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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 2431 Introduced in Senate (IS)]

109th CONGRESS
  2d Session
                                S. 2431

 To amend the Internal Revenue Code of 1986 to encourage all Americans 
to save for retirement by increasing their access to pension plans and 
       other retirement savings vehicles, and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

               March 16 (legislative day, March 15), 2006

  Mr. Baucus introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL

 
 To amend the Internal Revenue Code of 1986 to encourage all Americans 
to save for retirement by increasing their access to pension plans and 
       other retirement savings vehicles, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Savings 
Competitiveness Act of 2006''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.
    TITLE I--EMPLOYEE ACCESS TO RETIREMENT SAVINGS PROGRAMS AT WORK

Sec. 101. Employees not covered by qualified retirement plans or 
                            arrangements entitled to participate in 
                            payroll retirement savings programs at 
                            work.
Sec. 102. Credit for small employers maintaining payroll retirement 
                            savings arrangements.
Sec. 103. Establishment of Secure Retirement Accounts.
     TITLE II--FEDERAL MATCHING OF CERTAIN RETIREMENT CONTRIBUTIONS

Sec. 201. Refundable credit to provide a Federal match for retirement 
                            contributions of certain taxpayers.
       TITLE III--OTHER PROVISIONS TO INCREASE RETIREMENT SAVINGS

Sec. 301. Young Savers Accounts.
Sec. 302. Increasing participation in cash or deferred plans through 
                            automatic contribution arrangements.
Sec. 303. Treatment of investment of assets by plan where participant 
                            fails to exercise investment election.
Sec. 304. Credit for qualified pension plan contributions of small 
                            employers.
Sec. 305. Account funds disregarded for purposes of certain means-
                            tested Federal programs.
Sec. 306. Direct payment of tax refunds to individual retirement plans.
                  TITLE IV--SIMPLIFICATION PROVISIONS

Sec. 401. Exception from required distributions where aggregate 
                            retirement savings less than $50,000.
Sec. 402. Allowance of additional nonelective contributions to simple 
                            plans.
Sec. 403. Extension of certain exceptions from tax on early 
                            distributions to plans other than 
                            individual retirement plans.
Sec. 404. Elimination of higher penalty on certain simple plan 
                            distributions.
Sec. 405. Simple plan portability.
Sec. 406. Allow direct rollovers from retirement plans to Roth IRAS.
Sec. 407. Coordination of ordering rules for distributions from Roth 
                            IRAs and designated Roth accounts.
                       TITLE V--PAY-GO PROVISIONS

Sec. 501. Pay-as-you-go point of order in the Senate.
                  TITLE VI--ADMINISTRATIVE PROVISIONS

Sec. 601. Provisions relating to plan amendments.

    TITLE I--EMPLOYEE ACCESS TO RETIREMENT SAVINGS PROGRAMS AT WORK

SEC. 101. EMPLOYEES NOT COVERED BY QUALIFIED RETIREMENT PLANS OR 
              ARRANGEMENTS ENTITLED TO PARTICIPATE IN PAYROLL 
              RETIREMENT SAVINGS PROGRAMS AT WORK.

    (a) In General.--Subpart A of part I of subchapter A of chapter 1 
(relating to pension, profit-sharing, stock bonus plans, etc.) is 
amended by inserting after section 408A the following new section:

``SEC. 408B. RIGHT TO PAYROLL RETIREMENT SAVINGS PROGRAMS AT WORK.

    ``(a) Requirement to Provide Payroll Program.--Each employer (other 
than a small employer described in subsection (e)) shall provide to 
each applicable employee of the employer for any calendar year the 
opportunity to participate in a payroll retirement savings arrangement 
which meets the requirements of this section.
    ``(b) Payroll Retirement Savings Arrangement.--For purposes of this 
section--
            ``(1) In general.--The term `payroll retirement savings 
        arrangement' means a written arrangement of an employer--
                    ``(A) under which an applicable employee eligible 
                to participate in the arrangement may elect to 
                contribute to an individual retirement plan established 
                by or on behalf of the employee by having the employer 
                make direct deposit payments to the plan by payroll 
                deduction, and
                    ``(B) which meets the requirements of paragraph 
                (2).
            ``(2) Administrative requirements.--The requirements of 
        this paragraph are met with respect to any payroll retirement 
        savings arrangement if--
                    ``(A) the employer must make the payments elected 
                under paragraph (1)(A)(i) not later than the close of 
                the 30-day period following the last day of the month 
                in which the payroll deduction occurs,
                    ``(B) subject to a requirement for reasonable 
                notice, an employee may elect to terminate 
                participation in the arrangement at any time during the 
                year, except that if an employee so terminates, the 
                arrangement may provide that the employee may not elect 
                to resume participation until the beginning of the next 
                year,
                    ``(C) each employee eligible to participate may 
                elect, during the 60-day period before the beginning of 
                any year (and the 60-day period before the first day 
                the employee is eligible to participate), to 
                participate in the arrangement, or to modify the 
                amounts subject to the arrangement, for such year,
                    ``(D) immediately before the period for which an 
                election described in paragraph (1)(A) may be made, the 
                employer provides a notice to each employee of the 
                employee's opportunity to make the election and the 
                maximum amount which may be contributed to an 
                individual retirement plan on an annual basis, and
                    ``(E) subject to subsection (f), the arrangement 
                provides that an employee may elect to have 
                contributions made to any individual retirement plan 
                specified by the employee.
    ``(c) Applicable Employee.--For purposes of this section--
            ``(1) In general.--The term `applicable employee' means, 
        with respect to any calendar year, any employee--
                    ``(A) who did not benefit (within the meaning of 
                section 410(b)) under a qualified plan or arrangement 
                maintained by the employer for service during the 
                preceding calendar year, and
                    ``(B) with respect to whom it is reasonable to 
                expect that the employee will not so benefit during the 
                calendar year under such a qualified plan or 
                arrangement.
            ``(2) Excludable employees.--An employer may elect to 
        exclude from treatment as applicable employees under 
        subparagraph (A)--
                    ``(A) employees described in section 410(b)(3),
                    ``(B) employees who have not attained the age of 18 
                before the beginning of the calendar year,
                    ``(C) employees who have not completed at least 3 
                months of service with the employer,
                    ``(D) employees who are reasonably expected to 
                receive less than $5,000 of compensation from the 
                employer during the calendar year, and
                    ``(E) employees who will be eligible to participate 
                in a qualified cash or deferred arrangement (as defined 
                in section 401(k)(2)) of the employer upon the 
                completion of a year of service requirement which, 
                under the arrangement, is not more than 500 hours.
            ``(3) Qualified plan or arrangement.--The term `qualified 
        plan or arrangement' means a plan, contract, pension, or trust 
        described in section 219(g)(5).
            ``(4) Exception for employees of governments and 
        churches.--The term `applicable employee' shall not include an 
        employee of--
                    ``(A) a government or entity described in section 
                414(d), or
                    ``(B) a church or a convention or association of 
                churches which is exempt from tax under section 501, 
                including any employee described in section 
                414(e)(3)(B).
    ``(d) Payroll Savings Contributions Treated Like Other 
Contributions to Individual Retirement Plans.--
            ``(1) Tax treatment unaffected.--The fact that a 
        contribution to an individual retirement plan is made on behalf 
        of an employee under a payroll retirement savings arrangement 
        instead of being made directly by the employee shall not affect 
        the deductibility or other tax treatment of the contribution or 
        of other amounts under this title.
            ``(2) Payroll savings contributions taken into account.--
        Any contribution made on behalf of an employee under a payroll 
        retirement savings arrangement shall be taken into account in 
        applying the limitations on contributions to individual 
        retirement plans and the other provisions of this title 
        applicable to individual retirement plans as if the 
        contribution had been made directly by the employee.
    ``(e) Exception for Certain Small Employers.--
            ``(1) In general.--The requirements of this section shall 
        not apply for any calendar year to an employer which had not 
        more than 4 employees who received at least $5,000 of 
        compensation from the employer for the preceding calendar year.
            ``(2) Operating rules.--In determining the number of 
        employees for purposes of this subsection--
                    ``(A) any rule applicable in determining the number 
                of employees for purposes of section 408(p)(2)(C) shall 
                be applicable under this subsection, and
                    ``(B) all members of the same family (within the 
                meaning of section 318(a)(1)) shall be treated as 1 
                individual.
    ``(f) Use of Designated Financial Institution.--An employer shall 
not be treated as failing to satisfy the requirements of this section 
or any other provision of this title merely because the employer makes 
all contributions (or all contributions on behalf of employees who do 
not specify an individual retirement plan, trustee, or issuer to 
receive the contributions) to Secure Retirement Accounts, or other 
arrangements specified in regulations prescribed by the Secretary, of a 
designated trustee or issuer. The preceding sentence shall not apply 
unless each participant is notified in writing that the participant's 
balance may be transferred without cost or penalty to another 
individual retirement plan in accordance with subsection (b)(1)(A).
    ``(g) Coordination With Automatic Enrollment Provisions.--
            ``(1) In general.--A payroll retirement savings arrangement 
        may provide that contributions under the arrangement will be 
        made pursuant to an automatic contribution arrangement but only 
        if the arrangement meets the requirements applicable to an 
        eligible automatic contribution arrangement under section 
        414(w). The Secretary may modify such requirements to the 
        extent necessary to carry out the purposes of this section.
            ``(2) Default investments.--If an employee does not make an 
        investment election under an automatic contribution arrangement 
        described in paragraph (1)--
                    ``(A) the contributions shall be transferred to a 
                Secure Retirement Account or other arrangement 
                specified in regulations prescribed by the Secretary, 
                and
                    ``(B) such contributions (and any earnings thereon) 
                shall be invested in accordance with the regulations 
                prescribed under section 404(c)(4) of the Employee 
                Retirement Income Security Act of 1974.
    ``(h) Model Notice.--The Secretary shall provide a model notice, 
written in a manner calculated to be understandable to the average 
worker, that employers may use--
            ``(1) to notify employees of the requirement under this 
        section for the employer to provide certain employees with the 
        opportunity to participate in a payroll retirement savings 
        arrangement, and
            ``(2) to satisfy the requirements of subsections (b)(2)(D) 
        and (f).''.
    (b) Preemption of Conflicting State Regulations.--Section 514(e)(1) 
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1144(e)(1)), as added by section 302, is amended to read as follows:
            ``(1) In general.--Notwithstanding any other provision of 
        this section, any law of a State shall be superseded if it 
        would directly or indirectly prohibit or restrict--
                    ``(A) the inclusion in any plan of an eligible 
                automatic contribution arrangement, or
                    ``(B) the establishment or operation of a payroll 
                retirement savings arrangement meeting the requirements 
                of section 408B of the Internal Revenue Code of 1986 
                (and the inclusion in such arrangement of an eligible 
                automatic contribution arrangement).
        This subsection shall apply to a plan or arrangement without 
        regard to whether this title applies to such plan or 
        arrangement.''.
    (c) Provisions to Ensure Adequate Notice of Availability of Payroll 
Retirement Savings Arrangements and Investment Guidelines.--
            (1) Employer-provided notice.--
                    (A) W-4 statements.--Section 3402(f) (relating to 
                withholding exemptions) is amended by adding at the end 
                the following new paragraph:
            ``(8) Inclusion of payroll savings notice.--An employer 
        shall include with any withholding exemption certificate 
        provided to an employee under this subsection the model notice 
        described in section 408B(h) and notice of the availability of, 
        and methods of acquiring, the model form prepared by the 
        Secretary of Labor with respect to basic investment 
        guidelines.''.
                    (B) Posting at worksite.--Each employer required to 
                maintain a payroll retirement savings arrangement under 
                section 408B of the Internal Revenue Code of 1986 
                shall, in addition to any other requirement, post the 
                following notices within the principal places of 
                employment of any applicable employees which are 
                customarily used for employer notices to employees with 
                regard to employment and employee benefit matters:
                            (i) The model notice described in section 
                        408B(h) of such Code (in such form and manner 
                        as the Secretary may prescribe).
                            (ii) Notice of the availability of, and 
                        methods of acquiring, the model form prepared 
                        by the Secretary of Labor with respect to basic 
                        investment guidelines.
            (2) Inclusion in social security notices.--Section 1143 of 
        the Social Security Act (42 U.S.C. 1320b-13) is amended by 
        adding at the end the following new subsection:
    ``(e) Notice of Payroll Savings Programs.--The Commissioner shall 
include with each social security account statement required to be 
provided under this section the notice described in section 408B(h).''.
            (3) IRA notices.--Section 408(i) (relating to reports) is 
        amended by adding at the end the following new sentence: ``Any 
        report furnished under paragraph (2) to an individual shall 
        include the notice of the availability of, and methods of 
        acquiring, the model form prepared by the Secretary of Labor 
        with respect to basic investment guidelines.''.
    (d) Development of Model Form Establishing Basic Investment 
Guidelines.--
            (1) In general.--The Secretary of Labor shall, in 
        consultation with the Secretary of Treasury, develop a model 
        form containing basic guidelines for investing for retirement. 
        Except as otherwise provided by the Secretary, such guidelines 
        shall include--
                    (A) information on the benefits of diversification,
                    (B) information on the essential differences, in 
                terms of risk and return, of pension plan investments, 
                including stocks, bonds, mutual funds, and money market 
                investments,
                    (C) information on how an individual's pension plan 
                investment allocations may differ depending on the 
                individual's age and years to retirement and on other 
                factors determined by the Secretary of Labor,
                    (D) sources of information where individuals may 
                learn more about pension rights, individual investing, 
                and investment advice, and
                    (E) such other information related to individual 
                investing as the Secretary of Labor determines 
                appropriate.
            (2) Calculation information.--The model form under 
        paragraph (1) shall include addresses for Internet sites and 
        worksheets which a participant or beneficiary may use to 
        calculate--
                    (A) the retirement age value of the participant's 
                or beneficiary's nonforfeitable pension benefits under 
                the plan (expressed as an annuity amount and determined 
                by reference to varied historical annual rates of 
                return and annuity interest rates), and
                    (B) other important amounts relating to retirement 
                savings, including the amount which a participant or 
                beneficiary would be required to save annually to 
                provide a retirement income equal to various 
                percentages of their current salary (adjusted for 
                expected growth prior to retirement).
            (3) Public comment.--The Secretary of Labor shall provide 
        at least 90 days for public comment on a proposed form before 
        publishing final notice of the model form.
            (4) Rules relating to form and statement.--The model form 
        under paragraph (1)--
                    (A) shall be written in a manner calculated to be 
                understood by the average plan participant, and
                    (B) may be delivered in written, electronic, or 
                other appropriate manner to the extent such manner 
                would ensure that the form is reasonably accessible to 
                participants and beneficiaries.
    (e) Penalty for Failure to Provide Access to Payroll Savings 
Arrangements.--Chapter 43 (relating to qualified pension, etc., plans) 
is amended by adding at the end the following new section:

