I.R.C. § 7702(a) General Rule —
For purposes of this title, the term “life insurance contract” means any contract
which is a life insurance contract under the applicable law, but only if such contract—
I.R.C. § 7702(a)(1) —
meets the cash value accumulation test of subsection (b), or
I.R.C. § 7702(a)(2)
I.R.C. § 7702(a)(2)(A) —
meets the guideline premium requirements of subsection (c), and
I.R.C. § 7702(a)(2)(B) —
falls within the cash value corridor of subsection (d).
I.R.C. § 7702(b) Cash Value Accumulation Test For Subsection (a)(1)
I.R.C. § 7702(b)(1) In General —
A contract meets the cash value accumulation test of this subsection if, by the
terms of the contract, the cash surrender value of such contract may not at any time
exceed the net single premium which would have to be paid at such time to fund future
benefits under the contract.
I.R.C. § 7702(b)(2) Rules For Applying Paragraph (1) —
Determinations under paragraph (1) shall be made—
I.R.C. § 7702(b)(2)(A) —
on the basis of interest at the greater of an annual effective rate of 4 percent
or the rate or rates guaranteed on issuance of the contract,
I.R.C. § 7702(b)(2)(B) —
on the basis of the rules of subparagraph (B)(i) (and, in the case of qualified additional benefits, subparagraph (B)(ii)) of subsection (c)(3), and
I.R.C. § 7702(b)(2)(C) —
by taking into account under subparagraphs (A) and (D) of subsection (e)(1) only current and future death benefits and qualified additional benefits.
I.R.C. § 7702(c) Guideline Premium Requirements —
For purposes of this section—
I.R.C. § 7702(c)(1) In General —
A contract meets the guideline premium requirements of this subsection if the sum
of the premiums paid under such contract does not at any time exceed the guideline
premium limitation as of such time.
I.R.C. § 7702(c)(2) Guideline Premium Limitation —
The term “guideline premium limitation”
means, as of any date, the greater of—
I.R.C. § 7702(c)(2)(A) —
the guideline single premium, or
I.R.C. § 7702(c)(2)(B) —
the sum of the guideline level premiums to such date.
I.R.C. § 7702(c)(3) Guideline Single Premium
I.R.C. § 7702(c)(3)(A) In General —
The term “guideline single premium” means the premium at issue with respect to future
benefits under the contract.
I.R.C. § 7702(c)(3)(B) Basis On Which Determination Is Made —
The determination under subparagraph (A) shall be based on—
I.R.C. § 7702(c)(3)(B)(i) —
reasonable mortality charges which meet the requirements prescribed in regulations
to be promulgated by the Secretary or that do not exceed the mortality charges specified
in the prevailing commissioners’ standard tables as defined in subsection (f)(10),
I.R.C. § 7702(c)(3)(B)(ii) —
any reasonable charges (other than mortality charges) which (on the basis of the
company's experience, if any, with respect to similar contracts) are reasonably expected
to be actually paid, and
I.R.C. § 7702(c)(3)(B)(iii) —
interest at the greater of an annual effective rate of 6 percent or the rate or
rates guaranteed on issuance of the contract.
I.R.C. § 7702(c)(3)(C) When Determination Made —
Except as provided in subsection (f)(7), the determination under subparagraph (A) shall be made as of the time the contract is issued.
I.R.C. § 7702(c)(3)(D) Special Rules For Subparagraph (B)(ii)
I.R.C. § 7702(c)(3)(D)(i) Charges Not Specified In The Contract —
If any charge is not specified in the contract, the amount taken into account under
subparagraph (B)(ii) for such charge shall be zero.
I.R.C. § 7702(c)(3)(D)(ii) New Companies, Etc. —
If any company does not have adequate experience for purposes of the determination
under subparagraph (B)(ii), to the extent provided in regulations, such determination shall be made on the
basis of the industry-wide experience.
I.R.C. § 7702(c)(4) Guideline Level Premium —
The term “guideline level premium” means the level annual amount, payable over a
period not ending before the insured attains age 95, computed on the same basis as
the guideline single premium, except that paragraph (3)(B)(iii) shall be applied by substituting “4 percent” for “6 percent”.
