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Internal Revenue Code, § 410. Minimum Participation Standards

I.R.C. § 410(a) Participation
I.R.C. § 410(a)(1) Minimum Age And Service Conditions
I.R.C. § 410(a)(1)(A) General Rule
A trust shall not constitute a qualified trust under section 401(a) if the plan of which it is a part requires, as a condition of participation in the plan, that an employee complete a period of service with the employer or employers maintaining the plan extending beyond the later of the following dates—
I.R.C. § 410(a)(1)(A)(i)
the date on which the employee attains the age of 21; or
I.R.C. § 410(a)(1)(A)(ii)
the date on which he completes 1 year of service.
I.R.C. § 410(a)(1)(B) Special Rules For Certain Plans
I.R.C. § 410(a)(1)(B)(i)
In the case of any plan which provides that after not more than 2 years of service each participant has a right to 100 percent of his accrued benefit under the plan which is nonforfeitable (within the meaning of section 411) at the time such benefit accrues, clause (ii) of subparagraph (A) shall be applied by substituting “2 years of service” for “1 year of service”.
I.R.C. § 410(a)(1)(B)(ii)
In the case of any plan maintained exclusively for employees of an educational institution (as defined in section 170(b)(1)(A)(ii)) by an employer which is exempt from tax under section 501(a) which provides that each participant having at least 1 year of service has a right to 100 percent of his accrued benefit under the plan which is nonforfeitable (within the meaning of section 411) at the time such benefit accrues, clause (i) of subparagraph (A) shall be applied by substituting “26” for “21”. This clause shall not apply to any plan to which clause (i) applies.
I.R.C. § 410(a)(2) Maximum Age Conditions
A trust shall not constitute a qualified trust under section 401(a) if the plan of which it is a part excludes from participation (on the basis of age) employees who have attained a specified age.
I.R.C. § 410(a)(3) Definition Of Year Of Service
I.R.C. § 410(a)(3)(A) General Rule
For purposes of this subsection, the term “year of service” means a 12-month period during which the employee has not less than 1,000 hours of service. For purposes of this paragraph, computation of any 12-month period shall be made with reference to the date on which the employee's employment commenced, except that, under regulations prescribed by the Secretary of Labor, such computation may be made by reference to the first day of a plan year in the case of an employee who does not complete 1,000 hours of service during the 12-month period beginning on the date his employment commenced.
I.R.C. § 410(a)(3)(B) Seasonal Industries
In the case of any seasonal industry where the customary period of employment is less than 1,000 hours during a calendar year, the term “year of service” shall be such period as may be determined under regulations prescribed by the Secretary of Labor.
I.R.C. § 410(a)(3)(C) Hours Of Service
For purposes of this subsection, the term “hour of service” means a time of service determined under regulations prescribed by the Secretary of Labor.
I.R.C. § 410(a)(3)(D) Maritime Industries
For purposes of this subsection, in the case of any maritime industry, 125 days of service shall be treated as 1,000 hours of service. The Secretary of Labor may prescribe regulations to carry out this subparagraph.
I.R.C. § 410(a)(4) Time Of Participation
A plan shall be treated as not meeting the requirements of paragraph (1) unless it provides that any employee who has satisfied the minimum age and service requirements specified in such paragraph, and who is otherwise entitled to participate in the plan, commences participation in the plan no later than the earlier of—
I.R.C. § 410(a)(4)(A)
the first day of the first plan year beginning after the date on which such employee satisfied such requirements, or
I.R.C. § 410(a)(4)(B)
the date 6 months after the date on which he satisfied such requirements, unless such employee was separated from the service before the date referred to in subparagraph (A) or (B), whichever is applicable.
I.R.C. § 410(a)(5) Breaks In Service
I.R.C. § 410(a)(5)(A) General Rule
Except as otherwise provided in subparagraphs (B), (C), and (D), all years of service with the employer or employers maintaining the plan shall be taken into account in computing the period of service for purposes of paragraph (1).
I.R.C. § 410(a)(5)(B) Employees Under 2-Year 100 Percent Vesting
In the case of any employee who has any 1-year break in service (as defined in section 411(a)(6)(A)) under a plan to which the service requirements of clause (i) of paragraph (1)(B) apply, if such employee has not satisfied such requirements, service before such break shall not be required to be taken into account.
I.R.C. § 410(a)(5)(C) 1-Year Break In Service
In computing an employee's period of service for purposes of paragraph (1) in the case of any participant who has any 1-year break in service (as defined in section 411(a)(6)(A)), service before such break shall not be required to be taken into account under the plan until he has completed a year of service (as defined in paragraph (3)) after his return.
I.R.C. § 410(a)(5)(D) Nonvested Participants
I.R.C. § 410(a)(5)(D)(i) In General
For purposes of paragraph (1), in the case of a nonvested participant, years of service with the employer or employers maintaining the plan before any period of consecutive 1-year breaks in service shall not be required to be taken into account in computing the period of service if the number of consecutive 1-year breaks in service within such period equals or exceeds the greater of—
I.R.C. § 410(a)(5)(D)(i)(II)
the aggregate number of years of service before such period.
I.R.C. § 410(a)(5)(D)(ii) Years Of Service Not Taken Into Account
If any years of service are not required to be taken into account by reason of a period of breaks in service to which clause (i) applies, such years of service shall not be taken into account in applying clause (i) to a subsequent period of breaks in service.
I.R.C. § 410(a)(5)(D)(iii) Nonvested Participant Defined
For purposes of clause (i), the term “nonvested participant" means a participant who does not have any nonforfeitable right under the plan to an accrued benefit derived from employer contributions.
