26 USC 414 - Definitions and special rules

U.S Code last checked for updates: Nov 22, 2024

§ 414.

Definitions and special rules

(a)

Service for predecessor employer

For purposes of this part—

(1)

in any case in which the employer maintains a plan of a predecessor employer, service for such predecessor shall be treated as service for the employer, and

(2)

in any case in which the employer maintains a plan which is not the plan maintained by a predecessor employer, service for such predecessor shall, to the extent provided in regulations prescribed by the Secretary, be treated as service for the employer.

(b)

Employees of controlled group of corporations

(1)

In general

(2)

Special rules for applying family attribution

For purposes of applying the attribution rules under section 1563 with respect to paragraph (1), the following rules apply:

(A)

Community property laws shall be disregarded for purposes of determining ownership.

(B)

Except as provided by the Secretary, stock of an individual not attributed under section 1563(e)(5) to such individual’s spouse shall not be attributed to such spouse by reason of the combined application of paragraphs (1) and (6)(A) of section 1563(e).

(C)

Except as provided by the Secretary, in the case of stock in different corporations that is attributed to a child under section 1563(e)(6)(A) from each parent, and is not attributed to such parents as spouses under section 1563(e)(5), such attribution to the child shall not by itself result in such corporations being members of the same controlled group.

(3)

Plan shall not fail to be treated as satisfying this section

(c)

(1)

In general

(2)

Special rules relating to church plans

(A)

General rule

Except as provided in subparagraphs (B) and (C), for purposes of this subsection and subsection (m), an organization that is otherwise eligible to participate in a church plan shall not be aggregated with another such organization and treated as a single employer with such other organization for a plan year beginning in a taxable year unless—

(i)

one such organization provides (directly or indirectly) at least 80 percent of the operating funds for the other organization during the preceding taxable year of the recipient organization, and

(ii)

there is a degree of common management or supervision between the organizations such that the organization providing the operating funds is directly involved in the day-to-day operations of the other organization.

(B)

Nonqualified church-controlled organizations

(C)

Permissive aggregation among church-related organizations

(D)

Permissive disaggregation of church-related organizations

(d)

Governmental plan

(e)

Church plan

(1)

In general

(2)

Certain plans excluded

The term “church plan” does not include a plan—

(A)

which is established and maintained primarily for the benefit of employees (or their beneficiaries) of such church or convention or association of churches who are employed in connection with one or more unrelated trades or businesses (within the meaning of section 513); or

(B)

if less than substantially all of the individuals included in the plan are individuals described in paragraph (1) or (3)(B) (or their beneficiaries).

(3)

Definitions and other provisions

For purposes of this subsection—

(A)

Treatment as church plan

(B)

Employee defined

The term employee of a church or a convention or association of churches shall include—

(i)

a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry, regardless of the source of his compensation;

(ii)

an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 501 and which is controlled by or associated with a church or a convention or association of churches; and

(iii)

an individual described in subparagraph (E).

(C)

Church treated as employer

(D)

Association with church

(E)

Special rule in case of separation from plan

If an employee who is included in a church plan separates from the service of a church or a convention or association of churches or an organization described in clause (ii) of paragraph (3)(B), the church plan shall not fail to meet the requirements of this subsection merely because the plan—

(i)

retains the employee’s accrued benefit or account for the payment of benefits to the employee or his beneficiaries pursuant to the terms of the plan; or

(ii)

receives contributions on the employee’s behalf after the employee’s separation from such service, but only for a period of 5 years after such separation, unless the employee is disabled (within the meaning of the disability provisions of the church plan or, if there are no such provisions in the church plan, within the meaning of section 72(m)(7)) at the time of such separation from service.

(4)

Correction of failure to meet church plan requirements

(A)

In general

(B)

Failure to correct

(C)

Correction period defined

The term “correction period” means—

(i)

the period, ending 270 days after the date of mailing by the Secretary of a notice of default with respect to the plan’s failure to meet one or more of the requirements of this subsection;

(ii)

any period set by a court of competent jurisdiction after a final determination that the plan fails to meet such requirements, or, if the court does not specify such period, any reasonable period determined by the Secretary on the basis of all the facts and circumstances, but in any event not less than 270 days after the determination has become final; or

(iii)

any additional period which the Secretary determines is reasonable or necessary for the correction of the default,

whichever has the latest ending date.

(5)

Special rules for chaplains and self-employed ministers

(A)

Certain ministers may participate

For purposes of this part—

(i)

In general

A duly ordained, commissioned, or licensed minister of a church is described in paragraph (3)(B) if, in connection with the exercise of their ministry, the minister—

(I)

is a self-employed individual (within the meaning of section 401(c)(1)(B), or

(II)

is employed by an organization other than an organization which is described in section 501(c)(3) and with respect to which the minister shares common religious bonds.

(ii)

Treatment as employer and employee

(B)

Special rules for applying section 403(b) to self-employed ministers

In the case of a minister described in subparagraph (A)(i)(I)—

(i)

the minister’s includible compensation under section 403(b)(3) shall be determined by reference to the minister’s earned income (within the meaning of section 401(c)(2)) from such ministry rather than the amount of compensation which is received from an employer, and

(ii)

the years (and portions of years) in which such minister was a self-employed individual (within the meaning of section 401(c)(1)(B)) with respect to such ministry shall be included for purposes of section 403(b)(4).

(C)

Effect on non-denominational plans

(D)

Compensation taken into account only once

(E)

Exclusion

(f)

Multiemployer plan

(1)

Definition

For purposes of this part, the term “multiemployer plan” means a plan—

(A)

to which more than one employer is required to contribute,

(B)

which is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer, and

(C)

which satisfies such other requirements as the Secretary of Labor may prescribe by regulation.

(2)

Cases of common control

(3)

Continuation of status after termination

(4)

Transitional rule

(5)

Special election

Within one year after the date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, a multiemployer plan may irrevocably elect, pursuant to procedures established by the Pension Benefit Guaranty Corporation and subject to the provisions of section 4403(b) and (c) of the Employee Retirement Income Security Act of 1974, that the plan shall not be treated as a multiemployer plan for any purpose under such Act or this title, if for each of the last 3 plan years ending prior to the effective date of the Multiemployer Pension Plan Amendments Act of 1980—

(A)

the plan was not a multiemployer plan because the plan was not a plan described in section 3(37)(A)(iii) of the Employee Retirement Income Security Act of 1974 and section 414(f)(1)(C) (as such provisions were in effect on the day before the date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980); and

(B)

the plan had been identified as a plan that was not a multiemployer plan in substantially all its filings with the Pension Benefit Guaranty Corporation, the Secretary of Labor and the Secretary.

