I 

108TH CONGRESS 

1ST SESSION H. R. 1776

To amend the Internal Revenue Code of 1986 to make today’s retirement 

savings opportunities permanent, to expand and improve retirement savings vehicles, to extend pension coverage through regulatory simplification 

and small business incentives, to enhance fairness and pension portability, 

to revitalize defined benefit plans, to provide additional defined contribution plan protections, to assist individuals in preserving their income 

throughout retirement, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 11, 2003

Mr. PORTMAN (for himself, Mr. CARDIN, Mrs. JOHNSON of Connecticut, Mr. 

POMEROY, Mr. BLUNT, Mr. MOORE, Mr. UPTON, Mrs. TAUSCHER, Mr. 

GALLEGLY, and Mr. WYNN) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the 

Committee on Education and the Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such 

provisions as fall within the jurisdiction of the committee concerned 

A BILL

To amend the Internal Revenue Code of 1986 to make 

today’s retirement savings opportunities permanent, to 

expand and improve retirement savings vehicles, to extend pension coverage through regulatory simplification 

and small business incentives, to enhance fairness and 

pension portability, to revitalize defined benefit plans, 

to provide additional defined contribution plan protections, to assist individuals in preserving their income 

throughout retirement, and for other purposes.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; 

4 TABLE OF CONTENTS. 

5 (a) SHORT TITLE.—This Act may be cited as the 

6 ‘‘Pension Preservation and Savings Expansion Act of 

7 2003’’. 

8 (b) AMENDMENT OF 1986 CODE.—Except as other9 wise expressly provided, whenever in this Act an amend10 ment or repeal is expressed in terms of an amendment 

11 to, or repeal of, a section or other provision, the reference 

12 shall be considered to be made to a section or other provi13 sion of the Internal Revenue Code of 1986. 

14 (c) TABLE OF CONTENTS.—The table of contents of 

15 this Act is as follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents. 

TITLE I—MAKING TODAY’S RETIREMENT SAVINGS 

OPPORTUNITIES PERMANENT 

Sec. 101. Pensions and individual retirement arrangement provisions of Economic Growth and Tax Relief Reconciliation Act of 2001 made 

permanent. 

Sec. 102. Saver’s credit made permanent. 

TITLE II—PRESERVING RETIREMENT ASSETS 

Sec. 201. Simplification and updating of the minimum distribution rules. 

Sec. 202. Treatment of unclaimed benefits. 

Sec. 203. Facilitation under fiduciary rules of certain rollovers and annuity distributions. 

Sec. 204. Equalizing treatment of defined benefit plans and defined contribution plans. 

Sec. 205. Study concerning defined contribution plan losses due to market volatility. 

TITLE III—ENHANCING FAIRNESS AND PENSION PORTABILITY 

Sec. 301. Allow transfers to spouse’s retirement plans. 
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Sec. 302. Faster vesting of employer nonelective contributions. 

Sec. 303. Rollovers by nonspouse beneficiaries. 

Sec. 304. Allow direct rollovers from retirement plans to ROTH IRAs. 

Sec. 305. Exclusion of percentage of lifetime annuity payments. 

Sec. 306. Rollover of after-tax amounts in annuity contracts. 

Sec. 307. Fair treatment under substantially equal periodic payments rule. 

Sec. 308. Treatment of subsequent qualified domestic relations orders. 

Sec. 309. Treatment of delayed qualified domestic relations orders. 

Sec. 310. Treatment of annuity contracts. 

Sec. 311. Preservation of pension plans. 

Sec. 312. Certain plan transfers and mergers. 

TITLE IV—INCREASING RETIREMENT PLAN PARTICIPATION AND 

SAVINGS 

Sec. 401. Expansion of the Saver’s credit. 

Sec. 402. Acceleration of scheduled increases in pension plan contribution limits. 

Sec. 403. Removing barriers to automatic contribution trust arrangements. 

Sec. 404. Disposition of unused health benefits in cafeteria plans and flexible 

spending arrangements. 

Sec. 405. Updating deduction rules for combination of plans. 

TITLE V—EXPANDING RETIREMENT PLAN COVERAGE TO 

EMPLOYEES OF SMALL BUSINESSES 

Sec. 501. Additional nonelective employer contributions to simple plans. 

Sec. 502. Matching contribution rules for Simple IRAs and Simple 401(k)s conformed. 

Sec. 503. Salary-reduction only Simple plans. 

Sec. 504. Permit a mid-year change from a Simple plan to another plan. 

Sec. 505. Elimination of higher penalty on certain Simple distributions. 

Sec. 506. Simple plan portability. 

Sec. 507. Correction of Simplified Employee Pension compensation inconsistency. 

Sec. 508. Equalization of tax treatment of retirement plan contributions of the 

self-employed. 

TITLE VI—STRENGTHENING INDIVIDUAL RETIREMENT 

ARRANGEMENTS 

Sec. 601. Acceleration of increases in IRA contribution limits. 

Sec. 602. Acceleration and expansion of certain scheduled increases in eligibility 

for IRAs and elimination of IRA marriage penalty. 

Sec. 603. IRA eligibility for the disabled. 

Sec. 604. Protecting IRA assets. 

TITLE VII—REVITALIZING DEFINED BENEFIT PLANS 

Sec. 701. Multiple employer plans permitted to elect separate or aggregate 

treatment for purposes of applying the funding rules and deduction limitations. 

Sec. 702. Treatment of employee contributions to contributory defined benefit 

plans. 

Sec. 703. Reform of the minimum participation rule. 

Sec. 704. Plan valuation data collection. 
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Sec. 705. Replacement of interest rate on 30-year Treasury securities with interest rate on conservatively-invested long-term corporate 

bonds. 

Sec. 706. Interest rate range for additional funding requirements. 

Sec. 707. Asset valuation. 

Sec. 708. Multiemployer plan emergency investment loss rule. 

Sec. 709. Mortality table adjustment. 

TITLE VIII—SIMPLIFY AND STREAMLINE RETIREMENT PLAN 

RULES 

Sec. 801. Excise tax on excess contributions. 

Sec. 802. Excess benefit plans. 

Sec. 803. Paperless technologies in retirement plans. 

Sec. 804. Elimination of unintended consequences attributable to use of base 

pay or rate of pay. 

Sec. 805. Repeal of the gateway test. 

Sec. 806. Intermediate sanctions for inadvertent failures. 

Sec. 807. Qualified preretirement survivor annuity. 

Sec. 808. Cost-of-living adjustment of $5,000 cash-out amount. 

Sec. 809. Catch-up contributions. 

Sec. 810. Reverse match salary reduction arrangement simplified employee annuity. 

Sec. 811. Level dollar contributions to SEPs. 

Sec. 812. Tax on nondeductible contributions not to apply to certain nontrade 

or business SEP contributions. 

Sec. 813. Clarification of fiduciary duty. 

Sec. 814. Multiemployer plan clarification. 

Sec. 815. Clarification of status of Young Men’s Christian Association Retirement Fund. 

TITLE IX—EXPANDING RETIREMENT SAVINGS OPPORTUNITIES 

FOR EMPLOYEES OF TAX-EXEMPT ORGANIZATIONS AND GOVERNMENTS 

Sec. 901. Deferred compensation plans of tax-exempt organizations. 

Sec. 902. Inapplicability of 10 percent additional tax on early distributions of 

pension plans of public safety employees. 

Sec. 903. Clarifications regarding purchase of permissive service credit. 

Sec. 904. Certain rollovers of benefits permitted 

Sec. 905. Minimum distribution rules. 

Sec. 906. Church plan rule. 

Sec. 907. Plans maintained by governments and tax-exempt organizations. 

TITLE X—RESTRICTING EXCESSIVE REMUNERATION 

Sec. 1001. Golden parachute excise tax to apply to excessive employee remuneration paid by corporation after declaration of bankruptcy. 

TITLE XI—DEFINED CONTRIBUTION PLAN PROTECTIONS 

Sec. 1101. Provision of investment education notices to participants. 

Sec. 1102. Notice of blackout periods to participant or beneficiary under defined contribution plan. 

Sec. 1103. Diversification requirements for defined contribution plans that hold 

employer securities. 

Sec. 1104. Treatment of qualified retirement planning services.
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Sec. 1105. Special rules. 

TITLE XII—OTHER TAX PROVISIONS RELATING TO PENSIONS 

Sec. 1201. Amendments to Retirement Protection Act of 1994. 

Sec. 1202. Reporting simplification. 

Sec. 1203. Improvement of employee plans compliance resolution system. 

Sec. 1204. Extension to all governmental plans of moratorium on application 

of certain nondiscrimination rules applicable to State and local 

plans. 

Sec. 1205. Notice and consent period regarding distributions. 

Sec. 1206. Reduced PBGC premium for new plans of small employers. 

Sec. 1207. Reduction of additional PBGC premium for new and small plans. 

Sec. 1208. Authorization for PBGC to pay interest on premium overpayment 

refunds. 

Sec. 1209. Substantial owner benefits in terminated plans. 

Sec. 1210. Qualified group legal services plans. 

Sec. 1211. Studies. 

TITLE XIII—STOCK OPTIONS 

Sec. 1301. Exclusion of incentive stock options and employee stock purchase 

plan stock options from wages. 

TITLE XIV—OTHER ELEMENTS OF RETIREMENT SECURITY 

Sec. 1401. Employee pre-tax payments for retiree health. 

Sec. 1402. Encouraging employers to maintain retiree health plans. 

TITLE XV—REDUCING REGULATORY BURDENS 

Sec. 1501. Provisions relating to plan amendments. 

TITLE XVI—SOCIAL SECURITY AND MEDICARE HELD HARMLESS 

Sec. 1601. Protection of Social Security and Medicare.

1 TITLE I—MAKING TODAY’S RE2 TIREMENT SAVINGS OPPOR3 TUNITIES PERMANENT 

4 SEC. 101. PENSIONS AND INDIVIDUAL RETIREMENT AR5 RANGEMENT PROVISIONS OF ECONOMIC 

6 GROWTH AND TAX RELIEF RECONCILIATION 

7 ACT OF 2001 MADE PERMANENT. 

8 (a) IN GENERAL.—Section 901 of the Economic 

9 Growth and Tax Relief Reconciliation Act of 2001 is 
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1 amended by adding at the end the following new sub2 section: 

3 ‘‘(c) EXCEPTION.—Subsections (a) and (b) shall not 

4 apply to the provisions of, and amendments made by, sub5 titles (A) through (F) of title VI (relating to pension and 

6 individual retirement arrangement provisions).’’. 

7 (b) CONFORMING AMENDMENTS.—Section 901(b) of 

8 such Act is amended—

9 (1) by striking ‘‘and the Employee Retirement 

10 Income Security Act of 1974’’ in the text, and 

11 (2) by striking ‘‘OF CERTAIN LAWS’’ in the 

12 heading. 

13 SEC. 102. SAVER’S CREDIT MADE PERMANENT. 

14 (a) IN GENERAL.—Section 25B (relating to elective 

15 deferrals and IRA contributions by certain individuals) is 

16 amended by striking subsection (h). 

17 (b) EFFECTIVE DATE.—The amendment made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2003. 

20 TITLE II—PRESERVING 

21 RETIREMENT ASSETS 

22 SEC. 201. SIMPLIFICATION AND UPDATING OF THE MIN23 IMUM DISTRIBUTION RULES. 

24 (a) REQUIRED DISTRIBUTIONS.—
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1 (1) INCREASE IN AGE FOR REQUIRED BEGIN2 NING DATE.—Clauses (i) and (ii) of section 

3 401(a)(9)(C) (relating to required beginning date) 

are amended by striking ‘‘age 701 4 ⁄2’’ each place it 

5 appears and inserting ‘‘the applicable age’’. 

6 (2) MANDATORY DISTRIBUTION AGE.—Para7 graph (9) of section 401(a) (relating to required dis8 tributions) is amended by inserting at the end the 

9 following new subparagraph: 

10 ‘‘(H) APPLICABLE AGE.—For purposes of 

11 this paragraph, the applicable age shall be de12 termined in accordance with the following table:

‘‘Calendar year: Applicable age is: 

2004 and 2005 ............................................................. 72

2006 and 2007 ............................................................. 73

2008 and 2009 ............................................................. 74

2010 and thereafter ..................................................... 75.’’.

13 (3) SPOUSE BENEFICIARIES.—Subclause (I) of 

14 section 401(a)(9)(B)(iv) (relating to special rule for 

15 surviving spouse of employee) is amended by striking 

‘‘age 701 16 ⁄2’’ and inserting ‘‘the applicable age’’. 

17 (4) ACTUARIAL ADJUSTMENT OF BENEFIT

18 UNDER DEFINED BENEFIT PLAN.—Clause (iii) of 

19 section 401(a)(9)(C) (relating to actuarial adjust20 ment) is amended to read as follows: 

21 ‘‘(iii) ACTUARIAL ADJUSTMENT.—

22 ‘‘(I) IN GENERAL.—In the case 

23 of a defined benefit plan, an employ-
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1 ee’s accrued benefit shall be actuari2 ally increased to take into account the 

3 period after the applicable date during 

4 which the employee was not receiving 

5 any benefits under the plan. 

6 ‘‘(II) APPLICABLE DATE.—For 

7 purposes of clause (I), the term ‘appli8 cable date’ means April 1 of the cal9 endar year following the calendar year 

10 in which the employee attains age 

701 11 ⁄2.’’.

12 (b) PREVENTING TWO REQUIRED DISTRIBUTIONS IN

13 A YEAR.—

14 (1) IN GENERAL.—The portion of clause (i) of 

15 section 401(a)(9)(C) that precedes subclause (I) is 

16 amended to read as follows: 

17 ‘‘(i) IN GENERAL.—The term ‘re18 quired beginning date’ means the Decem19 ber 31 of the later of—’’. 

20 (2) DATE OF RETIREMENT.—Clause (i) of sec21 tion 401(a)(9)(C) is amended by adding at the end 

22 the following: ‘‘Solely for purposes of subclause (II), 

23 an employee who retires during December of a cal24 endar year shall be treated as retiring in the fol25 lowing calendar year.’’. 
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1 (c) REDUCTION IN EXCISE TAX.—Subsection (a) of 

2 section 4974 (relating to excise tax on certain accumula3 tions in qualified retirement plans) is amended by striking 

4 ‘‘50 percent’’ and inserting ‘‘20 percent’’. 

5 (d) EFFECTIVE DATE.—

6 (1) IN GENERAL.—Except as provided in para7 graph (2), the amendments made by this section 

8 shall apply to years beginning after December 31, 

9 2003. 

10 (2) SPECIAL RULE.—In the case of a participant who attains age 701 11 ⁄2 prior to January 1, 2004, 

12 the amendments made by this section shall apply to 

13 years beginning after December 31, 2003, as if such 

14 amendments had been effective in years beginning 

15 before January 1, 2004. 

16 SEC. 202. TREATMENT OF UNCLAIMED BENEFITS. 

17 (a) AMENDMENTS TO INTERNAL REVENUE CODE OF

18 1986.—

19 (1) AMENDMENT TO SECTION 401(a)(34).—Sec20 tion 401(a)(34) (relating to benefits of missing par21 ticipants) is amended to read as follows: 

22 ‘‘(34) UNCLAIMED BENEFITS.—A trust forming 

23 part of a plan shall not be treated as failing to con24 stitute a qualified trust under this section merely be25 cause the plan of which such trust is a part treats
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1 unclaimed benefits in a manner that satisfies the re2 quirements of section 414(y).’’. 

3 (2) AMENDMENT TO SECTION 414.—Section 414 

4 (relating to definitions and special rules) (as amend5 ed by this Act) is amended by adding at the end the 

6 following new subsection: 

7 ‘‘(y) UNCLAIMED BENEFITS.—

8 ‘‘(1) IN GENERAL.—A plan meets the require9 ments of this subsection only if—

10 ‘‘(A) ONGOING PLANS.—In the case of an 

11 ongoing plan, the plan provides for one or more 

12 of the following with respect to unclaimed bene13 fits: 

14 ‘‘(i) In the case of an unclaimed ben15 efit to which section 401(a)(31)(B) applies, 

16 a transfer under section 401(a)(31)(B). 

17 ‘‘(ii) A transfer to the Pension Benefit 

18 Guaranty Corporation, in accordance with 

19 section 4050(e) of the Employee Retire20 ment Income Security Act of 1974. 

21 ‘‘(iii) Any other treatment permitted 

22 under rules prescribed by the Secretary. 

23 ‘‘(B) TERMINATED PLANS.—In the case of 

24 a terminated plan, the plan provides for the fol25 lowing with respect to unclaimed benefits: 
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1 ‘‘(i) DEFINED BENEFIT PLANS.—In 

2 the case of a defined benefit plan, one or 

3 more of the following: 

4 ‘‘(I) In the case of an unclaimed 

5 benefit to which section 401(a)(31)(B) 

6 applies, a transfer under section 

7 401(a)(31)(B). 

8 ‘‘(II) A transfer of the unclaimed 

9 benefit to another defined benefit plan 

10 maintained by the employer. 

11 ‘‘(III) The purchase of an annu12 ity contract to provide for an individ13 ual’s unclaimed benefit. 

14 ‘‘(IV) A transfer to the Pension 

15 Benefit Guaranty Corporation in ac16 cordance with section 4050(a) or 

17 4050(e) (as applicable) of the Em18 ployee Retirement Income Security 

19 Act of 1974. 

20 ‘‘(V) Any other treatment per21 mitted under rules prescribed by the 

22 Secretary. 

23 ‘‘(ii) DEFINED CONTRIBUTION

24 PLANS.—In the case of a defined contribu25 tion plan, one or more of the following: 
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1 ‘‘(I) In the case of an unclaimed 

2 benefit to which section 401(a)(31)(B) 

3 applies, a transfer under section 

4 401(a)(31)(B). 

5 ‘‘(II) A transfer of the unclaimed 

6 benefit to another defined contribution 

7 plan maintained by the employer. 

8 ‘‘(III) The purchase of an annu9 ity contract to provide for an individ10 ual’s unclaimed benefit. 

11 ‘‘(IV) A transfer to the Pension 

12 Benefit Guaranty Corporation in ac13 cordance with section 4050(d) or 

14 4050(e) (as applicable) of the Em15 ployee Retirement Income Security 

16 Act of 1974. 

17 ‘‘(V) Any other treatment per18 mitted under rules prescribed by the 

19 Secretary. 

20 ‘‘(2) TREATMENT OF TRANSFERS TO PENSION

21 BENEFIT GUARANTY CORPORATION.—

22 ‘‘(A) TRANSFERS TO PBGC.—Amounts 

23 transferred from a plan to the Pension Benefit 

24 Guaranty Corporation pursuant to paragraph 
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1 (1) shall be treated as a transfer under section 

2 401(a)(31)(A). 

3 ‘‘(B) DISTRIBUTIONS FROM PBGC.—Ex4 cept as provided in rules prescribed by the Sec5 retary, amounts distributed by the Pension 

6 Benefit Guaranty Corporation shall be treated 

7 as distributed by an individual retirement plan 

8 under section 408(d) (without regard to para9 graphs (4), (5) and (7) thereof). Rules similar 

10 to the rules of section 402(c)(4) shall apply. 

11 ‘‘(3) DEFINITIONS.—For purposes of this sub12 section—

13 ‘‘(A) UNCLAIMED BENEFIT.—The term 

14 ‘unclaimed benefit’ means—

15 ‘‘(i) any benefit of a participant or 

16 beneficiary which is distributable under the 

17 terms of the plan to the participant or ben18 eficiary, if the distribution of the benefit 

19 has not commenced within 1 year after the 

20 later of the date on which the benefit first 

21 became so distributable or the participant’s 

22 severance from employment; 

23 ‘‘(ii) any benefit or other amount of a 

24 participant or beneficiary which is distrib-
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1 utable under the terms of the plan with re2 spect to a missing participant, or 

3 ‘‘(iii) any benefit to which section 

4 401(a)(31)(B) applies or would apply if 

5 subclause (I) of section 401(a)(31)(B)(i) 

6 did not require the distribution to exceed 

7 $1,000. 

8 A benefit otherwise described in clause (i) shall 

9 not be treated as an unclaimed benefit under 

10 clause (i) if the participant or beneficiary elects 

11 not to have such treatment apply. Any such 

12 participant or beneficiary shall be given reason13 able notice of the opportunity to make such an 

14 election. If the participant or beneficiary fails to 

15 make such an election within a reasonable pe16 riod specified in the notice, any subsequent elec17 tion shall not be given effect and the benefit 

18 shall be treated as an unclaimed benefit. A no19 tice mailed to the last known address of the 

20 participant or beneficiary shall be treated as a 

21 notice to the participant or beneficiary for pur22 poses of this paragraph. 

23 ‘‘(B) ONGOING PLAN.—The term ‘ongoing 

24 plan’ means any plan which has neither termi25 nated nor is in the process of terminating. 
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1 ‘‘(C) TERMINATED PLAN.—The term ‘ter2 minated plan’ means any plan which has termi3 nated or is in the process of terminating. 

4 ‘‘(D) MISSING PARTICIPANT.—The term 

5 ‘missing participant’ shall have the meaning 

6 given to such term by section 4050(b)(1) of the 

7 Employee Retirement Income Security Act of 

8 1974.’’. 

9 (3) CONFORMING AMENDMENT.—Subparagraph 

10 (B) of section 401(a)(31) is amended by adding at 

11 the end the following: 

12 ‘‘(iii) OTHER PERMITTED TRANS13 FERS.—A plan administrator shall be 

14 treated as having complied with the re15 quirements of this subparagraph if such 

16 plan administrator complies with the re17 quirements of section 414(y).’’. 

18 (b) AMENDMENTS TO EMPLOYEE RETIREMENT IN19 COME SECURITY ACT OF 1974.—

20 (1) IN GENERAL.—Subsection (b) of section 

21 4050 of the Employee Retirement Income Security 

22 Act of 1974 (29 U.S.C. 1350) is amended by adding 

23 at the end the following paragraph: 

24 ‘‘(3) UNCLAIMED BENEFIT.—The term ‘un25 claimed benefit’ means—
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1 ‘‘(A) any benefit of a participant or bene2 ficiary which is distributable under the terms of 

3 the plan to the participant or beneficiary, if the 

4 distribution of the benefit has not commenced 

5 within 1 year after the later of the date on 

6 which the benefit first became so distributable 

7 or the participant’s severance from employment; 

8 ‘‘(B) any benefit or other amount of a par9 ticipant or beneficiary which is distributable 

10 under the terms of the plan with respect to a 

11 missing participant, or 

12 ‘‘(C) any benefit to which section 

13 401(a)(31)(B) of the Internal Revenue Code of 

14 1986 applies or would apply if subclause (I) of 

15 section 401(a)(31)(B)(i) of such Code did not 

16 require the distribution to exceed $1,000. 

17 A benefit otherwise described in subparagraph (A) 

18 shall not be treated as an unclaimed benefit under 

19 subparagraph (A) if the participant or beneficiary 

20 elects not to have such treatment apply. Any such 

21 participant or beneficiary shall be given reasonable 

22 notice of the opportunity to make such an election. 

23 If the participant or beneficiary fails to make such 

24 an election within a reasonable period specified in 

25 the notice, any subsequent election shall not be given 
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1 effect and the benefit shall be treated as an un2 claimed benefit. A notice mailed to the last known 

3 address of the participant or beneficiary shall be 

4 treated as a notice to the participant or beneficiary 

5 for purposes of this paragraph.’’. 

6 (2) OTHER AMENDMENTS.—Section 4050 of 

7 such Act is amended by redesignating subsection (c) 

8 as subsection (f) and by inserting after subsection 

9 (b) the following new subsections: 

10 ‘‘(c) MULTIEMPLOYER PLANS.—The corporation 

11 shall prescribe rules similar to the rules in subsection (a) 

12 for multiemployer plans covered by this title that termi13 nate under section 4041A. 

14 ‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.—

15 ‘‘(1) TRANSFER TO CORPORATION.—The plan 

16 administrator of a plan described in paragraph (4) 

17 may elect to transfer a missing participant’s benefits 

18 to the corporation upon termination of the plan. 

19 ‘‘(2) INFORMATION TO THE CORPORATION.—To 

20 the extent provided in regulations, the plan adminis21 trator of a plan described in paragraph (4) shall, 

22 upon termination of the plan, provide the corpora23 tion information with respect to the benefits of a 

24 missing participant if the plan transfers such bene25 fits—
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1 ‘‘(A) to the corporation, or 

2 ‘‘(B) to an entity other than the corpora3 tion or a plan described in paragraph (4)(B)(ii). 

4 ‘‘(3) PAYMENT BY THE CORPORATION.—If ben5 efits of a missing participant were transferred to the 

6 corporation under paragraph (1), the corporation 

7 shall, upon location of the participant or beneficiary, 

8 pay to the participant or beneficiary the amount 

9 transferred (or the appropriate survivor benefit) ei10 ther—

11 ‘‘(A) in a single sum (plus interest), or 

12 ‘‘(B) in such other form as is specified in 

13 regulations of the corporation. 

14 ‘‘(4) PLANS DESCRIBED.—A plan is described 

15 in this paragraph if—

16 ‘‘(A) the plan is a pension plan (within the 

17 meaning of section 3(2))—

18 ‘‘(i) to which the provisions of this 

19 section do not apply (without regard to 

20 this subsection), and 

21 ‘‘(ii) which is not a plan described in 

22 paragraphs (2) through (11) of section 

23 4021(b), and 

24 ‘‘(B) at the time the assets are to be dis25 tributed upon termination, the plan—
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1 ‘‘(i) has missing participants, and 

2 ‘‘(ii) has not provided for the transfer 

3 of assets to pay the benefits of all missing 

4 participants to another pension plan (with5 in the meaning of section 3(2)). 

6 ‘‘(5) CERTAIN PROVISIONS NOT TO

7 APPLY.—Subsections (a)(1) and (a)(3) shall not 

8 apply to a plan described in paragraph (4). 

9 ‘‘(e) UNCLAIMED BENEFITS.—

10 ‘‘(1) TRANSFER TO CORPORATION.—The plan 

11 administrator of a plan described in paragraph (6) 

12 may elect to transfer unclaimed benefits to the cor13 poration. 

14 ‘‘(2) INFORMATION TO THE CORPORATION.—

15 The corporation may impose such conditions on 

16 transfers of unclaimed benefits to the corporation as 

17 the corporation determines are necessary to facilitate 

18 administration of this subsection and are not incon19 sistent with the purposes of this subsection. Such 

20 conditions may include requirements that the trans21 ferring plan provide to the corporation specified in22 formation and documentation. 

23 ‘‘(3) PAYMENT TO THE CORPORATION.—With 

24 respect to any participant, any transfer of an un25 claimed benefit to the corporation shall—
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1 ‘‘(A) in the case of a defined benefit plan, 

2 be a transfer of the participant’s designated 

3 benefit, or 

4 ‘‘(B) in the case of an individual account 

5 plan, be a transfer of the participant’s vested 

6 account balance under the plan. 

7 ‘‘(4) PAYMENT BY THE CORPORATION.—Subject 

8 to such reasonable restrictions as may be prescribed 

9 in regulations of the corporation (relating to invest10 ment limitations and otherwise)—

11 ‘‘(A) unclaimed benefits of a participant or 

12 beneficiary which are transferred to the cor13 poration pursuant to this subsection shall be 

14 distributed by the corporation to the participant 

15 or beneficiary not later than upon application 

16 filed by the participant or beneficiary with the 

17 corporation in such form and manner as may 

18 be prescribed in regulations of the corporation, 

19 and 

20 ‘‘(B) such benefits shall—

21 ‘‘(i) in the case of an individual ac22 count plan, be paid in a single sum (plus 

23 interest) or in such other form as is speci24 fied in regulations of the corporation, or 
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1 ‘‘(ii) in the case of a defined benefit 

2 plan, be paid—

3 ‘‘(I) in an amount based on the 

4 designated benefit and the assump5 tions prescribed by the corporation at 

6 the time that the corporation received 

7 the benefit, and 

8 ‘‘(II) in a form determined under 

9 regulations of the corporation. 

10 ‘‘(5) NOTICE.—Any transfer of unclaimed bene11 fits of a participant or beneficiary to the corporation 

12 pursuant to this subsection may occur only after 

13 reasonable advance notice of such transfer is pro14 vided by the plan administrator to the participant or 

15 beneficiary. The plan administrator shall also pro16 vide to the participant or beneficiary notice of any 

17 such transfer not later than 30 days after the date 

18 of the transfer. Notice mailed to the last known ad19 dress of the participant or beneficiary shall be treat20 ed as a notice to the participant or beneficiary for 

21 purposes of this paragraph. Any such notice shall in22 clude information regarding procedures for obtaining 

23 the distribution of benefits from the corporation in 

24 accordance with paragraph (4).
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1 ‘‘(6) PLANS DESCRIBED.—A plan is described 

2 in this paragraph if the plan is a pension plan (with3 in the meaning of section 3(2)—

4 ‘‘(A)(i) which has neither terminated nor is 

5 in the process of terminating, or 

6 ‘‘(ii) in the case of an unclaimed benefit to 

7 which section 401(a)(31)(B) of the Internal 

8 Revenue Code of 1986 applies (other than an 

9 unclaimed benefit of a missing participant), 

10 which has terminated or is in the process of ter11 minating, and 

12 ‘‘(B) which is not a plan described in para13 graphs (2) through (11) of section 4021(b). 

14 ‘‘(6) CERTAIN PROVISIONS NOT TO APPLY.—

15 Subsections (a)(1) and (a)(3) shall not apply to a 

16 plan described in paragraph (6).’’. 

17 (3) CONFORMING AMENDMENT.—Section 

18 4021(b) of such Act (29 U.S.C. 1321(b)(1)) is 

19 amended by striking ‘‘This’’ and inserting ‘‘Except 

20 to the extent provided in subsections (d) and (e) of 

21 section 4050, this’’. 

22 (c) ESCHEAT LAWS SUPERSEDED.—Section 514(b) 

23 of the Employee Retirement Income Security Act of 1974 

24 (29 U.S.C. 1144 (b) (as amended by this Act) is further 

25 amended—
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1 (1) by redesignating paragraph (10) as para2 graph (11), and 

3 (2) by inserting after paragraph (9) the fol4 lowing new paragraph: 

5 ‘‘(10) Any escheat or similar law of any State 

6 shall be superseded to the extent inconsistent with 

7 any transfer or other treatment of unclaimed bene8 fits (as defined in section 4050(b)(3)) permitted 

9 under the Internal Revenue Code of 1986.’’. 

10 (d) EFFECTIVE DATES AND RELATED RULES.—

11 (1) IN GENERAL.—The amendments made by 

12 subsections (a) and (b) shall apply to years begin13 ning after December 31, 2004. 

14 (2) REGULATIONS.—The Pension Benefit Guar15 anty Corporation shall issue regulations necessary to 

16 carry out the amendments made by subsection (b) 

17 not later than December 31, 2004. 

