CHAPTER 43 —QUALIFIED PENSION, ETC., PLANS
Amendments
1998—
1996—
1989—
1988—
1987—
1986—
1984—
1982—
1974—
Chapter Referred to in Other Sections
This chapter is referred to in
1 Section repealed by
§4971. Taxes on failure to meet minimum funding standards
(a) Initial tax
For each taxable year of an employer who maintains a plan to which section 412 applies, there is hereby imposed a tax of 10 percent (5 percent in the case of a multiemployer plan) on the amount of the accumulated funding deficiency under the plan, determined as of the end of the plan year ending with or within such taxable year.
(b) Additional tax
In any case in which an initial tax is imposed by subsection (a) on an accumulated funding deficiency and such accumulated funding deficiency is not corrected within the taxable period, there is hereby imposed a tax equal to 100 percent of such accumulated funding deficiency to the extent not corrected.
(c) Definitions
For purposes of this section—
(1) Accumulated funding deficiency
The term "accumulated funding deficiency" has the meaning given to such term by the last two sentences of section 412(a).
(2) Correct
The term "correct" means, with respect to an accumulated funding deficiency, the contribution, to or under the plan, of the amount necessary to reduce such accumulated funding deficiency as of the end of a plan year in which such deficiency arose to zero.
(3) Taxable period
The term "taxable period" means, with respect to an accumulated funding deficiency, the period beginning with the end of the plan year in which there is an accumulated funding deficiency and ending on the earlier of—
(A) the date of mailing of a notice of deficiency with respect to the tax imposed by subsection (a), or
(B) the date on which the tax imposed by subsection (a) is assessed.
(d) Notification of the Secretary of Labor
Before issuing a notice of deficiency with respect to the tax imposed by subsection (a) or (b), the Secretary shall notify the Secretary of Labor and provide him a reasonable opportunity (but not more than 60 days)—
(1) to require the employer responsible for contributing to or under the plan to eliminate the accumulated funding deficiency, or
(2) to comment on the imposition of such tax.
In the case of a multiemployer plan which is in reorganization under section 418, the same notice and opportunity shall be provided to the Pension Benefit Guaranty Corporation.
(e) Liability for tax
(1) In general
Except as provided in paragraph (2), the tax imposed by subsection (a), (b), or (f) shall be paid by the employer responsible for contributing to or under the plan the amount described in section 412(b)(3)(A).
(2) Joint and several liability where employer member of controlled group
(A) In general
In the case of a plan other than a multiemployer plan, if the employer referred to in paragraph (1) is a member of a controlled group, each member of such group shall be jointly and severally liable for the tax imposed by subsection (a), (b), or (f).
(B) Controlled group
For purposes of subparagraph (A), the term "controlled group" means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414.
(f) Failure to pay liquidity shortfall
(1) In general
In the case of a plan to which section 412(m)(5) applies, there is hereby imposed a tax of 10 percent of the excess (if any) of—
(A) the amount of the liquidity shortfall for any quarter, over
(B) the amount of such shortfall which is paid by the required installment under section 412(m) for such quarter (but only if such installment is paid on or before the due date for such installment).
(2) Additional tax
If the plan has a liquidity shortfall as of the close of any quarter and as of the close of each of the following 4 quarters, there is hereby imposed a tax equal to 100 percent of the amount on which tax was imposed by paragraph (1) for such first quarter.
(3) Definitions and special rule
(A) Liquidity shortfall; quarter
For purposes of this subsection, the terms "liquidity shortfall" and "quarter" have the respective meanings given such terms by section 412(m)(5).
(B) Special rule
If the tax imposed by paragraph (2) is paid with respect to any liquidity shortfall for any quarter, no further tax shall be imposed by this subsection on such shortfall for such quarter.
(4) Waiver by Secretary
If the taxpayer establishes to the satisfaction of the Secretary that—
(A) the liquidity shortfall described in paragraph (1) was due to reasonable cause and not willful neglect, and
(B) reasonable steps have been taken to remedy such liquidity shortfall,
the Secretary may waive all or part of the tax imposed by this subsection.
(g) Cross references
For disallowance of deduction for taxes paid under this section, see section 275.
For liability for tax in case of an employer party to collective bargaining agreement, see section 413(b)(6).
For provisions concerning notification of Secretary of Labor of imposition of tax under this section, waiver of the tax imposed by subsection (b), and other coordination between Secretary of the Treasury and Secretary of Labor with respect to compliance with this section, see section 3002(b) of title III of the Employee Retirement Income Security Act of 1974.
(Added
References in Text
Section 3002(b) of title III of the Employee Retirement Income Security Act of 1974, referred to in subsec. (g), is classified to
Amendments
1996—Subsec. (f)(4).
1994—Subsec. (e)(1), (2)(A).
Subsecs. (f), (g).
1987—Subsec. (a).
Subsec. (b).
Subsecs. (e), (f).
1980—Subsec. (b).
Subsec. (c)(1).
Subsec. (c)(3).
Subsec. (d).
1976—Subsecs. (c), (d).
Effective Date of 1996 Amendment
Section 1464(b) of
Effective Date of 1994 Amendment
Amendment by
Effective Date of 1987 Amendment
Section 9304(c)(2) of
Amendment by section 9305(a) of
Effective Date of 1980 Amendments
For effective date of amendment by
Amendment by
Effective Date
Section applicable, except as otherwise provided in section 1017(c) through (i) of
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Section Referred to in Other Sections
This section is referred to in
§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).
(b) 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—
(1) In general
The term "nondeductible contributions" means, with respect to any qualified employer plan, the sum of—
(A) the excess (if any) of—
(i) the amount contributed for the taxable year by the employer to or under such plan, over
(ii) the amount allowable as a deduction under section 404 for such contributions (determined without regard to subsection (e) thereof), and
(B) the amount determined under this subsection for the preceding taxable year reduced by the sum of—
(i) the portion of the amount so determined returned to the employer during the taxable year, and
(ii) the portion of the amount so determined deductible under section 404 for the taxable year (determined without regard to subsection (e) thereof).
(2) Ordering rule for section 404
For purposes of paragraph (1), the amount allowable as a deduction under section 404 for any taxable year shall be treated as—
(A) first from carryforwards to such taxable year from preceding taxable years (in order of time), and
(B) then from contributions made during such taxable year.
(3) Contributions which may be returned to employer
In determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account any contribution for such taxable year which is distributed to the employer in a distribution described in section 4980(c)(2)(B)(ii) if such distribution is made on or before the last day on which a contribution may be made for such taxable year under section 404(a)(6).
(4) Special rule for self-employed individuals
For purposes of paragraph (1), if—
(A) the amount which is required to be contributed to a plan under section 412 on behalf of an individual who is an employee (within the meaning of section 401(c)(1)), exceeds
(B) the earned income (within the meaning of section 404(a)(8)) of such individual derived from the trade or business with respect to which such plan is established,
such excess shall be treated as an amount allowable as a deduction under section 404.
(5) Pre-1987 contributions
The term "nondeductible contribution" shall not include any contribution made for a taxable year beginning before January 1, 1987.
(6) Exceptions
In determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account—
(A) contributions that would be deductible under section 404(a)(1)(D) if the plan had more than 100 participants if—
(i) the plan is covered under section 4021 of the Employee Retirement Income Security Act of 1974, and
(ii) the plan is terminated under section 4041(b) of such Act on or before the last day of the taxable year, and
(B) so much of the contributions to 1 or more defined contribution plans which are not deductible when contributed solely because of section 404(a)(7) as does not exceed the greater of—
(i) the amount of contributions not in excess of 6 percent of compensation (within the meaning of section 404(a)) paid or accrued (during the taxable year for which the contributions were made) to beneficiaries under the plans, or
(ii) the sum of—
(I) the amount of contributions described in section 401(m)(4)(A), plus
(II) the amount of contributions described in section 402(g)(3)(A).
If 1 or more defined benefit plans were taken into account in determining the amount allowable as a deduction under section 404 for contributions to any defined contribution plan, subparagraph (B) shall apply only if such defined benefit plans are described in section 404(a)(1)(D). For purposes of subparagraph (B), the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to a defined benefit plan and then to amounts described in subparagraph (B).
(d) Definitions
For purposes of this section—
(1) Qualified employer plan
(A) In general
The term "qualified employer plan" means—
(i) any plan meeting the requirements of section 401(a) which includes a trust exempt from tax under section 501(a),
(ii) an annuity plan described in section 403(a),
(iii) any simplified employee pension (within the meaning of section 408(k)), and
(iv) any simple retirement account (within the meaning of section 408(p)).
(B) Exemption for governmental and tax exempt plans
The term "qualified employer plan" does not include a plan described in subparagraph (A) or (B) of section 4980(c)(1).
(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)(1), the term "employer" means the person treated as the employer under section 401(c)(4).
(Added
References in Text
Sections 4021 and 4041(b) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (c)(6)(A), are classified to sections 1321 and 1341(b), respectively, of Title 29, Labor.
Prior Provisions
A prior section, added
Amendments
1997—Subsec. (c)(6)(B).
1996—Subsec. (d)(1)(A)(iv).
1994—Subsec. (c)(6).
1988—Subsec. (c).
Subsec. (c)(4), (5).
Subsec. (d)(1).
"(A) any plan meeting the requirements of section 401(a) which includes a trust exempt from the tax under section 501(a),
"(B) an annuity plan described in section 403(a), and
"(C) any simplified employee pension (within the meaning of section 408(k))."
Effective Date of 1997 Amendment
Section 1507(b) of
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1994 Amendment
Section 755(b) of
"(1)
"(2)
Effective Date of 1988 Amendment
Amendment by section 1011A(e)(1), (2) of
Amendment by section 2005(a)(1) of
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1986, with special rules in case of plans maintained pursuant to collective bargaining agreements, see section 1131(d) of
Increase in Amount for Plan Termination Insurance Under Employee Retirement Insurance Security Act of 1974
Section 1011A(e)(5) of
"(A) the liabilities of such plan (determined as if the plan had terminated as of such time), exceed
"(B) the assets of such plan."
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§4973. Tax on excess contributions to certain tax-favored accounts and annuities
(a) Tax imposed
In the case of—
(1) an individual retirement account (within the meaning of section 408(a)),
(2) an Archer MSA (within the meaning of section 220(d)),
(3) an individual retirement annuity (within the meaning of section 408(b)), a custodial account treated as an annuity contract under section 403(b)(7)(A) (relating to custodial accounts for regulated investment company stock), or
(4) an education individual retirement account (as defined in section 530),
there is imposed for each taxable year a tax in an amount equal to 6 percent of the amount of the excess contributions to such individual's accounts or annuities (determined as of the close of the taxable year). The amount of such tax for any taxable year shall not exceed 6 percent of the value of the account or annuity (determined as of the close of the taxable year). In the case of an endowment contract described in section 408(b), the tax imposed by this section does not apply to any amount allocable to life, health, accident, or other insurance under such contract. The tax imposed by this subsection shall be paid by such individual.
(b) Excess contributions
For purposes of this section, in the case of individual retirement accounts or individual retirement annuities, the term "excess contributions" means the sum of—
(1) the excess (if any) of—
(A) the amount contributed for the taxable year to the accounts or for the annuities (other than a contribution to a Roth IRA or a rollover contribution described in section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3)), over
(B) the amount allowable as a deduction under section 219 for such contributions, and
(2) the amount determined under this subsection for the preceding taxable year reduced by the sum of—
(A) the distributions out of the account for the taxable year which were included in the gross income of the payee under section 408(d)(1),
(B) the distributions out of the account for the taxable year to which section 408(d)(5) applies, and
(C) the excess (if any) of the maximum amount allowable as a deduction under section 219 for the taxable year over the amount contributed (determined without regard to section 219(f)(6)) to the accounts or for the annuities (including the amount contributed to a Roth IRA) for the taxable year.
For purposes of this subsection, any contribution which is distributed from the individual retirement account or the individual retirement annuity in a distribution to which section 408(d)(4) applies shall be treated as an amount not contributed. For purposes of paragraphs (1)(B) and (2)(C), the amount allowable as a deduction under section 219 shall be computed without regard to section 219(g).
(c) Section 403(b) contracts
For purposes of this section, in the case of a custodial account referred to in subsection (a)(2), the term "excess contributions" means the sum of—
(1) the excess (if any) of the amount contributed for the taxable year to such account (other than a rollover contribution described in section 403(b)(8) or 408(d)(3)(A)(iii)), over the lesser of the amount excludable from gross income under section 403(b) or the amount permitted to be contributed under the limitations contained in section 415 (or under whichever such section is applicable, if only one is applicable), and
(2) the amount determined under this subsection for the preceding taxable year, reduced by—
(A) the excess (if any) of the lesser of (i) the amount excludable from gross income under section 403(b) or (ii) the amount permitted to be contributed under the limitations contained in section 415 over the amount contributed to the account for the taxable year (or under whichever such section is applicable, if only one is applicable), and
(B) the sum of the distributions out of the account (for all prior taxable years) which are included in gross income under section 72(e).
