tion (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 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 may not be distributable to participants or other beneficiaries earlier than upon retirement, death, disability, or separation from service, hardship or the attainment of age 591⁄2, and will not be distributable merely by reason of the completion of a stated period of participation or the lapse of a fixed number of years; 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 are nonforfeitable. "(3) APPLICATION OF PARTICIPATION AND DISCRIMINATION STANDARDS.— "(A) A qualified cash or deferred arrangement shall be considered to satisfy the requirements of subsection (a)(4), with respect to the amount of contributions, and of subparagraph (B) of section 410(b)(1) for a plan year if those employees eligible to benefit under the plan satisfy the provisions of subparagraph (A) or (B) of section 410(b)(1) and if the actual deferral percentage for highly compensated employees (as defined in paragraph (4)) for such plan year bears a relationship to the actual deferral percentage for all other eligible employees for such plan year which meets either of the following tests: "(i) The actual deferral percentage for the group of highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 1.5. "(ii) The excess of the actual deferral percentage for the group of highly compensated employees over that of all other eligible employees is not more than 3 percentage points, and the actual deferral percentage for the group of highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 2.5. "(B) For purposes of subparagraph (A), the actual deferral percentage for a specified group of employees for a plan year shall be the average of the ratios (calculated separately for each employee in such group) of— "(i) the amount of employer contributions actually paid over to the trust on behalf of each such employee for such plan year, to "(ii) the employee's compensation for such plan year. For purposes of the preceding sentence, the compensation of any employee for a plan year shall be the amount of his compensation which is taken into account under the plan in calculating the contribution which may be made on his behalf for such plan year. "(4) HIGHLY COMPENSATED EMPLOYEE.-For purposes of this subsection, the term 'highly compensated employee' means any employee who is more highly compensated than two-thirds of all eligible employees, taking into account only compensation which is considered in applying paragraph (3)." (b) TAXABILITY OF BENEFICIARIES.-Subsection: (a) of section 402 is amended by adding at the end thereof the following new paragraph: "(8) CASH OR DEFERRED ARRANGEMENTS.-For purposes of this title, contributions made by an employer on behalf of an employee to a trust which is a part of a qualified cash or deferred arrangement (as defined in section 401(k)(2)) shall not be treated as distributed or made available to the employee nor as contributions made to the trust by the employee merely because the arrangement includes provisions under which the employee has an election whether the contribution will be made to the trust or received by the employee in cash." (c) EFFECTIVE DATE. (1) IN GENERAL.-The amendments made by this section shall apply to plan years beginning after December 31, 1979. (2) TRANSITIONAL RULE.—In the case of cash or deferred arrangements in existence on June 27, 1974 (A) the qualification of the plan and the trust under section 401 of the Internal Revenue Code of 1954; (B) the exemption of the trust under section 501(a) of such Code; (C) the taxable year of inclusion in gross income of the employee of any amount so contributed by the employer to the trust; and (D) the excludability of the interest of the employee in the trust under sections 2039 and 2517 of such Code, shall be determined for plan years beginning before January 1, 1980 in a manner consistent with Revenue Ruling 56-497 (1956-2 C.B. 284), Revenue Ruling 63–180 (1963–2 C.B. 189), and Revenue Ruling 68-89 (1968-1 C.B. 402). PART II-EMPLOYEE STOCK OWNERSHIP PLANS SEC. 141. ESOPS. (a) IN GENERAL.-Subpart A of part I of subchapter D of chapter 1 (relating to general rule for pension, profit-sharing, stock bonus plans, etc.) is amended by adding at the end thereof the following new section: "SEC. 409A. QUALIFICATIONS FOR ESOPS. "(a) ESOP DEFINED.-Except as otherwise provided in this title, for purposes of this title, the term 'ESOP' means a defined contribution plan which "(1) meets the requirements of section 401(a), "(2) is designed to invest primarily in employer securities, and "(3) meets the requirements of subsections (b), (c), (d), (e), (f), (g), and (h) of this section. "(b) REQUIRED ALLOCATION OF EMPLOYER SECURITIES. "(1) IN GENERAL.