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§ 401. Qualified pension, profit-sharing, and stock bonus plans
(a)
Requirements for qualification
A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section—
(1)
if contributions are made to the trust by such employer, or employees, or both, or by another employer who is entitled to deduct his contributions under section
404
(a)(3)(B) (relating to deduction for contributions to profit-sharing and stock bonus plans), or by a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section
664
(g)(1)), for the purpose of distributing to such employees or their beneficiaries the corpus and income of the fund accumulated by the trust in accordance with such plan;
(2)
if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees or their beneficiaries (but this paragraph shall not be construed, in the case of a multiemployer plan, to prohibit the return of a contribution within 6 months after the plan administrator determines that the contribution was made by a mistake of fact or law (other than a mistake relating to whether the plan is described in section
401
(a) or the trust which is part of such plan is exempt from taxation under section
501
(a), or the return of any withdrawal liability payment determined to be an overpayment within 6 months of such determination).; [1]
(3)
if the plan of which such trust is a part satisfies the requirements of section
410 (relating to minimum participation standards); and
(4)
if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees (within the meaning of section
414
(q)). For purposes of this paragraph, there shall be excluded from consideration employees described in section
410
(b)(3)(A) and (C).
(5)
Special rules relating to nondiscrimination requirements.—
(A)
Salaried or clerical employees.—
A classification shall not be considered discriminatory within the meaning of paragraph (4) or section
410
(b)(2)(A)(i) merely because it is limited to salaried or clerical employees.
(B)
Contributions and benefits may bear uniform relationship to compensation.—
A plan shall not be considered discriminatory within the meaning of paragraph (4) merely because the contributions or benefits of, or on behalf of, the employees under the plan bear a uniform relationship to the compensation (within the meaning of section 414(s)) of such employees.
(C)
Certain disparity permitted.—
A plan shall not be considered discriminatory within the meaning of paragraph (4) merely because the contributions or benefits of, or on behalf of, the employees under the plan favor highly compensated employees (as defined in section
414
(q)) in the manner permitted under subsection (l).
(D)
Integrated defined benefit plan.—
(i)
In general.—
A defined benefit plan shall not be considered discriminatory within the meaning of paragraph (4) merely because the plan provides that the employer-derived accrued retirement benefit for any participant under the plan may not exceed the excess (if any) of—
(II)
the employer-derived retirement benefit created under Federal law attributable to service by the participant with the employer.
For purposes of this clause, the employer-derived retirement benefit created under Federal law shall be treated as accruing ratably over 35 years.
(ii)
Final pay.—
For purposes of this subparagraph, the participant’s final pay is the compensation (as defined in section
414
(q)(4)) paid to the participant by the employer for any year—
(E)
2 or more plans treated as single plan.—
For purposes of determining whether 2 or more plans of an employer satisfy the requirements of paragraph (4) when considered as a single plan—
(i)
Contributions.—
If the amount of contributions on behalf of the employees allowed as a deduction under section
404 for the taxable year with respect to such plans, taken together, bears a uniform relationship to the compensation (within the meaning of section 414(s)) of such employees, the plans shall not be considered discriminatory merely because the rights of employees to, or derived from, the employer contributions under the separate plans do not become nonforfeitable at the same rate.
(ii)
Benefits.—
If the employees’ rights to benefits under the separate plans do not become nonforfeitable at the same rate, but the levels of benefits provided by the separate plans satisfy the requirements of regulations prescribed by the Secretary to take account of the differences in such rates, the plans shall not be considered discriminatory merely because of the difference in such rates.
(6)
A plan shall be considered as meeting the requirements of paragraph (3) during the whole of any taxable year of the plan if on one day in each quarter it satisfied such requirements.
(7)
A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part satisfies the requirements of section
411 (relating to minimum vesting standards).
(8)
A trust forming part of a defined benefit plan shall not constitute a qualified trust under this section unless the plan provides that forfeitures must not be applied to increase the benefits any employee would otherwise receive under the plan.
(9)
Required distributions.—
(A)
In general.—
A trust shall not constitute a qualified trust under this subsection unless the plan provides that the entire interest of each employee—
(ii)
will be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of such employee or over the lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary).
(B)
Required distribution where employee dies before entire interest is distributed.—
(i)
Where distributions have begun under subparagraph (A)(ii).—A trust shall not constitute a qualified trust under this section unless the plan provides that if—
(I)
the distribution of the employee’s interest has begun in accordance with subparagraph (A)(ii), and
the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used under subparagraph (A)(ii) as of the date of his death.
(ii)
5-year rule for other cases.—
A trust shall not constitute a qualified trust under this section unless the plan provides that, if an employee dies before the distribution of the employee’s interest has begun in accordance with subparagraph (A)(ii), the entire interest of the employee will be distributed within 5 years after the death of such employee.
