88 STAT. 992 26 USC 871, Ante, p. 987. 26 USC 402 note. 26 USC 401 note. (8) Sections 871 (b) (1) and 877 (b) are each amended by inserting", 402 (e) (1)," after "section 1”. (9) Section 62 (defining adjusted gross income), is amended by inserting after paragraph (10) the following new paragraph: "(11) CERTAIN PORTION OF LUMP-SUM DISTRIBUTIONS FROM PENSION PLANS TAXED UNDER SECTION 402 (e).-The deduction allowed by section 402 (e) (3)." (10) Section 122(b) (2) (relating to consideration for the contract) is amended by striking out "72(o)" and inserting "72 (n)". (11) Section 405 (e) (relating to capital gains treatment and limitation of tax not to apply to bonds distributed by trusts) is amended by striking out "Section 72(n) and section 402 (a) (2)" and inserting "Subsections (a) (2) and (e) of section 402". (12) Section 406 (c) (relating to termination of status as deemed employee, etc.) is amended by striking out "section 72(n), section 402(a) (2)" and inserting "subsections (a) (2) and (e) of section 402". (13) Section 407 (c) (relating to termination of status as deemed employee, etc.) is amended by striking out "section 72(n). section 402(a) (2)" and inserting "subsections (a) (2) and (e) of section 402". (14) Section 1348 (b)(1) (relating to earned income) is amended by striking out "72(n), 402 (a) (2)" and inserting "402 (a) (2), 402 (e)". (15) Section 101 (b) (2) (B) is amended by striking out "total distributions payable (as defined in section 402 (a) (3)) which are paid to a distributee within one taxable year of the distributee by reason of the employee's death" and inserting in lieu thereof "a lump sum distribution (as defined in section 402(e) (4))”. (d) EFFECTIVE DATE.-The amendments made by this section shall apply only with respect to distributions or payments made after December 31, 1973, in taxable years beginning after such date. SEC. 2006. SALARY REDUCTION REGULATIONS. (a) INCLUSION OF CERTAIN CONTRIBUTIONS IN INCOME.-Except in the case of plans or arrangements in existence on June 27, 1974, a contribution made before January 1, 1977, to an employees' trust described in section 401 (a), 403 (a), or 405 (a) of the Internal Revenue Code of 1954 which is exempt from tax under section 501 (a) of such Code, or under an arrangement which, but for the fact that it was not in existence on June 27, 1974, would be an arrangement described in subsection (b) (2) of this section, shall be treated as a contribution made by an employee if the contribution is made under an arrangement under which the contribution will be made only if the employee elects to receive a reduction in his compensation or to forego an increase in his compensation. (b) ADMINISTRATION IN THE CASE OF CERTAIN QUALIFIED PENSION OR PROFIT-SHARING PLANS, ETC., IN EXISTENCE ON JUNE 27, 1974.No salary reduction regulations may be issued by the Secretary of the Treasury in final form before January 1, 1977, with respect to an arrangement which was in existence on June 27, 1974, and which, on that date (1) provided for contributions to an employees' trust described in section 401(a), 403 (a), or 405 (a) of the Internal Revenue Code of 1954 which is exempt from tax under section 501 (a) of such Code, or (2) was maintained as part of an arrangement under which an employee was permitted to elect to receive part of his compensation in one or more alternative forms if one of such forms results in the inclusion of amounts in income under the Internal Revenue Code of 1954. IN (c) ADMINISTRATION OF LAW WITH RESPECT TO CERTAIN PLANS.— (1) ADMINISTRATION IN THE CASE OF PLANS DESCRIBED SUBSECTION (b).-Until salary reduction regulations have been issued in final form, the law with respect to plans or arrangements described in subsection (b) shall be administered (A) without regard to the proposed salary reduction regulations (37 FR 25938) and without regard to any other proposed salary reduction regulations, and (B) in the manner in which such law was administered before January 1, 1972. (2) ADMINISTRATION IN THE CASE OF QUALIFIED PROFIT-SHARING PLANS.-In the case of plans or arrangements described in subsection (b), in applying this section to the tax treatment of contributions to qualified profit-sharing plans where the contributed amounts are distributable only after a period of deferral, the law shall be administered in a manner consistent with (A) Revenue Ruling 56-497 (1956-2 C.B. 284), (B) Revenue Ruling 63-180 (1963-2 C.B. 189), and (d) LIMITATION ON RETROACTIVITY OF FINAL REGULATIONS.