To amend title I of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 to make improvements in benefit accrual standards.

Summary: Pension Preservation and Portability Act of 2005 - Amends the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code to require all defined benefit pension plans, including hybrid plans such as a cash balance plan, to comply with certain rules, in cases of reduction in accrued benefits because of attainment of any age, in order to be deemed nondiscriminatory as to age.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Pension Preservation and Portability 
Act of 2005''.

SEC. 2. IMPROVEMENTS IN BENEFIT ACCRUAL STANDARDS.

    (a) Amendments to the Employee Retirement Income Security Act of 
1974.--
            (1) Rules relating to reduction in accrued benefits because 
        of attainment of any age.--Section 204(b)(1)(H) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 
        1054(b)(1)(H)) is amended by adding at the end the following 
        new clauses:
    ``(vii)(I) A plan complies with clause (i) if a participant's 
entire accrued benefit, as determined as of any date under the formula 
for determining benefits as set forth in the text of the plan 
documents, would be equal to or greater than that of any similarly 
situated, younger individual.
    ``(II) For purposes of this clause, an individual is similarly 
situated to a participant if such individual is identical to such 
participant in every respect (including period of service, 
compensation, position, date of hire, work history, and any other 
respect) except for age.
    ``(III) In determining the entire accrued benefit for purposes of 
this clause, the subsidized portion of any early retirement benefit 
(including any early retirement subsidy that is fully or partially 
included or reflected in an employee's opening balance or other 
transition benefits) shall be disregarded.
    ``(viii) A plan shall not be treated as failing to meet the 
requirements of this subparagraph solely because the plan provides 
allowable offsets against those benefits under the plan which are 
attributable to employer contributions, based on benefits which are 
provided under title II of the Social Security Act, the Railroad 
Retirement Act of 1974, or under any retirement program for officers or 
employees of the Federal Government or of the government of any State 
or political subdivision thereof. For purposes of this clause, 
allowable offsets based on such benefits consist of offsets equal to 
all or part of the actual benefit payment amounts, reasonable 
projections or estimations of such benefit payment amounts, or 
actuarial equivalents of such actual benefit payment amounts, 
projections, or estimations (determined on the basis of reasonable 
actuarial assumptions).
    ``(ix) A plan shall not be treated as failing to meet the 
requirements of this subparagraph solely because the plan provides a 
disparity in contributions or benefits with respect to which the 
requirements of section 401(l) of the Internal Revenue Code of 1986 are 
met.
    ``(x)(I) A plan shall not be treated as failing to meet the 
requirements of this subparagraph solely because the plan provides for 
pre-retirement indexing of accrued benefits under the plan.
    ``(II) For purposes of this clause, the term `pre-retirement 
indexing' means, in connection with an accrued benefit, the periodic 
adjustment of the accrued benefit by means of the application of a 
recognized index or methodology so as to protect the economic value of 
the benefit against inflation prior to distribution.''.
            (2) Determinations of accrued benefit as balance of benefit 
        account.--Section 203 of such Act (29 U.S.C. 1053) is amended 
        by adding at the end the following new subsection:
    ``(f)(1) A defined benefit plan under which the accrued benefit 
payable under the plan upon distribution (or any portion thereof) is 
expressed as the balance of an account maintained for the participant 
shall not be treated as failing to meet the requirements of subsection 
(a)(2) and section 205(g) solely because of the amount actually made 
available for such distribution under the terms of the plan, in any 
case in which--
            ``(A) the applicable interest rate that would be required 
        to discount the participant's accrued benefit projected under 
        the terms of the plan to normal retirement age to a present 
        value equal to the amount actually made available for 
        distribution under the plan is not greater than
            ``(B) a market rate of return.
    ``(2) The Secretary of the Treasury may provide by regulation for 
rules governing the calculation of a market rate of return for purposes 
of paragraph (1) and for permissible methods of crediting interest to 
the account (including variable interest rates) resulting in effective 
rates of return meeting the requirements of paragraph (1).''.
    (b) Amendments to the Internal Revenue Code of 1986.--
            (1) Rules relating to reduction in accrued benefits because 
        of attainment of any age.--Subparagraph (H) of section 
        411(b)(1) of the Internal Revenue Code of 1986 (relating to 
        continued accrual beyond normal retirement age) is amended--
                    (A) by striking the heading and inserting the 
                following: ``Rules relating to reduction in accrued 
                benefits because of attainment of any age.--''; and
                    (B) by adding at the end the following:
                            ``(vi) Comparison to similarly situated, 
                        younger individuals.--
                                    ``(I) In general.--A plan shall not 
                                be treated as failing to meet the 
                                requirements of clause (i) if, as of 
                                any applicable date, a participant's 
                                entire accrued benefit, as determined 
                                under the formula for determining 
                                benefits as set forth in the text of 
                                the plan documents, would be equal to 
                                or greater than that of any similarly 
                                situated, younger individual.
                                    ``(II) Similarly situated 
                                individual.--For purposes of this 
                                clause, an individual is similarly 
                                situated to a participant if such 
