US Codex
Bill
Notes

Title II — Preservation of income

S. 1431 · 116th Congress · May 13, 2019 · Lineage

II Preservation of income

Sec. 201 Qualifying longevity annuity contracts

(a)
In general— Not later than the date which is 1 year after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary's delegate) shall amend the regulation issued by the Department of the Treasury relating to “Longevity Annuity Contracts” (79 Fed. Reg. 37633 (July 2, 2014)), as follows:
(1)
Repeal 25-percent premium limit— The Secretary (or delegate) shall amend Q&A–17(b)(3) of Treas. Reg. section 1.401(a)(9)–6 and Q&A–12(b)(3) of Treas. Reg. section 1.408–8 to eliminate the requirement that premiums for qualifying longevity annuity contracts be limited to 25 percent of an individual’s account balance, and to make such corresponding changes to the regulations and related forms as are necessary to reflect the elimination of this requirement.
(2)
Increase dollar limitation—
(A)
In general— The Secretary (or delegate) shall amend Q&A–17(b)(2)(i) of Treas. Reg. section 1.401(a)(9)–6 and Q&A–12(b)(2)(i) of Treas. Reg. section 1.408–8 to increase the dollar limitation on premiums for qualifying longevity annuity contracts from $125,000 to $200,000, and to make such corresponding changes to the regulations and related forms as are necessary to reflect this increase in the dollar limitation.
(B)
Adjustments for inflation— The Secretary (or delegate) shall amend Q&A–17(d)(2)(i) of Treas. Reg. section 1.401(a)(9)–6 to provide that, in the case of calendar years beginning on or after January 1 of the second year following the year of enactment of this Act, the $200,000 dollar limitation (as increased by subparagraph (A)) will be adjusted at the same time and in the same manner as the limits are adjusted under section 415(d) of the Internal Revenue Code of 1986, except that the base period shall be the calendar quarter beginning July 1 of the year of enactment of this Act, and any increase to such dollar limitation which is not a multiple of $10,000 will be rounded to the next lowest multiple of $10,000.
(3)
Facilitate joint and survivor benefits— The Secretary (or delegate) shall amend Q&A–17(c) of Treas. Reg. section 1.401(a)(9)–6, and make such corresponding changes to the regulations and related forms as are necessary, to provide that, in the case of a qualifying longevity annuity contract which was purchased with joint and survivor annuity benefits for the individual and the individual's spouse which were permissible under the regulations at the time the contract was originally purchased, a divorce occurring after the original purchase and before the annuity payments commence under the contract will not affect the permissibility of the joint and survivor annuity benefits or other benefits under the contract, or require any adjustment to the amount or duration of benefits payable under the contract, provided that any qualified domestic relations order (within the meaning of section 414(p) of the Internal Revenue Code of 1986) or any divorce or separation instrument (within the meaning of section 71(b)(2) of the Internal Revenue Code of 1986)—
(A)
provides that the former spouse is entitled to the survivor benefits under the contract;
(B)
does not modify the treatment of the former spouse as the beneficiary under the contract who is entitled to the survivor benefits; or
(C)
does not modify the treatment of the former spouse as the measuring life for the survivor benefits under the contract.
(4)
Permit short free look period— The Secretary (or delegate) shall amend Q&A–17(a)(4) of Treas. Reg. section 1.401(a)(9)–6 to ensure that such Q&A does not preclude a contract from including a provision under which an employee may rescind the purchase of the contract within a period not exceeding 90 days from the date of purchase.
(5)
Facilitate indexed and variable contracts with guaranteed benefits— The Secretary (or delegate) shall amend Q&A–17(d)(4) of Treas. Reg. section 1.401(a)(9)–6, and make such corresponding changes to the regulations and related forms as are necessary, to provide that an annuity contract is not treated as a contract described in such Q&A–17(a)(7) to the extent that the contract—
(A)
either—
(i)
is a variable contract under section 817(d) of the Internal Revenue Code of 1986; or
(ii)
is an indexed contract;
(B)
provides for the possibility of annuity payment increases (but not decreases) based on the investment return and market value of 1 or more segregated asset accounts (in the case of a variable contract) or based on the performance of 1 or more specified indexes (in the case of an indexed contract);
(C)
provides for a guaranteed minimum level of annuity payments irrespective of such investment return, market value, or performance; and
(D)
in the event of death before the annuity starting date, provides that any death benefit that is payable in a lump sum is equal to the premiums paid, without reduction for investment return, market value, index performance, surrender charges, market value adjustments, or any other amounts.
(b)
Effective dates, enforcement, and interpretations—
(1)
Effective dates—
(A)
Paragraphs (1), (2), and (5) of subsection (a) shall be effective with respect to contracts purchased or received in an exchange on or after the date of the enactment of this Act.
(B)
Paragraphs (3) and (4) of subsection (a) shall be effective with respect to contracts purchased or received in an exchange on or after July 2, 2014.
(2)
Enforcement and interpretations— Prior to the date on which the Secretary of the Treasury issues final regulations pursuant to subsection (a)—
(A)
the Secretary (or delegate) shall administer and enforce the law in accordance with subsection (a) and the effective dates in paragraph (1) of this subsection; and
(B)
taxpayers may rely upon their reasonable good faith interpretations of subsection (a).

