[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: 26CFR1.415-9]

[Page 817-820]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.415-9  Disqualification of plans and trusts.

    (a) In general. Under section 415(g) and this section, with respect 
to a particular limitation year, a plan (and the trust forming part of 
the plan) is disqualified in accordance with the rules provided in 
paragraph (b) of this section, if any of the following conditions exist:
    (1) Annual additions (as defined in Sec. 1.415-6(b)) with respect 
to the account of any participant in a qualified defined contribution 
plan maintained by the employer exceed the limitations of section 415(c) 
and Sec. 1.415-6.
    (2) The annual benefit (as defined in Sec. 1.415-3(b)(1)) of a 
participant in a qualifed defined benefit plan maintained by the 
employer exceeds the limitations of section 415(b) and Sec. 1.415-3.
    (3) The combination of annual additions with respect to the account 
of any participant in a qualified defined contribution plan and the 
projected annual benefit payable with respect to such participant in a 
qualified defined benefit plan maintained by the employer exceeds the 
limitations of section 415(e) and Sec. 1.415-7.

For purposes of this paragraph, the determination of whether a plan or a 
combination of plans exceeds the limitations imposed by section 415 for 
a particular limitation year is, except as otherwise provided, made by 
taking into account the aggregation of plan rules provided in sections 
415(f) and 414 (b) and (c) (as modified by section 415(h)).
    (b) Rules for disqualification of plans and trusts--(1) In general. 
Any plan (including a trust which forms part of such plan) that is 
disqualified in a particular limitation year under the rules set forth 
in this paragraph, shall be disqualified as of the first day of the 
first plan year containing any portion of the particular limitation 
year.
    (2) Single plan. In the case of a single qualified defined benefit 
plan maintained by the employer that provides an annual benefit (as 
defined in Sec. 1.415-3(b)(1)) in excess of the limitations of section 
415(b) and Sec. 1.415-3 for any particular limitation year, such plan 
is disqualifed in that limitation year. Similarly, if the employer only 
maintains a single defined contribution plan under which annual 
additions (as defined in Sec. 1.415-6(b)) allocated to the account of 
any participant exceed the limitations of section 415(c) and Sec. 
1.415-6 for any particular limitation year, such plan is also 
disqualifed in that limitation year.
    (3) More than one plan. In the event that the limitations of section 
415(b) and Sec. 1.415-3, or section 415(c) and Sec. 1.415-6 are 
exceeded for a particular limitation year with respect to any 
participant because of the application of the aggregation rules of 
section 415(f)(1) or section 414 (b) or (c), as modified by section 
415(h), one or more of the plans shall be disqualifed in accordance with 
the rules set forth in this subparagraph. Similarly, if the limitations 
of section 415(e) and Sec. 1.415-7 are exceeded for a particular 
limitation year with respect to any participant because of the 
application of such aggregation rules (although if an individual 
participates in a defined contribution and defined benefit plan 
maintained by the same employer, these limitations may be exceeded even 
without the application of such aggregation rules), one or more of the 
plans shall be disqualified in accordance with the following rules:
    (i) If there are two plans and one of the plans has been terminated 
at any time including the last day of the particular limitation year, 
the plan which has not been so terminated (whether or not that plan is a 
multiemployer plan described in section 414(f)) is disqualified in that 
limitation year.

[[Page 818]]

