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Page:United States Statutes at Large Volume 100 Part 3.djvu/666

 100 STAT. 2474

PUBLIC LAW 99-514—OCT. 22, 1986 individual retirement plan, the individual for whose benefit such plan was established."

(b) CONFORMING CHANGES TO TAX ON PREMATURE DISTRIBUTIONS FROM ANNUITY CONTRACTS; EXCEPTION FOR QUALIFIED FUNDING ASSETS.—

(1) INCREASE IN RATE.—Section 72(q) is amended—

(A) by striking out "5 percent" in paragraph (1) thereof and inserting in lieu thereof "10 percent", and (B) by striking out "5-PERCENT" in the heading thereof •'" and inserting in lieu thereof "10-PERCENT". (2) PERIODIC PAYMENTS.—Subparagraph (D) of section 72(q)(2) is amended to read as follows: "(D) which is a part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of such taxpayer and his beneficiary." (3) ADDITIONAL TAX.—Section 72(q) is amended by adding at the end thereof the following new paragraph: "(3) CHANGE IN SUBSTANTIALLY EQUAL PAYMENTS.—If—

"(A) paragraph (1) does not apply to a distribution by j:\\ reason of paragraph (2)(D), and lo "(B) the series of payments under such paragraph are au subsequently modified (other than by reason of death or disability)— "(i) before the close of the 5-year period beginning on the date of the first payment and after the employee attains age 59y2, or "(ii) before the employee attains age 59y2, the taxpayer's tax for the 1st taxable year in which such modification occurs shall be increased by an amount, deter mined under regulations, equal to the tax which (but for para graph (2)(D)) would have been imposed, plus interest for the deferral period (within the meaning of subsection (t)(4)(B))." (3) Paragraph (2) of section 72(q) is amended by striking out "This subsection" and inserting in lieu thereof "Paragraph (1)". — (4) Section 72(q)(2), as amended by this Act, is amended by striking out "or" at the end of subparagraph (G), by striking out the period at the end of subparagraph (H), and by adding at the end thereof the following new subparagraphs: "(I) under an immediate annuity contract (within the meaning of section 72(u)(4)), or "(J) which is purchased by an employer upon the termi|. nation of a plan described in section 401(a) or 403(a) and which is held by the employer until such time as the employee separates from service." _. (c) AMENDMENTS TO SECTION 403(b).—

(1) IN GENERAL.—Subsection (b) of section 403 (relating to taxability of beneficiary under annuity purchased by section 501(c)(3) organization or public school) is amended by adding at the end thereof the following new paragraph: "(11) REQUIREMENT THAT DISTRIBUTIONS NOT BEGIN BEFORE AGE 59Vs, S E P A R A T I O N FROM SERVICE, DEATH, OR DISABILITY.—This

subsection shall not apply to any annuity contract unless under such contract distributions attributable to contributions made pursuant to a salary reduction agreement (within the meaning of section 402(g)(3)(C)) may be paid only—

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100 STAT. 2475

"(A) when the employee attains age 59 ¥2, separates from service, dies, or becomes disabled (within the meaning of section 72(m)(7)), or "(B) in the case of hardship. Such contract may not provide for the distribution of any income attributable to such contributions in the case of hardship." (2) CUSTODIAL ACCOUNTS.—Clause (ii) of section 403(b)(7) (relating to amounts treated as contributions) is amended by inserting "in the case of contributions made pursuant to a salary reduction agreement (within the meaning of section 3121(a)(1)(D))," before "encounters". (d) TECHNICAL AMENDMENTS.—

(1) Subparagraph (A) of section 72(m)(5) is amended to read as follows: "(A) This paragraph applies to amounts which are re'; ceived from a qualified trust described in section 401(a) or under a plan described in section 403(a) at any time by an individual who is, or has been, a 5-percent owner, or by a ' successor of such an individual, but only to the extent such amounts are determined, under regulations prescribed by the Secretary, to exceed the benefits provided for such individual under the plan formula." (2) Subsection (f) of section 408 is hereby repealed. (e) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1986. (2) SUBSECTION (C).—The amendments made by subsection (c) ' shall apply to taxable years beginning after December 31, 1988. (3) EXCEPTION WHERE DISTRIBUTION COMMENCES.—The amendments made by this section shall not apply to distributions to ^ any employee from a plan maintained by any employer if— ^ (A) as of March 1, 1986, the employee separated from service with the employer, • (B) as of March 1, 1986, the accrued benefit of the employee was in pay status pursuant to a written election providing a specific schedule for the distribution of the entire accrued benefit of the employee, and ^(C) such distribution is made pursuant to such written t election. (4) TRANSITION RULE.—The amendments made by this section which a designation is in effect under section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982. SEC. 1124. ELECTION TO TREAT CERTAIN LUMP SUM DISTRIBUTIONS RECEIVED DURING 1987 AS RECEIVED DURING 1986.
 * shall not apply with respect to any benefits with respect to

(a) IN GENERAL.—If an employee separates from service during 1986 and receives a lump sum distribution (within the meaning of section 402(e)(4)(A) of such Code) after December 31, 1986, and before March 16, 1987, on account of such separation from service, then, for purposes of the Internal Revenue Code of 1986, such employee may elect to treat such lump sum distribution as if it were received when such employee separated from service. (b) SPECIAL RULE FOR TERMINATED PLAN.—In the case of an employee who receives a distribution from a terminated plan which

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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 100 Part 3.djvu/668

 100 STAT. 2476

PUBLIC LAW 99-514—OCT. 22, 1986

was m a i n t a i n e d by a corporation organized under the laws of the State of Nevada, the principal place of business of which is Denver, Colorado, and which filed for relief from creditors under the United States B a n k r u p t c y Code on August 28, 1986, the employee may t r e a t a l u m p s u m distribution received from such plan before June 30, 1987, as if it were received in 1986. " ' ^^ u j ^ - i u i s ...

PART IV—MISCELLANEOUS PROVISIONS SEC. 1131. ADJUSTMENTS TO SECTION 404 LIMITATIONS. (a)

ELIMINATION

OF

LIMIT

CARRYFORWARD

OF

SECTION

404(a)(3)(A).—Subparagraph (A) of section 404(a)(3) (relating to limits on deductible contributions to stock bonus and profit-sharing trusts) is amended to read as follows: "(A) L I M I T S O N DEDUCTIBLE CONTRIBUTIONS.—

j,/

"(i) IN GENERAL.—In the taxable year w h e n paid, if the contributions a r e paid into a stock bonus or profits h a r i n g t r u s t, and if such taxable year ends within or with a taxable year of the t r u s t with respect to which the t r u s t is e x e m p t under section 501(a), in a n a m o u n t ^ot in excess of 15 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under the stock bonus or profit-sharing plan.

 * lt>i V

 * .>i^

.

ci v'15

"(ii)

CARRYOVER

OF

EXCESS

CONTRIBUTIONS.—Any

a m o u n t paid into the t r u s t in any taxable year in excess of the limitation of clause (i) (or the corresponding provision of prior law) shall be deductible in the succeeding taxable year s in order of time, b u t the a m o u n t so deductible under this clause in any 1 such succeeding taxable year together with the a m o u n t allowable under clause (i) shall not exceed 15 percent of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plan.

•r. • ':

"(iii)

. - . •'

CERTAIN

RETIREMENT PLANS

EXCLUDED.—For

purposes of this subparagraph, the term 'stock bonus or profit-sharing t r u s t ' shall not include any t r u s t designed to provide benefits upon retirement and covering a period of years, if under the plan the a m o u n t s to be contributed by the employer can be determined actuarially as provided in paragraph (1).

-'

"(iv) 2 OR MORE TRUSTS TREATED AS 1 TRUST.—If

 * u

..

the

contributions a r e m a d e to 2 or more stock bonus or profit-sharing t r u s t s, such t r u s t s shall be considered a single t r u s t for purposes of applying the limitations in this subparagraph.

,,,,,.

"(v) P R E - 8 7 LIMITATION CARRYFORWARDS.—

 * - i t r '

»/,

' ^ i

'

.rv;

"(I) IN GENERAL.—The limitation of clause (i) for any taxable year shall be increased by the unused pre-87 limitation carryforwards (but not to a n a m o u n t in excess of 25 percent of the compensation described in clause (i))..

"(II)

UNUSED

PRE-87

LIMITATION

CARRYFOR-

WARDS.—For purposes of subclause (I), the term 'unused pre-87 limitation carryforwards' means the a m o u n t by which the limitation of the first

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Page:United States Statutes at Large Volume 100 Part 3.djvu/669

 PUBLIC LAW 99-514—OCT. 22, 1986 u

^

,:

%

100 STAT. 2477

sentence of this subparagraph (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) for any taxable year beginning before January 1, 1987, exceeded the amount paid to the trust for such taxable year (to the extent such excess was not taken into account in prior taxable years)."

(b) COMBINED LIMIT TO APPLY TO COMBINATIONS OF DEFINED CONTRIBUTION PLANS AND DEFINED BENEFIT PLANS.—Paragraph (7) of

section 404(a) is amended to read as follows: "(7) LIMITATION O N DEDUCTIONS WHERE COMBINATION O F DE-

FINED CONTRIBUTION PLAN AND DEFINED BENEFIT PLAN.—

"(A) IN GENERAL.—If amounts are deductible under the foregoing provisions of this subsection (other than paranr I f graph (5)) in connection with 1 or more defined contribution plans and 1 or more defined benefit plans, the total amount deductible in a taxable year under such plans shall not exceed the greater of— ,,. „ "(i) 25 percent of the compensation otherwise paid or ''^ "*" accrued during the taxable year to the beneficiaries ,. ^ ^ under such plans, or -"--"*" " "(ii) the amount of contributions made to or under the defined benefit plans to the extent such contributions do not exceed the amount of employer •' contributions necessary to satisfy the minimum fund^-,, ing standard provided by section 412 with respect to Kk. VI ^j^y such defined benefit plans for the plan year which "" ' -" ends with or within such taxable year (or for any prior plan year), A defined contribution plan which is a pension plan shall •' " not be treated as failing to provide definitely determinable benefits merely by limiting employer contributions to amounts deductible under this section. ^

"(B) CARRYOVER OF CONTRIBUTIONS DEDUCTIBLE LIMIT.—Any amount paid

• " 19 r ils^^i

IN EXCESS OF THE

under the plans in any taxable year in excess of the limitation of subparagraph (A) shall be deductible in the succeeding taxable years in order of time, but the amount so deductible under this subparagraph in any 1 such succeeding taxable year together with the amount allowable under subparagraph (A) shall not exceed 25 percent of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plans. "(C) PARAGRAPH NOT TO APPLY IN CERTAIN CASES.—This

paragraph shall not have the effect of reducing the amount (/7:-*/• otherwise deductible under paragraphs (1), (2), and (3), if no employee is a beneficiary under more than 1 trust or under a trust and an annuity plan, \ "(D) SECTION 4i2(i) PLANS.—For purposes of this paragraph, any plan described in section 412(i) shall be treated as a defined benefit plan." (c) EXCISE TAX ON NONDEDUCTIBLE CONTRIBUTIONS TO QUALIFIED EMPLOYER PLANS,—

(1) IN GENERAL,—Chapter 43 (relating to qualified pension, etc, plans) is amended by inserting after section 4971 the following new section:

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Page:United States Statutes at Large Volume 100 Part 3.djvu/670

 100 STAT. 2478

PUBLIC LAW 99-514—OCT. 22, 1986

"SEC. 4972. TAX ON NONDEDUCTIBLE CONTRIBUTIONS TO QUALIFIED EMPLOYER PLANS.