Sec. 202 Remove required minimum distribution barriers for life annuities

(a)
In general— Paragraph (9) of section 401(a), as amended by this Act, is further amended by adding at the end the following new subparagraph:

“(J) Certain increases in payments under a commercial annuity—Nothing in this section shall prohibit a commercial annuity (within the meaning of section 3405(e)(6)) which is issued in connection with any eligible retirement plan (within the meaning of section 402(c)(8)(B)) from providing 1 or more of the following types of payments on or after the annuity starting date:

“(i) Annuity payments which increase by a constant percentage, applied not less frequently than annually, at a rate which is less than 5 percent per year.

“(ii) A lump sum payment which—

“(I) results in a shortening of the payment period with respect to an annuity or a full or partial commutation of the future annuity payments, provided that such lump sum is determined using reasonable actuarial methods and assumptions, as determined in good faith by the issuer of the contract, or

“(II) accelerates the receipt of annuity payments which are scheduled to be received within the ensuing 12 months, regardless of whether such acceleration shortens the payment period with respect to the annuity, reduces the dollar amount of benefits to be paid under the contract, or results in a suspension of annuity payments during the period being accelerated.

“(iii) An amount which is in the nature of a dividend or similar distribution, provided that the issuer of the contract determines such amount based on a reasonable comparison of the actuarial factors assumed when calculating the initial annuity payments and the issuer’s experience with respect to those factors.

“(iv) A final payment upon death which does not exceed the excess of—

“(I) the total amount of the consideration paid for the annuity payments, over

“(II) the aggregate amount of prior distributions or payments from or under the contract.”

(b)
Regulations and enforcement—
(1)
Regulations— Not later than the date which is 1 year after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary's delegate) shall amend the regulation issued by the Department of the Treasury relating to “Required Distributions from Retirement Plans” (69 Fed. Reg. 33288 (June 15, 2004)), and make any necessary corresponding amendments to other regulations, in order to—
(A)
conform such regulations to the amendments made by subsection (a), including by eliminating the types of payments described in section 401(a)(9)(J) of the Internal Revenue Code of 1986, as added by subsection (a), from the scope of the requirement in Q&A–14(c) of Treas. Reg. section 1.401(a)(9)–6 that the total future expected payments must exceed the total value being annuitized;
(B)
amend Q&A–14(c) of such section 1.401(a)(9)–6 to provide that a commercial annuity which provides an initial payment which is at least equal to the initial payment which would be required from an individual account pursuant to Treas. Reg. section 1.401(a)(9)–5 will be deemed to satisfy the requirement in Q&A–14(c) of such section 1.401(a)(9)–6 that the total future expected payments must exceed the total value being annuitized; and
(C)
amend Q&A–14(e)(3) of Treas. Reg. section 1.401(a)(9)–6 to provide that the total future expected payments under a commercial annuity are determined using the tables or other actuarial assumptions which the issuer of the contract actually uses in pricing the premiums and benefits with respect to the contract, provided that such tables or other actuarial assumptions are reasonable.
(2)
Effective date— The modifications and amendments required under paragraph (1) shall be deemed to have been made as of the date of the enactment of this Act, and as of such date the Secretary of the Treasury (or the Secretary's delegate) shall administer and enforce the law with respect to plan years beginning before, on, or after the date of the enactment of this Act in accordance with the amendments made by subsection (a) and as though the actions which the Secretary is required to take under paragraph (1) had been taken.

Sec. 203 Eliminating a penalty on partial annuitization

(a)
Eliminating a penalty on partial annuitization— The Secretary of the Treasury (or the Secretary's delegate) shall amend the regulations under section 401(a)(9) of the Internal Revenue Code of 1986 to provide that if an employee’s benefit is in the form of an individual account under a defined contribution plan, the plan may allow the employee to elect to have the amount required to be distributed from such account under such section for a year to be calculated as the excess of the total required amount for such year over the annuity amount for such year.
(b)
Definitions— For purposes of this section—
(1)
Total required amount— The term total required amount, with respect to a year, means the amount which would be required to be distributed under Treas. Reg. section 1.401(a)(9)–5 for the year, determined by treating the account balance as of the last valuation date in the immediately preceding calendar year as including the value on that date of all annuity contracts which were purchased with a portion of the account and from which payments are made in accordance with Treas. Reg. section 1.401(a)(9)–6.
(2)
Annuity amount— The term annuity amount, with respect to a year, is the total amount distributed in the year from all annuity contracts described in paragraph (1).
(c)
Conforming regulatory amendments— The Secretary of the Treasury (or the Secretary's delegate) shall amend the regulations under sections 403(b)(10), 408(a)(6), 408(b)(3), and 457(d)(2) of the Internal Revenue Code of 1986 to conform to the amendments described in subsection (a). Such conforming amendments shall treat all individual retirement plans (as defined in section 7701(a)(37) of such Code) which an individual holds as the owner, or which an individual holds as a beneficiary of the same decedent, as one such plan for purposes of the amendments described in subsection (a). Such conforming amendments shall also treat all contracts described in section 403(b) of such Code which an individual holds as an employee, or which an individual holds as a beneficiary of the same decedent, as one such contract for such purposes.
(d)
Effective date— The modifications and amendments required under subsections (a) and (c) shall be deemed to have been made as of the date of the enactment of this Act, and as of such date all applicable laws shall be applied in all respects as though the actions which the Secretary of the Treasury (or the Secretary's delegate) is required to take under such subsections had been taken.