(d) Excess contributions to Archer MSAs
For purposes of this section, in the case of Archer MSAs (within the meaning of section 220(d)), the term "excess contributions" means the sum of—
(1) the aggregate amount contributed for the taxable year to the accounts (other than rollover contributions described in section 220(f)(5)) which is neither excludable from gross income under section 106(b) nor allowable as a deduction under section 220 for such year, and
(2) the amount determined under this subsection for the preceding taxable year, reduced by the sum of—
(A) the distributions out of the accounts which were included in gross income under section 220(f)(2), and
(B) the excess (if any) of—
(i) the maximum amount allowable as a deduction under section 220(b)(1) (determined without regard to section 106(b)) for the taxable year, over
(ii) the amount contributed to the accounts for the taxable year.
For purposes of this subsection, any contribution which is distributed out of the Archer MSA in a distribution to which section 220(f)(3) or section 138(c)(3) applies shall be treated as an amount not contributed.
(e) Excess contributions to education individual retirement accounts
For purposes of this section—
(1) In general
In the case of education individual retirement accounts maintained for the benefit of any one beneficiary, the term "excess contributions" means the sum of—
(A) the amount by which the amount contributed for the taxable year to such accounts exceeds $500 (or, if less, the sum of the maximum amounts permitted to be contributed under section 530(c) by the contributors to such accounts for such year);
(B) if any amount is contributed (other than a contribution described in section 530(b)(2)(B)) during such year to a qualified State tuition program for the benefit of such beneficiary, any amount contributed to such accounts for such taxable year; and
(C) the amount determined under this subsection for the preceding taxable year, reduced by the sum of—
(i) the distributions out of the accounts for the taxable year (other than rollover distributions); and
(ii) the excess (if any) of the maximum amount which may be contributed to the accounts for the taxable year over the amount contributed to the accounts for the taxable year.
(2) Special rules
For purposes of paragraph (1), the following contributions shall not be taken into account:
(A) Any contribution which is distributed out of the education individual retirement account in a distribution to which section 530(d)(4)(C) applies.
(B) Any rollover contribution.
(f) Excess contributions to Roth IRAs
For purposes of this section, in the case of contributions to a Roth IRA (within the meaning of section 408A(b)), the term "excess contributions" means the sum of—
(1) the excess (if any) of—
(A) the amount contributed for the taxable year to Roth IRAs (other than a qualified rollover contribution described in section 408A(e)), over
(B) the amount allowable as a contribution under sections 408A(c)(2) and (c)(3), and
(2) the amount determined under this subsection for the preceding taxable year, reduced by the sum of—
(A) the distributions out of the accounts for the taxable year, and
(B) the excess (if any) of the maximum amount allowable as a contribution under sections 408A(c)(2) and (c)(3) for the taxable year over the amount contributed by the individual to all individual retirement plans for the taxable year.
For purposes of this subsection, any contribution which is distributed from a Roth IRA in a distribution described in section 408(d)(4) shall be treated as an amount not contributed.
(Added
Amendments
2000—Subsec. (a)(2).
Subsec. (d).
1998—
Subsec. (b)(1)(A).
Subsec. (b)(2)(C).
Subsec. (e)(1).
"(A) the amount by which the amount contributed for the taxable year to such accounts exceeds $500, and
"(B) any amount contributed to such accounts for any taxable year if any amount is contributed during such year to a qualified State tuition program for the benefit of such beneficiary."
Subsec. (e)(2)(B), (C).
Subsec. (f).
Subsec. (f)(1)(A).
Subsec. (f)(2)(B).
1997—Subsec. (a)(4).
Subsec. (d).
Subsec. (e).
Subsec. (f).
1996—
Subsec. (a).
Subsec. (b)(1)(A).
Subsec. (d).
1992—Subsec. (b)(1)(A).
1988—Subsec. (b).
1986—Subsec. (b).
1984—
Subsec. (a).
Subsec. (b).
Subsec. (b)(1)(A).
Subsec. (c)(1).
1981—Subsec. (a).
Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (b)(2)(C).
1980—Subsec. (b)(1)(A).
Subsec. (c)(1).
1978—Subsec. (b)(1)(A).
Subsec. (b)(2).
Subsec. (b).
Subsec. (c)(1).
1976—Subsec. (a)(3).
Subsec. (b)(1)(B).
Subsec. (b)(2).
Subsec. (c).
Effective Date of 1998 Amendment
Amendment by section 6023(18)(A) of
Amendment by sections 6004(d)(10) and 6005(b)(8) of
Effective Date of 1997 Amendments
Amendment by section 213(d) of
Amendment by section 302(b) of
Amendment by
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1102(b)(1) of
Amendment by section 1848(f) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by section 311(h)(7), (9), (10) of
Amendment by section 313(b)(2) of
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Amendment by section 156(c)(3), (5) of
Amendment by section 157(b)(3) of
Section 157(j)(2) of
Section 701(aa)(2) of
Section 703(j)(13) of
Effective Date of 1976 Amendment
Amendment by section 1501(b)(8) of
Amendment by section 1904(a)(22) of
Effective Date
Section 2002(i)(2) of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§4974. Excise tax on certain accumulations in qualified retirement plans
(a) General rule
If the amount distributed during the taxable year of the payee under any qualified retirement plan or any eligible deferred compensation plan (as defined in section 457(b)) is less than the minimum required distribution for such taxable year, there is hereby imposed a tax equal to 50 percent of the amount by which such minimum required distribution exceeds the actual amount distributed during the taxable year. The tax imposed by this section shall be paid by the payee.
(b) Minimum required distribution
For purposes of this section, the term "minimum required distribution" means the minimum amount required to be distributed during a taxable year under section 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), or 457(d)(2), as the case may be, as determined under regulations prescribed by the Secretary.
(c) Qualified retirement plan
For purposes of this section, the term "qualified retirement plan" means—
(1) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
(2) an annuity plan described in section 403(a),
(3) an annuity contract described in section 403(b),
(4) an individual retirement account described in section 408(a), or
(5) an individual retirement annuity described in section 408(b).
Such term includes any plan, contract, account, or annuity which, at any time, has been determined by the Secretary to be such a plan, contract, account, or annuity.
(d) Waiver of tax in certain cases
If the taxpayer establishes to the satisfaction of the Secretary that—
(1) the shortfall described in subsection (a) in the amount distributed during any taxable year was due to reasonable error, and
(2) reasonable steps are being taken to remedy the shortfall,
the Secretary may waive the tax imposed by subsection (a) for the taxable year.
(Added
Amendments
1986—
Subsec. (a).
Subsec. (b).
1978—Subsec. (c).
1976—Subsec. (b).
Effective Date of 1986 Amendment
Amendment by section 1121(a)(1) of
Amendment by section 1852(a)(7)(B), (C) of
Effective Date of 1978 Amendment
Section 157(i)(2) of
Effective Date
Section effective Jan. 1, 1975, see section 2002(i)(2) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§4975. Tax on prohibited transactions
(a) Initial taxes on disqualified person
There is hereby imposed a tax on each prohibited transaction. The rate of tax shall be equal to 15 percent of the amount involved with respect to the prohibited transaction for each year (or part thereof) in the taxable period. The tax imposed by this subsection shall be paid by any disqualified person who participates in the prohibited transaction (other than a fiduciary acting only as such).
(b) Additional taxes on disqualified person
In any case in which an initial tax is imposed by subsection (a) on a prohibited transaction and the transaction is not corrected within the taxable period, there is hereby imposed a tax equal to 100 percent of the amount involved. The tax imposed by this subsection shall be paid by any disqualified person who participated in the prohibited transaction (other than a fiduciary acting only as such).
(c) Prohibited transaction
(1) General rule
For purposes of this section, the term "prohibited transaction" means any direct or indirect—
(A) sale or exchange, or leasing, of any property between a plan and a disqualified person;
(B) lending of money or other extension of credit between a plan and a disqualified person;
(C) furnishing of goods, services, or facilities between a plan and a disqualified person;
(D) transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;
(E) act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interests or for his own account; or
(F) receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.
(2) Special exemption
The Secretary shall establish an exemption procedure for purposes of this subsection. Pursuant to such procedure, he may grant a conditional or unconditional exemption of any disqualified person or transaction, orders of disqualified persons or transactions, from all or part of the restrictions imposed by paragraph (1) of this subsection. Action under this subparagraph may be taken only after consultation and coordination with the Secretary of Labor. The Secretary may not grant an exemption under this paragraph unless he finds that such exemption is—
(A) administratively feasible,
(B) in the interests of the plan and of its participants and beneficiaries, and
(C) protective of the rights of participants and beneficiaries of the plan.
Before granting an exemption under this paragraph, the Secretary shall require adequate notice to be given to interested persons and shall publish notice in the Federal Register of the pendency of such exemption and shall afford interested persons an opportunity to present views. No exemption may be granted under this paragraph with respect to a transaction described in subparagraph (E) or (F) of paragraph (1) unless the Secretary affords an opportunity for a hearing and makes a determination on the record with respect to the findings required under subparagraphs (A), (B), and (C) of this paragraph, except that in lieu of such hearing the Secretary may accept any record made by the Secretary of Labor with respect to an application for exemption under section 408(a) of title I of the Employee Retirement Income Security Act of 1974.
(3) Special rule for individual retirement accounts
An individual for whose benefit an individual retirement account is established and his beneficiaries shall be exempt from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if, with respect to such transaction, the account ceases to be an individual retirement account by reason of the application of section 408(e)(2)(A) or if section 408(e)(4) applies to such account.
(4) Special rule for Archer MSAs
An individual for whose benefit an Archer MSA (within the meaning of section 220(d)) is established shall be exempt from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if section 220(e)(2) applies to such transaction.
(5) Special rule for education individual retirement accounts
An individual for whose benefit an education individual retirement account is established and any contributor to such account shall be exempt from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if section 530(d) applies with respect to such transaction.
(d) Exemptions
Except as provided in subsection (f)(6), the prohibitions provided in subsection (c) shall not apply to—
(1) any loan made by the plan to a disqualified person who is a participant or beneficiary of the plan if such loan—
(A) is available to all such participants or beneficiaries on a reasonably equivalent basis,
(B) is not made available to highly compensated employees (within the meaning of section 414(q)) in an amount greater than the amount made available to other employees,
(C) is made in accordance with specific provisions regarding such loans set forth in the plan,
(D) bears a reasonable rate of interest, and
(E) is adequately secured;
(2) any contract, or reasonable arrangement, made with a disqualified person for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor;
(3) any loan to an 1 leveraged employee stock ownership plan (as defined in subsection (e)(7)), if—
(A) such loan is primarily for the benefit of participants and beneficiaries of the plan, and
(B) such loan is at a reasonable rate of interest, and any collateral which is given to a disqualified person by the plan consists only of qualifying employer securities (as defined in subsection (e)(8));
(4) the investment of all or part of a plan's assets in deposits which bear a reasonable interest rate in a bank or similar financial institution supervised by the United States or a State, if such bank or other institution is a fiduciary of such plan and if—
(A) the plan covers only employees of such bank or other institution and employees of affiliates of such bank or other institution, or
(B) such investment is expressly authorized by a provision of the plan or by a fiduciary (other than such bank or institution or affiliates thereof) who is expressly empowered by the plan to so instruct the trustee with respect to such investment;
(5) any contract for life insurance, health insurance, or annuities with one or more insurers which are qualified to do business in a State if the plan pays no more than adequate consideration, and if each such insurer or insurers is—
(A) the employer maintaining the plan, or
(B) a disqualified person which is wholly owned (directly or indirectly) by the employer establishing the plan, or by any person which is a disqualified person with respect to the plan, but only if the total premiums and annuity considerations written by such insurers for life insurance, health insurance, or annuities for all plans (and their employers) with respect to which such insurers are disqualified persons (not including premiums or annuity considerations written by the employer maintaining the plan) do not exceed 5 percent of the total premiums and annuity considerations written for all lines of insurance in that year by such insurers (not including premiums or annuity considerations written by the employer maintaining the plan);
(6) the provision of any ancillary service by a bank or similar financial institution supervised by the United States or a State, if such service is provided at not more than reasonable compensation, if such bank or other institution is a fiduciary of such plan, and if—
(A) such bank or similar financial institution has adopted adequate internal safeguards which assure that the provision of such ancillary service is consistent with sound banking and financial practice, as determined by Federal or State supervisory authority, and
(B) the extent to which such ancillary service is provided is subject to specific guidelines issued by such bank or similar financial institution (as determined by the Secretary after consultation with Federal and State supervisory authority), and under such guidelines the bank or similar financial institution does not provide such ancillary service—
(i) in an excessive or unreasonable manner, and
(ii) in a manner that would be inconsistent with the best interests of participants and beneficiaries of employee benefit plans;
(7) the exercise of a privilege to convert securities, to the extent provided in regulations of the Secretary but only if the plan receives no less than adequate consideration pursuant to such conversion;
(8) any transaction between a plan and a common or collective trust fund or pooled investment fund maintained by a disqualified person which is a bank or trust company supervised by a State or Federal agency or between a plan and a pooled investment fund of an insurance company qualified to do business in a State if—
(A) the transaction is a sale or purchase of an interest in the fund,
(B) the bank, trust company, or insurance company receives not more than a reasonable compensation, and
(C) such transaction is expressly permitted by the instrument under which the plan is maintained, or by a fiduciary (other than the bank, trust company, or insurance company, or an affiliate thereof) who has authority to manage and control the assets of the plan;
(9) receipt by a disqualified person of any benefit to which he may be entitled as a participant or beneficiary in the plan, so long as the benefit is computed and paid on a basis which is consistent with the terms of the plan as applied to all other participants and beneficiaries;
(10) receipt by a disqualified person of any reasonable compensation for services rendered, or for the reimbursement of expenses properly and actually incurred, in the performance of his duties with the plan, but no person so serving who already receives full-time pay from an employer or an association of employers, whose employees are participants in the plan or from an employee organization whose members are participants in such plan shall receive compensation from such fund, except for reimbursement of expenses properly and actually incurred;
(11) service by a disqualified person as a fiduciary in addition to being an officer, employee, agent, or other representative of a disqualified person;
(12) the making by a fiduciary of a distribution of the assets of the trust in accordance with the terms of the plan if such assets are distributed in the same manner as provided under section 4044 of title IV of the Employee Retirement Income Security Act of 1974 (relating to allocation of assets);
(13) any transaction which is exempt from section 406 of such Act by reason of section 408(e) of such Act (or which would be so exempt if such section 406 applied to such transaction) or which is exempt from section 406 of such Act by reason of section 408(b)(12) of such Act;
(14) any transaction required or permitted under part 1 of subtitle E of title IV or section 4223 of the Employee Retirement Income Security Act of 1974, but this paragraph shall not apply with respect to the application of subsection (c)(1) (E) or (F); or
(15) a merger of multiemployer plans, or the transfer of assets or liabilities between multiemployer plans, determined by the Pension Benefit Guaranty Corporation to meet the requirements of section 4231 of such Act, but this paragraph shall not apply with respect to the application of subsection (c)(1) (E) or (F).
