the date on which the prohibited transaction occurs and ending on the earlier of "(A) the date of mailing of a notice of deficiency pursuant to section 6212, with respect to the tax imposed by subsection (a), or "(B) the date on which correction of the prohibited transaction is completed. "(3) SALE OR EXCHANGE; ENCUMBERED PROPERTY.-A transfer of real or personal property by a disqualified person to a plan shall be treated as a sale or exchange if the property is subject to a mortgage or similar lien which the plan assumes or if it is subject to a mortgage or similar lien which a disqualified person placed on the property within the 10-year period ending on the date of the transfer. "(4) AMOUNT INVOLVED.-The term 'amount involved' means, with respect to a prohibited transaction, the greater of the amount of money and the fair market value of the other property given or the amount of money and the fair market value of the other property received; except that, in the case of services described in paragraphs (2) and (10) of subsection (d) the amount involved shall be only the excess compensation. For purposes of the preceding sentence, the fair market value "(A) in the case of the tax imposed by subsection (a), shall be determined as of the date on which the prohibited transaction occurs; and "(B) in the case of the tax imposed by subsection (b), shall be the highest fair market value during the correction period. "(5) CORRECTION.-The terms 'correction' and 'correct' mean, with respect to a prohibited transaction, undoing the transaction to the extent possible, but in any case placing the plan in a financial position not worse than that in which it would be if the disqualified person were acting under the highest fiduciary standards. "(6) CORRECTION PERIOD.-The term 'correction period' means, with respect to a prohibited transaction, the period beginning with the date on which the prohibited transaction occurs and ending 90 days after the date of mailing of a notice of deficiency with respect to the tax imposed by subsection (b) under section 6212, extended by "(A) any period in which a deficiency cannot be assessed under section 6213 (a), and "(B) any other period which the Secretary or his delegate "(g) APPLICATION OF SECTION.-This section shall not apply- "(2) to a governmental plan (within the meaning of section 414(d)); or "(3) to a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410 (d) has not been made. In the case of a plan which invests in any security issued by an investment company registered under the Investment Company Act of 1940, the assets of such plan shall be deemed to include such security but shall not, by reason of such investment, be deemed to include any assets of such company. 26 USC 6212. Ante, p. 874. Ante, p. 925. Ante, p. 898. 54 Stat. 789. 15 USC 80a-51. 88 STAT. 978 Post, p. 998. 26 USC 503. 26 USC 4975 note. Ante, p. 935. Ante, p. 971. Pub. Law 93-406 - 150 September 2, 1974 "(h) NOTIFICATION OF SECRETARY OF LABOR.-Before sending a notice of deficiency with respect to the tax imposed by subsection (a) or (b), the Secretary or his delegate shall notify the Secretary of Labor and provide him a reasonable opportunity to obtain a correction of the prohibited transaction or to comment on the imposition of such tax. "(i) CROSS REFERENCE.— "For provisions concerning coordination procedures between Secretary of Labor and Secretary of Treasury with respect to application of tax imposed by this section and for authority to waive imposition of the tax imposed by subsection (b), see section 3003 of the Employee Retirement Income Security Act of 1974.". (b) AMENDMENT OF SECTION 503.-Section 503 (relating to requirements for exemption) is amended— (1) by striking out "or (18)" in subsection (a) (1) (A), (2) by amending subsection (a) (1) (B) by inserting "which is referred to in section 4975 (g) (2) or (3)" after "described in section 401(a)", (3) by striking out "or section 401" in subsection (a)(2) and inserting in lieu thereof "or paragraph (1)(B)”, and (4) by striking out "or section 401" in subsection (c) and inserting in lieu thereof "or subsection (a) (1) (B)", (5) by striking out subsection (g). (c) EFFECTIVE DATE AND SAVINGS PROVISIONS.— (1) (A) The amendments made by this section shall take effect on January 1, 1975. (B) If, before the amendments made by this section take effect, an organization described in section 401 (a) of the Internal Revenue Code of 1954 is denied exemption under section 501 (a) of such Code by reason of section 503 of such Code, the denial of such exemption shall not apply if the disqualified person elects (in such manner and at such time as the Secretary or his delegate shall by regulations prescribe) to pay, with respect to the prohibited transaction (within the meaning of section 503 (b) or (g)) which resulted in such denial of exemption, a tax in the amount and in the manner provided with respect to the tax imposed under section 4975 of such Code. An election made under this subparagraph, once made, shall be irrevocable. The Secretary of the Treasury or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph. (2) Section 