"(a) TAX IMPOSED.—In the case of any qualified employer plan, there is hereby imposed a tax equal to 10 percent of the nondeductible contributions under the plan (determined as of the close of the taxable year of the employer). "0?) EMPLOYER LIABLE FOR TAX.—The tax imposed by this section shall be paid by the employer making the contributions. "(c) NONDEDUCTIBLE CONTRIBUTIONS.—For purposes of this section, the term 'nondeductible contributions' means, with respect to any qualified employer plan, the sum of— "(1) the excess (if any) of— "(A) the amount contributed for the taxable year by the employer to or under such plan, over "(B) the amount allowable as a deduction under section 404 for such contributions, and on tt^2) the amount determined under this subsection for the preceding taxable year reduced by the sum of^ "(A) the portion of the amount so determined returned to the employer during the taxable year, and "(B) the portion of the amount so determined deductible under section 404 for the taxable year. "(d) DEFINITIONS.—For purposes of this section— "(1) QUALIFIED EMPLOYER PLAN.—The term 'qualified employer plan' means— "(A) any plan meeting the requirements of section 401(a) which includes a trust exempt from the tax under section '' 501(a), P "(B) an annuity plan described in section 403(a), and ll\r, "^^^ ^^y simplified employee pension (within the mean.;^j" ing of section 408(k)). "(2) EMPLOYER.—In the case of a plan which provides contributions or benefits for employees some or all of whom are self-employed individuals within the meaning of section 401(c)(l), the term 'employer' means the person treated as the employer under section 401(c)(4)," (2) CLERICAL AMENDMENT.—The table of sections for chapter 43 is amended by inserting after the item relating to section 4971 the following item: "Sec. 4972. Tax on nondeductible contributions to qualified employer plans."

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 1986. SEC. 1132. EXCISE TAX ON REVERSION OF QUALIFIED PLAN ASSETS TO EMPLOYER.

(a) GENERAL RULE.—Chapter 43 (relating to qualified pension, etc., plans) is amended by adding at the end thereof the following new section: "SEC. 4980. TAX ON REVERSION OF QUALIFIED PLAN ASSETS TO EMPLOYER.

"(a) IMPOSITION OF TAX.—There is hereby imposed a tax of 10 percent of the amount of any employer reversion from a qualified plan.

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 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2479

"(b) LIABILITY FOR TAX.—The tax imposed by subsection (a) shall be paid by the employer maintaining the plan. "(c) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) QUALIFIED PLAN.—The term 'qualified plan' means any plan meeting the requirements of section 401(a) or 403(a), other than— V "(A) a plan maintained by an employer if such employer 1 r has, at all times, been exempt from tax under this subtitle, or "(B) a governmental plan (within the meaning of section I^v 414(d)). Such term shall include any plan which, at any time, has been determined by the Secretary to be a qualified plan. "(2) EMPLOYER REVERSION.—

"(A) IN GENERAL.—The term 'employer reversion' means the amount of cash and the fair market value of other property received (directly or indirectly) by an employer 'i0Y<,^ from the qualified plan. "(B) EXCEPTIONS.—The term 'employer reversion' shall not include— "(i) except as provided in regulations, any amount distributed to or on behalf of any employee (or his ' " beneficiaries) if such amount could have been so distributed before termination of such plan without violating any provision of section 401, or "(ii) any distribution to the employer which is allowable under section 401(a)(2)— ^^*-^*' "(I) in the case of a multiemployer plan, by reason of mistakes of law or fact or the return of ^ "i; '"*.'• _ any withdrawal liability payment, ' ^ • "(II) in the case of a plan other than a multiemployer plan, by reason of mistake of fact, or ^' "(III) in the case of any plan, by reason of the " failure of the plan to initially qualify or the failure of contributions to be deductible. "(3) EXCEPTION FOR EMPLOYEE STOCK OWNERSHIP PLANS.—

•f r ^ l.fcjjrf

"(A) IN GENERAL.—If, upon an employer reversion from a qualified plan, any applicable amount is transferred from such plan to an employee stock ownership plan described in
 * «ii distHbution to participants in accordance with the provisions of such plan. "(B) INVESTMENT IN EMPLOYER SECURITIES.—The require-

ments of this subparagraph are met if, within 90 days after the transfer (or such longer period as the Secretary may prescribe), the amount transferred is invested in employer securities (as defined in section 409(1)) or used to repay loans used to purchase such securities. "(C) ALLOCATION REQUIREMENTS.—The requirements of

this subparagraph are met if the portion of the amount

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Page:United States Statutes at Large Volume 100 Part 3.djvu/672

 100 STAT. 2480

PUBLIC LAW 99-514—OCT. 22, 1986

transferred which is not allocated (by reason of the limitations of section 415) under the plan to accounts of particiMJ.. pants in the plan year in which the transfer occurs— "(i) is credited to a suspense account and allocated from such account to accounts of participants no less rapidly than ratably over a period not to exceed 7 years, and "(ii) when allocated to accounts of participants under the plan, is treated as an employer contribution for purposes of section 415(c), except that— '• • • ^ "(I) the annual addition (as determined under section 415(c)) attributable to each such allocation '' ' shall not exceed the value of such securities as of the time such securities were credited to such suspense account, and ! ' "(II) no additional employer contributions shall be permitted to an employee stock ownership plan described in subparagraph (A) of the employer before the allocation of such amount, '"' "(D) PARTICIPANTS.—The requirements of this subparagraph are met if at least half of the participants in the ]" ' qualified plan are participants in the employee stock ownership plan (as of the close of the 1st plan year for !., •, which an allocation of the securities is required). "(E) APPLICABLE AMOUNT.—For purposes of this para,,. 5,. graph, the term 'applicable amount' means any amount which— "(i) is transferred after March 31, 1985, and before •.. January 1, 1989, or "(ii) is transferred after December 31, 1988, pursuant to a termination which occurs after March 31, 1985, and before January 1, 1989." (b) CLERICAL AMENDMENT.—The table of sections for chapter 43 is amended by adding at the end thereof the following new item: "Sec. 4980. Tax on reversion of qualified plan assets to employer." (c) EFFECTIVE DATE.—

(1) IN GENERAL.—The amendments made by this section shall apply to reversions occurring after December 31, 1985. -j^ (2) EXCEPTION WHERE TERMINATION DATE OCCURRED BEFORE ^. JANUARY 1, 1986.—

(A) IN GENERAL.—Except as provided in subparagraph (B), ij,u^ the amendments made by this section shall not apply to any reversion after December 31, 1985, which occurs pursuant

to a plan termination where the termination date is before 'i,, January 1, 1986. ,,•''

.. t,. V

,.

(B) ELECTION TO HAVE AMENDMENTS APPLY.—A corpora-

tion may elect to have the amendments made by this section apply to any reversion after 1985 pursuant to a plan termination occurring before 1986 if such corporation was incorporated in the State of Delaware in March, 1978, and became a parent corporation of the consolidated group on September 19, 1978, pursuant to a merger agreement recorded in the State of Nevada on November 19, 1978.

i.;

(3) TERMINATION DATE.—For purposes of paragraph (2), the

L

term "termination date" is the date of the termination (within

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Page:United States Statutes at Large Volume 100 Part 3.djvu/673

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2481

the meaning of section 411(d)(3) of the Internal Revenue Code of 1986) of the plan. (4) TRANSITION RULE FOR CERTAIN TERMINATIONS.—

'

' '

(A) IN GENERAL.—In the case of a taxpayer to which this paragraph applies, the amendments made by this section shall not apply to any termination occurring before the date which is 1 year after the date of the enactment of this Act. (B) TAXPAYERS TO WHOM PARAGRAPH APPLIES.—This paragraph shall apply to— (i) a corporation incorporated on June 13, 1917, which has its principal place of business in Bartlesville, Oklahoma, (ii) a corporation incorporated on January 17, 1917, which is located in Coatesville, Pennsylvania, (iii) a corporation incorporated on January 23, 1928, which has its principal place of business in New York, New York, (iv) a corporation incorporated on April 23, 1956, which has its principal place of business in Dallas, Texas, and (v) a corporation incorporated in the State of Nevada, the principal place of business of which is in Denver, Colorado, and which filed for relief from creditors under the United States Bankruptcy Code on August 28, 1986.

SEC. 1133. TAX ON EXCESS DISTRIBUTIONS.

(a) GENERAL RULE.—Chapter 43 (relating to tax on pension, etc., plans) is amended by adding at the end thereof the following new section: "SEC. 4981A. TAX ON EXCESS DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS.

"(a) GENERAL RULE.—There is hereby imposed a tax equal to 15 percent of the excess distributions with respect to any individual during any calendar year. "(b) LIABILITY FOR TAX.—The individual with respect to whom the excess distributions are made shall be liable for the tax imposed by subsection (a). The amount of the tax imposed by subsection (a) shall be reduced by the amount (if any) of the tax imposed by section 72(t) to the extent attributable to such excess distributions. "(c) EXCESS DISTRIBUTIONS.—For purposes of this section— "(1) IN GENERAL.—The term 'excess distributions' means the aggregate amount of the retirement distributions with respect to any individual during any calendar year to the extent such amount exceeds $112,500 (adjusted at the same time and in the same manner as under section 415(d)). "(2) EXCLUSION OF CERTAIN DISTRIBUTIONS.—The following distributions shall not be taken into account under paragraph (1): "(A) Any retirement distribution with respect to an individual made after the death of such individual. •M "(B) Any retirement distribution with respect to an individual payable to an alternate payee pursuant to a qualified domestic relations order (within the meaning of ' section 414(p)) if includible in income of the alternate payee.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/674

 100 STAT. 2482

PUBLIC LAW 99-514—OCT. 22, 1986

io sbit.

