Sec. 203. Annuity accumulation retirement plans of employees of State and local governments
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Part I of subchapter D of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after subpart E the following new subpart: Sec. 420A. Annuity accumulation retirement plans. For purposes of this subpart— The term annuity accumulation retirement plan means a State or local governmental retirement plan— which provides for the purchase, not less frequently than annually, of a qualified individual deferred fixed income annuity contract for each participant which provides benefits based solely on the contributions by an employer to an annuity provider and the actuarial assumptions specified in the annuity contract, and which provides that— no contributions may be made under the plan other than contributions described in subsection (c), contributions pursuant to the plan on behalf of any eligible employee for any plan year, whether made annually or more frequently, are required to be paid not later than 90 days after the close of the plan year to an annuity provider to purchase a qualified individual deferred fixed income annuity contract for the employee, and no benefits are provided by the employer under the plan other than the purchase of qualified individual deferred fixed income annuity contracts for eligible employees.
Subject to the provisions of subsection (d)(3), nothing in subparagraph (B)(iii) shall prohibit an employer from establishing or maintaining a defined contribution plan or defined benefit plan or providing any form of employee welfare benefit separately from the plan. A plan will not be treated as an annuity accumulation retirement plan unless— except as provided in subsection (e)(1), benefits under the plan are limited to a monthly payment for the life of the participant, commencing at the applicable age under subsection (b)(1)(B), as provided under the qualified individual deferred fixed income annuity contract purchased with the employer contributions described in subsection
(c)and issued to the participant, and the plan does not accumulate assets in trust or otherwise, and the employer has no ownership interest in any qualified individual deferred fixed income annuity contract issued to a participant. A plan will not be treated as an annuity accumulation retirement plan unless the plan provides that individual deferred fixed income annuity contracts will be purchased through a process by which, with respect to each purchase under paragraph (1)(A), the plan administrator— obtains competitive bids, not less frequently than every 5 years, pursuant to a formal, public procurement process authorized under State law which requires institutional pricing on a group contract basis from multiple annuity providers verified by the applicable State insurance regulator as properly licensed to meet the specifications in the procurement request, and selects 1 or more annuity providers pursuant to a process that includes an objective, thorough, and analytical search to identify and select providers and the evaluation of an annuity provider's claims paying ability and creditworthiness. An annuity provider shall not be treated as meeting the competitive bid requirements of subparagraph (A)(i) if such provider, or any related party to (within the meaning of such term as applied by the State guaranty association) or agent of such provider, on their own or on another's behalf, provides anything of value to any employee of a State or local government entity, or agency or instrumentality thereof, or to a plan administrator, in connection with the bidding process or the annuity purchase process described in subparagraph (A). A plan shall be deemed to meet the requirements of subparagraph
(A)if the plan administrator obtains a determination in writing from the Office of Domestic Finance, Department of the Treasury, that such plan meets such requirements. Authority to issue such a determination shall not be delegated to any entity outside of the Office of Domestic Finance. Notwithstanding any other provision of this subchapter— except as provided in this section, no requirement of this subchapter otherwise applicable to a State or local governmental retirement plan shall apply to an annuity accumulation retirement plan, and for purposes of this title other than any such requirements, an annuity accumulation retirement plan shall be treated as a defined benefit plan which meets the requirements of section 401(a). For purposes of this subpart, the term qualified individual deferred fixed income annuity contract means, with respect to an employee for any plan year, an annuity contract issued by an annuity provider— which is— an individual annuity contract, or an individual certificate of benefits issued to the employee under a group annuity contract, except as provided in subsection (e), under the terms of which— the monthly annuity payments during the period described in subparagraph
(B)are in equal installments and are fixed at the time of purchase, and the entire interest of the employee in the contract will be distributed in the form of monthly annuity payments under a single life annuity, beginning on the later of— the date the employee attains age— 50 (or a later date specified by the State), in the case of a public safety employee, and 62 (or a later date specified by the State), in the case of any other employee, or in the case of a contract purchased after the date the employee attains such age, the 1st day of the 1st calendar year beginning after the calendar year in which such contract was purchased, the purchase price of which is equal to the contributions described in subsection
(c)with respect to the employee for the plan year in which it is purchased, under which the employee's rights are nonforfeitable, under which no loan may be made with respect to any portion of any interest in the contract, and except as provided in subsection (e)(2), no portion of any interest in the contract may be assigned, alienated, or pledged as collateral. In the case of a certificate described in paragraph (1)(B), any reference in this section (other than paragraph (1)) to an annuity contract shall be treated as a reference to the portion of the group annuity contract to which such certificate relates. For purposes of subsection (a)(1)(B)— The plan must provide that the only contributions which may be made pursuant to the plan for any plan year are nonelective contributions (within the meaning of section 401(k)(11)(B)(ii)) made by the employer for the purchase of qualified individual deferred fixed income annuity contracts which are— made on behalf of each eligible employee for the plan year, and equal to a percentage of the employee's