(e) Definitions
(1) Plan
For purposes of this section, the term "plan" means—
(A) a trust described in section 401(a) which forms a part of a plan, or a plan described in section 403(a), which trust or plan is exempt from tax under section 501(a),
(B) an individual retirement account described in section 408(a),
(C) an individual retirement annuity described in section 408(b),
(D) an Archer MSA described in section 220(d),
(E) an education individual retirement account described in section 530, or
(F) a trust, plan, account, or annuity which, at any time, has been determined by the Secretary to be described in any preceding subparagraph of this paragraph.
(2) Disqualified person
For purposes of this section, the term "disqualified person" means a person who is—
(A) a fiduciary;
(B) a person providing services to the plan;
(C) an employer any of whose employees are covered by the plan;
(D) an employee organization any of whose members are covered by the plan;
(E) an owner, direct or indirect, of 50 percent or more of—
(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation,
(ii) the capital interest or the profits interest of a partnership, or
(iii) the beneficial interest of a trust or unincorporated enterprise,
which is an employer or an employee organization described in subparagraph (C) or (D);
(F) a member of the family (as defined in paragraph (6)) of any individual described in subparagraph (A), (B), (C), or (E);
(G) a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of—
(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation,
(ii) the capital interest or profits interest of such partnership, or
(iii) the beneficial interest of such trust or estate,
is owned directly or indirectly, or held by persons described in subparagraph (A), (B), (C), (D), or (E);
(H) an officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10 percent or more shareholder, or a highly compensated employee (earning 10 percent or more of the yearly wages of an employer) of a person described in subparagraph (C), (D), (E), or (G); or
(I) a 10 percent or more (in capital or profits) partner or joint venturer of a person described in subparagraph (C), (D), (E), or (G).
The Secretary, after consultation and coordination with the Secretary of Labor or his delegate, may by regulation prescribe a percentage lower than 50 percent for subparagraphs (E) and (G) and lower than 10 percent for subparagraphs (H) and (I).
(3) Fiduciary
For purposes of this section, the term "fiduciary" means any person who—
(A) exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets,
(B) renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or
(C) has any discretionary authority or discretionary responsibility in the administration of such plan.
Such term includes any person designated under section 405(c)(1)(B) of the Employee Retirement Income Security Act of 1974.
(4) Stockholdings
For purposes of paragraphs (2)(E)(i) and (G)(i) there shall be taken into account indirect stockholdings which would be taken into account under section 267(c), except that, for purposes of this paragraph, section 267(c)(4) shall be treated as providing that the members of the family of an individual are the members within the meaning of paragraph (6).
(5) Partnerships; trusts
For purposes of paragraphs (2)(E)(ii) and (iii), (G)(ii) and (iii), and (I) the ownership of profits or beneficial interests shall be determined in accordance with the rules for constructive ownership of stock provided in section 267(c) (other than paragraph (3) thereof), except that section 267(c)(4) shall be treated as providing that the members of the family of an individual are the members within the meaning of paragraph (6).
(6) Member of family
For purposes of paragraph (2)(F), the family of any individual shall include his spouse, ancestor, lineal descendant, and any spouse of a lineal descendant.
(7) Employee stock ownership plan
The term "employee stock ownership plan" means a defined contribution plan—
(A) which is a stock bonus plan which is qualified, or a stock bonus and a money purchase plan both of which are qualified under section 401(a), and which are designed to invest primarily in qualifying employer securities; and
(B) which is otherwise defined in regulations prescribed by the Secretary.
A plan shall not be treated as an employee stock ownership plan unless it meets the requirements of section 409(h), section 409(o), and, if applicable, section 409(n) and section 664(g) and, if the employer has a registration-type class of securities (as defined in section 409(e)(4)), it meets the requirements of section 409(e).
(8) Qualifying employer security
The term "qualifying employer security" means any employer security within the meaning of section 409(l). If any moneys or other property of a plan are invested in shares of an investment company registered under the Investment Company Act of 1940, the investment shall not cause that investment company or that investment company's investment adviser or principal underwriter to be treated as a fiduciary or a disqualified person for purposes of this section, except when an investment company or its investment adviser or principal underwriter acts in connection with a plan covering employees of the investment company, its investment adviser, or its principal underwriter.
(9) Section made applicable to withdrawal liability payment funds
For purposes of this section—
(A) In general
The term "plan" includes a trust described in section 501(c)(22).
(B) Disqualified person
In the case of any trust to which this section applies by reason of subparagraph (A), the term "disqualified person" includes any person who is a disqualified person with respect to any plan to which such trust is permitted to make payments under section 4223 of the Employee Retirement Income Security Act of 1974.
(f) Other definitions and special rules
For purposes of this section—
(1) Joint and several liability
If more than one person is liable under subsection (a) or (b) with respect to any one prohibited transaction, all such persons shall be jointly and severally liable under such subsection with respect to such transaction.
(2) Taxable period
The term "taxable period" means, with respect to any prohibited transaction, the period beginning with the date on which the prohibited transaction occurs and ending on the earliest of—
(A) the date of mailing a notice of deficiency with respect to the tax imposed by subsection (a) under section 6212,
(B) the date on which the tax imposed by subsection (a) is assessed, or
(C) the date on which correction of the prohibited transaction is completed.
(3) Sale or exchange; encumbered property
A transfer or real or personal property by a disqualified person to a plan shall be treated as a sale or exchange if the property is subject to a mortgage or similar lien which the plan assumes or if it is subject to a mortgage or similar lien which a disqualified person placed on the property within the 10-year period ending on the date of the transfer.
(4) Amount involved
The term "amount involved" means, with respect to a prohibited transaction, the greater of the amount of money and the fair market value of the other property given or the amount of money and the fair market value of the other property received; except that, in the case of services described in paragraphs (2) and (10) of subsection (d) the amount involved shall be only the excess compensation. For purposes of the preceding sentence, the fair market value—
(A) in the case of the tax imposed by subsection (a), shall be determined as of the date on which the prohibited transaction occurs; and
(B) in the case of the tax imposed by subsection (b), shall be the highest fair market value during the taxable period.
(5) Correction
The terms "correction" and "correct" mean, with respect to a prohibited transaction, undoing the transaction to the extent possible, but in any case placing the plan in a financial position not worse than that in which it would be if the disqualified person were acting under the highest fiduciary standards.
(6) Exemptions not to apply to certain transactions
(A) In general
In the case of a trust described in section 401(a) which is part of a plan providing contributions or benefits for employees some or all of whom are owner-employees (as defined in section 401(c)(3)), the exemptions provided by subsection (d) (other than paragraphs (9) and (12)) shall not apply to a transaction in which the plan directly or indirectly—
(i) lends any part of the corpus or income of the plan to,
(ii) pays any compensation for personal services rendered to the plan to, or
(iii) acquires for the plan any property from, or sells any property to,
any such owner-employee, a member of the family (as defined in section 267(c)(4)) of any such owner-employee, or any corporation in which any such owner-employee owns, directly or indirectly, 50 percent or more of the total combined voting power of all classes of stock entitled to vote or 50 percent or more of the total value of shares of all classes of stock of the corporation.
(B) Special rules for shareholder-employees, etc.
(i) In general
For purposes of subparagraph (A), the following shall be treated as owner-employees:
(I) A shareholder-employee.
(II) A participant or beneficiary of an individual retirement plan (as defined in section 7701(a)(37)).
(III) An employer or association of employees which establishes such an individual retirement plan under section 408(c).
(ii) Exception for certain transactions involving shareholder-employees
Subparagraph (A)(iii) shall not apply to a transaction which consists of a sale of employer securities to an employee stock ownership plan (as defined in subsection (e)(7)) by a shareholder-employee, a member of the family (as defined in section 267(c)(4)) of such shareholder-employee, or a corporation in which such a shareholder-employee owns stock representing a 50 percent or greater interest described in subparagraph (A).
(C) Shareholder-employee
For purposes of subparagraph (B), the term "shareholder-employee" means an employee or officer of an S corporation who owns (or is considered as owning within the meaning of section 318(a)(1)) more than 5 percent of the outstanding stock of the corporation on any day during the taxable year of such corporation.
(g) Application of section
This section shall not apply—
(1) in the case of a plan to which a guaranteed benefit policy (as defined in section 401(b)(2)(B) of the Employee Retirement Income Security Act of 1974) is issued, to any assets of the insurance company, insurance service, or insurance organization merely because of its issuance of such policy;
(2) to a governmental plan (within the meaning of section 414(d)); or
(3) to a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made.
In the case of a plan which invests in any security issued by an investment company registered under the Investment Company Act of 1940, the assets of such plan shall be deemed to include such security but shall not, by reason of such investment, be deemed to include any assets of such company.
(h) Notification of Secretary of Labor
Before sending a notice of deficiency with respect to the tax imposed by subsection (a) or (b), the Secretary shall notify the Secretary of Labor and provide him a reasonable opportunity to obtain a correction of the prohibited transaction or to comment on the imposition of such tax.
(i) Cross reference
For provisions concerning coordination procedures between Secretary of Labor and Secretary of the Treasury with respect to application of tax imposed by this section and for authority to waive imposition of the tax imposed by subsection (b), see section 3003 of the Employee Retirement Income Security Act of 1974.
(Added
References in Text
The Employee Retirement Income Security Act of 1974, referred to in subsecs. (c)(2), (d)(12) to (15), (e)(3), (9)(B), (g)(1), and (i) is
The Investment Company Act of 1940, referred to in subsecs. (e)(8) and (g), is title I of act Aug. 22, 1940, ch. 686,
Amendments
2000—Subsec. (c)(4).
Subsec. (e)(1)(D).
1998—Subsec. (c)(3).
Subsec. (i).
1997—Subsec. (a).
Subsec. (c)(4).
Subsec. (c)(5).
Subsec. (d).
Subsec. (e)(1)(D) to (F).
Subsec. (e)(7).
Subsec. (f)(6).
1996—Subsec. (a).
Subsec. (c)(4).
Subsec. (d)(13).
Subsec. (e)(1).
1990—Subsec. (d)(13).
1986—Subsec. (d).
Subsec. (d)(1)(B).
Subsec. (e)(7).
1984—Subsec. (d).
Subsec. (e)(1).
Subsec. (e)(7).
Subsec. (e)(8).