(iii)
Exception to 5-year rule for certain amounts payable over life of beneficiary.—
If—
(I)
any portion of the employee’s interest is payable to (or for the benefit of) a designated beneficiary,
(II)
such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and
(III)
such distributions begin not later than 1 year after the date of the employee’s death or such later date as the Secretary may by regulations prescribe,
for purposes of clause (ii), the portion referred to in subclause (I) shall be treated as distributed on the date on which such distributions begin.
(iv)
Special rule for surviving spouse of employee.—
If the designated beneficiary referred to in clause (iii)(I) is the surviving spouse of the employee—
(C)
Required beginning date.—
For purposes of this paragraph—
(i)
In general.—
The term “required beginning date” means April 1 of the calendar year following the later of—
(ii)
Exception.—
Subclause (II) of clause (i) shall not apply—
(iii)
Actuarial adjustment.—
In the case of an employee to whom clause (i)(II) applies who retires in a calendar year after the calendar year in which the employee attains age 701/2, the employee’s accrued benefit shall be actuarially increased to take into account the period after age 701/2 in which the employee was not receiving any benefits under the plan.
(iv)
Exception for governmental and church plans.—
Clauses (ii) and (iii) shall not apply in the case of a governmental plan or church plan. For purposes of this clause, the term “church plan” means a plan maintained by a church for church employees, and the term “church” means any church (as defined in section
3121
(w)(3)(A)) or qualified church-controlled organization (as defined in section
3121
(w)(3)(B)).
(D)
Life expectancy.—
For purposes of this paragraph, the life expectancy of an employee and the employee’s spouse (other than in the case of a life annuity) may be redetermined but not more frequently than annually.
(E)
Designated beneficiary.—
For purposes of this paragraph, the term “designated beneficiary” means any individual designated as a beneficiary by the employee.
(F)
Treatment of payments to children.—
Under regulations prescribed by the Secretary, for purposes of this paragraph, any amount paid to a child shall be treated as if it had been paid to the surviving spouse if such amount will become payable to the surviving spouse upon such child reaching majority (or other designated event permitted under regulations).
(10)
Other requirements.—
(A)
Plans benefiting owner-employees.—
In the case of any plan which provides contributions or benefits for employees some or all of whom are owner-employees (as defined in subsection (c)(3)), a trust forming part of such plan shall constitute a qualified trust under this section only if the requirements of subsection (d) are also met.
(B)
Top-heavy plans.—
(i)
In general.—
In the case of any top-heavy plan, a trust forming part of such plan shall constitute a qualified trust under this section only if the requirements of section
416 are met.
(11)
Requirement of joint and survivor annuity and preretirement survivor annuity.—
(A)
In general.—
In the case of any plan to which this paragraph applies, except as provided in section
417, a trust forming part of such plan shall not constitute a qualified trust under this section unless—
(B)
Plans to which paragraph applies.—
This paragraph shall apply to—
(iii)
any participant under any other defined contribution plan unless—
(I)
such plan provides that the participant’s nonforfeitable accrued benefit (reduced by any security interest held by the plan by reason of a loan outstanding to such participant) is payable in full, on the death of the participant, to the participant’s surviving spouse (or, if there is no surviving spouse or the surviving spouse consents in the manner required under section
417
(a)(2), to a designated beneficiary),
(III)
with respect to such participant, such plan is not a direct or indirect transferee (in a transfer after December 31, 1984) of a plan which is described in clause (i) or (ii) or to which this clause applied with respect to the participant.
Clause (iii)(III) shall apply only with respect to the transferred assets (and income therefrom) if the plan separately accounts for such assets and any income therefrom.
(C)
Exception for certain ESOP benefits.—
(D)
Special rule where participant and spouse married less than 1 year.—
A plan shall not be treated as failing to meet the requirements of subparagraphs (B)(iii) or (C) merely because the plan provides that benefits will not be payable to the surviving spouse of the participant unless the participant and such spouse had been married throughout the 1-year period ending on the earlier of the participant’s annuity starting date or the date of the participant’s death.
(E)
Exception for plans described in section
404
(c).—This paragraph shall not apply to a plan which the Secretary has determined is a plan described in section
404
(c) (or a continuation thereof) in which participation is substantially limited to individuals who, before January 1, 1976, ceased employment covered by the plan.
(12)
A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan after September 2, 1974, each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had then terminated). The preceding sentence does not apply to any multiemployer plan with respect to any transaction to the extent that participants either before or after the transaction are covered under a multiemployer plan to which title IV of the Employee Retirement Income Security Act of 1974 applies.
(13)
Assignment and alienation.—
(A)
In general.—
A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that benefits provided under the plan may not be assigned or alienated. For purposes of the preceding sentence, there shall not be taken into account any voluntary and revocable assignment of not to exceed 10 percent of any benefit payment made by any participant who is receiving benefits under the plan unless the assignment or alienation is made for purposes of defraying plan administration costs. For purposes of this paragraph a loan made to a participant or beneficiary shall not be treated as an assignment or alienation if such loan is secured by the participant’s accrued nonforfeitable benefit and is exempt from the tax imposed by section
4975 (relating to tax on prohibited transactions) by reason of section
4975
(d)(1). This paragraph shall take effect on January 1, 1976 and shall not apply to assignments which were irrevocable on September 2, 1974.
