I 

108TH CONGRESS 

1ST SESSION H. R. 2101

To provide additional protections for participants and beneficiaries under 

employee pension benefit plans. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 14, 2003

Mr. GEORGE MILLER of California (for himself, Ms. DELAURO, Mr. KILDEE, 

Mr. BISHOP of New York, Mr. GRIJALVA, Mr. RYAN of Ohio, Mr. 

KUCINICH, Mr. OWENS, Mr. TIERNEY, Ms. MCCOLLUM, Mr. DAVIS of Illinois, Mr. CASE, Mr. PAYNE, Mr. BELL, Mr. LYNCH, Ms. BALDWIN, 

Mrs. MALONEY, Mr. MEEHAN, Mr. SCOTT of Georgia, Mr. STARK, Ms. 

WOOLSEY, Ms. LEE, Ms. SOLIS, Mr. BLUMENAUER, Mr. BROWN of Ohio, 

Mr. FARR, Mr. VAN HOLLEN, Ms. NORTON, Mr. MILLER of North Carolina, Ms. SCHAKOWSKY, and Ms. ROYBAL-ALLARD) introduced the following bill; which was referred to the Committee on Education and the 

Workforce, and in addition to the Committees on Ways and Means, the 

Judiciary, and Financial Services, 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 provide additional protections for participants and 

beneficiaries under employee pension benefit plans.

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 AND TABLE OF CONTENTS. 

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

5 ‘‘Pension Fairness Act of 2003’’. 
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1 (b) TABLE OF CONTENTS.—The table of contents is 

2 as follows:

Sec. 1. Short title and table of contents. 

TITLE I—IMPROVEMENTS IN DISCLOSURE 

Sec. 101. Pension benefit information. 

Sec. 102. Immediate warning of excessive stock holdings. 

Sec. 103. Report to participants and beneficiaries of trades in employer securities. 

Sec. 104. Enforcement of information and disclosure requirements. 

Sec. 105. Revision of accounting standard required. 

TITLE II—FREEDOM TO MAKE INVESTMENT DECISIONS WITH 

PLAN ASSETS. 

Sec. 201. Amendments to the Internal Revenue Code of 1986. 

Sec. 202. Amendments to the Employee Retirement Income Security Act of 

1974. 

Sec. 203. Recommendations relating to non-publicly traded stock. 

Sec. 204. Effective date of title. 

TITLE III—EMPLOYEE REPRESENTATION 

Sec. 301. Participation of participants in trusteeship of individual account 

plans. 

TITLE IV—INCREASED ACCOUNTABILITY 

Sec. 401. Bonding or insurance adequate to protect interest of participants and 

beneficiaries. 

Sec. 402. Liability for breach of fiduciary duty. 

Sec. 403. Preservation of rights or claims. 

Sec. 404. Office of pension participant advocacy. 

Sec. 405. Study regarding insurance system for individual account plans. 

Sec. 406. Excise tax on failure of pension plans to provide notice of transaction 

restriction periods. 

TITLE V—INVESTMENT ADVICE FOR PARTICIPANTS AND 

BENEFICIARIES 

Sec. 501. Independent investment advice. 

Sec. 502. Tax treatment of qualified retirement planning services. 

TITLE VI—PARITY IN EMPLOYEE BENEFITS 

Sec. 601. Inclusion in gross income of funded deferred compensation of corporate insiders if corporation funds defined contribution plan 

with employer stock. 

Sec. 602. Performance-based compensation exception to $1,000,000 limitation 

on deductible compensation not to apply in certain cases. 

TITLE VII—PROTECTION OF RETIREMENT EXPECTATIONS 

Sec. 701. Protection of participants from conversions to hybrid defined benefit 

plans. 
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TITLE VIII—TREATMENT OF CORPORATE INSIDERS 

Sec. 801. Special rules for executive perks and retirement benefits. 

Sec. 802. Golden parachute excise tax to apply to deferred compensation paid 

by corporation after major decline in stock value or corporation 

declares bankruptcy. 

Sec. 803. Adequate disclosure regarding executive compensation packages. 

TITLE IX—ADDITIONAL PROTECTIONS FOR EMPLOYEES OF 

BANKRUPT EMPLOYERS 

Sec. 901. Avoidance of certain transfers; alternate prosecution of action. 

Sec. 902. Limitation on retention bonuses, severance pay, and certain other 

payments. 

Sec. 903. Priorities. 

Sec. 904. Effective date of title. 

TITLE X—MISCELLANEOUS PROVISIONS 

Sec. 1001. Corporate deduction for reinvested ESOP dividends subject to deductible limits. 

Sec. 1002. Credit for elective deferrals and IRA contributions by certain individuals made permanent (saver’s tax credit). 

TITLE XI—GENERAL PROVISIONS 

Sec. 1101. General effective date. 

Sec. 1102. Plan amendments.

1 TITLE I—IMPROVEMENTS IN 

2 DISCLOSURE 

3 SEC. 101. PENSION BENEFIT INFORMATION. 

4 (a) PENSION BENEFIT STATEMENTS REQUIRED ON

5 PERIODIC BASIS.—

6 (1) IN GENERAL.—Subsection (a) of section 

7 105 of the Employee Retirement Income Security 

8 Act of 1974 (29 U.S.C. 1025) is amended— 

9 (A) by striking ‘‘shall furnish to any plan 

10 participant or beneficiary who so requests in 

11 writing,’’ and inserting ‘‘shall furnish at least 

12 once every 3 years, in the case of a participant 

13 in a defined benefit plan who has attained age 
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1 35, and annually, in the case of an individual 

2 account plan, to each plan participant, and 

3 shall furnish to any plan participant or bene4 ficiary who so requests,’’, and 

5 (B) by adding at the end the following 

6 flush sentence: 

7 ‘‘Information furnished under the preceding sentence to 

8 a participant in a defined benefit plan (other than at the 

9 request of the participant) may be based on reasonable 

10 estimates determined under regulations prescribed by the 

11 Secretary.’’. 

12 (2) MODEL STATEMENT.—Section 105 of such 

13 Act (29 U.S.C. 1025) is amended by adding at the 

14 end the following new subsection: 

15 ‘‘(e)(1) The Secretary of Labor shall develop a model 

16 benefit statement which shall be used by plan administra17 tors in complying with the requirements of subsection (a). 

18 Such statement shall include—

19 ‘‘(A) the amount of nonforfeitable accrued ben20 efits as of the statement date which is payable at 

21 normal retirement age under the plan, 

22 ‘‘(B) the amount of accrued benefits which are 

23 forfeitable but which may become nonforfeitable 

24 under the terms of the plan, 
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1 ‘‘(C) the amount or percentage of any reduction 

2 due to integration of the benefit with the partici3 pant’s Social Security benefits or similar govern4 mental benefits, 

5 ‘‘(D) information on early retirement benefit 

6 and joint and survivor annuity reductions, 

7 ‘‘(E) in the case of an individual account plan, 

8 the percentage of the net return on investment of 

9 plan assets for the preceding plan year (or, with re10 spect to investments directed by the participant, the 

11 net return on investment of plan assets for such 

12 year so directed), itemized with respect to each type 

13 of investment, and, stated separately, the adminis14 trative and transaction fees incurred in connection 

15 with each such type of investment, and 

16 ‘‘(F) in the case of an individual account plan, 

17 the amount and percentage of assets in the indi18 vidual account that consists of employer securities 

19 and employer real property (as defined in para20 graphs (1) and (2), respectively, of section 407(d)), 

21 as determined as of the most recent valuation date 

22 of the plan. 

23 ‘‘(2) The Secretary shall also develop a separate no24 tice, which shall be included by the plan administrator 

25 with the information furnished pursuant to subsection (a), 
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1 which advises participants and beneficiaries of generally 

2 accepted investment principles, including principles of risk

3 management and diversification for long-term retirement 

4 security and the risks of holding substantial assets in a 

5 single asset such as employer securities.’’. 

6 (3) RULE FOR MULTIEMPLOYER PLANS.—Sub7 section (d) of section 105 of such Act (29 U.S.C. 

8 1025) is amended to read as follows: 

9 ‘‘(d) Each administrator of a plan to which more than 

10 1 unaffiliated employer is required to contribute shall fur11 nish to any plan participant or beneficiary who so requests 

12 in writing, a statement described in subsection (a).’’. 

13 (b) DISCLOSURE OF BENEFIT CALCULATIONS.—

14 (1) IN GENERAL.—Section 105 of such Act (as 

15 amended by subsection (a)) is amended further—

16 (A) by redesignating subsections (b), (c), 

17 (d), and (e) as subsections (c), (d), (e), and (f), 

18 respectively; and 

19 (B) by inserting after subsection (a) the 

20 following new subsection: 

21 ‘‘(b)(1) In the case of a participant or beneficiary who 

22 is entitled to a distribution of a benefit under an employee 

23 pension benefit plan, the administrator of such plan shall 

24 provide to the participant or beneficiary the information 
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1 described in paragraph (2) upon the written request of 

2 the participant or beneficiary. 

3 ‘‘(2) The information described in this paragraph in4 cludes—

5 ‘‘(A) a worksheet explaining how the amount of 

6 the distribution was calculated and stating the as7 sumptions used for such calculation, 

8 ‘‘(B) upon written request of the participant or 

9 beneficiary, any documents relating to the calcula10 tion (if available), and 

11 ‘‘(C) such other information as the Secretary 

12 may prescribe.

13 Any information provided under this paragraph shall be 

14 in a form calculated to be understood by the average plan 

15 participant.’’. 

16 (2) CONFORMING AMENDMENTS.—

17 (A) Section 101(a)(2) of such Act (29 

18 U.S.C. 1021(a)(2)) is amended by striking 

19 ‘‘105(a) and (c)’’ and inserting ‘‘105(a), (b), 

20 and (d)’’. 

21 (B) Section 105(c) of such Act (as redesig22 nated by paragraph (1)(A) of this subsection) is 

23 amended by inserting ‘‘or (b)’’ after ‘‘subsection 

24 (a)’’. 
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1 (C) Section 106(b) of such Act (29 U.S.C. 

2 1026(b)) is amended by striking ‘‘sections 

3 105(a) and 105(c)’’ and inserting ‘‘subsections 

4 (a), (b), and (d) of section 105’’.

5 (c) AMENDMENTS TO INTERNAL REVENUE CODE OF

6 1986.—

7 (1) IN GENERAL.—Chapter 43 of the Internal 

8 Revenue Code of 1986 (relating to qualified pension, 

9 etc., plans) is amended by adding at the end the fol10 lowing new section: 

11 ‘‘SEC. 4980G. FAILURE OF APPLICABLE PLANS TO PROVIDE 

12 NOTICE OF GENERALLY ACCEPTED INVEST13 MENT PRINCIPLES. 

14 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed 

15 a tax on the failure of any applicable pension plan to meet 

16 the requirements of subsection (e) with respect to any ap17 plicable individual. 

18 ‘‘(b) AMOUNT OF TAX.—The amount of the tax im19 posed by subsection (a) on any failure with respect to any 

20 applicable individual shall be $100 for each day in the 

21 noncompliance period with respect to such failure. 

22 ‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

23 ‘‘(1) TAX NOT TO APPLY TO FAILURES COR24 RECTED WITHIN 30 DAYS.—No tax shall be imposed 

25 by subsection (a) on any failure if—
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1 ‘‘(A) any person subject to liability for the 

2 tax under subsection (d) exercised reasonable 

3 diligence to meet the requirements of subsection 

4 (e), and 

5 ‘‘(B) such person provides the notice de6 scribed in subsection (e) during the 30-day pe7 riod beginning on the first date such person 

8 knew, or exercising reasonable diligence should 

9 have known, that such failure existed. 

10 ‘‘(2) OVERALL LIMITATION FOR UNINTEN11 TIONAL FAILURES.—

12 ‘‘(A) IN GENERAL.—If the person subject 

13 to liability for tax under subsection (d) exer14 cised reasonable diligence to meet the require15 ments of subsection (e) and paragraph (1) is 

16 not otherwise applicable, the tax imposed by 

17 subsection (a) for failures during the taxable 

18 year of the employer (or, in the case of a multi19 employer plan, the taxable year of the trust 

20 forming part of the plan) shall not exceed 

21 $500,000. For purposes of the preceding sen22 tence, all multiemployer plans of which the 

23 same trust forms a part shall be treated as 1 

24 plan. 
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1 ‘‘(B) TAXABLE YEARS IN THE CASE OF

2 CERTAIN CONTROLLED GROUPS.—For purposes 

3 of this paragraph, if all persons who are treated 

4 as a single employer for purposes of this section 

5 do not have the same taxable year, the taxable 

6 years taken into account shall be determined 

7 under principles similar to the principles of sec8 tion 1561. 

9 ‘‘(3) WAIVER BY SECRETARY.—In the case of a 

10 failure which is due to reasonable cause and not to 

11 willful neglect, the Secretary may waive part or all 

12 of the tax imposed by subsection (a) to the extent 

13 that the payment of such tax would be excessive or 

14 otherwise inequitable relative to the failure involved. 

15 ‘‘(d) LIABILITY FOR TAX.—The following shall be lia16 ble for the tax imposed by subsection (a): 

17 ‘‘(1) In the case of a plan other than a multi18 employer plan, the employer. 

19 ‘‘(2) In the case of a multiemployer plan, the 

20 plan. 

21 ‘‘(e) NOTICE OF GENERALLY ACCEPTED INVEST22 MENT PRINCIPLES.—

23 ‘‘(1) IN GENERAL.—The plan administrator of 

24 an applicable pension plan shall provide notice of 

25 generally accepted investment principles, including 
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1 principles of risk management and diversification, to 

2 each applicable individual.

3 ‘‘(2) NOTICE.—The notice required by para4 graph (1) shall be written in a manner calculated to 

5 be understood by the average plan participant and 

6 shall provide sufficient information (as determined 

7 in accordance with rules or other guidance adopted 

8 by the Secretary) to allow applicable individuals to 

9 understand generally accepted investment principles, 

10 including principles of risk management and diver11 sification. 

12 ‘‘(3) TIMING OF NOTICE.—The notice required 

13 by paragraph (1) shall be provided upon enrollment 

14 of the applicable individual in such plan and at least 

15 once per plan year thereafter. 

