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[House Report 107-382]
[From the U.S. Government Publishing Office]

107th Congress                                            Rept. 107-382
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

======================================================================

 
               EMPLOYEE RETIREMENT SAVINGS BILL OF RIGHTS

                                _______
                                

                 March 20, 2002.--Ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 3669]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3669) to amend the Internal Revenue Code of 1986 to 
empower employees to control their retirement savings accounts 
through new diversification rights, new disclosure 
requirements, and new tax incentives for retirement education, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background..........................................16
          A. Purpose and Summary.................................    16
          B. Background and Need for Legislation.................    19
          C. Legislative History.................................    19
 II. Explanation of the Bill.........................................20
     Title I: Defined Contribution Plan Protections..................20
          A. Excise Tax on Failure to Provide Investment 
              Education Notices to Participants (sec. 101 of the 
              bill and new Code sec. 4980G)......................    20
          B. Excise Tax on Failure to Provide Notice to 
              Participants of Transaction Restriction Periods 
              (sec. 102 of the bill and new sec. 4980H of the 
              Code)..............................................    21
          C. Diversification Requirements for Defined 
              Contribution Plans that Hold Employer Securities 
              (sec. 103 of the bill and new sec. 401(a)(35) of 
              the Code)..........................................    24
          D. Employer-Provided Qualified Retirement Planning 
              Services (sec. 104 of the bill and sec. 132 of the 
              Code)..............................................    28
          E. Special Rules (sec. 105 of the bill)................    30
     Title II: Other Tax Provisions Relating to Pensions.............30
          A. Amendments to Retirement Protection Act of 1994 
              (sec. 201 of the bill and sec. 412 of the Code)....    30
          B. Pension Plan Reporting Simplification (sec. 202 of 
              the bill)..........................................    32
          C. Improvement of Employee Plans Compliance Resolution 
              System (sec. 203 of the bill)......................    33
          D. Flexibility in Nondiscrimination, Coverage, and Line 
              of Business Rules (sec. 204 of the bill and secs. 
              401(a)(4), 410(b) and 414(r) of the Code)..........    35
          E. Extension to all Governmental Plans of Moratorium on 
              Application of Certain Nondiscrimination Rules 
              Applicable to State and Local Government Plans 
              (sec. 205 of the bill, sec. 1505 of the Taxpayer 
              Relief Act of 1997, and secs. 401(a) and 401(k) of 
              the Code)..........................................    36
          F. Notice and Consent Period Regarding Distributions 
              (sec. 206 of the bill and sec. 417 of the Code)....    37
          G. Reduced PBGC Premiums for Small and New Plans (secs. 
              207-208 of the bill and sec. 4006 of ERISA)........    38
          H. Authorization for PBGC to Pay Interest on Premium 
              Overpayment Refunds (sec. 209 of the bill and sec. 
              4007(b) of ERISA)..................................    40
          I. Rules for Substantial Owner Benefits in Terminated 
              Plans (sec. 210 of the bill and secs. 4021, 4022, 
              4043 and 4044 of ERISA)............................    40
          J. Studies (sec. 211 of the bill)......................    41
          K. Interest Rate Range for Additional Funding 
              Requirements (sec. 212 of the bill and sec. 412(l) 
              of the Code).......................................    42
          L. Provisions Relating to Plan Amendments (sec. 213 of 
              the bill)..........................................    45
     Title III: Stock Options........................................46
          A. Exclusion of Incentive Stock Options and Employee 
              Stock Purchase Plan Stock Options from Wages (sec. 
              301 of the bill and secs. 421(b), 423(c), 3121(a), 
              3231, and 3306(b) of the Code).....................    46
     Title IV: Social Security Held Harmless.........................49
          A. No Impact on Social Security and Medicare Trust 
              Funds (sec. 401 of the bill).......................    49
III. Votes of the Committee..........................................49
 IV. Budget Effects of the Bill......................................51
          A. Committee Estimate of Budgetary Effects.............    51
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    54
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    54
  V. Other Matters To Be Discussed Under the Rules of the House......57
          A. Committee Oversight Findings and Recommendations....    57
          B. Statement of General Performance Goals and 
              Objectives.........................................    57
          C. Constitutional Authority Statement..................    57
          D. Information Relating to Unfunded Mandates...........    57
          E. Applicability of House Rule XXI 5(b)................    58
          F. Tax Complexity Analysis.............................    58
 VI. Changes in Existing Law Made by the Bill, as Reported...........58
VII. Additional Views................................................83

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Employee Retirement 
Savings Bill of Rights''.
  (b) Table of Contents.--

Sec. 1. Short title; table of contents.

             TITLE I--DEFINED CONTRIBUTION PLAN PROTECTIONS

Sec. 101. Excise tax on failure of pension plans to provide investment 
education notices to participants.
Sec. 102. Excise tax on failure of pension plans to provide notice of 
transaction restriction periods.
Sec. 103. Diversification requirements for defined contribution plans 
that hold employer securities.
Sec. 104. Treatment of qualified retirement planning services.
Sec. 105. Special rules.

          TITLE II--OTHER TAX 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. Reduced PBGC premium for new plans of small employers.
Sec. 208. Reduction of additional PBGC premium for new and small plans.
Sec. 209. Authorization for PBGC to pay interest on premium overpayment 
refunds.
Sec. 210. Substantial owner benefits in terminated plans.
Sec. 211. Studies.
Sec. 212. Interest rate range for additional funding requirements.
Sec. 213. 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.

             TITLE I--DEFINED CONTRIBUTION PLAN PROTECTIONS

SEC. 101. EXCISE TAX ON FAILURE OF PENSION PLANS TO PROVIDE INVESTMENT 
                    EDUCATION NOTICES TO PARTICIPANTS.

  (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. 4980G. FAILURE OF APPLICABLE PLANS TO PROVIDE INVESTMENT 
                    EDUCATION NOTICES TO PARTICIPANTS.

  ``(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 within 30 
        days.--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) during the 30-day period beginning on 
                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) Notice Regarding Investment Education.--
          ``(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 quarterly 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 to the extent that such form 
        is reasonably accessible to the applicable individual.
  ``(f) Definitions.--For purposes of this section--
          ``(1) Applicable individual.--The term `applicable 
        individual' means--
                  ``(A) any participant in the applicable pension plan,
                  ``(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.--The term `applicable pension 
        plan' means--
                  ``(A) a plan described in clause (i), (ii), or (iv) 
                of section 219(g)(5)(A), and
                  ``(B) 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.
          ``(3) One-participant retirement plan defined.--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),
                  ``(B) 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,
                  ``(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.''.
  (b) 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 applicable 
                                        plans to provide investment 
                                        education notices to 
                                        participants.''.
  (c) Effective Dates.--
          (1) In general.--The amendments made by this section shall 
        apply with respect to plan years beginning after December 31, 
        2002.
          (2) Model investment principles.--Not later than the earlier 
        of January 1, 2003, or 120 days after the date of the enactment 
        of this Act, the Secretary of the Treasury, in consultation 
        with the Secretary of Labor, shall issue guidance and model 
        notices which meet the requirements of section 4980G of the 
        Internal Revenue Code of 1986 (as added by this section).

SEC. 102. 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) 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) 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 
                subparagraphs (B) and (C), 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 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.
                  ``(C) Exception for unforeseeable events.--In the 
                case of a transaction restriction period resulting from 
                the occurrence of an unforeseeable event, such notice 
                shall be provided as soon as reasonably practicable 
                after the occurrence of such event.
          ``(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 a temporary or indefinite period of at 
                least 3 consecutive days during which rights otherwise 
                provided under the plan to 1 or more applicable 
                individuals to direct investments in the applicable 
                pension plan, obtain loans from such plan, or obtain 
                distributions from such plan are substantially reduced 
                (other than by reason of the application of securities 
                laws or other circumstances specified by the Secretary 
                in regulations). In determining consecutive days, days 
                on which such rights are not normally available shall 
                be disregarded.
                  ``(B) Special rule for employer securities.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), rights shall be treated as 
                        substantially reduced with respect to directing 
                        investments out of employer securities if 
                        rights in effect 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.
          ``(4) Employer securities.--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.''.
  (b) 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.''.

  (c) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2002.
          (2) 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. DIVERSIFICATION REQUIREMENTS FOR DEFINED CONTRIBUTION PLANS 
                    THAT HOLD EMPLOYER SECURITIES.

  (a) In General.--Subsection (a) of section 401 of the Internal 
Revenue Code of 1986 (relating to requirements for qualification) is 
amended by adding at the end the following new paragraph:
          ``(35) Diversification requirements for defined contribution 
        plans that hold employer securities.--
                  ``(A) In general.--In the case of a defined 
                contribution plan described in this subsection that 
                includes a trust which is exempt from tax under section 
                501(a) and which holds employer securities that are 
                readily tradable on an established securities market, 
                such trust shall not constitute a qualified trust under 
                this section unless such plan meets the requirements of 
                subparagraphs (B), (C), and (D).
                  ``(B) Elective deferrals and employee contributions 
                invested in employer securities.--In the case of the 
                portion of the account attributable to elective 
                deferrals and employee contributions which is invested 
                in employer securities, a plan meets the requirements 
                of this subparagraph if each applicable individual in 
                such plan may elect to direct the plan to divest up to 
                the applicable percentage of such securities in the 
                individual's account and to reinvest an equivalent 
                amount in other investment options which meet the 
                requirements of subparagraph (E).
                  ``(C) Matching and certain other contributions.--
                          ``(i) In general.--In the case of the portion 
                        of the account attributable to contributions to 
                        which this subparagraph applies and which is 
                        invested in employer securities, a plan meets 
                        the requirements of this subparagraph if each 
                        applicable 3-year individual in the plan may 
                        elect to direct the plan to divest up to the 
                        applicable percentage of such securities in the 
                        individual's account and to reinvest an 
                        equivalent amount in other investment options 
                        which meet the requirements of subparagraph 
                        (E).
                          ``(ii) Contributions to which this 
                        subparagraph applies.--This subparagraph shall 
                        apply to--
                                  ``(I) matching contributions (as 
                                defined in subsection (m)(4)(A)),
                                  ``(II) qualified nonelective 
                                contributions (as defined in subsection 
                                (m)(4)(C)), and
                                  ``(III) contributions made in order 
                                to meet the requirements of subsection 
                                (k)(12)(C).
                          ``(iii) Applicable 3-year individual.--For 
                        purposes of clause (i), the term `applicable 3-
                        year individual' means any individual who 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 (G)(i)(I).
                  ``(D) Other employer contributions.--
                          ``(i) In general.--In the case of the portion 
                        of the account attributable to employer 
                        contributions (other than contributions to 
                        which subparagraph (B) or (C) applies) which is 
                        invested in employer securities, a plan meets 
                        the requirements of this subparagraph if each 
                        applicable 5-year individual described in 
                        clause (ii) may elect to direct the plan to 
                        divest up to the applicable percentage of such 
                        securities in the individual's account and to 
                        reinvest an equivalent amount in other 
                        investment options which meet the requirements 
                        of subparagraph (E).
                          ``(ii) Applicable 5-year individual.--For 
                        purposes of clause (i), the term `5-year 
                        individual' means any individual who would be 
                        an applicable individual if only participants 
                        in the plan who have completed at least 5 years 
                        of service (as determined under section 411(a)) 
                        were taken into account under subparagraph 
                        (G)(i)(I).
                  ``(E) Investment options.--The requirements of this 
                subparagraph are met if the plan offers not less than 3 
                investment options (not inconsistent with regulations 
                prescribed by the Secretary) other than employer 
                securities.
                  ``(F) Election.--Elections under this paragraph may 
                be made not less frequently than quarterly.
                  ``(G) Other definitions and rules.--For purposes of 
                this paragraph--
                          ``(i) Applicable individual.--The term 
                        `applicable individual' means--
                                  ``(I) any participant in the plan,
                                  ``(II) any beneficiary who is an 
                                alternate payee (within the meaning of 
                                section 414(p)(8)) under an applicable 
                                qualified domestic relations order 
                                (within the meaning of section 
                                414(p)(1)(A)), and
                                  ``(III) any beneficiary of a deceased 
                                participant or alternate payee.
                          ``(ii) Elective deferrals.--The term 
                        `elective deferrals' means an employer 
                        contribution described in section 402(g)(3)(A).
                          ``(iii) Employer securities.--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.
                          ``(iv) Employee stock ownership plan.--The 
                        term `employee stock ownership plan' shall have 
                        the same meaning given to such term by section 
                        4975(e)(7).
                          ``(v) Applicable percentage.--
                                  ``(I) In general.--The applicable 
                                percentage shall be as follows:
                    ``Plan years                             Applicable
                    beginning in:                           percentage:

                            2003.....................              20  
                            2004.....................              40  
                            2005.....................              60  
                            2006.....................              80  
                            2007 or thereafter.......            100.  
                                  ``(II) Elective deferrals treated as 
                                separate plan not individual account 
                                plan.--In the case of elective 
                                deferrals and employee contributions 
                                (and any earnings allocable thereto) 
                                held within a plan treated as a 
                                separate plan as of the date of the 
                                enactment of this paragraph under 
                                section 407(b)(2) of the Employee 
                                Retirement Income Security Act of 1974, 
                                for purposes of subparagraph (B) the 
                                applicable percentage shall be 100 
                                percent.
                                  ``(III) 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 years 2003 and 2004, the 
                                applicable percentage shall be the 
                                greater of the amount determined under 
                                subclause (I) or the percentage 
                                determined under paragraph (28) 
                                (determined as if paragraph (28) 
                                applied to a plan described in this 
                                paragraph).
                          ``(vi) Coordination with paragraph (28).--
                        Subparagraphs (B), (C), and (D) shall apply to 
                        the extent that the amount attributable to the 
                        applicable percentage under such subparagraph 
                        exceeds the amount to which a prior election 
                        under such subparagraph or paragraph (28) 
                        applies.
                  ``(H) Exception for certain esops.--This paragraph 
                shall apply to an employee stock ownership plan only if 
                the plan holds amounts attributable to deferrals or 
                contributions to which subparagraph (B) or (C) 
                apply.''.
  (b) Conforming Amendments.--
          (1) 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.''.
          (2) Section 409(h)(7) of such Code is amended by inserting 
        before the period at the end ``or subparagraph (B), (C), or (D) 
        of section 401(a)(35)''.
          (3) 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), the 
        amendments made by this section shall apply to plan years 
        beginning after December 31, 2002.
          (2) Exception.--The amendments made by this section shall not 
        apply to employer securities held by an employee stock 
        ownership plan which are not subject to section 401(a)(28) of 
        the Internal Revenue Code of 1986 by reason of section 
        1175(a)(2) of the Tax Reform Act of 1986 (100 Stat. 2519).

SEC. 104. 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.

SEC. 105. SPECIAL RULES.

  (a) 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, the amendments made by 
this title shall not apply to plan years beginning before 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.
  (b) Plan Amendments.--If the amendments made by this title 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 this 
        title take effect and before such first plan year, the plan is 
        operated in accordance with the requirements of such amendments 
        made by this title, and
          (2) such plan amendment applies retroactively to the period 
        after such amendments made by this Act take effect and before 
        such first plan year.

          TITLE II--OTHER TAX 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, 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, the funded current liability 
                percentage for any plan year shall be treated as not 
                less than 100 percent.''.
  (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);
                  (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 
        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.

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) Effective date.--The amendment made by paragraph (1)(A) 
        and the modifications required by paragraph (1)(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 
        Revenue Code of 1986 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 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. 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 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 established after December 31, 2001.

SEC. 208. 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 207(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 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 established after December 31, 2001.
          (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to plan years beginning after December 31, 2002.

SEC. 209. 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. 210. 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:
          ``(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. 211. 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 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 middle-
        income 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. 212. 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) 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. 213. 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 for purposes of the 
        Internal Revenue Code of 1986 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 by reason of 
        such amendment.
  (b) Amendments to Which Section Applies.--
          (1) In general.--This section shall apply to any amendment to 
        any plan or annuity contract which is made--
                  (A) pursuant to any amendment made by this 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 
                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.''.
          (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.

                       I. SUMMARY AND BACKGROUND

                         A. Purpose and Summary

                                purpose

    The bill, H.R. 3669, as amended (the ``Employee Retirement 
Savings Bill of Rights''), provides for (1) new protections for 
participants in retirement plans and new tax incentives for 
retirement education (Title I), (2) reducing regulatory burdens 
with respect to retirement plans (Title II), (3) exclusions 
from wages with respect to incentive stock options and employee 
stock purchase plans (Title III), and (4) holding social 
security trust funds harmless (Title IV).
    The bill provides net tax reductions of over $10 billion 
over fiscal years 2002-2007. The bill will provide strengthened 
retirement income security and certainty in the employment tax 
treatment of incentive stock options and employee stock 
purchase plans.

                                summary

I. Defined contribution plan protections

    Excise tax on failure to provide investment education 
notice.--In the case of a plan that permits a participant to 
direct the investment of his or her account, or a plan under 
which a participant's accrued benefit depends on hypothetical 
investments directed by the participant, the bill requires that 
participants and certain beneficiaries be provided with 
investment education notices on a quarterly basis and on 
enrollment in the plan. An excise tax of $100 per individual 
applies in the case of a failure to provide the required 
notice.
    Excise tax on failure to provide notice of transaction 
restriction periods.--In the case of a plan that maintains 
accounts for participants, or a plan under which a 
participant's accrued benefit depends on hypothetical 
investments directed by the participant, the bill requires that 
participants and certain beneficiaries be provided with 30 days 
advance notice of a transaction restriction period. A 
transaction restriction period generally means a temporary or 
indefinite period of at least three consecutive days during 
which the rights otherwise provided under the plan to direct 
investments, or obtain loans or distributions from the plan, 
are substantially reduced. An excise tax of $100 per individual 
applies in the case of a failure to provide the required 
notice.
    Diversification requirements for defined contribution plans 
holding employer securities.--The bill requires a defined 
contribution plan that holds publicly-traded employer 
securities to permit certain participants and beneficiaries at 
least quarterly to direct that the applicable percentage of 
employer securities in their accounts be invested in 
alternative investments. The participants and beneficiaries who 
must be permitted to diversify and the applicable percentage 
depend on the type of contribution involved. The 
diversification requirement does not apply to an ESOP unless 
the ESOP holds elective deferrals, employee after-tax 
contributions, matching contributions, or other contributions 
used to satisfy the special nondiscrimination tests for 
elective deferrals (i.e., qualified nonelective contributions 
and nonelective contributions under safe harbor plans).
    Treatment of qualified retirement planning services.--The 
bill permits employers to offer employees a choice between cash 
compensation and qualified retirement planning services 
provided by a qualified investment advisor. As a result, such 
qualified retirement planning services may be provided on a 
salary-reduction basis.
    Special rules.--The bill provides a delayed effective date 
for collectively bargained plans for the provisions of the bill 
relating to notices and diversification. In addition, if an 
employer-sponsored retirement plan must be amended as a result 
of the bill, the amendment is not required to be made before 
the first plan year beginning on or after January 1, 2005, 
provided certain requirements are met.

