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"(7) ADJUSTMENTS FOR EXISTING EXCESS RESERVES.— "(A) INCREASE IN ACCOUNT LIMIT.—The account

limit for any of the first 4 taxable years to which this section applies shall be increased by the applicable percentage of any existing excess reserves. "(B) APPLICABLE PERCENTAGE.—For purposes of subpara-

graph (A)— u '3d '

««in the case of: The The The The

..,

The applicable percentage is: first taxable year to which this section applies 80 second taxable year to which this section applies 60 third taxable year to which this section applies... 40 fourth taxable year to which this section applies 20.

"(C) EXISTING EXCESS RESERVE.—For purposes of this paragraph, the term 'existing excess reserve' means the excess (if any) of— "(i) the amount of assets set aside for purposes described in subsection (a) as of the close of the first taxable year ending after the date of the enactment of the Tax Reform Act of 1984, over Ante, p. 494. "(ii) the account limit which would have applied under this section to such taxable year if this section had applied to such taxable year.

"(g) EMPLOYER 'TAXED ON INCOME OF WELFARE BENEFIT FUND IN CERTAIN CASES.—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/908

 98 STAT. 860

PUBLIC LAW 98-369—JULY 18, 1984 "(1) IN GENERAL.—In the case of any welfare benefit fund which is not an organization described in paragraph (7), (9), (17), or (20) of section 501(c), the employer shall include in gross income for any taxable year an amount equal to such fund's deemed unrelated income for the fund's taxable year ending within the employer's taxable year. "(2) DEEMED UNRELATED INCOME.—For purposes of paragraph (1), the deemed unrelated income of any welfare benefit fund shall be the amount which would have been its unrelated business taxable income under section 512(a)(3) if such fund were an organization described in paragraph (7), (9), (17), or (20) of section 501(c). "(h) AGGREGATION RULES.—For purposes of this subpart— "(1) AGGREGATION OF FUNDS.—At the election of the employer,

2 or more welfare benefit funds of such employer may be treated as 1 fund. "(2) TREATMENT OF RELATED EMPLOYERS.—Rules similar to the rules of subsections (b), (c), (m), and (n) of section 414 shall apply, "(i) REGULATIONS.—The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subpart. Such regulations may provide that the plan administrator of any welfare benefit fund which is part of a plan to which more than 1 employer contributes shall submit such information to the employers contributing to the fund as may be necessary to enable the employers to comply with the provisions of this section." (b) AMENDMENTS TO TAX ON UNRELATED BUSINESS INCOME.— (1) EXTENSION O F SECTION 5 1 2 (A)(3) TO SUPPLEMENTAL UNEMPLOYMENT BENEFIT AND GROUP LEGAL TRUSTS.—

26 USC 512.

(A) Paragraph (3) of section 512(a) (relating to special rules applicable to organizations described in section 501(c) (7) or (9)) is amended by striking out "section 501(c)(7) or (9)" each place it appears (including in the paragraph heading) and inserting in lieu thereof "paragraph (7), (9), (17), or (20) of section 501(c)". (B) Clause (ii) of section 512(a)(3)(B) is amended by striking out "section 501(c)(9)" and inserting in lieu thereof "paragraph (9), (17), or (20) of section 501(c)". (2) LIMITATION ON DEDUCTION FOR SET-ASIDE.—Paragraph (3) of

section 512(a) is amended by adding at the end thereof the following new subparagraph: "(E) LIMITATION ON AMOUNT OF SETASIDE IN THE CASE OF ORGANIZATIONS DESCRIBED IN PARAGRAPH (9), (17), OR (20)

Ante, p. 856.

OF SECTION 501 (C).— "(i) IN GENERAL.—In the case of any organization described in paragraph (9), (17), or (20) of section 501(c), a set-aside for any purpose specified in clause (ii) of subparagraph (B) may be taken into account under subparagraph (B) only to the extent that such set-aside does not result in an amount of assets set aside for such purpose in excess of the account limit determined under section 419A(c) for the taxable year (not taking into account any reserve described in section 419A(c)(2)(A) for post-retirement medical benefits). "(ii) No SET ASIDE FOR FACILITIES.—No set aside for assets used in the provision of benefits described in

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Page:United States Statutes at Large Volume 98 Part 1.djvu/909

 PUBLIC LAW 98-369—JULY 18, 1984 clause (ii) of subparagraph into account.

(B) shall

98 STAT. 861 be

taken

"(iii) TREATMENT O F EXISTING RESERVES FOR POST-RETIREMENT MEDICAL OR LIFE INSURANCE BENEFITS.—

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t; i

'

"(I) Clause (i) shall not apply to any income attributable to a existing reserve for post-retirement medical or life insurance benefits. "(II) For purposes of subclause (I), the term 'existing reserve or post-retirement medical or life insurance benefit' means the amount of assets set (:? • ftS aside as of the close of the last plan year ending before the date of the enactment of the Tax Reform Act of 1984 for purposes of post-retirement medical Ante, p. 494. benefits or life insurance benefits to be provided to covered employees. "(Ill) All payments during plan years ending on or after the date of the enactment of the Tax Reform Act of 1984 of post-retirement medical benefits or life insurance benefits shall be charged against the reserve referred to in subclause (II). Except to the extent provided in regulations prescribed by the Secretary, all plans of an employer shall be treated as 1 plan for purposes of the preceding sentence, "(iv) TREATMENT OF TAX EXEMPT ORGANIZATIONS.—

This paragraph shall not apply to any organization if substantially all of the contributions to such organization are made by employers who were exempt from tax under this chapter throughout the 5-taxable year period ending with the taxable year in which the contributions are made." (c) TAX ON CERTAIN FUNDED WELFARE BENEFIT PLANS.—

(1) IN GENERAL.—Chapter 43 (relating to qualified pension, etc., plans) is amended by adding at the end thereof the following new section: "SEC. 4976. TAXES WITH RESPECT TO FUNDED WELFARE BENEFIT PLANS.

26 USC 4976.

"(a) GENERAL RULE.—If—

"(1) an employer maintains a welfare benefit fund, and "(2) there is a disqualified benefit provided during any taxable year, there is hereby imposed on such employer a tax equal to 100 percent of such disqualified benefit. "(b) DISQUALIFIED BENEFIT.—For purposes of subsection (a), the term 'disqualified benefit' means— "(1) any medical benefit or life insurance benefit provided with respect to a key employee other than from a separate account established for such owner under section 419A(d), and Ante, p. 856. "(2) any post-retirement medical or life insurance benefit unless the plan meets the requirements of section 505(b)(1) with Post, p. 864. respect to such benefit, and "(3) any portion of such fund reverting to the benefit of the employer. "(c) DEFINITIONS.—For purposes of this section, the terms used in this section shall have the same respective meanings as when used in subpart D of part I of subchapter D of chapter 1." Ante, p. 854.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/910

 98 STAT. 862

PUBLIC LAW 98-369—JULY 18, 1984 (2) CONFORMING AMENDMENT.—The table of sections for chapter 43 (relating to qualified pension, etc., plans) is amended by adding at the end thereof the following new item: "Sec. 4976. Taxes with respect to funded welfare benefit plans."

(d) CLERICAL AMENDMENT.—The table of subparts for part I of subchapter D of chapter 1 is amended by adding at the end thereof the following new item: "Subpart D. Treatment of welfare benefit funds." 26 USC 419 note.

(e) EFFECTIVE D A T E S. —

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to contributions paid or accrued after December 31, 1985, in taxable years ending after such date. (2) SPECIAL RULE FOR COLLECTIVE BARGAINING AGREEMENTS.—

In the case of plan maintained pursuant to 1 or more collective bargaining agreements— (A) between employee representatives and 1 or more employers, and (B) in effect on July 1, 1985 (or ratified on or before such date), the amendments made by this section and section 514 shall not apply to years beginning before the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after July 1, 1985). (3) SPECIAL RULE FOR PARAGRAPH (2).—For purposes of paragraph (2), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section shall not be treated as a termination of such collective bargaining agreement. (4) SPECIAL EFFECTIVE DATE FOR CONTRIBUTIONS OF FACILI-

26 USC 404.

TIES.—Notwithstanding paragraphs (1) and (2), the amendments made by this section shall apply in the case of— (A) any contribution after June 22, 1984, of a facility to a welfare benefit fund, and (B) any other contribution after June 22, 1984, to a welfare benefit fund to be used to acquire or improve a facility. (5) BINDING CONTRACT EXCEPTIONS TO PARAGRAPH (4).—Paragraph (4) shall not apply to any facility placed in service before January 1, 1987— (A) which is acquired or improved by the fund (or contributed to the fund) pursuant to a binding contract in effect on June 22, 1984, and at all times thereafter, or (B) the construction of which by or for the fund began before June 22, 1984. SEC. 512. TREATMENT OF UNFUNDED DEFERRED BENEFITS. (a) GENERAL RULE.—Subsection (b) of section 404 (relating to method of contributions, etc., having the effect of a plan) is amended to read as follows: "(b) METHOD OF CONTRIBUTIONS, ETC., HAVING THE EFFECT OF A PLAN; UNFUNDED DEFERRED BENEFITS.— "(1) METHOD OF CONTRIBUTIONS, ETC., HAVING THE EFFECT OF A

PLAN.—If—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/911

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 863

"(A) there is no plan, but "(B) there is a method or arrangement of employer contributions or compensation which has the effect of a stock bonus, pension, profit-sharing, or annuity plan, or other plan deferring the receipt of compensation (including a plan described in paragraph (2)), subsection (a) shall apply as if there were such a plan. "(2) PLANS PROVIDING UNFUNDED DEFERRED BENEFITS.—

"(A) IN GENERAL.—For purposes of this section, any plan providing for deferred benefits (other than compensation) for employees, their spouses, or their dependents shall be treated as a plan deferring the receipt of compensation. In the case of such a plan, for purposes of this section, the determination of when an amount is includible in gross income shall be made without regard to any provisions of this chapter excluding such benefits from gross income. "(B) EXCEPTION FOR CERTAIN BENEFITS.—Subparagraph

(A) shall not apply to— "(i) any benefit provided through a welfare benefit fund (as defined in section 419(e)), or "(ii) to any benefit with respect to which an election under section 463 applies." (b) CROSS REFERENCE.—Subsection (j) of section 162 (relating to cross references) is amended by adding at the end thereof the following new paragraph: "(3) For special rules relating to— "(A) funded welfare benefit plans, see section 419, and "(B) deferred compensation and other deferred benefits, see section 404." (c) EFFECTIVE DATE.— (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act in taxable years ending after such date. (2) EXCEPTION FOR CERTAIN EXTENDED VACATION PAY PLANS.—

In the case of any extended vacation pay plan maintained pursuant to a collective bargaining agreement— (A) between employee representatives and 1 or more employers, and (B) in effect on June 22, 1984, the amendments made by this section shall not apply before the date on which such collective bargaining agreement terminates (determined without regard to any extension thereof agreed to after June 22, 1984). For purposes of the preceding sentence, any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section shall not be treated as a termination of such collective bargaining agreement. SEC. 513. ADDITIONAL REQUIREMENTS FOR TAX-EXEMPT STATUS OF CERTAIN ORGANIZATIONS.