16 ‘‘(4) FORM AND MANNER OF NOTICE.—The no17 tice required by paragraph (1) shall be in writing, 

18 except that such notice may be in electronic or other 

19 form to the extent that such form is reasonably ac20 cessible to the applicable individual. 

21 ‘‘(f ) DEFINITIONS AND SPECIAL RULES.—For pur22 poses of this section—

23 ‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘ap24 plicable individual’ means with respect to an applica25 ble pension plan—
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1 ‘‘(A) any participant in the applicable pen2 sion plan, 

3 ‘‘(B) any beneficiary who is an alternate 

4 payee (within the meaning of section 414(p)(8)) 

5 under an applicable qualified domestic relations 

6 order (within the meaning of section 

7 414(p)(1)(A)), and 

8 ‘‘(C) any beneficiary of a deceased partici9 pant or alternate payee described in subpara10 graph (A) or (B), as the case may be, 

11 who has an accrued benefit under the plan and who 

12 is entitled to direct the investment (or hypothetical 

13 investment) of some or all of such accrued benefit. 

14 ‘‘(2) APPLICABLE PENSION PLAN.—The term 

15 ‘applicable pension plan’ means—

16 ‘‘(A) a plan described in section 

17 219(g)(5)(A) (other than in clause (iii) thereof), 

18 and 

19 ‘‘(B) an eligible deferred compensation 

20 plan (as defined in section 457(b)) of an eligible 

21 employer described in section 457(e)(1)(A), 

22 which permits any participant to direct the invest23 ment of some or all of his account in the plan or 

24 under which the accrued benefit of any participant 
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1 depends in whole or in part on hypothetical invest2 ments directed by the participant.’’. 

3 (2) CLERICAL AMENDMENT.—The table of sec4 tions for chapter 43 of such Code is amended by 

5 adding at the end the following new item:

‘‘Sec. 4980G. Failure of applicable plans to provide notice of generally accepted investment principles.’’.

6 (3) EFFECTIVE DATE.—

7 (A) IN GENERAL.—The amendments made 

8 by this subsection shall take effect 60 days 

9 after the adoption of rules or other guidance to 

10 carry out the amendments made by this sub11 section, which shall include a model notice of 

12 generally accepted investment principles, includ13 ing principles of risk management and diver14 sification. 

15 (B) MODEL INVESTMENT PRINCIPLES.—

16 For purposes of subparagraph (A), not later 

17 than 120 days after the date of the enactment 

18 of this Act, the Secretary of the Treasury, in 

19 consultation with the Secretary of Labor, shall 

20 issue rules or other guidance and a model no21 tice which meets the requirements of section 

22 4980G of the Internal Revenue Code of 1986 

23 (as added by this section).
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1 SEC. 102. IMMEDIATE WARNING OF EXCESSIVE STOCK 

2 HOLDINGS. 

3 Section 105 of the Employee Retirement Income Se4 curity Act of 1974 (29 U.S.C. 1025) (as amended by sec5 tion 101 of this Act) is amended further by adding at the 

6 end the following new subsection: 

7 ‘‘(g)(1) Upon receipt of information by the plan ad8 ministrator of an individual account plan indicating that 

9 the individual account of any participant which had not 

10 been excessively invested in employer securities is exces11 sively invested in such securities (or that such account, 

12 as initially invested, is excessively invested in employer se13 curities), the plan administrator shall immediately provide 

14 to the participant a separate, written statement—

15 ‘‘(A) indicating that the participant’s account 

16 has become excessively invested in employer securi17 ties, 

18 ‘‘(B) setting forth the notice described in sub19 section (e)(7), and 

20 ‘‘(C) referring the participant to investment 

21 education materials and investment advice which 

22 shall be made available by or under the plan. 

23 In any case in which such a separate, written statement 

24 is required to be provided to a participant under this para25 graph, each statement issued to such participant pursuant 

26 to subsection (a) thereafter shall also contain such sepa-
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1 rate, written statement until the plan administrator is 

2 made aware that such participant’s account has ceased to 

3 be excessively invested in employer securities or the em4 ployee, in writing, waives the receipt of the notice and ac5 knowledges understanding the importance of diversifica6 tion. 

7 ‘‘(2) Each notice required under this subsection shall 

8 be provided in a form and manner which shall be pre9 scribed in regulations of the Secretary. Such regulations 

10 shall provide for inclusion in the notice a prominent ref11 erence to the risks of large losses in assets available for 

12 retirement from excessive investment in employer securi13 ties. 

14 ‘‘(3) For purposes of paragraph (1), a participant’s 

15 account is ‘excessively invested’ in employer securities if 

16 more than 10 percent of the balance in such account is 

17 invested in employer securities (as defined in section 

18 407(d)(1)).’’.

19 SEC. 103. REPORT TO PARTICIPANTS AND BENEFICIARIES 

20 OF TRADES IN EMPLOYER SECURITIES. 

21 (a) IN GENERAL.—Section 104 of the Employee Re22 tirement Income Security Act of 1974 (29 U.S.C. 1024) 

23 is amended—

24 (1) by redesignating subsection (d) as sub25 section (e); and
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1 (2) by inserting after subsection (c) the fol2 lowing new subsection: 

3 ‘‘(d)(1) In any case in which assets in the individual 

4 account of a participant or beneficiary under an individual 

5 account plan include employer securities, if any person en6 gages in a transaction constituting a direct or indirect 

7 purchase or sale of employer securities and—

8 ‘‘(A) such transaction is required under section 

9 16 of the Securities Exchange Act of 1934 to be re10 ported by such person to the Securities and Ex11 change Commission, or 

12 ‘‘(B) such person is a named fiduciary of the 

13 plan, 

14 such person shall comply with the requirements of para15 graph (2). 

16 ‘‘(2) A person described in paragraph (1) complies 

17 with the requirements of this paragraph in connection 

18 with a transaction described in paragraph (1) if such per19 son provides to the plan administrator of the plan a writ20 ten notification of the transaction not later than 1 busi21 ness day after the date of the transaction. 

22 ‘‘(3)(A) If the plan administrator is made aware, on 

23 the basis of notifications received pursuant to paragraph 

24 (2) or otherwise, that the proceeds from any transaction 

25 described in paragraph (1), constituting direct or indirect 
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1 sales of employer securities by any person described in 

2 paragraph (1), exceed $100,000, the plan administrator 

3 of the plan shall provide to each participant and bene4 ficiary a notification of such transaction. Such notification 

5 shall be in writing, except that such notification may be 

6 in electronic or other form to the extent that such form 

7 is reasonably accessible to the participant or beneficiary. 

8 ‘‘(B) In any case in which the proceeds from any 

9 transaction described in paragraph (1) (with respect to 

10 which a notification has not been provided pursuant to 

11 this paragraph), together with the proceeds from any 

12 other such transaction or transactions described in para13 graph (1) occurring during the preceding one-year period, 

14 constituting direct or indirect sales of employer securities 

15 by any person described in paragraph (1), exceed (in the 

16 aggregate) $100,000, such series of transactions by such 

17 person shall be treated as a transaction described in sub18 paragraph (A) by such person. 

19 ‘‘(C) Each notification required under this paragraph 

20 shall be provided as soon as practicable, but not later than 

21 3 business days after receipt of the written notification 

22 or notifications indicating that the transaction (or series 

23 of transactions) requiring such notice has occurred. 

24 ‘‘(4) Each notification required under paragraph (2) 

25 or (3) shall be made in such form and manner as may 
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1 be prescribed in regulations of the Secretary and shall in2 clude the number of shares involved in each transaction 

3 and the price per share, and the notification required 

4 under paragraph (3) shall be written in language designed 

5 to be understood by the average plan participant. The Sec6 retary may provide by regulation, in consultation with the 

7 Securities and Exchange Commission, for exemptions 

8 from the requirements of this subsection with respect to 

9 specified types of transactions to the extent that such ex10 emptions are consistent with the best interests of plan par11 ticipants and beneficiaries. Such exemptions may relate to 

12 transactions involving reinvestment plans, stock splits, 

13 stock dividends, qualified domestic relations orders, and 

14 similar matters. 

15 ‘‘(5) For purposes of this subsection, the term ‘em16 ployer security’ has the meaning provided in section 

17 407(d)(1).’’. 

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

19 this section shall apply with respect to transactions occur20 ring after 90 days after the date of the enactment of this 

21 Act. 
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1 SEC. 104. ENFORCEMENT OF INFORMATION AND DISCLO2 SURE REQUIREMENTS. 

3 (a) IN GENERAL.—Section 502(c) of the Employee 

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

5 1132(c)) is amended—

6 (1) by redesignating paragraph (7) as para7 graph (8); and 

8 (2) by inserting after paragraph (6) the fol9 lowing new paragraph: 

10 ‘‘(7) The Secretary may assess a civil penalty against 

11 any person required to provide any notification under the 

12 provisions of section 104(d), any statement under the pro13 visions of subsection (a), (d), or (f) of section 105, any 

14 information under the provisions of section 404(c)(4), or 

15 any notice under the provisions of section 404(e)(1) of up 

16 to $1,000 a day from the date of any failure by such per17 son to provide such notification, statement, information, 

18 or notice in accordance with such provisions.’’. 

19 (b) CONFORMING AMENDMENT.—Section 502(a)(6) 

20 of such Act (29 U.S.C. 1132(a)(6)) (as amended by sec21 tion 102(b)) is amended further by striking ‘‘(5), or (6)’’ 

22 and inserting ‘‘(5), (6), or (7)’’. 

23 SEC. 105. REVISION OF ACCOUNTING STANDARD RE24 QUIRED. 

25 The Securities and Exchange Commission shall not 

26 treat as authoritative for purposes of compliance with sec-
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1 tion 13 of the Securities Exchange Act of 1934 (15 U.S.C. 

2 78m) any accounting statement of the standard setting 

3 body recognized by the Commission under section 19(b) 

4 of the Securities Act of 1933 (15 U.S.C. 77s(b)) that re5 lates to the accounting by an issuer for single-employer 

6 defined benefit pension plans unless such standard is 

7 modified to prevent the investment gains of such plan 

8 from being treated as income to such issuer. 

9 TITLE II—FREEDOM TO MAKE 

10 INVESTMENT DECISIONS 

11 WITH PLAN ASSETS 

12 SEC. 201. AMENDMENTS TO THE INTERNAL REVENUE CODE 

13 OF 1986. 

14 (a) IN GENERAL.—Subsection (a) of section 401 of 

15 the Internal Revenue Code of 1986 (relating to require16 ments for qualification) is amended by adding at the end 

17 the following new paragraph: 

18 ‘‘(35) DIVERSIFICATION REQUIREMENTS FOR

19 DEFINED CONTRIBUTION PLANS THAT HOLD EM20 PLOYER SECURITIES.—

21 ‘‘(A) IN GENERAL.—In the case of a de22 fined contribution plan described in this sub23 section that includes a trust which is exempt 

24 from tax under section 501(a) and which holds 

25 employer securities that are readily tradable on
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1 an established securities market, such trust 

2 shall not constitute a qualified trust under this 

3 section unless such plan meets the requirements 

4 of subparagraphs (B) and (C). 

5 ‘‘(B) ELECTIVE DEFERRALS INVESTED IN

6 EMPLOYER SECURITIES.—

7 ‘‘(i) IN GENERAL.—In the case of the 

8 portion of the account attributable to elec9 tive deferrals which is invested in employer 

10 securities, a plan meets the requirements 

11 of this subparagraph if each applicable in12 dividual in such plan may elect to direct 

13 the plan to divest any portion of such secu14 rities in the individual’s account and to re15 invest an equivalent amount in other in16 vestment options which meet the require17 ments of subparagraph (D). The preceding 

18 sentence shall apply to the extent that the 

19 amount attributable to reinvested portion 

20 exceeds the amount to which a prior elec21 tion under this subparagraph or paragraph 

22 (28) applies. 

23 ‘‘(ii) APPLICABLE INDIVIDUAL.—For 

24 purposes of this subparagraph, the term 

25 ‘applicable individual’ means—
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1 ‘‘(I) any participant in the plan, 

2 ‘‘(II) any beneficiary who is an 

3 alternate payee (within the meaning 

4 of section 414(p)(8)) under an appli5 cable qualified domestic relations 

6 order (within the meaning of section 

7 414(p)(1)(A)), and 

8 ‘‘(III) any beneficiary of a de9 ceased participant or alternate payee. 

10 ‘‘(C) 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 elective 

15 deferrals) which is invested in employer se16 curities, a plan meets the requirements of 

17 this subparagraph if each qualified partici18 pant in the plan may elect to direct the 

19 plan to divest any portion of such securi20 ties in the participant’s account and to re21 invest an equivalent amount in other in22 vestment options which meet the require23 ments of subparagraph (E). The preceding 

24 sentence shall apply to the extent that the 

25 amount attributable to such reinvested 
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1 portion exceeds the amount to which a 

2 prior election under this subparagraph or 

3 paragraph (28) applies. 

4 ‘‘(ii) QUALIFIED PARTICIPANT.—For 

5 purposes of this subparagraph, the term 

6 ‘qualified participant’ means—

7 ‘‘(I) any participant in the plan 

8 who has completed at least 3 years of 

9 service (as determined under section 

10 411(a)) under the plan, 

11 ‘‘(II) any beneficiary who, with 

12 respect to a participant who met the 

13 service requirement in subclause (I), 

14 is an alternate payee (within the 

15 meaning of section 414(p)(8)) under 

16 an applicable qualified domestic rela17 tions order (within the meaning of 

18 section 414(p)(1)(A)), and 

19 ‘‘(III) any beneficiary of a de20 ceased participant who met the service 

21 requirement in subclause (I) or alter22 nate payee described in subclause (II). 

23 ‘‘(D) INVESTMENT OPTIONS.—The require24 ments of this subparagraph are met if the plan 

25 offers not less than 3 investment options (not 
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1 inconsistent with regulations prescribed by the 

2 Secretary) other than employer securities. 

3 ‘‘(E) PRESERVATION OF AUTHORITY OF

4 PLAN TO LIMIT INVESTMENT.—Nothing in this 

5 paragraph shall be construed to limit the au6 thority of a plan to impose limitations on the 

7 portion of plan assets in any account which 

8 may be invested in employer securities. 

9 ‘‘(F) OTHER DEFINITIONS AND RULES.—

10 For purposes of this paragraph—

11 ‘‘(i) EMPLOYER SECURITIES.—The 

12 term ‘employer securities’ shall have the 

13 meaning given such term by section 

14 407(d)(1) of the Employee Retirement In15 come Security Act of 1974. 