(6)

Election with regard to multiemployer status

(A)

Within 1 year after the enactment of the Pension Protection Act of 2006—

(i)

An election under paragraph (5) may be revoked, pursuant to procedures prescribed by the Pension Benefit Guaranty Corporation, if, for each of the 3 plan years prior to the date of the enactment of that Act, the plan would have been a multiemployer plan but for the election under paragraph (5), and

(ii)

a plan that meets the criteria in subparagraph (A) and (B) of paragraph (1) of this subsection or that is described in subparagraph (E) may, pursuant to procedures prescribed by the Pension Benefit Guaranty Corporation, elect to be a multiemployer plan, if—

(I)

for each of the 3 plan years immediately preceding the first plan year for which the election under this paragraph is effective with respect to the plan, the plan has met those criteria or is so described,

(II)

substantially all of the plan’s employer contributions for each of those plan years were made or required to be made by organizations that were exempt from tax under section 501, and

(III)

the plan was established prior to September 2, 1974.

(B)

An election under this paragraph shall be effective for all purposes under this Act 1

 So in original. Probably should be “title”.

and under the Employee Retirement Income Security Act of 1974, starting with any plan year beginning on or after January 1, 1999, and ending before January 1, 2008, as designated by the plan in the election made under subparagraph (A)(ii).

(C)

Once made, an election under this paragraph shall be irrevocable, except that a plan described in subparagraph (A)(ii) shall cease to be a multiemployer plan as of the plan year beginning immediately after the first plan year for which the majority of its employer contributions were made or required to be made by organizations that were not exempt from tax under section 501.

(D)

The fact that a plan makes an election under subparagraph (A)(ii) does not imply that the plan was not a multiemployer plan prior to the date of the election or would not be a multiemployer plan without regard to the election.

(E)

A plan is described in this subparagraph if it is a plan sponsored by an organization which is described in section 501(c)(5) and exempt from tax under section 501(a) and which was established in Chicago, Illinois, on August 12, 1881.

(F)

Maintenance under collective bargaining agreement.—

For purposes of this title and the Employee Retirement Income Security Act of 1974, a plan making an election under this paragraph shall be treated as maintained pursuant to a collective bargaining agreement if a collective bargaining agreement, expressly or otherwise, provides for or permits employer contributions to the plan by one or more employers that are signatory to such agreement, or participation in the plan by one or more employees of an employer that is signatory to such agreement, regardless of whether the plan was created, established, or maintained for such employees by virtue of another document that is not a collective bargaining agreement.

(g)

Plan administrator

For purposes of this part, the term “plan administrator” means—

(1)

the person specifically so designated by the terms of the instrument under which the plan is operated;

(2)

in the absence of a designation referred to in paragraph (1)—

(A)

in the case of a plan maintained by a single employer, such employer,

(B)

in the case of a plan maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who maintained the plan, or

(C)

in any case to which subparagraph (A) or (B) does not apply, such other person as the Secretary may by regulation, prescribe.

(h)

Tax treatment of certain contributions

(1)

In general

Effective with respect to taxable years beginning after December 31, 1973, for purposes of this title, any amount contributed—

(A)

to an employees’ trust described in section 401(a), or

(B)

under a plan described in section 403(a), shall not be treated as having been made by the employer if it is designated as an employee contribution.

(2)

Designation by units of government

(i)

Defined contribution plan

(j)

Defined benefit plan

(k)

Certain plans

A defined benefit plan which provides a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant shall—

(1)

for purposes of section 410 (relating to minimum participation standards), be treated as a defined contribution plan,

(2)

for purposes of sections 72(d) (relating to treatment of employee contributions as separate contract), 411(a)(7)(A) (relating to minimum vesting standards), 415 (relating to limitations on benefits and contributions under qualified plans), and 401(m) (relating to nondiscrimination tests for matching requirements and employee contributions), be treated as consisting of a defined contribution plan to the extent benefits are based on the separate account of a participant and as a defined benefit plan with respect to the remaining portion of benefits under the plan, and

(3)

for purposes of section 4975 (relating to tax on prohibited transactions), be treated as a defined benefit plan.

(l)

Merger and consolidations of plans or transfers of plan assets

(1)

In general

(2)

Allocation of assets in plan spin-offs, etc.

(A)

In general

In the case of a plan spin-off of a defined benefit plan, a trust which forms part of—

(i)

the original plan, or

(ii)

any plan spun off from such plan,

shall not constitute a qualified trust under this section unless the applicable percentage of excess assets are allocated to each of such plans.

(B)

Applicable percentage

For purposes of subparagraph (A), the term “applicable percentage” means, with respect to each of the plans described in clauses (i) and (ii) of subparagraph (A), the percentage determined by dividing—

(i)

the excess (if any) of—

(I)

the sum of the funding target and target normal cost determined under section 430, over

(II)

the amount of the assets required to be allocated to the plan after the spin-off (without regard to this paragraph), by

(ii)

the sum of the excess amounts determined separately under clause (i) for all such plans.

(C)

Excess assets

For purposes of subparagraph (A), the term “excess assets” means an amount equal to the excess (if any) of—

(i)

the fair market value of the assets of the original plan immediately before the spin-off, over

(ii)

the amount of assets required to be allocated after the spin-off to all plans (determined without regard to this paragraph).

(D)

Certain spun-off plans not taken into account

(i)

In general

(ii)

Plans transferred out of controlled groups

(iii)

Plans transferred out of multiple employer plans

(iv)

Terminated plans

(v)

Controlled group

(E)

Paragraph not to apply to multiemployer plans

(F)

Application to similar transaction

(G)

Special rules for bridge depository institutions

For purposes of this paragraph, in the case of a bridge depository institution established under section 11(i) of the Federal Deposit Insurance Act (12 U.S.C. 1821(i))—

(i)

such bank shall be treated as a member of any controlled group which includes any insured bank (as defined in section 3(h) of such Act (12 U.S.C. 1813(h)))—

(I)

which maintains a defined benefit plan,

(II)

which is closed by the appropriate bank regulatory authorities, and

(III)

any asset and liabilities of which are received by the bridge depository institution, and

(ii)

the requirements of this paragraph shall not be treated as met with respect to such plan unless during the 180-day period beginning on the date such insured bank is closed—

(I)

the bridge depository institution has the right to require the plan to transfer (subject to the provisions of this paragraph) not more than 50 percent of the excess assets (as defined in subparagraph (C)) to a defined benefit plan maintained by the bridge depository institution with respect to participants or former participants (including retirees and beneficiaries) in the original plan employed by the bridge depository institution or formerly employed by the closed bank, and

(II)

no other merger, spin-off, termination, or similar transaction involving the portion of the excess assets described in subclause (I) may occur without the prior written consent of the bridge depository institution.