"(C) Any retirement distribution with respect to an individual which is attributable to the employee's investment in the contract (as defined in section 72(f)). is^" "(D) Any retirement distribution to the extent not included in gross income by reason of a rollover contribution. Any distribution described in subparagraph (B) shall be treated as a retirement distribution to the person to whom paid for purposes of this section. "(3) AGGREGATION OF PAYMENTS.—If retirement distributions with respect to any individual during any calendar year are ri received by the individual and 1 or more other persons, all such K distributions shall be aggregated for purposes of determining the amount of the excess distributions for the calendar year. j;»i

"(4) SPECIAL RULE WHERE TAXPAYER ELECTS INCOME AVERAG-

ING.—If the retirement distributions with respect to any individual during any calendar year include a lump sum distribution to which an election under section 402(e)(4)(B) applies— 'i "(A) paragraph (1) shall be applied separately with respect to such lump sum distribution and other retirement distributions, and ^^, "(B) the limitation under paragraph (1) with respect to such lump sum distribution shall be equal to 5 times the J amount of such limitation determined without regard to .j' this subparagraph. "(5) SPECIAL RULE FOR ACCRUED BENEFITS AS OF AUGUST i, 1986.—

"(A) IN GENERAL.—If the employee elects on a return filed ,.o*'i ( for a taxable year ending before January 1, 1989 to have ^Q.^ x. this paragraph apply, the portion of any retirement distribution which is attributable (as determined under rules prescribed by the Secretary) to the accrued benefit of an -iSii 'i employee as of August 1, 1986, shall be taken into account for purposes of paragraph (1), but no tax shall be imposed ?, r cj i under this section with respect to such portion of such IfcAibit' distribution. "(B) LIMITATION.—An employee may not make an election under subparagraph (A) unless the accrued benefit of such employee as of August 1, 1986, exceeds $562,500. "(C) TAXPAYER NOT MAKING ELECTION.—If an employee

does not elect the application of this paragraph, paragraph (1) shall be applied by substituting $150,000 for such dollar limitation unless such dollar limitation is greater than $150,000. "(d) INCREASE I N ESTATE TAX IF INDIVIDUAL DIES WITH EXCESS ACCUMULATION.—

"(1) IN GENERAL.—The tax imposed by chapter 11 with respect to the estate of any individual shall be increased by an amount 31 equal to 15 percent of the individual's excess retirement i I accumulation. nf "(2) No CREDIT ALLOWABLE.—No credit shall be allowable under section 2010 with respect to any portion of the tax imposed by chapter 11 attributable to the increase under paragraph (1).

"(3) EXCESS RETIREMENT ACCUMULATION.—For purposes of

5; paragraph (1), the term 'excess retirement accumulation' means the excess (if any) of—

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Page:United States Statutes at Large Volume 100 Part 3.djvu/675

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2483

"(A) the value of the individual's interests in qualified employer plans and individual retirement plans as of the date of the decedent's death (or, in the case of an election under section 2032, the applicable valuation date prescribed by such section), over "(B) the present value (as determined under rules prescribed by the Secretary as of the valuation date prescribed in subparagraph (A)) of an annuity for a term certain— "(i) with annual payments equal to the limitation of 0ortsubsection (c) (as in effect for the year in which the ^ death occurs), and "(ii) payable for a period equal to the life expectancy of the individual immediately before his death. "(e) RETIREMENT DISTRIBUTIONS.—For purposes of this section— "(1) IN GENERAL.—The term 'retirement distribution' means, with respect to any individual, the amount distributed during the taxable year under— "(A) any qualified employer plan with respect to which such individual is or was the employee, and "(B) any individual retirement plan. "(2) QuAUFiED EMPLOYER PLAN.—The term 'qualified employer plan' means— "(A) any plan described in section 401(a) which includes a trust exempt from tax under section 501(a), "(B) an annuity plan described in section 403(a), or ^'' "(C) an annuity contract described in section 4030k)). Such term includes any plan or contract which, at any time, has been determined by the Secretary to be such a plan or contract." (b) CLERICAL AMENDMENT.—The table of sections for chapter 43 is amended by adding at the end thereof the following new item: "Sec. 4981A. Tax on excess distributions from qualifled retirement plans." (c) EFFECTIVE DATES.—

,|j

(1) IN GENERAL.—Except as provided in this subsection, the amendments made by this section shall apply to distributions made after December 31, 1986. (2) ESTATE TAX.—Section 4981A(d) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to the estates of decedents dying after December 31, 1986. (3) PLAN TERMINATIONS BEFORE 1987.—The amendments made by this section shall not apply to distributions before January 1, 1988, which are made on account of the termination of a qualified employer plan if such termination occurred before January 1, 1987.

SEC. 1134. TREATMENT OF LOANS. (a) $50,000 LIMITATION REDUCED BY BALANCE OF CERTAIN PRECED-

ING LOANS.—Clause (i) of section 72(p)(2)(A) (relating to exceptions for certain loans) is amended to read as follows: "(i) $50,000, reduced by the excess (if any) of— "(I) the highest outstanding balance of loans XliuniiJ, r from the plan during the 1-year period ending on the day before the date on which such loan was made, over "(II) the outstanding balance of loans from the s? i « plan on the date on which such loan was made, or".

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Page:United States Statutes at Large Volume 100 Part 3.djvu/676

 100 STAT. 2484

PUBLIC LAW 99-514—OCT. 22, 1986 (b) LEVEL AMORTIZATION OF LOAN REQUIRED.—Paragraph (2) of

section 72(p) is amended by redesignating subparagraph (C) as subparagraph (D) and inserting after subparagraph (B) the following new subparagraph: "(C) REQUIREMENT OF LEVEL AMORTIZATION.—Except as

provided in regulations, this paragraph shall not apply to any loan unless substantially level amortization of such loan (with payments not less frequently than quarterly) is required over the term of the loan." (c) DENIAL OF INTEREST DEDUCTION IN CERTAIN CASES.—Subsection

(p) of section 72 is amended by redesignating paragraphs (3) and (4) as paragraphs (4) and (5), respectively and by inserting after paragraph (2) the following new paragraph: "(3) DENIAL OF INTEREST DEDUCTIONS IN CERTAIN CASES.—

^.,,^,

"(A) IN GENERAL.—No deduction otherwise allowable under this chapter shall be allowed under this chapter for any interest paid or accrued on any loan described in subparagraph (B). "(B) LOANS TO WHICH SUBPARAGRAPH (A) APPLIES.—

For purposes of subparagraph (A), a loan is described in this subparagraph— • - i >.i;.n "^^^ ^^ paragraph (1) does not apply to such loan by reason of paragraph (2), and "(ii) if— "(I) such loan is made to a key employee (as ^5 defined in section 416(i)), or 1 ,; "(II) such loan is secured by amounts attributable to elective 401(k) or 403(b) deferrals (as defined in section 402(g)(3))." (d) EXCEPTION FOR HOME LOANS LIMITED TO ACQUISITION OF PRIN-

CIPAL RESIDENCE.—Clause (ii) of section 72(p)(2)(B) is amended to read as follows: "(ii) EXCEPTION FOR HOME LOANS.—Clause (i) shall not apply to any loan used to acquire any dwelling unit '•'"•' ^^' which within a reasonable time is to be used (determined at the time the loan is made) as the principal residence of the participant." (e) EFFECTIVE DATE.—The amendments made by this section shall apply to loans made, renewed, renegotiated, modified, or extended after December 31, 1986. SEC. 1135. DEFERRED ANNUITIES PERSONS.

AVAILABLE

ONLY

TO

NATURAL

(a) GENERAL RULE.—Section 72, as amended by section 1223, is amended by redesignating subsection (u) as subsection (v) and by inserting after subsection (t) the following new subsection: "(u) TREATMENT OF ANNUITY CONTRACTS NOT HELD BY NATURAL PERSONS.—

"(1) IN GENERAL.—If any annuity contract is held by a person J "(A) such contract shall not be treated as an annuity 6ii*!> » contract for purposes of this subtitle, and "(B) the income on the contract for any taxable year of ••lit 05 the policyholder shall be treated as ordinary income re"71, --:' ceived or accrued by the owner during such taxable year.
 * , V who is not a natural person—

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For purposes of this paragraph, holding by a trust or other entity as an agent for a natural person shall not be taken into account. "(2) INCOME ON THE CONTRACT.—

"(A) IN GENERAL.—For purposes of paragraph (1), the term 'income on the contract' means, with respect to any taxable year of the policyholder, the excess of— "(i) the sum of the net surrender value of the contract as of the close of the taxable year plus all distributions under the contract received during the taxable year or any prior taxable year, reduced by ., "(ii) the sum of the amount of net premiums under the contract for the taxable year and prior taxable years and amounts includible in gross income for prior ., taxable years with respect to such contract under this subsection. Where necessary to prevent the avoidance of this subsec* tion, the Secretary may substitute 'fair market value of the contract' for 'net surrender value of the contract' each '-." place it appears in the preceding sentence. "(B) NET PREMIUMS.—For purposes of this paragraph, the term 'net premiums' means the amount of premiums paid under the contract reduced by any policyholder dividends. "(3) EXCEPTIONS.—This subsection shall not apply to any annuity contract which— "(A) is acquired by the estate of a decedent by reason of the death of the decedent, "(B) is held under a plan described in section 401(a) or 403(a), under a program described in section 403(b), or under an individual retirement plan, '••' "(C) is a qualified funding asset (as defined in section 130(d), but without regard to whether there is a qualified assignment), "(D) which is purchased by an employer upon the termi{.;,• nation of a plan described in section 401(a) or 403(a) and "' which is held by the employer until such time as the employee separates from service, or "(E) which is an immediate annuity. "(4) IMMEDIATE ANNUITY.—For purposes of this subsection, the term 'immediate annuity' means an annuity— "(A) which is purchased with a single premium or annuity consideration, and ., "(B) the annuity starting date (as defined in subsection (c)(4)) of which commences no later than 1 year from the date of the purchase of the annuity." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to contributions to annuity contracts after February 28, 1986. SEC. 1136. PROFITS NOT REQUIRED FOR PROFIT-SHARING PLANS.

(a) IN GENERAL.—Subsection (a) of section 401, as amended by section 1112(b), is amended by inserting after paragraph (26) the following new paragraph: "(27) The determination of whether the plan under which any contributions are made is a profit-sharing plan shall be made without regard to current or accumulated profits of the

71-194 0 - 89 - 23: QL. 3 Part3

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PUBLIC LAW 99-514—OCT. 22, 1986

employer and without regard to whether the employer is a taxexempt organization." (b) CONFORMING AMENDMENTS.—Section 404(a)(2) and 818(a)(3), as amended by this Act, are each amended by striking out "and (26)" and inserting in lieu thereof "(26), and (27)". (c) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to years beginning after December 31, 1985. SEC. 1137. REQUIREMENT THAT COLLECTIVE BARGAINING AGREEMENTS BE BONA FIDE.

Paragraph (46) of section 7701(a) (relating to determination of whether there is a collective bargaining agreement) is amended by adding at the end thereof the following new sentence: "An agreement shall not be treated as a collective bargaining agreement unless it is a bona fide agreement between bona fide employee representatives and 1 or more employers." SEC. 1138. PENALTY ON UNDERPAYMENTS ATTRIBUTABLE TO OVERSTATEMENT OF PENSION LIABILITIES.

(a) GENERAL RULE.—Subchapter A of chapter 68 (relating to additions to tax) is amended by inserting after section 6659 the following new section: "SEC. 6659A. ADDITION TO TAX IN CASE OF OVERSTATEMENTS OF PENSION LIABILITIES.

