Pub. Law 93-406 . 148 - September 2, 1974 88 STAT. 976

“(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 Ante, p. 878.

1974.

"(4) STOCKHOLDINGS.–For purposes of paragraphs (2) (E)(i)

and (G)(i) there shall be taken into account indirect stockhold26 USC 267. ings 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) PARTNERSITIPS; 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 Ante, p. 953. 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 or his delegate. “(8) QUALIFYING EMPLOYER SECURITY.—

:-The term 'qualifying employer security means an employer security which is

**(A) stock or otherwise an equity security, or

“(B) a bond, debenture, note, or certificate or other evidence of indebtedness which is described in paragraphs (1),

(2), and (3) of section 503(e). If any moneys or other property of a plan are invested in shares

of an investment company registered under the Investment Com54 Stat. 789. pany Act of 1940, the investment shall not cause that investment 15 USC 80a-51. 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. “(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 September 2, 1974

149

Pub. Law 93-406

88 STAT. 977

а

26 USC 6212.

the date on which the prohibited transaction occurs and ending on the earlier of

“(A) the date of mailing of a notice of deficiency pursuant to section 6212, with respect to the tax imposed by subsection (a), or

“(B) the date on which correction of the prohibited transaction is completed. “(3) SALE OR EXCHANGE; ENCUMBERED PROPERTY.-A transfer of 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 correction 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) CORRECTION PERIOD.—The term 'correction period' means, with respect to a prohibited transaction, the period beginning with the date on which the prohibited transaction occurs and ending 90 days after the date of mailing of a notice of deficiency with respect to the tax imposed by subsection (b) under section 6212, extended by

"(A) any period in which a deficiency cannot be assessed under section 6213(a), and

"(B) any other period which the Secretary or his delegate deterinines is reasonable and necessary to bring about the

correction of the prohibited transaction. "(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.

Ante, p. 874.

Ante, p. 925.

Ante, p. 898.

Pub. Law 93-406

- 150

88 STAT. 978

September 2, 1974

Post, p. 998. 26 USC 503.

26 USC 4975 note.

Ante, p. 935.

“(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 or his delegate 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 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.". (b) AMENDMENT OF SECTION 503.—Section 503 (relating to requirements for exemption) is amended

(1) by striking out “or (18)” in subsection (a)(1)(A),

(2) by amending subsection (a)(1)(B) by inserting "which is referred to in section 4975(g) (2) or (3)” after "described in section 401 (a)”,

(3) by striking out "or section 401" in subsection (a) (2) and inserting in lieu thereof “or paragraph (1)(B)”,

(4) by striking out “or section 401" in subsection (c) and inserting in lieu thereof “or subsection (a)(1)(B)", and

(5) by striking out subsection (g).
(c) EFFECTIVE DATE AND SAVINGS PROVISIONS.-

(1)(A) The amendments made by this section shall take effect on January 1, 1975.

(B) If, before the amendments made by this section take effect, an organization described in section 401(a) of the Internal Revenue Code of 1954 is denied exemption under section 501(a) of such Code by reason of section 503 of such Code, the denial of such exemption shall not apply if the disqualified person elects (in such manner and at such time as the Secretary or his delegate shall by regulations prescribe) to pay, with respect to the prohibited transaction (within the meaning of section 503 (b) or (g)) which resulted in such denial of exemption, a tax in the amount and in the manner provided with respect to the tax imposed under section 4975 of such Code. An election made under this subparagraph. once made, shall be irrevocable. The Secretary of the Treasury or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph.

(2) Section 4975 of the Internal Revenue Code of 1954 (relating to tax on prohibited transactions) shall not apply to

(A) a loan of money or other extension of credit between & 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 reniains at least as favorable to the plan as an arm'slengtii 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, inaking, 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 or 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 fuvorable 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

Ante, p. 971.
Regulations.