                                individual is identical to such 
                                participant in every respect (including 
                                period of service, compensation, 
                                position, date of hire, work history, 
                                and any other respect) except for age.
                                    ``(III) Subsidized portion of early 
                                retirement benefit disregarded.--In 
                                determining the entire accrued benefit 
                                for purposes of this clause, the 
                                subsidized portion of any early 
                                retirement benefit shall be 
                                disregarded.
                            ``(vii) Allowable offsets.--A plan shall 
                        not be treated as failing to meet the 
                        requirements of this subparagraph solely 
                        because the plan provides allowable offsets 
                        against those benefits under the plan which are 
                        attributable to employer contributions, based 
                        on benefits which are provided--
                                    ``(I) under title II of the Social 
                                Security Act, the Railroad Retirement 
                                Act of 1974, or under any retirement 
                                program for officers or employees of 
                                the Federal Government or of the 
                                government of any State or political 
                                subdivision thereof, or
                                    ``(II) under another defined 
                                benefit plan which meets the 
                                requirements of this subparagraph or a 
                                defined contribution plan which meets 
                                the requirements of paragraph (2), if 
                                such offset is determined under a 
                                formula which does not provide for the 
                                commencement of, or any increase in, 
                                the offset upon the attainment of any 
                                specified age of the participant.
                        For purposes of this clause, allowable offsets 
                        based on such benefits consist of offsets equal 
                        to the actual benefit payment amounts, 
                        reasonable projections or estimations of such 
                        benefit payment amounts, or actuarial 
                        equivalents of such actual benefit payment 
                        amounts, projections, or estimations 
                        (determined on the basis of reasonable 
                        actuarial assumptions).
                            ``(viii) Compliance with rules permitting 
                        disparity in plan contributions or benefits.--A 
                        plan shall not be treated as failing to meet 
                        the requirements of this subparagraph solely 
                        because the plan provides a disparity in 
                        contributions or benefits with respect to which 
                        the requirements of section 401(l) are met.
                            ``(ix) Pre-retirement indexing.--
                                    ``(I) In general.--A plan shall not 
                                be treated as failing to meet the 
                                requirements of this subparagraph 
                                solely because the plan provides for 
                                pre-retirement indexing of accrued 
                                benefits under the plan.
                                    ``(II) Definition.--For purposes of 
                                this clause, the term `pre-retirement 
                                indexing' means, in connection with an 
                                accrued benefit, the periodic 
                                adjustment of the accrued benefit by 
                                means of the application of a 
                                recognized index or methodology so as 
                                to protect the economic value of the 
                                benefit against inflation prior to 
                                distribution.''.
            (2) Determinations of accrued benefit as balance of benefit 
        account.--Subsection (a) of section 411 of such Code (relating 
        to minimum vesting standards) is amended by adding at the end 
        the following new paragraph:
            ``(13) Maintenance of nonforfeitability of benefits 
        expressed as account balance.--
                    ``(A) In general.--A defined benefit plan under 
                which the accrued benefit payable under the plan upon 
                distribution (or any portion thereof) is expressed as 
                the balance of an account maintained for the 
                participant shall not be treated as failing to meet the 
                requirements of paragraph (2) or 417(e) solely because 
                of the amount actually made available for such 
                distribution under the terms of the plan, in any case 
                in which--
                            ``(i) the applicable interest rate that 
                        would be required to discount the participant's 
                        accrued benefit projected under the terms of 
                        the plan to normal retirement age to a present 
                        value equal to the amount actually made 
                        available for distribution under the plan is 
                        not greater than
                            ``(ii) a market rate of return.
                    ``(B) Regulations.--The Secretary may provide by 
                regulation for rules governing the calculation of a 
                market rate of return for purposes of subparagraph (A) 
                and for permissible methods of crediting interest to 
                the account (including variable interest rates) 
                resulting in effective rates of return meeting the 
                requirements of subparagraph (A).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning before, on, or after the date of the 
enactment of this Act.