-A plan meets the requirements of this subsection if— "(A) the plan provides for the allocation for the plan year of all employer securities transferred to it or purchased by it (because of the requirements of section 48(n)(1)(A)) to the accounts of all participants who are entitled to share in such allocation, and "(B) for the plan year the allocation to each participant so entitled is an amount which bears substantially the same proportion to the amount of all such securities allocated to all such participants in the plan for that year as the amount of compensation paid to such participant during that year bears to the compensation paid to all such participants during that year. "(2) COMPENSATION IN EXCESS OF $100,000 DISREGARDED.-For purposes of paragraph (1), compensation of any participant in excess of the first $100,000 per year shall be disregarded. "(3) DETERMINATION OF COMPENSATION.-For purposes of this subsection, the amount of compensation paid to a participant for any period is the amount of such participant's compensation (within the meaning of section 415(c)(3)) for such period. "(4) SUSPENSION OF ALLOCATION IN CERTAIN CASES.—Notwithstanding paragraph (1), the allocation to the account of any participant which is attributable to the basic ESOP credit may be extended over whatever period may be necessary to comply with the requirements of section 415. "(c) PARTICIPANTS MUST HAVE NONFORFEITABLE RIGHTS.—A plan meets the requirements of this subsection only if it provides that each participant has a nonforfeitable right to any employer security allocated to his account. "(d) EMPLOYER SECURITIES MUST STAY IN THE PLAN.-A plan meets the requirements of this subsection only if it provides that no employer security allocated to a participants's account under subsection (b) may be distributed from that account before the end of the 84th month beginning after the month in which the security is allocated to the account. To the extent provided in the plan, the preceding sentence shall not apply in the case of separation from service, death, or disability. "(e) VOTING RIGHTS. "(1) IN GENERAL.-A plan meets the requirements of this subsection if it meets the requirements of paragraph (2) or (3), whichever is applicable. "(2) REQUIREMENTS WHERE EMPLOYER HAS A REGISTRATION-TYPE CLASS OF SECURITIES.-If the employer has a registration-type class of securities, the plan meets the requirements of this paragraph only if each participant in the plan is entitled to direct the plan as to the manner in which employer securities which are entitled to vote and are allocated to the account of such participant are to be voted. "(3) REQUIREMENT FOR OTHER EMPLOYERS.-If the employer does not have a registration-type class of securities, the plan meets the requirements of this paragraph only if each participant in the plan is entitled to direct the plan as to the manner in which voting rights under employer securities which are allocated to the account of such participant are to be exercised with respect to a corporate matter which (by law or charter) must be decided by more than a majority vote of outstanding common shares voted. "(4) REGISTRATION-TYPE CLASS OF SECURITIES DEFINED.-For purposes of this subsection, the term, 'registration-type class of securities' means "(A) a class of securities required to be registered under section 12 of the Securities Exchange Act of 1934, and "(B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g)(2)(H) of such section 12. "(f) PLAN MUST BE ESTABLISHED BEFORE EMPLOYER'S DUE DATE."(1) IN GENERAL.-A plan meets the requirements of this subsection for a plan year only if it is established on or before the due date for the filing of the employer's tax return for the taxable year (including any extensions of such date) in which or with which the plan year ends. "(2) SPECIAL RULE FOR FIRST YEAR.-A plan which otherwise meets the requirements of this section shall not be considered to have failed to meet the requirements of section 401(a) merely because it was not established by the close of the first taxable year of the employer for which an ESOP credit is claimed by the employer. “(g) TRANSFERRED AMOUNTS MUST STAY IN PLAN EVEN THOUGH INVESTMENT CREDIT IS REDETERMINED OR RECAPTURED.-A plan meets the requirement of this subsection only if it provides that amounts which are transferred to the plan (because of the requirements of section 48(n)(1)) shall remain in the plan (and, if allocated under the plan, shall remain so allocated) even though part or all of the ESOP credit is recaptured or redetermined. "(h) RIGHT TO DEMAND EMPLOYER SECURITIES; PUT OPTION. "(1) IN GENERAL.