16 ‘‘(ii) ELECTIVE DEFERRALS.—For 

17 purposes of this subparagraph, the term 

18 ‘elective deferrals’ means an employer con19 tribution described in section 402(g)(3)(A) 

20 and any employee contribution. 

21 ‘‘(iii) ELECTION.—Elections under 

22 this paragraph shall be not less frequently 

23 than quarterly. 

24 ‘‘(iv) EMPLOYEE STOCK OWNERSHIP

25 PLAN.—The term ‘employee stock owner-
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1 ship plan’ shall have the same meaning 

2 given to such term by section 4975(e)(7).’’.

3 (b) CONFORMING AMENDMENTS.—

4 (1) Section 401(a)(28) of such Code is amended 

5 by adding at the end the following new subpara6 graph: 

7 ‘‘(D) APPLICATION.—This paragraph shall 

8 not apply with respect to employer securities 

9 which are readily tradable on an established se10 curities market.’’. 

11 (2) Section 409(h)(7) of such Code is amended 

12 by inserting at the end ‘‘or subparagraph (B) or (C) 

13 of section 401(a)(35)’’. 

14 (3) Section 4975(e)(7) of such Code is amended 

15 by adding at the end the following new sentence: ‘‘A 

16 plan shall not fail to be treated as an employee stock 

17 ownership plan merely because the plan meets the 

18 requirements of section 401(a)(35) (or provides 

19 greater diversification rights) or because participants 

20 in such plan exercise diversification rights under 

21 such section (or greater diversification rights avail22 able under the plan).’’. 

23 (4) Section 4980(c)(3)(A) of such Code is 

24 amended by striking ‘‘if—’’ and all that follows and
26

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1 inserting ‘‘if the requirements of subparagraphs (B) 

2 and (C) are met.’’. 

3 (5) Section 407 of the Employee Retirement In4 come Security Act of 1974 (29 U.S.C. 1107) is 

5 amended by adding at the end the following new 

6 subsection: 

7 ‘‘(g) Notwithstanding section 408(e) or any other 

8 provision of this title, an individual account plan may not 

9 include provisions that do not meet the requirements of 

10 section 401(a)(35)(B) of the Internal Revenue Code of 

11 1986.’’.

12 SEC. 202. AMENDMENTS TO THE EMPLOYEE RETIREMENT 

13 INCOME SECURITY ACT OF 1974. 

14 (a) AMENDMENTS TO THE EMPLOYEE RETIREMENT

15 INCOME SECURITY ACT OF 1974.—Section 404 of the 

16 Employee Retirement Income Security Act of 1974 (29 

17 U.S.C. 1104) is amended by adding at the end the fol18 lowing new subsection: 

19 ‘‘(e) DIVERSIFICATION OF INVESTMENT OF ACCOUNT

20 ASSETS HELD UNDER INDIVIDUAL ACCOUNT PLANS.—

21 ‘‘(1) IN GENERAL.—In the case of an individual 

22 account plan under which a participant or bene23 ficiary is permitted to exercise control over assets in 

24 his or her account, with respect to the assets in the 

25 account to which the participant or beneficiary has 
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1 a nonforfeitable right and which consist of employer 

2 securities which are readily tradable on an estab3 lished securities market, the plan shall meet the re4 quirements of paragraphs (2), (3), (4), (5), (6), and 

5 (7). 

6 ‘‘(2) ASSETS ATTRIBUTABLE TO EMPLOYEE

7 CONTRIBUTIONS.—In the case of any portion of the 

8 account assets described in paragraph (1) which is 

9 attributable to employee contributions, there shall be 

10 no restrictions on the right of a participant or bene11 ficiary to allocate the assets in such portion to any 

12 investment option provided under the plan. 

13 ‘‘(3) ELECTIVE DEFERRALS INVESTED IN EM14 PLOYER SECURITIES.—

15 ‘‘(A) IN GENERAL.—In the case of the por16 tion of the account assets described in para17 graph (1) which is attributable to elective defer18 rals and is invested in employer securities, a 

19 plan meets the requirements of this paragraph 

20 if each applicable individual in such plan may 

21 elect to direct the plan to divest any portion of 

22 such securities in the individual’s account and 

23 to reinvest an equivalent amount in other in24 vestment options which meet the requirements 

25 of paragraph (5). The preceding sentence shall 
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1 apply to the extent that the amount attributable 

2 to such reinvested portion exceeds the amount 

3 to which a prior election under this paragraph 

4 or section 401(a)(28) of the Internal Revenue 

5 Code of 1986 applies. 

6 ‘‘(B) APPLICABLE INDIVIDUAL.—For pur7 poses of this paragraph, the term ‘applicable in8 dividual’ means—

9 ‘‘(i) any participant in the plan, 

10 ‘‘(ii) any beneficiary who is an alter11 nate payee (within the meaning of section 

12 206(d)(3)(K)) under an applicable quali13 fied domestic relations order (within the 

14 meaning of section 206(d)(3)(B)(i)), and 

15 ‘‘(iii) any beneficiary of a deceased 

16 participant or alternate payee. 

17 ‘‘(4) OTHER EMPLOYER CONTRIBUTIONS.—

18 ‘‘(A) IN GENERAL.—In the case of the por19 tion of the account assets described in para20 graph (1) which is attributable employer con21 tributions (other than elective deferrals) and is 

22 invested in employer securities, a plan meets 

23 the requirements of this paragraph if each 

24 qualified participant in the plan may elect to di25 rect the plan to divest any portion of such secu-
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1 rities in the participant’s account and to rein2 vest an equivalent amount in other investment 

3 options which meet the requirements of para4 graph (6). The preceding sentence shall apply 

5 to the extent that the amount attributable to 

6 such reinvested portion exceeds the amount to 

7 which a prior election under this paragraph or 

8 section 401(a)(28) of such Code applies. 

9 ‘‘(B) QUALIFIED PARTICIPANT.—For pur10 poses of this paragraph, the term ‘qualified par11 ticipant’ means—

12 ‘‘(i) any participant in the plan who 

13 has completed at least 3 years of service 

14 (as determined under section 203(a)) 

15 under the plan, 

16 ‘‘(ii) any beneficiary who, with respect 

17 to a participant who met the service re18 quirement in clause (i), is an alternate 

19 payee (within the meaning of section 

20 206(d)(3)(K)) under an applicable quali21 fied domestic relations order (within the 

22 meaning of section 206(d)(3)(B)(i)), and 

23 ‘‘(iii) any beneficiary of a deceased 

24 participant who met the service require-
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1 ment in clause (i) or alternate payee de2 scribed in clause (ii). 

3 ‘‘(5) INVESTMENT OPTIONS.—The requirements 

4 of this paragraph are met if, with respect to the ac5 count assets described in paragraph (1), the plan of6 fers not less than 3 investment options (not incon7 sistent with regulations prescribed by the Secretary) 

8 other than employer securities. 

9 ‘‘(6) PROMPT COMPLIANCE WITH DIRECTIONS

10 TO ALLOCATE INVESTMENTS.—

11 ‘‘(A) IN GENERAL.—Except as provided in 

12 subparagraph (B), a plan meets the require13 ments of this paragraph with respect to plan 

14 assets described in paragraph (1) if the plan 

15 provides that, within 5 days after the date of 

16 any election by a participant or beneficiary allo17 cating any such assets to any investment option 

18 provided under the plan, the plan administrator 

19 shall take such actions as are necessary to ef20 fectuate such allocation. 

21 ‘‘(B) SPECIAL RULE FOR PERIODIC ELEC22 TIONS.—In any case in which the plan provides 

23 for elections periodically during prescribed peri24 ods, the 5-day period described in subparagraph
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1 (A) shall commence at the end of each such 

2 prescribed period. 

3 ‘‘(7) NOTICE OF RIGHTS AND OF IMPORTANCE

4 OF DIVERSIFICATION.—A plan meets the require5 ments of this paragraph if the plan provides that, 

6 not later than 30 days prior to the date on which 

7 the right of a participant under the plan to his or 

8 her accrued benefit becomes nonforfeitable, the plan 

9 administrator shall provide to such participant and 

10 his or her beneficiaries a written notice—

11 ‘‘(A) setting forth their rights under this 

12 section with respect to the accrued benefit, and 

13 ‘‘(B) describing the importance of diversi14 fying the investment of account assets. 

15 ‘‘(8) PRESERVATION OF AUTHORITY OF PLAN

16 TO LIMIT INVESTMENT.—Nothing in this subsection 

17 shall be construed to limit the authority of a plan to 

18 impose limitations on the portion of plan assets in 

19 any account which may be invested in employer se20 curities. 

21 ‘‘(9) OTHER DEFINITIONS AND RULES.—For 

22 purposes of this subsection—

23 ‘‘(A) EMPLOYER SECURITIES.—The term 

24 ‘employer securities’ shall have the meaning 

25 given such term by section 407(d)(1) of the 
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1 Employee Retirement Income Security Act of 

2 1974. 

3 ‘‘(B) ELECTIVE DEFERRALS.—The term 

4 ‘elective deferrals’ means an employer contribu5 tion described in section 402(g)(3)(A) of such 

6 Code and any employee contribution. 

7 ‘‘(C) ELECTION.—Elections under this 

8 subsection shall be not less frequently than 

9 quarterly. 

10 ‘‘(D) EMPLOYEE STOCK OWNERSHIP

11 PLAN.—The term ‘employee stock ownership 

12 plan’ shall have the same meaning given to 

13 such term by section 4975(e)(7) of such Code. 

14 SEC. 203. RECOMMENDATIONS RELATING TO NON-PUB15 LICLY TRADED STOCK.

16 Within 1 year after the date of the enactment of this 

17 Act, the Secretary of Labor and the Secretary of the 

18 Treasury shall jointly transmit to the Committee on Edu19 cation and the Workforce and the Committee on Ways and 

20 Means of the House of Representatives and the Committee 

21 on Health, Education, Labor, and Pensions and the Com22 mittee on Finance of the Senate their recommendations 

23 regarding legislative changes relating to treatment, under 

24 section 404(e) of the Employee Retirement Income Secu25 rity Act of 1974 and section 401(a)(35) of the Internal 
33

•HR 2101 IH 

1 Revenue Code of 1986 (as added by this title), of indi2 vidual account plans under which a participant or bene3 ficiary is permitted to exercise control over assets in his 

4 or her account, in cases in which such assets do not in5 clude employer securities which are readily tradable under 

6 an established securities market. 

7 SEC. 204. EFFECTIVE DATE OF TITLE. 

8 (a) IN GENERAL.—Except as provided in subsection 

9 (b), the amendments made by this title shall apply with 

10 respect to plan years beginning after December 31, 2003. 

11 (b) EXCEPTION.—The amendments made by this sec12 tion shall not apply to employer securities held by an em13 ployee stock ownership plan which are not subject to sec14 tion 401(a)(28) of the Internal Revenue Code of 1986 by 

15 reason of section 1175(a)(2) of the Tax Reform Act of 

16 1986 (100 Stat. 2519). 

17 (c) DELAYED EFFECTIVE DATE OF EXISTING HOLD18 INGS.—In any case in which a portion of the nonforfeit19 able accrued benefit of a participant or beneficiary is held 

20 in the form of employer securities (as defined in section 

21 407(d)(1) of the Employee Retirement Income Security 

22 Act of 1974) immediately before the first date of the first 

23 plan year to which the amendments made by this title 

24 apply, such portion shall be taken into account only with 
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1 respect to plan years beginning on or after January 1, 

2 2005. 

3 TITLE III—EMPLOYEE 

4 REPRESENTATION

5 SEC. 301. PARTICIPATION OF PARTICIPANTS IN TRUSTEE6 SHIP OF INDIVIDUAL ACCOUNT PLANS. 

7 (a) IN GENERAL.—Section 403(a) of the Employee 

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

9 1103(a)) is amended—

10 (1) by redesignating paragraphs (1) and (2) as 

11 subparagraphs (A) and (B), respectively; 

12 (2) by inserting ‘‘(1)’’ after ‘‘(a)’’; and 

13 (3) by adding at the end the following new 

14 paragraph: 

15 ‘‘(2)(A) The assets of a single-employer plan which 

16 is an individual account plan and under which some or 

17 all of the assets are derived from employee contributions 

18 shall be held in trust by a joint board of trustees, which 

19 shall consist of two or more trustees representing on an 

20 equal basis the interests of the employer or employers 

21 maintaining the plan and the interests of the participants 

22 and their beneficiaries and having equal voting rights. 

23 ‘‘(B)(i) Except as provided in clause (ii), in any case 

24 in which the plan is maintained pursuant to one or more 

25 collective bargaining agreements between one or more em-
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1 ployee organizations and one or more employers, the trust2 ees representing the interests of the participants and their 

3 beneficiaries shall be designated by such employee organi4 zations. 

5 ‘‘(ii) Clause (i) shall not apply with respect to a plan 

6 described in such clause if the employee organization (or 

7 all employee organizations, if more than one) referred to 

8 in such clause file with the Secretary, in such form and 

9 manner as shall be prescribed in regulations of the Sec10 retary, a written waiver of their rights under clause (i). 

11 ‘‘(iii) In any case in which clause (i) does not apply 

12 with respect to a single-employer plan because the plan 

13 is not described in clause (i) or because of a waiver filed 

14 pursuant to clause (ii), the trustee or trustees representing 

15 the interests of the participants and their beneficiaries 

16 shall be selected by the plan participants in accordance 

17 with regulations of the Secretary. 

18 ‘‘(C) An individual shall not be treated as ineligible 

19 for selection as trustee solely because such individual is 

20 an employee of the plan sponsor, except that the employee 

21 so selected may not be a highly compensated employee (as 

22 defined in section 414(q) of the Internal Revenue Code 

23 of 1986). 

24 ‘‘(D) The Secretary shall provide by regulation for 

25 the appointment of a neutral individual, in accordance
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1 with the procedures under section 203(f) of the Labor 

2 Management Relations Act, 1947 (29 U.S.C. 173(f)), to 

3 cast votes as necessary to resolve tie votes by the trust4 ees.’’. 

