39–006 

109TH CONGRESS REPT. 109–232 " ! HOUSE OF REPRESENTATIVES 1st Session Part 1 

PENSION PROTECTION ACT OF 2005 

SEPTEMBER 22, 2005.—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 

MINORITY VIEWS 

[To accompany H.R. 2830] 

The Committee on Education and the Workforce, to whom was 

referred the bill (H.R. 2830) to amend the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 

to reform the pension funding rules, 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 AND TABLE OF CONTENTS. 

(a) SHORT TITLE.—This Act may be cited as the ‘‘Pension Protection Act of 2005’’. 

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

Sec. 1. Short title and table of contents. 

TITLE I—REFORM OF FUNDING RULES FOR SINGLE-EMPLOYER DEFINED BENEFIT PENSION 

PLANS 

Subtitle A—Amendments to Employee Retirement Income Security Act of 1974 

Sec. 101. Minimum funding standards. 

Sec. 102. Funding rules for single-employer defined benefit pension plans. 

Sec. 103. Benefit limitations under single-employer plans. 

Sec. 104. Technical and conforming amendments. 

Subtitle B—Amendments to Internal Revenue Code of 1986 

[See introduced bill, page 71, line 1 through page 140, line 13]. 

Subtitle C—Other provisions 

Sec. 121. Modification of transition rule to pension funding requirements. 

Sec. 122. Treatment of nonqualified deferred compensation plans when employer defined benefit plan in at-risk status [See introduced bill, page 142, line 3 through page 143, line 16]. 

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TITLE II—FUNDING RULES FOR MULTIEMPLOYER DEFINED BENEFIT PLANS 

Subtitle A—Amendments to Employee Retirement Income Security Act of 1974 

Sec. 201. Funding rules for multiemployer defined benefit plans. 

Sec. 202. Additional funding rules for multiemployer plans in endangered or critical status. 

Sec. 203. Measures to forestall insolvency of multiemployer plans. 

Sec. 204. Withdrawal liability reforms. 

Sec. 205. Removal of restrictions with respect to procedures applicable to disputes involving withdrawal liability. 

Subtitle B—Amendments to Internal Revenue Code of 1986 

[See introduced bill, page 200, line 8 through page 251, line 15]. 

TITLE III—OTHER PROVISIONS 

Sec. 301. Interest rate assumption for determination of lump sum distributions. 

Sec. 302. Interest rate assumption for applying benefit limitations to lump sum distributions [See introduced 

bill, page 254, line 6 through page 255, line 7]. Sec. 303. Distributions during working retirement. 

Sec. 304. Other amendments relating to prohibited transactions. 

Sec. 305. Correction period for certain transactions involving securities and commodities. 

Sec. 306. Government Accountability Office pension funding report. 

TITLE IV—IMPROVEMENTS IN PBGC GUARANTEE PROVISIONS 

Sec. 401. Increases in PBGC premiums. 

TITLE V—DISCLOSURE 

Sec. 501. Defined benefit plan funding notices. 

Sec. 502. Additional disclosure requirements. 

Sec. 503. Section 4010 filings with the PBGC. 

TITLE VI—INVESTMENT ADVICE 

Sec. 601. Amendments to Employee Retirement Income Security Act of 1974 providing prohibited transaction 

exemption for provision of investment advice. 

Sec. 602. Amendments to Internal Revenue Code of 1986 providing prohibited transaction exemption for provision of investment advice [See introduced bill, page 287, line 15 through page 298, line 23]. 

TITLE VII—BENEFIT ACCRUAL STANDARDS 

Sec. 701. Improvements in benefit accrual standards. 

TITLE VIII—DEDUCTION LIMITATIONS 

[See introduced bill, page 299, line 1 through page 305, line 20]. 

TITLE I—REFORM OF FUNDING RULES FOR 

SINGLE-EMPLOYER DEFINED BENEFIT PENSION PLANS 

Subtitle A—Amendments to Employee Retirement 

Income Security Act of 1974 

SEC. 101. MINIMUM FUNDING STANDARDS. 

(a) REPEAL OF EXISTING FUNDING RULES.—Sections 302 through 308 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1082 through 1086) are 

repealed. 

(b) NEW MINIMUM FUNDING STANDARDS.—Part 3 of subtitle B of title I of such 

Act (as amended by subsection (a)) is amended further by inserting after section 301 

the following new section: 

‘‘MINIMUM FUNDING STANDARDS

‘‘SEC. 302. (a) REQUIREMENT TO MEET MINIMUM FUNDING STANDARD.—

‘‘(1) IN GENERAL.—A plan to which this part applies shall satisfy the minimum funding standard applicable to the plan for any plan year. 

‘‘(2) MINIMUM FUNDING STANDARD.—For purposes of paragraph (1), a plan 

shall be treated as satisfying the minimum funding standard for a plan year 

if—

‘‘(A) in the case of a defined benefit plan which is a single-employer plan, 

the employer makes contributions to or under the plan for the plan year 

which, in the aggregate, are not less than the minimum required contribution determined under section 303 for the plan for the plan year, 

‘‘(B) in the case of a money purchase plan which is a single-employer 

plan, the employer makes contributions to or under the plan for the plan 

year which are required under the terms of the plan, and 

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‘‘(C) in the case of a multiemployer plan, the employers make contributions to or under the plan for any plan year which, in the aggregate, are 

sufficient to ensure that the plan does not have an accumulated funding deficiency under section 304 as of the end of the plan year. ‘‘(b) LIABILITY FOR CONTRIBUTIONS.— ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amount of any 

contribution required by this section (including any required installments under 

paragraphs (3) and (4) of section 303(j)) shall be paid by the employer responsible for making contributions to or under the plan. ‘‘(2) JOINT AND SEVERAL LIABILITY WHERE EMPLOYER MEMBER OF CONTROLLED

GROUP.—In the case of a single-employer plan, if the employer referred to in 

paragraph (1) is a member of a controlled group, each member of such group 

shall be jointly and severally liable for payment of such contributions. ‘‘(c) VARIANCE FROM MINIMUM FUNDING STANDARDS.— ‘‘(1) WAIVER IN CASE OF BUSINESS HARDSHIP.— ‘‘(A) IN GENERAL.—If— ‘‘(i) an employer is (or in the case of a multiemployer plan, 10 percent 

or more of the number of employers contributing to or under the plan 

is) unable to satisfy the minimum funding standard for a plan year 

without temporary substantial business hardship (substantial business 

hardship in the case of a multiemployer plan), and 

‘‘(ii) application of the standard would be adverse to the interests of 

plan participants in the aggregate, 

the Secretary of the Treasury may, subject to subparagraph (C), waive the 

requirements of subsection (a) for such year with respect to all or any portion of the minimum funding standard. The Secretary of the Treasury shall 

not waive the minimum funding standard with respect to a plan for more 

than 3 of any 15 (5 of any 15 in the case of a multiemployer plan) consecutive plan years. 

‘‘(B) EFFECTS OF WAIVER.—If a waiver is granted under subparagraph (A) 

for any plan year—

‘‘(i) in the case of a single-employer plan, the minimum required contribution under section 303 for the plan year shall be reduced by the 

amount of the waived funding deficiency and such amount shall be amortized as required under section 303(e), and 

‘‘(ii) in the case of a multiemployer plan, the funding standard account shall be credited under section 304(b)(3)(C) with the amount of 

the waived funding deficiency and such amount shall be amortized as 

required under section 304(b)(2)(C). 

‘‘(C) WAIVER OF AMORTIZED PORTION NOT ALLOWED.—The Secretary of the 

Treasury may not waive under subparagraph (A) any portion of the minimum funding standard under subsection (a) for a plan year which is attributable to any waived funding deficiency for any preceding plan year. 

‘‘(2) DETERMINATION OF BUSINESS HARDSHIP.—For purposes of this subsection, 

the factors taken into account in determining temporary substantial business 

hardship (substantial business hardship in the case of a multiemployer plan) 

shall include (but shall not be limited to) whether or not—

‘‘(A) the employer is operating at an economic loss, 

‘‘(B) there is substantial unemployment or underemployment in the trade 

or business and in the industry concerned, 

‘‘(C) the sales and profits of the industry concerned are depressed or declining, and 

‘‘(D) it is reasonable to expect that the plan will be continued only if the 

waiver is granted. 

‘‘(3) WAIVED FUNDING DEFICIENCY.—For purposes of this part, the term 

‘waived funding deficiency’ means the portion of the minimum funding standard 

under subsection (a) (determined without regard to the waiver) for a plan year 

waived by the Secretary of the Treasury and not satisfied by employer contributions. 

‘‘(4) SECURITY FOR WAIVERS FOR SINGLE-EMPLOYER PLANS, CONSULTATIONS.—

‘‘(A) SECURITY MAY BE REQUIRED.—

‘‘(i) IN GENERAL.—Except as provided in subparagraph (C), the Secretary of the Treasury may require an employer maintaining a defined 

benefit plan which is a single-employer plan (within the meaning of 

section 4001(a)(15)) to provide security to such plan as a condition for 

granting or modifying a waiver under paragraph (1). 

‘‘(ii) SPECIAL RULES.—Any security provided under clause (i) may be 

perfected and enforced only by the Pension Benefit Guaranty Corporation, or at the direction of the Corporation, by a contributing sponsor 

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(within the meaning of section 4001(a)(13)), or a member of such sponsor’s controlled group (within the meaning of section 4001(a)(14)). 

‘‘(B) CONSULTATION WITH THE PENSION BENEFIT GUARANTY CORPORATION.—Except as provided in subparagraph (C), the Secretary of the Treasury shall, before granting or modifying a waiver under this subsection with 

respect to a plan described in subparagraph (A)(i)—

‘‘(i) provide the Pension Benefit Guaranty Corporation with—

‘‘(I) notice of the completed application for any waiver or modification, and 

‘‘(II) an opportunity to comment on such application within 30 

days after receipt of such notice, and 

‘‘(ii) consider—

‘‘(I) any comments of the Corporation under clause (i)(II), and 

‘‘(II) any views of any employee organization (within the meaning 

of section 3(4)) representing participants in the plan which are submitted in writing to the Secretary of the Treasury in connection 

with such application. 

Information provided to the Corporation under this subparagraph shall be 

considered tax return information and subject to the safeguarding and reporting requirements of section 6103(p) of the Internal Revenue Code of 

1986. 

‘‘(C) EXCEPTION FOR CERTAIN WAIVERS.—

‘‘(i) IN GENERAL.—The preceding provisions of this paragraph shall 

not apply to any plan with respect to which the sum of—

‘‘(I) the aggregate unpaid minimum required contribution for the 

plan year and all preceding plan years, and 

‘‘(II) the present value of all waiver amortization installments determined for the plan year and succeeding plan years under section 

303(e)(2), 

is less than $1,000,000. 

‘‘(ii) TREATMENT OF WAIVERS FOR WHICH APPLICATIONS ARE PENDING.—The amount described in clause (i)(I) shall include any increase 

in such amount which would result if all applications for waivers of the 

minimum funding standard under this subsection which are pending 

with respect to such plan were denied. 

‘‘(iii) UNPAID MINIMUM REQUIRED CONTRIBUTION.—For purposes of 

this subparagraph—

‘‘(I) IN GENERAL.—The term ‘unpaid minimum required contribution’ means, with respect to any plan year, any minimum required 

contribution under section 303 for the plan year which is not paid 

on or before the due date (as determined under section 303(j)(1)) 

for the plan year. 

‘‘(II) ORDERING RULE.—For purposes of subclause (I), any payment to or under a plan for any plan year shall be allocated first 

to unpaid minimum required contributions for all preceding plan 

years on a first-in, first-out basis and then to the minimum required contribution under section 303 for the plan year. 

‘‘(5) SPECIAL RULES FOR SINGLE-EMPLOYER PLANS.—

‘‘(A) APPLICATION MUST BE SUBMITTED BEFORE DATE 21⁄2 MONTHS AFTER

CLOSE OF YEAR.—In the case of a single-employer plan, no waiver may be 

granted under this subsection with respect to any plan for any plan year 

unless an application therefor is submitted to the Secretary of the Treasury 

not later than the 15th day of the 3rd month beginning after the close of 

such plan year. 

‘‘(B) SPECIAL RULE IF EMPLOYER IS MEMBER OF CONTROLLED GROUP.—In 

the case of a single-employer plan, if an employer is a member of a controlled group, the temporary substantial business hardship requirements of 

paragraph (1) shall be treated as met only if such requirements are met— 

‘‘(i) with respect to such employer, and 

‘‘(ii) with respect to the controlled group of which such employer is 

a member (determined by treating all members of such group as a single employer). 

The Secretary of the Treasury may provide that an analysis of a trade or 

business or industry of a member need not be conducted if the Secretary 

of the Treasury determines such analysis is not necessary because the taking into account of such member would not significantly affect the determination under this paragraph. 

‘‘(6) ADVANCE NOTICE.— 

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‘‘(A) IN GENERAL.—The Secretary of the Treasury shall, before granting 

a waiver under this subsection, require each applicant to provide evidence 

satisfactory to such Secretary that the applicant has provided notice of the 

filing of the application for such waiver to each affected party (as defined 

in section 4001(a)(21)). Such notice shall include a description of the extent 

to which the plan is funded for benefits which are guaranteed under title 

IV and for benefit liabilities. 

‘‘(B) CONSIDERATION OF RELEVANT INFORMATION.—The Secretary of the 

Treasury shall consider any relevant information provided by a person to 

whom notice was given under subparagraph (A). 

‘‘(7) RESTRICTION ON PLAN AMENDMENTS.—

‘‘(A) IN GENERAL.—No amendment of a plan which increases the liabilities 

of the plan by reason of any increase in benefits, any change in the accrual 

of benefits, or any change in the rate at which benefits become nonforfeitable under the plan shall be adopted if a waiver under this subsection or 

an extension of time under section 304(d) is in effect with respect to the 

plan, or if a plan amendment described in subsection (d)(2) has been made 

at any time in the preceding 24 months. If a plan is amended in violation 

of the preceding sentence, any such waiver, or extension of time, shall not 

apply to any plan year ending on or after the date on which such amendment is adopted. 

‘‘(B) EXCEPTION.—Paragraph (1) shall not apply to any plan amendment 

which—

‘‘(i) the Secretary of the Treasury determines to be reasonable and 

which provides for only de minimis increases in the liabilities of the 

plan, 

‘‘(ii) only repeals an amendment described in subsection (d)(2), or 

‘‘(iii) is required as a condition of qualification under part I of subchapter D, of chapter 1 of the Internal Revenue Code of 1986. 

‘‘(8) CROSS REFERENCE.—For corresponding duties of the Secretary of the 

Treasury with regard to implementation of the Internal Revenue Code of 1986, 

see section 412(c) of such Code. 

‘‘(d) MISCELLANEOUS RULES.—

‘‘(1) CHANGE IN METHOD OR YEAR.—If the funding method, the valuation date, 

or a plan year for a plan is changed, the change shall take effect only if approved by the Secretary of the Treasury. 

‘‘(2) CERTAIN RETROACTIVE PLAN AMENDMENTS.—For purposes of this section, 

any amendment applying to a plan year which—

‘‘(A) is adopted after the close of such plan year but no later than 21⁄2

months after the close of the plan year (or, in the case of a multiemployer 

plan, no later than 2 years after the close of such plan year), 

‘‘(B) does not reduce the accrued benefit of any participant determined as 

of the beginning of the first plan year to which the amendment applies, and 

‘‘(C) does not reduce the accrued benefit of any participant determined as 

of the time of adoption except to the extent required by the circumstances, 

shall, at the election of the plan administrator, be deemed to have been made 

on the first day of such plan year. No amendment described in this paragraph 

which reduces the accrued benefits of any participant shall take effect unless 

the plan administrator files a notice with the Secretary of the Treasury notifying him of such amendment and such Secretary has approved such amendment, or within 90 days after the date on which such notice was filed, failed 

to disapprove such amendment. No amendment described in this subsection 

shall be approved by the Secretary of the Treasury unless such Secretary determines that such amendment is necessary because of a substantial business 

hardship (as determined under subsection (c)(2)) and that a waiver under subsection (c) (or, in the case of a multiemployer plan, any extension of the amortization period under section 304(d)) is unavailable or inadequate. 

‘‘(3) CONTROLLED GROUP.—For purposes of this section, the term ‘controlled 

group’ means any group treated as a single employer under subsection (b), (c), 

(m), or (o) of section 414 of the Internal Revenue Code of 1986.’’. 

(c) CLERICAL AMENDMENT.—The table of contents in section 1 of such Act is 

amended by striking the items relating to sections 302 through 308 and inserting 

the following new item: 

‘‘Sec. 302. Minimum funding standards.’’. 

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

years beginning after 2005. 

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SEC. 102. FUNDING RULES FOR SINGLE-EMPLOYER DEFINED BENEFIT PENSION PLANS. 

(a) IN GENERAL.—Part 3 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 (as amended by section 101 of this Act) is amended further by inserting after section 302 the following new section: 

‘‘MINIMUM FUNDING STANDARDS FOR SINGLE-EMPLOYER DEFINED BENEFIT PENSION

PLANS

‘‘SEC. 303. (a) MINIMUM REQUIRED CONTRIBUTION.—For purposes of this section 

and section 302(a)(2)(A), except as provided in subsection (f), the term ‘minimum required contribution’ means, with respect to any plan year of a defined benefit plan 

which is a single employer plan—

‘‘(1) in any case in which the value of plan assets of the plan (as reduced 

under subsection (f)(4)) is less than the funding target of the plan for the plan 

year, the sum of—

‘‘(A) the target normal cost of the plan for the plan year, 

‘‘(B) the shortfall amortization charge (if any) for the plan for the plan 

year determined under subsection (c), and 

‘‘(C) the waiver amortization charge (if any) for the plan for the plan year 

as determined under subsection (e); 

‘‘(2) in any case in which the value of plan assets of the plan (as reduced 

under subsection (f)(4)) exceeds the funding target of the plan for the plan year, 

the target normal cost of the plan for the plan year reduced by such excess; or 

‘‘(3) in any other case, the target normal cost of the plan for the plan year. 

‘‘(b) TARGET NORMAL COST.—For purposes of this section, except as provided in 

subsection (i)(2) with respect to plans in at-risk status, the term ‘target normal cost’

means, for any plan year, the present value of all benefits which are expected to 

accrue or to be earned under the plan during the plan year. For purposes of this 

subsection, if any benefit attributable to services performed in a preceding plan year 

is increased by reason of any increase in compensation during the current plan year, 

the increase in such benefit shall be treated as having accrued during the current 

plan year. 

‘‘(c) SHORTFALL AMORTIZATION CHARGE.—

‘‘(1) IN GENERAL.—For purposes of this section, the shortfall amortization 

charge for a plan for any plan year is the aggregate total of the shortfall amortization installments for such plan year with respect to the shortfall amortization 

bases for such plan year and each of the 6 preceding plan years. 

‘‘(2) SHORTFALL AMORTIZATION INSTALLMENT.—The plan sponsor shall determine, with respect to the shortfall amortization base of the plan for any plan 

year, the amounts necessary to amortize such shortfall amortization base, in 

level annual installments over a period of 7 plan years beginning with such 

plan year. For purposes of paragraph (1), the annual installment of such amortization for each plan year in such 7-plan-year period is the shortfall amortization 

installment for such plan year with respect to such shortfall amortization base. 

In determining any shortfall amortization installment under this paragraph, the 

plan sponsor shall use the segment rates determined under subparagraph (C) 

of subsection (h)(2), applied under rules similar to the rules of subparagraph (B) 

of subsection (h)(2). 

‘‘(3) SHORTFALL AMORTIZATION BASE.—For purposes of this section, the shortfall amortization base of a plan for a plan year is the excess (if any) of—

‘‘(A) the funding shortfall of such plan for such plan year, over 

‘‘(B) the sum of—

‘‘(i) the present value (determined using the segment rates determined under subparagraph (C) of subsection (h)(2), applied under rules 

similar to the rules of subparagraph (B) of subsection (h)(2)) of the aggregate total of the shortfall amortization installments, for such plan 

year and the 5 succeeding plan years, which have been determined 

with respect to the shortfall amortization bases of the plan for each of 

the 6 plan years preceding such plan year, and 

‘‘(ii) the present value (as so determined) of the aggregate total of the 

waiver amortization installments for such plan year and the 5 succeeding plan years, which have been determined with respect to the 

waiver amortization bases of the plan for each of the 5 plan years preceding such plan year. 

In any case in which the value of plan assets of the plan (as reduced under 

subsection (f)(4)) is equal to or greater than the funding target of the plan 

for the plan year, the shortfall amortization base of the plan for such plan 

year shall be zero. 

‘‘(4) FUNDING SHORTFALL.—

7 

‘‘(A) IN GENERAL.—For purposes of this section, except as provided in subparagraph (B), the funding shortfall of a plan for any plan year is the excess (if any) of—

‘‘(i) the funding target of the plan for the plan year, over 

‘‘(ii) the value of plan assets of the plan (as reduced under subsection 

(f)(4)) for the plan year which are held by the plan on the valuation 

date. 

‘‘(B) TRANSITION RULE.—

‘‘(i) IN GENERAL.—For purposes of paragraph (3), in the case of a nondefecit reduction plan, subparagraph (A) shall be applied to plan years 

beginning after 2005 and before 2010 by substituting for the amount 

described in subparagraph (A)(i) the applicable percentage of the funding target of the plan for the plan year determined under the following 

table: 

‘‘In the case of a plan year beginning in calendar year: 

The applicable 

percentage is: 

2006 ................................................................................................................................ 92 percent

2007 ................................................................................................................................ 94 percent

2008 ................................................................................................................................ 96 percent

2009 ................................................................................................................................ 98 percent. 

‘‘(ii) NON-DEFICIT REDUCTION PLAN.—For purposes of clause (i), the 

term ‘non-deficit reduction plan’ means any plan—

‘‘(I) to which this part (as in effect on the day before the date of 

the enactment of the Pension Protection Act of 2005) applied for 

the plan year beginning in 2005, and 

‘‘(II) to which section 302(d) (as so in effect) did not apply for 

such plan year. 

‘‘(5) EARLY DEEMED AMORTIZATION UPON ATTAINMENT OF FUNDING TARGET.—

In any case in which the funding shortfall of a plan for a plan year is zero, for 

purposes of determining the shortfall amortization charge for such plan year 

and succeeding plan years, the shortfall amortization bases for all preceding 

plan years (and all shortfall amortization installments determined with respect 

to such bases) shall be reduced to zero. 

‘‘(d) RULES RELATING TO FUNDING TARGET.—For purposes of this section—

‘‘(1) FUNDING TARGET.—Except as provided in subsection (i)(1) with respect to 

plans in at-risk status, the funding target of a plan for a plan year is the 

present value of all liabilities to participants and their beneficiaries under the 

plan for the plan year. 

‘‘(2) FUNDING TARGET ATTAINMENT PERCENTAGE.—The ‘funding target attainment percentage’ of a plan for a plan year is the ratio (expressed as a percentage) which—

‘‘(A) the value of plan assets for the plan year (as reduced under subsection (f)(4)), bears to 

‘‘(B) the funding target of the plan for the plan year (determined without 

regard to subsection (i)(1)). 

‘‘(e) WAIVER AMORTIZATION CHARGE.—

‘‘(1) DETERMINATION OF WAIVER AMORTIZATION CHARGE.—The waiver amortization charge (if any) for a plan for any plan year is the aggregate total of the 

waiver amortization installments for such plan year with respect to the waiver 

amortization bases for each of the 5 preceding plan years. 

‘‘(2) WAIVER AMORTIZATION INSTALLMENT.—The plan sponsor shall determine, 

with respect to the waiver amortization base of the plan for any plan year, the 

amounts necessary to amortize such waiver amortization base, in level annual 

installments over a period of 5 plan years beginning with the succeeding plan 

year. For purposes of paragraph (1), the annual installment of such amortization for each plan year in such 5-plan year period is the waiver amortization 

installment for such plan year with respect to such waiver amortization base. 

‘‘(3) INTEREST RATE.—In determining any waiver amortization installment 

under this subsection, the plan sponsor shall use the segment rates determined 

under subparagraph (C) of subsection (h)(2), applied under rules similar to the 

rules of subparagraph (B) of subsection (h)(2). 

‘‘(4) WAIVER AMORTIZATION BASE.—The waiver amortization base of a plan for 

a plan year is the amount of the waived funding deficiency (if any) for such plan 

year under section 302(c). 

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‘‘(5) EARLY DEEMED AMORTIZATION UPON ATTAINMENT OF FUNDING TARGET.—

In any case in which the funding shortfall of a plan for a plan year is zero, for 

purposes of determining the waiver amortization charge for such plan year and 

succeeding plan years, the waiver amortization base for all preceding plan years 

shall be reduced to zero. 

‘‘(f) REDUCTION OF MINIMUM REQUIRED CONTRIBUTION BY PRE-FUNDING BALANCE

AND FUNDING STANDARD CARRYOVER BALANCE.—

‘‘(1) ELECTION TO MAINTAIN BALANCES.—

‘‘(A) PRE-FUNDING BALANCE.—The plan sponsor of a single-employer plan 

may elect to maintain a pre-funding balance. 

‘‘(B) FUNDING STANDARD CARRYOVER BALANCE.—

‘‘(i) IN GENERAL.—In the case of a single-employer plan described in 

clause (ii), the plan sponsor may elect to maintain a funding standard 

carryover balance, until such balance is reduced to zero. 

‘‘(ii) PLANS MAINTAINING FUNDING STANDARD ACCOUNT IN 2005.—A 

plan is described in this clause if the plan—

‘‘(I) was in effect for a plan year beginning in 2005, and 

‘‘(II) had a positive balance in the funding standard account 

under section 302(b) as in effect for such plan year and determined 

as of the end of such plan year. 

‘‘(2) APPLICATION OF BALANCES.—A pre-funding balance and a funding standard carryover balance maintained pursuant to this paragraph—

‘‘(A) shall be available for crediting against the minimum required contribution, pursuant to an election under paragraph (3), 

‘‘(B) shall be applied as a reduction in the amount treated as the value 

of plan assets for purposes of this section, to the extent provided in paragraph (4), and 

‘‘(C) may be reduced at any time, pursuant to an election under paragraph (5). 

‘‘(3) ELECTION TO APPLY BALANCES AGAINST MINIMUM REQUIRED CONTRIBUTION.—

‘‘(A) IN GENERAL.—Except as provided in subparagraphs (B) and (C), in 

the case of any plan year in which the plan sponsor elects to credit against 

the minimum required contribution for the current plan year all or a portion of the pre-funding balance or the funding standard carryover balance 

for the current plan year (not in excess of such minimum required contribution), the minimum required contribution for the plan year shall be reduced 

by the amount so credited by the plan sponsor. For purposes of the preceding sentence, the minimum required contribution shall be determined 

after taking into account any waiver under section 302(c). 

‘‘(B) COORDINATION WITH FUNDING STANDARD CARRYOVER BALANCE.—To 

the extent that any plan has a funding standard carryover balance greater 

than zero, no amount of the pre-funding balance of such plan may be credited under this paragraph in reducing the minimum required contribution. 

‘‘(C) LIMITATION FOR UNDERFUNDED PLANS.—The preceding provisions of 

this paragraph shall not apply for any plan year if the ratio (expressed as 

a percentage) which—

‘‘(i) the value of plan assets for the preceding plan year (as reduced 

under paragraph (4)), bears to 

‘‘(ii) the funding target of the plan for the preceding plan year (determined without regard to subsection (i)(1)), 

is less than 80 percent. 

‘‘(4) EFFECT OF BALANCES ON AMOUNTS TREATED AS VALUE OF PLAN ASSETS.—

In the case of any plan maintaining a pre-funding balance or a funding standard carryover balance pursuant to this subsection, the amount treated as the 

value of plan assets shall be deemed to be such amount, reduced as provided 

in the following subparagraphs: 

‘‘(A) APPLICABILITY OF SHORTFALL AMORTIZATION CHARGE AND WAIVER AMORTIZATION CHARGE.—For purposes of subsection (c)(3), the value of plan assets is deemed to be such amount, reduced by the amount of the pre-funding balance, but only if an election under paragraph (2) applying any portion of the pre-funding balance in reducing the minimum required contribution is in effect for the plan year. 

‘‘(B) DETERMINATION OF EXCESS ASSETS, FUNDING SHORTFALL, AND FUND- ING TARGET ATTAINMENT PERCENTAGE.—For purposes of subsections (a), 

(c)(4)(A)(ii), and (d)(2)(A), the value of plan assets is deemed to be such 

amount, reduced by the amount of the pre-funding balance and the funding 

standard carryover balance. 

9 

‘‘(C) AVAILABILITY OF BALANCES IN PLAN YEAR FOR CREDITING AGAINST

MINIMUM REQUIRED CONTRIBUTION.—For purposes of paragraph (3)(C)(i) of 

this subsection, the value of plan assets is deemed to be such amount, reduced by the amount of the pre-funding balance. 

‘‘(5) ELECTION TO REDUCE BALANCE PRIOR TO DETERMINATIONS OF VALUE OF

PLAN ASSETS AND CREDITING AGAINST MINIMUM REQUIRED CONTRIBUTION.—

‘‘(A) IN GENERAL.—The plan sponsor may elect to reduce by any amount 

the balance of the pre-funding balance and the funding standard carryover 

balance for any plan year (but not below zero). Such reduction shall be effective prior to any determination of the value of plan assets for such plan 

year under this section and application of the balance in reducing the minimum required contribution for such plan for such plan year pursuant to 

an election under paragraph (2). 

‘‘(B) COORDINATION BETWEEN PRE-FUNDING BALANCE AND FUNDING STANDARD CARRYOVER BALANCE.—To the extent that any plan has a funding 

standard carryover balance greater than zero, no election may be made 

under subparagraph (A) with respect to the pre-funding balance. 

‘‘(6) PRE-FUNDING BALANCE.—

‘‘(A) IN GENERAL.—A pre-funding balance maintained by a plan shall consist of a beginning balance of zero, increased and decreased to the extent 

provided in subparagraphs (B) and (C), and adjusted further as provided in 

paragraph (8). 

‘‘(B) INCREASES.—As of the valuation date for each plan year beginning 

after 2006, the pre-funding balance of a plan shall be increased by the 

amount elected by the plan sponsor for the plan year. Such amount shall 

not exceed the excess (if any) of—

‘‘(i) the aggregate total of employer contributions to the plan for the 

preceding plan year, over 

‘‘(ii) the minimum required contribution for such preceding plan year 

(increased by interest on any portion of such minimum required contribution remaining unpaid as of the valuation date for the current 

plan year, at the effective interest rate for the plan for the preceding 

plan year, for the period beginning with the first day of such preceding 

plan year and ending on the date that payment of such portion is 

made). 

‘‘(C) DECREASES.—As of the valuation date for each plan year after 2006, 

the pre-funding balance of a plan shall be decreased (but not below zero) 

by the sum of—

‘‘(i) the amount of such balance credited under paragraph (2) (if any) 

in reducing the minimum required contribution of the plan for the preceding plan year, and 

‘‘(ii) any reduction in such balance elected under paragraph (5). 

‘‘(7) FUNDING STANDARD CARRYOVER BALANCE.—

‘‘(A) IN GENERAL.—A funding standard carryover balance maintained by 

a plan shall consist of a beginning balance determined under subparagraph 

(B), decreased to the extent provided in subparagraph (C), and adjusted further as provided in paragraph (8). 

‘‘(B) BEGINNING BALANCE.—The beginning balance of the funding standard carryover balance shall be the positive balance described in paragraph 

(1)(B)(ii)(II). 

‘‘(C) DECREASES.—As of the valuation date for each plan year after 2006, 

the funding standard carryover balance of a plan shall be decreased (but 

not below zero) by the sum of—

‘‘(i) the amount of such balance credited under paragraph (2) (if any) 

in reducing the minimum required contribution of the plan for the preceding plan year, and 

‘‘(ii) any reduction in such balance elected under paragraph (5). 

‘‘(8) ADJUSTMENTS TO BALANCES.—In determining the pre-funding balance or 

the funding standard carryover balance of a plan as of the valuation date (before applying any increase or decrease under paragraph (6) or (7)), the plan 

sponsor shall, in accordance with regulations which shall be prescribed by the 

Secretary of the Treasury, adjust such balance so as to reflect the rate of net 

gain or loss (determined, notwithstanding subsection (g)(3), on the basis of fair 

market value) experienced by all plan assets for the period beginning with the 

valuation date for the preceding plan year and ending with the date preceding 

the valuation date for the current plan year, properly taking into account, in 

accordance with such regulations, all contributions, distributions, and other 

plan payments made during such period. 

10 

‘‘(9) ELECTIONS.—Elections under this subsection shall be made at such times, 

and in such form and manner, as shall be prescribed in regulations of the Secretary of the Treasury. 

‘‘(g) VALUATION OF PLAN ASSETS AND LIABILITIES.—

‘‘(1) TIMING OF DETERMINATIONS.—Except as otherwise provided under this 

subsection, all determinations under this section for a plan year shall be made 

as of the valuation date of the plan for such plan year. 

‘‘(2) VALUATION DATE.—For purposes of this section—

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

date of a plan for any plan year shall be the first day of the plan year. 

‘‘(B) EXCEPTION FOR SMALL PLANS.—If, on each day during the preceding 

plan year, a plan had 500 or fewer participants, the plan may designate 

any day during the plan year as its valuation date for such plan year and 

succeeding plan years. For purposes of this subparagraph, all defined benefit plans (other than multiemployer plans) maintained by the same employer (or any member of such employer’s controlled group) shall be treated 

as 1 plan, but only employees of such employer or member shall be taken 

into account. 

‘‘(C) APPLICATION OF CERTAIN RULES IN DETERMINATION OF PLAN SIZE.—

For purposes of this paragraph—

‘‘(i) PLANS NOT IN EXISTENCE IN PRECEDING YEAR.—In the case of the 

first plan year of any plan, subparagraph (B) shall apply to such plan 

by taking into account the number of participants that the plan is reasonably expected to have on days during such first plan year. 

‘‘(ii) PREDECESSORS.—Any reference in subparagraph (B) to an employer shall include a reference to any predecessor of such employer. 

‘‘(3) AUTHORIZATION OF USE OF ACTUARIAL VALUE.—For purposes of this section, the value of plan assets shall be determined on the basis of any reasonable 

actuarial method of valuation which takes into account fair market value and 

which is permitted under regulations prescribed by the Secretary of the Treasury, except that—

‘‘(A) any such method providing for averaging of fair market values may 

not provide for averaging of such values over more than the 3 most recent 

plan years (including the current plan year), and 

‘‘(B) any such method may not result in a determination of the value of 

plan assets which, at any time, is lower than 90 percent or greater than 

110 percent of the fair market value of such assets at such time. 

‘‘(4) ACCOUNTING FOR CONTRIBUTION RECEIPTS.—For purposes of this section—

‘‘(A) CONTRIBUTIONS FOR PRIOR PLAN YEARS TAKEN INTO ACCOUNT.—For 

purposes of determining the value of plan assets for any current plan year, 

in any case in which a contribution properly allocable to amounts owed for 

a preceding plan year is made on or after the valuation date of the plan 

for such current plan year, such contribution shall be taken into account, 

except that any such contribution made during any such current plan year 

beginning after 2006 shall be taken into account only in an amount equal 

to its present value (determined using the effective rate of interest for the 

plan for the preceding plan year) as of the valuation date of the plan for 

such current plan year. 

‘‘(B) CONTRIBUTIONS FOR CURRENT PLAN YEAR DISREGARDED.—For purposes of determining the value of plan assets for any current plan year, contributions which are properly allocable to amounts owed for such plan year 

shall not be taken into account, and, in the case of any such contribution 

made before the valuation date of the plan for such plan year, such value 

of plan assets shall be reduced for interest on such amount determined 

using the effective rate of interest of the plan for the preceding plan year 

for the period beginning when such payment was made and ending on the 

valuation date of the plan. 

‘‘(5) ACCOUNTING FOR PLAN LIABILITIES.—For purposes of this section—

‘‘(A) LIABILITIES TAKEN INTO ACCOUNT FOR CURRENT PLAN YEAR.—In determining the value of liabilities under a plan for a plan year, liabilities 

shall be taken into account to the extent attributable to benefits (including 

any early retirement or similar benefit) accrued or earned as of the beginning of the plan year. 

‘‘(B) ACCRUALS DURING CURRENT PLAN YEAR DISREGARDED.—For purposes 

of subparagraph (A), benefits accrued or earned during such plan year shall 

not be taken into account, irrespective of whether the valuation date of the 

plan for such plan year is later than the first day of such plan year. 

‘‘(h) ACTUARIAL ASSUMPTIONS AND METHODS.—

11 

‘‘(1) IN GENERAL.—Subject to this subsection, the determination of any present 

value or other computation under this section shall be made on the basis of actuarial assumptions and methods— ‘‘(A) each of which is reasonable (taking into account the experience of the 

plan and reasonable expectations), and ‘‘(B) which, in combination, offer the actuary’s best estimate of anticipated experience under the plan. ‘‘(2) INTEREST RATES.— ‘‘(A) EFFECTIVE INTEREST RATE.—For purposes of this section, the term ‘effective interest rate’ means, with respect to any plan for any plan year, 

the single rate of interest which, if used to determine the present value of 

the plan’s liabilities referred to in subsection (d)(1), would result in an 

amount equal to the funding target of the plan for such plan year. ‘‘(B) INTEREST RATES FOR DETERMINING FUNDING TARGET.—For purposes 

of determining the funding target of a plan for any plan year, the interest 

rate used in determining the present value of the liabilities of the plan 

shall be—

‘‘(i) in the case of liabilities reasonably determined to be payable during the 5-year period beginning on the first day of the plan year, the 

first segment rate with respect to the applicable month, ‘‘(ii) in the case of liabilities reasonably determined to be payable during the 15-year period beginning at the end of the period described in 

clause (i), the second segment rate with respect to the applicable 

month, and 

‘‘(iii) in the case of liabilities reasonably determined to be payable 

after the period described in clause (ii), the third segment rate with respect to the applicable month. 

‘‘(C) SEGMENT RATES.—For purposes of this paragraph—

‘‘(i) FIRST SEGMENT RATE.—The term ‘first segment rate’ means, with 

respect to any month, the single rate of interest which shall be determined by the Secretary of the Treasury for such month on the basis 

of the corporate bond yield curve for such month, taking into account 

only that portion of such yield curve which is based on bonds maturing 

during the 5-year period commencing with such month. 

‘‘(ii) SECOND SEGMENT RATE.—The term ‘second segment rate’ means, 

with respect to any month, the single rate of interest which shall be 

determined by the Secretary of the Treasury for such month on the 

basis of the corporate bond yield curve for such month, taking into account only that portion of such yield curve which is based on bonds maturing during the 15-year period beginning at the end of the period described in clause (i). 

‘‘(iii) THIRD SEGMENT RATE.—The term ‘third segment rate’ means, 

with respect to any month, the single rate of interest which shall be 

determined by the Secretary of the Treasury for such month on the 

basis of the corporate bond yield curve for such month, taking into account only that portion of such yield curve which is based on bonds maturing during periods beginning after the period described in clause (ii). 

‘‘(D) CORPORATE BOND YIELD CURVE.—For purposes of this paragraph—

‘‘(i) IN GENERAL.—The term ‘corporate bond yield curve’ means, with 

respect to any month, a yield curve which is prescribed by the Secretary of the Treasury for such month and which reflects a 3-year 

weighted average of yields on investment grade corporate bonds with 

varying maturities. 

‘‘(ii) 3-YEAR WEIGHTED AVERAGE.—The term ‘3-year weighted average’

means an average determined by using a methodology under which the 

most recent year is weighted 50 percent, the year preceding such year 

is weighted 35 percent, and the second year preceding such year is 

weighted 15 percent. 

‘‘(E) APPLICABLE MONTH.—For purposes of this paragraph, the term ‘applicable month’ means, with respect to any plan for any plan year, the 

month which includes the valuation date of such plan for such plan year 

or, at the election of the plan administrator, any of the 4 months which precede such month. Any election made under this subparagraph shall apply 

to the plan year for which the election is made and all succeeding plan 

years, unless the election is revoked with the consent of the Secretary of 

the Treasury. 

‘‘(F) PUBLICATION REQUIREMENTS.—The Secretary of the Treasury shall 

publish for each month the corporate bond yield curve (and the corporate 

bond yield curve reflecting the modification described in section 

12 

205(g)(3)(B)(iii)(I)) for such month and each of the rates determined under 

subparagraph (B) for such month. The Secretary of the Treasury shall also 

publish a description of the methodology used to determine such yield curve 

and such rates which is sufficiently detailed to enable plans to make reasonable projections regarding the yield curve and such rates for future 

months based on the plan’s projection of future interest rates. ‘‘(G) TRANSITION RULE.— ‘‘(i) IN GENERAL.—Notwithstanding the preceding provisions of this 

paragraph, for plan years beginning in 2006 or 2007, the first, second, 

or third segment rate for a plan with respect to any month shall be 

equal to the sum of— ‘‘(I) the product of such rate for such month determined without 

regard to this subparagraph, multiplied by the applicable percentage, and ‘‘(II) the product of the rate determined under the rules of section 

302(b)(5)(B)(ii)(II) (as in effect for plan years beginning in 2005), 

multiplied by a percentage equal to 100 percent minus the applicable percentage. ‘‘(ii) APPLICABLE PERCENTAGE.—For purposes of clause (i), the applicable percentage is 331⁄3 percent for plan years beginning in 2006 and 

662⁄3 percent for plan years beginning in 2007. 

‘‘(3) MORTALITY TABLE.—

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

table used in determining any present value or making any computation 

under this section shall be the RP–2000 Combined Mortality Table, using 

Scale AA, as published by the Society of Actuaries, as in effect on the date 

of the enactment of the Pension Protection Act of 2005 and as revised from 

time to time under subparagraph (B). 

‘‘(B) PERIODIC REVISION.—The Secretary of the Treasury shall (at least 

every 10 years) make revisions in any table in effect under subparagraph 

(A) to reflect the actual experience of pension plans and projected trends 

in such experience. 

‘‘(C) SUBSTITUTE MORTALITY TABLE.—

‘‘(i) IN GENERAL.—Upon request by the plan sponsor and approval by 

the Secretary of the Treasury for a period not to exceed 10 years, a 

mortality table which meets the requirements of clause (ii) shall be 

used in determining any present value or making any computation 

under this section. A mortality table described in this clause shall cease 

to be in effect if the plan actuary determines at any time that such 

table does not meet the requirements of subclauses (I) and (II) of clause 

(ii). 

‘‘(ii) REQUIREMENTS.—A mortality table meets the requirements of 

this clause if the Secretary of the Treasury determines that—

‘‘(I) such table reflects the actual experience of the pension plan 

and projected trends in such experience, and 

‘‘(II) such table is significantly different from the table described 

in subparagraph (A). 

‘‘(iii) DEADLINE FOR DISPOSITION OF APPLICATION.—Any mortality 

table submitted to the Secretary of the Treasury for approval under 

this subparagraph shall be treated as in effect for the succeeding plan 

year unless the Secretary of the Treasury, during the 180-day period 

beginning on the date of such submission, disapproves of such table 

and provides the reasons that such table fails to meet the requirements 

of clause (ii). 

‘‘(D) TRANSITION RULE.—Under regulations of the Secretary of the Treasury, any difference in assumptions as set forth in the mortality table specified in subparagraph (A) and assumptions as set forth in the mortality 

table described in section 302(d)(7)(C)(ii) (as in effect for plan years beginning in 2005) shall be phased in ratably over the first period of 5 plan years 

beginning in or after 2006 so as to be fully effective for the fifth plan year. 

‘‘(4) PROBABILITY OF BENEFIT PAYMENTS IN THE FORM OF LUMP SUMS OR OTHER

OPTIONAL FORMS.—For purposes of determining any present value or making 

any computation under this section, there shall be taken into account—

‘‘(A) the probability that future benefit payments under the plan will be 

made in the form of optional forms of benefits provided under the plan (including lump sum distributions, determined on the basis of the plan’s experience and other related assumptions), and 

‘‘(B) any difference in the present value of such future benefit payments 

resulting from the use of actuarial assumptions, in determining benefit payVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00012 Fmt 6659 Sfmt 6621 E:\HR\OC\HR232P1.XXX HR232P1
13 

ments in any such optional form of benefits, which are different from those 

specified in this subsection. 

‘‘(5) APPROVAL OF LARGE CHANGES IN ACTUARIAL ASSUMPTIONS.—

‘‘(A) IN GENERAL.—No actuarial assumption used to determine the funding target for a single-employer plan to which this paragraph applies may 

be changed without the approval of the Secretary of the Treasury. 

‘‘(B) PLANS TO WHICH PARAGRAPH APPLIES.—This paragraph shall apply to 

a plan only if—

‘‘(i) the aggregate unfunded vested benefits as of the close of the preceding plan year (as determined under section 4006(a)(3)(E)(iii)) of such 

plan and all other plans maintained by the contributing sponsors (as 

defined in section 4001(a)(13)) and members of such sponsors’ controlled groups (as defined in section 4001(a)(14)) which are covered by 

title IV (disregarding plans with no unfunded vested benefits) exceed 

$50,000,000; and 

‘‘(ii) the change in assumptions (determined after taking into account 

any changes in interest rate and mortality table) results in a decrease 

in the funding shortfall of the plan for the current plan year that exceeds $50,000,000, or that exceeds $5,000,000 and that is 5 percent or 

more of the funding target of the plan before such change. 

‘‘(i) SPECIAL RULES FOR AT-RISK PLANS.—

‘‘(1) FUNDING TARGET FOR PLANS IN AT-RISK STATUS.—

‘‘(A) IN GENERAL.—In any case in which a plan is in at-risk status for a 

plan year, the funding target of the plan for the plan year is the sum of—

‘‘(i) the present value of all liabilities to participants and their beneficiaries under the plan for the plan year, as determined by using, in 

addition to the actuarial assumptions described in subsection (g), the 

supplemental actuarial assumptions described in subparagraph (B), 

plus 

‘‘(ii) a loading factor determined under subparagraph (C). 

‘‘(B) SUPPLEMENTAL ACTUARIAL ASSUMPTIONS.—The actuarial assumptions 

used in determining the valuation of the funding target shall include, in addition to the actuarial assumptions described in subsection (h), an assumption that all participants will elect benefits at such times and in such forms 

as will result in the highest present value of liabilities under subparagraph 

(A)(i). 

‘‘(C) LOADING FACTOR.—The loading factor applied with respect to a plan 

under this paragraph for any plan year is the sum of—

‘‘(i) $700, times the number of participants in the plan, plus 

‘‘(ii) 4 percent of the funding target (determined without regard to 

this paragraph) of the plan for the plan year. 

‘‘(2) TARGET NORMAL COST OF AT-RISK PLANS.—In any case in which a plan 

is in at-risk status for a plan year, the target normal cost of the plan for such 

plan year shall be the sum of—

‘‘(A) the present value of all benefits which are expected to accrue or be 

earned under the plan during the plan year, determined under the actuarial assumptions used under paragraph (1), plus 

‘‘(B) the loading factor under paragraph (1)(C), excluding the portion of 

the loading factor described in paragraph (1)(C)(i). 

‘‘(3) DETERMINATION OF AT-RISK STATUS.—For purposes of this subsection, a 

plan is in ‘at-risk status’ for a plan year if the funding target attainment percentage of the plan for the preceding plan year was less than 60 percent. 

‘‘(4) TRANSITION BETWEEN APPLICABLE FUNDING TARGETS AND BETWEEN APPLICABLE TARGET NORMAL COSTS.—

‘‘(A) IN GENERAL.—In any case in which a plan which is in at-risk status 

for a plan year has been in such status for a consecutive period of fewer 

than 5 plan years, the applicable amount of the funding target and of the 

target normal cost shall be, in lieu of the amount determined without regard to this paragraph, the sum of—

‘‘(i) the amount determined under this section without regard to this 

subsection, plus 

‘‘(ii) the transition percentage for such plan year of the excess of the 

amount determined under this subsection (without regard to this paragraph) over the amount determined under this section without regard 

to this subsection. 

‘‘(B) TRANSITION PERCENTAGE.—For purposes of this paragraph, the ‘transition percentage’ for a plan year is the product derived by multiplying—

‘‘(i) 20 percent, by 

14 

‘‘(ii) the number of plan years during the period described in subparagraph (A). ‘‘(j) PAYMENT OF MINIMUM REQUIRED CONTRIBUTIONS.— ‘‘(1) IN GENERAL.—For purposes of this section, the due date for any payment 

of any minimum required contribution for any plan year shall be 81⁄2 months 

after the close of the plan year. ‘‘(2) INTEREST.—Any payment required under paragraph (1) for a plan year 

made after the valuation date for such plan year shall be increased by interest, 

for the period from the valuation date to the payment date, at the effective rate 

of interest for the plan for such plan year. ‘‘(3) ACCELERATED QUARTERLY CONTRIBUTION SCHEDULE FOR UNDERFUNDED

PLANS.—

‘‘(A) INTEREST PENALTY FOR FAILURE TO MEET ACCELERATED QUARTERLY

PAYMENT SCHEDULE.—In any case in which the plan has a funding shortfall 

for the preceding plan year, if the required installment is not paid in full, 

then the minimum required contribution for the plan year (as increased 

under paragraph (2)) shall be further increased by an amount equal to the 

interest on the amount of the underpayment for the period of the underpayment, using an interest rate equal to the excess of— ‘‘(i) 175 percent of the Federal mid-term rate (as in effect under section 1274 of the Internal Revenue Code of 1986 for the 1st month of 

such plan year), over ‘‘(ii) the effective rate of interest for the plan for the plan year. ‘‘(B) AMOUNT OF UNDERPAYMENT, PERIOD OF UNDERPAYMENT.—For purposes of subparagraph (A)— ‘‘(i) AMOUNT.—The amount of the underpayment shall be the excess 

of— ‘‘(I) the required installment, over 

‘‘(II) the amount (if any) of the installment contributed to or 

under the plan on or before the due date for the installment. ‘‘(ii) PERIOD OF UNDERPAYMENT.—The period for which any interest 

is charged under this paragraph with respect to any portion of the underpayment shall run from the due date for the installment to the date 

on which such portion is contributed to or under the plan. ‘‘(iii) ORDER OF CREDITING CONTRIBUTIONS.—For purposes of clause 

(i)(II), contributions shall be credited against unpaid required installments in the order in which such installments are required to be paid. ‘‘(C) NUMBER OF REQUIRED INSTALLMENTS; DUE DATES.—For purposes of 

this paragraph— ‘‘(i) PAYABLE IN 4 INSTALLMENTS.—There shall be 4 required installments for each plan year. 

‘‘(ii) TIME FOR PAYMENT OF INSTALLMENTS.—The due dates for required installments are set forth in the following table: 

‘‘In the case of the following required installment: The due date is: 

1st ................................................................................................. April 15 

2nd ................................................................................................ July 15 

3rd ................................................................................................ October 15 

4th ................................................................................................ January 15 of the following 

year 

‘‘(D) AMOUNT OF REQUIRED INSTALLMENT.—For purposes of this paragraph—

‘‘(i) IN GENERAL.—The amount of any required installment shall be 

25 percent of the required annual payment. 

‘‘(ii) REQUIRED ANNUAL PAYMENT.—For purposes of clause (i), the 

term ‘required annual payment’ means the lesser of—

‘‘(I) 90 percent of the minimum required contribution (without regard to any waiver under section 302(c)) to the plan for the plan 

year under this section, or 

‘‘(II) in the case of a plan year beginning after 2006, 100 percent 

of the minimum required contribution (without regard to any waiver under section 302(c)) to the plan for the preceding plan year. 

Subclause (II) shall not apply if the preceding plan year referred to in 

such clause was not a year of 12 months. 

‘‘(E) FISCAL YEARS AND SHORT YEARS.—

‘‘(i) FISCAL YEARS.—In applying this paragraph to a plan year beginning on any date other than January 1, there shall be substituted for 

15 

the months specified in this paragraph, the months which correspond 

thereto. ‘‘(ii) SHORT PLAN YEAR.—This subparagraph shall be applied to plan 

years of less than 12 months in accordance with regulations prescribed 

by the Secretary of the Treasury. ‘‘(4) LIQUIDITY REQUIREMENT IN CONNECTION WITH QUARTERLY CONTRIBU- TIONS.—

‘‘(A) IN GENERAL.—A plan to which this paragraph applies shall be treated as failing to pay the full amount of any required installment under paragraph (3) to the extent that the value of the liquid assets paid in such installment is less than the liquidity shortfall (whether or not such liquidity 

shortfall exceeds the amount of such installment required to be paid but for 

this paragraph). ‘‘(B) PLANS TO WHICH PARAGRAPH APPLIES.—This paragraph shall apply to 

a plan (other than a plan that would be described in subsection (f)(2)(B) if 

‘100’ were substituted for ‘500’ therein) which— ‘‘(i) is required to pay installments under paragraph (3) for a plan 

year, and ‘‘(ii) has a liquidity shortfall for any quarter during such plan year. ‘‘(C) PERIOD OF UNDERPAYMENT.—For purposes of paragraph (3)(A), any 

portion of an installment that is treated as not paid under subparagraph 

(A) shall continue to be treated as unpaid until the close of the quarter in 

which the due date for such installment occurs. 

‘‘(D) LIMITATION ON INCREASE.—If the amount of any required installment 

is increased by reason of subparagraph (A), in no event shall such increase 

exceed the amount which, when added to prior installments for the plan 

year, is necessary to increase the funding target attainment percentage of 

the plan for the plan year (taking into account the expected increase in 

funding target due to benefits accruing or earned during the plan year) to 

100 percent. 

‘‘(E) DEFINITIONS.—For purposes of this subparagraph: 

‘‘(i) LIQUIDITY SHORTFALL.—The term ‘liquidity shortfall’ means, with 

respect to any required installment, an amount equal to the excess (as 

of the last day of the quarter for which such installment is made) of—

‘‘(I) the base amount with respect to such quarter, over 

‘‘(II) the value (as of such last day) of the plan’s liquid assets. 

‘‘(ii) BASE AMOUNT.—

‘‘(I) IN GENERAL.—The term ‘base amount’ means, with respect to 

any quarter, an amount equal to 3 times the sum of the adjusted 

disbursements from the plan for the 12 months ending on the last 

day of such quarter. 

‘‘(II) SPECIAL RULE.—If the amount determined under subclause 

(I) exceeds an amount equal to 2 times the sum of the adjusted disbursements from the plan for the 36 months ending on the last day 

of the quarter and an enrolled actuary certifies to the satisfaction 

of the Secretary of the Treasury that such excess is the result of 

nonrecurring circumstances, the base amount with respect to such 

quarter shall be determined without regard to amounts related to 

those nonrecurring circumstances. 

‘‘(iii) DISBURSEMENTS FROM THE PLAN.—The term ‘disbursements 

from the plan’ means all disbursements from the trust, including purchases of annuities, payments of single sums and other benefits, and 

administrative expenses. 

‘‘(iv) ADJUSTED DISBURSEMENTS.—The term ‘adjusted disbursements’

means disbursements from the plan reduced by the product of—

‘‘(I) the plan’s funding target attainment percentage for the plan 

year, and 

‘‘(II) the sum of the purchases of annuities, payments of single 

sums, and such other disbursements as the Secretary of the Treasury shall provide in regulations. 

‘‘(v) LIQUID ASSETS.—The term ‘liquid assets’ means cash, marketable 

securities, and such other assets as specified by the Secretary of the 

Treasury in regulations. 

‘‘(vi) QUARTER.—The term ‘quarter’ means, with respect to any required installment, the 3-month period preceding the month in which 

the due date for such installment occurs. 

‘‘(F) REGULATIONS.—The Secretary of the Treasury may prescribe such 

regulations as are necessary to carry out this paragraph. 

‘‘(k) IMPOSITION OF LIEN WHERE FAILURE TO MAKE REQUIRED CONTRIBUTIONS.—

16 

‘‘(1) IN GENERAL.—In the case of a plan covered under section 4021 of this Act 

and to which this subsection applies (as provided under paragraph (2)), if— ‘‘(A) any person fails to make a contribution payment required by section 

302 and this section before the due date for such payment, and ‘‘(B) the unpaid balance of such payment (including interest), when added 

to the aggregate unpaid balance of all preceding such payments for which 

payment was not made before the due date (including interest), exceeds 

$1,000,000, 

then there shall be a lien in favor of the plan in the amount determined under 

paragraph (3) upon all property and rights to property, whether real or personal, belonging to such person and any other person who is a member of the 

same controlled group of which such person is a member. ‘‘(2) PLANS TO WHICH SUBSECTION APPLIES.—This subsection shall apply to a 

defined benefit plan which is a single-employer plan for any plan year for which 

the funding target attainment percentage (as defined in subsection (d)(2)) of 

such plan is less than 100 percent. ‘‘(3) AMOUNT OF LIEN.—For purposes of paragraph (1), the amount of the lien 

shall be equal to the aggregate unpaid balance of contribution payments required under this section and section 302 for which payment has not been made 

before the due date. ‘‘(4) NOTICE OF FAILURE; LIEN.— ‘‘(A) NOTICE OF FAILURE.—A person committing a failure described in 

paragraph (1) shall notify the Pension Benefit Guaranty Corporation of 

such failure within 10 days of the due date for the required contribution 

payment. ‘‘(B) PERIOD OF LIEN.—The lien imposed by paragraph (1) shall arise on 

the due date for the required contribution payment and shall continue until 

the last day of the first plan year in which the plan ceases to be described 

in paragraph (1)(B). Such lien shall continue to run without regard to 

whether such plan continues to be described in paragraph (2) during the 

period referred to in the preceding sentence. ‘‘(C) CERTAIN RULES TO APPLY.—Any amount with respect to which a lien 

is imposed under paragraph (1) shall be treated as taxes due and owing the 

United States and rules similar to the rules of subsections (c), (d), and (e) 

of section 4068 shall apply with respect to a lien imposed by subsection (a) 

and the amount with respect to such lien. ‘‘(5) ENFORCEMENT.—Any lien created under paragraph (1) may be perfected 

and enforced only by the Pension Benefit Guaranty Corporation, or at the direction of the Pension Benefit Guaranty Corporation, by the contributing sponsor 

(or any member of the controlled group of the contributing sponsor). ‘‘(6) DEFINITIONS.—For purposes of this subsection— ‘‘(A) CONTRIBUTION PAYMENT.—The term ‘contribution payment’ means, in 

connection with a plan, a contribution payment required to be made to the 

plan, including any required installment under paragraphs (3) and (4) of 

subsection (i). ‘‘(B) DUE DATE; REQUIRED INSTALLMENT.—The terms ‘due date’ and ‘re- quired installment’ have the meanings given such terms by subsection (j), 

except that in the case of a payment other than a required installment, the 

due date shall be the date such payment is required to be made under section 303. ‘‘(C) CONTROLLED GROUP.—The term ‘controlled group’ means any group 

treated as a single employer under subsections (b), (c), (m), and (o) of section 414 of the Internal Revenue Code of 1986. 

‘‘(l) QUALIFIED TRANSFERS TO HEALTH BENEFIT ACCOUNTS.—In the case of a qualified transfer (as defined in section 420 of the Internal Revenue Code of 1986), any 

assets so transferred shall not, for purposes of this section, be treated as assets in 

the plan.’’. 

(b) CLERICAL AMENDMENT.—The table of sections in section 1 of such Act (as 

amended by section 101) is amended by inserting after the item relating to section 

302 the following new item: 

‘‘Sec. 303. Minimum funding standards for single-employer defined benefit pension plans.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to plan years beginning after 2005. 

SEC. 103. BENEFIT LIMITATIONS UNDER SINGLE-EMPLOYER PLANS. 

(a) PROHIBITION OF SHUTDOWN BENEFITS AND OTHER UNPREDICTABLE CONTINGENT EVENT BENEFITS UNDER SINGLE-EMPLOYER PLANS.—Section 206 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1056) is amended by adding at the end the following new subsection: 

17 

‘‘(g) PROHIBITION OF SHUTDOWN BENEFITS AND OTHER UNPREDICTABLE CONTIN- GENT EVENT BENEFITS UNDER SINGLE-EMPLOYER PLANS.— ‘‘(1) IN GENERAL.—No pension plan which is a single-employer plan may provide benefits to which participants are entitled solely by reason of the occurrence of—

‘‘(A) a plant shutdown, or 

‘‘(B) any other unpredictable contingent event. ‘‘(2) UNPREDICTABLE CONTINGENT EVENT.—For purposes of this subsection, the 

term ‘unpredictable contingent event’ means an event other than— ‘‘(A) attainment of any age, performance of any service, receipt or derivation of any compensation, or the occurrence of death or disability, or ‘‘(B) an event which is reasonably and reliably predictable (as determined 

by the Secretary of the Treasury).’’. (b) OTHER LIMITS ON BENEFITS AND BENEFIT ACCRUALS.— (1) IN GENERAL.—Section 206 of such Act (as amended by subsection (a)) is 

amended further by adding at the end the following new subsection: ‘‘(h) FUNDING-BASED LIMITS ON BENEFITS AND BENEFIT ACCRUALS UNDER SINGLE- EMPLOYER PLANS.— ‘‘(1) LIMITATIONS ON PLAN AMENDMENTS INCREASING LIABILITY FOR BENE- FITS.—

‘‘(A) IN GENERAL.—No amendment to a single-employer plan which has 

the effect of increasing liabilities of the plan by reason of increases in benefits, establishment of new benefits, changing the rate of benefit accrual, or 

changing the rate at which benefits become nonforfeitable to the plan may 

take effect during any plan year if the funding target attainment percentage as of the valuation date of the plan for such plan year is—

‘‘(i) less than 80 percent, or 

‘‘(ii) would be less than 80 percent taking into account such amendment. 

For purposes of this subparagraph, any increase in benefits under the plan 

by reason of an increase in the benefit rate provided under the plan or on 

the basis of an increase in compensation shall be treated as affected by plan 

amendment. 

‘‘(B) EXEMPTION.—Subparagraph (A) shall cease to apply with respect to 

any plan year, effective as of the first date of the plan year (or if later, the 

effective date of the amendment), upon payment by the plan sponsor of a 

contribution (in addition to any minimum required contribution under section 303) equal to—

‘‘(i) in the case of subparagraph (A)(i), the amount of the increase in 

the funding target of the plan (under section 303) for the plan year attributable to the amendment, and 

‘‘(ii) in the case of subparagraph (A)(ii), the amount sufficient to result in a funding target attainment percentage of 80 percent. 

‘‘(2) FUNDING-BASED LIMITATION ON CERTAIN FORMS OF DISTRIBUTION.—

‘‘(A) IN GENERAL.—A single-employer plan shall provide that, in any case 

in which the plan’s funding target attainment percentage as of the valuation date of the plan for a plan year is less than 80 percent, the plan may 

not after such date pay any prohibited payment (as defined in section 

206(e)). 

‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply to any plan for any 

plan year if the terms of such plan (as in effect for the period beginning 

on June 29, 2005, and ending with such plan year) provide for no benefit 

accruals with respect to any participant during such period. 

‘‘(3) LIMITATIONS ON BENEFIT ACCRUALS FOR PLANS WITH SEVERE FUNDING

SHORTFALLS.—A single-employer plan shall provide that, in any case in which 

the plan’s funding target attainment percentage as of the valuation date of the 

plan for a plan year is less than 60 percent, all future benefit accruals under 

the plan shall cease as of such date. 

‘‘(4) NEW PLANS.—Paragraphs (1) and (3) shall not apply to a plan for the first 

5 plan years of the plan. For purposes of this paragraph, the reference in this 

paragraph to a plan shall include a reference to any predecessor plan. 

‘‘(5) PRESUMED UNDERFUNDING FOR PURPOSES OF BENEFIT LIMITATIONS BASED

ON PRIOR YEAR’S FUNDING STATUS.—

‘‘(A) PRESUMPTION OF CONTINUED UNDERFUNDING.—In any case in which 

a benefit limitation under paragraph (1), (2), or (3) has been applied to a 

plan with respect to the plan year preceding the current plan year, the 

funding target attainment percentage of the plan as of the valuation date 

of the plan for the current plan year shall be presumed to be equal to the 

funding target attainment percentage of the plan as of the valuation date 

18 

of the plan for the preceding plan year until the enrolled actuary of the 

plan certifies the actual funding target attainment percentage of the plan 

as of the valuation date of the plan for the current plan year. 

‘‘(B) PRESUMPTION OF UNDERFUNDING AFTER 10TH MONTH.—In any case in 

which no such certification is made with respect to the plan before the first 

day of the 10th month of the current plan year, for purposes of paragraphs 

(1), (2), and (3), the plan’s funding target attainment percentage shall be 

conclusively presumed to be less than 60 percent as of the first day of such 

10th month, and such day shall be deemed, for purposes of such paragraphs, to be the valuation date of the plan for the current plan year. 

‘‘(C) PRESUMPTION OF UNDERFUNDING AFTER 4TH MONTH FOR NEARLY UNDERFUNDED PLANS.—In any case in which—

‘‘(i) a benefit limitation under paragraph (1), (2), or (3) did not apply 

to a plan with respect to the plan year preceding the current plan year, 

but the funding target attainment percentage of the plan for such preceding plan year was not more than 10 percentage points greater than 

the percentage which would have caused such paragraph to apply to 

the plan with respect to such preceding plan year, and 

‘‘(ii) as of the first day of the 4th month of the current plan year, the 

enrolled actuary of the plan has not certified the actual funding target 

attainment percentage of the plan as of the valuation date of the plan 

for the current plan year, 

until the enrolled actuary so certifies, such first day shall be deemed, for 

purposes of such paragraph, to be the valuation date of the plan for the current plan year and the funding target attainment percentage of the plan 

as of such first day shall, for purposes of such paragraph, be presumed to 

be equal to 10 percentage points less than the funding target attainment 

percentage of the plan as of the valuation date of the plan for such preceding plan year. 

‘‘(6) RESTORATION BY PLAN AMENDMENT OF BENEFITS OR BENEFIT ACCRUAL.—

In any case in which a prohibition under paragraph (2) of the payment of lump 

sum distributions or benefits in any other accelerated form or a cessation of 

benefit accruals under paragraph (3) is applied to a plan with respect to any 

plan year and such prohibition or cessation, as the case may be, ceases to apply 

to any subsequent plan year, the plan may provide for the resumption of such 

benefit payment or such benefit accrual only by means of the adoption of a plan 

amendment after the valuation date of the plan for such subsequent plan year. 

The preceding sentence shall not apply to a prohibition or cessation required 

by reason of paragraph (5). 

‘‘(7) FUNDING TARGET ATTAINMENT PERCENTAGE.—

‘‘(A) IN GENERAL.—For purposes of this subsection, the term ‘funding target attainment percentage’ means, with respect to any plan for any plan 

year, the ratio (expressed as a percentage) which—

‘‘(i) the value of plan assets for the plan year (as determined under 

section 303(g)) reduced by the pre-funding balance and the funding 

standard carryover balance (within the meaning of section 303(f)), 

bears to 

‘‘(ii) the funding target of the plan for the plan year (as determined 

under section 303(d)(1), but without regard to section 303(i)(1)). 

‘‘(B) APPLICATION TO PLANS WHICH ARE FULLY FUNDED WITHOUT REGARD

TO REDUCTIONS FOR FUNDING BALANCES.—In the case of a plan for any plan 

year, if the funding target attainment percentage is 100 percent or more 

(determined without regard to this subparagraph and without regard to the 

reduction under subparagraph (A)(i) for the pre-funding balance and the 

funding standard carryover balance), subparagraph (A) shall be applied 

without regard to such reduction.’’. 

(2) NOTICE REQUIREMENT.—

(A) IN GENERAL.—Section 101 of such Act (29 U.S.C. 1021) is amended—

(i) by redesignating subsection (j) as subsection (k); and 

(ii) by inserting after subsection (i) the following new subsection: 

‘‘(j) NOTICE OF FUNDING-BASED LIMITATION ON CERTAIN FORMS OF DISTRIBUTION.—The plan administrator of a single-employer plan shall provide a written notice to plan participants and beneficiaries within 30 days after the plan has become 

subject to the restriction described in section 206(h)(2) or at such other time as may 

be determined by the Secretary.’’. 

(B) ENFORCEMENT.—Section 502(c)(4) of such Act (29 U.S.C. 1132(c)(4)) is 

amended by striking ‘‘section 302(b)(7)(F)(vi)’’ and inserting ‘‘sections 101(j) 

and 302(b)(7)(F)(vi)’’. 

19 

(c) SPECIAL RULE FOR PLAN AMENDMENTS.—A plan shall not fail to meet the requirements of section 204(g) of the Employee Retirement Income Security Act of 

1974 or section 411(d)(6) of the Internal Revenue Code of 1986 solely by reason of 

the adoption by the plan of an amendment necessary to meet the requirements of 

the amendments made by this section. 

(d) EFFECTIVE DATE.—

(1) SHUTDOWN BENEFITS.—Except as provided in paragraph (3), the amendments made by subsection (a) shall apply with respect to plant shutdowns, or 

other unpredictable contingent events, occurring after 2006. 

(2) OTHER BENEFITS.—Except as provided in paragraph (3), the amendments 

made by subsection (b) shall apply with respect to plan years beginning after 

2006. 

(3) COLLECTIVE BARGAINING EXCEPTION.—In the case of a plan maintained 

pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified before the date of the enactment 

of this Act, the amendments made by this subsection shall not apply to plan 

years beginning before the earlier of—

(A) the later of—

(i) the date on which the last collective bargaining agreement relating to the plan terminates (determined without regard to any extension 

thereof agreed to after the date of the enactment of this Act), or 

(ii) the first day of the first plan year to which the amendments made 

by this subsection would (but for this subparagraph) apply, or 

(B) January 1, 2009. 

For purposes of clause (i), any plan amendment made pursuant to a collective 

bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this subsection shall not be treated as a termination of such collective bargaining agreement. 

SEC. 104. TECHNICAL AND CONFORMING AMENDMENTS. 

(a) MISCELLANEOUS AMENDMENTS TO TITLE I.—Subtitle B of title I of such Act (29 

U.S.C. 1021 et seq.) is amended—

(1) in section 101(d)(3), by striking ‘‘section 302(e)’’ and inserting ‘‘section 

303(j)’’; 

(2) in section 101(f)(2)(B), by striking clause (i) and inserting the following: 

‘‘(i) a statement as to whether—

‘‘(I) in the case of a single-employer plan, the plan’s funding target attainment percentage (as defined in section 303(d)(2)), or 

‘‘(II) in the case of a multiemployer plan, the plan’s funded percentage (as defined in section 305(d)(2)), 

is at least 100 percent (and, if not, the actual percentage);’’; 

(3) in section 103(d)(8)(B), by striking ‘‘the requirements of section 302(c)(3)’’

and inserting ‘‘the applicable requirements of sections 303(h) and 304(c)(3)’’; 

(4) in section 103(d), by striking paragraph (11) and inserting the following: 

‘‘(11) If the current value of the assets of the plan is less than 70 percent of—

‘‘(A) in the case of a single-employer plan, the funding target (as defined 

in section 303(d)(1)) of the plan, or 

‘‘(B) in the case of a multiemployer plan, the current liability (as defined 

in section 304(c)(6)(D)) under the plan, 

the percentage which such value is of the amount described in subparagraph 

(A) or (B).’’; 

(5) in section 203(a)(3)(C), by striking ‘‘section 302(c)(8)’’ and inserting ‘‘section 302(d)(2)’’; 

(6) in section 204(g)(1), by striking ‘‘section 302(c)(8)’’ and inserting ‘‘section 

302(d)(2)’’; 

(7) in section 204(i)(2)(B), by striking ‘‘section 302(c)(8)’’ and inserting ‘‘section 

302(d)(2)’’; 

(8) in section 204(i)(3), by striking ‘‘funded current liability percentage (within 

the meaning of section 302(d)(8) of this Act)’’ and inserting ‘‘funding target attainment percentage (as defined in section 303(d)(2))’’; 

(9) in section 204(i)(4), by striking ‘‘section 302(c)(11)(A), without regard to 

section 302(c)(11)(B)’’ and inserting ‘‘section 302(b)(1), without regard to section 

302(b)(2)’’; 

(10) in section 206(e)(1), by striking ‘‘section 302(d)’’ and inserting ‘‘section 

303(j)(4)’’, and by striking ‘‘section 302(e)(5)’’ and inserting ‘‘section 

303(j)(4)(E)(i)’’; 

(11) in section 206(e)(3), by striking ‘‘section 302(e) by reason of paragraph 

(5)(A) thereof’’ and inserting ‘‘section 303(j)(3) by reason of section 303(j)(4)(A)’’; 

and 

20 

(12) in sections 101(e)(3), 403(c)(1), and 408(b)(13), by striking ‘‘American Jobs 

Creation Act of 2004’’ and inserting ‘‘Pension Protection Act of 2005’’. (b) MISCELLANEOUS AMENDMENTS TO TITLE IV.—Title IV of such Act is amended— (1) in section 4001(a)(13) (29 U.S.C. 1301(a)(13)), by striking ‘‘302(c)(11)(A)’’ and inserting ‘‘302(b)(1)’’, by striking ‘‘412(c)(11)(A)’’ and inserting ‘‘412(b)(1)’’, by striking ‘‘302(c)(11)(B)’’ and inserting ‘‘302(b)(2)’’, and by striking ‘‘412(c)(11)(B)’’ and inserting ‘‘412(b)(2)’’; 

(2) in section 4003(e)(1) (29 U.S.C. 1303(e)(1)), by striking ‘‘302(f)(1)(A) and 

(B)’’ and inserting ‘‘303(k)(1)(A) and (B)’’, and by striking ‘‘412(n)(1)(A) and (B)’’ and inserting ‘‘430(k)(1)(A) and (B)’’; 

(3) in section 4010(b)(2) (29 U.S.C. 1310(b)(2)), by striking ‘‘302(f)(1)(A) and 

(B)’’ and inserting ‘‘303(k)(1)(A) and (B)’’, and by striking ‘‘412(n)(1)(A) and (B)’’ and inserting ‘‘430(k)(1)(A) and (B)’’; 

(4) in section 4011(b) (29 U.S.C. 1311(b)), by striking ‘‘to which’’ and all that 

follows and inserting ‘‘for any plan year for which the plan’s funding target attainment percentage (as defined in section 303(d)(2)) is at least 90 percent.’’; 

(5) in section 4062(c)(1) (29 U.S.C. 1362(c)(1)), by striking paragraphs (1), (2), 

and (3) and inserting the following: ‘‘(1)(A) in the case of a single-employer plan, the sum of the shortfall amortization charge (within the meaning of section 303(c)(1) of this Act and 430(c)(1) 

of the Internal Revenue Code of 1986) with respect to the plan (if any) for the 

plan year in which the termination date occurs, plus the aggregate total of 

shortfall amortization installments (if any) determined for succeeding plan 

years under section 303(c)(2) of this Act and section 430(c)(2) of such Code 

(which, for purposes of this subparagraph, shall include any increase in such 

sum which would result if all applications for waivers of the minimum funding 

standard under section 302(c) of this Act and section 412(c) of such Code which 

are pending with respect to such plan were denied and if no additional contributions (other than those already made by the termination date) were made for 

the plan year in which the termination date occurs or for any previous plan 

year), or 

‘‘(B) in the case of a multiemployer plan, the outstanding balance of the accumulated funding deficiencies (within the meaning of section 304(a)(2) of this Act 

and section 431(a) of the Internal Revenue Code of 1986) of the plan (if any) 

(which, for purposes of this subparagraph, shall include the amount of any increase in such accumulated funding deficiencies of the plan which would result 

if all pending applications for waivers of the minimum funding standard under 

section 302(c) of this Act or section 412(c) of such Code and for extensions of 

the amortization period under section 304(d) of this Act or section 431(d) of such 

Code with respect to such plan were denied and if no additional contributions 

(other than those already made by the termination date) were made for the plan 

year in which the termination date occurs or for any previous plan year), 

‘‘(2)(A) in the case of a single-employer plan, the sum of the waiver amortization charge (within the meaning of section 303(e)(1) of this Act and 430(j)(2) of 

the Internal Revenue Code of 1986) with respect to the plan (if any) for the plan 

year in which the termination date occurs, plus the aggregate total of waiver 

amortization installments (if any) determined for succeeding plan years under 

section 303(e)(2) of this Act and section 430(j)(3) of such Code, or 

‘‘(B) in the case of a multiemployer plan, the outstanding balance of the 

amount of waived funding deficiencies of the plan waived before such date 

under section 302(c) of this Act or section 412(c) of such Code (if any), and 

‘‘(3) in the case of a multiemployer plan, the outstanding balance of the 

amount of decreases in the minimum funding standard allowed before such date 

under section 304(d) of this Act or section 431(d) of such Code (if any);’’; 

(6) in section 4071 (29 U.S.C. 1371), by striking ‘‘302(f)(4)’’ and inserting 

‘‘303(k)(4)’’; 

(7) in section 4243(a)(1)(B) (29 U.S.C. 1423(a)(1)(B)), by striking ‘‘302(a)’’ and 

inserting ‘‘304(a)’’, and, in clause (i), by striking ‘‘302(a)’’ and inserting ‘‘304(a)’’; 

(8) in section 4243(f)(1) (29 U.S.C. 1423(f)(1)), by striking ‘‘303(a)’’ and inserting ‘‘302(c)’’; 

(9) in section 4243(f)(2) (29 U.S.C. 1423(f)(2)), by striking ‘‘303(c)’’ and inserting ‘‘302(c)(3)’’; and 

(10) in section 4243(g) (29 U.S.C. 1423(g)), by striking ‘‘302(c)(3)’’ and inserting ‘‘304(c)(3)’’. 

(c) AMENDMENTS TO REORGANIZATION PLAN NO. 4 OF 1978.—Section 106(b)(ii) of 

Reorganization Plan No. 4 of 1978 (ratified and affirmed as law by Public Law 98–

532 (98 Stat. 2705)) is amended by striking ‘‘302(c)(8)’’ and inserting ‘‘302(d)(2)’’, by 

striking ‘‘304(a) and (b)(2)(A)’’ and inserting ‘‘304(d)(1), (d)(2), and (e)(2)(A)’’, and by 

21 

striking ‘‘412(c)(8), (e), and (f)(2)(A)’’ and inserting ‘‘412(d)(2) and 431(d)(1), (d)(2), 

and (e)(2)(A)’’. (d) REPEAL OF EXPIRED AUTHORITY FOR TEMPORARY VARIANCES.— (1) IN GENERAL.—Section 207 of such Act (29 U.S.C. 1057) is repealed. 

(2) CONFORMING AMENDMENT.—The table of contents in section 1 of such Act 

is amended by striking the item relating to section 207. 

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

years beginning after 2005. 

Subtitle B—Amendments to Internal Revenue 

Code of 1986 

SEC. 111. [SEE INTRODUCED BILL, PAGE 71, LINE 1 THROUGH PAGE 140, LINE 13]. 

Subtitle C—Other Provisions 

SEC. 121. MODIFICATION OF TRANSITION RULE TO PENSION FUNDING REQUIREMENTS. 

(a) IN GENERAL.—In the case of a plan that—

(1) was not required to pay a variable rate premium for the plan year beginning in 1996, 

(2) has not, in any plan year beginning after 1995, merged with another plan 

(other than a plan sponsored by an employer that was in 1996 within the controlled group of the plan sponsor); and 

(3) is sponsored by a company that is engaged primarily in the interurban or 

interstate passenger bus service, 

the rules described in subsection (b) shall apply for any plan year beginning after 

2005. 

(b) MODIFIED RULES.—The rules described in this subsection are as follows: 

(1) For purposes of section 430(i)(3) of the Internal Revenue Code of 1986 and 

section 303(j)(3) of the Employee Retirement Income Security Act of 1974, the 

plan shall be treated as not having a funding shortfall for any plan year. 

(2) For purposes of—

(A) determining unfunded vested benefits under section 4006(a)(3)(E)(iii) 

of such Act, and 

(B) determining any present value or making any computation under section 412 of such Code or section 302 of such Act, 

the mortality table shall be the mortality table used by the plan. 

(3) Notwithstanding section 303(f)(4)(B) of such Act, for purposes of section 

303(c)(4)(B) of such Act, the value of plan assets is deemed to be such amount, 

reduced by the amount of the pre-funding balance if, pursuant to a binding 

written agreement with the Pension Benefit Guaranty Corporation entered into 

before January 1, 2006, the funding standard carryover balance is not available 

to reduce the minimum required contribution for the plan year. 

(4) Section 430(c)(4)(B) of such Code and section 303(c)(4)(B) of such Act (relating to phase-in of funding target for determination of funding shortfall) shall 

each be applied by substituting ‘‘2011’’ for ‘‘2010’’ therein and by substituting 

for the table therein the following: 

In the case of a plan year beginning in calendar year: 

The applicable 

percentage is: 

2006 ................................................................................................................................ 90 percent

2007 ................................................................................................................................ 92 percent

2008 ................................................................................................................................ 94 percent

2009 ................................................................................................................................ 96 percent

2010 ................................................................................................................................ 98 percent. 

(c) DEFINITIONS.—Any term used in this section which is also used in section 303 

of such Act shall have the meaning provided such term in such section. 

(d) CONFORMING AMENDMENT.—

(1) Section 769 of the Retirement Protection Act of 1994 (26 U.S.C. 412 note) 

is amended by striking subsection (c). 

(2) The amendment made this subsection shall apply to plan years beginning 

after 2005. 

22 

SEC. 122. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION PLANS WHEN EMPLOYER DEFINED BENEFIT PLAN IN AT-RISK STATUS. 

[See introduced bill, page 142, line 3 through page 143, line 16] 

TITLE II—FUNDING RULES FOR 

MULTIEMPLOYER DEFINED BENEFIT PLANS 

Subtitle A—Amendments to Employee Retirement 

Income Security Act of 1974 

SEC. 201. FUNDING RULES FOR MULTIEMPLOYER DEFINED BENEFIT PLANS. 

(a) IN GENERAL.—Part 3 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 (as amended by section 102) is amended further by inserting after section 303 the following new section: 

‘‘MINIMUM FUNDING STANDARDS FOR MULTIEMPLOYER PLANS

‘‘SEC. 304. (a) IN GENERAL.—For purposes of section 302, the accumulated funding 

deficiency of a multiemployer plan for any plan year is— ‘‘(1) except as provided in paragraph (2), the amount, determined as of the 

end of the plan year, equal to the excess (if any) of the total charges to the funding standard account of the plan for all plan years (beginning with the first plan 

year for which this part applies to the plan) over the total credits to such account for such years, and ‘‘(2) if the multiemployer plan is in reorganization for any plan year, the accumulated funding deficiency of the plan determined under section 4243. ‘‘(b) FUNDING STANDARD ACCOUNT.— ‘‘(1) ACCOUNT REQUIRED.—Each multiemployer plan to which this part applies 

shall establish and maintain a funding standard account. Such account shall be 

credited and charged solely as provided in this section. ‘‘(2) CHARGES TO ACCOUNT.—For a plan year, the funding standard account 

shall be charged with the sum of— ‘‘(A) the normal cost of the plan for the plan year, 

‘‘(B) the amounts necessary to amortize in equal annual installments 

(until fully amortized)— ‘‘(i) in the case of a plan in existence on January 1, 1974, the unfunded past service liability under the plan on the first day of the first 

plan year to which this section applies, over a period of 40 plan years, ‘‘(ii) in the case of a plan which comes into existence after January 

1, 1974, the unfunded past service liability under the plan on the first 

day of the first plan year to which this section applies, over a period 

of 15 plan years, ‘‘(iii) separately, with respect to each plan year, the net increase (if 

any) in unfunded past service liability under the plan arising from plan 

amendments adopted in such year, over a period of 15 plan years, ‘‘(iv) separately, with respect to each plan year, the net experience 

loss (if any) under the plan, over a period of 15 plan years, and ‘‘(v) separately, with respect to each plan year, the net loss (if any) 

resulting from changes in actuarial assumptions used under the plan, 

over a period of 15 plan years, ‘‘(C) the amount necessary to amortize each waived funding deficiency 

(within the meaning of section 302(c)(3)) for each prior plan year in equal 

annual installments (until fully amortized) over a period of 15 plan years, ‘‘(D) the amount necessary to amortize in equal annual installments 

(until fully amortized) over a period of 5 plan years any amount credited 

to the funding standard account under section 302(b)(3)(D) (as in effect on 

the day before the date of the enactment of the Pension Protection Act of 

2005), and ‘‘(E) the amount necessary to amortize in equal annual installments (until 

fully amortized) over a period of 20 years the contributions which would be 

required to be made under the plan but for the provisions of section 

302(c)(7)(A)(i)(I) (as in effect on the day before the date of the enactment 

of the Pension Protection Act of 2005). ‘‘(3) CREDITS TO ACCOUNT.—For a plan year, the funding standard account 

shall be credited with the sum of— ‘‘(A) the amount considered contributed by the employer to or under the 

plan for the plan year, 

23 

‘‘(B) the amount necessary to amortize in equal annual installments (until 

fully amortized)—

‘‘(i) separately, with respect to each plan year, the net decrease (if 

any) in unfunded past service liability under the plan arising from plan 

amendments adopted in such year, over a period of 15 plan years, 

‘‘(ii) separately, with respect to each plan year, the net experience 

gain (if any) under the plan, over a period of 15 plan years, and 

‘‘(iii) separately, with respect to each plan year, the net gain (if any) 

resulting from changes in actuarial assumptions used under the plan, 

over a period of 15 plan years, 

‘‘(C) the amount of the waived funding deficiency (within the meaning of 

section 302(c)(3)) for the plan year, and 

‘‘(D) in the case of a plan year for which the accumulated funding deficiency is determined under the funding standard account if such plan year 

follows a plan year for which such deficiency was determined under the alternative minimum funding standard under section 305 (as in effect on the 

day before the date of the enactment of the Pension Protection Act of 2005), 

the excess (if any) of any debit balance in the funding standard account (determined without regard to this subparagraph) over any debit balance in 

the alternative minimum funding standard account. 

‘‘(4) SPECIAL RULE FOR AMOUNTS FIRST AMORTIZED TO PLAN YEARS BEFORE

2006.—In the case of any amount amortized under section 302(b) (as in effect 

on the day before the date of the enactment of the Pension Protection Act of 

2005) over any period beginning with a plan year beginning before 2006, in lieu 

of the amortization described in paragraphs (2)(B) and (3)(B), such amount shall 

continue to be amortized under such section as so in effect. 

‘‘(5) COMBINING AND OFFSETTING AMOUNTS TO BE AMORTIZED.—Under regulations prescribed by the Secretary of the Treasury, amounts required to be amortized under paragraph (2) or paragraph (3), as the case may be—

‘‘(A) may be combined into one amount under such paragraph to be amortized over a period determined on the basis of the remaining amortization 

period for all items entering into such combined amount, and 

‘‘(B) may be offset against amounts required to be amortized under the 

other such paragraph, with the resulting amount to be amortized over a period determined on the basis of the remaining amortization periods for all 

items entering into whichever of the two amounts being offset is the greater. 

‘‘(6) INTEREST.—Except as provided in subsection (c)(9), the funding standard 

account (and items therein) shall be charged or credited (as determined under 

regulations prescribed by the Secretary of the Treasury) with interest at the appropriate rate consistent with the rate or rates of interest used under the plan 

to determine costs. 

‘‘(7) CERTAIN AMORTIZATION CHARGES AND CREDITS.—In the case of a plan 

which, immediately before the date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, was a multiemployer plan (within the 

meaning of section 3(37) as in effect immediately before such date)—

‘‘(A) any amount described in paragraph (2)(B)(ii), (2)(B)(iii), or (3)(B)(i) 

of this subsection which arose in a plan year beginning before such date 

shall be amortized in equal annual installments (until fully amortized) over 

40 plan years, beginning with the plan year in which the amount arose; 

‘‘(B) any amount described in paragraph (2)(B)(iv) or (3)(B)(ii) of this subsection which arose in a plan year beginning before such date shall be amortized in equal annual installments (until fully amortized) over 20 plan 

years, beginning with the plan year in which the amount arose; 

‘‘(C) any change in past service liability which arises during the period 

of 3 plan years beginning on or after such date, and results from a plan 

amendment adopted before such date, shall be amortized in equal annual 

installments (until fully amortized) over 40 plan years, beginning with the 

plan year in which the change arises; and 

‘‘(D) any change in past service liability which arises during the period 

of 2 plan years beginning on or after such date, and results from the changing of a group of participants from one benefit level to another benefit level 

under a schedule of plan benefits which—

‘‘(i) was adopted before such date, and 

‘‘(ii) was effective for any plan participant before the beginning of the 

first plan year beginning on or after such date, 

shall be amortized in equal annual installments (until fully amortized) over 

40 plan years, beginning with the plan year in which the change arises. 

24 

‘‘(8) SPECIAL RULES RELATING TO CHARGES AND CREDITS TO FUNDING STANDARD

ACCOUNT.—For purposes of this part— ‘‘(A) WITHDRAWAL LIABILITY.—Any amount received by a multiemployer 

plan in payment of all or part of an employer’s withdrawal liability under 

part 1 of subtitle E of title IV shall be considered an amount contributed 

by the employer to or under the plan. The Secretary of the Treasury may 

prescribe by regulation additional charges and credits to a multiemployer 

plan’s funding standard account to the extent necessary to prevent withdrawal liability payments from being unduly reflected as advance funding 

for plan liabilities. ‘‘(B) ADJUSTMENTS WHEN A MULTIEMPLOYER PLAN LEAVES REORGANIZA- TION.—If a multiemployer plan is not in reorganization in the plan year but 

was in reorganization in the immediately preceding plan year, any balance 

in the funding standard account at the close of such immediately preceding 

plan year— ‘‘(i) shall be eliminated by an offsetting credit or charge (as the case 

may be), but ‘‘(ii) shall be taken into account in subsequent plan years by being 

amortized in equal annual installments (until fully amortized) over 30 

plan years. 