(a) GENERAL RULE.—Part I of subchapter F of chapter 1 (relating to exempt organizations) is amended by adding at the end thereof the following new section:

Ante, p. 854. 26 USC 162.

Ante, p. 854. 26 USC 404 note.

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text: Author:Henry Kendall (1849-1934)

title: Author:Henry Kendall (1849-1934)


text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/912

 98 STAT. 864 26 USC 505.

PUBLIC LAW 98-369—JULY 18, 1984 "SEC. 505. ADDITIONAL REQUIREMENTS FOR ORGANIZATIONS DESCRIBED IN PARAGRAPH (9), (17), OR (20) OF SECTION 501(c). "(a) CERTAIN REQUIREMENTS MUST BE MET IN THE CASE OF ORGANIZATIONS DESCRIBED IN PARAGRAPH (9) OR (20) OF SECTION 501(C).— "(1) VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATIONS, ETC.—

An organization described in paragraph (9) or (20) of subsection (c) of section 501 which is part of a plan of an employer shall not be exempt from tax under section 501(a) unless such plan meets the requirements of subsection (b) of this section. "(2) EXCEPTION FOR COLLECTIVE BARGAINING AGREEMENTS.—

Paragraph (1) shall not apply to any organization which is part of a plan maintained pursuant to 1 or more collective bargaining agreements between 1 or more employee organizations and 1 or more employers. "(b) NONDISCRIMINATION REQUIREMENTS.—

"(1) IN GENERAL.—Except as provided in paragraph (2), a plan meets the requirements of this subsection only if— "(A) each class of benefits under the plan is provided under a classification of employees which is set forth in the plan and which is found by the Secretary not to be discriminatory in favor of employees who are highly compensated individuals, and "(B) in the case of each class of benefits, such benefits do not discriminate in favor of employees who are highly compensated employees. A life insurance, disability, severance pay, or supplemental unemployment compensation benefit shall not be considered to fail to meet the requirements of subparagraph (B) merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. "(2) EXCLUSION OF CERTAIN EMPLOYEES.—For purposes of paragraph (1), there may be excluded from consideration— "(A) employees who have not completed 3 years of service, "(B) employees who have not attained age 21, "(C) seasonal employees or less than half-time employees, "(D) employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and 1 or more employers which the Secretary finds to be a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining between such employee representatives and such employer or employers, and "(E) employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)). "(3) APPLICATION OF SUBSECTION WHERE OTHER NONDISCRIMINATION RULES PROVIDED.—In the case of any benefit for which a

provision of this chapter other than this subsection provides nondiscrimination rules, paragraph (1) shall not apply but the requirements of this subsection shall be met only if the nondiscrimination rules so provided are satisfied with respect to such benefit.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/913

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 865

"(4) AGGREGATION RULES.—For purposes of this subsection— "(A) AGGREGATION OF PLANS.—At the election of the em-

ployer, 2 or more plans of such employer may be treated as 1 plan. "(B) TREATMENT OF RELATED EMPLOYERS.—Rules similar to the rules of subsections (b), (c), (m), and (n) of section 414 • -" shall apply. For purposes of the preceding sentence, section 414(n) shall be applied without regard to paragraph (5). "(5) HIGHLY COMPENSATED INDIVIDUAL.—For purposes of this subsection, the term 'highly compensated individual' has the meaning given such term by section 105(h)(5). For purposes of the preceding sentence, section 105(h)(5) shall be applied by substituting '10 percent' for '25 percent'. "(c) REQUIREMENT THAT ORGANIZATION NOTIFY SECRETARY THAT IT Is APPLYING FOR TAX-EXEMPT STATUS.—

"(1) IN GENERAL.—An organization shall not be treated as an organization described in paragraph (9), (17), or (20) of section 501(c)— "(A) unless it has given notice to the Secretary, in such manner as the Secretary may by regulations prescribe, that it is applying for recognition of such status, or "(B) for any period before the giving of such notice, if such notice is given after the time prescribed by the Secretary by regulations for giving notice under this subsection. "(2) SPECIAL RULE FOR EXISTING ORGANIZATIONS.—In the case of any organization in existence on the date of the enactment of the Tax Reform Act of 1984, the time for giving notice under Ante, p. 494. paragraph (1) shall not expire before the date 1 year after such date of the enactment." (b) CLERICAL AMENDMENT.—The table of sections for part I of subchapter F of chapter 1 is amended by adding at the end thereof the following new item: "Sec. 505. Additional requirements for organizations described in paragraph (9), (17), or (20) of section 501(c)."

(c) EFFECTIVE DATE.— 26 USC 505 note. (1) IN GENERAL.—The amendments made by this section shall apply to years beginning after December 31, 1984. (2) TREATMENT OF CERTAIN BENEFITS IN PAY STATUS AS OF

JANUARY 1, 1985.—For purposes of determining whether a plan meets the requirements of section 5O50b) of the Internal Revenue Code of 1954 (as added by subsection (a)), there may (at the Ante, p. 864. election of the employer) be excluded from consideration all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. The preceding sentence shall not apply to any payment to the extent such payment is increased by any plan amendment adopted after June 22, 1984.

Subtitle B—Provisions Relating to Pension Plans SEC. 521. REQUIRED DISTRIBUTIONS. (a) QuAUFiED P E N S I O N P L A N S. —

(1) IN GENERAL.—Paragraph (9) of section 401(a) (relating to 26 USC 401. required distributions), as in effect before the amendments

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Page:United States Statutes at Large Volume 98 Part 1.djvu/914

 98 STAT. 866

PUBLIC LAW 98-369—JULY 18, 1984 made by section 242 of the Tax Equity and Fiscal Responsibility Act of 1982, is amended to read as follows: "(9) REQUIRED DISTRIBUTIONS.—

"(A) IN GENERAL.—A trust shall not constitute a qualified trust under this subsection unless the plan provides that the entire interest of each employee— "(i) will be distributed to such employee not later than the required beginning date, or "(ii) will be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of such employee or over the lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary). "(B) REQUIRED DISTRIBUTION WHERE EMPLOYEE DIES BEFORE ENTIRE INTEREST IS DISTRIBUTED.— "(i) WHERE DISTRIBUTIONS HAVE BEGUN UNDER SUBPARAGRAPH (A)(ii).—A trust shall not constitute a

qualified trust under this section unless the plan provides that if^ "(I) the distribution of the employee's interest has begun in accordance with subparagraph (A)(ii), and "(II) the employee dies before his entire interest has been distributed to him, the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used under subparagraph (A)(ii) as of the date of his death. "(ii) 5-YEAR RULE FOR OTHER CASES.—A trust shall not

constitute a qualified trust under this section unless the plan provides that, if an employee dies before the distribution of the employee's interest has begun in accordance with subparagraph (A)(ii), the entire interest of the employee will be distriljuted within 5 years after the death of such employee, "(iii) EXCEPTION TO 5-YEAR RULE FOR CERTAIN AMOUNTS P A Y A B L E OVER LIFE OF BENEFICIARY.—If—

"(I) any portion of the employee's interest is payable to (or for the benefit of) a designated beneficiary, "(II) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and "(III) such distributions begin not later than year after the date of the employee's death or such later date as the Secretary may by regulations prescribe, for purposes of clause (ii), the portion referred to in subclause (I) shall be treated as distributed on the date on which such distributions begin. "(iv) SPECIAL RULE FOR SURVIVING SPOUSE OF EM-

PLOYEE.—If the designated beneficiary referred to in clause (iii)(I) is the surviving spouse of the employee—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/915

 PUBLIC LAW 98-369—JULY 18, 1984

L,

\

98 STAT. 867

"(I) the date on which the distributions are required to begin under clause (iiiXIII) shall not be earlier than the date on which the employee would have attained age 70 ¥2, and "(II) if the surviving spouse dies before the distributions to such spouse begin, this subparagraph shall be applied as if the surviving spouse were the employee. "(C) REQUIRED BEGINNING DATE.—For purposes of this paragraph, the term 'required beginning date' means April 1 of the calendar year following the later of— "(i) the calendar year in which the employee attains age 70 V2, or "(ii) the calendar year in which the employee retires. Except as provided in section 409(d), clause (ii) shall not Ante, p. 852. apply in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains 701/2.