(m)

Employees of an affiliated service group

(1)

In general

(2)

Affiliated service group

For purposes of this subsection, the term “affiliated service group” means a group consisting of a service organization (hereinafter in this paragraph referred to as the “first organization”) and one or more of the following:

(A)

any service organization which—

(i)

is a shareholder or partner in the first organization, and

(ii)

regularly performs services for the first organization or is regularly associated with the first organization in performing services for third persons, and

(B)

any other organization if—

(i)

a significant portion of the business of such organization is the performance of services (for the first organization, for organizations described in subparagraph (A), or for both) of a type historically performed in such service field by employees, and

(ii)

10 percent or more of the interests in such organization is held by persons who are highly compensated employees (within the meaning of section 414(q)) of the first organization or an organization described in subparagraph (A).

(3)

Service organizations

(4)

Employee benefit requirements

For purposes of this subsection, the employee benefit requirements listed in this paragraph are—

(A)

paragraphs (3), (4), (7), (16), (17), and (26) of section 401(a), and

(B)

sections 408(k), 408(p), 410, 411, 415, and 416.

(5)

Certain organizations performing management functions

For purposes of this subsection, the term “affiliated service group” also includes a group consisting of—

(A)

an organization the principal business of which is performing, on a regular and continuing basis, management functions for 1 organization (or for 1 organization and other organizations related to such 1 organization), and

(B)

the organization (and related organizations) for which such functions are so performed by the organization described in subparagraph (A).

For purposes of this paragraph, the term “related organizations” has the same meaning as the term “related persons” when used in section 144(a)(3).

(6)

Other definitions

For purposes of this subsection—

(A)

Organization defined

(B)

Ownership

(i)

In general

(ii)

Special rules for applying family attribution

For purposes of applying the attribution rules under section 318 with respect to clause (i), the following rules apply:

(I)

Community property laws shall be disregarded for purposes of determining ownership.

(II)

Except as provided by the Secretary, stock of an individual not attributed under section 318(a)(1)(A)(i) to such individual’s spouse shall not be attributed by reason of the combined application of paragraphs (1)(A)(ii) and (4) of section 318(a) to such spouse from a child who has not attained the age of 21 years.

(III)

Except as provided by the Secretary, in the case of stock in different organizations which is attributed under section 318(a)(1)(A)(ii) from each parent to a child who has not attained the age of 21 years, and is not attributed to such parents as spouses under section 318(a)(1)(A)(i), such attribution to the child shall not by itself result in such organizations being members of the same affiliated service group.

(iii)

Plan shall not fail to be treated as satisfying this section

(n)

Employee leasing

(1)

In general

For purposes of the requirements listed in paragraph (3), with respect to any person (hereinafter in this subsection referred to as the “recipient”) for whom a leased employee performs services—

(A)

the leased employee shall be treated as an employee of the recipient, but

(B)

contributions or benefits provided by the leasing organization which are attributable to services performed for the recipient shall be treated as provided by the recipient.

(2)

Leased employee

For purposes of paragraph (1), the term “leased employee” means any person who is not an employee of the recipient and who provides services to the recipient if—

(A)

such services are provided pursuant to an agreement between the recipient and any other person (in this subsection referred to as the “leasing organization”),

(B)

such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, and

(C)

such services are performed under primary direction or control by the recipient.

(3)

Requirements

For purposes of this subsection, the requirements listed in this paragraph are—

(A)

paragraphs (3), (4), (7), (16), (17), and (26) of section 401(a),

(B)

sections 408(k), 408(p), 410, 411, 415, and 416, and

(C)

sections 79, 106, 117(d), 125, 127, 129, 132, 137, 274(j), 505, and 4980B.

(4)

Time when first considered as employee

(A)

In general

(B)

Years of service

(5)

Safe harbor

(A)

In general

In the case of requirements described in subparagraphs (A) and (B) of paragraph (3), this subsection shall not apply to any leased employee with respect to services performed for a recipient if—

(i)

such employee is covered by a plan which is maintained by the leasing organization and meets the requirements of subparagraph (B), and

(ii)

leased employees (determined without regard to this paragraph) do not constitute more than 20 percent of the recipient’s nonhighly compensated work force.

(B)

Plan requirements

A plan meets the requirements of this subparagraph if—

(i)

such plan is a money purchase pension plan with a nonintegrated employer contribution rate for each participant of at least 10 percent of compensation,

(ii)

such plan provides for full and immediate vesting, and

(iii)

each employee of the leasing organization (other than employees who perform substantially all of their services for the leasing organization) immediately participates in such plan.

Clause (iii) shall not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000.

(C)

Definitions

For purposes of this paragraph—

(i)

Highly compensated employee

(ii)

Nonhighly compensated work force

The term “nonhighly compensated work force” means the aggregate number of individuals (other than highly compensated employees)—

(I)

who are employees of the recipient (without regard to this subsection) and have performed services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, or

(II)

who are leased employees with respect to the recipient (determined without regard to this paragraph).

(iii)

Compensation

The term “compensation” has the same meaning as when used in section 415; except that such term shall include—

(I)

any employer contribution under a qualified cash or deferred arrangement to the extent not included in gross income under section 402(e)(3) or 402(h)(1)(B),

(II)

any amount which the employee would have received in cash but for an election under a cafeteria plan (within the meaning of section 125), and

(III)

any amount contributed to an annuity contract described in section 403(b) pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D)).

(6)

Other rules

For purposes of this subsection—

(A)

Related persons

(B)

Employees of entities under common control

(o)

Regulations

The Secretary shall prescribe such regulations (which may provide rules in addition to the rules contained in subsections (m) and (n)) as may be necessary to prevent the avoidance of any employee benefit requirement listed in subsection (m)(4) or (n)(3) or any requirement under section 457 through the use of—

(1)

separate organizations,

(2)

employee leasing, or

(3)

other arrangements.

The regulations prescribed under subsection (n) shall include provisions to minimize the recordkeeping requirements of subsection (n) in the case of an employer which has no top-heavy plans (within the meaning of section 416(g)) and which uses the services of persons (other than employees) for an insignificant percentage of the employer’s total workload.

(p)

Qualified domestic relations order defined

For purposes of this subsection and section 401(a)(13)—

(1)

In general

(A)

Qualified domestic relations order

The term “qualified domestic relations order” means a domestic relations order—

(i)

which creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and

(ii)

with respect to which the requirements of paragraphs (2) and (3) are met.

(B)

Domestic relations order

The term “domestic relations order” means any judgment, decree, or order (including approval of a property settlement agreement) which—

(i)

relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant, and

(ii)

is made pursuant to a State or Tribal domestic relations law (including a community property law).