"(a) ADDITION TO TAX.—In the case of an underpayment of the tax imposed by chapter 1 on any taxpayer for the taxable year which is attributable to an overstatement of pension liabilities, there shall be added to such tax an amount equal to the applicable percentage of the underpayment so attributable. "(b) APPLICABLE PERCENTAGE DEFINED.—For purposes of subsec-

tion (a), the applicable percentage shall be determined under the following table: "If the valuation claimed is the following percent of the correct ,;=':; »; '^ -, valuation— 150 percent or more but not more than 200 percent More than 200 percent but not more than 250 f)ercent More than 250 percent

The applicable percentage is: 10 20 30.

"(c) OVERSTATEMENT OF PENSION LIABILITIES.—For purposes of this section, there is an overstatement of pension liabilities if the actuarial determination of the liabilities taken into account for purposes of computing the deduction under paragraph (1) or (2) of section 404(a) exceeds the amount determined to be the correct amount of such liability. "(d) UNDERPAYMENT MUST BE AT LEAST $1,000.—This section shall not apply if the underpayment for the taxable year attributable to valuation overstatements is less than $1,000. "(e) AUTHORITY TO WAIVE.—The Secretary may waive all or any part of the addition to the tax provided by this section on a showing by the taxpayer that there was a reasonable basis for the valuation claimed on the return and that such claim was made in good faith." (b) CLERICAL AMENDMENT.—The table of sections for subchapter A of chapter 68 is amended by inserting after the item relating to section 6659 the following new item: "Sec. 6659A. Addition to tax in case of overstatements of pension liabilities."

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100 STAT. 2487

(c) EFFECTIVE DATE.—The amendment made by this section shall apply to overstatements made after the date of the enactment of this Act. SEC. 1139. INTEREST RATE ASSUMPTIONS.

(a) IN GENERAL.—Subparagraph (B) of section 411(a)(ll) is amended to read as follows: "(B) DETERMINATION OF PRESENT VALUE.—

'

'' ,

•

"(i) IN GENERAL.—For purposes of subparagraph (A), the present value shall be calculated— "(I) by using an interest rate no greater than the applicable interest rate if the vested accrued benefit (using such rate) is not in excess of $25,000, and "(II) by using an interest rate no greater than 120 percent of the applicable interest rate if the ^ vested accrued benefit exceeds $25,000 (as determined under subclause (I)). In no event shall the present value determined under subclause (II) be less than $25,000. "(ii)

APPLICABLE INTEREST RATE.—For purposes

of

.,,..

clause (i), the term 'applicable interest rate' means the interest rate which would be used (as of the date of the distribution) by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination." O> CONFORMING AMENDMENT.—Paragraph (3) of section 417(e) t) (relating to determination of present value) is amended to read as follows: "(3) DETERMINATION OF PRESENT VALUE.—

"(A) IN GENERAL.—For purposes of paragraphs (1) and (2), the present value shall be calculated— "(i) by using an interest rate no greater than the applicable interest rate if the vested accrued benefit (using such rate) is not in excess of $25,000, and "(ii) by using an interest rate no greater than 120 percent of the applicable interest rate if the vested accrued benefit exceeds $25,000 (as determined under clause (i)). In no event shall the present value determined under subclause (II) be less than $25,000. "(B) APPLICABLE INTEREST RATE.—For purposes of subparagraph (A), the term 'applicable interest rate' means the interest rate which would be used (as of the date of the distribution) by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination." (c) AMENDMENTS TO ERISA.—

(1) IN GENERAL.—Paragraph (2) of section 203(e) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(e)(2)) is amended to read as follows: "(2)(A) For purposes of paragraph (1), the present value shall be calculated— "(i) by using an interest rate no greater than the applicable interest rate if the vested accrued benefit (using such rate) is not in excess of $25,000, and

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 100 STAT. 2488

PUBLIC LAW 99-514—OCT. 22, 1986

• j«-ia as '

"(ii) by using an interest rate no greater than 120 percent of the applicable interest rate if the vested accrued benefit exceeds $25,000 (as determined under clause (i)). In no event shall the present value determined under subclause (II) be less than $25,000.

gj

"(B) APPLICABLE INTEREST RATE.—For purposes of subpara-

graph (A), the term 'applicable interest rate' means the interest rate which would be used (as of the date of the distribution) by % the Pension Benefit Guaranty Corporation for purposes of deter, mining the present value of a lump sum distribution on plan >,. termination." 1 ^

(2) CONFORMING AMENDMENT.—Paragraph (3) of section 205(g)

of such Act (29 U.S.C. 1055(g)(3)) is amended to read as follows: "(3)(A) For purposes of paragraphs (1) and (2), the present value shall be calculated— "(i) by using an interest rate no greater than the applicable interest rate if the vested accrued benefit (using such rate) is not in excess of $25,000, and "(ii) by using an interest rate no greater than 120 percent of the applicable interest rate if the vested accrued benefit exceeds $25,000 (as determined under clause (i)). In no event shall the present value determined under subclause (II) be less than $25,000. "(B) For purposes of subparagraph (A), the term 'applicable interest rate' means the interest rate which would be used (as of the date of the distribution) by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination.", (d) EFFECTIVE DATE.—

,

(1) IN GENERAL.—The amendments made by this section shall apply to distributions in plan years beginning after December 31, 1984, except that such amendments shall not apply to any distributions in plan years beginning after December 31, 1984, and before January 1, 1987, if such distributions were made in accordance with the requirements of the regulations issued under the Retirement Equity Act of 1984. (2) REDUCTION IN ACCRUED BENEFITS.— (A) IN GENERAL.—If a plan—

(i) adopts a plan amendment before the close of the ^,.. first plan year beginning on or before January 1, 1989, which provides for the calculation of the present value of the accrued benefits in the manner provided by the amendments made by this section, and (ii) the plan reduces the accrued benefits for any plan year to which such plan amendment applies in accordance with such plan amendment, • ^ such reduction shall not be treated as a violation of section 411(d)(6) of the Internal Revenue Code of 1986 or section 204(g) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)). (B) SPECIAL RULE.—In the case of a plan maintained by a corporation incorporated on April 11, 1934, which is headquartered in 'Tarrant County, Texas— (i) such plan may be amended to remove the option of y an employee to receive a lump sum distribution (within « the meaning of section 402(e)(5) of such Code) if such amendment—

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j'.,. >;,

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(I) is adopted within 1 year of the date of the enactment of this Act, and (II) is not effective until 2 years after the employees are notified of such amendment, and (ii) the present value of any vested accrued benefit of such plan determined during the 3-year period beginning on the date of the enactment of this Act shall be determined under the applicable interest rate (within the meaning of section 411(a)(ll)(B)(ii) of such Code), except that if such value (as so determined) exceeds $50,00, then the value of any excess over $50,000 shall be determined by using the interest rate specified in the plan as of August 16, 1986.

SEC. 1140. PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989.

(a) IN GENERAL.—If any amendment made by this subtitle or subtitle C requires an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after January 1, 1989, if— (1) during the period after such amendment takes effect and before such first plan year, the plan is operated in accordance with the requirements of such amendment or in accordance with an amendment prescribed by the Secretary and adopted by the plan, and (2) such plan amendment applies retroactively to the period after such amendment takes effect and such first plan year. A pension plan shall not be treated as failing to provide definitely determinable benefits or contributions, or to be operated in accordance with the provisions of the plan, merely because it operates in accordance with this provision. Ob) MODEL AMENDMENT.— (1) SECRETARY TO PRESCRIBE AMENDMENT.—The Secretary of

the Treasury or his delegate shall prescribe an amendment or amendments which allow a plan to meet the requirements of any amendment made by this subtitle or subtitle C— (A) which requires an amendment to such plan, and ' (B) is effective before the first plan year beginning after December 31, 1988. (2) ADOPTION BY PLAN.—If a plan adopts the amendment or amendments prescribed under paragraph (1) and operates in accordance with such amendment or amendments, such plan shall not be treated as failing to provide definitely determinable benefits or contributions or to be operated in accordance with the provisions of the plan. (c) SPECIAL RULE FOR COLLECTIVELY BARGAINED PLANS.—In

the

case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified before March 1, 1986, subsection (a) shall be applied by substituting for the first plan year beginning on or after January 1, 1989, the first plan year beginning after the earlier of— (1) the later of— (A) January 1, 1989, or (B) the date on which the last of such collective bargaining agreements terminate (determined without regard to any extension thereof after February 28, 1986), or (2) January 1, 1991.

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 100 STAT. 2490

PUBLIC LAW 99-514—OCT. 22, 1986

SEC. 1141. ISSUANCE OF FINAL REGULATIONS.

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The Secretary of the Treasury or his delegate shall issue before February 1, 1988, such final regulations as may be necessary to carry out the amendments made by— (1) section 1111, relating to application of nondiscrimination rules to integrated plans, a (2) section 1112, relating to coverage requirements for qualiR fied plans, (3) section 1113, relating to minimum vesting standards, f (4) section 1114, relating to the definition of highly compensated employee, J (5) section 1115, relating to separate lines of business and the definition of compensation, (6) section 1116, relating to rules for section 401(k) plans, (7) section 1117, relating to nondiscrimination requirements I for employer matching and employer contribution, (8) section 1120, relating to nondiscrimination requirements "i for tax sheltered annuities, and (9) section 1133, relating to tax on excess distributions. SEC. 1142. SECRETARY TO ACCEPT APPLICATIONS WITH RESPECT TO SECTION 401(k) PLANS.

The Secretary of the Treasury or his delegate shall, not later than May 1, 1987, begin accepting applications for opinion letters with respect to master and prototype plans for qualified cash or deferred arrangements under section 401(k) of the Internal Revenue Code of 1986. SEC. 1143. TREATMENT OF CERTAIN FISHERMEN AS SELF-EMPLOYED INDIVIDUALS.

(a) IN GENERAL.—Section 401(c) is amended by adding at the end thereof the following new paragraph: "(6) SPECIAL RULE FOR CERTAIN FISHERMEN.—For purposes of

this subsection, the term 'self-employed individual' includes an individual described in section 3121(b)(20) (relating to certain fishermen)." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1986. SEC. 1144. ACQUISITION OF GOLD AND SILVER COINS BY INDIVIDUAL RETIREMENT ACCOUNTS.

(a) IN GENERAL.—Section 408(m) (relating to investment in collectibles treated as distributions) is amended by adding at the end thereof the following new paragraph: "(3) EXCEPTION FOR CERTAIN COINS.—In the case of an individual retirement account, paragraph (2) shall not apply to any "^ gold coin described in paragraph (7), (8), (9), or (10) of section ' 5112(a) of title 31 or any silver coin described in section 5112(e) '" of title 31." (h) EFFECTIVE DATE.—The amendment made by this section shall apply to acquisitions after December 31, 1986. SEC. 1145. REQUIREMENT OF JOINT AND SURVIVOR ANNUITIES AND PRETIREMENT SURVIVOR ANNUITIES NOT TO APPLY TO CERTAIN PLAN.

