1. U.S. Code
  2. title 26
  3. subtitle D
  4. chapter 43
  5. § 4973

Collapse to view only § 4973. Tax on excess contributions to certain tax-favored accounts and annuities

§ 4971. Taxes on failure to meet minimum funding standards
(a) Initial taxIf at any time during any taxable year an employer maintains a plan to which section 412 applies, there is hereby imposed for the taxable year a tax equal to—
(1) in the case of a single-employer plan, 10 percent of the aggregate unpaid minimum required contributions for all plan years remaining unpaid as of the end of any plan year ending with or within the taxable year,
(2) in the case of a multiemployer plan, 5 percent of the accumulated funding deficiency determined under section 431 as of the end of any plan year ending with or within the taxable year, and
(3) in the case of a CSEC plan, 10 percent of the CSEC accumulated funding deficiency as of the end of the plan year ending with or within the taxable year.
(b) Additional taxIf—
(1) a tax is imposed under subsection (a)(1) on any unpaid minimum required contribution and such amount remains unpaid as of the close of the taxable period,
(2) a tax is imposed under subsection (a)(2) on any accumulated funding deficiency and the accumulated funding deficiency is not corrected within the taxable period, or
(3) a tax is imposed under subsection (a)(3) on any CSEC accumulated funding deficiency and the CSEC accumulated funding deficiency is not corrected within the taxable period,
there is hereby imposed a tax equal to 100 percent of the unpaid minimum required contribution, accumulated funding deficiency, or CSEC accumulated funding deficiency, whichever is applicable, to the extent not so paid or corrected.
(c) DefinitionsFor purposes of this section—
(1) Accumulated funding deficiency
(2) Correct
(3) Taxable periodThe term “taxable period” means, with respect to an accumulated funding deficiency, CSEC accumulated funding deficiency, or unpaid minimum required contribution, whichever is applicable, the period beginning with the end of the plan year in which there is an accumulated funding deficiency, CSEC accumulated funding deficiency, or unpaid minimum required contribution, whichever is applicable, and ending on the earlier of—
(A) the date of mailing of a notice of deficiency with respect to the tax imposed by subsection (a), or
(B) the date on which the tax imposed by subsection (a) is assessed.
(4) Unpaid minimum required contribution
(A) In general
(B) Ordering rule
(5) CSEC accumulated funding deficiency
(d) Notification of the Secretary of LaborBefore issuing a notice of deficiency with respect to the tax imposed by subsection (a) or (b), the Secretary shall notify the Secretary of Labor and provide him a reasonable opportunity (but not more than 60 days)—
(1) to require the employer responsible for contributing to or under the plan to eliminate the accumulated funding deficiency, CSEC accumulated funding deficiency, or unpaid minimum required contribution, whichever is applicable, or
(2) to comment on the imposition of such tax.
(e) Liability for tax
(1) In general
(2) Joint and several liability where employer member of controlled group
(A) In general
(B) Controlled group
(f) Failure to pay liquidity shortfall
(1) In generalIn the case of a plan to which section 430(j)(4) or 433(f) applies, there is hereby imposed a tax of 10 percent of the excess (if any) of—
(A) the amount of the liquidity shortfall for any quarter, over
(B) the amount of such shortfall which is paid by the required installment under section 430(j) or 433(f), whichever is applicable, for such quarter (but only if such installment is paid on or before the due date for such installment).
(2) Additional tax
(3) Definitions and special rule
(A) Liquidity shortfall; quarter
(B) Special rule
(4) Waiver by SecretaryIf the taxpayer establishes to the satisfaction of the Secretary that—
(A) the liquidity shortfall described in paragraph (1) was due to reasonable cause and not willful neglect, and
(B) reasonable steps have been taken to remedy such liquidity shortfall,
the Secretary may waive all or part of the tax imposed by this subsection.
(g) Multiemployer plans in endangered or critical status
(1) In generalExcept as provided in this subsection—
(A) no tax shall be imposed under this section for a taxable year with respect to a multiemployer plan if, for the plan years ending with or within the taxable year, the plan is in critical status pursuant to section 432, and
(B) any tax imposed under this subsection for a taxable year with respect to a multiemployer plan if, for the plan years ending with or within the taxable year, the plan is in endangered status pursuant to section 432 shall be in addition to any other tax imposed by this section.
(2) Failure to comply with funding improvement or rehabilitation plan
(A) In general
(B) Amount of tax
(C) Liability for tax
(3) Failure to meet requirements for plans in endangered or critical statusIf—
(A) a plan which is in seriously endangered status fails to meet the applicable benchmarks by the end of the funding improvement period, or
(B) a plan which is in critical status either—
(i) fails to meet the requirements of section 432(e) by the end of the rehabilitation period, or
(ii) has received a certification under section 432(b)(3)(A)(ii) for 3 consecutive plan years that the plan is not making the scheduled progress in meeting its requirements under the rehabilitation plan,
the plan shall be treated as having an accumulated funding deficiency for purposes of this section for the last plan year in such funding improvement, rehabilitation, or 3-consecutive year period (and each succeeding plan year until such benchmarks or requirements are met) in an amount equal to the greater of the amount of the contributions necessary to meet such benchmarks or requirements or the amount of such accumulated funding deficiency without regard to this paragraph.
(4) Failure to adopt rehabilitation plan
(A) In general
(B) Amount of taxThe amount of the tax imposed under subparagraph (A) with respect to any plan sponsor for any taxable year shall be the greater of—
(i) the amount of tax imposed under subsection (a) for the taxable year (determined without regard to this subsection), or
(ii) the amount equal to $1,100 multiplied by the number of days during the taxable year which are included in the period beginning on the day following the close of the 240-day period described in section 432(e)(1)(A) and ending on the day on which the rehabilitation plan is adopted.
(C) Liability for tax
(i) In general
(ii) Plan sponsor
(5) Waiver
(6) Terms used in section 432
(h) Failure of a CSEC plan sponsor to adopt funding restoration plan
(1) In general
(2) Amount of tax
(3) Waiver by Secretary
(4) Liability for tax
(i) Cross references
(Added Pub. L. 93–406, title II, § 1013(b), Sept. 2, 1974, 88 Stat. 920; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 96–364, title II, § 204, Sept. 26, 1980, 94 Stat. 1287; Pub. L. 96–596, § 2(a)(1)(J), (2)(H), Dec. 24, 1980, 94 Stat. 3469, 3471; Pub. L. 100–203, title IX, §§ 9304(c)(1), 9305(a), Dec. 22, 1987, 101 Stat. 1330–348, 1330–351; Pub. L. 103–465, title VII, § 751(a)(9)(B), Dec. 8, 1994, 108 Stat. 5020; Pub. L. 104–188, title I, § 1464(a), Aug. 20, 1996, 110 Stat. 1824; Pub. L. 109–280, title I, § 114(e)(1)–(4), title II, § 212(b), Aug. 17, 2006, 120 Stat. 854, 855, 915; Pub. L. 110–458, title I, §§ 101(d)(2)(F), 102(b)(2)(I), (3)(A), Dec. 23, 2008, 122 Stat. 5099, 5103; Pub. L. 113–97, title II, § 202(c)(8), (9), Apr. 7, 2014, 128 Stat. 1137, 1138; Pub. L. 115–141, div. U, title IV, § 401(a)(225)–(228), (b)(44), Mar. 23, 2018, 132 Stat. 1195, 1204.)

CITE AS: 26 USC 4971

§ 4972. Tax on nondeductible contributions to qualified employer plans
(a) Tax imposed
(b) Employer liable for tax
(c) Nondeductible contributionsFor purposes of this section—
(1) In generalThe term “nondeductible contributions” means, with respect to any qualified employer plan, the sum of—
(A) the excess (if any) of—
(i) the amount contributed for the taxable year by the employer to or under such plan, over
(ii) the amount allowable as a deduction under section 404 for such contributions (determined without regard to subsection (e) thereof), and
(B) the amount determined under this subsection for the preceding taxable year reduced by the sum of—
(i) the portion of the amount so determined returned to the employer during the taxable year, and
(ii) the portion of the amount so determined deductible under section 404 for the taxable year (determined without regard to subsection (e) thereof).
(2) Ordering rule for section 404For purposes of paragraph (1), the amount allowable as a deduction under section 404 for any taxable year shall be treated as—
(A) first from carryforwards to such taxable year from preceding taxable years (in order of time), and
(B) then from contributions made during such taxable year.
(3) Contributions which may be returned to employer
(4) Special rule for self-employed individualsFor purposes of paragraph (1), if—
(A) the amount which is required to be contributed to a plan under section 412 on behalf of an individual who is an employee (within the meaning of section 401(c)(1)), exceeds
(B) the earned income (within the meaning of section 404(a)(8)) of such individual derived from the trade or business with respect to which such plan is established,
such excess shall be treated as an amount allowable as a deduction under section 404.
(5) Pre-1987 contributions
(6) ExceptionsIn determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account—
(A) so much of the contributions to 1 or more defined contribution plans which are not deductible when contributed solely because of section 404(a)(7) as does not exceed the amount of contributions described in section 401(m)(4)(A), or
(B) so much of the contributions to a simple retirement account (within the meaning of section 408(p)), a simple plan (within the meaning of section 401(k)(11)), or a simplified employee pension (within the meaning of section 408(k)) which are not deductible when contributed solely because such contributions are not made in connection with a trade or business of the employer.
For purposes of subparagraph (A), the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to a defined benefit plan and then to amounts described in subparagraph (A). Subparagraph (B) shall not apply to contributions made on behalf of the employer or a member of the employer’s family (as defined in section 447(e)(1)).1
1 See References in Text note below.
(7) Defined benefit plan exception
(d) DefinitionsFor purposes of this section—
(1) Qualified employer plan
(A) In generalThe term “qualified employer plan” means—
(i) any plan meeting the requirements of section 401(a) which includes a trust exempt from tax under section 501(a),
(ii) an annuity plan described in section 403(a),
(iii) any simplified employee pension (within the meaning of section 408(k)), and
(iv) any simple retirement account (within the meaning of section 408(p)).
(B) Exemption for governmental and tax exempt plans
(2) Employer
(Added Pub. L. 99–514, title XI, § 1131(c)(1), Oct. 22, 1986, 100 Stat. 2477; amended Pub. L. 100–647, title I, § 1011A(e)(1), (2), title II, § 2005(a)(1), Nov. 10, 1988, 102 Stat. 3477, 3610; Pub. L. 103–465, title VII, § 755(a), Dec. 8, 1994, 108 Stat. 5023; Pub. L. 104–188, title I, § 1421(b)(9)(D), Aug. 20, 1996, 110 Stat. 1798; Pub. L. 105–34, title XV, § 1507(a), Aug. 5, 1997, 111 Stat. 1067; Pub. L. 107–16, title VI, §§ 616(b)(2)(B), 637(a), (b), 652(b), 653(a), June 7, 2001, 115 Stat. 103, 118, 130; Pub. L. 108–311, title IV, §§ 404(c), 408(b)(9), Oct. 4, 2004, 118 Stat. 1188, 1193; Pub. L. 109–280, title I, § 114(e)(5), title VIII, § 803(c), Aug. 17, 2006, 120 Stat. 855, 996; Pub. L. 117–328, div. T, title I, § 118(a), Dec. 29, 2022, 136 Stat. 5302.)

