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TITLE 26-INTERNAL REVENUE CODE the employer do not exceed $10,000 for the plan year, or for any prior plan year, and (B) the employer has not at any time maintained a defined contribution plan in which the participant participated. (5) Reduction for service less than 10 years In the case of an employee who hts less than 10 years of service with the employer, the limitation referred to In paragraph (1), and the limitation referred to in paragraph (4), shall be the limitation determined under such paragraph (without regard to this para- graph), multiplied by a fraction, the numera- tor of which is the number of years (or part thereof) of service with the employer and the denominator of which is 10. (6) Computation of benefits and contributions The computation of- (A) benefits under a defined contribution plan, for purposes of section 401(a)(4), (B) contributions made on behalf of a par- ticipant in a defined benefit plan, for pur- puses of section 401(a)(4), and (C) contributions and benefits provided for a participant In a plan described in sec- ion 414(k), for purposes of this section shall not be made on a basis inconsistent with regulations prescribed by the Secretary. (c) Limitation for defined contribution plans (1) In general Contributions and other additions with re- spect to a participant exceed the limitation of this subsection if, when expressed as an annual addition (within the meaning of para- graph (2)) to the participant's account, such annual addition is greater than the lesser of- (A) $25,000, or (B) 25 percent of the participant's com- pensation. (2) Annual addition For purposes of paragraph (1), the term "annual addition" means the sum of any year of- (A) employer contributions, (B) the lesser of- (I) the amount of the employee contri- butions in excess of 6 percent of his com- pensation, or (it) one-half of the employee contribu- tions, and (C) forfeitures. For the purposes of this paragraph, employee contributions under subparagraph (B) are de- termined without regard to any rollover con- tributions (as defined in sections 402(a)(5), 403(a)(4), 408(d)(3), and 409(b)(3)(C)). (3) Participant's compensation For purposes of paragraph (1), the term "participant's compensation" means the com- pensation of the participant from the employ- er for the year. In the case of an employee within the meaning of section 401(c)(1), the preceding sentence shall be applied by substi- tuting for "compensation of the participant from the employer" the following: "the par- ticipant's earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911)". (4) Special election for section 403(b) contracts purchased by educational organizations, hospi- tals, and home health service agencies (A) In the case of amounts contributed for an annuity contract described in section 403(b) for the year in which occurs a par- ticipant's separation from the service with an educational organization, a hospital, or a home health service agency, at the election of the participant there is substituted for the amount specified in paragraph (1)(B) the amount of the exclusion allowance which would be determined under section 403(b)(2) (without regard to this section) for the participant's taxable year in which such separation occurs if the participant's years of service were computed only by taking into account his service for the em- ployer during the period of years (not ex- ceeding ten) ending on the date of such sep- aration. (B) In the case of amounts contributed for an annuity contract described in section 403(b) for any year in the case of a partici- pant who is an employee of an educational organization, a hospital, or a home health service agency, at the election of the par- ticipant there is substituted for the amount specified in paragraph (1)(B) the least of- (1) 25 percent of the participant's inclu- dible compensation (as defined in section 403(b)(3)) plus $4,000, (i) the amount of the exclusion allowance determined for the year under section 403(b)(2), or (ii) $15,000. (C) In the case of amounts contributed for an annuity contract described in section 403(b) for any year for a participant who is an employee of an educational organization, a hospital, or a home health service agency, at the election of the participant the provi- sions of section 403(b)(2)(A) shall not apply. (D)(i) The provisions of this paragraph apply only if the participant elects its appli- cation at the time and in the manner pro- vided under regulations prescribed by the Secretary. Not more than one election may be made under subparagraph (A) by any participant. A participant who elects to have the provisions of subparagraph (A), (B), or (C) of this paragraph apply to him may not elect to have any other subpara- graph of this paragraph apply to him. Any election made under this paragraph is irrev- ocable. (ii) For purposes of this paragraph the term "educational organization" means an educational organization described in sec- tion 170(b)(1)(A)(ii). (iII) For purposes of this paragraph the term "home health service agency" means an organization described in subsection 501(c)(3) which Is exempt from tax under section 501(a) and which has been deter- mined by the Secretary of Health, Educa- tion, and Welfare to be a home health agency (as defined in section 1861(o) of the Social Security Act). (5) Application with section 404(e)(4) In the case of a plan which provides contri- butions or benefits for employees some or all 71-999 0 - 78 - 24 (Vol. 7) Page 341 § 415