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"(D) LIFE EXPECTANCY.—For purposes of this paragraph, '; the life expectancy of an employee and the employee's spouse (other than in the case of a life annuity) may be redetermined but not more frequently than annually. "(E) DESIGNATED BENEFICIARY.—For purposes of this paragraph, the term 'designated beneficiary' means any individ* '^ > « '^ ^ ual designated as a beneficiary by the employee. "(F) TREATMENT OF PAYMENTS TO CHILDREN.—Under regulations prescribed by the Secretary, for purposes of this paragraph, any amount paid to a child shall be treated as if '? "^? ' -^' it had been paid to the surviving spouse if such amount will become payable to the surviving spouse upon such child reaching majority (or other designated event permitted under regulations)." (2) REPEAL OF SECTION 242.—Section 242 of the Tax Equity and 26 USC 40i, 401 Fiscal Responsibility Act of 1982 is hereby repealed. note. (b) INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES.— (1) INDIVIDUAL RETIREMENT ACCOUNTS.—Section 408(a) (relat-

26 USC 408.

ing to individual retirement accounts) is amended by striking out paragraphs (6) and (7) and inserting in lieu thereof the following new paragraph: "(6) Under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) (relating to required Ante, p. 865. distributions) shall apply to the distribution of the entire interest of an individual for whose benefit the trust is maintained." (2) INDIVIDUAL RETIREMENT ANNUITIES.—Section 408(b) (relat-

ing to individual retirement annuities) is amended by striking out paragraphs (3) and (4), by redesignating paragraph (5) as paragraph (4), and by inserting after paragraph (2) the following new paragraph: "(3) Under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) (relating to required distributions) shall apply to the distribution of the entire interest of the owner." (c) SPECIAL RULE FOR CUSTODIAL ACCOUNTS.—Paragraph (7) of

section 403(b) (relating to custodial accounts for regulated invest- 26 USC 403. ment company stock) is amended by adding at the end thereof the following new subparagraph:

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Page:United States Statutes at Large Volume 98 Part 1.djvu/916

 98 STAT. 868

PUBLIC LAW 98-369—JULY 18, 1984 "(D) DISTRIBUTION REQUIREMENTS.—For purposes of deter-

mining when the interest of an employee in a custodial account must be distributed, such account shall be treated in the same manner as an annuity contract." Post, p. 957.

(d) CERTAIN DISTRIBUTION REQUIREMENTS TO APPLY TO 5-PERCENT OWNERS RATHER THAN KEY EMPLOYEES.—Section 72(m)(5) (relating

to penalties applicable to certain amounts received by owner-employees) is amended— (1) by striking out "key employee" each place it appears in subparagraph (A) and inserting in lieu thereof "5-percent owner"; (2) by striking out "in a top-heavy plan" in clause (i) of subparagraph (A); and (3) by striking out "the terms 'key employee' and 'top-heavy plan' " in subparagraph (C) and inserting in lieu thereof "the term '5 percent owner ". 26 USC 401 note.

Ante, p. 867.

Ante, p. 865.

26 USC 401 note.

f o; \H; I..
 * jo

(e) EFFECTIVE D A T E S. —

(1) IN GENERAL.—The amendments made by this section shall apply to years beginning after December 31, 1984. (2) REPEAL OF SECTION 242 OF TEFRA.—The amendment made by subsection (a)(2) shall take effect as if included in the Tax Equity and Fiscal Responsibility Act of 1982. (3) TRANSITION RULE.—A trust forming part of a plan shall not be disqualified under paragraph (9) of section 401(a) of the Internal Revenue Code of 1954, as amended by subsection (a)(1), by reason of distributions under a designation (before January 1, 1984) by any employee in accordance with a designation described in section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982 (as in efffect before the amendments made by this Act). (4) SPECIAL RULE FOR GOVERNMENTAL PLANS.—In the case of a governmental plan (within the meaning of section 414(d) of the Internal Revenue Code of 1954), paragraph (1) shall be applied by substituting "1986" for "1984". (5) SPECIAL RULE FOR COLLECTIVE BARGAINING AGREEMENTS.—

In the case of a plan maintained pursuant to one or more collective bargaining agreements ratified on or before the date of the enactment of this Act between employee representatives and one or more employers, the amendments made by this section shall not apply to years beginning before the earlier of— (A) the date on which the last of the collective bargaining c^as c, AJ',-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) January 1, 1988. For purposes of subparagraph (A), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section shall not be treated as a termination of such collective bargaining agreement. SEC. 522. ROLLOVER OF CERTAIN PARTIAL DISTRIBUTIONS PERMITTED.
 * jf ' -;.

26 USC 402.

(a) GENERAL RULE.— (1) QUALIFIED TRUSTS.—Clause

(i) of section 402(a)(5)(A) (relating to rollover amounts) is amended to read as follows— _ "(i) any portion of the balance to the credit of an employee in a qualified trust is paid to him,".

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98 STAT. 869

(2) QUALIFIED ANNUITIES.—Clause (i) of section 403(a)(4)(A) 26 USC 403. (relating to rollover amounts) is amended to read as follows: "(i) any portion of the balance to the credit of an employee in an employee annuity described in paragraph (1) is paid to him,'. (3) SECTION 403(b) ANNUITIES.—Clause (i) of section 403(b)(8)(A) (relating to rollover amounts) is amended to read as follows: "(i) any portion of the balance to the credit of an employee in an annuity contract described in paragraph (1) is paid to him,". (b) SPECIAL RULES FOR ROLLOVERS OF PARTIAL DISTRIBUTIONS.—

Paragraph (5) of section 402(a) is amended by redesignating subpara- 26 USC 402. graphs (D) and (E) as subparagraphs (E) and (F), respectively, and by inserting after subparagraph (C) the following new subparagraph: "(D) SPECIAL RULES FOR PARTIAL DISTRIBUTIONS.—

"(i) REQUIREMENTS.—Subparagraph (A) shall apply to a partial distribution only if— "(I) such distribution is of an amount equal to at least 50 percent of the balance to the credit of the employee in a qualified trust (determined immediately before such distribution and without regard to subsection (e)(4)(C)), "(II) such distribution is not one of a series of periodic payments, and "(III) the employee elects (at such time and in such manner as the Secretary shall by regulations prescribe) to have subparagraph (A) apply to such partial distribution. "(ii) PARTIAL DISTRIBUTIONS MAY BE TRANSFERRED

ONLY TO INDIVIDUAL RETIREMENT PLANS.—In the case of a partial distribution, a plan described in subclause (IV) or (V) of subparagraph (E)(iv) shall not be treated as an eligible retirement plan. "(iii) DENIAL OF IO-YEAR AVERAGING AND CAPITAL - r< <

GAINS TREATMENT FOR SUBSEQUENT DISTRIBUTIONS.—If

an election under clause (i) is made with respect to any partial distribution paid to any employee— "(I) paragraph (2) of this subsection, "(II) paragraphs (1) and (3) of subsection (e), and ' '(III) paragraph (2) of section 403(a), shall not apply to any distribution (paid after such partial distribution) of the balance to the credit of such employee under the plan under which such partial distribution was made (or under any other plan which, under subsection (e)(4)(C), would be aggregated with such plan). "(iv) SPECIAL RULE FOR UNREALIZED APPRECIATION.—If

an election under clause (i) is made with respect to any partial distribution, the second and third sentences of paragraph (1) shall not apply to such distribution." (c) PARTIAL DISTRIBUTIONS PAID TO SPOUSE OF EMPLOYEE AFTER EMPLOYEE'S DEATH ELIGIBLE FOR ROLLOVER.—Paragraph (7) of sec-

tion 402(a) (relating to rollover where spouse receives lump-sum distribution at death of employee) is amended to read as follows: "(7) ROLLOVER WHERE SPOUSE RECEIVES DISTRIBUTIONS AFTER

DEATH OF EMPLOYEE.—If any distribution attributable to an

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Page:United States Statutes at Large Volume 98 Part 1.djvu/918

 98 STAT. 870
 * r i J r

PUBLIC LAW 98-369—JULY 18, 1984 employee is paid to the spouse of the employee after the employee's death, paragraph (5) shall apply to such distribution in the same manner as if the spouse were the employee.", (d) TECHNICAL AND CONFORMING AMENDMENTS.—

26 USC 402. Ante, p. 869.

.;

26 USC 403.

(1) The following provisions are each amended by striking out "qualifying rollover distribution" each place it appears and inserting in lieu thereof "qualified total distribution"— (A) section 402(a)(5)(B), (B) Section 402(a)(5)(E)(i) (as redesignated by subsection (b)), and (C) section 402(a)(6)(E)(i). (2) Subparagraph (B) of section 402(a)(5) is amended by adding at the end thereof the following new sentence: "In the case of any partial distribution, the maximum amount transferred to which subparagraph (A) applies shall not exceed the portion of such distribution which is includible in gross income (determined without regard to subparagraph (A))." (3) Clause (ii) of section 402(a)(5)(E) (as redesignated by subsection (b)) is amended by striking out "gross income" and inserting in lieu thereof "gross income (determined without regard to this paragraph)". (4) Clause (v) of subparagraph (E) of section 402(a)(5) (as redesignated by subsection 0^)) is amended to read as follows: "(v) PARTIAL DISTRIBUTION.—The term 'partial distribution' means any distribution to an employee of any portion of the balance to the credit of such employee in a qualified trust; except that such term shall not include any distribution which is a qualified total distribution." (5) Subparagraph (F) of section 402(a)(5) (as redesignated by subsection (b)) is amended by striking out "subparagraph (D)(iv)" each place it appears and inserting in lieu thereof "subparagraph (E)(iv)". (6) Paragraph (6) of section 402(a) is amended by striking out "paragraph (5)(D)(i)" each place it appears and inserting in lieu thereof "paragraph (5)(E)(i)^'. (7) Clauses (iii) and (iv) of section 402(a)(6)(D) are each amended by striking out "employee contributions" and inserting in lieu thereof "employee contributions (or, in the case of a partial distribution, the amount not includible in gross income)". (8) Clause (i) of section 402(a)(6)(E) is amended by striking out "paragraph (5)(D)(i)(II)" and inserting in lieu thereof "paragraph (5)(D) or (5)(E)(i)(II)". (9) Subparagraph (B) of section 403(a)(4) is amended by striking out "(B) through (E)" and inserting in lieu thereof "(B) through (F)". (10) Subparagraph (B) of section 4030t))(8) is amended to read as follows: "(B) SPECIAL RULES FOR PARTIAL DISTRIBUTIONS.—

Ante, p. 869.