1983—Subsec. (d).
1980—Subsec. (b).
Subsec. (d)(14), (15).
Subsec. (e)(7).
Subsec. (e)(8).
Subsec. (e)(9).
Subsec. (f)(2)(B), (C).
Subsec. (f)(4)(B).
Subsec. (f)(6).
1978—Subsec. (d)(3).
Subsec. (e)(7).
1976—Subsecs. (c) to (f).
Effective Date of 1997 Amendment
Amendment by section 213(b) of
Section 1074(b) of
Amendment by section 1506(b)(1) of
Amendment by section 1530(c)(10) of
Amendment by section 1602(a)(5) of
Effective Date of 1996 Amendments
Amendment by
Section 1453(b) of
Amendment by section 1702(g)(3) of
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1114(b)(15)(A) of
Amendment by section 1854(f)(3)(A) of
Effective Date of 1984 Amendment
Amendment by section 491(d)(45), (46) of
Amendment by section 491(e)(7), (8) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1980 Amendments
For effective date of amendment by
Amendment by section 208(b) of
Amendment by section 209(b) of
Section 101(b)(1)(C) of
Amendment by section 101(a)(7)(K), (L)(iv)(III), (v)(XI) of
Effective Date of 1978 Amendment
Section 141(h) of
"(1) insofar as they make the requirements of subsections (e) and (h)(1)(B) of section 409A [now section 409] of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] applicable to section 4975 of such Code, to stock acquired after December 31, 1979, and
"(2) insofar as they make paragraphs (1)(A) and (2) of section 409A(h) [now section 409(h)] of such Code applicable to such section 4975, to distributions after December 31, 1978."
Effective Date; Savings Provision
Section 2003(c) of
"(1)(A) The amendments made by this section [enacting this section and amending
"(B) If, before the amendments made by this section [enacting this section and amending
"(2) Section 4975 of the Internal Revenue Code of 1986 (relating to tax on prohibited transactions) shall not apply to—
"(A) a loan of money or other extension of credit between a plan and a disqualified person under a binding contract in effect on July 1, 1974 (or pursuant to renewals of such a contract), until June 30, 1984, if such loan or other extension of credit remains at least as favorable to the plan as an arm's-length transaction with an unrelated party would be, and if the execution of the contract, the making of the loan, or the extension of credit was not, at the time of such execution, making, or extension, a prohibited transaction (within the meaning of section 503(b) of such Code) or the corresponding provisions of prior law);
"(B) a lease of joint use of property involving the plan and a disqualified person pursuant to a binding contract in effect on July 1, 1974 (or pursuant to renewals of such a contract), until June 30, 1984, if such lease or joint use remains at least as favorable to the plan as an arm's-length transaction with an unrelated party would be and if the execution of the contract was not, at the time of such execution, a prohibited transaction (within the meaning of section 503(b) of such Code) or the corresponding provisions of prior law;
"(C) the sale, exchange, or other disposition of property described in subparagraph (B) between a plan and a disqualified person before June 30, 1984, if—
"(i) in the case of a sale, exchange, or other disposition of the property by the plan to the disqualified person, the plan receives an amount which is not less than the fair market value of the property at the time of such disposition; and
"(ii) in the case of the acquisition of the property by the plan, the plan pays an amount which is not in excess of the fair market value of the property at the time of such acquisition:
"(D) Until June 30, 1977, the provision of services to which subparagraphs (A), (B), and (C) do not apply between a plan and a disqualified person (i) under a binding contract in effect on July 1, 1974 (or pursuant to renewals of such contract), or (ii) if the disqualified person ordinarily and customarily furnished such services on June 30, 1974, if such provision of services remains at least as favorable to the plan as an arm's-length transaction with an unrelated party would be and if the provision of services was not, at the time of such provision, a prohibited transaction (within the meaning of section 503(b) of such Code) or the corresponding provisions of prior law; or
"(E) the sale, exchange, or other disposition of property which is owned by a plan on June 30, 1974, and all times thereafter, to a disqualified person, if such plan is required to dispose of such property in order to comply with the provisions of section 407(a)(2)(A) (relating to the prohibition against holding excess employer securities and employer real property) of the Employee Retirement Income Security Act of 1974 [
For the purposes of this paragraph, the term 'disqualified person' has the meaning provided by section 4975(e)(2) of the Internal Revenue Code of 1986."
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Intent of Congress Concerning Employee Stock Ownership Plans
Section 803(h) of
Section Referred to in Other Sections
This section is referred to in
1 So in original. Probably should be "a".
§4976. Taxes with respect to funded welfare benefit plans
(a) General rule
If—
(1) an employer maintains a welfare benefit fund, and
(2) there is a disqualified benefit provided during any taxable year,
there is hereby imposed on such employer a tax equal to 100 percent of such disqualified benefit.
(b) Disqualified benefit
For purposes of subsection (a)—
(1) In general
The term "disqualified benefit" means—
(A) any post-retirement medical benefit or life insurance benefit provided with respect to a key employee if a separate account is required to be established for such employee under section 419A(d) and such payment is not from such account,
(B) any post-retirement medical benefit or life insurance benefit provided with respect to an individual in whose favor discrimination is prohibited unless the plan meets the requirements of section 505(b) with respect to such benefit (whether or not such requirements apply to such plan), and
(C) any portion of a welfare benefit fund reverting to the benefit of the employer.
(2) Exception for collective bargaining plans
Paragraph (1)(B) shall not apply to any plan maintained pursuant to an agreement between employee representatives and 1 or more employers if the Secretary finds that such agreement is a collective bargaining agreement and that the benefits referred to in paragraph (1)(B) were the subject of good faith bargaining between such employee representatives and such employer or employers.
(3) Exception for nondeductible contributions
Paragraph (1)(C) shall not apply to any amount attributable to a contribution to the fund which is not allowable as a deduction under section 419 for the taxable year or any prior taxable year (and such contribution shall not be included in any carryover under section 419(d)).
(4) Exception for certain amounts charged against existing reserve
Subparagraphs (A) and (B) of paragraph (1) shall not apply to post-retirement benefits charged against an existing reserve for post-retirement medical or life insurance benefits (as defined in section 512(a)(3)(E)) or charged against the income on such reserve.
(c) Definitions
For purposes of this section, the terms used in this section shall have the same respective meanings as when used in subpart D of part I of subchapter D of
(Added
Codification
Amendments
1989—Subsec. (b)(5).
Subsecs. (c), (d).
1988—Subsec. (b)(5).
Subsec. (c).
Subsec. (c)(1)(B).
Subsec. (c)(2)(A).
Subsec. (d).
1986—Subsec. (b).
"(1) any medical benefit or life insurance benefit provided with respect to a key employee other than from a separate account established for such owner under section 419A(d), and
"(2) any post-retirement medical or life insurance benefit unless the plan meets the requirements of section 505(b)(1) with respect to such benefit, and
"(3) any portion of such fund reverting to the benefit of the employer."
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1011B(a)(27)(A), (B) of
Amendment by section 3021(a)(1)(C) of
Effective Date of 1986 Amendment
Amendment by
Effective Date
Section applicable to benefits provided after Dec. 31, 1985, see section 511(e)(7) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§4977. Tax on certain fringe benefits provided by an employer
(a) Imposition of tax
In the case of an employer to whom an election under this section applies for any calendar year, there is hereby imposed a tax for such calendar year equal to 30 percent of the excess fringe benefits.
(b) Excess fringe benefits
For purposes of subsection (a), the term "excess fringe benefits" means, with respect to any calendar year—
(1) the aggregate value of the fringe benefits provided by the employer during the calendar year which were not includible in gross income under paragraphs (1) and (2) of section 132(a), over
(2) 1 percent of the aggregate amount of compensation—
(A) which was paid by the employer during such calendar year to employees, and
(B) was includible in gross income for purposes of
(c) Effect of election on section 132(a)
If—
(1) an election under this section is in effect with respect to an employer for any calendar year, and
(2) at all times on or after January 1, 1984, and before the close of the calendar year involved, substantially all of the employees of the employer were entitled to employee discounts on goods or services provided by the employer in 1 line of business,
for purposes of paragraphs (1) and (2) of section 132(a) (but not for purposes of section 132(h)), all employees of any line of business of the employer which was in existence on January 1, 1984, shall be treated as employees of the line of business referred to in paragraph (2).
(d) Period of election
An election under this section shall apply to the calendar year for which made and all subsequent calendar years unless revoked by the employer.
(e) Treatment of controlled groups
All employees treated as employed by a single employer under subsection (b), (c), or (m) of section 414 shall be treated as employed by a single employer for purposes of this section.
(f) Section to apply only to employment within the United States
Except as otherwise provided in regulations, this section shall apply only with respect to employment within the United States.
(Added
Amendments
1996—Subsec. (c).
1993—Subsec. (c).
1986—Subsec. (c)(2).
Subsec. (f).
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date
Section effective Jan. 1, 1985, see section 531(h) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Application of Subsection (c) of this Section to Agricultural Cooperatives Incorporated in 1964
Section 1853(c)(3) of
§4978. Tax on certain dispositions by employee stock ownership plans and certain cooperatives
(a) Tax on dispositions of securities to which section 1042 applies before close of minimum holding period
If, during the 3-year period after the date on which the employee stock ownership plan or eligible worker-owned cooperative acquired any qualified securities in a sale to which section 1042 applied or acquired any qualified employer securities in a qualified gratuitous transfer to which section 664(g) applied, such plan or cooperative disposes of any qualified securities and—
(1) the total number of shares held by such plan or cooperative after such disposition is less than the total number of employer securities held immediately after such sale, or
(2) except to the extent provided in regulations, the value of qualified securities held by such plan or cooperative after such disposition is less than 30 percent of the total value of all employer securities as of such disposition 60 1 percent of the total value of all employer securities as of such disposition in the case of any qualified employer securities acquired in a qualified gratuitous transfer to which section 664(g) applied),
there is hereby imposed a tax on the disposition equal to the amount determined under subsection (b).
(b) Amount of tax
(1) In general
The amount of the tax imposed by subsection (a) shall be equal to 10 percent of the amount realized on the disposition.
(2) Limitation
The amount realized taken into account under paragraph (1) shall not exceed that portion allocable to qualified securities acquired in the sale to which section 1042 applied or acquired in the qualified gratuitous transfer to which section 664(g) applied determined as if such securities were disposed of—
(A) first from qualified securities to which section 1042 applied or to which section 664(g) applied acquired during the 3-year period ending on the date of the disposition, beginning with the securities first so acquired, and
(B) then from any other employer securities.
If subsection (d) applies to a disposition, the disposition shall be treated as made from employer securities in the opposite order of the preceding sentence.
(3) Distributions to employees
The amount realized on any distribution to an employee for less than fair market value shall be determined as if the qualified security had been sold to the employee at fair market value.
(c) Liability for payment of taxes
The tax imposed by this subsection shall be paid by—
(1) the employer, or
(2) the eligible worker-owned cooperative,
that made the written statement described in section 664(g)(1)(E) or in section 1042(b)(3) (as the case may be).
(d) Section not to apply to certain dispositions
(1) Certain distributions to employees
This section shall not apply with respect to any distribution of qualified securities (or sale of such securities) which is made by reason of—
(A) the death of the employee,
(B) the retirement of the employee after the employee has attained 59½ years of age,
(C) the disability of the employee (within the meaning of section 72(m)(7)), or
(D) the separation of the employee from service for any period which results in a 1-year break in service (within the meaning of section 411(a)(6)(A)).
(2) Certain reorganizations
In the case of any exchange of qualified securities in any reorganization described in section 368(a)(1) for stock of another corporation, such exchange shall not be treated as a disposition for purposes of this section.
(3) Liquidation of corporation into cooperative
In the case of any exchange of qualified securities pursuant to the liquidation of the corporation issuing qualified securities into the eligible worker-owned cooperative in a transaction which meets the requirements of section 332 (determined by substituting "100 percent" for "80 percent" each place it appears in section 332(b)(1)), such exchange shall not be treated as a disposition for purposes of this section.
(4) Dispositions to meet diversification requirements
This section shall not apply to any disposition of qualified securities which is required under section 401(a)(28).
(e) Definitions and special rules
For purposes of this section—
(1) Employee stock ownership plan
The term "employee stock ownership plan" has the meaning given to such term by section 4975(e)(7).
(2) Qualified securities
The term "qualified securities" has the meaning given to such term by section 1042(c)(1); except that such section shall be applied without regard to subparagraph (B) thereof for purposes of applying this section and section 4979A with respect to securities acquired in a qualified gratuitous transfer (as defined in section 664(g)(1)).
(3) Eligible worker-owned cooperative
The term "eligible worker-owned cooperative" has the meaning given to such term by section 1042(c)(2).
(4) Disposition
The term "disposition" includes any distribution.
