The Tax Consequences of Pension Trusts and Employer Purchased Annuities to Employee or Beneficiary

Abstract

F OR MANY YEARS Congress has sought to encourage the establishment of retirement benefit plans in industry by special tax legislation.' Although such laws were enacted as early as 1926,2 the present tax treatment of pension benefits evolved with the Revenue Act of 1942.1 The pension legislation was just one manifestation of this most ambitious Act in its attempt to raise revenue, close loopholes and adjust inequities among taxpayers.4 Prior to 1942 an employer was able to set up a pension plan primarily for the benefit of highly paid executives and other key men, taking a deduction in the years payments were made under the plan.' Benefits were not taxed until the time of distribution to the executive after retirement.6