"(i) IN GENERAL.—In the case of any distribution other than a total distribution, rules similar to the rules of clauses (i) and (ii) of section 402(a)(5)(D) shall apply. "(ii) TOTAL DISTRIBUTION.—For purposes of subpara-

graph (A), the term 'total distribution' means one or more distributions from an annuity contract described in paragraph (1) which would constitute a lump-sum

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Page:United States Statutes at Large Volume 98 Part 1.djvu/919

 PUBLIC LAW 98-369—JULY 18, 1984 distribution within the meaning of section 402(e)(4)(A) (determined without regard to subparagraphs (B) and (H) of section 402(e)(4)) if such annuity contract were described in subsection (a), or 1 or more distributions of accumulated deductible employee contributions (within the meaning of section 72(o)(5))." (11) Subparagraph (C) of section 403(b)(8) is amended by striking out "(D)(v), and (E)(i)" and inserting in lieu thereof "(F)(i)". (12) Clause (ii) of section 408(d)(3)(A) is amended by striking out "rollover contribution from an employee's trust" and inserting in lieu thereof "rollover contribution of a qualified total distribution (as defined in section 402(a)(5)(E)(i)) from an employee's trust". (13) Subparagraph (C) of section 4090t))(3) is amended by striking out the second sentence and inserting in lieu thereof the following new sentences: "This subparagraph does not apply in the case of a transfer to such an employee's trust or such an annuity unless no part of the value of such proceeds is attributable to any source other than a qualified rollover contribution. For purposes of the preceding sentence, the term 'qualified rollover contribution' means any rollover contribution of a qualified total distribution (as defined in section 402(a)(5)(E)(i)) which is from such an employee's 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 meaning of section 401(c)(1) at the time contributions were made on his behalf under such plan), and which did not qualify as a rollover contribution by reason of section 402(a)(7)." (e) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions made after the date of the amendment of this Act, in taxable years ending after such date.

98 STAT. 871

26 USC 403. 26 USC 408.

Ante, p. 852.

Ante, p. 869.

Ante, p. 869. 26 USC 402 note.

SEC. 523. TREATMENT OF DISTRIBUTIONS WHERE SUBSTANTIALLY ALL CONTRIBUTIONS ARE EMPLOYEE CONTRIBUTIONS. (a) IN GENERAL.—Subsection (e) of section 72 (relating to amounts 26 USC 72. not received as annuities) is amended by adding at the end thereof the following new paragraph: "(7) SPECIAL RULES FOR PLANS WHERE SUBSTANTIALLY ALL CON-

TRIBUTIONS ARE EMPLOYEE CONTRIBUTIONS.— "(A) IN GENERAL.—In the case of any plan or contract to which this paragraph applies, subparagraph (D) of paragraph (5) shall not apply to any amount received from such plan or contract. "(B) PLANS OR CONTRACTS TO WHICH THIS PARAGRAPH AP-

PUES.—This paragraph shall apply to any trust or contract— "(i) which is described in clause (i) or subclause (I), (II), or (III) of clause (ii) of paragraph (5)(D), and "(ii) with respect to which 85 percent of the total contributions during a representative period are derived from employee contributions. "(C) SPECIAL RULE FOR CERTAIN FEDERAL PLANS.—If the

Federal Government or an instrumentality thereof maintains more than 1 plan, subparagraph (B) shall be applied by aggregating all such plans which are actively administered by the Federal Government or such instrumentality." O> CONFORMING AMENDMENTS.— t)

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 98 STAT. 872 26 USC 72.

26 USC 72 note.

PUBLIC LAW 98-369—JULY 18, 1984 (1) Subparagraph (D) of section 72(e)(5) (relating to contracts under qualified plans) is amended by striking out "This" and inserting in lieu thereof "Except as provided in paragraph (7), this". (2) Paragraph (3) of section 72(p) (defining qualified employer plan) is amended by inserting "other than a plan described in subsection (e)(7)" after "section 219(e)(3)". (c) EFFECTIVE DATE.—The amendments made by this section shall apply to any amount received or loan made after the 90th day after the date of the enactment of this Act. SEC. 524. PROVISIONS RELATING TO TOP-HEAVY PLANS. (a) DEFINITION OF KEY EMPLOYEE.—

26 USC 416.

26 USC 416 note.

(1) IN GENERAL.—Clause (i) of section 416(i)(l)(A) (defining key employee) is amended by inserting "having an annual compensation greater than 150 percent of the amount in effect under section 415(c)(1)(A) for any such plan year" after "employer". (2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to plan years beginning after December 31, 1983. (b) ACCRUED BENEFIT OF INDIVIDUAL NOT EMPLOYED WITHIN LAST 5 YEARS DISREGARDED.—

26 USC 416.

(1) IN GENERAL.—Paragraph (4) of section 416(g) (relating to other special rules) is amended by adding at the end thereof the following new subparagraph: "(E) BENEFITS NOT TAKEN INTO ACCOUNT IF EMPLOYEE NOT EMPLOYED FOR LAST 5 YEARS.—If any individual has not

26 USC 416 note.

received any compensation from any employer maintaining the plan (other than benefits under the plan) at any time during the 5-year period ending on the determination date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account." (2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to plan years beginning after December 31, 1984. (c) SALARY REDUCTION ARRANGEMENTS MAY B E TAKEN INTO ACCOUNT.—

26 USC 416. 26 USC 416 note.

(1) IN GENERAL.—Paragraph (2) of section 416(c) (relating to minimum benefits for defined contribution plans) is amended by striking out subparagraph (C). (2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to plan years beginning after December 31, 1984. (d) CERTAIN GOVERNMENTAL PLANS EXEMPT FROM TOP-HEAVY PLAN RULES.—

26 USC 401.

26 USC 401 note. 26 USC 401 note.

(1) IN GENERAL.—Paragraph (10)(B) of section 401(a) (relating to plan requirements regarding top-heavy plans) is amended by adding at the end thereof the following new clause: "(iii) EXEMPTION FOR GOVERNMENTAL PLANS.— This subparagraph shall not apply to any governmental plan." (2) EFFECTIVE DATE.—The amendment made Vy this subsection shall apply to plan years beginning after December 31, 1983. (e) QUALIFICATION REQUIREMENTS MODIFIED IF REGULATIONS NOT ISSUED.—

(1) IN GENERAL.—If the Secretary of the Treasury or his delegate does not publish final regulations under section 416 of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of this Act) before January 1, 1985, the Secretary shall publish before such date plan amendment

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98 STAT. 873

provisions which may be incorporated in a plan to meet the requirements of section 401(a)(10)(B)(ii) of such Code. (2) EFFECT OF INCORPORATION.—If a plan is amended to incorporate the plan amendment provisions described in paragraph (1), such plan shall be treated as meeting the requirements of section 401(a)(10)(B)(ii) of the Internal Revenue Code of 1954 during the period such amendment is in effect but not later than 6 months after the final regulations described in paragraph (1) are published. (3) FAILURE BY SECRETARY TO PUBLISH.—If the Secretary of the

Treasury or his delegate does not publish plan amendment provisions described in paragraph (1), the plan shall be treated as meeting the requirements of section 401(a)(10)(B) of the Internal Revenue Code of 1954 if— (A) such plan is amended to incorporate such requirements by reference, except that (B) in the case of any optional requirement under section 416 of such Code, if such amendment does not specify the manner in which such requirement will be met, the employer shall be treated as having elected the requirement with respect to each employee which provides the maximum vested accrued benefit for such employee. SEC. 525. REPEAL OF ESTATE TAX EXCLUSION FOR QUALIFIED PENSION PLAN BENEFITS. (a) IN GENERAL.—Section 2039 (relating to inclusion in the gross 26 USC 2039. estate of annuities) is amended by striking out subsections (c), (d), (e), if), and (g) and inserting in lieu thereof the following new subsection: "(c) EXCEPTION OF CERTAIN ANNUITY INTERESTS CREATED BY COMMUNITY PROPERTY LAWS.—

"(1) IN GENERAL.—In the case of an employee on whose behalf contributions or payments were made by his employer or former employer under a trust, plan, or contract to which this subsection applies, if the spouse of such employee predeceases such employee, then notwithstanding any provision of law, there shall be excluded from the gross estate of such spouse the value of any interest of such spouse in such trust, plan, or contract, to the extent such interest— "(A) is attributable to such contributions or payments, and "(B) arises solely by reason of such spouse's interest in community income under the community property laws of a State. "(2)

TRUSTS, PLANS, AND CONTRACTS TO WHICH SUBSECTION

APPLIES.—This subsection shall apply to— "(A) any trust, plan, or contract which at the time of the decedent's separation from employment (by death or otherwise), or if earlier, at the time of termination of the plan— "(i) formed part of a plan which met the requirements of section 401(a), or "(ii) was purchased pursuant to a plan described in section 403(a), or "(B) a retirement annuity contract purchased for an employee by an employer which is— "(i) an organization referred to in clause (ii) or (vi) of section 170(b)(1)(A), or

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 98 STAT. 874

PUBLIC LAW 98-369—JULY 18, 1984 '^ff, is

"(ii) a religious organization (other than a trust) exempt from taxation under section 501(a). "(3) AMOUNT CONTRIBUTED BY EMPLOYEE.—For purposes of this subsection— "(A) contributions or payments made by the decedent's employer or former employer under a trust, plan, or contract described in paragraph (2)(A) shall not be considered to be contributed by the decedent, and "(B) contributions or payments made by the decedent's employer or former employer toward the purchase of an annuity contract described in paragraph (2)(B) shall not be considered to be contributed by the decedent to the extent excludable from gross income under section 403(b)."

26 USC 2039

(b) EFFECTIVE DATES.—

note.

(1) IN GENERAL.—The amendments made by this section shall apply to the estates of decedents dying after December 31, 1984. (2) EXCEPTION FOR PARTICIPANTS IN PAY STATUS.—The amendments made by this section shall not apply to the estate of any decedent who— (A) was a participant in any plan who was in pay status on December 31, 1984, and (B) irrevocably elected the form of the benefit before the date of the enactment of this Act. (3) PAY STATUS RULE EXTENDED TO $100,000 LIMITATION.—Sub-

section (c) of section 245 of the Tax Equity and Fiscal Responsibility Act of 1982 is amended by inserting ", except that such amendments shall not apply to the estate of any decedent who was a participant in any plan who was in pay status on December 31, 1982, and irrevocably elected before January 1, 1983, the form of benefit".