II. Other tax provisions relating to pensions

    Amendments to Retirement Protection Act of 1994.--The bill 
modifies the special funding rule under the Retirement 
Protection Act of 1994 for plans sponsored by a company engaged 
primarily in interurban or interstate passenger bus service by 
making the rule permanent and treating the plan as meeting 
certain levels of funded.
    Pension plan reporting simplification.--The bill directs 
the Secretary of the Treasury to provide an exemption from the 
annual return requirement for a plan that covers only the sole 
owner of a business that maintains the plan (and such owner's 
spouse), or partners in a partnership that maintains the plan 
(and such partners' spouses), if the total value of the plan 
assets as of the end of the plan year does not exceed $250,000 
and the plan meets certain other requirements. In addition, the 
Secretary of the Treasury and the Secretary of Labor are 
directed to provide simplified reporting requirements for plans 
with fewer than 25 employees.
    Improvement of Employee Plans Compliance Resolution 
System.--The bill directs the Secretary of the Treasury to 
continue to update and improve EPCRS, giving special attention 
to (1) increasing the awareness and knowledge of small 
employers concerning the availability and use of EPCRS, (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 SCP for significant compliance 
failures, (4) expanding the availability to correct 
insignificant compliance failures under SCP 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 bill also clarifies the scope of the 
Secretary's authority with respect to EPCRS.
    Flexibility in nondiscrimination, coverage, and line of 
business rules.--The bill directs the Secretary of the Treasury 
to modify the regulations dealing with line of business, 
nondiscrimination, and minimum coverage, so that plans may use 
facts and circumstances and prior-law tests to satisfy these 
rules.
    Extension to all governmental plans of moratorium on 
application of certain nondiscrimination rules applicable to 
State and local government plans.--Under the bill, a plan 
maintained by any governmental entity is exempt from the 
nondiscrimination and minimum participation rules.
    Notice and consent period regarding distributions.--Under 
the bill, a qualified retirement plan is required to provide 
the applicable distribution notice no less than 30 days and no 
more than 180 days before the date distribution commences. The 
Secretary of the Treasury is directed to modify the applicable 
regulations to reflect the extension of the notice period to 
180 days and 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.
    Reduced PBGC premiums for small and new plans.--Under the 
bill the flat-rate PBGC premium is $5 per plan participant for 
the first five years of a new single-employer plan of an 
employer with 100 or fewer employees. The bill also provides 
that, for a new defined benefit plan, the variable-rate premium 
is phased in over a six-year period and, for a plan maintained 
by an employer with 25 or fewer employees, the variable-rate 
premium is no more than $5 multiplied by the number of plan 
participants at the end of the preceding year.
    Authorization for PBGC to pay interest on premium 
overpayment refunds.--The bill allows the PBGC to pay interest 
on overpayments made by premium payors.
    Rules for substantial owner benefits in terminated plans.--
The bill reduces the phase-in periods for guaranteed benefits 
for a 10-percent or more owner (``substantial owner'') in the 
case of plan termination. The bill also applies the allocation 
of asset rules to a substantial owner with less than 50 percent 
ownership in the same manner as other participants.
    Studies.--The bill directs the Secretary of Labor to 
conduct studies regarding (1) possible new pension plan 
structures (and changes to existing structures) to improve 
pension plan coverage and (2) the effect of the bill and title 
VI of the Economic Growth and Tax Relief Reconciliation Act of 
2001 on pension coverage.
    Interest rate range for additional funding requirements.--
The bill expands the special interest rate rule for determining 
additional plan contributions for 2002 and 2003 under section 
405 of the Job Creation and Worker Assistance Act of 2002. 
Under the bill, the special rule applies in determining the 
amount of additional contributions for plan years beginning in 
2001 to the extent of contributions that are required to be 
made within 8\1/2\ months after the end of the plan year.
    Provisions relating to plan amendments.--Plan amendments 
required to be made as a result of the bill or title VI of the 
Economic Growth and Tax Relief Reconciliation Act of 2001 are 
not required to be made before the last day of the first plan 
year beginning on or after January 1, 2005 (January 1, 2007 in 
the case of a governmental plan), provided certain requirements 
are met. The bill also authorizes the Secretary of Treasury to 
provide appropriate exceptions to the relief from the 
prohibition on reductions in accrued benefits.

III. Stock options

    Exclusion of incentive stock options and employee stock 
purchase plan stock options from wages.--The bill provides 
exclusions from wages for purposes of the Federal Insurance 
Contribution Act and the Federal Unemployment Tax Act for 
remuneration on account of the transfer of stock pursuant to 
the exercise of an incentive stock option or under an employee 
stock purchase plan, or any disposition of such stock. The bill 
also provides that Federal income tax withholding is not 
required on a disposition of stock acquired pursuant to the 
exercise of an incentive stock option or under an employee 
stock purchase plan.

IV. Social Security held harmless

    No impact on Social Security trust funds.--The bill 
contains a provision to ensure that the income and balances of 
the Social Security trust funds are not reduced as a result of 
the bill.

                 B. Background and Need for Legislation

    The provisions approved by the Committee will strengthen 
retirement income security by providing new protections for 
participants, facilitating the provision of retirement 
education, reducing regulatory burdens with respect to 
retirement plans, and providing certainty in the employment tax 
treatment of incentive stock options and employee stock 
purchase plans.

                         C. Legislative History

                            Committee Action

    The Committee on Ways and Means marked up the provisions of 
the bill on March 14, 2002, and ordered the bill reported, as 
amended, on March 14, 2002, by a roll call vote of 36 yeas and 
2 nays, with a quorum present.

                      II. EXPLANATION OF THE BILL

             TITLE I: DEFINED CONTRIBUTION PLAN PROTECTIONS

  A. Excise Tax on Failure To Provide Investment Education Notices to 
                              Participants

(Sec. 101 of the bill and new Code sec. 4980G)

                              Present Law

    Present law does not require that participants be given 
specific information relating to investment education.

                           Reasons for Change

    Under some employer-sponsored retirement plans, 
participants are responsible for directing the investment of 
the assets in their accounts under the plan. Awareness of 
investment principles, including the need for diversification, 
is fundamental to making investment decisions consistent with 
long-term retirement income security. The Committee believes 
participants should be provided with investment education to 
enable them to make sound investment decisions.

                        Explanation of Provision

    Under the provision, in the case of a plan that permits a 
participant to direct the investment of his or her account, or 
a plan (including a qualified defined benefit plan) underwhich 
a participant's accrued benefit depends on hypothetical investments 
directed by the participant, applicable individuals generally have to 
be provided with investment education notices on at least a quarterly 
basis and on enrollment in the plan.\1\ Applicable individuals include 
plan participants, alternate payees under a qualified domestic 
relations order, and beneficiaries of a deceased participant or 
alternate payee. The notice requirement does not apply to one-person 
plans.\2\
---------------------------------------------------------------------------
    \1\ The right to direct investments includes the right of an 
applicable individual in an employee stock ownership plan to direct the 
investment of a portion of his or her account under present law and the 
right of an applicable individual to direct the plan to divest the 
individual's account of employer securities as provided under another 
provision of the bill.
    \2\ A one-person plan is a plan that (1) on the first day of the 
plan year, covers only the employer (and the employer's spouse) and the 
employer owns the entire business (whether or not incorporated) or 
covers only one or more partners (and their spouses) in a business 
partnership, (2) meets the minimum coverage requirements without being 
combined with any other plan that covers employees of the business, (3) 
does not provide benefits to anyone except the employer (and the 
employer's spouse) or the partners (and their spouses), (4) does not 
cover a business that is a member of an affiliated service group, a 
controlled group of corporations, or a group of corporations under 
common control, and (5) does not cover a business that leases 
employees.
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    The investment education notice is required to contain an 
explanation, for the long-term retirement security of 
participants and beneficiaries, of generally accepted 
investment principles, including risk management and 
diversification, and a discussion of the risk of holding 
substantial portions of a portfolio in securities of any one 
entity, such as employer securities.
    The notice has to be written in a manner calculated to be 
understood by the average plan participant and provide 
sufficient information (as determined under Treasury guidance) 
to allow recipients to understand the notice. The notice is 
required to be in writing and can be provided in electronic or 
other form to the extent that such form is reasonably 
accessible to the applicable individual.
    In the case of a failure to comply with the notice 
requirement, an excise tax of $100 for each applicable 
individual with respect to whom the failure occurred is 
generally imposed on the employer.\3\ If the employer exercises 
reasonable diligence to meet the notice requirements, the total 
excise tax imposed during a taxable year will not exceed 
$500,000. No tax is imposed with respect to a failure if the 
employer exercises reasonable diligence to comply and the 
failure is corrected within 30 days. In the case of a failure 
due to reasonable cause and not to willful neglect, the 
Secretary of the Treasury is authorized to waive the excise tax 
to the extent that the payment of the tax would be excessive or 
otherwise inequitable relative to the failure involved.
---------------------------------------------------------------------------
    \3\ In the case of a multiemployer plan, the excise tax is imposed 
on the plan.
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                             Effective Date

    The proposal is effective for plan years beginning after 
December 31, 2002. Within 120 days after the date of enactment 
(or by January 1, 2003, if earlier), the Secretary of the 
Treasury, in consultation with the Secretary of Labor, is 
required to issue guidance and model notices that comply with 
the new requirements.

     B. Excise Tax on Failure To Provide Notice to Participants of 
                    Transaction Restriction Periods

(Sec. 102 of the bill and new sec. 4980H of the Code)

                              Present Law

    Present law does not require that participants be given 
advance notice of temporary periods during which the ability to 
direct investments or to obtain loans or distributions from the 
plan is restricted.

                           Reasons for Change

    In the course of normal plan operation, periods may occur 
during which a plan participant's ability to direct the 
investment of his or her account or obtain loans or 
distributions from the plan is restricted (a so-called 
``blackout'' period). These periods usually occur in connection 
with administrative changes, such as a change in recordkeepers 
or in the investment options offered under a plan. Such a 
period may result also from changes in the plan in connection 
with a corporate transaction, such as a sale or merger. The 
Committee believes that plan participants should be given 
advance notice of such a period, before the period begins, in 
order to give participants the opportunity to prepare for any 
restrictions that will occur. For example, if the ability to 
direct investments will be restricted, a participant may wish 
to make investment changes before the restriction period 
begins.

                        Explanation of Provision

In general

    Under the provision, a qualified retirement plan or 
annuity, a tax-sheltered annuity plan, or an eligible deferred 
compensation plan of a governmental employer is required to 
provide advance notice of a transaction restriction period to 
applicable individuals to whom the transaction restriction 
period applies. The notice must be provided to such individuals 
at least 30 days before the beginning of the transaction 
restriction period. Applicable individuals include plan 
participants, alternate payees under a qualified domestic 
relations order, and beneficiaries of a deceased participant or 
alternate payee.
    The notice requirement applies to a plan that maintains 
accounts for participants or a plan (including a defined 
benefit plan) under which a participant's accrued benefit 
depends in wholeor in part on hypothetical investments directed 
by the participant. The notice requirement does not apply to one-person 
plans.\4\
---------------------------------------------------------------------------
    \4\ The term ``one-person plan'' is defined as under the provision 
of the bill relating to investment education notices (sec. 101 of the 
bill).
---------------------------------------------------------------------------

Definition of transaction restriction period

    A transaction restriction period means a temporary or 
indefinite period of at least three consecutive days during 
which the rights otherwise provided under the plan to one or 
more applicable individuals to direct investments, or obtain 
loans or distributions from the plan, are substantially reduced 
(other than because of the application of securities laws or 
other circumstances specified in regulations). For this 
purpose, rights are treated as substantially reduced with 
respect to directing investments out of employer securities if 
rights are significantly restricted for at least three 
consecutive business days. In the case of a publicly-traded 
security, ``business day'' means any day on which the security 
may be traded on its principal market, and, in the case of a 
security that is not publicly traded, ``business day'' means 
any calendar day.
    Whether an individual's right to direct investments or 
obtain loans or distributions from the plan is substantially 
reduced, or whether the right to direct investments out of 
employer securities is significantly restricted, is generally 
determined by reference to the normal rights and procedures 
provided under the plan. A variety of factors may be relevant 
in making this determination. For example, if, in connection 
with a change in plan recordkeepers, no investment directions, 
loans, or distributions can be executed over a three-day 
weekend (i.e., a Saturday, a Sunday, and a Monday that is a 
Federal holiday), then no transaction restriction period 
results if the participants would not, under the terms of the 
plan, have been able to engage in such transactions during that 
period in any event. In addition, if a plan provides that a 
participant's ability to make investment changes, or obtain a 
loan or a distribution, is limited for a certain period in 
connection with a qualified domestic relations order with 
respect to the participant's account, that limitation generally 
does not result in a transaction restriction period. Factors in 
addition to the time period involved may also be relevant. For 
example, suppose a plan offers a variety of investment options, 
including three options that have similar characteristics 
(e.g., similar risk and return characteristics). If the ability 
to transfer funds into only one of these options is restricted, 
this may not result in a transaction restriction period for 
purposes of the provision, because participants have the right 
to transfer funds into similar investment options.

Timing of notice

    Notice of a transaction restriction period generally has to 
be provided at least 30 days before the beginning of the 
period. In the case of a transaction restriction period 
resulting from an unforeseeable event, the notice has to be 
provided as soon as reasonably practicable after the event.
    If there is the possibility of a transaction restriction 
period in connection with a major corporate disposition by a 
corporation maintaining the plan, the notice must be provided 
at least 30 days before the date of the disposition unless the 
plan administrator has a substantial basis to believe that no 
transaction restriction period will occur. If notice is 
provided at least 30 days before the disposition, no other 
notice is required if the transaction restriction period begins 
within 30 days after the disposition. A ``major corporate 
disposition'' means the disposition of substantially all of the 
stock of the corporation, or a subsidiary thereof, or the 
disposition of substantially all of the assets used in a trade 
or business of the corporation or subsidiary. Similar rules 
apply in the case of an entity that is not a corporation.
    It is intended that participants will be given the 
opportunity to execute investment changes with respect to their 
accounts, or obtain loans or distributions otherwise permitted 
under the plan, before the transaction restriction period 
begins.

Form of notice

    Notice of a transaction restriction period has to be 
written in a manner calculated to be understood by the average 
plan participant and provide sufficient information (as 
determined under Treasury guidance) to allow the recipients to 
understand the timing and effect of the transaction restriction 
period. The notice is required to be provided in writing and 
can be provided in electronic or other form to the extent that 
such form is reasonably accessible to the applicable 
individual.

Excise tax

    In the case of a failure to comply with the notice 
requirement, an excise tax of $100 for each applicable 
individual with respect to whom the failure occurred is 
generally imposed on the employer.\5\ If the employer exercises 
reasonable diligence to meet the notice requirements, the total 
excise tax imposed during a taxable year will not exceed 
$500,000. No tax is imposed with respect to a failure if the 
employer exercises reasonable diligence to comply and the 
failure is corrected within 30 days (and before the beginning 
of the transaction restriction period). In the case of a 
failure due to reasonable cause and not to willful neglect, the 
Secretary of the Treasury is authorized to waive the excise tax 
to the extent that the payment of the tax would be excessive or 
otherwise inequitable relative to the failure involved.
---------------------------------------------------------------------------
    \5\ In the case of a multiemployer plan, the excise tax is imposed 
on the plan.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2002. The Secretary of the Treasury, in 
consultation with the Secretary of Labor, is required to issue 
guidance for carrying out the new notice requirements within 
120 days after the date of enactment. Guidance concerning a 
reduction of rights relating to the direction of investments 
out of employer securities is required to be issued by November 
1, 2002 (or within 60 days after the date of enactment, if 
later).

  C. Diversification Requirements for Defined Contribution Plans that 
                        Hold Employer Securities

(Sec. 103 of the bill and new sec. 401(a)(35) of the Code)

                              present law

In general

    Whether and the extent to which present law places limits 
on defined contribution plan investment in employer securities 
depends on the type of plan.

Diversification requirements applicable to employee stock ownership 
        plans (``ESOPs'')

    Under the Internal Revenue Code, ESOPs are subject to a 
requirement that a participant who has attained age 55 and who 
has at least 10 years of participation in the plan must be 
permitted to diversify the investment of the participant's 
account in assets other than employer securities. The 
diversification requirement applies to a participant for six 
years, starting with the year in which the individual first 
meets the eligibility requirements (i.e., age 55 and 10 years 
of participation). The participant must be allowed to elect to 
diversify up to 25 percent of the participant's account (50 
percent in the sixth year), reduced by the portion of the 
account diversified in prior years.
    The participant must be given 90 days after the end of each 
plan year in the election period to make the election to 
diversify. In the case of participants who elect to diversify, 
the plan satisfies the diversification requirement if (1) the 
plan distributes the applicable amount to the participant 
within 90 days after the election period, (2) the plan offers 
at least three investment options (not inconsistent with 
Treasury regulations) and, within 90 days of the election 
period, invests the applicable amount in accordance with the 
participant's election, or (3) the applicable amount is 
transferred within 90 days of the election period to another 
qualified defined contribution plan of the employer providing 
investment options in accordance with (2).\6\
---------------------------------------------------------------------------
    \6\ Code sec. 401(a)(28); IRS Notice 88-56, 1988-1 CB 540, Q&A 16.
---------------------------------------------------------------------------

10-percent limit on the acquisition of employer securities

    ERISA prohibits money purchase pension plans (other than 
certain plans in existence before the enactment of ERISA) from 
acquiring employer securities if, after the acquisition, more 
than 10 percent of the assets of the plan would be invested in 
employer stock.\7\ This 10-percent limitation does not apply to 
other types of defined contribution plans. Thus, most defined 
contribution plans, such as profit-sharing plans, stock bonus 
plans, and ESOPs, are not subject to any limit on the amount of 
employer securities that can be invested in employer 
securities. In addition, a fiduciary generally is deemed not to 
violate the requirement that plan assets be diversified with 
respect to the acquisition or holding of employer securities in 
such plans.\8\
---------------------------------------------------------------------------
    \7\ This 10-percent limitation also applies to defined benefit 
plans.
    \8\ Under ERISA, plans that are not subject to the 10-percent 
limitation on the acquisition of employer securities are referred to as 
``eligible individual account plans.''
---------------------------------------------------------------------------
    Under ERISA, the 10-percent limitation on the acquisition 
of employer securities, described above, applies separately to 
the portion of a plan consisting of elective deferrals (and 
earnings thereon) if any portion of an individual's elective 
deferrals (or earnings thereon) are required to be invested in 
employer securities pursuant to plan terms or the direction of 
a person other than the participant. This restriction does not 
apply if (1) the amount of elective deferrals required to be 
invested in employer securities does not exceed more than one 
percent of any employee's compensation, (2) the fair market 
value of all defined contribution plans maintained by the 
employer is no more than 10-percent of the fair market value of 
all retirement plans of the employer, or (3) the plan is an 
ESOP.

                           reasons for change

    The Committee understands that employer securities are one 
possible investment for defined contribution plans. In some 
cases, the plan may offer employer securities as one of several 
investment options made available to plan participants. In 
other cases, the plan may provide that certain contributions 
are invested in employer securities. For example, many plans 
provide that employer matching contributions with respect to 
employee elective deferrals under a qualified cash or deferred 
arrangement are to be invested in employer securities.
    Present law has facilitated and encouraged the acquisition 
of employer securities by qualified plans, particularly in the 
case of ESOPs. Thus, for example, present law provides that the 
dividends paid on employer securities held by an ESOP are 
deductible under certain circumstances and also allows an ESOP 
to borrow to acquire the employer securities. Present law 
recognizes that employer securities can be a profitable 
investment for employees as well as a corporate financing tool 
for employers. Employees who hold employer securities through a 
defined contribution plan often feel that they have a stake in 
the business, leading to increased profitability.
    On the other hand, the Committee recognizes that 
diversification of assets is a basic principle of sound 
investment policy and that requiring that certain contributions 
be invested in employer securities may create tension with the 
objectives of diversification. Failure to appropriately 
diversify defined contribution plan investments may jeopardize 
retirement security.
    The Committee believes that allowing participants greater 
opportunity to diversify plan investments in employer stock 
will help participants achieve their retirement security goals, 
while continuing to allow employers and employees the freedom 
to choose their own investments. Thus, the Committee bill 
requires defined contribution plans that hold employer 
securities that are publicly traded to permit qualified plan 
participants to direct the plan to reinvest employer securities 
in other assets. The Committee bill generally requires 
diversification in accordance with the present-law rules 
regarding vesting.
    The Committee believes that the current role of ESOPs 
should be preserved; thus, the bill does not apply additional 
diversification requirements to ``stand alone'' ESOPs, meaning 
ESOPs that do not hold elective deferrals and related 
contributions. Again, the Committee believes this strikes an 
appropriate balance between the principle of diversification 
and the goals served by ESOPs. For example, some ESOPs hold a 
controlling interest in the employer.

