There shall be included in the gross income of an employee for the taxable year an amount equal to the cost of group-term life insurance on his life provided for part or all of such year under a policy (or policies) carried directly or indirectly by his employer (or employers); but only to the extent that such cost exceeds the sum of—
(1)
the cost of $50,000 of such insurance, and
(2)
the amount (if any) paid by the employee toward the purchase of such insurance.
(b)
Exceptions
Subsection (a) shall not apply to—
(1)
the cost of group-term life insurance on the life of an individual which is provided under a policy carried directly or indirectly by an employer after such individual has terminated his employment with such employer and is disabled (within the meaning of section 72(m)(7)),
(2)
the cost of any portion of the group-term life insurance on the life of an employee provided during part or all of the taxable year of the employee under which—
(A)
the employer is directly or indirectly the beneficiary, or
(B)
a person described in section 170(c) is the sole beneficiary,
for the entire period during such taxable year for which the employee receives such insurance, and
(3)
the cost of any group-term life insurance which is provided under a contract to which section 72(m)(3) applies.
(c)
Determination of cost of insurance
For purposes of this section and section 6052, the cost of group-term insurance on the life of an employee provided during any period shall be determined on the basis of uniform premiums (computed on the basis of 5-year age brackets) prescribed by regulations by the Secretary.
(d)
Nondiscrimination requirements
(1)
In general
In the case of a discriminatory group-term life insurance plan—
(A)
subsection (a)(1) shall not apply with respect to any key employee, and
(B)
the cost of group-term life insurance on the life of any key employee shall be the greater of—
(i)
such cost determined without regard to subsection (c), or
(ii)
such cost determined with regard to subsection (c).
(2)
Discriminatory group-term life insurance plan
For purposes of this subsection, the term “discriminatory group-term life insurance plan” means any plan of an employer for providing group-term life insurance unless—
(A)
the plan does not discriminate in favor of key employees as to eligibility to participate, and
(B)
the type and amount of benefits available under the plan do not discriminate in favor of participants who are key employees.
(3)
Nondiscriminatory eligibility classification
(A)
In general
A plan does not meet requirements of subparagraph (A) of paragraph (2) unless—
(i)
such plan benefits 70 percent or more of all employees of the employer,
(ii)
at least 85 percent of all employees who are participants under the plan are not key employees,
(iii)
such plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of key employees, or
(iv)
in the case of a plan which is part of a cafeteria plan, the requirements of section 125 are met.
(B)
Exclusion of certain employees
For purposes of subparagraph (A), there may be excluded from consideration—
(i)
employees who have not completed 3 years of service;
(ii)
part-time or seasonal employees;
(iii)
employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and one or more employers which the Secretary finds to be a collective bargaining agreement, if the benefits provided under the plan were the subject of good faith bargaining between such employee representatives and such employer or employers; and
(iv)
employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).
(4)
Nondiscriminatory benefits
A plan does not meet the requirements of paragraph (2)(B) unless all benefits available to participants who are key employees are available to all other participants.
(5)
Special rule
A plan shall not fail to meet the requirements of paragraph (2)(B) merely because the amount of life insurance on behalf of the employees under the plan bears a uniform relationship to the total compensation or the basic or regular rate of compensation of such employees.
(6)
Key employee defined
For purposes of this subsection, the term “key employee” has the meaning given to such term by paragraph (1) of section 416(i). Such term also includes any former employee if such employee when he retired or separated from service was a key employee.
(7)
Exemption for church plans
(A)
In general
This subsection shall not apply to a church plan maintained for church employees.
(B)
Definitions
For purposes of subparagraph (A), the terms “church plan” and “church employee” have the meaning given such terms by paragraphs (1) and (3)(B) of section 414(e), respectively, except that—
(i)
section 414(e) shall be applied by substituting “section 501(c)(3)” for “section 501” each place it appears, and
(ii)
the term “church employee” shall not include an employee of—
(I)
an organization described in section 170(b)(1)(A)(ii) above the secondary school level (other than a school for religious training),
(II)
an organization described in section 170(b)(1)(A)(iii), and
(III)
an organization described in section 501(c)(3), the basis of the exemption for which is substantially similar to the basis for exemption of an organization described in subclause (II).
(8)
Treatment of former employees
To the extent provided in regulations, this subsection shall be applied separately with respect to former employees.