26 USC 2039 note.

SEC. 526. AFFILIATED SERVICE GROUPS, EMPLOYEE LEASING ARRANGEMENTS, AND COLLECTIVE BARGAINING AGREEMENTS. (a) ATTRIBUTION RULES FOR AFFILIATED SERVICE GROUPS.—

26 USC 414.

(1) IN GENERAL.—Subparagraph (B) of section 414(m)(6), as in effect for taxable years beginning after December 31, 1983, is amended by striking out "section 267(c)" and inserting in lieu thereof "section 318(a)". (2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to taxable years beginning after December 31, 1984.

26 USC 414 note.

(b) EMPLOYEE EMPLOYEES.—

LEASING

EXCEPTION

ONLY

APPLIES

TO NON-

(1) IN GENERAL.—Paragraph (2) of section 414(n) (defining leased employee) is amended by striking out "any person" in the material preceding subparagraph (A) and inserting in lieu thereof "any person who is not an employee of the recipient and". (2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to taxable years beginning after December 31, 1983.

26 USC 414 note.

(c) DETERMINATION OF WHETHER THERE IS A COLLECTIVE BARGAINING AGREEMENT.—

Ante, p. 558. -i

(1) IN GENERAL.—Subsection (a) of section 7701 (relating to definitions) is amended by adding at the end thereof the following new paragraph:

I;

"(46) DETERMINATION OF WHETHER THERE IS A COLLECTIVE BARGAINING AGREEMENT.—In determining whether there is a

collective bargaining agreement between employee representa-

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98 STAT. 875

tives and 1 or more employers, the term 'employee representatives' shall not include any organization more than one-half of the members of which are employees who are owners, officers, or executives of the employer." (2) EFFECTIVE DATE.—The amendment made by this subsection 26 USC 7701 shall take effect on April 1, 1984. note, (d) ADDITIONAL REGULATIONS.—

(1) IN GENERAL.—Section 414 (relating to definitions and spe- 26 USC 414. cial rules) is amended by adding at the end thereof the following new subsection: "(o) REGULATIONS.—The Secretary shall prescribe such regulations (which may provide rules in addition to the rules contained in subsections (m) and (n)) as may be necessary to prevent the avoidance of any employee benefit requirement listed in subsection (m)(4) or (n)(3) through the use of— "(1) separate organizations, "(2) employee leasing, or "(3) other arrangements." (2) CONFORMING AMENDMENT.—Subsection (m) of section 414

is amended by striking out paragraph (6). (3) EFFECTIVE DATE.—The amendments made by this subsec- 26 USC 414 note. tion shall take effect on the date of the enactment of this Act. SEC. 527. PROVISIONS RELATING TO CASH OR DEFERRED ARRANGEMENTS. (a)

PARTICIPATION AND DISCRIMINATION STANDARDS.—Subpara-

graph (A) of section 401(k)(3) is amended to read as follows: 26 USC 40i. "(A) A cash or deferred arrangement shall not be treated as a qualified cash or deferred arrangement unless— "(i) those employees eligible to benefit under the arrangement satisfy the provisions of subparagraph (A) or (B) of section 410(b)(l), and "(ii) the actual deferral percentage for highly compensated employees (as defined in paragraph (4)) for such year bears a relationship to the actual deferral percentage for all other eligible employees for such plan year which meets either of the following tests: "(I) The actual deferral percentage for the group of highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 1.5. "(II) The excess of the actual deferral percentage for the group of highly compensated employees over that of all other eligible employees is not more than 3 percentage points, and the actual deferral percentage for the group of highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 2.5. v! • jf 2 or more plans which include cash or deferred arrangements are considered as 1 plan for purposes of section 401(a)(4) or 410(b), the cash or deferred arrangements included in such plans shall be treated as 1 arrangement for purposes of this subparagraph. The deferral percentage taken into account under this subparagraph for any employee who is a participant under 2 or more cash or deferred arrangements of the employer

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 98 STAT. 876

PUBLIC LAW 98-369—JULY 18, 1984 shall be the sum of the deferral percentages for such employee under each of such arrangements."

26 USC 401.

(b) APPLICATION TO P R E - E R I S A MONEY PURCHASE PLAN.— (1) GENERAL RULE.—Paragraphs (1) and (2) of section 401(k)

(relating to cash or deferred arrangements) are each amended by inserting "(or a pre-ERISA money purchase plan)" after "stock bonus plan". (2) DEFINITION OP PRE-ERISA MONEY PURCHASE PLAN.—Subsec-

sjc I t

81! •

26 USC 401 note.

tion (k) of section 401 is amended by adding at the end thereof the following new paragraph: "(5) PRE-ERISA MONEY PURCHASE PLAN.—For purposes of this subsection, the term 'pre-ERISA money purchase plan' means a pension plan— "(A) which is a defined contribution plan (as defined in section 414(i)), "(B) which was in existence on June 27, 1974, and which, on such date, included a salary reduction arrangement, and "(C) under which neither the employee contributions nor the employer contributions may exceed the levels provided for by the contribution formula in effect under the plan on such date." (3) TECHNICAL AMENDMENT.—Subparagraph (B) of section 401(k)(2) is amended by striking out ", hardship or the attainment of age 59 Vz," and inserting in lieu thereof "(or in the case of a profit sharing or stock bonus plan, hardship or the attainment of age 59 ¥2). (c) EFFECTIVE D A T E S. — (1) SUBSECTION (a).—

(A) IN GENERAL.—Except as provided in subparagraph (B), the amendment made by subsection (a) shall apply to plan years beginning after December 31, 1984. (B) EXCEPTION FOR CERTAIN EXISTING PLANS.—The amendment made by subsection (a) shall not apply to any plan— (i) which was maintained by a State on June 8, 1984, and (ii) with respect to which a determination letter had been issued by the Secretary on December 6, 1982. (2) SUBSECTION (b).—

(A) IN GENERAL.—The amendments made by this section shall apply with respect to plan years beginning after the date of the enactment of this Act. (B) TRANSITIONAL RULE.—Rules similar to the rules under 26 USC 401 note. section 135(c)(2) of the Revenue Act of 1978 shall apply with respect to any pre-ERISA money purchase plan (as defined Supra. in section 401(k)(5) of the Internal Revenue Code of 1954) for plan years beginning after December 31, 1979, and on or before the date of the enactment of this Act. SEC. 528. TREATMENT OF CERTAIN MEDICAL, ETC., BENEFITS UNDER SECTION 415.

26 USC 415.

(a) GENERAL RULE.—Section 415 (relating to limitations on benefits and contributions under qualified plan) is amended by adding at the end thereof the following new subsection: "(1) TREATMENT OF CERTAIN MEDICAL BENEFITS.—

"(1) IN GENERAL.—For purposes of this section, contributions allocated to any individual medical account which is part of a

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98 STAT. 877

defined benefit plan shall be treated as an annual addition to a defined contribution plan for purposes of subsection (c). "(2) INDIVIDUAL MEDICAL BENEFIT ACCOUNT.—For purposes of

paragraph (1), the term 'individual medical benefit account' means any separate account— "(A) which is established for a participant under a defined benefit plan, and "(B) from which benefits described in section 401(h) are payable solely to such participant, his spouse, or his dependents." (b) REQUIREMENT THAT SEPARATE ACCOUNT B E MAINTAINED FOR 5-

PERCENT OWNER,—Subsection (h) of section 401 (relating to medical, 26 USC 40i. etc., benefits for retired employees and their spouses and dependents) is amended by striking out "and" at the end of paragraph (4), by striking out the period at the end of paragraph (5) and inserting in lieu thereof ", and", and by adding at the end thereof the following new paragraph: "(6) in the case of an employee who is a 5-percent owner, a separate account is established and maintained for such benefits payable to such employee (and his spouse and dependents) and such benefits (to the extent attributable to plan years beginning after March 31, 1984, for which the employee is a 5percent owner) are only payable to such employee (and his spouse and dependents) from such separate account. For purposes of paragraph (6), the term '5-percent owner' means any employee who, at any time during the plan year or any preceding plan year during which contributions were made on behalf of such employee, is or was a 5-percent owner (as defined in section 416(i)(l)(B))." (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 40i note. apply to years beginning after March 31, 1984. SEC. 529. CERTAIN ALIMONY TREATED AS COMPENSATION.

(a) IN GENERAL.—Paragraph (1) of section 219(f) (defining compen- 26 USC 219. sation) is amended by adding at the end thereof the following new sentence: "The term 'compensation' shall include any amount includible in the individual's gross income under section 71 with Ante, p. 795. respect to a divorce or separation instrument described in subparagraph (A) of section 71(b)(2)." (b) CONFORMING AMENDMENT.—Subsection (b) of section 219 is

amended by striking out paragraph (4). (c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 1984.

