72–094

107TH CONGRESS REPT. 107–51 " ! HOUSE OF REPRESENTATIVES 1st Session Part 2

COMPREHENSIVE RETIREMENT SECURITY AND PENSION

REFORM ACT OF 2001

MAY 1, 2001.—Committed to the Committee of the Whole House on the State of the

Union and ordered to be printed

Mr. BOEHNER, from the Committee on Education and the

Workforce, submitted the following

R E P O R T

together with

ADDITIONAL VIEWS

[To accompany H.R. 10]

[Including cost estimate of the Congressional Budget Office]

The Committee on Education and the Workforce, to whom was

referred the bill (H.R. 10) to provide for pension reform, and for

other purposes, having considered the same, report favorably thereon with an amendment and recommend that the bill as amended

do pass.

The amendment is as follows:

Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Comprehensive Retirement Security and Pension Reform Act of 2001’’.

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

to, or repeal of, a section or other provision, the reference shall be considered to be

made to a section or other provision of the Internal Revenue Code of 1986.

(c) TABLE OF CONTENTS.—The table of contents of this Act is as follows:

Sec. 1. Short title; references; table of contents.

TITLE I—INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS

Sec. 101. Modification of IRA contribution limits.

TITLE II—EXPANDING COVERAGE

Sec. 201. Increase in benefit and contribution limits.

Sec. 202. Plan loans for subchapter S owners, partners, and sole proprietors.

Sec. 203. Modification of top-heavy rules.

Sec. 204. Elective deferrals not taken into account for purposes of deduction limits.

Sec. 205. Repeal of coordination requirements for deferred compensation plans of State and local governments

and tax-exempt organizations.

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Sec. 206. Elimination of user fee for requests to IRS regarding pension plans.

Sec. 207. Deduction limits.

Sec. 208. Option to treat elective deferrals as after-tax contributions.

TITLE III—ENHANCING FAIRNESS FOR WOMEN

Sec. 301. Catch-up contributions for individuals age 50 or over.

Sec. 302. Equitable treatment for contributions of employees to defined contribution plans.

Sec. 303. Faster vesting of certain employer matching contributions.

Sec. 304. Simplify and update the minimum distribution rules.

Sec. 305. Clarification of tax treatment of division of section 457 plan benefits upon divorce.

Sec. 306. Modification of safe harbor relief for hardship withdrawals from cash or deferred arrangements.

TITLE IV—INCREASING PORTABILITY FOR PARTICIPANTS

Sec. 401. Rollovers allowed among various types of plans.

Sec. 402. Rollovers of IRAs into workplace retirement plans.

Sec. 403. Rollovers of after-tax contributions.

Sec. 404. Hardship exception to 60-day rule.

Sec. 405. Treatment of forms of distribution.

Sec. 406. Rationalization of restrictions on distributions.

Sec. 407. Purchase of service credit in governmental defined benefit plans.

Sec. 408. Employers may disregard rollovers for purposes of cash-out amounts.

Sec. 409. Minimum distribution and inclusion requirements for section 457 plans.

TITLE V—STRENGTHENING PENSION SECURITY AND ENFORCEMENT

Sec. 501. Repeal of percent of current liability funding limit.

Sec. 502. Maximum contribution deduction rules modified and applied to all defined benefit plans.

Sec. 503. Excise tax relief for sound pension funding.

Sec. 504. Excise tax on failure to provide notice by defined benefit plans significantly reducing future benefit

accruals.

Sec. 505. Treatment of multiemployer plans under section 415.

Sec. 506. Protection of investment of employee contributions to 401(k) plans.

Sec. 507. Periodic pension benefits statements.

Sec. 508. Prohibited allocations of stock in S corporation ESOP.

TITLE VI—REDUCING REGULATORY BURDENS

Sec. 601. Modification of timing of plan valuations.

Sec. 602. ESOP dividends may be reinvested without loss of dividend deduction.

Sec. 603. Repeal of transition rule relating to certain highly compensated employees.

Sec. 604. Employees of tax-exempt entities.

Sec. 605. Clarification of treatment of employer-provided retirement advice.

Sec. 606. Reporting simplification.

Sec. 607. Improvement of employee plans compliance resolution system.

Sec. 608. Repeal of the multiple use test.

Sec. 609. Flexibility in nondiscrimination, coverage, and line of business rules.

Sec. 610. Extension to all governmental plans of moratorium on application of certain nondiscrimination rules

applicable to State and local plans.

Sec. 611. Notice and consent period regarding distributions.

Sec. 612. Annual report dissemination.

Sec. 613. Technical corrections to SAVER Act.

TITLE VII—OTHER ERISA PROVISIONS

Sec. 701. Missing participants.

Sec. 702. Reduced PBGC premium for new plans of small employers.

Sec. 703. Reduction of additional PBGC premium for new and small plans.

Sec. 704. Authorization for PBGC to pay interest on premium overpayment refunds.

Sec. 705. Substantial owner benefits in terminated plans.

Sec. 706. Civil penalties for breach of fiduciary responsibility.

Sec. 707. Benefit suspension notice.

Sec. 708. Studies.

TITLE VIII—PLAN AMENDMENTS

Sec. 801. Provisions relating to plan amendments.

TITLE I—INDIVIDUAL RETIREMENT

ACCOUNTS

SEC. 101. MODIFICATION OF IRA CONTRIBUTION LIMITS.

(a) INCREASE IN CONTRIBUTION LIMIT.—

(1) IN GENERAL.—Paragraph (1)(A) of section 219(b) (relating to maximum

amount of deduction) is amended by striking ‘‘$2,000’’ and inserting ‘‘the deductible amount’’.

(2) DEDUCTIBLE AMOUNT.—Section 219(b) is amended by adding at the end

the following new paragraph:

‘‘(5) DEDUCTIBLE AMOUNT.—For purposes of paragraph (1)(A)—

‘‘(A) IN GENERAL.—The deductible amount shall be determined in accordance with the following table:

‘‘For taxable years The deductible

beginning in: amount is:

2001 ................................................................................................................................................ $3,000

2002 ................................................................................................................................................ $4,000

2003 and thereafter ...................................................................................................................... $5,000.

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‘‘(B) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS 50 OR OLDER.—In the case

of an individual who has attained the age of 50 before the close of the taxable year, the deductible amount for taxable years beginning in 2001 or

2002 shall be $5,000. ‘‘(C) COST-OF-LIVING ADJUSTMENT.— ‘‘(i) IN GENERAL.—In the case of any taxable year beginning in a cal- endar year after 2003, the $5,000 amount under subparagraph (A) shall

be increased by an amount equal to— ‘‘(I) such dollar amount, multiplied by

‘‘(II) the cost-of-living adjustment determined under section

1(f )(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2002’ for ‘calendar year

1992’ in subparagraph (B) thereof. ‘‘(ii) ROUNDING RULES.—If any amount after adjustment under clause (i) is not a multiple of $500, such amount shall be rounded to the next

lower multiple of $500.’’. (b) CONFORMING AMENDMENTS.— (1) Section 408(a)(1) is amended by striking ‘‘in excess of $2,000 on behalf of

any individual’’ and inserting ‘‘on behalf of any individual in excess of the

amount in effect for such taxable year under section 219(b)(1)(A)’’. (2) Section 408(b)(2)(B) is amended by striking ‘‘$2,000’’ and inserting ‘‘the

dollar amount in effect under section 219(b)(1)(A)’’. (3) Section 408(b) is amended by striking ‘‘$2,000’’ in the matter following

paragraph (4) and inserting ‘‘the dollar amount in effect under section

219(b)(1)(A)’’. (4) Section 408( j) is amended by striking ‘‘$2,000’’. (5) Section 408(p)(8) is amended by striking ‘‘$2,000’’ and inserting ‘‘the dollar

amount in effect under section 219(b)(1)(A)’’. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

TITLE II—EXPANDING COVERAGE

SEC. 201. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

(a) DEFINED BENEFIT PLANS.— (1) DOLLAR LIMIT.— (A) Subparagraph (A) of section 415(b)(1) (relating to limitation for defined benefit plans) is amended by striking ‘‘$90,000’’ and inserting ‘‘$160,000’’. (B) Subparagraphs (C) and (D) of section 415(b)(2) are each amended by

striking ‘‘$90,000’’ each place it appears in the headings and the text and

inserting ‘‘$160,000’’. (C) Paragraph (7) of section 415(b) (relating to benefits under certain collectively bargained plans) is amended by striking ‘‘the greater of $68,212

or one-half the amount otherwise applicable for such year under paragraph

(1)(A) for ‘$90,000’ ’’ and inserting ‘‘one-half the amount otherwise applicable for such year under paragraph (1)(A) for ‘$160,000’ ’’. (2) LIMIT REDUCED WHEN BENEFIT BEGINS BEFORE AGE 62.—Subparagraph (C)

of section 415(b)(2) is amended by striking ‘‘the social security retirement age’’ each place it appears in the heading and text and inserting ‘‘age 62’’ and by

striking the second sentence.

(3) LIMIT INCREASED WHEN BENEFIT BEGINS AFTER AGE 65.—Subparagraph (D)

of section 415(b)(2) is amended by striking ‘‘the social security retirement age’’ each place it appears in the heading and text and inserting ‘‘age 65’’. (4) COST-OF-LIVING ADJUSTMENTS.—Subsection (d) of section 415 (related to

cost-of-living adjustments) is amended— (A) by striking ‘‘$90,000’’ in paragraph (1)(A) and inserting ‘‘$160,000’’;

and

(B) in paragraph (3)(A)— (i) by striking ‘‘$90,000’’ in the heading and inserting ‘‘$160,000’’; and

(ii) by striking ‘‘October 1, 1986’’ and inserting ‘‘July 1, 2000’’. (5) CONFORMING AMENDMENTS.— (A) Section 415(b)(2) is amended by striking subparagraph (F).

(B) Section 415(b)(9) is amended to read as follows:

‘‘(9) SPECIAL RULE FOR COMMERCIAL AIRLINE PILOTS.—

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

case of any participant who is a commercial airline pilot, if, as of the

time of the participant’s retirement, regulations prescribed by the FedVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00003 Fmt 6659 Sfmt 6621 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
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eral Aviation Administration require an individual to separate from

service as a commercial airline pilot after attaining any age occurring

on or after age 60 and before age 62, paragraph (2)(C) shall be applied

by substituting such age for age 62.

‘‘(B) INDIVIDUALS WHO SEPARATE FROM SERVICE BEFORE AGE 60.—If a

participant described in subparagraph (A) separates from service before

age 60, the rules of paragraph (2)(C) shall apply.’’.

(C) Section 415(b)(10)(C)(i) is amended by striking ‘‘applied without regard to paragraph (2)(F)’’.

(b) DEFINED CONTRIBUTION PLANS.—

(1) DOLLAR LIMIT.—Subparagraph (A) of section 415(c)(1) (relating to limitation for defined contribution plans) is amended by striking ‘‘$30,000’’ and inserting ‘‘$40,000’’.

(2) COST-OF-LIVING ADJUSTMENTS.—Subsection (d) of section 415 (related to

cost-of-living adjustments) is amended—

(A) by striking ‘‘$30,000’’ in paragraph (1)(C) and inserting ‘‘$40,000’’; and

(B) in paragraph (3)(D)—

(i) by striking ‘‘$30,000’’ in the heading and inserting ‘‘$40,000’’; and

(ii) by striking ‘‘October 1, 1993’’ and inserting ‘‘July 1, 2000’’.

(c) QUALIFIED TRUSTS.—

(1) COMPENSATION LIMIT.—Sections 401(a)(17), 404(l), 408(k), and 505(b)(7)

are each amended by striking ‘‘$150,000’’ each place it appears and inserting

‘‘$200,000’’.

(2) BASE PERIOD AND ROUNDING OF COST-OF-LIVING ADJUSTMENT.—Subparagraph (B) of section 401(a)(17) is amended—

(A) by striking ‘‘October 1, 1993’’ and inserting ‘‘July 1, 2000’’; and

(B) by striking ‘‘$10,000’’ both places it appears and inserting ‘‘$5,000’’.

(d) ELECTIVE DEFERRALS.—

(1) IN GENERAL.—Paragraph (1) of section 402(g) (relating to limitation on exclusion for elective deferrals) is amended to read as follows:

‘‘(1) IN GENERAL.—

‘‘(A) LIMITATION.—Notwithstanding subsections (e)(3) and (h)(1)(B), the

elective deferrals of any individual for any taxable year shall be included

in such individual’s gross income to the extent the amount of such deferrals

for the taxable year exceeds the applicable dollar amount.

‘‘(B) APPLICABLE DOLLAR AMOUNT.—For purposes of subparagraph (A), the

applicable dollar amount shall be the amount determined in accordance

with the following table:

‘‘For taxable years The applicable

beginning in dollar amount:

calendar year:

2001 ................................................................................................................................................ $11,000

2002 ................................................................................................................................................ $12,000

2003 ................................................................................................................................................ $13,000

2004 ................................................................................................................................................ $14,000

2005 or thereafter ......................................................................................................................... $15,000.’’.

(2) COST-OF-LIVING ADJUSTMENT.—Paragraph (5) of section 402(g) is amended

to read as follows:

‘‘(5) COST-OF-LIVING ADJUSTMENT.—In the case of taxable years beginning

after December 31, 2005, the Secretary shall adjust the $15,000 amount under

paragraph (1)(B) at the same time and in the same manner as under section

415(d), except that the base period shall be the calendar quarter beginning July

1, 2004, and any increase under this paragraph which is not a multiple of $500

shall be rounded to the next lowest multiple of $500.’’.

(3) CONFORMING AMENDMENTS.—

(A) Section 402(g) (relating to limitation on exclusion for elective deferrals), as amended by paragraphs (1) and (2), is further amended by striking

paragraph (4) and redesignating paragraphs (5), (6), (7), (8), and (9) as

paragraphs (4), (5), (6), (7), and (8), respectively.

(B) Paragraph (2) of section 457(c) is amended by striking

‘‘402(g)(8)(A)(iii)’’ and inserting ‘‘402(g)(7)(A)(iii)’’.

(C) Clause (iii) of section 501(c)(18)(D) is amended by striking ‘‘(other

than paragraph (4) thereof)’’.

(e) DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND

TAX-EXEMPT ORGANIZATIONS.—

(1) IN GENERAL.—Section 457 (relating to deferred compensation plans of

State and local governments and tax-exempt organizations) is amended—

(A) in subsections (b)(2)(A) and (c)(1) by striking ‘‘$7,500’’ each place it

appears and inserting ‘‘the applicable dollar amount’’; and

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(B) in subsection (b)(3)(A) by striking ‘‘$15,000’’ and inserting ‘‘twice the

dollar amount in effect under subsection (b)(2)(A)’’.

(2) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT.—Paragraph

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

‘‘(15) APPLICABLE DOLLAR AMOUNT.—

‘‘(A) IN GENERAL.—The applicable dollar amount shall be the amount determined in accordance with the following table:

‘‘For taxable years The applicable

beginning in dollar amount:

calendar year:

2001 ................................................................................................................................................ $11,000

2002 ................................................................................................................................................ $12,000

2003 ................................................................................................................................................ $13,000

2004 ................................................................................................................................................ $14,000

2005 or thereafter ......................................................................................................................... $15,000.

‘‘(B) COST-OF-LIVING ADJUSTMENTS.—In the case of taxable years beginning after December 31, 2005, the Secretary shall adjust the $15,000

amount under subparagraph (A) at the same time and in the same manner

as under section 415(d), except that the base period shall be the calendar

quarter beginning July 1, 2004, and any increase under this paragraph

which is not a multiple of $500 shall be rounded to the next lowest multiple

of $500.’’.

(f) SIMPLE RETIREMENT ACCOUNTS.—

(1) LIMITATION.—Clause (ii) of section 408(p)(2)(A) (relating to general rule for

qualified salary reduction arrangement) is amended by striking ‘‘$6,000’’ and inserting ‘‘the applicable dollar amount’’.

(2) APPLICABLE DOLLAR AMOUNT.—Subparagraph (E) of 408(p)(2) is amended

to read as follows:

‘‘(E) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT.—

‘‘(i) IN GENERAL.—For purposes of subparagraph (A)(ii), the applicable

dollar amount shall be the amount determined in accordance with the

following table:

‘‘For taxable years The applicable

beginning in dollar amount:

calendar year:

2001 ......................................................................................................................................... $7,000

2002 ......................................................................................................................................... $8,000

2003 ......................................................................................................................................... $9,000

2004 or thereafter .................................................................................................................. $10,000.

‘‘(ii) COST-OF-LIVING ADJUSTMENT.—In the case of a year beginning

after December 31, 2004, the Secretary shall adjust the $10,000

amount under clause (i) at the same time and in the same manner as

under section 415(d), except that the base period taken into account

shall be the calendar quarter beginning July 1, 2003, and any increase

under this subparagraph which is not a multiple of $500 shall be

rounded to the next lower multiple of $500.’’.

(3) CONFORMING AMENDMENTS.—

(A) Subclause (I) of section 401(k)(11)(B)(i) is amended by striking

‘‘$6,000’’ and inserting ‘‘the amount in effect under section 408(p)(2)(A)(ii)’’.

(B) Section 401(k)(11) is amended by striking subparagraph (E).

(g) ROUNDING RULE RELATING TO DEFINED BENEFIT PLANS AND DEFINED CONTRIBUTION PLANS.—Paragraph (4) of section 415(d) is amended to read as follows:

‘‘(4) ROUNDING.—

‘‘(A) $160,000 AMOUNT.—Any increase under subparagraph (A) of paragraph (1) which is not a multiple of $5,000 shall be rounded to the next

lowest multiple of $5,000.

‘‘(B) $40,000 AMOUNT.—Any increase under subparagraph (C) of paragraph (1) which is not a multiple of $1,000 shall be rounded to the next

lowest multiple of $1,000.’’.

(h) EFFECTIVE DATE.—The amendments made by this section shall apply to years

beginning after December 31, 2000.

SEC. 202. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE PROPRIETORS.

(a) AMENDMENT OF INTERNAL REVENUE CODE.—Subparagraph (B) of section

4975(f)(6) (relating to exemptions not to apply to certain transactions) is amended

by adding at the end the following new clause:

‘‘(iii) LOAN EXCEPTION.—For purposes of subparagraph (A)(i), the

term ‘owner-employee’ shall only include a person described in subclause (II) or (III) of clause (i).’’.

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(b) AMENDMENT OF ERISA.—Section 408(d)(2) of the Employee Retirement Income

Security Act of 1974 (29 U.S.C. 1108(d)(2)) is amended by adding at the end the following new subparagraph:

‘‘(C) For purposes of paragraph (1)(A), the term ‘owner-employee’ shall only include a person described in clause (ii) or (iii) of subparagraph (A).’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to years

beginning after December 31, 2001.

SEC. 203. MODIFICATION OF TOP-HEAVY RULES.

(a) SIMPLIFICATION OF DEFINITION OF KEY EMPLOYEE.—

(1) IN GENERAL.—Section 416(i)(1)(A) (defining key employee) is amended—

(A) by striking ‘‘or any of the 4 preceding plan years’’ in the matter preceding clause (i);

(B) by striking clause (i) and inserting the following:

‘‘(i) an officer of the employer having an annual compensation greater

than $150,000,’’;

(C) by striking clause (ii) and redesignating clauses (iii) and (iv) as

clauses (ii) and (iii), respectively; and

(D) by striking the second sentence in the matter following clause (iii),

as redesignated by subparagraph (C).

(2) CONFORMING AMENDMENT.—Section 416(i)(1)(B)(iii) is amended by striking

‘‘and subparagraph (A)(ii)’’.

(b) MATCHING CONTRIBUTIONS TAKEN INTO ACCOUNT FOR MINIMUM CONTRIBUTION

REQUIREMENTS.—Section 416(c)(2)(A) (relating to defined contribution plans) is

amended by adding at the end the following: ‘‘Employer matching contributions (as

defined in section 401(m)(4)(A)) shall be taken into account for purposes of this subparagraph.’’.

(c) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION DATE TAKEN INTO

ACCOUNT.—

(1) IN GENERAL.—Paragraph (3) of section 416(g) is amended to read as follows:

‘‘(3) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION DATE TAKEN

INTO ACCOUNT.—

‘‘(A) IN GENERAL.—For purposes of determining—

‘‘(i) the present value of the cumulative accrued benefit for any employee, or

‘‘(ii) the amount of the account of any employee,

such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 1-year

period ending on the determination date. The preceding sentence shall also

apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group.

‘‘(B) 5-YEAR PERIOD IN CASE OF IN-SERVICE DISTRIBUTION.—In the case of

any distribution made for a reason other than separation from service,

death, or disability, subparagraph (A) shall be applied by substituting ‘5-

year period’ for ‘1-year period’.’’.

(2) BENEFITS NOT TAKEN INTO ACCOUNT.—Subparagraph (E) of section

416(g)(4) is amended—

(A) by striking ‘‘LAST 5 YEARS’’ in the heading and inserting ‘‘LAST YEAR

BEFORE DETERMINATION DATE’’; and

(B) by striking ‘‘5-year period’’ and inserting ‘‘1-year period’’.

(d) DEFINITION OF TOP-HEAVY PLANS.—Paragraph (4) of section 416(g) (relating

to other special rules for top-heavy plans) is amended by adding at the end the following new subparagraph:

‘‘(H) CASH OR DEFERRED ARRANGEMENTS USING ALTERNATIVE METHODS OF

MEETING NONDISCRIMINATION REQUIREMENTS.—The term ‘top-heavy plan’

shall not include a plan which consists solely of—

‘‘(i) a cash or deferred arrangement which meets the requirements of

section 401(k)(12), and

‘‘(ii) matching contributions with respect to which the requirements

of section 401(m)(11) are met.

If, but for this subparagraph, a plan would be treated as a top-heavy plan

because it is a member of an aggregation group which is a top-heavy group,

contributions under the plan may be taken into account in determining

whether any other plan in the group meets the requirements of subsection

(c)(2).’’.

(e) FROZEN PLAN EXEMPT FROM MINIMUM BENEFIT REQUIREMENT.—Subparagraph

(C) of section 416(c)(1) (relating to defined benefit plans) is amended—

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(A) by striking ‘‘clause (ii)’’ in clause (i) and inserting ‘‘clause (ii) or (iii)’’;

and

(B) by adding at the end the following:

‘‘(iii) EXCEPTION FOR FROZEN PLAN.—For purposes of determining an

employee’s years of service with the employer, any service with the employer shall be disregarded to the extent that such service occurs during a plan year when the plan benefits (within the meaning of section

410(b)) no key employee or former key employee.’’.

(f) ELIMINATION OF FAMILY ATTRIBUTION.—Section 416(i)(1)(B) (defining 5-percent

owner) is amended by adding at the end the following new clause:

‘‘(iv) FAMILY ATTRIBUTION DISREGARDED.—Solely for purposes of applying this paragraph (and not for purposes of any provision of this

title which incorporates by reference the definition of a key employee

or 5-percent owner under this paragraph), section 318 shall be applied

without regard to subsection (a)(1) thereof in determining whether any

person is a 5-percent owner.’’.

(g) EFFECTIVE DATE.—The amendments made by this section shall apply to years

beginning after December 31, 2001.

SEC. 204. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF DEDUCTION

LIMITS.

(a) IN GENERAL.—Section 404 (relating to deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred

payment plan) is amended by adding at the end the following new subsection:

‘‘(n) ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF DEDUCTION LIMITS.—Elective deferrals (as defined in section 402(g)(3)) shall not be subject

to any limitation contained in paragraph (3), (7), or (9) of subsection (a), and such

elective deferrals shall not be taken into account in applying any such limitation

to any other contributions.’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to years

beginning after December 31, 2001.

SEC. 205. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION

PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

(a) IN GENERAL.—Subsection (c) of section 457 (relating to deferred compensation

plans of State and local governments and tax-exempt organizations), as amended by

section 201, is amended to read as follows:

‘‘(c) LIMITATION.—The maximum amount of the compensation of any one individual which may be deferred under subsection (a) during any taxable year shall

not exceed the amount in effect under subsection (b)(2)(A) (as modified by any adjustment provided under subsection (b)(3)).’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to years

beginning after December 31, 2001.

SEC. 206. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION PLANS.

(a) ELIMINATION OF CERTAIN USER FEES.—The Secretary of the Treasury or the

Secretary’s delegate shall not require payment of user fees under the program established under section 10511 of the Revenue Act of 1987 for requests to the Internal

Revenue Service for determination letters with respect to the qualified status of a

pension benefit plan maintained solely by one or more eligible employers or any

trust which is part of the plan. The preceding sentence shall not apply to any request—

(1) made after the later of—

(A) the fifth plan year the pension benefit plan is in existence; or

(B) the end of any remedial amendment period with respect to the plan

beginning within the first 5 plan years; or

(2) made by the sponsor of any prototype or similar plan which the sponsor

intends to market to participating employers.

(b) PENSION BENEFIT PLAN.—For purposes of this section, the term ‘‘pension benefit plan’’ means a pension, profit-sharing, stock bonus, annuity, or employee stock

ownership plan.

(c) ELIGIBLE EMPLOYER.—For purposes of this section, the term ‘‘eligible employer’’ has the same meaning given such term in section 408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986. The determination of whether an employer is an eligible employer under this section shall be made as of the date of the request described

in subsection (a).

(d) DETERMINATION OF AVERAGE FEES CHARGED.—For purposes of any determination of average fees charged, any request to which subsection (a) applies shall not

be taken into account.

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(e) EFFECTIVE DATE.—The provisions of this section shall apply with respect to

requests made after December 31, 2001.

SEC. 207. DEDUCTION LIMITS.

(a) STOCK BONUS AND PROFIT SHARING TRUSTS.—

(1) IN GENERAL.—Subclause (I) of section 404(a)(3)(A)(i) (relating to stock

bonus and profit sharing trusts) is amended by striking ‘‘15 percent’’ and inserting ‘‘20 percent’’.

(2) CONFORMING AMENDMENT.—Subparagraph (C) of section 404(h)(1) is

amended by striking ‘‘15 percent’’ each place it appears and inserting ‘‘20 percent’’.

(b) COMPENSATION.—

(1) IN GENERAL.—Section 404(a) (relating to general rule) is amended by adding at the end the following:

‘‘(12) DEFINITION OF COMPENSATION.—For purposes of paragraphs (3), (7), (8),

and (9), the term ‘compensation otherwise paid or accrued during the taxable

year’ shall include amounts treated as ‘participant’s compensation’ under subparagraph (C) or (D) of section 415(c)(3).’’.

(2) CONFORMING AMENDMENTS.—

(A) Subparagraph (B) of section 404(a)(3) is amended by striking the last

sentence thereof.

(B) Clause (i) of section 4972(c)(6)(B) is amended by striking ‘‘(within the

meaning of section 404(a))’’ and inserting ‘‘(within the meaning of section

404(a) and as adjusted under section 404(a)(12))’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to years

beginning after December 31, 2001.

SEC. 208. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX CONTRIBUTIONS.

(a) IN GENERAL.—Subpart A of part I of subchapter D of chapter 1 (relating to

deferred compensation, etc.) is amended by inserting after section 402 the following

new section:

‘‘SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS CONTRIBUTIONS.

‘‘(a) GENERAL RULE.—If an applicable retirement plan includes a qualified plus

contribution program—

‘‘(1) any designated plus contribution made by an employee pursuant to the

program shall be treated as an elective deferral for purposes of this chapter, except that such contribution shall not be excludable from gross income, and

‘‘(2) such plan (and any arrangement which is part of such plan) shall not be

treated as failing to meet any requirement of this chapter solely by reason of

including such program.

‘‘(b) QUALIFIED PLUS CONTRIBUTION PROGRAM.—For purposes of this section—

‘‘(1) IN GENERAL.—The term ‘qualified plus contribution program’ means a

program under which an employee may elect to make designated plus contributions in lieu of all or a portion of elective deferrals the employee is otherwise

eligible to make under the applicable retirement plan.

‘‘(2) SEPARATE ACCOUNTING REQUIRED.—A program shall not be treated as a

qualified plus contribution program unless the applicable retirement plan—

‘‘(A) establishes separate accounts (‘designated plus accounts’) for the designated plus contributions of each employee and any earnings properly allocable to the contributions, and

‘‘(B) maintains separate recordkeeping with respect to each account.

‘‘(c) DEFINITIONS AND RULES RELATING TO DESIGNATED PLUS CONTRIBUTIONS.—

For purposes of this section—

‘‘(1) DESIGNATED PLUS CONTRIBUTION.—The term ‘designated plus contribution’ means any elective deferral which—

‘‘(A) is excludable from gross income of an employee without regard to

this section, and

‘‘(B) the employee designates (at such time and in such manner as the

Secretary may prescribe) as not being so excludable.

‘‘(2) DESIGNATION LIMITS.—The amount of elective deferrals which an employee may designate under paragraph (1) shall not exceed the excess (if any)

of—

‘‘(A) the maximum amount of elective deferrals excludable from gross income of the employee for the taxable year (without regard to this section),

over

‘‘(B) the aggregate amount of elective deferrals of the employee for the

taxable year which the employee does not designate under paragraph (1).

‘‘(3) ROLLOVER CONTRIBUTIONS.—

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‘‘(A) IN GENERAL.—A rollover contribution of any payment or distribution

from a designated plus account which is otherwise allowable under this

chapter may be made only if the contribution is to—

‘‘(i) another designated plus account of the individual from whose account the payment or distribution was made, or

‘‘(ii) a Roth IRA of such individual.

‘‘(B) COORDINATION WITH LIMIT.—Any rollover contribution to a designated plus account under subparagraph (A) shall not be taken into account for purposes of paragraph (1).

‘‘(d) DISTRIBUTION RULES.—For purposes of this title—

‘‘(1) EXCLUSION.—Any qualified distribution from a designated plus account

shall not be includible in gross income.

‘‘(2) QUALIFIED DISTRIBUTION.—For purposes of this subsection—

‘‘(A) IN GENERAL.—The term ‘qualified distribution’ has the meaning

given such term by section 408A(d)(2)(A) (without regard to clause (iv)

thereof).

‘‘(B) DISTRIBUTIONS WITHIN NONEXCLUSION PERIOD.—A payment or distribution from a designated plus account shall not be treated as a qualified

distribution if such payment or distribution is made within the 5-taxableyear period beginning with the earlier of—

‘‘(i) the first taxable year for which the individual made a designated

plus contribution to any designated plus account established for such

individual under the same applicable retirement plan, or

‘‘(ii) if a rollover contribution was made to such designated plus account from a designated plus account previously established for such

individual under another applicable retirement plan, the first taxable

year for which the individual made a designated plus contribution to

such previously established account.

‘‘(C) DISTRIBUTIONS OF EXCESS DEFERRALS AND EARNINGS.—The term

‘qualified distribution’ shall not include any distribution of any excess deferral under section 402(g)(2) and any income on the excess deferral.

‘‘(3) AGGREGATION RULES.—Section 72 shall be applied separately with respect

to distributions and payments from a designated plus account and other distributions and payments from the plan.

‘‘(e) OTHER DEFINITIONS.—For purposes of this section—

‘‘(1) APPLICABLE RETIREMENT PLAN.—The term ‘applicable retirement plan’

means—

‘‘(A) an employees’ trust described in section 401(a) which is exempt from

tax under section 501(a), and

‘‘(B) a plan under which amounts are contributed by an individual’s employer for an annuity contract described in section 403(b).

‘‘(2) ELECTIVE DEFERRAL.—The term ‘elective deferral’ means any elective deferral described in subparagraph (A) or (C) of section 402(g)(3).’’.

(b) EXCESS DEFERRALS.—Section 402(g) (relating to limitation on exclusion for

elective deferrals) is amended—

(1) by adding at the end of paragraph (1) the following new sentence: ‘‘The

preceding sentence shall not apply to so much of such excess as does not exceed

the designated plus contributions of the individual for the taxable year.’’; and

(2) by inserting ‘‘(or would be included but for the last sentence thereof)’’ after

‘‘paragraph (1)’’ in paragraph (2)(A).

(c) ROLLOVERS.—Subparagraph (B) of section 402(c)(8) is amended by adding at

the end the following:

‘‘If any portion of an eligible rollover distribution is attributable to payments or distributions from a designated plus account (as defined in section

402A), an eligible retirement plan with respect to such portion shall include

only another designated plus account and a Roth IRA.’’.

(d) REPORTING REQUIREMENTS.—

(1) W–2 INFORMATION.—Section 6051(a)(8) is amended by inserting ‘‘, including the amount of designated plus contributions (as defined in section 402A)’’

before the comma at the end.

(2) INFORMATION.—Section 6047 is amended by redesignating subsection (f) as

subsection (g) and by inserting after subsection (e) the following new subsection:

‘‘(f) DESIGNATED PLUS CONTRIBUTIONS.—The Secretary shall require the plan administrator of each applicable retirement plan (as defined in section 402A) to make

such returns and reports regarding designated plus contributions (as so defined) to

the Secretary, participants and beneficiaries of the plan, and such other persons as

the Secretary may prescribe.’’.

(e) CONFORMING AMENDMENTS.—

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(1) Section 408A(e) is amended by adding after the first sentence the following

new sentence: ‘‘Such term includes a rollover contribution described in section

402A(c)(3)(A).’’.

(2) The table of sections for subpart A of part I of subchapter D of chapter

1 is amended by inserting after the item relating to section 402 the following

new item:

‘‘Sec. 402A. Optional treatment of elective deferrals as plus contributions.’’.

(f) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

TITLE III—ENHANCING FAIRNESS FOR WOMEN

SEC. 301. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.

(a) IN GENERAL.—Section 414 (relating to definitions and special rules) is amended by adding at the end the following new subsection:

‘‘(v) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.—

‘‘(1) IN GENERAL.—An applicable employer plan shall not be treated as failing

to meet any requirement of this title solely because the plan permits an eligible

participant to make additional elective deferrals in any plan year.

‘‘(2) LIMITATION ON AMOUNT OF ADDITIONAL DEFERRALS.—A plan shall not permit additional elective deferrals under paragraph (1) for any year in an amount

greater than the lesser of—

‘‘(A) $5,000, or

‘‘(B) the excess (if any) of—

‘‘(i) the participant’s compensation for the year, over

‘‘(ii) any other elective deferrals of the participant for such year

which are made without regard to this subsection.

‘‘(3) TREATMENT OF CONTRIBUTIONS.—In the case of any contribution to a plan

under paragraph (1), such contribution shall not, with respect to the year in

which the contribution is made—

‘‘(A) be subject to any otherwise applicable limitation contained in section

402(g), 402(h)(2), 404(a), 404(h), 408(p)(2)(A)(ii), 415, or 457, or

‘‘(B) be taken into account in applying such limitations to other contributions or benefits under such plan or any other such plan.

‘‘(4) APPLICATION OF NONDISCRIMINATION RULES.—

‘‘(A) IN GENERAL.—An applicable employer plan shall not be treated as

failing to meet the nondiscrimination requirements under section 401(a)(4)

with respect to benefits, rights, and features if the plan allows all eligible

participants to make the same election with respect to the additional elective deferrals under this subsection.

‘‘(B) AGGREGATION.—For purposes of subparagraph (A), all plans maintained by employers who are treated as a single employer under subsection

(b), (c), (m), or (o) of section 414 shall be treated as 1 plan.

‘‘(5) ELIGIBLE PARTICIPANT.—For purposes of this subsection, the term ‘eligible

participant’ means, with respect to any plan year, a participant in a plan—

‘‘(A) who has attained the age of 50 before the close of the plan year, and

‘‘(B) with respect to whom no other elective deferrals may (without regard

to this subsection) be made to the plan for the plan year by reason of the

application of any limitation or other restriction described in paragraph (3)

or comparable limitation contained in the terms of the plan.

‘‘(6) OTHER DEFINITIONS AND RULES.—For purposes of this subsection—

‘‘(A) APPLICABLE EMPLOYER PLAN.—The term ‘applicable employer plan’

means—

‘‘(i) an employees’ trust described in section 401(a) which is exempt

from tax under section 501(a),

‘‘(ii) a plan under which amounts are contributed by an individual’s

employer for an annuity contract described in section 403(b),

‘‘(iii) an eligible deferred compensation plan under section 457 of an

eligible employer as defined in section 457(e)(1)(A), and

‘‘(iv) an arrangement meeting the requirements of section 408 (k) or

(p).

‘‘(B) ELECTIVE DEFERRAL.—The term ‘elective deferral’ has the meaning

given such term by subsection (u)(2)(C).

‘‘(C) EXCEPTION FOR SECTION 457 PLANS.—This subsection shall not apply

to an applicable employer plan described in subparagraph (A)(iii) for any

year to which section 457(b)(3) applies.

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‘‘(D) COST-OF-LIVING ADJUSTMENT.—In the case of a year beginning after

December 31, 2005, the Secretary shall adjust annually the $5,000 amount

in paragraph (2)(A) for increases in the cost-of-living at the same time and

in the same manner as adjustments under section 415(d); except that the

base period taken into account shall be the calendar quarter beginning July

1, 2004, and any increase under this subparagraph which is not a multiple

of $500 shall be rounded to the next lower multiple of $500.’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to contributions in taxable years beginning after December 31, 2000.

SEC. 302. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED CONTRIBUTION PLANS.

(a) EQUITABLE TREATMENT.—

(1) IN GENERAL.—Subparagraph (B) of section 415(c)(1) (relating to limitation

for defined contribution plans) is amended by striking ‘‘25 percent’’ and inserting ‘‘100 percent’’.

(2) APPLICATION TO SECTION 403(b).—Section 403(b) is amended—

(A) by striking ‘‘the exclusion allowance for such taxable year’’ in paragraph (1) and inserting ‘‘the applicable limit under section 415’’;

(B) by striking paragraph (2); and

(C) by inserting ‘‘or any amount received by a former employee after the

fifth taxable year following the taxable year in which such employee was

terminated’’ before the period at the end of the second sentence of paragraph (3).

(3) CONFORMING AMENDMENTS.—

(A) Subsection (f) of section 72 is amended by striking ‘‘section

403(b)(2)(D)(iii))’’ and inserting ‘‘section 403(b)(2)(D)(iii), as in effect before

the enactment of the Comprehensive Retirement Security and Pension Reform Act of 2001)’’.

(B) Section 404(a)(10)(B) is amended by striking ‘‘, the exclusion allowance under section 403(b)(2),’’.

(C) Section 415(a)(2) is amended by striking ‘‘, and the amount of the contribution for such portion shall reduce the exclusion allowance as provided

in section 403(b)(2)’’.

(D) Section 415(c)(3) is amended by adding at the end the following new

subparagraph:

‘‘(E) ANNUITY CONTRACTS.—In the case of an annuity contract described

in section 403(b), the term ‘participant’s compensation’ means the participant’s includible compensation determined under section 403(b)(3).’’.

(E) Section 415(c) is amended by striking paragraph (4).

(F) Section 415(c)(7) is amended to read as follows:

‘‘(7) CERTAIN CONTRIBUTIONS BY CHURCH PLANS NOT TREATED AS EXCEEDING

LIMIT.—

‘‘(A) IN GENERAL.—Notwithstanding any other provision of this subsection, at the election of a participant who is an employee of a church or

a convention or association of churches, including an organization described

in section 414(e)(3)(B)(ii), contributions and other additions for an annuity

contract or retirement income account described in section 403(b) with respect to such participant, when expressed as an annual addition to such

participant’s account, shall be treated as not exceeding the limitation of

paragraph (1) if such annual addition is not in excess of $10,000.

‘‘(B) $40,000 AGGREGATE LIMITATION.—The total amount of additions with

respect to any participant which may be taken into account for purposes of

this subparagraph for all years may not exceed $40,000.

‘‘(C) ANNUAL ADDITION.—For purposes of this paragraph, the term ‘annual addition’ has the meaning given such term by paragraph (2).’’.

(G) Subparagraph (B) of section 402(g)(7) (as redesignated by section 201)

is amended by inserting before the period at the end the following: ‘‘(as in

effect before the enactment of the Comprehensive Retirement Security and

Pension Reform Act of 2001)’’.

(H) Section 664(g) is amended—

(i) in paragraph (3)(E) by striking ‘‘limitations under section 415(c)’’

and inserting ‘‘applicable limitation under paragraph (7)’’, and

(ii) by adding at the end the following new paragraph:

‘‘(7) APPLICABLE LIMITATION.—

‘‘(A) IN GENERAL.—For purposes of paragraph (3)(E), the applicable limitation under this paragraph with respect to a participant is an amount

equal to the lesser of—

‘‘(i) $30,000, or

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‘‘(ii) 25 percent of the participant’s compensation (as defined in section 415(c)(3)). ‘‘(B) COST-OF-LIVING ADJUSTMENT.—The Secretary shall adjust annually the $30,000 amount under subparagraph (A)(i) at the same time and in the

same manner as under section 415(d), except that the base period shall be

the calendar quarter beginning October 1, 1993, and any increase under

this subparagraph which is not a multiple of $5,000 shall be rounded to the

next lowest multiple of $5,000.’’. (3) EFFECTIVE DATE.—The amendments made by this subsection shall apply

to years beginning after December 31, 2000.

(b) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—

(1) IN GENERAL.—Subsection (k) of section 415 is amended by adding at the

end the following new paragraph:

‘‘(4) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—For purposes of this section, any annuity contract described in section 403(b) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (h)). For purposes of

this section, any contribution by an employer to a simplified employee pension

plan for an individual for a taxable year shall be treated as an employer contribution to a defined contribution plan for such individual for such year.’’.

(2) EFFECTIVE DATE.—

(A) IN GENERAL.—The amendment made by paragraph (1) shall apply to

limitation years beginning after December 31, 1999.

(B) EXCLUSION ALLOWANCE.—Effective for limitation years beginning in

2000, in the case of any annuity contract described in section 403(b) of the

Internal Revenue Code of 1986, the amount of the contribution disqualified

by reason of section 415(g) of such Code shall reduce the exclusion allowance as provided in section 403(b)(2) of such Code.

(3) MODIFICATION OF 403(b) EXCLUSION ALLOWANCE TO CONFORM TO 415 MODIFICATION.—The Secretary of the Treasury shall modify the regulations regarding the exclusion allowance under section 403(b)(2) of the Internal Revenue

Code of 1986 to render void the requirement that contributions to a defined benefit pension plan be treated as previously excluded amounts for purposes of the

exclusion allowance. For taxable years beginning after December 31, 1999, such

regulations shall be applied as if such requirement were void.

(c) DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND

TAX-EXEMPT ORGANIZATIONS.—

(1) IN GENERAL.—Subparagraph (B) of section 457(b)(2) (relating to salary

limitation on eligible deferred compensation plans) is amended by striking ‘‘331⁄3

percent’’ and inserting ‘‘100 percent’’.

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to

years beginning after December 31, 2000.

SEC. 303. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

(a) AMENDMENT OF INTERNAL REVENUE CODE.—Section 411(a) (relating to minimum vesting standards) is amended—

(1) in paragraph (2), by striking ‘‘A plan’’ and inserting ‘‘Except as provided

in paragraph (12), a plan’’; and

(2) by adding at the end the following:

‘‘(12) FASTER VESTING FOR MATCHING CONTRIBUTIONS.—In the case of matching contributions (as defined in section 401(m)(4)(A)), paragraph (2) shall be applied—

‘‘(A) by substituting ‘3 years’ for ‘5 years’ in subparagraph (A), and

‘‘(B) by substituting the following table for the table contained in subparagraph (B):

The nonforfeitable

‘‘Years of service: percentage is:

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

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

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

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

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

(b) AMENDMENT OF ERISA.—Section 203(a) of the Employee Retirement Income

Security Act of 1974 (29 U.S.C. 1053(a)) is amended—

(1) in paragraph (2), in the matter preceding subparagraph (A), by striking

‘‘A plan’’ and inserting ‘‘Except as provided in paragraph (4), a plan’’, and

(2) by adding at the end the following:

‘‘(4) In the case of matching contributions (as defined in section 401(m)(4)(A)

of the Internal Revenue Code of 1986), paragraph (2) shall be applied—

13

‘‘(A) by substituting ‘3 years’ for ‘5 years’ in subparagraph (A), and ‘‘(B) by substituting the following table for the table contained in subparagraph (B):

The nonforfeitable ‘‘Years of service: percentage is:

2 ...................................................................................................................................................... 20 3 ...................................................................................................................................................... 40 4 ...................................................................................................................................................... 60 5 ...................................................................................................................................................... 80 6 ...................................................................................................................................................... 100.’’.

