Comprehensive Private Pension Security Act

(LATEST SUMMARY)

Comprehensive Private Pension Security Act - =Part I: Administration= - Establishes an office in the Internal Revenue Service to administer the tax provisions relating to pension plans. Prescribes the functions of the Social Security Administration with regard to employees who leave employment with deferred vested benefits before being eligible for current retirement benefits.

Authorizes appropriations to fund this Act in the amount of the sum of (1) the collections from a new tax imposed with regard to employee plans, and (2) half of the existing tax on investment income imposed on private foundations.

=Part II: Participation and Coverage= - Provides that a pension or profit-sharing plan which is qualified under the Internal Revenue Code is not to require, as a condition of participation, more than one year of service, or an age greater than 30, whichever occurs later.

Provides that an employee is to be considered to have performed a year of service if he was employed for more than 5 months during the year.

Includes within the three year participation and full vesting provisions of this Act, proprietary employees and self-employed plans.

Provides that employees covered under a collective bargaining agreement can be excluded for purposes of the coverage requirement, and for purposes of the antidiscrimination provisions of this Act if there is evidence that the retirement benefits have been the subject of good faith bargaining between the union employees and the employer.

Excludes from the coverage and antidiscrimination provisions of this Act, those employees who are nonresident aliens with no U.S. income. Extends coverage under the antidiscrimination, and vesting requirements of this Act to employees of all corporations who are members of a controlled group of corporations.

=Part III: Vesting= - Provides that a qualified retirement plan (whether trusted or insured) would be required to give each employee vested rights to at least 25 percent of his accrued benefit from employer contributions after 5 years of service, plus 5 percentage points a year for each of the next 5 years and 10 percentage points a year thereafter.

Provides that an employee who becomes eligible to participate in a pension plan shall have his years of service with an employer before becoming a participant in the plan, up to a maximum of 5 years, credited toward his required years for minimum vesting. Makes the vesting requirements of this Act applicable to all accrued benefits, including those which accrued before the effective date of these provisions.

Provides that in the case of a multiemployer plan governed by a collective bargaining agreement, the vesting requirements apply to all employers as a single employer.

Provides that an employee is to be treated as having performed a year of service for purposes of the minimum vesting requirement if he was actually employed at least 80 hours a month, for at least 5 months during the year. Permits a plan to provide that up to 3 of the 5 years of service required for minimum vesting must be consecutive.

Requires employers to keep records of the years of service of his employees and the percentage of vesting which employees have earned together with any additional information required by the Secretary of Labor or his delegate. Prescribes a civil penalty of $10 for each employee for failure to keep such records.

Permits the forfeiture by an employee of vested rights in accrued benefits under a qualified plan derived from employer contributions in the event of the employee's death or where the employee voluntarily withdraws all or part of his mandatory contributions.

Provides that full immediate vesting applies in the case of a termination or a partial termination of a private pension or profit-sharing plan.

Provides that the vested employee is entitled to all, or a percentage, of his accrued benefit.

Sets forth criteria for determining employer and employee accumulated contributions to a pension or profit-sharing plan.

Permits employers to set up two retirement plans, with differing vesting periods and with higher benefits. Provides that, for purposes of applying the antidiscrimination rules, the two plans could be considered as a unit and the plan with more rapid vesting would not be considered discriminatory because of such vesting (even if highly compensated employees were covered under the plan), if contributions were comparable or (in the case of defined benefit plans) if benefits under this plan were scaled down appropriately in relation to benefits provided under the plan with less rapid vesting.

Sets forth the effective dates for the various vesting provisions of this part.

=Part IV: Funding= - Establishes minimum funding requirements for qualified pension, profit-sharing and stock bonus plans to pay benefits to covered employees upon retirement. Provides that the minimum amount that an employer must annually pay under a defined benefit pension plan shall be the normal costs of the plan and the amortization of past service costs and experience losses.

Provides that for money purchase pension plans and profit-sharing and stock bonus plans, the minimum amount that an employer must annually contribute to the plan is the amount that must be contributed for the year under the plan formula.

Provides, that under the minimum funding rules, each plan must maintain a new account called a "funding standard account" to administer the new funding rules.

Requires that an employer's contribution to a defined benefit pension plan for initial past service costs be sufficient to amortize the costs of the plan, on an accrued basis, for not more than 30 years from the date the plan is established.