26 USC 219 note.

Subtitle C—Tax Treatment of Fringe Benefits SEC. 531. EXCLUSION OF CERTAIN FRINGE BENEFITS FROM GROSS INCOME. (a) EXCLUSION OF CERTAIN FRINGE BENEFITS.—

(1) IN GENERAL.—Part III of subchapter B of chapter 1 (relating to items specifically excluded from gross income) is amended by redesignating section 132 as section 133 and by inserting 26 USC 133. after section 131 the following new section:

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Page:United States Statutes at Large Volume 98 Part 1.djvu/926

 98 STAT. 878 26 USC 132.

PUBLIC LAW 98-369—JULY 18, 1984 "SEC. 132. CERTAIN FRINGE BENEFITS.

include any fringe benefit which qualifies as a— "(1) no-additional-cost service, "(2) qualified employee discount, i "(3) working condition fringe, or "(4) de minimis fringe. "(b) No-ADDITIONAL-COST SERVICE DEFINED.—For purposes of this section, the term 'no-additional-cost service' means any service provided by an employer to an employee for use by such employee if— "(1) such service is offered for sale to customers in the ordinary course of the line of business of the employer in which the employee is performing services, and "(2) the employer incurs no substantial additional cost (including forgone revenue) in providing such service to the employee (determined without regard to any amount paid by the employee for such service). "(c) QUALIFIED EMPLOYEE DISCOUNT DEFINED.—For purposes of this section— "(1) QUALIFIED EMPLOYEE DISCOUNT.—The term 'qualified employee discount' means any employee discount with respect to qualified property or services to the extent such discount does not exceed— "(A) in the case of property, the gross profit percentage of the price at which the property is being offered by the employer to customers, or "(B) in the case of services, 20 percent of the price at which the services are being offered by the employer to customers. .^.,
 * (a) EXCLUSION FROM GROSS INCOME.—Gross income shall not

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"(2) GROSS PROFIT PERCENTAGE.—

"(A) IN GENERAL.—The term 'gross profit percentage' means the percent which— "(i) the excess of the aggregate sales price of property sold by the employer to customers over the aggregate cost of such property to the employer, is of "(ii) the aggregate sale price of such property. "(B) DETERMINATION OF GROSS PROFIT PERCENTAGE.—Gross

profit percentage shall be determined on the basis of— "(i) all property offered to customers in the ordinary course of the line of business of the employer in which '*' the employee is performing services (or a reasonable classification of property selected by the employer), and .SJORC1:!"J^:U iK: iif; "(ii) the employer's experience during a representative period. "(3) EMPLOYEE DISCOUNT DEFINED.—The term 'employee discount' means the amount by which— "(A) the price at which the property or services are provided to the employee by the employer, is less than <*-»• "(B) the price at which such property or services are being offered by the employer to customers. "(4) QUALIFIED PROPERTY OR SERVICES.—The term 'qualified 4 property or services' means any property (other than real property and other than personal property of a kind held for investpt f)>Ti > ment)"br services which are offered for sale to customers in the ordinary course of the line of business of the employer in which the employee is peforming services.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/927

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 879

"(d) WORKING CONDITION FRINGE DEFINED.—For purposes of this section, the term 'working condition fringe' means any property or services provided to an employee of the employer to the extent that, if the employee paid for such property or services, such payment would be allowable as a deduction under section 162 or 167. "(e) D E MINIMIS FRINGE DEFINED.—For purposes of this section— "(1) IN GENERAL.—The term 'de minimis fringe' means any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees) so small as to make accounting for it unreasonable or administratively impracticable. "(2) TREATMENT OF CERTAIN EATING FACILITIES.—The operation by an employer of any eating facility for employees shall be treated as a de minimis fringe if— "(A) such facility is located on or near the business premises of the employer, and "(B) revenue derived from such facility normally equals or exceeds the direct operating costs of such facility. The preceding sentence shall apply with respect to any officer, owner, or highly compensated employee only if access to the facility is available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of officers, owners, or highly compensated employees. "(f) CERTAIN INDIVIDUALS TREATED AS EMPLOYEES FOR PURPOSES OF SUBSECTIONS (a)(1) AND (2).—For purposes of paragraphs (1) and (2)

of subsection (a)— "(1) RETIRED AND DISABLED EMPLOYEES AND SURVIVING SPOUSE

OF EMPLOYEE TREATED AS EMPLOYEE.—With respcct to a line of business of an employer, the term 'employee' includes— "(A) any individual who was formerly employed by such employer in such line of business and who separated from service with such employer in such line of business by reason of retirement or disability, and "(B) any widow or widower of any individual who died while employed by such employer in such line of business or while an employee within the meaning of subparagraph (A). "(2) SPOUSE AND DEPENDENT CHILDREN.—

"(A) IN GENERAL.—Any use by the spouse or a dependent child of the employee shall be treated as use by the employee. "(B) DEPENDENT CHILD.—For purposes of subparagraph (A), the term 'dependent child' means any child (as defined in section 151(e)(3)) of the employee— "(i) who is a dependent of the employee, or "(ii) both of whose parents are deceased. For purposes of the preceding sentence, any child to whom section 152(e) applies shall be treated as the dependent of Ante, p. 799. both parents. "(g) SPECIAL RULES RELATING TO EMPLOYER.—For purposes of this section— "(1) CONTROLLED GROUPS, ETC.—All employees treated as em-

ployed by a single employer under subsection (b), (c), or (m) of section 414 shall be treated as employed by a single employer for purposes of this section.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/928

 98 STAT. 880

PUBLIC LAW 98-369—JULY 18, 1984 "(2) RECIPROCAL AGREEMENTS.—For purposes of paragraph (1)

of subsection (a), any service provided by an employer to an employee of another employer shall be treated as provided by the employer of such employee if— "(A) such service is provided pursuant to a written agreement between such employers, and "(B) neither of such employers incurs any substantial additional cost (including forgone revenue) in providing such service or pursuant to such agreement. "(h) SPECIAL RULES.— "(1) EXCLUSIONS UNDER SUBSECTION (a)(i) AND (2) APPLY TO

OFFICERS, ETC., ONLY IF NO DISCRIMINATION.—Paragraphs (1) and (2) of subsection (a) shall apply with respect to any fringe benefit described therein provided with respect to any officer, owner, or highly compensated employee only if such fringe benefit is available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of officers, owners, or highly compensated employees. "(2) SPECIAL RULE FOR LEASED SECTIONS OF DEPARTMENT STORES.—

"(A) IN GENERAL.—For purposes of paragraph (2) of subsection (a), in the case of a leased section of a department store— "(i) such section shall be treated as part of the line of business of the person operating the department store, and "(ii) employees in the leased section shall be treated as employees of the person operating the department store. "(B) LEASED SECTION OF DEPARTMENT STORE.—For purposes of subparagraph (A), a leased section of a department store is any part of a department store where over-thecounter sales of property are made under a lease or similar arrangement where it appears to the general public that individuals making such sales are employed by the person operating the department store. "(3) AUTO SALESMEN.—

"(A) IN GENERAL.—For purposes of subsection (a)(3), qualified automobile demonstration use shall be treated as a working condition fringe. "(B) QUALIFIED AUTOMOBILE DEMONSTRATION USE.—For

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purposes of subparagraph (A), the term 'qualified automobile demonstration use' means any use of an automobile by a full-time automobile salesman in the sales area in which the automobile dealer's sales office is located if— "(i) such use in provided primarily to facilitate the salesman's performance of services for the employer, and "(ii) there are substantial restrictions on the personal use of such automobile by such salesman. "(4) PARKING.—The term 'working condition fringe' includes parking provided to an employee on or near the business premises of the employer. "(5) ON-PREMISES GYMS AND OTHER ATHLETIC FACILITIES.—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/929

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 881

"(A) IN GENERAL.—Gross income shall not include the value of any on-premises athletic facility provided by an employer to his employees. "(B)

ON-PREMISES ATHLETIC FACILITY.—For purposes of

this paragraph, the term 'on-premises athletic facility' means any gym or other athletic facility— "(i) which is located on the premises of the employer, "(ii) which is operated by the employer, and "(iii) substantially all the use of which is by employees of the employer, their spouses, and their dependent children (within the meaning of subsection (f)). "(i) CUSTOMERS NOT TO INCLUDE EMPLOYEES.—For purposes of this section (other than subsection (c)(2)(B)), the term 'customers' shall only include customers who are not employees. "(j) SECTION NOT TO APPLY TO FRINGE BENEFITS EXPRESSLY PROVIDED FOR ELSEWHERE.—This section (other than subsection (e)) shall

not apply to any fringe benefits of a type the tax treatment of which is expressly provided for in any other section of this chapter, "(k) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section." (2) CLERICAL AMENDMENT.—The table of sections for such part III is amended by striking out the item relating to section 132 and inserting in lieu thereof the following: "Sec. 132. Certain fringe benefits. "Sec. 133. Cross references to other Acts." (b) CAFETERIA PLAN.— (1) DEFINITION OF CAFETERIA PLAN.—Paragraph (1) of section

125(d) (defining cafeteria plan) is amended to read as follows: 26 USC 125. "(1) IN GENERAL.—The term 'cafeteria plan' means a written plan under which— "(A) all participants are employees, and "(B) the participants may choose among 2 or more benefits consisting of cash and statutory nontaxable benefits." (2) DEFINITION OF STATUTORY NONTAXABLE BENEFIT.—

(A) IN GENERAL,—Subsection (f) of section 125 is amended to read as follows: "(f) STATUTORY NONTAXABLE BENEFITS DEFINED.—For purposes of this section, the term 'statutory nontaxable benefit' means any benefit which, with the application of subsection (a) is not in'^ludible in the gross income of the employee by reason of an express provision of this chapter (other than section 117, 124, 127, or 132). Such Ante, p. 877. term includes any group term life insurance which is includible in gross income only because it exceeds the dollar limitation of section 79." (B) CONFORMING AMENDMENT.—Subsection (c) of section

125 is amended by striking out "nontaxable benefits" each place it appears and inserting in lieu thereof "statutory nontaxable benefits". (3) EXCEPTION FOR KEY EMPLOYEES.—Subsection (b) of section 125 (relating to exception for highly compensated participants) is amended to read as follows: "(b) EXCEPTION FOR HIGHLY COMPENSATED PARTICIPANTS AND KEY EMPLOYEES.— "(1) HIGHLY COMPENSATED PARTICIPANTS.—In the case of a

highly compensated participant, subsection (a) shall not apply

31-194 0 - 86 - 30: QL. 3 Part 1

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Page:United States Statutes at Large Volume 98 Part 1.djvu/930

 98 STAT. 882

PUBLIC LAW 98-369—JULY 18, 1984 to any benefit attributable to a plan year for which the plan discriminates in favor of— "(A) highly compensated individuals as to eligibility to participate, or "(B) highly compensated participants as to contributions and benefits. "(2) KEY EMPLOYEES.—In the case of a key employee (within the meaning of section 416(i)(l)), subsection (a) shall not apply to any benefit attributable to a plan for which the statutory nontaxable benefits provided to key employees exceed 25 percent of the aggregate of such benefits provided for all employees under the plan. For purposes of the preceding sentence, statutory nontaxable benefits shall be determined without regard to the last sentence of subsection (f). "(3) YEAR OF INCLUSION.—For purposes of determining the

taxable year of inclusion, any benefit described in paragraph (1) or (2) shall be treated as received or accrued in the taxable year of the participant or key employee in which the plan year ends." (4) REPORTING REQUIREMENTS.—