                        explanation of provision

In general

    Under the bill, defined contribution plans that hold 
employer securities that are readily tradable on an established 
securities market are required to permit applicable individuals 
to direct that the applicable percentage of employer securities 
in the individual's account be invested in alternative 
investments. In order to satisfy this diversification 
requirement, applicable individuals must be given a choice of 
at least three investment options (not inconsistent with 
regulations prescribed by the Secretary) other than employer 
securities. In addition, applicable individuals must be given 
the right to direct the reinvestment of employer securities in 
alternative investments not less frequently than quarterly. The 
definition of applicable individual and applicable percentage 
depends on the type of contribution involved. In all cases, the 
election applies only to the extent that the amount 
attributable to the applicable percentage exceeds the amount to 
which a prior election under the ESOP diversification rules or 
under the provision applies.\9\
---------------------------------------------------------------------------
    \9\ As under the present-law ESOP diversification rules, it is 
intended that the portion of a plan that is diversified pursuant to the 
provision would not be considered to be part of the ESOP and therefore 
generally would not be subject to the rules applicable to ESOPs. This 
same principle applies to the extent the employer provides for more 
diversification than required under the bill.
---------------------------------------------------------------------------
    The diversification requirement does not apply to an ESOP 
unless the ESOP holds elective deferrals, employee after-tax 
contributions, matching contributions, or other contributions 
used to satisfy the special nondiscrimination tests for 
elective deferrals (i.e., qualified nonelective contributions 
and nonelective contributions under safe harbor plans). The 
present-law ESOP diversification rules do not apply to employer 
securities which are readily tradable on an established 
securities market and subject to the requirements of the bill.

Elective deferrals and other employee contributions

    In the case of elective deferrals under a qualified cash or 
deferred arrangement and employee after-tax contributions, an 
applicable individual means (1) any plan participant, (2) any 
beneficiary who is an alternate payee under a qualified 
domestic relations order, and (3) any beneficiary of a deceased 
participant or alternate payee.
    With respect to elective deferrals (and earnings thereon) 
treated as a separate plan for purposes of the ERISA 10-percent 
limitation on the acquisition of employer securities, the 
applicable percentage is 100 percent.\10\ With respect to other 
elective deferrals and employee contributions (and earnings 
thereon), the applicable percentage is as follows:
---------------------------------------------------------------------------
    \10\ The determination of whether elective deferrals are treated as 
a separate plan and thus are subject to the 100 percent diversification 
rule (rather than the phase-in) is made on the date of enactment, and 
applies to all employer securities held by the plan, whether acquired 
on or after the date of enactment.

  TABLE 1.--APPLICABLE PERCENTAGE FOR ELECTIVE DEFERRALS NOT TREATED AS
                        SEPARATE PLAN UNDER ERISA
------------------------------------------------------------------------
         Plan years beginning in               Applicable percentage
------------------------------------------------------------------------
2003.....................................  Greater of amount that would
                                            be required under present-
                                            law ESOP diversification
                                            rule or 20 percent.
2004.....................................  Greater of amount that would
                                            be required under present-
                                            law ESOP diversification
                                            rule or 40 percent.
2005.....................................  60 percent.
2006.....................................  80 percent.
2007 or thereafter.......................  100 percent.
------------------------------------------------------------------------

Matching and other contributions taken into account in applying 
        nondiscrimination rules applicable to elective deferrals

    In the case of matching contributions and employer 
contributions used to satisfy the special nondiscrimination 
test applicable to elective deferrals (i.e., qualified 
nonelective contributions and nonelective contributions under 
the section 401(k) safe harbor rules), an applicable individual 
is (1) any plan participant with three years of service,\11\ 
(2) any beneficiary with respect to a participant described in 
(1) who is an alternate payee under a qualified domestic 
relations order, and (3) any beneficiary of a deceased 
participant described in (1) or alternate payee described in 
(2).
---------------------------------------------------------------------------
    \11\ Years of service are defined as under the rules relating to 
vesting (sec. 411(a)).
---------------------------------------------------------------------------
    With respect to such matching contributions and 
contributions used to satisfy the special nondiscrimination 
test applicable to elective deferrals that are not part of an 
ESOP, the applicable percentage is as follows:

  TABLE 2.--APPLICABLE PERCENTAGE FOR MATCHING AND OTHER CONTRIBUTIONS
 USED TO SATISFY 401(k) NONDISCRIMINATION RULES THAT ARE NOT PART OF AN
                                  ESOP
------------------------------------------------------------------------
                                                              Applicable
                  Plan years beginning in                     percentage
------------------------------------------------------------------------
2003.......................................................           20
2004.......................................................           40
2005.......................................................           60
2006.......................................................           80
2007 and thereafter........................................          100
------------------------------------------------------------------------

    In the case of matching contributions and other 
contributions used to satisfy the special section 401(k) 
nondiscrimination rules that are part of an ESOP, the 
applicable percentage is the same as in Table 2 above, except 
that for plan years beginning in 2003 and 2004, the applicable 
percentage is not less than the amount required under the 
present-law ESOP diversification requirement.

Other employer contributions

    In the case of employer contributions other than those 
described above (i.e., contributions unrelated to employee 
elective deferrals or employee contributions) an applicable 
individual is (1) any plan participant with five years of 
service,\12\ (2) any beneficiary with respect to a participant 
described in (1) who is an alternate payee under a qualified 
domestic relations order, and (3) any beneficiary of a deceased 
participant described in (1) or alternate payee described in 
(2).
---------------------------------------------------------------------------
    \12\ Years of service are defined as under the rules relating to 
vesting (sec. 411(a)).
---------------------------------------------------------------------------
    The applicable percentage for such contributions is the 
same as for matching contributions. Thus, in the case of 
contributions that are not part of an ESOP, the applicable 
percentage is as described in Table 2. In addition, in the case 
of such contributions that are part of an ESOP, the applicable 
percentage would be as described in Table 2, except that for 
plan years beginning in 2003 and 2004, the applicable 
percentage is not less than the amount required under the 
present-law ESOP diversification requirement.

                             Effective Date

    The provision generally is effective with respect to plan 
years beginning after December 31, 2002. The provision does not 
apply to employer securities held by an ESOP that are not 
subject to the present-law diversification requirement, i.e., 
the provision does not apply to stock acquired before January 
1, 1987.

      D. Employer-Provided Qualified Retirement Planning Services

(Sec. 104 of the bill and sec. 132 of the Code)

                              Present Law

    Under present law, certain employer-provided fringe 
benefits are excludable from gross income and wages for 
employment tax purposes.\13\ These excludable fringe benefits 
include qualified retirement planning services provided to an 
employee and his or her spouse by an employer maintaining a 
qualified employer plan. A qualified employer plan includes a 
qualified retirement plan or annuity, a tax-sheltered annuity, 
a simplified employee pension, a SIMPLE retirement account, or 
a governmental plan, including an eligible deferred 
compensation plan maintained by a governmental employer.
---------------------------------------------------------------------------
    \13\ Secs. 132 and 3121(a)(20).
---------------------------------------------------------------------------
    Qualified retirement planning services are retirement 
planning advice and information. The exclusion is not limited 
to information regarding the qualified employer plan, and, 
thus, for example, applies to advice and information regarding 
retirement income planning for an individual and his or her 
spouse and how the employer's plan fits into the individual's 
overall retirement income plan. On the other hand, the 
exclusion does not apply to services that may be related to 
retirement planning, such as tax preparation, accounting, legal 
or brokerage services.
    The exclusion does not apply with respect to highly 
compensated employees unless the services are available on 
substantially the same terms to each member of the group of 
employees normally provided education and information regarding 
the employer's qualified plan.

                           Reasons for Change

    The Committee believes that it is important for all 
employees to have access to retirement planning advice and 
information. In order to plan adequately for retirement, 
individuals must anticipate retirement income needs and 
understand how their retirement income goals can be achieved. 
The Committee believes that allowing employees to purchase 
qualified retirement planning services on a salary-reduction 
basis will help many more employees obtain advice and 
assistance when making retirement decisions.

                        Explanation of Provision

    The provision permits employers to offer employees a choice 
between cash compensation and eligible qualified retirement 
planning services. The provision only applies to qualified 
retirement planning services provided by a qualified investment 
advisor. It is intended that qualified investment advisors will 
be certified and regulated under applicable laws and 
regulations. In addition, qualified investment advisors also 
include investment advisors within a financial institution's 
trust or custody department chartered under the National Bank 
Act.\14\ As under present law, the provision applies only to 
amounts for retirement planning advice and information and does 
not apply to services that may be related to retirement 
planning, such as tax preparation, accounting, legal or 
brokerage services.
---------------------------------------------------------------------------
    \14\ 14 12 U.S.C. 92(a).
---------------------------------------------------------------------------
    Under the provision, no amount is includible in gross 
income or wages merely because the employee is offered the 
choice of cash in lieu of eligible qualified retirement 
planning services. Also, no amount is includible in income or 
wages merely because the employee is offered a choice among 
eligible qualified retirement planning services. The amount of 
cash offered is includible in income and wages only to the 
extent the employee elects cash. The exclusion does not apply 
to highly compensated employees unless the salary reduction 
option is available on substantially the same terms to all 
employees normally provided education and information about the 
plan.
    Under the provision, salary reduction amounts used to 
provide eligible qualified retirement planning services are 
generally treated for pension plan purposes the same as other 
salary reduction contributions. Thus, such amounts are included 
for purposes of applying the limits on contributions and 
benefits, and an employer is able to elect whether or not to 
include such amounts in compensation for nondiscrimination 
testing.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2002.

                            E. Special Rules

(Sec. 105 of the bill)

                              Present Law

    Plan amendments to reflect amendments to the law generally 
must be made by the time prescribed by law for filing the 
income tax return of the employer for the employer's taxable 
year in which the change in law occurs.

                           Reasons for Change

    The Committee believes it appropriate to delay the 
effective date of certain provisions of the bill for 
collectively bargained plans in order to accommodate the 
collective bargaining process. In addition, the Committee 
believes it is appropriate to allow additional time for the 
making of plan amendments, provided the plan complies with 
applicable provisions.

                        Explanation of Provision

Delayed effective date for collectively bargained plans

    The provision provides a delayed effective date for 
collectively bargained plans for certain provisions relating to 
retirement savings. Under the provision, in the case of a plan 
maintained pursuant to one or more collective bargaining 
agreements ratified on or before the date of enactment, the 
amendments made by provisions relating to notices and 
diversification are applied beginning with 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 enactment), or
          (2) January 1, 2005.

Time for making plan amendments

    If any of the provisions of the bill relating to defined 
contribution plan protections require an amendment to the plan, 
such plan amendment is not required to be made before the first 
plan year beginning on or after January 1, 2005, if, during the 
period after the provisions of the proposal take effect and 
before such first plan year, the plan is operated in accordance 
with the provisions of the bill and the plan amendment applies 
retroactively.

                             Effective Date

    The provision is effective on the date of enactment.

          TITLE II: OTHER TAX PROVISIONS RELATING TO PENSIONS

           A. Amendments to Retirement Protection Act of 1994

(Sec. 201 of the bill and sec. 412 of the Code)

                              Present Law

    Under present law, defined benefit pension plans are 
required to meet certain minimum funding rules. In some cases, 
additional contributions are required if a defined benefit 
pension plan is underfunded. Additional contributions generally 
are not required in the case of a plan with a funded current 
liability percentage of at least 90 percent. A plan's funded 
current liability percentage is the value of plan assets as a 
percentage of current liability. In general, a plan's current 
liability means all liabilities to employees and their 
beneficiaries under the plan. Quarterly minimum funding 
contributions are required in the case of certain underfunded 
plans.
    The Pension Benefit Guaranty Corporation (``PBGC'') insures 
benefits under most defined benefit pension plans in the event 
the plan is terminated with insufficient assets to pay for plan 
benefits. The PBGC is funded in part by a flat-rate premium per 
plan participant, and a variable rate premium based on plan 
underfunding.
    Under present law, a special rule modifies the minimum 
funding requirements in the case of certain plans. The special 
rule applies in the case of plans that (1) were not required to 
pay a variable rate PBGC premium for the plan year beginning in 
1996, (2) do not, in plan years beginning after 1995 and before 
2009, merge with another plan (other than a plan sponsored by 
an employer that was a member of the controlled group of the 
employer in 1996), and (3) are sponsored by a company that is 
engaged primarily in interurban or interstate passenger bus 
service.
    The special rule treats a plan to which it applies as 
having a funded current liability percentage of at least 90 
percent for plan years beginning after 1996 and before 2005 if 
for such plan year the funded current liability percentage is 
at least 85 percent. If the funded current liability of the 
plan is less than 85 percent for any plan year beginning after 
1996 and before 2005, the relief from the minimum funding 
requirements applies only if certain specified contributions 
are made.
    For plan years beginning after 2004 and before 2010, the 
funded current liability percentage will be deemed to be at 
least 90 percent if the actual funded current liability 
percentage is at least at certain specified levels.
    The relief from the minimum funding requirements applies 
for the plan year beginning in 2005, 2006, 2007, and 2008 only 
if contributions to the plan equal at least the expected 
increase in current liability due to benefits accruing during 
the plan year.

                           Reasons for Change

    The present-law funding rules for plans maintained by 
certain interstate bus companies were enacted because the 
generally applicable funding rules required greater 
contributions for such plans than were warranted give the 
special characteristics of such plans. In particular, these 
plans are closed to new participants and have demonstrated 
mortality significantly greater than that predicted under 
mortality tables that the plans would otherwise be required to 
use for minimum funding purposes. The Committee believes that 
further changes to the special minimum funding rules for such 
plans are appropriate to ensure that a suitable level of 
funding for such plans is maintained.

                        Explanation of Provision

    The provision modifies the special funding rule for plans 
sponsored by a company engaged primarily in interurban or 
interstate passenger bus service by making the rule permanent.
    In addition, the provision modifies the rule by providing 
that (1) the funded current liability percentage of a plan to 
which the rule applies is treated as not less than 90 percent 
for purposes of the minimum funding rules applicable to 
underfunded plans, and (2) the funded current liability 
percentage of a plan to which the rule applies is treated as 
not less than 100 percent for purposes of the quarterly 
contribution requirement.

                             Effective Date

    The provision is effective with respect to plan years 
beginning after December 31, 2001.

                B. Pension Plan Reporting Simplification

(Sec. 202 of the bill)

                              Present Law

    A plan administrator of a pension, annuity, stock bonus, 
profit-sharing or other funded plan of deferred compensation 
generally must file with the Secretary of the Treasury an 
annual return for each plan year containing certain information 
with respect to the qualification, financial condition, and 
operation of the plan. Title I of ERISA also may require the 
plan administrator to file annual reports concerning the plan 
with the Department of Labor and the Pension Benefit Guaranty 
Corporation (``PBGC''). The plan administrator must use the 
Form 5500 series as the format for the required annual 
return.\15\ The Form 5500 series annual return/report, which 
consists of a primary form and various schedules, includes the 
information required to be filed with all three agencies. The 
plan administrator satisfies the reporting requirement with 
respect to each agency by filing the Form 5500 series annual 
return/report with the Department of Labor, which forwards the 
form to the Internal Revenue Service and the PBGC.
---------------------------------------------------------------------------
    \15\ Treas. Reg. sec. 301.6058-1(a).
---------------------------------------------------------------------------
    The Form 5500 series consists of 2 different forms: Form 
5500 and Form 5500-EZ. Form 5500 is the more comprehensive of 
the forms and requires the most detailed financial information. 
A plan administrator generally may file Form 5500-EZ, which 
consists of only one page, if (1) the only participants in the 
plan are the sole owner of a business that maintains the plan 
(and such owner's spouse), or partners in a partnership that 
maintains the plan (and such partners' spouses), (2) the plan 
is not aggregated with another plan in order to satisfy the 
minimum coverage requirements of section 410(b), (3) the 
employer is not a member of a related group of employers, and 
(4) the employer does not receive the services of leased 
employees. If the plan satisfies the eligibility requirements 
for Form 5500-EZ and the total value of the plan assets as of 
the end of the plan year and all prior plan years beginning on 
or after January 1, 1994, does not exceed $100,000, the plan 
administrator is not required to file a return.
    With respect to a plan that does not satisfy the 
eligibility requirements for Form 5500-EZ, the characteristics 
and the size of the plan determine the amount of detailed 
financial information that the plan administrator must provide 
on Form 5500. If the plan has more than 100 participants at the 
beginning of the plan year, the plan administrator generally 
must provide more information.

                           Reasons for Change

    The Committee believes that simplification of the reporting 
requirements applicable to plans of small employers will 
encourage such employers to provide retirement benefits for 
their employees.

                        Explanation of Provision

    The Secretary of the Treasury and the Secretary of Labor 
are directed to modify the annual return filing requirements 
with respect to plans that satisfy the eligibility requirements 
for Form 5500-EZ (referred to as a ``one-participant plan'') to 
provide that if the total value of the plan assets of such a 
plan as of the end of the plan year does not exceed $250,000, 
the plan administrator is not required to file a return. In 
addition, the provision directs the Secretary of the Treasury 
and the Secretary of Labor to provide simplified reporting 
requirements for plan years beginning after December 31, 2003, 
for certain plans with fewer than 25 employees.

                             Effective Date

    The provision relating to one-participant plans is 
effective for plans beginning on or after January 1, 2002. The 
provision relating to simplified reporting for plans with fewer 
than 25 employees is effective on the date of enactment.

     C. Improvement of Employee Plans Compliance Resolution System

(Sec. 203 of the bill)

                              Present Law

    A retirement plan that is intended to be a tax-qualified 
plan provides retirement benefits on a tax-favored basis if the 
plan satisfies all of the requirements of section 401(a). 
Similarly, an annuity that is intended to be a tax-sheltered 
annuity provides retirement benefits on a tax-favored basis if 
the program satisfies all of the requirements of section 
403(b). Failure to satisfy all of the applicable requirements 
of section 401(a) or section 403(b) may disqualify a plan or 
annuity for the intended tax-favored treatment.
    The Internal Revenue Service (``IRS'') has established the 
Employee Plans Compliance Resolution System (``EPCRS''), which 
is a comprehensive system of correction programs for sponsors 
of retirement plans and annuities that are intended, but have 
failed, to satisfy the requirements of section 401(a), section 
403(a), or section 403(b), as applicable.\16\ EPCRS permits 
employers to correct compliance failures and continue to 
provide their employees with retirement benefits on a tax-
favored basis.
---------------------------------------------------------------------------
    \16\ Rev. Proc. 2001-17, 2001-7 I.R.B. 589.
---------------------------------------------------------------------------
    The IRS has designed EPCRS to (1) encourage operational and 
formal compliance, (2) promote voluntary and timely correction 
of compliance failures, (3) provide sanctions for compliance 
failures identified on audit that are reasonable in light of 
the nature, extent, and severity of the violation, (4) provide 
consistent and uniform administration of the correction 
programs, and (5) permit employers to rely on the availability 
of EPCRS in taking corrective actions to maintain the tax-
favored status of their retirement plans and annuities.
    The basic elements of the programs that comprise EPCRS are 
self-correction, voluntary correction with IRS approval, and 
correction on audit. The Self-Correction Program (``SCP'') 
generally permits a plan sponsor that has established 
compliance practices to correct certaininsignificant failures 
at any time (including during an audit), and certain significant 
failures within a 2-year period, without payment of any fee or 
sanction. The Voluntary Correction Program (``VCP'') program permits an 
employer, at any time before an audit, to pay a limited fee and receive 
IRS approval of a correction. For a failure that is discovered on audit 
and corrected, the Audit Closing Agreement Program (``Audit CAP'') 
provides for a sanction that bears a reasonable relationship to the 
nature, extent, and severity of the failure and that takes into account 
the extent to which correction occurred before audit.
    The IRS has expressed its intent that EPCRS will be updated 
and improved periodically in light of experience and comments 
from those who use it.

