September 2, 1974 - 155 Pub. Law 93-406 "(D) (i) The provisions of this paragraph apply only if the participant elects its application at the time and in the manner provided under regulations prescribed by the Secretary or his delegate. Not more than one election may be made under subparagraph (A) by any participant. A participant who elects to have the provisions of subparagraph (A), (B), or (C) of this paragraph apply to him may not elect to have any other subparagraph of this paragraph apply to him. Any election made under this paragraph is irrevocable. "(ii) For purposes of this paragraph the term 'educational institution' means an educational institution as defined in section 151 (e) (4). "(iii) For purposes of this paragraph the term 'home "(A) the $75,000 amount in subsection (b) (1) (A), for increases in the cost of living in accordance with regulations “(2) BASE PERIODS.—The base period taken into account— "(A) for purposes of subparagraphs (A) and (B) of paragraph (1) is the calendar quarter beginning October 1, 1974, and "(B) for purposes of subparagraph (C) of paragraph (1) is the last calendar quarter of the calendar year before the calendar year in which the participant is separated from service. "(e) LIMITATION IN CASE OF DEFINED BENEFIT PLAN AND DEFINED CONTRIBUTION PLAN FOR SAME EMPLOYEE.— “(1) IN GENERAL.-In any case in which an individual is a participant in both a defined benefit plan and a defined contribution plan maintained by the same employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any year may not exceed 1.4. "(2) DEFINED BENEFIT PLAN FRACTION.-For purposes of this subsection, the defined benefit plan fraction for any year is a fraction "(A) the numerator of which is the projected annual benefit of the participant under the plan (determined as of the close of the year), and "(B) the denominator of which is the projected annual benefit of the participant under the plan (determined as of the close of the year) if the plan provided the maximum benefit allowable under subsection (b). "(3) DEFINED CONTRIBUTION PLAN FRACTION.-For purposes of this subsection, the defined contribution plan fraction for any year is a fraction 88 STAT. 983 "Educational institution." 79 Stat. 313; 86 Stat. 1413. 42 USC 1395x. 42 USC 415. 88 STAT. 984 26 USC 403. Ante, p. 959. Ante, p. 925. Pub. Law 93-406 - 156 September 2, 1974 "(A) the numerator of which is the sum of the annual additions to the participant's account as of the close of the year, and "(B) the denominator of which is the sum of the maximum amount of annual additions to such account which could have been made under subsection (c) for such year and for each prior year of service with the employer. "(4) SPECIAL TRANSITION RULES FOR DEFINED CONTRIBUTION FRACTION. In applying paragraph (3) with respect to years beginning before January 1, 1976– "(A) the aggregate amount taken into account under paragraph (3) (A) may not exceed the aggregate amount taken into account under paragraph (3) (B), and "(B) the amount taken into account under subsection (c) (2)(B) (i) for any year concerned is an amount equal to "(i) the excess of the aggregate amount of employee contributions for all years beginning before January 1, 1976, during which the employee was an active partici pant of the plan, over 10 percent of the employee's aggregate compensation for all such years, multiplied by "(ii) a fraction the numerator of which is and the denominator of which is the number of years beginning before January 1, 1976, during which the employee was an active participant in the plan. Employee contributions made on or after October 2, 1973, shall be taken into account under subparagraph (B) of the preceding sentence only to the extent that the amount of such contributions does not exceed the maximum amount of contributions permissible under the plan as in effect on October 2, 1973. "(5) SPECIAL RULES FOR SECTIONS 4C3 (b) and 408.-For purposes of this subsection, any annuity contract described in section 403 (b) (except in the case of a participant who has elected under subsection (c) (4) (D) to have the provisions of subsection (c) (4) (C) apply), any individual retirement account described in section 408 (a), any individual retirement annuity described in section 408(b), and any retirement bond described in section 409, for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (n)). In the case of any annuity contract described in section 403(b), the amount of the contribution disqualified by reason of subsection (g) shall reduce the exclusion allowance as provided in section 403(b) (2). "(f) COMBINING OF PLANS.