In the Senate of the United States,

October 11, 2004.

Resolved, That the bill from the House of Representatives (H.R. 1779) entitled ‘‘An Act to amend the Internal

Revenue Code of 1986 to allow penalty-free withdrawals from

retirement plans during the period that a military reservist

or national guardsman is called to active duty for an extended period, and for other purposes.’’, do pass with the following

AMENDMENT:

Strike out all after the enacting clause and insert:

1 SECTION 1. SHORT TITLE.

2 This Act may be cited as the ‘‘Guardsmen and Reserv3 ists Financial Relief Act of 2004’’.
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1 SEC. 2. PENALTY-FREE WITHDRAWALS FROM RETIREMENT

2 PLANS FOR INDIVIDUALS CALLED TO ACTIVE

3 DUTY FOR AT LEAST 179 DAYS.

4 (a) IN GENERAL.—Paragraph (2) of section 72(t) of

5 the Internal Revenue Code of 1986 (relating to 10-percent

6 additional tax on early distributions from qualified retire7 ment plans) is amended by adding at the end the following

8 new subparagraph:

9 ‘‘(G) DISTRIBUTIONS FROM RETIREMENT

10 PLANS TO INDIVIDUALS CALLED TO ACTIVE

11 DUTY.—

12 ‘‘(i) IN GENERAL.—Any qualified re13 servist distribution.

14 ‘‘(ii) QUALIFIED RESERVIST DISTRIBU15 TION.—For purposes of this subparagraph,

16 the term ‘qualified reservist distribution’

17 means any distribution to an individual

18 if—

19 ‘‘(I) such distribution is from any

20 qualified retirement plan (as defined

21 in section 4974(c)),

22 ‘‘(II) such individual was (by rea23 son of being a member of a reserve

24 component (as defined in section 101

25 of title 37, United States Code)), or26 dered or called to active duty for a pe-
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1 riod in excess of 179 days or for an in2 definite period, and

3 ‘‘(III) such distribution is made

4 during the period beginning on the

5 date of such order or call and ending

6 at the close of the active duty period.

7 ‘‘(iii) APPLICATION OFSUBPARA8 GRAPH.—This subparagraph applies to in9 dividuals ordered or called to active duty

10 after September 11, 2001, and before Sep11 tember 12, 2005.’’.

12 (b) EFFECTIVE DATE.—The amendment made by this

13 section shall apply to distributions after September 11,

14 2001.

15 SEC. 3. INCOME TAX WITHHOLDING ON DIFFERENTIAL

16 WAGE PAYMENTS.

17 (a) IN GENERAL.—Section 3401 of the Internal Rev18 enue Code of 1986 (relating to definitions) is amended by

19 adding at the end the following new subsection:

20 ‘‘(i) DIFFERENTIAL WAGE PAYMENTS TO ACTIVE

21 DUTY MEMBERS OFTHE UNIFORMED SERVICES.—

22 ‘‘(1) IN GENERAL.—For purposes of subsection

23 (a), any differential wage payment shall be treated as

24 a payment of wages by the employer to the employee.
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1 ‘‘(2) DIFFERENTIAL WAGE PAYMENT.—For pur2 poses of paragraph (1), the term ‘differential wage

3 payment’ means any payment which—

4 ‘‘(A) is made by an employer to an indi5 vidual with respect to any period during which

6 the individual is performing service in the uni7 formed services while on active duty for a period

8 of more than 30 days, and

9 ‘‘(B) represents all or a portion of the wages

10 the individual would have received from the em11 ployer if the individual were performing service

12 for the employer.’’.

13 (b) EFFECTIVE DATE.—The amendment made by this

14 section shall apply to remuneration paid after December

15 31, 2004.

16 SEC. 4. TREATMENT OF DIFFERENTIAL WAGE PAYMENTS

17 FOR RETIREMENT PLAN PURPOSES.

18 (a) PENSION PLANS.—

19 (1) IN GENERAL.—Section 414(u) of the Internal

20 Revenue Code of 1986 (relating to special rules relat21 ing to veterans’ reemployment rights under

22 USERRA) is amended by adding at the end the fol23 lowing new paragraph:

24 ‘‘(11) TREATMENT OF DIFFERENTIAL WAGE PAY25 MENTS.—
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1 ‘‘(A) IN GENERAL.—Except as provided in

2 this paragraph, for purposes of applying this

3 title to a retirement plan to which this sub4 section applies—

5 ‘‘(i) an individual receiving a differen6 tial wage payment shall be treated as an

7 employee of the employer making the pay8 ment,

9 ‘‘(ii) the differential wage payment

10 shall be treated as compensation, and

11 ‘‘(iii) the plan shall not be treated as

12 failing to meet the requirements of any pro13 vision described in paragraph (1)(C) by

14 reason of any contribution which is based

15 on the differential wage payment.