(a) IN GENERAL.—Section 401(a)(ll) (relating to requirement of joint and survivor annuity and preretirement survivor annuity) is

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100 STAT. 2491

amended by redesignating subparagraph (D) as subparagraph (E) and by inserting after subparagraph (C) the following new subparagraph: "(E) EXCEPTION FOR PLANS DESCRIBED IN SECTION 404(C).—This

paragraph shall not apply to a plan which the Secretary has determined is a plan described in section 404(c) (or a continuation thereof) in which participation is substantially limited to individuals who, before January 1, 1976, ceased employment covered by the plan." (b) AMENDMENTS TO THE EMPLOYEE RETIREMENT INCOME SECURITY

ACT OF 1974.—Section 205(b) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1082(b)) is amended by adding at the end thereof the following new paragraph: "(3) This section shall not apply to a plan which the Secretary of the Treasury or his delegate has determined is a plan de' scribed in section 404(c) of the Internal Revenue Code of 1986 (or a continuation thereof) in which participation is substantially limited to individuals who, before January 1, 1976, ceased employment covered by the plan." (c) AMENDMENTS TO RETIREMENT EQUITY ACT.—Section 303 of the

Retirement Equity Act of 1984 is amended by adding at the end thereof the following new subsection: "(f) The amendments made by section 301 of this Act shall not apply to the termination of a defined benefit plan if such termination— "(1) is pursuant to a resolution directing the termination of such plan which was adopted by the Board of Directors of a corporation on July 24, 1984, and "(2) occurred on November 30, 1984." (d) EFFECTIVE DATE.—The amendments made by this section shall apply as if included in the amendments made by the Retirement Equity Act of 1984. SEC. 1146. TREATMENT OF LEASED EMPLOYEES. (a) MODIFICATIONS OF LEASED EMPLOYEE PROVISIONS.— 5 (1) GENERAL RULE.—Paragraph (5) of section 414(n) (relating

to safe harbor exemption) is amended to read as follows: i(

"(5) SAFE HARBOR.—

"(A) IN GENERAL.—In the case of requirements described in subparagraphs (A) and (B) of paragraph (3), this subsection shall not apply to any leased employee with respect to services performed for a recipient if— i "(i) such employee is covered by a plan which is maintained by the leasing organization and meets the requirements of subparagraph (B), and ,., "(ii) leased employees (determined without regard to this paragraph) do not constitute more than 20 percent of the recipient's nonhighly compensated work force. "(B) PLAN REQUIREMENTS.—A plan meets the require^ ments of this subparagraph if— "(i) such plan is a money purchase pension plan with a nonintegrated employer contribution rate for each .^„ participant of at least 10 percent of compensation, "(ii) such plan provides for full and immediate vesting, and "(iii) each employee of the leasing organization (other than employees who perform substantially all of their

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 100 STAT. 2492

PUBLIC LAW 99-514—OCT. 22, 1986 •^. jf '^'^'^'''

,;

services for the leasing organization) immediately participates in such plan. Clause (iii) shall not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000. "(C) DEFINITIONS.—For purposes of this paragraph— "(i) HIGHLY COMPENSATED EMPLOYEE.—The term 'highly compensated employee' has the meaning given such term by section 414(q). "(ii)

,,, .._. o.!, •rjf,,

V

NONHIGHLY COMPENSATED WORK FORCE.—The

term 'nonhighly compensated work force' means the aggregate number of individuals (other than highly compensated employees)— "(I) who are employees of the recipient (without regard to this subsection) and have performed services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, or "(II) who are leased employees with respect to the recipient (determined without regard to this paragraph), "(iii) COMPENSATION.—The term 'compensation' has the same meaning as when used in section 415; except that such term shall include— "(I) any employer contribution under a qualified cash or deferred arrangement to the extent not included in gross income under section 402(a)(8) or 402(h)(1)(B), '. 1 "(II) any amount which the employee would have received in cash but for an election under a cafeteria plan (within the meaning of section 125), and "(III) any amount contributed to an annuity contract described in section 4030t>) pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D))."

(2) CLARIFICATION OF YEARS OF SERVICE.—Paragraph (4) of

section 414(n) is amended to read as follows: "(4) TIME WHEN FIRST CONSIDERED AS EMPLOYEE.—

"(A) IN GENERAL.—In the case of any leased employee, paragraph (1) shall apply only for purposes of determining whether the requirements listed in paragraph (3) are met '• for periods after the close of the period referred to in paragraph (2)(B). "(B) YEARS OF SERVICE.—In the case of a person who is an employee of the recipient (whether by reason of this subsection or otherwise), for purposes of the requirements listed in paragraph (3), years of service for the recipient shall be determined by taking into account any period for which such employee would have been a leased employee but for the requirements of paragraph (2)(B)." (3) CONFORMING AMENDMENT.—Paragraph (6) of section 414(n) is amended to read as follows: "(6) OTHER RULES.—For purposes of this subsection— ^ "(A) RELATED PERSONS.—The term 'related persons' has " ^ the same meaning as when used ii. section 103(b)(6)(C).

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100 STAT. 2493

"(B) EMPLOYEES OF ENTITIES UNDER COMMON CONTROL.—

The rules of subsections (b), (c), (m), and (o) shall apply." (b) MINIMIZING RECORDKEEPING REQUIREMENTS.—

(1) IN GENERAL.—Subsection (o) of section 414 (relating to regulations) is amended by adding at the end thereof the following new sentence: "The regulations prescribed under subsection (n) shall include provisions to minimize the recordkeeping requirements of subsection (n) in the case of an employer which has no top-heavy plans (within the meaning of section 416(g)) and which uses the services of persons (other than employees) for an insignificant percentage of the employer's total workload." (2) CONFORMING AMENDMENT.—Section 414(n)(l) is amended by striking out "except to the extent otherwise provided in regulations,". (c) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1983. (2) SUBSECTION (axi).—The amendment made by subsection (a)(1) shall apply to services performed after December 31, 1986. (3) RECORDKEEPING REQUIREMENTS.—In the case of years beginning before the date of the enactment of this Act, the last sentence of section 414(o) shall be applied without regard to the requirement that an insignificant percentage of the workload be performed by persons other than employees. SEC. 1147. TAX TREATMENT OF FEDERAL THRIFT SAVINGS FUND.

(a) IN GENERAL.—Section 7701 is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection: "(j) TAX TREATMENT OF FEDERAL THRIFT SAVINGS FUND.—

"(1) IN GENERAL.—For purposes of this title— "(A) the Thrift Savings Fund shall be treated as a trust described in section 401(a) which is exempt from taxation under section 501(a); "(B) any contribution to, or distribution from, the Thrift Savings Fund shall be treated in the same manner as contributions to or distributions from such a trust; and 1 "(C) subject to the provisions of paragraph (2) and any dollar limitation on the application of section 402(a)(8), contributions to the Thrift Savings Fund shall not be treated as distributed or made available to an employee or. Member nor as a contribution made to the Fund by an employee or Member merely because the employee or Member has, under the provisions of subchapter III of chapter 84 of title 5, United States Code, and section 8351 of such title 5, an election whether the contribution will be made to the Thrift Savings Fund or received by the employee or Member in cash. "(2)

NONDISCRIMINATION

REQUIREMENTS.—Paragraph (1)(C)

shall not apply to the Thrift Savings Fund unless the Fund meets the antidiscrimination requirements (other than any requirement relating to coverage) applicable to arrangements described in section 401(k) and to matching contributions. Rules similar to the rules of sections 401(k)(8) and 401(m)(8) (relating

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 100 STAT. 2494

PUBLIC LAW 99-514—OCT. 22, 1986 to no disqualification if excess contributions distributed) shall apply for purposes of the preceding sentence. "(3) COORDINATION WITH SOCIAL SECURITY ACT.—Paragraph (1)

shall not be construed to provide that any amount of the employee's or Member's basic pay which is contributed to the Thrift Savings Fund shall not be included in the term 'wages' for the purposes of section 209 of the Social Security Act or section 3121(a) of this title. "(4) DEFINITIONS.—For purposes of this subsection, the terms 'Member', 'employee', and 'Thrift Savings Fund' shall have the same respective meanings as when used in subchapter III of chapter 84 of title 5, United States Code. "(5) COORDINATION WITH OTHER PROVISIONS OF LAW.—No provi-

sion of law not contained in this title shall apply for purposes of determining the treatment under this title of the Thrift Savings Fund or any contribution to, or distribution from, such Fund." (b) CONFORMING AMENDMENT.—Section 3121(v)(3) (defining exempt governmental deferred compensation plan) is amended by striking out "and" at the end of subparagraph (A), by striking out the period at the end of subparagraph (B), and inserting in lieu thereof ", and", and by inserting after subparagraph (B) the following new subparagraph: "(C) the Thrift Saving Fund (within the meaning of subchapter III of chapter 84 of title 5, United States Code)."

Subtitle B—Employee Benefit Provisions PART I—NONDISCRIMINATION RULES FOR CERTAIN STATUTORY EMPLOYEE BENEFIT PLANS SEC. 1151. NONDISCRIMINATION RULES FOR COVERAGE AND BENEFITS UNDER CERTAIN STATUTORY EMPLOYEE BENEFIT PLANS.

(a) GENERAL RULE.—Part II of subchapter B of chapter 1 (relating to items specifically included in gross income) is amended by adding at the end thereof the following new section: "SEC. 89. BENEFITS PROVIDED UNDER CERTAIN EMPLOYEE BENEFIT PLANS. "(a) BENEFITS UNDER DISCRIMINATORY PLANS.—

"(1) IN GENERAL.—Notwithstanding any provision of part III of this subchapter, gross income of a highly compensated employee who is a participant in a discriminatory employee benefit plan during any plan year shall include an amount equal to such employee's excess benefit under such plan for such plan year. "(2) YEAR OF INCLUSION.—Any amount included in gross income under paragraph (1) shall be taken into account for the taxable year of the employee with or within which the plan year ends. "(b) EXCESS BENEFIT.—For purposes of this section— "(1) IN GENERAL.—The excess benefit of any highly compensated employee is the excess of such employee's employerprovided benefit under the plan over the highest permitted benefit. "(2) HIGHEST PERMITTED BENEFIT.—For purposes of paragraph (1), the highest permitted benefit under any plan shall be

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100 STAT. 2495

determined by reducing the nontaxable benefits of highly compensated employees (beginning with the employees with the greatest nontaxable benefits) until such plan would not be treated as a discriminatory employee benefit plan if such reduced benefits were taken into account. "(3) PLANS OF SAME TYPE.—In computing the excess benefit

with respect to any benefit, there shall be taken into account all plans of the employer of the same type. "(4) NONTAXABLE BENEFITS.—For purposes of this subsection, the term 'nontaxable benefit' means any benefit provided under a plan to which this section applies which (without regard to subsection (a)(1)) is excludable from gross income under this chapter. "(c) DISCRIMINATORY EMPLOYEE BENEFIT PLAN.—For purposes of

this section, the term 'discriminatory employee benefit plan' means any statutory employee benefit plan unless such plan meets the— "(1) eligibility requirements of subsection (d), and "(2) benefit requirements of subsection (e). "(d) ELIGIBILITY REQUIREMENTS.—

