[Code of Federal Regulations]
[Title 26, Volume 17]
[Revised as of April 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR54.4976-1T]

[Page 274-275]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 54_PENSION EXCISE TAXES--Table of Contents
 
Sec.  54.4976-1T  Questions and answers relating to taxes with respect 
to welfare benefit funds (temporary).

    Q-1: What does section 4976 provide?
    A-1: Section 4976 imposes a tax on employers who provide 
disqualified benefits through a welfare benefit fund. The tax imposed is 
equal to 100 percent of the disqualified benefit.
    Q-2: What constitutes a disqualified benefit?
    A-2: A disqualified benefit is (a) any post-retirement medical or 
life insurance benefit provided with respect to a key employee (as 
defined in section 419A(d)(3)) through a welfare benefit fund if a 
separate account is required to be established for such employee under 
section 419A(d) and the cost for such coverage is not charged against or 
paid from such separate account; (b) any post-retirement medical or life 
insurance benefit provided through a welfare benefit fund with respect 
to an individual in whose favor discrimination is prohibited unless the 
plan of which the fund is a part meets the requirements of section 
505(b) with respect to that benefit; and (c) any portion of the fund 
which reverts to the benefit of the employer. A post-retirement medical 
or life insurance benefit provided with respect to a key employee will 
not constitute a disqualified benefit even though such benefit is not 
provided through a separate account if the cost of such benefit is paid 
by the employer in the taxable year in which the benefit

[[Page 275]]

is provided and there is not (and there is not required to be) a 
separate account with an outstanding credit balance maintained for the 
key employee.
    Q-3: What is the effective date of section 4976?
    A-3: (a) Generally, section 4976 applies to disqualified benefits 
provided by a welfare benefit fund after December 31, 1985. However, a 
disqualified benefit, as defined in section 4976(b)(1) or (2), is not 
subject to section 4976(a) if it is provided from ``existing reserves 
for post-retirement medical or life insurance benefits'' that are within 
the transition rule set forth in section 512(a)(3)(E)(iii) and Q&A-4 of 
Sec.  1.512(a)-5T (or would be if such transition rule applied to such 
welfare benefit fund). For example, if a welfare benefit fund in 
existence on July 18, 1984, provides an individual in whose favor 
discrimination is prohibited with a post-retirement life insurance 
benefit after December 31, 1985, that does not meet the requirements of 
section 505(b) and if the welfare benefit fund received no contributions 
after July 18, 1984, then the disqualified benefit provided by the fund 
is not subject to section 4976(a)
    (b) A welfare benefit fund will be able to avoid the application of 
section 4976(b)(1) and (2) if the employer withdraws from such fund, 
before April 7, 1986, any amounts that are not attributable to 
``existing reserves for post-retirement medical or life insurance 
benefits'' because they were neither actually set aside nor treated as 
actually set aside under Q&A-4 of Sec.  1.512(a)-5T, on July 18, 1984. 
The employer making such a withdrawal must include the amount in income 
for the first taxable year ending after July 18, 1984, or, to the extent 
that the withdrawn amount is attributable to the following taxable year, 
for such following taxable year. Such a withdrawal will not be treated 
as an impermissible distribution or reversion under section 501(c)(9), 
and will not be treated as a disqualified benefit under section 
4976(b)(3). Of course, to the extent that the welfare benefit fund 
contains amounts that are attributable to ``existing reserves'' but are 
not within the transition rule set forth in Q&A-4 of Sec.  1.512(a)-5T 
(as applied to welfare benefit funds), for example, because such amounts 
exceed the amounts that could have been accumulated under the principles 
set forth in Revenue Rulings 69-382, 1969-2 C.B. 28; 69-478, 1969-2 C.B. 
29; and 73-599, 1973-2 C.B. 40, the fund will not be able to avoid the 
application of section 4976(b)(1) and (2) under this paragraph.
    (c) In the case of a plan which is maintained pursuant to one or 
more collective bargaining agreements (1) between employee 
representatives and one or more employers and (2) which are in effect on 
July 1, 1985 (or ratified on or before that date), the provision does 
not apply to disqualified benefits provided in years beginning before 
the termination of the last of the collective bargaining agreements 
pursuant to which the plan is maintained (determined without regard to 
any extension of the contract agreed to after July 1, 1985). For 
purposes of the preceding sentence, any plan amendment made pursuant to 
a collective bargaining agreement relating to the plan which amends the 
plan solely to conform to any requirement added under section 511 of the 
Tax Reform Act 1984 (i.e., requirements under sections 419, 419A, 
512(a)(3)(E), and 4976) shall not be treated as a termination of such 
collective bargaining agreement.

[T.D. 8073, 51 FR 4336, Feb. 4, 1986]