
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC4980]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                 Subtitle D--Miscellaneous Excise Taxes
 
               CHAPTER 43--QUALIFIED PENSION, ETC., PLANS
 
Sec. 4980. Tax on reversion of qualified plan assets to employer


(a) Imposition of tax

    There is hereby imposed a tax of 20 percent of the amount of any 
employer reversion from a qualified plan.

(b) Liability for tax

    The tax imposed by subsection (a) shall be paid by the employer 
maintaining the plan.

(c) Definitions and special rules

    For purposes of this section--

                         (1) Qualified plan

        The term ``qualified plan'' means any plan meeting the 
    requirements of section 401(a) or 403(a), other than--
            (A) a plan maintained by an employer if such employer has, 
        at all times, been exempt from tax under subtitle A, or
            (B) a governmental plan (within the meaning of section 
        414(d)).

    Such term shall include any plan which, at any time, has been 
    determined by the Secretary to be a qualified plan.

                       (2) Employer reversion

        (A) In general

            The term ``employer reversion'' means the amount of cash and 
        the fair market value of other property received (directly or 
        indirectly) by an employer from the qualified plan.

        (B) Exceptions

            The term ``employer reversion'' shall not include--
                (i) except as provided in regulations, any amount 
            distributed to or on behalf of any employee (or his 
            beneficiaries) if such amount could have been so distributed 
            before termination of such plan without violating any 
            provision of section 401, or
                (ii) any distribution to the employer which is allowable 
            under section 401(a)(2)--
                    (I) in the case of a multiemployer plan, by reason 
                of mistakes of law or fact or the return of any 
                withdrawal liability payment,
                    (II) in the case of a plan other than a 
                multiemployer plan, by reason of mistake of fact, or
                    (III) in the case of any plan, by reason of the 
                failure of the plan to initially qualify or the failure 
                of contributions to be deductible.

          (3) Exception for employee stock ownership plans

        (A) In general

            If, upon an employer reversion from a qualified plan, any 
        applicable amount is transferred from such plan to an employee 
        stock ownership plan described in section 4975(e)(7) or a tax 
        credit employee stock ownership plan (as described in section 
        409), such amount shall not be treated as an employer reversion 
        for purposes of this section (or includible in the gross income 
        of the employer) if--
                (i) the requirements of subparagraphs (B), (C), and (D) 
            are met, and
                (ii) under the plan, employer securities to which 
            subparagraph (B) applies must, except to the extent 
            necessary to meet the requirements of section 401(a)(28), 
            remain in the plan until distribution to participants in 
            accordance with the provisions of such plan.

        (B) Investment in employer securities

            The requirements of this subparagraph are met if, within 90 
        days after the transfer (or such longer period as the Secretary 
        may prescribe), the amount transferred is invested in employer 
        securities (as defined in section 409(l)) or used to repay loans 
        used to purchase such securities.

        (C) Allocation requirements

            The requirements of this subparagraph are met if the portion 
        of the amount transferred which is not allocated under the plan 
        to accounts of participants in the plan year in which the 
        transfer occurs--
                (i) is credited to a suspense account and allocated from 
            such account to accounts of participants no less rapidly 
            than ratably over a period not to exceed 7 years, and
                (ii) when allocated to accounts of participants under 
            the plan, is treated as an employer contribution for 
            purposes of section 415(c), except that--
                    (I) the annual addition (as determined under section 
                415(c)) attributable to each such allocation shall not 
                exceed the value of such securities as of the time such 
                securities were credited to such suspense account, and
                    (II) no additional employer contributions shall be 
                permitted to an employee stock ownership plan described 
                in subparagraph (A) of the employer before the 
                allocation of such amount.

        The amount allocated in the year of transfer shall not be less 
        than the lesser of the maximum amount allowable under section 
        415 or \1/8\ of the amount attributable to the securities 
        acquired. In the case of dividends on securities held in the 
        suspense account, the requirements of this subparagraph are met 
        only if the dividends are allocated to accounts of participants 
        or paid to participants in proportion to their accounts, or used 
        to repay loans used to purchase employer securities.

