Retirement Income Policy Act of 1985

Retirement Income Policy Act of 1985 - Sets forth national retirement income policy goals.

Title I: Amendments to the Employee Retirement Income Security Act of 1974 - Subtitle A: Participation Requirements - Amends the Employee Retirement Income Security Act of 1974 (ERISA) to add definitions which distinguish between "retirement plans" and "nonretirement savings plans." Defines a retirement plan as a pension plan which meets the retirement income requirements established by this Act. Defines a nonretirement savings plan as any pension plan which is not a retirement plan as defined in this Act. Prohibits conversion of a retirement plan to a nonretirement savings plan.

Sets forth retirement income requirements for retirement plans. Permits retirement plans to distribute the accrued benefits to the participant upon the participant's disability or death or separation from service, under certain conditions. Prohibits such distribution upon separation from service unless: (1) the participant is at least 59 1/2 years old; or (2) (if the participant is younger than 59 1/2 years old) the distribution is in one of the described retirement income forms. Requires that retirement plan distributions commence by: (1) the end of the plan year in which the employee: (1) attains age 70 1/2; or (2) the end of a later plan year in which an employee (who is not an owner-employee) retires.

Sets forth the following descriptions of permissible "retirement income forms" for distributions upon separation from service to participants under 59 1/2 years old: (1) an annuity for the life of the participant; (2) a qualified joint and survivor annuity; or (3) a level distribution over life expectancy (which may be adjusted annually to account for certain changes). Allows such distribution forms to be adjusted periodically to allow for supplemental benefits prior to the receipt of Social Security benefits, provided such supplemental benefits do not exceed the amount of anticipated Social Security benefits.

Permits retirement plans to transfer, upon separation from service, the accrued benefit of the plan participant directly to an individual retirement annuity, or another retirement plan.

Revises pension plan participation and vesting provisions to add plan coverage requirements applicable to employers.

Requires each employer who maintains a pension plan for an employee in the the employer's relevant work force to provide that each such employee who is under the Social Security contribution and benefit base is eligible to participate in a retirement plan maintained by the employer. Sets forth special rules in the case of allowable subdivisions of the relevant work force. Allows an employer to meet such coverage requirements by maintaining one or more retirement plans. Sets forth a special rule for contributory plans. Eliminates the three-year rule under minimum participation standards.

Requires, as a prerequisite for the employer's maintenance of a nonretirement savings plan covering an employee, the employer to maintain at least one retirement plan covering that employee and accruing benefits at specified levels.

Subtitle B: Limitations on Contributions and Benefits - Allows a qualified pension plan to include a cash or deferred arrangement (CODA) only if such plan is a retirement plan and if the CODA meets certain requirements. Requires the CODA to provide that the covered employee may elect to have the employer make payments: (1) as contributions to a trust under the plan on behalf of the employee; or (2) to the employee directly in cash. Requires the CODA to provide that the employee has a nonforfeitable right to the employee's accrued benefit derived from employer contributions made to the trust pursuant to the employee's election. Requires that specified CODA discrimination standards be applied to the relationship between deferral percentages of highly compensated employees and other eligible employees. Requires that such CODA requirements be met by each allowable subdivision.

Limits the maximum amount of covered compensation. Provides that the amount of a participant's compensation for any year which may be taken into account under a pension plan for purposes of determining benefits and contributions may not exceed 500 percent of the Social Security contribution and benefit base. Sets forth a special rule for self-employed individuals.

Subtitle C: Vesting Standards - Revises minimum vesting standards to require the full vesting of any participant who has completed the following years of service: (1) five, in the case of retirement plans; (2) one, in the case of nonretirement savings plans; and (3) ten, in the case of multiemployer plans.

Subtitle D: Pension Integration - Sets forth rules against discriminatory treatment of qualified pension plan participants.

Revises rules governing integration of retirement plans, with title II (Old Age, Survivors' and Disability Insurance) (OASDI) of the Social Security Act and other Federal or State retirement programs.

Subtitle E: Coverage and Portability - Provides that certain early distributions from a retirement plan which are not made in a retirement income form must be transferred directly to an individual retirement account or individual retirement annuity designated by the participant (or, if such designation is not made within a specified time, selected by the plan administrator). Provides that specified provisions relating to cash-outs of survivor annuities shall apply only to distributions made as transfers meeting the requirements for early distributions set forth under this Act. Prohibits distributed benefits from being treated as other than nonforfeitable solely because such distribution is made as permitted under such survivor annuity cash-out provisions.