18 (3) ESCHEAT LAWS SUPERSEDED.—The 

19 amendment made by subsection (c) shall apply as of 

20 the date of enactment of this Act.

21 SEC. 203. FACILITATION UNDER FIDUCIARY RULES OF CER22 TAIN ROLLOVERS AND ANNUITY DISTRIBU23 TIONS. 

24 (a) IN GENERAL.—Section 404(c) of the Employee 

25 Retirement Income Security Act of 1974 (29 U.S.C. 
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1 1104(c)) is amended by adding at the end the following 

2 new paragraph: 

3 ‘‘(4)(A) In the case of a pension plan which makes 

4 a transfer under section 401(a)(31)(A) of the Internal 

5 Revenue Code of 1986 to an individual retirement plan 

6 (as defined in section 7701(a)(37) of such Code) in con7 nection with a participant or beneficiary or makes a dis8 tribution to a participant or beneficiary of an annuity con9 tract described in subparagraph (B), the participant or 

10 beneficiary shall, for purposes of paragraph (1), be treated 

11 as exercising control over the transfer or distribution if—

12 ‘‘(i) the participant or beneficiary elected such 

13 transfer or distribution, and 

14 ‘‘(ii) in connection with such election, the par15 ticipant or beneficiary was given an opportunity to 

16 elect any other individual retirement plan (in the 

17 case of a transfer) or any other annuity contract de18 scribed in subparagraph (B) (in the case of a dis19 tribution). 

20 ‘‘(B) An annuity contract is described in this sub21 paragraph if it provides, either on an immediate or de22 ferred basis, a series of substantially equal periodic pay23 ments (not less frequently than annually) for the life of 

24 the participant or beneficiary or the joint lives of the par25 ticipant or beneficiary and such individual’s designated 
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1 beneficiary. Annuity payments shall not fail to be treated 

2 as part of a series of substantially equal periodic payments 

3 because the amount of the periodic payments may vary 

4 in accordance with investment experience, reallocations 

5 among investment options, actuarial gains or losses, cost 

6 of living indices, or similar fluctuating criteria. The avail7 ability of a commutation benefit, a minimum period of 

8 payments certain, or a minimum amount to be paid in 

9 any event shall not affect the treatment of an annuity con10 tract as an annuity contract described in this subpara11 graph. 

12 ‘‘(C) Under regulations prescribed by the Secretary, 

13 this paragraph shall apply without regard to whether the 

14 particular individual retirement plan receiving the transfer 

15 or the particular annuity contract being distributed is spe16 cifically identified by the pension plan as available to the 

17 participant or beneficiary. 

18 ‘‘(D) Notwithstanding the preceding provisions of 

19 this paragraph, paragraph (1)(B) shall not apply with re20 spect to liability under section 406 in connection with the 

21 specific identification of any individual retirement plan or 

22 annuity contract as being available to the participant or 

23 beneficiary.’’. 

24 (b) EFFECTIVE DATE AND RELATED RULES.—
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1 (1) EFFECTIVE DATE.—The amendment made 

2 by this section shall take effect on the date of the 

3 enactment of this Act. 

4 (2) ISSUANCE OF FINAL REGULATIONS.—Final 

5 regulations under section 404(c)(4) of the Employee 

6 Retirement Income Security Act of 1974 (added by 

7 this section) shall be issued no later than 1 year 

8 after the date of the enactment of this Act.

9 SEC. 204. EQUALIZING TREATMENT OF DEFINED BENEFIT 

10 PLANS AND DEFINED CONTRIBUTION PLANS. 

11 The Secretary of Treasury would be directed to per12 mit defined benefit plans to satisfy the required distribu13 tion rules of section 401(a)(9) of the Internal Revenue 

14 Code of 1986 (and provisions which cross reference section 

15 401(a)(9) of such Code) by satisfying Temporary Treas16 ury Regulation 1.401(a)(9)–6T Q&A 4(b) (the rules appli17 cable to annuity contracts distributed under defined con18 tribution plans) or by satisfying any final regulations to 

19 the extent that such final regulations permit additional 

20 means of satisfying section 401(a)(9) of such Code. 

21 SEC. 205. STUDY CONCERNING DEFINED CONTRIBUTION 

22 PLAN LOSSES DUE TO MARKET VOLATILITY. 

23 (a) IN GENERAL.—The Secretary of the Treasury 

24 shall conduct a study to evaluate possible ways to lessen
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1 defined contribution plan losses due volatility of the eco2 nomic markets. 

3 (b) REQUIREMENTS.—In conducting the study, the 

4 Secretary shall investigate—

5 (1) the extent to which both long- and short6 term stock market volatility affects defined contribu7 tion savings, 

8 (2) the effect that this volatility has on the con9 tinuation and creation of defined contribution plans, 

10 (3) investment alternatives and lifetime dis11 tribution options for defined contribution plans that 

12 may help to ameliorate market risks, and 

13 (4) what legislative or administrative steps may 

14 be taken to lessen defined contribution plan losses in 

15 the future. 

16 (c) REPORT.—The Secretary shall transmit to the 

17 Committee on Ways and Means of the House of Rep18 resentatives and the Committee on Finance of the Senate, 

19 within 1 year after the date of enactment of this Act, a 

20 report containing the findings and conclusions of such 

21 study, together with recommendations for any legislation 

22 or administrative actions which the Secretary considers 

23 appropriate.
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1 TITLE III—ENHANCING FAIR2 NESS AND PENSION PORT3 ABILITY 

4 SEC. 301. ALLOW TRANSFERS TO SPOUSE’S RETIREMENT 

5 PLANS. 

6 (a) IN GENERAL.—Paragraph (6) of section 408(d) 

7 (relating to transfers incident to divorce) is amended by—

8 (1) striking ‘‘his spouse or former spouse under 

9 a divorce or separation instrument described in sub10 paragraph (A) of section 71(b)(2)’’ and inserting 

11 ‘‘his spouse (or his former spouse under a divorce or 

12 separation instrument described in subparagraph 

13 (A) of section 71(b)(2))’’, and 

14 (2) striking the heading and inserting ‘‘TRANS15 FER OF ACCOUNT TO SPOUSE OR FORMER

16 SPOUSE.—’’. 

17 (b) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to years beginning after the date 

19 of the enactment of this Act. 

20 SEC. 302. FASTER VESTING OF EMPLOYER NONELECTIVE 

21 CONTRIBUTIONS. 

22 (a) AMENDMENTS TO THE INTERNAL REVENUE

23 CODE OF 1986.—
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1 (1) IN GENERAL.—Paragraph (2) of section 

2 411(a) (relating to employer contributions) is 

3 amended to read as follows: 

4 ‘‘(2) EMPLOYER CONTRIBUTIONS.—

5 ‘‘(A) DEFINED BENEFIT PLANS.—

6 ‘‘(i) IN GENERAL.—In the case of a 

7 defined benefit plan, a plan satisfies the 

8 requirements of this paragraph if it satis9 fies the requirements of clause (ii) or (iii). 

10 ‘‘(ii) 5-YEAR VESTING.—A plan satis11 fies the requirements of this clause if an 

12 employee who has completed at least 5 

13 years of service has a nonforfeitable right 

14 to 100 percent of the employee’s accrued 

15 benefit derived from employer contribu16 tions. 

17 ‘‘(iii) 3 TO 7 YEAR VESTING.—A plan 

18 satisfies the requirements of this clause if 

19 an employee has a nonforfeitable right to 

20 a percentage of the employee’s accrued 

21 benefit derived from employer contribu22 tions determined under the following table:

The nonforfeitable 

‘‘Years of service: percentage is:

3 ................................................................................... 20

4 ................................................................................... 40

5 ................................................................................... 60

6 ................................................................................... 80

7 or more ...................................................................... 100.
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1 ‘‘(B) DEFINED CONTRIBUTION PLANS.—

2 ‘‘(i) IN GENERAL.—In the case of a 

3 defined contribution plan, a plan satisfies 

4 the requirements of this paragraph if it 

5 satisfies the requirements of clause (ii) or 

6 (iii). 

7 ‘‘(ii) 3-YEAR VESTING.—A plan satis8 fies the requirements of this clause if an 

9 employee who has completed at least 3 

10 years of service has a nonforfeitable right 

11 to 100 percent of the employee’s accrued 

12 benefit derived from employer contribu13 tions. 

14 ‘‘(iii) 2 TO 6 YEAR VESTING.—A plan 

15 satisfies the requirements of this clause if 

16 an employee has a nonforfeitable right to 

17 a percentage of the employee’s accrued 

18 benefit derived from employer contribu19 tions determined under the following table:

The nonforfeitable 

‘‘Years of service: percentage is:

2 ................................................................................... 20

3 ................................................................................... 40

4 ................................................................................... 60

5 ................................................................................... 80

6 ................................................................................... 100.’’.
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1 (2) CONFORMING AMENDMENT.—Section 

2 411(a) (relating to general rule for minimum vesting 

3 standards) is amended by striking paragraph (12). 

4 (b) AMENDMENTS TO THE EMPLOYEE RETIREMENT

5 INCOME SECURITY ACT OF 1974.—

6 (1) IN GENERAL.—Paragraph (2) of section 

7 203(a) of the Employee Retirement Income Security 

8 Act of 1974 (29 U.S.C. 1053(a)(2)) is amended to 

9 read as follows: 

10 ‘‘(2)(A)(i) In the case of a defined benefit plan, 

11 a plan satisfies the requirements of this paragraph 

12 if it satisfies the requirements of clause (ii) or (iii). 

13 ‘‘(ii) A plan satisfies the requirements of this 

14 clause if an employee who has completed at least 5 

15 years of service has a nonforfeitable right to 100 

16 percent of the employee’s accrued benefit derived 

17 from employer contributions. 

18 ‘‘(iii) A plan satisfies the requirements of this 

19 clause if an employee has a nonforfeitable right to 

20 a percentage of the employee’s accrued benefit de21 rived from employer contributions determined under 

22 the following table:

The nonforfeitable 

‘‘Years of service: percentage is:

3 ................................................................................... 20

4 ................................................................................... 40

5 ................................................................................... 60

6 ................................................................................... 80

7 or more ...................................................................... 100.
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1 ‘‘(B)(i) In the case of an individual account 

2 plan, a plan satisfies the requirements of this para3 graph if it satisfies the requirements of clause (ii) or 

4 (iii). 

5 ‘‘(ii) A plan satisfies the requirements of this 

6 clause if an employee who has completed at least 3 

7 years of service has a nonforfeitable right to 100 

8 percent of the employee’s accrued benefit derived 

9 from employer contributions. 

10 ‘‘(iii) A plan satisfies the requirements of this 

11 clause if an employee has a nonforfeitable right to 

12 a percentage of the employee’s accrued benefit de13 rived from employer contributions determined under 

14 the following table:

The nonforfeitable 

‘‘Years of service: percentage is:

2 ................................................................................... 20

3 ................................................................................... 40

4 ................................................................................... 60

5 ................................................................................... 80

6 ................................................................................... 100.’’.

15 (2) CONFORMING AMENDMENT.—Section 

16 203(a) of such Act is amended by striking para17 graph (4). 

18 (c) EFFECTIVE DATES.—

19 (1) IN GENERAL.—Except as provided in para20 graph (2), the amendments made by this section 

21 shall apply to contributions for plan years beginning 

22 after December 31, 2003.
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1 (2) COLLECTIVE BARGAINING AGREEMENTS.—

2 In the case of a plan maintained pursuant to one or 

3 more collective bargaining agreements between em4 ployee representatives and one or more employers 

5 ratified by the date of the enactment of this Act, the 

6 amendments made by this section shall not apply to 

7 contributions on behalf of employees covered by any 

8 such agreement for plan years beginning before the 

9 earlier of—

10 (A) the later of—

11 (i) the date on which the last of such 

12 collective bargaining agreements termi13 nates (determined without regard to any 

14 extension thereof on or after such date of 

15 the enactment); or 

16 (ii) January 1, 2004; or 

17 (B) January 1, 2008. 

18 (3) SERVICE REQUIRED.—With respect to any 

19 plan, the amendments made by this section shall not 

20 apply to any employee before the date that such em21 ployee has 1 hour of service under such plan in any 

22 plan year to which the amendments made by this 

23 section apply.

24 SEC. 303. ROLLOVERS BY NONSPOUSE BENEFICIARIES. 

25 (a) IN GENERAL.—
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1 (1) QUALIFIED PLANS.—Section 402(c) (relat2 ing to rollovers from exempt trusts) is amended by 

3 adding at the end the following new paragraph: 

4 ‘‘(11) ROLLOVER WHERE NONSPOUSE BENE5 FICIARY RECEIVES DISTRIBUTION AFTER DEATH OF

6 EMPLOYEE.—

7 ‘‘(A) IN GENERAL.—If any distribution at8 tributable to an employee is paid to a des9 ignated beneficiary (as defined by section 

10 401(a)(9)(E)) other than the surviving spouse 

11 of the employee after the employee’s death, the 

12 preceding provisions of this subsection shall 

13 apply to such distribution in the same manner 

14 as if the designated beneficiary were the em15 ployee, except that only a plan described in 

16 clause (i) or (ii) of paragraph (8)(B) that is es17 tablished in the name of the employee for the 

18 benefit of the designated beneficiary shall be 

19 treated as an eligible retirement plan with re20 spect to such distribution. 

21 ‘‘(B) SPECIAL RULES.—

22 ‘‘(i) DEATH OF EMPLOYEE BEFORE

23 ENTIRE INTEREST DISTRIBUTED.—An eli24 gible retirement plan that receives a trans25 fer described in this paragraph shall, with 
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1 respect to amounts attributable to such 

2 transferred amount, be subject to rules 

3 similar to clauses (ii) and (iii) of section 

4 401(a)(9)(B). 

5 ‘‘(ii) DISTRIBUTIONS ATTRIBUTED TO

6 EMPLOYEE.—For purposes of this sub7 section, any distribution from the eligible 

8 retirement plan of amounts attributable to 

9 such transferred amount shall be treated 

10 as a distribution attributable to the em11 ployee, not as a distribution attributable to 

12 the designated beneficiary. 

13 ‘‘(iii) CERTAIN TRUSTS TREATED AS

14 BENEFICIARIES.—For purposes of this 

15 paragraph, to the extent provided in rules 

16 prescribed by the Secretary, a trust main17 tained for the benefit of one or more des18 ignated beneficiaries shall be treated in the 

19 same manner as a designated bene20 ficiary.’’. 

21 (2) SECTION 403(a) PLANS.—Subparagraph (B) 

22 of section 403(a)(4) (relating to rollover amounts) is 

23 further amended by striking ‘‘and (9)’’ and inserting 

24 ‘‘, (9), and (11)’’. 
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1 (3) SECTION 403(b) PLANS.—Subparagraph (B) 

2 of section 403(b)(8) (relating to rollover amounts) is 

3 amended by striking ‘‘and (9)’’ and inserting ‘‘, (9), 

4 and (11)’’. 

5 (4) SECTION 457 PLANS.—Subparagraph (B) of 

6 section 457(e)(16) (relating to rollover amounts) is 

7 amended by striking ‘‘and (9)’’ and inserting ‘‘, (9), 

8 and (11)’’. 

9 (b) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to distributions after December 31, 

11 2003. 

12 SEC. 304. ALLOW DIRECT ROLLOVERS FROM RETIREMENT 

13 PLANS TO ROTH IRAS. 

14 (a) IN GENERAL.—Subsection (e) of section 408A 

15 (defining qualified rollover contribution) is amended to 

16 read as follows: 

17 ‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For 

18 purposes of this section, the term ‘qualified rollover con19 tribution’ means a rollover contribution—

20 ‘‘(1) to a Roth IRA from another such account, 

21 ‘‘(2) from an eligible retirement plan, but only 

22 if—

23 ‘‘(A) in the case of an individual retire24 ment plan, such rollover contribution meets the 

25 requirements of section 408(d)(3), and 
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1 ‘‘(B) in the case of any eligible retirement 

2 plan (as defined in section 402(c)(8)(B) other 

3 than clauses (i) and (ii) thereof), such rollover 

4 contribution meets the requirements of section 

5 402(c), 403(b)(8), or 457(e)(16), as applicable. 

6 For purposes of section 408(d)(3)(B), there shall be dis7 regarded any qualified rollover contribution from an indi8 vidual retirement plan (other than a Roth IRA) to a Roth 

9 IRA.’’. 

10 (b) CONFORMING AMENDMENTS.—

11 (1) Section 408A(c)(3)(B) is amended—

12 (A) in the text by striking ‘‘individual re13 tirement plan’’ and inserting ‘‘an eligible retire14 ment plan (as defined by section 

15 402(c)(8)(B))’’, and 

16 (B) in the heading by striking ‘‘IRA’’ and 

17 inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 

18 (2) Section 408A(d)(3) is amended—

19 (A) in subparagraph (A) by striking ‘‘sec20 tion 408(d)(3)’’ inserting ‘‘sections 402(c), 

21 403(b)(8), 408(d)(3), and 457(e)(16)’’, 

22 (B) in subparagraph (B) by striking ‘‘indi23 vidual retirement plan’’ and inserting ‘‘eligible 

24 retirement plan (as defined by section 

25 402(c)(8)(B))’’,
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1 (C) in subparagraph (D) by striking ‘‘or 

2 6047’’ after ‘‘408(i)’’, 

3 (D) in subparagraph (D) by striking ‘‘or 

4 both’’ and inserting ‘‘persons subject to section 

5 6047(d)(1), or all of the foregoing persons’’, 

6 and 

7 (E) in the heading by striking ‘‘IRA’’ and 

8 inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to distributions after December 31, 

11 2003. 

12 SEC. 305. EXCLUSION OF PERCENTAGE OF LIFETIME ANNU13 ITY PAYMENTS. 

14 (a) IN GENERAL.—

15 (1) QUALIFIED PLANS.—Subsection (e) of sec16 tion 402 (relating to exempt trusts) is amended by 

17 adding at the end the following new paragraph: 

18 ‘‘(7) EXCLUSION OF PERCENTAGE OF LIFETIME

19 ANNUITY PAYMENTS.—

20 ‘‘(A) IN GENERAL.—In the case of a life21 time annuity payment from a qualified trust 

22 (within the meaning of subsection (c)(8)(A)) to 

23 a qualified distributee, gross income shall not 

24 include the applicable percentage of the amount 
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1 otherwise includible in gross income (deter2 mined without regard to this paragraph). 

3 ‘‘(B) APPLICABLE PERCENTAGE.—For 

4 purposes of subparagraph (A), applicable per5 centage shall be determined in accordance with 

6 the following table:

‘‘For taxable years beginning The applicable 

in calendar year— percentage is—

2004, 2005, 2006, and 2007 ....................................... 5

2008 and thereafter ..................................................... 10.

7 ‘‘(C) LIMITATION.—With respect to any 

8 qualified distributee, subparagraph (A) shall 

9 not apply to any lifetime annuity payment to 

10 the extent that such payments, when added to 

11 all previous payments under such annuity to 

12 such qualified distributee during the taxable 

13 year, exceed 50 percent of the applicable 

14 amount for such year under section 

15 415(c)(1)(A). For purposes of this subpara16 graph, all lifetime annuity payments received by 

17 a qualified distributee shall be taken into ac18 count to the extent that such payments are sub19 ject to this paragraph or to rules similar to the 

20 rules of this paragraph. 

21 ‘‘(D) DEFINITIONS.—For purposes of this 

22 paragraph—

23 ‘‘(i) LIFETIME ANNUITY PAYMENT.—
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1 ‘‘(I) IN GENERAL.—The term 

2 ‘lifetime annuity payment’ means a 

3 distribution which is a part of a series 

4 of substantially equal periodic pay5 ments (made not less frequently than 

6 annually) made over the life of the 

7 qualified distributee or the joint lives 

8 of the qualified distributee and the 

9 qualified distributee’s designated ben10 eficiary. 

11 ‘‘(II) EXCEPTIONS.—Annuity 

12 payments shall not fail to be treated 

13 as part of a series of substantially 

14 equal periodic payments because the 

15 amount of the periodic payments may 

16 vary in accordance with investment 

17 experience, reallocations among in18 vestment options, actuarial gains or 

19 losses, cost of living indices, or similar 

20 fluctuating criteria. The availability of 

21 a commutation benefit, a minimum 

22 period of payments certain, or a min23 imum amount to be paid in any event 

24 shall not affect the treatment of a dis25 tribution as a lifetime annuity pay-
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1 ment. In the case of lifetime annuity 

2 payments being made to a qualified 

3 trust, payments by the qualified trust 

4 to a qualified distributee of the entire 

5 amount received by the qualified trust 

6 with respect to the qualified dis7 tributee shall constitute lifetime annu8 ity payments. 

9 ‘‘(ii) QUALIFIED DISTRIBUTEE.—The 

10 term ‘qualified distributee’ means the em11 ployee, the surviving spouse of the em12 ployee, and an alternate payee who is the 

13 spouse or former spouse of the employee. 

14 ‘‘(E) RECAPTURE TAX.—

15 ‘‘(i) IN GENERAL.—If—

16 ‘‘(I) the applicable percentage of 

17 a lifetime annuity payment is not in18 cludible in gross income by reason of 

19 subparagraph (A), and 

20 ‘‘(II) the series of payments of 

21 which such payment is a part is sub22 sequently modified (other than by rea23 son of death or disability) so that 

24 some or all future payments are not 

25 lifetime annuity payments, 
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1 the qualified distributee’s gross income for 

2 the first taxable year in which such modi3 fication occurs shall be increased by an 

4 amount, determined under rules prescribed 

5 by the Secretary, equal to the amount 

6 which (but for subparagraph (A)) would 

7 have been includible in the qualified 

8 distributee’s gross income if the modifica9 tion had been in effect at all times, plus in10 terest for the deferral period. 

11 ‘‘(ii) DEFERRAL PERIOD.—For pur12 poses of this subparagraph, the term ‘de13 ferral period’ means the period beginning 

14 with the taxable year in which (without re15 gard to subparagraph (A)) the payment 

16 would have been includible in gross income 

17 and ending with the taxable year in which 

18 the modification described in clause (i)(II) 

19 occurs. 

20 ‘‘(F) PHASE-OUT OF EXCLUSION.—

21 ‘‘(i) IN GENERAL.—In any taxable 

22 year, the exclusion from gross income for 

23 any qualified distributee under this para24 graph and under rules similar to the rules 
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1 of this paragraph shall not exceed the in2 come-adjusted limit. 

3 ‘‘(ii) INCOME-ADJUSTED LIMIT.—For 

4 purposes of this subparagraph, the income5 adjusted limit shall be—

6 ‘‘(I) the product of the applicable 

7 percentage described in subparagraph 

8 (B) and the limitation described in 

9 subparagraph (C), reduced (but not 

10 below zero) by 

11 ‘‘(II) the amount determined 

12 under clause (iii). 

13 ‘‘(iii) AMOUNT DETERMINED.—The 

14 amount determined under this clause shall 

15 be the amount which bears the same ratio 

16 to the amount described in clause (ii)(I) 

17 as—

18 ‘‘(I) the excess of the taxpayer’s 

19 adjusted gross income for such tax20 able year over the applicable dollar 

21 amount, bears to 

22 ‘‘(II) $15,000 ($30,000 for a 

23 joint return). 

24 ‘‘(iv) LIMITATION ON REDUCTION.—

25 The income-adjusted limit shall not be re-
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1 duced below $200 by clause (ii)(II) unless 

2 (without regard to this clause) such limit is 

3 reduced to zero. 

4 ‘‘(v) ROUNDING RULE.—Any income5 adjusted limit determined under this sub6 paragraph which is not a multiple of $10 

7 shall be rounded to the next lowest mul8 tiple of $10. 

9 ‘‘(vi) ADJUSTED GROSS INCOME.—For 

10 purposes of this subparagraph, adjusted 

11 gross income of any taxpayer shall be de12 termined in the same manner as under sec13 tion 408A(c)(3)(C)(i) except that section 

14 408A(c)(3)(C)(i)(II) shall not apply for 

15 this purpose. 

16 ‘‘(vii) APPLICABLE DOLLAR LIMIT.—

17 For purposes of this subparagraph, the ap18 plicable dollar amount is—

19 ‘‘(I) in the case of a taxpayer fil20 ing a joint return, $150,000, 

21 ‘‘(II) in the case of any other 

22 taxpayer (other than a married indi23 vidual filing a separate return), 

24 $75,000, and
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1 ‘‘(III) in the case of a married 

2 individual filing a separate return, 

3 zero. 

4 ‘‘(viii) SPECIAL RULE FOR MARRIED

5 INDIVIDUALS FILING SEPARATELY AND

6 LIVING APART.—Section 219(g)(4) shall 

7 apply for purposes of this subparagraph.’’. 

8 (2) SECTION 403(a) PLANS.—Paragraph (4) of 

9 section 403(a) (relating to qualified annuity plans) 

10 is amended by adding at the end the following new 

11 subparagraph: 

12 ‘‘(C) EXCLUSION OF PERCENTAGE OF

13 LIFETIME ANNUITY PAYMENTS.—Rules similar 

14 to the rules of section 402(e)(7) shall apply to 

15 distributions under any annuity contract to 

16 which this subsection applies.’’. 

17 (3) SECTION 403(b) PLANS.—Section 403(b) 

18 (relating to purchased annuities) is amended by add19 ing at the end the following new paragraph: 

20 ‘‘(14) EXCLUSION OF PERCENTAGE OF LIFE21 TIME ANNUITY PAYMENTS.—Rules similar to the 

22 rules of section 402(e)(7) shall apply to distributions 

23 under any annuity contract or custodial account to 

24 which this subsection applies.’’. 
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1 (4) IRAS.—Section 408(d) (relating to tax 

2 treatment of distributions) is amended by adding at 

3 the end the following new paragraph: 

4 ‘‘(8) EXCLUSION OF PERCENTAGE OF LIFETIME

5 ANNUITY PAYMENTS.—Rules similar to the rules of 

6 section 402(e)(7) shall apply to distributions out of 

7 an individual retirement plan.’’. 

8 (5) SECTION 457 PLANS.—Section 457(e) (relat9 ing to special rules for deferred compensation plans) 

10 is amended by adding at the end the following new 

11 paragraph: 

12 ‘‘(18) EXCLUSION OF PERCENTAGE OF LIFE13 TIME ANNUITY PAYMENTS.—Rules similar to the 

14 rules of section 402(e)(7) shall apply to distributions 

15 from an eligible deferred compensation plan of an el16 igible employer described in subsection (e)(1)(A).’’. 

17 (b) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to distributions made after Decem19 ber 31, 2003. 

20 SEC. 306. ROLLOVER OF AFTER-TAX AMOUNTS IN ANNUITY 

21 CONTRACTS. 

22 (a) IN GENERAL.—Subparagraph (A) of section 

23 402(c)(2) (maximum amount which may be rolled over) 

24 is amended by striking ‘‘and which’’ and inserting ‘‘or to 
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1 an annuity contract described in section 403(b) and such 

2 plan or contract’’. 

3 (b) EFFECTIVE DATE.—The amendment made by 

4 subsection (a) shall apply to taxable years beginning after 

5 December 31, 2003. 

6 SEC. 307. FAIR TREATMENT UNDER SUBSTANTIALLY 

7 EQUAL PERIODIC PAYMENTS RULE. 

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

9 (relating to change in substantially equal payments) is 

10 amended by inserting at the end the following new sub11 paragraphs: 

12 ‘‘(C) CHANGE IN PERMISSIBLE METH13 ODS.—If—

14 ‘‘(i) the taxpayer changes from one 

15 permissible method of determining sub16 stantially equal periodic payments to an17 other permissible method for purposes of 

18 such determination, and 

19 ‘‘(ii) such change results in an initial 

20 reduction in the amount of payments re21 quired to be made, 

22 such change shall not be treated as a modifica23 tion under subparagraph (A)(ii). 

24 ‘‘(D) ROLLOVERS TO SUBSEQUENT

25 PLAN.—If—
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1 ‘‘(i) payments satisfying paragraph 

2 (2)(A)(iv) are being made from a qualified 

3 retirement plan, 

4 ‘‘(ii) a transfer or a rollover from the 

5 qualified retirement plan is made to an6 other qualified retirement plan of all or a 

7 portion of the taxpayer’s benefit under the 

8 transferor plan, and 

9 ‘‘(iii) distributions from the transferor 

10 and transferee plans would in combination 

11 continue to satisfy paragraph (2)(A)(iv) if 

12 made only from the transferor plan, 

13 such transfer or rollover shall not be treated as 

14 a modification under subparagraph (A)(ii) and 

15 compliance with paragraph (2)(A)(iv) shall be 

16 determined on the basis of the combined dis17 tributions described in clause (iii). 

18 ‘‘(E) INTEREST RATE.—Any reasonable in19 terest rate may be used in determining whether 

20 payments are substantially equal under para21 graph (2)(A)(iv).’’. 

22 (b) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to any series of payments com24 mencing on or after the date of enactment of this Act.
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1 SEC. 308. TREATMENT OF SUBSEQUENT QUALIFIED DOMES2 TIC RELATIONS ORDERS. 

3 (a) AMENDMENT TO ERISA.—Section 206(d)(3)(B) 

4 of the Employee Retirement Income Security Act of 1974 

5 (29 U.S.C. 1056(d)(3)(B)) is amended by adding at the 

6 end of the following flush sentence: ‘‘A domestic relations 

7 order otherwise meeting the requirements to be treated as 

8 a qualified domestic relations order shall not fail to be so 

9 treated solely because it is issued after, or revises, another 

10 qualified domestic relations order, but only with respect 

11 to amounts payable after the date the order is determined 

12 to be qualified.’’. 

13 (b) AMENDMENT TO INTERNAL REVENUE CODE.—

14 Section 414(p)(1)(A) is amended by adding at the end the 

15 following flush sentence: ‘‘A domestic relations order oth16 erwise meeting the requirements to be treated as a quali17 fied domestic relations order shall not fail to be so treated 

18 solely because it is issued after, or revises, another quali19 fied domestic relations order, but only with respect to 

20 amounts payable after the date the order is determined 

21 to be qualified.’’. 

22 (c) EFFECTIVE DATE.—

23 (1) IN GENERAL.—The amendments made by 

24 this section shall apply to transfers made after De25 cember 31, 2003. 
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1 (2) PRIOR TRANSFERS.—Transfers made prior 

2 to January 1, 2004 under qualified domestic rela3 tions orders that were issued after, or that revised, 

4 a prior qualified domestic relations order shall not 

5 be deemed invalid by reason of the amendments 

6 made by this section.

7 SEC. 309. TREATMENT OF DELAYED QUALIFIED DOMESTIC 

8 RELATIONS ORDERS. 

9 (a) AMENDMENT TO ERISA.—Section 206(d)(3)(B) 

10 of the Employee Retirement Income Security Act of 1974 

11 (29 U.S.C. 1056(d)(3)) (as amended by this Act) is 

12 amended by adding at the end the following flush sen13 tence: ‘‘A domestic relations order otherwise meeting the 

14 requirements to be treated as a qualified domestic rela15 tions order shall not fail to be to be treated (subject to 

16 subparagraph (H)) solely because of the time at which it 

17 is issued.’’. 

