I.R.C. § 4975(a) Initial Taxes On Disqualified Person —
There is hereby imposed a tax on each prohibited transaction.
The rate of tax shall be equal to 15 percent of the amount involved
with respect to the prohibited transaction for each year (or part
thereof) in the taxable period. The tax imposed by this subsection
shall be paid by any disqualified person who participates in the
prohibited transaction (other than a fiduciary acting only as such).
I.R.C. § 4975(b) Additional Taxes On Disqualified Person —
In any case in which an initial tax is imposed by subsection
(a) on a prohibited transaction and the transaction is not corrected
within the taxable period, there is hereby imposed a tax equal to
100 percent of the amount involved. The tax imposed by this subsection
shall be paid by any disqualified person who participated in the
prohibited transaction (other than a fiduciary acting only as such).
I.R.C. § 4975(c) Prohibited Transaction
I.R.C. § 4975(c)(1) General Rule —
For purposes of this section, the term “prohibited
transaction” means any direct or indirect—
I.R.C. § 4975(c)(1)(A) —
sale or exchange, or leasing, of
any property between a plan and a disqualified person;
I.R.C. § 4975(c)(1)(B) —
lending of money or other extension
of credit between a plan and a disqualified person;
I.R.C. § 4975(c)(1)(C) —
furnishing of goods, services, or
facilities between a plan and a disqualified person;
I.R.C. § 4975(c)(1)(D) —
transfer to, or use by or for the
benefit of, a disqualified person of the income or assets of a plan;
I.R.C. § 4975(c)(1)(E) —
act by a disqualified person who
is a fiduciary whereby he deals with the income or assets of a plan
in his own interest or for his own account; or
I.R.C. § 4975(c)(1)(F) —
receipt of any consideration for
his own personal account by any disqualified person who is a fiduciary
from any party dealing with the plan in connection with a transaction
involving the income or assets of the plan.
I.R.C. § 4975(c)(2) Special Exemption —
The Secretary shall establish an exemption procedure
for purposes of this subsection. Pursuant to such procedure, he may
grant a conditional or unconditional exemption of any disqualified
person or transaction, orders of disqualified persons or transactions,
from all or part of the restrictions imposed by paragraph (1) of
this subsection. Action under this subparagraph may be taken only
after consultation and coordination with the Secretary of Labor.
The Secretary may not grant an exemption under this paragraph unless
he finds that such exemption is—
I.R.C. § 4975(c)(2)(A) —
administratively feasible,
I.R.C. § 4975(c)(2)(B) —
in the interests of the plan and
of its participants and beneficiaries, and
I.R.C. § 4975(c)(2)(C) —
protective of the rights of participants
and beneficiaries of the plan.
Before granting an exemption under this paragraph, the
Secretary shall require adequate notice to be given to interested
persons and shall publish notice in the Federal Register of the pendency
of such exemption and shall afford interested persons an opportunity
to present views. No exemption may be granted under this paragraph
with respect to a transaction described in subparagraph (E) or (F)
of paragraph (1) unless the Secretary affords an opportunity for
a hearing and makes a determination on the record with respect to
the findings required under subparagraphs (A), (B), and (C) of this
paragraph, except that in lieu of such hearing the Secretary may
accept any record made by the Secretary of Labor with respect to
an application for exemption under section 408(a) of title I of the
Employee Retirement Income Security Act of 1974.
I.R.C. § 4975(c)(3) Special Rule For Individual Retirement Accounts —
An individual for whose benefit an individual retirement
account is established and his beneficiaries shall be exempt from
the tax imposed by this section with respect to any transaction concerning
such account (which would otherwise be taxable under this section)
if, with respect to such transaction, the account ceases to be an
individual retirement account by reason of the application of section 408(e)(2)(A) or if section
408(e)(4) applies
to such account.
I.R.C. § 4975(c)(4) Special Rule For Archer MSAs —
An individual for whose benefit an Archer MSA (within
the meaning of section 220(d))
is established shall be exempt from the tax imposed by this section
with respect to any transaction concerning such account (which would
otherwise be taxable under this section) if section 220(e)(2) applies to such
transaction.
I.R.C. § 4975(c)(5) Special Rule For Coverdell Education Savings Accounts —
An individual for whose benefit a Coverdell education
savings account is established and any contributor to such account
shall be exempt from the tax imposed by this section with respect
to any transaction concerning such account (which would otherwise
be taxable under this section) if section 530(d) applies with respect
to such transaction.
I.R.C. § 4975(c)(6) Special Rule For Health Savings Accounts —
An individual for whose benefit a health savings account
(within the meaning of section 223(d))
is established shall be exempt from the tax imposed by this section
with respect to any transaction concerning such account (which would
otherwise be taxable under this section) if, with respect to such
transaction, the account ceases to be a health savings account by
reason of the application of section 223(e)(2) to such account.
I.R.C. § 4975(c)(7) Special Rule For Provision Of Pharmacy Benefit Services —
Any party to an arrangement which satisfies the requirements
of section 408(h) of the Employee Retirement
Income Security Act of 1974 shall be exempt from the tax
imposed by this section with respect to such arrangement.
I.R.C. § 4975(d) Exemptions —
Except as provided in subsection (f)(6), the prohibitions
provided in subsection (c) shall not apply to—
I.R.C. § 4975(d)(1) —
any loan made by the plan to a disqualified
person who is a participant or beneficiary of the plan if such loan—
I.R.C. § 4975(d)(1)(A) —
is available to all such participants
or beneficiaries on a reasonably equivalent basis,
I.R.C. § 4975(d)(1)(B) —
is not made available to highly
compensated employees (within the meaning of section 414(q)) in an amount greater
than the amount made available to other employees,
I.R.C. § 4975(d)(1)(C) —
is made in accordance with specific
provisions regarding such loans set forth in the plan,
I.R.C. § 4975(d)(1)(D) —
bears a reasonable rate of interest,
and
I.R.C. § 4975(d)(1)(E) —
is adequately secured;
I.R.C. § 4975(d)(2) —
any contract, or reasonable arrangement,
made with a disqualified person for office space, or legal, accounting,
or other services necessary for the establishment or operation of
the plan, if no more than reasonable compensation is paid therefor;
I.R.C. § 4975(d)(3) —
any loan to a leveraged employee
stock ownership plan (as defined in subsection (e)(7)), if—
I.R.C. § 4975(d)(3)(A) —
such loan is primarily for the benefit
of participants and beneficiaries of the plan, and
I.R.C. § 4975(d)(3)(B) —
such loan is at a reasonable rate
of interest, and any collateral which is given to a disqualified
person by the plan consists only of qualifying employer securities
(as defined in subsection (e)(8));
I.R.C. § 4975(d)(4) —
the investment of all or part of
a plan's assets in deposits which bear a reasonable interest rate
in a bank or similar financial institution supervised by the United
States or a State, if such bank or other institution is a fiduciary
of such plan and if—
I.R.C. § 4975(d)(4)(A) —
the plan covers only employees of
such bank or other institution and employees of affiliates of such
bank or other institution, or
I.R.C. § 4975(d)(4)(B) —
such investment is expressly authorized
by a provision of the plan or by a fiduciary (other than such bank
or institution or affiliates thereof) who is expressly empowered
by the plan to so instruct the trustee with respect to such investment;
I.R.C. § 4975(d)(5) —
any contract for life insurance,
health insurance, or annuities with one or more insurers which are
qualified to do business in a State if the plan pays no more than
adequate consideration, and if each such insurer or insurers is—
I.R.C. § 4975(d)(5)(A) —
the employer maintaining the plan,
or
I.R.C. § 4975(d)(5)(B) —
a disqualified person which is wholly
owned (directly or indirectly) by the employer establishing the plan,
or by any person which is a disqualified person with respect to the
plan, but only if the total premiums and annuity considerations written
by such insurers for life insurance, health insurance, or annuities
for all plans (and their employers) with respect to which such insurers
are disqualified persons (not including premiums or annuity considerations
written by the employer maintaining the plan) do not exceed 5 percent
of the total premiums and annuity considerations written for all
lines of insurance in that year by such insurers (not including premiums
or annuity considerations written by the employer maintaining the
plan);
I.R.C. § 4975(d)(6) —
the provision of any ancillary service
by a bank or similar financial institution supervised by the United
States or a State, if such service is provided at not more than reasonable
compensation, if such bank or other institution is a fiduciary of
such plan, and if—
I.R.C. § 4975(d)(6)(A) —
such bank or similar financial institution
has adopted adequate internal safeguards which assure that the provision
of such ancillary service is consistent with sound banking and financial
practice, as determined by Federal or State supervisory authority,
and
I.R.C. § 4975(d)(6)(B) —
the extent to which such ancillary
service is provided is subject to specific guidelines issued by such
bank or similar financial institution (as determined by the Secretary
after consultation with Federal and State supervisory authority),
and under such guidelines the bank or similar financial institution
does not provide such ancillary service—
I.R.C. § 4975(d)(6)(B)(i) —
in an excessive or unreasonable
manner, and
I.R.C. § 4975(d)(6)(B)(ii) —
in a manner that would be inconsistent
with the best interests of participants and beneficiaries of employee
benefit plans;
I.R.C. § 4975(d)(7) —
the exercise of a privilege to convert
securities, to the extent provided in regulations of the Secretary,
but only if the plan receives no less than adequate consideration
pursuant to such conversion;
I.R.C. § 4975(d)(8) —
any transaction between a plan and
a common or collective trust fund or pooled investment fund maintained
by a disqualified person which is a bank or trust company supervised
by a State or Federal agency or between a plan and a pooled investment
fund of an insurance company qualified to do business in a State
if—
I.R.C. § 4975(d)(8)(A) —
the transaction is a sale or purchase
of an interest in the fund,
I.R.C. § 4975(d)(8)(B) —
the bank, trust company, or insurance
company receives not more than a reasonable compensation, and
I.R.C. § 4975(d)(8)(C) —
such transaction is expressly permitted
by the instrument under which the plan is maintained, or by a fiduciary
(other than the bank, trust company, or insurance company, or an
affiliate thereof) who has authority to manage and control the assets
of the plan;
I.R.C. § 4975(d)(9) —
receipt by a disqualified person
of any benefit to which he may be entitled as a participant or beneficiary
in the plan, so long as the benefit is computed and paid on a basis
which is consistent with the terms of the plan as applied to all
other participants and beneficiaries;
I.R.C. § 4975(d)(10) —
receipt by a disqualified person
of any reasonable compensation for services rendered, or for the
reimbursement of expenses properly and actually incurred, in the
performance of his duties with the plan, but no person so serving
who already receives full-time pay from an employer or an association
of employers, whose employees are participants in the plan or from
an employee organization whose members are participants in such plan
shall receive compensation from such fund, except for reimbursement
of expenses properly and actually incurred;
I.R.C. § 4975(d)(11) —
service by a disqualified person
as a fiduciary in addition to being an officer, employee, agent,
or other representative of a disqualified person;
I.R.C. § 4975(d)(12) —
the making by a fiduciary of a distribution
of the assets of the trust in accordance with the terms of the plan
if such assets are distributed in the same manner as provided under
section 4044 of title IV of the Employee Retirement Income Security
Act of 1974 (relating to allocation of assets);
I.R.C. § 4975(d)(13) —
any transaction which is exempt
from section 406 of such Act by reason of section 408(e) of such Act
(or which would be so exempt if such section 406 applied to such
transaction) or which is exempt from section 406 of such Act by reason
of section 408(b)(12) of such Act;
I.R.C. § 4975(d)(14) —
any transaction required or permitted
under part 1 of subtitle E of title IV or section 4223 of the Employee
Retirement Income Security Act of 1974, but this paragraph shall
not apply with respect to the application of subsection (c)(1) (E)
or (F);
I.R.C. § 4975(d)(15) —
a merger of multiemployer plans,
or the transfer of assets or liabilities between multiemployer plans,
determined by the Pension Benefit Guaranty Corporation to meet the
requirements of section 4231 of such Act, but this paragraph shall
not apply with respect to the application of subsection (c)(1) (E)
or (F);
I.R.C. § 4975(d)(16) —
a sale of stock held by a trust
which constitutes an individual retirement account under section 408(a) to the individual for
whose benefit such account is established if—
I.R.C. § 4975(d)(16)(A) —
such stock is in a bank (as defined
in section 581)
or a depository institution holding company (as defined in section
3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1))),
I.R.C. § 4975(d)(16)(B) —
such stock is held by such trust as
of the date of the enactment of this paragraph,
I.R.C. § 4975(d)(16)(C) —
such sale is pursuant to an election
under section 1362(a) by
such bank or company,
I.R.C. § 4975(d)(16)(D) —
such sale is for fair market value
at the time of sale (as established by an independent appraiser)
and the terms of the sale are otherwise at least as favorable to
such trust as the terms that would apply on a sale to an unrelated
party,
I.R.C. § 4975(d)(16)(E) —
such trust does not pay any commissions,
costs, or other expenses in connection with the sale, and
I.R.C. § 4975(d)(16)(F) —
the stock is sold in a single transaction
for cash not later than 120 days after the S corporation election
is made;
I.R.C. § 4975(d)(17) —
any transaction in connection with
the provision of investment advice described in subsection (e)(3)(B)