5 (b) REGULATIONS.—The Secretary of Labor shall 

6 prescribe the initial regulations necessary to carry out the 

7 provisions of the amendments made by this section not 

8 later than 90 days after the date of the enactment of this 

9 Act. 

10 TITLE IV—INCREASED 

11 ACCOUNTABILITY 

12 SEC. 401. BONDING OR INSURANCE ADEQUATE TO PRO13 TECT INTEREST OF PARTICIPANTS AND 

14 BENEFICIARIES. 

15 Section 412 of the Employee Retirement Income Se16 curity Act of 1974 (29 U.S.C. 1112) is amended by adding 

17 at the end the following new subsection: 

18 ‘‘(f) Notwithstanding the preceding provisions of this 

19 section, each fiduciary of an individual account plan shall 

20 be bonded or insured, in accordance with regulations 

21 which shall be prescribed by the Secretary, in an amount 

22 sufficient to ensure coverage by the bond or insurance of 

23 financial losses due to any failure to meet the require24 ments of this part.’’. 
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1 SEC. 402. LIABILITY FOR BREACH OF FIDUCIARY DUTY. 

2 (a) ADDITIONAL EQUITABLE OR REMEDIAL RE3 LIEF.—Section 409 of the Employee Retirement Income 

4 Security Act of 1974 (29 U.S.C. 1109) is amended—

5 (1) by redesignating subsection (b) as sub6 section (c); 

7 (2) in subsection (a), by striking ‘‘, including 

8 removal of such fiduciary’’; and 

9 (3) by inserting after subsection (a) the fol10 lowing new subsection: 

11 ‘‘(b) The equitable or remedial relief referred to in 

12 subsection (a) may include (but is not limited to) a court 

13 order removing the fiduciary from the plan referred to in 

14 subsection (a) and a court order prohibiting, conditionally 

15 or unconditionally, and permanently or for such period of 

16 time as the court shall determine, the fiduciary from serv17 ing—

18 ‘‘(1) as an administrator, fiduciary, officer, 

19 trustee, custodian, counsel, agent, employee, or rep20 resentative in any capacity of any employee benefit 

21 plan, 

22 ‘‘(2) as a consultant or adviser to an employee 

23 benefit plan, including but not limited to any entity 

24 whose activities are in whole or substantial part de25 voted to providing goods or services to any employee 

26 benefit plan, or 
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•HR 2101 IH 

1 ‘‘(3) in any capacity that involves decision2 making authority or custody or control of the mon3 eys, funds, assets, or property of any employee ben4 efit plan.’’. 

5 (b) LIABILITY FOR PARTICIPATING IN OR CON6 CEALING FIDUCIARY BREACH IN CONNECTION WITH IN7 DIVIDUAL ACCOUNT PLANS.—

8 (1) APPLICATION TO PARTICIPANTS AND BENE9 FICIARIES OF 401(k) PLANS.—

10 (A) IN GENERAL.—Part 4 of subtitle B of 

11 title I of the Employee Retirement Income Se12 curity Act of 1974 (29 U.S.C. 1101 et seq.) is 

13 amended by adding after section 409 the fol14 lowing new section: 

15 ‘‘SEC. 409A. LIABILITY FOR BREACH OF FIDUCIARY DUTY IN 

16 401(k) PLANS. 

17 ‘‘(a) Any person who is a fiduciary with respect to 

18 an individual account plan that includes a qualified cash 

19 or deferred arrangement under section 401(k) of the In20 ternal Revenue Code of 1986 who breaches any of the re21 sponsibilities, obligations, or duties imposed upon fidu22 ciaries by this title shall be personally liable to make good 

23 to each participant and beneficiary of the plan any losses 

24 to such participant or beneficiary resulting from each such 

25 breach, and to restore to such participant or beneficiary 
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•HR 2101 IH 

1 any profits of such fiduciary which have been made 

2 through use of assets of the plan by the fiduciary, and 

3 shall be subject to such other equitable or remedial relief 

4 as the court may deem appropriate, including removal of 

5 such fiduciary. A fiduciary may also be removed for a vio6 lation of section 411 of this Act. 

7 ‘‘(b) The right of participants and beneficiaries under 

8 subsection (a) to sue for breach of fiduciary duty with re9 spect to an individual account plan that includes a quali10 fied cash or deferred arrangement under section 401(k) 

11 of such Code shall be in addition to all existing rights that 

12 participants and beneficiaries have under section 409, sec13 tion 502, and any other provision of this title, and shall 

14 not be construed to give rise to any inference that such 

15 rights do not already exist under section 409, section 502, 

16 or any other provision of this title. 

17 ‘‘(c) No fiduciary shall be liable with respect to a 

18 breach of fiduciary duty under this title if such breach 

19 was committed before he or she became a fiduciary or 

20 after he or she ceased to be a fiduciary.’’

21 (B) CONFORMING AMENDMENT.—The 

22 table of contents for part 4 of subtitle B of title 

23 I of such Act is amended by inserting the fol24 lowing new item after the item relating to sec25 tion 409:
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•HR 2101 IH 

‘‘Sec. 409A. Liability for breach of fiduciary duty in 401(k) 

plans.’’

1 (2) INSIDER LIABILITY.—

2 (A) IN GENERAL.—Section 409 of the Em3 ployee Retirement Income Security Act of 1974 

4 (29 U.S.C. 1109) is amended by redesignating 

5 subsection (b) as subsection (c) and by insert6 ing after subsection (a) the following new sub7 section: 

8 ‘‘(b)(1)(A) If an insider with respect to the plan spon9 sor of an individual account plan that holds employer secu10 rities that are readily tradable on an established securities 

11 market—

12 ‘‘(i) knowingly participates in a breach of fidu13 ciary responsibility to which subsection (a) applies, 

14 or 

15 ‘‘(ii) knowingly undertakes to conceal such a 

16 breach, 

17 such insider shall be personally liable under this sub18 section for such breach in the same manner as the fidu19 ciary who commits such breach. 

20 ‘‘(B) For purposes of subparagraph (A), the term ‘in21 sider’ means, with respect to any plan sponsor of a plan 

22 to which subparagraph (A) applies—

23 ‘‘(i) any officer or director with respect to the 

24 plan sponsor, or
41

•HR 2101 IH 

1 ‘‘(ii) any independent qualified public account2 ant of the plan or of the plan sponsor. 

3 ‘‘(3) Any relief provided under this subsection or sec4 tion 409A—

5 ‘‘(A) if provided to an individual account plan, 

6 shall inure to the individual accounts of the affected 

7 participants or beneficiaries, and 

8 ‘‘(B) if provided to a participant or beneficiary, 

9 shall be payable to the individual account plan on 

10 behalf of such participant or beneficiary unless such 

11 plan has been terminated.’’

12 (B) CONFORMING AMENDMENT.—Section 

13 409(c) of such Act (29 U.S.C. 1109(c)), as re14 designated by subparagraph (A), is amended by 

15 inserting before the period the following: 

16 ‘‘, unless such liability arises under subsection 

17 (b)’’. 

18 (c) MAINTENANCE OF FIDUCIARY LIABILITY.—Sec19 tion 404(c)(1)(B) of such Act (29 U.S.C. 1104(c)(1)(B)) 

20 is amended by inserting before the period the following: 

21 ‘‘, except that this subparagraph shall not be construed 

22 to exempt any fiduciary from liability for any violation of 

23 subsection (e)’’. 
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•HR 2101 IH 

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

2 this section shall apply with respect to breaches occurring 

3 on or after the date of the enactment of this Act. 

4 SEC. 403. PRESERVATION OF RIGHTS OR CLAIMS. 

5 Section 502 of the Employee Retirement Income Se6 curity Act of 1974 (29 U.S.C. 1132) is amended by adding 

7 at the end the following new subsection: 

8 ‘‘(n)(1) The rights under this title (including the 

9 right to maintain a civil action) may not be waived, de10 ferred, or lost pursuant to any agreement not authorized 

11 under this title with specific reference to this subsection. 

12 ‘‘(2) Paragraph (1) shall not apply to an agreement 

13 providing for arbitration or participation in any other non14 judicial procedure to resolve a dispute if the agreement 

15 is entered into knowingly and voluntarily by the parties 

16 involved after the dispute has arisen or is pursuant to the 

17 terms of a collective bargaining agreement.’’. 

18 SEC. 404. OFFICE OF PENSION PARTICIPANT ADVOCACY. 

19 (a) IN GENERAL.—Subtitle A of title III of the Em20 ployee Retirement Income Security Act of 1974 (29 

21 U.S.C. 3001 et seq.) is amended by inserting after section 

22 3004 the following new section: 

23 ‘‘OFFICE OF PENSION PARTICIPANT ADVOCACY

24 ‘‘SEC. 3005. (a) ESTABLISHMENT.—
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•HR 2101 IH 

1 ‘‘(1) IN GENERAL.—There is established in the 

2 Department of Labor an office to be known as the 

3 ‘Office of Pension Participant Advocacy’. 

4 ‘‘(2) PENSION PARTICIPANT ADVOCATE.—The 

5 Office of Pension Participant Advocacy shall be 

6 under the supervision and direction of an official to 

7 be known as the ‘Pension Participant Advocate’ who 

8 shall—

9 ‘‘(A) have demonstrated experience in the 

10 area of pension participant assistance, and 

11 ‘‘(B) be selected by the Secretary after 

12 consultation with pension participant advocacy 

13 organizations. 

14 The Pension Participant Advocate shall report di15 rectly to the Secretary and shall be entitled to com16 pensation at the same rate as the highest rate of 

17 basic pay established for the Senior Executive Serv18 ice under section 5382 of title 5, United States 

19 Code. 

20 ‘‘(b) FUNCTIONS OF OFFICE.—It shall be the func21 tion of the Office of Pension Participant Advocacy to—

22 ‘‘(1) evaluate the efforts of the Federal Govern23 ment, business, and financial, professional, retiree, 

24 labor, women’s, and other appropriate organizations 
44

•HR 2101 IH 

1 in assisting and protecting pension plan participants, 

2 including—

3 ‘‘(A) serving as a focal point for, and ac4 tively seeking out, the receipt of information 

5 with respect to the policies and activities of the 

6 Federal Government, business, and such organi7 zations which affect such participants, 

8 ‘‘(B) identifying significant problems for 

9 pension plan participants and the capabilities of 

10 the Federal Government, business, and such or11 ganizations to address such problems, and 

12 ‘‘(C) developing proposals for changes in 

13 such policies and activities to correct such prob14 lems, and communicating such changes to the 

15 appropriate officials, 

16 ‘‘(2) promote the expansion of pension plan cov17 erage and the receipt of promised benefits by in18 creasing the awareness of the general public of the 

19 value of pension plans and by protecting the rights 

20 of pension plan participants, including—

21 ‘‘(A) enlisting the cooperation of the public 

22 and private sectors in disseminating informa23 tion, and 
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•HR 2101 IH 

1 ‘‘(B) forming private-public partnerships 

2 and other efforts to assist pension plan partici3 pants in receiving their benefits, 

4 ‘‘(3) advocating for the full attainment of the 

5 rights of pension plan participants, including by 

6 making pension plan sponsors and fiduciaries aware 

7 of their responsibilities, 

8 ‘‘(4) giving priority to the special needs of low 

9 and moderate income participants, 

10 ‘‘(5) developing needed information with respect 

11 to pension plans, including information on the types 

12 of existing pension plans, levels of employer and em13 ployee contributions, vesting status, accumulated 

14 benefits, benefits received, and forms of benefits, 

15 and 

16 ‘‘(6) pursuing claims on behalf of participants 

17 and beneficiaries and providing appropriate assist18 ance in the resolution of disputes between partici19 pants and beneficiaries and pension plans, including 

20 assistance in obtaining settlement agreements. 

21 ‘‘(c) REPORTS.—

22 ‘‘(1) ANNUAL REPORT.—Not later than Decem23 ber 31 of each calendar year, the Pension Partici24 pant Advocate shall report to the Committee on 

25 Education and the Workforce and the Committee on
46

•HR 2101 IH 

1 Ways and Means of the House of Representatives 

2 and the Committee on Health, Education, Labor, 

3 and Pensions and the Committee on Finance of the 

4 Senate on its activities during the fiscal year ending 

5 in the calendar year. Such report shall—

6 ‘‘(A) identify significant problems the Ad7 vocate has identified, 

8 ‘‘(B) include specific legislative and regu9 latory changes to address the problems, and 

10 ‘‘(C) identify any actions taken to correct 

11 problems identified in any previous report. 

12 The Advocate shall submit a copy of such report to 

13 the Secretary and any other appropriate official at 

14 the same time it is submitted to the committees of 

15 Congress. 

16 ‘‘(2) SPECIFIC REPORTS.—The Pension Partici17 pant Advocate shall report to the Secretary or any 

18 other appropriate official any time the Advocate 

19 identifies a problem which may be corrected by the 

20 Secretary or such official. 

21 ‘‘(3) REPORTS TO BE SUBMITTED DIRECTLY.—

22 The report required under paragraph (1) shall be 

23 provided directly to the committees of Congress 

24 without any prior review or comment by the Sec25 retary or any other Federal officer or employee. 
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•HR 2101 IH 

1 ‘‘(d) SPECIFIC POWERS.—

2 ‘‘(1) RECEIPT OF INFORMATION.—Subject to 

3 such confidentiality requirements as may be appro4 priate, the Secretary and other Federal officials 

5 shall, upon request, provide such information (in6 cluding plan documents) as may be necessary to en7 able the Pension Participant Advocate to carry out 

8 the Advocate’s responsibilities under this section. 

9 ‘‘(2) APPEARANCES.—The Pension Participant 

10 Advocate may represent the views and interests of 

11 pension plan participants before any Federal agency, 

12 including, upon request of a participant, in any pro13 ceeding involving the participant. 

14 ‘‘(3) CONTRACTING AUTHORITY.—In carrying 

15 out responsibilities under subsection (b)(5), the Pen16 sion Participant Advocate may, in addition to any 

17 other authority provided by law—

18 ‘‘(A) contract with any person to acquire 

19 statistical information with respect to pension 

20 plan participants, and 

21 ‘‘(B) conduct direct surveys of pension 

22 plan participants.’’

23 (b) CONFORMING AMENDMENT.—The table of con24 tents in section 1 of such Act is amended by inserting 
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•HR 2101 IH 

1 after the item relating to section 3004 the following new 

2 item:

‘‘Sec. 3051. Office of Pension Participant Advocacy.’’.

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

4 this section shall take effect on January 1, 2004. 