``SEC. 4980H. REQUIREMENTS FOR EMPLOYERS TO PROVIDE EMPLOYEES ACCESS TO 
              PAYROLL RETIREMENT SAVINGS ARRANGEMENTS.

    ``(a) General Rule.--There is hereby imposed a tax on any failure 
by an employer to meet the requirements of subsection (d) for a 
calendar year.
    ``(b) Amount.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure for any calendar year shall be 
        $100 with respect to each employee to whom such failure 
        relates.
            ``(2) Tax not to apply where failure not discovered and 
        reasonable diligence exercised.--No tax shall be imposed by 
        subsection (a) on any failure during any period for which it is 
        established to the satisfaction of the Secretary that any 
        employer subject to liability for the tax did not know that the 
        failure existed and exercised reasonable diligence to meet the 
        requirements of subsection (d). In no event shall the tax be 
        impaired with respect to any failure that ends before the 
        expiration of 90 days after the employer has responded or has 
        had a reasonable opportunity to respond to a request for 
        confirmation of compliance under subsection (c).
            ``(3) Tax not to apply to failures corrected within 30 
        days.--No tax shall be imposed by subsection (a) on any failure 
        if--
                    ``(A) the employer subject to liability for the tax 
                under subsection (a) exercised reasonable diligence to 
                meet the requirements of subsection (d), and
                    ``(B) the employer provides the payroll retirement 
                savings arrangement described in section 408B to each 
                employee eligible to participate in the arrangement by 
                the end of the 30-day period beginning on the first 
                date the employer knew, or exercising reasonable 
                diligence would have known, that such failure existed.
            ``(4) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(c) Procedures for Notice.--Not later than 6 months after the 
date of the enactment of this section, the Secretary shall prescribe 
and implement procedures for obtaining from employers confirmation that 
such employers are in compliance with the requirements of subsection 
(d). The Secretary, in the Secretary's discretion, may prescribe that 
the confirmation shall be obtained on an annual or less frequent basis, 
and may use for this purpose the annual report or quarterly report for 
employment taxes, or such other means as the Secretary may deem 
advisable.
    ``(d) Requirement to Provide Employee Access to Payroll Retirement 
Savings Arrangements.--The requirements of this subsection are met if 
the employer meets the requirements of section 408B.''.
    (f) Coordination With ERISA Fiduciary Duties.--Section 404(c)(2) of 
such Act (29 U.S.C. 1104(c)(2)) is amended--
            (1) by inserting ``or an individual retirement plan 
        established pursuant to a payroll retirement savings 
        arrangement required under section 408B of such Code'' after 
        ``1986'', and
            (2) by inserting ``or individual retirement plan 
        established pursuant to a payroll retirement savings 
        arrangement required under section 408B of such Code'' after 
        ``simple retirement account'' each place it appears in 
        subparagraph (B) or (C).
    (g) Modification of Top-Heavy Rules.--Section 416(i) (relating to 
definitions) is amended by adding at the end the following new 
paragraph:
            ``(7) Treatment of certain employees under cash or deferred 
        arrangements.--If employees are eligible to participate in a 
        qualified cash or deferred arrangement (as defined in section 
        401(k)(2)) of the employer during any year upon completion of a 
        year of service requirement, which under the arrangement, is 
        not more than 500 hours, the employer may elect to exclude from 
        the application of this section all such employees who do not 
        meet the age and service requirements of section 
        410(a)(1)(A).''.
    (h) Conforming Amendments.--
            (1) The table of sections for subpart A of part I of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 408A the following new item:

        ``Sec. 408B. Right to payroll retirement savings programs at 
                            work.''.
            (2) The table of sections for chapter 43 is amended by 
        adding at the end the following new item:

``Sec. 4980H. Requirements for employers to provide employees access to 
                            payroll retirement savings arrangements.''.
    (i) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after December 31, 2007.