18 (b) AMENDMENT TO INTERNAL REVENUE CODE.—

19 Section 414(p)(1)(A) (as amended by this Act) is amended 

20 by adding at the end the following flush sentence: ‘‘A do21 mestic relations order otherwise meeting the requirements 

22 to be treated as a qualified domestic relations order shall 

23 not fail to be so treated (subject to paragraph (7)) solely 

24 because of the time at which it is issued.’’. 

25 (c) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendments made by 

2 this section apply to transfers made after December 

3 31, 2003.

4 (2) PRIOR ORDERS.—Transfers made prior to 

5 January 1, 2004 under qualified domestic relations 

6 orders that were issued subsequent to the events giv7 ing rise to such orders shall not be deemed invalid 

8 by reason of the amendments made by this section.

9 SEC. 310. TREATMENT OF ANNUITY CONTRACTS. 

10 (a) IN GENERAL.—Clause (i) of section 402(e)(4)(D) 

11 is amended by adding after ‘‘section 401(c)(1).’’ the fol12 lowing: ‘‘A distribution of an annuity contract from a trust 

13 or annuity plan referred to in the first sentence of this 

14 clause may be treated as a part of a lump sum distribu15 tion.’’. 

16 (b) EFFECTIVE DATE.—The amendment made by 

17 this section shall take effect as if included in section 

18 1401(b)(1) of the Small Business Job Protection Act of 

19 1996. 

20 SEC. 311. PRESERVATION OF PENSION PLANS. 

21 (a) Section 1612 of the Social Security Act is amend22 ed—

23 (1) in subsection (b)—

24 (A) in paragraph (21), by striking ‘‘; and’’ 

25 and inserting ‘‘;’’; 
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1 (B) by striking the period at the end of 

2 paragraph (22) and inserting ‘‘; and’’; 

3 (C) by adding at the end the following 

4 paragraph: 

5 ‘‘(23) except as otherwise provided in this para6 graph, retirement benefits to which the individual is 

7 or may become entitled, including any balances cred8 ited to the individual’s account and any other ac9 crued benefits, under a qualifying retirement plan.’’; 

10 and 

11 (2) adding at the end the following new sub12 section: 

13 ‘‘RULES RELATING TO QUALIFIED RETIREMENT PLANS

14 ‘‘(c)(1) For purposes of subsection (b)(23), a quali15 fying retirement plan is a qualified retirement plan as de16 fined in section 4974(c) of the Internal Revenue Code of 

17 1986, an eligible deferred compensation plan under section 

18 457(b) of such Code, or a trust as described in section 

19 501(c)(18) of such Code. 

20 ‘‘(2) Subsection (b)(23) shall not require the Com21 missioner to exclude the aggregate value of qualifying re22 tirement plan balances of an individual to the extent they 

23 exceed $75,000. 

24 ‘‘(3) Except as provided in paragraph (4), in the case 

25 of an individual who has attained the age specified in sec26 tion 72(t)(2)(A)(i) of the Internal Revenue Code of 1986, 
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1 subsection (b)(23) shall not require the Commissioner to 

2 exclude an amount up to the monthly annuity value of the 

3 current aggregate value of qualifying retirement plan bal4 ances of the individual as determined under a schedule 

5 issued by the Commissioner. 

6 ‘‘(4) Upon determining that an applicant for or re7 cipient of benefits has attained the age specified in section 

8 72(t)(2)(A)(i) of the Internal Revenue Code of 1986 and 

9 is entitled to benefits under a qualifying retirement plan, 

10 the Commissioner shall—

11 ‘‘(A) notify the applicant or recipient of the 

12 provisions of this subsection and of the importance 

13 of obtaining competent financial advice on the possi14 bility of converting the value of the plan into an an15 nuity; 

16 ‘‘(B) continue to exclude the value of the quali17 fying retirement plan without regard to paragraph 

18 (3) for a period of one year following the provision 

19 of the notice specified in subparagraph (A). 

20 ‘‘(C) after the period specified in subparagraph 

21 (B), not count as monthly income more than the 

22 monthly annuity value of any current balance of the 

23 qualifying retirement plan as determined under a 

24 schedule issued by the Commissioner. 
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1 ‘‘(5) Nothing in subsection (b)(23) shall be construed 

2 to authorize or require any benefits to be reduced or de3 nied to any individual because of a qualifying retirement 

4 plan (including defined benefit retirement plans) whose 

5 consideration is excluded under any other provision of 

6 law.’’. 

7 (b) Section 1613 of the Social Security Act is amend8 ed—

9 (1) in subsection (a)—

10 (A) in paragraph (12), by striking ‘‘; and’’ 

11 and inserting ‘‘;’’; 

12 (B) by striking the period at the end of 

13 paragraph (13) and inserting ‘‘; and’’; and 

14 (C) by adding after paragraph (13) the fol15 lowing paragraph: 

16 ‘‘(14) benefits to which the individual is or may 

17 become entitled, including any balances credited to 

18 the individual’s account and any other accrued bene19 fits, qualifying retirement plan.’’; and 

20 (2) by adding at the end the following new sub21 section: 

22 ‘‘RULES RELATING TO QUALIFIED RETIREMENT PLANS

23 ‘‘(f)(1) For purposes of subsection (a)(14) a quali24 fying retirement plan is a qualified retirement plan as de25 fined in section 4974(c) of the Internal Revenue Code of 

26 1986, an eligible deferred compensation plan under section
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1 457(b) of such Code, or a trust as described in section 

2 501(c)(18) of such Code. 

3 ‘‘(2) Subsection (a)(14) shall not require the Com4 missioner to exclude—

5 ‘‘(A) funds that have been distributed from a 

6 qualifying retirement plan; or 

7 ‘‘(B) the value of a qualifying retirement plan 

8 to the extent the aggregate value of qualifying re9 tirement plan balances of an individual exceed 

10 $75,000. 

11 ‘‘(3) Nothing in subsection (a)(14) shall be construed 

12 to authorize or require any benefits to be reduced or de13 nied to any individual because of a qualifying retirement 

14 plan (including defined benefit retirement plans) whose 

15 consideration is excluded under any other provision of 

16 law.’’. 

17 (c) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply as of the date of enactment of this 

19 Act.

20 SEC. 312. CERTAIN PLAN TRANSERS AND MERGERS. 

21 (a) AMENDMENT TO THE INTERNAL REVENUE CODE

22 OF 1986.—Section 414 (relating to definitions and special 

23 rules) (as amended by this Act) is amended by adding at 

24 the end the following new subsection: 

25 ‘‘(z) CERTAIN PLAN TRANSFERS AND MERGERS.—
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1 ‘‘(1) IN GENERAL.—Under rules prescribed by 

2 the Secretary, no amount shall be includible in gross 

3 income by reason of—

4 ‘‘(A) a transfer of all or a portion of the 

5 account balance of a participant or beneficiary, 

6 whether or not vested, from a defined contribu7 tion plan described in section 401(a) or section 

8 403(a) to an annuity contract described in sec9 tion 403(b), 

10 ‘‘(B) a transfer of all or a portion of the 

11 account balance of a participant or beneficiary, 

12 whether or not vested, from an annuity contract 

13 described in section 403(b) to a defined con14 tribution plan described in section 401(a) or 

15 section 403(a), or 

16 ‘‘(C) a merger of a defined contribution 

17 plan described in section 401(a) or section 

18 403(a) with an annuity contract described in 

19 section 403(b), 

20 so long as the transfer or merger does not cause a 

21 reduction in the vested benefit or total benefit (in22 cluding non-vested benefit) of any participant or 

23 beneficiary. A plan or contract shall not fail to be 

24 considered to be described in sections 401(a), 

25 403(a), or 403(b) (as applicable) merely because 
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1 such plan or contract engages in a transfer or merg2 er described in this paragraph. 

3 ‘‘(2) DISTRIBUTIONS.—Except to the extent 

4 provided in paragraphs (3) and (4), amounts trans5 ferred or merged pursuant to paragraph (1) shall be 

6 distributed solely in accordance with the terms of 

7 the transferee or merged plan. 

8 ‘‘(3) SPOUSAL CONSENT AND ANTI-CUTBACK

9 PROTECTION.—In the case of a transfer or merger 

10 described in paragraph (1), amounts in the trans11 feree or merged plan that are attributable to the 

12 transferor or predecessor plan shall—

13 ‘‘(A)(i) be treated in the same manner as 

14 amounts in a plan to which section 401(a)(11) 

15 or section 205 of the Employee Retirement In16 come Security Act of 1974 applies to the extent 

17 that such sections applied to such amounts in 

18 the transferor or predecessor plan, or 

19 ‘‘(ii) be required to satisfy the require20 ments of section 401(a)(11)(B)(iii)(I) or section 

21 205(b)(1)(C)(i) of the Employee Retirement In22 come Security Act of 1974 to the extent that 

23 such section applied to such amounts in the 

24 transferor or predecessor plan, and 
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1 ‘‘(B) be treated as subject to section 

2 411(d)(6) and section 204(g) of the Employee 

3 Retirement Income Security Act of 1974 to the 

4 extent that such amounts were subject to such 

5 sections in the transferor or predecessor plan. 

6 ‘‘(4) SPECIAL RULES.—Under rules prescribed 

7 by the Secretary, to the extent amounts transferred 

8 or merged pursuant to paragraph (1) were otherwise 

9 entitled to grandfather treatment under the trans10 feror or predecessor plan, such amounts (and income 

11 or loss attributable thereto) shall remain entitled to 

12 such treatment under the transferee or merged plan. 

13 The rules prescribed by the Secretary shall require 

14 that such amounts be separately accounted for by 

15 the transferee or merged plan. For purposes of this 

16 paragraph, ‘grandfather treatment’ shall mean spe17 cial treatment under the Internal Revenue Code of 

18 1986 or the Employee Retirement Income Security 

19 Act of 1974 that is provided for prior benefits, prior 

20 periods of time, or certain individuals in connection 

21 with a change in the applicable law. 

22 ‘‘(5) CONSENT.—In the case of an annuity con23 tract described in section 403(b) with respect to 

24 which transfers may be made only with the consent 

25 of a participant or beneficiary pursuant to the terms 
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1 of such contract or pursuant to applicable law, a 

2 transfer from such contract pursuant to paragraph 

3 (1) may be made only if such participant or bene4 ficiary consents to such transfer. For purposes of 

5 this paragraph, a merger of an annuity contract de6 scribed in section 403(b) with a plan described in 

7 section 401(a) or 403(a) shall be treated as a trans8 fer from the predecessor plan or contract to the 

9 merged plan or contract. Nothing in this subsection 

10 shall affect the application of contract or plan terms 

11 otherwise applicable in the case of a withdrawal 

12 from the contract or plan.’’. 

13 (b) AMENDMENT TO THE EMPLOYEE RETIREMENT

14 INCOME SECURITY ACT OF 1974.—Section 4 of the Em15 ployee Retirement Income Security Act of 1974 (29 

16 U.S.C. 1003) is amended by adding at the end the fol17 lowing new subsection: 

18 ‘‘(d) This title shall apply to any plan or contract de19 scribed in section 414(z) of the Internal Revenue Code of 

20 1986 to the extent necessary to comply with the require21 ments of such section. Transfers or mergers permitted 

22 under such section shall be treated as satisfying the re23 quirements of this title.’’. 

24 (c) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendments made by 

2 this section shall apply to years beginning after the 

3 Secretary of the Treasury prescribes rules under sec4 tion 414(z) of the Internal Revenue Code of 1986. 

5 (2) RULES.—The Secretary of the Treasury 

6 shall issue rules under section 414(z) of the Internal 

7 Code of 1986 within 1 year after the date of enact8 ment of this Act.

9 TITLE IV—INCREASING RETIRE10 MENT PLAN PARTICIPATION 

11 AND SAVINGS 

12 SEC. 401. EXPANSION OF THE SAVER’S CREDIT. 

13 (a) IN GENERAL.—The table contained in subsection 

14 (b) of section 25B (relating to applicable percentage) is 

15 amended to read as follows:

‘‘Adjusted Gross Income 

Applicable percentage Joint return Head of a household All other cases 

Over Not over Over Not over Over Not over 

$30,000 $22,500 $15,000 55

30,000 40,000 22,500 30,000 15,000 20,000 25

40,000 50,000 30,000 37,500 20,000 25,000 20

50,000 60,000 37,500 45,000 25,000 30,000 10

60,000 45,000 30,000 0’’. 

16 (b) EFFECTIVE DATE.—The amendment made by 

17 this section shall apply to taxable years beginning after 

18 December 31, 2003. 

19 SEC. 402. ACCELERATION OF SCHEDULED INCREASES IN 

20 PENSION PLAN CONTRIBUTION LIMITS. 

21 (a) ELECTIVE DEFERRALS.—
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1 (1) IN GENERAL.—Section 402(g)(1) (relating 

2 to general rule for limitation on exclusion for elective 

3 deferrals) is amended—

4 (A) in subparagraph (A) by striking ‘‘the 

5 applicable dollar amount’’ and inserting 

6 ‘‘$15,000’’, 

7 (B) by striking subparagraph (B) and re8 designating subparagraph (C) as subparagraph 

9 (B). 

10 (2) CONFORMING AMENDMENTS.—

11 (A) Section 402(g)(1)(B) (as redesignated 

12 by paragraph (1)) is amended by striking ‘‘ap13 plicable dollar amount under subparagraph 

14 (B)’’ and inserting ‘‘amount in effect under 

15 subparagraph (A)’’. 

16 (B) Section 402(g)(4) is amended—

17 (i) by striking ‘‘2006’’ and inserting 

18 ‘‘2004’’, 

19 (ii) by striking ‘‘paragraph (1)(B)’’ 

20 and inserting ‘‘paragraph (1)(A)’’, and 

21 (iii) by striking ‘‘2005’’ and inserting 

22 ‘‘2003’’. 

23 (b) DEFERRED COMPENSATION PLANS OF STATE

24 AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANI25 ZATIONS.—
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1 (1) IN GENERAL.—Subsection (b)(2)(A) of sec2 tion 457 (defining eligible deferred compensation 

3 plan) is amended by striking ‘‘the applicable dollar 

4 amount’’ and inserting ‘‘$15,000’’. 

5 (2) CONFORMING AMENDMENT.—Paragraph 

6 (15) of section 457(e) is amended to read as follows: 

7 ‘‘(15) COST-OF-LIVING ADJUSTMENTS.—In the 

8 case of taxable years beginning after December 31, 

9 2003, the Secretary shall adjust the $15,000 

10 amount in subsection (b)(2)(A) at the same time 

11 and in the same manner as under section 415(d), 

12 except that the base period shall be the calendar 

13 quarter beginning July 1, 2002, and any increase 

14 under this paragraph which is not a multiple of 

15 $500 shall be rounded to the next lowest multiple of 

16 $500.’’. 

17 (c) SIMPLE RETIREMENT ACCOUNTS.—

18 (1) IN GENERAL.—Clause (ii) of section 

19 408(p)(2)(A) (relating to general rule for qualified 

20 salary reduction arrangement) is amended by strik21 ing ‘‘the applicable dollar amount’’ and inserting 

22 ‘‘$10,000’’. 

23 (2) CONFORMING AMENDMENT.—Subparagraph 

24 (E) of section 408(p)(2) is amended to read as fol25 lows: 
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1 ‘‘(E) COST-OF-LIVING ADJUSTMENT.—In 

2 the case of a year beginning after December 31, 

3 2003, the Secretary shall adjust the $10,000 

4 amount in subparagraph (A)(ii) at the same 

5 time and in the same manner as under section 

6 415(d), except that the base period taken into 

7 account shall be the calendar quarter beginning 

8 July 1, 2002, and any increase under this sub9 paragraph which is not a multiple of $500 shall 

10 be rounded to the next lower multiple of 

11 $500.’’. 

12 (d) CATCH-UP CONTRIBUTIONS.—

13 (1) IN GENERAL.—Subparagraph (B) of section 

14 414(v)(2) (relating to applicable dollar amount) is 

15 amended—

16 (A) in clause (i) by striking ‘‘shall be’’ and 

17 all that follows and inserting ‘‘is $5,000.’’, and 

18 (B) in clause (ii) by striking ‘‘shall be’’ 

19 and all that follows and inserting ‘‘is $2,500.’’. 

20 (2) CONFORMING AMENDMENTS.—Section 

21 414(v)(2)(C) is amended—

22 (A) by striking ‘‘2006’’ and inserting 

23 ‘‘2003’’, and 

24 (B) by striking ‘‘2005’’ and inserting 

25 ‘‘2002’’. 
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1 (e) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to years beginning after December 

3 31, 2003.

4 SEC. 403. REMOVING BARRIERS TO AUTOMATIC CONTRIBU5 TION TRUST ARRANGEMENTS. 

6 (a) IN GENERAL.—

7 (1) CONTROL DEEMED TO HAVE BEEN EXER8 CISED WITH RESPECT TO AMOUNT OF AUTOMATIC

9 CONTRIBUTIONS.—Section 404(c) of the Employee 

10 Retirement Income Security Act of 1974 (29 U.S.C. 

11 1104(c)) (as amended by this Act) is amended by 

12 adding at the end the following new paragraph: 

13 ‘‘(5)(A) A participant in an individual account plan 

14 shall, for purposes of paragraph (1), be treated as exer15 cising control over the assets in the account with respect 

16 to the amount of contributions made under an automatic 

17 contribution trust arrangement. 

18 ‘‘(B) For purposes this paragraph, the term ‘auto19 matic contribution trust arrangement’ means an arrange20 ment—

21 ‘‘(i) which meets the requirements of subpara22 graph (C), 

23 ‘‘(ii) under which a participant may elect to 

24 have the employer make payments as contributions
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1 to a trust under the plan on behalf of the partici2 pant, or to the participant directly in cash, 

3 ‘‘(iii) under which the participant is treated as 

4 having elected to have the employer make such con5 tributions in an amount equal to a uniform percent6 age of compensation provided under the plan until 

7 the participant specifically elects not to have such 

8 contributions made (or specifically elects to have 

9 such contributions made at a different percentage), 

10 and 

11 ‘‘(iv) under which contributions described in 

12 clause (iii) are invested in accordance with regula13 tions prescribed by the Secretary. 

14 ‘‘(C)(i) The administrator of an individual account 

15 plan shall, within a reasonable period before each plan 

16 year, give to each employee to whom an automatic con17 tribution trust arrangement applies for such plan year no18 tice of the employee’s rights and obligations under the ar19 rangement which—

20 ‘‘(I) is sufficiently accurate and comprehensive 

21 to appraise the employee of such rights and obliga22 tions, and 

23 ‘‘(II) is written in a manner calculated to be 

24 understood by the average employee to whom the ar25 rangement applies. 
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1 ‘‘(ii) A notice shall not be treated as meeting the re2 quirements of clause (i) with respect to an employee un3 less—

4 ‘‘(I) the notice includes a notice explaining the 

5 employee’s right under the arrangement to elect not 

6 to have elective contributions made on the employ7 ee’s behalf (or to elect to have such contributions 

8 made at a different percentage), 

9 ‘‘(II) the employee has a reasonable period of 

10 time after receipt of the notice described in sub11 clause (I) and before the first elective contribution 

12 is made to make such election, and 

13 ‘‘(III) the notice explains how contributions 

14 made under the arrangement will be invested in the 

15 absence of any investment election by the em16 ployee.’’. 

17 (2) PREEMPTION OF CONFLICTING STATE REG18 ULATION.—Section 514(b) of such Act (29 U.S.C. 

19 1144(b)) is amended—

20 (A) by redesignating paragraph (9) as 

21 paragraph (10); and 

22 (B) by inserting after paragraph (8) the 

23 following new paragraph: 

24 ‘‘(9) Any law of a State which would directly or indi25 rectly prohibit or restrict the inclusion in any plan of an 
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1 automatic contribution trust arrangement (as defined in 

2 section 404(c)(4)(B)) shall be superseded. The Secretary 

3 may prescribe regulations which would establish minimum 

4 standards that such arrangements would be required to 

5 satisfy in order for this paragraph to apply.’’. 

6 (b) EFFECTIVE DATE.—

7 (1) IN GENERAL.—The amendments made by 

8 this section shall apply to plan years beginning after 

9 December 31, 2003. 

10 (2) REGULATIONS.—Final regulations under 

11 section 404(c)(5)(B)(iv) of the Employee Retirement 

12 Income Security Act of 1974 (added by this section) 

13 shall be issued no later than 1 year after the date 

14 of enactment of this Act.

15 SEC. 404. DISPOSITION OF UNUSED HEALTH BENEFITS IN 

16 CAFETERIA PLANS AND FLEXIBLE SPENDING 

17 ARRANGEMENTS. 

18 (a) IN GENERAL.—Section 125 (relating to cafeteria 

19 plans) is amended by redesignating subsections (h) and 

20 (i) as subsections (i) and (j), respectively, and by inserting 

21 after subsection (g) the following: 

22 ‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH

23 BENEFITS.—

24 ‘‘(1) IN GENERAL.—For purposes of this title, 

25 a plan or other arrangement shall not fail to be 
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1 treated as a cafeteria plan solely because qualified 

2 benefits under such plan include a health flexible 

3 spending arrangement under which not more than 

4 $500 of unused health benefits may be contributed 

5 on behalf of an employee to a qualified retirement 

6 plan (as defined in section 4974(c)) or an eligible 

7 deferred compensation plan (as defined in section 

8 457(b)). 

9 ‘‘(2) CONTRIBUTION OF UNUSED HEALTH BEN10 EFITS ON BEHALF OF EMPLOYEE.—For purposes of 

11 this title, contributions on behalf of an employee de12 scribed in paragraph (1) shall be treated as elective 

13 contributions made pursuant to a choice by the em14 ployee between such contributions and compensation 

15 which would otherwise be includible in the gross in16 come of the employee. Contributions described in 

17 paragraph (1) shall be excluded from the gross in18 come of the employee, or included in the gross in19 come of the employee and allowed as a deduction by 

20 the employee, to the extent that elective contribu21 tions would be treated in that manner under this 

22 title. 

23 ‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE24 MENT.—For purposes of this subsection, the term 

25 ‘health flexible spending arrangement’ means a flexi-
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1 ble spending arrangement (as defined in section 

2 106(c)) that is a qualified benefit and only permits 

3 reimbursement for expenses for medical care (as de4 fined in section 213(d)(1) (without regard to sub5 paragraphs (C) and (D) thereof). 

6 ‘‘(4) UNUSED HEALTH BENEFITS.—For pur7 poses of this subsection, with respect to an em8 ployee, the term ‘unused health benefits’ means the 

9 excess of—

10 ‘‘(A) the maximum amount of reimburse11 ment allowable to the employee during a plan 

12 year under a health flexible spending arrange13 ment, taking into account any election by the 

14 employee, over 

15 ‘‘(B) the actual amount of reimbursement 

16 during such year under such arrangement.’’. 

17 (b) EFFECTIVE DATE.—The amendment made by 

18 subsection (a) shall apply to taxable years beginning after 

19 December 31, 2003.

20 SEC. 405. UPDATING DEDUCTION RULES FOR COMBINA21 TION OF PLANS. 

22 (a) IN GENERAL.—Subparagraph (C) of section 

23 404(a)(7) (relating to limitation on deductions where com24 bination of defined contribution plan and defined benefit
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1 plan) is amended by adding after clause (ii) the following 

2 new clause: 

3 ‘‘(iii) In the case of employer con4 tributions to 1 or more defined contribu5 tion plans, this paragraph shall only apply 

6 to the extent that such contributions (other 

7 than elective deferrals (as defined in sec8 tion 402(g)(3)) exceed 6 percent of the 

9 compensation otherwise paid or accrued 

10 during the taxable year to the beneficiaries 

11 under such plans. For purposes of this 

12 clause, amounts carried over from pre13 ceding taxable years under subparagraph 

14 (B) shall be treated as employer contribu15 tions to 1 or more defined contributions to 

16 the extent attributable to employer con17 tributions to such plans in such preceding 

18 taxable years.’’. 

19 (b) CONFORMING AMENDMENTS.—Subparagraph (A) 

20 of section 4972(c)(6) (relating to nondeductible contribu21 tions) is amended to read as follows: 

22 ‘‘(A) so much of the contributions to 1 or 

23 more defined contribution plans which are not 

24 deductible when contributed solely because of 
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1 section 404(a)(7) as does not exceed the sum 

2 of—

3 ‘‘(i) the amount of contributions de4 scribed in section 401(m)(4)(A), plus 

5 ‘‘(ii) the amount of contributions de6 scribed in section 402(g)(3)(A), or’’. 

7 (c) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to years beginning after December 

9 31, 2003.

10 TITLE V—EXPANDING RETIRE11 MENT PLAN COVERAGE TO 

12 EMPLOYEES OF SMALL BUSI13 NESSES 

14 SEC. 501. ADDITIONAL NONELECTIVE EMPLOYER CON15 TRIBUTIONS TO SIMPLE PLANS. 

16 (a) IN GENERAL.—

17 (1) MODIFICATION TO DEFINITION.—Subpara18 graph (A) of section 408(p)(2) (defining qualified 

19 salary reduction arrangement) is amended by strik20 ing ‘‘and’’ at the end of clause (iii), by redesignating 

21 clause (iv) as clause (v), and by inserting after 

22 clause (iii) the following new clause: 

23 ‘‘(iv) the employer may make nonelec24 tive contributions of a uniform percentage 

25 (up to 10 percent) of compensation for 
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1 each employee who is eligible to participate 

2 in the arrangement and who has at least 

3 $5,000 of compensation from the employer 

4 for the year, and’’. 

5 (2) LIMITATION.—Subparagraph (A) of section 

6 408(p)(2) (defining qualified salary reduction arrange7 ment) is amended by adding at the end the following: 

8 ‘‘The compensation taken into account under clause (iv) 

9 for any year shall not exceed the limitation in effect for 

10 such year under section 401(a)(17).’’. 

11 (b) CONFORMING AMENDMENTS.—

12 (1) Section 408(p)(2)(A)(v), as redesignated by 

13 subsection (a), is amended by striking ‘‘or (iii)’’ and 

14 inserting ‘‘, (iii), or (iv)’’. 

15 (2) Paragraph (8) of section 408(p) is amended 

16 by inserting ‘‘, the employer contribution actually 

17 made under paragraph (2)(A)(iv) of this sub18 section,’’ after ‘‘paragraph (2)(A)(ii) of this sub19 section’’. 

20 (3) Section 401(k)(11)(B)(i) is amended by 

21 striking ‘‘and’’ at the end of subclause (II), by re22 designating subclause (III) as subclause (IV), and 

23 by inserting after subclause (II) the following new 

24 subclause: 
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1 ‘‘(III) the employer may make 

2 nonelective contributions of a uniform 

3 percentage (up to 10 percent) of com4 pensation for each employee who is el5 igible to participate in the arrange6 ment and who has at least $5,000 of 

7 compensation from the employer for 

8 the year, and’’

9 (4) Section 401(k)(11)(B)(i)(IV), as redesig10 nated by paragraph (2), is amended by striking ‘‘or 

11 (II)’’ and inserting ‘‘, (II), or (III)’’. 

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to years beginning after December 

14 31, 2003. 

15 SEC. 502. MATCHING CONTRIBUTION RULES FOR SIMPLE 

16 IRAS AND SIMPLE 401(k)S CONFORMED. 

17 (a) IN GENERAL.—Subclause (II) of section 

18 401(k)(11)(B)(i) (relating to general rule for contribution 

19 requirements) is amended by striking ‘‘3 percent’’ and in20 serting ‘‘the applicable percentage (as defined in section 

21 408(p)(2)(C)(ii))’’. 

22 (b) EFFECTIVE DATE.—The amendment made by 

23 this section shall apply to years beginning after December 

24 31, 2003. 
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1 SEC. 503. SALARY-REDUCTION ONLY SIMPLE PLANS. 

2 (a) SIMPLE RETIREMENT ACCOUNTS.—

3 (1) IN GENERAL.—Paragraph (2) of section 

4 408(p) (defining qualified salary reduction arrange5 ment) is amended—

6 (A) by redesignating subparagraphs (C), 

7 (D), and (E) as subparagraphs (D), (E), and 

8 (F), respectively; and 

9 (B) by inserting after subparagraph (B) 

10 the following: 

11 ‘‘(C) EMPLOYER MAY ELECT SALARY RE12 DUCTION ONLY ARRANGEMENT.—

13 ‘‘(i) IN GENERAL.—An employer shall 

14 be treated as meeting the requirements of 

15 subparagraph (A)(iii) for any year if, in 

16 lieu of the contributions described in such 

17 subparagraph, the employer elects to limit 

18 the amount which an employee may elect 

19 under subparagraph (A)(i) to a total of 

20 $5,000 for the year. If an employer makes 

21 an election under this subparagraph for 

22 any year, the employer shall notify employ23 ees of such election within a reasonable pe24 riod of time before the 60-day period for 

25 such year under paragraph (5)(C). 
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1 ‘‘(ii) EXCEPTION.—This subpara2 graph shall not apply to an employer if 

3 such employer (or any predecessor em4 ployer) maintained another qualified plan 

5 (as defined in subparagraph (E)(ii)) with 

6 respect to which contributions were made, 

7 or benefits were accrued, for service during 

8 the year in which the arrangement de9 scribed in clause (i) became effective or ei10 ther of the 2 preceding years. If only indi11 viduals other than employees described in 

12 subparagraph (A) of section 410(b)(3) are 

13 eligible to participate in the arrangement 

14 described in clause (i), the preceding sen15 tence shall be applied without regard to 

16 any qualified plan in which only employees 

17 so described are eligible to participate.’’. 

18 (2) SPECIAL RULE FOR ACQUISITIONS, DISPOSI19 TIONS, AND SIMILAR TRANSACTIONS.—Subpara20 graph (B) of section 408(p)(10) (relating to special 

21 rules for acquisitions, dispositions, and similar 

22 transactions) is amended by striking ‘‘and’’ at the 

23 end of clause (ii), by striking the period at the end 

24 of clause (iii) and inserting ‘‘; and’’, and by inserting 

25 after clause (iii) the following:
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1 ‘‘(iv) the requirement under para2 graph (2)(C) that the employer not have 

3 maintained another qualified plan de4 scribed therein.’’. 

5 (3) COST-OF-LIVING ADJUSTMENT.—Subpara6 graph (F) of section 408(p)(2) (as so redesignated) 

7 is amended by striking ‘‘In’’ and inserting ‘‘(i) In’’ 

8 and by adding after clause (i) the following new 

9 clause: 

10 ‘‘(ii) In the case of a year beginning 

11 after December 31, 2004, the Secretary 

12 shall adjust the $5,000 amount in sub13 paragraph (C)(i) at the same time and in 

14 the same manner as under section 415(d), 

15 except that the base period taken into ac16 count shall be the calendar quarter begin17 ning July 1, 2003, and any increase under 

18 this subparagraph which is not a multiple 

19 of $500 shall be rounded to the next lower 

20 multiple of $500.’’. 