For purposes of clause (ii), the term “Tribal” with respect to a domestic relations law means such a law which is issued by or under the laws of an Indian tribal government, a subdivision of such an Indian tribal government, or an agency or instrumentality of either.

(2)

Order must clearly specify certain facts

A domestic relations order meets the requirements of this paragraph only if such order clearly specifies—

(A)

the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,

(B)

the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,

(C)

the number of payments or period to which such order applies, and

(D)

each plan to which such order applies.

(3)

Order may not alter amount, form, etc., of benefits

A domestic relations order meets the requirements of this paragraph only if such order—

(A)

does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan,

(B)

does not require the plan to provide increased benefits (determined on the basis of actuarial value), and

(C)

does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.

(4)

Exception for certain payments made after earliest retirement age

(A)

In general

A domestic relations order shall not be treated as failing to meet the requirements of subparagraph (A) of paragraph (3) solely because such order requires that payment of benefits be made to an alternate payee—

(i)

in the case of any payment before a participant has separated from service, on or after the date on which the participant attains (or would have attained) the earliest retirement age,

(ii)

as if the participant had retired on the date on which such payment is to begin under such order (but taking into account only the present value of the benefits actually accrued and not taking into account the present value of any employer subsidy for early retirement), and

(iii)

in any form in which such benefits may be paid under the plan to the participant (other than in the form of a joint and survivor annuity with respect to the alternate payee and his or her subsequent spouse).

For purposes of clause (ii), the interest rate assumption used in determining the present value shall be the interest rate specified in the plan or, if no rate is specified, 5 percent.

(B)

Earliest retirement age

For purposes of this paragraph, the term “earliest retirement age” means the earlier of—

(i)

the date on which the participant is entitled to a distribution under the plan, or

(ii)

the later of—

(I)

the date the participant attains age 50, or

(II)

the earliest date on which the participant could begin receiving benefits under the plan if the participant separated from service.

(5)

Treatment of former spouse as surviving spouse for purposes of determining survivor benefits

To the extent provided in any qualified domestic relations order—

(A)

the former spouse of a participant shall be treated as a surviving spouse of such participant for purposes of sections 401(a)(11) and 417 (and any spouse of the participant shall not be treated as a spouse of the participant for such purposes), and

(B)

if married for at least 1 year, the surviving former spouse shall be treated as meeting the requirements of section 417(d).

(6)

Plan procedures with respect to orders

(A)

Notice and determination by administrator

In the case of any domestic relations order received by a plan—

(i)

the plan administrator shall promptly notify the participant and each alternate payee of the receipt of such order and the plan’s procedures for determining the qualified status of domestic relations orders, and

(ii)

within a reasonable period after receipt of such order, the plan administrator shall determine whether such order is a qualified domestic relations order and notify the participant and each alternate payee of such determination.

(B)

Plan to establish reasonable procedures

(7)

Procedures for period during which determination is being made

(A)

In general

(B)

Payment to alternate payee if order determined to be qualified domestic relations order

(C)

Payment to plan participant in certain cases

If within the 18-month period described in subparagraph (E)—

(i)

it is determined that the order is not a qualified domestic relations order, or

(ii)

the issue as to whether such order is a qualified domestic relations order is not resolved,

then the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons who would have been entitled to such amounts if there had been no order.

(D)

Subsequent determination or order to be applied prospectively only

(E)

Determination of 18-month period

(8)

Alternate payee defined

(9)

Subsection not to apply to plans to which section 401(a)(13) does not apply

(10)

Waiver of certain distribution requirements

(11)

Application of rules to certain other plans

(12)

Tax treatment of payments from a section 457 plan

(13)

Consultation with the Secretary

(q)

Highly compensated employee

(1)

In general

The term “highly compensated employee” means any employee who—

(A)

was a 5-percent owner at any time during the year or the preceding year, or

(B)

for the preceding year—

(i)

had compensation from the employer in excess of $80,000, and

(ii)

if the employer elects the application of this clause for such preceding year, was in the top-paid group of employees for such preceding year.

The Secretary shall adjust the $80,000 amount under subparagraph (B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter ending September 30, 1996.

(2)

5-percent owner

(3)

Top-paid group

(4)

Compensation

(5)

Excluded employees

For purposes of subsection (r) and for purposes of determining the number of employees in the top-paid group, the following employees shall be excluded—

(A)

employees who have not completed 6 months of service,

(B)

employees who normally work less than 17½ hours per week,

(C)

employees who normally work during not more than 6 months during any year,

(D)

employees who have not attained age 21, and

(E)

except to the extent provided in regulations, employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and the employer.

Except as provided by the Secretary, the employer may elect to apply subparagraph (A), (B), (C), or (D) by substituting a shorter period of service, smaller number of hours or months, or lower age for the period of service, number of hours or months, or age (as the case may be) than that specified in such subparagraph.

(6)

Former employees

A former employee shall be treated as a highly compensated employee if—

(A)

such employee was a highly compensated employee when such employee separated from service, or

(B)

such employee was a highly compensated employee at any time after attaining age 55.

(7)

Coordination with other provisions

(8)

Special rule for nonresident aliens

(9)

Certain employees not considered highly compensated and excluded employees under pre-ERISA rules for church plans

(r)

Special rules for separate line of business

(1)

In general

(2)

Line of business must have 50 employees, etc.

A line of business shall not be treated as separate under paragraph (1) unless—

(A)

such line of business has at least 50 employees who are not excluded under subsection (q)(5),

(B)

the employer notifies the Secretary that such line of business is being treated as separate for purposes of paragraph (1), and

(C)

such line of business meets guidelines prescribed by the Secretary or the employer receives a determination from the Secretary that such line of business may be treated as separate for purposes of paragraph (1).

(3)

Safe harbor rule

(A)

In general

The requirements of subparagraph (C) of paragraph (2) shall not apply to any line of business if the highly compensated employee percentage with respect to such line of business is—

(i)

not less than one-half, and

(ii)

not more than twice,

the percentage which highly compensated employees are of all employees of the employer. An employer shall be treated as meeting the requirements of clause (i) if at least 10 percent of all highly compensated employees of the employer perform services solely for such line of business.

(B)

Determination may be based on preceding year

The requirements of subparagraph (A) shall be treated as met with respect to any line of business if such requirements were met with respect to such line of business for the preceding year and if—

(i)

no more than a de minimis number of employees were shifted to or from the line of business after the close of the preceding year, or

(ii)

the employees shifted to or from the line of business after the close of the preceding year contained a substantially proportional number of highly compensated employees.

(4)

Highly compensated employee percentage defined

(5)

Allocation of benefits to line of business

(6)

Headquarters personnel, etc.