SEC. 102. CREDIT FOR SMALL EMPLOYERS MAINTAINING PAYROLL RETIREMENT 
              SAVINGS ARRANGEMENTS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by adding at the end 
the following new section:

``SEC. 45N. SMALL EMPLOYER PAYROLL RETIREMENT SAVINGS ARRANGEMENT 
              COSTS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer maintaining a payroll retirement savings arrangement 
meeting the requirements of section 408B (without regard to whether or 
not the employer is required to maintain the arrangement), the small 
employer payroll retirement savings arrangement cost credit determined 
under this section for any taxable year is the amount determined under 
subsection (b).
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this section for any taxable year with respect to an 
        eligible employer shall be equal to the lesser of--
                    ``(A) $25 multiplied by the number of applicable 
                employees (within the meaning of section 408B(c)) for 
                whom contributions are made under the payroll 
                retirement savings arrangement referred to in 
                subsection (a) for the calendar year in which the 
                taxable year begins, or
                    ``(B) $250.
            ``(2) Duration of credit.--
                    ``(A) In general.--No credit shall be determined 
                under this section for any taxable year other than the 
                first taxable year which begins in the first calendar 
                year in which the eligible employer maintains a payroll 
                retirement savings arrangement meeting the requirements 
                of section 408B.
                    ``(B) Exception for automatic contribution 
                arrangements.--
                            ``(i) In general.--Subparagraph (A) shall 
                        not apply to any taxable year beginning in a 
                        calendar year if the payroll retirement savings 
                        arrangement includes an eligible automatic 
                        contribution arrangement meeting the 
                        requirements of section 408B(g) at all times 
                        during the calendar year.
                            ``(ii) Limitation.--This subparagraph shall 
                        only apply to 2 taxable years. The taxpayer 
                        shall elect the applicable taxable years and 
                        such election, once made, shall be irrevocable.
            ``(3) Coordination with small employer startup credit.--No 
        credit shall be allowed under this section for any taxable year 
        if a credit is determined under section 45E for the taxable 
        year.
    ``(c) Eligible Employer.--For purposes of this section, the term 
`eligible employer' means, with respect to any calendar year in which 
the taxable year begins, an employer which maintains a payroll 
retirement savings arrangement meeting the requirements of section 408B 
and which, on each day during the preceding calendar year, had no more 
than 25 employees.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) (defining current year business credit) is amended by striking 
``and'' at the end of paragraph (29), by striking the period at the end 
of paragraph (30) and inserting ``, and'', and by adding at the end the 
following new paragraph:
            ``(31) in the case of an eligible employer (as defined in 
        section 45N(c)) maintaining a payroll retirement savings 
        arrangement meeting the requirements of section 408B, the small 
        employer payroll retirement savings arrangement cost credit 
        determined under section 45N(a).''
    (c) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following new item:

``Sec. 45N. Small employer payroll retirement savings arrangement 
                            costs.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

SEC. 103. ESTABLISHMENT OF SECURE RETIREMENT ACCOUNTS.

    (a) In General.--Subpart A of part I of subchapter A of chapter 1 
(relating to pension, profit-sharing, stock bonus plans, etc.), as 
amended by section 101, is amended by inserting after section 408B the 
following new section:

``SEC. 408C. SECURE RETIREMENT ACCOUNTS.

    ``(a) General Rule.--A Secure Retirement Account shall be treated 
for purposes of this title in the same manner as an individual 
retirement plan. A Secure Retirement Account may also be treated as a 
Roth IRA for purposes of this title if it meets the requirements of 
section 408A.
    ``(b) Secure Retirement Account.--For purposes of this section, the 
term `Secure Retirement Account' means an individual retirement plan 
(as defined in section 7701(a)(37)) which meets the investment and fee 
requirements under the regulations under subsection (c).
    ``(c) Investment and Fee Requirements.--
            ``(1) In general.--The Secretary, in consultation with the 
        Secretary of Labor, shall, not later than 1 year after the date 
        of the enactment of this section, prescribe regulations which 
        set forth the requirements of this subsection which an 
        individual retirement plan must meet in order to be treated as 
        a Secure Retirement Account.
            ``(2) Investment options.--The regulations under paragraph 
        (1) shall provide that a Secure Retirement Account shall allow 
        the individual on whose behalf the individual retirement plan 
        is established to invest contributions to, and earnings of, the 
        plan in all of the following investment options:
                    ``(A) Options which are similar to all investment 
                options which are available (at the time the plan is 
                established) to a participant in the Thrift Savings 
                Fund established under subchapter III of chapter 84 of 
                title 5, United States Code.
                    ``(B) Any other investment option specified in the 
                regulations.
            ``(3) Investment fees.--
                    ``(A) In general.--The regulations under paragraph 
                (1) shall provide that a Secure Retirement Account 
                shall not charge any investment fees which, in the 
                aggregate, are not reasonable (as determined under such 
                regulations).
                    ``(B) Investment fees.--For purposes of this 
                paragraph, the term `investment fees' includes any fee, 
                commission, asset management fee, compensation for 
                services, or any other charge or fee specified in the 
                regulations under paragraph (1) which is imposed with 
                respect to the Secure Retirement Account.''.
    (b) Mandatory Transfers.--Section 401(a)(31)(B) is amended--
            (1) by striking ``an individual retirement plan'' and 
        inserting ``a Secure Retirement Account under section 408C, or 
        such other arrangement prescribed by the Secretary in 
        regulations,'', and
            (2) by adding at the end the following new sentence: ``Any 
        amount so transferred (and any earnings thereon) shall be 
        invested in accordance with the regulations prescribed under 
        section 404(c)(4) of the Employee Retirement Income Security 
        Act of 1974.''
    (c) Clerical Amendment.--The table of sections for subpart A of 
part I of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 408B the following new item:

        ``Sec. 408C. Secure retirement accounts.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning on or after the date on which final 
regulations described in section 408C(c) of the Internal Revenue Code 
of 1986 (as added by this Act) are issued.

     TITLE II--FEDERAL MATCHING OF CERTAIN RETIREMENT CONTRIBUTIONS

SEC. 201. REFUNDABLE CREDIT TO PROVIDE A FEDERAL MATCH FOR RETIREMENT 
              CONTRIBUTIONS OF CERTAIN TAXPAYERS.

    (a) Allowance of Credit.--Subpart C of part IV of subchapter A of 
chapter 1 (relating to refundable credits) is amended by redesignating 
section 36 as section 37 and by inserting after section 35 the 
following new section:

``SEC. 36. MATCHING CONTRIBUTIONS FOR CERTAIN RETIREMENT SAVINGS 
              CONTRIBUTIONS.