to a participant or beneficiary in a plan that permits such participant
or beneficiary to direct the investment of plan assets in an individual
account, if—
I.R.C. § 4975(d)(17)(A) —
the transaction is—
I.R.C. § 4975(d)(17)(A)(i) —
the provision of the investment advice
to the participant or beneficiary of the plan with respect to a security
or other property available as an investment under the plan,
I.R.C. § 4975(d)(17)(A)(ii) —
the acquisition, holding, or sale
of a security or other property available as an investment under
the plan pursuant to the investment advice, or
I.R.C. § 4975(d)(17)(A)(iii) —
the direct or indirect receipt of
fees or other compensation by the fiduciary adviser or an affiliate
thereof (or any employee, agent, or registered representative of
the fiduciary adviser or affiliate) in connection with the provision
of the advice or in connection with an acquisition, holding, or sale
of a security or other property available as an investment under
the plan pursuant to the investment advice; and
I.R.C. § 4975(d)(17)(B) —
the requirements of subsection (f)(8)
are met,
I.R.C. § 4975(d)(18) —
any transaction involving the purchase
or sale of securities, or other property (as determined by the Secretary
of Labor), between a plan and a disqualified person (other than a
fiduciary described in subsection (e)(3)) with respect to a plan
if—
I.R.C. § 4975(d)(18)(A) —
the transaction involves a block
trade,
I.R.C. § 4975(d)(18)(B) —
at the time of the transaction, the
interest of the plan (together with the interests of any other plans
maintained by the same plan sponsor), does not exceed 10 percent
of the aggregate size of the block trade,
I.R.C. § 4975(d)(18)(C) —
the terms of the transaction, including
the price, are at least as favorable to the plan as an arm's length
transaction, and
I.R.C. § 4975(d)(18)(D) —
the compensation associated with the
purchase and sale is not greater than the compensation associated
with an arm's length transaction with an unrelated party,
I.R.C. § 4975(d)(19) —
any transaction involving the purchase
or sale of securities, or other property (as determined by the Secretary
of Labor), between a plan and a disqualified person if—
I.R.C. § 4975(d)(19)(A) —
the transaction is executed through
an electronic communication network, alternative trading system,
or similar execution system or trading venue subject to regulation
and oversight by—
I.R.C. § 4975(d)(19)(A)(i) —
the applicable Federal regulating
entity, or
I.R.C. § 4975(d)(19)(A)(ii) —
such foreign regulatory entity as
the Secretary of Labor may determine by regulation,
I.R.C. § 4975(d)(19)(B) —
either—
I.R.C. § 4975(d)(19)(B)(i) —
the transaction is effected pursuant
to rules designed to match purchases and sales at the best price
available through the execution system in accordance with applicable
rules of the Securities and Exchange Commission or other relevant
governmental authority, or
I.R.C. § 4975(d)(19)(B)(ii) —
neither the execution system nor
the parties to the transaction take into account the identity of
the parties in the execution of trades,
I.R.C. § 4975(d)(19)(C) —
the price and compensation associated
with the purchase and sale are not greater than the price and compensation
associated with an arm's length transaction with an unrelated party,
I.R.C. § 4975(d)(19)(D) —
if the disqualified person has an
ownership interest in the system or venue described in subparagraph
(A), the system or venue has been authorized by the plan sponsor
or other independent fiduciary for transactions described in this
paragraph, and
I.R.C. § 4975(d)(19)(E) —
not less than 30 days prior to the
initial transaction described in this paragraph executed through
any system or venue described in subparagraph (A), a plan fiduciary
is provided written or electronic notice of the execution of such
transaction through such system or venue,
I.R.C. § 4975(d)(20) —
transactions described in subparagraphs
(A), (B), and (D) of subsection (c)(1) between a plan and a person
that is a disqualified person other than a fiduciary (or an affiliate)
who has or exercises any discretionary authority or control with
respect to the investment of the plan assets involved in the transaction
or renders investment advice (within the meaning of subsection (e)(3)(B))
with respect to those assets, solely by reason of providing services
to the plan or solely by reason of a relationship to such a service
provider described in subparagraph (F), (G), (H), or (I) of subsection
(e)(2), or both, but only if in connection with such transaction
the plan receives no less, nor pays no more, than adequate consideration,
I.R.C. § 4975(d)(21) —
any foreign exchange transactions, between
a bank or broker-dealer (or any affiliate of either) and a plan (as
defined in this section) with respect to which such bank or broker-dealer
(or affiliate) is a trustee, custodian, fiduciary, or other disqualified
person, if—
I.R.C. § 4975(d)(21)(A) —
the transaction is in connection with
the purchase, holding, or sale of securities or other investment
assets (other than a foreign exchange transaction unrelated to any
other investment in securities or other investment assets),
I.R.C. § 4975(d)(21)(B) —
at the time the foreign exchange transaction
is entered into, the terms of the transaction are not less favorable
to the plan than the terms generally available in comparable arm's
length foreign exchange transactions between unrelated parties, or
the terms afforded by the bank or broker-dealer (or any affiliate
of either) in comparable arm's-length foreign exchange transactions
involving unrelated parties,
I.R.C. § 4975(d)(21)(C) —
the exchange rate used by such bank
or broker-dealer (or affiliate) for a particular foreign exchange
transaction does not deviate by more than 3 percent from the interbank
bid and asked rates for transactions of comparable size and maturity
at the time of the transaction as displayed on an independent service
that reports rates of exchange in the foreign currency market for
such currency, and
I.R.C. § 4975(d)(21)(D) —
the bank or broker-dealer (or any
affiliate of either) does not have investment discretion, or provide
investment advice, with respect to the transaction,
I.R.C. § 4975(d)(22) —
any transaction described in subsection
(c)(1)(A) involving the purchase and sale of a security between a
plan and any other account managed by the same investment manager,
if—
I.R.C. § 4975(d)(22)(A) —
the transaction is a purchase or sale,
for no consideration other than cash payment against prompt delivery
of a security for which market quotations are readily available,
I.R.C. § 4975(d)(22)(B) —
the transaction is effected at the
independent current market price of the security (within the meaning
of section 270.17a-7(b) of title 17, Code of Federal Regulations),
I.R.C. § 4975(d)(22)(C) —
no brokerage commission, fee (except
for customary transfer fees, the fact of which is disclosed pursuant
to subparagraph (D)), or other remuneration is paid in connection
with the transaction,
I.R.C. § 4975(d)(22)(D) —
a fiduciary (other than the investment
manager engaging in the cross-trades or any affiliate) for each plan
participating in the transaction authorizes in advance of any cross-trades
(in a document that is separate from any other written agreement
of the parties) the investment manager to engage in cross trades
at the investment manager's discretion, after such fiduciary has
received disclosure regarding the conditions under which cross trades
may take place (but only if such disclosure is separate from any
other agreement or disclosure involving the asset management relationship),
including the written policies and procedures of the investment manager
described in subparagraph (H),
I.R.C. § 4975(d)(22)(E) —
each plan participating in the transaction
has assets of at least $100,000,000, except that if the assets of
a plan are invested in a master trust containing the assets of plans
maintained by employers in the same controlled group (as defined
in section 407(d)(7) of the Employee Retirement Income Security Act
of 1974), the master trust has assets of at least $100,000,000,
I.R.C. § 4975(d)(22)(F) —
the investment manager provides to
the plan fiduciary who authorized cross trading under subparagraph
(D) a quarterly report detailing all cross trades executed by the
investment manager in which the plan participated during such quarter,
including the following information, as applicable: (i) the identity
of each security bought or sold; (ii) the number of shares or units
traded; (iii) the parties involved in the cross-trade; and (iv) trade
price and the method used to establish the trade price,
I.R.C. § 4975(d)(22)(G) —
the investment manager does not base
its fee schedule on the plan's consent to cross trading, and no other
service (other than the investment opportunities and cost savings
available through a cross trade) is conditioned on the plan's consent
to cross trading,
I.R.C. § 4975(d)(22)(H) —
the investment manager has adopted,
and cross-trades are effected in accordance with, written cross-trading
policies and procedures that are fair and equitable to all accounts
participating in the cross-trading program, and that include a description
of the manager's pricing policies and procedures, and the manager's
policies and procedures for allocating cross trades in an objective
manner among accounts participating in the cross-trading program,
and
I.R.C. § 4975(d)(22)(I) —
the investment manager has designated
an individual responsible for periodically reviewing such purchases
and sales to ensure compliance with the written policies and procedures
described in subparagraph (H), and following such review, the individual
shall issue an annual written report no later than 90 days following
the period to which it relates signed under penalty of perjury to
the plan fiduciary who authorized cross trading under subparagraph
(D) describing the steps performed during the course of the review,
the level of compliance, and any specific instances of non-compliance.
The written report shall also notify
the plan fiduciary of the plan's right to terminate participation
in the investment manager's cross-trading program at any time,
I.R.C. § 4975(d)(23) —
except as provided in subsection
(f)(11), a transaction described in subparagraph (A), (B), (C), or
(D) of subsection (c)(1) in connection with the acquisition, holding,
or disposition of any security or commodity, if the transaction is
corrected before the end of the correction period,
Editor's Note: Sec. 4975(d)(24) of Pub. L. 117-328, Div. T, Sec. 113(c), below,
is effective with respect to plan years beginning after the date enactment
of this Act. Pub. L. 117-328,,
Div. T, Sec. 120(a) further amended subsec. (a) by striking “,or”,
at the end of (23), by striking the period at the end of par. (24)
and adding new par. (25). The additional amendments are effective
with respect to transactions occurring on or after the date which
is 12 months after the date of enactment of this Act [Enacted: Dec.
29, 2022].
I.R.C. § 4975(d)(24) —
the provision of a de minimis financial
incentive described in section 401(k)(4)(A) or,
Editor's Note: Sec. 4975(d)(25) of Pub. L. 117-328, Div. T, Sec. 120(a) added
par. (25), below, effective with respect to transactions occurring
on or after the date which is 12 months after the date of enactment
of this Act [Enacted: Dec. 29, 2022].
I.R.C. § 4975(d)(25) —
the receipt of fees and compensation
by the automatic portability provider for services provided in connection
with an automatic portability transaction.
I.R.C. § 4975(e) Definitions
I.R.C. § 4975(e)(1) Plan —
For purposes of this section, the term “plan” means—
I.R.C. § 4975(e)(1)(A) —
a trust described in section 401(a) which forms a part of
a plan, or a plan described in section 403(a), which trust or plan
is exempt from tax under section 501(a),
I.R.C. § 4975(e)(1)(B) —
an individual retirement account
described in section 408(a),
I.R.C. § 4975(e)(1)(C) —
an individual retirement annuity
described in section 408(b),
I.R.C. § 4975(e)(1)(D) —
an Archer MSA described in section 220(d),
I.R.C. § 4975(e)(1)(E) —
a health savings account described
in section 223(d),
I.R.C. § 4975(e)(1)(F) —
a Coverdell education savings account
described in section 530,
or
I.R.C. § 4975(e)(1)(G) —
a trust, plan, account, or annuity
which, at any time, has been determined by the Secretary to be described
in any preceding subparagraph of this paragraph.
I.R.C. § 4975(e)(2) Disqualified Person —
For purposes of this section, the term “disqualified
person” means a person who is—
I.R.C. § 4975(e)(2)(A) —
a fiduciary;
I.R.C. § 4975(e)(2)(B) —
a person providing services to the
plan;
I.R.C. § 4975(e)(2)(C) —
an employer any of whose employees
are covered by the plan;
I.R.C. § 4975(e)(2)(D) —
an employee organization any of
whose members are covered by the plan;
I.R.C. § 4975(e)(2)(E) —
an owner, direct or indirect, of
50 percent or more of—
I.R.C. § 4975(e)(2)(E)(i) —
the combined voting power of all
classes of stock entitled to vote or the total value of shares of
all classes of stock of a corporation,
I.R.C. § 4975(e)(2)(E)(ii) —
the capital interest or the profits
interest of a partnership, or
I.R.C. § 4975(e)(2)(E)(iii) —
the beneficial interest of a trust
or unincorporated enterprise,
which is an employer or an employee
organization described in subparagraph (C) or (D);
I.R.C. § 4975(e)(2)(F) —
a member of the family (as defined
in paragraph (6)) of any individual described in subparagraph (A),
(B), (C), or (E);
I.R.C. § 4975(e)(2)(G) —
a corporation, partnership, or trust
or estate of which (or in which) 50 percent or more of—
I.R.C. § 4975(e)(2)(G)(i) —
the combined voting power of all
classes of stock entitled to vote or the total value of shares of
all classes of stock of such corporation,
I.R.C. § 4975(e)(2)(G)(ii) —
the capital interest or profits
interest of such partnership, or
I.R.C. § 4975(e)(2)(G)(iii) —
the beneficial interest of such
trust or estate, is owned directly or indirectly, or held by persons
described in subparagraph (A), (B), (C), (D), or (E);
I.R.C. § 4975(e)(2)(H) —
an officer, director (or an individual
having powers or responsibilities similar to those of officers or
directors), a 10 percent or more shareholder, or a highly compensated
employee (earning 10 percent or more of the yearly wages of an employer)
of a person described in subparagraph (C), (D), (E), or (G); or
I.R.C. § 4975(e)(2)(I) —
a 10 percent or more (in capital
or profits) partner or joint venturer of a person described in subparagraph
(C), (D), (E), or (G).
The Secretary, after consultation
and coordination with the Secretary of Labor or his delegate, may
by regulation prescribe a percentage lower than 50 percent for subparagraphs
(E) and (G) and lower than 10 percent for subparagraphs (H) and (I).