The preceding sentence shall not apply to the extent of any accumulated 

funding deficiency under section 4243(a) as of the end of the last plan year 

that the plan was in reorganization. 

‘‘(C) PLAN PAYMENTS TO SUPPLEMENTAL PROGRAM OR WITHDRAWAL LIABIL- ITY PAYMENT FUND.—Any amount paid by a plan during a plan year to the 

Pension Benefit Guaranty Corporation pursuant to section 4222 of this Act 

or to a fund exempt under section 501(c)(22) of the Internal Revenue Code 

of 1986 pursuant to section 4223 of this Act shall reduce the amount of contributions considered received by the plan for the plan year. 

‘‘(D) INTERIM WITHDRAWAL LIABILITY PAYMENTS.—Any amount paid by an 

employer pending a final determination of the employer’s withdrawal liability under part 1 of subtitle E of title IV and subsequently refunded to the 

employer by the plan shall be charged to the funding standard account in 

accordance with regulations prescribed by the Secretary of the Treasury. 

‘‘(E) ELECTION FOR DEFERRAL OF CHARGE FOR PORTION OF NET EXPERIENCE LOSS.—If an election is in effect under section 302(b)(7)(F) (as in effect 

on the day before the date of the enactment of the Pension Protection Act 

of 2005) for any plan year, the funding standard account shall be charged 

in the plan year to which the portion of the net experience loss deferred 

by such election was deferred with the amount so deferred (and paragraph 

(2)(B)(iv) shall not apply to the amount so charged). 

‘‘(F) FINANCIAL ASSISTANCE.—Any amount of any financial assistance 

from the Pension Benefit Guaranty Corporation to any plan, and any repayment of such amount, shall be taken into account under this section and 

section 412 in such manner as is determined by the Secretary of the Treasury. 

‘‘(G) SHORT-TERM BENEFITS.—To the extent that any plan amendment increases the unfunded past service liability under the plan by reason of an 

increase in benefits which are payable under the plan during a period that 

does not exceed 14 years, paragraph (2)(B)(iii) shall be applied separately 

with respect to such increase in unfunded past service liability by substituting the number of years of the period during which such benefits are 

payable for ‘15’. 

‘‘(c) ADDITIONAL RULES.—

‘‘(1) DETERMINATIONS TO BE MADE UNDER FUNDING METHOD.—For purposes of 

this part, normal costs, accrued liability, past service liabilities, and experience 

gains and losses shall be determined under the funding method used to determine costs under the plan. 

‘‘(2) VALUATION OF ASSETS.—

‘‘(A) IN GENERAL.—For purposes of this part, the value of the plan’s assets 

shall be determined on the basis of any reasonable actuarial method of 

valuation which takes into account fair market value and which is permitted under regulations prescribed by the Secretary of the Treasury. 

‘‘(B) ELECTION WITH RESPECT TO BONDS.—The value of a bond or other 

evidence of indebtedness which is not in default as to principal or interest 

may, at the election of the plan administrator, be determined on an amortized basis running from initial cost at purchase to par value at maturity 

or earliest call date. Any election under this subparagraph shall be made 

at such time and in such manner as the Secretary of the Treasury shall 

25 

by regulations provide, shall apply to all such evidences of indebtedness, 

and may be revoked only with the consent of such Secretary. 

‘‘(3) ACTUARIAL ASSUMPTIONS MUST BE REASONABLE.—For purposes of this section, all costs, liabilities, rates of interest, and other factors under the plan shall 

be determined on the basis of actuarial assumptions and methods—

‘‘(A) each of which is reasonable (taking into account the experience of the 

plan and reasonable expectations), and 

‘‘(B) which, in combination, offer the actuary’s best estimate of anticipated experience under the plan. 

‘‘(4) TREATMENT OF CERTAIN CHANGES AS EXPERIENCE GAIN OR LOSS.—For purposes of this section, if—

‘‘(A) a change in benefits under the Social Security Act or in other retirement benefits created under Federal or State law, or 

‘‘(B) a change in the definition of the term ‘wages’ under section 3121 of 

the Internal Revenue Code of 1986, or a change in the amount of such 

wages taken into account under regulations prescribed for purposes of section 401(a)(5) of such Code, 

results in an increase or decrease in accrued liability under a plan, such increase or decrease shall be treated as an experience loss or gain. 

‘‘(5) FULL FUNDING.—If, as of the close of a plan year, a plan would (without 

regard to this paragraph) have an accumulated funding deficiency in excess of 

the full funding limitation—

‘‘(A) the funding standard account shall be credited with the amount of 

such excess, and 

‘‘(B) all amounts described in subparagraphs (B), (C), and (D) of subsection (b) (2) and subparagraph (B) of subsection (b)(3) which are required 

to be amortized shall be considered fully amortized for purposes of such 

subparagraphs. 

‘‘(6) FULL-FUNDING LIMITATION.—

‘‘(A) IN GENERAL.—For purposes of paragraph (5), the term ‘full-funding 

limitation’ means the excess (if any) of—

‘‘(i) 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 

‘‘(ii) the lesser of—

‘‘(I) the fair market value of the plan’s assets, or 

‘‘(II) the value of such assets determined under paragraph (2). 

‘‘(B) MINIMUM AMOUNT.—

‘‘(i) IN GENERAL.—In no event shall the full-funding limitation determined under subparagraph (A) be less than the excess (if any) of—

‘‘(I) 90 percent of the current liability of the plan (including the 

expected increase in current liability due to benefits accruing during the plan year), over 

‘‘(II) the value of the plan’s assets determined under paragraph 

(2). 

‘‘(ii) ASSETS.—For purposes of clause (i), assets shall not be reduced 

by any credit balance in the funding standard account. 

‘‘(C) FULL FUNDING LIMITATION.—For purposes of this paragraph, unless 

otherwise provided by the plan, the accrued liability under a multiemployer 

plan shall not include benefits which are not nonforfeitable under the plan 

after the termination of the plan (taking into consideration section 411(d)(3) 

of the Internal Revenue Code of 1986). 

‘‘(D) CURRENT LIABILITY.—For purposes of this paragraph—

‘‘(i) IN GENERAL.—The term ‘current liability’ means all liabilities to 

employees and their beneficiaries under the plan. 

‘‘(ii) TREATMENT OF UNPREDICTABLE CONTINGENT EVENT BENEFITS.—

For purposes of clause (i), any benefit contingent on an event other 

than—

‘‘(I) age, service, compensation, death, or disability, or 

‘‘(II) an event which is reasonably and reliably predictable (as determined by the Secretary of the Treasury), 

shall not be taken into account until the event on which the benefit is 

contingent occurs. 

‘‘(iii) INTEREST RATE USED.—The rate of interest used to determine 

current liability under this paragraph shall be the rate of interest determined under subparagraph (E). 

‘‘(iv) MORTALITY TABLES.—

26 

‘‘(I) COMMISSIONERS’ STANDARD TABLE.—In the case of plan years 

beginning before the first plan year to which the first tables prescribed under subclause (II) apply, the mortality table used in determining current liability under this paragraph shall be the table 

prescribed by the Secretary of the Treasury which is based on the 

prevailing commissioners’ standard table (described in section 

807(d)(5)(A) of the Internal Revenue Code of 1986) used to determine reserves for group annuity contracts issued on January 1, 

1993. 

‘‘(II) SECRETARIAL AUTHORITY.—The Secretary of the Treasury 

may by regulation prescribe for plan years beginning after December 31, 1999, mortality tables to be used in determining current liability under this subsection. Such tables shall be based upon the 

actual experience of pension plans and projected trends in such experience. In prescribing such tables, such Secretary shall take into 

account results of available independent studies of mortality of individuals covered by pension plans. 

‘‘(v) SEPARATE MORTALITY TABLES FOR THE DISABLED.—Notwithstanding clause (iv)—

‘‘(I) IN GENERAL.—In the case of plan years beginning after December 31, 1995, the Secretary of the Treasury shall establish mortality tables which may be used (in lieu of the tables under clause 

(iv)) to determine current liability under this subsection for individuals who are entitled to benefits under the plan on account of disability. Such Secretary shall establish separate tables for individuals whose disabilities occur in plan years beginning before January 1, 1995, and for individuals whose disabilities occur in plan 

years beginning on or after such date. 

‘‘(II) SPECIAL RULE FOR DISABILITIES OCCURRING AFTER 1994.—In 

the case of disabilities occurring in plan years beginning after December 31, 1994, the tables under subclause (I) shall apply only 

with respect to individuals described in such subclause who are 

disabled within the meaning of title II of the Social Security Act 

and the regulations thereunder. 

‘‘(vi) PERIODIC REVIEW.—The Secretary of the Treasury shall periodically (at least every 5 years) review any tables in effect under this subparagraph and shall, to the extent such Secretary determines necessary, by regulation update the tables to reflect the actual experience 

of pension plans and projected trends in such experience. 

‘‘(E) REQUIRED CHANGE OF INTEREST RATE.—For purposes of determining 

a plan’s current liability for purposes of this paragraph—

‘‘(i) IN GENERAL.—If any rate of interest used under the plan under 

subsection (b)(6) to determine cost is not within the permissible range, 

the plan shall establish a new rate of interest within the permissible 

range. 

‘‘(ii) PERMISSIBLE RANGE.—For purposes of this subparagraph—

‘‘(I) IN GENERAL.—Except as provided in subclause (II), the term 

‘permissible range’ means a rate of interest which is not more than 

5 percent above, and not more than 10 percent below, the weighted 

average of the rates of interest on 30-year Treasury securities during the 4-year period ending on the last day before the beginning 

of the plan year. 

‘‘(II) SECRETARIAL AUTHORITY.—If the Secretary of the Treasury 

finds that the lowest rate of interest permissible under subclause 

(I) is unreasonably high, such Secretary may prescribe a lower rate 

of interest, except that such rate may not be less than 80 percent 

of the average rate determined under such subclause. 

‘‘(iii) ASSUMPTIONS.—Notwithstanding paragraph (3)(A), the interest 

rate used under the plan shall be—

‘‘(I) determined without taking into account the experience of the 

plan and reasonable expectations, but 

‘‘(II) consistent with the assumptions which reflect the purchase 

rates which would be used by insurance companies to satisfy the 

liabilities under the plan. 

‘‘(7) 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 

27 

shall be made more frequently to the extent required in particular cases 

under regulations prescribed by the Secretary of the Treasury. ‘‘(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) USE OF 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, as of such date, the value 

of the assets of the plan are not less than 100 percent of the plan’s cur- rent liability (as defined in paragraph (6)(D) without regard to clause 

(iv) thereof). ‘‘(iii) ADJUSTMENTS.—Information under clause (ii) shall, in accordance with regulations, be actuarially adjusted to reflect significant differences in participants. ‘‘(iv) LIMITATION.—A change in funding method to use a prior year 

valuation, as provided in clause (ii), may not be made unless as of the 

valuation date within the prior plan year, the value of the assets of the 

plan are not less than 125 percent of the plan’s current liability (as defined in paragraph (6)(D) without regard to clause (iv) thereof). 

‘‘(8) TIME WHEN CERTAIN CONTRIBUTIONS DEEMED MADE.—For purposes of this 

section, any contributions for a plan year made by an employer after the last 

day of such plan year, but not later than two and one-half months after such 

day, shall be deemed to have been made on such last day. For purposes of this 

subparagraph, such two and one-half month period may be extended for not 

more than six months under regulations prescribed by the Secretary of the 

Treasury. 

‘‘(9) INTEREST RULE FOR WAIVERS AND EXTENSIONS.—The interest rate applicable for any plan year for purposes of computing the amortization charge described in subsection (b)(2)(C) and in connection with an extension granted 

under subsection (d) shall be the greater of—

‘‘(A) 150 percent of the Federal mid-term rate (as in effect under section 

1274 of the Internal Revenue Code of 1986 for the 1st month of such plan 

year), or 

‘‘(B) the rate of interest used under the plan for determining costs. 

‘‘(d) EXTENSION OF AMORTIZATION PERIODS FOR MULTIEMPLOYER PLANS.—In the 

case of a multiemployer plan—

‘‘(1) EXTENSION.—The period of years required to amortize any unfunded liability (described in any clause of subsection (b)(2)(B)) of any multiemployer 

plan may be extended (in addition to any extension under paragraph (2)) by the 

Secretary of the Treasury for a period of time (not in excess of 5 years) if such 

Secretary determines that such extension would carry out the purposes of this 

Act and would provide adequate protection for participants under the plan and 

their beneficiaries and if he determines that the failure to permit such extension would—

‘‘(A) result in—

‘‘(i) a substantial risk to the voluntary continuation of the plan, or 

‘‘(ii) a substantial curtailment of pension benefit levels or employee 

compensation, and 

‘‘(B) be adverse to the interests of plan participants in the aggregate. 

‘‘(2) ADDITIONAL EXTENSION.—The period of years required to amortize any 

unfunded liability (described in any clause of subsection (b)(2)(B)) of any multiemployer plan may be extended (in addition to any extension under paragraph 

(1)) by the Secretary of the Treasury for a period of time (not in excess of 5 

years) if such Secretary determines that—

‘‘(A) absent the extension, the plan would have an accumulated funding 

deficiency in any of the next 10 plan years, 

‘‘(B) the plan sponsor has adopted a plan to improve the plan’s funding 

status, and 

‘‘(C) taking into account the extension, the plan is projected to have 

suficient assets to timely pay its expected benefit liabilities and other anticipated expenditures 

‘‘(3) ADVANCE NOTICE.—

‘‘(A) IN GENERAL.—The Secretary of the Treasury shall, before granting 

an extension under this section, require each applicant to provide evidence 

satisfactory to such Secretary that the applicant has provided notice of the 

filing of the application for such extension to each affected party (as defined 

in section 4001(a)(21)) with respect to the affected plan. Such notice shall 

28 

include a description of the extent to which the plan is funded for benefits 

which are guaranteed under title IV and for benefit liabilities. 

‘‘(B) CONSIDERATION OF RELEVANT INFORMATION.—The Secretary of the 

Treasury shall consider any relevant information provided by a person to 

whom notice was given under paragraph (1).’’. 

(b) CONFORMING AMENDMENTS.—

(1) Section 301 of the Employee Retirement Income Security Act of 1974 (29 

U.S.C. 1081) is amended by striking subsection (d). 

(2) The table of contents in section 1 of such Act (as amended by section 102 

of this Act) is amended further by inserting after the item relating to section 

303 the following new item: 

‘‘Sec. 304. Minimum funding standards for multiemployer plans.’’. 

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

years beginning after 2005. 

SEC. 202. ADDITIONAL FUNDING RULES FOR MULTIEMPLOYER PLANS IN ENDANGERED OR 

CRITICAL STATUS. 

(a) IN GENERAL.—Part 3 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 (as amended by the preceding provisions of this Act) is 

amended further by inserting after section 304 the following new section: 

‘‘ADDITIONAL FUNDING RULES FOR MULTIEMPLOYER PLANS IN ENDANGERED STATUS OR

CRITICAL STATUS

‘‘SEC. 305. (a) ANNUAL CERTIFICATION BY PLAN ACTUARY.—

‘‘(1) IN GENERAL.—During the 90-day period beginning on first day of each 

plan year of a multiemployer plan, the plan actuary shall certify to the Secretary of the Treasury whether or not the plan is in endangered status for such 

plan year and whether or not the plan is in critical status for such plan year. 

‘‘(2) ACTUARIAL PROJECTIONS OF ASSETS AND LIABILITIES.—

‘‘(A) IN GENERAL.—In making the determinations under paragraph (1), 

the plan actuary shall make projections under subsections (b)(2) and (c)(2) 

for the current and succeeding plan years, using reasonable actuarial assumptions and methods, of the current value of the assets of the plan and 

the present value of all liabilities to participants and beneficiaries under 

the plan for the current plan year as of the beginning of such year, as based 

on the actuarial statement prepared for the preceding plan year under section 103(d). 

‘‘(B) DETERMINATIONS OF FUTURE CONTRIBUTIONS.—Any such actuarial 

projection of plan assets shall assume—

‘‘(i) reasonably anticipated employer and employee contributions for 

the current and succeeding plan years, assuming that the terms of the 

one or more collective bargaining agreements pursuant to which the 

plan is maintained for the current plan year continue in effect for succeeding plan years, or 

‘‘(ii) that employer and employee contributions for the most recent 

plan year will continue indefinitely, but only if the plan actuary determines there have been no significant demographic changes that would 

make continued application of such terms unreasonable. 

‘‘(3) PRESUMED STATUS IN ABSENCE OF TIMELY ACTUARIAL CERTIFICATION.—If 

certification under this subsection is not made before the end of the 90-day period specified in paragraph (1), the plan shall be presumed to be in critical status for such plan year until such time as the plan actuary makes a contrary 

certification. 

‘‘(4) NOTICE.—In any case in which a multiemployer plan is certified to be in 

endangered status under paragraph (1) or enters into critical status, the plan 

sponsor shall, not later than 30 days after the date of the certification or entry, 

provide notification of the endangered or critical status to the participants and 

beneficiaries, the bargaining parties, the Pension Benefit Guaranty Corporation, 

the Secretary of the Treasury, and the Secretary of Labor. 

‘‘(b) FUNDING RULES FOR MULTIEMPLOYER PLANS IN ENDANGERED STATUS.—

‘‘(1) IN GENERAL.—In any case in which a multiemployer plan is in endangered status for a plan year and no funding improvement plan under this subsection with respect to such multiemployer plan is in effect for the plan year, 

the plan sponsor shall, in accordance with this subsection, amend the multiemployer plan to include a funding improvement plan upon approval thereof by the 

bargaining parties under this subsection. The amendment shall be adopted not 

later than 240 days after the date on which the plan is certified to be in endangered status under subsection (a)(1). 

29 

‘‘(2) ENDANGERED STATUS.—A multiemployer plan is in endangered status for 

a plan year if, as determined by the plan actuary under subsection (a)—

‘‘(A) the plan’s funded percentage for such plan year is less than 80 percent, or 

‘‘(B) the plan has an accumulated funding deficiency for such plan year 

under section 304 or is projected to have such an accumulated funding deficiency for any of the 6 succeeding plan years, taking into account any extension of amortization periods under section 304(d). 

‘‘(3) FUNDING IMPROVEMENT PLAN.—

‘‘(A) BENCHMARKS.—A funding improvement plan shall consist of amendments to the plan formulated to provide, under reasonable actuarial assumptions, for the attainment, during the funding improvement period 

under the funding improvement plan, of the following benchmarks: 

‘‘(i) INCREASE IN FUNDED PERCENTAGE.—An increase in the plan’s 

funded percentage such that—

‘‘(I) the difference between 100 percent and the plan’s funded 

percentage for the last year of the funding improvement period, is 

not more than 

‘‘(II) 2⁄3 of the difference between 100 percent and the plan’s 

funded percentage for the first year of the funding improvement 

period. 

‘‘(ii) AVOIDANCE OF ACCUMULATED FUNDING DEFICIENCIES.—No accumulated funding deficiency for any plan year during the funding improvement period (taking into account any extension of amortization 

periods under section 304(d)). 

‘‘(B) FUNDING IMPROVEMENT PERIOD.—The funding improvement period 

for any funding improvement plan adopted pursuant to this subsection is 

the 10-year period beginning on the earlier of—

‘‘(i) the second anniversary of the date of the adoption of the funding 

improvement plan, or 

‘‘(ii) the first day of the first plan year of the multiemployer plan following the plan year in which occurs the first date after the day of the 

certification as of which collective bargaining agreements covering on 

the day of such certification at least 75 percent of active participants 

in such multiemployer plan have expired. 

‘‘(C) SPECIAL RULES FOR CERTAIN SERIOUSLY UNDERFUNDED PLANS.—

‘‘(i) In the case of a plan in which the funded percentage of a plan 

for the plan year is 70 percent or less, subparagraph (A)(i)(II) shall be 

applied by substituting ‘

4⁄5’ for ‘2⁄3’ and subparagraph (B) shall be applied by substituting ‘the 15-year period’ for ‘the 10-year period’. 

‘‘(ii) In the case of a plan in which the funded percentage of a plan 

for the plan year is more than 70 percent but less than 80 percent, 

and—

‘‘(I) the plan actuary certifies within 30 days after certification 

under subsection (a)(1) that the plan is not able to attain the increase described in subparagraph (A)(i) over the period described 

in subparagraph (B), and 

‘‘(II) the plan year is prior to the day described in subparagraph 

(B)(ii), 

subparagraph (A)(i)(II) shall be applied by substituting ‘

4⁄5’ for ‘2⁄3’ and 

subparagraph (B) shall be applied by substituting ‘the 15-year period’

for ‘the 10-year period’. 

‘‘(iii) For any plan year following the year described in clause (ii)(II), 

subparagraph (A)(i)(II) and subparagraph (B) shall apply, except that 

for each plan year ending after such date for which the plan actuary 

certifies (at the time of the annual certification under subsection (a)(1) 

for such plan year) that the plan is not able to attain the increase described in subparagraph (A)(i) over the period described in subparagraph (B), subparagraph (B) shall be applied by substituting ‘the 15- 

year period’ for ‘the 10-year period’. 

‘‘(D) REPORTING.—A summary of any funding improvement plan or modification thereto adopted during any plan year, together with annual updates regarding the funding ratio of the plan, shall be included in the annual report for such plan year under section 104(a) and in the summary 

annual report described in section 104(b)(3). 

‘‘(4) DEVELOPMENT OF FUNDING IMPROVEMENT PLAN.—

‘‘(A) ACTIONS BY PLAN SPONSOR PENDING APPROVAL.—Pending the approval of a funding improvement plan under this paragraph, the plan sponVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00029 Fmt 6659 Sfmt 6621 E:\HR\OC\HR232P1.XXX HR232P1
30 

sor shall take all reasonable actions, consistent with the terms of the plan 

and applicable law, necessary to ensure— ‘‘(i) an increase in the plan’s funded percentage, and ‘‘(ii) postponement of an accumulated funding deficiency for at least 

1 additional plan year. 

Such actions include applications for extensions of amortization periods 

under section 304(d), use of the shortfall funding method in making funding 

standard account computations, amendments to the plan’s benefit structure, 

reductions in future benefit accruals, and other reasonable actions consistent with the terms of the plan and applicable law. ‘‘(B) RECOMMENDATIONS BY PLAN SPONSOR.— ‘‘(i) IN GENERAL.—During the period of 90 days following the date on 

which a multiemployer plan is certified to be in endangered status, the 

plan sponsor shall develop and provide to the bargaining parties alternative proposals for revised benefit structures, contribution structures, 

or both, which, if adopted as amendments to the plan, may be reasonably expected to meet the benchmarks described in paragraph (3)(A). 

Such proposals shall include— ‘‘(I) at least one proposal for reductions in the amount of future 

benefit accruals necessary to achieve the benchmarks, assuming no 

amendments increasing contributions under the plan (other than 

amendments increasing contributions necessary to achieve the 

benchmarks after amendments have reduced future benefit accruals to the maximum extent permitted by law), and 

‘‘(II) at least one proposal for increases in contributions under 

the plan necessary to achieve the benchmarks, assuming no 

amendments reducing future benefit accruals under the plan. 

‘‘(ii) REQUESTS BY BARGAINING PARTIES.—Upon the request of any 

bargaining party who—

‘‘(I) employs at least 5 percent of the active participants, or 

‘‘(II) represents as an employee organization, for purposes of collective bargaining, at least 5 percent of the active participants, 

the plan sponsor shall provide all such parties information as to other 

combinations of increases in contributions and reductions in future benefit accruals which would result in achieving the benchmarks. 

‘‘(iii) OTHER INFORMATION.—The plan sponsor may, as it deems appropriate, prepare and provide the bargaining parties with additional 

information relating to contribution structures or benefit structures or 

other information relevant to the funding improvement plan. 

‘‘(5) MAINTENANCE OF CONTRIBUTIONS PENDING APPROVAL OF FUNDING IMPROVEMENT PLAN.—Pending approval of a funding improvement plan by the 

bargaining parties with respect to a multiemployer plan, the multiemployer 

plan may not be amended so as to provide—

‘‘(A) a reduction in the level of contributions for participants who are not 

in pay status, 

‘‘(B) a suspension of contributions with respect to any period of service, 

or 

‘‘(C) any new direct or indirect exclusion of younger or newly hired employees from plan participation. 

‘‘(6) BENEFIT RESTRICTIONS PENDING APPROVAL OF FUNDING IMPROVEMENT

PLAN.—Pending approval of a funding improvement plan by the bargaining parties with respect to a multiemployer plan—

‘‘(A) RESTRICTIONS ON LUMP SUM AND SIMILAR DISTRIBUTIONS.—In any 

case in which the present value of a participant’s accrued benefit under the 

plan exceeds $5,000, such benefit may not be distributed as an immediate 

distribution or in any other accelerated form. 

‘‘(B) PROHIBITION ON BENEFIT INCREASES.—

‘‘(i) IN GENERAL.—No amendment of the plan which increases the liabilities of the plan by reason of any increase in benefits, any change 

in the accrual of benefits, or any change in the rate at which benefits 

become nonforfeitable under the plan may be adopted. 

‘‘(ii) EXCEPTION.—Clause (i) shall not apply to any plan amendment 

which is required as a condition of qualification under part I of subchapter D of chapter 1 of subtitle A of the Internal Revenue Code of 

1986. 

‘‘(7) DEFAULT CRITICAL STATUS IF NO FUNDING IMPROVEMENT PLAN ADOPTED.—

If no plan amendment adopting a funding improvement plan has been adopted 

by the end of the 240-day period referred to in subsection (b)(1), the plan enters 

into critical status as of the first day of the succeeding plan year. 

31 

‘‘(8) RESTRICTIONS UPON APPROVAL OF FUNDING IMPROVEMENT PLAN.—Upon 

adoption of a funding improvement plan with respect to a multiemployer plan, 

the plan may not be amended— ‘‘(A) so as to be inconsistent with the funding improvement plan, or 

‘‘(B) so as to increase future benefit accruals, unless the plan actuary certifies in advance that, after taking into account the proposed increase, the 

plan is reasonably expected to meet the the benchmarks described in paragraph (3)(A). ‘‘(c) FUNDING RULES FOR MULTIEMPLOYER PLANS IN CRITICAL STATUS.— ‘‘(1) IN GENERAL.—In any case in which a multiemployer plan is in critical 

status for a plan year as described in paragraph (2) (or otherwise enters into 

critical status under this section) and no rehabilitation plan under this subsection with respect to such multiemployer plan is in effect for the plan year, 

the plan sponsor shall, in accordance with this subsection, amend the multiemployer plan to include a rehabilitation plan under this subsection. The amendment shall be adopted not later than 240 days after the date on which the plan 

enters into critical status. ‘‘(2) CRITICAL STATUS.—A multiemployer plan is in critical status for a plan 

year if—

‘‘(A) the plan is in endangered status for the preceding plan year and the 

requirements of subsection (b)(1) were not met with respect to the plan for 

such preceding plan year, or 

‘‘(B) as determined by the plan actuary under subsection (a), the plan is 

described in paragraph (3). 

‘‘(3) CRITICALITY DESCRIPTION.—For purposes of paragraph (2)(B), a plan is 

described in this paragraph if the plan is described in at least one of the following subparagraphs: 

‘‘(A) A plan is described in this subparagraph if, as of the beginning of 

the current plan year—

‘‘(i) the funded percentage of the plan is less than 65 percent, and 

‘‘(ii) the sum of—

‘‘(I) the market value of plan assets, plus 

‘‘(II) the present value of the reasonably anticipated employer 

and employee contributions for the current plan year and each of 

the 6 succeeding plan years, assuming that the terms of the one 

or more collective bargaining agreements pursuant to which the 

plan is maintained for the current plan year continue in effect for 

succeeding plan years, 

is less than the present value of all nonforfeitable benefits for all participants and beneficiaries projected to be payable under the plan during the current plan year and each of the 6 succeeding plan years (plus 

administrative expenses for such plan years). 

‘‘(B) A plan is described in this subparagraph if, as of the beginning of 

the current plan year, the sum of—

‘‘(i) the market value of plan assets, plus 

‘‘(ii) the present value of the reasonably anticipated employer and 

employee contributions for the current plan year and each of the 4 succeeding plan years, assuming that the terms of the one or more collective bargaining agreements pursuant to which the plan is maintained 

for the current plan year remain in effect for succeeding plan years, 

is less than the present value of all nonforfeitable benefits for all participants and beneficiaries projected to be payable under the plan during the 

current plan year and each of the 4 succeeding plan years (plus administrative expenses for such plan years). 

‘‘(C) A plan is described in this subparagraph if—

‘‘(i) as of the beginning of the current plan year, the funded percentage of the plan is less than 65 percent, and 

‘‘(ii) the plan has an accumulated funding deficiency for the current 

plan year or is projected to have an accumulated funding deficiency for 

any of the 4 succeeding plan years, not taking into account any extension of amortization periods under section 304(d). 

‘‘(D) A plan is described in this subparagraph if—

‘‘(i)(I) the plan’s normal cost for the current plan year, plus interest 

(determined at the rate used for determining cost under the plan) for 

the current plan year on the amount of unfunded benefit liabilities 

under the plan as of the last date of the preceding plan year, exceeds 

‘‘(II) the present value, as of the beginning of the current plan year, 

of the reasonably anticipated employer and employee contributions for 

the current plan year, 

32 

‘‘(ii) the present value, as of the beginning of the current plan year, 

of nonforfeitable benefits of inactive participants is greater than the 

present value, as of the beginning of the current plan year, of nonforfeitable benefits of active participants, and 

‘‘(iii) the plan is projected to have an accumulated funding deficiency 

for the current plan year or any of the 4 succeeding plan years, not taking into account any extension of amortization periods under section 

304(d). 

‘‘(E) A plan is described in this subparagraph if—

‘‘(i) the funded percentage of the plan is greater than 65 percent for 

the current plan year, and 

‘‘(ii) the plan is projected to have an accumulated funding deficiency 

during any of the succeeding 3 plan years, not taking into account any 

extension of amortization periods under section 304(d). 

‘‘(4) REHABILITATION PLAN.—

‘‘(A) IN GENERAL.—A rehabilitation plan shall consist of—

‘‘(i) amendments to the plan providing (under reasonable actuarial 

assumptions) for measures, agreed to by the bargaining parties, to increase contributions, reduce plan expenditures (including plan mergers 

and consolidations), or reduce future benefit accruals, or to take any 

combination of such actions, determined necessary to cause the plan to 

cease, during the rehabilitation period, to be in critical status, or 

‘‘(ii) reasonable measures to forestall possible insolvency (within the 

meaning of section 4245) if the plan sponsor determines that, upon exhaustion of all reasonable measures, the plan would not cease during 

the rehabilitation period to be in critical status. 

‘‘(B) REHABILITATION PERIOD.—The rehabilitation period for any rehabilitation plan adopted pursuant to this subsection is the 10-year period beginning on the earlier of—

‘‘(i) the second anniversary of the date of the adoption of the rehabilitation plan, or 

‘‘(ii) the first day of the first plan year of the multiemployer plan following the plan year in which occurs the first date, after the date of 

the plan’s entry into critical status, as of which collective bargaining 

agreements covering at least 75 percent of active participants in such 

multiemployer plan (determined as of such date of entry) have expired. 

‘‘(C) REPORTING.—A summary of any rehabilitation plan or modification 

thereto adopted during any plan year, together with annual updates regarding the funding ratio of the plan, shall be included in the annual report for 

such plan year under section 104(a) and in the summary annual report described in section 104(b)(3). 

‘‘(5) DEVELOPMENT OF REHABILITATION PLAN.—

‘‘(A) PROPOSALS BY PLAN SPONSOR.—

‘‘(i) IN GENERAL.—Within 90 days after the date of entry into critical 

status (or the date as of which the requirements of subsection (b)(1) are 

not met with respect to the plan), the plan sponsor shall propose to all 

bargaining parties a range of alternative schedules of increases in contributions and reductions in future benefit accruals that would serve to 

carry out a rehabilitation plan under this subsection. 

‘‘(ii) PROPOSAL ASSUMING NO CONTRIBUTION INCREASES.—Such proposals shall include, as one of the proposed schedules, a schedule of 

those reductions in future benefit accruals that would be necessary to 

cause the plan to cease to be in critical status if there were no further 

increases in rates of contribution to the plan. 

‘‘(iii) PROPOSAL WHERE CONTRIBUTIONS ARE NECESSARY.—If the plan 

sponsor determines that the plan will not cease to be in critical status 

during the rehabilitation period unless the plan is amended to provide 

for an increase in contributions, the plan sponsor’s proposals shall include a schedule of those increases in contribution rates that would be 

necessary to cause the plan to cease to be in critical status if future 

benefit accruals were reduced to the maximum extent permitted by 

law. 

‘‘(B) REQUESTS FOR ADDITIONAL SCHEDULES.—Upon the request of any 

bargaining party who—

‘‘(i) employs at least 5 percent of the active participants, or 

‘‘(ii) represents as an employee organization, for purposes of collective 

bargaining, at least 5 percent of active participants, 

33 

the plan sponsor shall include among the proposed schedules such schedules of increases in contributions and reductions in future benefit accruals 

as may be specified by the bargaining parties. 

‘‘(C) SUBSEQUENT AMENDMENTS.—Upon the adoption of a schedule of increases in contributions or reductions in future benefit accruals as part of 

the rehabilitation plan, the plan sponsor may amend the plan thereafter to 

update the schedule to adjust for any experience of the plan contrary to 

past actuarial assumptions, except that such an amendment may be made 

not more than once in any 3-year period. 

‘‘(D) ALLOCATION OF REDUCTIONS IN FUTURE BENEFIT ACCRUALS.—Any 

schedule containing reductions in future benefit accruals forming a part of 

a rehabilitation plan shall be applicable with respect to any group of active 

participants who are employed by any bargaining party (as an employer obligated to contribute under the plan) in proportion to the extent to which 

increases in contributions under such schedule apply to such bargaining 

party. 

‘‘(E) LIMITATION ON REDUCTION IN RATES OF FUTURE ACCRUALS.—Any 

schedule proposed under this paragraph shall not reduce the rate of future 

accruals below the lower of—

‘‘(i) a monthly benefit equal to 1 percent of the contributions required 

to be made with respect to a participant or the equivalent standard accrual rate for a participant or group of participants under the collective 

bargaining agreements in effect as of the first day of the plan year in 

which the plan enters critical status, or 

‘‘(ii) if lower, the accrual rate under the plan on such date. 

The equivalent standard accrual rate shall be determined by the trustees 

based on the standard or average contribution base units that they determine to be representative for active participants and such other factors as 

they determine to be relevant. 

‘‘(6) MAINTENANCE OF CONTRIBUTIONS AND RESTRICTIONS ON BENEFITS PENDING ADOPTION OF REHABILITATION PLAN.—The rules of paragraphs (5) and (6) of 

subsection (b) shall apply for purposes of this subsection by substituting the 

term ‘rehabilitation plan’ for ‘funding improvement plan’. 

‘‘(7) SPECIAL RULES.—

‘‘(A) AUTOMATIC EMPLOYER SURCHARGE.—

‘‘(i) 5 PERCENT AND 10 PERCENT SURCHARGE.—For the first plan year 

in which the plan is in critical status, each employer otherwise obligated to make a contribution for that plan year shall be obligated to 

pay to the plan a surcharge equal to 5 percent of the contribution otherwise required under the respective collective bargaining agreement 

(or other agreement pursuant to which the employer contributes). For 

each consecutive plan year thereafter in which the plan is in critical 

status, the surcharge shall be 10 percent of the contribution otherwise 

required under the respective collective bargaining agreement (or other 

agreement pursuant to which the employer contributes). 

‘‘(ii) ENFORCEMENT OF SURCHARGE.—The surcharges under clause (i) 

shall be due and payable on the same schedule as the contributions on 

which they are based. Any failure to make a surcharge payment shall 

be treated as a delinquent contribution under section 515 and shall be 

enforceable as such. 

‘‘(iii) SURCHARGE TO TERMINATE UPON CBA RENEGOTIATION.—The surcharge under this paragraph shall cease to be effective with respect to 

employees covered by a collective bargaining agreement, beginning on 

the date on which that agreement is renegotiated to include—

‘‘(I) a schedule of benefits and contributions published by the 

trustees pursuant to the plan’s rehabilitation plan, or 

‘‘(II) otherwise collectively bargained benefit changes. 

‘‘(iv) SURCHARGE NOT TO APPLY UNTIL EMPLOYER RECEIVES 30-DAY NOTICE.—The surcharge under this subparagraph shall not apply to an 

employer until 30 days after the employer has been notified by the 

trustees that the plan is in critical status and that the surcharge is in 

effect. 

‘‘(v) SURCHARGE NOT TO GENERATE INCREASED BENEFIT ACCRUALS.—

Notwithstanding any provision of a plan to the contrary, the amount 

of any surcharge shall not be the basis for any benefit accruals under 

the plan. 

‘‘(B) BENEFIT ADJUSTMENTS.—

34 

‘‘(i) IN GENERAL.—The trustees shall make appropriate reductions, if 

any, to adjustable benefits based upon the outcome of collective bargaining over the schedules provided under paragraph (5). ‘‘(ii) RETIREE PROTECTION.—Except as provided in subparagraph (C), 

the trustees of a plan in critical status may not reduce adjustable benefits of any participant or beneficiary who was in pay status at least one 

year before the first day of the first plan year in which the plan enters 

into critical status. ‘‘(iii) TRUSTEE FLEXIBILITY.—The trustees shall include in the schedules provided to the bargaining parties an allowance for funding the 

benefits of participants with respect to whom contributions are not currently required to be made, and shall reduce their benefits to the extent 

permitted under this title and considered appropriate based on the 

plan’s then current overall funding status and its future prospects in 

light of the results of the parties’ negotiations. ‘‘(C) ADJUSTABLE BENEFIT DEFINED.—For purposes of this paragraph, the 

term ‘adjustable benefit’ means— ‘‘(i) benefits, rights, and features, such as post-retirement death benefits, 60-month guarantees, disability benefits not yet in pay status, and 

similar benefits, ‘‘(ii) retirement-type subsidies, early retirement benefits, and benefit 

payment options (other than the 50 percent qualified joint-and-survivor 

benefit and single life annuity), and 

‘‘(iii) benefit increases that would not be eligible for a guarantee 

under section 4022A on the first day of the plan year in which the plan 

enters into critical status because they were adopted, or if later, took 

effect less than 60 months before reorganization. 

‘‘(D) NORMAL RETIREMENT BENEFITS PROTECTED.—Nothing in this paragraph shall be construed to permit a plan to reduce the level of a participant’s accrued benefit payable at normal retirement age which is not an adjustable benefit. 

‘‘(E) ADJUSTMENTS DISREGARDED IN WITHDRAWAL LIABILITY DETERMINATION.—

‘‘(i) BENEFIT REDUCTIONS.—Any benefit reductions under this paragraph shall be disregarded in determining a plan’s unfunded vested 

benefits for purposes of determining an employer’s withdrawal liability 

under section 4201. 

‘‘(ii) SURCHARGES.—Any surcharges under this paragraph shall be 

disregarded in determining an employer’s withdrawal liability under 

section 4211, except for purposes of determining the unfunded vested 

benefits attributable to an employer or under a modified attributable 

method adopted with the approval of the Pension Benefit Guaranty 

Corporation under subsection (c)(5) of that section. 

‘‘(8) RESTRICTIONS UPON APPROVAL OF REHABILITATION PLAN.—Upon adoption 

of a rehabilitation plan with respect to a multiemployer plan, the plan may not 

be amended—

‘‘(A) so as to be inconsistent with the rehabilitation plan, or 

‘‘(B) so as to increase future benefit accruals, unless the plan actuary certifies in advance that, after taking into account the proposed increase, the 

plan is reasonably expected to cease to be in critical status. 

‘‘(9) IMPLEMENTATION OF DEFAULT SCHEDULE UPON FAILURE TO ADOPT REHABILITATION PLAN.—If the plan is not amended by the end of the 240-day period 

after entry into critical status to include a rehabilitation plan, the plan sponsor 

shall amend the plan to implement the schedule required by paragraph 

(5)(A)(ii). 

‘‘(10) DEEMED WITHDRAWAL.—Upon the failure of any employer who has an 

obligation to contribute under the plan to make contributions in compliance 

with the schedule adopted under paragraph (4) as part of the rehabilitation 

plan, the failure of the employer may, at the discretion of the plan sponsor, be 

treated as a withdrawal by the employer from the plan under section 4203 or 

a partial withdrawal by the employer under section 4205. 

‘‘(d) DEFINITIONS.—For purposes of this section—

‘‘(1) BARGAINING PARTY.—The term ‘bargaining party’ means, in connection 

with a multiemployer plan—

‘‘(A) an employer who has an obligation to contribute under the plan, and 

‘‘(B) an employee organization which, for purposes of collective bargaining, represents plan participants employed by such an employer. 

‘‘(2) FUNDED PERCENTAGE.—The term ‘funded percentage’ means the percentage expressed as a ratio of which—

35 

‘‘(A) the numerator of which is the value of the plan’s assets, as determined under section 304(c)(2), and ‘‘(B) the denominator of which is the accrued liability of the plan. ‘‘(3) ACCUMULATED FUNDING DEFICIENCY.—The term ‘accumulated funding deficiency’ has the meaning provided such term in section 304(a). ‘‘(4) ACTIVE PARTICIPANT.—The term ‘active participant’ means, in connection 

with a multiemployer plan, a participant who is in covered service under the 

plan. ‘‘(5) INACTIVE PARTICIPANT.—The term ‘inactive participant’ means, in connection with a multiemployer plan, a participant who— ‘‘(A) is not in covered service under the plan, and 

‘‘(B) is in pay status under the plan or has a nonforfeitable right to benefits under the plan. ‘‘(6) PAY STATUS.—A person is in ‘pay status’ under a multiemployer plan if— ‘‘(A) at any time during the current plan year, such person is a participant or beneficiary under the plan and is paid an early, late, normal, or 

disability retirement benefit under the plan (or a death benefit under the 

plan related to a retirement benefit), or ‘‘(B) to the extent provided in regulations of the Secretary of the Treasury, such person is entitled to such a benefit under the plan. ‘‘(7) OBLIGATION TO CONTRIBUTE.—The term ‘obligation to contribute’ has the 

meaning provided such term under section 4212(a). 

‘‘(8) ENTRY INTO CRITICAL STATUS.—A plan shall be treated as entering into 

critical status as of the date that such plan is certified to be in critical status 

under subsection (a)(1), is presumed to be in critical status under subsection 

(a)(3), or enters into critical status under subsection (b)(7).’’. 

(b) CONFORMING AMENDMENT.—The table of contents in section 1 of such Act (as 

amended by the preceding provisions of this Act) is amended further by inserting 

after the item relating to section 304 the following new item: 

‘‘Sec. 305. Additional funding rules for multiemployer plans in endangered status or critical status.’’. 

(c) EFFECTIVE DATE.—The amendment made by this section shall apply with respect to plan years beginning after 2005. 

SEC. 203. MEASURES TO FORESTALL INSOLVENCY OF MULTIEMPLOYER PLANS. 

(a) ADVANCE DETERMINATION OF IMPENDING INSOLVENCY OVER 5 YEARS.—Section 

4245(d)(1) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 

1426(d)(1)) is amended—

(1) by striking ‘‘3 plan years’’ the second place it appears and inserting ‘‘5 

plan years’’; and 

(2) by adding at the end the following new sentence: ‘‘If the plan sponsor 

makes such a determination that the plan will be insolvent in any of the next 

5 plan years, the plan sponsor shall make the comparison under this paragraph 

at least annually until the plan sponsor makes a determination that the plan 

will not be insolvent in any of the next 5 plan years.’’. 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to determinations made in plan years beginning after 2005. 

SEC. 204. WITHDRAWAL LIABILITY REFORMS. 

(a) REPEAL OF LIMITATION ON WITHDRAWAL LIABILITY IN THE EVENT OF CERTAIN

SALES OF EMPLOYER ASSETS TO UNRELATED PARTIES.—

(1) IN GENERAL.—Section 4225 of the Employee Retirement Income Security 

Act of 1974 (29 U.S.C. 1405) is repealed. 

(2) CONFORMING AMENDMENT.—The table of contents in section 1 of such Act 

is amended by striking the item relating to section 4225. 

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

respect to sales occurring on or after January 1, 2006. 

(b) REPEAL OF LIMITATION TO 20 ANNUAL PAYMENTS.—

(1) IN GENERAL.—Section 4219(c)(1) of such Act (29 U.S.C. 1399(c)(1)) is 

amended by striking subparagraph (B). 

(2) EFFECTIVE DATE.—The amendment made by this section shall apply with 

respect to withdrawals occurring on or after January 1, 2006. 

(c) WITHDRAWAL LIABILITY CONTINUES IF WORK CONTRACTED OUT.—

(1) IN GENERAL.—Clause (i) of section 4205(b)(2)(A) of such Act (29 U.S.C. 

1385(b)(2)(A)) is amended by inserting ‘‘or to another party or parties’’ after ‘‘to 

another location’’. 

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

with respect to work transferred on or after the date of the enactment of this 

Act. 

(d) REPEAL OF SPECIAL RULE FOR LONG AND SHORT HAUL TRUCKING INDUSTRY.—

36 

(1) IN GENERAL.—Subsection (d) of section 4203 of such Act (29 U.S.C. 

1383(d)) is repealed. 

(2) EFFECTIVE DATE.—The repeal under this subsection shall apply with respect to cessations to have obligations to contribute to multiemployer plans and 

cessations of covered operations under such plans occurring on or after January 

1, 2006. 

(e) APPLICATION OF FORGIVENESS RULE TO PLANS PRIMARILY COVERING EMPLOYEES IN THE BUILDING AND CONSTRUCTION.—

(1) IN GENERAL.—Section 4210(b) of such Act (29 U.S.C. 1390(b)) is amended—

(A) by striking paragraph (1); and 

(B) by redesignating paragraphs (2) through (4) as paragraphs (1) 

through (3), respectively. 

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

with respect to plan withdrawals occurring on or after January 1, 2006. 

SEC. 205. REMOVAL OF RESTRICTIONS WITH RESPECT TO PROCEDURES APPLICABLE TO DISPUTES INVOLVING WITHDRAWAL LIABILITY. 

(a) IN GENERAL.—Section 4221(f)(1) of the Employee Retirement Income Security 

Act of 1974 (29 U.S.C. 1401(f)(1)) is amended—

(1) in subparagraph (A) by inserting ‘‘and’’ after ‘‘plan,’’, and 

(2) by striking subparagraphs (B) and (C) and inserting the following new 

subparagraph: 

‘‘(B) such determination is based in whole or in part on a finding by the 

plan sponsor under section 4212(c) that a principal purpose of any transaction which occurred at least 5 years (2 years in the case of a small employer) before the date of the complete or partial withdrawal was to evade 

or avoid withdrawal liability under this subtitle,’’. 

(b) SMALL EMPLOYER.—Paragraph (2) of section 4221(f) of such Act is amended 

by adding at the end the following new subparagraph: 

‘‘(C) SMALL EMPLOYER.—For purposes of paragraph (1)(B)—

‘‘(i) IN GENERAL.—The term ‘small employer’ means any employer 

who (as of immediately before the transaction referred to in paragraph 

(1)(B))—

‘‘(I) employs not more than 500 employees, and 

‘‘(II) is required to make contributions to the plan for not more 

than 250 employees. 

‘‘(ii) CONTROLLED GROUP.—Any group treated as a single employer 

under subsection (b), (c), (m), or (o) of section 414 of the Internal Revenue Code of 1986 shall be treated as a single employer for purposes 

of this subparagraph.’’. 

(c) ADDITIONAL AMENDMENTS.—

(1) Subparagraph (A) of section 4221(f)(2) of such Act (29 U.S.C. 1401(f)(2)) 

is amended by striking ‘‘Notwithstanding’’ and inserting ‘‘In the case of a transaction occurring before January 1, 1999, and at least 5 years before the date 

of the complete or partial withdrawal, notwithstanding’’. 

(2) Section 4221(f)(2)(B) of such Act (29 U.S.C. 1401(f)(2)(B)) is amended—

(A) by inserting ‘‘with respect to withdrawal liability payments’’ after ‘‘determination’’ the first place it appears, and 

(B) by striking ‘‘any’’ and inserting ‘‘the’’. 

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

employer that receives a notification under section 4219(b)(1) of the Employee Retirement Income Security Act of 1974 on or after the date of the enactment of this 

Act. 

Subtitle B—Amendments to Internal Revenue 

Code of 1986 

SEC. 211. [SEE INTRODUCED BILL, PAGE 200, LINE 8 THROUGH PAGE 251, LINE 15]. 

TITLE III—OTHER PROVISIONS 

SEC. 301. INTEREST RATE ASSUMPTION FOR DETERMINATION OF LUMP SUM DISTRIBUTIONS. 

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

Paragraph (3) of section 205(g) of the Employee Retirement Income Security Act of 

1974 (29 U.S.C. 1055(g)(3)) is amended to read as follows: 

37 

‘‘(3)(A) For purposes of paragraphs (1) and (2), the present value shall not be less 

than the present value calculated by using the applicable mortality table and the 

applicable interest rate. ‘‘(B) For purposes of subparagraph (A)— ‘‘(i) The term ‘applicable mortality table’ means a mortality table, modified as 

appropriate by the Secretary of the Treasury, based on the mortality table specified for the plan year under section 303(h)(3). ‘‘(ii) The term ‘applicable interest rate’ means the adjusted first, second, and 

third segment rates applied under rules similar to the rules of section 

303(h)(2)(C) for the month before the date of the distribution or such other time 

as the Secretary of the Treasury may by regulations prescribe. ‘‘(iii) For purposes of clause (ii), the adjusted first, second, and third segment 

rates are the first, second, and third segment rates which would be determined 

under section 303(h)(2)(C) if— ‘‘(I) section 303(h)(2)(D)(i) were applied by substituting ‘the yields’ for ‘a 3-year weighted average of yields’, ‘‘(II) section 303(h)(2)(G)(i)(II) were applied by substituting ‘section 

205(g)(3)(B)(ii)’ for ‘section 302(b)(5)(B)(ii)(II)’, and ‘‘(III) the applicable percentage under section 303(h)(2)(G) were determined in accordance with the following table: 

‘‘In the case of plan years beginning in: The applicable percentage is:

2006 ..................................................................... 20 percent

2007 ..................................................................... 40 percent

2008 ..................................................................... 60 percent

2009 ..................................................................... 80 percent.’’. 

(b) AMENDMENTS TO INTERNAL REVENUE CODE OF 1986.—[See introduced bill, 

page 252, line 19 through page 254, line 5] 

(c) SPECIAL RULE FOR PLAN AMENDMENTS.—A plan shall not fail to meet the requirements of section 204(g) of the Employee Retirement Income Security Act of 

1974 solely by reason of the adoption by the plan of an amendment necessary to 

meet the requirements of the amendments made by this section. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to plan years beginning after 2005. 

SEC. 302. INTEREST RATE ASSUMPTION FOR APPLYING BENEFIT LIMITATIONS TO LUMP SUM 

DISTRIBUTIONS. 

[See introduced bill, page 254, line 6 through page 255, line 7] 

SEC. 303. DISTRIBUTIONS DURING WORKING RETIREMENT. 

(a) IN GENERAL.—Subparagraph (A) of section 3(2) of the Employee Retirement 

Income Security Act of 1974 (29 U.S.C. 1002(2)) is amended by adding at the end 

the following new sentence: ‘‘A distribution from a plan, fund, or program shall not 

be treated as made in a form other than retirement income or as a distribution prior 

to termination of covered employment solely because such distribution is made to 

an employee who has attained age 62 and who is not separated from employment 

at the time of such distribution.’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to distributions in plan years beginning after 2005. 

SEC. 304. OTHER AMENDMENTS RELATING TO PROHIBITED TRANSACTIONS. 

(a) DEFINITION OF AMOUNT INVOLVED.—Section 502(i) of the Employee Retirement 

Income Security Act of 1974 (29 U.S.C. 1132(i)) is amended to read as follows: 

‘‘(i)(1) In the case of a transaction prohibited by section 406 by a party in interest 

with respect to a plan to which this part applies, the Secretary may assess a civil 

penalty against such party in interest. The amount of such penalty may not exceed 

5 percent of the amount involved in each such transaction for each year or part 

thereof during which the prohibited transaction continues, except that, if the transaction is not corrected (in such manner as the Secretary shall prescribe in regulations) within 90 days after notice from the Secretary (or such longer period as the 

Secretary may permit), such penalty may be in an amount not more than 100 percent of the amount involved. 

‘‘(2) For purposes of paragraph (1)—

‘‘(A) Except as provided in subparagraphs (C) and (D), the term ‘amount involved’ means, with respect to a prohibited transaction, the greater of—

‘‘(i) the amount of money and the fair market value of the other property 

given, or 

38 

‘‘(ii) the amount of money and the fair market value of the other property 

received. ‘‘(B) For purposes of subparagraph (A), fair market value— ‘‘(i) shall be determined as of the date on which the prohibited transaction 

occurs; and ‘‘(ii) shall be the highest fair market value during the period between the 

date of the transaction and the date of correction. ‘‘(C) In the case of services described in subsection (b)(2) or (c)(2) of section 

408, the term ‘amount involved’ means only the amount of excess compensation. ‘‘(D) In the case of principal transactions involving securities or commodities, 

the term ‘amount involved’ means only the amount received by the disqualified 

person in excess of the amount such person would have received in an arm’s length transaction with an unrelated party as of the same date. ‘‘(E) For the purposes of this paragraph— ‘‘(i) the term ‘security’ has the meaning given such term by section 

475(c)(2) of the Internal Revenue Code of 1986 (without regard to subparagraph (F)(iii) and the last sentence thereof) , and ‘‘(ii) the term ‘commodity’ has the meaning given such term by section 

475(e)(2) of such Code (without regard to subparagraph (D)(iii) thereof).’’. (b) EXEMPTION FOR BLOCK TRADING.—Section 408(b) of such Act (29 U.S.C. 

1108(b)), as amended by section 601, is further amended by adding at the end the 

following new paragraph: 

‘‘(15)(A) Any transaction involving the purchase or sale of securities between 

a plan and a party in interest (other than a fiduciary) with respect to a plan 

if—

‘‘(i) the transaction involves a block trade, 

‘‘(ii) at the time of the transaction, the interest of the plan (together with 

the interests of any other plans maintained by the same plan sponsor), does 

not exceed 10 percent of the aggregate size of the block trade, and 

‘‘(iii) the terms of the transaction, including the price, are at least as favorable to the plan as an arm’s length transaction. 

‘‘(B) For purposes of this paragraph, the term ‘block trade’ includes any trade 

which will be allocated across two or more client accounts of a fiduciary.’’. 

(c) BONDING RELIEF.— Section 412(a) of such Act (29 U.S.C. 1112(a)) is amended—

(1) by redesignating paragraph (2) as paragraph (3); 

(2) by striking ‘‘and’’ at the end of paragraph (1); and 

(3) by inserting after paragraph (1) the following new paragraph: 

‘‘(2) no bond shall be required of an entity which is subject to regulation as 

a broker or a dealer under section 15 of the Securities Exchange Act of 1934 

(15 U.S.C. 78a et seq.) or an entity registered under the Investment Advisers 

Act of 1940 (15 U.S.C. 80b-1 et seq.), including requirements imposed by a selfregulatory organization (within the meaning of section 3(a)(26) of such Act (15 

U.S.C. 78c(a)(26)), or any affiliate with respect to which the broker or dealer 

agrees to be liable to the same extent as if they held the assets directly.’’. 

(d) EXEMPTION FOR ELECTRONIC COMMUNICATION NETWORK.—Section 408(b) of 

such Act (as amended by subsection (b)) is further amended by adding at the end 

the following: 

‘‘(16) Any transaction involving the purchase and sale of securities or other 

property between a plan and a fiduciary or a party in interest if—

‘‘(A) the transaction is executed through an exchange, electronic communication network, alternative trading system, or similar execution system or 

trading venue subject to regulation and oversight by the applicable governmental regulating entity, 

‘‘(B) neither the execution system nor the parties to the transaction take 

into account the identity of the parties in the execution of trades, 

‘‘(C) the transaction is effected pursuant to rules designed to match purchases and sales at the best price available through the execution system, 

and 

‘‘(D) the price and compensation associated with the purchase and sale 

are not greater than an arm’s length transaction with an unrelated party.’’. 

(e) CONFORMING ERISA’S PROHIBITED TRANSACTION PROVISION TO FERSA.—Section 408(b) of such Act (29 U.S.C. 1106), as amended by subsection (d), is further 

amended by adding at the end the following new paragraph: 

‘‘(17)(A) transactions described in subparagraphs (A), (B), and (D) of section 

406(a)(1) between a plan and a party that is a party in interest (under section 

3(14)) solely by reason of providing services, but only if in connection with such 

transaction the plan receives no less, nor pays no more, than adequate consideration. 

39 

‘‘(B) For purposes of this paragraph, the term ‘adequate consideration’ means—

‘‘(i) in the case of a security for which there is a generally recognized market— ‘‘(I) the price of the security prevailing on a national securities exchange which is registered under section 6 of the Securities Exchange 

Act of 1934, taking into account factors such as the size of the transaction and marketability of the security, or ‘‘(II) if the security is not traded on such a national securities exchange, a price not less favorable to the plan than the offering price 

for the security as established by the current bid and asked prices 

quoted by persons independent of the issuer and of the party in interest, taking into account factors such as the size of the transaction and 

marketability of the security, and ‘‘(ii) in the case of an asset other than a security for which there is a generally recognized market, the fair market value of the asset as determined 

in good faith by a fiduciary or fiduciaries in accordance with regulations 

prescribed by the Secretary.’’. (f) RELIEF FOR FOREIGN EXCHANGE TRANSACTIONS.— Section 408(b) of such Act 

(as amended by the preceding provisions of this section) is further amended by adding at the end the following new paragraph: ‘‘(18) Any foreign exchange transactions, between a bank or broker-dealer, or 

any affiliate of either thereof, and a plan with respect to which the bank or 

broker-dealer, or any affiliate, is a trustee, custodian, fiduciary, or other party 

in interest, if— ‘‘(A) the transaction is in connection with the purchase or sale of securities, ‘‘(B) at the time the foreign exchange transaction is entered into, the 

terms of the transaction are not less favorable to the plan than the terms 

generally available in comparable arm’s length foreign exchange transactions between unrelated parties, or the terms afforded by the bank or the 

broker-dealer (or any affiliate thereof) in comparable arm’s-length foreign 

exchange transactions involving unrelated parties, ‘‘(C) the exchange rate used by the bank or broker-dealer for a particular 

foreign exchange transaction must be at a rate no less favorable than the 

rate quoted for transactions of similar size at the time of the transaction 

as displayed on an independent service that reports rates of exchange in 

the foreign currency market for such currency, and ‘‘(D) the bank or broker-dealer, or any affiliate, does not have investment 

discretion, or provide investment advice, with respect to the securities 

transaction.’’. (g) DEFINITION OF PLAN ASSET VEHICLE.—Section 3 of such Act (29 U.S.C. 1002) 

is amended by adding at the end the following new paragraph: ‘‘(42) the term ‘plan assets’ means plan assets as defined by such regulations as 

the Secretary may prescribe, except that under such regulations the assets of any 

entity shall not be treated as plan assets if, immediately after the most recent acquisition of any equity interest in the entity, less than 50 percent of the total value 

of all equity interests in the entity are held by employee benefit plan investors. For 

purposes of determinations pursuant to this paragraph, the value of any equity interest owned by a person (other than such an employee benefit plan) who has discretionary authority or control with respect to the assets of the entity or any person 

who provides investment advice for a fee (direct or indirect) with respect to such 

assets, or any affiliate of such a person, shall be disregarded for purposes of calculating the 50 percent threshold. An entity shall be considered to hold plan assets 

only to the extent of the percentage of the equity interest owned by benefit plan 

investors. For purposes of this paragraph, the term ‘benefit plan investor’ means an employee benefit plan subject to this part and any plan to which section 4975 of 

the Internal Revenue Code of 1986 applies.’’. 

SEC. 305. CORRECTION PERIOD FOR CERTAIN TRANSACTIONS INVOLVING SECURITIES AND 

COMMODITIES. 

(a) IN GENERAL.—Section 408(b) of the Employee Retirement Income Security Act 

of 1974 (29 U.S.C. 1108(b)), as amended by sections 304 and 601, is further amended by adding at the end the following new paragraph: 

‘‘(19)(A) Except as provided in subparagraphs (B) and (C), a transaction described in section 406(a) in connection with the acquisition, holding, or disposition of any security or commodity, if the transaction is corrected before the end 

of the correction period. 

‘‘(B) Subparagraph (A) does not apply to any transaction between a plan and 

a plan sponsor or its affiliates that involves the acquisition or sale of an emVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00039 Fmt 6659 Sfmt 6621 E:\HR\OC\HR232P1.XXX HR232P1
40 

ployer security (as defined in section 407(d)(1)) or the acquisition, sale, or lease 

of employer real property (as defined in section 407(d)(2)). 

‘‘(C) In the case of any fiduciary or other party in interest (or any other person knowingly participating in such transaction), subparagraph (A) does not 

apply to any prohibited transaction if, at the time such transaction is discovered, such fiduciary or party in interest (or other person) knew that the transaction would (without regard to this paragraph) constitute a violation of section 

406(a). 

‘‘(D) For purposes of this paragraph, the term ‘correction period’ means, in 

connection with a fiduciary or party in interest (or other person knowingly participating in the transaction), the 14-day period beginning on the date on which 

such fiduciary or party in interest (or other person) discovers, or reasonably 

should have discovered, that the transaction would (without regard to this paragraph) constitute a violation of section 406(a). 

‘‘(E) For purposes of this paragraph—

‘‘(i) The term ‘security’ has the meaning given such term by section 

475(c)(2) of the Internal Revenue Code of 1986 (without regard to subparagraph (F)(iii) and the last sentence thereof). 

‘‘(ii) The term ‘commodity’ has the meaning given such term by section 

475(e)(2) of such Code (without regard to subparagraph (D)(iii) thereof). 

‘‘(iii) The term ‘correct’ means, with respect to a transaction, to undo the 

transaction to the extent possible, but in any case, to make good to the plan 

or affected account any losses resulting from the transaction and to restore 

to the plan or affected account any profits made through use of the plan.’’. 

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

transaction which the fiduciary or disqualified person discovers, or reasonably 

should have discovered, after the date of the enactment of this Act, constitutes a 

prohibited transaction. 

SEC. 306. GOVERNMENT ACCOUNTABILITY OFFICE PENSION FUNDING REPORT. 

(a) IN GENERAL.—The Comptroller General of the Government Accountability Office shall transmit to the Congress a pension funding report not later than one year 

after the date of the enactment of this Act. 

(b) REPORT CONTENT.—The pension funding report required under subsection (a) 

shall include an analysis of the feasibility, advantages, and disadvantages of—

(1) requiring an employee pension benefit plan to insure a portion of such 

plan’s total investments; 

(2) requiring an employee pension benefit plan to adhere to uniform solvency 

standards set by the Pension Benefit Guaranty Corporation, which are similar 

to those applied on a State level in the insurance industry; and 

(3) amortizing a single-employer defined benefit pension plan’s shortfall amortization base (referred to in section 303(c)(3) of the Employee Retirement Income Security Act of 1974 (as amended by this Act)) over various periods of not 

more than 7 years. 

TITLE IV—IMPROVEMENTS IN PBGC 

GUARANTEE PROVISIONS 

SEC. 401. INCREASES IN PBGC PREMIUMS. 

(a) FLAT-RATE PREMIUMS.—Section 4006(a)(3) of the Employee Retirement Income 

Security Act of 1974 (29 U.S.C. 1306(a)(3)) is amended—

(1) by striking clause (i) of subparagraph (A) and inserting the following: 

‘‘(i) in the case of a single-employer plan, an amount equal to—

‘‘(I) for plan years beginning after December 31, 1990, and before January 

1, 2006, $19, or 

‘‘(II) for plan years beginning after December 31, 2005, the amount determined under subparagraph (F), 

plus the additional premium (if any) determined under subparagraph (E) for 

each individual who is a participant in such plan during the plan year;’’; and 

(2) by adding at the end the following new subparagraph: 

‘‘(F)(i) Except as otherwise provided in this subparagraph, for purposes of determining the annual premium rate payable to the corporation by a single-employer 

plan for basic benefits guaranteed under this title, the amount determined under 

this subparagraph is the greater of $30 or the adjusted amount determined under 

clause (ii). 

‘‘(ii) For plan years beginning after 2006, the adjusted amount determined under 

this clause is the product derived by multiplying $30 by the ratio of—

41 

‘‘(I) the national average wage index (as defined in section 209(k)(1) of the Social Security Act) for the first of the 2 calendar years preceding the calendar 

year in which the plan year begins, to ‘‘(II) the national average wage index (as so defined) for 2004, with such product, if not a multiple of $1, being rounded to the next higher multiple 

of $1 where such product is a multiple of $0.50 but not of $1, and to the nearest 

multiple of $1 in any other case. ‘‘(iii) For purposes of determining the annual premium rate payable to the corporation by a single-employer plan for basic benefits guaranteed under this title for 

any plan year beginning after 2005 and before 2010— ‘‘(I) except as provided in subclause (II), the premium amount referred to in 

subparagraph (A)(i)(II) for any such plan year is the amount set forth in connection with such plan year in the following table: 

‘‘If the plan year begins in: The amount is: 

2006 .............................................................................................. $21.20 

2007 .............................................................................................. $23.40 

2008 .............................................................................................. $25.60 

2009 .............................................................................................. $27.80; or 

‘‘(II) if the plan’s funding target attainment percentage for the plan year preceding the current plan year was less than 80 percent, the premium amount 

referred to in subparagraph (A)(i)(II) for such current plan year is the amount 

set forth in connection with such current plan year in the following table: 

‘‘If the plan year begins in: The amount is:

2006 .............................................................................................. $22.67

2007 .............................................................................................. $26.33

2008 or 2009 ................................................................................ the amount provided under 

clause (i). 

‘‘(iv) For purposes of this subparagraph, the term ‘funding target attainment percentage’ has the meaning provided such term in section 303(d)(2).’’. (b) RISK-BASED PREMIUMS.— (1) CONFORMING AMENDMENTS RELATED TO FUNDING RULES FOR SINGLE-EMPLOYER PLANS.—Section 4006(a)(3)(E) of such Act is amended by striking 

clauses (iii) and (iv) and inserting the following: 

‘‘(iii)(I) For purposes of clause (ii), except as provided in subclause (II), the term 

‘unfunded vested benefits’ means, for a plan year, the amount which would be the 

plan’s funding shortfall (as defined in section 303(c)(4)), if the value of plan assets 

of the plan were equal to the fair market value of such assets and only vested benefits were taken into account. 

‘‘(II) The interest rate used in valuing vested benefits for purposes of subclause 

(I) shall be equal to the first, second, or third segment rate which would be determined under section 303(h)(2)(C) if section 303(h)(2)(D)(i) were applied by substituting ‘the yields’ for ‘the 3-year weighted average of yields’, as applicable under 

rules similar to the rules under section 303(h)(2)(B).’’. 

(2) EFFECTIVE DATE.—The amendments made by paragraph (1) shall apply 

with respect to plan years beginning after 2005. 

TITLE V—DISCLOSURE 

SEC. 501. DEFINED BENEFIT PLAN FUNDING NOTICES. 

(a) APPLICATION OF PLAN FUNDING NOTICE REQUIREMENTS TO ALL DEFINED BENEFIT PLANS.—Section 101(f) of the Employee Retirement Income Security Act of 

1974 (29 U.S.C. 1021(f)) is amended—

(1) in the heading, by striking ‘‘MULTIEMPLOYER’’; 

(2) in paragraph (1), by striking ‘‘which is a multiemployer plan’’; and 

(3) by striking paragraph (2)(B)(iii) and inserting the following: 

‘‘(iii)(I) in the case of a single-employer plan, a summary of the rules 

governing termination of single-employer plans under subtitle C of title 

IV, or 

‘‘(II) in the case of a multiemployer plan, a summary of the rules governing insolvent multiemployer plans, including the limitations on benefit payments and any potential benefit reductions and suspensions 

42 

efit payments and any potential benefit reductions and suspensions 

(and the potential effects of such limitations, reductions, and suspensions on the plan); and’’. 

(b) INCLUSION OF STATEMENT OF THE RATIO OF INACTIVE PARTICIPANTS TO ACTIVE

PARTICIPANTS.—Section 101(f)(2)(B) of such Act (29 U.S.C. 1021(f)(2)(B)) is amended—

(1) in clause (iii)(II) (added by subsection (a)(3) of this section), by striking 

‘‘and’’ at the end; 

(2) in clause (iv), by striking ‘‘apply.’’ and inserting ‘‘apply; and’’; and 

(3) by adding at the end the following new clause: 

‘‘(v) a statement of the ratio, as of the end of the plan year to which 

the notice relates, of—

‘‘(I) the number of participants who are not in covered service 

under the plan and are in pay status under the plan or have a nonforfeitable right to benefits under the plan, to 

‘‘(II) the number of participants who are in covered service under 

the plan.’’. 

(c) COMPARISON OF MONTHLY AVERAGE OF VALUE OF PLAN ASSETS TO PROJECTED

CURRENT LIABILITIES.—Section 101(f)(2)(B) of such Act (29 U.S.C. 1021(f)(2)(B)) (as 

amended by the preceding provisions of this section) is amended further—

(1) by striking clause (ii) and inserting the following: 

‘‘(ii) a statement of a reasonable estimate of—

‘‘(I) the value of the plan’s assets for the plan year to which the 

notice relates, 

‘‘(II) projected liabilities of the plan for the plan year to which 

the notice relates, and 

‘‘(III) the ratio of the estimated amount determined under subclause (I) to the estimated amount determined under subclause 

(II);’’; and 

(2) by adding at the end (after and below clause (v)) the following: 

‘‘For purposes of determining a plan’s projected liabilities for a plan year 

under clause (ii)(II), such projected liabilities shall be determined by projecting forward in a reasonable manner to the end of the plan year the liabilities of the plan to participants and beneficiaries as of the first day of 

the plan year, taking into account any significant events that occur during 

the plan year and that have a material effect on such liabilities, including 

any plan amendments in effect for the plan year.’’. 

(d) STATEMENT OF PLAN’S FUNDING POLICY AND METHOD OF ASSET ALLOCATION.—

Section 101(f)(2)(B) of such Act (as amended by the preceding provisions of this section) is amended further—

(1) in clause (iv), by striking ‘‘and’’ at the end; 

(2) in clause (v), by striking the period and inserting ‘‘; and’’; and 

(3) by inserting after clause (v) the following new clause: 

‘‘(vi) a statement setting forth the funding policy of the plan and the 

asset allocation of investments under the plan (expressed as percentages of total assets) as of the end of the plan year to which the notice 

relates.’’. 

(e) NOTICE OF FUNDING IMPROVEMENT PLAN OR REHABILITATION PLAN ADOPTED

BY MULTIEMPLOYER PLAN.—Section 101(f)(2)(B) of such Act (as amended by the preceding provisions of this section) is amended further—

(1) in clause (v), by striking ‘‘and’’ at the end; 

(2) in clause (vi), by striking the period and inserting ‘‘; and’’; and 

(3) by inserting after clause (vi) the following new clause: 

‘‘(vii) a summary of any funding improvement plan, rehabilitation 

plan, or modification thereof adopted under section 305 during the plan 

year to which the notice relates.’’. 

(f) NOTICE DUE 90 DAYS AFTER PLAN’S VALUATION DATE.—

(1) IN GENERAL.—Section 101(f)(3) of such Act (29 U.S.C. 1021(f)(3)) is amended by striking ‘‘two months after the deadline (including extensions) for filing 

the annual report for the plan year’’ and inserting ‘‘90 days after the end of the 

plan year’’. 

(2) MODEL NOTICE.—Not later than 180 days after the date of the enactment 

of this Act, the Secretary of Labor shall publish a model version of the notice 

required by section 101(f) of the Employee Retirement Income Security Act of 

1974. 

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

years beginning after December 31, 2005. 

43 

SEC. 502. ADDITIONAL DISCLOSURE REQUIREMENTS. 

(a) ADDITIONAL ANNUAL REPORTING REQUIREMENTS.—Section 103 of the Employee 

Retirement Income Security Act of 1974 (29 U.S.C. 1023) is amended— (1) in subsection (a)(1)(B), by striking ‘‘subsections (d) and (e)’’ and inserting ‘‘subsections (d), (e), and (f)’’; and 

(2) by adding at the end the following new subsection: ‘‘(f)(1) With respect to any defined benefit plan, an annual report under this section for a plan year shall include the following: ‘‘(A) The ratio, as of the end of such plan year, of— ‘‘(i) the number of participants who, as of the end of such plan year, are 

not in covered service under the plan and are in pay status under the plan 

or have a nonforfeitable right to benefits under the plan, to ‘‘(ii) the number of participants who are in covered service under the plan 

as of the end of such plan year. ‘‘(B) In any case in which any liabilities to participants or their beneficiaries 

under such plan as of the end of such plan year consist (in whole or in part) 

of liabilities to such participants and beneficiaries borne by 2 or more pension 

plans as of immediately before such plan year, the funded ratio of each of such 

2 or more pension plans as of immediately before such plan year and the funded 

ratio of the plan with respect to which the annual report is filed as of the end 

of such plan year. 

‘‘(C) For purposes of this paragraph, the term ‘funded ratio’ means, in connection with a plan, the percentage which—

‘‘(i) the value of the plan’s assets is of 

‘‘(ii) the liabilities to participants and beneficiaries under the plan. 

‘‘(2) With respect to any defined benefit plan which is a multiemployer plan, an 

annual report under this section for a plan year shall include the following: 

‘‘(A) The number of employers obligated to contribute to the plan as of the 

end of such plan year. 

‘‘(B) The number of participants under the plan on whose behalf no employer 

contributions have been made to the plan for such plan year. For purposes of 

this subparagraph, the term ‘employer contribution’ means, in connection with 

a participant, a contribution made by an employer as an employer of such participant.’’. 

(b) ADDITIONAL INFORMATION IN ANNUAL ACTUARIAL STATEMENT REGARDING PLAN

RETIREMENT PROJECTIONS.—Section 103(d) of such Act (29 U.S.C. 1023(d)) is 

amended—

(1) by redesignating paragraphs (12) and (13) as paragraphs (13) and (14), respectively; and 

(2) by inserting after paragraph (11) the following new paragraph: 

‘‘(12) A statement explaining the actuarial assumptions and methods used in 

projecting future retirements and forms of benefit distributions under the 

plan.’’. 

(c) FILING AFTER 275 DAYS AFTER PLAN YEAR ONLY IN CASES OF HARDSHIP.—Section 104(a)(1) of such Act (29 U.S.C. 1024(a)(1)) is amended by inserting after the 

first sentence the following new sentence: ‘‘In the case of a pension plan, the Secretary may extend the deadline for filing the annual report for any plan year past 

275 days after the close of the plan year only on a case by case basis and only in 

cases of hardship, in accordance with regulations which shall be prescribed by the 

Secretary.’’. 

(d) INTERNET DISPLAY OF INFORMATION.—Section 104(b) of such Act (29 U.S.C. 

1024(b)) is amended by adding at the end the following: 

‘‘(5) Identification and basic plan information and actuarial information included 

in the annual report for any plan year shall be filed with the Secretary in an electronic format which accommodates display on the Internet, in accordance with regulations which shall be prescribed by the Secretary. The Secretary shall provide for 

display of such information included in the annual report, within 90 days after the 

date of the filing of the annual report, on a website maintained by the Secretary 

on the Internet and other appropriate media. Such information shall also be displayed on any website maintained by the plan sponsor (or by the plan administrator 

on behalf of the plan sponsor) on the Internet, in accordance with regulations which 

shall be prescribed by the Secretary.’’. 

(e) SUMMARY ANNUAL REPORT FILED WITHIN 15 DAYS AFTER DEADLINE FOR FILING OF ANNUAL REPORT.—Section 104(b)(3) of such Act (29 U.S.C. 1024(b)(3)) is 

amended—

(1) by striking ‘‘Within 210 days after the close of the fiscal year of the plan,’’

and inserting ‘‘Within 15 business days after the due date under subsection 

(a)(1) for the filing of the annual report for the fiscal year of the plan,’’; and 

(2) by striking ‘‘the latest’’ and inserting ‘‘such’’. 

44 

(f) DISCLOSURE OF PLAN ASSETS AND LIABILITIES IN SUMMARY ANNUAL REPORT.— (1) IN GENERAL.—Section 104(b)(3) of such Act (as amended by subsection (a)) 

is amended further— (A) by inserting ‘‘(A)’’ after ‘‘(3)’’; and 

(B) by adding at the end the following: ‘‘(B) The material provided pursuant to subparagraph (A) to summarize the latest 

annual report shall be written in a manner calculated to be understood by the average plan participant and shall set forth the total assets and liabilities of the plan 

for the plan year for which the latest annual report was filed and for each of the 

2 preceding plan years, as reported in the annual report for each such plan year 

under this section.’’. (g) INFORMATION MADE AVAILABLE TO PARTICIPANTS, BENEFICIARIES, AND EMPLOY- ERS WITH RESPECT TO MULTIEMPLOYER PLANS.— (1) IN GENERAL.—Section 101 of the Employee Retirement Income Security 

Act of 1974 (29 U.S.C. 1021) (as amended by section 103(b)(2)(A)) is further 

amended— (A) by redesignating subsection (k) as subsection (l); and 

(B) by inserting after subsection (j) the following new subsection: ‘‘(k) MULTIEMPLOYER PLAN INFORMATION MADE AVAILABLE ON REQUEST.— ‘‘(1) IN GENERAL.—Each administrator of a multiemployer plan shall furnish 

to any plan participant or beneficiary or any employer having an obligation to 

contribute to the plan, who so requests in writing—

‘‘(A) a copy of any actuarial report received by the plan for any plan year 

which has been in receipt by the plan for at least 30 days, and 

‘‘(B) a copy of any financial report prepared for the plan by any plan investment manager or advisor or other person who is a plan fiduciary which 

has been in receipt by the plan for at least 30 days. 

‘‘(2) COMPLIANCE.—Information required to be provided under paragraph (1) 

—

‘‘(A) shall be provided to the requesting participant, beneficiary, or employer within 30 days after the request in a form and manner prescribed 

in regulations of the Secretary, and 

‘‘(B) may be provided in written, electronic, or other appropriate form to 

the extent such form is reasonably accessible to persons to whom the information is required to be provided. 

‘‘(3) LIMITATIONS.—In no case shall a participant, beneficiary, or employer be 

entitled under this subsection to receive more than one copy of any report described in paragraph (1) during any one 12-month period. The administrator 

may make a reasonable charge to cover copying, mailing, and other costs of furnishing copies of information pursuant to paragraph (1). The Secretary may by 

regulations prescribe the maximum amount which will constitute a reasonable 

charge under the preceding sentence.’’. 

(2) ENFORCEMENT.—Section 502(c)(4) of such Act (29 U.S.C. 1132(c)(4)) (as 

amended by section 103(b)(2)(B)) is further amended by striking ‘‘sections 101(j) 

and 302(b)(7)(F)(iv)’’ and inserting ‘‘sections 101(j), 101(k), and 302(b)(7)(F)(iv)’’. 

(3) REGULATIONS.—The Secretary shall prescribe regulations under section 

101(k)(2) of the Employee Retirement Income Security Act of 1974 (added by 

paragraph (1) of this subsection) not later than 90 days after the date of the 

enactment of this Act. 

(h) NOTICE OF POTENTIAL WITHDRAWAL LIABILITY TO MULTIEMPLOYER PLANS.—

(1) IN GENERAL.—Section 101 of such Act (as amended by subsection (g) of 

this section) is further amended—

(A) by redesignating subsection (l) as subsection (m); and 

(B) by inserting after subsection (k) the following new subsection: 

‘‘(l) NOTICE OF POTENTIAL WITHDRAWAL LIABILITY.—

‘‘(1) IN GENERAL.—The plan sponsor or administrator of a multiemployer plan 

shall furnish to any employer who has an obligation to contribute under the 

plan and who so requests in writing notice of—

‘‘(A) the amount which would be the amount of such employer’s withdrawal liability under part 1 of subtitle E of title IV if such employer withdrew on the last day of the plan year preceding the date of the request, and 

‘‘(B) the average increase, per participant under the plan, in accrued liabilities under the plan as of the end of such plan year to participants 

under such plan on whose behalf no employer contributions are payable (or 

their beneficiaries), which would be attributable to such a withdrawal by 

such employer. 

For purposes of subparagraph (B), the term ‘employer contribution’ means, in 

connection with a participant, a contribution made by an employer as an employer of such participant. 

45 

‘‘(2) COMPLIANCE.—Any notice required to be provided under paragraph (1)—

‘‘(A) shall be provided to the requesting employer within 180 days after 

the request in a form and manner prescribed in regulations of the Secretary, and 

‘‘(B) may be provided in written, electronic, or other appropriate form to 

the extent such form is reasonably accessible to employers to whom the information is required to be provided. 

‘‘(3) LIMITATIONS.—In no case shall an employer be entitled under this subsection to receive more than one notice described in paragraph (1) during any 

one 12-month period. The person required to provide such notice may make a 

reasonable charge to cover copying, mailing, and other costs of furnishing such 

notice pursuant to paragraph (1). The Secretary may by regulations prescribe 

the maximum amount which will constitute a reasonable charge under the preceding sentence.’’. 

(2) ENFORCEMENT.—Section 502(c)(4) of such Act (29 U.S.C. 1132(c)(4)) (as 

amended by paragraph (1)) is further amended by striking ‘‘sections 101(j), 

101(k), and 302(b)(7)(F)(iv)’’ and inserting ‘‘sections 101(j), 101(k), 101(l), and 

302(b)(7)(F)(iv)’’. 

(i) MODEL FORM.—Not later than 180 days after the date of the enactment of this 

Act, the Secretary of Labor shall publish a model form for providing the statements, 

schedules, and other material required to be provided under section 104(b)(3) of the 

Employee Retirement Income Security Act of 1974, as amended by this section. 

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

years beginning after December 31, 2005. 

SEC. 503. SECTION 4010 FILINGS WITH THE PBGC. 

(a) CHANGE IN CRITERIA FOR PERSONS REQUIRED TO PROVIDE INFORMATION TO

PBGC.—Section 4010(b) of the Employee Retirement Income Security Act of 1974 

(29 U.S.C. 1310(b)) is amended by striking paragraph (1), by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by inserting before 

paragraph (3) (as so redesignated) the following new paragraphs: 

‘‘(1) the aggregate funding target attainment percentage of the plan (as defined in subsection (d)(2)) is less than 60 percent; 

‘‘(2)(A) the aggregate funding target attainment percentage of the plan (as defined in subsection (d)(2)) is less than 75 percent, and 

‘‘(B) the plan sponsor is in an industry with respect to which the corporation 

determines that there is substantial unemployment or underemployment and 

the sales and profits are depressed or declining; ’’. 

(b) NOTICE TO PARTICIPANTS AND BENEFICIARIES.—Section 4010 of the Employee 

Retirement Income Security Act of 1974 (29 U.S.C. 1310) is amended by adding at 

the end the following new subsection: 

‘‘(d) NOTICE TO PARTICIPANTS AND BENEFICIARIES.—

‘‘(1) IN GENERAL.—Not later than 90 days after the submission by any person 

to the corporation of information or documentary material with respect to any 

plan pursuant to subsection (a), such person shall provide notice of such submission to each participant and beneficiary under the plan (and under all plans 

maintained by members of the controlled group of each contributing sponsor of 

the plan). Such notice shall also set forth—

‘‘(A) the number of single-employer plans covered by this title which are 

in at-risk status and are maintained by contributing sponsors of such plan 

(and by members of their controlled groups) with respect to which the funding target attainment percentage for the preceding plan year of each plan 

is less than 60 percent; 

‘‘(B) the value of the assets of each of the plans described in subparagraph (A) for the plan year, the funding target for each of such plans for 

the plan year, and the funding target attainment percentage of each of such 

plans for the plan year; and 

‘‘(C) taking into account all single-employer plans maintained by the contributing sponsor and the members of its controlled group as of the end of 

such plan year—

‘‘(i) the aggregate total of the values of plan assets of such plans as 

of the end of such plan year, 

‘‘(ii) the aggregate total of the funding targets of such plans, as of the 

end of such plan year, taking into account only benefits to which participants and beneficiaries have a nonforfeitable right, and 

‘‘(iii) the aggregate funding targets attainment percentage with respect to the contributing sponsor for the preceding plan year. 

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

46 

‘‘(A) VALUE OF PLAN ASSETS.—The term ‘value of plan assets’ means the 

value of plan assets, as determined under section 303(g)(3). 

‘‘(B) FUNDING TARGET.—The term ‘funding target’ has the meaning provided under section 303(d)(1). 

‘‘(C) FUNDING TARGET ATTAINMENT PERCENTAGE.—The term ‘funding target attainment percentage’ has the meaning provided in section 303(d)(2). 

‘‘(D) AGGREGATE FUNDING TARGETS ATTAINMENT PERCENTAGE.—The term 

‘aggregate funding targets attainment percentage’ with respect to a contributing sponsor for a plan year is the percentage, taking into account all 

plans maintained by the contributing sponsor and the members of its controlled group as of the end of such plan year, which 

‘‘(i) the aggregate total of the values of plan assets, as of the end of 

such plan year, of such plans, is of 

‘‘(ii) the aggregate total of the funding targets of such plans, as of the 

end of such plan year, taking into account only benefits to which participants and beneficiaries have a nonforfeitable right. 

‘‘(E) AT-RISK STATUS.—The term ‘at-risk status’ has the meaning provided 

in section 303(i)(3). 

‘‘(3) COMPLIANCE.—

‘‘(A) IN GENERAL.—Any notice required to be provided under paragraph 

(1) may be provided in written, electronic, or other appropriate form to the 

extent such form is reasonably accessible to individuals to whom the information is required to be provided. 

‘‘(B) LIMITATIONS.—In no case shall a participant or beneficiary be entitled under this subsection to receive more than one notice described in 

paragraph (1) during any one 12-month period. The person required to provide such notice may make a reasonable charge to cover copying, mailing, 

and other costs of furnishing such notice pursuant to paragraph (1). The 

corporation may by regulations prescribe the maximum amount which will 

constitute a reasonable charge under the preceding sentence. 

‘‘(4) NOTICE TO CONGRESS.—Concurrent with the provision of any notice under 

paragraph (1), such person shall provide such notice 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, which shall be treated 

as materials provided in executive session.’’. 

(c) EFFECTIVE DATE.—The amendment made by this section shall apply with respect to plan years beginning after 2006. 

TITLE VI—INVESTMENT ADVICE 

SEC. 601. AMENDMENTS TO EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 PROVIDING PROHIBITED TRANSACTION EXEMPTION FOR PROVISION OF INVESTMENT 

ADVICE. 

(a) EXEMPTION FROM PROHIBITED TRANSACTIONS.—Section 408(b) of the Employee 

Retirement Income Security Act of 1974 (29 U.S.C. 1108(b)) is amended by adding 

at the end the following new paragraph: 

‘‘(14)(A) Any transaction described in subparagraph (B) in connection with the 

provision of investment advice described in section 3(21)(A)(ii), in any case in 

which—

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

participants or beneficiaries, 

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

the plan by a fiduciary adviser in connection with any sale, acquisition, or 

holding of a security or other property for purposes of investment of plan 

assets, and 

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

provision of the advice. 

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

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

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

(including any lending of money or other extension of credit associated 

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

pursuant to the advice; and 

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

the fiduciary adviser or an affiliate thereof (or any employee, agent, or 

registered representative of the fiduciary adviser or affiliate) in connection with the provision of the advice or in connection with a sale, acquiVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00046 Fmt 6659 Sfmt 6621 E:\HR\OC\HR232P1.XXX HR232P1
47 

sition, or holding of a security or other property pursuant to the advice.’’. 

(b) REQUIREMENTS.—Section 408 of such Act is amended further by adding at the 

end the following new subsection: 

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

ADVISERS.—

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

with the provision of investment advice referred to in section 3(21)(A)(ii), provided to an employee benefit plan or a participant or beneficiary of an employee 

benefit plan by a fiduciary adviser with respect to the plan in connection with 

any sale, acquisition, or holding of a security or other property for purposes of 

investment of amounts held by the plan, if—

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

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

or beneficiary, the fiduciary adviser provides to the recipient of the advice, 

at a time reasonably contemporaneous with the initial provision of the advice, a written notification (which may consist of notification by means of 

electronic communication)—

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

fiduciary adviser or any affiliate thereof is to receive (including compensation provided by any third party) in connection with the provision 

of the advice or in connection with the sale, acquisition, or holding of 

the security or other property, 

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

‘‘(iii) of any limitation placed on the scope of the investment advice 

to be provided by the fiduciary adviser with respect to any such sale, 

acquisition, or holding of a security or other property, 

‘‘(iv) of the types of services provided by the fiduciary adviser in connection with the provision of investment advice by the fiduciary adviser, 

‘‘(v) that the adviser is acting as a fiduciary of the plan in connection 

with the provision of the advice, and 

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

provision of advice by another adviser, that could have no material affiliation with and receive no fees or other compensation in connection 

with the security or other property, 

‘‘(B) the fiduciary adviser provides appropriate disclosure, in connection 

with the sale, acquisition, or holding of the security or other property, in 

accordance with all applicable securities laws, 

‘‘(C) the sale, acquisition, or holding occurs solely at the direction of the 

recipient of the advice, 

‘‘(D) the compensation received by the fiduciary adviser and affiliates 

thereof in connection with the sale, acquisition, or holding of the security 

or other property is reasonable, and 

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

property are at least as favorable to the plan as an arm’s length transaction 

would be. 