    ``(a) Allowance of Credit.--In the case of an eligible individual, 
there shall be allowed as a credit against the tax imposed by this 
subtitle for the taxable year an amount equal to the retirement savings 
credit amount.
    ``(b) Retirement Savings Credit Amount.--For purposes of this 
section--
            ``(1) In general.--The term `retirement savings credit 
        amount' means an amount equal to 50 percent of so much of the 
        qualified retirement savings contributions of the eligible 
        individual for the taxable year as does not exceed the 
        applicable contribution amount.
            ``(2) Minimum contributions required.--The retirement 
        savings credit amount shall be zero if the qualified retirement 
        savings contributions of the eligible individual for the 
        taxable year do not exceed $200.
    ``(c) Applicable Contribution Amount.--For purposes of this 
section--
            ``(1) In general.--The term `applicable contribution 
        amount' means $2,000.
            ``(2) Cost-of-living adjustment.--In the case of any 
        taxable year beginning in a calendar year after 2007, the 
        $2,000 dollar amount under paragraph (1) shall be increased by 
        an amount equal to such dollar amount multiplied by the cost of 
        living adjustment determined under section 1(f)(3) for the 
        calendar year in which the taxable year begins, determined by 
        substituting `2006' for `1992' in subparagraph (B) thereof. If 
        any amount so increased is not a multiple of $50, the amount 
        shall be rounded to the next lower multiple of $50.
            ``(3) Adjusted gross income limitation.--
                    ``(A) In general.--If the taxpayer's adjusted gross 
                income for any taxable year exceeds the threshold 
                amount, the applicable contribution amount for the 
                taxpayer for the taxable year (determined without 
                regard to this paragraph) shall be reduced by an amount 
                equal to the amount which bears the same ratio to such 
                applicable contribution amount as such excess bears to 
                $10,000 in the case of a joint return, $7,500 in the 
                case of the head of a household, and $5,000 in the case 
                of any other taxpayer.
                    ``(B) Threshold amount.--For purposes of this 
                paragraph, the term `threshold amount' means--
                            ``(i) $50,000 in the case of a joint 
                        return,
                            ``(ii) $37,500 in the case of a head of 
                        household,
                            ``(iii) zero in the case of a married 
                        individual filing a separate return, and
                            ``(iv) $25,000 in the case of any other 
                        taxpayer.
                The rules of section 219(g)(4) shall apply for purposes 
                of this paragraph.
                    ``(C) Cost-of-living adjustment.--In the case of 
                any taxable year beginning in a calendar year after 
                2007--
                            ``(i) the $50,000 dollar amount under 
                        subparagraph (B)(i) shall--
                                    ``(I) be increased by an amount 
                                equal to such dollar amount multiplied 
                                by the cost of living adjustment 
                                determined under section 1(f)(3) for 
                                the calendar year in which the taxable 
                                year begins, determined by substituting 
                                `2006' for `1992' in subparagraph (B) 
                                thereof, and
                                    ``(II) after such increase be 
                                rounded as provided in section 
                                32(j)(2)(B),
                            ``(ii) the amount under subparagraph 
                        (B)(ii) shall be increased to an amount equal 
                        to 75 percent of the amount in effect under 
                        subparagraph (B)(i) for the taxable year after 
                        the increase under clause (i), and
                            ``(iii) the amount under subparagraph 
                        (B)(iv) shall be increased to an amount equal 
                        to 50 percent of the amount in effect under 
                        subparagraph (B)(i) for the taxable year after 
                        the increase under clause (i).
    ``(d) Eligible Individual.--For purposes of this section--
            ``(1) In general.--The term `eligible individual' means any 
        individual if such individual has attained the age of 18 as of 
        the close of the taxable year.
            ``(2) Dependents and full-time students not eligible.--The 
        term `eligible individual' shall not include--
                    ``(A) any individual with respect to whom a 
                deduction under section 151 is allowed to another 
                taxpayer for a taxable year beginning in the calendar 
                year in which such individual's taxable year begins, 
                and
                    ``(B) any individual who is a student (as defined 
                in section 152(f)(2)).
    ``(e) Qualified Retirement Savings Contributions.--For purposes of 
this section--
            ``(1) In general.--The term `qualified retirement savings 
        contributions' means, with respect to any taxable year, the sum 
        of--
                    ``(A) the amount of the qualified retirement 
                contributions (as defined in section 219(e)) made by or 
                on behalf of the eligible individual,
                    ``(B) the amount of--
                            ``(i) any elective deferrals (as defined in 
                        section 402(g)(3)) of such individual, and
                            ``(ii) any elective deferral of 
                        compensation by such individual under an 
                        eligible deferred compensation plan (as defined 
                        in section 457(b)) of an eligible employer 
                        described in section 457(e)(1)(A), and
                    ``(C) the amount of voluntary employee 
                contributions by such individual to any qualified 
                retirement plan (as defined in section 4974(c)).
            ``(2) Reduction for certain distributions.--
                    ``(A) In general.--The qualified retirement savings 
                contributions determined under paragraph (1) shall be 
                reduced (but not below zero) by the aggregate 
                distributions received by the individual during the 
                testing period from any entity of a type to which 
                contributions under paragraph (1) may be made. The 
                preceding sentence shall not apply to the portion of 
                any distribution which is not includible in gross 
                income by reason of a trustee-to-trustee transfer or a 
                rollover distribution.
                    ``(B) Testing period.--For purposes of subparagraph 
                (A), the testing period, with respect to a taxable 
                year, is the period which includes--
                            ``(i) such taxable year,
                            ``(ii) the 2 preceding taxable years, and
                            ``(iii) the period after such taxable year 
                        and before the due date (including extensions) 
                        for filing the return of tax for such taxable 
                        year.
                    ``(C) Excepted distributions.--There shall not be 
                taken into account under subparagraph (A)--
                            ``(i) any distribution referred to in 
                        section 72(p), 401(k)(8), 401(m)(6), 402(g)(2), 
                        404(k), or 408(d)(4), and
                            ``(ii) any distribution to which section 
                        408A(d)(3) applies.
                    ``(D) Treatment of distributions received by spouse 
                of individual.--For purposes of determining 
                distributions received by an individual under 
                subparagraph (A) for any taxable year, any distribution 
                received by the spouse of such individual shall be 
                treated as received by such individual if such 
                individual and spouse file a joint return for such 
                taxable year and for the taxable year during which the 
                spouse receives the distribution.
    ``(f) Other Definitions and Rules.--
            ``(1) Adjusted gross income.--For purposes of this section, 
        adjusted gross income shall be determined without regard to 
        sections 911, 931, and 933.
            ``(2) Investment in the contract.--Notwithstanding any 
        other provision of law--
                    ``(A) a qualified retirement savings contribution 
                shall not fail to be included in determining the 
                investment in the contract for purposes of section 72 
                by reason of the credit under this section, and
                    ``(B) any deposit under subsection (g) shall be 
                included in determining investment in the contract for 
                purposes of section 72.
    ``(g) Credit May Only Be Deposited in Roth Retirement Savings 
Account.--
            ``(1) In general.--The credit allowed under this section--
                    ``(A) shall not be treated as a credit allowed 
                under this part, but
                    ``(B) shall be treated as an overpayment of tax 
                under section 6401(b)(3) which may, in accordance with 
                section 6402(l), only be transferred to--
                            ``(i) a Roth IRA, or
                            ``(ii) a designated Roth account which is 
                        within any other plan or arrangement to which 
                        qualified retirement savings contributions may 
                        be made.
        Any amount so transferred on behalf of an individual (and any 
        earnings thereon) shall be nonforfeitable.
            ``(2) Coordination with limitations and other 
        contributions.--If there is any transfer to a plan or account 
        under paragraph (1) by reason of a credit under this section, 
        the rules of subparagraphs (A) and (C) of section 414(u)(1) 
        shall apply with respect to the transfer.
    ``(h) Recapture of Credit.--
            ``(1) Addition to tax.--If, during the 5-taxable year 
        period beginning with the taxable year for which a transfer is 
        made under section 6402(l), a taxpayer receives a distribution 
        or payment out of a plan or account described in clause (i) or 
        (ii) of subsection (g)(1)(B), then, notwithstanding section 72, 
        the taxpayer's tax under this chapter for the taxable year in 
        which the distribution or payment is received shall be 
        increased by the amount described in paragraph (2). This 
        subsection shall not apply to a payment or distribution unless 
        an additional tax would be imposed under section 72(t) with 
        respect to the payment or distribution if it were includible in 
        gross income.
            ``(2) Amount of tax.--The amount of the tax under paragraph 
        (1) shall be equal to the amount transferred under section 
        6402(l) with respect to the amount so paid or distributed, 
        reduced by any portion of the amount so transferred with 
        respect to which this subsection previously applied during the 
        taxable year or any preceding taxable year.
            ``(3) Operating rules.--For purposes of determining under 
        paragraph (1)(B) whether an amount was transferred under 
        section 6402(l) with respect to a distribution or payment, the 
        following rules shall apply:
                    ``(A) FIFO rule.--Distributions or payments shall 
                be treated as made from contributions (and earning 
                thereon) in the order in which the contributions were 
                made, beginning with the least recent taxable year.
                    ``(B) Unmatched contributions counted first.--If 
                contributions were made in excess of the applicable 
                amount for any taxable year, distributions or payments 
                shall be treated as made first from contributions (and 
                any earnings thereon) with respect to which no transfer 
                was made under section 6402(l).''.
    (b) Credit for Matching Contributions Treated as Overpayment of 
Tax.--Subsection (b) of section 6401 (relating to amounts treated as 
overpayments) is amended by adding at the end the following new 
paragraph:
            ``(3) Special rule for credit for matching contributions 
        under section 36.--Subject to the provisions of section 
        6402(l), the amount of any credit allowed under section 36 
        (relating to matching credit for retirement contributions) for 
        any taxable year shall be considered an overpayment.''.
    (c) Transfer of Credit Amount to Retirement Accounts.--
            (1) In general.--Section 6402 (relating to authority to 
        make credits or refunds) is amended by adding at the end the 
        following:
    ``(l) Overpayments Attributable to Matching Retirement Credit.--
            ``(1) In general.--In the case of any overpayment described 
        in section 6401(b)(3), the Secretary shall transfer an amount 
        equal to the amount of such overpayment to the account 
        designated under paragraph (2) by the individual entitled to 
        the overpayment.
            ``(2) Designation of account.--An eligible individual (as 
        defined in section 36(d)) shall file a designation including 
        the information described in paragraph (3) along with the 
        return of the individual for the taxable year of the 
        overpayment (or if no return is required to be filed, on a form 
        prescribed by the Secretary) not later than the later of--
                    ``(A) the due date (including extensions) for 
                filing such return (if applicable), or
                    ``(B) the 15th day of April following the close of 
                the taxable year.
            ``(3) Required information.--For purposes of paragraph (2), 
        the information described in this paragraph is--
                    ``(A) the designation of the Roth IRA or designated 
                Roth account described in section 36(g)(1)(B) to which 
                the transfer is to be made,
                    ``(B) such information as the Secretary may require 
                to enable electronic transfer of the overpayment amount 
                to such IRA or account, and
                    ``(C) the amount of qualified retirement savings 
                contributions (as defined in section 36(e)) for the 
                taxable year with respect to the individual.''.
    (d) Reporting Requirements.--Section 6047 (relating to information 
relating to certain trusts and annuity plans) is amended by 
redesignating subsection (g) as subsection (h) and by inserting after 
subsection (f) the following new subsection:
    ``(g) Matching Contributions.--The Secretary shall require the 
trustee of each plan or account to which overpayments are transferred 
under section 6402(l) to make such returns and reports regarding such 
transfers to the Secretary, participants, and beneficiaries of the 
plan, and such other persons as the Secretary may prescribe.''.
    (e) Conforming Amendments.--
            (1) Section 1324(b)(2) of title 31, United States Code, is 
        amended by striking ``or'' before ``enacted'' and by inserting 
        before the period at the end ``, or enacted by the Savings 
        Competitiveness Act of 2006''.
            (2) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 is amended by redesignating the item 
        relating to section 36 as the item relating to section 37 and 
        by inserting after the item relating to section 35 the 
        following new item:

``Sec. 36. Matching contributions for certain retirement savings 
                            contributions.''.
            (3) Section 6402(a) is amended by striking ``In the case'' 
        and inserting ``Except as provided in subsection (l), in the 
        case''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

       TITLE III--OTHER PROVISIONS TO INCREASE RETIREMENT SAVINGS

SEC. 301. YOUNG SAVERS ACCOUNTS.

    (a) In General.--Section 408A (relating to Roth IRAs) is amended by 
adding at the end the following new subsection:
    ``(g) Young Savers Accounts.--
            ``(1) In general.--Except as provided in this subsection, a 
        young savers account shall be treated in the same manner as a 
        Roth IRA.
            ``(2) Young savers account.--For purposes of this 
        subsection, the term `young savers account' means, with respect 
        to any taxable year, a Roth IRA which is established and 
        maintained on behalf of an individual who has not attained the 
        age of 18 before the close of the taxable year.
            ``(3) Contribution limits.--In the case of any 
        contributions for any taxable year to 1 or more young savers 
        accounts established and maintained on behalf of an individual, 
        each of the following contribution limits for the taxable year 
        shall be increased as follows:
                    ``(A) The contribution limit applicable to the 
                individual under subsection (c)(2) shall be increased 
                by the aggregate amount of qualified parental 
                contributions to such accounts for the taxable year.
                    ``(B) The contribution limits applicable to the 
                young savers accounts under subsection (a)(1) or 
                (b)(2)(B) of section 408, whichever is appropriate, 
                shall be increased by the dollar amount in effect under 
                section 219(b)(1)(A) for the taxable year.
            ``(4) Qualified parental contributions.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `qualified parental 
                contribution' means, with respect to any taxable year, 
                a contribution by an individual to a young savers 
                account established and maintained on behalf of an 
                individual who--
                            ``(i) is the child of the individual making 
                        the contribution, and
                            ``(ii) with respect to whom a deduction for 
                        an additional exemption is allowable for the 
                        taxable year under section 151(c) to the 
                        individual making the contribution.
                    ``(B) Dollar limitations.--
                            ``(i) In general.--The aggregate amount of 
                        qualified parental contributions which may be 
                        made for any taxable year on behalf of an 
                        individual shall not exceed the dollar amount 
                        in effect under section 219(b)(1)(A) for the 
                        taxable year.
                            ``(ii) Limit on each parent.--The aggregate 
                        amount of qualified parental contributions 
                        which an individual may make for any taxable 
                        year on behalf of 1 or more of the individual's 
                        children shall not exceed the contribution 
                        limit applicable to the individual under 
                        subsection (c)(2) for the taxable year, reduced 
                        by any contributions made by or on behalf of 
                        the individual to any Roth IRA established and 
                        maintained on behalf of the individual.
            ``(5) Coordination with matching credit for retirement 
        savings contributions.--Any qualified parental contributions 
        made by an eligible individual (as defined in section 36(d)) 
        shall be treated as qualified retirement savings contributions 
        for purposes of section 36.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 302. INCREASING PARTICIPATION IN CASH OR DEFERRED PLANS THROUGH 
              AUTOMATIC CONTRIBUTION ARRANGEMENTS.