The Secretary shall prescribe rules providing for—

(A)

the allocation of headquarters personnel among the lines of business of the employer, and

(B)

the treatment of other employees providing services for more than 1 line of business of the employer or not in lines of business meeting the requirements of paragraph (2).

(7)

Separate operating units

(8)

Affiliated service groups

(s)

Compensation

For purposes of any applicable provision—

(1)

In general

(2)

Employer may elect not to treat certain deferrals as compensation

(3)

Alternative determination of compensation

(4)

Applicable provision

(t)

Application of controlled group rules to certain employee benefits

(1)

In general

(2)

Applicable section

(u)

Special rules relating to veterans’ reemployment rights under USERRA and to differential wage payments to members on active duty

(1)

Treatment of certain contributions made pursuant to veterans’ reemployment rights

If any contribution is made by an employer or an employee under an individual account plan with respect to an employee, or by an employee to a defined benefit plan that provides for employee contributions, and such contribution is required by reason of such employee’s rights under chapter 43 of title 38, United States Code, resulting from qualified military service, then—

(A)

such contribution shall not be subject to any otherwise applicable limitation contained in section 402(g), 402(h), 403(b), 404(a), 404(h), 408, 415, or 457, and shall not be taken into account in applying such limitations to other contributions or benefits under such plan or any other plan, with respect to the year in which the contribution is made,

(B)

such contribution shall be subject to the limitations referred to in subparagraph (A) with respect to the year to which the contribution relates (in accordance with rules prescribed by the Secretary), and

(C)

such plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 408(p), 410(b), or 416 by reason of the making of (or the right to make) such contribution.

For purposes of the preceding sentence, any elective deferral or employee contribution made under paragraph (2) shall be treated as required by reason of the employee’s rights under such chapter 43.

(2)

Reemployment rights under USERRA with respect to elective deferrals

(A)

In general

For purposes of this subchapter and section 457, if an employee is entitled to the benefits of chapter 43 of title 38, United States Code, with respect to any plan which provides for elective deferrals, the employer sponsoring the plan shall be treated as meeting the requirements of such chapter 43 with respect to such elective deferrals only if such employer—

(i)

permits such employee to make additional elective deferrals under such plan (in the amount determined under subparagraph (B) or such lesser amount as is elected by the employee) during the period which begins on the date of the reemployment of such employee with such employer and has the same length as the lesser of—

(I)

the product of 3 and the period of qualified military service which resulted in such rights, and

(II)

5 years, and

(ii)

makes a matching contribution with respect to any additional elective deferral made pursuant to clause (i) which would have been required had such deferral actually been made during the period of such qualified military service.

(B)

Amount of makeup required

(C)

Elective deferral

(D)

After-tax employee contributions

(3)

Certain retroactive adjustments not required

For purposes of this subchapter and subchapter E, no provision of chapter 43 of title 38, United States Code, shall be construed as requiring—

(A)

any crediting of earnings to an employee with respect to any contribution before such contribution is actually made, or

(B)

any allocation of any forfeiture with respect to the period of qualified military service.

(4)

Loan repayment suspensions permitted

(5)

Qualified military service

(6)

Individual account plan

(7)

Compensation

For purposes of sections 403(b)(3), 415(c)(3), and 457(e)(5), an employee who is in qualified military service shall be treated as receiving compensation from the employer during such period of qualified military service equal to—

(A)

the compensation the employee would have received during such period if the employee were not in qualified military service, determined based on the rate of pay the employee would have received from the employer but for absence during the period of qualified military service, or

(B)

if the compensation the employee would have received during such period was not reasonably certain, the employee’s average compensation from the employer during the 12-month period immediately preceding the qualified military service (or, if shorter, the period of employment immediately preceding the qualified military service).

(8)

USERRA requirements for qualified retirement plans

(A)

An individual reemployed under such chapter is treated with respect to such plan as not having incurred a break in service with the employer maintaining the plan by reason of such individual’s period of qualified military service.

(B)

Each period of qualified military service served by an individual is, upon reemployment under such chapter, deemed with respect to such plan to constitute service with the employer maintaining the plan for the purpose of determining the nonforfeitability of the individual’s accrued benefits under such plan and for the purpose of determining the accrual of benefits under such plan.

(C)

An individual reemployed under such chapter is entitled to accrued benefits that are contingent on the making of, or derived from, employee contributions or elective deferrals only to the extent the individual makes payment to the plan with respect to such contributions or deferrals. No such payment may exceed the amount the individual would have been permitted or required to contribute had the individual remained continuously employed by the employer throughout the period of qualified military service. Any payment to such plan shall be made during the period beginning with the date of reemployment and whose duration is 3 times the period of the qualified military service (but not greater than 5 years).

(9)

Treatment in the case of death or disability resulting from active military service

(A)

In general

(B)

Nondiscrimination requirement

(C)

Determination of benefits

The amount of employee contributions and the amount of elective deferrals of an individual treated as reemployed under subparagraph (A) for purposes of applying paragraph (8)(C) shall be determined on the basis of the individual’s average actual employee contributions or elective deferrals for the lesser of—

(i)

the 12-month period of service with the employer immediately prior to qualified military service, or

(ii)

if service with the employer is less than such 12-month period, the actual length of continuous service with the employer.

(10)

Plans not subject to title 38

(11)

References

(12)

Treatment of differential wage payments

(A)

In general

Except as provided in this paragraph, for purposes of applying this title to a retirement plan to which this subsection applies—

(i)

an individual receiving a differential wage payment shall be treated as an employee of the employer making the payment,

(ii)

the differential wage payment shall be treated as compensation, and

(iii)

the plan shall not be treated as failing to meet the requirements of any provision described in paragraph (1)(C) by reason of any contribution or benefit which is based on the differential wage payment.

(B)

Special rule for distributions

(i)

In general

(ii)

Limitation

(C)

Nondiscrimination requirement

(D)

Differential wage payment

(v)

Catch-up contributions for individuals age 50 or over

(1)

In general

(2)

Limitation on amount of additional deferrals

(A)

In general

A plan shall not permit additional elective deferrals under paragraph (1) for any year in an amount greater than the lesser of—

(i)

the applicable dollar amount, or

(ii)

the excess (if any) of—

(I)

the participant’s compensation (as defined in section 415(c)(3)) for the year, over

(II)

any other elective deferrals of the participant for such year which are made without regard to this subsection.

(B)

Applicable dollar amount

For purposes of this paragraph—

(i)

In the case of an applicable employer plan other than a plan described in section 401(k)(11) or 408(p), the applicable dollar amount is $5,000.