Provides that plan amendments that create substantial changes in past service costs are to be treated in the same manner as in the case of past service costs of new plans for purposes of the minimum funding rules. Establishes standards for "substantial" and provides that these are additional past service costs attributable to plan amendments which increase past service cost by at least 5 percent (at the time of amendment).

Provides that the funding standard account is to be annually charged only with annual contract premiums and credited with premiums paid if the qualified pension plan is funded with individual insurance contracts.

Authorizes the Secretary of the Treasury to establish an advisory board chosen from among experienced actuaries in government teaching, business and insurance, and independent consulting practice, to advise the Secretary in such matters as the enrollment system for actuaries, reasonable standards and criteria for determining actuarial assumptions to be used for plans, and determining what constitutes generally accepted principles of actuarial practice.

Imposes an excise tax on the employer if he fails to fund the plan at the minimum required amounts.

=Part V: Portability= - Provides that employees who leave an employer may, with the consent of the employer (or directly if he receives a lump-sum distribution) have their vested retirement plan benefits transferred to a central portability fund. Provides that the employee can leave these amounts in the central fund until he retires or, with the consent of a new employer, can transfer his account to a qualified retirement plan of his new employer. Provides that transfers between qualified plans and the central fund are to be tax free, and the central fund will be tax-exempt.

Provides for a voluntary central portability fund that will enable an employee who changes jobs to consolidate all of his vested retirement benefits under one program. Allows an employee to receive a cash distribution from his former employer's plan and contribute it within 60 days to the plan of a new employer, without being taxed.

Permits an individual, subject to limitations, when he receives a final distribution from an employer under a qualified plan, to contribute this amount to his own individual retirement account without these transfers giving rise to any tax.

Provides that the Social Security Administration is to keep records of the plans in which an employee has a vested interest.

Provides that the central fund shall be operated by the Pension Benefit Guaranty Corporation which is to establish rules governing the funds operation. Requires an annual report to be made to Congress on the operation and status of the fund.

Allows employers with an employee benefit plan to register with the central fund. Allows participants in the central fund to leave their account with the fund until retirement.

Permits an employee to receive, tax-free, a complete distribution of his interest from a qualified retirement plan, if he reinvests the full amount of the assets received in another qualified plan or in the central portability fund within 60 days after receipt.

Provides that, if an employer is registered with the central fund, an employee who is within the registration group and is no longer employed by the employer may require the employer's qualified plan to pay to the central fund an amount equal to his total vested benefits in the plan.

Requires the Social Security Administration to maintain records of the retirement plans in which individuals have vested benefits, and to provide this information to plan beneficiaries.

Requires retirement plans to file an annual statement with the Secretary of the Treasury regarding individuals who have a right to a deferred vested benefit in the plan and who have terminated employment with the employer who maintains the plan.

=Part VI: Plan Termination Insurance= - Creates a Pension Benefit Insurance Fund, to be administered by a Federal Government corporation known as the Pension Benefit Guaranty Corporation. Provides that the Corporation is to be governed by a board of directors consisting of the Secretaries of Commerce, Labor, and Treasury.

Excludes from participation in the insurance program the following: (1) money purchase, profit-sharing, and stock bonus plans; (2) government plans; and (3) church plans.

Provides that this title applies to vested benefits. Limits such coverage to $750 per month and to not more than 50 percent of wages.

Sets forth an order of priorities for allocation of plan assets on failure of the plan. Provides that plan assets are to be allocated, in order, to voluntary contributions of employees, mandatory contributions of employees, benefits "in pay status'" for at least three years, and insured benefits (other than those falling into any of the prior categories).

Sets forth special definitions of the prohibited transactions that apply to qualified trusts.

Prohibits all lending of money or other extension of credit between the trust and a party in interest with specified exceptions.

Allows a loan by the trust to a participant or beneficiary to the extent of the vested accrued benefit of the borrower.

Prohibits the transfer of any trust income or assets to, or for the benefit of, a party in interest, and prohibits the payment of compensation by a trust to any party in interest.

Prohibits a fiduciary from dealing with the income or assets of a trust in his own interest or for his own account.

Provides that plans subject to the prohibited transaction rules are not to include funds held by specified insurance carriers, funds held by an investment company under the Investment Company Act, or plans administered by Federal or State governments.