16 ‘‘(B) SPECIAL RULE FOR DISTRIBUTIONS.—

17 ‘‘(i) IN GENERAL.—Notwithstanding

18 subparagraph (A)(i), for purposes of section

19 401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii),

20 403(b)(11)(A), or 457(d)(1)(A)(ii), an indi21 vidual shall be treated as having been sev22 ered from employment during any period

23 the individual is performing service in the

24 uniformed services described in section

25 3401(i)(2)(A).
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1 ‘‘(ii) LIMITATION.—If an individual

2 elects to receive a distribution by reason of

3 clause (i), the plan shall provide that the

4 individual may not make an elective defer5 ral or employee contribution during the 6-

6 month period beginning on the date of the

7 distribution.

8 ‘‘(C) NONDISCRIMINATION REQUIREMENT.—

9 Subparagraph (A)(iii) shall apply only if all

10 employees of an employer performing service in

11 the uniformed services described in section

12 3401(i)(2)(A) are entitled to receive differential

13 wage payments on reasonably equivalent terms

14 and, if eligible to participate in a retirement

15 plan maintained by the employer, to make con16 tributions based on the payments. For purposes

17 of applying this subparagraph, the provisions of

18 paragraphs (3), (4), and (5), of section 410(b)

19 shall apply.

20 ‘‘(D) DIFFERENTIAL WAGE PAYMENT.—For

21 purposes of this paragraph, the term ‘differential

22 wage payment’ has the meaning given such term

23 by section 3401(i)(2).’’.

24 (2) CONFORMING AMENDMENT.—The heading for

25 section 414(u) of such Code is amended by inserting
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1 ‘‘AND TO DIFFERENTIAL WAGE PAYMENTS TO MEM2 BERS ON ACTIVE DUTY’’ after ‘‘USERRA’’.

3 (b) DIFFERENTIAL WAGE PAYMENTS TREATED AS

4 COMPENSATION FOR INDIVIDUAL RETIREMENT PLANS.—

5 Section 219(f)(1) of the Internal Revenue Code of 1986 (de6 fining compensation) is amended by adding at the end the

7 following new sentence: ‘‘The term ‘compensation’ includes

8 any differential wage payment (as defined in section

9 3401(i)(2)).’’.

10 (c) EFFECTIVE DATE.—The amendments made by this

11 section shall apply to plan years beginning after December

12 31, 2004.

13 (d) PROVISIONS RELATING TO PLAN AMENDMENTS.—

14 (1) IN GENERAL.—If this subsection applies to

15 any plan or annuity contract amendment—

16 (A) such plan or contract shall be treated as

17 being operated in accordance with the terms of

18 the plan or contract during the period described

19 in paragraph (2)(B)(i), and

20 (B) except as provided by the Secretary of

21 the Treasury, such plan shall not fail to meet the

22 requirements of the Internal Revenue Code of

23 1986 or the Employee Retirement Income Secu24 rity Act of 1974 by reason of such amendment.
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1 (2) AMENDMENTS TO WHICH SECTION AP2 PLIES.—

3 (A) IN GENERAL.—This subsection shall

4 apply to any amendment to any plan or annu5 ity contract which is made—

6 (i) pursuant to any amendment made

7 by this section, and

8 (ii) on or before the last day of the first

9 plan year beginning on or after January 1,

10 2007.

11 (B) CONDITIONS.—This subsection shall not

12 apply to any plan or annuity contract amend13 ment unless—

14 (i) during the period beginning on the

15 date the amendment described in subpara16 graph (A)(i) takes effect and ending on the

17 date described in subparagraph (A)(ii) (or,

18 if earlier, the date the plan or contract

19 amendment is adopted), the plan or con20 tract is operated as if such plan or contract

21 amendment were in effect; and

22 (ii) such plan or contract amendment

23 applies retroactively for such period.
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1 SEC. 5. READY RESERVE-NATIONAL GUARD EMPLOYEE

2 CREDIT AND READY RESERVE-NATIONAL

3 GUARD REPLACEMENT EMPLOYEE CREDIT.

4 (a) READY RESERVE-NATIONAL GUARD CREDIT.—

5 (1) IN GENERAL.—Subpart D of part IV of sub6 chapter A of chapter 1 of the Internal Revenue Code

7 of 1986 (relating to business-related credits) is

8 amended by inserting after section 45I the following

9 new section:

10 ‘‘SEC. 45J. READY RESERVE-NATIONAL GUARD EMPLOYEE

11 CREDIT.

12 ‘‘(a) GENERAL RULE.—For purposes of section 38, in

13 the case of an eligible taxpayer, the Ready Reserve-National

14 Guard employee credit determined under this section for

15 any taxable year with respect to each Ready Reserve-Na16 tional Guard employee of such taxpayer is an amount equal

17 to 50 percent of the lesser of—

18 ‘‘(1) the actual compensation amount with re19 spect to such employee for such taxable year, or

20 ‘‘(2) $30,000.