                           Reasons for Change

    The Committee commends the IRS for the establishment of 
EPCRS and agrees with the IRS that EPCRS should be updated and 
improved periodically. The Committee believes that future 
improvements should facilitate use of the compliance and 
correction programs by small employers and expand the 
flexibility of the programs.

                        Explanation of Provision

    The Secretary of the Treasury is directed to continue to 
update and improve EPCRS, giving special attention to (1) 
increasing the awareness and knowledge of small employers 
concerning the availability and use of EPCRS, (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 SCP for significant compliance failures, (4) 
expanding the availability to correct insignificant compliance 
failures under SCP 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 provision clarifies that the Secretary has the full 
authority to effectuate the foregoing with respect to EPCRS (or 
similar program or 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.

                             Effective Date

    The provision is effective on the date of enactment.

  D. Flexibility in Nondiscrimination, Coverage, and Line of Business 
                                 Rules

(Sec. 204 of the bill and secs. 401(a)(4), 410(b) and 414(r) of the 
        Code)

                              Present Law

    A plan is not a qualified retirement plan if the 
contributions or benefits provided under the plan discriminate 
in favor of highly compensated employees (sec. 401(a)(4)). The 
applicable Treasury regulations set forth the exclusive rules 
for determining whether a plan satisfies the nondiscrimination 
requirement. These regulations state that the form of the plan 
and the effect of the plan in operation determine whether the 
plan is nondiscriminatory and that intent is irrelevant.
    Similarly, a plan is not a qualified retirement plan if the 
plan does not benefit a minimum number of employees (sec. 
410(b)). A plan satisfies this minimum coverage requirement if 
and only if it satisfies one of the tests specified in the 
applicable Treasury regulations. If an employer is treated as 
operating separate lines of business, the employer may apply 
the minimum coverage requirements to a plan separately with 
respect to the employees in each separate line of business 
(sec. 414(r)). Under a so-called ``gateway'' requirement, 
however, the plan must benefit a classification of employees 
that does not discriminate in favor of highly compensated 
employees in order for the employer to apply the minimum 
coverage requirements separately for the employees in each 
separate line of business. A plan satisfies this gateway 
requirement only if it satisfies one of the tests specified in 
the applicable Treasury regulations.

                           Reasons for Change

    It has been brought to the attention of the Committee that 
some plans are unable to satisfy the mechanical tests used to 
determine compliance with the nondiscrimination and line of 
business requirements solely as a result of relatively minor 
plan provisions. The Committee believes that, in such cases, it 
may be appropriate to expand the consideration of facts and 
circumstances in the application of the mechanical tests.

                        Explanation of Provision

    The Secretary of the Treasury is directed to modify, on or 
before December 31, 2003, the existing regulations issued under 
section 414(r) in order to expand (to the extent that the 
Secretary may determine to be appropriate) the ability of a 
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.
    The Secretary of the Treasury is directed to provide by 
regulation applicable to years beginning after December 31, 
2003, that a plan is deemed to satisfy the nondiscrimination 
requirements of section 401(a)(4) if the plan satisfied the 
pre-1994 facts and circumstances test, satisfied the conditions 
prescribed by the Secretary to appropriately limit the 
availability of such test, and is submitted to the Secretary 
for a determination of whether it satisfies such test (to the 
extent provided by the Secretary).
    Similarly, a plan will comply with the minimum coverage 
requirement of section 410(b) if the plan satisfied the pre-
1989 coverage rules, is submitted to the Secretary for a 
determination of whether it satisfied the pre-1989 coverage 
rules (to the extent provided by the Secretary), and satisfies 
conditions prescribed by the Secretary by regulation that 
appropriately limit the availability of the pre-1989 coverage 
rules.

                             Effective Date

    The provision relating to the line of business requirements 
under section 414(r) is effective on the date of enactment. The 
provision relating to the nondiscrimination requirementsunder 
section 401(a)(4) is effective on the date of enactment, except that 
any condition of availability prescribed by the Secretary will not be 
effective before the first year beginning not less than 120 days after 
the date on which such condition is prescribed. The provision relating 
to the minimum coverage requirements under section 410(b) is effective 
for years beginning after December 31, 2003, except that any condition 
of availability prescribed by the Secretary by regulation will not 
apply before the first year beginning not less than 120 days after the 
date on which such condition is prescribed.

E. Extension to All Governmental Plans of Moratorium on Application of 
     Certain Nondiscrimination Rules Applicable to State and Local 
                            Government Plans

(Sec. 205 of the bill, sec. 1505 of the Taxpayer Relief Act of 1997, 
        and secs. 401(a) and 401(k) of the Code)

                              Present Law

    A qualified retirement plan maintained by a State or local 
government is exempt from the rules concerning 
nondiscrimination (sec. 401(a)(4)) and minimum participation 
(sec. 401(a)(26)). All other governmental plans are not exempt 
from the nondiscrimination and minimum participation rules.

                           Reasons for Change

    The Committee believes that application of the 
nondiscrimination and minimum participation rules to 
governmental plans is unnecessary and inappropriate in light of 
the unique circumstances under which such plans and 
organizations operate. Further, the Committee believes that it 
is appropriate to provide for consistent application of the 
minimum coverage, nondiscrimination, and minimum participation 
rules for governmental plans.

                        Explanation of Provision

    The provision exempts all governmental plans (as defined in 
sec. 414(d)) from the nondiscrimination and minimum 
participation rules.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2002.

          F. Notice and Consent Period Regarding Distributions

            (Sec. 206 of the bill and sec. 417 of the Code)

                              Present Law

    Notice and consent requirements apply to certain 
distributions from qualified retirement plans. These 
requirements relate to the content and timing of information 
that a plan must provide to a participant prior to a 
distribution, and to whether the plan must obtain the 
participant's consent to the distribution. The nature and 
extent of the notice and consent requirements applicable to a 
distribution depend upon the value of the participant's vested 
accrued benefit and whether the joint and survivor annuity 
requirements (sec. 417) apply to the participant.
    If the present value of the participant's vested accrued 
benefit exceeds $5,000, the plan may not distribute the 
participant's benefit without the written consent of the 
participant. The participant's consent to a distribution is not 
valid unless the participant has received from the plan a 
notice that contains a written explanation of (1) the material 
features and the relative values of the optional forms of 
benefit available under the plan, (2) the participant's right, 
if any, to have the distribution directly transferred to 
another retirement plan or IRA, and (3) the rules concerning 
the taxation of a distribution. If the joint and survivor 
annuity requirements apply to the participant, this notice also 
must contain a written explanation of (1) the terms and 
conditions of the qualified joint and survivor annuity 
(``QJSA''), (2) the participant's right to make, and the effect 
of, an election to waive the QJSA, (3) the rights of the 
participant's spouse with respect to a participant's waiver of 
the QJSA, and (4) the right to make, and the effect of, a 
revocation of a waiver of the QJSA. The plan generally must 
provide this notice to the participant no less than 30 and no 
more than 90 days before the date distribution commences.
    If the participant's vested accrued benefit does not exceed 
$5,000, the terms of the plan may provide for distribution 
without the participant's consent. The plan generally is 
required, however, to provide to the participant a notice that 
contains a written explanation of (1) the participant's right, 
if any, to have the distribution directly transferred to 
another retirement plan or IRA, and (2) the rules concerning 
the taxation of a distribution. The plan generally must provide 
this notice to the participant no less than 30 and no more than 
90 days before the date distribution commences.

                           Reasons for Change

    The Committee understands that an employee is not always 
able to evaluate distribution alternatives, select the most 
appropriate alternative, and notify the plan of the selection 
within a 90-day period. The Committee believes that requiring a 
plan to furnish multiple distribution notices to an employee 
who does not make a distribution election within 90 days is 
administratively burdensome. In addition, the Committee 
believes that participants who are entitled to defer 
distributions should be informed of the impact of a decision 
not to defer distribution on the taxation and accumulation of 
their retirement benefits.

                        Explanation of Provision

    Under the provision, a qualified retirement plan is 
required to provide the applicable distribution notice no less 
than 30 days and no more than 180 days before the date 
distribution commences. The Secretary of the Treasury is 
directed to modify the applicable regulations to reflect the 
extension of the notice period to 180 days and 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. In the case of a description 
of such consequences that is made before the date 90 days after 
the date on which the Secretary of the Treasury issues a safe 
harbor description, the plan administrator will be required to 
make a reasonable attempt to comply with the requirements of 
the provision.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2002.

            G. Reduced PBGC Premiums for Small and New Plans

(Secs. 207-208 of the bill and sec. 4006 of ERISA)

                              Present Law

    Under present law, the Pension Benefit Guaranty Corporation 
(``PBGC'') provides insurance protection for participants and 
beneficiaries under certain defined benefit pension plans by 
guaranteeing certain basic benefits under the plan in the event 
the plan is terminated with insufficient assets to pay benefits 
promised under the plan. The guaranteed benefits are funded in 
part by premium payments from employers who sponsor defined 
benefit plans. The amount of the required annual PBGC premium 
for a single-employer plan is generally a flat rate premium of 
$19 per participant and an additional variable-rate premium 
based on a charge of $9 per $1,000 of unfunded vested benefits. 
Unfunded vested benefits under a plan generally means (1) the 
unfunded current liability for vested benefits under the plan, 
over (2) the value of the plan's assets, reduced by any credit 
balance in the funding standard account. No variable-rate 
premium is imposed for a year if contributions to the plan were 
at least equal to the full funding limit.
    The PBGC guarantee is phased in ratably in the case of 
plans that have been in effect for less than five years, and 
with respect to benefit increases from a plan amendment that 
was in effect for less than five years before termination of 
the plan.

                           Reasons for Change

    The Committee believes that reducing the PBGC premiums for 
new plans and small plans will help encourage the establishment 
of defined benefit pension plans, particularly by small 
employers.

                        Explanation of Provision

Reduced flat-rate premiums for new plans of small employers

    Under the provision, for the first five plan years of a new 
single-employer plan of a small employer, the flat-rate PBGC 
premium is $5 per plan participant.
    A small employer would be a contributing sponsor that, on 
the first day of the plan year, has 100 or fewer employees. For 
this purpose, all employees of the members of the controlled 
group of the contributing sponsor are to be taken into account. 
In the case of a plan to which more than one unrelated 
contributing sponsor contributes, employees of all contributing 
sponsors (and their controlled group members) are to be taken 
into account in determining whether the plan was a plan of a 
small employer.
    A new plan means a defined benefit plan maintained by a 
contributing sponsor if, during the 36-month period ending on 
the date of adoption of the plan, such contributing sponsor (or 
controlled group member or a predecessor of either) has not 
established or maintained a plan subject to PBGC coverage with 
respect to which benefits were accrued for substantially the 
same employees as in the new plan.

Reduced variable-rate PBGC premium for new plans

    The provision provides that the variable-rate premium is 
phased in for new defined benefit plans over a six-year period 
starting with the plan's first plan year. The amount of the 
variable-rate premium is a percentage of the variable premium 
otherwise due, as follows: zero percent of the otherwise 
applicable variable-rate premium in the first plan year; 20 
percent in the second plan year; 40 percent in the third plan 
year; 60 percent in the fourth plan year; 80 percent in the 
fifth plan year; and 100 percent in the sixth plan year (and 
thereafter).
    A new defined benefit plan is defined as described above 
under the flat-rate premium provision of the provision relating 
to new small employer plans.

Reduced variable-rate PBGC premium for small plans

    In the case of a plan of a small employer, the variable-
rate premium is no more than $5 multiplied by the number of 
plan participants in the plan at the end of the preceding plan 
year. For purposes of the provision, a small employer is a 
contributing sponsor that, on the first day of the plan year, 
has 25 or fewer employees. For this purpose, all employees of 
the members of the controlled group of the contributing sponsor 
are to be taken into account. In the case of a plan to which 
more than one unrelated contributing sponsor contributed, 
employees of all contributing sponsors (and their controlled 
group members) are to be taken into account in determining 
whether the plan was a plan of a small employer.

                             Effective Date

    The reduction of the flat-rate premium for new plans of 
small employers and the reduction of the variable-rate premium 
for new plans is effective with respect to plans established 
after December 31, 2001. The reduction of the variable-rate 
premium for small plans is effective with respect to plan years 
beginning after December 31, 2002.

   H. Authorization for PBGC To Pay Interest on Premium Overpayment 
                                Refunds

(Sec. 209 of the bill and sec. 4007(b) of ERISA)

                              Present Law

    The PBGC charges interest on underpayments of premiums, but 
is not authorized to pay interest on overpayments.

                           Reasons for Change

    The Committee believes that an employer or other person who 
overpays PBGC premiums should receive interest on a refund of 
the overpayment.

                        Explanation of Provision

    The provision allows the PBGC to pay interest on 
overpayments made by premium payors. Interest paid on 
overpayments is to be calculated at the same rate and in the 
same manner as interest charged on premium underpayments.

                             Effective Date

    The provision is effective with respect to interest 
accruing for periods beginning not earlier than the date of 
enactment.

      I. Rules for Substantial Owner Benefits in Terminated Plans

(Sec. 210 of the bill and secs. 4021, 4022, 4043 and 4044 of ERISA)

                              Present Law

    Under present law, the Pension Benefit Guaranty Corporation 
(``PBGC'') provides participants and beneficiaries in a defined 
benefit pension plan with certain minimal guarantees as to the 
receipt of benefits under the plan in case of plan termination. 
The employer sponsoring the defined benefit pension plan is 
required to pay premiums to the PBGC to provide insurance for 
the guaranteed benefits. In general, the PBGC will guarantee 
all basic benefits which are payable in periodic installments 
for the life (or lives) of the participant and his or her 
beneficiaries and are non-forfeitable at the time of plan 
termination. The amount of the guaranteed benefit is subject to 
certain limitations. One limitation is that the plan (or an 
amendment to the plan which increases benefits) must be in 
effect for 60 months before termination for the PBGC to 
guarantee the full amount of basic benefits for a plan 
participant, other than a substantial owner. In the case of a 
substantial owner, the guaranteed basic benefit is phased in 
over 30 years beginning with participation in the plan. A 
substantial owner is one who owns, directly or indirectly, more 
than 10 percent of the voting stock of a corporation or all the 
stock of a corporation. Special rules restricting the amount of 
benefit guaranteed and the allocation of assets also apply to 
substantial owners.

                           Reasons for Change

    The Committee believes that the present-law rules 
concerning limitations on guaranteed benefits for substantial 
owners are overly complicated and restrictive and thus may 
discourage some small business owners from establishing defined 
benefit pension plans.

                        Explanation of Provision

    The provision provides that the 60-month phase-in of 
guaranteed benefits applies to a substantial owner with less 
than 50 percent ownership interest. For a substantial owner 
with a 50 percent or more ownership interest (``majority 
owner''), the phase-in occurs over a 10-year period and depends 
on the number of years the plan has been in effect. The 
majority owner's guaranteed benefit is limited so that it 
cannot be more than the amount phased in over 60 months for 
other participants. The rules regarding allocation of assets 
applies to substantial owners, other than majority owners, in 
the same manner as other participants.

                             Effective Date

    The provision is effective for plan terminations with 
respect to which notices of intent to terminate are provided, 
or for which proceedings for termination are instituted by the 
PBGC, after December 31, 2002.

                               J. Studies

(Sec. 211 of the bill)

                              Present Law

    No provision.

                           Reasons for Change

    The Committee believes it is appropriate to conduct a study 
of new arrangements that might encourage small employers to 
adopt pension plans and a study of the effect of recent 
legislation on coverage.

                        Explanation of Provision

Study on small employer group plans

    The provision directs the Secretary of Labor, in 
consultation with the Secretary of the Treasury, to conduct a 
study to determine (1) the most appropriate form(s) of pension 
plans that would be simple to create and easy to maintain by 
multiple small employers, while providing ready portability of 
benefits for all participants and beneficiaries, (2) how such 
arrangements could be established by employer or employee 
associations, (3) how such arrangements could provide for 
employees to contribute independent of employer sponsorship, 
and (4) appropriate methods and strategies for making such 
pension plan coverage more widely available to American 
workers.
    The Secretary of Labor is required to consider the adequacy 
and availability of existing pension plans and the extent to 
which existing models may be modified to be more accessible to 
both employees and employers. The Secretary of Labor is 
required to issue a report within 18 months, including 
recommendations for one or more model plans or arrangements as 
described above which may serve as the basis for appropriate 
administrative or legislative action.

Study on effect of legislation

    The provision also directs the Secretary of Labor to 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 regarding the effect of the bill and 
title VI of the Economic Growth and Tax Relief Reconciliation 
Act of 2001 (``the 2001 Act'') on pension coverage, including 
any change in the extent of pension plan coverage for low and 
middle-income workers, the levels of pension plan benefits 
generally, the quality of pension plan coverage generally, 
workers' access to and participation in pension plans, and 
retirement security. This report is required to be submitted no 
later than five years after the date of enactment.

                             Effective Date

    The provision is effective on the date of enactment.

       K. Interest Rate Range for Additional Funding Requirements

(Sec. 212 of the bill and sec. 412(l) of the Code)

                              Present Law

In general

    ERISA and the Code impose both minimum and maximum \17\ 
funding requirements with respect to defined benefit pension 
plans. The minimum funding requirements are designed to provide 
at least a certain level of benefit security by requiring the 
employer to make certain minimum contributions to the plan. The 
amount of contributions required for a plan year is generally 
the amount needed to fund benefits earned during that year plus 
that year's portion of other liabilities that are amortized 
over a period of years, such as benefits resulting from a grant 
of past service credit.
---------------------------------------------------------------------------
    \17\ The maximum funding requirement for a defined benefit plan is 
referred to as the full funding limitation. Additional contributions 
are not required if a plan has reached the full funding limitation.
---------------------------------------------------------------------------

Additional contributions for underfunded plans

    Additional contributions are required under a special 
funding rule if a single-employer defined benefit pension plan 
is underfunded.\18\ Under the special rule, a plan is 
considered underfunded for a plan year if the value of the plan 
assets is less than 90 percent of the plan's current 
liability.\19\ The value of plan assets as a percentage of 
current liability is the plan's ``funded current liability 
percentage.''
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    \18\ Plans with no more than 100 participants on any day in the 
preceding plan year are not subject to the special funding rule. Plans 
with more than 100 but not more than 150 participants are generally 
subject to lower contribution requirements under the special funding 
rule.
    \19\ Under an alternative test, a plan is not considered 
underfunded if (1) the value of the plan assets is at least 80 percent 
of current liability and (2) the value of the plan assets was at least 
90 percent of current liability for each of the two immediately 
preceding years or each of the second and third immediately preceding 
years.
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    If a plan is underfunded, the amount of additional required 
contributions is based on certain elements, including whether 
the plan has an unfunded liability related to benefits accrued 
before 1988 or 1995 or to changes in the mortality table used 
to determine contributions, and whether the plan provides for 
unpredictable contingent event benefits (that is, benefits that 
depend on contingencies that are not reliably and reasonably 
predictable, such as facility shutdowns or reductions in 
workforce). However, the amount of additional contributions 
cannot exceed the amount needed to increase the plan's funded 
current liability percentage to 100 percent.