21 (4) COORDINATION WITH MAXIMUM LIMITA22 TION.—Paragraph (8) of section 408(p) (relating to 

23 coordination with maximum limitation under sub24 section (a)) is amended by striking ‘‘paragraph 

25 (2)(A)(ii) of this subsection’’ and inserting ‘‘sub-
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1 paragraph (A)(ii) or (C) of paragraph (2) of this 

2 subsection, whichever is applicable,’’. 

3 (5) CONFORMING AMENDMENT.—Clause (ii) of 

4 section 408(p)(10)(B) is amended by striking ‘‘para5 graph (2)(D)’’ and inserting ‘‘paragraph (2)(E)’’.

6 (b) ADOPTION OF SIMPLE PLAN TO MEET NON7 DISCRIMINATION TESTS.—Subparagraph (B) of section 

8 401(k)(11) (relating to contribution requirements) is 

9 amended by redesignating clause (iii) as clause (iv) and 

10 by inserting after clause (ii) the following new clause: 

11 ‘‘(iii) EMPLOYER MAY ELECT SALARY

12 REDUCTION ONLY ARRANGEMENT.—

13 ‘‘(I) IN GENERAL.—An employer 

14 shall be treated as meeting the re15 quirements of clause (i)(II) for any 

16 year if, in lieu of the contributions de17 scribed in such clause, the employer 

18 elects to limit the amount which an 

19 employee may elect under clause (i) to 

20 the amount in effect under section 

21 408(p)(2)(C)(i) for the year. If an 

22 employer makes an election under this 

23 clause for any year, the employer shall 

24 notify employees of such election with25 in a reasonable period of time before 
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1 the 60-day period for such year under 

2 clause (iv)(II). 

3 ‘‘(II) EXCEPTION.—This clause 

4 shall not apply to an employer if such 

5 employer (or any predecessor em6 ployer) maintained another qualified 

7 plan (as defined in section 

8 408(p)(2)(E)(ii)) with respect to 

9 which contributions were made, or 

10 benefits were accrued, for service dur11 ing the year in which the arrangement 

12 described in subclause (I) became ef13 fective or either of the 2 preceding 

14 years. This subclause shall not apply 

15 if such contributions or benefits were 

16 solely on behalf of employees who are 

17 not eligible to participate in the ar18 rangement described in subclause 

19 (I).’’. 

20 (c) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to years beginning after December 

22 31, 2004.
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1 SEC. 504. PERMIT A MID-YEAR CHANGE FROM A SIMPLE 

2 PLAN TO ANOTHER PLAN. 

3 (a) IN GENERAL.—Clause (i) of section 408(p)(2)(E) 

4 (relating to arrangement may be only plan of employer) 

5 is amended by striking ‘‘An arrangement’’ and inserting 

6 ‘‘Except as provided in regulations prescribed by the Sec7 retary, an arrangement’’. 

8 (b) CONFORMING AMENDMENT.—Section 

9 401(k)(11)(C) is amended by inserting ‘‘, except as pro10 vided in regulations prescribed by the Secretary,’’ after 

11 ‘‘if’’. 

12 (c) REGULATIONS.—Not later than December 31, 

13 2004, the Secretary shall issue final regulations under 

14 which an employer can cease to maintain a qualified salary 

15 reduction arrangement in a year and begin maintaining 

16 a qualified plan (within the meaning of section 

17 408(p)(2)(E)(ii) of the Internal Revenue Code of 1986). 

18 Such regulations shall provide safeguards to ensure that 

19 changing from such an arrangement to such a plan during 

20 a year is not used to circumvent otherwise applicable lim21 its or rules. 

22 (d) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to years beginning after December 

24 31, 2004. 
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1 SEC. 505. ELIMINATION OF HIGHER PENALTY ON CERTAIN 

2 SIMPLE DISTRIBUTIONS. 

3 (a) IN GENERAL.—Subsection (t) of section 72 (re4 lating to 10-percent additional tax on early distributions 

5 from qualified retirement plans) is amended by striking 

6 paragraph (6) and redesignating paragraphs (7), (8), and 

7 (9) as paragraphs (6), (7), and (8), respectively. 

8 (b) CONFORMING AMENDMENTS.—

9 (1) Section 72(t)(2)(E) is amended by striking 

10 ‘‘paragraph (7)’’ and inserting ‘‘paragraph (6)’’. 

11 (2) Section 72(t)(2)(F) is amended by striking 

12 ‘‘paragraph (8)’’ and inserting ‘‘paragraph (7)’’. 

13 (3) Section 408(d)(3)(G) is amended by strik14 ing ‘‘applies’’ and inserting ‘‘applied on the day be15 fore the date of the enactment of the Pension Pres16 ervation and Savings Expansion Act of 2003)’’. 

17 (4) Section 457(a)(2) is amended by striking 

18 ‘‘section 72(t)(9)’’ and inserting ‘‘section 72(t)(8)’’. 

19 (c) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to years beginning after December 

21 31, 2003. 

22 SEC. 506. SIMPLE PLAN PORTABILITY. 

23 (a) REPEAL OF LIMITATION.—Paragraph (3) of sec24 tion 408(d) (relating to rollover contributions), as amend25 ed by this Act, is amended by striking subparagraph (G) 
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1 and redesignating subparagraph (H) as subparagraph 

2 (G). 

3 (b) Section 402(c)(8)(B) is amended by adding at the 

4 end the following new sentence: ‘‘Individual retirement ac5 counts and individual retirement annuities described in 

6 clauses (i) and (ii) shall be treated as eligible retirement 

7 plans without regard to whether they are part of a sim8 plified employee pension (within the meaning of section 

9 408(k)) or a simplified retirement account (within the 

10 meaning of section 408(p)).’’. 

11 (c) EFFECTIVE DATE.—The amendment made by 

12 this section shall apply to years beginning after December 

13 31, 2003. 

14 SEC. 507. CORRECTION OF SIMPLIFIED EMPLOYEE PEN15 SION COMPENSATION INCONSISTENCY. 

16 (a) IN GENERAL.—Subparagraph (A) of section 

17 402(h)(2) (relating to limitations on employer contribu18 tions) is amended by striking ‘‘414(s)) from such employer 

19 includible in the employee’s gross income’’ and inserting 

20 ‘‘415(c)(3)) from such employer’’. 

21 (b) EFFECTIVE DATE.—The amendment made by 

22 this section shall apply to taxable years beginning after 

23 December 31, 2003.
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1 SEC. 508. EQUALIZATION OF TAX TREATMENT OF RETIRE2 MENT PLAN CONTRIBUTIONS OF THE SELF3 EMPLOYED. 

4 (a) IN GENERAL.—Subsection (b) of section 1402 

5 (defining self-employment income) is amended by striking 

6 ‘‘or’’ at the end of paragraph (1), by striking the period 

7 at the end of paragraph (2) and inserting ‘‘; or’’, and by 

8 inserting after paragraph (2) the following: 

9 ‘‘(3) any payment made to, or on behalf of, an 

10 individual—

11 ‘‘(A) from or to a trust described in sec12 tion 401(a) which is exempt from tax under 

13 section 501(a) at the time of such payment un14 less—

15 ‘‘(i) such payment is made to the indi16 vidual by the trust as remuneration for 

17 services rendered and not as a beneficiary 

18 of the trust, or 

19 ‘‘(ii) such payment is treated as an 

20 employer contribution under a qualified 

21 cash or deferred arrangement (as defined 

22 in section 401(k)) to the extent not in23 cluded in gross income by reason of section 

24 402(e)(3), 

25 ‘‘(B) under or to an annuity plan which, at 

26 the time of such payment, is a plan described 
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1 in section 403(a), other than any elective defer2 rals (within the meaning of section 402(g)(3)), 

3 ‘‘(C) under a simplified employee pension 

4 (as defined in section 408(k)(1)), other than 

5 any contributions described in section 408(k)(6) 

6 or 408(k)(7), 

7 ‘‘(D) under or to an annuity contract de8 scribed in section 403(b), other than a payment 

9 for the purchase of such contract which is made 

10 by reason of a salary reduction agreement 

11 (whether evidenced by a written instrument or 

12 otherwise), or 

13 ‘‘(E) under an arrangement to which sec14 tion 408(p) applies, other than any elective con15 tributions under paragraph (2)(A)(i) thereof.’’. 

16 (b) EFFECTIVE DATE.—The amendment made by 

17 this section shall apply to taxable years beginning after 

18 December 31, 2003.
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1 TITLE VI—STRENGTHENING IN2 DIVIDUAL RETIREMENT AR3 RANGEMENTS 

4 SEC. 601. ACCELERATION OF INCREASES IN IRA CONTRIBU5 TION LIMITS. 

6 (a) DEDUCTIBLE AMOUNT.—The table in subpara7 graph (A) of section 219(b)(5) (relating to general rule 

8 for deductible amount) is amended to read as follows:

‘‘For taxable years The deductible 

beginning in: amount is:

2002 through 2003 ...................................................... $3,000

2004 and thereafter ..................................................... $5,000.’’.

9 (b) CATCH-UP CONTRIBUTIONS.—The table in clause 

10 (ii) of section 219(b)(5)(B) (relating to applicable 

11 amount) is amended to read as follows:

‘‘For taxable years The applicable 

beginning in: amount is:

2002 through 2003 ...................................................... $500

2004 and thereafter ..................................................... $1,000.’’.

12 (c) CONFORMING AMENDMENTS.—Section 

13 219(b)(5)(C) is amended—

14 (1) by striking ‘‘2007’’ and inserting ‘‘2003’’, 

15 and 

16 (2) by striking ‘‘2008’’ and inserting ‘‘2004’’. 

17 (d) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2003. 
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1 SEC. 602. ACCELERATION AND EXPANSION OF CERTAIN 

2 SCHEDULED INCREASES IN ELIGIBILITY FOR 

3 IRAS AND ELIMINATION OF IRA MARRIAGE 

4 PENALTY. 

5 (a) INCREASE IN LIMITATION ON DEDUCTION FOR

6 ACTIVE PARTICIPANTS IN CERTAIN PENSION PLANS.—

7 The table in clause (i) of section 219(g)(3)(B) (defining 

8 applicable dollar amount for taxpayers filing joint returns) 

9 is amended to read as follows:

The applicable 

‘‘For taxable years beginning in: dollar amount is: 

2003 ......................................................................................... $60,000

2004 ......................................................................................... $70,000

2005 ......................................................................................... $75,000

2006 ......................................................................................... $80,000

2007 ......................................................................................... $85,000

2008 ......................................................................................... $90,000

2009 ......................................................................................... $95,000

2010 and thereafter ................................................................. $100,000.’’.

10 (b) ROTH IRA INCREASE IN APPLICABLE DOLLAR

11 AMOUNT FOR TAXPAYERS FILING JOINT RETURNS.—

12 (1) IN GENERAL.—Subclause (I) of section 

13 408A(c)(3)(C)(ii) (defining applicable dollar 

14 amount) is amended by striking ‘‘$150,000’’ and in15 serting ‘‘$190,000’’. 

16 (2) PHASE-OUT RANGE.—Clause (ii) of section 

17 408A(c)(3)(A) is amended to read as follows: 

18 ‘‘(ii) $15,000 ($30,000 in the case of 

19 a joint return). 

20 (c) ELIMINATION OF MARRIAGE PENALTY ON IRA 

21 DEDUCTION FOR ACTIVE PENSION PLAN PARTICI-
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1 PANTS.—Section 219(g) (relating to limitation on deduc2 tion for active participants in certain pension plans) is 

3 amended—

4 (1) by striking ‘‘or the individual’s spouse’’ in 

5 paragraph (1), and 

6 (2) by striking paragraph (7). 

7 (d) EFFECTIVE DATES.—

8 (1) SUBSECTIONS (A) AND (B).—The amend9 ments made by subsection (a) shall apply to taxable 

10 years beginning after December 31, 2003. 

11 (2) SUBSECTION (C).—The amendments made 

12 by subsection (c) shall apply to taxable years begin13 ning after December 31, 2006. 

14 SEC. 603. IRA ELIGIBILITY FOR THE DISABLED. 

15 (a) IN GENERAL.—Subsection (f) of section 219 (re16 lating to other definitions and special rules) is amended 

17 by adding at the end the following: 

18 ‘‘(8) SPECIAL RULE FOR CERTAIN DISABLED

19 INDIVIDUALS.—In the case of an individual—

20 ‘‘(A) who is disabled (within the meaning 

21 of section 72(m)(7)), and 

‘‘(B) who has not attained age 701 22 ⁄2 before 

23 the close of the taxable year, 

24 subparagraph (B) of subsection (b)(1) shall not 

25 apply.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2003. 

4 SEC. 604. PROTECTING IRA ASSETS. 

5 The Secretary of the Treasury shall, no later than 

6 December 31, 2004, establish a correction procedure that 

7 specifically allows an individual to rescind one or more dis8 tributions from an individual retirement plan (as defined 

9 in section 7701(a)(37) of the Internal Revenue Code of 

10 1986) (whether or not in the same taxable year) to correct 

11 errors that result from the individual’s misunderstanding 

12 of applicable rules or an error of the trustee, custodian, 

13 or issuer of the individual retirement plan in processing 

14 a transaction in the form of a distribution rather than a 

15 transfer, rollover, or similar transaction. Such procedure 

16 shall provide for rescission of distributions without a filing 

17 with the Secretary in the case of errors that are corrected 

18 within a reasonable time as defined by the Secretary and 

19 may provide for other self-correction safe harbors. Such 

20 procedure shall also include appropriate conditions on the 

21 correction procedure to prevent abuse. 
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1 TITLE VII—REVITALIZING 

2 DEFINED BENEFIT PLANS 

3 SEC. 701. MULTIPLE EMPLOYER PLANS PERMITTED TO 

4 ELECT SEPARATE OR AGGREGATE TREAT5 MENT FOR PURPOSES OF APPLYING THE 

6 FUNDING RULES AND DEDUCTION LIMITA7 TIONS. 

8 (a) IN GENERAL.—Paragraph (4) of section 413(c) 

9 (relating to funding) is amended—

10 (1) in subparagraph (A) by striking ‘‘In the 

11 case of’’ and inserting ‘‘Except as provided in sub12 paragraph (C), in the case of’’, and 

13 (2) in subparagraph (B)—

14 (A) by striking ‘‘In the case of’’ and in15 serting ‘‘Except as provided in subparagraph 

16 (C), in the case of’’, 

17 (B) by striking ‘‘unless’’ and all that fol18 lows and inserting a period, and 

19 (C) by inserting after subparagraph (B) 

20 the following: 

21 ‘‘(C) ELECTION TO BE TREATED AS SEPA22 RATE OR AGGREGATE PLAN.—The plan admin23 istrator may elect with respect to a plan—

24 ‘‘(i) to have subparagraph (A) apply 

25 to the plan, or 
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1 ‘‘(ii) to have the requirements of sec2 tion 412 be determined as if all partici3 pants in the plan were employed by a sin4 gle employer. 

5 An election under the preceding sentence shall 

6 take effect for the plan year in which made 

7 and, once made, may be revoked only with the 

8 consent of the Secretary.’’. 

9 (b) CONFORMING AMENDMENTS.—

10 (1) Paragraph (6) of section 413(c) is amend11 ed—

12 (A) by striking ‘‘In the case of’’ and in13 serting ‘‘Except provided in subparagraph (C), 

14 in the case of’’, and 

15 (B) by adding at the end the following new 

16 subparagraph: 

17 ‘‘(C) ELECTION.—If with respect to a 

18 plan—

19 ‘‘(i) paragraph (4)(A) applies, sub20 paragraph (A) of this paragraph shall 

21 apply, and 

22 ‘‘(ii) paragraph (4)(B) applies, sub23 paragraph (B) of this paragraph shall 

24 apply. 
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1 (2) Section 413(c)(6)(B)(i) is amended by strik2 ing ‘‘except’’ and all that follows and inserting ‘‘ex3 cept as provided in subparagraph (C).’’. 

4 (3) Section 210(a)(3) of the Employee Retire5 ment Income Security Act of 1974 (29 U.S.C. 

6 1060(a)(3)) is amended by striking ‘‘The’’ and in7 serting ‘‘Except as provided in section 413(c)(4) of 

8 the Internal Revenue Code of 1986, the’’.

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to years beginning after December 

11 31, 2003.

12 SEC. 702. TREATMENT OF EMPLOYEE CONTRIBUTIONS TO 

13 CONTRIBUTORY DEFINED BENEFIT PLANS. 

14 (a) AMENDMENT TO THE INTERNAL REVENUE CODE

15 OF 1986.—Subsection (e) of section 402 (relating to other 

16 rules applicable to exempt trusts) is amended by adding 

17 at the end the following new paragraph: 

18 ‘‘(7) CONTRIBUTORY DEFINED BENEFIT

19 PLANS.—For purposes of sections 72 and 451, an 

20 amount shall not be treated as received by an em21 ployee if such amount is—

22 ‘‘(A) contributed—

23 ‘‘(i) to an employee’s trust described 

24 in section 401(a) which is maintained in 

25 connection with a defined benefit plan, or 
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1 ‘‘(ii) under a defined benefit plan de2 scribed in section 403(a), and 

3 ‘‘(B) such contributions would be described 

4 in section 414(h)(2) if the plan were established 

5 by an entity described therein. 

6 (b) EFFECTIVE DATE.—The amendment made by 

7 this section shall apply to contributions made in years be8 ginning after December 31, 2003. 

9 SEC. 703. REFORM OF THE MINIMUM PARTICIPATION RULE. 

10 (a) IN GENERAL.—Subparagraph (A) of section 

11 401(a)(26) (relating to additional participation require12 ments) is amended by striking ‘‘In the case of’’ and insert13 ing ‘‘‘To the extent provided in regulations prescribed by 

14 the Secretary, in the case of’’. 

15 (b) REGULATIONS.—Not later than December 31, 

16 2003, the Secretary of the Treasury shall issue final regu17 lations under which the application of section 401(a)(26) 

18 of the Internal Revenue Code of 1986 is restricted to—

19 (1) arrangements described in section 

20 1.401(a)(26)-2(d)(1)(iii) of the Treasury Regula21 tions (as in effect on the date of the enactment of 

22 this Act), and 

23 (2) other arrangements that use multiple de24 fined benefit plans in a manner inconsistent with the
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1 purposes of the nondiscrimination rules or with the 

2 intended nature of a defined benefit plan. 

3 (c) EFFECTIVE DATE.—The amendment made by 

4 subsection (a) shall take effect on the date of enactment 

5 of this Act. 

6 SEC. 704. PLAN VALUATION DATA COLLECTION. 

7 (a) AMENDMENT TO THE INTERNAL REVENUE CODE

8 OF 1986.—

9 (1) PLAN’S LIABILITY.—

10 (A) IN GENERAL.—Subparagraph (B) of 

11 section 412(c)(9) (relating to annual valuation) 

12 is amended by adding at the end the following: 

13 ‘‘(v) VALUATION OF PLAN’S LIABIL14 ITY.—Valuation of the plan’s liability for 

15 purposes of this paragraph may be based 

16 on data determined as of a date within the 

17 plan year to which the valuation refers or 

18 as of a date within the plan year prior to 

19 the year to which the valuation refers.’’. 

20 (B) CONFORMING AMENDMENT.—The 

21 heading for section 412(c)(9)(B) is amended by 

22 striking ‘‘VALUATION DATE’’ and inserting 

23 ‘‘VALUATION OF EXPERIENCE GAINS AND

24 LOSSES’’. 
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1 (2) PLAN’S ASSETS.—Subparagraph (B) of sec2 tion 412(c)(9) (relating to annual valuation) is 

3 amended by adding at the end the following: 

4 ‘‘(vi) VALUATION OF PLAN’S AS5 SETS.—The valuation of a plan’s assets 

6 may be made as of a date later than the 

7 date as of which the plan’s liabilities are 

8 valued if—

9 ‘‘(I) the asset valuation date is 

10 not later than the end of the plan 

11 year to which the valuation refers, 

12 and 

13 ‘‘(II) the value of such assets is 

14 adjusted back to the date as of which 

15 the plan’s liabilities are valued based 

16 on the interest rate in subsection 

17 (b)(5)(A) or (b)(5)(B), as applicable, 

18 and adjusting for cash flows that are 

19 not taken into account in the interest 

20 assumption and that occur between 

21 the date that the liabilities are valued 

22 and the date that the assets are val23 ued.’’. 

24 (b) AMENDMENT TO THE EMPLOYEE RETIREMENT

25 INCOME SECURITY ACT OF 1974.—
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1 (1) PLAN’S LIABILITY.—Subparagraph (B) of 

2 section 302(c)(9) of the Employee Retirement In3 come Security Act of 1974 (29 U.S.C. 

4 1082(c)(9)(B)) is amended by adding at the end the 

5 following: 

6 ‘‘(iv) Valuation of the plan’s liability for purposes of 

7 this paragraph may be based on data determined as of 

8 a date within the plan year to which the valuation refers 

9 or as of a date within the plan year prior to the year to 

10 which the valuation refers.’’. 

11 (2) PLAN’S ASSETS.—Subparagraph (B) of sec12 tion 302(c)(9) of the Employee Retirement Income 

13 Security Act of 1974 (29 U.S.C. 1082(c)(9)(B)) is 

14 amended by adding at the end the following: 

15 ‘‘(v) The valuation of a plan’s assets may be made 

16 as of a date later than the date as of which the plan’s 

17 liabilities are valued if—

18 ‘‘(I) the asset valuation date is not later than 

19 the end of the plan year to which the valuation re20 fers, and 

21 ‘‘(II) the value of such assets is adjusted back 

22 to the date as of which the plan’s liabilities are val23 ued based on the interest rate in subsection 

24 (b)(5)(A) or (b)(5)(B), as applicable, and adjusting 

25 for cash flows that are not taken into account in the 
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1 interest assumption and that occur between the date 

2 that the liabilities are valued and the date that the 

3 assets are valued.’’. 

4 (c) EFFECTIVE DATE.—

5 (1) IN GENERAL.—The amendments made by 

6 sections (a)(2) and (b)(2) shall apply to years begin7 ning after December 31, 2002. 

8 (2) SPECIAL RULE.—The amendments made by 

9 subsections (a)(1) and (b)(1) shall take effect as if 

10 included in section 661(a) of the Economic Growth 

11 and Tax Relief Reconciliation Act of 2001. 

12 SEC. 705. REPLACEMENT OF INTEREST RATE ON 30-YEAR 

13 TREASURY SECURITIES WITH INTEREST 

14 RATE ON CONSERVATIVELY-INVESTED LONG15 TERM CORPORATE BONDS. 

16 (a) INTERNAL REVENUE CODE OF 1986.—

17 (1) IN GENERAL.—Subclause (I) of section 

18 412(b)(5)(B)(ii) and subclause (II) of section 

19 417(e)(3)(A)(ii) are each amended by striking ‘‘30-

20 year Treasury securities’’ and inserting ‘‘amounts 

21 conservatively invested in long-term corporate 

22 bonds’’. 

23 (2) REGULATIONS.—

24 (A) Subclause (I) of section 

25 412(b)(5)(B)(ii) is amended by adding at the 
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1 end the following: ‘‘The Secretary shall, by reg2 ulation, prescribe a method for determining the 

3 rate of interest on amounts conservatively in4 vested in long-term corporate bonds, based on 

5 one or more indices, as determined from time to 

6 time by the Secretary.’’. 

7 (B) Subclause (II) of section 

8 417(e)(3)(A)(ii) is amended by adding at the 

9 end the following: ‘‘The Secretary shall, by reg10 ulations, prescribe a method for determining 

11 this interest rate based on one or more indices, 

12 as determined from time to time by the Sec13 retary.’’. 

14 (3) CONFORMING AMENDMENTS.—

15 (A) Section 412(b)(5)(B)(iii)(II) is amend16 ed to read as follows: 

17 ‘‘(II) consistent with the rate of 

18 return with respect to amounts con19 servatively invested in long-term cor20 porate bonds.’’. 

21 (B) Section 415(b)(2)(E)(ii) is amended by 

22 striking ‘‘the applicable interest rate (as defined 

23 in section 417(e)(3))’’ and inserting ‘‘5.5 per24 cent’’.
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1 (4) PHASEIN OF INTEREST RATE ON LONG2 TERM CORPORATE BONDS.—Section 417(e)(3)(A)(ii) 

3 is amended by adding at the end the following: 

4 ‘‘(III) PHASEIN OF INTEREST

5 RATE ON LONG-TERM CORPORATE

6 BONDS.—In the case of a plan year 

7 specified in the table in subclause 

8 (IV), the interest rate for purposes of 

9 subclause (II) shall be the lower of 

10 (aa) the rate specified in subclause 

11 (II) (without regard to this sub12 clause), or (bb) the 30-year Treasury 

13 securities rate plus the applicable per14 centage of the excess of the rate speci15 fied in subclause (II) (without regard 

16 to this subclause) over the 30-year 

17 Treasury securities rate. 

18 ‘‘(IV) APPLICABLE PERCENT19 AGE.—For purposes of subclause 

20 (III), the applicable percentage shall 

21 be determined in accordance with the 

22 following table:

‘‘Plan year beginning in calendar year: Applicable 

percentage: 

2006 ............................................................................. 20

2007 ............................................................................. 40

2008 ............................................................................. 60

2009 ............................................................................. 80.
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1 ‘‘(V) SPECIAL RULE FOR COL2 LECTIVELY BARGAINED PLANS.—In 

3 the case of a plan maintained pursu4 ant to one or more collective bar5 gaining agreements between employee 

6 representatives and one or more em7 ployers ratified by the date of the en8 actment of this subclause, in lieu of 

9 the 4 calendar years specified in sub10 clause (IV), the years corresponding 

11 to the applicable percentages in sub12 clause (IV) shall be the first 4 years 

13 in which subclause (III) applies to 

14 employees covered by any such agree15 ment. This subclause shall only apply 

16 to such employees.’’. 

17 (b) EMPLOYEE RETIREMENT INCOME SECURITY ACT

18 OF 1974.—

19 (1) IN GENERAL.—Subclause (II) of section 

20 205(g)(3)(A)(ii), subclause (I) of section 

21 302(b)(5)(B)(ii), and subclause (II) of section 

22 4006(a)(3)(E)(iii) of the Employee Retirement In23 come Security Act of 1974 are each amended by 

24 striking ‘‘30-year Treasury securities’’ and inserting 
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1 ‘‘amounts conservatively invested in long-term cor2 porate bonds’’. 

3 (2) REGULATIONS.—

4 (A) Subclause (II) of section 

5 205(g)(3)(A)(ii) of the Employee Retirement 

6 Income Security Act of 1974 is amended by 

7 adding at the end the following: ‘‘The Secretary 

8 of the Treasury shall, by regulation, prescribe a 

9 method for determining this interest rate based 

10 on one or more indices, as determined from 

11 time to time by the Secretary of the Treasury.’’. 

12 (B) Subclause (I) of section 

13 302(b)(5)(B)(ii) of the Employee Retirement 

14 Income Act of 1974 is amended by adding at 

15 the end the following: ‘‘The Secretary of the 

16 Treasury shall, by regulation, prescribe a meth17 od for determining the rate of interest on 

18 amounts conservatively invested in long-term 

19 corporate bonds, based on one or more indices, 

20 as determined from time to time by the Sec21 retary of the Treasury.’’. 

22 (C) Subclause (II) of section 

23 4006(a)(3)(E)(iii) of the Employee Retirement 

24 Income Security Act of 1974 is amended by 

25 adding at the end the following: ‘‘The Secretary 
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1 of the Treasury shall, by regulation, prescribe a 

2 method for determining such annual yield based 

3 on one or more indices, as determined from 

4 time by the Secretary of the Treasury.’’. 

5 (3) CONFORMING AMENDMENT.—Section 

6 302(b)(5)(B)(iii)(II) of such Act is amended to read 

7 as follows: 

8 ‘‘(II) consistent with the rate of 

9 return with respect to amounts con10 servatively invested in long-term cor11 porate bonds.’’. 

12 (4) PHASEIN OF INTEREST RATE ON LONG13 TERM CORPORATE BONDS.—Section 205(g)(3)(A)(ii) 

14 is amended by adding at the end the following: 

15 ‘‘(III) In the case of a plan year specified 

16 in the table in subclause (IV), the interest rate 

17 for purposes of subclause (II) shall be the lower 

18 of (aa) the rate specified in subclause (II) 

19 (without regard to this subclause), or (bb) the 

20 30-year Treasury securities rate plus the appli21 cable percentage of the excess of the rate speci22 fied in subclause (II) (without regard to this 

23 subclause) over the 30-year Treasury securities 

24 rate. 
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1 ‘‘(IV) For purposes of subclause (III), the 

2 applicable percentage shall be determined in ac3 cordance with the following table:

‘‘Plan year beginning in calendar year: Applicable 

percentage: 

2006 ............................................................................. 20

2007 ............................................................................. 40

2008 ............................................................................. 60

2009 ............................................................................. 80.

4 ‘‘(V) SPECIAL RULE FOR COLLECTIVELY

5 BARGAINED PLANS.—In the case of a plan 

6 maintained pursuant to one or more collective 

7 bargaining agreements between employee rep8 resentatives and one or more employers ratified 

9 by the date of the enactment of this subclause, 

10 in lieu of the 4 calendar years specified in sub11 clause (IV), the years corresponding to the ap12 plicable percentages in subclause (IV) shall be 

13 the first 4 years in which subclause (III) ap14 plies to employees covered by any such agree15 ment. This subclause shall only apply to such 

16 employees.’’. 

17 (d) EFFECTIVE DATE.—

18 (1) IN GENERAL.—Except as provided in para19 graphs (2), (3), (4), and (5), the amendments made 

20 by this section shall apply to years beginning after 

21 December 31, 2003.
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1 (2) SURVIVOR ANNUITIES.—Except as provided 

2 in paragraphs (3) and (4), in the case of amend3 ments made by this section to section 

4 417(e)(3)(A)(ii) of the Internal Revenue Code of 

5 1986 and to section 205(g)(3)(A)(ii) of the Em6 ployee Retirement Income Security Act of 1974, and 

7 for purposes of section 411(a)(11)(B) of the Internal 

8 Revenue Code of 1986 and section 203(e)(2) of the 

9 Employee Retirement Income Security Act of 1974, 

10 such amendments shall apply to years beginning 

11 after December 31, 2005. 

12 (3) LOOKBACK RULES.—For purposes of apply13 ing all applicable lookback rules in years beginning 

14 on or after the otherwise applicable effective date de15 termined under paragraph (1), (2), or (4), the 

16 amendments made by this section shall be applied as 

17 if such amendments had been in effect for all years 

18 beginning before such effective date. For purposes of 

19 this paragraph, a lookback rule is a rule that uses 

20 data from a prior year in determining requirements 

21 applicable to the current year. 