(ii)

In the case of an applicable employer plan described in section 401(k)(11) or 408(p), except as provided in clause (iii), the applicable dollar amount is $2,500.

(iii)

In the case of an applicable employer plan—

(I)

which is maintained by an eligible employer described in section 408(p)(2)(E)(i)(I), or

(II)

to which an election under section 408(p)(2)(E)(i)(II) applies for the year (including a plan described in section 401(k)(11) which is maintained by an eligible employer described in section 408(p)(2)(E)(i)(II) and to which such election applies by reason of subparagraphs (B)(i)(I) and (E) of section 401(k)(11)),

the applicable dollar amount is an amount equal to 110 percent of the dollar amount in effect under clause (ii) for calendar year 2024.

(C)

Cost-of-living adjustment

(i)

Certain large employers

(ii)

Other employers

(D)

Aggregation of plans

(3)

Treatment of contributions

In the case of any contribution to a plan under paragraph (1)—

(A)

such contribution shall not, with respect to the year in which the contribution is made—

(i)

be subject to any otherwise applicable limitation contained in sections 401(a)(30), 402(h), 403(b), 408, 415(c), and 457(b)(2) (determined without regard to section 457(b)(3)), or

(ii)

be taken into account in applying such limitations to other contributions or benefits under such plan or any other such plan, and

(B)

except as provided in paragraph (4), such plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(k)(3), 401(k)(11), 403(b)(12), 408(k), 410(b), or 416 by reason of the making of (or the right to make) such contribution.

(4)

Application of nondiscrimination rules

(A)

In general

(B)

Aggregation

(5)

Eligible participant

For purposes of this subsection, the term “eligible participant” means a participant in a plan—

(A)

who would attain age 50 by the end of the taxable year,

(B)

with respect to whom no other elective deferrals may (without regard to this subsection) be made to the plan for the plan (or other applicable) year by reason of the application of any limitation or other restriction described in paragraph (3) or comparable limitation or restriction contained in the terms of the plan.

(6)

Other definitions and rules

For purposes of this subsection—

(A)

Applicable employer plan

The term “applicable employer plan” means—

(i)

an employees’ trust described in section 401(a) which is exempt from tax under section 501(a),

(ii)

a plan under which amounts are contributed by an individual’s employer for an annuity contract described in section 403(b),

(iii)

an eligible deferred compensation plan under section 457 of an eligible employer described in section 457(e)(1)(A), and

(iv)

an arrangement meeting the requirements of section 408(k) or (p).

(B)

Elective deferral

(C)

Exception for section 457 plans

(7)

Certain deferrals must be Roth contributions

(A)

In general

(B)

Roth option

(C)

Exception

(D)

Election to change deferrals

(E)

Cost of living adjustment

(w)

Special rules for certain withdrawals from eligible automatic contribution arrangements

(1)

In general

If an eligible automatic contribution arrangement allows an employee to elect to make permissible withdrawals—

(A)

the amount of any such withdrawal shall be includible in the gross income of the employee for the taxable year of the employee in which the distribution is made,

(B)

no tax shall be imposed under section 72(t) with respect to the distribution, and

(C)

the arrangement shall not be treated as violating any restriction on distributions under this title solely by reason of allowing the withdrawal.

In the case of any distribution to an employee by reason of an election under this paragraph, employer matching contributions shall be forfeited or subject to such other treatment as the Secretary may prescribe.

(2)

Permissible withdrawal

For purposes of this subsection—

(A)

In general

The term “permissible withdrawal” means any withdrawal from an eligible automatic contribution arrangement meeting the requirements of this paragraph which—

(i)

is made pursuant to an election by an employee, and

(ii)

consists of elective contributions described in paragraph (3)(B) (and earnings attributable thereto).

(B)

Time for making election

(C)

Amount of distribution

(3)

Eligible automatic contribution arrangement

For purposes of this subsection, the term “eligible automatic contribution arrangement” means an arrangement under an applicable employer plan—

(A)

under which a participant may elect to have the employer make payments as contributions under the plan on behalf of the participant, or to the participant directly in cash,

(B)

under which the participant is treated as having elected to have the employer make such contributions in an amount equal to a uniform percentage of compensation provided under the plan until the participant specifically elects not to have such contributions made (or specifically elects to have such contributions made at a different percentage), and

(C)

which meets the requirements of paragraph (4).

(4)

Notice requirements

(A)

In general

The administrator of a plan containing an arrangement described in paragraph (3) shall, within a reasonable period before each plan year, give to each employee to whom an arrangement described in paragraph (3) applies for such plan year notice of the employee’s rights and obligations under the arrangement which—

(i)

is sufficiently accurate and comprehensive to apprise the employee of such rights and obligations, and

(ii)

is written in a manner calculated to be understood by the average employee to whom the arrangement applies.

(B)

Time and form of notice

A notice shall not be treated as meeting the requirements of subparagraph (A) with respect to an employee unless—

(i)

the notice includes an explanation of the employee’s right under the arrangement to elect not to have elective contributions made on the employee’s behalf (or to elect to have such contributions made at a different percentage),

(ii)

the employee has a reasonable period of time after receipt of the notice described in clause (i) and before the first elective contribution is made to make such election, and

(iii)

the notice explains how contributions made under the arrangement will be invested in the absence of any investment election by the employee.

(5)

Applicable employer plan

For purposes of this subsection, the term “applicable employer plan” means—

(A)

an employees’ trust described in section 401(a) which is exempt from tax under section 501(a),

(B)

a plan under which amounts are contributed by an individual’s employer for an annuity contract described in section 403(b),

(C)

an eligible deferred compensation plan described in section 457(b) which is maintained by an eligible employer described in section 457(e)(1)(A),

(D)

a simplified employee pension the terms of which provide for a salary reduction arrangement described in section 408(k)(6), and

(E)

a simple retirement account (as defined in section 408(p)).

(6)

Special rule

(x)

Special rules for eligible combined defined benefit plans and qualified cash or deferred arrangements

(1)

General rule

(2)

Eligible combined plan

For purposes of this subsection—

(A)

In general

The term “eligible combined plan” means a plan—

(i)

which is maintained by an employer which, at the time the plan is established, is a small employer,

(ii)

which consists of a defined benefit plan and an applicable defined contribution plan,

(iii)

the assets of which are held in a single trust forming part of the plan and are clearly identified and allocated to the defined benefit plan and the applicable defined contribution plan to the extent necessary for the separate application of this title under paragraph (1), and

(iv)

with respect to which the benefit, contribution, vesting, and nondiscrimination requirements of subparagraphs (B), (C), (D), (E), and (F) are met.

For purposes of this subparagraph, the term “small employer” has the meaning given such term by section 4980D(d)(2), except that such section shall be applied by substituting “500” for “50” each place it appears.