Required interest rate

    In general, a plan's current liability means all 
liabilities to employees and their beneficiaries under the 
plan. The interest rate used to determine a plan's current 
liability must be within a permissible range of the weighted 
average of the interest rates on 30-year Treasury securities 
for the four-year period ending on the last day before the plan 
year begins.\20\ The permissible range is from 90 percent to 
105 percent. As a result of debt reduction, the Department of 
the Treasury does not currently issue 30-year Treasury 
securities.
---------------------------------------------------------------------------
    \20\ The interest rate used under the plan must be consistent with 
the assumptions which reflect the purchase rates which would be used by 
insurance companies to satisfy the liabilities under the plan (section 
412(b)(5)(B)(iii)(II)).
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Timing of plan contributions

    In general, plan contributions required to satisfy the 
funding rules must be made within 8\1/2\ months after the end 
of the plan year. If the contribution is made by such due date, 
the contribution is treated as if it were made on the last day 
of the plan year.
    In the case of a plan with a funded current liability 
percentage of less than 100 percent for the preceding plan 
year, estimated contributions for the current plan year must be 
made in quarterly installments during the current plan year. 
The amount of each required installment is 25 percent of the 
lesser of (1) 90 percent of the amount required to be 
contributed for the current plan year or (2) 100 percent of the 
amount required to be contributed for the preceding plan 
year.\21\
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    \21\ No additional quarterly contributions are due once the plan's 
funded current liability percentage for the plan year reaches 100 
percent.
---------------------------------------------------------------------------

PBGC premiums

    Because benefits under a defined benefit pension plan may 
be funded over a period of years, plan assets may not be 
sufficient to provide the benefits owed under the plan to 
employees and their beneficiaries if the plan terminates before 
all benefits are paid. In order to protect employees and their 
beneficiaries, the Pension Benefit Guaranty Corporation 
(``PBGC'') generally insures the benefits owed under defined 
benefit pension plans. Employers pay premiums to the PBGC for 
this insurance coverage.
    In the case of an underfunded plan, additional PBGC 
premiums are required based on the amount of unfunded vested 
benefits. These premiums are referred to as ``variable rate 
premiums.'' In determining the amount of unfunded vested 
benefits, the interest rate used is 85 percent of the interest 
rate on 30-year Treasury securities for the month preceding the 
month in which the plan year begins.

Special interest rate for 2002 and 2003

    Section 405 of the Job Creation and Worker Assistance Act 
of 2002,\22\ enacted March 9, 2002, provides a special interest 
rate rule applicable in determining the amount of additional 
contributions for plan years beginning after December 31, 2001, 
and before January 1, 2004 (the ``applicable plan years'').\23\
---------------------------------------------------------------------------
    \22\ Public Law 107-147.
    \23\ Under a related special rule, the interest rate used in 
determining the amount of unfunded vested benefits for PBGC variable 
rate premium purposes is increased to 100 percent of the interest rate 
on 30-year Treasury securities for the month preceding the month in 
which the applicable plan year begins.
---------------------------------------------------------------------------
    The special rule expands the permissible range of the 
statutory interest rate used in calculating a plan's current 
liability for purposes of applying the additional contribution 
requirements for the applicable plan years. The permissible 
range is from 90 percent to 120 percent for these years. Use of 
a higher interest rate under the expanded range will affect the 
plan's current liability, which may in turn affect the need to 
make additional contributions and the amount of any additional 
contributions.
    Because the quarterly contributions requirements are based 
on current liability for the preceding plan year, a special 
rule is provided for applying these requirements for plan years 
beginning in 2002 (when the expanded range first applies) and 
2004 (when the expanded range no longer applies). In each of 
those years (``present year''), current liability for the 
preceding year is redetermined, using the permissible range 
applicable to the present year. This redetermined current 
liability will be used for purposes of the plan's funded 
current liability percentage for the preceding year, which may 
affect the need to make quarterly contributions and for 
purposes of determining the amount of any quarterly 
contributions in the present year, which is based in part on 
the preceding year.

                           Reasons for Change

    Additional contributions are due within 8\1/2\ months after 
the end of the plan year, rather than on a quarterly basis 
during the plan year, if the plan was sufficiently funded in 
the preceding plan year. The Committee believes that the 
special interest rate rule provided under the Job Creation and 
Worker Assistance Act of 2002 should be extended to 
contributions for the 2001 plan year that are due within 8\1/2\ 
months after the end of the plan year.

                        Explanation of Provision

    Under the provision, the special interest rate rule for 
2002 and 2003 applies also in determining the amount of 
additional contributions for the 2001 plan year that must be 
contributed to the plan within 8\1/2\ months after the end of 
the plan year (e.g., by September 15, 2002). The provision does 
not affect quarterly contributions required to be made for the 
2001 plan year.

                             Effective Date

    The provision is effective as if included in section 405 of 
the Job Creation and Worker Assistance Act of 2002.

               L. Provisions Relating to Plan Amendments

(Sec. 213 of the bill)

                              Present Law

    Plan amendments to reflect amendments to the law generally 
must be made by the time prescribed by law for filing the 
income tax return of the employer for the employer's taxable 
year in which the change in law occurs.

                           Reasons for Change

    The Committee believes that employers should have adequate 
time to amend their plans to reflect amendments to the law 
while operating their plans in compliance with such amendments.

                        Explanation of Provision

    The provision permits certain plan amendments made pursuant 
to the changes made by title II of the bill or by title VI of 
the Economic Growth and Tax Relief Reconciliation Act of 2001 
(or regulations issued thereunder) to be retroactively 
effective. If the plan amendment meets the requirements of the 
bill, then the plan will be treated as being operated in 
accordance with its terms and the amendment will not violate 
the prohibition of reductions of accrued benefits for purposes 
of the Internal Revenue Code. In order for this treatment to 
apply, the plan amendment is required to be made on or before 
the last day of the first plan year beginning on or after 
January 1, 2005 (January 1, 2007, in the case of a governmental 
plan). If the amendment is required to be made to retain 
qualified status as a result of the changes in the law (or 
regulations), the amendment is required to be made 
retroactively effective as of the date on which the change 
became effective with respect to the plan and the plan is 
required to be operated in compliance until the amendment is 
made. Amendments that are not required to retain qualified 
status but that are made pursuant to the changes made by the 
bill or the 2001 Act (or applicable regulations) could be made 
retroactive as of the first day the plan is operated in 
accordance with the amendment.
    A plan amendment will not be considered to be pursuant to 
the bill or the 2001 Act (or applicable regulations) if it has 
an effective date before the effective date of the provision of 
the bill or Act (or regulations) to which it related. 
Similarly, the provision does not provide relief from section 
411(d)(6) for periods prior to the effective date of the 
relevant provision (or regulations) or the plan amendment.
    The Secretary is authorized to provide exceptions to the 
relief from the prohibition on reductions in accrued benefits. 
It is intended that the Secretary will not permit inappropriate 
reductions in contributions or benefits that are not directly 
related to the provisions of the bill or the 2001 Act. For 
example, it is intended that a plan that incorporates the 
section 415 limits byreference can be retroactively amended to 
impose the section 415 limits in effect before the 2001 Act.\24\ On the 
other hand, suppose a plan incorporates the section 401(a)(17) limit on 
compensation by reference and provides for an employer contribution of 
three percent of compensation. It is expected that the Secretary will 
provide that the plan cannot be amended retroactively to reduce the 
contribution percentage for those participants not affected by the 
section 401(a)(17) limit, even though the reduction will result in the 
same dollar level of contributions for some participants because of the 
increase in compensation taken into account under the plan as a result 
of the increase in the section 401(a)(17) limit under the 2001 Act. As 
another example, suppose that under present law a plan is top-heavy and 
therefore a minimum benefit is required under the plan, and that under 
the provisions of the 2001 Act, the plan is not be considered to be 
top-heavy. It is expected that the Secretary will generally permit 
plans to be retroactively amended to reflect the new top-heavy 
provisions of the 2001 Act.
---------------------------------------------------------------------------
    \24\ See also, section 411(j)(3) of the Job Creation and Worker 
Assistance Act of 2002, which provides a special rule for plan 
amendments adopted on or before June 30, 2002, in connection with the 
Economic Growth and Tax Relief Reconciliation Act of 2001 (the ``2001 
Act''), in the case of a plan that incorporated the section 415 limits 
by reference on June 7, 2001, the date of enactment of the 2001 Act.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective on the date of enactment.

                        TITLE III: STOCK OPTIONS

  A. Exclusion of Incentive Stock Options and Employee Stock Purchase 
                     Plan Stock Options From Wages

(Sec. 301 of the bill and secs. 421(b), 423(c), 3121(a), 3231, and 
        3306(b) of the Code)

                              Present Law

    Generally, when an employee exercises a compensatory option 
on employer stock, the difference between the option price and 
the fair market value of the stock (i.e., the ``spread'') is 
includible in income as compensation. In the case of an 
incentive stock option or an option to purchase stock under an 
employee stock purchase plan (collectively referred to as 
``statutory stock options''), the spread is not included in 
income at the time of exercise.\25\
---------------------------------------------------------------------------
    \25\ Sec. 421.
---------------------------------------------------------------------------
    If the statutory holding period requirements are satisfied 
with respect to stock acquired through the exercise of a 
statutory stock option, the spread, and any additional 
appreciation, will be taxed as capital gain upon disposition of 
such stock. Compensation income is recognized, however, if 
there is a disqualifying disposition (i.e., if the statutory 
holding period is not satisfied) of stock acquired pursuant to 
the exercise of a statutory stock option. Compensation income 
is also recognized in the case of a qualifying disposition of 
employee stock purchase plan stock if the option price 
reflected a discount.\26\ Even though compensation income is 
recognized upon such dispositions, employers are generally not 
required to withhold income taxes.
---------------------------------------------------------------------------
    \26\ The amount that must be included in income is the lesser of 
(1) the excess of the fair market value of the stock at the time of 
disposition over the amount paid for the stock, or (2) the excess of 
the fair market value of the stock at the time the option was granted 
over the option price.
---------------------------------------------------------------------------
    Federal Insurance Contribution Act (``FICA'') and Federal 
Unemployment Tax Act (``FUTA'') taxes (collectively referred to 
as ``employment taxes'') are generally imposed in an amount 
equal to a percentage of wages paid by the employer with 
respect to employment.\27\ The applicable Code provisions \28\ 
do not provide an exception from FICA and FUTA taxes for wages 
paid to an employee arising from the exercise of a statutory 
stock option, i.e., for the excess of the fair market value of 
the stock at the time of exercise over the amount paid for the 
stock by the individual.
---------------------------------------------------------------------------
    \27\ Secs. 3101, 3111 and 3301.
    \28\ Secs. 3121 and 3306.
---------------------------------------------------------------------------
    In 1971, the Internal Revenue Service issued a revenue 
ruling addressing the withholding obligations of a company upon 
the exercise of a qualified stock option (the predecessor to 
incentive stock options).\29\ The ruling concluded that there 
is no payment of wages for purposes of FICA, FUTA, or income 
tax withholding at the time of exercise. There has been 
uncertainty as to the extent to which a similar result applies 
on exercise of an incentive stock option or employee stock 
purchase plan.
---------------------------------------------------------------------------
    \29\ Rev. Rul. 71-52, 1971-1 C.B. 278.
---------------------------------------------------------------------------
    In January 2001, the Internal Revenue Service issued notice 
of its intent to clarify, through future guidance, the 
application of FICA, FUTA, and Federal income tax withholding 
to statutory stock options.\30\ The notice provided that in the 
case of a statutory stock option exercised before January 1, 
2003, the IRS would not assess FICA or FUTA taxes upon the 
exercise of the option and would not treat the disposition of 
stock acquired pursuant to the exercise of a statutory stock 
option as subject to Federal income tax withholding. The notice 
also provided that the Internal Revenue Service would honor 
claims for refunds of FICA and FUTA taxes paid. The notice also 
concluded that Revenue Ruling 71-52 is obsolete and that its 
holding does not apply to the exercise of statutory stock 
options.
---------------------------------------------------------------------------
    \30\ Notice 2001-14, 2001-6 I.R.B. 516.
---------------------------------------------------------------------------
    Proposed Treasury regulations issued in November 2001 
provide that the payment of FICA and FUTA taxes upon the 
exercise of statutory stock options will apply to the exercise 
of statutory stock options on or after January 1, 2003. Federal 
income tax withholding is not required under the proposed 
regulations. Consistent with Notice 2001-14, the Internal 
Revenue Service will not assess FICA or FUTA taxes upon the 
exercise of a statutory stock option before 2003.

                           reasons for change

    The Committee believes that it is appropriate to clarify 
the treatment of statutory stock options for employment tax and 
income tax withholding purposes. Until January 2001, the IRS 
had not published guidance with respect to the imposition of 
employment taxes and income tax withholding on statutory stock 
options. Many taxpayers relied on guidance published with 
respect to qualified stock options (the predecessor to 
incentive stock options) to take the position that no 
employment taxes and income tax withholding was required with 
respect to statutory stock options. Prior to its January 2001 
announcement, the IRS was inconsistent in its treatment of 
taxpayers with respect to this issue and did not uniformly 
challenge taxpayers who did not collect employment taxes and 
withhold income taxes on statutory stock options. In the mid-
1990's, some IRS regional offices started to enforce the 
imposition of these taxes and withholding with respect to 
statutory stock options, but the issue was not enforced 
consistently throughout the country. It is the Committee's 
belief that a majority of taxpayers did not withhold employment 
and income taxes with respect to statutory stock options. Thus, 
the announced IRS position with respect to this issue would 
alter the treatment of statutory stock options for most 
employers.
    Because there is a specific income tax exclusion with 
respect to statutory stock options, the Committee believes it 
is appropriate to clarify that there is a conforming exclusion 
for employment taxes and income tax withholding. This 
clarification will ensure that taxpayers are treated 
consistently for income and employment tax purposes with 
respect to statutory stock options. Furthermore, this 
clarification will ensure that employees will not be faced with 
a tax increase that will reduce their net paychecks even though 
their total compensation has not changed.
    The clarification will also eliminate the administrative 
burden and cost to employers who, in the absence of the 
Committee bill, would be required to modify their payroll 
systems to provide for the withholding of income and employment 
taxes on statutory stock options that they are not currently 
required to withhold.

                        explanation of provision

    The provision provides specific exclusions from FICA and 
FUTA wages for remuneration on account of the transfer of stock 
pursuant to the exercise of an incentive stock option or under 
an employee stock purchase plan, or any disposition of such 
stock. Thus, under the provision, FICA and FUTA taxes do not 
apply upon the exercise of a statutory stock option.\31\ The 
provision also provides that such remuneration is not taken 
into account for purposes of determining Social Security 
benefits.
---------------------------------------------------------------------------
    \31\ The provision also provides a similar exclusion for wages 
under the Railroad Retirement Tax Act.
---------------------------------------------------------------------------
    Additionally, the provision provides that Federal income 
tax withholding is not required on a disqualifying disposition, 
nor when compensation is recognized in connection with an 
employee stock purchase plan discount. Present law reporting 
requirements continue to apply.

                             effective date

    The provision applies to stock acquired pursuant to 
statutory stock options exercised after the date of enactment. 
It is expected that Treasury and the Internal Revenue Service 
will not attempt to collect FICA or FUTA taxes attributable to 
exercises of statutory stock options before the effective date.

                TITLE IV: SOCIAL SECURITY HELD HARMLESS

        A. No Impact on Social Security and Medicare Trust Funds

(Sec. 401 of the bill)

                              present law

    Present law provides for the transfer of employment taxes 
and self-employment taxes to the Social Security and Medicare 
trust funds. In addition, the income tax collected with respect 
to a portion of Social Security benefits included in gross 
income is transferred to the Social Security and Medicare trust 
funds.

                           reasons for change

    The Committee finds it appropriate to ensure that present-
law transfers to the Social Security and Medicare trust funds 
will not be reduced as a result of the tax relief being 
provided under the Committee bill.

                        explanation of provision

    Under the bill, the amounts transferred to the Social 
Security and Medicare trust funds are determined as if the bill 
is not enacted. Thus, there will be no reduction in transfers 
to these funds as a result of the bill.

                             effective date

    The provision is effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 3669.

                       motion to report the bill

    The bill, H.R. 3669, as amended, was ordered favorably 
reported by a rollcall vote of 36 yeas to 2 nays (with a quorum 
being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................        X   ........  .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................        X   ........  .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................        X   ........  .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................        X   ........  .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................        X   ........  .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................        X   ........  .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........  ........  .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................        X   ........  .........  Mr. Becerra......  ........  ........  .........
Mr. English....................        X   ........  .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................        X   ........  .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          votes on amendments

    A rollcall vote was conducted on the following amendments 
to the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Rangel, which would impose a 20-percent 
excise tax on the proceeds from the sale of stock by executives 
who were not restricted like plan participants with respect to 
the employee's ability to transfer the stock, was defeated by a 
rollcall vote of 16 yeas to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...  ........  ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Matsui, which would require deferred 
compensation to be included in income of the employee in the 
year earned if the benefit is secured (directly or indirectly) 
with assets not owned by the employer and not subject to the 
claims of the creditors, was defeated by a rollcall vote of 16 
yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
       Representatives            Yea       Nay        Present      Representative     Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas...................  ........        X   ...............  Mr. Rangel            X   .........  .......
Mr. Crane....................  ........        X   ...............   Mr. Stark            X   .........  .......
Mr. Shaw.....................  ........        X   ...............  Mr. Matsui            X   .........  .......
Mrs. Johnson.................  ........        X   ...............        Mr. Coyne       X   .........  .......
Mr. Houghton.................  ........        X   ...............   Mr. Levin            X   .........  .......
Mr. Herger...................  ........        X   ...............        Mr. Cardin      X   .........  .......
Mr. McCrery..................  ........        X   ...............  Mr. McDermott         X   .........  .......
Mr. Camp.....................  ........        X   ...............  Mr. Kleczka           X   .........  .......
Mr. Ramstad..................  ........        X   ...............  Mr. Lewis (GA)        X   .........  .......
Mr. Nussle...................  ........        X   ...............    Mr. Neal            X   .........  .......
Mr. Johnson..................  ........        X   ...............  Mr. McNulty           X   .........  .......
Ms. Dunn.....................  ........        X   ...............  Mr. Jefferson   ........  .........  .......
Mr. Collins..................        X   ........  ...............  Mr. Tanner      ........  .........  .......
Mr. Portman..................  ........        X   ...............  Mr. Becerra           X   .........  .......
Mr. English..................  ........        X   ...............  Mrs. Thurman          X   .........  .......
Mr. Watkins..................  ........        X   ...............  Mr. Doggett           X   .........  .......
Mr. Hayworth.................  ........        X   ...............  Mr. Pomeroy           X   .........  .......
Mr. Weller...................  ........        X   ...............
Mr. Hulshof..................  ........        X   ...............
Mr. McInnis..................  ........        X   ...............
Mr. Lewis (KY)...............  ........        X   ...............
Mr. Foley....................  ........        X   ...............
Mr. Brady....................  ........        X   ...............
Mr. Ryan.....................  ........        X   ...............
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Doggett, regarding notification of plan 
and plan beneficiaries of certain insider stock transactions, 
was defeated by a rollcall vote of 14 yeas to 21 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...  ........  ........  .........
Mr. Nussle.....................  ........  ........  .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........  ........  .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........  ........  .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 3669 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2002-2006:

