99–008

107TH CONGRESS REPORT " HOUSE OF REPRESENTATIVES ! 2d Session 107–396

PROVIDING FOR CONSIDERATION OF H.R. 3762, PENSION 

SECURITY ACT OF 2002

APRIL 10, 2002.—Referred to the House Calendar and ordered to be printed 

Mr. SESSIONS, from the Committee on Rules, 

submitted the following 

R E P O R T 

[To accompany H. Res. 386]

The Committee on Rules, having had under consideration House 

Resolution 386, by a nonrecord vote, report the same to the House 

with the recommendation that the resolution be adopted. 

SUMMARY OF PROVISIONS OF THE RESOLUTION

The resolution provides for the consideration of H.R. 3762, the 

Pension Security Act of 2002, under a modified closed rule. The 

rule waives all points of order against consideration of the bill. 

The rule provides two hours of debate in the House equally divided among and controlled by the chairmen and ranking minority 

members of the Committees on Education and the Workforce and 

Ways and Means. The rule provides that in lieu of the amendment 

recommended by the Committee on Education and the Workforce 

now printed in the bill, the amendment in the nature of a substitute printed in part A of this report shall be considered as adopted. The rule waives all points of order against the bill, as amended. 

The rule makes in order the amendment printed in part B of this 

report, if offered by Representative George Miller of California or 

Representative Rangel of New York or a designee, which shall be 

considered as read, and shall be separately debatable for one hour 

equally divided and controlled by the proponent and an opponent. 

The rule waives all points of order against the amendment printed 

in part B of this report. 

Finally, the rule provides one motion to recommit with or without instructions. 

The waiver of all points of order includes a waiver of clause 5(a) 

of rule XXI (prohibiting tax or tariff provisions in a bill not reported by a committee with jurisdiction over revenue measures). 

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COMMITTEE VOTES

Pursuant to clause 3(b) of House rule XIII the results of each 

record vote on an amendment or motion to report, together with 

the names of those voting for and against, are printed below: 

Rules Committee record vote No. 65

Date: April 10, 2002. 

Measure: H.R. 3762. 

Motion by: Mrs. Slaughter. 

Summary of motion: To make in order the amendment offered by 

Mr. Cardin, which consists of the text of H.R. 3669 as reported by 

the Committee on Ways and Means. 

Results: Defeated 2 to 7. 

Vote by Members: Goss—Nay; Linder—Nay; Hastings (WA)—

Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Slaughter—

Yea; Hastings (FL)—Yea; Dreier—Nay.

Rules Committee record vote No. 66

Date: April 10, 2002. 

Measure: H.R. 3762. 

Motion by: Mrs. Slaughter. 

Summary of motion: To make in order the amendment offered by 

Mr. Conyers which establishes a new bureau within the Department of Justice to prosecute crimes involving pension fraud, creates 

a new 10-year felony for defrauding shareholders of publicly-traded 

companies, clarifies current criminal laws relating to the destruction or fabrication of evidence, and provides whistleblower protection to employees of publicly-traded companies. 

Results: Defeated 2 to 7. 

Vote by members: Goss—Nay; Linder—Nay; Hastings (WA)—

Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Slaughter—

Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 67

Date: April 10, 2002. 

Measure: H.R. 3762. 

Motion by: Mrs. Slaughter. 

Summary of motion: To make in order the amendment offered by 

Mr. Holt, which would reduce vesting to one year. 

Results: Defeated 2 to 7. 

Vote by members: Goss—Nay; Linder—Nay; Hastings (WA)—

Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Slaughter—

Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 68

Date: April 10, 2002. 

Measure: H.R. 3762. 

Motion by: Mr. Hastings. 

Summary of motion: To make in order the amendment offered by 

Mr. Gutknecht, which requires that healthy companies, when 

changing their pension plan formula provide 90 days notice of any 

pension plan change to all workers and give fully vested employees 

the choice of staying in their current plan or switching to the new 

amended plan. Exempts companies in financial distress from penVerDate Jan 17 2002 04:22 Apr 11, 2002 Jkt 099008 PO 00000 Frm 00002 Fmt 6659 Sfmt 6602 E:\HR\OC\HR396.XXX pfrm03 PsN: HR396
3

alties, while otherwise healthy companies will be subject to an excise tax should they violate the provisions of this bill. Distress is 

to be determined by the Secretary of the Treasury, and generally 

follows the guidelines for distress criteria set out in ERISA: liquidation in bankruptcy or insolvency proceedings; reorganization in 

bankruptcy or insolvency proceedings; and plan termination requires to enable payment of debts while staying in business or to 

avoid unreasonably burdensome pension costs caused by declining 

workforce. 

Results: Defeated 2 to 7. 

Vote by members: Goss—Nay; Linder—Nay; Hastings (WA)—

Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Slaughter—

Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 69

Date: April 10, 2002. 

Measure: H.R. 3762. 

Motion by: Mr. Hastings. 

Summary of motion: To make in order the amendment offered by 

Mr. Bentsen, which prohibits employers from unilaterally issuing a 

freeze or lockdown to prevent an employee from selling company 

stock contained in the employee’s 401k or Employee Stock Ownership Plans (ESOPs) retirement savings account. Further, it provides that the Secretary of Labor could grant an exemption to the 

general prohibition if the employer meets the following strict standard. The employer must submit a petition setting out the reasons 

for pursuing a lockdown (i.e. change in trusteeship or plan management) and establish that a lockdown is administratively feasible, in 

the interests of the plan, its participants and beneficiaries and protective of the rights of participants and beneficiaries of the plan. 

If the Secretary of Labor grants an exemption, employees must receive written notice of the lockdown at least 90 days before it takes 

effect. Should the Secretary of Labor grant an exemption in emergency circumstances, the notice requirements could be waived. 

Results: Defeated 2 to 7. 

Vote by Members: Goss—Nay; Linder—Nay; Hastings (WA)—

Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Slaughter—

Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 70

Date: April 10, 2002. 

Measure: H.R. 3762. 

Motion by: Hastings. 

Summary of motion: To make in order the amendment offered by 

Mr. Bentsen, which provides that plan fiduciaries that knowingly 

misrepresent the present or expected valuation of employer securities would be actionable breaches of fiduciary duty under ERISA, 

would be held personally liable for the losses incurred as a result 

of this deception. Further, it provides that these claims would survive bankruptcy proceedings, should the employer (or other plan fiduciary) seek such protection and would be treated as ‘‘priority: in 

the bankruptcy court, eligible for full reimbursement ahead of unsecured creditors. 

Results: Defeated 2 to 7. 

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Vote by Members: Goss—Nay; Linder—Nay; Hastings (WA)— Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Slaughter— Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 71

Date: April 10, 2002. 

Measure: H.R. 3762. 

Motion by: Mr. Hastings. 

Summary of motion: To make in order the amendment offered by 

Mr. Bentsen, which would hold accountable company insiders who 

knowingly misrepresent the value of employer securities to employees. 

Results: Defeated 2 to 7. 

Vote by Members: Goss—Nay; Linder—Nay; Hastings (WA)— Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Slaughter— Yea; Hastings (FL)—Yea; Dreier—Nay.

Rules Committee record vote No. 72

Date: April 10, 2002. 

Measure: H.R. 3762. 

Motion by: Mr. Hastings. 

Summary of motion: To make in order the amendment offered by 

Mr. Tierney, which provides that employers may only provide independent advice to employees. 

Results: Defeated 2 to 7. 

Vote by Members: Goss—Nay; Linder—Nay; Hastings (WA)—

Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Slaughter—

Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 73

Date: April 10, 2002. 

Measure: H.R. 3762. 

Motion by: Mr. Hastings. 

Summary of motion: To make in order the amendment offered by 

Mr. Roemer and Mr. McCollum, which provides warning notice of 

excessive stock holdings. If an employee elects to invest 25% or 

more of his or her individual stock account in employer stock or his 

or her account exceeds 25% employer stock holdings, then the pension plan administrator would be required to notify the individual 

and in future communications periodically, but not less than quarterly, of the risks of a lack of diversification. Such notice shall be 

understandable to the average individual. 

Results: Defeated 2 to 7. 

Vote by Members: Goss—Nay; Linder—Nay; Hastings (WA)— Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Slaughter—

Yea; Hastings (FL)—Yea; Dreier—Nay.

AMENDMENTS MADE IN ORDER UNDER THE RULE

Summaries derived from information provided by sponsors. 

Part A—Summary of Amendment to be Considered as Adopted 

Investment Education and Benefit Statement: The bill requires 

the plan administrator to provide a quarterly notice to plan participants and beneficiaries of the value of investments allocated to 

their individual account, including their rights to diversify any asVerDate Jan 17 2002 04:22 Apr 11, 2002 Jkt 099008 PO 00000 Frm 00004 Fmt 6659 Sfmt 6602 E:\HR\OC\HR396.XXX pfrm03 PsN: HR396
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sets held in employer securities. The notice will also include an explanation of the importance of a diversified investment portfolio including a risk of holding substantial portions of a portfolio in any 

one security, such as employer securities. The Secretary shall issue 

guidance and model notices that include the value of investments, 

the rights of employees to diversify any employer securities and an 

explanation of the importance of a diversified investment portfolio. 

Initial guidance will be no later than January 1, 2003. The Secretary may also issue interim model guidance. Notice may be electronic if reasonably accessible to the recipient. Current law provides for an annual notice of benefits and no investment education. 

Blackout Notices: The bill requires a new notice 30 days prior to 

any suspension of participant and beneficiaries ability to direct or 

diversify assets. The notice must contain the reasons for the suspension, as well as a statement that the administrator has evaluated the reasonableness of the expected period, and a statement 

that the participant should evaluate the appropriateness of their 

current investment decisions in light of their ability to direct or diversify assets during the expected period of suspension. The bill requires that plan administrators shall determine prior to distributing notice that any suspension, limitation or restriction is reasonable. The bill clarifies that notice is required only for suspensions 

longer than three consecutive calendar days and provides for specific exceptions to the 30 day rule. In the event of a qualified domestic relations order, or a blackout period caused by a merger or 

acquisition, only those employees who are impacted by the event 

will receive the notice. The bill provides that the Secretary shall 

issue guidance and model notices that include the above factors 

and such other provisions the Secretary may specify. Initial guidance will be no later than January 1, 2003. The Secretary may 

issue interim model guidance. The bill clarifies that notice may be 

electronic if reasonably accessible to the recipient. The bill provides 

that the Secretary may provide for additional exceptions to the requirements that are in the interest of participants and beneficiaries. 

Inapplicability of Relief from Fiduciary Liability During Suspension of Ability of Participants to Direct Investments—404(c): The 

bill explains fiduciary duty during blackout period. It clarifies that 

fiduciaries are not liable for losses provided that fiduciaries satisfy 

the requirements of this title. Relevant considerations in determining the satisfaction of fiduciary duty are also added, such as 

the provision of the blackout notice, the fiduciary’s consideration of 

the reasonableness of the period of suspension, and the fiduciary’s 

actions solely in the interest of participants and beneficiaries. 

Diversification: The bill ensures that all employees contributions 

to pension plans will be immediately diversifiable. The bill provides 

for a five year transition rule for the allowable diversification of 

employer securities held in individual account plans as of the date 

of enactment. The bill provides for the option of a rolling three-year 

diversification of employer securities. In this case employer securities may be diversified three years after the calendar quarter in 

which they were contributed. The bill exempts individual account 

plans that do not hold employer securities that are readily tradable 

on an established securities market. 

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Investment Advice: The bill includes the text of H.R. 2269, the 

Retirement Security Advice Act, which provides increased availability of investment advisors to assist plan participants in making 

good decisions about their retirement assets. Employees will also 

be able to use pre-tax dollars to obtain their own investment advice. 

Parity for Employees During Blackout: The bill amends Section 

16 the Securities and Exchange Act of 1934 to prohibit company executives and insiders from purchasing or selling any employer securities while plan participants and beneficiaries are precluded from 

directing or diversifying their accounts during a ‘‘blackout’’ period. 

Additional Provisions: Extends the 30-year treasury funding relief to plan years 2001 through 2003. Provides permanent funding 

relief for certain frozen pension plans maintained by intercity bus 

lines. Includes ‘‘Byrd droppings’’ (ERISA only) from H.R. 10 

(Portman-Cardin pension reform). 

Part B—Summary of Amendment Made in Order 

George Miller/Rangel Democrat Substitute: Executive Accountability. Notice to employees when executives are dumping company 

stock. Requires plan participants to be notified of any significant 

sales of employer stock by executives or plan fiduciaries. Significant stock sales are sales of $100,000 or more either per transaction or in the aggregate. 

Honest, Accurate and Timely Information for Employees. Pension 

plans would be prohibited from giving misleading information; requires regular benefit statements to workers, including notice 

about the importance of diversification; provides at least 30-day advance notice of plan lockdowns, including the right to make investment changes that are implemented before a lockdown imposes 

civil penalties for failure to provide accurate information to employees. Require notice of the importance of diversification when more 

than 10% of an employee’s account is invested in employer stock. 

Un-biased, Independent Investment Advice. Provides for independent financial advice for employees when company stock is offered as an investment option under the plan. 

Gives Employees a Voice on Pension Boards. Requires pension 

plans to include rank and file employees on Pension Boards, where 

critical decisions about workers’ retirement security are made. 

Lockout Restrictions. Prohibit executives from bailing out of employer stock they own if the rank and file employees are prohibited 

from selling their stock under the pension plan. 

Parity of Benefits for Executives and Rank and File workers. 

Closes current law loophole that provides special treatment for executive pension plans. 

Given Employees Control Over Their Retirement Savings. Gives 

employees the right to diversify company-matched stock after 3 

years of plan participation. This enables employees to safeguard 

against future losses. 

Additional Protections for Workers’ Pension Benefits. Requires 

plan fiduciaries to secure insurance in an amount sufficient to 

cover benefits under the plan; gives employees the right to be made 

whole in court for 401k plan abuses; prohibits companies from forcing workers to waive their right to bring a claim under ERISA; enhances Department of Labor assistance; protects whistleblowers, 

7

and provides for a study of defined contribution plans insurance 

system. 

Tougher Criminal Enforcement. This substitute toughens criminals penalties for fiduciaries who violate workers’ pension rights. 

(60 minutes) 

PART A—TEXT OF AMENDMENT CONSIDERED AS ADOPTED

Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS. 

(a) SHORT TITLE.—This Act may be cited as the ‘‘Pension Security 

Act of 2002’’. 

(b) TABLE OF CONTENTS.—The table of contents is as follows:

Sec. 1. Short title and table of contents. 

TITLE I—IMPROVEMENTS IN PENSION SECURITY 

Sec. 101. Periodic pension benefits statements. 

Sec. 102. Protection from suspensions, limitations, or restrictions on ability of participant or beneficiary to direct or diversify plan assets. 

Sec. 103. Informational and educational support for pension plan fiduciaries. 

Sec. 104. Diversification requirements for defined contribution plans that hold employer securities. 

Sec. 105. Prohibited transaction exemption for the provision of investment advice. 

Sec. 106. Study regarding impact on retirement savings of participants and beneficiaries by requiring consultants to advise plan fiduciaries of individual 

account plans. 

Sec. 107. Treatment of qualified retirement planning services. 

Sec. 108. Insider trades during pension fund blackout periods prohibited. 

Sec. 109. Effective dates of title and related rules. 

TITLE II—OTHER PROVISIONS RELATING TO PENSIONS 

Sec. 201. Amendments to Retirement Protection Act of 1994. 

Sec. 202. Reporting simplification. 

Sec. 203. Improvement of Employee Plans Compliance Resolution System. 

Sec. 204. Flexibility in nondiscrimination, coverage, and line of business rules. 

Sec. 205. Extension to all governmental plans of moratorium on application of certain nondiscrimination rules applicable to State and local plans. 

Sec. 206. Notice and consent period regarding distributions. 

Sec. 207. Annual report dissemination. 

Sec. 208. Technical corrections to Saver Act. 

Sec. 209. Missing participants. 

Sec. 210. Reduced PBGC premium for new plans of small employers. 

Sec. 211. Reduction of additional PBGC premium for new and small plans. 

Sec. 212. Authorization for PBGC to pay interest on premium overpayment refunds. 

Sec. 213. Substantial owner benefits in terminated plans. 

Sec. 214. Benefit suspension notice. 

Sec. 215. Studies. 

Sec. 216. Interest rate range for additional funding requirements. 

Sec. 217. Provisions relating to plan amendments. 

TITLE III—STOCK OPTIONS 

Sec. 301. Exclusion of incentive stock options and employee stock purchase plan 

stock options from wages. 

TITLE IV—SOCIAL SECURITY AND MEDICARE HELD HARMLESS 

Sec. 401. Protection of Social Security and Medicare.

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TITLE I—IMPROVEMENTS IN PENSION 

SECURITY

SEC. 101. PERIODIC PENSION BENEFITS STATEMENTS. 

(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT INCOME SECU- RITY ACT OF 1974.— (1) REQUIREMENTS.— (A) IN GENERAL.—Section 105(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025(a)) is 

amended to read as follows: ‘‘(a)(1)(A) The administrator of an individual account plan shall 

furnish a pension benefit statement—

‘‘(i) to each plan participant at least annually, 

‘‘(ii) to each plan beneficiary upon written request, and 

‘‘(iii) in the case of an applicable individual account plan, to 

each plan participant (and to each beneficiary with a right to 

direct investments) at least quarterly. ‘‘(B) The administrator of a defined benefit plan shall furnish a 

pension benefit statement— ‘‘(i) at least once every 3 years to each participant with a 

nonforfeitable accrued benefit who is employed by the employer 

maintaining the plan at the time the statement is furnished to 

participants, and ‘‘(ii) to a plan participant or plan beneficiary of the plan upon 

written request. ‘‘(2) A pension benefit statement under paragraph (1)— ‘‘(A) shall indicate, on the basis of the latest available information—

‘‘(i) the total benefits accrued, and 

‘‘(ii) the nonforfeitable pension benefits, if any, which 

have accrued, or the earliest date on which benefits will 

become nonforfeitable, ‘‘(B) shall be written in a manner calculated to be understood 

by the average plan participant, and 

‘‘(C) may be provided in written form or in electronic or other 

appropriate form to the extent that such form is reasonably accessible to the recipient.

‘‘(3) In the case of an applicable individual account plan, the requirements of paragraph (1)(A) shall be treated as met if the quarterly statement (together with the information required in subparagraphs (A) and (B) of subsection (d)(1)) is available electronically in 

reasonably accessible form, and the participant or beneficiary is 

provided at least once each year a notice that such statement (together with such information) is available in such form. Such notice shall be in written, electronic, or other appropriate form. 

‘‘(4)(A) In the case of a defined benefit plan, the requirements of 

paragraph (1)(B)(i) shall be treated as met with respect to a participant if the administrator provides the participant at least once 

each year with notice of the availability of the pension benefit 

statement and the ways in which the participant may obtain such 

statement. Such notice shall be provided in written, electronic, or 

other appropriate form, and may be included with other communications to the participant if done in a manner reasonably designed to attract the attention of the participant. 

9

‘‘(B) The Secretary may provide that years in which no employee 

or former employee benefits (within the meaning of section 410(b) 

of the Internal Revenue Code of 1986) under the plan need not be 

taken into account in determining the 3-year period under paragraph (1)(B)(i).’’. 

(B) CONFORMING AMENDMENTS.—

(i) Section 105 of the Employee Retirement Income 

Security Act of 1974 (29 U.S.C. 1025) is amended by 

striking subsection (d). 

(ii) Section 105(b) of such Act (29 U.S.C. 1025(b)) is 

amended to read as follows: 

‘‘(b) In no case shall a participant or beneficiary of a plan be entitled to more than one statement described in clause (i) or (ii) of 

subsection (a)(1)(A) or clause (i) or (ii) of subsection (a)(1)(B), 

whichever is applicable, in any 12-month period. If such report is 

required under subsection (a) to be furnished at least quarterly, the 

requirements of the preceding sentence shall be applied with respect to each quarter in lieu of the 12-month period.’’. 

(2) INFORMATION REQUIRED FROM APPLICABLE INDIVIDUAL ACCOUNT PLANS.—Section 105 of such Act (as amended by paragraph (1)) is amended further by adding at the end the following new subsection: 

‘‘(d)(1) The statements required to be provided at least quarterly 

under subsection (a) shall include (together with the information 

required in subsection (a)) the following: 

‘‘(A) the value of investments allocated to the individual account, including the value of any assets held in the form of employer securities, without regard to whether such securities 

were contributed by the plan sponsor or acquired at the direction of the plan or of the participant or beneficiary, and an explanation of any limitations or restrictions on the right of the 

participant or beneficiary to direct an investment; and 

‘‘(B) an explanation, written in a manner calculated to be understood by the average plan participant, of the importance, for 

the long-term retirement security of participants and beneficiaries, of a well-balanced and diversified investment portfolio, including a discussion of the risk of holding more than 25 

percent of a portfolio in the security of any one entity, such as 

employer securities. 

‘‘(2) The value of any employer securities that are not readily 

tradable on an established securities market that is required to be 

reported under paragraph (1)(A) may be determined by using the 

most recent valuation of the employer securities.

‘‘(3) The Secretary shall issue guidance and model notices which 

meet the requirements of this subsection.’’. 

(3) DEFINITION OF APPLICABLE INDIVIDUAL ACCOUNT PLAN.—

Section 3 of such Act (29 U.S.C. 1002) is amended by adding 

at the end the following new paragraph: 

‘‘(42)(A) The term ‘applicable individual account plan’ means any 

individual account plan, except that such term does not include an 

employee stock ownership plan (within the meaning of section 

4975(e)(7) of the Internal Revenue Code of 1986) unless there are 

any contributions to such plan (or earnings thereunder) held within 

such plan that are subject to subsection (k)(3) or (m)(2) of section 

10

401 of the Internal Revenue Code of 1986. Such term shall not include a one-participant retirement plan. 

‘‘(B) The term ‘one-participant retirement plan’ means a retirement plan that—

‘‘(i) on the first day of the plan year—

‘‘(I) covered only the employer (and the employer’s 

spouse) and the employer owned the entire business 

(whether or not incorporated), or 

‘‘(II) covered only one or more partners (and their 

spouses) in a business partnership (including partners in 

an S or C corporation), 

‘‘(ii) meets the minimum coverage requirements of section 

410(b) of the Internal Revenue Code of 1986 (as in effect on the 

date of the enactment of this paragraph) without being combined with any other plan of the business that covers the employees of the business, 

‘‘(iii) does not provide benefits to anyone except the employer 

(and the employer’s spouse) or the partners (and their 

spouses), 

‘‘(iv) does not cover a business that is a member of an affiliated service group, a controlled group of corporations, or a 

group of businesses under common control, and 

‘‘(v) does not cover a business that leases employees.’’. 

(4) CIVIL PENALTIES FOR FAILURE TO PROVIDE QUARTERLY

BENEFIT STATEMENTS.—Section 502 of such Act (29 U.S.C. 