CITE AS: 26 USC 4972

§ 4973. Tax on excess contributions to certain tax-favored accounts and annuities
(a) Tax imposedIn the case of—
(1) an individual retirement account (within the meaning of section 408(a)),
(2) an Archer MSA (within the meaning of section 220(d)),
(3) an individual retirement annuity (within the meaning of section 408(b)), a custodial account treated as an annuity contract under section 403(b)(7)(A) (relating to custodial accounts for regulated investment company stock),
(4) a Coverdell education savings account (as defined in section 530),
(5) a health savings account (within the meaning of section 223(d)), or
(6) an ABLE account (within the meaning of section 529A),
there is imposed for each taxable year a tax in an amount equal to 6 percent of the amount of the excess contributions to such individual’s accounts or annuities (determined as of the close of the taxable year). The amount of such tax for any taxable year shall not exceed 6 percent of the value of the account or annuity (determined as of the close of the taxable year). In the case of an endowment contract described in section 408(b), the tax imposed by this section does not apply to any amount allocable to life, health, accident, or other insurance under such contract. The tax imposed by this subsection shall be paid by such individual.
(b) Excess contributionsFor purposes of this section, in the case of individual retirement accounts or individual retirement annuities, the term “excess contributions” means the sum of—
(1) the excess (if any) of—
(A) the amount contributed for the taxable year to the accounts or for the annuities (other than a contribution to a Roth IRA or a rollover contribution described in section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16)), over
(B) the amount allowable as a deduction under section 219 for such contributions, and
(2) the amount determined under this subsection for the preceding taxable year reduced by the sum of—
(A) the distributions out of the account for the taxable year which were included in the gross income of the payee under section 408(d)(1),
(B) the distributions out of the account for the taxable year to which section 408(d)(5) applies, and
(C) the excess (if any) of the maximum amount allowable as a deduction under section 219 for the taxable year over the amount contributed (determined without regard to section 219(f)(6)) to the accounts or for the annuities (including the amount contributed to a Roth IRA) for the taxable year.
For purposes of this subsection, any contribution which is distributed from the individual retirement account or the individual retirement annuity in a distribution to which section 408(d)(4) applies shall be treated as an amount not contributed. For purposes of paragraphs (1)(B) and (2)(C), the amount allowable as a deduction under section 219 shall be computed without regard to section 219(g). Such term shall not include any designated nondeductible contribution (as defined in subparagraph (C) of section 408(o)(2)) which does not exceed the nondeductible limit under subparagraph (B) thereof by reason of an election under section 408(o)(5).
(c) Section 403(b) contractsFor purposes of this section, in the case of a custodial account referred to in subsection (a)(3), the term “excess contributions” means the sum of—
(1) the excess (if any) of the amount contributed for the taxable year to such account (other than a rollover contribution described in section 403(b)(8) or 408(d)(3)(A)(iii)), over the lesser of the amount excludable from gross income under section 403(b) or the amount permitted to be contributed under the limitations contained in section 415 (or under whichever such section is applicable, if only one is applicable), and
(2) the amount determined under this subsection for the preceding taxable year, reduced by—
(A) the excess (if any) of the lesser of (i) the amount excludable from gross income under section 403(b) or (ii) the amount permitted to be contributed under the limitations contained in section 415 over the amount contributed to the account for the taxable year (or under whichever such section is applicable, if only one is applicable), and
(B) the sum of the distributions out of the account (for all prior taxable years) which are included in gross income under section 72(e).
(d) Excess contributions to Archer MSAsFor purposes of this section, in the case of Archer MSAs (within the meaning of section 220(d)), the term “excess contributions” means the sum of—
(1) the aggregate amount contributed for the taxable year to the accounts (other than rollover contributions described in section 220(f)(5)) which is neither excludable from gross income under section 106(b) nor allowable as a deduction under section 220 for such year, and
(2) the amount determined under this subsection for the preceding taxable year, reduced by the sum of—
(A) the distributions out of the accounts which were included in gross income under section 220(f)(2), and
(B) the excess (if any) of—
(i) the maximum amount allowable as a deduction under section 220(b)(1) (determined without regard to section 106(b)) for the taxable year, over
(ii) the amount contributed to the accounts for the taxable year.
For purposes of this subsection, any contribution which is distributed out of the Archer MSA in a distribution to which section 220(f)(3) or section 138(c)(3) applies shall be treated as an amount not contributed.
(e) Excess contributions to Coverdell education savings accountsFor purposes of this section—
(1) In generalIn the case of Coverdell education savings accounts maintained for the benefit of any one beneficiary, the term “excess contributions” means the sum of—
(A) the amount by which the amount contributed for the taxable year to such accounts exceeds $2,000 (or, if less, the sum of the maximum amounts permitted to be contributed under section 530(c) by the contributors to such accounts for such year); and
(B) the amount determined under this subsection for the preceding taxable year, reduced by the sum of—
(i) the distributions out of the accounts for the taxable year (other than rollover distributions); and
(ii) the excess (if any) of the maximum amount which may be contributed to the accounts for the taxable year over the amount contributed to the accounts for the taxable year.
(2) Special rulesFor purposes of paragraph (1), the following contributions shall not be taken into account:
(A) Any contribution which is distributed out of the Coverdell education savings account in a distribution to which section 530(d)(4)(C) applies.
(B) Any rollover contribution.
(f) Excess contributions to Roth IRAsFor purposes of this section, in the case of contributions to a Roth IRA (within the meaning of section 408A(b)), the term “excess contributions” means the sum of—
(1) the excess (if any) of—
(A) the amount contributed for the taxable year to Roth IRAs (other than a qualified rollover contribution described in section 408A(e)), over
(B) the amount allowable as a contribution under sections 408A(c)(2) and (c)(3), and
(2) the amount determined under this subsection for the preceding taxable year, reduced by the sum of—
(A) the distributions out of the accounts for the taxable year, and
(B) the excess (if any) of the maximum amount allowable as a contribution under sections 408A(c)(2) and (c)(3) for the taxable year over the amount contributed by the individual to all individual retirement plans for the taxable year.
For purposes of this subsection, any contribution which is distributed from a Roth IRA in a distribution described in section 408(d)(4) shall be treated as an amount not contributed.
(g) Excess contributions to health savings accountsFor purposes of this section, in the case of health savings accounts (within the meaning of section 223(d)), the term “excess contributions” means the sum of—
(1) the aggregate amount contributed for the taxable year to the accounts (other than a rollover contribution described in section 220(f)(5) or 223(f)(5)) which is neither excludable from gross income under section 106(d) nor allowable as a deduction under section 223 for such year, and
(2) the amount determined under this subsection for the preceding taxable year, reduced by the sum of—
(A) the distributions out of the accounts which were included in gross income under section 223(f)(2), and
(B) the excess (if any) of—
(i) the maximum amount allowable as a deduction under section 223(b) (determined without regard to section 106(d)) for the taxable year, over
(ii) the amount contributed to the accounts for the taxable year.
For purposes of this subsection, any contribution which is distributed out of the health savings account in a distribution to which section 223(f)(3) applies shall be treated as an amount not contributed.
(h) Excess contributions to ABLE accountFor purposes of this section—
(1) In general
(2) Special rule
(Added Pub. L. 93–406, title II, § 2002(d), Sept. 2, 1974, 88 Stat. 966; amended Pub. L. 94–455, title XV, § 1501(b)(8), title XIX, § 1904(a)(22), Oct. 4, 1976, 90 Stat. 1736, 1814; Pub. L. 95–600, title I, §§ 156(c)(3), (5), 157(b)(3), (j)(1), title VII, § 701(aa)(1), Nov. 6, 1978, 92 Stat. 2803, 2804, 2809, 2921; Pub. L. 96–222, title I, § 101(a)(13)(C), (14)(B), Apr. 1, 1980, 94 Stat. 204; Pub. L. 97–34, title III, §§ 311(h)(7), (9), (10), 313(b)(2), Aug. 13, 1981, 95 Stat. 282, 286; Pub. L. 98–369, div. A, title IV, § 491(d)(41)–(44), (55), July 18, 1984, 98 Stat. 851, 852; Pub. L. 99–514, title XI, § 1102(b)(1), title XVIII, § 1848(f), Oct. 22, 1986, 100 Stat. 2415, 2858; Pub. L. 100–647, title I, § 1011(b)(3), Nov. 10, 1988, 102 Stat. 3456; Pub. L. 102–318, title V, § 521(b)(41), July 3, 1992, 106 Stat. 313; Pub. L. 104–188, title I, § 1704(t)(70), (72), Aug. 20, 1996, 110 Stat. 1891; Pub. L. 104–191, title III, § 301(e), Aug. 21, 1996, 110 Stat. 2051; Pub. L. 105–33, title IV, § 4006(b)(1), Aug. 5, 1997, 111 Stat. 333; Pub. L. 105–34, title II, § 213(d), title III, § 302(b), Aug. 5, 1997, 111 Stat. 817, 828; Pub. L. 105–206, title VI, §§ 6004(d)(10), 6005(b)(8), 6023(18)(A), July 22, 1998, 112 Stat. 795, 799, 825; Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(6), (b)(2)(C), (6), (10)], Dec. 21, 2000, 114 Stat. 2763, 2763A–628, 2763A–629; Pub. L. 107–16, title IV, §§ 401(a)(2), (g)(2)(D), 402(a)(4)(A), title VI, § 641(e)(11), June 7, 2001, 115 Stat. 57, 60, 121; Pub. L. 107–22, § 1(b)(1)(C), (2)(B), (4), July 26, 2001, 115 Stat. 197; Pub. L. 108–173, title XII, § 1201(e), Dec. 8, 2003, 117 Stat. 2478; Pub. L. 108–311, title IV, § 408(a)(22), Oct. 4, 2004, 118 Stat. 1192; Pub. L. 113–295, div. B, title I, § 102(b), Dec. 19, 2014, 128 Stat. 4061; Pub. L. 117–328, div. T, title IV, § 401(a)(3), Dec. 29, 2022, 136 Stat. 5388.)

CITE AS: 26 USC 4973

§ 4974. Excise tax on certain accumulations in qualified retirement plans
(a) General rule
(b) Minimum required distribution
(c) Qualified retirement plan
For purposes of this section, the term “qualified retirement plan” means—
(1) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
(2) an annuity plan described in section 403(a),
(3) an annuity contract described in section 403(b),
(4) an individual retirement account described in section 408(a), or
(5) an individual retirement annuity described in section 408(b).
Such term includes any plan, contract, account, or annuity which, at any time, has been determined by the Secretary to be such a plan, contract, account, or annuity.
(d) Waiver of tax in certain cases
If the taxpayer establishes to the satisfaction of the Secretary that—
(1) the shortfall described in subsection (a) in the amount distributed during any taxable year was due to reasonable error, and
(2) reasonable steps are being taken to remedy the shortfall,
the Secretary may waive the tax imposed by subsection (a) for the taxable year.
(e) Reduction of tax in certain cases
(1) Reduction
In the case of a taxpayer who—
(A) receives a distribution, during the correction window, of the amount which resulted in imposition of a tax under subsection (a) from the same plan to which such tax relates, and
(B) submits a return, during the correction window, reflecting such tax (as modified by this subsection),
the first sentence of subsection (a) shall be applied by substituting “10 percent” for “25 percent”.
(2) Correction window
For purposes of this subsection, the term “correction window” means the period of time beginning on the date on which the tax under subsection (a) is imposed with respect to a shortfall of distributions from a plan described in subsection (a), and ending on the earliest of—
(A) the date of mailing a notice of deficiency with respect to the tax imposed by subsection (a) under section 6212,
(B) the date on which the tax imposed by subsection (a) is assessed, or
(C) the last day of the second taxable year that begins after the end of the taxable year in which the tax under subsection (a) is imposed.
(Added Pub. L. 93–406, title II, § 2002(e), Sept. 2, 1974, 88 Stat. 967; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95–600, title I, § 157(i)(1), Nov. 6, 1978, 92 Stat. 2808; Pub. L. 99–514, title XI, § 1121(a)(1), title XVIII, § 1852(a)(7)(B), (C), Oct. 22, 1986, 100 Stat. 2464, 2866; Pub. L. 117–328, div. T, title III, § 302(a), (b), Dec. 29, 2022, 136 Stat. 5339.)