"(1) IN GENERAL.—A plan meets the eligibility requirements of this subsection for any plan year if— "(A) at least 90 percent of all employees who are not highly compensated employees— "(i) are eligible to participate in such plan (or in any other plan of the employer of the same type), and "(ii) would (if they participated) have available under such plans an employer-provided benefit which is at least 50 percent of the largest employer-provided benefit available under all such plans of the employer to any highly compensated employee, >i "(B) at least 50 percent of the employees eligible to participate in such plan are not highly compensated employees, and "(C) such plan does not contain any provision relating to eligibility to participate which (by its terms or otherwise) discriminates in favor of highly compensated employees. "(2) ALTERNATIVE ELIGIBILITY PERCENTAGE TEST.—A plan shall be treated as meeting the requirements of paragraph (1)(B) if— "(A) the percentage determined by dividing the number > of highly compensated employees eligible to participate in the plan by the total number of highly compensated employees, does not exceed "(B) the percentage similarly determined with'riespect to employees who are not highly compensated employees. "(e) BENEFIT REQUIREMENTS.—

"(1) IN GENERAL.—A plan meets the benefit requirements of this subsection for any plan year if the average employerprovided benefit received by employees other than highly compensated employees under all plans of the employer of the same type is at least 75 percent of the average employer-provided benefit received by highly compensated employees under all plans of the employer of the same type. "(2) AVERAGE EMPLOYER-PROVIDED BENEFIT.—For purposes of

this subsection, the term 'average employer-provided benefit' means, with respect to highly compensated employees, an amount equal to—

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 100 STAT. 2496

PUBLIC LAW 99-514—OCT. 22, 1986 f

"(A) the aggregate employer-provided benefits received by highly compensated employees under all plans of the A: type being tested, divided by "(B) the number of highly compensated employees (whether or not covered under such plans). The average employer-provided benefit with respect to employees other than highly compensated employees shall be determined in the same manner as the average employer-provided benefit for highly compensated employees. "(f) SPECIAL RULE WHERE HEALTH OR GROUP-TERM PLAN MEETS 80PERCENT COVERAGE TEST.—If at least 80 percent of the employees

who are not highly compensated employees are covered under a health plan or group-term life insurance plan during the plan year, such plan shall be treated as meeting the requirements of subsections (d) and (e) for such year. The preceding sentence shall not apply if the plan does not meet the requirements of subsection (d)(1)(C) (relating to nondiscriminatory provisions). "(g) OPERATING RULES.— "(1) AGGREGATION OF COMPARABLE HEALTH PLANS.—In

the case

of health plans maintained by an employer— "(A) IN GENERAL.—An employer may treat a group of joii comparable plans as 1 plan for purposes of applying subsections (d)(1)(B), (d)(2) and (f). "(B) COMPARABLE PLANS.—For purposes of subparagraph

(A), a group of comparable plans is any group (selected by the employer) of plans of the same type if the smallest employer-provided benefit available to any participant in any such plan is at least 95 percent of the largest employerprovided benefit available to any participant in any such plan. nt

"(2) SPECIAL RULES FOR APPLYING BENEFIT REQUIREMENTS TO HEALTH PLANS.—

"(A) ELECTION.—For purposes of determining whether the requirements of subsection (e) are met with respect to health plans, the employer may elect— "(i) to disregard any employee if such employee and his spouse and dependents (if any) are covered by a health plan providing core benefits maintained by another employer, and "(ii) to apply subsection (e) separately with respect to ^j coverage of spouses or dependents by such plans and to take into account with respect to such coverage only ,>^,5 employees with a spouse or dependents who are not covered by a health plan providing core benefits maintained by another employer. 1;^t ,

"(B) SWORN STATEMENTS.—Any employer who elects the

application of subparagraph (A) shall obtain and maintain, in such manner as the Secretary may prescribe, adequate sworn statements to demonstrate whether individuals have— .^ ^i, >:. "(i) a spouse or dependents, and "(ii) core health benefits under a plan of another employer. The Secretary shall provide a method for meeting the as requirements of this subparagraph through the use of valid sampling techniques.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/689

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2497

"(C) PRESUMPTION WHERE NO STATEMENT.—In the absence

of a statement described in subparagraph (B)— "(i) an employee who is not a highly compensated employee shall be treated— "(I) as not covered by another plan of another employer providing core benefits, and "(II) as having a spouse and dependents not covered by another plan of another employer providing core benefits, and "(ii) a highly compensated employee shall be treated— "(I) as covered by another plan of another employer providing core benefits, and "(II) as not having a spouse or dependents. "(D) CERTAIN INDIVIDUALS MAY NOT BE DISREGARDED.—In

£

cj >, ff.

the case of a highly compensated employee who receives employer-provided benefits under all health plans of the employer which are more than 133 V percent of the average b employer-provided benefit under such plan for employees other than highly compensated employees, the employer may not disregard such employee, or his spouse or dependents for purposes of clause (i) or (ii) of subparagraph (A). "(3) EMPLOYER-PROVIDED BENEFIT.—For purposes of this section— "(A) IN GENERAL.—Except as provided in subsection (k), an employee's employer-provided benefit under any statutory employee benefit plan is— "(i) in the case of any health or group-term life insurance plan, the value of the coverage, or "(ii) in the case of any other plan, the value of the benefits, provided during the plan year to or on behalf of such employee to the extent attributable to contributions made by the employer. "(B) SPECIAL RULE FOR HEALTH PLANS.—The value of the coverage provided by any health plan shall be determined under procedures prescribed by the Secretary which shall— "(i) set forth the values of various standard types of coverage involving a representative group, and "(ii) provide for adjustments to take into account the specific coverage and group involved. "(C) SPECIAL RULE FOR GROUP-TERM LIFE PLANS.—

"(i) IN GENERAL.—Except as provided in clause (ii), in determining the value of coverage under a group-term life insurance plan, the amount taken into account for any employee shall be based on the cost of the insurance determined under section 79(c) for an employee who is age 40. "(ii) EXCESS BENEFIT.—For purposes of subsection (b), the excess benefit with respect to coverage under a group-term life insurance plan shall be equal to the greater of— "(I) the cost of such excess benefit (expressed as dollars of coverage) determined without regard to section 79(c), or "(II) such cost determined with regard to section 79(c).

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Page:United States Statutes at Large Volume 100 Part 3.djvu/690

 100 STAT. 2498

PUBLIC LAW 99-514—OCT. 22, 1986

+; J

"(D) SALARY REDUCTIONS.—Except for purposes of subsec-

fc »'

tions (d)(l)(A)(ii) and Q)(5), any salary reduction shall be treated as an employer-provided benefit. "(4) ELECTION TO TEST PLANS OF DIFFERENT TYPES TOGETHER.—

^ -£?

"(A) IN GENERAL.—Except as provided in subparagraph (B), the employer may elect to treat all plans of the types specified in such election as plans of the same type for purposes of applying subsection (e). "(B) EXCEPTION FOR HEALTH PLANS.—Subparagraph (A)

''

shall not apply for purposes of determining whether any health plan meets the requirements of subsection (e); except '•*' that benefits provided under health plans which meet such requirements may be taken into account in determining J whether plans of other types meet the requirements of subsection (e). "(5) SEPARATE LINE OF BUSINESS EXCEPTION.—If, under section 414(r), an employer is treated as operating separate lines of business for a year, the employer may apply the preceding provisions of this section separately with respect to employees in each such separate line of business. The preceding sentence shall not apply to any plan unless such plan is available to a group of employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated employees. "(6) SPECIAL RULE FOR APPLYING ELIGIBILITY REQUIREMENTS AND 80-PERCENT TEST TO HEALTH PLANS.—For purposes of deter-

mining whether the requirements of subsection (d)(l)(A)(ii) or of subsection (f) are met with respect to health plans, the employer may elect— "(A) to apply this section separately with respect to cov,; erage of spouses and dependents by such plans, and 4i "(B) to take into account with respect to such coverage only those employees with a spouse or dependent (determined under rules similar to the rules of paragraphs (2)(B) and (O). "(h) EXCLUDED EMPLOYEES.—

< & nw

"(1) IN GENERAL.—The following employees shall be excluded from consideration under this section: "(A) Employees who have not completed 1 year of service (or in the case of core benefits under a health plan, 6 months of service). An employee shall be excluded from consideration until the 1st day of the 1st month beginning after completion of the period of service required under the preceding sentence. "(B) Employees who normally work less than 17y2 hours per week. "(C) Employees who normally work during not more than 6 months during any year. "(D) Employees who have not attained age 21. "(E) Employees who are included in, a unit of employees covered by an agreement which the Secretary finds to be a collective bargaining agreement between employee representatives and 1 or more employers if there is evidence that the type of benefits provided under the plan was the subject of good faith bargaining between the employee representatives and such employer or employers.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/691

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2499

"(F) 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)). Subparagraphs (A), (B), (C), and (D) shall be applied by substituting a shorter period of service, smaller number of hours or months, or lower age specified in the plan for the period of service, number of hours or months, or age (as the case may be) specified in such subparagraph. "(2) CERTAIN EXCLUSIONS NOT TO APPLY IF EXCLUDED EMPLOYEES

COVERED.—Except to the extent provided in regulations, employees shall not be excluded from consideration under any subparagraph of paragraph (1) (other than subparagraph (F)) unless no employee described in such subparagraph (determined with regard to the last sentence of paragraph (1)) is eligible under the plan. "(3) EXCLUSION MUST APPLY TO ALL PLANS.—

"(A) IN GENERAL.—An exclusion shall apply under any subparagraph of paragraph (1) (other than subparagraph (F) thereof) only if the exclusion applies to all statutory employee benefit plans of the employer of the same type. In the case of a cafeteria plan, all benefits under the cafeteria plan shall be treated as provided under plans of the same type. "(B) EXCEPTION.—Subparagraph (A) shall not apply to any difference in waiting periods for core and noncore benefits provided by health plans. "(4) EXCEPTION FOR SEPARATE LINE OF BUSINESS.—If any line of business is treated separately under subsection (h)(5), then paragraphs (2) and (3) shall be applied separately to such line of business. "(5) REQUIREMENTS MAY BE MET SEPARATELY WITH RESPECT TO EXCLUDED GROUP.—Notwithstanding paragraphs (2) and (3), if

employees do not meet minimum age or service requirements described in paragraph (1) (without regard to the last sentence thereof) and are covered under a plan of the employer which meets the requirements of this section separately with respect to such employees, such employees may be excluded from consideration in determining whether any plan of the employer meets the requirements of this section. "(i) STATUTORY EMPLOYEE BENEFIT PLAN.—For purposes of this section— "(1) IN GENERAL.—The term 'statutory employee benefit plan' means— "(A) an accident or health plan (within the meaning of section 105(e)), and "(B) any plan of an employer for providing group-term life insurance (within the meaning of section 79). "(2) EMPLOYER MAY ELECT TO TREAT OTHER PLANS AS STATUTORY EMPLOYEE BENEFIT PLAN.—An employer may elect to treat any

of the following plans as statutory employee benefit plans: "(A) A qualified group legal services plan (within the meaning of section 120(b)). "(B) An educational assistance program (within the meaning of section 1270t))).