I.R.C. § 410(a)(5)(E) Special Rule For Maternity Or Paternity Absences
I.R.C. § 410(a)(5)(E)(i) General Rule
In the case of each individual who is absent from work for any period—
I.R.C. § 410(a)(5)(E)(i)(I)
by reason of the pregnancy of the individual,
I.R.C. § 410(a)(5)(E)(i)(II)
by reason of the birth of a child of the individual,
I.R.C. § 410(a)(5)(E)(i)(III)
by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or
I.R.C. § 410(a)(5)(E)(i)(IV)
for purposes of caring for such child for a period beginning immediately following such birth or placement,
the plan shall treat as hours of service, solely for purposes of determining under this paragraph whether a 1-year break in service (as defined in section 411(a)(6)(A)) has occurred, the hours described in clause (ii).
I.R.C. § 410(a)(5)(E)(ii) Hours Treated As Hours Of Service
The hours described in this clause are—
I.R.C. § 410(a)(5)(E)(ii)(I)
the hours of service which otherwise would normally have been credited to such individual but for such absence, or
I.R.C. § 410(a)(5)(E)(ii)(II)
in any case in which the plan is unable to determine the hours described in subclause (I), 8 hours of service per day of such absence,
except that the total number of hours treated as hours of service under this clause by reason of any such pregnancy or placement shall not exceed 501 hours.
I.R.C. § 410(a)(5)(E)(iii) Year To Which Hours Are Credited
The hours described in clause (ii) shall be treated as hours of service as provided in this subparagraph—
I.R.C. § 410(a)(5)(E)(iii)(I)
only in the year in which the absence from work begins, if a participant would be prevented from incurring a 1-year break in service in such year solely because the period of absence is treated as hours of service as provided in clause (i); or
I.R.C. § 410(a)(5)(E)(iii)(II)
in any other case, in the immediately following year.
I.R.C. § 410(a)(5)(E)(iv) Year Defined
For purposes of this subparagraph, the term “year" means the period used in computations pursuant to paragraph (3).
I.R.C. § 410(a)(5)(E)(v) Information Required To Be Filed
A plan shall not fail to satisfy the requirements of this subparagraph solely because it provides that no credit will be given pursuant to this subparagraph unless the individual furnishes to the plan administrator such timely information as the plan may reasonably require to establish—
I.R.C. § 410(a)(5)(E)(v)(I)
that the absence from work is for reasons referred to in clause (i), and
I.R.C. § 410(a)(5)(E)(v)(II)
the number of days for which there was such an absence.
I.R.C. § 410(b) Minimum Coverage Requirements
I.R.C. § 410(b)(1) In General
A trust shall not constitute a qualified trust under section 401(a) unless such trust is designated by the employer as part of a plan which meets 1 of the following requirements:
I.R.C. § 410(b)(1)(A)
The plan benefits at least 70 percent of employees who are not highly compensated employees.
I.R.C. § 410(b)(1)(B)
The plan benefits—
I.R.C. § 410(b)(1)(B)(i)
a percentage of employees who are not highly compensated employees which is at least 70 percent of
I.R.C. § 410(b)(1)(B)(ii)
the percentage of highly compensated employees benefiting under the plan.
I.R.C. § 410(b)(1)(C)
The plan meets the requirements of paragraph (2).
I.R.C. § 410(b)(2) Average Benefit Percentage Test
I.R.C. § 410(b)(2)(A) In General
A plan shall be treated as meeting the requirements of this paragraph if—
I.R.C. § 410(b)(2)(A)(i)
the plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated employees, and
I.R.C. § 410(b)(2)(A)(ii)
the average benefit percentage for employees who are not highly compensated employees is at least 70 percent of the average benefit percentage for highly compensated employees.
I.R.C. § 410(b)(2)(B) Average Benefit Percentage
For purposes of this paragraph, the term “average benefit percentage” means, with respect to any group, the average of the benefit percentages calculated separately with respect to each employee in such group (whether or not a participant in any plan).
I.R.C. § 410(b)(2)(C) Benefit Percentage
For purposes of this paragraph—
I.R.C. § 410(b)(2)(C)(i) In General
The term “benefit percentage” means the employer-provided contribution or benefit of an employee under all qualified plans maintained by the employer, expressed as a percentage of such employee's compensation (within the meaning of section 414(s)).
I.R.C. § 410(b)(2)(C)(ii) Period For Computing Percentage
At the election of an employer, the benefit percentage for any plan year shall be computed on the basis of contributions or benefits for—
I.R.C. § 410(b)(2)(C)(ii)(I)
such plan year, or
I.R.C. § 410(b)(2)(C)(ii)(II)
any consecutive plan year period (not greater than 3 years) which ends with such plan year and which is specified in such election.
An election under this clause, once made, may be revoked or modified only with the consent of the Secretary.
I.R.C. § 410(b)(2)(D) Employees Taken Into Account
For purposes of determining who is an employee for purposes of determining the average benefit percentage under subparagraph (B)
I.R.C. § 410(b)(2)(D)(i)
except as provided in clause (ii), paragraph (4)(A) shall not apply, or
I.R.C. § 410(b)(2)(D)(ii)
if the employer elects, paragraph (4)(A) shall be applied by using the lowest age and service requirements of all qualified plans maintained by the employer.
I.R.C. § 410(b)(2)(E) Qualified Plan
For purposes of this paragraph, the term “qualified plan” means any plan which (without regard to this subsection) meets the requirements of section 401(a).