26 USC 125.

(A) Section 125 (relating to cafeteria plans) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: "(h) REPORTING REQUIREMENTS.—

JS; if;

"(1) IN GENERAL.—Each employer maintaining a cafeteria plan during any year which begins after December 31, 1984, and to which this section applies shall file a return (at such time and in such manner as the Secretary shall by regulations prescribe) with respect to such plan showing for such year— ftl "(A) the number of employees of the employer, "(B) the number of employees participating under the plan, "(C) the total cost of the plan during the year, and M5 "(D) the name, address, and taxpayer identification number of the employer and the type of business in which the employer is engaged. "(2) RECORDKEEPING REQUIREMENT.—Each employer maintain-

ing a cafeteria plan during any year shall keep such records as may be necessary for purposes of determining whether the requirements of this section are met. "(3) ADDITIONAL INFORMATION WHEN REQUIRED BY THE SECRE-

—H,,,vi

26 USC 6652.

TARY.—Any employer— "(A) who maintains a cafeteria plan during any year for which a return is required under paragraph (1), and "(B) who is required by the Secretary to file an additional return for such year, shall file such additional return. Such additional return shall be filed at such time and in such manner as the Secretary shall prescribe and shall contain such information as the Secretary shall prescribe." (B) Subsection (f) of section 6652 is amended— (i) by striking out "or 6047 (relating to information relating to certain trusts and annuity and bond pury,. {^ ^^ chase plans)" and inserting in lieu thereof ", 6047 (relating to information relating to certain trusts and annuity and bond purchase plans), or 125(h) (relating to information with respect to cafeteria plans)", and

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Page:United States Statutes at Large Volume 98 Part 1.djvu/931

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 883

(ii) by striking out "DEFERRED COMPENSATION.—" in the subsection heading and inserting in lieu thereof "DEFERRED COMPENSATION; ETC.—".

(5) EXCEPTION FOR CERTAIN CAFETERIA PLANS AND BENEFITS.— 26 USC 125 note. (A) GENERAL TRANSITIONAL RULE.—Any cafeteria plan in existence on February 10, 1984, which failed as of such date and continued to fail thereafter to satisfy the rules relating to section 125 under proposed Treasury regulations, and any benefit offered under such a cafeteria plan which failed as of such date and continued to fail thereafter to satisfy the rules of section 105, 106, 120, or 129 under proposed Treasury regulations, will not fail to be a cafeteria plan under section 125 or a nontaxable benefit under section 105, 106, 120, or 129 solely because of such failures. The preceding sentence shall apply only with respect to cafeteria plans and benefits provided under cafeteria plans before the earlier of— (i) January 1, 1985, or (ii) the effective date of any modification to provide additional benefits after February 10, 1984. (B) SPECIAL TRANSITION RULE FOR ADVANCE ELECTION BENEFIT BANKS.—Any benefit offered under a cafeteria plan in

existence on February 10, 1984, which failed as of such date and continued to fail thereafter to satisfy the rules of section 105, 106, 120, or 129 under proposed Treasury regulations because an employee was assured of receiving (in cash or any other benefit) amounts available but unused for covered reimbursement during the year without regard to whether he incurred covered expenses, will not fail to be a nontaxable benefit under such applicable section solely because of such failure. The preceding sentence shall apply only with respect to benefits provided under cafeteria plans before the earlier of— (i) July 1, 1985, or (ii) the effective date of any modification to provide additional benefits after February 10, 1984. Except as provided in Treasury regulations, the special transition rule is available only for benefits with respect to which, after December 31, 1984, contributions are fixed before the period of coverage and taxable cash is not available until the end of such period of coverage. (C) PLANS FOR WHICH SUBSTANTIAL IMPLEMENTATION COSTS WERE INCURRED.—For purposes of this paragraph, any plan

with respect to which substantial implementation costs had been incurred before February 10, 1984, shall be treated as in existence on February 10, 1984. (6) STUDY OF EFFECTS OF CAFETERIA PLANS ON HEALTH CARE COSTS.—

(A) STUDY.—The Secretary of Health and Human Services, in cooperation with the Secretary of the Treasury, shall conduct a study of the effects of cafeteria plans (within the meaning of section 125 of the Internal Revenue Code of 1954) on the containment of health care costs. (B) REPORT.—The Secretary of Health and Human Services, in cooperation with the Secretary of the Treasury, shall submit a report on the study conducted under subparagraph (A) to the Committee on Ways and Means of the

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Page:United States Statutes at Large Volume 98 Part 1.djvu/932

 98 STAT. 884

PUBLIC LAW 98-369—JULY 18, 1984 House of Representatives and the Committee on Finance of the Senate by no later than April 1, 1985. (c) CLARIFICATION THAT FRINGE BENEFITS NOT COVERED BY STATUTORY EXCLUSION INCLUDED IN GROSS INCOME.—Paragraph (1) of

26 USC 61.

section 61(a) (defining gross income) is amended by striking out "commissions, and similar items" and inserting in lieu thereof "commissions, fringe benefits, and similar items". (d) CONFORMING AMENDMENTS TO EMPLOYMENT TAXES.— (1) SOCIAL SECURITY TAXES.—

26 USC 3121. 97 Stat. 126.

Ante, p. 877. 42 USC 409. 97 Stat. 127.

26 USC 3231.

26 USC 3306. 97 Stat. 860.

(A) Subsection (a) of section 3121 (defining wages) is amended— (i) by striking out "all remuneration paid in any medium" in the material preceding paragraph (1) and inserting in lieu thereof "all remuneration (including benefits) paid in any medium", and (ii) by striking out "or" at the end of paragraph (18), by striking out the period at the end of paragraph (19) ,. and inserting in lieu thereof "; or", and by inserting after paragraph (19) the following new paragraph: "(20) any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from income Under section 117 or 132." (B) Section 209 of the Social Security Act is amended— (j) by striking out "all remuneration paid in any medium" in the material preceding subsection (a) and inserting in lieu thereof "all remuneration (including benefits) paid in any medium", and (ii) by striking out "or" at the end of subsection (q), by striking out the period at the end of subsection (r) and inserting in lieu thereof "; or", and by inserting after subsection (r) the following new subsection: "(s) Any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from income under section 117 or 132 of the Internal Revenue Code of 1954." (2) RAILROAD RETIREMENT TAX.—Subsection (e) of section 3231 (defining compensation) is amended by adding at the end thereof the following new paragraph: "(5) The term 'compensation' shall not include any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from income under section 117 or 132." (3) UNEMPLOYMENT TAX.—Subsection (b) of section 3306 (defining wages) is amended— (A) by striking out "all remuneration paid in any medium" in the material preceding paragraph (1) and inserting in lieu thereof "all remuneration (including benefits) paid in any medium", and (B) by striking out "or" at the end of paragraph (14), by striking out the period at the end of paragraph (15) and inserting in lieu thereof "; or", and by inserting after paragraph (15) the following new paragraph: "(16) any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that

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Page:United States Statutes at Large Volume 98 Part 1.djvu/933

 PUBLIC LAW 98-369—JULY 18, 1984 the employee will be able to exclude such benefit from income under section 117 or 132." (4) WITHHOLDING.—Subsection (a) of section 3401 (defining wages) is amended— (A) by striking out "all remuneration paid in any medium" in the material preceding paragraph (1) and inserting in lieu thereof "all remuneration (including benefits) paid in any medium", and (B) by striking out "or" at the end of paragraph (18), by striking out the period at the end of paragraph (19) and inserting in lieu thereof "; or", and by adding at the end thereof the following new paragraph: "(20) any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from income under section 117 or 132."

98 STAT. 885 Ante, p. 877. 26 USC 3401.

(5) METHOD OF COLLECTING TAX FROM NON-CASH FRINGE BENE-

FITS.—Section 3501 (relating to collection and payment of taxes) is amended— (A) by striking out "The taxes" and inserting in lieu thereof the following:

26 USC 3501.

"(a) GENERAL RULE.—The taxes", and

(B) by adding at the end thereof the following new subsection: "(b) TAXES WITH RESPECT TO NON-CASH FRINGE BENEFITS.—The

taxes imposed by this subtitle with respect to non-cash fringe benefits shall be collected (or paid) by the employer at the time and in the manner prescribed by the Secretary by regulations." (e) ELECTION WITH RESPECT TO CERTAIN EXISTING LINES OF BUSINESS.—

.

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(1) IN GENERAL.—Chapter 43 (relating to qualified pension, etc., plans), as amended by this Act, is amended by adding at the end thereof the following new section: "SEC. 4977. TAX ON CERTAIN FRINGE BENEFITS PROVIDED BY AN EMPLOYER.

26 USC 4977.

"(a) IMPOSITION OF TAX.—In the case of an employer to whom an election under this section applies for any calendar year, there is hereby imposed a tax for such calendar year equal to 30 percent of the excess fringe benefits. "(b) EXCESS FRINGE BENEFITS.—For purposes of subsection (a), the term 'excess fringe benefits' means, with respect to any calendar year— "(1) the aggregate value of the fringe benefits provided by the employer during the calendar year which were not includible in gross income under paragraphs (1) and (2) of section 132(a), over Ante, p. 877. "(2) 1 percent of the aggregate amount of compensation— "(A) which was paid by the employer during such calendar year to employees, and "(B) was includible in gross income for purposes of chapter 1. "(c) EFFECT OF ELECTION ON SECTION 132(a).—If— "(1) an election under this section is in effect with respect to an employer for any calendar year, and "(2) as of January 1, 1984, substantially all of the employees of the employer were entitled to employee discounts or services provided by the employer in 1 line of business.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/934

 98 STAT. 886 Ante, p. 877.

26 USC 132 note.

Ante, p. 877.