compensation which (except as provided in this paragraph) is determined not later than the start of the plan year. An employer shall not be treated as failing to meet the requirements of this paragraph merely because the plan allows the employer to elect to reduce the percentage under subparagraph (B), or not to make any contributions pursuant to the plan, for any period for all employees, and the employer so elects not later than the start of the plan year. The compensation taken into account under paragraph (1)(B) with respect to an employee for any year shall not exceed the limitation in effect for such year under section 401(a)(17). For purposes of this subparagraph, the term compensation means includible compensation as defined in section 403(b)(3), including any amount paid by an employer on behalf of the employee for a qualified deferred fixed income annuity contract. The percentage under paragraph (1)(B) for any period shall not exceed— 30 percent in the case of a public safety employee, or 20 percent in the case of any other employee. A plan may elect to provide a higher percentage under paragraph (1)(B) than that specified under clause (i)— in the case of any of the first 10 plan years after adoption of the plan, for all employees who have attained age 40 before the beginning of such plan year, and in the case of any subsequent plan year, for all employees who have attained age 50 (age 40 in the case of a public safety employee) before the beginning of such plan year, except that in no case may such percentage exceed 25 percent (35 percent in the case of a public safety employee). All plans of an employer treated as a single plan for purposes of section 415 shall be treated as a single plan for purposes of this paragraph. The amount actually paid to a distributee under a qualified individual deferred fixed income annuity contract shall be taxable to the distributee under section 72. Contributions made by an employer for the purchase of a qualified individual deferred fixed income annuity contract under an annuity accumulation retirement plan shall be excluded from the gross income of the employee. Except as provided in subparagraph (B), if— contributions are made for any plan year by an employer on behalf of an employee in excess of the limit determined after application of subsection (c)(2), the employee shall include in gross income an amount equal to such excess, or an employee for whom such contributions are made for any plan year accrues benefits (for any period of service for which such contributions were made) under any other defined benefit plan of the employer which is not an annuity accumulation retirement plan, the employee shall include in gross income an amount equal to such contributions. Subparagraph
(A)shall not apply with respect to contributions on behalf of an employee for any plan year if, not later than 6 months after the last day of the plan year, the contributions described in subparagraph
(A)used to purchase a qualified individual deferred fixed income annuity contract for the employee are refunded to the employer. Any amount under subparagraph
(A)shall be includible in gross income of the employee for the taxable year which includes the date which is 6 months after the last day of the plan year. Any amount included in gross income shall not be treated as investment in the contract for purposes of section 72. At the option of an employer, a qualified individual deferred fixed income annuity contract may provide 1 or more of the following optional benefits: Distribution under a joint and survivor annuity. An annual adjustment in the amount of benefit payments based on a fixed percentage not to exceed 3 percent. A 10-year period certain and life payment option. If an employer provides for 1 or more of such optional benefits, the contract shall provide that an employee may elect any of the options provided at the time payments commence under the contract. Paragraphs (2)(B) and
(5)of subsection
(b)shall not apply to any offset of an employee's benefits payable under an annuity contract— pursuant to— the enforcement of a levy under section 6331 or the collection by the United States of a judgment resulting from an unpaid tax assessment, or the enforcement of a fine imposed as part of a criminal sentence under subchapter C of chapter 227 of title 18, United States Code, or an order of restitution made pursuant to such title, or to the extent required under any State tax, criminal, or domestic relations law. For purposes of this section— The term State or local governmental retirement plan means a governmental plan providing for the deferral of compensation which is established and maintained for its employees by a State, a political subdivision of a State, or an agency or instrumentality of any such entity. The term State includes any possession or territory of the United States, including a possession described in section 7701(d). The term eligible employee means, with respect to any State or local governmental retirement plan, any officer or employee (other than a contractor) eligible to participate in the plan. The term annuity provider means any company which is licensed to do business as a life insurance company under the laws of the State in which a qualified individual deferred fixed income annuity contract to which this subchapter applies is to be issued. The term public safety employee means any employee of a State or political subdivision of a State who provides police protection, firefighting services, or emergency medical services for any area within the jurisdiction of such State or political subdivision. . Paragraph
(5)of section 3121(a) of the Internal Revenue Code of 1986 is amended by striking or at the end of subparagraph (H), by striking the semicolon at the end of subparagraph
(I)and inserting , or , and by adding at the end the following new subparagraph: under an annuity accumulation retirement plan for the purchase of annuity contracts under section 420A; . Subsection
(a)of section 6051 of the Internal Revenue Code of 1986 is amended by striking and at the end of paragraph (13), by striking the period at the end of paragraph (14)(B) and inserting , and , and by inserting after paragraph
(14)the following new paragraph: the total amount contributed under an annuity accumulation retirement plan for the purchase of annuity contracts under section 420A. . The table of subparts for part I of subchapter D of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to subpart E the following new item: SUBPART F—Annuity accumulation retirement plans for State and local government employees . Except as provided in subsection (b), the amendments made by this section shall apply to years beginning after December 31, 2015.