CITE AS: 26 USC 4974

§ 4975. Tax on prohibited transactions
(a) Initial taxes on disqualified person
(b) Additional taxes on disqualified person
(c) Prohibited transaction
(1) General ruleFor purposes of this section, the term “prohibited transaction” means any direct or indirect—
(A) sale or exchange, or leasing, of any property between a plan and a disqualified person;
(B) lending of money or other extension of credit between a plan and a disqualified person;
(C) furnishing of goods, services, or facilities between a plan and a disqualified person;
(D) transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;
(E) act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interest or for his own account; or
(F) receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.
(2) Special exemptionThe Secretary shall establish an exemption procedure for purposes of this subsection. Pursuant to such procedure, he may grant a conditional or unconditional exemption of any disqualified person or transaction, orders of disqualified persons or transactions, from all or part of the restrictions imposed by paragraph (1) of this subsection. Action under this subparagraph may be taken only after consultation and coordination with the Secretary of Labor. The Secretary may not grant an exemption under this paragraph unless he finds that such exemption is—
(A) administratively feasible,
(B) in the interests of the plan and of its participants and beneficiaries, and
(C) protective of the rights of participants and beneficiaries of the plan.
Before granting an exemption under this paragraph, the Secretary shall require adequate notice to be given to interested persons and shall publish notice in the Federal Register of the pendency of such exemption and shall afford interested persons an opportunity to present views. No exemption may be granted under this paragraph with respect to a transaction described in subparagraph (E) or (F) of paragraph (1) unless the Secretary affords an opportunity for a hearing and makes a determination on the record with respect to the findings required under subparagraphs (A), (B), and (C) of this paragraph, except that in lieu of such hearing the Secretary may accept any record made by the Secretary of Labor with respect to an application for exemption under section 408(a) of title I of the Employee Retirement Income Security Act of 1974.
(3) Special rule for individual retirement accounts
(4) Special rule for Archer MSAs
(5) Special rule for Coverdell education savings accounts
(6) Special rule for health savings accounts
(7) Special rule for provision of pharmacy benefit services
(d) ExemptionsExcept as provided in subsection (f)(6), the prohibitions provided in subsection (c) shall not apply to—
(1) any loan made by the plan to a disqualified person who is a participant or beneficiary of the plan if such loan—
(A) is available to all such participants or beneficiaries on a reasonably equivalent basis,
(B) is not made available to highly compensated employees (within the meaning of section 414(q)) in an amount greater than the amount made available to other employees,
(C) is made in accordance with specific provisions regarding such loans set forth in the plan,
(D) bears a reasonable rate of interest, and
(E) is adequately secured;
(2) any contract, or reasonable arrangement, made with a disqualified person for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor;
(3) any loan to a leveraged employee stock ownership plan (as defined in subsection (e)(7)), if—
(A) such loan is primarily for the benefit of participants and beneficiaries of the plan, and
(B) such loan is at a reasonable rate of interest, and any collateral which is given to a disqualified person by the plan consists only of qualifying employer securities (as defined in subsection (e)(8));
(4) the investment of all or part of a plan’s assets in deposits which bear a reasonable interest rate in a bank or similar financial institution supervised by the United States or a State, if such bank or other institution is a fiduciary of such plan and if—
(A) the plan covers only employees of such bank or other institution and employees of affiliates of such bank or other institution, or
(B) such investment is expressly authorized by a provision of the plan or by a fiduciary (other than such bank or institution or affiliates thereof) who is expressly empowered by the plan to so instruct the trustee with respect to such investment;
(5) any contract for life insurance, health insurance, or annuities with one or more insurers which are qualified to do business in a State if the plan pays no more than adequate consideration, and if each such insurer or insurers is—
(A) the employer maintaining the plan, or
(B) a disqualified person which is wholly owned (directly or indirectly) by the employer establishing the plan, or by any person which is a disqualified person with respect to the plan, but only if the total premiums and annuity considerations written by such insurers for life insurance, health insurance, or annuities for all plans (and their employers) with respect to which such insurers are disqualified persons (not including premiums or annuity considerations written by the employer maintaining the plan) do not exceed 5 percent of the total premiums and annuity considerations written for all lines of insurance in that year by such insurers (not including premiums or annuity considerations written by the employer maintaining the plan);
(6) the provision of any ancillary service by a bank or similar financial institution supervised by the United States or a State, if such service is provided at not more than reasonable compensation, if such bank or other institution is a fiduciary of such plan, and if—
(A) such bank or similar financial institution has adopted adequate internal safeguards which assure that the provision of such ancillary service is consistent with sound banking and financial practice, as determined by Federal or State supervisory authority, and
(B) the extent to which such ancillary service is provided is subject to specific guidelines issued by such bank or similar financial institution (as determined by the Secretary after consultation with Federal and State supervisory authority), and under such guidelines the bank or similar financial institution does not provide such ancillary service—
(i) in an excessive or unreasonable manner, and
(ii) in a manner that would be inconsistent with the best interests of participants and beneficiaries of employee benefit plans;
(7) the exercise of a privilege to convert securities, to the extent provided in regulations of the Secretary, but only if the plan receives no less than adequate consideration pursuant to such conversion;
(8) any transaction between a plan and a common or collective trust fund or pooled investment fund maintained by a disqualified person which is a bank or trust company supervised by a State or Federal agency or between a plan and a pooled investment fund of an insurance company qualified to do business in a State if—
(A) the transaction is a sale or purchase of an interest in the fund,
(B) the bank, trust company, or insurance company receives not more than a reasonable compensation, and
(C) such transaction is expressly permitted by the instrument under which the plan is maintained, or by a fiduciary (other than the bank, trust company, or insurance company, or an affiliate thereof) who has authority to manage and control the assets of the plan;
(9) receipt by a disqualified person of any benefit to which he may be entitled as a participant or beneficiary in the plan, so long as the benefit is computed and paid on a basis which is consistent with the terms of the plan as applied to all other participants and beneficiaries;
(10) receipt by a disqualified person of any reasonable compensation for services rendered, or for the reimbursement of expenses properly and actually incurred, in the performance of his duties with the plan, but no person so serving who already receives full-time pay from an employer or an association of employers, whose employees are participants in the plan or from an employee organization whose members are participants in such plan shall receive compensation from such fund, except for reimbursement of expenses properly and actually incurred;
(11) service by a disqualified person as a fiduciary in addition to being an officer, employee, agent, or other representative of a disqualified person;
(12) the making by a fiduciary of a distribution of the assets of the trust in accordance with the terms of the plan if such assets are distributed in the same manner as provided under section 4044 of title IV of the Employee Retirement Income Security Act of 1974 (relating to allocation of assets);
(13) any transaction which is exempt from section 406 of such Act by reason of section 408(e) of such Act (or which would be so exempt if such section 406 applied to such transaction) or which is exempt from section 406 of such Act by reason of section 408(b)(12) of such Act;
(14) any transaction required or permitted under part 1 of subtitle E of title IV or section 4223 of the Employee Retirement Income Security Act of 1974, but this paragraph shall not apply with respect to the application of subsection (c)(1) (E) or (F);
(15) a merger of multiemployer plans, or the transfer of assets or liabilities between multiemployer plans, determined by the Pension Benefit Guaranty Corporation to meet the requirements of section 4231 of such Act, but this paragraph shall not apply with respect to the application of subsection (c)(1)(E) or (F);
(16) a sale of stock held by a trust which constitutes an individual retirement account under section 408(a) to the individual for whose benefit such account is established if—
(A) such stock is in a bank (as defined in section 581) or a depository institution holding company (as defined in section 3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1))),
(B) such stock is held by such trust as of the date of the enactment of this paragraph,
(C) such sale is pursuant to an election under section 1362(a) by such bank or company,
(D) such sale is for fair market value at the time of sale (as established by an independent appraiser) and the terms of the sale are otherwise at least as favorable to such trust as the terms that would apply on a sale to an unrelated party,
(E) such trust does not pay any commissions, costs, or other expenses in connection with the sale, and
(F) the stock is sold in a single transaction for cash not later than 120 days after the S corporation election is made;
(17) any transaction in connection with the provision of investment advice described in subsection (e)(3)(B) to a participant or beneficiary in a plan that permits such participant or beneficiary to direct the investment of plan assets in an individual account, if—
(A) the transaction is—
(i) the provision of the investment advice to the participant or beneficiary of the plan with respect to a security or other property available as an investment under the plan,
(ii) the acquisition, holding, or sale of a security or other property available as an investment under the plan pursuant to the investment advice, or
(iii) the direct or indirect receipt of fees or other compensation by the fiduciary adviser or an affiliate thereof (or any employee, agent, or registered representative of the fiduciary adviser or affiliate) in connection with the provision of the advice or in connection with an acquisition, holding, or sale of a security or other property available as an investment under the plan pursuant to the investment advice; and
(B) the requirements of subsection (f)(8) are met,1
1 So in original. The comma probably should be a semicolon.
(18) any transaction involving the purchase or sale of securities, or other property (as determined by the Secretary of Labor), between a plan and a disqualified person (other than a fiduciary described in subsection (e)(3)) with respect to a plan if—
(A) the transaction involves a block trade,
(B) at the time of the transaction, the interest of the plan (together with the interests of any other plans maintained by the same plan sponsor), does not exceed 10 percent of the aggregate size of the block trade,
(C) the terms of the transaction, including the price, are at least as favorable to the plan as an arm’s length 2
2 So in original. Probably should be “arm’s-length”.
transaction, and
(D) the compensation associated with the purchase and sale is not greater than the compensation associated with an arm’s length 2 transaction with an unrelated party,1
(19) any transaction involving the purchase or sale of securities, or other property (as determined by the Secretary of Labor), between a plan and a disqualified person if—
(A) the transaction is executed through an electronic communication network, alternative trading system, or similar execution system or trading venue subject to regulation and oversight by—
(i) the applicable Federal regulating entity, or
(ii) such foreign regulatory entity as the Secretary of Labor may determine by regulation,
(B) either—
(i) the transaction is effected pursuant to rules designed to match purchases and sales at the best price available through the execution system in accordance with applicable rules of the Securities and Exchange Commission or other relevant governmental authority, or
(ii) neither the execution system nor the parties to the transaction take into account the identity of the parties in the execution of trades,
(C) the price and compensation associated with the purchase and sale are not greater than the price and compensation associated with an arm’s length 2 transaction with an unrelated party,
(D) if 3
3 So in original. The word “if” probably should not appear.
the disqualified person has an ownership interest in the system or venue described in subparagraph (A), the system or venue has been authorized by the plan sponsor or other independent fiduciary for transactions described in this paragraph, and
(E) not less than 30 days prior to the initial transaction described in this paragraph executed through any system or venue described in subparagraph (A), a plan fiduciary is provided written or electronic notice of the execution of such transaction through such system or venue,1
(20) transactions described in subparagraphs (A), (B), and (D) of subsection (c)(1) between a plan and a person that is a disqualified person other than a fiduciary (or an affiliate) who has or exercises any discretionary authority or control with respect to the investment of the plan assets involved in the transaction or renders investment advice (within the meaning of subsection (e)(3)(B)) with respect to those assets, solely by reason of providing services to the plan or solely by reason of a relationship to such a service provider described in subparagraph (F), (G), (H), or (I) of subsection (e)(2), or both, but only if in connection with such transaction the plan receives no less, nor pays no more, than adequate consideration,1
(21) any foreign exchange transactions, between a bank or broker-dealer (or any affiliate of either) and a plan (as defined in this section) with respect to which such bank or broker-dealer (or affiliate) is a trustee, custodian, fiduciary, or other disqualified person, if—
(A) the transaction is in connection with the purchase, holding, or sale of securities or other investment assets (other than a foreign exchange transaction unrelated to any other investment in securities or other investment assets),
(B) at the time the foreign exchange transaction is entered into, the terms of the transaction are not less favorable to the plan than the terms generally available in comparable arm’s length 2 foreign exchange transactions between unrelated parties, or the terms afforded by the bank or broker-dealer (or any affiliate of either) in comparable arm’s-length foreign exchange transactions involving unrelated parties,
(C) the exchange rate used by such bank or broker-dealer (or affiliate) for a particular foreign exchange transaction does not deviate by more than 3 percent from the interbank bid and asked rates for transactions of comparable size and maturity at the time of the transaction as displayed on an independent service that reports rates of exchange in the foreign currency market for such currency, and
(D) the bank or broker-dealer (or any affiliate of either) does not have investment discretion, or provide investment advice, with respect to the transaction,1
(22) any transaction described in subsection (c)(1)(A) involving the purchase and sale of a security between a plan and any other account managed by the same investment manager, if—
(A) the transaction is a purchase or sale, for no consideration other than cash payment against prompt delivery of a security for which market quotations are readily available,
(B) the transaction is effected at the independent current market price of the security (within the meaning of section 270.17a–7(b) of title 17, Code of Federal Regulations),
(C) no brokerage commission, fee (except for customary transfer fees, the fact of which is disclosed pursuant to subparagraph (D)), or other remuneration is paid in connection with the transaction,
(D) a fiduciary (other than the investment manager engaging in the cross-trades or any affiliate) for each plan participating in the transaction authorizes in advance of any cross-trades (in a document that is separate from any other written agreement of the parties) the investment manager to engage in cross trades at the investment manager’s discretion, after such fiduciary has received disclosure regarding the conditions under which cross trades may take place (but only if such disclosure is separate from any other agreement or disclosure involving the asset management relationship), including the written policies and procedures of the investment manager described in subparagraph (H),
(E) each plan participating in the transaction has assets of at least $100,000,000, except that if the assets of a plan are invested in a master trust containing the assets of plans maintained by employers in the same controlled group (as defined in section 407(d)(7) of the Employee Retirement Income Security Act of 1974), the master trust has assets of at least $100,000,000,
(F) the investment manager provides to the plan fiduciary who authorized cross trading under subparagraph (D) a quarterly report detailing all cross trades executed by the investment manager in which the plan participated during such quarter, including the following information, as applicable: (i) the identity of each security bought or sold; (ii) the number of shares or units traded; (iii) the parties involved in the cross-trade; and (iv) trade price and the method used to establish the trade price,
(G) the investment manager does not base its fee schedule on the plan’s consent to cross trading, and no other service (other than the investment opportunities and cost savings available through a cross trade) is conditioned on the plan’s consent to cross trading,
(H) the investment manager has adopted, and cross-trades are effected in accordance with, written cross-trading policies and procedures that are fair and equitable to all accounts participating in the cross-trading program, and that include a description of the manager’s pricing policies and procedures, and the manager’s policies and procedures for allocating cross trades in an objective manner among accounts participating in the cross-trading program, and
(I) the investment manager has designated an individual responsible for periodically reviewing such purchases and sales to ensure compliance with the written policies and procedures described in subparagraph (H), and following such review, the individual shall issue an annual written report no later than 90 days following the period to which it relates signed under penalty of perjury to the plan fiduciary who authorized cross trading under subparagraph (D) describing the steps performed during the course of the review, the level of compliance, and any specific instances of non-compliance.
The written report shall also notify the plan fiduciary of the plan’s right to terminate participation in the investment manager’s cross-trading program at any time,1
(23) except as provided in subsection (f)(11), a transaction described in subparagraph (A), (B), (C), or (D) of subsection (c)(1) in connection with the acquisition, holding, or disposition of any security or commodity, if the transaction is corrected before the end of the correction period,1
(24) the provision of a de minimis financial incentive described in section 401(k)(4)(A),1 or
(25) the receipt of fees and compensation by the automatic portability provider for services provided in connection with an automatic portability transaction.
(e) Definitions
(1) PlanFor purposes of this section, the term “plan” means—
(A) a trust described in section 401(a) which forms a part of a plan, or a plan described in section 403(a), which trust or plan is exempt from tax under section 501(a),
(B) an individual retirement account described in section 408(a),
(C) an individual retirement annuity described in section 408(b),
(D) an Archer MSA described in section 220(d),
(E) a health savings account described in section 223(d),
(F) a Coverdell education savings account described in section 530, or
(G) a trust, plan, account, or annuity which, at any time, has been determined by the Secretary to be described in any preceding subparagraph of this paragraph.
(2) Disqualified personFor purposes of this section, the term “disqualified person” means a person who is—
(A) a fiduciary;
(B) a person providing services to the plan;
(C) an employer any of whose employees are covered by the plan;
(D) an employee organization any of whose members are covered by the plan;
(E) an owner, direct or indirect, of 50 percent or more of—
(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation,
(ii) the capital interest or the profits interest of a partnership, or
(iii) the beneficial interest of a trust or unincorporated enterprise,
which is an employer or an employee organization described in subparagraph (C) or (D);
(F) a member of the family (as defined in paragraph (6)) of any individual described in subparagraph (A), (B), (C), or (E);
(G) a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of—
(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation,
(ii) the capital interest or profits interest of such partnership, or
(iii) the beneficial interest of such trust or estate,
is owned directly or indirectly, or held by persons described in subparagraph (A), (B), (C), (D), or (E);