-In the case of any salary reduction regulations which become final after December 31, 1976 88 STAT. 993 (1) for purposes of chapter 1 of the Internal Revenue Code of 1954 (relating to normal taxes and surtaxes), such regulations 26 USC 1. shall not apply before January 1, 1977; and (2) for purposes of chapter 21 of such Code (relating to Fed eral Insurance Contributions Act) and for purposes of chapter 24 26 USC 3101. of such Code (relating to collection of income tax at source on 26 USC 3401. wages), such regulations shall not apply before the day on which such regulations are issued in final form. (e) SALARY REDUCTION REGULATIONS DEFINED. For purposes of this section, the term "salary reduction regulations" means regulations dealing with the includibility in gross income (at the time of contribution) of amounts contributed to a plan which includes a trust that qualifies under section 401(a), or a plan described in section 403(a) 26 USC 401. or 405 (a), including plans or arrangements described in subsection (b) (2), if the contribution is made under an arrangement under which the contribution will be made only if the employee elects to receive a reduction in his compensation or to forego an increase in his compensation, or under an arrangement under which the employee is permitted to elect to receive part of his compensation in one or more alternative forms (if one of such forms results in the inclusion of amounts in income under the Internal Revenue Code of 1954). SEC. 2008. CERTAIN ARMED FORCES SURVIVOR ANNUITIES. 26 USC 1 et seq. (a) TREATMENT OF CERTAIN PARTICIPANTS IN THE PLAN.-Section 404 (c) (relating to certain negotiated plans) is amended by inserting 26 USC 404. after the first sentence the following new sentences:"For purposes oft this chapter and subtitle B, in the case of any individual who before July 1, 1974, was a participant in a plan described in the preceding sentence 88 STAT, 384 26 USC 403. Ante, p. 959. Ante, p. 925. "(A) the numerator of which is the sum of the annual additions to the participant's account as of the close of the year. and (B) the denominator of which is the sum of the maximum amount of annual additions to such account which could have been made under subsection (c) for such year and for each prior year of service with the employer. "(4) SPECIAL TRANSITION RULES FOR DEFINED CONTRIBUTION FRACTION. In applying paragraph (3) with respect to years beginning before January 1, 1976– "(A) the aggregate amount taken into account under paragraph (3)(A) may not exceed the aggregate amount taken into account under paragraph (3) (B), and "(B) the amount taken into account under subsection (c) (2)(B)(1) for any year concerned is an amount equal to— "(i) the excess of the aggregate amount of employee contributions for all years beginning before January 1, 1976, during which the employee was an active participant of the plan, over 10 percent of the employee's aggre gate compensation for all such years, multiplied by "(ii) a fraction the numerator of which is 1 and the denominator of which is the number of years beginning before January 1, 1976, during which the employee was an active participant in the plan. Employee contributions made on or after October 2, 1973, shall be taken into account under subparagraph (B) of the preceding sentence only to the extent that the amount of such contributions does not exceed the maximum amount of contributions permissible under the plan as in effect on October 2, 1973. "(5) SPECIAL RULES FOR SECTIONS 403(b) and 408.--For purposes of this subsection, any annuity contract described in section 403 (b) (except in the case of a participant who has elected under subsection (c) (4) (D) to have the provisions of subsection (c) (4) (C) apply), any individual retirement account described in section 408 (a), any individual retirement annuity described in section 408 (b), and any retirement bond described in section 409, for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (n)). In the case of any annuity contract described in section 403(b), the amount of the contribution disqualified by reason of subsection (g) shall reduce the exclusion allowance as provided in section 403 (b) (2). "(f) COMBINING OF PLANS.- “(1) IN GENERAL.-For purposes of applying the limitations of subsections (b), (c), and (e) "(A) all defined benefit plans (whether or not terminated) of an employer are to be treated as one defined benefit plan, and "(B) all defined contribution plans (whether or not terminated) of an employer are to be treated as one defined contribution plan. . "(2) ANNUAL COMPENSATION TAKEN INTO ACCOUNT FOR DEFINED BENEFIT PLANS.--If the employer has more than one defined benefit plan "(A) subsection (b) (1) (B) shall be applied separately with respect to each such plan, but "(B) in applying subsection (b) (1) (B) to the aggregate of such defined benefit plans for purposes of this subsection, the high 3 years of compensation taken into account shall be the period of consecutive calendar years (not more than 3) during which the individual had the greatest aggregate compensation from the employer. 88 STAT. 985 "(g) AGGREGATION OF PLANS.-The Secretary or his delegate, in applying the provisions of this section to benefits or contributions under more than one plan maintained by the same employer, and to any trusts, contracts, accounts, or bonds referred to in subsection (a) (2), with respect to which the participant has the control required under section 414(b) or (c), as modified by subsection (h), shall, under Ante, p. 925. regulations prescribed by the Secretary or his delegate, disqualify one or more trusts, plans, contracts, accounts, or bonds, or any combination thereof until such benefits or contributions do not exceed the limitations contained in this section. In addition to taking into account such other factors as may be necessary to carry out the purposes of subsections (e) and (f), the regulations prescribed under this paragraph shall provide that no plan which has been terminated shall be disqualified until all other trusts, plans, contracts, accounts, or bonds have been disqualified. "(h) 50 PERCENT CONTROL.