(c) EFFECTIVE DATES.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made

by this section shall apply to contributions for plan years beginning after December 31, 2001.

(2) COLLECTIVE BARGAINING AGREEMENTS.—In the case of a plan maintained

pursuant to one or more collective bargaining agreements between employee

representatives and one or more employers ratified by the date of the enactment

of this Act, the amendments made by this section shall not apply to contributions on behalf of employees covered by any such agreement for plan years beginning before the earlier of—

(A) the later of—

(i) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof

on or after such date of the enactment); or

(ii) January 1, 2002; or

(B) January 1, 2006.

(3) SERVICE REQUIRED.—With respect to any plan, the amendments made by

this section shall not apply to any employee before the date that such employee

has 1 hour of service under such plan in any plan year to which the amendments made by this section apply.

SEC. 304. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.

(a) SIMPLIFICATION AND FINALIZATION OF MINIMUM DISTRIBUTION REQUIREMENTS.—

(1) IN GENERAL.—The Secretary of the Treasury shall—

(A) simplify and finalize the regulations relating to minimum distribution

requirements under sections 401(a)(9), 408(a)(6) and (b)(3), 403(b)(10), and

457(d)(2) of the Internal Revenue Code of 1986; and

(B) modify such regulations to—

(i) reflect current life expectancy; and

(ii) revise the required distribution methods so that, under reasonable assumptions, the amount of the required minimum distribution

does not decrease over a participant’s life expectancy.

(2) FRESH START.—Notwithstanding subparagraph (D) of section 401(a)(9) of

such Code, during the first year that regulations are in effect under this subsection, required distributions for future years may be redetermined to reflect

changes under such regulations. Such redetermination shall include the opportunity to choose a new designated beneficiary and to elect a new method of calculating life expectancy.

(3) DATE FOR REGULATIONS.—Not later than December 31, 2002, the Secretary

shall issue final regulations described in paragraph (1) and such regulations

shall apply without regard to whether an individual had previously begun receiving minimum distributions.

(b) REPEAL OF RULE WHERE DISTRIBUTIONS HAD BEGUN BEFORE DEATH OCCURS.—

(1) IN GENERAL.—Subparagraph (B) of section 401(a)(9) is amended by striking clause (i) and redesignating clauses (ii), (iii), and (iv) as clauses (i), (ii), and

(iii), respectively.

(2) CONFORMING CHANGES.—

(A) Clause (i) of section 401(a)(9)(B) (as so redesignated) is amended—

(i) by striking ‘‘FOR OTHER CASES’’ in the heading; and

(ii) by striking ‘‘the distribution of the employee’s interest has begun

in accordance with subparagraph (A)(ii)’’ and inserting ‘‘his entire interest has been distributed to him’’.

(B) Clause (ii) of section 401(a)(9)(B) (as so redesignated) is amended by

striking ‘‘clause (ii)’’ and inserting ‘‘clause (i)’’.

(C) Clause (iii) of section 401(a)(9)(B) (as so redesignated) is amended—

(i) by striking ‘‘clause (iii)(I)’’ and inserting ‘‘clause (ii)(I)’’;

(ii) by striking ‘‘clause (iii)(III)’’ in subclause (I) and inserting ‘‘clause

(ii)(III)’’;

14

(iii) by striking ‘‘the date on which the employee would have attained

age 701⁄2,’’ in subclause (I) and inserting ‘‘April 1 of the calendar year

following the calendar year in which the spouse attains 701⁄2,’’; and

(iv) by striking ‘‘the distributions to such spouse begin,’’ in subclause

(II) and inserting ‘‘his entire interest has been distributed to him,’’. (3) EFFECTIVE DATE.— (A) IN GENERAL.—Except as provided in subparagraph (B), the amendments made by this subsection shall apply to years beginning after December 31, 2001.

(B) DISTRIBUTIONS TO SURVIVING SPOUSE.— (i) IN GENERAL.—In the case of an employee described in clause (ii),

distributions to the surviving spouse of the employee shall not be required to commence prior to the date on which such distributions would

have been required to begin under section 401(a)(9)(B) of the Internal

Revenue Code of 1986 (as in effect on the day before the date of the

enactment of this Act).

(ii) CERTAIN EMPLOYEES.—An employee is described in this clause if

such employee dies before— (I) the date of the enactment of this Act, and

(II) the required beginning date (within the meaning of section

401(a)(9)(C) of the Internal Revenue Code of 1986) of the employee.

(c) REDUCTION IN EXCISE TAX.—

(1) IN GENERAL.—Subsection (a) of section 4974 is amended by striking ‘‘50

percent’’ and inserting ‘‘10 percent’’.

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to

years beginning after December 31, 2001.

SEC. 305. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 PLAN BENEFITS

UPON DIVORCE.

(a) IN GENERAL.—Section 414(p)(11) (relating to application of rules to governmental and church plans) is amended—

(1) by inserting ‘‘or an eligible deferred compensation plan (within the meaning of section 457(b))’’ after ‘‘subsection (e))’’; and

(2) in the heading, by striking ‘‘GOVERNMENTAL AND CHURCH PLANS’’ and inserting ‘‘CERTAIN OTHER PLANS’’.

(b) WAIVER OF CERTAIN DISTRIBUTION REQUIREMENTS.—Paragraph (10) of section

414(p) is amended by striking ‘‘and section 409(d)’’ and inserting ‘‘section 409(d),

and section 457(d)’’.

(c) TAX TREATMENT OF PAYMENTS FROM A SECTION 457 PLAN.—Subsection (p) of

section 414 is amended by redesignating paragraph (12) as paragraph (13) and inserting after paragraph (11) the following new paragraph:

‘‘(12) TAX TREATMENT OF PAYMENTS FROM A SECTION 457 PLAN.—If a distribution or payment from an eligible deferred compensation plan described in section 457(b) is made pursuant to a qualified domestic relations order, rules similar to the rules of section 402(e)(1)(A) shall apply to such distribution or payment.’’.

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to transfers, distributions, and payments made after December 31, 2001.

SEC. 306. MODIFICATION OF SAFE HARBOR RELIEF FOR HARDSHIP WITHDRAWALS FROM

CASH OR DEFERRED ARRANGEMENTS.

(a) IN GENERAL.—The Secretary of the Treasury shall revise the regulations relating to hardship distributions under section 401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide that the period an employee is prohibited from making

elective and employee contributions in order for a distribution to be deemed necessary to satisfy financial need shall be equal to 6 months.

(b) EFFECTIVE DATE.—The revised regulations under subsection (a) shall apply to

years beginning after December 31, 2001.

TITLE IV—INCREASING PORTABILITY FOR

PARTICIPANTS

SEC. 401. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

(a) ROLLOVERS FROM AND TO SECTION 457 PLANS.—

(1) ROLLOVERS FROM SECTION 457 PLANS.—

(A) IN GENERAL.—Section 457(e) (relating to other definitions and special

rules) is amended by adding at the end the following:

‘‘(16) ROLLOVER AMOUNTS.—

15

‘‘(A) GENERAL RULE.—In the case of an eligible deferred compensation

plan established and maintained by an employer described in subsection

(e)(1)(A), if— ‘‘(i) any portion of the balance to the credit of an employee in such

plan is paid to such employee in an eligible rollover distribution (within

the meaning of section 402(c)(4) without regard to subparagraph (C)

thereof), ‘‘(ii) the employee transfers any portion of the property such employee receives in such distribution to an eligible retirement plan described in section 402(c)(8)(B), and ‘‘(iii) in the case of a distribution of property other than money, the

amount so transferred consists of the property distributed,

then such distribution (to the extent so transferred) shall not be includible

in gross income for the taxable year in which paid. ‘‘(B) CERTAIN RULES MADE APPLICABLE.—The rules of paragraphs (2)

through (7) (other than paragraph (4)(C)) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A). ‘‘(C) REPORTING.—Rollovers under this paragraph shall be reported to the

Secretary in the same manner as rollovers from qualified retirement plans

(as defined in section 4974(c)).’’. (B) DEFERRAL LIMIT DETERMINED WITHOUT REGARD TO ROLLOVER

AMOUNTS.—Section 457(b)(2) (defining eligible deferred compensation plan)

is amended by inserting ‘‘(other than rollover amounts)’’ after ‘‘taxable

year’’.

(C) DIRECT ROLLOVER.—Paragraph (1) of section 457(d) is amended by

striking ‘‘and’’ at the end of subparagraph (A), by striking the period at the

end of subparagraph (B) and inserting ‘‘, and’’, and by inserting after subparagraph (B) the following:

‘‘(C) in the case of a plan maintained by an employer described in subsection (e)(1)(A), the plan meets requirements similar to the requirements

of section 401(a)(31).

Any amount transferred in a direct trustee-to-trustee transfer in accordance

with section 401(a)(31) shall not be includible in gross income for the taxable

year of transfer.’’.

(D) WITHHOLDING.—

(i) Paragraph (12) of section 3401(a) is amended by adding at the end

the following:

‘‘(E) under or to an eligible deferred compensation plan which, at the time

of such payment, is a plan described in section 457(b) maintained by an employer described in section 457(e)(1)(A); or’’.

(ii) Paragraph (3) of section 3405(c) is amended to read as follows:

‘‘(3) ELIGIBLE ROLLOVER DISTRIBUTION.—For purposes of this subsection, the

term ‘eligible rollover distribution’ has the meaning given such term by section

402(f)(2)(A).’’.

(iii) LIABILITY FOR WITHHOLDING.—Subparagraph (B) of section

3405(d)(2) is amended by striking ‘‘or’’ at the end of clause (ii), by striking the period at the end of clause (iii) and inserting ‘‘, or’’, and by adding at the end the following:

‘‘(iv) section 457(b) and which is maintained by an eligible employer

described in section 457(e)(1)(A).’’.

(2) ROLLOVERS TO SECTION 457 PLANS.—

(A) IN GENERAL.—Section 402(c)(8)(B) (defining eligible retirement plan)

is amended by striking ‘‘and’’ at the end of clause (iii), by striking the period at the end of clause (iv) and inserting ‘‘, and’’, and by inserting after

clause (iv) the following new clause:

‘‘(v) an eligible deferred compensation plan described in section

457(b) which is maintained by an eligible employer described in section

457(e)(1)(A).’’.

(B) SEPARATE ACCOUNTING.—Section 402(c) is amended by adding at the

end the following new paragraph:

‘‘(11) SEPARATE ACCOUNTING.—Unless a plan described in clause (v) of paragraph (8)(B) agrees to separately account for amounts rolled into such plan from

eligible retirement plans not described in such clause, the plan described in

such clause may not accept transfers or rollovers from such retirement plans.’’.

(C) 10 PERCENT ADDITIONAL TAX.—Subsection (t) of section 72 (relating to

10-percent additional tax on early distributions from qualified retirement

plans) is amended by adding at the end the following new paragraph:

‘‘(9) SPECIAL RULE FOR ROLLOVERS TO SECTION 457 PLANS.—For purposes of

this subsection, a distribution from an eligible deferred compensation plan (as

16

defined in section 457(b)) of an eligible employer described in section

457(e)(1)(A) shall be treated as a distribution from a qualified retirement plan

described in 4974(c)(1) to the extent that such distribution is attributable to an

amount transferred to an eligible deferred compensation plan from a qualified

retirement plan (as defined in section 4974(c)).’’.

(b) ALLOWANCE OF ROLLOVERS FROM AND TO 403(b) PLANS.—

(1) ROLLOVERS FROM SECTION 403(b) PLANS.—Section 403(b)(8)(A)(ii) (relating

to rollover amounts) is amended by striking ‘‘such distribution’’ and all that follows and inserting ‘‘such distribution to an eligible retirement plan described

in section 402(c)(8)(B), and’’.

(2) ROLLOVERS TO SECTION 403(b) PLANS.—Section 402(c)(8)(B) (defining eligible retirement plan), as amended by subsection (a), is amended by striking

‘‘and’’ at the end of clause (iv), by striking the period at the end of clause (v)

and inserting ‘‘, and’’, and by inserting after clause (v) the following new clause:

‘‘(vi) an annuity contract described in section 403(b).’’.

(c) EXPANDED EXPLANATION TO RECIPIENTS OF ROLLOVER DISTRIBUTIONS.—Paragraph (1) of section 402(f) (relating to written explanation to recipients of distributions eligible for rollover treatment) is amended by striking ‘‘and’’ at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting

‘‘, and’’, and by adding at the end the following new subparagraph:

‘‘(E) of the provisions under which distributions from the eligible retirement plan receiving the distribution may be subject to restrictions and tax

consequences which are different from those applicable to distributions

from the plan making such distribution.’’.

(d) SPOUSAL ROLLOVERS.—Section 402(c)(9) (relating to rollover where spouse receives distribution after death of employee) is amended by striking ‘‘; except that’’

and all that follows up to the end period.

(e) CONFORMING AMENDMENTS.—

(1) Section 72(o)(4) is amended by striking ‘‘and 408(d)(3)’’ and inserting

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

(2) Section 219(d)(2) is amended by striking ‘‘or 408(d)(3)’’ and inserting

‘‘408(d)(3), or 457(e)(16)’’.

(3) Section 401(a)(31)(B) is amended by striking ‘‘and 403(a)(4)’’ and inserting

‘‘, 403(a)(4), 403(b)(8), and 457(e)(16)’’.

(4) Subparagraph (A) of section 402(f)(2) is amended by striking ‘‘or paragraph (4) of section 403(a)’’ and inserting ‘‘, paragraph (4) of section 403(a), subparagraph (A) of section 403(b)(8), or subparagraph (A) of section 457(e)(16)’’.

(5) Paragraph (1) of section 402(f) is amended by striking ‘‘from an eligible

retirement plan’’.

(6) Subparagraphs (A) and (B) of section 402(f)(1) are amended by striking

‘‘another eligible retirement plan’’ and inserting ‘‘an eligible retirement plan’’.

(7) Subparagraph (B) of section 403(b)(8) is amended to read as follows:

‘‘(B) CERTAIN RULES MADE APPLICABLE.—The rules of paragraphs (2)

through (7) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A), except that section 402(f) shall be applied to the

payor in lieu of the plan administrator.’’.

(8) Section 408(a)(1) is amended by striking ‘‘or 403(b)(8),’’ and inserting

‘‘403(b)(8), or 457(e)(16)’’.

(9) Subparagraphs (A) and (B) of section 415(b)(2) are each amended by striking ‘‘and 408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and 457(e)(16)’’.

(10) Section 415(c)(2) is amended by striking ‘‘and 408(d)(3)’’ and inserting

‘‘408(d)(3), and 457(e)(16)’’.

(11) Section 4973(b)(1)(A) is amended by striking ‘‘or 408(d)(3)’’ and inserting

‘‘408(d)(3), or 457(e)(16)’’.

(f) EFFECTIVE DATE; SPECIAL RULE.—

(1) EFFECTIVE DATE.—The amendments made by this section shall apply to

distributions after the date of the enactment of this Act.

(2) SPECIAL RULE.—Notwithstanding any other provision of law, subsections

(h)(3) and (h)(5) of section 1122 of the Tax Reform Act of 1986 shall not apply

to any distribution from an eligible retirement plan (as defined in clause (iii)

or (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf

of an individual if there was a rollover to such plan on behalf of such individual

which is permitted solely by reason of any amendment made by this section.

SEC. 402. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

(a) IN GENERAL.—Subparagraph (A) of section 408(d)(3) (relating to rollover

amounts) is amended by adding ‘‘or’’ at the end of clause (i), by striking clauses (ii)

and (iii), and by adding at the end the following:

17

‘‘(ii) the entire amount received (including money and any other property) is paid into an eligible retirement plan for the benefit of such individual not later than the 60th day after the date on which the payment

or distribution is received, except that the maximum amount which

may be paid into such plan may not exceed the portion of the amount

received which is includible in gross income (determined without regard

to this paragraph).

For purposes of clause (ii), the term ‘eligible retirement plan’ means an eligible retirement plan described in clause (iii), (iv), (v), or (vi) of section

402(c)(8)(B).’’.

(b) CONFORMING AMENDMENTS.—

(1) Paragraph (1) of section 403(b) is amended by striking ‘‘section

408(d)(3)(A)(iii)’’ and inserting ‘‘section 408(d)(3)(A)(ii)’’.

(2) Clause (i) of section 408(d)(3)(D) is amended by striking ‘‘(i), (ii), or (iii)’’

and inserting ‘‘(i) or (ii)’’.

(3) Subparagraph (G) of section 408(d)(3) is amended to read as follows:

‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—In the case of any payment or distribution out of a simple retirement account (as defined in subsection (p))

to which section 72(t)(6) applies, this paragraph shall not apply unless such

payment or distribution is paid into another simple retirement account.’’.

(c) EFFECTIVE DATE; SPECIAL RULE.—

(1) EFFECTIVE DATE.—The amendments made by this section shall apply to

distributions after the date of the enactment of this Act.

(2) SPECIAL RULE.—Notwithstanding any other provision of law, subsections

(h)(3) and (h)(5) of section 1122 of the Tax Reform Act of 1986 shall not apply

to any distribution from an eligible retirement plan (as defined in clause (iii)

or (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf

of an individual if there was a rollover to such plan on behalf of such individual

which is permitted solely by reason of the amendments made by this section.

SEC. 403. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

(a) ROLLOVERS FROM EXEMPT TRUSTS.—Paragraph (2) of section 402(c) (relating

to maximum amount which may be rolled over) is amended by adding at the end

the following: ‘‘The preceding sentence shall not apply to such distribution to the

extent—

‘‘(A) such portion is transferred in a direct trustee-to-trustee transfer to

a qualified trust which is part of a plan which is a defined contribution plan

and which agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not

so includible, or

‘‘(B) such portion is transferred to an eligible retirement plan described

in clause (i) or (ii) of paragraph (8)(B).’’.

(b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS.—Subparagraph (B) of section 401(a)(31) (relating to limitation) is amended by adding at the

end the following: ‘‘The preceding sentence shall not apply to such distribution if

the plan to which such distribution is transferred—

‘‘(i) agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is

includible in gross income and the portion of such distribution which

is not so includible, or

‘‘(ii) is an eligible retirement plan described in clause (i) or (ii) of section 402(c)(8)(B).’’.

(c) RULES FOR APPLYING SECTION 72 TO IRAS.—Paragraph (3) of section 408(d)

(relating to special rules for applying section 72) is amended by inserting at the end

the following:

‘‘(H) APPLICATION OF SECTION 72.—

‘‘(i) IN GENERAL.—If—

‘‘(I) a distribution is made from an individual retirement plan,

and

‘‘(II) a rollover contribution is made to an eligible retirement plan

described in section 402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to

all or part of such distribution,

then, notwithstanding paragraph (2), the rules of clause (ii) shall apply

for purposes of applying section 72.

‘‘(ii) APPLICABLE RULES.—In the case of a distribution described in

clause (i)—

‘‘(I) section 72 shall be applied separately to such distribution,

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‘‘(II) notwithstanding the pro rata allocation of income on, and

investment in, the contract to distributions under section 72, the

portion of such distribution rolled over to an eligible retirement

plan described in clause (i) shall be treated as from income on the

contract (to the extent of the aggregate income on the contract from

all individual retirement plans of the distributee), and

‘‘(III) appropriate adjustments shall be made in applying section

72 to other distributions in such taxable year and subsequent taxable years.’’.

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions made after the date of the enactment of this Act.

SEC. 404. HARDSHIP EXCEPTION TO 60-DAY RULE.

(a) EXEMPT TRUSTS.—Paragraph (3) of section 402(c) (relating to transfer must be

made within 60 days of receipt) is amended to read as follows:

‘‘(3) TRANSFER MUST BE MADE WITHIN 60 DAYS OF RECEIPT.—

‘‘(A) IN GENERAL.—Except as provided in subparagraph (B), paragraph (1)

shall not apply to any transfer of a distribution made after the 60th day

following the day on which the distributee received the property distributed.

‘‘(B) HARDSHIP EXCEPTION.—The Secretary may waive the 60-day requirement under subparagraph (A) where the failure to waive such requirement

would be against equity or good conscience, including casualty, disaster, or

other events beyond the reasonable control of the individual subject to such

requirement.’’.

(b) IRAS.—Paragraph (3) of section 408(d) (relating to rollover contributions), as

amended by section 403, is amended by adding after subparagraph (H) the following

new subparagraph:

‘‘(I) WAIVER OF 60-DAY REQUIREMENT.—The Secretary may waive the 60-

day requirement under subparagraphs (A) and (D) where the failure to

waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the

individual subject to such requirement.’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions after the date of the enactment of this Act.

SEC. 405. TREATMENT OF FORMS OF DISTRIBUTION.

(a) PLAN TRANSFERS.—

(1) AMENDMENT OF INTERNAL REVENUE CODE.—Paragraph (6) of section 411(d)

(relating to accrued benefit not to be decreased by amendment) is amended by

adding at the end the following:

‘‘(D) PLAN TRANSFERS.—

‘‘(i) IN GENERAL.—A defined contribution plan (in this subparagraph

referred to as the ‘transferee plan’) shall not be treated as failing to

meet the requirements of this subsection merely because the transferee

plan does not provide some or all of the forms of distribution previously

available under another defined contribution plan (in this subparagraph referred to as the ‘transferor plan’) to the extent that—

‘‘(I) the forms of distribution previously available under the

transferor plan applied to the account of a participant or beneficiary under the transferor plan that was transferred from the

transferor plan to the transferee plan pursuant to a direct transfer

rather than pursuant to a distribution from the transferor plan,

‘‘(II) the terms of both the transferor plan and the transferee

plan authorize the transfer described in subclause (I),

‘‘(III) the transfer described in subclause (I) was made pursuant

to a voluntary election by the participant or beneficiary whose account was transferred to the transferee plan,

‘‘(IV) the election described in subclause (III) was made after the

participant or beneficiary received a notice describing the consequences of making the election, and

‘‘(V) the transferee plan allows the participant or beneficiary described in subclause (III) to receive any distribution to which the

participant or beneficiary is entitled under the transferee plan in

the form of a single sum distribution.

‘‘(ii) EXCEPTION.—Clause (i) shall apply to plan mergers and other

transactions having the effect of a direct transfer, including consolidations of benefits attributable to different employers within a multiple

employer plan.

19

‘‘(E) ELIMINATION OF FORM OF DISTRIBUTION.—Except to the extent provided in regulations, a defined contribution plan shall not be treated as failing to meet the requirements of this section merely because of the elimination of a form of distribution previously available thereunder. This subparagraph shall not apply to the elimination of a form of distribution with

respect to any participant unless— ‘‘(i) a single sum payment is available to such participant at the same

time or times as the form of distribution being eliminated, and ‘‘(ii) such single sum payment is based on the same or greater portion

of the participant’s account as the form of distribution being eliminated.’’. (2) AMENDMENT OF ERISA.—Section 204(g) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is amended by adding at the end

the following: ‘‘(4)(A) A defined contribution plan (in this subparagraph referred to as the ‘transferee plan’) shall not be treated as failing to meet the requirements of this subsection merely because the transferee plan does not provide some or all of the forms

of distribution previously available under another defined contribution plan (in this

subparagraph referred to as the ‘transferor plan’) to the extent that— ‘‘(i) the forms of distribution previously available under the transferor plan

applied to the account of a participant or beneficiary under the transferor plan

that was transferred from the transferor plan to the transferee plan pursuant

to a direct transfer rather than pursuant to a distribution from the transferor

plan;

‘‘(ii) the terms of both the transferor plan and the transferee plan authorize

the transfer described in clause (i);

‘‘(iii) the transfer described in clause (i) was made pursuant to a voluntary

election by the participant or beneficiary whose account was transferred to the

transferee plan;

‘‘(iv) the election described in clause (iii) was made after the participant or

beneficiary received a notice describing the consequences of making the election;

and

‘‘(v) the transferee plan allows the participant or beneficiary described in

clause (iii) to receive any distribution to which the participant or beneficiary is

entitled under the transferee plan in the form of a single sum distribution.

‘‘(B) Subparagraph (A) shall apply to plan mergers and other transactions having

the effect of a direct transfer, including consolidations of benefits attributable to different employers within a multiple employer plan.

‘‘(5) Except to the extent provided in regulations promulgated by the Secretary of

the Treasury, a defined contribution plan shall not be treated as failing to meet the

requirements of this subsection merely because of the elimination of a form of distribution previously available thereunder. This paragraph shall not apply to the

elimination of a form of distribution with respect to any participant unless—

‘‘(A) a single sum payment is available to such participant at the same time

or times as the form of distribution being eliminated; and

‘‘(B) such single sum payment is based on the same or greater portion of the

participant’s account as the form of distribution being eliminated.’’.

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply

to years beginning after December 31, 2001.

(b) REGULATIONS.—

(1) AMENDMENT OF INTERNAL REVENUE CODE.—Paragraph (6)(B) of section

411(d) (relating to accrued benefit not to be decreased by amendment) is amended by inserting after the second sentence the following new sentence: ‘‘The Secretary shall by regulations provide that this subparagraph shall not apply to

any plan amendment which reduces or eliminates benefits or subsidies which

create significant burdens or complexities for the plan and plan participants

and does not adversely affect the rights of any participant in a more than de

minimis manner.’’.

(2) AMENDMENT OF ERISA.—Section 204(g)(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)(2)) is amended by inserting before

the last sentence the following new sentence: ‘‘The Secretary of the Treasury

shall by regulations provide that this paragraph shall not apply to any plan

amendment which reduces or eliminates benefits or subsidies which create significant burdens or complexities for the plan and plan participants and does not

adversely affect the rights of any participant in a more than de minimis manner.’’.

(3) SECRETARY DIRECTED.—Not later than December 31, 2003, the Secretary

of the Treasury is directed to issue regulations under section 411(d)(6) of the

Internal Revenue Code of 1986 and section 204(g) of the Employee Retirement

20

Income Security Act of 1974, including the regulations required by the amendment made by this subsection. Such regulations shall apply to plan years beginning after December 31, 2003, or such earlier date as is specified by the Secretary of the Treasury.

SEC. 406. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

(a) MODIFICATION OF SAME DESK EXCEPTION.— (1) SECTION 401(k).— (A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash or deferred arrangements) is amended by striking ‘‘separation from service’’ and inserting ‘‘severance from employment’’. (B) Subparagraph (A) of section 401(k)(10) (relating to distributions upon

termination of plan or disposition of assets or subsidiary) is amended to

read as follows:

‘‘(A) IN GENERAL.—An event described in this subparagraph is the termination of the plan without establishment or maintenance of another defined

contribution plan (other than an employee stock ownership plan as defined

in section 4975(e)(7)).’’.

(C) Section 401(k)(10) is amended—

(i) in subparagraph (B)—

(I) by striking ‘‘An event’’ in clause (i) and inserting ‘‘A termination’’; and

(II) by striking ‘‘the event’’ in clause (i) and inserting ‘‘the termination’’;

(ii) by striking subparagraph (C); and

(iii) by striking ‘‘OR DISPOSITION OF ASSETS OR SUBSIDIARY’’ in the

heading.

(2) SECTION 403(b).—

(A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b) are each amended

by striking ‘‘separates from service’’ and inserting ‘‘has a severance from

employment’’.

(B) The heading for paragraph (11) of section 403(b) is amended by striking ‘‘SEPARATION FROM SERVICE’’ and inserting ‘‘SEVERANCE FROM EMPLOYMENT’’.

(3) SECTION 457.—Clause (ii) of section 457(d)(1)(A) is amended by striking ‘‘is

separated from service’’ and inserting ‘‘has a severance from employment’’.

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions after the date of the enactment of this Act.

SEC. 407. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT PLANS.

(a) 403(b) PLANS.—Subsection (b) of section 403 is amended by adding at the end

the following new paragraph:

‘‘(13) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE

CREDIT.—No amount shall be includible in gross income by reason of a direct

trustee-to-trustee transfer to a defined benefit governmental plan (as defined in

section 414(d)) if such transfer is—

‘‘(A) for the purchase of permissive service credit (as defined in section

415(n)(3)(A)) under such plan, or

‘‘(B) a repayment to which section 415 does not apply by reason of subsection (k)(3) thereof.’’.

(b) 457 PLANS.—Subsection (e) of section 457 is amended by adding after paragraph (16) the following new paragraph:

‘‘(17) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE

CREDIT.—No amount shall be includible in gross income by reason of a direct

trustee-to-trustee transfer to a defined benefit governmental plan (as defined in

section 414(d)) if such transfer is—

‘‘(A) for the purchase of permissive service credit (as defined in section

415(n)(3)(A)) under such plan, or

‘‘(B) a repayment to which section 415 does not apply by reason of subsection (k)(3) thereof.’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to trustee-to-trustee transfers after the date of the enactment of this Act.

SEC. 408. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT AMOUNTS.

(a) QUALIFIED PLANS.—

(1) AMENDMENT OF INTERNAL REVENUE CODE.—Section 411(a)(11) (relating to

restrictions on certain mandatory distributions) is amended by adding at the

end the following:

‘‘(D) SPECIAL RULE FOR ROLLOVER CONTRIBUTIONS.—A plan shall not fail

to meet the requirements of this paragraph if, under the terms of the plan,

21

the present value of the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to rollover

contributions (and earnings allocable thereto). For purposes of this subparagraph, the term ‘rollover contributions’ means any rollover contribution

under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).’’.

(2) AMENDMENT OF ERISA.—Section 203(e) of the Employee Retirement Income

Security Act of 1974 (29 U.S.C. 1053(c)) is amended by adding at the end the

following:

‘‘(4) A plan shall not fail to meet the requirements of this subsection if, under the

terms of the plan, the present value of the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to rollover

contributions (and earnings allocable thereto). For purposes of this subparagraph,

the term ‘rollover contributions’ means any rollover contribution under sections

402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Internal Revenue

Code of 1986.’’.

(b) ELIGIBLE DEFERRED COMPENSATION PLANS.—Clause (i) of section 457(e)(9)(A)

is amended by striking ‘‘such amount’’ and inserting ‘‘the portion of such amount

which is not attributable to rollover contributions (as defined in section

411(a)(11)(D))’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions after December 31, 2001.

SEC. 409. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 457 PLANS.

(a) MINIMUM DISTRIBUTION REQUIREMENTS.—Paragraph (2) of section 457(d) (relating to distribution requirements) is amended to read as follows:

‘‘(2) MINIMUM DISTRIBUTION REQUIREMENTS.—A plan meets the minimum distribution requirements of this paragraph if such plan meets the requirements

of section 401(a)(9).’’.

(b) INCLUSION IN GROSS INCOME.—

(1) YEAR OF INCLUSION.—Subsection (a) of section 457 (relating to year of inclusion in gross income) is amended to read as follows:

‘‘(a) YEAR OF INCLUSION IN GROSS INCOME.—

‘‘(1) IN GENERAL.—Any amount of compensation deferred under an eligible deferred compensation plan, and any income attributable to the amounts so deferred, shall be includible in gross income only for the taxable year in which

such compensation or other income—

‘‘(A) is paid to the participant or other beneficiary, in the case of a plan

of an eligible employer described in subsection (e)(1)(A), and

‘‘(B) is paid or otherwise made available to the participant or other beneficiary, in the case of a plan of an eligible employer described in subsection

(e)(1)(B).

‘‘(2) SPECIAL RULE FOR ROLLOVER AMOUNTS.—To the extent provided in section

72(t)(9), section 72(t) shall apply to any amount includible in gross income

under this subsection.’’.

(2) CONFORMING AMENDMENTS.—

(A) So much of paragraph (9) of section 457(e) as precedes subparagraph

(A) is amended to read as follows:

‘‘(9) BENEFITS OF TAX EXEMPT ORGANIZATION PLANS NOT TREATED AS MADE

AVAILABLE BY REASON OF CERTAIN ELECTIONS, ETC.—In the case of an eligible

deferred compensation plan of an employer described in subsection

(e)(1)(B)—’’.

(B) Section 457(d) is amended by adding at the end the following new

paragraph:

‘‘(3) SPECIAL RULE FOR GOVERNMENT PLAN.—An eligible deferred compensation

plan of an employer described in subsection (e)(1)(A) shall not be treated as failing to meet the requirements of this subsection solely by reason of making a

distribution described in subsection (e)(9)(A).’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions after the date of the enactment of this Act.

TITLE V—STRENGTHENING PENSION

SECURITY AND ENFORCEMENT

SEC. 501. REPEAL OF PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

(a) AMENDMENT OF INTERNAL REVENUE CODE.—Section 412(c)(7) (relating to fullfunding limitation) is amended—

22

(1) by striking ‘‘the applicable percentage’’ in subparagraph (A)(i)(I) and inserting ‘‘in the case of plan years beginning before January 1, 2004, the applicable percentage’’; and

(2) by amending subparagraph (F) to read as follows:

‘‘(F) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A)(i)(I),

the applicable percentage shall be determined in accordance with the following table:

‘‘In the case of any plan year The applicable

beginning in— percentage is—

2002 ................................................................................................................................................ 165

2003 ................................................................................................................................................ 170.’’.

(b) AMENDMENT OF ERISA.—Section 302(c)(7) of the Employee Retirement Income

Security Act of 1974 (29 U.S.C. 1082(c)(7)) is amended—

(1) by striking ‘‘the applicable percentage’’ in subparagraph (A)(i)(I) and inserting ‘‘in the case of plan years beginning before January 1, 2004, the applicable percentage’’; and

(2) by amending subparagraph (F) to read as follows:

‘‘(F) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined in accordance with the following table:

‘‘In the case of any plan year The applicable

beginning in— percentage is—

2002 ................................................................................................................................................ 165

2003 ................................................................................................................................................ 170.’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to plan

years beginning after December 31, 2001.

SEC. 502. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO ALL DEFINED BENEFIT PLANS.

(a) IN GENERAL.—Subparagraph (D) of section 404(a)(1) (relating to special rule

in case of certain plans) is amended to read as follows:

‘‘(D) SPECIAL RULE IN CASE OF CERTAIN PLANS.—

‘‘(i) IN GENERAL.—In the case of any defined benefit plan, except as

provided in regulations, the maximum amount deductible under the

limitations of this paragraph shall not be less than the unfunded termination liability (determined as if the proposed termination date referred to in section 4041(b)(2)(A)(i)(II) of the Employee Retirement Income Security Act of 1974 were the last day of the plan year).

‘‘(ii) PLANS WITH LESS THAN 100 PARTICIPANTS.—For purposes of this

subparagraph, in the case of a plan which has less than 100 participants for the plan year, termination liability shall not include the liability attributable to benefit increases for highly compensated employees (as defined in section 414(q)) resulting from a plan amendment

which is made or becomes effective, whichever is later, within the last

2 years before the termination date.

‘‘(iii) RULE FOR DETERMINING NUMBER OF PARTICIPANTS.—For purposes of determining whether a plan has more than 100 participants,

all defined benefit plans maintained by the same employer (or any

member of such employer’s controlled group (within the meaning of section 412(l)(8)(C))) shall be treated as one plan, but only employees of

such member or employer shall be taken into account.

‘‘(iv) PLANS MAINTAINED BY PROFESSIONAL SERVICE EMPLOYERS.—

Clause (i) shall not apply to a plan described in section 4021(b)(13) of

the Employee Retirement Income Security Act of 1974.’’.

(b) CONFORMING AMENDMENT.—Paragraph (6) of section 4972(c) is amended to

read as follows:

‘‘(6) EXCEPTIONS.—In determining the amount of nondeductible contributions

for any taxable year, there shall not be taken into account so much of the contributions to one or more defined contribution plans which are not deductible

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

greater of—

‘‘(A) the amount of contributions not in excess of 6 percent of compensation (within the meaning of section 404(a)) paid or accrued (during the taxable year for which the contributions were made) to beneficiaries under the

plans, or

‘‘(B) the sum of—

‘‘(i) the amount of contributions described in section 401(m)(4)(A),

plus

‘‘(ii) the amount of contributions described in section 402(g)(3)(A).

23

For purposes of this paragraph, the deductible limits under section 404(a)(7)

shall first be applied to amounts contributed to a defined benefit plan and then

to amounts described in subparagraph (B).’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to plan

years beginning after December 31, 2001.

SEC. 503. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

(a) IN GENERAL.—Subsection (c) of section 4972 (relating to nondeductible contributions) is amended by adding at the end the following new paragraph:

‘‘(7) DEFINED BENEFIT PLAN EXCEPTION.—In determining the amount of nondeductible contributions for any taxable year, an employer may elect for such

year not to take into account any contributions to a defined benefit plan except

to the extent that such contributions exceed the full-funding limitation (as defined in section 412(c)(7), determined without regard to subparagraph (A)(i)(I)

thereof). For purposes of this paragraph, the deductible limits under section

404(a)(7) shall first be applied to amounts contributed to defined contribution

plans and then to amounts described in this paragraph. If an employer makes

an election under this paragraph for a taxable year, paragraph (6) shall not

apply to such employer for such taxable year.’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to years

beginning after December 31, 2001.

SEC. 504. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT ACCRUALS.

(a) AMENDMENT OF INTERNAL REVENUE CODE.—

(1) IN GENERAL.—Chapter 43 (relating to qualified pension, etc., plans) is

amended by adding at the end the following new section:

‘‘SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO SATISFY NOTICE REQUIREMENTS.

‘‘(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.—

‘‘(1) IN GENERAL.—The amount of the tax imposed by subsection (a) on any

failure with respect to any applicable individual shall be $100 for each day in

the noncompliance period with respect to such failure.

‘‘(2) NONCOMPLIANCE PERIOD.—For purposes of this section, the term ‘noncompliance period’ means, with respect to any failure, the period beginning on

the date the failure first occurs and ending on the date the failure is corrected.

‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

‘‘(1) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—In the case of failures that are due to reasonable cause and not to willful neglect, 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

one plan. For purposes of this paragraph, if not all persons who are treated as

a single employer for purposes of this section have the same taxable year, the

taxable years taken into account shall be determined under principles similar

to the principles of section 1561.

‘‘(2) 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 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 REQUIREMENTS FOR PLANS SIGNIFICANTLY REDUCING BENEFIT ACCRUALS.—

‘‘(1) IN GENERAL.—If an applicable pension plan is amended to provide for a

significant reduction in the rate of future benefit accrual, the plan administrator shall provide written notice to each applicable individual (and to each

employee organization representing applicable individuals).

‘‘(2) NOTICE.—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 regulations prescribed by the Secretary) to allow applicable individuals to understand the effect

24

of the plan amendment. The Secretary may provide a simplified form of notice

for, or exempt from any notice requirement, a plan— ‘‘(A) which has fewer than 100 participants who have accrued a benefit

under the plan, or ‘‘(B) which offers participants the option to choose between the new benefit formula and the old benefit formula. ‘‘(3) TIMING OF NOTICE.—Except as provided in regulations, the notice required by paragraph (1) shall be provided within a reasonable time before the

effective date of the plan amendment. ‘‘(4) DESIGNEES.—Any notice under paragraph (1) may be provided to a person

designated, in writing, by the person to which it would otherwise be provided. ‘‘(5) NOTICE BEFORE ADOPTION OF AMENDMENT.—A plan shall not be treated

as failing to meet the requirements of paragraph (1) merely because notice is

provided before the adoption of the plan amendment if no material modification

of the amendment occurs before the amendment is adopted. ‘‘(f) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— ‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘applicable individual’ means, with respect to any plan amendment— ‘‘(A) each participant in the plan, and

‘‘(B) 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)),

whose rate of future benefit accrual under the plan may reasonably be expected

to be significantly reduced by such plan amendment. ‘‘(2) APPLICABLE PENSION PLAN.—The term ‘applicable pension plan’ means— ‘‘(A) any defined benefit plan, or

‘‘(B) an individual account plan which is subject to the funding standards

of section 412.

Such term shall not include a governmental plan (within the meaning of section

414(d)) or a church plan (within the meaning of section 414(e)) with respect to

which the election provided by section 410(d) has not been made. ‘‘(3) EARLY RETIREMENT.—A plan amendment which eliminates or significantly reduces any early retirement benefit or retirement-type subsidy (within

the meaning of section 411(d)(6)(B)(i)) shall be treated as having the effect of

significantly reducing the rate of future benefit accrual. ‘‘(g) NEW TECHNOLOGIES.—The Secretary may by regulations allow any notice

under subsection (e) to be provided by using new technologies.’’. (2) CLERICAL AMENDMENT.—The table of sections for chapter 43 is amended

by adding at the end the following new item:

‘‘Sec. 4980F. Failure of applicable plans reducing benefit accruals to satisfy notice require- ments.’’.

(b) AMENDMENT OF ERISA.—Section 204(h) of the Employee Retirement Income

Security Act of 1974 (29 U.S.C. 1054(h)) is amended by adding at the end the following new paragraphs: ‘‘(3)(A) An applicable pension plan to which paragraph (1) applies shall not be

treated as meeting the requirements of such paragraph unless, in addition to any

notice required to be provided to an individual or organization under such paragraph, the plan administrator provides the notice described in subparagraph (B) to

each applicable individual (and to each employee organization representing applicable individuals). ‘‘(B) The notice required by subparagraph (A) 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 regulations prescribed by the Secretary of the Treasury) to allow applicable individuals to understand the effect of

the plan amendment. The Secretary of the Treasury may provide a simplified form

of notice for, or exempt from any notice requirement, a plan— ‘‘(i) which has fewer than 100 participants who have accrued a benefit under

the plan, or ‘‘(ii) which offers participants the option to choose between the new benefit

formula and the old benefit formula. ‘‘(C) Except as provided in regulations prescribed by the Secretary of the Treasury, the notice required by subparagraph (A) shall be provided within a reasonable

time before the effective date of the plan amendment.

‘‘(D) Any notice under subparagraph (A) may be provided to a person designated,

in writing, by the person to which it would otherwise be provided.

‘‘(E) A plan shall not be treated as failing to meet the requirements of subparagraph (A) merely because notice is provided before the adoption of the plan amendment if no material modification of the amendment occurs before the amendment

is adopted.

25

‘‘(F) The Secretary of the Treasury may by regulations allow any notice under this

paragraph to be provided by using new technologies.

‘‘(4) For purposes of paragraph (3)—

‘‘(A) The term ‘applicable individual’ means, with respect to any plan amendment—

‘‘(i) each participant in the plan; and

‘‘(ii) any beneficiary who is an alternate payee (within the meaning of section 206(d)(3)(K)) under an applicable qualified domestic relations order

(within the meaning of section 206(d)(3)(B)(i)),

whose rate of future benefit accrual under the plan may reasonably be expected

to be significantly reduced by such plan amendment.

‘‘(B) The term ‘applicable pension plan’ means—

‘‘(i) any defined benefit plan; or

‘‘(ii) an individual account plan which is subject to the funding standards

of section 412 of the Internal Revenue Code of 1986.

‘‘(C) A plan amendment which eliminates or significantly reduces any early

retirement benefit or retirement-type subsidy (within the meaning of subsection

(g)(2)(A)) shall be treated as having the effect of significantly reducing the rate

of future benefit accrual.’’.

(c) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by this section shall apply to plan

amendments taking effect on or after the date of the enactment of this Act.