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

‘‘(A) IN GENERAL.—The notification required to be provided to participants 

and beneficiaries under paragraph (1)(A) shall be written in a clear and 

conspicuous manner and in a manner calculated to be understood by the 

average plan participant and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of the information required to be provided in the notification. 

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

The Secretary shall issue a model form for the disclosure of fees and other 

compensation required in paragraph (1)(A)(i) which meets the requirements 

of subparagraph (A). 

‘‘(3) EXEMPTION CONDITIONED ON MAKING REQUIRED INFORMATION AVAILABLE

ANNUALLY, ON REQUEST, AND IN THE EVENT OF MATERIAL CHANGE.—The requirements of paragraph (1)(A) shall be deemed not to have been met in connection 

with the initial or any subsequent provision of advice described in paragraph 

(1) to the plan, participant, or beneficiary if, at any time during the provision 

of advisory services to the plan, participant, or beneficiary, the fiduciary adviser 

fails to maintain the information described in clauses (i) through (iv) of subparagraph (A) in currently accurate form and in the manner described in paragraph (2) or fails—

48 

‘‘(A) to provide, without charge, such currently accurate information to 

the recipient of the advice no less than annually, ‘‘(B) to make such currently accurate information available, upon request 

and without charge, to the recipient of the advice, or ‘‘(C) in the event of a material change to the information described in 

clauses (i) through (iv) of paragraph (1)(A), to provide, without charge, such 

currently accurate information to the recipient of the advice at a time reasonably contemporaneous to the material change in information. ‘‘(4) MAINTENANCE FOR 6 YEARS OF EVIDENCE OF COMPLIANCE.—A fiduciary adviser referred to in paragraph (1) who has provided advice referred to in such 

paragraph shall, for a period of not less than 6 years after the provision of the 

advice, maintain any records necessary for determining whether the requirements of the preceding provisions of this subsection and of subsection (b)(14) 

have been met. A transaction prohibited under section 406 shall not be considered to have occurred solely because the records are lost or destroyed prior to 

the end of the 6-year period due to circumstances beyond the control of the fiduciary adviser. ‘‘(5) EXEMPTION FOR PLAN SPONSOR AND CERTAIN OTHER FIDUCIARIES.— ‘‘(A) IN GENERAL.—Subject to subparagraph (B), a plan sponsor or other 

person who is a fiduciary (other than a fiduciary adviser) shall not be treated as failing to meet the requirements of this part solely by reason of the 

provision of investment advice referred to in section 3(21)(A)(ii) (or solely 

by reason of contracting for or otherwise arranging for the provision of the 

advice), if—

‘‘(i) the advice is provided by a fiduciary adviser pursuant to an arrangement between the plan sponsor or other fiduciary and the fiduciary adviser for the provision by the fiduciary adviser of investment 

advice referred to in such section, 

‘‘(ii) the terms of the arrangement require compliance by the fiduciary adviser with the requirements of this subsection, and 

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

by the fiduciary adviser that the fiduciary adviser is a fiduciary of the 

plan with respect to the provision of the advice. 

‘‘(B) CONTINUED DUTY OF PRUDENT SELECTION OF ADVISER AND PERIODIC

REVIEW.—Nothing in subparagraph (A) shall be construed to exempt a plan 

sponsor or other person who is a fiduciary from any requirement of this 

part for the prudent selection and periodic review of a fiduciary adviser 

with whom the plan sponsor or other person enters into an arrangement 

for the provision of advice referred to in section 3(21)(A)(ii). The plan sponsor or other person who is a fiduciary has no duty under this part to monitor the specific investment advice given by the fiduciary adviser to any particular recipient of the advice. 

‘‘(C) AVAILABILITY OF PLAN ASSETS FOR PAYMENT FOR ADVICE.—Nothing in 

this part shall be construed to preclude the use of plan assets to pay for 

reasonable expenses in providing investment advice referred to in section 

3(21)(A)(ii). 

‘‘(6) DEFINITIONS.—For purposes of this subsection and subsection (b)(14)—

‘‘(A) FIDUCIARY ADVISER.—The term ‘fiduciary adviser’ means, with respect to a plan, a person who is a fiduciary of the plan by reason of the 

provision of investment advice by the person to the plan or to a participant 

or beneficiary and who is—

‘‘(i) registered as an investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.) or under the laws of the State 

in which the fiduciary maintains its principal office and place of business, 

‘‘(ii) a bank or similar financial institution referred to in section 

408(b)(4) or a savings association (as defined in section 3(b)(1) of the 

Federal Deposit Insurance Act (12 U.S.C. 1813(b)(1))), but only if the 

advice is provided through a trust department of the bank or similar 

financial institution or savings association which is subject to periodic 

examination and review by Federal or State banking authorities, 

‘‘(iii) an insurance company qualified to do business under the laws 

of a State, 

‘‘(iv) a person registered as a broker or dealer under the Securities 

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

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

(iv), or 

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

49 

of applicable insurance, banking, and securities laws relating to the 

provision of the advice. 

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

person of the entity (as defined in section 2(a)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a–2(a)(3))). 

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

of another entity means a person described in section 3(a)(18) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) (substituting the entity for 

the broker or dealer referred to in such section) or a person described in 

section 202(a)(17) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–

2(a)(17)) (substituting the entity for the investment adviser referred to in 

such section).’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to advice referred to in section 3(21)(A)(ii) of the Employee Retirement Income 

Security Act of 1974 provided on or after January 1, 2006. 

SEC. 602. AMENDMENTS TO INTERNAL REVENUE CODE OF 1986 PROVIDING PROHIBITED 

TRANSACTION EXEMPTION FOR PROVISION OF INVESTMENT ADVICE. 

[See introduced bill, page 287, line 15 through page 298, line 23] 

TITLE VII—BENEFIT ACCRUAL STANDARDS 

SEC. 701. IMPROVEMENTS IN BENEFIT ACCRUAL STANDARDS. 

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

1974.—

(1) RULES RELATING TO REDUCTION IN ACCRUED BENEFITS BECAUSE OF ATTAINMENT OF ANY AGE.—Section 204(b)(1)(H) of the Employee Retirement Income 

Security Act of 1974 (29 U.S.C. 1054(b)(1)(H)) is amended by adding at the end 

the following new clauses: 

‘‘(vii)(I) A plan shall not be treated as failing to meet the requirements of clause 

(i) if a participant’s entire accrued benefit, as determined as of any date under the 

formula for determining benefits as set forth in the text of the plan documents, 

would be equal to or greater than that of any similarly situated, younger individual. 

‘‘(II) For purposes of this clause, an individual is similarly situated to a participant if such individual is identical to such participant in every respect (including 

period of service, compensation, position, date of hire, work history, and any other 

respect) except for age. 

‘‘(III) In determining the entire accrued benefit for purposes of this clause, the 

subsidized portion of any early retirement benefit (including any early retirement 

subsidy that is fully or partially included or reflected in an employee’s opening balance or other transition benefits) shall be disregarded. 

‘‘(viii) A plan under which the accrued benefit payable under the plan upon distribution (or any portion thereof) is expressed as the balance of a hypothetical account maintained for the participant shall not be treated as failing to meet the requirements of clause (i) solely because interest accruing on such balance is taken 

into account. 

‘‘(ix) A plan shall not be treated as failing to meet the requirements of this subparagraph solely because the plan provides allowable offsets against those benefits 

under the plan which are attributable to employer contributions, based on benefits 

which are provided under title II of the Social Security Act, the Railroad Retirement 

Act of 1974, another plan described in section 401(a) of the Internal Revenue Code 

of 1986 maintained by the same employer, or under any retirement program for officers or employees of the Federal Government or of the government of any State or 

political subdivision thereof. For purposes of this clause, allowable offsets based on 

such benefits consist of offsets equal to all or part of the actual benefit payment 

amounts, reasonable projections or estimations of such benefit payment amounts, or 

actuarial equivalents of such actual benefit payment amounts, projections, or estimations (determined on the basis of reasonable actuarial assumptions). 

‘‘(x) A plan shall not be treated as failing to meet the requirements of this subparagraph solely because the plan provides a disparity in contributions or benefits 

with respect to which the requirements of section 401(l) of the Internal Revenue 

Code of 1986 are met. 

‘‘(xi)(I) A plan shall not be treated as failing to meet the requirements of this subparagraph solely because the plan provides for pre-retirement indexing of accrued 

benefits under the plan. 

‘‘(II) For purposes of this clause, the term ‘pre-retirement indexing’ means, in connection with an accrued benefit, the periodic adjustment of the accrued benefit by 

50 

means of the application of a recognized index or methodology so as to protect the 

economic value of the benefit against inflation prior to distribution.’’. (2) DETERMINATIONS OF ACCRUED BENEFIT AS BALANCE OF BENEFIT AC- COUNT.—Section 203 of such Act (29 U.S.C. 1053) is amended by adding at the 

end the following new subsection: ‘‘(f)(1) A defined benefit plan under which the accrued benefit payable under the 

plan upon distribution (or any portion thereof) is expressed as the balance of a hypothetical account maintained for the participant shall not be treated as failing to 

meet the requirements of subsection (a)(2) and section 205(g) solely because of the 

amount actually made available for such distribution under the terms of the plan, 

in any case in which the applicable interest rate that would be used under the 

terms of the plan to project the amount of the participant’s account balance to normal retirement age is not greater than a market rate of return. ‘‘(2) The Secretary of the Treasury may provide by regulation for rules governing 

the calculation of a market rate of return for purposes of paragraph (1) and for permissible methods of crediting interest to the account (including variable interest 

rates) resulting in effective rates of return meeting the requirements of paragraph 

(1).’’. 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to periods beginning on or after June 29, 2005. 

TITLE VIII—DEDUCTION LIMITATIONS 

SEC. 801. [SEE INTRODUCED BILL, PAGE 299, LINE 1 THROUGH PAGE 305, LINE 20]. 

PURPOSE

The purpose of H.R. 2830, the ‘‘Pension Protection Act of 2005’’

(PPA), is to ensure the health and future of the voluntary, employer-sponsored defined benefit pension system through comprehensive reforms intended to protect the interests of workers, retirees, and taxpayers. H.R. 2830 includes new funding requirements to ensure employers adequately and consistently fund their 

pension plans, provides workers with meaningful disclosure about 

the financial status of their benefits, and protects taxpayers from 

a potential multi-billion dollar bailout of the Pension Benefit Guaranty Corporation (PBGC). 

COMMITTEE ACTION

On June 9, 2005, Committee on Education and the Workforce 

Chairman John A. Boehner, Subcommittee on Employer-Employee 

Relations Chairman Sam Johnson and Vice Chairman John Kline, 

and Committee on Ways and Means Chairman Bill Thomas introduced H.R. 2830, the Pension Protection Act of 2005. H.R. 2830 

represents the culmination of legislative activity, begun in the 

106th Congress and continuing through the 109th Congress, intended to fix outdated pension laws that threaten the fiscal wellbeing of taxpayers, workers, and retirees, and to improve the pension security of all American workers. 

106TH CONGRESS

In the 106th Congress, the Committee on Education and the 

Workforce (the ‘‘Committee’’) began a comprehensive review of the 

federal law governing private pensions, the Employee Retirement 

Income Security Act (‘‘ERISA’’), and its relevance to the needs of 

participants, beneficiaries, and employers in the 21st century. 

On March 11, 1999, Representatives Rob Portman and Benjamin 

Cardin introduced H.R. 1102, the ‘‘Comprehensive Retirement Security and Pension Reform Act of 1999.’’ The bill was jointly reVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00050 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
51 

1Fifteen provisions of Title VI of H.R. 1102 subsequently were included in 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 then-President Clinton. The following year, twenty-two ERISA provisions from H.R. 1102 were included in the ‘‘Retirement Savings and Pension Coverage Act of 

2000,’’ which was included in H.R. 2614, the ‘‘Taxpayer Relief Act of 2000.’’ The conference report on H.R. 2614 was adopted by the House on October 26, 2000, by a vote of 237 yeas, 174 

nays, and one present. The conference report was not adopted by the Senate prior to adjournment of the 106th Congress. 

ferred to the Committee on Education and Workforce and the Committee on Ways and Means. On June 29, 1999, the Subcommittee 

on Employer-Employee Relations held a 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 sponsors, Representatives 

Portman and Cardin. 

On July 14, 1999, the Committee discharged the Subcommittee 

on Employer-Employee Relations from consideration of the bill, approved H.R. 1102, and ordered it favorably reported to the House 

of Representatives by voice vote. On July 19, 2000, the House of 

Representatives passed the bill by a vote of 401 yeas to 25 nays.1

The Senate did not complete consideration of H.R. 1102 prior to the 

adjournment of the 106th Congress. 

On February 15, 2000, the Subcommittee on Employer-Employee 

Relations continued its examination of issues arising under ERISA 

at a hearing entitled ‘‘The Evolving Pension and Investment World 

After 25 Years of ERISA.’’ The following individuals testified before 

the Subcommittee: Professor John H. Langbein, Chancellor Kent 

Professor of Law and Legal History, Yale Law School; Michael S. 

Gordon, Esq., Law Offices of Michael S. Gordon; Dr. John B. 

Shoven, Charles R. Schwab Professor of Economics, Stanford University; and Dr. Teresa Ghilarducci, Associate Professor of Economics, University of Notre Dame. 

On March 9th and 10th, 2000, the Subcommittee on EmployerEmployee Relations held a two days of hearings entitled ‘‘More Secure Retirement for Workers: Proposals for ERISA Reform.’’ Testifying on March 9th were: W. Allen Reed, President, General Motors 

Investment Management Company, testifying on behalf of the 

Committee on Investment of Employee Benefit Assets (CIEBA) of 

the Financial Executives Institute; Daniel P. O’Connell, Corporate 

Director for Employee Benefits and HR Systems, United Technologies Corporation, testifying on behalf of the ERISA Industry 

Committee (ERIC); Damon Silvers, Esq., Associate General Counsel, AFL–CIO; Professor Joseph A. Grundfest, William A. Franke 

Professor of Law and Business, Stanford Law School, and co-founder of Financial Engines, Inc.; Eula Ossofsky, President, Board of 

Directors, Older Women’s League; and Margaret Raymond, Esq., 

Assistant General Counsel, Fidelity Investments, testifying on behalf of the Investment Company Institute. During the second day 

of hearings on March 10th, the Subcommittee heard testimony 

from Kenneth S. Cohen, Esq., Senior Vice President and Deputy 

General Counsel, Massachusetts Mutual Life Insurance Company, 

testifying on behalf of the American Council of Life Insurers; Marc 

E. Lackritz, President, Securities Industry Association; David 

Certner, Senior Coordinator, Department of Federal Affairs, American Association of Retired Persons; Louis Colosimo, Managing Director, Morgan Stanley Dean Witter & Company, Inc., testifying on 

52 

behalf of the Bond Market Association; John Hotz, Deputy Director, 

Pension Rights Center; and Deedra Walkey, Esq., Assistant General Counsel, Frank Russell Company. 

On March 16, 2000, the Subcommittee on Employer-Employee 

Relations held a hearing entitled ‘‘The Wealth Through the Workplace Act: Worker Ownership in Today’s Economy.’’ The hearing focused on H.R. 3462, introduced by then-Subcommittee Chairman 

John A. Boehner, which made stock options more readily available 

to ERISA participants. Testifying before the Subcommittee were: 

Jane F. Greenman, Esq., Deputy General Counsel (Human Resources), Honeywell, Inc., testifying on behalf of the American Benefits Counsel; Tim Byland, Senior Sales Executive, INTERVU, Inc.; 

and Patrick Von Bargen, Executive Director, National Commission 

on Entrepreneurship. 

On April 4, 2000, the Subcommittee on Employer-Employee Relations continued its examination of ERISA reform in a hearing entitled ‘‘Modernizing ERISA to Promote Retirement Security.’’ The following individuals testified at the hearing: the Honorable Leslie 

Kramerich, Acting Assistant Secretary of Labor for Pension and 

Welfare Benefits, U.S. Department of Labor; and David M. Strauss, 

Executive Director, Pension Benefit Guaranty Corporation. 

On June 26, 2000, then-Subcommittee on Employer-Employee 

Relations Chairman Boehner introduced H.R. 4747, the Retirement 

Security Advice Act of 2000. On July 19, 2000, the Subcommittee 

on Employer-Employee Relations ordered H.R. 4747 favorably reported, as amended, by voice vote. There was no further action 

taken on the legislation prior to the conclusion of the 106th Congress. 

Concluding its legislative activity for the 106th Congress, the 

Subcommittee held a hearing on September 14, 2000 entitled ‘‘How 

to Improve Pension Coverage for American Workers.’’ The Subcommittee heard testimony from Theodore Groom, Esq., Groom 

Law; Michael Calabrese, Director, Public Assets Program, New 

America Foundation; and Ed Tinsley, III, President and CEO, KBob’s Steakhouse. 

107TH CONGRESS

Building upon the activity of the previous Congress, the Committee continued its efforts to examine and improve upon the private pension system. On March 14, 2001, Representatives Portman 

and Cardin introduced H.R. 10, which was very similar to the 

House passed H.R. 1102 of the previous Congress. 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 sponsors, Representatives 

Portman and Cardin, Nanci S. Palmintere, Director of Tax, Licensing and Customs, Intel Corporation, testifying on behalf of the 

American Benefits Council; Richard Turner, Esq., Associate General Counsel, American General Financial Group, testifying on behalf of the American Council of Life Insurers; Judith Mazo, Senior 

Vice President, Segal Co., testifying on behalf of the Building and 

Construction Trades Department, AFL–CIO and the National CoVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00052 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
53 

ordinating Committee for Multiemployer Plans; and Karen Ferguson, Director, Pension Rights Center. 

On April 26, 2001, the Committee on Education and the Workforce approved H.R. 10, as amended, by voice vote and ordered the 

bill favorably reported to the House of Representatives. On May 5, 

2001, the House of Representatives passed H.R. 10 by a vote of 407 

yeas to 24 nays. On May 16, 2001, the provisions of H.R. 10 were 

included in H.R. 1836, the Economic Growth and Tax Relief Reconciliation Act, and passed by the House of Representatives on a 

vote of 230 yeas to 197 nays. The House passed the conference report on the measure on May 26, 2001, by a vote of 240 yeas to 154 

nays. On December 5, 2001, the Senate adopted the conference report, as amended, by a vote of 90 yeas and nine nays. On December 

11, 2001, the House agreed to the Senate amendments by a roll call 

vote of 369 yeas and 33 nays. The President signed the bill into law 

on December 21, 2001; it became public law 107–90. 

On June 21, 2001, Committee on Education and the Workforce 

Chairman Boehner introduced H.R. 2269, the ‘‘Retirement Security 

Advice Act of 2001,’’ a bill to promote the provision of retirement 

investment advice to workers regarding the management of their 

retirement income assets. The bill was referred to the Committee 

on Education and the Workforce and the Committee on Ways and 

Means. 

On July 17, 2001, the Subcommittee on Employer-Employee Relations held a hearing on H.R. 2269. Testifying before the Subcommittee were the Honorable Ann L. Combs, Assistant Secretary 

for Pension and Welfare Benefits, U.S. Department of Labor; Betty 

Shepard, Human Resources Administrator, Mohawk Industries, 

Inc.; Damon Silvers, Esq., Associate General Counsel, AFL–CIO; 

Richard A. Hiller, Vice President, Western Division, TIAA–CREF; 

Joseph Perkins, Immediate Past Present, American Association for 

Retired Persons; and Jon Breyfogle, Principal, Groom Law Group, 

testifying on behalf of the American Council of Life Insurers. 

On August 2, 2001, the Subcommittee on Employer-Employee 

Relations approved H.R. 2269, without amendment, by voice vote 

and ordered the bill favorably reported to the full Committee. On 

October 3, 2001, the Committee approved H.R. 2269, as amended, 

and ordered the bill favorably reported to the House of Representatives by a roll call vote of 29 yeas to 17 nays. The Committee on 

Ways and Means considered and marked up the bill on November 

7, 2001, and reported it to the House on November 13, 2001. The 

bill, as amended, passed the House of Representatives on November 15, 2001 by a roll call vote of 280 yeas to 144 nays. The Senate 

did not consider the measure prior to the adjournment of the 107th 

Congress. 

On February 6th and 7th, 2002, the Committee held two days of 

hearings entitled ‘‘The Enron Collapse and Its Implications for 

Worker Retirement Security.’’ On February 6th, the sole witness 

was U.S. Secretary of Labor Elaine Chao. On the second day, the 

witnesses were Thomas O. Padgett, Senior Lab Analyst, EOTT; 

Cindy K. Olson, Executive Vice President, Human Resources and 

Community Relations and Building Services, Enron Corporation; 

Mikie Rath, Benefits Manager, Enron Corporation; Scott Peterson, 

Global Practice Leader for Defined Contribution Services, Hewitt 

54 

Associates; and Dr. Teresa Ghilarducci, Associate Professor, Department of Economics, University of Notre Dame. 

The Subcommittee on Employer-Employee Relations held a hearing on February 13, 2002 entitled ‘‘Enron and Beyond: Enhancing 

Worker Retirement Security.’’ The Subcommittee heard testimony 

from Jack L. VanDerhei, Ph.D., CEBS, Professor, Department of 

Risk, Insurance, and Healthcare Management, Fox School of Business and Management, Temple University, testifying on behalf of 

the Employee Benefit Research Institute; Douglas Kruse, Ph.D., 

Professor, School of Management and Labor Relations, Rutgers 

University; Norman Stein, Douglas Arant Professor of Law, University of Alabama School of Law; and Rebecca Miller, CPA, Partner, McGladrey & Pullen, LLP. 

On February 14, 2002, Chairman Boehner and Subcommittee on 

Employer-Employee Relations Chairman Sam Johnson introduced 

H.R. 3762, the ‘‘Pension Security Act.’’ On February 27, 2002, the Subcommittee on Employer-Employee 

Relations held a hearing entitled ‘‘Enron and Beyond: Legislative 

Solutions.’’ The witnesses were Dave Evans, Vice President, Retirement and Financial Services, Independent Insurance Agents of 

America; Angela Reynolds, Director, International Pension and 

Benefits, NCR Corporation; Erik Olsen, Member, Board of Directors, American Association of Retired Persons; Dr. John H. Warner, 

Jr., Corporate Executive Vice President, Science Applications International Corp., testifying on behalf of the Profit Sharing Council of 

America; Richard Ferlauto, Director of Pensions and Benefits, 

American Federation of State County, and Municipal Employees 

(AFSCME), testifying on behalf of AFSCME and AFL–CIO; and 

John M. Vine, Esq., Partner, Covington and Burling, testifying on 

behalf of the ERISA Industry Committee. 

On March 20, 2002, the Committee on the Education and the 

Workforce approved H.R. 3762, as amended, and ordered the bill 

favorably reported to the House of Representatives by a roll call 

vote of 28 yeas to 19 nays. On April 11, 2003 the House passed 

H.R. 3762 by a recorded vote of 255 yeas to 163 nays. No further 

action was taken on the measure prior to the adjournment of the 

107th Congress. 

108TH CONGRESS

Building on the success of corporate reform and the foundation 

of the pension reform principles established during the 107th Congress, the Subcommittee on Employer-Employee Relations held a 

hearing on February 13, 2003, ‘‘The Pension Security Act: New 

Pension Protections to Safeguard the Retirement Savings of American Workers.’’ Testifying before the Subcommittee were the Honorable Ann L. Combs, Assistant Secretary, Employee Benefits Security Administration, United States Department of Labor; Ed Rosic, 

Esq., Vice President and Managing Assistant General Counsel, 

Marriott International, Inc., testifying on behalf of the American 

Benefits Council; Nell Minow, Editor, The Corporate Library, testifying on behalf of Robert Monks, Lens Governance Advisors; and 

Scott Sleyster, Senior Vice President and President of Retirement 

Services and Guaranteed Products, Prudential Financial. 

On February 27, 2003, Chairman Boehner and Subcommittee on 

Employer-Employee Relations Chairman Sam Johnson introduced 

55 

H.R. 1000, the ‘‘Pension Security Act of 2003.’’ This bill incorporated the provisions of H.R. 2269 from the previous Congress, 

and contained a number of ERISA provisions from H.R. 10 in the 

107th Congress that were dropped prior to that bill’s final passage. 

On March 5, 2003, the Committee on Education and the Workforce approved H.R. 1000, as amended, and ordered the bill favorably reported to the House of Representatives by a roll call vote of 

29 yeas to 19 nays. On May 14, 2003, the House of Representatives 

passed H.R. 1000 by a roll call vote of 271 yeas to 157 nays. The 

Senate did not complete consideration of the bill before the adjournment of the 108th Congress. 

On June 4, 2003, as part of a series of hearings that would focus 

on the challenges that faced the future of defined benefit plans, 

and highlight obstacles in federal law that discourage employers 

from offering these plans, the Subcommittee on Employer-Employee Relations held a hearing entitled ‘‘Strengthening Pension 

Security: Examining the Health and Future of the Defined Benefit 

Plan.’’ The Subcommittee heard testimony from Dr. Jack Van 

Derhei, Professor, Fox School of Business Management, Temple 

University, testifying on behalf of the Employee Benefits Research 

Institute; Dr. John Leary, Esq., Partner, O’Donoghue and 

O’Donoghue; Ron Gebhardtsbauer, Senior Pension Fellow, American Academy of Actuaries; and J. Mark Iwry, Esq., Non-Resident 

Senior Fellow, The Brookings Institution. 

On July 15, 2003, the Subcommittee on Employer-Employee Relations and the Ways and Means Subcommittee on Select Revenue 

Measures held a joint hearing entitled ‘‘Examining Pension Security and Defined Benefit Plans: The Bush Administration’s Proposal to Replace the 30-Year Treasury Rate.’’ The following witnesses testified on the Bush Administration’s proposal to replace 

the discontinued 30-year Treasury interest rate that was used as 

the benchmark for defined benefit pension plan funding: The Honorable Ann Combs, Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor; The Honorable 

Peter Fisher, Under Secretary for Domestic Finance, U.S. Department of Treasury; Kenneth Porter, Director of Corporate Insurance 

and Global Benefits Financial Planning, DuPont Company; Ashton 

Phelps, Publisher, The Times-Picayune; Kenneth Steiner, Resource 

Actuary, Watson Wyatt Worldwide; and Christian Weller, Economist, Economic Policy Institute. 

On September 4, 2003, the Committee on Education and the 

Workforce held the third in a series of hearings to examine the future of defined benefit pension plans entitled ‘‘Strengthening Pension Security and Defined Benefit Plans: Examining the Financial 

Health of the Pension Benefit Guaranty Corporation.’’ The witnesses included David Walker, Comptroller General, General Accounting Office, and Steven Kandarian, Executive Director, Pension Benefit Guaranty Corporation. 

On September 17, 2003, Chairman Boehner, joined by Senior 

Democrat Member George Miller, Subcommittee on Employer-Employee Relations Chairman Sam Johnson, Committee on Ways and 

Means Chairman Bill Thomas, Ways and Means Committee Senior 

Democrat Member Charles Rangel, and Representative Rob 

Portman introduced H.R. 3108, the ‘‘Pension Funding Equity Act of 

2003.’’ On October 8, 2003, the House passed the bill, as amended, 

56 

by a vote of 397 yeas and two nays. On January 28, 2004, the Senate approved an amended version of H.R. 3108 by a roll call vote 

of 86 yeas and nine nays. The House adopted the conference report 

on the bill on April 2, 2004, by a vote of 336 yeas and 69 nays. On 

April 8, 2004, the Senate adopted the conference report by a vote 

of 78 yeas and 19 nays. On April 10, 2004 President Bush signed 

the bill into law; it became public law 108–218. 

Immediately following House passage of H.R. 3108, Chairman 

Boehner and Employer-Employee Relations Subcommittee Chairman Sam Johnson announced that the Committee would proceed 

with its work to implement permanent, long-term solutions to the 

pension underfunding crisis. On October 29, 2003, the Committee 

held a hearing entitled ‘‘The Pension Underfunding Crisis: How Effective Have Reforms Been?’’ Testifying before the Committee were 

Barbara Bovbjerg, Director of Education, Workforce, and Income 

Security Issues, General Accounting Office; Robert Krinsky, Chairman, Segal Company; Michael S. Gordon, Esq., General Counsel, 

National Retiree Legislative Network, testifying on behalf of the 

American Benefits Council; J. Mark Iwry, Esq., Non-Resident Senior Fellow, Brookings Institution; and David John, Research Fellow, Thomas A. Roe Institute for Economic Policy Studies, Heritage 

Foundation. 

On February 25, 2004, the Committee held a hearing entitled ‘‘Strengthening Pension Security for All Americans: Are Workers 

Prepared for a Safe and Secure Retirement?’’ Testifying before the 

Committee were Ben Stein, Honorary Chairperson, National Retirement Planning Coalition; Dan McCaw, Chairman and CEO, 

Mercer Human Resource Consulting; C. Robert Henrikson, President, U.S. Insurance and Financial Services, MetLife; and Peter R. 

Orszag, Joseph A. Pechman Senior Fellow, Brookings Institution. 

On March 18, 2004, the Subcommittee on Employer-Employee 

Relations held a hearing entitled, ‘‘Reforming and Strengthening 

Defined Benefit Plans: Examining the Health of the Multiemployer 

Pension System.’’ Testifying before the Subcommittee were Barbara 

Bovbjerg, Director of Education, Workforce, and Income Security 

Issues, General Accounting Office; John McDevitt, Senior Vice 

President, United Parcel Service; Scott Weicht, Executive Vice 

President, Adolfson and Peterson Construction, testifying on behalf 

of the Associated General Contractors; and Randy G. DeFrehn, Executive Director, National Coordinating Committee for Multiemployer Plans. 

On April 29, 2004, the Subcommittee on Employer-Employee Relations held a hearing entitled ‘‘Examining Long-Term Solutions to 

Reform and Strengthen the Defined Benefit Pension System.’’ Testifying before the Subcommittee were Kenneth A. Kent, Academy 

Vice President, Pension Issues, American Academy of Actuaries; 

Greg Heaslip, Vice President, Benefits, PepsiCo, Inc.; J. Mark Iwry, 

Esq., Non-Resident Senior Fellow, the Brookings Institution; Timothy Lynch, President and CEO, Motor Freight Carriers Association; John S. ‘‘Rocky’’ Miller, Esq., Partner, Cox, Castle & Nicholson, L.L.P.; and Dr. Teresa Ghilarducci, Ph.D., Associate Professor 

of Economics and Director of the Monsignor Higgins Labor Research Center, University of Notre Dame. 

On July 7, 2004, the Committee held its eighth hearing in the 

108th Congress, focusing on issues relating to cash balance pension 

57 

plans. The hearing was entitled ‘‘Examining Cash Balance Pension 

Plans: Separating Myth from Fact.’’ The Committee heard testimony from James Delaplane, Jr., Esq., Attorney, American Benefits Council; Ellen Collier, Director of Benefits, Eaton Corporation; 

Dr. Robert Clark, Professor, College of Management, North Carolina State University; Robert Hill, Esq., Partner, Hill & Robbins; 

and Nancy Pfotenhauer, President, Independent Women’s Forum. 

109TH CONGRESS

In the 109th Congress, the Committee continued its efforts focusing on comprehensive reform of the defined benefit pension system. 

On March 2, 2005, the Committee held a hearing entitled ‘‘The Retirement Security Crisis: The Administration’s Proposal for Pension 

Reform and Its Implications for Workers and Taxpayers.’’ Testifying before the Committee were the Honorable Ann L. Combs, Assistant Secretary, Employee Benefits Security Administration, U.S. 

Department of Labor; the Honorable Mark Warshawsky, Assistant 

Secretary for Economic Policy, U.S. Department of Treasury; Bradley Belt, Executive Director, Pension Benefit Guaranty Corporation; Kenneth Porter, Director of Corporate Insurance and Global 

Benefits Financial Planning, the DuPont Company, testifying on 

behalf of the American Benefits Council; Norman Stein, Douglas 

Arant Professor, University of Alabama School of Law; and Dr. 

Janemarie Mulvey, Chief Economist, Employment Policy Foundation. 

On June 9, 2005, Chairman Boehner, Employer-Employee Relations Subcommittee Chairman Sam Johnson, Employer-Employee 

Relations Vice-Chairman John Kline and Committee on Ways and 

Means Chairman Bill Thomas introduced H.R. 2830, the ‘‘Pension 

Protection Act of 2005.’’ On that same day, Chairman Boehner also 

introduced H.R. 2831, the ‘‘Pension Preservation and Portability 

Act of 2005.’’

On June 15, 2005, the Committee held a legislative hearing on 

H.R. 2830. Testifying before the Committee were Lynn Franzoi, 

Vice President for Human Resources, Fox Entertainment Group, 

testifying on behalf of the U.S. Chamber of Commerce; Bart 

Pushaw, Actuary, Milliman, Inc.; Dr. Teresa Ghilarducci, Professor 

of Economics, University of Notre Dame; Timothy Lynch, President 

and CEO, Motor Freight Carriers Association; Judy Mazo, Senior 

Vice President/Director of Research, The Segal Company; and Andy 

Scoggin, Vice President for Labor Relations, Albertsons, Inc. 

On June 22, 2005, the Subcommittee on Employer-Employee Relations approved H.R. 2830, as amended, and ordered the bill favorably reported to the full Committee, by voice vote. On June 30, 

2005, the full Committee approved H.R. 2830, as amended, and ordered the bill favorably reported to the House of Representatives 

by a roll call vote of 27 yeas, 0 nays, and 22 present. H.R. 2830, 

as amended and reported to the House, included several provisions 

contained within H.R. 2831. 

SUMMARY

TITLE I—SINGLE EMPLOYER REFORMS

The main component of H.R. 2830, the Pension Protection Act, 

changes the way plan sponsors calculate their plan liabilities, 

58 

which in turn determines the amount of minimum required contributions they must make to their plans. There are a number of 

technical features to the funding rule changes, including: 

Determining Plan Liabilities with a Modified Yield Curve. H.R. 

2830 includes a modified yield curve approach that provides a permanent interest rate for employers to calculate their pension contributions and more accurately measure current pension liabilities 

as they come due. This replaces the composite corporate bond interest rate which is currently scheduled to expire at the end of 2005. 

Generally speaking, under H.R. 2830, each pension plan has a 

unique schedule of future benefit payments that depends on the 

characteristics of the plan’s demographics. For example, plans with 

more retirees and older workers, more lump sum pension payments, and shrinking workforces will make a greater percentage of 

their pension payments in the near future, while plans with younger workers, fewer retirees, fewer lump sums, and growing 

workforces will make a greater percentage of payments in later 

years as these obligations come due. The comprehensive funding 

reforms included in H.R. 2830 recognize the different timing of various pension payments and require plan sponsors to fund for such 

payments accordingly. This change will ensure that employers progressively make more contributions to pension plans as participant 

demographics mature, so that they can meet their pension promises when workers retire. It also provides greater certainty and 

predictability for employers as they make financial decisions and 

budget to meet their future pension obligations. 

The modified yield curve interest rate that employers will use 

under H.R. 2830 to calculate their required contributions is based 

on the future date at which a pension plan’s benefit obligations 

come due, as defined in three categories or ‘‘segments:’’ liabilities 

due within five years, liabilities due between six and twenty years, 

and liabilities due after twenty years until the estimated end of the 

plan’s obligations. For purposes of calculating a plan’s total liabilities for a plan year, otherwise known as the plan’s ‘‘funding target,’’ employers will use the plan’s effective interest rate. The effective interest rate of a plan is the rate of interest which, if used to 

determine the present value of the plan’s liabilities, would result 

in an amount equal to the total plan liabilities of the plan each 

year. 

For purposes of determining the plan’s liabilities for short-term, 

mid-term, and long-term durations, the interest rates to be used 

are based on the three segment rates applied to a plan’s liabilities 

for each duration segment. The segment rates are determined by 

the Secretary of the Treasury on the basis of the portion of the corporate bond yield curve for yields of bonds maturing in each shortterm, mid-term, and long-term segment. The segment rates should 

reflect the average of all AAA, AA, and A bonds for each year on 

the yield curve. The Committee intends for the Secretary of the 

Treasury to develop one corporate bond yield curve based on a 

three-year weighted average of yields on investment grade corporate bonds reflecting AAA, AA, and A bonds. 

The modified yield curve approach in H.R. 2830 is designed to 

ensure employers more accurately measure and fund their shortterm, mid-term, and long-term pension obligations with greater 

predictability and certainty about their future pension costs. The 

59 

2See ERISA § 302(d). 

use of the modified yield curve for calculating plan liabilities is 

phased in over three years. 

Special Rules For At-Risk Plans. Special funding rules apply to 

certain severely underfunded plans that are considered ‘‘at-risk,’’ which are plans that have a funding target of less than 60%. These 

plans not only represent a financial risk to the PBGC, but the retirement security of the participants and beneficiaries in these 

plans is also threatened. For at-risk plans, a plan’s actuary would 

have to assume that all participants would elect benefits at the 

earliest available time and in the forms that will result in the highest present value of liabilities. In other words, a plan’s at-risk funding target is the sum of the present value of all liabilities of participants and beneficiaries under the plan for the plan year determined using additional assumptions that assume all participants 

will elect benefits at the times and in the forms that will result in 

the highest possible present value of liabilities. At-risk plans are 

also subject to an additional ‘‘loading factor’’ equal to $700 per participant plus 4 percent of at-risk liability. However, it is the Committee’s intent that once a plan’s funded status is at 60 percent or 

greater, it is no longer considered at-risk; therefore, all future 

shortfall amortization payments are based on the plan’s funding 

target liability shortfall. 

The transition between a plan’s normal funding target and its atrisk funding target is five years. In other words, if a plan is less 

than 60 percent funded for a consecutive period of fewer than five 

plan years, the plan must pay 20 percent of its at-risk required 

contribution multiplied by the number of plan years that the plan 

is less than 60 percent funded. The purpose of the at-risk liability 

assumption changes and loading factor is to recognize that these 

plans pose a greater risk to the PBGC and that there is a greater 

likelihood the plan may have to pay benefits on an accelerated 

basis or terminate. 

Ensuring Underfunded Pension Plans Make Up Shortfalls. Under 

current law, pension funding rules permit underfunded plans to 

make up funding shortfalls over too long a period of time, putting 

workers at risk of having their plans terminate without adequate 

funding. The current rules contain several amortization periods for 

making up a shortfall, which in some cases can be up to 30 plan 

years. Moreover, today’s rules generally only require plans to meet 

a 90 percent funded status target, or in some cases only 80 percent.2

It is the view of the Committee that extended amortization 

schedules increase the risk of plan termination because smaller 

payments are made to a plan each year. H.R. 2830 requires employers to make sufficient and consistent contributions to ensure 

that plans meet a 100 percent funding target. If a plan has a funding shortfall, the bill requires employers to make additional contributions to erase the shortfall over a seven-year period. A plan 

has a funding shortfall for a plan year if the plan’s funding target 

for the year exceeds the value of the plan’s assets. If a plan has 

established a funding shortfall in any year, the remaining present 

values of the amortization payments that are due are included in 

plan assets. Any new amortization shortfall, which is determined 

60 

as of the valuation date of the plan, requires a new, seven-year 

level payment schedule to be established. The present value of any 

shortfall payment made to a plan is determined by using the appropriate segment rates for the plan year. 

The minimum required contribution required under H.R. 2830 is 

the sum of a plan’s target normal cost for the plan year, which is 

the present value of all benefits that a plan is expected to accrue 

or to be earned during the plan year, and any required shortfall 

amortization charge for a plan that is less than 100 percent funded. 

However, for plans that were not subject to the deficit reduction 

contribution for the 2005 plan year, the 100 percent funding target 

is phased in over a five-year period, and a plan is required to be 

100 percent funded by 2010. These new funding requirements will 

ensure employers have strong incentives to properly and adequately fund their plans in a timely manner. 

Making Smoothing More Effective for Plans and Participants. 

Under current law, interest rates used to calculate pension assets 

and liabilities are ‘‘smoothed,’’ or averaged, over approximately five 

years for assets and four years for liabilities. Such smoothing is intended to reduce pension funding volatility and help make employer contribution requirements more predictable. However, some 

have expressed concern that this is too long a period to smooth 

these interest rates and assets. H.R. 2830 reduces the smoothing 

of interest rates to calculate liabilities using a weighted average of 

the three most recent plan years (50 percent from the most recent 

plan year, 35 percent from the second year, and 15 percent from 

the third year). Asset smoothing is also reduced to a maximum of 

three years; however, the smoothed value of plan assets may not 

vary more or less than 10 percent of the fair market value of such 

assets. The overall reduced smoothing method protects pension 

plans against market and funding volatility on an annual basis 

while providing plan sponsors the ability to predict and budget 

their pension contributions. 

Prohibiting Underfunded Plans from Using Credit Balances. In 

general, a plan accumulates a credit balance if an employer contributes more than the minimum required contribution in any plan 

year. However, the credit balance rules under current law contribute to plan underfunding by allowing employers with underfunded plans to replace cash contributions with credit balances accrued in previous years. In addition, current law allows the credit 

balance to accrue additional interest based on a plan’s rate of return regardless of the actual market performance of a plan’s general assets. These provisions allow underfunded plans to skip pension payments, even if the plans are severely underfunded, by 

using artificially inflated credit balances that mask the true funded 

status of plans. 

H.R. 2830 prohibits employers from using credit balances to offset minimum required contributions if their pension plans are 

funded at less than 80 percent of the plan’s funding target. The bill 

further requires that old credit balances (funding standard carryover balance) as well as any new credit balance (pre-funding balance, which is any credit balance accumulated after the 2005 plan 

year), reflect actual market gains and losses based on a plan’s net 

asset gains and losses. In order to determine whether a plan is at 

least 80 percent funded, any credit balance accumulated prior to 

61 

plan year 2006 is not subtracted from plan assets; any new credit 

balance, however, is subtracted from plan assets. All credit balances may be used to determine whether a plan has a funding 

shortfall. If a plan does have a funding shortfall for any plan year, 

credit balances must be subtracted from plan assets in order to determine the actual shortfall. A plan may elect to reduce its credit 

balances and assume that such balance is part of the general plan 

assets for any reason; however, the credit balance may no longer 

be used to offset any minimum required contribution. With respect 

to ordering, any pre-funding balance may not be used to satisfy a 

minimum required contribution until all of the funding standard 

carryover balance is used. Finally, if a plan is 100 percent funded 

or more (including plan assets as well as any funding standard carryover balance and pre-funding balance), the benefit restriction 

provisions under the bill do not apply. 

Restricting the use of credit balances for plans that are below 80 

percent funded will ensure that plan sponsors are making actual 

cash contributions to their plans consistently. This provision will 

increase a plan’s funded status as well as protect participants and 

beneficiaries in the future. 

Mortality Table Changes. Under current law, plans are generally 

required to use the 1983 Group Annuity Mortality (‘‘GAM’’) Table 

in calculating plan liabilities. The use of this table assumes that 

the actual mortality experience of a plan has not changed since 

1983. The use of the 1983 GAM table to calculate plan liabilities 

is outdated and may cause certain plans to appear better funded 

with fewer liabilities. H.R. 2830 requires plans to use an updated 

mortality table, the RP–2000 Combined Mortality Table, using 

Scale AA, in order to calculate plan liabilities. The use of the RP–

2000 Table should result in a more accurate measure of plan liabilities by reflecting an updated mortality experience and the projected trends for plans. H.R. 2830 directs that the Secretary of the 

Treasury update the table every 10 years. Additionally, H.R. 2830 

allows a plan to apply to the Secretary of the Treasury to use a 

substitute mortality table if the Secretary determines that the substitute table reflects the actual experience and projected trends in 

experience of the plan and that the use of the RP–2000 Combined 

Mortality Table is inappropriate for the plan. The Department of 

the Treasury has 180 days to determine whether the substitute 

table is not appropriate and that, therefore, a plan must use the 

RP–2000 Combined Mortality Table. This provision includes a fiveyear phase-in. The use of the RP–2000 mortality table will ensure 

that pension plans are adequately funding for their liabilities based 

on reasonable and updated mortality assumptions which will result 

in better plan funding overall. 

Timing of Plan Contribution and Valuation Date. Under current 

law, plans that have a current liability percentage of less than 100 

percent are required to make quarterly contributions, which are 

due on the 15th day following the end of each quarter in a plan 

year. The amount of the quarterly contributions is 25 percent of the 

lesser of 90 percent of the plan’s current year minimum funding requirements or 100 percent of the plan’s minimum funding requireVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00061 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
62 

3See ERISA § 302(e). 

ments for the preceding plan year.3 It is the Committee’s intent 

that the required annual payment for plan year 2006 is to be based 

on 90 percent of the minimum funding requirements under H.R. 

2830. Furthermore, it is the intent of the Committee that, for plan 

years beginning after 2006, the amount of quarterly contributions 

is 25 percent of the lesser of 90 percent of the plan year’s current 

minimum funding requirements or 100 percent of the plan’s minimum funding requirements for the preceding plan year. 

H.R. 2830 requires plans to use the first day of the plan year for 

a plan’s valuation date. However, plans with 500 or fewer participants may use any valuation date. Contributions made after the 

valuation date are to be credited against the minimum required 

contribution for the year based on its present value as of the valuation date, discounted from the date the contribution is actually 

made using a plan’s effective interest rate. 

Limits on Benefit Increases and Accruals for Underfunded Plans. 

Too often, employers and union leaders have negotiated benefit increases when plans are underfunded, which ultimately results in 

increasing plan underfunding. This, in turn, results in an even 

greater likelihood that the PBGC will be forced to assume responsibility for paying the benefits, often at reduced levels, of terminated 

plans. H.R. 2830 restricts the ability of employers and union leaders to promise additional benefits when a plan is underfunded. Specifically, the bill prohibits employers and union leaders from increasing benefits or providing lump sum distributions if a pension 

plan is less than 80 percent funded for the prior year, unless the 

plan sponsor immediately makes the necessary contribution to fund 

the entire increase. If a plan is greater than 80 percent funded, but 

adopts a plan amendment which results in a plan with a funded 

status of less than 80 percent, the plan sponsor must immediately 

make the necessary contribution to ensure that the plan’s funded 

status is at least 80 percent. The restriction for lump sum distributions does not apply to plans that have previously adopted amendments that effectively freeze all future accruals. H.R. 2830 also prohibits future benefit accruals for severely underfunded plans, which 

effectively freezes the plan. Plan amendments are required in order 

to resume any lump sum distributions or plan accruals once the 

plan is above the respective thresholds. 

In addition to these limitations, H.R. 2830 also prohibits the payment of shutdown benefit and other unpredictable contingent event 

benefits. The Committee believes that because such benefits are 

not funded and cannot reasonably be funded with any accuracy, 

these unfunded benefits are more similar to severance benefits 

than pension benefits. Shutdown benefits have increased PBGC’s 

deficit when the agency assumes the liabilities of terminated plans 

that include such unfunded promises. It is the Committee’s view 

that shutdown benefits and other unpredictable contingent event 

benefits should not be considered pension benefits and should not 

be payable from plan assets. 

The effective date of the benefit restriction provisions set forth 

above is 2006. However, in the case of a collectively bargained plan, 

the effective date applies to any plan year beginning the earlier of: 

(1) the date on which the last collective bargaining agreement exVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00062 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
63 

pires, or (2) 2009. This effective date ensures that any current collective bargaining agreements are not disrupted and that employees are given ample time to discuss the effects of the benefit restrictions with their respective unions and employers. 

Prohibiting Executive Compensation Arrangements If Rank-andFile Plans Are Severely Underfunded. H.R. 2830 addresses a problem recently seen in the airline industry where executives of companies in financial difficulty are given generous nonqualified deferred compensation arrangements while the retirement security of 

rank-and-file workers is at risk due to poorly funded qualified 

plans. The Committee believes that it is inappropriate for companies with underfunded qualified defined benefit pension plans to 

fund nonqualified deferred compensation plans covering executives. 

While rank-and-file employees have little control over a company’s 

decision to fund its pension plans, executives often have control in 

determining whether nonqualified deferred compensation plans will 

be funded. In addition, executives who are covered by a nonqualified deferred compensation plan may also be instrumental in 

deciding how much to contribute to the defined benefit pension 

plan, thus determining the funded status of the pension plan. The 

Committee believes that if any defined benefit pension plan of an 

employer is not sufficiently funded, executives should be required 

to recognize current income inclusion (i.e., be taxed) upon the funding of their nonqualified deferred compensation plans. 

H.R. 2830 provides that if an employer’s defined benefit pension 

plan is in at-risk status and the employer sets aside amounts for 

purposes of paying deferred compensation under a nonqualified deferred compensation plan, the amounts set aside are treated as 

property transferred in connection with the performance of services. Thus, participants for whom such amounts are set aside would 

be subject to current income inclusion under the provision. In addition, interest and an additional 20 percent tax would apply. 

H.R. 2830 specifically provides that if during any period in which 

a qualified defined benefit pension plan of an employer is below 60 

percent funded, any assets that are set aside, directly or indirectly, 

in a trust or other arrangement as determined by the Secretary of 

the Treasury, or transferred to such a trust or other arrangement, 

for purposes of paying deferred compensation, such assets are 

treated as property transferred in connection with the performance 

of services, regardless of whether or not such assets are available 

to satisfy the claims of general creditors. Furthermore, if a nonqualified deferred compensation plan of an employer provides that 

assets will be restricted to the provision of benefits under the qualified plan, such assets are treated as property transferred in connection with the performance of services, regardless of whether or not 

such assets are available to satisfy the claims of general creditors. 

If the plan sponsor’s qualified defined benefit plan is below 60 percent funded, any subsequent increases in the value of, or any earnings with respect to, transferred or restricted assets are treated as 

additional transfers of property to the individual. In addition to 

current income inclusion, interest at the underpayment rate plus 

one percentage point is imposed on the underpayments that would 

have occurred had the amounts been includible in income for the 

taxable year in which first deferred or, if later, the first taxable 

year not subject to a substantial risk of forfeiture. The amount reVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00063 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
64 

quired to be included in income is also subject to an additional 20 

percent tax. 

H.R. 2830 requires the plan administrator to provide notice to 

plan participants and beneficiaries within 30 days after the plan 

has become subject to any of the above benefit restrictions. Any 

failure to provide notice will automatically result in a civil penalty. 

TITLE II—FUNDING RULES FOR MULTIEMPLOYER DEFINED BENEFIT

PLANS

Multiemployer pension plans are defined benefit pension plans 

maintained by two or more employers in a particular trade or industry, such as trucking or construction, which are collectively bargained between an employer and a labor union. These plans are 

managed by a board of trustees, which must be comprised of an 

equal number of employer and union representatives. While multiemployer and single employer pension plans have some similarities, there are also fundamental differences. While single employer 

plan sponsors generally may adjust their pension contributions to 

meet funding requirements, the contributions of individual employers in multiemployer plans cannot be easily modified because their 

benefit contributions are fixed by the terms of a collective bargaining agreement. 

Multiemployer contributions are tied directly to the total number 

of hours worked by active workers; thus, any reduction in the number of active participants results in lower contributions to multiemployer plans. One of the major challenges facing the multiemployer 

system is that these pension plans are funded by a declining number of employers making contributions on behalf of a declining 

number of active workers, while paying benefits to a rapidly growing number of retirees. This ‘‘risk pooling’’ pension funding concept 

was designed for a 1940s era workforce that expected the multiemployer labor base to continue to grow; in reality, it has not. Indeed, 

only five new multiemployer plans have been formed since 1992. 

This has resulted in funding problems the Committee believes 

must be immediately addressed. 

Multiemployer Funding Reforms. H.R. 2830 establishes a structure for identifying troubled multiemployer pension plans by providing appropriate triggers for determining when plans are underfunded as well as quantifiable benchmarks for measuring a plan’s 

funding improvement. The bill quantifies the health of certain underfunded multiemployer pension plans and separates them into 

two broad categories: (1) endangered plans, which are plans that 

are not in immediate financial danger, but are not considered wellfunded plans; and (2) critical plans, which are plans in serious financial trouble and are expected to experience an accumulated 

funding deficiency in the near future. Present-law reorganization 

and insolvency rules continue to apply. 

H.R. 2830 provides that, in general, a plan’s actuary must certify 

to the Secretary of the Treasury, within 90 days after the first day 

of the plan year, whether the plan is in endangered or critical status. If the certification is not made within this period, the plan is 

presumed to be in critical status. In making the determination 

whether a plan is in endangered or critical status, the plan actuary 

must make projections for the current and succeeding plan years, 

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rent value of plan assets and the present value of liabilities, as set 

forth in the actuarial statement for the preceding plan year. If a 

plan is certified to be in endangered or critical status for the plan 

year or is presumed to be in critical status because no certification 

was made, notice must be provided within 30 days to participants, 

beneficiaries, bargaining parties, the PBGC, and the Secretaries of 

Labor and the Treasury. 

Endangered Multiemployer Plans. H.R. 2830 requires that, if a 

plan is less than 80 percent funded or will experience a funding deficiency in the next seven years, the plan is considered to be in endangered status. The plan’s trustees must design and adopt a program, within 240 days after a plan is certified as endangered, that 

will improve the health of the plan by one-third within 10 years, 

unless the plan’s actuary certifies that the plan cannot meet that 

improvement benchmark. If the plan cannot meet the one-third improvement benchmark within 10 years, the plan must develop a 

program to improve the health of the plan by one-fifth within fifteen years; however, the plan’s actuary must certify each year, 

until the expiration of the collective bargaining agreement, that the 

plan is unable to meet the 1⁄3 improvement benchmark within 10 

years. 

For endangered plans that are funded between 65 and 70 percent, the trustees must create a program to improve the funded 

status of the plan by one-fifth within fifteen years. In addition, the 

bill prohibits trustees from increasing benefits if the increase would 

cause the plan to fall below 65 percent funded status. Plan trustees 

also must adopt certain other measures for increasing contributions 

and restricting benefit increases until the plan meets the one-third 

benchmark. 

The funding improvement period for the plan to reach the required benchmarks is the 10 year period beginning on the earlier 

of: (1) the second anniversary of the date of adoption of the funding 

improvement plan, or (2) the first day of the first plan year following the year in which collective bargaining agreements covering 

at least 75 percent of active participants have expired. 

Pending approval of the funding improvement plan, the plan 

sponsor must take all actions (consistent with the terms of the plan 

and present law) to ensure an increase in the plan’s funded percentage and a postponement of an accumulated funding deficiency 

for at least one additional plan year. These applications include, 

but are not limited to, applications for extensions of amortization 

periods, use of the shortfall funding method in making funding 

standard account computations, amendments to the plan’s benefit 

structure, and reductions in future benefit accruals. 

Pending approval of a funding improvement plan, the plan may 

not be amended to provide for the following: (1) a reduction in the 

level of contributions for participants who are not in pay status; (2) 

a suspension of contributions with respect to any service; or (3) any 

new direct or indirect exclusion of younger or newly hired employees from plan participation. 

Critical Multiemployer Plans. H.R. 2830 includes a series of requirements to address multiemployer plans that are severely underfunded and face significant and immediate funding problems. 

H.R. 2830 strengthens the funding requirements for critical plans 

and requires trustees to develop and adopt, within 240 days from 

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the plan’s critical status certification, a rehabilitation plan to exit 

the critical zone within 10 years. A plan is considered to be in critical status if it meets one of the following tests: (1) as of the beginning of the plan year, the funded percentage of the plan is less 

than 65 percent and the sum of the market value of plan assets 

plus the present value of reasonably anticipated contributions for 

the current and six succeeding plan years is less than the present 

value of all nonforfeitable benefits for all participants and beneficiaries projected to be payable under the plan during the current 

and six succeeding plan years; (2) as of the beginning of the plan 

year, the sum of the market value of plan assets plus the present 

value of the reasonably anticipated contributions for the current 

and four succeeding plan years (assuming the same collective bargaining agreement is in effect) is less than the present value of all 

nonforfeitable benefits for participants and beneficiaries projected 

to be payable under the plan during the current and four succeeding plan years; (3) as of the beginning of the plan year, the 

funded percentage of the plan is less than 65 percent and the plan 

has an accumulated funding deficiency for the current or four succeeding plan years (taking into account any amortization extension); (4) the plan’s normal cost for the year, plus interest (determined at the rate used for determining costs under the plan) for 

the current plan year on the amount of unfunded benefit liabilities 

under the plan as of the last date of the preceding plan year exceeds the present value, as of the beginning of the plan year, of the 

reasonably anticipated contributions for the year plus the present 

value of the nonforfeitable benefits of the inactive participants is 

greater than the present value, as of the beginning of the plan 

year, of the nonforfeitable benefits of active participants, and the 

plan is projected to have an accumulated funding deficiency for the 

current or four succeeding plan years; or (5) the funded percentage 

of the plan is greater than 65 percent for the current plan year and 

the plan is projected to have an accumulated funding deficiency for 

the current or three succeeding plan years. 

The rehabilitation period for the plan to reach the required 

benchmarks is the 10 year period beginning on the earlier of: (1) 

the second anniversary of the date of adoption of the rehabilitation 

plan, or (2) the first day of the first plan year following the year 

in which collective bargaining agreements covering at least 75 percent of active participants have expired. 

H.R. 2830 requires that a rehabilitation plan for a critical plan 

must include a combination of employer contribution increases, expense reductions, funding relief measures, restrictions on future 

benefit accruals, and benefit reductions of certain ancillary benefits. These changes must be adopted by all bargaining parties. The 

bill also provides for a surcharge to the plan by employers until the 

parties adopt a rehabilitation plan and allows the trustees of the 

plan, in the most dire circumstances, to reduce certain ancillary 

benefits. If the plan cannot emerge from the critical zone within 10 

years, the rehabilitation plan must describe alternatives, explain 

why emergence from the critical zone is not feasible, and develop 

actions that the trustees must take to postpone insolvency. Until 

a rehabilitation plan is adopted, a critical plan is subject to the 

same restrictions as an endangered plan; however, subject to certain exceptions, no amendment may be adopted which increases 

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the liabilities of the plan by reason of any increase in benefits, any 

change in accrual of benefits, or any change in the rate at which 

benefits become nonforfeitable. 

Other Multiemployer Plan Reforms: In addition to the new funding reforms, H.R. 2830 includes new requirements for multiemployer pension plans irrespective of funding status. Specifically, the 

bill streamlines all amortization payments to a maximum of 15 

years. However, the new amortization periods do not apply to 

amounts attributable to amortization schedules established for plan 

years beginning before 2006. H.R. 2830 increases the maximum deductible limit up to the excess of 140 percent of current liability, 

providing additional funding flexibility for plans each year in order 

to respond to different economic markets. 

Amortization Extensions: H.R. 2830 provides that upon a plan’s 

application, the Secretary of the Treasury shall grant an extension 

of the amortization period for up to five plan years for any unfunded past service liability, investment loss, or experience loss. An 

applicant must demonstrate to the satisfaction of the Secretary 

that the notice of the application has been provided to each organization representing employees covered by the plan and to the 

PBGC. The Secretary may also grant an amortization extension for 

an additional five years beyond the automatic extension. The 

standard for determining whether an additional extension may be 

granted is the same as under present law; however, the rate applicable to the waived funding deficiencies and extensions of amortization periods is the greater of: (1) 150 percent of the federal midterm rate, or (2) the rate of interest used under the plan in determining costs. 

Finally, H.R. 2830 also includes withdrawal liability reforms in 

order to strengthen and clarify current law withdrawal rules and 

provide certain privately-held, small employers with the ability to 

grow and/or modify their business to meet the needs of a dynamic 

economy. Such reforms may not, however, be made with any attempt to evade or avoid any obligations to contribute to a multiemployer plan. The Committee believes that withdrawal liability reforms are needed in order to ensure the future of these plans, and 

that employers continue to participate in the multiemployer pension system. 

TITLE III—INTEREST RATE FOR LUMP SUM DISTRIBUTIONS

H.R. 2830 requires employers to use the three appropriate segment rates under the modified yield curve to calculate minimum 

lump sum distributions for participants. In other words, the modified yield curve must be applied to each projected annuity payment 

in converting to a lump sum. 

In general, current law requires lump sum distributions to be 

calculated using the artificially-low 30-year Treasury rate; this has 

the effect of inflating lump sum distributions, which drains plan 

assets and represents a major source of systemic pension underfunding. Using the same interest rates to calculate both employer 

pension contributions and lump sum distributions will ensure that 

these benefits are calculated and funded properly and fairly without having an adverse impact on the remaining workers and retirees in the plan. It is the Committee’s intent that employers use the 

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tributions and use the assumption that an equal number of men 

and women will take lump sum distributions. There is a five-year 

phase-in of the modified yield curve rate from the 30-year Treasury 

rate for the purpose of calculating lump sum distributions. If a 

plan offers lump sum distributions, however, the assumption regarding the probability of when payments will be made is required 

to be taken into account for funding purposes. 

Amendment to the ERISA Prohibited Transaction Rules Adopted 

by the Committee: H.R. 2830 outlines eight prohibited transaction 

exemptions to facilitate easier, faster, and less expensive transactions between private pension plans and service providers. The 

purpose of this provision is to ensure that pension plans are not denied certain investment opportunities or overburdened by unnecessary or duplicative regulatory structures that result in higher administrative costs. The eight exemptions include the following: 

Definition of ‘‘Amount Involved.’’ This provision clarifies the term ‘‘amount involved’’ with respect to certain types of investment 

which is used in calculating the civil penalties imposed and the appropriate amount for correcting a prohibited transaction. The 

‘‘amount involved’’ in a transaction is clarified as the amount of 

money and the fair market value of property either given or received as of the date on which the prohibited transaction occurs. 

Exemption for Block Trading. This provision allows pension assets to be included in block trades in order to achieve better execution and reduced costs and provides for more efficient plan asset 

transactions. 

Bonding Relief. This provision amends ERISA’s bonding rules to 

reflect the regulation of broker-dealers and investment advisers 

under federal securities law. 

Conforming ERISA’s Prohibited Transaction Provision to the 

Federal Employees’ Retirement System Act (FERSA). This provision exempts fair market value exchanges from the prohibited 

transaction requirements to reduce pension plan costs. 

Relief for Foreign Exchange Transactions. This provision allows 

broker-dealers and affiliates to provide ancillary services to plans 

(such as currency conversions) which results in overall lower administrative costs and burdens. 

Definition of Plan Asset Vehicle. This provision excludes the underlying assets of entities which hold less than 50 percent of plan 

assets from the fiduciary rules under ERISA to allow plans the 

flexibility to participate in greater investment opportunities. 

Exemption for Electronic Communication Network. This provision allows plans to conduct transactions on electronic trading networks that are owned in part or whole by any plan service provider, which will result in reduced plan costs and enhanced efficiency. 

Correction Period for Certain Transactions Involving Securities 

and Commodities. This provision provides a 14-day ‘‘correction’’ period for any transactions that occur by mistake between a plan and 

a party-in-interest or fiduciary. 

TITLE IV—IMPROVEMENTS IN PBGC GUARANTEE PROVISIONS

Two important steps are essential to improving the financial condition of the PBGC and ensuring its long-term solvency: (1) reforming pension funding rules to ensure pensions are more adequately 

69 

and consistently funded; and (2) increasing premiums paid by employers to the PBGC in a responsible fashion. It is important to 

note that ensuring employers fund their plans appropriately will 

prove more helpful to the overall defined benefit system than additional premiums paid to the PBGC. However, Congress has not 

raised premiums since 1991, so a reasonable increase is both prudent and necessary. 

Flat-Rate Premiums. The Pension Protection Act raises flat-rate, 

per participant premiums employers pay to the PBGC, but phases 

the increases in over time instead of increasing them immediately. 

For pension plans that are less than 80 percent funded, the bill 

raises the flat per-participant rate premium from the current $19 

to $30 over three years. For plans funded at more than 80 percent, 

the premium increase is phased in over five years. The bill indexes 

the flat-rate premium annually to worker wage growth. 

Variable Rate Premiums. Under H.R. 2830, variable rate premiums are charged to a plan based on the amount of plan underfunding below 100 percent. Employers are required to pay $9 for 

every $1000 dollars of unfunded vested benefits to the PBGC. 

TITLE V—DISCLOSURE

While ERISA includes a number of reporting and disclosure requirements that provide workers with information about their benefits, the timeliness and usefulness of this information should be 

improved. Too often in recent years, participants have mistakenly 

believed that their pension plans were well funded, only to receive 

a shock when the plan is terminated. Without basic information, 

workers, contributing employers, lawmakers, and the federal agencies that oversee pension plans are left without the most complete 

and accurate information about the true funded status of these 

pension plans. This has troubling implications for workers who are 

relying on this information for their retirement, and taxpayers who 

ultimately face the risk of bailing out these plans. The Pension Protection Act provides workers, investors, and lawmakers more timely and useful information about the status of defined benefit pension plans to ensure greater transparency and accountability. 

New Notice to Workers and Retirees. Within 90 days after the 

close of the plan year, H.R. 2830 requires both single and multiemployer pension plans to notify participants and beneficiaries of the 

actuarial value of assets and projected liabilities and the funded 

percentage of their plan. Such notice must also include the plan’s 

funding policy and asset allocations based on a percentage of overall plan assets. This notice is due for plan years beginning after 

2005. 

For multiemployer plans already subject to this provision, such 

notice must also include a statement of the ratio of inactive participants to active participants in a plan, as of the end of the plan year 

to which the notice relates. Inactive participants are considered 

those participants who are not in covered service under the plan 

and are in pay status or have a nonforfeitable right to benefits 

under the plan. It is the Committee’s intent that covered service 

includes a period of service of no less than 12 consecutive months. 

With respect to multiemployer plan disclosure under current law, 

contributing employers of multiemployer plans have little access to 

any information regarding the health of the pension plan to which 

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they contribute. H.R. 2830 requires multiemployer plans to make 

available certain information within 30 days of a request by contributing employers or labor organizations, including: (1) copies of 

all actuary reports received by the plan for a plan year; and (2) 

copies of all financial reports prepared by plan fiduciaries, including plan investment managers and advisors, and/or plan service 

providers. 

Enhancing Form 5500 Notice Requirements. The principal source 

of information about private sector defined benefit plans is the 

Form 5500, the equivalent of a pension plan’s federal tax return. 

H.R. 2830 requires both single and multiemployer plans to include 

more information on their Form 5500 filings. Specifically, if plans 

merge and file one Form 5500, the plan must provide the funded 

percentage for the preceding plan year and the new funded percentage after the plan merger. In addition, a plan’s enrolled actuary must explain the basis for all plan retirement assumptions on 

the Schedule B, which is the actuarial statement filed along with 

Form 5500 that provides information on the plan’s assets, and liabilities. Finally, H.R. 2830 requires multiemployer plans to include on Form 5500 filings the number of contributing employers 

in the plan as well as the number of employees in the plan that 

no longer have a contributing employer on their behalf. 

Making Form 4010 Disclosure Publicly Available. Under current 

law, employers who sponsor single employer defined benefit plans 

that are underfunded, in the aggregate, by more than $50 million 

must disclose to the PBGC certain information annually on Form 

4010. H.R. 2830 provides for certain information included in a plan 

sponsor’s Form 4010 filing to be disclosed to participants and beneficiaries. 

Under the bill, if a plan is less than 60 percent funded, H.R. 

2830 requires employers to provide certain additional information 

to workers and retirees within 90 days after Form 4010 is due. 

This new notice must include: (1) notice that a plan has made a 

Form 4010 filing for the year; (2) the aggregate amount of assets, 

liabilities, and funded ratio of the plan; (3) the number of plans 

maintained by the employer that are less than 60 percent funded 

(‘‘at-risk’’ liability); and (4) the assets, liabilities, and funded ratio 

for those at-risk plans that are less than 60 percent funded. 

The PBGC may also request that a plan sponsor file a 4010 and 

provide notice to its participants if a plan is less than 75 percent 

funded and such plan is sponsored by an employer in an industry 

that is experiencing substantial unemployment or underemployment and in which sales and profits are depressed or declining. 

Multiemployer Withdrawal Liability Notice. H.R. 2830 requires a 

multiemployer plan to notify a contributing employer of its withdrawal liability amount within 180 days of a written request. The 

notice may only be provided once within a 12-month period and 

may be subject to a reasonable fee. The notice must also include 

the cost of all participants and beneficiaries in the plan without a 

contributing employer. 

Summary Annual Report. The summary annual report (SAR) 

provides basic disclosure of information from the Form 5500 to 

workers and retirees. However, under current law, because this notice isn’t required until 110 days after the Form 5500 is filed, the 

information is often out of date. The bill requires both single and 

71 

multiemployer pension plans to provide this notice within 15 days 

following the Form 5500 filing deadline. The bill also requires the 

Department of Labor to publish a model SAR notice for plans sponsors. 

TITLE VI—INVESTMENT ADVICE

The Pension Protection Act includes a comprehensive investment 

advice proposal that has passed the House three times in the last 

several years with significant Democrat support (twice in the 107th 

Congress and once in the 108th Congress). It allows employers to 

provide rank-and-file workers with access to a qualified investment 

adviser who can inform them of the need to diversify and help 

them choose appropriate investments. The bill also includes tough 

fiduciary and disclosure safeguards to ensure that advice provided 

to employees is solely in their best interest. 

Important Fiduciary Safeguards. H.R. 2830 includes important 

fiduciary safeguards and new disclosure protections to ensure that 

workers receive quality advice that is solely in their best interests. 

Under the bill, only qualified ‘‘fiduciary advisers’’ who are fully regulated by applicable banking, insurance, and securities laws may 

offer investment advice; this ensures that only qualified individuals 

may provide advice. Under the bill, investment advisers who 

breach their fiduciary duty are personally liable for any failure to 

act solely in the interest of the worker, and may be subject to civil 

and criminal penalties by the Labor Department and civil penalties 

by the worker, among other sanctions. In addition, existing federal 

and state laws that regulate individual industries will continue to 

apply. 

Comprehensive Disclosure Protections. In order to provide advice 

under H.R. 2830, advice providers must disclose in plain, easy-tounderstand language any fees or potential conflicts. The bill requires advisers to make these disclosures when advice is first 

given, at least annually thereafter, whenever the worker requests 

the information, and whenever there is a material change to the 

adviser’s fees or affiliations. The disclosure must also be reasonably 

contemporaneous with the advice so that employees can make informed decisions with the advice they receive. 

Clarifies the Role of the Employer. H.R. 2830 clarifies that employers are not responsible for the individual advice given by professional advisers to individual participants; this liability is assumed by the individual adviser. Under current law, employers are 

discouraged from providing this benefit because liability issues are 

ambiguous and employers may be held liable for specific advice 

that is provided to their employees. Under the bill, employers will 

remain responsible under ERISA fiduciary rules for the prudent selection and periodic review of any investment adviser and the advice given to employees. 

Voluntary Process. The bill does not require any employer to contract with an investment adviser nor is any employee under any 

obligation to accept or follow any advice. Workers, not the adviser, 

will have full control over their investment decisions. 

TITLE VII—BENEFIT ACCRUAL STANDARDS

Hybrid pension plans generally combine the best features of both 

defined benefit and defined contribution plans by providing a 

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meaningful retirement benefit to all employees, regardless of age. 

Hybrid plans are similar to defined benefit plans because they are 

funded by employers and the benefits are protected by the PBGC. 

In addition, employers bear the responsibility for any market gains 

and losses. However, these plans are also similar to defined contribution plans, such as 401(k) plans, because benefits are provided 

through individual ‘‘hypothetical accounts.’’ In recent years, the legality of these plans has been challenged 

as violating the age discrimination provisions in ERISA. H.R. 2830 

ends the legal uncertainty surrounding cash balance pension plans 

and ensures that such plans remain a viable retirement security 

option for workers and employers. In general, the bill establishes 

a simple age discrimination standard for all defined benefit plans 

that clarifies current law with respect to age discrimination requirements under ERISA on a prospective basis. The age discrimination clarification in the bill specifies that if a participant’s entire 

accrued benefit, as of any date under the formula for determining 

benefits as set forth in the text of the plan documents, is equal to 

or greater than that of a similarly situated, younger employee, or 

provides for lump sum distributions equal to a participant’s hypothetical account, the plan is not considered age discriminatory 

under ERISA. Two employees are considered similarly situated if 

they are, and always have been, identical in every respect, including but not limited to, any period of service, compensation, position, 

date of hire, or work history, except for age. 

In determining the entire accrued benefit of a participant, the 

subsidized portion of any early retirement benefit (including any 

early retirement subsidy that is fully or partially included or reflected in an employee’s opening account balance or other transition benefits, in the case of a hybrid pension plan) shall be disregarded. 

As stated above, it is the intent of the Committee to confirm the 

legality of all defined benefit plans, including certain plans that 

index benefits for inflation. As such, H.R. 2830 provides that a plan 

formula does not fail to satisfy the requirements of this provision 

if the formula provides for the indexing of pre- or post-retirement 

benefits. For example, a plan may index benefits to protect the economic value of a participant’s benefit by providing for a cost-of-living adjustment. However, it is the intent of the Committee to prohibit any pre-retirement indexing which results in a cumulative 

negative adjustment in a participant’s benefit. 

With respect to lump sum distributions, it is the Committee’s intent that if a defined benefit plan determines a participant’s benefit 

by reference to the balance in a hypothetical account (or by reference to a current value equal to an accumulated percentage of a 

participant’s final average of compensation), the plan does not fail 

to meet the requirements of this provision if a lump sum distribution is made equal to the participant’s nonforfeitable accrued benefit expressed as the value of a hypothetical account (or of the 

present value of the accumulated percentage of final average compensation). 

TITLE VIII—INCREASING MAXIMUM DEDUCTIBLE CONTRIBUTIONS

Current pension funding rules often force employers into the difficult position of being unable to make additional contributions to 

73 

pension plans during good economic times, but then subject to accelerated contribution requirements during an economic downturn 

or market fluctuation. H.R. 2830 permits employers to make additional contributions up to a new higher maximum deductible 

amount equal to the greater of: (1) the excess of the sum of 150 

percent of the plan’s funding target plus the target normal cost 

over the value of plan assets, or (2) the excess of the sum of the 

plan’s at-risk normal cost and at-risk funding target for the plan 

year over the value of plan assets. In determining the maximum 

deductible amount, plan assets are not reduced by any pre-funding 

balance or funding standard carryover balance. The Committee believes that giving employers more flexibility to make generous contributions during good economic times will help provide workers 

and retirees greater retirement security by increasing the assets 

available to finance retirement benefits. 

In the case of a multiemployer defined benefit plan, the maximum deductible amount is not less than 140 percent of current liability over the value of plan assets. 

COMMITTEE VIEWS

The defined benefit pension system is rapidly declining due to a 

complex statutory and regulatory structure, expensive administrative costs, and changing workforce demographics. The financial 

health of defined benefit plans is a critical issue for the millions of 

workers that participate in these plans. Moreover, the funding of 

these plans has become more challenging for many employers because of a climate of low interest rates, a lackluster economy, stock 

market losses, and an increasing number of retirees. As a result, 

the number of employers offering defined benefit pension plans has 

declined and some employers have frozen or terminated their traditional pension plans altogether. 

The Committee believes that the defined benefit pension system 

must be strengthened in order to ensure a protected and reliable 

retirement system. Employees need greater pension security in 

order to prepare for retirement. Employers must have the ability 

to accurately measure and predict pension liabilities and other 

funding issues in order to properly determine their capital allocations and expenditures for business planning purposes. The Committee recognizes that pensions are voluntary benefits provided by 

employers and that Congress must take a balanced approach to reforming the system that addresses current failings without overburdening plan sponsors to the extent that it becomes impractical 

for them to provide such benefits to their employees. Peter R. Fisher, Under Secretary for Domestic Finance, U.S. Department of 

Treasury, testified on the need for a balanced approach to comprehensive reforms of the defined benefit pension system, and in 

particular, to funding reforms, in order to protect the interest of 

workers and retirees: 

Americans have broadly shared interest in adequate 

funding of employer-provided defined benefit pensions. 

Without adequate funding, the retirement income of America’s workers will be insecure. This by itself is a powerful 

reason to pursue improvements in our pension system. At 

the same time, we must remember that the defined benefit 

74 

4 Joint Hearing on ‘‘Examining Pension Security and Defined Benefit Plans: The Bush Administration’s Proposal to Replace the 30-Year Treasury Rate,’’ before the Subcommittee on Employer-Employee Relations of the Committee on Education and the Workforce and the Subcommittee on Select Revenue Measures of the Committee on Ways and Means, U.S. House of 

Representatives, 108th Congress, First Session, July 15, 2003, Serial No. 108–26. 5 Id. 

6See ERISA § 4(b). There are certain types of pension plans which are not covered under Title 

I of ERISA and thus are not qualified ERISA plans. For example, plans sponsored by a government or a church are not qualified ERISA plans. 7See ERISA § 302. In general, the funding requirements under ERISA provide that a plan 

is considered fully funded at 90 percent, and in some cases, 80 percent. 

pension system is a voluntary system. Firms offer defined 

benefit pensions to their workers as an employee benefit, 

as a form of compensation. Our pension rules should thus 

be structured in ways that encourage, rather than discourage, employer participation. Key aspects of the current system frustrate participating employers while also failing to 

produce adequate funding. We thus have multiple incentives to improve our pension system, and to thus better ensure both the availability and the viability of worker pensions. We owe it to the nation’s workers, retirees, and companies to roll up our sleeves and to create a system that 

more clearly and effectively funds pension benefits.4

The Committee believes that the current defined benefit pension 

system does not contain appropriate rules, including funding and 

disclosure rules, to ensure that pension plans are properly funded 

and that participants and beneficiaries receive sufficient information. Maintaining the status quo is clearly unacceptable to the remaining 44 million workers and retirees participating in the defined benefit pension system. Ann L. Combs, Assistant Secretary of 

the Employee Benefits Security Administration (EBSA), U.S. Department of Labor, testified on the need for comprehensive reforms 

to the current defined benefit pension rules: 

Defined benefit plans are intended to provide a secure 

source of retirement income that lasts a lifetime. Recent 

volatility in the stock market has reminded workers of the 

value of such plans where corporate plan sponsors bear investment risk. As our aging workforce begins to prepare 

for retirement and think about how to manage its savings 

wisely, there is a renewed interest in guaranteed annuity 

payouts that last a lifetime. If we do nothing but paper 

over the problems facing defined benefit plans and the 

companies and unions that sponsor them, we will ill-serve 

America’s workers threatened by unfunded benefits and 

potentially broken promises.5

SINGLE EMPLOYER PENSION PLANS

Title I of ERISA addresses the rules and required conduct for the 

establishment, operation, and termination of qualified pension 

plans.6 The minimum funding requirements under ERISA permit 

an employer to fund defined benefit plans over a certain period of 

time, regardless of whether a plan is considered fully funded.7 As 

a result, pension plans may be terminated when plan assets are 

not sufficient to provide for all benefits accrued by employees under 

the plan. In order to protect participants from losing retirement 

benefits if a plan terminates without sufficient assets to pay vestVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00074 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
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8See ERISA § 4021(b)(13). Plans sponsored by professional service employers, such as physicians and lawyers, with 25 or fewer employees are not covered by the PBGC single-employer 

insurance program. 9The PBGC currently guarantees payment of basic pension benefits of participants in approximately 31,000 defined benefit plans. 10 Hearing on ‘‘The Retirement Security Crisis: The Administration’s Proposal for Pension Reform and Its Implications for Workers and Taxpayers,’’ before the Committee on Education and 

the Workforce, U.S. House of Representatives, 109th Congress, First Session, March 2, 2005, 

Serial No. 109–3. 

ed, accrued benefits, the PBGC, a corporation within the Department of Labor, was created in 1974 under ERISA to provide an insurance program for the payment of benefits from certain terminated pension plans maintained by private employers.8

The need for legislation 

It is the view of the Committee that the role of the PBGC in protecting the retirement benefits of over 44 million Americans participating in both single employer and multiemployer defined benefit 

plans is crucial.9 However, the current system does not contain appropriate funding rules to ensure that pension plans are adequately funded. Over the past few years, the terminations of severely underfunded pension plans have threatened the retirement 

security of the participants and beneficiaries who earned these benefits. Furthermore, the recent terminations of several notable and 

chronically underfunded pension plans has placed an increasing financial strain on the PBGC single employer pension insurance program, and has threatened its long-term viability. 

In fact, recent statistical evidence suggests that PBGC’s longterm financial health may be in jeopardy. The Executive Director 

of the PBGC, Bradley D. Belt, testified on the financial condition 

of the PBGC: 

The pension insurance programs administered by the 

PBGC have come under severe pressure in recent years 

due to an unprecedented wave of pension plan terminations with substantial levels of underfunding. This was 

starkly evident in 2004, as the PBGC’s single employer insurance program posted its largest year-end shortfall in 

the agency’s 30-year history. Losses from completed and probable pension plan terminations totals $14.7 billion for 

the year, and the program ended with a deficit of $23.3 billion. That is why the Government Accountability Office 

has once again placed the PBGC’s single employer insurance program on its list of ‘‘high risk’’ government programs in need of attention.10

The latest plan sponsor filings with the PBGC reveal an unprecedented and systematic pension underfunding problem within the 

defined benefit pension system. On June 7, 2005, the PBGC issued 

a press release stating that companies with underfunded pension 

plans reported a record shortfall of $353.7 billion in their filings 

with the PBGC, which represents a 27 percent increase from the 

previous year. The 2004 reports, filed with the PBGC by April 15, 

2005, were submitted by 1,108 pension plans covering approximately 15 million workers and retirees. In total, the filings indicated that underfunded plans had only $786.8 billion in assets to 

cover more than $1.14 trillion in liabilities, for an average funded 

ratio of approximately 69 percent. 

76 

11 Id. 12 Id. 13 Id. 

It is important to note that the PBGC has acknowledged that it 

has the adequate resources to continue paying benefits into the future; however, its financial condition will continue to deteriorate 

without comprehensive reforms made to the entire defined benefit 

pension system. Mr. Belt specifically testified on the current financial condition of the PBGC as well as its ability to pay benefits in 

the future: 

Notwithstanding our record deficit, I want to make clear 

that the PBGC has sufficient assets on hand to continue 

paying benefits for a number of years. However, with $62 

billion in liabilities and only $39 billion in assets as of the 

end of the past fiscal year, the single employer program 

lacks the resources to fully satisfy its benefit obligations.11

The PBGC is required through statutory mandates to maintain 

premiums at the lowest levels consistent with carrying out the 

agency’s statutory obligations. However, these premiums have not 

been increased in over fourteen years and are simply not adequate 

for the payment of guaranteed benefits. H.R. 2830 responsibly increases flat-rate premiums paid by plan sponsors maintaining certain qualified defined benefit pension plans by phasing-in the current $19 per participant to $30 over a maximum period of 5 years, 

depending upon the plan’s funded status. This increase is needed 

in order to assist the PBGC in continuing to provide benefits to 

participants and beneficiaries in terminated pension plans. 

It is the view of the Committee that comprehensive funding rule 

changes are needed in order to address the systematic pension 

underfunding crisis that continues to threaten the financial security of millions of participants. Ann Combs, Assistant Secretary of 

EBSA, testified this year on the need for funding reform changes: 

The increasing PBGC deficit and high levels of plan 

underfunding are themselves a cause for concern. More importantly, they are symptomatic of serious structural problems in the private defined benefit system. It is important 

to strengthen the defined benefit pension system now.12

Assistant Secretary Combs also testified on the inadequacies of 

the current funding rules: 

Under the current funding rules, financially weak companies can promise new benefits and make lump sum payments that the plan cannot afford. Workers, retirees, and 

their families who rely on these empty promises can face 

serious financial hardship if the pension plan is terminated.13

The need for pension reform has been echoed further by professional organizations that performs services for all defined benefit 

plans. Kenneth A. Kent, Academy Vice-President, American Academy of Actuaries, testified from the perspective of professional pension actuaries on the need for comprehensive reforms: 

Do we need reform? The need is evident by the continuing decline in the number of defined benefit pension 

77 

14 Hearing on ‘‘Examining Long-Term Solutions to Reform and Strengthen the Defined Benefit 

Pension System,’’ before the Subcommittee on Employer-Employee Relations, Committee on 

Education and the Workforce, U.S. House of Representatives, 108th Congress, Second Session, 

April 29, 2004, Serial No. 108–55. 15 Hearing on ‘‘The Retirement Security Crisis: The Administration’s Proposal for Pension Reform and Its Implications for Workers and Taxpayers,’’ before the Committee on Education and 

the Workforce, U.S. House of Representatives, 109th Congress, First Session, March 2, 2005, 

Serial No. 109–3. 

plans. Defined benefit programs are a fundamental vehicle 

for providing financial security for millions of Americans. 

Unlike other programs, they provide lifetime benefits to retirees, no matter how long they live and regardless of how 

well they do on their individual investments. However, recent market conditions of low interest rates and low market returns have caused more dramatic declines in the 

number of covered employees. There are many contributing factors, including regulatory and administrative burdens derived from years of amendments to ERISA, which 

have had a long-term detrimental impact. These programs 

need your support through major reform of the current 

laws.14

In addition to the Administration, Congress, and professional associations, corporations, business groups, and trade associations 

also recognize the need for comprehensive pension reforms. Kenneth W. Porter, Director of Corporate Insurance and Global Benefits Financial Planning for the DuPont Company, testifying on behalf of the American Benefits Council, the American Council of Life 

Insurers, the Business Roundtable, the ERISA Industry Committee, the National Association of Manufacturers, and the U.S. 

Chamber of Commerce, testified on the need for overall comprehensive reforms to the single employer defined benefit pension system: 

Not only do we agree that funding rules need to be 

strengthened, we also agree that broader, more timely disclosure to plan participants is needed, and the proposals to 

allow employers to make larger contributions during good 

economic times is long overdue.15

Modified yield curve 

The Committee believes that in order to protect the retirement 

security interests of participants, beneficiaries, and retirees, comprehensive reforms must include permanent interest rate reforms 

that generally reflect the timing of when such liabilities are to be 

paid out. The general matching of discount rates of differing maturities to pension obligations is the most accurate and practical way 

to measure today’s cost of meeting pension obligations. Therefore, 

a yield curve concept represents one of the most important reforms 

to the defined benefit pension system. Bart Pushaw, an actuary for 

Milliman, Inc., testified on the appropriateness of using a modified 

yield curve to measure pension liabilities: 

The bill . . . updates ERISA greatly and simplifies relevant provisions and fixes some of these weaknesses. The 

yield curve is not a widely familiar concept, and it has only 

recently begun to enter into use by the pension industry. 

Thirty years after ERISA was enacted, pension plans now 

have a wide range of maturity from new plans with hordes 

78 

16 Hearing on ‘‘H.R. 2830, the Pension Protection Act,’’ before the Committee on Education and 

the Workforce, U.S. House of Representatives, 109th Congress, First Session, June 15, 2005 (to 

be published). 17 Id. 

of new hires at young ages to plans which have retired 

populations and liabilities on their balance sheets which 

dwarf that of the plan sponsor. These vastly differing plan 

profiles have, in the past, all been treated identically for 

valuation purposes, grossly and materially erring relative 

to the market value. Erroneous, inaccurate valuations 

mean no money to pay benefits. Using yield curves is the 

right answer. The market, arguably, incorporates more information about expectations in the yield curve than any 

other single measure . . . leading to higher levels of benefit 

security for participants and thus strengthening the financial security of millions.16

Mr. Pushaw further testified on the simplicity of the modified 

yield curve approach: 

The modified yield curve approach in this bill is a good 

simplification to ease administrative implementation by 

small plans but rigorous to develop market-based valuations for the largest of plans, reflective of their plan’s liability profiles and, hence, emerging cash flow needs.17

It is the view of the Committee that the Secretary of the Treasury should construct one yield curve representing the three-year 

weighted average of AAA, AA, and A bond markets. The three segment rates, which are to be used for each of the three duration periods in the modified yield curve, should reflect the average of all 

AAA, AA, and A bonds for each year in each respective segment. 

The Committee believes these markets are interrelated; therefore, 

the modified yield curve should incorporate the interrelated connection between these markets. 