(B)
Special rules for domestic relations orders.—
Subparagraph (A) shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order, except that subparagraph (A) shall not apply if the order is determined to be a qualified domestic relations order.
(C)
Special rule for certain judgments and settlements.—
Subparagraph (A) shall not apply to any offset of a participant’s benefits provided under a plan against an amount that the participant is ordered or required to pay to the plan if—
(i)
the order or requirement to pay arises—
(II)
under a civil judgment (including a consent order or decree) entered by a court in an action brought in connection with a violation (or alleged violation) of part 4 of subtitle B of title I of the Employee Retirement Income Security Act of 1974, or
(III)
pursuant to a settlement agreement between the Secretary of Labor and the participant, or a settlement agreement between the Pension Benefit Guaranty Corporation and the participant, in connection with a violation (or alleged violation) of part 4 of such subtitle by a fiduciary or any other person,
(ii)
the judgment, order, decree, or settlement agreement expressly provides for the offset of all or part of the amount ordered or required to be paid to the plan against the participant’s benefits provided under the plan, and
(iii)
in a case in which the survivor annuity requirements of section
401
(a)(11) apply with respect to distributions from the plan to the participant, if the participant has a spouse at the time at which the offset is to be made—
(I)
either such spouse has consented in writing to such offset and such consent is witnessed by a notary public or representative of the plan (or it is established to the satisfaction of a plan representative that such consent may not be obtained by reason of circumstances described in section
417
(a)(2)(B)), or an election to waive the right of the spouse to either a qualified joint and survivor annuity or a qualified preretirement survivor annuity is in effect in accordance with the requirements of section
417
(a),
(II)
such spouse is ordered or required in such judgment, order, decree, or settlement to pay an amount to the plan in connection with a violation of part 4 of such subtitle, or
(III)
in such judgment, order, decree, or settlement, such spouse retains the right to receive the survivor annuity under a qualified joint and survivor annuity provided pursuant to section
401
(a)(11)(A)(i) and under a qualified preretirement survivor annuity provided pursuant to section
401
(a)(11)(A)(ii), determined in accordance with subparagraph (D).
(D)
Survivor annuity.—
(i)
In general.—
The survivor annuity described in subparagraph (C)(iii)(III) shall be determined as if—
(ii)
Definition.—
For purposes of this subparagraph, the term “minimum-required qualified joint and survivor annuity” means the qualified joint and survivor annuity which is the actuarial equivalent of the participant’s accrued benefit (within the meaning of section
411
(a)(7)) and under which the survivor annuity is 50 percent of the amount of the annuity which is payable during the joint lives of the participant and the spouse.
(14)
A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that, unless the participant otherwise elects, the payment of benefits under the plan to the participant will begin not later than the 60th day after the latest of the close of the plan year in which—
(A)
the date on which the participant attains the earlier of age 65 or the normal retirement age specified under the plan,
(B)
occurs the 10th anniversary of the year in which the participant commenced participation in the plan, or
In the case of a plan which provides for the payment of an early retirement benefit, a trust forming a part of such plan shall not constitute a qualified trust under this section unless a participant who satisfied the service requirements for such early retirement benefit, but separated from the service (with any nonforfeitable right to an accrued benefit) before satisfying the age requirement for such early retirement benefit, is entitled upon satisfaction of such age requirement to receive a benefit not less than the benefit to which he would be entitled at the normal retirement age, actuarially, reduced under regulations prescribed by the Secretary.
(15)
a [2] trust shall not constitute a qualified trust under this section unless under the plan of which such trust is a part—
(B)
in the case of a participant who is separated from the service and who has nonforfeitable rights to benefits,
such benefits are not decreased by reason of any increase in the benefit levels payable under title II of the Social Security Act or any increase in the wage base under such title II, if such increase takes place after September 2, 1974, or (if later) the earlier of the date of first receipt of such benefits or the date of such separation, as the case may be.
(16)
A trust shall not constitute a qualified trust under this section if the plan of which such trust is a part provides for benefits or contributions which exceed the limitations of section
415.
(17)
Compensation limit.—
(A)
In general.—
A trust shall not constitute a qualified trust under this section unless, under the plan of which such trust is a part, the annual compensation of each employee taken into account under the plan for any year does not exceed $200,000.
(B)
Cost-of-living adjustment.—
The Secretary shall adjust annually the $200,000 amount in subparagraph (A) for increases in the cost-of-living at the same time and in the same manner as adjustments under section
415
(d); except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.