22 (4) COLLECTIVE BARGAINING AGREEMENTS.—

23 Except as provided in paragraph (3), in the case of 

24 a plan maintained pursuant to one or more collective 

25 bargaining agreements between employee representa-
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1 tives and one or more employers ratified by the date 

2 of the enactment of this Act, the amendments de3 scribed in paragraph (2) shall not apply to employ4 ees covered by any such agreement for plan years 

5 beginning before the earlier of—

6 (A) the later of—

7 (i) the date on which the last of such 

8 collective bargaining agreements termi9 nates (determined without regard to any 

10 extension thereof on or after such date of 

11 the enactment); or 

12 (ii) January 1, 2006, or 

13 (B) January 1, 2008. 

14 (5) NO REDUCTION REQUIRED.—In the case of 

15 any participant or beneficiary, the amount payable 

16 under any form of benefit subject to section 

17 417(e)(3) of the Internal Revenue Code of 1986 

18 shall not be required to be reduced below the 

19 amount determined as of the last day of the last 

20 plan year beginning before January 1, 2004, merely 

21 because of the amendments made by subsection 

22 (a)(3)(B).
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1 SEC. 706. INTEREST RATE RANGE FOR ADDITIONAL FUND2 ING REQUIREMENTS. 

3 (a) AMENDMENTS TO THE INTERNAL REVENUE

4 CODE OF 1986.—

5 (1) SPECIAL RULE.—Subclause (III) of section 

6 412(1)(7)(C)(i) is amended—

7 (A) by striking ‘‘2002 or 2003’’ in the text 

8 and inserting ‘‘2001, 2002, or 2003’’, and 

9 (B) by striking ‘‘2002 AND 2003’’ in the 

10 heading and inserting ‘‘2001, 2002, AND 2003’’. 

11 (2) QUARTERLY CONTRIBUTIONS.—Paragraph 

12 (7) of section 412(m) is amended to read as follows: 

13 ‘‘(7) SPECIAL RULE FOR 2002.—In any case in 

14 which the interest rate used to determine current li15 ability is determined under subsection 

16 (1)(7)(C)(i)(III), for purposes of applying para17 graphs (1) and (4)(B)(ii) for plan years beginning in 

18 2002, the current liability for the preceding plan 

19 year shall be redetermined using 120 percent as the 

20 specified percentage determined under subsection 

21 (1)(7)(C)(i)(II).’’

22 (b) AMENDMENTS TO THE EMPLOYEE RETIREMENT

23 INCOME SECURITY ACT OF 1974.—

24 (1) SPECIAL RULE.—Subclause (III) of section 

25 302(d)(7)(C)(i) of the Employee Retirement Income 
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1 Security Act of 1974 (29 U.S.C. 1082(d)(7)(C))(i)) 

2 is amended—

3 (A) by striking ‘‘2002 or 2003’’ in the text 

4 and inserting ‘‘2001, 2002, or 2003’’, and 

5 (B) by striking ‘‘2002 AND 2003’’ in the 

6 heading and inserting ‘‘2001, 2002, AND 2003’’. 

7 (2) QUARTERLY CONTRIBUTIONS.—Paragraph 

8 (7) of section 302(e) is amended to read as follows: 

9 ‘‘(7) SPECIAL RULE FOR 2002.—In any case in 

10 which the interest rate used to determine current li11 ability is determined under subsection 

12 (d)(7)(C)(i)(III), for purposes of applying para13 graphs (1) and (4)(B)(ii) for plan years beginning in 

14 2002, the current liability for the preceding plan 

15 year shall be redetermined using 120 percent as the 

16 specified percentage determined under subsection 

17 (d)(7)(C)(i)(II).’’

18 (c) PBGC.—Subclause (IV) of section 

19 4006(a)(3)(E)(iii) of such Act (29 U.S.C. 

20 1306(a)(3)(E)(iii)) is amended to read as follows: 

21 ‘‘(IV) In the case of plan years 

22 beginning after December 31, 2001, 

23 and before January 1, 2004, sub24 clause (II) shall be applied by sub25 stituting ‘100 percent’ for ‘85 percent’ 
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1 and by substituting ‘115 percent’ for 

2 ‘100 percent’. Subclause (III) shall be 

3 applied for such years without regard 

4 to the preceding sentence. 

5 (d) EFFECTIVE DATE.—The amendments made by 

6 this section shall take effect as if included in the amend7 ments made by section 405 of the Job Creation and Work8 er Assistance Act of 2002.

9 SEC. 707. ASSET VALUATION. 

10 (a) IN GENERAL.—Clause (iv) of section 

11 4006(a)(3)(E) is amended by striking ‘‘1986’’ and insert12 ing ‘‘1986 (determined without regard to subclause (I) of 

13 section 412(c)(7)(A)(ii) of such Code)’’. 

14 (b) EFFECTIVE DATE.—The amendment made by 

15 this section shall apply to the determination of premiums 

16 for plan years ending after December 31, 2003. 

17 SEC. 708. MULTIEMPLOYER PLAN EMERGENCY INVEST18 MENT LOSS RULE. 

19 (a) AMENDMENT TO THE INTERNAL REVENUE CODE

20 OF 1986.—Paragraph (7) of section 412(b) (relating to 

21 special rules for multiemployer plans) is amended by add22 ing at the end the following new subparagraph: 

23 ‘‘(F) EMERGENCY INVESTMENT LOSS

24 METHOD.—
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1 ‘‘(i) IN GENERAL.—In lieu of amor2 tizing its experience loss as prescribed in 

3 paragraph (2)(B)(iv), a multiemployer plan 

4 may elect to use the emergency investment 

5 loss method described in this subpara6 graph, starting with the first plan year in 

7 which it has an emergency investment loss. 

8 ‘‘(ii) EMERGENCY INVESTMENT

9 LOSS.—An emergency investment loss is 

10 the difference between the market value of 

11 the plan’s assets as of the last day of a 

12 plan year beginning on or after July 1, 

13 1999 and ending before January 1, 2004, 

14 and what that market value would have 

15 been if the plan’s earnings had been equal 

16 to the projected investment return based 

17 on the actuarial interest rate under para18 graph (5)(A) for the plan year, applied to 

19 the market value of assets as of the begin20 ning of the year and noninvestment cash 

21 flows during the year. 

22 ‘‘(iii) AMORTIZATION OF EMERGENCY

23 INVESTMENT LOSS.—The funding standard 

24 account shall be charged with the amounts 

25 necessary to amortize in equal annual in-
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1 stallments (until fully amortized) the 

2 plan’s emergency investment loss, over a 

3 period of 30 plan years. 

4 ‘‘(iv) ADJUSTED NET ACTUARIAL EX5 PERIENCE.—The adjusted net actuarial ex6 perience is the amount produced by sub7 tracting the emergency investment loss 

8 from the net experience gain or loss for the 

9 plan year as otherwise determined for pur10 poses of paragraph (2)(B)(iv) or (3)(B)(ii) 

11 of this subsection. 

12 ‘‘(v) AMORTIZATION OF ADJUSTED

13 NET ACTUARIAL EXPERIENCE.—The ad14 justed net actuarial experience is treated 

15 as a net experience gain or loss and 

16 charged or credited to the funding stand17 ard account under paragraph (2)(B)(iv) or 

18 (3)(B)(ii), as applicable.’’. 

19 (b) AMENDMENT TO THE EMPLOYEE RETIREMENT

20 INCOME SECURITY ACT OF 1974.—Paragraph (7) of sec21 tion 302(b) of the Employee Retirement Income Security 

22 Act of 1974 is amended by adding at the end the following 

23 new subparagraph: 

24 ‘‘(F)(i) In lieu of amortizing its experience loss as 

25 prescribed in paragraph (2)(B)(iv), a multiemployer plan 
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1 may elect to use the emergency investment loss method 

2 described in this subparagraph, starting with the first plan 

3 year in which it has an emergency investment loss. 

4 ‘‘(ii) An emergency investment loss is the difference 

5 between the market value of the plan’s assets as of the 

6 last day of a plan year beginning on or after July 1, 1999 

7 and ending before January 1, 2004, and what that market 

8 value would have been if the plan’s earnings had been 

9 equal to the projected investment return based on the ac10 tuarial interest rate under paragraph (5)(A) for the plan 

11 year, applied to the market value of assets as of the begin12 ning of the year and noninvestment cash flows during the 

13 year. 

14 ‘‘(iii) The funding standard account shall be charged 

15 with the amounts necessary to amortize in equal annual 

16 installments (until fully amortized) the plan’s emergency 

17 investment loss, over a period of 30 plan years. 

18 ‘‘(iv) The adjusted net actuarial experience is the 

19 amount produced by subtracting the emergency invest20 ment loss from the net experience gain or loss for the plan 

21 year as otherwise determined for purposes of paragraph 

22 (2)(B)(iv) or (3)(B)(ii) of this subsection. 

23 ‘‘(v) The adjusted net actuarial experience is treated 

24 as a net experience gain or loss and charged or credited 
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1 to the funding standard account under paragraph 

2 (2)(B)(iv) or (3)(B)(ii), as applicable.’’. 

3 (c) ELECTION PROCEDURE.—

4 (1) IN GENERAL.—The Secretary shall pre5 scribe a procedure under which multiemployer plans 

6 that elect to use the emergency investment loss 

7 method, as described in section 412(b)(7)(F) of the 

8 Internal Revenue Code of 1986 and section 

9 302(b)(7)(F) of the Employee Retirement Income 

10 Security Act of 1974, may do so either by starting 

11 the special amortization periods in the actuarial 

12 valuations for each of the affected plan years or by 

13 starting with a cumulative emergency investment 

14 loss and adjusted net actuarial experience (based on 

15 the outstanding balance of the experience gain bases 

16 for the affected plan years, reduced by the cumu17 lative emergency investment loss) in the actuarial 

18 valuation for the last plan year ending before Janu19 ary 1, 2004. 

20 (2) FILING PERIOD.—The procedures described 

21 in paragraph (1) shall provide a period of not less 

22 than 210 days after the date of enactment of this 

23 Act for multiemployer plans to file Schedule Bs to 

24 the Form 5500 Annual Reports for the plan years 

25 for which the emergency investment loss method is 
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1 elected, including amended Schedule Bs for annual 

2 reports previously filed. 

3 (d) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to years beginning after June 30, 

5 1999.

6 SEC. 709. MORTALITY TABLE ADJUSTMENT. 

7 (a) AMENDMENT TO THE INTERNAL REVENUE

8 CODE.—Subparagraph (C) of section 412(l)(7) is amend9 ed by adding at the end the following clause: 

10 ‘‘(iv) SEPARATE MORTALITY TABLES

11 FOR BLUE-COLLAR WORKERS.—Notwith12 standing clause (ii), in the case of plan 

13 years beginning after December 31, 2003, 

14 the Secretary shall establish mortality ta15 bles which may be used (in lieu of the ta16 bles under clause (ii)) to determine current 

17 liability under this subsection for individ18 uals who are blue-collar workers (as de19 fined under rules prescribed by the Sec20 retary). For this purpose, the Secretary 

21 shall take into account the Society of Actu22 aries RP–2000 Mortality Table, as ad23 justed to take into account the collar ad24 justment prescribed in such Table to re25 flect the workforce covered by the plan.’’. 
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1 (b) AMENDMENT TO THE EMPLOYEE RETIREMENT

2 INCOME SECURITY ACT OF 1974.—Subparagraph (C) of 

3 section 302(d)(7) of the Employee Retirement Income Se4 curity Act of 1974 (29 U.S.C. 1082(d)(7)) is amended by 

5 adding at the end the following clause: 

6 ‘‘(iv) SEPARATE MORTALITY TABLES

7 FOR BLUE-COLLAR WORKERS.—Notwith8 standing clause (ii), in the case of plan 

9 years beginning after December 31, 2003, 

10 the Secretary shall establish mortality ta11 bles which may be used (in lieu of the ta12 bles under clause (ii)) to determine current 

13 liability under this subsection for individ14 uals who are blue-collar workers (as de15 fined under rules prescribed by the Sec16 retary). For this purpose, the Secretary 

17 shall take into account the Society of Actu18 aries RP–2000 Mortality Table, as ad19 justed to take into account the collar ad20 justment prescribed in such Table to re21 flect the workforce covered by the plan.’’. 

22 (c) EFFECTIVE DATE.—The amendments made by 

23 this section shall be effective as of the date of enactment 

24 of this Act.
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1 TITLE VIII—SIMPLIFY AND 

2 STREAMLINE RETIREMENT 

3 PLAN RULES 

4 SEC. 801. EXCISE TAX ON EXCESS CONTRIBUTIONS. 

5 (a) EXPANSION OF CORRECTIVE DISTRIBUTION PE6 RIOD.—Subsection (f) of section 4979 is amended—

(1) in paragraph (1) by striking ‘‘21 7 ⁄2 months’’ 

8 and inserting ‘‘6 months’’, and 

(2) in the heading by striking ‘‘21 9 ⁄2 MONTHS’’ 

10 and inserting ‘‘6 MONTHS’’. 

11 (b) INCREASE IN DE MINIMIS DISTRIBUTION

12 AMOUNT.—Subparagraph (B) of section 4979(f)(2) is 

13 amended by striking ‘‘$100’’ and inserting ‘‘$1,000’’. 

14 (c) MODIFICATION OF DE MINIMIS RULE.—Subpara15 graph (B) of section 4972(f)(2) is amended by striking 

16 ‘‘If’’ and inserting ‘‘To the extent that’’ and by striking 

17 ‘‘are less than’’ and inserting ‘‘do not exceed’’. 

18 (d) EFFECTIVE DATE.—The amendments made by 

19 this section shall apply to years beginning after December 

20 31, 2003. 

21 SEC. 802. EXCESS BENEFIT PLANS. 

22 (a) IN GENERAL.—Section 3(36) of the Employee 

23 Retirement Income Security Act of 1974 (29 U.S.C. 

24 1002(36)) is amended to read as follows: 
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1 ‘‘(36) The term ‘excess benefit plan’ means a plan, 

2 without regard to whether such plan is funded, maintained 

3 by an employer solely for the purpose of providing benefits 

4 to employees in excess of any limitation imposed by section 

5 401(a)(17), 401(k)(3)(A)(ii), 401(m)(2), or 415 of the In6 ternal Revenue Code of 1986. To the extent that a sepa7 rable part of a plan (as determined by the Secretary of 

8 Labor) maintained by an employer is maintained for such 

9 purpose, that part shall be treated as a separate plan 

10 which is an excess benefit plan.’’. 

11 (b) EFFECTIVE DATE.—The amendment made by 

12 this section shall apply to plan years beginning after De13 cember 31, 2003. 

14 SEC. 803. PAPERLESS TECHNOLOGIES IN RETIREMENT 

15 PLANS. 

16 (a) PAPERLESS TECHNOLOGIES.—Not later than De17 cember 31, 2004, except as provided in subsection (c), the 

18 Secretary of the Treasury and the Secretary of Labor 

19 shall, by regulation, allow the use of paperless technologies 

20 for purposes of—

21 (1) notices, elections, and spousal consents re22 quired under sections 401(a)(11) and 417 of the In23 ternal Revenue Code of 1986 and section 205 of 

24 Employee Retirement Income Security Act of 1974, 
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1 (2) providing information to satisfy the condi2 tions for a hardship distribution under section 

3 401(k)(2)(B)(i)(IV) of such Code, and 

4 (3) other plan transactions for which the Secre5 taries determine that the use of paperless tech6 nologies is appropriate. 

7 (b) CONDITION OF USING PAPERLESS TECH8 NOLOGIES.—Technologies permitted pursuant to sub9 section (a) shall not—

10 (1) undermine the rights of any participant, 

11 any spouse of a participant, or any other beneficiary, 

12 or 

13 (2) weaken the policy purposes of any rule for 

14 which such technologies are permitted. 

15 (c) REPORT IN CASES WHERE PAPERLESS TECH16 NOLOGY NOT USED.—

17 (1) IN GENERAL.—Not later than December 31, 

18 2004, if the Secretary of the Treasury or the Sec19 retary of Labor determines that permitting the use 

20 of paperless technologies for a particular purpose is 

21 unworkable or would jeopardize individuals’ rights or 

22 public policy objectives, the applicable Secretary 

23 shall not permit the use of paperless technologies for 

24 such purpose, but rather shall submit a report to the 

25 Committee on Ways and Means and the Committee 
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1 on Education and the Workforce of the House of 

2 Representatives and the Committee on Finance and 

3 the Committee on Health, Education, Labor and 

4 Pensions of the Senate. 

5 (2) CONTENTS OF REPORT.—The applicable 

6 Secretary shall set forth in the report required by 

7 subsection (a) the determination with respect to 

8 each such purpose and recommendations for any 

9 changes in law that would facilitate the greater use 

10 of paperless technologies.

11 SEC. 804. ELIMINATION OF UNINTENDED CONSEQUENCES 

12 ATTRIBUTABLE TO USE OF BASE PAY OR 

13 RATE OF PAY. 

14 Not later than December 31, 2003, the Secretary of 

15 the Treasury shall issue final regulations under which the 

16 rules in Treasury Regulation 1.414(s)–1 (without regard 

17 to paragraph (d)(3) thereof) apply for purposes of the safe 

18 harbor rules under Treasury Regulation 1.401(a)(4)–3(b). 

19 SEC. 805. REPEAL OF THE GATEWAY TEST. 

20 (a) IN GENERAL.—Paragraph (5) of section 410(b) 

21 (relating to line of business exception) is amended to read 

22 as follows: 

23 ‘‘(5) LINE OF BUSINESS EXCEPTION.—If, under 

24 section 414(r), an employer is treated as operating 

25 separate lines of business for a year, the employer 
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1 may apply the requirements of this subsection for 

2 such year separately with respect to employees in 

3 each separate line of business.’’. 

4 (b) EFFECTIVE DATE.—The amendment made by 

5 this subsection shall apply to years beginning after De6 cember 31, 2003. 

7 SEC. 806. INTERMEDIATE SANCTIONS FOR INADVERTENT 

8 FAILURES. 

9 (a) IN GENERAL.—Section 401(a) (relating to quali10 fied pension, profit-sharing, and stock bonus plans) is 

11 amended by inserting after paragraph (34) the following: 

12 ‘‘(35) PROTECTION FROM DISQUALIFICATION

13 UPON TIMELY CORRECTION OR PAYMENT OF FINE.—

14 A trust shall not fail to constitute a qualified trust 

15 under this section if the plan of which such trust is 

16 a part has made good faith efforts to meet the re17 quirements of this section, has inadvertently failed 

18 to satisfy 1 or more of such requirements, and ei19 ther—

20 ‘‘(A) substantially corrects (to the extent 

21 possible) such failure before the date the plan 

22 becomes subject to a plan examination for the 

23 applicable year (as determined under rules pre24 scribed by the Secretary), or
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1 ‘‘(B) substantially corrects (to the extent 

2 possible) such failure on or after such date. 

3 If the plan satisfies the requirement under subpara4 graph (B), the Secretary may require the sponsoring 

5 employer to make a payment to the Secretary in an 

6 amount that does not exceed an amount that bears 

7 a reasonable relationship to the severity of the plan’s 

8 failure to satisfy the requirements of this section.’’. 

9 (b) APPLICATION TO CASH OR DEFERRED ARRANGE10 MENTS.—Section 401(k) is amended by inserting after 

11 paragraph (12) the following new paragraph:

12 ‘‘(13) PROTECTION FROM DISQUALIFICATION.—

13 Rules similar to the rules set forth in section 

14 401(a)(35) shall apply for purposes of determining 

15 whether a cash or deferred arrangement is a quali16 fied cash or deferred arrangement.’’. 

17 (c) APPLICATION TO SECTION 403(b) ANNUITY CON18 TRACTS.—Section 403(b) is amended by inserting after 

19 paragraph (12) the following: 

20 ‘‘(13) CORRECTION OF ERRORS.—For purposes 

21 of determining whether the exclusion from gross in22 come under paragraph (1) is applicable to an em23 ployee for any taxable year, rules similar to the rules 

24 set forth in section 401(a)(35) shall apply to any an25 nuity contract purchased under this subsection or 
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1 any plan established to meet the requirements of 

2 this subsection.’’. 

3 (d) INCOME INCLUSION FOR DISQUALIFICATION NOT

4 APPLICABLE TO NONHIGHLY COMPENSATED EMPLOY5 EES.—Section 402(b) (relating to taxability of beneficiary 

6 of nonexempt trust) is amended by striking paragraph (4) 

7 and inserting the following: 

8 ‘‘(4) INCOME INCLUSION FOR DISQUALIFICA9 TION NOT APPLICABLE TO NONHIGHLY COM10 PENSATED EMPLOYEES.—Paragraphs (1) and (2) 

11 shall not apply to employees who are not highly com12 pensated employees. 

13 ‘‘(5) FAILURE TO MEET REQUIREMENTS OF

14 SECTION 401(a)(26) OR 410(b).—If 1 of the reasons 

15 a trust is not exempt from tax under section 501(a) 

16 is the failure of the plan to meet the requirements 

17 of section 401(a)(26) or 410(b), then a highly com18 pensated employee shall, in lieu of the amount deter19 mined under paragraph (1) or (2), include in gross 

20 income for the taxable year with or within which the 

21 taxable year of the trust ends an amount equal to 

22 the vested accrued benefit of such employee (other 

23 than the employee’s investment in the contract) as 

24 of the close of such taxable year of the trust. 
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1 ‘‘(6) HIGHLY COMPENSATED EMPLOYEE.—For 

2 purposes of this subsection, the term ‘highly com3 pensated employee’ has the meaning given such term 

4 by section 414(q).’’.

5 (e) EFFECTIVE DATE.—The amendments made by 

6 this section shall take effect on the date of enactment of 

7 this Act. 

8 SEC. 807. QUALIFIED PRERETIREMENT SURVIVOR ANNU9 ITY. 

10 (a) AMENDMENTS TO THE INTERNAL REVENUE

11 CODE OF 1986.—

12 (1) REPEAL OF AGE 35 WAIVER LIMITATION.—

13 Subparagraph (B) of section 417(a)(6) (defining ap14 plicable election period) is amended by striking ‘‘the 

15 plan year in which the participant attains age 35’’ 

16 and inserting ‘‘plan participation’’. 

17 (2) CONFORMING AMENDMENTS.—

18 (A) Section 417(a)(6) is amended by strik19 ing the last sentence. 

20 (B) Section 417(a)(3)(B) is amended—

21 (i) in clause (ii) by striking subclause 

22 (I) and redesignating subclause (II), (III), 

23 and (IV) as subclause (I), (II), and (III), 

24 respectively, and 

25 (ii) striking the last sentence. 
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1 (b) AMENDMENTS TO THE EMPLOYEE RETIREMENT

2 INCOME SECURITY ACT OF 1974.—

3 (1) REPEAL OF AGE 35 WAIVER LIMITATION.—

4 Subparagraph (B) of section 205(c)(7) of the Em5 ployee Retirement Income Security Act of 1974 (29 

6 U.S.C. 1055(c)(7)(B)) is amended by striking ‘‘the 

7 plan year in which the participant attains age 35’’ 

8 and inserting ‘‘plan participation’’. 

9 (2) CONFORMING AMENDMENTS.—

10 (A) Section 205(c)(7) of such Act is 

11 amended by striking the last sentence. 

12 (B) Section 205(c)(3)(B) of such Act is 

13 amended—

14 (i) in clause (ii) by striking subclause 

15 (I) and redesignating subclause (II), (III), 

16 and (IV) as subclause (I), (II), and (III), 

17 respectively, and 

18 (ii) striking the last sentence. 

19 (c) EFFECTIVE DATE.—

20 (1) IN GENERAL.—The amendments made by 

21 this section shall apply to years beginning after De22 cember 31, 2003. 

23 (2) SPECIAL RULES.—A plan shall not be treat24 ed as having failed to comply with section 

25 417(a)(3)(B) of the Internal Revenue Code of 1986 
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1 and section 205(c)(3)(B) of the Employee Retire2 ment Income Security Act of 1974 due to the failure 

3 to provide an explanation required by reason of the 

4 amendments made by this section if such expla5 nation is provided by a date that is one year after 

6 the date of enactment of this Act or by a later date 

7 (not later than 3 years after the date of enactment 

8 of this Act) determined under rules prescribed by 

9 the Secretary of the Treasury. With respect to a 

10 participant, if an explanation required by such sec11 tion 417(a)(3)(B) and such section 205(c)(3)(B) is 

12 permitted to be provided at a later date by reason 

13 of the preceding sentence, an election under section 

14 417(a)(1)(A)(i) of such Code and section 

15 205(c)(1)(A)(i) of the Employee Retirement Income 

16 Security Act of 1974 to waive a qualified preretire17 ment survivor annuity shall not take effect unless 

18 such explanation has been provided with respect to 

19 such participant by a date that is no later than a 

20 reasonable period prior to the date of the election. 

21 SEC. 808. COST-OF-LIVING ADJUSTMENT OF $5,000 CASH22 OUT AMOUNT. 

23 (a) AMENDMENTS TO THE INTERNAL REVENUE

24 CODE OF 1986.—
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1 (1) IN GENERAL.—Paragraph (11) of section 

2 411(a) (relating to restrictions on certain mandatory 

3 distributions) is amended by adding at the end the 

4 following new subparagraph: 

5 ‘‘(E) COST-OF-LIVING ADJUSTMENT.—The 

6 Secretary shall adjust annually the $5,000 

7 amount in subparagraph (A) for increases in 

8 the cost-of-living at the same time and in the 

9 same manner as adjustments under section 

10 415(d); except that the base period shall be the 

11 calendar quarter beginning July 1, 2003, and 

12 any increase which is not a multiple of $500 

13 shall be rounded to the next lowest multiple of 

14 $500.’’. 

15 (2) CONFORMING AMENDMENT.—Clause (ii) of 

16 section 401(a)(31)(B) is amended by striking 

17 ‘‘$5,000’’ and inserting ‘‘the amount in effect under 

18 section 411(a)(11)(A)’’. 

19 (b) AMENDMENT TO THE EMPLOYEE RETIREMENT

20 INCOME SECURITY ACT OF 1974.—Subsection (e) of sec21 tion 203 of the Employee Retirement Income Security Act 

22 of 1974 (29 U.S.C. 1053(e)) is amended by adding at the 

23 end the following new paragraph: 

24 ‘‘(5) The Secretary of the Treasury shall adjust an25 nually the $5,000 amount in paragraph (1) for increases 
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1 in the cost-of-living at the same time and in the same 

2 manner as adjustments under section 415(d) of the Inter3 nal Revenue Code of 1986; except that the base period 

4 shall be the calendar quarter beginning July 1, 2003, and 

5 any increase which is not a multiple of $500 shall be 

6 rounded to the next lowest multiple of $500.’’. 

7 (c) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to years beginning after December 

9 31, 2003. 

10 SEC. 809. CATCH-UP CONTRIBUTIONS. 

11 (a) NONDISCRIMINATION REQUIREMENT MOVED.—

12 (1) IN GENERAL.—Paragraph (4) of section 

13 401(a) (relating to nondiscrimination requirements 

14 for qualification) is amended to read as follows: 

15 ‘‘(4) NONDISCRIMINATION.—

16 ‘‘(A) IN GENERAL.—If the contributions or 

17 benefits provided under the plan do not dis18 criminate in favor of highly compensated em19 ployees (within the meaning of section 414(q)). 

20 ‘‘(B) CERTAIN EMPLOYEES EXCLUDED.—

21 For purposes of this paragraph, there shall be 

22 excluded from consideration employees de23 scribed in section 410(b)(3)(A) and (C). 

24 ‘‘(C) SPECIAL RULES RELATING TO CATCH25 UP CONTRIBUTIONS.—
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1 ‘‘(i) IN GENERAL.—An applicable em2 ployer plan shall be treated as failing to 

3 meet the nondiscrimination requirements 

4 under subparagraph (A) with respect to 

5 benefits, rights, and features unless the 

6 plan allows all eligible participants to make 

7 the same election with respect to the addi8 tional elective deferrals under section 

9 414(v). 

10 ‘‘(ii) AGGREGATION.—Except as pro11 vided in regulations prescribed by the Sec12 retary, for purposes of clause (i), all plans 

13 maintained by employers who are treated 

14 as a single employer under subsection (b), 

15 (c), (m), or (o) of section 414 shall be 

16 treated as 1 plan, except that a plan de17 scribed in clause (i) of section 

18 410(b)(6)(C) shall not be treated as a plan 

19 of the employer until the expiration of the 

20 transition period with respect to such plan 

21 (as determined under clause (ii) of such 

22 section). 

23 ‘‘(iii) DEFINITIONS.—For purposes of 

24 this subparagraph, the terms ‘applicable 

25 employer plan’, ‘eligible participants’, and 
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1 ‘elective deferral’ have the meaning given 

2 such terms by section 414(v).’’. 

3 (2) CONFORMING AMENDMENT.—Section 

4 414(v) is amended by striking paragraph (4) and re5 designating paragraphs (5) and (6) as paragraphs 

6 (4) and (5), respectively. 

7 (b) EFFECTIVE DATE.—The amendments made by 

8 this section shall take effect as if included in section 

9 631(a) of the Economic Growth and Tax Relief Reconcili10 ation Act of 2001. 

11 SEC. 810. REVERSE MATCH SALARY REDUCTION ARRANGE12 MENT SIMPLIFIED EMPLOYEE ANNUITY. 

13 (a) IN GENERAL.—Subsection (k) of section 408 (de14 fining simplified employee pension) is amended by redesig15 nating paragraphs (7), (8), and (9) as paragraphs (8), (9), 

16 and (10), respectively, and by inserting after paragraph 

17 (6) the following new paragraph: 

18 ‘‘(7) REVERSE MATCH SALARY REDUCTION AR19 RANGEMENT SIMPLIFIED EMPLOYEE ANNUITY.—

20 ‘‘(A) EMPLOYEE MAY ELECT SALARY RE21 DUCTION ARRANGEMENT.—

22 ‘‘(i) IN GENERAL.—A simplified em23 ployee pension shall not fail to meet the re24 quirements of this subsection for a year 

25 merely because, under the terms of the 
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1 pension, an employee may elect to have the 

2 employer make payments—

3 ‘‘(I) as elective employer con4 tributions to the simplified employee 

5 pension on behalf of the employee, or 

6 ‘‘(II) to the employee directly in 

7 cash. 

8 ‘‘(ii) LIMITATIONS ON ELECTIVE DE9 FERRALS.—Clause (i) shall not apply to a 

10 simplified employee pension unless the re11 quirements of section 401(a)(30) are met. 

12 ‘‘(B) EXCEPTION WHERE MORE THAN 25

13 EMPLOYEES.—This paragraph shall not apply 

14 with respect to any year in the case of a sim15 plified employee pension maintained by an em16 ployer with more than 25 employees who were 

17 eligible to participate (or would have been re18 quired to be eligible to participate if a pension 

19 was maintained) at any time during the pre20 ceding year. For purposes of this subparagraph, 

21 rules similar to the rules of sections 

22 408(p)(2)(C)(ii) and 408(p)(10) shall apply. 