Lump sum distribution rates 

The Committee also believes that the modified yield curve should 

be used to calculate the value of lump sum distributions to participants, and the prevalence of lump sum distributions must be assumed when determining a plan’s funding target. In addition, the 

mortality table that must be used for calculating lump sums is the 

same table required for minimum funding purposes (the RP–2000 

Combined Mortality Table, as published by the Society of Actuaries). The mortality assumptions should also take into account an 

equal number of men and women receiving lump sums. Currently, 

lump sum distributions are calculated using the artificially-low 30–

year Treasury rate; this has the effect of inflating lump sum distributions, which drains plan assets and represents a major source 

of systemic pension underfunding. Using the same interest rates to 

calculate both employer pension contributions and lump sum distributions will ensure these benefits are calculated and funded 

properly and fairly without having an adverse impact on the rest 

of the workers and retirees in the plan. Robert D. Krinsky, A.S.A, 

E.A., Chairman, The Segal Company, on behalf of the American 

Benefits Council, testified on the impact of the current rate used 

79 

18 Hearing on ‘‘The Pension Underfunding Crisis: How Effective Have Reforms Been?’’ before 

the Committee on Education and the Workforce, U.S. House of Representatives, 108th Congress, 

First Session, October 29, 2003, Serial No. 108–40. 19 In general, smoothing refers to averaging of interest rates used to calculate plan liabilities 

as well as the averaging of plan assets. Smoothing generally is used to allow plan fiduciaries 

to predict future pension contributions. It also is used to mitigate short-term market fluctuations. Since pension obligations are considered long-term obligations, it is the view of the Committee that such fluctuations need not be recognized as they occur. Under current law, interest 

rates are smoothed over four years and assets are generally smoothed over six years. 20 Hearing on ‘‘Examining Long-Term Solutions to Reform and Strengthen the Defined Benefit 

Pension System,’’ before the Subcommittee on Employer-Employee Relations, Committee on 

Education and the Workforce, U.S. House of Representatives, 108th Congress, Second Session, 

April 29, 2004, Serial No. 108–55. 

to determine lump sum distributions and the need for it to be 

changed: 

[T]he payment of lump sum distributions to defined benefit plan participants exacerbates funding problems for 

many plans. In part, because lump sum calculations are 

currently based on the obsolete 30-year Treasury rate, 

lump sum payments are artificially inflated, and inappropriately drain plan assets. It is important to address the 

growing prevalence and use of the lump sum distribution 

option and determine whether this necessitates changes in 

the funding rules.18

Reducing volatility and ensuring predictability 

The Committee understands that plan sponsors need the ability 

to predict and budget for pension contributions in order for defined 

benefit plans to remain a practical pension plan to offer to its employees. The Committee considered the need for contribution predictability with less volatility in the multiple hearings on defined 

benefit pension reform. As a result, the Committee believes that a 

modified yield curve concept which incorporates smoothing techniques 19 is appropriate for calculating pension contributions and 

plan assets. Mr. Greg Heaslip, Vice President of Benefits, PepsiCo, 

Inc., testified on the need for companies to predict and budget for 

pension contributions: 

Certainty, predictability, and stability are things that 

you’ll hear me reiterate . . . At PepsiCo and at other plan 

sponsors, defined benefit pension plans have grown to a 

size where they have a material impact on the company’s 

overall financial results. Our pension expense impacts our 

profits, our share price. Funding impacts our balance sheet 

and our credit rating. For any expense . . . companies 

have to know in advance for the next three to five years 

what costs and funding requirements will be with reasonable certainty . . . It is really not the cost of defined benefit pension plans that scares companies. We understand 

that and that’s what we signed up for while we implemented them. It’s the unpredictability, the volatility, and 

the uncertainty surrounding them that make them very, 

very difficult and challenging to sponsor.20

Limiting the use of credit balances 

In addition to implementing a permanent interest rate, the Committee believes that companies should be required to adequately 

and consistently fund their pension plans. Under current law, plan 

80 

21 Hearing on ‘‘The Retirement Security Crisis: The Administration’s Proposal for Pension Reform and Its Implications for Workers and Taxpayers,’’ before the Committee on Education and 

the Workforce, U.S. House of Representatives, 109th Congress, First Session, March 2, 2005, 

Serial No. 109–3. 22 Hearing on ‘‘The Pension Underfunding Crisis: How Effective Have Funding Reforms 

Been?’’ before the Committee on Education and the Workforce, U.S. House of Representatives, 

108th Congress, First Session, October 29, 2003, Serial No. 108–40. 

sponsors are allowed to take advantage of ‘‘contribution holidays’’ instead of making actual contributions to their plans by using a 

‘‘credit balance.’’ A credit balance can be either actual assets or an 

accounting credit that is used to increase plan assets and offset future contributions. However, the use of credit balances has contributed greatly to the current funding problems. Bradley D. Belt, Executive Director of the Pension Benefit Guaranty Corporation, testified on how the current law use of credit balances negatively impacts the financial status of the PBGC as well as participants and 

beneficiaries: 

The funding rules allow contribution holidays for seriously underfunded plans. Bethlehem Steel made no cash 

contributions to its plan for three years prior to termination, and US Airways made no cash contributions to its 

pilots’ plan for four years before termination. One reason 

for contribution holidays is that companies build up a 

‘‘credit balance’’ for contributions above the minimum required amount. They can treat the credit balance as a payment of future required contributions, even if the assets in 

which the extra contributions were invested have lost 

much of their value. Indeed, some companies have avoided 

making cash contributions for several years through the 

use of credit balances, heedlessly ignoring the substantial 

contributions that may be required when the balances are 

used up.21

Limiting benefit increases 

In addition to comprehensive reforms to the funding rules, it is 

the view of the Committee that plan sponsors should not be able 

to continue to increase benefits when a plan is underfunded. This 

practice perpetuates systematic underfunding and is a moral hazard which threatens the retirement security of the participants and 

beneficiaries as well as the future of the defined benefit pension 

system. David C. John, Research Fellow of the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation, testified on the negative effects of increasing benefits in underfunded 

plans: 

Companies that are in severe financial trouble often try 

to keep their workers happy by promising them higher 

pension benefits. Similarly, companies in bankruptcy 

sometimes seek to improve pension benefits in return for 

salary concessions. In both cases, these higher pension 

promises often get passed on to the PBGC, and thus to the 

taxpayers, for payment when the company seeks to terminate its pension plan.22

Ann Combs, Assistant Secretary of EBSA, also testified on the 

need for limitations on benefit increases, as well as the prohibition 

on lump sum distributions, for underfunded plans: 

81 

23 Hearing on ‘‘The Retirement Security Crisis: The Administration’s Proposal for Pension Reform and Its Implications for Workers and Taxpayers,’’ before the Committee on Education and 

the Workforce, U.S. House of Representatives, 109th Congress, First Session, March 2, 2005, 

Serial No. 109–3. 

The current rules encourage some plans to be chronically 

underfunded, in part, because they shift potential losses to 

third parties. This is what economists refer to as a ‘‘moral 

hazard.’’ Under current law, sponsors of underfunded 

plans can continue to provide for additional accruals and, 

in some situations, even make new benefit promises, while 

pushing the cost of paying for those benefits off into the 

future. For this reason, some companies have an incentive 

to provide generous pension benefits that they cannot currently finance, rather than increase wages. The company, 

its workers, and any union officials representing them 

know that at least some of the additional benefits will be 

paid, if not by their own plan, then by other plan sponsors 

in the form of PBGC guarantees . . . If a company’s plan 

is poorly funded, the company should be precluded from 

adopting further benefit increases unless it fully funds 

them, especially if it is in a weak financial position. If a 

plan is severely underfunded, retiring employees should 

not be able to elect lump sums and similar accelerated 

benefits. The payment of those benefits allows those participants to receive the full value of their benefits while depleting the plan assets for the remaining participants.23

Prohibiting shutdown and unpredictable contingent event benefits 

In addition to limitations on benefit increases and certain distributions, the Committee believes that shutdown benefits and 

other unpredictable contingent event benefits, should be eliminated. Unpredictable contingent event benefits are benefits that become payable under special circumstances relating to the closure of 

a plant, division or facility, or to layoffs of employees of a certain 

group or class; because they are a severance-type subsidy payment, 

they may trigger significantly disproportionate increases in plan liabilities. The PBGC guarantees all nonforfeitable benefits, other 

than benefits that become nonforfeitable solely on account of the 

termination of a plan. Shutdown benefits become nonforfeitable 

when the shutdown or layoff occurs, not when the plan terminates. 

As a result, shutdown benefits may be guaranteed by the PBGC if 

the shutdown occurs before the termination date, but they are not 

guaranteed if the shutdown occurs after plan termination. 

Shutdown benefits are not funded. Indeed, precisely because a 

plant shutdown is inherently unpredictable, it is extremely difficult 

to recognize the costs of these benefits in advance so funding for 

shutdown benefits is nearly impossible. Thus, upon shutdown, a 

plan’s liabilities may be increased dramatically. The PBGC is responsible for paying these unfunded benefits, yet employers are not 

obligated to contribute money to pay for them. 

Plant shutdown benefits increase plan terminations and impose 

unreasonable costs on the PBGC, and should not be permitted. A 

recurring problem in pension funding has been that a plan may 

provide special benefits that are only payable in the event that the 

location at which workers are employed ceases operations. Such 

82 

24 Current liability means the present value of all accrued liabilities attributable to participants and beneficiaries under the plan. 

events are inherently unpredictable, such that it is difficult to recognize the costs of these benefits in advance. Current law does not 

include in any current liability calculation the cost of benefits arising from future unpredictable contingent events. Yet these benefits 

can dramatically increase the level of underfunding in a plan and 

by themselves have been a considerable source of pension funding 

problems. Moreover, allowing and guaranteeing plant shutdown 

benefits raises fairness issues, since other participants and plan 

sponsors may bear the burden of paying for these unfunded benefits. 

It is the view of the Committee that shutdown benefits are not 

similar to pension benefits. Shutdown benefits are not paid upon 

retirement from a plan. They are more like severance pay benefits 

provided to an employee upon termination from employment. Accordingly, HR 2830 prohibits a plan from providing benefits payable due to a plant shutdown or any other unpredictable contingent 

event. The bill defines ‘‘unpredictable contingent event’’ as an event 

other than the attainment of any age, the performance of any service, the receipt or derivation of any compensation, the occurrence 

of death or disability, or any other event which is reasonably and 

reliably predictable (as determined by the Secretary of Treasury). 

Bradley D. Belt, Executive Director of the PBGC shares the Committee’s concerns, and testified on April 26, 2005, before the Subcommittee on Retirement Security and Aging, Committee on 

Health, Education, Labor, and Pensions, United States Senate. Mr. 

Belt stated: 

The Administration believes that shutdown benefits are severance benefits that should not be paid by pension plans. 

These benefits generally are not funded until the shutdown occurs, by which time it is often too late, and no PBGC premiums are paid for them. However, despite the lack of funding, 

shutdown benefits may be guaranteed if the shutdown occurs 

before the plan termination date, often imposing large losses 

on the insurance program. 

The Administration proposal would prospectively eliminate 

the guarantee of certain unfunded contingent liability benefits 

and prohibit such benefits under pension plans. These severance benefits generally are not funded and no PBGC premiums 

are paid for them. Such benefits could continue to be provided 

outside the pension plan. 

Improving disclosure 

Another crucial aspect of comprehensive pension reform is improved disclosure to participants and beneficiaries. The Committee 

believes that additional and timely disclosure of plan information 

is imperative for employees to have in order to understand the financial status of their pension plan for their retirement security. 

In general current law requires plan sponsors to disclose ‘‘current 

liability’’ to participants and beneficiaries, which is not an accurate 

proxy for the disclosure of the financial health of a plan.24 Participants and beneficiaries should be provided information on the general health of their pension plan, including an estimate of plan asVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00082 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
83 

25 Hearing on ‘‘The Pension Underfunding Crisis: How Effective Have Reforms Been?’’ before 

the Committee on Education and the Workforce, U.S. House of Representatives, 108th Congress, 

First Session, October 29, 2003, Serial No. 108–40. 26 United States General Accounting Office, ‘‘Private Pensions: Changing Funding Rules and 

Enhancing Incentives Can Improve Plan Funding,’’ No. GAO–04–176T. 

sets, liabilities, and the funded ratio, on a timely basis. Barbara D. 

Bovbjerg, Director of Education, Workforce, and Income Security 

Issues, U.S. General Accounting Office, testified on the need for additional disclosure of pension plan information: 

In addition, only participants in plans below a certain 

funding threshold receive annual notices of the funding 

status of their plans. As a result, many plan participants, 

including participants of the Bethlehem Steel pension 

plan, did not receive such notifications in the years immediately preceding the termination of their plans. Expanding the circumstances under which sponsors must notify 

participants of plan underfunding might give sponsors an 

additional incentive to increase plan funding and would 

enable more participants to better plan their retirement.25

Increasing the maximum deductible amount 

It is the view of the Committee that the rules relating to the 

maximum amount of deductible contributions that plan sponsors 

may make to a qualified pension plan must be reformed in order 

to encourage plan sponsors to make additional contributions. The 

current rules prohibit plan sponsors from making additional contributions to pension plans during good economic times, but impose 

accelerated contribution requirements on plan sponsors during an 

economic downturn or even a slight market fluctuation. Additionally, employers are generally subject to an excise tax for making 

contributions in excess of the maximum deductible amount. 

H.R. 2830 permits employers to make additional contributions up 

to a new higher maximum deductible of up to the greater of: (1) 

the excess of the sum of 150 percent of a plan’s funding target plus 

the normal cost for the plan year over the value of plan assets, or 

(2) the excess of the sum of the plan’s at-risk funding target plus 

the at-risk normal cost for the plan year over the value of plan assets. Giving employers more flexibility to make generous contributions during good economic times will help provide workers and retirees greater retirement security by increasing the assets available 

to finance retirement benefits. 

In a report released to the Committee on Education and the 

Workforce on October 29, 2003, the General Accounting Office indicated that raising the level of tax deductible contributions was one 

of the steps that could be taken to enhance incentives to increase 

funding of plans: 

IRC and ERISA restrict tax-deductible contributions to 

prevent plan sponsors from contributing more to their plan 

than is necessary to cover accrued future benefits. This 

can prevent employers from making plan contributions 

during periods of strong profitability. Raising these limitations might result in pension plans being better funded, 

decreasing the likelihood that they will be underfunded 

should they terminate.26

84 

27 Hearing on H.R. 2830, the ‘‘Pension Protection Act of 2005,’’ before the Committee on Education and the Workforce, U.S. House of Representatives, 109th Congress, First Session, June 

15, 2005 (to be published). 28 ‘‘The Future of the Defined Benefit System and the Pension Benefit Guaranty Corporation,’’

General Accounting Office, Report No. GAO–05–578SP. 

In recent years, plan sponsors have also expressed their concern 

that market volatility limits their ability to make additional contributions. Increasing the level of maximum deductible contributions is an important incentive to encourage plan sponsors to make 

additional contributions to their plans, which will ultimately result 

in a system with plans that are better funded. Lynn Franzoi, Senior Vice President of Benefits for Fox Entertainment Group, recently testified on the need for increasing the maximum deductible 

amount of contributions to pension plans: 

[I]ncreasing the maximum deductible contribution limit 

is long overdue. Employers should be able to contribute 

more to their plans in good times and not be forced to increase contributions during bad economic times. Some employers with plans that are now experiencing funding deficiencies would have liked to have increased contributions 

when they had cash on hand. However, they were limited 

by the maximum deductibility rules. Not only would their 

additional contributions have been nondeductible, but they 

would have had to pay a significant excise tax on the contributions. This cap on contributions works against companies and plan participants by requiring contributions when 

companies are financially strapped and prohibiting contributions when companies are prosperous. Thus, companies cannot insulate themselves and their plan participants against cyclical changes in the economy. Therefore, 

we fully support the increases to the maximum deductible 

contributions for defined benefit plans.27

Ensuring the viability of hybrid pension plans 

Recent statistics show that the traditional defined benefit pension system is declining. Although the PBGC provides insurance 

protection to approximately 29,000 single employer pension plans 

covering 34.6 million people, the percentage of private sector workers covered by a defined benefit pension plan has dropped from 39 

percent in 1975 to 21 percent in 2004.28 The Committee believes 

that hybrid pension plans, such as cash balance plans, may reverse 

this trend if the rules surrounding these plans are clarified. It is 

the view of the Committee that hybrid pension plans represent the 

future of the defined benefit pension system and are a valuable tool 

in providing benefits that are not subject to market fluctuations 

and guaranteed by the PBGC. 

Under hybrid plans, participants earn portable benefits more 

evenly over a career span, not just at the very end of a participant’s career. This can result in greater retirement savings for 

workers who do not remain with the same employer for their entire 

career. As a result, a broader group of participants, including 

lower-income employees and women, earn greater benefits with 

shorter service under hybrid plans than traditional plans. On June 

22, 2004, the Committee released a fact sheet which shows the benVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00084 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
85 

efits of hybrid plans and dispels some of the myths surrounding 

these plans: 

86 


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Insert offset folio 090 here HR232.003
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29 Hearing on ‘‘Examining Cash Balance Pension Plans: Separating Myth From Fact,’’ before 

the Committee on Education and the Workforce, U.S. House of Representatives, Second Session, 

July 7, 2004, Serial No. 108–67. 

• ‘‘For example, if an employer wanted to offer employees a more 

portable retirement benefit through a cash balance formula that 

provides annual credits of five percent of pay, mandatory choice 

might lead the employer to instead freeze its defined benefit plan 

and adopt a 401(k) plan that provides contributions of five percent 

of pay. Under the 401(k) plan, employees would bear the entire risk 

of stock market declines.’’ Mitchell & Mulvey, Pension Research 

Council, Wharton School, University of Pennsylvania, Possible Implications of Mandating Choice in Corporate Defined Benefit Plans 

(2003). 

Nancy M. Pfotenhauer, President, Independent Women’s Forum, 

testified on the impact of hybrid plans on the retirement security 

of women: 

In the opinion of the Independent Women’s Forum, traditional retirement and pension approaches simply fail to 

meet the needs of our changing society. Succinctly, they do 

not reflect the work patterns and demographics of American women. Whether it’s the Wall Street Journal or Family Circle magazine, today’s commentators agree that 

movement in and out of the workforce for American mothers has become the ‘‘new normal.’’ In fact, many are noting 

a current trend of mothers going back home when their 

children become teenagers . . . Luckily, pension innovations in the private sector hold promise. Cash balance, 

pension equity, and other hybrid plans combine attractive 

features of a traditional defined benefit plan (employer 

funding, employer assumption of risk of poor investment, 

government insurance and spousal protections) with attractive features of a defined contribution plan (individual 

accounts, an easily understood benefit formula and portability).29

It is the view of the Committee that the clarification of the current age discrimination rules under ERISA preserves the current 

ability of plan sponsors to amend or modify their pension plans 

prospectively in order to maximize plan sponsor flexibility and ensure the future of these valuable defined benefit plans for participants and beneficiaries. The private, employer-sponsored employee 

benefit system is voluntary; therefore, placing restrictions on plan 

sponsors regarding plan design or conversion approaches and mandating that plan sponsors guarantee a certain level of benefits, 

even benefits that have not been earned by participants, should be 

prohibited. Ms. Pfotenhauer also testified on the importance of 

maintaining a voluntary pension system: 

[A]ny adoption of restrictions that effectively limit the 

ability of companies to transition to hybrid plans places 

the financial well-being of the relatively few employees 

who have had the luxury of staying with one company for 

a long period of time (decades), have had the luxury of taking early retirement, and have had the luxury of taking 

their pension benefits in the form of an annuity rather 

than as a lump sum, ahead of all the employees who do 

92 

30 Id. 31 Id. 

not have these options. Regardless of one’s perspective, 

any discussion about transition is appropriately done within the context of a clear understanding that these plans 

are voluntarily sponsored by employers. As such, an employer currently could decide to freeze benefit accruals or 

completely terminate plans altogether if costs become too 

burdensome.30

The need for clarification of the hybrid age discrimination issue 

is critical to the future of the defined benefit pension system. Congress must clarify the existing rules to ensure that companies continue to offer these valuable benefits. Ellen Collier, Director of Benefits, Eaton Corporation, testified on the issues and concerns that 

many plan sponsors face surrounding the uncertainty of sponsoring 

a hybrid pension plan: 

Now that the basic hybrid designs have been called into 

question, employers facing a set of circumstances similar 

to ours would have far fewer options. One choice would be 

to stay with the traditional pension design, which tends to 

deliver meaningful retirement benefits to a relatively 

small number of career-long workers, has limited value as 

a recruitment device in today’s marketplace, and makes integration of new employees difficult. The other alternative 

would be to exit the defined benefit system and provide 

only a defined contribution plan, which while an important 

and popular benefit offering, provides none of the security 

guarantees inherent in defined benefit plans. Clearly, it is 

employees that lose out as a result of today’s uncertainty 

surrounding hybrid plans.31

Providing for personalized investment advice 

In addition to comprehensive defined benefit reforms, the Committee believes that all defined contribution participants, regardless of their income, net worth, or position, should be afforded the 

opportunity to receive personalized investment advice in order to 

strengthen the retirement security of the millions of American 

workers participating in these plans. The ability to provide workers 

with individualized investment advice has passed the house three 

times with bipartisan support. Most recently, investment advice 

legislation passed the House of Representatives on May 14, 2003, 

by a vote of 271–157, including 49 Democrats, as part of H.R. 1000, 

the ‘‘Pension Security Act.’’

Assistant Secretary of EBSA Ann Combs addressed the importance of the investment advice provisions in the Pension Security 

Act: 

It’s clear that people who participate in 401(k) plans 

want their employers and plans to provide more investment advice. According to a survey recently released by 

CIGNA Retirement and Investment Services, 89 percent of 

401(k) investors want ‘‘specific information on investment 

decision-making.’’

93 

32 Hearing on ‘‘The Pension Security Act: New Pension Protections to Safeguard the Retirement Savings of American Workers,’’ before the Subcommittee on Employer-Employee Relations, 

Committee on Education and the Workforce, U.S. House of Representatives, 108th Congress, 

First Session, February 13, 2003, Serial No. 108–2. 

Investment advice also encourages participation in employer-provided retirement plans. Studies conducted on behalf of the investment advisory firm Power show workers 

who receive advice are more likely to participate in savings 

plans and to save more than workers who never get any 

guidance . . . For many workers, investment advice decisions are intimidating. The Department is encouraged to 

see growing interest in the adoption of an alternative 

method sanctioned by the advisory opinion where workers 

turn over their decision making to the financial services 

firm who manages their accounts in accordance with the 

independent adviser’s decisions.32

Scott Sleyster, Senior Vice President and President of Retirement 

Services and Guaranteed Products, Prudential Financial, testified 

about the importance of investment advice and addressed the socalled ‘‘conflict’’ issue claimed by opponents of individualized investment advice: 

[F]irst and foremost, you need to remember that the 

choices, the options that are being offered in DC [defined 

contribution] plans have already been reviewed by the 

plan sponsor. The industry has demanded open architecture for some time. So you typically have 11 to 15 choices 

and in most cases, our funds and any company’s funds 

would probably only represent about a third of that. Second, the most important decision here isn’t the individual 

fund or even fund manager. The most important issue in 

managing a portfolio is asset allocation. And models are 

built to design asset allocation, and that is really what designs the choices you have. So, that if you have 15 funds, 

you don’t have 15 growth funds; you have some that are 

growth, some that are international, some that are small 

capped, some that are fixed income, [and] some that are 

stable value. And I think that what really drives this is 

asset allocation. 

[T]he issue here is how are we going to get advice to people in a cost effective manner. While you can probably 

come up with more esoteric and elegant solutions that 

seem pure, if you are asking the company to fund that or 

you are asking the participant to pay an additional fee for 

that, then you are going to end up with what we have 

ended up with already, which is tools out there that aren’t 

utilized or options that plan sponsors don’t want to pay 

for. Any you know, quite frankly, that is really the issue: 

How do we get investment advice to the average employee—remember, the average 401(k) balance, 45 percent 

of plan participants have less than $10,000. People aren’t 

typically trying to go after those customers to sell them 

other products. The real question is, how do we get them 

94 

33 Id. 34 Consideration of H.R. 2830, the ‘‘Pension Protection Act of 2005,’’ by the Committee on Education and the Workforce, U.S. House of Representatives, June 29, 2005. 35 Id. 

advice that is as close to unbiased as possible, but also in 

a very cost efficient and simple manner.33

Additional prohibited transaction reforms 

In addition to investment advice, it is the view of the Committee 

that, in general, the prohibited transaction rules under ERISA, 

which were passed over 30 years ago, must be updated in order for 

pension plans to provide the best retirement benefits to participants and beneficiaries. America’s financial markets are the most 

efficient, dynamic, and transparent in the world. The dynamic marketplace of today is extremely different than it was 30 years ago 

with the introduction of electronic trading, new financial products, 

and faster execution. Furthermore, the financial services industry 

has dramatically consolidated, which makes the current prohibited 

transaction rules onerous and detrimental to the entire employee 

benefits system. In order to improve the overall operation and 

maintenance of pension plans, which will ultimately result in 

greater efficiency and, therefore, lower costs and fees paid by these 

plans, while continuing to protect the interests of participants and 

beneficiaries, the prohibited transaction rules should be safely updated to ensure that all pension plans are able to function with 

ease and efficiency in our current marketplace. Representative 

John Kuhl (R–NY) addressed the need for specific changes to the 

current prohibited transaction system: 

[T]hese are very targeted changes that will help solve 

many of the most pressing issues our financial markets are 

facing because of ERISA. They will benefit our pension 

plans and those who rely on efficient investment for their 

retirement security without undercutting important protections for investors.34

Representative Rob Andrews (D–NJ) also addressed the need to 

reform the prohibited transaction exemption rules within the current framework of ERISA in order to ensure the protections currently afforded to participants and beneficiaries: 

[T]hese changes will lower some transaction costs by 

eliminating redundant bonding; eliminating some other administrative responsibilities that really don’t add any protection or value from the point of view of the pensioner, 

but do add costs, and therefore reduce return.35

MULTIEMPLOYER REFORMS

There is considerable attention surrounding single employer defined benefit reforms because of the recent and notable terminations of several large, underfunded traditional defined benefit 

pension plans as well as the PBGC’s $23.3 billion deficit. However, 

it is the view of the Committee that the multiemployer pension system must also be reformed in order to ensure that all stakeholders, 

including participants, beneficiaries, and contributing employers, 

are protected from the possible negative consequences currently 

facing the system. 

95 

36 ‘‘Private Pensions: Multiemployer Plans Face Short- and Long-Term Challenges,’’ General 

Accounting Office, Report No. GAO–04–423. 

The need for legislation 

There are currently 9.8 million workers and retirees participating in 1,587 multiemployer plans. Unfortunately, the major provisions in ERISA that govern multiemployer plans have not been 

amended since 1980. Until 2003, the PBGC’s multiemployer insurance program had shown growing financial strength since enactment of the 1980 amendments. During 2003, however, the program 

(which is vulnerable to the same economic and demographic pressures that have threatened the single-employer program) sustained 

a net loss of $419 million, the largest one-year drop in the program’s history. As a result, the program reported a year-end deficit 

of $261 million, the program’s largest shortfall ever and its first 

year-end deficit in over 20 years. By the end of 2004, that deficit 

had declined to $236 million as the program reported net income 

of $25 million. 

Since 1980, PBGC has received requests for financial assistance 

from 39 multiemployer plans. During 2004, 27 of these plans received assistance. At the end of fiscal year 2004, the multiemployer 

program had assets of $1.07 billion and total liabilities of $1.306 

billion. Most of these liabilities—$1.295 billion—represent non-recoverable future financial assistance to the 27 plans currently receiving financial assistance and to other plans expected to receive 

such assistance in the future. 

A March 2004 GAO report to the Subcommittee on EmployerEmployee Relations discussed problems in multiemployer pension 

system: 

Following two decades of relative financial stability, 

multiemployer plans as a group appeared to have suffered 

recent and significant funding losses, while long-term declines in participation and new plan formation continued 

unabated. At the close of the 1990s, the majority of multiemployer plans reported assets exceeding 90 percent of 

total liabilities. Recently, however, stock market declines, 

coupled with low interest rates and poor economic conditions, appear to have reduced assets and increased liabilities for many plans. PBGC reported an accumulated net 

deficit of $261 million for its multiemployer program in 

2003, the first since 1981. Meanwhile, since 1980, the 

number of plans has declined from over 2,200 to fewer 

than 1,700 plans, and there has been a long-term decline 

in the total number of active workers. PBGC monitors 

those multiemployer plans, which may, in PBGC’s view, 

present a risk of financial insolvency.36

The PBGC does not trustee the administration of insolvent multiemployer plans as it does with single-employer plans; however, it 

provides technical and financial assistance to troubled plans and 

guarantees a minimum level of benefits to participants in insolvent 

plans. PBGC loans have been rare, with loans to only 33 plans totaling $167 million since 1980. 

96 

37See id. 38 Hearing on ‘‘Reforming and Strengthening Defined Benefit Plans: Examining the Health of 

the Multiemployer Pension System,’’ before the Subcommittee on Employer-Employee Relations, 

U.S. House of Representatives, 108th Congress, Second Session, March 18, 2004, Serial No. 108– 49. 39 Id. 

Challenges facing the multiemployer pension system 

The GAO report revealed several factors that pose challenges to 

the long-term prospects of the multiemployer system. Some are inherent to the multiemployer regulatory framework, such as the 

greater perceived financial risk and reduced flexibility for employers compared to other plan designs, which suggest that fewer employers will find these plans attractive. Furthermore, the long-term 

decline of collective bargaining results in fewer new participants to 

expand or create new multiemployer plans. Other factors threaten 

all defined benefit plans, including multiemployer plans: the growing trend among employers to choose defined contribution plans; 

the increasing life expectancy of workers, which raises the cost of 

plans; and continuing increases in employer health insurance costs, 

which compete with pensions for employer funding.37

It is the Committee’s view that the multiemployer system has 

had a history of financial stability due to the fact that these plans 

pool their risk and that retiree benefits are not generally dependent upon the economic viability of one company. However, despite 

these facts, the multiemployer system faces some serious long-term 

structural issues. It is the Committee’s view that the multiemployer pension system must be self sustaining for the long-term on 

behalf of workers and employers. 

Barbara D. Bovbjerg, Director of Education, Workforce, and Income Security Issues at the General Accounting Office, echoed 

those concerns, citing the facts that individual employers in multiemployer plans cannot easily adjust their plan contributions in response to the firm’s own financial circumstances, the long-term decline in collective bargaining growth, and an increasing number of 

retirees in comparison to active workers in the system: 

Although available evidence suggests that multiemployer plans are not experiencing anywhere near the magnitude of the problems that have recently afflicted the single employer plans, there is cause for concern . . . a number of factors pose challenges to the multiemployer plan 

system over the long term.38

John McDevitt, Senior Vice President, United Parcel Service, 

noted the need for long-term reform: 

It is important to understand that the underlying problems are not simply caused by economic swings in the 

stock markets, which could be cured by ‘‘waiting out’’ the 

downturn. The problems are structural to the trucking industry, to the labor market in general, and to the past 

management of multiemployer pension plans. Short-term 

fixes dependent on market changes will not correct the financial solvency problems of multiemployer pension plans; 

therefore a need for real multiemployer pension plan reform is urgently needed. Doing nothing is not an option.39

97 

40 Id. 41 Hearing on ‘‘Examining Long-Term Solutions to Reform and Strengthen the Defined Benefit 

Pension System,’’ before the Subcommittee on Employer-Employee Relations, Committee on 

Education and the Workforce, U.S. House of Representatives, 108th Congress, Second Session, 

April 29th, 2004, Serial No. 108–55. 

Scott Weicht, Executive Vice President of Adolfson and Peterson 

Construction, talked about the importance of strengthening multiemployer plans on behalf of workers: 

I believe that these plans are a secure and viable way 

. . . to provide pension benefits to workers. In the construction arena, workers follow the job, not necessarily the 

company, and these plans provide the proverbial third leg 

of the retirement stool for people who would otherwise be 

left with only Social Security and whatever savings that 

they could muster. I know that Congress is extremely interested in retirement security, and I believe that these 

plans are an essential part of that discussion.40

Improving and preserving the multiemployer pension system 

The Committee believes that the multiemployer pension funding 

and benefit structure needs to be reformed as soon as possible, including the addition of quantifiable measures of improvement and 

adjustments to the benefit structures for severely underfunded 

plans, in order to maintain the health of the plans that are in existence. Timothy Lynch, President and CEO of the Motor Freight 

Carriers Association, testified on the need for overall reforms which 

plan trustees should consider in order to improve the financial 

health of multiemployer plans: 

As multiemployer legislation is considered, serious consideration should be given to whether additional procedural or legal controls over the management of the plans 

could prevent serious funding issues. Something as simple 

as imposing funding policy guidelines that mandate clear 

targets for the plan’s unfunded liability. The Teamsters 

Western Pension Fund has long had a funding policy that 

established the funding levels and requires the trustees to 

adjust benefits based on the levels. Plan modifications are 

virtually automatic. 

Additionally, consideration should be given to requiring 

that the level of plan benefits be more closely tied to the 

level of plan contributions and available assets. This may 

require a hard look at anti-cutback provisions. If trustees 

want to increase benefits during good times, there should 

be less restriction on their ability to reduce benefits during 

bad times.41

It is the Committee’s view that H.R. 2830 includes the muchneeded reforms for multiemployer pension plans. As noted previously, the bill provides for quantifiable measures of improvement 

for plans that are underfunded at certain levels. A wide-ranging coalition of employer and labor groups have made significant 

progress in reaching consensus on proposals for reforms, and the 

H.R. 2830 includes many of these reforms. Andy Scoggin, Vice 

President for Labor Relations at supermarket retailer Albertsons, 

Inc., praised the Committee for addressing the problem: 

98 

42 Hearing on H.R. 2830, the ‘‘Pension Protection Act of 2005,’’ before the Committee on Education and the Workforce, U.S. House of Representatives, 109th Congress, First Session, June 

15, 2005 (to be published). 43 Id. 44 Id. 

We believe that it provides a reasonable and rational 

framework for multiemployer pension plans to work 

through the problems now facing all pension plans. The reforms in H.R. 2830 are not a government bailout . . . instead, the proposed legislation will provide the tools which 

will allow multiemployer plans to solve our own pension 

problems without direct government intervention and 

without putting additional financial pressure on the Pension Benefit Guaranty Corporation . . . we believe, if Congress acts now, multiemployer plans can solve their own 

problems so that they do not become a burden on the federal government or the taxpayer.42

Timothy Lynch, President and CEO of the Motor Freight Carriers Association, agreed and testified on the need for Congress to 

act on reforming the multiemployer pension system in order to protect the pension benefits of workers and retirees could be at risk: 

[E]mployers are concerned about the current framework 

for multiemployer pension plans and strongly believe that 

if not properly addressed, the problems will increase and 

possibly jeopardize the ability of contributing employers to 

finance the pension plans. The end result could put at risk 

the pension benefits of their employees and retirees . . . 

we believe that H.R. 2830 meets the overall objective of alleviating the short-term consequences of funding deficits 

while promoting long-term funding reform for multiemployer pension plans.43

Judy Mazo, Senior Vice President and Director of Research for 

The Segal Company provides consulting services for many of the 

nation’s multiemployer plans, said the status quo was unacceptable: 

Our aim is to make sure that, in the end, the environment for multiemployer plans will be improved, so that 

they, their contributing employers and their participants 

are all well-served . . . the alternative is not the continuation of the status quo, but a much worse fate that includes: the loss not only of accrued ancillary benefits, but 

a substantial portion of a participant’s normal retirement 

benefit as plans are assumed by the PBGC; the demise of 

potentially large numbers of small businesses and the loss, 

not only of pension benefits, but the jobs from which such 

benefits stem; and an increase in taxpayer exposure at the 

PBGC, an agency that is already overburdened.44

It is the view of the Committee that multiemployer plans provide 

valuable, guaranteed benefits to union workers and retirees. The 

reforms included in H.R. 2830 will help to ensure the continuation 

of these plans by providing much-needed restrictions for underfunded plans and additional requirements for all parties with a 

vested interest in the health and future of these plans. 

99 

45See ERISA § 301–308 and IRC § 412. Under section four of ERISA, certain plans are not 

subject to the minimum funding rules, including governmental plans, certain church plans, foreign plans, excess benefit plans, and certain plans maintained for the purpose of complying with 

applicable workers’ compensation, unemployment compensation, or disability insurance laws. 46See ERISA§3(28). The term ‘‘normal cost’’ is defined as the annual cost of future pension 

benefits and administrative expenses assigned, under an actuarial cost method, to years subsequent to a particular valuation date of a plan. 

PRESENT LAW

SINGLE EMPLOYER PENSION PLANS

Minimum Funding Rules. Single employer defined benefit pension plans are subject to minimum funding requirements under 

ERISA and the Internal Revenue Code (‘‘IRC’’).45 In general, the 

amount of contributions required for a plan year under the minimum funding rules is the amount needed to fund benefits earned 

during a plan year, which is considered a plan’s ‘‘normal cost’’ for 

the year, plus that year’s portion of other liabilities that are amortized over a period of years, such as investment losses or increased 

benefits related to past service credit.46 The amount of required annual contributions is determined under one of a number of acceptable actuarial cost methods. Additional contributions are required 

under the deficit reduction contribution rules in the case of certain 

underfunded plans (described below). No contribution is required 

under the minimum funding rules in excess of the full funding 

limit (described below). 

Funding Standard Account. As an administrative aid in the application of the funding requirements, a defined benefit pension 

plan is required to maintain a special account called a ‘‘funding 

standard account’’ to which specified charges and credits are made 

for each plan year, including a charge for normal cost and credits 

for contributions to the plan. Other credits or charges may apply 

as a result of increases or decreases in past service liability as a 

result of plan amendments, experience gains or losses, gains or 

losses resulting from a change in actuarial assumptions, or a waiver of minimum required contributions. 

In determining plan funding under an actuarial cost method, a 

plan’s actuary generally makes certain assumptions regarding the 

future experience of a plan. These assumptions typically involve 

rates of interest, mortality, disability, salary increases, and other 

factors affecting the value of assets and liabilities. If the plan’s actual unfunded liabilities are less than those anticipated by the actuary on the basis of these assumptions, then the excess is an experience gain. If the actual unfunded liabilities are greater than those 

anticipated, then the difference is an experience loss. Experience 

gains and losses for a year are generally amortized as credits or 

charges to the funding standard account over five years. If the actuarial assumptions used for funding a plan are revised and, under 

the new assumptions, the accrued liability of a plan is less than the 

accrued liability computed under the previous assumptions, the decrease is a gain from changes in actuarial assumptions. If the new 

assumptions result in an increase in the accrued liability, the plan 

has a loss from changes in actuarial assumptions. The accrued liability of a plan is the actuarial present value of projected pension 

benefits under the plan, including projected future benefit increases, which will not be funded by enough future contributions 

to meet the plan’s normal cost. The gain or loss for a year from 

100 

47 Current liability is generally defined as the present value of all liabilities attributable to 

participants and beneficiaries accrued to date under the plan. 

changes in actuarial assumptions is amortized as credits or charges 

to the funding standard account over ten years. 

If minimum required contributions are waived, in accordance 

with the waiver rules and procedures established by the Secretary 

of the Treasury, the waived amount (referred to as a ‘‘waived funding deficiency’’) is credited to the funding standard account. The 

waived funding deficiency is then amortized over a period of five 

years, beginning with the year following the year in which the 

waiver is granted. Each year, the funding standard account is 

charged with the amortization amount for that year unless the 

plan becomes fully funded. If, as of the close of the plan year, 

charges to the funding standard account exceed credits to the account, then the excess is referred to as an ‘‘accumulated funding 

deficiency.’’

If, as of the close of a plan year, the funding standard account 

reflects credits at least equal to charges, the plan is generally 

treated as meeting the minimum funding standard for the year and 

there is no required contribution. 

In applying the funding rules, all costs, liabilities, interest rates, 

and other factors are required to be determined on the basis of actuarial assumptions and methods, each of which is reasonable (taking into account the experience of the plan and reasonable expectations), or which, in the aggregate, result in a total plan contribution equivalent to a contribution that would be obtained if each assumption and method were reasonable. In addition, the assumptions are required to offer the actuary’s best estimate of anticipated 

experience under the plan. 

Normal costs and other required amortization payments under a 

plan are determined on the basis of an actuarial valuation of the 

assets and liabilities of a plan. An actuarial valuation of plan assets and liabilities is required annually and is made as of a date 

within the plan year or within one month before the beginning of 

the plan year. However, a valuation date within the preceding plan 

year may be used if, as of that date, the value of a plan’s assets 

is at least 100 percent of a plan’s current liability.47 For funding 

purposes, the actuarial value of plan assets may be used, rather 

than fair market value. The actuarial value of plan assets is the 

value determined under a reasonable actuarial valuation method 

that takes into account fair market value and is permitted under 

Department of Treasury regulations. However, any actuarial valuation method used must result in a value of plan assets that is not 

less than 80 percent of the fair market value of the assets and not 

more than 120 percent of the fair market value. In addition, if the 

valuation uses the average value of the plan assets, the values may 

not be averaged for more than the five most recent plan years, including the current year. 

Credit Balances. If credits to the funding standard account exceed charges, the plan is considered to have a ‘‘credit balance.’’

Typically, a plan maintains a credit balance if contributions are 

made in excess of minimum required contributions or a plan experiences significant investment gains. The amount of the credit balance increases each year with interest at the rate used under the 

101 

48 Under an alternative test, a plan is not subject to the deficit reduction contribution rules 

for a plan year if: (1) the plan’s funded current liability percentage for the plan year is at least 

80 percent, and (2) the plan’s funded current liability percentage was at least 90 percent for 

each of the two immediately preceding plan years or each of the second and third immediately 

preceding plan years. The deficit reduction contribution rules apply to single employer plans, 

other than single employer plans with no more than 100 participants on any day in the preceding plan year. Single employer plans with more than 100 but not more than 150 participants 

are generally subject to lower contribution requirements under these rules. 49 In determining a plan’s funded current liability percentage for a plan year, the value of the 

plan’s assets is generally reduced by the amount of any credit balance under the plan’s funding 

standard account. However, this reduction does not apply in determining the plan’s funded current liability percentage for purposes of whether an additional charge is required under the deficit reduction contribution rules. 50The transition rules were included in the 1987 Pension Protection Act and the 1994 Retirement Protection Act. 51For example, if a plan’s funded current liability percentage is 85 percent (i.e., it exceeds 

60 percent by 25 percentage points), the applicable percentage is 20 percent (30 percent minus 

10 percentage points (25 multiplied by .4)). Under this calculation, the value of the plan’s assets 

is reduced by the amount of any credit balance accumulated in the plan’s funding standard account. 

plan to determine costs, regardless of whether other plan assets experience investment losses. Credit balances can be used to reduce 

future required contributions. 

Additional Contributions for Underfunded Plans. Under special 

funding rules known as the deficit reduction contribution rules, an 

additional charge to a plan’s funding standard account is generally 

required for a plan year if the plan’s funded current liability percentage for the plan year is less than 90 percent.48 A plan’s funded 

current liability percentage is generally the actuarial value of plan 

assets as a percentage of the plan’s current liability.49 As stated 

above, a plan’s current liability means the present value of all liabilities to employees and their beneficiaries under the plan. 

The deficit reduction contribution is the sum of: (1) the ‘‘unfunded old liability amount;’’ (2) the ‘‘unfunded new liability 

amount;’’ and (3) the expected increase in current liability due to 

benefits accruing during the plan year. The ‘‘unfunded old liability 

amount’’ is the amount needed to amortize certain unfunded liabilities under 1987 and 1994 transition rules.50 The ‘‘unfunded new 

liability amount’’ is the applicable percentage of the plan’s unfunded new current liability, which is the amount by which the 

plan’s current liability exceeds the actuarial value of plan assets. 

The applicable percentage is generally 30 percent, but decreases by 

.4 of one percentage point for each percentage point by which the 

plan’s funded current liability percentage exceeds 60 percent.51 A 

plan may provide for unpredictable contingent event benefits, 

which are benefits that depend on contingencies that are not reliably and reasonably predictable, such as facility shutdowns or reductions in workforce due to company layoffs. The value of any unpredictable contingent event benefit is not considered in determining additional contributions until the event has occurred. As a 

result, plan sponsors are not able or required to fund for these benefits. 

The amount of the additional charge required under the deficit 

reduction contribution rules is the sum of two amounts: (1) the excess, if any, of (a) the deficit reduction contribution over (b) the 

contribution required under the normal funding rules; and (2) the 

amount (if any) required with respect to unpredictable contingent 

event benefits. The amount of the additional charge cannot exceed 

the amount needed to increase the plan’s funded current liability 

percentage to 100 percent, taking into account any expected inVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00101 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
102 

52The weighting used for this purpose is 40 percent, 30 percent, 20 percent and 10 percent, 

starting with the most recent year in the four-year period. Notice 88–73, 1988–2 C.B. 383. 53 If the Secretary of the Treasury determines that the lowest permissible interest rate in this 

range is unreasonably high, the Secretary may prescribe a lower rate, but not less than 80 percent of the weighted average of the 30-year Treasury rate. 54See ERISA § 302(b)(5)(B)(iii)(II). 55Pub. L. No. 108–218. In addition, if certain requirements are met, reduced contributions 

under the deficit reduction contribution rules apply for plan years beginning after December 27, 

2003, and before December 28, 2005, for plans maintained by commercial passenger airlines, 

employers primarily engaged in the production or manufacture of a steel mill product or in the 

processing of iron ore pellets, or a certain labor organization. 56See ERISA § 302(d)(7)(C)(ii). 57 Rev. Rul. 95–28. 58 In general, single employer plans are subject to a maximum deductible amount of not less 

than 120 percent of current liability over the value of plan assets. 

crease in current liability due to benefits accruing during the plan 

year. 

Required Interest Rate and Mortality Table. Specific interest rate 

and mortality assumptions must be used in determining a plan’s 

current liability for purposes of the special funding rule. For plan 

years beginning before January 1, 2004, the interest rate used to 

determine a plan’s current liability must be within a permissible 

range of the weighted average of the interest rates on 30-year 

Treasury securities for the four-year period ending on the last day 

before the plan year begins.52 The permissible range is generally 

from 90 percent to 105 percent (120 percent for plan years beginning in 2002 or 2003).53 The interest rate used under the plan generally must be consistent with the assumptions which reflect the 

group annuity purchase rates which would be used by insurance 

companies to satisfy the liabilities under the plan.54

Under the Pension Funding Equity Act of 2004 (‘‘PFEA’’), a special interest rate applies in determining current liability for plan 

years beginning in 2004 or 2005.55 For these plan years, the interest rate used must be within a permissible range of the weighted 

average of the rates of interest on amounts invested conservatively 

in long-term investment-grade corporate bonds during the fouryear period ending on the last day before the plan year begins. The 

permissible range for these years is from 90 percent to 100 percent. 

The interest rate is to be determined by the Secretary of the Treasury on the basis of two or more indices that are selected periodically by the Secretary and are in the top three quality levels available. The Secretary of the Treasury is required to prescribe mortality tables and to periodically review, at least every five years, 

and update such tables to reflect the actuarial experience of pension plans and projected trends in such experience.56 The Secretary 

of the Treasury has required the use of the 1983 Group Annuity 

Mortality Table.57

Deduction Limit. Contributions to single employer pension plans 

are deductible up to certain limits. In general, a plan sponsor may 

deduct the greater of: (1) the amount necessary to satisfy the minimum funding requirement for the plan year; or (2) the amount of 

the plan’s normal cost for the year plus the amount necessary to 

amortize certain unfunded liabilities over 10 years, subject to the 

full funding limitation for the year (see explanation of a plan’s full 

funding limitation below). The maximum deductible amount is not 

less than the present value of the plan’s unfunded current liability.58

103 

59See ERISA § 302(e). 60See ERISA § 303. In general, the Secretary of the Treasury is permitted to waive all or a 

portion of a plan’s minimum required contributions or extend the amortization periods applicable to any net experience loss. 61See ERISA § 307. 

If an employer sponsors both a defined benefit and a defined contribution plan that includes the same participants, the total deduction allowable for the employer in a year is the greater of: (1) 25 

percent of employee compensation; or (2) the contribution necessary 

to meet the defined benefit plan’s minimum funding requirement. 

In general, employers are subject to a 10 percent excise tax for 

the amount of any nondeductible contributions made to a plan in 

a plan year. 

Full Funding Limitation. Under ERISA, no contributions are required under the minimum funding rules in excess of the full funding limitation. The full funding limitation is the excess, if any, of 

the accrued liability under the plan, including normal cost, over the 

lesser of (a) the market value of plan assets, or (b) the actuarial 

value of plan assets. However, the full funding limitation may not 

be less than the excess, if any, of 90 percent of the plan’s current 

liability over the actuarial value of plan assets. 

Timing of Plan Contributions. In general, plan contributions required to satisfy the funding rules must be made within 81⁄2

months after the end of the plan year. If the contribution is made 

by such due date, the contribution is treated as if it were made on 

the last day of the plan year. In the case of a plan with a funded 

current liability percentage of less than 100 percent for the preceding plan year, estimated contributions for the current plan year 

must be made in quarterly installments during the current plan 

year.59 As stated above, the amount of each required installment 

is 25 percent of the lesser of 90 percent of the amount required to 

be contributed for the current plan year or 100 percent of the 

amount required to be contributed for the preceding plan year. 

Failure to Make Required Contributions. An employer is generally subject to an excise tax of 10 percent of the amount of the 

funding deficiency if it fails to make minimum required contributions and fails to obtain a waiver from the Internal Revenue Service.60 In addition, a tax of 100 percent may be imposed if the funding deficiency is not corrected within a certain period. If the total 

of the contributions the employer fails to make, with interest, exceeds one million dollars and the plan’s funded current liability 

percentage is less than 100 percent, a lien arises in favor of the 

plan with respect to all property of the employer and the members 

of the employer’s controlled group. The amount of the lien is the 

total amount of the missed contributions, including interest. 

Limitations on Benefit Increases, Distributions, and Accruals. 

ERISA provides that a defined benefit plan may not adopt an 

amendment which results in an increase in the plan’s current liability if the funded current liability percentage of a plan is less 

than 60 percent, including any amendment that would cause a 

plan’s current liability percentage to fall below 60 percent, unless 

the plan sponsor provides security, such as real property or equities.61 Other than the above limitation, ERISA only provides for a 

prohibition on benefit increases if a plan is involved in a bankruptcy proceeding. ERISA also limits certain benefit payments if a 

104 

62See ERISA § 4011. 63See ERISA § 101(d). 64See ERISA § 101(f). 65See IRC § 409A. 

plan has a liquidity shortfall, which occurs if a plan’s liquid assets 

are less than the disbursements from the plan in the preceding 

plan year. 

Under current law, plans are not permitted to provide severance 

benefits; however, plans may provide for subsidized early retirement benefits and unpredictable contingent event benefits. Unpredictable contingent event benefits are benefits that depend on certain events or other contingencies that are not reasonably predictable, such as a facility shutdown. These benefits are considered 

protected benefits under ERISA and may not be eliminated. 

Disclosure. ERISA requires plan administrators/fiduciaries to file 

an annual report with the Secretary of Labor, known as a Form 

5500. This report includes certain plan information, including an 

actuarial report containing plan asset and liability information, information regarding participant distributions, and plan contributions. This form is due on the last day of the seventh month after 

the end of the plan year. The summary of this report, otherwise 

known as a plan’s summary annual report, must be provided to 

participants within two months after the due date of the annual report. 

Single employer defined benefit plan participants have the right 

to certain notices regarding their plan’s funded status. In general, 

if an employer is subject to a variable rate premium (discussed 

below) because the plan is underfunded, participants are entitled 

to receive a notice regarding the plan’s funded status and PBGC 

benefit guarantee limits.62 The employer is also required to notify 

plan participants if it fails to make the required contributions.63 In 

addition, the PFEA requires multiemployer plans to provide an annual funding notice to participants, contributing employers, labor 

organizations, and the PBGC regarding the plan’s funded status.64

Executive Compensation. Amounts deferred under a nonqualified 

deferred compensation plan for all taxable years are currently includable in gross income to the extent not subject to a substantial 

risk of forfeiture and not previously included in gross income, unless certain requirements are satisfied.65 For example, distributions 

from a nonqualified deferred compensation plan may be allowed 

only at certain times and upon certain events. Rules also apply for 

the timing of elections. If the requirements are not satisfied, in addition to current income inclusion, interest at the underpayment 

rate plus one percentage point is imposed on the underpayments 

that would have occurred had the compensation been includable in 

income when first deferred, or if later, when not subject to a substantial risk of forfeiture. The amount required to be included in 

income is also subject to a 20 percent additional tax. 

In the case of assets set aside in a trust (or other arrangement) 

for purposes of paying nonqualified deferred compensation, such assets are treated as property transferred in connection with the performance of services under Internal Revenue Code section 83 at the 

time set aside if such assets (or trust or other arrangement) are located outside of the United States or at the time transferred if such 

assets (or trust or other arrangement) are subsequently transferred 

105 

66See ERISA § 204(b)(1)(H). 67See ERISA § 204(b)(1)(G). 68The PFEA rate will expire on December 31, 2005. The interest rate to be used after the 

expiration of the PFEA is 85 percent of the interest rate on 30-year Treasury bonds. 

outside of the United States. A transfer of property in connection 

with the performance of services under Code section 83 also occurs 

with respect to compensation deferred under a nonqualified deferred compensation plan if the plan provides that upon a change 

in the employer’s financial health, assets will be restricted to the 

payment of nonqualified deferred compensation. In addition to current income inclusion, interest at the underpayment rate plus one 

percentage point is imposed on the underpayments that would have 

occurred had the compensation been includable in income when 

first deferred, or if later, when not subject to a substantial risk of 

forfeiture. The amount required to be included in income is also 

subject to a 20 percent additional tax. 

Benefit Accruals. ERISA provides that benefit accruals may not 

decrease on account of the attainment of any age. Under a defined 

benefit plan, an employee’s benefit accrual may not cease or be reduced because of the attainment of any age.66 Furthermore, accrued benefits may not decrease on account of increasing age or 

service.67 However, a plan does not fail to satisfy the benefit accrual rules by imposing a limitation on the amount of benefits that 

a plan provides or a limitation on the number of years of service 

or participation that are taken into account in determining accrued 

benefits. Furthermore, a plan does not fail the benefit accrual rules 

because the subsidized portion of an early retirement benefit is disregarded in determining benefit accruals. Finally, ERISA does not 

prohibit the modification of any benefit formula on a prospective 

basis. In other words, ERISA does not require a plan to provide a 

minimum benefit level or vest participants in benefits that have 

not been earned under the plan’s formula. 

PBGC Premiums. ERISA requires all single employer plans covered by the PBGC insurance program to pay flat-rate premiums. 

Flat-rate premiums are based on the number of plan participants. 

Under current law, the premium is set at $19 per participant. 

ERISA also requires certain underfunded plans to pay a variable 

rate premium. The amount of the variable rate premium is also set 

by statute and is $9 per $1000 of unfunded vested benefits; however, there is an exemption from this requirement if the plan meets 

its full funding limit. In determining the amount of unfunded vested benefits, the interest rate used is 85 percent of the annual rate 

of interest of the corporate bond rate provided under the PFEA.68

MULTIEMPLOYER PENSION PLANS

As stated above, multiemployer pension plans are defined benefit 

pension plans maintained by two or more employers in a particular 

trade or industry, such as trucking or construction, that are collectively bargained between an employer and a labor union. While 

single employer plan sponsors generally may adjust their pension 

contributions to meet funding requirements, the contributions of individual employers in multiemployer plans cannot be easily modified because level of contributions to such plans is generally set as 

part of the bargaining process, and the level of benefits is determined by the plan trustees. 

106 

69Past service liability is a term used to describe different amortization charges to the funding 

standard account. For plans in existence on January 1, 1974, past service liability is amortized 

over 40 years. For plans in existence after January 1, 1974, past service liability is amortized 

over 30 years. Any plan amendments which result in past service liabilities to a plan are amortized over 30 years. 70 Experience gains and losses are determined by a plan actuary’s assumptions regarding the 

future experience of a plan. These assumptions generally include interest rates, mortality, disability, salary increases, and other factors affecting the value of assets and liabilities. 71Gains and losses from changes in actuarial assumptions generally arise if the plan’s as- sumptions are modified. A plan will have a gain if the accrued liability of a plan using the new 

assumptions is less than the accrued liability calculated using the previous assumptions. A plan 

will have a loss if the accrued liability of a plan using the new assumptions is greater than 

the accrued liability calculated using the previous assumptions. Accrued liabilities are the excess 

Multiemployer plans have certain characteristics that are different from single employer plans. While multiemployer plans are 

subject to many of the same rules as single employer plans, present 

law also applies special rules to such plans in recognition of their 

differing features. 

Multiemployer Funding Rules. In general, multiemployer plans 

are subject to the same general minimum funding rules as single 

employer plans. However, special rules apply to multiemployer 

plans in some instances. For example, the amortization of a plan’s 

experience gains and losses is extended over a longer period of 

time. Furthermore, multiemployer plans are not subject to the additional deficit reduction contribution rules if a plan becomes underfunded by a certain percentage. 

Like single employer plans, multiemployer plans are required to 

maintain a funding standard account to which specified charges 

and credits are made for each plan year, including a charge for normal cost and credits for contributions to the plan as well as charges 

and credits for any decreases or increases in past service liability 69

as a result of plan amendments or experience gains or losses, gains 

or losses resulting from a change in actuarial assumptions, or a 

waiver of minimum required contributions. 

A multiemployer pension plan is required to use an acceptable 

actuarial cost method to determine the above factors included in 

the plan’s funding standard account each year. Generally, an actuarial cost method divides the cost of benefits under the plan into 

annual charges consisting of two elements for each plan year which 

include the plan’s normal cost and the amortized portions of any 

additional costs of the plan. The plan’s normal cost for a plan year 

represents the cost of current and future benefits allocated to the 

year by the funding method used by the plan for active and inactive employees. The amortized portions of any additional costs of 

the plan for a plan year are the cost of future benefits that would 

not be met by future normal costs, including any costs that may 

be attributable to net experience losses, changes in actuarial assumptions, and amounts necessary to make up funding deficiencies 

for which a waiver was obtained. 

In general, the portion of the cost of a plan that is required to 

be paid for a particular year depends upon the nature of the cost. 

The normal cost for a year is generally required to be funded currently; however, many plans today cannot afford to do this. The 

other costs associated with the plan are amortized over a period of 

years. In the case of a multiemployer plan, past service liability is 

amortized over 40 or 30 years depending on how the liability arose, 

experience gains and losses 70 are amortized over 15 years, gains 

and losses from changes in actuarial assumptions 71 are amortized 

107 

of the present value of all projected future benefits cost and administrative expenses for all plan 

participants and beneficiaries over the present value of all future contributions for the normal 

cost to a plan. 72See IRC § 1274. The rate used to determine the amortization on the waived amount is 150 

percent of the federal mid-term rate. 

over 30 years, and waived funding deficiencies are amortized over 

15 years. The above plan costs, which are charged to the funding 

standard account, require an offsetting credit by employer contributions. 

As with single employer plans, if, as of the close of the plan year, 

charges to the funding standard account exceed credits to the account, then the excess is referred to as an accumulated funding deficiency. If credits to the funding standard account exceed charges, 

the plan has a credit balance which can be used to reduce future 

required contributions. 

Similar to single employer plans, the actuarial value of plan assets may be used, rather than fair market value, with the same applicable valuation methods that must result in a value of plan assets that is not less than 80 percent of the fair market value of the 

assets and not more than 120 percent of the fair market value or 

an average value that may not be averaged over more than the five 

most recent plan years, including the current year. In applying the 

funding rules to a multiemployer plan, all costs, liabilities, interest 

rates, and other factors are required to be determined on the basis 

of actuarial assumptions and methods, which in the aggregate, are 

reasonable (taking into account the experiences of the plan and 

reasonable expectations). In addition, the assumptions are required 

to offer the actuary’s best estimate of anticipated experience under 

the plan. 

Funding waivers and amortization of waived funding deficiencies 

In general, the Secretary of the Treasury is permitted to waive 

all or a portion of the contributions required under the minimum 

funding standard for the year. In the case of a multiemployer plan, 

a waiver may be granted if 10 percent or more of the contributing 

employers cannot make the required contribution without substantial business hardship and if requiring the contribution would be 

adverse to the interests of plan participants in the aggregate. The 

minimum funding requirements may not be waived with respect to 

a multiemployer plan for more than five out of any 15 consecutive 

years. 

If a funding deficiency is waived for a multiemployer plan, the 

waived amount is credited to the funding standard account and 

amortized over a period of 15 years. Each year, the funding standard account is charged with the amortization amount for that year 

unless the plan becomes fully funded.72

Extension of Amortization Periods. The Secretary of the Treasury 

may extend any amortization periods for up to 10 years if the Secretary finds that the extension would carry out the purposes of 

ERISA and would provide adequate protection for participants 

under the plan and if such Secretary determines that the failure 

to permit such an extension would: (1) result in a substantial risk 

to the voluntary continuation of the plan or a substantial curtailVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00107 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
108 

73The interest rate with respect to extensions of amortization periods is the same as that used 

with respect to waived funding deficiencies. 74See Public Law No. 96–364. 75See ERISA § 4201. 76 ERISA § 4203. 77 In the case of employers engaged in the long and short haul trucking industry, the household goods moving industry, or the public warehousing industry, a complete withdrawal occurs 

only if: (1) an employer permanently ceases to have an obligation to contribute under the plan 

or permanently ceases all covered operations under the plan; and (2) the PBGC determines that 

the plan has suffered substantial damage to its contribution base as a result of such cessation, 

or the employer fails to furnish a bond or amount held in escrow in an amount equal to 50 percent of the withdrawal liability of the employer. 78See ERISA § 4205(a). 

ment of pension benefit levels or employee compensation; and (2) 

be adverse to the interests of plan participants in the aggregate.73

Withdrawal Liability. The Multiemployer Pension Plan Amendments Act of 1980 (‘‘MEPPA’’) amended ERISA to require that employers pay withdrawal liability to a multiemployer plan if the employer withdraws from the plan.74 Prior to the enactment of the 

withdrawal liability rules, employers who had an obligation to contribute to the plan within five years of the plan’s termination were 

liable to the PBGC for a share of unfunded benefits; however, certain employer withdrawals from a multiemployer plan would not 

necessarily impair the financial health of the plan if the industry 

was stable and the contributing employer was replaced by a new 

employer or by an expansion of covered employment by other contributing employers. However, concerns were raised that the withdrawal of larger contributing employers may result in increased financial burdens on remaining contributing employers. Therefore, 

the withdrawal liability rules included in MEPPA were designed to 

address these concerns and help promote the financial health of 

multiemployer plans by requiring certain withdrawing employers 

to pay a portion of unfunded benefits for their employees that exist 

at the time of withdrawal. 

Determination of Withdrawal Liability. In general, contributing 

employers may withdraw from a multiemployer plan either by a 

‘‘complete’’ or a ‘‘partial’’ withdrawal liability. Current law requires 

that certain employers who withdraw from a multiemployer plan in 

a complete or partial withdrawal are liable to the plan in the 

amount determined to be the employer’s withdrawal liability.75 In 

general, a ‘‘complete withdrawal’’ occurs when the contributing employer has permanently ceased operations under the plan or has 

permanently ceased to have an obligation to contribute.76 In determining if there is a complete withdrawal, special rules apply in the 

case of the building and construction industry, the entertainment 

industry, and employers primarily engaged in the long and short 

haul trucking industry, the household goods moving industry, or 

the public warehousing industry.77

A ‘‘partial withdrawal’’ occurs if, on the last day of a plan year, 

there is a 70 percent contribution decline by contributing employers 

for such plan year or there is a partial cessation of an individual 

employer’s contribution obligation.78 A partial cessation of the employer’s obligation occurs if: (1) the employer permanently ceases to 

have an obligation to contribute under one or more, but fewer than 

all, collective bargaining agreements under which obligated to contribute, but the employer continues to perform work in the jurisdiction of the collective bargaining agreement; or (2) an employer permanently ceases to have an obligation to contribute under the plan 

109 

79See ERISA § 4205(b)(2). 80See ERISA § 4219(c). 81See ERISA § 4225. 82See ERISA § 4210. 83See ERISA § 4212(c). 84See ERISA § 4221(f). The plan sponsor has the burden of proof that the principal purpose 

of a transaction that occurred before January 1, 1999, was to evade or avoid withdrawal liability 

if the transaction occurred at least 5 years before the date of withdrawal. Employers are not 

obligated to make withdrawal liability payments until a final decision is rendered. 

with respect to work performed at one or more, but fewer than all, 

of its facilities, but continues to perform work at the facility of the 

type for which the obligation to contribute ceased.79

When a contributing employer withdraws from a multiemployer 

plan, the plan sponsor is required to calculate the amount of the 

employer’s withdrawal liability, notify the employer of the amount 

of the withdrawal liability, and collect the amount of the withdrawal liability from the employer. The contributing employer’s 

withdrawal liability is based on the plan’s unfunded vested benefits 

for the plan years preceding the withdrawal. After the withdrawal, 

the plan sponsor must notify the contributing employer of the 

amount of liability and schedule of payments. In general, amounts 

are required to be paid over the period of years necessary to amortize the amounts in level annual payments; however, in certain instances where the amortization period exceeds 20 years, the employer’s liability is limited to the first 20 annual payments.80

Current law provides rules limiting withdrawal liability in certain instances. The amount of unfunded vested benefits allocable to 

an employer is limited in the case of certain sales of all or substantially all of the employer’s assets and in the case of an insolvent 

employer undergoing liquidation or dissolution.81 A multiemployer 

plan, other than a plan which primarily covers employees in the 

building and construction industry, may adopt a rule that an employer who withdraws from the plan is not subject to withdrawal 

liability if: (1) the employer first had an obligation to contribute to 

the plan after the date of enactment of MEPPA; (2) contributed to 

the plan for no more than the lesser of six plan years or the number of years required for vesting under the plan; (3) was required 

to make contributions to the plan for each year in an amount equal 

to less than two percent of all employer contributions for the year; 

and (4) never avoided withdrawal liability because of the special 

rule.82

Under ERISA, the plan sponsor’s assessment of withdrawal liability is presumed correct unless the employer shows by a preponderance of the evidence that the plan sponsor’s determination of 

withdrawal liability was unreasonable or erroneous. In other 

words, the employer has the burden of proof to show that his withdrawal from the plan was not to evade or avoid withdrawal liability.83 Disputes between an employer and plan sponsor concerning 

withdrawal liability are resolved through arbitration, which can be 

initiated by either party. The first payment of withdrawal liability 

determined by the plan sponsor is generally due no later than 60 

days after demand, even if the employer contests the determination 

of liability. If the employer contests the determination, payments 

of withdrawal liability must be made by the employer until the arbitrator issues a final decision with respect to the determination 

submitted for arbitration.84

110 

85See ERISA § 4241. 86See id. 87See ERISA § 4241(c). 88See ERISA § 4244A. 89See ERISA § 4245. 

Multiemployer Plan Reorganization and Insolvency. If a multiemployer plan experiences severe financial problems, certain modifications to the single-employer plan funding rules apply and these 

plans are considered to be in ‘‘reorganization status.’’ A plan is in 

reorganization status if contributions needed to equal the charges 

and credits to its funding standard account exceed the amount of 

a plan’s vested benefits charge.85 The plan’s vested benefits charge 

is generally the amount needed to amortize, in equal annual installments, unfunded vested benefits under the plan over: (1) 10 

years in the case of obligations attributable to participants in pay 

status; and (2) 25 years in the case of obligations attributable to 

other participants. A plan in reorganization status must increase 

funding to specified levels and may reduce benefits to the level 

guaranteed by the PBGC. A cap on year-to-year contribution increases and other relief is available to employers that continue to 

contribute to the plan. Any failure to make the required contributions results in a funding deficiency. 

The plan sponsor must provide notice that the plan is in reorganization status and that, if contributions to the plan are not increased, accrued benefits under the plan may be reduced and/or an 

excise tax may be imposed.86 Notice must be provided to every employer who has an obligation to contribute under the plan and to 

each employee organization representing plan participants. 

Benefit limitations and adjustments also apply to plans in reorganization status including limitations on lump sum distributions 87 and adjustments in accrued benefits.88

In addition, the law presumes there is an increased likelihood 

that a plan in reorganization will become insolvent.89 In general, 

insolvent plans do not have sufficient resources to pay benefits 

under the plan when they are due. If a multiemployer plan is insolvent, benefit payments must be reduced to level of benefits that the 

plan can pay with its available resources. 

PBGC’s Role. PBGC’s insurance programs were created as part 

of ERISA in 1974 to assure retirees pension benefit protection. In 

1980, MEPPA strengthened the pension protection program for 

multiemployer plans. As stated above, the amendments established 

mandatory requirements for financially weak multiemployer plans 

in reorganization and imposed new financial requirements on employers withdrawing from multiemployer plans. 

PBGC’s multiemployer program is funded and maintained separately from the single employer program. Each multiemployer plan 

pays an annual insurance premium of $2.60 per participant to the 

PBGC. Under the multiemployer program, PBGC provides financial 

assistance through loans to plans that are insolvent. Before a plan 

receives financial assistance from PBGC, it must suspend payment 

of all benefits in excess of the guaranteed level. 

MEPPA established a benefit guarantee limit for participants in 

multiemployer plans equal to the participant’s years of service multiplied by the sum of: (1) 100 percent of the first five dollars of the 

monthly benefit accrual rate; and (2) 75 percent of the next fifteen 

111 

90Public Law No. 106–554. 91See ERISA § 3(14). 92See ERISA § 406(a). 

dollars of the accrual rate. For a participant with 30 years of service under the plan, the maximum PBGC-guaranteed benefit was 

$5,850 per year. This benefit guarantee formula remains in effect 

for participants in multiemployer plans that received financial assistance from PBGC at any time during the period from December 

22, 1999, to December 21, 2000. The Consolidated Appropriations 

Act of 2001,90 signed into law on December 21, 2000, increased the 

benefit guarantee in multiemployer plans to the product of a participant’s years of service multiplied by the sum of: (1) 100 percent 

of the first $11 of the monthly benefit accrual rate; and (2) 75 percent of the next $33 of the accrual rate. For someone with 30 years 

of service, this raised the guaranteed limit to approximately 

$13,000. 

ERISA’s Prohibited Transaction Rules. ERISA prohibits certain 

transactions between a qualified plan and a party-in-interest.91

Under current law, a party-in-interest to a plan includes plan fiduciaries, plan service providers, an employer, employee organizations with members participating in a plan, and certain persons 

with an ownership interest in the plan sponsor. 

In general, for a party-in-interest, the transaction rules prohibit: 

(1) the sale, exchange, or leasing of property; (2) the lending of 

money or extension of credit; (3) the furnishing of goods, services, 

or facilities; and (4) the transfer to or use by or for the benefit of 

the income or assets of the plan.92 Fiduciaries are also subject to 

additional rules which include: (1) any self-dealing with the plan’s 

assets in his own interest or account; (2) any transactions for himself or on behalf of another party whose interests are adverse to 

the interest of the plan or its participants and beneficiaries; or (3) 

the receipt of any consideration for his own personal account from 

any party dealing with the plan. 

An excise tax and, in certain instances, a civil penalty is assessed 

against any person who engages in a prohibited transaction. 

SECTION-BY-SECTION

Sec. 1. Short title and table of contents 

This Act may be cited as the Pension Protection Act of 2005. 

TITLE I—REFORM OF FUNDING RULES FOR SINGLE 

EMPLOYER DEFINED BENEFIT PENSION PLANS 

SUBTITLE A—AMENDMENTS TO EMPLOYEE RETIREMENT INCOME

SECURITY ACT OF 1974 

Sec. 101. Minimum funding standards 

Section 101 repeals sections 302–308 of the Employee Retirement 

Income Security Act of 1974 and establishes new minimum funding 

standards that single employer defined benefit plans must meet. 

Minimum required contributions must be paid by the employer(s) 

responsible for making contributions to the plan. The bill also provides for waivers to the minimum funding standards in the case of 

business hardship when an employer is operating at an economic 

112 

93 A plan’s funding target attainment percentage is the ratio, expressed as a percentage, which 

the value of plan assets for the year bears to the funding target for the year. 

loss, when there is substantial unemployment or under employment in the trade or business, when the sales and profits of the industry concerned are depressed or declining, and when it is reasonable to conclude the plan will be continued only if the waiver is 

granted. The application for a waiver must be submitted to the Secretary of the Treasury no later than 21⁄2 months after the close of 

the plan year. Prior to the granting of a waiver, a notice is required 

to be provided to each participant, beneficiary, and employee organization of the filing of the application of the waiver. 

Sec. 102. Funding rules for single-employer defined benefit pension 

plans 

Under section 102, a single employer plan’s minimum required 

contribution for a plan year is the target normal cost of the plan 

for the year plus any shortfall amortization charge (if applicable) 

for the plan year and any waiver amortization charge (if applicable) 

for the plan year. The target normal cost of a plan for a plan year 

is the present value of all liabilities attributable to benefits which 

are expected to accrue or to be earned under the plan during the 

plan year. If a plan’s assets (not including any pre-funding balance 

and funding standard carryover balance) are greater than the 

plan’s funding target (the present value of all liabilities under the 

plan for the plan year),93 the minimum required contribution for a 

plan year is the target normal cost minus any excess assets held 

by the plan. A shortfall amortization charge applies if a plan has 

any unfunded liability shortfall as of the first day of any plan year. 

The shortfall amortization charge for any plan year is the amount 

necessary to amortize any unfunded liability shortfall for a plan 

year over the current and six succeeding plan years in level payments, using the effective rate of interest for the plan. Unfunded 

liability shortfall, otherwise known as a funding shortfall, is defined as the excess (if any) of a plan’s funding target for the plan 

year over the value of plan assets for any plan year (not including 

the value of any assets held in a plan’s pre-funding balance and 

carryover balance). If a plan’s assets for any plan year (including 

any funding standard carryover balance attributable to the funding 

rules in effect prior to January 1, 2006, plus any assets held in the 

plan’s pre-funding balance, unless the pre-funding balance is intended to be used to reduce the minimum required contribution for 

the plan year) exceed the plan’s liabilities for the plan year, any 

shortfall amortization charge applicable for any previous plan year 

is reduced to zero. 

For purposes of determining whether a plan has a funding shortfall and is, therefore, subject to the variable rate premium requirements, a funding target transition rule shall apply to any plan that 

was not subject to the deficit reduction contribution requirements 

for the plan year beginning in 2005. The applicable percentage of 

the funding target is as follows. 

In the case of a plan year beginning in calendar year: The applicable 

percentage is: 

2006 .................................................................................................................................................................... 92 percent. 

2007 .................................................................................................................................................................... 94 percent. 

2008 .................................................................................................................................................................... 96 percent. 

113 

94The plan assets will continue to be actuarially adjusted. 

In the case of a plan year beginning in calendar year: The applicable 

percentage is: 

2009 .................................................................................................................................................................... 98 percent. 

Credit for excess assets: If the value of plan assets which are 

held by the plan immediately before the valuation date exceed the 

funding target of the plan for the plan year, the minimum required 

contribution with respect to the plan is the target normal cost, reduced by the excess assets. Funding target: The funding target of a plan for a plan year is 

the present value of all liabilities attributable to participants and 

beneficiaries under the plan for the plan year. Waiver amortization charge: A waiver amortization charge (if 

any) for a plan year is the aggregate total of the waiver amortization installments for such plan year with respect to the waiver amortization bases for each of the five preceding plan years. The plan 

sponsor determines, with respect to the waiver amortization base 

of the plan for any plan year, the amounts necessary to amortize 

the waiver amortization base in five level, annual installments, 

using the applicable segment rates determined under the modified 

yield curve. The waiver amortization base of a plan for a plan year 

is the amount of the waived funding deficiency. Reduction of minimum required contribution by pre-funding balance and funding standard carryover balance: Any plan assets that 

are included in a plan’s funding standard account as a positive balance as a result of contributions made in excess of a plan’s required 

minimum contribution prior to the date of enactment of the bill remain intact. These additional plan assets are referred to as a funding standard carryover balance. Any new contributions made in excess of the minimum required contribution for a plan will be credited to a pre-funding balance. Each year, the pre-funding balance 

and the funding standard carryover balance must reflect the same 

fair market value of gains and losses as the plan assets experience 

for each year.94 In other words, the actual rate of return is the net 

fair market value gain or loss experienced by all plan assets, taking into account plan contributions, distributions and other payments in accordance with regulations issued by the Secretary of the 

Treasury. 

Application of balances: To determine whether a plan meets its 

funding target for a plan year, plan assets will not be reduced by 

the value of any carryover credit balance or any new pre-funding 

balance. Plan assets are required to be reduced by both the carryover credit balance and the pre-funding account balance for the following calculations: (a) to determine whether the plan’s target normal cost can be reduced by any excess assets credit for a plan that 

is over 100 percent funded; (b) to determine the shortfall amortization charge for a plan year (if required to be made); (c) to determine whether the plan is in at-risk status; (d) to determine whether there is an increase in quarterly payments of a plan; and (e) to 

determine whether any benefit limitations apply. However, if all 

plan assets (including a plan’s funding standard carryover balance 

and pre-funding balance) equal the plan’s funding target, the benefit limitations provided under this bill do not apply. In addition, 

a plan may elect to apply the balances against a plan’s minimum 

114 

required contribution. However, a plan may not elect to reduce its 

minimum required contribution for a plan year if the plan’s target 

liability for the preceding plan year is less than 80 percent. For 

purposes of determining whether a plan’s funding target is at least 

80 percent funded and can apply the pre-funding balance to offset 

its minimum required contribution for a plan year, such pre-funding balance is subtracted from the plan’s assets. Plan assets are 

not reduced by any funding standard carryover balance in determining whether a plan’s funding target is at least 80 percent funded. Plan assets are not reduced by any funding standard carryover 

balance for purposes of calculating a plan’s target normal cost for 

the plan year if the plan is funded above 80 percent. Any balance 

in the pre-funding account, as well as any carryover credit balance, 

is reduced each year by the amount of reduction of the minimum 

required contribution. 

A plan cannot use the carryover balance to reduce the minimum 

required contribution for a plan if it is also used to increase plan 

assets in order to avoid any shortfall amortization charge in the 

same plan year. In addition, no amount of the pre-funding balance 

may be used to offset a plan’s minimum required contribution if the 

plan has a funding standard carryover balance greater than zero. 

Valuation date for plan assets and liabilities: The valuation date 

for plans with greater than 500 participants is the first day of the 

plan year. If a plan has less than 500 participants, the plan may 

choose any day during the plan year as its valuation date. For 

plans that were not in existence prior to the enactment of this bill, 

the plan shall take into account the number of participants that 

the plan is reasonably expected to have on days during the first 

plan year. 

Determining value of plan assets: The value of plan assets is determined on the basis of any reasonable actuarial method of valuation which takes into account the fair market value of assets. If 

assets are averaged, any method used by the plan may not provide 

for averaging of such values over more than three plan years. In 

addition, the averaging method used by the plan may not result in 

a valuation of averaged assets greater than 110 percent or lower 

than 90 percent of the fair market value of the plan’s assets. 

Accounting for contribution receipts: For purposes of determining 

the value of plan assets for any current plan year, any contributions allocable to amounts owed for the previous year that are 

made after the plan’s valuation date for the current plan year are 

taken into account, except that any contribution made during any 

current plan year beginning after 2006 are taken into account only 

in an amount equal to its present value (determined using the 

plan’s effective interest rate for the preceding plan year) as of the 

valuation date of the plan for the current plan year. However, any 

contributions made to any plan for the current plan year are not 

taken into account and any interest earned on such contributions 

must be disregarded for calculating the value of plan assets. 

Accounting for plan liabilities: In determining the value of liabilities under a plan for a plan year, liabilities attributable to benefits 

accrued as of the first day of the plan year are taken into account. 

Any benefits which are expected to accrue during a plan year are 

not taken into account. If a plan is collectively bargained, any anVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00114 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
115 

95 Under current law, interest rates used to calculate pension assets and liabilities are 

‘‘smoothed,’’ or averaged, over four years. Such smoothing is intended to reduce pension funding 

volatility and help make contribution requirements more predictable. 

ticipated benefit increases scheduled to take effect during the plan 

year are included as part of a plan’s liabilities for the plan year. 

Actuarial assumptions and methods: For purposes of calculating 

a plan’s liabilities for a plan year, the effective interest rate of a 

plan must be used. The effective interest rate of a plan is the rate 

of interest which, if used to determine the present value of the 

plan’s liabilities, would result in an amount equal to the funding 

target of the plan for a plan year. 

For purposes of determining the plan’s funding target, the interest rates used in calculating the present value of the plan’s liabilities are based on three segment rates applied to a plan’s shortterm, mid-term, and long-term liabilities. Short-term liabilities are 

plan liabilities which are payable within five years. Mid-term liabilities are plan liabilities which are payable in between six and 

twenty years. Long-term liabilities are plan liabilities which are 

payable after twenty years. The segment rates, with respect to any 

month, are determined by the Secretary of the Treasury on the 

basis of the appropriate corporate bond yield curve. The first segment rate is based on the portion of the corporate bond yield curve 

for yields of bonds maturing in five years or less; the second segment rate is based on the portion of the corporate bond yield curve 

for yields of bonds maturing between six and 20 years; and the 

third segment rate is based on the corporate bond yield curve for 

yields of bonds maturing over 20 years. 

The Secretary of the Treasury will develop the corporate bond 

yield curve which is based on a 3-year weighted average of yields 

on investment grade corporate bonds.95 The term ‘‘3-year weighted 

average’’ means an average determined by using a methodology 

under which the most recent year’s rates are weighted 50 percent, 

the preceding year’s rates are weighted 35 percent, and the second 

preceding year’s rates are weighted 15 percent. The Secretary must 

publish each month the corporate bond yield curve and each segment rate. The Secretary must also publish a description of the 

methodology used to determine the corporate bond yield curve and 

the segment rates which is sufficiently detailed to enable plans to 

make reasonable projections regarding the yield curve and segment 

rates for future months based on the plan’s projection of future interest rates. 

Transition period: The interest rate transition will be the following: For plan year 2006, a plan is required to use of 1⁄3 of the 

modified yield curve and 2⁄3 of the current rate. For plan year 2007, 

a plan is required to use of 2⁄3 of the modified yield curve and 1⁄3

of the current rate. For plan year 2008, all plans must use the 

modified yield curve for calculating pension liabilities. 

Mortality table: In order to determine the present value of liabilities for a plan, the plan must use the RP 2000 Combined Mortality 

Table using scale AA. The Secretary of the Treasury is required to 

make projected improvements to the table to reflect the actual experience of plans and projected trends in such experience at least 

once every ten years. The use of the RP 2000 Combined Table is 

phased in ratably over a five year period. 

116 

96See ERISA § 302(e). The rate of interest used is equal to the greater of: (1) 175 percent of 

the federal mid-term rate, or (2) the rate of interest used under the plan in determining costs. 

Upon request by the plan sponsor and approval by the Secretary 

of the Treasury, a plan may use a different mortality table if the 

Secretary determines that the table reflects the actual experience 

of the pension plan and that it is significantly different from the 

RP 2000 Combined Mortality Table. The Secretary has 180 days, 

beginning on the date of submission, to disapprove of the use of a 

table other than the RP 2000 Combined Mortality Table if the table 

fails to meet the above requirements. 

Probability of benefit payments in the form of lump sum or other 

optional forms: For purposes of determining the present value of a 

plan’s liabilities, the probability that future benefit payments 

under the plan, including lump sums and other optional forms of 

benefits, must be taken into account and included in the plan’s 

funding target. 

Special rules for at-risk plans: A plan is considered to be ‘‘at-risk’’

if its funding target is less than 60 percent. At-risk liability is 

based on the same benefits and assumptions as a plan’s normal 

funding target, except that the valuation of those benefits would require the use of certain actuarial assumptions that would take into 

account the fact that there is a greater likelihood the plan may 

have to pay benefits on an accelerated basis or terminate. These 

modified actuarial assumptions are acceleration in retirement rates 

using the earliest retirement age, and benefits being distributed in 

a lump sum payment (or in whatever form results in the most valuable benefit). At-risk liability also includes a ‘‘loading factor’’ of 

$700 per participant plus four percent of the at-risk liability before 

the loading factor to reflect the additional administrative cost of 

purchasing a group annuity if the plan were to terminate. At-risk 

normal cost is the same as ongoing normal cost, except that at-risk 

normal cost is calculated using the assumptions that are used for 

determining at-risk liability. The transition between a plan’s normal funding target and its at-risk funding target is five years. In 

other words, if a plan has a funding target of less than 60 percent 

for a consecutive period of fewer than five plan years, the plan 

must pay 20 percent of its at-risk required contribution multiplied 

by the number of plan years that the plan is less that 60 percent 

funded. 

Payment of minimum required contributions: The due date for 

the payment of minimum required contribution for any plan year 

is 81⁄2 months after the close of the plan year. Any minimum contribution payment made after the valuation date is increased by 

the effective rate of interest for a plan from the valuation date to 

the payment date. 

Accelerated quarterly contributions: If a plan is less than 100 

percent funded in the prior plan year, quarterly contributions are 

required to be paid by the plan. The minimum required quarterly 

contribution is increased by the amount equal to the interest on the 

amount of underpayment for the period of the underpayment. The 

interest rate used is the excess of 175 percent of the federal midterm rate over the effective rate of the plan.96 The amount of the 

underpayment is the excess of the required installment over the 

amount of the installment contributed to or under the plan on or 

117 

97 A liquidity shortfall is defined, with respect to any required installment, as an amount 

equal to the excess (as of the last day of the first quarter for which the installment is made) 

of the base amount of the quarterly installment (three times the sum of the adjusted disbursements from the plan for the 12 months ending on the last day of the quarter) over the value 

of the plan’s liquid assets as of the last day of the quarter. 

before the due date for the installment. The amount of the required 

installment is 25 percent of the required annual payment. The required annual payment is 90 percent of the minimum required contribution (without regard to any waiver) or, for a plan year beginning after 2006, 100 percent of the minimum required contribution 

to the plan for the preceding plan year (without regard to any 

waiver). The deadline for the final contribution for the year is 81⁄2

months after the end of the plan year. A contribution made after 

the valuation date for the year would be credited against the minimum required contribution for the year based on its present value 

as of the valuation date, discounted from the date actually contributed and determined using the average effective interest rate that 

applied in the determination of the plan’s liabilities. A plan is 

treated as failing to pay the full amount of any required installment to the extent that the value of the liquid assets paid in the 

installment is less than the liquidity shortfall, regardless of whether the liquidity shortfall exceeds the amount of the installment required to be paid.97

Imposition of lien where failure to make required contributions: 

For plans covered by the PBGC insurance program, any plan sponsor who fails to make a required contribution to the plan before the 

due date of a payment where the unpaid balance of the payment 

(including interest), when added to the aggregate balance of all 

prior payments not made before the due date (including interest) 

exceeds $1,000,000, a lien is imposed in favor of the plan upon all 

property and rights to property, whether real or personal, belonging to the plan sponsor and any other controlled group member in 

the amount equal to the total aggregate unpaid balance of the contributions. The plan sponsor must notify the PBGC of such failure 

within 10 days of the due date for the required contribution. The 

lien begins on the due date for the required contribution payment 

and continues until the last day of the first plan year in which the 

plan ceases to have an aggregate balance of prior missed payments 

in excess of $1,000,000. Any lien may be perfected and enforced 

only by or at the direction of the PBGC. 

Qualified transfers to health benefit accounts: This section allows 

any plan assets over 100 percent of a plan’s funding target but not 

above 125 percent of the sum of the target liability amount and the 

target normal cost to be transferred to a qualified welfare benefit 

plan for the purpose of providing certain health benefits. Any 

transfer of plan assets made shall result in a reduction of plan assets by the amount of the transfer. 

Sec. 103. Benefit limitations under single employer plans 

Section 103 prohibits benefits payable due to a plant shutdown 

or any other unpredictable contingent event. An unpredictable contingent event is defined as any event other than the attainment of 

any age, performance of any service, receipt or derivation of any 

compensation, the occurrence of death or disability, or any event 

118 

which is reasonably and reliably predictable, as determined by the 

Secretary of Treasury. 

This section further provides that if a plan’s funding target is 

less than 80 percent as of the plan’s valuation date, the plan may 

not adopt an amendment that has the effect of increasing the 

plan’s liabilities by reason of increases in benefits, establishment of 

new benefits, a change in the rate of benefit accrual, or any change 

in the rate at which benefits become non-forfeitable. Subject to this 

general rule, a plan may avail itself of the following exceptions: (a) 

if a plan’s funding target is less than 80 percent in a plan year, 

as of the plan’s valuation date, a plan sponsor may adopt an 

amendment which increases plan liabilities only if the plan sponsor 

makes a contribution to the plan in that year equal to the amount 

of the increase in the minimum required contribution attributable 

to the plan amendment and the amount of the increase in the 

plan’s funding target; or (b) if a plan’s funding target is over 80 

percent in a plan year, as of the plan’s valuation date, a plan sponsor may adopt an amendment which increases plan liabilities to 

the extent that the plan’s funding target is no longer at 80 percent 

if the plan sponsor makes a contribution in the amount necessary 

to ensure that the plan’s funding target is at least 80 percent. This 

provision is not applicable to a new plan for the first five years. 

Section 103 prohibits lump sum distributions or any other accelerated form of benefits if a plan’s funding target is less than 80 

percent as of the plan’s valuation date. However, this provision 

does not apply to any plan for any plan year if the terms of the 

plan (as in effect prior to or beginning on June 29, 2005) provide 

for no benefit accruals with respect to any participant. 

The bill prohibits all future benefit accruals for plans that have 

a funding target of less than 60 percent. This provision does not 

apply to a new plan for the first five plan years. If a plan is subject 

to any of the above benefit limitations and restrictions, the plan 

must provide notice of same to all participants and beneficiaries 

within such time that the plan sponsor knew or should have know 

that the plan would be subject to the benefit limitations. 

Timing rules to implement limitations: A series of special timing 

rules apply for determining whether a plan’s funded percentage is 

below one of the thresholds for applying the benefit limitation 

thresholds, based on annual certifications that are to be provided 

by the plan actuary. If a plan was subject to a benefit limitation 

in the prior year, then the funding percentage is presumed not to 

have improved in the current year until the plan actuary certifies 

that the funded status at the valuation date for the current plan 

year has improved sufficiently so that the benefit limitation does 

not apply for the current year. If a benefit limitation did not apply 

in the prior year, but the funding percentage for that year was no 

more than 10 percentage points above the threshold for applying 

that benefit limitation, then the plan’s funding percentage is automatically presumed to have been reduced by 10 percentage points 

for the current plan year as of the first day of the fourth month 

of the plan year unless and until the actuary certifies that the 

funded status is such that the benefit limitation does not apply for 

the current plan year. If an actuarial certification fails to be completed by the first day of the 10th month of the plan year, then the 

plan’s funding percentage for the plan year is presumed not to exVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00118 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
119 

98See ERISA § 204(g) and IRC § 411(d)(6). 

ceed 60 percent for the current year for purposes of the benefit limitations. 