    (ii) If there are two plans and neither plan has been terminated at 
any time including the last day of the particular limitation year, and 
if one of the plans is a multiemployer plan described in section 414(f), 
the plan which is not a multiemployer plan is disqualified in that 
limitation year. For purposes of the preceding sentence, the 
determination of whether a plan is a multiemployer plan described in 
section 414(f) is made as of the last day of the particular limitation 
year.
    (iii) If there are two plans of an employer and neither plan has 
either been terminated at any time including the last day of the 
particular limitation year or determined to be a multiemployer plan 
described in section 414(f) as of such day, the employer may elect, in a 
manner determined by the Commissioner, the plan that is disqualified. If 
the two plans described in this subdivision are involved because of the 
application of section 414 (b) or (c), as modified by section 415(h), 
the employers of the controlled group may elect, in a manner determined 
by the Commissioner, the plan that is disqualified. However, the 
election described in the preceding sentence is not effective unless 
made by all of the employers within the controlled group. For purposes 
of this subdivision, the elected plan is disqualified in the particular 
limitation year.
    (iv) If the election described in subdivision (b)(3)(iii) of this 
paragraph is not made with respect to the two plans described in such 
subdivision, the Commissioner, taking into account all of the facts and 
circumstances, shall have the discretion to determine the plan that is 
disqualified in the particular limitation year. In making this 
determination, some of the factors that will be taken into account 
include, but are not limited to, the number of participants in each plan 
and the amount of benefits provided on an overall basis by each plan.
    (v) If more than two plans are involved, a plan or plans shall be 
disqualified in the particular limitation year in accordance with the 
principles contained in this subparagraph.
    (4) Special rules for simplified employee pension. If there are two 
or more plans and if one of the plans is a simplified employee pension 
(as defined in section 408(k)), the simplified employee pension shall 
not be disqualified until all of the other plans have been disqualified. 
However, if one of the plans has been terminated, the simplified 
employee pension shall be disqualified before the terminated plan. For 
purposes of this subparagraph, the disqualification of a simplified 
employee pension means that the simplified employee pension is no longer 
described under section 408(k).
    (c) Special rules concerning section 403(b) annuity contracts--(1) 
In general. If aggregating or combining a section 403(b) annuity 
contract and a qualified plan causes the applicable limitations of 
section 415 to be exceeded, the exclusion allowance under section 
403(b)(2) shall be adjusted first to the extent necessary to satisfy 
such limitations.
    (2) Aggregating section 403(b) annuity contract and qualified 
defined benefit plan. In the event that aggregating a section 403(b) 
annuity contract and a qualified defined benefit plan causes the 
limitations of section 415(e) and Sec. 1.415-7 to be exceeded with 
respect to a participant for a particular limitation year, the amount of 
the contribution to the annuity contract in excess of such limitations 
is treated as a disqualified contribution and therefore includable in 
the gross income of the participant for the taxable year with or within 
which that limitation year ends. Furthermore, for purposes of computing 
the exclusion allowance under section 403(b)(2)(A) for future taxable 
years with respect to such participant, the disqualified contribution is 
treated as an amount contributed by the employer for an annuity contract 
which was excludable from the participant's gross income under section 
403(b)(2)(A)(ii). Thus, for future taxable years, the exclusion 
allowance will be reduced by the amount of the disqualified contribution 
even though such amount was not excludable from the participant's gross 
income in the taxable year when it was made. See Sec. 1.415-7(c)(2) for 
special rules relating to the defined contribution plan fraction 
applicable to an individual on whose behalf a section 403(b) annuity 
contract has been purchased.

[[Page 819]]