1132) is amended—

(A) in subsection (a)(6), by striking ‘‘(5), or (6)’’ and inserting ‘‘(5), (6), or (7)’’; 

(B) by redesignating paragraph (7) of subsection (c) as 

paragraph (8); and 

(C) by inserting after paragraph (6) of subsection (c) the 

following new paragraph: 

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

administrator of up to $1,000 a day from the date of such plan administrator’s failure or refusal to provide participants or beneficiaries with a benefit statement on at least a quarterly basis in 

accordance with section 105(a)(1)(A)(iii).’’. 

(5) MODEL STATEMENTS.—The Secretary of Labor shall, not 

later than January 1, 2003, issue initial guidance and a model 

benefit statement, written in a manner calculated to be understood by the average plan participant, that may be used by 

plan administrators in complying with the requirements of section 105 of the Employee Retirement Income Security Act of 

1974. Not later than 75 days after the date of the enactment 

of this Act, the Secretary shall promulgate interim final rules 

necessary to carry out the amendments made by this subsection. 

(b) AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986.—

(1) PROVISION OF INVESTMENT EDUCATION NOTICES TO PARTICIPANTS IN CERTAIN PLANS.—Section 414 of the Internal Revenue Code of 1986 (relating to definitions and special rules) is 

amended by adding at the end the following:

‘‘(w) PROVISION OF INVESTMENT EDUCATION NOTICES TO PARTICIPANTS IN CERTAIN PLANS.—

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

pension plan shall provide to each applicable individual an investment education notice described in paragraph (2) at the 

time of the enrollment of the applicable individual in the plan 

and not less often than annually thereafter. 

‘‘(2) INVESTMENT EDUCATION NOTICE.—An investment education notice is described in this paragraph if such notice contains—

‘‘(A) an explanation, for the long-term retirement security of participants and beneficiaries, of generally accepted 

investment principles, including principles of risk management and diversification, and 

‘‘(B) a discussion of the risk of holding substantial portions of a portfolio in the security of any one entity, such 

as employer securities. 

‘‘(3) UNDERSTANDABILITY.—Each notice required by paragraph (1) shall be written in a manner calculated to be understood by the average plan participant and shall provide sufficient information (as determined in accordance with guidance 

provided by the Secretary) to allow recipients to understand 

such notice. 

‘‘(4) FORM AND MANNER OF NOTICES.—The notices required by 

this subsection shall be in writing, except that such notices 

may be in electronic or other form (or electronically posted on 

the plan’s website) to the extent that such form is reasonably 

accessible to the applicable individual. 

‘‘(5) DEFINITIONS.—For purposes of this subsection—

‘‘(A) APPLICABLE INDIVIDUAL.—The term ‘applicable individual’ means—

‘‘(i) any participant in the applicable pension plan, 

‘‘(ii) any beneficiary who is an alternate payee (within the meaning of section 414(p)(8)) under a qualified 

domestic relations order (within the meaning of section 414(p)(1)(A)), and 

‘‘(iii) any beneficiary of a deceased participant or alternate payee. 

‘‘(B) APPLICABLE PENSION PLAN.—The term ‘applicable 

pension plan’ means—

‘‘(i) a plan described in clause (i), (ii), or (iv) of section 219(g)(5)(A), and 

‘‘(ii) an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A), 

which permits any participant to direct the investment of some 

or all of his account in the plan or under which the accrued 

benefit of any participant depends in whole or in part on hypothetical investments directed by the participant. Such term 

shall not include a one-participant retirement plan or a plan 

to which section 105 of the Employee Retirement Income Security Act of 1974 applies. 

‘‘(C) ONE-PARTICIPANT RETIREMENT PLAN DEFINED.—The 

term ‘one-participant retirement plan’ means a retirement 

plan that—

‘‘(i) on the first day of the plan year—

12

‘‘(I) covered only the employer (and the employer’s spouse) and the employer owned the entire 

business (whether or not incorporated), or 

‘‘(II) covered only one or more partners (and 

their spouses) in a business partnership (including 

partners in an S or C corporation),

‘‘(ii) meets the minimum coverage requirements of 

section 410(b) without being combined with any other 

plan of the business that covers the employees of the 

business, 

‘‘(iii) does not provide benefits to anyone except the 

employer (and the employer’s spouse) or the partners 

(and their spouses), 

‘‘(iv) does not cover a business that is a member of 

an affiliated service group, a controlled group of corporations, or a group of businesses under common control, and 

‘‘(v) does not cover a business that leases employees. 

‘‘(6) CROSS REFERENCE.—

‘‘For provisions relating to penalty for failure to provide the notice required by this section, see section 6652(m).’’.

(2) PENALTY FOR FAILURE TO PROVIDE NOTICE.—Section 6652 

of such Code (relating to failure to file certain information returns, registration statements, etc.) is amended by redesignating subsection (m) as subsection (n) and by inserting after 

subsection (l) the following new subsection: 

‘‘(m) FAILURE TO PROVIDE INVESTMENT EDUCATION NOTICES TO

PARTICIPANTS IN CERTAIN PLANS.—In the case of each failure to 

provide a written explanation as required by section 414(w) with 

respect to an applicable individual (as defined in such section), at 

the time prescribed therefor, unless it is shown that such failure 

is due to reasonable cause and not to willful neglect, there shall be 

paid, on notice and demand of the Secretary and in the same manner as tax, by the person failing to provide such notice, an amount 

equal to $100 for each such failure, but the total amount imposed 

on such person for all such failures during any calendar year shall 

not exceed $50,000.’’. 

SEC. 102. PROTECTION FROM SUSPENSIONS, LIMITATIONS, OR RESTRICTIONS ON ABILITY OF PARTICIPANT OR BENEFICIARY TO DIRECT OR DIVERSIFY PLAN ASSETS. 

(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.—

(1) NOTICE REQUIREMENTS.—

(A) IN GENERAL.—Section 101 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1021) is 

amended—

(i) by redesignating the second subsection (h) as subsection (j); and 

(ii) by inserting after the first subsection (h) the following new subsection: 

‘‘(i) NOTICE OF SUSPENSION, LIMITATION, OR RESTRICTION ON

ABILITY OF PARTICIPANT OR BENEFICIARY TO DIRECT INVESTMENTS

IN INDIVIDUAL ACCOUNT PLAN.—

‘‘(1) DUTIES OF PLAN ADMINISTRATOR.—

13

‘‘(A) IN GENERAL.—In the case of any action having the 

effect of temporarily suspending, limiting, or restricting 

any ability of participants or beneficiaries under an applicable individual account plan, which is otherwise available 

under the terms of such plan, to direct or diversify assets 

credited to their accounts, if such suspension, limitation, 

or restriction is for any period of more than 3 consecutive 

business days, the plan administrator shall—

‘‘(i) in advance of taking such action, determine, in 

accordance with the requirements of part 4, that the 

expected period of suspension, limitation, or restriction 

is reasonable, and 

‘‘(ii) after making the determination under subparagraph (A) and in advance of taking such action, notify 

the plan participants and beneficiaries who are affected by such action in accordance with this subsection. 

‘‘(B) EXCEPTIONS.—Subparagraph (A) does not apply in 

connection with any suspension, limitation, or restriction—

‘‘(i) which occurs by reason of the application of the 

securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934), or 

‘‘(ii) to the extent the suspension, limitation, or restriction is a change to the terms of the plan disclosed 

to participants or beneficiaries through the summary 

plan description or materials describing specific investment alternatives under the plan. 

‘‘(C) BUSINESS DAY.—For purposes of subparagraph (A), 

under regulations prescribed by the Secretary, the term 

‘business day’ means—

‘‘(i) in the case of a security which is traded on an 

established security market, any day on which such 

security may be traded on the principal securities 

market of such security, and

‘‘(ii) in the case of a security which is not traded on 

an established security market, any calendar day. 

‘‘(2) NOTICE REQUIREMENTS.—

‘‘(A) IN GENERAL.—The notices described in paragraph 

(1) shall be written in a manner calculated to be understood by the average plan participant and shall include—

‘‘(i) the reasons for the suspension, limitation, or restriction, 

‘‘(ii) an identification of the investments affected, 

‘‘(iii) the expected period of the suspension, limitation, or restriction, 

‘‘(iv) a statement that the plan administrator has 

evaluated the reasonableness of the expected period of 

suspension, limitation, or restriction, 

‘‘(v) a statement that the participant or beneficiary 

should evaluate the appropriateness of their current 

investment decisions in light of their inability to direct 

or diversify assets credited to their accounts during 

the expected period of suspension, limitation, or restriction, and 

14

‘‘(vi) such other matters as the Secretary may include in the model notices issued under subparagraph 

(E). 

‘‘(B) PROVISION OF NOTICE.—Except as otherwise provided in this subsection, notices described in paragraph (1) 

shall be furnished to all participants and beneficiaries 

under the plan at least 30 days in advance of the action 

suspending, limiting, or restricting the ability of the participants or beneficiaries to direct or diversify assets. 

‘‘(C) EXCEPTION TO 30-DAY NOTICE REQUIREMENT.—In any 

case in which—

‘‘(i) a fiduciary of the plan determines, in writing, 

that a deferral of the suspension, limitation, or restriction would violate the requirements of subparagraph 

(A) or (B) of section 404(a)(1), or 

‘‘(ii) the inability to provide the 30-day advance notice is due to events that were unforeseeable or circumstances beyond the reasonable control of the plan 

administrator, 

subparagraph (B) shall not apply, and the notice shall be 

furnished to all participants and beneficiaries under the 

plan as soon as reasonably possible under the circumstances unless such a notice in advance of the termination of the suspension, limitation, or restriction is impracticable. 

‘‘(D) WRITTEN NOTICE.—The notice required to be provided under this subsection shall be in writing, except that 

such notice may be in electronic or other form to the extent that such form is reasonably accessible to the recipient. 

‘‘(E) MODEL NOTICES.—The Secretary shall issue model 

notices which meet the requirements of this paragraph. 

‘‘(3) EXCEPTION FOR SUSPENSIONS, LIMITATIONS, OR RESTRICTIONS WITH LIMITED APPLICABILITY.—In any case in which the 

suspension, limitation, or restriction described in paragraph 

(1)—

‘‘(A) applies only to 1 or more individuals, each of whom 

is the participant, an alternate payee (as defined in section 

206(d)(3)(K)), or any other beneficiary pursuant to a qualified domestic relations order (as defined in section 

206(d)(3)(B)(i)), or

‘‘(B) applies only to 1 or more participants or beneficiaries in connection with a merger, acquisition, divestiture, or similar transaction involving the plan or plan 

sponsor and occurs solely in connection with becoming or 

ceasing to be a participant or beneficiary under the plan 

by reason of such merger, acquisition, divestiture, or transaction, 

the requirement of this subsection that the notice be provided 

to all participants and beneficiaries shall be treated as met if 

the notice required under paragraph (1) is provided to all the 

individuals referred to in subparagraph (A) or (B) to whom the 

suspension, limitation, or restriction applies as soon as reasonably practicable. 

15

‘‘(4) CHANGES IN PERIOD OF SUSPENSION, LIMITATION, OR RESTRICTION.—If, following the furnishing of the notice pursuant 

to this subsection, there is a change in the period of the suspension, limitation, or restriction (specified in such notice pursuant to paragraph (2)(A)(iii)) on the right of a participant or 

beneficiary to direct or diversify assets, the administrator shall 

provide affected participants and beneficiaries notice of the 

change as soon as reasonably practicable. In relation to the extended suspension, limitation, or restriction, such notice shall 

meet the requirements of paragraph (2)(D) and shall specify 

any material change in the matters referred to in clauses (i) 

through (vi) of paragraph (2)(A). 

‘‘(5) REGULATORY EXCEPTIONS.—The Secretary may provide 

by regulation for additional exceptions to the requirements of 

this subsection which the Secretary determines are in the interests of participants and beneficiaries. 

‘‘(6) GUIDANCE AND MODEL NOTICES.—The Secretary shall 

issue guidance and model notices which meet the requirements 

of this subsection.’’. 

(B) ISSUANCE OF INITIAL GUIDANCE AND MODEL NOTICE.—

The Secretary of Labor shall issue initial guidance and a 

model notice pursuant to section 101(i)(6) of the Employee 

Retirement Income Security Act of 1974 (as added by this 

subsection) not later than January 1, 2003. Not later than 

75 days after the date of the enactment of this Act, the 

Secretary shall promulgate interim final rules necessary to 

carry out the amendments made by this subsection. 

(2) CIVIL PENALTIES FOR FAILURE TO PROVIDE NOTICE.—Section 502 of such Act (as amended by section 101(a)(4)) is 

amended further—

(A) in subsection (a)(6), by striking ‘‘(6), or (7)’’ and inserting ‘‘(6), (7), or (8)’’; 

(B) by redesignating paragraph (8) of subsection (c) as 

paragraph (9); and 

(C) by inserting after paragraph (7) of subsection (c) the 

following new paragraph: 

‘‘(8) The Secretary may assess a civil penalty against a plan administrator of up to $100 a day from the date of the plan administrator’s failure or refusal to provide notice to participants and beneficiaries in accordance with section 101(i). For purposes of this 

paragraph, each violation with respect to any single participant or 

beneficiary shall be treated as a separate violation.’’. 

(3) INAPPLICABILITY OF RELIEF FROM FIDUCIARY LIABILITY

DURING SUSPENSION OF ABILITY OF PARTICIPANT OR BENEFICIARY TO DIRECT INVESTMENTS.—Section 404(c)(1) of such Act 

(29 U.S.C. 1104(c)(1)) is amended—

(A) by redesignating subparagraphs (A) and (B) as 

clauses (i) and (ii), respectively, and by inserting ‘‘(A)’’

after ‘‘(c)(1)’’;

(B) in subparagraph (A)(ii) (as redesignated by subparagraph (A)), by inserting before the period the following: 

‘‘, except that this clause shall not apply in connection 

with such participant or beneficiary for any period during 

which the ability of such participant or beneficiary to diVerDate Jan 17 2002 04:22 Apr 11, 2002 Jkt 099008 PO 00000 Frm 00015 Fmt 6659 Sfmt 6602 E:\HR\OC\HR396.XXX pfrm03 PsN: HR396
16

rect the investment of the assets in his or her account is 

suspended by a plan sponsor or fiduciary’’; and 

(C) by adding at the end the following new subparagraphs: ‘‘(B) If the person referred to in subparagraph (A)(ii) meets the 

requirements of this title in connection with authorizing the suspension, such person shall not be liable under this title for any loss 

occurring during the suspension as a result of any exercise by the 

participant or beneficiary of control over assets in his or her account prior to the suspension. Matters to be considered in determining whether such person has satisfied the requirements of this 

title include whether such person— ‘‘(i) has considered the reasonableness of the expected period 

of the suspension as required under section 101(i)(1)(A)(i), ‘‘(ii) has provided the notice required under section 

101(i)(1)(A)(ii), and ‘‘(iii) has acted in accordance with the requirements of subsection (a) in determining whether to enter into the suspension. ‘‘(C) Any limitation or restriction that may govern the frequency 

of transfers between investment vehicles shall not be treated as a 

suspension referred to in subparagraph (A)(ii) to the extent such 

limitation or restriction is disclosed to participants or beneficiaries 

through the summary plan description or materials describing specific investment alternatives under the plan.’’. 

(b) AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986.—

(1) EXCISE TAX ON FAILURE OF PENSION PLANS TO PROVIDE

NOTICE OF TRANSACTION RESTRICTION PERIODS.—

(A) IN GENERAL.—Chapter 43 of the Internal Revenue 

Code of 1986 (relating to qualified pension, etc., plans) is 

amended by adding at the end the following new section: 

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

TRANSACTION RESTRICTION PERIODS. 

‘‘(a) IMPOSITION OF TAX.—There is hereby imposed a tax on the 

failure of any applicable pension plan to meet the requirements of 

subsection (e) with respect to any applicable individual. 

‘‘(b) AMOUNT OF TAX.—The amount of the tax imposed by subsection (a) on any failure with respect to any applicable individual 

shall be $100. 

‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

‘‘(1) TAX NOT TO APPLY TO FAILURES CORRECTED AS SOON AS

REASONABLY PRACTICABLE.—No tax shall be imposed by subsection (a) on any failure if—

‘‘(A) any person subject to liability for the tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and 

‘‘(B) such person provides the notice described in subsection (e) as soon as reasonably practicable after the first 

date such person knew, or exercising reasonable diligence 

should have known, that such failure existed and at least 

1 business day before the beginning of the transaction restriction period. 

‘‘(2) TAX NOT TO APPLY WHEN PROVIDING NOTICE NOT REASONABLY PRACTICABLE.—No tax shall be imposed by subsection (a) 

if, in the case of the occurrence of an unforeseeable event, it 

17

is not reasonably practicable to provide such notice before the 

beginning of the transaction restriction period. ‘‘(3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.— ‘‘(A) IN GENERAL.—If the person subject to liability for 

tax under subsection (d) exercised reasonable diligence to 

meet the requirements of subsection (e), the tax imposed 

by subsection (a) for failures during the taxable year of the 

employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not 

exceed $500,000. For purposes of the preceding sentence, 

all multiemployer plans of which the same trust forms a 

part shall be treated as 1 plan. ‘‘(B) TAXABLE YEARS IN THE CASE OF CERTAIN CON- TROLLED GROUPS.—For purposes of this paragraph, if all 

persons who are treated as a single employer for purposes 

of this section do not have the same taxable year, the taxable years taken into account shall be determined under 

principles similar to the principles of section 1561. ‘‘(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. ‘‘(d) LIABILITY FOR TAX.—The following shall be liable for the tax 

imposed by subsection (a): ‘‘(1) In the case of a plan other than a multiemployer plan, 

the employer. ‘‘(2) In the case of a multiemployer plan, the plan. ‘‘(e) NOTICE OF TRANSACTION RESTRICTION PERIOD.— ‘‘(1) IN GENERAL.—The plan administrator of an applicable 

pension plan shall provide written notice of any transaction restriction period to each applicable individual to whom the 

transaction restriction period applies (and to each employee organization representing such applicable individuals). 

‘‘(2) UNDERSTANDABILITY.—The notice required by paragraph 

(1) shall be written in a manner calculated to be understood 

by the average plan participant and shall provide sufficient information (as determined in accordance with guidance provided 

by the Secretary) to allow recipients to understand the timing 

and effect of such transaction restriction period. ‘‘(3) TIMING OF NOTICE.—

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

(B), the notice required by paragraph (1) shall be provided 

at least 30 days before the beginning of the transaction restriction period. 

‘‘(B) DISPOSITION OF STOCK OR ASSETS.—

‘‘(i) IN GENERAL.—If, in connection with the major 

corporate disposition by a corporation maintaining an 

applicable pension plan, there is the possibility of a 

transaction restriction period— ‘‘(I) the notice required by paragraph (1) shall 

be provided at least 30 days before the date of 

such disposition, and ‘‘(II) no other notice shall be required by paragraph (1) with respect to such period if notice is 

18

provided pursuant to subclause (I) and such period begins not more than 30 days after the date 

of such disposition. 

Subclause (I) shall not apply if the plan administrator 

has a substantial basis to believe that there will be no 

transaction restriction period in connection with the 

disposition. ‘‘(ii) MAJOR CORPORATE DISPOSITION.—For purposes 

of clause (i), the term ‘major corporate disposition’ means, with respect to a corporation— ‘‘(I) the disposition of substantially all of the 

stock of such corporation or a subsidiary thereof, 

or ‘‘(II) the disposition of substantially all of the 

assets used in a trade or business of such corporation or subsidiary. ‘‘(iii) NONCORPORATE ENTITIES.—Rules similar to the 

rules of this subparagraph shall apply to entities that 

are not corporations. ‘‘(4) FORM AND MANNER OF NOTICE.—The notice required by 

this subsection shall be in writing, except that such notice may 

be in electronic or other form to the extent that such form is 

reasonably accessible to the applicable individual. ‘‘(f ) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— ‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘applicable individual’ means— ‘‘(A) any participant in the applicable pension plan, and

‘‘(B) any beneficiary who is an alternate payee (within 

the meaning of section 414(p)(8)) under a qualified domestic relations order (within the meaning of section 

414(p)(1)(A)), and ‘‘(C) any beneficiary of a deceased participant or alternate payee. 

‘‘(2) APPLICABLE PENSION PLAN.— ‘‘(A) IN GENERAL.—The term ‘applicable pension plan’ means—

‘‘(i) a plan described in clause (i), (ii), or (iv) of section 219(g)(5)(A), and ‘‘(ii) an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A),

which maintains accounts for participants under the plan 

or under which the accrued benefit of any participant depends in whole or in part on hypothetical investments directed by the participant. ‘‘(B) EXCEPTION.—Such term shall not include a one-participant retirement plan (as defined in section 4980G(f)(3)). 

‘‘(3) TRANSACTION RESTRICTION PERIOD.— ‘‘(A) IN GENERAL.—The term ‘transaction restriction period’ means, with respect to an applicable pension plan, a 

period beginning on a day in which there is a substantial 

reduction in rights described in subparagraph (B) which 

are not restored as of the beginning of the 3rd day following the day of such reduction. 

19

‘‘(B) RIGHTS DESCRIBED.—For purposes of this paragraph, rights described in this section with respect to an 

applicable pension plan are rights under such plan of 1 or 

more applicable individuals to direct investments in such 

plan, to obtain loans from such plan, or to obtain distributions from such plan. 

‘‘(C) SPECIAL RULE FOR EMPLOYER SECURITIES.—For purposes of this paragraph—

‘‘(i) IN GENERAL.—In the case of rights relating to directing investments out of employer securities, such 

rights shall be treated as substantially reduced if such 

rights are significantly restricted for at least 3 consecutive business days. 

‘‘(ii) BUSINESS DAY.—For purposes of clause (i), 

under regulations prescribed by the Secretary, the 

term ‘business day’ means—

‘‘(I) in the case of a security which is traded on 

an established security market, any day on which 

such security may be traded on the principal securities market of such security, and 

‘‘(II) in the case of a security which is not traded 

on an established security market, any calendar 

day. 

‘‘(iii) EMPLOYER SECURITIES.—For purposes of this 

subparagraph, the term ‘employer securities’ shall 

have the meaning given such term by section 407(d)(1) 

of the Employee Retirement Income Security Act of 

1974. 

‘‘(D) EXCEPTIONS.—Rights which are substantially reduced by reason of the application of securities laws or 

other circumstances specified by the Secretary in regulations shall not be taken into account for purposes of this 

paragraph.’’. 

(2) CLERICAL AMENDMENT.—The table of sections for chapter 

43 of such Code is amended by adding at the end the following 

new item:

‘‘Sec. 4980H. Failure of applicable plans to provide notice of transaction restriction periods.’’.

(3) GUIDANCE.—The Secretary of the Treasury, in consultation with the Secretary of Labor, shall issue guidance in carrying out section 4980H of the Internal Revenue Code of 1986 

(as added by this section). Such guidance—

(A) in the case of a reduction of rights relating to the direction of investments out of employer securities, shall be 

issued by November 1, 2002 (or, if later, the 60th day after 

the date of the enactment of this Act), and 

(B) in any other case, shall be issued not later than 120 

days after the date of the enactment of this Act.