Restoration of plan benefits: Plans that are frozen or for which 

lump sums or other accelerated benefit forms are prohibited would 

be permitted to resume accruals and accelerated benefit forms in 

a subsequent plan year only by a plan amendment. The plan 

amendment may be adopted at any time after the first valuation 

date on which the plan’s assets exceed the applicable threshold percentage. If a plan’s accruals are ceased by reason of a failure of its 

actuary to make an appropriate certification, the restoration of 

such plan benefits does not require a plan amendment. 

Notice requirement: The plan administrator must provide written notice to plan participants and beneficiaries within 30 days 

after the plan has become subject to any of the above restrictions. 

Any failure to provide notice will automatically result in a civil 

penalty. 

Effective date: The benefit limitation provisions apply to a plan 

after 2006, with the exception that in the case of a collectively bargained plan, the benefit limitation provisions apply to plan years 

beginning the earlier of: (1) the date on which the last collective 

bargaining agreement expires; or (2) 2009. A plan does not fail to 

meet the requirements of the anti-cutback rule under ERISA or the 

IRC solely by reason of compliance with the requirements of this 

section.98

SUBTITLE B—AMENDMENTS TO THE INTERNAL REVENUE CODE OF

1986 

SUBTITLE C—OTHER PROVISIONS

Sec. 121. Modification of transition rule to pension funding requirements 

Section 121 creates a transition rule to the pension funding requirements for any plan sponsored by a company that is engaged 

primarily in the interurban or interstate passenger bus service for 

any plan year beginning after 2005. For purposes of the quarterly 

contributions requirement, the plan is treated as not having a 

funding shortfall for any plan year; therefore, no quarterly contributions are required. The plan may also use its own mortality 

table and not the standard table prescribed under the bill for purposes of determining any present value or making any calculation 

under the minimum funding rules for the plan and the amount of 

unfunded vested benefits under the plan for purposes of calculating 

PBGC variable rate premiums. 

For the purpose of calculating the plan’s funding target under 

this section, the applicable percentage is determined in accordance 

with the following table: 

In the case of a plan year beginning in calendar year: The applicable 

percentage is: 

2006 .................................................................................................................................................................... 90 percent. 

2007 .................................................................................................................................................................... 92 percent. 

2008 .................................................................................................................................................................... 94 percent. 

2009 .................................................................................................................................................................... 96 percent. 

120 

In the case of a plan year beginning in calendar year: The applicable 

percentage is: 

2010 .................................................................................................................................................................... 98 percent. 

Sec. 122. Treatment of nonqualified deferred compensation plans 

when employer defined benefit plan is in at-risk status 

Section 122 provides that, if during any period in which a defined benefit pension plan of an employer is in at-risk status, assets are set aside (directly or indirectly) in a trust (or other arrangement as determined by the Secretary of the Treasury), or 

transferred to such a trust or other arrangement, for purposes of 

paying deferred compensation, such assets are treated as property 

transferred in connection with the performance of services (whether 

or not such assets are available to satisfy the claims of general 

creditors) under section 83 of the Internal Revenue Code. 

If a nonqualified deferred compensation plan of an employer provides that assets will be restricted to the provision of benefits 

under the plan in connection with the at-risk status (or other similar financial measure determined by the Secretary of Treasury) of 

any defined benefit pension plan of the employer, or assets are so 

restricted, such assets are treated as property transferred in connection with the performance of services (whether or not such assets are available to satisfy the claims of general creditors) under 

section 83 of the Internal Revenue Code. 

Any subsequent increases in the value of, or any earnings with 

respect to, transferred or restricted assets are treated as additional 

transfers of property. In addition to current income inclusion, interest at the underpayment rate plus one percentage point is imposed 

on the underpayments that would have occurred had the amounts 

been includable in income for the taxable year in which first deferred or, if later, the first taxable year not subject to a substantial 

risk of forfeiture. The amount required to be included in income is 

also subject to an additional 20 percent tax. 

The provision is effective for transfers and other restrictions of 

assets on or after January 1, 2006. Assets set aside or transferred 

before January 1, 2006, for purposes of paying nonqualified deferred compensation, are not subject to the provision. 

TITLE II—FUNDING RULES FOR MULTIEMPLOYER DEFINED 

BENEFIT PLANS 

SUBTITLE A—AMENDMENTS TO EMPLOYEE RETIREMENT INCOME

SECURITY ACT OF 1974 

Sec. 201. Funding rules for multiemployer defined benefit plans 

Minimum funding standards for multiemployer plans: Section 

201 provides that any amounts attributable to unfunded past service liability (for plans established after 1974), plan amendments, 

investment gains and losses, actuarial changes, and any waived 

funding deficiency are to be amortized over a fifteen year period. 

These new amortization periods apply to any amortization bases 

established after the date of enactment of the bill. Each plan is required to establish a funding standard account, which will be 

charged or credited with the normal cost of the plan and any amortization shortfall amount. The value of a plan’s assets shall be deVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00120 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
121 

termined on the basis of reasonable actuarial methods of valuation 

which offer the best estimate of anticipated experience under the 

plan. Interest must be charged or credited to the funding standard 

account (as prescribed by the Secretary of the Treasury) at an appropriate rate consistent with the rate or rates of interest used to 

determine costs under the plan. 

Extension of amortization periods: Section 201 provides that the 

Secretary of the Treasury shall, upon application, automatically extend the period of years required to amortize any unfunded liability 

of a plan for a period of time not in excess of five years if the Secretary determines that, absent the extension, the plan would have 

an accumulated funding deficiency in any of the next 10 plan years, 

the plan sponsor has adopted a plan to improve the plan’s funded 

status, and the plan is projected to have sufficient assets to timely 

pay its expected benefit liabilities and other anticipated expenses. 

Prior to the Secretary granting the automatic extension, each applicant is required to provide notice of the filing of the application for 

such extension to each contributing employer, employee organization, and the PBGC. The notice must also include a description of 

the extent to which the plan is funded for benefits which are guaranteed by the PBGC and for benefit liabilities. 

The Secretary may grant an additional amortization extension 

for cause, for a period of time not in excess of five years, if he determines that the failure to permit the extension would result in 

a substantial risk to the voluntary continuation of the plan or a 

substantial curtailment of pension benefit levels or employee compensation, and would be adverse to the interests of plan participants in the aggregate. 

Interest rate for extensions: The rate of interest applicable in 

connection with an extension granted is the greater of: (1) 150 percent of the federal mid-term rate, or (2) the rate of interest used 

under the plan for determining costs. 

Sec. 202. Additional funding rules for multiemployer plans in endangered or critical status 

Certification: Beginning on the first day of each plan year, the 

plan actuary must certify within 90 days to the Secretary of the 

Treasury whether a plan is in endangered or critical status for a 

plan year. If certification is not made before the end of the 90-day 

period, the plan is presumed to be in critical status until the actuary makes a contrary certification. Any certification must take into 

account any reasonable actuarial assumptions and methods of the 

current value of plan assets and the present value of all liabilities 

for the current and succeeding plan years as well as any reasonably anticipated employer and employee contributions for the current and succeeding plan years. If certification is not made before 

the end of the 90-day period, the plan is presumed to be in critical 

status for the plan year until such time as the plan actuary makes 

a contrary certification. 

Notice requirements: If a plan is determined to be an endangered 

or critical plan, notice must be given no later than 30 days after 

certification is made that the plan is in endangered or critical status. The notice must be provided to the participants, contributing 

employers, unions, the Secretary of Labor, and the Secretary of the 

Treasury. 

122 

Funding improvement plan: If a plan is certified to be in endangered status for a plan year, the plan sponsor must amend the plan 

to include a funding improvement plan upon approval by the bargaining parties within 240 days after the date on which the plan 

is certified to be in endangered status. The funding improvement 

plan must result in a 1⁄3 projected improvement in the plan’s funded percentage and a prevention of an accumulated funding deficiency during the funding improvement period, taking into account 

any extension of amortization periods. A summary of the funding 

improvement plan, as well as any modifications to the plan, must 

be included in the plan’s annual report. 

Endangered status: A plan is considered an endangered plan if 

the plan has a funded liability percentage of less than 80 percent, 

or there is a projected deficiency in the any of the next seven plan 

years (including the current plan year). 

Standard funding improvement period: Unless the special rules 

for certain seriously underfunded plans apply, the funding improvement period is the 10-year period beginning on the earlier of the 

second anniversary of the date of adoption of the funding improvement plan or the first day of the first plan year in which collective 

bargaining agreements covering at least 75 percent of active participants have expired. 

Special rule for seriously underfunded plans: A plan is also considered to be an endangered plan if the plan has a funded liability 

percentage of 70 percent or less; for such plans, the funding improvement plan must result in a 1⁄5 projected improvement in the 

plan’s funded percentage and a prevention of an accumulated funding deficiency during the funding improvement period, taking into 

account any extension of amortization periods. For purposes of this 

paragraph, the funding improvement period is the 15 year period 

beginning on the earlier of the second anniversary of the date of 

adoption of the funding improvement plan or the first day of the 

first plan year in which collective bargaining agreements covering 

at least 75 percent of active participants have expired. 

A plan is also considered to be an endangered plan if the plan 

has a funded percentage of greater than 70 percent but less than 

80 percent and the plan actuary certifies within 30 days after the 

plan is certified to be an endangered plan that the plan is not able 

to meet the standard 1⁄3 projected improvement in the plan’s funded percentage and a prevention of an accumulated funding deficiency during the funding improvement period, taking into account 

any extension of amortization periods within the 10 year period. 

However, such plan meeting this special rule must adopt a funding 

improvement plan that will improve the plan’s funded percentage 

by 1⁄5 during the funding improvement period. For purposes of this 

paragraph, the funding improvement period is the 15 year period 

beginning on the earlier of the second anniversary of the date of 

adoption of the funding improvement plan or the first day of the 

first plan year in which collective bargaining agreements covering 

at least 75 percent of active participants have expired. 

Actions taken by plan sponsor pending approval: A plan sponsor 

must take all permitted action (under the terms of the plan and applicable law) necessary to increase the plan’s funded liability percentage, and postpone an accumulated funding deficiency by at 

least one additional year. Such actions may include requesting an 

123 

amortization extension, use of the shortfall method, modification of 

the plan’s benefit structure and/or the reduction of future benefit 

accruals, and any other reasonable action consistent with the terms 

of the plan and applicable law. 

Recommendations by a plan sponsor: Within 90 days following a 

plan’s certification, the plan sponsor shall develop and provide to 

the bargaining parties alternative proposals for revised benefit and 

contribution structures which, if adopted, may reasonably be expected to meet the funding improvement benchmarks. Proposals by 

the plan sponsor must include: (1) at least one proposal for reductions in the amount of future benefit accruals necessary to achieve 

the benchmarks, assuming no amendments increasing contributions under the plan (other than amendments increasing contributions necessary to achieve the benchmarks after amendments have 

reduced future benefit accruals to the maximum extent permitted 

by law); and (2) at least one proposal for increases in contributions 

necessary to achieve the benchmarks, assuming no amendments reducing future benefit accruals under the plan. 

Upon the request of any bargaining party who employs at least 

five percent of the active plan participants or represents an employee organization representing at least five percent of active participants, the plan sponsor shall provide the parties with information as to other combinations of increases in contributions and reductions in future benefit accruals which would result in achieving 

the benchmarks. A plan sponsor may prepare and provide the bargaining parties with any additional information relating to the contribution or benefit structures or any other information relevant to 

the funding improvement plan. 

Maintenance of contributions pending approval: Pending approval of a funding improvement plan by the bargaining parties, a 

plan may not be amended to reduce the level of contributions for 

participants not in pay status, to suspend contributions, or to directly or indirectly exclude any younger or newly hired employees 

from plan participation. 

Benefit restrictions pending approval of funding improvement 

plan: Pending approval of a funding improvement plan, a plan may 

not be amended to distribute, as a lump sum distribution or as any 

other accelerated form, the present value of a participant’s accrued 

benefit exceeding $5,000. In addition, the plan may not adopt any 

amendment that would result in an increase of plan liabilities by 

reason of any increase in benefits, any change in the accrual of 

benefits, or any change in the rate at which benefits become nonforfeitable under the plan, unless the amendment is required as a 

condition of plan qualification under the Internal Revenue Code. 

Default if no funding improvement plan adoption: If no funding 

improvement plan is adopted by the end of the 240-day period, the 

plan is considered in critical status as of the first day of the succeeding plan year. 

Restrictions upon approval of funding improvement plan: Once a 

funding improvement plan has been adopted by the bargaining parties, the plan may not be amended so as to be inconsistent with the 

funding improvement plan or to increase future benefit accruals, 

unless the plan actuary certifies, after taking into account the proposed increase, that the plan is reasonably expected to meet the 

funding improvement benchmarks. 

124 

Critical status: A plan is considered to be in critical status if it 

is an endangered plan that does not comply with requirements appertaining to such plans, or if it is projected to meet one of several 

tests: (1) if, as of the first day of the plan year, the plan’s funded 

liability percentage is less than 65 percent, and the sum of the 

market value of assets plus anticipated contributions for the current and each of the six succeeding plan years is less than the 

present value of all nonforfeitable benefits for all participants and 

beneficiaries projected to be payable under the plan during the current and each of the six succeeding plan years plus administrative 

expenses; (2) if, as of the first day of the plan year, the plan’s market value of assets plus anticipated contributions for the current 

and each of the four succeeding plan years equals less than the 

present value of all nonforfeitable benefits projected to be payable 

during the current and each of the four succeeding plan years; (3) 

if, as of the first day of the plan year, the plan is less than 65 percent funded and will have an accumulated funding deficiency for 

any of the four succeeding plan years (taking into account any amortization extensions); (4) if the plan’s normal cost for the year plus 

interest (determined at the rate used for determining costs under 

the plan) for the current plan year on the amount of unfunded benefit liabilities under the plan as of the last date of the preceding 

plan year exceeds the present value, as of the beginning of the current plan year, of the projected contributions for the current plan 

year, and the present value of the nonforfeitable benefits of inactive participants is greater than the present value of nonforfeitable 

benefits of active participants, and the plan is projected to have an 

accumulated funding deficiency in the current or any of the 4 succeeding plan years; or (5) if the funded liability percentage of the 

plan is greater than 65 percent for the current plan year and the 

plan is projected to have an accumulated funding deficiency during 

either of the following three plan years, not taking into account any 

extension of amortization periods. 

In any case in which a plan is certified to be in critical status 

for a plan year, the plan sponsor must amend the plan to include 

a rehabilitation plan upon approval by the bargaining parties within 240 days after the date on which the plan is certified to be in 

endangered status. 

Rehabilitation plan: A rehabilitation plan shall consist of plan 

amendments that would take the plan out of critical status within 

10 plan years. The rehabilitation plan may include a combination 

of contribution increases, expense reductions (including possible 

mergers), funding relief measures, and/or benefit reductions. These 

changes must be adopted by all bargaining parties. If the plan cannot emerge from reorganization within 10 years, the rehabilitation 

plan must describe alternatives, explain why emergence from reorganization is not feasible, and develop actions that the trustees 

must take to postpone insolvency. A summary of the rehabilitation 

plan, as well as any modifications to the plan, must be included in 

the plan’s annual report. 

Rehabilitation period: The rehabilitation period is the 10-year period beginning on the earlier of the second anniversary of the date 

of adoption of the rehabilitation plan or the first day of the first 

plan year in which collective bargaining agreements covering at 

least 75 percent of active participants have expired. 

125 

Development of rehabilitation plan: Within 90 days following a 

plan’s certification, the plan sponsor shall develop and provide to 

the bargaining parties proposals for revised benefit and contribution structures which, if adopted, reasonably would be expected to 

ensure that the plan is no longer a critical plan. Proposals by the 

plan sponsor shall include: (1) at least one proposal for reductions 

in the amount of future benefit accruals necessary to cause the 

plan to cease to be in critical status, assuming no amendments increasing contributions under the plan; and (2) at least one proposal 

for increases in contributions necessary to cause the plan to cease 

to be in critical status, assuming all future benefit accruals were 

reduced to the maximum extent permitted by law. 

Upon the joint request of all bargaining parties who employ at 

least five percent of the active plan participants or represent at 

least five percent of active participants, the plan sponsor shall provide the parties with information as to other combinations of increases in contributions and reductions in future benefit accruals 

as may be specified by the bargaining parties. 

Limitation on reduction in rates of future accruals: Any schedule 

must not reduce the rate of future accruals below the lower of: (1) 

a monthly benefit equal to one percent of the contributions required to be made with respect to a participant or the equivalent 

standard accrual rate for a participant or group of participants 

under the collective bargaining agreement in effect as of the first 

day of the plan year in which the plan enters critical status; or (2) 

if lower, the accrual rate under the plan on such date. The equivalent standard accrual rate shall be determined by the trustees 

based on the standard or average contribution base units that they 

determine to be representative for active participants and such 

other factors as they determine to be relevant. 

Default schedule: If no default schedule is adopted by the end of 

the 240 day period following certification, the plan sponsor shall 

amend the plan to implement one of the proposals for reductions 

in the amount of future benefit accruals necessary to cause the 

plan to cease to be in critical status, assuming no amendments increasing contributions under the plan are made. 

Allocation of reductions in future benefit accruals: Any schedule 

containing reductions in future benefit accruals is applicable to active participants in proportion to the extent to which increases in 

contributions under the schedule apply to such bargaining party. 

Maintenance of contributions pending approval: Pending approval of a rehabilitation plan by the bargaining parties, the plan 

may not be amended to reduce the level of contributions for participants not in pay status, to suspend contributions, or to directly or 

indirectly exclude any younger or newly hired employees from plan 

participation. 

Special rules—automatic employer surcharge: For the first plan 

year in which the plan is in critical status, each contributing employer in the plan is obligated to pay to the plan a surcharge equal 

to five percent of the contribution otherwise required under the collective bargaining agreement in effect (or other agreement pursuant to which the employer contributes). For each consecutive plan 

year thereafter in which the plan is in critical status, the surcharge 

is 10 percent of the contribution otherwise required under the collective bargaining agreement in effect (or other agreement pursuVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00125 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
126 

ant to which the employer contributes). The surcharges are required to be paid to the plan on the same schedule as the plan contributions. Any failure to pay the surcharge is treated as a delinquent contribution. The requirement to pay the surcharge ceases 

on the date on which the agreement is renegotiated to include the 

rehabilitation plan. The amount of any surcharge shall not be the 

basis for any benefit accruals under the plan. 

Special rules—benefit adjustments: The trustees of a plan in critical status may not reduce adjustable benefits of any participant or 

beneficiary in pay status at least one year before the first day of 

the first plan year in which the plan enters into critical status. The 

trustees shall include in the schedules provided to the bargaining 

parties an allowance for funding the benefits of participants with 

respect to whom contributions are not currently required to be 

made, and shall reduce their benefits to the extent permitted and 

considered appropriate based on the plan’s then current overall 

funding status and its future prospects in light of the results of the 

parties negotiations. 

An adjustable benefit is defined as any benefit, right, or feature 

(other than the accrued benefit payable at normal retirement age, 

except as otherwise provided under this bill), such as post-retirement death benefits, 60–month guarantees, disability benefits not 

yet in pay status and similar benefits, retirement-type subsidies, 

early retirement benefits and benefit payment options (other than 

the 50 percent qualified joint-and-survivor benefit and single life 

annuity), and benefit increases that would not be eligible for a 

guarantee by the PBGC on the first day of the first plan year in 

which the plan enters into critical status because they were adopted, or if later, took effect less than 60 months before reorganization. 

Any benefit reductions shall be disregarded in determining a 

plan’s unfunded vested benefits and any surcharges shall be disregarded for purposes of determining an employer’s withdrawal liability. 

Benefit restrictions pending approval of rehabilitation plan: 

Pending approval of the funding improvement plan, the plan may 

not be amended to distribute, as a lump sum distribution or as any 

other accelerated form, the present value of a participant’s accrued 

benefit exceeding $5,000. In addition, the plan may not adopt any 

amendment that would result in an increase of plan liabilities by 

reason of any increase in benefits, any change in the accrual of 

benefits, or any change in the rate at which benefits become nonforfeitable under the plan, unless the amendment is required as a 

condition of plan qualification under the Internal Revenue Code. 

Deemed withdrawal: The failure of any contributing employer to 

make the required contributions in compliance with the rehabilitation plan may, at the discretion of the plan sponsor, be treated as 

a partial or complete withdrawal by that contributing employer 

from the plan. 

Sec. 203. Measures to forestall insolvency of multiemployer plans 

Section 203 provides that if a plan sponsor makes a determination that the plan will be insolvent in any of the next five plan 

years, the plan sponsor shall make an annual assessment of the 

current rehabilitation plan and take any steps necessary within the 

127 

limitations of this bill until a determination is made that the plan 

will not be insolvent in any of the next five plan years. 

Sec. 204. Withdrawal liability reforms 

Repeal of ERISA section 4225: The current law provision reduces 

or subordinates withdrawal liability claims involving employer liquidation and insolvency. The liability of insolvent employers is 

capped at 50 percent of withdrawal liability plus 50 percent of the 

remaining liquidation value under current law. H.R. 2830 repeals 

this provision. 

Repeal of ERISA section 4219(c): The current law provision arbitrarily limits an employer’s withdrawal liability payments to twenty years of payments. H.R. 2830 repeals this provision. 

Partial withdrawal by means of outsourcing: This provision clarifies that an employer who performs the same work formerly covered by a pension plan incurs partial (or complete) withdrawal liability from the plan if contractor employees are performing the 

same work as any former employees for whom contributions in the 

plan used to be made. 

Repeal of special trucking industry rule: The current law rules 

created a withdrawal liability exemption for those companies in the 

long and short haul trucking industry. H.R. 2830 repeals this provision. 

Application of forgiveness rule to plans in building and construction: The bill allows certain plans covering employees in the building and construction industry to elect to adopt a rule under which 

an employer who withdraws from the plan in a complete or partial 

termination is not liable to the plan if the employer was a contributing employer for less than five years. This rule is applicable to 

plans in other industries under current law. 

Effective Date: The amendments made by this subsection apply 

to plan withdrawals occurring on or after January 1, 2006. 

Sec. 205. Removal of restrictions with respect to procedures applicable to disputes involving withdrawal liability 

Section 205 provides that a plan sponsor may only make a claim 

against an employer alleging that the principle purpose of a transaction was to evade or avoid withdrawal liability for transactions 

occurring in the previous five plan years or two plan years in the 

case of a small employer. A small employer is any employer who 

(immediately before the transaction) employs not more than 500 

employees and is required to make contributions to the plan for not 

more than 250 employees. 

SUBTITLE B—AMENDMENTS TO INTERNAL REVENUE CODE OF 1986 

TITLE III—OTHER PROVISIONS 

Sec. 301. Interest rate assumption for determination of lump sum 

distributions 

Section 301 amends the ERISA and the Internal Revenue Code 

to provide applicable mortality tables and interest rate assumptions for determination of lump sum distributions. The mortality 

table used for determination of lump sum distributions must be the 

same mortality table used under section 102 of the bill; however, 

128 

plans must consider that an equal number of male and female participants will take a lump sum distribution. The three segment 

rates determined by the Secretary of Treasury’s modified yield 

curve used to calculate a plan’s liability under section 102 of the 

Pension Protection Act must also be used to calculate minimum 

lump sum distributions for participants. The applicable segment 

rate used for calculating a participant’s lump sum distribution is 

the same rate that is used to fund for the pension liability of that 

individual. There is a five-year phase-in of this provision. 

Sec. 302. Interest rate assumption for applying benefit limitations 

to lump sum distributions 

Section 302 provides that in adjusting a lump sum benefit for 

purposes of applying the limits on benefits payable under a defined 

benefit plan, the interest rate used must be not less than the greater of 5.5 percent or the rate that provides a benefit of not more 

than 105 percent of the benefit that would be provided by the applicable segment rate or the rate of interest specified under the 

plan. 

Sec. 303. Distributions during working retirement 

Section 303 amends the definition of an employee pension plan 

to include that a distribution from a plan, fund, or program shall 

not be treated as made in a form other than retirement income or 

as a distribution prior to termination of covered employment solely 

because such distribution is made to an employee who has attained 

age 62 and who is not separated from employment at the time of 

the distribution. 

Sec. 304. Other amendments relating to prohibited transactions 

Section 304 amends ERISA to clarify certain prohibited transaction rules: 

Definition of ‘‘Amount Involved.’’ The ‘‘amount involved’’ in a 

transaction is clarified to mean the amount of money and/or the 

fair market value of property either given or received as of the date 

on which the prohibited transaction occurs. The definition of 

‘‘amount involved’’ is clarified to provide that the civil penalties imposed for any prohibited transaction may not exceed 5 percent of 

the amount involved. 

Exemption for Block Trading. This exemption includes any transaction involving the purchase or sale of securities between a plan 

and a party in interest (other than a fiduciary with respect to the 

plan) if the transaction involves a block trade, if at the time of the 

transaction, the interests of the plan (together with the interests 

of any other plans maintained by the same plan sponsor) does not 

exceed 10 percent of the aggregate size of the block trade, and if 

the terms of the transaction, including the price, are at least as favorable to the plan as an arm’s length transaction. 

Bonding Relief. This exemption amends ERISA’s bonding rules to 

reflect the regulation of broker-dealers and investment advisers 

under federal securities law; 

Conforming ERISA’s Prohibited Transaction Provision to Federal 

Employee Retirement System Act (FERSA). This provision exempts 

certain transactions between a plan and a party in interest solely 

by reason of providing services, but only if in connection with such 

129 

transaction, the plan receives no less and pays no more than adequate consideration. Adequate consideration is the price of a security prevailing on a national securities exchange registered under 

the Securities Exchange Act of 1934, taking into account factors 

such as the size of the transaction and marketability. If the security is not traded on a national securities exchange, a price not less 

favorable to the plan than the offering price for the security must 

be used as established by the current bid and asked prices quoted 

by persons independent of the issuer and party in interest, taking 

into account factors such as the size of the transaction and marketability. In the case of an asset other than a security for which there 

is a generally recognized market, the fair market value of the asset 

shall be determined in good faith by a fiduciary in accordance with 

regulations prescribed by the Secretary of the Treasury. 

Exemption for Electronic Communication Network. This exemption allows for any transaction involving the purchase or sale of securities or other property between a plan and a party in interest 

if the transaction is executed through an exchange, electronic communications network, alternative trading system, or similar execution system or trading venue subject to regulation and oversight by 

the applicable governmental regulating entity, provided that the 

identity of the parties in the execution of the transaction are not 

taken into account and the transaction is effected pursuant to rules 

designed to match purchases and sales at the best price available 

through the communications network. 

Definition of Plan Asset Vehicle. This provision excludes the underlying assets of entities which hold less than 50 percent of plan 

assets from the fiduciary rules under ERISA. For purposes of determining the 50 percent threshold, the value of any equity interest 

owned by a person (other than the employee benefit plan) who has 

discretionary authority or control with respect to the assets of the 

entity or any person who provides investment advice for a fee (direct or indirect), is disregarded. 

Exemption for Foreign Exchange Transactions. This provision exempts any foreign transactions between a bank or broker-dealer, or 

any affiliate, and a plan to which any bank or broker-dealer, or any 

affiliate, is a trustee, custodian, fiduciary, or other party in interest, provided that the transaction is in connection with the purchase or sale of securities, at the time the transaction is entered 

into and the terms of the transaction are not less favorable to the 

plan than the terms generally available or afforded in a comparable 

arm’s length foreign exchange transaction between unrelated parties. In addition, the exchange rate used by the bank or brokerdealer for a foreign exchange transaction must be at a rate no less 

favorable than the rate quoted for transactions of similar size at 

the time of the transaction as displayed on an independent service 

that reports rates of exchange, and there is no investment discretion or advice provided by the bank or broker-dealer, or any affiliate with respect to the transaction. 

Sec. 305. Correction period for certain transactions involving securities and commodities 

This provision provides a 14-day correction period, beginning on 

the date on which the fiduciary or party in interest or other person 

discovers or reasonably should have discovered the prohibited 

130 

transaction, for any transactions that occurs by mistake between a 

plan and a party-in-interest or fiduciary. 

Sec. 306. GAO study 

This provision calls upon the Comptroller General of the Government Accountability Office to transmit to the Congress a pension 

funding report not later than one year after the date of enactment 

of the bill that will include an analysis of the feasibility, advantages, and disadvantages of requiring an employee pension benefit 

plan to insure a portion of such plan’s total investments; requiring 

an employee pension benefit plan to adhere to uniform solvency 

standards set by the PBGC which are similar to those applied on 

a state level in the insurance industry; and amortizing a single-employer defined benefit pension plan’s shortfall amortization base 

over various periods of not more than seven years. 

TITLE IV—IMPROVEMENTS IN PBGC GUARANTEE 

PROVISIONS 

Sec 401. Increases in PBGC premiums 

This section provides for an increase in the PBGC yearly insurance premium paid by plans to the PBGC. Plans with a funding 

target percentage less than 80 percent will have a three year 

phase-in of premiums from the current $19 dollars to $30 dollars 

per participant per year, including an inflation adjustment each 

year to the national wage index. Plans with a funding target percentage of 80 percent or higher funded will have a five year phasein of $19 dollars to $30, including inflation adjustment each year 

to the national wage index. 

TITLE V—DISCLOSURE 

Sec. 501. Defined benefit plan funding notices 

Section 501 amends section 101(f) of ERISA to apply such notices 

to all defined benefit (single employer and multiemployer) plans. 

The notice is now due 90 days after the end of the plan year. The 

notice must include a statement of the ratio of inactive participants 

to active participants in the plan. This section also requires that 

plan sponsors include in the notice a statement of a reasonable estimate of the value of plans assets and projected liabilities as well 

as the plan’s funded ratio. The notice must also include a statement of the plan’s funding policy and the asset allocation of investment under the plan (as expressed as a percentage of the total assets). 

For multiemployer plans, this notice shall include a summary of 

any funding improvement plan or rehabilitation plan as well as the 

statement of the ratio, as of the end of the plan year to which the 

notice relates, of the number of participants who are not in covered 

service and are in pay status under the plan or have a nonforfeitable right to benefits under the plan to the number of participants 

who are in covered service under the plan. 

Sec. 502. Additional disclosure requirements 

Section 502 provides new requirements for plans filing a Form 

5500 report with the Department of Labor. Specifically, this section 

131 

provides that defined benefit plans (both single and multiemployer 

plans) will be required to file the ratio of the number of inactive 

participants to the number of active participants as of the end of 

the plan year. If plans have merged and are making one filing, the 

funded percentage of the preceding plan year and the new funded 

percentage after the plan merger must also be reported. On the 

Schedule B, the plan’s enrolled actuary must provide an explanation detailing the basis for all plan retirement assumptions. 

With respect to multiemployer plans, the plan sponsor must include in the filing the number of contributing employers in a plan 

as well as the number of employees in the plan who no longer have 

a contributing employer on their behalf must also be reported. The 

deadline for filing the annual report for any plan year is 275 days 

after the close of the plan year. The Secretary of Labor may grant 

an extension only in cases of hardship in accordance with regulations. 

Summary Annual Report: A Summary Annual Report must be 

filed within 15 days after the deadline for the filing of the Annual 

Report. 

Information to be made available: Section 502 requires that the 

trustees of a multiemployer plan make available upon request by 

any contributing employer, participant, or beneficiary, within 30 

days of receipt by the plan sponsor, copies of all actuary reports 

and financial reports received by the plan for a plan year. Plans 

are permitted to charge reasonable fees for copying and mailing 

this information. The bill also provides that the Secretary of Labor 

shall identify alternative methods of disclosure within 90 days from 

the date of enactment of the bill. 

Withdrawal liability notice: This section gives contributing employers the right to a notice of the amount of their withdrawal liability. Only one notice can be provided within any 12–month period. The plan sponsor may make any reasonable charge to cover 

copying, mailing, and other costs attributable to furnishing such 

notice. This information must be provided within 180 days after a 

written request. 

Sec. 503. Section 4010 filings with the PBGC 

Section 503 makes changes to the requirements under Section 

4010 of ERISA which require the reporting of actuarial and financial information by certain controlled groups with plans that have 

significant unfunded vested benefits. Additional requirements are 

established for single employer plans that will require the sponsoring employer to notify all participants and beneficiaries (including those participants and beneficiaries that are members of the 

sponsoring employer’s controlled group), within 90 days after the 

4010 filing is due, of the following information: (1) notification that 

a 4010 filing has been made for the plan year; (2) the number of 

plans maintained by the sponsoring employer (including plans 

maintained by any controlled group member) that are less than 60 

percent funded, and (3) the assets, liabilities, and funded ratio for 

those plans that are less than 60 percent funded. The notice must 

also include, in the aggregate, the total values of plan assets and 

funding targets of such plans, taking into account only those benefits to which participants and beneficiaries have a nonforfeitable 

132 

right as well as the aggregate funding target attainment percentage of the plan. 

The requirements for filing a 4010 are amended to require a filing if the aggregate funding target percentage of the plan, taking 

into account all plans maintained by the contributing sponsor and 

the members of its controlled group as of the end of the applicable 

plan year, is less than 60 percent; or the aggregate funding target 

of a plan, taking into account the aggregate values of plan assets 

and funding targets of all plans maintained by the contributing 

sponsor and the members of its controlled group as of the end of 

the applicable plan year, is less than 75 percent and the plan sponsor is in an industry, determined by the PBGC, in which there is 

substantial unemployment or underemployment and in which the 

sales and profits are depressed or declining. 

TITLE VI—INVESTMENT ADVICE 

Sec. 601. Amendments to Employee Retirement Income Security Act 

of 1974 providing prohibited transaction exemption for provision of investment advice 

Section 601 provides a statutory exemption from the prohibited 

transaction rules of the Employee Retirement Income Security Act 

(ERISA) and the Internal Revenue Code (a new §408(b)(14) of 

ERISA and a new §4975(d)(14) of the IRC) for: (1) the provision of 

investment advice regarding plan assets subject to the direction of 

plan participants and beneficiaries plan to a plan, its participants 

and beneficiaries; (2) the sale, acquisition, or holding of securities 

or other property pursuant to such investment advice; and (3) the 

direct or indirect receipt of fees or other compensation in connection with providing the advice. 

In order to qualify for the exemption, an entity must be a ‘‘fiduciary adviser’’ and must meet a series of detailed requirements. 

The bill defines the following regulated entities to qualify as fiduciary advisers: registered investment advisers, the trust department of banks or similar institutions, insurance companies, registered broker-dealers, and the affiliates, employees, agents, or registered representatives of those entities who satisfy the requirements of the applicable insurance, banking and securities laws 

with respect to the provision of such advice. 

The fiduciary adviser, at a time reasonably contemporaneous 

with the initial delivery of investment advice on a security or other 

property, must provide a clear and conspicuous written (including 

electronic) disclosure of: (1) the fees or other compensation that the 

fiduciary adviser and its affiliates receive relating to the provision 

of investment advice or a resulting sale or acquisition of securities 

or other property (including from third parties); (2) any interest of 

the fiduciary adviser (and its affiliates) in any security or other 

property recommended, purchased or sold; (3) any limitation placed 

on the fiduciary’s ability to provide advice; (4) the advisory services 

offered; (5) the fact that the adviser is acting as a fiduciary of the 

plan in connection with the provision of such advice; (6) any information required to be disclosed under applicable securities laws; 

and (7) the plan participant’s right to seek advice from an unaffiliated adviser. This disclosure must be written in a way that the average plan participant could understand the information. This maVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00132 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
133 

terial must be maintained in currently accurate form. The Secretary of Labor will issue a model disclosure form. 

Any investment advice provided to participants or beneficiaries 

may be implemented (through a purchase or sale of securities or 

other property) only at their direction. The terms of the transaction 

must be at least as favorable to the plan as an arm’s length transaction would be, and the compensation received by the fiduciary 

adviser (and its affiliates) in connection with any transaction must 

be reasonable. The fiduciary adviser must also provide a written 

acknowledgement that it is acting as a fiduciary of the plan to the 

plan sponsor. 

Fiduciary advisers must comply with a six-year record-keeping 

requirement (for records necessary to determine whether the conditions of the exemption have been met). 

A plan sponsor or other fiduciary that arranges for a fiduciary 

adviser to provide investment advice to participants and beneficiaries has no duty to monitor the specific investment advice 

given by the fiduciary adviser to any particular recipient of advice. 

The plan sponsor or other fiduciary retains the duty of prudent selection and periodic review of the fiduciary adviser. The fiduciary 

adviser must acknowledge in writing to the plan sponsor that it is 

acting as a fiduciary of the plan with respect to the advice provided. Plan assets may be used to pay for the expenses of providing 

investment advice to participants and beneficiaries. 

Sec. 602. Amendments to Internal Revenue Code of 1986 providing 

prohibited transaction exemption for provision of investment 

advice 

Section 602 conforms the Internal Revenue Code to allow for the 

provision of certain investment advice. 

TITILE VII—BENEFIT ACCRUAL STANDARDS 

Sec. 701. Improvements in benefit accrual standards 

Section 701 clarifies the rules relating to the reduction in accrued benefits under ERISA. A plan is not treated as failing to 

meet plan requirements under ERISA section 204(b)(1)(H) if a participant’s entire accrued benefit, as determined as of any date 

under the formula for determining benefits as set forth in the text 

of the plan documents would be equal to or greater than that of 

any similarly situated, younger individual. An individual is similarly situated to another participant if such individual is identical 

in every respect (including period of service, compensation, position, date of hire, work history, and any other respect) except for 

age. In determining the entire accrued benefit, the subsidized portion of any early retirement benefit (including any early retirement 

subsidy that is fully or partially included or reflected in an employee’s opening account balance or other transition benefits) shall be 

disregarded. 

A plan to which the accrued benefit payable under the plan upon 

distribution (or any portion thereof) is expressed as the balance of 

a hypothetical account does not fail to meet the requirements 

under ERISA section 204(b)(1)(H) because interest accruing on the 

account balance is taken into account. 

134 

A plan does not fail to meet the requirements under ERISA section 204(b)(1)(H) because the plan provides allowable offsets 

against those benefits under the plan which are attributable to employer contributions, based on benefits which are provided under 

title II of the Social Security Act, the Railroad Retirement Act of 

1974, or another plan described in IRC section 401(a), and are 

maintained by the same employer, or under any retirement program or officers or employees of the Federal or State government 

or one of its political subdivisions. Allowable offsets consist of offsets equal to all or part of the actual benefit payment amounts, or 

reasonable projections or estimations of such benefit payment 

amounts. 

A plan does not fail to meet the requirements under ERISA section 204(b)(1)(H) because the plan provides a disparity in contributions or benefits with respect to which the requirements of IRC section 401(l) are met. 

A plan does not fail to meet the requirements under ERISA section 204(b)(1)(H) because the plan provides for pre-retirement indexing of accrued benefits under the plan. Pre-retirement indexing 

is the periodic adjustment of the accrued benefit by means of the 

application of a recognized index or methodology so as to protect 

the economic value of the benefit against inflation prior to distribution. 

Determinations of accrued benefit as balance of benefit account: 

A defined benefit plan under which the accrued benefit payable 

under the plan upon distribution (or any portion thereof) is expressed as the balance of the hypothetical account for each participant may make available for such distribution under the terms of 

the plan the balance of the account, calculated by using the applicable interest rate that would be used under the terms of the plan 

to project the amount of the participant’s account balance to normal retirement age, so long as the interest rate used does not provide for a return that is greater than a market rate of return, as 

determined by the Secretary of the Treasury. 

The effective date of this provision applies to periods beginning 

on or after June 29, 2005. 

TITLE VIII—DEDUCTION LIMITATIONS 

Sec. 801. Increase in deduction limit for single-employer plans 

Section 801 provides for an increase in the deduction limit for 

single-employer plans up to a new higher maximum deductible 

amount equal to the greater of: (1) the excess of the sum of 150 

percent of the plan’s funding target plus the target normal cost 

over the value of plan assets, or (2) the excess of the sum of the 

plan’s at-risk normal cost and at-risk funding target for the plan 

year over the value of plan assets to 150 percent of the plan’s funding target plus the target normal cost. 

The increase in the deduction limit for multiemployer plans is 

the excess of 140 percent of the plan’s current liability over the 

value of plan assets. 

The provision also modifies the rules relating to the limitation on 

deductions for plan sponsors maintaining both defined benefit and 

defined contribution plans. The bill provides that in the case of employer contributions to one or more defined contribution plans, the 

135 

limit shall only apply to the extent that such contributions exceed 

six percent of the compensation otherwise paid or accrued during 

the year to beneficiaries under the plan. 

EXPLANATION OF AMENDMENTS

The provisions of the Amendment in the Nature of a Substitute 

are explained in this report. 

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 allows 

amends the Employee Retirement Income Security Act (ERISA) to 

provide for pension security. 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. 

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 

amends the voluntary pension system provided under the Employee Retirement Income Security Act (ERISA). As such, the bill 

does not contain any unfunded mandates. In compliance with this 

requirement, the Committee has received a letter from the Congressional Budget Office included herein. 

136 


Insert offset folio 142 here HR232.006
137 


Insert offset folio 143 here HR232.007
138 


Insert offset folio 144 here HR232.008
139 


Insert offset folio 145 here HR232.009
140 


Insert offset folio 146 here HR232.010
141 


Insert offset folio 147 here HR232.011
142 


Insert offset folio 148 here HR232.012
143 

CORRESPONDENCE

CONGRESS OF THE UNITED STATES, 

HOUSE OF REPRESENTATIVES, 

Washington, DC, July 12, 2005. 

Hon. JOHN BOEHNER, 

Chairman, Committee on Education and the Workforce, 

Rayburn House Office Building, Washington, DC. 

DEAR MR. CHAIRMAN: Due to a Base Realignment and Closure 

(BRAC) Regional Hearing in Atlanta regarding a possible closure 

in my district, I was unable to attend the Committee’s mark-up of 

H.R. 2830, ‘‘Pension Protection Act of 2005’’. Consequently, I was 

unable to vote on the following amendments: Representative 

Tierney’s amendment regarding defined benefit terminations; Representatives Wu and Van Hollen’s amendment regarding shutdown 

benefits; Representatives Woolsey and Van Hollen’s amendment regarding executive parity in benefit restrictions; and Representative 

Miller’s amendment regarding cash balance plans. Had I been 

present, I would have voted in favor of each of these amendments. 

I would appreciate your including this letter in the Committee 

Report to accompany H.R. 2830. Thank you for your attention in 

this matter. 

Sincerely, 

JOHN BARROW. 

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. 

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. 2830 from the Director 

of the Congressional Budget Office: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, September 9, 2005. 

Hon. JOHN A. BOEHNER, 

Chairman, Committee on Education and the Workforce, 

U.S. House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: As you requested, the Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2830, the 

Pension Protection Act of 2005. 

144 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Geoffrey Gerhardt. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, 

Director. 

Enclosure. 

H.R. 2830—Pension Protection Act of 2005 

Summary: H.R. 2830 would make changes to the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal 

Revenue Code (IRC) that would affect the operations of private 

pension plans. It would do so mostly by changing the funding requirements for tax-qualified, defined-benefit pension plans and the 

premiums paid to the Pension Benefit Guaranty Corporation 

(PBGC). 

The budgetary effects of the bill would result from: 

• Increased income to the PBGC from premiums paid by the 

sponsors of pension plans—totaling an estimated $5.1 billion over 

the next 10 years. 

• A loss of federal income tax revenue, primarily because more 

rigorous funding rules would be imposed on plans’ sponsors; the 

Joint Committee on Taxation (JCT) estimates that enacting H.R. 

2830 would reduce federal revenues by $5.5 billion over the 2006–

2015 period. 

• Additional benefit payments—totaling an estimated $0.5 billion over 10 years—that the PBGC would have to make as a result 

of a number of changes made by the bill. 

In combination, those effects would add $0.8 billion to federal 

budget deficits over the 2006–2015 period, CBO estimates. The additional premium income would have another effect: it would increase the balances in the PBGC’s on-budget revolving fund and 

therefore forestall the need for significant transfers to that revolving fund from the PBGC’s nonbudgetary trust fund in order pay insured benefits. Because those transfers are treated in the budget 

as offsetting collections (that is, offsets to outlays), smaller transfers would result in higher net outlays for PBGC’s on-budget revolving fund. The improvement in the financial condition of that 

fund would eliminate the need for $7.4 billion in transfers to the 

fund from 2013 through 2015, CBO estimates, thereby increasing 

on-budget outlays by that amount. Adding that effect to the other 

impacts of the bill, CBO projects that enacting H.R. 2830 would increase federal budget deficits by $8.2 billion over the 2006–2015 period. 

The bill would improve the budget outlook in the near term but 

would increase budget deficits in later years because of the way 

some of the provisions would phase in and because the reduction 

in transfers to the on-budget revolving fund would occur towards 

the end of the 10-year period. CBO estimates that enacting the bill 

would reduce federal deficits by $5.7 billion over the 2006–2008 period, but would add $13.9 billion to budget shortfalls from 2009 

through 2015. 

Major provisions of H.R. 2830 would: 

• Require sponsors of single-employer pension plans to meet a 

funding target that is at least 100 percent of current liabilities; 

145 

• Specify that the discount rate used to calculate the present 

value of current pension liabilities be based on a segmented yield 

curve of corporate bonds rather than the interest rate on 30-year 

Treasury bonds; 

• Restrict the use of credit balances to offset required pension 

contributions; 

• Place limits on benefit accruals for participants in certain underfunded plans; 

• Increase the limits on the tax-deductible contributions sponsors may make to plans; 

• Increase the per-participant premium paid to the PBGC for 

single-employer plans; 

• Change the funding rules for multiemployer pension plans; 

• Enhance disclosure requirements for both single-employer and 

multiemployer pension plans; and 

• Address the legal status of so-called hybrid defined-benefit 

pension plans. 

Not all of these policies would directly affect federal spending or 

revenues. 

Pursuant to section 407 of H. Con. Res. 95 (the Concurrent Resolution on the Budget, Fiscal Year 2006), CBO estimates that enacting H.R. 2830 would not cause an increase in direct spending 

greater than $5 billion in any of the 10-year periods between 2016 

and 2055. 

CBO has reviewed the nontax portions of H.R. 2830 and determined that they contain no intergovernmental mandates as defined 

in the Unfunded Mandates Reform Act (UMRA) and would impose 

no costs on state, local, or tribal governments. Those provisions 

would impose a number of mandates on sponsors and administrators of single-employer and multiemployer private pension plans. 

CBO estimates that the direct cost of those private-sector mandates, less the direct savings from those mandates, would exceed 

the annual threshold specified in UMRA ($123 million in 2005, adjusted annually for inflation) in 2009 and subsequent years. 

JCT has determined that the tax provisions of H.R. 2830 contain 

no intergovernmental or private-sector mandates as defined in 

UMRA. 

Estimated cost the Federal Government: The estimated budgetary impact of H.R 2830 is shown in the following table. The costs 

of this legislation would fall within budget function 600 (income security). 

Basis of estimate: H.R. 2830 contains changes to both ERISA and 

the Internal Revenue Code that would affect sponsors of definedbenefit pension plans. Under current law, the funding rules are exactly the same in both ERISA and IRC. In certain instances, however, changes made by the bill to the pension funding requirements 

of ERISA are inconsistent with changes made to the funding rules 

in the IRC. CBO’s and JCT’s budget estimates assume that, if H.R. 

2830 is enacted, additional changes would be made to the IRC to 

make it consistent with those changes made to ERISA by H.R. 

2830. Those estimates also assume that H.R. 2830 and the corresponding changes to the IRC will be enacted by December 2005. 

146 

By fiscal year, in millions of dollars— 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 

CHANGES IN DIRECT SPENDING 

Changes in Flat-Rate 

Premiums Paid to 

PBGC: 

Estimated Budget 

Authority ........... ¥79 ¥158 ¥240 ¥314 ¥552 ¥586 ¥655 ¥690 ¥759 ¥828 

Estimated Outlays ¥79 ¥158 ¥240 ¥314 ¥552 ¥586 ¥655 ¥690 ¥759 ¥828 

Changes in Variable 

Premiums Paid to 

PBGC: 

Estimated Budget 

Authority ........... 0 ¥25 ¥170 ¥246 ¥255 ¥191 ¥68 66 237 360 

Estimated Outlays 0 ¥25 ¥170 ¥246 ¥255 ¥191 ¥68 66 237 360 

Changes in Net Benefit 

Payments: 

Estimated Budget 

Authority ........... ¥1 * 6 19 35 54 72 88 101 112 

Estimated Outlays ¥1 * 6 19 35 54 72 88 101 112 

Subtotal: 

Estimated 

Budget 

Authority .. ¥80 ¥184 ¥404 ¥541 ¥771 ¥722 ¥651 ¥536 ¥421 ¥356 

Estimated 

Outlays .... ¥80 ¥184 ¥404 ¥541 ¥771 ¥722 ¥651 ¥536 ¥421 ¥356 

Changes in Transfers 

from PBGC’s Nonbudgetary Trust Fund: 

Estimated Budget 

Authority ........... 0 0 0 0 0 0 0 1,068 3,092 3,222 

Estimated Outlays 0 0 0 0 0 0 0 1,068 3,092 3,222 

Total Changes in 

Direct Spending: 

Estimated 

Budget 

Authority .. ¥80 ¥184 ¥404 ¥541 ¥771 ¥722 ¥651 532 2,671 2,866 

Estimated 

Outlays .... ¥80 ¥184 ¥404 ¥541 ¥771 ¥772 ¥651 532 2,671 2,866 

CHANGES IN REVENUES 

Changes to Funding 

Rules for Single-Employer Plans .............. 778 2,584 1,761 ¥1,420 ¥2,502 ¥2,185 ¥1,757 ¥1,070 ¥758 ¥659 

Changes to Funding 

Rules for Multiemployer Plans .............. * ¥2 ¥8 ¥18 ¥28 ¥34 ¥40 ¥46 ¥52 ¥58 

Changes to Benefit Accrual Standards ........ ¥24 ¥9 1 6 ¥3 ¥8 6 25 29 13 

Total Changes in 

Revenue ............ 754 2,573 1,754 ¥1,432 ¥2,533 ¥2,227 ¥1,791 ¥1,091 ¥781 ¥704 

NET INCREASE OR DECREASE (¥) IN BUDGET DEFICITS 

Net of Transfers from 

PBGC’s Nonbudgetary 

Trust Fund ................. ¥834 ¥2,757 ¥2,158 891 1,762 1,505 1,140 1,623 3,452 3,570 

Excluding Transfers from 

PBGC’s Nonbudgetary 

Trust Fund ................. ¥834 ¥2,757 ¥2,158 891 1,762 1,505 1,140 555 360 348 

SOURCES: Congressional Budget Office and Joint Committee on Taxation. 

NOTES: PBGC = Pension Benefit Guaranty Corporation. 

* = less than $500,000. 

Direct spending 

Increase in Flat-Rate Premium. Under current law, sponsors of 

single-employer pension plans insured by the PBGC are required 

147 

1Public Law 108–218, the Pension Funding Equity Act, changed how current liabilities of covered plans are discounted during plan-years 2004 and 2005. During those two years, current 

liabilities are discounted using an interest rate on high-grade corporate bonds, as determined 

by the Department of the Treasury. Prior to those years, the discount rate was based on the 

interest rates on 30-year Treasury bonds. 

to pay the agency a premium of $19 per participant. H.R. 2830 

would increase the flat-rate premium to $30 per participant in 

2006 and index it to wage growth starting in 2007. However, no 

plans would pay the full increase immediately. The bill would 

phase in the rate increase differently depending on whether the 

ratio of a plan’s assets to its liabilities (known as its funding ratio) 

is above or below 80 percent. For plans that have a funding ratio 

of 80 percent or higher, the increased rate would be phased in over 

a five-year period; for plans with a funding ratio of less than 80 

percent, the rate increase would be phased in over a three-year period. Both phase-in periods would begin in 2006 and the premium 

rate for all single-employer plans would be the same—approximately $35 per participant—by 2010. 

About 35 million people currently participate in tax-qualified, 

single-employer pension plans. This figure includes active workers, 

former workers who are vested but have not started collecting retirement benefits, and annuitants. The number of participants in 

single-employer plans insured by the PBGC has remained nearly 

constant for the past decade, and CBO assumes it would remain 

steady for the next 10 years. 

The current premium of $19 per participant generates about 

$650 million in premium income annually for the PBGC. CBO estimates changes to the flat-rate premiums made by H.R. 2830 would 

increase receipts by $1.3 billion over the 2006–2010 period and $4.9 

billion over the 2006–2015 period. The varying amounts of additional premiums from year to year reflect both the phase-in of the 

rate increase and the rounding of the new rates to the nearest dollar, as specified by the bill. Because the PBGC’s premiums are recorded as offsetting collections to a mandatory spending account, 

increases in premium collections are reflected in the budget as decreases in direct spending. 

Variable Premiums. Under current law, sponsors of single-employer plans with assets less than liabilities are generally required 

to pay a variable premium, which is based on the amount of underfunding in the plan. The variable premium rate is $9 per $1,000 

of underfunding. The amount of income from this type of premium 

varies from year to year; in 2004 it generated approximately $800 

million in receipts. 

H.R. 2830 would affect how much the PBGC collects from variable premiums because it would change the way plans’ sponsors 

calculate the amount of underfunding. Starting in 2006, current 

law will require plans to discount their current liabilities, in order 

to determine the amount of underfunding, using an interest rate 

that is the four-year moving average of the rate on 30-year Treasury bonds; 1 H.R. 2830 would allow plans to discount their pension 

obligations using a yield curve based on a three-year weighted average of yields on investment-grade corporate bonds. The yield 

curve, which would be determined by the Secretary of the Treasury, would be divided into three segments: yields for bonds maturing in the five-year period following the first day of each new planVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00147 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
148 

2 Because plans are estimated to be better funded on a current liability basis in the long run, 

collections of variable premiums under H.R. 2830 would fall starting in 2013. 

year; yields for bonds maturing during the next 15-year period; and 

yields for bonds maturing after the initial 20-year period. These 

segments would be used to discount benefit payments expected to 

be made by plans during each of the three periods. 

When compared to interest rates on 30-year Treasury bonds, the 

segmented yield curve would generally result in lower discount 

rates for participants whose benefits will be paid in the near term, 

and higher discount rates for participants whose benefits will be 

paid in later years. Discount rates and the present value of pension 

liabilities have an inverse relationship: increasing the discount rate 

results in a lower valuation of liability, while lowering the discount 

rate produces a higher valuation of liability. Based on information 

provided by the PBGC, CBO estimates that the segmented yield 

curve would reduce the total present value of current liabilities 

among all underfunded plans by about 5 percent. 

Reducing the present value of current liabilities would generally 

reduce future contributions that plans’ sponsors would be required 

to make. Other changes to the funding rules (which are discussed 

in more detail later) would increase contributions. CBO estimates 

that, under H.R. 2830, firms initially would have to contribute less 

to their plans, but later would have to contribute more than under 

current law. The change in contributions would have significant effects on federal revenues, as discussed later in this estimate. The 

change in contribution patterns would also affect how many plans 

are underfunded and how much underfunding exists in those plans. 

This, in turn, would affect the PBGC’s income from variable premiums. 

H.R. 2830 would also have an effect on which plans are required 

to make a variable premium payment. Current law provides underfunded plans with ways to reduce or avoid variable premium payments. Plans that have reached a statutory ‘‘full funding limit’’ are 

exempt from paying a variable premium, even though they may be 

substantially underfunded. H.R. 2830 would eliminate the full 

funding limit exemption and would require all plans that are underfunded to pay the variable premium on any underfunding. 

CBO estimates that enacting H.R. 2830 would increase receipts 

from variable premiums by $696 million over the 2007–2010 period 

and by $292 million over the 2007–2015 period.2 As with flat-rate 

premiums, increases in receipts from variable premiums are reflected as decreases in direct spending. 

PBGC’s Disbursements. H.R. 2830 would affect both how much 

sponsors are required to contribute to their plans and how much 

benefits may increase under certain plans insured by the PBGC. 

Such changes would affect the amount of unfunded liabilities that 

the PBGC assumes in the event that a pension plan is terminated 

(i.e., claims) and thus the payments the agency makes to beneficiaries in terminated plans. CBO estimates that the policies contained in H.R. 2830 would increase benefit outlays by $59 million 

over the 2006–2010 period and by $486 million over the 2006–2015 

period. 

Several of the changes to the pension funding rules would have 

countervailing effects on the contributions plans’ sponsors would be 

149 

3 Under certain circumstances, plans can be between 80 percent and 90 percent funded before 

being required to make deficit reduction contributions. 

required to make over the next 10 years. Basing the discount rate 

for calculating the present value of liabilities on corporate bonds instead of Treasuries would cause the present value of current liabilities among underfunded plans to shrink by more than $50 billion 

in 2006, CBO estimates. This policy would have the effect of reducing required contributions by plans’ sponsors. 

Other changes made by the bill would also have an effect on required contributions. Current funding rules require that sponsors 

of insured plans make contributions to cover the costs of benefits 

accrued in a given year and that contributions above that amount 

are required only if the actuarial value of a plan’s assets is less 

than 90 percent of current liabilities. These additional payments 

(referred to as ‘‘deficit reduction contributions’’) can be amortized 

over periods ranging from three to 30 years, depending on how the 

underfunding occurred.3 H.R. 2830 would require that, in addition 

to covering its normal costs, a sponsor must make additional contributions if assets are less than 100 percent of current liabilities 

(referred to as its ‘‘funding target’’). The bill generally would require the shortfall to be amortized over a period of seven years. 

These changes would have the effect of reducing required contributions for some plans (due to the seven-year amortization period) 

and increasing required contributions for others (because of the 

higher funding target). 

The bill also would limit the use of previously accumulated funding balances, which can be used to offset required contributions. 

Funding balances usually occur when a sponsor contributes more 

than the minimum required in a given year. Under current law, no 

matter how underfunded a plan is, its sponsor may use funding 

balances to reduce or eliminate required contributions. In addition, 

the value of funding balances is not adjusted for actual gains or 

losses on the assets in which they are invested. Instead, these balances are increased each year by the same rate of return assumed 

for other assets held by the plan. H.R. 2830 would allow only plans 

that have a funding ratio of 80 percent or higher to use funding 

balances to offset required pension contributions. In addition, the 

bill would require plans to adjust the value of any balances for net 

gains or losses on the plan’s assets. These changes to the use of 

funding balances would generally have the effect of increasing required contributions. 

H.R. 2830 would also affect required contributions by: reducing 

the ‘‘smoothing’’ period used to calculate the actuarial value of assets and liabilities; updating the mortality table used to project future benefits; and adding a ‘‘loading factor’’ to the funding target 

of plans that are less than 60 percent funded. 

In addition to changes in the funding rules, H.R. 2830 would also 

restrict some benefit payments for certain underfunded plans. Specifically, the bill would limit the ability of plans with a funding 

ratio of less than 80 percent to make lump-sum payments or 

amend the plan to increase benefits. It also would effectively freeze 

normal benefit increases in plans with funding ratios of less than 

60 percent. In addition, the bill would prohibit plans from paying 

benefits for unpredictable contingent events, such as shutdown 

150 

4The higher discount rate would be used to calculate plans’ ‘‘current liability,’’ which is used 

to determine funding requirements and any premium payments on underfunding. The bill would 

not, however, affect the discount rate used to calculate plans’ ‘‘termination liability,’’ which represents the present value of all future benefit payments owed by the PBGC upon termination 

of a plan. 5The PBGC has several different on-budget revolving funds and two nonbudgetary trust 

funds. For simplicity in the budgetary presentation, CBO combines the various on-budget and 

nonbudgetary funds into just two funds. 

benefits to workers in facilities that are closed. If enacted, these 

policies would reduce liabilities, and therefore reduce benefit payments that the PBGC would be required to make for plans that are 

terminated in the future. 

Accounting for all the policy changes contained in H.R. 2830, 

CBO estimates that the annual shortfall between assets and liabilities (on a present-value basis) among plans that the PBGC takes 

over during the 2006–2015 period would increase by several hundred million dollars. The larger shortfall would manifest itself in 

higher outlays for benefit payments by the PBGC, as those liabilities eventually come due, with a significant portion of those claims 

being paid well after 2015. The biggest reason for the increase in 

claims is the projected decrease in required contributions, at least 

during the first several year of the period, due to use of the corporate bond yield curve to discount current liabilities.4 This effect 

would be offset to some degree, especially during the second half 

of the budget window, by the higher funding target and limits on 

benefit accruals. Overall, however, CBO estimates that the bill 

would lead to an increase in underfunding among plans that would 

be terminated over the next decade, thus increasing outlays by the 

PBGC for pension benefits. 

Transfers from PBGC’s Trust Fund. The PBGC’s assets are held 

in two separate funds: an on-budget revolving fund and a nonbudgetary trust fund.5 ‘‘The on-budget fund receives premium payments 

and makes outlays for benefit payments and administrative costs. 

The nonbudgetary trust fund holds assets from terminated plans 

until they are needed to help pay for benefits and other expenses. 

The PBGC makes periodic transfers from the nonbudgetary fund to 

the on-budget fund, where they are used to cover about half of all 

benefit payments and most of the PBGC’s administrative costs. As 

with premiums, these transfers are offsetting collections to a mandatory account, and so are reflected in the budget as offsets to outlays. 

In CBO’s current-law projections, the combination of rising benefit payments and level premium income will cause the agency’s 

on-budget fund to be completely exhausted in about 2013. No 

precedent exists for how the PBGC would proceed if its on-budget 

fund is depleted. However, CBO assumes that the agency would 

cover its expenses by increasing the percentage of benefits and 

other expenses being paid through transfers from its nonbudgetary 

trust fund, thus increasing offsetting collections above what they 

would have been if the fund had remained solvent. 

CBO estimates the increases in Premium receipts resulting from 

H.R. 2830 would cause the on-budget fund to remain solvent 

through at least 2015. Because the bill would improve the finances 

of the on-budget fund, the PBGC would not need to increase the 

amounts transferred from the nonbudgetary fund in order to help 

cover benefit payments and other expenses during the 10-year proVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00150 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
151 

jection period. By allowing the on-budget fund to remain solvent 

through the next decade, the bill would reduce those transfers by 

$7.4 billion over the 2013–2015 period. Because this change would 

reduce an offset to mandatory spending, it would result in a net increase in such spending. 

Revenues 

H.R. 2830 would alter existing tax law related to the treatment 

of pension plans. CBO and JCT estimate that, if enacted, those 

changes would increase receipts to the federal government during 

the 2006–2008 period, but decrease receipts after that. As a result, 

JCT estimates, enacting H.R. 2830 would increase revenues by 

about $1.1 billion over the 2006–2010 period and would reduce rev- enues by about $5.5 billion over the 2006–2015 period. 

Most of the revenue effects would come from the altered funding 

rules for single-employer, defined-benefit pension plans. By affecting the amount of tax-deductible contributions firms make to their 

pension plans, these changes would increase revenues by $5.1 billion over the 2006–2008 period and then decrease revenues by $10.4 billion over the 2009–2015 period. The change from increases 

to decreases in revenues is due to the differing phase-in rates of 

the stricter funding rules and the new discount rates. In the short 

run, the higher discount rates would reduce contributions and increase revenues before the stricter funding rules come fully into effect. Over the longer term, however, the stricter funding rules 

would more than offset the effect of the higher discount rates, leading to overall revenue losses. 

H.R. 2830 also would affect federal revenues by: 

• Changing funding rules for multiemployer defined-benefit 

plans. Currently, payments to cover many costs of plans (for example, their unfunded past service liability) are spread over a period 

of years. The amortization periods range from 15 years to 40 years. 

H.R. 2830 would require plans’ sponsors to amortize most costs 

over a 15-year period, thereby accelerating contributions and reducing corporate tax payments. JCT estimates this change would decrease revenues by less than $500,000 in 2006, by $56 million over 

the 2006–2010 period, and by $287 million over the 2006–2015 period. 

• Changing benefit accrual standards. Under current law, an 

employee’s accrual of benefits may not be stopped because of age. 

Under H.R. 2830, a plan would not violate this requirement if a 

participant’s accrued benefit is as much or more than that of a 

similarly situated, but younger individual. In other words, age discrimination would not be present in such a case. As a result, firms 

might change the type of pension plans they offer and the amount 

of tax-deductible contributions to those plans. JCT estimates that 

this change would decrease revenues by $29 million over the 2006–

2010 period and would increase revenues by $36 million over the 

2006–2015 period. 

Long-term effects on direct spending: Pursuant to section 407 of 

H. Con. Res. 95 (the Concurrent Resolution on the Budget, Fiscal 

Year 2006), CBO estimates that enacting H.R. 2830 would not 

cause an increase in direct spending greater than $5 billion in any 

of the 10-year periods between 2016 and 2055. During the four decades following 2015, reductions in outlays due to higher premium 

152 

10 receipts would be larger than increases in outlays resulting from 

changes to transfers from the nonbudgetary fund and additional 

benefit payments. 

Estimated impact on state, local, and tribal governments: CBO 

and JCT have reviewed the provisions of H.R. 2830 and determined 

they contain no intergovernmental mandates as defined in UMRA. 

State, local, and tribal governments are exempt from the provisions 

of ERISA that the bill would amend, and the remaining provisions 

of the bill contain no intergovernmental mandates and would not 

affect the budgets of state, local, or tribal governments. 

Estimated impact on the private sector: Some of the bill’s 

changes to ERISA would impose mandates on sponsors and administrators of single-employer and multiemployer private-pension 

plans. CBO estimates that the direct cost to affected entities of the 

mandates in the bill, less the direct savings resulting from those 

mandates, would exceed the annual threshold specified in UMRA 

($123 million in 2005, adjusted annually for inflation) in 2009 and 

thereafter. Most of that cost would result from the increase in premiums paid to the PBGC. JCT has determined that the tax provisions in the bill contain no private-sector mandates. 

Premiums 

The bill would increase the premiums that sponsors of single-employer plans are required to pay to the PBGC. CBO estimates that 

the additional premiums would total $2.0 billion over the 2006– 2010 period. 

Disclosures 

Title II would require multiemployer plans to provide certain information to participants and beneficiaries when a plan enters into 

‘‘endangered’’ or ‘‘critical’’ status. Title V would require single-employer plans to provide certain information to participants and 

beneficiaries when one or more plans sponsored by the employer 

are in ‘‘at risk’’ status. Both single-employer and multiemployer 

plans would be required to provide annual funding notices to all 

participants and beneficiaries within 90 days of the end of the 

plan-year. CBO estimates that the direct cost of those new requirements would be less than $30 million annually. 

Funding rules 

Title I would make several changes to the funding rules in 

ERISA for single-employer, defined-benefit pension plans. Changes 

in the discount rate plans are required to use to value future liabilities would decrease the contributions sponsors would be required 

to make to their pension plans. Several other changes in funding 

rules would increase the amount of annual contributions that they 

would be required to make. Title II would change the funding rules 

in ERISA for multiemployer defined-benefit pension plans such 

that some sponsors would be required to increase the amount of 

annual contributions that they make to their plans. 

The net effect of those changes would be to decrease the total 

amount of required pension contributions for sponsors of single-employer plans in the early years, and increase total required contributions in later years. CBO estimates that the changes in funding rules would increase required contributions for sponsors of 

153 

multiemployer plans throughout the five-year period. The changes 

in funding rules in the bill would not change the liabilities that 

plans’ sponsors have to current and future pension recipients, however. They would only affect the timing of the sponsors’ contributions. Because we have little basis for estimating the costs or benefits to sponsors of changes in the amounts contributed to their pension plans (for example, the cost of borrowing additional funds or 

of using funds that would otherwise be available for other purposes), CBO cannot estimate the direct cost or savings from those 

provisions. 

Lump-sum distributions 

Title III would change the rules in ERISA used for determining 

the amounts of lump-sum distributions to plans’ participants. A 

segmented interest rate based on corporate bond yields and an updated mortality table would be phased in for use in such calculations. Although the updated mortality table would cause a shortterm increase in the amount of distributions, the substitution of 

the segmented interest rate for the 30-year Treasury rate would 

decrease that cost in most cases. Taken together, CBO estimates 

that these changes would likely have the net effect of reducing 

plans’ costs. 

Estimate prepared by: Federal Spending: Geoffrey Gerhardt. 

Federal Revenues: Emily Schlect. Impact on State, Local, and Tribal Governments: Leo Lex. Impact on the Private Sector: Peter Richmond. 

Estimate approved by: Robert A. Sunshine, Assistant Director for 

Budget Analysis. G. Thomas Woodward, Assistant Director for Tax 

Analysis. 

STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

In accordance with clause (3)(c) of House Rule XIII, the goal of 

the bill is to strengthen the private pension system by amending 

the Employee Retirement Income Security Act (ERISA). The Committee expects the Department of Labor and the Pension Benefit 

Guaranty Corporation to implement the changes to the law in accordance with this stated goal. 

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. 2830. 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. 2830 modifies the reguVerDate Aug 31 2005 09:14 Sep 27, 2005 Jkt 039006 PO 00000 Frm 00153 Fmt 6659 Sfmt 6602 E:\HR\OC\HR232P1.XXX HR232P1
154 

lation 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. 

2830. 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

Pursuant to the terms of the referral of the bill to the Committee, the Committee adopted an amendment striking those provisions which were referred to the Committee and inserting new text. 

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the provisions of the bill referred to the Committee, as reported, are 

shown as follows (existing law proposed to be omitted is enclosed 

in black brackets, new matter is printed in italics, existing law in 

which no change is proposed is shown in roman): 

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 

1974 

SHORT TITLE AND TABLE OF CONTENTS

SECTION 1. This Act may be cited as the ‘‘Employee Retirement 

Income Security Act of 1974’’. 

TABLE OF CONTENTS 

Sec. 1. Short title and table of contents. 

TITLE I—PROTECTION OF EMPLOYEE BENEFIT RIGHTS 

* * * * * * * 

Subtitle B—Regulatory Provisions 

* * * * * * * 

PART 2—PARTICIPATION AND VESTING

* * * * * * * 

øSec. 207. Temporary variances from certain vesting requirements.¿ 

* * * * * * * 

PART 3—FUNDING

Sec. 301. Coverage. 

øSec. 302. Minimum funding standards. 

øSec. 303. Variance from minimum funding standard. 

øSec. 304. Extension of amortization periods. 

øSec. 305. Alternative minimum funding standard. 

øSec. 306. Security for waivers of minimum funding standard and extensions of 

amortization period. 

øSec. 307. Security required upon adoption of plan amendment resulting in significant underfunding. 

øSec. 308. Effective dates.¿ 

Sec. 302. Minimum funding standards. 

Sec. 303. Minimum funding standards for single-employer defined benefit pension 

plans. 

155 

Sec. 304. Minimum funding standards for multiemployer plans. 

Sec. 305. Additional funding rules for multiemployer plans in endangered status or 

critical status. 

* * * * * * * 

Subtitle D—Liability 

* * * * * * * 

PART 1—EMPLOYER WITHDRAWALS

* * * * * * * 

øSec. 4225. Limitation on withdrawal liability.¿ 

* * * * * * * 

TITLE I—PROTECTION OF EMPLOYEE BENEFIT RIGHTS 

SUBTITLE A—GENERAL PROVISIONS

* * * * * * * 

DEFINITIONS

SEC. 3. For purposes of this title: 

(1) * * * 

(2)(A) Except as provided in subparagraph (B), the terms ‘‘employee pension benefit plan’’ and ‘‘pension plan’’ mean any plan, 

fund, or program which was heretofore or is hereafter established 

or maintained by an employer or by an employee organization, or 

by both, to the extent that by its express terms or as a result of 

surrounding circumstances such plan, fund, or program—

(i) * * * 

* * * * * * * 

(42) the term ‘‘plan assets’’ means plan assets as defined by such 

regulations as the Secretary may prescribe, except that under such 

regulations the assets of any entity shall not be treated as plan assets if, immediately after the most recent acquisition of any equity 

interest in the entity, less than 50 percent of the total value of all 

equity interests in the entity are held by employee benefit plan investors. For purposes of determinations pursuant to this paragraph, 

the value of any equity interest owned by a person (other than such 

an employee benefit plan) who has discretionary authority or control 

with respect to the assets of the entity or any person who provides 

investment advice for a fee (direct or indirect) with respect to such 

assets, or any affiliate of such a person, shall be disregarded for 

purposes of calculating the 50 percent threshold. An entity shall be 

considered to hold plan assets only to the extent of the percentage 

of the equity interest owned by benefit plan investors. For purposes 

of this paragraph, the term ‘‘benefit plan investor’’ means an employee benefit plan subject to this part and any plan to which section 4975 of the Internal Revenue Code of 1986 applies. 

SUBTITLE B—REGULATORY PROVISIONS

PART 1—REPORTING AND DISCLOSURE

DUTY OF DISCLOSURE AND REPORTING

SEC. 101. (a) * * * 

* * * * * * * 

156 

(d) NOTICE OF FAILURE TO MEET MINIMUM FUNDING STAND- ARDS.—

(1) * * * 

* * * * * * * 

(3) DEFINITIONS.—For purposes of this subsection, the terms ‘‘required installment’’ and ‘‘due date’’ have the same meanings 

given such terms by øsection 302(e)¿ section 303(j). 

(e) NOTICE OF TRANSFER OF EXCESS PENSION ASSETS TO HEALTH

BENEFITS ACCOUNTS.— (1) * * * 

* * * * * * * 

(3) DEFINITIONS.—For purposes of paragraph (1), any term 

used in such paragraph which is also used in section 420 of the 

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

enactment of the øAmerican Jobs Creation Act of 2004¿ Pension Protection Act of 2005) shall have the same meaning as 

when used in such section. 

(f) øMULTIEMPLOYER¿ DEFINED BENEFIT PLAN FUNDING NO- TICES.—

(1) IN GENERAL.—The administrator of a defined benefit plan 

øwhich is a multiemployer plan¿ shall for each plan year provide a plan funding notice to each plan participant and beneficiary, to each labor organization representing such participants or beneficiaries, to each employer that has an obligation 

to contribute under the plan, and to the Pension Benefit Guaranty Corporation. 

(2) INFORMATION CONTAINED IN NOTICES.— (A) * * * 

(B) SPECIFIC INFORMATION.—A plan funding notice under 

paragraph (1) shall include— ø(i) a statement as to whether the plan’s funded current liability percentage (as defined in section 

302(d)(8)(B)) for the plan year to which the notice relates is at least 100 percent (and, if not, the actual 

percentage); 

ø(ii) a statement of the value of the plan’s assets, 

the amount of benefit payments, and the ratio of the 

assets to the payments for the plan year to which the 

notice relates; 

ø(iii) a summary of the rules governing insolvent 

multiemployer plans, including the limitations on benefit payments and any potential benefit reductions and 

suspensions (and the potential effects of such limitations, reductions, and suspensions on the plan); and¿ 

(i) a statement as to whether—

(I) in the case of a single-employer plan, the 

plan’s funding target attainment percentage (as defined in section 303(d)(2)), or 

(II) in the case of a multiemployer plan, the 

plan’s funded percentage (as defined in section 

305(d)(2)), 

is at least 100 percent (and, if not, the actual percentage); 

(ii) a statement of a reasonable estimate of—

157 

(I) the value of the plan’s assets for the plan year 

to which the notice relates, 

(II) projected liabilities of the plan for the plan 

year to which the notice relates, and 

(III) the ratio of the estimated amount determined under subclause (I) to the estimated amount 

determined under subclause (II); 

(iii)(I) in the case of a single-employer plan, a summary of the rules governing termination of single-employer plans under subtitle C of title IV, or 

(II) in the case of a multiemployer plan, a summary 

of the rules governing insolvent multiemployer plans, 

including the limitations on benefit payments and any 

potential benefit reductions and suspensions (and the 

potential effects of such limitations, reductions, and 

suspensions on the plan); 

(iv) a general description of the benefits under the 

plan which are eligible to be guaranteed by the Pension Benefit Guaranty Corporation, along with an explanation of the limitations on the guarantee and the 

circumstances under which such limitations applyø.¿; 

(v) a statement of the ratio, as of the end of the plan 

year to which the notice relates, of— (I) the number of participants who are not in 

covered service under the plan and are in pay status under the plan or have a nonforfeitable right 

to benefits under the plan, to 

(II) the number of participants who are in covered service under the plan; 

(vi) a statement setting forth the funding policy of 

the plan and the asset allocation of investments under 

the plan (expressed as percentages of total assets) as of 

the end of the plan year to which the notice relates; 

and 

(vii) a summary of any funding improvement plan, 

rehabilitation plan, or modification thereof adopted 

under section 305 during the plan year to which the 

notice relates. 

For purposes of determining a plan’s projected liabilities 

for a plan year under clause (ii)(II), such projected liabilities shall be determined by projecting forward in a reasonable manner to the end of the plan year the liabilities of the 

plan to participants and beneficiaries as of the first day of 

the plan year, taking into account any significant events 

that occur during the plan year and that have a material 

effect on such liabilities, including any plan amendments 

in effect for the plan year. 

* * * * * * * 

(3) TIME FOR PROVIDING NOTICE.—Any notice under paragraph (1) shall be provided no later than øtwo months after the 

deadline (including extensions) for filing the annual report for 

the plan year¿ 90 days after the end of the plan year to which 

the notice relates. 

* * * * * * * 

158 

(j) NOTICE OF FUNDING-BASED LIMITATION ON CERTAIN FORMS OF

DISTRIBUTION.—The plan administrator of a single-employer plan 

shall provide a written notice to plan participants and beneficiaries 

within 30 days after the plan has become subject to the restriction 

described in section 206(h)(2) or at such other time as may be determined by the Secretary. 

(k) MULTIEMPLOYER PLAN INFORMATION MADE AVAILABLE ON REQUEST.—

(1) IN GENERAL.—Each administrator of a multiemployer 

plan shall furnish to any plan participant or beneficiary or any 

employer having an obligation to contribute to the plan, who so 

requests in writing—

(A) a copy of any actuarial report received by the plan for 

any plan year which has been in receipt by the plan for at 

least 30 days, and 

(B) a copy of any financial report prepared for the plan 

by any plan investment manager or advisor or other person 

who is a plan fiduciary which has been in receipt by the 

plan for at least 30 days. 

(2) COMPLIANCE.—Information required to be provided under 

paragraph (1) —

(A) shall be provided to the requesting participant, beneficiary, or employer within 30 days after the request in a 

form and manner prescribed in regulations of the Secretary, and 

(B) may be provided in written, electronic, or other appropriate form to the extent such form is reasonably accessible to persons to whom the information is required to be 

provided. 

(3) LIMITATIONS.—In no case shall a participant, beneficiary, 

or employer be entitled under this subsection to receive more 

than one copy of any report described in paragraph (1) during 

any one 12-month period. The administrator may make a reasonable charge to cover copying, mailing, and other costs of furnishing copies of information pursuant to paragraph (1). The 

Secretary may by regulations prescribe the maximum amount 

which will constitute a reasonable charge under the preceding 

sentence. 

(l) NOTICE OF POTENTIAL WITHDRAWAL LIABILITY.—

(1) IN GENERAL.—The plan sponsor or administrator of a 

multiemployer plan shall furnish to any employer who has an 

obligation to contribute under the plan and who so requests in 

writing notice of—

(A) the amount which would be the amount of such employer’s withdrawal liability under part 1 of subtitle E of 

title IV if such employer withdrew on the last day of the 

plan year preceding the date of the request, and 

(B) the average increase, per participant under the plan, 

in accrued liabilities under the plan as of the end of such 

plan year to participants under such plan on whose behalf 

no employer contributions are payable (or their beneficiaries), which would be attributable to such a withdrawal by such employer. 

159 

For purposes of subparagraph (B), the term ‘‘employer contribution’’ means, in connection with a participant, a contribution 

made by an employer as an employer of such participant. 

(2) COMPLIANCE.—Any notice required to be provided under 

paragraph (1)— (A) shall be provided to the requesting employer within 

180 days after the request in a form and manner prescribed 

in regulations of the Secretary, and 

(B) may be provided in written, electronic, or other appropriate form to the extent such form is reasonably accessible to employers to whom the information is required to 

be provided. 

(3) LIMITATIONS.—In no case shall an employer be entitled 

under this subsection to receive more than one notice described 

in paragraph (1) during any one 12-month period. The person 

required to provide such notice may make a reasonable charge 

to cover copying, mailing, and other costs of furnishing such notice pursuant to paragraph (1). The Secretary may by regulations prescribe the maximum amount which will constitute a 

reasonable charge under the preceding sentence. 

ø(j)¿ (m) CROSS REFERENCE.—For regulations relating to coordination of reports to the Secretaries of Labor and the Treasury, see 

section 3004. 

* * * * * * * 

ANNUAL REPORTS

SEC. 103. (a)(1)(A) * * * 

(B) The annual report shall include the information described in 

subsections (b) and (c) and where applicable øsubsections (d) and 

(e)¿ subsections (d), (e), and (f) and shall also include—

(i) * * * 

* * * * * * * 

(d) With respect to an employee pension benefit plan (other than 

(A) a profit sharing, savings, or other plan, which is an individual 

account plan, (B) a plan described in section 301(b), or (C) a plan 

described both in section 4021(b) and in paragraph (1), (2), (3), (4), 

(5), (6), or (7) of section 301(a)) an annual report under this section 

for a plan year shall include a complete actuarial statement applicable to the plan year which shall include the following: 

(1) * * * 

* * * * * * * 

(8) A statement by the enrolled actuary—

(A) * * * 

(B) øthe requirements of section 302(c)(3)¿ the applicable 

requirements of sections 303(h) and 304(c)(3) (relating to 

reasonable actuarial assumptions and methods) have been 

complied with. 

* * * * * * * 

ø(11) If the current value of the assets of the plan is less 

than 70 percent of the current liability under the plan (within 

the meaning of section 302(d)(7)), the percentage which such 

value is of such liability.¿ 

160 

(11) If the current value of the assets of the plan is less than 

70 percent of—

(A) in the case of a single-employer plan, the funding target (as defined in section 303(d)(1)) of the plan, or 

(B) in the case of a multiemployer plan, the current liability (as defined in section 304(c)(6)(D)) under the plan, 

the percentage which such value is of the amount described in 

subparagraph (A) or (B). 

(12) A statement explaining the actuarial assumptions and 

methods used in projecting future retirements and forms of benefit distributions under the plan. 

ø(12)¿ (13) Such other information regarding the plan as the 

Secretary may by regulation require. 

ø(13)¿ (14) Such other information as may be necessary to 

fully and fairly disclose the actuarial position of the plan. 

Such actuary shall make an actuarial valuation of the plan for 

every third plan year, unless he determines that a more frequent 

valuation is necessary to support his opinion under subsection 

(a)(4) of this section. 

* * * * * * * 

(f)(1) With respect to any defined benefit plan, an annual report 

under this section for a plan year shall include the following: 

(A) The ratio, as of the end of such plan year, of—

(i) the number of participants who, as of the end of such 

plan year, are not in covered service under the plan and are 

in pay status under the plan or have a nonforfeitable right 

to benefits under the plan, to 

(ii) the number of participants who are in covered service 

under the plan as of the end of such plan year. 

(B) In any case in which any liabilities to participants or 

their beneficiaries under such plan as of the end of such plan 

year consist (in whole or in part) of liabilities to such participants and beneficiaries borne by 2 or more pension plans as of 

immediately before such plan year, the funded ratio of each of 

such 2 or more pension plans as of immediately before such 

plan year and the funded ratio of the plan with respect to 

which the annual report is filed as of the end of such plan year. 

(C) For purposes of this paragraph, the term ‘‘funded ratio’’

means, in connection with a plan, the percentage which—

(i) the value of the plan’s assets is of 

(ii) the liabilities to participants and beneficiaries under 

the plan. 

(2) With respect to any defined benefit plan which is a multiemployer plan, an annual report under this section for a plan year 

shall include the following: 

(A) The number of employers obligated to contribute to the 

plan as of the end of such plan year. 

(B) The number of participants under the plan on whose behalf no employer contributions have been made to the plan for 

such plan year. For purposes of this subparagraph, the term 

‘‘employer contribution’’ means, in connection with a participant, a contribution made by an employer as an employer of 

such participant. 

161 

FILING WITH SECRETARY AND FURNISHING INFORMATION TO

PARTICIPANTS

SEC. 104. (a)(1) The administrator of any employee benefit plan 

subject to this part shall file with the Secretary the annual report 

for a plan year within 210 days after the close of such year (or 

within such time as may be required by regulations promulgated 

by the Secretary in order to reduce duplicative filing). In the case 

of a pension plan, the Secretary may extend the deadline for filing 

the annual report for any plan year past 275 days after the close 

of the plan year only on a case by case basis and only in cases of 

hardship, in accordance with regulations which shall be prescribed 

by the Secretary. The Secretary shall make copies of such annual 

reports available for inspection in the public document room of the 

Department of Labor. 

(b) Publication of the summary plan descriptions and annual reports shall be made to participants and beneficiaries of the particular plan as follows: 

(1) * * * 

(2) The administrator shall make copies of the latest updated 

summary plan description and the latest annual report and the 

bargaining agreement, trust agreement, contract, or other instruments under which the plan was established or is operated available for examination by any plan participant or beneficiary in the 

principal office of the administrator and in such other places as 

may be necessary to make available all pertinent information to all 

participants (including such places as the Secretary may prescribe 

by regulations). 

(3) øWithin 210 days after the close of the fiscal year of the 

plan,¿ (A) Within 15 business days after the due date under subsection (a)(1) for the filing of the annual report for 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 øthe latest¿ such 

annual report. 

(B) The material provided pursuant to subparagraph (A) to summarize the latest annual report shall be written in a manner calculated to be understood by the average plan participant and shall 

set forth the total assets and liabilities of the plan for the plan year 

for which the latest annual report was filed and for each of the 2 

preceding plan years, as reported in the annual report for each such 

plan year under this section. 

* * * * * * * 

(5) Identification and basic plan information and actuarial information included in the annual report for any plan year shall be 

filed with the Secretary in an electronic format which accommodates display on the Internet, in accordance with regulations which 

shall be prescribed by the Secretary. The Secretary shall provide for 

display of such information included in the annual report, within 

90 days after the date of the filing of the annual report, on a website 

maintained by the Secretary on the Internet and other appropriate 

media. Such information shall also be displayed on any website 

162 

maintained by the plan sponsor (or by the plan administrator on behalf of the plan sponsor) on the Internet, in accordance with regulations which shall be prescribed by the Secretary. 

* * * * * * * 

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) * * * 

* * * * * * * 

(3)(A) * * * 

* * * * * * * 

(C) A right to an accrued benefit derived from employer contributions shall not be treated as forfeitable solely because 

plan amendments may be given retroactive application as provided in øsection 302(c)(8)¿ section 302(d)(2). 

* * * * * * * 

(f)(1) A defined benefit plan under which the accrued benefit payable under the plan upon distribution (or any portion thereof) is expressed as the balance of a hypothetical account maintained for the 

participant shall not be treated as failing to meet the requirements 

of subsection (a)(2) and section 205(g) solely because of the amount 

actually made available for such distribution under the terms of the 

plan, in any case in which the applicable interest rate that would 

be used under the terms of the plan to project the amount of the participant’s account balance to normal retirement age is not greater 

than a market rate of return. 

(2) The Secretary of the Treasury may provide by regulation for 

rules governing the calculation of a market rate of return for purposes of paragraph (1) and for permissible methods of crediting interest to the account (including variable interest rates) resulting in 

effective rates of return meeting the requirements of paragraph (1). 

BENEFIT ACCRUAL REQUIREMENTS

SEC. 204. (a) * * * 

(b)(1)(A) * * * 

* * * * * * * 

(H)(i) * * * 

* * * * * * * 

(vii)(I) A plan shall not be treated as failing to meet the requirements of clause (i) if a participant’s entire accrued benefit, as determined as of any date under the formula for determining benefits as 

set forth in the text of the plan documents, would be equal to or 

greater than that of any similarly situated, younger individual. 

(II) For purposes of this clause, an individual is similarly situated to a participant if such individual is identical to such particiVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00162 Fmt 6659 Sfmt 6603 E:\HR\OC\HR232P1.XXX HR232P1
163 

pant in every respect (including period of service, compensation, position, date of hire, work history, and any other respect) except for 

age. 

(III) In determining the entire accrued benefit for purposes of this 

clause, the subsidized portion of any early retirement benefit (including any early retirement subsidy that is fully or partially included or reflected in an employee’s opening balance or other transition benefits) shall be disregarded. 

(viii) A plan under which the accrued benefit payable under the 

plan upon distribution (or any portion thereof) is expressed as the 

balance of a hypothetical account maintained for the participant 

shall not be treated as failing to meet the requirements of clause (i) 

solely because interest accruing on such balance is taken into account. 

(ix) A plan shall not be treated as failing to meet the requirements 

of this subparagraph solely because the plan provides allowable offsets against those benefits under the plan which are attributable to 

employer contributions, based on benefits which are provided under 

title II of the Social Security Act, the Railroad Retirement Act of 

1974, another plan described in section 401(a) of the Internal Revenue Code of 1986 maintained by the same employer, or under any 

retirement program for officers or employees of the Federal Government or of the government of any State or political subdivision 

thereof. For purposes of this clause, allowable offsets based on such 

benefits consist of offsets equal to all or part of the actual benefit 

payment amounts, reasonable projections or estimations of such 

benefit payment amounts, or actuarial equivalents of such actual 

benefit payment amounts, projections, or estimations (determined on 

the basis of reasonable actuarial assumptions). 

(x) A plan shall not be treated as failing to meet the requirements 

of this subparagraph solely because the plan provides a disparity in 

contributions or benefits with respect to which the requirements of 

section 401(l) of the Internal Revenue Code of 1986 are met. 

(xi)(I) A plan shall not be treated as failing to meet the requirements of this subparagraph solely because the plan provides for preretirement indexing of accrued benefits under the plan. 

