September 2, 1974 141 Pub. Law 93-406 88 STAT. 969 or to an annuity plan described in section 403 (a) on or before 26 USC 403. and "(C) the amount so transferred consists of the property (other than money) distributed, to the extent that the fair market value of such property does not exceed the amount required to be transferred pursuant to subparagraph (B), then such distributions are not includible in gross income for the year in which paid. For purposes of this title, a transfer described in subparagraph (B) (i) shall be treated as a rollover contribu tion as described in section 408 (d) (3). Subparagraph (B) (ii) Ante, p. 959. does not apply in the case of a transfer to an employees' trust, or annuity plan if any part of the lump sum distribution described in subparagraph (A) is attributable to a trust forming part of a plan under which the employee was an employee within the meaning of section 401 (c) (1) at the time contributions were made on his behalf under the plan." (6) Section 403 (a) (relating to taxation of employee annuities) is amended by adding after paragraph (3) the following new paragraph: "(4) ROLLOVER AMOUNTS.-In the case of an employee annuity described in 403 (a), if— "(A) the balance to the credit of an employee is paid to him in one or more distributions which constitute a lump sum distribution within the meaning of section 402 (e) (4) (A) Ante, p. 953. determined without reference to section 402 (e) (4) (B), "(B)(i) the employee transfers all the property he receives in such distribution to an individual account described in section 408 (a), an individual retirement annuity described in section 408(b) (other than an endowment contract), or a retirement bond described in section 409, on or before the 60th day after the day on which he received such property to the extent the fair market value of such property exceeds the amount referred to in section 402(e) (4) (D) (i), or "(ii) the employee transfers all the property he receives in such distribution to an employees' trust described in section 401(a) which is exempt from tax under section 501(a), or to an annuity plan described in subsection (a) on or before the 60th day after the day on which he received such property to the extent the fair market value of such property exceeds the amount referred to in section 402(e) (4) (D) (i), and "(C) the amount so transferred consists of the property distributed to the extent that the fair market value of such property does not exceed the amount required to be transferred pursuant to subparagraph (B), then such distribution is not includible in gross income for the year in which paid. For purposes of this title, a transfer described in subparagraph (B) (i) shall be treated as a rollover contribution described in section 408 (d) (3). Subparagraph (B) (ii) does not apply in the case of a transfer to an employees' trust, or annuity plan if any part of the lump sum distribution described in subparagraph (A) is attributable to an annuity plan under which the employee was an employee within the meaning of section 401 (c) (1) at the time contributions were made on his behalf under the plan.". 88 STAT. 970 26 USC 3401. Ante, p. 958. 26 USC 6047. Pub. Law 93-406 142 September 2, 1974 (7) Section 3401(a)(12) (relating to exemption from collection of income tax at source on certain wages) is amended by adding at the end thereof the following new subparagraph: "(D) for a payment described in section 219 (a) if, at the time of such payment, it is reasonable to believe that the employee will be entitled to a deduction under such section for payment; or". (8) Section 6047 (relating to information relating to certain trusts and annuity and bond purchase plans) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: "(d) OTHER PROGRAMS.-To the extent provided by regulations prescribed by the Secretary or his delegate, the provisions of this section apply with respect to any payment described in section 219 (a) Ante, p. 959. and to transactions of any trust described in section 408(a) or under an individual retirement annuity described in section 408(b).”. Pension plan reserves. (9) Section 805 (d) (i) (relating to definition of pension plan reserves) is amended by striking out "or" at the end of subparagraph (C), by striking out "foregoing." at the end of subparagraph (D) and inserting in lieu thereof "foregoing; or", and by adding at the end thereof the following new subparagraph: "(E) purchased under contracts entered into with trusts which (at the time the contracts were entered into) were individual retirement accounts described in section 408(a) or under contracts entered into with individual retirement annuities described in section 408 (b).” (10) Section 72 (relating to annuities) is amended— (A) by inserting after “501 (a)" in subsection (m) (4) (A) 66 an individual retirement amount described in section 408(a), an individual retirement annuity described in section 408 (b)". (B) by striking out at the end of subsection (m) (6) “401 (c) (3)" and inserting in lieu thereof "401 (c) (3) and includes an individual for whose benefit an individual retirement account or annuity described in section 408 (a) or (b) is maintained". (11) Section 801(g) (7) (relating to basis of assets held for qualified pension plan contracts) is amended by striking out "or (D)" and inserting in lieu thereof “(D), or (E)”. (h) CLERICAL AMENDMENTS.