I.R.C. § 4975(e)(3) Fiduciary —
For purposes of this section, the term “fiduciary"
means any person who—
I.R.C. § 4975(e)(3)(A) —
exercises any discretionary authority
or discretionary control respecting management of such plan or exercises
any authority or control respecting management or disposition of
its assets,
I.R.C. § 4975(e)(3)(B) —
renders investment advice for a
fee or other compensation, direct or indirect, with respect to any
moneys or other property of such plan, or has any authority or responsibility
to do so, or
I.R.C. § 4975(e)(3)(C) —
has any discretionary authority
or discretionary responsibility in the administration of such plan.
Such term includes any person designated under section 405(c)(1)(B) of the Employee Retirement
Income Security Act of 1974.
I.R.C. § 4975(e)(4) Stockholdings —
For purposes of paragraphs (2)(E)(i) and (G)(i) there
shall be taken into account indirect stockholdings which would be
taken into account under section 267(c),
except that, for purposes of this paragraph, section 267(c)(4) shall be treated
as providing that the members of the family of an individual are the
members within the meaning of paragraph (6).
I.R.C. § 4975(e)(5) Partnerships; Trusts —
For purposes of paragraphs (2)(E)(ii) and (iii), (G)(ii)
and (iii), and (I) the ownership of profits or beneficial interests
shall be determined in accordance with the rules for constructive
ownership of stock provided in section 267(c) (other than paragraph
(3) thereof), except that section 267(c)(4) shall be treated
as providing that the members of the family of an individual are
the members within the meaning of paragraph (6).
I.R.C. § 4975(e)(6) Member Of Family —
For purposes of paragraph (2)(F), the family of any
individual shall include his spouse, ancestor, lineal descendant,
and any spouse of a lineal descendant.
I.R.C. § 4975(e)(7) Employee Stock Ownership Plan —
The term “employee stock ownership plan” means a defined
contribution plan—
I.R.C. § 4975(e)(7)(A) —
which is a stock bonus plan which
is qualified, or a stock bonus and a money purchase plan both of
which are qualified under section 401(a),
and which are designed to invest primarily in qualifying employer
securities; and
I.R.C. § 4975(e)(7)(B) —
which is otherwise defined in regulations
prescribed by the Secretary.
A plan shall not be treated as an employee stock ownership
plan unless it meets the requirements of section 409(h), section 409(o), and, if applicable,
section 409(n),
section 409(p),
and section 664(g) and,
if the employer has a registration-type class of securities (as defined
in section 409(e)(4)),
it meets the requirements of section 409(e).
I.R.C. § 4975(e)(8) Qualifying Employer Security —
The term “qualifying employer security” means any employer
security within the meaning of section 409(l). If any moneys or other
property of a plan are invested in shares of an investment company
registered under the Investment Company Act of 1940, the investment
shall not cause that investment company or that investment company's
investment adviser or principal underwriter to be treated as a fiduciary
or a disqualified person for purposes of this section, except when
an investment company or its investment adviser or principal underwriter
acts in connection with a plan covering employees of the investment
company, its investment adviser, or its principal underwriter.
I.R.C. § 4975(e)(9) Section Made Applicable To Withdrawal Liability Payment Funds —
For purposes of this section—
I.R.C. § 4975(e)(9)(A) In General —
The term “plan” includes a trust described in section 501(c)(22).
I.R.C. § 4975(e)(9)(B) Disqualified Person —
In the case of any trust to which this section applies
by reason of subparagraph (A), the term “disqualified person” includes
any person who is a disqualified person with respect to any plan
to which such trust is permitted to make payments under section 4223
of the Employee Retirement Income Security Act of 1974.
I.R.C. § 4975(f) Other Definitions And Special Rules —
For purposes of this section—
I.R.C. § 4975(f)(1) Joint And Several Liability —
If more than one person is liable under subsection
(a) or (b) with respect to any one prohibited transaction, all such
persons shall be jointly and severally liable under such subsection
with respect to such transaction.
I.R.C. § 4975(f)(2) Taxable Period —
The term “taxable period” means, with respect to any
prohibited transaction, the period beginning with the date on which
the prohibited transaction occurs and ending on the earliest of—
I.R.C. § 4975(f)(2)(A) —
the date of mailing a notice of
deficiency with respect to the tax imposed by subsection (a) under
section 6212,
I.R.C. § 4975(f)(2)(B) —
the date on which the tax imposed
by subsection (a) is assessed, or
I.R.C. § 4975(f)(2)(C) —
the date on which correction of
the prohibited transaction is completed.
I.R.C. § 4975(f)(3) Sale Or Exchange; Encumbered Property —
A transfer or real or personal property by a disqualified
person to a plan shall be treated as a sale or exchange if the property
is subject to a mortgage or similar lien which the plan assumes or
if it is subject to a mortgage or similar lien which a disqualified
person placed on the property within the 10-year period ending on
the date of the transfer.
I.R.C. § 4975(f)(4) Amount Involved —
The term “amount involved” means, with respect to a
prohibited transaction, the greater of the amount of money and the
fair market value of the other property given or the amount of money
and the fair market value of the other property received; except
that, in the case of services described in paragraphs (2) and (10)
of subsection (d) the amount involved shall be only the excess compensation.
For purposes of the preceding sentence, the fair market value—
I.R.C. § 4975(f)(4)(A) —
in the case of the tax imposed by
subsection (a), shall be determined as of the date on which the prohibited
transaction occurs; and
I.R.C. § 4975(f)(4)(B) —
in the case of the tax imposed by
subsection (b), shall be the highest fair market value during the
taxable period.
I.R.C. § 4975(f)(5) Correction —
The terms “correction” and “correct” mean, with respect
to a prohibited transaction, undoing the transaction to the extent
possible, but in any case placing the plan in a financial position
not worse than that in which it would be if the disqualified person
were acting under the highest fiduciary standards.
I.R.C. § 4975(f)(6) Exemptions Not To Apply To Certain Transactions
I.R.C. § 4975(f)(6)(A) In General —
In the case of a trust described in section 401(a) which is part of a plan
providing contributions or benefits for employees some or all of
whom are owner-employees (as defined in section 401(c)(3)), the exemptions
provided by subsection (d) (other than paragraphs (9) and (12))
shall not apply to a transaction in which the plan directly or indirectly—
I.R.C. § 4975(f)(6)(A)(i) —
lends any part of the corpus or
income of the plan to,
I.R.C. § 4975(f)(6)(A)(ii) —
pays any compensation for personal
services rendered to the plan to, or
I.R.C. § 4975(f)(6)(A)(iii) —
acquires for the plan any property
from, or sells any property to,
any such owner-employee, a member of the family (as defined
in section 267(c)(4))
of any such owner-employee, or any corporation in which any such
owner-employee owns, directly or indirectly, 50 percent or more of
the total combined voting power of all classes of stock entitled
to vote or 50 percent or more of the total value of shares of all
classes of stock of the corporation.
I.R.C. § 4975(f)(6)(B) Special Rules For Shareholder-Employees, Etc.
I.R.C. § 4975(f)(6)(B)(i) In General —
For purposes of subparagraph (A), the following shall
be treated as owner-employees:
I.R.C. § 4975(f)(6)(B)(i)(I) —
A shareholder-employee.
I.R.C. § 4975(f)(6)(B)(i)(II) —
A participant or beneficiary of
an individual retirement plan (as defined in section 7701(a)(37)).
I.R.C. § 4975(f)(6)(B)(i)(III) —
An employer or association of employees
which establishes such an individual retirement plan under section
408(c).
I.R.C. § 4975(f)(6)(B)(ii) Exception For Certain Transactions Involving Shareholder-Employees —
Subparagraph (A)(iii) shall not apply to a transaction
which consists of a sale of employer securities to an employee stock
ownership plan (as defined in subsection (e)(7)) by a shareholder-employee,
a member of the family (as defined in section 267(c)(4)) of such shareholder-employee,
or a corporation in which such a shareholder-employee owns stock
representing a 50 percent or greater interest described in subparagraph
(A).
I.R.C. § 4975(f)(6)(B)(iii) Loan Exception —
For purposes of subparagraph (A)(i), the term “owner-employee”
shall only include a person described in subclause (II) or (III)
of clause (i).
I.R.C. § 4975(f)(6)(C) Shareholder-Employee —
For purposes of subparagraph (B), the term “shareholder-employee”
means an employee or officer of an S corporation who owns (or is
considered as owning within the meaning of section 318(a)(1)) more than 5 percent
of the outstanding stock of the corporation on any day during the
taxable year of such corporation.
I.R.C. § 4975(f)(7) S Corporation Repayment Of Loans For Qualifying Employer Securities —
A plan shall not be treated as violating
the requirements of section 401 or 409 or subsection (e)(7), or as
engaging in a prohibited transaction for purposes of subsection (d)(3),
merely by reason of any distribution (as described in section 1368(a)) with respect to S
corporation stock that constitutes qualifying employer securities,
which in accordance with the plan provisions is used to make payments
on a loan described in subsection (d)(3) the proceeds of which were
used to acquire such qualifying employer securities (whether or not
allocated to participants). The preceding sentence shall not apply
in the case of a distribution which is paid with respect to any employer
security which is allocated to a participant unless the plan provides
that employer securities with a fair market value of not less than
the amount of such distribution are allocated to such participant
for the year which (but for the preceding sentence) such distribution
would have been allocated to such participant.
I.R.C. § 4975(f)(8) Provision Of Investment Advice To Participant And Beneficiaries
I.R.C. § 4975(f)(8)(A) In General —
The prohibitions provided in subsection (c) shall
not apply to transactions described in subsection (d)(17) if the
investment advice provided by a fiduciary adviser is provided under
an eligible investment advice arrangement.
I.R.C. § 4975(f)(8)(B) Eligible Investment Advice Arrangement —
For purposes of this paragraph, the term “eligible
investment advice arrangement” means an arrangement—
I.R.C. § 4975(f)(8)(B)(i) —
which either—
I.R.C. § 4975(f)(8)(B)(i)(I) —
provides that any fees (including
any commission or other compensation) received by the fiduciary
adviser for investment advice or with respect to the sale, holding,
or acquisition of any security or other property for purposes of
investment of plan assets do not vary depending on the basis of
any investment option selected, or
I.R.C. § 4975(f)(8)(B)(i)(II) —
uses a computer model under an investment
advice program meeting the requirements of subparagraph (C) in
connection with the provision of investment advice by a fiduciary
adviser to a participant or beneficiary, and
I.R.C. § 4975(f)(8)(B)(ii) —
with respect to which the requirements
of subparagraphs (D), (E), (F), (G), (H), and (I) are met.
I.R.C. § 4975(f)(8)(C) Investment Advice Program Using Computer Model
I.R.C. § 4975(f)(8)(C)(i) In General —
An investment advice program meets the requirements
of this subparagraph if the requirements of clauses (ii), (iii),
and (iv) are met.
I.R.C. § 4975(f)(8)(C)(ii) Computer Model —
The requirements of this clause are met if the investment
advice provided under the investment advice program is provided pursuant
to a computer model that—
I.R.C. § 4975(f)(8)(C)(ii)(I) —
applies generally accepted investment
theories that take into account the historic returns of different
asset classes over defined periods of time,
I.R.C. § 4975(f)(8)(C)(ii)(II) —
utilizes relevant information about
the participant, which may include age, life expectancy, retirement
age, risk tolerance, other assets or sources of income, and preferences
as to certain types of investments,
I.R.C. § 4975(f)(8)(C)(ii)(III) —
utilizes prescribed objective criteria
to provide asset allocation portfolios comprised of investment
options available under the plan,
I.R.C. § 4975(f)(8)(C)(ii)(IV) —
operates in a manner that is not
biased in favor of investments offered by the fiduciary adviser
or a person with a material affiliation or contractual relationship
with the fiduciary adviser, and
I.R.C. § 4975(f)(8)(C)(ii)(V) —
takes into account all investment
options under the plan in specifying how a participant's account
balance should be invested and is not inappropriately weighted
with respect to any investment option.
I.R.C. § 4975(f)(8)(C)(iii) Certification
I.R.C. § 4975(f)(8)(C)(iii)(I) In General —
The requirements of this clause are met with respect
to any investment advice program if an eligible investment expert
certifies, prior to the utilization of the computer model and in
accordance with rules prescribed by the Secretary of Labor, that
the computer model meets the requirements of clause (ii).
I.R.C. § 4975(f)(8)(C)(iii)(II) Renewal Of Certifications —
If, as determined under regulations prescribed by
the Secretary of Labor, there are material modifications to a computer
model, the requirements of this clause are met only if a certification
described in subclause (I) is obtained with respect to the computer
model as so modified.
I.R.C. § 4975(f)(8)(C)(iii)(III) Eligible Investment Expert —
The term “eligible investment expert” means any
person which meets such requirements as the Secretary of Labor
may provide and which does not bear any material affiliation or
contractual relationship with any investment adviser or a related
person thereof (or any employee, agent, or registered representative
of the investment adviser or related person).
I.R.C. § 4975(f)(8)(C)(iv) Exclusivity Of Recommendation —
The requirements of this clause are met with respect
to any investment advice program if—
I.R.C. § 4975(f)(8)(C)(iv)(I) —
the only investment advice provided
under the program is the advice generated by the computer model
described in clause (ii), and
I.R.C. § 4975(f)(8)(C)(iv)(II) —
any transaction described in subsection
(d)(17)(A)(ii) occurs solely at the direction of the participant
or beneficiary. Nothing in the preceding sentence shall preclude
the participant or beneficiary from requesting investment advice
other than that described in clause (i), but only if such request
has not been solicited by any person connected with carrying out
the arrangement.