(2) TRANSITION.—Until such time as the Secretary of the Treasury issues regulations under sections 4980F(e)(2) and (3) of the Internal Revenue Code of

1986, and section 204(h)(3) of the Employee Retirement Income Security Act of

1974, as added by the amendments made by this section, a plan shall be treated

as meeting the requirements of such sections if it makes a good faith effort to

comply with such requirements.

(3) SPECIAL NOTICE RULE.—The period for providing any notice required by

the amendments made by this section shall not end before the date which is

3 months after the date of the enactment of this Act.

(4) REASONABLE NOTICE.—The amendments made by this section shall not

apply to any plan amendment taking effect on or after the date of the enactment of this Act if, before April 25, 2001, notice was provided to participants

and beneficiaries adversely affected by the plan amendment (or their representatives) which was reasonably expected to notify them of the nature and effective

date of the plan amendment.

(d) STUDY.—The Secretary of the Treasury shall prepare a report on the effects

of conversions of traditional defined benefit plans to cash balance or hybrid formula

plans. Such study shall examine the effect of such conversions on longer service participants, including the incidence and effects of ‘‘wear away’’ provisions under which

participants earn no additional benefits for a period of time after the conversion. As

soon as practicable, but not later than 60 days after the date of the enactment of

this Act, the Secretary shall submit such report, together with recommendations

thereon, to the Committee on Ways and Means and the Committee on Education

and the Workforce of the House of Representatives and the Committee on Finance

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

SEC. 505. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

(a) COMPENSATION LIMIT.—

(1) IN GENERAL.—Paragraph (11) of section 415(b) (relating to limitation for

defined benefit plans) is amended to read as follows:

‘‘(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL AND MULTIEMPLOYER

PLANS.—In the case of a governmental plan (as defined in section 414(d)) or a

multiemployer plan (as defined in section 414(f)), subparagraph (B) of paragraph (1) shall not apply.’’.

(2) CONFORMING AMENDMENT.—Section 415(b)(7) (relating to benefits under

certain collectively bargained plans) is amended by inserting ‘‘(other than a

multiemployer plan)’’ after ‘‘defined benefit plan’’ in the matter preceding subparagraph (A).

(b) COMBINING AND AGGREGATION OF PLANS.—

(1) COMBINING OF PLANS.—Subsection (f) of section 415 (relating to combining

of plans) is amended by adding at the end the following:

‘‘(3) EXCEPTION FOR MULTIEMPLOYER PLANS.—Notwithstanding paragraph (1)

and subsection (g), a multiemployer plan (as defined in section 414(f)) shall not

be combined or aggregated with any other plan maintained by an employer for

purposes of applying the limitations established in this section, except that such

plan shall be combined or aggregated with another plan which is not such a

26

multiemployer plan solely for purposes of determining whether such other plan

meets the requirements of subsections (b)(1)(A) and (c).’’.

(2) CONFORMING AMENDMENT FOR AGGREGATION OF PLANS.—Subsection (g) of

section 415 (relating to aggregation of plans) is amended by striking ‘‘The Secretary’’ and inserting ‘‘Except as provided in subsection (f)(3), the Secretary’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to years

beginning after December 31, 2001.

SEC. 506. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS TO 401(K) PLANS.

(a) IN GENERAL.—Section 1524(b) of the Taxpayer Relief Act of 1997 is amended

to read as follows:

‘‘(b) EFFECTIVE DATE.—

‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendments

made by this section shall apply to elective deferrals for plan years beginning

after December 31, 1998.

‘‘(2) NONAPPLICATION TO PREVIOUSLY ACQUIRED PROPERTY.—The amendments

made by this section shall not apply to any elective deferral which is invested

in assets consisting of qualifying employer securities, qualifying employer real

property, or both, if such assets were acquired before January 1, 1999.’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply as if included in the provision of the Taxpayer Relief Act of 1997 to which it relates.

SEC. 507. PERIODIC PENSION BENEFITS STATEMENTS.

(a) IN GENERAL.—Section 105(a) of the Employee Retirement Income Security Act

of 1974 (29 U.S.C. 1025 (a)) is amended to read as follows:

‘‘SEC. 105. (a)(1)(A) The administrator of an individual account plan shall furnish

a pension benefit statement—

‘‘(i) to a plan participant at least once annually, and

‘‘(ii) to a plan beneficiary upon written request.

‘‘(B) The administrator of a defined benefit plan shall furnish a pension benefit

statement—

‘‘(i) at least once every 3 years to each participant with a nonforfeitable accrued benefit who is employed by the employer maintaining the plan at the

time the statement is furnished to participants, and

‘‘(ii) to a plan participant or plan beneficiary of the plan upon written request.

‘‘(2) A pension benefit statement under paragraph (1)—

‘‘(A) shall indicate, on the basis of the latest available information—

‘‘(i) the total benefits accrued, and

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

earliest date on which benefits will become nonforfeitable,

‘‘(B) shall be written in a manner calculated to be understood by the average

plan participant, and

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

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

(1)(B)(i) shall be treated as met with respect to a participant if the administrator

provides the participant at least once each year with notice of the availability of the

pension benefit statement and the ways in which the participant may obtain such

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

form, and may be included with other communications to the participant if done in

a manner reasonably designed to attract the attention of the participant.

‘‘(B) The Secretary may provide that years in which no employee or former employee benefits (within the meaning of section 410(b) of the Internal Revenue Code

of 1986) under the plan need not be taken into account in determining the 3-year

period under paragraph (1)(B)(i).’’.

(b) CONFORMING AMENDMENTS.—

(1) Section 105 of the Employee Retirement Income Security Act of 1974 (29

U.S.C. 1025) is amended by striking subsection (d).

(2) Section 105(b) of such Act (29 U.S.C. 1025(b)) is amended to read as follows:

‘‘(b) In no case shall a participant or beneficiary of a plan be entitled to more than

one statement described in subsection (a)(1)(A) or (a)(1)(B)(ii), whichever is applicable, in any 12-month period.’’.

(c) MODEL STATEMENTS.—The Secretary of Labor shall develop a model benefit

statement, written in a manner calculated to be understood by the average plan

participant, that may be used by plan administrators in complying with the requirements of section 105 of the Employee Retirement Income Security Act of 1974.

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to plan

years beginning after December 31, 2002.

27

SEC. 508. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.

(a) IN GENERAL.—Section 409 (relating to qualifications for tax credit employee

stock ownership plans) is amended by redesignating subsection (p) as subsection (q)

and by inserting after subsection (o) the following new subsection:

‘‘(p) PROHIBITED ALLOCATIONS OF SECURITIES IN AN S CORPORATION.—

‘‘(1) IN GENERAL.—An employee stock ownership plan holding employer securities consisting of stock in an S corporation shall provide that no portion of the

assets of the plan attributable to (or allocable in lieu of) such employer securities may, during a nonallocation year, accrue (or be allocated directly or indirectly under any plan of the employer meeting the requirements of section

401(a)) for the benefit of any disqualified person.

‘‘(2) FAILURE TO MEET REQUIREMENTS.—

‘‘(A) IN GENERAL.—If a plan fails to meet the requirements of paragraph

(1), the plan shall be treated as having distributed to any disqualified person the amount allocated to the account of such person in violation of paragraph (1) at the time of such allocation.

‘‘(B) CROSS REFERENCE.—

‘‘For excise tax relating to violations of paragraph (1) and ownership of synthetic equity,

see section 4979A.

‘‘(3) NONALLOCATION YEAR.—For purposes of this subsection—

‘‘(A) IN GENERAL.—The term ‘nonallocation year’ means any plan year of

an employee stock ownership plan if, at any time during such plan year—

‘‘(i) such plan holds employer securities consisting of stock in an S

corporation, and

‘‘(ii) disqualified persons own at least 50 percent of the number of

shares of stock in the S corporation.

‘‘(B) ATTRIBUTION RULES.—For purposes of subparagraph (A)—

‘‘(i) IN GENERAL.—The rules of section 318(a) shall apply for purposes

of determining ownership, except that—

‘‘(I) in applying paragraph (1) thereof, the members of an individual’s family shall include members of the family described in paragraph (4)(D), and

‘‘(II) paragraph (4) thereof shall not apply.

‘‘(ii) DEEMED-OWNED SHARES.—Notwithstanding the employee trust

exception in section 318(a)(2)(B)(i), individual shall be treated as owning deemed-owned shares of the individual.

Solely for purposes of applying paragraph (5), this subparagraph shall be

applied after the attribution rules of paragraph (5) have been applied.

‘‘(4) DISQUALIFIED PERSON.—For purposes of this subsection—

‘‘(A) IN GENERAL.—The term ‘disqualified person’ means any person if—

‘‘(i) the aggregate number of deemed-owned shares of such person

and the members of such person’s family is at least 20 percent of the

number of deemed-owned shares of stock in the S corporation, or

‘‘(ii) in the case of a person not described in clause (i), the number

of deemed-owned shares of such person is at least 10 percent of the

number of deemed-owned shares of stock in such corporation.

‘‘(B) TREATMENT OF FAMILY MEMBERS.—In the case of a disqualified person described in subparagraph (A)(i), any member of such person’s family

with deemed-owned shares shall be treated as a disqualified person if not

otherwise treated as a disqualified person under subparagraph (A).

‘‘(C) DEEMED-OWNED SHARES.—

‘‘(i) IN GENERAL.—The term ‘deemed-owned shares’ means, with respect to any person—

‘‘(I) the stock in the S corporation constituting employer securities of an employee stock ownership plan which is allocated to such

person under the plan, and

‘‘(II) such person’s share of the stock in such corporation which

is held by such plan but which is not allocated under the plan to

participants.

‘‘(ii) PERSON’S SHARE OF UNALLOCATED STOCK.—For purposes of

clause (i)(II), a person’s share of unallocated S corporation stock held

by such plan is the amount of the unallocated stock which would be allocated to such person if the unallocated stock were allocated to all participants in the same proportions as the most recent stock allocation

under the plan.

‘‘(D) MEMBER OF FAMILY.—For purposes of this paragraph, the term

‘member of the family’ means, with respect to any individual—

‘‘(i) the spouse of the individual,

28

‘‘(ii) an ancestor or lineal descendant of the individual or the individual’s spouse,

‘‘(iii) a brother or sister of the individual or the individual’s spouse

and any lineal descendant of the brother or sister, and ‘‘(iv) the spouse of any individual described in clause (ii) or (iii).

A spouse of an individual who is legally separated from such individual

under a decree of divorce or separate maintenance shall not be treated as

such individual’s spouse for purposes of this subparagraph. ‘‘(5) TREATMENT OF SYNTHETIC EQUITY.—For purposes of paragraphs (3) and

(4), in the case of a person who owns synthetic equity in the S corporation, except to the extent provided in regulations, the shares of stock in such corporation on which such synthetic equity is based shall be treated as outstanding

stock in such corporation and deemed-owned shares of such person if such treatment of synthetic equity of 1 or more such persons results in— ‘‘(A) the treatment of any person as a disqualified person, or

‘‘(B) the treatment of any year as a nonallocation year.

For purposes of this paragraph, synthetic equity shall be treated as owned by

a person in the same manner as stock is treated as owned by a person under

the rules of paragraphs (2) and (3) of section 318(a). If, without regard to this

paragraph, a person is treated as a disqualified person or a year is treated as

a nonallocation year, this paragraph shall not be construed to result in the person or year not being so treated.

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

‘‘(A) EMPLOYEE STOCK OWNERSHIP PLAN.—The term ‘employee stock ownership plan’ has the meaning given such term by section 4975(e)(7).

‘‘(B) EMPLOYER SECURITIES.—The term ‘employer security’ has the meaning given such term by section 409(l).

‘‘(C) SYNTHETIC EQUITY.—The term ‘synthetic equity’ means any stock option, warrant, restricted stock, deferred issuance stock right, or similar interest or right that gives the holder the right to acquire or receive stock

of the S corporation in the future. Except to the extent provided in regulations, synthetic equity also includes a stock appreciation right, phantom

stock unit, or similar right to a future cash payment based on the value

of such stock or appreciation in such value.

‘‘(7) REGULATIONS.—The Secretary shall prescribe such regulations as may be

necessary to carry out the purposes of this subsection.’’.

(b) COORDINATION WITH SECTION 4975(e)(7).—The last sentence of section

4975(e)(7) (defining employee stock ownership plan) is amended by inserting ‘‘, section 409(p),’’ after ‘‘409(n)’’.

(c) EXCISE TAX.—

(1) APPLICATION OF TAX.—Subsection (a) of section 4979A (relating to tax on

certain prohibited allocations of employer securities) is amended—

(A) by striking ‘‘or’’ at the end of paragraph (1), and

(B) by striking all that follows paragraph (2) and inserting the following:

‘‘(3) there is any allocation of employer securities which violates the provisions of section 409(p), or a nonallocation year described in subsection (e)(2)(C)

with respect to an employee stock ownership plan, or

‘‘(4) any synthetic equity is owned by a disqualified person in any nonallocation year,

there is hereby imposed a tax on such allocation or ownership equal to 50 percent

of the amount involved.’’.

(2) LIABILITY.—Section 4979A(c) (defining liability for tax) is amended to read

as follows:

‘‘(c) LIABILITY FOR TAX.—The tax imposed by this section shall be paid—

‘‘(1) in the case of an allocation referred to in paragraph (1) or (2) of subsection (a), by—

‘‘(A) the employer sponsoring such plan, or

‘‘(B) the eligible worker-owned cooperative,

which made the written statement described in section 664(g)(1)(E) or in section

1042(b)(3)(B) (as the case may be), and

‘‘(2) in the case of an allocation or ownership referred to in paragraph (3) or

(4) of subsection (a), by the S corporation the stock in which was so allocated

or owned.’’.

(3) DEFINITIONS.—Section 4979A(e) (relating to definitions) is amended to

read as follows:

‘‘(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this section—

‘‘(1) DEFINITIONS.—Except as provided in paragraph (2), terms used in this

section have the same respective meanings as when used in sections 409 and

4978.

29

‘‘(2) SPECIAL RULES RELATING TO TAX IMPOSED BY REASON OF PARAGRAPH (3)

OR (4) OF SUBSECTION (a).—

‘‘(A) PROHIBITED ALLOCATIONS.—The amount involved with respect to any

tax imposed by reason of subsection (a)(3) is the amount allocated to the

account of any person in violation of section 409(p)(1).

‘‘(B) SYNTHETIC EQUITY.—The amount involved with respect to any tax

imposed by reason of subsection (a)(4) is the value of the shares on which

the synthetic equity is based.

‘‘(C) SPECIAL RULE DURING FIRST NONALLOCATION YEAR.—For purposes of

subparagraph (A), the amount involved for the first nonallocation year of

any employee stock ownership plan shall be determined by taking into account the total value of all the deemed-owned shares of all disqualified persons with respect to such plan.

‘‘(D) STATUTE OF LIMITATIONS.—The statutory period for the assessment

of any tax imposed by this section by reason of paragraph (3) or (4) of subsection (a) shall not expire before the date which is 3 years from the later

of—

‘‘(i) the allocation or ownership referred to in such paragraph giving

rise to such tax, or

‘‘(ii) the date on which the Secretary is notified of such allocation or

ownership.’’.

(d) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by this section shall apply to plan

years beginning after December 31, 2004.

(2) EXCEPTION FOR CERTAIN PLANS.—In the case of any—

(A) employee stock ownership plan established after March 14, 2001, or

(B) employee stock ownership plan established on or before such date if

employer securities held by the plan consist of stock in a corporation with

respect to which an election under section 1362(a) of the Internal Revenue

Code of 1986 is not in effect on such date,

the amendments made by this section shall apply to plan years ending after

March 14, 2001.

TITLE VI—REDUCING REGULATORY BURDENS

SEC. 601. MODIFICATION OF TIMING OF PLAN VALUATIONS.

(a) AMENDMENT OF INTERNAL REVENUE CODE.—Paragraph (9) of section 412(c)(9)

(relating to annual valuation) is amended to read as follows:

‘‘(9) ANNUAL VALUATION.—

‘‘(A) IN GENERAL.—For purposes of this section, a determination of experience gains and losses and a valuation of the plan’s liability shall be made

not less frequently than once every year, except that such determination

shall be made more frequently to the extent required in particular cases

under regulations prescribed by the Secretary.

‘‘(B) VALUATION DATE.—

‘‘(i) CURRENT YEAR.—Except as provided in clause (ii), the valuation

referred to in subparagraph (A) shall be made as of a date within the

plan year to which the valuation refers or within one month prior to

the beginning of such year.

‘‘(ii) ELECTION TO USE PRIOR YEAR VALUATION.—The valuation referred to in subparagraph (A) may be made as of a date within the plan

year prior to the year to which the valuation refers if—

‘‘(I) an election is in effect under this clause with respect to the

plan, and

‘‘(II) as of such date, the value of the assets of the plan are not

less than 125 percent of the plan’s current liability (as defined in

paragraph (7)(B)).

‘‘(iii) ADJUSTMENTS.—Information under clause (ii) shall, in accordance with regulations, be actuarially adjusted to reflect significant differences in participants.

‘‘(iv) ELECTION.—An election under clause (ii), once made, shall be irrevocable without the consent of the Secretary.’’.

(b) AMENDMENT OF ERISA.—Paragraph (9) of section 302(c) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is amended—

(1) by inserting ‘‘(A)’’ after ‘‘(9)’’; and

(2) by adding at the end the following:

30

‘‘(B)(i) Except as provided in clause (ii), the valuation referred to in subparagraph

(A) shall be made as of a date within the plan year to which the valuation refers

or within one month prior to the beginning of such year.

‘‘(ii) The valuation referred to in subparagraph (A) may be made as of a date within the plan year prior to the year to which the valuation refers if—

‘‘(I) an election is in effect under this clause with respect to the plan; and

‘‘(II) as of such date, the value of the assets of the plan are not less than 125

percent of the plan’s current liability (as defined in paragraph (7)(B)).

‘‘(iii) Information under clause (ii) shall, in accordance with regulations, be actuarially adjusted to reflect significant differences in participants.

‘‘(iv) An election under clause (ii), once made, shall be irrevocable without the consent of the Secretary of the Treasury.’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to plan

years beginning after December 31, 2001.

SEC. 602. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND DEDUCTION.

(a) IN GENERAL.—Section 404(k)(2)(A) (defining applicable dividends) is amended

by striking ‘‘or’’ at the end of clause (ii), by redesignating clause (iii) as clause (iv),

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

‘‘(iii) is, at the election of such participants or their beneficiaries—

‘‘(I) payable as provided in clause (i) or (ii), or

‘‘(II) paid to the plan and reinvested in qualifying employer securities, or’’.

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

SEC. 603. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY COMPENSATED EMPLOYEES.

(a) IN GENERAL.—Paragraph (4) of section 1114(c) of the Tax Reform Act of 1986

is hereby repealed.

(b) EFFECTIVE DATE.—The repeal made by subsection (a) shall apply to plan years

beginning after December 31, 2001.

SEC. 604. EMPLOYEES OF TAX-EXEMPT ENTITIES.

(a) IN GENERAL.—The Secretary of the Treasury shall modify Treasury Regulations section 1.410(b)–6(g) to provide that employees of an organization described in

section 403(b)(1)(A)(i) of the Internal Revenue Code of 1986 who are eligible to make

contributions under section 403(b) of such Code pursuant to a salary reduction

agreement may be treated as excludable with respect to a plan under section 401(k)

or (m) of such Code that is provided under the same general arrangement as a plan

under such section 401(k), if—

(1) no employee of an organization described in section 403(b)(1)(A)(i) of such

Code is eligible to participate in such section 401(k) plan or section 401(m) plan;

and

(2) 95 percent of the employees who are not employees of an organization described in section 403(b)(1)(A)(i) of such Code are eligible to participate in such

plan under such section 401(k) or (m).

(b) EFFECTIVE DATE.—The modification required by subsection (a) shall apply as

of the same date set forth in section 1426(b) of the Small Business Job Protection

Act of 1996.

SEC. 605. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT ADVICE.

(a) IN GENERAL.—Subsection (a) of section 132 (relating to exclusion from gross

income) is amended by striking ‘‘or’’ at the end of paragraph (5), by striking the period at the end of paragraph (6) and inserting ‘‘, or’’, and by adding at the end the

following new paragraph:

‘‘(7) qualified retirement planning services.’’.

(b) QUALIFIED RETIREMENT PLANNING SERVICES DEFINED.—Section 132 is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following:

‘‘(m) QUALIFIED RETIREMENT PLANNING SERVICES.—

‘‘(1) IN GENERAL.—For purposes of this section, the term ‘qualified retirement

planning services’ means any retirement planning advice or information provided to an employee and his spouse by an employer maintaining a qualified

employer plan.

‘‘(2) NONDISCRIMINATION RULE.—Subsection (a)(7) shall apply in the case of

highly compensated employees only if such 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 employer

plan.

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‘‘(3) QUALIFIED EMPLOYER PLAN.—For purposes of this subsection, the term

‘qualified employer plan’ means a plan, contract, pension, or account described

in section 219(g)(5).’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to years

beginning after December 31, 2001.

SEC. 606. 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.

(b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR PLANS WITH FEWER THAN 25

EMPLOYEES.—In the case of plan years beginning after December 31, 2002, 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).

(c) EFFECTIVE DATE.—The provisions of this section shall take effect on January

1, 2002.

SEC. 607. 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 Administrative Policy Regarding Self-Correction for significant compliance failures;

(4) expanding the availability to correct insignificant compliance failures

under the Administrative Policy Regarding Self-Correction 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.

SEC. 608. REPEAL OF THE MULTIPLE USE TEST.

(a) IN GENERAL.—Paragraph (9) of section 401(m) is amended to read as follows:

‘‘(9) REGULATIONS.—The Secretary shall prescribe such regulations as may be

necessary to carry out the purposes of this subsection and subsection (k), including regulations permitting appropriate aggregation of plans and contributions.’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to years

beginning after December 31, 2001.

SEC. 609. 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 cirVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00031 Fmt 6659 Sfmt 6621 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
32

cumstances 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) (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. 610. 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) and subparagraph (H) of section

401(a)(26) 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) 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) is amended to read

as follows: ‘‘GOVERNMENTAL PLANS’’.

(2) The heading for subparagraph (H) of section 401(a)(26) is amended to read

as follows: ‘‘EXCEPTION FOR GOVERNMENTAL PLANS’’.

(3) Subparagraph (G) of section 401(k)(3) 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, 2001.

SEC. 611. 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) 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

33

place it appears in Treasury Regulations sections 1.402(f)–1, 1.411(a)–11(c),

and 1.417(e)–1(b).

(2) AMENDMENT OF ERISA.—

(A) IN GENERAL.—Section 205(c)(7)(A) of the Employee Retirement Income

Security Act of 1974 (29 U.S.C. 1055(c)(7)(A)) is amended by striking ‘‘90-

day’’ and inserting ‘‘180-day’’.

(B) MODIFICATION OF REGULATIONS.—The Secretary of the Treasury shall

modify the regulations under part 2 of subtitle B of title I of the Employee

Retirement Income Security Act of 1974 to the extent that they relate to

sections 203(e) and 205 of such Act to substitute ‘‘180 days’’ for ‘‘90 days’’

each place it appears.

(3) EFFECTIVE DATE.—The amendments made by paragraph (1)(A) and (2) and

the modifications required by paragraph (1)(B) shall apply to years beginning

after December 31, 2001.

(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 and under section 205 of the Employee Retirement Income Security Act of 1974 to provide

that the description of a participant’s right, if any, to defer receipt of a distribution shall also describe the consequences of failing to defer such receipt.

(2) EFFECTIVE DATE.—The modifications required by paragraph (1) shall apply

to years beginning after December 31, 2001.

SEC. 612. ANNUAL REPORT DISSEMINATION.

(a) REPORT AVAILABLE THROUGH ELECTRONIC MEANS.—Section 104(b)(3) of the

Employee Retirement Income Security Act of 1974 (29 U.S.C. 1024(b)(3)) is amended

by adding at the end the following new sentence: ‘‘The requirement to furnish information under the previous sentence shall be satisfied if the administrator makes

such information reasonably available through electronic means or other new technology.’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to reports

for years beginning after December 31, 2000.

SEC. 613. TECHNICAL CORRECTIONS TO SAVER ACT.

Section 517 of the Employee Retirement Income Security Act of 1974 (29 U.S.C.

1147) is amended—

(1) in subsection (a), by striking ‘‘2001 and 2005 on or after September 1 of

each year involved’’ and inserting ‘‘2001, 2005, and 2009 in the month of September of each year involved’’;

(2) in subsection (b), by adding at the end the following new sentence: ‘‘To

effectuate the purposes of this paragraph, the Secretary may enter into a cooperative agreement, pursuant to the Federal Grant and Cooperative Agreement

Act of 1977 (31 U.S.C. 6301 et seq.), with the American Savings Education

Council or any other appropriate, qualified entity.’’;

(3) in subsection (e)(2)—

(A) by striking ‘‘Committee on Labor and Human Resources’’ in subparagraph (D) and inserting ‘‘Committee on Health, Education, Labor, and Pensions’’;

(B) by striking subparagraph (F) and inserting the following:

‘‘(F) the Chairman and Ranking Member of the Subcommittee on Labor,

Health and Human Services, and Education of the Committee on Appropriations of the House of Representatives and the Chairman and Ranking

Member of the Subcommittee on Labor, Health and Human Services, and

Education of the Committee on Appropriations of the Senate;’’;

(C) by redesignating subparagraph (G) as subparagraph (J); and

(D) by inserting after subparagraph (F) the following new subparagraphs:

‘‘(G) the Chairman and Ranking Member of the Committee on Finance

of the Senate;

‘‘(H) the Chairman and Ranking Member of the Committee on Ways and

Means of the House of Representatives;

‘‘(I) the Chairman and Ranking Member of the Subcommittee on Employer-Employee Relations of the Committee on Education and the Workforce of the House of Representatives; and’’;

(4) in subsection (e)(3)—

(A) by striking ‘‘There shall be not more than 200 additional participants.’’ in subparagraph (A) and inserting ‘‘The participants in the National

Summit shall also include additional participants appointed under this subparagraph.’’;

34

(B) by striking ‘‘one-half shall be appointed by the President,’’ in subparagraph (A)(i) and inserting ‘‘not more than 100 participants shall be appointed under this clause by the President,’’;

(C) by striking ‘‘one-half shall be appointed by the elected leaders of Congress’’ in subparagraph (A)(ii) and inserting ‘‘not more than 100 participants shall be appointed under this clause by the elected leaders of Congress’’;

(D) by redesignating subparagraph (B) as subparagraph (C); and

(E) by inserting after subparagraph (A) the following new subparagraph:

‘‘(B) PRESIDENTIAL AUTHORITY FOR ADDITIONAL APPOINTMENTS.—The

President, in consultation with the elected leaders of Congress referred to

in subsection (a), may appoint under this subparagraph additional participants to the National Summit. The number of such additional participants

appointed under this subparagraph may not exceed the lesser of 3 percent

of the total number of all additional participants appointed under this paragraph, or 10. Such additional participants shall be appointed from persons

nominated by the organization referred to in subsection (b)(2) which is

made up of private sector businesses and associations partnered with Government entities to promote long term financial security in retirement

through savings and with which the Secretary is required thereunder to

consult and cooperate and shall not be Federal, State, or local government

employees.’’;

(5) in subsection (e)(3)(C) (as redesignated), by striking ‘‘January 31, 1998’’ and inserting ‘‘May 1, 2001, May 1, 2005, and May 1, 2009, for each of the subsequent summits, respectively’’;

(6) in subsection (f)(1)(C), by inserting ‘‘, no later than 90 days prior to the

date of the commencement of the National Summit,’’ after ‘‘comment’’;

(7) in subsection (g), by inserting ‘‘, in consultation with the congressional

leaders specified in subsection (e)(2),’’ after ‘‘report’’ the first place it appears;

(8) in subsection (i)— (A) by striking ‘‘beginning on or after October 1, 1997’’ in paragraph (1)

and inserting ‘‘2001, 2005, and 2009’’; and

(B) by adding at the end the following new paragraph: ‘‘(3) RECEPTION AND REPRESENTATION AUTHORITY.—The Secretary is hereby

granted reception and representation authority limited specifically to the events

at the National Summit. The Secretary shall use any private contributions accepted in connection with the National Summit prior to using funds appropriated for purposes of the National Summit pursuant to this paragraph.’’; and

(9) in subsection (k)— (A) by striking ‘‘shall enter into a contract on a sole-source basis’’ and inserting ‘‘may enter into a contract on a sole-source basis’’; and

(B) by striking ‘‘fiscal year 1998’’ and inserting ‘‘fiscal years 2001, 2005,

and 2009’’.

TITLE VII—OTHER ERISA PROVISIONS

SEC. 701. MISSING PARTICIPANTS.

(a) IN GENERAL.—Section 4050 of the Employee Retirement Income Security Act

of 1974 (29 U.S.C. 1350) is amended by redesignating subsection (c) as subsection

(e) and by inserting after subsection (b) the following new subsections: ‘‘(c) MULTIEMPLOYER PLANS.—The corporation shall prescribe rules similar to the

rules in subsection (a) for multiemployer plans covered by this title that terminate

under section 4041A. ‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.— ‘‘(1) TRANSFER TO CORPORATION.—The plan administrator of a plan described

in paragraph (4) may elect to transfer a missing participant’s benefits to the

corporation upon termination of the plan. ‘‘(2) INFORMATION TO THE CORPORATION.—To the extent provided in regulations, the plan administrator of a plan described in paragraph (4) shall, upon

termination of the plan, provide the corporation information with respect to

benefits of a missing participant if the plan transfers such benefits— ‘‘(A) to the corporation, or

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

‘‘(3) PAYMENT BY THE CORPORATION.—If benefits of a missing participant were

transferred to the corporation under paragraph (1), the corporation shall, upon

location of the participant or beneficiary, pay to the participant or beneficiary

the amount transferred (or the appropriate survivor benefit) either—

35

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

‘‘(B) in such other form as is specified in regulations of the corporation.

‘‘(4) PLANS DESCRIBED.—A plan is described in this paragraph if—

‘‘(A) the plan is a pension plan (within the meaning of section 3(2))—

‘‘(i) to which the provisions of this section do not apply (without regard to this subsection), and

‘‘(ii) which is not a plan described in paragraphs (2) through (11) of

section 4021(b), and

‘‘(B) at the time the assets are to be distributed upon termination, the

plan—

‘‘(i) has missing participants, and

‘‘(ii) has not provided for the transfer of assets to pay the benefits of

all missing participants to another pension plan (within the meaning

of section 3(2)).

‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.—Subsections (a)(1) and (a)(3) shall

not apply to a plan described in paragraph (4).’’.

(b) CONFORMING AMENDMENTS.—Section 206(f) of such Act (29 U.S.C. 1056(f)) is

amended—

(1) by striking ‘‘title IV’’ and inserting ‘‘section 4050’’; and

(2) by striking ‘‘the plan shall provide that,’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions made after final regulations implementing subsections (c) and (d) of section 4050 of the Employee Retirement Income Security Act of 1974 (as added by

subsection (a)), respectively, are prescribed.

SEC. 702. 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. 703. 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.

36

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 702(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, 2001.

SEC. 704. 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. 705. 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.—

37

(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, 2001, 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, 2002.

SEC. 706. CIVIL PENALTIES FOR BREACH OF FIDUCIARY RESPONSIBILITY.

(a) IMPOSITION AND AMOUNT OF PENALTY MADE DISCRETIONARY.—Section 502(l)(1)

of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1132(l)(1)) is

amended—

(1) by striking ‘‘shall’’ and inserting ‘‘may’’, and

(2) by striking ‘‘equal to’’ and inserting ‘‘not greater than’’.

(b) APPLICABLE RECOVERY AMOUNT.—Section 502(l)(2) of such Act (29 U.S.C.

1132(l)(2)) is amended by inserting after ‘‘fiduciary or other person’’ the following:

‘‘(or from any other person on behalf of any such fiduciary or other person)’’.

(c) OTHER RULES.—Section 502(l) of the Employee Retirement Income Security Act

of 1974 (29 U.S.C. 1132(l)) is amended by adding at the end the following new paragraphs:

‘‘(5) A person shall be jointly and severally liable for the penalty described in

paragraph (1) to the same extent that such person is jointly and severally liable for

the applicable recovery amount on which the penalty is based.

‘‘(6) No penalty shall be assessed under this subsection unless the person against

whom the penalty is assessed is given notice and opportunity for a hearing with respect to the violation and applicable recovery amount.’’.

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to any

breach of fiduciary responsibility or other violation of part 4 of subtitle B of title

38

I of the Employee Retirement Income Security Act of 1974 occurring on or after the

date of the enactment of this Act.

SEC. 707. BENEFIT SUSPENSION NOTICE.

(a) MODIFICATION OF REGULATION.—The Secretary of Labor shall modify the regulation under subparagraph (B) of section 203(a)(3) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)(3)(B)) to provide that the notification

required by such regulation in connection with any suspension of benefits described

in such subparagraph—

(1) in the case of an employee who returns to service under the plan after

commencement of payment of benefits under the plan—

(A) shall be made during the first calendar month or payroll period in

which the plan withholds payments, and

(B) if a reduced rate of future benefit accrual will apply to the returning

employee (as of the first date of participation in the plan by the employee

after returning to work), shall include a statement that the rate of future

benefit accrual will be reduced, and

(2) in the case of any employee who is not described in paragraph (1)—

(A) may be included in the summary plan description for the plan furnished in accordance with section 104(b) of such Act (29 U.S.C. 1024(b)),

rather than in a separate notice, and

(B) need not include a copy of the relevant plan provisions.

(b) EFFECTIVE DATE.—The modification made under this section shall apply to

plan years beginning after December 31, 2001.

SEC. 708. 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 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.

39

TITLE VIII—PLAN AMENDMENTS

SEC. 801. PROVISIONS RELATING TO PLAN AMENDMENTS.

(a) IN GENERAL.—If this section applies to any plan or contract amendment— (1) such plan or contract shall be treated as being operated in accordance with

the terms of the plan during the period described in subsection (b)(2)(A); and

(2) except as provided by the Secretary of the Treasury, such plan shall not

fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code

of 1986 or section 204(g) of the Employee Retirement Income Security Act of

1974 by reason of such amendment.

(b) AMENDMENTS TO WHICH SECTION APPLIES.— (1) IN GENERAL.—This section shall apply to any amendment to any plan or

annuity contract which is made— (A) pursuant to any amendment made by this Act, or pursuant to any

regulation issued under this Act; and

(B) on or before the last day of the first plan year beginning on or after

January 1, 2004.

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 ‘‘2006’’ for ‘‘2004’’. (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.

PURPOSE

The purpose of H.R. 10, the ‘‘Comprehensive Retirement Security

and Pension Reform Act of 2001,’’ is to make retirement security

more available to millions of workers by (1) expanding small business retirement plans, (2) allowing workers to save more, (3) addressing the needs of an increasingly mobile workforce through

greater portability and other changes, (4) making pensions more secure, and (5) cutting the red tape that has hamstrung employers

who want to establish pension plans for their workers.

COMMITTEE ACTION

H.R. 10 was introduced by Representative Rob Portman, with the

lead co-sponsorship of Representative Ben Cardin, on March 14,

2001. The bill has 305 cosponsors—175 Republicans and 130 Democrats, including Committee Chairman John Boehner, Subcommittee

on Employer-Employee Relations Chairman Sam Johnson, and

Subcommittee Ranking Member Rob Andrews.

The Subcommittee on Employer-Employee Relations held a legislative hearing on the bill on April 5, 2001. At the hearing, entitled

‘‘Enhancing Retirement Security: A Hearing on H.R. 10, The ‘Comprehensive Retirement Security and Pension Reform Act of 2001,’ ’’

testimony was received from the bill’s authors, Representatives

Portman and Cardin, as well as representatives of the American

Benefits Council, the Building and Construction Trades Department, AFL–CIO and the National Coordinating Committee for Multiemployer Plans, the American Council of Life Insurers, and the

Pension Rights Center.

40

1This report only contains Committee views on those provisions of H.R. 10 within the Committee’s jurisdiction. 2 Note all section references are to the Employee Retirement Income Security Act of 1974

(ERISA), 29 U.S.C. s1001, et seq., unless otherwise indicated.

On April 26, 2001, the Committee on Education and the Workforce approved H.R. 10, as amended, by a voice vote, a quorum

being present, and by voice vote ordered the bill favorably reported.

In the 106th Congress, the Subcommittee on Employer-Employee

Relations held a legislative hearing on a very similar bill, H.R.

1102. On June 29, 1999, at the hearing, entitled ‘‘Enhancing Retirement Security: A Hearing on H.R. 1102, The ‘Comprehensive

Retirement Security and Pension Reform Act of 1999,’ ’’ testimony

was received from the bill’s authors, Representatives Portman and

Cardin.

On July 14, 1999, the Committee on Education and the Workforce approved H.R. 1102, as amended, by a voice vote, a quorum

being present, and by voice vote ordered the bill favorably reported.

Fifteen provisions of Title VI of the bill, containing amendments

to the Employee Retirement Income Security Act (ERISA), were

added to H.R. 2488, the ‘‘Taxpayer Refund and Relief Act of 1999,’’ which passed the House and Senate on August 5, 1999, but was vetoed by the president. The tax bill passed by Congress included

provisions either identical or similar to sections 601–606, 611–612,

615–616, 618, 621–622, and 627–628 of H.R. 1102, as reported.

The House passed H.R. 1102 on July 19, 2000 by a vote of 401– 25 (although the ERISA provisions were deleted for procedural reasons). Twenty-two ERISA provisions from H.R. 1102 were included

in the ‘‘Retirement Savings and Pension Coverage Act of 2000,’’ part of H.R. 2614, the ‘‘Taxpayer Relief Act of 2000’’ passed on October 26, 2000 (but not acted upon by the Senate).

COMMITTEE STATEMENT AND VIEWS 1

TITLE II—EXPANDING COVERAGE

Section 202—Plan loans for subchapter S owners, partners and sole

proprietors

Current law

A qualified retirement plan or Internal Revenue Code section

403(b) arrangement is permitted to make loans to participants.

However, the statutory exemption from ERISA prohibited transaction rules for participant loans, sec. 408 (with a counterpart in

the Internal Revenue Code),2 generally does not apply to small

business owners if the business is unincorporated (i.e., partnerships and sole-proprietorships) or has made an election to be taxed

under the provisions of Code subchapter S.

The statutory exemptions to the prohibited transaction rules do

not apply to certain transactions in which the plan makes a loan

to an owner-employee. For purposes of the prohibited transaction

rules, an owner-employee means (1) a sole proprietor, (2) a partner

who owns more than 10 percent of either the capital interest or the

profits interest in the partnership, (3) an employee or officer of a

Code subchapter S corporation who owns more than 5 percent of

the outstanding stock of the corporation, and (4) the owner of an

individual retirement arrangement (‘‘IRA’’). The term owner-emVerDate 01-MAY-2001 05:41 May 02, 2001 Jkt 072094 PO 00000 Frm 00040 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
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ployee also includes certain family members of an owner-employee

and certain corporations owned by an owner-employee.

Explanation of provision

The sec. 408 prohibited transaction rules are amended to provide

equal access to participant loans for all employees, including the

owners of small businesses that are unincorporated or that choose

to be taxed under Code subchapter S.

Effective Date.—The provision is effective with respect to loans

made after December 31, 2001.

Rationale

The Committee believes that the present-law prohibited transaction rules regarding loans unfairly discriminate against the owners of unincorporated businesses and subchapter S corporations.

For example, under present law, the sole shareholder of a C corporation may take advantage of the statutory exemption to the prohibited transaction rules for loans, but an individual who does

business as a sole proprietor may not. The restrictions on loans to

owner-employees also reduce the incentive to establish plans and,

for plans in existence, make it less likely that an affected plan will

offer a loan feature.

The provision generally eliminates the special present-law rules

relating to plan loans made to an owner-employee. Thus, the general statutory exemption applies to such transactions. Present law

continues to apply with respect to IRAs.

TITLE III—ENHANCING FAIRNESS FOR WOMEN

Section 303—Faster vesting of certain employer matching contributions

Current law

Section 203(a) requires a participant’s employer-provided benefit

to vest in one of two ways: (1) a participant acquires a nonforfeitable right to 100 percent of the participant’s accrued benefit derived from employer contributions upon the completion of 5 years

of service; or (2) a participant has a nonforfeitable right to at least

20 percent of the participant’s accrued benefit derived from employer contributions after 3 years of service, 40 percent after 4

years of service, 60 percent after 5 years of service, 80 percent after

6 years of service, and 100 percent after 7 years of service.

Explanation of provision

The provision applies an expedited vesting schedule to employer

matching contributions. Under the provision, employer matching

contributions have to vest in one of 2 accelerated ways: (1) a participant acquires a nonforfeitable right to 100 percent of employer

matching contributions upon the completion of 3 years of service;

or (2) a participant has a nonforfeitable right to 20 percent of employer matching contributions for each year of service beginning

with the participant’s second year of service and ending with 100

percent after 6 years of service.

Effective Date.—The provision is effective for plan years beginning after December 31, 2001, with a delayed effective date for

plans maintained pursuant to a collective bargaining agreement.

42

The provision does not apply to any employee until the employee

has an hour of service after the effective date. In applying the new

vesting schedule, service before the effective date is taken into account.

Rationale

The Committee understands that many employees, particularly

lower- and middle-income employees, do not take full advantage of

the retirement savings opportunities provided by their employer’s

401(k) plan. The Committee believes that providing faster vesting

for matching contributions will make section 401(k) plans more attractive for employees, particularly lower- and middle-income employees, and will encourage workers to save more for their own retirement. In addition, faster vesting for matching contributions will

enable short-service employees to accumulate greater retirement

savings. Given the increasingly mobile nature of today’s workforce,

there is a growing risk that many participants will leave employment before vesting in their matching contributions.

TITLE IV—INCREASING PORTABILITY FOR PARTICIPANTS

Section 405—Treatment of forms of distributions

Current law

The sec. 204(g) ‘‘anti-cutback rule’’ generally provides that when

a participant’s benefits are transferred from one plan to another,

the transferee plan must preserve all forms of distribution that

were available under the transferor plan. The anti-cutback rule

also generally provides that, without regard to a transfer, a plan

may not eliminate forms of distribution. An amendment is treated

as reducing an accrued benefit if, with respect to benefits accrued

before the amendment is adopted, the amendment has the effect of

either (1) eliminating or reducing an early retirement benefit or a

retirement-type subsidy, or (2) except as provided by Department

of Treasury regulations, eliminating an optional form of benefit.

The prohibition against the elimination of an optional form of benefit applies to plan mergers, spinoffs, transfers, and transactions

amending or having the effect of amending a plan or plans to

transfer plan benefits.

Explanation of provision

A defined contribution plan to which benefits are transferred is

not treated as reducing a participant’s or beneficiary’s accrued benefit even though it does not provide all of the forms of distribution

previously available under the transferor plan if (1) the plan receives from another defined contribution plan a direct transfer of

the participant’s or beneficiary’s benefit accrued under the transferor plan, or the plan results from a merger or other transaction

that has the effect of a direct transfer (including consolidations of

benefits attributable to different employers within a multiple employer plan), (2) the terms of both the transferor plan and the

transferee plan authorize the transfer, (3) the transfer occurs pursuant to a voluntary election by the participant or beneficiary that

is made after the participant or beneficiary received a notice describing the consequences of making the election, and (4) the transferee plan allows the participant or beneficiary to receive distribuVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00042 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
43

tion of his or her benefit under the transferee plan in the form of

a single sum distribution. Nothing in this amendment is to be construed to affect the applicability of the requirements of ERISA section 205 to the transferee plan.