-A plan meets the requirements of this subsection if a participant who is entitled to a distribution from the plan "(A) has a right to demand that his benefits be distributed in the form of employer securities, and "(B) if the employer securities are not readily tradable on an established market, has a right to require that the employer repurchase employer securities under a fair valuation formula. "(2) PLAN MAY DISTRIBUTE CASH IN CERTAIN CASES.-A plan which otherwise meets the requirements of this section shall not be considered to have failed to meet the requirements of section 401(a) merely because under the plan the benefits may be distributed in cash or in the form of employer securities. "(i) REIMBURSEMENT FOR EXPENSES OF ESTABLISHING AND ADMINISTERING PLAN.-A plan which otherwise meets the requirements of this section shall not be treated as failing to meet such requirements merely because it provides that "(1) EXPENSES OF ESTABLISHING PLAN.-As reimbursement for the expenses of establishing the plan, the employer may withhold from amounts due the plan for the taxable year for which the plan is established (or the plan may pay) so much of the amounts paid or incurred in connection with the establishment of the plan as does not exceed the sum of― "(A) 10 percent of the first $100,000 which the employer is required to transfer to the plan for that taxable year under section 48(n)(1), and "(B) 5 percent of any amount so required to be transferred in excess of the first $100,000; and “(2) ADMINISTRATIVE EXPENSES.-As reimbursement for the expenses of administering the plan, the employer may withhold from amounts due the plan (or the plan may pay) so much of the amounts paid or incurred during the taxable year as expenses of "(i) 10 percent of the first $100,000 of the dividends paid to the plan with respect to stock of the employer during the plan year ending with or within the employer's taxable year, and "(ii) 5 percent of the amount of such dividends in excess of $100,000 or "(B) $100,000. "(j) CONDITIONAL CONTRIBUTIONS TO THE PLAN.-A plan which otherwise meets the requirements of this section shall not be treated as failing to satisfy such requirements (or as failing to satisfy the requirements of section 401(a) of this title or of section 403(c)(1) of the Employee Retirement Income Security Act of 1974) merely because of the return of a contribution (or a provision permitting such a return) if "(1) the contribution to the plan is conditioned on a determination by the Secretary that such plan meets the requirements of this section, "(2) the application for a determination described in paragraph (1) is filed with the Secretary not later than 90 days after the date on which an ESOP credit is claimed, and "(3) the contribution is returned within 1 year after the date on which the Secretary issues notice to the employer that such plan does not satisfy the requirements of this section. “(k) REQUIREMENTS RELATING TO CERTAIN WITHDRAWALS.-Notwithstanding any other law or rule of law "(1) the withdrawal from a plan which otherwise meets the requirements of this section by the employer of an amount contributed for purposes of the matching ESOP credit shall not be considered to make the benefits forfeitable, and "(2) the plan shall not, by reason of such withdrawal, fail to be for the exclusive benefit of participants or their beneficiaries, if the withdrawn amounts were not matched by employee contributions or were in excess of the limitations of section 415. Any withdrawal described in the preceding sentence shall not be considered to violate the provisions of section 403(c)(1) of the Employee Retirement Income Security Act of 1974. "(1) EMPLOYER SECURITIES DEFINED.-For purposes of this section "(1) IN GENERAL.-The term 'employer securities' means common stock issued by the employer (or by a corporation which is a member of the same controlled group) which is readily tradable on an established securities market. "(2) SPECIAL RULE WHERE THERE IS NO READILY TRADABLE COMMON STOCK.-If there is no common stock which meets the requirements of paragraph (1), the term 'employer securities' means common stock issued by the employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of "(A) that class of common stock of the employer (or of any other such corporation) having the greatest voting power, and "(B) that class of stock of the employer (or of any other such corporation) having the greatest dividend rights. |