4975 of the Internal Revenue Code of 1954 (relating to tax on prohibited transactions) shall not apply to (A) a loan of money or other extension of credit between a plan and a disqualified person under a binding contract in effect on July 1, 1974 (or pursuant to renewals of such a contract), until June 30, 1984, if such loan or other extension of credit remains at least as favorable to the plan as an arm'slength transaction with an unrelated party would be, and if the execution of the contract, the making of the loan, or the extension of credit was not, at the time of such execution, making, or extension, a prohibited transaction (within the meaning of section 503 (b) of such Code or the corresponding provisions of prior law); (B) a lease or joint use of property involving the plan and a disqualified person pursuant to a binding contract in effect on July 1, 1974 (or pursuant to renewals of such a contract), until June 30, 1984, if such lease or joint use remains at least as favorable to the plan as an arm's-length transaction with an unrelated party would be and if the execution of the contract was not, at the time of such execution, a prohibited transaction (within the meaning of section 503(b) of such (C) the sale, exchange, or other disposition of property (i) in the case of a sale, exchange, or other disposition of the property by the plan to the disqualified person, the plan receives an amount which is not less than the fair market value of the property at the time of such disposition; and (ii) in the case of the acquisition of the property by the plan, the plan pays an amount which is not in excess of the fair market value of the property at the time of such acquisition; (D) Until June 30, 1977, the provision of services to which subparagraphs (A), (B), and (C) do not apply between a plan and a disqualified person (i) under a binding contract in effect on July 1, 1974 (or pursuant to renewals of such contract), or (ii) if the disqualified person ordinarily and customarily furnished such services on June 30, 1974, if such provision of services remains at least as favorable to the plan as an arm's-length transaction with an unrelated party would be and if the provision of services was not, at the time of such provision, a prohibited transaction (within the meaning of section 503 (b) of such Code) or the corresponding provisions of prior law; or (E) the sale, exchange, or other disposition of property which is owned by a plan on June 30, 1974, and all times thereafter, to a disqualified person, if such plan is required to dispose of such property in order to comply with the provisions of section 407(a)(2)(A) (relating to the prohibition against holding excess employer securities and employer real property) of the Employee Retirement Income Security Act 88 STAT 979 26 USC 503. of 1974, and if the plan receives not less than adequate Ante, p. 880. consideration. For the purposes of this paragraph, the term "disqualified person" has the meaning provided by section 4975 (e) (2) of the Internal Revenue Code of 1954. SEC. 2004. LIMITATIONS ON BENEFITS AND CONTRIBUTIONS. (a) PLAN REQUIREMENTS. (1) Section 401 (a) (relating to requirements for qualification) is amended by inserting after paragraph (15) the following new paragraph: "(16) A trust shall not constitute a qualified trust under this section if the plan of which such trust is a part provides for benefits or contributions which exceed the limitations of section 415.” (2) Subpart B of part I of subchapter D of chapter 1 is amended by inserting after section 414 the following new section: "SEC. 415. LIMITATIONS ON BENEFITS AND CONTRIBUTION UNDER QUALIFIED PLANS. "(a) GENERAL RULE.— "(1) TRUSTS.-A trust which is a part of a pension, profitsharing, or stock bonus plan shall not constitute a qualified trust under section 401 (a) if— "(A) in the case of a defined benefit plan, the plan provides for the payment of benefits with respect to a participant which exceed the limitation of subsection (b), "(B) in the case of a defined contribution plan, contributions and other additions under the plan with respect to any Ante, p. 938. Infra. Ante, p. 925. Ante, p. 935. 88 STAT. 980 Pub. Law 93-406 Ante, p. 969. Ante, p. 959. 26 USC 405. Ante, p. 964. participant for any taxable year exceed the limitation of subsection (c), or "(C) in any case in which an individual is a participant in both a defined benefit plan and a defined contribution plan maintained by the employer, the trust has been disqualified under subsection (g). "(2) SECTION APPLIES TO CERTAIN ANNUITIES AND ACCOUNTS.