(19)
A trust shall not constitute a qualified trust under this section if under the plan of which such trust is a part any part of a participant’s accrued benefit derived from employer contributions (whether or not otherwise nonforfeitable), is forfeitable solely because of withdrawal by such participant of any amount attributable to the benefit derived from contributions made by such participant. The preceding sentence shall not apply to the accrued benefit of any participant unless, at the time of such withdrawal, such participant has a nonforfeitable right to at least 50 percent of such accrued benefit (as determined under section
411). The first sentence of this paragraph shall not apply to the extent that an accrued benefit is permitted to be forfeited in accordance with section
411
(a)(3)(D)(iii) (relating to proportional forfeitures of benefits accrued before September 2, 1974, in the event of withdrawal of certain mandatory contributions).
(20)
A trust forming part of a pension plan shall not be treated as failing to constitute a qualified trust under this section merely because the pension plan of which such trust is a part makes 1 or more distributions within 1 taxable year to a distributee on account of a termination of the plan of which the trust is a part, or in the case of a profit-sharing or stock bonus plan, a complete discontinuance of contributions under such plan. This paragraph shall not apply to a defined benefit plan unless the employer maintaining such plan files a notice with the Pension Benefit Guaranty Corporation (at the time and in the manner prescribed by the Pension Benefit Guaranty Corporation) notifying the Corporation of such payment or distribution and the Corporation has approved such payment or distribution or, within 90 days after the date on which such notice was filed, has failed to disapprove such payment or distribution. For purposes of this paragraph, rules similar to the rules of section
402
(a)(6)(B) (as in effect before its repeal by section 521 of the Unemployment Compensation Amendments of 1992) shall apply.
(22)
If a defined contribution plan (other than a profit-sharing plan)—
(B)
after acquiring securities of the employer, more than 10 percent of the total assets of the plan are securities of the employer,
any trust forming part of such plan shall not constitute a qualified trust under this section unless the plan meets the requirements of subsection (e) of section
409. The requirements of subsection (e) of section
409 shall not apply to any employees of an employer who are participants in any defined contribution plan established and maintained by such employer if the stock of such employer is not readily tradable on an established market and the trade or business of such employer consists of publishing on a regular basis a newspaper for general circulation. For purposes of the preceding sentence, subsections (b), (c), (m), and (o) of section
414 shall not apply except for determining whether stock of the employer is not readily tradable on an established market.
(23)
A stock bonus plan shall not be treated as meeting the requirements of this section unless such plan meets the requirements of subsections (h) and (o) of section
409, except that in applying section
409
(h) for purposes of this paragraph, the term “employer securities” shall include any securities of the employer held by the plan.
(24)
Any group trust which otherwise meets the requirements of this section shall not be treated as not meeting such requirements on account of the participation or inclusion in such trust of the moneys of any plan or governmental unit described in section
818
(a)(6).
(25)
Requirement that actuarial assumptions be specified.—
A defined benefit plan shall not be treated as providing definitely determinable benefits unless, whenever the amount of any benefit is to be determined on the basis of actuarial assumptions, such assumptions are specified in the plan in a way which precludes employer discretion.
(26)
Additional participation requirements.—
(A)
In general.—
In the case of a trust which is a part of a defined benefit plan, such trust shall not constitute a qualified trust under this subsection unless on each day of the plan year such trust benefits at least the lesser of—
(B)
Treatment of excludable employees.—
(i)
In general.—
A plan may exclude from consideration under this paragraph employees described in paragraphs (3) and (4)(A) of section
410
(b).
(ii)
Separate application for certain excludable employees.—
If employees described in section
410
(b)(4)(B) are covered under a plan which meets the requirements of subparagraph (A) separately with respect to such employees, such employees may be excluded from consideration in determining whether any plan of the employer meets such requirements if—
(I)
the benefits for such employees are provided under the same plan as benefits for other employees,
(C)
Special rule for collective bargaining units.—
Except to the extent provided in regulations, a plan covering only employees described in section
410
(b)(3)(A) may exclude from consideration any employees who are not included in the unit or units in which the covered employees are included.
(D)
Paragraph not to apply to multiemployer plans.—
Except to the extent provided in regulations, this paragraph shall not apply to employees in a multiemployer plan (within the meaning of section
414
(f)) who are covered by collective bargaining agreements.
(E)
Special rule for certain dispositions or acquisitions.—
Rules similar to the rules of section
410
(b)(6)(C) shall apply for purposes of this paragraph.
(F)
Separate lines of business.—
At the election of the employer and with the consent of the Secretary, this paragraph may be applied separately with respect to each separate line of business of the employer. For purposes of this paragraph, the term “separate line of business” has the meaning given such term by section
414
(r) (without regard to paragraph (2)(A) or (7) thereof).
(27)
Determinations as to profit-sharing plans.—
(A)
Contributions need not be based on profits.—
The determination of whether the plan under which any contributions are made is a profit-sharing plan shall be made without regard to current or accumulated profits of the employer and without regard to whether the employer is a tax-exempt organization.
(B)
Plan must designate type.—
In the case of a plan which is intended to be a money purchase pension plan or a profit-sharing plan, a trust forming part of such plan shall not constitute a qualified trust under this subsection unless the plan designates such intent at such time and in such manner as the Secretary may prescribe.