(H) an officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10 percent or more shareholder, or a highly compensated employee (earning 10 percent or more of the yearly wages of an employer) of a person described in subparagraph (C), (D), (E), or (G); or
(I) a 10 percent or more (in capital or profits) partner or joint venturer of a person described in subparagraph (C), (D), (E), or (G).
The Secretary, after consultation and coordination with the Secretary of Labor or his delegate, may by regulation prescribe a percentage lower than 50 percent for subparagraphs (E) and (G) and lower than 10 percent for subparagraphs (H) and (I).
(3) Fiduciary
(A) exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets,
(B) renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or
(C) has any discretionary authority or discretionary responsibility in the administration of such plan.
Such term includes any person designated under section 405(c)(1)(B) of the Employee Retirement Income Security Act of 1974.
(4) Stockholdings
(5) Partnerships; trusts
(6) Member of family
(7) Employee stock ownership planThe term “employee stock ownership plan” means a defined contribution plan—
(A) which is a stock bonus plan which is qualified, or a stock bonus and a money purchase plan both of which are qualified under section 401(a), and which are designed to invest primarily in qualifying employer securities; and
(B) which is otherwise defined in regulations prescribed by the Secretary.
A plan shall not be treated as an employee stock ownership plan unless it meets the requirements of section 409(h), section 409(o), and, if applicable, section 409(n), section 409(p), and section 664(g) and, if the employer has a registration-type class of securities (as defined in section 409(e)(4)), it meets the requirements of section 409(e).
(8) Qualifying employer security
(9) Section made applicable to withdrawal liability payment fundsFor purposes of this section—
(A) In general
(B) Disqualified person
(f) Other definitions and special rulesFor purposes of this section—
(1) Joint and several liability
(2) Taxable periodThe term “taxable period” means, with respect to any prohibited transaction, the period beginning with the date on which the prohibited transaction occurs and ending on the earliest of—
(A) the date of mailing a notice of deficiency with respect to the tax imposed by subsection (a) under section 6212,
(B) the date on which the tax imposed by subsection (a) is assessed, or
(C) the date on which correction of the prohibited transaction is completed.
(3) Sale or exchange; encumbered property
(4) Amount involvedThe term “amount involved” means, with respect to a prohibited transaction, the greater of the amount of money and the fair market value of the other property given or the amount of money and the fair market value of the other property received; except that, in the case of services described in paragraphs (2) and (10) of subsection (d) the amount involved shall be only the excess compensation. For purposes of the preceding sentence, the fair market value—
(A) in the case of the tax imposed by subsection (a), shall be determined as of the date on which the prohibited transaction occurs; and
(B) in the case of the tax imposed by subsection (b), shall be the highest fair market value during the taxable period.
(5) Correction
(6) Exemptions not to apply to certain transactions
(A) In generalIn the case of a trust described in section 401(a) which is part of a plan providing contributions or benefits for employees some or all of whom are owner-employees (as defined in section 401(c)(3)), the exemptions provided by subsection (d) (other than paragraphs (9) and (12)) shall not apply to a transaction in which the plan directly or indirectly—
(i) lends any part of the corpus or income of the plan to,
(ii) pays any compensation for personal services rendered to the plan to, or
(iii) acquires for the plan any property from, or sells any property to,
any such owner-employee, a member of the family (as defined in section 267(c)(4)) of any such owner-employee, or any corporation in which any such owner-employee owns, directly or indirectly, 50 percent or more of the total combined voting power of all classes of stock entitled to vote or 50 percent or more of the total value of shares of all classes of stock of the corporation.
(B) Special rules for shareholder-employees, etc.
(i) In generalFor purposes of subparagraph (A), the following shall be treated as owner-employees:(I) A shareholder-employee.(II) A participant or beneficiary of an individual retirement plan (as defined in section 7701(a)(37)).(III) An employer or association of employees which establishes such an individual retirement plan under section 408(c).
(ii) Exception for certain transactions involving shareholder-employees
(iii) Loan exception
(C) Shareholder-employee
(7) S corporation repayment of loans for qualifying employer securities
(8) Provision of investment advice to participant and beneficiaries
(A) In general
(B) Eligible investment advice arrangementFor purposes of this paragraph, the term “eligible investment advice arrangement” means an arrangement—
(i) which either—(I) provides that any fees (including any commission or other compensation) received by the fiduciary adviser for investment advice or with respect to the sale, holding, or acquisition of any security or other property for purposes of investment of plan assets do not vary depending on the basis of any investment option selected, or(II) uses a computer model under an investment advice program meeting the requirements of subparagraph (C) in connection with the provision of investment advice by a fiduciary adviser to a participant or beneficiary, and
(ii) with respect to which the requirements of subparagraphs (D), (E), (F), (G), (H), and (I) are met.
(C) Investment advice program using computer model
(i) In general
(ii) Computer modelThe requirements of this clause are met if the investment advice provided under the investment advice program is provided pursuant to a computer model that—(I) applies generally accepted investment theories that take into account the historic returns of different asset classes over defined periods of time,(II) utilizes relevant information about the participant, which may include age, life expectancy, retirement age, risk tolerance, other assets or sources of income, and preferences as to certain types of investments,(III) utilizes prescribed objective criteria to provide asset allocation portfolios comprised of investment options available under the plan,(IV) operates in a manner that is not biased in favor of investments offered by the fiduciary adviser or a person with a material affiliation or contractual relationship with the fiduciary adviser, and(V) takes into account all investment options under the plan in specifying how a participant’s account balance should be invested and is not inappropriately weighted with respect to any investment option.
(iii) Certification(I) In general(II) Renewal of certifications(III) Eligible investment expert
(iv) Exclusivity of recommendationThe requirements of this clause are met with respect to any investment advice program if—(I) the only investment advice provided under the program is the advice generated by the computer model described in clause (ii), and(II) any transaction described in subsection (d)(17)(A)(ii) occurs solely at the direction of the participant or beneficiary.
 Nothing in the preceding sentence shall preclude the participant or beneficiary from requesting investment advice other than that described in clause (i), but only if such request has not been solicited by any person connected with carrying out the arrangement.
(D) Express authorization by separate fiduciary
(E) Audits
(i) In generalThe requirements of this subparagraph are met if an independent auditor, who has appropriate technical training or experience and proficiency and so represents in writing—(I) conducts an annual audit of the arrangement for compliance with the requirements of this paragraph, and(II) following completion of the annual audit, issues a written report to the fiduciary who authorized use of the arrangement which presents its specific findings regarding compliance of the arrangement with the requirements of this paragraph.
(ii) Special rule for individual retirement and similar plans
(iii) Independent auditor
(F) DisclosureThe requirements of this subparagraph are met if—
(i) the fiduciary adviser provides to a participant or a beneficiary before the initial provision of the investment advice with regard to any security or other property offered as an investment option, a written notification (which may consist of notification by means of electronic communication)—(I) of the role of any party that has a material affiliation or contractual relationship with the fiduciary adviser in the development of the investment advice program and in the selection of investment options available under the plan,(II) of the past performance and historical rates of return of the investment options available under the plan,(III) of all fees or other compensation relating to the advice that the fiduciary adviser or any affiliate thereof is to receive (including compensation provided by any third party) in connection with the provision of the advice or in connection with the sale, acquisition, or holding of the security or other property,(IV) of any material affiliation or contractual relationship of the fiduciary adviser or affiliates thereof in the security or other property,(V) of the manner, and under what circumstances, any participant or beneficiary information provided under the arrangement will be used or disclosed,(VI) of the types of services provided by the fiduciary adviser in connection with the provision of investment advice by the fiduciary adviser,(VII) that the adviser is acting as a fiduciary of the plan in connection with the provision of the advice, and(VIII) that a recipient of the advice may separately arrange for the provision of advice by another adviser, that could have no material affiliation with and receive no fees or other compensation in connection with the security or other property, and
(ii) at all times during the provision of advisory services to the participant or beneficiary, the fiduciary adviser—(I) maintains the information described in clause (i) in accurate form and in the manner described in subparagraph (H),(II) provides, without charge, accurate information to the recipient of the advice no less frequently than annually,(III) provides, without charge, accurate information to the recipient of the advice upon request of the recipient, and(IV) provides, without charge, accurate information to the recipient of the advice concerning any material change to the information required to be provided to the recipient of the advice at a time reasonably contemporaneous to the change in information.
(G) Other conditionsThe requirements of this subparagraph are met if—
(i) the fiduciary adviser provides appropriate disclosure, in connection with the sale, acquisition, or holding of the security or other property, in accordance with all applicable securities laws,
(ii) the sale, acquisition, or holding occurs solely at the direction of the recipient of the advice,
(iii) the compensation received by the fiduciary adviser and affiliates thereof in connection with the sale, acquisition, or holding of the security or other property is reasonable, and
(iv) the terms of the sale, acquisition, or holding of the security or other property are at least as favorable to the plan as an arm’s length 2 transaction would be.
(H) Standards for presentation of information
(i) In general
(ii) Model form for disclosure of fees and other compensation
(I) Maintenance for 6 years of evidence of compliance
(J) DefinitionsFor purposes of this paragraph and subsection (d)(17)—
(i) Fiduciary adviserThe term “fiduciary adviser” means, with respect to a plan, a person who is a fiduciary of the plan by reason of the provision of investment advice referred to in subsection (e)(3)(B) by the person to a participant or beneficiary of the plan and who is—(I) registered as an investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.) or under the laws of the State in which the fiduciary maintains its principal office and place of business,(II) a bank or similar financial institution referred to in subsection (d)(4) or a savings association (as defined in section 3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(1)), but only if the advice is provided through a trust department of the bank or similar financial institution or savings association which is subject to periodic examination and review by Federal or State banking authorities,(III) an insurance company qualified to do business under the laws of a State,(IV) a person registered as a broker or dealer under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.),(V) an affiliate of a person described in any of subclauses (I) through (IV), or(VI) an employee, agent, or registered representative of a person described in subclauses (I) through (V) who satisfies the requirements of applicable insurance, banking, and securities laws relating to the provision of the advice.
 For purposes of this title, a person who develops the computer model described in subparagraph (C)(ii) or markets the investment advice program or computer model shall be treated as a person who is a fiduciary of the plan by reason of the provision of investment advice referred to in subsection (e)(3)(B) to a participant or beneficiary and shall be treated as a fiduciary adviser for purposes of this paragraph and subsection (d)(17), except that the Secretary of Labor may prescribe rules under which only 1 fiduciary adviser may elect to be treated as a fiduciary with respect to the plan.
(ii) Affiliate
(iii) Registered representative
(9) Block trade
(10) Adequate considerationThe term “adequate consideration” means—
(A) in the case of a security for which there is a generally recognized market—
(i) the price of the security prevailing on a national securities exchange which is registered under section 6 of the Securities Exchange Act of 1934, taking into account factors such as the size of the transaction and marketability of the security, or
(ii) if the security is not traded on such a national securities exchange, a price not less favorable to the plan than the offering price for the security as established by the current bid and asked prices quoted by persons independent of the issuer and of the party in interest, taking into account factors such as the size of the transaction and marketability of the security, and
(B) in the case of an asset other than a security for which there is a generally recognized market, the fair market value of the asset as determined in good faith by a fiduciary or fiduciaries in accordance with regulations prescribed by the Secretary of Labor.
(11) Correction period
(A) In general
(B) Exceptions
(i) Employer securities
(ii) Knowing prohibited transaction
(C) Abatement of tax where there is a correction
(D) DefinitionsFor purposes of this paragraph and subsection (d)(23)—
(i) Security
(ii) Commodity
(iii) CorrectThe term “correct” means, with respect to a transaction—(I) to undo the transaction to the extent possible and in any case to make good to the plan or affected account any losses resulting from the transaction, and(II) to restore to the plan or affected account any profits made through the use of assets of the plan.
(12) Rules relating to automatic portability transactions
(A) In generalFor purposes of subsection (d)(25)—
(i) Automatic portability transactionAn automatic portability transaction is a transfer of assets made—(I) from an individual retirement plan which is established on behalf of an individual and to which amounts were transferred under section 401(a)(31)(B)(i),(II) to an employer-sponsored retirement plan described in clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B) (other than a defined benefit plan) in which such individual is an active participant, and(III) after such individual has been given advance notice of the transfer and has not affirmatively opted out of such transfer.
(ii) Automatic portability provider
(B) Conditions for automatic portability transactionsSubsection (d)(25) shall not apply to an automatic portability transaction unless the following requirements are satisfied:
(i) Acknowledgment of fiduciary status
(ii) FeesThe fees and compensation received, directly or indirectly, by the automatic portability provider for services provided in connection with the automatic portability transaction (including any increase in such fees or compensation and any fees or compensation in connection with, but received before, the transaction)—(I) shall not exceed reasonable compensation, and(II) shall be fully disclosed to and approved in writing in advance of the transaction by a plan fiduciary of the plan described in subparagraph (A)(i)(II) which is independent of the automatic portability provider.
 An automatic portability provider shall not receive any fees or compensation in connection with an automatic portability transaction involving a plan which is sponsored or maintained by the automatic portability provider.
(iii) Data usage
(iv) Open participation
(v) Pre-transaction noticeAt least 60 days in advance of an automatic portability transaction, the automatic portability provider shall provide notice to the individual on whose behalf the individual retirement plan described in subparagraph (A)(i)(I) is established which includes—(I) a description of the automatic portability transaction and a complete and accurate statement of all fees which will be charged and all compensation which will be received in connection with the transaction,(II) a clear and prominent description of the individual’s right to affirmatively elect not to participate in the transaction as well as the other available distribution options, the deadline by which the individual must make an election, the procedures for such an election, and a telephone number for the automatic portability provider that the individual may call to make such election,(III) a description of the individual’s right to designate a beneficiary and the procedures to do so, and(IV) such other disclosures as the Secretary of Labor may require by regulation.
(vi) Post-transaction noticeNot later than 3 business days after an automatic portability transaction, the automatic portability provider shall provide notice to the individual on whose behalf the individual retirement plan described in subparagraph (A)(i)(I) is established of—(I) the actions taken by the automatic portability provider with respect to the individual’s account,(II) all relevant information regarding the location and amount of any transferred assets,(III) a statement of fees charged against the account by the automatic portability provider or its affiliates in connection with the transfer,(IV) a telephone number at which the individual can contact the automatic portability provider, and(V) such other disclosures as the Secretary of Labor may require by regulation.
(vii) Notice requirements
(viii) Frequency of searches
(ix) Timeliness of execution
(x) Limitation on exercise of discretion
(xi) Record retention and audits(I) In general(II) Audits
(xii) WebsiteThe automatic portability provider shall maintain a website which contains—(I) a list of recordkeepers for each plan described in subparagraph (A)(i)(II) with respect to which the provider carries out automatic portability transactions, and(II) a list of all fees described in clause (ii)(II) paid to the provider.
(g) Application of sectionThis section shall not apply—
(1) in the case of a plan to which a guaranteed benefit policy (as defined in section 401(b)(2)(B) of the Employee Retirement Income Security Act of 1974) is issued, to any assets of the insurance company, insurance service, or insurance organization merely because of its issuance of such policy;
(2) to a governmental plan (within the meaning of section 414(d)); or
(3) to a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made.
In the case of a plan which invests in any security issued by an investment company registered under the Investment Company Act of 1940, the assets of such plan shall be deemed to include such security but shall not, by reason of such investment, be deemed to include any assets of such company.
(h) Notification of Secretary of Labor
(i) Cross reference
(Added Pub. L. 93–406, title II, § 2003(a), Sept. 2, 1974, 88 Stat. 971; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95–600, title I, § 141(f)(5), (6), Nov. 6, 1978, 92 Stat. 2795; Pub. L. 96–222, title I, § 101(a)(7)(C), (K), (L)(iv)(III), (v)(XI), Apr. 1, 1980, 94 Stat. 198–201; Pub. L. 96–364, title II, §§ 208(b), 209(b), Sept. 26, 1980, 94 Stat. 1289, 1290; Pub. L. 96–596, § 2(a)(1)(K),(L), (2)(I), (3)(F), Dec. 24, 1980, 94 Stat. 3469, 3471; Pub. L. 97–448, title III, § 305(d)(5), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 98–369, div. A, title IV, § 491(d)(45), (46), (e)(7), (8), July 18, 1984, 98 Stat. 851–853; Pub. L. 99–514, title XI, § 1114(b)(15)(A), title XVIII, §§ 1854(f)(3)(A), 1899A(51), Oct. 22, 1986, 100 Stat. 2452, 2882, 2961; Pub. L. 101–508, title XI, § 11701(m), Nov. 5, 1990, 104 Stat. 1388–513; Pub. L. 104–188, title I, §§ 1453(a), 1702(g)(3), Aug. 20, 1996, 110 Stat. 1817, 1873; Pub. L. 104–191, title III, § 301(f), Aug. 21, 1996, 110 Stat. 2051; Pub. L. 105–34, title II, § 213(b), title X, § 1074(a), title XV, §§ 1506(b)(1), 1530(c)(10), title XVI, § 1602(a)(5), Aug. 5, 1997, 111 Stat. 816, 949, 1065, 1079, 1094; Pub. L. 105–206, title VI, § 6023(19), July 22, 1998, 112 Stat. 825; Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(7), (b)(7), (10)], Dec. 21, 2000, 114 Stat. 2763, 2763A–628, 2763A–629; Pub. L. 107–16, title VI, §§ 612(a), 656(b), June 7, 2001, 115 Stat. 100, 134; Pub. L. 107–22, § 1(b)(1)(D), (3)(D), July 26, 2001, 115 Stat. 197; Pub. L. 108–173, title XII, § 1201(f), Dec. 8, 2003, 117 Stat. 2479; Pub. L. 108–357, title II, §§ 233(c), 240(a), Oct. 22, 2004, 118 Stat. 1434, 1437; Pub. L. 109–135, title IV, § 413(a)(2), Dec. 21, 2005, 119 Stat. 2641; Pub. L. 109–280, title VI, §§ 601(b)(1), (2), 611(a)(2), (c)(2), (d)(2), (e)(2), (g)(2), 612(b), Aug. 17, 2006, 120 Stat. 958, 959, 967, 969–971, 974, 976; Pub. L. 110–458, title I, § 106(a)(2), (b)(2), (c), Dec. 23, 2008, 122 Stat. 5106; Pub. L. 115–141, div. U, title IV, § 401(a)(190), (229)–(234), Mar. 23, 2018, 132 Stat. 1193, 1195; Pub. L. 116–94, div. P, title XIII, § 1302(b), Dec. 20, 2019, 133 Stat. 3205; Pub. L. 117–328, div. T, title I, §§ 113(c), 120(a), (b), Dec. 29, 2022, 136 Stat. 5295, 5303.)