SEC. 103. INFORMATIONAL AND EDUCATIONAL SUPPORT FOR PENSION PLAN FIDUCIARIES. 

Section 404 of the Employee Retirement Income Security Act of 

1974 (29 U.S.C. 1104) is amended by adding at the end the following new subsection: 

20

‘‘(e) The Secretary shall establish a program under which information and educational resources shall be made available on an ongoing basis to persons serving as fiduciaries under employee pension benefit plans so as to assist such persons in diligently and effectively carrying out their fiduciary duties in accordance with this 

part.’’. 

SEC. 104. DIVERSIFICATION REQUIREMENTS FOR DEFINED CONTRIBUTION PLANS THAT HOLD EMPLOYER SECURITIES. 

(a) AMENDMENT TO THE EMPLOYEE RETIREMENT INCOME SECU- RITY ACT OF 1974.—Section 204 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054) is amended— (1) by redesignating subsection (j) as subsection (k); and 

(2) by inserting after subsection (i) the following new subsection: ‘‘(j) DIVERSIFICATION REQUIREMENTS FOR INDIVIDUAL ACCOUNT

PLANS THAT HOLD EMPLOYER SECURITIES.— ‘‘(1) IN GENERAL.—An applicable individual account plan 

shall meet the requirements of paragraphs (2) and (3). ‘‘(2) EMPLOYEE CONTRIBUTIONS AND ELECTIVE DEFERRALS IN- VESTED IN EMPLOYER SECURITIES.—In the case of the portion of 

the account attributable to employee contributions and elective 

deferrals which is invested in employer securities, a plan meets 

the requirements of this paragraph if each applicable individual may elect to direct the plan to divest any such securities 

in the individual’s account and to reinvest an equivalent 

amount in other investment options which meet the requirements of paragraph (4). ‘‘(3) EMPLOYER CONTRIBUTIONS INVESTED IN EMPLOYER SECU- RITIES.—

‘‘(A) IN GENERAL.—In the case of the portion of the account attributable to employer contributions (other than 

elective deferrals to which paragraph (2) applies) which is 

invested in employer securities, a plan meets the requirements of this paragraph if, under the plan—

‘‘(i) each applicable individual with a benefit based 

on 3 years of service may elect to direct the plan to divest any such securities in the individual’s account 

and to reinvest an equivalent amount in other investment options which meet the requirements of paragraph (4), or 

‘‘(ii) with respect to any employer security allocated 

to an applicable individual’s account during any plan 

year, such applicable individual may elect to direct the 

plan to divest such employer security after a date 

which is not later than 3 years after the end of such 

plan year and to reinvest an equivalent amount in 

other investment options which meet the requirements 

of paragraph (4). 

‘‘(B) APPLICABLE INDIVIDUAL WITH BENEFIT BASED ON 3

YEARS OF SERVICE.—For purposes of subparagraph (A), an 

applicable individual has a benefit based on 3 years of 

service if such individual would be an applicable individual 

if only participants in the plan who have completed at 

least 3 years of service (as determined under section 

203(b)) were taken into account under paragraph (6)(B)(i). 

21

‘‘(4) INVESTMENT OPTIONS.—The requirements of this paragraph are met if— ‘‘(A) the plan offers not less than 3 investment options, 

other than employer securities, to which an applicable individual may direct the proceeds from the divestment of 

employer securities pursuant to this subsection, each of 

which is diversified and has materially different risk and 

return characteristics, and ‘‘(B) the plan permits the applicable individual to choose 

from any of the investment options made available under 

the plan to which such proceeds may be so directed, subject to such restrictions as may be provided by the plan 

limiting such choice to periodic, reasonable opportunities 

occurring no less frequently than on a quarterly basis. ‘‘(5) DEFINITIONS AND RULES.—For purposes of this subsection—

‘‘(A) APPLICABLE INDIVIDUAL ACCOUNT PLAN.—The term ‘applicable individual account plan’ means any individual 

account plan, except that such term does not include an 

employee stock ownership plan (within the meaning of section 4975(e)(7) of the Internal Revenue Code of 1986) unless there are any contributions to such plan (or earnings 

thereon) held within such plan that are subject to subsection (k)(3) or (m)(2) of section 401 of the Internal Revenue Code of 1986. ‘‘(B) APPLICABLE INDIVIDUAL.—The term ‘applicable individual’ means— ‘‘(i) any participant in the plan, and 

‘‘(ii) any beneficiary of a participant referred to in 

clause (i) who has an account under the plan with respect to which the beneficiary is entitled to exercise 

the rights of the participant. ‘‘(C) ELECTIVE DEFERRAL.—The term ‘elective deferral’ means an employer contribution described in section 

402(g)(3)(A) of the Internal Revenue Code of 1986 (as in effect on the date of the enactment of this subsection). 

‘‘(D) EMPLOYER SECURITY.—The term ‘employer security’ shall have the meaning given such term by section 

407(d)(1) of this Act (as in effect on the date of the enactment of this subsection). ‘‘(E) EMPLOYEE STOCK OWNERSHIP PLAN.—The term ‘employee stock ownership plan’ shall have the same meaning 

given to such term by section 4975(e)(7) of the Internal 

Revenue Code of 1986 (as in effect on the date of the enactment of this subsection). 

‘‘(F) ELECTIONS.—Elections under this subsection may be 

made not less frequently than quarterly. 

‘‘(6) EXCEPTION WHERE THERE IS NO READILY TRADABLE

STOCK.—This subsection shall not apply with respect to a plan 

if there is no class of stock issued by any employer maintaining 

the plan (or by a corporation which is an affiliate of any such 

employer, as defined in section 407(d)(7) as in effect on the 

date of the enactment of this subsection) that is readily 

tradable on an established securities market. ‘‘(7) TRANSITION RULE.—

22

‘‘(A) IN GENERAL.—In the case of any individual account 

plan which, on the first day of the first plan year to which 

this subsection applies, holds employer securities of any 

class that were acquired before such date and on which 

there is a restriction on diversification otherwise precluded 

by this subsection, this subsection shall apply to such securities of such class held in any plan year only with respect 

to the number of such securities equal to the applicable

percentage of the total number of such securities of such 

class held on such date. ‘‘(B) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A), the applicable percentage shall be as follows:

‘‘Plan years for which provisions 

are effective: 

Applicable percentage: 

1st plan year ......................................... 20 percent. 

2nd plan year ........................................ 40 percent. 

3rd plan year ........................................ 60 percent. 

4th plan year ........................................ 80 percent. 

5th plan year or thereafter .................. 100 percent.

‘‘(C) ELECTIVE DEFERRALS TREATED AS SEPARATE PLAN

NOT INDIVIDUAL ACCOUNT PLAN.—For purposes of subparagraph (A), the applicable percentage shall be 100 percent 

with respect to— ‘‘(i) employee contributions to a plan under which 

any portion attributable to elective deferrals is treated 

as a separate plan under section 407(b)(2) as of the 

date of the enactment of this paragraph, and ‘‘(ii) such elective deferrals. ‘‘(D) COORDINATION WITH PRIOR ELECTIONS.—In any case 

in which a divestiture of investment in employer securities 

of any class held by an employee stock ownership plan 

prior to the effective date of this subsection was undertaken pursuant to other applicable Federal law prior to 

such date, the applicable percentage (as determined without regard to this subparagraph) in connection with such 

securities shall be reduced to the extent necessary to account for the amount to which such election applied. ‘‘(8) REGULATIONS.—The Secretary of the Treasury shall prescribe regulations under this subsection in consultation with 

the Secretary of Labor.’’ (b) AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986.— (1) IN GENERAL.—Section 401(a) of the Internal Revenue 

Code of 1986 (relating to requirements for qualification) is 

amended by inserting after paragraph (34) the following new 

paragraph: 

‘‘(35) DIVERSIFICATION REQUIREMENTS FOR DEFINED CONTRIBUTION PLANS THAT HOLD EMPLOYER SECURITIES.—

‘‘(A) IN GENERAL.—An applicable defined contribution 

plan shall meet the requirements of subparagraphs (B) 

and (C). 

‘‘(B) EMPLOYEE CONTRIBUTIONS AND ELECTIVE DEFERRALS

INVESTED IN EMPLOYER SECURITIES.—In the case of the 

portion of the account attributable to employee contributions and elective deferrals which is invested in employer 

securities, a plan meets the requirements of this subparagraph if each applicable individual in such plan may elect 

23

to direct the plan to divest any such securities in the individual’s account and to reinvest an equivalent amount in 

other investment options which meet the requirements of 

subparagraph (D). ‘‘(C) EMPLOYER CONTRIBUTIONS INVESTED IN EMPLOYER

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

account attributable to employer contributions (other 

than elective deferrals to which subparagraph (B) applies) which is invested in employer securities, a plan 

meets the requirements of this subparagraph if, under 

the plan—

‘‘(I) each applicable individual with a benefit 

based on 3 years of service may elect to direct the 

plan to divest any such securities in the individual’s account and to reinvest an equivalent 

amount in other investment options which meet 

the requirements of subparagraph (D), or ‘‘(II) with respect to any employer security allocated to an applicable individual’s account during 

any plan year, such applicable individual may 

elect to direct the plan to divest such employer security after a date which is not later than 3 years 

after the end of such plan year and to reinvest an 

equivalent amount in other investment options 

which meet the requirements of subparagraph (D). ‘‘(ii) APPLICABLE INDIVIDUAL WITH BENEFIT BASED ON

3 YEARS OF SERVICE.—For purposes of clause (i), an applicable individual has a benefit based on 3 years of 

service if such individual would be an applicable individual if only participants in the plan who have completed at least 3 years of service (as determined under 

section 411(a)) were taken into account under subparagraph (F)(ii)(I). 

‘‘(D) INVESTMENT OPTIONS.—The requirements of this 

subparagraph are met if— ‘‘(i) the plan offers not less than 3 investment options, other than employer securities, to which an applicable individual may direct the proceeds from the 

divestment of employer securities pursuant to this 

paragraph, each of which is diversified and has materially different risk and return characteristics, and ‘‘(ii) the plan permits the applicable individual to 

choose from any of the investment options made available under the plan to which such proceeds may be so 

directed, subject to such restrictions as may be provided by the plan limiting such choice to periodic, reasonable opportunities occurring no less frequently 

than on a quarterly basis. ‘‘(E) DEFINITIONS AND RULES.—For purposes of this paragraph—

‘‘(i) APPLICABLE DEFINED CONTRIBUTION PLAN.—The 

term ‘applicable defined contribution plan’ means any 

defined contribution plan, except that such term does 

not include an employee stock ownership plan (within 

24

the meaning of section 4975(e)(7)) unless there are any 

contributions to such plan (or earnings thereon) held 

within such plan that are subject to subsection (k)(3) 

or (m)(2). 

‘‘(ii) APPLICABLE INDIVIDUAL.—The term ‘applicable 

individual’ means—

‘‘(I) any participant in the plan, and 

‘‘(II) any beneficiary of a participant referred to 

in clause (i) who has an account under the plan 

with respect to which the beneficiary is entitled to 

exercise the rights of the participant. 

‘‘(iii) ELECTIVE DEFERRAL.—The term ‘elective deferral’ means an employer contribution described in section 402(g)(3)(A) (as in effect on the date of the enactment of this paragraph). 

‘‘(iv) EMPLOYER SECURITY.—The term ‘employer security’ shall have the meaning given such term by section 407(d)(1) of the Employee Retirement Income Security Act of 1974 (as in effect on the date of the enactment of this paragraph).

‘‘(v) EMPLOYEE STOCK OWNERSHIP PLAN.—The term 

‘employee stock ownership plan’ shall have the same 

meaning given to such term by section 4975(e)(7) of 

the Internal Revenue Code of 1986 (as in effect on the 

date of the enactment of this paragraph). 

‘‘(vi) ELECTIONS.—Elections under this paragraph 

may be made not less frequently than quarterly. 

‘‘(F) EXCEPTION WHERE THERE IS NO READILY TRADABLE

STOCK.—This paragraph shall not apply with respect to a 

plan if there is no class of stock issued by any employer 

maintaining the plan that is readily tradable on an established securities market. 

‘‘(G) TRANSITION RULE.—

‘‘(i) IN GENERAL.—In the case of any defined contribution plan which, on the effective date of this subsection, holds employer securities of any class that 

were acquired before such date and on which there is 

a restriction on diversification otherwise precluded by 

this paragraph, this paragraph shall apply to such securities of such class held in any plan year only with 

respect to the number of such securities equal to the 

applicable percentage of the total number of such securities of such class held on such date. 

‘‘(ii) APPLICABLE PERCENTAGE.—For purposes of 

clause (i), the applicable percentage shall be as follows:

‘‘Plan years for which provisions 

are effective: 

Applicable percentage: 

1st plan year ......................................... 20 percent. 

2nd plan year ........................................ 40 percent. 

3rd plan year ........................................ 60 percent. 

4th plan year ........................................ 80 percent. 

5th plan year or thereafter .................. 100 percent.

‘‘(iii) ELECTIVE DEFERRALS TREATED AS SEPARATE

PLAN NOT INDIVIDUAL ACCOUNT PLAN.—For purposes of 

25

clause (i), the applicable percentage shall be 100 percent with respect to—

‘‘(I) employee contributions to a plan under 

which any portion attributable to elective deferrals is treated as a separate plan under section 

407(b)(2) of the Employee Retirement Income Security Act of 1974 as of the date of the enactment 

of this paragraph, and 

‘‘(II) such elective deferrals. 

‘‘(iv) CONTRIBUTIONS HELD WITHIN AN ESOP.—In the 

case of contributions (other than elective deferrals and 

employee contributions) held within an employee stock 

ownership plan, in the case of the 1st and 2nd plan 

years referred to in the table in clause (ii), the applicable percentage shall be the greater of the amount determined under clause (ii) or the percentage determined under paragraph (28) (determined as if paragraph (28) applied to a plan described in this paragraph). 

‘‘(v) COORDINATION WITH PRIOR ELECTIONS UNDER

PARAGRAPH (28).—In any case in which a divestiture of 

investment in employer securities of any class held by 

an employee stock ownership plan prior to the effective date of this paragraph was undertaken pursuant 

to an election under paragraph (28) prior to such date, 

the applicable percentage (as determined without regard to this clause) in connection with such securities 

shall be reduced to the extent necessary to account for 

the amount to which such election applied. 

‘‘(H) REGULATIONS.—The Secretary shall prescribe regulations under this paragraph in consultation with the Secretary of Labor.’’. 

(2) CONFORMING AMENDMENTS.—

(A) Section 401(a)(28) of such Code is amended by adding at the end the following new subparagraph: 

‘‘(D) APPLICATION.—This paragraph shall not apply to a 

plan to which paragraph (35) applies.’’. 

(B) Section 409(h)(7) of such Code is amended by inserting before the period at the end ‘‘or subparagraph (B) or 

(C) of section 401(a)(35)’’. 

(C) Section 4980(c)(3)(A) of such Code is amended by 

striking ‘‘if—’’ and all that follows and inserting ‘‘if the requirements of subparagraphs (B), (C), and (D) are met.’’. 

(c) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in paragraph (2) and 

section 109, the amendments made by this section shall apply 

to plan years beginning after December 31, 2002, and with respect to employer securities allocated to accounts before, on, or 

after the date of the enactment of this Act. 

(2) EXCEPTION.—The amendments made by this section shall 

not apply to employer securities held by an employee stock 

ownership plan which are acquired before January 1, 1987. 

26

SEC. 105. PROHIBITED TRANSACTION EXEMPTION FOR THE PROVISION OF INVESTMENT ADVICE. 

(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.—

(1) EXEMPTION FROM PROHIBITED TRANSACTIONS.—Section 

408(b) of the Employee Retirement Income Security Act of 

1974 (29 U.S.C. 1108(b)) is amended by adding at the end the 

following new paragraph: 

‘‘(14)(A) Any transaction described in subparagraph (B) in 

connection with the provision of investment advice described in 

section 3(21)(A)(ii), in any case in which—

‘‘(i) the investment of assets of the plan is subject to the 

direction of plan participants or beneficiaries, 

‘‘(ii) the advice is provided to the plan or a participant 

or beneficiary of the plan by a fiduciary adviser in connection with any sale, acquisition, or holding of a security or 

other property for purposes of investment of plan assets, 

and 

‘‘(iii) the requirements of subsection (g) are met in connection with the provision of the advice. 

‘‘(B) The transactions described in this subparagraph are the 

following: 

‘‘(i) the provision of the advice to the plan, participant, 

or beneficiary; 

‘‘(ii) the sale, acquisition, or holding of a security or 

other property (including any lending of money or other 

extension of credit associated with the sale, acquisition, or 

holding of a security or other property) pursuant to the advice; and 

‘‘(iii) the direct or indirect receipt of fees or other compensation by the fiduciary adviser or an affiliate thereof 

(or any employee, agent, or registered representative of the 

fiduciary adviser or affiliate) in connection with the provision of the advice or in connection with a sale, acquisition, 

or holding of a security or other property pursuant to the 

advice.’’.

(2) REQUIREMENTS.—Section 408 of such Act is amended further by adding at the end the following new subsection: 

‘‘(g) REQUIREMENTS RELATING TO PROVISION OF INVESTMENT ADVICE BY FIDUCIARY ADVISERS.—

‘‘(1) IN GENERAL.—The requirements of this subsection are 

met in connection with the provision of investment advice referred to in section 3(21)(A)(ii), provided to an employee benefit 

plan or a participant or beneficiary of an employee benefit plan 

by a fiduciary adviser with respect to the plan in connection 

with any sale, acquisition, or holding of a security or other 

property for purposes of investment of amounts held by the 

plan, if—

‘‘(A) in the case of the initial provision of the advice with 

regard to the security or other property by the fiduciary 

adviser to the plan, participant, or beneficiary, the fiduciary adviser provides to the recipient of the advice, at a 

time reasonably contemporaneous with the initial provision of the advice, a written notification (which may conVerDate Jan 17 2002 04:22 Apr 11, 2002 Jkt 099008 PO 00000 Frm 00026 Fmt 6659 Sfmt 6602 E:\HR\OC\HR396.XXX pfrm03 PsN: HR396
27

sist of notification by means of electronic communication)—

‘‘(i) of all fees or other compensation relating to the 

advice that the fiduciary adviser or any affiliate thereof is to receive (including compensation provided by 

any third party) in connection with the provision of 

the advice or in connection with the sale, acquisition, 

or holding of the security or other property, ‘‘(ii) of any material affiliation or contractual relationship of the fiduciary adviser or affiliates thereof in 

the security or other property, ‘‘(iii) of any limitation placed on the scope of the investment advice to be provided by the fiduciary adviser with respect to any such sale, acquisition, or 

holding of a security or other property, ‘‘(iv) of the types of services provided by the fiduciary adviser in connection with the provision of investment advice by the fiduciary adviser, ‘‘(v) that the adviser is acting as a fiduciary of the 

plan in connection with the provision of the advice, 

and ‘‘(vi) that a recipient of the advice may separately 

arrange for the provision of advice by another adviser, 

that could have no material affiliation with and receive no fees or other compensation in connection with 

the security or other property, ‘‘(B) the fiduciary adviser provides appropriate disclosure, in connection with the sale, acquisition, or holding of 

the security or other property, in accordance with all applicable securities laws, ‘‘(C) the sale, acquisition, or holding occurs solely at the 

direction of the recipient of the advice, ‘‘(D) the compensation received by the fiduciary adviser 

and affiliates thereof in connection with the sale, acquisition, or holding of the security or other property is reasonable, and 

‘‘(E) the terms of the sale, acquisition, or holding of the 

security or other property are at least as favorable to the 

plan as an arm’s length transaction would be. 

‘‘(2) STANDARDS FOR PRESENTATION OF INFORMATION.—

‘‘(A) IN GENERAL.—The notification required to be provided to participants and beneficiaries under paragraph 

(1)(A) shall be written in a clear and conspicuous manner 

and in a manner calculated to be understood by the average plan participant and shall be sufficiently accurate and 

comprehensive to reasonably apprise such participants and 

beneficiaries of the information required to be provided in 

the notification. 

‘‘(B) MODEL FORM FOR DISCLOSURE OF FEES AND OTHER

COMPENSATION.—The Secretary shall issue a model form 

for the disclosure of fees and other compensation required 

in paragraph (1)(A)(i) which meets the requirements of 

subparagraph (A). ‘‘(3) EXEMPTION CONDITIONED ON MAKING REQUIRED INFORMATION AVAILABLE ANNUALLY, ON REQUEST, AND IN THE EVENT OF

28

MATERIAL CHANGE.—The requirements of paragraph (1)(A) 

shall be deemed not to have been met in connection with the 

initial or any subsequent provision of advice described in paragraph (1) to the plan, participant, or beneficiary if, at any time 

during the provision of advisory services to the plan, participant, or beneficiary, the fiduciary adviser fails to maintain the 

information described in clauses (i) through (iv) of subparagraph (A) in currently accurate form and in the manner described in paragraph (2) or fails— ‘‘(A) to provide, without charge, such currently accurate 

information to the recipient of the advice no less than annually, ‘‘(B) to make such currently accurate information available, upon request and without charge, to the recipient of 

the advice, or ‘‘(C) in the event of a material change to the information 

described in clauses (i) through (iv) of paragraph (1)(A), to 

provide, without charge, such currently accurate information to the recipient of the advice at a time reasonably contemporaneous to the material change in information. ‘‘(4) MAINTENANCE FOR 6 YEARS OF EVIDENCE OF COMPLI- ANCE.—A fiduciary adviser referred to in paragraph (1) who 

has provided advice referred to in such paragraph shall, for a 

period of not less than 6 years after the provision of the advice, 

maintain any records necessary for determining whether the 

requirements of the preceding provisions of this subsection and 

of subsection (b)(14) have been met. A transaction prohibited 

under section 406 shall not be considered to have occurred 

solely because the records are lost or destroyed prior to the end 

of the 6-year period due to circumstances beyond the control of 

the fiduciary adviser. ‘‘(5) EXEMPTION FOR PLAN SPONSOR AND CERTAIN OTHER FIDU- CIARIES.—

‘‘(A) IN GENERAL.—Subject to subparagraph (B), a plan 

sponsor or other person who is a fiduciary (other than a 

fiduciary adviser) shall not be treated as failing to meet 

the requirements of this part solely by reason of the provision of investment advice referred to in section 3(21)(A)(ii) 

(or solely by reason of contracting for or otherwise arranging for the provision of the advice), if—

‘‘(i) the advice is provided by a fiduciary adviser pursuant to an arrangement between the plan sponsor or 

other fiduciary and the fiduciary adviser for the provision by the fiduciary adviser of investment advice referred to in such section, 

‘‘(ii) the terms of the arrangement require compliance by the fiduciary adviser with the requirements of 

this subsection, and 

‘‘(iii) the terms of the arrangement include a written 

acknowledgment by the fiduciary adviser that the fiduciary adviser is a fiduciary of the plan with respect 

to the provision of the advice. 