       ESTIMATED REVENUE EFFECTS OF H.R. 3669, THE ``EMPLOYEE RETIREMENT SAVINGS BILL OF RIGHTS,'' AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS
                                                     [Fiscal years 2002-2007 in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 Provision                              Effective               2002       2003       2004       2005       2006       2007     2002-07
--------------------------------------------------------------------------------------------------------------------------------------------------------
Defined Contribution Plan Protection
 Provisions:
    1. Excise tax on failure of pension      pyba 12/31/02                                            Negligible Revenue Effect
     plans to provide notice to
     participants regarding investment
     education.
    2. Excise tax on failure of pension      pyba 12/31/02                                            Negligible Revenue Effect
     plans to provide notice to
     participants of transaction
     restriction periods.
    3. Diversification requirements for      pyba 12/31/02                                            Negligible Revenue Effect
     defined contributions plans that hold
     employer securities.
    4. Treatment of employer-provided        tyba 12/31/02                   .........        -13        -24        -25        -22        -23       -107
     qualified retirement planning services.
    5. Special rules.......................  DOE                                                          No Revenue Effect
      Total of Defined Contribution Plan     ..............................  .........        -13        -24        -25        -22        -23       -107
       Protection Provisions.
Other Tax Provisions Relating to Pensions:
    1. Amendments to Retirement Protection   pyba 12/31/01                                            Negligible Revenue Effect
     Act of 1994.
    2. Pension plan reporting                pybo/a 1/1/02                                                No Revenue Effect
     simplification \1\.
    3. Improvement to Employee Plans         DOE                                                      Negligible Revenue Effect
     Compliance Resolution System \1\.
    4. Flexibility in nondiscrimination,     DOE                                                      Negligible Revenue Effect
     coverage, and line of business rules
     \1\.
    5. Extension to all governmental plans   pyba 12/31/02                                            Negligible Revenue Effect
     of moratorium on application of
     certain nondiscrimination rules
     applicable to State and local
     government plans.
    6. Notice and consent period regarding   yba 12/31/02                                             Negligible Revenue Effect
     distributions.
    7. Reduce flat-rate PBGC premiums for    pea 12/31/01                    .........      (\3\)      (\3\)      (\3\)      (\3\)      (\3\)         -1
     new plans of small employers \2\.
    8. Reduce variable-rate PBGC premium     pea 12/31/01 & pyba 12/31/02    .........         -7         -9         -9         -9         -9        -43
     for new and small plans \2\.
    9. Authorization for PBGC to pay         iafpbnet DOE                    .........         -3         -3         -3         -3         -3        -15
     interest on premium overpayment
     refunds \2\.
    10. Rules for substantial owner          (\4\)                           .........      (\3\)      (\3\)      (\3\)      (\3\)      (\3\)         -1
     benefits in terminated plans \2\.
    11. Studies............................  DOE                                                          No Revenue Effect
    12. Interest rate range for additional   (\5\)                                 994        994       -270       -593       -485       -327        313
     funding requirements.
    13. Provisions relating to plan          DOE                                                          No Revenue Effect
     amendments.
      Total of Other Tax Provisions          ..............................        994        984       -282       -605       -497       -339        253
       Relating to Pensions.
Stock Options--Exclusion of Incentive Stock  (\7\)                           .........     -1,771     -2,283     -2,086     -2,224     -2,165    -10,529
 Options and Employee Stock Purchase Plan
 Stock Options From Wages.\6\
Social Security Held Harmless..............  DOE                                                          No Revenue Effect
      Net Total............................  ..............................        994       -800     -2,589     -2,716     -2,743     -2,527    -10,383
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Directs the Secretary of the Treasury to modify rules through regulations.
\2\ Estimate provided by the Congressional Budget Office and is preliminary and subject to change.
\3\ Loss of less than $500,000.
\4\ Effective for plan terminations with respect to which notices of intent to terminate are provided, or for which proceedings for termination are
  instituted by the PBGC, after December 31, 2002.
\5\ Effective as if included in section 405 of the ``Job Creation and Worker Assistance Act of 2002.''
\6\ There is uncertainty with respect to the potential revenue effects from the proposal. Due to the long-standing administrative position of the IRS
  with respect to the imposition of employment taxes on incentive stock options and employee stock purchase plans, the level of compliance that can be
  expected with the revised IRS position is unclear.
\7\ Effective for stock acquired pursuant to statutory stock options exercised after the date of enactment.

Legend for ``Effective'' column: DOE = date of enactment; iafpbnet = interest accruing for periods beginning not earlier than; pea = plans established
  after; pyba = plan years beginning after; and pybo/a = plan years beginning on or after.

Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves new or increased budget authority (as detailed in 
the statement by the Congressional Budget Office (``CBO''); see 
Part IV.C., below). The Committee further states that the 
revenue reducing provisions involve increased tax expenditures 
(see amounts in table in Part IV.A., above).

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                                    March 20, 2002.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3669, the Employee 
Retirement Savings Bill of Rights.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Erin 
Whitaker.
            Sincerely,
                                            Dan L. Crippen,
                                                          Director.
    Enclosure.

H.R. 3669--Employee Retirement Savings Bill of Rights

    Summary: H.R. 3669 would impose an excise tax on pensions 
plans if participants are not given certain information, and if 
the plans do not allow participants greater diversification of 
assets in contribution plans then is generally required under 
current law. The bill would exclude incentive stock options and 
employee stock purchase plan stock options from Federal 
Insurance Contribution Act (FICA) and Federal Unemployment Tax 
Act (FUTA) wages if exercised after the date of enactment. It 
also would make numerous changes to the Internal Revenue Code 
(IRC) and the Employee Retirement Income Security Act of 1974 
(ERISA) that would affect the taxation and operation of private 
pension plans.
    CBO and the Joint Committee on Taxation (JCT) estimate that 
the bill would increase federal revenues by $994 million in 
2002, but reduce federal revenues by $10.3 billion over the 
2002-2007 period and by $24.4 billion over the 2002-2012 
period. CBO estimates that the bill would increase direct 
spending by $6 million 2003, by $46 million over the 2003-2007 
period, and by $104 million over the 2003-2012 period. Since 
this bill would affect direct spending and revenues, pay-as-
you-go procedures would apply.
    JCT has determined that the tax provisions of H.R. 3369 
contain no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act (UMRA). CBO has 
determined that the non-tax provisions of the bill contain no 
mandates and would not affect the budgets of state, local, or 
tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3669 is shown in the following table. 
The costs of this legislation would fall within budget function 
600 (income security).

----------------------------------------------------------------------------------------------------------------
                                                            By fiscal year, in millions of dollars--
                                               -----------------------------------------------------------------
                                                   2002       2003       2004       2005       2006       2007
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Treatment of Qualified Retirement Planning              0        -13        -24        -25        -22        -23
 Services.....................................
Interest Rate Range for Additional Funding            994        994       -270       -593       -485       -327
 Requirements.................................
Exclusion of Certain Stock Options from Wages.          0     -1,771     -2,283     -2,086     -2,224     -2,165
                                               -----------------------------------------------------------------
      Total Revenues..........................        994       -790     -2,577     -2,704     -2,731     -2,515
                                               =================================================================
                                           CHANGES IN DIRECT SPENDING

Reduced PBGC Flat-Rate Premiums...............          0          1          1          2          2          2
Reduced PBGC Variable Premiums................          0          2          4          5          6          6
Payment of Interest on PBGC Premium                     0          3          3          3          3          3
 Overpayment..................................
Benefits Paid to Substantial Owners...........          0        (*)        (*)        (*)        (*)        (*)
                                               -----------------------------------------------------------------
      Total Additional Outlays................          0          6          8         10         11         11
                                               =================================================================
                                                  TOTAL CHANGES

Net Decrease in Budget Surplus................          0       -796     -2,585     -2,714     -2,742     -2,526
----------------------------------------------------------------------------------------------------------------
Notes.--Components may not sum to totals because of rounding.
*=Less than $550,000.

Sources: CBO and Joint Committee on Taxation.

Basis of estimate

            Revenues
    All estimates of the revenue proposals in the bill were 
provided by JCT. The provision that would exclude certain stock 
options from wages would have the greatest effect on revenues 
if enacted, with a loss of revenue of $10.5 billion over the 
2002-2007 period and $23.2 billion over the 2002-2012 period.
    The JCT estimate emphasizes that the potential revenue 
effects from the proposal are uncertain. The JCT report (JCX-
16-02) indicates that ``due to the long-standing administrative 
position of the IRS with respect to the imposition of 
employment taxes on incentive stock options and employee stock 
purchase plans, the level of compliance that can be expected 
with the revised IRS position is unclear.''
            Direct spending
    Reduced Flat-Rate Premiums Paid to the PBGC. Under current 
law, defined benefit pension plans operated by a single 
employer pay two types of annual premiums to the Pension 
Benefit Guaranty Corporation (PBGC). All covered plans are 
subject to a flat-rate premium of $19 per participant. In 
addition, underfunded plans must also pay a variable premium 
that depends on the amount by which the plan's liabilities 
exceed its assets.
    The bill would reduce the flat-rate premium from $19 to $5 
per participant for plans established by employers with 100 or 
fewer employees during the first five years of the plan's 
operation. According to information obtained from the PBGC, 
approximately 7,500 plans would eventually qualify for this 
reduction. Those plans cover an average of about 10 
participants each. CBO estimates that the change would reduce 
the PBGC's premium income, which is classified as an offsetting 
collection, by about $1 million in 2003 and by about $8 million 
over the 2003-2007 period.
    Reduced Variable Premiums Paid to the PBGC. H.R. 3669 would 
make two changes affecting the variable-rate premium paid by 
underfunded plans. First, for all new plans that are 
underfunded, the bill would phase in the variable-rate premium. 
In the first year, plans would pay nothing. In the succeeding 
four years, they would pay 20 percent, 40 percent, 60 percent, 
and 80 percent, respectively, of the full amount. In the sixth 
and later years, they would pay the full variable-rate premium 
determined by their funding status. On the basis of information 
from the PBGC, CBO estimates that this change would affect the 
premiums of approximately 250 plans each year. It would reduce 
the PBGC's total premium receipts by about $19 million over the 
2003-2007 period.
    The bill would also reduce the variable-rate premium paid 
by all underfunded plans (not just new plans) established by 
employers with 25 or fewer employees. Under the bill, the 
variable-rate premium per participant paid by those plans would 
not exceed $5 multiplied by the number of participants in the 
plan. CBO estimates that approximately 2,500 plans would have 
their premium payments to the PBGC reduced by this provision 
beginning in 2003. As a result, premium receipts would decline 
by $1 million in 2004 and by $4 million over the 2004-2007 
period.
    Authorization for the PBGC to Pay Interest on Premium 
Overpayment Refunds. The legislation would authorize the PBGC 
to pay interest to plan sponsors on premium overpayments. 
Interest paid on overpayments would be calculated at the same 
rate as interest charged on premium underpayments. On average, 
PBGC receives $19 million per year in premium overpayments, 
charges an interest rate of 8 percent for underpayments, and 
experiences a two-year lag between the receipt of payments and 
the issuance of refunds. Based on this information, CBO 
estimates that direct spending would increase by $3 million 
annually.
    Substantial Owner Benefits in Terminated Plans. H.R. 3669 
would simplify the rules by which the PBGC pays benefits to 
substantial owners (those with an ownership interest of at 
least 10 percent) of terminated pension plans. Only about one-
third of the plans taken over by the PBGC involve substantial 
owners, and the change in benefits paid to owner-employees 
under this provision would be less than $500,000 annually.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in outlays and governmental receipts that are subject 
to pay-as-you-go procedures are shown in the following table. 
For the purposes of enforcing pay-as-you-go procedures, only 
the effects through 2006 are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            By fiscal year, in millions of dollars--
                                      ------------------------------------------------------------------------------------------------------------------
                                        2002    2003      2004       2005       2006       2007       2008       2009       2010       2011       2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts..................    994     -790     -2,577     -2,704     -2,731     -2,515     -2,866     -2,849     -2,800     -2,765     -2,845
Changes in outlays...................      0        6          8         10         11         11         11         11         12         12         12
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: JCT has 
determined that the tax provisions of H.R. 3669 contain no 
intergovernmental or private-sector mandates as defined in 
UMRA. CBO has determined that the non-tax provisions of the 
bill contain no mandates and would not affect the budgets of 
state, local, or tribal governments.
    Estimate prepared by: Federal Revenues: Erin Whitaker; 
Pension Benefit Guaranty Corporation: Geoff Gerhardt; Impact on 
State, Local, and Tribal Governments: Leo Lex; and Impact on 
the Private Sector: Bruce Vavrichek.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis and G. Thomas Woodward, Assistant 
Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning the revenue laws applicable to 
retirement plans and their affect of retirement security, as 
well as review of employment tax provisions, that the Committee 
concluded that it is appropriate and timely to enact the 
revenue provisions included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for any 
measure that authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises * * * ''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of Treasury) to provide a 
tax complexity analysis. The complexity analysis is required 
for all legislation reported by the House Committee on Ways and 
Means, the Senate Committee on Finance, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
widespread applicability to individuals or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Internal Revenue Code and that have 
``widespread applicability'' to individuals or small 
businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                    INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *

                       Subtitle A--Income Taxes

           *       *       *       *       *       *       *

                 CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *

              Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *

        PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *

SEC. 132. CERTAIN FRINGE BENEFITS.

  (a) * * *

           *       *       *       *       *       *       *

  (m) Qualified Retirement Planning Services.--
          (1) * * *

           *       *       *       *       *       *       *

          (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.

           *       *       *       *       *       *       *

               Subchapter D--Deferred compensation, etc.

           *       *       *       *       *       *       *

       PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.

           *       *       *       *       *       *       *

                        Subpart A--General rule

           *       *       *       *       *       *       *

SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.

  (a) Requirements for Qualification.--A trust created or 
organized in the United States and forming part of a stock 
bonus, pension, or profit-sharing plan of an employer for the 
exclusive benefit of his employees or their beneficiaries shall 
constitute a qualified trust under this section--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Special rules relating to nondiscrimination 
        requirements.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) [State and local governmental plans] 
                Governmental plans.--Paragraphs (3) and (4) 
                shall not apply to a governmental plan (within 
                the meaning of [section 414(d)) maintained by a 
                State or local government or political 
                subdivision thereof (or agency or 
                instrumentality thereof).] section 414(d)).

           *       *       *       *       *       *       *

          (26) Additional participation requirements.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) [Exception for state and local 
                governmental plans] Exception for governmental 
                plans.--This paragraph shall not apply to a 
                governmental plan (within the meaning of 
                [section 414(d)) maintained by a State or local 
                government or political subdivision thereof (or 
                agency or instrumentality thereof).] section 
                414(d)).

           *       *       *       *       *       *       *

          (28) Additional requirements relating to employee 
        stock ownership plans.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Application.--This paragraph shall not 
                apply to a plan to which paragraph (35) 
                applies.

           *       *       *       *       *       *       *

          (35) Diversification requirements for defined 
        contribution plans that hold employer securities.--
                  (A) In general.--In the case of a defined 
                contribution plan described in this subsection 
                that includes a trust which is exempt from tax 
                under section 501(a) and which holds employer 
                securities that are readily tradable on an 
                established securities market, such trust shall 
                not constitute a qualified trust under this 
                section unless such plan meets the requirements 
                of subparagraphs (B), (C), and (D).
                  (B) Elective deferrals and employee 
                contributions invested in employer 
                securities.--In the case of the portion of the 
                account attributable to elective deferrals and 
                employee contributions which is invested in 
                employer securities, a plan meets the 
                requirements of this subparagraph if each 
                applicable individual in such plan may elect to 
                direct the plan to divest up to the applicable 
                percentage of such securities in the 
                individual's account and to reinvest an 
                equivalent amount in other investment options 
                which meet the requirements of subparagraph 
                (E).
                  (C) Matching and certain other 
                contributions.--
                          (i) In general.--In the case of the 
                        portion of the account attributable to 
                        contributions to which this 
                        subparagraph applies and which is 
                        invested in employer securities, a plan 
                        meets the requirements of this 
                        subparagraph if each applicable 3-year 
                        individual in the plan may elect to 
                        direct the plan to divest up to the 
                        applicable percentage of such 
                        securities in the individual's account 
                        and to reinvest an equivalent amount in 
                        other investment options which meet the 
                        requirements of subparagraph (E).
                          (ii) Contributions to which this 
                        subparagraph applies.--This 
                        subparagraph shall apply to--
                                  (I) matching contributions 
                                (as defined in subsection 
                                (m)(4)(A)),
                                  (II) qualified nonelective 
                                contributions (as defined in 
                                subsection (m)(4)(C)), and
                                  (III) contributions made in 
                                order to meet the requirements 
                                of subsection (k)(12)(C).
                          (iii) Applicable 3-year individual.--
                        For purposes of clause (i), the term 
                        ``applicable 3-year individual'' means 
                        any individual who 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 (G)(i)(I).
                  (D) Other employer contributions.--
                          (i) In general.--In the case of the 
                        portion of the account attributable to 
                        employer contributions (other than 
                        contributions to which subparagraph (B) 
                        or (C) applies) which is invested in 
                        employer securities, a plan meets the 
                        requirements of this subparagraph if 
                        each applicable 5-year individual 
                        described in clause (ii) may elect to 
                        direct the plan to divest up to the 
                        applicable percentage of such 
                        securities in the individual's account 
                        and to reinvest an equivalent amount in 
                        other investment options which meet the 
                        requirements of subparagraph (E).
                          (ii) Applicable 5-year individual.--
                        For purposes of clause (i), the term 
                        ``5-year individual'' means any 
                        individual who would be an applicable 
                        individual if only participants in the 
                        plan who have completed at least 5 
                        years of service (as determined under 
                        section 411(a)) were taken into account 
                        under subparagraph (G)(i)(I).
                  (E) Investment options.--The requirements of 
                this subparagraph are met if the plan offers 
                not less than 3 investment options (not 
                inconsistent with regulations prescribed by the 
                Secretary) other than employer securities.
                  (F) Election.--Elections under this paragraph 
                may made not less frequently than quarterly.
                  (G) Other definitions and rules.--For 
                purposes of this paragraph--
                          (i) Applicable individual.--The term 
                        ``applicable individual'' means--
                                  (I) any participant in the 
                                plan,
                                  (II) any beneficiary who is 
                                an alternate payee (within the 
                                meaning of section 414(p)(8)) 
                                under an applicable qualified 
                                domestic relations order 
                                (within the meaning of section 
                                414(p)(1)(A)), and
                                  (III) any beneficiary of a 
                                deceased participant or 
                                alternate payee.
                          (ii) Elective deferrals.--The term 
                        ``elective deferrals'' means an 
                        employer contribution described in 
                        section 402(g)(3)(A).
                          (iii) Employer securities.--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.
                          (iv) Employee stock ownership plan.--
                        The term ``employee stock ownership 
                        plan'' shall have the same meaning 
                        given to such term by section 
                        4975(e)(7).
                          (v) Applicable percentage.--
                                  (I) In general.--The 
                                applicable percentage shall be 
                                as follows:
            Plan years                                        Applicable
            beginning in:                                    percentage:

                2003....................................            20  
                2004....................................            40  
                2005....................................            60  
                2006....................................            80  
                2007 or thereafter......................          100.  

                                  (II) Elective deferrals 
                                treated as separate plan not 
                                individual account plan.--In 
                                the case of elective deferrals 
                                and employee contributions (and 
                                any earnings allocable thereto) 
                                held within a plan treated as a 
                                separate plan as of the date of 
                                the enactment of this paragraph 
                                under section 407(b)(2) of the 
                                Employee Retirement Income 
                                Security Act of 1974, for 
                                purposes of subparagraph (B) 
                                the applicable percentage shall 
                                be 100 percent.
                                  (III) 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 years 2003 and 
                                2004, the applicable percentage 
                                shall be the greater of the 
                                amount determined under 
                                subclause (I) or the percentage 
                                determined under paragraph (28) 
                                (determined as if paragraph 
                                (28) applied to a plan 
                                described in this paragraph).
                          (vi) Coordination with paragraph 
                        (28).--Subparagraphs (B), (C), and (D) 
                        shall apply to the extent that the 
                        amount attributable to the applicable 
                        percentage under such subparagraph 
                        exceeds the amount to which a prior 
                        election under such subparagraph or 
                        paragraph (28) applies.
                  (H) Exception for certain esops.--This 
                paragraph shall apply to an employee stock 
                ownership plan only if the plan holds amounts 
                attributable to deferrals or contributions to 
                which subparagraph (B) or (C) apply.

