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TITLE 26-INTERNAL REVENUE CODE § 404. Deduction for contributions of an employer to an employees' trust or annuity plan and compen- sation under a deferred-payment plan (a) General rule If contributions arc paid by an employer to or under a stock bonus, pension, profit-sharing, or annuity plan, or if compensation is paid or ac- crued on account of any employee under a plan deferring the receipt of such compensation, such contributions or compensation shall not be deductible under section 162 (relating to trade or business expenses) or section 212 (re- lating to expenses for the production of income); but, If they satisfy the conditions of either of such sections, they shall be deductible under this section, subject, however, to the fol- lowing limitations as to the amounts deductible in any year: (1) Pension trusts (A) In general In the taxable year when paid, if the con- tributions are paid into a pension trust, and if such taxable year ends within or with a taxable year of the trust for which the trust is exempt under section 501(a), in an amount determined as follows: (I) the amount necessary to satisfy the minimum funding standard provided by section 412(a) for plan years ending within or with such taxable year (or for any prior plan year), if such amount is greater than the amount determined under clause (ii) or (iii) (whichever is ap- plicable with respect to the plan), (ii) the amount necessary to provide with respect to all of the employees under the trust the remaining unfunded cost of their past and current service credits dis- tributed as a level amount, or a level per- centage of compensation, over the remain- ing future service of each such employee, as determined under regulations pre- scribed by the Secretary, but if such re- maining unfunded cost with respect to any 3 individuals is more than 50 percent of such remaining unfunded cost, the amount of such unfunded cost attribut- able to such individuals shall be distribut- ed over a period of at least 5 taxable years, (iii) an amount equal to the normal cost of the plan, as determined under regula- tions prescribed by the Secretary, plus, if past service or other supplementary pen- sion or annuity credits are provided by the plan, an amount necessary to amor- tize such credits in equal annual pay- ments (until fully amortized) over 10 years, as determined under regulations prescribed by the Secretary. In determining the amount deductible in such year under the foregoing limitations the funding method and the actuarial as- sumptions used shall be those used for such year under section 412, and the maximum amount deductible for such year shall be an amount equal to the full funding limitation for such year determined under section 412. (B) Special rule in case of certain amendments In the case of a plan which the Secretary of Labor finds to be collectively bargained which makes an election under this subpar- agraph (in such manner and at such time as may be provided under regulations pre- scribed by the Secretary), if the full fund- ing limitation determined under section 412(c)(7) for such year is zero, if as a result of any plan amendment applying to such plan year, the amount determined under section 412(c)(7)(B) exceeds the amount de- termined under section 412(c)(7)(A), and if the funding method and the actuarial as- sumptions used are those used for such year under section 412, the maximum amount deductible in such year under the limita- tions of this paragraph shall be an amount equal to the lesser of- (i) the full funding limitation for such year determined by applying section 412(c)(7) but increasing the amount re- ferred to in subparagraph (A) thereof by the decrease in the present value of all unamortized liabilities resulting from such amendment, or (ii) the normal cost under the plan re- duced by the amount necessary to amor- tize in equal annual installments over 10 years (until fully amortized) the decrease described in clause (i). In the case of any election under this sub- paragraph, the amount deductible under the limitations of this paragraph with re- spect to any of the plan years following the plan year for which such election was made shall be determined as provided under such regulations as may be prescribed by the Secretary to carry out the purposes of this subparagraph. (C) Certain collectively-bargained plans In the case of a plan which the Secretary of Labor finds to be collectively bargained, established or maintained by an employer doing business in not less than 40 States and engaged in the trade or business of fur- nishing or selling services described in sec- tion 167(l)(3)(A)(iii), with respect to which the rates have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof, and in the case of any employer which is a member of a controlled group with such employer, subparagraph (B) shall be applied by substituting for the words "plan amendment" the words "plan amend- ment or increase in benefits payable under title II of the Social Security Act". For the purposes of this subparagraph, the term "controlled group" has the meaning pro- vided by section 1563(a), determined with- out regard to section 1563(a)(4) and (e)(3)(C). (D) Carryover Any amount paid in a taxable year in excess of the amount deductible in such year under the foregoing limitations shall be deductible in the succeeding taxable Page 307 § 404