CITE AS: 26 USC 4975

§ 4976. Taxes with respect to funded welfare benefit plans
(a) General rule
If—
(1) an employer maintains a welfare benefit fund, and
(2) there is a disqualified benefit provided during any taxable year,
there is hereby imposed on such employer a tax equal to 100 percent of such disqualified benefit.
(b) Disqualified benefit
For purposes of subsection (a)—
(1) In general
The term “disqualified benefit” means—
(A) any post-retirement medical benefit or life insurance benefit provided with respect to a key employee if a separate account is required to be established for such employee under section 419A(d) and such payment is not from such account,
(B) any post-retirement medical benefit or life insurance benefit provided with respect to an individual in whose favor discrimination is prohibited unless the plan meets the requirements of section 505(b) with respect to such benefit (whether or not such requirements apply to such plan), and
(C) any portion of a welfare benefit fund reverting to the benefit of the employer.
(2) Exception for collective bargaining plans
(3) Exception for nondeductible contributions
(4) Exception for certain amounts charged against existing reserve
(c) Definitions
(Added Pub. L. 98–369, div. A, title V, § 511(c)(1), July 18, 1984, 98 Stat. 861; amended Pub. L. 99–514, title XVIII, § 1851(a)(11), Oct. 22, 1986, 100 Stat. 2861; Pub. L. 100–647, title I, § 1011B(a)(27)(A), (B), title III, § 3021(a)(1)(C), Nov. 10, 1988, 102 Stat. 3487, 3626; Pub. L. 101–140, title II, § 203(a)(2), Nov. 8, 1989, 103 Stat. 830.)

CITE AS: 26 USC 4976

§ 4977. Tax on certain fringe benefits provided by an employer
(a) Imposition of tax
(b) Excess fringe benefitsFor purposes of subsection (a), the term “excess fringe benefits” means, with respect to any calendar year—
(1) the aggregate value of the fringe benefits provided by the employer during the calendar year which were not includible in gross income under paragraphs (1) and (2) of section 132(a), over
(2) 1 percent of the aggregate amount of compensation—
(A) which was paid by the employer during such calendar year to employees, and
(B) was includible in gross income for purposes of chapter 1.
(c) Effect of election on section 132(a)If—
(1) an election under this section is in effect with respect to an employer for any calendar year, and
(2) at all times on or after January 1, 1984, and before the close of the calendar year involved, substantially all of the employees of the employer were entitled to employee discounts on goods or services provided by the employer in 1 line of business,
for purposes of paragraphs (1) and (2) of section 132(a) (but not for purposes of section 132(h)), all employees of any line of business of the employer which was in existence on January 1, 1984, shall be treated as employees of the line of business referred to in paragraph (2).
(d) Period of election
(e) Treatment of controlled groups
(f) Section to apply only to employment within the United States
(Added Pub. L. 98–369, div. A, title V, § 531(e)(1), July 18, 1984, 98 Stat. 885; amended Pub. L. 99–514, title XVIII, § 1853(c)(1), (2), Oct. 22, 1986, 100 Stat. 2871; Pub. L. 103–66, title XIII, § 13213(d)(3)(D), Aug. 10, 1993, 107 Stat. 474; Pub. L. 104–188, title I, § 1704(t)(66), Aug. 20, 1996, 110 Stat. 1890.)

CITE AS: 26 USC 4977

§ 4978. Tax on certain dispositions by employee stock ownership plans and certain cooperatives
(a) Tax on dispositions of securities to which section 1042 applies before close of minimum holding period
If, during the 3-year period after the date on which the employee stock ownership plan or eligible worker-owned cooperative acquired any qualified securities in a sale to which section 1042 applied or acquired any qualified employer securities in a qualified gratuitous transfer to which section 664(g) applied, such plan or cooperative disposes of any qualified securities and—
(1) the total number of shares held by such plan or cooperative after such disposition is less than the total number of employer securities held immediately after such sale, or
(2) except to the extent provided in regulations, the value of qualified securities held by such plan or cooperative after such disposition is less than 30 percent of the total value of all employer securities as of such disposition (60 percent of the total value of all employer securities as of such disposition in the case of any qualified employer securities acquired in a qualified gratuitous transfer to which section 664(g) applied),
there is hereby imposed a tax on the disposition equal to the amount determined under subsection (b).
(b) Amount of tax
(1) In general
(2) Limitation
The amount realized taken into account under paragraph (1) shall not exceed that portion allocable to qualified securities acquired in the sale to which section 1042 applied or acquired in the qualified gratuitous transfer to which section 664(g) applied determined as if such securities were disposed of—
(A) first from qualified securities to which section 1042 applied or to which section 664(g) applied acquired during the 3-year period ending on the date of the disposition, beginning with the securities first so acquired, and
(B) then from any other employer securities.
If subsection (d) applies to a disposition, the disposition shall be treated as made from employer securities in the opposite order of the preceding sentence.
(3) Distributions to employees
(c) Liability for payment of taxes
The tax imposed by this subsection shall be paid by—
(1) the employer, or
(2) the eligible worker-owned cooperative,
that made the written statement described in section 664(g)(1)(E) or in section 1042(b)(3) (as the case may be).
(d) Section not to apply to certain dispositions
(1) Certain distributions to employees
This section shall not apply with respect to any distribution of qualified securities (or sale of such securities) which is made by reason of—
(A) the death of the employee,
(B) the retirement of the employee after the employee has attained 59½ years of age,
(C) the disability of the employee (within the meaning of section 72(m)(7)), or
(D) the separation of the employee from service for any period which results in a 1-year break in service (within the meaning of section 411(a)(6)(A)).
(2) Certain reorganizations
(3) Liquidation of corporation into cooperative
(4) Dispositions to meet diversification requirements
(e) Definitions and special rules
For purposes of this section—
(1) Employee stock ownership plan
(2) Qualified securities
(3) Eligible worker-owned cooperative
(4) Disposition
(5) Employer securities
(Added Pub. L. 98–369, div. A, title V, § 545(a), July 18, 1984, 98 Stat. 894; amended Pub. L. 99–514, title XVIII, § 1854(e), Oct. 22, 1986, 100 Stat. 2880; Pub., L. 100–203, title X, § 10413(b)(1), Dec. 22, 1987, 101 Stat. 1330–438; Pub. L. 100–647, title I, § 1011B(j)(4), Nov. 10, 1988, 102 Stat. 3492; Pub. L. 101–239, title VII, § 7304(a)(2)(C)(ii), Dec. 19, 1989, 103 Stat. 2353; Pub. L. 104–188, title I, § 1602(b)(4), Aug. 20, 1996, 110 Stat. 1834; Pub. L. 105–34, title XV, § 1530(c)(11)–(14), Aug. 5, 1997, 111 Stat. 1079; Pub. L. 108–311, title IV, § 408(a)(23), Oct. 4, 2004, 118 Stat. 1192.)