           *       *       *       *       *       *       *

  (k) Cash or Deferred Arrangements.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Application of participation and discrimination 
        standards.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) Governmental plans.--A governmental plan 
                (within the meaning of section 414(d) 
                [maintained by a State or local government or 
                political subdivision thereof (or agency or 
                instrumentality thereof)] shall be treated as 
                meeting the requirements of this paragraph.

           *       *       *       *       *       *       *

SEC. 403. TAXATION OF EMPLOYEE ANNUITIES.

  (a) * * *
  (b) Taxability of Beneficiary Under Annuity Purchased by 
Section 501(c)(3) Organization or Public School.--
          (1) * * *

           *       *       *       *       *       *       *

                  (B) in the second sentence by striking ``or 
                any amount received by a former employee after 
                the fifth taxable year following the taxable 
                year in which such employee was terminated''.
          (3) Includible compensation.--For purposes of this 
        subsection, the term ``includible compensation'' means, 
        in the case of any employee, the amount of compensation 
        which is received from the employer described in 
        paragraph (1)(A), and which is includible in gross 
        income (computed without regard to section 911) for the 
        most recent period (ending not later than the close of 
        the taxable year) which under paragraph (4) may be 
        counted as one year of service, and which precedes the 
        taxable year by no more than five years. Such term does 
        not include any amount contributed by the employer for 
        any annuity contract to which this subsection applies. 
        Such term includes--
                  (A) any elective deferral (as defined in 
                section 402(g)(3), and
                  (B) any amount which is contributed or 
                deferred by the employer at the election of the 
                employee and which is not includible in the 
                gross income of the employee by reason of 
                section 125, 132(f)(4), 132(m)(4), or 457.

           *       *       *       *       *       *       *

SEC. 409. QUALIFICATIONS FOR TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Right To Demand Employer Securities; Put Option.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Exception where employee elected 
        diversification.--Paragraph (1)(A) shall not apply with 
        respect to the portion of the participant's account 
        which the employee elected to have reinvested under 
        section 401(a)(28)(B) or subparagraph (B), (C), or (D) 
        of section 401(a)(35).

           *       *       *       *       *       *       *

                        Subpart B--Special Rules

           *       *       *       *       *       *       *

SEC. 410. MINIMUM PARTICIPATION STANDARDS.

  (a) * * *
  (b) Minimum Coverage Requirements.--
          (1) In general.--A trust shall not constitute a 
        qualified trust under section 401(a) unless such trust 
        is designated by the employer as part of a plan which 
        meets 1 of the following requirements:
                  (A) * * *

           *       *       *       *       *       *       *

                  (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.

           *       *       *       *       *       *       *

SEC. 412. MINIMUM FUNDING STANDARDS.

  (a) * * *

           *       *       *       *       *       *       *

  (l) Additional Funding Requirements for Plans Which Are Not 
Multiemployer Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Current liability.--For purposes of this 
        subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Interest rate and mortality assumptions 
                used.--Effective for plan years beginning after 
                December 31, 1994--
                          (i) Interest rate.--
                                  (I) * * *

           *       *       *       *       *       *       *

                                  (III) Special rule for [2002 
                                and 2003] 2001, 2002, and 
                                2003.--For a plan year 
                                beginning in [2002 or 2003] 
                                2001, 2002, or 2003, 
                                notwithstanding subclause (I), 
                                in the case that the rate of 
                                interest used under subsection 
                                (b)(5) exceeds the highest rate 
                                permitted under subclause (I), 
                                the rate of interest used to 
                                determine current liability 
                                under this subsection may 
                                exceed the rate of interest 
                                otherwise permitted under 
                                subclause (I); except that such 
                                rate of interest shall not 
                                exceed 120 percent of the 
                                weighted average referred to in 
                                subsection (b)(5)(B)(ii).

           *       *       *       *       *       *       *

SEC. 414. DEFINITIONS AND SPECIAL RULES.

  (a) * * *

           *       *       *       *       *       *       *

  (s) Compensation.--For purposes of any applicable provision--
          (1) * * *
          (2) Employer may elect not to treat certain deferrals 
        as compensation.--An employer may elect not to include 
        as compensation any amount which is contributed by the 
        employer pursuant to a salary reduction agreement and 
        which is not includible in the gross income of an 
        employee under section 125, 132(f)(4), 132(m)(4), 
        402(e)(3), 402(h), or 403(b).

           *       *       *       *       *       *       *

SEC. 415. LIMITATIONS ON BENEFITS AND CONTRIBUTIONS UNDER QUALIFIED 
                    PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Limitation for Defined Contribution Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Participant's compensation.--For purposes of 
        paragraph (1)--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Certain deferrals included.--The term 
                ``participant's compensation'' shall include--
                          (i) any elective deferral (as defined 
                        in section 402(g)(3)), and
                          (ii) any amount which is contributed 
                        or deferred by the employer at the 
                        election of the employee and which is 
                        not includible in the gross income of 
                        the employee by reason of section 125, 
                        132(f)(4), 132(m)(4), or 457.

           *       *       *       *       *       *       *

SEC. 417. DEFINITIONS AND SPECIAL RULES FOR PURPOSES OF MINIMUM 
                    SURVIVOR ANNUITY REQUIREMENTS.

  (a) Election To Waive Qualified Joint and Survivor Annuity or 
Qualified Preretirement Survivor Annuity.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Applicable election period defined.--For purposes 
        of this subsection, the term ``applicable election 
        period'' means--
                  (A) in the case of an election to waive the 
                qualified joint and survivor annuity form of 
                benefit, the [90-day] 180-day period ending on 
                the annuity starting date, or

           *       *       *       *       *       *       *

                     PART II--CERTAIN STOCK OPTIONS

           *       *       *       *       *       *       *

SEC. 421. GENERAL RULES.

  (a) * * *

           *       *       *       *       *       *       *

  (b) Effect of Disqualifying Disposition.--If the transfer of 
a share of stock to an individual pursuant to his exercise of 
an option would otherwise meet the requirements of section 
422(a) or 423(a) except that there is a failure to meet any of 
the holding period requirements of section 422(a)(1) or 
423(a)(1), then any increase in the income of such individual 
or deduction from the income of his employer corporation for 
the taxable year in which such exercise occurred attributable 
to such disposition, shall be treated as an increase in income 
or a deduction from income in the taxable year of such 
individual or of such employer corporation in which such 
disposition occurred. 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.

           *       *       *       *       *       *       *

SEC. 423. EMPLOYEE STOCK PURCHASE PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Special Rule Where Option Price Is Between 85 Percent and 
100 Percent of Value of Stock.--If the option price of a share 
of stock acquired by an individual pursuant to a transfer to 
which subsection (a) applies was less than 100 percent of the 
fair market value of such share at the time such option was 
granted, then, in the event of any disposition of such share by 
him which meets the holding period requirements of subsection 
(a), or in the event of his death (whenever occurring) while 
owning such share, there shall be included as compensation (and 
not as gain upon the sale or exchange of a capital asset) in 
his gross income, for the taxable year in which falls the date 
of such disposition or for the taxable year closing with his 
death, whichever applies, an amount equal to the lesser of--
          (1) * * *

           *       *       *       *       *       *       *

If the option price is not fixed or determinable at the time 
the option is granted, then for purposes of this subsection, 
the option price shall be determined as if the option were 
exercised at such time. In the case of the disposition of such 
share by the individual, the basis of the share in his hands at 
the time of such disposition shall be increased by an amount 
equal to the amount so includible in his gross income. No 
amount shall be required to be deducted and withheld under 
chapter 24 with respect to any amount treated as compensation 
under this subsection.

           *       *       *       *       *       *       *

                      Subtitle C--Employment Taxes

            CHAPTER 21--FEDERAL INSURANCE CONTRIBUTIONS ACT

           *       *       *       *       *       *       *

                    Subchapter C--General Provisions

           *       *       *       *       *       *       *

SEC. 3121. DEFINITIONS.

  (a) Wages.--For purposes of this chapter, the term ``wages'' 
means all remuneration for employment, including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash; except that such term shall not include--
          (1) * * *

           *       *       *       *       *       *       *

          (20) any benefit provided to or on behalf of an 
        employee if at the time such benefit is provided it is 
        reasonable to believe that the employee will be able to 
        exclude such benefit from income under section 74(c), 
        117, or 132; [or]
          (21) in the case of a member of an Indian tribe, any 
        remuneration on which no tax is imposed by this chapter 
        by reason of section 7873 (relating to income derived 
        by Indians from exercise of fishing rights)[.]; or
          (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.

           *       *       *       *       *       *       *

                CHAPTER 22--RAILROAD RETIREMENT TAX ACT

           *       *       *       *       *       *       *

                    Subchapter D--General Provisions

SEC. 3231. DEFINITIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Compensation.--For purposes of this chapter--
          (1) * * *

           *       *       *       *       *       *       *

          (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.

           *       *       *       *       *       *       *

                 CHAPTER 23--FEDERAL UNEMPLOYMENT TAX ACT

           *       *       *       *       *       *       *

SEC. 3306. DEFINITIONS.

  (a) * * *
  (b) Wages.--For purposes of this chapter, the term ``wages'' 
means all remuneration for employment, including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash; except that such term shall not include--
          (1) * * *

           *       *       *       *       *       *       *

          (16) any benefit provided to or on behalf of an 
        employee if at the time such benefit is provided it is 
        reasonable to believe that the employee will be able to 
        exclude such benefit from income under section 74(c), 
        117, or 132; [or]
          (17) any payment made to or for the benefit of an 
        employee if at the time of such payment it is 
        reasonable to believe that the employee will be able to 
        exclude such payment from income under section 
        106(b)[.]; or
          (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.

           *       *       *       *       *       *       *

                 Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *

               CHAPTER 43--QUALIFIED PENSION, ETC., PLANS

        Sec. 4971. Taxes on failure to meet minimum funding standards.
     * * * * * * *
        Sec. 4980G. Failure of applicable plans to provide investment 
                  education notices to participants.
        Sec. 4980H. Failure of applicable plans to provide notice of 
                  transaction restriction periods.

           *       *       *       *       *       *       *

SEC. 4980. TAX ON REVERSION OF QUALIFIED PLAN ASSETS TO EMPLOYER.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definitions and Special Rules.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Exception for employee stock ownership plans.--
                  (A) In general.--If, upon an employer 
                reversion from a qualified plan, any applicable 
                amount is transferred from such plan to an 
                employee stock ownership plan described in 
                section 4975(e)(7) or a tax credit employee 
                stock ownership plan (as described in section 
                409), such amount shall not be treated as an 
                employer reversion for purposes of this section 
                (or includible in the gross income of the 
                employer) [if--
                          [(i) the requirements of 
                        subparagraphs (B), (C), and (D) are 
                        met, and
                          [(ii) under the plan, employer 
                        securities to which subparagraph (B) 
                        applies must, except to the extent 
                        necessary to meet the requirements of 
                        section 401(a)(28), remain in the plan 
                        until distribution to participants in 
                        accordance with the provisions of such 
                        plan.] if the requirements of 
                        subparagraphs (B), (C), and (D) are 
                        met.

           *       *       *       *       *       *       *

SEC. 4980G. FAILURE OF APPLICABLE PLANS TO PROVIDE INVESTMENT EDUCATION 
                    NOTICES TO PARTICIPANTS.

  (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 within 30 
        days.--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) during the 30-day period 
                beginning on 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) Notice Regarding Investment Education.--
          (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 quarterly 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 to the 
        extent that such form is reasonably accessible to the 
        applicable individual.
  (f) Definitions.--For purposes of this section--
          (1) Applicable individual.--The term ``applicable 
        individual'' means--
                  (A) any participant in the applicable pension 
                plan,
                  (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.--The term ``applicable 
        pension plan'' means--
                  (A) a plan described in clause (i), (ii), or 
                (iv) of section 219(g)(5)(A), and
                  (B) 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.
          (3) One-participant retirement plan defined.--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),
                  (B) 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,
                  (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.

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) 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) 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 
                subparagraphs (B) and (C), 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 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.
                  (C) Exception for unforeseeable events.--In 
                the case of a transaction restriction period 
                resulting from the occurrence of an 
                unforeseeable event, such notice shall be 
                provided as soon as reasonably practicable 
                after the occurrence of such event.
          (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 a temporary or 
                indefinite period of at least 3 consecutive 
                days during which rights otherwise provided 
                under the plan to 1 or more applicable 
                individuals to direct investments in the 
                applicable pension plan, obtain loans from such 
                plan, or obtain distributions from such plan 
                are substantially reduced (other than by reason 
                of the application of securities laws or other 
                circumstances specified by the Secretary in 
                regulations). In determining consecutive days, 
                days on which such rights are not normally 
                available shall be disregarded.
                  (B) Special rule for employer securities.--
                          (i) In general.--For purposes of 
                        subparagraph (A), rights shall be 
                        treated as substantially reduced with 
                        respect to directing investments out of 
                        employer securities if rights in effect 
                        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.
          (4) Employer securities.--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.

           *       *       *       *       *       *       *

                              ----------                              

          SECTION 769 OF THE RETIREMENT PROTECTION ACT OF 1994

SEC. 769. SPECIAL FUNDING RULES FOR CERTAIN PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) [Transition] Rules for Certain Plans.--
          (1) In general.--In the case of a plan that--
                  (A) * * *

           *       *       *       *       *       *       *

        the [transition] rules described in paragraph (2) shall 
        apply [for any plan year beginning after 1996 and 
        before 2010].
          [(2) Transition rules.--The transition 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--
                          [(i) the funded current liability 
                        percentage for any plan year beginning 
                        after 1996 and before 2005 shall be 
                        treated as not less than 90 percent if 
                        for such plan year the funded current 
                        liability percentage is at least 85 
                        percent, and
                          [(ii) the funded current liability 
                        percentage for any plan year beginning 
                        after 2004 and before 2010 shall be 
                        treated as not less than 90 percent if 
                        for such plan year the funded current 
                        liability percentage satisfies the 
                        minimum percentage determined according 
                        to the following table:

      

                  [In the case of a     The minimum percentage is:
                   plan year beginning
                   in:
                    2005..............     86 percent
                    2006..............     87 percent
                    2007..............     88 percent
                    2008..............     89 percent
                    2009 and               90 percent.
                   thereafter.

                  [(B) Sections 412(c)(7)(E)(i)(I) of such Code 
                and 302(c)(7)(E)(i)(I) of such Act shall be 
                applied--
                          [(i) by substituting ``85 percent'' 
                        for ``90 percent'' for plan years 
                        beginning after 1996 and before 2005, 
                        and
                          [(ii) by substituting the minimum 
                        percentage specified in the table 
                        contained in subparagraph (A)(ii) for 
                        ``90 percent'' for plan years beginning 
                        after 2004 and before 2010.
                  [(C) In the event the funded current 
                liability percentage of a plan is less than 85 
                percent for any plan year beginning after 1996 
                and before 2005, the transition rules under 
                subparagraphs (A) and (B) shall continue to 
                apply to the plan if contributions for such a 
                plan year are made to the plan in an amount 
                equal to the lesser of--
                          [(i) the amount necessary to result 
                        in a funded current liability 
                        percentage of 85 percent, or
                          [(ii) the greater of--
                                  [(I) 2 percent of the plan's 
                                current liability as of the 
                                beginning of such plan year, or
                                  [(II) the amount necessary to 
                                result in a funded current 
                                liability percentage of 80 
                                percent as of the end of such 
                                plan year.
                For the plan year beginning in 2005 and for 
                each of the 3 succeeding plan years, the 
                transition rules under subparagraphs (A) and 
                (B) shall continue to apply to the plan for 
                such plan year only if contributions to the 
                plan for such plan year equal at least the 
                expected increase in current liability due to 
                benefits accruing during such plan year.]
          (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, 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, the funded 
                current liability percentage for any plan year 
                shall be treated as not less than 100 percent.
                              ----------                              

            SECTION 1505 OF THE TAXPAYER RELIEF ACT OF 1997

SEC. 1505. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN 
                    NONDISCRIMINATION RULES TO STATE AND LOCAL 
                    GOVERNMENTS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Effective Dates.--
          (1) * * *
          (2) Treatment for years beginning before date of 
        enactment.--A governmental plan (within the meaning of 
        section 414(d) of the Internal Revenue Code of 1986) 
        [maintained by a State or local government or political 
        subdivision thereof (or agency or instrumentality 
        thereof)] shall be treated as satisfying the 
        requirements of sections 401(a)(3), 401(a)(4), 
        401(a)(26), 401(k), 401(m), 403 (b)(1)(D) and 
        (b)(12)(A)(i), and 410 of such Code for all taxable 
        years beginning before the date of enactment of this 
        Act.
                              ----------                              

            EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

           *       *       *       *       *       *       *

                  TITLE IV--PLAN TERMINATION INSURANCE

          Subtitle A--Pension Benefit Guaranty Corporation

           *       *       *       *       *       *       *

                             PREMIUM RATES

  Sec. 4006. (a)(1) * * *

           *       *       *       *       *       *       *

  (3)(A) Except as provided in subparagraph (C), the annual 
premium rate payable to the corporation by all plans for basic 
benefits guaranteed under this title is--
          (i) in the case of a single-employer plan, other than 
        a new single-employer plan (as defined in subparagraph 
        (F)) maintained by a small employer (as so defined), 
        for plan years beginning after December 31, 1990, an 
        amount equal to the sum of $19 plus the additional 
        premium (if any) determined under subparagraph (E) for 
        each individual who is a participant in such plan 
        during the plan year;

           *       *       *       *       *       *       *

          (iii) in the case of a multiemployer plan, for plan 
        years beginning after the date of enactment of the 
        Multiemployer Pension Plan Amendments Act of 1980 
        [September 26, 1980], an amount equal to--
                  (I) * * *

           *       *       *       *       *       *       *

                  (IV) $2.60 for each participant, for the 
                ninth plan year, and for each succeeding plan 
                year[.], and
          (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.

           *       *       *       *       *       *       *

  (E)(i) [The] Except as provided in subparagraph (G), the 
additional premium determined under this subparagraph with 
respect to any plan for any plan year shall be an amount equal 
to the amount determined under clause (ii) divided by the 
number of participants in such plan as of the close of the 
preceding plan year.

           *       *       *       *       *       *       *

  (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.
  (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 such sponsors shall be aggregated for 
purposes of determining whether any contributing sponsor is a 
small employer.
  (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 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.

           *       *       *       *       *       *       *

                          PAYMENT OF PREMIUMS

  Sec. 4007. (a) * * *
  (b)(1) If any basic benefit premium is not paid when it is 
due the corporation is authorized to assess a late payment 
charge of not more than 100 percent of the premium payment 
which was not timely paid. The preceding sentence shall not 
apply to any payment of premium made within 60 days after the 
date on which payment is due, if before such date, the 
designated payor obtains a waiver from the corporation based 
upon a showing of substantial hardship arising from the timely 
payment of the premium. The corporation is authorized to grant 
a waiver under this subsection upon application made by the 
designated payor, but the corporation may not grant a waiver if 
it appears that the designated payor will be unable to pay the 
premium within 60 days after the date on which it is due. If 
any premium is not paid by the last date prescribed for a 
payment, interest on the amount of such premium at the rate 
imposed under section 6601(a) of the Internal Revenue Code of 
1986 (relating to interest on underpayment, nonpayment, or 
extensions of time for payment of tax) shall be paid for the 
period from such last date to the date paid.
  (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).

           *       *       *       *       *       *       *

                          Subtitle B--Coverage

                             PLANS COVERED

  Sec. 4021. (a) * * *
  (b) This section does not apply to any plan--
          (1) * * *

           *       *       *       *       *       *       *

          (9) which is established and maintained exclusively 
        for substantial owners [as defined in section 
        4022(b)(6)];

           *       *       *       *       *       *       *

  (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)).