I.R.C. § 7702(d) Cash Value Corridor For Purposes Of Subsection (a)(2)(B) —
For purposes of this section—
I.R.C. § 7702(d)(1) In General —
A contract falls within the cash value corridor of this subsection if the death
benefit under the contract at any time is not less than the applicable percentage
of the cash surrender value.
I.R.C. § 7702(d)(2) Applicable Percentage —
In the case of an insured with The applicable percentage
an attained age as of the begin- shall decrease by a ratable
ning of the contract year of: portion for each full year:
But not
More than: more than: From: To:
0....................40 250.....................250
40....................45 250.....................215
45....................50 215.....................185
50....................55 185.....................150
55....................60 150.....................130
60....................65 130.....................120
65....................70 120.....................115
70....................75 115.....................105
75....................90 105.....................105
90....................95 105.....................100
I.R.C. § 7702(e) Computational Rules
I.R.C. § 7702(e)(1) In General —
For purposes of this section (other than subsection (d))—
I.R.C. § 7702(e)(1)(A) —
the death benefit (and any qualified additional benefit) shall be deemed not to
increase,
I.R.C. § 7702(e)(1)(B) —
the maturity date, including the date on which any benefit described in subparagraph
(C) is payable, shall be deemed to be no earlier than the day on which the insured attains
age 95, and no later than the day on which the insured attains age 100,
I.R.C. § 7702(e)(1)(C) —
the death benefits shall be deemed to be provided until the maturity date determined
by taking into account subparagraph (B), and
I.R.C. § 7702(e)(1)(D) —
the amount of any endowment benefit
(or sum of endowment benefits, including any cash surrender value on the maturity
date determined by taking into account subparagraph (B)) shall be deemed not to exceed the least amount payable as a death benefit at any
time under the contract.
I.R.C. § 7702(e)(2) Limited Increases In Death Benefit Permitted —
Notwithstanding paragraph (1)(A)—
I.R.C. § 7702(e)(2)(A) —
for purposes of computing the guideline level premium, an increase in the death
benefit which is provided in the contract may be taken into account but only to the
extent necessary to prevent a decrease in the excess of the death benefit over the
cash surrender value of the contract,
I.R.C. § 7702(e)(2)(B) —
for purposes of the cash value accumulation test, the increase described in subparagraph
(A) may be taken into account if the contract will meet such test at all times assuming
that the net level reserve (determined as if level annual premiums were paid for
the contract over a period not ending before the insured attains age 95) is substituted
for the net single premium, and
I.R.C. § 7702(e)(2)(C) —
for purposes of the cash value accumulation test, the death benefit increases may
be taken into account if the contract—
I.R.C. § 7702(e)(2)(C)(i) —
has an initial death benefit of $5,000 or less and a maximum death benefit of $25,000
or less,
I.R.C. § 7702(e)(2)(C)(ii) —
provides for a fixed predetermined annual increase not to exceed 10 percent of the
initial death benefit or 8 percent of the death benefit at the end of the preceding
year, and
I.R.C. § 7702(e)(2)(C)(iii) —
was purchased to cover payment of burial expenses or in connection with prearranged
funeral expenses.
For purposes of subparagraph (C), the initial death
benefit of a contract shall be determined by treating all contracts issued to the
same contract owner as 1 contract.
I.R.C. § 7702(f) Other Definitions And Special Rules —
For purposes of this section—
I.R.C. § 7702(f)(1) Premiums Paid
I.R.C. § 7702(f)(1)(A) In General —
The term “premiums paid” means the premiums paid under the contract less amounts
(other than amounts includible in gross income) to which section 72(e) applies and less any excess premiums with respect to which there is a distribution
described in subparagraph (B) or (E) of paragraph (7) and any other amounts received with respect to the contract which are specified
in regulations.
I.R.C. § 7702(f)(1)(B) Treatment Of Certain Premiums Returned To Policyholder —
If, in order to comply with the requirements of subsection (a)(2)(A), any portion of any premium paid during any contract year is returned by the insurance
company (with interest) within 60 days after the end of a contract year, the amount
so returned (excluding interest) shall be deemed
to reduce the sum of the premiums paid under the contract during such year.
I.R.C. § 7702(f)(1)(C) Interest Returned Includible In Gross Income —
Notwithstanding the provisions of section 72(e), the amount of any interest returned as provided in subparagraph (B) shall be includible in the gross income of the recipient.
I.R.C. § 7702(f)(2) Cash Values
I.R.C. § 7702(f)(2)(A) Cash Surrender Value —
The cash surrender value of any contract shall be its cash value determined without
regard to any surrender charge, policy loan, or reasonable termination dividends.
I.R.C. § 7702(f)(2)(B) Net Surrender Value —
The net surrender value of any contract shall be determined with regard to surrender
charges but without regard to any policy loan.
I.R.C. § 7702(f)(3) Death Benefit —
The term “death benefit” means the amount payable by reason of the death of the
insured (determined without regard to any qualified additional benefits).
I.R.C. § 7702(f)(4) Future Benefits —
The term “future benefits” means death benefits and endowment benefits.
I.R.C. § 7702(f)(5) Qualified Additional Benefits
I.R.C. § 7702(f)(5)(A) In General —
The term “qualified additional benefits”
means any—
I.R.C. § 7702(f)(5)(A)(i) —
guaranteed insurability,
I.R.C. § 7702(f)(5)(A)(ii) —
accidental death or disability benefit,
I.R.C. § 7702(f)(5)(A)(iii) —
family term coverage,
I.R.C. § 7702(f)(5)(A)(iv) —
disability waiver benefit, or
I.R.C. § 7702(f)(5)(A)(v) —
other benefit prescribed under regulations.
I.R.C. § 7702(f)(5)(B) Treatment Of Qualified Additional Benefits —
For purposes of this section, qualified additional benefits shall not be treated
as future benefits under the contract, but the charges for such benefits shall be
treated as future benefits.
I.R.C. § 7702(f)(5)(C) Treatment Of Other Additional Benefits —
In the case of any additional benefit which is not a qualified additional benefit—
I.R.C. § 7702(f)(5)(C)(i) —
such benefit shall not be treated as a future benefit, and
I.R.C. § 7702(f)(5)(C)(ii) —
any charge for such benefit which is not prefunded shall not be treated as a premium.
I.R.C. § 7702(f)(6) Premium Payments Not Disqualifying Contract —
The payment of a premium which would result in the sum of the premiums paid exceeding
the guideline premium limitation shall be disregarded for purposes of subsection
(a)(2) if the amount of such premium does not exceed the amount necessary to prevent the
termination of the contract on or before the end of the contract year (but only if
the contract will have no cash surrender value at the end of such extension period).
I.R.C. § 7702(f)(7) Adjustments
I.R.C. § 7702(f)(7)(A) In General —
If there is a change in the benefits under (or in other terms of) the contract which
was not reflected in any previous determination or adjustment made under this section,
there shall be proper adjustments in future determinations made under this section.
I.R.C. § 7702(f)(7)(B) Rule For Certain Changes During First 15 Years —
If—
I.R.C. § 7702(f)(7)(B)(i) —
a change described in subparagraph (A) reduces benefits under the contract,
I.R.C. § 7702(f)(7)(B)(ii) —
the change occurs during the 15-year period beginning on the issue date of the contract,
and
I.R.C. § 7702(f)(7)(B)(iii) —
a cash distribution is made to the policyholder as a result of such change, section
72 (other than subsection (e)(5) thereof) shall apply to such cash distribution to the extent it does not exceed
the recapture ceiling determined under subparagraph (C) or (D) (whichever applies).
I.R.C. § 7702(f)(7)(C) Recapture Ceiling Where Change Occurs During First 5 Years —
If the change referred to in subparagraph (B)(ii) occurs during the 5-year period beginning on the issue date of the contract, the
recapture ceiling is—
I.R.C. § 7702(f)(7)(C)(i) —
in the case of a contract to which subsection (a)(1) applies, the excess of—
I.R.C. § 7702(f)(7)(C)(i)(I) —
the cash surrender value of the contract, immediately before the reduction, over
I.R.C. § 7702(f)(7)(C)(i)(II) —
the net single premium (determined under subsection (b)), immediately after the reduction, or
I.R.C. § 7702(f)(7)(C)(ii) —
in the case of a contract to which subsection (a)(2) applies, the greater of—
I.R.C. § 7702(f)(7)(C)(ii)(I) —
the excess of the aggregate premiums paid under the contract, immediately before
the reduction, over the guideline premium limitation for the contract (determined
under subsection (c)(2), taking into account the adjustment described in subparagraph (A)), or
I.R.C. § 7702(f)(7)(C)(ii)(II) —
the excess of the cash surrender value of the contract, immediately before the reduction,
over the cash value corridor of subsection (d) (determined
immediately after the reduction).
I.R.C. § 7702(f)(7)(D) Recapture Ceiling Where Change Occurs After 5th Year And Before 16th Year —
If the change referred to in subparagraph (B) occurs after the 5-year period referred to under subparagraph (C), the recapture ceiling is the excess of the cash surrender value of the contract,
immediately before the reduction, over the cash value corridor of subsection (d) (determined immediately after the reduction and whether or not subsection (d) applies to the contract).
I.R.C. § 7702(f)(7)(E) Treatment Of Certain Distributions Made In Anticipation Of Benefit Reductions —
Under regulations prescribed by the Secretary, subparagraph (B) shall apply also
to any distribution made in anticipation of a reduction in benefits under the contract.
For purposes of the preceding sentence, appropriate
adjustments shall be made in the provisions of subparagraphs (C) and (D); and any distribution which reduces the cash surrender value of a contract and
which is made within 2 years before a reduction in benefits under the contract shall
be treated as made in anticipation of such reduction.
I.R.C. § 7702(f)(8) Correction Of Errors —
If the taxpayer establishes to the satisfaction of the Secretary that—
I.R.C. § 7702(f)(8)(A) —
the requirements described in subsection (a) for any contract year were not satisfied due to reasonable error, and
I.R.C. § 7702(f)(8)(B) —
reasonable steps are being taken to remedy the error, the Secretary may waive the
failure to satisfy such requirements.
I.R.C. § 7702(f)(9) Special Rule For Variable Life Insurance Contracts —
In the case of any contract which is a variable contract
(as defined in section 817), the determination of whether such contract meets the requirements of subsection
(a) shall be made whenever the death benefits under such contract change but not less
frequently than once during each 12-month period.
I.R.C. § 7702(f)(10) Prevailing Commissioners’ Standard Tables —
For purposes of subsection (c)(3)(B)(i), the term “prevailing commissioners' standard
tables” means the most recent commissioners’
standard tables prescribed by the National Association of Insurance Commissioners
which are permitted to be used in computing reserves for that type of contract under
the insurance laws of at least 26 States when the contract was issued. If the prevailing
commissioners’
standard tables as of the beginning of any calendar year (hereinafter in this paragraph
referred to as the “year of change”)
are different from the prevailing commissioners’ standard tables as of the beginning
of the preceding calendar year, the issuer may use the prevailing commissioners’ standard
tables as of the beginning of the preceding calendar year with respect to any contract
issued after the change and before the close of the 3-year period beginning on the
first day of the year of change.
I.R.C. § 7702(g) Treatment Of Contracts Which Do Not Meet Subsection (a) Test
I.R.C. § 7702(g)(1) Income Inclusion
I.R.C. § 7702(g)(1)(A) In General —
If at any time any contract which is a life insurance contract under the applicable
law does not meet the definition of life insurance contract under subsection (a), the income on the contract for any taxable year of the policyholder shall be treated
as ordinary income received or accrued by the policyholder during such year.
I.R.C. § 7702(g)(1)(B) Income On The Contract —
For purposes of this paragraph, the term “income on the contract” means, with respect
to any taxable year of the policyholder, the excess of—
I.R.C. § 7702(g)(1)(B)(i) —
the sum of—
I.R.C. § 7702(g)(1)(B)(i)(I) —
the increase in the net surrender value of the contract during the taxable year,
and
I.R.C. § 7702(g)(1)(B)(i)(II) —
the cost of life insurance protection provided under the contract during the taxable
year, over
I.R.C. § 7702(g)(1)(B)(ii) —
the premiums paid (as defined in subsection (f)(1)) under the contract during the taxable year.
I.R.C. § 7702(g)(1)(C) Contracts Which Cease To Meet Definition —
If, during any taxable year of the policyholder, a contract which is a life insurance
contract under the applicable law ceases to meet the definition of life insurance
contract under subsection (a), the income on the contract for all prior taxable years shall be treated as received
or accrued during the taxable year in which such cessation occurs.
I.R.C. § 7702(g)(1)(D) Cost Of Life Insurance Protection —
For purposes of this paragraph, the cost of life insurance protection provided under
the contract shall be the lesser of—
I.R.C. § 7702(g)(1)(D)(i) —
the cost of individual insurance on the life of the insured as determined on the
basis of uniform premiums
(computed on the basis of 5-year age brackets) prescribed by the Secretary by regulations,
or
I.R.C. § 7702(g)(1)(D)(ii) —
the mortality charge (if any) stated in the contract.
I.R.C. § 7702(g)(2) Treatment Of Amount Paid On Death Of Insured —
If any contract which is a life insurance contract under the applicable law does
not meet the definition of life insurance contract under subsection (a), the excess of the amount paid by the reason of the death of the insured over the
net surrender value of the contract shall be deemed to be
paid under a life insurance contract for purposes of section 101 and subtitle B.
I.R.C. § 7702(g)(3) Contract Continues To Be Treated As Insurance Contract —
If any contract which is a life insurance contract under the applicable law does
not meet the definition of life insurance contract under subsection (a), such contract shall, notwithstanding such failure, be treated as an
insurance contract for purposes of this title.
I.R.C. § 7702(h) Endowment Contracts Receive Same Treatment
I.R.C. § 7702(h)(1) In General —
References in subsections (a) and (g) to a life insurance contract shall be treated as including references to a contract
which is an endowment contract under the applicable law.
I.R.C. § 7702(h)(2) Definition Of Endowment Contract —
For purposes of this title (other than paragraph (1)), the term “endowment
contract” means a contract which is an endowment contract under the applicable law
and which meets the requirements of subsection (a).
I.R.C. § 7702(i) Transitional Rule For Certain 20-Pay Contracts
I.R.C. § 7702(i)(1) In General —
In the case of a qualified 20-pay contract, this section shall be applied by substituting
“3 percent” for “4 percent” in subsection (b)(2).
I.R.C. § 7702(i)(2) Qualified 20-Pay Contract —
For purposes of paragraph (1), the term “qualified 20-pay contract” means any contract
which—
I.R.C. § 7702(i)(2)(A) —
requires at least 20 nondecreasing annual premium payments, and
I.R.C. § 7702(i)(2)(B) —
is issued pursuant to an existing plan of insurance.
I.R.C. § 7702(i)(3) Existing Plan Of Insurance —
For purposes of this subsection, the term “existing plan of insurance” means, with
respect to any contract, any plan of insurance which was filed by the company issuing
such contract in 1 or more States before September 28, 1983, and is on file in the
appropriate State for such contract.
I.R.C. § 7702(j) Certain Church Self-Funded Death Benefit Plans Treated As Life Insurance
I.R.C. § 7702(j)(1) In General —
In determining whether any plan or arrangement described in paragraph (2) is
a life insurance contract, the requirement of subsection (a) that the contract be a life insurance contract under applicable law shall not apply.
I.R.C. § 7702(j)(2) Description —
For purposes of this subsection, a plan or arrangement is described in this paragraph
if—
I.R.C. § 7702(j)(2)(A) —
such plan or arrangement provides for the payment of benefits by reason of the death
of the individuals covered under such plan or arrangement, and
I.R.C. § 7702(j)(2)(B) —
such plan or arrangement is provided by a church for the benefit of its employees
and their beneficiaries, directly or through an organization described in section
414(e)(3)(A) or an organization described in section 414(e)(3)(B)(ii) .
I.R.C. § 7702(j)(3) Definitions —
For purposes of this subsection—
I.R.C. § 7702(j)(3)(A) Church —
The term “church” means a church or a convention or association of churches.
I.R.C. § 7702(j)(3)(B) Employee —
The term “employee” includes an employee described in section 414(e)(3)(B).
I.R.C. § 7702(k) Regulations —
The Secretary shall prescribe such regulations as may be necessary or appropriate
to carry out the purposes of this section.
(Added by Pub. L. 98-369, div. A, title II, 221(a), July 18, 1984, 98 Stat. 767, and amended Pub. L. 99-514, title XVIII, 1825(a)-(c), Oct. 22, 1986, 100 Stat. 2846-2848; Pub. L. 100-647, title V, 5011(a), (b), title VI, 6078(a), Nov. 10, 1988, 102 Stat. 3660, 3661,
3709; Pub. L. 115-97, title I, Sec. 13517(a)(4)(A), (B), Dec. 22, 2017, 131 Stat. 2054.)
BACKGROUND NOTES
AMENDMENTS
2017 -
Subsec. (c)(3)(B)(i). Pub. L. 115-97, Sec. 13517(a)(4)(A), amended subpar. (B) by striking clause (i). Before being struck,
it read as follows:
“(i) reasonable mortality charges which meet the requirements (if any) prescribed
in regulations and which
(except as provided in regulations) do not exceed the mortality charges specified
in the prevailing commissioners' standard tables (as defined in section 807(d)(5))
as of the time the contract is issued,”.
Subsec. (f)(10). Pub. L. 115-97, Sec. 13517(a)(4)(B), amended subsec. (f) by adding new par. (10).
1988--Subsec. (c)(3)(B)(i),
(ii). Pub. L. 100-647, 5011(a), added cls. (i) and (ii) and struck out former cls. (i) and
(ii) which read as follows:
“(i) the mortality charges specified in the contract (or, if none is specified, the
mortality charges used in determining the statutory reserves for such contract),
“(ii) any charges (not taken into account under clause (i)) specified in the contract
(the amount of any charge not so specified shall be treated as zero), and”.
Subsec. (c)(3)(D). Pub. L. 100-647, 5011(b), added subpar. (D).
Subsecs. (j), (k). Pub. L. 100-647, 6078(a), added subsec. (j) and redesignated former subsec. (j) as (k).
1986--Subsec. (b)(2)(C). Pub. L. 99-514, 1825(a)(2), substituted “subparagraphs
(A) and (D)” for “subparagraphs (A) and (C)”.
Subsec. (e)(1). Pub. L. 99-514, 1825(a)(3), inserted “(other than subsection (d))” after “section”.
Subsec. (e)(1)(B). Pub. L. 99-514, 1825(a)(1)(A), substituted “shall be deemed to be no earlier than” for “shall be
no earlier than”.
Subsec. (e)(1)(C). Pub. L. 99-514, 1821(a)(1)(C), added subpar. (C). Former subpar. (C) redesignated (D).
Subsec. (e)(1)(D). Pub. L. 99-514, 1821(a)(1)(C), (D), redesignated subpar.
(C) as (D) and substituted “the maturity date determined by taking into account subparagraph
(B)” for “the maturity date described in subparagraph (B)”.
Subsec. (e)(2)(C). Pub. L. 99-514, 1825(a)(4), added subpar. (C).
Subsec. (f)(1)(A). Pub. L. 99-514, 1825(b)(2), substituted “less any excess premiums with respect to which there is
a distribution described in subparagraph (B) or (E) of paragraph (7) and any other
amounts received” for “less any other amounts received”.
Subsec. (f)(7). Pub. L. 99-514, 1825(b)(1), amended par. (7) generally. Prior to amendment, par. (7)(A), in general,
read as follows: “In the event of a change in the future benefits or any qualified
additional benefit (or in any other terms) under the contract which was not reflected
in any previous determination made under this section, under regulations prescribed
by the Secretary, there shall be proper adjustments in future determinations made
under this section.”, and par. (7)(B), certain changes treated as exchange, read as
follows: “In the case of any change which reduces the future benefits under the contract,
such change shall be treated as an exchange of the contract for another contract.”
Subsec. (g)(1)(B)(ii). Pub. L. 99-514, 1825(c), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
“the amount of premiums paid under the contract during the taxable year reduced by
any policyholder dividends received during such taxable year.”
EFFECTIVE DATE OF 2017 AMENDMENTS
Amendments by Pub. L. 115-97, Sec. 13517(a)(4), effective for taxable years beginning after December 31, 2017.
EFFECTIVE DATE OF 1988 AMENDMENTS
Section 5011(d) of Pub. L. 100-647 provided that: “The amendments made by this section [amending this section] shall
apply to contracts entered into on or after October 21, 1988.”
Section 6078(b) of Pub. L. 100-647 provided that: “The amendment made by subsection (a) [amending this section] shall
take effect as if included in the amendment made by section 221(a) of the Tax Reform
Act of 1984 [Pub. L. 98-369, which enacted this section].”
EFFECTIVE DATE OF 1986 AMENDMENTS
Section 1825(a)(4) of Pub. L. 99-514, as amended by Pub. L. 100-647, title I, 1018(j), Nov. 10, 1988, 102 Stat. 3583, provided that the amendment made
by section 1825(a)(4) of Pub. L. 99-514 is effective with respect to contracts entered into after Oct. 22, 1986.
Amendment by section 1825(a)(1)-(3), (b), (c) of Pub. L. 99-514 effective, except as otherwise provided, as if included in the provisions of the
Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE
Section 221(d) of Pub. L. 98-369, as amended by Pub. L. 99-514, 2, title XVIII, 1825(e), 1899A(69), Oct. 22, 1986, 100 Stat. 2095, 2848, 2962, provided
that:
“(1) In general.--Except as otherwise provided in this subsection, the amendments
made by this section [enacting this section and amending section 101 of this title
and provisions set out as a note under section 101 of this title] shall apply to contracts
issued after December 31, 1984, in taxable years ending after such date.
“(2) Special rule for certain contracts issued after june 30, 1984.--
“(A) General rule.--Except as otherwise provided in this paragraph, the amendments
made by this section shall apply also to any contract issued after June 30, 1984,
which provides an increasing death benefit and has premium funding more rapid than
10-year level premium payments.
“(B) Exception for certain contracts.--Subparagraph (A) shall not apply to any contract
if--
“(i) such contract (whether or not a flexible premium contract) would meet the requirements
of section 101(f) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954],
“(ii) such contract is not a flexible premium life insurance contract (within the
meaning of section 101(f) of such Code) and would meet the requirements of section
7702 of such Code determined by--
“(I) substituting ‘3 percent’
for ‘4 percent’ in section 7702(b)(2) of such Code, and
“(II) treating subparagraph
(B) of section 7702(e)(1) of such Code as if it read as follows: ‘the maturity date
shall be the latest maturity date permitted under the contract, but not less than
20 years after the date of issue or (if earlier) age 95’, or
“(iii) under such contract--
“(I) the premiums (including any policy fees) will be adjusted from time-to-time to
reflect the level amount necessary (but not less than zero) at the time of such adjustment
to provide a level death benefit assuming interest crediting and an annual effective
interest rate of not less than 3 percent, or
“(II) at the option of the insured, in lieu of an adjustment under subclause (I) there
will be a comparable adjustment in the amount of the death benefit.
“(C) Certain contracts issued before october 1, 1984.--
“(i) In general.--Subparagraph
(A) shall be applied by substituting ‘September 30, 1984’ for ‘June 30, 1984’ in the
case of a contract--
“(I) which would meet the requirements of section 7702 of such Code if ‘3 percent’
were substituted for ‘4 percent’ in section 7702(b)(2) of such Code, and the rate
or rates guaranteed on issuance of the contract were determined without regard to
any mortality charges and any initial excess interest guarantees, and
“(II) the cash surrender value of which does not at any time exceed the net single
premium which would have to be paid at such time to fund future benefits under the
contract.
“(ii) Definitions.--For purposes of clause (i)--
“(I) In general.--Except as provided in subclause (II), terms used in clause (i) shall
have the same meanings as when used in section 7702 of such Code.
“(II) Net single premium.--The term ‘net single premium’ shall be determined by substituting
‘3 percent’
for ‘4 percent’ in section 7702(b)(2) of such Code, by using the 1958 standard ordinary
mortality and morbidity tables of the National Association of Insurance Commissioners,
and by assuming a level death benefit.
“(3) Transitional rule for certain existing plans of insurance.--A plan of insurance
on file in 1 or more States before September 28, 1983, shall be treated for purposes
of section 7702(i)(3) of such Code as a plan of insurance on file in 1 or more States
before September 28, 1983, without regard to whether such plan of insurance is modified
after September 28, 1983, to permit the crediting of excess interest or similar amounts
annually and not monthly under contracts issued pursuant to such plan of insurance.
“(4) Extension of flexible premium contract provisions.--The amendments made by subsection
(b) [amending section 101 of this title and provisions set out as a note under section
101 of this title] shall take effect on January 1, 1984.
“(5) Special rule for master contract.--For purposes of this subsection, in the case
of a master contract, the date taken into account with respect to any insured shall
be the first date on which such insured is covered under such contract.”
CERTAIN ARRANGEMENTS MAINTAINED BY THE YMCA RETIREMENT FUND TREATED AS CHURCH PLANS
Section 1 of Pub. L. 108-476 provided that:
“(1) CERTAIN ARRANGEMENTS MAINTAINED BY THE YMCA RETIREMENT FUND TREATED AS CHURCH
PLANS.-
“(a) RETIREMENT PLANS.-
“(1) IN GENERAL.-For purposes of sections 401(a) and 403(b) of the Internal Revenue
Code of 1986, any retirement plan maintained by the YMCA Retirement Fund as of January
1, 2003, shall be treated as a church plan (within the meaning of section 414(e) of
such Code) which is maintained by an organization described in section 414(e)(3)(A)
of such Code.
“(2) TAX-DEFERRED RETIREMENT PLAN.-In the case of a retirement plan described in paragraph
(1)
which allows contributions to be made under a salary reduction agreement-
(A) such treatment shall not apply for purposes of section 415(c)(7) of such Code,
and
(B) any account maintained for a participant or beneficiary of such plan shall be
treated for purposes of such Code as a retirement income account described in section
403(b)(9)
of such Code, except that such account shall not, for purposes of section 403(b)(12)
of such Code, be treated as a contract purchased by a church for purposes of section
403(b)(1)(D) of such Code.
(3) MONEY PURCHASE PENSION PLAN.-In the case of a retirement plan described in paragraph
(1) which is subject to the requirements of section 401(a) of such Code-
(A) such plan (but not any reserves held by the YMCA Retirement Fund)-
(i) shall be treated for purposes of such Code as a defined contribution plan which
is a money purchase pension plan, and
(ii) shall be treated as having made an election under section 410(d) of such Code
for plan years beginning after December 31, 2005, except that notwithstanding the
election-
(I) nothing in the Employee Retirement Income Security Act of 1974 or such Code shall
prohibit the YMCA Retirement Fund from commingling for investment purposes the assets
of the electing plan with the assets of such Fund and with the assets of any employee
benefit plan maintained by such Fund, and
(II) nothing in this section shall be construed as subjecting any assets described
in subclause
(I), other than the assets of the electing plan, to any provision of such Act.
(B) notwithstanding section 401(a)(11) or 417 of such Code or section 205 of such
Act, such plan may offer a lump-sum distribution option to participants who have not
attained age 55 without offering such participants an annuity option, and
(C) any account maintained for a participant or beneficiary of such plan shall, for
purposes of section 401(a)(9) of such Code, be treated as a retirement income account
described in section 403(b)(9) of such Code.
(4) SELF-FUNDED DEATH BENEFIT PLAN.-For purposes of section 7702(j) of such Code,
a retirement plan described in paragraph (1) shall be treated as an arrangement described
in section 7702(j)(2).
“(b) YMCA RETIREMENT FUND.-For purposes of this section the term “YMCA Retirement
Fund” means the Young Men's Christian Association Retirement Fund, a corporation created
by an Act of the State of New York which became law on April 30, 1921.
“(c) EFFECTIVE DATE.-This section shall apply to plan years beginning after December
31, 2003.”
INTERIM RULES; REGULATIONS; STANDARDS BEFORE REGULATIONS TAKE EFFECT
Section 5011(c) of Pub. L. 100-647 provided that:
“(1) Regulations.--Not later than January 1, 1990, the Secretary of the Treasury (or
his delegate) shall issue regulations under section 7702(c)(3)(B)(i) of the 1986 Code
(as amended by subsection (a)).
“(2) Standards before regulations take effect.--In the case of any contract to which
the amendments made by this section
[amending this section] apply and which is issued before the effective date of the
regulations required under paragraph (1), mortality charges which do not differ materially
from the charges actually expected to be imposed by the company (taking into account
any relevant characteristic of the insured of which the company is aware) shall be
treated as meeting the requirements of clause (i) of section 7702(c)(3)(B) of the
1986 Code (as amended by subsection (a)).”
TREATMENT OF FLEXIBLE PREMIUM CONTRACTS ISSUED DURING 1984 WHICH MEET NEW REQUIREMENTS
Section 221(b)(3) of Pub. L. 98-369, as added by Pub. L. 99-514, title XVIII, 1825(d), Oct. 22, 1986, 100 Stat. 2848, provided that: “Any flexible
premium contract issued during 1984 which meets the requirements of section 7702 of
the Internal Revenue Code of 1954 [now 1986] (as added by this section) shall be treated
as meeting the requirements of section 101(f) of such Code.”