5 SEC. 405. STUDY REGARDING INSURANCE SYSTEM FOR IN6 DIVIDUAL ACCOUNT PLANS. 

7 (a) STUDY.—As soon as practicable after the date of 

8 the enactment of this Act, the Pension Benefit Guaranty 

9 Corporation shall contract to carry out a study relating 

10 to the establishment of an insurance system for individual 

11 account plans. In conducting such study, the Corporation 

12 shall consider—

13 (1) the feasibility and impact of such a system, 

14 and 

15 (2) options for developing such a system. 

16 (b) REPORT.—Not later than 3 years after the date 

17 of the enactment of this Act, the Corporation shall report 

18 the results of its study, together with any recommenda19 tions for legislative changes, to the Committee on Edu20 cation and the Workforce and the Committee on Ways and 

21 Means of the House of Representatives and the Committee 

22 on Health, Education, Labor, and Pensions and the Com23 mittee on Finance of the Senate.
49

•HR 2101 IH 

1 SEC. 406. EXCISE TAX ON FAILURE OF PENSION PLANS TO 

2 PROVIDE NOTICE OF TRANSACTION RESTRIC3 TION PERIODS. 

4 (a) IN GENERAL.—Chapter 43 of the Internal Rev5 enue Code of 1986 (relating to qualified pension, etc., 

6 plans) is amended by adding at the end the following new 

7 section: 

8 ‘‘SEC. 4980H. FAILURE OF APPLICABLE PLANS TO PROVIDE 

9 NOTICE OF TRANSACTION RESTRICTION PE10 RIODS. 

11 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed 

12 a tax on the failure of any applicable pension plan to meet 

13 the requirements of subsection (e) with respect to any ap14 plicable individual. 

15 ‘‘(b) AMOUNT OF TAX.—The amount of the tax im16 posed by subsection (a) on any failure with respect to any 

17 applicable individual shall be $100 for each day in the 

18 noncompliance period with respect to such failure. 

19 ‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

20 ‘‘(1) TAX NOT TO APPLY TO FAILURES COR21 RECTED AS SOON AS REASONABLY PRACTICABLE.—

22 No tax shall be imposed by subsection (a) on any 

23 failure if—

24 ‘‘(A) any person subject to liability for the 

25 tax under subsection (d) exercised reasonable 
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1 diligence to meet the requirements of subsection 

2 (e), and 

3 ‘‘(B) such person provides the notice de4 scribed in subsection (e) as soon as reasonably 

5 practicable after the first date such person 

6 knew, or exercising reasonable diligence should 

7 have known, that such failure existed. 

8 ‘‘(2) OVERALL LIMITATION FOR UNINTEN9 TIONAL FAILURES.—

10 ‘‘(A) IN GENERAL.—If the person subject 

11 to liability for tax under subsection (d) exer12 cised reasonable diligence to meet the require13 ments of subsection (e) and paragraph (1) is 

14 not otherwise applicable, the tax imposed by 

15 subsection (a) for failures during the taxable 

16 year of the employer (or, in the case of a multi17 employer plan, the taxable year of the trust 

18 forming part of the plan) shall not exceed 

19 $500,000. For purposes of the preceding sen20 tence, all multiemployer plans of which the 

21 same trust forms a part shall be treated as 1 

22 plan. 

23 ‘‘(B) TAXABLE YEARS IN THE CASE OF

24 CERTAIN CONTROLLED GROUPS.—For purposes 

25 of this paragraph, if all persons who are treated
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1 as a single employer for purposes of this section 

2 do not have the same taxable year, the taxable 

3 years taken into account shall be determined 

4 under principles similar to the principles of sec5 tion 1561. 

6 ‘‘(3) WAIVER BY SECRETARY.—In the case of a 

7 failure which is due to reasonable cause and not to 

8 willful neglect, the Secretary may waive part or all 

9 of the tax imposed by subsection (a) to the extent 

10 that the payment of such tax would be excessive or 

11 otherwise inequitable relative to the failure involved. 

12 ‘‘(d) LIABILITY FOR TAX.—The following shall be lia13 ble for the tax imposed by subsection (a): 

14 ‘‘(1) In the case of a plan other than a multi15 employer plan, the employer. 

16 ‘‘(2) In the case of a multiemployer plan, the 

17 plan. 

18 ‘‘(e) NOTICE OF TRANSACTION RESTRICTION PERI19 ODS.—

20 ‘‘(1) DUTIES OF PLAN ADMINISTRATOR.—In 

21 advance of the commencement of any transaction re22 striction period with respect to an applicable pension 

23 plan, the plan administrator shall notify the plan 

24 participants and beneficiaries who are affected by 

25 such action in accordance with this subsection. 
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1 ‘‘(2) NOTICE REQUIREMENTS.—

2 ‘‘(A) IN GENERAL.—The notices described 

3 in paragraph (1) shall be written in a manner 

4 calculated to be understood by the average plan 

5 participant and shall include—

6 ‘‘(i) the reasons for the transaction 

7 restriction period, 

8 ‘‘(ii) an identification of the invest9 ments and other rights affected, 

10 ‘‘(iii) the expected beginning date and 

11 length of the transaction restriction period, 

12 ‘‘(iv) in the case of investments af13 fected, a statement that the applicable in14 dividual should evaluate the appropriate15 ness of their current investment decisions 

16 in light of their inability to direct or diver17 sify assets credited to their accounts dur18 ing the transaction restriction period, and 

19 ‘‘(v) such other matters as the Sec20 retary may require by regulation. 

21 ‘‘(B) NOTICE TO PARTICIPANTS AND

22 BENEFICIARIES.—Except as otherwise provided 

23 in this subsection, notices described in para24 graph (1) shall be furnished to all participants 

25 and beneficiaries under the plan to whom the 
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1 transaction restriction period applies at least 30 

2 days in advance of the transaction restriction 

3 period. 

4 ‘‘(C) EXCEPTION TO 30-DAY NOTICE RE5 QUIREMENT.—In any case in which—

6 ‘‘(i) a deferral of the transaction re7 striction period would violate the require8 ments of subparagraph (A) or (B) of sec9 tion 404(a)(1) of the Employee Retirement 

10 Income Security Act of 1974, and a fidu11 ciary (within the meaning of section 3(21) 

12 of such Act) of the plan reasonably so de13 termines in writing, or 

14 ‘‘(ii) the inability to provide the 30-

15 day advance notice is due to events that 

16 were unforeseeable or circumstances be17 yond the reasonable control of the plan ad18 ministrator, and a fiduciary of the plan 

19 reasonably so determines in writing, 

20 subparagraph (B) shall not apply, and the no21 tice shall be furnished to all participants and 

22 beneficiaries under the plan to whom the trans23 action restriction period applies as soon as rea24 sonably possible under the circumstances unless 

25 such a notice in advance of the termination of 
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1 the transaction restriction period is impracti2 cable. 

3 ‘‘(D) WRITTEN NOTICE.—The notice re4 quired to be provided under this subsection 

5 shall be in writing, except that such notice may 

6 be in electronic or other form to the extent that 

7 such form is reasonably accessible to the recipi8 ent. 

9 ‘‘(E) NOTICE TO ISSUERS OF EMPLOYER

10 SECURITIES SUBJECT TO TRANSACTION RE11 STRICTION PERIOD.—In the case of any trans12 action restriction period in connection with an 

13 applicable pension plan, the plan administrator 

14 shall provide timely notice of such transaction 

15 restriction period to the issuer of any employer 

16 securities subject to such transaction restriction 

17 period. 

18 ‘‘(3) EXCEPTION FOR TRANSACTION RESTRIC19 TION PERIODS WITH LIMITED APPLICABILITY.—In 

20 any case in which the transaction restriction period 

21 applies to 1 or more participants or beneficiaries in 

22 connection with a merger, acquisition, divestiture, or 

23 similar transaction involving the plan or plan spon24 sor and occurs solely in connection with becoming or 

25 ceasing to be an applicable individual under the plan 
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1 by reason of such merger, acquisition, divestiture, or 

2 transaction, the requirement of this subsection that 

3 the notice be provided to all participants and bene4 ficiaries shall be treated as met if the notice required 

5 under paragraph (1) is provided to such participants 

6 or beneficiaries to whom the transaction restriction 

7 period applies as soon as reasonably practicable. 

8 ‘‘(4) CHANGES IN LENGTH OF TRANSACTION

9 RESTRICTION PERIOD.—If, following the furnishing 

10 of the notice pursuant to this subsection, there is a 

11 change in the beginning date or length of the trans12 action restriction period (specified in such notice 

13 pursuant to paragraph (2)(A)(iii)), the administrator 

14 shall provide affected participants and beneficiaries 

15 notice of the change as soon as reasonably prac16 ticable. In relation to the extended transaction re17 striction period, such notice shall meet the require18 ments of paragraph (2)(D) and shall specify any 

19 material change in the matters referred to in clauses 

20 (i) through (v) of paragraph (2)(A). 

21 ‘‘(5) REGULATORY EXCEPTIONS.—The Sec22 retary may provide by regulation for additional ex23 ceptions to the requirements of this subsection which 

24 the Secretary determines are in the interests of par25 ticipants and beneficiaries.
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1 ‘‘(6) GUIDANCE AND MODEL NOTICES.—The 

2 Secretary shall issue guidance and model notices 

3 which meet the requirements of this subsection. 

4 ‘‘(7) TRANSACTION RESTRICTION PERIOD.—For 

5 purposes of this subsection—

6 ‘‘(A) IN GENERAL.—The term ‘transaction 

7 restriction period’ means, in connection with an 

8 applicable pension plan, any period for which 

9 any ability of participants or beneficiaries under 

10 the plan, which is otherwise available under the 

11 terms of such plan, to direct or diversify assets 

12 credited to their accounts, to obtain loans from 

13 the plan, or to obtain distributions from the 

14 plan is temporarily suspended, limited, or re15 stricted, if such suspension, limitation, or re16 striction is for any period of more than 3 con17 secutive business days. 

18 ‘‘(B) EXCLUSIONS.—The term ‘transaction 

19 restriction period’ does not include a suspen20 sion, limitation, or restriction—

21 ‘‘(i) which occurs by reason of the ap22 plication of the securities laws (as defined 

23 in section 3(a)(47) of the Securities Ex24 change Act of 1934), 
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1 ‘‘(ii) which is a change to the plan 

2 which provides for a regularly scheduled 

3 suspension, limitation, or restriction which 

4 is disclosed to participants or beneficiaries 

5 through any summary of material modi6 fications, any materials describing specific 

7 investment alternatives under the plan, or 

8 any changes thereto, or 

9 ‘‘(iii) which applies to 1 or more indi10 viduals, each of whom is the participant, 

11 an alternate payee (as defined in section 

12 414(p)(8)), or any other beneficiary pursu13 ant to a qualified domestic relations order 

14 (as defined in section 414(p)(1)). 

15 ‘‘(8) APPLICABLE INDIVIDUAL.—For purposes 

16 of this section, the term ‘applicable individual’ 

17 means—

18 ‘‘(A) any participant in the applicable pen19 sion plan, 

20 ‘‘(B) any beneficiary who is an alternate 

21 payee (within the meaning of section 414(p)(8)) 

22 under an applicable qualified domestic relations 

23 order (within the meaning of section 

24 414(p)(1)(A)), and 
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1 ‘‘(C) any beneficiary of a deceased partici2 pant or alternate payee, 

3 who has an accrued benefit under the plan and who 

4 is entitled to direct the investment (or hypothetical 

5 investment) of some or all of such accrued benefit. 

6 ‘‘(9) APPLICABLE PENSION PLAN.—For pur7 poses of this subsection, the term ‘applicable pension 

8 plan’ means—

9 ‘‘(A) a plan described in section 

10 219(g)(5)(A) (other than in clause (iii) thereof), 

11 and 

12 ‘‘(B) an eligible deferred compensation 

13 plan (as defined in section 457(b)) of an eligible 

14 employer described in section 457(e)(1)(A), 

15 which permits any participant to direct the invest16 ment of some or all of his account in the plan or 

17 under which the accrued benefit of any participant 

18 depends in whole or in part on hypothetical invest19 ments directed by the participant.’’. 

20 (b) CLERICAL AMENDMENT.—The table of sections 

21 for chapter 43 of such Code is amended by adding at the 

22 end the following new item:

‘‘Sec. 4980H. Failure of applicable plans to provide notice of 

transaction restriction periods.’’.

23 (c) EFFECTIVE DATE AND RELATED RULES.—
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1 (1) EFFECTIVE DATE.—The amendments made 

2 by this section shall take effect 180 days after the 

3 date of the enactment of this Act. Good faith compli4 ance with the requirements of such amendments in 

5 advance of the issuance of applicable regulations 

6 thereunder shall be treated as compliance with such 

7 provisions. 

8 (2) ISSUANCE OF INITIAL GUIDANCE AND

9 MODEL NOTICE.—The Secretary of the Treasury 

10 shall, in consultation with the Secretary of Labor, 

11 issue initial guidance and a model notice pursuant to 

12 section 4980H(e)(6) of the Internal Revenue Code of 

13 1986 (as added by this section) not later than Janu14 ary 1, 2005. Not later than 75 days after the date 

15 of the enactment of this Act, the Secretary shall pro16 mulgate interim final rules necessary to carry out 

17 the amendments made by this section. 

18 (3) PLAN AMENDMENTS.—If any amendment 

19 made by this section requires an amendment to any 

20 plan, such plan amendment shall not be required to 

21 be made before the first plan year beginning on or 

22 after the effective date of this section, if—

23 (A) during the period after such amend24 ment made by this section takes effect and be25 fore such first plan year, the plan is operated 
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1 in good faith compliance with the requirements 

2 of such amendment made by this section, and 

3 (B) such plan amendment applies retro4 actively to the period after such amendment 

5 made by this section takes effect and before 

6 such first plan year. 

7 TITLE V—INVESTMENT ADVICE 

8 FOR PARTICIPANTS AND 

9 BENEFICIARIES

10 SEC. 501. INDEPENDENT INVESTMENT ADVICE. 

11 (a) IN GENERAL.—Section 404(c)(1) of the Em12 ployee Retirement Income Security Act of 1974 (29 

13 U.S.C. 1104(c)(1)) (as amended by section 102(c)) is 

14 amended further—

15 (1) by redesignating subparagraphs (A) and 

16 (B) as clauses (i) and (ii), respectively, and by in17 serting ‘‘(A)’’ after ‘‘(c)(1)’’; and 

18 (2) by adding at the end the following new sub19 paragraphs: 

20 ‘‘(B)(i) In the case of a pension plan described in sub21 paragraph (A) which provides investment in employer se22 curities as at least one option for investment of plan assets 

23 at the direction of the participant or beneficiary, such plan 

24 shall make available to the participant or beneficiary the 

25 services of a qualified fiduciary adviser for purposes of
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1 providing investment advice described in section 

2 3(21)(A)(ii) regarding investment in such securities. 