Subtitle F: Effective Date and Related Rules - Set forth effective dates for amendments made by this title. Sets forth a special rule for such effective dates in the case of plans maintained pursuant to collective bargaining agreements.

Makes technical amendments.

Title II: Amendments to the Internal Revenue Code of 1954 - Subtitle A: Participation Requirements - Amends the Internal Revenue Code (IRC) to make revisions similar to the revisions made to ERISA under title I, subtitle A of this Act.

Specifies that maintenance of adequate retirement plan coverage is a requirement for qualification of pension, profit-sharing, and stock bonus plans under IRC.

Subtitle B: Limitations on Contributions and Benefits - Permits employees to make qualified voluntary employee contributions only to a retirement plan. Provides that certain contributions to employees' annuities are deductible.

Amends IRC provisions relating to cash or deferred arrangements (CODAs) to require that employers with allowable subdivisions meet specified nondiscrimination rules separately in each allowable subdivision. Makes conforming amendments.

Amends IRC provisions relating to special rules for individual retirement plans to reduce the amount of deductible contributions an individual may make to an individual retirement account or annuity (IRAs) in a taxable year by the amount of: (1) any employer contributions made to a CODA on behalf of that individual in any plan year ending in that taxable year; and (2) any qualified voluntary employee contributions for that taxable year.

Revises IRC provisions relating to limitations on benefits and contributions under qualified plans to coordinate such limitations with the Social Security wage base according to specified formulas. Makes the limitation on benefits under defined benefit plans the lessor of: (1) 100 percent of compensation; or (2) 200 percent of the Social Security wage base. Makes the limitation on contributions to a defined contribution plan is the lesser of: (1) 20 percent of compensation; or (2) 50 percent of the Social Security wage base. Provides that one-half of the after-tax employee contributions are to be as an annual addition.

Adds special limitations on qualified contributions to CODAs and nonretirement savings plans under the overall defined contribution limit.

Limits the amount of a plan participant's or self-employed individual's compensation that may be taken into account for determining benefits and contributions to no more than 500 percent of the Social Security contribution and benefit base.

Limits payments by employers pursuant to qualified CODAs by disallowing contributions and other additions with respect to a participant to the extent they include payments made by the employer for any year to a trust under the plan pursuant to a CODA in excess of 25 percent of the Social Security contribution and benefit base. Limits contributions and other additions with respect to a participant, in the case of a nonretirement savings plan by disallowing any annual addition which is greater than the lesser of: (1) 25 percent of the Social Security contribution and benefit base; or (2) ten percent of the participant's compensation.

Provides that a specified rule relating to a limitation in cases of a defined benefit plan and a defined contribution plan for the same employee is applicable only in the event that at least one of such plans is a top-heavy plan.

Makes conforming amendments relating to the taxation of annuity income.

Subtitle C: Vesting Standards - Amends IRC provisions relating to minimum vesting standards to make revisions similar to the revisions made to ERISA under title I, subtitle C of this Act.

Subtitle D: Pension Integration - Amends IRC provisions relating to integration of retirement plans with title II (OASDI) of the Social Security Act and other Federal and State retirement plans to make revisions similar to some of the revisions made to ERISA under title I, subtitle D of this Act.

Subtitle E: Distributions - Repeals the ten-year forward average and capital gains treatment of lump-sum distributions.

Raises the rate of the additional tax on early distributions from IRAs.

Subtitle F: Coverage and Portability - Amends IRC provisions relating to restrictions on certain mandatory distributions to make revisions similar to some revisions made to ERISA under title I, subtitle F of this Act.

Sets forth special rules for simplified employee plans (SEPs). Permits a salary reduction arrangement which is elected by an employee under an SEP. Sets forth provisions for the treatment of such salary reduction arrangements. Imposes fiduciary duties with respect to SEPs.

Prohibits integration of SEPs with Social Security provisions.

Limits to 500 percent of the Social Security contribution and benefit base the total compensation considered for purposes of establishing uniform contributions to an SEP.

Subtitle G: Effective Date - Sets forth effective dates for amendments made by this title. Sets forth an effective date for application of such amendments to IRAs. Sets forth a special rule for such effective date in the case of plans maintained pursuant to collective bargaining agreements.