(e)
Employee includes former employee
For purposes of this section, the term “employee” includes a former employee.
(f)
Exception for life insurance purchased in connection with qualified transfer of excess pension assets
Subsection (b)(3) and section 72(m)(3) shall not apply in the case of any cost paid (whether directly or indirectly) with assets held in an applicable life insurance account (as defined in section 420(e)(4)) under a defined benefit plan.
Pub. L. 101–140, § 203(b)(1)(A)Subsec. (d)(7). , amended par. (7) generally. Prior to amendment, par. (7) read as follows: “All employees who are treated as employed by a single employer under subsection (b), (c), or (m) of section 414 shall be treated as employed by a single employer for purposes of this section.”
Pub. L. 100–6471988—Subsec. (c). struck out at end “In the case of an employee who has attained age 64, the cost prescribed shall not exceed the cost with respect to such individual if he were age 63.”
Pub. L. 99–514, § 1151(c)(1)1986—Subsec. (d). , amended subsec. (d) generally, substituting “In the case of a group-term life insurance plan which is a discriminatory employee benefit plan, subsection (a)(1) shall apply only to the extent provided in section 89.” for provisions formerly designated as pars. (1)(A) and (B) that in the case of a discriminatory group-term life insurance plan subsec. (a)(1) shall not apply with respect to any key employee and the cost of group-term life insurance on the life of any key employee shall be determined without regard to subsec. (c), and striking out pars. (2) to (7) relating to classifications and eligibility classifications of nondiscriminatory plans.
Pub. L. 99–514, § 1827(a)(1)Subsec. (d)(1)(B). , amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “the cost of group-term life insurance on the life of any key employee shall be determined without regard to subsection (c).”
Pub. L. 99–514, § 1827(c)Subsec. (d)(6). , struck out “, except that subparagraph (A)(iv) of such paragraph shall be applied by not taking into account employees described in paragraph (3)(B) who are not participants in the plan” from first sentence and inserted provision that such term also includes any retired employee if such employee when he retired or separated from service was a key employee.
Pub. L. 98–369, § 223(a)(2)1984—Subsec. (b)(1). , struck out “either has reached the retirement age with respect to such employer or” before “is disabled”.
Pub. L. 98–369, § 223(b)Subsec. (d)(1). , designated existing provisions as subpar. (A) and added subpar. (B).
Pub. L. 94–4551976—Subsec. (c). struck out “or his delegate” after “Secretary”.
Pub. L. 89–971965—Subsec. (b)(1). substituted “section 72(m)(7)” for “paragraph (3) of section 213(g), determined without regard to paragraph (4) thereof”.
“The amendment made by paragraph (1) [amending this section] shall apply to employees separating from service after the date of the enactment of this Act [].”
section 409 of title 42Pub. L. 99–514“The amendments made by this section [amending this section and sections 105, 117, 120, 125, 127, 129, 132, 162, 401, 414, 505, 3121, 3231, 3306, 3401, 4976, and 6652 of this title, , The Public Health and Welfare, and provisions set out as notes under sections 89 and 3121 of this title] shall take effect as if included in section 1151 of the Tax Reform Act of 1986 [, see section 1151(k) set out below].”
section 89 of this titleThe amendments made by this section [enacting and amending this section and sections 105, 106, 117, 120, 125, 127, 129, 132, 414, 505, 6039D, and 6652 of this title] shall apply to years beginning after the later of—
“(A)
, or
“(B)
the earlier of—
“(i)
the date which is 3 months after the date on which the Secretary of the Treasury or his delegate issues such regulations as are necessary to carry out the provisions of section 89 of the Internal Revenue Code of 1986 (as added by this section), or
“(ii)
.
section 414 of this titleNotwithstanding the preceding sentence, the amendments made by subsections (e)(1) and (i)(3)(C) [amending ] shall, to the extent they relate to sections 106, 162(i)(2), and 162(k) of the Internal Revenue Code of 1986, apply to years beginning after 1986.
“(2)
Special rule for collective bargaining plan .—
section 89 of this titleIn the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified before , the amendments made by this section [enacting and amending this section and sections 105, 106, 117, 120, 125, 127, 129, 132, 414, 505, 6039D, and 6652 of this title] shall not apply to employees covered by such an agreement in years beginning before the earlier of—
“(A)
the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after ), or
“(B)
.