CITE AS: 26 USC 4978

[§ 4978A. Repealed. Pub. L. 101–239, title VII, § 7304(a)(2)(C)(i), Dec. 19, 1989, 103 Stat. 2353]

CITE AS: 26 USC 4978A

[§ 4978B. Repealed. Pub. L. 104–188, title I, § 1602(b)(5)(A), Aug. 20, 1996, 110 Stat. 1834]

CITE AS: 26 USC 4978B

§ 4979. Tax on certain excess contributions
(a) General rule
In the case of any plan, there is hereby imposed a tax for the taxable year equal to 10 percent of the sum of—
(1) any excess contributions under such plan for the plan year ending in such taxable year, and
(2) any excess aggregate contributions under the plan for the plan year ending in such taxable year.
(b) Liability for tax
(c) Excess contributions
(d) Excess aggregate contribution
(e) Plan
For purposes of this section, the term “plan” means—
(1) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
(2) any annuity plan described in section 403(a),
(3) any annuity contract described in section 403(b),
(4) a simplified employee pension of an employer which satisfies the requirements of section 408(k), and
(5) a plan described in section 501(c)(18).
Such term includes any plan which, at any time, has been determined by the Secretary to be such a plan.
(f) No tax where excess distributed within specified period after close of year
(1) In general
(2) Year of inclusion
(Added Pub. L. 99–514, title XI, § 1117(b)(1), Oct. 22, 1986, 100 Stat. 2461; amended Pub. L. 100–647, title I, § 1011(l)(8)–(11), Nov. 10, 1988, 102 Stat. 3470, 3471; Pub. L. 109–280, title IX, § 902(e)(1)–(3)(A), Aug. 17, 2006, 120 Stat. 1038.)

CITE AS: 26 USC 4979

§ 4979A. Tax on certain prohibited allocations of qualified securities
(a) Imposition of taxIf—
(1) there is a prohibited allocation of qualified securities by any employee stock ownership plan or eligible worker-owned cooperative,
(2) there is an allocation described in section 664(g)(5)(A),
(3) there is any allocation of employer securities which violates the provisions of section 409(p), or a nonallocation year described in subsection (e)(2)(C) with respect to an employee stock ownership plan, or
(4) any synthetic equity is owned by a disqualified person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership equal to 50 percent of the amount involved.
(b) Prohibited allocationFor purposes of this section, the term “prohibited allocation” means—
(1) any allocation of qualified securities acquired in a sale to which section 1042 applies which violates the provisions of section 409(n), and
(2) any benefit which accrues to any person in violation of the provisions of section 409(n).
(c) Liability for taxThe tax imposed by this section shall be paid—
(1) in the case of an allocation referred to in paragraph (1) or (2) of subsection (a), by—
(A) the employer sponsoring such plan, or
(B) the eligible worker-owned cooperative,
which made the written statement described in section 664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be), and
(2) in the case of an allocation or ownership referred to in paragraph (3) or (4) of subsection (a), by the S corporation the stock in which was so allocated or owned.
(d) Special statute of limitations for tax attributable to certain allocationsThe statutory period for the assessment of any tax imposed by this section on an allocation described in subsection (a)(2) of qualified employer securities shall not expire before the date which is 3 years from the later of—
(1) the 1st allocation of such securities in connection with a qualified gratuitous transfer (as defined in section 664(g)(1)), or
(2) the date on which the Secretary is notified of the allocation described in subsection (a)(2).
(e) Definitions and special rulesFor purposes of this section—
(1) Definitions
(2) Special rules relating to tax imposed by reason of paragraph (3) or (4) of subsection (a)
(A) Prohibited allocations
(B) Synthetic equity
(C) Special rule during first nonallocation year
(D) Statute of limitationsThe statutory period for the assessment of any tax imposed by this section by reason of paragraph (3) or (4) of subsection (a) shall not expire before the date which is 3 years from the later of—
(i) the allocation or ownership referred to in such paragraph giving rise to such tax, or
(ii) the date on which the Secretary is notified of such allocation or ownership.
(Added and amended Pub. L. 99–514, title XI, § 1172(b)(2), title XVIII, § 1854(a)(9)(A), Oct. 22, 1986, 100 Stat. 2514, 2877; Pub. L. 101–239, title VII, § 7304(a)(2)(D), Dec. 19, 1989, 103 Stat. 2353; Pub. L. 104–188, title I, § 1704(t)(22), Aug. 20, 1996, 110 Stat. 1888; Pub. L. 105–34, title XV, § 1530(c)(15)–(17), Aug. 5, 1997, 111 Stat. 1079, 1080; Pub. L. 107–16, title VI, § 656(c), June 7, 2001, 115 Stat. 134.)

CITE AS: 26 USC 4979A

§ 4980. Tax on reversion of qualified plan assets to employer
(a) Imposition of tax
(b) Liability for tax
(c) Definitions and special rulesFor purposes of this section—
(1) Qualified planThe 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
(B) ExceptionsThe 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,
(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, or
(iii) any transfer described in section 420(f)(2)(B)(ii)(II).
(3) Exception for employee stock ownership plans
(A) In general
(B) Investment in employer securities
(C) Allocation requirementsThe 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 ⅛ 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
(E) Applicable amountFor 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
(G) Amount transferred to include income thereon, etc.
(4) Time for payment of tax
(d) Increase in tax for failure to establish replacement plan or increase benefits
(1) In generalSubsection (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 planFor 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
(B) Asset transfer requirement
(i) 25 percent cushionA 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 benefitsThe 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 transferredIn 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 generalIn 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 limitationIf, 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
(iv) Unallocated amounts at terminationIf 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 generalThe 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 increaseFor 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
(B) Treatment as employer contributions
(C) 10-year participation requirement
(5) Definitions and special rulesFor purposes of this subsection—
(A) Qualified participantThe 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
(C) Reallocation of increase
(D) Plans taken into accountFor 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
(6) Subsection not to apply to employer in bankruptcy
(Added Pub. L. 99–514, title XI, § 1132(a), Oct. 22, 1986, 100 Stat. 2478; amended Pub. L. 100–647, title I, § 1011A(f)(1)–(3), (6), (7), title V, § 5072(a), title VI, § 6069(a), Nov. 10, 1988, 102 Stat. 3478, 3479, 3681, 3704; Pub. L. 101–508, title XII, §§ 12001, 12002(a), Nov. 5, 1990, 104 Stat. 1388–562; Pub. L. 104–188, title I, § 1704(a), Aug. 20, 1996, 110 Stat. 1878; Pub. L. 109–280, title IX, § 901(a)(2)(C), Aug. 17, 2006, 120 Stat. 1029; Pub. L. 110–458, title I, § 108(i)(3), Dec. 23, 2008, 122 Stat. 5110.)

CITE AS: 26 USC 4980

[§ 4980A. Repealed. Pub. L. 105–34, title X, § 1073(a), Aug. 5, 1997, 111 Stat. 948]