‘‘(B) CONTINUED DUTY OF PRUDENT SELECTION OF AD- VISER AND PERIODIC REVIEW.—Nothing in subparagraph 

(A) shall be construed to exempt a plan sponsor or other 

29

person who is a fiduciary from any requirement of this 

part for the prudent selection and periodic review of a fiduciary adviser with whom the plan sponsor or other person enters into an arrangement for the provision of advice 

referred to in section 3(21)(A)(ii). The plan sponsor or 

other person who is a fiduciary has no duty under this 

part to monitor the specific investment advice given by the 

fiduciary adviser to any particular recipient of the advice. ‘‘(C) AVAILABILITY OF PLAN ASSETS FOR PAYMENT FOR AD- VICE.—Nothing in this part shall be construed to preclude 

the use of plan assets to pay for reasonable expenses in 

providing investment advice referred to in section 

3(21)(A)(ii). ‘‘(6) DEFINITIONS.—For purposes of this subsection and subsection (b)(14)— ‘‘(A) FIDUCIARY ADVISER.—The term ‘fiduciary adviser’ means, with respect to a plan, a person who is a fiduciary 

of the plan by reason of the provision of investment advice 

by the person to the plan or to a participant or beneficiary 

and who is— ‘‘(i) registered as an investment adviser under the 

Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et 

seq.) or under the laws of the State in which the fiduciary maintains its principal office and place of business, ‘‘(ii) a bank or similar financial institution referred 

to in section 408(b)(4), but only if the advice is provided through a trust department of the bank or similar financial institution which is subject to periodic examination and review by Federal or State banking authorities, ‘‘(iii) an insurance company qualified to do business 

under the laws of a State, ‘‘(iv) a person registered as a broker or dealer under 

the Securities Exchange Act of 1934 (15 U.S.C. 78a et 

seq.), 

‘‘(v) an affiliate of a person described in any of 

clauses (i) through (iv), or 

‘‘(vi) an employee, agent, or registered representative of a person described in any of clauses (i) through 

(v) who satisfies the requirements of applicable insurance, banking, and securities laws relating to the provision of the advice. 

‘‘(B) AFFILIATE.—The term ‘affiliate’ of another entity 

means an affiliated person of the entity (as defined in section 2(a)(3) of the Investment Company Act of 1940 (15 

U.S.C. 80a–2(a)(3))). 

‘‘(C) REGISTERED REPRESENTATIVE.—The term ‘registered 

representative’ of another entity means a person described 

in section 3(a)(18) of the Securities Exchange Act of 1934 

(15 U.S.C. 78c(a)(18)) (substituting the entity for the 

broker or dealer referred to in such section) or a person described in section 202(a)(17) of the Investment Advisers 

Act of 1940 (15 U.S.C. 80b–2(a)(17)) (substituting the entity for the investment adviser referred to in such section).’’. 

30

(b) AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986.— (1) EXEMPTION FROM PROHIBITED TRANSACTIONS.—Subsection 

(d) of section 4975 of the Internal Revenue Code of 1986 (relating to exemptions from tax on prohibited transactions) is 

amended— (A) in paragraph (14), by striking ‘‘or’’ at the end; 

(B) in paragraph (15), by striking the period at the end 

and inserting ‘‘; or’’; and 

(C) by adding at the end the following new paragraph: ‘‘(16) any transaction described in subsection (f)(7)(A) in connection with the provision of investment advice described in 

subsection (e)(3)(B), in any case in which— ‘‘(A) the investment of assets of the plan is subject to the 

direction of plan participants or beneficiaries, ‘‘(B) the advice is provided to the plan or a participant 

or beneficiary of the plan by a fiduciary adviser in connection with any sale, acquisition, or holding of a security or 

other property for purposes of investment of plan assets, 

and‘‘(C) the requirements of subsection (f)(7)(B) are met in 

connection with the provision of the advice.’’. (2) ALLOWED TRANSACTIONS AND REQUIREMENTS.—Subsection 

(f) of such section 4975 (relating to other definitions and special rules) is amended by adding at the end the following new 

paragraph: ‘‘(7) PROVISIONS RELATING TO INVESTMENT ADVICE PROVIDED

BY FIDUCIARY ADVISERS.— ‘‘(A) TRANSACTIONS ALLOWABLE IN CONNECTION WITH IN- VESTMENT ADVICE PROVIDED BY FIDUCIARY ADVISERS.—The 

transactions referred to in subsection (d)(16), in connection 

with the provision of investment advice by a fiduciary adviser, are the following: ‘‘(i) the provision of the advice to the plan, participant, or beneficiary; 

‘‘(ii) the sale, acquisition, or holding of a security or 

other property (including any lending of money or 

other extension of credit associated with the sale, acquisition, or holding of a security or other property) 

pursuant to the advice; and 

‘‘(iii) the direct or indirect receipt of fees or other 

compensation by the fiduciary adviser or an affiliate 

thereof (or any employee, agent, or registered representative of the fiduciary adviser or affiliate) in connection with the provision of the advice or in connection with a sale, acquisition, or holding of a security 

or other property pursuant to the advice. 

‘‘(B) REQUIREMENTS RELATING TO PROVISION OF INVEST- MENT ADVICE BY FIDUCIARY ADVISERS.—The requirements 

of this subparagraph (referred to in subsection (d)(16)(C)) 

are met in connection with the provision of investment advice referred to in subsection (e)(3)(B), provided to a plan 

or a participant or beneficiary of a plan by a fiduciary adviser with respect to the plan in connection with any sale, 

acquisition, or holding of a security or other property for 

purposes of investment of amounts held by the plan, if—

31

‘‘(i) in the case of the initial provision of the advice 

with regard to the security or other property by the fiduciary adviser to the plan, participant, or beneficiary, 

the fiduciary adviser provides to the recipient of the 

advice, at a time reasonably contemporaneous with 

the initial provision of the advice, a written notification (which may consist of notification by means of 

electronic communication)—

‘‘(I) of all fees or other compensation relating to 

the advice that the fiduciary adviser or any affiliate thereof is to receive (including compensation 

provided by any third party) in connection with 

the provision of the advice or in connection with 

the sale, acquisition, or holding of the security or 

other property, 

‘‘(II) of any material affiliation or contractual relationship of the fiduciary adviser or affiliates 

thereof in the security or other property, 

‘‘(III) of any limitation placed on the scope of the 

investment advice to be provided by the fiduciary 

adviser with respect to any such sale, acquisition, 

or holding of a security or other property, 

‘‘(IV) of the types of services provided by the fiduciary adviser in connection with the provision of 

investment advice by the fiduciary adviser, 

‘‘(V) that the adviser is acting as a fiduciary of 

the plan in connection with the provision of the 

advice, and 

‘‘(VI) that a recipient of the advice may separately arrange for the provision of advice by another adviser, that could have no material affiliation with and receive no fees or other compensation in connection with the security or other property, 

‘‘(ii) the fiduciary adviser provides appropriate disclosure, in connection with the sale, acquisition, or 

holding of the security or other property, in accordance 

with all applicable securities laws, 

‘‘(iii) the sale, acquisition, or holding occurs solely at 

the direction of the recipient of the advice, 

‘‘(iv) the compensation received by the fiduciary adviser and affiliates thereof in connection with the sale, 

acquisition, or holding of the security or other property 

is reasonable, and 

‘‘(v) the terms of the sale, acquisition, or holding of 

the security or other property are at least as favorable 

to the plan as an arm’s length transaction would be. 

‘‘(C) STANDARDS FOR PRESENTATION OF INFORMATION.—

The notification required to be provided to participants 

and beneficiaries under subparagraph (B)(i) shall be written in a clear and conspicuous manner and in a manner 

calculated to be understood by the average plan participant and shall be sufficiently accurate and comprehensive 

to reasonably apprise such participants and beneficiaries 

32

of the information required to be provided in the notification. 

‘‘(D) EXEMPTION CONDITIONED ON MAKING REQUIRED INFORMATION AVAILABLE ANNUALLY, ON REQUEST, AND IN THE

EVENT OF MATERIAL CHANGE.—The requirements of subparagraph (B)(i) shall be deemed not to have been met in 

connection with the initial or any subsequent provision of 

advice described in subparagraph (B) to the plan, participant, or beneficiary if, at any time during the provision of 

advisory services to the plan, participant, or beneficiary, 

the fiduciary adviser fails to maintain the information described in subclauses (I) through (IV) of subparagraph 

(B)(i) in currently accurate form and in the manner required by subparagraph (C), or fails—

‘‘(i) to provide, without charge, such currently accurate information to the recipient of the advice no less 

than annually, 

‘‘(ii) to make such currently accurate information 

available, upon request and without charge, to the recipient of the advice, or 

‘‘(iii) in the event of a material change to the information described in subclauses (I) through (IV) of subparagraph (B)(i), to provide, without charge, such currently accurate information to the recipient of the advice at a time reasonably contemporaneous to the material change in information. 

‘‘(E) MAINTENANCE FOR 6 YEARS OF EVIDENCE OF COMPLIANCE.—A fiduciary adviser referred to in subparagraph (B) 

who has provided advice referred to in such subparagraph

shall, for a period of not less than 6 years after the provision of the advice, maintain any records necessary for determining whether the requirements of the preceding provisions of this paragraph and of subsection (d)(16) have 

been met. A transaction prohibited under subsection (c)(1) 

shall not be considered to have occurred solely because the 

records are lost or destroyed prior to the end of the 6-year 

period due to circumstances beyond the control of the fiduciary adviser. 

‘‘(F) EXEMPTION FOR PLAN SPONSOR AND CERTAIN OTHER

FIDUCIARIES.—A plan sponsor or other person who is a fiduciary (other than a fiduciary adviser) shall not be treated as failing to meet the requirements of this section solely 

by reason of the provision of investment advice referred to 

in subsection (e)(3)(B) (or solely by reason of contracting 

for or otherwise arranging for the provision of the advice), 

if—

‘‘(i) the advice is provided by a fiduciary adviser pursuant to an arrangement between the plan sponsor or 

other fiduciary and the fiduciary adviser for the provision by the fiduciary adviser of investment advice referred to in such section, 

‘‘(ii) the terms of the arrangement require compliance by the fiduciary adviser with the requirements of 

this paragraph, 

33

‘‘(iii) the terms of the arrangement include a written 

acknowledgment by the fiduciary adviser that the fiduciary adviser is a fiduciary of the plan with respect 

to the provision of the advice, and 

‘‘(iv) the requirements of part 4 of subtitle B of title 

I of the Employee Retirement Income Security Act of 

1974 are met in connection with the provision of such 

advice. 

‘‘(G) DEFINITIONS.—For purposes of this paragraph and 

subsection (d)(16)—

‘‘(i) FIDUCIARY ADVISER.—The term ‘fiduciary adviser’ means, with respect to a plan, a person who is 

a fiduciary of the plan by reason of the provision of investment advice by the person to the plan or to a participant or beneficiary and who is—

‘‘(I) registered as an investment adviser under 

the Investment Advisers Act of 1940 (15 U.S.C. 

80b–1 et seq.) or under the laws of the State in 

which the fiduciary maintains its principal office 

and place of business, 

‘‘(II) a bank or similar financial institution referred to in subsection (d)(4), but only if the advice 

is provided through a trust department of the 

bank or similar financial institution which is subject to periodic examination and review by Federal 

or State banking authorities, 

‘‘(III) an insurance company qualified to do business under the laws of a State, 

‘‘(IV) a person registered as a broker or dealer 

under the Securities Exchange Act of 1934 (15 

U.S.C. 78a et seq.), 

‘‘(V) an affiliate of a person described in any of 

subclauses (I) through (IV), or

‘‘(VI) an employee, agent, or registered representative of a person described in any of subclauses (I) through (V) who satisfies the requirements of applicable insurance, banking, and securities laws relating to the provision of the advice. 

‘‘(ii) AFFILIATE.—The term ‘affiliate’ of another entity means an affiliated person of the entity (as defined 

in section 2(a)(3) of the Investment Company Act of 

1940 (15 U.S.C. 80a–2(a)(3))). 

‘‘(iii) REGISTERED REPRESENTATIVE.—The term ‘registered representative’ of another entity means a person described in section 3(a)(18) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) (substituting 

the entity for the broker or dealer referred to in such 

section) or a person described in section 202(a)(17) of 

the Investment Advisers Act of 1940 (15 U.S.C. 80b–

2(a)(17)) (substituting the entity for the investment 

adviser referred to in such section).’’. 

34

SEC. 106. STUDY REGARDING IMPACT ON RETIREMENT SAVINGS OF 

PARTICIPANTS AND BENEFICIARIES BY REQUIRING CONSULTANTS TO ADVISE PLAN FIDUCIARIES OF INDIVIDUAL 

ACCOUNT PLANS. 

(a) STUDY.—As soon as practicable after the date of the enactment of this Act, the Secretary of Labor shall undertake a study 

of the costs and benefits to participants and beneficiaries of requiring independent consultants to advise plan fiduciaries in connection with individual account plans. In conducting such study, the 

Secretary shall consider— (1) the benefits to plan participants and beneficiaries of engaging independent advisers to provide investment and other 

advice regarding the assets of the plan to persons who have fiduciary duties with respect to the management or disposition 

of such assets, 

(2) the extent to which independent advisers are currently 

retained by plan fiduciaries, 

(3) the availability of assistance to fiduciaries from appropriate Federal agencies, 

(4) the availability of qualified independent consultants to 

serve the needs of individual account plan fiduciaries in the 

United States, 

(5) the impact of the additional fiduciary duty of an independent advisor on the strict fiduciary obligations of plan fiduciaries, 

(6) the impact of new requirements (consulting fees, reporting requirements, and new plan duties to prudently identify 

and contract with qualified independent consultants) on the 

availability of individual account plans, and 

(7) the impact of a new requirement on the plan administration costs per participant for small and mid-size employers and 

the pension plans they sponsor. 

(b) REPORT.—Not later than 1 year after the date of the enactment of this Act, the Secretary of Labor shall report the results of 

the study undertaken pursuant to this section, together with any 

recommendations for legislative changes, to the Committee on Education and the Workforce of the House of Representatives and the 

Committee on Health, Education, Labor, and Pensions of the Senate. 

SEC. 107. TREATMENT OF QUALIFIED RETIREMENT PLANNING SERVICES. 

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

Revenue Code of 1986 (defining qualified retirement services) is 

amended by adding at the end the following new paragraph: ‘‘(4) NO CONSTRUCTIVE RECEIPT.—No amount shall be included in the gross income of any employee solely because the 

employee may choose between any qualified retirement planning services provided by a qualified investment advisor and 

compensation which would otherwise be includible in the gross 

income of such employee. The preceding sentence shall apply 

to highly compensated employees only if the choice described 

in such sentence is available on substantially the same terms 

to each member of the group of employees normally provided 

education and information regarding the employer’s qualified 

employer plan.’’. 

(b) CONFORMING AMENDMENTS.—

35

(1) Section 403(b)(3)(B) of such Code is amended by inserting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. (2) Section 414(s)(2) of such Code is amended by inserting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. (3) Section 415(c)(3)(D)(ii) of such Code is amended by inserting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. (c) EFFECTIVE DATE.—The amendment made by this section shall 

apply to taxable years beginning after December 31, 2002.

SEC. 108. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS PROHIBITED. 

(a) PROHIBITION.—It shall be unlawful for any person who is directly or indirectly the beneficial owner of more than 10 percent of 

any class of any equity security (other than an exempted security) 

which is registered under section 12 of the Securities Exchange Act 

of 1934 (15 U.S.C. 78l) or who is a director or an officer of the 

issuer of such security, directly or indirectly, to purchase (or otherwise acquire) or sell (or otherwise transfer) any equity security of 

any issuer (other than an exempted security), during any blackout 

period with respect to such equity security. 

(b) REMEDY.—Any profit realized by such beneficial owner, director, or officer from any purchase (or other acquisition) or sale (or 

other transfer) in violation of this section shall inure to and be recoverable by the issuer irrespective of any intention on the part of 

such beneficial owner, director, or officer in entering into the transaction. Suit to recover such profit may be instituted at law or in 

equity in any court of competent jurisdiction by the issuer, or by 

the owner of any security of the issuer in the name and in behalf 

of the issuer if the issuer shall fail or refuse to bring such suit 

within 60 days after request or shall fail diligently to prosecute the 

same thereafter; but no such suit shall be brought more than 2 

years after the date such profit was realized. This subsection shall 

not be construed to cover any transaction where such beneficial 

owner was not such both at the time of the purchase and sale, or 

the sale and purchase, of the security or security-based swap (as 

defined in section 206B of the Gramm-Leach-Bliley Act) involved, 

or any transaction or transactions which the Commission by rules 

and regulations may exempt as not comprehended within the purposes of this subsection. 

(c) RULEMAKING PERMITTED.—The Commission may issue rules 

to clarify the application of this subsection, to ensure adequate notice to all persons affected by this subsection, and to prevent evasion thereof. 

(d) As used in this section: 

(1) BENEFICIAL OWNER.—The term ‘‘beneficial owner’’ has the 

meaning provided such term in rules or regulations issued by 

the Commission under section 16 of the Securities Exchange 

Act of 1934 (15 U.S.C. 78p). 

(2) BLACKOUT PERIOD.—The term ‘‘blackout period’’ with respect to the equity securities of any issuer—

(A) means any period during which the ability of at least 

fifty percent of the participants or beneficiaries under all 

applicable individual account plans maintained by the 

issuer to purchase (or otherwise acquire) or sell (or otherwise transfer) an interest in any equity of such issuer is 

suspended by the issuer or a fiduciary of the plan; but 

36

(B) does not include—

(i) a period in which the employees of an issuer may 

not allocate their interests in the individual account 

plan due to an express investment restriction—

(I) incorporated into the individual account 

plan; and 

(II) timely disclosed to employees before joining 

the individual account plan or as a subsequent 

amendment to the plan; 

(ii) any suspension described in subparagraph (A) 

that is imposed solely in connection with persons becoming participants or beneficiaries, or ceasing to be 

participants or beneficiaries, in an applicable individual account plan by reason of a corporate merger, 

acquisition, divestiture, or similar transaction.

(3) COMMISSION.—The term ‘‘Commission’’ means the Securities and Exchange Commission. 

(4) INDIVIDUAL ACCOUNT PLAN.—The term ‘‘individual account plan’’ has the meaning provided such term in section 

3(34) of the Employee Retirement Income Security Act of 1974 

(29 U.S.C. 1002(34)). 

(5) ISSUER.—The term ‘‘issuer’’ shall have the meaning set 

forth in section 2(a)(4) of the Securities Act of 1933 (15 U.S.C. 

77b(a)(4)). 

SEC. 109. EFFECTIVE DATES OF TITLE AND RELATED RULES. 

(a) IN GENERAL.—Except as otherwise provided in this title or in 

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

respect to plan years beginning on or after January 1, 2003. 

(b) SPECIAL RULE FOR COLLECTIVELY BARGAINED PLANS.—In the 

case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or 

more employers ratified on or before the date of the enactment of 

this Act, subsection (a) shall be applied to benefits pursuant to, and 

individuals covered by, any such agreement by substituting for 

‘‘January 1, 2003’’ the date of the commencement of the first plan 

year beginning on or after the earlier of—

(1) the later of—

(A) January 1, 2004, or 

(B) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after the date of the enactment of this Act), or 

(2) January 1, 2005. 

(c) PLAN AMENDMENTS.—If the amendments made by sections 

101, 102, 103, and 104 of this Act require an amendment to any 

plan, such plan amendment shall not be required to be made before 

the first plan year beginning on or after January 1, 2005, if—

(1) during the period after such amendments made by such 

sections take effect and before such first plan year, the plan is 

operated in accordance with the requirements of such amendments made by such sections, and 

(2) such plan amendment applies retroactively to the period 

after such amendments made by such sections take effect and 

before such first plan year. 

37

(d) AMENDMENTS RELATING TO INVESTMENT ADVICE.—The 

amendments made by section 104 shall apply with respect to advice referred to in section 3(21)(A)(ii) of the Employee Retirement 

Income Security Act of 1974 or section 4975(c)(3)(B) of the Internal 

Revenue Code of 1986 provided on or after January 1, 2003. 

TITLE II—OTHER PROVISIONS 

RELATING TO PENSIONS 

SEC. 201. AMENDMENTS TO RETIREMENT PROTECTION ACT OF 1994. 

(a) TRANSITION RULE MADE PERMANENT.—Paragraph (1) of section 769(c) of the Retirement Protection Act of 1994 is amended— (1) by striking ‘‘transition’’ each place it appears in the heading and the text, and 

(2) by striking ‘‘for any plan year beginning after 1996 and 

before 2010’’. (b) SPECIAL RULES.—Paragraph (2) of section 769(c) of the Retirement Protection Act of 1994 is amended to read as follows: ‘‘(2) SPECIAL RULES.—The rules described in this paragraph 

are as follows: ‘‘(A) For purposes of section 412(l)(9)(A) of the Internal 

Revenue Code of 1986 and section 302(d)(9)(A) of the Employee Retirement Income Security Act of 1974, the funded 

current liability percentage for any plan year shall be 

treated as not less than 90 percent. ‘‘(B) For purposes of section 412(m) of the Internal Revenue Code of 1986 and section 302(e) of the Employee Retirement Income Security Act of 1974, the funded current 

liability percentage for any plan year shall be treated as 

not less than 100 percent. ‘‘(C) For purposes of determining unfunded vested benefits under section 4006(a)(3)(E)(iii) of the Employee Retirement Income Security Act of 1974, the mortality table 

shall be the mortality table used by the plan.’’. (c) EFFECTIVE DATE.—The amendments made by this section 

shall apply to plan years beginning after December 31, 2001. 

SEC. 202. REPORTING SIMPLIFICATION. 

(a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR OWNERS AND

THEIR SPOUSES.— (1) IN GENERAL.—The Secretary of the Treasury and the Secretary of Labor shall modify the requirements for filing annual 

returns with respect to one-participant retirement plans to ensure that such plans with assets of $250,000 or less as of the 

close of the plan year need not file a return for that year. 

(2) ONE-PARTICIPANT RETIREMENT PLAN DEFINED.—For purposes of this subsection, the term ‘‘one-participant retirement 

plan’’ means a retirement plan that— (A) on the first day of the plan year— (i) covered only the employer (and the employer’s 

spouse) and the employer owned the entire business 

(whether or not incorporated); or 

(ii) covered only one or more partners (and their 

spouses) in a business partnership (including partners 

in an S or C corporation); 

38

(B) meets the minimum coverage requirements of section 

410(b) of the Internal Revenue Code of 1986 without being 

combined with any other plan of the business that covers 

the employees of the business; 

(C) does not provide benefits to anyone except the employer (and the employer’s spouse) or the partners (and 

their spouses); 

(D) does not cover a business that is a member of an affiliated service group, a controlled group of corporations, or 

a group of businesses under common control; and 

(E) does not cover a business that leases employees. 

(3) OTHER DEFINITIONS.—Terms used in paragraph (2) which 

are also used in section 414 of the Internal Revenue Code of 

1986 shall have the respective meanings given such terms by 

such section. 

(4) EFFECTIVE DATE.—The provisions of this subsection shall 

apply to plan years beginning on or after January 1, 2002. 