A plan shall not be required to take into account employees to which the preceding sentence applies for purposes of applying section 89 of the Internal Revenue Code of 1986 (as added by this section) to employees to which the preceding sentence does not apply for any year preceding the year described in the preceding sentence.
“(3)
Exception for certain group-term insurance plans .—
section 232(d)(2) of Pub. L. 98–369In the case of a plan described in section 223(d)(2) of the Tax Reform Act of 1984 [, set out as an Effective Date of 1984 Amendment note below], such plan shall be treated as meeting the requirements of section 89 of the Internal Revenue Code of 1986 (as added by this section) with respect to individuals described in section 223(d)(2) of such Act. An employer may elect to disregard such individuals in applying section 89 of such Code (as so added) to other employees of the employer.
“(4)
Special rule for church plans .—
section 89 of this titleIn the case of a church plan (within the meaning of section 414(e)(3) of the Internal Revenue Code of 1986) maintaining an insured accident and health plan, the amendments made by this section [enacting and amending this section and sections 105, 106, 117, 120, 125, 127, 129, 132, 414, 505, 6039D, and 6652 of this title] shall apply to years beginning after .
“(5)
Cafeteria plans .—
section 409 of Title 42The amendments made by subsection (d)(2) [amending sections 3121 and 3306 of this title and , The Public Health and Welfare] shall apply to taxable years beginning after .
“(6)
Certain plans maintained by educational institutions .—
If an educational organization described in section 170(b)(1)(A)(ii) of the Internal Revenue Code of 1986 makes an election under this paragraph with respect to a plan described in section 125(c)(2)(C) of such Code, the amendments made by this section shall apply with respect to such plan for plan years beginning after the date of the enactment of this Act [].”
section 83 of this titleExcept as provided in paragraph (2), the amendments made by this section [amending this section and ] shall apply to taxable years beginning after .
“(2)
Inclusion of former employees in the case of existing group-term insurance plans.—
“(A)
In general .—
The amendments made by subsection (a) [amending this section] shall not apply—
“(i)
to any group-term life insurance plan of the employer in existence on , or
“(ii)
to any group-term life insurance plan of the employer (or a successor employer) which is a comparable successor to a plan described in clause (i),
but only with respect to an individual who attained age 55 on or before , and was employed by such employer (or a predecessor employer) at any time during 1983. Such amendments also shall not apply to any employee who retired from employment on or before , and who, when he retired, was covered by the plan (or a predecessor plan).
“(B)
Special rule in the case of discriminatory group-term life insurance plan .—
In the case of any plan which, after , is a discriminatory group-term life insurance plan (as defined in section 79(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]), subparagraph (A) shall not apply in the case of any individual retiring under such plan after .
“(C)
Benefits to certain retired individuals not taken into account for purposes of determining whether plan is discriminatory .—
For purposes of determining whether a plan described in subparagraph (A) meets the requirements of section 79(d) of the Internal Revenue Code of 1986 with respect to group-term life insurance for former employees, coverage provided to employees who retired on or before , may, at the employer’s election, be disregarded.
“(D)
Comparable successor plans .—
For purposes of subparagraph (A), a plan shall not fail to be treated as a comparable successor to a plan described in subparagraph (A)(i) with respect to any employee whose benefits do not increase under the successor plan.”
, , , as amended by , title XVIII, § 1827(b), , , 2850, provided that:
section 7701 of this titlesection 3401 of this title“The amendments made by subsections (a) [amending this section and ] and (c) [amending sections 6052 and 6678 of this title] and paragraph (3) of section 6652(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by section 221(b)(2) of this Act), shall apply with respect to group-term life insurance provided after , in taxable years ending after such date. The amendments made by subsection (b) [amending ] shall apply with respect to remuneration paid after , in the form of group-term life insurance provided after such date. In applying section 79(b) of the Internal Revenue Code of 1986 (as added by subsection (a)(1) of this section) to a taxable year beginning before , if paragraph (2)(B) of such section applies with respect to an employee for the period beginning , and ending with the close of his first taxable year ending after , such paragraph (2)(B) shall be treated as applying with respect to such employee for the period beginning , and ending .”
Plan Amendments Not Required Until January 1, 1989
Pub. L. 99–514section 1140 of Pub. L. 99–514section 401 of this titleFor provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after , see , as amended, set out as a note under .