— in the case of "(A) an employee annuity plan described in section 403 (a) (B) an annuity contract described in section 403(b), "(C) an individual retirement account described in section 408(a), "(D) an individual retirement annuity described in section 408 (b), 66 66 (E) a plan described in section 405 (a), or (F) a retirement bond described in section 409, such contract, annuity plan, account, annuity, plan, or bond shall not be considered to be described in section 403 (a), 403 (b), 405 (a ), 408 (a), 408(b), or 409, as the case may be, unless it satisfies the requirements of subparagraph (A) or subparagraph (B) of paragraph (1), whichever is appropriate, and has not been disqualified under subsection (g). In the case of an annuity contract described in section 403(b), the preceding sentence shall apply only to the portion of the annuity contract which exceeds the limitation of subsection (b) or the limitation of subsection (c), whichever is appropriate, and the amount of the contribution for such portion shall reduce the exclusion allowance as provided in section 403 (b) (2). "(b) LIMITATION FOR DEFINED BENEFIT PLANS.— Ante, pp. 968, 969. "(1) IN GENERAL.--Benefits with respect to a participant exceed the limitation of this subsection if, when expressed as an annual benefit (within the meaning of paragraph (2)), such annual benefit is greater than the lesser of "(A) $75,000, or "(B) 100 percent of the participant's average compensation for his high 3 years. "(2) ANNUAL BENEFIT.— "(A) IN GENERAL.-For purposes of paragraph (1), the term 'annual benefit' means a benefit payable annually in the form of a straight life annuity (with no ancillary benefits) under a plan to which employees do not contribute and under which no rollover contributions (as defined in sections 402 (a) (5), 403 (a) (4), 408 (d) (3), and 409 (b) (3) (C) are made. "(B) ADJUSTMENT FOR CERTAIN OTHER FORMS OF BENEFIT. If the benefit under the plan is payable in any form other than the form described in subparagraph (A), or if the employees contribute to the plan or make rollover contributions (as defined in sections 402 (a) (5), 403 (a) (4), 408 (d) (3) and 409 (b) (3)(C)), the determinations as to whether the limitation described in paragraph (1) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary or his delegate, by adjusting such benefit so that it is equivalent to the benefit described in subparagraph (A). For purposes of this subparagraph, any ancillary benefit which is not directly related to retirement income benefits shall not be taken into account; and that portion of any joint and survivor annuity which constitutes a qualified joint and September 2, 1974 - 153 Pub. Law 93-406 88 STAT. 981 survivor annuity (as defined in section 401 (a) (11) (H) (iii)) Ante, p. 935. shall not be taken into account. "(C) ADJUSTMENT TO $75,000 LIMIT WHERE BENEFIT BEGINS BEFORE AGE 55.-If the retirement income benefit under the plan begins before age 55, the determination as to whether the $75,000 limitation set forth in paragraph (1)(A) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary or his delegate, by adjusting such benefit so that it is equivalent to such a benefit beginning at age 55. "(3) AVERAGE COMPENSATION FOR HIGH 3 YEARS.-For purposes of paragraph (1), a participant's high 3 years shall be the period of consecutive calendar years (not more than 3) during which the participant both was an active participant in the plan and had the greatest aggregate compensation from the employer. In the case of an employee within the meaning of section 401 (c) (1), the preceding sentence shall be applied by substituting 26 USC 401. for compensation from the employer' the following: 'the participant's earned income (within the meaning of section 401(c) (2) but determined without regard to any exclusion under section 911)'. "(4) TOTAL ANNUAL BENEFITS NOT IN EXCESS OF $10,000.-Notwithstanding the preceding provisions of this subsection, the benefits payable with respect to a participant under any defined benefit plan shall be deemed not to exceed the limitation of this subsection if— "(A) the retirement benefits payable with respect to such participant under such plan and under all other defined benefit plans of the employer do not exceed $10,000 for the plan year, or for any prior plan year, and "(B) the employer has not at any time maintained a defined contribution plan in which the participant participated. "(5) REDUCTION FOR SERVICE LESS THAN 10 YEARS.-In the case of an employee who has less than 10 years of service with the employer, the limitation referred to in paragraph (1), and the limitation referred to in paragraph (4), shall be the limitation determined under such paragraph (without regard to this paragraph), multiplied by a fraction, the numerator of which is the number of years (or part thereof) of service with the employer and the denominator of which is 10. "(6) COMPUTATION OF BENEFITS AND CONTRIBUTIONS.-The computation of "(A) benefits under a defined contribution plan, for purposes of section 401 (a) (4), Ante, p. 938. "(B) contributions made on behalf of a participant in a defined benefit plan, for purposes of section 401(a)(4), and "(C) contributions and benefits provided for a participant in a plan described in section 414(k), for purposes of this Ante, p. 925. section shall not be made on a basis inconsistent with regulations prescribed by the Secretary or his delegate. "(c) LIMITATION FOR DEFINED CONTRIBUTION PLANS. "(1) IN GENERAL.-Contributions and other additions with respect to a participant exceed the limitation of this subsection if. when expressed as an annual addition (within the meaning of |