In addition, except to the extent provided by the Secretary of the

Treasury in regulations, a defined contribution plan is not treated

as reducing a participant’s accrued benefit if (1) a plan amendment

eliminates a form of distribution previously available under the

plan, (2) a single sum distribution is available to the participant at

the same time or times as the form of distribution eliminated by

the amendment, and (3) the single sum distribution is based on the

same or greater portion of the participant’s accrued benefit as the

form of distribution eliminated by the amendment.

The Secretary of the Treasury is directed to issue, not later than

December 31, 2003, final regulations under section 204(g) implementing the provision.

Furthermore, the provision directs the Secretary of the Treasury

to provide by regulations that the prohibitions against eliminating

or reducing an early retirement benefit, a retirement-type subsidy,

or an optional form of benefit not apply to plan amendments that

eliminate or reduce early retirement benefits, retirement-type subsidies, and optional forms of benefit that create significant burdens

or complexities for a plan and its participants and that do not adversely affect the rights of any participant in more than a de minimis manner.

It is intended that the factors to be considered in determining

whether an amendment has more than a de minimis adverse effect

on any participant include (1) all of the participant’s early retirement benefits, retirement-type subsidies, and optional forms of benefits that are reduced or eliminated by the amendment, (2) the extent to which early retirement benefits, retirement-type subsidies,

and optional forms of benefit in effect with respect to a participant

after the amendment effective date provide rights that are comparable to the rights that are reduced or eliminated by the plan

amendment, (3) the number of years before the participant attains

normal retirement age under the plan (or early retirement age, as

applicable), (4) the amount of the participant’s benefit that is affected by the plan amendment, in relation to the amount of the

participant’s compensation, and (5) the number of years before the

plan amendment is effective.

Effective Date.—The provision is effective for years beginning

after December 31, 2001.

Rationale

The Committee understands that the application of the prohibition against the elimination of any optional form of benefit to plan

mergers and transfers with respect to defined contribution plans

frequently results in complexity and confusion, especially in the

context of business acquisitions and similar transactions. In addition, the Committee understands that a defined contribution plan

participant who is entitled to receive a single sum distribution generally may roll over such a distribution to an IRA and control the

manner of distribution from the IRA.

The requirement that a plan preserve all forms of distribution

can significantly increase the cost of plan administration. This reVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00043 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
44

quirement also causes confusion among plan participants who can

have separate parts of their retirement benefits subject to very different plan provisions.

Section 408—Employers may disregard rollovers for purposes of

cash-out amounts

Current law

Under sec. 203(e), if a retirement plan participant ceases to be

employed by the employer that maintains the plan, the plan may

distribute the participant’s nonforfeitable accrued benefit without

the consent of the participant and, if applicable, the participant’s

spouse, if the present value of the benefit does not exceed $5,000.

For purposes of calculating the accrued benefit of an individual,

amounts rolled over from another employer’s retirement plan or an

IRA are taken into account in calculating the $5,000 limit.

Explanation of provision

In determining whether an employee’s benefit level falls below

the $5,000 cash-out threshold, a plan is permitted to exclude any

benefits attributable to amounts that have been rolled over by the

employee from another employer’s plan or an IRA (and any earnings on such rollovers).

Effective Date.—The provision is effective for distributions after

December 31, 2001.

Rationale

Keeping track of and managing small account balances of former

employees creates administrative burdens for plans. The Committee is concerned that, in some cases, the cash-out rule may discourage plans from accepting rollovers because the rollover will increase participants’ benefits to above the cash-out amount, and increase administrative burdens. The Committee believes that disregarding rollovers for purposes of the cash-out rule will further

the intent of the cash-out rule by removing a possible disincentive

for plans to accept rollovers.

TITLE V—STRENGTHENING PENSION SECURITY AND ENFORCEMENT

Section 501—Repeal of 150% of current liability funding limit

Current law

Under present law, defined benefit pension plans are subject to

minimum funding requirements designed to ensure that pension

plans have sufficient assets to pay benefits. A defined benefit pension plan is funded using one of a number of acceptable actuarial

cost methods. No contribution is required under the minimum

funding rules in excess of the full funding limit. The full funding

limit is generally defined by sec. 302(c)(7) as the excess, if any, of

(1) the lesser of (a) the accrued liability under the plan (including

normal cost) or (b) 155 percent of the plan’s current liability, over

(2) the value of the plan’s assets. In general, current liability is all

liabilities to plan participants and beneficiaries accrued to date,

whereas the accrued liability full funding limit is based on projected benefits. The current liability full funding limit is scheduled

to increase as follows: 160 percent for plan years beginning in 2001

45

and 2002, 165 percent for plan years beginning in 2003 and 2004,

and 170 percent for plan years beginning in 2005 and thereafter.

In no event is a plan’s full funding limit less than 90 percent of

the plan’s current liability over the value of the plan’s assets.

Explanation of provision

The arbitrary funding limitation based on current liability would

be phased-out more quickly. The provision gradually increases and

then repeals the current liability full funding limit. The current liability full funding limit will be 165 percent of current liability for

plan years beginning in 2002 and 170 percent for plan years beginning in 2003. The current liability full funding limit is repealed for

plan years beginning in 2004 and thereafter.

Effective Date.—The provision is effective for plan years beginning after December 31, 2001.

Rationale

The Committee is concerned that the current liability full funding limit may result in inadequate funding of pension plans and

thus jeopardize pension security. The current-liability limitation

was added in 1987, primarily to raise additional revenue. This

funding limit—even at higher levels—can lead to systematic plan

underfunding as well as erratic and unstable contribution patterns.

Section 504—Failure to provide notice by defined benefit plans significantly reducing future benefit accruals

Current law

Under section 204(h), a defined benefit plan or a money purchase

pension plan may not be amended so as to provide for a significant

reduction in the rate of future benefit accrual unless, after the

adoption of the plan amendment and not less than 15 days before

the effective date of the plan amendment, the plan administrator

satisfies a notice requirement. Under such requirement, the plan

administrator must provide a written notice to participants and alternate payees, other than those whose rate of future benefit accrual is reasonably expected not to be reduced by the amendment,

and to each employee organization that represents a participant to

whom a section 204(h) notice is required to be provided.

The written notice must set forth the plan amendment and its

effective date. Alternatively, under the applicable regulations, the

notice may contain:

a summary of the amendment, rather than the text of the

amendment, if the summary is written in a manner calculated to be understood by the average plan participant

and contains the effective date. The summary need not explain how the individual benefit of each participant or alternate payee will be affected by the amendment.

Under the applicable regulations, in general, an amendment that

significantly reduces the rate of future benefit accrual is effective

with respect to participants and alternate payees with respect to

whom a proper notice is provided in a timely manner. This rule applies even if certain participants and alternate payees do not receive a timely notice, provided that the plan administrator made a

46

‘‘good faith effort to comply with the requirements of section

204(h).’’ The applicable regulations also provide that, under certain circumstances, an amendment that significantly reduces the rate of

future benefit accrual is effective with respect to all affected persons—even those who are entitled to a notice but do not receive

one—if the plan administrator ‘‘made a good faith effort to comply’’ and failed to provide a notice to ‘‘no more than a de minimis percentage of participants and alternate payees to whom [a] section

204(h) notice is required to be provided.’’

Explanation of provision

The provision amends the notice requirement in section 204(h) to

provide that an applicable pension plan may not be amended to

provide for a significant reduction in the rate of future benefit accrual unless the plan administrator (of a defined benefit pension

plan or a money purchase pension plan) furnishes a written notice

concerning a plan amendment that provides for a significant reduction in the rate of future benefit accrual. Notice is also required

with respect to the elimination or reduction of an early retirement

benefit or retirement-type subsidy.

The plan administrator is required to provide in this notice, in

a manner calculated to be understood by the average plan participant, sufficient information (as defined in Treasury regulations) to

allow participants to understand the effect of the amendment. The

plan administrator is required to provide this notice to each affected participant, each affected alternate payee, and each employee organization representing affected participants. For purposes of the provision, an affected participant or alternate payee is

a participant or alternate payee to whom the significant reduction

in the rate of future benefit accrual is reasonably expected to apply.

Except to the extent provided by Treasury regulations, the plan administrator is required to provide the notice within a reasonable

time before the effective date of the plan amendment.

The Secretary of the Treasury is authorized to provide a simplified notice requirement or an exemption from the notice requirement for plans with less than 100 participants and to allow any notice required under this section be provided by using new technologies. The Secretary of the Treasury is also authorized to provide a simplified notice requirement or an exemption from the notice requirement if participants are given the option to choose between benefits under the new plan formula and the old plan formula. In such cases, the Committee understands that the fiduciary

rules applicable to pension plans may require appropriate disclosure to participants, even if no disclosure is required under the provision.

It is intended that the Secretary of the Treasury will issue the

necessary regulations with respect to disclosure within 90 days of

enactment. It is also intended that such guidance may be relatively

detailed because of the need to provide for alternative disclosures

rather than a single disclosure methodology that may not fit all situations, and the need to consider the complex actuarial calculations and assumptions involved in providing necessary disclosures.

In addition, the provision directs the Secretary of the Treasury

to prepare a report on the effects of conversions of traditional deVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00046 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
47

fined benefit plans to cash balance or hybrid formula plans. Such

study is to examine the effect of such conversions on longer service

participants, including the incidence and effects of ‘‘wear away’’

provisions under which participants earn no additional benefits for

a period of time after the conversion. The Secretary is directed to

submit such report, together with recommendations thereon, 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 as soon as practicable, but not

later than 60 days after the date of enactment.

Effective Date.—The provision is effective for plan amendments

taking effect on or after the date of enactment. The period for providing any notice required under the provision will not end before

the last day of the 3-month period following the date of enactment.

Prior to the issuance of Treasury regulations, a plan will be treated

as meeting the requirements of the provision if the plan makes a

good faith effort to comply with such requirements.

Rationale

The Committee is aware of concerns raised regarding conversions

of traditional defined benefit pension plans to so-called ‘‘cash balance’’ plans, with particular focus on the impact such conversions

have on affected workers. The Committee believes that employees

are entitled to meaningful disclosure concerning plan amendments

that may result in reductions of future benefit accruals. The Committee has determined that present law does not require employers

to provide such disclosure, particularly in cases where traditional

defined benefit plans are converted to cash balance plans. The

Committee also believes that any disclosure requirements applicable to plan amendments should strike a balance between providing

meaningful disclosure and avoiding the imposition of unnecessary

administrative burdens on employers.

Section 506—Protection of investment of employee contributions to

401(k) plans

Current law

Section 1524 of the Taxpayer Relief Act of 1997 (‘‘TRA’’), P.L.

105–34, amended ERISA to prohibit certain employee benefit plans

from acquiring securities or real property of the employer who

sponsors the plan if, after the acquisition, the fair market value of

such securities and property exceeds 10 percent of the fair market

value of plan assets. The 10–percent limitation does not apply to

any ‘‘eligible individual account plans’’ that specifically authorize

such investments. Generally, eligible individual account plans are

defined contribution plans, including plans containing a cash or deferred arrangement (401(k) plans).

The term ‘‘eligible individual account plan’’ does not include the

portion of a plan that consists of elective deferrals made under section 401(k) if elective deferrals equal to more than 1 percent of any

employee’s eligible compensation are required to be invested in employer securities and employer real property. The rule excluding

elective deferrals from the definition of individual account plan

does not apply if individual account plans are a small part of the

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employer’s retirement plans. In particular, that rule does not apply

to an individual account plan for a plan year if the value of the assets of all individual account plans maintained by the employer do

not exceed 10 percent of the value of the assets of all pension plans

maintained by the employer (determined as of the last day of the

preceding plan year).

The rule excluding elective deferrals from the definition of individual account plan applies to elective deferrals for plan years beginning after December 31, 1998. It does not apply with respect to

earnings on elective deferrals for plan years beginning before January 1, 1999.

Explanation of provision

The provision modifies the effective date of the rule excluding

certain elective deferrals from the definition of individual account

plan by providing that the rule does not apply to any elective deferral invested in assets consisting of qualifying employer securities,

qualifying employer real property, or both, if such assets were acquired by the plan before January 1, 1999.

Effective Date.—The section is effective as if included in the section of the Taxpayer Relief Act of 1997 that contained the rule excluding certain elective deferrals.

Rationale

The change would correct a technical problem with the application of section 1524 of the TRA. The Committee believes that the

effective date provided in the TRA with respect to the rule excluding certain elective deferrals from the definition of individual account plan has produced unintended results.

Section 507—Periodic pension benefits statements

Current law

Section 105 provides that a pension plan administrator must furnish a benefit statement to any participant or beneficiary who

makes a written request for such a statement. This statement must

indicate, on the basis of the latest available information, (1) the

participant’s or beneficiary’s total accrued benefit, and (2) the participant’s or beneficiary’s vested accrued benefit or the earliest date

on which the accrued benefit will become vested. A participant or

beneficiary is not entitled to receive more than 1 benefit statement

during any 12–month period.

Explanation of provision

A plan administrator of a defined contribution plan generally

would be required to furnish a benefit statement to each participant at least once annually and to a beneficiary upon written request.

In addition to providing a benefit statement to a beneficiary upon

written request, the plan administrator of a defined benefit plan

generally would be required either (1) to furnish a benefit statement at least once every 3 years to each participant who has a

vested accrued benefit and who is employed by the employer at the

time the plan administrator furnishes the benefit statements to

participants, or (2) to annually furnish written, electronic, or other

49

appropriate notice to each participant of the availability of and the

manner in which the participant may obtain the benefit statement.

The plan administrator would be required to write the benefit

statement in a manner calculated to be understood by the average

plan participant and would be permitted to furnish the statement

in written, electronic, or other appropriate form.

The Secretary of Labor is authorized to provide that years in

which no employee or former employee benefits under a plan need

not be taken into account in determining the applicable 3-year period.

In addition, the Secretary of Labor is directed to develop a model

benefit statement, written in a manner calculated to be understood

by the average plan participant, that may be used by plan administrators in complying with the requirements of section 105. The

model statement’s use would be optional. The model statement

would include items such as the amount of nonforfeitable accrued

benefits as of the statement date which is payable at normal retirement age under the plan, the amount of accrued benefits which are

forfeitable but which may become nonforfeitable under the terms of

the plan, information on how to contact the Social Security Administration to obtain a participant’s personal earnings and benefit estimate statement, and other information that may be important to

understanding benefits earned under the plan. Statements provided by electronic forms of communications shall be provided consistent with DOL and Treasury regulations.

Effective Date.—The changes would apply to plan years beginning after December 31, 2002.

Rationale

Benefit statements provide meaningful information that each

participant should receive regularly in order to evaluate his or her

retirement benefits. This will encourage better awareness by plan

participants of their overall retirement preparedness and the status of their benefits under the plan.

TITLE VI—REDUCING REGULATORY BURDENS

Section 601—Modification of timing of plan valuations

Current law

Under present law, in the case of plans subject to the minimum

funding rules, a plan valuation is generally required annually.

Under proposed Treasury regulations, except as provided by the

Commissioner of Internal Revenue, the valuation must be as of a

date within the plan year to which the valuation refers or within

the month prior to the beginning of that year.

Explanation of provision

The provision incorporates into the statute the proposed Treasury regulation regarding the date of valuations (the valuation must

be as of a date within the plan year to which the valuation refers

or within the month prior to the beginning of that year). The provision also provides, as an exception to this general rule, that the

valuation date with respect to a plan year may be any date within

the immediately preceding plan year if, as of such date, plan assets

are not less than 125 percent of the plan’s current liability. InforVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00049 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
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mation determined as of such date is required to be adjusted actuarially, in accordance with Treasury regulations, to reflect significant differences in plan participants. An election to use a prior plan

year valuation date, once made, may only be revoked with the consent of the Secretary of the Treasury.

Effective Date.—The provision is effective for plan years beginning after December 31, 2001.

Rationale

The Committee believes that while plan valuations are necessary

to ensure adequate funding of defined benefit pension plans, they

also create administrative burdens for employers. This new rule, in

the case of well-funded plans, strikes an appropriate balance between funding concerns and employer concerns about plan administrative costs. Because valuations can be quite time consuming, the

current-law rule means that a plan’s minimum funding requirements, deductible limits, and full-funding limitation for a year are

not known until after the beginning of the year, sometimes well

into the year, and in extreme cases even after the year is over. This

prevents accurate advance budgeting for pension contributions.

Section 606—Reporting simplification

Current law

A plan administrator of a pension, annuity, stock bonus, profitsharing or other funded plan of deferred compensation generally

must file with the Secretary of Labor, the Secretary of the Treasury, and the PBGC an annual return for each plan year containing

certain information with respect to the qualification, financial condition, and operation of the plan. The plan administrator must use

the Form 5500 series as the format for the required annual return.

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 Internal

Revenue Service, which forwards the form to the Department of

Labor and the PBGC.

The Form 5500 series consists of 3 different forms: Form 5500,

Form 5500–C/R, and Form 5500–EZ. Form 5500 is the most comprehensive of the forms and requires the most detailed financial information. Form 5500–C/R requires less information than Form

5500, and Form 5500–EZ, which consists of only 1 page, is the simplest of the forms. The size of the plan determines which form a

plan administrator must file. If the plan has more than 100 participants at the beginning of the plan year, the plan administrator

generally must file Form 5500. If the plan has fewer than 100 participants at the beginning of the plan year, the plan administrator

generally may file Form 5500–C/R. A plan administrator generally

may file Form 5500–EZ 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 Internal Revenue Code section 410(b), (3) the emVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00050 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
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ployer 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 does not exceed $100,000, the plan administrator is not required to file a return.

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

to provide that if the total value of the plan assets of such a plan

as of the end of the plan year and all prior plan years does not exceed $250,000, the plan administrator is not required to file a return.

In addition, the Secretary of the Treasury and the Secretary of

Labor are directed to provide simplified reporting requirements for

plan years beginning after December 31, 2001, for a plan that (1)

covers less than 25 employees on the first day of the plan year, (2)

is not aggregated with another plan in order to satisfy the minimum coverage requirements of Internal Revenue Code section

410(b), (3) is maintained by an employer that is not a member of

a related group of employers, and (4) is maintained by an employer

that does not receive the services of leased employees. The Secretary of the Treasury and the Secretary of Labor shall provide for

the filing of annual returns for such retirement plans covering

fewer than 25 workers in a manner and form that provides useful

information to participants and that is simple for employers to

comply with.

Effective Date.—The provision is effective on January 1, 2002.

Rationale

The Committee believes that simplification of the reporting requirements applicable to plans of small employers will make it

easier for employers to provide retirement benefits for their employees.

Section 611—Notice and consent period regarding distributions

Current law

Notice and consent requirements in sec. 205 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 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

52

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 days 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 days

and no more than 90 days before the date distribution commences.

Explanation of 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.

Effective Date.—The provision is effective for years beginning

after December 31, 2001.

Rationale

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.

Section 612—Annual report dissemination

Current law

Section 104(b)(3) requires that within nine months after the close

of each plan year, the plan administrator must ‘‘furnish’’ a summary annual report to each plan participant and to each beneficiary receiving benefits. The summary annual report is a sumVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00052 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
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mary of the annual report filed with the DOL regarding the financial position and management of the plan.

Explanation of provision

The requirement that plan administrators furnish a summary

annual report would be satisfied if the report were made reasonably available through electronic means or other new technology.

This provision would be interpreted consistent with the regulations

of the Departments of Labor and Treasury.

Effective Date.—The change applies to reports for years beginning after December 31, 2000.

Rationale

The Committee believes that this simplification of the summary

annual report requirement will reduce the burden and cost of plan

administration and disclosure, thereby encouraging more employers to establish and maintain retirement plans.

Section 613—Technical corrections to the SAVER Act

Current law

The Savings Are Vital to Everyone’s Retirement (SAVER) Act of

1997 (P.L. 105–92), in addition to establishing an ongoing program

by the DOL on retirement savings education and outreach (sec.

516), convenes a National Summit on Retirement Savings at the

White House, cohosted by the President and the bipartisan Congressional leadership, in 1998 and again in 2001 and 2005 (sec.

517). The National Summit brings together experts in the fields of

employee benefits and retirement savings, key leaders of government, and interested parties from the private sector and general

public. The delegates are selected by the Congressional leadership

and the President. The National Summit is a public-private partnership, receiving substantial funding from private sector contributions. The National Summits’ goals are to: (1) advance the public’s

knowledge and understanding of retirement savings and facilitate

the development of a broad-based, public education program; (2)

identify the barriers which hinder workers from setting aside adequate savings for retirement and impede employers, especially

small employers, from assisting their workers in accumulating retirement savings; and (3) develop specific recommendations for legislative, executive, and private sector actions to promote retirement

income savings among American workers.

Explanation of provision

This section makes technical amendments to the SAVER Act regarding the administration of future statutorily created National

Summits on Retirement Savings. It clarifies that National Summits

shall be held in the month of September in 2001 and 2005, and

adds an additional National Summit in 2009. To facilitate the administration of future National Summits, the DOL is given authority to enter into cooperative agreements (pursuant to the Federal

Grant and Cooperative Agreement Act of 1977) with its 1998 summit partner, the American Savings Education Council, or any other

appropriate, qualified entity.

54

Six new statutory delegates are added to future summits: the

Chairman and Ranking Member of the House Ways and Means

Committee, the Senate Finance Committee, and the Subcommittee

on Employer-Employee Relations of the House Education and the

Workforce Committee, respectively. Further, the President, in consultation with the Congressional leadership, may appoint up to 3%

of the delegates (not to exceed 10) from a list of nominees provided

by the private sector partner in Summit administration. The section also clarifies that new delegates are to be appointed for each

future National Summit (as was the intent of the original legislation) and sets deadlines for their appointment.

The section also sets deadlines for DOL to publish the Summit

agenda, gives DOL limited reception and representation authority,

and mandates that DOL consult with the Congressional leadership

in drafting the post-Summit report.

Effective Date.—The section is effective upon date of enactment.

Rationale

This section clarifies the administration of future National Summits and is designed to assist in their planning and execution. It

is also intended to clarify issues regarding the selection of delegates to future National Summits.

TITLE VII—OTHER ERISA PROVISIONS

Section 701—Missing participants

Current law

The plan administrator of a defined benefit pension plan that is

subject to Title IV of ERISA, is maintained by a single employer,

and terminates under a standard termination is required to distribute the assets of the plan. With respect to a participant whom

the plan administrator cannot locate after a diligent search, the

plan administrator satisfies the distribution requirement only by

purchasing irrevocable commitments from an insurer to provide all

benefit liabilities under the plan or transferring the participant’s

designated benefit to the PBGC, which holds the benefit of the

missing participant as trustee until the PBGC locates the missing

participant and distributes the benefit. The PBGC missing participant program is not available to multiemployer plans or defined

contribution plans and other plans not covered by Title IV of

ERISA.

Explanation of provision

The PBGC is directed to prescribe for terminating multiemployer

plans rules similar to the present-law missing participant rules applicable to terminating single employer plans that are subject to

Title IV of ERISA. The missing participants program is also extended to defined contribution plans, defined benefit plans that do

not have more than 25 active participants and are maintained by

professional service employers, and the portions of defined benefit

plans that provide benefits based upon the separate accounts of

participants and therefore are treated as defined contribution plans

under ERISA.

Effective Date.—The provision is effective for distributions from

terminating plans that occur after the PBGC adopts final regulaVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00054 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
55

tions implementing the provision. The Committee expects the regulations to be completed within one year.

Rationale

By allowing plan sponsors the option of transferring pension

funds to PBGC, the chances will be increased that a missing participant will be able to recover benefits. Sponsors of terminated multiemployer plans and plans that are not covered by Title IV face uncertainty with respect to missing participants due to a lack of statutory or regulatory guidance. The Committee believes that it is appropriate to extend the established PBGC missing participant program to these plans in order to reduce uncertainty for plan sponsors and increase the likelihood that missing participants will receive their retirement benefits.

Section 702—Reduced PBGC premium for new plans of small employers

Current law

Under present-law sec. 4006, 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 singleemployer 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 5 years, and with respect to

benefit increases from a plan amendment that was in effect for less

than 5 years before termination of the plan.

Explanation of provision

Under the provision, for the first five plan years of a new singleemployer plan of a small employer, the flat-rate PBGC premium is

$5 per plan participant.

A small employer is 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 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 taken into account in determining whether the plan is 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

56

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 are

in the new plan.

Effective Date.—The provisions relating to new plans are effective

for plans established after December 31, 2001.

Rationale

The Committee believes that reducing the PBGC premiums for

new and small plans will help encourage the establishment of defined benefit pension plans. The number of single-employer defined

benefit plans covered by PBGC has declined dramatically in recent

years—from 112,000 in 1985 to 43,000 in 1997. Most of the decline

is because of the termination of small plans. An employer incurs

a number of one-time costs to establish a plan. The proposal is intended to remove the PBGC premium as a disincentive to the establishment of a defined benefit plan by a small employer.

Section 703—Reduction of additional PBGC premium for new and

small plans

Current law

Under present law, the 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 5 years, and with respect to

benefit increases from a plan amendment that was in effect for less

than 5 years before termination of the plan.

Explanation of provision

The provision amends sec. 4006(a)(3) to provide that the variable

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 premium is a percentage of the variable premium otherwise due, as follows: 0 percent of the otherwise applicable variable

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).

57

A new defined benefit plan is defined as in section 602 of this

Act (relating to reduced PBGC premiums for new small employer

plans).

The provision also provides that, in the case of any plan (not just

a new plan) of an employer with 25 or fewer employees, the variable-rate premium is no more than $5 multiplied by the number

of plan participants in the plan at the close of the preceding year.

Effective Date.—The provision reducing the PBGC variable premium for small plans is effective for years beginning after December 31, 2001.

Rationale

The Committee believes this provision will help encourage the establishment of defined benefit pension plans. The number of singleemployer defined benefit plans covered by PBGC has declined dramatically in recent years—from 112,000 in 1985 to 43,000 in 1997.

Moreover, employers that establish plans are not choosing defined

benefit plans. The PBGC variable rate premium can be a disincentive to some employers.

Section 704—Authorization for PBGC to pay interest on premium

overpayment refunds

Current law

Under Sec. 4007(b) of ERISA, the PBGC charges interest on underpayments of premiums, but is not authorized to pay interest on

overpayments.

Explanation of provision

The provision allows the PBGC to pay interest on overpayments

made by premium payers. Interest paid on overpayments is to be

calculated at the same rate and in the same manner as interest is

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.

Rationale

Premium payers should receive interest on monies that are owed

to them.

Section 705—Substantial owner benefits in terminated plans

Current law

The 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 guarVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00057 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
58

antee 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.

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 depends

on the number of years the plan has been in effect. The majority

owner’s guaranteed benefit is limited so that it may not be more

than the amount phased in over 60 months for other participants.

The rules regarding allocation of assets apply 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, 2001.

Rationale

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.

Moreover, the current special substantial owner rules are inordinately complex and require plan documents going back as far as 30

years, which are often difficult or impossible to obtain.

Section 706—Civil penalties for breach of fiduciary responsibility

Current law

Section 502(l) was added to ERISA by the Omnibus Budget Reconciliation Act of 1989. In its current form, section 502(l) requires

the Secretary of Labor to assess a civil penalty against (1) a fiduciary who breaches a fiduciary responsibility under, or commits a

violation of, part 4 of Title I of ERISA, or (2) any other person who

knowingly participates in such a breach or violation. The penalty

is equal to 20 percent of the ‘‘applicable recovery amount’’ that is

paid pursuant to a settlement agreement with the Secretary or

that a court orders to be paid in a judicial proceeding brought by

the Secretary to enforce ERISA’s fiduciary responsibility provisions.

The Secretary may waive or reduce the penalty only if the Secretary finds in writing that either (1) the fiduciary or other person

acted reasonably and in good faith, or (2) it is reasonable to expect

that the fiduciary or other person cannot restore all the losses

without severe financial hardship unless the waiver or reduction is

granted.

59

Explanation of provision

ERISA section 502(l) is amended to make the assessment of the

penalty discretionary with the Secretary of Labor, rather than

mandatory. This change will allow the Secretary to refrain from

imposing the penalty in certain cases as well as to assess a penalty

of less than 20 percent of the applicable recovery amount.

In addition, section 502(l) is amended so that the term ‘‘applicable recovery amount’’ means not only any amount recovered from

a fiduciary or other person but also any amount recovered from any

other person on behalf of any such fiduciary or other person.

Effective Date.—This section applies to any breach of fiduciary

responsibility or other violation of part 4 of Title I of ERISA occurring on or after the date of enactment.

Rationale

The current statutory scheme of mandatory penalties creates disincentives to settlement and discourages parties from quickly settling claims of violations that the DOL brings to their attention.

Section 707—Benefit suspension notice

Current law

Section 203(a)(3)(B) provides that a plan will not fail to satisfy

the vesting requirements with respect to a participant by reason of

suspending payment of the participant’s benefits while such participant is employed. Under the applicable DOL regulations, such a

suspension is only permissible if the plan notifies the participant

during the first calendar month or payroll period in which the plan

withholds benefit payments. Such notice must provide certain information and must also include a copy of the plan’s provisions relating to the suspension of payments.

In the case of a plan that suspends benefits for participants

working past normal retirement age (i.e., does not commence benefit payments to those participants and also does not provide an actuarially increased benefit upon retirement), the employer must

monitor plan participants to determine when any participant who

is still employed attains normal retirement age. In order to ‘‘suspend’’ payment of such a participant’s benefits, generally a plan

must, as noted above, promptly provide the participant with a suspension notice.

Explanation of provision

This section directs the Secretary of Labor to revise the regulations relating to the benefit suspension notice to generally permit

the information currently required to be set forth in a suspension

notice to be included in the summary plan description. The provision also directs the Secretary of Labor to eliminate the requirement that the notice include a copy of relevant plan provisions.

However, individuals reentering the workforce to resume work with

a former employer—or with an employer that belongs to the same

multiemployer pension plan—after they have begun to receive benefits will still receive the notification of the suspension of benefits

(and a copy of the plan’s provisions relating to suspension of payments). In addition, if a reduced rate of future benefit accrual will

apply to a returning employee (as of his or her first date of particiVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00059 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
60

pation in the plan after returning to work) who has begun to receive benefits, the notice must include a statement that the rate of

future benefit accrual will be reduced. The individual benefit-suspension statement only need include such notice of reduction of future benefit accrual where the reduction is the result of a plan

amendment covered under section 204(h). Such notice should include a description of the change and the date it took effect.

Effective Date.—The modification made under this section shall

apply to plan years beginning after December 31, 2001.

Rationale

The Committee believes that the present-law rules regarding

suspension notices create unjustified burdens on defined benefit

plans that do not pay benefits to active participants upon attainment of normal retirement age when they continue to draw pay.

This dispenses with individual notices going to employees at the

time they attain the normal retirement age—a practice that often

unduly alarms workers who believe they are being encouraged to

retire by their employer. The provision does provide notice of suspension to those who are reentering the workforce, along with notice of any reduction in rate of future benefit accrual.

Section 708—Studies

Current law

Current law contains no provision for the study of the feasibility

of small employer group pension plans or for the study of the effects of the Act.

Explanation of provision

Study on small employer group plans: This section directs the

Department of Labor, in consultation with the Treasury Department, 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 Department is 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 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 pension coverage: This section 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 on pension coverage, including: the extent of pension plan coverage for low and middle-income workers, the levels

of pension plan benefits generally, the quality of pension plan covVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00060 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
61

erage generally, worker’s 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.—This section is effective upon enactment.

Rationale

The Committee believes that the possibility of small employer

pooling for pension coverage is worthy of study and consideration.

During Committee hearings, witnesses have focused on the problem of low pension plan sponsorship rates by small employers.

Some have proposed a possible solution of allowing individual small

employers to join together to sponsor pension plans or to join into

an existing group pension plan vehicle (similar to the ‘‘association

health plan’’ concept reported out by the Employer-Employee Relations Subcommittee last Congress in H.R. 2047).

The Committee also believes that it is appropriate to study the

effects of this Act on pension coverage.

TITLE VIII—PLAN AMENDMENTS

Section 801—Provisions relating to plan amendments

Current 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.

Explanation of provision

This provision permits certain plan amendments made pursuant

to the changes made by the bill (or regulations issued under the

provisions of the bill) to be retroactively effective. If the plan

amendment meets the requirements of the bill, then the plan is

treated as being operated in accordance with its terms and the

amendment does not violate the prohibition of reductions of accrued benefits. In order for this treatment to apply, the plan

amendment must be made on or before the last day of the first

plan year beginning on or after January 1, 2004.

The provision applies to plan amendments required to maintain

qualified status, as well as other amendments pursuant to the provisions of the bill (or applicable regulations). A plan amendment is

not considered to be pursuant to the bill (or applicable regulations)

if it has an effective date before the effective date of the provision

of the bill (or regulations) to which it relates. Similarly, the provision does not provide relief from section 204(g) or Internal Revenue

Code section 411(d)(6) for periods prior to the effective date of the

relevant provision of the bill (or regulations) or the plan amendment. The Secretary of the Treasury is given authority to provide

exceptions to the relief from the prohibition on reductions in accrued benefits.

Effective Date.—The provision is effective on the date of enactment.

Rationale

The Committee believes that plan sponsors should have adequate

time to amend their plans to reflect amendments to the law.

62

SUMMARY

The ERISA provisions of the ‘‘Comprehensive Retirement Security and Pension Reform Act of 2001,’’ H.R. 10, as amended, will

directly improve the retirement security of American workers by

expanding small business retirement plans, allowing workers to

save more, making pensions more secure, and cutting the red tape

that has hamstrung employers who want to establish pension plans

for their employees.

SECTION-BY-SECTION ANALYSIS OF THE ERISA PROVISIONS OF H.R.

10, AS AMENDED

Sec. 202. Participant Loans for Small Business Owners. Generally, plans may make loans to participants. But, prohibited transaction rules prevent sole proprietors, partners, and Subchapter S

corporation shareholders from taking participant loans. The prohibited transaction rules would be modified under this section to allow

for participant loans to sole proprietors, partners, and subchapter

S corporation shareholders.

Sec. 303. Faster Vesting of Employer Matching Contributions.

Employee contributions to a qualified plan are immediately vested.

Employer matching contributions either must be fully vested after

the employee has completed 5 years of service, or must become

vested in increments of 20% for each year beginning with the third

year of service, with full vesting after the employee has completed

seven years of service. Under this section, employer matching contributions would have to be vested under a maximum 3-year cliff

or 6-year graded vesting schedule. In the case of graded vesting,

vesting would have to begin with the employee’s second year of

service.

Sec. 405. Treatment of Forms of Distribution. Under the ‘‘anticutback rule,’’ when a participant’s benefits are transferred from

one plan to another, the transferee plan must preserve all forms

of distribution that were available under the transferor plan. The

anti-cutback rule also provides that, without regard to a transfer,

a plan may not eliminate forms of distribution. Under this section,

an employee may elect to transfer benefits from one plan to another without requiring the transferee plan to preserve optional

forms of benefits if the following requirements are satisfied: (1) the

transfer was a direct transfer; (2) the transfer was authorized

under the terms of both plans; (3) the transfer was pursuant to a

voluntary election by the participant upon receipt of proper notice;

(4) spousal consent for the transfer, if required, was obtained; and

(5) the participant could have elected a lump sum distribution. In

addition, under the provision, except to the extent provided in regulations, a form of distribution in a DC plan may be eliminated

with respect to a participant if: (1) a lump sum distribution is

available when the distribution form is being eliminated, and (2)

such lump sum is based on the same or greater portion of the participant’s account as the distribution form being eliminated. Treasury would also be directed to issue regulations.

Sec. 408. Employers May Disregard Rollovers for Purposes of

Cash-Out Amounts. Terminated participants’ benefits may be

cashed out if the nonforfeitable present value of such benefits does

not exceed $5,000. The provision permits a plan to ignore amounts

63

attributable to rollover contributions when determining the cashout amount.

Sec. 501. Repeal of 150% of Current Liability Funding Limit.

Contributions to a defined benefit plan that exceed 150% of current

liability are not tax deductible. This limit will phase up to 170%

by 2005. Under this section, the limit would be phased-up in 5%

increments beginning with the 2001 plan year. For plan years beginning after December 31, 2003, the current liability full funding

limit would be completely repealed.

Sec. 504. Notice of Significant Reduction in Benefit Accruals.

Participants must be notified of a plan amendment significantly reducing future benefit accruals at least 15 days before such amendment takes effect. The notice must be given after the plan sponsor

has formally adopted the amendment. Treasury regulations provide

that participants need not be given an individual statement detailing how their own benefits will be affected by the amendment. This

provision modifies ERISA Section 204(h) to require that affected

participants be given ‘‘reasonable notice,’’ to be defined by Treasury

regulations, of a plan amendment significantly reducing future benefit accruals before the amendment takes effect. The notice could

be provided before the plan amendment is formally adopted. A penalty for noncompliance is added in the tax code.

Sec. 506. Protection of Investment of Employee Contributions to

401(k) Plans. Section 1524 of the Taxpayer Relief Act of 1997

places certain limits on investment of employee salary reduction

contributions in employer stock or employer real property. The section modifies the effective date of the rule excluding certain elective

deferrals from the definition of individual account plan by providing that the rule does not apply to any elective deferral invested

in assets consisting of qualifying employer securities, qualifying

employer real property, or both, if such assets were acquired by the

plan before January 1, 1999.

Sec. 507. Periodic Pension Benefits Statements. Upon the request

of a participant, the plan administrator must provide a summary

of the participant’s benefits under the plan. A participant is not entitled to more than one benefit statement per year. Under this provision, a benefit statement would have to be given to a defined contribution plan participant at least once a year. Statements would

have to be provided to defined benefit plan participants at least

once every three years. Alternatively, in the case of defined benefit

plans, the employer could provide participants with notice of their

right to request a benefit statement at least once a year. The DOL

would be directed to develop a model benefits statement.

Sec. 601. Modification of Timing of Plan Valuations. The valuation date for a defined benefit plan for a plan year must generally

be in the same plan year. Under this section, defined benefit plans

would be permitted to use a valuation date up to one year prior to

the beginning of the plan year. The change would apply at the election of the employer but would not be available to an underfunded

plan.

Sec. 606. Reporting Simplification for Small Plans. A ‘‘one-participant retirement plan’’ that is not exempt from the annual report

filing requirement is only required to file a simplified form, i.e.,

Form 5500–EZ. A one-participant plan is a plan that covers and

benefits only certain owners (or such owners and their spouses) of

64

the sponsoring employer and meets the following requirements: (1)

the plan satisfies the section 410(b) coverage requirements without

being aggregated with any other plan; (2) the plan does not cover

a business that is a member of an affiliated service group, a controlled group of employers, or a group of businesses under common

control; and (3) the plan does not cover a business that leases employees. Under this section, a plan that covers fewer than 25 employees on the first day of the plan year would only be required to

file a new simplified Form 5500, provided that the plan meets the

three requirements with respect to the definition of a one-participant plan. Also raises from $100,000 to $250,000 the level at which

one-participant retirement plans are exempt from the annual report-filing requirement.

Sec. 611. Notice and Consent Period Regarding Distributions.

Generally, benefits cannot be distributed before the later of age 62

or normal retirement age unless the participant consents no more

than 90 days before benefit commencement. Also, information on

the tax implications of rollovers must be given to the employee

within 90 days of distribution. Under this provision, the notice and

consent period regarding distributions would be expanded from 90

days to 180 days.

Sec. 612. Summary Annual Reports. Within 210 days after the

close of a plan’s fiscal year, the plan administrator must provide

certain information to participants in a summary annual report

(SAR). Under this section, Summary Annual Reports could now be

distributed through electronic means (including Internet) or via

other new technologies.

Sec. 613. Technical Corrections to the SAVER Act. The Savings

Are Vital to Everyone’s Retirement (SAVER) Act of 1997 convenes

a National Summit on Retirement Savings at the White House,

cohosted by the executive and legislative branches in 1998 and

again in 2001 and 2005. The National Summit brings together experts in the fields of employee benefits and retirement savings, key

leaders of government, and interested parties from the private sector and general public. The delegates are selected by the Congressional leadership and the President. The National Summit is a

public-private partnership, receiving substantial funding from private sector contributions. This section provides for technical

amendments to the SAVER Act, regarding the administration of

and delegate selection to future statutorily created National Summits on Retirement Savings.

Sec. 701. Expansion of Missing Participants Program. The PBGC

acts as a clearinghouse for benefits due to participants who cannot

be located. When a defined benefit plan terminates, the plan may

transfer the benefits of the missing participant to the PBGC, which

then attempts to locate the participant. Under this section, the

PBGC’s missing participant program would be expanded to cover

defined contribution plans. This expansion would be voluntary at

the election of the plan sponsor.

Sec. 702. Reduced PBGC Premiums for New Plans. Defined benefit plans are subject to a flat-rate premium of $19 per participant.

Underfunded defined benefit plans are subject to an additional

variable rate premium. There is no variable rate premium for the

first year of a new defined benefit plan. Under this provision, new

defined benefit plans established by employers with 100 employees

65

or less would only have to pay a $5 per participant PBGC premium

for the first 5 years of the plan. No variable rate premium would

be assessed during this period.

Sec. 703. Reduction of Additional PBGC Premiums. Defined benefit plans are subject to a flat-rate premium of $19 per participant.

Underfunded defined benefit plans are subject to an additional

variable rate premium. There is no variable rate premium for the

first year of a new defined benefit plan. Under this section, any

variable rate premium that might be assessed against a new defined benefit plan established by a larger employer would be

phased-in as follows: 0% for the first plan year; 20% for the second;

40% for the third; 60% for the fourth; 80% for the fifth, and 100%

for the sixth and succeeding plan years. For employers who have

25 or fewer employees on the first day of the plan year, the additional premium for each participant would not exceed $5 multiplied

by the number of participants in the plan as of the close of the preceding plan year.

Sec. 704. Authorization for PBGC to Pay Interest on Premium

Overpayment Refunds. This would allow the PBGC to pay interest

on overpayments made by premium payers. Interest paid on overpayments would be calculated at the same rate and in the same

manner as interest is charged on premium underpayments.

Sec. 705. Substantial Owner Benefits in Terminated Plans. ‘‘Substantial owners’’ are individuals who own more than 10% of a business. ERISA contains complicated rules governing the benefit

earned by substantial owners when a plan is terminating. Under

this section, the same five-year phase-in that currently applies to

a participant who is not a substantial owner would apply to a substantial owner with less than a 50% ownership interest. For a majority owner, the phase-in would depend on the number of years

the plan has been in effect, rather than on the number of years the

owner has been a participant and the initial plan benefit.

Sec. 706. Waiver of Civil Penalties for Breach of Fiduciary Responsibility. Section 502(l) requires DOL to assess a 20% penalty

for violations of part 4 of Title I of ERISA for breaches of fiduciary

duty. The DOL is limited in its ability to reduce this penalty.

Under the provision, ERISA section 502(l) would be amended to

make the assessment discretionary with DOL rather than mandatory. This change would allow DOL to refrain from assessing the

20% penalty in certain cases or to assess a lower amount.

Sec. 707. Benefit Suspension Notice. When an employee continues to work beyond normal retirement age, or is reemployed

after commencing benefits, a defined benefit plan may provide for

a suspension of pension payments during the post normal retirement age employment period. DOL regulations require that affected participants be notified in writing of such suspension and

that such notice include a copy of the relevant plan provisions.

Under this section, DOL would be required to modify its regulations regarding suspension of benefits rules to eliminate the requirement of a written individual notice and instead require that

the suspension of benefits rules be outlined in the summary plan

description, except for individuals reentering the workforce. Those

rejoining a former employer would still receive the existing notice

of suspension, along with a notice of any reduction in the rate of

future benefit accrual.