    (a) In General.--Section 401(k) (relating to cash or deferred 
arrangement) is amended by adding at the end the following new 
paragraph:
            ``(13) Nondiscrimination requirements for automatic 
        contribution trusts.--
                    ``(A) In general.--A cash or deferred arrangement 
                shall be treated as meeting the requirements of 
                paragraph (3)(A)(ii) if such arrangement constitutes an 
                automatic contribution trust.
                    ``(B) Automatic contribution trust.--
                            ``(i) In general.--For purposes of this 
                        paragraph, the term `automatic contribution 
                        trust' means an arrangement--
                                    ``(I) except as provided in clauses 
                                (ii) and (iii), under which each 
                                employee eligible to participate in the 
                                arrangement is treated as having 
                                elected to have the employer make 
                                elective contributions in an amount 
                                equal to the applicable percentage of 
                                the employee's compensation, and
                                    ``(II) which meets the requirements 
                                of subparagraphs (C), (D), (E), and 
                                (F).
                            ``(ii) Exception for existing employees.--
                        In the case of any employee--
                                    ``(I) who was eligible to 
                                participate in the arrangement (or a 
                                predecessor arrangement) immediately 
                                before the first date on which the 
                                arrangement is an automatic 
                                contribution trust, and
                                    ``(II) whose rate of contribution 
                                immediately before such first date was 
                                less than the applicable percentage for 
                                the employee,
                        clause (i)(I) shall not apply to such employee 
                        until the date which is 1 year after such first 
                        date (or such earlier date as the employer may 
                        elect).
                            ``(iii) Election out.--Each employee 
                        eligible to participate in the arrangement may 
                        specifically elect not to have contributions 
                        made under clause (i), and such clause shall 
                        cease to apply to compensation paid on or after 
                        the effective date of the election.
                            ``(iv) Applicable percentage.--For purposes 
                        of this subparagraph--
                                    ``(I) In general.--The term 
                                `applicable percentage' means, with 
                                respect to any employee, the uniform 
                                percentage (not less than 3 percent) 
                                determined under the arrangement. In 
                                the case of an employee who was 
                                eligible to participate in the 
                                arrangement (or a predecessor 
                                arrangement) immediately before the 
                                first date on which the arrangement is 
                                an automatic contribution trust, the 
                                initial applicable percentage shall in 
                                no event be less than the percentage in 
                                effect with respect to the employee 
                                under the arrangement immediately 
                                before the employee first begins 
                                participation in the automatic 
                                contribution trust.
                                    ``(II) Increase in percentage.--In 
                                the case of the second plan year 
                                beginning after the first date on which 
                                the election under clause (i)(I) is in 
                                effect with respect to the employee and 
                                any succeeding plan year, the 
                                applicable percentage shall be a 
                                percentage (not greater than 10 percent 
                                or such higher uniform percentage 
                                determined under the arrangement) equal 
                                to the sum of the applicable percentage 
                                for the employee as of the close of the 
                                preceding plan year plus 1 percentage 
                                point (or such higher percentage 
                                specified by the plan). A plan may 
                                elect to provide that, in lieu of any 
                                increase under the preceding sentence, 
                                the increase in the applicable 
                                percentage required under this 
                                subclause shall occur after each 
                                increase in compensation an employee 
                                receives on or after the first day of 
                                such second plan year and that the 
                                applicable percentage after each such 
                                increase in compensation shall be equal 
                                to the applicable percentage for the 
                                employee immediately before such 
                                increase in compensation plus 1 
                                percentage point (or such higher 
                                percentage specified by the plan).
                    ``(C) Matching or nonelective contributions.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if, under the arrangement, 
                        the employer--
                                    ``(I) makes matching contributions 
                                on behalf of each employee who is not a 
                                highly compensated employee in an 
                                amount equal to 50 percent of the 
                                elective contributions of the employee 
                                to the extent such elective 
                                contributions do not exceed 7 percent 
                                of compensation; or
                                    ``(II) is required, without regard 
                                to whether the employee makes an 
                                elective contribution or employee 
                                contribution, to make a contribution to 
                                a defined contribution plan on behalf 
                                of each employee who is not a highly 
                                compensated employee and who is 
                                eligible to participate in the 
                                arrangement in an amount equal to at 
                                least 3 percent of the employee's 
                                compensation,
                        The rules of clauses (ii) and (iii) of 
                        paragraph (12)(B) shall apply for purposes of 
                        subclause (I). The rules of paragraph 
                        (12)(E)(ii) shall apply for purposes of 
                        subclauses (I) and (II).
                            ``(ii) Other plans.--An arrangement shall 
                        be treated as meeting the requirements under 
                        clause (i) if any other plan maintained by the 
                        employer meets such requirements with respect 
                        to employees eligible under the arrangement.
                    ``(D) Notice requirements.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if the requirements of 
                        clauses (ii) and (iii) are met.
                            ``(ii) Reasonable period to make 
                        election.--The requirements of this clause are 
                        met if each employee to whom subparagraph 
                        (B)(i) applies--
                                    ``(I) receives a notice explaining 
                                the employee's right under the 
                                arrangement to elect not to have 
                                elective contributions made on the 
                                employee's behalf, and how 
                                contributions made under the 
                                arrangement will be invested in the 
                                absence of any investment election by 
                                the employee, and
                                    ``(II) has a reasonable period of 
                                time after receipt of such notice and 
                                before the first elective contribution 
                                is made to make such election.
                            ``(iii) Annual notice of rights and 
                        obligations.--The requirements of this clause 
                        are met if each employee eligible to 
                        participate in the arrangement is, within a 
                        reasonable period before any year (or if the 
                        plan elects to change the applicable percentage 
                        after any increase in compensation, before the 
                        increase), given notice of the employee's 
                        rights and obligations under the arrangement.
                The requirements of clauses (i) and (ii) of paragraph 
                (12)(D) shall be met with respect to the notices 
                described in clauses (ii) and (iii) of this 
                subparagraph.
                    ``(E) Participation, withdrawal, and vesting 
                requirements.--The requirements of this subparagraph 
                are met if--
                            ``(i) the arrangement requires that each 
                        employee eligible to participate in the 
                        arrangement (determined without regard to any 
                        minimum service requirement otherwise 
                        applicable under section 410(a) or the plan) 
                        commences participation in the arrangement no 
                        later than the 1st day of the 1st calendar 
                        quarter beginning after the date on which 
                        employee first becomes so eligible,
                            ``(ii) the withdrawal requirements of 
                        paragraph (2)(B) are met with respect to all 
                        employer contributions (including matching and 
                        elective contributions) taken into account in 
                        determining whether the arrangement meets the 
                        requirements of subparagraph (C), and
                            ``(iii) the arrangement requires that an 
                        employee's right to the accrued benefit derived 
                        from employer contributions described in clause 
                        (ii) (other than elective contributions) is 
                        nonforfeitable after the employee has completed 
                        at least 2 years of service.
                    ``(F) Certain withdrawals must be allowed.--
                Notwithstanding any other provision of this subsection, 
                the requirements of this subparagraph are met if the 
                arrangement allows employees to elect to make 
                permissible withdrawals in accordance with section 
                414(w).''
    (b) Matching Contributions.--Section 401(m) (relating to 
nondiscrimination test for matching contributions and employee 
contributions) is amended by redesignating paragraph (12) as paragraph 
(13) and by inserting after paragraph (11) the following new paragraph:
            ``(12) Alternate method for automatic contribution 
        trusts.--A defined contribution plan shall be treated as 
        meeting the requirements of paragraph (2) with respect to 
        matching contributions if the plan--
                    ``(A) meets the contribution requirements of 
                subparagraphs (B)(i) and (C) of subsection (k)(13);
                    ``(B) meets the notice requirements of subparagraph 
                (D) of subsection (k)(13); and
                    ``(C) meets the requirements of paragraph (11)(B) 
                (ii) and (iii).''.
    (c) Exclusion From Definition of Top-Heavy Plans.--
            (1) Elective contribution rule.--Clause (i) of section 
        416(g)(4)(H) is amended by inserting ``or 401(k)(13)'' after 
        ``section 401(k)(12)''.
            (2) Matching contribution rule.--Clause (ii) of section 
        416(g)(4)(H) is amended by inserting ``or 401(m)(12)'' after 
        ``section 401(m)(11)''.
    (d) Section 403(B) Contracts.--Paragraph (11) of section 401(m) is 
amended by adding at the end the following:
                    ``(C) Section 403(b) contracts.--An annuity 
                contract under section 403(b) shall be treated as 
                meeting the requirements of paragraph (2) with respect 
                to matching contributions if such contract meets 
                requirements similar to the requirements under 
                subparagraph (A).''.
    (e) Preemption of Conflicting State Regulation.--Section 514 of the 
Employee Retirement Income Security of 1974 (29 U.S.C. 1144) is amended 
by inserting at the end the following new subsection:
    ``(e) Automatic Contribution Arrangements.--
            ``(1) In general.--Notwithstanding any other provision of 
        this section, any law of a State shall be superseded if it 
        would directly or indirectly prohibit or restrict the inclusion 
        in any plan of an eligible automatic contribution arrangement.
            ``(2) Eligible automatic contribution arrangement.--For 
        purposes of this subsection, the term `eligible automatic 
        contribution arrangement' means an arrangement--
                    ``(A) under which a participant may elect to have 
                the employer make payments as contributions under the 
                plan on behalf of the participant, or to the 
                participant directly in cash,
                    ``(B) under which the participant is treated as 
                having elected to have the employer make such 
                contributions in an amount equal to a uniform 
                percentage of compensation provided under the plan 
                until the participant specifically elects not to have 
                such contributions made (or specifically elects to have 
                such contributions made at a different percentage),
                    ``(C) under which contributions described in 
                subparagraph (B) are invested in accordance with 
                regulations prescribed by the Secretary under section 
                404(c)(4), and
                    ``(D) which meets the requirements of paragraph 
                (3).
            ``(3) Notice requirements.--
                    ``(A) In general.--The administrator of an 
                individual account plan shall, within a reasonable 
                period before each plan year, give to each employee to 
                whom an arrangement described in paragraph (2) applies 
                for such plan year notice of the employee's rights and 
                obligations under the arrangement which--
                            ``(i) is sufficiently accurate and 
                        comprehensive to apprise the employee of such 
                        rights and obligations, and
                            ``(ii) is written in a manner calculated to 
                        be understood by the average employee to whom 
                        the arrangement applies.
                    ``(B) Time and form of notice.--A notice shall not 
                be treated as meeting the requirements of subparagraph 
                (A) with respect to an employee unless--
                            ``(i) the notice includes a notice 
                        explaining the employee's right under the 
                        arrangement to elect not to have elective 
                        contributions made on the employee's behalf (or 
                        to elect to have such contributions made at a 
                        different percentage),
                            ``(ii) the employee has a reasonable period 
                        of time after receipt of the notice described 
                        in clause (i) and before the first elective 
                        contribution is made to make such election, and
                            ``(iii) the notice explains how 
                        contributions made under the arrangement will 
                        be invested in the absence of any investment 
                        election by the employee.''.
    (f) Treatment of Withdrawals of Contributions During First 60 
Days.--Section 414 is amended by adding at the end the following new 
subsection:
    ``(w) Special Rules for Certain Withdrawals From Eligible Automatic 
Contribution Arrangements.--
            ``(1) In general.--If an eligible automatic contribution 
        arrangement allows an employee to elect to make permissible 
        withdrawals--
                    ``(A) the amount of any such withdrawal shall be 
                includible in the gross income of the employee for the 
                taxable year of the employee in which the distribution 
                is made,
                    ``(B) no tax shall be imposed under section 72(t) 
                with respect to the distribution, and
                    ``(C) the arrangement shall not be treated as 
                violating any restriction on distributions under this 
                title solely by reason of allowing the withdrawal.
        In the case of any distribution to an employee by reason of an 
        election under this paragraph, employer matching contributions 
        shall be forfeited or subject to such other treatment as the 
        Secretary may prescribe.
            ``(2) Permissible withdrawal.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `permissible 
                withdrawal' means any withdrawal from an eligible 
                automatic contribution arrangement meeting the 
                requirements of this paragraph which--
                            ``(i) is made pursuant to an election by an 
                        employee, and
                            ``(ii) consists of elective contributions 
                        described in paragraph (3)(B) (and earnings 
                        attributable thereto).
                    ``(B) Time for making election.--Subparagraph (A) 
                shall not apply to an election by an employee unless 
                the election is made no later than the date which is 60 
                days after the date of the first elective contribution 
                with respect to the employee under the arrangement.
                    ``(C) Amount of distribution.--Subparagraph (A) 
                shall not apply to any election by an employee unless 
                the amount of any distribution by reason of the 
                election is equal to the amount of elective 
                contributions made with respect to the first payroll 
                period to which the eligible automatic contribution 
                arrangement applies to the employee and any succeeding 
                payroll period beginning before the effective date of 
                the election (and earnings attributable thereto).
            ``(3) Eligible automatic contribution arrangement.--For 
        purposes of this subsection, the term `eligible automatic 
        contribution arrangement' means an arrangement--
                    ``(A) under which a participant may elect to have 
                the employer make payments as contributions under the 
                plan on behalf of the participant, or to the 
                participant directly in cash,
                    ``(B) under which the participant is treated as 
                having elected to have the employer make such 
                contributions in an amount equal to a uniform 
                percentage of compensation provided under the plan 
                until the participant specifically elects not to have 
                such contributions made (or specifically elects to have 
                such contributions made at a different percentage),
                    ``(C) under which contributions described in 
                subparagraph (B) are invested in accordance with 
                regulations prescribed by the Secretary of Labor under 
                section 404(c)(4) of the Employee Retirement Income 
                Security Act of 1974, and
                    ``(D) which meets the requirements of paragraph 
                (4).
            ``(4) Notice requirements.--
                    ``(A) In general.--The administrator of a plan 
                containing an arrangement described in paragraph (3) 
                shall, within a reasonable period before each plan 
                year, give to each employee to whom an arrangement 
                described in paragraph (3) applies for such plan year 
                notice of the employee's rights and obligations under 
                the arrangement which--
                            ``(i) is sufficiently accurate and 
                        comprehensive to apprise the employee of such 
                        rights and obligations, and
                            ``(ii) is written in a manner calculated to 
                        be understood by the average employee to whom 
                        the arrangement applies.
                    ``(B) Time and form of notice.--A notice shall not 
                be treated as meeting the requirements of subparagraph 
                (A) with respect to an employee unless--
                            ``(i) the notice includes a notice 
                        explaining the employee's right under the 
                        arrangement to elect not to have elective 
                        contributions made on the employee's behalf (or 
                        to elect to have such contributions made at a 
                        different percentage),
                            ``(ii) the employee has a reasonable period 
                        of time after receipt of the notice described 
                        in clause (i) and before the first elective 
                        contribution is made to make such election, and
                            ``(iii) the notice explains how 
                        contributions made under the arrangement will 
                        be invested in the absence of any investment 
                        election by the employee.''.
    (g) Effective Date.--
            (1) In general.--Except as provided by paragraph (2), the 
        amendments made by this section shall apply to plan years 
        beginning after December 31, 2006.
            (2) Section 403(b) contracts.--The amendments made by 
        subsection (d) shall apply to years ending after the date of 
        the enactment of this Act.