I.R.C. § 410(b)(3) Exclusion Of Certain Employees
For purposes of this subsection, there shall be excluded from consideration—
I.R.C. § 410(b)(3)(A)
employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers,
I.R.C. § 410(b)(3)(B)
in the case of a trust established or maintained pursuant to an agreement which the Secretary of Labor finds to be a collective bargaining agreement between air pilots represented in accordance with title II of the Railway Labor Act and one or more employers, all employees not covered by such agreement, and
I.R.C. § 410(b)(3)(C)
employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).
Subparagraph (A) shall not apply with respect to coverage of employees under a plan pursuant to an agreement under such subparagraph. For purposes of subparagraph (B), management pilots who are not represented in accordance with title II of the Railway Labor Act shall be treated as covered by a collective bargaining agreement described in such subparagraph if the management pilots manage the flight operations of air pilots who are so represented and the management pilots are, pursuant to the terms of the agreement, included in the group of employees benefitting under the trust described in such subparagraph. Subparagraph (B) shall not apply in the case of a plan which provides contributions or benefits for employees whose principal duties are not customarily performed aboard an aircraft in flight (other than management pilots described in the preceding sentence).
I.R.C. § 410(b)(4) Exclusion Of Employees Not Meeting Age And Service Requirements
I.R.C. § 410(b)(4)(A) In General
If a plan—
I.R.C. § 410(b)(4)(A)(i)
prescribes minimum age and service requirements as a condition of participation, and
I.R.C. § 410(b)(4)(A)(ii)
excludes all employees not meeting such requirements from participation, then such employees shall be excluded from consideration for purposes of this subsection.
I.R.C. § 410(b)(4)(B) Requirements May Be Met Separately With Respect To Excluded Group
If employees not meeting the minimum age or service requirements of subsection (a)(1) (without regard to subparagraph (B) thereof) are covered under a plan of the employer which meets the requirements of paragraph (1) separately with respect to such employees, such employees may be excluded from consideration in determining whether any plan of the employer meets the requirements of paragraph (1).
I.R.C. § 410(b)(4)(C) Requirements Not Treated As Being Met Before Entry Date
An employee shall not be treated as meeting the age and service requirements described in this paragraph until the first date on which, under the plan, any employee with the same age and service would be eligible to commence participation in the plan.
I.R.C. § 410(b)(5) Line Of Business Exception
I.R.C. § 410(b)(5)(A) In General
If, under section 414(r), an employer is treated as operating separate lines of business for a year, the employer may apply the requirements of this subsection for such year separately with respect to employees in each separate line of business.
I.R.C. § 410(b)(5)(B) Plan Must Be Nondiscriminatory
Subparagraph (A) shall not apply with respect to any plan maintained by an employer unless such plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated employees.
I.R.C. § 410(b)(6) Definitions And Special Rules
For purposes of this subsection—
I.R.C. § 410(b)(6)(A) Highly Compensated Employee
The term “highly compensated employee” has the meaning given such term by section 414(q).
I.R.C. § 410(b)(6)(B) Aggregation Rules
An employer may elect to designate—
I.R.C. § 410(b)(6)(B)(i)
2 or more trusts,
I.R.C. § 410(b)(6)(B)(ii)
1 or more trusts and 1 or more annuity plans, or
I.R.C. § 410(b)(6)(B)(iii)
2 or more annuity plans,
as part of 1 plan intended to qualify under section 401(a) to determine whether the requirements of this subsection are met with respect to such trusts or annuity plans. If an employer elects to treat any trusts or annuity plans as 1 plan under this subparagraph, such trusts or annuity plans shall be treated as 1 plan for purposes of section 401(a)(4).
I.R.C. § 410(b)(6)(C) Special Rules For Certain Dispositions Or Acquisitions
I.R.C. § 410(b)(6)(C)(i) In General
If a person becomes, or ceases to be, a member of a group described in subsection (b), (c), (m), or (o) of section 414, then the requirements of this subsection shall be treated as having been met during the transition period with respect to any plan covering employees of such person or any other member of such group if—
I.R.C. § 410(b)(6)(C)(i)(I)
such requirements were met immediately before each such change, and
I.R.C. § 410(b)(6)(C)(i)(II)
the coverage under such plan is not significantly changed during the transition period (other than by reason of the change in members of a group) or such plan meets such other requirements as the Secretary may prescribe by regulation.
I.R.C. § 410(b)(6)(C)(ii) Transition Period
For purposes of clause (i), the term “transition period” means the period—
I.R.C. § 410(b)(6)(C)(ii)(I)
beginning on the date of the change in members of a group, and
I.R.C. § 410(b)(6)(C)(ii)(II)
ending on the last day of the 1st plan year beginning after the date of such change.
I.R.C. § 410(b)(6)(D) Special Rule For Certain Employee Stock Ownership Plans
A trust which is part of a tax credit employee stock ownership plan which is the only plan of an employer intended to qualify under section 401(a) shall not be treated as not a qualified trust under section 401(a) solely because it fails to meet the requirements of this subsection if—
I.R.C. § 410(b)(6)(D)(i)
such plan benefits 50 percent or more of all the employees who are eligible under a nondiscriminatory classification under the plan, and
I.R.C. § 410(b)(6)(D)(ii)
the sum of the amounts allocated to each participant's account for the year does not exceed 2 percent of the compensation of that participant for the year.