I.R.C. § 4975(f)(8)(D) Express Authorization By Separate Fiduciary —
The requirements of this subparagraph are met with
respect to an arrangement if the arrangement is expressly authorized
by a plan fiduciary other than the person offering the investment
advice program, any person providing investment options under the
plan, or any affiliate of either.
I.R.C. § 4975(f)(8)(E) Audits
I.R.C. § 4975(f)(8)(E)(i) In General —
The requirements of this subparagraph are met if an
independent auditor, who has appropriate technical training or experience
and proficiency and so represents in writing—
I.R.C. § 4975(f)(8)(E)(i)(I) —
conducts an annual audit of the arrangement
for compliance with the requirements of this paragraph, and
I.R.C. § 4975(f)(8)(E)(i)(II) —
following completion of the annual
audit, issues a written report to the fiduciary who authorized
use of the arrangement which presents its specific findings regarding
compliance of the arrangement with the requirements of this paragraph.
I.R.C. § 4975(f)(8)(E)(ii) Special Rule For Individual Retirement And Similar Plans —
In the case of a plan described in subparagraphs (B)
through (F) (and so much of subparagraph (G) as relates to such subparagraphs)
of subsection (e)(1), in lieu of the requirements of clause (i),
audits of the arrangement shall be conducted at such times and in
such manner as the Secretary of Labor may prescribe.
I.R.C. § 4975(f)(8)(E)(iii) Independent Auditor —
For purposes of this subparagraph, an auditor is considered
independent if it is not related to the person offering the arrangement
to the plan and is not related to any person providing investment
options under the plan.
I.R.C. § 4975(f)(8)(F) Disclosure —
The requirements of this subparagraph are met if—
I.R.C. § 4975(f)(8)(F)(i) —
the fiduciary adviser provides to
a participant or a beneficiary before the initial provision of the
investment advice with regard to any security or other property offered
as an investment option, a written notification (which may consist
of notification by means of electronic communication)—
I.R.C. § 4975(f)(8)(F)(i)(I) —
of the role of any party that has
a material affiliation or contractual relationship with the fiduciary
adviser in the development of the investment advice program and
in the selection of investment options available under the plan,
I.R.C. § 4975(f)(8)(F)(i)(II) —
of the past performance and historical
rates of return of the investment options available under the plan,
I.R.C. § 4975(f)(8)(F)(i)(III) —
of all fees or other compensation
relating to the advice that the fiduciary adviser or any affiliate
thereof is to receive (including compensation provided by any third
party) in connection with the provision of the advice or in connection
with the sale, acquisition, or holding of the security or other
property,
I.R.C. § 4975(f)(8)(F)(i)(IV) —
of any material affiliation or contractual
relationship of the fiduciary adviser or affiliates thereof in
the security or other property,
I.R.C. § 4975(f)(8)(F)(i)(V) —
of the manner, and under what circumstances,
any participant or beneficiary information provided under the arrangement
will be used or disclosed,
I.R.C. § 4975(f)(8)(F)(i)(VI) —
of the types of services provided
by the fiduciary adviser in connection with the provision of investment
advice by the fiduciary adviser,
I.R.C. § 4975(f)(8)(F)(i)(VII) —
that the adviser is acting as a
fiduciary of the plan in connection with the provision of the
advice, and
I.R.C. § 4975(f)(8)(F)(i)(VIII) —
that a recipient of the advice
may separately arrange for the provision of advice by another
adviser, that could have no material affiliation with and receive
no fees or other compensation in connection with the security or
other property, and
I.R.C. § 4975(f)(8)(F)(ii) —
at all times during the provision
of advisory services to the participant or beneficiary, the fiduciary
adviser—
I.R.C. § 4975(f)(8)(F)(ii)(I) —
maintains the information described
in clause (i) in accurate form and in the manner described in
subparagraph (H),
I.R.C. § 4975(f)(8)(F)(ii)(II) —
provides, without charge, accurate
information to the recipient of the advice no less frequently
than annually,
I.R.C. § 4975(f)(8)(F)(ii)(III) —
provides, without charge, accurate
information to the recipient of the advice upon request of the
recipient, and
I.R.C. § 4975(f)(8)(F)(ii)(IV) —
provides, without charge, accurate
information to the recipient of the advice concerning any material
change to the information required to be provided to the recipient
of the advice at a time reasonably contemporaneous to the change
in information.
I.R.C. § 4975(f)(8)(G) Other Conditions —
The requirements of this subparagraph are met if—
I.R.C. § 4975(f)(8)(G)(i) —
the fiduciary adviser provides appropriate
disclosure, in connection with the sale, acquisition, or holding
of the security or other property, in accordance with all applicable
securities laws,
I.R.C. § 4975(f)(8)(G)(ii) —
the sale, acquisition, or holding
occurs solely at the direction of the recipient of the advice,
I.R.C. § 4975(f)(8)(G)(iii) —
the compensation received by the
fiduciary adviser and affiliates thereof in connection with the
sale, acquisition, or holding of the security or other property is
reasonable, and
I.R.C. § 4975(f)(8)(G)(iv) —
the terms of the sale, acquisition,
or holding of the security or other property are at least as favorable
to the plan as an arm's length transaction would be.
I.R.C. § 4975(f)(8)(H) Standards For Presentation Of Information
I.R.C. § 4975(f)(8)(H)(i) In General —
The requirements of this subparagraph are met if the
notification required to be provided to participants and beneficiaries
under subparagraph (F)(i) is written in a clear and conspicuous manner
and in a manner calculated to be understood by the average plan participant
and is sufficiently accurate and comprehensive to reasonably apprise
such participants and beneficiaries of the information required to
be provided in the notification.
I.R.C. § 4975(f)(8)(H)(ii) Model Form For Disclosure Of Fees And Other Compensation —
The Secretary of Labor shall issue a model form for
the disclosure of fees and other compensation required in subparagraph
(F)(i)(III) which meets the requirements of clause (i).
I.R.C. § 4975(f)(8)(I) Maintenance For 6 Years Of Evidence Of Compliance —
The requirements of this subparagraph are met if a
fiduciary adviser who has provided advice referred to in subparagraph
(A) maintains, for a period of not less than 6 years after the provision
of the advice, any records necessary for determining whether the
requirements of the preceding provisions of this paragraph and of
subsection (d)(17) have been met. A transaction prohibited under
subsection (c) shall not be considered to have occurred solely because
the records are lost or destroyed prior to the end of the 6-year
period due to circumstances beyond the control of the fiduciary adviser.
I.R.C. § 4975(f)(8)(J) Definitions —
For purposes of this paragraph and subsection (d)(17)—-
I.R.C. § 4975(f)(8)(J)(i) Fiduciary Adviser —
The term “fiduciary adviser” means, with respect to
a plan, a person who is a fiduciary of the plan by reason of the
provision of investment advice referred to in subsection (e)(3)(B)
by the person to a participant or beneficiary of the plan and who
is—
I.R.C. § 4975(f)(8)(J)(i)(I) —
registered as an investment adviser
under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) or under
the laws of the State in which the fiduciary maintains its principal
office and place of business,
I.R.C. § 4975(f)(8)(J)(i)(II) —
a bank or similar financial institution
referred to in subsection (d)(4) or a savings association (as defined
in section 3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(1)), but only
if the advice is provided through a trust department of the bank
or similar financial institution or savings association which is
subject to periodic examination and review by Federal or State
banking authorities,
I.R.C. § 4975(f)(8)(J)(i)(III) —
an insurance company qualified to
do business under the laws of a State,
I.R.C. § 4975(f)(8)(J)(i)(IV) —
a person registered as a broker or
dealer under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.),
I.R.C. § 4975(f)(8)(J)(i)(V) —
an affiliate of a person described
in any of subclauses (I) through (IV), or
I.R.C. § 4975(f)(8)(J)(i)(VI) —
an employee, agent, or registered
representative of a person described in subclauses (I) through
(V) who satisfies the requirements of applicable insurance, banking,
and securities laws relating to the provision of the advice.
For purposes of this title, a person
who develops the computer model described in subparagraph (C)(ii)
or markets the investment advice program or computer model shall
be treated as a person who is a fiduciary of the plan by reason of
the provision of investment advice referred to in subsection (e)(3)(B)
to a participant or beneficiary and shall be treated as a fiduciary
adviser for purposes of this paragraph and subsection (d)(17), except
that the Secretary of Labor may prescribe rules under which only
1 fiduciary adviser may elect to be treated as a fiduciary with respect
to the plan.
I.R.C. § 4975(f)(8)(J)(ii) Affiliate —
The term “affiliate” of another entity means an affiliated
person of the entity (as defined in section 2(a)(3) of the Investment
Company Act of 1940 (15 U.S.C.
80a-2(a)(3))).
I.R.C. § 4975(f)(8)(J)(iii) Registered Representative —
The term “registered representative” of another entity
means a person described in section 3(a)(18) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)(18))
(substituting the entity for the broker or dealer referred to in
such section) or a person described in section 202(a)(17) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(17))
(substituting the entity for the investment adviser referred to in
such section).
I.R.C. § 4975(f)(9) Block Trade —
The term “block trade” means any trade of at least
10,000 shares or with a market value of at least $200,000 which will
be allocated across two or more unrelated client accounts of a fiduciary.
I.R.C. § 4975(f)(10) Adequate Consideration —
The term “adequate consideration” means—
I.R.C. § 4975(f)(10)(A) —
in the case of a security for which
there is a generally recognized market—
I.R.C. § 4975(f)(10)(A)(i) —
the price of the security prevailing
on a national securities exchange which is registered under section
6 of the Securities Exchange Act of 1934, taking into account factors
such as the size of the transaction and marketability of the security,
or
I.R.C. § 4975(f)(10)(A)(ii) —
if the security is not traded on
such a national securities exchange, a price not less favorable
to the plan than the offering price for the security as established
by the current bid and asked prices quoted by persons independent
of the issuer and of the party in interest, taking into account factors
such as the size of the transaction and marketability of the security,
and
I.R.C. § 4975(f)(10)(B) —
in the case of an asset other than
a security for which there is a generally recognized market, the
fair market value of the asset as determined in good faith by a fiduciary
or fiduciaries in accordance with regulations prescribed by the Secretary
of Labor.
I.R.C. § 4975(f)(11) Correction Period
I.R.C. § 4975(f)(11)(A) In General —
For purposes of subsection (d)(23), the term “correction
period” means the 14-day period beginning on the date on which the
disqualified person discovers, or reasonably should have discovered,
that the transaction would (without regard to this paragraph and
subsection (d)(23)) constitute a prohibited transaction.
I.R.C. § 4975(f)(11)(B) Exceptions
I.R.C. § 4975(f)(11)(B)(i) Employer Securities —
Subsection (d)(23) does not apply to any transaction
between a plan and a plan sponsor or its affiliates that involves
the acquisition or sale of an employer security (as defined in section 407(d)(1) of the Employee Retirement
Income Security Act of 1974) or the acquisition, sale,
or lease of employer real property (as defined in section 407(d)(2)
of such Act).
I.R.C. § 4975(f)(11)(B)(ii) Knowing Prohibited Transaction —
In the case of any disqualified person, subsection
(d)(23) does not apply to a transaction if, at the time the transaction
is entered into, the disqualified person knew (or reasonably should
have known) that the transaction would (without regard to this paragraph)
constitute a prohibited transaction.
I.R.C. § 4975(f)(11)(C) Abatement Of Tax Where There Is A Correction —
If a transaction is not treated as a prohibited transaction
by reason of subsection (d)(23), then no tax under subsections (a)
and (b) shall be assessed with respect to such transaction, and if
assessed the assessment shall be abated, and if collected shall be
credited or refunded as an overpayment.
I.R.C. § 4975(f)(11)(D) Definitions —
For purposes of this paragraph and subsection (d)(23)—
I.R.C. § 4975(f)(11)(D)(i) Security —
The term “security” has the meaning given such term
by section 475(c)(2)
(without regard to subparagraph (F)(iii) and the last sentence thereof).
I.R.C. § 4975(f)(11)(D)(ii) Commodity —
The term “commodity” has the meaning given such term
by section 475(e)(2)
(without regard to subparagraph (D)(iii) thereof).
I.R.C. § 4975(f)(11)(D)(iii) Correct —
The term “correct” means, with respect to a transaction—
I.R.C. § 4975(f)(11)(D)(iii)(I) —
to undo the transaction to the extent
possible and in any case to make good to the plan or affected account
any losses resulting from the transaction, and
I.R.C. § 4975(f)(11)(D)(iii)(II) —
to restore to the plan or affected
account any profits made through the use of assets of the plan.
I.R.C. § 4975(f)(12) Rules Relating To Automatic Portability Transactions —
Editor's Note: Sec. 4975(f)(12) below,
as added by Pub. L. 117-328, Div. T, Sec. 120(b), is effective for
transactions occurring on or after Dec. 29, 2023.
I.R.C. § 4975(f)(12)(A) In General —
For purposes
of subsection (d)(25) --
I.R.C. § 4975(f)(12)(A)(i) Automatic Portability Transaction —
An automatic portability transaction is a transfer of
assets made—
I.R.C. § 4975(f)(12)(A)(i)(I) —
from an individual retirement plan which
is established on behalf of an individual and to which amounts were
transferred under section 401(a)(31)(B)(i),
I.R.C. § 4975(f)(12)(A)(i)(II) —
to an employer-sponsored retirement
plan described in clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B)
(other than a defined benefit plan) in which such individual is an
active participant, and
I.R.C. § 4975(f)(12)(A)(i)(III) —
after such individual has been given
advance notice of the transfer and has not affirmatively opted out
of such transfer.