- (1) The table of sections for part VII of subchapter B of chapter 1 is amended by striking out the item relating to section 219 and inserting in lieu thereof the following: "Sec. 219. Retirement savings, (2) The table of sections for subpart A of part I of subchapter D of chapter 1 is amended by adding at the end thereof the following: "Sec. 408. Individual retirement accounts. "Sec. 409. Retirement bonds.". (3) The table of sections for chapter 43 is amended by inserting after the item relating to section 4972 the following new items: "Sec. 4973. Tax on excess contributions to individual retirement accounts, certain 403(b) contracts, certain individual retirement annuities, and certain retirement bonds. "Sec. 4974. Tax on certain accumulations in individual retirement accounts. "Sec. 4975. Tax on prohibited transactions.". (4) The table of sections for subchapter B of chapter 68 is amended by adding at the end thereof the following new item: "Sec. 6693. Failure to provide reports on individual retirement accounts or annuities.". (i) EFFECTIVE DATES.— (1) The amendments made by subsections (a), (b), and (c) apply to taxable years beginning after December 31, 1974. (2) The amendments made by subsections (d) through (h) except subsection (g)(5) and (6) shall take effect on January 1, 1975. (3) The amendments made by subsection (g)(5) and (6) shall apply on and after the date of enactment of this Act with respect to contributions to an employees' trust described in section 401(a) of the Internal Revenue Code of 1954 which is exempt from tax under section 501 (a) of such Code or an annuity plan described in section 403 (a) of such Code. SEC. 2003. PROHIBITED TRANSACTIONS. (a) EXCISE TAX ON PROHIBITED TRANSACTIONS.-Chapter 43 (relat- Ante, p. 967. ing to qualified pension, etc., plans) is amended by adding after section 4974 the following new section: "SEC. 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 5 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 correction period, there is hereby imposed a tax equal to 100 percent of the amount involved. The tax imposed by this subsection shall be paid by any 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 pian in his own interest or for his own account; or "(F) receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan. "(2) SPECIAL EXEMPTION.-The Secretary or his delegate shall establish an exemption procedure for purposes of this subsection. Pursuant to such procedure, he may grant a conditional or unconditional exemption of any disqualified person or transaction, 88 STAT. 972 Exemption. Notice, publication in Federal Register. Ante, p. 883. Pub. Law 93-406 144 September 2, 1974 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 or his delegate may not grant an exemption under this paragraph unless he finds that such exemption is (A) administratively feasible, "(B) in the interests of the plan and of its participants and beneficiaries, and "(C) protective of the rights of participants and beneficiaries of the plan. Before granting an exemption under this paragraph, the Secretary or his delegate shall require adequate notice to be given to interested persons and shall publish notice in the Federal Register of the pendency of such exemption and shall afford interested 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 or his delegate 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 or his delegate 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 for 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. "(d) EXEMPTIONS. The prohibitions provided in subsection (c) shall not apply to "(1) any loan made by the plan to a disqualified person who is a participant or beneficiary of the plan if such loan "(A) is available to all such participants or beneficiaries on a reasonably equivalent basis, "(B) is not made available to highly compensated employees, officers, or shareholders 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 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)); September 2, 1974 - 145 Pub. Law 93-406 "(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 or his delegate 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 or his delegate, 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 88 STAT. 973 75-623 74 pt. 1 26 |