3 ‘‘(ii) No person who is otherwise a fiduciary shall be 

4 liable by reason of any investment advice provided by a 

5 qualified fiduciary adviser pursuant to a request under 

6 clause (i) if—

7 ‘‘(I) the plan provides for selection and moni8 toring of such adviser in a prudent and effective 

9 manner, and 

10 ‘‘(II) such adviser is a named fiduciary under 

11 the plan in connection with the provision of such ad12 vice. 

13 ‘‘(C) For purposes of subparagraph (B)—

14 ‘‘(i) The term ‘qualified fiduciary adviser’ 

15 means, with respect to a plan, a person who—

16 ‘‘(I) is a fiduciary of the plan by reason of 

17 the provision of qualified investment advice by 

18 such person to a participant or beneficiary, 

19 ‘‘(II) has no material interest in, and no 

20 material affiliation or contractual relationship 

21 with any third party having a material interest 

22 in, the security or other property with respect 

23 to which the person is providing the advice, 

24 ‘‘(III) meets the qualifications of clause 

25 (ii), and 
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1 ‘‘(IV) meets the additional requirements of 

2 clause (iii). 

3 ‘‘(ii) A person meets the qualifications of this 

4 subparagraph if such person—

5 ‘‘(I) is registered as an investment ad6 viser under the Investment Advisers Act of 

7 1940 (15 U.S.C. 80b–1 et seq.), 

8 ‘‘(II) if not registered as an invest9 ment adviser under such Act by reason of 

10 section 203A(a)(1) of such Act (15 U.S.C. 

11 80b–3a(a)(1)), is registered under the laws 

12 of the State in which the fiduciary main13 tains its principal office and place of busi14 ness, and, at the time the fiduciary last 

15 filed the registration form most recently 

16 filed by the fiduciary with such State in 

17 order to maintain the fiduciary’s registra18 tion under the laws of such State, also 

19 filed a copy of such form with the Sec20 retary, 

21 ‘‘(III) is registered as a broker or 

22 dealer under the Securities Exchange Act 

23 of 1934 (15 U.S.C. 78a et seq.), 

24 ‘‘(IV) is a bank or similar financial in25 stitution referred to in section 408(b)(4), 
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1 ‘‘(V) is an insurance company quali2 fied to do business under the laws of a 

3 State, or 

4 ‘‘(VI) is any other comparable entity 

5 which satisfies such criteria as the Sec6 retary determines appropriate. 

7 ‘‘(iii) A person meets the additional re8 quirements of this clause if every individual who 

9 is employed (or otherwise compensated) by such 

10 person and whose scope of duties includes the 

11 provision of qualified investment advice on be12 half of such person to any participant or bene13 ficiary is—

14 ‘‘(I) a registered representative of 

15 such person, 

16 ‘‘(II) an individual described in sub17 clause (I), (II), or (III) of clause (i), or 

18 ‘‘(III) such other comparable qualified 

19 individual as may be designated in regula20 tions of the Secretary.’’. 

21 (b) MAINTENANCE OF FIDUCIARY LIABILITY.—Sec22 tion 404(c)(1)(B) of such Act (29 U.S.C. 1104(c)(1)(B)) 

23 is amended by inserting before the period the following: 

24 ‘‘, except that this subparagraph shall not be construed 
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1 to exempt any fiduciary from liability for any violation of 

2 this section’’. 

3 SEC. 502. TAX TREATMENT OF QUALIFIED RETIREMENT 

4 PLANNING SERVICES. 

5 (a) IN GENERAL.—Subsection (m) of section 132 of 

6 the Internal Revenue Code of 1986 (defining qualified re7 tirement services) is amended by adding at the end the 

8 following new paragraph: 

9 ‘‘(4) NO CONSTRUCTIVE RECEIPT.—No amount 

10 shall be included in the gross income of any em11 ployee solely because the employee may choose be12 tween any qualified retirement planning services pro13 vided by a qualified investment advisor and com14 pensation which would otherwise be includible in the 

15 gross income of such employee. The preceding sen16 tence shall apply to highly compensated employees 

17 only if the choice described in such sentence is avail18 able on substantially the same terms to each mem19 ber of the group of employees normally provided 

20 education and information regarding the employer’s 

21 qualified employer plan.’’. 

22 (b) CONFORMING AMENDMENTS.—

23 (1) Section 403(b)(3)(B) of such Code is 

24 amended by inserting ‘‘132(m)(4),’’ after 

25 ‘‘132(f)(4),’’. 
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1 (2) Section 414(s)(2) of such Code is amended 

2 by inserting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

3 (3) Section 415(c)(3)(D)(ii) of such Code is 

4 amended by inserting ‘‘132(m)(4),’’ after 

5 ‘‘132(f)(4),’’. 

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

7 this section shall apply to taxable years beginning after 

8 December 31, 2003. 

9 TITLE VI—PARITY IN EMPLOYEE 

10 BENEFITS

11 SEC. 601. INCLUSION IN GROSS INCOME OF FUNDED DE12 FERRED COMPENSATION OF CORPORATE IN13 SIDERS IF CORPORATION FUNDS DEFINED 

14 CONTRIBUTION PLAN WITH EMPLOYER 

15 STOCK. 

16 (a) IN GENERAL.—Subpart A of part I of subchapter 

17 D of chapter 1 of the Internal Revenue Code of 1986 is 

18 amended by adding at the end the following new section: 

19 ‘‘SEC. 409A. DENIAL OF DEFERRAL FOR FUNDED DEFERRED 

20 COMPENSATION OF CORPORATE INSIDERS IF 

21 CORPORATION FUNDS DEFINED CONTRIBU22 TION PLAN WITH EMPLOYER STOCK. 

23 ‘‘(a) IN GENERAL.—If an employer maintains a de24 fined contribution plan to which employer contributions
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1 are made in the form of employer stock and such employer 

2 maintains a funded deferred compensation plan—

3 ‘‘(1) compensation of any corporate insider 

4 which is deferred under such funded deferred com5 pensation plan shall be included in the gross income 

6 of the insider or beneficiary for the 1st taxable year 

7 in which there is no substantial risk of forfeiture of 

8 the rights to such compensation, and 

9 ‘‘(2) the tax treatment of any amount made 

10 available under the plan to a corporate insider or 

11 beneficiary shall be determined under section 72 (re12 lating to annuities, etc.). 

13 ‘‘(b) FUNDED DEFERRED COMPENSATION PLAN.—

14 For purposes of this section—

15 ‘‘(1) IN GENERAL.—The term ‘funded deferred 

16 compensation plan’ means any plan providing for the 

17 deferral of compensation unless—

18 ‘‘(A) the employee’s rights to the com19 pensation deferred under the plan are no great20 er than the rights of a general creditor of the 

21 employer, 

22 ‘‘(B) all amounts set aside (directly or in23 directly) for purposes of paying the deferred 

24 compensation, and all income attributable to 

25 such amounts, remain (until made available to 
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1 the participant or other beneficiary) solely the 

2 property of the employer (without being re3 stricted to the provision of benefits under the 

4 plan), and 

5 ‘‘(C) the amounts referred to in subpara6 graph (B) are available to satisfy the claims of 

7 the employer’s general creditors at all times 

8 (not merely after bankruptcy or insolvency). 

9 Such term shall not include a qualified employer 

10 plan. 

11 ‘‘(2) SPECIAL RULES.—

12 ‘‘(A) EMPLOYEE’S RIGHTS.—A plan shall 

13 be treated as failing to meet the requirements 

14 of paragraph (1)(A) unless, under the written 

15 terms of the plan—

16 ‘‘(i) the compensation deferred under 

17 the plan is paid only upon separation from 

18 service, death, or at a specified time (or 

19 pursuant to a fixed schedule), and 

20 ‘‘(ii) the plan does not permit the ac21 celeration of the time such deferred com22 pensation is paid by reason of any event. 

23 If the employer and employee agree to a modi24 fication of the plan that accelerates the time for 

25 payment of any deferred compensation, then all 
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1 compensation previously deferred under the 

2 plan shall be includible in gross income for the 

3 taxable year during which such modification 

4 takes effect and the taxpayer shall pay interest 

5 at the underpayment rate on the underpay6 ments that would have occurred had the de7 ferred compensation been includible in gross in8 come in the taxable years deferred. 

9 ‘‘(B) CREDITOR’S RIGHTS.—A plan shall 

10 be treated as failing to meet the requirements 

11 of paragraph (1)(B) with respect to amounts 

12 set aside in a trust unless—

13 ‘‘(i) the employee has no beneficial in14 terest in the trust, 

15 ‘‘(ii) assets in the trust are available 

16 to satisfy claims of general creditors at all 

17 times (not merely after bankruptcy or in18 solvency), and 

19 ‘‘(iii) there is no factor (such as the 

20 location of the trust outside the United 

21 States) that would make it more difficult 

22 for general creditors to reach the assets in 

23 the trust than it would be if the trust as24 sets were held directly by the employer in 

25 the United States. 
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1 ‘‘(c) CORPORATE INSIDER.—For purposes of this sec2 tion, the term ‘corporate insider’ means, with respect to 

3 a corporation, any individual who is subject to the require4 ments of section 16(a) of the Securities Exchange Act of 

5 1934 with respect to such corporation. 

6 ‘‘(d) OTHER DEFINITIONS.—For purposes of this sec7 tion—

8 ‘‘(1) PLAN INCLUDES ARRANGEMENTS, ETC.—

9 The term ‘plan’ includes any agreement or arrange10 ment. 

11 ‘‘(2) SUBSTANTIAL RISK OF FORFEITURE.—The 

12 rights of a person to compensation are subject to a 

13 substantial risk of forfeiture if such person’s rights 

14 to such compensation are conditioned upon the fu15 ture performance of substantial services by any indi16 vidual.’’

17 (b) CLERICAL AMENDMENT.—The table of sections 

18 for such subpart A is amended by adding at the end the 

19 following new item:

‘‘Sec. 409A. Denial of deferral for funded deferred compensation 

of corporate insiders if corporation funds defined 

contribution plan with employer stock.’’

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

21 this section shall apply to amounts deferred after the date 

22 of the enactment of this Act. 
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1 SEC. 602. PERFORMANCE-BASED COMPENSATION EXCEP2 TION TO $1,000,000 LIMITATION ON DEDUCT3 IBLE COMPENSATION NOT TO APPLY IN CER4 TAIN CASES. 

5 (a) IN GENERAL.—Paragraph (4) of section 162(m) 

6 of the Internal Revenue Code of 1986 is amended by add7 ing at the end the following new subparagraph: 

8 ‘‘(G) CERTAIN FACTORS NOT PERMITTED

9 TO BE TAKEN INTO ACCOUNT IN DETERMINING

10 WHETHER PERFORMANCE GOALS ARE MET.—

11 Subparagraph (C) shall not apply if, in deter12 mining whether the performance goals are met, 

13 any of the following are taken into account: 

14 ‘‘(i) Cost savings as a result of 

15 changes to any qualified employer plan (as 

16 defined in section 4972(d)). 

17 ‘‘(ii) Excess assets of such a plan or 

18 earnings thereon. 

19 ‘‘(iii) Any excess of the amount as20 sumed to be the return on the assets of 

21 such a plan over the actual return on such 

22 assets.’’

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

24 this section shall apply to taxable years beginning after 

25 the date of the enactment of this Act.
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1 TITLE VII—PROTECTION OF 

2 RETIREMENT EXPECTATIONS 

3 SEC. 701. PROTECTION OF PARTICIPANTS FROM CONVER4 SIONS TO HYBRID DEFINED BENEFIT PLANS. 

5 (a) AMENDMENTS TO THE EMPLOYEE RETIREMENT

6 INCOME SECURITY ACT OF 1974.—

7 (1) ELECTION TO MAINTAIN RATE OF ACCRUAL

8 IN EFFECT BEFORE PLAN AMENDMENT.—Section 

9 204(b)(1) of the Employee Retirement Income Secu10 rity Act of 1974 (29 U.S.C. 1054(b)(1)) is amended 

11 by adding at the end the following new subpara12 graph: 

13 ‘‘(I)(i) Notwithstanding the preceding subpara14 graphs, in the case of a plan amendment to a defined ben15 efit plan—

16 ‘‘(I) which has the effect of converting the plan 

17 to a plan under which the accrued benefit is ex18 pressed to participants and beneficiaries as an 

19 amount other than an annual benefit commencing at 

20 normal retirement age (or which has a similar effect 

21 as determined under regulations issued under clause 

22 (iii)), and 

23 ‘‘(II) which has the effect of reducing the rate 

24 of future benefit accrual of 1 or more participants, 
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1 such plan shall be treated as not satisfying the require2 ments of this paragraph unless such plan meets the re3 quirements of clause (ii). 

4 ‘‘(ii) A plan meets the requirements of this clause if 

5 the plan provides each participant who has attained 10 

6 years of service (as determined under section 203) under 

7 the plan at the time such amendment takes effect with—

8 ‘‘(I) notice of the plan amendment indicating 

9 that it has such effect, including a comparison of the 

10 present and projected values of the accrued benefit 

11 determined both with and without regard to the plan 

12 amendment, and 

13 ‘‘(II) an election, on the date of the conversion, 

14 to either receive benefits under the terms of the plan 

15 as in effect on or after the effective date of such 

16 plan amendment or to receive benefits under the 

17 terms of the plan as in effect immediately before the 

18 effective date of such plan amendment (taking into 

19 account all benefit accruals under such terms since 

20 such date). 

21 ‘‘(iii) The Secretary shall issue regulations under 

22 which any plan amendment which has an effect similar 

23 to the effect described in clause (i)(I) shall be treated as 

24 a plan amendment described in clause (i)(I). Such regula25 tions may provide that if a plan sponsor represents in com-
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1 munications to participants and beneficiaries that a plan 

2 amendment has an effect described in the preceding sen3 tence, such plan amendment shall be treated as a plan 

4 amendment described in clause (i)(I).’’. 