I.R.C. § 4975(f)(12)(A)(ii) Automatic Portability Provider —
An automatic portability provider is a person, other
than an individual, who executes transfers described in clause (i).
I.R.C. § 4975(f)(12)(B) Conditions For Automatic Portability Transactions —
Subsection (d)(25) shall not apply to an automatic portability
transaction unless the following requirements are satisfied:
I.R.C. § 4975(f)(12)(B)(i) Acknowledgment Of Fiduciary Status.— —
An automatic portability provider shall acknowledge
in writing, at such time and format as specified by the Secretary
of Labor, that the provider is a fiduciary with respect to the individual
retirement plan described in subparagraph (A)(i)(I).
I.R.C. § 4975(f)(12)(B)(ii) Fees —
The fees and compensation received, directly or indirectly,
by the automatic portability provider for services provided in connection
with the automatic portability transaction (including any increase
in such fees or compensation and any fees or compensation in connection
with, but received before, the transaction)—
I.R.C. § 4975(f)(12)(B)(ii)(I) —
shall not exceed reasonable compensation,
and
I.R.C. § 4975(f)(12)(B)(ii)(II) —
shall be fully disclosed to and approved
in writing in advance of the transaction by a plan fiduciary of the
plan described in subparagraph (A)(i)(II) which is independent of
the automatic portability provider.
An automatic
portability provider shall not receive any fees or compensation in
connection with an automatic portability transaction involving a plan
which is sponsored or maintained by the automatic portability provider.
I.R.C. § 4975(f)(12)(B)(iii) Data Usage —
The automatic portability provider shall not market or
sell data relating to the individual retirement plan described in
subparagraph (A)(i)(I) or to the participants of the plan described
in subparagraph (A)(i)(II).
I.R.C. § 4975(f)(12)(B)(iv) Open Participation —
The automatic portability provider shall offer automatic
portability transactions on the same terms to any plan described in
subparagraph (A)(i)(II).
I.R.C. § 4975(f)(12)(B)(v) Pre-Transaction Notice —
At least 60 days in advance of an automatic portability
transaction, the automatic portability provider shall provide notice
to the individual on whose behalf the individual retirement plan described
in subparagraph (A)(i)(I) is established which includes—
I.R.C. § 4975(f)(12)(B)(v)(I) —
a description of the automatic portability
transaction and a complete and accurate statement of all fees which
will be charged and all compensation which will be received in connection
with the transaction,
I.R.C. § 4975(f)(12)(B)(v)(II) —
a clear and prominent description of
the individual's right to affirmatively elect not to participate
in the transaction as well as the other available distribution options,
the deadline by which the individual must make an election, the procedures
for such an election, and a telephone number for the automatic portability
provider that the individual may call to make such election,
I.R.C. § 4975(f)(12)(B)(v)(III) —
a description of the individual's
right to designate a beneficiary and the procedures to do so, and
I.R.C. § 4975(f)(12)(B)(v)(IV) —
such other disclosures as the Secretary
of Labor may require by regulation.
I.R.C. § 4975(f)(12)(B)(vi) Post-Transaction Notice
I.R.C. § 4975(f)(12)(B)(vi)(I) —
the actions taken by the automatic portability
provider with respect to the individual's account,
I.R.C. § 4975(f)(12)(B)(vi)(II) —
all relevant information regarding the
location and amount of any transferred assets,
I.R.C. § 4975(f)(12)(B)(vi)(III) —
a statement of fees charged against
the account by the automatic portability provider or its affiliates
in connection with the transfer,
I.R.C. § 4975(f)(12)(B)(vi)(IV) —
a telephone number at which the individual
can contact the automatic portability provider, and
I.R.C. § 4975(f)(12)(B)(vi)(V) —
such other disclosures as the Secretary
of Labor may require by regulation
I.R.C. § 4975(f)(12)(B)(vii) Notice Requirements —
The notices required under clauses (v) and (vi) shall
be written in a manner calculated to be understood by the average
person and shall not include inaccurate or misleading statements.
I.R.C. § 4975(f)(12)(B)(viii) Frequency Of Searches —
The automatic portability provider shall query on at
least a monthly basis whether any individual with an individual retirement
plan described in subparagraph (A)(i)(I) has an account in a plan
described in subparagraph (A)(i)(II).
I.R.C. § 4975(f)(12)(B)(ix) Timeliness Of Execution. —
After liquidating the assets of an individual retirement
plan described in subparagraph (A)(i)(I) to cash, an automatic portability
provider shall transfer the account balance of such plan as soon as
practicable to the plan described in subparagraph (A)(i)(II).
I.R.C. § 4975(f)(12)(B)(x) Limitation On Exercise Of Discretion —
The automatic portability provider shall neither have
nor exercise discretion to affect the timing or amount of the transfer
pursuant to an automatic portability transaction other than to deduct
the appropriate fees as described in clause (ii).
I.R.C. § 4975(f)(12)(B)(xi) Record Retention And Audits
I.R.C. § 4975(f)(12)(B)(xi)(I) In General —
An automatic portability provider shall, for not less
than 6 years after the automatic portability transaction has occurred,
maintain the records sufficient to demonstrate the terms of this subparagraph
have been met. The automatic portability provider shall make such
records available to any authorized employee of the Department of
the Treasury or the Department of Labor within 30 calendar days of
the date of a written request for such records.
I.R.C. § 4975(f)(12)(B)(xi)(II) Audits —
An automatic portability provider shall conduct an annual
audit, in accordance with regulations promulgated by the Secretary
of Labor, of automatic portability transactions occurring during the
calendar year to demonstrate compliance with this paragraph and any
regulations thereunder and identify any instances of noncompliance
therewith, and shall submit such audit annually to the Secretary of
Labor, in such form and manner as specified by such Secretary.
I.R.C. § 4975(f)(12)(B)(xii) Website —
The automatic portability provider shall maintain a website
which contains—
I.R.C. § 4975(f)(12)(B)(xii)(I) In General —
a list of recordkeepers for each plan described in subparagraph
(A)(i)(II) with respect to which the provider carries out automatic
portability transactions, and
I.R.C. § 4975(f)(12)(B)(xii)(II) —
a list of all fees described in clause
(ii)(II) paid to the provider.
I.R.C. § 4975(g) Application Of Section —
This section shall not apply—
I.R.C. § 4975(g)(1) —
in the case of a plan to which a
guaranteed benefit policy (as defined in section 401(b)(2)(B) of the Employee
Retirement Income Security Act of 1974) is issued, to any assets
of the insurance company, insurance service, or insurance organization
merely because of its issuance of such policy;
I.R.C. § 4975(g)(2) —
to a governmental plan (within the
meaning of section 414(d));
or
I.R.C. § 4975(g)(3) —
to a church plan (within the meaning
of section 414(e))
with respect to which the election provided by section 410(d) has not been made.
In the case of a plan which invests in any security
issued by an investment company registered under the Investment Company
Act of 1940, the assets of such plan shall be deemed to include such
security but shall not, by reason of such investment, be deemed to
include any assets of such company.
I.R.C. § 4975(h) Notification Of Secretary Of Labor —
Before sending a notice of deficiency with respect
to the tax imposed by subsection (a) or (b), the Secretary shall
notify the Secretary of Labor and provide him a reasonable opportunity
to obtain a correction of the prohibited transaction or to comment
on the imposition of such tax.
I.R.C. § 4975(i) Cross Reference —
For provisions concerning coordination procedures between
Secretary of Labor and Secretary of the Treasury with respect to
application of tax imposed by this section and for authority to waive
imposition of the tax imposed by subsection (b), see section 3003
of the Employee Retirement Income Security Act of 1974.
(Added Pub. L. 93-406,
title II, Sec. 2003(a), Sept. 2, 1974, 88
Stat. 971, and amended Pub.
L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1834; Pub. L. 95-600, title I, Sec. 141(f)(5),
(6), Nov. 6, 1978, 92 Stat. 2795; Pub. L. 96-222, title I, Sec. 101(a)(7)(C),
(K), (L)(iv)(III), (v)(XI), Apr. 1, 1980, 94
Stat. 198-201; Pub. L. 96-364,
title II, Sec. 208(b), 209(b), Sept. 26, 1980, 94 Stat. 1289, 1290; Pub. L. 96-596, Sec. 2(a)(1)(K),(L),
(2)(I), (3)(F), Dec. 24, 1980, 94 Stat.
3469, 3471; Pub. L. 97-448,
title III, Sec. 305(d)(5), Jan. 12, 1983, 96
Stat. 2400; Pub. L. 98-369,
div. A, title IV, Sec. 491(d)(45), (46), (e)(7), (8), July 18, 1984, 98 Stat. 851-853; Pub. L. 99-514, title XI, Sec. 1114(b)(15)(A),
title XVIII, Sec. 1854(f)(3)(A), 1899A(51), Oct. 22, 1986, 100 Stat. 2452, 2882, 2961; Pub. L. 101-508, title XI, Sec.
11701(m), Nov. 5, 1990, 104 Stat. 1388-513; Pub. L. 104-188, title I, Sec.
1453(a), 1702(g)(3), Aug. 20, 1996, 110
Stat. 1755; Pub. L. 104-191,
title III, Sec. 301(f), Aug. 21, 1996, 110
Stat. 1936 ;Pub. L. 105-34,
title II, X, XV, XVI, Sec. 213(b)(1), 213(b)(2), 1074(a), 1506(b)(1)(A),
1506(b)(1)(B), 1602(a)(5), Aug. 5, 1997, 111
Stat 788; Pub. L. 105-206,
title VI, Sec. 6023(19), July 22, 1998, 112
Stat 685; Pub. L. 106-554,
Sec. 202, Dec. 21, 2000, 114 Stat. 2763; Pub. L. 107-16, Sec. 612, 656, June
7, 2001, 115 Stat. 38; Pub. L. 107-22, Sec. 1, July 26,
2001, 115 Stat. 196; Pub. L. 108-173, title XII, Sec.
1201(f), Dec. 8, 2003, 117 Stat. 2066; Pub. L. 108-357, title II, Sec.
233(c), 240(a), Oct. 22, 2004, 118 Stat.
1418; Pub. L. 109-135,
title IV, Sec. 413(a)(2), Dec. 21, 2005, 119
Stat. 2577; Pub. L. 109-280,
title VI, Sec. 601, 611, 612, Aug. 17, 2006, 120 Stat. 780; Pub.
L. 110-458, title I, Sec. 106, Dec. 23, 2008, 122 Stat. 5092; Pub.
L. 115-141, Div. U, title IV, Sec. 401(a)(190), (229)-(234)
Mar. 23, 2018, 132 Stat. 348; Pub. L. 116-94, Div. P, title, XIII, Sec.
1302(b), Dec. 20, 2019; Pub. L. 117-328,
Div. title I, Sec. 113(c), 120(a), (b), Dec. 29, 2022.)
BACKGROUND NOTES
AMENDMENTS
2022-
Subsec. (d)(22)-(24). Pub. L. 117-328,
Div. T, Sec. 113(c), amended subsec. (d) by striking “or”
at the end of par. (22), by striking the period at the end of paragraph
(23) and inserting ‘‘, or’’; and by adding
par. (24).
Subsec. (d)(23)-(25). Pub. L. 117-328, Div. T, Sec. 120(a), amended
subsec. (d) by striking “or” at the end of par. (23),
by striking the period at the end of paragraph (24) and inserting ‘‘,
or’’; and by adding par. (25).
Subsec. (f)(12). Pub. L. 117-328, Div. T, Sec. 120(b), amended
subsec. (f) by adding par. (12) at the end.
2019 - Subsec. (c)(7). Pub. L. 116-94, Div. P, Sec. 1302(b), amended
subsec. (c) by adding par. (7).
2018 -
Subsec. (d)(16)(A). Pub. L. 115-141,
Div. U, Sec. 401(a)(190), amended subpar. (16)(A) by substituting “1813(w)(1))),”
for “1813(w)(1)),”.
Subsec. (d)(3). Pub.
L. 115-141, Div. U, Sec. 401(a)(229), amended par. (3) by
substituting “a leveraged” for “an leveraged”.
Subsec. (d)(17). Pub.
L. 115-141, Div. U, Sec. 401(a)(230), amended par. (17)
by substituting “any” for “Any”.
Subsec. (d)(21). Pub.
L. 115-141, Div. U, Sec. 401(a)(231), amended par. (21)
by substituting “person” for “person person”.
Subsec. (f)(8)(C)(iv)(II). Pub.
L. 115-141, Div. U, Sec. 401(a)(232), amended subpar. (iv)(II)
by inserting “subsection” before “(d)(17)(A)(ii)”.
Subsec. (f)(8)(F)(i)(I). Pub.
L. 115-141, Div. U, Sec. 401(a)(233), amended subpar. (i)(I)
by substituting “adviser” for “adviser,”.
Subsec. (f)(8)(F)(i)(V). Pub.
L. 115-141, Div. U, Sec. 401(a)(234), amended subpar. (i)(V)
by inserting “of” before “the manner”.
2008 - Subsec. (d)(17). Pub. L. 110-458, Sec. 106(a)(2)(A),
amended par. (17) by substituting “that permits” for “and
that permits”.