21 ‘‘(b) DEFINITION OF ACTUAL COMPENSATION

22 AMOUNT.—For purposes of this section, the term ‘actual

23 compensation amount’ means the amount of compensation

24 paid or incurred by an eligible taxpayer with respect to

25 a Ready Reserve-National Guard employee on any day
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1 when the employee was absent from employment for the

2 purpose of performing qualified active duty.

3 ‘‘(c) LIMITATIONS.—No credit shall be allowed with re4 spect to any day that a Ready Reserve-National Guard em5 ployee who performs qualified active duty was not scheduled

6 to work (for reason other than to participate in qualified

7 active duty).

8 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur9 poses of this section—

10 ‘‘(1) ELIGIBLE TAXPAYER.—

11 ‘‘(A) IN GENERAL.—The term ‘eligible tax12 payer’ means a small business employer.

13 ‘‘(B) SMALL BUSINESS EMPLOYER.—

14 ‘‘(i) IN GENERAL.—The term ‘small

15 business employer’ means, with respect to

16 any taxable year, any employer who em17 ployed an average of 50 or fewer employees

18 on business days during such taxable year.

19 ‘‘(ii) CONTROLLED GROUPS.—For pur20 poses of clause (i), all persons treated as a

21 single employer under subsection (b), (c),

22 (m), or (o) of section 414 shall be treated as

23 a single employer.

24 ‘‘(2) QUALIFIED ACTIVE DUTY.—The term ‘quali25 fied active duty’ means—
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1 ‘‘(A) active duty under an order or call for

2 a period in excess of 179 days or for an indefi3 nite period, other than the training duty speci4 fied in section 10147 of title 10, United States

5 Code (relating to training requirements for the

6 Ready Reserve), or section 502(a) of title 32,

7 United States Code (relating to required drills

8 and field exercises for the National Guard), in

9 connection with which an employee is entitled to

10 reemployment rights and other benefits or to a

11 leave of absence from employment under chapter

12 43 of title 38, United States Code, and

13 ‘‘(B) hospitalization incident to such duty.

14 ‘‘(3) COMPENSATION.—The term ‘compensation’

15 means any remuneration for employment, whether in

16 cash or in kind, which is paid or incurred by a tax17 payer and which is deductible from the taxpayer’s

18 gross income under section 162(a)(1).

19 ‘‘(4) READY RESERVE-NATIONAL GUARD EM20 PLOYEE.—The term ‘Ready Reserve-National Guard

21 employee’ means an employee who is a member of the

22 Ready Reserve of a reserve component of an Armed

23 Force of the United States as described in sections

24 10142 and 10101 of title 10, United States Code.
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1 ‘‘(5) CERTAIN RULES TO APPLY.—Rules similar

2 to the rules of section 52 shall apply.

3 ‘‘(e) TERMINATION.—This section shall not apply

4 to any amount paid or incurred after December 31,

5 2005.’’.

6 (2) CREDIT TO BE PART OFGENERAL BUSINESS

7 CREDIT.—Subsection (b) of section 38 of the Internal

8 Revenue Code of 1986 (relating to general business

9 credit) is amended by striking ‘‘plus’’ at the end of

10 paragraph (18), by striking the period at the end of

11 paragraph (19) and inserting ‘‘, plus’’, and by add12 ing at the end the following:

13 ‘‘(20) the Ready Reserve-National Guard em14 ployee credit determined under section 45J(a).’’.

15 (3) DENIAL OFDOUBLE BENEFIT.—Section

16 280C(a) of the Internal Revenue Code of 1986 (relat17 ing to rule for employment credits) is amended by in18 serting ‘‘45J(a),’’ after ‘‘45A(a),’’.

19 (4) CONFORMING AMENDMENT.—The table of sec20 tions for subpart D of part IV of subchapter A of

21 chapter 1 of the Internal Revenue Code of 1986 is

22 amended by inserting after the item relating to sec23 tion 45I the following:

‘‘Sec. 45J. Ready Reserve-National Guard employee credit.’’.

