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U.S. Code as of:
01/19/04
Section 4980. Tax on reversion of qualified plan assets to employer
(a) Imposition of tax
There is hereby imposed a tax of 20 percent of the amount of any
employer reversion from a qualified plan.
(b) Liability for tax
The tax imposed by subsection (a) shall be paid by the employer
maintaining the plan.
(c) Definitions and special rules
For purposes of this section -
(1) Qualified plan
The term "qualified plan" means any plan meeting the
requirements of section 401(a) or 403(a), other than -
(A) a plan maintained by an employer if such employer has, at
all times, been exempt from tax under subtitle A, or
(B) a governmental plan (within the meaning of section
414(d)).
Such term shall include any plan which, at any time, has been
determined by the Secretary to be a qualified plan.
(2) Employer reversion
(A) In general
The term "employer reversion" means the amount of cash and
the fair market value of other property received (directly or
indirectly) by an employer from the qualified plan.
(B) Exceptions
The term "employer reversion" shall not include -
(i) except as provided in regulations, any amount
distributed to or on behalf of any employee (or his
beneficiaries) if such amount could have been so distributed
before termination of such plan without violating any
provision of section 401, or
(ii) any distribution to the employer which is allowable
under section 401(a)(2) -
(I) in the case of a multiemployer plan, by reason of
mistakes of law or fact or the return of any withdrawal
liability payment,
(II) in the case of a plan other than a multiemployer
plan, by reason of mistake of fact, or
(III) in the case of any plan, by reason of the failure
of the plan to initially qualify or the failure of
contributions to be deductible.
(3) Exception for employee stock ownership plans
(A) In general
If, upon an employer reversion from a qualified plan, any
applicable amount is transferred from such plan to an employee
stock ownership plan described in section 4975(e)(7) or a tax
credit employee stock ownership plan (as described in section
409), such amount shall not be treated as an employer reversion
for purposes of this section (or includible in the gross income
of the employer) if -
(i) the requirements of subparagraphs (B), (C), and (D) are
met, and
(ii) under the plan, employer securities to which
subparagraph (B) applies must, except to the extent necessary
to meet the requirements of section 401(a)(28), remain in the
plan until distribution to participants in accordance with
the provisions of such plan.
(B) Investment in employer securities
The requirements of this subparagraph are met if, within 90
days after the transfer (or such longer period as the Secretary
may prescribe), the amount transferred is invested in employer
securities (as defined in section 409(l)) or used to repay
loans used to purchase such securities.
(C) Allocation requirements
The requirements of this subparagraph are met if the portion
of the amount transferred which is not allocated under the plan
to accounts of participants in the plan year in which the
transfer occurs -
(i) is credited to a suspense account and allocated from
such account to accounts of participants no less rapidly than
ratably over a period not to exceed 7 years, and
(ii) when allocated to accounts of participants under the
plan, is treated as an employer contribution for purposes of
section 415(c), except that -
(I) the annual addition (as determined under section
415(c)) attributable to each such allocation shall not
exceed the value of such securities as of the time such
securities were credited to such suspense account, and
(II) no additional employer contributions shall be
permitted to an employee stock ownership plan described in
subparagraph (A) of the employer before the allocation of
such amount.
The amount allocated in the year of transfer shall not be less
than the lesser of the maximum amount allowable under section
415 or 1/8 of the amount attributable to the securities
acquired. In the case of dividends on securities held in the
suspense account, the requirements of this subparagraph are met
only if the dividends are allocated to accounts of participants
or paid to participants in proportion to their accounts, or
used to repay loans used to purchase employer securities.
(D) Participants
The requirements of this subparagraph are met if at least
half of the participants in the qualified plan are participants
in the employee stock ownership plan (as of the close of the
1st plan year for which an allocation of the securities is
required).
(E) Applicable amount
For purposes of this paragraph, the term "applicable amount"
means any amount which -
(i) is transferred after March 31, 1985, and before January
1, 1989, or
(ii) is transferred after December 31, 1988, pursuant to a
termination which occurs after March 31, 1985, and before
January 1, 1989.
(F) No credit or deduction allowed
No credit or deduction shall be allowed under chapter 1 for
any amount transferred to an employee stock ownership plan in a
transfer to which this paragraph applies.
(G) Amount transferred to include income thereon, etc.
The amount transferred shall not be treated as meeting the
requirements of subparagraphs (B) and (C) unless amounts
attributable to such amount also meet such requirements.
(4) Time for payment of tax
For purposes of subtitle F, the time for payment of the tax
imposed by subsection (a) shall be the last day of the month
following the month in which the employer reversion occurs.
(d) Increase in tax for failure to establish replacement plan or
increase benefits
(1) In general
Subsection (a) shall be applied by substituting "50 percent"
for "20 percent" with respect to any employer reversion from a
qualified plan unless -
(A) the employer establishes or maintains a qualified
replacement plan, or
(B) the plan provides benefit increases meeting the
requirements of paragraph (3).
(2) Qualified replacement plan
For purposes of this subsection, the term "qualified
replacement plan" means a qualified plan established or
maintained by the employer in connection with a qualified plan
termination (hereinafter referred to as the "replacement plan")
with respect to which the following requirements are met:
(A) Participation requirement
At least 95 percent of the active participants in the
terminated plan who remain as employees of the employer after
the termination are active participants in the replacement
plan.
(B) Asset transfer requirement
(i) 25 percent cushion
A direct transfer from the terminated plan to the
replacement plan is made before any employer reversion, and
the transfer is in an amount equal to the excess (if any) of
-
(I) 25 percent of the maximum amount which the employer
could receive as an employer reversion without regard to
this subsection, over
(II) the amount determined under clause (ii).