Subsec. (d)(18). Pub. L. 110-458, Sec. 106(b)(2)(A),
amended par. (18) by substituting “disqualified person”
for “party in interest” and by substituting “subsection
(e)(3)” for “subsection (e)(3)(B)” in the matter
preceding subpar. (A).
Subsec. (d)(19). Pub. L. 110-458, Sec. 106(b)(2)(B),
amended par. (19) by substituting “disqualified person”
for “party in interest” each place it appeared.
Subsec. (d)(20). Pub. L. 110-458, Sec. 106(b)(2)(B),
amended par. (20) by substituting “disqualified person”
for “party in interest” each place it appeared.
Subsec. (d)(21). Pub. L. 110-458, Sec. 106(b)(2)(B),
amended par. (21) by substituting “disqualified person”
for “party in interest” each place it appeared.
Subsec. (d)(21)(C). Pub. L. 110-458, Sec. 106(b)(2)(C),
amended subpar. (C) by striking “or less”.
Subsec. (f)(8)(A). Pub. L. 110-458, Sec. 106(a)(2)(B)(i),
amended subpar. (A) by substituting “subsection (d)(17)”
for “subsection (b)(14)”.
Subsec. (f)(8)(C)(iv)(II). Pub. L. 110-458, Sec. 106(a)(2)(B)(ii),
amended subclause (II) by substituting “(d)(17)(A)(ii)”
for “subsection (b)(14)(B)(ii)”.
Subsec. (f)(8)(F)(i)(I). Pub. L. 110-458, Sec. 106(a)(2)(B)(iii),
amended subclause (I) by substituting “fiduciary adviser,”
for “financial adviser”.
Subsec. (f)(8)(I). Pub. L. 110-458, Sec. 106(a)(2)(B)(iv),
amended subpar. (I) by substituting “subsection (c)” for “section
406”.
Subsec. (f)(8)(J)(i). Pub. L. 110-458, Sec. 106(a)(2)(B)(v),
amended clause (i) by substituting “a participant” for “the
participant” each place it appeared and by inserting “referred
to in subsection (e)(3)(B)” after “investment advice”
in the matter preceding subclause (I).
Subsec. (f)(8)(J)(II). Pub. L. 110-458, Sec. 106(a)(2)(B)(v)(III),
amended subclause (II) by substituting “subsection (d)(4)”
for “section 408(b)(4)”.
Subsec. (f)(11)(B)(i). Pub. L. 110-458, Sec. 106(c), amended
clause (i) by inserting “of the Employee Retirement Income Security
Act of 1974” after “section 407(d)(1)” and by inserting “of
such Act” after “section 407(d)(2)”.
2006 - Subsec. (d)(15)-(17). Pub. L. 109-280, Sec. 601(b)(1),
amended subsec. (d) by striking “or” at the end of par. (15), by substituting
“; or” for the period at the end of par. (16); and by adding par.
(17).
Subsec. (d)(16)-(18). Pub.
L. 109-280, Sec. 611(a)(2), amended subsec. (d) by
striking “or” at the end of par. (16), by substituting “, or” for
the period at the end of par. (17); and by adding par. (18).
Subsec. (d)(17)-(19). Pub.
L. 109-280, Sec. 611(c)(2), amended subsec. (d) by
striking “or” at the end of par. (17), by substituting “, or” for
the period at the end of par. (18); and by adding par. (19).
Subsec. (d)(18)-(20). Pub.
L. 109-280, Sec. 611(d)(2), amended subsec. (d) by
striking “or” at the end of par. (18), by substituting “, or” for
the period at the end of par. (19); and by adding par. (20).
Subsec. (d)(19)-(21). Pub.
L. 109-280, Sec. 611(e)(2), amended subsec. (d) by
striking “or” at the end of par. (19), by substituting “, or” for
the period at the end of par. (20); and by adding par. (21).
Subsec. (d)(20)-(22). Pub.
L. 109-280, Sec. 611(g)(2), amended subsec. (d) by
striking “or” at the end of par. (20), by substituting “, or” for
the period at the end of par. (21); and by adding par. (22).
Subsec. (d)(21)-(23). Pub.
L. 109-280, Sec. 612(b)(1), amended subsec. (d) by
striking “or” at the end of par. (21), by substituting “, or” for
the period at the end of par. (22); and by adding par. (23).
Subsec. (f)(8). Pub.
L. 109-280, Sec. 601(b)(2), added par. (8).
Subsec. (f)(9). Pub.
L. 109-280, Sec. 611(a)(2), added par. (9).
Subsec. (f)(10). Pub.
L. 109-280, Sec. 611(d)(2), added par. (10).
Subsec. (f)(11). Pub.
L. 109-280, Sec. 612(b)(2), added par. (11).
2005 - Subsec. (d)(16)(A). Pub. L. 109-135, Sec. 413(a)(2)(A),
amended subpar. (A) by inserting “or a depository institution holding
company (as defined in section 3(w)(1) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(w)(1)“
after “a bank (as defined in section 581)”.
Subsec. (d)(16)(C). Pub.
L. 109-135, Sec. 413(a)(2)(B), amended subpar. (C)
by inserting “or company” after “such bank”.
2004 - Subsec. (d)(14)-(16). Pub. L. 108-357, Sec. 233(c), amended
subsec. (c) by striking “or” at the end of par. (14); by substituting
“; or” for the period at the end of par. (15); and by adding par.
(16).
Subsec. (f)(7). Pub. 108-357, Sec. 240(a), added
par. (7).
2003 - Subsec. (c)(6). Pub. L. 108-173, sec. 1201(f), amended
subsec. (c) by adding par. (6).
Subsec. (e)(1)(E)-(G). Pub. L. 108-173, sec. 1201(f), amended
par. (1) by redesignating subpar. (E) and (F) and subpar. (F) and
(G), respectively, and adding a new subpar. (E).
2001 - Subsec. (c). Pub. L. 107-22, sec. 1(b)(1)(D),
amended subsec. (c) by substituting “a Coverdell education savings"
for “an education individual retirement”.
Subsec. (c)(5). Pub.
L. 107-22, sec. 1(b)(3)(D), amended the heading for
par. (5) by substituting “Coverdell education savings” for “education
individual retirement”.
Subsec. (e). Pub.
L. 107-22, sec. 1(b)(1)(D), amended subsec. (e) by
substituting “a Coverdell education savings” for “an education individual
retirement”.
Subsec. (e)(7). Pub.
L. 107-16, Sec. 656(b), inserted “, and 409(p),"
after “409(n)”.
Subsec. (f)(6)(B)(iii). Pub. L. 107-16, Sec. 612(a), added
clause (iii).
2000 - Subsec. (c)(4). Pub. L. 106-554, Sec. 202, substituted
“an Archer MSA” for “a medical savings account” and “Archer MSAs"
for “medical savings accounts”.
Subsec. (e)(1)(D). Pub.
L. 106-554, Sec. 202, substituted “an Archer MSA"
for “a medical savings account”.
1998 - Subsec. (c)(3). Pub. L. 105-206, Sec. 6023(19)(A),
amended par. (3) by substituting “exempt from the tax” for “exempt
for the tax”.
Subsec. (i). Pub.
L. 105-206, Sec. 6023(19)(B), amended subsec. (i)
by substituting “Secretary of the Treasury” for “Secretary of Treasury”.
1997 - Subsec. (a). Pub. L. 105-34, Sec. 1074(a), substituted
“15 percent” for “10 percent”.
Subsec. (c)(4). Pub.
L. 105-34, Sec. 1602(a)(5), amended par. (4) by substituting
“if section 220(e)(2) applies to such transaction” for “if, with respect
to such transaction, the account ceases to be a medical savings account
by reason of the application of section 220(e)(2) to such account.”.
Subsec. (c)(5). Pub.
L. 105-34, Sec. 213(b)(2), added par. (5).
Subsec. (d). Pub.
L. 105-34, Sec. 1506(b)(1)(B), amended subsec. (d)
by substituting “Except as provided in subsection (f)(6), the prohibitions"
for “The prohibitions”, and by striking the last two sentences. Prior
to being struck they read as follows:
“The exemptions provided by this subsection (other
than paragraphs (9) and (12)) shall not apply to any transaction with
respect to a trust described in section 401(a) which is part of a
plan providing contributions or benefits for employees some or all
of whom are owner-employees (as defined in section 401(c)(3)) in which
a plan directly or indirectly lends any part of the corpus or income
of the plan to, pays any compensation for personal services rendered
to the plan to, or acquires for the plan any property from or sells
any property to, any such owner-employee, a member of the family (as
defined in section 267(c)(4)) of any such owner-employee, or a corporation
controlled by any such owner-employee through the ownership, directly
or indirectly, of 50 percent or more of the total combined voting
power of all classes of stock entitled to vote or 50 percent or more
of the total value of shares of all classes of stock of the corporation.
For purposes of the preceding sentence, a shareholder-employee (as
defined in section 1379, as in effect on the day before the date of
the enactment of the Subchapter S Revision Act of 1982), a participant
or beneficiary of an individual retirement account or an individual
retirement annuity (as defined in section 408), and an employer or
association of employees which establishes such an account or annuity
under section 408(c) shall be deemed to be an owner-employee.”
Subsec. (e)(1)(D). Pub.
L. 105-34, Sec. 213(b)(1) struck “or” at the end
of subpar. (D).
Subsec. (e)(1)(E). Pub.
L. 105-34, Sec. 213(b)(1) redesignated subpar. (E)
as subpar. (F) and added a new subpar. (E).
Subsec. (e)(7). Pub.
L. 105-34, Sec. 1530(c)(10), inserted “section 664(g)"
after “section 409(n)”.
Subsec. (f)(6). Pub.
L. 105-34, Sec. 1506(b)(1)(A), added par. (6).
1996 - Subsec. (a). Pub. L. 104-188, Sec. 1453(a), substituted
“10 percent” for “5 percent”.
Subsec. (d)(13). Pub.
L. 104-188, Sec. 1702(g)(3), substituted “section
408(b)(12)” for “section 408(b)”.
1996 - Subsec. (c)(4). Pub. L. 104-191, Sec. 301(f)(1),
added par. (4).
Subsec. (e)(1). Pub.
L. 104-191, Sec. 301(f)(2), amended par. (1). Before
amendment, par. (1) read as follows:
“(1) Plan
“For purposes of this
section, the term “plan” means a trust described in section 401(a)
which forms a part of a plan, or a plan described in section 403(a),
which trust or plan is exempt from tax under section 501(a), an individual
retirement account described in section 408(a) or an individual retirement
annuity described in section 408(b) (or a trust, plan, account, or
annuity which, at any time, has been determined by the Secretary to
be such a trust, plan, or account).”
1990 - Subsec. (d)(13). Pub. L. 101-508 inserted before
semicolon at end ‘or which is exempt from section 406 of such Act
by reason of section 408(b) of such Act’.
1986 - Subsec. (d). Pub. L. 99-514, Sec. 1899A(51), inserted
a closing parenthesis after ‘and (12)’ in second sentence.
Subsec. (d)(1)(B). Pub.
L. 99-514, Sec. 1114(b)(15)(A), substituted ‘highly
compensated employees (within the meaning of section 414(q))’ for
‘highly compensated employees, officers, or shareholders’.
Subsec. (e)(7). Pub.
L. 99-514, Sec. 1854(f)(3)(A), inserted ‘, section
409(o), and, if applicable, section 409(n)’ in last sentence.
1984 - Subsec. (d). Pub. L. 98-369, Sec. 491(d)(45),
substituted in provision following par. (15) ‘or an individual retirement
annuity (as defined in section 408)’ for ‘, individual retirement
annuity, or an individual retirement bond (as defined in section 408
or 409)’.
Subsec. (e)(1). Pub.
L. 98-369, Sec. 491(d)(46), struck out ‘or 405(a)’
after ‘section 403(a)’ and ‘or a retirement bond described in section
409’ after ‘section 408(b)’, and substituted ‘or annuity’ for ‘annuity,
or bond’ and ‘or account’ for ‘account, or bond’.
Subsec. (e)(7). Pub.
L. 98-369, Sec. 491(e)(7), substituted ‘section 409(h)’
for ‘section 409A(h)’, ‘section 409(e)(4)’ for ‘section 409A(e)(4)’,
and ‘section 409(e)’ for ‘section 409A(e)’.
Subsec. (e)(8). Pub.
L. 98-369, Sec. 491(e)(8), substituted ‘section 409(l)’
for ‘section 409A(l)’.
1983 - Subsec. (d). Pub. L. 97-448 inserted ‘, as in
effect on the day before the date of the enactment of the Subchapter
S Revision Act of 1982’ after ‘section 1379’ in last sentence.
1980 - Subsec. (b). Pub. L. 96-596, Sec. 2(a)(1)(K),
substituted ‘taxable period’ for ‘correction period’.
Subsec. (d)(14), (15). Pub.
L. 96-364, Sec. 208(b), added pars. (14) and (15).
Subsec. (e)(7). Pub.
L. 96-222, Sec. 101(a)(7)(K), (L)(iv)(III), (v)(XI),
substituted references to an employee stock ownership plan, for references
to a leveraged employee stock ownership plan wherever appearing therein,
and substituted provisions relating to treatment of a plan as an employee
stock ownership plan, for provisions relating to treatment of a plan
as a leveraged employee stock ownership plan.
Subsec. (e)(8). Pub.