I.R.C. § 410(b)(6)(E) Eligibility To Contribute
In the case of contributions which are subject to section 401(k) or 401(m), employees who are eligible to contribute (or elect to have contributions made on their behalf) shall be treated as benefiting under the plan (other than for purposes of paragraph (2)(A)(ii)).
I.R.C. § 410(b)(6)(F) Employers With Only Highly Compensated Employees
A plan maintained by an employer which has no employees other than highly compensated employees for any year shall be treated as meeting the requirements of this subsection for such year.
I.R.C. § 410(b)(6)(G) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
I.R.C. § 410(c) Application Of Participation Standards To Certain Plans
I.R.C. § 410(c)(1)
The provisions of this section (other than paragraph (2) of this subsection) shall not apply to—
I.R.C. § 410(c)(1)(A)
a governmental plan (within the meaning of section 414(d)),
I.R.C. § 410(c)(1)(B)
a church plan (within the meaning of section 414(e)) with respect to which the election provided by subsection (d) of this section has not been made,
I.R.C. § 410(c)(1)(C)
a plan which has not at any time after September 2, 1974, provided for employer contributions, and
I.R.C. § 410(c)(1)(D)
a plan established and maintained by a society, order, or association described in section 501(c)(8) or (9) if no part of the contributions to or under such plan are made by employers of participants in such plan.
I.R.C. § 410(c)(2)
A plan described in paragraph (1) shall be treated as meeting the requirements of this section for purposes of section 401(a), except that in the case of a plan described in subparagraph (B), (C), or (D) of paragraph (1), this paragraph shall apply only if such plan meets the requirements of section 401(a)(3) (as in effect on September 1, 1974).
I.R.C. § 410(d) Election By Church To Have Participation, Vesting, Funding, Etc., Provisions Apply
I.R.C. § 410(d)(1) In General
If the church or convention or association of churches which maintains any church plan makes an election under this subsection (in such form and manner as the Secretary may by regulations prescribe), then the provisions of this title relating to participation, vesting, funding, etc. (as in effect from time to time) shall apply to such church plan as if such provisions did not contain an exclusion for church plans.
I.R.C. § 410(d)(2) Election Irrevocable
An election under this subsection with respect to any church plan shall be binding with respect to such plan, and, once made, shall be irrevocable.
(Added Pub. L. 95-600, title I, Sec. 141(a), Nov. 6, 1978, 92 Stat. 2787, Sec. 409A, and amended Pub. L. 96-222, title I, Sec. 101(a)(7)(D)-(F), (I), (J), (L)(i)(VI), (ii)(I), (II), (iii)(V), (v)(VI), (VII), Apr. 1, 1980, 94 Stat. 198-200; Pub. L. 96-605, title II, Sec. 224(a), Dec. 28, 1980, 94 Stat. 3528; Pub. L. 97-34, title III, Sec. 331(c)(1), 334, 336, 337(a), Aug. 13, 1981, 95 Stat. 293, 297, 298; Pub. L. 97-448, title I, Sec. 103(h), (i), Jan. 12, 1983, 96 Stat. 2379; renumbered Sec. 409 and amended Pub. L. 98-369, div. A, title IV, Sec. 474(r)(15), 491(e)(1), July 18, 1984, 98 Stat. 843, 852; Pub. L. 99-514, title XI, Sec. 1172(b)(1), 1174(a)(1), (b)(1), (2), (c)(1)(A), 1176(b), title XVIII, Sec. 1852(a)(4)(B), 1854(a)(3)(A), (f)(1), (3)(C), 1899A(11), Oct. 22, 1986, 100 Stat. 2514, 2516, 2517, 2520, 2865, 2873, 2881, 2882, 2958; Pub. L. 100-647, title I, Sec. 1011B(g)(1), (2), (i)(1), (3), (j)(3), (5), (k)(3), 1018(t)(4)(B), (C), (H), Nov. 10, 1988, 102 Stat. 3490, 3492, 3493, 3588, 3589; Pub. L. 101-239, title VII, Sec. 7304(a)(2)(A), (B), 7811(h)(1), Dec. 19, 1989, 103 Stat. 2352, 2353, 2409; Pub. L. 105-34, title XV, Sec. 1505(a)(3), Aug. 5, 1997, 111 Stat 788.)
BACKGROUND NOTES
Amendments to Subpart
1984--Pub. L. 98-397, title II, 203(c), Aug. 23, 1984, 98 Stat. 1445, added item 417.
1982--Pub. L. 97-248, title II, 240(d), Sept. 3, 1982, 96 Stat. 520, added item 416.
1974--Pub. L. 93-406, title II, 1011, Sept. 2, 1974, 88 Stat. 898, added subpart heading and analysis of sections.
AMENDMENTS
2006 - Subsec. (b)(3)(C). Pub. L. 109-208, Sec. 402(h)(1), amended subpar. (C). Prior to amendment it read as follows:
“Subparagraph (A) shall not apply with respect to coverage of employees under a plan pursuant to an agreement under such subparagraph. Subparagraph (B) shall not apply in the case of a plan which provides contributions or benefits for employees whose principal duties are not customarily performed aboard aircraft in flight.“
1997 - Subsec. (c)(2). Pub. L. 105-34, Sec. 1505(a)(3), amended par. (2). Prior to amendment it read as follows:
“(2) A plan described in paragraph (1) shall be treated as meeting the requirements of this section, for purposes of section 401(a), if such plan meets the requirements of section 401(a)(3) as in effect on September 1, 1974.”
1989 - Subsec. (l)(5). Pub. L. 101-239, Sec. 7811(h)(1), substituted ‘the second sentence’ for ‘the last sentence’.