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Page:United States Statutes at Large Volume 100 Part 3.djvu/692

 100 STAT. 2500

PUBLIC LAW 99-514—OCT. 22, 1986

"(C) A dependent care assistance program (within the meaning of section 129(d)). An election under this paragraph with respect to any plan shall apply with respect to all plans of the same type as such plan. "(3) PLANS OF THE SAME TYPE.—2 or more plans shall be treated as of the same type if such plans are described in the same subparagraph of paragraph (1) or (2). "(j) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) HIGHLY COMPENSATED EMPLOYEE.—The term 'highly comv pensated employee' has the meaning given such term by section 414(q). "(2) HEALTH PLAN.—The term 'health plan' means any plan described in paragraph (1)(A) of subsection (i). "(3) TREATMENT OF FORMER EMPLOYEES.—Except to the extent provided in regulations, this section shall be applied separately to former employees under requirements similar to the requirements that apply to employees. "(4) GROUP-TERM LIFE INSURANCE PLANS.—

"(A) IN GENERAL.—Any group-term life insurance plan shall not be treated as 2 or more separate plans merely because the amount of life insurance under the plan on behalf of employees bears a uniform relationship to the compensation (within the meaning of section 414(s)) of such employees. "(B)

,

LIMITATION ON COMPENSATION.—For purposes

of

subparagraph (A), compensation in excess of the amount applicable under section 401(a)(17) shall not be taken into account. "(C) LIMITATION.—This paragraph shall not apply to any plan if such plan is combined with plans of other types pursuant to an election under subsection (g)(4). "(5)

SPECIAL RULE FOR EMPLOYEES WORKING LESS THAN 30

HOURS PER WEEK.—Any health plan shall not fail to meet the requirements of this section merely because the employer-provided benefit is proportionately reduced for employees who normally work less than 30 hours per week. The preceding sentence shall apply only where the average work week of employees who are not highly compensated employees is 30 hours or more. "(6) TREATMENT OF SELF-EMPLOYED INDIVIDUALS.—In the case of a statutory employee benefit plan described in subparagraph a^'l (A), (B), or (C) of subsection (i)(2)— "(A) TREATMENT AS EMPLOYEE, ETC.—The term 'employee' includes any self-employed individual (as defined in section 401(c)(1)), and the term 'compensation' includes such ti individual's earned income (as defined in section 401(c)(2)). "(B) EMPLOYER.—An individual who owns the entire in11 terest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each partner who is treated as an employee under subparagraph (A). "(7) CERTAIN PLANS TREATED AS MEETING OTHER NONDISCRIMINATION REQUIREMENTS.—If an employer makes an elec-

I

tion under subsection (i)(2) to have this section apply to any plan 5;i; and such plan meets the requirements of this section, such plan shall be treated as meeting any other nondiscrimination

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Page:United States Statutes at Large Volume 100 Part 3.djvu/693

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2501

requirement imposed on such plan (other than any requirement under section 120(c)(3), 127(b)(3), or 129(d)(4)). "(8) SPECIAL RULES FOR CERTAIN DISPOSITIONS OR ACQUISITIONS.—

,

"(A) IN GENERAL.—If a person becomes, or ceases to be, a member of a group described in subsection (b), (c), (m), or (o) of section 414, then the requirements of this section shall be treated as having been met during the transition period with respect to any plan covering employees of such person or any other member of such group if— "(i) such requirements were met immediately before each such change, and "(ii) the coverage under such plan is not significantly changed during the transition period (other than by reason of the change in members of a group). "(B) TRANSITION PERIOD.—For purposes of subparagraph

(A), the term 'transition period' means the period— "(i) beginning on the date of the change in members of a group, and "(ii) ending on the last day of the 1st plan year beginning after the date of such change. "(9) COORDINATION WITH MEDICARE, ETC.—If a plan may be coordinated with health benefits provided under any Federal, State, or foreign law or under any other health plan covering the employee or family member of the employee, such plan shall not fail to meet the requirements of this section with respect to health benefits merely because the amount of such benefits provided to any employee or family member of any employee are coordinated in a manner which does not discriminate in favor of highly compensated employees. "(10) DiSABILITY BENEFITS.—

"(A) IN GENERAL.—If a plan may be coordinated with disability benefits provided under any Federal, State, or foreign law or under any other plan covering the employee, such plan shall not fail to meet the requirements of this section with respect to disability benefits merely because the amount of such benefits provided to an employee are coordinated in a manner which does not discriminate in favor of highly compensated employees. "(B) CERTAIN DISABILITY PLANS EXEMPT FROM NONDISCRIMINATION RULES.—Subsection (a) shall not apply to

any disability coverage other than disability coverage the benefits of which are excludable from gross income under section 1050t)) or (c). "(11) SEPARATE APPLICATION IN THE CASE OF OPTIONS.—Each

option or different benefit shall be treated as a separate plan, '(k) REQUIREMENT THAT PLAN B E IN WRITING, ETC.—

"(1) IN GENERAL.—Notwithstanding any provision of part III of this subchapter, gross income of an employee shall include an amount equal to such employee's employer-provided benefit for the taxable year under an employee benefit plan to which this subsection applies unless, except to the extent provided in regulations— "(A) such plan is in writing, "(B) the employees' rights under such plan are legally enforceable,

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Page:United States Statutes at Large Volume 100 Part 3.djvu/694

 100 STAT. 2502

PUBLIC LAW 99-514—OCT. 22, 1986

ji.'if* -? '

';. V' j^ ' '

«(Q employees are provided reasonable notification of benefits available in the plan, I <<^j)^ such plan is maintained for the exclusive benefit of employees, and "(E) such plan was established with the intention of being maintained for an indefinite period of time. Such inclusion shall be in lieu of any inclusion under subsection (a) with respect to such plan. "(2) PLANS TO WHICH SUBSECTION APPLIES.—This subsection shall apply to— "(A) any statutory employee benefit plan, "(B) a qualified tuition reduction program (within the meaning of section 117(d)), "(C) a cafeteria plan (within the meaning of section 125), "(D) a fringe benefit program providing no-additional-cost services, qualified employee discounts, or employer-operr ated eating facilities which are excludable from gross " income under section 132, and "(E) a plan to which section 505 applies.

"*^ '

"(3) SPECIAL RULE FOR DETERMINING INCLUSION.—For purposes

of paragraph (1), an employee's employer-provided belnefit shall be the value of the benefits provided to the employee. "(4) PLANS TO WHICH CONTRIBUTIONS ARE MADE BY MORE THAN

1 EMPLOYER.—For purposes of paragraph (1)(D), in the case of a plan to which contributions are made by more than 1 employer, each employer shall be treated as employing employees of all other employers. "(1) REPORTING REQUIREMENTS.—

"(1) IN GENERAL.—If an employee of an employer maintaining a plan is required to include any amount in gross income under this section for any plan year ending with or within a calendar year, the employer shall separately include such amount on the statement which the employer is required to provide the employee under section 6051(a) (and any statement required to be furnished under section 6051(d)). ,

"(2) PENALTY.—

-

"For penalty for failing to report, see section 6652(1).

"(m) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations providing for appropriate adjustments in case of individuals not employees of the employer throughout the plan year." (b) PENALTY FOR FAIUNG TO REPORT.—Section 6652 (relating to failure to file information returns, registration statements, etc.) is amended by redesignating subsection (1) as subsection (m) and by inserting after subsection (k) the following new subsection: "(1) INFORMATION BENEFITS.—

WITH

RESPECT

TO

INCLUDIBLE EMPLOYEE

"(1) IN GENERAL.—In the case of each failure to include any amount on any statement under section 6051(a) or 6051(d) which is required to be so included under section 89(1), there shall be paid, on notice and demand of the Secretary and in the same manner as tax, the amount determined under paragraph (2). "(2) AMOUNT OF ADDITIONAL TAX.—The amount determined under this paragraph shall be equal to the product of—

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Page:United States Statutes at Large Volume 100 Part 3.djvu/695

 PUBLIC LAW 99-514—OCT. 22, 1986

h

100 STAT. 2503

"(A) the highest rate of tax imposed by section 1 for taxable years beginning in the calendar year to which the return or statement relates, multiplied by "(B) the employer-provided benefit (within the meaning of section 89 without regard to subsection (g)(3) thereof) with respect to the employee to whom such failure relates. "(3) REASONABLE CAUSE EXCEPTION.—Paragraph (1) shall not apply to any failure if it is shown that such failure is due to reasonable cause. "(4)

COORDINATION WITH OTHER PENALTIES.—Any

penalty

under this subsection shall be in addition to any other penalty under this section or section 6678 with respect to any failure. "(5) ONLY i ADDITION PER EMPLOYEE PER YEAR.—Paragraph (1)

shall be applied only once if there is more than 1 failure with respect to any amount." (c) REPEAL OF CERTAIN EXISTING NONDISCRIMINATION RULES.— (1) DISCRIMINATORY GROUP-TERM LIFE INSURANCE PLANS.—

Subsection (d) of section 79 is amended to read as follows: "(d) NONDISCRIMINATION REQUIREMENTS.—In the case of a groupterm life insurance plan which is a discriminatory employee benefit plan, subsection (a)(1) shall apply only to the extent provided in section 89." (2)

DISCRIMINATORY

SELF-INSURED

MEDICAL

EXPENSE RE-

IMBURSEMENT PLANS.—Section 105 (relating to amounts received under accident and health plans) is amended by striking out subsection (h) and by redesignating subsection (i) as subsection (h). (3) QUALIFIED GROUP LEGAL SERVICES PLANS.—Section 120(b) (defining qualified group legal services plan) is amended to read as follows: "(b) QUALIFIED GROUP LEGAL SERVICES PLAN.—For purposes of this section, a qualified group legal services plan is a separate plan of an employer— "(1) under which the employer provides specified personal legal services to employees (or their spouses or dependents) through the prepayment of, or the provision in advance for, any portion of the legal fees for such services, and "(2) which meets the requirements of subsection (c) and section 89(k)." (4) EDUCATIONAL ASSISTANCE PROGRAMS.—Section 127(b) (relat-

ing to educational assistance programs) is amended— (A) by striking out paragraph (1) and inserting in lieu thereof the following new paragraph: "(1) IN GENERAL.—For purposes of this section, an educational assistance program is a plan of an employer— "(A) under which the employer provides employees with educational assistance, and "(B) which meets the requirements of paragraphs (2) Iji^j. through (5) and section 89(k).", and (B) by striking out paragraph (6) thereof. (5) DEPENDENT CARE ASSISTANCE PROGRAMS.—Section 129(d) (relating to dependent care assistance program) is amended— (A) by striking out paragraph (1) and inserting in lieu thereof the following new paragraph: "(1) IN GENERAL.—For purposes of this section, a dependent care assistance program is a plan of an employer—

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Page:United States Statutes at Large Volume 100 Part 3.djvu/696

 100 STAT. 2504

PUBLIC LAW 99-514—OCT. 22, 1986

>' 1 " jf <

"(A) under which the employer provides employees with dependent care assistance, and "(B) which meets the requirements of paragraphs (2) through (6) and section 89(k).", and (B) by striking out paragraph (6) thereof, and redesignating paragraph (7) as paragraph (6).