L. 96-222, Sec. 101(a)(7)(C), substituted provisions
defining ‘qualifying employer security’ within the meaning of section
409A(l), for provisions defining such term as stock, or otherwise
an equity security, or within the meaning of section 503(e)(1) to
(3).
Subsec. (e)(9). Pub.
L. 96-364, Sec. 209(b), added par. (9).
Subsec. (f)(2)(B), (C). Pub. L. 96-596, Sec. 2(a)(2)(I),
added subpar. (B) and redesignated former subpar. (B) as (C).
Subsec. (f)(4)(B). Pub.
L. 96-596, Sec. 2(a)(1)(L), substituted ‘taxable
period’ for ‘correction period’.
Subsec. (f)(6). Pub.
L. 96-596, Sec. 2(a)(3)(F), struck out par. (6),
which defined correction period, with respect to a prohibited transaction,
as the period beginning on the date on which the prohibited transaction
occurs and ending 90 days after the date of mailing of a notice of
deficiency with respect to the tax imposed by subsec. (b) of this
section under section 6212 of this title, extended by any period in
which a deficiency cannot be assessed under section 6213(a) of this
title and any other period which the Secretary determines is reasonable
and necessary to bring about the correction of the prohibited transaction.
1978 - Subsec. (d)(3). Pub. L. 95-600, Sec. 141(f)(6), substituted
‘leveraged employee’ for ‘employee’.
Subsec. (e)(7). Pub.
L. 95-600, Sec. 141(f)(5), substituted in heading
‘Leveraged employee’ for ‘Employee’, and in text, ‘leveraged employee’
for ‘employee’ and inserted provision that a plan not be treated as
a leveraged employee stock ownership plan unless it meet the requirements
of section 409A(e) and (h).
1976 - Subsecs. (c) to (f). Pub. L. 94-455 struck out ‘or his
delegate’ after ‘Secretary’ wherever appearing.
EFFECTIVE
DATE OF 2022 AMENDMENTS
Amendments by Pub. L. 117-328, Div. T, Sec. 113(c),
effective with respect to plan years beginning after the date of enactment
of this Act [Enacted: Dec. 29, 2022].
Amendments by Pub. L. 117-328, Div. T, Sec. 120(a)-(b),
shall apply to transactions occurring on or after the date which is
12 months after the date of enactment of this Act [Enacted: Dec. 29,
2022].
EFFECTIVE DATE OF 2019
AMENDMENT
Amendment by Pub. L. 116-94,
Div. P, Sec. 1302(b), effective December 20, 2019. Sec. 1302(c) of Pub. L. 116-94, Div. P, provided the following:
“(c) APPLICABILITY.—With respect to
a group health plan subject to subsection (h) of section 408 of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1108) (as amended by subsection
(a)) and subsection (c) of section 4975
of the Internal Revenue Code of 1986 (as amended by subsection
(b)), beginning at the end of the fifth plan year of such group health
plan that begins after the date of enactment of this Act, such subsection
(h) of such section 408 and such subsection (c) of such shall have
no force or effect.”
EFFECTIVE DATE OF 2018
AMENDMENTS
Amendments by Pub. L. 115-141, Div. U, Sec. 401(190),
(229)-(234), effective March 23, 2018.
EFFECTIVE DATE OF 2008 AMENDMENTS
Amendments by Sec. 106) of Pub.
L. 110-458 effective as if included in the provisions of
the Pension Protection Act of 2006 [Pub.
L. 109-280, Sec. 601, 611, 612] to which they relate.
EFFECTIVE
DATE OF 2006 AMENDMENTS
Amendments
by Sec. 601(b) of Pub. L. 109-280,
as amended by Pub. L. 110-458,
Sec. 106(a)(3), applicable to advice referred to in Sec.
4975(e)(3)(B) provided after December 21, 2006.
Amendments by Sec. 611 of Pub. L. 109-280 applicable to transactions
occurring after the date of the enactment of this Act [Enacted: Aug.
17, 2006].
Amendments by Sec. 612 of Pub. L. 109-280 applicable to any
transaction which the fiduciary or disqualified person discovers,
or reasonably should have discovered, after the date of the enactment
of this Act [Enacted: Aug. 17, 2006] constitutes a prohibited
transaction.
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendments by Sec. 413(a)(2) of Pub. L. 109-135 applicable as if
included in the provisions of the American Jobs Creation Act of 2004
[Pub. L. 108-357,
Sec. 233] to which they relate.
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendments by Sec. 233(c) of Pub. L. 108-357 applicable on the
date of the enactment of this Act [Enacted: Oct. 22, 2004].
Amendment by Sec. 240(a) of Pub. L. 108-357 applicable to distributions
with respect to S corporation stock made after December 31, 1997.
EFFECTIVE DATE OF 2003 AMENDMENTS
Amendments by Sec. 1201(f) of Pub. L. 108-173 applicable to taxable
years beginning after Dec. 31, 2003.
EFFECTIVE DATE OF 2001 AMENDMENTS
Amendments by Sec. 1 of Pub. L. 107-22 applicable on the
date of the enactment of this Act [Enacted: July 26, 2001].
Amendment by Sec. 612(a) of Pub. L. 107-16 applicable to plan
years beginning after December 31, 2001.
Amendment by Sec. 656(b) of Pub. L. 107-16 applicable to taxable
years beginning after December 31, 2004.
Section 901 (Sunset of Provisions of Act) of Pub. L. 107-16, as amended by Pub. L. 107-358, provided that:
“(a) IN GENERAL.--All provisions of, and amendments
made by, this Act shall not apply--
“(1) to taxable, plan, or limitation
years beginning after December 31, 2010, or
“(2) in the case of title V,
to estates of decedents dying, gifts made, or generation skipping
transfers, after December 31, 2010.
“(b) APPLICATION OF CERTAIN LAWS.--The Internal
Revenue Code of 1986 and the Employee Retirement Income Security Act
of 1974 shall be applied and administered to years, estates, gifts,
and transfers described in subsection (a) as if the provisions and
amendments described in subsection (a) had never been enacted.
“(c) EXCEPTION.-Subsection (a) shall not apply
to section 803 (relating to no federal income tax on restitution received
by victims of the Nazi regime or their heirs or estates).”
Pub.
L. 117-328, Div. T, Sec. 120(c), provided the following
authority:
REGULATORY AUTHORITY
“Not later than 12
months after the date of the enactment of this Act, the Secretary
of Labor shall issue such guidance as may be necessary to carry out
the purposes of the amendments made by this section, including regulations
or other guidance which—
“(1) require an automatic
portability provider to provide a notice to individuals on whose behalf
the individual retirement plan described in paragraph (12)(A)(i)(I)
of section 4975(f) of the Internal Revenue Code of 1986, as added
by this section, is established in advance of the notices specified
in paragraph (12)(B)(v) of such section, as so added,
“(2) require an automatic
portability provider to disclose to plans described in paragraph (12)(A)(i)(II)
of section 4975(f) of the Internal Revenue Code of 1986, as added
by this section, information required to be provided by a covered
service provider pursuant to section 2550.408b–2(c) of title
29, Code of Federal Regulations,
“(3) require a plan
described in such paragraph (12)(A)(i)(II), as so added, to fully
disclose fees related to an automatic portability transaction in its
summary plan description or summary of material modifications, as
relevant,
“(4) require a plan
described in such paragraph, as so added, to invest amounts received
on behalf of a participant pursuant to an automatic portability transaction
in the participant's current investment election under the plan
or, if no election is made or permitted, in the plan's qualified
default investment alternative (within the meaning of section 2550.404c–5
of title 29, Code of Federal Regulations) or another investment selected
by a fiduciary with respect to such plan,
“(5) prohibit or restrict
the receipt or payment of third party compensation (other than a direct
fee paid by a plan sponsor which is in lieu of a fee imposed on an
individual retirement plan owner) by an automatic portability provider
in connection with an automatic portability transaction,
“(6) prohibit exculpatory
provisions in an automatic portability provider's contracts
or communications with individuals disclaiming or limiting its liability
in the event that an automatic portability transaction results in
an improper transfer,
“(7) require an automatic
portability provider to take actions necessary to reasonably ensure
that participant and beneficiary data is current and accurate,
“(8) limit the use
of data related to automatic portability transactions for any purpose
other than the execution of such transactions or locating missing
participants, except as permitted by the Secretary of Labor,
“(9) provide for corrections
procedures in the event an auditor determines the automatic portability
provider was not in compliance with this provision and related regulations
as specified in paragraph (12)(B)(ix)(II) of section 4975(f) of such
Code, as so added, including deadlines, supplemental audits, and corrective
actions which may include a temporary prohibition from relying on
the exemption provided by paragraph (25) of section 4975(d) of such
Code, as added by this section,
“(10) ensure that the
appropriate participants and beneficiaries, in fact, receive all the
required notices and disclosures, and
“(11) make clear that
the exemption provided by paragraph (25) of section 4975(d) of such
Code, as added by this section, applies solely to the automatic portability
transactions described therein, and, to the extent the Secretary deems
necessary or advisable, specify how the application of the exemption
relates to or coordinates with the application of other statutory
provisions, regulations, administrative guidance, or exemptions.
“Any term used in this
subsection which is used in paragraph (12) of section 4975(f) of such
Code, as added by this section, has the same meaning as when used
in such paragraph. “
Pub.
L. 117-328, Div. T, Sec. 120(d) further added the following
report to Congress:
REPORT TO CONGRESS
“(1) IN GENERAL.—Not
later than 2 years after the date of the first audit report received
by the Secretary of Labor from any automatic portability provider,
and every 3 years thereafter, the Secretary of Labor shall report
to the Committees on Health, Education, Labor and Pensions and Finance
of the Senate and the Committees on Education and Labor and Ways and
Means of the House of Representatives on—
“(A) the effectiveness
of automatic portability transactions under the exemption provided
by paragraph (25) of section 4975(d) of the Internal Revenue Code
of 1986, as added by this section, detailing—
“(i) the number of
automatic cash outs from qualified plans to individual retirement
plans described in section 4975(f)(12)(A)(i)(I) of such Code,
“(ii) the number of
completed automatic portability transactions to employer-sponsored
retirement plans described in section 4975(f)(12)(A)(i)(II) of such
Code,
“(iii) the number of
individual retirement plans described in section 4975(f)(12)(A)(i)(I)
of such Code which have been transferred to designated beneficiaries,
“(iv) the number of
individual retirement plans described in section 4975(f)(12)(A)(i)(I)
of such Code for which the automatic portability provider is searching
for next of kin due to a deceased account holder without a designated
beneficiary, and
“(v) the number of
accounts that were reduced to a zero balance while in the automatic
portability provider's custody;
“(B) a summary of any
consumer complaints submitted to the Employee Benefits Security Administration
regarding automatic portability transactions;
“(C) a summary of compliance
issues found in the annual audit described in section 4975(f)(12)(B)(xiii)(II)
of such Code, if any, and their corrections;
“(D) a summary of
the fees individuals are charged in connection with automatic portability
transactions, including whether those fees have increased since the
last report;
“(E) recommendations
of any necessary statutory changes to this exemption to improve the
effectiveness of automatic portability transactions, including repeal
of this provision in the event of a pattern of noncompliance; and
“(F) any other information
the Secretary of Labor deems important. The report required by this
subsection shall be made publicly available.
“(2) REPORT ON NOTICES
RELATING TO AUTOMATIC TRANSFERS.—Not later than 2 years after
the date of the enactment of this Act, the Secretary of Treasury shall
report to the Committee on Finance of the Senate and the Committee
on Ways and Means on the adequacy of the notices relating to transfers
under section 401(a)(31)(B)(i) of the Internal Revenue Code of 1986. “
PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT
PROVISIONS OF ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF
2001 MADE PERMANENT
Section 811 of Pub.
L. 109-280 provided that:
“Title IX of the Economic Growth and Tax Relief
Reconciliation Act of 2001 shall not apply to the provisions of,
and amendments made by, subtitles A through F of title VI of such
Act (relating to pension and individual retirement arrangement provisions).”
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendments by Sec. 6023(19) of Pub. L. 105-206 applicable on the
date of the enactment of this Act [enacted: July 22, 1998].
EFFECTIVE DATE OF 1997 AMENDMENTS
Amendments by Sec. 213(b) of Pub. L. 105-34 applicable to taxable
years beginning after December 31, 1997.
Amendment by Sec. 1074(a) of Pub. L. 105-34 applicable to prohibited
transactions occurring after the date of the enactment of this Act
[enacted: Aug. 5, 1997].
Amendment by Sec. 1506(b)(1) of Pub. L. 105-34 applicable to taxable
years beginning after December 31, 1997.
Amendments by Sec. 1530(c)(10) of Pub. L. 105-34 applicable to transfers
made by trusts to, or for the use of, an employee stock ownership
plan after the date of the enactment of this Act [enacted: Aug. 5,
1997].
Amendment by Sec. 1602(a)(5) of Pub. L. 105-34 effective as if included
in the provisions of the Health Insurance Portability and Accountability
Act of 1996 to which such amendment relates.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub.
L. 104-188, Sec. 1453(b), effective for prohibited
transactions occurring after the date of the enactment of this Act
[August 20, 1996].
Amendment by Pub.
L. 104-188, Sec. 1702(g)(3), effective as if included
in the related provision of the Revenue Reconciliation Act of 1990.
Amendments by Pub.
L. 104-191, Sec. 301(f), effective for taxable years
beginning before Dec. 31, 1996.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub.