Subsec. (n)(1). Pub. L. 101-239, Sec. 7304(a)(2)(A)(i), struck out ‘or section 2057’ after ‘section 1042’ in two places in introductory provisions.
Subsec. (n)(1)(A)(i). Pub. L. 101-239, Sec. 7304(a)(2)(A)(ii), struck out ‘or any decedent if the executor of the estate of such decedent makes a qualified sale to which section 2057 applies’ after ‘employer securities,’.
Subsec. (n)(1)(A)(ii). Pub. L. 101-239, Sec. 7304(a)(2)(A)(iii), struck out ‘or the decedent’ after ‘the taxpayer’.
Subsec. (n)(2)(C)(i), (3)(A)(ii). Pub. L. 101-239, Sec. 7304(a)(2)(B), struck out ‘or section 2057’ after ‘section 1042’.
1988 - Subsec. (d). Pub. L. 100-647, Sec. 1011B(j)(3), inserted ‘or to any distribution or reinvestment required under section 401(a)(28)’ after ‘under section 401(a)(9)’.
Subsec. (e)(5). Pub. L. 100-647, Sec. 1018(t)(4)(H), substituted ‘paragraph (3)’ for ‘paragraph (2) or (3)’.
Subsec. (h)(2). Pub. L. 100-647, Sec. 1018(t)(4)(B), substituted ‘paragraph (1)(B)’ for ‘section 409(o)’.
Subsec. (h)(7). Pub. L. 100-647, Sec. 1011B(j)(5), added par. (7).
Subsec. (l)(4), (5). Pub. L. 100-647, Sec. 1011B(k)(3), redesignated par. (4), relating to nonvoting common stock may be acquired in certain cases, as (5).
Subsec. (n)(1). Pub. L. 100-647, Sec. 1011B(g)(1), made technical amendment to directory language of Pub. L. 99-514, Sec. 1172(b)(1). See 1986 Amendment note below.
Subsec. (n)(2)(C)(i), (3)(A)(ii). Pub. L. 100-647, Sec. 1011B(g)(2), inserted ‘or section 2057’ after ‘which section 1042’.
Subsec. (n)(3)(C). Pub. L. 100-647, Sec. 1018(t)(4)(C), amended subpar. (C) generally. Prior to amendment, subpar. (C) read as follows: ‘The term ‘nonallocation period’ means the 10-year period beginning on the later of -
‘(i) the date of the sale of the qualified securities, or
‘(ii) the date of the plan allocation attributable to the final payment of acquisition indebtedness incurred in connection with such sale.’
Subsec. (o)(1)(A). Pub. L. 100-647, Sec. 1011B(i)(3), substituted ‘if the participant and, if applicable pursuant to sections 401(a)(11) and 417, with the consent of the participant's spouse elects' for ‘unless the participant otherwise elects’.
Subsec. (o)(1)(A)(ii). Pub. L. 100-647, Sec. 1011B(i)(1), substituted ‘distribution is required to begin under this clause’ for ‘such year’.
1986 - Subsec. (a)(3). Pub. L. 99-514, Sec. 1174(b)(2), inserted reference to subsec. (o).
Subsec. (d). Pub. L. 99-514, Sec. 1899A(11), substituted ‘participant's' for ‘participants'’.
Pub. L. 99-514, Sec. 1852(a)(4)(B), inserted at end ‘This subsection shall not apply to any distribution required under section 401(a)(9).’
Subsec. (d)(1). Pub. L. 99-514, Sec. 1174(a)(1), substituted ‘separation from service, or termination of the plan’ for ‘or separation from service’.
Subsec. (e)(2). Pub. L. 99-514, Sec. 1854(f)(1)(C), (D), inserted ‘or beneficiary’ after ‘participant’ in two places and substituted ‘securities of the employer’ for ‘employer securities’.
Subsec. (e)(3). Pub. L. 99-514, Sec. 1854(f)(1)(B)-(D), inserted ‘or beneficiary’ after ‘participant’ in two places and substituted ‘securities of the employer’ for ‘employer securities’ and ‘any corporate matter which involves the voting of such shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as the Secretary may prescribe in regulations’ for ‘a corporate matter which (by law or charter) must be decided by more than a majority vote of outstanding common shares voted’.
Subsec. (e)(5). Pub. L. 99-514, Sec. 1854(f)(1)(A), added par. (5).
Subsec. (h)(2). Pub. L. 99-514, Sec. 1854(f)(3)(C), inserted ‘, except that such plan may distribute employer securities subject to a requirement that such securities may be resold to the employer under terms which meet the requirements of section 409(o)’.
Subsec. (h)(5), (6). Pub. L. 99-514, Sec. 1174(c)(1)(A), added pars. (5) and (6).
Subsec. (l)(4). Pub. L. 99-514, Sec. 1176(b), added par. (4) relating to acquisition of nonvoting common stock.
Subsec. (n). Pub. L. 99-514, Sec. 1854(a)(3)(A), added subsec. (n). Former subsec. (n) redesignated (o).
Subsec. (n)(1). Pub. L. 99-514, Sec. 1172(b)(1), as amended by Pub. L. 100-647, Sec. 1011B(g)(1), inserted ‘or section 2057’ in two places in introductory provisions, ‘or any decedent if the executor of the estate of such decedent makes a qualified sale to which section 2057 applies,’ in subpar. (A)(i), and ‘or the decedent’ in subpar. (A)(ii).