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PUBLIC LAW 98-369—JULY 18, 1984 for purposes of paragraphs (1) and (2) of section 132(a) (but not for purposes of section 132(g)(2)), all employees of any line of business of the employer which was in existence on January 1, 1984, shall be treated as employees of the line of business referred to in paragraph (2). "(d) PERIOD OF ELECTION.—An election under this section shall apply to the calendar year for which made and all subsequent calendar years unless revoked by the employer. "(e) TREATMENT OF CONTROLLED GROUPS.—All employees treated as employed by a single employer under subsection (b), (c), or (m) of section 414 shall be treated as employed by a single employer for purposes of this section." (2) CLERICAL AMENDMENT.—The table of sections for chapter 43 is amended by adding at the end thereof the following new item: "Sec. 4977. Tax on certain fringe benefits provided by an employer." (f) DETERMINATION OF LiNE OF BUSINESS IN C A S E OF AFFILIATED GROUP OPERATING RETAIL DEPARTMENT STORES.—If—

(1) as of October 5, 1983, the employees of one member of an affiliated group (as defined in section 1504 of th^ Internal Revenue Code of 1954 without regard to subsections (b)(2) and (b)(4) thereof) were entitled to employee discounts at the retail department stores operated by another member of such affiliated group, and (2) the primary business of the affiliated group is the operation of retail department stores, then, for purpose of applying section 132(a)(2) of the Internal Revenue Code of 1954, with respect to discounts provided for such employees at the retail department stores operated by such other member, the employer shall be treated as engaged in the same line of business as such other member. (g) MORATORIUM ON ISSUANCE OF REGULATIONS RELATING TO FACULTY HOUSING.—

(1) IN GENERAL.—Any regulation providing for the inclusion in gross income under section 61 of the Internal Revenue Code of 1954 of the excess (if any) of the fair market value of qualified campus lodging over the greater of— (A) the operating costs paid or incurred in furnishing such lodging, or (B) the rent received for such lodging, shall not be issued before January 1, 1986. (2) QUALIFIED CAMPUS LODGING.—For purposes of this subsection, the term "qualified campus lodging" means lodging which •;•:,•,. w. is— (A) located on (or in close proximity to) a campus of an educational institution (described in section 170(b)(l)(A)(ii) of the Internal Revenue Code of 1954), and (B) provide by such institution to an employee of such institution, or to a spouse or dependent (within the meaning of section 152 of such Code) of such employee. (3) APPLICATION OF SUBSECTION.—This subsection shall apply with respect to lodging furnished after December 31, 1983, and before January 1, 1986. 26 USC 132 note. (h) EFFECTIVE DATE.—The amendments made by this section shall take effect on January 1, 1985.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/935

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 887

SEC. 532. EXCLUSION OF CERTAIN REDUCTIONS IN TUITION FROM GROSS INCOME.

(a) IN GENERAL.—Section 117 (relating to scholarships and fellowship grants) is amended by adding at the end thereof the following new subsection:

26 USC 117.

"(d) QUALIFIED TUITION REDUCTIONS.—

'

"(1) IN GENERAL.—Gross income shall not include any qualified tuition reduction., .,, "(2) QUALIFIED TUITION REDUCTION.—For purposes of this subsection, the term 'qualified tuition reduction' means the amount of any reduction in tuition provided to an employee of an organization described in section 170(b)(l)(A)(ii) for the education (below the graduate level) at such organization (or another organization described in section 170(b)(l)(A)(ii)) of— "(A) such employee, or "(B) any person treated as an employee (or whose use is treated as an employee use) under the rules of section 132(f). Ante, p. 877. "(3) REDUCTION MUST NOT DISCRIMINATE IN FAVOR OF HIGHLY COMPENSATED, ETC.—Paragraph (1) shall apply with respect to

any qualified tuition reduction provided with respect to any officer, owner, or highly compensated employee only if such reduction is available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of officers, owners, or highly compensated employees." (b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 117 note. apply to qualified tuition reductions (as defined in section 117(d)(2) of the Internal Revenue Code of 1954) for education furnished after Supra. June 30, 1985, in taxable years ending after such date. .U:f-\

Subtitle D—Employee Stock Ownership Plans SEC. 541. NONRECOGNITION OF GAIN ON STOCK SOLD TO EMPLOYEE STOCK OWNERSHIP PLANS OR CERTAIN COOPERATIVES IF QUALIFIED REPLACEMENT PROPERTY ACQUIRED. (a) IN GENERAL.—Part III of subchapter 0 of chapter 1 (relating to nontaxable exchanges), as amended by this Act, is amended by adding at the end thereof the following new section: "SEC. 1042. SALES OF STOCK TO STOCK OWNERSHIP PLANS OR CERTAIN 26 USC 1042. COOPERATIVES. "(a) NONRECOGNITION OF GAIN.—If^

"(1) the taxpayer elects the application of this section with respect to any sale of qualified securities, "(2) the taxpayer purchases qualified replacement property within the replacement period, and "(3) the requirements of subsection (b) are met with respect to such sale, then the gain (if any) on such sale shall be recognized only to the extent that the amount realized on such sale exceeds the cost to the taxpayer of such qualified replacement property. "(b) REQUIREMENTS TO QUALIFY FOR NONRECOGNITION.—A sale of qualified securities meets the requirements of this subsection if—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/936

 98 STAT. 888

PUBLIC LAW 98-369—JULY 18, 1984 "(1) SALE TO EMPLOYEE ORGANIZATIONS.—The qualified securities are sold to— "(A) an employee stock ownership plan (as defined in section 4975(e)(7)), or "(B) an eligible worker-owned cooperative. "(2) EMPLOYEES MUST OWN 30 PERCENT OF STOCK AFTER SALE.—

The plan or cooperative referred to in paragraph (1) owns, immediately after the sale, at least 30 percent of the total value of the employer securities (within the meaning of section 409(1)) outstanding as of such time. "(3) PLAN MAINTAINED FOR BENEFIT OF EMPLOYEES.—No portion of the assets of the plan or cooperative attributable to employer securities (within the meaning of section 409(1)) acquired by the plan or cooperative described in paragraph (1) accrue under such plan, or are allocated by such cooperative, for the benefit of— "(A) the taxpayer, "(B) any person who is a member of the family of the taxpayer (within the meaning of section 267(c)(4)), or "(C) any other person who owns (after application of section 318(a)) more than 25 percent in value of any class of outstanding employer securities (within the meaning of section 409(1)).

Ante, p. 852.

"(4) WRITTEN STATEMENT REQUIRED.—

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Post, p. 894.

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"(A) IN GENERAL.—The taxpayer files with the Secretary the written statement described in subparagraph (B). "(B) STATEMENT.—A statement is described in this subparagraph if it is a verified written statement of— "(i) the employer whose employees are covered by the plan described in paragraph (1), or "(ii) any authorized officer of the cooperative described in paragraph (1), consenting to the application of section 4978(a) with respect to such employer or cooperative. "(c) DEFINITIONS; SPECIAL RULES.—For purposes of this section.— "(1) QUALIFIED SECURITIES.—The term 'qualified securities' means employer securities (as defined in section 409(1)) which— "(A) are issued by a domestic corporation that has no securities outstanding that are readily tradable on an established securities market, "(B) at the time of the sale described in subsection (a)(1), have been held by the taxpayer for more than 1 year, and "(C) were not received by the taxpayer in— "(i) a distribution from a plan described in section 401(a), or "(ii) a transfer pursuant to an option or other right to acquire stock to which section 83, 422, 422A, 423, or 424 applies. "(2) ELIGIBLE WORKER-OWNED COOPERATIVE.—The term 'eligible worker-owned cooperative' means any organization— "(A) to which part I of subchapter T applies, "(B) a majority of the membership of which is composed of employees of such organization, "(C) a majority of the voting stock of which is owned by members, "(D) a majority of the board of directors of which is elected by the members on the basis of 1 person 1 vote, and

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/937

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 889

"(E) a majority of the allocated earnings and losses of which are allocated to members on the basis of— "(i) patronage, "(ii) capital contributions, or "(iii) some combination of clauses (i) and (ii). "(3) REPLACEMENT PERIOD.—The term 'replacement period' means the period which begins 3 months before the date on which the sale of qualified securities occurs and which ends 12 months after the date of such sale. "(4) QuAUFiED REPLACEMENT PROPERTY.—The term 'qualified replacement property' means any securities (as defined in section 165(g)(2)) issued by a domestic corporation which does not, for the taxable year in which such stock is issued, have passive investment income (as defined in section 1362(d)(3)(D)) that exceeds 25 percent of the gross receipts of such corporation for such taxable year. "(5) SECURITIES ACQUIRED BY UNDERWRITER.—No acquisition of securities by an underwriter in the ordinary course of his trade or business as an underwriter, whether or not guaranteed, shall be treated as a sale for purposes of subsection (a). "(6) TIME FOR FIUNG ELECTION.—An election under subsection

(a) shall be filed not later than the last day prescribed by law (including extensions thereof) for filing the return of tax imposed by this chapter for the taxable year in which the sale occurs. "(d) BASIS OF QUALIFIED REPLACEMENT PROPERTY.—The basis of the taxpayer in qualified replacement property purchased by the taxpayer during the replacement period shall be reduced by the amount of gain not recognized by reason of such purchase and the application of subsection (a). If more than one item of qualified replacement property is purchased, the basis of each of such items shall be reduced by an amount determined by multiplying the total gain not recognized by reason of such purchase and the application of subsection (a) by a fraction— "(1) the numerator of which is the cost of such item of property, and "(2) the denominator of which is the total cost of all such items of property. "(e) STATUTE OF LIMITATIONS.—If any gain is realized by the taxpayer on the sale or exchange of any qualified securities and there is in effect an election under subsection (a) with respect to such gain, then— "(1) the statutory period for the assessment of any deficiency with respect to such gain shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may by regulations prescribe) of— "(A) the taxpayer's cost of purchasing qualified replacement property which the taxpayer claims results in nonrecognition of any part of such gain, "(B) the taxpayer's intention not to purchase qualified replacement property within the replacement period, or "(C) a failure to make such purchase within the replacement period, and "(2) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other

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