(ii) Reduction for increase in benefits
The amount determined under this clause is an amount equal
to the present value of the aggregate increases in the
accrued benefits under the terminated plan of any
participants or beneficiaries pursuant to a plan amendment
which -
(I) is adopted during the 60-day period ending on the
date of termination of the qualified plan, and
(II) takes effect immediately on the termination date.
(iii) Treatment of amount transferred
In the case of the transfer of any amount under clause (i)
-
(I) such amount shall not be includible in the gross
income of the employer,
(II) no deduction shall be allowable with respect to such
transfer, and
(III) such transfer shall not be treated as an employer
reversion for purposes of this section.
(C) Allocation requirements
(i) In general
In the case of any defined contribution plan, the portion
of the amount transferred to the replacement plan under
subparagraph (B)(i) is -
(I) allocated under the plan to the accounts of
participants in the plan year in which the transfer occurs,
or
(II) credited to a suspense account and allocated from
such account to accounts of participants no less rapidly
than ratably over the 7-plan-year period beginning with the
year of the transfer.
(ii) Coordination with section 415 limitation
If, by reason of any limitation under section 415, any
amount credited to a suspense account under clause (i)(II)
may not be allocated to a participant before the close of the
7-year period under such clause -
(I) such amount shall be allocated to the accounts of
other participants, and
(II) if any portion of such amount may not be allocated
to other participants by reason of any such limitation,
shall be allocated to the participant as provided in
section 415.
(iii) Treatment of income
Any income on any amount credited to a suspense account
under clause (i)(II) shall be allocated to accounts of
participants no less rapidly than ratably over the remainder
of the period determined under such clause (after application
of clause (ii)).
(iv) Unallocated amounts at termination
If any amount credited to a suspense account under clause
(i)(II) is not allocated as of the termination date of the
replacement plan -
(I) such amount shall be allocated to the accounts of
participants as of such date, except that any amount which
may not be allocated by reason of any limitation under
section 415 shall be allocated to the accounts of other
participants, and
(II) if any portion of such amount may not be allocated
to other participants under subclause (I) by reason of such
limitation, such portion shall be treated as an employer
reversion to which this section applies.
(3) Pro rata benefit increases
(A) In general
The requirements of this paragraph are met if a plan
amendment to the terminated plan is adopted in connection with
the termination of the plan which provides pro rata increases
in the accrued benefits of all qualified participants which -
(i) have an aggregate present value not less than 20
percent of the maximum amount which the employer could
receive as an employer reversion without regard to this
subsection, and
(ii) take effect immediately on the termination date.
(B) Pro rata increase
For purposes of subparagraph (A), a pro rata increase is an
increase in the present value of the accrued benefit of each
qualified participant in an amount which bears the same ratio
to the aggregate amount determined under subparagraph (A)(i) as
-
(i) the present value of such participant's accrued benefit
(determined without regard to this subsection), bears to
(ii) the aggregate present value of accrued benefits of the
terminated plan (as so determined).
Notwithstanding the preceding sentence, the aggregate increases
in the present value of the accrued benefits of qualified
participants who are not active participants shall not exceed
40 percent of the aggregate amount determined under
subparagraph (A)(i) by substituting "equal to" for "not less
than".
(4) Coordination with other provisions
(A) Limitations
A benefit may not be increased under paragraph (2)(B)(ii) or
(3)(A), and an amount may not be allocated to a participant
under paragraph (2)(C), if such increase or allocation would
result in a failure to meet any requirement under section
401(a)(4) or 415.
(B) Treatment as employer contributions
Any increase in benefits under paragraph (2)(B)(ii) or
(3)(A), or any allocation of any amount (or income allocable
thereto) to any account under paragraph (2)(C), shall be
treated as an annual benefit or annual addition for purposes of
section 415.
(C) 10-year participation requirement
Except as provided by the Secretary, section 415(b)(5)(D)
shall not apply to any increase in benefits by reason of this
subsection to the extent that the application of this
subparagraph does not discriminate in favor of highly
compensated employees (as defined in section 414(q)).
(5) Definitions and special rules
For purposes of this subsection -
(A) Qualified participant
The term "qualified participant" means an individual who -
(i) is an active participant,
(ii) is a participant or beneficiary in pay status as of
the termination date,
(iii) is a participant not described in clause (i) or (ii)
-
(I) who has a nonforfeitable right to an accrued benefit
under the terminated plan as of the termination date, and
(II) whose service, which was creditable under the
terminated plan, terminated during the period beginning 3
years before the termination date and ending with the date
on which the final distribution of assets occurs, or
(iv) is a beneficiary of a participant described in clause
(iii)(II) and has a nonforfeitable right to an accrued
benefit under the terminated plan as of the termination date.
(B) Present value
Present value shall be determined as of the termination date
and on the same basis as liabilities of the plan are determined
on termination.
(C) Reallocation of increase
Except as provided in paragraph (2)(C), if any benefit
increase is reduced by reason of the last sentence of paragraph
(3)(A)(ii) or paragraph (4), the amount of such reduction shall
be allocated to the remaining participants on the same basis as
other increases (and shall be treated as meeting any allocation
requirement of this subsection).
(D) Plans taken into account
For purposes of determining whether there is a qualified
replacement plan under paragraph (2), the Secretary may provide
that -
(i) 2 or more plans may be treated as 1 plan, or
(ii) a plan of a successor employer may be taken into
account.
(E) Special rule for participation requirement
For purposes of paragraph (2)(A), all employers treated as 1
employer under section 414(b), (c), (m), or (o) shall be
treated as 1 employer.
(6) Subsection not to apply to employer in bankruptcy
This subsection shall not apply to an employer who, as of the
termination date of the qualified plan, is in bankruptcy
liquidation under chapter 7 of title 11 of the United States Code
or in similar proceedings under State law.
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