(28)
Additional requirements relating to employee stock ownership plans.—
(A)
In general.—
In the case of a trust which is part of an employee stock ownership plan (within the meaning of section
4975
(e)(7)) or a plan which meets the requirements of section
409
(a), such trust shall not constitute a qualified trust under this section unless such plan meets the requirements of subparagraphs (B) and (C).
(B)
Diversification of investments.—
(i)
In general.—
A plan meets the requirements of this subparagraph if each qualified participant in the plan may elect within 90 days after the close of each plan year in the qualified election period to direct the plan as to the investment of at least 25 percent of the participant’s account in the plan (to the extent such portion exceeds the amount to which a prior election under this subparagraph applies). In the case of the election year in which the participant can make his last election, the preceding sentence shall be applied by substituting “50 percent” for “25 percent”.
(ii)
Method of meeting requirements.—
A plan shall be treated as meeting the requirements of clause (i) if—
(I)
the portion of the participant’s account covered by the election under clause (i) is distributed within 90 days after the period during which the election may be made, or
(II)
the plan offers at least 3 investment options (not inconsistent with regulations prescribed by the Secretary) to each participant making an election under clause (i) and within 90 days after the period during which the election may be made, the plan invests the portion of the participant’s account covered by the election in accordance with such election.
(iii)
Qualified participant.—
For purposes of this subparagraph, the term “qualified participant” means any employee who has completed at least 10 years of participation under the plan and has attained age 55.
(iv)
Qualified election period.—
For purposes of this subparagraph, the term “qualified election period” means the 6-plan-year period beginning with the later of—
For purposes of the preceding sentence, an employer may elect to treat an individual first becoming a qualified participant in the 1st plan year beginning in 1987 as having become a participant in the 1st plan year beginning in 1988.
(C)
Use of independent appraiser.—
A plan meets the requirements of this subparagraph if all valuations of employer securities which are not readily tradable on an established securities market with respect to activities carried on by the plan are by an independent appraiser. For purposes of the preceding sentence, the term “independent appraiser” means any appraiser meeting requirements similar to the requirements of the regulations prescribed under section
170
(a)(1).
(29)
Benefit limitations on plans in at-risk status.—
In the case of a defined benefit plan (other than a multiemployer plan) to which the requirements of section
412 apply, the trust of which the plan is a part shall not constitute a qualified trust under this subsection unless the plan meets the requirements of section
436.
(30)
Limitations on elective deferrals.—
In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section
402
(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section
402
(g)(1)(A) for taxable years beginning in such calendar year.
(31)
Direct transfer of eligible rollover distributions.—
(A)
In general.—
A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that if the distributee of any eligible rollover distribution—
(ii)
specifies the eligible retirement plan to which such distribution is to be paid (in such form and at such time as the plan administrator may prescribe),
such distribution shall be made in the form of a direct trustee-to-trustee transfer to the eligible retirement plan so specified.
(B)
Certain mandatory distributions.—
(i)
In general.—
In case of a trust which is part of an eligible plan, such trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that if—
(II)
the distributee does not make an election under subparagraph (A) and does not elect to receive the distribution directly,
the plan administrator shall make such transfer to an individual retirement plan of a designated trustee or issuer and shall notify the distributee in writing (either separately or as part of the notice under section
402
(f)) that the distribution may be transferred to another individual retirement plan.
(C)
Limitation.—
Subparagraphs (A) and (B) shall apply only to the extent that the eligible rollover distribution would be includible in gross income if not transferred as provided in subparagraph (A) (determined without regard to sections
402
(c),
403
(a)(4),
403
(b)(8), and
457
(e)(16)). The preceding sentence shall not apply to such distribution if the plan to which such distribution is transferred—
(i)
is a qualified trust which is part of a plan which is a defined contribution plan and agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or
(D)
Eligible rollover distribution.—
For purposes of this paragraph, the term “eligible rollover distribution” has the meaning given such term by section
402
(f)(2)(A).
(E)
Eligible retirement plan.—
For purposes of this paragraph, the term “eligible retirement plan” has the meaning given such term by section
402
(c)(8)(B), except that a qualified trust shall be considered an eligible retirement plan only if it is a defined contribution plan, the terms of which permit the acceptance of rollover distributions.
(32)
Treatment of failure to make certain payments if plan has liquidity shortfall.—
(A)
In general.—
A trust forming part of a pension plan to which section section [3] 430(j)(4) applies shall not be treated as failing to constitute a qualified trust under this section merely because such plan ceases to make any payment described in subparagraph (B) during any period that such plan has a liquidity shortfall (as defined in section section [3] 430(j)(4)).