(d) COORDINATION WITH CAFETERIA PLANS.—

(1) IN GENERAL.—Section 125 (relating to cafeteria plans) is amended to read as follows: "SEC. 125. CAFETERIA PLANS.

"(a) GENERAL RULE.—In the case of a cafeteria plan— "(1) amounts shall not be included in gross income of a participant in such plan solely because, under the plan, the participant may choose among the benefits of the plan, and "(2) if the plan fails to meet the requirements of subsection (b) for any plan year— "(A) paragraph (1) shall not apply, and "(B) notwithstanding any other provision of part III of this subchapter, any qualified benefits received under such ^. cafeteria plan by a highly compensated employee for such plan year shall be included in the gross income of such employee for the taxable year with or within which such plan year ends. "(b) PROHIBITION AGAINST DISCRIMINATION AS TO ELIGIBILITY TO PARTICIPATE.— "(1) HIGHLY COMPENSATED EMPLOYEES.—A plan shall be

treated as failing to meet the requirements of this subsection unless the plan is available to a group of employees as qualify under a classification set up by the employer and which the Secretary find not to be discriminatory in favor of highly compensated employees. "(2) KEY EMPLOYEES.—In the case of a key employee (within the meaning of section 416(i)(l)), a plan shall be treated as failing to meet the requirements of this subsection if the qualified benefits provided to key employees under the plan exceed 25 percent of the aggregate of such benefits provided for all employees under the plan. For purposes of the preceding sen* tence, qualified benefits shall be determined without regard to the last sentence of subsection (e). ^ "(3) EXCLUDABLE EMPLOYEES.—For purposes of this subsection, there may be excluded from consideration employees who may be excluded from consideration under section 89(h). "(c) CAFETERIA PLAN DEFINED.—For purposes of this section— "(1) IN GENERAL.—The term 'cafeteria plan' means a plan which meets the requirements of section 89(k) and under "(A) all participants are employees, and "(B) the participants may choose— "(i) among 2 or more benefits consisting of cash and qualified benefits, or "(ii) among 2 or more qualified benefits. "(2) DEFERRED COMPENSATION PLANS EXCLUDED.—
 * which—
 * 2:}

"(A) IN GENERAL.—The term 'cafeteria plan' does not include any plan which provides for deferred compensation. \:f-.\'u.' "(B) EXCEPTION FOR CASH AND DEFERRED ARRANGEMENTS.—Subparagraph (A) shall not apply to a profit-shar-

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Page:United States Statutes at Large Volume 100 Part 3.djvu/697

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2505

ing or stock bonus plan which includes a qualified cash or deferred arrangement (as defined in section 401(k)(2)) to the extent of amounts which a covered employee may elect to have the employer pay as contributions to a trust under such plan on behalf of the employee. "(C) EXCEPTION FOR CERTAIN PLANS MAINTAINED BY EDUCATIONAL INSTITUTIONS.—Subparagraph (A) shall not apply

to a plan maintained by an educational organization described in section 170(b)(l)(A)(ii) to the extent of amounts which a covered employee may elect to have the employer pay as contributions for post-retirement group life insurance if— "(i) all contributions for such insurance must be •J made before retirement, and "(ii) such life insurance does not have a cash surrender value at any time. For purposes of section 79, any life insurance described in the preceding sentence shall be treated as group-term life insurance. "(d) HIGHLY COMPENSATED EMPLOYEE.—For purposes of this section, the term 'highly compensated employee' has the meaning given such term by section 414(q). "(e) QUALIFIED BENEFITS DEFINED.—For purposes of this section— "(1) IN GENERAL.—The term 'qualified benefit' means any benefit which, with the application of subsection (a), is not includible in the gross income of the employee by reason of an express provision of this chapter (other than section 117, 124, 127, or 132). "(2) CERTAIN BENEFITS INCLUDED.—The term 'qualified benefits' includes— "(A) any group-term life insurance which is includible in gross income only because it exceeds the dollar limitation of section 79, and "(B) any other benefit permitted under regulations. "(f) COLLECTIVELY BARGAINED PLAN NOT CONSIDERED DISCRIMINA-

TORY.—For purposes of this section, a plan shall not be treated as discriminatory if the plan is maintained under an agreement which the Secretary finds to be a collective bargaining agreement between employee representatives and one or more employers. "(g) CROSS REFERENCES.— "For reporting and recordkeeping requirements, see section 6039D." (2) APPLICATION WITH EMPLOYMENT TAXES.—

(A) Section 3121(a)(5) is amended by striking out "or" at the end of subparagraph (E), by inserting "or" at the end of subparagraph (F), and by inserting after subparagraph (F) the following new subparagraph: "(G) under a cafeteria plan (within the meaning of section 125)," (B) Section 3306(b)(5) is amended by striking out "or" at the end of subparagraph (E), by inserting "or" at the end of subparagraph (F), and by inserting after subparagraph (F) the following new subparagraph: v:i ^

"(G) under a cafeteria plan (within the m e a n i n g of section 125)," (C) Section 209(e) of the Social Security Act is amended by inserting before the semicolon a t the end thereof the follow-

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Page:United States Statutes at Large Volume 100 Part 3.djvu/698

 100 STAT. 2506

PUBLIC LAW 99-514—OCT. 22, 1986 •*{> '

ing: ", or (9) under a cafeteria plan (within the meaning of section 125 of the Internal Revenue Code of 1986)".

(e) SPECIAL RULES FOR CONTROLLED GROUPS, ETC.—

(1) IN GENERAL.—Section 414 is amended by adding at the^ end thereof the following new subsection: "(t) APPLICATION OF CONTROLLED GROUP RULES TO CERTAIN EMPLOYEE BENEFITS.—

"(1) IN GENERAL.—All employees who are 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 an applicable section. The provisions of subsection (o) of section 414 shall apply with respect to the requirements of an applicable section. "(2) APPLICABLE SECTION.—For purposes of this subsection, the term 'applicable section' means section 79, 89, 106, 117(d), 120, 125, 127,129, 132, 274(j), or 505." (2) CONFORMING AMENDMENTS.—

(A) Section 132(g) (relating to special rules relating to employer) is amended to read as follows: "(g) 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— "(1) such service is provided pursuant to a written agreement between such employers, and "(2) neither of such employers incurs any substantial additional costs (including foregone revenue) in providing such service or pursuant to such agreement." ,^ (B) Paragraph (4) of section 505(b) (relating to aggregation rules) is amended to read as follows: "(4) AGGREGATION RULES.—At the election of the employer, 2

or more plans of such employer may be treated as 1 plan for purposes of this subsection." (f) BENEFITS TEST FOR DEPENDENT CARE ASSISTANCE PROGRAMS.—

Section 129(d) (relating to dependent care assistance program) is amended by adding at the end thereof the following new paragraph: "(8) BENEFITS.—

-; •1

"(A) IN GENERAL.—A plan meets the requirements of this paragraph if the average benefits provided to employees who are not highly compensated employees is at least 55 percent of the average benefits provided to highly compensated employees. "(B) SALARY REDUCTION AGREEMENTS.—For purposes of subparagraph (A), in the case of any benefits provided through a salary reduction agreement, there shall be disregarded any employees whose compensation (within the meaning of section 415(q)(7)) is less than $25,000."

(g) DEFINITION OF EXCLUDABLE EMPLOYEE.—

(1) Section 120(c)(2) is amended by striking out the last sentence thereof and inserting in lieu thereof "For purposes of this paragraph, there may be excluded from consideration employees who may be excluded from consideration under section 89(h)." c (2) Section 117(d) is amended by adding at the end thereof the following new paragraph: "(4) EXCLUSION OF CERTAIN EMPLOYEES.—For purposes of this subsection, there may be excluded from consideration

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Page:United States Statutes at Large Volume 100 Part 3.djvu/699

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2507

employees who may be excluded from consideration under section 89(h)." (3) Section 127(b)(2) is amended by striking out the last sentence thereof and inserting in lieu thereof: "For purposes of this paragraph, there may be excluded from consideration employees who may be excluded from consideration under section 89(h)." (4) Section 129(d)(3) is amended by striking out the last sentence thereof and inserting in lieu thereof: "For purposes of this paragraph, there may be excluded from consideration employees who may be excluded from consideration under section 89(h)." (5) Section 132(h)(1) is amended by adding at the end thereof the following new sentence: "For purposes of this paragraph and subsection (e), there may be excluded from consideration employees who may be excluded from consideration under section 89(h)." (6) Paragraph (2) of section 505(b) is amended to read as follows: "(2) EXCLUSION OF CERTAIN EMPLOYEES.—For purposes of paragraph (1), there may be excluded from consideration employees who may be excluded from consideration under section 89(h)." (h) REPORTING REQUIREMENTS.—

(1) IN GENERAL.—Section 6039D(d) is amended to read as follows: "(d) DEFINITIONS.—For purposes of this section— "(1) SPECIFIED FRINGE BENEFIT PLAN.—The term 'specified fringe benefit plan' means any plan under section 79, 105, 106, 120,125,127, or 129. "(2) APPLICABLE EXCLUSION.—The term 'applicable exclusion' means, with respect to any specified fringe benefit plan, the section specified under paragraph (1) under which benefits under such plan are excludable from gross income." (2) INFORMATION REQUIRED TO BE REPORTED.—Section 6039D(a)

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 inserting after paragraph (5) the following new paragraph: "(6) the number of highly compensated employees among the employees described in paragraphs (1), (2), and (3)." (3) ADDITIONAL INFORMATION.—Section 6039B(c) is amended

by adding at the end thereof the following new sentence: "The Secretary may require returns under this subsection only from a representative group of employers." (i) CONFORMING AMENDMENTS TO SECTION 414(n).—

(1) Paragraph (1) of section 414(n) is amended by striking out "pension requirements" and inserting in lieu thereof "requirements". (2) Subparagraph (B) of section 414(n)(2) is amended by inserting "(6 months in the case of core health benefits)" after "1 year". (3) Paragraph (3) of section 414(n) is amended— (A) by striking out "Pension requirements" and inserting in lieu thereof "Requirements", (B) by striking out "pension requirements" and inserting in lieu thereof "requirements", and

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