(II) For purposes of this clause, the term ‘‘pre-retirement indexing’’

means, in connection with an accrued benefit, the periodic adjustment of the accrued benefit by means of the application of a recognized index or methodology so as to protect the economic value of 

the benefit against inflation prior to distribution. 

* * * * * * * 

(g)(1) The accrued benefit of a participant under a plan may not 

be decreased by an amendment of the plan, other than an amendment described in øsection 302(c)(8)¿ section 302(d)(2) or 4281. 

* * * * * * * 

(i)(1) * * * 

(2) Paragraph (1) shall not apply to any plan amendment that—

(A) * * * 

(B) only repeals an amendment described in øsection 

302(c)(8)¿ section 302(d)(2), 

* * * * * * * 

164 

(3) This subsection shall apply only to plans (other than multiemployer plans) covered under section 4021 of this Act for which the 

øfunded current liability percentage (within the meaning of section 

302(d)(8) of this Act)¿ funding target attainment percentage (as defined in section 303(d)(2)) is less than 100 percent after taking into 

account the effect of the amendment. 

(4) For purposes of this subsection, the term ‘‘employer’’ has the 

meaning set forth in øsection 302(c)(11)(A), without regard to section 302(c)(11)(B)¿ section 302(b)(1), without regard to section 

302(b)(2). 

* * * * * * * 

REQUIREMENT OF JOINT AND SURVIVOR ANNUITY AND

PRERETIREMENT SURVIVOR ANNUITY

SEC. 205. (a) * * * 

* * * * * * * 

(g)(1) * * * 

* * * * * * * 

ø(3) DETERMINATION OF PRESENT VALUE.— ø(A) IN GENERAL.— ø(i) PRESENT VALUE.—Except as provided in subparagraph (B), for purposes of paragraphs (1) and (2), 

the present value shall not be less than the present 

value calculated by using the applicable mortality 

table and the applicable interest rate. 

ø(ii) DEFINITIONS.—For purposes of clause (i)— ø(I) APPLICABLE MORTALITY TABLE.—The term ‘‘applicable mortality table’’ means the table prescribed by the Secretary of the Treasury. Such 

table shall be based on the prevailing commissioners’ standard table (described in section 

807(d)(5)(A) of the Internal Revenue Code of 1986) 

used to determine reserves for group annuity contracts issued on the date as of which present 

value is being determined (without regard to any 

other subparagraph of section 807(d)(5) of such 

Code). 

ø(II) APPLICABLE INTEREST RATE.—The term 

‘‘applicable interest rate’’ means the annual rate 

of interest on 30-year Treasury securities for the 

month before the date of distribution or such 

other time as the Secretary of the Treasury may 

by regulations prescribe. 

ø(B) EXCEPTION.—In the case of a distribution from a 

plan that was adopted and in effect prior to the date of the 

enactment of the Retirement Protection Act of 1994, the 

present value of any distribution made before the earlier 

of—

ø(i) the later of when a plan amendment applying 

subparagraph (A) is adopted or made effective, or 

ø(ii) the first day of the first plan year beginning 

after December 31, 1999, 

165 

shall be calculated, for purposes of paragraphs (1) and (2), 

using the interest rate determined under the regulations of 

the Pension Benefit Guaranty Corporation for determining 

the present value of a lump sum distribution on plan termination that were in effect on September 1, 1993, and 

using the provisions of the plan as in effect on the day before such date of enactment; but only if such provisions of 

the plan met the requirements of section 205(g)(3) as in effect on the day before such date of enactment.¿ 

(3)(A) For purposes of paragraphs (1) and (2), the present value 

shall not be less than the present value calculated by using the applicable mortality table and the applicable interest rate. 

(B) For purposes of subparagraph (B)—

(i) The term ‘‘applicable mortality table’’ means a mortality 

table, modified as appropriate by the Secretary of the Treasury, 

based on the mortality table specified for the plan year under 

section 303(h)(3). 

(ii) The term ‘‘applicable interest rate’’ means the adjusted 

first, second, and third segment rates applied under rules similar to the rules of section 303(h)(2)(C) for the month before the 

date of the distribution or such other time as the Secretary of 

the Treasury may by regulations prescribe. 

(iii) For purposes of clause (ii), the adjusted first, second, and 

third segment rates are the first, second, and third segment 

rates which would be determined under section 303(h)(2)(C) if—

(I) section 303(h)(2)(D)(i) were applied by substituting 

‘‘the yields’’ for ‘‘a 3-year weighted average of yields’’, 

(II) section 303(h)(2)(G)(i)(II) were applied by substituting ‘‘section 205(g)(3)(B)(ii)’’ for ‘‘section 

302(b)(5)(B)(ii)(II)’’, and 

(III) the applicable percentage under section 303(h)(2)(G) 

were determined in accordance with the following table: 

In the case of plan years beginning in: The applicable percentage is:

2006 ..................................................................... 20 percent

2007 ..................................................................... 40 percent

2008 ..................................................................... 60 percent

2009 ..................................................................... 80 percent. 

* * * * * * * 

OTHER PROVISIONS RELATING TO FORM AND PAYMENT OF BENEFITS

SEC. 206. (a) * * * 

* * * * * * * 

(e) LIMITATION ON DISTRIBUTIONS OTHER THAN LIFE ANNUITIES

PAID BY THE PLAN.—

(1) IN GENERAL.—Notwithstanding any other provision of 

this part, the fiduciary of a pension plan that is subject to the 

additional funding requirements of øsection 302(d)¿ section 

303(j)(4) shall not permit a prohibited payment to be made 

from a plan during a period in which such plan has a liquidity 

166 

shortfall (as defined in øsection 302(e)(5)¿ section 

303(j)(4)(E)(i)). 

* * * * * * * 

(3) PERIOD OF SHORTFALL.—For purposes of this subsection, 

a plan has a liquidity shortfall during the period that there is 

an underpayment of an installment under øsection 302(e) by 

reason of paragraph (5)(A) thereof¿ section 303(j)(3) by reason 

of section 303(j)(4)(A). 

* * * * * * * 

(g) PROHIBITION OF SHUTDOWN BENEFITS AND OTHER UNPREDICTABLE CONTINGENT EVENT BENEFITS UNDER SINGLE-EMPLOYER

PLANS.—

(1) IN GENERAL.—No pension plan which is a single-employer 

plan may provide benefits to which participants are entitled 

solely by reason of the occurrence of—

(A) a plant shutdown, or 

(B) any other unpredictable contingent event. 

(2) UNPREDICTABLE CONTINGENT EVENT.—For purposes of 

this subsection, the term ‘‘unpredictable contingent event’’

means an event other than—

(A) attainment of any age, performance of any service, receipt or derivation of any compensation, or the occurrence 

of death or disability, or 

(B) an event which is reasonably and reliably predictable 

(as determined by the Secretary of the Treasury). 

(h) FUNDING-BASED LIMITS ON BENEFITS AND BENEFIT ACCRUALS

UNDER SINGLE-EMPLOYER PLANS.—

(1) LIMITATIONS ON PLAN AMENDMENTS INCREASING LIABILITY

FOR BENEFITS.—

(A) IN GENERAL.—No amendment to a single-employer 

plan which has the effect of increasing liabilities of the 

plan by reason of increases in benefits, establishment of 

new benefits, changing the rate of benefit accrual, or changing the rate at which benefits become nonforfeitable to the 

plan may take effect during any plan year if the funding 

target attainment percentage as of the valuation date of the 

plan for such plan year is—

(i) less than 80 percent, or 

(ii) would be less than 80 percent taking into account 

such amendment. 

For purposes of this subparagraph, any increase in benefits 

under the plan by reason of an increase in the benefit rate 

provided under the plan or on the basis of an increase in 

compensation shall be treated as affected by plan amendment. 

(B) EXEMPTION.—Subparagraph (A) shall cease to apply 

with respect to any plan year, effective as of the first date 

of the plan year (or if later, the effective date of the amendment), upon payment by the plan sponsor of a contribution 

(in addition to any minimum required contribution under 

section 303) equal to—

(i) in the case of subparagraph (A)(i), the amount of 

the increase in the funding target of the plan (under 

167 

section 303) for the plan year attributable to the 

amendment, and 

(ii) in the case of subparagraph (A)(ii), the amount 

sufficient to result in a funding target attainment percentage of 80 percent. 

(2) FUNDING-BASED LIMITATION ON CERTAIN FORMS OF DISTRIBUTION.—

(A) IN GENERAL.—A single-employer plan shall provide 

that, in any case in which the plan’s funding target attainment percentage as of the valuation date of the plan for a 

plan year is less than 80 percent, the plan may not after 

such date pay any prohibited payment (as defined in section 206(e)). 

(B) EXCEPTION.—Subparagraph (A) shall not apply to 

any plan for any plan year if the terms of such plan (as in 

effect for the period beginning on June 29, 2005, and ending with such plan year) provide for no benefit accruals 

with respect to any participant during such period. 

(3) LIMITATIONS ON BENEFIT ACCRUALS FOR PLANS WITH SEVERE FUNDING SHORTFALLS.—A single-employer plan shall provide that, in any case in which the plan’s funding target attainment percentage as of the valuation date of the plan for a plan 

year is less than 60 percent, all future benefit accruals under 

the plan shall cease as of such date. 

(4) NEW PLANS.—Paragraphs (1) and (3) shall not apply to a 

plan for the first 5 plan years of the plan. For purposes of this 

paragraph, the reference in this paragraph to a plan shall include a reference to any predecessor plan. 

(5) PRESUMED UNDERFUNDING FOR PURPOSES OF BENEFIT

LIMITATIONS BASED ON PRIOR YEAR’S FUNDING STATUS.—

(A) PRESUMPTION OF CONTINUED UNDERFUNDING.—In 

any case in which a benefit limitation under paragraph (1), 

(2), or (3) has been applied to a plan with respect to the 

plan year preceding the current plan year, the funding target attainment percentage of the plan as of the valuation 

date of the plan for the current plan year shall be presumed 

to be equal to the funding target attainment percentage of 

the plan as of the valuation date of the plan for the preceding plan year until the enrolled actuary of the plan certifies the actual funding target attainment percentage of the 

plan as of the valuation date of the plan for the current 

plan year. 

(B) PRESUMPTION OF UNDERFUNDING AFTER 10TH

MONTH.—In any case in which no such certification is 

made with respect to the plan before the first day of the 

10th month of the current plan year, for purposes of paragraphs (1), (2), and (3), the plan’s funding target attainment percentage shall be conclusively presumed to be less 

than 60 percent as of the first day of such 10th month, and 

such day shall be deemed, for purposes of such paragraphs, 

to be the valuation date of the plan for the current plan 

year. 

(C) PRESUMPTION OF UNDERFUNDING AFTER 4TH MONTH

FOR NEARLY UNDERFUNDED PLANS.—In any case in which—

168 

(i) a benefit limitation under paragraph (1), (2), or 

(3) did not apply to a plan with respect to the plan 

year preceding the current plan year, but the funding 

target attainment percentage of the plan for such preceding plan year was not more than 10 percentage 

points greater than the percentage which would have 

caused such paragraph to apply to the plan with respect to such preceding plan year, and 

(ii) as of the first day of the 4th month of the current 

plan year, the enrolled actuary of the plan has not certified the actual funding target attainment percentage 

of the plan as of the valuation date of the plan for the 

current plan year, 

until the enrolled actuary so certifies, such first day shall 

be deemed, for purposes of such paragraph, to be the valuation date of the plan for the current plan year and the 

funding target attainment percentage of the plan as of such 

first day shall, for purposes of such paragraph, be presumed to be equal to 10 percentage points less than the 

funding target attainment percentage of the plan as of the 

valuation date of the plan for such preceding plan year. 

(6) RESTORATION BY PLAN AMENDMENT OF BENEFITS OR BEN- EFIT ACCRUAL.—In any case in which a prohibition under paragraph (2) of the payment of lump sum distributions or benefits 

in any other accelerated form or a cessation of benefit accruals 

under paragraph (3) is applied to a plan with respect to any 

plan year and such prohibition or cessation, as the case may be, 

ceases to apply to any subsequent plan year, the plan may provide for the resumption of such benefit payment or such benefit 

accrual only by means of the adoption of a plan amendment 

after the valuation date of the plan for such subsequent plan 

year. The preceding sentence shall not apply to a prohibition or 

cessation required by reason of paragraph (5). 

(7) FUNDING TARGET ATTAINMENT PERCENTAGE.— (A) IN GENERAL.—For purposes of this subsection, the 

term ‘‘funding target attainment percentage’’ means, with 

respect to any plan for any plan year, the ratio (expressed 

as a percentage) which— (i) the value of plan assets for the plan year (as determined under section 303(g)) reduced by the prefunding balance and the funding standard carryover 

balance (within the meaning of section 303(f)), bears to 

(ii) the funding target of the plan for the plan year 

(as determined under section 303(d)(1), but without regard to section 303(i)(1)). 

(B) APPLICATION TO PLANS WHICH ARE FULLY FUNDED

WITHOUT REGARD TO REDUCTIONS FOR FUNDING BAL- ANCES.—In the case of a plan for any plan year, if the 

funding target attainment percentage is 100 percent or 

more (determined without regard to this subparagraph and 

without regard to the reduction under subparagraph (A)(i) 

for the pre-funding balance and the funding standard carryover balance), subparagraph (A) shall be applied without 

regard to such reduction. 

* * * * * * * 

169 

øTEMPORARY VARIANCES FROM CERTAIN VESTING REQUIREMENTS

øSEC. 207. In the case of any plan maintained on January 1, 

1974, if not later than 2 years after the date of enactment of this 

Act, the administrator petitions the Secretary, the Secretary may 

prescribe an alternate method which shall be treated as satisfying 

the requirements of section 203(a)(2) or 204(b)(1) (other than subparagraph (D) thereof) of this title or both for a period of not more 

than 4 years. The Secretary may prescribe such alternate method 

only when he finds that—

ø(1) the application of such requirements would increase the 

costs of the plan to such an extent that there would result a 

substantial risk to the voluntary continuation of the plan or a 

substantial curtailment of benefit levels or the levels of employees’ compensation, 

ø(2) the application of such requirements or discontinuance 

of the plan would be adverse to the interests of plan participants in the aggregate, and 

ø(3) a waiver or extension of time granted under section 303 

or 304 of this Act would be inadequate. 

In the case of any plan with respect to which an alternate method 

has been prescribed under the preceding provisions of this subsection for a period of not more than 4 years, if, not later than 1 

year before the expiration of such period, the administrator petitions the Secretary for an extension of such alternate method, and 

the Secretary makes the findings required by the preceding sentence, such alternate method may be extended for not more than 

3 years.¿ 

* * * * * * * 

PART 3—FUNDING

COVERAGE

SEC. 301. (a) * * * 

* * * * * * * 

ø(d) Any amount of any financial assistance from the Pension 

Benefit Guaranty Corporation to any plan, and any repayment of 

such amount, shall be taken into account under this section in such 

manner as determined by the Secretary of the Treasury.¿ 

øMINIMUM FUNDING STANDARDS

øSEC. 302. (a)(1) Every employee pension benefit plan subject to 

this part shall satisfy the minimum funding standard (or the alternative minimum funding standard under section 305) for any plan 

year to which this part applies. A plan to which this part applies 

shall have satisfied the minimum funding standard for such plan 

for a plan year if as of the end of such plan year the plan does not 

have an accumulated funding deficiency. 

ø(2) For the purposes of this part, the term ‘‘accumulated funding 

deficiency’’ means for any plan the excess of the total charges to 

the funding standard account for all plan years (beginning with the 

first plan year to which this part applies) over the total credits to 

such account for such years or, if less, the excess of the total 

charges to the alternative minimum funding standard account for 

170 

such plan years over the total credits to such account for such 

years. 

ø(3) In any plan year in which a multiemployer plan is in reorganization, the accumulated funding deficiency of the plan shall be 

determined under section 4243. 

ø(b)(1) Each plan to which this part applies shall establish and 

maintain a funding standard account. Such account shall be credited and charged solely as provided in this section. 

ø(2) For a plan year, the funding standard account shall be 

charged with the sum of—

ø(A) the normal cost of the plan for the plan year, 

ø(B) the amounts necessary to amortize in equal annual installments (until fully amortized)—

ø(i) in the case of a plan in existence on January 1, 

1974, the unfunded past service liability under the plan on 

the first day of the first plan year to which this part applies, over a period of 40 plan years, 

ø(ii) in the case of a plan which comes into existence 

after January 1, 1974, the unfunded past service liability 

under the plan on the first day of the first plan year to 

which this part applies, over a period of 30 plan years (20 

plan years in the case of a multiemployer plan), 

ø(iii) separately, with respect to each plan year, the net 

increase (if any) in unfunded past service liability under 

the plan arising from plan amendments adopted in such 

year, over a period of 30 plan years (20 plan years in the 

case of a multiemployer plan), 

ø(iv) separately, with respect to each plan year, the net 

experience loss (if any) under the plan, over a period of 5 

plan years (15 plan years in the case of a multiemployer 

plan), and 

ø(v) separately, with respect to each plan year, the net 

loss (if any) resulting from changes in actuarial assumptions used under the plan, over a period of 10 plan years 

(30 plan years in the case of a multiemployer plan), 

ø(C) the amount necessary to amortize each waived funding 

deficiency (within the meaning of section 303(c), for each prior 

plan year in equal annual installments (until fully amortized) 

over a period of 5 plan years (15 plan years in the case of a 

multiemployer plan), 

ø(D) the amount necessary to amortize in equal annual installments (until fully amortized) over a period of 5 plan years 

any amount credited to the funding standard account under 

paragraph (3)(D), and 

ø(E) the amount necessary to amortize in equal annual installments (until fully amortized) over a period of 20 years the 

contributions which would be required to be made under the 

plan but for the provisions of subsection (c)(7)(A)(i)(I). 

ø(3) For a plan year, the funding standard account shall be credited with the sum of—

ø(A) the amount considered contributed by the employer to 

or under the plan for the plan year, 

ø(B) the amount necessary to amortize in equal annual installments (until fully amortized)—

171 

ø(i) separately, with respect to each plan year, the net 

decrease (if any) in unfunded past service liability under 

the plan arising from plan amendments adopted in such 

year, over a period of 30 plan years (20 plan years in the 

case of a multiemployer plan), 

ø(ii) separately, with respect to each plan year, the net 

experience gain (if any) under the plan, over a period of 5 

plan years (15 plan years in the case of a multiemployer 

plan), and 

ø(iii) separately, with respect to each plan year, the net 

gain (if any) resulting from changes in actuarial assumptions used under the plan, over a period of 10 plan years 

(30 plan years in the case of a multiemployer plan), 

ø(C) the amount of the waived funding deficiency (within the 

meaning of section 303(c)) for the plan year, and 

ø(D) in the case of a plan year for which the accumulated 

funding deficiency is determined under the funding standard 

account if such plan year follows a plan year for which such 

deficiency was determined under the alternative minimum 

funding standard, the excess (if any) of any debit balance in 

the funding standard account (determined without regard to 

this subparagraph) over any debit balance in the alternative 

minimum funding standard account. 

ø(4) Under regulations prescribed by the Secretary of the Treasury, amounts required to be amortized under paragraph (2) or 

paragraph (3), as the case may be— ø(A) may be combined into one amount under such paragraph to be amortized over a period determined on the basis 

of the remaining amortization period for all items entering into 

such combined amount, and 

ø(B) may be offset against amounts required to be amortized 

under the other such paragraph, with the resulting amount to 

be amortized over a period determined on the basis of the remaining amortization periods for all items entering into whichever of the two amounts being offset is the greater. 

ø(5) INTEREST.— ø(A) IN GENERAL.—The funding standard account (and items 

therein) shall be charged or credited (as determined under regulations prescribed by the Secretary of the Treasury) with interest at the appropriate rate consistent with the rate or rates 

of interest used under the plan to determine costs. 

ø(B) REQUIRED CHANGE OF INTEREST RATE.—For purposes of 

determining a plan’s current liability and for purposes of determining a plan’s required contribution under section 302(d) for 

any plan year—

ø(i) IN GENERAL.—If any rate of interest used under the 

plan to determine cost is not within the permissible range, 

the plan shall establish a new rate of interest within the 

permissible range. 

ø(ii) PERMISSIBLE RANGE.—For purposes of this subparagraph—

ø(I) IN GENERAL.—Except as provided in subclause 

(II) or (III), the term ‘‘permissible range’’ means a rate 

of interest which is not more than 10 percent above, 

and not more than 10 percent below, the the weighted 

172 

average of the rates of interest on 30-year Treasury 

securities during the 4-year period ending on the last 

day before the beginning of the plan year. 

ø(II) SPECIAL RULE FOR YEARS 2004 AND 2005.—In the 

case of plan years beginning after December 31, 2003, 

and before January 1, 2006, the term ‘‘permissible 

range’’ means a rate of interest which is not above, 

and not more than 10 percent below, the weighted average of the rates of interest on amounts invested conservatively in long-term investment grade corporate 

bonds during the 4-year period ending on the last day 

before the beginning of the plan year. Such rates shall 

be determined by the Secretary of the Treasury on the 

basis of 2 or more indices that are selected periodically 

by the Secretary of the Treasury and that are in the 

top 3 quality levels available. The Secretary of the 

Treasury shall make the permissible range, and the 

indices and methodology used to determine the average rate, publicly available. 

ø(III) SECRETARIAL AUTHORITY.—If the Secretary 

finds that the lowest rate of interest permissible under 

subclause (I) or (II) is unreasonably high, the Secretary may prescribe a lower rate of interest, except 

that such rate may not be less than 80 percent of the 

average rate determined under such subclause. 

ø(iii) ASSUMPTIONS.—Notwithstanding subsection 

(c)(3)(A)(i), the interest rate used under the plan shall be— ø(I) determined without taking into account the experience of the plan and reasonable expectations, but 

ø(II) consistent with the assumptions which reflect 

the purchase rates which would be used by insurance 

companies to satisfy the liabilities under the plan. 

ø(6) In the case of a plan which, immediately before the date of 

the enactment of the Multiemployer Pension Plan Amendments Act 

of 1980, was a multiemployer plan (within the meaning of section 

3(37) as in effect immediately before such date)—

ø(A) any amount described in paragraph (2)(B)(ii), (2)(B)(iii), 

or (3)(B)(i) of this subsection which arose in a plan year beginning before such date shall be amortized in equal annual installments (until fully amortized) over 40 plan years, beginning 

with the plan year in which the amount arose; 

ø(B) any amount described in paragraph (2)(B)(iv) or 

(3)(B)(ii) of this subsection which arose in a plan year beginning before such date shall be amortized in equal annual installments (until fully amortized) over 20 plan years, beginning 

with the plan year in which the amount arose; 

ø(C) any change in past service liability which arises during 

the period of 3 plan years beginning on or after such date, and 

results from a plan amendment adopted before such date, shall 

be amortized in equal annual installments (until fully amortized) over 40 plan years, beginning with the plan year in 

which the change arises; and 

ø(D) any change in past service liability which arises during 

the period of 2 plan years beginning on or after such date, and 

results from the changing of a group of participants from one 

173 

benefit level to another benefit level under a schedule of plan 

benefits which— ø(i) was adopted before such date, and 

ø(ii) was effective for any plan participant before the beginning of the first plan year beginning on or after such 

date, 

shall be amortized in equal annual installments (until fully 

amortized) over 40 plan years, beginning with the plan year in 

which the increase arises. 

ø(7) For purposes of this part— ø(A) Any amount received by a multiemployer plan in payment of all or part of an employer’s withdrawal liability under 

part 1 of subtitle E of title IV shall be considered an amount 

contributed by the employer to or under the plan. The Secretary of the Treasury may prescribe by regulation additional 

charges and credits to a multiemployer plan’s funding standard 

account to the extent necessary to prevent withdrawal liability 

payments from being unduly reflected as advance funding for 

plan liabilities. 

ø(B) If a plan is not in reorganization in the plan year but 

was in reorganization in the immediately preceding plan year, 

any balance in the funding standard account at the close of 

such immediately preceding plan year— ø(i) shall be eliminated by an offsetting credit or charge 

(as the case may be), but 

ø(ii) shall be taken into account in subsequent plan 

years by being amortized in equal annual installments 

(until fully amortized) over 30 plan years. 

The preceding sentence shall not apply to the extent of any accumulated funding deficiency under section 418B(a) of the Internal Revenue Code of 1986 as of the end of the last plan year 

that the plan was in reorganization. 

ø(C) Any amount paid by a plan during a plan year to the 

Pension Benefit Guaranty Corporation pursuant to section 

4222 or to a fund exempt under section 501(c)(22) of such Code 

pursuant to section 4223 shall reduce the amount of contributions considered received by the plan for the plan year. 

ø(D) Any amount paid by an employer pending a final determination of the employer’s withdrawal liability under part 1 of 

subtitle E of title IV and subsequently refunded to the employer by the plan shall be charged to the funding standard account in accordance with regulations prescribed by the Secretary. 

ø(E) For purposes of the full funding limitation under subsection (c)(7), unless otherwise provided by the plan, the accrued liability under a multiemployer plan shall not include 

benefits which are not nonforfeitable under the plan after the 

termination of the plan (taking into consideration section 

411(d)(3) of the Internal Revenue Code of 1986). 

ø(F) ELECTION FOR DEFERRAL OF CHARGE FOR PORTION

OF NET EXPERIENCE LOSS.— ø(i) IN GENERAL.—With respect to the net experience 

loss of an eligible multiemployer plan for the first plan 

year beginning after December 31, 2001, the plan 

sponsor may elect to defer up to 80 percent of the 

174 

amount otherwise required to be charged under paragraph (2)(B)(iv) for any plan year beginning after June 

30, 2003, and before July 1, 2005, to any plan year selected by the plan from either of the 2 immediately 

succeeding plan years. 

ø(ii) INTEREST.—For the plan year to which a charge 

is deferred pursuant to an election under clause (i), 

the funding standard account shall be charged with interest on the deferred charge for the period of deferral 

at the rate determined under section 304(a) for multiemployer plans. 

ø(iii) RESTRICTIONS ON BENEFIT INCREASES.—No 

amendment which increases the liabilities of the plan 

by reason of any increase in benefits, any change in 

the accrual of benefits, or any change in the rate at 

which benefits become nonforfeitable under the plan 

shall be adopted during any period for which a charge 

is deferred pursuant to an election under clause (i), 

unless—

ø(I) the plan’s enrolled actuary certifies (in such 

form and manner prescribed by the Secretary of 

the Treasury) that the amendment provides for an 

increase in annual contributions which will exceed 

the increase in annual charges to the funding 

standard account attributable to such amendment, 

or 

ø(II) the amendment is required by a collective 

bargaining agreement which is in effect on the 

date of enactment of this subparagraph. 

If a plan is amended during any such plan year in violation of the preceding sentence, any election under 

this paragraph shall not apply to any such plan year 

ending on or after the date on which such amendment 

is adopted. 

ø(iv) ELIGIBLE MULTIEMPLOYER PLAN.—For purposes 

of this subparagraph, the term ‘‘eligible multiemployer 

plan’’ means a multiemployer plan— ø(I) which had a net investment loss for the 

first plan year beginning after December 31, 2001, 

of at least 10 percent of the average fair market 

value of the plan assets during the plan year, and 

ø(II) with respect to which the plan’s enrolled 

actuary certifies (not taking into account the application of this subparagraph), on the basis of the 

acutuarial assumptions used for the last plan year 

ending before the date of the enactment of this 

subparagraph, that the plan is projected to have 

an accumulated funding deficiency (within the 

meaning of subsection (a)(2)) for any plan year beginning after June 30, 2003, and before July 1, 

2006. 

For purposes of subclause (I), a plan’s net investment 

loss shall be determined on the basis of the actual loss 

and not under any actuarial method used under subsection (c)(2). 

175 

ø(v) EXCEPTION TO TREATMENT OF ELIGIBLE MULTI- EMPLOYER PLAN.—In no event shall a plan be treated 

as an eligible multiemployer plan under clause (iv) 

if— ø(I) for any taxable year beginning during the 

10-year period preceding the first plan year for 

which an election is made under clause (i), any 

employer required to contribute to the plan failed 

to timely pay any excise tax imposed under section 4971 of the Internal Revenue Code of 1986 

with respect to the plan, 

ø(II) for any plan year beginning after June 30, 

1993, and before the first plan year for which an 

election is made under clause (i), the average contribution required to be made by all employers to 

the plan does not exceed 10 cents per hour or no 

employer is required to make contributions to the 

plan, or 

ø(III) with respect to any of the plan years beginning after June 30, 1993, and before the first 

plan year for which an election is made under 

clause (i), a waiver was granted under section 303 

of this Act or section 412(d) of the Internal Revenue Code of 1986 with respect to the plan or an 

extension of an amortization period was granted 

under section 304 of this Act or section 412(e) of 

such Code with respect to the plan. 

ø(vi) NOTICE.—If a plan sponsor makes an election 

under this subparagraph or section 412(b)(7)(F) of the 

Internal Revenue Code of 1986 for any plan year, the 

plan administrator shall provide, within 30 days of filing the election for such year, written notice of the 

election to participants and beneficiaries, to each labor 

organization representing such participants or beneficiaries, to each employer that has an obligation to 

contribute under the plan, and to the Pension Benefit 

Guaranty Corporation. Such notice shall include with 

respect to any election the amount of any charge to be 

deferred and the period of the deferral. Such notice 

shall also include the maximum guaranteed monthly 

benefits which the Pension Benefit Guaranty Corporation would pay if the plan terminated while underfunded. 

ø(vii) ELECTION.—An election under this subparagraph shall be made at such time and in such manner 

as the Secretary of the Treasury may prescribe. 

ø(c)(1) For purposes of this part, normal costs, accrued liability, 

past service liabilities, and experience gains and losses shall be determined under the funding method used to determine costs under 

the plan. 

ø(2)(A) For purposes of this part, the value of the plan’s assets 

shall be determined on the basis of any reasonable actuarial method of valuation which takes into account fair market value and 

which is permitted under regulations prescribed by the Secretary 

of the Treasury. 

176 

ø(B) For purposes of this part, the value of a bond or other evidence of indebtedness which is not in default as to principal or interest may, at the election of the plan administrator, be determined 

on an amortized basis running from initial cost at purchase to par 

value at maturity or earliest call date. Any election under this subparagraph shall be made at such time and in such manner as the 

Secretary of the Treasury shall by regulations provide, shall apply 

to all such evidences of indebtedness, and may be revoked only 

with the consent of the Secretary of the Treasury. In the case of 

a plan other than a multiemployer plan, this subparagraph shall 

not apply, but the Secretary of the Treasury may by regulations 

provide that the value of any dedicated bond portfolio of such plan 

shall be determined by using the interest rate under subsection 

(b)(5). 

ø(3) For purposes of this section, all costs, liabilities, rates of interest, and other factors under the plan shall be determined on the 

basis of actuarial assumptions and methods— ø(A) in the case of— ø(i) a plan other than a multiemployer plan, each of 

which is reasonable (taking into account the experience of 

the plan and reasonable expectations) or which, in the aggregate, result in a total contribution equivalent to that 

which would be determined if each such assumption and 

method were reasonable, or 

ø(ii) a multiemployer plan, which, in the aggregate, are 

reasonable (taking into account the experiences of the plan 

and reasonable expectations), and 

ø(B) which, in combination, offer the actuary’s best estimate 

of anticipated experience under the plan. 

ø(4) For purposes of this section, if— ø(A) a change in benefits under the Social Security Act or in 

other retirement benefits created under Federal or State law, 

or 

ø(B) a change in the definition of the term ‘‘wages’’ under 

section 3121 of the Internal Revenue Code of 1986, or a change 

in the amount of such wages taken into account under regulations prescribed for purposes of section 401(a)(5) of the Internal 

Revenue Code of 1986, 

results in an increase or decrease in accrued liability under a plan, 

such increase or decrease shall be treated as an experience loss or 

gain. 

ø(5) 

ø(A) IN GENERAL.—If the funding method for a plan is 

changed, the new funding method shall become the funding method used to determine costs and liabilities under 

the plan only if the change is approved by the Secretary 

of the Treasury. If the plan year for a plan is changed, the 

new plan year shall become the plan year for the plan only 

if the change is approved by the Secretary of the Treasury. 

ø(B) APPROVAL REQUIRED FOR CERTAIN CHANGES IN AS- SUMPTIONS BY CERTAIN SINGLE-EMPLOYER PLANS SUBJECT

TO ADDITIONAL FUNDING REQUIREMENT.— ø(i) IN GENERAL.—No actuarial assumption (other 

than the assumptions described in subsection 

(d)(7)(C)) used to determine the current liability for a 

177 

plan to which this subparagraph applies may be 

changed without the approval of the Secretary of the 

Treasury. 

ø(ii) PLANS TO WHICH SUBPARAGRAPH APPLIES.—This 

subparagraph shall apply to a plan only if— ø(I) the plan is a defined benefit plan (other 

than a multiemployer plan) to which title IV applies; 

ø(II) the aggregate unfunded vested benefits as 

of the close of the preceding plan year (as determined under section 4006(a)(3)(E)(iii)) of such 

plan and all other plans maintained by the contributing sponsors (as defined in section 

4001(a)(13)) and members of such sponsors’ controlled groups (as defined in section 4001(a)(14)) 

which are covered by title IV (disregarding plans 

with no unfunded vested benefits) exceed 

$50,000,000; and 

ø(III) the change in assumptions (determined 

after taking into account any changes in interest 

rate and mortality table) results in a decrease in 

the unfunded current liability of the plan for the 

current plan year that exceeds $50,000,000, or 

that exceeds $5,000,000 and that is 5 percent or 

more of the current liability of the plan before 

such change. 

ø(6) If, as of the close of a plan year, a plan would (without regard to this paragraph) have an accumulated funding deficiency 

(determined without regard to the alternative minimum funding 

standard account permitted under section 305) in excess of the full 

funding limitation— ø(A) the funding standard account shall be credited with the 

amount of such excess, and 

ø(B) all amounts described in paragraphs (2), (B), (C), and 

(D) and (3)(B) of subsection (b) which are required to be amortized shall be considered fully amortized for purposes of such 

paragraphs. 

ø(7) FULL-FUNDING LIMITATION.— ø(A) IN GENERAL.—For purposes of paragraph (6), the term ‘‘full-funding limitation’’ means the excess (if any) of— ø(i) the lesser of (I) 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(ii) the lesser of— ø(I) the fair market value of the plan’s assets, or 

ø(II) the value of such assets determined under 

paragraph (2). 

ø(B) CURRENT LIABILITY.—For purposes of subparagraph 

(D) and subclause (I) of subparagraph (A)(i), the term ‘‘current liability’’ has the meaning given such term by subVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00177 Fmt 6659 Sfmt 9001 E:\HR\OC\HR232P1.XXX HR232P1
178 

section (d)(7) (without regard to subparagraphs (C) and (D) 

thereof) and using the rate of interest used under subsection (b)(5)(B). 

ø(C) SPECIAL RULE FOR PARAGRAPH (6)(B).—For purposes of 

paragraph (6)(B), subparagraph (A)(i) shall be applied without 

regard to subclause (I) thereof. 

ø(D) REGULATORY AUTHORITY.—The Secretary of the Treasury may by regulations provide—

ø(i) for adjustments to the percentage contained in subparagraph (A)(i) to take into account the respective ages or 

lengths of service of the participants, and 

ø(ii) alternative methods based on factors other than 

current liability for the determination of the amount taken 

into account under subparagraph (A)(i). 

ø(E) MINIMUM AMOUNT.—

ø(i) IN GENERAL.—In no event shall the full-funding 

limitation determined under subparagraph (A) be less 

than the excess (if any) of—

ø(I) 90 percent of the current liability of the 

plan (including the expected increase in current liability due to benefits accruing during the plan 

year), over 

ø(II) the value of the plan’s assets determined 

under paragraph (2). 

ø(ii) CURRENT LIABILITY; ASSETS.—For purposes of 

clause (i)—

ø(I) the term ‘‘current liability’’ has the meaning 

given such term by subsection (d)(7) (without regard to subparagraph (D) thereof), and 

ø(II) assets shall not be reduced by any credit 

balance in the funding standard account. 

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 calendar year— percentage is—

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

2003 ................................................................................................ 170. 

ø(8) For purposes of this part, any amendment applying to a plan 

year which—

ø(A) is adopted after the close of such plan year but no later 

than 21⁄2 months after the close of the plan year (or, in the 

case of a multiemployer plan, no later than 2 years after the 

close of such plan year), 

ø(B) does not reduce the accrued benefit of any participant 

determined as of the beginning of the first plan year to which 

the amendment applies, and 

ø(C) does not reduce the accrued benefit of any participant 

determined as of the time of adoption except to the extent required by the circumstances, 

shall, at the election of the plan administrator, be deemed to have 

been made on the first day of such plan year. No amendment described in this paragraph which reduces the accrued benefits of any 

participant shall take effect unless the plan administrator files a 

notice with the Secretary notifying him of such amendment and the 

179 

Secretary has approved such amendment or, within 90 days after 

the date on which such notice was filed, failed to disapprove such 

amendment. No amendment described in this subsection shall be 

approved by the Secretary unless he determines that such amendment is necessary because of a substantial business hardship (as 

determined under section 303(b) and that waiver under section 

303(a) is unavailable or inadequate. 

ø(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. 

ø(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. 

ø(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, as of such date, the value of the assets of the 

plan are not less than 100 percent of the plan’s current liability (as 

defined in paragraph (7)(B)). 

ø(iii) Information under clause (ii) shall, in accordance with regulations, be actuarially adjusted to reflect significant differences in 

participants. 

ø(iv) A change in funding method to use a prior year valuation, 

as provided in clause (ii), may not be made unless as of the valuation date within the prior plan year, 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)). 

ø(10) For purposes of this section—

ø(A) In the case of a defined benefit plan other than a multiemployer plan, any contributions for a plan year made by an 

employer during the period—

ø(i) beginning on the day after the last day of such plan 

year, and 

ø(ii) ending on the date which is 81⁄2 months after the 

close of the plan year, 

shall be deemed to have been made on such last day. 

ø(B) In the case of a plan not described in subparagraph (A), 

any contributions for a plan year made by an employer after 

the last day of such plan year, but not later than two and onehalf months after such day, shall be deemed to have been 

made on such last day. For purposes of this subparagraph, 

such two and one-half month period may be extended for not 

more than six months under regulations prescribed by the Secretary of the Treasury. 

ø(11) LIABILITY FOR CONTRIBUTIONS.—

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

(B), the amount of any contribution required by this section and any required installments under subsection (e) 

shall be paid by the employer responsible for contributing 

to or under the plan the amount described in subsection 

(b)(3)(A). 

180 

ø(B) JOINT AND SEVERAL LIABILITY WHERE EMPLOYER

MEMBER OF CONTROLLED GROUP.— ø(i) IN GENERAL.—In the case of a plan other than 

a multiemployer plan, if the employer referred to in 

subparagraph (A) is a member of a controlled group, 

each member of such group shall be jointly and severally liable for payment of such contribution or required 

installment. 

ø(ii) CONTROLLED GROUP.—For purposes of clause 

(i), the term ‘‘controlled group’’ means any group treated as a single employer under subsection (b), (c), (m), 

or (o) of section 414 of the Internal Revenue Code of 

1986. 

ø(12) ANTICIPATION OF BENEFIT INCREASES EFFECTIVE IN THE

FUTURE.—In determining projected benefits, the funding method of a collectively bargained plan described in section 413(a) 

of the Internal Revenue Code of 1986 (other than a multiemployer plan) shall anticipate benefit increases scheduled to 

take effect during the term of the collective bargaining agreement applicable to the plan. 

ø(d) ADDITIONAL FUNDING REQUIREMENTS FOR PLANS WHICH ARE

NOT MULTIEMPLOYER PLANS.— ø(1) IN GENERAL.—In the case of a defined benefit plan 

(other than a multiemployer plan) to which this subsection applies under paragraph (9) for any plan year, the amount 

charged to the funding standard account for such plan year 

shall be increased by the sum of— ø(A) the excess (if any) of— ø(i) the deficit reduction contribution determined 

under paragraph (2) for such plan year, over 

ø(ii) the sum of the charges for such plan year under 

subsection (b)(2), reduced by the sum of the credits for 

such plan year under subparagraph (B) of subsection 

(b)(3), plus 

ø(B) the unpredictable contingent event amount (if any) 

for such plan year. 

Such increase shall not exceed the amount which, after taking 

into account charges (other than the additional charge under 

this subsection) and credits under subsection (b), is necessary 

to increase the funded current liability percentage (taking into 

account the expected increase in current liability due to benefits accruing during the plan year) to 100 percent. 

ø(2) DEFICIT REDUCTION CONTRIBUTION.—For purposes of 

paragraph (1), the deficit reduction contribution determined 

under this paragraph for any plan year is the sum of—

ø(A) the unfunded old liability amount, 

ø(B) the unfunded new liability amount, 

ø(C) the expected increase in current liability due to 

benefits accruing during the plan year, and 

ø(D) the aggregate of the unfunded mortality increase 

amounts. 

ø(3) UNFUNDED OLD LIABILITY AMOUNT.—For purposes of this 

subsection— ø(A) IN GENERAL.—The unfunded old liability amount 

with respect to any plan for any plan year is the amount 

181 

necessary to amortize the unfunded old liability under the 

plan in equal annual installments over a period of 18 plan 

years (beginning with the 1st plan year beginning after 

December 31, 1988). 

ø(B) UNFUNDED OLD LIABILITY.—The term ‘‘unfunded old 

liability’’ means the unfunded current liability of the plan 

as of the beginning of the 1st plan year beginning after 

December 31, 1987 (determined without regard to any plan 

amendment increasing liabilities adopted after October 28, 

1987). 

ø(C) SPECIAL RULES FOR BENEFIT INCREASES UNDER EXISTING COLLECTIVE BARGAINING AGREEMENTS.—

ø(i) IN GENERAL.—In the case of a plan maintained 

pursuant to 1 or more collective bargaining agreements between employee representatives and the employer ratified before October 29, 1987, the unfunded 

old liability amount with respect to such plan for any 

plan year shall be increased by the amount necessary 

to amortize the unfunded existing benefit increase liability in equal annual installments over a period of 

18 plan years beginning with—

ø(I) the plan year in which the benefit increase 

with respect to such liability occurs, or 

ø(II) if the taxpayer elects, the 1st plan year beginning after December 31, 1988. 

ø(ii) UNFUNDED EXISTING BENEFIT INCREASE LIABIL- ITIES.—For purposes of clause (i), the unfunded existing benefit increase liability means, with respect to 

any benefit increase under the agreements described 

in clause (i) which takes effect during or after the 1st 

plan year beginning after December 31, 1987, the unfunded current liability determined— ø(I) by taking into account only liabilities attributable to such benefit increase, and 

ø(II) by reducing (but not below zero) the 

amount determined under paragraph (8)(A)(ii) by 

the current liability determined without regard to 

such benefit increase. 

ø(iii) EXTENSIONS, MODIFICATIONS, ETC. NOT TAKEN

INTO ACCOUNT.—For purposes of this subparagraph, 

any extension, amendment, or other modification of an 

agreement after October 28, 1987, shall not be taken 

into account. 

ø(D) SPECIAL RULE FOR REQUIRED CHANGES IN ACTUARIAL

ASSUMPTIONS.—

ø(i) IN GENERAL.—The unfunded old liability amount 

with respect to any plan for any plan year shall be increased by the amount necessary to amortize the 

amount of additional unfunded old liability under the 

plan in equal annual installments over a period of 12 

plan years (beginning with the first plan year beginning after December 31, 1994). 

ø(ii) ADDITIONAL UNFUNDED OLD LIABILITY.—For 

purposes of clause (i), the term ‘‘additional unfunded 

old liability’’ means the amount (if any) by which—

182 

ø(I) the current liability of the plan as of the beginning of the first plan year beginning after December 31, 1994, valued using the assumptions required by paragraph (7)(C) as in effect for plan 

years beginning after December 31, 1994, exceeds 

ø(II) the current liability of the plan as of the 

beginning of such first plan year, valued using the 

same assumptions used under subclause (I) (other 

than the assumptions required by paragraph 

(7)(C)), using the prior interest rate, and using 

such mortality assumptions as were used to determine current liability for the first plan year beginning after December 31, 1992. 

ø(iii) PRIOR INTEREST RATE.—For purposes of clause 

(ii), the term ‘‘prior interest rate’’ means the rate of interest that is the same percentage of the weighted average under subsection (b)(5)(B)(ii)(I) for the first plan 

year beginning after December 31, 1994, as the rate of 

interest used by the plan to determine current liability 

for the first plan year beginning after December 31, 

1992, is of the weighted average under subsection 

(b)(5)(B)(ii)(I) for such first plan year beginning after 

December 31, 1992. 

ø(E) OPTIONAL RULE FOR ADDITIONAL UNFUNDED OLD LI- ABILITY.—

ø(i) IN GENERAL.—If an employer makes an election 

under clause (ii), the additional unfunded old liability 

for purposes of subparagraph (D) shall be the amount 

(if any) by which— ø(I) the unfunded current liability of the plan as 

of the beginning of the first plan year beginning 

after December 31, 1994, valued using the assumptions required by paragraph (7)(C) as in effect for plan years beginning after December 31, 

1994, exceeds 

ø(II) the unamortized portion of the unfunded 

old liability under the plan as of the beginning of 

the first plan year beginning after December 31, 

1994. 

ø(ii) ELECTION.—

ø(I) An employer may irrevocably elect to apply 

the provisions of this subparagraph as of the beginning of the first plan year beginning after December 31, 1994. 

ø(II) If an election is made under this clause, 

the increase under paragraph (1) for any plan 

year beginning after December 31, 1994, and before January 1, 2002, to which this subsection applies (without regard to this subclause) shall not 

be less than the increase that would be required 

under paragraph (1) if the provisions of this title 

as in effect for the last plan year beginning before 

January 1, 1995, had remained in effect. 

ø(4) UNFUNDED NEW LIABILITY AMOUNT.—For purposes of 

this subsection—

183 

ø(A) IN GENERAL.—The unfunded new liability amount 

with respect to any plan for any plan year is the applicable 

percentage of the unfunded new liability. 

ø(B) UNFUNDED NEW LIABILITY.—The term ‘‘unfunded 

new liability’’ means the unfunded current liability of the 

plan for the plan year determined without regard to—

ø(i) the unamortized portion of the unfunded old liability, the unamortized portion of the additional unfunded old liability, the unamortized portion of each 

unfunded mortality increase, and the unamortized 

portion of the unfunded existing benefit increase liability, and 

ø(ii) the liability with respect to any unpredictable 

contingent event benefits (without regard to whether 

the event has occurred). 

ø(C) APPLICABLE PERCENTAGE.—The term ‘‘applicable 

percentage’’ means, with respect to any plan year, 30 percent, reduced by the product of—

ø(i) .40 multiplied by 

ø(ii) the number of percentage points (if any) by 

which the funded current liability percentage exceeds 

60 percent. 

ø(5) UNPREDICTABLE CONTINGENT EVENT AMOUNT.—

ø(A) IN GENERAL.—The unpredictable contingent event 

amount with respect to a plan for any plan year is an 

amount equal to the greatest of—

ø(i) the applicable percentage of the product of—

ø(I) 100 percent, reduced (but not below zero) by 

the funded current liability percentage for the 

plan year, multiplied by 

ø(II) the amount of unpredictable contingent 

event benefits paid during the plan year, including (except as provided by the Secretary of the 

Treasury) any payment for the purchase of an annuity contract for a participant or beneficiary with 

respect to such benefits, 

ø(ii) the amount which would be determined for the 

plan year if the unpredictable contingent event benefit 

liabilities were amortized in equal annual installments 

over 7 plan years (beginning with the plan year in 

which such event occurs), or 

ø(iii) the additional amount that would be determined under paragraph (4)(A) if the unpredictable 

contingent event benefit liabilities were included in 

unfunded new liability notwithstanding paragraph 

(4)(B)(ii). 

ø(B) APPLICABLE PERCENTAGE.—

øIn the case of plan years The applicable 

beginning in: percentage is: 

1989 and 1990 ......................................................... 5

1991 .......................................................................... 10

1992 .......................................................................... 15

1993 .......................................................................... 20

1994 .......................................................................... 30

1995 .......................................................................... 40

1996 .......................................................................... 50

184 

1997 .......................................................................... 60

1998 .......................................................................... 70

1999 .......................................................................... 80

2000 .......................................................................... 90

2001 and thereafter ................................................ 100.

ø(C) PARAGRAPH NOT TO APPLY TO EXISTING BENEFITS.—

This paragraph shall not apply to unpredictable contingent 

event benefits (and liabilities attributable thereto) for 

which the event occurred before the first plan year beginning after December 31, 1988. 

ø(D) SPECIAL RULE FOR FIRST YEAR OF AMORTIZATION.—

Unless the employer elects otherwise, the amount determined under subparagraph (A) for the plan year in which 

the event occurs shall be equal to 150 percent of the 

amount determined under subparagraph (A)(i). The 

amount under subparagraph (A)(ii) for subsequent plan 

years in the amortization period shall be adjusted in the 

manner provided by the Secretary of the Treasury to reflect the application of this subparagraph. 

ø(E) LIMITATION.—The present value of the amounts described in subparagraph (A) with respect to any one event 

shall not exceed the unpredictable contingent event benefit 

liabilities attributable to that event. 

ø(6) SPECIAL RULES FOR SMALL PLANS.—

ø(A) PLANS WITH 100 OR FEWER PARTICIPANTS.—This subsection shall not apply to any plan for any plan year if on 

each day during the preceding plan year such plan had no 

more than 100 participants. 

ø(B) PLANS WITH MORE THAN 100 BUT NOT MORE THAN 150

PARTICIPANTS.—In the case of a plan to which subparagraph (A) does not apply and which on each day during 

the preceding plan year had no more than 150 participants, the amount of the increase under paragraph (1) for 

such plan year shall be equal to the product of—

ø(i) such increase determined without regard to this 

subparagraph, multiplied by 

ø(ii) 2 percent for the highest number of participants 

in excess of 100 on any such day. 

ø(C) AGGREGATION OF PLANS.—For purposes of this paragraph, all defined benefit plans maintained by the same 

employer (or any member of such employer’s controlled 

group) shall be treated as 1 plan, but only employees of 

such employer or member shall be taken into account. 

ø(7) CURRENT LIABILITY.—For purposes of this subsection—

ø(A) IN GENERAL.—The term ‘‘current liability’’ means all 

liabilities to participants and their beneficiaries under the 

plan. 

ø(B) TREATMENT OF UNPREDICTABLE CONTINGENT EVENT

BENEFITS.—

ø(i) IN GENERAL.—For purposes of subparagraph (A), 

any unpredictable contingent event benefit shall not 

be taken into account until the event on which the 

benefit is contingent occurs. 

ø(ii) UNPREDICTABLE CONTINGENT EVENT BENEFIT.—

The term ‘‘unpredictable contingent event benefit’’

185 

means any benefit contingent on an event other 

than—

ø(I) age, service, compensation, death, or disability, or 

ø(II) an event which is reasonably and reliably 

predictable (as determined by the Secretary of the 

Treasury). 

ø(C) INTEREST RATE AND MORTALITY ASSUMPTIONS

USED.—Effective for plan years beginning after December 

31, 1994—

ø(i) INTEREST RATE.— ø(I) IN GENERAL.—The rate of interest used to 

determine current liability under this subsection 

shall be the rate of interest used under subsection 

(b)(5), except that the highest rate in the permissible range under subparagraph (B)(ii) thereof 

shall not exceed the specified percentage under 

subclause (II) of the weighted average referred to 

in such subparagraph. 

ø(II) SPECIFIED PERCENTAGE.—For purposes of 

subclause (I), the specified percentage shall be determined as follows: 

øIn the case of 

plan years beginning The specified 

in calendar year: percentage is: 

1995 .......................................................................... 109

1996 .......................................................................... 108

1997 .......................................................................... 107

1998 .......................................................................... 106

1999 and thereafter ................................................ 105. 

ø(III) SPECIAL RULE FOR 2002 AND 2003.—For a 

plan year beginning in 2002 or 2003, notwithstanding subclause (I), in the case that the rate of 

interest used under subsection (b)(5) exceeds the 

highest rate permitted under subclause (I), the 

rate of interest used to determine current liability 

under this subsection may exceed the rate of interest otherwise permitted under subclause (I); except that such rate of interest shall not exceed 120 

percent of the weighted average referred to in subsection (b)(5)(B)(ii). 

ø(IV) SPECIAL RULE FOR 2004 AND 2005.—For 

plan years beginning in 2004 or 2005, notwithstanding subclause (I), the rate of interest used to 

determine current liability under this subsection 

shall be the rate of interest under subsection 

(b)(5). 

ø(ii) MORTALITY TABLES.—

ø(I) COMMISSIONERS’ STANDARD TABLE.—In the 

case of plan years beginning before the first plan 

year to which the first tables prescribed under 

subclause (II) apply, the mortality table used in 

determining current liability under this subsection 

shall be the table prescribed by the Secretary of 

the Treasury which is based on the prevailing 

commissioners’ standard table (described in secVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00185 Fmt 6659 Sfmt 9001 E:\HR\OC\HR232P1.XXX HR232P1
186 

tion 807(d)(5)(A) of the Internal Revenue Code of 

1986) used to determine reserves for group annuity contracts issued on January 1, 1993. 

ø(II) SECRETARIAL AUTHORITY.—The Secretary 

of the Treasury may by regulation prescribe for 

plan years beginning after December 31, 1999, 

mortality tables to be used in determining current 

liability under this subsection. Such tables shall 

be based upon the actual experience of pension 

plans and projected trends in such experience. In 

prescribing such tables, the Secretary of the 

Treasury shall take into account results of available independent studies of mortality of individuals covered by pension plans. 

ø(III) PERIODIC REVIEW.—The Secretary of the 

Treasury shall periodically (at least every 5 years) 

review any tables in effect under this subsection 

and shall, to the extent the Secretary determines 

necessary, by regulation update the tables to reflect the actual experience of pension plans and 

projected trends in such experience. 

ø(iii) SEPARATE MORTALITY TABLES FOR THE DISABLED.—Notwithstanding clause (ii)—

ø(I) IN GENERAL.—In the case of plan years beginning after December 31, 1995, the Secretary of 

the Treasury shall establish mortality tables 

which may be used (in lieu of the tables under 

clause (ii)) to determine current liability under 

this subsection for individuals who are entitled to 

benefits under the plan on account of disability. 

Such Secretary shall establish separate tables for 

individuals whose disabilities occur in plan years 

beginning before January 1, 1995, and for individuals whose disabilities occur in plan years beginning on or after such date. 

ø(II) SPECIAL RULE FOR DISABILITIES OCCURRING

AFTER 1994.—In the case of disabilities occurring 

in plan years beginning after December 31, 1994, 

the tables under subclause (I) shall apply only 

with respect to individuals described in such subclause who are disabled within the meaning of 

title II of the Social Security Act and the regulations thereunder. 

ø(III) PLAN YEARS BEGINNING IN 1995.—In the 

case of any plan year beginning in 1995, a plan 

may use its own mortality assumptions for individuals who are entitled to benefits under the 

plan on account of disability. 

ø(D) CERTAIN SERVICE DISREGARDED.—

ø(i) IN GENERAL.—In the case of a participant to 

whom this subparagraph applies, only the applicable 

percentage of the years of service before such individual became a participant shall be taken into account in computing the current liability of the plan. 

187 

ø(ii) APPLICABLE PERCENTAGE.—For purposes of this 

subparagraph, the applicable percentage shall be determined as follows: 

øIf the years of The applicable 

participation are: percentage is: 

1 ................................................................................ 20

2 ................................................................................ 40

3 ................................................................................ 60

4 ................................................................................ 80

5 or more .................................................................. 100.

ø(iii) PARTICIPANTS TO WHOM SUBPARAGRAPH APPLIES.—This subparagraph shall apply to any participant who, at the time of becoming a participant—

ø(I) has not accrued any other benefit under any 

defined benefit plan (whether or not terminated) 

maintained by the employer or a member of the 

same controlled group of which the employer is a 

member, 

ø(II) who first becomes a participant under the 

plan in a plan year beginning after December 31, 

1987, and 

ø(III) has years of service greater than the minimum years of service necessary for eligibility to 

participate in the plan. 

ø(iv) ELECTION.—An employer may elect not to have 

this subparagraph apply. Such an election, once made, 

may be revoked only with the consent of the Secretary 

of the Treasury. 

ø(8) OTHER DEFINITIONS.—For purposes of this subsection—

ø(A) UNFUNDED CURRENT LIABILITY.—The term ‘‘unfunded current liability’’ means, with respect to any plan 

year, the excess (if any) of—

ø(i) the current liability under the plan, over 

ø(ii) value of the plan’s assets determined under 

subsection (c)(2). 

ø(B) FUNDED CURRENT LIABILITY PERCENTAGE.—The 

term ‘‘funded current liability percentage’’ means, with respect to any plan year, the percentage which—

ø(i) the amount determined under subparagraph 

(A)(ii), is of 

ø(ii) the current liability under the plan. 

ø(C) CONTROLLED GROUP.—The term ‘‘controlled group’’ means any group treated as a single employer under subsections (b), (c), (m), and (o) of section 414 of the Internal 

Revenue Code of 1986. 

ø(D) ADJUSTMENTS TO PREVENT OMISSIONS AND DUPLICATIONS.—The Secretary of the Treasury shall provide such 

adjustments in the unfunded old liability amount, the unfunded new liability amount, the unpredictable contingent 

event amount, the current payment amount, and any other 

charges or credits under this section as are necessary to 

avoid duplication or omission of any factors in the determination of such amounts, charges, or credits. 

ø(E) DEDUCTION FOR CREDIT BALANCES.—For purposes of 

this subsection, the amount determined under subparaVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00187 Fmt 6659 Sfmt 9001 E:\HR\OC\HR232P1.XXX HR232P1
188 

graph (A)(ii) shall be reduced by any credit balance in the 

funding standard account. The Secretary of the Treasury 

may provide for such reduction for purposes of any other 

provision which references this subsection. 

ø(9) APPLICABILITY OF SUBSECTION.— ø(A) IN GENERAL.—Except as provided in paragraph 

(6)(A), this subsection shall apply to a plan for any plan 

year if its funded current liability percentage for such year 

is less than 90 percent. 

ø(B) EXCEPTION FOR CERTAIN PLANS AT LEAST 80 PER- CENT FUNDED.—Subparagraph (A) shall not apply to a plan 

for a plan year if— ø(i) the funded current liability percentage for the 

plan year is at least 80 percent, and 

ø(ii) such percentage for each of the 2 immediately 

preceding plan years (or each of the 2d and 3d immediately preceding plan years) is at least 90 percent. 

ø(C) FUNDED CURRENT LIABILITY PERCENTAGE.—For purposes of subparagraphs (A) and (B), the term ‘‘funded current liability percentage’’ has the meaning given such term 

by paragraph (8)(B), except that such percentage shall be 

determined for any plan year— ø(i) without regard to paragraph (8)(E), and 

ø(ii) by using the rate of interest which is the highest rate allowable for the plan year under paragraph 

(7)(C). 

ø(D) TRANSITION RULES.—For purposes of this paragraph: 

ø(i) FUNDED PERCENTAGE FOR YEARS BEFORE 1995.—

The funded current liability percentage for any plan 

year beginning before January 1, 1995, shall be treated as not less than 90 percent only if for such plan 

year the plan met one of the following requirements 

(as in effect for such year): 

ø(I) The full-funding limitation under subsection 

(c)(7) for the plan was zero. 

ø(II) The plan had no additional funding requirement under this subsection (or would have 

had no such requirement if its funded current liability percentage had been determined under 

subparagraph (C)). 

ø(III) The plan’s additional funding requirement 

under this subsection did not exceed the lesser of 

0.5 percent of current liability or $5,000,000. 

ø(ii) SPECIAL RULE FOR 1995 AND 1996.—For purposes 

of determining whether subparagraph (B) applies to 

any plan year beginning in 1995 or 1996, a plan shall 

be treated as meeting the requirements of subparagraph (B)(ii) if the plan met the requirements of clause 

(i) of this subparagraph for any two of the plan years 

beginning in 1992, 1993, and 1994 (whether or not 

consecutive). 

ø(10) UNFUNDED MORTALITY INCREASE AMOUNT.—

ø(A) IN GENERAL.—The unfunded mortality increase 

amount with respect to each unfunded mortality increase 

189 

is the amount necessary to amortize such increase in equal 

annual installments over a period of 10 plan years (beginning with the first plan year for which a plan uses any 

new mortality table issued under paragraph (7)(C)(ii)(II) or 

(III)). 

ø(B) UNFUNDED MORTALITY INCREASE.—For purposes of 

subparagraph (A), the term ‘‘unfunded mortality increase’’

means an amount equal to the excess of—

ø(i) the current liability of the plan for the first plan 

year for which a plan uses any new mortality table 

issued under paragraph (7)(C)(ii)(II) or (III), over 

ø(ii) the current liability of the plan for such plan 

year which would have been determined if the mortality table in effect for the preceding plan year had 

been used. 

ø(11) PHASE-IN OF INCREASES IN FUNDING REQUIRED BY RETIREMENT PROTECTION ACT OF 1994.—

ø(A) IN GENERAL.—For any applicable plan year, at the 

election of the employer, the increase under paragraph (1) 

shall not exceed the greater of—

ø(i) the increase that would be required under paragraph (1) if the provisions of this title as in effect for 

plan years beginning before January 1, 1995, had remained in effect, or 

ø(ii) the amount which, after taking into account 

charges (other than the additional charge under this 

subsection) and credits under subsection (b), is necessary to increase the funded current liability percentage (taking into account the expected increase 

in current liability due to benefits accruing during the 

plan year) for the applicable plan year to a percentage 

equal to the sum of the initial funded current liability 

percentage of the plan plus the applicable number of 

percentage points for such applicable plan year. 

ø(B) APPLICABLE NUMBER OF PERCENTAGE POINTS.—

ø(i) INITIAL FUNDED CURRENT LIABILITY PERCENTAGE

OF 75 PERCENT OR LESS.—Except as provided in clause 

(ii), for plans with an initial funded current liability 

percentage of 75 percent or less, the applicable number of percentage points for the applicable plan year 

is: 

øIn the case The applicable 

of applicable number of 

plan years percentage 

beginning in: points is: 

1995 .......................................................................... 3

1996 .......................................................................... 6

1997 .......................................................................... 9

1998 .......................................................................... 12

1999 .......................................................................... 15

2000 .......................................................................... 19

2001 .......................................................................... 24. 

ø(ii) OTHER CASES.—In the case of a plan to which 

this clause applies, the applicable number of percentage points for any such applicable plan year is the 

sum of—

190 

ø(I) 2 percentage points; 

ø(II) the applicable number of percentage points 

(if any) under this clause for the preceding applicable plan year; 

ø(III) the product of .10 multiplied by the excess 

(if any) of (a) 85 percentage points over (b) the 

sum of the initial funded current liability percentage and the number determined under subclause 

(II); 

ø(IV) for applicable plan years beginning in 

2000, 1 percentage point; and 

ø(V) for applicable plan years beginning in 

2001, 2 percentage points. 

ø(iii) PLANS TO WHICH CLAUSE (ii) APPLIES.—

ø(I) IN GENERAL.—Clause (ii) shall apply to a 

plan for an applicable plan year if the initial funded current liability percentage of such plan is 

more than 75 percent. 

ø(II) PLANS INITIALLY UNDER CLAUSE (i).—In the 

case of a plan which (but for this subclause) has 

an initial funded current liability percentage of 75 

percent or less, clause (ii) (and not clause (i)) shall 

apply to such plan with respect to applicable plan 

years beginning after the first applicable plan 

year for which the sum of the initial funded current liability percentage and the applicable number of percentage points (determined under clause 

(i)) exceeds 75 percent. For purposes of applying 

clause (ii) to such a plan, the initial funded current liability percentage of such plan shall be 

treated as being the sum referred to in the preceding sentence. 

ø(C) DEFINITIONS.—For purposes of this paragraph—

ø(i) The term ‘‘applicable plan year’’ means a plan 

year beginning after December 31, 1994, and before 

January 1, 2002. 

ø(ii) The term ‘‘initial funded current liability percentage’’ means the funded current liability percentage 

as of the first day of the first plan year beginning after 

December 31, 1994. 

ø(12) ELECTION FOR CERTAIN PLANS.—

ø(A) IN GENERAL.—In the case of a defined benefit plan 

established and maintained by an applicable employer, if 

this subsection did not apply to the plan for the plan year 

beginning in 2000 (determined without regard to paragraph (6)), then, at the election of the employer, the increased amount under paragraph (1) for any applicable 

plan year shall be the greater of—

ø(i) 20 percent of the increased amount under paragraph (1) determined without regard to this paragraph, or 

ø(ii) the increased amount which would be determined under paragraph (1) if the deficit reduction contribution under paragraph (2) for the applicable plan 

191 

year were determined without regard to subparagraphs (A), (B), and (D) of paragraph (2). 

ø(B) RESTRICTIONS ON BENEFIT INCREASES.—No amendment which increases the liabilities of the plan by reason 

of any increase in benefits, any change in the accrual of 

benefits, or any change in the rate at which benefits become nonforfeitable under the plan shall be adopted during any applicable plan year, unless— ø(i) the plan’s enrolled actuary certifies (in such 

form and manner prescribed by the Secretary of the 

Treasury) that the amendment provides for an increase in annual contributions which will exceed the 

increase in annual charges to the funding standard account attributable to such amendment, or 

ø(ii) the amendment is required by a collective bargaining agreement which is in effect on the date of enactment of this subparagraph. 

If a plan is amended during any applicable plan year in 

violation of the preceding sentence, any election under this 

paragraph shall not apply to any applicable plan year ending on or after the date on which such amendment is 

adopted. 

ø(C) APPLICABLE EMPLOYER.—For purposes of this paragraph, the term ‘‘applicable employer’’ means an employer 

which is—

ø(i) a commercial passenger airline, 

ø(ii) primarily engaged in the production or manufacture of a steel mill product or the processing of iron 

ore pellets, or 

ø(iii) an organization described in section 501(c)(5) 

of the Internal Revenue Code of 1986 and which established the plan to which this paragraph applies on 

June 30, 1955. 

ø(D) APPLICABLE PLAN YEAR.—For purposes of this paragraph—

ø(i) IN GENERAL.—The term ‘‘applicable plan year’’ means any plan year beginning after December 27, 

2003, and before December 28, 2005, for which the employer elects the application of this paragraph. 

ø(ii) LIMITATION ON NUMBER OF YEARS WHICH MAY

BE ELECTED.—An election may not be made under this 

paragraph with respect to more than 2 plan years. 

ø(E) NOTICE REQUIREMENTS FOR PLANS ELECTING ALTERNATIVE DEFICIT REDUCTION CONTRIBUTIONS.—

ø(i) IN GENERAL.—If an employer elects an alternative deficit reduction contribution under this paragraph and section 412(l)(12) of the Internal Revenue 

Code of 1986 for any year, the employer shall provide, 

within 30 days of filing the election for such year, 

written notice of the election to participants and beneficiaries and to the Pension Benefit Guaranty Corporation. 

ø(ii) NOTICE TO PARTICIPANTS AND BENEFICIARIES.—

The notice under clause (i) to participants and beneficiaries shall include with respect to any election—

192 

ø(I) the due date of the alternative deficit reduction contribution and the amount by which such 

contribution was reduced from the amount which 

would have been owed if the election were not 

made, and 

ø(II) a description of the benefits under the plan 

which are eligible to be guaranteed by the Pension 

Benefit Guaranty Corporation and an explanation 

of the limitations on the guarantee and the circumstances under which such limitations apply, 

including the maximum guaranteed monthly benefits which the Pension Benefit Guaranty Corporation would pay if the plan terminated while underfunded. 

ø(iii) NOTICE TO PBGC.—The notice under clause (i) 

to the Pension Benefit Guaranty Corporation shall include—

ø(I) the information described in clause (ii)(I), 

ø(II) the number of years it will take to restore 

the plan to full funding if the employer only 

makes the required contributions, and 

ø(III) information as to how the amount by 

which the plan is underfunded compares with the 

capitalization of the employer making the election. 

ø(F) ELECTION.—An election under this paragraph shall 

be made at such time and in such manner as the Secretary 

of the Treasury may prescribe. 

ø(e) QUARTERLY CONTRIBUTIONS REQUIRED.—

ø(1) IN GENERAL.—If a defined benefit plan (other than a 

multiemployer plan) which has a funded current liability percentage (as defined in subsection (d)(8)) for the preceding plan 

year of less than 100 percent fails to pay the full amount of 

a required installment for the plan year, then the rate of interest charged to the funding standard account under subsection 

(b)(5) with respect to the amount of the underpayment for the 

period of the underpayment shall be equal to the greater of—

ø(A) 175 percent of the Federal mid-term rate (as in effect under section 1274 of the Internal Revenue Code of 

1986 for the 1st month of such plan year), or 

ø(B) the rate of interest used under the plan in determining costs (including adjustments under subsection 

(b)(5)(B)). 

ø(2) AMOUNT OF UNDERPAYMENT, PERIOD OF UNDERPAYMENT.—For purposes of paragraph (1)—

ø(A) AMOUNT.—The amount of the underpayment shall 

be the excess of—

ø(i) the required installment, over 

ø(ii) the amount (if any) of the installment contributed to or under the plan on or before the due date for 

the installment. 

ø(B) PERIOD OF UNDERPAYMENT.—The period for which 

any interest is charged under this subsection with respect 

to any portion of the underpayment shall run from the due 

date for the installment to the date on which such portion 

193 

is contributed to or under the plan (determined without regard to subsection (c)(10)). 

ø(C) ORDER OF CREDITING CONTRIBUTIONS.—For purposes of subparagraph (A)(ii), contributions shall be credited against unpaid required installments in the order in 

which such installments are required to be paid. 

ø(3) NUMBER OF REQUIRED INSTALLMENTS; DUE DATES.—For 

purposes of this subsection—

ø(A) PAYABLE IN 4 INSTALLMENTS.—There shall be 4 required installments for each plan year. 

ø(B) TIME FOR PAYMENT OF INSTALLMENTS.—

øIn the case of the following 

required installments: The due date is: 

1st .................................................................................. April 15 

2nd ................................................................................. July 15 

3rd .................................................................................. October 15 

4th ..................................................................................January 15 of the 

following year. 

ø(4) AMOUNT OF REQUIRED INSTALLMENT.—For purposes of 

this subsection—

ø(A) IN GENERAL.—The amount of any required installment shall be the applicable percentage of the required annual payment. 

ø(B) REQUIRED ANNUAL PAYMENT.—For purposes of subparagraph (A), the term ‘‘required annual payment’’ means 

the lesser of—

ø(i) 90 percent of the amount required to be contributed to or under the plan by the employer for the plan 

year under section 412 of the Internal Revenue Code 

of 1986 (without regard to any waiver under subsection (c) thereof), or 

ø(ii) 100 percent of the amount so required for the 

preceding plan year. 

Clause (ii) shall not apply if the preceding plan year was 

not a year of 12 months. 

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

øFor plan years The applicable 

beginning in: percentage is: 

1989 ................................................................................. 6.25

1990 ................................................................................. 12.5

1991 ................................................................................. 18.75

1992 and thereafter ........................................................ 25.

ø(D) SPECIAL RULES FOR UNPREDICTABLE CONTINGENT

EVENT BENEFITS.—In the case of a plan to which subsection (d) applies for any calendar year and which has 

any unpredictable contingent event benefit liabilities—

ø(i) LIABILITIES NOT TAKEN INTO ACCOUNT.—Such liabilities shall not be taken into account in computing 

the required annual payment under subparagraph (B). 

ø(ii) INCREASE IN INSTALLMENTS.—Each required installment shall be increased by the greatest of—

ø(I) the unfunded percentage of the amount of 

benefits described in subsection (d)(5)(A)(i) paid 

194 

during the 3-month period preceding the month in 

which the due date for such installment occurs, 

ø(II) 25 percent of the amount determined 

under subsection (d)(5)(A)(ii) for the plan year, or 

ø(III) 25 percent of the amount determined 

under subsection (d)(5)(A)(iii) for the plan year. 

ø(iii) UNFUNDED PERCENTAGE.—For purposes of 

clause (ii)(I), the term ‘‘unfunded percentage’’ means 

the percentage determined under subsection 

(d)(5)(A)(i)(I) for the plan year. 

ø(iv) LIMITATION ON INCREASE.—In no event shall 

the increases under clause (ii) exceed the amount necessary to increase the funded current liability percentage (within the meaning of subsection (d)(8)(B)) for the 

plan year to 100 percent. 

ø(5) LIQUIDITY REQUIREMENT.—

ø(A) IN GENERAL.—A plan to which this paragraph applies shall be treated as failing to pay the full amount of 

any required installment to the extent that the value of 

the liquid assets paid in such installment is less than the 

liquidity shortfall (whether or not such liquidity shortfall 

exceeds the amount of such installment required to be paid 

but for this paragraph). 

ø(B) PLANS TO WHICH PARAGRAPH APPLIES.—This paragraph shall apply to a defined benefit plan (other than a 

multiemployer plan or a plan described in subsection 

(d)(6)(A)) which— ø(i) is required to pay installments under this subsection for a plan year, and 

ø(ii) has a liquidity shortfall for any quarter during 

such plan year. 

ø(C) PERIOD OF UNDERPAYMENT.—For purposes of paragraph (1), any portion of an installment that is treated as 

not paid under subparagraph (A) shall continue to be 

treated as unpaid until the close of the quarter in which 

the due date for such installment occurs. 

ø(D) LIMITATION ON INCREASE.—If the amount of any required installment is increased by reason of subparagraph 

(A), in no event shall such increase exceed the amount 

which, when added to prior installments for the plan year, 

is necessary to increase the funded current liability percentage (taking into account the expected increase in current liability due to benefits accruing during the plan year) 

to 100 percent. 

ø(E) DEFINITIONS.—For purposes of this paragraph—

ø(i) LIQUIDITY SHORTFALL.—The term ‘‘liquidity 

shortfall’’ means, with respect to any required installment, an amount equal to the excess (as of the last 

day of the quarter for which such installment is made) 

of the base amount with respect to such quarter over 

the value (as of such last day) of the plan’s liquid assets. 

ø(ii) BASE AMOUNT.—

ø(I) IN GENERAL.—The term ‘‘base amount’’

means, with respect to any quarter, an amount 

195 

equal to 3 times the sum of the adjusted disbursements from the plan for the 12 months ending on 

the last day of such quarter. 

ø(II) SPECIAL RULE.—If the amount determined 

under subclause (I) exceeds an amount equal to 2 

times the sum of the adjusted disbursements from 

the plan for the 36 months ending on the last day 

of the quarter and an enrolled actuary certifies to 

the satisfaction of the Secretary of the Treasury 

that such excess is the result of nonrecurring circumstances, the base amount with respect to such 

quarter shall be determined without regard to 

amounts related to those nonrecurring circumstances. 

ø(iii) DISBURSEMENTS FROM THE PLAN.—The term 

‘‘disbursements from the plan’’ means all disbursements from the trust, including purchases of annuities, payments of single sums and other benefits, and 

administrative expenses. 

ø(iv) ADJUSTED DISBURSEMENTS.—The term ‘‘adjusted disbursements’’ means disbursements from the 

plan reduced by the product of—

ø(I) the plan’s funded current liability percentage (as defined in subsection (d)(8)) for the plan 

year, and 

ø(II) the sum of the purchases of annuities, payments of single sums, and such other disbursements as the Secretary of the Treasury shall provide in regulations. 

ø(v) LIQUID ASSETS.—The term ‘‘liquid assets’’ means 

cash, marketable securities and such other assets as 

specified by the Secretary of the Treasury in regulations. 

ø(vi) QUARTER.—The term ‘‘quarter’’ means, with respect to any required installment, the 3-month period 

preceding the month in which the due date for such 

installment occurs. 

ø(F) REGULATIONS.—The Secretary of the Treasury may 

prescribe such regulations as are necessary to carry out 

this paragraph. 

ø(6) FISCAL YEARS AND SHORT YEARS.—

ø(A) FISCAL YEARS.—In applying this subsection to a 

plan year beginning on any date other than January 1, 

there shall be substituted for the months specified in this 

subsection, the months which correspond thereto. 

ø(B) SHORT PLAN YEAR.—This section shall be applied to 

plan years of less than 12 months in accordance with regulations prescribed by the Secretary of the Treasury. 

ø(7) SPECIAL RULE FOR 2002.—In any case in which the interest rate used to determine current liability is determined 

under subsection (d)(7)(C)(i)(III), for purposes of applying paragraphs (1) and (4)(B)(ii) for plan years beginning in 2002, the 

current liability for the preceding plan year shall be redetermined using 120 percent as the specified percentage determined under subsection (d)(7)(C)(i)(II). 

196 

ø(f) IMPOSITION OF LIEN WHERE FAILURE TO MAKE REQUIRED

CONTRIBUTIONS.— ø(1) IN GENERAL.—In the case of a plan covered under section 4021 of this Act, if— ø(A) any person fails to make a required installment 

under subsection (e) or any other payment required under 

this section before the due date for such installment or 

other payment, and 

ø(B) the unpaid balance of such installment or other 

payment (including interest), when added to the aggregate 

unpaid balance of all preceding such installments or other 

payments for which payment was not made before the due 

date (including interest), exceeds $1,000,000, 

then there shall be a lien in favor of the plan in the amount 

determined under paragraph (3) upon all property and rights 

to property, whether real or personal, belonging to such person 

and any other person who is a member of the same controlled 

group of which such person is a member. 

ø(2) PLANS TO WHICH SUBSECTION APPLIES.—This subsection 

shall apply to a defined benefit plan (other than a multiemployer plan) for any plan year for which the funded current liability percentage (within the meaning of subsection (d)(8)(B)) 

of such plan is less than 100 percent. 

ø(3) AMOUNT OF LIEN.—For purposes of paragraph (1), the 

amount of the lien shall be equal to the aggregate unpaid balance of required installments and other payments required 

under this section (including interest)— ø(A) for plan years beginning after 1987, and 

ø(B) for which payment has not been made before the 

due date. 

ø(4) NOTICE OF FAILURE; LIEN.— ø(A) NOTICE OF FAILURE.—A person committing a failure 

described in paragraph (1) shall notify the Pension Benefit 

Guaranty Corporation of such failure within 10 days of the 

due date for the required installment or other payment. 

ø(B) PERIOD OF LIEN.—The lien imposed by paragraph 

(1) shall arise on the due date for the required installment 

or other payment and shall continue until the last day of 

the first plan year in which the plan ceases to be described 

in paragraph (1)(B). Such lien shall continue to run without regard to whether such plan continues to be described 

in paragraph (2) during the period referred to in the preceding sentence. 

ø(C) CERTAIN RULES TO APPLY.—Any amount with respect to which a lien is imposed under paragraph (1) shall 

be treated as taxes due and owing the United States and 

rules similar to the rules of subsections (c), (d), and (e) of 

section 4068 shall apply with respect to a lien imposed by 

subsection (a) and the amount with respect to such lien. 

ø(5) ENFORCEMENT.—Any lien created under paragraph (1) 

may be perfected and enforced only by the Pension Benefit 

Guaranty Corporation, or at the direction of the Pension Benefit Guaranty Corporation, by the contributing sponsor (or any 

member of the controlled group of the contributing sponsor). 

ø(6) DEFINITIONS.—For purposes of this subsection—

197 

ø(A) DUE DATE; REQUIRED INSTALLMENT.—The terms ‘‘due date’’ and ‘‘required installment’’ have the meanings 

given such terms by subsection (e), except that in the case 

of a payment other than a required installment, the due 

date shall be the date such payment is required to be 

made under this section. 

ø(B) CONTROLLED GROUP.—The term ‘‘controlled group’’ means any group treated as a single employer under subsections (b), (c), (m), and (o) of section 414 of the Internal 

Revenue Code of 1986. 

ø(g) QUALIFIED TRANSFERS TO HEALTH BENEFIT ACCOUNTS.—For 

purposes of this section, in the case of a qualified transfer (as defined in section 420 of the Internal Revenue Code of 1986)— ø(1) any assets transferred in a plan year on or before the 

valuation date for such year (and any income allocable thereto) 

shall, for purposes of subsection (c)(7), be treated as assets in 

the plan as of the valuation date for such year, and 

ø(2) the plan shall be treated as having a net experience loss 

under subsection (b)(2)(B)(iv) in an amount equal to the 

amount of such transfer (reduced by any amounts transferred 

back to the plan under section 420(c)(1)(B) of such Code) and 

for which amortization charges begin for the first plan year 

after the plan year in which such transfer occurs, except that 

such subsection shall be applied to such amount by substituting ‘‘10 plan years’’ for ‘‘5 plan years’’. 

ø(h) CROSS REFERENCE.—For alternative amortization method for 

certain multiemployer plans see section 1013(d) of this Act. 

øVARIANCE FROM MINIMUM FUNDING STANDARD

øSEC. 303. (a) If an employer, or in the case of a multiemployer 

plan, 10 percent or more of the number of employers contributing 

to or under the plan are unable to satisfy the minimum funding 

standard for a plan year without temporary substantial business 

hardship (substantial business hardship in the case of a multiemployer plan) and if application of the standard would be adverse to 

the interests of plan participants in the aggregate, the Secretary of 

the Treasury may waive the requirements of section 302(a) for such 

year with respect to all or any portion of the minimum funding 

standard other than the portion thereof determined under section 

302(b)(2)(C). The Secretary of the Treasury shall not waive the 

minimum funding standard with respect to a plan for more than 

3 of any 15 (5 of any 15 in the case of a multiemployer plan) consecutive plan years. The interest rate used for purposes of computing the amortization charge described in subsection (b)(2)(C) for 

any plan year shall be—

ø(1) in the case of a plan other than a multiemployer plan, 

the greater of (A) 150 percent of the Federal mid-term rate (as 

in effect under section 1274 of the Internal Revenue Code of 

1986 for the 1st month of such plan year), or (B) the rate of 

interest used under the plan in determining costs (including 

adjustments under section 302(b)(5)(B)), and 

ø(2) in the case of a multiemployer plan, the rate determined 

under section 6621(b) of such Code. 

ø(b) For purposes of this part, the factors taken into account in 

determining temporary substantial business hardship (substantial 

198 

business hardship in the case of a multiemployer plan) shall include (but shall not be limited to) whether—

ø(1) the employer is operating at an economic loss, 

ø(2) there is substantial unemployment or underemployment 

in the trade or business and in the industry concerned, 

ø(3) the sales and profits of the industry concerned are depressed or declining, and 

ø(4) it is reasonable to expect that the plan will be continued 

only if the waiver is granted. 

ø(c) For purposes of this part, the term ‘‘waived funding deficiency’’ means the portion of the minimum funding standard (determined without regard to subsection (b)(3)(C) of section 302) for a 

plan year waived by the Secretary of the Treasury and not satisfied 

by employer contributions. 

ø(d) SPECIAL RULES.—

ø(1) APPLICATION MUST BE SUBMITTED BEFORE DATE 21⁄2

MONTHS AFTER CLOSE OF YEAR.—In the case of a plan other 

than a multiemployer plan, no waiver may be granted under 

this section with respect to any plan for any plan year unless 

an application therefor is submitted to the Secretary of the 

Treasury not later than the 15th day of the 3rd month beginning after the close of such plan year. 

ø(2) SPECIAL RULE IF EMPLOYER IS MEMBER OF CONTROLLED

GROUP.—

ø(A) IN GENERAL.—In the case of a plan other than a 

multiemployer plan, if an employer is a member of a controlled group, the temporary substantial business hardship 

requirements of subsection (a) shall be treated as met only 

if such requirements are met—

ø(i) with respect to such employer, and 

ø(ii) with respect to the controlled group of which 

such employer is a member (determined by treating all 

members of such group as a single employer). 

The Secretary of the Treasury may provide that an analysis of a trade or business or industry of a member need 

not be conducted if the Secretary of the Treasury determines such analysis is not necessary because the taking 

into account of such member would not significantly affect 

the determination under this subsection. 

ø(B) CONTROLLED GROUP.—For purposes of subparagraph (A), the term ‘‘controlled group’’ means any group 

treated as a single employer under subsection (b), (c), (m), 

or (o) of section 414 of the Internal Revenue Code of 1986. 

ø(e)(1) The Secretary of the Treasury shall, before granting a 

waiver under this section, require each applicant to provide evidence satisfactory to such Secretary that the applicant has provided notice of the filing of the application for such waiver to each 

employee organization representing employees covered by the affected plan, and each affected party (as defined in section 

4001(a)(21)) other than the Pension Benefit Guaranty Corporation. 

Such notice shall include a description of the extent to which the 

plan is funded for benefits which are guaranteed under title IV and 

for benefit liabilities. 

199 

ø(2) The Secretary of the Treasury shall consider any relevant information provided by a person to whom notice was given under 

paragraph (1). 

ø(f) CROSS REFERENCE.—For corresponding duties of the Secretary of the Treasury with regard to implementation of the Internal Revenue Code of 1986, see section 412(d) of such Code. 

øEXTENSION OF AMORTIZATION PERIODS

øSEC. 304. (a) The period of years required to amortize any unfunded liability (described in any clause of subsection (b)(2)(B) of 

section 302) of any plan may be extended by the Secretary for a 

period of time (not in excess of 10 years) if he determines that such 

extension would carry out the purposes of this Act and would provide adequate protection for participants under the plan and their 

beneficiaries and if he determines that the failure to permit such 

extension would—

ø(1) result in—

ø(A) a substantial risk to the voluntary continuation of 

the plan, or 

ø(B) a substantial curtailment of pension benefit levels 

or employee compensation, and 

ø(2) be adverse to the interests of plan participants in the 

aggregate. 

In the case of a plan other than a multiemployer plan, the interest 

rate applicable for any plan year under any arrangement entered 

into by the Secretary in connection with an extension granted 

under this subsection shall be the greater of (A) 150 percent of the 

Federal mid-term rate (as in effect under section 1274 of the Internal Revenue Code of 1986 for the 1st month of such plan year), or 

(B) the rate of interest used under the plan in determining costs. 

In the case of a multiemployer plan, such rate shall be the rate determined under section 6621(b) of such Code. 

ø(b)(1) No amendment of the plan which increases the liabilities 

of the plan by reason of any increase in benefits, any change in the 

accrual of benefits, or any change in the rate at which benefits become nonforfeitable under the plan shall be adopted if a waiver 

under section 303(a) or an extension of time under subsection (a) 

of this section is in effect with respect to the plan, or if a plan 

amendment described in section 302(c)(8) has been made at any 

time in the preceding 12 months (24 months in the case of a multiemployer plan). If a plan is amended in violation of the preceding 

sentence, any such waiver, or extension of time, shall not apply to 

any plan year ending on or after the date on which such amendment is adopted. 

ø(2) Paragraph (1) shall not apply to any plan amendment 

which—

ø(A) the Secretary determines to be reasonable and which 

provides for only de minimis increases in the liabilities of the 

plan, 

ø(B) only repeals an amendment described in section 

302(c)(8), or 

ø(C) is required as a condition of qualification under part I 

of subchapter D, of chapter 1, of the Internal Revenue Code of 

1986. 

200 

ø(c)(1) The Secretary of the Treasury shall, before granting an 

extension under this section, require each applicant to provide evidence satisfactory to such Secretary that the applicant has provided notice of the filing of the application for such extension to 

each employee organization representing employees covered by the 

affected plan. 

ø(2) The Secretary of the Treasury shall consider any relevant information provided by a person to whom notice was given under 

paragraph (1). 

øALTERNATIVE MINIMUM FUNDING STANDARD

øSEC. 305. (a) A plan which uses a funding method that requires 

contributions in all years not less than those required under the 

entry age normal funding method may maintain an alternative 

minimum funding standard account for any plan year. Such account shall be credited and charged solely as provided in this section. 

ø(b) For a plan year the alternative minimum funding standard 

accounts shall be—

ø(1) charged with the sum of—

ø(A) the lesser of normal cost under the funding method 

used under the plan or normal cost determined under the 

unit credit method, 

ø(B) the excess, if any, of the present value of accrued 

benefits under the plan over the fair market value of the 

assets, and 

ø(C) an amount equal to the excess, if any, of credits to 

the alternative minimum funding standard account for all 

prior plan years over charges to such account for all such 

years, and 

ø(2) credited with the amount considered contributed by the 

employer to or under the plan (within the meaning of section 

302(c)(10)) for the plan year. 

ø(c) The alternative minimum funding standard account (and 

items therein) shall be charged or credited with interest in the 

manner provided under section 302(b)(5) with respect to the funding standard account. 

øSECURITY FOR WAIVERS OF MINIMUM FUNDING STANDARD AND

EXTENSIONS OF AMORTIZATION PERIOD

øSEC. 306. (a) SECURITY MAY BE REQUIRED.—

ø(1) IN GENERAL.—Except as provided in subsection (c), the 

Secretary of the Treasury may require an employer maintaining a defined benefit plan which is a single-employer plan 

(within the meaning of section 4001(a)(15)) to provide security 

to such plan as a condition for granting or modifying a waiver 

under section 303 or an extension under section 304. 

ø(2) SPECIAL RULES.—Any security provided under paragraph (1) may be perfected and enforced only by the Pension 

Benefit Guaranty Corporation or, at the direction of the Corporation, by a contributing sponsor (within the meaning of section 4001(a)(13)) or a member of such sponsor’s controlled 

group (within the meaning of section 4001(a)(14)). 

201 

ø(b) CONSULTATION WITH THE PENSION BENEFIT GUARANTY CORPORATION.—Except as provided in subsection (c), the Secretary of 

the Treasury shall, before granting or modifying a waiver under 

section 303 or an extension under section 304 with respect to a 

plan described in subsection (a)(1)—

ø(1) provide the Pension Benefit Guaranty Corporation 

with—

ø(A) notice of the completed application for any waiver, 

extension, or modification, and 

ø(B) an opportunity to comment on such application 

within 30 days after receipt of such notice, and 

ø(2) consider—

ø(A) any comments of the Corporation under paragraph 

(1)(B), and 

ø(B) any views of any employee organization representing participants in the plan which are submitted in 

writing to the Secretary of the Treasury in connection with 

such application. 