(B)
Payments described.—
A payment is described in this subparagraph if such payment is—
(i)
any payment, in excess of the monthly amount paid under a single life annuity (plus any social security supplements described in the last sentence of section
411
(a)(9)), to a participant or beneficiary whose annuity starting date (as defined in section
417
(f)(2)) occurs during the period referred to in subparagraph (A),
(33)
Prohibition on benefit increases while sponsor is in bankruptcy.—
(A)
In general.—
A trust which is part of a plan to which this paragraph applies shall not constitute a qualified trust under this section if an amendment to such plan is adopted while the employer is a debtor in a case under title 11, United States Code, or similar Federal or State law, if such amendment increases liabilities of the plan by reason of—
with respect to employees of the debtor, and such amendment is effective prior to the effective date of such employer’s plan of reorganization.
(B)
Exceptions.—
This paragraph shall not apply to any plan amendment if—
(i)
the plan, were such amendment to take effect, would have a funding target attainment percentage (as defined in section 430(d)(2)) of 100 percent or more,
(34)
Benefits of missing participants on plan termination.—
In the case of a plan covered by title IV of the Employee Retirement Income Security Act of 1974, a trust forming part of such plan shall not be treated as failing to constitute a qualified trust under this section merely because the pension plan of which such trust is a part, upon its termination, transfers benefits of missing participants to the Pension Benefit Guaranty Corporation in accordance with section 4050 of such Act.
(35)
Diversification requirements for certain defined contribution plans.—
(A)
In general.—
A trust which is part of an applicable defined contribution plan shall not be treated as a qualified trust unless the plan meets the diversification requirements of subparagraphs (B), (C), and (D).
(B)
Employee contributions and elective deferrals invested in employer securities.—
In the case of the portion of an applicable individual’s account attributable to employee contributions and elective deferrals which is invested in employer securities, a plan meets the requirements of this subparagraph if the applicable individual may elect to direct the plan to divest any such securities and to reinvest an equivalent amount in other investment options meeting the requirements of subparagraph (D).
(C)
Employer contributions invested in employer securities.—
In the case of the portion of the account attributable to employer contributions other than elective deferrals which is invested in employer securities, a plan meets the requirements of this subparagraph if each applicable individual who—
may elect to direct the plan to divest any such securities and to reinvest an equivalent amount in other investment options meeting the requirements of subparagraph (D).
(D)
Investment options.—
(i)
In general.—
The requirements of this subparagraph are met if the plan offers not less than 3 investment options, other than employer securities, to which an applicable individual may direct the proceeds from the divestment of employer securities pursuant to this paragraph, each of which is diversified and has materially different risk and return characteristics.
(ii)
Treatment of certain restrictions and conditions.—
(I)
Time for making investment choices.—
A plan shall not be treated as failing to meet the requirements of this subparagraph merely because the plan limits the time for divestment and reinvestment to periodic, reasonable opportunities occurring no less frequently than quarterly.
(II)
Certain restrictions and conditions not allowed.—
Except as provided in regulations, a plan shall not meet the requirements of this subparagraph if the plan imposes restrictions or conditions with respect to the investment of employer securities which are not imposed on the investment of other assets of the plan. This subclause shall not apply to any restrictions or conditions imposed by reason of the application of securities laws.
(E)
Applicable defined contribution plan.—
For purposes of this paragraph—
(i)
In general.—
The term “applicable defined contribution plan” means any defined contribution plan which holds any publicly traded employer securities.
(ii)
Exception for certain esops.—
Such term does not include an employee stock ownership plan if—
(iii)
Exception for one participant plans.—
Such term does not include a one-participant retirement plan.
(iv)
One-participant retirement plan.—
For purposes of clause (iii), the term “one-participant retirement plan” means a retirement plan that—
(I)
on the first day of the plan year covered only one individual (or the individual and the individual’s spouse) and the individual owned 100 percent of the plan sponsor (whether or not incorporated), or covered only one or more partners (or partners and their spouses) in the plan sponsor,
(II)
meets the minimum coverage requirements of section
410
(b) without being combined with any other plan of the business that covers the employees of the business,
(III)
does not provide benefits to anyone except the individual (and the individual’s spouse) or the partners (and their spouses),
(IV)
does not cover a business that is a member of an affiliated service group, a controlled group of corporations, or a group of businesses under common control, and
(V)
does not cover a business that uses the services of leased employees (within the meaning of section
414
(n)).
For purposes of this clause, the term “partner” includes a 2-percent shareholder (as defined in section 1372(b)) of an S corporation.
(F)
Certain plans treated as holding publicly traded employer securities.—
(i)
In general.—
Except as provided in regulations or in clause (ii), a plan holding employer securities which are not publicly traded employer securities shall be treated as holding publicly traded employer securities if any employer corporation, or any member of a controlled group of corporations which includes such employer corporation, has issued a class of stock which is a publicly traded employer security.
(ii)
Exception for certain controlled groups with publicly traded securities.—
Clause (i) shall not apply to a plan if—
(I)
no employer corporation, or parent corporation of an employer corporation, has issued any publicly traded employer security, and
(II)
no employer corporation, or parent corporation of an employer corporation, has issued any special class of stock which grants particular rights to, or bears particular risks for, the holder or issuer with respect to any corporation described in clause (i) which has issued any publicly traded employer security.