(B)

Benefit requirements

(i)

In general

(ii)

Applicable percentage

For purposes of clause (i), the applicable percentage is the lesser of—

(I)

1 percent multiplied by the number of years of service with the employer, or

(II)

20 percent.

(iii)

Special rule for applicable defined benefit plans

(iv)

Years of service

(C)

Contribution requirements

(i)

In general

The contribution requirements of this subparagraph with respect to any applicable defined contribution plan forming part of an eligible combined plan are met if—

(I)

the qualified cash or deferred arrangement included in such plan constitutes an automatic contribution arrangement, and

(II)

the employer is required to make matching contributions on behalf of each employee eligible to participate in the arrangement in an amount equal to 50 percent of the elective contributions of the employee to the extent such elective contributions do not exceed 4 percent of compensation.

Rules similar to the rules of clauses (ii) and (iii) of section 401(k)(12)(B) shall apply for purposes of this clause.

(ii)

Nonelective contributions

(D)

Vesting requirements

The vesting requirements of this subparagraph are met if—

(i)

in the case of a defined benefit plan forming part of an eligible combined plan an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee’s accrued benefit under the plan derived from employer contributions, and

(ii)

in the case of an applicable defined contribution plan forming part of eligible combined plan—

(I)

an employee has a nonforfeitable right to any matching contribution made under the qualified cash or deferred arrangement included in such plan by an employer with respect to any elective contribution, including matching contributions in excess of the contributions required under subparagraph (C)(i)(II), and

(II)

an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee’s accrued benefit derived under the arrangement from nonelective contributions of the employer.

For purposes of this subparagraph, the rules of section 411 shall apply to the extent not inconsistent with this subparagraph.

(E)

Uniform provision of contributions and benefits

(F)

Requirements must be met without taking into account social security and similar contributions and benefits or other plans

(i)

In general

(ii)

Social security and similar contributions

The requirements of this clause are met if—

(I)

the requirements of subparagraphs (B) and (C) are met without regard to section 401(l), and

(II)

the requirements of sections 401(a)(4) and 410(b) are met with respect to both the applicable defined contribution plan and defined benefit plan forming part of an eligible combined plan without regard to section 401(l).

(iii)

Other plans and arrangements

(3)

Nondiscrimination requirements for qualified cash or deferred arrangement

(A)

In general

(B)

Matching contributions

(4)

Satisfaction of top-heavy rules

(5)

Automatic contribution arrangement

For purposes of this subsection—

(A)

In general

A qualified cash or deferred arrangement shall be treated as an automatic contribution arrangement if the arrangement—

(i)

provides that each employee eligible to participate in the arrangement is treated as having elected to have the employer make elective contributions in an amount equal to 4 percent of the employee’s compensation unless the employee specifically elects not to have such contributions made or to have such contributions made at a different rate, and

(ii)

meets the notice requirements under subparagraph (B).

(B)

Notice requirements

(i)

In general

(ii)

Reasonable period to make election

The requirements of this clause are met if each employee to whom subparagraph (A)(i) applies—

(I)

receives a notice explaining the employee’s right under the arrangement to elect not to have elective contributions made on the employee’s behalf or to have the contributions made at a different rate, and

(II)

has a reasonable period of time after receipt of such notice and before the first elective contribution is made to make such election.

(iii)

Annual notice of rights and obligations

The requirements of clauses (i) and (ii) of section 401(k)(12)(D) shall be met with respect to the notices described in clauses (ii) and (iii) of this subparagraph.

(6)

Coordination with other requirements

(A)

Treatment of separate plans

(B)

Reporting

(7)

Applicable defined contribution plan

For purposes of this subsection—

(A)

In general

(B)

Qualified cash or deferred arrangement

(y)

Cooperative and small employer charity pension plans

(1)

In general

For purposes of this title, except as provided in this subsection, a CSEC plan is a defined benefit plan (other than a multiemployer plan)—

(A)

to which section 104 of the Pension Protection Act of 2006 applies, without regard to—

(i)

section 104(a)(2) of such Act;

(ii)

the amendments to such section 104 by section 202(b) of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010; and

(iii)

paragraph (3)(B);

(B)

that, as of June 25, 2010, was maintained by more than one employer and all of the employers were organizations described in section 501(c)(3);

(C)

that, as of June 25, 2010, was maintained by an employer—

(i)

described in section 501(c)(3),

(ii)

chartered under part B of subtitle II of title 36, United States Code,

(iii)

with employees in at least 40 States, and

(iv)

whose primary exempt purpose is to provide services with respect to children; or

(D)

that, as of January 1, 2000, was maintained by an employer—

(i)

described in section 501(c)(3),

(ii)

who has been in existence since at least 1938,

(iii)

who conducts medical research directly or indirectly through grant making, and

(iv)

whose primary exempt purpose is to provide services with respect to mothers and children.

(2)

Aggregation

(3)

Election

(A)

In general

(B)

Special rule

(z)

Certain plan transfers and mergers

(1)

In general

Under rules prescribed by the Secretary, except as provided in paragraph (2), no amount shall be includible in gross income by reason of—

(A)

a transfer of all or a portion of the accrued benefit of a participant or beneficiary, whether or not vested, from a church plan that is a plan described in section 401(a) or an annuity contract described in section 403(b) to an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches,

(B)

a transfer of all or a portion of the accrued benefit of a participant or beneficiary, whether or not vested, from an annuity contract described in section 403(b) to a church plan that is a plan described in section 401(a), if such plan and annuity contract are both maintained by the same church or convention or association of churches, or

(C)

a merger of a church plan that is a plan described in section 401(a), or an annuity contract described in section 403(b), with an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches.

(2)

Limitation

(3)

Qualification

(4)

Definitions

For purposes of this subsection—

(A)

Church or convention or association of churches

(B)

Annuity contract

(C)

Accrued benefit

The term “accrued benefit” means—

(i)

in the case of a defined benefit plan, the employee’s accrued benefit determined under the plan, and

(ii)

in the case of a plan other than a defined benefit plan, the balance of the employee’s account under the plan.

(aa)

Special rules applicable to benefit overpayments

(1)

In general

A plan shall not fail to be treated as described in clause (i), (ii), (iii), or (iv) of section 219(g)(5)(A) (and shall not fail to be treated as satisfying the requirements of section 401(a) or 403) merely because—

(A)

the plan fails to obtain payment from any participant, beneficiary, employer, plan sponsor, fiduciary, or other party on account of any inadvertent benefit overpayment made by the plan, or

(B)

the plan sponsor amends the plan to increase past, or decrease future, benefit payments to affected participants and beneficiaries in order to adjust for prior inadvertent benefit overpayments.