23 ‘‘(C) DEFERRAL PERCENTAGE.—

24 ‘‘(i) IN GENERAL.—The deferral per25 centage for any employee for a year may 
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1 not exceed double the percentage which is 

2 the ratio that—

3 ‘‘(I) the amount of employer con4 tributions (other than elective or 

5 matching contributions) actually paid 

6 over to the simplified employee pen7 sion on behalf of the employee for the 

8 year, bears to 

9 ‘‘(II) the employee’s compensa10 tion (not in excess of the amount in 

11 effect under paragraph (6)(D)(ii)) for 

12 the year. 

13 ‘‘(ii) DEFINITION.—For purposes of 

14 this paragraph, the deferral percentage of 

15 an employee for a year shall be the ratio 

16 which—

17 ‘‘(I) the amount of elective em18 ployer contributions actually paid over 

19 to the simplified employee pension on 

20 behalf of the employee for the year, 

21 bears to 

22 ‘‘(II) the employee’s compensa23 tion (not in excess of the amount in 

24 effect under paragraph (6)(D)(ii)) for 

25 the year.
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1 ‘‘(D) EXCEPTION FOR STATE AND LOCAL

2 AND TAX-EXEMPT PENSIONS.—This paragraph 

3 shall not apply to a simplified employee pension 

4 maintained by a State or local government or 

5 political subdivision thereof, or any agency or 

6 instrumentality thereof.’’. 

7 (b) CONFORMING AMENDMENTS.—

8 (1) Subparagraph (B) of section 402(h)(1) is 

9 amended by striking ‘‘408(k)(6)’’ and inserting 

10 ‘‘408(k)(6) or 408(k)(7)’’. 

11 (2) Paragraph (2) of section 408(k) is amended 

12 by striking ‘‘subsection (k)(6)’’ and inserting ‘‘sub13 section (k)(6) or (k)(7)’’. 

14 (3) Subparagraphs (C) and (D) of section 

15 408(k)(3) are each amended by striking ‘‘paragraph 

16 (6)’’ and inserting ‘‘paragraph (6) or (7)’’. 

17 (4) Subpargraph (C) of section 414(u)(1) is 

18 amended by striking ‘‘408(k)(6)’’ and inserting 

19 ‘‘408(k)(6), 408(k)(7)’’. 

20 (5) Subparagraph (C) of section 3121(a)(5) is 

21 amended by striking ‘‘408(k)(6)’’ and inserting 

22 ‘‘408(k)(6) or 408(k)(7)’’. 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to years beginning after December 

25 31, 2003. 
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1 SEC. 811. LEVEL DOLLAR CONTRIBUTIONS TO SEPS. 

2 (a) IN GENERAL.—Subparagraph (C) of section 

3 408(k)(3) (relating to contributions must bear uniform re4 lationship to total compensation) is amended by inserting 

5 before the period at the end the following: ‘‘or unless such 

6 contributions are a uniform dollar amount on behalf of 

7 each such employee.’’. 

8 (b) EFFECTIVE DATE.—The amendment made by 

9 this section shall apply to years beginning after December 

10 31, 2003. 

11 SEC. 812. TAX ON NONDEDUCTIBLE CONTRIBUTIONS NOT 

12 TO APPLY TO CERTAIN NONTRADE OR BUSI13 NESS SEP CONTRIBUTIONS. 

14 (a) IN GENERAL.—Subparagraph (B) of section 

15 4972(c)(6) (relating to exceptions) is amended—

16 (1) by striking ‘‘408(p) or’’ and inserting 

17 ‘‘408(p),’’, and 

18 (2) by inserting after ‘‘401(k)(11))’’ the fol19 lowing: ‘‘, or a simplified employee pension (within 

20 the meaning of section 408(k))’’. 

21 (b) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to years beginning after December 

23 31, 2003.
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1 SEC. 813. CLARIFICATION OF FIDUCIARY DUTY. 

2 (a) IN GENERAL.—Paragraph (3) of section 404(c) 

3 of the Employee Retirement Income Security Act of 1974 

4 (29 U.S.C. 1104(c)(3)) is amended to read as follows: 

5 ‘‘(3) In the case of a pension plan which makes 

6 a transfer to an individual retirement account or an7 nuity of a designated trustee or issuer under section 

8 401(a)(31)(B) of the Internal Revenue Code of 

9 1986, the fiduciary who selects the individual retire10 ment account or annuity and the initial investments 

11 thereunder shall be subject to this part only with re12 spect to such initial selections. Such fiduciary shall 

13 have no liability under this title if such selections are 

14 made in a manner consistent with guidance provided 

15 by the Secretary.’’. 

16 (b) EFFECTIVE DATE.—The amendment made this 

17 section shall take effect as if included in section 657 of 

18 the Economic Growth and Tax Relief Reconciliation Act 

19 of 2001. 

20 SEC. 814. MULTIEMPLOYER PLAN CLARIFICATION. 

21 (a) IN GENERAL.—Subsection (b) of section 413 is 

22 amended by adding at the end the following: 

23 ‘‘(10) TREAMENT AS NOT AN EMPLOYER

24 PLAN.—The Secretary may prescribe rules under 

25 which, for purposes of one or more specified provi26 sions of this part relating directly or indirectly to 
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1 nondiscrimination in benefits or coverage, a plan de2 scribed in section 414(f) is not treated as a plan of 

3 or maintained by the employers of the participating 

4 employees.’’. 

5 (b) EFFECTIVE DATE.—The amendment made by 

6 this section shall apply as of the date of enactment of this 

7 Act. 

8 SEC. 815. CLARIFICATION OF STATUS OF YOUNG MEN’S 

9 CHRISTIAN ASSOCIATION RETIREMENT 

10 FUND. 

11 (a) IN GENERAL.—Section 1012(c)(4)(C)(i) of the 

12 Tax Reform Act of 1986 (100 Stat. 2394) is amended 

13 by adding before the comma at the end thereof the fol14 lowing: ‘‘(whose retirement plans (including the reserve 

15 accounts for such plans) are deemed to be plans described 

16 in section 403(b)(9)(B) of the Internal Revenue Code of 

17 1986 for years beginning on or after January 1, 2003)’’. 

18 (b) CLARIFICATION OF SCOPE OF CHURCH PLAN

19 STATUS.—

20 (1) NONDISCRIMINATION TESTING.—Any fund 

21 or plan described in subsection (a) shall be subject 

22 to the nondiscrimination requirements of section 

23 403(b)(12) of such Code and shall not be treated as 

24 a contract purchased by a church for purposes of 

25 section 403(b)(1)(D) of such Code. 
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1 (2) APPLICABILITY OF 403(b)(9) RULES GEN2 ERALLY.—Nothing in this section shall exempt the 

3 retirement fund of the YMCA from complying with 

4 the rules otherwise applicable to a plan described in 

5 section 403(b)(9)(B) of such Code in order for the 

6 treatment described in section 403(b)(1) of such 

7 Code to apply. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to years beginning after December 

10 31, 2002. 

11 TITLE IX—EXPANDING RETIRE12 MENT SAVINGS OPPORTUNI13 TIES FOR EMPLOYEES OF 

14 TAX-EXEMPT ORGANIZATIONS 

15 AND GOVERNMENTS 

16 SEC. 901. DEFERRED COMPENSATION PLANS OF TAX-EX17 EMPT ORGANIZATIONS. 

18 (a) IN GENERAL.—Subpart B of part II of sub19 chapter E of chapter 1 (relating to taxable year for which 

20 items of gross income included) is amended by inserting 

21 after section 458 the following new section: 

22 ‘‘SEC. 459. DEFERRED COMPENSATION PLANS OF TAX-EX23 EMPT ORGANIZATIONS. 

24 ‘‘(a) IN GENERAL.—In the case of a plan of an orga25 nization (other than a governmental unit) exempt from tax
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1 under this subtitle providing for a deferral of compensa2 tion—

3 ‘‘(1) the excess deferred compensation shall be 

4 included in the gross income of the participant or 

5 beneficiary for the 1st taxable year in which there 

6 is no substantial risk of forfeiture of the rights to 

7 such compensation, and 

8 ‘‘(2) the tax treatment of any amount made 

9 available under the plan to a participant or bene10 ficiary shall be determined under section 72 (relat11 ing to annuities, etc.). 

12 ‘‘(b) EXCEPTIONS.—Subsection (a) shall not apply 

13 to—

14 ‘‘(1) a plan described in section 401(a) which 

15 includes a trust exempt from tax under section 

16 501(a), 

17 ‘‘(2) an annuity plan or contract described in 

18 section 403, 

19 ‘‘(3) that portion of any plan which consists of 

20 a transfer of property described in section 83, and 

21 ‘‘(4) that portion of any plan which consists of 

22 a trust to which section 402(b) applies. 

23 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur24 poses of this section—
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1 ‘‘(1) EXCESS DEFERRED COMPENSATION.—The 

2 term ‘excess deferred compensation’ means with re3 spect to a participant for any taxable year the excess 

4 of the present value of the participant’s deferred 

5 compensation for such year over the greater of—

6 ‘‘(A) one third of the sum of such value 

7 plus the participant’s compensation (as defined 

8 in Code section 415(c)(3)) for such year, or 

9 ‘‘(B) the amount in effect for such year 

10 under section 457(b)(2) (as modified by any ad11 justment permitted under subsection (b)(3) or 

12 section 414(v)). 

13 ‘‘(2) PLAN INCLUDES ARRANGEMENTS, ETC.—

14 The term ‘plan’ includes any agreement or arrange15 ment. 

16 ‘‘(3) SUBSTANTIAL RISK OF FORFEITURE.—The 

17 rights of a person to compensation are subject to a 

18 substantial risk of forfeiture if such person’s rights 

19 to such compensation are conditioned upon the fu20 ture performance of substantial services by any indi21 vidual. 

22 ‘‘(4) SPECIAL RULES.—Rules similar to the 

23 rules of section 457(b)(6) and paragraphs (2), (3), 

24 (4), (6), (7), (8), (9) (as in effect before the enact25 ment of the Pension Preservation and Savings Ex-
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1 pansion Act of 2003), (10), (11), (12), and (13) of 

2 section 457(e) shall apply for purposes of this sec3 tion.’’. 

4 (b) CONFORMING AMENDMENTS.—

5 (1) The heading for section 457 is amended by 

6 striking ‘‘AND TAX-EXEMPT ORGANIZA7 TIONS’’. 

8 (2) Section 457(a)(1) is amended by striking 

9 ‘‘income—’’ and inserting ‘‘and all that follows and 

10 inserting the following: ‘‘income is paid to the par11 ticipant or other beneficiary.’’. 

12 (3) Section 457(b) is amended by striking 

13 ‘‘which is established and maintained by an em14 ployer which is described in subsection (e)(1)(A) 

15 and’’. 

16 (4) Section 457(d)(1)(C) is amended by strik17 ing ‘‘in the case of a plan maintained by an em18 ployer described in subsection (e)(1)(A),’’. 

19 (5) Section 457(d)(3) is amended—

20 (A) by striking ‘‘of an employer described 

21 in subsection (e)(1)(A)’’, and 

22 (B) by striking ‘‘FOR GOVERNMENT PLAN’’. 

23 (6) Paragraph (9) of section 457(e) is amended 

24 to read as follows: 
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1 ‘‘(9) EXCEPTION TO DISTRIBUTION REQUIRE2 MENTS.—

3 ‘‘(A) A plan shall not be treated as failing 

4 to meet the distribution requirements of sub5 section (d) by reason of a distribution to which 

6 this paragraph applies. 

7 ‘‘(B) This paragraph applies to a distribu8 tion if—

9 ‘‘(i) the distribution includes the total 

10 amount payable to a participant under the 

11 plan, 

12 ‘‘(ii) the portion of such amount 

13 which is not attributable to rollover con14 tributions (as defined in section 

15 411(a)(11)(D)) does not exceed the dollar 

16 limit under section 411(a)(11)(A), 

17 ‘‘(iii) no amount has been deferred 

18 under the plan with respect to such partici19 pant during the 2-year period ending on 

20 the date of the distribution, and 

21 ‘‘(iv) there has been no prior distribu22 tion under the plan to which this para23 graph applied.’’. 

24 (7) Section 457(e)(1) is amended to read as fol25 lows: 
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1 ‘‘(1) ELIGIBLE EMPLOYER.—The term ‘eligible 

2 employer’ means a State, political subdivision of a 

3 State, and any agency or instrumentality of a State 

4 or political subdivision of a State.’’. 

5 (8) Section 457(e)(16)(A) is amended by strik6 ing ‘‘established and maintained by an employer de7 scribed in subsection (e)(1)(A)’’. 

8 (9) Section 457(g) is amended—

9 (A) in paragraph (1) by striking ‘‘main10 tained by an eligible employer described in sub11 section (e)(1)(A)’’, and 

12 (B) in the heading by striking ‘‘GOVERN13 MENTAL’’. 

14 (10) Section 25B(d)(1)(B)(ii) is amended by 

15 striking ‘‘of an eligible employer described in section 

16 457(e)(1)(A)’’. 

17 (11) Section 72(t)(9) is amended by striking 

18 ‘‘of an eligible employer described in section 

19 457(e)(1)(A)’’. 

20 (12) Section 402(c)(8)(B)(v) is amended by 

21 striking ‘‘which is maintained by an eligible em22 ployer described in section 457(e)(1)(A)’’. 

23 (13) Section 408(q)(3)(A) is amended by strik24 ing ‘‘of an eligible employer described in section 

25 457(e)(1)(A)’’.
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1 (14) Section 414(v)(6)(A)(iii) is amended by 

2 striking ‘‘of an eligible employer described in section 

3 457(e)(1)(A)’’. 

4 (15) Section 3401(a)(12)(E) is amended by 

5 striking ‘‘which is maintained by an eligible em6 ployer described in section 457(e)(1)(A)’’. 

7 (16) Section 3405(d)(2)(B)(iv) is amended by 

8 striking ‘‘and which is maintained by an eligible em9 ployer described in section 457(e)(1)(A)’’. 

10 (17) Section 4980G(f)(2)(B) (as added by this 

11 Act) is amended by striking ‘‘of an eligible employer 

12 described in section 457(e)(1)(A)’’. 

13 (18) Section 414(w)(5)(B)(ii) (as added by this 

14 Act) is amended by striking ‘‘of an eligible employer 

15 described in section 457(e)(1)(A)’’. 

16 (19) Section 414(x)(8(A)(ii) is amended by 

17 striking ‘‘of an eligible employer described in section 

18 457(e)(1)(A)’’. 

19 (c) CLERICAL AMENDMENTS.—

20 (1) The table of sections for subpart B of part 

21 II of subchapter E of chapter 1 is amended by in22 serting after the item relating to section 458 the fol23 lowing new item:

‘‘Sec. 459. Deferred compensation plans of tax-exempt organizations.’’.
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1 (2) The item in the table of sections for subpart 

2 B of part II of subchapter E of chapter 1 relating 

3 to section 457 is amended to read as follows:

‘‘Sec. 457. Deferred compensation plans of State and local governments.’’.

4 (d) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to taxable years beginning after 

6 December 31, 2003. 

7 SEC. 902. INAPPLICABILITY OF 10 PERCENT ADDITIONAL 

8 TAX ON EARLY DISTRIBUTIONS OF PENSION 

9 PLANS OF PUBLIC SAFETY EMPLOYEES. 

10 (a) IN GENERAL.—Section 72(t)(2) of the Internal 

11 Revenue Code of 1986 (relating to subsection not to apply 

12 to certain distributions) is amended by adding at the end 

13 the following new subsection: 

14 ‘‘(G) DROP DISTRIBUTIONS TO QUALIFIED

15 PUBLIC SAFETY EMPLOYEES IN GOVERN16 MENTAL PLANS.—

17 ‘‘(i) IN GENERAL.—Distributions to 

18 an individual who is a qualified public safe19 ty employee from a governmental plan 

20 within the meaning of section 414(d) to 

21 the extent such distributions are attrib22 utable to a DROP benefit. 

23 ‘‘(ii) DEFINITIONS.—For purposes of 

24 this subparagraph—
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1 ‘‘(I) The term ‘DROP benefit’ 

2 means a feature of a governmental 

3 plan under which an employee elects 

4 to receive credits to an account (in5 cluding a notional account) in the 

6 plan in lieu of increases in the em7 ployee’s accrued pension benefit based 

8 on years of service after the effective 

9 date of the DROP election. 

10 ‘‘(II) The term ‘qualified public 

11 safety employee’ means any employee 

12 of any police department or fire de13 partment organized and operated by a 

14 State or political subdivision of a 

15 State if the employee provides police 

16 protection, firefighting services, or 

17 emergency medical services for any 

18 area within the jurisdiction of such 

19 State or political subdivision.’’. 

20 (b) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to distributions after the date of 

22 enactment of this Act. 
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1 SEC. 903. CLARIFICATIONS REGARDING PURCHASE OF PER2 MISSIVE SERVICE CREDIT. 

3 (a) IN GENERAL.—Subparagraph (A) of section 

4 457(e)(17) (relating to trustee-to-trustee transfers to pur5 chase permissive service credit), and subparagraph (A) of 

6 section 403(b)(13) (relating to trustee-to-trustee transfers 

7 to purchase permissive service credit), are both amended 

8 by striking ‘‘section 415(n)(3)(A)’’ and inserting ‘‘section 

9 415(n)(3) (without regard to subparagraphs (B) and (C) 

10 thereof)’’. 

11 (b) TRANSFERS MAY BE FROM ANY GOVERNMENTAL

12 PLAN.—Section 457(e)(17), and section 403(b)(13), are 

13 both amended by inserting ‘‘from any governmental plan 

14 (as so defined)’’ after ‘‘414(d))’’ and by adding at the end 

15 the following sentence: ‘‘Amounts transferred under this 

16 paragraph shall be distributed solely in accordance with 

17 the terms of such defined benefit plan.’’. 

18 (c) SERVICE CREDIT.—Clause (ii) of section 

19 415(n)(3)(A) is amended to read as follows: 

20 ‘‘(ii) which relates to benefits with re21 spect to which such participant is not oth22 erwise entitled, and’’. 

23 (d) EFFECTIVE DATE.—The amendments made by 

24 this section shall take effect as if included in the amend25 ments made by section 647 of the Economic Growth and 

26 Tax Relief Reconciliation Act of 2001. 
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1 SEC. 904. CERTAIN ROLLOVERS OF BENEFITS PERMITTED. 

2 (a) IN GENERAL.—Paragraph (10) of section 457(e) 

3 is amended—

4 (1) by striking ‘‘A participant’’ and inserting 

5 ‘‘(A) EXCLUSION FROM INCOME.—A participant’’, 

6 and 

7 (2) by adding at the end the following: 

8 ‘‘(B) TRANSFERS PERMITTED.—A transfer 

9 from one such plan to another such plan of the 

10 entire benefit of one or more participants shall 

11 not fail to be permitted solely because all assets 

12 of the transferor plan are not transferred to the 

13 transferee plan.’’. 

14 (b) EFFECTIVE DATE.—

15 (1) IN GENERAL.—The amendments made by 

16 this section shall apply to taxable years beginning 

17 after December 31, 2003. 

18 (2) SPECIAL RULE.—An individual shall not be 

19 precluded from participating in an eligible deferred 

20 compensation plan by reason of having received a 

21 distribution under Code section 457(e)(9) as in ef22 fect prior to the enactment of the Small Business 

23 Job Protection Act of 1996.

24 SEC. 905. MINIMUM DISTRIBUTION RULES. 

25 The Secretary of the Treasury shall issue regulations 

26 under which a governmental plan (as defined in section
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1 414(d) of the Internal Revenue Code of 1986) shall, for 

2 all years to which section 401(a)(9) of such Code applies 

3 to such plan, be treated as having complied with such sec4 tion 401(a)(9) if such plan complies with a reasonable 

5 good faith interpretation of such section 401(a)(9). 

6 SEC. 906. CHURCH PLAN RULE. 

7 (a) IN GENERAL.—Paragraph (11) of section 415(b) 

8 is amended by adding at the end the following: ‘‘Subpara9 graph (B) of paragraph (1) shall not apply to a plan main10 tained by an organization described in section 

11 3121(w)(3)(A) except with respect to highly compensated 

12 benefits. For purposes of this paragraph, the term ‘highly 

13 compensated benefits’ means any benefits accrued for an 

14 employee in any year on or after the first year in which 

15 such employee is a highly compensated employee (as de16 fined in section 414(q)) of the organization described in 

17 section 3121(w)(3)(A). For purposes of applying para18 graph (1)(B) to highly compensated benefits, all benefits 

19 of the employee otherwise taken into account (without re20 gard to this paragraph) shall be taken into account.’’. 

21 (b) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to years beginning after December 

23 31, 2003. 
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1 SEC. 907. PLANS MAINTAINED BY GOVERNMENTS AND TAX2 EXEMPT ORGANIZATIONS. 

3 (a) IN GENERAL.—Subparagraph (F) of section 

4 415(b)(2) is amended to read as follows: 

5 ‘‘(F) PLANS MAINTAINED BY GOVERN6 MENTS AND TAX EXEMPT ORGANIZATIONS.—

7 ‘‘(i) IN GENERAL.—In the case of a 

8 governmental plan (within the meaning of 

9 section 414(d)), a plan maintained by an 

10 organization (other than a governmental 

11 unit) exempt from tax under this subtitle, 

12 or a qualified merchant marine plan, sub13 paragraph (C) shall be applied as if the 

14 following sentence were added at the end: 

15 ‘The reduction under this subparagraph 

16 shall not reduce the limitation of para17 graph (1)(A) below (i) $130,000 if the 

18 benefit begins at or after age 55, or (ii) if 

19 the benefit begins before age 55, the equiv20 alent of the $130,000 limitation at age 

21 55.’. 

22 ‘‘(ii) DEFINITIONS.—For purposes of 

23 this subparagraph—

24 ‘‘(I) QUALIFIED MERCHANT MA25 RINE PLAN.—The term ‘qualified mer26 chant marine plan’ means a plan in 
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1 existence on January 1, 1986, the 

2 participants in which are merchant 

3 marine officers holding licenses issued 

4 by the Secretary of Transportation 

5 under title 46, United States Code. 

6 ‘‘(II) EXEMPT ORGANIZATION

7 PLAN.—A plan shall be treated as a 

8 plan maintained by an organization 

9 (other than a governmental unit) ex10 empt from tax under this subtitle if at 

11 least 50 percent of the employees ben12 efiting under the plan are employees 

13 of an organization (other than govern14 mental unit) exempt from tax under 

15 this subtitle. If less than 50 percent 

16 of the employees benefiting under a 

17 plan are employees of an organization 

18 (other than a governmental unit) ex19 empt from tax under this subtitle, the 

20 plan shall be treated as a plan main21 tained by an organization (other than 

22 a governmental unit) exempt from tax 

23 under this subtitle only with respect 

24 to employees of such an organiza25 tion.’’. 
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1 (b) COST-OF-LIVING ADJUSTMENTS.—

2 (1) PLANS MAINTAINED BY GOVERNMENTS AND

3 TAX EXEMPT ORGANIZATIONS.—Paragraph (1) of 

4 section 415(d) is amended by striking ‘‘and’’ at the 

5 end of subparagraph (B), by redesignating subpara6 graph (C) as subparagraph (D), and by inserting 

7 after subparagraph (B) the following new subpara8 graph: 

9 ‘‘(C) the $130,000 amount in subsection 

10 (b)(2)(F), and’’. 

11 (2) BASE PERIOD.—Paragraph (3) of section 

12 415(d) is amended by redesignating subparagraph 

13 (D) as subparagraph (E) and by inserting after sub14 paragraph (C) the following new subparagraph: 

15 ‘‘(D) $130,000 AMOUNT.—The base period 

16 taken into account for purposes of paragraph 

17 (1)(C) is the calendar quarter beginning July 1, 

18 2003.’’. 

19 (3) ROUNDING RULE RELATING TO DEFINED

20 BENEFIT PLANS.—Subparagraph (B) of section 

21 415(d)(4) is amended to read as follows: 

22 ‘‘(B) $130,000 AND $40,000 AMOUNTS.—

23 Any increase under subparagraph (C) or (D) of 

24 paragraph (1) which is not a multiple of $1,000 
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1 shall be rounded to the next lowest multiple of 

2 $1,000.’’. 

3 (4) CONFORMING AMENDMENT.—Subparagraph 

4 (E) of section 415(d)(3) (as amended by paragraph 

5 (2)) is amended by striking ‘‘paragraph (1)(C)’’ and 

6 inserting ‘‘paragraph (1)(D)’’. 

7 (c) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to years beginning after December 

9 31, 2003.

10 TITLE X—RESTRICTING 

11 EXCESSIVE REMUNERATION

12 SEC 1001. GOLDEN PARACHUTE EXCISE TAX TO APPLY TO 

13 EXCESSIVE EMPLOYEE REMUNERATION PAID 

14 BY CORPORATION AFTER DECLARATION OF 

15 BANKRUPTCY. 

16 (a) IN GENERAL.—Section 4999 (relating to golden 

17 parachute payments) is amended by redesignating sub18 section (c) as subsection (d) and by inserting after sub19 section (b) the following new subsection: 

20 ‘‘(c) TAX ON EXCESSIVE EMPLOYEE REMUNERATION

21 IN THE CASE OF BANKRUPTCY.—

22 ‘‘(1) IN GENERAL.—There is hereby imposed a 

23 tax on any person who is a covered employee equal 

24 to 50 percent of any payment of excessive employee 

25 remuneration from a corporation which becomes a 
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1 debtor in a title 11 or similar case (as defined in 

2 section 368(a)(3)(A) of this title, but not including 

3 a case under chapter 12 of title 11, United States 

4 Code). The tax imposed under subsection (a) shall 

5 not apply to the extent that a tax is imposed under 

6 this subsection. 

7 ‘‘(2) SPECIAL RULES RELATING TO EXCESSIVE

8 EMPLOYEE REMUNERATION.—For purposes of this 

9 subsection—

10 ‘‘(A) EXCESS EMPLOYEE REMUNERATION

11 DEFINED.—The term ‘excess employee remu12 neration’ means remuneration paid directly or 

13 indirectly to a covered employee during the 

14 bankruptcy period— 

15 ‘‘(i) for which a deduction is not al16 lowed under chapter 1 by reason of the ap17 plication of section 162(m) or would not be 

18 allowed if section 162(m) applied to the 

19 covered employee at the time of payment, 

20 or 

21 ‘‘(ii) in the case of remuneration to a 

22 covered employee of a corporation that is 

23 not a publicly held corporation described in 

24 section 162(m)(2), that exceeds 

25 $1,000,000, other than remuneration that
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1 meets requirements similar to the stand2 ards for performance-based compensation 

3 under section 162(m)(4)(C). 

4 ‘‘(B) Such term shall not include—

5 ‘‘(i) remuneration that, on the date 

6 immediately prior to the beginning of the 

7 bankruptcy period, was payable to the cov8 ered employee under a binding obligation 

9 and not subject to a substantial risk of for10 feiture, 

11 ‘‘(ii) remuneration attributable to con12 tributions to or benefits from an excess re13 tirement plan to the extent that such plan 

14 is maintained solely for the purpose of pro15 viding benefits to employees in excess of 

16 the limitations imposed by 1 or more of 

17 sections 401(a)(17), 401(k), 401(m), and 

18 415, 

19 ‘‘(iii) contributions to or benefits from 

20 a qualified employer plan (as defined in 

21 section 132(m)), or 

22 ‘‘(iv) any payment that is avoided or 

23 approved by a bankruptcy trustee. 

24 ‘‘(C) BANKRUPTCY PERIOD.—The term 

25 ‘bankruptcy period’ means any time during the 
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1 period beginning 2 years before the date on 

2 which the corporation becomes a debtor de3 scribed in paragraph (1) and ending on the 

4 date such corporation ceases to be such a debt5 or. 

6 ‘‘(D) COVERED EMPLOYEE.—The term 

7 ‘covered employee’—

8 ‘‘(i) has the meaning given such term 

9 by section 162(m)(3), except that such 

10 term shall include an individual who is not 

11 a covered employee under section 

12 162(m)(3) for the taxable year in which 

13 such remuneration is paid but who pre14 viously was a covered employee within the 

15 meaning of section 162(m)(3) during the 

16 bankruptcy period, and 

17 ‘‘(ii) with respect to an employee of a 

18 corporation that is not subject to section 

19 162(m), includes any employee of such cor20 poration who would be subject to the re21 quirement described in section 

22 162(m)(3)(B) (as modified by this para23 graph) if such corporation were a publicly 

24 held corporation (as defined in section 

25 162(m)(2)). 
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1 ‘‘(E) 100 PERCENT TAX FOR GROSS UP

2 PAYMENTS.—Subsection (b) shall be applied by 

3 substituting ‘100 percent’ for ‘50 percent’ to 

4 the extent that any payment is made during the 

5 bankruptcy period that is contingent upon a tax 

6 being imposed under this section. 

7 ‘‘(F) CHANGE IN OWNERSHIP CONTIN8 GENCY NOT TO APPLY.—Subsection (b) shall be 

9 applied without regard to clause (i) of section 

10 280G(b)(2)(A).’’. 

11 (b) EFFECTIVE DATE.—The amendment made this 

12 section shall apply to payments received after the date of 

13 the enactment of this Act with respect to any title 11 or 

14 similar case (as defined in section 4999(c) of the Internal 

15 Revenue Code of 1986) commenced after such date.

16 TITLE XI—DEFINED CONTRIBU17 TION PLAN PROTECTIONS

18 SEC. 1101. PROVISION OF INVESTMENT EDUCATION NO19 TICES TO PARTICIPANTS. 

20 (a) IN GENERAL.—Section 414 (relating to defini21 tions and special rules) is amended by adding at the end 

22 the following: 

23 ‘‘(w) PROVISION OF INVESTMENT EDUCATION

24 NOTICES TO PARTICIPANTS.—
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1 ‘‘(1) IN GENERAL.—The plan administrator of 

2 an applicable pension plan shall provide to each ap3 plicable individual an investment education notice 

4 described in paragraph (2) at the time of the enroll5 ment of the applicable individual in the plan and not 

6 less often than quarterly thereafter. 

7 ‘‘(2) INVESTMENT EDUCATION NOTICE.—An in8 vestment education notice is described in this para9 graph if such notice contains—

10 ‘‘(A) an explanation, for the long-term re11 tirement security of participants and bene12 ficiaries, of generally accepted investment prin13 ciples, including principles of risk management 

14 and diversification, and 

15 ‘‘(B) a discussion of the risk of holding 

16 substantial portions of a portfolio in the secu17 rity of any one entity, such as employer securi18 ties. 