        (D) Participants

            The requirements of this subparagraph are met if at least 
        half of the participants in the qualified plan are participants 
        in the employee stock ownership plan (as of the close of the 1st 
        plan year for which an allocation of the securities is 
        required).

        (E) Applicable amount

            For purposes of this paragraph, the term ``applicable 
        amount'' means any amount which--
                (i) is transferred after March 31, 1985, and before 
            January 1, 1989, or
                (ii) is transferred after December 31, 1988, pursuant to 
            a termination which occurs after March 31, 1985, and before 
            January 1, 1989.

        (F) No credit or deduction allowed

            No credit or deduction shall be allowed under chapter 1 for 
        any amount transferred to an employee stock ownership plan in a 
        transfer to which this paragraph applies.

        (G) Amount transferred to include income thereon, etc.

            The amount transferred shall not be treated as meeting the 
        requirements of subparagraphs (B) and (C) unless amounts 
        attributable to such amount also meet such requirements.

                     (4) Time for payment of tax

        For purposes of subtitle F, the time for payment of the tax 
    imposed by subsection (a) shall be the last day of the month 
    following the month in which the employer reversion occurs.

(d) Increase in tax for failure to establish replacement plan or 
        increase benefits

                           (1) In general

        Subsection (a) shall be applied by substituting ``50 percent'' 
    for ``20 percent'' with respect to any employer reversion from a 
    qualified plan unless--
            (A) the employer establishes or maintains a qualified 
        replacement plan, or
            (B) the plan provides benefit increases meeting the 
        requirements of paragraph (3).

                   (2) Qualified replacement plan

        For purposes of this subsection, the term ``qualified 
    replacement plan'' means a qualified plan established or maintained 
    by the employer in connection with a qualified plan termination 
    (hereinafter referred to as the ``replacement plan'') with respect 
    to which the following requirements are met:

        (A) Participation requirement

            At least 95 percent of the active participants in the 
        terminated plan who remain as employees of the employer after 
        the termination are active participants in the replacement plan.

        (B) Asset transfer requirement

            (i) 25 percent cushion

                A direct transfer from the terminated plan to the 
            replacement plan is made before any employer reversion, and 
            the transfer is in an amount equal to the excess (if any) 
            of--
                    (I) 25 percent of the maximum amount which the 
                employer could receive as an employer reversion without 
                regard to this subsection, over
                    (II) the amount determined under clause (ii).
            (ii) Reduction for increase in benefits

                The amount determined under this clause is an amount 
            equal to the present value of the aggregate increases in the 
            accrued benefits under the terminated plan of any 
            participants or beneficiaries pursuant to a plan amendment 
            which--
                    (I) is adopted during the 60-day period ending on 
                the date of termination of the qualified plan, and
                    (II) takes effect immediately on the termination 
                date.
            (iii) Treatment of amount transferred

                In the case of the transfer of any amount under clause 
            (i)--
                    (I) such amount shall not be includible in the gross 
                income of the employer,
                    (II) no deduction shall be allowable with respect to 
                such transfer, and
                    (III) such transfer shall not be treated as an 
                employer reversion for purposes of this section.

        (C) Allocation requirements

            (i) In general

                In the case of any defined contribution plan, the 
            portion of the amount transferred to the replacement plan 
            under subparagraph (B)(i) is--
                    (I) allocated under the plan to the accounts of 
                participants in the plan year in which the transfer 
                occurs, or
                    (II) credited to a suspense account and allocated 
                from such account to accounts of participants no less 
                rapidly than ratably over the 7-plan-year period 
                beginning with the year of the transfer.
            (ii) Coordination with section 415 limitation