24 (5) EFFECTIVE DATE.—The amendments made

25 by this subsection shall apply to amounts paid or in-
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1 curred after September 30, 2004, in taxable years

2 ending after such date.

3 (b) READY RESERVE-NATIONAL GUARD REPLACEMENT

4 EMPLOYEE CREDIT.—

5 (1) IN GENERAL.—Paragraph (1) of section

6 51(d) of the Internal Revenue Code of 1986 (relating

7 to members of targeted groups) is amended by strik8 ing ‘‘or’’ at the end of subparagraph (G), by striking

9 the period at the end of subparagraph (H) and insert10 ing ‘‘, or’’ and by adding at the end the following new

11 subparagraph:

12 ‘‘(I) a qualified replacement employee.’’.

13 (2) QUALIFIED REPLACEMENT EMPLOYEE.—Sec14 tion 51(d) of the Internal Revenue Code of 1986 is

15 amended by redesignating paragraphs (10), (11), and

16 (12) as paragraphs (11), (12), and (13), respectively,

17 and by inserting after paragraph (9) the following

18 new paragraph:

19 ‘‘(10) QUALIFIED REPLACEMENT EMPLOYEE.—

20 ‘‘(A) IN GENERAL.—The term ‘qualified re21 placement employee’ means an individual who is

22 certified by the designated local agency as being

23 hired by an eligible taxpayer to replace a Ready

24 Reserve-National Guard employee of such tax25 payer, but only with respect to the period during
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1 which such Ready Reserve-National Guard em2 ployee participates in qualified active duty, in3 cluding time spent in travel status.

4 ‘‘(B) GENERAL DEFINITIONS AND SPECIAL

5 RULES.—For purposes of this paragraph—

6 ‘‘(i) ELIGIBLE TAXPAYER.—The term

7 ‘eligible taxpayer’ means a small business

8 employer.

9 ‘‘(ii) SMALL BUSINESS EMPLOYER.—

10 ‘‘(I) IN GENERAL.—The term

11 ‘small business employer’ means, with

12 respect to any taxable year, any em13 ployer who employed an average of 50

14 or fewer employees on business days

15 during such taxable year.

16 ‘‘(II) CONTROLLED GROUPS.—For

17 purposes of subclause (I), all persons

18 treated as a single employer under sub19 section (b), (c), (m), or (o) of section

20 414 shall be treated as a single em21 ployer.

22 ‘‘(iii) READY RESERVE-NATIONAL

23 GUARD EMPLOYEE.—The term ‘Ready Re24 serve-National Guard employee’ has the
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1 meaning given such term by section

2 45J(d)(3).

3 ‘‘(iv) QUALIFIED ACTIVE DUTY.—The

4 term ‘qualified active duty’ has the meaning

5 given such term by section 45J(d)(1).

6 ‘‘(C) DISALLOWANCE FOR FAILURE TO COM7 PLY WITH EMPLOYMENT OR REEMPLOYMENT

8 RIGHTS OFMEMBERS OFTHE RESERVE COMPO9 NENTS OFTHE ARMED FORCES OFTHE UNITED

10 STATES.—No credit shall be allowed under sub11 section (a) by reason of paragraph (1)(I) to a

12 taxpayer for—

13 ‘‘(i) any taxable year, beginning after

14 the date of the enactment of this section, in

15 which the taxpayer is under a final order,

16 judgment, or other process issued or re17 quired by a district court of the United

18 States under section 4323 of title 38 of the

19 United States Code with respect to a viola20 tion of chapter 43 of such title, and

21 ‘‘(ii) the 2 succeeding taxable years.’’.

22 (3) EFFECTIVE DATE.—The amendments made

23 by this subsection shall apply to amounts paid or in24 curred to an individual who begins work for the em25 ployer after September 30, 2004.
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1 (c) STUDY BY GAO.—

2 (1) IN GENERAL.—The Comptroller General of

3 the United States shall study the following:

4 (A) What, if any, problems exist in recruit5 ing individuals for a reserve component of an

6 Armed Force of the United States.

7 (B) What, if any, problems exist as the re8 sult of providing differential wage payments (as

9 defined in section 3401(i)(2) of the Internal Rev10 enue Code of 1986 (as added by this Act)) to in11 dividuals described in subparagraph (A) in the

12 recruitment and retention of individuals as reg13 ular members of the Armed Forces of the United

14 States.

15 (C) Whether the credit allowed under section

16 45J of the Internal Revenue Code of 1986 (as

17 added by this section) is an effective incentive for

18 the hiring and retention of employees who are

19 individuals described in subparagraph (A) and

20 whether there exists any compliance problems in

21 the administration of such credit.