19 ‘‘(3) UNDERSTANDABILITY.—Each notice re20 quired by paragraph (1) shall be written in a man21 ner calculated to be understood by the average plan 

22 participant and shall provide sufficient information 

23 (as determined in accordance with guidance provided 

24 by the Secretary) to allow recipients to understand 

25 such notice. 
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1 ‘‘(4) FORM AND MANNER OF NOTICES.—The 

2 notices required by this subsection shall be in writ3 ing, except that such notices may be in electronic or 

4 other form to the extent that such form is reason5 ably accessible to the applicable individual. 

6 ‘‘(5) DEFINITIONS.—For purposes of this sub7 section—

8 ‘‘(A) APPLICABLE INDIVIDUAL.—The term 

9 ‘applicable individual’ means—

10 ‘‘(i) any participant in the applicable 

11 pension plan, 

12 ‘‘(ii) any beneficiary who is an alter13 nate payee (within the meaning of section 

14 414(p)(8)) under a qualified domestic rela15 tions order (within the meaning of section 

16 414(p)(1)(A)), and 

17 ‘‘(iii) any beneficiary of a deceased 

18 participant or alternate payee. 

19 ‘‘(B) APPLICABLE PENSION PLAN.—The 

20 term ‘applicable pension plan’ means—

21 ‘‘(i) a plan described in clause (i), (ii), 

22 or (iv) of section 219(g)(5)(A), and 

23 ‘‘(ii) an eligible deferred compensation 

24 plan (as defined in section 457(b)) of an
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1 eligible employer described in section 

2 457(e)(1)(A), 

3 which permits any participant to direct the in4 vestment of some or all of his account in the 

5 plan or under which the accrued benefit of any 

6 participant depends in whole or in part on hy7 pothetical investments directed by the partici8 pant. Such term shall not include a one-partici9 pant retirement plan. 

10 ‘‘(C) ONE-PARTICIPANT RETIREMENT

11 PLAN DEFINED.—The term ‘one-participant re12 tirement plan’ means a retirement plan that—

13 ‘‘(i) on the first day of the plan 

14 year—

15 ‘‘(I) covered only the employer 

16 (and the employer’s spouse) and the 

17 employer owned the entire business 

18 (whether or not incorporated), or 

19 ‘‘(II) covered only one or more 

20 partners (and their spouses) in a busi21 ness partnership (including partners 

22 in an S or C corporation), 

23 ‘‘(ii) meets the minimum coverage re24 quirements of section 410(b) without being 

25 combined with any other plan of the busi-
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1 ness that covers the employees of the busi2 ness, 

3 ‘‘(iii) does not provide benefits to any4 one except the employer (and the employ5 er’s spouse) or the partners (and their 

6 spouses), 

7 ‘‘(iv) does not cover a business that is 

8 a member of an affiliated service group, a 

9 controlled group of corporations, or a 

10 group of businesses under common control, 

11 and 

12 ‘‘(v) does not cover a business that 

13 leases employees. 

14 ‘‘(6) CROSS REFERENCE.—For provisions relat15 ing to penalty for failure to provide the notice re16 quired by this subsection, see section 6652(m).’’. 

17 (b) PENALTY FOR FAILURE TO PROVIDE NOTICE.—

18 Section 6652 (relating to failure to file certain information 

19 returns, registration statements, etc.) is amended by re20 designating subsection (m) as subsection (n) and by in21 serting after subsection (1) the following new subsection: 

22 ‘‘(m) FAILURE TO PROVIDE INVESTMENT EDU23 CATION NOTICES TO PARTICIPANTS IN CERTAIN

24 PLANS.—In the case of each failure to provide a notice 

25 as required by section 414(w) with respect to an applicable 
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1 individual (as defined in such section), at the time pre2 scribed therefore, unless it is shown that such failure is 

3 due to reasonable cause and not to willful neglect, there 

4 shall be paid, on notice and demand of the Secretary and 

5 in the same manner as tax, by the person failing to provide 

6 such notice, an amount equal to $100 for each such fail7 ure, but the total amount imposed on such person for all 

8 such failures during any calendar year shall not exceed 

9 $500,000.’’.

10 (c) EFFECTIVE DATES.—

11 (1) IN GENERAL.—Except as provided in para12 graph (3), the amendments made by this section 

13 shall apply with respect to plan years beginning 

14 after December 31, 2003. 

15 (2) MODEL INVESTMENT PRINCIPLES.—Not 

16 later than the earlier of January 1, 2004, or 120 

17 days after the date of the enactment of this Act, the 

18 Secretary of the Treasury, in consultation with the 

19 Secretary of Labor, shall issue guidance and model 

20 notices which meet the requirements of section 

21 414(w) of the Internal Revenue Code of 1986 (as 

22 added by this section). 

23 (3) GOVERNMENTAL PLANS.—In the case of a 

24 governmental plan (as defined in section 414(d) of 

25 the Internal Revenue Code of 1986), the amend-
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1 ments made by this section shall apply with respect 

2 to plan years beginning after December 31, 2005.

3 SEC. 1102. NOTICE OF BLACKOUT PERIODS TO PARTICI4 PANT OR BENEFICIARY UNDER DEFINED 

5 CONTRIBUTION PLAN. 

6 (a) IN GENERAL.—Section 414 (relating to defini7 tions and special rules) (as amended by this Act) is 

8 amended by adding at the end the following: 

9 ‘‘(x) NOTICE OF BLACKOUT PERIODS TO PARTICI10 PANT OR BENEFICIARY UNDER APPLICABLE PENSION

11 PLAN.—

12 ‘‘(1) DUTIES OF PLAN ADMINISTRATOR.—In 

13 advance of the commencement of any blackout pe14 riod with respect to an applicable pension plan, the 

15 plan administrator shall notify the plan participants 

16 and beneficiaries who are affected by such action in 

17 accordance with this subsection. 

18 ‘‘(2) NOTICE REQUIREMENTS.—

19 ‘‘(A) IN GENERAL.—The notices described 

20 in paragraph (1) shall be written in a manner 

21 calculated to be understood by the average plan 

22 participant and shall include—

23 ‘‘(i) the reasons for the blackout pe24 riod, 
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1 ‘‘(ii) an identification of the invest2 ments and other rights affected, 

3 ‘‘(iii) the expected beginning date and 

4 length of the blackout period, 

5 ‘‘(iv) in the case of investments af6 fected, a statement that the participant or 

7 beneficiary should evaluate the appro8 priateness of their current investment deci9 sions in light of their inability to direct or 

10 diversify assets credited to their accounts 

11 during the blackout period, and 

12 ‘‘(v) such other matters as the Sec13 retary may require by regulation. 

14 ‘‘(B) NOTICE TO PARTICIPANTS AND

15 BENEFICIARIES.—Except as otherwise provided 

16 in this subsection, notices described in para17 graph (1) shall be furnished to all participants 

18 and beneficiaries under the plan to whom the 

19 blackout period applies at least 30 days in ad20 vance of the blackout period. 

21 ‘‘(C) EXCEPTION TO 30-DAY NOTICE RE22 QUIREMENT.—In any case in which—

23 ‘‘(i) a deferral of the blackout period 

24 would violate the requirements of subpara25 graph (A) or (B) of section 404(a)(1) of 
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1 the Employee Retirement Income Security 

2 Act of 1974, and a fiduciary of the plan 

3 reasonably so determines in writing, or 

4 ‘‘(ii) the inability to provide the 30-

5 day advance notice is due to events that 

6 were unforeseeable or circumstances be7 yond the reasonable control of the plan ad8 ministrator, and a fiduciary of the plan 

9 reasonably so determines in writing, 

10 subparagraph (B) shall not apply, and the no11 tice shall be furnished to all participants and 

12 beneficiaries under the plan to whom the black13 out period applies as soon as reasonably pos14 sible under the circumstances unless such a no15 tice in advance of the termination of the black16 out period is impracticable. 

17 ‘‘(D) WRITTEN NOTICE.—The notice re18 quired to be provided under this subsection 

19 shall be in writing, except that such notice may 

20 be in electronic or other form to the extent that 

21 such form is reasonably accessible to the recipi22 ent. 

23 ‘‘(E) NOTICE TO ISSUERS OF EMPLOYER

24 SECURITIES SUBJECT TO BLACKOUT PERIOD.—

25 In the case of any blackout period in connection
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1 with an applicable pension plan, the plan ad2 ministrator shall provide timely notice of such 

3 blackout period to the issuer of any employer 

4 securities subject to such blackout period. 

5 ‘‘(3) EXCEPTION FOR BLACKOUT PERIODS

6 WITH LIMITED APPLICABILITY.—In any case in 

7 which the blackout period applies only to 1 or more 

8 participants or beneficiaries in connection with a 

9 merger, acquisition, divestiture, or similar trans10 action involving the plan or plan sponsor and occurs 

11 solely in connection with becoming or ceasing to be 

12 a participant or beneficiary under the plan by reason 

13 of such merger, acquisition, divestiture, or trans14 action, the requirement of this subsection that the 

15 notice be provided to all participants and bene16 ficiaries shall be treated as met if the notice required 

17 under paragraph (1) is provided to such participants 

18 or beneficiaries to whom the blackout period applies 

19 as soon as reasonably practicable. 

20 ‘‘(4) CHANGES IN LENGTH OF BLACKOUT PE21 RIOD.—If, following the furnishing of the notice pur22 suant to this subsection, there is a change in the be23 ginning date or length of the blackout period (speci24 fied in such notice pursuant to paragraph 

25 (2)(A)(iii)), the administrator shall provide affected 
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1 participants and beneficiaries notice of the change as 

2 soon as reasonably practicable. In relation to the ex3 tended blackout period, such notice shall meet the 

4 requirements of paragraph (2)(D) and shall specify 

5 any material change in the matters referred to in 

6 clauses (i) through (v) of paragraph (2)(A). 

7 ‘‘(5) REGULATORY EXCEPTIONS.—The Sec8 retary may provide by regulation for additional ex9 ceptions to the requirements of this subsection which 

10 the Secretary determines are in the interests of par11 ticipants and beneficiaries. 

12 ‘‘(6) GUIDANCE AND MODEL NOTICES.—The 

13 Secretary shall issue guidance and model notices 

14 which meet the requirements of this subsection. 

15 ‘‘(7) BLACKOUT PERIOD.—For purposes of this 

16 subsection—

17 ‘‘(A) IN GENERAL.—The term ‘blackout 

18 period’ means, in connection with an applicable 

19 pension plan, any period for which any ability 

20 of participants or beneficiaries under the plan, 

21 which is otherwise available under the terms of 

22 such plan, to direct or diversify assets credited 

23 to their accounts, to obtain loans from the plan, 

24 or to obtain distributions from the plan is tem25 porarily suspended, limited, or restricted, if 
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1 such suspension, limitation, or restriction is for 

2 any period of more than 3 consecutive business 

3 days. 

4 ‘‘(B) EXCLUSIONS.—The term ‘blackout 

5 period’ does not include a suspension, limita6 tion, or restriction— 

7 ‘‘(i) which occurs by reason of the ap8 plication of the securities laws (as defined 

9 in section 3(a)(47) of the Securities Ex10 change Act of 1934), 

11 ‘‘(ii) which is a change to the plan 

12 which provides for a regularly scheduled 

13 suspension, limitation, or restriction which 

14 is disclosed to participants or beneficiaries 

15 through any summary of material modi16 fications, any materials describing specific 

17 investment alternatives under the plan, or 

18 any changes thereto, or 

19 ‘‘(iii) which applies only to 1 or more 

20 individuals, each of whom is the partici21 pant, an alternate payee (as defined in sec22 tion 414(p)(8), or any other beneficiary 

23 pursuant to a qualified domestic relations 

24 order (as defined in section 414(p)(1)(A)). 

25 ‘‘(8) APPLICABLE PENSION PLAN.—
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1 ‘‘(A) IN GENERAL.—For purposes of this 

2 subsection, the term ‘applicable pension plan’ 

3 means—

4 ‘‘(i) a plan described in clause (i), (ii), 

5 or (iv) of section 219(g)(5)(A), and 

6 ‘‘(ii) an eligible deferred compensation 

7 plan (as defined in section 457(b)) of an 

8 eligible employer described in section 

9 457(e)(1)(A), 

10 which maintains accounts for participants 

11 under the plan or under which the accrued ben12 efit of any participant depends in whole or in 

13 part on hypothetical investments directed by the 

14 participant. 

15 ‘‘(B) EXCEPTIONS.—Such term shall not 

16 include a one-participant retirement plan or a 

17 plan to which section 101(i) of the Employee 

18 Retirement Income Security Act of 1974 ap19 plies. 

20 ‘‘(C) ONE-PARTICIPANT RETIREMENT

21 PLAN.—For purposes of this paragraph, the 

22 term ‘one-participant retirement plan’ means a 

23 retirement plan that— 

24 ‘‘(i) on the first day of the plan 

25 year—
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1 ‘‘(I) covered only the employer 

2 (and the employer’s spouse) and the 

3 employer owned the entire business 

4 (whether or not incorporated), or 

5 ‘‘(II) covered only one or more 

6 partners (and their spouses) in a busi7 ness partnership (including partners 

8 in an S or C corporation (as defined 

9 in section 1361(a)), 

10 ‘‘(ii) meets the minimum coverage re11 quirements of section 410(b) (as in effect 

12 on the date of the enactment of the Sar13 banes-Oxley Act of 2002) without being 

14 combined with any other plan of the busi15 ness that covers the employees of the busi16 ness, 

17 ‘‘(iii) does not provide benefits to any18 one except the employer (and the employ19 er’s spouse) or the partners (and their 

20 spouses), 

21 ‘‘(iv) does not cover a business that is 

22 a member of an affiliated service group, a 

23 controlled group of corporations, or a 

24 group of businesses under common control, 

25 and 
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1 ‘‘(v) does not cover a business that 

2 leases employees.’’. 

3 ‘‘(9) CROSS REFERENCE.—For provisions relat4 ing to penalty for failure to provide the notice re5 quired by this section, see section 6652(n).’’. 

6 (b) PENALTY FOR FAILURE TO PROVIDE NOTICE.—

7 Section 6652 (relating to failure to file certain information 

8 returns, registration statements, etc.) (as amended by this 

9 Act) is amended by redesignating subsection (n) as sub10 section (o) and by inserting after subsection (m) the fol11 lowing new subsection: 

12 ‘‘(n) FAILURE TO PROVIDE BLACKOUT PERIOD NO13 TICE TO PARTICIPANTS OR BENEFICIARIES.—In the case 

14 of each failure to provide a notice as required by section 

15 414(x) with respect to a participant or beneficiary entitled 

16 to such a notice under such section, at the time prescribed 

17 therefor, unless it is shown that such failure is due to rea18 sonable cause and not to willful neglect, there shall be 

19 paid, on notice and demand of the Secretary and in the 

20 same manner as tax, by the person failing to provide such 

21 notice, an amount equal to $100 for such failure but the 

22 total amount imposed on such person for all such failures 

23 during any calendar year shall not exceed $500,000.’’. 

24 (c) PLAN AMENDMENTS.—If any amendment made 

25 by this subsection requires an amendment to any plan,
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1 such plan amendment shall not be required to be made 

2 before the third plan year beginning on or after the effec3 tive date of this section, if—

4 (1) during the period after such amendment 

5 made by this subsection takes effect and before such 

6 third plan year, the plan is operated in good faith 

7 compliance with the requirements of such amend8 ment made by this subsection, and 

9 (2) such plan amendment applies retroactively 

10 to the period after such amendment made by this 

11 subsection takes effect and before such third plan 

12 year. 

13 (d) EFFECTIVE DATE.—The provisions of this sec14 tion (including the amendments made thereby) shall take 

15 effect two years after the date of the enactment of this 

16 Act.

17 SEC. 1103. DIVERSIFICATION REQUIREMENTS FOR DE18 FINED CONTRIBUTION PLANS THAT HOLD 

19 EMPLOYER SECURITIES. 

20 (a) IN GENERAL.—Subsection (a) of section 401 (re21 lating to requirements for qualification) is amended by 

22 adding at the end the following new paragraph: 

23 ‘‘(35) DIVERSIFICATION REQUIREMENTS FOR

24 DEFINED CONTRIBUTION PLANS THAT HOLD EM25 PLOYER SECURITIES.—
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1 ‘‘(A) IN GENERAL.—In the case of a de2 fined contribution plan described in this sub3 section that includes a trust which is exempt 

4 from tax under section 501(a) and which holds 

5 employer securities that are readily tradable on 

6 an established securities market, such trust 

7 shall not constitute a qualified trust under this 

8 section unless such plan meets the requirements 

9 of subparagraphs (B), (C), and (D). 

10 ‘‘(B) ELECTIVE DEFERRALS AND EM11 PLOYEE CONTRIBUTIONS INVESTED IN EM12 PLOYER SECURITIES.—In the case of the por13 tion of the account attributable to elective de14 ferrals and employee contributions which is in15 vested in employer securities, a plan meets the 

16 requirements of this subparagraph if each ap17 plicable individual in such plan may elect to di18 rect the plan to divest up to the applicable per19 centage of such securities in the individual’s ac20 count and to reinvest an equivalent amount in 

21 other investment options which meet the re22 quirements of subparagraph (E). 

23 ‘‘(C) MATCHING AND CERTAIN OTHER

24 CONTRIBUTIONS.—
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1 ‘‘(i) IN GENERAL.—In the case of the 

2 portion of the account attributable to con3 tributions to which this subparagraph ap4 plies and which is invested in employer se5 curities, a plan meets the requirements of 

6 this subparagraph if each applicable 3-year 

7 individual in the plan may elect to direct 

8 the plan to divest up to the applicable per9 centage of such securities in the individ10 ual’s account and to reinvest an equivalent 

11 amount in other investment options which 

12 meet the requirements of subparagraph 

13 (E). 

14 ‘‘(ii) CONTRIBUTIONS TO WHICH THIS

15 SUBPARAGRAPH APPLIES.—This subpara16 graph shall apply to—

17 ‘‘(I) matching contributions (as 

18 defined in subsection (m)(4)(A)), 

19 ‘‘(II) qualified nonelective con20 tributions (as defined in subsection 

21 (m)(4)(C)), and 

22 ‘‘(III) contributions made in 

23 order to meet the requirements of 

24 subsection (k)(12)(C).
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1 ‘‘(iii) APPLICABLE 3-YEAR INDI2 VIDUAL.—For purposes of clause (i), the 

3 term ‘applicable 3-year individual’ means 

4 any individual who would be an applicable 

5 individual if only participants in the plan 

6 who have completed at least 3 years of 

7 service (as determined under section 

8 411(a)) were taken into account under 

9 subparagraph (G)(i)(I). 

10 ‘‘(D) OTHER EMPLOYER CONTRIBU11 TIONS.—

12 ‘‘(i) IN GENERAL.—In the case of the 

13 portion of the account attributable to em14 ployer contributions (other than contribu15 tions to which subparagraph (B) or (C) 

16 applies) which is invested in employer se17 curities, a plan meets the requirements of 

18 this subparagraph if each applicable 5-year 

19 individual described in clause (ii) may elect 

20 to direct the plan to divest up to the appli21 cable percentage of such securities in the 

22 individual’s account and to reinvest an 

23 equivalent amount in other investment op24 tions which meet the requirements of sub25 paragraph (E). 
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1 ‘‘(ii) APPLICABLE 5-YEAR INDI2 VIDUAL.—For purposes of clause (i), the 

3 term ‘5-year individual’ means any indi4 vidual who would be an applicable indi5 vidual if only participants in the plan who 

6 have completed at least 5 years of service 

7 (as determined under section 411(a)) were 

8 taken into account under subparagraph 

9 (G)(i)(I). 

10 ‘‘(E) INVESTMENT OPTIONS.—The require11 ments of this subparagraph are met if the plan 

12 offers not less than 3 investment options (not 

13 inconsistent with regulations prescribed by the 

14 Secretary) other than employer securities. 

15 ‘‘(F) ELECTION.—Elections under this 

16 paragraph maybe made not less frequently than 

17 quarterly. 

18 ‘‘(G) OTHER DEFINITIONS AND RULES.—

19 For purposes of this paragraph—

20 ‘‘(i) APPLICABLE INDIVIDUAL.—The 

21 term ‘applicable individual’ means—

22 ‘‘(I) any participant in the plan, 

23 ‘‘(II) any beneficiary who is an 

24 alternate payee (within the meaning 

25 of section 414(p)(8)) under an appli-
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1 cable qualified domestic relations 

2 order (within the meaning of section 

3 414(p)(1)(A)), and 

4 ‘‘(III) any beneficiary of a de5 ceased participant or alternate payee. 

6 ‘‘(ii) ELECTIVE DEFERRALS.—The 

7 term ‘elective deferrals’ means an employer 

8 contribution described in section 

9 402(g)(3)(A). 

10 ‘‘(iii) EMPLOYER SECURITIES.—The 

11 term ‘employer securities’ shall have the 

12 meaning given such term by section 

13 407(d)(1) of the Employee Retirement In14 come Security Act of 1974. 

15 ‘‘(iv) EMPLOYEE STOCK OWNERSHIP

16 PLAN.—The term ‘employee stock owner17 ship plan’ shall have the same meaning 

18 given to such term by section 4975(e)(7). 

19 ‘‘(v) APPLICABLE PERCENTAGE.—

20 ‘‘(I) IN GENERAL.—The applica21 ble percentage shall be as follows:

‘‘Plan years Applicable 

beginning in: percentage: 

2004 ................................................... 20

2005 ................................................... 40

2006 ................................................... 60

2007 ................................................... 80

2008 or thereafter .............................. 100.
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1 ‘‘(II) ELECTIVE DEFERRALS

2 TREATED AS SEPARATE PLAN NOT IN3 DIVIDUAL ACCOUNT PLAN.—In the 

4 case of elective deferrals and employee 

5 contributions (and any earnings allo6 cable thereto) held within a plan 

7 treated as a separate plan as of the 

8 date of the enactment of this para9 graph under section 407(b)(2) of the 

10 Employee Retirement Income Security 

11 Act of 1974, for purposes of subpara12 graph (B) the applicable percentage 

13 shall be 100 percent. 

14 ‘‘(III) CONTRIBUTIONS HELD

15 WITHIN AN ESOP.—In the case of con16 tributions (other than elective defer17 rals and employee contributions) held 

18 within an employee stock ownership 

19 plan, in the case of years 2004 and 

20 2005, the applicable percentage shall 

21 be the greater of the amount deter22 mined under subclause (I) or the per23 centage determined under paragraph 

24 (28) (determined as if paragraph (28) 
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1 applied to a plan described in this 

2 paragraph). 

3 ‘‘(vi) COORDINATION WITH PARA4 GRAPH (28).—Subparagraphs (B), (C), and 

5 (D) shall apply to the extent that the 

6 amount attributable to the applicable per7 centage under such subparagraph exceeds 

8 the amount to which a prior election under 

9 such subparagraph or paragraph (28) ap10 plies. 

11 ‘‘(H) EXCEPTION FOR CERTAIN ESOPS.—

12 This paragraph shall apply to an employee 

13 stock ownership plan only if the plan holds 

14 amounts attributable to deferrals or contribu15 tions to which subparagraph (B) or (C) apply.’’.

16 (b) CONFORMING AMENDMENTS.—

17 (1) Section 401(a)(28) is amended by adding at 

18 the end the following new subparagraph: 

19 ‘‘(D) APPLICATION.—This paragraph shall 

20 not apply to a plan to which paragraph (35) ap21 plies.’’. 

22 (2) Section 409(h)(7) is amended by inserting 

23 before the period at the end ‘‘or subparagraph (B), 

24 (C), or (D) of section 401(a)(35)’’. 
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1 (3) Section 4980(c)(3)(A) is amended by strik2 ing ‘‘if—’’ and all that follows and inserting ‘‘if the 

3 requirements of subparagraphs (B), (C), and (D) 

4 are met.’’. 

5 (c) EFFECTIVE DATE.—

6 (1) IN GENERAL.—Except as provided in para7 graph (2), the amendments made by this section 

8 shall apply to plan years beginning after December 

9 31, 2003.

10 (2) EXCEPTION.—The amendments made by 

11 this section shall not apply to employer securities 

12 held by an employee stock ownership plan which are 

13 not subject to section 401(a)(28) of the Internal 

14 Revenue Code of 1986 by reason of section 

15 1175(a)(2) of the Tax Reform Act of 1986 (100 

16 Stat. 2519). 

17 SEC. 1104. TREATMENT OF QUALIFIED RETIREMENT PLAN18 NING SERVICES. 

19 (a) IN GENERAL.—Subsection (m) of section 132 

20 (defining qualified retirement services) is amended by add21 ing at the end the following new paragraph: 

22 ‘‘(4) NO CONSTRUCTIVE RECEIPT.—No amount 

23 shall be included in the gross income of any em24 ployee solely because the employee may choose be25 tween any qualified retirement planning services pro-
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1 vided by a qualified investment advisor and com2 pensation which would otherwise be includible in the 

3 gross income of such employee. The preceding sen4 tence shall apply to highly compensated employees 

5 only if the choice described in such sentence is avail6 able on substantially the same terms to each mem7 ber of the group of employees normally provided 

8 education and information regarding the employer’s 

9 qualified employer plan.’’. 

10 (b) CONFORMING AMENDMENTS.—

11 (1) Section 403(b)(3)(B) is amended by insert12 ing ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

13 (2) Section 414(s)(2) is amended by inserting 

14 ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

15 (3) Section 415(c)(3)(D)(ii) is amended by in16 serting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

17 (c) EFFECTIVE DATE.—The amendment made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2003. 

20 SEC. 1105. SPECIAL RULES. 

21 In the case of a plan maintained pursuant to 1 or 

22 more collective bargaining agreements between employee 

23 representatives and 1 or more employers ratified on or be24 fore the date of the enactment of this Act, the amend-
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1 ments made by this title shall not apply to plan years be2 ginning before the earlier of—

3 (1) the later of—

4 (A) January 1, 2005, or 

5 (B) the date on which the last of such col6 lective bargaining agreements terminates (de7 termined without regard to any extension there8 of after the date of the enactment of this Act), 

9 or 

10 (2) January 1, 2006. 

11 TITLE XII—OTHER TAX PROVI12 SIONS RELATING TO PEN13 SIONS 

14 SEC. 1201. AMENDMENTS TO RETIREMENT PROTECTION 

15 ACT OF 1994. 

16 (a) TRANSITION RULE MADE PERMANENT.—Para17 graph (1) of section 769(c) of the Retirement Protection 

18 Act of 1994 is amended—

19 (1) by striking ‘‘transition’’ each place it ap20 pears in the heading and the text, and 

21 (2) by striking ‘‘for any plan year beginning 

22 after 1996 and before 2010’’. 

23 (b) SPECIAL RULES.—Paragraph (2) of section 

24 769(c) of the Retirement Protection Act of 1994 is amend25 ed to read as follows:
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1 ‘‘(2) SPECIAL RULES.—The rules described in 

2 this paragraph are as follows: 

3 ‘‘(A) For purposes of section 412(l)(9)(A) 

4 of the Internal Revenue Code of 1986 and sec5 tion 302(d)(9)(A) of the Employee Retirement 

6 Income Security Act of 1974, the funded cur7 rent liability percentage for any plan year shall 

8 be treated as not less than 90 percent. 

9 ‘‘(B) For purposes of section 412(m) of 

10 the Internal Revenue Code of 1986 and section 

11 302(e) of the Employee Retirement Income Se12 curity Act of 1974, the funded current liability 

13 percentage for any plan year shall be treated as 

14 not less than 100 percent. 

15 ‘‘(C) For purposes of determining un16 funded vested benefits under section 

17 4006(a)(3)(E)(iii) of the Employee Retirement 

18 Income Security Act of 1974, the mortality 

19 table shall be the mortality table used by the 

20 plan.’’. 

21 (c) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to plan years beginning after De23 cember 31, 2002. 
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1 SEC. 1202. REPORTING SIMPLIFICATION. 

2 (a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

3 OWNERS AND THEIR SPOUSES.—

4 (1) IN GENERAL.—The Secretary of the Treas5 ury and the Secretary of Labor shall modify the re6 quirements for filing annual returns with respect to 

7 one-participant retirement plans to ensure that such 

8 plans with assets of $250,000 or less as of the close 

9 of the plan year need not file a return for that year. 

10 (2) ONE-PARTICIPANT RETIREMENT PLAN DE11 FINED.—For purposes of this subsection, the term 

12 ‘‘one-participant retirement plan’’ means a retire13 ment plan that—

14 (A) on the first day of the plan year—

15 (i) covered only the employer (and the 

16 employer’s spouse) and the employer 

17 owned the entire business (whether or not 

18 incorporated); or 

19 (ii) covered only one or more partners 

20 (and their spouses) in a business partner21 ship (including partners in an S or C cor22 poration); 

23 (B) meets the minimum coverage require24 ments of section 410(b) of the Internal Revenue 

25 Code of 1986 without being combined with any 
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1 other plan of the business that covers the em2 ployees of the business; 

3 (C) does not provide benefits to anyone ex4 cept the employer (and the employer’s spouse) 

5 or the partners (and their spouses); 

6 (D) does not cover a business that is a 

7 member of an affiliated service group, a con8 trolled group of corporations, or a group of 

9 businesses under common control; and

10 (E) does not cover a business that leases 

11 employees. 

12 (3) OTHER DEFINITIONS.—Terms used in para13 graph (2) which are also used in section 414 of the 

14 Internal Revenue Code of 1986 shall have the re15 spective meanings given such terms by such section. 

16 (4) EFFECTIVE DATE.—The provisions of this 

17 subsection shall apply to plan years beginning on or 

18 after January 1, 2003. 

19 (b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

20 PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case 

21 of plan years beginning after December 31, 2004, the Sec22 retary of the Treasury and the Secretary of Labor shall 

23 provide for the filing of a simplified annual return for any 

24 retirement plan which covers less than 25 employees on 

25 the first day of a plan year and which meets the require-
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1 ments described in subparagraphs (B), (D), and (E) of 

2 subsection (a)(2). 

3 SEC. 1203. IMPROVEMENT OF EMPLOYEE PLANS COMPLI4 ANCE RESOLUTION SYSTEM. 

5 The Secretary of the Treasury shall continue to up6 date and improve the Employee Plans Compliance Resolu7 tion System (or any successor program) giving special at8 tention to—

9 (1) increasing the awareness and knowledge of 

10 small employers concerning the availability and use 

11 of the program; 

12 (2) taking into account special concerns and 

13 circumstances that small employers face with respect 

14 to compliance and correction of compliance failures; 

15 (3) extending the duration of the self-correction 

16 period under the Self-Correction Program for signifi17 cant compliance failures; 

18 (4) expanding the availability to correct insig19 nificant compliance failures under the Self-Correc20 tion Program during audit; and 

21 (5) assuring that any tax, penalty, or sanction 

22 that is imposed by reason of a compliance failure is 

23 not excessive and bears a reasonable relationship to 

24 the nature, extent, and severity of the failure. 
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1 The Secretary of the Treasury shall have full authority 

2 to effectuate the foregoing with respect to the Employee 

3 Plans Compliance Resolution System (or any successor 

4 program) and any other employee plans correction poli5 cies, including the authority to waive income, excise, or 

6 other taxes to ensure that any tax, penalty, or sanction 

7 is not excessive and bears a reasonable relationship to the 

8 nature, extent, and severity of the failure. 