5 (2) EARLY RETIREMENT SUBSIDY TAKEN INTO

6 ACCOUNT FOR PURPOSES OF OPENING BALANCE OF

7 HYBRID DEFINED BENEFIT PLAN.—Section 204(g) 

8 of such Act (29 U.S.C. 1054(g)) is amended by add9 ing at the end the following new paragraph: 

10 ‘‘(6) In the case of a plan amendment to a defined 

11 benefit plan which has the effect of converting the plan 

12 to a plan under which the accrued benefit is expressed to 

13 participants and beneficiaries as an amount other than an 

14 annual benefit commencing at normal retirement age (or 

15 a plan amendment to such plan having a similar effect 

16 as determined under regulations issued under subsection 

17 (b)(1)(I)(iii)), such amendment shall not be treated as re18 ducing accrued benefits merely because under such 

19 amendment any early retirement benefit or retirement20 type subsidy (within the meaning of paragraph (2)(A)) is 

21 taken into account for purposes of the opening balance 

22 of the amended plan.’’. 

23 (3) INTEREST RATE FOR DETERMINATIONS RE24 LATING TO PLAN CONVERSIONS.—Section 204(g) of 

25 such Act (as amended by paragraph (2)) is amended 
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1 further by adding at the end the following new para2 graph: 

3 ‘‘(7) For purposes of this subsection—

4 ‘‘(A) in the case of an amendment described in 

5 paragraph (1) which takes effect on or after the en6 actment of this paragraph, the interest rate and 

7 mortality tables to be used in determining the 

8 present value of the accrued benefit under such 

9 amendment shall be the applicable rate and tables 

10 under section 417(e)(3) of the Internal Revenue 

11 Code of 1986 as of the date on which such amend12 ment takes effect, and 

13 ‘‘(B) in the case of amendments described in 

14 paragraph (1) which took effect before the enact15 ment of this paragraph, the interest rate and mor16 tality tables to be used in determining the present 

17 value of the accrued benefit under such amendments 

18 shall be the applicable rate and tables which were in 

19 effect under section 412(l) of the Internal Revenue 

20 Code of 1986 as of the effective date of the respec21 tive amendment.’’. 

22 (b) AMENDMENTS TO THE INTERNAL REVENUE

23 CODE OF 1986.—

24 (1) ELECTION TO MAINTAIN RATE OF ACCRUAL

25 IN EFFECT BEFORE PLAN AMENDMENT.—Section 
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1 411(b)(1) of the Internal Revenue Code of 1986 (re2 lating to accrued benefit requirements for defined 

3 benefit plans) is amended by adding at the end the 

4 following new subparagraph: 

5 ‘‘(I) ELECTION TO MAINTAIN RATE OF AC6 CRUAL IN EFFECT BEFORE CERTAIN PLAN

7 AMENDMENTS.—

8 ‘‘(i) IN GENERAL.—Notwithstanding 

9 the preceding subparagraphs, in the case 

10 of a plan amendment to a defined benefit 

11 plan—

12 ‘‘(I) which has the effect of con13 verting the plan to a plan under which 

14 the accrued benefit is expressed to 

15 participants and beneficiaries as an 

16 amount other than an annual benefit 

17 commencing at normal retirement age 

18 (or which has a similar effect as de19 termined under regulations issued 

20 under clause (iii)), and 

21 ‘‘(II) which has the effect of re22 ducing the rate of future benefit ac23 crual of 1 or more participants, 

24 such plan shall be treated as not satisfying 

25 the requirements of this paragraph unless
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1 such plan meets the requirements of clause 

2 (ii). 

3 ‘‘(ii) REQUIREMENTS.—A plan meets 

4 the requirements of this clause if the plan 

5 provides each participant who has attained 

6 10 years of service (as determined under 

7 section 203) under the plan at the time 

8 such amendment takes effect with—

9 ‘‘(I) notice of the plan amend10 ment indicating that it has such ef11 fect, including a comparison of the 

12 present and projected values of the 

13 accrued benefit determined both with 

14 and without regard to the plan 

15 amendment, and 

16 ‘‘(II) an election, on the date of 

17 the conversion, to either receive bene18 fits under the terms of the plan as in 

19 effect on or after the effective date of 

20 such plan amendment or to receive 

21 benefits under the terms of the plan 

22 as in effect immediately before the ef23 fective date of such plan amendment 

24 (taking into account all benefit accru25 als under such terms since such date). 
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1 ‘‘(iii) REGULATIONS.—The Secretary 

2 shall issue regulations under which any 

3 plan amendment which has an effect simi4 lar to the effect described in clause (i)(I) 

5 shall be treated as a plan amendment de6 scribed in clause (i)(I). Such regulations 

7 may provide that if a plan sponsor rep8 resents in communications to participants 

9 and beneficiaries that a plan amendment 

10 has an effect described in the preceding 

11 sentence, such plan amendment shall be 

12 treated as a plan amendment described in 

13 clause (i)(I).’’. 

14 (2) EARLY RETIREMENT SUBSIDY TAKEN INTO

15 ACCOUNT FOR PURPOSES OF OPENING BALANCE OF

16 HYBRID DEFINED BENEFIT PLAN.—Paragraph (6) 

17 of section 411(d) (relating to accrued benefit not to 

18 be decreased by amendment) is amended by adding 

19 at the end the following new subparagraph: 

20 ‘‘(F) EARLY RETIREMENT SUBSIDY TAKEN

21 INTO ACCOUNT FOR PURPOSES OF OPENING

22 BALANCE OF HYBRID DEFINED BENEFIT

23 PLAN.—In the case of a plan amendment to a 

24 defined benefit plan which has the effect of con25 verting the plan to a plan under which the ac-
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1 crued benefit is expressed to participants and 

2 beneficiaries as an amount other than an an3 nual benefit commencing at normal retirement 

4 age (or a plan amendment to such plan having 

5 a similar effect as determined under regulations 

6 issued under subsection (b)(1)(I)(iii)), such 

7 amendment shall not be treated as reducing ac8 crued benefits merely because under such 

9 amendment any early retirement benefit or re10 tirement-type subsidy (within the meaning of 

11 section subparagraph (B)(i)) is taken into ac12 count for purposes of the opening balance of 

13 the amended plan.’’. 

14 (3) INTEREST RATE FOR DETERMINATIONS RE15 LATING TO PLAN CONVERSIONS.—Paragraph (6) of 

16 section 411(d) of such Code (as amended by para17 graph (2)) is amended further by adding at the end 

18 the following new subparagraph: 

19 ‘‘(G) INTEREST RATE.—For purposes of 

20 this paragraph—

21 ‘‘(i) in the case of an amendment de22 scribed in subparagraph (A) which takes 

23 effect on or after the enactment of this 

24 subparagraph, the interest rate and mor25 tality tables to be used in determining the 
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1 present value of the accrued benefit under 

2 such amendment shall be the applicable 

3 rate and tables under section 417(e)(3) as 

4 of the date on which such amendment 

5 takes effect, and 

6 ‘‘(ii) in the case of amendments de7 scribed in subparagraph (A) which took ef8 fect before the enactment of this subpara9 graph, the interest rate and mortality ta10 bles to be used in determining the present 

11 value of the accrued benefit under such 

12 amendments shall be the applicable rate 

13 and tables which were in effect under sec14 tion 412(l) as of the effective date of the 

15 respective amendment.’’.

16 (b) EFFECTIVE DATE AND RELATED RULES.—

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

18 this section shall apply to plan amendments taking 

19 effect after the date of the enactment of this Act. 

20 (2) PLAN AMENDMENTS SUBJECT TO LITIGA21 TION.—The amendments made by this section also 

22 shall apply to any plan amendment taking effect on 

23 or before such date if—

24 (A) no determination letter is issued on or 

25 before such date by the Internal Revenue Serv-
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1 ice which has the effect of approving the plan 

2 amendment, and 

3 (B) such plan amendment is, on April 8, 

4 2003, subject to a court action based on age 

5 discrimination. 

6 (3) SPECIAL RULE.—In the case of a plan 

7 amendment taking effect before 90 days after the 

8 date of the enactment of this Act, the requirements 

9 of section 204(b)(1)(I) of the Employee Retirement 

10 Income Security Act of 1974 (as added by this sec11 tion) and section 411(b)(1)(I) of the Internal Rev12 enue Code of 1986 (as added by this section) shall 

13 be treated as satisfied in connection with such plan 

14 amendment, in the case of any participant described 

15 in such sections 204(b)(1)(I) and 411(b)(1)(I) in 

16 connection with such plan amendment, if, as of the 

17 end of such 90-day period—

18 (A) the notice described in clause (i)(I) of 

19 such section 204(b)(1)(I) and clause (i)(I) of 

20 such section 411(b)(1)(I) in connection with 

21 such plan amendment has been provided to 

22 such participant, and 

23 (B) the plan provides for the election de24 scribed in clause (i)(II) of such section 

25 204(b)(1)(I) and clause (i)(II) of such section
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1 411(b)(1)(I) in connection with such partici2 pant’s retirement under the plan. 

3 TITLE VIII—TREATMENT OF 

4 CORPORATE INSIDERS 

5 SEC. 801. SPECIAL RULES FOR EXECUTIVE PERKS AND RE6 TIREMENT BENEFITS. 

7 (a) IN GENERAL.—Part I of subchapter D of chapter 

8 1 of the Internal Revenue Code of 1986 (relating to pen9 sion, profit-sharing, stock bonus plans, etc.) is amended 

10 by adding at the end the following new subpart: 

11 ‘‘SUBPART F—SPECIAL RULES FOR EXECUTIVE PERKS

12 AND RETIREMENT BENEFITS

‘‘Sec. 420A. Holding period requirement for stock acquired 

through exercise of option. 

‘‘Sec. 420B. Additional tax on nondisclosed retirement perks. 

‘‘Sec. 420C. Definitions and special rule.

13 ‘‘SEC. 420A. HOLDING PERIOD REQUIREMENT FOR STOCK 

14 ACQUIRED THROUGH EXERCISE OF OPTION. 

15 ‘‘(a) IN GENERAL.—In the case of a corporate insider 

16 with respect to a corporation, the tax imposed by this 

17 chapter on a corporate insider for any taxable year shall 

18 be increased by 50 percent of the amount realized by such 

19 insider from the disqualified disposition during such year 

20 of stock acquired by the corporate insider upon the exer21 cise of a stock option granted by the corporation with re22 spect to which such individual is a corporate insider. 

23 ‘‘(b) DISQUALIFIED DISPOSITION OF STOCK.—
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1 ‘‘(1) IN GENERAL.—For purposes of subsection 

2 (a), the term ‘disqualified disposition of stock’ 

3 means any sale, exchange, or other disposition of 

4 stock which, if such stock were employer securities 

5 held in a qualified cash or deferred arrangement (as 

6 defined in section 401(k)(2)), would violate any re7 striction imposed on the sale or other disposition of 

8 such securities by the plan of which such arrange9 ment is a part. 

10 ‘‘(2) SPECIAL RULE FOR 2 OR MORE CASH OR

11 DEFERRED ARRANGEMENTS.—If a corporation has 

12 more than 1 qualified cash or deferred arrangement 

13 (as so defined), the restrictions which apply for pur14 poses of paragraph (1) shall be the most restrictive 

15 provisions relating to the disposition of employer se16 curities held pursuant to any such arrangements. 

17 ‘‘SEC. 420B. ADDITIONAL TAX ON NONDISCLOSED RETIRE18 MENT PERKS. 

19 ‘‘(a) IN GENERAL.—In the case of a publicly traded 

20 corporation, the tax imposed by this chapter for the tax21 able year shall be increased by 50 percent of the net cost 

22 to the corporation for the taxable year of personal perks 

23 provided to a retired executive of the corporation. 

24 ‘‘(b) WAIVER IF PERKS PROVIDED PURSUANT TO

25 SHAREHOLDER APPROVAL.—Subsection (a) shall not 
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1 apply with respect to any personal perks provided pursu2 ant to a contract if—

3 ‘‘(1) all of the material terms of such contract 

4 (including a description of the benefits to be pro5 vided to the executive and the extent of such bene6 fits) are disclosed to shareholders, and 

7 ‘‘(2) such contract is approved by a majority of 

8 the vote in a separate shareholder vote before any 

9 benefits are provided under the contract. 

10 ‘‘(c) NET COST OF PERSONAL PERKS.—

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

12 (a), the net cost of personal perks provided to a re13 tired executive is the excess of—

14 ‘‘(A) the cost to the corporation of such 

15 perks, over 

16 ‘‘(B) the amount paid in cash during the 

17 taxable year by the executive to reimburse the 

18 corporation for the cost of such perks. 

19 ‘‘(2) PERSONAL PERKS.—For purposes of para20 graph (1), the term ‘personal perks’ means—

21 ‘‘(A) the use of corporate-owned property, 

22 ‘‘(B) travel expenses, including meals and 

23 lodging, unless such expenses are directly re24 lated to the performance of services by the exec25 utive for the corporation and the business rela-
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1 tionship of such expenses is substantiated under 

2 the requirements of section 274, 

3 ‘‘(C) tickets to sporting or other entertain4 ment events, 

5 ‘‘(D) amounts paid or incurred for mem6 bership in any club organized for business, 

7 pleasure, recreation, or other social purpose, 

8 and 

9 ‘‘(E) other personal services, including 

10 services related to maintenance or protection of 

11 any personal residence of the executive. 

12 ‘‘(3) COST RELATING TO USE OF CORPORATE13 OWNED PROPERTY.—For purposes of this sub14 section—

15 ‘‘(A) IN GENERAL.—The cost taken into 

16 account with respect to the use of corporate17 owned property shall be the allocable portion of 

18 the total cost of operating such property. 

19 ‘‘(B) ALLOCABLE PORTION.—For purposes 

20 of subparagraph (A), the allocable portion of 

21 total cost is—

22 ‘‘(i) the portion of the total cost (in23 cluding depreciation) incurred by the cor24 poration for operating and maintaining
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1 such property during the corporation’s tax2 able year in which such use occurred, 

3 ‘‘(ii) which is allocable to the use (de4 termined on the basis of the relationship of 

5 such use to the total use of the property 

6 during the taxable year). 

7 ‘‘SEC. 420C. DEFINITIONS AND SPECIAL RULE. 