Information provided to the corporation under this subsection shall 

be considered tax return information and subject to the safeguarding and reporting requirements of section 6103(p) of the Internal Revenue Code of 1986. 

ø(c) EXCEPTION FOR CERTAIN WAIVERS AND EXTENSIONS.—

ø(1) IN GENERAL.—The preceding provisions of this section 

shall not apply to any plan with respect to which the sum of—

ø(A) the outstanding balance of the accumulated funding 

deficiencies (within the meaning of section 302(a)(2) of this 

Act and section 412(a) of the Internal Revenue Code of 

1986) of the plan, 

ø(B) the outstanding balance of the amount of waived 

funding deficiencies of the plan waived under section 303 

of this Act or section 412(d) of such Code, and 

ø(C) the outstanding balance of the amount of decreases 

in the minimum funding standard allowed under section 

304 of this Act or section 412(e) of such Code, 

is less than $1,000,000. 

ø(2) ACCUMULATED FUNDING DEFICIENCIES.—For purposes of 

paragraph (1)(A), accumulated funding deficiencies shall include any increase in such amount which would result if all applications for waivers of the minimum funding standard under 

section 303 of this Act or section 412(d) of the Internal Revenue Code of 1986 and for extensions of the amortization period under section 304 of this Act or section 412(e) of such 

Code which are pending with respect to such plan were denied. 

øSECURITY REQUIRED UPON ADOPTION OF PLAN AMENDMENT

RESULTING IN SIGNIFICANT UNDERFUNDING

øSEC. 307. (a) IN GENERAL.—If—

ø(1) a defined benefit plan (other than a multiemployer plan) 

to which the requirements of section 302 apply adopts an 

amendment an effect of which is to increase current liability 

under the plan for a plan year, and 

ø(2) the funded current liability percentage of the plan for 

the plan year in which the amendment takes effect is less than 

202 

60 percent, including the amount of the unfunded current liability under the plan attributable to the plan amendment, 

the contributing sponsor (or any member of the controlled group of 

the contributing sponsor) shall provide security to the plan. 

ø(b) FORM OF SECURITY.—The security required under subsection 

(a) shall consist of— ø(1) a bond issued by a corporate surety company that is an 

acceptable surety for purposes of section 412, 

ø(2) cash, or United States obligations which mature in 3 

years or less, held in escrow by a bank or similar financial institution, or 

ø(3) such other form of security as is satisfactory to the Secretary of the Treasury and the parties involved. 

ø(c) AMOUNT OF SECURITY.—The security shall be in an amount 

equal to the excess of— ø(1) the lesser of— ø(A) the amount of additional plan assets which would 

be necessary to increase the funded current liability percentage under the plan to 60 percent, including the 

amount of the unfunded current liability under the plan 

attributable to the plan amendment, or 

ø(B) the amount of the increase in current liability 

under the plan attributable to the plan amendment and 

any other plan amendments adopted after December 22, 

1987, and before such plan amendment, over 

ø(2) $10,000,000. 

ø(d) RELEASE OF SECURITY.—The security shall be released (and 

any amounts thereunder shall be refunded together with any interest accrued thereon) at the end of the first plan year which ends 

after the provision of the security and for which the funded current 

liability percentage under the plan is not less than 60 percent. The 

Secretary of the Treasury may prescribe regulations for partial releases of the security by reason of increases in the funded current 

liability percentage. 

ø(e) NOTICE.—A contributing sponsor which is required to provide security under subsection (a) shall notify the Pension Benefit 

Guaranty Corporation within 30 days after the amendment requiring such security takes effect. Such notice shall contain such information as the Corporation may require. 

ø(f) DEFINITIONS.—For purposes of this section, the terms ‘‘current liability’’, ‘‘funded current liability percentage’’, and ‘‘unfunded 

current liability’’ shall have the meanings given such terms by section 302(d), except that in computing unfunded current liability 

there shall not be taken into account any unamortized portion of 

the unfunded old liability amount as of the close of the plan year. 

øEFFECTIVE DATES

øSEC. 308. (a) Except as otherwise provided in this section, this 

part shall apply in the case of plan years beginning after the date 

of the enactment of this Act. 

ø(b) Except as otherwise provided in subsections (c) and (d), in 

the case of a plan in existence on January 1, 1974, this part shall 

apply in the case of plan years beginning after December 31, 1975. 

ø(c)(1) In the case of a plan maintained on January 1, 1974, pursuant to one or more agreements which the Secretary finds to be 

203 

collective bargaining agreements between employee representatives 

and one or more employers, this part shall apply only with respect 

to plan years beginning after the earlier of the date specified in 

subparagraph (A) or (B) of section 211(c)(1). 

ø(2) This subsection shall apply with respect to a plan if (and 

only if) the application of this subsection results in a later effective 

date for this part than the effective date required by subsection (b). 

ø(d) In the case of a plan the administrator of which elects under 

section 1017(d) of this Act to have the provisions of the Internal 

Revenue Code of 1954 relating to participation, vesting, funding, 

and form of benefit to apply to a plan year and to all subsequent 

plan years, this part shall apply to plan years beginning on the 

earlier of the first plan year to which such election applies or the 

first plan year determined under subsections (a), (b), and (c) of this 

section. 

ø(e) In the case of a plan maintained by a labor organization 

which is exempt from tax under section 501(c)(5) of the Internal 

Revenue Code 1954 exclusively for the benefit of its employees and 

their beneficiaries, this part shall be applied by substituting for the 

term ‘‘December 31, 1975’’ in subsection (b), the earlier of—

ø(1) the date on which the second convention of such labor 

organization held after the date of the enactment of this Act 

ends, or 

ø(2) December 31, 1980, 

but in no event shall a date earlier than the later of December 31, 

1975, or the date determined under subsection (c) be substituted. 

ø(f) The preceding provisions of this section shall not apply with 

respect to amendments made to this part in provisions enacted 

after the date of the enactment of this Act.¿ 

MINIMUM FUNDING STANDARDS

SEC. 302. (a) REQUIREMENT TO MEET MINIMUM FUNDING STANDARD.—

(1) IN GENERAL.—A plan to which this part applies shall satisfy the minimum funding standard applicable to the plan for 

any plan year. 

(2) MINIMUM FUNDING STANDARD.—For purposes of paragraph (1), a plan shall be treated as satisfying the minimum 

funding standard for a plan year if—

(A) in the case of a defined benefit plan which is a singleemployer plan, the employer makes contributions to or 

under the plan for the plan year which, in the aggregate, 

are not less than the minimum required contribution determined under section 303 for the plan for the plan year, 

(B) in the case of a money purchase plan which is a single-employer plan, the employer makes contributions to or 

under the plan for the plan year which are required under 

the terms of the plan, and 

(C) in the case of a multiemployer plan, the employers 

make contributions to or under the plan for any plan year 

which, in the aggregate, are sufficient to ensure that the 

plan does not have an accumulated funding deficiency 

under section 304 as of the end of the plan year. 

(b) LIABILITY FOR CONTRIBUTIONS.—

204 

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

amount of any contribution required by this section (including 

any required installments under paragraphs (3) and (4) of section 303(j)) shall be paid by the employer responsible for making contributions to or under the plan. 

(2) JOINT AND SEVERAL LIABILITY WHERE EMPLOYER MEMBER

OF CONTROLLED GROUP.—In the case of a single-employer plan, 

if the employer referred to in paragraph (1) is a member of a 

controlled group, each member of such group shall be jointly 

and severally liable for payment of such contributions. 

(c) VARIANCE FROM MINIMUM FUNDING STANDARDS.—

(1) WAIVER IN CASE OF BUSINESS HARDSHIP.—

(A) IN GENERAL.—If—

(i) an employer is (or in the case of a multiemployer 

plan, 10 percent or more of the number of employers 

contributing to or under the plan is) unable to satisfy 

the minimum funding standard for a plan year without temporary substantial business hardship (substantial business hardship in the case of a multiemployer 

plan), and 

(ii) application of the standard would be adverse to 

the interests of plan participants in the aggregate, 

the Secretary of the Treasury may, subject to subparagraph 

(C), waive the requirements of subsection (a) for such year 

with respect to all or any portion of the minimum funding 

standard. The Secretary of the Treasury shall not waive the 

minimum funding standard with respect to a plan for more 

than 3 of any 15 (5 of any 15 in the case of a multiemployer 

plan) consecutive plan years. 

(B) EFFECTS OF WAIVER.—If a waiver is granted under 

subparagraph (A) for any plan year—

(i) in the case of a single-employer plan, the minimum required contribution under section 303 for the 

plan year shall be reduced by the amount of the waived 

funding deficiency and such amount shall be amortized 

as required under section 303(e), and 

(ii) in the case of a multiemployer plan, the funding 

standard account shall be credited under section 

304(b)(3)(C) with the amount of the waived funding deficiency and such amount shall be amortized as required under section 304(b)(2)(C). 

(C) WAIVER OF AMORTIZED PORTION NOT ALLOWED.—The 

Secretary of the Treasury may not waive under subparagraph (A) any portion of the minimum funding standard 

under subsection (a) for a plan year which is attributable 

to any waived funding deficiency for any preceding plan 

year. 

(2) DETERMINATION OF BUSINESS HARDSHIP.—For purposes of 

this subsection, the factors taken into account in determining 

temporary substantial business hardship (substantial business 

hardship in the case of a multiemployer plan) shall include (but 

shall not be limited to) whether or not—

(A) the employer is operating at an economic loss, 

205 

(B) there is substantial unemployment or underemployment in the trade or business and in the industry concerned, 

(C) the sales and profits of the industry concerned are depressed or declining, and 

(D) it is reasonable to expect that the plan will be continued only if the waiver is granted. 

(3) WAIVED FUNDING DEFICIENCY.—For purposes of this part, 

the term ‘‘waived funding deficiency’’ means the portion of the 

minimum funding standard under subsection (a) (determined 

without regard to the waiver) for a plan year waived by the Secretary of the Treasury and not satisfied by employer contributions. 

(4) SECURITY FOR WAIVERS FOR SINGLE-EMPLOYER PLANS, 

CONSULTATIONS.—

(A) SECURITY MAY BE REQUIRED.—

(i) IN GENERAL.—Except as provided in subparagraph (C), the Secretary of the Treasury may require 

an employer maintaining a defined benefit plan which 

is a single-employer plan (within the meaning of section 4001(a)(15)) to provide security to such plan as a 

condition for granting or modifying a waiver under 

paragraph (1). 

(ii) SPECIAL RULES.—Any security provided under 

clause (i) may be perfected and enforced only by the 

Pension Benefit Guaranty Corporation, or at the direction of the Corporation, by a contributing sponsor 

(within the meaning of section 4001(a)(13)), or a member of such sponsor’s controlled group (within the 

meaning of section 4001(a)(14)). 

(B) CONSULTATION WITH THE PENSION BENEFIT GUARANTY CORPORATION.—Except as provided in subparagraph 

(C), the Secretary of the Treasury shall, before granting or 

modifying a waiver under this subsection with respect to a 

plan described in subparagraph (A)(i)— (i) provide the Pension Benefit Guaranty Corporation 

with—

(I) notice of the completed application for any 

waiver or modification, and 

(II) an opportunity to comment on such application within 30 days after receipt of such notice, 

and 

(ii) consider— (I) any comments of the Corporation under 

clause (i)(II), and 

(II) any views of any employee organization 

(within the meaning of section 3(4)) representing 

participants in the plan which are submitted in 

writing to the Secretary of the Treasury in connection with such application. 

Information provided to the Corporation under this subparagraph shall be considered tax return information and 

subject to the safeguarding and reporting requirements of 

section 6103(p) of the Internal Revenue Code of 1986. 

(C) EXCEPTION FOR CERTAIN WAIVERS.—

206 

(i) IN GENERAL.—The preceding provisions of this 

paragraph shall not apply to any plan with respect to 

which the sum of— (I) the aggregate unpaid minimum required contribution for the plan year and all preceding plan 

years, and 

(II) the present value of all waiver amortization 

installments determined for the plan year and succeeding plan years under section 303(e)(2), is less than $1,000,000. 

(ii) TREATMENT OF WAIVERS FOR WHICH APPLICATIONS ARE PENDING.—The amount described in clause 

(i)(I) shall include any increase in such amount which 

would result if all applications for waivers of the minimum funding standard under this subsection which 

are pending with respect to such plan were denied. 

(iii) UNPAID MINIMUM REQUIRED CONTRIBUTION.—

For purposes of this subparagraph—

(I) IN GENERAL.—The term ‘‘unpaid minimum 

required contribution’’ means, with respect to any 

plan year, any minimum required contribution 

under section 303 for the plan year which is not 

paid on or before the due date (as determined 

under section 303(j)(1)) for the plan year. 

(II) ORDERING RULE.—For purposes of subclause 

(I), any payment to or under a plan for any plan 

year shall be allocated first to unpaid minimum 

required contributions for all preceding plan years 

on a first-in, first-out basis and then to the minimum required contribution under section 303 for 

the plan year. 

(5) SPECIAL RULES FOR SINGLE-EMPLOYER PLANS.—

(A) APPLICATION MUST BE SUBMITTED BEFORE DATE 21⁄2

MONTHS AFTER CLOSE OF YEAR.—In the case of a single-employer plan, no waiver may be granted under this subsection with respect to any plan for any plan year unless 

an application therefor is submitted to the Secretary of the 

Treasury not later than the 15th day of the 3rd month beginning after the close of such plan year. 

(B) SPECIAL RULE IF EMPLOYER IS MEMBER OF CONTROLLED GROUP.—In the case of a single-employer plan, if 

an employer is a member of a controlled group, the temporary substantial business hardship requirements of paragraph (1) shall be treated as met only if such requirements 

are met— 

(i) with respect to such employer, and 

(ii) with respect to the controlled group of which such 

employer is a member (determined by treating all members of such group as a single employer). 

The Secretary of the Treasury may provide that an analysis 

of a trade or business or industry of a member need not be 

conducted if the Secretary of the Treasury determines such 

analysis is not necessary because the taking into account of 

such member would not significantly affect the determination under this paragraph. 

207 

(6) ADVANCE NOTICE.—

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

before granting a waiver under this subsection, require 

each applicant to provide evidence satisfactory to such Secretary that the applicant has provided notice of the filing 

of the application for such waiver to each affected party (as 

defined in section 4001(a)(21)). Such notice shall include a 

description of the extent to which the plan is funded for 

benefits which are guaranteed under title IV and for benefit 

liabilities. 

(B) CONSIDERATION OF RELEVANT INFORMATION.—The 

Secretary of the Treasury shall consider any relevant information provided by a person to whom notice was given 

under subparagraph (A). 

(7) RESTRICTION ON PLAN AMENDMENTS.—

(A) IN GENERAL.—No amendment of a plan which increases the liabilities of the plan by reason of any increase 

in benefits, any change in the accrual of benefits, or any 

change in the rate at which benefits become nonforfeitable 

under the plan shall be adopted if a waiver under this subsection or an extension of time under section 304(d) is in effect with respect to the plan, or if a plan amendment described in subsection (d)(2) has been made at any time in 

the preceding 24 months. If a plan is amended in violation 

of the preceding sentence, any such waiver, or extension of 

time, shall not apply to any plan year ending on or after 

the date on which such amendment is adopted. 

(B) EXCEPTION.—Paragraph (1) shall not apply to any 

plan amendment which—

(i) the Secretary of the Treasury determines to be reasonable and which provides for only de minimis increases in the liabilities of the plan, 

(ii) only repeals an amendment described in subsection (d)(2), or 

(iii) is required as a condition of qualification under 

part I of subchapter D, of chapter 1 of the Internal 

Revenue Code of 1986. 

(8) CROSS REFERENCE.—For corresponding duties of the Secretary of the Treasury with regard to implementation of the Internal Revenue Code of 1986, see section 412(c) of such Code. 

(d) MISCELLANEOUS RULES.—

(1) CHANGE IN METHOD OR YEAR.—If the funding method, the 

valuation date, or a plan year for a plan is changed, the change 

shall take effect only if approved by the Secretary of the Treasury. 

(2) CERTAIN RETROACTIVE PLAN AMENDMENTS.—For purposes 

of this section, any amendment applying to a plan year which—

(A) is adopted after the close of such plan year but no 

later than 21⁄2 months after the close of the plan year (or, 

in the case of a multiemployer plan, no later than 2 years 

after the close of such plan year), 

(B) does not reduce the accrued benefit of any participant 

determined as of the beginning of the first plan year to 

which the amendment applies, and 

208 

(C) does not reduce the accrued benefit of any participant 

determined as of the time of adoption except to the extent 

required by the circumstances, 

shall, at the election of the plan administrator, be deemed to 

have been made on the first day of such plan year. No amendment described in this paragraph which reduces the accrued 

benefits of any participant shall take effect unless the plan administrator files a notice with the Secretary of the Treasury notifying him of such amendment and such Secretary has approved such amendment, or within 90 days after the date on 

which such notice was filed, failed to disapprove such amendment. No amendment described in this subsection shall be approved by the Secretary of the Treasury unless such Secretary 

determines that such amendment is necessary because of a substantial business hardship (as determined under subsection 

(c)(2)) and that a waiver under subsection (c) (or, in the case 

of a multiemployer plan, any extension of the amortization period under section 304(d)) is unavailable or inadequate. 

(3) CONTROLLED GROUP.—For purposes of this section, the 

term ‘‘controlled group’’ means any group treated as a single 

employer under subsection (b), (c), (m), or (o) of section 414 of 

the Internal Revenue Code of 1986. 

MINIMUM FUNDING STANDARDS FOR SINGLE-EMPLOYER DEFINED

BENEFIT PENSION PLANS

SEC. 303. (a) MINIMUM REQUIRED CONTRIBUTION.—For purposes 

of this section and section 302(a)(2)(A), except as provided in subsection (f), the term ‘‘minimum required contribution’’ means, with 

respect to any plan year of a defined benefit plan which is a single 

employer plan—

(1) in any case in which the value of plan assets of the plan 

(as reduced under subsection (f)(4)) is less than the funding target of the plan for the plan year, the sum of—

(A) the target normal cost of the plan for the plan year, 

(B) the shortfall amortization charge (if any) for the plan 

for the plan year determined under subsection (c), and 

(C) the waiver amortization charge (if any) for the plan 

for the plan year as determined under subsection (e); 

(2) in any case in which the value of plan assets of the plan 

(as reduced under subsection (f)(4)) exceeds the funding target 

of the plan for the plan year, the target normal cost of the plan 

for the plan year reduced by such excess; or 

(3) in any other case, the target normal cost of the plan for 

the plan year. 

(b) TARGET NORMAL COST.—For purposes of this section, except as 

provided in subsection (i)(2) with respect to plans in at-risk status, 

the term ‘‘target normal cost’’ means, for any plan year, the present 

value of all benefits which are expected to accrue or to be earned 

under the plan during the plan year. For purposes of this subsection, if any benefit attributable to services performed in a preceding plan year is increased by reason of any increase in compensation during the current plan year, the increase in such benefit 

shall be treated as having accrued during the current plan year. 

(c) SHORTFALL AMORTIZATION CHARGE.—

209 

(1) IN GENERAL.—For purposes of this section, the shortfall 

amortization charge for a plan for any plan year is the aggregate total of the shortfall amortization installments for such 

plan year with respect to the shortfall amortization bases for 

such plan year and each of the 6 preceding plan years. 

(2) SHORTFALL AMORTIZATION INSTALLMENT.—The plan sponsor shall determine, with respect to the shortfall amortization 

base of the plan for any plan year, the amounts necessary to 

amortize such shortfall amortization base, in level annual installments over a period of 7 plan years beginning with such 

plan year. For purposes of paragraph (1), the annual installment of such amortization for each plan year in such 7-planyear period is the shortfall amortization installment for such 

plan year with respect to such shortfall amortization base. In 

determining any shortfall amortization installment under this 

paragraph, the plan sponsor shall use the segment rates determined under subparagraph (C) of subsection (h)(2), applied 

under rules similar to the rules of subparagraph (B) of subsection (h)(2). 

(3) SHORTFALL AMORTIZATION BASE.—For purposes of this 

section, the shortfall amortization base of a plan for a plan year 

is the excess (if any) of—

(A) the funding shortfall of such plan for such plan year, 

over 

(B) the sum of—

(i) the present value (determined using the segment 

rates determined under subparagraph (C) of subsection 

(h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2)) of the aggregate 

total of the shortfall amortization installments, for 

such plan year and the 5 succeeding plan years, which 

have been determined with respect to the shortfall amortization bases of the plan for each of the 6 plan years 

preceding such plan year, and 

(ii) the present value (as so determined) of the aggregate total of the waiver amortization installments for 

such plan year and the 5 succeeding plan years, which 

have been determined with respect to the waiver amortization bases of the plan for each of the 5 plan years 

preceding such plan year. 

In any case in which the value of plan assets of the plan 

(as reduced under subsection (f)(4)) is equal to or greater 

than the funding target of the plan for the plan year, the 

shortfall amortization base of the plan for such plan year 

shall be zero. 

(4) FUNDING SHORTFALL.—

(A) IN GENERAL.—For purposes of this section, except as 

provided in subparagraph (B), the funding shortfall of a 

plan for any plan year is the excess (if any) of— (i) the funding target of the plan for the plan year, 

over 

(ii) the value of plan assets of the plan (as reduced 

under subsection (f)(4)) for the plan year which are 

held by the plan on the valuation date. 

(B) TRANSITION RULE.—

210 

(i) IN GENERAL.—For purposes of paragraph (3), in 

the case of a non-defecit reduction plan, subparagraph 

(A) shall be applied to plan years beginning after 2005 

and before 2010 by substituting for the amount described in subparagraph (A)(i) the applicable percentage of the funding target of the plan for the plan year 

determined under the following table: 

In the case of a plan year beginning in calendar year: 

The applicable 

percentage is: 

2006 ................................................................................................................................ 92 percent

2007 ................................................................................................................................ 94 percent

2008 ................................................................................................................................ 96 percent

2009 ................................................................................................................................ 98 percent. 

(ii) NON-DEFICIT REDUCTION PLAN.—For purposes of 

clause (i), the term ‘‘non-deficit reduction plan’’ means 

any plan—(I) to which this part (as in effect on the day before the date of the enactment of the Pension Protection Act of 2005) applied for the plan year beginning in 2005, and 

(II) to which section 302(d) (as so in effect) did 

not apply for such plan year. 

(5) EARLY DEEMED AMORTIZATION UPON ATTAINMENT OF

FUNDING TARGET.—In any case in which the funding shortfall 

of a plan for a plan year is zero, for purposes of determining 

the shortfall amortization charge for such plan year and succeeding plan years, the shortfall amortization bases for all preceding plan years (and all shortfall amortization installments 

determined with respect to such bases) shall be reduced to zero. 

(d) RULES RELATING TO FUNDING TARGET.—For purposes of this 

section—

(1) FUNDING TARGET.—Except as provided in subsection (i)(1) 

with respect to plans in at-risk status, the funding target of a 

plan for a plan year is the present value of all liabilities to participants and their beneficiaries under the plan for the plan 

year. 

(2) FUNDING TARGET ATTAINMENT PERCENTAGE.—The ‘‘funding target attainment percentage’’ of a plan for a plan year is 

the ratio (expressed as a percentage) which—

(A) the value of plan assets for the plan year (as reduced 

under subsection (f)(4)), bears to 

(B) the funding target of the plan for the plan year (determined without regard to subsection (i)(1)). 

(e) WAIVER AMORTIZATION CHARGE.—

(1) DETERMINATION OF WAIVER AMORTIZATION CHARGE.—The 

waiver amortization charge (if any) for a plan for any plan year 

is the aggregate total of the waiver amortization installments 

for such plan year with respect to the waiver amortization bases 

for each of the 5 preceding plan years. 

(2) WAIVER AMORTIZATION INSTALLMENT.—The plan sponsor 

shall determine, with respect to the waiver amortization base of 

the plan for any plan year, the amounts necessary to amortize 

211 

such waiver amortization base, in level annual installments 

over a period of 5 plan years beginning with the succeeding 

plan year. For purposes of paragraph (1), the annual installment of such amortization for each plan year in such 5-plan 

year period is the waiver amortization installment for such plan 

year with respect to such waiver amortization base. 

(3) INTEREST RATE.—In determining any waiver amortization 

installment under this subsection, the plan sponsor shall use 

the segment rates determined under subparagraph (C) of subsection (h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2). 

(4) WAIVER AMORTIZATION BASE.—The waiver amortization 

base of a plan for a plan year is the amount of the waived funding deficiency (if any) for such plan year under section 302(c). 

(5) EARLY DEEMED AMORTIZATION UPON ATTAINMENT OF

FUNDING TARGET.—In any case in which the funding shortfall 

of a plan for a plan year is zero, for purposes of determining 

the waiver amortization charge for such plan year and succeeding plan years, the waiver amortization base for all preceding plan years shall be reduced to zero. 

(f) REDUCTION OF MINIMUM REQUIRED CONTRIBUTION BY PREFUNDING BALANCE AND FUNDING STANDARD CARRYOVER BALANCE.—

(1) ELECTION TO MAINTAIN BALANCES.—

(A) PRE-FUNDING BALANCE.—The plan sponsor of a single-employer plan may elect to maintain a pre-funding balance. 

(B) FUNDING STANDARD CARRYOVER BALANCE.—

(i) IN GENERAL.—In the case of a single-employer 

plan described in clause (ii), the plan sponsor may elect 

to maintain a funding standard carryover balance, 

until such balance is reduced to zero. 

(ii) PLANS MAINTAINING FUNDING STANDARD ACCOUNT IN 2005.—A plan is described in this clause if 

the plan—

(I) was in effect for a plan year beginning in 

2005, and 

(II) had a positive balance in the funding standard account under section 302(b) as in effect for 

such plan year and determined as of the end of 

such plan year. 

(2) APPLICATION OF BALANCES.—A pre-funding balance and a 

funding standard carryover balance maintained pursuant to 

this paragraph—

(A) shall be available for crediting against the minimum 

required contribution, pursuant to an election under paragraph (3), 

(B) shall be applied as a reduction in the amount treated 

as the value of plan assets for purposes of this section, to 

the extent provided in paragraph (4), and 

(C) may be reduced at any time, pursuant to an election 

under paragraph (5). 

(3) ELECTION TO APPLY BALANCES AGAINST MINIMUM REQUIRED CONTRIBUTION.—

212 

(A) IN GENERAL.—Except as provided in subparagraphs 

(B) and (C), in the case of any plan year in which the plan 

sponsor elects to credit against the minimum required contribution for the current plan year all or a portion of the 

pre-funding balance or the funding standard carryover balance for the current plan year (not in excess of such minimum required contribution), the minimum required contribution for the plan year shall be reduced by the amount 

so credited by the plan sponsor. For purposes of the preceding sentence, the minimum required contribution shall 

be determined after taking into account any waiver under 

section 302(c). 

(B) COORDINATION WITH FUNDING STANDARD CARRYOVER

BALANCE.—To the extent that any plan has a funding 

standard carryover balance greater than zero, no amount of 

the pre-funding balance of such plan may be credited under 

this paragraph in reducing the minimum required contribution. 

(C) LIMITATION FOR UNDERFUNDED PLANS.—The preceding provisions of this paragraph shall not apply for any 

plan year if the ratio (expressed as a percentage) which—

(i) the value of plan assets for the preceding plan 

year (as reduced under paragraph (4)), bears to 

(ii) the funding target of the plan for the preceding 

plan year (determined without regard to subsection 

(i)(1)), 

is less than 80 percent. 

(4) EFFECT OF BALANCES ON AMOUNTS TREATED AS VALUE OF

PLAN ASSETS.—In the case of any plan maintaining a pre-funding balance or a funding standard carryover balance pursuant 

to this subsection, the amount treated as the value of plan assets shall be deemed to be such amount, reduced as provided in 

the following subparagraphs: 

(A) APPLICABILITY OF SHORTFALL AMORTIZATION CHARGE

AND WAIVER AMORTIZATION CHARGE.—For purposes of subsection (c)(3), the value of plan assets is deemed to be such 

amount, reduced by the amount of the pre-funding balance, 

but only if an election under paragraph (2) applying any 

portion of the pre-funding balance in reducing the minimum required contribution is in effect for the plan year. 

(B) DETERMINATION OF EXCESS ASSETS, FUNDING SHORTFALL, AND FUNDING TARGET ATTAINMENT PERCENTAGE.—

For purposes of subsections (a), (c)(4)(A)(ii), and (d)(2)(A), 

the value of plan assets is deemed to be such amount, reduced by the amount of the pre-funding balance and the 

funding standard carryover balance. 

(C) AVAILABILITY OF BALANCES IN PLAN YEAR FOR CREDITING AGAINST MINIMUM REQUIRED CONTRIBUTION.—For 

purposes of paragraph (3)(C)(i) of this subsection, the value 

of plan assets is deemed to be such amount, reduced by the 

amount of the pre-funding balance. 

(5) ELECTION TO REDUCE BALANCE PRIOR TO DETERMINATIONS

OF VALUE OF PLAN ASSETS AND CREDITING AGAINST MINIMUM

REQUIRED CONTRIBUTION.—

213 

(A) IN GENERAL.—The plan sponsor may elect to reduce 

by any amount the balance of the pre-funding balance and 

the funding standard carryover balance for any plan year 

(but not below zero). Such reduction shall be effective prior 

to any determination of the value of plan assets for such 

plan year under this section and application of the balance 

in reducing the minimum required contribution for such 

plan for such plan year pursuant to an election under paragraph (2). 

(B) COORDINATION BETWEEN PRE-FUNDING BALANCE AND

FUNDING STANDARD CARRYOVER BALANCE.—To the extent 

that any plan has a funding standard carryover balance 

greater than zero, no election may be made under subparagraph (A) with respect to the pre-funding balance. 

(6) PRE-FUNDING BALANCE.—

(A) IN GENERAL.—A pre-funding balance maintained by 

a plan shall consist of a beginning balance of zero, increased and decreased to the extent provided in subparagraphs (B) and (C), and adjusted further as provided in 

paragraph (8). 

(B) INCREASES.—As of the valuation date for each plan 

year beginning after 2006, the pre-funding balance of a 

plan shall be increased by the amount elected by the plan 

sponsor for the plan year. Such amount shall not exceed the 

excess (if any) of— (i) the aggregate total of employer contributions to 

the plan for the preceding plan year, over 

(ii) the minimum required contribution for such preceding plan year (increased by interest on any portion 

of such minimum required contribution remaining unpaid as of the valuation date for the current plan year, 

at the effective interest rate for the plan for the preceding plan year, for the period beginning with the 

first day of such preceding plan year and ending on the 

date that payment of such portion is made). 

(C) DECREASES.—As of the valuation date for each plan 

year after 2006, the pre-funding balance of a plan shall be 

decreased (but not below zero) by the sum of— (i) the amount of such balance credited under paragraph (2) (if any) in reducing the minimum required 

contribution of the plan for the preceding plan year, 

and 

(ii) any reduction in such balance elected under 

paragraph (5). 

(7) FUNDING STANDARD CARRYOVER BALANCE.—

(A) IN GENERAL.—A funding standard carryover balance 

maintained by a plan shall consist of a beginning balance 

determined under subparagraph (B), decreased to the extent provided in subparagraph (C), and adjusted further as 

provided in paragraph (8). 

(B) BEGINNING BALANCE.—The beginning balance of the 

funding standard carryover balance shall be the positive 

balance described in paragraph (1)(B)(ii)(II). 

(C) DECREASES.—As of the valuation date for each plan 

year after 2006, the funding standard carryover balance of 

214 

a plan shall be decreased (but not below zero) by the sum 

of— (i) the amount of such balance credited under paragraph (2) (if any) in reducing the minimum required 

contribution of the plan for the preceding plan year, 

and 

(ii) any reduction in such balance elected under 

paragraph (5). 

(8) ADJUSTMENTS TO BALANCES.—In determining the prefunding balance or the funding standard carryover balance of 

a plan as of the valuation date (before applying any increase or 

decrease under paragraph (6) or (7)), the plan sponsor shall, in 

accordance with regulations which shall be prescribed by the 

Secretary of the Treasury, adjust such balance so as to reflect 

the rate of net gain or loss (determined, notwithstanding subsection (g)(3), on the basis of fair market value) experienced by 

all plan assets for the period beginning with the valuation date 

for the preceding plan year and ending with the date preceding 

the valuation date for the current plan year, properly taking 

into account, in accordance with such regulations, all contributions, distributions, and other plan payments made during such 

period. 

(9) ELECTIONS.—Elections under this subsection shall be 

made at such times, and in such form and manner, as shall be 

prescribed in regulations of the Secretary of the Treasury. 

(g) VALUATION OF PLAN ASSETS AND LIABILITIES.— (1) TIMING OF DETERMINATIONS.—Except as otherwise provided under this subsection, all determinations under this section for a plan year shall be made as of the valuation date of 

the plan for such plan year. 

(2) VALUATION DATE.—For purposes of this section— (A) IN GENERAL.—Except as provided in subparagraph 

(B), the valuation date of a plan for any plan year shall be 

the first day of the plan year. 

(B) EXCEPTION FOR SMALL PLANS.—If, on each day during the preceding plan year, a plan had 500 or fewer participants, the plan may designate any day during the plan 

year as its valuation date for such plan year and succeeding plan years. For purposes of this subparagraph, all 

defined benefit plans (other than multiemployer plans) 

maintained by the same employer (or any member of such 

employer’s controlled group) shall be treated as 1 plan, but 

only employees of such employer or member shall be taken 

into account. 

(C) APPLICATION OF CERTAIN RULES IN DETERMINATION

OF PLAN SIZE.—For purposes of this paragraph—

(i) PLANS NOT IN EXISTENCE IN PRECEDING YEAR.—In 

the case of the first plan year of any plan, subparagraph (B) shall apply to such plan by taking into account the number of participants that the plan is reasonably expected to have on days during such first plan 

year. 

(ii) PREDECESSORS.—Any reference in subparagraph 

(B) to an employer shall include a reference to any 

predecessor of such employer. 

215 

(3) AUTHORIZATION OF USE OF ACTUARIAL VALUE.—For purposes of this section, the value of plan assets shall be determined on the basis of any reasonable actuarial method of valuation which takes into account fair market value and which is 

permitted under regulations prescribed by the Secretary of the 

Treasury, except that—

(A) any such method providing for averaging of fair market values may not provide for averaging of such values 

over more than the 3 most recent plan years (including the 

current plan year), and 

(B) any such method may not result in a determination 

of the value of plan assets which, at any time, is lower than 

90 percent or greater than 110 percent of the fair market 

value of such assets at such time. 

(4) ACCOUNTING FOR CONTRIBUTION RECEIPTS.—For purposes 

of this section—

(A) CONTRIBUTIONS FOR PRIOR PLAN YEARS TAKEN INTO

ACCOUNT.—For purposes of determining the value of plan 

assets for any current plan year, in any case in which a 

contribution properly allocable to amounts owed for a preceding plan year is made on or after the valuation date of 

the plan for such current plan year, such contribution shall 

be taken into account, except that any such contribution 

made during any such current plan year beginning after 

2006 shall be taken into account only in an amount equal 

to its present value (determined using the effective rate of 

interest for the plan for the preceding plan year) as of the 

valuation date of the plan for such current plan year. 

(B) CONTRIBUTIONS FOR CURRENT PLAN YEAR DISREGARDED.—For purposes of determining the value of plan 

assets for any current plan year, contributions which are 

properly allocable to amounts owed for such plan year shall 

not be taken into account, and, in the case of any such contribution made before the valuation date of the plan for 

such plan year, such value of plan assets shall be reduced 

for interest on such amount determined using the effective 

rate of interest of the plan for the preceding plan year for 

the period beginning when such payment was made and 

ending on the valuation date of the plan. 

(5) ACCOUNTING FOR PLAN LIABILITIES.—For purposes of this 

section—

(A) LIABILITIES TAKEN INTO ACCOUNT FOR CURRENT PLAN

YEAR.—In determining the value of liabilities under a plan 

for a plan year, liabilities shall be taken into account to the 

extent attributable to benefits (including any early retirement or similar benefit) accrued or earned as of the beginning of the plan year. 

(B) ACCRUALS DURING CURRENT PLAN YEAR DISREGARDED.—For purposes of subparagraph (A), benefits accrued or earned during such plan year shall not be taken 

into account, irrespective of whether the valuation date of 

the plan for such plan year is later than the first day of 

such plan year. 

(h) ACTUARIAL ASSUMPTIONS AND METHODS.—

216 

(1) IN GENERAL.—Subject to this subsection, the determination of any present value or other computation under this section shall be made on the basis of actuarial assumptions and 

methods—

(A) each of which is reasonable (taking into account the 

experience of the plan and reasonable expectations), and 

(B) which, in combination, offer the actuary’s best estimate of anticipated experience under the plan. 

(2) INTEREST RATES.— (A) EFFECTIVE INTEREST RATE.—For purposes of this section, the term ‘‘effective interest rate’’ means, with respect to 

any plan for any plan year, the single rate of interest 

which, if used to determine the present value of the plan’s 

liabilities referred to in subsection (d)(1), would result in 

an amount equal to the funding target of the plan for such 

plan year. 

(B) INTEREST RATES FOR DETERMINING FUNDING TAR- GET.—For purposes of determining the funding target of a 

plan for any plan year, the interest rate used in determining the present value of the liabilities of the plan shall 

be— (i) in the case of liabilities reasonably determined to 

be payable during the 5-year period beginning on the 

first day of the plan year, the first segment rate with 

respect to the applicable month, 

(ii) in the case of liabilities reasonably determined to 

be payable during the 15-year period beginning at the 

end of the period described in clause (i), the second segment rate with respect to the applicable month, and 

(iii) in the case of liabilities reasonably determined to 

be payable after the period described in clause (ii), the 

third segment rate with respect to the applicable 

month. 

(C) SEGMENT RATES.—For purposes of this paragraph—

(i) FIRST SEGMENT RATE.—The term ‘‘first segment 

rate’’ means, with respect to any month, the single rate 

of interest which shall be determined by the Secretary 

of the Treasury for such month on the basis of the corporate bond yield curve for such month, taking into account only that portion of such yield curve which is 

based on bonds maturing during the 5-year period 

commencing with such month. 

(ii) SECOND SEGMENT RATE.—The term ‘‘second segment rate’’ means, with respect to any month, the single rate of interest which shall be determined by the 

Secretary of the Treasury for such month on the basis 

of the corporate bond yield curve for such month, taking into account only that portion of such yield curve 

which is based on bonds maturing during the 15-year 

period beginning at the end of the period described in 

clause (i). 

(iii) THIRD SEGMENT RATE.—The term ‘‘third segment 

rate’’ means, with respect to any month, the single rate 

of interest which shall be determined by the Secretary 

of the Treasury for such month on the basis of the corVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00216 Fmt 6659 Sfmt 6603 E:\HR\OC\HR232P1.XXX HR232P1
217 

porate bond yield curve for such month, taking into account only that portion of such yield curve which is 

based on bonds maturing during periods beginning 

after the period described in clause (ii). 

(D) CORPORATE BOND YIELD CURVE.—For purposes of this 

paragraph— (i) IN GENERAL.—The term ‘‘corporate bond yield 

curve’’ means, with respect to any month, a yield curve 

which is prescribed by the Secretary of the Treasury for 

such month and which reflects a 3-year weighted average of yields on investment grade corporate bonds with 

varying maturities. 

(ii) 3-YEAR WEIGHTED AVERAGE.—The term ‘‘3-year 

weighted average’’ means an average determined by 

using a methodology under which the most recent year 

is weighted 50 percent, the year preceding such year is 

weighted 35 percent, and the second year preceding 

such year is weighted 15 percent. 

(E) APPLICABLE MONTH.—For purposes of this paragraph, 

the term ‘‘applicable month’’ means, with respect to any 

plan for any plan year, the month which includes the valuation date of such plan for such plan year or, at the election 

of the plan administrator, any of the 4 months which precede such month. Any election made under this subparagraph shall apply to the plan year for which the election is 

made and all succeeding plan years, unless the election is 

revoked with the consent of the Secretary of the Treasury. 

(F) PUBLICATION REQUIREMENTS.—The Secretary of the 

Treasury shall publish for each month the corporate bond 

yield curve (and the corporate bond yield curve reflecting 

the modification described in section 205(g)(3)(B)(iii)(I)) for 

such month and each of the rates determined under subparagraph (B) for such month. The Secretary of the Treasury shall also publish a description of the methodology 

used to determine such yield curve and such rates which is 

sufficiently detailed to enable plans to make reasonable 

projections regarding the yield curve and such rates for future months based on the plan’s projection of future interest 

rates. 

(G) TRANSITION RULE.—

(i) IN GENERAL.—Notwithstanding the preceding provisions of this paragraph, for plan years beginning in 

2006 or 2007, the first, second, or third segment rate 

for a plan with respect to any month shall be equal to 

the sum of—

(I) the product of such rate for such month determined without regard to this subparagraph, multiplied by the applicable percentage, and 

(II) the product of the rate determined under the 

rules of section 302(b)(5)(B)(ii)(II) (as in effect for 

plan years beginning in 2005), multiplied by a percentage equal to 100 percent minus the applicable 

percentage. 

(ii) APPLICABLE PERCENTAGE.—For purposes of 

clause (i), the applicable percentage is 331⁄3 percent for 

218 

plan years beginning in 2006 and 662⁄3 percent for 

plan years beginning in 2007. 

(3) MORTALITY TABLE.— (A) IN GENERAL.—Except as provided in subparagraph 

(C), the mortality table used in determining any present 

value or making any computation under this section shall 

be the RP–2000 Combined Mortality Table, using Scale AA, 

as published by the Society of Actuaries, as in effect on the 

date of the enactment of the Pension Protection Act of 2005 

and as revised from time to time under subparagraph (B). 

(B) PERIODIC REVISION.—The Secretary of the Treasury 

shall (at least every 10 years) make revisions in any table 

in effect under subparagraph (A) to reflect the actual experience of pension plans and projected trends in such experience. 

(C) SUBSTITUTE MORTALITY TABLE.—

(i) IN GENERAL.—Upon request by the plan sponsor 

and approval by the Secretary of the Treasury for a period not to exceed 10 years, a mortality table which 

meets the requirements of clause (ii) shall be used in 

determining any present value or making any computation under this section. A mortality table described in 

this clause shall cease to be in effect if the plan actuary 

determines at any time that such table does not meet 

the requirements of subclauses (I) and (II) of clause (ii). 

(ii) REQUIREMENTS.—A mortality table meets the requirements of this clause if the Secretary of the Treasury determines that— (I) such table reflects the actual experience of the 

pension plan and projected trends in such experience, and 

(II) such table is significantly different from the 

table described in subparagraph (A). 

(iii) DEADLINE FOR DISPOSITION OF APPLICATION.—

Any mortality table submitted to the Secretary of the 

Treasury for approval under this subparagraph shall 

be treated as in effect for the succeeding plan year unless the Secretary of the Treasury, during the 180-day 

period beginning on the date of such submission, disapproves of such table and provides the reasons that 

such table fails to meet the requirements of clause (ii). 

(D) TRANSITION RULE.—Under regulations of the Secretary of the Treasury, any difference in assumptions as set 

forth in the mortality table specified in subparagraph (A) 

and assumptions as set forth in the mortality table described in section 302(d)(7)(C)(ii) (as in effect for plan years 

beginning in 2005) shall be phased in ratably over the first 

period of 5 plan years beginning in or after 2006 so as to 

be fully effective for the fifth plan year. 

(4) PROBABILITY OF BENEFIT PAYMENTS IN THE FORM OF LUMP

SUMS OR OTHER OPTIONAL FORMS.—For purposes of determining any present value or making any computation under 

this section, there shall be taken into account— (A) the probability that future benefit payments under the 

plan will be made in the form of optional forms of benefits 

219 

provided under the plan (including lump sum distributions, determined on the basis of the plan’s experience and 

other related assumptions), and 

(B) any difference in the present value of such future benefit payments resulting from the use of actuarial assumptions, in determining benefit payments in any such optional 

form of benefits, which are different from those specified in 

this subsection. 

(5) APPROVAL OF LARGE CHANGES IN ACTUARIAL ASSUMP- TIONS.—

(A) IN GENERAL.—No actuarial assumption used to determine the funding target for a single-employer plan to which 

this paragraph applies may be changed without the approval of the Secretary of the Treasury. 

(B) PLANS TO WHICH PARAGRAPH APPLIES.—This paragraph shall apply to a plan only if—

(i) the aggregate unfunded vested benefits as of the 

close of the preceding plan year (as determined under 

section 4006(a)(3)(E)(iii)) of such plan and all other 

plans maintained by the contributing sponsors (as defined in section 4001(a)(13)) and members of such 

sponsors’ controlled groups (as defined in section 

4001(a)(14)) which are covered by title IV (disregarding 

plans with no unfunded vested benefits) exceed 

$50,000,000; and 

(ii) the change in assumptions (determined after taking into account any changes in interest rate and mortality table) results in a decrease in the funding shortfall of the plan for the current plan year that exceeds 

$50,000,000, or that exceeds $5,000,000 and that is 5 

percent or more of the funding target of the plan before 

such change. 

(i) SPECIAL RULES FOR AT-RISK PLANS.— (1) FUNDING TARGET FOR PLANS IN AT-RISK STATUS.—

(A) IN GENERAL.—In any case in which a plan is in atrisk status for a plan year, the funding target of the plan 

for the plan year is the sum of— (i) the present value of all liabilities to participants 

and their beneficiaries under the plan for the plan 

year, as determined by using, in addition to the actuarial assumptions described in subsection (g), the supplemental actuarial assumptions described in subparagraph (B), plus 

(ii) a loading factor determined under subparagraph 

(C). 

(B) SUPPLEMENTAL ACTUARIAL ASSUMPTIONS.—The actuarial assumptions used in determining the valuation of the 

funding target shall include, in addition to the actuarial 

assumptions described in subsection (h), an assumption 

that all participants will elect benefits at such times and in 

such forms as will result in the highest present value of liabilities under subparagraph (A)(i). 

(C) LOADING FACTOR.—The loading factor applied with 

respect to a plan under this paragraph for any plan year 

is the sum of—

220 

(i) $700, times the number of participants in the 

plan, plus 

(ii) 4 percent of the funding target (determined without regard to this paragraph) of the plan for the plan 

year. 

(2) TARGET NORMAL COST OF AT-RISK PLANS.—In any case in 

which a plan is in at-risk status for a plan year, the target normal cost of the plan for such plan year shall be the sum of— (A) the present value of all benefits which are expected to 

accrue or be earned under the plan during the plan year, 

determined under the actuarial assumptions used under 

paragraph (1), plus 

(B) the loading factor under paragraph (1)(C), excluding 

the portion of the loading factor described in paragraph 

(1)(C)(i). 

(3) DETERMINATION OF AT-RISK STATUS.—For purposes of this 

subsection, a plan is in ‘‘at-risk status’’ for a plan year if the 

funding target attainment percentage of the plan for the preceding plan year was less than 60 percent. 

(4) TRANSITION BETWEEN APPLICABLE FUNDING TARGETS AND

BETWEEN APPLICABLE TARGET NORMAL COSTS.— (A) IN GENERAL.—In any case in which a plan which is 

in at-risk status for a plan year has been in such status for 

a consecutive period of fewer than 5 plan years, the applicable amount of the funding target and of the target normal cost shall be, in lieu of the amount determined without 

regard to this paragraph, the sum of— (i) the amount determined under this section without 

regard to this subsection, plus 

(ii) the transition percentage for such plan year of 

the excess of the amount determined under this subsection (without regard to this paragraph) over the 

amount determined under this section without regard 

to this subsection. 

(B) TRANSITION PERCENTAGE.—For purposes of this paragraph, the ‘‘transition percentage’’ for a plan year is the 

product derived by multiplying— (i) 20 percent, by 

(ii) the number of plan years during the period described in subparagraph (A). 

(j) PAYMENT OF MINIMUM REQUIRED CONTRIBUTIONS.—

(1) IN GENERAL.—For purposes of this section, the due date 

for any payment of any minimum required contribution for any 

plan year shall be 81⁄2 months after the close of the plan year. 

(2) INTEREST.—Any payment required under paragraph (1) 

for a plan year made after the valuation date for such plan year 

shall be increased by interest, for the period from the valuation 

date to the payment date, at the effective rate of interest for the 

plan for such plan year. 

(3) ACCELERATED QUARTERLY CONTRIBUTION SCHEDULE FOR

UNDERFUNDED PLANS.— (A) INTEREST PENALTY FOR FAILURE TO MEET ACCELER- ATED QUARTERLY PAYMENT SCHEDULE.—In any case in 

which the plan has a funding shortfall for the preceding 

plan year, if the required installment is not paid in full, 

221 

then the minimum required contribution for the plan year 

(as increased under paragraph (2)) shall be further increased by an amount equal to the interest on the amount 

of the underpayment for the period of the underpayment, 

using an interest rate equal to the excess of— (i) 175 percent of the Federal mid-term rate (as in effect under section 1274 of the Internal Revenue Code of 

1986 for the 1st month of such plan year), over 

(ii) the effective rate of interest for the plan for the 

plan year. 

(B) AMOUNT OF UNDERPAYMENT, PERIOD OF UNDERPAYMENT.—For purposes of subparagraph (A)—

(i) AMOUNT.—The amount of the underpayment shall 

be the excess of—

(I) the required installment, over 

(II) the amount (if any) of the installment contributed to or under the plan on or before the due 

date for the installment. 

(ii) PERIOD OF UNDERPAYMENT.—The period for 

which any interest is charged under this paragraph 

with respect to any portion of the underpayment shall 

run from the due date for the installment to the date 

on which such portion is contributed to or under the 

plan. 

(iii) ORDER OF CREDITING CONTRIBUTIONS.—For purposes of clause (i)(II), contributions shall be credited 

against unpaid required installments in the order in 

which such installments are required to be paid. 

(C) NUMBER OF REQUIRED INSTALLMENTS; DUE DATES.—

For purposes of this paragraph—

(i) PAYABLE IN 4 INSTALLMENTS.—There shall be 4 

required installments for each plan year. 

(ii) TIME FOR PAYMENT OF INSTALLMENTS.—The due 

dates for required installments are set forth in the following table: 

In the case of the following required installment: The due date is: 

1st ................................................................................................. April 15 

2nd ............................................................................................... July 15 

3rd ................................................................................................ October 15 

4th ................................................................................................ January 15 of the following 

year 

(D) AMOUNT OF REQUIRED INSTALLMENT.—For purposes 

of this paragraph—

(i) IN GENERAL.—The amount of any required installment shall be 25 percent of the required annual payment. 

(ii) REQUIRED ANNUAL PAYMENT.—For purposes of 

clause (i), the term ‘‘required annual payment’’ means 

the lesser of— (I) 90 percent of the minimum required contribution (without regard to any waiver under section 

302(c)) to the plan for the plan year under this section, or 

222 

(II) in the case of a plan year beginning after 

2006, 100 percent of the minimum required contribution (without regard to any waiver under section 302(c)) to the plan for the preceding plan year. 

Subclause (II) shall not apply if the preceding plan 

year referred to in such clause was not a year of 12 

months. 

(E) FISCAL YEARS AND SHORT YEARS.— (i) FISCAL YEARS.—In applying this paragraph to a 

plan year beginning on any date other than January 1, 

there shall be substituted for the months specified in 

this paragraph, the months which correspond thereto. 

(ii) SHORT PLAN YEAR.—This subparagraph shall be 

applied to plan years of less than 12 months in accordance with regulations prescribed by the Secretary of the 

Treasury. 

(4) LIQUIDITY REQUIREMENT IN CONNECTION WITH QUARTERLY

CONTRIBUTIONS.— (A) IN GENERAL.—A plan to which this paragraph applies shall be treated as failing to pay the full amount of 

any required installment under paragraph (3) to the extent 

that the value of the liquid assets paid in such installment 

is less than the liquidity shortfall (whether or not such liquidity shortfall exceeds the amount of such installment required to be paid but for this paragraph). 

(B) PLANS TO WHICH PARAGRAPH APPLIES.—This paragraph shall apply to a plan (other than a plan that would 

be described in subsection (f)(2)(B) if ‘‘100’’ were substituted 

for ‘‘500’’ therein) which— (i) is required to pay installments under paragraph 

(3) for a plan year, and 

(ii) has a liquidity shortfall for any quarter during 

such plan year. 

(C) PERIOD OF UNDERPAYMENT.—For purposes of paragraph (3)(A), any portion of an installment that is treated 

as not paid under subparagraph (A) shall continue to be 

treated as unpaid until the close of the quarter in which the 

due date for such installment occurs. 

(D) LIMITATION ON INCREASE.—If the amount of any required installment is increased by reason of subparagraph 

(A), in no event shall such increase exceed the amount 

which, when added to prior installments for the plan year, 

is necessary to increase the funding target attainment percentage of the plan for the plan year (taking into account 

the expected increase in funding target due to benefits accruing or earned during the plan year) to 100 percent. 

(E) DEFINITIONS.—For purposes of this subparagraph: 

(i) LIQUIDITY SHORTFALL.—The term ‘‘liquidity shortfall’’ means, with respect to any required installment, 

an amount equal to the excess (as of the last day of the 

quarter for which such installment is made) of—

(I) the base amount with respect to such quarter, 

over 

(II) the value (as of such last day) of the plan’s 

liquid assets. 

223 

(ii) BASE AMOUNT.—

(I) IN GENERAL.—The term ‘‘base amount’’

means, with respect to any quarter, an amount 

equal to 3 times the sum of the adjusted disbursements from the plan for the 12 months ending on 

the last day of such quarter. 

(II) SPECIAL RULE.—If the amount determined 

under subclause (I) exceeds an amount equal to 2 

times the sum of the adjusted disbursements from 

the plan for the 36 months ending on the last day 

of the quarter and an enrolled actuary certifies to 

the satisfaction of the Secretary of the Treasury 

that such excess is the result of nonrecurring circumstances, the base amount with respect to such 

quarter shall be determined without regard to 

amounts related to those nonrecurring circumstances. 

(iii) DISBURSEMENTS FROM THE PLAN.—The term 

‘‘disbursements from the plan’’ means all disbursements from the trust, including purchases of annuities, 

payments of single sums and other benefits, and administrative expenses. 

(iv) ADJUSTED DISBURSEMENTS.—The term ‘‘adjusted 

disbursements’’ means disbursements from the plan reduced by the product of—

(I) the plan’s funding target attainment percentage for the plan year, and 

(II) the sum of the purchases of annuities, payments of single sums, and such other disbursements as the Secretary of the Treasury shall provide in regulations. 

(v) LIQUID ASSETS.—The term ‘‘liquid assets’’ means 

cash, marketable securities, and such other assets as 

specified by the Secretary of the Treasury in regulations. 

(vi) QUARTER.—The term ‘‘quarter’’ means, with respect to any required installment, the 3-month period 

preceding the month in which the due date for such installment occurs. 

(F) REGULATIONS.—The Secretary of the Treasury may 

prescribe such regulations as are necessary to carry out this 

paragraph. 

(k) IMPOSITION OF LIEN WHERE FAILURE TO MAKE REQUIRED

CONTRIBUTIONS.—

(1) IN GENERAL.—In the case of a plan covered under section 

4021 of this Act and to which this subsection applies (as provided under paragraph (2)), if—

(A) any person fails to make a contribution payment required by section 302 and this section before the due date 

for such payment, and 

(B) the unpaid balance of such payment (including interest), when added to the aggregate unpaid balance of all 

preceding such payments for which payment was not made 

before the due date (including interest), exceeds $1,000,000, 

224 

then there shall be a lien in favor of the plan in the amount 

determined under paragraph (3) upon all property and rights 

to property, whether real or personal, belonging to such person 

and any other person who is a member of the same controlled 

group of which such person is a member. 

(2) PLANS TO WHICH SUBSECTION APPLIES.—This subsection 

shall apply to a defined benefit plan which is a single-employer 

plan for any plan year for which the funding target attainment 

percentage (as defined in subsection (d)(2)) of such plan is less 

than 100 percent. 

(3) AMOUNT OF LIEN.—For purposes of paragraph (1), the 

amount of the lien shall be equal to the aggregate unpaid balance of contribution payments required under this section and 

section 302 for which payment has not been made before the 

due date. 

(4) NOTICE OF FAILURE; LIEN.—

(A) NOTICE OF FAILURE.—A person committing a failure 

described in paragraph (1) shall notify the Pension Benefit 

Guaranty Corporation of such failure within 10 days of the 

due date for the required contribution payment. 

(B) PERIOD OF LIEN.—The lien imposed by paragraph (1) 

shall arise on the due date for the required contribution 

payment and shall continue until the last day of the first 

plan year in which the plan ceases to be described in paragraph (1)(B). Such lien shall continue to run without regard to whether such plan continues to be described in 

paragraph (2) during the period referred to in the preceding sentence. 

(C) CERTAIN RULES TO APPLY.—Any amount with respect 

to which a lien is imposed under paragraph (1) shall be 

treated as taxes due and owing the United States and rules 

similar to the rules of subsections (c), (d), and (e) of section 

4068 shall apply with respect to a lien imposed by subsection (a) and the amount with respect to such lien. 

(5) ENFORCEMENT.—Any lien created under paragraph (1) 

may be perfected and enforced only by the Pension Benefit 

Guaranty Corporation, or at the direction of the Pension Benefit 

Guaranty Corporation, by the contributing sponsor (or any 

member of the controlled group of the contributing sponsor). 

(6) DEFINITIONS.—For purposes of this subsection—

(A) CONTRIBUTION PAYMENT.—The term ‘‘contribution 

payment’’ means, in connection with a plan, a contribution 

payment required to be made to the plan, including any required installment under paragraphs (3) and (4) of subsection (i). 

(B) DUE DATE; REQUIRED INSTALLMENT.—The terms ‘‘due 

date’’ and ‘‘required installment’’ have the meanings given 

such terms by subsection (j), except that in the case of a 

payment other than a required installment, the due date 

shall be the date such payment is required to be made 

under section 303. 

(C) CONTROLLED GROUP.—The term ‘‘controlled group’’ means any group treated as a single employer under subsections (b), (c), (m), and (o) of section 414 of the Internal 

Revenue Code of 1986. 

225 

(l) QUALIFIED TRANSFERS TO HEALTH BENEFIT ACCOUNTS.—In 

the case of a qualified transfer (as defined in section 420 of the Internal Revenue Code of 1986), any assets so transferred shall not, 

for purposes of this section, be treated as assets in the plan. 

MINIMUM FUNDING STANDARDS FOR MULTIEMPLOYER PLANS

SEC. 304. (a) IN GENERAL.—For purposes of section 302, the accumulated funding deficiency of a multiemployer plan for any plan 

year is—

(1) except as provided in paragraph (2), the amount, determined as of the end of the plan year, equal to the excess (if any) 

of the total charges to the funding standard account of the plan 

for all plan years (beginning with the first plan year for which 

this part applies to the plan) over the total credits to such account for such years, and 

(2) if the multiemployer plan is in reorganization for any 

plan year, the accumulated funding deficiency of the plan determined under section 4243. 

(b) FUNDING STANDARD ACCOUNT.— (1) ACCOUNT REQUIRED.—Each multiemployer plan to which 

this part applies shall establish and maintain a funding standard account. Such account shall be credited and charged solely 

as provided in this section. 

(2) CHARGES TO ACCOUNT.—For a plan year, the funding 

standard account shall be charged with the sum of— (A) the normal cost of the plan for the plan year, 

(B) the amounts necessary to amortize in equal annual 

installments (until fully amortized)— (i) in the case of a plan in existence on January 1, 

1974, the unfunded past service liability under the 

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

section applies, over a period of 40 plan years, 

(ii) in the case of a plan which comes into existence 

after January 1, 1974, the unfunded past service liability under the plan on the first day of the first plan year 

to which this section applies, over a period of 15 plan 

years, 

(iii) separately, with respect to each plan year, the 

net increase (if any) in unfunded past service liability 

under the plan arising from plan amendments adopted 

in such year, over a period of 15 plan years, 

(iv) separately, with respect to each plan year, the net 

experience loss (if any) under the plan, over a period of 

15 plan years, and 

(v) separately, with respect to each plan year, the net 

loss (if any) resulting from changes in actuarial assumptions used under the plan, over a period of 15 

plan years, 

(C) the amount necessary to amortize each waived funding deficiency (within the meaning of section 302(c)(3)) for 

each prior plan year in equal annual installments (until 

fully amortized) over a period of 15 plan years, 

(D) the amount necessary to amortize in equal annual installments (until fully amortized) over a period of 5 plan 

years any amount credited to the funding standard account 

226 

under section 302(b)(3)(D) (as in effect on the day before the 

date of the enactment of the Pension Protection Act of 

2005), and 

(E) the amount necessary to amortize in equal annual installments (until fully amortized) over a period of 20 years 

the contributions which would be required to be made 

under the plan but for the provisions of section 

302(c)(7)(A)(i)(I) (as in effect on the day before the date of 

the enactment of the Pension Protection Act of 2005). 

(3) CREDITS TO ACCOUNT.—For a plan year, the funding 

standard account shall be credited with the sum of—

(A) the amount considered contributed by the employer to 

or under the plan for the plan year, 

(B) the amount necessary to amortize in equal annual installments (until fully amortized)—

(i) separately, with respect to each plan year, the net 

decrease (if any) in unfunded past service liability 

under the plan arising from plan amendments adopted 

in such year, over a period of 15 plan years, 

(ii) separately, with respect to each plan year, the net 

experience gain (if any) under the plan, over a period 

of 15 plan years, and 

(iii) separately, with respect to each plan year, the 

net gain (if any) resulting from changes in actuarial 

assumptions used under the plan, over a period of 15 

plan years, 

(C) the amount of the waived funding deficiency (within 

the meaning of section 302(c)(3)) for the plan year, and 

(D) in the case of a plan year for which the accumulated 

funding deficiency is determined under the funding standard account if such plan year follows a plan year for which 

such deficiency was determined under the alternative minimum funding standard under section 305 (as in effect on 

the day before the date of the enactment of the Pension Protection Act of 2005), the excess (if any) of any debit balance 

in the funding standard account (determined without regard to this subparagraph) over any debit balance in the 

alternative minimum funding standard account. 

(4) SPECIAL RULE FOR AMOUNTS FIRST AMORTIZED TO PLAN

YEARS BEFORE 2006.—In the case of any amount amortized 

under section 302(b) (as in effect on the day before the date of 

the enactment of the Pension Protection Act of 2005) over any 

period beginning with a plan year beginning before 2006, in 

lieu of the amortization described in paragraphs (2)(B) and 

(3)(B), such amount shall continue to be amortized under such 

section as so in effect. 

(5) COMBINING AND OFFSETTING AMOUNTS TO BE AMORTIZED.—Under regulations prescribed by the Secretary of the 

Treasury, amounts required to be amortized under paragraph 

(2) or paragraph (3), as the case may be—

(A) may be combined into one amount under such paragraph to be amortized over a period determined on the 

basis of the remaining amortization period for all items entering into such combined amount, and 

227 

(B) may be offset against amounts required to be amortized under the other such paragraph, with the resulting 

amount to be amortized over a period determined on the 

basis of the remaining amortization periods for all items 

entering into whichever of the two amounts being offset is 

the greater. 

(6) INTEREST.—Except as provided in subsection (c)(9), the 

funding standard account (and items therein) shall be charged 

or credited (as determined under regulations prescribed by the 

Secretary of the Treasury) with interest at the appropriate rate 

consistent with the rate or rates of interest used under the plan 

to determine costs. 

(7) CERTAIN AMORTIZATION CHARGES AND CREDITS.—In the 

case of a plan which, immediately before the date of the enactment of the Multiemployer Pension Plan Amendments Act of 

1980, was a multiemployer plan (within the meaning of section 

3(37) as in effect immediately before such date)—

(A) any amount described in paragraph (2)(B)(ii), 

(2)(B)(iii), or (3)(B)(i) of this subsection which arose in a 

plan year beginning before such date shall be amortized in 

equal annual installments (until fully amortized) over 40 

plan years, beginning with the plan year in which the 

amount arose; 

(B) any amount described in paragraph (2)(B)(iv) or 

(3)(B)(ii) of this subsection which arose in a plan year beginning before such date shall be amortized in equal annual installments (until fully amortized) over 20 plan 

years, beginning with the plan year in which the amount 

arose; 

(C) any change in past service liability which arises during the period of 3 plan years beginning on or after such 

date, and results from a plan amendment adopted before 

such date, shall be amortized in equal annual installments 

(until fully amortized) over 40 plan years, beginning with 

the plan year in which the change arises; and 

(D) any change in past service liability which arises during the period of 2 plan years beginning on or after such 

date, and results from the changing of a group of participants from one benefit level to another benefit level under 

a schedule of plan benefits which—

(i) was adopted before such date, and 

(ii) was effective for any plan participant before the 

beginning of the first plan year beginning on or after 

such date, 

shall be amortized in equal annual installments (until fully 

amortized) over 40 plan years, beginning with the plan 

year in which the change arises. 

(8) SPECIAL RULES RELATING TO CHARGES AND CREDITS TO

FUNDING STANDARD ACCOUNT.—For purposes of this part— (A) WITHDRAWAL LIABILITY.—Any amount received by a 

multiemployer plan in payment of all or part of an employer’s withdrawal liability under part 1 of subtitle E of title 

IV shall be considered an amount contributed by the employer to or under the plan. The Secretary of the Treasury 

may prescribe by regulation additional charges and credits 

228 

to a multiemployer plan’s funding standard account to the 

extent necessary to prevent withdrawal liability payments 

from being unduly reflected as advance funding for plan liabilities. 

(B) ADJUSTMENTS WHEN A MULTIEMPLOYER PLAN LEAVES

REORGANIZATION.—If a multiemployer plan is not in reorganization in the plan year but was in reorganization in 

the immediately preceding plan year, any balance in the 

funding standard account at the close of such immediately 

preceding plan year— (i) shall be eliminated by an offsetting credit or 

charge (as the case may be), but 

(ii) shall be taken into account in subsequent plan 

years by being amortized in equal annual installments 

(until fully amortized) over 30 plan years. 

The preceding sentence shall not apply to the extent of any 

accumulated funding deficiency under section 4243(a) as of 

the end of the last plan year that the plan was in reorganization. 

(C) PLAN PAYMENTS TO SUPPLEMENTAL PROGRAM OR

WITHDRAWAL LIABILITY PAYMENT FUND.—Any amount paid 

by a plan during a plan year to the Pension Benefit Guaranty Corporation pursuant to section 4222 of this Act or to 

a fund exempt under section 501(c)(22) of the Internal Revenue Code of 1986 pursuant to section 4223 of this Act 

shall reduce the amount of contributions considered received by the plan for the plan year. 

(D) INTERIM WITHDRAWAL LIABILITY PAYMENTS.—Any 

amount paid by an employer pending a final determination 

of the employer’s withdrawal liability under part 1 of subtitle E of title IV and subsequently refunded to the employer 

by the plan shall be charged to the funding standard account in accordance with regulations prescribed by the Secretary of the Treasury. 

(E) ELECTION FOR DEFERRAL OF CHARGE FOR PORTION OF

NET EXPERIENCE LOSS.—If an election is in effect under section 302(b)(7)(F) (as in effect on the day before the date of 

the enactment of the Pension Protection Act of 2005) for any 

plan year, the funding standard account shall be charged 

in the plan year to which the portion of the net experience 

loss deferred by such election was deferred with the amount 

so deferred (and paragraph (2)(B)(iv) shall not apply to the 

amount so charged). 

(F) FINANCIAL ASSISTANCE.—Any amount of any financial assistance from the Pension Benefit Guaranty Corporation to any plan, and any repayment of such amount, shall 

be taken into account under this section and section 412 in 

such manner as is determined by the Secretary of the 

Treasury. 

(G) SHORT-TERM BENEFITS.—To the extent that any plan 

amendment increases the unfunded past service liability 

under the plan by reason of an increase in benefits which 

are payable under the plan during a period that does not 

exceed 14 years, paragraph (2)(B)(iii) shall be applied separately with respect to such increase in unfunded past servVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00228 Fmt 6659 Sfmt 6603 E:\HR\OC\HR232P1.XXX HR232P1
229 

ice liability by substituting the number of years of the period during which such benefits are payable for ‘‘15’’. (c) ADDITIONAL RULES.— (1) DETERMINATIONS TO BE MADE UNDER FUNDING METHOD.— For purposes of this part, normal costs, accrued liability, past 

service liabilities, and experience gains and losses shall be determined under the funding method used to determine costs 

under the plan. 

(2) VALUATION OF ASSETS.— (A) IN GENERAL.—For purposes of this part, the value of 

the plan’s assets shall be determined on the basis of any 

reasonable actuarial method of valuation which takes into 

account fair market value and which is permitted under 

regulations prescribed by the Secretary of the Treasury. 

(B) ELECTION WITH RESPECT TO BONDS.—The value of a 

bond or other evidence of indebtedness which is not in default as to principal or interest may, at the election of the 

plan administrator, be determined on an amortized basis 

running from initial cost at purchase to par value at maturity or earliest call date. Any election under this subparagraph shall be made at such time and in such manner as 

the Secretary of the Treasury shall by regulations provide, 

shall apply to all such evidences of indebtedness, and may 

be revoked only with the consent of such Secretary. 

(3) ACTUARIAL ASSUMPTIONS MUST BE REASONABLE.—For 

purposes of this section, all costs, liabilities, rates of interest, 

and other factors under the plan shall be determined on the 

basis of actuarial assumptions and methods— (A) each of which is reasonable (taking into account the 

experience of the plan and reasonable expectations), and 

(B) which, in combination, offer the actuary’s best estimate of anticipated experience under the plan. 

(4) TREATMENT OF CERTAIN CHANGES AS EXPERIENCE GAIN OR

LOSS.—For purposes of this section, if—

(A) a change in benefits under the Social Security Act or 

in other retirement benefits created under Federal or State 

law, or 

(B) a change in the definition of the term ‘‘wages’’ under 

section 3121 of the Internal Revenue Code of 1986, or a 

change in the amount of such wages taken into account 

under regulations prescribed for purposes of section 

401(a)(5) of such Code, 

results in an increase or decrease in accrued liability under a 

plan, such increase or decrease shall be treated as an experience 

loss or gain. 

(5) FULL FUNDING.—If, as of the close of a plan year, a plan 

would (without regard to this paragraph) have an accumulated 

funding deficiency in excess of the full funding limitation—

(A) the funding standard account shall be credited with 

the amount of such excess, and 

(B) all amounts described in subparagraphs (B), (C), and 

(D) of subsection (b) (2) and subparagraph (B) of subsection 

(b)(3) which are required to be amortized shall be considered fully amortized for purposes of such subparagraphs. 

(6) FULL-FUNDING LIMITATION.—

230 

(A) IN GENERAL.—For purposes of paragraph (5), the 

term ‘‘full-funding limitation’’ means the excess (if any) of— (i) 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 

(ii) the lesser of— (I) the fair market value of the plan’s assets, or 

(II) the value of such assets determined under 

paragraph (2). 

(B) MINIMUM AMOUNT.—

(i) IN GENERAL.—In no event shall the full-funding 

limitation determined under subparagraph (A) be less 

than the excess (if any) of—

(I) 90 percent of the current liability of the plan 

(including the expected increase in current liability 

due to benefits accruing during the plan year), over 

(II) the value of the plan’s assets determined 

under paragraph (2). 

(ii) ASSETS.—For purposes of clause (i), assets shall 

not be reduced by any credit balance in the funding 

standard account. 

(C) FULL FUNDING LIMITATION.—For purposes of this 

paragraph, unless otherwise provided by the plan, the accrued liability under a multiemployer plan shall not include benefits which are not nonforfeitable under the plan 

after the termination of the plan (taking into consideration 

section 411(d)(3) of the Internal Revenue Code of 1986). 

(D) CURRENT LIABILITY.—For purposes of this paragraph—

(i) IN GENERAL.—The term ‘‘current liability’’ means 

all liabilities to employees and their beneficiaries under 

the plan. 

(ii) TREATMENT OF UNPREDICTABLE CONTINGENT

EVENT BENEFITS.—For purposes of clause (i), any benefit contingent on an event other than— (I) age, service, compensation, death, or disability, or 

(II) an event which is reasonably and reliably 

predictable (as determined by the Secretary of the 

Treasury), 

shall not be taken into account until the event on 

which the benefit is contingent occurs. 

(iii) INTEREST RATE USED.—The rate of interest used 

to determine current liability under this paragraph 

shall be the rate of interest determined under subparagraph (E). 

(iv) MORTALITY TABLES.— (I) COMMISSIONERS’ STANDARD TABLE.—In the 

case of plan years beginning before the first plan 

year to which the first tables prescribed under subclause (II) apply, the mortality table used in determining current liability under this paragraph 

shall be the table prescribed by the Secretary of the 

231 

Treasury which is based on the prevailing commissioners’ standard table (described in section 

807(d)(5)(A) of the Internal Revenue Code of 1986) 

used to determine reserves for group annuity contracts issued on January 1, 1993. 

(II) SECRETARIAL AUTHORITY.—The Secretary of 

the Treasury may by regulation prescribe for plan 

years beginning after December 31, 1999, mortality 

tables to be used in determining current liability 

under this subsection. Such tables shall be based 

upon the actual experience of pension plans and 

projected trends in such experience. In prescribing 

such tables, such Secretary shall take into account 

results of available independent studies of mortality of individuals covered by pension plans. 

(v) SEPARATE MORTALITY TABLES FOR THE DISABLED.—Notwithstanding clause (iv)—

(I) IN GENERAL.—In the case of plan years beginning after December 31, 1995, the Secretary of the 

Treasury shall establish mortality tables which 

may be used (in lieu of the tables under clause (iv)) 

to determine current liability under this subsection 

for individuals who are entitled to benefits under 

the plan on account of disability. Such Secretary 

shall establish separate tables for individuals 

whose disabilities occur in plan years beginning 

before January 1, 1995, and for individuals whose 

disabilities occur in plan years beginning on or 

after such date. 

(II) SPECIAL RULE FOR DISABILITIES OCCURRING

AFTER 1994.—In the case of disabilities occurring in 

plan years beginning after December 31, 1994, the 

tables under subclause (I) shall apply only with respect to individuals described in such subclause 

who are disabled within the meaning of title II of 

the Social Security Act and the regulations thereunder. 

(vi) PERIODIC REVIEW.—The Secretary of the Treasury shall periodically (at least every 5 years) review 

any tables in effect under this subparagraph and shall, 

to the extent such Secretary determines necessary, by 

regulation update the tables to reflect the actual experience of pension plans and projected trends in such experience. 

(E) REQUIRED CHANGE OF INTEREST RATE.—For purposes 

of determining a plan’s current liability for purposes of this 

paragraph—

(i) IN GENERAL.—If any rate of interest used under 

the plan under subsection (b)(6) to determine cost is not 

within the permissible range, the plan shall establish 

a new rate of interest within the permissible range. 

(ii) PERMISSIBLE RANGE.—For purposes of this subparagraph— (I) IN GENERAL.—Except as provided in subclause (II), the term ‘‘permissible range’’ means a 

232 

rate of interest which is not more than 5 percent 

above, and not more than 10 percent below, the 

weighted average of the rates of interest on 30-year 

Treasury securities during the 4-year period ending on the last day before the beginning of the plan 

year. 

(II) SECRETARIAL AUTHORITY.—If the Secretary 

of the Treasury finds that the lowest rate of interest permissible under subclause (I) is unreasonably 

high, such Secretary may prescribe a lower rate of 

interest, except that such rate may not be less than 

80 percent of the average rate determined under 

such subclause. 

(iii) ASSUMPTIONS.—Notwithstanding paragraph 

(3)(A), the interest rate used under the plan shall be—

(I) determined without taking into account the 

experience of the plan and reasonable expectations, 

but 

(II) consistent with the assumptions which reflect the purchase rates which would be used by insurance companies to satisfy the liabilities under 

the plan. 

(7) 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 of the 

Treasury. 

(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) USE OF 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, as of such date, the value of the assets of the plan are not less than 100 percent of the 

plan’s current liability (as defined in paragraph (6)(D) 

without regard to clause (iv) thereof). 

(iii) ADJUSTMENTS.—Information under clause (ii) 

shall, in accordance with regulations, be actuarially 

adjusted to reflect significant differences in participants. 

(iv) LIMITATION.—A change in funding method to use 

a prior year valuation, as provided in clause (ii), may 

not be made unless as of the valuation date within the 

prior plan year, the value of the assets of the plan are 

not less than 125 percent of the plan’s current liability 

(as defined in paragraph (6)(D) without regard to 

clause (iv) thereof). 

233 

(8) TIME WHEN CERTAIN CONTRIBUTIONS DEEMED MADE.—For 

purposes of this section, any contributions for a plan year made 

by an employer after the last day of such plan year, but not 

later than two and one-half months after such day, shall be 

deemed to have been made on such last day. For purposes of 

this subparagraph, such two and one-half month period may be 

extended for not more than six months under regulations prescribed by the Secretary of the Treasury. 

(9) INTEREST RULE FOR WAIVERS AND EXTENSIONS.—The interest rate applicable for any plan year for purposes of computing the amortization charge described in subsection (b)(2)(C) 

and in connection with an extension granted under subsection 

(d) shall be the greater of— (A) 150 percent of the Federal mid-term rate (as in effect 

under section 1274 of the Internal Revenue Code of 1986 

for the 1st month of such plan year), or 

(B) the rate of interest used under the plan for determining costs. 

(d) EXTENSION OF AMORTIZATION PERIODS FOR MULTIEMPLOYER

PLANS.—In the case of a multiemployer plan—

(1) EXTENSION.—The period of years required to amortize any 

unfunded liability (described in any clause of subsection 

(b)(2)(B)) of any multiemployer plan may be extended (in addition to any extension under paragraph (2)) by the Secretary of 

the Treasury for a period of time (not in excess of 5 years) if 

such Secretary determines that such extension would carry out 

the purposes of this Act and would provide adequate protection 

for participants under the plan and their beneficiaries and if he 

determines that the failure to permit such extension would— (A) result in— (i) a substantial risk to the voluntary continuation of 

the plan, or 

(ii) a substantial curtailment of pension benefit levels 

or employee compensation, and 

(B) be adverse to the interests of plan participants in the 

aggregate. 

(2) ADDITIONAL EXTENSION.—The period of years required to 

amortize any unfunded liability (described in any clause of subsection (b)(2)(B)) of any multiemployer plan may be extended (in 

addition to any extension under paragraph (1)) by the Secretary 

of the Treasury for a period of time (not in excess of 5 years) 

if such Secretary determines that— (A) absent the extension, the plan would have an accumulated funding deficiency in any of the next 10 plan 

years, 

(B) the plan sponsor has adopted a plan to improve the 

plan’s funding status, and 

(C) taking into account the extension, the plan is projected to have suficient assets to timely pay its expected benefit liabilities and other anticipated expenditures 

(3) ADVANCE NOTICE.— (A) IN GENERAL.—The Secretary of the Treasury shall, 

before granting an extension under this section, require 

each applicant to provide evidence satisfactory to such Secretary that the applicant has provided notice of the filing 

234 

of the application for such extension to each affected party 

(as defined in section 4001(a)(21)) with respect to the affected plan. Such notice shall include a description of the 

extent to which the plan is funded for benefits which are 

guaranteed under title IV and for benefit liabilities. 

(B) CONSIDERATION OF RELEVANT INFORMATION.—The 

Secretary of the Treasury shall consider any relevant information provided by a person to whom notice was given 

under paragraph (1). 

ADDITIONAL FUNDING RULES FOR MULTIEMPLOYER PLANS IN

ENDANGERED STATUS OR CRITICAL STATUS

SEC. 305. (a) ANNUAL CERTIFICATION BY PLAN ACTUARY.—

(1) IN GENERAL.—During the 90-day period beginning on first 

day of each plan year of a multiemployer plan, the plan actuary 

shall certify to the Secretary of the Treasury whether or not the 

plan is in endangered status for such plan year and whether or 

not the plan is in critical status for such plan year. 

(2) ACTUARIAL PROJECTIONS OF ASSETS AND LIABILITIES.—

(A) IN GENERAL.—In making the determinations under 

paragraph (1), the plan actuary shall make projections 

under subsections (b)(2) and (c)(2) for the current and succeeding plan years, using reasonable actuarial assumptions 

and methods, of the current value of the assets of the plan 

and the present value of all liabilities to participants and 

beneficiaries under the plan for the current plan year as of 

the beginning of such year, as based on the actuarial statement prepared for the preceding plan year under section 

103(d). 

(B) DETERMINATIONS OF FUTURE CONTRIBUTIONS.—Any 

such actuarial projection of plan assets shall assume—

(i) reasonably anticipated employer and employee 

contributions for the current and succeeding plan 

years, assuming that the terms of the one or more collective bargaining agreements pursuant to which the 

plan is maintained for the current plan year continue 

in effect for succeeding plan years, or 

(ii) that employer and employee contributions for the 

most recent plan year will continue indefinitely, but 

only if the plan actuary determines there have been no 

significant demographic changes that would make continued application of such terms unreasonable. 

(3) PRESUMED STATUS IN ABSENCE OF TIMELY ACTUARIAL CERTIFICATION.—If certification under this subsection is not made 

before the end of the 90-day period specified in paragraph (1), 

the plan shall be presumed to be in critical status for such plan 

year until such time as the plan actuary makes a contrary certification. 

(4) NOTICE.—In any case in which a multiemployer plan is 

certified to be in endangered status under paragraph (1) or enters into critical status, the plan sponsor shall, not later than 

30 days after the date of the certification or entry, provide notification of the endangered or critical status to the participants 

and beneficiaries, the bargaining parties, the Pension Benefit 

235 

Guaranty Corporation, the Secretary of the Treasury, and the 

Secretary of Labor. 

(b) FUNDING RULES FOR MULTIEMPLOYER PLANS IN ENDANGERED

STATUS.—

(1) IN GENERAL.—In any case in which a multiemployer plan 

is in endangered status for a plan year and no funding improvement plan under this subsection with respect to such multiemployer plan is in effect for the plan year, the plan sponsor 

shall, in accordance with this subsection, amend the multiemployer plan to include a funding improvement plan upon approval thereof by the bargaining parties under this subsection. 

The amendment shall be adopted not later than 240 days after 

the date on which the plan is certified to be in endangered status under subsection (a)(1). 

(2) ENDANGERED STATUS.—A multiemployer plan is in endangered status for a plan year if, as determined by the plan actuary under subsection (a)—

(A) the plan’s funded percentage for such plan year is less 

than 80 percent, or 

(B) the plan has an accumulated funding deficiency for 

such plan year under section 304 or is projected to have 

such an accumulated funding deficiency for any of the 6 

succeeding plan years, taking into account any extension of 

amortization periods under section 304(d). 

(3) FUNDING IMPROVEMENT PLAN.— (A) BENCHMARKS.—A funding improvement plan shall 

consist of amendments to the plan formulated to provide, 

under reasonable actuarial assumptions, for the attainment, during the funding improvement period under the 

funding improvement plan, of the following benchmarks: 

(i) INCREASE IN FUNDED PERCENTAGE.—An increase 

in the plan’s funded percentage such that— (I) the difference between 100 percent and the 

plan’s funded percentage for the last year of the 

funding improvement period, is not more than 

(II) 2⁄3 of the difference between 100 percent and 

the plan’s funded percentage for the first year of 

the funding improvement period. 

(ii) AVOIDANCE OF ACCUMULATED FUNDING DEFI- CIENCIES.—No accumulated funding deficiency for any 

plan year during the funding improvement period (taking into account any extension of amortization periods 

under section 304(d)). 

(B) FUNDING IMPROVEMENT PERIOD.—The funding improvement period for any funding improvement plan adopted pursuant to this subsection is the 10-year period beginning on the earlier of—

(i) the second anniversary of the date of the adoption 

of the funding improvement plan, or 

(ii) the first day of the first plan year of the multiemployer plan following the plan year in which occurs the 

first date after the day of the certification as of which 

collective bargaining agreements covering on the day of 

such certification at least 75 percent of active participants in such multiemployer plan have expired. 

236 

(C) SPECIAL RULES FOR CERTAIN SERIOUSLY UNDER- FUNDED PLANS.— (i) In the case of a plan in which the funded percentage of a plan for the plan year is 70 percent or less, 

subparagraph (A)(i)(II) shall be applied by substituting 

‘‘4⁄5’’ for ‘‘2⁄3’’ and subparagraph (B) shall be applied by 

substituting ‘‘the 15-year period’’ for ‘‘the 10-year period’’. (ii) In the case of a plan in which the funded percentage of a plan for the plan year is more than 70 percent 

but less than 80 percent, and— (I) the plan actuary certifies within 30 days after 

certification under subsection (a)(1) that the plan 

is not able to attain the increase described in subparagraph (A)(i) over the period described in subparagraph (B), and 

(II) the plan year is prior to the day described in 

subparagraph (B)(ii), 

subparagraph (A)(i)(II) shall be applied by substituting 

‘‘4⁄5’’ for ‘‘2⁄3’’ and subparagraph (B) shall be applied by 

substituting ‘‘the 15-year period’’ for ‘‘the 10-year period’’. 

(iii) For any plan year following the year described 

in clause (ii)(II), subparagraph (A)(i)(II) and subparagraph (B) shall apply, except that for each plan year 

ending after such date for which the plan actuary certifies (at the time of the annual certification under subsection (a)(1) for such plan year) that the plan is not 

able to attain the increase described in subparagraph 

(A)(i) over the period described in subparagraph (B), 

subparagraph (B) shall be applied by substituting ‘‘the 

15-year period’’ for ‘‘the 10-year period’’. 

(D) REPORTING.—A summary of any funding improvement plan or modification thereto adopted during any plan 

year, together with annual updates regarding the funding 

ratio of the plan, shall be included in the annual report for 

such plan year under section 104(a) and in the summary 

annual report described in section 104(b)(3). 

(4) DEVELOPMENT OF FUNDING IMPROVEMENT PLAN.— (A) ACTIONS BY PLAN SPONSOR PENDING APPROVAL.—

Pending the approval of a funding improvement plan 

under this paragraph, the plan sponsor shall take all reasonable actions, consistent with the terms of the plan and 

applicable law, necessary to ensure—

(i) an increase in the plan’s funded percentage, and 

(ii) postponement of an accumulated funding deficiency for at least 1 additional plan year. 

Such actions include applications for extensions of amortization periods under section 304(d), use of the shortfall 

funding method in making funding standard account computations, amendments to the plan’s benefit structure, reductions in future benefit accruals, and other reasonable 

actions consistent with the terms of the plan and applicable 

law. 

(B) RECOMMENDATIONS BY PLAN SPONSOR.—

237 

(i) IN GENERAL.—During the period of 90 days following the date on which a multiemployer plan is certified to be in endangered status, the plan sponsor 

shall develop and provide to the bargaining parties alternative proposals for revised benefit structures, contribution structures, or both, which, if adopted as 

amendments to the plan, may be reasonably expected to 

meet the benchmarks described in paragraph (3)(A). 

Such proposals shall include— (I) at least one proposal for reductions in the 

amount of future benefit accruals necessary to 

achieve the benchmarks, assuming no amendments 

increasing contributions under the plan (other 

than amendments increasing contributions necessary to achieve the benchmarks after amendments have reduced future benefit accruals to the 

maximum extent permitted by law), and 

(II) at least one proposal for increases in contributions under the plan necessary to achieve the 

benchmarks, assuming no amendments reducing 

future benefit accruals under the plan. 

(ii) REQUESTS BY BARGAINING PARTIES.—Upon the request of any bargaining party who— (I) employs at least 5 percent of the active participants, or 

(II) represents as an employee organization, for 

purposes of collective bargaining, at least 5 percent 

of the active participants, 

the plan sponsor shall provide all such parties information as to other combinations of increases in contributions and reductions in future benefit accruals 

which would result in achieving the benchmarks. 

(iii) OTHER INFORMATION.—The plan sponsor may, 

as it deems appropriate, prepare and provide the bargaining parties with additional information relating to 

contribution structures or benefit structures or other information relevant to the funding improvement plan. 

(5) MAINTENANCE OF CONTRIBUTIONS PENDING APPROVAL OF

FUNDING IMPROVEMENT PLAN.—Pending approval of a funding 

improvement plan by the bargaining parties with respect to a 

multiemployer plan, the multiemployer plan may not be amended so as to provide— (A) a reduction in the level of contributions for participants who are not in pay status, 

(B) a suspension of contributions with respect to any period of service, or 

(C) any new direct or indirect exclusion of younger or 

newly hired employees from plan participation. 

(6) BENEFIT RESTRICTIONS PENDING APPROVAL OF FUNDING

IMPROVEMENT PLAN.—Pending approval of a funding improvement plan by the bargaining parties with respect to a multiemployer plan— (A) RESTRICTIONS ON LUMP SUM AND SIMILAR DISTRIBUTIONS.—In any case in which the present value of a participant’s accrued benefit under the plan exceeds $5,000, such 

238 

benefit may not be distributed as an immediate distribution 

or in any other accelerated form. 

(B) PROHIBITION ON BENEFIT INCREASES.—

(i) IN GENERAL.—No amendment of the plan which 

increases the liabilities of the plan by reason of any increase in benefits, any change in the accrual of benefits, or any change in the rate at which benefits become 

nonforfeitable under the plan may be adopted. 

(ii) EXCEPTION.—Clause (i) shall not apply to any 

plan amendment which is required as a condition of 

qualification under part I of subchapter D of chapter 

1 of subtitle A of the Internal Revenue Code of 1986. 