(b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR PLANS WITH

FEWER THAN 25 EMPLOYEES.—In the case of plan years beginning 

after December 31, 2003, the Secretary of the Treasury and the 

Secretary of Labor shall provide for the filing of a simplified annual 

return for any retirement plan which covers less than 25 employees 

on the first day of a plan year and which meets the requirements 

described in subparagraphs (B), (D), and (E) of subsection (a)(2). 

SEC. 203. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM. 

The Secretary of the Treasury shall continue to update and improve the Employee Plans Compliance Resolution System (or any 

successor program) giving special attention to— (1) increasing the awareness and knowledge of small employers concerning the availability and use of the program; 

(2) taking into account special concerns and circumstances 

that small employers face with respect to compliance and correction of compliance failures; 

(3) extending the duration of the self-correction period under 

the Self-Correction Program for significant compliance failures; 

(4) expanding the availability to correct insignificant compliance failures under the Self-Correction Program during audit; 

and 

(5) assuring that any tax, penalty, or sanction that is imposed by reason of a compliance failure is not excessive and 

bears a reasonable relationship to the nature, extent, and severity of the failure. 

The Secretary of the Treasury shall have full authority to effectuate the foregoing with respect to the Employee Plans Compliance 

Resolution System (or any successor program) and any other employee plans correction policies, including the authority to waive income, excise, or other taxes to ensure that any tax, penalty, or 

sanction is not excessive and bears a reasonable relationship to the 

nature, extent, and severity of the failure. 

SEC. 204. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE 

OF BUSINESS RULES. 

(a) NONDISCRIMINATION.—

(1) IN GENERAL.—The Secretary of the Treasury shall, by 

regulation, provide that a plan shall be deemed to satisfy the 

39

requirements of section 401(a)(4) of the Internal Revenue Code 

of 1986 if such plan satisfies the facts and circumstances test 

under section 401(a)(4) of such Code, as in effect before January 1, 1994, but only if— (A) the plan satisfies conditions prescribed by the Secretary to appropriately limit the availability of such test; 

and 

(B) the plan is submitted to the Secretary for a determination of whether it satisfies such test. 

Subparagraph (B) shall only apply to the extent provided by 

the Secretary. 

(2) EFFECTIVE DATES.— (A) REGULATIONS.—The regulation required by paragraph (1) shall apply to years beginning after December 

31, 2003. 

(B) CONDITIONS OF AVAILABILITY.—Any condition of 

availability prescribed by the Secretary under paragraph 

(1)(A) shall not apply before the first year beginning not 

less than 120 days after the date on which such condition 

is prescribed. 

(b) COVERAGE TEST.— (1) IN GENERAL.—Section 410(b)(1) of the Internal Revenue 

Code of 1986 (relating to minimum coverage requirements) is 

amended by adding at the end the following: ‘‘(D) In the case that the plan fails to meet the requirements of subparagraphs (A), (B) and (C), the plan— ‘‘(i) satisfies subparagraph (B), as in effect immediately before the enactment of the Tax Reform Act of 

1986, ‘‘(ii) is submitted to the Secretary for a determination of whether it satisfies the requirement described 

in clause (i), and ‘‘(iii) satisfies conditions prescribed by the Secretary 

by regulation that appropriately limit the availability 

of this subparagraph. 

Clause (ii) shall apply only to the extent provided by the 

Secretary.’’. 

(2) EFFECTIVE DATES.— (A) IN GENERAL.—The amendment made by paragraph 

(1) shall apply to years beginning after December 31, 2003. 

(B) CONDITIONS OF AVAILABILITY.—Any condition of 

availability prescribed by the Secretary under regulations 

prescribed by the Secretary under section 410(b)(1)(D) of 

the Internal Revenue Code of 1986 shall not apply before 

the first year beginning not less than 120 days after the 

date on which such condition is prescribed. 

(c) LINE OF BUSINESS RULES.—The Secretary of the Treasury 

shall, on or before December 31, 2003, modify the existing regulations issued under section 414(r) of the Internal Revenue Code of 

1986 in order to expand (to the extent that the Secretary determines appropriate) the ability of a pension plan to demonstrate 

compliance with the line of business requirements based upon the 

facts and circumstances surrounding the design and operation of 

the plan, even though the plan is unable to satisfy the mechanical 

tests currently used to determine compliance. 

40

SEC. 205. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON APPLICATION OF CERTAIN NONDISCRIMINATION RULES APPLICABLE TO STATE AND LOCAL PLANS. 

(a) IN GENERAL.—

(1) Subparagraph (G) of section 401(a)(5) of the Internal Revenue Code of 1986 and subparagraph (H) of section 401(a)(26) 

of such Code are each amended by striking ‘‘section 414(d))’’

and all that follows and inserting ‘‘section 414(d)).’’. 

(2) Subparagraph (G) of section 401(k)(3) of the Internal Revenue Code of 1986 and paragraph (2) of section 1505(d) of the 

Taxpayer Relief Act of 1997 are each amended by striking 

‘‘maintained by a State or local government or political subdivision thereof (or agency or instrumentality thereof)’’. 

(b) CONFORMING AMENDMENTS.—

(1) The heading for subparagraph (G) of section 401(a)(5) of 

such Code is amended to read as follows: ‘‘GOVERNMENTAL

PLANS.—’’. 

(2) The heading for subparagraph (H) of section 401(a)(26) of 

such Code is amended to read as follows: ‘‘EXCEPTION FOR GOVERNMENTAL PLANS.—’’. 

(3) Subparagraph (G) of section 401(k)(3) of such Code is 

amended by inserting ‘‘GOVERNMENTAL PLANS.—’’ after ‘‘(G)’’. 

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

shall apply to years beginning after December 31, 2002. 

SEC. 206. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS. 

(a) EXPANSION OF PERIOD.—

(1) AMENDMENT OF INTERNAL REVENUE CODE.—

(A) IN GENERAL.—Subparagraph (A) of section 417(a)(6) 

of the Internal Revenue Code of 1986 is amended by striking ‘‘90-day’’ and inserting ‘‘180-day’’. 

(B) MODIFICATION OF REGULATIONS.—The Secretary of 

the Treasury shall modify the regulations under sections 

402(f), 411(a)(11), and 417 of the Internal Revenue Code of 

1986 to substitute ‘‘180 days’’ for ‘‘90 days’’ each place it 

appears in Treasury Regulations sections 1.402(f)–1, 

1.411(a)–11(c), and 1.417(e)–1(b). 

(2) AMENDMENT OF ERISA.—

(A) IN GENERAL.—Section 205(c)(7)(A) of the Employee 

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

1055(c)(7)(A)) is amended by striking ‘‘90-day’’ and inserting ‘‘180-day’’. 

(B) MODIFICATION OF REGULATIONS.—The Secretary of 

the Treasury shall modify the regulations under part 2 of 

subtitle B of title I of the Employee Retirement Income Security Act of 1974 to the extent that they relate to sections 

203(e) and 205 of such Act to substitute ‘‘180 days’’ for ‘‘90 

days’’ each place it appears. 

(3) EFFECTIVE DATE.—The amendments made by paragraphs 

(1)(A) and (2)(A) and the modifications required by paragraphs 

(1)(B) and (2)(B) shall apply to years beginning after December 

31, 2002. 

(b) CONSENT REGULATION INAPPLICABLE TO CERTAIN DISTRIBUTIONS.—

(1) IN GENERAL.—The Secretary of the Treasury shall modify 

the regulations under section 411(a)(11) of the Internal RevVerDate Jan 17 2002 04:22 Apr 11, 2002 Jkt 099008 PO 00000 Frm 00040 Fmt 6659 Sfmt 6602 E:\HR\OC\HR396.XXX pfrm03 PsN: HR396
41

enue Code of 1986 and under section 205 of the Employee Retirement Income Security Act of 1974 to provide that the description of a participant’s right, if any, to defer receipt of a 

distribution shall also describe the consequences of failing to 

defer such receipt. 

(2) EFFECTIVE DATE.—

(A) IN GENERAL.—The modifications required by paragraph (1) shall apply to years beginning after December 

31, 2002. 

(B) REASONABLE NOTICE.—In the case of any description 

of such consequences made before the date that is 90 days 

after the date on which the Secretary of the Treasury 

issues a safe harbor description under paragraph (1), a 

plan shall not be treated as failing to satisfy the requirements of section 411(a)(11) of such Code or section 205 of 

such Act by reason of the failure to provide the information required by the modifications made under paragraph 

(1) if the Administrator of such plan makes a reasonable 

attempt to comply with such requirements. 

SEC. 207. ANNUAL REPORT DISSEMINATION. 

(a) REPORT AVAILABLE THROUGH ELECTRONIC MEANS.—Section 

104(b)(3) of the Employee Retirement Income Security Act of 1974 

(29 U.S.C. 1024(b)(3)) is amended by adding at the end the following new sentence: ‘‘The requirement to furnish information 

under the previous sentence with respect to an employee pension 

benefit plan shall be satisfied if the administrator makes such information reasonably available through electronic means or other 

new technology.’’. 

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

apply to reports for years beginning after December 31, 2002. 

SEC. 208. TECHNICAL CORRECTIONS TO SAVER ACT. 

Section 517 of the Employee Retirement Income Security Act of 

1974 (29 U.S.C. 1147) is amended—

(1) in subsection (a), by striking ‘‘2001 and 2005 on or after 

September 1 of each year involved’’ and inserting ‘‘2002, 2006, 

and 2010’’; 

(2) in subsection (b), by adding at the end the following new 

sentence: ‘‘To effectuate the purposes of this paragraph, the 

Secretary may enter into a cooperative agreement, pursuant to 

the Federal Grant and Cooperative Agreement Act of 1977 (31 

U.S.C. 6301 et seq.), with any appropriate, qualified entity.’’; 

(3) in subsection (e)(2)—

(A) by striking ‘‘Committee on Labor and Human Resources’’ in subparagraph (D) and inserting ‘‘Committee on 

Health, Education, Labor, and Pensions’’;

(B) by striking subparagraph (F) and inserting the following: 

‘‘(F) the Chairman and Ranking Member of the Subcommittee on Labor, Health and Human Services, and 

Education of the Committee on Appropriations of the 

House of Representatives and the Chairman and Ranking 

Member of the Subcommittee on Labor, Health and 

Human Services, and Education of the Committee on Appropriations of the Senate;’’; 

42

(C) by redesignating subparagraph (G) as subparagraph 

(J); and 

(D) by inserting after subparagraph (F) the following 

new subparagraphs: 

‘‘(G) the Chairman and Ranking Member of the Committee on Finance of the Senate; 

‘‘(H) the Chairman and Ranking Member of the Committee on Ways and Means of the House of Representatives; 

‘‘(I) the Chairman and Ranking Member of the Subcommittee on Employer-Employee Relations of the Committee on Education and the Workforce of the House of 

Representatives; and’’; 

(4) in subsection (e)(3)—

(A) by striking ‘‘There shall be not more than 200 additional participants.’’ in subparagraph (A) and inserting 

‘‘The participants in the National Summit shall also include additional participants appointed under this subparagraph.’’; 

(B) by striking ‘‘one-half shall be appointed by the President,’’ in subparagraph (A)(i) and inserting ‘‘not more than 

100 participants shall be appointed under this clause by 

the President,’’; 

(C) by striking ‘‘one-half shall be appointed by the elected leaders of Congress’’ in subparagraph (A)(ii) and inserting ‘‘not more than 100 participants shall be appointed 

under this clause by the elected leaders of Congress’’; 

(D) by redesignating subparagraph (B) as subparagraph 

(C); and 

(E) by inserting after subparagraph (A) the following 

new subparagraph: 

‘‘(B) PRESIDENTIAL AUTHORITY FOR ADDITIONAL APPOINTMENTS.—The President, in consultation with the elected 

leaders of Congress referred to in subsection (a), may appoint under this subparagraph additional participants to 

the National Summit. The number of such additional participants appointed under this subparagraph may not exceed the lesser of 3 percent of the total number of all additional participants appointed under this paragraph, or 10. 

Such additional participants shall be appointed from persons nominated by an organization referred to in subsection (b) which is made up of private sector businesses 

and associations partnered with Government entities to 

promote long term financial security in retirement through 

savings and with which the Secretary is required thereunder to consult and cooperate and shall not be Federal, 

State, or local government employees.’’;

(5) in subsection (e)(3)(C) (as redesignated), by striking ‘‘January 31, 1998’’ and inserting ‘‘3 months before the convening 

of each summit;’’

(6) in subsection (f)(1)(C), by inserting ‘‘, no later than 90 

days prior to the date of the commencement of the National 

Summit,’’ after ‘‘comment’’; 

43

(7) in subsection (g), by inserting ‘‘, in consultation with the 

congressional leaders specified in subsection (e)(2),’’ after ‘‘report’’ the first place it appears; 

(8) in subsection (i)— (A) by striking ‘‘for fiscal years beginning on or after October 1, 1997,’’; and 

(B) by adding at the end the following new paragraph: ‘‘(3) RECEPTION AND REPRESENTATION AUTHORITY.—The Secretary is hereby granted reception and representation authority limited specifically to the events at the National Summit. 

The Secretary shall use any private contributions accepted in 

connection with the National Summit prior to using funds appropriated for purposes of the National Summit pursuant to 

this paragraph.’’; and 

(9) in subsection (k)— (A) by striking ‘‘shall enter into a contract on a solesource basis’’ and inserting ‘‘may enter into a contract on 

a sole-source basis’’; and 

(B) by striking ‘‘in fiscal year 1998’’. 

SEC. 209. MISSING PARTICIPANTS. 

(a) IN GENERAL.—Section 4050 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1350) is amended by redesignating subsection (c) as subsection (e) and by inserting after subsection (b) the following new subsections: ‘‘(c) MULTIEMPLOYER PLANS.—The corporation shall prescribe 

rules similar to the rules in subsection (a) for multiemployer plans 

covered by this title that terminate under section 4041A. ‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.— ‘‘(1) TRANSFER TO CORPORATION.—The plan administrator of 

a plan described in paragraph (4) may elect to transfer a missing participant’s benefits to the corporation upon termination 

of the plan. ‘‘(2) INFORMATION TO THE CORPORATION.—To the extent provided in regulations, the plan administrator of a plan described 

in paragraph (4) shall, upon termination of the plan, provide 

the corporation information with respect to benefits of a missing participant if the plan transfers such benefits— ‘‘(A) to the corporation, or 

‘‘(B) to an entity other than the corporation or a plan described in paragraph (4)(B)(ii). ‘‘(3) PAYMENT BY THE CORPORATION.—If benefits of a missing 

participant were transferred to the corporation under paragraph (1), the corporation shall, upon location of the participant or beneficiary, pay to the participant or beneficiary the 

amount transferred (or the appropriate survivor benefit) either—

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

‘‘(B) in such other form as is specified in regulations of 

the corporation. 

‘‘(4) PLANS DESCRIBED.—A plan is described in this paragraph if—

‘‘(A) the plan is a pension plan (within the meaning of 

section 3(2))—

‘‘(i) to which the provisions of this section do not 

apply (without regard to this subsection), and 

44

‘‘(ii) which is not a plan described in paragraphs (2) 

through (11) of section 4021(b), and ‘‘(B) at the time the assets are to be distributed upon 

termination, the plan— ‘‘(i) has missing participants, and 

‘‘(ii) has not provided for the transfer of assets to 

pay the benefits of all missing participants to another 

pension plan (within the meaning of section 3(2)). ‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.—Subsections (a)(1) 

and (a)(3) shall not apply to a plan described in paragraph 

(4).’’. (b) CONFORMING AMENDMENTS.—Section 206(f) of such Act (29 

U.S.C. 1056(f)) is amended— (1) by striking ‘‘title IV’’ and inserting ‘‘section 4050’’; and 

(2) by striking ‘‘the plan shall provide that,’’. (c) EFFECTIVE DATE.—The amendment made by this section shall 

apply to distributions made after final regulations implementing 

subsections (c) and (d) of section 4050 of the Employee Retirement 

Income Security Act of 1974 (as added by subsection (a)), respectively, are prescribed. 

SEC. 210. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL EMPLOYERS. 

(a) IN GENERAL.—Subparagraph (A) of section 4006(a)(3) of the 

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

1306(a)(3)(A)) is amended— (1) in clause (i), by inserting ‘‘other than a new single-employer plan (as defined in subparagraph (F)) maintained by a 

small employer (as so defined),’’ after ‘‘single-employer plan,’’, (2) in clause (iii), by striking the period at the end and inserting ‘‘, and’’, and 

(3) by adding at the end the following new clause: 

‘‘(iv) in the case of a new single-employer plan (as defined in 

subparagraph (F)) maintained by a small employer (as so defined) for the plan year, $5 for each individual who is a participant in such plan during the plan year.’’. 

(b) DEFINITION OF NEW SINGLE-EMPLOYER PLAN.—Section 

4006(a)(3) of the Employee Retirement Income Security Act of 1974 

(29 U.S.C. 1306(a)(3)) is amended by adding at the end the following new subparagraph: 

‘‘(F)(i) For purposes of this paragraph, a single-employer plan 

maintained by a contributing sponsor shall be treated as a new single-employer plan for each of its first 5 plan years if, during the 

36-month period ending on the date of the adoption of such plan, 

the sponsor or any member of such sponsor’s controlled group (or 

any predecessor of either) did not establish or maintain a plan to 

which this title applies with respect to which benefits were accrued 

for substantially the same employees as are in the new single-employer plan. 

‘‘(ii)(I) For purposes of this paragraph, the term ‘small employer’

means an employer which on the first day of any plan year has, 

in aggregation with all members of the controlled group of such 

employer, 100 or fewer employees. 

‘‘(II) In the case of a plan maintained by two or more contributing sponsors that are not part of the same controlled group, the 

employees of all contributing sponsors and controlled groups of 

45

such sponsors shall be aggregated for purposes of determining 

whether any contributing sponsor is a small employer.’’. (c) EFFECTIVE DATE.—The amendments made by this section 

shall apply to plans first effective after December 31, 2002. 

SEC. 211. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR NEW AND 

SMALL PLANS. 

(a) NEW PLANS.—Subparagraph (E) of section 4006(a)(3) of the 

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

1306(a)(3)(E)) is amended by adding at the end the following new 

clause: ‘‘(v) In the case of a new defined benefit plan, the amount determined under clause (ii) for any plan year shall be an amount equal 

to the product of the amount determined under clause (ii) and the 

applicable percentage. For purposes of this clause, the term ‘applicable percentage’ means— ‘‘(I) 0 percent, for the first plan year. 

‘‘(II) 20 percent, for the second plan year. 

‘‘(III) 40 percent, for the third plan year. 

‘‘(IV) 60 percent, for the fourth plan year.

‘‘(V) 80 percent, for the fifth plan year. 

For purposes of this clause, a defined benefit plan (as defined in 

section 3(35)) maintained by a contributing sponsor shall be treated 

as a new defined benefit plan for each of its first 5 plan years if, 

during the 36-month period ending on the date of the adoption of 

the plan, the sponsor and each member of any controlled group including the sponsor (or any predecessor of either) did not establish 

or maintain a plan to which this title applies with respect to which 

benefits were accrued for substantially the same employees as are 

in the new plan.’’. (b) SMALL PLANS.—Paragraph (3) of section 4006(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)), 

as amended by section 210(b), is amended— (1) by striking ‘‘The’’ in subparagraph (E)(i) and inserting ‘‘Except as provided in subparagraph (G), the’’, and 

(2) by inserting after subparagraph (F) the following new 

subparagraph: 

‘‘(G)(i) In the case of an employer who has 25 or fewer employees 

on the first day of the plan year, the additional premium determined under subparagraph (E) for each participant shall not exceed $5 multiplied by the number of participants in the plan as of 

the close of the preceding plan year. 

‘‘(ii) For purposes of clause (i), whether an employer has 25 or 

fewer employees on the first day of the plan year is determined by 

taking into consideration all of the employees of all members of the 

contributing sponsor’s controlled group. In the case of a plan maintained by two or more contributing sponsors, the employees of all 

contributing sponsors and their controlled groups shall be aggregated for purposes of determining whether the 25-or-fewer-employees limitation has been satisfied.’’. 

(c) EFFECTIVE DATES.— (1) SUBSECTION (a).—The amendments made by subsection 

(a) shall apply to plans first effective after December 31, 2002. 

(2) SUBSECTION (b).—The amendments made by subsection 

(b) shall apply to plan years beginning after December 31, 

2002. 

46

SEC. 212. AUTHORIZATION FOR PBGC TO PAY INTEREST ON PREMIUM 

OVERPAYMENT REFUNDS. 

(a) IN GENERAL.—Section 4007(b) of the Employment Retirement 

Income Security Act of 1974 (29 U.S.C. 1307(b)) is amended—

(1) by striking ‘‘(b)’’ and inserting ‘‘(b)(1)’’, and 

(2) by inserting at the end the following new paragraph: 

‘‘(2) The corporation is authorized to pay, subject to regulations 

prescribed by the corporation, interest on the amount of any overpayment of premium refunded to a designated payor. Interest 

under this paragraph shall be calculated at the same rate and in 

the same manner as interest is calculated for underpayments 

under paragraph (1).’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to interest accruing for periods beginning not earlier 

than the date of the enactment of this Act. 

SEC. 213. SUBSTANTIAL OWNER BENEFITS IN TERMINATED PLANS. 

(a) MODIFICATION OF PHASE-IN OF GUARANTEE.—Section 

4022(b)(5) of the Employee Retirement Income Security Act of 1974 

(29 U.S.C. 1322(b)(5)) is amended to read as follows: 

‘‘(5)(A) For purposes of this paragraph, the term ‘majority owner’

means an individual who, at any time during the 60-month period 

ending on the date the determination is being made—

‘‘(i) owns the entire interest in an unincorporated trade or 

business,

‘‘(ii) in the case of a partnership, is a partner who owns, directly or indirectly, 50 percent or more of either the capital interest or the profits interest in such partnership, or 

‘‘(iii) in the case of a corporation, owns, directly or indirectly, 

50 percent or more in value of either the voting stock of that 

corporation or all the stock of that corporation. 

For purposes of clause (iii), the constructive ownership rules of section 1563(e) of the Internal Revenue Code of 1986 shall apply (determined without regard to section 1563(e)(3)(C)). 

‘‘(B) In the case of a participant who is a majority owner, the 

amount of benefits guaranteed under this section shall equal the 

product of—

‘‘(i) a fraction (not to exceed 1) the numerator of which is the 

number of years from the later of the effective date or the 

adoption date of the plan to the termination date, and the denominator of which is 10, and 

‘‘(ii) the amount of benefits that would be guaranteed under 

this section if the participant were not a majority owner.’’. 

(b) MODIFICATION OF ALLOCATION OF ASSETS.—

(1) Section 4044(a)(4)(B) of the Employee Retirement Income 

Security Act of 1974 (29 U.S.C. 1344(a)(4)(B)) is amended by 

striking ‘‘section 4022(b)(5)’’ and inserting ‘‘section 

4022(b)(5)(B)’’. 