Permits the leasing or joint use of property involving a trust and a party in interest under a binding contract in effect on August 21, 1973 (or pursuant to renewals of the contract), to continue for 10 years beyond that date, until August 22, 1983.

Allows a trust to sell property, at arm's-length terms, to a party in interest where the property is now under a lease or joint use which qualifies for the 10-year transition rule.

Establishes a Pension Benefit Guaranty Fund, into which there is to be deposited funds, as appropriated each year, equal to the insurance premium tax collections authorized for the Pension Benefit Guaranty Fund.

Authorizes the Corporation to borrow up to $100,000,000 from the U.S. Treasury by the issuance of notes or obligations.

Requires plan administrators before terminating a plan to notify the Corporation of the planned termination. Prohibits benefits from being paid under the termination procedure until 90 days after the notice. Enumerates exceptions to this rule. Prescribes procedures the Corporation may institute to terminate a plan.

=Part VII: Fiduciary Responsibility= - Establishes an excise tax on parties in interest and fiduciaries who participate in specified prohibited transactions respecting an employee benefit trust. Provides that a trust does not lose its tax exempt status because it engages in a prohibited transaction, but the parties in interest and fiduciaries who engage in the transaction are to be subject to tax.

Provides that such tax is at two levels: (1) initially, parties in interest who participate in a prohibited transaction are to be subject to a tax of 5 percent of the amount involved in the transaction per year; and (2) a tax of 100 percent is imposed if the transaction is not corrected after notice from the Internal Revenue Service that the 5-percent tax is due.

Prohibits persons convicted of specified crimes from acting as a manager, fiduciary, employee, or consultant to an employee benefit plan for 5 years after conviction or after imprisonment.

Authorizes the Secretary of Labor and participants and beneficiaries of a plan to institute civil actions for any appropriate legal or equitable relief to redress a violation of fiduciary duties.

=Part VIII: Administration and Enforcement= - Establishes within the Internal Revenue Service the Office of Assistant, Employee Plans and Exempt Organizations to oversee and supervise the basic activities of the Internal Revenue Service in connection with pension and profit-sharing plans. Authorizes appropriations to fund the activities of the Office.

Provides that beginning January 1, 1974, an excise tax of $1 per participant is imposed on employer pension, profit-sharing, or stock bonus plans or an annuity plan or a bond purchase plan.

Provides that the United States Tax Court shall have jurisdiction to hear and enter judgments with respect to controversies as to the qualification of an employee plan which has been established by an employer.

Provides that to receive a declaratory judgment from the Tax Court provision a petitioner must demonstrate to the court that he has exhausted all administrative remedies which are available to him within the Internal Revenue Service.

Authorizes the Chief Judge of the Tax Court to assign the Commissioners of the Tax Court to hear and determine petitions for a declaratory judgment.

Prescribes the procedure whereby a plan participant or beneficiary may request the Secretary of Labor to hear and decide disputes as to present or future entitlement to benefits under a qualified plan.

=Part IX: Limitation on Contributions= - Increases the maximum deductible contribution on behalf of self-employed persons to the lesser of $7500 or 15 percent of earned income. Provides that not more than the first $100,000 of earned income shall be applied to the percentage limits.

Provides that an individual who is a proprietary employee in a business (whether or not he controls the business), and is also a proprietary employee in another business which he controls, may not be covered under the plan of the first business unless he has established a plan for the employees of the business which he controls.

Provides that all defined benefit plans (including corporate plans without proprietary employees), limiting the annual benefits which can be paid out under these plans (as of age 65) shall be 100 percent of the participant's average compensation from the employer during his highest 3 consecutive years of earnings.

Sets forth special rules governing proprietary employee plans.

=Part X: Employee Savings for Retirement= - Allows a tax deduction under the Internal Revenue Code of up to $1000 a year from earned income from contributions to a personal retirement account.

Requires individuals who establish an individual retirement account to maintain, under the provisions of a written governing instrument, a separate accounting of his contributions, the earnings on them, and the distributions made either to the individual involved or to his beneficiaries.

=Part XI: Lump-Sum Distributions= - Computes the tax on lump-sum distributions of pension retirement benefits as ordinary income. Sets forth procedures for computing lump-sum distributions.

=Part XIIL Miscellaneous Provisions= - Requires that a joint and survivor annuity be offered as an option with respect to any benefit under a qualified retirement plan which is payable as an annuity.

Prescribes penalties for the failure to file annual returns for pension plans.