                If, by reason of any limitation under section 415, any 
            amount credited to a suspense account under clause (i)(II) 
            may not be allocated to a participant before the close of 
            the 7-year period under such clause--
                    (I) such amount shall be allocated to the accounts 
                of other participants, and
                    (II) if any portion of such amount may not be 
                allocated to other participants by reason of any such 
                limitation, shall be allocated to the participant as 
                provided in section 415.
            (iii) Treatment of income

                Any income on any amount credited to a suspense account 
            under clause (i)(II) shall be allocated to accounts of 
            participants no less rapidly than ratably over the remainder 
            of the period determined under such clause (after 
            application of clause (ii)).
            (iv) Unallocated amounts at termination

                If any amount credited to a suspense account under 
            clause (i)(II) is not allocated as of the termination date 
            of the replacement plan--
                    (I) such amount shall be allocated to the accounts 
                of participants as of such date, except that any amount 
                which may not be allocated by reason of any limitation 
                under section 415 shall be allocated to the accounts of 
                other participants, and
                    (II) if any portion of such amount may not be 
                allocated to other participants under subclause (I) by 
                reason of such limitation, such portion shall be treated 
                as an employer reversion to which this section applies.

                   (3) Pro rata benefit increases

        (A) In general

            The requirements of this paragraph are met if a plan 
        amendment to the terminated plan is adopted in connection with 
        the termination of the plan which provides pro rata increases in 
        the accrued benefits of all qualified participants which--
                (i) have an aggregate present value not less than 20 
            percent of the maximum amount which the employer could 
            receive as an employer reversion without regard to this 
            subsection, and
                (ii) take effect immediately on the termination date.

        (B) Pro rata increase

            For purposes of subparagraph (A), a pro rata increase is an 
        increase in the present value of the accrued benefit of each 
        qualified participant in an amount which bears the same ratio to 
        the aggregate amount determined under subparagraph (A)(i) as--
                (i) the present value of such participant's accrued 
            benefit (determined without regard to this subsection), 
            bears to
                (ii) the aggregate present value of accrued benefits of 
            the terminated plan (as so determined).

        Notwithstanding the preceding sentence, the aggregate increases 
        in the present value of the accrued benefits of qualified 
        participants who are not active participants shall not exceed 40 
        percent of the aggregate amount determined under subparagraph 
        (A)(i) by substituting ``equal to'' for ``not less than''.

               (4) Coordination with other provisions

        (A) Limitations

            A benefit may not be increased under paragraph (2)(B)(ii) or 
        (3)(A), and an amount may not be allocated to a participant 
        under paragraph (2)(C), if such increase or allocation would 
        result in a failure to meet any requirement under section 
        401(a)(4) or 415.

        (B) Treatment as employer contributions

            Any increase in benefits under paragraph (2)(B)(ii) or 
        (3)(A), or any allocation of any amount (or income allocable 
        thereto) to any account under paragraph (2)(C), shall be treated 
        as an annual benefit or annual addition for purposes of section 
        415.

        (C) 10-year participation requirement

            Except as provided by the Secretary, section 415(b)(5)(D) 
        shall not apply to any increase in benefits by reason of this 
        subsection to the extent that the application of this 
        subparagraph does not discriminate in favor of highly 
        compensated employees (as defined in section 414(q)).

                  (5) Definitions and special rules

        For purposes of this subsection--

        (A) Qualified participant

            The term ``qualified participant'' means an individual who--
                (i) is an active participant,
                (ii) is a participant or beneficiary in pay status as of 
            the termination date,
                (iii) is a participant not described in clause (i) or 
            (ii)--
                    (I) who has a nonforfeitable right to an accrued 
                benefit under the terminated plan as of the termination 
                date, and
                    (II) whose service, which was creditable under the 
                terminated plan, terminated during the period beginning 
                3 years before the termination date and ending with the 
                date on which the final distribution of assets occurs, 
                or

                (iv) is a beneficiary of a participant described in 
            clause (iii)(II) and has a nonforfeitable right to an 
            accrued benefit under the terminated plan as of the 
            termination date.