(5) Employer securities
The term "employer securities" has the meaning given to such term by section 409(l).
(Added
Amendments
1997—Subsec. (a).
Subsec. (a)(2).
Subsec. (b)(2).
Subsec. (b)(2)(A).
Subsec. (c).
Subsec. (e)(2).
1996—Subsec. (b)(2).
"(A) first, from section 133 securities (as defined in section 4978B(e)(2)) acquired during the 3-year period ending on the date of such disposition, beginning with the securities first so acquired.
"(B) second, from section 133 securities (as so defined) acquired before such 3-year period unless such securities (or proceeds from the disposition) have been allocated to accounts of participants or beneficiaries.
"(C) third, from qualified securities to which section 1042 applied acquired during the 3-year period ending on the date of the disposition, beginning with the securities first so acquired, and
"(D) then from any other employer securities.
If subsection (d) or section 4978B(d) applies to a disposition, the disposition shall be treated as made from employer securities in the opposite order of the preceding sentence."
1989—Subsec. (b)(2).
1988—Subsec. (d)(4).
1987—Subsec. (b)(2).
1986—Subsec. (a)(1).
Subsec. (b)(1).
Subsec. (c).
Subsec. (d)(1)(C).
Subsec. (d)(3).
Subsec. (e)(2).
Subsec. (e)(3).
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by section 1602(b)(1) of
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
Section 10413(c) of
Effective Date of 1986 Amendment
Amendment by
Effective Date
Section 545(c) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
1 So in original. Probably should be preceded by an open parenthesis.
[§4978A. Repealed. Pub. L. 101–239, title VII, §7304(a)(2)(C)(i), Dec. 19, 1989, 103 Stat. 2353 ]
Section, added
Effective Date of Repeal
Repeal applicable to estates of decedents dying after Dec. 19, 1989, see section 7304(a)(3) of
[§4978B. Repealed. Pub. L. 104–188, title I, §1602(b)(5)(A), Aug. 20, 1996, 110 Stat. 1834 ]
Section, added
Effective Date of Repeal
Repeal applicable to loans made after Aug. 20, 1996, with exception and provisions relating to certain refinancings, see section 1602(c) of
§4979. Tax on certain excess contributions
(a) General rule
In the case of any plan, there is hereby imposed a tax for the taxable year equal to 10 percent of the sum of—
(1) any excess contributions under such plan for the plan year ending in such taxable year, and
(2) any excess aggregate contributions under the plan for the plan year ending in such taxable year.
(b) Liability for tax
The tax imposed by subsection (a) shall be paid by the employer.
(c) Excess contributions
For purposes of this section, the term "excess contributions" has the meaning given such term by sections 401(k)(8)(B), 408(k)(6)(C), and 501(c)(18).
(d) Excess aggregate contribution
For purposes of this section, the term "excess aggregate contribution" has the meaning given to such term by section 401(m)(6)(B). For purposes of determining excess aggregate contributions under an annuity contract described in section 403(b), such contract shall be treated as a plan described in subsection (e)(1).
(e) Plan
For purposes of this section, the term "plan" means—
(1) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
(2) any annuity plan described in section 403(a),
(3) any annuity contract described in section 403(b),
(4) a simplified employee pension of an employer which satisfies the requirements of section 408(k), and
(5) a plan described in section 501(c)(18).
Such term includes any plan which, at any time, has been determined by the Secretary to be such a plan.
(f) No tax where excess distributed within 2½ months of close of year
(1) In general
No tax shall be imposed under this section on any excess contribution or excess aggregate contribution, as the case may be, to the extent such contribution (together with any income allocable thereto) is distributed (or, if forfeitable, is forfeited) before the close of the first 2½ months of the following plan year.
(2) Year of inclusion
(A) In general
Except as provided in subparagraph (B), any amount distributed as provided in paragraph (1) shall be treated as received and earned by the recipient in his taxable year for which such contribution was made.
(B) De minimis distributions
If the total excess contributions and excess aggregate contributions distributed to a recipient under a plan for any plan year are less than $100, such distributions (and any income allocable thereto) shall be treated as earned and received by the recipient in his taxable year in which such distributions were made.
(Added
Amendments
1988—Subsec. (a)(1).
Subsec. (c).
Subsec. (d).
Subsec. (f)(2).
Effective Date of 1988 Amendment
Amendment by
Effective Date
Section applicable to plan years beginning after Dec. 31, 1986, with special provisions for plans maintained pursuant to collective bargaining agreements ratified before Mar. 1, 1986, and for annuity contracts under
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out this section, see section 1141 of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§4979A. Tax on certain prohibited allocations of qualified securities
(a) Imposition of tax
If—
(1) there is a prohibited allocation of qualified securities by any employee stock ownership plan or eligible worker-owned cooperative, or
(2) there is an allocation described in section 664(g)(5)(A),
there is hereby imposed a tax on such allocation equal to 50 percent of the amount involved.
(b) Prohibited allocation
For purposes of this section, the term "prohibited allocation" means—
(1) any allocation of qualified securities acquired in a sale to which section 1042 applies which violates the provisions of section 409(n), and
(2) any benefit which accrues to any person in violation of the provisions of section 409(n).
(c) Liability for tax
The tax imposed by this section shall be paid by—
(1) the employer sponsoring such plan, or
(2) the eligible worker-owned cooperative,
which made the written statement described in section 664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be).
(d) Special statute of limitations for tax attributable to certain allocations
The statutory period for the assessment of any tax imposed by this section on an allocation described in subsection (a)(2) of qualified employer securities shall not expire before the date which is 3 years from the later of—
(1) the 1st allocation of such securities in connection with a qualified gratuitous transfer (as defined in section 664(g)(1)), or
(2) the date on which the Secretary is notified of the allocation described in subsection (a)(2).
(e) Definitions
Terms used in this section have the same respective meaning as when used in section 4978.
(Added and amended
Amendments
1997—Subsec. (a).
Subsec. (c).
"(1) the employer sponsoring such plan, or
"(2) the eligible worker-owned cooperative,
which made the written statement described in section 1042(b)(3)(B)."
Subsecs. (d), (e).
1996—Subsec. (c).
1989—Subsec. (b)(1).
Subsec. (c).
1986—Subsec. (b)(1).
Subsec. (c).
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1172(b)(2) of
Effective Date
Section 1854(a)(9)(D) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§4980. Tax on reversion of qualified plan assets to employer
(a) Imposition of tax
There is hereby imposed a tax of 20 percent of the amount of any employer reversion from a qualified plan.
(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—
(A) a plan maintained by an employer if such employer has, at all times, been exempt from tax under subtitle A, or
(B) a governmental plan (within the meaning of section 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 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 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
(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 section 4975(e)(7) or a tax credit employee stock ownership plan (as described in section 409), such amount shall not be treated as an employer reversion for purposes of this section (or includible in the gross income of the employer) if—
(i) the requirements of subparagraphs (B), (C), and (D) are met, and
(ii) under the plan, employer securities to which subparagraph (B) applies must, except to the extent necessary to meet the requirements of section 401(a)(28), remain in the plan until distribution to participants in accordance with the provisions of such plan.
(B) Investment in employer securities
The requirements 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(l)) 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 transferred which is not allocated under the plan to accounts of participants 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.
The amount allocated in the year of transfer shall not be less than the lesser of the maximum amount allowable under section 415 or 1/8 of the amount attributable to the securities acquired. In the case of dividends on securities held in the suspense account, the requirements of this subparagraph are met only if the dividends are allocated to accounts of participants or paid to participants in proportion to their accounts, or used to repay loans used to purchase employer securities.
(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 paragraph, 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.
(F) No credit or deduction allowed
No credit or deduction shall be allowed under
(G) Amount transferred to include income thereon, etc.
The amount transferred shall not be treated as meeting the requirements of subparagraphs (B) and (C) unless amounts attributable to such amount also meet such requirements.
(4) Time for payment of tax
For purposes of subtitle F, the time for payment of the tax imposed by subsection (a) shall be the last day of the month following the month in which the employer reversion occurs.
(d) Increase in tax for failure to establish replacement plan or increase benefits
(1) In general
Subsection (a) shall be applied by substituting "50 percent" for "20 percent" with respect to any employer reversion from a qualified plan unless—
(A) the employer establishes or maintains a qualified replacement plan, or
(B) the plan provides benefit increases meeting the requirements of paragraph (3).
(2) Qualified replacement plan
For purposes of this subsection, the term "qualified replacement plan" means a qualified plan established or maintained by the employer in connection with a qualified plan termination (hereinafter referred to as the "replacement plan") with respect to which the following requirements are met:
(A) Participation requirement
At least 95 percent of the active participants in the terminated plan who remain as employees of the employer after the termination are active participants in the replacement plan.
(B) Asset transfer requirement
(i) 25 percent cushion
A direct transfer from the terminated plan to the replacement plan is made before any employer reversion, and the transfer is in an amount equal to the excess (if any) of—
(I) 25 percent of the maximum amount which the employer could receive as an employer reversion without regard to this subsection, over
(II) the amount determined under clause (ii).
(ii) Reduction for increase in benefits
The amount determined under this clause is an amount equal to the present value of the aggregate increases in the accrued benefits under the terminated plan of any participants or beneficiaries pursuant to a plan amendment which—
(I) is adopted during the 60-day period ending on the date of termination of the qualified plan, and
(II) takes effect immediately on the termination date.
(iii) Treatment of amount transferred
In the case of the transfer of any amount under clause (i)—
(I) such amount shall not be includible in the gross income of the employer,
(II) no deduction shall be allowable with respect to such transfer, and
(III) such transfer shall not be treated as an employer reversion for purposes of this section.
(C) Allocation requirements
(i) In general
In the case of any defined contribution plan, the portion of the amount transferred to the replacement plan under subparagraph (B)(i) is—
(I) allocated under the plan to the accounts of participants in the plan year in which the transfer occurs, or
(II) credited to a suspense account and allocated from such account to accounts of participants no less rapidly than ratably over the 7-plan-year period beginning with the year of the transfer.
(ii) Coordination with section 415 limitation
If, by reason of any limitation under section 415, any amount credited to a suspense account under clause (i)(II) may not be allocated to a participant before the close of the 7-year period under such clause—
(I) such amount shall be allocated to the accounts of other participants, and
(II) if any portion of such amount may not be allocated to other participants by reason of any such limitation, shall be allocated to the participant as provided in section 415.
(iii) Treatment of income
Any income on any amount credited to a suspense account under clause (i)(II) shall be allocated to accounts of participants no less rapidly than ratably over the remainder of the period determined under such clause (after application of clause (ii)).
(iv) Unallocated amounts at termination
If any amount credited to a suspense account under clause (i)(II) is not allocated as of the termination date of the replacement plan—
(I) such amount shall be allocated to the accounts of participants as of such date, except that any amount which may not be allocated by reason of any limitation under section 415 shall be allocated to the accounts of other participants, and
(II) if any portion of such amount may not be allocated to other participants under subclause (I) by reason of such limitation, such portion shall be treated as an employer reversion to which this section applies.
(3) Pro rata benefit increases
(A) In general
The requirements of this paragraph are met if a plan amendment to the terminated plan is adopted in connection with the termination of the plan which provides pro rata increases in the accrued benefits of all qualified participants which—
(i) have an aggregate present value not less than 20 percent of the maximum amount which the employer could receive as an employer reversion without regard to this subsection, and
(ii) take effect immediately on the termination date.
(B) Pro rata increase
For purposes of subparagraph (A), a pro rata increase is an increase in the present value of the accrued benefit of each qualified participant in an amount which bears the same ratio to the aggregate amount determined under subparagraph (A)(i) as—
(i) the present value of such participant's accrued benefit (determined without regard to this subsection), bears to
(ii) the aggregate present value of accrued benefits of the terminated plan (as so determined).
Notwithstanding the preceding sentence, the aggregate increases in the present value of the accrued benefits of qualified participants who are not active participants shall not exceed 40 percent of the aggregate amount determined under subparagraph (A)(i) by substituting "equal to" for "not less than".
(4) Coordination with other provisions
(A) Limitations
A benefit may not be increased under paragraph (2)(B)(ii) or (3)(A), and an amount may not be allocated to a participant under paragraph (2)(C), if such increase or allocation would result in a failure to meet any requirement under section 401(a)(4) or 415.
(B) Treatment as employer contributions
Any increase in benefits under paragraph (2)(B)(ii) or (3)(A), or any allocation of any amount (or income allocable thereto) to any account under paragraph (2)(C), shall be treated as an annual benefit or annual addition for purposes of section 415.
(C) 10-year participation requirement
Except as provided by the Secretary, section 415(b)(5)(D) shall not apply to any increase in benefits by reason of this subsection to the extent that the application of this subparagraph does not discriminate in favor of highly compensated employees (as defined in section 414(q)).