    (3) Combining section 403(b) annuity contract and qualified defined 
contribution plan. In the event that combining a section 403(b) annuity 
contract and a qualified defined contribution plan under the provisions 
of section 415(f)(1)(B) causes the limitations of section 415(c) and 
Sec. 1.415-6 applicable to a participant under the defined contribution 
plan to be exceeded for a particular limitation year, the excess of the 
contributions to the annuity contract plus the annual additions to the 
plan over such limitations is treated as a disqualified contribution to 
the annuity contract and therefore includable in the gross income of the 
participant for the taxable year with or within which that limitation 
year ends. Furthermore, for purposes of computing the exclusion 
allowance under section 403(b)(2)(A) for future taxable years with 
respect to such participant, the disqualified contribution is treated as 
an amount contributed by the employer for an annuity contract which was 
excludable from the participant's gross income under section 
403(b)(2)(A)(ii). Thus, for future taxable years, the exclusion 
allowance will be reduced by the amount of the disqualified contribution 
even though such amount was not excludable from the participant's gross 
income in the taxable year when it was made.
    (4) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example (1). N is employed by a hospital which purchases an annuity 
contract described in section 403(b) on N's behalf for the current 
limitation year. The current limitation year is N's first year of 
service with the hospital. Solely for the purpose of illustrating the 
rules set forth in this paragraph, assume that N is in control of the 
hospital within the meaning of section 414 (b) or (c), as modified by 
section 415(h). Therefore, under section 415(e)(5), the section 403(b) 
annuity contract is treated as a defined contribution plan maintained by 
the hospital and N. The hospital also maintains a qualified defined 
contribution plan during the current limitation year in which N 
participates, but it does not maintain any other qualified plan. N's 
compensation (within the meaning of Sec. 1.415-2(d)) from the hospital 
for the current limitation year is $20,000. N does not elect any of the 
alternative limitations provided in section 415(c)(4) for the section 
403(b) annuity contract. For the current limitation year, the hospital 
contributes $3,000 for the section 403(b) annuity contract on N's 
behalf, which is within the limitations applicable to N under the 
annuity contract (i.e., the lesser of the exclusion allowance under 
section 403(b)(2)(A) ($4,000) or the limitations of section 415(c)(1) 
($5,000)). The hospital also contributes $3,000 to the qualified plan on 
N's behalf for the current limitation year (which represents the only 
annual additions allocated to N's account under the plan for such year), 
which is within the $5,000 limitation of section 415(c)(1) applicable to 
N under the plan. However, under section 415(f)(1)(B), for purposes of 
applying the limitations of section 415(c) and Sec. 1.415-6, the 
hospital is considered to maintain only one defined contribution plan 
and thus, all contributions to the annuity contract and to the regular 
plan must be combined. Because the total combined contributions ($6,000) 
exceed the section 415(c) limitation applicable to N under the plan 
($5,000), under the special rules contained in this paragraph, $1,000 of 
the $3,000 contributed to the section 403(b) annuity contract is 
considered a disqualified contribution and therefore currently 
includable in N's gross income. Furthermore, in computing N's exclusion 
allowance for the section 403(b) annuity contract for future taxable 
years, besides the $3,000 contributed to the qualified plan, the $3,000 
contributed for the section 403(b) annuity contract is also considered 
an amount contributed by the employer and excludable from N's gross 
income for purposes of section 403(b)(2)(A)(ii), even though only $2,000 
of this amount was excludable from N's gross income.
    Example (2). Assume the same facts as in example (1), except that 
instead of the defined contribution plan the hospital maintains a 
qualified defined benefit plan during the current limitation year in 
which N participates. Because the hospital is considered to be 
maintaining a defined contribution plan (in the form of a section 403(b) 
annuity contract) in addition to its defined benefit plan, the 
limitations of section 415(e) and Sec. 1.415-7 are applicable to N for 
the current limitation year. If N's defined benefit plan fraction for 
the current limitation year is 1.0, then to satisfy the limitations of 
section 415(e) and Sec. 1.415-7, N's defined contribution plan fraction 
may not exceed .4 for the current limitation year. This means that only 
$2,000 (i.e. 40% of $5,000--the applicable limitation to N for the 
annuity contract under the special rule set forth in Sec. 1.415-
7(c)(2)(i)) could have been contributed to the annuity contract on N's 
behalf for the current limitation year without violating the 1.4 
limitation of section 415(e) and Sec. 1.415-7. However, because the 
hospital contributed $3,000 to the section 403(b) annuity contract on 
N's behalf, under the special rules contained in this

[[Page 820]]

paragraph, $1,000 of this amount is considered a disqualified 
contribution and therefore currently includable in N's gross income. 
Furthermore, in computing N's exclusion allowance for the section 403(b) 
annuity contract for future taxable years, the $3,000 contributed to the 
annuity contract is considered the amount contributed by the employer 
and excludable from N's gross income for purposes of section 
403(b)(2)(A)(ii), even through only $2,000 of this amount was excludable 
from N's gross income.

[T.D. 1716, 46 FR 1716, Jan. 7, 1981]