SEC. 303. TREATMENT OF INVESTMENT OF ASSETS BY PLAN WHERE PARTICIPANT 
              FAILS TO EXERCISE INVESTMENT ELECTION.

    (a) In General.--Section 404(c) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1104(c)) is amended by adding at the 
end the following new paragraph:
            ``(4) Default investment arrangements.--
                    ``(A) In general.--For purposes of paragraph (1), a 
                participant in an individual account plan meeting the 
                notice requirements of subparagraph (B) shall be 
                treated as exercising control over the assets in the 
                account with respect to the amount of contributions and 
                earnings which, in the absence of an investment 
                election by the participant, are invested by the plan 
                in accordance with regulations prescribed by the 
                Secretary. The regulations under this subparagraph 
                shall provide guidance on the appropriateness of 
                designating default investments that include a mix of 
                asset classes consistent with capital preservation, 
                long-term capital appreciation, or a blend of both.
                    ``(B) Notice requirements.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if each participant--
                                    ``(I) receives, within a reasonable 
                                period of time before each plan year, a 
                                notice explaining the employee's right 
                                under the plan to designate how 
                                contributions and earnings will be 
                                invested and explaining how, in the 
                                absence of any investment election by 
                                the participant, such contributions and 
                                earnings will be invested, and
                                    ``(II) has a reasonable period of 
                                time after receipt of such notice and 
                                before the beginning of the plan year 
                                to make such designation.
                            ``(ii) Form of notice.--The requirements of 
                        clauses (i) and (ii) of section 401(k)(12)(D) 
                        of the Internal Revenue Code of 1986 shall be 
                        met with respect to the notices described in 
                        this subparagraph.''.
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2006.
            (2) Regulations.--Final regulations under section 
        404(c)(4)(A) of the Employee Retirement Income Security Act of 
        1974 (as added by this section) shall be issued no later than 6 
        months after the date of the enactment of this Act.