(5) Definitions and special rules
For purposes of this subsection—
(A) Qualified participant
The term "qualified participant" means an individual who—
(i) is an active participant,
(ii) is a participant or beneficiary in pay status as of the termination date,
(iii) is a participant not described in clause (i) or (ii)—
(I) who has a nonforfeitable right to an accrued benefit under the terminated plan as of the termination date, and
(II) whose service, which was creditable under the terminated plan, terminated during the period beginning 3 years before the termination date and ending with the date on which the final distribution of assets occurs, or
(iv) is a beneficiary of a participant described in clause (iii)(II) and has a nonforfeitable right to an accrued benefit under the terminated plan as of the termination date.
(B) Present value
Present value shall be determined as of the termination date and on the same basis as liabilities of the plan are determined on termination.
(C) Reallocation of increase
Except as provided in paragraph (2)(C), if any benefit increase is reduced by reason of the last sentence of paragraph (3)(A)(ii) or paragraph (4), the amount of such reduction shall be allocated to the remaining participants on the same basis as other increases (and shall be treated as meeting any allocation requirement of this subsection).
(D) Plans taken into account
For purposes of determining whether there is a qualified replacement plan under paragraph (2), the Secretary may provide that—
(i) 2 or more plans may be treated as 1 plan, or
(ii) a plan of a successor employer may be taken into account.
(E) Special rule for participation requirement
For purposes of paragraph (2)(A), all employers treated as 1 employer under section 414(b), (c), (m), or (o) shall be treated as 1 employer.
(6) Subsection not to apply to employer in bankruptcy
This subsection shall not apply to an employer who, as of the termination date of the qualified plan, is in bankruptcy liquidation under
(Added
Amendments
1996—Subsecs. (a), (d).
1990—Subsec. (a).
Subsec. (d).
1988—Subsec. (a).
Subsec. (c)(1)(A).
Subsec. (c)(3)(A).
Subsec. (c)(3)(C).
Subsec. (c)(3)(F), (G).
Subsec. (c)(4).
Effective Date of 1990 Amendment
Section 12003 of
"(a)
"(b)
"(1) in the case of plans subject to title IV of the Employee Retirement Income Security Act of 1974 [
"(2) in the case of plans subject to title I [
"(3) in the case of plans not subject to title I or IV of such Act, a request for a determination letter with respect to the termination was filed with the Secretary of the Treasury or the Secretary's delegate before October 1, 1990, or
"(4) in the case of plans not subject to title I or IV of such Act and having only 1 participant, a resolution terminating the plan was adopted by the employer before October 1, 1990."
Effective Date of 1988 Amendment
Amendment by section 1011A(f)(1)–(3), (6), (7) of
Section 5072(b) of
Section 6069(b) of
"(1)
"(2)
"(A) with respect to plans subject to title IV of the Employee Retirement Income Security Act of 1974 [
"(B) with respect to plans subject to title I of such Act [
"(C) with respect to plans not subject to title I or IV of such Act, the Board of Directors of the employer approved the termination or the employer took other binding action before October 21, 1988, or
"(D) such plan termination was directed by a final order of a court of competent jurisdiction entered before October 21, 1988, and notice of such order was provided to participants before such date."
Effective Date
Section 1132(c) of
"(1)
"(2)
"(A)
"(B)
"(3)
"(4)
"(A)
"(B)
"(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.
"(5)
Transfer of Excess Assets From Qualified Pension Plan to Welfare Benefit Plan
"(1) Notwithstanding any other provision of law, in the case of any qualified pension plan and welfare benefit plan described in paragraph (2), the assets of such pension plan in excess of its liabilities may be transferred to such welfare benefit plan upon the termination of such pension plan if such assets are to be used to provide retiree health benefits.
"(2) For purposes of paragraph (1), a qualified pension plan and welfare benefit plan are described in this paragraph if—
"(A) both such plans are jointly administered pursuant to a collective bargaining agreement between the employer maintaining such plans and one or more employee representatives,
"(B) the welfare benefit plan provides retiree health benefits, and
"(C) the qualified pension plan has assets in excess of liabilities (determined on a termination basis) and the welfare benefit plan has assets which are less than the present value of the benefits to be provided under the plan (determined as of the time of termination of the pension plan).
"(3) For purposes of the Internal Revenue Code of 1986, any transfer of assets to which paragraph (1) applies shall be treated as a reversion of such assets to the employer maintaining the plan which is includible in the gross income of such employer and subject to the tax imposed by section 4980 of such Code."
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
[§4980A. Repealed. Pub. L. 105–34, title X, §1073(a), Aug. 5, 1997, 111 Stat. 948 ]
Section, added
Effective Date of Repeal
Section 1073(c) of
"(1)
"(2)
§4980B. Failure to satisfy continuation coverage requirements of group health plans
(a) General rule
There is hereby imposed a tax on the failure of a group health plan to meet the requirements of subsection (f) with respect to any qualified beneficiary.
(b) Amount of tax
(1) In general
The amount of the tax imposed by subsection (a) on any failure with respect to a qualified beneficiary shall be $100 for each day in the noncompliance period with respect to such failure.
(2) Noncompliance period
For purposes of this section, the term "noncompliance period" means, with respect to any failure, the period—
(A) beginning on the date such failure first occurs, and
(B) ending on the earlier of—
(i) the date such failure is corrected, or
(ii) the date which is 6 months after the last day in the period applicable to the qualified beneficiary under subsection (f)(2)(B) (determined without regard to clause (iii) thereof).
If a person is liable for tax under subsection (e)(1)(B) by reason of subsection (e)(2)(B) with respect to any failure, the noncompliance period for such person with respect to such failure shall not begin before the 45th day after the written request described in subsection (e)(2)(B) is provided to such person.
(3) Minimum tax for noncompliance period where failure discovered after notice of examination
Notwithstanding paragraphs (1) and (2) of subsection (c)—
(A) In general
In the case of 1 or more failures with respect to a qualified beneficiary—
(i) which are not corrected before the date a notice of examination of income tax liability is sent to the employer, and
(ii) which occurred or continued during the period under examination,
the amount of tax imposed by subsection (a) by reason of such failures with respect to such beneficiary shall not be less than the lesser of $2,500 or the amount of tax which would be imposed by subsection (a) without regard to such paragraphs.
(B) Higher minimum tax where violations are more than de minimis
To the extent violations by the employer (or the plan in the case of a multiemployer plan) for any year are more than de minimis, subparagraph (A) shall be applied by substituting "$15,000" for "$2,500" with respect to the employer (or such plan).
(c) Limitations on amount of tax
(1) Tax not to apply where failure not discovered exercising reasonable diligence
No tax shall be imposed by subsection (a) on any failure during any period for which it is established to the satisfaction of the Secretary that none of the persons referred to in subsection (e) knew, or exercising reasonable diligence would have known, that such failure existed.
(2) Tax not to apply to failures corrected within 30 days
No tax shall be imposed by subsection (a) on any failure if—
(A) such failure was due to reasonable cause and not to willful neglect, and
(B) such failure is corrected during the 30-day period beginning on the 1st date any of the persons referred to in subsection (e) knew, or exercising reasonable diligence would have known, that such failure existed.
(3) $100 limit on amount of tax for failures on any day with respect to a qualified beneficiary
(A) In general
Except as provided in subparagraph (B), the maximum amount of tax imposed by subsection (a) on failures on any day during the noncompliance period with respect to a qualified beneficiary shall be $100.
(B) Special rule where more than 1 qualified beneficiary
If there is more than 1 qualified beneficiary with respect to the same qualifying event, the maximum amount of tax imposed by subsection (a) on all failures on any day during the noncompliance period with respect to such qualified beneficiaries shall be $200.
(4) Overall limitation for unintentional failures
In the case of failures which are due to reasonable cause and not to willful neglect—
(A) Single employer plans
(i) In general
In the case of failures with respect to plans other than multiemployer plans, the tax imposed by subsection (a) for failures during the taxable year of the employer shall not exceed the amount equal to the lesser of—
(I) 10 percent of the aggregate amount paid or incurred by the employer (or predecessor employer) during the preceding taxable year for group health plans, or
(II) $500,000.
(ii) Taxable years in the case of certain controlled groups
For purposes of this subparagraph, if not all persons who are treated as a single employer for purposes of this section have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561.
(B) Multiemployer plans
(i) In general
In the case of failures with respect to a multiemployer plan, the tax imposed by subsection (a) for failures during the taxable year of the trust forming part of such plan shall not exceed the amount equal to the lesser of—
(I) 10 percent of the amount paid or incurred by such trust during such taxable year to provide medical care (as defined in section 213(d)) directly or through insurance, reimbursement, or otherwise, or
(II) $500,000.
For purposes of the preceding sentence, all plans of which the same trust forms a part shall be treated as 1 plan.
(ii) Special rule for employers required to pay tax
If an employer is assessed a tax imposed by subsection (a) by reason of a failure with respect to a multiemployer plan, the limit shall be determined under subparagraph (A) (and not under this subparagraph) and as if such plan were not a multiemployer plan.
(C) Special rule for persons providing benefits
In the case of a person described in subsection (e)(1)(B) (and not subsection (e)(1)(A)), the aggregate amount of tax imposed by subsection (a) for failures during a taxable year with respect to all plans shall not exceed $2,000,000.
(5) Waiver by Secretary
In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive relative to the failure involved.
(d) Tax not to apply to certain plans
This section shall not apply to—
(1) any failure of a group health plan to meet the requirements of subsection (f) with respect to any qualified beneficiary if the qualifying event with respect to such beneficiary occurred during the calendar year immediately following a calendar year during which all employers maintaining such plan normally employed fewer than 20 employees on a typical business day,
(2) any governmental plan (within the meaning of section 414(d)), or
(3) any church plan (within the meaning of section 414(e)).
(e) Liability for tax
(1) In general
Except as otherwise provided in this subsection, the following shall be liable for the tax imposed by subsection (a) on a failure:
(A)(i) In the case of a plan other than a multiemployer plan, the employer.
(ii) In the case of a multiemployer plan, the plan.
(B) Each person who is responsible (other than in a capacity as an employee) for administering or providing benefits under the plan and whose act or failure to act caused (in whole or in part) the failure.
(2) Special rules for persons described in paragraph (1)(B)
(A) No liability unless written agreement
Except in the case of liability resulting from the application of subparagraph (B) of this paragraph, a person described in subparagraph (B) (and not in subparagraph (A)) of paragraph (1) shall be liable for the tax imposed by subsection (a) on any failure only if such person assumed (under a legally enforceable written agreement) responsibility for the performance of the act to which the failure relates.
(B) Failure to cover qualified beneficiaries where current employees are covered
A person shall be treated as described in paragraph (1)(B) with respect to a qualified beneficiary if—
(i) such person provides coverage under a group health plan for any similarly situated beneficiary under the plan with respect to whom a qualifying event has not occurred, and
(ii) the—
(I) employer or plan administrator, or
(II) in the case of a qualifying event described in subparagraph (C) or (E) of subsection (f)(3) where the person described in clause (i) is the plan administrator, the qualified beneficiary,
submits to such person a written request that such person make available to such qualified beneficiary the same coverage which such person provides to the beneficiary referred to in clause (i).
(f) Continuation coverage requirements of group health plans
(1) In general
A group health plan meets the requirements of this subsection only if the coverage of the costs of pediatric vaccines (as defined under section 2162 of the Public Health Service Act) 1 is not reduced below the coverage provided by the plan as of May 1, 1993, and only if each qualified beneficiary who would lose coverage under the plan as a result of a qualifying event is entitled to elect, within the election period, continuation coverage under the plan.
(2) Continuation coverage
For purposes of paragraph (1), the term "continuation coverage" means coverage under the plan which meets the following requirements:
(A) Type of benefit coverage
The coverage must consist of coverage which, as of the time the coverage is being provided, is identical to the coverage provided under the plan to similarly situated beneficiaries under the plan with respect to whom a qualifying event has not occurred. If coverage under the plan is modified for any group of similarly situated beneficiaries, the coverage shall also be modified in the same manner for all individuals who are qualified beneficiaries under the plan pursuant to this subsection in connection with such group.
(B) Period of coverage
The coverage must extend for at least the period beginning on the date of the qualifying event and ending not earlier than the earliest of the following:
(i) Maximum required period
(I) General rule for terminations and reduced hours
In the case of a qualifying event described in paragraph (3)(B), except as provided in subclause (II), the date which is 18 months after the date of the qualifying event.
(II) Special rule for multiple qualifying events
If a qualifying event (other than a qualifying event described in paragraph (3)(F)) occurs during the 18 months after the date of a qualifying event described in paragraph (3)(B), the date which is 36 months after the date of the qualifying event described in paragraph (3)(B).