66

Sec. 708. Studies. (1) Model Small Employer Group Plans: Under

this section, the DOL is directed 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. (2) Pension Coverage: This section also directs the DOL to

conduct a study regarding the effect of the bill on pension coverage,

including: the extent of pension plan coverage for low and middleincome workers, the levels of pension plan benefits generally, the

quality of pension plan coverage generally, worker’s access to and

participation in pension plans, and retirement security.

Sec. 801. Provisions Relating to Plan Amendments. Generally,

there is a short time within which to make plan amendments to

reflect amendments to the law. In addition, the anti-cutback rules

can have the unintended consequence of preventing an employer

from amending its plan to reflect a change in the law. Under this

section, amendments to a plan or annuity contract made pursuant

to any amendment made by the Act would not be required to be

made before the last day of the first plan year beginning on or after

January 1, 2003. Operational compliance would, of course, be required with respect to all plans as of the applicable effective date

of any amendment made by the Act. In addition, timely amendments to a plan or annuity contract made pursuant to any amendment made by the Act would be deemed to satisfy the anti-cutback

rules.

EXPLANATION OF AMENDMENTS

The provisions of the substitute are explained in this report.

ROLLCALL VOTES

No recorded votes were taken.

APPLICATION OF LAW TO THE LEGISLATIVE BRANCH

Section 102(b)(3) of Public Law 104–1 requires a description of

the application of this bill to the legislative branch. This bill initiates pension reform amendments to the Employee Retirement Income Security Act (ERISA). Since ERISA excludes governmental

plans, the bill does not apply to legislative branch employees. As

public employees, legislative branch employees are eligible to participate in the Federal Employee Retirement System.

STATEMENT OF OVERSIGHT FINDINGS AND RECOMMENDATIONS OF

THE COMMITTEE

In compliance with clause 3(c)(1) of Rule XIII and clause (2)(b)(1)

of Rule X of the Rules of the House of Representatives, the Committee’s oversight findings and recommendations are reflected in

the body of this report.

67

UNFUNDED MANDATE STATEMENT

Section 423 of the Congressional Budget and Impoundment Control Act (as amended by Section 101(a)(2) of the Unfunded Mandates Reform Act, P.L. 104–4) requires a statement of whether the

provisions of the reported bill include unfunded mandates. This bill

initiates pension reform amendments to the Employee Retirement

Income Security Act (ERISA), and makes retirement security more

available to millions of workers by expanding small business retirement plans, allowing workers to save more, addressing the needs

of an increasingly mobile workforce through greater portability and

other changes, making pensions more secure, and cutting the red

tape that has hamstrung employers who want to establish pension

plans for their workers. As such, the bill does not contain any unfunded mandates.

BUDGET AUTHORITY AND CONGRESSIONAL BUDGET OFFICE COST

ESTIMATE

With respect to the requirements of clause 3(c)(2) of Rule XIII of

the House of Representatives and section 308(a) of the Congressional Budget Act of 1974 and with respect to requirements of

3(c)(3) of Rule XIII of the House of Representatives and section 402

of the Congressional Budget Act of 1974, the Committee has received the following cost estimate for H.R. 10 from the Director of

the Congressional Budget Office:

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, May 1, 2001.

Hon. JOHN A. BOEHNER,

Chairman, Committee on Education and the Workforce, House of

Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 10, the Comprehensive

Retirement Security and Pension Reform Act of 2001.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Erin Whitaker.

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

H.R. 10—Comprehensive Retirement Security and Pension Reform

Act of 2001

Summary: H.R. 10 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 reduce federal revenues by $1.1 billion in 2002, by

$16.4 billion over the 2002–2006 period, and by $51.7 billion over

the 2002–2011 period. CBO estimates that the bill would increase direct spending by $2 million in 2002, by $49 million over the

2002–2006 period, and by $112 million over the 2002–2011 period.

Since this bill would affect direct spending and revenues, pay-asVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00067 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
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you-go procedures would apply. In addition, CBO estimates that

implementing H.R. 10 would cost about $2 million over the 2002– 2006 period, subject to appropriation of the necessary amounts.

JCT and CBO have determined that H.R. 10 contains no intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA) and would not affect the budgets of state, local,

or tribal governments. The bill contains one new private-sector

mandate. JCT has determined that the cost of this mandate would

not exceed the threshold established by UMRA for private-sector

mandates ($113 million in fiscal year 2001, adjusted annually for

inflation).

Estimated cost to the Federal Government: The estimated budgetary impact of H.R. 10 is shown in the following table. The costs

of this legislation would fall within budget functions 600 (income

security) and 800 (general government).

By fiscal year, in millions of dollars—

2001 2002 2003 2004 2005 2006

CHANGES IN REVENUES

Modification of IRA Contribution Limits .......................... 0 ¥368 ¥1,203 ¥2,059 ¥2,762 ¥3,311

Increased Limitation on Exclusion for Elective Deferrals 0 ¥100 ¥328 ¥500 ¥636 ¥708

Additional Increased Limitation on Exclusion for Elective

Deferrals for Individuals Age 50 and Above ............... 0 ¥241 ¥320 ¥239 ¥155 ¥96

Other Estimated Revenues ............................................... 0 ¥385 ¥700 ¥663 ¥743 ¥919

Total Revenues .................................................... 0 ¥1,094 ¥2,551 ¥3,461 ¥4,296 ¥5,034

CHANGES IN DIRECT SPENDING

IRS User Fees ................................................................... 0 ¥1 ¥1 (1)00

Reduced PBGC Flat-Rate Premiums ................................ 0 0 (1) (1) (1) (1)

Reduced PBGC Variable Premiums .................................. 0 0 9 9 9 9

Missing Participants in Terminated Plans ...................... 0 0 (1) (1) (1) (1)

Payment of Interest on PBGC Premium Overpayment ..... 0 3 3 3 3 3

Benefits Paid to Substantial Owners ............................... 0 0 (1) (1) (1) (1)

Total Direct Spending ......................................... 0 2 11 12 12 12

TOTAL CHANGES SUBJECT TO PAY-AS-YOU-GO PROCEDURES

Net Decrease in Budget Surplus ...................................... 0 ¥1,096 ¥2,562 ¥3,473 ¥4,308 ¥5,046

SPENDING SUBJECT TO APPROPRIATION

Studies by the Department of Labor:

Estimated Authorization Level ................................. 0 2 0 0 0 0

Estimated Outlays ................................................... 0 (1) (1) (1) (1) 1

1 Less than $500,000.

Notes.—Components may not sum to totals because of rounding. Budget authority equals outlays for direct spending proposals.

Sources: CBO and Joint Committee on Taxation.

Basis of estimate

Revenues

Federal Tax Revenues. JCT estimates that H.R. 10 would reduce

federal tax revenues by $1.1 billion in 2002, by $16.4 billion over

the 2002–2006 period, and by $51.7 billion over the 2002–2011 period. The bill would increase the maximum contribution limit for

Individual Retirement Accounts (IRAs) to $3,000 in 2002, $4,000 in

2003, and $5,000 in 2004. After 2004, the maximum contribution

rate would be indexed for inflation. The bill also would increase the

maximum IRA contribution to $5,000 for individuals aged 50 or

older in 2002 and 2003. In addition, the bill would make numerous

69

changes to pension laws. For 2002, it would increase to $11,000 the

dollar limit on certain contributions made to qualified plans (‘‘elective deferrals’’) under section 401(k) plans, section 403(b) annuities,

and simplified employee pension plans (SEPs). That limitation

would increase further, in $1,000 annual increments, until it

reaches $15,000 in 2005. After 2005, the dollar limit would be indexed for inflation. The bill also would increase the otherwise applicable dollar limit on elective deferrals by $5,000 for individuals

aged 50 or older in 2002 through 2006. After 2006, the dollar limit

would be indexed for inflation.

IRS User Fees. H.R. 10 would eliminate the fee that the IRS

charges small businesses for providing ruling, opinion, and determination letters regarding the firms’ pension plans if certain conditions are met. This provision would take effect after December 31,

2001. Based on the amount of fees collected in recent years and on

information from the IRS, CBO estimates that eliminating the fee

would decrease governmental receipts by a total of $17 million over

fiscal years 2002 and 2003. Under current law, the IRS’s authority

to charge such fees will expire at the end of fiscal year 2003, so

the provision would have no impact on receipts beyond that year.

Department of Labor Civil Penalties. Under current law, the Department of Labor (DoL) is responsible for administering ERISA’s

reporting, disclosure, and fiduciary conduct requirements for private pension plans. In cases of fiduciary misconduct, DoL is required to assess a civil penalty equal to 20 percent of any amount

that is restored to a pension plan as part of a settlement or court

judgment. These penalties, which totaled $3 million in 1998, are recorded as miscellaneous receipts.

The bill would allow DoL to assess these civil penalties at its discretion and to assess penalties that could be less than 20 percent

of the recovered amount. With this more flexible authority, DoL

has indicated that it would no longer assess penalties in cases

where companies comply voluntarily with the department’s enforcement efforts. According to DoL, these cases comprise about a third

of the total. The full 20-percent penalty would still be assessed in

the remaining cases, which are typically resolved through litigation. CBO estimates that this provision would reduce penalties collected by about a third, and that the drop in penalties would total

$5 million over the 2002–2006 period.

Direct spending

National Summit on Retirement Income Security. The bill would

extend the authorization for the National Summit on Retirement

Income Security to include a meeting in 2009. CBO estimates that

the Department of Labor would receive at least $500,000 in private

donations, which would be spent to defray part of the costs of the

conference. Therefore, this provision would increase revenues and

direct spending by the same amounts and would have no net impact on the budget surplus.

IRS User Fees. The Internal Revenue Service (IRS) has the authority to retain and spend without further appropriation action a

small portion of the fees it collects from taxpayers for certain rulings and determinations by the Office of the Chief Counsel and by

the Office for Employee Plans and Exempt Organizations. Because

H.R. 10 would eliminate the fee paid by small businesses for rulVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00069 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
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ings and determinations, the bill would also reduce the amounts

available for the IRS to spend. These fees are recorded in the budget as revenues, and are scheduled to expire in 2003. CBO estimates

that eliminating the fee would decrease direct spending by a total

of $2 million over the 2002–2004 period.

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

3,000 plans would qualify for this reduction. Those plans cover an

average of about 10 participants each. CBO estimates that the

change would reduce PBGC’s premium income, which is classified as an offsetting collection, by about $400,000 annually beginning in

2003 and by about $1.7 million over the 2003–2006 period.

Reduced Variable Premiums Paid to the PBGC. H.R. 10 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 about premiums paid to the

PBGC in 1998 and 1999, CBO estimates that this change would affect the premiums of approximately 400 plans each year. It would

reduce PBGC’s total premium receipts by about $28 million over

the 2003–2006 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 8,300 plans would have their premium payments to reduced by this provision beginning in 2003. As a result,

premium receipts would decline by $1.6 million in 2003 and by $7

million over the 2003–2006 period.

Missing Participants in Terminated Pension Plans. The legislation would expand the mission participant program. The Retirement Protection Act of 1994 established a program to locate missing participants when defined benefit plans are terminated. The

bill would expand the program to include terminating multiemployer plans, defined benefit plans not covered by the PBGC, and

defined contribution plans.

The budgetary impact of this provision would be less than

$500,000 annually. The PBGC does not expect a high volume of

missing participants as a result of this proposal, and the administrative costs of expanding the program would not be significant.

The net budgetary effect of increased benefit payments would also

71

be small. Amounts paid by a pension plan to the PBGC for missing

participants are held in the PBGC’s trust fund, which is not a part

of the federal budget. Amounts paid by the PBGC to participants

at the time they are located are funded in the same manner as

benefit payments in plans for which PBGC is the trustee—partially

by the trust fund and partially by on-budget revolving funds.

Authorization for PBGC to Pay Interest on Premium Overpayment Refunds. The legislation would authorize the PBGC to pay interest to play 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 allows for a two-year lag

between the receipt of payments and the issuance of refunds. The

agency would pay the same rate for premium overpayments as it

charges for underpayments. Based on this information, CBO estimates that direct spending would increase by $3 million annually.

Substantial Owner Benefits in Terminated Plans. H.R. 10 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.

Spending subject to appropriation

H.R. 10 would extend the authorization for the National Summit

on Retirement Income Security to 2009 and would require the Secretary of Labor to conduct two studies—one on models for pension

plan design and another on the the impact of H.R. 10 on pension

coverage. CBO estimates that these provisions would cost $2 million over the 2002–2006 period, subject to appropriation of the necessary funds.

National Summit on Retirement Income Security. H.R. 10 would

amend ERISA to require the President to convene an additional

conference on national savings in 2009. Under current law, the

President is required to convene a National Summit on Retirement

Income Security in 2001 and 2005. The appropriation of such sums

as may be necessary is authorized for that purpose. The Secretary

of Labor is also authorized to accept private donations to defray the

costs of the conference. Based on the experience of the 1998 National Summit, CBO estimates that the 2009 National Summit

would cost less than $1 million and that more than one-half of the

expenses would be offset by private donations. (See the discussion

under direct spending for more details.)

Model Small Employee Group Plans. H.R. 10 would direct the

Secretary of Labor to undertake a study to determine the most appropriate forms of private pension plans that are easy to maintain

and provide portable benefits. The study also should indicate alternative arrangements for providing benefits that might be used by

employee or employer associations as well as those that could be

independent of employer sponsorship. In addition, the Secretary

would study methods and strategies for making coverage more

widespread. Finally, the Secretary would be required to consider

the adequacy and availability of existing plans. Based on discusVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00071 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
72

sions with DoL staff, CBO estimates that the 18-month study

would cost less than $500,000.

Report on Effects of Legislation. The bill would require the Secretary of Labor to report on the impact of H.R. 10 on various aspects of pension coverage 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. The study

would assess the impact of the bill on pension coverage for low- and

middle-income workers, the levels of pension benefits, the quality

of pension plan coverage, workers’ access to and participation in

pension plans, and retirement security. Based on discussions with

DoL staff, CBO estimates that the study would cost about $1 million over the 2002–2006 period.

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-yougo procedures are shown in the following table. For the purposes

of enforcing pay-as-you-go procedures, only the effects in the current year, the budget year, and the succeeding four years are

counted.

By fiscal year, in millions of dollars—

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Changes in receipts .. 0 ¥1,094 ¥2,551 ¥3,461 ¥4,296 ¥5,034 ¥5,664 ¥6,287 ¥7,005 ¥7,799 ¥8,496

Changes in outlays .... 0 2 11 12 12 12 12 12 13 13 13

Estimated impact on state, local, and tribal governments: JCT

has determined that H.R. 10 contains no intergovernmental mandates as defined in UMRA and would impose no costs on state,

local, or tribal governments.

Estimated impact on the private sector: JCT has determined the

provision that would prohibit allocations of stock in an Employee

Stock Ownership Plan of a subchapter S corporation would be a

new private sector mandate. JCT has estimated that the cost of

this mandate would not exceed the threshold established by UMRA

for private-sector mandates ($113 million in fiscal year 2001, adjusted annually for inflation).

Previous CBO estimate: On May 1, 2001, CBO transmitted a cost

estimate of H.R. 10 as ordered reported by the Committee on Ways

and Means. The pay-as-you-go estimates for the two versions of the

bill are identical. However, the version of the bill approved by the

Committee on Education and the Workforce contains additional

discretionary authorizations.

Estimate prepared by: Federal Revenues: Erin Whitaker. IRS

User Fees (direct spending): John R. Righter. DoL Civil Penalties

and Administrative Expenses: Christi Hawley Sadoti. Pension Benefit Guaranty Corporation: Tamara Ohler.

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. Roberton Williams, Deputy Assistant

Director for Tax Analysis.

STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

In accordance with Clause (3)(c) of House Rule XIII, the goals of

H.R. 10 are to make retirement security more available to millions

73

of workers by expanding small business retirement plans, allowing

workers to save more, addressing the needs of an increasingly mobile workforce through greater portability and other changes, making pensions more secure, and cutting the red tape that has hamstrung employers who want to establish pension plans for their

workers. The Committee expects the Department of Labor to implement the changes to the law in accordance with these stated goals.

CONSTITUTIONAL AUTHORITY STATEMENT

Under clause 3(d)(1) of Rule XIII of the Rules of the House of

Representatives, the Committee must include a statement citing

the specific powers granted to Congress in the Constitution to

enact the law proposed by H.R. 10.

The Employee Retirement Income Security Act (ERISA) has been

determined by the federal courts to be within Congress’ Constitutional authority. In Commercial Mortgage Insurance, Inc. v. Citizens National Bank of Dallas, 526 F.Supp. 510 (N.D. Tex. 1981),

the court held that Congress legitimately concluded that employee

benefit plans so affected interstate commerce as to be within the

scope of Congressional powers under Article 1, Section 8, Clause 3

of the Constitution of the United States. In Murphy v. Wal-Mart

Associates’ Group Health Plan, 928 F.Supp. 700 (E.D. Tex 1996),

the court upheld the preemption provisions of ERISA. Because H.R.

10 modifies but does not extend the federal regulation of pensions,

the Committee believes that the Act falls within the same scope of

Congressional authority as ERISA.

COMMITTEE ESTIMATE

Clause 3(d)(2) of Rule XIII of the Rules of the House of Representatives requires an estimate and a comparison by the Committee of the costs that would be incurred in carrying out H.R. 10.

However, clause 3(d)(3)(B) of that rule provides that this requirement does not apply when the Committee has included in its report

a timely submitted cost estimate of the bill prepared by the Director of the Congressional Budget Office under section 402 of the

Congressional Budget Act.

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

* * * * * * *

74

Subchapter B—Computation of Taxable Income

* * * * * * *

PART II—ITEMS SPECIFICALLY INCLUDED IN GROSS

INCOME

* * * * * * *

SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE

INSURANCE CONTRACTS.

(a) * * *

* * * * * * *

(f) SPECIAL RULES FOR COMPUTING EMPLOYEES’ CONTRIBU- TIONS.—In computing, for purposes of subsection (c)(1)(A), the aggregate amount of premiums or other consideration paid for the

contract, and for purposes of subsection (e)(6), the aggregate premiums or other consideration paid, amounts contributed by the employer shall be included, but only to the extent that— (1) * * *

* * * * * * *

Paragraph (2) shall not apply to amounts which were contributed

by the employer after December 31, 1962, and which would not

have been includible in the gross income of the employee by reason

of the application of section 911 if such amounts had been paid directly to the employee at the time of contribution. The preceding

sentence shall not apply to amounts which were contributed by the

employer, as determined under regulations prescribed by the Secretary, to provide pension or annuity credits, to the extent such

credits are attributable to services performed before January 1,

1963, and are provided pursuant to pension or annuity plan provisions in existence on March 12, 1962, and on that date applicable

to such services, or to the extent such credits are attributable to

services performed as a foreign missionary (within the meaning of

øsection 403(b)(2)(D)(iii)¿ section 403(b)(2)(D)(iii), as in effect before

the enactment of the Comprehensive Retirement Security and Pension Reform Act of 2001).

* * * * * * *

(o) SPECIAL RULES FOR DISTRIBUTIONS FROM QUALIFIED PLANS TO

WHICH EMPLOYEE MADE DEDUCTIBLE CONTRIBUTIONS.—

(1) * * *

* * * * * * *

(4) SPECIAL RULE FOR TREATMENT OF ROLLOVER AMOUNTS.—

For purposes of sections 402(c), 403(a)(4), øand 408(d)(3)¿

403(b)(8), 408(d)(3), and 457(e)(16), the Secretary shall prescribe regulations providing for such allocations of amounts attributable to accumulated deductible employee contributions,

and for such other rules, as may be necessary to insure that

such accumulated deductible employee contributions do not become eligible for additional tax benefits (or freed from limitations) through the use of rollovers.

* * * * * * *

(t) 10-PERCENT ADDITIONAL TAX ON EARLY DISTRIBUTIONS FROM

QUALIFIED RETIREMENT PLANS.—

75

(1) * * *

* * * * * * *

(9) SPECIAL RULE FOR ROLLOVERS TO SECTION 457 PLANS.— For purposes of this subsection, a distribution from an eligible

deferred compensation plan (as defined in section 457(b)) of an

eligible employer described in section 457(e)(1)(A) shall be treated as a distribution from a qualified retirement plan described

in 4974(c)(1) to the extent that such distribution is attributable

to an amount transferred to an eligible deferred compensation

plan from a qualified retirement plan (as defined in section

4974(c)).

* * * * * * *

PART III—ITEMS SPECIFICALLY EXCLUDED IN GROSS

INCOME

* * * * * * *

SEC. 132. CERTAIN FRINGE BENEFITS.

(a) EXCLUSION FROM GROSS INCOME.—Gross income shall not include any fringe benefit which qualifies as a— (1) * * *

* * * * * * *

(5) qualified transportation fringe, øor¿

(6) qualified moving expense reimbursementø.¿; or

(7) qualified retirement planning services.

* * * * * * *

(m) QUALIFIED RETIREMENT PLANNING SERVICES.— (1) IN GENERAL.—For purposes of this section, the term

‘‘qualified retirement planning services’’ means any retirement

planning advice or information provided to an employee and

his spouse by an employer maintaining a qualified employer

plan.

(2) NONDISCRIMINATION RULE.—Subsection (a)(7) shall apply

in the case of highly compensated employees only if such 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 employer plan.

(3) QUALIFIED EMPLOYER PLAN.—For purposes of this subsection, the term ‘‘qualified employer plan’’ means a plan, contract, pension, or account described in section 219(g)(5).

ø(m)¿ (n) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.

* * * * * * *

PART VII—ADDTIONAL ITEMIZED DEDUCTIONS FOR

INDIVIDUALS

* * * * * * *

SEC. 219. RETIREMENT SAVINGS.

(a) * * *

(b) MAXIMUM AMOUNT OF DEDUCTION.—

76

(1) IN GENERAL.—The amount allowable as a deduction

under subsection (a) to any individual for any taxable year

shall not exceed the lesser of—

(A) ø$2,000¿ the deductible amount, or

* * * * * * *

(5) DEDUCTIBLE AMOUNT.—For purposes of paragraph

(1)(A)—

(A) IN GENERAL.—The deductible amount shall be determined in accordance with the following table:

For taxable years The deductible

beginning in: amount is:

2001 ................................................................................................ $3,000

2002 ................................................................................................ $4,000

2003 and thereafter ........................................................................ $5,000.

(B) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS 50 OR

OLDER.—In the case of an individual who has attained the

age of 50 before the close of the taxable year, the deductible

amount for taxable years beginning in 2001 or 2002 shall

be $5,000.

(C) COST-OF-LIVING ADJUSTMENT.—

(i) IN GENERAL.—In the case of any taxable year beginning in a calendar year after 2003, the $5,000

amount under subparagraph (A) shall be increased by

an amount equal to—

(I) such dollar amount, multiplied by

(II) the cost-of-living adjustment determined

under section 1(f )(3) for the calendar year in

which the taxable year begins, determined by substituting ‘‘calendar year 2002’’ for ‘‘calendar year

1992’’ in subparagraph (B) thereof.

(ii) ROUNDING RULES.—If any amount after adjustment under clause (i) is not a multiple of $500, such

amount shall be rounded to the next lower multiple of

$500.

* * * * * * *

(d) OTHER LIMITATIONS AND RESTRICTIONS.—

(1) * * *

(2) RECONTRIBUTED AMOUNTS.—No deduction shall be allowed under this section with respect to a rollover contribution

described in section 402(c), 403(a)(4), 403(b)(8), or ø408(d)(3)¿

408(d)(3), or 457(e)(16).

* * * * * * *

Subchapter D—Deferred Compensation, Etc.

* * * * * * *

PART I—PENSION, PROFIT-SHARING, STOCK BONUS

PLANS, ETC.

* * * * * * *

77

Subpart A—General Rule

Sec. 401. Qualified pension, profit-sharing, and stock bonus plans.

* * * * * * *

Sec. 402A. Optional treatment of elective deferrals as plus contributions.

* * * * * * *

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 RE- QUIREMENTS.—

(A) * * *

* * * * * * *

(G) øSTATE AND LOCAL GOVERNMENTAL PLANS¿ GOVERNMENTAL PLANS.—Paragraphs (3) and (4) shall not apply to

a governmental plan (within the meaning of øsection

414(d)) maintained by a State or local government or political subdivision thereof (or agency or instrumentality

thereof).¿ section 414(d)).

* * * * * * *

(9) REQUIRED DISTRIBUTIONS.— (A) * * *

(B) REQUIRED DISTRIBUTION WHERE EMPLOYEE DIES BEFORE ENTIRE INTEREST IS DISTRIBUTED.—

ø(i) WHERE DISTRIBUTIONS HAVE BEGUN UNDER SUBPARAGRAPH (A)(ii).—A trust shall not constitute a qualified trust under this section unless the plan provides

that if—

ø(I) the distribution of the employee’s interest

has begun in accordance with subparagraph

(A)(ii), and

ø(II) the employee dies before his entire interest

has been distributed to him,

the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used under subparagraph (A)(ii) as of

the date of his death.¿

ø(ii)¿ (i) 5-YEAR RULE øFOR OTHER CASES¿.—A trust

shall not constitute a qualified trust under this section

unless the plan provides that, if an employee dies before øthe distribution of the employee’s interest has

begun in accordance with subparagraph (A)(ii)¿ his entire interest has been distributed to him, the entire interest of the employee will be distributed within 5

years after the death of such employee.

78

ø(iii)¿ (ii) EXCEPTION TO 5-YEAR RULE FOR CERTAIN

AMOUNTS PAYABLE OVER LIFE OF BENEFICIARY.—If— (I) * * *

* * * * * * *

for purposes of clause ø(ii)¿ (i), the portion referred to

in subclause (I) shall be treated as distributed on the

date on which such distributions begin.

ø(iv)¿ (iii) SPECIAL RULE FOR SURVIVING SPOUSE OF

EMPLOYEE.—If the designated beneficiary referred to

in clause ø(iii)(I)¿ (ii)(I) is the surviving spouse of the

employee—

(I) the date on which the distributions are required to begin under clause ø(iii)(III)¿ (ii)(III)

shall not be earlier than øthe date on which the

employee would have attained age 701⁄2,¿ April 1

of the calendar year following the calendar year in

which the spouse attains 701⁄2, and

(II) if the surviving spouse dies before øthe distributions to such spouse begin,¿ his entire interest has been distributed to him, this subparagraph

shall be applied as if the surviving spouse were

the employee.

* * * * * * *

(17) COMPENSATION LIMIT.—

(A) IN GENERAL.—A trust shall not constitute a qualified

trust under this section unless, under the plan of which

such trust is a part, the annual compensation of each employee taken into account under the plan for any year does

not exceed ø$150,000¿ $200,000.

(B) COST-OF-LIVING ADJUSTMENT.—The Secretary shall

adjust annually the ø$150,000¿ $200,000 amount in subparagraph (A) for increases in the cost-of-living at the

same time and in the same manner as adjustments under

section 415(d); except that the base period shall be the calendar quarter beginning øOctober 1, 1993¿ July 1, 2000,

and any increase which is not a multiple of ø$10,000¿

$5,000 shall be rounded to the next lowest multiple of

ø$10,000¿ $5,000.

* * * * * * *

(26) ADDITIONAL PARTICIPATION REQUIREMENTS.— (A) * * *

* * * * * * *

(H) øEXCEPTION FOR STATE AND LOCAL GOVERNMENTAL

PLANS¿ EXCEPTION FOR GOVERNMENTAL PLANS.—This paragraph shall not apply to a governmental plan (within the

meaning of øsection 414(d)) maintained by a State or local

government or political subdivision thereof (or agency or

instrumentality thereof).¿ section 414(d)).

* * * * * * *

(31) OPTIONAL DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS.—

(A) * * *

79

(B) LIMITATION.—Subparagraph (A) shall apply only to

the extent that the eligible rollover distribution would be

includible in gross income if not transferred as provided in

subparagraph (A) (determined without regard to sections

402(c) øand 403(a)(4)¿, 403(a)(4), 403(b)(8), and 457(e)(16)).

The preceding sentence shall not apply to such distribution

if the plan to which such distribution is transferred— (i) agrees to separately account for amounts so transferred, including separately accounting for the portion

of such distribution which is includible in gross income

and the portion of such distribution which is not so includible, or

(ii) is an eligible retirement plan described in clause

(i) or (ii) of section 402(c)(8)(B).

* * * * * * *

(k) CASH OR DEFERRED ARRANGEMENTS.—

(1) * * *

(2) QUALIFIED CASH OR DEFERRED ARRANGEMENT.—A qualified cash or deferred arrangement is any arrangement which

is part of a profit-sharing or stock bonus plan, a pre-ERISA

money purchase plan, or a rural cooperative plan which meets

the requirements of subsection (a)—

(A) * * *

(B) under which amounts held by the trust which are attributable to employer contributions made pursuant to the

employee’s election—

(i) may not be distributable to participants or other

beneficiaries earlier than—

(I) øseparation from service¿ severance from employment, death, or disability,

* * * * * * *

(3) APPLICATION OF PARTICIPATION AND DISCRIMINATION

STANDARDS.—

(A) * * *

* * * * * * *

(G) GOVERNMENTAL PLANS.—A governmental plan (within the meaning of section 414(d) ømaintained 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.

* * * * * * *

(10) DISTRIBUTIONS UPON TERMINATION OF PLAN øOR DISPOSITION OF ASSETS OR SUBSIDIARY¿.—

ø(A) IN GENERAL.—The following events are described in

this paragraph:

ø(i) TERMINATION.—The termination of the plan

without establishment or maintenance of another defined contribution plan (other than an employee stock

ownership plan as defined in section 4975(e)(7)).

ø(ii) DISPOSITION OF ASSETS.—The disposition by a

corporation of substantially all of the assets (within

the meaning of section 409(d)(2)) used by such corporation in a trade or business of such corporation, but

80

only with respect to an employee who continues employment with the corporation acquiring such assets.

ø(iii) DISPOSITION OF SUBSIDIARY.—The disposition

by a corporation of such corporation’s interest in a

subsidiary (within the meaning of section 409(d)(3)),

but only with respect to an employee who continues

employment with such subsidiary.¿

(A) IN GENERAL.—An event described in this subparagraph is the termination of the plan without establishment

or maintenance of another defined contribution plan (other

than an employee stock ownership plan as defined in section 4975(e)(7)).

(B) DISTRIBUTIONS MUST BE LUMP SUM DISTRIBUTIONS.— (i) IN GENERAL.—øAn event¿ A termination shall not

be treated as described in subparagraph (A) with respect to any employee unless the employee receives a

lump sum distribution by reason of øthe event¿ the

termination.

* * * * * * *

ø(C) TRANSFEROR CORPORATION MUST MAINTAIN PLAN.— An event shall not be treated as described in clause (ii) or

(iii) of subparagraph (A) unless the transferor corporation

continues to maintain the plan after the disposition.¿

(11) ADOPTION OF SIMPLE PLAN TO MEET NONDISCRIMINATION

TESTS.—

(A) * * *

(B) CONTRIBUTION REQUIREMENTS.— (i) IN GENERAL.—The requirements of this subparagraph are met if, under the arrangement— (I) an employee may elect to have the employer

make elective contributions for the year on behalf

of the employee to a trust under the plan in an

amount which is expressed as a percentage

ofcompensation of the employee but which in no

event exceeds ø$6,000¿ the amount in effect under

section 408(p)(2)(A)(ii).

* * * * * * *

ø(E) COST-OF-LIVING ADJUSTMENT.—The Secretary shall

adjust the $6,000 amount under subparagraph (B)(i)(I) at

the same time and in the same manner as under section

408(p)(2)(E).¿

* * * * * * *

(m) NONDISCRIMINATION TEST FOR MATCHING CONTRIBUTIONS

AND EMPLOYEE CONTRIBUTIONS.—

(1) * * *

* * * * * * *

ø(9) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this

subsection and subsection (k) including— ø(A) such regulations as may be necessary to prevent the

multiple use of the alternative limitation with respect to

any highly compensated employee, and

81

ø(B) regulations permitting appropriate aggregation of

plans and contributions.

For purposes of the preceding sentence, the term ‘‘alternative

limitation’’ means the limitation of section 401(k)(3)(A)(ii)(II)

and the limitation of paragraph (2)(A)(ii) of this subsection.¿

(9) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection and subsection (k), including regulations permitting appropriate aggregation of plans and contributions.

* * * * * * *

SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES’ TRUST.

(a) * * *

* * * * * * *

(c) RULES APPLICABLE TO ROLLOVERS FROM EXEMPT TRUSTS.— (1) * * *

(2) MAXIMUM AMOUNT WHICH MAY BE ROLLED OVER.—In the

case of any eligible rollover distribution, the maximum amount

transferred to which paragraph (1) applies shall not exceed the

portion of such distribution which is includible in gross income

(determined without regard to paragraph (1)). The preceding

sentence shall not apply to such distribution to the extent— (A) such portion is transferred in a direct trustee-to-trustee transfer to a qualified trust which is part of a plan

which is a defined contribution plan and which agrees to

separately account for amounts so transferred, including

separately accounting for the portion of such distribution

which is includible in gross income and the portion of such

distribution which is not so includible, or

(B) such portion is transferred to an eligible retirement

plan described in clause (i) or (ii) of paragraph (8)(B).

ø(3) TRANSFER MUST BE MADE WITHIN 60 DAYS OF RECEIPT.— Paragraph (1) shall not apply to any transfer of a distribution

made after the 60th day following the day on which the distributee received the property distributed.¿

(3) TRANSFER MUST BE MADE WITHIN 60 DAYS OF RECEIPT.— (A) IN GENERAL.—Except as provided in subparagraph

(B), paragraph (1) shall not apply to any transfer of a distribution made after the 60th day following the day on

which the distributee received the property distributed.

(B) HARDSHIP EXCEPTION.—The Secretary may waive the

60-day requirement under subparagraph (A) where the failure to waive such requirement would be against equity or

good conscience, including casualty, disaster, or other

events beyond the reasonable control of the individual subject to such requirement.

* * * * * * *

(8) DEFINITIONS.—For purposes of this subsection— (A) * * *

(B) ELIGIBLE RETIREMENT PLAN.—The term ‘‘eligible retirement plan’’ means— (i) * * *

* * * * * * *

(iii) a qualified trust, øand¿

82

(iv) an annuity plan described in section 403(a)ø.¿, (v) an eligible deferred compensation plan described

in section 457(b) which is maintained by an eligible

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

(vi) an annuity contract described in section 403(b).

If any portion of an eligible rollover distribution is attributable to payments or distributions from a designated plus

account (as defined in section 402A), an eligible retirement

plan with respect to such portion shall include only another

designated plus account and a Roth IRA.

(9) ROLLOVER WHERE SPOUSE RECEIVES DISTRIBUTION AFTER

DEATH OF EMPLOYEE.—If any distribution attributable to an

employee is paid to the spouse of the employee after the employee’s death, the preceding provisions of this subsection shall

apply to such distribution in the same manner as if the spouse

were the employeeø; except that a trust or plan described in

clause (iii) or (iv) of paragraph (8)(B) shall not be treated as

an eligible retirement plan with respect to such distribution¿.

* * * * * * *

(11) SEPARATE ACCOUNTING.—Unless a plan described in

clause (v) of paragraph (8)(B) agrees to separately account for

amounts rolled into such plan from eligible retirement plans

not described in such clause, the plan described in such clause

may not accept transfers or rollovers from such retirement

plans.

* * * * * * *

(f) WRITTEN EXPLANATION TO RECIPIENTS OF DISTRIBUTIONS ELI- GIBLE FOR ROLLOVER TREATMENT.—

(1) IN GENERAL.—The plan administrator of any plan shall,

within a reasonable period of time before making an eligible

rollover distribution øfrom an eligible retirement plan¿, provide a written explanation to the recipient—

(A) of the provisions under which the recipient may have

the distribution directly transferred to øanother eligible retirement plan¿ an eligible retirement plan,

(B) of the provision which requires the withholding of

tax on the distribution if it is not directly transferred to

øanother eligible retirement plan¿ an eligible retirement

plan,

(C) of the provisions under which the distribution will

not be subject to tax if transferred to an eligible retirement

plan within 60 days after the date on which the recipient

received the distribution, øand¿

(D) if applicable, of the provisions of subsections (d) and

(e) of this sectionø.¿, and

(E) of the provisions under which distributions from the

eligible retirement plan receiving the distribution may be

subject to restrictions and tax consequences which are different from those applicable to distributions from the plan

making such distribution.

(2) DEFINITIONS.—For purposes of this subsection—

(A) ELIGIBLE ROLLOVER DISTRIBUTION.—The term ‘‘eligible rollover distribution’’ has the same meaning as when

used in subsection (c) of this section øor paragraph (4) of

83

section 403(a)¿, paragraph (4) of section 403(a), subparagraph (A) of section 403(b)(8), or subparagraph (A) of section 457(e)(16).

* * * * * * *

(g) LIMITATION ON EXCLUSION FOR ELECTIVE DEFERRALS.—

ø(1) IN GENERAL.—Notwithstanding subsections (e)(3) and

(h)(1)(B), the elective deferrals of any individual for any taxable year shall be included in such individual’s gross income to

the extent the amount of such deferrals for the taxable year exceeds $7,000.¿

(1) IN GENERAL.—

(A) LIMITATION.—Notwithstanding subsections (e)(3) and

(h)(1)(B), the elective deferrals of any individual for any

taxable year shall be included in such individual’s gross income to the extent the amount of such deferrals for the taxable year exceeds the applicable dollar amount. The preceding sentence shall not apply to so much of such excess

as does not exceed the designated plus contributions of the

individual for the taxable year.

(B) APPLICABLE DOLLAR AMOUNT.—For purposes of subparagraph (A), the applicable dollar amount shall be the

amount determined in accordance with the following table:

For taxable years The applicable

beginning in dollar amount:

calendar year:

2001 ................................................................................................ $11,000

2002 ................................................................................................ $12,000

2003 ................................................................................................ $13,000

2004 ................................................................................................ $14,000

2005 or thereafter ........................................................................... $15,000.

(2) DISTRIBUTION OF EXCESS DEFERRALS.—

(A) IN GENERAL.—If any amount (hereinafter in this

paragraph referred to as ‘‘excess deferrals’’) is included in

the gross income of an individual under paragraph (1) (or

would be included but for the last sentence thereof) for any

taxable year—

(i) * * *

* * * * * * *

ø(4) INCREASE IN LIMIT FOR AMOUNTS CONTRIBUTED UNDER

SECTION 403(b) CONTRACTS.—The limitation under paragraph

(1) shall be increased (but not to an amount in excess of

$9,500) by the amount of any employer contributions for the

taxable year described in paragraph (3)(C).

ø(5) COST-OF-LIVING ADJUSTMENT.—The Secretary shall adjust the $7,000 amount under paragraph (1) at the same time

and in the same manner as under section 415(d); except that

any increase under this paragraph which is not a multiple of

$500 shall be rounded to the next lowest multiple of $500.¿

(4) COST-OF-LIVING ADJUSTMENT.—In the case of taxable

years beginning after December 31, 2005, the Secretary shall

adjust the $15,000 amount under paragraph (1)(B) at the same

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

that the base period shall be the calendar quarter beginning

July 1, 2004, and any increase under this paragraph which is

84

not a multiple of $500 shall be rounded to the next lowest multiple of $500.

ø(6)¿ (5) DISREGARD OF COMMUNITY PROPERTY LAWS.—This

subsection shall be applied without regard to community property laws.

ø(7)¿ (6) COORDINATION WITH SECTION 72.—For purposes of

applying section 72, any amount includible in gross income for

any taxable year under this subsection but which is not distributed from the plan during such taxable year shall not be treated as investment in the contract.

ø(8)¿ (7) SPECIAL RULE FOR CERTAIN ORGANIZATIONS.— (A) * * *

(B) Qualified organizationFor purposes of this paragraph, the term ‘‘qualified organization’’ means any educational organization, hospital, home health service agency, health and welfare service agency, church, or convention or association of churches. Such term includes any organization described in section 414(e)(3)(B)(ii). Terms used

in this subparagraph shall have the same meaning as

when used in section 415(c)(4) (as in effect before the enactment of the Comprehensive Retirement Security and Pension Reform Act of 2001).

* * * * * * *

ø(9)¿ (8) MATCHING CONTRIBUTIONS ON BEHALF OF SELF-EMPLOYED INDIVIDUALS NOT TREATED AS ELECTIVE EMPLOYER CONTRIBUTIONS.—Except as provided in section 401(k)(3)(D)(ii), any

matching contribution described in section 401(m)(4)(A) which

is made on behalf of a self-employed individual (as defined in

section 401(c) shall not be treated as an elective employer contribution under a qualified cash or deferred arrangement (as

defined in section 401(k) for purposes of this title.

* * * * * * *

SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS

CONTRIBUTIONS.

(a) GENERAL RULE.—If an applicable retirement plan includes a

qualified plus contribution program—

(1) any designated plus contribution made by an employee

pursuant to the program shall be treated as an elective deferral

for purposes of this chapter, except that such contribution shall

not be excludable from gross income, and

(2) such plan (and any arrangement which is part of such

plan) shall not be treated as failing to meet any requirement of

this chapter solely by reason of including such program.

(b) QUALIFIED PLUS CONTRIBUTION PROGRAM.—For purposes of

this section—

(1) IN GENERAL.—The term ‘‘qualified plus contribution program’’ means a program under which an employee may elect to

make designated plus contributions in lieu of all or a portion

of elective deferrals the employee is otherwise eligible to make

under the applicable retirement plan.

(2) SEPARATE ACCOUNTING REQUIRED.—A program shall not

be treated as a qualified plus contribution program unless the

applicable retirement plan—

85

(A) establishes separate accounts (‘‘designated plus accounts’’) for the designated plus contributions of each employee and any earnings properly allocable to the contributions, and

(B) maintains separate recordkeeping with respect to each

account.

(c) DEFINITIONS AND RULES RELATING TO DESIGNATED PLUS CONTRIBUTIONS.—For purposes of this section—

(1) DESIGNATED PLUS CONTRIBUTION.—The term ‘‘designated

plus contribution’’ means any elective deferral which—

(A) is excludable from gross income of an employee without regard to this section, and

(B) the employee designates (at such time and in such

manner as the Secretary may prescribe) as not being so excludable.

(2) DESIGNATION LIMITS.—The amount of elective deferrals

which an employee may designate under paragraph (1) shall

not exceed the excess (if any) of—

(A) the maximum amount of elective deferrals excludable

from gross income of the employee for the taxable year

(without regard to this section), over

(B) the aggregate amount of elective deferrals of the employee for the taxable year which the employee does not designate under paragraph (1).

(3) ROLLOVER CONTRIBUTIONS.—

(A) IN GENERAL.—A rollover contribution of any payment

or distribution from a designated plus account which is

otherwise allowable under this chapter may be made only

if the contribution is to—

(i) another designated plus account of the individual

from whose account the payment or distribution was

made, or

(ii) a Roth IRA of such individual.

(B) COORDINATION WITH LIMIT.—Any rollover contribution to a designated plus account under subparagraph (A)

shall not be taken into account for purposes of paragraph

(1).

(d) DISTRIBUTION RULES.—For purposes of this title—

(1) EXCLUSION.—Any qualified distribution from a designated

plus account shall not be includible in gross income.

(2) QUALIFIED DISTRIBUTION.—For purposes of this subsection—

(A) IN GENERAL.—The term ‘‘qualified distribution’’ has

the meaning given such term by section 408A(d)(2)(A)

(without regard to clause (iv) thereof).

(B) DISTRIBUTIONS WITHIN NONEXCLUSION PERIOD.—A

payment or distribution from a designated plus account

shall not be treated as a qualified distribution if such payment or distribution is made within the 5-taxable-year period beginning with the earlier of—

(i) the first taxable year for which the individual

made a designated plus contribution to any designated

plus account established for such individual under the

same applicable retirement plan, or

86

(ii) if a rollover contribution was made to such designated plus account from a designated plus account

previously established for such individual under another applicable retirement plan, the first taxable year

for which the individual made a designated plus contribution to such previously established account.

