HR 2748 IHCommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to encourage guaranteed lifetime income payments by excluding from income a portion of such payments.CommentsClose CommentsPermalink

June 8, 2009CommentsClose CommentsPermalink

Mr. POMEROY (for himself and Ms. GINNY BROWN-WAITE of Florida) introduced the following bill; which was referred to the Committee on Ways and MeansCommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to encourage guaranteed lifetime income payments by excluding from income a portion of such payments.CommentsClose CommentsPermalink

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,CommentsClose CommentsPermalink

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Retirement Security Needs Lifetime Pay Act of 2009’.CommentsClose CommentsPermalink

SEC. 2. EXCLUSION FOR LIFETIME INCOME PAYMENTS.

(a) Lifetime Income Payments Under Annuity Contracts- Subsection (b) of section 72 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(5) EXCLUSION FOR LIFETIME INCOME PAYMENTS-CommentsClose CommentsPermalink





‘(A) IN GENERAL- In the case of lifetime income payments received under one or more annuity contracts (which are not taken into account under subparagraph (B)) in any taxable year, gross income shall not include 50 percent of the portion of such payments which would (without regard to this paragraph) be includible in gross income under this section. For purposes of the preceding sentence, the amount excludible from gross income in any taxable year shall not exceed $10,000.CommentsClose CommentsPermalink





‘(B) LOWER PERCENTAGE EXCLUSION AND SEPARATE LIMITATION FOR ANNUITIES PROVIDED UNDER CERTAIN RETIREMENT PLANS- In the case of lifetime income payments received under any qualified retirement plan (as defined in section 4974(c)), or any eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A), gross income shall not include 25 percent of the portion of such payments which would (without regard to this paragraph) be includible in gross income under this section. For purposes of the preceding sentence, the amount excludible from gross income in any taxable year shall not exceed $5,000 (twice such amount in the case of a joint return).CommentsClose CommentsPermalink





‘(C) COST-OF-LIVING ADJUSTMENT- In the case of taxable years beginning after December 31, 2010, the dollar amounts in subparagraphs (A) and (B) shall each be increased by an amount equal to--CommentsClose CommentsPermalink





‘(i) such dollar amount, multiplied byCommentsClose CommentsPermalink





‘(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2009’ for ‘calendar year 1992’ in subparagraph (B) thereof.CommentsClose CommentsPermalink





If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lower multiple of $100.CommentsClose CommentsPermalink





‘(D) APPLICATION OF PARAGRAPH- Subparagraphs (A) and (B) shall not apply to--CommentsClose CommentsPermalink





‘(i) any amount received under a defined benefit plan,CommentsClose CommentsPermalink





‘(ii) any amount paid under an annuity contract that is received by the beneficiary under the contract--CommentsClose CommentsPermalink





‘(I) after the death of the annuitant in the case of payments described in subsection (c)(5)(A)(ii)(III), unless the beneficiary is the surviving spouse of the annuitant, orCommentsClose CommentsPermalink





‘(II) after the death of the annuitant and joint annuitant in the case of payments described in subsection (c)(5)(A)(ii)(IV), unless the beneficiary is the surviving spouse of the last to die of the annuitant and the joint annuitant, orCommentsClose CommentsPermalink





‘(iii) any annuity contract that is a qualified funding asset (as defined in section 130(d)), but without regard to whether there is a qualified assignment.CommentsClose CommentsPermalink





‘(E) INVESTMENT IN THE CONTRACT- For purposes of this section, the investment in the contract shall be determined without regard to this paragraph.’.CommentsClose CommentsPermalink





(b) Definitions- Subsection (c) of section 72 of such Code is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(5) LIFETIME INCOME PAYMENTS-CommentsClose CommentsPermalink





‘(A) IN GENERAL- For purposes of subsections (b) and (x), the term ‘lifetime income payment’ means any amount received as an annuity under any portion of an annuity contract, but only if--CommentsClose CommentsPermalink





‘(i) the only person (or persons in the case of payments described in subclause (II) or (IV) of clause (ii)) legally entitled (by operation of the contract, a trust, or other legally enforceable means) to receive such amount during the life of the annuitant or joint annuitant is such annuitant or joint annuitant, andCommentsClose CommentsPermalink





‘(ii) such amount is part of a series of substantially equal periodic payments made not less frequently than annually over--CommentsClose CommentsPermalink





‘(I) the life of the annuitant,CommentsClose CommentsPermalink





‘(II) the lives of the annuitant and a joint annuitant, but only to the extent that the requirement of subparagraph (D) is met,CommentsClose CommentsPermalink