(III) Special rule for certain bankruptcy proceedings
In the case of a qualifying event described in paragraph (3)(F) (relating to bankruptcy proceedings), the date of the death of the covered employee or qualified beneficiary (described in subsection (g)(1)(D)(iii)), or in the case of the surviving spouse or dependent children of the covered employee, 36 months after the date of the death of the covered employee.
(IV) General rule for other qualifying events
In the case of a qualifying event not described in paragraph (3)(B) or (3)(F), the date which is 36 months after the date of the qualifying event.
(V) Medicare entitlement followed by qualifying event
In the case of a qualifying event described in paragraph (3)(B) that occurs less than 18 months after the date the covered employee became entitled to benefits under title XVIII of the Social Security Act, the period of coverage for qualified beneficiaries other than the covered employee shall not terminate under this clause before the close of the 36-month period beginning on the date the covered employee became so entitled.
In the case of a qualified beneficiary who is determined, under title II or XVI of the Social Security Act, to have been disabled at any time during the first 60 days of continuation coverage under this section, any reference in subclause (I) or (II) to 18 months is deemed a reference to 29 months (with respect to all qualified beneficiaries), but only if the qualified beneficiary has provided notice of such determination under paragraph (6)(C) before the end of such 18 months.
(ii) End of plan
The date on which the employer ceases to provide any group health plan to any employee.
(iii) Failure to pay premium
The date on which coverage ceases under the plan by reason of a failure to make timely payment of any premium required under the plan with respect to the qualified beneficiary. The payment of any premium (other than any payment referred to in the last sentence of subparagraph (C)) shall be considered to be timely if made within 30 days after the date due or within such longer period as applies to or under the plan.
(iv) Group health plan coverage or medicare entitlement
The date on which the qualified beneficiary first becomes, after the date of the election—
(I) covered under any other group health plan (as an employee or otherwise) which does not contain any exclusion or limitation with respect to any preexisting condition of such beneficiary (other than such an exclusion or limitation which does not apply to (or is satisfied by) such beneficiary by reason of
(II) in the case of a qualified beneficiary other than a qualified beneficiary described in subsection (g)(1)(D) entitled to benefits under title XVIII of the Social Security Act.
(v) Termination of extended coverage for disability
In the case of a qualified beneficiary who is disabled at any time during the first 60 days of continuation coverage under this section, the month that begins more than 30 days after the date of the final determination under title II or XVI of the Social Security Act that the qualified beneficiary is no longer disabled.
(C) Premium requirements
The plan may require payment of a premium for any period of continuation coverage, except that such premium—
(i) shall not exceed 102 percent of the applicable premium for such period, and
(ii) may, at the election of the payor, be made in monthly installments.
In no event may the plan require the payment of any premium before the day which is 45 days after the day on which the qualified beneficiary made the initial election for continuation coverage. In the case of an individual described in the last sentence of subparagraph (B)(i), any reference in clause (i) of this subparagraph to "102 percent" is deemed a reference to "150 percent" for any month after the 18th month of continuation coverage described in subclause (I) or (II) of subparagraph (B)(i).
(D) No requirement of insurability
The coverage may not be conditioned upon, or discriminate on the basis of lack of, evidence of insurability.
(E) Conversion option
In the case of a qualified beneficiary whose period of continuation coverage expires under subparagraph (B)(i), the plan must, during the 180-day period ending on such expiration date, provide to the qualified beneficiary the option of enrollment under a conversion health plan otherwise generally available under the plan.
(3) Qualifying event
For purposes of this subsection, the term "qualifying event" means, with respect to any covered employee, any of the following events which, but for the continuation coverage required under this subsection, would result in the loss of coverage of a qualified beneficiary—
(A) The death of the covered employee.
(B) The termination (other than by reason of such employee's gross misconduct), or reduction of hours, of the covered employee's employment.
(C) The divorce or legal separation of the covered employee from the employee's spouse.
(D) The covered employee becoming entitled to benefits under title XVIII of the Social Security Act.
(E) A dependent child ceasing to be a dependent child under the generally applicable requirements of the plan.
(F) A proceeding in a case under
In the case of an event described in subparagraph (F), a loss of coverage includes a substantial elimination of coverage with respect to a qualified beneficiary described in subsection (g)(1)(D) within one year before or after the date of commencement of the proceeding.
(4) Applicable premium
For purposes of this subsection—
(A) In general
The term "applicable premium" means, with respect to any period of continuation coverage of qualified beneficiaries, the cost to the plan for such period of the coverage for similarly situated beneficiaries with respect to whom a qualifying event has not occurred (without regard to whether such cost is paid by the employer or employee).
(B) Special rule for self-insured plans
To the extent that a plan is a self-insured plan—
(i) In general
Except as provided in clause (ii), the applicable premium for any period of continuation coverage of qualified beneficiaries shall be equal to a reasonable estimate of the cost of providing coverage for such period for similarly situated beneficiaries which—
(I) is determined on an actuarial basis, and
(II) takes into account such factors as the Secretary may prescribe in regulations.
(ii) Determination on basis of past cost
If a plan administrator elects to have this clause apply, the applicable premium for any period of continuation coverage of qualified beneficiaries shall be equal to—
(I) the cost to the plan for similarly situated beneficiaries for the same period occurring during the preceding determination period under subparagraph (C), adjusted by
(II) the percentage increase or decrease in the implicit price deflator of the gross national product (calculated by the Department of Commerce and published in the Survey of Current Business) for the 12-month period ending on the last day of the sixth month of such preceding determination period.
(iii) Clause (ii) not to apply where significant change
A plan administrator may not elect to have clause (ii) apply in any case in which there is any significant difference between the determination period and the preceding determination period, in coverage under, or in employees covered by, the plan. The determination under the preceding sentence for any determination period shall be made at the same time as the determination under subparagraph (C).
(C) Determination period
The determination of any applicable premium shall be made for a period of 12 months and shall be made before the beginning of such period.
(5) Election
For purposes of this subsection—
(A) Election period
The term "election period" means the period which—
(i) begins not later than the date on which coverage terminates under the plan by reason of a qualifying event,
(ii) is of at least 60 days' duration, and
(iii) ends not earlier than 60 days after the later of—
(I) the date described in clause (i), or
(II) in the case of any qualified beneficiary who receives notice under paragraph (6)(D), the date of such notice.
(B) Effect of election on other beneficiaries
Except as otherwise specified in an election, any election of continuation coverage by a qualified beneficiary described in subparagraph (A)(i) or (B) of subsection (g)(1) shall be deemed to include an election of continuation coverage on behalf of any other qualified beneficiary who would lose coverage under the plan by reason of the qualifying event. If there is a choice among types of coverage under the plan, each qualified beneficiary is entitled to make a separate selection among such types of coverage.
(6) Notice requirement
In accordance with regulations prescribed by the Secretary—
(A) The group health plan shall provide, at the time of commencement of coverage under the plan, written notice to each covered employee and spouse of the employee (if any) of the rights provided under this subsection.
(B) The employer of an employee under a plan must notify the plan administrator of a qualifying event described in subparagraph (A), (B), (D), or (F) of paragraph (3) with respect to such employee within 30 days (or, in the case of a group health plan which is a multiemployer plan, such longer period of time as may be provided in the terms of the plan) of the date of the qualifying event.
(C) Each covered employee or qualified beneficiary is responsible for notifying the plan administrator of the occurrence of any qualifying event described in subparagraph (C) or (E) of paragraph (3) within 60 days after the date of the qualifying event and each qualified beneficiary who is determined, under title II or XVI of the Social Security Act, to have been disabled at any time during the first 60 days of continuation coverage under this section is responsible for notifying the plan administrator of such determination within 60 days after the date of the determination and for notifying the plan administrator within 30 days of the date of any final determination under such title or titles that the qualified beneficiary is no longer disabled.
(D) The plan administrator shall notify—
(i) in the case of a qualifying event described in subparagraph (A), (B), (D), or (F) of paragraph (3), any qualified beneficiary with respect to such event, and
(ii) in the case of a qualifying event described in subparagraph (C) or (E) of paragraph (3) where the covered employee notifies the plan administrator under subparagraph (C), any qualified beneficiary with respect to such event,
of such beneficiary's rights under this subsection.
The requirements of subparagraph (B) shall be considered satisfied in the case of a multiemployer plan in connection with a qualifying event described in paragraph (3)(B) if the plan provides that the determination of the occurrence of such qualifying event will be made by the plan administrator. For purposes of subparagraph (D), any notification shall be made within 14 days (or, in the case of a group health plan which is a multiemployer plan, such longer period of time as may be provided in the terms of the plan) of the date on which the plan administrator is notified under subparagraph (B) or (C), whichever is applicable, and any such notification to an individual who is a qualified beneficiary as the spouse of the covered employee shall be treated as notification to all other qualified beneficiaries residing with such spouse at the time such notification is made.
(7) Covered employee
For purposes of this subsection, the term "covered employee" means an individual who is (or was) provided coverage under a group health plan by virtue of the performance of services by the individual for 1 or more persons maintaining the plan (including as an employee defined in section 401(c)(1)).
(8) Optional extension of required periods
A group health plan shall not be treated as failing to meet the requirements of this subsection solely because the plan provides both—
(A) that the period of extended coverage referred to in paragraph (2)(B) commences with the date of the loss of coverage, and
(B) that the applicable notice period provided under paragraph (6)(B) commences with the date of the loss of coverage.
(g) Definitions
For purposes of this section—
(1) Qualified beneficiary
(A) In general
The term "qualified beneficiary" means, with respect to a covered employee under a group health plan, any other individual who, on the day before the qualifying event for that employee, is a beneficiary under the plan—
(i) as the spouse of the covered employee, or
(ii) as the dependent child of the employee.
Such term shall also include a child who is born to or placed for adoption with the covered employee during the period of continuation coverage under this section.
(B) Special rule for terminations and reduced employment
In the case of a qualifying event described in subsection (f)(3)(B), the term "qualified beneficiary" includes the covered employee.
(C) Exception for nonresident aliens
Notwithstanding subparagraphs (A) and (B), the term "qualified beneficiary" does not include an individual whose status as a covered employee is attributable to a period in which such individual was a nonresident alien who received no earned income (within the meaning of section 911(d)(2)) from the employer which constituted income from sources within the United States (within the meaning of section 861(a)(3)). If an individual is not a qualified beneficiary pursuant to the previous sentence, a spouse or dependent child of such individual shall not be considered a qualified beneficiary by virtue of the relationship of the individual.
(D) Special rule for retirees and widows
In the case of a qualifying event described in subsection (f)(3)(F), the term "qualified beneficiary" includes a covered employee who had retired on or before the date of substantial elimination of coverage and any other individual who, on the day before such qualifying event, is a beneficiary under the plan—
(i) as the spouse of the covered employee,
(ii) as the dependent child of the covered employee, or
(iii) as the surviving spouse of the covered employee.
(2) Group health plan
The term "group health plan" has the meaning given such term by section 5000(b)(1). Such term shall not include any plan substantially all of the coverage under which is for qualified long-term care services (as defined in section 7702B(c)).
(3) Plan administrator
The term "plan administrator" has the meaning given the term "administrator" by section 3(16)(A) of the Employee Retirement Income Security Act of 1974.
(4) Correction
A failure of a group health plan to meet the requirements of subsection (f) with respect to any qualified beneficiary shall be treated as corrected if—
(A) such failure is retroactively undone to the extent possible, and
(B) the qualified beneficiary is placed in a financial position which is as good as such beneficiary would have been in had such failure not occurred.
For purposes of applying subparagraph (B), the qualified beneficiary shall be treated as if he had elected the most favorable coverage in light of the expenses he incurred since the failure first occurred.
(Added
References in Text
The Public Health Service Act, referred to in subsec. (f)(1), does not contain a section 2162. The reference probably should be to section 1928 of the Social Security Act, which is classified to
The Social Security Act, referred to in subsec. (f)(2)(B)(i)(IV), (V), (iv)(II), (v), (3)(D), (6)(C), is act Aug. 14, 1935, ch. 531,
The Employee Retirement Income Security Act of 1974, referred to in subsecs. (f)(2)(B)(iv)(I) and (g)(3), is
The Public Health Service Act, referred to in subsec. (f)(2)(B)(iv)(I), is act July 1, 1944, ch. 373,
Amendments
1996—Subsec. (f)(2)(B)(i).
Subsec. (f)(2)(B)(i)(V).
Subsec. (f)(2)(B)(iv)(I).
Subsec. (f)(2)(B)(v).
Subsec. (f)(6)(C).
Subsec. (g)(1)(A).
Subsec. (g)(2).
1993—Subsec. (f)(1).
1990—Subsec. (d)(1).
1989—Subsec. (f)(2)(B)(i).
Subsec. (f)(2)(B)(i)(V).
Subsec. (f)(2)(B)(iv).
Subsec. (f)(2)(B)(v).
