|Code Section||Effective Date||Name of Act||Name of Provision||10yr Revenue Estimate ($millions)|
|72(t)||*See below||Moving Ahead for Progress in the 21st Century Act||Exception from early distribution tax for annuities under phased retirement program||Negligible|
|72||12/31/2010||The Small Business Jobs Act of 2010||Permit partial annuitization of a nonqualified annuity contract||956|
*Note on Effective Date
The provision is effective on the effective date of implementing regulations issued by OPM implementing the Federal Phased Retirement Program.
Exception from early distribution tax for annuities under phased retirement program
Explanation of Provision
The Act includes a new Federal Phased Retirement Program under which a Federal agency may allow a full-time retirement eligible employee to elect to enter phased retirement status in accordance with regulations issued by the Office of Personnel Management (OPM).63 During that status, generally, the employee’s work schedule is a percentage of a full time work schedule, and the employee receives a phased retirement annuity. At full-time retirement, the phased retiree is entitled to a composite retirement annuity that also includes the portion of the employee’s retirement annuity attributable to the reduced work schedule. The Act includes an exception to the early distribution tax for payments under a phased retirement annuity and a composite retirement annuity received by an employee participating in this new Federal Phased Retirement Program.
Permit partial annuitization of a nonqualified annuity contract
Explanation of Provision
The provision permits a portion of an annuity, endowment, or life insurance contract to be annuitized while the balance is not annuitized, provided that the annuitization period is for 10 years or more, or is for the lives of one or more individuals.
The provision provides that if any amount is received as an annuity for a period of 10 years or more, or for the lives of one or more individuals, under any portion of an annuity, endowment, or life insurance contract, then that portion of the contract is treated as a separate contract for purposes of section 72.
The investment in the contract is allocated on a pro rata basis between each portion of the contract from which amounts are received as an annuity and the portion of the contract from which amounts are not received as an annuity. This allocation is made for purposes of applying the rules relating to the exclusion ratio, the determination of the investment in the contract, the expected return, the annuity starting date, and amounts not received as an annuity. A separate annuity starting date is determined with respect to each portion of the contract from which amounts are received as an annuity.
The provision is not intended to change the present-law rules with respect either to amounts received as an annuity, or to amounts not received as an annuity, in the case of plans qualified under section 401(a), plans described in section 403(a), section 403(b) tax-deferred annuities, or individual retirement plans.
63- See Conference Report to accompany H.R. 4348, the Moving Ahead for Progress in the 21st Century Act, H.R. Rep. No. 112–557, June 28, 2012, pp. 666–667, for an explanation of the new Federal Phased Retirement Program.
-Return to Explanation of Provision