CITE AS: 26 USC 4980A

§ 4980B. Failure to satisfy continuation coverage requirements of group health plans
(a) General rule
(b) Amount of tax
(1) In general
(2) Noncompliance periodFor purposes of this section, the term “noncompliance period” means, with respect to any failure, the period—
(A) beginning on the date such failure first occurs, and
(B) ending on the earlier of—
(i) the date such failure is corrected, or
(ii) the date which is 6 months after the last day in the period applicable to the qualified beneficiary under subsection (f)(2)(B) (determined without regard to clause (iii) thereof).
If a person is liable for tax under subsection (e)(1)(B) by reason of subsection (e)(2)(B) with respect to any failure, the noncompliance period for such person with respect to such failure shall not begin before the 45th day after the written request described in subsection (e)(2)(B) is provided to such person.
(3) Minimum tax for noncompliance period where failure discovered after notice of examinationNotwithstanding paragraphs (1) and (2) of subsection (c)—
(A) In generalIn the case of 1 or more failures with respect to a qualified beneficiary—
(i) which are not corrected before the date a notice of examination of income tax liability is sent to the employer, and
(ii) which occurred or continued during the period under examination,
the amount of tax imposed by subsection (a) by reason of such failures with respect to such beneficiary shall not be less than the lesser of $2,500 or the amount of tax which would be imposed by subsection (a) without regard to such paragraphs.
(B) Higher minimum tax where violations are more than de minimis
(c) Limitations on amount of tax
(1) Tax not to apply where failure not discovered exercising reasonable diligence
(2) Tax not to apply to failures corrected within 30 daysNo tax shall be imposed by subsection (a) on any failure if—
(A) such failure was due to reasonable cause and not to willful neglect, and
(B) such failure is corrected during the 30-day period beginning on the 1st date any of the persons referred to in subsection (e) knew, or exercising reasonable diligence would have known, that such failure existed.
(3) $100 limit on amount of tax for failures on any day with respect to a qualified beneficiary
(A) In general
(B) Special rule where more than 1 qualified beneficiary
(4) Overall limitation for unintentional failuresIn the case of failures which are due to reasonable cause and not to willful neglect—
(A) Single employer plans
(i) In generalIn the case of failures with respect to plans other than multiemployer plans, the tax imposed by subsection (a) for failures during the taxable year of the employer shall not exceed the amount equal to the lesser of—(I) 10 percent of the aggregate amount paid or incurred by the employer (or predecessor employer) during the preceding taxable year for group health plans, or(II) $500,000.
(ii) Taxable years in the case of certain controlled groups
(B) Multiemployer plans
(i) In generalIn the case of failures with respect to a multiemployer plan, the tax imposed by subsection (a) for failures during the taxable year of the trust forming part of such plan shall not exceed the amount equal to the lesser of—(I) 10 percent of the amount paid or incurred by such trust during such taxable year to provide medical care (as defined in section 213(d)) directly or through insurance, reimbursement, or otherwise, or(II) $500,000.
 For purposes of the preceding sentence, all plans of which the same trust forms a part shall be treated as 1 plan.
(ii) Special rule for employers required to pay tax
(C) Special rule for persons providing benefits
(5) Waiver by Secretary
(d) Tax not to apply to certain plansThis section shall not apply to—
(1) any failure of a group health plan to meet the requirements of subsection (f) with respect to any qualified beneficiary if the qualifying event with respect to such beneficiary occurred during the calendar year immediately following a calendar year during which all employers maintaining such plan normally employed fewer than 20 employees on a typical business day,
(2) any governmental plan (within the meaning of section 414(d)), or
(3) any church plan (within the meaning of section 414(e)).
(e) Liability for tax
(1) In generalExcept as otherwise provided in this subsection, the following shall be liable for the tax imposed by subsection (a) on a failure:
(A)
(i) In the case of a plan other than a multiemployer plan, the employer.
(ii) In the case of a multiemployer plan, the plan.
(B) Each person who is responsible (other than in a capacity as an employee) for administering or providing benefits under the plan and whose act or failure to act caused (in whole or in part) the failure.
(2) Special rules for persons described in paragraph (1)(B)
(A) No liability unless written agreement
(B) Failure to cover qualified beneficiaries where current employees are coveredA person shall be treated as described in paragraph (1)(B) with respect to a qualified beneficiary if—
(i) such person provides coverage under a group health plan for any similarly situated beneficiary under the plan with respect to whom a qualifying event has not occurred, and
(ii) the—(I) employer or plan administrator, or(II) in the case of a qualifying event described in subparagraph (C) or (E) of subsection (f)(3) where the person described in clause (i) is the plan administrator, the qualified beneficiary,
 submits to such person a written request that such person make available to such qualified beneficiary the same coverage which such person provides to the beneficiary referred to in clause (i).
(f) Continuation coverage requirements of group health plans
(1) In general
(2) Continuation coverageFor purposes of paragraph (1), the term “continuation coverage” means coverage under the plan which meets the following requirements:
(A) Type of benefit coverage
(B) Period of coverageThe coverage must extend for at least the period beginning on the date of the qualifying event and ending not earlier than the earliest of the following:
(i) Maximum required period(I) General rule for terminations and reduced hours(II) Special rule for multiple qualifying events(III) Special rule for certain bankruptcy proceedings(IV) General rule for other qualifying events(V) Special rule for PBGC recipients(VI) Special rule for TAA-eligible individuals(VII) Medicare entitlement followed by qualifying event(VIII) Special rule for disability
(ii) End of plan
(iii) Failure to pay premium
(iv) Group health plan coverage or medicare entitlementThe date on which the qualified beneficiary first becomes, after the date of the election—(I) covered under any other group health plan (as an employee or otherwise) which does not contain any exclusion or limitation with respect to any preexisting condition of such beneficiary (other than such an exclusion or limitation which does not apply to (or is satisfied by) such beneficiary by reason of chapter 100 of this title, part 7 of subtitle B of title I of the Employee Retirement Income Security Act of 1974, or title XXVII of the Public Health Service Act), or(II) in the case of a qualified beneficiary other than a qualified beneficiary described in subsection (g)(1)(D) entitled to benefits under title XVIII of the Social Security Act.
(v) Termination of extended coverage for disability
(C) Premium requirementsThe plan may require payment of a premium for any period of continuation coverage, except that such premium—
(i) shall not exceed 102 percent of the applicable premium for such period, and
(ii) may, at the election of the payor, be made in monthly installments.
In no event may the plan require the payment of any premium before the day which is 45 days after the day on which the qualified beneficiary made the initial election for continuation coverage. In the case of an individual described in the last sentence of subparagraph (B)(i), any reference in clause (i) of this subparagraph to “102 percent” is deemed a reference to “150 percent” for any month after the 18th month of continuation coverage described in subclause (I) or (II) of subparagraph (B)(i).
(D) No requirement of insurability
(E) Conversion option
(3) Qualifying eventFor purposes of this subsection, the term “qualifying event” means, with respect to any covered employee, any of the following events which, but for the continuation coverage required under this subsection, would result in the loss of coverage of a qualified beneficiary—
(A) The death of the covered employee.
(B) The termination (other than by reason of such employee’s gross misconduct), or reduction of hours, of the covered employee’s employment.
(C) The divorce or legal separation of the covered employee from the employee’s spouse.
(D) The covered employee becoming entitled to benefits under title XVIII of the Social Security Act.
(E) A dependent child ceasing to be a dependent child under the generally applicable requirements of the plan.
(F) A proceeding in a case under title 11, United States Code, commencing on or after July 1, 1986, with respect to the employer from whose employment the covered employee retired at any time.
In the case of an event described in subparagraph (F), a loss of coverage includes a substantial elimination of coverage with respect to a qualified beneficiary described in subsection (g)(1)(D) within one year before or after the date of commencement of the proceeding.
(4) Applicable premiumFor purposes of this subsection—
(A) In general
(B) Special rule for self-insured plansTo the extent that a plan is a self-insured plan—
(i) In generalExcept as provided in clause (ii), the applicable premium for any period of continuation coverage of qualified beneficiaries shall be equal to a reasonable estimate of the cost of providing coverage for such period for similarly situated beneficiaries which—(I) is determined on an actuarial basis, and(II) takes into account such factors as the Secretary may prescribe in regulations.
(ii) Determination on basis of past costIf a plan administrator elects to have this clause apply, the applicable premium for any period of continuation coverage of qualified beneficiaries shall be equal to—(I) the cost to the plan for similarly situated beneficiaries for the same period occurring during the preceding determination period under subparagraph (C), adjusted by(II) the percentage increase or decrease in the implicit price deflator of the gross national product (calculated by the Department of Commerce and published in the Survey of Current Business) for the 12-month period ending on the last day of the sixth month of such preceding determination period.
(iii) Clause (ii) not to apply where significant change
(C) Determination period
(5) ElectionFor purposes of this subsection—
(A) Election periodThe term “election period” means the period which—
(i) begins not later than the date on which coverage terminates under the plan by reason of a qualifying event,
(ii) is of at least 60 days’ duration, and
(iii) ends not earlier than 60 days after the later of—(I) the date described in clause (i), or(II) in the case of any qualified beneficiary who receives notice under paragraph (6)(D), the date of such notice.
(B) Effect of election on other beneficiaries
(C) Temporary extension of COBRA election period for certain individuals
(i) In general
(ii) Commencement of coverage; no reach-back
(iii) Preexisting conditionsWith respect to an individual who elects continuation coverage pursuant to clause (i), the period—(I) beginning on the date of the TAA-related loss of coverage, and(II) ending on the first day of the 60-day election period described in clause (i),
 shall be disregarded for purposes of determining the 63-day periods referred to in section 9801(c)(2), section 701(c)(2) of the Employee Retirement Income Security Act of 1974, and section 2704(c)(2) of the Public Health Service Act.
(iv) DefinitionsFor purposes of this subsection:(I) Nonelecting TAA-eligible individual(II) TAA-eligible individual(III) TAA-related election period(IV) TAA-related loss of coverage
(6) Notice requirementIn accordance with regulations prescribed by the Secretary—
(A) The group health plan shall provide, at the time of commencement of coverage under the plan, written notice to each covered employee and spouse of the employee (if any) of the rights provided under this subsection.
(B) The employer of an employee under a plan must notify the plan administrator of a qualifying event described in subparagraph (A), (B), (D), or (F) of paragraph (3) with respect to such employee within 30 days (or, in the case of a group health plan which is a multiemployer plan, such longer period of time as may be provided in the terms of the plan) of the date of the qualifying event.
(C) Each covered employee or qualified beneficiary is responsible for notifying the plan administrator of the occurrence of any qualifying event described in subparagraph (C) or (E) of paragraph (3) within 60 days after the date of the qualifying event and each qualified beneficiary who is determined, under title II or XVI of the Social Security Act, to have been disabled at any time during the first 60 days of continuation coverage under this section is responsible for notifying the plan administrator of such determination within 60 days after the date of the determination and for notifying the plan administrator within 30 days of the date of any final determination under such title or titles that the qualified beneficiary is no longer disabled.
(D) The plan administrator shall notify—
(i) in the case of a qualifying event described in subparagraph (A), (B), (D), or (F) of paragraph (3), any qualified beneficiary with respect to such event, and
(ii) in the case of a qualifying event described in subparagraph (C) or (E) of paragraph (3) where the covered employee notifies the plan administrator under subparagraph (C), any qualified beneficiary with respect to such event,
of such beneficiary’s rights under this subsection.
The requirements of subparagraph (B) shall be considered satisfied in the case of a multiemployer plan in connection with a qualifying event described in paragraph (3)(B) if the plan provides that the determination of the occurrence of such qualifying event will be made by the plan administrator. For purposes of subparagraph (D), any notification shall be made within 14 days (or, in the case of a group health plan which is a multiemployer plan, such longer period of time as may be provided in the terms of the plan) of the date on which the plan administrator is notified under subparagraph (B) or (C), whichever is applicable, and any such notification to an individual who is a qualified beneficiary as the spouse of the covered employee shall be treated as notification to all other qualified beneficiaries residing with such spouse at the time such notification is made.
(7) Covered employee
(8) Optional extension of required periodsA group health plan shall not be treated as failing to meet the requirements of this subsection solely because the plan provides both—
(A) that the period of extended coverage referred to in paragraph (2)(B) commences with the date of the loss of coverage, and
(B) that the applicable notice period provided under paragraph (6)(B) commences with the date of the loss of coverage.
(g) DefinitionsFor purposes of this section—
(1) Qualified beneficiary
(A) In generalThe term “qualified beneficiary” means, with respect to a covered employee under a group health plan, any other individual who, on the day before the qualifying event for that employee, is a beneficiary under the plan—
(i) as the spouse of the covered employee, or
(ii) as the dependent child of the employee.
Such term shall also include a child who is born to or placed for adoption with the covered employee during the period of continuation coverage under this section.
(B) Special rule for terminations and reduced employment
(C) Exception for nonresident aliens
(D) Special rule for retirees and widows
(i) as the spouse of the covered employee,
(ii) as the dependent child of the covered employee, or
(iii) as the surviving spouse of the covered employee.
(2) Group health plan
(3) Plan administrator
(4) CorrectionA failure of a group health plan to meet the requirements of subsection (f) with respect to any qualified beneficiary shall be treated as corrected if—
(A) such failure is retroactively undone to the extent possible, and
(B) the qualified beneficiary is placed in a financial position which is as good as such beneficiary would have been in had such failure not occurred.
For purposes of applying subparagraph (B), the qualified beneficiary shall be treated as if he had elected the most favorable coverage in light of the expenses he incurred since the failure first occurred.
(Added Pub. L. 100–647, title III, § 3011(a), Nov. 10, 1988, 102 Stat. 3616; amended Pub. L. 101–239, title VI, §§ 6202(b)(3)(B), 6701(a)–(c), title VII, §§ 7862(c)(2)(B), (3)(C), (4)(B), (5)(A), 7891(d)(1)(B), (2)(A), Dec. 19, 1989, 103 Stat. 2233, 2294, 2295, 2432, 2433, 2446; Pub. L. 101–508, title XI, § 11702(f), Nov. 5, 1990, 104 Stat. 1388–515; Pub. L. 103–66, title XIII, § 13422(a), Aug. 10, 1993, 107 Stat. 566; Pub. L. 104–188, title I, § 1704(g)(1)(A), (t)(21), Aug. 20, 1996, 110 Stat. 1880, 1888; Pub. L. 104–191, title III, § 321(d)(1), title IV, § 421(c), Aug. 21, 1996, 110 Stat. 2058, 2088; Pub. L. 107–210, div. A, title II, § 203(e)(3), Aug. 6, 2002, 116 Stat. 971; Pub. L. 111–5, div. B, title I, § 1899F(b), Feb. 17, 2009, 123 Stat. 429; Pub. L. 111–344, title I, § 116(b), Dec. 29, 2010, 124 Stat. 3616; Pub. L. 112–40, title II, § 243(a)(3), (4), Oct. 21, 2011, 125 Stat. 420; Pub. L. 115–141, div. U, title IV, § 401(a)(235), (236), Mar. 23, 2018, 132 Stat. 1195.)

CITE AS: 26 USC 4980B

§ 4980C. Requirements for issuers of qualified long-term care insurance contracts
(a) General rule
(b) Amount
(1) In general
(2) Waiver
(c) ResponsibilitiesThe requirements of this subsection are as follows:
(1) Requirements of model provisions
(A) Model regulationThe following requirements of the model regulation must be met:
(i) Section 13 (relating to application forms and replacement coverage).
(ii) Section 14 (relating to reporting requirements), except that the issuer shall also report at least annually the number of claims denied during the reporting period for each class of business (expressed as a percentage of claims denied), other than claims denied for failure to meet the waiting period or because of any applicable preexisting condition.
(iii) Section 20 (relating to filing requirements for marketing).
(iv) Section 21 (relating to standards for marketing), including inaccurate completion of medical histories, other than sections 21C(1) and 21C(6) thereof, except that—(I) in addition to such requirements, no person shall, in selling or offering to sell a qualified long-term care insurance contract, misrepresent a material fact; and(II) no such requirements shall include a requirement to inquire or identify whether a prospective applicant or enrollee for long-term care insurance has accident and sickness insurance.
(v) Section 22 (relating to appropriateness of recommended purchase).
(vi) Section 24 (relating to standard format outline of coverage).
(vii) Section 25 (relating to requirement to deliver shopper’s guide).
(B) Model ActThe following requirements of the model Act must be met:
(i) Section 6F (relating to right to return), except that such section shall also apply to denials of applications and any refund shall be made within 30 days of the return or denial.
(ii) Section 6G (relating to outline of coverage).
(iii) Section 6H (relating to requirements for certificates under group plans).
(iv) Section 6I (relating to policy summary).
(v) Section 6J (relating to monthly reports on accelerated death benefits).
(vi) Section 7 (relating to incontestability period).
(C) Definitions
(2) Delivery of policy
(3) Information on denials of claimsIf a claim under a qualified long-term care insurance contract is denied, the issuer shall, within 60 days of the date of a written request by the policyholder or certificateholder (or representative)—
(A) provide a written explanation of the reasons for the denial, and
(B) make available all information directly relating to such denial.
(d) Disclosure
(e) Qualified long-term care insurance contract defined
(f) Coordination with State requirements
(Added Pub. L. 104–191, title III, § 326(a), Aug. 21, 1996, 110 Stat. 2065.)