September 2, 1974

- 151

Pub. Law 93-406

88 STAT 979

transaction (within the meaning of section 503(b) of such
Code) or the corresponding provisions of prior law;

26 USC 503.
(C) the sale, exchange, or other disposition of property
described in subparagraph (B) between a plan and a disquali-
fied 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
etfect on July 1, 1974 (or pursuant to renewals of such con-
tract), or (ii) if the disqualified person ordinarily and cus-
tomarily 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 provi-
sions 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 provi-
sions 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, and if the plan receives not less than adequate Ante, p. 880.

consideration.
For the purposes of this paragraph, the term “disqualified per-
son" has the meaning provided by section 4975(e) (2) of the Inter-

nal Revenue Code of 1954.
SEC. 2004. LIMITATIONS ON BENEFITS AND CONTRIBUTIONS.
(a) PLAN REQUIREMENTS.-

(1) Section 401 (a) (relating to requirements for qualification) is amended by inserting after paragraph (15) the following new Ante, p. 938. paragraph:

"(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."

Infra. (2) Subpart B of part I of subchapter D of chapter 1 is amended by inserting after section 414 the following new section: Ante, p. 925. "SEC. 415. LIMITATIONS ON BENEFITS AND CONTRIBUTION UNDER

QUALIFIED PLANS. “(a) GENERAL RULE.—

*(1) TRUSTS.-A trust which is a part of a pension, profitsharing, or stock bonus plan shall not constitute a qualified trust under section 401 (a) if

Ante, p. 935. “(A) in the case of a defined benefit plan, the plan provides for the payment of benefits with respect to a participant which exceed the limitation of subsection (b),

“(B) in the case of a defined contribution plan, contributions and other additions under the plan with respect to any

Pub. Law 93-406 • 152 - September 2, 1974 88 STAT. 980

participant for any taxable year exceed the limitation of sub-
section (c), or

"(C) in any case in which an individual is a participant in
both a defined benefit plan and a defined contribution plan
maintained by the employer, the trust has been disqualified

under subsection (g).
“(2) SECTION APPLIES TO CERTAIN ANNUITIES AND ACCOUNTS.-
in the case of -

“(A) an employee annuity plan described in section 403
Ante, p. 969. (a);
Ante, p. 940. “(B) an annuity contract described in section 403(b),

“(C) an individual retirement account described in section Ante, p. 959. 408(a),

“(D) an individual retirement annuity described in sec

tion 408 (b), 26 USC 405.

“(E) a plan described in section 405 (a), or Ante, p. 964.

“(F) a retirement bond described in section 409,
such contract, annuity plan, account, annuity, plan, or bond shall
not be considered to be described in section 403 (a), 403(b), 405 (a),
408(a), 408(b), or 409, as the case may be, unless it satisfies the
requirements of subparagraph (A) or subparagraph (B) of para-
graph (1), whichever is appropriate, and has not been disqualified
under subsection (g). In the case of an annuity contract described
in section 403(b), the preceding sentence shall apply only to the
portion of the annuity contract which exceeds the limitation of
subsection (b) or the limitation of subsection (c), whichever is
appropriate, and the amount of the contribution for such portion
shall reduce the exclusion allowance as provided in section 403

(b) (2).
“(b) LIMITATION FOR DEFINED BENEFIT PLANS.

"(1) IN GENERAL.--Benefits with respect to a participant exceed
the limitation of this subsection if, when expressed as an annual
benefit (within the meaning of paragraph (2)), such annual bene-
fit is greater than the lesser of–

“(A) $75,000, or

"B) 100 percent of the participant's average compensa-
tion for his high 3 years.
“(2) ANNUAL BENEFIT.-

“(A) IN GENERAL.-For purposes of paragraph (1), the
term 'annual benefit' means a benefit payable annually in the
form of a straight life annuity (with no ancillary benefits)
under a plan to which employees do not contribute and under

which no rollover contributions (as defined in sections 402 Ante, pp. 968, (a)(5), 403(a) (4), 408 (d)(3), and 409 (b) (3) (C) are made.

“(B) ADJUSTMENT FOR CERTAIN OTHER FORMS OF BENEFIT.— If the benefit under the plan is payable in any form other than the form described in subparagraph (A), or if the employees contribute to the plan or make rollover contributions (as defined in sections 402(a) (5), 403(a) (4), 408(d) (3) and 409 (b)(3)(C)), the determinations as to whether the limitation described in paragraph (1) has been satisfied shal! be made, in accordance with regulations prescribed by the Secretary or his delegate, by adjusting such benefit so that it is equivalent to the benefit described in subparagraph (A). For purposes of this subparagraph, any ancillary benefit which is not directly related to retirement income benefits shall not be taken into account; and that portion of any joint and survivor annuity which constitutes a qualified joint and