9 SEC. 1204. EXTENSION TO ALL GOVERNMENTAL PLANS OF 

10 MORATORIUM ON APPLICATION OF CERTAIN 

11 NONDISCRIMINATION RULES APPLICABLE TO 

12 STATE AND LOCAL PLANS. 

13 (a) IN GENERAL.—

14 (1) Subparagraph (G) of section 401(a)(5) and 

15 subparagraph (H) of section 401(a)(26) are each 

16 amended by striking ‘‘section 414(d))’’ and all that 

17 follows and inserting ‘‘section 414(d)).’’. 

18 (2) Subparagraph (G) of section 401(k)(3) and 

19 paragraph (2) of section 1505(d) of the Taxpayer 

20 Relief Act of 1997 are each amended by striking 

21 ‘‘maintained by a State or local government or polit22 ical subdivision thereof (or agency or instrumentality 

23 thereof)’’. 

24 (b) CONFORMING AMENDMENTS.—
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1 (1) The heading for subparagraph (G) of sec2 tion 401(a)(5) is amended to read as follows: ‘‘GOV3 ERNMENTAL PLANS.—’’. 

4 (2) The heading for subparagraph (H) of sec5 tion 401(a)(26) is amended to read as follows: ‘‘EX6 CEPTION FOR GOVERNMENTAL PLANS.—’’. 

7 (3) Subparagraph (G) of section 401(k)(3) is 

8 amended by inserting ‘‘GOVERNMENTAL PLANS.—’’ 

9 after ‘‘(G)’’. 

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

11 this section shall apply to years beginning after December 

12 31, 2003. 

13 SEC. 1205. NOTICE AND CONSENT PERIOD REGARDING DIS14 TRIBUTIONS. 

15 (a) EXPANSION OF PERIOD.—

16 (1) AMENDMENT OF INTERNAL REVENUE

17 CODE.—

18 (A) IN GENERAL.—Subparagraph (A) of 

19 section 417(a)(6) is amended by striking ‘‘90-

20 day’’ and inserting ‘‘180-day’’. 

21 (B) MODIFICATION OF REGULATIONS.—

22 The Secretary of the Treasury shall modify the 

23 regulations under sections 402(f), 411(a)(11), 

24 and 417 of the Internal Revenue Code of 1986 

25 to substitute ‘‘180 days’’ for ‘‘90 days’’ each 
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1 place it appears in Treasury Regulations sec2 tions 1.402(f)–1, 1.411(a)–11(c), and 1.417(e)–

3 1(b). 

4 (2) EFFECTIVE DATE.—The amendment made 

5 by paragraph (1)(A) and the modifications required 

6 by paragraph (1)(B) shall apply to years beginning 

7 after December 31, 2003. 

8 (b) CONSENT REGULATION INAPPLICABLE TO CER9 TAIN DISTRIBUTIONS.—

10 (1) IN GENERAL.—The Secretary of the Treas11 ury shall modify the regulations under section 

12 411(a)(11) of the Internal Revenue Code of 1986 to 

13 provide that the description of a participant’s right, 

14 if any, to defer receipt of a distribution shall also de15 scribe the consequences of failing to defer such re16 ceipt. 

17 (2) EFFECTIVE DATE.—

18 (A) IN GENERAL.—The modifications re19 quired by paragraph (1) shall apply to years be20 ginning after December 31, 2003. 

21 (B) REASONABLE NOTICE.—In the case of 

22 any description of such consequences made be23 fore the date that is 90 days after the date on 

24 which the Secretary of the Treasury issues a 

25 safe harbor description under paragraph (1), a 
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1 plan shall not be treated as failing to satisfy the 

2 requirements of section 411(a)(11) of such 

3 Code by reason of the failure to provide the in4 formation required by the modifications made 

5 under paragraph (1) if the Administrator of 

6 such plan makes a reasonable attempt to com7 ply with such requirements. 

8 SEC. 1206. REDUCED PBGC PREMIUM FOR NEW PLANS OF 

9 SMALL EMPLOYERS. 

10 (a) IN GENERAL.—Subparagraph (A) of section 

11 4006(a)(3) of the Employee Retirement Income Security 

12 Act of 1974 (29 U.S.C. 1306(a)(3)(A)) is amended—

13 (1) in clause (i), by inserting ‘‘other than a new 

14 single-employer plan (as defined in subparagraph 

15 (F)) maintained by a small employer (as so de16 fined),’’ after ‘‘single-employer plan,’’, 

17 (2) in clause (iii), by striking the period at the 

18 end and inserting ‘‘, and’’, and 

19 (3) by adding at the end the following new 

20 clause: 

21 ‘‘(iv) in the case of a new single-employer plan 

22 (as defined in subparagraph (F)) maintained by a 

23 small employer (as so defined) for the plan year, $5 

24 for each individual who is a participant in such plan 

25 during the plan year.’’. 
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1 (b) DEFINITION OF NEW SINGLE-EMPLOYER

2 PLAN.—Section 4006(a)(3) of the Employee Retirement 

3 Income Security Act of 1974 (29 U.S.C. 1306(a)(3)) is 

4 amended by adding at the end the following new subpara5 graph: 

6 ‘‘(F)(i) For purposes of this paragraph, a single-em7 ployer plan maintained by a contributing sponsor shall be 

8 treated as a new single-employer plan for each of its first 

9 5 plan years if, during the 36-month period ending on the 

10 date of the adoption of such plan, the sponsor or any 

11 member of such sponsor’s controlled group (or any prede12 cessor of either) did not establish or maintain a plan to 

13 which this title applies with respect to which benefits were 

14 accrued for substantially the same employees as are in the 

15 new single-employer plan. 

16 ‘‘(ii)(I) For purposes of this paragraph, the term 

17 ‘small employer’ means an employer which on the first day 

18 of any plan year has, in aggregation with all members of 

19 the controlled group of such employer, 100 or fewer em20 ployees. 

21 ‘‘(II) In the case of a plan maintained by two or more 

22 contributing sponsors that are not part of the same con23 trolled group, the employees of all contributing sponsors 

24 and controlled groups of such sponsors shall be aggregated 
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1 for purposes of determining whether any contributing 

2 sponsor is a small employer.’’. 

3 (c) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to plans established after Decem5 ber 31, 2002. 

6 SEC. 1207. REDUCTION OF ADDITIONAL PBGC PREMIUM 

7 FOR NEW AND SMALL PLANS. 

8 (a) NEW PLANS.—Subparagraph (E) of section 

9 4006(a)(3) of the Employee Retirement Income Security 

10 Act of 1974 (29 U.S.C. 1306(a)(3)(E)) is amended by 

11 adding at the end the following new clause: 

12 ‘‘(v) In the case of a new defined benefit plan, the 

13 amount determined under clause (ii) for any plan year 

14 shall be an amount equal to the product of the amount 

15 determined under clause (ii) and the applicable percent16 age. For purposes of this clause, the term ‘applicable per17 centage’ means—

18 ‘‘(I) 0 percent, for the first plan year. 

19 ‘‘(II) 20 percent, for the second plan year. 

20 ‘‘(III) 40 percent, for the third plan year. 

21 ‘‘(IV) 60 percent, for the fourth plan year. 

22 ‘‘(V) 80 percent, for the fifth plan year. 

23 For purposes of this clause, a defined benefit plan (as de24 fined in section 3(35)) maintained by a contributing spon25 sor shall be treated as a new defined benefit plan for each
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1 of its first 5 plan years if, during the 36-month period 

2 ending on the date of the adoption of the plan, the sponsor 

3 and each member of any controlled group including the 

4 sponsor (or any predecessor of either) did not establish 

5 or maintain a plan to which this title applies with respect 

6 to which benefits were accrued for substantially the same 

7 employees as are in the new plan.’’. 

8 (b) SMALL PLANS.—Paragraph (3) of section 

9 4006(a) of the Employee Retirement Income Security Act 

10 of 1974 (29 U.S.C. 1306(a)), as amended by section 

11 207(b), is amended—

12 (1) by striking ‘‘The’’ in subparagraph (E)(i) 

13 and inserting ‘‘Except as provided in subparagraph 

14 (G), the’’, and 

15 (2) by inserting after subparagraph (F) the fol16 lowing new subparagraph: 

17 ‘‘(G)(i) In the case of an employer who has 25 or 

18 fewer employees on the first day of the plan year, the addi19 tional premium determined under subparagraph (E) for 

20 each participant shall not exceed $5 multiplied by the 

21 number of participants in the plan as of the close of the 

22 preceding plan year. 

23 ‘‘(ii) For purposes of clause (i), whether an employer 

24 has 25 or fewer employees on the first day of the plan 

25 year is determined taking into consideration all of the em-
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1 ployees of all members of the contributing sponsor’s con2 trolled group. In the case of a plan maintained by two 

3 or more contributing sponsors, the employees of all con4 tributing sponsors and their controlled groups shall be ag5 gregated for purposes of determining whether the 25-or6 fewer-employees limitation has been satisfied.’’. 

7 (c) EFFECTIVE DATES.—

8 (1) SUBSECTION (a).—The amendments made 

9 by subsection (a) shall apply to plans established 

10 after December 31, 2002. 

11 (2) SUBSECTION (b).—The amendments made 

12 by subsection (b) shall apply to plan years beginning 

13 after December 31, 2003. 

14 SEC. 1208. AUTHORIZATION FOR PBGC TO PAY INTEREST 

15 ON PREMIUM OVERPAYMENT REFUNDS. 

16 (a) IN GENERAL.—Section 4007(b) of the Employ17 ment Retirement Income Security Act of 1974 (29 U.S.C. 

18 1307(b)) is amended—

19 (1) by striking ‘‘(b)’’ and inserting ‘‘(b)(1)’’, 

20 and 

21 (2) by inserting at the end the following new 

22 paragraph: 

23 ‘‘(2) The corporation is authorized to pay, subject to 

24 regulations prescribed by the corporation, interest on the 

25 amount of any overpayment of premium refunded to a des-
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1 ignated payor. Interest under this paragraph shall be cal2 culated at the same rate and in the same manner as inter3 est is calculated for underpayments under paragraph 

4 (1).’’. 

5 (b) EFFECTIVE DATE.—The amendment made by 

6 subsection (a) shall apply to interest accruing for periods 

7 beginning not earlier than the date of the enactment of 

8 this Act. 

9 SEC. 1209. SUBSTANTIAL OWNER BENEFITS IN TERMI10 NATED PLANS. 

11 (a) MODIFICATION OF PHASE-IN OF GUARANTEE.—

12 Section 4022(b)(5) of the Employee Retirement Income 

13 Security Act of 1974 (29 U.S.C. 1322(b)(5)) is amended 

14 to read as follows: 

15 ‘‘(5)(A) For purposes of this paragraph, the term 

16 ‘majority owner’ means an individual who, at any time 

17 during the 60-month period ending on the date the deter18 mination is being made—

19 ‘‘(i) owns the entire interest in an unincor20 porated trade or business, 

21 ‘‘(ii) in the case of a partnership, is a partner 

22 who owns, directly or indirectly, 50 percent or more 

23 of either the capital interest or the profits interest 

24 in such partnership, or 
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1 ‘‘(iii) in the case of a corporation, owns, directly 

2 or indirectly, 50 percent or more in value of either 

3 the voting stock of that corporation or all the stock 

4 of that corporation. 

5 For purposes of clause (iii), the constructive ownership 

6 rules of section 1563(e) of the Internal Revenue Code of 

7 1986 shall apply (determined without regard to section 

8 1563(e)(3)(C)). 

9 ‘‘(B) In the case of a participant who is a majority 

10 owner, the amount of benefits guaranteed under this sec11 tion shall equal the product of—

12 ‘‘(i) a fraction (not to exceed 1) the numerator 

13 of which is the number of years from the later of the 

14 effective date or the adoption date of the plan to the 

15 termination date, and the denominator of which is 

16 10, and

17 ‘‘(ii) the amount of benefits that would be guar18 anteed under this section if the participant were not 

19 a majority owner.’’. 

20 (b) MODIFICATION OF ALLOCATION OF ASSETS.—

21 (1) Section 4044(a)(4)(B) of the Employee Re22 tirement Income Security Act of 1974 (29 U.S.C. 

23 1344(a)(4)(B)) is amended by striking ‘‘section 

24 4022(b)(5)’’ and inserting ‘‘section 4022(b)(5)(B)’’. 
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1 (2) Section 4044(b) of such Act (29 U.S.C. 

2 1344(b)) is amended—

3 (A) by striking ‘‘(5)’’ in paragraph (2) and 

4 inserting ‘‘(4), (5),’’, and 

5 (B) by redesignating paragraphs (3) 

6 through (6) as paragraphs (4) through (7), re7 spectively, and by inserting after paragraph (2) 

8 the following new paragraph: 

9 ‘‘(3) If assets available for allocation under 

10 paragraph (4) of subsection (a) are insufficient to 

11 satisfy in full the benefits of all individuals who are 

12 described in that paragraph, the assets shall be allo13 cated first to benefits described in subparagraph (A) 

14 of that paragraph. Any remaining assets shall then 

15 be allocated to benefits described in subparagraph 

16 (B) of that paragraph. If assets allocated to such 

17 subparagraph (B) are insufficient to satisfy in full 

18 the benefits described in that subparagraph, the as19 sets shall be allocated pro rata among individuals on 

20 the basis of the present value (as of the termination 

21 date) of their respective benefits described in that 

22 subparagraph.’’. 

23 (c) CONFORMING AMENDMENTS.—
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1 (1) Section 4021 of the Employee Retirement 

2 Income Security Act of 1974 (29 U.S.C. 1321) is 

3 amended—

4 (A) in subsection (b)(9), by striking ‘‘as 

5 defined in section 4022(b)(6)’’, and 

6 (B) by adding at the end the following new 

7 subsection: 

8 ‘‘(d) For purposes of subsection (b)(9), the term ‘sub9 stantial owner’ means an individual who, at any time dur10 ing the 60-month period ending on the date the determina11 tion is being made—

12 ‘‘(1) owns the entire interest in an unincor13 porated trade or business, 

14 ‘‘(2) in the case of a partnership, is a partner 

15 who owns, directly or indirectly, more than 10 per16 cent of either the capital interest or the profits inter17 est in such partnership, or 

18 ‘‘(3) in the case of a corporation, owns, directly 

19 or indirectly, more than 10 percent in value of either 

20 the voting stock of that corporation or all the stock 

21 of that corporation. 

22 For purposes of paragraph (3), the constructive ownership 

23 rules of section 1563(e) of the Internal Revenue Code of 

24 1986 shall apply (determined without regard to section 

25 1563(e)(3)(C)).’’. 
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1 (2) Section 4043(c)(7) of such Act (29 U.S.C. 

2 1343(c)(7)) is amended by striking ‘‘section 

3 4022(b)(6)’’ and inserting ‘‘section 4021(d)’’. 

4 (d) EFFECTIVE DATES.—

5 (1) IN GENERAL.—Except as provided in para6 graph (2), the amendments made by this section 

7 shall apply to plan terminations—

8 (A) under section 4041(c) of the Employee 

9 Retirement Income Security Act of 1974 (29 

10 U.S.C. 1341(c)) with respect to which notices 

11 of intent to terminate are provided under sec12 tion 4041(a)(2) of such Act (29 U.S.C. 

13 1341(a)(2)) after December 31, 2002, and 

14 (B) under section 4042 of such Act (29 

15 U.S.C. 1342) with respect to which proceedings 

16 are instituted by the corporation after such 

17 date. 

18 (2) CONFORMING AMENDMENTS.—The amend19 ments made by subsection (c) shall take effect on 

20 January 1, 2004. 

21 SEC. 1210. QUALIFIED GROUP LEGAL SERVICES PLANS. 

22 (a) IN GENERAL.—Subsection (e) of section 120 of 

23 the Internal Revenue Code of 1986 is amended to read 

24 as follows: 
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1 ‘‘(e) APPLICATION OF SECTION.—This section and 

2 section 501(c)(20) shall apply to taxable years begin3 ning—

4 ‘‘(1) after December 31, 1976, and before July 

5 1, 1992, and 

6 ‘‘(2) after December 31, 2003, and before Jan7 uary 1, 2009.’’. 

8 (b) INCREASE IN MAXIMUM EXCLUSION.—The last 

9 sentence of section 120(a) of such Code is amended by 

10 striking ‘‘$70’’ and inserting ‘‘$150’’. 

11 (c) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to taxable years beginning after 

13 December 31, 2003. 

14 SEC. 1211. STUDIES. 

15 (a) MODEL SMALL EMPLOYER GROUP PLANS

16 STUDY.—As soon as practicable after the date of the en17 actment of this Act, the Secretary of Labor, in consulta18 tion with the Secretary of the Treasury, shall conduct a 

19 study to determine—

20 (1) the most appropriate form or forms of—

21 (A) employee pension benefit plans which 

22 would—

23 (i) be simple in form and easily main24 tained by multiple small employers, and 
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1 (ii) provide for ready portability of 

2 benefits for all participants and bene3 ficiaries, 

4 (B) alternative arrangements providing 

5 comparable benefits which may be established 

6 by employee or employer associations, and 

7 (C) alternative arrangements providing 

8 comparable benefits to which employees may 

9 contribute in a manner independent of employer 

10 sponsorship, and 

11 (2) appropriate methods and strategies for 

12 making pension plan coverage described in para13 graph (1) more widely available to American work14 ers. 

15 (b) MATTERS TO BE CONSIDERED.—In conducting 

16 the study under subsection (a), the Secretary of Labor 

17 shall consider the adequacy and availability of existing em18 ployee pension benefit plans and the extent to which exist19 ing models may be modified to be more accessible to both 

20 employees and employers. 

21 (c) REPORT.—Not later than 18 months after the 

22 date of the enactment of this Act, the Secretary of Labor 

23 shall report the results of the study under subsection (a), 

24 together with the Secretary’s recommendations, to the 

25 Committee on Education and the Workforce and the Com-
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1 mittee on Ways and Means of the House of Representa2 tives and the Committee on Health, Education, Labor, 

3 and Pensions and the Committee on Finance of the Sen4 ate. Such recommendations shall include one or more 

5 model plans described in subsection (a)(1)(A) and model 

6 alternative arrangements described in subsections 

7 (a)(1)(B) and (a)(1)(C) which may serve as the basis for 

8 appropriate administrative or legislative action. 

9 (d) STUDY ON EFFECT OF LEGISLATION.—Not later 

10 than 5 years after the date of the enactment of this Act, 

11 the Secretary of Labor shall submit to the Committee on 

12 Education and the Workforce of the House of Representa13 tives and the Committee on Health, Education, Labor, 

14 and Pensions of the Senate a report on the effect of the 

15 provisions of this Act and title VI of the Economic Growth 

16 and Tax Relief Reconciliation Act of 2001 on pension plan 

17 coverage, including any change in—

18 (1) the extent of pension plan coverage for low 

19 and middle-income workers, 

20 (2) the levels of pension plan benefits generally, 

21 (3) the quality of pension plan coverage gen22 erally, 

23 (4) workers’ access to and participation in pen24 sion plans, and 

25 (5) retirement security.
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1 TITLE XIII—STOCK OPTIONS 

2 SEC. 1301. EXCLUSION OF INCENTIVE STOCK OPTIONS AND 

3 EMPLOYEE STOCK PURCHASE PLAN STOCK 

4 OPTIONS FROM WAGES. 

5 (a) EXCLUSION FROM EMPLOYMENT TAXES.—

6 (1) SOCIAL SECURITY TAXES.—

7 (A) Section 3121(a) (relating to definition 

8 of wages) is amended by striking ‘‘or’’ at the 

9 end of paragraph (20), by striking the period at 

10 the end of paragraph (21) and inserting ‘‘; or’’, 

11 and by inserting after paragraph (21) the fol12 lowing new paragraph: 

13 ‘‘(22) remuneration on account of—

14 ‘‘(A) a transfer of a share of stock to any 

15 individual pursuant to an exercise of an incen16 tive stock option (as defined in section 422(b)) 

17 or under an employee stock purchase plan (as 

18 defined in section 423(b)), or 

19 ‘‘(B) any disposition by the individual of 

20 such stock.’’. 

21 (B) Section 209(a) of the Social Security 

22 Act is amended by striking ‘‘or’’ at the end of 

23 paragraph (17), by striking the period at the 

24 end of paragraph (18) and inserting ‘‘; or’’, and 
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1 by inserting after paragraph (18) the following 

2 new paragraph: 

3 ‘‘(19) Remuneration on account of—

4 ‘‘(A) a transfer of a share of stock to any 

5 individual pursuant to an exercise of an incen6 tive stock option (as defined in section 422(b) 

7 of the Internal Revenue Code of 1986) or under 

8 an employee stock purchase plan (as defined in 

9 section 423(b) of such Code), or 

10 ‘‘(B) any disposition by the individual of 

11 such stock.’’. 

12 (2) RAILROAD RETIREMENT TAXES.—Sub13 section (e) of section 3231 is amended by adding at 

14 the end the following new paragraph: 

15 ‘‘(11) QUALIFIED STOCK OPTIONS.—The term 

16 ‘compensation’ shall not include any remuneration 

17 on account of—

18 ‘‘(A) a transfer of a share of stock to any 

19 individual pursuant to an exercise of an incen20 tive stock option (as defined in section 422(b)) 

21 or under an employee stock purchase plan (as 

22 defined in section 423(b)), or 

23 ‘‘(B) any disposition by the individual of 

24 such stock.’’. 
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1 (3) UNEMPLOYMENT TAXES.—Section 3306(b) 

2 (relating to definition of wages) is amended by strik3 ing ‘‘or’’ at the end of paragraph (16), by striking 

4 the period at the end of paragraph (17) and insert5 ing ‘‘; or’’, and by inserting after paragraph (17) the 

6 following new paragraph: 

7 ‘‘(18) remuneration on account of—

8 ‘‘(A) a transfer of a share of stock to any 

9 individual pursuant to an exercise of an incen10 tive stock option (as defined in section 422(b)) 

11 or under an employee stock purchase plan (as 

12 defined in section 423(b)), or 

13 ‘‘(B) any disposition by the individual of 

14 such stock.’’. 

15 (b) WAGE WITHHOLDING NOT REQUIRED ON DIS16 QUALIFYING DISPOSITIONS.—Section 421(b) (relating to 

17 effect of disqualifying dispositions) is amended by adding 

18 at the end the following new sentence: ‘‘No amount shall 

19 be required to be deducted and withheld under chapter 

20 24 with respect to any increase in income attributable to 

21 a disposition described in the preceding sentence.’’. 

22 (c) WAGE WITHHOLDING NOT REQUIRED ON COM23 PENSATION WHERE OPTION PRICE IS BETWEEN 85 PER24 CENT AND 100 PERCENT OF VALUE OF STOCK.—Section 

25 423(c) (relating to special rule where option price is be-
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1 tween 85 percent and 100 percent of value of stock) is 

2 amended by adding at the end the following new sentence: 

3 ‘‘No amount shall be required to be deducted and withheld 

4 under chapter 24 with respect to any amount treated as 

5 compensation under this subsection.’’. 

6 (d) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to stock acquired pursuant to op8 tions exercised after the date of the enactment of this Act. 

9 TITLE XIV—OTHER ELEMENTS 

10 OF RETIREMENT SECURITY 

11 SEC. 1401. EMPLOYEE PRE-TAX PAYMENTS FOR RETIREE 

12 HEALTH. 

13 (a) IN GENERAL.—Section 106 (relating to contribu14 tions by employer to accident and health plans) is amend15 ed by adding at the end the following new subsection: 

16 ‘‘(d) EMPLOYER-PROVIDED COVERAGE OF FORMER

17 EMPLOYEES.—

18 ‘‘(1) IN GENERAL.—Coverage under an accident 

19 or health plan maintained by an employer which is 

20 provided to a former employee of the employer shall 

21 be treated as employer-provided coverage under an 

22 accident or health plan for purposes of subsection 

23 (a) to the extent such coverage is paid for by the 

24 former employee pursuant to a qualified election. No 

25 amount shall be included in the gross income of any 
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1 former employee solely because the former employee 

2 may make the choice described in paragraph (3). 

3 ‘‘(2) APPLICABLE LIMITATION.—

4 ‘‘(A) IN GENERAL.—In the case of taxable 

5 years beginning before January 1, 2010, the 

6 amount of benefits under an eligible retirement 

7 plan (as defined in clauses (iii), (iv), (v), and 

8 (vi) of section 402(c)(8)(B)) of an employer 

9 which may be excluded from the gross income 

10 of an individual by reason of paragraph (1) 

11 shall not exceed the applicable limitation. 

12 ‘‘(B) APPLICABLE LIMITATION.—For pur13 poses of subparagraph (A), the applicable limi14 tation shall be determined in accordance with 

15 the following table:

The applicable 

‘‘For taxable years beginning in: limitation is: 

2004 and 2005 ......................................................................... $500

2006 and 2007 ......................................................................... $1,000

2008 and 2009 ......................................................................... $2,000.

16 ‘‘(3) QUALIFIED ELECTION.—For purposes of 

17 paragraph (1), a qualified election is an election 

18 made by the former employee to have benefits other19 wise payable to the former employee under an eligi20 ble retirement plan (as defined in clauses (iii), (iv), 

21 (v), and (vi) of section 402(c)(8)(B)) (or under an 

22 annuity contract distributed by such a plan) used to 

23 pay for coverage described in paragraph (1).
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1 ‘‘(4) SPECIAL RULES.—For purposes of this 

2 subsection—

3 ‘‘(A) all eligible retirement plans of an em4 ployer shall be treated as a single plan, and 

5 ‘‘(B) with respect to an eligible retirement 

6 plan of an employer, a beneficiary or alternate 

7 payee (as defined in section 414(p)(8)) of a 

8 former employee shall be treated in the same 

9 manner as the former employee. 

10 ‘‘(5) TREATMENT AS DISTRIBUTION.—For pur11 poses of this title, any payment under this sub12 section from an eligible retirement plan for coverage 

13 under an accident or health plan on behalf of a 

14 former employee shall be treated as a distribution 

15 from the eligible retirement plan to the former em16 ployee, except to the extent that such treatment is 

17 inconsistent with this subsection. Such a payment 

18 shall be treated as a permissible distribution from 

19 the eligible retirement plan to the former employee 

20 to the same extent that a cash distribution to the 

21 former employee would be permissible.’’. 

22 (b) CONFORMING AMENDMENT.—The portion of sub23 section (h) of section 401 that precedes section 401(h)(1) 

24 is amended by striking ‘‘but only if’’ and inserting ‘‘but 
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1 only if provided pursuant to a qualified election described 

2 in section 106(d) or if’’. 

3 (c) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to amounts paid for coverage under 

5 an accident health plan in years beginning after December 

6 31, 2003. 

7 SEC. 1402. ENCOURAGING EMPLOYERS TO MAINTAIN RE8 TIREE HEALTH PLANS. 

9 (a) IN GENERAL.—The first sentence of subsection 

10 (h) of section 401 (relating to medical, etc., benefits for 

11 retired employees and their spouses and dependents) is 

12 amended by striking ‘‘pension or annuity plan’’ and insert13 ing ‘‘pension, annuity, profit-sharing, or stock bonus 

14 plan’’. 

15 (b) PHASE-IN OF PERMISSIBLE CONTRIBUTIONS

16 FROM PROFIT-SHARING AND STOCK BONUS PLANS.—

17 Subsection (h) of section 401 (relating to medical, etc., 

18 benefits for retired employees and their spouses and de19 pendents) is amended by adding at the end the following 

20 new sentence: ‘‘For purposes of the preceding sentence, 

21 in the case of contributions to a profit-sharing or stock 

22 bonus plan for plan years before plan years beginning in 

23 2010, the ‘applicable percentage’ shall be substituted for 

24 ‘25 percent’, and the term ‘applicable percentage’ means 

25 5 percent for plan years beginning in 2004 and 2005, 10 
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1 percent for plan years beginning in 2006 and 2007, and 

2 20 percent for plan years beginning in 2008 and 2009.’’. 

3 (c) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to years beginning after December 

5 31, 2003.

6 TITLE XV—REDUCING 

7 REGULATORY BURDENS 

8 SEC. 1501. PROVISIONS RELATING TO PLAN AMENDMENTS. 

9 (a) IN GENERAL.—If this section applies to any plan 

10 or contract amendment—

11 (1) such plan or contract shall be treated as 

12 being operated in accordance with the terms of the 

13 plan during the period described in subsection 

14 (b)(2)(A), and 

15 (2) except as provided by the Secretary of the 

16 Treasury, such plan shall not fail to meet the re17 quirements of section 411(d)(6) of the Internal Rev18 enue Code of 1986 and section 204(g) of the Em19 ployee Retirement Income Security Act of 1974 by 

20 reason of such amendment. 

21 (b) AMENDMENTS TO WHICH SECTION APPLIES.—

22 (1) IN GENERAL.—This section shall apply to 

23 any amendment to any plan or annuity contract 

24 which is made—
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1 (A) pursuant to any amendment made by 

2 this Act or title VI of the Economic Growth and 

3 Tax Relief Reconciliation Act of 2001, or pur4 suant to any regulation issued by the Secretary 

5 of the Treasury or the Secretary of Labor 

6 under this Act or such title VI, and 

7 (B) on or before the last day of the first 

8 plan year beginning on or after January 1, 

9 2006. 

10 In the case of a governmental plan (as defined in 

11 section 414(d) of the Internal Revenue Code of 

12 1986), this paragraph shall be applied by sub13 stituting ‘‘2008’’ for ‘‘2006’’. 

14 (2) CONDITIONS.—This section shall not apply 

15 to any amendment unless—

16 (A) during the period—

17 (i) beginning on the date the legisla18 tive or regulatory amendment described in 

19 paragraph (1)(A) takes effect (or in the 

20 case of a plan or contract amendment not 

21 required by such legislative or regulatory 

22 amendment, the effective date specified by 

23 the plan), and 

24 (ii) ending on the date described in 

25 paragraph (1)(B) (or, if earlier, the date 
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1 the plan or contract amendment is adopt2 ed), 

3 the plan or contract is operated as if such plan 

4 or contract amendment were in effect; and 

5 (B) such plan or contract amendment ap6 plies retroactively for such period. 

7 TITLE XVI—SOCIAL SECURITY 

8 AND MEDICARE HELD HARM9 LESS 

10 SEC. 1601. PROTECTION OF SOCIAL SECURITY AND MEDI11 CARE. 

12 The amounts transferred to any trust fund under the 

13 Social Security Act shall be determined as if this Act had 

14 not been enacted.

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