— "(1) IN GENERAL-For purposes of applying the limitations of subsections (b), (c), and (e) "(A) all defined benefit plans (whether or not terminated) of an employer are to be treate l as one defined benefit plan, and "(B) all defined contribution plans (whether or not terminated) of an employer are to be treated as one defined contribution plan.. "(2) ANNUAL COMPENSATION TAKEN INTO ACCOUNT FOR DEFINED BENEFIT PLANS.-If the employer has more than one defined benefit plan "(A) subsection (b)(1) (B) shall be applied separately with respect to each such plan, but 30-779 O- 78 - 11 September 2, 1974 - 157 Pub. Law 93-406 "(B) in applying subsection (b) (1) (B) to the aggregate of such defined benefit plans for purposes of this subsection, the high 3 years of compensation taken into account shall be the period of consecutive calendar years (not more than 3) during which the individual had the greatest aggregate compensation from the employer. 88 STAT. 985 "(g) AGGREGATION OF PLANS.-The Secretary or his delegate, in applying the provisions of this section to benefits or contributions under more than one plan maintained by the same employer, and to any trusts, contracts, accounts, or bonds referred to in subsection (a)(2), with respect to which the participant has the control required under section 414 (b) or (c), as modified by subsection (h), shall, under Ante, p. 925. regulations prescribed by the Secretary or his delegate, disqualify one or more trusts, plans, contracts, accounts, or bonds, or any combination thereof until such benefits or contributions do not exceed the limitations contained in this section. In addition to taking into account such other factors as may be necessary to carry out the purposes of subsections (e) and (f), the regulations prescribed under this paragraph shall provide that no plan which has been terminated shall be disqualified until all other trusts, plans, contracts, accounts, or bonds have been disqualified. "(h) 50 PERCENT CONTROL.-For purposes of applying subsections (b) and (c) of section 414 to this section, the phrase 'more than 50 percent' shall be substituted for the phrase 'at least 80 percent' each place it appears in section 1563 (a)(1). "(i) RECORDS NOT AVAILABLE FOR PAST PERIODS.-Where for the period before January 1, 1976, or (if later) the first day of the first plan year of the plan, the records necessary for the application of this section are not available, the Secretary or his delegate may by regulations prescribe alternative methods for determining the amounts to be taken into account for such period. “(j) REGULATIONS; DEFINITION OF YEAR.-The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section, including, but not limited to, regulations defining the term 'year' for purposes of any provision of this section. "(k) SPECIAL RULES. "(1) DEFINED BENEFIT PLAN AND DEFINED CONTRIBUTION PLAN.— For purposes of this title, the term 'defined contribution plan' or 'defined benefit plan' means a defined contribution plan (within the meaning of section 414(i)) or a defined benefit plan (within the meaning of section 414(j)), whichever applies, which is "(A) a plan described in section 401 (a) which includes a "(D) an annuity a contract described in section 403(b), "(F) an individual retirement annuity described in section "(G) an individual retirement bond described in section 409.". 26 USC 1563. (3) SPECIAL RULE FOR CERTAIN PLANS IN EFFECT ON DATE OF 26 USC 415 ENACTMENT.-In any case in which, on the date of enactment of note. this Act, an individual is a participant in both a defined benefit 88 STAT. 986 26 USC 401. Ante, p. 979. 26 USC 404. Pub. Law 93-406 - 158 - September 2, 1974 plan and a defined contribution plan maintained by the same employer, and the sum of the defined benefit plan fraction and the defined contribution plan fraction for the year during which such date occurs exceeds 1.4, the sum of such fractions may continue to exceed 1.4 if— (A) the defined benefit plan fraction is not increased, by amendment of the plan or otherwise, after the date of enactment of this Act, and (B) no contributions are made under the defined contribution plan after such date. A trust which is part of a pension, profit-sharing, or stock bonus plan described in the preceding sentence shall not be treated as not constituting a qualified trust under section 401(a) of the Internal Revenue Code of 1954 on account of the provisions of section 415(e) of such Code, as long as it is described in the preceding sentence of this subsection. (b) LIMIT ON EMPLOYER DEDUCTIONS.