        (B) Present value

            Present value shall be determined as of the termination date 
        and on the same basis as liabilities of the plan are determined 
        on termination.

        (C) Reallocation of increase

            Except as provided in paragraph (2)(C), if any benefit 
        increase is reduced by reason of the last sentence of paragraph 
        (3)(A)(ii) or paragraph (4), the amount of such reduction shall 
        be allocated to the remaining participants on the same basis as 
        other increases (and shall be treated as meeting any allocation 
        requirement of this subsection).

        (D) Plans taken into account

            For purposes of determining whether there is a qualified 
        replacement plan under paragraph (2), the Secretary may provide 
        that--
                (i) 2 or more plans may be treated as 1 plan, or
                (ii) a plan of a successor employer may be taken into 
            account.

        (E) Special rule for participation requirement

            For purposes of paragraph (2)(A), all employers treated as 1 
        employer under section 414(b), (c), (m), or (o) shall be treated 
        as 1 employer.

        (6) Subsection not to apply to employer in bankruptcy

        This subsection shall not apply to an employer who, as of the 
    termination date of the qualified plan, is in bankruptcy liquidation 
    under chapter 7 of title 11 of the United States Code or in similar 
    proceedings under State law.

(Added Pub. L. 99-514, title XI, Sec. 1132(a), Oct. 22, 1986, 100 Stat. 
2478; amended Pub. L. 100-647, title I, Sec. 1011A(f)(1)-(3), (6), (7), 
title V, Sec. 5072(a), title VI, Sec. 6069(a), Nov. 10, 1988, 102 Stat. 
3478, 3479, 3681, 3704; Pub. L. 101-508, title XII, Secs. 12001, 
12002(a), Nov. 5, 1990, 104 Stat. 1388-562; Pub. L. 104-188, title I, 
Sec. 1704(a), Aug. 20, 1996, 110 Stat. 1878.)


                               Amendments

    1996--Subsecs. (a), (d). Pub. L. 104-188 provided that, except as 
otherwise expressly provided, whenever in title XII of Pub. L. 101-508 
an amendment or repeal is expressed in terms of an amendment to, or 
repeal of, a section or other provision, the reference shall be 
considered to be made to a section or other provision of the Internal 
Revenue Code of 1986. Sections 12001 and 12002(a) of title XII of Pub. 
L. 101-508 directed the amendment of this section without specifying 
that the amendment was to the Internal Revenue Code of 1986. See 1990 
Amendment note below.
    1990--Subsec. (a). Pub. L. 101-508, Sec. 12001, which directed the 
substitution of ``20 percent'' for ``15 percent'' in ``section 4980(a)'' 
without specifying the Internal Revenue Code of 1986, was executed to 
subsec. (a) of this section. See 1996 Amendment note above.
    Subsec. (d). Pub. L. 101-508, Sec. 12002(a), which directed the 
addition of subsec. (d) to ``section 4980'' without specifying the 
Internal Revenue Code of 1986, was executed to this section. See 1996 
Amendment note above.
    1988--Subsec. (a). Pub. L. 100-647, Sec. 6069(a), substituted ``15'' 
for ``10''.
    Subsec. (c)(1)(A). Pub. L. 100-647, Sec. 1011A(f)(1), substituted 
``subtitle A'' for ``this subtitle''.
    Subsec. (c)(3)(A). Pub. L. 100-647, Sec. 1011A(f)(2), inserted ``or 
a tax credit employee stock ownership plan (as described in section 
409)'' after ``section 4975(e)(7)'' in introductory text, and ``, except 
to the extent necessary to meet the requirements of section 
401(a)(28),'' after ``must'' in cl. (ii).
    Subsec. (c)(3)(C). Pub. L. 100-647, Sec. 1011A(f)(3), struck out 
``(by reason of the limitations of section 415)'' after ``not 
allocated'' in introductory text, and inserted sentence at end relating 
to minimum amount allocated in year of transfer.
    Pub. L. 100-647, Sec. 1011A(f)(7), inserted sentence at end relating 
to dividends on securities held in suspense account.
    Subsec. (c)(3)(F), (G). Pub. L. 100-647, Sec. 1011A(f)(6), added 
subpars. (F) and (G).
    Subsec. (c)(4). Pub. L. 100-647, Sec. 5072(a), added par. (4).


                    Effective Date of 1990 Amendment

    Section 12003 of Pub. L. 101-508 provided that:
    ``(a) In General.--Except as provided in subsection (b), the 
amendments made by this subtitle [subtitle A (Secs. 12001-12003) of 
title XII of Pub. L. 101-508, amending this section and sections 1002, 
1104, and 1344 of Title 29, Labor] shall apply to reversions occurring 
after September 30, 1990.
    ``(b) Exception.--The amendments made by this subtitle shall not 
apply to any reversion after September 30, 1990, if--
        ``(1) in the case of plans subject to title IV of the Employee 
    Retirement Income Security Act of 1974 [29 U.S.C. 1301 et seq.], a 
    notice of intent to terminate under such title was provided to 
    participants (or if no participants, to the Pension Benefit Guaranty 
    Corporation) before October 1, 1990,
        ``(2) in the case of plans subject to title I [29 U.S.C. 1001 et 
    seq.] (and not to title IV) of such Act, a notice of intent to 
    reduce future accruals under section 204(h) of such Act [29 U.S.C. 
    1054(h)] was provided to participants in connection with the 
    termination before October 1, 1990,
        ``(3) in the case of plans not subject to title I or IV of such 
    Act, a request for a determination letter with respect to the 
    termination was filed with the Secretary of the Treasury or the 
    Secretary's delegate before October 1, 1990, or
        ``(4) in the case of plans not subject to title I or IV of such 
    Act and having only 1 participant, a resolution terminating the plan 
    was adopted by the employer before October 1, 1990.''


                    Effective Date of 1988 Amendment

    Amendment by section 1011A(f)(1)-(3), (6), (7) of Pub. L. 100-647 
effective, except as otherwise provided, as if included in the provision 
of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment 
relates, see section 1019(a) of Pub. L. 100-647, set out as a note under 
section 1 of this title.
    Section 5072(b) of Pub. L. 100-647 provided that: ``The amendment 
made by subsection (a) [amending this section] shall apply to reversions 
after December 31, 1988.''
    Section 6069(b) of Pub. L. 100-647 provided that:
    ``(1) In general.--The amendment made by subsection (a) [amending 
this section] shall apply to reversions occurring on or after October 
21, 1988.
    ``(2) Exception.--The amendment made by subsection (a) shall not 
apply to any reversion on or after October 21, 1988, pursuant to a plan 
termination if--
        ``(A) with respect to plans subject to title IV of the Employee 
    Retirement Income Security Act of 1974 [29 U.S.C. 1301 et seq.], a 
    notice of intent to terminate required under such title was provided 
    to participants (or if no participants, to the Pension Benefit 
    Guaranty Corporation) before October 21, 1988,
        ``(B) with respect to plans subject to title I of such Act [29 
    U.S.C. 1001 et seq.], a notice of intent to reduce future accruals 
    required under section 204(h) of such Act [29 U.S.C. 1054(h)] was 
    provided to participants in connection with the termination before 
    October 21, 1988,
        ``(C) with respect to plans not subject to title I or IV of such 
    Act, the Board of Directors of the employer approved the termination 
    or the employer took other binding action before October 21, 1988, 
    or
        ``(D) such plan termination was directed by a final order of a 
    court of competent jurisdiction entered before October 21, 1988, and 
    notice of such order was provided to participants before such 
    date.''


                             Effective Date

    Section 1132(c) of Pub. L. 99-514, as amended by Pub. L. 100-647, 
title I, Sec. 1011A(f)(4), (5), Nov. 10, 1988, 102 Stat. 3479, provided 
that:
    ``(1) In general.--The amendments made by this section [enacting 
this section] shall apply to reversions occurring after December 31, 
1985.
    ``(2) Exception where termination date occurred before january 1, 
1986.--
        ``(A) In general.--Except as provided in subparagraph (B), the 
    amendments made by this section shall not apply to any reversion 
    after December 31, 1985, which occurs pursuant to a plan termination 
    where the termination date is before January 1, 1986.
        ``(B) Election to have amendments apply.--A corporation may 
    elect to have the amendments made by this section apply to any 
    reversion after 1985 pursuant to a plan termination occurring before 
    1986 if such corporation was incorporated in the State of Delaware 
    in March, 1978, and became a parent corporation of the consolidated 
    group on September 19, 1978, pursuant to a merger agreement recorded 
    in the State of Nevada on September 19, 1978.
    ``(3) Termination date.--For purposes of paragraph (2), the term 
`termination date' is the date of the termination (within the meaning of 
section 411(d)(3) of the Internal Revenue Code of 1986) of the plan.
    ``(4) Transition rule for certain terminations.--
        ``(A) In general.--In the case of a taxpayer to which this 
    paragraph applies, the amendments made by this section shall not 
    apply to any termination occurring before the date which is 1 year 
    after the date of the enactment of this Act [Oct. 22, 1986].
        ``(B) Taxpayers to whom paragraph applies.--This paragraph shall 
    apply to--
            ``(i) a corporation incorporated on June 13, 1917, which has 
        its principal place of business in Bartlesville, Oklahoma,
            ``(ii) a corporation incorporated on January 17, 1917, which 
        is located in Coatesville, Pennsylvania,
            ``(iii) a corporation incorporated on January 23, 1928, 
        which has its principal place of business in New York, New York,
            ``(iv) a corporation incorporated on April 23, 1956, which 
        has its principal place of business in Dallas, Texas, and
            ``(v) a corporation incorporated in the State of Nevada, the 
        principal place of business of which is in Denver, Colorado, and 
        which filed for relief from creditors under the United States 
        Bankruptcy Code on August 28, 1986.
    ``(5) Special rule for employee stock ownership plans.--Section 
4980(c)(3) of the Internal Revenue Code of 1986 (as added by subsection 
(a)) shall apply to reversions occurring after March 31, 1985.''


Transfer of Excess Assets From Qualified Pension Plan to Welfare Benefit 
                                  Plan

    Pub. L. 101-239, title VII, Sec. 7861(b), Dec. 19, 1989, 103 Stat. 
2430, provided that:
    ``(1) Notwithstanding any other provision of law, in the case of any 
qualified pension plan and welfare benefit plan described in paragraph 
(2), the assets of such pension plan in excess of its liabilities may be 
transferred to such welfare benefit plan upon the termination of such 
pension plan if such assets are to be used to provide retiree health 
benefits.
    ``(2) For purposes of paragraph (1), a qualified pension plan and 
welfare benefit plan are described in this paragraph if--
        ``(A) both such plans are jointly administered pursuant to a 
    collective bargaining agreement between the employer maintaining 
    such plans and one or more employee representatives,
        ``(B) the welfare benefit plan provides retiree health benefits, 
    and
        ``(C) the qualified pension plan has assets in excess of 
    liabilities (determined on a termination basis) and the welfare 
    benefit plan has assets which are less than the present value of the 
    benefits to be provided under the plan (determined as of the time of 
    termination of the pension plan).
    ``(3) For purposes of the Internal Revenue Code of 1986, any 
transfer of assets to which paragraph (1) applies shall be treated as a 
reversion of such assets to the employer maintaining the plan which is 
includible in the gross income of such employer and subject to the tax 
imposed by section 4980 of such Code.''


           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 [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 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.

                  Section Referred to in Other Sections

    This section is referred to in sections 420, 4972, 9705 of this 
title; title 29 sections 1104, 1344.