(G)
Other definitions.—
For purposes of this paragraph—
(ii)
Elective deferral.—
The term “elective deferral” means an employer contribution described in section
402
(g)(3)(A).
(iii)
Employer security.—
The term “employer security” has the meaning given such term by section 407(d)(1) of the Employee Retirement Income Security Act of 1974.
(iv)
Employee stock ownership plan.—
The term “employee stock ownership plan” has the meaning given such term by section
4975
(e)(7).
(H)
Transition rule for securities attributable to employer contributions.—
(i)
Rules phased in over 3 years.—
(I)
In general.—
In the case of the portion of an account to which subparagraph (C) applies and which consists of employer securities acquired in a plan year beginning before January 1, 2007, subparagraph (C) shall only apply to the applicable percentage of such securities. This subparagraph shall be applied separately with respect to each class of securities.
(36)
Distributions during working retirement.—
A trust forming part of a pension plan shall not be treated as failing to constitute a qualified trust under this section solely because the plan provides that a distribution may be made from such trust to an employee who has attained age 62 and who is not separated from employment at the time of such distribution.
Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall apply only in the case of a plan to which section
411 (relating to minimum vesting standards) applies without regard to subsection (e)(2) of such section.
(b)
Certain retroactive changes in plan
A stock bonus, pension, profit-sharing, or annuity plan shall be considered as satisfying the requirements of subsection (a) for the period beginning with the date on which it was put into effect, or for the period beginning with the earlier of the date on which there was adopted or put into effect any amendment which caused the plan to fail to satisfy such requirements, and ending with the time prescribed by law for filing the return of the employer for his taxable year in which such plan or amendment was adopted (including extensions thereof) or such later time as the Secretary may designate, if all provisions of the plan which are necessary to satisfy such requirements are in effect by the end of such period and have been made effective for all purposes for the whole of such period.
(c)
Definitions and rules relating to self-employed individuals and owner-employees
For purposes of this section—
(1)
Self-employed individual treated as employee
(A)
In general
The term “employee” includes, for any taxable year, an individual who is a self-employed individual for such taxable year.
(B)
Self-employed individual
The term “self-employed individual” means, with respect to any taxable year, an individual who has earned income (as defined in paragraph (2)) for such taxable year. To the extent provided in regulations prescribed by the Secretary, such term also includes, for any taxable year—
(2)
Earned income
(A)
In general
The term “earned income” means the net earnings from self-employment (as defined in section
1402
(a)), but such net earnings shall be determined—
(i)
only with respect to a trade or business in which personal services of the taxpayer are a material income-producing factor,
(iii)
in the case of any individual who is treated as an employee under sections [6] 3121(d)(3)(A), (C), or (D), without regard to paragraph (2) of section
1402
(c),
(iv)
without regard to items which are not included in gross income for purposes of this chapter, and the deductions properly allocable to or chargeable against such items,
For purposes of this subparagraph, section
1402, as in effect for a taxable year ending on December 31, 1962, shall be treated as having been in effect for all taxable years ending before such date. For purposes of this part only (other than sections
419 and
419A), this subparagraph shall be applied as if the term “trade or business” for purposes of section
1402 included service described in section
1402
(c)(6).
(C)
Income from disposition of certain property
For purposes of this section, the term “earned income” includes gains (other than any gain which is treated under any provision of this chapter as gain from the sale or exchange of a capital asset) and net earnings derived from the sale or other disposition of, the transfer of any interest in, or the licensing of the use of property (other than good will) by an individual whose personal efforts created such property.
(3)
Owner-employee
The term “owner-employee” means an employee who—
(B)
in the case of a partnership, is a partner who owns more than 10 percent of either the capital interest or the profits interest in such partnership.
To the extent provided in regulations prescribed by the Secretary, such term also means an individual who has been an owner-employee within the meaning of the preceding sentence.
(4)
Employer
An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each partner who is an employee within the meaning of paragraph (1).
(d)
Contribution limit on owner-employees
A trust forming part of a pension or profit-sharing plan which provides contributions or benefits for employees some or all of whom are owner-employees shall constitute a qualified trust under this section only if, in addition to meeting the requirements of subsection (a), the plan provides that contributions on behalf of any owner-employee may be made only with respect to the earned income of such owner-employee which is derived from the trade or business with respect to which such plan is established.
(f)
Certain custodial accounts and contracts
For purposes of this title, a custodial account, an annuity contract, or a contract (other than a life, health or accident, property, casualty, or liability insurance contract) issued by an insurance company qualified to do business in a State shall be treated as a qualified trust under this section if—
(1)
the custodial account or contract would, except for the fact that it is not a trust, constitute a qualified trust under this section, and
(2)
in the case of a custodial account the assets thereof are held by a bank (as defined in section
408
(n)) or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which he will hold the assets will be consistent with the requirements of this section.
For purposes of this title, in the case of a custodial account or contract treated as a qualified trust under this section by reason of this subsection, the person holding the assets of such account or holding such contract shall be treated as the trustee thereof.