Subsec. (o). Pub. L. 99-514, Sec. 1174(b)(1), added subsec. (o). Former subsec. (o) redesignated (p).
Pub. L. 99-514, Sec. 1854(a)(3)(A), redesignated former subsec. (n) as (o).
Subsec. (p). Pub. L. 99-514, Sec. 1174(b)(1), redesignated former subsec. (o) as (p).
1984 - Subsec. (b)(1)(A). Pub. L. 98-369, Sec. 474(r)(15)(A), (B), substituted ‘41’ for ‘44G’ and struck out ‘48(n)(1)(A) or’ after ‘requirements of section’.
Subsec. (b)(4). Pub. L. 98-369, Sec. 474(r)(15)(A), substituted ‘41’ for ‘44G’.
Subsec. (g). Pub. L. 98-369, Sec. 474(r)(15)(A), (C), substituted ‘41’ for ‘44G’ in two places, and inserted provision directing that, for purposes of the preceding sentence, the references to section 48(n)(1) and the employee plan credit shall refer to such section and credit as in effect before the enactment of the Tax Reform Act of 1984.
Subsec. (i)(1)(A). Pub. L. 98-369, Sec. 474(r)(15)(A), (D), substituted ‘41’ for ‘44G’, and struck out ‘48(n)(1) or’ after ‘taxable year under section’.
Subsec. (k). Pub. L. 98-369, Sec. 474(r)(15)(E), inserted provision requiring that, for purposes of this subsection, the reference to the matching employee plan credit refer to such credit as in effect before the enactment of the Tax Reform Act of 1984.
Subsec. (m). Pub. L. 98-369, Sec. 474(r)(15)(A), substituted ‘41’ for ‘44G’.
Subsec. (n)(3). Pub. L. 98-369, Sec. 474(r)(15)(A), substituted ‘41’ for ‘44G’.
1983 - Subsec. (d)(2). Pub. L. 97-448, Sec. 103(i), struck out provisions covering the sale of substantially all of the stock of a subsidiary of the employer.
Subsec. (h)(2). Pub. L. 97-448, Sec. 103(h), substituted ‘the requirements of this subsection or of section 401(a)’ for ‘the requirements of section 401(a)’.
1981 - Subsec. (b). Pub. L. 97-34, Sec. 331(c)(1)(A), (B), inserted in par. (1)(A) reference to section 44G(c)(1)(B), and inserted in par. (4) ‘or the credit allowed under section 44G (relating to the employee stock ownership credit)’ after ‘basic employee plan credit’.
Subsec. (d). Pub. L. 97-34, Sec. 337, designated provision relating to death, disability, or separation from service as par. (1) and added pars. (2) and (3).
Subsec. (g). Pub. L. 97-34, Sec. 331(c)(1)(C), (D), inserted reference to section 44G(c)(1)(B) and inserted ‘or the credit allowed under section 44G (relating to employee stock ownership credit)’ after ‘employee plan credit’.
Subsec. (h)(2). Pub. L. 97-34, Sec. 334, substituted ‘this subsection’ for ‘this section’ and inserted provision respecting receipt of distributions in cash where employer's charter or bylaws restrict ownership of substantially all outstanding employer securities to employees or to a section 401(a) trust where a participant is not permitted to exercise the right described in par. (1)(A).
Subsec. (h)(3), (4). Pub. L. 97-34, Sec. 336, added pars. (3) and (4).
Subsec. (i)(1)(A). Pub. L. 97-34, Sec. 331(c)(1)(E), inserted reference to section 44G(c)(1)(B).
Subsec. (m). Pub. L. 97-34, Sec. 331(c)(1)(F), inserted reference to section 44G(c)(1)(B).
Subsec. (n)(2), (3). Pub. L. 97-34, Sec. 331(c)(1)(G), (H), inserted ‘or employee stock ownership credit’ after ‘employee plan credit’ in par. (2) and added par. (3).
1980 - Pub. L. 96-222, Sec. 101(a)(7)(L)(v)(VII), substituted ‘tax credit employee stock ownership plans’ for ‘ESOPS’ in section catchline.
Subsec. (a). Pub. L. 96-222, Sec. 101(a)(7)(L)(ii)(I), (v)(VI), substituted in heading and in text ‘tax credit employee stock ownership plan’ for ‘ESOP’.
Subsec. (b)(4). Pub. L. 96-222, Sec. 101(a)(7)(L)(iii)(V), substituted ‘employee plan credit’ for ‘ESOP credit’.
Subsec. (d). Pub. L. 96-222, Sec. 101(a)(7)(F), inserted ‘(or allocated to a participant's account in connection with matched employer and employee contributions)' after ‘under subsection (b)’.
Subsec. (f)(1). Pub. L. 96-222, Sec. 101(a)(7)(I)(i), substituted ‘only if it is established on or before the due date (including any extension of such date) for the filing of the employer's tax return for the first taxable year of the employer for which an employee plan credit is claimed by the employer with respect to the plan' for ‘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 extension of such date) in which or with which the plan year ends'.
Subsec. (f)(2). Pub. L. 96-222, Sec. 101(a)(7)(I)(ii), (L)(v)(VII), substituted ‘employee plan’ for ‘ESOP’ and inserted ‘with respect to the plan’ after ‘by the employer’.
Subsec. (g). Pub. L. 96-222, Sec. 101(a)(7)(L)(iii)(V), substituted ‘employee plan credit’ for ‘ESOP credit’.
Subsec. (h)(2). Pub. L. 96-222, Sec. 101(a)(7)(E), inserted ‘or of section 4975(e)(7)’ after ‘the requirements of this section’.
