[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.404(a)-6]

[Page 441-442]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.404(a)-6  Pension and annuity plans; limitations under section 404(a)(1)(C).

    (a) Application to a taxable year of the employer which ends with or 
within a taxable year of the pension trust or annuity plan for which it 
is exempt under section 501(a) or meets the requirements of section 
404(a)(2). (1) The rules in this paragraph are applicable with respect 
to the limitation under section 404(a)(1)(C) for taxable years of the 
employer which end with or within a taxable year of the pension trust 
for which it is exempt under section 501(a), or, in the case of an 
annuity plan, during which it meets the requirements of section 
404(a)(2). See paragraph (b) of this section for rules relating to the 
limitation under section 404(a)(1)(C) for other taxable years of the 
employer.
    (2) Subject to the applicable general conditions and limitations 
(see Sec. 1.404(a)-3), in lieu of amounts deductible under the 
limitations of section 404(a)(1)(A) and section 404(a)(1)- (B), 
deductions may be allowed under section 404(a)(1)(C) to the extent of 
limitations based on normal and past service or supplementary costs of 
providing benefits under the plan. ``Normal cost'' for any year is the 
amount actuarially determined which would be required as a contribution 
by the employer in such year to maintain the plan if the plan had been 
in effect from the beginning of service of each then included employee 
and if such costs for prior years had been paid and all assumptions as 
to interest, mortality, time of payment, etc., had been fulfilled. Past 
service or supplementary cost at any time is the amount actuarially 
determined which would be required at such time to meet all the future 
benefits provided under the plan which would not be met by future normal 
costs and employee contributions with respect to the employees covered 
under the plan at such time.
    (3) The limitation under section 404(a)(1)(C) for any taxable year 
to which this paragraph applies is the sum of normal cost for the year 
plus an amount not in excess of one-tenth of the past service or 
supplementary cost as of the date the past service or supplementary 
credits are provided under the plan. For this purpose, the normal cost 
may be determined by any generally accepted actuarial method and may be 
expressed either as (i) the aggregate of level amounts with respect to 
each employee covered under the plan, (ii) a level percentage of payroll 
with respect to each employee covered under the plan, or (iii) the 
aggregate of the single premium or unit costs for the unit credits 
accruing during the year with respect to each employee covered under the 
plan, provided, in any case, that the method is reasonable in view of 
the provisions and coverage of the plan, the funding medium, and other 
applicable considerations. The limitation may include one-tenth of the 
past service or supplementary cost as of the date the provisions 
resulting in such cost were put into effect, but it is subject to 
adjustments for prior favorable experience. See Sec. 1.404(a)-3. In any 
case, past service or supplementary costs shall not be included in the 
limitation for any year in which the amount required to fund fully or to 
purchase such past service or supplementary credits has been deducted, 
since no deduction is allowable for any amount (other than the normal 
cost) which is paid in after such credits are fully funded or purchased.
    (b) Application to a taxable year of the employer which does not end 
with or within a taxable year of the pension trust or annuity plan for 
which it is exempt under section 501(a) or meets the requirements of 
section 404(a)(2). (1) The rules in this paragraph are applicable with 
respect to the limitation under section 404(a)(1)(C) for taxable years 
of the employer which end with or within a taxable year of the pension 
trust during which it is not exempt under section 501(a), or, in the 
case of an annuity plan, during which it does not meet the requirements 
of section 404(a)(2), or which end after the trust or plan has 
terminated. Since contributions paid in such taxable years of the 
employer are

[[Page 442]]

not deductible under section 404(a) (1) or (2) (except as provided in 
section 404(a)(6)), the limitation under section 404(a)(1)(C) for such 
taxable years relates only to the amount of any excess contributions 
that may be carried over to such taxable years under section 
404(a)(1)(D).
    (2) Subject to the applicable general conditions and limitations 
(see Sec. 1.404(a)-3), deductions may be allowed under section 
404(a)(1)(C) for taxable years of the employer to which this paragraph 
applies to the extent of limitations based on past service or 
supplementary costs of providing benefits under the plan. For definition 
of the ``past service or supplementary cost at any time'', see paragraph 
(a)(2) of this section.
    (3) The limitation under section 404(a)(1)(C) for any taxable year 
to which this paragraph applies is an amount not in excess of one-tenth 
of the past service or supplementary cost as of the date the past 
service or supplementary credits are provided under the plan. The 
limitation under section 404(a)(1)(C) is subject, however, to 
adjustments for prior favorable experience. In any case, no amounts are 
deductible under section 404(a)(1)(C) for any year to which this 
paragraph applies if the amount required to fund fully or to purchase 
the past service or supplementary credits has been deducted in prior 
taxable years of the employer.

[T.D. 6534, 26 FR 515, Jan. 20, 1961]