(2) Section 4044(b) of such Act (29 U.S.C. 1344(b)) is amended—

(A) by striking ‘‘(5)’’ in paragraph (2) and inserting ‘‘(4), 

(5),’’, and 

(B) by redesignating paragraphs (3) through (6) as paragraphs (4) through (7), respectively, and by inserting after 

paragraph (2) the following new paragraph: 

47

‘‘(3) If assets available for allocation under paragraph (4) of 

subsection (a) are insufficient to satisfy in full the benefits of 

all individuals who are described in that paragraph, the assets 

shall be allocated first to benefits described in subparagraph 

(A) of that paragraph. Any remaining assets shall then be allocated to benefits described in subparagraph (B) of that paragraph. If assets allocated to such subparagraph (B) are insufficient to satisfy in full the benefits described in that subparagraph, the assets shall be allocated pro rata among individuals 

on the basis of the present value (as of the termination date) 

of their respective benefits described in that subparagraph.’’. 

(c) CONFORMING AMENDMENTS.—

(1) Section 4021 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1321) is amended—

(A) in subsection (b)(9), by striking ‘‘as defined in section 

4022(b)(6)’’, and 

(B) by adding at the end the following new subsection: 

‘‘(d) For purposes of subsection (b)(9), the term ‘substantial 

owner’ means an individual who, at any time during the 60-month 

period ending on the date the determination is being made—

‘‘(1) owns the entire interest in an unincorporated trade or 

business, 

‘‘(2) in the case of a partnership, is a partner who owns, directly or indirectly, more than 10 percent of either the capital 

interest or the profits interest in such partnership, or 

‘‘(3) in the case of a corporation, owns, directly or indirectly, 

more than 10 percent in value of either the voting stock of that 

corporation or all the stock of that corporation.

For purposes of paragraph (3), the constructive ownership rules of 

section 1563(e) of the Internal Revenue Code of 1986 shall apply 

(determined without regard to section 1563(e)(3)(C)).’’. 

(2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) is amended by striking ‘‘section 4022(b)(6)’’ and inserting ‘‘section 4021(d)’’. 

(d) EFFECTIVE DATES.—

(1) IN GENERAL.—Except as provided in paragraph (2), the 

amendments made by this section shall apply to plan terminations—

(A) under section 4041(c) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1341(c)) with respect 

to which notices of intent to terminate are provided under 

section 4041(a)(2) of such Act (29 U.S.C. 1341(a)(2)) after 

December 31, 2002, and 

(B) under section 4042 of such Act (29 U.S.C. 1342) with 

respect to which proceedings are instituted by the corporation after such date. 

(2) CONFORMING AMENDMENTS.—The amendments made by 

subsection (c) shall take effect on January 1, 2003. 

SEC. 214. BENEFIT SUSPENSION NOTICE. 

(a) MODIFICATION OF REGULATION.—The Secretary of Labor shall 

modify the regulation under subparagraph (B) of section 203(a)(3) 

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

1053(a)(3)(B)) to provide that the notification required by such regulation in connection with any suspension of benefits described in 

such subparagraph—

48

(1) in the case of an employee who returns to service described in section 203(a)(3)(B)(i) or (ii) of such Act after commencement of payment of benefits under the plan, shall be 

made during the first calendar month or the first 4 or 5-week 

payroll period ending in a calendar month in which the plan 

withholds payments, and 

(2) in the case of any employee who is not described in paragraph (1)— (A) may be included in the summary plan description for 

the plan furnished in accordance with section 104(b) of 

such Act (29 U.S.C. 1024(b)), rather than in a separate notice, and 

(B) need not include a copy of the relevant plan provisions. 

(b) EFFECTIVE DATE.—The modification made under this section 

shall apply to plan years beginning after December 31, 2002. 

SEC. 215. STUDIES. 

(a) MODEL SMALL EMPLOYER GROUP PLANS STUDY.—As soon as 

practicable after the date of the enactment of this Act, the Secretary of Labor, in consultation with the Secretary of the Treasury, 

shall conduct a study to determine— (1) the most appropriate form or forms of— (A) employee pension benefit plans which would— (i) be simple in form and easily maintained by multiple small employers, and 

(ii) provide for ready portability of benefits for all 

participants and beneficiaries, 

(B) alternative arrangements providing comparable benefits which may be established by employee or employer 

associations, and 

(C) alternative arrangements providing comparable benefits to which employees may contribute in a manner independent of employer sponsorship, and 

(2) appropriate methods and strategies for making pension 

plan coverage described in paragraph (1) more widely available 

to American workers.

(b) MATTERS TO BE CONSIDERED.—In conducting the study under 

subsection (a), the Secretary of Labor shall consider the adequacy 

and availability of existing employee pension benefit plans and the 

extent to which existing models may be modified to be more accessible to both employees and employers. 

(c) REPORT.—Not later than 18 months after the date of the enactment of this Act, the Secretary of Labor shall report the results 

of the study under subsection (a), together with the Secretary’s recommendations, to the Committee on Education and the Workforce 

and the Committee on Ways and Means of the House of Representatives and the Committee on Health, Education, Labor, and Pensions and the Committee on Finance of the Senate. Such recommendations shall include one or more model plans described in 

subsection (a)(1)(A) and model alternative arrangements described 

in subsections (a)(1)(B) and (a)(1)(C) which may serve as the basis 

for appropriate administrative or legislative action. 

(d) STUDY ON EFFECT OF LEGISLATION.—Not later than 5 years 

after the date of the enactment of this Act, the Secretary of Labor 

shall submit to the Committee on Education and the Workforce of 

49

the House of Representatives and the Committee on Health, Education, Labor, and Pensions of the Senate a report on the effect of 

the provisions of this Act and title VI of the Economic Growth and 

Tax Relief Reconciliation Act of 2001 on pension plan coverage, including any change in—

(1) the extent of pension plan coverage for low and middleincome workers, 

(2) the levels of pension plan benefits generally, 

(3) the quality of pension plan coverage generally, 

(4) workers’ access to and participation in pension plans, and 

(5) retirement security.

SEC. 216. INTEREST RATE RANGE FOR ADDITIONAL FUNDING REQUIREMENTS. 

(a) IN GENERAL.—Subclause (III) of section 412(l)(7)(C)(i) of the 

Internal Revenue Code of 1986 is amended—

(1) by striking ‘‘2002 or 2003’’ in the text and inserting 

‘‘2001, 2002, or 2003’’, and 

(2) by striking ‘‘2002 AND 2003’’ in the heading and inserting 

‘‘2001, 2002, AND 2003’’. 

(b) SPECIAL RULE.—Subclause (III) of section 302(d)(7)(C)(i) of 

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

1082(d)(7)(C)(i)) is amended—

(1) by striking ‘‘2002 or 2003’’ in the text and inserting 

‘‘2001, 2002, or 2003’’, and 

(2) by striking ‘‘2002 AND 2003’’ in the heading and inserting 

‘‘2001, 2002, AND 2003’’. 

(c) PBGC.—Subclause (IV) of section 4006(a)(3)(E)(iii) of such Act 

(29 U.S.C. 1306(a)(3)(E)(iii)) is amended to read as follows—

‘‘(IV) In the case of plan years beginning after December 31, 

2001, and before January 1, 2004, subclause (II) shall be applied by substituting ‘100 percent’ for ‘85 percent’ and by substituting ‘115 percent’ for ‘100 percent’. Subclause (III) shall be 

applied for such years without regard to the preceding sentence. Any reference to this clause or this subparagraph by any 

other sections or subsections (other than sections 4005, 4010, 

4011 and 4043) shall be treated as a reference to this clause 

or this subparagraph without regard to this subclause.’’. 

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

shall take effect as if included in the amendments made by section 

405 of the Job Creation and Worker Assistance Act of 2002. 

SEC. 217. 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—

50

(A) pursuant to any amendment made by this title or 

title VI of the Economic Growth and Tax Relief Reconciliation Act of 2001, or pursuant to any regulation issued by 

the Secretary of the Treasury or the Secretary of Labor 

under this title or such title VI, and 

(B) on or before the last day of the first plan year beginning on or after January 1, 2005. 

In the case of a governmental plan (as defined in section 414(d) 

of the Internal Revenue Code of 1986), this paragraph shall be 

applied by substituting ‘‘2007’’ for ‘‘2005’’. (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. 

TITLE III—STOCK OPTIONS 

SEC. 301. EXCLUSION OF INCENTIVE STOCK OPTIONS AND EMPLOYEE 

STOCK PURCHASE PLAN STOCK OPTIONS FROM WAGES. 

(a) EXCLUSION FROM EMPLOYMENT TAXES.— (1) SOCIAL SECURITY TAXES.— (A) Section 3121(a) of the Internal Revenue Code of 1986 

(relating to definition of wages) is amended by striking 

‘‘or’’ at the end of paragraph (20), by striking the period at 

the end of paragraph (21) and inserting ‘‘; or’’, and by inserting after paragraph (21) the following new paragraph: ‘‘(22) remuneration on account of— ‘‘(A) a transfer of a share of stock to any individual pursuant to an exercise of an incentive stock option (as defined in section 422(b)) or under an employee stock purchase plan (as defined in section 423(b)), or ‘‘(B) any disposition by the individual of such stock.’’. (B) Section 209(a) of the Social Security Act is amended 

by striking ‘‘or’’ at the end of paragraph (17), by striking 

the period at the end of paragraph (18) and inserting ‘‘; 

or’’, and by inserting after paragraph (18) the following 

new paragraph: ‘‘(19) Remuneration on account of— ‘‘(A) a transfer of a share of stock to any individual pursuant to an exercise of an incentive stock option (as defined in section 422(b) of the Internal Revenue Code of 

1986) or under an employee stock purchase plan (as defined in section 423(b) of such Code), or 

‘‘(B) any disposition by the individual of such stock.’’. 

51

(2) RAILROAD RETIREMENT TAXES.—Subsection (e) of section 

3231 of such Code is amended by adding at the end the following new paragraph: 

‘‘(11) QUALIFIED STOCK OPTIONS.—The term ‘compensation’

shall not include any remuneration on account of—

‘‘(A) a transfer of a share of stock to any individual pursuant to an exercise of an incentive stock option (as defined in section 422(b)) or under an employee stock purchase plan (as defined in section 423(b)), or 

‘‘(B) any disposition by the individual of such stock.’’. 

(3) UNEMPLOYMENT TAXES.—Section 3306(b) of such Code 

(relating to definition of wages) is amended by striking ‘‘or’’ at 

the end of paragraph (16), by striking the period at the end of 

paragraph (17) and inserting ‘‘; or’’, and by inserting after 

paragraph (17) the following new paragraph:

‘‘(18) remuneration on account of—

‘‘(A) a transfer of a share of stock to any individual pursuant to an exercise of an incentive stock option (as defined in section 422(b)) or under an employee stock purchase plan (as defined in section 423(b)), or 

‘‘(B) any disposition by the individual of such stock.’’. 

(b) WAGE WITHHOLDING NOT REQUIRED ON DISQUALIFYING DISPOSITIONS.—Section 421(b) of such Code (relating to effect of disqualifying dispositions) is amended by adding at the end the following new sentence: ‘‘No amount shall be required to be deducted 

and withheld under chapter 24 with respect to any increase in income attributable to a disposition described in the preceding sentence.’’. 

(c) WAGE WITHHOLDING NOT REQUIRED ON COMPENSATION

WHERE OPTION PRICE IS BETWEEN 85 PERCENT AND 100 PERCENT

OF VALUE OF STOCK.—Section 423(c) of such Code (relating to special rule where option price is between 85 percent and 100 percent 

of value of stock) is amended by adding at the end the following 

new sentence: ‘‘No amount shall be required to be deducted and 

withheld under chapter 24 with respect to any amount treated as 

compensation under this subsection.’’. 

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

shall apply to stock acquired pursuant to options exercised after 

the date of the enactment of this Act. 

TITLE IV—SOCIAL SECURITY AND 

MEDICARE HELD HARMLESS 

SEC. 401. PROTECTION OF SOCIAL SECURITY AND MEDICARE. 

The amounts transferred to any trust fund under the Social Security Act shall be determined as if this Act had not been enacted. 

52

PART B—TEXT OF AMENDMENT MADE IN ORDER UNDER 

THE RULE 

AN AMENDMENT IN THE NATURE OF A SUBSTITUTE TO BE OFFERED

BY REPRESENTATIVE GEORGE MILLER OF CALIFORNIA OR REPRESENTATIVE RANGEL OF NEW YORK OR A DESIGNEE, DEBATABLE

FOR 60 MINUTES

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS. 

(a) SHORT TITLE.—This Act may be cited as the ‘‘Employee Pension Freedom Act of 2002’’. 

(b) TABLE OF CONTENTS.—The table of contents is as follows:

Sec. 1. Short title and table of contents. 

TITLE I—IMPROVEMENTS IN DISCLOSURE 

Sec. 101. Pension benefit information. 

Sec. 102. Immediate warning of excessive stock holdings. 

Sec. 103. Additional fiduciary protections relating to lockdowns. 

Sec. 104. Report to participants and beneficiaries of trades in employer securities. 

Sec. 105. Provision to participants and beneficiaries of material investment information in accurate form. 

Sec. 106. Enforcement of information and disclosure requirements. 

TITLE II—DIVERSIFICATION REQUIREMENTS 

Sec. 201. Freedom to make investment decisions with plan assets. 

Sec. 202. Effective date of title. 

TITLE III—EMPLOYEE REPRESENTATION 

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

TITLE IV—EXECUTIVE PARITY 

Sec. 401. Inclusion in gross income of funded deferred compensation of corporate 

insiders if corporation funds defined contribution plan with employer 

stock. 

Sec. 402. Insider trades during pension fund blackout periods prohibited. 

TITLE V—INCREASED ACCOUNTABILITY 

Sec. 501. Bonding or insurance adequate to protect interest of participants and 

beneficiaries. 

Sec. 502. Liability for breach of fiduciary duty. 

Sec. 503. Preservation of rights or claims. 

Sec. 504. Office of Pension Participant Advocacy. 

Sec. 505. Additional criminal penalties. 

Sec. 506. Study regarding insurance system for individual account plans. 

TITLE VI—INVESTMENT ADVICE FOR PARTICIPANTS AND BENEFICIARIES 

Sec. 601. Independent investment advice. 

Sec. 602. Tax treatment of qualified retirement planning services. 

TITLE VII—GENERAL PROVISIONS 

Sec. 701. General effective date. 

Sec. 702. Plan amendments.

TITLE I—IMPROVEMENTS IN 

DISCLOSURE 

SEC. 101. PENSION BENEFIT INFORMATION. 

(a) PENSION BENEFIT STATEMENTS REQUIRED ON PERIODIC

BASIS.—

53

(1) IN GENERAL.—Subsection (a) of section 105 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 

1025) is amended— (A) by striking ‘‘shall furnish to any plan participant or 

beneficiary who so requests in writing,’’ and inserting ‘‘shall furnish at least once every 3 years, in the case of a 

participant in a defined benefit plan who has attained age 

35, and annually, in the case of an individual account 

plan, to each plan participant, and shall furnish to any 

plan participant or beneficiary who so requests,’’, and 

(B) by adding at the end the following flush sentence: ‘‘Information furnished under the preceding sentence to a participant in a defined benefit plan (other than at the request of the participant) may be based on reasonable estimates determined under 

regulations prescribed by the Secretary.’’. (2) MODEL STATEMENT.—Section 105 of such Act (29 U.S.C. 

1025) is amended by adding at the end the following new subsection: ‘‘(e)(1) The Secretary of Labor shall develop a model benefit statement which shall be used by plan administrators in complying with 

the requirements of subsection (a). Such statement shall include— ‘‘(A) the amount of nonforfeitable accrued benefits as of the 

statement date which is payable at normal retirement age 

under the plan, ‘‘(B) the amount of accrued benefits which are forfeitable but 

which may become nonforfeitable under the terms of the plan, ‘‘(C) the amount or percentage of any reduction due to integration of the benefit with the participant’s Social Security 

benefits or similar governmental benefits, ‘‘(D) information on early retirement benefit and joint and 

survivor annuity reductions, and ‘‘(E) the percentage of the net return on investment of plan 

assets for the preceding plan year (or, with respect to investments directed by the participant, the net return on investment of plan assets for such year so directed), itemized with 

respect to each type of investment, and, stated separately, the 

administrative and transaction fees incurred in connection 

with each such type of investment, and 

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

and percentage of assets in the individual account that consists 

of employer securities and employer real property (as defined 

in paragraphs (1) and (2), respectively, of section 407(d)), as determined as of the most recent valuation date of the plan. 

‘‘(2) The Secretary shall also develop a separate notice, which 

shall be included by the plan administrator with the information 

furnished pursuant to subsection (a), which advises participants 

and beneficiaries of generally accepted investment principles, including principles of risk management and diversification for longterm retirement security and the risks of holding substantial 

asssets in a single asset such as employer securities.’’. 

(3) RULE FOR MULTIEMPLOYER PLANS.—Subsection (d) of section 105 of such Act (29 U.S.C. 1025) is amended to read as 

follows: 

‘‘(d) Each administrator of a plan to which more than 1 unaffiliated employer is required to contribute shall furnish to any plan 

54

participant or beneficiary who so requests in writing, a statement 

described in subsection (a).’’. 

(b) DISCLOSURE OF BENEFIT CALCULATIONS.—

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

subsection (a)) is amended further—

(A) by redesignating subsections (b), (c), (d), and (e) as 

subsections (c), (d), (e), and (f), respectively; and 

(B) by inserting after subsection (a) the following new 

subsection: 

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

to a distribution of a benefit under an employee pension benefit 

plan, the administrator of such plan shall provide to the participant or beneficiary the information described in paragraph (2) upon 

the written request of the participant or beneficiary. 

‘‘(2) The information described in this paragraph includes—

‘‘(A) a worksheet explaining how the amount of the distribution was calculated and stating the assumptions used for such 

calculation, 

‘‘(B) upon written request of the participant or beneficiary, 

any documents relating to the calculation (if available), and 

‘‘(C) such other information as the Secretary may prescribe.

Any information provided under this paragraph shall be in a form 

calculated to be understood by the average plan participant.’’. 

(2) CONFORMING AMENDMENTS.—

(A) Section 101(a)(2) of such Act (29 U.S.C. 1021(a)(2)) is 

amended by striking ‘‘105(a) and (c)’’ and inserting ‘‘105(a), 

(b), and (d)’’. 

(B) Section 105(c) of such Act (as redesignated by paragraph (1)(A) of this subsection) is amended by inserting ‘‘or 

(b)’’ after ‘‘subsection (a)’’. 

(C) Section 106(b) of such Act (29 U.S.C. 1026(b)) is 

amended by striking ‘‘sections 105(a) and 105(c)’’ and inserting ‘‘subsections (a), (b), and (d) of section 105’’.

(c) AMENDMENTS TO INTERNAL REVENUE CODE OF 1986.—

(1) EXCISE TAX ON FAILURE OF DEFINED CONTRIBUTION PLANS

TO PROVIDE NOTICE OF GENERALLY ACCEPTED INVESTMENT PRINCIPLES.—Chapter 43 of the Internal Revenue Code of 1986 (relating to qualified pension, etc., plans) is amended by adding 

at the end the following new section: 

‘‘SEC. 4980I. FAILURE OF DEFINED CONTRIBUTION PLANS TO PROVIDE NOTICE OF GENERALLY ACCEPTED INVESTMENT 

PRINCIPLES. 

‘‘(a) IMPOSITION OF TAX.—There is hereby imposed a tax on the 

failure of any defined contribution plan to meet the requirements 

of subsection (e) with respect to any participant or beneficiary. 

‘‘(b) AMOUNT OF TAX.—The amount of the tax imposed by subsection (a) on any failure with respect to any participant or beneficiary shall be $1,000 for each day on which such failure is not corrected. 

‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

‘‘(1) TAX NOT TO APPLY TO FAILURES CORRECTED AS SOON AS

REASONABLY PRACTICABLE.—No tax shall be imposed by subsection (a) on any failure if—

55

‘‘(A) any person subject to liability for the tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and ‘‘(B) such person provides the notice described in subsection (e) as soon as reasonably practicable after the first 

date such person knew, or exercising reasonable diligence 

should have known, that such failure existed. ‘‘(2) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.— ‘‘(A) IN GENERAL.—If the person subject to liability for 

tax under subsection (d) exercised reasonable diligence to 

meet the requirements of subsection (e), the tax imposed 

by subsection (a) for failures during the taxable year of the 

employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not 

exceed $500,000. For purposes of the preceding sentence, 

all multiemployer plans of which the same trust forms a 

part shall be treated as 1 plan. ‘‘(B) TAXABLE YEARS IN THE CASE OF CERTAIN CON- TROLLED GROUPS.—For purposes of this paragraph, if all 

persons who are treated as a single employer for purposes 

of this section do not have the same taxable year, the taxable years taken into account shall be determined under 

principles similar to the principles of section 1561. ‘‘(3) 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. ‘‘(d) LIABILITY FOR TAX.—The following shall be liable for the tax 

imposed by subsection (a): ‘‘(1) In the case of a plan other than a multiemployer plan, 

the employer. ‘‘(2) In the case of a multiemployer plan, the plan. ‘‘(e) REQUIREMENTS RELATING TO NOTICE OF GENERALLY ACCEPT- ED INVESTMENT PRINCIPLES.—The plan administrator of any defined contribution plan shall provide annually a separate notice 

which advises participants and beneficiaries of generally accepted 

investment principles, including principles of risk management and 

diversification for long-term retirement security and the risks of 

holding substantial assets in a single asset such as employer securities.’’. 

(2) CLERICAL AMENDMENT.—The table of sections for chapter 

43 of such Code is amended by adding at the end the following 

new item:

‘‘Sec. 4980I. Failure of defined contribution plans to provide notice 

of generally accepted investment principles.’’.

SEC. 102. IMMEDIATE WARNING OF EXCESSIVE STOCK HOLDINGS. 

Section 105 of the Employee Retirement Income Security Act of 

1974 (29 U.S.C. 1025) (as amended by section 101 of this Act) is 

amended further by adding at the end the following new subsection: 

‘‘(g)(1) Upon receipt of information by the plan administrator of 

an individual account plan indicating that the individual account 

of any participant which had not been excessively invested in employer securities is excessively invested in such securities (or that 

56

such account, as initially invested, is excessively invested in employer securities), the plan administrator shall immediately provide 

to the participant a separate, written statement—

‘‘(A) indicating that the participant’s account has become excessively invested in employer securities, 

‘‘(B) setting forth the notice described in subsection (e)(7), 

and

‘‘(C) referring the participant to investment education materials and investment advice which shall be made available by 

or under the plan. 

In any case in which such a separate, written statement is required 

to be provided to a participant under this paragraph, each statement issued to such participant pursuant to subsection (a) thereafter shall also contain such separate, written statement until the 

plan administrator is made aware that such participant’s account 

has ceased to be excessively invested in employer securities or the 

employee, in writing, waives the receipt of the notice and acknowledges understanding the importance of diversification. 