(7) DEFAULT CRITICAL STATUS IF NO FUNDING IMPROVEMENT

PLAN ADOPTED.—If no plan amendment adopting a funding improvement plan has been adopted by the end of the 240-day period referred to in subsection (b)(1), the plan enters into critical 

status as of the first day of the succeeding plan year. 

(8) RESTRICTIONS UPON APPROVAL OF FUNDING IMPROVEMENT

PLAN.—Upon adoption of a funding improvement plan with respect to a multiemployer plan, the plan may not be amended—

(A) so as to be inconsistent with the funding improvement 

plan, or 

(B) so as to increase future benefit accruals, unless the 

plan actuary certifies in advance that, after taking into account the proposed increase, the plan is reasonably expected 

to meet the the benchmarks described in paragraph (3)(A). 

(c) FUNDING RULES FOR MULTIEMPLOYER PLANS IN CRITICAL STATUS.—

(1) IN GENERAL.—In any case in which a multiemployer plan 

is in critical status for a plan year as described in paragraph 

(2) (or otherwise enters into critical status under this section) 

and no rehabilitation plan under this subsection with respect to 

such multiemployer plan is in effect for the plan year, the plan 

sponsor shall, in accordance with this subsection, amend the 

multiemployer plan to include a rehabilitation plan under this 

subsection. The amendment shall be adopted not later than 240 

days after the date on which the plan enters into critical status. 

(2) CRITICAL STATUS.—A multiemployer plan is in critical 

status for a plan year if—

(A) the plan is in endangered status for the preceding 

plan year and the requirements of subsection (b)(1) were 

not met with respect to the plan for such preceding plan 

year, or 

(B) as determined by the plan actuary under subsection 

(a), the plan is described in paragraph (3). 

(3) CRITICALITY DESCRIPTION.—For purposes of paragraph 

(2)(B), a plan is described in this paragraph if the plan is described in at least one of the following subparagraphs: 

(A) A plan is described in this subparagraph if, as of the 

beginning of the current plan year—

(i) the funded percentage of the plan is less than 65 

percent, and 

(ii) the sum of—

(I) the market value of plan assets, plus 

239 

(II) the present value of the reasonably anticipated employer and employee contributions for the 

current plan year and each of the 6 succeeding 

plan years, assuming that the terms of the one or 

more collective bargaining agreements pursuant to 

which the plan is maintained for the current plan 

year continue in effect for succeeding plan years, 

is less than the present value of all nonforfeitable benefits for all participants and beneficiaries projected to be 

payable under the plan during the current plan year 

and each of the 6 succeeding plan years (plus administrative expenses for such plan years). 

(B) A plan is described in this subparagraph if, as of the 

beginning of the current plan year, the sum of—

(i) the market value of plan assets, plus 

(ii) the present value of the reasonably anticipated 

employer and employee contributions for the current 

plan year and each of the 4 succeeding plan years, assuming that the terms of the one or more collective bargaining agreements pursuant to which the plan is 

maintained for the current plan year remain in effect 

for succeeding plan years, 

is less than the present value of all nonforfeitable benefits 

for all participants and beneficiaries projected to be payable under the plan during the current plan year and each 

of the 4 succeeding plan years (plus administrative expenses for such plan years). 

(C) A plan is described in this subparagraph if—

(i) as of the beginning of the current plan year, the 

funded percentage of the plan is less than 65 percent, 

and 

(ii) the plan has an accumulated funding deficiency 

for the current plan year or is projected to have an accumulated funding deficiency for any of the 4 succeeding plan years, not taking into account any extension of amortization periods under section 304(d). 

(D) A plan is described in this subparagraph if—

(i)(I) the plan’s normal cost for the current plan year, 

plus interest (determined at the rate used for determining cost under the plan) for the current plan year 

on the amount of unfunded benefit liabilities under the 

plan as of the last date of the preceding plan year, exceeds 

(II) the present value, as of the beginning of the current plan year, of the reasonably anticipated employer 

and employee contributions for the current plan year, 

(ii) the present value, as of the beginning of the current plan year, of nonforfeitable benefits of inactive 

participants is greater than the present value, as of the 

beginning of the current plan year, of nonforfeitable 

benefits of active participants, and 

(iii) the plan is projected to have an accumulated 

funding deficiency for the current plan year or any of 

the 4 succeeding plan years, not taking into account 

240 

any extension of amortization periods under section 

304(d). 

(E) A plan is described in this subparagraph if— (i) the funded percentage of the plan is greater than 

65 percent for the current plan year, and 

(ii) the plan is projected to have an accumulated 

funding deficiency during any of the succeeding 3 plan 

years, not taking into account any extension of amortization periods under section 304(d). 

(4) REHABILITATION PLAN.— (A) IN GENERAL.—A rehabilitation plan shall consist of— (i) amendments to the plan providing (under reasonable actuarial assumptions) for measures, agreed to by 

the bargaining parties, to increase contributions, reduce plan expenditures (including plan mergers and 

consolidations), or reduce future benefit accruals, or to 

take any combination of such actions, determined necessary to cause the plan to cease, during the rehabilitation period, to be in critical status, or 

(ii) reasonable measures to forestall possible insolvency (within the meaning of section 4245) if the plan 

sponsor determines that, upon exhaustion of all reasonable measures, the plan would not cease during the rehabilitation period to be in critical status. 

(B) REHABILITATION PERIOD.—The rehabilitation period 

for any rehabilitation plan adopted pursuant to this subsection is the 10-year period beginning on the earlier of— (i) the second anniversary of the date of the adoption 

of the rehabilitation plan, or 

(ii) the first day of the first plan year of the multiemployer plan following the plan year in which occurs the 

first date, after the date of the plan’s entry into critical 

status, as of which collective bargaining agreements 

covering at least 75 percent of active participants in 

such multiemployer plan (determined as of such date of 

entry) have expired. 

(C) REPORTING.—A summary of any rehabilitation plan 

or modification thereto adopted during any plan year, together with annual updates regarding the funding ratio of 

the plan, shall be included in the annual report for such 

plan year under section 104(a) and in the summary annual 

report described in section 104(b)(3). 

(5) DEVELOPMENT OF REHABILITATION PLAN.—

(A) PROPOSALS BY PLAN SPONSOR.—

(i) IN GENERAL.—Within 90 days after the date of 

entry into critical status (or the date as of which the 

requirements of subsection (b)(1) are not met with respect to the plan), the plan sponsor shall propose to all 

bargaining parties a range of alternative schedules of 

increases in contributions and reductions in future benefit accruals that would serve to carry out a rehabilitation plan under this subsection. 

(ii) PROPOSAL ASSUMING NO CONTRIBUTION INCREASES.—Such proposals shall include, as one of the 

proposed schedules, a schedule of those reductions in 

241 

future benefit accruals that would be necessary to 

cause the plan to cease to be in critical status if there 

were no further increases in rates of contribution to the 

plan. 

(iii) PROPOSAL WHERE CONTRIBUTIONS ARE NECESSARY.—If the plan sponsor determines that the plan 

will not cease to be in critical status during the rehabilitation period unless the plan is amended to provide 

for an increase in contributions, the plan sponsor’s proposals shall include a schedule of those increases in 

contribution rates that would be necessary to cause the 

plan to cease to be in critical status if future benefit accruals were reduced to the maximum extent permitted 

by law. 

(B) REQUESTS FOR ADDITIONAL SCHEDULES.—Upon the 

request of any bargaining party who—

(i) employs at least 5 percent of the active participants, or 

(ii) represents as an employee organization, for purposes of collective bargaining, at least 5 percent of active participants, 

the plan sponsor shall include among the proposed schedules such schedules of increases in contributions and reductions in future benefit accruals as may be specified by the 

bargaining parties. 

(C) SUBSEQUENT AMENDMENTS.—Upon the adoption of a 

schedule of increases in contributions or reductions in future benefit accruals as part of the rehabilitation plan, the 

plan sponsor may amend the plan thereafter to update the 

schedule to adjust for any experience of the plan contrary 

to past actuarial assumptions, except that such an amendment may be made not more than once in any 3-year period. 

(D) ALLOCATION OF REDUCTIONS IN FUTURE BENEFIT ACCRUALS.—Any schedule containing reductions in future 

benefit accruals forming a part of a rehabilitation plan 

shall be applicable with respect to any group of active participants who are employed by any bargaining party (as an 

employer obligated to contribute under the plan) in proportion to the extent to which increases in contributions under 

such schedule apply to such bargaining party. 

(E) LIMITATION ON REDUCTION IN RATES OF FUTURE ACCRUALS.—Any schedule proposed under this paragraph 

shall not reduce the rate of future accruals below the lower 

of—

(i) a monthly benefit equal to 1 percent of the contributions required to be made with respect to a participant or the equivalent standard accrual rate for a participant or group of participants under the collective 

bargaining agreements in effect as of the first day of 

the plan year in which the plan enters critical status, 

or 

(ii) if lower, the accrual rate under the plan on such 

date. 

242 

The equivalent standard accrual rate shall be determined 

by the trustees based on the standard or average contribution base units that they determine to be representative for 

active participants and such other factors as they determine 

to be relevant. 

(6) MAINTENANCE OF CONTRIBUTIONS AND RESTRICTIONS ON

BENEFITS PENDING ADOPTION OF REHABILITATION PLAN.—The 

rules of paragraphs (5) and (6) of subsection (b) shall apply for 

purposes of this subsection by substituting the term ‘‘rehabilitation plan’’ for ‘‘funding improvement plan’’. 

(7) SPECIAL RULES.—

(A) AUTOMATIC EMPLOYER SURCHARGE.—

(i) 5 PERCENT AND 10 PERCENT SURCHARGE.—For the 

first plan year in which the plan is in critical status, 

each employer otherwise obligated to make a contribution for that plan year shall be obligated to pay to the 

plan a surcharge equal to 5 percent of the contribution 

otherwise required under the respective collective bargaining agreement (or other agreement pursuant to 

which the employer contributes). For each consecutive 

plan year thereafter in which the plan is in critical status, the surcharge shall be 10 percent of the contribution otherwise required under the respective collective 

bargaining agreement (or other agreement pursuant to 

which the employer contributes). 

(ii) ENFORCEMENT OF SURCHARGE.—The surcharges 

under clause (i) shall be due and payable on the same 

schedule as the contributions on which they are based. 

Any failure to make a surcharge payment shall be 

treated as a delinquent contribution under section 515 

and shall be enforceable as such. 

(iii) SURCHARGE TO TERMINATE UPON CBA RENEGOTIATION.—The surcharge under this paragraph shall 

cease to be effective with respect to employees covered 

by a collective bargaining agreement, beginning on the 

date on which that agreement is renegotiated to include—

(I) a schedule of benefits and contributions published by the trustees pursuant to the plan’s rehabilitation plan, or 

(II) otherwise collectively bargained benefit 

changes. 

(iv) SURCHARGE NOT TO APPLY UNTIL EMPLOYER RECEIVES 30-DAY NOTICE.—The surcharge under this subparagraph shall not apply to an employer until 30 

days after the employer has been notified by the trustees that the plan is in critical status and that the surcharge is in effect. 

(v) SURCHARGE NOT TO GENERATE INCREASED BENEFIT ACCRUALS.—Notwithstanding any provision of a 

plan to the contrary, the amount of any surcharge shall 

not be the basis for any benefit accruals under the 

plan. 

(B) BENEFIT ADJUSTMENTS.—

243 

(i) IN GENERAL.—The trustees shall make appropriate reductions, if any, to adjustable benefits based 

upon the outcome of collective bargaining over the 

schedules provided under paragraph (5). 

(ii) RETIREE PROTECTION.—Except as provided in 

subparagraph (C), the trustees of a plan in critical status may not reduce adjustable benefits of any participant or beneficiary who was in pay status at least one 

year before the first day of the first plan year in which 

the plan enters into critical status. 

(iii) TRUSTEE FLEXIBILITY.—The trustees shall include in the schedules provided to the bargaining parties an allowance for funding the benefits of participants with respect to whom contributions are not currently required to be made, and shall reduce their benefits to the extent permitted under this title and considered appropriate based on the plan’s then current overall funding status and its future prospects in light of 

the results of the parties’ negotiations. 

(C) ADJUSTABLE BENEFIT DEFINED.—For purposes of this 

paragraph, the term ‘‘adjustable benefit’’ means—

(i) benefits, rights, and features, such as post-retirement death benefits, 60-month guarantees, disability 

benefits not yet in pay status, and similar benefits, 

(ii) retirement-type subsidies, early retirement benefits, and benefit payment options (other than the 50 

percent qualified joint-and-survivor benefit and single 

life annuity), and 

(iii) benefit increases that would not be eligible for a 

guarantee under section 4022A on the first day of the 

plan year in which the plan enters into critical status 

because they were adopted, or if later, took effect less 

than 60 months before reorganization. 

(D) NORMAL RETIREMENT BENEFITS PROTECTED.—Nothing in this paragraph shall be construed to permit a plan 

to reduce the level of a participant’s accrued benefit payable 

at normal retirement age which is not an adjustable benefit. 

(E) ADJUSTMENTS DISREGARDED IN WITHDRAWAL LIABILITY DETERMINATION.—

(i) BENEFIT REDUCTIONS.—Any benefit reductions 

under this paragraph shall be disregarded in determining a plan’s unfunded vested benefits for purposes 

of determining an employer’s withdrawal liability 

under section 4201. 

(ii) SURCHARGES.—Any surcharges under this paragraph shall be disregarded in determining an employer’s withdrawal liability under section 4211, except for 

purposes of determining the unfunded vested benefits 

attributable to an employer or under a modified attributable method adopted with the approval of the Pension Benefit Guaranty Corporation under subsection 

(c)(5) of that section. 

244 

(8) RESTRICTIONS UPON APPROVAL OF REHABILITATION

PLAN.—Upon adoption of a rehabilitation plan with respect to 

a multiemployer plan, the plan may not be amended—

(A) so as to be inconsistent with the rehabilitation plan, 

or 

(B) so as to increase future benefit accruals, unless the 

plan actuary certifies in advance that, after taking into account the proposed increase, the plan is reasonably expected 

to cease to be in critical status. 

(9) IMPLEMENTATION OF DEFAULT SCHEDULE UPON FAILURE

TO ADOPT REHABILITATION PLAN.—If the plan is not amended by 

the end of the 240-day period after entry into critical status to 

include a rehabilitation plan, the plan sponsor shall amend the 

plan to implement the schedule required by paragraph 

(5)(A)(ii). 

(10) DEEMED WITHDRAWAL.—Upon the failure of any employer 

who has an obligation to contribute under the plan to make 

contributions in compliance with the schedule adopted under 

paragraph (4) as part of the rehabilitation plan, the failure of 

the employer may, at the discretion of the plan sponsor, be 

treated as a withdrawal by the employer from the plan under 

section 4203 or a partial withdrawal by the employer under section 4205. 

(d) DEFINITIONS.—For purposes of this section—

(1) BARGAINING PARTY.—The term ‘‘bargaining party’’ means, 

in connection with a multiemployer plan—

(A) an employer who has an obligation to contribute 

under the plan, and 

(B) an employee organization which, for purposes of collective bargaining, represents plan participants employed 

by such an employer. 

(2) FUNDED PERCENTAGE.—The term ‘‘funded percentage’’

means the percentage expressed as a ratio of which—

(A) the numerator of which is the value of the plan’s assets, as determined under section 304(c)(2), and 

(B) the denominator of which is the accrued liability of 

the plan. 

(3) ACCUMULATED FUNDING DEFICIENCY.—The term ‘‘accumulated funding deficiency’’ has the meaning provided such term 

in section 304(a). 

(4) ACTIVE PARTICIPANT.—The term ‘‘active participant’’

means, in connection with a multiemployer plan, a participant 

who is in covered service under the plan. 

(5) INACTIVE PARTICIPANT.—The term ‘‘inactive participant’’

means, in connection with a multiemployer plan, a participant 

who—

(A) is not in covered service under the plan, and 

(B) is in pay status under the plan or has a nonforfeitable right to benefits under the plan. 

(6) PAY STATUS.—A person is in ‘‘pay status’’ under a multiemployer plan if—

(A) at any time during the current plan year, such person 

is a participant or beneficiary under the plan and is paid 

an early, late, normal, or disability retirement benefit 

245 

under the plan (or a death benefit under the plan related 

to a retirement benefit), or 

(B) to the extent provided in regulations of the Secretary 

of the Treasury, such person is entitled to such a benefit 

under the plan. 

(7) OBLIGATION TO CONTRIBUTE.—The term ‘‘obligation to 

contribute’’ has the meaning provided such term under section 

4212(a). 

(8) ENTRY INTO CRITICAL STATUS.—A plan shall be treated as 

entering into critical status as of the date that such plan is certified to be in critical status under subsection (a)(1), is presumed to be in critical status under subsection (a)(3), or enters 

into critical status under subsection (b)(7). 

* * * * * * * 

PART 4—FIDUCIARY RESPONSIBILITY

COVERAGE

* * * * * * * 

ESTABLISHMENT OF TRUST

SEC. 403. (a) * * * 

* * * * * * * 

(c)(1) Except as provided in paragraph (2), (3), or (4) or subsection (d), or under section 4042 and 4044 (relating to termination 

of insured plans), or under section 420 of the Internal Revenue 

Code of 1986 (as in effect on the date of the enactment of the 

øAmerican Jobs Creation Act of 2004¿ Pension Protection Act of 

2005), the assets of a plan shall never inure to the benefit of any 

employer and shall be held for the exclusive purposes of providing 

benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan. 

* * * * * * * 

EXEMPTIONS FROM PROHIBITED TRANSACTIONS

SEC. 408. (a) * * * 

(b) The prohibitions provided in section 406 shall not apply to 

any of the following transactions: 

(1) * * * 

* * * * * * * 

(13) Any transfer made before January 1, 2014, of excess 

pension assets from a defined benefit plan to a retiree health 

account in a qualified transfer permitted under section 420 of 

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

the enactment of the øAmerican Jobs Creation Act of 2004¿ 

Pension Protection Act of 2005). 

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

connection with the provision of investment advice described in 

section 3(21)(A)(ii), in any case in which— (i) the investment of assets of the plan is subject to the 

direction of plan participants or beneficiaries, 

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

beneficiary of the plan by a fiduciary adviser in connection 

246 

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

property for purposes of investment of plan assets, and 

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

(B) The transactions described in this subparagraph are the 

following: 

(i) the provision of the advice to the plan, participant, or beneficiary; 

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

other property (including any lending of money or 

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

pursuant to the advice; and 

(iii) the direct or indirect receipt of fees or other compensation by the fiduciary adviser or an affiliate thereof (or any employee, agent, or registered representative 

of the fiduciary adviser or affiliate) in connection with 

the provision of the advice or in connection with a sale, 

acquisition, or holding of a security or other property 

pursuant to the advice. 

(15)(A) Any transaction involving the purchase or sale of securities between a plan and a party in interest (other than a fiduciary) with respect to a plan if— (i) the transaction involves a block trade, 

(ii) at the time of the transaction, the interest of the plan 

(together with the interests of any other plans maintained 

by the same plan sponsor), does not exceed 10 percent of the 

aggregate size of the block trade, and 

(iii) the terms of the transaction, including the price, are 

at least as favorable to the plan as an arm’s length transaction. 

(B) For purposes of this paragraph, the term ‘‘block trade’’ includes any trade which will be allocated across two or more client accounts of a fiduciary. 

(16) Any transaction involving the purchase and sale of securities or other property between a plan and a fiduciary or a 

party in interest if—

(A) the transaction is executed through an exchange, electronic communication network, alternative trading system, 

or similar execution system or trading venue subject to regulation and oversight by the applicable governmental regulating entity, 

(B) neither the execution system nor the parties to the 

transaction take into account the identity of the parties in 

the execution of trades, 

(C) the transaction is effected pursuant to rules designed 

to match purchases and sales at the best price available 

through the execution system, and 

(D) the price and compensation associated with the purchase and sale are not greater than an arm’s length transaction with an unrelated party. 

(17)(A) transactions described in subparagraphs (A), (B), and 

(D) of section 406(a)(1) between a plan and a party that is a 

party in interest (under section 3(14)) solely by reason of providing services, but only if in connection with such transaction 

247 

the plan receives no less, nor pays no more, than adequate consideration. 

(B) For purposes of this paragraph, the term ‘‘adequate consideration’’ means—

(i) in the case of a security for which there is a generally 

recognized market—

(I) the price of the security prevailing on a national 

securities exchange which is registered under section 6 

of the Securities Exchange Act of 1934, taking into account factors such as the size of the transaction and 

marketability of the security, or 

(II) if the security is not traded on such a national 

securities exchange, a price not less favorable to the 

plan than the offering price for the security as established by the current bid and asked prices quoted by 

persons independent of the issuer and of the party in 

interest, taking into account factors such as the size of 

the transaction and marketability of the security, and 

(ii) in the case of an asset other than a security for which 

there is a generally recognized market, the fair market 

value of the asset as determined in good faith by a fiduciary or fiduciaries in accordance with regulations prescribed by the Secretary. 

(18) Any foreign exchange transactions, between a bank or 

broker-dealer, or any affiliate of either thereof, and a plan with 

respect to which the bank or broker-dealer, or any affiliate, is 

a trustee, custodian, fiduciary, or other party in interest, if—

(A) the transaction is in connection with the purchase or 

sale of securities, 

(B) at the time the foreign exchange transaction is entered into, the terms of the transaction are not less favorable to the plan than the terms generally available in comparable arm’s length foreign exchange transactions between 

unrelated parties, or the terms afforded by the bank or the 

broker-dealer (or any affiliate thereof) in comparable arm’slength foreign exchange transactions involving unrelated 

parties, 

(C) the exchange rate used by the bank or broker-dealer 

for a particular foreign exchange transaction must be at a 

rate no less favorable than the rate quoted for transactions 

of similar size at the time of the transaction as displayed 

on an independent service that reports rates of exchange in 

the foreign currency market for such currency, and 

(D) the bank or broker-dealer, or any affiliate, does not 

have investment discretion, or provide investment advice, 

with respect to the securities transaction. 

(19)(A) Except as provided in subparagraphs (B) and (C), a 

transaction described in section 406(a) in connection with the 

acquisition, holding, or disposition of any security or commodity, if the transaction is corrected before the end of the correction period. 

(B) Subparagraph (A) does not apply to any transaction between a plan and a plan sponsor or its affiliates that involves 

the acquisition or sale of an employer security (as defined in 

248 

section 407(d)(1)) or the acquisition, sale, or lease of employer 

real property (as defined in section 407(d)(2)). 

(C) In the case of any fiduciary or other party in interest (or 

any other person knowingly participating in such transaction), 

subparagraph (A) does not apply to any prohibited transaction 

if, at the time such transaction is discovered, such fiduciary or 

party in interest (or other person) knew that the transaction 

would (without regard to this paragraph) constitute a violation 

of section 406(a). 

(D) For purposes of this paragraph, the term ‘‘correction period’’ means, in connection with a fiduciary or party in interest 

(or other person knowingly participating in the transaction), the 

14-day period beginning on the date on which such fiduciary or 

party in interest (or other person) discovers, or reasonably 

should have discovered, that the transaction would (without regard to this paragraph) constitute a violation of section 406(a). 

(E) For purposes of this paragraph—

(i) The term ‘‘security’’ has the meaning given such term 

by section 475(c)(2) of the Internal Revenue Code of 1986 

(without regard to subparagraph (F)(iii) and the last sentence thereof). 

(ii) The term ‘‘commodity’’ has the meaning given such 

term by section 475(e)(2) of such Code (without regard to 

subparagraph (D)(iii) thereof). 

(iii) The term ‘‘correct’’ means, with respect to a transaction, to undo the transaction to the extent possible, but in 

any case, to make good to the plan or affected account any 

losses resulting from the transaction and to restore to the 

plan or affected account any profits made through use of 

the plan. 

* * * * * * * 

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

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

in connection with the provision of investment advice referred 

to in section 3(21)(A)(ii), provided to an employee benefit plan 

or a participant or beneficiary of an employee benefit plan by 

a fiduciary adviser with respect to the plan in connection with 

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

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

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

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

adviser provides to the recipient of the advice, at a time 

reasonably contemporaneous with the initial provision of 

the advice, a written notification (which may consist of notification by means of electronic communication)—

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

advice that the fiduciary adviser or any affiliate thereof 

is to receive (including compensation provided by any 

third party) in connection with the provision of the advice or in connection with the sale, acquisition, or holding of the security or other property, 

249 

(ii) of any material affiliation or contractual relationship of the fiduciary adviser or affiliates thereof in 

the security or other property, 

(iii) of any limitation placed on the scope of the investment advice to be provided by the fiduciary adviser 

with respect to any such sale, acquisition, or holding of 

a security or other property, 

(iv) of the types of services provided by the fiduciary 

adviser in connection with the provision of investment 

advice by the fiduciary adviser, 

(v) that the adviser is acting as a fiduciary of the 

plan in connection with the provision of the advice, 

and 

(vi) that a recipient of the advice may separately arrange for the provision of advice by another adviser, 

that could have no material affiliation with and receive 

no fees or other compensation in connection with the 

security or other property, 

(B) the fiduciary adviser provides appropriate disclosure, 

in connection with the sale, acquisition, or holding of the 

security or other property, in accordance with all applicable 

securities laws, 

(C) the sale, acquisition, or holding occurs solely at the 

direction of the recipient of the advice, 

(D) the compensation received by the fiduciary adviser 

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

(E) the terms of the sale, acquisition, or holding of the security or other property are at least as favorable to the plan 

as an arm’s length transaction would be. 

(2) STANDARDS FOR PRESENTATION OF INFORMATION.—

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

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

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

comprehensive to reasonably apprise such participants and 

beneficiaries of the information required to be provided in 

the notification. 

(B) MODEL FORM FOR DISCLOSURE OF FEES AND OTHER

COMPENSATION.—The Secretary shall issue a model form 

for the disclosure of fees and other compensation required 

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

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

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

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

or any subsequent provision of advice described in paragraph 

(1) to the plan, participant, or beneficiary if, at any time during 

the provision of advisory services to the plan, participant, or 

beneficiary, the fiduciary adviser fails to maintain the information described in clauses (i) through (iv) of subparagraph (A) in 

250 

currently accurate form and in the manner described in paragraph (2) or fails—

(A) to provide, without charge, such currently accurate 

information to the recipient of the advice no less than annually, 

(B) to make such currently accurate information available, upon request and without charge, to the recipient of 

the advice, or 

(C) in the event of a material change to the information 

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

provide, without charge, such currently accurate information to the recipient of the advice at a time reasonably contemporaneous to the material change in information. 

(4) MAINTENANCE FOR 6 YEARS OF EVIDENCE OF COMPLIANCE.—A fiduciary adviser referred to in paragraph (1) who 

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

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

maintain any records necessary for determining whether the requirements of the preceding provisions of this subsection and of 

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

under section 406 shall not be considered to have occurred solely because the records are lost or destroyed prior to the end of 

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

fiduciary adviser. 

(5) EXEMPTION FOR PLAN SPONSOR AND CERTAIN OTHER FIDUCIARIES.—

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

sponsor or other person who is a fiduciary (other than a fiduciary adviser) shall not be treated as failing to meet the 

requirements of this part solely by reason of the provision 

of investment advice referred to in section 3(21)(A)(ii) (or 

solely by reason of contracting for or otherwise arranging 

for the provision of the advice), if—

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

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

(ii) the terms of the arrangement require compliance 

by the fiduciary adviser with the requirements of this 

subsection, and 

(iii) the terms of the arrangement include a written 

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

the provision of the advice. 

(B) CONTINUED DUTY OF PRUDENT SELECTION OF ADVISER

AND PERIODIC REVIEW.—Nothing in subparagraph (A) shall 

be construed to exempt a plan sponsor or other person who 

is a fiduciary from any requirement of this part for the prudent selection and periodic review of a fiduciary adviser 

with whom the plan sponsor or other person enters into an 

arrangement for the provision of advice referred to in section 3(21)(A)(ii). The plan sponsor or other person who is 

a fiduciary has no duty under this part to monitor the speVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00250 Fmt 6659 Sfmt 6603 E:\HR\OC\HR232P1.XXX HR232P1
251 

cific investment advice given by the fiduciary adviser to any 

particular recipient of the advice. 

(C) AVAILABILITY OF PLAN ASSETS FOR PAYMENT FOR AD- VICE.—Nothing in this part shall be construed to preclude 

the use of plan assets to pay for reasonable expenses in providing investment advice referred to in section 3(21)(A)(ii). 

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

of the plan by reason of the provision of investment advice 

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

and who is— (i) registered as an investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.) 

or under the laws of the State in which the fiduciary 

maintains its principal office and place of business, 

(ii) a bank or similar financial institution referred to 

in section 408(b)(4) or a savings association (as defined 

in section 3(b)(1) of the Federal Deposit Insurance Act 

(12 U.S.C. 1813(b)(1))), but only if the advice is provided through a trust department of the bank or similar financial institution or savings association which is 

subject to periodic examination and review by Federal 

or State banking authorities, 

(iii) an insurance company qualified to do business 

under the laws of a State, 

(iv) a person registered as a broker or dealer under 

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

seq.), 

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

(i) through (iv), or 

(vi) an employee, agent, or registered representative 

of a person described in any of clauses (i) through (v) 

who satisfies the requirements of applicable insurance, 

banking, and securities laws relating to the provision 

of the advice. 

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

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

U.S.C. 80a–2(a)(3))). 

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

representative’’ of another entity means a person described 

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

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

or dealer referred to in such section) or a person described 

in section 202(a)(17) of the Investment Advisers Act of 1940 

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

* * * * * * * 

BONDING

SEC. 412. (a) Every fiduciary of an employee benefit plan and 

every person who handles funds or other property of such a plan 

252 

(hereafter in this section referred to as ‘‘plan official’’) shall be 

bonded as provided in this section; except that— (1) where such plan is one under which the only assets from 

which benefits are paid are the general assets of a union or of 

an employer, the administrator, officers, and employees of such 

plan shall be exempt from the bonding requirements of this 

section, øand¿ 

(2) no bond shall be required of an entity which is subject to 

regulation as a broker or a dealer under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or an entity 

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

80b-1 et seq.), including requirements imposed by a self-regulatory organization (within the meaning of section 3(a)(26) of 

such Act (15 U.S.C. 78c(a)(26)), or any affiliate with respect to 

which the broker or dealer agrees to be liable to the same extent 

as if they held the assets directly. 

ø(2)¿ (3) no bond shall be required of a fiduciary (or of any 

director, officer, or employee of such fiduciary) if such fiduciary—

(A) * * * 

* * * * * * * 

PART 5—ADMINISTRATION AND ENFORCEMENT

* * * * * * * 

CIVIL ENFORCEMENT

SEC. 502. (a) * * * 

* * * * * * * 

(c)(1) * * * 

* * * * * * * 

(4) The Secretary may assess a civil penalty of not more than 

$1,000 a day for each violation by any person of øsection 

302(b)(7)(F)(vi)¿ sections 101(j), 101(k), 101(l), and 302(b)(7)(F)(vi). 

* * * * * * * 

ø(i) In the case of a transaction prohibited by section 406 by a 

party in interest with respect to a plan to which this part applies, 

the Secretary may assess a civil penalty against such party in interest. The amount of such penalty may not exceed 5 percent of the 

amount involved in each such transaction (as defined in section 

4975(f)(4) of the Internal Revenue Code of 1986) for each year or 

part thereof during which the prohibited transaction continues, except that, if the transaction is not corrected (in such manner as the 

Secretary shall prescribe in regulations which shall be consistent 

with section 4975(f)(5) of such Code) within 90 days after notice 

from the Secretary (or such longer period as the Secretary may permit), such penalty may be in an amount not more than 100 percent 

of the amount involved. This subsection shall not apply to a transaction with respect to a plan described in section 4975(e)(1) of such 

Code.¿ 

(i)(1) In the case of a transaction prohibited by section 406 by a 

party in interest with respect to a plan to which this part applies, 

the Secretary may assess a civil penalty against such party in interVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00252 Fmt 6659 Sfmt 6603 E:\HR\OC\HR232P1.XXX HR232P1
253 

est. The amount of such penalty may not exceed 5 percent of the 

amount involved in each such transaction for each year or part 

thereof during which the prohibited transaction continues, except 

that, if the transaction is not corrected (in such manner as the Secretary shall prescribe in regulations) within 90 days after notice 

from the Secretary (or such longer period as the Secretary may permit), such penalty may be in an amount not more than 100 percent 

of the amount involved. 

(2) For purposes of paragraph (1)—

(A) Except as provided in subparagraphs (C) and (D), the 

term ‘‘amount involved’’ means, with respect to a prohibited 

transaction, the greater of—

(i) the amount of money and the fair market value of the 

other property given, or 

(ii) the amount of money and the fair market value of the 

other property received. 

(B) For purposes of subparagraph (A), fair market value—

(i) shall be determined as of the date on which the prohibited transaction occurs; and 

(ii) shall be the highest fair market value during the period between the date of the transaction and the date of correction. 

(C) In the case of services described in subsection (b)(2) or 

(c)(2) of section 408, the term ‘‘amount involved’’ means only the 

amount of excess compensation. 

(D) In the case of principal transactions involving securities 

or commodities, the term ‘‘amount involved’’ means only the 

amount received by the disqualified person in excess of the 

amount such person would have received in an arm’s length 

transaction with an unrelated party as of the same date. 

(E) For the purposes of this paragraph—

(i) the term ‘‘security’’ has the meaning given such term 

by section 475(c)(2) of the Internal Revenue Code of 1986 

(without regard to subparagraph (F)(iii) and the last sentence thereof) , and 

(ii) the term ‘‘commodity’’ has the meaning given such 

term by section 475(e)(2) of such Code (without regard to 

subparagraph (D)(iii) thereof). 

* * * * * * * 

TITLE IV—PLAN TERMINATION INSURANCE 

SUBTITLE A—PENSION BENEFIT GUARANTY CORPORATION

DEFINITIONS

SEC. 4001. (a) For purposes of this title, the term—

(1) * * * 

* * * * * * * 

(13) ‘‘contributing sponsor’’, of a single-employer plan, means 

a person described in section ø302(c)(11)(A)¿ 302(b)(1) of this 

Act (without regard to section ø302(c)(11)(B)¿ 302(b)(2) of this 

Act) or section ø412(c)(11)(A)¿ 412(b)(1) of the Internal RevVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00253 Fmt 6659 Sfmt 6601 E:\HR\OC\HR232P1.XXX HR232P1
254 

enue Code of 1986 (without regard to section ø412(c)(11)(B)¿ 

412(b)(2) of such Code). 

* * * * * * * 

INVESTIGATORY AUTHORITY; COOPERATION WITH OTHER AGENCIES; 

CIVIL ACTIONS

SEC. 4003. (a) * * * 

* * * * * * * 

(e)(1) Civil actions may be brought by the corporation for appropriate relief, legal or equitable or both, to enforce (A) the provisions 

of this title, and (B) in the case of a plan which is covered under 

this title (other than a multiemployer plan) and for which the conditions for imposition of a lien described in section ø302(f)(1)(A) 

and (B)¿ 303(k)(1)(A) and (B) of this Act or section ø412(n)(1)(A) 

and (B)¿ 430(k)(1)(A) and (B) of the Internal Revenue Code of 1986 

have been met, section 302 of this Act and section 412 of such 

Code. 

* * * * * * * 

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—

ø(i) in the case of a single-employer plan, 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;¿ 

(i) in the case of a single-employer plan, an amount equal 

to— (I) for plan years beginning after December 31, 1990, and before January 1, 2006, $19, or 

(II) for plan years beginning after December 31, 2005, the 

amount determined under subparagraph (F), 

plus the additional premium (if any) determined under subparagraph (E) for each individual who is a participant in such 

plan during the plan year; 

* * * * * * * 

(E)(i) * * * 

* * * * * * * 

ø(iii) For purposes of clause (ii)—

ø(I) Except as provided in subclause (II) or (III), the term ‘‘unfunded vested benefits’’ means the amount which would be 

the unfunded current liability (within the meaning of section 

302(d)(8)(A)) if only vested benefits were taken into account. 

ø(II) The interest rate used in valuing vested benefits for 

purposes of subclause (I) shall be equal to the applicable percentage of the annual yield on 30-year Treasury securities for 

the month preceding the month in which the plan year begins. 

255 

For purposes of this subclause, the applicable percentage is 80 

percent for plan years beginning before July 1, 1997, 85 percent for plan years beginning after June 30, 1997, and before 

the 1st plan year to which the first tables prescribed under section 302(d)(7)(C)(ii)(II) apply, and 100 percent for such 1st plan 

year and subsequent plan years. 

ø(III) In the case of any plan year for which the applicable 

percentage under subclause (II) is 100 percent, the value of the 

plan’s assets used in determining unfunded current liability 

under subclause (I) shall be their fair market value. 

ø(IV) In the case of plan years beginning after December 31, 

2001, and before January 1, 2004, subclause (II) shall be applied by substituting ‘‘100 percent’’ for ‘‘85 percent’’. Subclause 

(III) shall be applied for such years without regard to the preceding sentence. Any reference to this clause or this subparagraph by any other sections or subsections (other than sections 

4005, 4010, 4011, and 4043) shall be treated as a reference to 

this clause or this subparagraph without regard to this subclause. 

ø(V) In the case of plan years beginning after December 31, 

2003, and before January 1, 2006, the annual yield taken into 

account under subclause (II) shall be the annual rate of interest determined by the Secretary of the Treasury on amounts 

invested conservatively in long-term investment grade corporate bonds for the month preceding the month in which the 

plan year begins. For purposes of the preceding sentence, the 

Secretary of the Treasury shall determine such rate of interest 

on the basis of 2 or more indices that are selected periodically 

by the Secretary of the Treasury and that are in the top 3 

quality levels available. The Secretary of the Treasury shall 

make the permissible range, and the indices and methodology 

used to determine the rate, publicly available. 

ø(iv) No premium shall be determined under this subparagraph 

for any plan year if, as of the close of the preceding plan year, contributions to the plan for the preceding plan year were not less 

than the full funding limitation for the preceding plan year under 

section 412(c)(7) of the Internal Revenue Code of 1986.¿ 

(iii)(I) For purposes of clause (ii), except as provided in subclause 

(II), the term ‘‘unfunded vested benefits’’ means, for a plan year, the 

amount which would be the plan’s funding shortfall (as defined in 

section 303(c)(4)), if the value of plan assets of the plan were equal 

to the fair market value of such assets and only vested benefits were 

taken into account. 

(II) The interest rate used in valuing vested benefits for purposes 

of subclause (I) shall be equal to the first, second, or third segment 

rate which would be determined under section 303(h)(2)(C) if section 

303(h)(2)(D)(i) were applied by substituting ‘‘the yields’’ for ‘‘the 3- 

year weighted average of yields’’, as applicable under rules similar 

to the rules under section 303(h)(2)(B). 

(F)(i) Except as otherwise provided in this subparagraph, for purposes of determining the annual premium rate payable to the corporation by a single-employer plan for basic benefits guaranteed 

under this title, the amount determined under this subparagraph is 

the greater of $30 or the adjusted amount determined under clause 

(ii). 

256 

(ii) For plan years beginning after 2006, the adjusted amount determined under this clause is the product derived by multiplying 

$30 by the ratio of— (I) the national average wage index (as defined in section 

209(k)(1) of the Social Security Act) for the first of the 2 calendar years preceding the calendar year in which the plan year 

begins, to 

(II) the national average wage index (as so defined) for 2004, with such product, if not a multiple of $1, being rounded to the next 

higher multiple of $1 where such product is a multiple of $0.50 but 

not of $1, and to the nearest multiple of $1 in any other case. 

(iii) For purposes of determining the annual premium rate payable to the corporation by a single-employer plan for basic benefits 

guaranteed under this title for any plan year beginning after 2005 

and before 2010—

(I) except as provided in subclause (II), the premium amount 

referred to in subparagraph (A)(i)(II) for any such plan year is 

the amount set forth in connection with such plan year in the 

following table: 

If the plan year begins in: The amount is: 

2006 .............................................................................................. $21.20 

2007 .............................................................................................. $23.40 

2008 .............................................................................................. $25.60 

2009 .............................................................................................. $27.80; or 

(II) if the plan’s funding target attainment percentage for the 

plan year preceding the current plan year was less than 80 percent, the premium amount referred to in subparagraph (A)(i)(II) 

for such current plan year is the amount set forth in connection 

with such current plan year in the following table: 

If the plan year begins in: The amount is:

2006 .............................................................................................. $22.67

2007 .............................................................................................. $26.33

2008 or 2009 ................................................................................ the amount provided under 

clause (i). 

(iv) For purposes of this subparagraph, the term ‘‘funding target 

attainment percentage’’ has the meaning provided such term in section 303(d)(2). 

* * * * * * * 

SEC. 4010. AUTHORITY TO REQUIRE CERTAIN INFORMATION. 

(a) * * * 

(b) PERSONS REQUIRED TO PROVIDE INFORMATION.—The persons 

covered by subsection (a) are each contributing sponsor, and each 

member of a contributing sponsor’s controlled group, of a single-employer plan covered by this title, if—

ø(1) the aggregate unfunded vested benefits at the end of the 

preceding plan year (as determined under section 

4006(a)(3)(E)(iii)) of plans maintained by the contributing sponsor and the members of its controlled group exceed $50,000,000 

(disregarding plans with no unfunded vested benefits);¿ 

(1) the aggregate funding target attainment percentage of the 

plan (as defined in subsection (d)(2)) is less than 60 percent; 

257 

(2)(A) the aggregate funding target attainment percentage of 

the plan (as defined in subsection (d)(2)) is less than 75 percent, 

and 

(B) the plan sponsor is in an industry with respect to which 

the corporation determines that there is substantial unemployment or underemployment and the sales and profits are depressed or declining; 

ø(2)¿ (3) the conditions for imposition of a lien described in 

section ø302(f)(1)(A) and (B)¿ 303(k)(1)(A) and (B) of this Act 

or section ø412(n)(1)(A) and (B)¿ 430(k)(1)(A) and (B) of the Internal Revenue Code of 1986 have been met with respect to 

any plan maintained by the contributing sponsor or any member of its controlled group; or 

ø(3)¿ (4) minimum funding waivers in excess of $1,000,000 

have been granted with respect to any plan maintained by the 

contributing sponsor or any member of its controlled group, 

and any portion thereof is still outstanding. 

* * * * * * * 

(d) NOTICE TO PARTICIPANTS AND BENEFICIARIES.— (1) IN GENERAL.—Not later than 90 days after the submission 

by any person to the corporation of information or documentary 

material with respect to any plan pursuant to subsection (a), 

such person shall provide notice of such submission to each participant and beneficiary under the plan (and under all plans 

maintained by members of the controlled group of each contributing sponsor of the plan). Such notice shall also set forth— (A) the number of single-employer plans covered by this 

title which are in at-risk status and are maintained by contributing sponsors of such plan (and by members of their 

controlled groups) with respect to which the funding target 

attainment percentage for the preceding plan year of each 

plan is less than 60 percent; 

(B) the value of the assets of each of the plans described 

in subparagraph (A) for the plan year, the funding target 

for each of such plans for the plan year, and the funding 

target attainment percentage of each of such plans for the 

plan year; and 

(C) taking into account all single-employer plans maintained by the contributing sponsor and the members of its 

controlled group as of the end of such plan year— (i) the aggregate total of the values of plan assets of 

such plans as of the end of such plan year, 

(ii) the aggregate total of the funding targets of such 

plans, as of the end of such plan year, taking into account only benefits to which participants and beneficiaries have a nonforfeitable right, and 

(iii) the aggregate funding targets attainment percentage with respect to the contributing sponsor for the 

preceding plan year. 

(2) DEFINITIONS.—For purposes of this subsection— (A) VALUE OF PLAN ASSETS.—The term ‘‘value of plan assets’’ means the value of plan assets, as determined under 

section 303(g)(3). 

(B) FUNDING TARGET.—The term ‘‘funding target’’ has the 

meaning provided under section 303(d)(1). 

258 

(C) FUNDING TARGET ATTAINMENT PERCENTAGE.—The 

term ‘‘funding target attainment percentage’’ has the meaning provided in section 303(d)(2). 

(D) AGGREGATE FUNDING TARGETS ATTAINMENT PERCENTAGE.—The term ‘‘aggregate funding targets attainment percentage’’ with respect to a contributing sponsor for a plan 

year is the percentage, taking into account all plans maintained by the contributing sponsor and the members of its 

controlled group as of the end of such plan year, which 

(i) the aggregate total of the values of plan assets, as 

of the end of such plan year, of such plans, is of 

(ii) the aggregate total of the funding targets of such 

plans, as of the end of such plan year, taking into account only benefits to which participants and beneficiaries have a nonforfeitable right. 

(E) AT-RISK STATUS.—The term ‘‘at-risk status’’ has the 

meaning provided in section 303(i)(3). 

(3) COMPLIANCE.—

(A) IN GENERAL.—Any notice required to be provided 

under paragraph (1) may be provided in written, electronic, 

or other appropriate form to the extent such form is reasonably accessible to individuals to whom the information is 

required to be provided. 

(B) LIMITATIONS.—In no case shall a participant or beneficiary be entitled under this subsection to receive more 

than one notice described in paragraph (1) during any one 

12-month period. The person required to provide such notice may make a reasonable charge to cover copying, mailing, and other costs of furnishing such notice pursuant to 

paragraph (1). The corporation may by regulations prescribe the maximum amount which will constitute a reasonable charge under the preceding sentence. 

(4) NOTICE TO CONGRESS.—Concurrent with the provision of 

any notice under paragraph (1), such person shall provide such 

notice 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, which shall be treated as materials provided in executive session. 

SEC. 4011. NOTICE TO PARTICIPANTS. 

(a) * * * 

(b) EXCEPTION.—Subsection (a) shall not apply to any plan øto 

which section 302(d) does not apply for the plan year by reason of 

paragraph (9) thereof.¿ for any plan year for which the plan’s funding target attainment percentage (as defined in section 303(d)(2)) is 

at least 90 percent. 

* * * * * * * 

Subtitle D—Liability 

* * * * * * * 

259 

LIABILITY FOR TERMINATION OF SINGLE-EMPLOYER PLANS UNDER A

DISTRESS TERMINATION OR A TERMINATION BY THE CORPORATION

SEC. 4062. (a) * * * 

* * * * * * * 

(c) LIABILITY TO SECTION 4042 TRUSTEE.—A person described in 

subsection (a) shall be subject to liability under this subsection to 

the trustee appointed under subsection (b) or (c) of section 4042. 

The liability of such person under this subsection shall consist of— ø(1) the outstanding balance of the accumulated funding deficiencies (within the meaning of section 302(a)(2) of this Act 

and section 412(a) of the Internal Revenue Code of 1986) of the 

plan (if any) (which, for purposes of this subparagraph, shall 

include the amount of any increase in such accumulated funding deficiencies of the plan which would result if all pending 

applications for waivers of the minimum funding standard 

under section 303 of this Act or section 412(d) of such Code 

and for extensions of the amortization period under section 304 

of this Act or section 412(e) of such Code with respect to such 

plan were denied and if no additional contributions (other than 

those already made by the termination date) were made for the 

plan year in which the termination date occurs or for any previous plan year), 

ø(2) the outstanding balance of the amount of waived funding deficiencies of the plan waived before such date under section 303 of this Act or section 412(d) of such Code (if any), and 

ø(3) the outstanding balance of the amount of decreases in 

the minimum funding standard allowed before such date under 

section 304 of this Act or section 412(e) of such Code (if any),¿ 

(1)(A) in the case of a single-employer plan, the sum of the 

shortfall amortization charge (within the meaning of section 

303(c)(1) of this Act and 430(c)(1) of the Internal Revenue Code 

of 1986) with respect to the plan (if any) for the plan year in 

which the termination date occurs, plus the aggregate total of 

shortfall amortization installments (if any) determined for succeeding plan years under section 303(c)(2) of this Act and section 430(c)(2) of such Code (which, for purposes of this subparagraph, shall include any increase in such sum which would result if all applications for waivers of the minimum funding 

standard under section 302(c) of this Act and section 412(c) of 

such Code which are pending with respect to such plan were denied and if no additional contributions (other than those already made by the termination date) were made for the plan 

year in which the termination date occurs or for any previous 

plan year), or 

(B) in the case of a multiemployer plan, the outstanding balance of the accumulated funding deficiencies (within the meaning of section 304(a)(2) of this Act and section 431(a) of the Internal Revenue Code of 1986) of the plan (if any) (which, for 

purposes of this subparagraph, shall include the amount of any 

increase in such accumulated funding deficiencies of the plan 

which would result if all pending applications for waivers of 

the minimum funding standard under section 302(c) of this Act 

or section 412(c) of such Code and for extensions of the amortization period under section 304(d) of this Act or section 431(d) 

260 

of such Code with respect to such plan were denied and if no 

additional contributions (other than those already made by the 

termination date) were made for the plan year in which the termination date occurs or for any previous plan year), 

(2)(A) in the case of a single-employer plan, the sum of the 

waiver amortization charge (within the meaning of section 

303(e)(1) of this Act and 430(j)(2) of the Internal Revenue Code 

of 1986) with respect to the plan (if any) for the plan year in 

which the termination date occurs, plus the aggregate total of 

waiver amortization installments (if any) determined for succeeding plan years under section 303(e)(2) of this Act and section 430(j)(3) of such Code, or 

(B) in the case of a multiemployer plan, the outstanding balance of the amount of waived funding deficiencies of the plan 

waived before such date under section 302(c) of this Act or section 412(c) of such Code (if any), and 

(3) in the case of a multiemployer plan, the outstanding balance of the amount of decreases in the minimum funding standard allowed before such date under section 304(d) of this Act 

or section 431(d) of such Code (if any); 

together with interest (at a reasonable rate) calculated from the 

termination date in accordance with regulations prescribed by the 

corporation. The liability under this subsection shall be due and 

payable to such trustee as of the termination date, in cash or securities acceptable to such trustee. 

* * * * * * * 

PENALTY FOR FAILURE TO TIMELY PROVIDE REQUIRED INFORMATION

SEC. 4071.The corporation may assess a penalty, payable to the 

corporation, against any person who fails to provide any notice or 

other material information required under this subtitle, subtitle A, 

B, or C, as section ø302(f)(4)¿ 303(k)(4) or 307(e) or any regulations 

prescribed under any such subtitle or such section, within the applicable time limit specified therein. Such penalty shall not exceed 

$1,000 for each day for which such failure continues. 

* * * * * * * 

SUBTITLE E—SPECIAL PROVISIONS FOR 

MULTIEMPLOYER PLANS 

PART 1—EMPLOYER WITHDRAWALS 

* * * * * * * 

COMPLETE WITHDRAWAL

SEC. 4203. (a) * * * 

* * * * * * * 

ø(d)(1) Notwithstanding subsection (a), in the case of an employer who—

ø(A) has an obligation to contribute under a plan described 

in paragraph (2) primarily for work described in such paragraph, and 

261 

ø(B) does not continue to perform work within the jurisdiction of the plan, 

a complete withdrawal occurs only as described in paragraph (3). 

ø(2) A plan is described in this paragraph if substantially all of 

the contributions required under the plan are made by employers 

primarily engaged in the long and short haul trucking industry, the 

household goods moving industry, or the public warehousing industry. 

ø(3) A withdrawal occurs under this paragraph if—

ø(A) an employer permanently ceases to have an obligation 

to contribute under the plan or permanently ceases all covered 

operations under the plan, and 

ø(B) either—

ø(i) the corporation determines that the plan has suffered substantial damage to its contribution base as a result of such cessation, or 

ø(ii) the employer fails to furnish a bond issued by a corporate surety company that is an acceptable surety for 

purposes of section 412, or an amount held in escrow by 

a bank or similar financial institution satisfactory to the 

plan, in an amount equal to 50 percent of the withdrawal 

liability of the employer. 

ø(4) If, after an employer furnishes a bond or escrow to a plan 

under paragraph (3)(B)(ii), the corporation determines that the cessation of the employer’s obligation to contribute under the plan 

(considered together with any cessations by other employers), or 

cessation of covered operations under the plan, has resulted in substantial damage to the contribution base of the plan, the employer 

shall be treated as having withdrawn from the plan on the date on 

which the obligation to contribute or covered operations ceased, 

and such bond or escrow shall be paid to the plan. The corporation 

shall not make a determination under this paragraph more than 60 

months after the date on which such obligation to contribute or 

covered operations ceased. 

ø(5) If the corporation determines that the employer has no further liability under the plan either—

ø(A) because it determines that the contribution base of the 

plan has not suffered substantial damage as a result of the cessation of the employer’s obligation to contribute or cessation of 

covered operations (considered together with any cessation of 

contribution obligation, or of covered operations, with respect 

to other employers), or 

ø(B) because it may not make a determination under paragraph (4) because of the last sentence thereof, 

then the bond shall be cancelled or the escrow refunded. 

ø(6) Nothing in this subsection shall be construed as a limitation 

on the amount of the withdrawal liability of any employer.¿ 

* * * * * * * 

PARTIAL WITHDRAWALS

SEC. 4205. (a) * * * 

(b) For purposes of subsection (a)—

(1) * * * 

262 

(2)(A) There is a partial cessation of the employer’s contribution obligation for the plan year if, during such year— (i) the employer permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer 

has been obligated to contribute under the plan but continues to perform work in the jurisdiction of the collective 

bargaining agreement of the type for which contributions 

were previously required or transfers such work to another 

location or to another party or parties, or 

* * * * * * * 

NO WITHDRAWAL LIABILITY FOR CERTAIN TEMPORARY CONTRIBUTION

OBLIGATION PERIODS

SEC. 4210. (a) * * * 

(b) Subsection (a) shall apply to an employer with respect to a 

plan only if—

ø(1) the plan is not a plan which primarily covers employees 

in the building and construction industry;¿ 

ø(2)¿ (1) the plan is amended to provide that subsection (a) 

applies; 

ø(3)¿ (2) the plan provides, or is amended to provide, that 

the reduction under section 411(a)(3)(E) of the Internal Revenue Code of 1986 applies with respect to the employees of the 

employer; and 

ø(4)¿ (3) the ratio of the assets of the plan for the plan year 

preceding the first plan year for which the employer was required to contribute to the plan to the benefit payments made 

during that plan year was at least 8 to 1. 

* * * * * * * 

NOTICE, COLLECTION, ETC., OF WITHDRAWAL LIABILITY

SEC. 4219. (a) * * * 

* * * * * * * 

(c)(1)(A) * * * 

ø(B) In any case in which the amortization period described in 

subparagraph (A) exceeds 20 years, the employer’s liability shall be 

limited to the first 20 annual payments determined under subparagraph (C).¿ 

* * * * * * * 

RESOLUTION OF DISPUTES

SEC. 4221. (a) * * * 

* * * * * * * 

(f) PROCEDURES APPLICABLE TO CERTAIN DISPUTES.— (1) IN GENERAL.—If— (A) a plan sponsor of a plan determines that— (i) * * * 

(ii) an employer is liable for withdrawal liability 

payments with respect to the complete or partial withdrawal of an employer from the plan, and 

263 

ø(B) such determination is based in whole or in part on 

a finding by the plan sponsor under section 4212(c) that a 

principal purpose of a transaction that occurred before 

January 1, 1999, was to evade or avoid withdrawal liability under this subtitle, and 

ø(C) such transaction occurred at least 5 years before 

the date of the complete or partial withdrawal,¿ 

(B) such determination is based in whole or in part on 

a finding by the plan sponsor under section 4212(c) that a 

principal purpose of any transaction which occurred at 

least 5 years (2 years in the case of a small employer) before 

the date of the complete or partial withdrawal was to evade 

or avoid withdrawal liability under this subtitle, 

then the special rules under paragraph (2) shall be used in applying subsections (a) and (d) of this section and section 

4219(c) to the employer. 

(2) SPECIAL RULES.— (A) DETERMINATION.—øNotwithstanding¿ In the case of 

a transaction occurring before January 1, 1999, and at 

least 5 years before the date of the complete or partial withdrawal, notwithstanding subsection (a)(3)— (i) * * * 

* * * * * * * 

(B) PROCEDURE.—Notwithstanding subsection (d) and 

section 4219(c), if an employer contests the plan sponsor’s 

determination with respect to withdrawal liability payments under paragraph (1) through an arbitration proceeding pursuant to subsection (a), or through a claim 

brought in a court of competent jurisdiction, the employer 

shall not be obligated to make øany¿ the withdrawal liability payments until a final decision in the arbitration proceeding, or in court, upholds the plan sponsor’s determination. 

(C) SMALL EMPLOYER.—For purposes of paragraph 

(1)(B)—

(i) IN GENERAL.—The term ‘‘small employer’’ means 

any employer who (as of immediately before the transaction referred to in paragraph (1)(B))—

(I) employs not more than 500 employees, and 

(II) is required to make contributions to the plan 

for not more than 250 employees. 

(ii) CONTROLLED GROUP.—Any group treated as a 

single employer under subsection (b), (c), (m), or (o) of 

section 414 of the Internal Revenue Code of 1986 shall 

be treated as a single employer for purposes of this subparagraph. 

* * * * * * * 

øLIMITATION ON WITHDRAWAL LIABILITY

øSEC. 4225. (a)(1) In the case of bona fide sale of all or substantially all of the employer’s assets in an arm’s-length transaction to 

an unrelated party (within the meaning of section 4204(d)), the unfunded vested benefits allocable to an employer (after the application of all sections of this part having a lower number designation 

264 

than this section), other than an employer undergoing reorganization under title 11, United States Code, or similar provisions of 

State law, shall not exceed the greater of—

ø(A) a portion (determined under paragraph (2)) of the liquidation or dissolution value of the employer (determined after 

the sale or exchange of such assets), or 

ø(B) the unfunded vested benefits attributable to employees 

of the employer. 

ø(2) For purposes of paragraph (1), the portion shall be determined in accordance with the following table: 

øIf the liquidation or dissolution value 

of the employer after the sale or exchange is—

The portion is—

Not more than $2,000,000 ................... 30 percent of the amount. 

More than $2,000,000, but not more 

than $4,000,000..

$600,000, plus 35 percent of the 

amount in excess of $2,000,000. 

More than $4,000,000, but not more 

than $6,000,000..

$1,300,000, plus 40 percent of the 

amount in excess of $4,000,000. 

More than $6,000,000, but not more 

than $7,000,000..

$2,100,000, plus 45 percent of the 

amount in excess of $6,000,000. 

More than $7,000,000, but not more 

than $8,000,000..

$2,550,000, plus 50 percent of the 

amount in excess of $7,000,000. 

More than $8,000,000, but not more 

than $9,000,000..

$3,050,000, plus 60 percent of the 

amount in excess of $8,000,000. 

More than $9,000,000, but not more 

than $10,000,000..

$3,650,000, plus 70 percent of the 

amount in excess of $9,000,000. 

More than $10,000,000 ........................ $4,350,000, plus 80 percent of the 

amount in excess of $10,000,000. 

ø(b) In the case of an insolvent employer undergoing liquidation 

or dissolution, the unfunded vested benefits allocable to that employer shall not exceed an amount equal to the sum of—

ø(1) 50 percent of the unfunded vested benefits allocable to 

the employer (determined without regard to this section), and 

ø(2) that portion of 50 percent of the unfunded vested benefits allocable to the employer (as determined under paragraph 

(1)) which does not exceed the liquidation or dissolution value 

of the employer determined—

ø(A) as of the commencement of liquidation or dissolution, and 

ø(B) after reducing the liquidation or dissolution value of 

the employer by the amount determined under paragraph 

(1). 

ø(c) To the extent that the withdrawal liability of an employer 

is attributable to his obligation to contribute to or under a plan as 

an individual (whether as a sole proprietor or as a member of a 

partnership), property which may be exempt from the estate under 

section 522 of title 11, United States Code or under similar provisions of law, shall not be subject to enforcement of such liability. 

ø(d) For purposes of this section—

ø(1) an employer is insolvent if the liabilities of the employer, including withdrawal liability under the plan (determined without regard to subsection (b), exceed the assets of the 

employer (determined as of the commencement of the liquidation or dissolution), and 

ø(2) the liquidation or dissolution value of the employer shall 

be determined without regard to such withdrawal liability. 

265 

ø(e) In the case of one or more withdrawals of an employer attributable to the same sale, liquidation, or dissolution, under regulations prescribed by the corporation— ø(1) all such withdrawals shall be treated as a single withdrawal for the purpose of applying this section, and 

ø(2) the withdrawal liability of the employer to each plan 

shall be an amount which bears the same ratio to the present 

value of the withdrawal liability payments to all plans (after 

the application of the preceding provisions of this section) as 

the withdrawal liability of the employer to such plan (determined without regard to this section) bears to the withdrawal 

liability of the employer to all such plans (determined without 

regard to this section).¿ 

* * * * * * * 

PART 3—REORGANIZATION; MINIMUM CONTRIBUTION REQUIREMENTS FOR MULTIEMPLOYER PLANS 

* * * * * * * 

MINIMUM CONTRIBUTION REQUIREMENT

SEC. 4243. (a)(1) For any plan year for which a plan is in reorganization—

(A) * * * 

(B) the plan’s accumulated funding deficiency under section 

ø302(a)¿ 304(a) for such plan year shall be equal to the excess 

(if any) of—

(i) the sum of the minimum contribution requirement for 

such plan year (taking into account any overburden credit 

under section 4244(a)) plus the plan’s accumulated funding 

deficiency for the preceding plan year (determined under 

this section if the plan was in reorganization during such 

year or under section ø302(a)¿ 304(a) if the plan was not 

in reorganization), over 

* * * * * * * 

(f)(1) The Secretary of the Treasury may waive any accumulated 

funding deficiency under this section in accordance with the provisions of section ø303(a)¿ 302(c). 

(2) Any waiver under paragraph (1) shall not be treated as a 

waived funding deficiency (within the meaning of section ø303(c)¿ 

302(c)(3)). 

(g) For purposes of making any determination under this part, 

the requirements of section ø302(c)(3)¿ 304(c)(3) shall apply. 

* * * * * * * 

INSOLVENT PLANS

SEC. 4245. (a) * * * 

* * * * * * * 

(d)(1) As of the end of the first plan year in which a plan is in 

reorganization, and at least every 3 plan years thereafter (unless 

the plan is no longer in reorganization), the plan sponsor shall 

266 

compare the value of plan assets (determined in accordance with 

section 4243(b)(3)(B)(ii)) for that plan year with the total amount 

of benefit payments made under the plan for that plan year. Unless 

the plan sponsor determines that the value of plan assets exceeds 

3 times the total amount of benefit payments, the plan sponsor 

shall determine whether the plan will be insolvent in any of the 

next ø3 plan years¿ 5 plan years. If the plan sponsor makes such 

a determination that the plan will be insolvent in any of the next 

5 plan years, the plan sponsor shall make the comparison under 

this paragraph at least annually until the plan sponsor makes a determination that the plan will not be insolvent in any of the next 

5 plan years. 

* * * * * * * 

SECTION 106 OF THE REORGANIZATION PLAN NO. 4 OF 

1978 

[The italic typeface of the heading for section 106 of the Reorganization Plan No. 4 of 1978 appears in this manner in the original text.] 

SECTION 106. Coordination for Section 101 Transfers. 

(a) * * * 

(b) The documents to which this Section applies are: 

(i) * * * 

(ii) regulations issued pursuant to subsections 204(b)(3)(D), 

ø302(c)(8)¿ 302(d)(2), and ø304(a) and (b)(2)(A)¿ 304(d)(1), (d)(2), 

and (e)(2)(A) of ERISA, and subsections 411(b)(3)(D), ø412(c)(8), (e), 

and (f)(2)(A)¿ 412(d)(2) and 431(d)(1), (d)(2), and (e)(2)(A) of the 

Code; and 

* * * * * * * 

SECTION 769 OF THE RETIREMENT PROTECTION ACT 

OF 1994 

SEC. 769. SPECIAL FUNDING RULES FOR CERTAIN PLANS. 

(a) * * * 

* * * * * * * 

ø(c) TRANSITION RULES FOR CERTAIN PLANS.—

ø(1) IN GENERAL.—In the case of a plan that—

ø(A) was not required to pay a variable rate premium for 

the plan year beginning in 1996; 

ø(B) has not, in any plan year beginning after 1995 and 

before 2009, merged with another plan (other than a plan 

sponsored by an employer that was in 1996 within the controlled group of the plan sponsor); and 

ø(C) is sponsored by a company that is engaged primarily in the interurban or interstate passenger bus service, 

except as provided in paragraph (3), the transition rules described in paragraph (2) shall apply for any plan year beginning after 1996 and before 2010. 

267 

ø(2) TRANSITION RULES.—The transition rules described in 

this paragraph are as follows: 

ø(A) For purposes of section 412(l)(9)(A) of the Internal 

Revenue Code of 1986 and section 302(d)(9)(A) of the Employee Retirement Income Security Act of 1974— ø(i) the funded current liability percentage for any 

plan year beginning after 1996 and before 2005 shall 

be treated as not less than 90 percent if for such plan 

year the funded current liability percentage is at least 

85 percent, and 

ø(ii) the funded current liability percentage for any 

plan year beginning after 2004 and before 2010 shall 

be treated as not less than 90 percent if for such plan 

year the funded current liability percentage satisfies 

the minimum percentage determined according to the 

following table: 

øIn the case of a plan year beginning in: The minimum percentage is: 

2005 ........................................................................................... 86 percent

2006 ........................................................................................... 87 percent

2007 ........................................................................................... 88 percent

2008 ........................................................................................... 89 percent

2009 and thereafter ................................................................. 90 percent. 

ø(B) Sections 412(c)(7)(E)(i)(I) of such Code and 

302(c)(7)(E)(i)(I) of such Act shall be applied— ø(i) by substituting ‘‘85 percent’’ for ‘‘90 percent’’ for 

plan years beginning after 1996 and before 2005, and 

ø(ii) by substituting the minimum percentage specified in the table contained in subparagraph (A)(ii) for 

‘‘90 percent’’ for plan years beginning after 2004 and 

before 2010. 

ø(C) In the event the funded current liability percentage 

of a plan is less than 85 percent for any plan year beginning after 1996 and before 2005, the transition rules under 

subparagraphs (A) and (B) shall continue to apply to the 

plan if contributions for such a plan year are made to the 

plan in an amount equal to the lesser of—

ø(i) the amount necessary to result in a funded current liability percentage of 85 percent, or 

ø(ii) the greater of—

ø(I) 2 percent of the plan’s current liability as of 

the beginning of such plan year, or 

ø(II) the amount necessary to result in a funded 

current liability percentage of 80 percent as of the 

end of such plan year. 

For the plan year beginning in 2005 and for each of the 

3 succeeding plan years, the transition rules under subparagraphs (A) and (B) shall continue to apply to the plan 

for such plan year only if contributions to the plan for such 

plan year equal at least the expected increase in current 

liability due to benefits accruing during such plan year. 

ø(3) SPECIAL RULES.—In the case of plan years beginning in 

2004 and 2005, the following transition rules shall apply in 

lieu of the transition rules described in paragraph (2): 

ø(A) For purposes of section 412(l)(9)(A) of the Internal 

Revenue Code of 1986 and section 302(d)(9)(A) of the EmVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00267 Fmt 6659 Sfmt 6601 E:\HR\OC\HR232P1.XXX HR232P1
268 

ployee Retirement Income Security Act of 1974, the funded 

current liability percentage for any plan year shall be 

treated as not less than 90 percent. 

ø(B) For purposes of section 412(m) of the Internal Revenue Code of 1986 and section 302(e) of the Employee Retirement Income Security Act of 1974, the funded current 

liability percentage for any plan year shall be treated as 

not less than 100 percent. 

ø(C) For purposes of determining unfunded vested benefits under section 4006(a)(3)(E)(iii) of the Employee Retirement Income Security Act of 1974, the mortality table 

shall be the mortality table used by the plan.¿ 

(269) 

1PBGC Annual Report, 2004. 

2 U.S. Department of Labor, preliminary Private Pension Plan Bulletin Abstract of 2000 Form 

5500 Annual Report, July 2005. 3Watson Wyatt Worldwide, Pension Fund Finances and Business Risk, July 2005. 

4PBGC Annual Report, 2004; PBGC letter to the Honorable George Miller dated July 29, 

2005. 5 Congressional Budget Office, The Risk Exposure of the Pension Benefit Guaranty Corporation, September 2005. 6PBGC Annual Report, 2004. 

7PBGC Annual Report, 2002. 

MINORITY VIEWS 

During Committee consideration of H.R. 2830, we voted ‘‘present’’

because neither the proponents of the bill nor the Pension Benefit 

Guaranty Corporation (PBGC) was able to provide any information 

on the effect the legislation would have on corporate sponsors, employees, or the PBGC. As we file this report, we still are awaiting 

information on the effect of this bill. 

The defined benefit pension system, which protects the retirement security of over 44 million workers, retirees, and their families, is at a critical moment. The number of defined benefit plans 

has declined precipitously from over 100,000 in 1985 to under 

32,000 in 2004.1 While the number of active workers covered by 

such plans has dropped from over 40 million to under 20 million, 

an additional 20 million retirees depend on defined benefit plans 

for their retirement security.2

The funding levels of these plans have dropped dramatically in 

recent years, with the fall of both the stock market and interest 

rates, from over 100% to approximately 85% on average (for an ongoing plan).3 Approximately 1200 plans have terminated and shifted unfunded liabilities onto the PBGC leaving it with a $23–27.5 

billion deficit.4 The PBGC estimates that it faces additional possible liabilities of $100 billion; the Congressional Budget Office believes the market value of PBGC’s liabilities could be as high as 

$146 billion.5 The PBGC reports that total pension underfunding 

by pension plans exceeds $450 billion.6

Given these dynamics, the challenge for the Congress is how to 

address pension underfunding in a way that does not lead to additional pension plan terminations, or jeopardize the retirement security of the 44 million individuals who depend on these retirement 

plans. 

Congress was first alerted to the severity of this problem in 2002 

when the PBGC first, reported its shift from a $10 billion surplus 

to an $11 billion deficit in less than 2 years.7 Throughout this period, Democratic members of the Committee repeatedly called for 

action by the Bush Administration and the Majority to act on pension reform. Unfortunately, years passed before they took the crisis 

seriously; since those warnings pension underfunding has doubled, 

270 

8PBGC letter to the Honorable George Miller dated July 29, 2005. 

and the problem now puts taxpayers and employees at risk for billions of dollars. 

When the Administration finally responded to the pension crisis, 

it proposed a measure that would have given a jolt to already 

struggling pension plans by increasing contributions by $430 billion 

over 7 years: such an action would create a strong disincentive for 

many employers to continue to offer plans.8 We want to encourage 

employers to stay in the system, not force them out. All major 

groups representing pension plans and employers have expressed 

serious concerns with the Administration’s legislation. 

Chairman Boehner introduced H.R. 2830 on July 9, and the bill 

was ordered reported out of the full committee within three weeks. 

During the Committee’s one hearing on the bill both the employer 

and worker representative witnesses expressed serious reservations 

as to the effects on employers, workers, and the defined benefit system. Democratic members repeatedly asked Chairman Boehner to 

share with the Minority any analysis his office had undertaken in 

preparation of the bill, but no information was provided. Democratic members also asked the Administration for its analysis of 

the effects of H.R. 2830, but no information has been provided. 

Retirement security is one of the foremost issues facing this 

country. The overwhelming majority of workers and retirees depend on Social Security, private pensions, and personal savings to 

support them in retirement and live out their non-working years in 

dignity and comfort. Without private pensions, millions of older 

workers will not be able to retire or will be forced to live in poverty. 

The financial pressures on Social Security will only be made greater. Congress has a responsibility to know the consequences of its 

actions on the retirement security of the nation. Our comments, 

below, focus on the provisions of the bill for which we have insufficient information on the effects on employers and workers, or in 

which we believe the bill does not sufficiently protect workers’ retirement security. 

H.R. 2830 SINGLE EMPLOYER FUNDING REFORM IMPACTS UNKNOWN

The centerpiece of H.R. 2830 is its pension funding reforms for 

single employer defined benefit pension plans. Under current law, 

employers generally are permitted to fund their pension promises 

over a 30 year period. Employers are permitted to value the assets 

and liabilities of the plan using what are known as smoothing techniques and to vary funding within certain permissible ranges. Employers also are permitted to earn credit balances for making more 

than a minimum contribution in a given year. 

H.R. 2830 would generally reduce the funding period for unfunded pension liabilities to 7 years based upon an interest rate 

calculation that is tied to what is being called a ‘‘modified yield 

curve’’. The Department of Treasury would issue 3 monthly interest rates based upon liabilities due within 0–5, 5–20, and 20+ 

years, but would continue to permit smoothing over a 3-year period. Pension plans less than 80% funded would not be able to use 

credit balances, and credit balances could not be used for purposes 

of determining pension funding levels. If a pension plan is deterVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00270 Fmt 6604 Sfmt 6604 E:\HR\OC\HR232P1.XXX HR232P1
271 

9PBGC letter to the Honorable George Miller dated August 9, 2005. 

mined to be less than 80% funded during the prior year, then in 

the following year the plan cannot provide benefit or salary increases to the participants in the plan. If a pension plan is determined to be less than 60% funded during the prior year, then participants cannot accrue any additional benefits under the plan 

which effectively freezes the plan. 

Neither Chairman Boehner nor the Administration has provided 

any analysis of the effects on these funding rule changes on employers or workers. We do not know how many employers will face 

increased pension contributions. We do not know how much contributions will increase at the average, median or aggregate. We do 

not know how many plans would be funded under 60 or 80% and 

thus, how many workers would face frozen pension benefits. We do 

not know how many plans could be expected to freeze or terminate 

should these contribution increases be enacted. [Again, subsequent 

to our mark-up we did receive an analysis by the PBGC of 369 

plans that found that 163 would face benefit reductions and 28 

would be forced to be frozen (based on 2002 data).9] 

In addition, certain aspects of H.R. 2830 unfairly change the 

rules at the end of the game. The bill’s adoption of a modified yield 

curve will more negatively impact employers with older workforces 

than those with younger ones. Similarly, the eventual use of a 

modified yield curve to calculate the present value of lump sum distributions will reduce workers’ retirement benefits based on an imperfect and overly aggressive interest rate measure. The bill’s 

changes in the treatment of credit balances also will negatively impact workers through benefit reductions and freezes. Under H.R. 

2830, many plans that are well funded will be treated as severely 

underfunded and forced to freeze benefits. This occurs because H.R. 

2830 treats plan assets as reduced by the amount of the plan’s 

credit balance. Thus, for example, a plan that is 95% funded based 

on actual assets is treated as 55% funded if it has a credit balance 

equal to 40% of plan liabilities. Such a plan must be frozen under 

H.R. 2830. 

Because of the modified yield curve’s unnecessary complexity and 

volatility at a time when employers are in need of predictable contribution rates, Representatives McCarthy and Wu offered an 

amendment to H.R. 2830 which would strike the yield curve language from the bill and replace it with current law. Both employer 

and worker advocates have urged Congress to adopt a rate that is 

easily understood, predictable, stable, and transparent. The Majority rejected the McCarthy-Wu amendment on a voice vote. 

H.R. 2830 provides new reporting and disclosure requirements 

for single-employer plans. While these new requirements generally 

are a step forward, out of concerns that the reporting and disclosure schedule is such that small employers with limited resources 

may face dramatic increases in administrative costs to comply with 

the new annual funding notice, 90 days after the end of a plan 

year, in addition to the Summary Annual Report and Form 5500 

filings 7 months later, Subcommittee on Employer-Employee Relations Ranking Member Andrews offered an amendment that would 

allow small employers to provide the new annual funding notice at 

272 

10For accounts of the bankruptcy and termination process used by United Airlines, see generally ‘‘Broken Promises: The United Airlines Pension Crisis,’’ E-Hearing by Rep. George Miller 

and Rep. Jan Schakowsky, June 13, 2005 (available at http://edworkforce.house.gov/democrats/ 

unitedhearing.html); Testimony of Patricia A. Friend, Hearing on ‘‘Preventing the Next Pension 

Collapse: Lessons from the United Airlines Case,’’ Committee on Finance, U.S. Senate, June 7, 

2005. 

the same time that the Summary Annual Report is provided to participants. With the Chairman’s assertion that he would work with 

Subcommittee Ranking Member Andrews on dealing with the issue 

of administrative burdens on small employers as this bill proceeds, 

the amendment was withdrawn. The Minority strongly supports reporting and disclosure that is timely, accurate, and public. 

H.R. 2830 CONTAINS NO PROVISIONS TO PREVENT OR ENCOURAGE

ALTERNATIVES TO TERMINATION

In addition to not knowing the effects of H.R. 2830, the bill fails 

to address the rising problem of runaway pension plan terminations. Provisions to deal with unfair pension plan terminations 

must be included in any serious pension reform. The Congress has 

failed to pass meaningful pension funding reform for several years, 

allowing industrywide plan underfunding to fester while more and 

more companies have filed for bankruptcy, particularly in the airline and steel industries. As we have seen from the recent plan terminations at United Airlines, there are grave shortcomings in the 

Employee Retirement Income Security Act’s (ERISA) provisions 

governing involuntary terminations. Indeed, rather than stopping 

unfair terminations, H.R. 2830 invariably speeds up terminations. 

The bill increases funding requirements on companies precisely at 

a time when they are at their weakest, undoubtedly encouraging 

some number of companies on the margin—the breadth and depth 

of which no one knows—to terminate their pension plans sooner 

rather than later. Under H.R. 2830, the way for companies to 

dump their plans onto the PBGC in bankruptcy remains free and 

clear. 

Unfortunately, United Airlines has become a poster child for the 

need to reform ERISA’s plan termination provisions. The company 

entered bankruptcy in December 2002 and soon sought to terminate its four pension plans, covering flight attendants, pilots, mechanics, and public contact employees.10 Because the plans were 

collectively bargained, the company could not initiate a termination 

without first exhausting goodfaith bargaining over the plans. Also, 

because the company—not the PBGC—sought to terminate the 

plans, pursuant to ERISA Section 4041, it would ultimately have 

to show the bankruptcy court that it could not continue in business 

without terminating the plans. Throughout bargaining, rather than 

offering alternatives to termination, the company insisted that the 

plans must be terminated. The unions offered alternatives which 

were rejected again and again. The PBGC maintained, after commissioning an independent analysis of United’s financial situation, 

that the company could afford to keep one or more of its plans and 

successfully exit bankruptcy. Nevertheless, at a time when at least 

two of the employees’ unions continued to bargain with the company to save their plans and were legally challenging the company’s claim that it needed to terminate its plans, the PBGC sudVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00272 Fmt 6604 Sfmt 6604 E:\HR\OC\HR232P1.XXX HR232P1
273 

11The e-hearing record is available at http://edworkforce.house.gov/democrats/ 

unitedhearing.html 12PBGC, ‘‘PBGC Reaches Pension Settlement with United Airlines,’’ Press Release, April 22, 

2005. 13 H. Amdt. 352 to H.R. 3010, Roll Call No. 309, 109th Cong., June 24, 2005. 

denly reversed course and struck a deal with United to terminate 

all four of its plans pursuant to the PBGC’s authority under ERISA 

Section 4042. Because PBGC initiated terminations do not provide 

plan participants with the same protections as employer-initiated 

terminations, this deal effectively ended any bargaining to save the 

plans. It spared United from having to prove that the terminations 

were financially necessary. It denied employees and retirees their 

day in court to challenge the companies’ claims of necessity, and 

it came at a time when the company still had not filed any business reorganization plan with the bankruptcy court. 

If the termination of all four plans at United Airlines is allowed 

to stand, the Congress will have stood by while over a hundred 

thousand American families saw their retirement nest eggs unfairly ripped from under them. In the first-ever e-hearing, sponsored by the Committee’s ranking Democrat, we received over 

2,000 witness statements from United employees, retirees, and 

their families revealing the deep impact these terminations would 

have on their lives, forcing retirees to return to work in their golden years, sell their home, or struggle anew to pay or a child’s college tuition or elderly parent’s health care.11 The economic devastation caused by this termination is wide and deep. United employees 

and retirees will lose over $3 billion in promised benefits—deferred 

wages which they earned with years of hard work and loyalty. 

Moreover, the termination of all four plans at United Airlines 

marks the single largest pension liability imposed on the PBGC in 

the nation’s history. Underfunded by over $9 billion, the plans impose over $6 billion in new liabilities on the PBGC.12 Shortly after 

the PBGC’s deal with United was announced, the Ranking Member 

Miller introduced a bill, H.R. 2327, to put a halt to the terminations for six months to give the parties and the Congress an opportunity to craft alternative solutions to the crisis. It has been referred to this Committee. The Committee, however, has failed to 

act on H.R. 2327, even though a clear majority of the House (219–

185) rejected the PBGC deal with United, with the passage of the 

Miller Amendment to the Labor-HHS Appropriations bill, H.R. 

3010, on June 24, 2005.13

At markup of H.R. 2830, the Democratic Minority supported an 

amendment offered by, Representatives Tierney and Miller to reform the provisions of ERISA Sections 4041 and 4042 to strengthen 

protections against abuse of the bankruptcy and termination process. Current law does not sufficiently protect against the termination of plan which may in fact be affordable. The Tierney-Miller 

Amendment would have required—in both employer-initiated and 

PBGC-initiated terminations—that the parties make reasonable efforts to consider alternatives to termination, and it provided a nonexhaustive list of such alternatives. The Amendment also would 

have provided a greater voice for participants and their representatives in ensuring that all reasonable efforts to find alternatives to 

dumping have been explored. It would have established a presumpVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00273 Fmt 6604 Sfmt 6604 E:\HR\OC\HR232P1.XXX HR232P1
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14Sarah Anderson, John Cavanagh, Chris Hartman, and Scott Klinger, ‘‘Executive Excess Report 2003: CEOs Win, Workers and Taxpayers Lose,’’ Tenth Annual CEO Compensation Survey, 

Institute for Policy Studies & United for a Fair Economy, August 26,2003. 15 Eric Dash, ‘‘The New Executive Bonanza: Retirement,’’ New York Times, April 3, 2005. 

tion against PBGC-initiated terminations where a company can 

continue in Business without terminating a pension plan. The Majority rejected this Amendment. As a result, H.R. 2830 has left the 

bankruptcy and termination process open to the kind abuse we 

have seen in the United Airlines case. Since the mark-up, Delta 

and Northwest Airlines have followed United’s example. Congress 

must act to discourage further terminations. 

H.R. 2830 DOES NOT PROVIDE FAIR TREATMENT OF WORKERS AND

EXECUTIVES

H.R. 2830 is remarkably inequitable in its treatment of retirement benefits for executives and rank-and-file employees. The bill 

imposes restrictions on rank-and-file employee benefits when a 

plan is underfunded. The initial restrictions, ranging from no new 

benefit increases to no lump sums, are triggered when the plan is 

less than 80% funded. No similar restriction is imposed on executives. Instead, restrictions on executive benefits are not triggered 

until the plan is less than 60% funded. Only at 60%, are employers 

prohibited from transferring funds to executive deferred compensation plans. Meanwhile, if the employer does not fund above 60%, 

then the workers’ plan must be frozen with no new benefits allowed 

to accrue. If the plan ultimately fails, workers lose their pension 

plan and are relegated to PBGC guarantees while any restrictions 

on executive benefits would be lifted. 

This scheme is patently unfair. Employees have no control over 

single employer plans. Executives make the critical decisions on 

whether and how much to fund a plan—yet they do not share the 

pain in those decisions. Any fair pension reform legislation must 

repeal special protections for executive pension plans that allow 

CEO’s golden parachutes at the same time employees are suffering 

deep cuts in their promised retirement benefits. 

In practice, extensive executive packages are often increased at 

the very same time their employees’ pensions are cut. As employees 

are asked to give back benefits they have earned, executives are 

often padding their own retirement packages. A 2003 Executive Excess report by United for a Fair Economy and the Institute for Policy Studies found that the median pay for executives at the 30 companies with the most underfunded pension plans in 2002 was $5.9 

million, or 59 percent higher than the median pay for executives 

at the typical large company. These 30 companies had a combined 

$131 billion pension deficit in 2002, but paid their executives a 

combined $352 million. While the underfunding threatened employee pensions, nineteen of these executives saw their pay rise, 

and ten saw their pay more than double in 2002.14

The executive pensions themselves are exorbitant. A review of 

2004 proxy statements from 500 large companies by Corporate Library for the New York Times revealed that 113 chief executives 

could expect retirement benefits more than $1 million per year. At 

least 31 would see $2 million or more per year.15

275 

16 Janice Revell et al., ‘‘CEO Pensions: The Latest Way to Hide Millions,’’ Fortune, April 28, 

2003; John Crawley, ‘‘US Airways in Tentative Giveback Deal with Pilots (Update 1), Reuters, 

October 1, 2004. 17Theo Francis and Ellen E. Schultz, ‘‘Employers Spare Execs from Pension-Cut Pain,’’ Wall 

Street Journal Online, April 7, 2003. For additional press reports on executives receiving excessive new retirement benefits while cutting rank-and-file benefits, see, e.g., Lisa Yoon, ‘‘Former 

CFO Now CEO at American Airlines,’’ CFO.com, April 28, 2003; ‘‘Corporate Books Hide Another 

Ticking Time Bomb: Deferred Compensation—Tab for Executive ‘Top Hat’ Plans Rises Yearly, 

Usually Isn’t Disclosed,’’ Wall Street Journal Europe, October 11, 2002; Ellen E. Schultz, ‘‘While 

Executives See Their Pensions Grow, Regular Workers See Their Pensions Shrink,’’ Wall Street 

Journal, June 20, 2001. 18PBGC, Pension Insurance Data Book 2004, Number 9 (Spring 2005) at 20, 87. 

The business press is rife with stories of outrageous executive retirement schemes, even in the very industries with the most underfunded rank-and-file retirement plans. For example, in 2002, US 

Airways CEO Stephen Wolftook his pension in a lump sum of $15 

million (calculated with 24 years of service Wolf never performed), 

just six months before the company filed for Chapter 11 bankruptcy. The bankruptcy resulted in the termination of the pilots’’ pension plan, along with other major worker concessions.16 In November 1999, the steel company LTV Corp. established trusts for 

executive retirement plans. At the end of 2000, LTV filed for bankruptcy. Four months later, the company promised an executive that 

it would transfer assets in those trusts to a new one in the executive’s name. Less than a year after this executive agreement was 

reached, the LTV workers’ pension plan was dumped onto the 

PBGC, with many of the 82,000 covered workers seeing their 

earned benefits cut as a result.17

Members Woolsey and Bishop offered an amendment to provide 

for parity in the bill’s treatment of executive and rank-and-file retirement benefits. Under their amendment, when restrictions on 

rank-and-file benefits are triggered, that is, when the rank-and-file 

defined benefit plan is less than 80% funded, similar restrictions 

are triggered for executives. Specifically, during such time rankand-file workers may not receive new retirement benefits, neither 

would executives. Unfortunately, the Woolsey-Bishop amendment 

was defeated on a party-line vote. 

Additional amendments to deal with the unfair restrictions on 

workers’ benefits were offered by the Minority. Members Wu, Van 

Hollen, and Kucinich offered an amendment to make fairer the 

benefit restrictions imposed on workers when employers do not 

make certain pension contributions. Their amendment would have 

modified H.R. 2830’s provisions that eliminate plant shut down 

benefits, prohibit recognition of salary increases, prohibit workers 

within five years of retirement from receiving lump sum payments, 

and freeze accruals of new benefits. Member Van Hollen offered an 

amendment to provide comparable treatment between salary and 

flat benefit provided pension plans. Both amendments were defeated by the Majority. 

MULTIEMPLOYER FUNDING REFORMS NEEDED

The Democratic Minority strongly supports efforts to strengthen 

the multiemployer pension system. As of 2004, the PBGC covered 

more than 9.8 million participants in the nation’s 1,600 multiemployer pension plans.18 These plans are the product of collective 

bargaining and are governed by joint trusteeships composed of repVerDate Aug 31 2005 22:11 Sep 26, 2005 Jkt 039006 PO 00000 Frm 00275 Fmt 6604 Sfmt 6604 E:\HR\OC\HR232P1.XXX HR232P1
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19 Id. at 85. 20Testimony of Randy G. DeFrehn, Executive Director, National Coordinating Committee for 

Multiemployer Plans, Hearing on ‘‘A Pension Doubleheader: Reforming Hybrid and Multiemployer Pension Plans,’’ U.S. Senate Committee on Health, Education, Labor, and Pensions Subcommittee on Retirement Security and Aging, June 7, 2005. 21Testimony of Judith Mazo, Senior Vice President and Director of Research, The Segal Company, ‘‘Hearing on H.R. 2830, The Pension Protection Act’’, U.S. House of Representatives Committee on Education & the Workforce, June 15, 2005. 

resentatives from both labor and management. Such design lends 

itself to cooperative problem-solving among the plans’ stakeholders. 

The plans’ pooling of risk among employers has ensured a remarkably stable system for decades. In the past 25 years, only 38 multiemployer plans have required PBGC assistance.19 In the plans’ design also enables small employers, which could not administer a 

plan on their own, to offer defined benefits to their employees. Out 

of an estimated 65,000 employers which contribute to multiemployer plans, approximately 90% are small businesses employing 

fewer than 20 worker.20 Particularly in industries where employment is seasonal and tenure with anyone firm is short, multiemployer plans provide workers with a guaranteed retirement benefit 

that accrues even as these workers move from one participating 

employer to another. In short, these plans set an example for how 

retirement security can be ensured in the private sector through 

the cooperative efforts of labor and management. 

Multiemployer plans, however, have experienced many of the 

same financial shocks as single employer plans from unexpected 

declines in investment returns and interest rates. The multiemployer plan funding rules prevent these plans from building a cushion against future losses so surpluses in the 1990’s necessitated 

benefit increases to avoid excise taxes on overfunding. