Taxpayer
Relief Act of 1997 page8
 
Conference
Agreement
The conference agreement follows the House bill.
6. Treatment of certain transportation on
noncommercially operated aircraft as a fringe
benefit (sec. 916 of the House bill)
Present
Law
Under present law, the value of an employer-provided
flight taken for personal purposes is generally
includible in income. However, under a special rule
in regulations, the value of a personal flight is
deemed to be zero (and, therefore, there is no
income inclusion) if at least 50 percent of the
regular passenger seating capacity of the aircraft
is occupied by individuals whose flights are
primarily for the employer's business (and
therefore, excludable from income).
House
Bill
Under the House bill, the value of air
transportation for personal purposes is excludable
from income if the flight is made in the ordinary
course of the trade or business of an employer and
the flight would have been made whether or not the
employee was transported on the flight, and the
employer incurs no substantial additional cost
(including foregone revenue) in providing the flight
to the employee.
Effective date. --The provision is effective
for transportationservices provided after December
31, 1997.
Senate
Amendment
No provision.
Conference
Agreement
The conference agreement does not include the House
bill provision.
7. Clarification of certain rules relating to ESOPs
of S corporations (sec. 918 of the House bill and
sec. 1309 of the Senate amendment)
Present
Law
Under present law, an S corporation can have no more
than 75 shareholders. For taxable years beginning
after December 31, 1997, certain tax-exempt
organizations, including employee stock ownership
plans ("ESOPs")can be a shareholder of an
S corporation.
ESOPs are generally required to make distributions
in the form of employer securities. If the employer
securities are not readily tradable, the employee
has a right to require the employer to buy the
securities. In the case of an employer whose bylaws
or charter restricts ownership of substantially all
employer securities to employees or a pension plan,
the plan may provide that benefits are distributed
in the form of cash. Such a plan may distribute
employer securities, if the employee has a right to
require the employer to purchase the securities.
ESOPs are subject to certain prohibited transaction
rules under the Internal Revenue Code and title I of
the Employee Retirement Income Security Act ("ERISA")
which are designed to prohibit certain
transactionsbetween the plan and certain persons
close to the plan. A number of statutory exceptions
are provided to the prohibited transaction rules.
These statutory exceptions do not apply to any
transaction in which a plan (directly or indirectly)
(1) lends any part of the assets of the plan to, (2)
pays any compensation for personal services rendered
to the plan to, or (3) acquires for the plan any
property from or sells any property to a shareholder
employee of an S corporation, a member of the family
of such a shareholder employee, or a corporation
controlled by the shareholder employee. An
administrative exception from the prohibited
transactions rules may be obtained from the
Secretary of Labor, even if a statutory exception
does not apply.
House
Bill
The House bill provides that ESOPs of S corporations
may distribute cash to plan participants as long as
the employee has a right to require the employer to
purchase employer securities (as under the
present-law rules). In addition, the House bill
extends the Code's statutory exceptions to certain
prohibited transactions rules to shareholder
employees of S corporations.
Effective date. --The provision is effective
for taxable yearsbeginning after December 31, 1997.
Senate
Amendment
The Senate amendment is the same as the House bill
with respect to the provision that permits ESOPs of
S corporations to distribute stock in certain cases.
The Senate amendment provides that the sale of stock
by a shareholder employee of an S corporation is not
a prohibited transaction under the Code or ERISA.
Effective date. --Same as the House bill.
Conference
Agreement
The conference agreement follows the House bill and
the Senate amendment with respect to the provision
permitting ESOPs maintained by S corporations to
distribute employer securities in certain
circumstances. The conference agreement follows the
Senate amendment with respect to the provision
relating to prohibited transaction rules, as
modified. Under the conference agreement, the
statutory exceptions do not fail to apply merely
because a transaction involves the sale of employer
securities to an ESOP maintained by an S corporation
by a shareholder employee, a family member of the
shareholder employee, or a corporation controlled by
the shareholder employee. Thus, the statutory
exemptions for such a transaction (including the
exemption for a loan to the ESOP to acquire employer
securities in connection with such a sale or a
guarantee of such a loan) apply.
Effective date. --Same as the House bill and
the Senate amendment.
8. Repeal application of UBIT to ESOPs of S
corporations (sec. 716 of the Senate amendment)
Present
Law
Under present law, for taxable years beginning after
December 31, 1997, certain tax-exempt organizations,
including employee stock ownership plans
("ESOPs") can be a shareholder of an S
corporation. Items ofincome or loss of the S
corporation will flow through to qualified
tax-exempt shareholders as unrelated business
taxable income ("UBTI"), regardless of
thesource of the income.
House
Bill
No provision.
Senate
Amendment
The Senate amendment repeals the provision treating
items of income or loss of an S corporation as
unrelated business taxable income in the case of an
employee stock ownership plan that is an S
corporation shareholder.
Effective date. --Taxable years beginning
after December 31, 1997.
Conference
Agreement
The conference agreement follows the Senate
amendment, and clarifies that the repeal of the
provision treating items of income or loss of an S
corporation as unrelated business taxable income
applies only with respect to employer securities
held by an employee stock ownership plan (as defined
in section 4975(e)(7) of the Code) maintained by an
S corporation.
9. Treatment of multiemployer plans under section
415 (sec. 711 of the Senate amendment)
Present
Law
Present law imposes limits on contributions and
benefits under qualified plans based on the type of
plan. In the case of defined benefit pension plans,
the limit on the annual retirement benefit is the
lesser of (1) 100 percent of compensation or (2)
$125,000 (indexed for inflation).
House
Bill
No provision.
Senate
Amendment
The Senate amendment eliminates the application of
the 100 percent of compensation limitation for
multiemployer defined benefit pension plans. Such
plans would only be subject to the dollar
limitation.
Effective date. --The provision is effective
for years beginningafter December 31, 1997.
Conference
Agreement
The conference agreement does not include the Senate
amendment.
10. Modification of partial termination rules (sec.
712 of the Senate amendment)
Present
Law
Under the Internal Revenue Code, pension plan
benefits are required to become fully vested upon
termination or partial termination of the plan. The
plan document is required to contain a provision
reflecting this rule. Under section 552 of the
Deficit Reduction Act of 1984 ("DEFRA"),
forpurposes of this rule, a partial termination is
treated as not occurring if (1) the partial
termination is a result of a decline in plan
participation which occurs by reason of the
completion of the Trans-Alaska Oil Pipeline
construction project and occurred after December 31,
1975, and before January 1, 1980, with respect to
participants employed in Alaska; (2) no
discrimination occurred with respect to the partial
termination; and (3) it is established to the
satisfaction of the Secretary of the Treasury that
the benefits of the provision will not accrue to the
employers under the plan.
House
Bill
No provision.
Senate
Amendment
The Senate amendment clarifies that section 552 of
DEFRA applies for the Code, any other provision of
law, and any plan or trust provision.
Effective date. --The provision is effective
as if included insection 552 of DEFRA.
Conference
Agreement
The conference agreement does not include the Senate
amendment.
11. Increase in full funding limit (sec. 713 of the
Senate amendment)
Present
Law
Under present law, defined benefit pension plans are
subject to minimum funding requirements. In
addition, there is a maximum limit on contributions
that can be made to a plan, called the full funding
limit. The full funding limit is the lesser of a
plan's accrued liability and 150 percent of current
liability. In general, current liability is all
liabilities to plan participants and beneficiaries.
Current liability represents benefits accrued to
date, whereas the accrued liability full funding
limit is based on projected benefits. Under IRS
rules, amounts that cannot be contributed because of
the current liability full funding limit are
amortized over 10 years.
Effective date. --Taxable years beginning on
or after the date of enactment. A governmental plan
is treated as satisfying the coverage and
nondiscrimination tests for taxable years beginning
before the date of enactment.
House
Bill
No provision.
Senate
Amendment
The Senate amendment increases the 150-percent of
full funding limit as follows: 155 percent for plan
years beginning in 1999 or 2000, 160 percent for
plan years beginning in 2001 or 2002, 165 percent
for plan years beginning in 2003 and 2004, and 170
percent for plan years beginning in 2005 and
thereafter.
In addition, under the provision, amounts that
cannot be contributed due to the current liability
full funding limit are amortized over 20 years.
Amounts that could not be contributed because of
such full funding limit and that have not been
amortized as of the last day of the plan year
beginning in 1998 are amortized over this 20-year
period.
Effective date. --Plan years beginning after
December 31, 1998.
Conference
Agreement
The conference agreement follows the Senate
amendment, with the modification that, with respect
to amortization bases remaining at the end of the
1998 plan year, the 20-year amortization period is
reduced by the number of years since the
amortization base had been established. The
conference agreement also clarifies that no
amortization is required with respect to funding
methods that do not provide for amortization bases.
12. Spousal consent required for distributions from
section 401(k) plans (sec. 714 of the Senate
amendment)
Present
Law
Under present law, pension plans that provide
automatic survivor benefits (i.e., joint and
survivor annuities and preretirement survivor
annuities) require spousal consent to the payment of
a participant's benefit in a form other than a
survivor annuity. A qualified cash or deferred
arrangement (a "section 401(k) plan") is
not subject to the automatic survivorbenefit rules
if the plan provides that the spouse of a
participant is the beneficiary of the participant's
entire account under the plan, the participant's
benefit is not paid in the form of an annuity, and
the participant's account does not include amounts
transferred from another plan that was subject to
the automatic survivor benefit rules. In general,
spousal consent is not required for an involuntary
cash-out of a participant's benefit or distributions
made to satisfy the minimum distribution rules.
House
Bill
No provision.
Senate
Amendment
The Senate amendment provides that written spousal
consent is required for all distributions, including
plan loans, from plans containing a qualified cash
or deferred arrangement. As under present law,
spousal consent is not required for an involuntary
cash-out or a participant's benefit or for the
payment of distributions required under the minimum
distribution rules. If spousal consent is not
obtained, the benefit must be distributed in equal
periodic payments over the life (or life expectancy)
of the participant, the lives (or life expectancies)
of the participant and beneficiary, or over a period
of 10 years or more. A plan which complies with the
spousal consent requirement will not be treated as
failing to satisfy the anti-cutback rules related to
optional forms of benefit.
Effective date. --The provision is effective
for plan yearsbeginning after December 31, 1998.
Conference
Agreement
The conference agreement does not include the Senate
amendment.
13. Contributions on behalf of a minister to a
church plan (sec. 715 of the Senate amendment)
Present
Law
Under present law, contributions made to retirement
plans by ministers who are self-employed are
deductible to the extent such contributions do no
exceed certain limitations applicable to retirement
plans. These limitations include the limit on
elective deferrals, the exclusion allowance, and the
limit on annual additions to a retirement plan.
House
Bill
No provision.
Senate
Amendment
The Senate amendment provides that in the case of a
contribution made on behalf of a minister who is
self-employed to a church plan, the contribution is
excludable from the income of the minister to the
extent that the contribution would be excludable if
the minister were an employee of a church and the
contribution were made to the plan.
Effective date. --The provision is effective
for years beginningafter December 31, 1997.
Conference
Agreement
The conference agreement follows the Senate
amendment. The provision does not alter present law
under which amounts contributed for a minister in
connection with section 403(b), either by the
minister's actual employer or by any church or
convention or association of churches that is
treated as the minister's employer under section
414(e), are excluded from the minister's income, and
amounts contributed in accordance with section
403(b) by the minister (whether the minister is an
employee or is self employed) are deductible by the
minister as provided in section 404 taking into
account the other special rules of section 414(e).
14. Exclusion of ministers from discrimination
testing of certain non-church retirement plans (sec.
715 of the Senate amendment)
Present
Law
Under present law, ministers who are employed by an
organization other than a church are treated as if
employed by the church and may participate in the
retirement plan sponsored by the church. If the
organization also sponsors a retirement plan, such
plan does not have to include the ministers as
employees for purposes of satisfying the
nondiscrimination rules applicable to qualified
plans provided the organization is not eligible to
participate in the church plan.
House
Bill
No provision.
Senate
Amendment
The Senate amendment provides that if a minister is
employed by an organization other than a church and
the organization is not otherwise participating in
the church plan, then the minister does not have to
be included as an employee under the retirement plan
of the organization for purposes of the
nondiscrimination rules.
Effective date. --The provision is effective
for years beginningafter December 31, 1997.
Conference
Agreement
The conference agreement follows the Senate
amendment.
15. Diversification in section 401(k) plan
investments (sec. 717 of the Senate amendment)
Present
Law
The Employee Retirement Income Security Act of 1974,
as amended("ERISA") prohibits certain
employee benefit plans from investing more than 10
percent of the plan's assets in the securities and
real property of the employer who sponsors the plan.
The 10 percent limitation does not apply to
"eligible individual account plans" that
specifically authorize such investments. Generally,
eligible individual account plans are defined
contribution plans, including plans containing a
cash or deferred arrangement
("401(k)plans"). The assets of such plans
may be invested in employer securities and real
property without regard to the 10-percent
limitation.
House
Bill
No provision.
Senate
Amendment
The Senate amendment provides that the term
"eligible individual accountplan" does not
include the portion of a plan that consists of
elective deferrals (and earnings on the elective
deferrals) made under section 401(k) if elective
deferrals equal to more than 1 percent of a
participant's compensation are required to be
invested in employer securities at the direction of
a person other than the participant. Such portion of
the plan is treated as a separate plan subject to
the 10-percent limitation on investment in employer
securities and real property.
The Senate amendment does not apply to an individual
account plan if the value of the assets of all
individual account plans maintained by the employer
does not exceed 10 percent of the value of the
assets of all pension plans maintained by the
employer. The Senate amendment does not apply to an
employee stock ownership plan as defined in sections
409(a) and 4975(e)(7) of the Internal Revenue Code.
Effective date. --The provision is effective
with respect toemployer securities and employer real
property acquired after the beginning of the first
plan year beginning after the 90th day after the
date of enactment. The provision does not apply to
employer securities and real property acquired
pursuant to a binding written contract to acquire
such securities or real property in effect on the
date of enactment and at all times thereafter.
Conference
Agreement
The conference agreement follows the Senate
amendment, with modifications. The conference
agreement clarifies that the provision applies if
elective deferrals equal to more than 1 percent of
an employee's eligible compensation are required to
be invested in employer securities and employer real
property. Eligible compensation is compensation that
is eligible to be deferred. As under the Senate
amendment, if the 1 percent threshold is exceeded,
then the portion of the plan that consists of
elective deferrals (and earnings thereon) is still
treated as an individual account plan as long as
elective deferrals (and earnings thereon) are not
required to be invested in employer securities and
employer real property.
The conference agreement provides that multiemployer
plans are not taken into account in determining
whether the value of the assets of all individual
account plans maintained by the employer does not
exceed 10 percent of the value of the assets of all
pension plans maintained by the employer. The
conference agreement provides that the provision
does not apply to an employee stock ownership plan
as defined in section 4975(e)(7) of the Internal
Revenue Code.
Effective date. --Under the conference
agreement, the provision is effective with respect
to elective deferrals in plan years beginning after
December 31, 1998 (and earnings thereon). The
provision does not apply with respect to earnings on
elective deferrals for years beginning before
January 1, 1999.
16. Removal of dollar limitation on benefit payments
from a defined benefit plan for police and fire
employees (sec. 786 of the Senate amendment)
Present
Law
Under present law, limits are imposed on the
contributions and benefits under qualified pension
plans. Certain special rules apply in the case of
State and local governmental plans.
In the case of a defined benefit pension plan, the
limit on the annual retirement benefit is the lesser
of (1) 100 percent of compensation or (2) $125,000
(for 1997, indexed for inflation). The 100 percent
of compensation limitation does not apply in the
case of State and local governmental pension plans.
In general, the dollar limit is reduced if benefits
begin before social security retirement age and
increased if benefits begin after social security
retirement age. In the case of State and local
government plans, the dollar limit is not reduced
unless benefits begin before age 62 and in any case
is not less than $75,000, and the dollar limit is
increased if benefits begin after age 65. In the
case of certain police and fire department
employees, the dollar limit cannot be reduced below
$50,000 (indexed), regardless of the age at which
benefits commence.1
House
Bill
No provision.
Senate
Amendment
The dollar limit on defined benefit plans does not
apply to individuals who receive the special rule
for certain police and fire department employees
under present law.
Effective date. --Years beginning after
December 31, 1996.
Conference
Agreement
The conference agreement follows the Senate
amendment, with the clarification that the exception
from the dollar limit for police and fire department
employees only applies to the reduction for early
retirement benefits. Thus, the defined benefit plan
dollar limit continues to apply, but is not reduced
in the case of early retirement. As under present
law, the dollar limit is increased for such
employees if benefits begin after age 65.
Effective date. --Same as the Senate
amendment.
17.
Church
plan exception to prohibition on discrimination
against individuals based on health status
Present
Law
Under the Health Insurance Portability and
Accountability Act("HIPAA"), group health
plans generally may not establish rules for
eligibility based on any of the following factors
relating to an individual or a dependent of the
individual: (1) health status, (2) medical
condition, (3) claims experience, (4) receipt of
health care, (5) medical history, (6) genetic
information, (7) evidence of insurability, or (8)
disability. In addition, a group health plan may not
charge an individual a greater premium based on any
of such factors.
A excise tax is imposed on the failure of a group
plan to satisfy the nondiscrimination rule. In
general, the excise tax is imposed on the employer
sponsoring the plan and is equal to $100 per day per
individual as long as the plan is not in compliance.
House
Bill
No provision.
Senate
Amendment
No provision.
Conference
Agreement
The conference agreement provides that certain
church plans are not treated as violating the
nondiscrimination requirement merely because the
plan requires evidence of good health in order for
an individual to enroll in the plan for (1)
individuals who are employees of employers with 10
or fewer and for self-employed individuals or (2)
any individual who enrolls after the first 90 days
of eligibility under the plan. The provision applies
to a church plan for a year if the plan included
such provisions requiring evidence of good health on
July 15, 1997, and at all times thereafter before
the beginning of the year.
Effective date. --The provision is effective
as if included inHIPAA.
18. Newborns' and mothers' health protection; mental
health parity
Present
Law
The Newborns' and Mothers' Health Protection Act of
1996 amended the Employee Retirement Income Security
Act ("ERISA") and the Public HealthService
Act to impose certain requirements on group health
plans with respect to coverage of newborns and
mothers, including a requirement that a group health
plan cannot restrict benefits for a hospital stay in
connection with childbirth for the mother or newborn
to less than 48 hours following a normal vaginal
delivery or less than 96 hours following a cesarean
section. These provisions are effective with respect
to plan years beginning on or after January 1, 1998.
The Mental Health Parity Act of 1996 amended ERISA
and the Public Health Service Act to provide that
group health plans that provide both medical and
surgical benefits and mental health benefits cannot
impose limits on mental health benefits that are not
imposed on substantially all medical and surgical
benefits. The provisions of the Mental Health Parity
Act are effective with respect to plan years
beginning on or after January 1, 1998, but do not
apply to benefits for services furnished on or after
September 30, 2001.
The Internal Revenue Code requires that group health
plans meet certain requirements with respect to
limitations on exclusions of preexisting conditions
and that group health plans not discriminate against
individuals based on health status. An excise tax of
$100 per day during the period of noncompliance is
imposed on the employer sponsoring the plan if the
plan fails to meet these requirements. The maximum
tax that can be imposed during a taxable year cannot
exceed the lesser of 10 percent of the employer's
group health plan expenses for the prior year or
$500,000. No tax is imposed if the Secretary
determines that the employer did not know, and
exercising reasonable diligence would not have
known, that the failure existed.
House
Bill
No provision.
Senate
Amendment
No provision.
Conference
Agreement
The conference agreement incorporates into the
Internal Revenue Code the provisions of the
Newborns' and Mothers' Health Protection Act of 1996
and the Mental Health Parity Act of 1996 relating to
group health plans. Failures to comply with such
provisions are subject to the present-law excise tax
applicable to failures to comply with present-law
group health plan requirements.
Effective date. --The provisions are
effective with respect to plan years beginning on or
after January 1, 1998.
B. Pension Simplification Provisions
1. Matching contributions of self-employed
individuals not treated as elective deferrals (sec.
1301 of the Senate amendment)
Present
Law
A qualified cash or deferred arrangement (a
"section 401(k) plan")is a type of
tax-qualified pension plan under which employees can
elect to make pre-tax contributions. An employee's
annual elective contributions are subject to a
dollar limit ($9,500 for 1997). Employers may make
matching contributions based on employees' elective
contributions. In the case of employees, such
matching contributions are not subject to the $9,500
limit on elective contributions. Elective
contributions are subject to a special
nondiscrimination test called the average deferral
percentage("
ADP
") test. Matching contributions are subject to
a similar nondiscrimination test called the average
contributions percentage ("
ACP
") test. The employermay elect to treat certain
matching contributions as elective contributions for
purposes of the
ACP
test.
Under present law, matching contributions made for a
self-employed individual are generally treated as
additional elective contributions by the
self-employed individual who receives the matching
contribution. Accordingly, matching contributions
for a self-employed individual are subject to the
dollar limit on elective contributions (along with
the individual's other elective deferrals) and are
subject to the
ACP
test.
House
Bill
No provision.
Senate
Amendment
The Senate amendment provides that matching
contributions for self-employed individuals are
treated the same as matching contributions for
employees, i.e., they are not treated as elective
contributions and are not subject to the elective
contribution limits.
Effective date. --The provision is effective
for years beginningafter
December 31, 1997
.
Conference
Agreement
The conference agreement follows the Senate
amendment, and clarifies that the provision does not
apply to qualified matching contributions that are
treated as elective contributions for purposes of
satisfying the
ADP
test.
Effective date. --Same as the Senate
amendment, except that the conference agreement
provides that the provision is effective for years
beginning after
December 31, 1996
, in the case of SIMPLE retirement plans.
2. Contributions to IRAs through payroll deductions
(sec. 1302 of the Senate amendment)
Present
Law
Under present law, employer involvement in the
establishment or maintenance of individual
retirement arrangements ("IRAs") of its
employees canresult in the employer being considered
to maintain a retirement plan for purposes of title
I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), thus
subjecting the employer to ERISA's fiduciaryrules.
House
Bill
No provision.
Senate
Amendment
The Senate amendment provides that an employer that
facilitates IRA contributions by its employees by
establishing a system under which employees, through
employer payroll deductions, may make contributions
to IRAs will not be considered to sponsor a
retirement plan subject to ERISA. Under the system,
employees would be required to provide their
employer with a contribution certificate which
establishes the IRA and specifies the contribution
amount to be deducted from the employee's wages and
remitted to the employee's IRA. As under present
law, the amount contributed through payroll
deduction would be includible in the employee's
gross income and wages for employment tax purposes,
and deductible by the employee in accordance with
the rules relating to IRAs.
The provision does not apply to an employee employed
by an employer who maintains a tax-qualified
retirement plan.
Effective
date. --The Senate amendment is effective for
taxableyears beginning after December 31, 1997.
Conference
Agreement
The conference agreement does not include the Senate
amendment. The conference agreement provides that
employers that choose not to sponsor a retirement
plan should be encouraged to set up a payroll
deduction system to help employees save for
retirement by making payroll deduction contributions
to their IRAs. The Secretary of Treasury is
encouraged to continue his efforts to publicize the
availability of these payroll deduction IRAs.
3. Plans not disqualified merely by accepting
rollover contributions (sec. 1303 of the Senate
amendment)
Present
Law
Under present law, a qualified retirement plan that
accepts rollover contributions from other plans will
not be disqualified because the plan making the
distribution is, in fact, not qualified at the time
of the distribution, if, prior to accepting the
rollover, the receiving plan reasonably concluded
that the distributing plan was qualified. The
receiving plan can reasonably conclude that the
distributing plan was qualified if, for example,
prior to accepting the rollover, the distributing
plan provided a statement that the distributing plan
had a favorable determination letter issued by the
Internal Revenue Service ("IRS"). The
receiving planis not required to verify this
information.
House
Bill
No provision.
Senate
Amendment
The Senate amendment clarifies the circumstances
under which a qualified plan could accept rollover
contributions without jeopardizing its qualified
status. Under the provision, if the trustee of the
plan making the distribution verifies that the
distributing plan is intended to be a qualified
plan, the plan receiving the rollover will not be
disqualified if the distributing plan was not in
fact a qualified plan.
Effective date. --The Senate amendment is
effective for rollover contributions made after
December 31, 1997.
Conference
Agreement
The conference agreement follows the Senate
amendment, as modified. Under the conference
agreement, the Secretary of the Treasury is directed
to clarify that, under its regulations protecting
plans from disqualification because they receive
invalid rollover contributions, it is not necessary
for a distributing plan to have a determination
letter in order for the administrator of the
receiving plan to reasonably conclude that a
contribution is a valid rollover.
4. Modification of prohibition on assignment or
alienation (sec. 1304 of the Senate amendment)
Present
Law
Under present law, amounts held in a qualified
retirement plan for the benefit of a participant are
not, except in very limited circumstances,
assignable or available to personal creditors of the
participant. A plan may permit a participant, at
such time as benefits under the plan are in pay
status, to make a voluntary revocable assignment of
an amount not in excess of 10-percent of any benefit
payment, provided the purpose is not to defray plan
administration costs. In addition, a plan may comply
with a qualified domestic relations order issued by
a state court requiring benefit payments to former
spouses or other "alternate payees" even
if the participant is notin pay status.
There is no specific exception from the Employee
Retirement Income Security Act of 1974, as amended
("ERISA") or the Internal Revenue
Codewhich would permit the offset of a participant's
benefit against the amount owed to a plan by the
participant as a result of a breach of fiduciary
duty to the plan or criminality involving the plan.
Courts have been divided in their interpretation of
the prohibition on assignment or alienation in these
cases. Some courts have ruled that there is no
exception in ERISA for the offset of a participant's
benefit to make a plan whole in the case of a
fiduciary breach. Other courts have reached a
different result and permitted an offset of a
participant's benefit for breach of fiduciary
duties.
House
Bill
No provision.
Senate
Amendment
The Senate amendment permits a participant's benefit
in a qualified plan to be reduced to satisfy
liabilities of the participant to the plan due to
(1) the participant is being convicted of committing
a crime involving the plan, (2) a civil judgment (or
consent order or decree) entered by a court in an
action brought in connection with a violation of the
fiduciary provisions of title Iof ERISA, or (3) a
settlement agreement between the Secretary of Labor
or the Pension Benefit Guaranty Corporation and the
participant in connection with a violation of the
fiduciary provisions of ERISA.
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