SEC. 304. CREDIT FOR QUALIFIED PENSION PLAN CONTRIBUTIONS OF SMALL 
              EMPLOYERS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 45O. SMALL EMPLOYER PENSION PLAN CONTRIBUTIONS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer, the small employer pension plan contribution credit 
determined under this section for any taxable year is an amount equal 
to 50 percent of the amount which would (but for subsection (f)(1)) be 
allowed as a deduction under section 404 for such taxable year for 
qualified employer contributions made to any qualified retirement plan 
on behalf of any employee who is not a highly compensated employee.
    ``(b) Credit Limited to 3 Years.--The credit allowable by this 
section shall be allowed only with respect to the period of 3 taxable 
years beginning with the first taxable year for which a credit is 
allowable with respect to a plan under this section.
    ``(c) Qualified Employer Contribution.--For purposes of this 
section--
            ``(1) Defined contribution plans.--In the case of a defined 
        contribution plan, the term `qualified employer contribution' 
        means the amount of nonelective and matching contributions to 
        the plan made by the employer on behalf of any employee who is 
        not a highly compensated employee to the extent such amount 
        does not exceed 3 percent of such employee's compensation from 
        the employer for the year.
            ``(2) Defined benefit plans.--In the case of a defined 
        benefit plan, the term `qualified employer contribution' means 
        the amount of employer contributions to the plan made on behalf 
        of any employee who is not a highly compensated employee to the 
        extent that the accrued benefit of such employee derived from 
        employer contributions for the year does not exceed the 
        equivalent (as determined under regulations prescribed by the 
        Secretary and without regard to section 401(l) or contributions 
        and benefits under the Social Security Act) of 3 percent of 
        such employee's compensation from the employer for the year.
    ``(d) Qualified Retirement Plan.--
            ``(1) In general.--The term `qualified retirement plan' 
        means any plan described in section 401(a) which includes a 
        trust exempt from tax under section 501(a), or any plan 
        described in section 408(k) or (p), if the plan meets--
                    ``(A) the contribution requirements of paragraph 
                (2), and
                    ``(B) the distribution requirements of paragraph 
                (3).
            ``(2) Contribution requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if, under the plan--
                            ``(i) the employer is required to make 
                        nonelective contributions of at least 1 percent 
                        of compensation (or the equivalent thereof in 
                        the case of a defined benefit plan) for each 
                        employee who is not a highly compensated 
                        employee who is eligible to participate in the 
                        plan, and
                            ``(ii) allocations of nonelective employer 
                        contributions, in the case of a defined 
                        contribution plan, are either in equal dollar 
                        amounts for all employees covered by the plan 
                        or bear a uniform relationship to the total 
                        compensation, of the employees covered by the 
                        plan (and an equivalent requirement is met with 
                        respect to a defined benefit plan).
                    ``(B) Compensation limitation.--The compensation 
                taken into account under subparagraph (A) for any year 
                shall not exceed the limitation in effect for such year 
                under section 401(a)(17).
            ``(3) Distribution requirements.--In the case of a profit-
        sharing or stock bonus plan, the requirements of this paragraph 
        are met if, under the plan, qualified employer contributions 
        are distributable only as provided in section 401(k)(2)(B).
    ``(e) Other Definitions.--For purposes of this section--
            ``(1) Eligible employer.--
                    ``(A) In general.--The term `eligible employer' 
                means, with respect to any year, an employer which has 
                no more than 25 employees who received at least $5,000 
                of compensation from the employer for the preceding 
                year. In determining the number of employees for 
                purposes of this paragraph, any rule applicable in 
                determining the number of employees for purposes of 
                section 408(p)(2)(C) shall be applicable under ths 
                paragraph.
                    ``(B) Requirement for new qualified employer 
                plans.--Such term shall not include an employer if, 
                during the 3-taxable year period immediately preceding 
                the 1st taxable year for which the credit under this 
                section is otherwise allowable for a qualified employer 
                plan of the employer, the employer or any member of any 
                controlled group including the employer (or any 
                predecessor of either) established or maintained a 
                qualified employer plan with respect to which 
                contributions were made, or benefits were accrued, for 
                substantially the same employees as are in the 
                qualified employer plan.
            ``(2) Highly compensated employee.--The term `highly 
        compensated employee' has the meaning given such term by 
        section 414(q) (determined without regard to section 
        414(q)(1)(B)(ii)).
    ``(f) Special Rules.--
            ``(1) Disallowance of deduction.--No deduction shall be 
        allowed for that portion of the qualified employer 
        contributions paid or incurred for the taxable year which is 
        equal to the credit determined under subsection (a).
            ``(2) Election not to claim credit.--This section shall not 
        apply to a taxpayer for any taxable year if such taxpayer 
        elects to have this section not apply for such taxable year.
            ``(3) Aggregation rules.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52, or 
        subsection (n) or (o) of section 414, shall be treated as one 
        person. All eligible employer plans shall be treated as 1 
        eligible employer plan.
    ``(g) Recapture of Credit on Forfeited Contributions.--If any 
accrued benefit which is forfeitable by reason of subsection (d)(3) is 
forfeited, the employer's tax imposed by this chapter for the taxable 
year in which the forfeiture occurs shall be increased by 35 percent of 
the employer contributions from which such benefit is derived to the 
extent such contributions were taken into account in determining the 
credit under this section.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) (defining current year business credit), as amended by this Act, 
is amended by striking ``and'' at the end of paragraph (30), by 
striking the period at the end of paragraph (31) and inserting ``, 
and'', and by adding at the end the following new paragraph:
            ``(32) in the case of an eligible employer (as defined in 
        section 45O(e)), the small employer pension plan contribution 
        credit determined under section 45O(a).''.
    (c) Conforming Amendments.--
            (1) Subsection (c) of section 196 is amended by striking 
        ``and'' at the end of paragraph (12), by striking the period at 
        the end of paragraph (13) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
            ``(14) the small employer pension plan contribution credit 
        determined under section 45O(a).''.
            (2) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1, as amended by this Act, is amended 
        by adding at the end the following new item:

``Sec. 45O. Small employer pension plan contributions.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to contributions paid or incurred in taxable years beginning 
after December 31, 2006.

SEC. 305. ACCOUNT FUNDS DISREGARDED FOR PURPOSES OF CERTAIN MEANS-
              TESTED FEDERAL PROGRAMS.

    Notwithstanding any other provision of Federal law (other than the 
Internal Revenue Code of 1986) that requires consideration of 1 or more 
financial circumstances of an individual for the purpose of determining 
eligibility to receive, or the amount of, any assistance or benefit 
authorized by--
            (1) the United States Housing Act of 1937,
            (2) title V of the Housing Act of 1949,
            (3) section 101 of the Housing and Urban Development Act of 
        1965,
            (4) sections 221(d)(3), 235, and 236 of the National 
        Housing Act, and
            (5) the Food Stamp Act of 1977,
any amount (including earnings thereon) in any qualified retirement 
plan (as defined in section 4974(c) of such Code), or any eligible 
deferred compensation plan (as defined in section 457(b) of such Code) 
maintained by an employer described in section 457(e)(1)(A) of such 
Code, of such individual shall be disregarded for such purpose with 
respect to any period during which such individual has not attained 
normal retirement age (as defined in section 216(l)(1) of the Social 
Security Act).

SEC. 306. DIRECT PAYMENT OF TAX REFUNDS TO INDIVIDUAL RETIREMENT PLANS.

    (a) In General.--The Secretary of the Treasury (or the Secretary's 
delegate) shall make available a form (or modify existing forms) for 
use by individuals to direct that a portion of any refund of 
overpayment of tax imposed by chapter 1 of the Internal Revenue Code of 
1986 be paid directly to an individual retirement plan (as defined in 
section 7701(a)(37) of such Code) of such individual, except that in 
the case of a joint return, the form or forms shall provide that each 
spouse shall be entitled to designate an individual retirement plan 
with respect to the payments attributable to the spouse.
    (b) Effective Date.--The form required by subsection (a) shall be 
made available for taxable years beginning after December 31, 2006.

                  TITLE IV--SIMPLIFICATION PROVISIONS

SEC. 401. EXCEPTION FROM REQUIRED DISTRIBUTIONS WHERE AGGREGATE 
              RETIREMENT SAVINGS LESS THAN $50,000.

    (a) In General.--Section 401(a)(9) (relating to required 
distributions) is amended by adding at the end the following new 
subparagraph:
                    ``(H) Exception from required distributions during 
                life of employee where assets do not exceed $50,000.--
                            ``(i) In general.--If, as of the close of 
                        any calendar year, the aggregate balance to the 
                        credit of an individual in all applicable 
                        eligible retirement plans and health savings 
                        accounts--
                                    ``(I) does not exceed $50,000, then 
                                the requirements of subparagraph (A) 
                                (and the requirements of any provision 
                                of this title which incorporates the 
                                requirements of subparagraph (A) by 
                                reference) shall not apply during the 
                                succeeding calendar year, or
                                    ``(II) exceeds $50,000 but does not 
                                exceed $200,000, then such requirements 
                                shall apply during the succeeding 
                                calendar year only to the excess.
                            ``(ii) Applicable eligible retirement 
                        plan.--For purposes of this subparagraph, the 
                        term `applicable eligible retirement plan' 
                        means an eligible retirement plan (as defined 
                        in section 402(c)(8)(B)), except that in 
                        applying such section--
                                    ``(I) only qualified trusts which 
                                are part of a defined contribution plan 
                                shall be taken into account under 
                                clause (iii), and
                                    ``(II) clause (iv) shall be 
                                disregarded.
                            ``(iii) Special rule for roth and health 
                        savings accounts.--For purposes of applying 
                        clause (i) for any calendar year, each of the 
                        $50,000 and $200,000 amounts shall be reduced 
                        by the aggregate balance to the credit of an 
                        individual in all Roth IRAs, designated Roth 
                        accounts under section 402A, and health savings 
                        accounts which was taken into account in 
                        computing the aggregate balance under clause 
                        (i).
                            ``(iv) Special rule for annuity 
                        contracts.--In determining the aggregate 
                        balance under clause (i) for any calendar year, 
                        there shall not be taken into account the value 
                        of any commercial annuity which was acquired by 
                        an applicable eligible retirement plan and from 
                        which distributions are being made, but the 
                        distributions shall be taken into account for 
                        purposes of this paragraph in the same manner 
                        as the distributions are taken into account 
                        without regard to this subparagraph.
                            ``(v) Health savings account.--For purposes 
                        of this subparagraph, the term `health savings 
                        account' has the meaning given such term by 
                        section 223(d).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions after December 31, 2006.

SEC. 402. ALLOWANCE OF ADDITIONAL NONELECTIVE CONTRIBUTIONS TO SIMPLE 
              PLANS.

    (a) Simple Retirement Accounts.--Section 408(p)(2) (defining 
qualified salary reduction arrangement) is amended by adding at the end 
the following:
                    ``(F) Additional nonelective contributions.--An 
                employer shall not be treated as failing to meet the 
                requirements of subparagraph (A)(iii) or (B) for any 
                year if, in addition to any contributions described in 
                either such subparagraph, the employer elects to make 
                nonelective contributions of a uniform percentage (not 
                greater than 10 percent) of compensation for each 
                employee eligible to participate in the arrangement and 
                who has at least $5,000 of compensation from the 
                employer for the year.''.
    (b) Simple Cash or Deferred Plans.--Section 401(k)(11)(B) (relating 
to contribution requirements) is amended by adding at the end the 
following:
                            ``(iv) Additional nonelective 
                        contributions.--An employer shall not be 
                        treated as failing to meet the requirements of 
                        clause (i)(II) or (ii) for any year if, in 
                        addition to any contributions described in 
                        either such clause, the employer elects to make 
                        nonelective contributions of a uniform 
                        percentage (not greater than 10 percent) of 
                        compensation for each employee eligible to 
                        participate in the arrangement and who has at 
                        least $5,000 of compensation from the employer 
                        for the year.''.
    (c) Effective Dates.--The amendments made by this section shall 
apply to years beginning after December 31, 2006.

SEC. 403. EXTENSION OF CERTAIN EXCEPTIONS FROM TAX ON EARLY 
              DISTRIBUTIONS TO PLANS OTHER THAN INDIVIDUAL RETIREMENT 
              PLANS.