Subsecs. (j)(2), (k)(1). Pub. L. 96-222, Sec. 101(a)(7)(L)(iii)(V), substituted ‘employee plan credit’ for ‘ESOP credit’.
Subsec. (l)(2)(B). Pub. L. 96-222, Sec. 101(a)(7)(J)(i), substituted ‘class of common stock’ for ‘class of stock’.
Subsec. (l)(3). Pub. L. 96-222, Sec. 101(a)(7)(J)(ii), (L)(ii)(II), substituted ‘as employer securities’ for ‘as meeting the requirements of paragraph (1)’, ‘paragraph (1) or (2)’ for ‘paragraph (2)’, and ‘tax credit employee stock ownership plan’ for ‘ESOP’ and inserted provisions requiring preferred stock to be treated as noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of the preceding sentence.
Subsec. (l)(4). Pub. L. 96-605 substituted in heading ‘Application to controlled group of corporations’ for ‘Controlled group of corporations defined’ and in subpar. (B) heading ‘Where common parent owns at least’ for ‘Common parent may own only’ and added subpar. (C).
Subsec. (m). Pub. L. 96-222, Sec. 101(a)(7)(D), (L)(i), substituted provisions relating to nonrecognition of gain or loss on contribution of employer securities to a tax credit employee stock ownership plan for provisions relating to contributions of stock of a controlling corporation.
Subsec. (n). Pub. L. 96-222, Sec. 101(a)(7)(L)(iii)(V), substituted ‘employee plan credit’ for ‘ESOP credit’ in pars. (1) and (2).
EFFECTIVE DATE OF 1997 AMENDMENTS
Amendment by Sec. 1505(a)(3) of Pub. L. 105-34 effective for taxable years beginning on or after the date of enactment of this Act [Aug. 5, 1997]. Section 1505(d)(2) of Pub. L. 105-34, as amended by Pub. L. 105-206, Sec. 6015(b), and Pub. L. 109-280, Sec. 861(a)(2), provided the following special rule:
“(2) Treatment for years beginning before date of enactment.--A governmental plan (within the meaning of section 414(d) of the Internal Revenue Code of 1986) maintained shall be treated as satisfying the requirements of sections 401(a)(3), 401(a)(4), 401(a)(26), 401(k), 401(m), 403 (b)(1)(D) and (b)(12)(A)(i), and 410 of such Code for all taxable years beginning before the date of enactment of this Act [Aug. 5, 1997].”
Sec. 861(a)(2) of Pub. L. 109-280 struck “(maintained by a State or local government or political subdivision thereof (or agency or instrumentality thereof)”, effective for any year beginning after the date of the enactment of this Act [Enacted: Aug. 17, 2006].
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7304(a)(3) of Pub. L. 101-239 provided that: ‘The amendments made by this subsection (amending this section and sections 4978 and 4979A of this title and repealing sections 2057 and 4978A of this title) shall apply to the estates of decedents dying after the date of the enactment of this Act (Dec. 19, 1989).’
Amendment by section 7811(h)(1) of Pub. L. 101-239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such amendment relates, see section 7817 of Pub. L. 101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1172(c) of Pub. L. 99-514 provided that: ‘The amendments made by this section (enacting section 2057 of this title and amending this section and section 4979A of this title) shall apply to sales after the date of the enactment of this Act (Oct. 22, 1986) with respect to which an election is made by the executor of an estate who is required to file the return of the tax imposed by the Internal Revenue Code of 1986 on a date (including extensions) after the date of the enactment of this Act.’
Section 1174(a)(2) of Pub. L. 99-514, as amended by Pub. L. 100-647, title I, Sec. 1011B(i)(2), Nov. 10, 1988, 102 Stat. 3492, provided that: ‘The amendment made by this subsection (amending this section) shall apply to distributions after December 31, 1984.’
Section 1174(b)(3) of Pub. L. 99-514 provided that: ‘The amendments made by this subsection (amending this section) shall apply to distributions attributable to stock acquired after December 31, 1986.’
Section 1174(c)(1)(B) of Pub. L. 99-514 provided that: ‘The amendment made by this paragraph (amending this section) shall apply to distributions attributable to stock acquired after December 31, 1986, except that a plan may elect to have such amendment apply to all distributions after the date of the enactment of this Act (Oct. 22, 1986).’
Amendment by section 1176(b) of Pub. L. 99-514 applicable to acquisitions of securities after Dec. 31, 1986, see section 1176(c) of Pub. L. 99-514, set out as a note under section 401 of this title.
Amendment by section 1852(a)(4)(B) of Pub. L. 99-514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as a note under section 48 of this title.
Section 1854(a)(3)(C) of Pub. L. 99-514, as amended by Pub. L. 100-647, title I, Sec. 1018(t)(4)(G), Nov. 10, 1988, 102 Stat. 3588, provided that:
‘(i) Except as provided in clause (ii), the amendments made by this paragraph (amending this section and section 1042 of this title) shall apply to sales of securities after the date of the enactment of this Act (Oct. 22, 1986).
‘(ii) A taxpayer or executor may elect to have section 1042(b)(3) of the Internal Revenue Code of 1954 (as in effect before the amendment made by subparagraph (B)) apply to sales before the date of the enactment of this Act as if such section included the last sentence of section 409(n)(1) of the Internal Revenue Code of 1986 (as added by subparagraph (A)).’