‘‘(2) Each notice required under this subsection shall be provided 

in a form and manner which shall be prescribed in regulations of 

the Secretary. Such regulations shall provide for inclusion in the 

notice a prominent reference to the risks of large losses in assets 

available for retirement from excessive investment in employer securities. 

‘‘(3) For purposes of paragraph (1), a participant’s account is ‘excessively invested’ in employer securities if more than 10 percent 

of the balance in such account is invested in employer securities (as 

defined in section 407(d)(1)).’’.

SEC. 103. ADDITIONAL FIDUCIARY PROTECTIONS RELATING TO 

LOCKDOWNS. 

(a) AMENDMENT TO EMPLOYEE RETIREMENT INCOME SECURITY

ACT OF 1974.—Section 404 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104) is amended by adding at the 

end the following new subsection: 

‘‘(e)(1) In the case of any eligible individual account plan (as defined in section 407(d)(3)) no lockdown may take effect until at 

least 30 days after written notice of such lockdown is provided by 

the plan administrator to such participant or beneficiary (and to 

each employee organization representing any such participant). 

‘‘(2) Subject to such regulations as the Secretary may prescribe, 

the requirements of paragraph (1) shall not apply in cases of emergency. 

‘‘(3) A plan described in paragraph (1) shall provide that each 

participant and beneficiary required to receive a notice under paragraph (1)(A) is entitled to direct the plan to divest within 3 business days (but in no event later than the beginning of the 

lockdown) any security or other property in which any assets allocated to the account of such individual are invested and to reinvest 

such assets in any other investment option offered under the plan. 

‘‘(4) For purposes of this subsection, the term ‘lockdown’ means 

any temporary lockdown, blackout, or freeze with respect to, suspension of, or similar limitation on the ability of a participant or 

beneficiary to exercise control over the assets in his or her account 

as otherwise generally provided under the plan (as determined 

57

under regulations of the Secretary), including the ability to direct 

investments, obtain loans, or obtain distributions.’’. (b) AMENDMENTS TO INTERNAL REVENUE CODE OF 1986.— (1) EXCISE TAX ON FAILURES WITH RESPECT TO LOCKDOWNS.— Chapter 43 of the Internal Revenue Code of 1986 (relating to 

qualified pension, etc., plans) is amended by adding at the end 

the following new section: 

‘‘SEC. 4980G. FAILURE OF DEFINED CONTRIBUTION PLANS WITH RESPECT TO LOCKDOWNS. 

‘‘(a) IMPOSITION OF TAX.—There is hereby imposed a tax on the 

failure of any defined contribution plan to meet the requirements 

of subsection (e) with respect to any participant or beneficiary. ‘‘(b) AMOUNT OF TAX.—The amount of the tax imposed by subsection (a) on any failure with respect to any participant or beneficiary shall be $100. ‘‘(c) LIMITATIONS ON AMOUNT OF TAX.— ‘‘(1) TAX NOT TO APPLY TO FAILURES CORRECTED AS SOON AS

REASONABLY PRACTICABLE.—No tax shall be imposed by subsection (a) on any failure if— ‘‘(A) any person subject to liability for the tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and ‘‘(B) such person meets the requirements of subsection 

(e) as soon as reasonably practicable after the first date 

such person knew, or exercising reasonable diligence 

should have known, that such failure existed. ‘‘(2) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—

‘‘(A) IN GENERAL.—If the person subject to liability for 

tax under subsection (d) exercised reasonable diligence to 

meet the requirements of subsection (e), the tax imposed 

by subsection (a) for failures during the taxable year of the 

employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not 

exceed $500,000. For purposes of the preceding sentence, 

all multiemployer plans of which the same trust forms a 

part shall be treated as 1 plan.

‘‘(B) TAXABLE YEARS IN THE CASE OF CERTAIN CONTROLLED GROUPS.—For purposes of this paragraph, if all 

persons who are treated as a single employer for purposes 

of this section do not have the same taxable year, the taxable years taken into account shall be determined under 

principles similar to the principles of section 1561. 

‘‘(3) 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. 

‘‘(d) LIABILITY FOR TAX.—The following shall be liable for the tax 

imposed by subsection (a): 

‘‘(1) In the case of a plan other than a multiemployer plan, 

the employer. 

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

‘‘(e) REQUIREMENTS RELATING TO LOCKDOWNS.—

‘‘(1) IN GENERAL.—In the case of any defined contribution 

plan no lockdown may take effect until at least 30 days after 

58

written notice of such lockdown is provided by the plan administrator to each participant or beneficiary (and to each employee organization representing any such participant). ‘‘(2) EXCEPTION FOR EMERGENCY.—Subject to such regulations as the Secretary may prescribe, the requirements of paragraph (1) shall not apply in cases of emergency. ‘‘(3) REQUIREMENT RELATING TO DIVESTMENT.—A plan described in paragraph (1) shall provide that each participant 

and beneficiary required to receive a notice under paragraph 

(1)(A) is entitled to direct the plan to divest within 3 business 

days (but in no event later than the beginning of the lockdown) 

any security or other property in which any assets allocated to 

the account of such individual are invested and to reinvest 

such assets in any other investment option offered under the 

plan. ‘‘(4) LOCKDOWN DEFINED.—For purposes of this subsection, 

the term ‘lockdown’ means any temporary lockdown, blackout, 

or freeze with respect to, suspension of, or similar limitation on 

the ability of a participant or beneficiary to exercise control 

over the assets in his or her account as otherwise generally 

provided under the plan (as determined under regulations of 

the Secretary), including the ability to direct investments, obtain loans, or obtain distributions.’’. 

(2) CLERICAL AMENDMENT.—The table of sections for chapter 

43 of such Code is amended by adding at the end the following 

new item:

‘‘Sec. 4980G. Failure of defined contribution plans with respect to 

lockdowns.’’.

SEC. 104. REPORT TO PARTICIPANTS AND BENEFICIARIES OF TRADES 

IN EMPLOYER SECURITIES. 

(a) IN GENERAL.—Section 104 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1024) is amended— (1) by redesignating subsection (d) as subsection (e); and 

(2) by inserting after subsection (c) the following new subsection: 

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

a participant or beneficiary under an individual account plan include employer securities, if any person engages in a transaction 

constituting a direct or indirect purchase or sale of employer securities and—

‘‘(A) such transaction is required under section 16 of the Securities Exchange Act of 1934 to be reported by such person to 

the Securities and Exchange Commission, or

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

such person shall comply with the requirements of paragraph (2). 

‘‘(2) A person described in paragraph (1) complies with the requirements of this paragraph in connection with a transaction described in paragraph (1) if such person provides to the plan administrator of the plan a written notification of the transaction not 

later than 1 business day after the date of the transaction. 

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

notifications received pursuant to paragraph (2) or otherwise, that 

the proceeds from any transaction described in paragraph (1), constituting direct or indirect sales of employer securities by any person described in paragraph (1), exceed $100,000, the plan adminisVerDate Jan 17 2002 04:22 Apr 11, 2002 Jkt 099008 PO 00000 Frm 00058 Fmt 6659 Sfmt 6602 E:\HR\OC\HR396.XXX pfrm03 PsN: HR396
59

trator of the plan shall provide to each participant and beneficiary 

a notification of such transaction. Such notification shall be in writing, except that such notification may be in electronic or other form 

to the extent that such form is reasonably accessible to the participant or beneficiary. ‘‘(B) In any case in which the proceeds from any transaction described in paragraph (1) (with respect to which a notification has 

not been provided pursuant to this paragraph), together with the 

proceeds from any other such transaction or transactions described 

in paragraph (1) occurring during the preceding one-year period, 

constituting direct or indirect sales of employer securities by any 

person described in paragraph (1), exceed (in the aggregate) 

$100,000, such series of transactions by such person shall be treated as a transaction described in subparagraph (A) by such person. ‘‘(C) Each notification required under this paragraph shall be 

provided as soon as practicable, but not later than 3 business days 

after receipt of the written notification or notifications indicating 

that the transaction (or series of transactions) requiring such notice 

has occurred. ‘‘(4) Each notification required under paragraph (2) or (3) shall 

be made in such form and manner as may be prescribed in regulations of the Secretary and shall include the number of shares involved in each transaction and the price per share, and the notification required under paragraph (3) shall be written in language 

designed to be understood by the average plan participant. The 

Secretary may provide by regulation, in consultation with the Securities and Exchange Commission, for exemptions from the requirements of this subsection with respect to specified types of transactions to the extent that such exemptions are consistent with the 

best interests of plan participants and beneficiaries. Such exemptions may relate to transactions involving reinvestment plans, 

stock splits, stock dividends, qualified domestic relations orders, 

and similar matters. ‘‘(5) For purposes of this subsection, the term ‘employer security’ has the meaning provided in section 407(d)(1).’’. (b) EFFECTIVE DATE.—The amendments made by this section 

shall apply with respect to transactions occurring on or after July 

1, 2002. 

SEC. 105. PROVISION TO PARTICIPANTS AND BENEFICIARIES OF MATERIAL INVESTMENT INFORMATION IN ACCURATE FORM. 

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) The plan sponsor and plan administrator of a pension plan 

described in paragraph (1) shall have a fiduciary duty to ensure 

that each participant and beneficiary under the plan, in connection 

with the investment by the participant or beneficiary of plan assets 

in the exercise of his or her control over assets in his account, is 

provided with all material investment information regarding investment of such assets to the extent that the provision of such information is generally required to be disclosed by the plan sponsor 

to investors in connection with such an investment under applicable securities laws. The provision by the plan sponsor or plan administrator of any misleading investment information shall be 

treated as a violation of this paragraph.’’. 

60

SEC. 106. ENFORCEMENT OF INFORMATION AND DISCLOSURE REQUIREMENTS. 

(a) IN GENERAL.—Section 502(c) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1132(c)) is amended—

(1) by redesignating paragraph (7) as paragraph (8); and 

(2) by inserting after paragraph (6) the following new paragraph: 

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

required to provide any notification under the provisions of section 

104(d), any statement under the provisions of subsection (a), (d), or 

(f) of section 105, any information under the provisions of section 

404(c)(4), or any notice under the provisions of section 404(f)(1) of 

up to $1,000 a day from the date of any failure by such person to 

provide such notification, statement, information, or notice in accordance with such provisions.’’. 

(b) CONFORMING AMENDMENT.—Section 502(a)(6) of such Act (29 

U.S.C. 1132(a)(6)) (as amended by section 102(b)) is amended further by striking ‘‘(5), or (6)’’ and inserting ‘‘(5), (6), or (7)’’. 

TITLE II—DIVERSIFICATION 

REQUIREMENTS

SEC. 201. FREEDOM TO MAKE INVESTMENT DECISIONS WITH PLAN ASSETS. 

(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.—Section 404 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104) (as amended by section 

103) is amended further by adding at the end the following new 

subsection: 

‘‘(f)(1)(A)(i) Subject to clause (ii), an individual account plan 

under which a participant or beneficiary is permitted to exercise 

control over assets in his or her account shall provide that—

‘‘(I) any such participant or beneficiary has the right to allocate all assets in his or her account (and any portion thereof) 

attributable to employee contributions to any investment option provided under the plan, and 

‘‘(II) any such participant who has completed 3 years of service (as defined in section 203(b)(2)) with the employer, or any 

such beneficiary of such a participant, has the right to allocate 

all assets in his or her account (and any portion thereof) attributable to employer contributions to any investment option provided under the plan. 

The application of any penalty or any restriction based on age or 

years of service in connection with any exercise of such right as 

provided under this clause shall be construed as a violation of this 

clause. 

‘‘(ii) Clause (i) shall apply only to so much of a nonforfeitable accrued benefit as consists of employer securities which are readily 

tradable on an established securities market. 

‘‘(B)(i) Except as provided in clause (ii), within 5 days after the 

date of any election by a participant or beneficiary allocating his 

or her nonforfeitable accrued benefit to any investment option provided under the plan, the plan administrator shall take such actions as are necessary to effectuate such allocation. 

61

‘‘(ii) In any case in which the plan provides for elections periodically during prescribed periods, the 5-day period described in 

clause (i) shall commence at the end of each such prescribed period. ‘‘(C) Nothing in this paragraph shall be construed to limit the authority of a plan to impose limitations on the portion of plan assets 

in any account which may be invested in employer securities to the 

extent that any such limitation is consistent with this title and not 

more restrictive than is permitted under this title. ‘‘(2) Not later than 30 days prior to the date on which the right 

of a participant under an individual account plan to his or her accrued benefit becomes nonforfeitable, the plan administrator shall 

provide to such participant and his or her beneficiaries a written 

notice—

‘‘(A) setting forth their rights under this section with respect 

to the accrued benefit, and ‘‘(B) describing the importance of diversifying the investment 

of account assets.’’. (b) AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986.— (1) EXCISE TAX ON FAILURE TO PERMIT DIVERSIFICATION OF

EMPLOYER SECURITIES.—Chapter 43 of the Internal Revenue 

Code of 1986 (relating to qualified pension, etc., plans) is 

amended by adding at the end the following new section: 

‘‘SEC. 4980H. FAILURE OF DEFINED CONTRIBUTION PLANS TO PERMIT 

DIVERSIFICATION OF EMPLOYER SECURITIES. 

‘‘(a) IMPOSITION OF TAX.—There is hereby imposed a tax on the 

failure of any defined contribution plan to meet the requirements 

of subsection (e) with respect to any participant or beneficiary. ‘‘(b) AMOUNT OF TAX.—The amount of the tax imposed by subsection (a) on any failure with respect to any participant or beneficiary shall be $1,000 for each day for which the failure is not corrected. ‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

‘‘(1) TAX NOT TO APPLY TO FAILURES CORRECTED AS SOON AS

REASONABLY PRACTICABLE.—No tax shall be imposed by subsection (a) on any failure if—

‘‘(A) any person subject to liability for the tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and 

‘‘(B) such person meets the requirements of subsection 

(e) as soon as reasonably practicable after the first date 

such person knew, or exercising reasonable diligence 

should have known, that such failure existed. 

‘‘(2) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—

‘‘(A) IN GENERAL.—If the person subject to liability for 

tax under subsection (d) exercised reasonable diligence to 

meet the requirements of subsection (e), the tax imposed 

by subsection (a) for failures during the taxable year of the 

employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not 

exceed $500,000. For purposes of the preceding sentence, 

all multiemployer plans of which the same trust forms a 

part shall be treated as 1 plan. 

‘‘(B) TAXABLE YEARS IN THE CASE OF CERTAIN CONTROLLED GROUPS.—For purposes of this paragraph, if all 

persons who are treated as a single employer for purposes 

62

of this section do not have the same taxable year, the taxable years taken into account shall be determined under 

principles similar to the principles of section 1561. ‘‘(3) 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. ‘‘(d) LIABILITY FOR TAX.—The following shall be liable for the tax 

imposed by subsection (a): ‘‘(1) In the case of a plan other than a multiemployer plan, 

the employer. ‘‘(2) In the case of a multiemployer plan, the plan. ‘‘(e) REQUIREMENTS RELATING TO DIVERSIFICATION OF EMPLOYER

SECURITY.— ‘‘(1) IN GENERAL.—The requirements of this subsection are 

the requirements of paragraphs (2), (3), and (4). ‘‘(2) RIGHT TO DIRECT INVESTMENTS.— ‘‘(A) IN GENERAL.—Subject to subparagraph (B), a plan 

meets the requirements of this paragraph if, under the 

plan—

‘‘(i) any participant or beneficiary who is permitted 

to exercise control over assets in his or her account 

has the right to allocate all assets in his or her account (and any portion thereof) attributable to employee contributions to any investment option provided 

under the plan, and ‘‘(ii) any such participant who has completed 3 years 

of service (as defined in section 411(a)(5)) with the employer, or any such beneficiary of such a participant, 

has the right to allocate all assets in his or her account (and any portion thereof) attributable to employer contributions to any investment option provided 

under the plan. 

The application of any penalty or any restriction based on 

age or years of service in connection with any exercise of 

such right as provided under this clause shall be construed 

as a violation of this clause. 

‘‘(B) LIMITATION TO READILY TRADABLE EMPLOYER SECU- RITIES.—Subparagraph (A) shall apply only to so much of 

a nonforfeitable accrued benefit as consists of employer securities which are readily tradable on an established securities market. 

‘‘(3) PROMPT COMPLIANCE WITH DIRECTIONS TO ALLOCATE INVESTMENTS.—

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

(B), a plan meets the requirements of this paragraph if the 

plan provides that, within 5 days after the date of any 

election by a participant or beneficiary allocating his or 

her nonforfeitable accrued benefit to any investment option 

provided under the plan, the plan administrator shall take 

such actions as are necessary to effectuate such allocation. ‘‘(B) SPECIAL RULE FOR PERIODIC ELECTIONS.—In any 

case in which the plan provides for elections periodically 

during prescribed periods, the 5-day period described in 

63

subparagraph (A) shall commence at the end of each such 

prescribed period. 

‘‘(4) NOTICE OF RIGHTS AND OF IMPORTANCE OF DIVERSIFICATION.—A plan meets the requirements of this paragraph if the 

plan provides that, not later than 30 days prior to the date on 

which the right of a participant under the plan to his or her 

accrued benefit becomes nonforfeitable, the plan administrator 

shall provide to such participant and his or her beneficiaries 

a written notice—

‘‘(A) setting forth their rights under this section with respect to the accrued benefit, and 

‘‘(B) describing the importance of diversifying the investment of account assets. 

‘‘(5) PRESERVATION OF AUTHORITY OF PLAN TO LIMIT INVESTMENT.—Nothing in this subsection shall be construed to limit 

the authority of a plan to impose limitations on the portion of 

plan assets in any account which may be invested in employer 

securities.’’. 

(2) CLERICAL AMENDMENT.—The table of sections for chapter 

43 of such Code is amended by adding at the end the following 

new item:

‘‘Sec. 4980H. Failure of defined contribution plans to permit diversification of employer securities.’’.

(c) RECOMMENDATIONS RELATING TO NON-PUBLICLY TRADED

STOCK.—Within 1 year after the date of the enactment of this Act, 

the Secretary of Labor and the Secretary of the Treasury shall 

jointly transmit to the Committee on Education and the Workforce 

and the Committee on Ways and Means of the House of Representatives and the Committee on Health, Education, Labor, and Pensions and the Committee on Finance of the Senate their recommendations regarding legislative changes relating to treatment, 

under section 404(e) of the Employee Retirement Income Security 

Act of 1974 and section 401(a)(35) of the Internal Revenue Code of 

1986 (as added by this section), of individual account plans under 

which a participant or beneficiary is permitted to exercise control 

over assets in his or her account, in cases in which such assets do 

not include employer securities which are readily tradable under 

an established securities market. 

SEC. 202. EFFECTIVE DATE OF TITLE. 

(a) IN GENERAL.—Subject to subsection (b), the amendments 

made by this title shall apply with respect to plan years beginning 

on or after January 1, 2003. 

(b) DELAYED EFFECTIVE DATE FOR EXISTING HOLDINGS.—In any 

case in which a portion of the nonforfeitable accrued benefit of a 

participant or beneficiary is held in the form of employer securities 

(as defined in section 407(d)(1) of the Employee Retirement Income 

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

plan year to which the amendments made by this title apply, such 

portion shall be taken into account only with respect to plan years 

beginning on or after January 1, 2004. 

64

TITLE III—EMPLOYEE 

REPRESENTATION

SEC. 301. PARTICIPATION OF PARTICIPANTS IN TRUSTEESHIP OF INDIVIDUAL ACCOUNT PLANS. 

(a) IN GENERAL.—Section 403(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1103(a)) is amended—

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

(A) and (B), respectively; 

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

(3) by adding at the end the following new paragraph: 

‘‘(2)(A) The assets of a single-employer plan which is an individual account plan and under which some or all of the assets are 

derived from employee contributions shall be held in trust by a 

joint board of trustees, which shall consist of two or more trustees 

representing on an equal basis the interests of the employer or employers maintaining the plan and the interests of the participants 

and their beneficiaries and having equal voting rights. 

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

plan is maintained pursuant to one or more collective bargaining 

agreements between one or more employee organizations and one 

or more employers, the trustees representing the interests of the 

participants and their beneficiaries shall be designated by such employee organizations. 

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

in such clause if the employee organization (or all employee organizations, if more than one) referred to in such clause file with the 

Secretary, in such form and manner as shall be prescribed in regulations of the Secretary, a written waiver of their rights under 

clause (i). 

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

to a single-employer plan because the plan is not described in 

clause (i) or because of a waiver filed pursuant to clause (ii), the 

trustee or trustees representing the interests of the participants 

and their beneficiaries shall be selected by the plan participants in 

accordance with regulations of the Secretary. 

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

as trustee solely because such individual is an employee of the plan 

sponsor, except that the employee so selected may not be a highly 

compensated employee (as defined in section 414(q) of the Internal 

Revenue Code of 1986). 

‘‘(D) The Secretary shall provide by regulation for the appointment of a neutral individual, in accordance with the procedures 

under section 203(f) of the Labor Management Relations Act, 1947 

(29 U.S.C. 173(f)), to cast votes as necessary to resolve tie votes by 

the trustees.’’. 

(b) REGULATIONS.—The Secretary of Labor shall prescribe the 

initial regulations necessary to carry out the provisions of the 

amendments made by this section not later than 90 days after the 

date of the enactment of this Act.

65

TITLE IV—EXECUTIVE PARITY 

SEC. 401. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED COMPENSATION OF CORPORATE INSIDERS IF CORPORATION 

FUNDS DEFINED CONTRIBUTION PLAN WITH EMPLOYER 

STOCK. 

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

1 of the Internal Revenue Code of 1986 is amended by adding at 

the end the following new section: 

‘‘SEC. 409A. DENIAL OF DEFERRAL FOR FUNDED DEFERRED COMPENSATION OF CORPORATE INSIDERS IF CORPORATION 

FUNDS DEFINED CONTRIBUTION PLAN WITH EMPLOYER 

STOCK. 

‘‘(a) IN GENERAL.—If an employer maintains a defined contribution plan to which employer contributions are made in the form of 

employer stock and such employer maintains a funded deferred 

compensation plan—

‘‘(1) compensation of any corporate insider which is deferred 

under such funded deferred compensation plan shall be included in the gross income of the insider or beneficiary for the 

1st taxable year in which there is no substantial risk of forfeiture of the rights to such compensation, and 

‘‘(2) the tax treatment of any amount made available under 

the plan to a corporate insider or beneficiary shall be determined under section 72 (relating to annuities, etc.). 

‘‘(b) FUNDED DEFERRED COMPENSATION PLAN.—For purposes of 

this section—

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

plan’ means any plan providing for the deferral of compensation unless—

‘‘(A) the employee’s rights to the compensation deferred 

under the plan are no greater than the rights of a general 

creditor of the employer, and 

‘‘(B) all amounts set aside (directly or indirectly) for purposes of paying the deferred compensation, and all income 

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

property of the employer (without being restricted to the 

provision of benefits under the plan), and 

‘‘(C) the amounts referred to in subparagraph (B) are 

available to satisfy the claims of the employer’s general 

creditors at all times (not merely after bankruptcy or insolvency). 

Such term shall not include a qualified employer plan. 

