To amend the Internal Revenue Code of 1986 to modify the exception from the treatment of welfare benefit funds for 10-or-more employer plans.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Welfare Benefits 
Protection Act''.

SEC. 2. MODIFICATION OF EXCEPTION FOR 10-OR-MORE EMPLOYER PLANS FROM 
              TREATMENT OF WELFARE BENEFIT FUNDS.

    (a) In General.--Paragraph (6) of section 419A(f) of the Internal 
Revenue Code of 1986 (relating to exception for 10-or-more employer 
plans) is amended by adding at the end the following new subparagraphs:
                    ``(C) Experience-rating arrangement.--For purposes 
                of subparagraph (A), a plan does not maintain an 
                experience-rating arrangement if it provides that, at 
                all times, all plan assets are available as a single, 
                undivided pool to provide benefits to the covered 
                employees of all individual employers participating in 
                the plan.
                    ``(D) Antidiscrimination rule.--Subparagraph (A) 
                shall not apply to a 10 or more employer plan unless--
                            ``(i) benefits under the plan are available 
                        to all covered employees under the same 
                        formula,
                            ``(ii) the plan benefits each employee who 
                        has attained at least the age of 21, who works 
                        1,000 hours or more annually, and who has 
                        completed at least 1 year of service (as 
                        defined in section 410(a)(3)),
                            ``(iii) all benefit formulas under the plan 
                        provide a uniform multiple of compensation to 
                        all participants, except that highly 
                        compensated employees can have a lower benefit 
                        than the uniform multiple of compensation 
                        provided,
                            ``(iv) upon employer termination from the 
                        trust--
                                    ``(I) all eligible employees are 
                                entitled to a pro rata share of the 
                                plan's assets, and
                                    ``(II) benefit payments include 
                                payment to all former eligible 
                                employees terminated 24 months or less 
                                prior to employer termination from the 
                                trust,
                            ``(v) for each employer group, there is at 
                        least 1 employee participating in the plan who 
                        is not an owner-employee for every 2 owner-
                        employees participating in the plan, and
                            ``(vi) the trust maintains a ratio of plan 
                        participants that is at least 3 employees who 
                        are not owner-employees to each owner-employee.
                For purposes of this subparagraph, the term `owner-
                employee' has the meaning given to such term by section 
                416(i).
                    ``(E) Distribution of benefits and plan assets.--
                Subparagraph (A) shall not apply to a 10 or more 
                employer plan unless--
                            ``(i) none of the assets of the plan may 
                        revert to any employer,
                            ``(ii) no loan may be made under the plan 
                        to any employee, and
                            ``(iii) upon termination of employer 
                        participation in the trust--
                                    ``(I) for plans without severance 
                                benefits, an employer may terminate 
                                participation in the trust only if all 
                                employees of the employer receive a pro 
                                rata share of the benefits,
                                    ``(II) for plans with severance 
                                benefits, plan assets used to fund 
                                severance benefits can be distributed 
                                only for severance benefits which are 
                                limited to 200 percent of so much of 
                                the annual compensation as does not 
                                exceed the limitation under section 
                                401(a)(17), and payable over not more 
                                than 24 months, or other benefits as 
                                provided under the plan, and
                                    ``(III) for plans with post-
                                retirement medical benefits, plan 
                                assets used to fund post-retirement 
                                medical benefits can be distributed 
                                only for post-retirement medical 
                                benefits.
                If any plan participant, including an owner, dies prior 
                to using all the post-retirement medical benefits to 
                which he or she is entitled under the plan, the unused 
                amounts revert to the trust (a forfeiture). If a 
                participating business owner terminates participation 
                in the plan due to insolvency, sale, merger-acquisition 
                or other Treasury-approved event, plan assets 
                attributable to post-retirement medical benefits must 
                remain in the plan until/unless they are paid in the 
                form of medical expense reimbursement post-retirement.
                    ``(F) Rollover.--Subparagraph (A) shall not apply 
                to a 10 or more employer plan unless the plan permits 
                plan participants to transfer benefits from such plan 
                to a similar multiple employer welfare benefit plan. No 
                amount shall be includible in the gross income of a 
plan participant by reason of such a transfer.
                    ``(G) Benefit limitations.--Subparagraph (A) shall 
                not apply to a 10 or more employer plan unless benefits 
                payable to plan participants are limited to the 
                following:
                            ``(i) Death benefits.--Minimum death 
                        benefit amounts are determined either by the 
                        plan formula or, if greater, by the minimum 
                        issue amounts determined by the plan's life 
                        insurance provider.
                            ``(ii) Severance benefits.--Maximum 
                        severance benefits are determined in accordance 
                        with Department of Labor regulations and may 
                        not exceed 200 percent of so much of the annual 
                        compensation as does not exceed the limitation 
                        under section 401(a)(17).
                            ``(iii) Post-retirement medical benefits.--
                        Benefits may not be paid prior to normal 
                        retirement age. Normal retirement age would be 
                        the year of eligibility for medicare, or total 
                        and permanent disability as defined under the 
                        Social Security Act. Assets funding post-
                        retirement medical benefits revert to the plan 
                        if not paid prior to death to a participating 
                        eligible employee. Assets used to fund post-
                        retirement medical benefits are payable to the 
                        estate of a deceased eligible participating 
                        employee to pay any uncovered medical expenses 
                        of the deceased employee participant's estate.
                    ``(H) Deduction limitations.--Deductions for 
                contributions to a 10 or more employer plan trust shall 
                not exceed--
                            ``(i) for insured death benefits, of which 
                        the plan trustee is the sole life insurance 
                        policy owner--
                                    ``(I) in the case of term 
                                insurance, the annual term premium,
                                    ``(II) in the case of a whole life 
                                insurance policy, the level annual 
                                premium to normal retirement age, or
                                    ``(III) in the case of universal 
                                life insurance, the guideline level 
                                annual premium (as defined in section 
                                7702),
                            ``(ii) for severance benefits, an amount 
                        determined using reasonable actuarial 
                        principles needed to fund the purchase of the 
                        level of benefits as stated in the plan 
                        document, but no prefunding of the benefit in 
                        excess of the amount needed to fund the current 
                        benefit amount would be permitted, and
                            ``(iii) for medical, health, and disability 
                        benefits, an amount required to pay an 
                        insurance company premium, or in the case of a 
                        self-funded plan, amounts needed to cover the 
                        anticipated liability, but such contributions 
                        would be forfeited to the welfare benefit trust 
                        if the employer plan participant dies or 
                        terminates prior to payment of these benefits, 
                        or if the employer terminates participation in 
                        the welfare benefit trust.
                    ``(I) Forfeiture pool.--Subparagraph (A) shall not 
                apply to a 10 or more employer plan unless all assets 
                in the forfeiture pool are used in a nondiscriminatory 
                manner for the benefit of participating employees.''
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of first committee action, but benefits earned as of 
that date may be funded at the level at which they exist as of such 
date with deductible contributions if the plans are brought into 
compliance with the rules of such amendment within 24 months after such 
date of enactment.

Summary: Small Business Welfare Benefits Protection Act - Amends the Internal Revenue Code to revise the exception from the treatment of welfare benefit funds for ten or more employer plans.