(2)

Reduction in future benefit payments and recovery from responsible party

Paragraph (1) shall not fail to apply to a plan merely because, after discovering a benefit overpayment, such plan—

(A)

reduces future benefit payments to the correct amount provided for under the terms of the plan, or

(B)

seeks recovery from the person or persons responsible for such overpayment.

(3)

Employer funding obligations

(4)

Observance of benefit limitations

(5)

Coordination with other qualification requirements

(bb)

Eliminating unnecessary plan requirements related to unenrolled participants

(1)

In general

Notwithstanding any other provision of this title, with respect to any defined contribution plan, no disclosure, notice, or other plan document (other than the notices and documents described in subparagraphs (A) and (B)) shall be required to be furnished under this title to any unenrolled participant if the unenrolled participant is furnished—

(A)

an annual reminder notice of such participant’s eligibility to participate in such plan and any applicable election deadlines under the plan, and

(B)

any document requested by such participant that the participant would be entitled to receive notwithstanding this subsection.

(2)

Unenrolled participant

For purposes of this subsection, the term “unenrolled participant” means an employee who—

(A)

is eligible to participate in a defined contribution plan,

(B)

has been furnished—

(i)

the summary plan description pursuant to section 104(b) of the Employee Retirement Income Security Act of 1974, and

(ii)

any other notices related to eligibility under the plan and required to be furnished under this title, or the Employee Retirement Income Security Act of 1974, in connection with such participant’s initial eligibility to participate in such plan,

(C)

is not participating in such plan, and

(D)

satisfies such other criteria as the Secretary of the Treasury may determine appropriate, as prescribed in guidance issued in consultation with the Secretary of Labor.

For purposes of this subsection, any eligibility to participate in the plan following any period for which such employee was not eligible to participate shall be treated as initial eligibility.

(3)

Annual reminder notice

(cc)

Correcting automatic contribution errors

(1)

In general

(2)

Corrected error defined

For purposes of this subsection, the term “corrected error” means a reasonable administrative error—

(A)

(i)

made in implementing an automatic enrollment or automatic escalation feature with respect to an eligible employee (or an affirmative election made by an eligible employee covered by such feature), or

(ii)

made by failing to afford an eligible employee the opportunity to make an affirmative election because such employee was improperly excluded from the plan], and

(B)

that is corrected prospectively by implementing an automatic enrollment or automatic escalation feature with respect to an eligible employee (or an affirmative election made by an eligible employee) determined in accordance with the terms of an eligible automatic contribution arrangement (as defined under subsection (w)(3)), provided that—

(i)

such implementation error is corrected not later than—

(I)

the date of the first payment of compensation made by the employer to the employee on or after the last day of the 9½ month-period after the end of the plan year during which such error with respect to the employee first occurred, or

(II)

if earlier in the case of an employee who notifies the plan sponsor of such error, the date of the first payment of compensation made by the employer to the employee on or after the last day of the month following the month in which such notification was made,

(ii)

in the case of an employee who would have been entitled to additional matching contributions had any missed elective deferral been made, the plan sponsor makes a corrective allocation, not later than the deadline specified by the Secretary in regulations or other guidance prescribed under paragraph (3), of matching contributions on behalf of the employee in an amount equal to the additional matching contributions to which the employee would have been so entitled (adjusted to account for earnings had the missed elective deferrals been made).

(iii)

such implementation error is of a type which is so corrected for all similarly situated participants in a nondiscriminatory manner,

(iv)

notice of such error is given to the employee not later than 45 days after the date on which correct deferrals begin, and

(v)

the notice under clause (iv) satisfies such regulations or other guidance as the Secretary prescribes under paragraph (4).

Such correction may occur before or after the participant has terminated employment and may occur without regard to whether the error is identified by the Secretary.

(3)

No obligation for employer to restore missed elective deferrals

(4)

Regulations and guidance for favorable correction methods

The Secretary shall by regulations or other guidance of general applicability prescribe—

(A)

the deadline for making a corrective allocation of matching contributions required by paragraph (2)(B)(ii),

(B)

the content of the notice required by paragraph (2)(B)(iv),

(C)

the manner in which the amount of the corrective allocation under paragraph (2)(B)(ii) is determined,

(D)

the manner of adjustment to account for earnings on matching contributions under paragraph (2)(B)(ii), and

(E)

such other rules as are necessary to carry out the purposes of the subsection.

(Added Pub. L. 93–406, title II, § 1015, Sept. 2, 1974, 88 Stat. 925; amended Pub. L. 94–455, title XIX, §§ 1901(a)(64), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1775, 1834; Pub. L. 95–600, title I, § 152(d), Nov. 6, 1978, 92 Stat. 2799; Pub. L. 96–364, title II, §§ 207, 208(a), title IV, § 407(b), Sept. 26, 1980, 94 Stat. 1288, 1289, 1305; Pub. L. 96–605, title II, § 201(a), Dec. 28, 1980, 94 Stat. 3526; Pub. L. 96–613, § 5(a), Dec. 28, 1980, 94 Stat. 3580; Pub. L. 97–248, title II, §§ 240(c), 246(a), 248(a), Sept. 3, 1982, 96 Stat. 520, 525, 526; Pub. L. 98–369, div. A, title IV, § 491(d)(26), (27), title V, § 526(a)(1), (b)(1), (d)(1), (2), title VII, § 713(i), July 18, 1984, 98 Stat. 850, 874, 875, 960; Pub. L. 98–397, title II, § 204(b), Aug. 23, 1984, 98 Stat. 1445; Pub. L. 99–514, title XI, §§ 1114(a), (b)(11), 1115(a), 1117(c), 1146(a), (b), 1151(e)(1), (i), title XIII, § 1301(j)(4), title XVIII, §§ 1852(f), 1898(c)(2)(A), (4)(A), (6)(A), (7)(A)(ii)–(vii), 1899A(12), Oct. 22, 1986, 100 Stat. 2448, 2451, 2452, 2462, 2491, 2506, 2507, 2657, 2868, 2951, 2953, 2954, 2958; Pub. L. 100–203, title IX, § 9305(c), Dec. 22, 1987, 101 Stat. 1330–352; Pub. L. 100–647, title I, §§ 1011(d)(8), (e)(4), (h)(5), (i)(1)–(4)(A), (j)(1), (2), 1011A(b)(3), 1011B(a)(16), (17), (19), (20), 1018(t)(8)(E)–(G), title II, § 2005(c)(1), (2), title III, §§ 3011(b)(4), (5), 3021(b)(1), (2)(A), title VI, § 6067(a), Nov. 10, 1988, 102 Stat. 3460

cite as: 26 USC 414

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