-For purposes of applying subsections (b) and (c) of section 414 to this section, the phrase 'more than 50 percent' shall be substituted for the phrase 'at least 80 percent' each place it appears in section 1563 (a) (1). "(i) RECORDS NOT AVAILABLE FOR PAST PERIODS.-Where for the period before January 1, 1976, or (if later) the first day of the first plan year of the plan, the records necessary for the application of this section are not available, the Secretary or his delegate may by regulations prescribe alternative methods for determining the amounts to be taken into account for such period. "(j) REGULATIONS; DEFINITION OF YEAR.-The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section, including, but not limited to, regulations defining the term 'year' for purposes of any provision of this section. "(k) SPECIAL RULES.— "(1) DEFINED BENEFIT PLAN AND DEFINED CONTRIBUTION PLAN. For purposes of this title, the term 'defined contribution plan' or 'defined benefit plan' means a defined contribution plan (within the meaning of section 414(i)) or a defined benefit plan (within .the meaning of section 414(j)), whichever applies, which is "(A) a plan described in section 401 (a) which includes a "(D) an annuity a contract described in section 403(b), "(F) an individual retirement annuity described in section "(G) an individual retirement bond described in section 409.". 26 USC 1563. 26 USC 415 (3) SPECIAL RULE FOR CERTAIN PLANS IN EFFECT ON DATE OF ENACTMENT.-In any case in which, on the date of enactment of note. this Act, an individual is a participant in both a defined benefit -8 STAT. 986 26 USC 401. Ante, p. 979. 26 USC 404. plan and a defined contribution plan maintained by the same employer, and the sum of the defined benefit plan fraction and the defined contribution plan fraction for the year during which such date occurs exceeds 1.4, the sum of such fractions may continue to exceed 1.4 if— (A) the defined benefit plan fraction is not increased, by ser amendment of the plan or otherwise, after the date of enactment of this Act, and (B) no contributions are made under the defined contribu-r tion plan after such date. A trust which is part of a pension, profit-sharing, or stock bonus plan described in the preceding sentence shall not be treated as not constituting a qualified trust under section 401(a) of the Internal Revenue Code of 1954 on account of the provisions of section 415 (e) of such Code, as long as it is described in the preceding sentence of this subsection. (b) LIMIT ON EMPLOYER DEDUCTIONS.-The second sentence of section 404 (a) (3) (A) (relating to limits on deductible contributions) is amended by striking out "beneficiaries under the plan." and inserting in lieu thereof "beneficiaries under the plan, but the amount so deductible under this sentence in any one succeeding taxable year together with the amount so deductible under the first sentence of this subparagraph shall not exceed 25 percent of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plan.". (c) CERTAIN ANNUITY AND BOND PURCHASE PLANS. (1) Section 404 (a)(2) (relating to the general rule for deduction for employee annuities) is amended by striking out "(15)” and inserting in lieu thereof "(15), (16), and (19)" and by striking out "(a) (9) and (10)" and inserting in lieu thereof "(a) (9), (10), (17), and (18)". TA (2) Section 405 (a) (1) (relating to requirements for qualified A bond purchase plans) is amended by striking out "and (8)," and inserting in lieu thereof "(8), (16), and (19)". (3) Section 805 (d) (1) (C) (relating to pension plan reserves) is amended by striking out "and (15)" and inserting in lieu thereof "(15), (16), and (19)". (4) Section 403(b) (2) (relating to exclusion allowance) is amended to read as follows: "(2) EXCLUSION ALLOWANCE.— "(A) IN GENERAL.-For purposes of this subsection, the exclusion allowance for any employee for the taxable year is an amount equal to the excess, if any, of "(i) the amount determined by multiplying 20 percent of his includible compensation by the number of years of service, over "(ii) the aggregate of the amounts contributed by the employer for annuity contracts and excludible from the gross income of the employee for any prior taxable year. "(B) ELECTION TO HAVE ALLOWANCE DETERMINED UNDER SECTION 415 RULES.-In the case of an employee who makes an election under section 415 (c) (4) (D) to have the provisions of section 415 (c) (4) (C) (relating to special rule for section 403(b) contracts purchased by educational institutions, hospitals, and home health service agencies) apply, the exclusion allowance for any such employee for the taxable year is the amount which could be contributed (under section 415) by his employer under a plan described in section 403 (a) if the |