    (a) In General.--Subparagraphs (D), (E), and (F) of section 
72(t)(2) (relating to subsection not to apply to certain distributions) 
are each amended by striking ``from an individual retirement plan''.
    (b) Conforming Amendments.--
            (1) The heading for section 72(t)(2)(E) is amended by 
        striking ``from individual retirement plans''.
            (2) The heading for section 72(t)(2)(F) is amended by 
        striking ``from certain plans''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 404. ELIMINATION OF HIGHER PENALTY ON CERTAIN SIMPLE PLAN 
              DISTRIBUTIONS.

    (a) In General.--Subsection (t) of section 72 (relating to 10-
percent additional tax on early distributions from qualified retirement 
plans) is amended by striking paragraph (6) and redesignating 
paragraphs (7), (8), and (9) as paragraphs (6), (7), and (8), 
respectively.
    (b) Conforming Amendments.--
            (1) Section 72(t)(2)(E) is amended by striking ``paragraph 
        (7)'' and inserting ``paragraph (6)''.
            (2) Section 72(t)(2)(F) is amended by striking ``paragraph 
        (8)'' and inserting ``paragraph (7)''.
            (3) Section 408(d)(3)(G) is amended by striking ``applies'' 
        and inserting ``applied on the day before the date of the 
        enactment of the Savings Competitiveness Act of 2006''.
            (4) Section 457(a)(2) is amended by striking ``section 
        72(t)(9)'' and inserting ``section 72(t)(8)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2006.

SEC. 405. SIMPLE PLAN PORTABILITY.

    (a) Repeal of Limitation.--Paragraph (3) of section 408(d) 
(relating to rollover contributions) is amended by striking 
subparagraph (G) and redesignating subparagraphs (H) and (I) as 
subparagraphs (G) and (H), respectively.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2006.

SEC. 406. ALLOW DIRECT ROLLOVERS FROM RETIREMENT PLANS TO ROTH IRAS.

    (a) In General.--Subsection (e) of section 408A (defining qualified 
rollover contribution) is amended to read as follows:
    ``(e) Qualified Rollover Contribution.--For purposes of this 
section, the term `qualified rollover contribution' means a rollover 
contribution--
            ``(1) to a Roth IRA from another such account,
            ``(2) from an eligible retirement plan, but only if--
                    ``(A) in the case of an individual retirement plan, 
                such rollover contribution meets the requirements of 
                section 408(d)(3), and
                    ``(B) in the case of any eligible retirement plan 
                (as defined in section 402(c)(8)(B) other than clauses 
                (i) and (ii) thereof), such rollover contribution meets 
                the requirements of section 402(c), 403(b)(8), or 
                457(e)(16), as applicable.
For purposes of section 408(d)(3)(B), there shall be disregarded any 
qualified rollover contribution from an individual retirement plan 
(other than a Roth IRA) to a Roth IRA.''
    (b) Conforming Amendments.--
            (1) Section 408A(c)(3)(B) is amended--
                    (A) in the text by striking ``individual retirement 
                plan'' and inserting ``an eligible retirement plan (as 
                defined by section 402(c)(8)(B))'', and
                    (B) in the heading by striking ``ira'' and 
                inserting ``eligible retirement plan''.
            (2) Section 408A(d)(3) is amended--
                    (A) in subparagraph (A), by striking ``section 
                408(d)(3)'' inserting ``sections 402(c), 403(b)(8), 
                408(d)(3), and 457(e)(16)'',
                    (B) in subparagraph (B), by striking ``individual 
                retirement plan'' and inserting ``eligible retirement 
                plan (as defined by section 402(c)(8)(B))'',
                    (C) in subparagraph (D), by inserting ``or 6047'' 
                after ``408(i)'',
                    (D) in subparagraph (D), by striking ``or both'' 
                and inserting ``persons subject to section 6047(d)(1), 
                or all of the foregoing persons'', and
                    (E) in the heading, by striking ``ira'' and 
                inserting ``eligible retirement plan''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2006.

SEC. 407. COORDINATION OF ORDERING RULES FOR DISTRIBUTIONS FROM ROTH 
              IRAS AND DESIGNATED ROTH ACCOUNTS.

    (a) In General.--Section 402A(d) is amended by adding at the end 
the following new paragraph:
            ``(5) Ordering rule.--For purposes of applying this 
        section, section 72, and section 402 to any distribution from a 
        designated Roth account, such distribution shall be treated as 
        made from contributions to the extent that the amount of such 
        distribution, when added to all previous distributions from the 
        designated Roth account, does not exceed the aggregate 
        contributions to the designated Roth account.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions after December 31, 2006.

                       TITLE V--PAY-GO PROVISIONS

SEC. 501. PAY-AS-YOU-GO POINT OF ORDER IN THE SENATE.

    (a) Point of Order.--
            (1) In general.--It shall not be in order in the Senate to 
        consider any direct spending or revenue legislation that would 
        increase the on-budget deficit or cause an on-budget deficit 
        (as measured in paragraphs (5) and (6)) for any 1 of the 3 
        applicable time periods.
            (2) Applicable time periods.--For purposes of this 
        subsection, the term ``applicable time period'' means any 1 of 
        the 3 following periods:
                    (A) The first year covered by the most recently 
                adopted concurrent resolution on the budget.
                    (B) The period of the first 5 fiscal years covered 
                by the most recently adopted concurrent resolution on 
                the budget.
                    (C) The period of the 5 fiscal years following the 
                first 5 fiscal years covered in the most recently 
                adopted concurrent resolution on the budget.
            (3) Direct-spending legislation.--For purposes of this 
        subsection and except as provided in paragraph (4), the term 
        ``direct-spending legislation'' means any bill, joint 
        resolution, amendment, motion, or conference report that 
        affects direct spending as that term is defined by, and 
        interpreted for purposes of, the Balanced Budget and Emergency 
        Deficit Control Act of 1985.
            (4) Exclusion.--For purposes of this subsection, the terms 
        ``direct-spending legislation'' and ``revenue legislation'' do 
        not include--
                    (A) any concurrent resolution on the budget; or
                    (B) any provision of legislation that affects the 
                full funding of, and continuation of, the deposit 
                insurance guarantee commitment in effect on the date of 
                enactment of the Budget Enforcement Act of 1990.
            (5) Baseline.--Estimates prepared pursuant to this section 
        shall--
                    (A) use the baseline surplus or deficit used for 
                the most recently adopted concurrent resolution on the 
                budget; and
                    (B) be calculated under the requirements of 
                subsections (b) through (d) of section 257 of the 
                Balanced Budget and Emergency Deficit Control Act of 
                1985 for fiscal years beyond those covered by that 
                concurrent resolution on the budget.
            (6) Prior surplus.--If direct spending or revenue 
        legislation increases the on-budget deficit or causes an on-
        budget deficit when taken individually, it must also increase 
        the on-budget deficit or cause an on-budget deficit when taken 
        together with all direct spending and revenue legislation 
        enacted since the beginning of the calendar year not accounted 
        for in the baseline under paragraph (5)(A), except that direct 
        spending or revenue effects resulting in net deficit reduction 
        enacted pursuant to reconciliation instructions since the 
        beginning of that same calendar year shall not be available.
    (b) Waiver.--This section may be waived or suspended in the Senate 
only by the affirmative vote of \3/5\ of the Members, duly chosen and 
sworn.
    (c) Appeals.--Appeals in the Senate from the decisions of the Chair 
relating to any provision of this section shall be limited to 1 hour, 
to be equally divided between, and controlled by, the appellant and the 
manager of the bill or joint resolution, as the case may be. An 
affirmative vote of \3/5\ of the Members of the Senate, duly chosen and 
sworn, shall be required to sustain an appeal of the ruling of the 
Chair on a point of order raised under this section.
    (d) Determination of Budget Levels.--For purposes of this section, 
the levels of new budget authority, outlays, and revenues for a fiscal 
year shall be determined on the basis of estimates made by the 
Committee on the Budget of the Senate.
    (e) Sunset.--This section shall expire on September 30, 2011.

                  TITLE VI--ADMINISTRATIVE PROVISIONS

SEC. 601. PROVISIONS RELATING TO PLAN AMENDMENTS.

    (a) In General.--If this section applies to any plan or contract 
amendment--
            (1) such plan or contract shall be treated as being 
        operated in accordance with the terms of the plan during the 
        period described in subsection (b)(2)(A), and
            (2) except as provided by the Secretary of the Treasury, 
        such plan shall not fail to meet the requirements of section 
        411(d)(6) of the Internal Revenue Code of 1986 and section 
        204(g) of the Employee Retirement Income Security Act of 1974 
        by reason of such amendment.
    (b) Amendments to Which Section Applies.--
            (1) In general.--This section shall apply to any amendment 
        to any plan or annuity contract which is made--
                    (A) pursuant to any amendment made by this Act, or 
                pursuant to any regulation issued by the Secretary of 
                the Treasury or the Secretary of Labor under this Act, 
                and
                    (B) on or before the last day of the first plan 
                year beginning on or after January 1, 2007, or such 
                later date as the Secretary of the Treasury may 
                prescribe.
        In the case of a governmental plan (as defined in section 
        414(d) of the Internal Revenue Code of 1986), subparagraph (B) 
        shall be applied by substituting the date which is 2 years 
        after the date otherwise applied under subparagraph (B).
            (2) Conditions.--This section shall not apply to any 
        amendment unless--
                    (A) during the period--
                            (i) beginning on the date the legislative 
                        or regulatory amendment described in paragraph 
                        (1)(A) takes effect (or in the case of a plan 
                        or contract amendment not required by such 
                        legislative or regulatory amendment, the 
                        effective date specified by the plan), and
                            (ii) ending on the date described in 
                        paragraph (1)(B) (or, if earlier, the date the 
                        plan or contract amendment is adopted),
                the plan or contract is operated as if such plan or 
                contract amendment were in effect; and
                    (B) such plan or contract amendment applies 
                retroactively for such period.
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