-The second sentence of section 404 (a) (3) (A) (relating to limits on deductible contributions) is amended by striking out "beneficiaries under the plan." and inserting in lieu thereof "beneficiaries under the plan, but the amount so deductible under this sentence in any one succeeding taxable year together with the amount so deductible under the first sentence of this subparagraph shall not exceed 25 percent of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plan.". (c) CERTAIN ANNUITY AND BOND PURCHASE PLANS. (1) Section 404 (a)(2) (relating to the general rule for deduction for employee annuities) is amended by striking out "(15)" and inserting in lieu thereof "(15), (16), and (19)" and by striking out "(a) (9) and (10)" and inserting in lieu thereof “(a) (9), (10), (17), and (18)". (2) Section 405 (a)(1) (relating to requirements for qualified bond purchase plans) is amended by striking out "and (8),” and inserting in lieu thereof "(8), (16), and (19)”. (3) Section 805 (d) (1) (C) (relating to pension plan reserves) is amended by striking out “and (15)” and inserting in lieu thereof "(15), (16), and (19)”. (4) Section 403(b) (2) (relating to exclusion allowance) is amended to read as follows: "(2) EXCLUSION ALLOWANCE.— "(A) IN GENERAL.-For purposes of this subsection, the exclusion allowance for any employee for the taxable year is an amount equal to the excess, if any, of "(i) the amount determined by multiplying 20 percent of his includible compensation by the number of years of service, over "(ii) the aggregate of the amounts contributed by the employer for annuity contracts and excludible from the gross income of the employee for any prior taxable year. "(B) ELECTION TO HAVE ALLOWANCE DETERMINED UNDER SECTION 415 RULES.—In the case of an employee who makes an election under section 415 (c) (4) (D) to have the provisions of section 415(c) (4) (C) (relating to special rule for section 403(b) contracts purchased by educational institutions, hospitals, and home health service agencies) apply, the exclusion allowance for any such employee for the taxable year is the amount which could be contributed (under section 415) by his employer under a plan described in section 403 (a) if the September 2, 1974 - 159 Pub. Law 93-406 88 STAT. 987 annuity contract for the benefit of such employee were treated as a defined contribution plan maintained by the employer.". (d) EFFECTIVE Date.— 26 USC 415 (1) GENERAL RULE.-The amendments made by this section shall note. apply to years beginning after December 31, 1975. The Secretary of the Treasury shall prescribe such regulations as may be necessary to carry out the provisions of this paragraph. (2) TRANSITION RULE FOR DEFINED BENEFIT PLANS.-In the case of an individual who was an active participant in a defined benefit plan before October 3, 1973, if (A) the annual benefit (within the meaning of section 415(b)(2) of the Internal Revenue Code of 1954) payable Ante, p. 979. to such participant on retirement does not exceed 100 percent of his annual rate of compensation on the earlier of (i) October 2, 1973, or (ii) the date on which he separated from the service of the employer, (B) such annual benefit is no greater than the annual benefit which would have been payable to such participant on retirement if (i) all the terms and conditions of such plan in existence on such date had remained in existence until such retirement, and (ii) his compensation taken into account for any period after October 2, 1973, had not exceeded his annual rate of compensation on such date, and (C) in the case of a participant who separated from the service of the employer prior to October 2, 1973, such annual benefit is no greater than his vested accrued benefit as of the date he separated from the service, then such annual benefit shall be treated as not exceeding the limitation of subsection (b) of section 415 of the Internal Revenue Code of 1954. SEC. 2005. TAXATION OF CERTAIN LUMP SUM DISTRIBUTIONS. (a) TREATMENT OF TOTAL DISTRIBUTIONS.-Section 402 (e) (relat- 26 USC 402. ing to certain plan terminations) is amended to read as follows: "(e) TAX ON LUMP SUM DISTRIBUTIONS.— (1) IMPOSITION OF SEPARATE TAX ON LUMP SUM DISTRIBUTIONS.— "(B) AMOUNT OF TAX.-The amount of tax imposed by "(C) INITIAL SEPARATE TAX.-The initial separate tax for any taxable year is an amount equal to 10 times the tax which would be imposed by subsection (c) of section 1 if the recipient were an individual referred to in such subsection and the taxable income were an amount equal to one-tenth of the excess of "(i) the total taxable amount of the lump sum distribution for the taxable year, over "(ii) the minimum distribution allowance. |