XI. PENSIONS AND DEFERRED COMPENSATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89-00066R000400060011-3
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 2
• Document Creation Date: December 23, 2016
• Document Release Date: December 29, 2010
• Sequence Number: 11
• Content Type: MISC

[Basis recovery (cont.)
Ins under qualified plans
J Amounts treated as distributions
Repayment period
l Interest paid on plan loans
XI. PENSIONS Approved For Release 2010/12/29: CIA-RDP89-00066R000400060011-3
Subject to certain exceptions, a loan to a par-
ticipant from a qualified plan is treated as a
taxable distribution of plan benefits. An excep-
tion is provided to the extent that the loan,
when added to the outstanding balance of all
other plan loans, does not exceed the lesser of
(1) $50,000, or (2) the greater of $10,000 or one-
half the participant's accrued benefit.
The exception applies only if the loan must,
by its terms, be repaid within five years, or
within a reasonable period if the loan is used to
acquire or improve a personal residence of the
participant or family member.
Interest paid on a loan from a qualified plan
is deductible.
President's Proposal
Effective dates.-The provisions generally
would apply to distributions made after Decem-
ber 31, 1985.
However, the repeal of capital gain, 10-year
forward averaging, and net unrealized apprecia-
tion would be phased in over a 6-year period for
individuals who will have attained age 55 before
January 1, 1987. During the transition period,
10-year forward averaging calculations would
use the present-law rate schedules.
In addition, the basis recovery rules applica-
ble to distributions made. before the annuity
starting date would not apply to benefits ac-
crued prior to January 1, 1986. The repeal of
the 3-year basis recovery rule and the modifica-
tion of the exclusion ratio would not apply to
any amount received as an annuity if the annu-
ity was in pay status on January 1, 1986.
Under the proposal, a loan would be treated
as a distribution to the extent that the loan
(when added to any outstanding balance) ex-
ceeds the lesser of (1) $50,000, reduced by the
highest outstanding loan balance during the
prior 12 months, or (2) the greater of $10,000 or
one-half of the employee's accrued benefit.
The proposal provides an exception to the
five-year repayment period only for those loans
applied to the first-time purchase of the partici-
pant's principal residence.
No provision.
Effective dates.-The provisions would be ef-
fective for amounts received as a loan after De-
Approved For Release 2010/12/29: CIA-RDP89-00066R000400060011-3
Effective dates.-Generally the same as the
President's proposal, except that no transition
rule would be provided with respect to the reor-
dering of the basis recovery rules applicable to
distributions before the annuity starting date.
In addition, present law would continue to
apply to net unrealized appreciation attributa-
ble to securities held as of December 31, 1985.
Same as the President's proposal.
In addition to the President's proposal; re-
quire level amortization of a loan over the per-
missible repayment period.
Defer the deduction for interest paid by (1) all
employees with respect to loans secured by elec-
tive deferrals under a qualified cash or deferred
arrangement or tax-sheltered annuity, and (2)
key employees with respect to loans from any
qualified plan, by denying a deduction for the
interest and increasing a participant's basis
under the plan by the amount of nondeductible
interest paid.
Effective date.-The modification would be ef-
fective for amounts received as a loan after De-
cember 31, 1985.
 Approved For Release 2010/12/29: CIA-RDP89-00066R000400060011-3
Item Present Law I President's Proposal I Possible Option
c. Pre-1974 capital gains treatment
d Net unrealized appreciation
e. Constructive receipt
f Basis recovery
A participant may elect to treat the pre-1974
portion of any lump sum distribution as long-
term capital gains.
If an employee receives a lump sum distribu-
tion that includes employer securities, only an
amount equal to the plans basis in the securities
is currently includible in income. Recognition of
the net unrealized appreciation is deferred until
the securities are sold or exchanged.
In addition, to the extent any distribution
consists of employer securities attributable to
employee constributions, recognization of the
net unrealized appreciation is deferred until the
securities are sold or exchanged.
Under a tax-sheltered annuity, unlike a quali-
fied plan, a participant is taxed when benefits
are received or made available.
Distributions prior to the annuity' starting
date are treated as being made first out of non-
taxable employee contributions and then out of
taxable amounts (employer contributions and
income).
Distributions after the annuity starting date
are treated under the following rules:
(1) In general, each payment is treated as
part a payment of income and part a recov-
ery of employee contributions.
(2) Under a special rule, if an individual
will receive all employee contributions
within the first three years after the annu-
ity starting date, then all distributions are
considered a return of employee contribu-
tions until the individual's basis has been
recovered.
The proposal would repeal the special pre-
1974 capital gains treatment.
The proposal would repeal the provisions per-
mitting deferred recognition of net unrealized
appreciation.
The proposal would tax participants under a
tax-sheltered annuity only when benefits are re-
ceived.
With respect to distributions before the annu-
ity starting date, the proposal would reverse the
ordering rules-treating the distributions as
being made first out of taxable amounts (em-
ployer contributions plus interest) and then out
of nontaxable employee contributions.
The proposal would repeal the special 3-year
basis recovery rule and treat each distribution
as part of a payment of income and part as re-
covery of employee contributions, under modi-
fied basis recovery rules.
Generally the same as the President's propos-
al, effective for distributions received after De-
cember 31, 1985.
Generally the same as the President's propos-
al, except that present law is retained with re-
spect to securities attributable to employee con-
tributions.
Same as the President's proposal.
Same as the President's proposal.
Approved For Release 2010/12/29: CIA-RDP89-00066R000400060011-3