22 (2) REPORT.—The Comptroller General of the

23 United States shall report on the results of the study

24 required under paragraph (1) to the Committee of Fi25 nance of the Senate and the Committee on Ways and
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1 Means of the House of Representatives before July 1,

2 2005.

3 SEC. 6. PENALTY FREE WITHDRAWALS FROM RETIREMENT

4 PLANS FOR VICTIMS OF FEDERALLY DE5 CLARED NATURAL DISASTERS.

6 (a) IN GENERAL.—Paragraph (2) of section 72(t) of

7 the Internal Revenue Code of 1986 (relating to 10-percent

8 additional tax on early distributions from qualified retire9 ment plans), as amended by this Act, is amended by adding

10 at the end the following new subparagraph:

11 ‘‘(H) DISTRIBUTIONS FROM RETIREMENT

12 PLANS TO VICTIMS OFFEDERALLY DECLARED

13 NATURAL DISASTERS.—

14 ‘‘(i) IN GENERAL.—Any qualified dis15 aster-relief distribution.

16 ‘‘(ii) QUALIFIED DISASTER-RELIEF

17 DISTRIBUTION.—For purposes of this sub18 paragraph, the term ‘qualified disaster-re19 lief distribution’ means any distribution to

20 an individual who has sustained a loss in

21 excess of $100 as a result of a major dis22 aster declared under the Robert T. Stafford

23 Disaster Relief and Emergency Assistance

24 Act—
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1 ‘‘(I) if such distribution is made

2 from any qualified retirement plan (as

3 defined in section 4974(c)) during the

4 1-year period beginning on the date

5 such declaration is made, and

6 ‘‘(II) to the extent such distribu7 tion does not exceed the amount of such

8 loss and is not compensated for by in9 surance or otherwise.

10 For purposes of subclause (II), the amount

11 of any loss shall be determined using the

12 greater of the fair market value of the prop13 erty on the day before the date of such dis14 aster or the adjusted basis of the property as

15 provided in section 1011, less any com16 pensation for such loss that the individual

17 has received as of the date of such distribu18 tion and any compensation for such loss

19 that the individual expects to receive, based

20 on a reasonable estimate. Any difference be21 tween the amount of compensation that an

22 individual expects to receive on the basis of

23 such an estimate and actually receives shall

24 not be included in the individual’s gross in25 come.’’.
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1 (b) EXEMPTION OF DISTRIBUTIONS FROM WITH2 HOLDING.—Paragraph (4) of section 402(c) of the Internal

3 Revenue Code of 1986 (relating to eligible rollover distribu4 tion) is amended by striking ‘‘and’’ at the end of subpara5 graph (B), by striking the period at the end of subpara6 graph (C) and inserting ‘‘, and’’, and by inserting at the

7 end the following new subparagraph:

8 ‘‘(D) any qualified disaster-relief distribu9 tion (within the meaning of section

10 72(t)(2)(H).’’.

11 (c) CONFORMING AMENDMENTS.—

12 (1) Section 401(k)(2)(B)(i) of the Internal Rev13 enue Code of 1986 is amended by striking ‘‘or’’ at the

14 end of subclause (III), by striking ‘‘and’’ at the end

15 of subclause (IV) and inserting ‘‘or’’, and by inserting

16 after subclause (IV) the following new subclause:

17 ‘‘(V) the date on which a period

18 referred to in section 72(t)(2)(H)(ii)(I)

19 begins (but only to the extent provided

20 in section 72(t)(2)(H)), and’’.

21 (2) Section 403(b)(7)(A)(ii) of such Code is

22 amended by inserting ‘‘sustains a loss as a result of

23 a major disaster declared under the Robert T. Staf24 ford Disaster Relief and Emergency Assistance Act
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1 (but only to the extent provided in section

2 72(t)(2)(H)),’’ before ‘‘or’’.

3 (3) Section 403(b)(11) of such Code is amended

4 by striking ‘‘or’’ at the end of subparagraph (A), by

5 striking the period at the end of subparagraph (B)

6 and inserting ‘‘, or’’, and by inserting after subpara7 graph (B) the following new subparagraph:

8 ‘‘(C) for distributions to which section

9 72(t)(2)(H) applies.’’.

10 (d) EFFECTIVE DATE.—The amendments made by this

11 section shall apply to distributions received in taxable years

12 beginning after December 31, 2003.

Attest:

Secretary.
108TH CONGRESS

2D SESSION H. R. 1779

AMENDMENT