(C) DISTRIBUTIONS OF EXCESS DEFERRALS AND EARNINGS.—The term ‘‘qualified distribution’’ shall not include

any distribution of any excess deferral under section

402(g)(2) and any income on the excess deferral.

(3) AGGREGATION RULES.—Section 72 shall be applied separately with respect to distributions and payments from a designated plus account and other distributions and payments

from the plan.

(e) OTHER DEFINITIONS.—For purposes of this section—

(1) APPLICABLE RETIREMENT PLAN.—The term ‘‘applicable retirement plan’’ means—

(A) an employees’ trust described in section 401(a) which

is exempt from tax under section 501(a), and

(B) a plan under which amounts are contributed by an

individual’s employer for an annuity contract described in

section 403(b).

(2) ELECTIVE DEFERRAL.—The term ‘‘elective deferral’’ means

any elective deferral described in subparagraph (A) or (C) of

section 402(g)(3).

SEC. 403. TAXATION OF EMPLOYEE ANNUITIES.

(a) * * *

(b) TAXABILITY OF BENEFICIARY UNDER ANNUITY PURCHASED BY

SECTION 501(c)(3) ORGANIZATION OR PUBLIC SCHOOL.—

(1) GENERAL RULE.—If—

(A) * * *

* * * * * * *

then amounts contributed by such employer for such annuity contract on or after such rights become nonforfeitable shall be excluded from the gross income of the employee for the taxable year

to the extent that the aggregate of such amounts does not exceed

øthe exclusion allowance for such taxable year¿ the applicable limit

under section 415. The amount actually distributed to any distributee under such contract shall be taxable to the distributee (in

the year in which so distributed) under section 72 (relating to annuities). For purposes of applying the rules of this subsection to

amounts contributed by an employer for a taxable year, amounts

transferred to a contract described in this paragraph by reason of

a rollover contribution described in paragraph (8) of this subsection

or øsection 408(d)(3)(A)(iii)¿ section 408(d)(3)(A)(ii) shall not be considered contributed by such employer.

ø(2) EXCLUSION ALLOWANCE.—

ø(A) IN GENERAL.—For purposes of this subsection, the

exclusion allowance for any employee for the taxable year

is an amount equal to the excess, if any, of—

ø(i) the amount determined by multiplying 20 percent of his includible compensation by the number of

years of service, over

87

ø(ii) the aggregate of the amounts contributed by

the employer for annuity contracts and excludable

from the gross income of the employee for any prior

taxable year.

ø(B) ELECTION TO HAVE ALLOWANCE DETERMINED UNDER

SECTION 415 RULES.—In the case of an employee who

makes an election under section 415(c)(4)(D) to have the

provisions of section 415(c)(4)(C) (relating to special rule

for section 403(b) contracts purchased by educational institutions, hospitals, home health service agencies, and certain churches, etc.) apply, the exclusion allowance for any

such employee for the taxable year is the amount which

could be contributed (under section 415 without regard to

section 415(c)(8)[(7)]) by his employer under a plan described in section 403(a) if the annuity contract for the

benefit of such employee were treated as a defined contribution plan maintained by the employer.

ø(C) NUMBER OF YEARS OF SERVICE FOR DULY ORDAINED, COMMISSIONED, OR LICENSED MINISTERS OR LAY EMPLOY- EES.—For purposes of this subsection and section

415(c)(4)(A)— ø(i) all years of service by— ø(I) a duly ordained, commissioned, or licensed

minister of a church, or

ø(II) a lay person,as an employee of a church, a

convention or association of churches, including an

organization described in section 414(e)(3)(B)(ii),

shall be considered as years of service for 1 employer, and

ø(ii) all amounts contributed for annuity contracts

by each such church (or convention or association of

churches) or such organization during such years for

such minister or lay person shall be considered to have

been contributed by 1 employer.

For purposes of the preceding sentence, the terms ‘‘church’’ and

‘‘convention or association of churches’’ have the same meaning

as when used in section 414(e).

ø(D) ALTERNATIVE EXCLUSION ALLOWANCE.— ø(i) IN GENERAL.—In the case of any individual described in subparagraph (C), the amount determined

under subparagraph (A) shall not be less than the

lesser of—

ø(I) $3,000, or

ø(II) the includible compensation of such individual.

ø(ii) SUBPARAGRAPH NOT TO APPLY TO INDIVIDUALS

WITH ADJUSTED GROSS INCOME OVER $17,000.—This subparagraph shall not apply with respect to any taxable

year to any individual whose adjusted gross income for

such taxable year (determined separately and without

regard to any community property laws) exceeds

$17,000.

ø(iii) SPECIAL RULE FOR FOREIGN MISSIONARIES.—In

the case of an individual described in subparagraph

(C)(i) performing services outside the United States,

88

there shall be included as includible compensation for

any year under clause (i)(II) any amount contributed

during such year by a church (or convention or association of churches) for an annuity contract with respect to such individual.¿

(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. Such term does not include any amount

contributed by the employer for any annuity contract to which

this subsection applies or any amount received by a former employee after the fifth taxable year following the taxable year in

which such employee was terminated. Such term includes— (A) * * *

* * * * * * *

(7) CUSTODIAL ACCOUNTS FOR REGULATED INVESTMENT COMPANY STOCK.—

(A) AMOUNTS PAID TREATED AS CONTRIBUTIONS.—For

purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which

satisfies the requirements of section 401(f)(2) shall be

treated as amounts contributed by him for an annuity contract for his employee if—

(i) * * *

(ii) under the custodial account no such amounts

may be paid or made available to any distributee before the employee dies, attains age 591⁄2, øseparates

from service¿ has a severance from employment, becomes disabled (within the meaning of section

72(m)(7)), or in the case of contributions made pursuant to a salary reduction agreement (within the meaning of section 3121(a)(1)(D), encounters financial hardship.

* * * * * * *

(8) ROLLOVER AMOUNTS.—

(A) GENERAL RULE.—If—

(i) * * *

(ii) the employee transfers any portion of the property he receives in øsuch distribution to an individual

retirement plan or to an annuity contract described in

paragraph (1), and¿ such distribution to an eligible retirement plan described in section 402(c)(8)(B), and

* * * * * * *

ø(B) CERTAIN RULES MADE APPLICABLE.—Rules similar to

the rules of paragraphs (2) through (7) of section 402(c)

(including paragraph (4)(C) thereof) shall apply for purposes of subparagraph (A).¿

(B) CERTAIN RULES MADE APPLICABLE.—The rules of

paragraphs (2) through (7) and (9) of section 402(c) and

89

section 402(f) shall apply for purposes of subparagraph (A),

except that section 402(f) shall be applied to the payor in

lieu of the plan administrator.

* * * * * * *

(11) REQUIREMENT THAT DISTRIBUTIONS NOT BEGIN BEFORE

AGE 591⁄2, øSEPARATION FROM SERVICE¿ SEVERANCE FROM EM- PLOYMENT, DEATH, OR DISABILITY.—This subsection shall not

apply to any annuity contract unless under such contract distributions attributable to contributions made pursuant to a salary reduction agreement (within the meaning of section

402(g)(3)(C)) may be paid only—

(A) when the employee attains age 591⁄2, øseparates from

service¿ has a severance from employment, dies, or becomes disabled (within the meaning of section 72(m)(7)), or

* * * * * * *

(13) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE CREDIT.—No amount shall be includible in gross

income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) if

such transfer is—

(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or

(B) a repayment to which section 415 does not apply by

reason of subsection (k)(3) thereof.

* * * * * * *

SEC. 404. DEDUCTION FOR CONTRIBUTIONS OF AN EMPLOYER TO AN

EMPLOYEES’ TRUST OR ANNUITY PLAN AND COMPENSATION UNDER A DEFERRED-PAYMENT PLAN.

(a) GENERAL RULE.—If contributions are paid by an employer to

or under a stock bonus, pension, profit-sharing, or annuity plan, or

if compensation is paid or accrued on account of any employee

under a plan deferring the receipt of such compensation, such contributions or compensation shall not be deductible under this chapter; but, if they would otherwise be deductible, they shall be deductible under this section, subject, however, to the following limitations as to the amounts deductible in any year:

(1) PENSION TRUSTS.—

(A) * * *

* * * * * * *

ø(D) SPECIAL RULE IN CASE OF CERTAIN PLANS.—In the

case of any defined benefit plan (other than a multiemployer plan) which has more than 100 participants for the

plan year, except as provided in regulations, the maximum

amount deductible under the limitations of this paragraph

shall not be less than the unfunded current liability determined under section 412(l). For purposes of determining

whether a plan has more than 100 participants, all defined

benefit plans maintained by the same employer (or any

member of such employer’s controlled group (within the

meaning of section 412(l)(8)(C))) shall be treated as 1 plan,

but only employees of such member or employer shall be

taken into account.¿

(D) SPECIAL RULE IN CASE OF CERTAIN PLANS.—

90

(i) IN GENERAL.—In the case of any defined benefit

plan, except as provided in regulations, the maximum

amount deductible under the limitations of this paragraph shall not be less than the unfunded termination

liability (determined as if the proposed termination

date referred to in section 4041(b)(2)(A)(i)(II) of the

Employee Retirement Income Security Act of 1974 were

the last day of the plan year).

(ii) PLANS WITH LESS THAN 100 PARTICIPANTS.—For

purposes of this subparagraph, in the case of a plan

which has less than 100 participants for the plan year,

termination liability shall not include the liability attributable to benefit increases for highly compensated

employees (as defined in section 414(q)) resulting from

a plan amendment which is made or becomes effective,

whichever is later, within the last 2 years before the

termination date.

(iii) RULE FOR DETERMINING NUMBER OF PARTICIPANTS.—For purposes of determining whether a plan

has more than 100 participants, all defined benefit

plans maintained by the same employer (or any member of such employer’s controlled group (within the

meaning of section 412(l)(8)(C))) shall be treated as one

plan, but only employees of such member or employer

shall be taken into account.

(iv) PLANS MAINTAINED BY PROFESSIONAL SERVICE

EMPLOYERS.—Clause (i) shall not apply to a plan described in section 4021(b)(13) of the Employee Retirement Income Security Act of 1974.

* * * * * * *

(3) STOCK BONUS AND PROFIT-SHARING TRUSTS.— (A) LIMITS ON DEDUCTIBLE CONTRIBUTIONS.— (i) IN GENERAL.—In the taxable year when paid, if

the contributions are paid into a stock bonus or profitsharing trust, and if such taxable year ends within or

with a taxable year of the trust with respect to which

the trust is exempt under section 501(a), in an amount

not in excess of the greater of—

(I) ø15¿ 20 percent of the compensation otherwise paid or accrued during the taxable year to

the beneficiaries under the stock bonus or profitsharing plan, or

* * * * * * *

(B) PROFIT-SHARING PLAN OF AFFILIATED GROUP.—In the

case of a profit-sharing plan, or a stock bonus plan in

which contributions are determined with reference to profits, of a group of corporations which is an affiliated group

within the meaning of section 1504, if any member of such

affiliated group is prevented from making a contribution

which it would otherwise have made under the plan, by

reason of having no current or accumulated earnings or

profits or because such earnings or profits are less than

the contributions which it would otherwise have made,

then so much of the contribution which such member was

91

so prevented from making may be made, for the benefit of

the employees of such member, by the other members of

the group, to the extent of current or accumulated earnings or profits, except that such contribution by each such

other member shall be limited, where the group does not

file a consolidated return, to that proportion of its total

current and accumulated earnings or profits remaining

after adjustment for its contribution deductible without regard to this subparagraph which the total prevented contribution bears to the total current and accumulated earnings or profits of all the members of the group remaining

after adjustment for all contributions deductible without

regard to this subparagraph. Contributions made under

the preceding sentence shall be deductible under subparagraph (A) of this paragraph by the employer making such

contribution, and, for the purpose of determining amounts

which may be carried forward and deducted under the second sentence of subparagraph (A) of this paragraph in succeeding taxable years, shall be deemed to have been made

by the employer on behalf of whose employees such contributions were made. øThe term ‘‘compensation otherwise

paid or accrued during the taxable year to all employees’’ shall include any amount with respect to which an election

under section 415(c)(3)(C) is in effect, but only to the extent that any contribution with respect to such amount is

nonforfeitable.¿

* * * * * * *

(10) CONTRIBUTIONS BY CERTAIN MINISTERS TO RETIREMENT

INCOME ACCOUNTS.—In the case of contributions made by a

minister described in section 414(e)(5) to a retirement income

account described in section 403(b)(9) and not by a person

other than such minister, such contributions—

(A) * * *

(B) shall be deductible under this subsection to the extent such contributions do not exceed the limit on elective

deferrals under section 402(g)ø, the exclusion allowance

under section 403(b)(2),¿ or the limit on annual additions

under section 415.

For purposes of this paragraph, all plans in which the minister

is a participant shall be treated as one plan.

* * * * * * *

(12) DEFINITION OF COMPENSATION.—For purposes of paragraphs (3), (7), (8), and (9), the term ‘‘compensation otherwise

paid or accrued during the taxable year’’ shall include amounts

treated as ‘‘participant’s compensation’’ under subparagraph (C)

or (D) of section 415(c)(3).

* * * * * * *

(h) SPECIAL RULES FOR SIMPLIFIED EMPLOYEE PENSIONS.—

(1) IN GENERAL.—Employer contributions to a simplified employee pension shall be treated as if they are made to a plan

subject to the requirements of this section. Employer contributions to a simplified employee pension are subject to the following limitations:

92

(A) * * *

* * * * * * *

(C) The amount deductible in a taxable year for a simplified employee pension shall not exceed ø15¿ 20 percent

of the compensation paid to the employees during the calendar year ending with or within the taxable year (or during the taxable year in the case of a taxable year described

in subparagraph (A)(ii)). The excess of the amount contributed over the amount deductible for a taxable year shall

be deductible in the succeeding taxable years in order of

time, subject to the ø15¿ 20 percent limit of the preceding

sentence.

* * * * * * *

(k) DEDUCTION FOR DIVIDENDS PAID ON CERTAIN EMPLOYER SECURITIES.—

(1) * * *

(2) APPLICABLE DIVIDEND.—For purposes of this subsection—

(A) IN GENERAL.—The term ‘‘applicable dividend’’ means

any dividend which, in accordance with the plan provisions—

(i) is paid in cash to the participants in the plan or

their beneficiaries,

(ii) is paid to the plan and is distributed in cash to

participants in the plan or their beneficiaries not later

than 90 days after the close of the plan year in which

paid, øor¿

(iii) is, at the election of such participants or their

beneficiaries—

(I) payable as provided in clause (i) or (ii), or

(II) paid to the plan and reinvested in qualifying

employer securities, or

ø(iii)¿ (iv) is used to make payments on a loan described in subsection (a)(9) the proceeds of which were

used to acquire the employer securities (whether or

not allocated to participants) with respect to which the

dividend is paid.

* * * * * * *

(l) LIMITATION ON AMOUNT OF ANNUAL COMPENSATION TAKEN

INTO ACCOUNT.—For purposes of applying the limitations of this

section, the amount of annual compensation of each employee

taken into account under the plan for any year shall not exceed

ø$150,000¿ $200,000. The Secretary shall adjust the ø$150,000¿

$200,000 amount at the same time, and by the same amount, as

any adjustment under section 401(a)(17)(B). For purposes of clause

(i), (ii), or (iii) of subsection (a)(1)(A), and in computing the full

funding limitation, any adjustment under the preceding sentence

shall not be taken into account for any year before the year for

which such adjustment first takes effect.

* * * * * * *

(n) ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PUR- POSES OF DEDUCTION LIMITS.—Elective deferrals (as defined in section 402(g)(3)) shall not be subject to any limitation contained in

paragraph (3), (7), or (9) of subsection (a), and such elective deferVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00092 Fmt 6659 Sfmt 6603 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
93

rals shall not be taken into account in applying any such limitation

to any other contributions.

* * * * * * *

SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.

(a) INDIVIDUAL RETIREMENT ACCOUNT.—For purposes of this section, the term ‘‘individual retirement account’’ means a trust created or organized in the United States for the exclusive benefit of

an individual or his beneficiaries, but only if the written governing

instrument creating the trust meets the following requirements:

(1) Except in the case of a rollover contribution described in

subsection (d)(3) in section 402(c), 403(a)(4), øor 403(b)(8),¿

403(b)(8), or 457(e)(16) no contribution will be accepted unless

it is in cash, and contributions will not be accepted for the taxable year øin excess of $2,000 on behalf of any individual¿ on

behalf of any individual in excess of the amount in effect for

such taxable year under section 219(b)(1)(A).

* * * * * * *

(b) INDIVIDUAL RETIREMENT ANNUITY.—For purposes of this section, the term ‘‘individual retirement annuity’’ means an annuity

contract, or an endowment contract (as determined under regulations prescribed by the Secretary), issued by an insurance company

which meets the following requirements:

(1) * * *

(2) Under the contract—

(A) the premiums are not fixed,

(B) the annual premium on behalf of any individual will

not exceed ø$2,000¿ the dollar amount in effect under section 219(b)(1)(A), and

* * * * * * *

(4) The entire interest of the owner is nonforfeitable.

Such term does not include such an annuity contract for any taxable year of the owner in which it is disqualified on the application

of subsection (e) or for any subsequent taxable year. For purposes

of this subsection, no contract shall be treated as an endowment

contract if it matures later than the taxable year in which the individual in whose name such contract is purchased attains age 701⁄2;

if it is not for the exclusive benefit of the individual in whose name

it is purchased or his beneficiaries; or if the aggregate annual premiums under all such contracts purchased in the name of such individual for any taxable year exceed ø$2,000¿ the dollar amount in

effect under section 219(b)(1)(A).

* * * * * * *

(d) TAX TREATMENT OF DISTRIBUTIONS.—

(1) * * *

* * * * * * *

(3) ROLLOVER CONTRIBUTION.—An amount is described in

this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).

(A) IN GENERAL.—Paragraph (1) does not apply to any

amount paid or distributed out of an individual retirement

account or individual retirement annuity to the individual

for whose benefit the account or annuity is maintained if—

94

(i) the entire amount received (including money and

any other property) is paid into an individual retirement account or individual retirement annuity (other

than an endowment contract) for the benefit of such

individual not later than the 60th day after the day on

which he receives the payment or distribution; or

ø(ii) no amount in the account and no part of the

value of the annuity is attributable to any source

other than a rollover contribution (as defined in section 402 from an employee’s trust described in section

401(a) which is exempt from tax under section 501(a)

or from an annuity plan described in section 403(a)

(and any earnings on such contribution), and the entire amount received (including property and other

money) is paid (for the benefit of such individual) into

another such trust or annuity plan not later than the

60th day on which the individual receives the payment

or the distribution; or

ø(iii)(I) the entire amount received (including money

and other property) represents the entire interest in

the account or the entire value of the annuity,

ø(II) no amount in the account and no part of

the value of the annuity is attributable to any

source other than a rollover contribution from an

annuity contract described in section 403(b) and

any earnings on such rollover, and

ø(II) the entire amount thereof is paid into another annuity contract described in section 403(b)

(for the benefit of such individual) not later than

the 60th day after he receives the payment or distribution.¿

(ii) the entire amount received (including money and

any other property) is paid into an eligible retirement

plan for the benefit of such individual not later than

the 60th day after the date on which the payment or

distribution is received, except that the maximum

amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to

this paragraph).

For purposes of clause (ii), the term ‘‘eligible retirement

plan’’ means an eligible retirement plan described in clause

(iii), (iv), (v), or (vi) of section 402(c)(8)(B).

* * * * * * *

(D) PARTIAL ROLLOVERS PERMITTED.—

(i) IN GENERAL.—If any amount paid or distributed

out of an individual retirement account or individual

retirement annuity would meet the requirements of

subparagraph (A) but for the fact that the entire

amount was not paid into an eligible plan as required

by clause ø(i), (ii), or (iii)¿ (i) or (ii) of subparagraph

(A), such amount shall be treated as meeting the requirements of subparagraph (A) to the extent it is paid

95

into an eligible plan referred to in such clause not

later than the 60th day referred to in such clause.

* * * * * * *

ø(G) SIMPLE RETIREMENTS ACCOUNTS.—This paragraph

shall not apply to any amount paid or distributed out of

a simple retirement account (as defined in subsection (p))

unless—

ø(i) it is paid into another simple retirement account, or

ø(ii) in the case of any payment or distribution to

which section 72(t)(6) does not apply, it is paid into an

individual retirement plan.¿

(G) SIMPLE RETIREMENT ACCOUNTS.—In the case of any

payment or distribution out of a simple retirement account

(as defined in subsection (p)) to which section 72(t)(6) applies, this paragraph shall not apply unless such payment

or distribution is paid into another simple retirement account.

(H) APPLICATION OF SECTION 72.— (i) IN GENERAL.—If— (I) a distribution is made from an individual retirement plan, and

(II) a rollover contribution is made to an eligible

retirement plan described in section

402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to all

or part of such distribution,

then, notwithstanding paragraph (2), the rules of

clause (ii) shall apply for purposes of applying section

72.

(ii) APPLICABLE RULES.—In the case of a distribution

described in clause (i)— (I) section 72 shall be applied separately to such

distribution,

(II) notwithstanding the pro rata allocation of

income on, and investment in, the contract to distributions under section 72, the portion of such distribution rolled over to an eligible retirement plan

described in clause (i) shall be treated as from income on the contract (to the extent of the aggregate

income on the contract from all individual retirement plans of the distributee), and

(III) appropriate adjustments shall be made in

applying section 72 to other distributions in such

taxable year and subsequent taxable years.

(I) WAIVER OF 60-DAY REQUIREMENT.—The Secretary may

waive the 60-day requirement under subparagraphs (A)

and (D) where the failure to waive such requirement would

be against equity or good conscience, including casualty,

disaster, or other events beyond the reasonable control of

the individual subject to such requirement.

* * * * * * *

(j) INCREASE IN MAXIMUM LIMITATIONS FOR SIMPLIFIED EMPLOYEE PENSIONS.—In the case of any simplified employee pension,

subsections (a)(1) and (b)(2) of this section shall be applied by inVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00095 Fmt 6659 Sfmt 6601 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
96

creasing the ø$2,000¿ amounts contained therein by the amount of

the limitation in effect under section 415(c)(1)(A).

(k) SIMPLIFIED EMPLOYEE PENSION DEFINED.— (1) * * *

* * * * * * *

(3) CONTRIBUTIONS MAY NOT DISCRIMINATE IN FAVOR OF THE

HIGHLY COMPENSATED, ETC.—

(A) * * *

* * * * * * *

(C) CONTRIBUTIONS MUST BEAR UNIFORM RELATIONSHIP

TO TOTAL COMPENSATION.—For purposes of subparagraph

(A), and except as provided in subparagraph (D), employer

contributions to simplified employee pensions (other than

contributions under an arrangement described in paragraph (6)) shall be considered discriminatory unless contributions thereto bear a uniform relationship to the compensation (not in excess of the first ø$150,000¿ $200,000)

of each employee maintaining a simplified employee pension.

* * * * * * *

(6) EMPLOYEE MAY ELECT SALARY REDUCTION ARRANGEMENT.—

(A) * * *

* * * * * * *

(D) DEFERRAL PERCENTAGE.—For purposes of this paragraph, the deferral percentage for an employee for a year

shall be the ratio of— (i) * * *

(ii) the employee’s compensation (not in excess of the

first ø$150,000¿ $200,000) for the year.

* * * * * * *

(8) COST-OF-LIVING ADJUSTMENT.—The Secretary shall adjust

the $300 amount in paragraph (2)(C) at the same time and in

the same manner as under section 415(d) and shall adjust the

ø$150,000¿ $200,000 amount in paragraphs (3)(C) and

(6)(D)(ii) at the same time, and by the same amount, as any

adjustment under section 401(a)(17)(B) ; except that any increase in the $300 amount which is not a multiple of $50 shall

be rounded to the next lowest multiple of $50.

* * * * * * *

(p) SIMPLE RETIREMENT ACCOUNTS.—

(1) * * *

(2) QUALIFIED SALARY REDUCTION ARRANGEMENT.—

(A) IN GENERAL.—For purposes of this subsection, the

term ‘‘qualified salary reduction arrangement’’ means a

written arrangement of an eligible employer under

which—

(i) * * *

(ii) the amount which an employee may elect under

clause (i) for any year is required to be expressed as

a percentage of compensation and may not exceed a

97

total of ø$6,000¿ the applicable dollar amount for any

year,

* * * * * * *

ø(E) COST-OF-LIVING ADJUSTMENT.—The Secretary shall

adjust the $6,000 amount under subparagraph (A)(ii) at

the same time and in the same manner as under section

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

be the calendar quarter ending September 30, 1996, and

any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple

of $500.¿

(E) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT.—

(i) IN GENERAL.—For purposes of subparagraph

(A)(ii), the applicable dollar amount shall be the

amount determined in accordance with the following

table:

For taxable years The applicable

beginning in dollar amount:

calendar year:

2001 ......................................................................................... $7,000

2002 ......................................................................................... $8,000

2003 ......................................................................................... $9,000

2004 or thereafter ................................................................... $10,000.

(ii) COST-OF-LIVING ADJUSTMENT.—In the case of a

year beginning after December 31, 2004, the Secretary

shall adjust the $10,000 amount under clause (i) at the

same time and in the same manner as under section

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

shall be the calendar quarter beginning July 1, 2003,

and any increase under this subparagraph which is

not a multiple of $500 shall be rounded to the next

lower multiple of $500.

* * * * * * *

(6) DEFINITIONS.—For purposes of this subsection—

(A) COMPENSATION.—

(i) * * *

(ii) SELF-EMPLOYED.—In the case of an employee described in subparagraph (B), the term ‘‘compensation’’

means net earnings from self-employment determined

under section 1402(a) without regard to any contribution under this subsection. The preceding sentence

shall be applied as if the term ‘‘trade or business’’ for

purposes of section 1402 included service described in

section 1402(c)(6).

* * * * * * *

(8) COORDINATION WITH MAXIMUM LIMITATION UNDER SUBSECTION (A).—In the case of any simple retirement account,

subsections (a)(1) and (b)(2) shall be applied by substituting

‘‘the sum of the dollar amount in effect under paragraph

(2)(A)(ii) of this subsection and the employer contribution required under subparagraph (A)(ii) or (B)(i) of paragraph (2) of

98

this subsection, whichever is applicable’’ for ‘‘ø$2,000¿ the dollar amount in effect under section 219(b)(1)(A)’’.

* * * * * * *

SEC. 408A. ROTH IRA’S.

(a) * * *

* * * * * * *

(e) QUALIFIED ROLLOVER CONTRIBUTION.—For purposes of this

section, the term ‘‘qualified rollover contribution’’ means a rollover

contribution to a Roth IRA from another such account, or from an

individual retirement plan, but only if such rollover contribution

meets the requirements of section 408(d)(3). Such term includes a

rollover contribution described in section 402A(c)(3)(A). For purposes of section 408(d)(3)(B), there shall be disregarded any qualified rollover contribution from an individual retirement plan (other

than a Roth IRA) to a Roth IRA.

* * * * * * *

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

(a) * * *

* * * * * * *

(p) PROHIBITED ALLOCATIONS OF SECURITIES IN AN S CORPORATION.—

(1) IN GENERAL.—An employee stock ownership plan holding

employer securities consisting of stock in an S corporation shall

provide that no portion of the assets of the plan attributable to

(or allocable in lieu of) such employer securities may, during a

nonallocation year, accrue (or be allocated directly or indirectly

under any plan of the employer meeting the requirements of section 401(a)) for the benefit of any disqualified person.

(2) FAILURE TO MEET REQUIREMENTS.—

(A) IN GENERAL.—If a plan fails to meet the requirements

of paragraph (1), the plan shall be treated as having distributed to any disqualified person the amount allocated to

the account of such person in violation of paragraph (1) at

the time of such allocation.

(B) CROSS REFERENCE.—

For excise tax relating to violations of paragraph (1) and ownership of synthetic equity, see section 4979A.

(3) NONALLOCATION YEAR.—For purposes of this subsection—

(A) IN GENERAL.—The term ‘‘nonallocation year’’ means

any plan year of an employee stock ownership plan if, at

any time during such plan year—

(i) such plan holds employer securities consisting of

stock in an S corporation, and

(ii) disqualified persons own at least 50 percent of

the number of shares of stock in the S corporation.

(B) ATTRIBUTION RULES.—For purposes of subparagraph

(A)—

(i) IN GENERAL.—The rules of section 318(a) shall

apply for purposes of determining ownership, except

that—

99

(I) in applying paragraph (1) thereof, the members of an individual’s family shall include members of the family described in paragraph (4)(D),

and

(II) paragraph (4) thereof shall not apply.

(ii) DEEMED-OWNED SHARES.—Notwithstanding the

employee trust exception in section 318(a)(2)(B)(i), individual shall be treated as owning deemed-owned

shares of the individual.

Solely for purposes of applying paragraph (5), this subparagraph shall be applied after the attribution rules of

paragraph (5) have been applied.

(4) DISQUALIFIED PERSON.—For purposes of this subsection—

(A) IN GENERAL.—The term ‘‘disqualified person’’ means

any person if—

(i) the aggregate number of deemed-owned shares of

such person and the members of such person’s family

is at least 20 percent of the number of deemed-owned

shares of stock in the S corporation, or

(ii) in the case of a person not described in clause (i),

the number of deemed-owned shares of such person is

at least 10 percent of the number of deemed-owned

shares of stock in such corporation.

(B) TREATMENT OF FAMILY MEMBERS.—In the case of a

disqualified person described in subparagraph (A)(i), any

member of such person’s family with deemed-owned shares

shall be treated as a disqualified person if not otherwise

treated as a disqualified person under subparagraph (A).

(C) DEEMED-OWNED SHARES.—

(i) IN GENERAL.—The term ‘‘deemed-owned shares’’

means, with respect to any person—

(I) the stock in the S corporation constituting

employer securities of an employee stock ownership

plan which is allocated to such person under the

plan, and

(II) such person’s share of the stock in such corporation which is held by such plan but which is

not allocated under the plan to participants.

(ii) PERSON’S SHARE OF UNALLOCATED STOCK.—For

purposes of clause (i)(II), a person’s share of

unallocated S corporation stock held by such plan is

the amount of the unallocated stock which would be allocated to such person if the unallocated stock were allocated to all participants in the same proportions as

the most recent stock allocation under the plan.

(D) MEMBER OF FAMILY.—For purposes of this paragraph, the term ‘‘member of the family’’ means, with respect

to any individual—

(i) the spouse of the individual,

(ii) an ancestor or lineal descendant of the individual

or the individual’s spouse,

(iii) a brother or sister of the individual or the individual’s spouse and any lineal descendant of the brother or sister, and

100

(iv) the spouse of any individual described in clause

(ii) or (iii).

A spouse of an individual who is legally separated from

such individual under a decree of divorce or separate maintenance shall not be treated as such individual’s spouse for

purposes of this subparagraph.

(5) TREATMENT OF SYNTHETIC EQUITY.—For purposes of paragraphs (3) and (4), in the case of a person who owns synthetic

equity in the S corporation, except to the extent provided in regulations, the shares of stock in such corporation on which such

synthetic equity is based shall be treated as outstanding stock

in such corporation and deemed-owned shares of such person if

such treatment of synthetic equity of 1 or more such persons results in—

(A) the treatment of any person as a disqualified person,

or

(B) the treatment of any year as a nonallocation year.

For purposes of this paragraph, synthetic equity shall be treated

as owned by a person in the same manner as stock is treated

as owned by a person under the rules of paragraphs (2) and (3)

of section 318(a). If, without regard to this paragraph, a person

is treated as a disqualified person or a year is treated as a nonallocation year, this paragraph shall not be construed to result

in the person or year not being so treated.

(6) DEFINITIONS.—For purposes of this subsection— (A) EMPLOYEE STOCK OWNERSHIP PLAN.—The term ‘‘employee stock ownership plan’’ has the meaning given such

term by section 4975(e)(7).

(B) EMPLOYER SECURITIES.—The term ‘‘employer security’’ has the meaning given such term by section 409(l).

(C) SYNTHETIC EQUITY.—The term ‘‘synthetic equity’’ means any stock option, warrant, restricted stock, deferred

issuance stock right, or similar interest or right that gives

the holder the right to acquire or receive stock of the S corporation in the future. Except to the extent provided in regulations, synthetic equity also includes a stock appreciation

right, phantom stock unit, or similar right to a future cash

payment based on the value of such stock or appreciation

in such value.

(7) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection.

ø(p)¿ (q) CROSS REFERENCES.—

(1) For requirements for allowance of employee plan credit, see

section 48(n).

(2) For assessable penalties for failure to meet requirements of

this section, or for failure to make contributions required with respect to the allowance of an employee plan credit or employee

stock ownership credit, see section 6699.

(3) For requirements for allowance of an employee stock ownership credit, see section 41.

* * * * * * *

Subpart B—Special Rules

* * * * * * *

101

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. 411. MINIMUM VESTING STANDARDS.

(a) GENERAL RULE.—A trust shall not constitute a qualified trust

under section 401(a) unless the plan of which such trust is a part

provides that an employee’s right to his normal retirement benefit

is nonforfeitable upon the attainment of normal retirement age (as

defined in paragraph (8)) and in addition satisfies the requirements

of paragraphs (1), (2), and (11) of this subsection and the requirements of subsection (b)(3), and also satisfies, in the case of a defined benefit plan, the requirements of subsection (b)(1) and, in the

case of a defined contribution plan, the requirements of subsection

(b)(2).

(1) * * *

(2) EMPLOYER CONTRIBUTIONS.—øA plan¿ Except as provided

in paragraph (12), a plan satisfies the requirements of this

paragraph if it satisfies the requirements of subparagraph (A)

or (B).

(A) * * *

(11) RESTRICTIONS ON CERTAIN MANDATORY DISTRIBUTIONS.—

(A) * * *

* * * * * * *

(D) SPECIAL RULE FOR ROLLOVER CONTRIBUTIONS.—A

plan shall not fail to meet the requirements of this paragraph if, under the terms of the plan, the present value of

the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to

rollover contributions (and earnings allocable thereto). For

purposes of this subparagraph, the term ‘‘rollover contributions’’ means any rollover contribution under sections

402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).

* * * * * * *

102

(12) FASTER VESTING FOR MATCHING CONTRIBUTIONS.—In the

case of matching contributions (as defined in section

401(m)(4)(A)), paragraph (2) shall be applied— (A) by substituting ‘‘3 years’’ for ‘‘5 years’’ in subparagraph (A), and

(B) by substituting the following table for the table contained in subparagraph (B):

The nonforfeitable

Years of service: percentage is:

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

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

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

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

6 ...................................................................................................... 100.

(d) SPECIAL RULES.—

(1) * * *

* * * * * * *

(6) ACCRUED BENEFIT NOT TO BE DECREASED BY AMEND- MENT.—

(A) * * *

(B) TREATMENT OF CERTAIN PLAN AMENDMENTS.—For

purposes of subparagraph (A), a plan amendment which

has the effect of— (i) eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in regulations), or

(ii) eliminating an optional form of benefit,

with respect to benefits attributable to service before the

amendment shall be treated as reducing accrued benefits.

In the case of a retirement-type subsidy, the preceding

sentence shall apply only with respect to a participant who

satisfies (either before or after the amendment) the

preamendment conditions for the subsidy. The Secretary

shall by regulations provide that this subparagraph shall

not apply to any plan amendment which reduces or eliminates benefits or subsidies which create significant burdens

or complexities for the plan and plan participants and does

not adversely affect the rights of any participant in a more

than de minimis manner. The Secretary may by regulations provide that this subparagraph shall not apply to a

plan amendment described in clause (ii) (other than a plan

amendment having an effect described in clause (i)).

* * * * * * *

(D) PLAN TRANSFERS.—

(i) IN GENERAL.—A defined contribution plan (in this

subparagraph referred to as the ‘‘transferee plan’’) shall

not be treated as failing to meet the requirements of

this subsection merely because the transferee plan does

not provide some or all of the forms of distribution previously available under another defined contribution

plan (in this subparagraph referred to as the ‘‘transferor plan’’) to the extent that—

(I) the forms of distribution previously available

under the transferor plan applied to the account of

a participant or beneficiary under the transferor

103

plan that was transferred from the transferor plan

to the transferee plan pursuant to a direct transfer

rather than pursuant to a distribution from the

transferor plan,

(II) the terms of both the transferor plan and the

transferee plan authorize the transfer described in

subclause (I),

(III) the transfer described in subclause (I) was

made pursuant to a voluntary election by the participant or beneficiary whose account was transferred to the transferee plan,

(IV) the election described in subclause (III) was

made after the participant or beneficiary received

a notice describing the consequences of making the

election, and

(V) the transferee plan allows the participant or

beneficiary described in subclause (III) to receive

any distribution to which the participant or beneficiary is entitled under the transferee plan in the

form of a single sum distribution.

(ii) EXCEPTION.—Clause (i) shall apply to plan mergers and other transactions having the effect of a direct

transfer, including consolidations of benefits attributable to different employers within a multiple employer plan.

(E) ELIMINATION OF FORM OF DISTRIBUTION.—Except to

the extent provided in regulations, a defined contribution

plan shall not be treated as failing to meet the requirements of this section merely because of the elimination of

a form of distribution previously available thereunder. This

subparagraph shall not apply to the elimination of a form

of distribution with respect to any participant unless— (i) a single sum payment is available to such participant at the same time or times as the form of distribution being eliminated, and

(ii) such single sum payment is based on the same or

greater portion of the participant’s account as the form

of distribution being eliminated.

* * * * * * *

SEC. 412. MINIMUM FUNDING STANDARDS.

(a) * * *

* * * * * * *

(c) SPECIAL RULES.—

(1) * * *

* * * * * * *

(7) FULL-FUNDING LIMITATION.—

(A) IN GENERAL.—For purposes of paragraph (6), the

term ‘‘full-funding limitation’’ means the excess (if any)

of— (i) the lesser of

(I) øthe applicable percentage¿ in the case of

plan years beginning before January 1, 2004, the

applicable percentage of current liability (includVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00103 Fmt 6659 Sfmt 6601 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
104

ing the expected increase in current liability due

to benefits accruing during the plan year), or

* * * * * * *

ø(F) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined in accordance with the following table:

øIn the case of any plan The applicable

year beginning in— percentage is—

1999 or 2000 .................................................................................................... 155

2001 or 2002 .................................................................................................... 160

2003 or 2004 .................................................................................................... 165

2005 and succeeding years ............................................................................. 170¿

(F) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined in accordance with the following table:

In the case of any plan year The applicable

beginning in— percentage is—

2002 ................................................................................................ 165

2003 ................................................................................................ 170.

* * * * * * *

ø(9) ANNUAL VALUATION.—For purposes of this section, a determination of experience gains and losses and a valuation of

the plan’s liability shall be made not less frequently than once

every year, except that such determination shall be made more

frequently to the extent required in particular cases under regulations prescribed by the Secretary.¿

(9) ANNUAL VALUATION.—

(A) IN GENERAL.—For purposes of this section, a determination of experience gains and losses and a valuation of

the plan’s liability shall be made not less frequently than

once every year, except that such determination shall be

made more frequently to the extent required in particular

cases under regulations prescribed by the Secretary.

(B) VALUATION DATE.—

(i) CURRENT YEAR.—Except as provided in clause (ii),

the valuation referred to in subparagraph (A) shall be

made as of a date within the plan year to which the

valuation refers or within one month prior to the beginning of such year.

(ii) ELECTION TO USE PRIOR YEAR VALUATION.—The

valuation referred to in subparagraph (A) may be

made as of a date within the plan year prior to the

year to which the valuation refers if—

(I) an election is in effect under this clause with

respect to the plan, and

(II) as of such date, the value of the assets of the

plan are not less than 125 percent of the plan’s

current liability (as defined in paragraph (7)(B)).

(iii) ADJUSTMENTS.—Information under clause (ii)

shall, in accordance with regulations, be actuarially

adjusted to reflect significant differences in participants.

105

(iv) ELECTION.—An election under clause (ii), once

made, shall be irrevocable without the consent of the

Secretary.

* * * * * * *

SEC. 414. DEFINITIONS AND SPECIAL RULES.

(a) * * *

* * * * * * *

(p) QUALIFIED DOMESTIC RELATIONS ORDER DEFINED.—For purposes of this subsection and section 401(a)(13)—

(1) * * *

* * * * * * *

(10) WAIVER OF CERTAIN DISTRIBUTION REQUIREMENTS.—With

respect to the requirements of subsections (a) and (k) of section

401, section 403(b), øand section 409(d)¿ section 409(d), and

section 457(d), a plan shall not be treated as failing to meet

such requirements solely by reason of payments to an alternative payee pursuant to a qualified domestic relations order.

(11) APPLICATION OF RULES TO øGOVERNMENTAL AND CHURCH

PLANS¿ CERTAIN OTHER PLANS.—For purposes of this title, a

distribution or payment from a governmental plan (as defined

in subsection (d)) or a church plan (as described in subsection

(e)) or an eligible deferred compensation plan (within the meaning of section 457(b)) shall be treated as made pursuant to a

qualified domestic relations order if it is made pursuant to a

domestic relations order which meets the requirement of clause

(i) of paragraph (1)(A).

(12) TAX TREATMENT OF PAYMENTS FROM A SECTION 457

PLAN.—If a distribution or payment from an eligible deferred

compensation plan described in section 457(b) is made pursuant to a qualified domestic relations order, rules similar to the

rules of section 402(e)(1)(A) shall apply to such distribution or

payment.

ø(12)¿ (13) CONSULTATION WITH THE SECRETARY.—In prescribing regulations under this subsection and section

401(a)(13), the Secretary of Labor shall consult with the Secretary.

* * * * * * *

(v) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR

OVER.—

(1) IN GENERAL.—An applicable employer plan shall not be

treated as failing to meet any requirement of this title solely because the plan permits an eligible participant to make additional elective deferrals in any plan year.

(2) LIMITATION ON AMOUNT OF ADDITIONAL DEFERRALS.—A

plan shall not permit additional elective deferrals under paragraph (1) for any year in an amount greater than the lesser of—

(A) $5,000, or

(B) the excess (if any) of—

(i) the participant’s compensation for the year, over

(ii) any other elective deferrals of the participant for

such year which are made without regard to this subsection.

106

(3) TREATMENT OF CONTRIBUTIONS.—In the case of any contribution to a plan under paragraph (1), such contribution shall

not, with respect to the year in which the contribution is

made—

(A) be subject to any otherwise applicable limitation contained in section 402(g), 402(h)(2), 404(a), 404(h),

408(p)(2)(A)(ii), 415, or 457, or

(B) be taken into account in applying such limitations to

other contributions or benefits under such plan or any other

such plan.

(4) APPLICATION OF NONDISCRIMINATION RULES.— (A) IN GENERAL.—An applicable employer plan shall not

be treated as failing to meet the nondiscrimination requirements under section 401(a)(4) with respect to benefits,

rights, and features if the plan allows all eligible participants to make the same election with respect to the additional elective deferrals under this subsection.

(B) AGGREGATION.—For purposes of subparagraph (A),

all plans maintained by employers who are treated as a

single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 plan.

(5) ELIGIBLE PARTICIPANT.—For purposes of this subsection,

the term ‘‘eligible participant’’ means, with respect to any plan

year, a participant in a plan— (A) who has attained the age of 50 before the close of the

plan year, and

(B) with respect to whom no other elective deferrals may

(without regard to this subsection) be made to the plan for

the plan year by reason of the application of any limitation

or other restriction described in paragraph (3) or comparable limitation contained in the terms of the plan.