(g)
Annuity defined
For purposes of this section and sections
402,
403, and
404, the term “annuity” includes a face-amount certificate, as defined in section 2(a)(15) of the Investment Company Act of 1940 (15 U.S.C., sec. 80a–2); but does not include any contract or certificate issued after December 31, 1962, which is transferable, if any person other than the trustee of a trust described in section
401
(a) which is exempt from tax under section
501
(a) is the owner of such contract or certificate.
(h)
Medical, etc., benefits for retired employees and their spouses and dependents
Under regulations prescribed by the Secretary, and subject to the provisions of section
420, a pension or annuity plan may provide for the payment of benefits for sickness, accident, hospitalization, and medical expenses of retired employees, their spouses and their dependents, but only if—
(4)
it is impossible, at any time prior to the satisfaction of all liabilities under the plan to provide such benefits, for any part of the corpus or income of such separate account to be (within the taxable year or thereafter) used for, or diverted to, any purpose other than the providing of such benefits,
(5)
notwithstanding the provisions of subsection (a)(2), upon the satisfaction of all liabilities under the plan to provide such benefits, any amount remaining in such separate account must, under the terms of the plan, be returned to the employer, and
(6)
in the case of an employee who is a key employee, a separate account is established and maintained for such benefits payable to such employee (and his spouse and dependents) and such benefits (to the extent attributable to plan years beginning after March 31, 1984, for which the employee is a key employee) are only payable to such employee (and his spouse and dependents) from such separate account.
For purposes of paragraph (6), the term “key employee” means any employee, who at any time during the plan year or any preceding plan year during which contributions were made on behalf of such employee, is or was a key employee as defined in section
416
(i). In no event shall the requirements of paragraph (1) be treated as met if the aggregate actual contributions for medical benefits, when added to actual contributions for life insurance protection under the plan, exceed 25 percent of the total actual contributions to the plan (other than contributions to fund past service credits) after the date on which the account is established.
(i)
Certain union-negotiated pension plans
In the case of a trust forming part of a pension plan which has been determined by the Secretary to constitute a qualified trust under subsection (a) and to be exempt from taxation under section
501
(a) for a period beginning after contributions were first made to or for such trust, if it is shown to the satisfaction of the Secretary that—
(1)
such trust was created pursuant to a collective bargaining agreement between employee representatives and one or more employers,
(2)
any disbursements of contributions, made to or for such trust before the time as of which the Secretary or his delegate determined that the trust constituted a qualified trust, substantially complied with the terms of the trust, and the plan of which the trust is a part, as subsequently qualified, and
(3)
before the time as of which the Secretary determined that the trust constitutes a qualified trust, the contributions to or for such trust were not used in a manner which would jeopardize the interests of its beneficiaries,
then such trust shall be considered as having constituted a qualified trust under subsection (a) and as having been exempt from taxation under section
501
(a) for the period beginning on the date on which contributions were first made to or for such trust and ending on the date such trust first constituted (without regard to this subsection) a qualified trust under subsection (a).
(k)
Cash or deferred arrangements
(1)
General rule
A profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan shall not be considered as not satisfying the requirements of subsection (a) merely because the plan includes a qualified cash or deferred arrangement.
(2)
Qualified cash or deferred arrangement
A qualified cash or deferred arrangement is any arrangement which is part of a profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan which meets the requirements of subsection (a)—
(A)
under which a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash;
(B)
under which amounts held by the trust which are attributable to employer contributions made pursuant to the employee’s election—
(i)
may not be distributable to participants or other beneficiaries earlier than—
(IV)
in the case of contributions to a profit-sharing or stock bonus plan to which section
402
(e)(3) applies, upon hardship of the employee, or
(V)
in the case of a qualified reservist distribution (as defined in section
72
(t)(2)(G)(iii)), the date on which a period referred to in subclause (III) of such section begins, and
(C)
which provides that an employee’s right to his accrued benefit derived from employer contributions made to the trust pursuant to his election is nonforfeitable, and
(D)
which does not require, as a condition of participation in the arrangement, that an employee complete a period of service with the employer (or employers) maintaining the plan extending beyond the period permitted under section
410
(a)(1) (determined without regard to subparagraph (B)(i) thereof).
(3)
Application of participation and discrimination standards
(A)
A cash or deferred arrangement shall not be treated as a qualified cash or deferred arrangement unless—
(i)
those employees eligible to benefit under the arrangement satisfy the provisions of section
410
(b)(1), and
(ii)
the actual deferral percentage for eligible highly compensated employees (as defined in paragraph (5)) for the plan year bears a relationship to the actual deferral percentage for all other eligible employees for the preceding plan year which meets either of the following tests:
(I)
The actual deferral percentage for the group of eligible highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 1.25.
(II)
The excess of the actual deferral percentage for the group of eligible highly compensated employees over that of all other eligible employees is not more than 2 percentage points, and the actual deferral percentage for the group of eligible highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 2.