‘‘(2) SPECIAL RULES.—

‘‘(A) EMPLOYEE’S RIGHTS.—A plan shall be treated as 

failing to meet the requirements of paragraph (1)(A) unless, under the written terms of the plan—

‘‘(i) the compensation deferred under the plan is 

paid only upon separation from service, death, or at a 

specified time (or pursuant to a fixed schedule), and 

‘‘(ii) the plan does not permit the acceleration of the 

time such deferred compensation is paid by reason of 

any event. 

66

If the employer and employee agree to a modification of 

the plan that accelerates the time for payment of any deferred compensation, then all compensation previously deferred under the plan shall be includible in gross income 

for the taxable year during which such modification takes 

effect and the taxpayer shall pay interest at the underpayment rate on the underpayments that would have occurred had the deferred compensation been includible in 

gross income in the taxable years deferred. ‘‘(B) CREDITOR’S RIGHTS.—A plan shall be treated as failing to meet the requirements of paragraph (1)(B) with respect to amounts set aside in a trust unless— ‘‘(i) the employee has no beneficial interest in the 

trust, ‘‘(ii) assets in the trust are available to satisfy 

claims of general creditors at all times (not merely 

after bankruptcy or insolvency), and ‘‘(iii) there is no factor (such as the location of the 

trust outside the United States) that would make it 

more difficult for general creditors to reach the assets 

in the trust than it would be if the trust assets were 

held directly by the employer in the United States. ‘‘(c) CORPORATE INSIDER.—For purposes of this section, the term ‘corporate insider’ means, with respect to a corporation, any individual who is subject to the requirements of section 16(a) of the Securities Exchange Act of 1934 with respect to such corporation. ‘‘(d) OTHER DEFINITIONS.—For purposes of this section— ‘‘(1) PLAN INCLUDES ARRANGEMENTS, ETC.—The term ‘plan’ includes any agreement or arrangement. ‘‘(2) SUBSTANTIAL RISK OF FORFEITURE.—The rights of a person to compensation are subject to a substantial risk of forfeiture if such person’s rights to such compensation are conditioned upon the future performance of substantial services by 

any individual.’’ (b) CLERICAL AMENDMENT.—The table of sections for such subpart A is amended by adding at the end the following new item:

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

corporate insiders if corporation funds defined contribution plan with employer stock.’’

(b) EFFECTIVE DATE.—The amendments made by this section 

shall apply to amounts deferred after the date of the enactment of 

this Act.

SEC. 402. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS PROHIBITED. 

(a) PROHIBITION.—It shall be unlawful for any person who is directly or indirectly the beneficial owner of more than 10 percent of 

any class of any equity security (other than an exempted security) 

which is registered under section 12 of the Securities Exchange Act 

of 1934 (15 U.S.C. 78l) or who is a director or an officer of the 

issuer of such security, directly or indirectly, to purchase (or otherwise acquire) or sell (or otherwise transfer) any equity security of 

any issuer (other than an exempted security), during any blackout 

period with respect to such equity security. 

(b) REMEDY.—Any profit realized by such beneficial owner, director, or officer from any purchase (or other acquisition) or sale (or 

67

other transfer) in violation of this section shall inure to and be recoverable by the issuer irrespective of any intention on the part of 

such beneficial owner, director, or officer in entering into the transaction. Suit to recover such profit may be instituted at law or in 

equity in any court of competent jurisdiction by the issuer, or by 

the owner of any security of the issuer in the name and in behalf 

of the issuer if the issuer shall fail or refuse to bring such suit 

within 60 days after request or shall fail diligently to prosecute the 

same thereafter; but no such suit shall be brought more than 2 

years after the date such profit was realized. This subsection shall 

not be construed to cover any transaction where such beneficial 

owner was not such both at the time of the purchase and sale, or 

the sale and purchase, of the security or security-based swap (as 

defined in section 206B of the Gramm-Leach-Bliley Act) involved, 

or any transaction or transactions which the Commission by rules 

and regulations may exempt as not comprehended within the purposes of this subsection. 

(c) RULEMAKING PERMITTED.—The Commission may issue rules 

to clarify the application of this subsection, to ensure adequate notice to all persons affected by this subsection, and to prevent evasion thereof. 

(d) As used in this section: 

(1) BENEFICIAL OWNER.—The term ‘‘beneficial owner’’ has the 

meaning provided such term in rules or regulations issued by 

the Commission under section 16 of the Securities Exchange 

Act of 1934 (15 U.S.C. 78p). 

(2) BLACKOUT PERIOD.—The term ‘‘blackout period’’ with respect to the equity securities of any issuer— (A) means any period during which the ability of at least 

fifty percent of the participants or beneficiaries under all 

applicable individual account plans maintained by the 

issuer to purchase (or otherwise acquire) or sell (or otherwise transfer) an interest in any equity of such issuer is 

suspended by the issuer or a fiduciary of the plan; but 

(B) does not include—

(i) a period in which the employees of an issuer may 

not allocate their interests in the individual account 

plan due to an express investment restriction—

(I) incorporated into the individual account 

plan; and 

(II) timely disclosed to employees before joining 

the individual account plan or as a subsequent 

amendment to the plan; 

(ii) any suspension described in subparagraph (A) 

that is imposed solely in connection with persons becoming participants or beneficiaries, or ceasing to be 

participants or beneficiaries, in an applicable individual account plan by reason of a corporate merger, 

acquisition, divestiture, or similar transaction. 

(3) COMMISSION.—The term ‘‘Commission’’ means the Securities and Exchange Commission. 

(4) INDIVIDUAL ACCOUNT PLAN.—The term ‘‘individual account plan’’ has the meaning provided such term in section 

3(34) of the Employee Retirement Income Security Act of 1974 

(29 U.S.C. 1002(34)).

68

(5) ISSUER.—The term ‘‘issuer’’ shall have the meaning set 

forth in section 2(a)(4) of the Securities Act of 1933 (15 U.S.C. 

77b(a)(4)). 

TITLE V—INCREASED ACCOUNTABILITY 

SEC. 501. BONDING OR INSURANCE ADEQUATE TO PROTECT INTEREST OF PARTICIPANTS AND BENEFICIARIES. 

Section 412 of the Employee Retirement Income Security Act of 

1974 (29 U.S.C. 1112) is amended by adding at the end the following new subsection: ‘‘(f) Notwithstanding the preceding provisions of this section, 

each fiduciary of an individual account plan shall be bonded or insured, in accordance with regulations which shall be prescribed by 

the Secretary, in an amount sufficient to ensure coverage by the 

bond or insurance of financial losses due to any failure to meet the 

requirements of this part.’’. 

SEC. 502. LIABILITY FOR BREACH OF FIDUCIARY DUTY. 

(a) LIABILITY FOR PARTICIPATING IN OR CONCEALING FIDUCIARY

BREACH.—

(1) APPLICATION TO PARTICIPANTS AND BENEFICIARIES OF

401(k) PLANS.—

(A) IN GENERAL.—Part 4 of subtitle B of title I of the 

Employee Retirement Income Security Act of 1974 (29 

U.S.C. 1101 et seq.) is amended by adding after section 

409 the following new section: 

‘‘SEC. 409A. LIABILITY FOR BREACH OF FIDUCIARY DUTY IN 401(k) 

PLANS. 

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

account plan that includes a qualified cash or deferred arrangement under section 401(k) of the Internal Revenue Code of 1986 

who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this title shall be personally liable to 

make good to each participant and beneficiary of the plan any 

losses to such participant or beneficiary resulting from each such 

breach, and to restore to such participant or beneficiary any profits 

of such fiduciary which have been made through use of assets of 

the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. A fiduciary may also be removed for 

a violation of section 411 of this Act. 

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

(a) to sue for breach of fiduciary duty with respect to an individual 

account plan that includes a qualified cash or deferred arrangement under section 401(k) of such Code shall be in addition to all 

existing rights that participants and beneficiaries have under section 409, section 502, and any other provision of this title, and 

shall not be construed to give rise to any inference that such rights 

do not already exist under section 409, section 502, or any other 

provision of this title. 

‘‘(c) No fiduciary shall be liable with respect to a breach of fiduciary duty under this title if such breach was committed before he 

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

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(B) CONFORMING AMENDMENT.—The table of contents for 

part 4 of subtitle B of title I of such Act is amended by inserting the following new item after the item relating to 

section 409:

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

(2) INSIDER LIABILITY.—

(A) IN GENERAL.—Section 409 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1109) is 

amended by redesignating subsection (b) as subsection (c) 

and by inserting after subsection (a) the following new 

subsection: 

‘‘(b)(1)(A) If an insider with respect to the plan sponsor of an employer individual account plan that holds employer securities that 

are readily tradable on an established securities market—

‘‘(i) knowingly participates in a breach of fiduciary responsibility to which subsection (a) applies, or 

‘‘(ii) knowingly undertakes to conceal such a breach, 

such insider shall be personally liable under this subsection for 

such breach in the same manner as the fiduciary who commits 

such breach. 

‘‘(B) For purposes of subparagraph (A), the term ‘insider’ means, 

with respect to any plan sponsor of a plan to which subparagraph 

(A) applies—

‘‘(i) any officer or director with respect to the plan sponsor, 

or 

‘‘(ii) any independent qualified public accountant of the plan 

or of the plan sponsor. 

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

‘‘(A) to an individual account plan shall inure to the individual accounts of the affected participants or beneficiaries, 

and 

‘‘(B) to a participant or beneficiary shall be payable to the individual account plan on behalf of such participant or beneficiary unless such plan has been terminated.’’

(B) CONFORMING AMENDMENT.—Section 409(c) of such 

Act (29 U.S.C. 1109(c)), as redesignated by subparagraph 

(A), is amended by inserting before the period the following: ‘‘, unless such liability arises under subsection 

(b)’’. 

(b) MAINTENANCE OF FIDUCIARY LIABILITY.—Section 404(c)(1)(B) 

of such Act (29 U.S.C. 1104(c)(1)(B)) is amended by inserting before 

the period the following: ‘‘, except that this subparagraph shall not 

be construed to exempt any fiduciary from liability for any violation 

of subsection (e) or (f)’’. 

SEC. 503. PRESERVATION OF RIGHTS OR CLAIMS. 

Section 502 of the Employee Retirement Income Security Act of 

1974 (29 U.S.C. 1132) is amended by adding at the end the following new subsection: 

‘‘(n)(1) The rights under this title (including the right to maintain 

a civil action) may not be waived, deferred, or lost pursuant to any 

agreement not authorized under this title with specific reference to 

this subsection. 

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

arbitration or participation in any other nonjudicial procedure to 

70

resolve a dispute if the agreement is entered into knowingly and 

voluntarily by the parties involved after the dispute has arisen or 

is pursuant to the terms of a collective bargaining agreement.’’. 

SEC. 504. OFFICE OF PENSION PARTICIPANT ADVOCACY. 

(a) IN GENERAL.—Title III of the Employee Retirement Income 

Security Act of 1974 (29 U.S.C. 3001 et seq.) is amended by adding 

at the end the following:

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

Labor an office to be known as the ‘Office of Pension Participant Advocacy’. 

‘‘(2) PENSION PARTICIPANT ADVOCATE.—The Office of Pension 

Participant Advocacy shall be under the supervision and direction of an official to be known as the ‘Pension Participant Advocate’ who shall—

‘‘(A) have demonstrated experience in the area of pension participant assistance, and 

‘‘(B) be selected by the Secretary after consultation with 

pension participant advocacy organizations. 

The Pension Participant Advocate shall report directly to the 

Secretary and shall be entitled to compensation at the same 

rate as the highest rate of basic pay established for the Senior 

Executive Service under section 5382 of title 5, United States 

Code. 

‘‘(b) FUNCTIONS OF OFFICE.—It shall be the function of the Office 

of Pension Participant Advocacy to—

‘‘(1) evaluate the efforts of the Federal Government, business, and financial, professional, retiree, labor, women’s, and 

other appropriate organizations in assisting and protecting 

pension plan participants, including—

‘‘(A) serving as a focal point for, and actively seeking out, 

the receipt of information with respect to the policies and 

activities of the Federal Government, business, and such 

organizations which affect such participants, 

‘‘(B) identifying significant problems for pension plan 

participants and the capabilities of the Federal Government, business, and such organizations to address such 

problems, and 

‘‘(C) developing proposals for changes in such policies 

and activities to correct such problems, and communicating such changes to the appropriate officials, 

‘‘(2) promote the expansion of pension plan coverage and the 

receipt of promised benefits by increasing the awareness of the 

general public of the value of pension plans and by protecting 

the rights of pension plan participants, including—

‘‘(A) enlisting the cooperation of the public and private 

sectors in disseminating information, and 

‘‘(B) forming private-public partnerships and other efforts to assist pension plan participants in receiving their 

benefits, 

‘‘(3) advocating for the full attainment of the rights of pension plan participants, including by making pension plan sponsors and fiduciaries aware of their responsibilities, 

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

income participants, 

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‘‘(5) developing needed information with respect to pension 

plans, including information on the types of existing pension 

plans, levels of employer and employee contributions, vesting 

status, accumulated benefits, benefits received, and forms of 

benefits, and ‘‘(6) pursuing claims on behalf of participants and beneficiaries and providing appropriate assistance in the resolution 

of disputes between participants and beneficiaries and pension 

plans, including assistance in obtaining settlement agreements. ‘‘(c) REPORTS.— ‘‘(1) ANNUAL REPORT.—Not later than December 31 of each 

calendar year, the Pension Participant Advocate shall report to 

the Committee on Education and the Workforce of the House 

of Representatives and the Committee on Health, Education, 

Labor, and Pensions of the Senate on its activities during the 

fiscal year ending in the calendar year. Such report shall— ‘‘(A) identify significant problems the Advocate has identified, ‘‘(B) include specific legislative and regulatory changes to 

address the problems, and ‘‘(C) identify any actions taken to correct problems identified in any previous report. 

The Advocate shall submit a copy of such report to the Secretary and any other appropriate official at the same time it 

is submitted to the committees of Congress. ‘‘(2) SPECIFIC REPORTS.—The Pension Participant Advocate 

shall report to the Secretary or any other appropriate official 

any time the Advocate identifies a problem which may be corrected by the Secretary or such official. ‘‘(3) REPORTS TO BE SUBMITTED DIRECTLY.—The report required under paragraph (1) shall be provided directly to the 

committees of Congress without any prior review or comment 

than the Secretary or any other Federal officer or employee. ‘‘(d) SPECIFIC POWERS.—

‘‘(1) RECEIPT OF INFORMATION.—Subject to such confidentiality requirements as may be appropriate, the Secretary and 

other Federal officials shall, upon request, provide such information (including plan documents) as may be necessary to enable the Pension Participant Advocate to carry out the Advocate’s responsibilities under this section. ‘‘(2) APPEARANCES.—The Pension Participant Advocate may 

represent the views and interests of pension plan participants 

before any Federal agency, including, upon request of a participant, in any proceeding involving the participant. 

‘‘(3) CONTRACTING AUTHORITY.—In carrying out responsibilities under subsection (b)(5), the Pension Participant Advocate 

may, in addition to any other authority provided by law—

‘‘(A) contract with any person to acquire statistical information with respect to pension plan participants, and ‘‘(B) conduct direct surveys of pension plan participants.’’ (b) CONFORMING AMENDMENT.—The table of contents for title III 

of such Act is amended by adding at the end the following:

‘‘Subtitle C—Office of Pension Participant Advocacy 

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

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(c) EFFECTIVE DATE.—The amendment made by this section shall

take effect on January 1, 2003.

SEC. 505. ADDITIONAL CRIMINAL PENALTIES.

Section 501 of the Employee Retirement Income Security Act of

1974 (29 U.S.C. 1131) is amended—

(1) by inserting ‘‘(a)’’ after ‘‘SEC. 501.’’;

(2) by striking ‘‘$5,000’’ and inserting ‘‘$50,000’’ and by striking ‘‘$100,000’’ and inserting ‘‘$500,000’’; and

(3) by adding at the end the following new subsection:

‘‘(b) Any person described in subsection (a) of 402 of the Employee Pension Freedom Act of 2002 who willfully violates such section or section 104(d) or causes an individual account plan to fail

to meet the requirements of section 409A of the Internal Revenue

Code of 1986 shall upon conviction be fined not more than $500,000

or imprisoned not more than one year, or both.’’.

SEC. 506. STUDY REGARDING INSURANCE SYSTEM FOR INDIVIDUAL

ACCOUNT PLANS.

(a) STUDY.—As soon as practicable after the date of the enactment of this Act, the Pension Benefit Guaranty Corporation shall

contract to carry out a study relating to the establishment of an insurance system for individual account plans. In conducting such

study, the Corporation shall consider—

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

(2) options for developing such a system.

(b) REPORT.—Not later than 3 years after the date of the enactment of this Act, the Corporation shall report the results of its

study, together with any recommendations for legislative changes,

to the Committee on Education and the Workforce and the Committee on Ways and Means of the House of Representatives and

the Committee on Health, Education, Labor, and Pensions and the

Committee on Finance of the Senate.

TITLE VI—INVESTMENT ADVICE FOR

PARTICIPANTS AND BENEFICIARIES

SEC. 601. INDEPENDENT INVESTMENT ADVICE.

(a) IN GENERAL.—Section 404(c)(1) of the Employee Retirement

Income Security Act of 1974 (29 U.S.C. 1104(c)(1)) (as amended by

section 102(c)) is amended further—

(1) by redesignating subparagraphs (A) and (B) as clauses (i)

and (ii), respectively, and by inserting ‘‘(A)’’ after ‘‘(c)(1)’’; and

(2) by adding at the end the following new subparagraphs:

‘‘(B)(i) In the case of a pension plan described in subparagraph

(A) which provides investment in employer securities as at least

one option for investment of plan assets at the direction of the participant or beneficiary, such plan shall make available to the participant or beneficiary the services of a qualified fiduciary adviser

for purposes of providing investment advice described in section

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

‘‘(ii) No person who is otherwise a fiduciary shall be liable by reason of any investment advice provided by a qualified fiduciary adviser pursuant to a request under clause (i) if—

73

‘‘(I) the plan provides for selection and monitoring of such 

adviser in a prudent and effective manner, and ‘‘(II) such adviser is a named fiduciary under the plan in connection with the provision of such advice. ‘‘(C) For purposes of subparagraph (B)— ‘‘(i) The term ‘qualified fiduciary adviser’ means, with respect 

to a plan, a person who— ‘‘(I) is a fiduciary of the plan by reason of the provision 

of qualified investment advice by such person to a participant or beneficiary, ‘‘(II) has no material interest in, and no material affiliation or contractual relationship with any third party having a material interest in, the security or other property 

with respect to which the person is providing the advice, ‘‘(III) meets the qualifications of clause (ii), and 

‘‘(IV) meets the additional requirements of clause (iii). ‘‘(ii) A person meets the qualifications of this subparagraph 

if such person— ‘‘(I) is registered as an investment adviser under the 

Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et 

seq.), ‘‘(II) if not registered as an investment adviser 

under such Act by reason of section 203A(a)(1) of such 

Act (15 U.S.C. 80b–3a(a)(1)), is registered under the 

laws of the State in which the fiduciary maintains its 

principal office and place of business, and, at the time 

the fiduciary last filed the registration form most recently filed by the fiduciary with such State in order 

to maintain the fiduciary’s registration under the laws 

of such State, also filed a copy of such form with the 

Secretary, ‘‘(III) is registered as a broker or dealer under the 

Securities Exchange Act of 1934 (15 U.S.C. 78a et 

seq.), 

‘‘(IV) is a bank or similar financial institution referred to in section 408(b)(4), 

‘‘(V) is an insurance company qualified to do business under the laws of a State, or 

‘‘(VI) is any other comparable entity which satisfies 

such criteria as the Secretary determines appropriate. 

‘‘(iii) A person meets the additional requirements of this 

clause if every individual who is employed (or otherwise 

compensated) by such person and whose scope of duties includes the provision of qualified investment advice on behalf of such person to any participant or beneficiary is—

‘‘(I) a registered representative of such person, 

‘‘(II) an individual described in subclause (I), (II), or 

(III) of clause (i), or 

‘‘(III) such other comparable qualified individual as 

may be designated in regulations of the Secretary.’’. 

(b) MAINTENANCE OF FIDUCIARY LIABILITY.—Section 404(c)(1)(B) 

of such Act (29 U.S.C. 1104(c)(1)(B)) is amended by inserting before 

the period the following: ‘‘, except that this subparagraph shall not 

be construed to exempt any fiduciary from liability for any violation 

of this section’’. 

74

SEC. 602. TAX TREATMENT OF QUALIFIED RETIREMENT PLANNING 

SERVICES. 

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

Revenue Code of 1986 (defining qualified retirement services) is 

amended by adding at the end the following new paragraph: 

‘‘(4) NO CONSTRUCTIVE RECEIPT.—No amount shall be included in the gross income of any employee solely because the 

employee may choose between any qualified retirement planning services provided by a qualified investment advisor and 

compensation which would otherwise be includible in the gross 

income of such employee. The preceding sentence shall apply 

to highly compensated employees only if the choice described 

in such sentence is available on substantially the same terms 

to each member of the group of employees normally provided 

education and information regarding the employer’s qualified 

employer plan.’’. 

(b) CONFORMING AMENDMENTS.—

(1) Section 403(b)(3)(B) of such Code is amended by inserting 

‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

(2) Section 414(s)(2) of such Code is amended by inserting 

‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

(3) Section 415(c)(3)(D)(ii) of such Code is amended by inserting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

(c) EFFECTIVE DATE.—The amendment made by this section shall 

apply to taxable years beginning after December 31, 2002. 

TITLE VII—GENERAL PROVISIONS 

SEC. 701. GENERAL EFFECTIVE DATE. 

(a) IN GENERAL.—Except as otherwise provided in this Act, the 

amendments made by this Act shall apply with respect to plan 

years beginning on or after January 1, 2003. 

(b) SPECIAL RULE FOR COLLECTIVELY BARGAINED PLANS.—In the 

case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or 

more employers ratified on or before the date of the enactment of 

this Act, subsection (a) shall be applied to benefits pursuant to, and 

individuals covered by, any such agreement by substituting for 

‘‘January 1, 2003’’ the date of the commencement of the first plan 

year beginning on or after the earlier of—

(1) the later of—

(A) January 1, 2004, or 

(B) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after the date of the enactment of this Act), or 

(2) January 1, 2005. 

SEC. 702. PLAN AMENDMENTS. 

If any amendment made by this Act requires an amendment to 

any plan, such plan amendment shall not be required to be made 

before the first plan year beginning on or after the effective date 

specified in section 601, if—

(1) during the period after such amendment made by this 

Act takes effect and before such first plan year, the plan is opVerDate Jan 17 2002 04:22 Apr 11, 2002 Jkt 099008 PO 00000 Frm 00074 Fmt 6659 Sfmt 6602 E:\HR\OC\HR396.XXX pfrm03 PsN: HR396
75

erated in accordance with the requirements of such amendment made by this Act, and 

(2) such plan amendment applies retroactively to the period 

after such amendment made by this Act takes effect and before 

such first plan year.

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