(6) OTHER DEFINITIONS AND RULES.—For purposes of this

subsection— (A) APPLICABLE EMPLOYER PLAN.—The term ‘‘applicable

employer plan’’ means—

(i) an employees’ trust described in section 401(a)

which is exempt from tax under section 501(a),

(ii) a plan under which amounts are contributed by

an individual’s employer for an annuity contract described in section 403(b),

(iii) an eligible deferred compensation plan under

section 457 of an eligible employer as defined in section

457(e)(1)(A), and

(iv) an arrangement meeting the requirements of section 408 (k) or (p).

(B) ELECTIVE DEFERRAL.—The term ‘‘elective deferral’’

has the meaning given such term by subsection (u)(2)(C).

(C) EXCEPTION FOR SECTION 457 PLANS.—This subsection

shall not apply to an applicable employer plan described in

subparagraph (A)(iii) for any year to which section

457(b)(3) applies.

(D) COST-OF-LIVING ADJUSTMENT.—In the case of a year

beginning after December 31, 2005, the Secretary shall adjust annually the $5,000 amount in paragraph (2)(A) for

increases in the cost-of-living at the same time and in the

107

same manner as adjustments under section 415(d); except

that the base period taken into account shall be the calendar quarter beginning July 1, 2004, and any increase

under this subparagraph which is not a multiple of $500

shall be rounded to the next lower multiple of $500.

SEC. 415. LIMITATIONS ON BENEFITS AND CONTRIBUTIONS UNDER

QUALIFIED PLANS.

(a) GENERAL RULE.—

(1) * * *

(2) SECTION APPLIES TO CERTAIN ANNUITIES AND ACCOUNTS.—

In the case of—

(A) * * *

* * * * * * *

such a contract, plan, or pension shall not be considered to be

described in section 403(a), 403(b), or 408(k), as the case may

be, unless it satisfies the requirements of subparagraph (A) or

subparagraph (B) of paragraph (1), whichever is appropriate,

and has not been disqualified under subsection (g). In the case

of an annuity contract described in section 403(b), the preceding sentence shall apply only to the portion of the annuity

contract which exceeds the limitation of subsection (b) or the

limitation of subsection (c), whichever is appropriateø, and the

amount of the contribution for such portion shall reduce the

exclusion allowance as provided in section 403(b)(2)¿.

(b) LIMITATION FOR DEFINED BENEFIT PLANS.—

(1) IN GENERAL.—Benefits with respect to a participant exceed the limitation of this subsection if, when expressed as an

annual benefit (within the meaning of paragraph (2)), such annual benefit is greater than the lesser of—

(A) ø$90,000¿ $160,000, or

* * * * * * *

(2) ANNUAL BENEFIT.—

(A) IN GENERAL.—For purposes of paragraph (1), the

term ‘‘annual benefit’’ means a benefit payable annually in

the form of a straight life annuity (with no ancillary benefits) under a plan to which employees do not contribute

and under which no rollover contributions (as defined in

sections 402(c), 403(a)(4), øand 408(d)(3)¿ 403(b)(8),

408(d)(3), and 457(e)(16)) are made.

(B) ADJUSTMENT FOR CERTAIN OTHER FORMS OF BENEFIT.—If the benefit under the plan is payable in any form

other than the form described in subparagraph (A), or if

the employees contribute to the plan or make rollover contributions (as defined in sections 402(c), 403(a)(4), øand

408(d)(3)¿ 403(b)(8), 408(d)(3), and 457(e)(16)), the determinations as to whether the limitation described in paragraph (1) has been satisfied shall be made, in accordance

with regulations prescribed by the Secretary by adjusting

such benefit so that it is equivalent to the benefit described in subparagraph (A). For purposes of this subparagraph, any ancillary benefit which is not directly related to

retirement income benefits shall not be taken into account;

and that portion of any joint and survivor annuity which

108

constitutes a qualified joint and survivor annuity (as defined in section 417 shall not be taken into account.

(C) ADJUSTMENT TO ø$90,000¿ $160,000 LIMIT WHERE BEN- EFIT BEGINS BEFORE øTHE SOCIAL SECURITY RETIREMENT

AGE¿ AGE 62.—If the retirement income benefit under the

plan begins before øthe social security retirement age¿ age

62, the determination as to whether the ø$90,000¿

$160,000 limitation set forth in paragraph (1)(A) has been

satisfied shall be made, in accordance with regulations

prescribed by the Secretary, by reducing the limitation of

paragraph (1)(A) so that such limitation (as so reduced)

equals an annual benefit (beginning when such retirement

income benefit begins) which is equivalent to a ø$90,000¿

$160,000 annual benefit beginning at øthe social security

retirement age¿ age 62. øThe reduction under this subparagraph shall be made in such manner as the Secretary

may prescribe which is consistent with the reduction for

old-age insurance benefits commencing before the social

security retirement age under the Social Security Act.¿

(D) ADJUSTMENT TO ø$90,000¿ $160,000 LIMIT WHERE BEN- EFIT BEGINS AFTER øTHE SOCIAL SECURITY RETIREMENT

AGE¿ AGE 65.—If the retirement income benefit under the

plan begins after øthe social security retirement age¿ age

65, the determination as to whether the ø$90,000¿

$160,000 limitation set forth in paragraph (1)(A) has been

satisfied shall be made, in accordance with regulations

prescribed by the Secretary, by increasing the limitation of

paragraph (1)(A) so that such limitation (as so increased)

equals an annual benefit (beginning when such retirement

income benefit begins) which is equivalent to a ø$90,000¿

$160,000 annual benefit beginning at øthe social security

retirement age¿ age 65.

* * * * * * *

ø(F) PLANS MAINTAINED BY GOVERNMENTS AND TAX-EX- EMPT ORGANIZATIONS.—In the case of a governmental plan

(within the meaning of section 414(d)), a plan maintained

by an organization (other than a governmental unit) exempt from tax under this subtitle, or a qualified merchant

marine plan— ø(i) subparagraph (C) shall be applied— ø(I) by substituting ‘‘age 62’’ for ‘‘social security

retirement age’’ each place it appears, and

ø(II) as if the last sentence thereof read as follows: ‘‘The reduction under this subparagraph

shall not reduce the limitation of paragraph (1)(A)

below (i) $75,000 if the benefit begins at or after

age 55, or (ii) if the benefit begins before age 55,

the equivalent of the $75,000 limitation for age

55.’’, and

ø(ii) subparagraph (D) shall be applied by substituting ‘‘age 65’’ for ‘‘social security retirement age’’ each place it appears.

For purposes of this subparagraph, the term ‘‘qualified

merchant marine plan’’ means a plan in existence on January 1, 1986, the participants in which are merchant maVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00108 Fmt 6659 Sfmt 6602 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
109

rine officers holding licenses issued by the Secretary of

Transportation under title 46, United States Code.¿

* * * * * * *

(7) BENEFITS UNDER CERTAIN COLLECTIVELY BARGAINED

PLANS.—For a year, the limitation referred to in paragraph

(1)(B) shall not apply to benefits with respect to a participant

under a defined benefit plan (other than a multiemployer

plan)—

(A) * * *

* * * * * * *

This paragraph shall not apply to a participant whose compensation for any 3 years during the 10-year period immediately preceding the year in which he separates from service

exceeded the average compensation for such 3 years of all participants in such plan. This paragraph shall not apply to a participant for any period for which he is a participant under another plan to which this section applies which is maintained by

an employer maintaining this plan. For any year for which the

paragraph applies to benefits with respect to a participant,

paragraph (1)(A) and subsection (d)(1)(A) shall be applied with

respect to such participant by substituting øthe greater of

$68,212 or one-half the amount otherwise applicable for such

year under paragraph (1)(A) for ‘‘$90,000’’¿ one-half the

amount otherwise applicable for such year under paragraph

(1)(A) for ‘‘$160,000’’.

* * * * * * *

ø(9) SPECIAL RULE FOR COMMERCIAL AIRLINE PILOTS.—

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

(B), in the case of any participant who is a commercial airline pilot—

ø(i) the rule of paragraph (2)(F)(i)(II) shall apply,

and

ø(ii) if, as of the time of the participant’s retirement,

regulations prescribed by the Federal Aviation Administration require an individual to separate from service

as a commercial airline pilot after attaining any age

occurring on or after age 60 and before the social security retirement age, paragraph (2)(C) (after application

of clause (i)) shall be applied by substituting such age

for the social security retirement age.

ø(B) INDIVIDUALS WHO SEPARATE FROM SERVICE BEFORE

AGE 60.—If a participant described in subparagraph (A)

separates from service before age 60, the rules of paragraph (2)(F) shall apply.¿

(9) SPECIAL RULE FOR COMMERCIAL AIRLINE PILOTS.—

(A) IN GENERAL.—Except as provided in subparagraph (B), in the case of any participant who is a commercial airline pilot, if, as of the time of the participant’s retirement, regulations prescribed by the Federal

Aviation Administration require an individual to separate from service as a commercial airline pilot after attaining any age occurring on or after age 60 and before

110

age 62, paragraph (2)(C) shall be applied by substituting such age for age 62.

(B) INDIVIDUALS WHO SEPARATE FROM SERVICE BE- FORE AGE 60.—If a participant described in subparagraph (A) separates from service before age 60, the

rules of paragraph (2)(C) shall apply.

(10) SPECIAL RULE FOR STATE AND LOCAL GOVERNMENT

PLANS.—

(A) * * *

* * * * * * *

(C) ELECTION.—

(i) IN GENERAL—.—This paragraph shall not apply

to any plan unless each employer maintaining the

plan elects before the close of the 1st plan year beginning after December 31, 1989, to have this subsection

(other than paragraph (2)(G)) øapplied without regard

to paragraph (2)(F)¿.

ø(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL PLANS.—

In the case of a governmental plan (as defined in section

414(d), subparagraph (B) of paragraph (1) shall not apply.¿

(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL AND MULTIEMPLOYER PLANS.—In the case of a governmental plan (as defined in section 414(d)) or a multiemployer plan (as defined in

section 414(f)), subparagraph (B) of paragraph (1) shall not

apply.

(c) LIMITATION FOR DEFINED CONTRIBUTION PLANS.—

(1) IN GENERAL.—Contributions and other additions with respect to a participant exceed the limitation of this subsection

if, when expressed as an annual addition (within the meaning

of paragraph (2)) to the participant’s account, such annual addition is greater than the lesser of—

(A) ø$30,000¿ $40,000, or

(B) ø25¿ 100 percent of the participant’s compensation.

(2) ANNUAL ADDITION.—For purposes of paragraph (1), the

term ‘‘annual addition’’ means the sum for any year of—

(A) * * *

* * * * * * *

For the purposes of this paragraph, employee contributions

under subparagraph (B) are determined without regard to any

rollover contributions (as defined in sections 402(c), 403(a)(4),

403(b)(8), øand 408(d)(3)¿ 408(d)(3), and 457(e)(16)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section

408(k)(6). Subparagraph (B) of paragraph (1) shall not apply to

any contribution for medical benefits (within the meaning of

section 419A(f)(2)) after separation from service which is treated as an annual addition.

(3) PARTICIPANT’S COMPENSATION.—For purposes of paragraph (1)— (A) * * *

* * * * * * *

(E) ANNUITY CONTRACTS.—In the case of an annuity contract described in section 403(b), the term ‘‘participant’s

111

compensation’’ means the participant’s includible compensation determined under section 403(b)(3).

ø(4) SPECIAL ELECTION FOR SECTION 403(b) CONTRACTS PUR- CHASED BY EDUCATIONAL ORGANIZATIONS, HOSPITALS, HOME

HEALTH SERVICE AGENCIES, AND CERTAIN CHURCHES, ETC.— ø(A) In the case of amounts contributed for an annuity

contract described in section 403(b) for the year in which

occurs a participant’s separation from the service with an

educational organization, a hospital, a home health service

agency, a health and welfare service agency, or a church,

convention or association of churches, or an organization

described in section 414(e)(3)(B)(ii), at the election of the

participant there is substituted for the amount specified in

paragraph (1)(B) the amount of the exclusion allowance

which would be determined under section 403(b)(2) (without regard to this section) for the participant’s taxable year

in which such separation occurs if the participant’s years

of service were computed only by taking into account his

service for the employer (as determined for purposes of

section 403(b)(2)) during the period of years (not exceeding

ten) ending on the date of such separation.

ø(B) In the case of amounts contributed for an annuity

contract described in section 403(b) for any year in the

case of a participant who is an employee of an educational

organization, a hospital, a home health service agency, a

health and welfare service agency, or a church, convention

or association of churches, or an organization described in

section 414(e)(3)(B)(ii), at the election of the participant

there is substituted for the amount specified in paragraph

(1)(B) the least of— ø(i) 25 percent of the participant’s includible compensation (as defined in section 403(b)(3)) plus $4,000,

ø(ii) the amount of the exclusion allowance determined for the year under section 403(b)(2), or

ø(iii) $15,000.

ø(C) In the case of amounts contributed for an annuity

contract described in section 403(b) for any year for a participant who is an employee of an educational organization, a hospital, a home health service agency, a health

and welfare service agency, or a church, convention or association of churches, or an organization described in section 414(e)(3)(B)(ii), at the election of the participant the

provisions of section 403(b)(2)(A) shall not apply.

ø(D)(i) The provisions of this paragraph apply only if the

participant elects its application at the time and in the

manner provided under regulations prescribed by the Secretary. Not more than one election may be made under

subparagraph (A) by any participant. A participant who

elects to have the provisions of subparagraph (A), (B), or

(C) of this paragraph apply to him may not elect to have

any other subparagraph of this paragraph apply to him.

Any election made under this paragraph is irrevocable.

ø(ii) For purposes of this paragraph the term ‘‘educational organization’’ means an educational organization described in section 170(b)(1)(A)(ii).

112

ø(iii) For purposes of this paragraph the term ‘‘home

health service agency’’ means an organization described in subsection 501(c)(3) which is exempt from

tax under section 501(a) and which has been determined by the Secretary of Health, Education, and Welfare to be a home health agency (as defined in section

1861(o) of the Social Security Act).

ø(iv) For purposes of this paragraph, the terms ‘‘church’’ and ‘‘convention or association of churches’’ have the same meaning as when used in section

414(e).¿

* * * * * * *

ø(7) CERTAIN CONTRIBUTIONS BY CHURCH PLANS NOT TREATED

AS EXCEEDING LIMITS.— ø(A) ALTERNATIVE EXCLUSION ALLOWANCE.—Any contribution or addition with respect to any participant, when

expressed as an annual addition, which is allocable to the

application of section 403(b)(2)(D) to such participant for

such year, shall be treated as not exceeding the limitations

of paragraph (1).

ø(B) CONTRIBUTIONS NOT IN EXCESS OF $40,000 ($10,000

PER YEAR).— ø(i) IN GENERAL.—Notwithstanding any other provision of this subsection, at the election of a participant

who is an employee of a church, a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), contributions and

other additions for an annuity contract or retirement

income account described in section 403(b) with respect to such participant, when expressed as an annual addition to such participant’s account, shall be

treated as not exceeding the limitation of paragraph

(1) if such annual addition is not in excess of $10,000.

ø(ii) $40,000 AGGREGATE LIMITATION.—The total

amount of additions with respect to any participant

which may be taken into account for purposes of this

subparagraph for all years may not exceed $40,000.

ø(iii) NO ELECTION IF PARAGRAPH (4)(A) ELECTION

MADE.—No election may be made under this subparagraph for any year if an election is made under paragraph (4)(A) for such year.

ø(C) ANNUAL ADDITION.—For purposes of this paragraph,

the term ‘‘annual addition’’ has the meaning given such

term by paragraph (2).¿

(7) CERTAIN CONTRIBUTIONS BY CHURCH PLANS NOT TREATED

AS EXCEEDING LIMIT.— (A) IN GENERAL.—Notwithstanding any other provision of

this subsection, at the election of a participant who is an

employee of a church or a convention or association of

churches, including an organization described in section

414(e)(3)(B)(ii), contributions and other additions for an

annuity contract or retirement income account described in

section 403(b) with respect to such participant, when expressed as an annual addition to such participant’s account, shall be treated as not exceeding the limitation of

113

paragraph (1) if such annual addition is not in excess of

$10,000.

(B) $40,000 AGGREGATE LIMITATION.—The total amount

of additions with respect to any participant which may be

taken into account for purposes of this subparagraph for all

years may not exceed $40,000.

(C) ANNUAL ADDITION.—For purposes of this paragraph,

the term ‘‘annual addition’’ has the meaning given such

term by paragraph (2).

(d) COST-OF-LIVING ADJUSTMENTS.— (1) IN GENERAL.—The Secretary shall adjust annually— (A) the ø$90,000¿ $160,000 amount in subsection

(b)(1)(A),

* * * * * * *

(C) the ø$30,000¿ $40,000 amount in subsection

(c)(1)(A),for increases in the cost-of-living in accordance

with regulations prescribed by the Secretary.

* * * * * * *

(3) BASE PERIOD.—For purposes of paragraph (2)—

(A) ø$90,000¿ $160,000 AMOUNT.—The base period

taken into account for purposes of paragraph (1)(A) is the

calendar quarter beginning øOctober 1, 1986¿ July 1,

2000.

* * * * * * *

(D) ø$30,000¿ $40,000 AMOUNT.—The base period taken

into account for purposes of paragraph (1)(C) is the calendar quarter beginning øOctober 1, 1993¿ July 1, 2000.

ø(4) ROUNDING.—Any increase under subparagraph (A) or

(C) of paragraph (1) which is not a multiple of $5,000 shall be

rounded to the next lowest multiple of $5,000.¿

(4) ROUNDING.—

(A) $160,000 AMOUNT.—Any increase under subparagraph (A) of paragraph (1) which is not a multiple of

$5,000 shall be rounded to the next lowest multiple of

$5,000.

(B) $40,000 AMOUNT.—Any increase under subparagraph

(C) of paragraph (1) which is not a multiple of $1,000 shall

be rounded to the next lowest multiple of $1,000.

* * * * * * *

(f) COMBINING OF PLANS.—

(1) * * *

* * * * * * *

(3) EXCEPTION FOR MULTIEMPLOYER PLANS.—Notwithstanding paragraph (1) and subsection (g), a multiemployer

plan (as defined in section 414(f)) shall not be combined or aggregated with any other plan maintained by an employer for

purposes of applying the limitations established in this section,

except that such plan shall be combined or aggregated with another plan which is not such a multiemployer plan solely for

purposes of determining whether such other plan meets the requirements of subsections (b)(1)(A) and (c).

114

(g) AGGREGATION OF PLANS.—øThe Secretary¿ Except as provided

in subsection (f)(3), the Secretary, in applying the provisions of this

section to benefits or contributions under more than one plan maintained by the same employer, and to any trusts, contracts, accounts, or bonds referred to in subsection (a)(2), with respect to

which the participant has the control required under section 414(b)

or (c), as modified by subsection (h), shall, under regulations prescribed by the Secretary, disqualify one or more trusts, plans, contracts, accounts, or bonds, or any combination thereof until such

benefits or contributions do not exceed the limitations contained in

this section. In addition to taking into account such other factors

as may be necessary to carry out the purposes of subsection (f), the

regulations prescribed under this paragraph shall provide that no

plan which has been terminated shall be disqualified until all other

trusts, plans, contracts, accounts, or bonds have been disqualified.

* * * * * * *

(k) SPECIAL RULES.—

(1) * * *

* * * * * * *

(4) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—For purposes of this section, any annuity contract described in section

403(b) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under

subsection (b) or (c) of section 414 (as modified by subsection

(h)). For purposes of this section, any contribution by an employer to a simplified employee pension plan for an individual

for a taxable year shall be treated as an employer contribution

to a defined contribution plan for such individual for such year.

SEC. 416. SPECIAL RULES FOR TOP-HEAVY PLANS.

(a) * * *

* * * * * * *

(c) PLAN MUST PROVIDE MINIMUM BENEFITS.—

(1) DEFINED BENEFIT PLANS.—

(A) * * *

* * * * * * *

(C) YEARS OF SERVICE.—For purposes of this paragraph—

(i) IN GENERAL.—Except as provided in øclause (ii)¿

clause (ii) or (iii), years of service shall be determined

under the rules of paragraphs (4), (5), and (6) of section 411(a).

* * * * * * *

(iii) EXCEPTION FOR FROZEN PLAN.—For purposes of

determining an employee’s years of service with the employer, any service with the employer shall be disregarded to the extent that such service occurs during

a plan year when the plan benefits (within the meaning of section 410(b)) no key employee or former key

employee.

(2) DEFINED CONTRIBUTION PLANS.—

115

(A) IN GENERAL.—A defined contribution plan meets the

requirements of the subsection if the employer contribution for the year for each participant who is a non-key employee is not less than 3 percent of such participant’s compensation (within the meaning of section 415). Employer

matching contributions (as defined in section 401(m)(4)(A))

shall be taken into account for purposes of this subparagraph.

* * * * * * *

(g) TOP-HEAVY PLAN DEFINED.—For purposes of this section—

(1) * * *

* * * * * * *

ø(3) DISTRIBUTIONS DURING LAST 5 YEARS TAKEN INTO ACCOUNT.—For purposes of determining—

ø(A) the present value of the cumulative accrued benefit

for any employee, or

ø(B) the amount of the account of any employee,such

present value or amount shall be increased by the aggregate distributions made with respect to such employee

under the plan during the 5-year period ending on the determination date. The preceding sentence shall also apply

to distributions under a terminated plan which if it had

not been terminated would have been required to be included in an aggregation group.¿

(3) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION DATE TAKEN INTO ACCOUNT.—

(A) IN GENERAL.—For purposes of determining—

(i) the present value of the cumulative accrued benefit for any employee, or

(ii) the amount of the account of any employee,

such present value or amount shall be increased by the aggregate distributions made with respect to such employee

under the plan during the 1-year period ending on the determination date. The preceding sentence shall also apply

to distributions under a terminated plan which if it had

not been terminated would have been required to be included in an aggregation group.

(B) 5-YEAR PERIOD IN CASE OF IN-SERVICE DISTRIBUTION.—In the case of any distribution made for a reason

other than separation from service, death, or disability,

subparagraph (A) shall be applied by substituting ‘‘5-year

period’’ for ‘‘1-year period’’.

(4) OTHER SPECIAL RULES.—For purposes of this subsection—

(A) * * *

* * * * * * *

(E) BENEFITS NOT TAKEN INTO ACCOUNT IF EMPLOYEE

NOT EMPLOYED FOR øLAST 5 YEARS¿ LAST YEAR BEFORE DETERMINATION DATE.—If any individual has not performed

services for the employer maintaining the plan at any time

during the ø5¿ 1-year period ending on the determination

date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account.

* * * * * * *

116

(H) CASH OR DEFERRED ARRANGEMENTS USING ALTERNATIVE METHODS OF MEETING NONDISCRIMINATION REQUIREMENTS.—The term ‘‘top-heavy plan’’ shall not include

a plan which consists solely of—

(i) a cash or deferred arrangement which meets the

requirements of section 401(k)(12), and

(ii) matching contributions with respect to which the

requirements of section 401(m)(11) are met.

If, but for this subparagraph, a plan would be treated as

a top-heavy plan because it is a member of an aggregation

group which is a top-heavy group, contributions under the

plan may be taken into account in determining whether

any other plan in the group meets the requirements of subsection (c)(2).

* * * * * * *

(i) DEFINITIONS.—For purposes of this section—

(1) KEY EMPLOYEE.—

(A) IN GENERAL.—The term ‘‘key employee’’ means an

employee who, at any time during the plan year øor any

of the 4 preceding plan years¿, is—

ø(i) an officer of the employer having an annual

compensation greater than 50 percent of the amount

in effect under section 415(b)(1)(A) for any such plan

year,

ø(ii) 1 of the 10 employees having annual compensation from the employer of more than the limitation in

effect under section 415(c)(1)(A) and owning (or considered as owning within the meaning of section 318 the

largest interests in the employer,¿

(i) an officer of the employer having an annual compensation greater than $150,000,

ø(iii)¿ (ii) a 5-percent owner of the employer, or

ø(iv)¿ (iii) a 1-percent owner of the employer having

an annual compensation from the employer of more

than $150,000.

For purposes of clause (i), no more than 50 employees (or,

if lesser, the greater of 3 or 10 percent of the employees)

shall be treated as officers. øFor purposes of clause (ii), if

2 employees have the same interest in the employer, the

employee having greater annual compensation from the

employer shall be treated as having a larger interest.¿

Such term shall not include any officer or employee of an

entity referred to in section 414(d) (relating to governmental plans). For purposes of determining the number of

officers taken into account under clause (i), employees described in section 414(q)(5) shall be excluded.

(B) PERCENTAGE OWNERS.—

(i) * * *

* * * * * * *

(iii) CONSTRUCTIVE OWNERSHIP RULES.—For purposes of this subparagraph øand subparagraph

(A)(ii)¿—

117

(I) * * *

* * * * * * *

(iv) FAMILY ATTRIBUTION DISREGARDED.—Solely for

purposes of applying this paragraph (and not for purposes of any provision of this title which incorporates

by reference the definition of a key employee or 5-percent owner under this paragraph), section 318 shall be

applied without regard to subsection (a)(1) thereof in

determining whether any person is a 5-percent owner.

* * * * * * *

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 ANNITY.— (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 ø90¿ 180-day period ending on the annuity starting date, or

* * * * * * *

Subchapter E—Accounting Periods and Methods

of Accounting

* * * * * * *

PART II—METHODS OF ACCOUNTING

* * * * * * *

Subpart B—Taxable Year for Which Items of Gross Income

Included

* * * * * * *

SEC. 457. DEFERRED COMPENSATION PLANS OF STATE AND LOCAL

GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

ø(a) YEAR OF INCLUSION IN GROSS INCOME.—In the case of a participant in an eligible deferred compensation plan, any amount of

compensation deferred under the plan, and any income attributable

to the amounts so deferred, shall be includible in gross income only

for the taxable year in which such compensation or other income

is paid or otherwise made available to the participant or other beneficiary.¿

(a) YEAR OF INCLUSION IN GROSS INCOME.—

(1) IN GENERAL.—Any amount of compensation deferred

under an eligible deferred compensation plan, and any income

attributable to the amounts so deferred, shall be includible in

gross income only for the taxable year in which such compensation or other income—

118

(A) is paid to the participant or other beneficiary, in the

case of a plan of an eligible employer described in subsection (e)(1)(A), and

(B) is paid or otherwise made available to the participant

or other beneficiary, in the case of a plan of an eligible employer described in subsection (e)(1)(B).

(2) SPECIAL RULE FOR ROLLOVER AMOUNTS.—To the extent

provided in section 72(t)(9), section 72(t) shall apply to any

amount includible in gross income under this subsection.

(b) ELIGIBLE DEFERRED COMPENSATION PLAN DEFINED.—For purposes of this section, the term ‘‘eligible deferred compensation plan’’ means a plan established and maintained by an eligible employer— (1) in which only individuals who perform service for the employer may be participants,

(2) which provides that (except as provided in paragraph (3))

the maximum amount which may be deferred under the plan

for the taxable year (other than rollover amounts) shall not exceed the lesser of— (A) ø$7,500¿ the applicable dollar amount, or

(B) ø331⁄3¿ 100 percent of the participant’s includible

compensation,

(3) which may provide that, for 1 or more of the participant’s

last 3 taxable years ending before he attains normal retirement age under the plan, the ceiling set forth in paragraph (2)

shall be the lesser of— (A) ø$15,000¿ twice the dollar amount in effect under

subsection (b)(2)(A), or

* * * * * * *

ø(c) INDIVIDUALS WHO ARE PARTICIPANTS IN MORE THAN 1

PLAN.—

ø(1) IN GENERAL.—The maximum amount of the compensation of any one individual which may be deferred under subsection (a) during any taxable year shall not exceed $7,500 (as

modified by any adjustment provided under subsection (b)(3)).

ø(2) COORDINATION WITH CERTAIN OTHER DEFERRALS.—In applying paragraph (1) of this subsection— ø(A) any amount excluded from gross income under section 403(b) for the taxable year, and

ø(B) any amount— ø(i) excluded from gross income under section

402(e)(3) or section 402(h)(1)(B) or (k) for the taxable

year, or

ø(ii) with respect to which a deduction is allowable

by reason of a contribution to an organization described in section 501(c)(18) for the taxable year,

shall be treated as an amount deferred under subsection (a).

In applying section 402(g)(8)(A)(iii) or 403(b)(2)(A)(ii), an

amount deferred under subsection (a) for any year of service

shall be taken into account as if described in section

402(g)(3)(C) or 403(b)(2)(A)(ii), respectively. Subparagraph (B)

shall not apply in the case of a participant in a rural cooperative plan (as defined in section 401(k)(7)).¿

(c) LIMITATION.—The maximum amount of the compensation of

any one individual which may be deferred under subsection (a) during any taxable year shall not exceed the amount in effect under

119

subsection (b)(2)(A) (as modified by any adjustment provided under

subsection (b)(3)).

(d) DISTRIBUTION REQUIREMENTS.—

(1) IN GENERAL.—For purposes of subsection (b)(5), a plan

meets the distribution requirements of this subsection if—

(A) under the plan amounts will not be made available

to participants or beneficiaries earlier than—

(i) the calendar year in which the participant attains

age 701⁄2,

(ii) when the participant øis separated from service¿

has a severance from employment with the employer,

or

(iii) when the participant is faced with an unforeseeable emergency (determined in the manner prescribed

by the Secretary in regulations), øand¿

(B) the plan meets the minimum distribution requirements of paragraph (2)ø.¿, and

(C) in the case of a plan maintained by an employer described in subsection (e)(1)(A), the plan meets requirements

similar to the requirements of section 401(a)(31).

Any amount transferred in a direct trustee-to-trustee transfer in

accordance with section 401(a)(31) shall not be includible in

gross income for the taxable year of transfer.

ø(2) MINIMUM DISTRIBUTION REQUIREMENTS.—A plan meets

the minimum distribution requirements of this paragraph if

such plan meets the requirements of subparagraphs (A), (B),

and (C):

ø(A) APPLICATION OF SECTION 401(a)(9).—A plan meets

the requirements of this subparagraph if the plan meets

the requirements of section 401(a)(9).

ø(B) ADDITIONAL DISTRIBUTION REQUIREMENTS.—A plan

meets the requirements of this subparagraph if—

ø(i) in the case of a distribution beginning before the

death of the participant, such distribution will be

made in a form under which—

ø(I) the amounts payable with respect to the

participant will be paid at times specified by the

Secretary which are not later than the time determined under section 401(a)(9)(G) (relating to incidental death benefits), and

ø(II) any amount not distributed to the participant during his life will be distributed after the

death of the participant at least as rapidly as

under the method of distributions being used

under subclause (I) as of the date of his death, or

ø(ii) in the case of a distribution which does not

begin before the death of the participant, the entire

amount payable with respect to the participant will be

paid during a period not to exceed 15 years (or the life

expectancy of the surviving spouse if such spouse is

the beneficiary).

ø(C) NONINCREASING BENEFITS.—A plan meets the requirements of this subparagraph if any distribution payable over a period of more than 1 year can only be made

120

in substantially nonincreasing amounts (paid not less frequently than annually).¿

(2) MINIMUM DISTRIBUTION REQUIREMENTS.—A plan meets

the minimum distribution requirements of this paragraph if

such plan meets the requirements of section 401(a)(9).

(3) SPECIAL RULE FOR GOVERNMENT PLAN.—An eligible deferred compensation plan of an employer described in subsection (e)(1)(A) shall not be treated as failing to meet the requirements of this subsection solely by reason of making a distribution described in subsection (e)(9)(A).

(e) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of

this section— (1) * * *

* * * * * * *

ø(9) BENEFITS NOT TREATED AS MADE AVAILABLE BY REASON

OF CERTAIN ELECTIONS, ETC.—¿

(9) BENEFITS OF TAX EXEMPT ORGANIZATION PLANS NOT

TREATED AS MADE AVAILABLE BY REASON OF CERTAIN ELEC- TIONS, ETC.—In the case of an eligible deferred compensation

plan of an employer described in subsection (e)(1)(B)— (A) TOTAL AMOUNT PAYABLE IS DOLLAR LIMIT OR LESS.— The total amount payable to a participant under the plan

shall not be treated as made available merely because the

participant may elect to receive such amount (or the plan

may distribute such amount without the participant’s consent) if—

(i) øsuch amount¿ the portion of such amount which

is not attributable to rollover contributions (as defined

in section 411(a)(11)(D)) does not exceed the dollar

limit under section 411(a)(11)(A), and

* * * * * * *

ø(15) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DEFERRAL

AMOUNT.—The Secretary shall adjust the $7,500 amount specified in subsections (b)(2) and (c)(1) at the same time and in the

same manner as under section 415(d), except that the base period shall be the calendar quarter ending September 30, 1994,

and any increase under this paragraph which is not a multiple

of $500 shall be rounded to the next lowest multiple of $500.¿

(15) APPLICABLE DOLLAR AMOUNT.—

(A) IN GENERAL.—The applicable dollar amount shall be

the amount determined in accordance with the following

table:

For taxable years The applicable

beginning in dollar amount:

calendar year:

2001 ................................................................................................ $11,000

2002 ................................................................................................ $12,000

2003 ................................................................................................ $13,000

2004 ................................................................................................ $14,000

2005 or thereafter ........................................................................... $15,000.

(B) COST-OF-LIVING ADJUSTMENTS.—In the case of taxable years beginning after December 31, 2005, the Secretary

shall adjust the $15,000 amount under subparagraph (A)

at the same time and in the same manner as under section

415(d), except that the base period shall be the calendar

121

quarter beginning July 1, 2004, and any increase under

this paragraph which is not a multiple of $500 shall be

rounded to the next lowest multiple of $500.

(16) ROLLOVER AMOUNTS.— (A) GENERAL RULE.—In the case of an eligible deferred

compensation plan established and maintained by an employer described in subsection (e)(1)(A), if— (i) any portion of the balance to the credit of an employee in such plan is paid to such employee in an eligible rollover distribution (within the meaning of section 402(c)(4) without regard to subparagraph (C)

thereof),

(ii) the employee transfers any portion of the property

such employee receives in such distribution to an eligible retirement plan described in section 402(c)(8)(B),

and

(iii) in the case of a distribution of property other

than money, the amount so transferred consists of the

property distributed,

then such distribution (to the extent so transferred) shall

not be includible in gross income for the taxable year in

which paid.

(B) CERTAIN RULES MADE APPLICABLE.—The rules of

paragraphs (2) through (7) (other than paragraph (4)(C))

and (9) of section 402(c) and section 402(f) shall apply for

purposes of subparagraph (A).

(C) REPORTING.—Rollovers under this paragraph shall be

reported to the Secretary in the same manner as rollovers

from qualified retirement plans (as defined in section

4974(c)).

(17) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE CREDIT.—No amount shall be includible in gross

income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) if

such transfer is— (A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or

(B) a repayment to which section 415 does not apply by

reason of subsection (k)(3) thereof.

* * * * * * *

Subchapter F—Exempt Organizations

* * * * * * *

PART I—GENERAL RULE

* * * * * * *

SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN

TRUSTS, ETC.

(a) * * *

* * * * * * *

(c) LIST OF EXEMPT ORGANIZATIONS.—The following organizations

are referred to in subsection (a):

122

(1) * * *

* * * * * * *

(18) A trust or trusts created before June 25, 1959, forming

part of a plan providing for the payment of benefits under a

pension plan funded only by contributions of employees, if—

(A) * * *

* * * * * * *

(D) in the case of a plan under which an employee may

designate certain contributions as deductible—

(i) * * *

* * * * * * *

(iii) such contributions are treated as elective deferrals for purposes of section 402(g) ø(other than paragraph (4) thereof)¿, and

* * * * * * *

SEC. 505. ADDITIONAL REQUIREMENTS FOR ORGANIZATIONS DESCRIBED IN PARAGRAPH (9), (17), OR (20) OF SECTION

501(c).

(a) * * *

(b) NONDISCRIMINATION REQUIREMENTS.—

(1) * * *

* * * * * * *

(7) COMPENSATION LIMIT.—A plan shall not be treated as

meeting the requirements of this subsection unless under the

plan the annual compensation of each employee taken into account for any year does not exceed ø$150,000¿ $200,000. The

Secretary shall adjust the ø$150,000¿ $200,000 amount at the

same time, and by the same amount, as any adjustment under

section 401(a)(17)(B). This paragraph shall not apply in determining whether the requirements of section 79(d) are met.

* * * * * * *

Subchapter J—Estates, Trusts, Beneficiaries, and

Decedents

* * * * * * *

PART I—ESTATES, TRUSTS, AND BENEFICIARIES

* * * * * * *

Subpart C—Estates and Trusts Which May Accumulate

Income or Which Distribute Corpus

* * * * * * *

SEC. 664. CHARITABLE REMAINDER TRUSTS.

(a) * * *

* * * * * * *

(g) QUALIFIED GRATUITOUS TRANSFER OF QUALIFIED EMPLOYER

SECURITIES.—

123

(1) * * *

* * * * * * *

(3) PLAN REQUIREMENTS.—A plan contains the provisions required by this paragraph if such plan provides that—

(A) * * *

* * * * * * *

(E) such securities are held in a suspense account under

the plan to be allocated each year, up to the ølimitations

under section 415(c)¿ applicable limitation under paragraph (7), after first allocating all other annual additions

for the limitation year, up to the limitations under sections

415 (c) and (e), and

* * * * * * *

(7) APPLICABLE LIMITATION.—

(A) IN GENERAL.—For purposes of paragraph (3)(E), the

applicable limitation under this paragraph with respect to

a participant is an amount equal to the lesser of—

(i) $30,000, or

(ii) 25 percent of the participant’s compensation (as

defined in section 415(c)(3)).

(B) COST-OF-LIVING ADJUSTMENT.—The Secretary shall

adjust annually the $30,000 amount under subparagraph

(A)(i) at the same time and in the same manner as under

section 415(d), except that the base period shall be the calendar quarter beginning October 1, 1993, and any increase

under this subparagraph which is not a multiple of $5,000

shall be rounded to the next lowest multiple of $5,000.

* * * * * * *

Subtitle C—Employment Taxes

* * * * * * *

CHAPTER 24—COLLECTION OF INCOME TAX

AT SOURCE ON WAGES

* * * * * * *

Subchapter A—Withholding from Wages

* * * * * * *

SEC. 3401. DEFINITIONS.

(a) WAGES.—For purposes of this chapter, the term ‘‘wages’’ means all remuneration (other than fees paid to a public official)

for services performed by an employee for his employer, including

the cash value of all remuneration (including benefits) paid in any

medium other than cash; except that such term shall not include

remuneration paid—

(1) * * *

* * * * * * *

(12) to, or on behalf of, an employee or his beneficiary—

124

(A) * * *

* * * * * * *

(E) under or to an eligible deferred compensation plan

which, at the time of such payment, is a plan described in

section 457(b) maintained by an employer described in section 457(e)(1)(A); or

* * * * * * *

SEC. 3405. SPECIAL RULES FOR PENSIONS, ANNUITIES, AND CERTAIN

OTHER DEFERRED INCOME.

(a) * * *

* * * * * * *

(c) ELIGIBLE ROLLOVER DISTRIBUTIONS.—

(1) * * *

* * * * * * *

ø(3) ELIGIBLE ROLLOVER DISTRIBUTION.—For purposes of this

subsection, the term ‘‘eligible rollover distribution’’ has the

meaning given such term by section 402(f)(2)(A) (or in the case

of an annuity contract under section 403(b), a distribution from

such contract described in section 402(f)(2)(A)).¿

(3) ELIGIBLE ROLLOVER DISTRIBUTION.—For purposes of this

subsection, the term ‘‘eligible rollover distribution’’ has the

meaning given such term by section 402(f)(2)(A).

(d) LIABILITY FOR WITHHOLDING.—

(1) * * *

(2) PLAN ADMINISTRATOR LIABLE IN CERTAIN CASES.—

(A) * * *

(B) PLANS TO WHICH PARAGRAPH APPLIES.—This paragraph applies to any plan described in, or which at any

time has been determined to be described in—

(i) section 401(a),

(ii) section 403(a), øor¿

(iii) section 301(d) of the Tax Reduction Act of

1975ø.¿, or

(iv) section 457(b) and which is maintained by an eligible employer described in section 457(e)(1)(A).

* * * * * * *

Subtitle D—Miscellaneous Excise Taxes

* * * * * * *

CHAPTER 43—QUALIFIED PENSION, ETC.,

PLANS

Sec. 4971. Taxes on failure to meet minimum funding standards.

* * * * * * *

Sec. 4980F. Failure of applicable plans reducing benefit accruals to

satisfy notice requirements.

* * * * * * *

125

SEC. 4972. TAX ON NONDEDUCTIBLE CONTRIBUTIONS TO QUALIFIED

EMPLOYER PLANS.

(a) * * *

* * * * * * *

(c) NONDEDUCTIBLE CONTRIBUTIONS.—For purposes of this section—

(1) * * *

* * * * * * *

ø(6) EXCEPTIONS.—In determining the amount of nondeductible contributions for any taxable year, there shall not be taken

into account— ø(A) contributions that would be deductible under section 404(a)(1)(D) if the plan had more than 100 participants if—

ø(i) the plan is covered under section 4021 of the

Employee Retirement Income Security Act of 1974,

and

ø(ii) the plan is terminated under section 4041(b) of

such Act on or before the last day of the taxable year,

and

ø(B) so much of the contributions to 1 or more defined

contribution plans which are not deductible when contributed solely because of section 404(a)(7) as does not exceed

the greater of— ø(i) the amount of contributions not in excess of 6

percent of compensation (within the meaning of section 404(a) paid or accrued (during the taxable year

for which the contributions were made) to beneficiaries under the plans, or¿

(6) EXCEPTIONS.—In determining the amount of nondeductible contributions for any taxable year, there shall not be taken

into account so much of the contributions to one or more defined

contribution plans which are not deductible when contributed

solely because of section 404(a)(7) as does not exceed the greater

of—

(A) the amount of contributions not in excess of 6 percent

of compensation (within the meaning of section 404(a)) paid

or accrued (during the taxable year for which the contributions were made) to beneficiaries under the plans, or

(B) the sum of—

(i) the amount of contributions described in section

401(m)(4)(A), plus

(ii) the amount of contributions described in section

402(g)(3)(A).

For purposes of this paragraph, the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to

a defined benefit plan and then to amounts described in subparagraph (B).

(7) DEFINED BENEFIT PLAN EXCEPTION.—In determining the

amount of nondeductible contributions for any taxable year, an

employer may elect for such year not to take into account any

contributions to a defined benefit plan except to the extent that

such contributions exceed the full-funding limitation (as defined

in section 412(c)(7), determined without regard to subparagraph

126

(A)(i)(I) thereof). For purposes of this paragraph, the deductible

limits under section 404(a)(7) shall first be applied to amounts

contributed to defined contribution plans and then to amounts

described in this paragraph. If an employer makes an election

under this paragraph for a taxable year, paragraph (6) shall

not apply to such employer for such taxable year.

* * * * * * *

SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO CERTAIN TAX-FAVORED ACCOUNTS AND ANNUITIES.

(a) * * *

(b) EXCESS CONTRIBUTIONS.—For purposes of this section, in the

case of individual retirement accounts or individual retirement annuities, the term ‘‘excess contributions’’ means the sum of—

(1) the excess (if any) of—

(A) the amount contributed for the taxable year to the

accounts or for the annuities (other than a contribution to

a Roth IRA or a rollover contribution described in section

402(c), 403(a)(4), 403(b)(8), øor 408(d)(3)¿ 408(d)(3), or

457(e)(16)), over

* * * * * * *

SEC. 4974. EXCISE TAX ON CERTAIN ACCUMULATIONS IN QUALIFIED

RETIREMENT PLANS.