                SINGLE-EMPLOYER PLAN BENEFITS GUARANTEED

  Sec. 4022. (a) * * *
  (b)(1) * * *

           *       *       *       *       *       *       *

  [(5)(A) For purposes of this title, the term ``substantial 
owner'' means an individual who--
          [(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, more than 10 percent of 
        either the capital interest or the profits interest in 
        such partnership, or
          [(iii) 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 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)). For 
purposes of this title an individual is also treated as a 
substantial owner with respect to a plan if, at any time within 
the 60 months preceding the date on which the determination is 
made, he was a substantial owner under the plan.
  [(B) In the case of a participant in a plan under which 
benefits have not been increased by reason of any plan 
amendments and who is covered by the plan as a substantial 
owner, the amount of benefits guaranteed under this section 
shall not exceed the product of--
          [(i) a fraction (not to exceed 1) the numerator of 
        which is the number of years the substantial owner was 
        an active participant in the plan, and the denominator 
        of which is 30, and
          [(ii) the amount of the substantial owner's monthly 
        benefits guaranteed under subsection (a) (as limited 
        under paragraph (3) of this subsection).
  [(C) In the case of a participant in a plan, other than a 
plan described in subparagraph (B), who is covered by the plan 
as a substantial owner, the amount of the benefit guaranteed 
under this section shall, under regulations prescribed by the 
corporation, treat each benefit increase attributable to a plan 
amendment as if it were provided under a new plan. The benefits 
guaranteed under this section with respect to all such 
amendments shall not exceed the amount which would be 
determined under subparagraph (B) if subparagraph (B) applied.]
  (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.

           *       *       *       *       *       *       *

                       Subtitle C--Terminations

           *       *       *       *       *       *       *

                           REPORTABLE EVENTS

  Sec. 4043. (a) * * *

           *       *       *       *       *       *       *

  (c) For purposes of this section a reportable event occurs--
          (1) * * *

           *       *       *       *       *       *       *

          (7) when there is a distribution under the plan to a 
        participant who is a substantial owner as defined in 
        [section 4022(b)(6)] section 4021(d) if--
                  (A) * * *

           *       *       *       *       *       *       *

                          ALLOCATION OF ASSETS

  Sec. 4044. (a) In the case of the termination of a single-
employer plan, the plan administrator shall allocate the assets 
of the plan (available to provide benefits) among the 
participants and beneficiaries of the plan in the following 
order:
          (1) * * *

           *       *       *       *       *       *       *

          (4) Fourth--
                  (A) * * *
                  (B) to the additional benefits (if any) which 
                would be determined under subparagraph (A) if 
                section 4022(b)(5)(B) did not apply.
        For purposes of this paragraph, section 4021 shall be 
        applied without regard to subsection (c) thereof.
  (b) For purposes of subsection (a)--
          (1) * * *
          (2) If the assets available for allocation under any 
        paragraph of subsection (a) (other than paragraphs 
        [(5)] (4), (5), and (6)) are insufficient to satisfy in 
        full the benefits of all individuals which are 
        described in that paragraph, the assets shall be 
        allocated pro rata among such individuals on the basis 
        of the present value (as of the termination date) of 
        their respective benefits described in that paragraph.
          (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.
          [(3)] (4) This paragraph applies if the assets 
        available for allocation under paragraph (5) of 
        subsection (a) are not sufficient to satisfy in full 
        the benefits of individuals described in that 
        paragraph.
                  (A) * * *

           *       *       *       *       *       *       *

          [(4)] (5) If the Secretary of the Treasury determines 
        that the allocation made pursuant to this section 
        (without regard to this paragraph) results in 
        discrimination prohibited by section 401(a)(4) of the 
        Internal Revenue Code of 1986 then, if required to 
        prevent the disqualification of the plan (or any trust 
        under the plan) under section 401(a) or 403(a) of such 
        Code, the assets allocated under subsections (a)(4)(B), 
        (a)(5), and (a)(6) shall be reallocated to the extent 
        necessary to avoid such discrimination.
          [(5)] (6) The term ``mandatory contributions'' means 
        amounts contributed to the plan by a participant which 
        are required as a condition of employment, as a 
        condition of participation in such plan, or as a 
        condition of obtaining benefits under the plan 
        attributable to employer contributions. For this 
        purpose, the total amount of mandatory contributions of 
        a participant is the amount of such contributions 
        reduced (but not below zero) by the sum of the amounts 
        paid or distributed to him under the plan before its 
        termination.
          [(6)] (7) A plan may establish subclasses and 
        categories within the classes described in paragraphs 
        (1) through (6) of subsection (a) in accordance with 
        regulations prescribed by the corporation.

           *       *       *       *       *       *       *

                              ----------                              

                 SECTION 209 OF THE SOCIAL SECURITY ACT

                          definition of wages

  Sec. 209. (a) For the purposes of this title, the term 
``wages'' means remuneration paid prior to 1951 which was wages 
for the purposes of this title under the law applicable to the 
payment of such remuneration, and remuneration paid after 1950 
for employment, including the cash value of all remuneration 
(including benefits) paid in any medium other than cash; except 
that, in the case of remuneration paid after 1950, such term 
shall not include--
          (1) * * *

           *       *       *       *       *       *       *

          (17) Any benefit provided to or on behalf of an 
        employee if at the time such benefit is provided it is 
        reasonable to believe that the employee will be able to 
        exclude such benefit from income under section 74(c), 
        117, or 132 of the Internal Revenue Code of 1986; [or]
          (18) Remuneration consisting of income excluded from 
        taxation under section 7873 of the Internal Revenue 
        Code of 1986 (relating to income derived by Indians 
        from exercise of fishing rights)[.]; or
          (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.

           *       *       *       *       *       *       *

                         VII. ADDITIONAL VIEWS

    The collapse of Enron and the devastating impact it has had 
on the retirement of thousands of Enron employees has forced us 
to examine our pension laws, and in particular how our defined 
contribution system works. We have approached these concerns 
with a common goal: the need to enact pension reforms that 
would enhance the security of retirement benefits for the 42 
million workers who currently participate in 401(k) plans.
    While we agree that many approaches can be taken to achieve 
this goal, we believe strongly that certain principles must be 
the foundation of any meaningful reform. One thing that has 
been clear in the collapse of Enron is the glaring disparity 
that existed between the executives and the rank and file 
employees with respect to (1) the security of pension benefits, 
(2) the transferability of company stock, and (3) the 
availability of important information that affects the value of 
the stock.
    We believe this Congress should do more than is proposed by 
the underlying bill to address some of these issues.
    We strongly support the provision of the bill that would 
require the plan to provide the participants with much needed 
notice of generally accepted investment principles, including 
principles of risk management and diversification. We believe 
this information would go a long way to help employees better 
manage their retirement accounts. In addition, we support the 
provision that would require the plan to provide the 
participants with adequate notice of any transaction 
restriction period.
    We would like to ensure that employees will have the right 
to change their investment options prior to any transaction 
restriction and that all such changes will be implemented 
before the restriction period begins. We hope the 
clarification, as agreed to by the Chairman, will be made to 
the bill before it moves forward in the House of 
Representatives. Also, we believe employees would be empowered 
if they received investment information on diversification 
principles and risk management during this period.
    The importance of workers' ability to transfer stock 
contributed by the employer to the employee's retirement 
account is an issue that has dominated discussion of Enron's 
demise. Under the three-year rule, employers would be required 
to allow workers to sell employer-contributed stock after they 
have participated in the plan for three years. In addressing 
this issue, President Bush adopted a three-year rule. President 
Bush based this rule on the fact that it is important to give 
employees greater flexibility to diversify their portfolios. 
Under the language contained in the bill, it is unclear that 
this result is achieved.
    An amendment offered by Mr. Neal would have made this 
clarification. It also would have provided transition relief 
for company stock held in the plan prior to the effective date 
adopted in the bill. We hope this clarification is adopted as 
the legislation moves forward.
    In addition to the two perfecting amendments mentioned 
above, we believe the bill could be made stronger in certain 
areas. The following amendments were offered to accomplish this 
goal. Unfortunately, all of these amendments were rejected by 
Republicans on the Committee. The amendments would have 
modified the bill in the following areas:
Parity between executives and rank-and-file workers on transferability 
        of employer-company stock
    The bill contains no provision that would create parity 
between the executives and the rank-and-file workers with 
respect to the ability to sell their company stock. The media 
reports of the glaring disparity that existed between Enron 
executives and the rank-and-file workers in this area have left 
us in shock. While Enron restricted the ability to transfer 
company stock contributed to a participant's 401(k) account 
until after the participant reached age 50, no similar 
restrictions were imposed on the large amount of Enron stock 
held by its executives. This flexibility greatly enabled the 
executives to secure their financial position while the rank 
and file lost everything they had with the company, including 
their retirement benefits.
    Democrats believe that we need to go beyond the talk of 
``making sure companies have a single standard for their 
executives and their employees.'' We need to make every effort 
to make this a reality for every American worker who owns 
employer stock both in and out of a pension plan. The absence 
of such a real standard will continue to lead to the egregious 
results that have occurred for Enron workers. At a time when 
rank and file workers were losing their modestretirement 
savings in Enron stock due to trading restrictions, Enron executives 
benefitted from freely selling millions of dollars worth of Enron 
stock.
    Mr. Dery Ebright testified on March 5, 2002, before the 
Subcommittee on Oversight of the Committee on Ways and Means 
that when he tried to transfer his Enron stock holdings under 
the pension plan prior to the official ``lockdown'' of the 
plan, he was barred from doing so. This was the experience of 
many other employees. In addition, any stock that Enron 
contributed to the participant account could not be transferred 
until the participant reached age 50. Mr. Ebright's retirement 
savings dropped from $1 million to $2,300, the amount he 
received for his Enron stock when he was permitted to sell it.
    Other employees watched their lives unravel before them as 
the secured retirement they believed they had disappeared. Mr. 
Charles Prestwood, an employee who worked for 33 years as a 
welder and machine operator and saved those many years for his 
retirement, watched his retirement savings be reduced from $1.2 
million to $5,300. Mr. Tim Ramsey, a 55-year-old employee, lost 
$1 million in pension benefits; Roy Rinard, a 53-year-old 
worker, lost $472,000; Al Kasweter, a 43-year-old employee lost 
$318,000. This list goes on. Each name represents a real family 
whose lives have been shattered and financially ruined. These 
workers cannot regain what was lost; many of them are too old 
to even try.
    Compare these results with the experience of some of 
Enron's highest ranking executives. According to an article 
appearing in Newsweek on January 21, 2002, Enron's chairman, 
Ken Lay, made $205 million in stock option profit in the past 
four years alone; $37.7 million was from sales between May 2000 
and August 2000. During that same period, Lou Pai, unit CEO, 
made $62.9 million, and Jeff Skilling, former CEO, made $14.4 
million. Other high ranking executives and board members cashed 
out stock worth millions before the company collapsed. While 
the executives were feverishly unloading company stock, the 
rank-and-file workers were barred from touching their modest, 
but vital retirement savings, held in their Enron-heavy 401(k) 
plan.
    The amendment offered by Representative Rangel would have 
imposed an excise tax on the proceeds from the sale of company 
stock by company executives during any time the rank and file 
workers were barred from similarly selling their stock. We 
believe this amendment is necessary to deter the kind of 
corporate greed and callousness witnessed as the Enron case 
unfolded. Unfortunately, such behavior is not limited to Enron. 
According to a survey of 428 employers conducted by the 
benefits consulting firm of Hewitt Associates, 34 percent of 
401(k) plans that match employee contributions with employer 
stock restrict the transferability of the stock, typically by 
age of the participant (age 50 or 55). However, these companies 
do not similarly restrict the stock owned by their executives 
through their stock options. This disparity in treatment will 
continue unless prohibited through legislation. The 42 million 
workers who participate in 401(k) plans must be protected from 
such double standards. Their retirement security depends on it.
    It is disappointing to us that an issue of such importance 
to the retirement security of millions of American workers, and 
an issue that received the attention of President Bush as a 
major area for reform, has not been addressed in this bill. We 
disagree with the Chairman that this should be taken care of by 
another Committee. This Committee has jurisdiction over the 
very creation of pension plans. We are charged with ensuring 
that the benefits promised under these plans are secured for 
each worker. Thus, it is our inescapable responsibility to 
ensure that such measures are in place.
    Some have rejected the amendment based on the theory that 
imposing an excise tax on certain behavior is not the way to 
resolve this problem. It is the method available to the Members 
of this Committee and has been used since the inception of the 
Internal Revenue Code. The tax is paid only when the prohibited 
behavior is executed. We do not agree that the problem should 
not be addressed within this Committee's jurisdiction. What is 
more important is that we do everything within our power to 
reform the pension system and restore much needed confidence in 
the system. The amendment offered by Representative Rangel 
would have gone a long way in accomplishing this goal.

The secured golden nest eggs of executives compared to the empty 
        promise to rank-and-file employees

    An amendment offered by Representative Matsui would have 
closed a major loophole in today's law with respect to the 
golden parachute payments many company executives receive 
despite the weak financial condition of their company. This is 
compared to the often worthless retirement benefits many rank-
and-file workers receive from a financially troubled company. 
This is the converse of what is intended under the tax laws. 
The Employee Retirement Income Security Act of 1974 (ERISA) 
intended to insulate benefits promised under a qualified 
pension plan from the financial uncertainty of the employer. 
The assets held in trust for a qualified pension plan are not 
intended to be the assets of the employers and are not subject 
to the claims of the employer's creditors. However, in cases 
such as Enron's where the employee's retirement account is 
invested in company stock, the financial decline of the company 
can result in substantial loss of retirement benefits for plan 
participants. Any breach of fiduciary duty with respect to 
theemployees' investments in company stock will result in many 
employees standing in line with the bankruptcy creditors of the 
employer hoping to recover some small fraction of their lost retirement 
benefits.
    On the other hand, under current law, any non-qualified 
deferred benefits an employer promises to a worker should be 
linked directly to the financial health of the company. Non-
qualified deferred compensation generally is received only by 
corporate executives. Mike McNamee of Business Week Investor, 
in an article entitled ``Crackdown on a Pension Perk,'' noted 
that an employee can judge when he/she is approaching the top 
of the corporate ladder through the company's willingness to 
begin discussions of providing benefits under a split-dollar 
life insurance policy, one of the many methods used to secure 
non-qualified deferred benefits for corporate executives. 
Unfortunately, there is more truth to this statement than many 
of us are willing to accept.
    Many major corporations continue to find ways to ensure 
that the extremely generous deferred compensation packages 
awarded to their top executives are secured. The rich golden 
parachute compensation packages many corporations are awarding 
their top executives were highlighted in an article appearing 
in the Wall Street Journal, February 26, 2002 (``As their 
Companies Crumbled, Some CEOs Got Big-money Payouts''), as well 
as the New York Times, March 5, 2002 (``For Executives, Nest 
Egg is Wrapped in a Security Blanket''). These packages often 
are awarded and secured at a time when the company is reducing 
pension benefits for most of its other employees.
    We have seen how this disparity has resulted in a glaring 
injustice for the rank-and-file employees. According to recent 
Securities Exchange Commission (SEC) filings, Enron increased 
retirement benefits for its top executives at a time when it 
reduced retirement benefits for its other workers. According to 
these filings, Ken Lay will receive an annual benefit estimated 
at $475,042 for life. This is in addition to benefits he 
received under a $12 million split-dollar life insurance policy 
Enron secured on Mr. Lay. In addition, according to an article 
appearing in Mother Jones Magazine, February 25, 2002 (``Ken 
Lay's Nest Egg''), about $4 million--an amount greater than his 
entire salary from Enron that year--was paid for variable 
annuities that will, starting in 2007, guarantee Mr. Lay and 
his wife an annual income of about $900,000. Such compensation 
packages are not unique to Enron or to Mr. Lay. Other top Enron 
executives received similar benefits. Many major corporations 
offer similar benefits to their top executives.
    There is something fundamentally wrong with a system that 
permits top executives to walk away from the bankruptcy of 
their companies with such large benefits which consume assets 
that under current law should be the assets of the employer, 
and subject to the claims of its creditors, while the 
retirement benefits under a qualified plan are totally lost. 
The workers whose benefits should have been secured find 
themselves standing in line with all the other creditors, 
hoping to recover a small amount of what was lost. We should 
not allow sophisticated financial techniques to turn the 
pension system on its head--making that which is supposed to be 
unsecured, secured--and that which is supposed to be secured, 
as Enron workers have discovered, unsecured.
    It is very disappointing that this amendment was not 
accepted. We must all agree that the use of creative planning 
techniques to guarantee these non-qualified benefits for 
executives must be stopped. Such actions by corporate leaders 
do a grave injustice to millions of workers. We must do more to 
protect these workers.

Meaningful and accurate information to plan participants

    Enron top executives feverishly unloaded millions of 
dollars worth of Enron stock early in 2001 before the company 
collapsed. At that same time, the rank-and-file workers were 
barred from selling any Enron stock from their modest, but 
Enron-heavy, 401(k) portfolios. While top executives were 
unloading their Enron stock, they continued to advise workers 
to invest their 401(k) assets in the company stock. Mr. 
Skilling made $14.4 million between May 2000 and August 2001 
from the sale of his stock but continued to advise employees 
that Enron stock was the best investment available to them. Mr. 
Skilling quit the company in August 2001, but not before making 
millions from the sale of Enron stock and cashing out his 
benefits under non-qualified deferred plans.
    We believe executives of public companies have legal and 
moral responsibilities to produce honest books and records. We 
also believe that these responsibilities extend to providing 
workers and shareholders with accurate information about the 
true liabilities of the company so they can make informed 
decisions as to whether to hold or sell that company's stock. 
Because of the abuse that occurs in this area, we believe it is 
important to have standards that do not depend on the honesty 
and good nature of the key executives at any company, but 
rather, we believe there should be uniform standards to govern 
this disclosure of information.
    Accordingly, Representative Doggett offered an amendment 
that would require executives to disclose insider stock sales 
of more than $100,000 to the plan administrator within twenty-
four hours of such sales. The plan administrator would be 
required to notify the plan participants and beneficiaries 
within three days. The amendment was intended to get the same 
information to plan participants that currently is required to 
be filed with the Securities Exchange Commission. The amendment 
also was rejected.
    We believe it is important to ensure that such critical 
information is available to all employees and shareholders. We 
have all witnessed how the absence of such information affected 
Enron employees and their decisions to continue to invest in 
Enron stock. None of us can doubt that the results would have 
been very different, and more favorable to the thousands of 
workers who lost their retirement benefits when Enron finally 
collapsed, if this information had been publicly available.

Conclusion

    The impact the collapse of Enron has had on the retirement 
security of many of its 20,000 employees has underscored the 
need for additional reforms in this area. We must enact 
legislation that will restore confidence in our defined 
contribution retirement plan system. As in the 1970s, our 
pension system is broken. In the 1970s we responded by enacting 
ERISA. Today we must develop similar legislation that would 
restore confidence in a system that has failed thousands of 
workers. Otherwise, we will fail these workers a second time. 
The shame is on Enron now, but the shame will be on us if we 
fail to act to stop it from happening again.
    As employers seek ways to pass the cost of saving for 
retirement on to employees, and as more and more workers are 
charged with managing the assets in their own 401(k) plans, it 
is imperative that we act in this area. The pension system has 
been undergoing a sea of change for many years, yet we continue 
simply to patch over holes in the dike. This legislation should 
be considered merely a modest beginning of badly needed 
systematic reform of our pension system.

                                   Charles B. Rangel.
                                   Karen L. Thurman.
                                   Jim McDermott.
                                   Earl Pomeroy.
                                   Jerry Kleczka.
                                   Robert T. Matsui.
                                   John Lewis.
                                   Michael R. McNulty.
                                   Richard E. Neal.
                                   Xavier Becerra.
                                   Sander Levin.
                                   William J. Coyne.
                                   Lloyd Doggett.
                                   John S. Tanner.
                                   Pete Stark.
                                   Wm. J. Jefferson.

                                  
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