‘(III) the life of the annuitant with a minimum period of payments or with a minimum amount that must be paid in any event, orCommentsClose CommentsPermalink





‘(IV) the lives of the annuitant and a joint annuitant with a minimum period of payments or with a minimum amount that must be paid in any event, but only to the extent that the requirement of subparagraph (D) is met.CommentsClose CommentsPermalink





‘(iii) EXCEPTIONS- For purposes of clause (ii), annuity payments shall not fail to be treated as part of a series of substantially equal periodic payments--CommentsClose CommentsPermalink





‘(I) because the amount of the periodic payments may vary in accordance with investment experience, reallocations among investment options, actuarial gains or losses, cost-of-living indices, a constant percentage (not less than zero) applied not less frequently than annually, or similar fluctuating criteria,CommentsClose CommentsPermalink





‘(II) due to the existence of, or modification of the duration of, a provision in the contract permitting a lump sum withdrawal after the annuity starting date,CommentsClose CommentsPermalink





‘(III) because the period between each such payment is lengthened or shortened, but only if at all times such period is no longer than one calendar year,CommentsClose CommentsPermalink





‘(IV) because the payments are reduced on account of a qualified domestic relations order (within the meaning of section 414(p)) which becomes effective after the commencement of the annuity payments, orCommentsClose CommentsPermalink





‘(V) because, in the case of an annuity payable over the lives of the annuitant and a joint annuitant, the amounts paid after the death of the annuitant or joint annuitant are less than the amounts payable during their joint lives.CommentsClose CommentsPermalink





‘(B) MINIMUM PERIOD OF PAYMENTS- For purposes of subparagraph (A), the term ‘minimum period of payments’ means a guaranteed term of payments that does not exceed the greater of 10 years or--CommentsClose CommentsPermalink





‘(i) the life expectancy of the annuitant as of the annuity starting date, in the case of lifetime income payments described in subparagraph (A)(ii)(III), orCommentsClose CommentsPermalink





‘(ii) the life expectancy of the annuitant and joint annuitant as of the annuity starting date, in the case of lifetime income payments described in subparagraph (A)(ii)(IV).CommentsClose CommentsPermalink





For purposes of this subparagraph, life expectancy shall be computed with reference to the tables prescribed by the Secretary under paragraph (3). For purposes of subsection (x)(1)(C)(ii), the minimum period of payments shall be determined as of the annuity starting date and reduced by one for each subsequent year.CommentsClose CommentsPermalink





‘(C) MINIMUM AMOUNT THAT MUST BE PAID IN ANY EVENT- For purposes of subparagraph (A), the term ‘minimum amount that must be paid in any event’ means an amount payable to the designated beneficiary under an annuity contract that is in the nature of a refund and does not exceed the greater of the amount applied to produce the lifetime income payments under the contract or the amount, if any, available for withdrawal under the contract on the date of death.CommentsClose CommentsPermalink





‘(D) SPECIAL RULES FOR JOINT ANNUITANTS- For purposes of subclauses (II) and (IV) of subparagraph (A)(ii), the requirement of this subparagraph is met only to the extent that--CommentsClose CommentsPermalink





‘(i) the annuitant is the spouse of the joint annuitant as of the annuity starting date,CommentsClose CommentsPermalink





‘(ii) the difference in age between the annuitant and joint annuitant is 15 years or less,CommentsClose CommentsPermalink





‘(iii) in the case of any payment received under an annuity contract described in subsection (b)(5)(A), such payment is made to or for the benefit of the individual who furnished the consideration for such annuity contract, orCommentsClose CommentsPermalink





‘(iv) in the case of any payment received under a plan described in subsection (b)(5)(B), such payment is made to or for the benefit of the employee or the individual for whose benefit the plan was established.CommentsClose CommentsPermalink





‘(6) ANNUITY CONTRACT- For purposes of paragraph (5) and subsection (b)(5), the term ‘annuity contract’ means a commercial annuity (as defined by section 3405(e)(6)), other than an endowment or life insurance contract.’.CommentsClose CommentsPermalink





(c) Recapture Tax for Lifetime Income Payments- Section 72 of such Code is amended by redesignating subsection (x) as subsection (y) and by inserting after subsection (w) the following new subsection:CommentsClose CommentsPermalink





‘(x) Recapture Tax for Modifications to or Reductions in Lifetime Income Payments-CommentsClose CommentsPermalink





‘(1) IN GENERAL- If any amount received under an annuity contract is excluded from income by reason of subsection (b)(5) (relating to exclusion for lifetime income payments), and--CommentsClose CommentsPermalink