CITE AS: 26 USC 4980C

§ 4980D. Failure to meet certain group health plan requirements
(a) General rule
(b) Amount of tax
(1) In general
(2) Noncompliance period
For purposes of this section, the term “noncompliance period” means, with respect to any failure, the period—
(A) beginning on the date such failure first occurs, and
(B) ending on the date such failure is corrected.
(3) Minimum tax for noncompliance period where failure discovered after notice of examination
Notwithstanding paragraphs (1) and (2) of subsection (c)—
(A) In general
In the case of 1 or more failures with respect to an individual—
(i) which are not corrected before the date a notice of examination of income tax liability is sent to the employer, and
(ii) which occurred or continued during the period under examination,
the amount of tax imposed by subsection (a) by reason of such failures with respect to such individual shall not be less than the lesser of $2,500 or the amount of tax which would be imposed by subsection (a) without regard to such paragraphs.
(B) Higher minimum tax where violations are more than de minimis
(C) Exception for church plans
(c) Limitations on amount of tax
(1) Tax not to apply where failure not discovered exercising reasonable diligence
(2) Tax not to apply to failures corrected within certain periods
No tax shall be imposed by subsection (a) on any failure if—
(A) such failure was due to reasonable cause and not to willful neglect, and
(B)
(i) in the case of a plan other than a church plan (as defined in section 414(e)), such failure is corrected during the 30-day period beginning on the first date the person otherwise liable for such tax knew, or exercising reasonable diligence would have known, that such failure existed, and
(ii) in the case of a church plan (as so defined), such failure is corrected before the close of the correction period (determined under the rules of section 414(e)(4)(C)).
(3) Overall limitation for unintentional failures
In the case of failures which are due to reasonable cause and not to willful neglect—
(A) Single employer plans
(i) In general
In the case of failures with respect to plans other than specified multiple employer health plans, the tax imposed by subsection (a) for failures during the taxable year of the employer shall not exceed the amount equal to the lesser of—
(I) 10 percent of the aggregate amount paid or incurred by the employer (or predecessor employer) during the preceding taxable year for group health plans, or(II) $500,000.
(ii) Taxable years in the case of certain controlled groups
(B) Specified multiple employer health plans
(i) In general
In the case of failures with respect to a specified multiple employer health plan, the tax imposed by subsection (a) for failures during the taxable year of the trust forming part of such plan shall not exceed the amount equal to the lesser of—
(I) 10 percent of the amount paid or incurred by such trust during such taxable year to provide medical care (as defined in section 9832(d)(3)) directly or through insurance, reimbursement, or otherwise, or(II) $500,000.
 For purposes of the preceding sentence, all plans of which the same trust forms a part shall be treated as one plan.
(ii) Special rule for employers required to pay tax
(4) Waiver by Secretary
(d) Tax not to apply to certain insured small employer plans
(1) In general
(2) Small employer
(A) In general
(B) Employers not in existence in preceding year
(C) Predecessors
(3) Health insurance coverage; health insurance issuer
(e) Liability for tax
The following shall be liable for the tax imposed by subsection (a) on a failure:
(1) Except as otherwise provided in this subsection, the employer.
(2) In the case of a multiemployer plan, the plan.
(3) In the case of a failure under section 9803 (relating to guaranteed renewability) with respect to a plan described in subsection (f)(2)(B), the plan.
(f) Definitions
For purposes of this section—
(1) Group health plan
(2) Specified multiple employer health plan
The term “specified multiple employer health plan” means a group health plan which is—
(A) any multiemployer plan, or
(B) any multiple employer welfare arrangement (as defined in section 3(40) of the Employee Retirement Income Security Act of 1974, as in effect on the date of the enactment of this section).
(3) Correction
A failure of a group health plan shall be treated as corrected if—
(A) such failure is retroactively undone to the extent possible, and
(B) the person to whom the failure relates is placed in a financial position which is as good as such person would have been in had such failure not occurred.
(Added Pub. L. 104–191, title IV, § 402(a), Aug. 21, 1996, 110 Stat. 2084; amended Pub. L. 105–34, title XV, § 1531(b)(2), Aug. 5, 1997, 111 Stat. 1085; Pub. L. 109–135, title IV, § 412(ww), Dec. 21, 2005, 119 Stat. 2640.)

CITE AS: 26 USC 4980D

§ 4980E. Failure of employer to make comparable Archer MSA contributions
(a) General rule
(b) Amount of tax
(c) Waiver by Secretary
(d) Employer required to make comparable MSA contributions for all participating employees
(1) In general
(2) Comparable contributions
(A) In general
For purposes of paragraph (1), the term “comparable contributions” means contributions—
(i) which are the same amount, or
(ii) which are the same percentage of the annual deductible limit under the high deductible health plan covering the employees.
(B) Part-year employees
(3) Comparable participating employees
For purposes of paragraph (1), the term “comparable participating employees” means all employees—
(A) who are eligible individuals covered under any high deductible health plan of the employer, and
(B) who have the same category of coverage.
For purposes of subparagraph (B), the categories of coverage are self-only and family coverage.
(4) Part-time employees
(A) In general
(B) Part-time employee
(e) Controlled groups
(f) Definitions
(Added Pub. L. 104–191, title III, § 301(c)(4)(A), Aug. 21, 1996, 110 Stat. 2049; amended Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(8), (b)(2)(D)], Dec. 21, 2000, 114 Stat. 2763, 2763A–629; Pub. L. 107–147, title IV, § 417(17)(A), Mar. 9, 2002, 116 Stat. 56.)

CITE AS: 26 USC 4980E

§ 4980F. Failure of applicable plans reducing benefit accruals to satisfy notice requirements
(a) Imposition of tax
(b) Amount of tax
(1) In general
(2) Noncompliance period
(c) Limitations on amount of tax
(1) Tax not to apply where failure not discovered and reasonable diligence exercised
(2) Tax not to apply to failures corrected within 30 days
No tax shall be imposed by subsection (a) on any failure if—
(A) any person subject to liability for the tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and
(B) such person provides the notice described in subsection (e) during the 30-day period beginning on the first date such person knew, or exercising reasonable diligence would have known, that such failure existed.
(3) Overall limitation for unintentional failures
(A) In general
(B) Taxable years in the case of certain controlled groups
(4) Waiver by Secretary
(d) Liability for tax
The following shall be liable for the tax imposed by subsection (a):
(1) In the case of a plan other than a multiemployer plan, the employer.
(2) In the case of a multiemployer plan, the plan.
(e) Notice requirements for plans significantly reducing benefit accruals
(1) In general
(2) Notice
The notice required by paragraph (1) shall be written in a manner calculated to be understood by the average plan participant and shall provide sufficient information (as determined in accordance with regulations prescribed by the Secretary) to allow applicable individuals to understand the effect of the plan amendment. The Secretary may provide a simplified form of notice for, or exempt from any notice requirement, a plan—
(A) which has fewer than 100 participants who have accrued a benefit under the plan, or
(B) which offers participants the option to choose between the new benefit formula and the old benefit formula.
(3) Timing of notice
(4) Designees
(5) Notice before adoption of amendment
(f) Definitions and special rules
For purposes of this section—
(1) Applicable individual
The term “applicable individual” means, with respect to any plan amendment—
(A) each participant in the plan, and
(B) any beneficiary who is an alternate payee (within the meaning of section 414(p)(8)) under an applicable qualified domestic relations order (within the meaning of section 414(p)(1)(A)),
whose rate of future benefit accrual under the plan may reasonably be expected to be significantly reduced by such plan amendment.
(2) Applicable pension plan
The term “applicable pension plan” means—
(A) any defined benefit plan described in section 401(a) which includes a trust exempt from tax under section 501(a), or
(B) an individual account plan which is subject to the funding standards of section 412.
Such term shall not include a governmental plan (within the meaning of section 414(d)) or a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made.
(3) Early retirement
(g) New technologies
(Added Pub. L. 107–16, title VI, § 659(a)(1), June 7, 2001, 115 Stat. 137; amended Pub. L. 107–147, title IV, § 411(u)(1), Mar. 9, 2002, 116 Stat. 51; Pub. L. 109–280, title V, § 502(c)(2), Aug. 17, 2006, 120 Stat. 941.)

CITE AS: 26 USC 4980F

§ 4980G. Failure of employer to make comparable health savings account contributions
(a) General rule
(b) Rules and requirements
(c) Regulations
(d) Exception
(Added Pub. L. 108–173, title XII, § 1201(d)(4)(A), Dec. 8, 2003, 117 Stat. 2478; amended Pub. L. 109–432, div. A, title III, § 306(a), Dec. 20, 2006, 120 Stat. 2951.)

CITE AS: 26 USC 4980G

§ 4980H. Shared responsibility for employers regarding health coverage
(a) Large employers not offering health coverage
If—
(1) any applicable large employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (as defined in section 5000A(f)(2)) for any month, and
(2) at least one full-time employee of the applicable large employer has been certified to the employer under section 1411 of the Patient Protection and Affordable Care Act as having enrolled for such month in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee,
then there is hereby imposed on the employer an assessable payment equal to the product of the applicable payment amount and the number of individuals employed by the employer as full-time employees during such month.
(b) Large employers offering coverage with employees who qualify for premium tax credits or cost-sharing reductions
(1) In general
If—
(A) an applicable large employer offers to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (as defined in section 5000A(f)(2)) for any month, and
(B) 1 or more full-time employees of the applicable large employer has been certified to the employer under section 1411 of the Patient Protection and Affordable Care Act as having enrolled for such month in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee,
then there is hereby imposed on the employer an assessable payment equal to the product of the number of full-time employees of the applicable large employer described in subparagraph (B) for such month and an amount equal to 1⁄12 of $3,000.
(2) Overall limitation
(c) Definitions and special rules
For purposes of this section—
(1) Applicable payment amount
(2) Applicable large employer
(A) In general
(B) Exemption for certain employers
(i) In general
An employer shall not be considered to employ more than 50 full-time employees if—
(I) the employer’s workforce exceeds 50 full-time employees for 120 days or fewer during the calendar year, and(II) the employees in excess of 50 employed during such 120-day period were seasonal workers.
(ii) Definition of seasonal workers
(C) Rules for determining employer size
For purposes of this paragraph—
(i) Application of aggregation rule for employers
(ii) Employers not in existence in preceding year
(iii) Predecessors
(D) Application of employer size to assessable penalties
(i) In general
The number of individuals employed by an applicable large employer as full-time employees during any month shall be reduced by 30 solely for purposes of calculating—
(I) the assessable payment under subsection (a), or(II) the overall limitation under subsection (b)(2).
(ii) Aggregation
(E) Full-time equivalents treated as full-time employees
(F) Exemption for health coverage under TRICARE or the Department of Veterans Affairs
Solely for purposes of determining whether an employer is an applicable large employer under this paragraph for any month, an individual shall not be taken into account as an employee for such month if such individual has medical coverage for such month under—
(i) chapter 55 of title 10, United States Code, including coverage under the TRICARE program, or
(ii) under a health care program under chapter 17 or 18 of title 38, United States Code, as determined by the Secretary of Veterans Affairs, in coordination with the Secretary of Health and Human Services and the Secretary.
(3) Applicable premium tax credit and cost-sharing reduction
The term “applicable premium tax credit and cost-sharing reduction” means—
(A) any premium tax credit allowed under section 36B,
(B) any cost-sharing reduction under section 1402 of the Patient Protection and Affordable Care Act, and
(C) any advance payment of such credit or reduction under section 1412 of such Act.
(4) Full-time employee
(A) In general
(B) Hours of service
(5) Inflation adjustment
(A) In general
In the case of any calendar year after 2014, each of the dollar amounts in subsection (b) and paragraph (1) shall be increased by an amount equal to the product of—
(i) such dollar amount, and
(ii) the premium adjustment percentage (as defined in section 1302(c)(4) of the Patient Protection and Affordable Care Act) for the calendar year.
(B) Rounding
(6) Other definitions
(7) Tax nondeductible
(d) Administration and procedure
(1) In general
(2) Time for payment
(3) Coordination with credits, etc.
(Added and amended Pub. L. 111–148, title I, § 1513(a), title X, §§ 10106(e)–(f)(2), 10108(i)(1)(A), Mar. 23, 2010, 124 Stat. 253, 910, 914; Pub. L. 111–152, title I, § 1003, Mar. 30, 2010, 124 Stat. 1033; Pub. L. 112–10, div. B, title VIII, § 1858(b)(4), Apr. 15, 2011, 125 Stat. 169; Pub. L. 114–41, title IV, § 4007(a)(1), July 31, 2015, 129 Stat. 465; Pub. L. 115–141, div. U, title IV, § 401(a)(2)(B), Mar. 23, 2018, 132 Stat. 1184.)

CITE AS: 26 USC 4980H

[§ 4980I. Repealed. Pub. L. 116–94, div. N, title I, § 503(a), Dec. 20, 2019, 133 Stat. 3119]

CITE AS: 26 USC 4980I