8 ‘‘(a) DEFINITIONS.—For purposes of this subpart—

9 ‘‘(1) CORPORATE INSIDER.—The term ‘cor10 porate insider’ means, with respect to a corporation, 

11 any individual—

12 ‘‘(A) who is subject to the requirements of 

13 section 16(a) of the Securities Exchange Act of 

14 1934 with respect to such corporation, or 

15 ‘‘(B) who would be subject to such require16 ments if such corporation were an issuer of eq17 uity securities referred to in such section. 

18 ‘‘(2) RETIRED EXECUTIVE.—The term ‘retired 

19 executive’ means any corporate insider who is no 

20 longer performing services on a substantially full 

21 time basis in the capacity that resulted in being sub22 ject to the requirements of section 16(a) of the Se23 curities Exchange Act of 1934. 

24 ‘‘(3) PUBLICLY TRADED CORPORATION.—The 

25 term ‘publicly traded corporation’ means any cor-
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1 poration issuing any class of securities required to 

2 be registered under section 12 of the Securities Ex3 change Act of 1934. 

4 ‘‘(4) CORPORATE-OWNED PROPERTY.—

5 ‘‘(A) IN GENERAL.—Except as provided in 

6 subparagraph (B), the term ‘corporate-owned 

7 property’ means any of the following property 

8 owned by a corporation—

9 ‘‘(i) planes, 

10 ‘‘(ii) apartments or other residences, 

11 ‘‘(iii) vacation, sports, and entertain12 ment facilities, and 

13 ‘‘(iv) cars. 

14 Such term includes any such property which is 

15 leased or chartered by the corporation. 

16 ‘‘(B) EXCEPTIONS.—Such term does not 

17 include any property used directly by the cor18 poration in providing transportation, lodging, or 

19 entertainment services to the general public. 

20 ‘‘(b) ADDITIONS TO TAX NOT TREATED AS TAX FOR

21 CERTAIN PURPOSES.—The tax imposed by sections 420A 

22 and 420B shall not be treated as a tax imposed by this 

23 chapter for purposes of determining—

24 ‘‘(1) the amount of any credit allowable under 

25 this chapter, or 
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1 ‘‘(2) the amount of the minimum tax imposed 

2 by section 55.’’. 

3 (b) CLERICAL AMENDMENT.—The table of subparts 

4 for part I of subchapter D of chapter 1 of such Code is 

5 amended by adding at the end the following new item:

‘‘Subpart F. Special Rules for Executive Perks and Retirement 

Benefits.’’.

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

7 this section shall take effect as follows: 

8 (1) Section 420A of the Internal Revenue Code 

9 of 1986 (as added by this section) shall apply to 

10 stock acquired pursuant to the exercise of an option 

11 after the date of the enactment of this Act. 

12 (2)(A) Except as provided by subparagraph 

13 (B), section 420B of such Code (as so added) shall 

14 apply to perks provided after the date of the enact15 ment of this Act. 

16 (B) In the case of perks provided pursuant to 

17 a contract in existence on the date of the enactment 

18 of this Act, such section 420B shall apply to such 

19 perks after the date of the first annual shareholders 

20 meeting after the date of the enactment of this Act. 
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1 SEC. 802. GOLDEN PARACHUTE EXCISE TAX TO APPLY TO 

2 DEFERRED COMPENSATION PAID BY COR3 PORATION AFTER MAJOR DECLINE IN STOCK 

4 VALUE OR CORPORATION DECLARES BANK5 RUPTCY. 

6 (a) IN GENERAL.—Section 4999 of the Internal Rev7 enue Code of 1986 (relating to golden parachute pay8 ments) is amended by redesignating subsection (c) as sub9 section (d) and by inserting after subsection (b) the fol10 lowing new subsection: 

11 ‘‘(c) TAX TO APPLY TO DEFERRED COMPENSATION

12 PAID AFTER MAJOR STOCK VALUE DECLINE OR BANK13 RUPTCY.—

14 ‘‘(1) IN GENERAL.—For purposes of this sec15 tion, the term ‘excess parachute payment’ includes 

16 severance pay, and any other payment of deferred 

17 compensation, which is received by a corporate in18 sider after the date that the insider ceases to be em19 ployed by the corporation if—

20 ‘‘(A) there is at least a 75-percent decline 

21 in the value of the stock in such corporation 

22 during the 1-year period ending on such date, 

23 or 

24 ‘‘(B) such corporation becomes a debtor in 

25 a title 11 or similar case (as defined in section 
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•HR 2101 IH 

1 368(a)(3)(A)) during the 180-day period begin2 ning 90 days before such date. 

3 Such term shall not include any payment from a 

4 qualified employer plan. 

5 ‘‘(2) CORPORATE INSIDER.—For purposes of 

6 paragraph (1), the term ‘corporate insider’ means, 

7 with respect to a corporation, any individual who is 

8 subject to the requirements of section 16(a) of the 

9 Securities Exchange Act of 1934 with respect to 

10 such corporation.’’

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

12 this section shall apply with respect to cessations of em13 ployment after the date of the enactment of this Act.

14 SEC. 803. ADEQUATE DISCLOSURE REGARDING EXECUTIVE 

15 COMPENSATION PACKAGES. 

16 (a) IN GENERAL.—Section 402 of the Employee Re17 tirement Income Security Act of 1974 (29 U.S.C. 1102) 

18 is amended by inserting after subsection (c) the following 

19 new subsection: 

20 ‘‘(d) DISCLOSURE REGARDING EXECUTIVE COM21 PENSATION PACKAGES.—

22 ‘‘(1) IN GENERAL.—In any case in which an 

23 employer takes any action to establish or substan24 tially improve an executive compensation package 

25 with respect to any employee, such action may not
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1 take effect unless the employer has met the require2 ments of paragraph (2). 

3 ‘‘(2) REQUIREMENTS.—An employer meets the 

4 requirements of this paragraph if—

5 ‘‘(A) not less than 100 days prior to the 

6 effective date of the action described in para7 graph (1), the employer provides written notifi8 cation of the action to—

9 ‘‘(i) each employee of the employer, 

10 ‘‘(ii) each employee organization rep11 resenting employees of the employer (if 

12 any), and 

13 ‘‘(iii) in the case of an employer that 

14 is a corporation, the board of directors, 

15 and 

16 ‘‘(B) in the case of an employer that is a 

17 corporation, the board of directors has approved 

18 such action. 

19 Any such written notification shall be written in lan20 guage calculated to be understood by the average 

21 plan participant. 

22 ‘‘(3) DEFINITIONS.—For purposes of this sub23 section—

24 ‘‘(A) EXECUTIVE COMPENSATION PACK25 AGE.—The term ‘executive compensation pack-
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1 age’ means a combination of pay, benefits 

2 under employee benefit plans, and other forms 

3 of compensation provided by an employer pri4 marily for employees who are members of a se5 lect group of management or highly com6 pensated employees. 

7 ‘‘(B) SUBSTANTIAL IMPROVEMENT.—An 

8 executive compensation package is ‘substantially 

9 improved’ if the present value of such package 

10 is increased by not less than 10 percent.’’. 

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

12 this section shall apply with respect to actions taken after 

13 the date of the enactment of this Act.

14 TITLE IX—ADDITIONAL PROTEC15 TIONS FOR EMPLOYEES OF 

16 BANKRUPT EMPLOYERS 

17 SEC. 901. AVOIDANCE OF CERTAIN TRANSFERS; ALTER18 NATE PROSECUTION OF ACTION. 

19 Section 547 of title 11, United States Code, is 

20 amended by adding at the end the following: 

21 ‘‘(h) Notwithstanding subsections (b) and (c), the 

22 trustee may avoid a transfer of a debtor’s interest in prop23 erty to any trust or similar arrangement to fund supple24 mental retirement benefits or other deferred compensation 

25 for the benefit of an insider or other management em-
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1 ployee made on or within one year before the date of the 

2 filing of the petition. 

3 ‘‘(i) If the trustee consents or fails to commence a 

4 proceeding authorized under section 506, 543, 544, 545, 

5 547, 548, 549, 550, 552, 553, or 724, on request of a 

6 party in interest or a committee of creditors appointed 

7 under section 1102 of this title, after notice and a hearing, 

8 the court may authorize such party in interest or com9 mittee of creditors to commence and prosecute such pro10 ceeding if the court finds that commencing and pros11 ecuting such proceeding is in the best interest of the estate 

12 and for the benefit of the estate.’’. 

13 SEC. 902. LIMITATION ON RETENTION BONUSES, SEVER14 ANCE PAY, AND CERTAIN OTHER PAYMENTS. 

15 Section 503 of title 11, United States Code, is 

16 amended by adding at the end the following: 

17 ‘‘(c)(1) Notwithstanding subsection (b), there shall 

18 neither be allowed, nor paid—

19 ‘‘(A) a transfer made to, or an obligation in20 curred for the benefit of, an insider of the debtor for 

21 the purpose of inducing such person to remain with 

22 the debtor’s business, absent a finding by the court 

23 based on evidence in the record that—

24 ‘‘(i) the transfer or obligation is essential 

25 to retention of the person because the individual 
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1 has a bona fide job offer from another business 

2 at the same or greater rate of compensation; 

3 ‘‘(ii) the services provided by the person 

4 are essential to the survival of the business; and 

5 ‘‘(iii) either—

6 ‘‘(I) the amount of the transfer made 

7 to, or obligation incurred for the benefit of, 

8 the person is not greater than an amount 

9 equal to 10 times the amount of the mean 

10 transfer or obligation of a similar kind 

11 given to nonmanagement employees for 

12 any purpose during the calendar year in 

13 which the transfer is made or the obliga14 tion is incurred; or 

15 ‘‘(II) if no such similar transfers were 

16 made to, or obligations were incurred for 

17 the benefit of, such nonmanagement em18 ployees during such calendar year, the 

19 amount of the transfer or obligation is not 

20 greater than an amount equal to 25 per21 cent of the amount of any similar transfer 

22 or obligation made to or incurred for the 

23 benefit of such insider for any purpose 

24 during the calendar year before the year in 
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1 which such transfer is made or obligation 

2 is incurred; 

3 ‘‘(B) a severance payment to an insider of the 

4 debtor, unless—

5 ‘‘(i) the payment is part of a program that 

6 is generally applicable to all full-time employees; 

7 and 

8 ‘‘(ii) the amount of the payment is not 

9 greater than 10 times the amount of the mean 

10 severance pay given to nonmanagement employ11 ees during the calendar year in which the pay12 ment is made; or 

13 ‘‘(C) other transfers or obligations that are out14 side the ordinary course of business and not justified 

15 by the facts and circumstances of the case. 

16 ‘‘(2) For purposes of paragraph (1)(C), transfers 

17 made to, or obligations incurred for the benefit of, officers, 

18 managers, or consultants hired after the date of the filing 

19 of the petition shall be considered outside the ordinary 

20 course of business.’’. 

21 SEC. 903. PRIORITIES 

22 Section 507(a) of title 11, United States Code, is 

23 amended—

24 (1) in paragraph (3), by striking ‘‘earned within 

25 90 days before the date of the filing of the petition
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1 or the date of the cessation of the debtor’s business, 

2 whichever occurs first,’’; and 

3 (2) in paragraphs (3) and (4), by striking 

4 ‘‘$4,000’’ and inserting ‘‘$10,000’’. 

5 SEC. 904. EFFECTIVE DATE OF TITLE. 

6 The amendments made by this title shall take effect 

7 on the date of the enactment of this Act.

8 TITLE X—MISCELLANEOUS 

9 PROVISIONS

10 SEC. 1001. CORPORATE DEDUCTION FOR REINVESTED 

11 ESOP DIVIDENDS SUBJECT TO DEDUCTIBLE 

12 LIMITS. 

13 (a) IN GENERAL.—Subsection (a) of section 404 of 

14 the Internal Revenue Code of 1986 (relating to general 

15 rule) is amended by adding at the end the following new 

16 paragraph: 

17 ‘‘(13) CERTAIN DIVIDENDS REINVESTED IN EM18 PLOYEE STOCK OWNERSHIP PLANS SUBJECT TO DE19 DUCTIBLE LIMITS.—For purposes of this subsection, 

20 an applicable dividend described in subsection 

21 (k)(2)(A)(iii)(I) shall be treated as compensation.’’. 

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

23 this section shall apply to taxable years beginning after 

24 December 31, 2003.
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1 SEC. 1002. CREDIT FOR ELECTIVE DEFERRALS AND IRA 

2 CONTRIBUTIONS BY CERTAIN INDIVIDUALS 

3 MADE PERMANENT (SAVER’S TAX CREDIT). 

4 Section 25B of the Internal Revenue Code of 1986 

5 is amended by striking subsection (h) (relating to termi6 nation). 

7 TITLE XI—GENERAL 

8 PROVISIONS 

9 SEC. 1101. GENERAL EFFECTIVE DATE. 

10 (a) IN GENERAL.—Except as otherwise provided in 

11 this Act, the amendments made by this Act shall apply 

12 with respect to plan years beginning on or after January 

13 1, 2004. 

14 (b) SPECIAL RULE FOR COLLECTIVELY BARGAINED

15 PLANS.—In the case of a plan maintained pursuant to 1 

16 or more collective bargaining agreements between em17 ployee representatives and 1 or more employers ratified 

18 on or before the date of the enactment of this Act, sub19 section (a) shall be applied to benefits pursuant to, and 

20 individuals covered by, any such agreement by substituting 

21 for ‘‘January 1, 2004’’ the date of the commencement of 

22 the first plan year beginning on or after the earlier of—

23 (1) the later of—

24 (A) January 1, 2005, or 

25 (B) the date on which the last of such col26 lective bargaining agreements terminates (de-
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1 termined without regard to any extension there2 of after the date of the enactment of this Act), 

3 or 

4 (2) January 1, 2006. 

5 SEC. 1102. PLAN AMENDMENTS. 

6 If any amendment made by this Act requires an 

7 amendment to any plan, such plan amendment shall not 

8 be required to be made before the first plan year beginning 

9 on or after the effective date specified in section 601, if—

10 (1) during the period after such amendment 

11 made by this Act takes effect and before such first 

12 plan year, the plan is operated in accordance with 

13 the requirements of such amendment made by this 

14 Act, and 

15 (2) such plan amendment applies retroactively 

16 to the period after such amendment made by this 

17 Act takes effect and before such first plan year.

Æ