L. 101-508 effective, except as otherwise provided,
as if included in the provision of the Revenue Reconciliation Act
of 1989, Pub. L. 101-239,
title VII, to which such amendment relates, see section 11701(n) of Pub. L. 101-508, set out as a note
under section 42 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1114(b)(15)(A) of Pub. L. 99-514 applicable to years
beginning after Dec. 31, 1988, see section 1114(c)(3) of Pub. L. 99-514, set out as a note
under section 414 of this title.
Amendment by section 1854(f)(3)(A) of Pub. L. 99-514 effective Oct. 22,
1986, see section 1854(f)(4)(A) of Pub.
L. 99-514, set out as a note under section 409 of
this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 491(d)(45), (46) of Pub. L. 98-369 applicable to obligations
issued after Dec. 31, 1983, see section 491(f)(1) of Pub. L. 98-369, set out as a note
under section 62 of this title.
Amendment by section 491(e)(7), (8) 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 on date of enactment of Subchapter
S Revision Act of 1982 (Oct. 19, 1982), see section 311(c)(4) of Pub. L. 97-448, set out as a note
under section 1368 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
For effective date of amendment by Pub. L. 96-596 with respect to any
first tier tax and to any second tier tax, see section 2(d) of Pub. L. 96-596, set out as an Effective
Date note under section 4961 of this title.
Amendment by section 208(b) of Pub. L. 96-364 effective Sept. 26,
1980, see section 210(a) of Pub. L.
96-364, set out as an Effective Date note under section
418 of this title.
Amendment by section 209(b) of Pub. L. 96-364 applicable to taxable
years ending after Sept. 26, 1980, see section 210(c) of Pub. L. 96-364, set out as an Effective
Date note under section 418 of this title.
Section 101(b)(1)(C) of Pub. L. 96-222 provided that: ‘The
amendment made by subparagraph (C) of subsection (a)(6) (probably
should be ‘(a)(7)’, which amended this section) shall apply to stock
acquired after December 31, 1979.'
Amendment by section 101(a)(7)(K), (L)(iv)(III),
(v)(XI) of Pub. L. 96-222 effective,
except as otherwise provided, as if it had been included in the provision
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 OF 1978 AMENDMENT
Section 141(h) of Pub.
L. 95-600, as added by Pub.
L. 96-222, title I, Sec. 101(a)(7)(B), Apr. 1, 1980, 94 Stat. 197; Pub.
L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘Paragraphs
(5) and (6) of subsection (f) (section 141(f)(5), (6) of Pub. L. 95-600) shall apply -
‘(1) insofar as they make the
requirements of subsections (e) and (h)(1)(B) of section 409A (now
section 409) of the Internal Revenue Code of 1986 (formerly I.R.C. 1954) applicable to section
4975 of such Code, to stock acquired after December 31, 1979, and
‘(2) insofar as they make paragraphs
(1)(A) and (2) of section 409A(h) (now section 409(h)) of such Code
applicable to such section 4975, to distributions after December 31,
1978.’
DETERMINATION OF FEASIBILITY OF APPLICATION
OF COMPUTER MODEL INVESTMENT ADVICE PROGRAMS FOR INDIVIDUAL RETIREMENT
AND SIMILAR PLANS
Section 601(b)(3) of Pub.
L. 109-280 provided that:
“(A) SOLICITATION OF INFORMATION- As soon as practicable
after the date of the enactment of this Act, the Secretary of Labor,
in consultation with the Secretary of the Treasury, shall--
“(i) solicit information as to the feasibility
of the application of computer model investment advice programs for
plans described in subparagraphs (B) through (F) (and so much of subparagraph
(G) as relates to such subparagraphs) of section 4975(e)(1) of the Internal Revenue
Code of 1986, including soliciting information from--
“(I) at least the top 50 trustees of such plans,
determined on the basis of assets held by such trustees, and
“(II) other persons offering computer model investment
advice programs based on nonproprietary products, and
“(ii) shall on the basis of such information make
the determination under subparagraph (B).
“The information solicited by the Secretary of
Labor under clause (i) from persons described in subclauses (I) and
(II) of clause (i) shall include information on computer modeling
capabilities of such persons with respect to the current year and
preceding year, including such capabilities for investment accounts
maintained by such persons.
“(B) DETERMINATION OF FEASIBILITY- The Secretary
of Labor, in consultation with the Secretary of the Treasury, shall,
on the basis of information received under subparagraph (A), determine
whether there is any computer model investment advice program which
may be utilized by a plan described in subparagraph (A)(i) to provide
investment advice to the account beneficiary of the plan which--
“(i) utilizes relevant information about the account
beneficiary, which may include age, life expectancy, retirement age,
risk tolerance, other assets or sources of income, and preferences
as to certain types of investments,
“(ii) takes into account the full range of investments,
including equities and bonds, in determining the options for the investment
portfolio of the account beneficiary, and
“(iii) allows the account beneficiary, in directing
the investment of assets, sufficient flexibility in obtaining advice
to evaluate and select investment options.
“The Secretary of Labor shall report the results
of such determination to the committees of Congress referred to in
subparagraph (D)(ii) not later than December 31, 2007.
“(C) APPLICATION OF COMPUTER MODEL INVESTMENT ADVICE
PROGRAM-
“(i) CERTIFICATION REQUIRED FOR USE OF COMPUTER
MODEL-
“(I) RESTRICTION ON USE- Subclause (II) of section 4975(f)(8)(B)(i) of the Internal
Revenue Code of 1986 shall not apply to a plan described
in subparagraph (A)(i).
“(II) RESTRICTION LIFTED IF MODEL CERTIFIED- If
the Secretary of Labor determines under subparagraph (B) or (D)
that there is a computer model investment advice program described
in subparagraph (B), subclause (I) shall cease to apply as of the
date of such determination.
“(ii) CLASS EXEMPTION IF NO INITIAL CERTIFICATION
BY SECRETARY- If the Secretary of Labor determines under subparagraph
(B) that there is no computer model investment advice program described
in subparagraph (B), the Secretary of Labor shall grant a class exemption
from treatment as a prohibited transaction under section 4975(c) of the Internal Revenue Code of
1986 to any transaction described in section 4975(d)(17)(A) of such
Code with respect to plans described in subparagraph (A)(i), subject
to such conditions as set forth in such exemption as are in the interests
of the plan and its account beneficiary and protective of the rights
of the account beneficiary and as are necessary to--
“(I) ensure the requirements of sections 4975(d)(17)
and 4975(f)(8) (other than subparagraph (C) thereof) of the Internal
Revenue Code of 1986 are met, and
“(II) ensure the investment advice provided under
the investment advice program utilizes prescribed objective criteria
to provide asset allocation portfolios comprised of securities or
other property available as investments under the plan.
“If the Secretary of Labor solicits any information
under subparagraph (A) from a person and such person does not provide
such information within 60 days after the solicitation, then, unless
such failure was due to reasonable cause and not wilful neglect, such
person shall not be entitled to utilize the class exemption under
this clause.
“(D) SUBSEQUENT DETERMINATION-
“(i) IN GENERAL- If the Secretary of Labor initially
makes a determination described in subparagraph (C)(ii), the Secretary
may subsequently determine that there is a computer model investment
advice program described in subparagraph (B). If the Secretary makes
such subsequent determination, then the class exemption described
in subparagraph (C)(ii) shall cease to apply after the later of--
“(I) the date which is 2 years after such subsequent
determination, or
“(II) the date which is 3 years after the first
date on which such exemption took effect.
“(ii) REQUESTS FOR DETERMINATION- Any person may
request the Secretary of Labor to make a determination under this
subparagraph with respect to any computer model investment advice
program, and the Secretary of Labor shall make a determination with
respect to such request within 90 days. If the Secretary of Labor
makes a determination that such program is not described in subparagraph
(B), the Secretary shall, within 10 days of such determination, notify
the Committee on Ways and Means and the Committee on Education and
the Workforce of the House of Representatives and the Committee on
Finance and the Committee on Health, Education, Labor, and Pensions
of the Senate of such determination and the reasons for such determination.
“(E) EFFECTIVE DATE- The provisions of this paragraph
shall take effect on the date of the enactment of this Act.”
COORDINATION WITH EXISTING EXEMPTIONS
Section 601(c) of Pub.
L. 109-280 provided that:
“Any exemption under section 408(b) of the Employee
Retirement Income Security Act of 1974 and section 4975(d) of the Internal Revenue Code of
1986 provided by the amendments made by this section shall not in
any manner alter existing individual or class exemptions, provided
by statute or administrative action.”
EFFECTIVE DATE; SAVINGS PROVISION
Section 2003(c) of Pub.
L. 93-406, as amended by Pub.
L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
‘(1)(A) The amendments made by this section (enacting
this section and amending section 503 of this title) shall take effect
on January 1, 1975.
‘(B) If, before the amendments made by this section
(enacting this section and amending section 503 of this title) take
effect, an organization described in section
401(a) of the Internal Revenue Code of 1986 (formerly I.R.C. 1954) is denied exemption under
section 501(a) of such Code by reason of section 503 of such Code,
the denial of such exemption shall not apply if the disqualified person
elects (in such manner and at such time as the Secretary or his delegate
shall by regulations prescribe) to pay, with respect to the prohibited
transaction (within the meaning of section 503(b) or (g)) which resulted
in such denial of exemption, a tax in the amount and in the manner
provided with respect to the tax imposed under section 4975 of such
Code. An election made under this subparagraph, once made, shall be
irrevocable. The Secretary of the Treasury or his delegate shall prescribe
such regulations as may be necessary to carry out the purposes of
this subparagraph.
‘(2) Section 4975 of
the Internal Revenue Codeof 1986 (relating to tax on prohibited
transactions) shall not apply to -
‘(A) a loan of money or other
extension of credit between a plan and a disqualified person under
a binding contract in effect on July 1, 1974 (or pursuant to renewals
of such a contract), until June 30, 1984, if such loan or other extension
of credit remains at least as favorable to the plan as an arm's-length
transaction with an unrelated party would be, and if the execution
of the contract, the making of the loan, or the extension of credit
was not, at the time of such execution, making, or extension, a prohibited
transaction (within the meaning of section 503(b) of such Code) or
the corresponding provisions of prior law);
‘(B) a lease of joint use of
property involving the plan and a disqualified person pursuant to
a binding contract in effect on July 1, 1974 (or pursuant to renewals
of such a contract), until June 30, 1984, if such lease or joint use
remains at least as favorable to the plan as an arm's-length transaction
with an unrelated party would be and if the execution of the contract
was not, at the time of such execution, a prohibited transaction (within
the meaning of section 503(b) of such Code) or the corresponding provisions
of prior law;
‘(C) the sale, exchange, or
other disposition of property described in subparagraph (B) between
a plan and a disqualified person before June 30, 1984, if -
‘(i) in the case of a sale,
exchange, or other disposition of the property by the plan to the
disqualified person, the plan receives an amount which is not less
than the fair market value of the property at the time of such disposition;
and
‘(ii) in the case of the acquisition
of the property by the plan, the plan pays an amount which is not
in excess of the fair market value of the property at the time of
such acquisition:
‘(D) Until June 30, 1977, the
provision of services to which subparagraphs (A), (B), and (C) do
not apply between a plan and a disqualified person (i) under a binding
contract in effect on July 1, 1974 (or pursuant to renewals of such
contract), or (ii) if the disqualified person ordinarily and customarily
furnished such services on June 30, 1974, if such provision of services
remains at least as favorable to the plan as an arm's-length transaction
with an unrelated party would be and if the provision of services
was not, at the time of such provision, a prohibited transaction (within
the meaning of section 503(b) of such Code) or the corresponding provisions
of prior law; or
‘(E) the sale, exchange, or
other disposition of property which is owned by a plan on June 30,
1974, and all times thereafter, to a disqualified person, if such
plan is required to dispose of such property in order to comply with
the provisions of section 407(a)(2)(A) (relating to the prohibition
against holding excess employer securities and employer real property)
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1107(a)(2)) and
if the plan receives not less than adequate consideration.
For the purposes of this paragraph, the term ‘disqualified
person’ has the meaning provided by section
4975(e)(2) of the Internal Revenue Code of 1986.'
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.
ISSUANCE OF FINAL REGULATIONS
Secretary of the Treasury or his delegate to issue
before Feb. 1, 1988, final regulations to carry out amendments made
by section 1114 of Pub. L. 99-514,
see section 1141 of Pub. L. 99-514,
set out as a note under section 401 of this title.
INTENT OF CONGRESS CONCERNING EMPLOYEE STOCK
OWNERSHIP PLANS
Section 803(h) of Pub.
L. 94-455 provided that: ‘The Congress, in a series
of laws (the Regional Rail Reorganization Act of 1973, the Employee
Retirement Income Security Act of 1974, the Trade Act of 1974, and
the Tax Reduction Act of 1975) and this Act has made clear its interest
in encouraging employee stock ownership plans as a bold and innovative
method of strengthening the free private enterprise system which will
solve the dual problems of securing capital funds for necessary capital
growth and of bringing about stock ownership by all corporate employees.
The Congress is deeply concerned that the objectives sought by this
series of laws will be made unattainable by regulations and rulings
which treat employee stock ownership plans as conventional retirement
plans, which reduce the freedom of the employee trusts and employers
to take the necessary steps to implement the plans, and which otherwise
block the establishment and success of these plans. Because of the
special purposes for which employee stock ownership plans are established,
it is consistent with the intent of Congress to permit these plans
(whether structured as pension, stock bonus, or profit-sharing plans)
to distribute income on employer securities currently.’