Sec. 204 Insurance-dedicated exchange-traded funds

(a)
In general— Not later than the date which is 1 year after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary's delegate) shall amend the regulation issued by the Department of the Treasury relating to “Income Tax; Diversification Requirements for Variable Annuity, Endowment, and Life Insurance Contracts”, 54 Fed. Reg. 8728 (March 2, 1989), and make any necessary corresponding amendments to other regulations, in order to facilitate the use of exchange-traded funds as investment options under variable contracts within the meaning of section 817(d) of the Internal Revenue Code of 1986, in accordance with subsections (b) and (c) of this section.
(b)
Designate certain authorized participants and market makers as eligible investors— The Secretary of the Treasury (or the Secretary's delegate) shall amend Treas. Reg. section 1.817–5(f)(3) to provide that satisfaction of the requirements in Treas. Reg. section 1.817–5(f)(2)(i) with respect to an exchange-traded fund shall not be prevented by reason of beneficial interests in such a fund being held by 1 or more authorized participants or market makers.
(c)
Confirm that similarities to other funds are irrelevant— The Secretary of the Treasury (or the Secretary's delegate) shall amend Treas. Reg. section 1.817–5(f) to confirm that, for Federal income tax purposes, a regulated investment company, partnership, or trust (including an exchange-traded fund) that satisfies the requirements of Treas. Reg. section 1.817–5(f) (2) and (3) shall not be treated as owned by the holder of a variable contract pursuant to the principles of Rev. Rul. 81–225, 1981–2 C.B. 12, merely because another regulated investment company, partnership, trust, or similar investment vehicle follows the same investment strategy, has the same investment manager, or holds the same investments.
(d)
Define relevant terms— In amending Treas. Reg. section 1.817–5(f)(3) in accordance with subsections (b) and (c) of this section, the Secretary of the Treasury (or the Secretary's delegate) shall provide definitions consistent with the following:
(1)
Exchange-traded fund— The term exchange-traded fund means a regulated investment company, partnership, or trust—
(A)
that is registered with the Securities and Exchange Commission as an open-end investment company or a unit investment trust;
(B)
the shares of which can be purchased or redeemed directly from the fund only by an authorized participant; and
(C)
the shares of which are traded throughout the day on a national stock exchange at market prices that may or may not be the same as the net asset value of the shares.
(2)
Authorized participant— The term authorized participant means a financial institution that is a member or participant of a clearing agency registered under section 17A(b) of the Securities Exchange Act of 1934 that enters into a contractual relationship with an exchange-traded fund pursuant to which the financial institution is permitted to purchase and redeem shares directly from the fund and to sell such shares to third parties, but only if the contractual arrangement or applicable law precludes the financial institution from—
(A)
purchasing the shares for its own investment purposes rather than for the exclusive purpose of creating and redeeming such shares on behalf of third parties; and
(B)
selling the shares to third parties who are not market makers or otherwise described in Treas. Reg. section 1.817–5(f) (1) and (3).
(3)
Market maker— The term market maker means a financial institution that is a registered broker or dealer under section 15(b) of the Securities Exchange Act of 1934 that maintains liquidity for an exchange-traded fund on a national stock exchange by being always ready to buy and sell shares of such fund on the market, but only if the financial institution is contractually or legally precluded from selling or buying such shares to or from persons who are not authorized participants or otherwise described in Treas. Reg. section 1.817–5(f) (2) and (3).
(e)
Effective dates, enforcement, and interpretations—
(1)
Effective dates—
(A)
Subsection (b), and the definitions under subsection (d), shall apply to segregated asset account investments made on or after the date of enactment of this Act.
(B)
Subsection (c) shall apply to taxable years beginning after December 31, 1983.
(2)
Enforcement and interpretations— Prior to the date that the Secretary of the Treasury (or the Secretary's delegate) issues final regulations pursuant to this section—
(A)
the Secretary (or delegate) shall administer and enforce the law in accordance with this section and the effective dates in paragraph (1) of this subsection; and
(B)
taxpayers may rely upon their reasonable good faith interpretations of the preceding subsections of this section.