Section 1854(f)(4)(A), (B) of Pub. L. 99-514 provided that:
‘(A) The amendments made by paragraph (1)(A) and (3) (amending this section and sections 1042 and 4975 of this title) shall take effect on the date of the enactment of this Act (Oct. 22, 1986).’
‘(B) The amendments made by subparagraphs (B), (C), and (D) of paragraph (1) (amending this section) shall apply after December 31, 1986, to stock acquired after December 31, 1979.’
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(r)(15) of Pub. L. 98-369 applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 475(a) of Pub. L. 98-369, set out as a note under section 21 of this title.
Redesignation of section 409A as 409 by section 491(e)(1) of Pub. L. 98-369 effective Jan. 1, 1984, see section 491(f)(3) of Pub. L. 98-369, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise provided, as if it had been included in the provision of the Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such amendment relates, see section 109 of Pub. L. 97-448, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 331(c)(1) of Pub. L. 97-34 applicable to taxable years ending after Dec. 31, 1982, see section 331(f)(2) of Pub. L. 97-34, set out as a note under section 404 of this title.
Section 337(b) of Pub. L. 97-34, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘The amendments made by this section (amending this section) shall apply to distributions described in section 409A(d) of the Internal Revenue Code of 1986 (formerly I.R.C. 1954) (or any corresponding provision of prior law) made after March 29, 1975.'
Amendment by sections 334 and 336 of Pub. L. 97-34 applicable to taxable years beginning after Dec. 31, 1981, see section 339 of Pub. L. 97-34, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 224(b) of Pub. L. 96-605 provided that: ‘The amendment made by subsection (a) (amending this section) shall apply with respect to qualified investment for taxable years beginning after December 31, 1978.’
Amendment by Pub. L. 96-222 effective, except as otherwise provided, as if it had been included in the provisions of the Revenue Act of 1978, Pub. L. 95-600, to which such amendment relates, see section 201 of Pub. L. 96-222, set out as a note under section 32 of this title.
EFFECTIVE DATE
Section 141(g) of Pub. L. 95-600, as added Pub. L. 96-222, title I, Sec. 101(a)(7)(B), Apr. 1, 1980, 94 Stat. 197, and amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
‘(1) In general. - Except as otherwise provided in this subsection and subsection (h) (set out as an Effective Date of 1978 Amendment note under section 4975 of this title), the amendments made by this section (enacting sections 409A (now 409) and 6699 of this title and amending sections 46, 48, 56, 401, 404, 415, 805, 1504, and 4975 of this title) shall apply with respect to qualified investment for taxable years beginning after December 31, 1978.
‘(2) Election to have amendments apply during 1978. - At the election of the taxpayer, paragraph (1) shall be applied by substituting ‘December 31, 1977’ for ‘December 31, 1978’; except that in the case of a plan in existence before December 31, 1978, any such election shall not affect the required allocation of employer securities attributable to qualified investment for taxable years beginning before January 1, 1979. An election under the preceding sentence shall be made at such time and in such manner as the Secretary of the Treasury or his delegate shall prescribe. Such an election, once made, shall be irrevocable.
‘(3) Voting right provisions. - Section 409A(e) of the Internal Revenue Code of 1986 (formerly I.R.C. 1954) (as added by subsection (a)) (now section 409) shall apply to plans to which section 409A of such Code applies, beginning with the first day of such application.
‘(4) Right to demand employer securities, etc. - Paragraphs (1)(A) and (2) of section 409A(h) of the Internal Revenue Code of 1986 (as added by subsection (a)) (now section 409) shall apply to distributions after December 31, 1978, made by a plan to which section 409A of such Code applies.
‘(5) Subsection (f)(7). - The amendment made by subsection (f)(7) (amending section 415 of this title) shall apply to years beginning after December 31, 1978.
‘(6) Retroactive application of amendment made by subsection (d). - In determining the regular tax deduction under section 56(c) of the Internal Revenue Code of 1986 for any taxable year beginning before January 1, 1979, the amount of the credit allowable under section 38 of such Code shall be determined without regard to section 46(a)(2)(B) of such Code (as in effect before the enactment of the Energy Tax Act of 1978 (Nov. 9, 1978)).’
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99-514, as amended, set out as a note under section 401 of this title.
PRIOR PROVISIONS
A prior section 409, added Pub. L. 93-406, title II, Sec. 2002(c), Sept. 2, 1974, 88 Stat. 964, and amended Pub. L. 94-455, title XV, Sec. 1501(b)(6), title XIX, Sec. 1901(a)(60), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1736, 1774, 1834; Pub. L. 95-600, title I, Sec. 156(c)(2), (3), 157(e)(1)(B), Nov. 6, 1978, 92 Stat. 2803, 2806; Pub. L. 96-222, title I, Sec. 101(a)(14)(B), Apr. 1, 1980, 94 Stat. 204; Pub. L. 97-34, title III, Sec. 311(g)(1)(D), (3), Aug. 13, 1981, 95 Stat. 281; Pub. L. 97-248, title II, Sec. 243(b)(1)(B), title III, Sec. 335(a)(2), Sept. 3, 1982, 96 Stat. 523, 628; Pub. L. 97-452, Sec. 2(c)(1), Jan. 12, 1983, 96 Stat. 2478; Pub. L. 98-369, div. A, title I, Sec. 42(a)(7), title V, Sec. 522(d)(13), July 18, 1984, 98 Stat. 557, 871, which related to retirement bonds, was repealed by Pub. L. 98-369, div. A, title IV, Sec. 491(b), (f)(1), July 18, 1984, 98 Stat. 848, 853, applicable to obligations issued after Dec. 31, 1983.