(a) GENERAL RULE.—If the amount distributed during the taxable year of the payee under any qualified retirement plan or any

eligible deferred compensation plan (as defined in section 457(b)) is

less than the minimum required distribution for such taxable year,

there is hereby imposed a tax equal to ø50¿ 10 percent of the

amount by which such minimum required distribution exceeds the

actual amount distributed during the taxable year. The tax imposed by this section shall be paid by the payee.

* * * * * * *

SEC. 4975. TAX ON PROHIBITED TRANSACTIONS.

(a) * * *

* * * * * * *

(e) DEFINITIONS.—

(1) * * *

* * * * * * *

(7) EMPLOYEE STOCK OWNERSHIP PLAN.—The term ‘‘employee

stock ownership plan’’ means a defined contribution plan—

(A) which is a stock bonus plan which is qualified, or a

stock bonus and a money purchase plan both of which are

qualified under section 401(a), and which are designed to

invest primarily in qualifying employer securities; and

(B) which is otherwise defined in regulations prescribed

by the Secretary.

A plan shall not be treated as an employee stock ownership

plan unless it meets the requirements of section 409(h), section

409(o), and, if applicable, section 409(n), section 409(p), and

section 664(g) and, if the employer has a registration-type class

127

of securities (as defined in section 409(e)(4)), it meets the requirements of section 409(e).

* * * * * * *

(f) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of

this section— (1) * * *

* * * * * * *

(6) EXEMPTIONS NOT TO APPLY TO CERTAIN TRANSACTIONS.—

(A) * * *

(B) SPECIAL RULES FOR SHAREHOLDER-EMPLOYEES, ETC.—

(i) * * *

* * * * * * *

(iii) LOAN EXCEPTION.—For purposes of subparagraph (A)(i), the term ‘‘owner-employee’’ shall only include a person described in subclause (II) or (III) of

clause (i).

* * * * * * *

SEC. 4979A. TAX ON CERTAIN PROHIBITED ALLOCATIONS OF QUALIFIED SECURITIES.

(a) IMPOSITION OF TAX.—If—

(1) there is a prohibited allocation of qualified securities by

any employee stock ownership plan or eligible worker-owned

cooperative, øor¿

(2) there is an allocation described in section 664(g)(5)(A),

there is hereby imposed a tax on such allocation equal to 50

percent of the amount involved.

øthere is hereby imposed a tax on such allocation equal to 50 percent of the amount involved.¿

(3) there is any allocation of employer securities which violates the provisions of section 409(p), or a nonallocation year

described in subsection (e)(2)(C) with respect to an employee

stock ownership plan, or

(4) any synthetic equity is owned by a disqualified person in

any nonallocation year,

there is hereby imposed a tax on such allocation or ownership equal

to 50 percent of the amount involved.

* * * * * * *

ø(c) LIABILITY FOR TAX.—The tax imposed by this section shall be

paid by—

ø(1) the employer sponsoring such plan, or

ø(2) the eligible worker-owned cooperative,

which made the written statement described in section 664(g)(1)(E)

or in section 1042(b)(3)(B) (as the case may be).¿

(c) LIABILITY FOR TAX.—The tax imposed by this section shall be

paid—

(1) in the case of an allocation referred to in paragraph (1)

or (2) of subsection (a), by—

(A) the employer sponsoring such plan, or

(B) the eligible worker-owned cooperative,

which made the written statement described in section

664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be),

and

128

(2) in the case of an allocation or ownership referred to in

paragraph (3) or (4) of subsection (a), by the S corporation the

stock in which was so allocated or owned.

* * * * * * *

ø(e) DEFINITIONS.—Terms used in this section have the same respective meaning as when used in section 4978.¿

(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— (1) DEFINITIONS.—Except as provided in paragraph (2), terms

used in this section have the same respective meanings as when

used in sections 409 and 4978.

(2) SPECIAL RULES RELATING TO TAX IMPOSED BY REASON OF

PARAGRAPH (3) OR (4) OF SUBSECTION (a).— (A) PROHIBITED ALLOCATIONS.—The amount involved

with respect to any tax imposed by reason of subsection

(a)(3) is the amount allocated to the account of any person

in violation of section 409(p)(1).

(B) SYNTHETIC EQUITY.—The amount involved with respect to any tax imposed by reason of subsection (a)(4) is

the value of the shares on which the synthetic equity is

based.

(C) SPECIAL RULE DURING FIRST NONALLOCATION YEAR.— For purposes of subparagraph (A), the amount involved for

the first nonallocation year of any employee stock ownership plan shall be determined by taking into account the

total value of all the deemed-owned shares of all disqualified persons with respect to such plan.

(D) STATUTE OF LIMITATIONS.—The statutory period for

the assessment of any tax imposed by this section by reason

of paragraph (3) or (4) of subsection (a) shall not expire before the date which is 3 years from the later of— (i) the allocation or ownership referred to in such

paragraph giving rise to such tax, or

(ii) the date on which the Secretary is notified of

such allocation or ownership.

* * * * * * *

SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO SATISFY NOTICE REQUIREMENTS.

(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.—

(1) IN GENERAL.—The amount of the tax imposed by subsection (a) on any failure with respect to any applicable individual shall be $100 for each day in the noncompliance period

with respect to such failure.

(2) NONCOMPLIANCE PERIOD.—For purposes of this section,

the term ‘‘noncompliance period’’ means, with respect to any

failure, the period beginning on the date the failure first occurs

and ending on the date the failure is corrected.

(c) LIMITATIONS ON AMOUNT OF TAX.— (1) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—In

the case of failures that are due to reasonable cause and not to

willful neglect, the tax imposed by subsection (a) for failures

129

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 one plan. For purposes

of this paragraph, if not all persons who are treated as a single

employer for purposes of this section have the same taxable

year, the taxable years taken into account shall be determined

under principles similar to the principles of section 1561.

(2) 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 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 REQUIREMENTS FOR PLANS SIGNIFICANTLY REDUCING

BENEFIT ACCRUALS.— (1) IN GENERAL.—If an applicable pension plan is amended

to provide for a significant reduction in the rate of future benefit accrual, the plan administrator shall provide written notice

to each applicable individual (and to each employee organization representing applicable individuals).

(2) NOTICE.—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 regulations prescribed by the

Secretary) to allow applicable individuals to understand the effect of the plan amendment. The Secretary may provide a simplified form of notice for, or exempt from any notice requirement, a plan—

(A) which has fewer than 100 participants who have accrued a benefit under the plan, or

(B) which offers participants the option to choose between

the new benefit formula and the old benefit formula.

(3) TIMING OF NOTICE.—Except as provided in regulations,

the notice required by paragraph (1) shall be provided within

a reasonable time before the effective date of the plan amendment.

(4) DESIGNEES.—Any notice under paragraph (1) may be provided to a person designated, in writing, by the person to which

it would otherwise be provided.

(5) NOTICE BEFORE ADOPTION OF AMENDMENT.—A plan shall

not be treated as failing to meet the requirements of paragraph

(1) merely because notice is provided before the adoption of the

plan amendment if no material modification of the amendment

occurs before the amendment is adopted.

(f) DEFINITIONS AND SPECIAL RULES.—For purposes of this section—

(1) APPLICABLE INDIVIDUAL.—The term ‘‘applicable individual’’ means, with respect to any plan amendment—

(A) each participant in the plan, and

130

(B) 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)),

whose rate of future benefit accrual under the plan may reasonably be expected to be significantly reduced by such plan

amendment.

(2) APPLICABLE PENSION PLAN.—The term ‘‘applicable pension

plan’’ means— (A) any defined benefit plan, or

(B) an individual account plan which is subject to the

funding standards of section 412.

Such term shall not include a governmental plan (within the

meaning of section 414(d)) or a church plan (within the meaning of section 414(e)) with respect to which the election provided

by section 410(d) has not been made.

(3) EARLY RETIREMENT.—A plan amendment which eliminates or significantly reduces any early retirement benefit or retirement-type subsidy (within the meaning of section

411(d)(6)(B)(i)) shall be treated as having the effect of significantly reducing the rate of future benefit accrual.

(g) NEW TECHNOLOGIES.—The Secretary may by regulations allow

any notice under subsection (e) to be provided by using new technologies.

* * * * * * *

Subtitle F—Procedure and Administration

* * * * * * *

CHAPTER 61—INFORMATION AND RETURNS

* * * * * * *

Subchapter A—Returns and Records

* * * * * * *

PART III—INFORMATION RETURNS

* * * * * * *

Subpart B—Information Concerning Transactions with

Other Persons

* * * * * * *

SEC. 6047. INFORMATION RELATING TO CERTAIN TRUSTS AND ANNUITY PLANS.

(a) * * *

* * * * * * *

(f) DESIGNATED PLUS CONTRIBUTIONS.—The Secretary shall require the plan administrator of each applicable retirement plan (as

defined in section 402A) to make such returns and reports regarding

designated plus contributions (as so defined) to the Secretary, parVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00130 Fmt 6659 Sfmt 6603 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
131

ticipants and beneficiaries of the plan, and such other persons as

the Secretary may prescribe.

ø(f)¿ (g) CROSS REFERENCES.—

(1) For provisions relating to penalties for failures to file returns

and reports required under this section, see sections 6652(e), 6721,

and 6722.

(2) For criminal penalty for furnishing fraudulent information,

see section 7207.

(3) For provisions relating to penalty for failure to comply with

the provisions of subsection (d), see section 6704.

* * * * * * *

Subpart C—Information Regarding Wages Paid Employees

* * * * * * *

SEC. 6051. RECEIPTS FOR EMPLOYEES.

(a) REQUIREMENT.—Every person required to deduct and withhold from an employee a tax under section 3101 or 3402, or who

would have been required to deduct and withhold a tax under section 3402 (determined without regard to subsection (n)) if the employee had claimed no more than one withholding exemption, or

every employer engaged in a trade or business who pays remuneration for services performed by an employee, including the cash

value of such remuneration paid in any medium other than cash,

shall furnish to each such employee in respect of the remuneration

paid by such person to such employee during the calendar year, on

or before January 31 of the succeeding year, or, if his employment

is terminated before the close of such calendar year, within 30 days

after the date of receipt of a written request from the employee if

such 30-day period ends before January 31, a written statement

showing the following:

(1) * * *

* * * * * * *

(8) the total amount of elective deferrals (within the meaning

of section 402(g)(3)) and compensation deferred under section

457, including the amount of designated plus contributions (as

defined in section 402A),

* * * * * * *

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF

1974

TITLE I—PROTECTION OF EMPLOYEE BENEFIT RIGHTS

* * * * * * *

SUBTITLE B—REGULATORY PROVISIONS

PART 1—REPORTING AND DISCLOSURE

* * * * * * *

FILING WITH SECRETARY AND FURNISHING INFORMATION TO

PARTICIPANTS

SEC. 104. (a)***

132

(b) Publication of the summary plan descriptions and annual reports shall be made to participants and beneficiaries of the particular plan as follows:

(1) * * *

* * * * * * *

(3) Within 210 days after the close of the fiscal year of the plan,

the administrators shall furnish to each participant, and to each

beneficiary receiving benefits under the plan, a copy of the statements and schedules, for such fiscal year, described in subparagraphs (A) and (B) of section 103(b)(3) and such other material (including the percentage determined under section 103(d)(11)) as is

necessary to fairly summarize the latest annual report. The requirement to furnish information under the previous sentence shall

be satisfied if the administrator makes such information reasonably

available through electronic means or other new technology.

* * * * * * *

REPORTING OF PARTICIPANT’S BENEFIT RIGHTS

øSEC. 105. (a) Each administrator of an employee pension benefit

plan shall furnish to any plan participant or beneficiary who so requests in writing, a statement indicating, on the basis of the latest

available information— ø(1) the total benefits accrued, and

ø(2) the nonforfeitable pension benefits, if any, which have

accrued, or the earliest date on which benefits will become nonforfeitable.

ø(b) In no case shall a participant or beneficiary be entitled

under this section to receive more than one report described in subsection (a) during any one 12-month period.¿

SEC. 105. (a)(1)(A) The administrator of an individual account

plan shall furnish a pension benefit statement— (i) to a plan participant at least once annually, and

(ii) to a plan beneficiary upon written request.

(B) The administrator of a defined benefit plan shall furnish a

pension benefit statement—

(i) at least once every 3 years to each participant with a nonforfeitable accrued benefit who is employed by the employer

maintaining the plan at the time the statement is furnished to

participants, and

(ii) to a plan participant or plan beneficiary of the plan upon

written request.

(2) A pension benefit statement under paragraph (1)—

(A) shall indicate, on the basis of the latest available information—

(i) the total benefits accrued, and

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

accrued, or the earliest date on which benefits will become

nonforfeitable,

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

by the average plan participant, and

(C) may be provided in written, electronic, or other appropriate form.

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

paragraph (1)(B)(i) shall be treated as met with respect to a particiVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00132 Fmt 6659 Sfmt 6603 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
133

pant if the administrator provides the participant at least once each

year with notice of the availability of the pension benefit statement

and the ways in which the participant may obtain such statement.

Such notice shall be provided in written, electronic, or other appropriate form, and may be included with other communications to the

participant if done in a manner reasonably designed to attract the

attention of the participant.

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

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

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

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

(b) In no case shall a participant or beneficiary of a plan be entitled to more than one statement described in subsection (a)(1)(A) or

(a)(1)(B)(ii), whichever is applicable, in any 12-month period.

* * * * * * *

ø(d) Subsection (a) of this section shall apply to a plan to which

more than one unaffiliated employer is required to contribute only

to the extent provided in regulations prescribed by the Secretary in

coordination with the Secretary of the Treasury.¿

* * * * * * *

PART 2—PARTICIPATION AND VESTING

* * * * * * *

MINIMUM VESTING STANDARDS

SEC. 203. (a) Each pension plan shall provide that an employee’s

right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age and in addition shall satisfy the

requirements of paragraphs (1) and (2) of this subsection.

(1) * * *

(2) øA plan¿ Except as provided in paragraph (4), a plan satisfies the requirements of this paragraph if it satisfies the requirements of subparagraph (A) or (B).

(A) * * *

* * * * * * *

(4) In the case of matching contributions (as defined in section 401(m)(4)(A) of the Internal Revenue Code of 1986), paragraph (2) shall be applied—

(A) by substituting ‘‘3 years’’ for ‘‘5 years’’ in subparagraph (A), and

(B) by substituting the following table for the table contained in subparagraph (B):

The nonforfeitable

Years of service: percentage is:

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

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

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

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

6 ...................................................................................................... 100.

* * * * * * *

(e)(1)***

* * * * * * *

134

(4) A plan shall not fail to meet the requirements of this subsection if, under the terms of the plan, the present value of the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to rollover contributions

(and earnings allocable thereto). For purposes of this subparagraph,

the term ‘‘rollover contributions’’ means any rollover contribution

under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and

457(e)(16) of the Internal Revenue Code of 1986.

BENEFIT ACCRUAL REQUIREMENTS

SEC. 204. (a)***

* * * * * * *

(g)(1)***

(2) For purposes of paragraph (1), a plan amendment which has

the effect of— (A) eliminating or reducing an early retirement benefit or a

retirement-type subsidy (as defined in regulations), or

(B) eliminating an optional form of benefit,

with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits. In the case of

a retirement-type subsidy, the preceding sentence shall apply only

with respect to a participant who satisfies (either before or after

the amendment) the preamendment conditions for the subsidy. The

Secretary of the Treasury shall by regulations provide that this

paragraph shall not apply to any plan amendment which reduces

or eliminates benefits or subsidies which create significant burdens

or complexities for the plan and plan participants and does not adversely affect the rights of any participant in a more than de minimis manner. The Secretary of the Treasury may by regulations provide that this subparagraph shall not apply to a plan amendment

described in subparagraph (B) (other than a plan amendment having an effect described in subparagraph (A)).

* * * * * * *

(4)(A) A defined contribution plan (in this subparagraph referred

to as the ‘‘transferee plan’’) shall not be treated as failing to meet

the requirements of this subsection merely because the transferee

plan does not provide some or all of the forms of distribution previously available under another defined contribution plan (in this

subparagraph referred to as the ‘‘transferor plan’’) to the extent

that—(i) the forms of distribution previously available under the

transferor plan applied to the account of a participant or beneficiary under the transferor plan that was transferred from the

transferor plan to the transferee plan pursuant to a direct

transfer rather than pursuant to a distribution from the transferor plan;

(ii) the terms of both the transferor plan and the transferee

plan authorize the transfer described in clause (i);

(iii) the transfer described in clause (i) was made pursuant

to a voluntary election by the participant or beneficiary whose

account was transferred to the transferee plan;

(iv) the election described in clause (iii) was made after the

participant or beneficiary received a notice describing the consequences of making the election; and

135

(v) the transferee plan allows the participant or beneficiary

described in clause (iii) to receive any distribution to which the

participant or beneficiary is entitled under the transferee plan

in the form of a single sum distribution.

(B) Subparagraph (A) shall apply to plan mergers and other

transactions having the effect of a direct transfer, including consolidations of benefits attributable to different employers within a multiple employer plan.

(5) Except to the extent provided in regulations promulgated by

the Secretary of the Treasury, a defined contribution plan shall not

be treated as failing to meet the requirements of this subsection

merely because of the elimination of a form of distribution previously available thereunder. This paragraph shall not apply to the

elimination of a form of distribution with respect to any participant

unless—

(A) a single sum payment is available to such participant at

the same time or times as the form of distribution being eliminated; and

(B) such single sum payment is based on the same or greater

portion of the participant’s account as the form of distribution

being eliminated.

(h)(1)***

* * * * * * *

(3)(A) An applicable pension plan to which paragraph (1) applies

shall not be treated as meeting the requirements of such paragraph

unless, in addition to any notice required to be provided to an individual or organization under such paragraph, the plan administrator provides the notice described in subparagraph (B) to each applicable individual (and to each employee organization representing

applicable individuals).

(B) The notice required by subparagraph (A) 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 regulations prescribed by the Secretary of the Treasury) to allow applicable individuals to understand the effect of the

plan amendment. The Secretary of the Treasury may provide a simplified form of notice for, or exempt from any notice requirement, a

plan—

(i) which has fewer than 100 participants who have accrued

a benefit under the plan, or

(ii) which offers participants the option to choose between the

new benefit formula and the old benefit formula.

(C) Except as provided in regulations prescribed by the Secretary

of the Treasury, the notice required by subparagraph (A) shall be

provided within a reasonable time before the effective date of the

plan amendment.

(D) Any notice under subparagraph (A) may be provided to a person designated, in writing, by the person to which it would otherwise be provided.

(E) A plan shall not be treated as failing to meet the requirements

of subparagraph (A) merely because notice is provided before the

adoption of the plan amendment if no material modification of the

amendment occurs before the amendment is adopted.

136

(F) The Secretary of the Treasury may by regulations allow any

notice under this paragraph to be provided by using new technologies.

(4) For purposes of paragraph (3)— (A) The term ‘‘applicable individual’’ means, with respect to

any plan amendment— (i) each participant in the plan; and

(ii) any beneficiary who is an alternate payee (within the

meaning of section 206(d)(3)(K)) under an applicable qualified domestic relations order (within the meaning of section

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

whose rate of future benefit accrual under the plan may reasonably be expected to be significantly reduced by such plan

amendment.

(B) The term ‘‘applicable pension plan’’ means— (i) any defined benefit plan; or

(ii) an individual account plan which is subject to the

funding standards of section 412 of the Internal Revenue

Code of 1986.

(C) A plan amendment which eliminates or significantly reduces any early retirement benefit or retirement-type subsidy

(within the meaning of subsection (g)(2)(A)) shall be treated as

having the effect of significantly reducing the rate of future benefit accrual.

* * * * * * *

REQUIREMENT OF JOINT AND SURVIVOR ANNUITY AND

PRERETIREMENT SURVIVOR ANNUITY

SEC. 205. (a)***

* * * * * * *

(c)(1)***

* * * * * * *

(7) 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 ø90-day¿ 180-day period

ending on the annuity starting date, or

* * * * * * *

OTHER PROVISIONS RELATING TO FORM AND PAYMENT OF BENEFITS

SEC. 206. (a)***

* * * * * * *

(f) MISSING PARTICIPANTS IN TERMINATED PLANS.—In the case of

a plan covered by øtitle IV¿ section 4050, øthe plan shall provide

that,¿ upon termination of the plan, benefits of missing participants shall be treated in accordance with section 4050.

* * * * * * *

PART 3—FUNDING

* * * * * * *

137

MINIMUM FUNDING STANDARDS

SEC. 302. (a)***

(c)(1)***

* * * * * * *

(7) FULL-FUNDING LIMITATION.— (A) IN GENERAL.—For purposes of paragraph (6), the term ‘‘full-funding limitation’’ means the excess (if any) of— (i) the lesser of (I) øthe applicable percentage¿ in the

case of plan years beginning before January 1, 2004, the

applicable percentage of current liability (including the expected increase in current liability due to benefits accruing

during the plan year), or (II) the accrued liability (including normal cost) under the plan (determined under the

entry age normal funding method if such accrued liability

cannot be directly calculated under the funding method

used for the plan), over

* * * * * * *

ø(F) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined

in accordance with the following table:

øIn the case of any plan year The applicable

beginning in— percentage is— 1999 or 2000 ..................................................................................... 155

2001 or 2002 ..................................................................................... 160

2003 or 2004 ..................................................................................... 165

2005 and succeeding years .............................................................. 170.¿

(F) APPLICABLE PERCENTAGE.—For purposes of subparagraph

(A)(i)(I), the applicable percentage shall be determined in accordance with the following table:

In the case of any plan year The applicable

beginning in— percentage is— 2002 ................................................................................................ 165

2003 ................................................................................................ 170.

* * * * * * *

(9)(A) For purposes of this part, a determination of experience

gains and losses and a valuation of the plan’s liability shall be

made not less frequently than once every year, except that such determination shall be made more frequently to the extent required

in particular cases under regulations prescribed by the Secretary of

the Treasury.

(B)(i) Except as provided in clause (ii), the valuation referred to

in subparagraph (A) shall be made as of a date within the plan

year to which the valuation refers or within one month prior to the

beginning of such year.

(ii) The valuation referred to in subparagraph (A) may be made

as of a date within the plan year prior to the year to which the valuation refers if— (I) an election is in effect under this clause with respect to the

plan; and

(II) as of such date, the value of the assets of the plan are not

less than 125 percent of the plan’s current liability (as defined

in paragraph (7)(B)).

(iii) Information under clause (ii) shall, in accordance with regulations, be actuarially adjusted to reflect significant differences in

participants.

138

(iv) An election under clause (ii), once made, shall be irrevocable

without the consent of the Secretary of the Treasury.

* * * * * * *

PART 4—FIDUCIARY RESPONSIBILITY

* * * * * * *

EXEMPTIONS FROM PROHIBITED TRANSACTIONS

SEC. 408. (a)***

* * * * * * *

(d)(1)***

(2)(A)***

* * * * * * *

(C) For purposes of paragraph (1)(A), the term ‘‘owner-employee’’

shall only include a person described in clause (ii) or (iii) of subparagraph (A).

* * * * * * *

PART 5—ADMINISTRATION AND ENFORCEMENT

* * * * * * *

CIVIL ENFORCEMENT

SEC. 502. (a)***

* * * * * * *

(l)(1) In the case of— (A) any breach of fiduciary responsibility under (or other violation of) part 4 by a fiduciary, or

(B) any knowing participation in such a breach or violation

by any other person,

the Secretary øshall¿ may assess a civil penalty against such fiduciary or other person in an amount øequal to¿ not greater than 20

percent of the applicable recovery amount.

(2) For purposes of paragraph (1), the term ‘‘applicable recovery

amount’’ means any amount which is recovered from a fiduciary or

other person (or from any other person on behalf of any such fiduciary or other person) with respect to a breach or violation described in paragraph (1)—

(A) pursuant to any settlement agreement with the Secretary, or

(B) ordered by a court to be paid by such fiduciary or other

person to a plan or its participants and beneficiaries in a judicial proceeding instituted by the Secretary under subsection

(a)(2) or (a)(5).

* * * * * * *

(5) A person shall be jointly and severally liable for the penalty

described in paragraph (1) to the same extent that such person is

jointly and severally liable for the applicable recovery amount on

which the penalty is based.

(6) No penalty shall be assessed under this subsection unless the

person against whom the penalty is assessed is given notice and opVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00138 Fmt 6659 Sfmt 6603 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
139

portunity for a hearing with respect to the violation and applicable

recovery amount.

* * * * * * *

NATIONAL SUMMIT ON RETIREMENT SAVINGS

SEC. 517. (a) AUTHORITY TO CALL SUMMIT.—Not later than July

15, 1998, the President shall convene a National Summit on Retirement Income Savings at the White House, to be co-hosted by the

President and the Speaker and the Minority Leader of the House

of Representatives and the Majority Leader and Minority Leader of

the Senate. Such a National Summit shall be convened thereafter

in ø2001 and 2005 on or after September 1 of each year involved¿

2001, 2005, and 2009 in the month of September of each year involved. Such a National Summit shall— (1) * * *

* * * * * * *

(b) PLANNING AND DIRECTION.—The National Summit shall be

planned and conducted under the direction of the Secretary, in consultation with, and with the assistance of, the heads of such other

Federal departments and agencies as the President may designate.

Such assistance may include the assignment of personnel. The Secretary shall, in planning and conducting the National Summit, consult with the congressional leaders specified in subsection (e)(2).

The Secretary shall also, in carrying out the Secretary’s duties

under this subsection, consult and coordinate with at least one organization made up of private sector businesses and associations

partnered with Government entities to promote long-term financial

security in retirement through savings. To effectuate the purposes

of this paragraph, the Secretary may enter into a cooperative agreement, pursuant to the Federal Grant and Cooperative Agreement

Act of 1977 (31 U.S.C. 6301 et seq.), with the American Savings

Education Council or any other appropriate, qualified entity.

* * * * * * *

(e) NATIONAL SUMMIT PARTICIPANTS.—

(1) * * *

(2) STATUTORILY REQUIRED PARTICIPATION.—The participants

in the National Summit shall include the following individuals

or their designees:

(A) * * *

* * * * * * *

(D) the Chairman and ranking Member of the øCommittee on Labor and Human Resources¿ Committee on

Health, Education, Labor, and Pensions of the Senate;

(E) * * *

ø(F) the Chairman and ranking Member of the Subcommittees on Labor, Health and Human Services, and

Education of the Senate and House of Representatives;

and¿

(F) the Chairman and Ranking Member of the Subcommittee on Labor, Health and Human Services, and

Education of the Committee on Appropriations of the House

of Representatives and the Chairman and Ranking Member

of the Subcommittee on Labor, Health and Human ServVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00139 Fmt 6659 Sfmt 6603 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
140

ices, and Education of the Committee on Appropriations of

the Senate;

(G) the Chairman and Ranking Member of the Committee on Finance of the Senate;

(H) the Chairman and Ranking Member of the Committee on Ways and Means of the House of Representatives;

(I) the Chairman and Ranking Member of the Subcommittee on Employer-Employee Relations of the Committee on Education and the Workforce of the House of Representatives; and

ø(G)¿ (J) the parties referred to in subsection (b).

(3) ADDITIONAL PARTICIPANTS.—

(A) IN GENERAL.—øThere shall be not more than 200 additional participants.¿ The participants in the National

Summit shall also include additional participants appointed under this subparagraph. Of such additional participants—

(i) øone-half shall be appointed by the President,¿

not more than 100 participants shall be appointed

under this clause by the President, in consultation with

the elected leaders of the President’s party in Congress (either the Speaker of the House of Representatives or the Minority Leader of the House of Representatives, and either the Majority Leader or the

Minority Leader of the Senate; and

(ii) øone-half shall be appointed by the elected leaders of Congress¿ not more than 100 participants shall

be appointed under this clause by the elected leaders of

Congress of the party to which the President does not

belong (one-half of that allotment to be appointed by

either the Speaker of the House of Representatives or

the Minority Leader of the House of Representatives,

and one-half of that allotment to be appointed by either the Majority Leader or the Minority Leader of the

Senate).

(B) PRESIDENTIAL AUTHORITY FOR ADDITIONAL APPOINTMENTS.—The President, in consultation with the elected

leaders of Congress referred to in subsection (a), may appoint under this subparagraph additional participants to

the National Summit. The number of such additional participants appointed under this subparagraph may not exceed the lesser of 3 percent of the total number of all additional participants appointed under this paragraph, or 10.

Such additional participants shall be appointed from persons nominated by the organization referred to in subsection (b)(2) which is made up of private sector businesses

and associations partnered with Government entities to

promote long term financial security in retirement through

savings and with which the Secretary is required thereunder to consult and cooperate and shall not be Federal,

State, or local government employees.

ø(B)¿ (C) APPOINTMENT REQUIREMENTS.—The additional

participants described in subparagraph (A) shall be—

141

(i) appointed not later than øJanuary 31, 1998¿ May

1, 2001, May 1, 2005, and May 1, 2009, for each of the

subsequent summits, respectively;

* * * * * * *

(f) NATIONAL SUMMIT ADMINISTRATION.—

(1) ADMINISTRATION.—In administering this section, the Secretary shall—

(A) * * *

* * * * * * *

(C) make available for public comment, no later than 90

days prior to the date of the commencement of the National

Summit, a proposed agenda for the National Summit that

reflects to the greatest extent possible the purposes for the

National Summit set out in this section;

* * * * * * *

(g) REPORT.—The Secretary shall prepare a report, in consultation with the congressional leaders specified in subsection (e)(2), describing the activities of the National Summit and shall submit the

report to the President, the Speaker and Minority Leader of the

House of Representatives, the Majority and Minority Leaders of the

Senate, and the chief executive officers of the States not later than

90 days after the date on which the National Summit is adjourned.

* * * * * * *

(i) AUTHORIZATION OF APPROPRIATIONS.—

(1) IN GENERAL.—There is authorized to be appropriated for

fiscal years øbeginning on or after October 1, 1997¿ 2001,

2005, and 2009, such sums as are necessary to carry out this

section.

* * * * * * *

(3) RECEPTION AND REPRESENTATION AUTHORITY.—The Secretary is hereby granted reception and representation authority

limited specifically to the events at the National Summit. The

Secretary shall use any private contributions accepted in connection with the National Summit prior to using funds appropriated for purposes of the National Summit pursuant to this

paragraph.

* * * * * * *

(k) CONTRACTS.—The Secretary may enter into contracts to carry

out the Secretary’s responsibilities under this section. The Secretary øshall enter into a contract on a sole-source basis¿ may enter

into a contract on a sole-source basis to ensure the timely completion of the National Summit in øfiscal year 1998¿ fiscal years 2001,

2005, and 2009.

* * * * * * *

TITLE IV—PLAN TERMINATION INSURANCE

SUBTITLE A—PENSION BENEFIT GUARANTY CORPORATION

* * * * * * *

142

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, an amount equal to—

(I) $1.40 for each participant, for the first, second, third,

and fourth plan years,

(II) $1.80 for each participant, for the fifth and sixth

plan years,

(III) $2.20 for each participant, for the seventh and

eighth plan years, and

(IV) $2.60 for each participant, for the ninth plan year,

and for each succeeding plan yearø.¿, 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) øThe¿ 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

143

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.

144

(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 øas 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)***

* * * * * * *

ø(5)(A) For purposes of this title, the term ‘‘substantial owner’’

means an individual who—

ø(i) owns the entire interest in an unincorporated trade or

business,

ø(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

ø(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

145

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.

ø(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—

ø(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

ø(ii) the amount of the substantial owner’s monthly benefits

guaranteed under subsection (a) (as limited under paragraph

(3) of this subsection).

ø(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

* * * * * * *

146

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

ø4022(b)(6)¿ 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 ø4022(b)(5)¿

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 ø(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.

ø(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.

* * * * * * *

147

ø(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.

ø(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.

ø(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.

* * * * * * *

SEC. 4050. MISSING PARTICIPANTS.

(a) * * *

* * * * * * *

(c) MULTIEMPLOYER PLANS.—The corporation shall prescribe rules

similar to the rules in subsection (a) for multiemployer plans covered by this title that terminate under section 4041A.

(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.—

(1) TRANSFER TO CORPORATION.—The plan administrator of a

plan described in paragraph (4) may elect to transfer a missing

participant’s benefits to the corporation upon termination of the

plan.

(2) INFORMATION TO THE CORPORATION.—To the extent provided in regulations, the plan administrator of a plan described

in paragraph (4) shall, upon termination of the plan, provide

the corporation information with respect to benefits of a missing

participant if the plan transfers such benefits— (A) to the corporation, or

(B) to an entity other than the corporation or a plan described in paragraph (4)(B)(ii).

(3) PAYMENT BY THE CORPORATION.—If benefits of a missing

participant were transferred to the corporation under paragraph (1), the corporation shall, upon location of the participant or beneficiary, pay to the participant or beneficiary the

amount transferred (or the appropriate survivor benefit) either—(A) in a single sum (plus interest), or

(B) in such other form as is specified in regulations of the

corporation.

(4) PLANS DESCRIBED.—A plan is described in this paragraph

if—

148

(A) the plan is a pension plan (within the meaning of section 3(2))—

(i) to which the provisions of this section do not

apply (without regard to this subsection), and

(ii) which is not a plan described in paragraphs (2)

through (11) of section 4021(b), and

(B) at the time the assets are to be distributed upon termination, the plan—

(i) has missing participants, and

(ii) has not provided for the transfer of assets to pay

the benefits of all missing participants to another pension plan (within the meaning of section 3(2)).

(5) CERTAIN PROVISIONS NOT TO APPLY.—Subsections (a)(1)

and (a)(3) shall not apply to a plan described in paragraph (4).

ø(c)¿ (e) REGULATORY AUTHORITY.—The corporation shall prescribe such regulations as are necessary to carry out the purposes

of this section, including rules relating to what will be considered

a diligent search, the amount payable to the corporation, and the

amount to be paid by the corporation.

* * * * * * *

TAXPAYER RELIEF ACT OF 1997

* * * * * * *

TITLE XV—PENSIONS AND EMPLOYEE

BENEFITS

Subtitle A—Simplification

* * * * * * *

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) ømaintained

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.

* * * * * * *

149

Subtitle B—Other Provisions Relating to

Pensions and Employee Benefits

* * * * * * *

SEC. 1524. DIVERSIFICATION OF SECTION 401(k) PLAN INVESTMENTS.

(a) * * *

* * * * * * *

ø(b) EFFECTIVE DATE.—The amendments made by this section

shall apply to elective deferrals for plan years beginning after December 31, 1998.¿

(b) EFFECTIVE DATE.— (1) IN GENERAL.—Except as provided in paragraph (2), the

amendments made by this section shall apply to elective deferrals for plan years beginning after December 31, 1998.

(2) NONAPPLICATION TO PREVIOUSLY ACQUIRED PROPERTY.— The amendments made by this section shall not apply to any

elective deferral which is invested in assets consisting of qualifying employer securities, qualifying employer real property, or

both, if such assets were acquired before January 1, 1999.

* * * * * * *

SECTION 1114 OF THE TAX REFORM ACT OF 1986

SEC. 1114. DEFINITION OF HIGHLY COMPENSATED EMPLOYEE.

(a) * * *

* * * * * * *

(c) EFFECTIVE DATE.—

(1) * * *

* * * * * * *

ø(4) SPECIAL RULE FOR DETERMINING HIGHLY COMPENSATED

EMPLOYEES.—For purposes of sections 401(k) and 401(m) of the

Internal Revenue Code of 1986, in the case of an employer incorporated on December 15, 1924, if more than 50 percent of

its employees in the top-paid group (within the meaning of section 414(q)(4) of such Code) earn less than $25,000 (indexed at

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

of such Code), then the highly compensated employees shall include employees described in section 414(q)(1)(C) of such Code

determined without regard to the level of compensation of such

employees. Any reference in this paragraph to section 414(q)

shall be treated as a reference to such section as in effect on

the day before the date of the enactment of the Small Business

Job Protection Act of 1996.¿

* * * * * * *

(150)

ADDITIONAL VIEWS

We commend the sponsors of H.R. 10 for their commitment to

strengthening incentives to maintain private pension plans and

provide pension benefits to workers. The bill contains helpful provisions to shorten the period of time required for workers to vest a

right to pension benefits in 401(k) plans and simplify the process

for transferring pension monies between pension plans when employees change jobs. The bill also provides needed assistance to employees who work under multi-employer plans by eliminating unfair pension benefit caps and state and local government employees

by treating their pension plans similarly to private sector plans.

We believe the bill could be strengthened by providing additional

incentives to assist low and moderate income earners. H.R. 10 primarily seeks to provide incentives to employers and senior managerial employees to establish and maintain pension plans by increasing the amounts that such individuals may contribute for their own

retirement. The expectation is that maintaining the support of the

owners and senior employees also will benefit rank and file employees. We certainly hope that this will be the case, but believe more

needs to be done.

During the past year, the Committee received several new reports documenting the scope of pension coverage, and the lack

thereof, in the United States. Both the Congressional Research

Service and the General Accounting Office released detailed analyses of pension coverage from the most recently released Current

Population Survey. This data confirmed that the percent of the

workforce without pension coverage has remained at about 50% for

the past twenty-five years. Low income workers, part-time workers

(primarily women), and employees of small business are the most

likely not to have pension coverage.

According to a November 2000 Congressional Research Service

(CRS) report, only 29% of full-time workers with earnings below

$20,000 are covered by pensions. On the other hand, 76% of those

with earnings above $60,000 have coverage. According to CRS, pension coverage for full-time workers averages 58%, but only 26% for

part-time or part year workers. As of 1999, 71% of full-time employees at firms over 100 and 50% of full-time employees working

for firms with 25 to 99 employees had pension coverage, but only

29% of employees working for firms with fewer than 25 employees

had pension coverage.

The challenge before Congress is how to expand pension coverage

and adequacy to the most needy groups: low-come earners, less

than full time workers, and employees of small business. Certainly,

providing incentives to upper income employees is one option assuming they trickle down to rank and file employees. But, under

current law there are a variety of pension exemptions that permit

employers to maintain pension plans without providing any or sigVerDate 01-MAY-2001 04:13 May 02, 2001 Jkt 072094 PO 00000 Frm 00150 Fmt 6604 Sfmt 6604 E:\HR\OC\HR051P2.XXX pfrm04 PsN: HR051P2
151

nificant benefits to lower income employees. For example, the coverage rules permit the exclusion of 30% of an employer’s workforce

without reason, and additional amounts with Internal Revenue

Service permission. Other rules such as the Social Security integration rules, permit the benefits of lower income employees to be reduced by as much as 50% by taking Social Security into account.

Although more than 90% of Americans are covered by Social Security, it only replaces slightly more than 40%, on average, of pre-retirement income. Most retirement experts believe that somewhere

between 65–85% of pre-retirement income is necessary to maintain

a decent standard of living in retirement. Therefore, all income

earners are equally in need of supplemental pensions to provide

needed income in retirement.

One of the most promising new ideas for improving private pension coverage is the creation of a refundable tax credit to match retirement contributions that low and moderate income individual

make. President Clinton first conceptualized the idea in response

to Social Security privatization proposals. But, the idea has received growing support from pension policymakers and economists.

In the 107th congress, Congressman Neal of Massachusetts has introduced H.R. 1498 which would phase in a refundable tax credit

for families earning up to $75,000 a year for retirement savings

contributions and provide a tax credit to small employers who establish and contribute to new pension plans. We believe that these

proposals would be an important addition to H.R. 10. We hope that

these proposals will receive continued consideration as this bill continues through the legislative process.

The other major issue related to consideration of H.R. 10 is the

provision providing for additional notice when employers convert

their defined benefit pension plans to what are known as ‘‘cash balance’’ hybrid pension plans. Cash balance conversions are the most

controversial pension issue occurring now. Cash balance plans were

created during the 1980’s, but it has only been in the past two

years that large numbers of employers have moved to convert their

traditional defined benefit plans. According to a 2000 GAO report,

approximately 19 percent of Fortune 1000 firms have converted to

cash balance plans affecting over 2 million workers.

Although the details vary somewhat from employer to employer,

the primary change involves the plan’s benefit formula calculation

of future retirement benefits from a final pay formula to a career

average formula. In addition, the employer expresses the career

benefits in the form of a hypothetical ‘‘account’’ so that workers can

see their benefits as a lump sum amount that increases with an assumed rate of earnings each year. The plan remains a defined benefit plan under which the employer provides a defined future benefit provided workers meet the necessary conditions, the employer

guarantees a rate of return, and in the case of termination, the

plan remains guaranteed by the Pension Benefit Guaranty Corporation (PBGC). As employers argue, in many ways a cash balance plan is fairer to younger workers since benefits accrue more

evenly throughout a workers’ career, instead of earning most benefits at the end of one’s work service.

The controversy primarily arises when an employer converts an

existing traditional defined benefit plan to a cash balance plan.

152

Three major issues have arisen in this context. First, the adequacy

of the notice of the change that must be provided to workers.

Under section 204(h) of ERISA, employers must provide participants and beneficiaries notice of a significant reduction of benefit

accrual fifteen days before the change. Employers are not required

to explain the effect of the amendment. They may simply give employees a copy of the amendment. In cash balance conversions,

there has been considerable controversy not only that employers

are not adequately explaining to their employees the effect on their

retirement benefits of the change, but also that some employers

may be intentionally hiding the negative effects from workers.

There have been numerous documented statements by benefit consultants that one of the many benefits of cash balance conversions

is that employers need not explain the effects to workers and workers are unlikely to understand the changes until it is too late.

Second, there are significant effects on older workers. Many employers who convert to cash balance plans include an aspect known

as ‘‘wear-away’’ under which employees whose accrued benefit

under the plan before the conversion is greater than the benefit

they would have accrued under the converted plan do not accrue

new benefits until their former and new benefit levels are equal.

For many older workers, up to 50% of their expected pension benefits can be lost. Since it primarily is older workers who have greater accrued benefits, this provision primarily affects older workers

and has been alleged to be illegal age discrimination. In addition,

since an important protection under ERISA is the protection of

workers’ accrued benefits, it also is alleged to be an undermining

of the principle that accrued benefits cannot be reduced. There also

are issues related to employer usage of differing interest rates that

result in underestimating the value of older workers’ benefits. Legislation and litigation is pending on these issues.

Third is the issue of employee choice to remain under the former

plan formula. A number of employers that have converted to cash

balance plans have afforded all or vested workers the opportunity

to remain covered by the prior plan formula. It also has been recommended that employers be required to provide workers an election option.

153

The language included in the Committee adopted bill does not

adequately resolve this issue. The bill simply requires employers to

provide notice a reasonable period of time before a conversion and

directs the Department of Treasury to develop clarifying regulations. The Committee has not fully discussed or resolved this issue.

Several bills have been introduced which address the above discussed issues. In addition, at the mark-up session on this bill, an

amendment was offered to provide adequate notice, protect the

earned benefits of older workers, and permit employees to choose

to remain under the defined benefit plan. The amendment was defeated by a voice vote. These additional changes would provide important needed protections to workers affected by cash balance conversions.

GEORGE MILLER.

MAJOR R. OWENS.

PATSY T. MINK.

LYNN WOOLSEY.

RON KIND.

HAROLD E. FORD, JR.

DAVID WU.

BETTY MCCOLLUM.

DALE E. KILDEE.

DONALD M. PAYNE.

ROBERT E. ANDREWS.

BOBBY SCOTT.

LYNN N. RIVERS

RUBEN HINOJOSA.

JOHN F. TIERNEY.

LORETTA SANCHEZ.

DENNIS J. KUCINICH.

RUSH HOLT.

HILDA L. SOLIS.

SUSAN DAVIS.

Æ