‘(A) the series of payments under such contract is subsequently modified so any future payments are not lifetime income payments,CommentsClose CommentsPermalink





‘(B) after the date of receipt of the first lifetime income payment under the contract an annuitant receives a lump sum and thereafter is to receive annuity payments in a reduced amount under the contract, orCommentsClose CommentsPermalink





‘(C) after the date of receipt of the first lifetime income payment under the contract the dollar amount of any subsequent annuity payment is reduced and a lump sum is not paid in connection with the reduction, unless such reduction is--CommentsClose CommentsPermalink





‘(i) due to an event described in subsection (c)(5)(A)(iii), orCommentsClose CommentsPermalink





‘(ii) due to the addition of, or increase in, a minimum period of payments within the meaning of subsection (c)(5)(B) or a minimum amount that must be paid in any event (within the meaning of subsection (c)(5)(C)),CommentsClose CommentsPermalink





then gross income for the first taxable year in which such modification or reduction occurs shall be increased by the recapture amount.CommentsClose CommentsPermalink





‘(2) RECAPTURE AMOUNT-CommentsClose CommentsPermalink





‘(A) IN GENERAL- For purposes of this subsection, the recapture amount shall be the amount, determined under rules prescribed by the Secretary, equal to the excess of--CommentsClose CommentsPermalink





‘(i) the amount that was excluded from the taxpayer’s gross income under subsection (b)(5) before the modification or reduction described in paragraph (1), overCommentsClose CommentsPermalink





‘(ii) the amount that would have been excludible under such subsection if such modification or reduction had been in effect at all times,CommentsClose CommentsPermalink





plus interest for the deferral period at the underpayment rate established by section 6621.CommentsClose CommentsPermalink





‘(B) DEFERRAL PERIOD- For purposes of this subsection, the term ‘deferral period’ means the period beginning with the taxable year in which (without regard to subsection (b)(5)) the payment would have been includible in gross income and ending with the taxable year in which the modification described in paragraph (1) occurs.CommentsClose CommentsPermalink





‘(3) EXCEPTIONS TO RECAPTURE TAX- Paragraph (1) shall not apply in the case of any modification or reduction that occurs because an annuitant--CommentsClose CommentsPermalink





‘(A) dies or becomes disabled (within the meaning of subsection (m)(7)),CommentsClose CommentsPermalink





‘(B) becomes a chronically ill individual within the meaning of section 7702B(c)(2), orCommentsClose CommentsPermalink





‘(C) encounters hardship.’.CommentsClose CommentsPermalink





(d) Lifetime Distributions of Life Insurance Death Benefits-CommentsClose CommentsPermalink





(1) IN GENERAL- Subsection (d) of section 101 of such Code (relating to payment of life insurance proceeds at a date later than death) is amended by redesignating paragraph (3) as paragraph (4) and inserting after paragraph (2) the following new paragraph:CommentsClose CommentsPermalink





‘(3) EXCLUSION FOR LIFETIME INCOME PAYMENTS-CommentsClose CommentsPermalink





‘(A) IN GENERAL- In the case of amounts to which this subsection applies, gross income shall not include the lesser of--CommentsClose CommentsPermalink





‘(i) 50 percent of the portion of lifetime income payments (within the meaning of section 72(c)(5), applied with the substitutions described in subparagraph (B)) otherwise includible in gross income under this section (determined without regard to this paragraph), orCommentsClose CommentsPermalink





‘(ii) the amount in effect under section 72(b)(5)(A).CommentsClose CommentsPermalink





‘(B) RECAPTURE AND OTHER SPECIAL RULES- For purposes of this paragraph, rules similar to the rules of subparagraphs (D) and (E) of section 72(b)(5) and section 72(x) shall be applied by substituting ‘beneficiary of the life insurance contract’ for ‘annuitant’ and ‘life insurance contract’ for ‘annuity contract’ therein.’.CommentsClose CommentsPermalink





(2) CONFORMING AMENDMENT- Paragraph (1) of section 101(d) of such Code is amended by inserting ‘or paragraph (3)’ after ‘to the extent not excluded by the preceding sentence’.CommentsClose CommentsPermalink





(e) Effective Date-CommentsClose CommentsPermalink





(1) IN GENERAL- The amendments made by this section shall apply to amounts received in taxable years beginning after the date of the enactment of this Act.CommentsClose CommentsPermalink





(2) SPECIAL RULE FOR EXISTING CONTRACTS- In the case of a contract in force on the date of the enactment of this Act that does not satisfy the requirements of section 72(c)(5)(A) of the Internal Revenue Code of 1986 (as added by this section), or requirements similar to such section 72(c)(5)(A) in the case of a life insurance contract, any modification to such contract (including a change in ownership) or to the payments thereunder that is made to satisfy the requirements of such section (or similar requirements) shall not result in the recognition of any gain or loss, any amount being included in gross income, or any addition to tax that otherwise might result from such modification, but only if the modification is completed prior to the date that is 2 years after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 3. FACILITATING LONGEVITY INSURANCE.

(a) In General- Paragraph (9) of section 401(a) of the Internal Revenue Code of 1986 is amended by inserting after subparagraph (H) the following new subparagraph:CommentsClose CommentsPermalink





‘(I) LONGEVITY INSURANCE-CommentsClose CommentsPermalink





‘(i) IN GENERAL- For purposes of this paragraph, any value attributable to longevity insurance shall be disregarded in determining the value of an employee’s interest under a plan prior to the first date that payments are made under the longevity insurance.CommentsClose CommentsPermalink





‘(ii) LONGEVITY INSURANCE DEFINED- For purposes of this subparagraph, the term ‘longevity insurance’ means an annuity payable on behalf of the employee under which--CommentsClose CommentsPermalink





‘(I) payments commence not later than 12 months following the calendar month in which the employee attains age 85 (or would have attained age 85),CommentsClose CommentsPermalink





‘(II) payments are made in substantially equal periodic payments (not less frequently than annually) over the life of the employee or the joint lives of the employee and the employee’s designated beneficiary, taking into account the rules of clause (i) of section 402(e)(7)(D), except as otherwise provided in subclause (III) of such section,CommentsClose CommentsPermalink





‘(III) prior to the death of the employee, the annuity does not make available any commutation benefit, cash surrender value, or other similar feature, andCommentsClose CommentsPermalink





‘(IV) except as provided in rules prescribed by the Secretary, in the case of an employee’s death prior to the date that payments commence, the value of any death benefits paid may not exceed the premiums paid for such annuity, plus interest compounded annually at 3 percent.CommentsClose CommentsPermalink





‘(iii) ADJUSTING AGE- For purposes of clause (ii)(I), the Secretary shall annually increase age 85 to reflect increases in life expectancy (as determined by the Secretary) that occur on or after January 1, 2009, except that any such increased age which is not a whole number shall be rounded to the next lower whole number.’.CommentsClose CommentsPermalink





(b) Rules- Not later than one year after the date of enactment of this Act, the Secretary of the Treasury shall prescribe rules under which all or a portion of a participant’s benefits under any plan described in section 402(c)(8)(B) of the Internal Revenue Code of 1986 may be treated as longevity insurance under the rules of section 401(a)(9)(H) of such Code.CommentsClose CommentsPermalink





(c) Effective Date- The amendments made by this section shall apply to years beginning after December 31, 2010.CommentsClose CommentsPermalink

SEC. 4. SPECIAL RULES FOR ANNUITIES RECEIVED FROM ONLY A PORTION OF A CONTRACT.

(a) In General- Subsection (a) of section 72 of the Internal Revenue Code of 1986 is amended to read as follows:CommentsClose CommentsPermalink





‘(a) General Rule for Annuities- If any amount is received as an annuity (whether for a period certain or during one or more lives) under any portion of an annuity, endowment, or life insurance contract--CommentsClose CommentsPermalink





‘(1) except as otherwise provided in this chapter, gross income includes such amount,CommentsClose CommentsPermalink





‘(2) such portion shall be treated as a separate contract for purposes of this section,CommentsClose CommentsPermalink





‘(3) for purposes of applying subsections (b), (c), and (e), the investment in the contract shall be allocated pro rata between each portion of the contract from which amounts are received as an annuity and the portion of the contract from which amounts are not received as an annuity, andCommentsClose CommentsPermalink





‘(4) a separate annuity starting date under subsection (c)(4) shall be determined with respect to each portion of the contract from which amounts are received as an annuity.’.CommentsClose CommentsPermalink





(b) Effective Date-CommentsClose CommentsPermalink





(1) IN GENERAL- The amendments made by this section shall apply to amounts received in taxable years beginning after the date of the enactment of this Act.CommentsClose CommentsPermalink





(2) NO INFERENCE AS TO PRIOR YEARS- Nothing in the amendments made by this section shall create an inference as to the treatment of amounts received under any portion of an annuity, endowment, or life insurance contract in any taxable year beginning on or before the date of the enactment of this Act.CommentsClose CommentsPermalink