Subsec. (f)(2)(C).
Subsec. (f)(6).
Subsec. (f)(6)(B).
Subsec. (f)(6)(C).
Subsec. (f)(7).
Subsec. (f)(8).
Subsec. (g)(2).
Effective Date of 1996 Amendments
Amendment by section 321(d)(1) of
Section 421(d) of
Section 1704(g)(2) of
Effective Date of 1993 Amendment
Section 13422(b) of
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by section 6202(b)(3)(B) of
Section 6701(d) of
Section 7862(c)(2)(C) of
Amendment by section 7862(c)(3)(C) of
Section 7862(c)(4)(C) of
Section 7862(c)(5)(C) of
Section 7891(d)(1)(C) of
Section 7891(d)(2)(C) of
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1988, but not applicable to any plan for any plan year to which
Notification of Changes in Continuation Coverage
Section 421(e) of
Section Referred to in Other Sections
This section is referred to in
1 See References in Text note below.
§4980C. Requirements for issuers of qualified long-term care insurance contracts
(a) General rule
There is hereby imposed on any person failing to meet the requirements of subsection (c) or (d) a tax in the amount determined under subsection (b).
(b) Amount
(1) In general
The amount of the tax imposed by subsection (a) shall be $100 per insured for each day any requirement of subsection (c) or (d) is not met with respect to each qualified long-term care insurance contract.
(2) Waiver
In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that payment of the tax would be excessive relative to the failure involved.
(c) Responsibilities
The requirements of this subsection are as follows:
(1) Requirements of model provisions
(A) Model regulation
The following requirements of the model regulation must be met:
(i) Section 13 (relating to application forms and replacement coverage).
(ii) Section 14 (relating to reporting requirements), except that the issuer shall also report at least annually the number of claims denied during the reporting period for each class of business (expressed as a percentage of claims denied), other than claims denied for failure to meet the waiting period or because of any applicable preexisting condition.
(iii) Section 20 (relating to filing requirements for marketing).
(iv) Section 21 (relating to standards for marketing), including inaccurate completion of medical histories, other than sections 21C(1) and 21C(6) thereof, except that—
(I) in addition to such requirements, no person shall, in selling or offering to sell a qualified long-term care insurance contract, misrepresent a material fact; and
(II) no such requirements shall include a requirement to inquire or identify whether a prospective applicant or enrollee for long-term care insurance has accident and sickness insurance.
(v) Section 22 (relating to appropriateness of recommended purchase).
(vi) Section 24 (relating to standard format outline of coverage).
(vii) Section 25 (relating to requirement to deliver shopper's guide).
(B) Model Act
The following requirements of the model Act must be met:
(i) Section 6F (relating to right to return), except that such section shall also apply to denials of applications and any refund shall be made within 30 days of the return or denial.
(ii) Section 6G (relating to outline of coverage).
(iii) Section 6H (relating to requirements for certificates under group plans).
(iv) Section 6I (relating to policy summary).
(v) Section 6J (relating to monthly reports on accelerated death benefits).
(vi) Section 7 (relating to incontestability period).
(C) Definitions
For purposes of this paragraph, the terms "model regulation" and "model Act" have the meanings given such terms by section 7702B(g)(2)(B).
(2) Delivery of policy
If an application for a qualified long-term care insurance contract (or for a certificate under such a contract for a group) is approved, the issuer shall deliver to the applicant (or policyholder or certificateholder) the contract (or certificate) of insurance not later than 30 days after the date of the approval.
(3) Information on denials of claims
If a claim under a qualified long-term care insurance contract is denied, the issuer shall, within 60 days of the date of a written request by the policyholder or certificateholder (or representative)—
(A) provide a written explanation of the reasons for the denial, and
(B) make available all information directly relating to such denial.
(d) Disclosure
The requirements of this subsection are met if the issuer of a long-term care insurance policy discloses in such policy and in the outline of coverage required under subsection (c)(1)(B)(ii) that the policy is intended to be a qualified long-term care insurance contract under section 7702B(b).
(e) Qualified long-term care insurance contract defined
For purposes of this section, the term "qualified long-term care insurance contract" has the meaning given such term by section 7702B.
(f) Coordination with State requirements
If a State imposes any requirement which is more stringent than the analogous requirement imposed by this section or section 7702B(g), the requirement imposed by this section or section 7702B(g) shall be treated as met if the more stringent State requirement is met.
(Added
Effective Date
Section 327 of title III of
"(a)
"(b)
Section Referred to in Other Sections
This section is referred to in
§4980D. Failure to meet certain group health plan requirements
(a) General rule
There is hereby imposed a tax on any failure of a group health plan to meet the requirements of
(b) Amount of tax
(1) In general
The amount of the tax imposed by subsection (a) on any failure shall be $100 for each day in the noncompliance period with respect to each individual to whom such failure relates.
(2) Noncompliance period
For purposes of this section, the term "noncompliance period" means, with respect to any failure, the period—
(A) beginning on the date such failure first occurs, and
(B) ending on the date such failure is corrected.
(3) Minimum tax for noncompliance period where failure discovered after notice of examination
Notwithstanding paragraphs (1) and (2) of subsection (c)—
(A) In general
In the case of 1 or more failures with respect to an individual—
(i) which are not corrected before the date a notice of examination of income tax liability is sent to the employer, and
(ii) which occurred or continued during the period under examination,
the amount of tax imposed by subsection (a) by reason of such failures with respect to such individual shall not be less than the lesser of $2,500 or the amount of tax which would be imposed by subsection (a) without regard to such paragraphs.
(B) Higher minimum tax where violations are more than de minimis
To the extent violations for which any person is liable under subsection (e) for any year are more than de minimis, subparagraph (A) shall be applied by substituting "$15,000" for "$2,500" with respect to such person.
(C) Exception for church plans
This paragraph shall not apply to any failure under a church plan (as defined in section 414(e)).
(c) Limitations on amount of tax
(1) Tax not to apply where failure not discovered exercising reasonable diligence
No tax shall be imposed by subsection (a) on any failure during any period for which it is established to the satisfaction of the Secretary that the person otherwise liable for such tax did not know, and exercising reasonable diligence would not have known, that such failure existed.
(2) Tax not to apply to failures corrected within certain periods
No tax shall be imposed by subsection (a) on any failure if—
(A) such failure was due to reasonable cause and not to willful neglect, and
(B)(i) in the case of a plan other than a church plan (as defined in section 414(e)), such failure is corrected during the 30-day period beginning on the first date the person otherwise liable for such tax knew, or exercising reasonable diligence would have known, that such failure existed, and
(ii) in the case of a church plan (as so defined), such failure is corrected before the close of the correction period (determined under the rules of section 414(e)(4)(C)).
(3) Overall limitation for unintentional failures
In the case of failures which are due to reasonable cause and not to willful neglect—
(A) Single employer plans
(i) In general
In the case of failures with respect to plans other than specified multiple employer health plans, the tax imposed by subsection (a) for failures during the taxable year of the employer shall not exceed the amount equal to the lesser of—
(I) 10 percent of the aggregate amount paid or incurred by the employer (or predecessor employer) during the preceding taxable year for group health plans, or
(II) $500,000.
(ii) Taxable years in the case of certain controlled groups
For purposes of this subparagraph, if not all persons who are treated as a single employer for purposes of this section have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561.
(B) Specified multiple employer health plans
(i) In general
In the case of failures with respect to a specified multiple employer health plan, the tax imposed by subsection (a) for failures during the taxable year of the trust forming part of such plan shall not exceed the amount equal to the lesser of—
(I) 10 percent of the amount paid or incurred by such trust during such taxable year to provide medical care (as defined in section 9832(d)(3)) directly or through insurance, reimbursement, or otherwise, or
(II) $500,000.
For purposes of the preceding sentence, all plans of which the same trust forms a part shall be treated as one plan.
(ii) Special rule for employers required to pay tax
If an employer is assessed a tax imposed by subsection (a) by reason of a failure with respect to a specified multiple employer health plan, the limit shall be determined under subparagraph (A) (and not under this subparagraph) and as if such plan were not a specified multiple employer health plan.
(4) Waiver by Secretary
In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive relative to the failure involved.
(d) Tax not to apply to certain insured small employer plans
(1) In general
In the case of a group health plan of a small employer which provides health insurance coverage solely through a contract with a health insurance issuer, no tax shall be imposed by this section on the employer on any failure (other than a failure attributable to section 9811) which is solely because of the health insurance coverage offered by such issuer.
(2) Small employer
(A) In general
For purposes of paragraph (1), the term "small employer" means, with respect to a calendar year and a plan year, an employer who employed an average of at least 2 but not more than 50 employees on business days during the preceding calendar year and who employs at least 2 employees on the first day of the plan year. For purposes of the preceding sentence, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as one employer.
(B) Employers not in existence in preceding year
In the case of an employer which was not in existence throughout the preceding calendar year, the determination of whether such employer is a small employer shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current calendar year.
(C) Predecessors
Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer.
(3) Health insurance coverage; health insurance issuer
For purposes of paragraph (1), the terms "health insurance coverage" and "health insurance issuer" have the respective meanings given such terms by section 9832.
(e) Liability for tax
The following shall be liable for the tax imposed by subsection (a) on a failure:
(1) Except as otherwise provided in this subsection, the employer.
(2) In the case of a multiemployer plan, the plan.
(3) In the case of a failure under section 9803 (relating to guaranteed renewability) with respect to a plan described in subsection (f)(2)(B), the plan.
(f) Definitions
For purposes of this section—
(1) Group health plan
The term "group health plan" has the meaning given such term by section 9832(a).
(2) Specified multiple employer health plan
The term "specified multiple employer health plan" means a group health plan which is—
(A) any multiemployer plan, or
(B) any multiple employer welfare arrangement (as defined in section 3(40) of the Employee Retirement Income Security Act of 1974, as in effect on the date of the enactment of this section).
(3) Correction
A failure of a group health plan shall be treated as corrected if—
(A) such failure is retroactively undone to the extent possible, and
(B) the person to whom the failure relates is placed in a financial position which is as good as such person would have been in had such failure not occurred.
(Added
References in Text
Section 3(40) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (f)(2)(B), is classified to
The date of the enactment of this section, referred to in subsec. (f)(2)(B), is the date of enactment of
Amendments
1997—Subsec. (a).
Subsec. (c)(3)(B)(i)(I).
Subsec. (d)(1).
Subsec. (d)(3).
Subsec. (f)(1).
Effective Date of 1997 Amendment
Section 1531(c) of
Effective Date
Section 402(c) of
Section Referred to in Other Sections
This section is referred to in
§4980E. Failure of employer to make comparable medical savings account 1 contributions
(a) General rule
In the case of an employer who makes a contribution to the Archer MSA of any employee with respect to coverage under a high deductible health plan of the employer during a calendar year, there is hereby imposed a tax on the failure of such employer to meet the requirements of subsection (d) for such calendar year.
(b) Amount of tax
The amount of the tax imposed by subsection (a) on any failure for any calendar year is the amount equal to 35 percent of the aggregate amount contributed by the employer to Archer MSAs of employees for taxable years of such employees ending with or within such calendar year.
(c) Waiver by Secretary
In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive relative to the failure involved.
(d) Employer required to make comparable MSA contributions for all participating employees
(1) In general
An employer meets the requirements of this subsection for any calendar year if the employer makes available comparable contributions to the Archer MSAs of all comparable participating employees for each coverage period during such calendar year.
(2) Comparable contributions
(A) In general
For purposes of paragraph (1), the term "comparable contributions" means contributions—
(i) which are the same amount, or
(ii) which are the same percentage of the annual deductible limit under the high deductible health plan covering the employees.
(B) Part-year employees
In the case of an employee who is employed by the employer for only a portion of the calendar year, a contribution to the Archer MSA of such employee shall be treated as comparable if it is an amount which bears the same ratio to the comparable amount (determined without regard to this subparagraph) as such portion bears to the entire calendar year.
(3) Comparable participating employees
For purposes of paragraph (1), the term "comparable participating employees" means all employees—
(A) who are eligible individuals covered under any high deductible health plan of the employer, and
(B) who have the same category of coverage.
For purposes of subparagraph (B), the categories of coverage are self-only and family coverage.
(4) Part-time employees
(A) In general
Paragraph (3) shall be applied separately with respect to part-time employees and other employees.
(B) Part-time employee
For purposes of subparagraph (A), the term "part-time employee" means any employee who is customarily employed for fewer than 30 hours per week.
(e) Controlled groups
For purposes of this section, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer.
(f) Definitions
Terms used in this section which are also used in section 220 have the respective meanings given such terms in section 220.
(Added
Amendments
2000—Subsec. (a).
Subsecs. (b), (d)(1).
Subsec. (d)(2)(B).
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1996, see section 301(j) of
Section Referred to in Other Sections
This section is referred to in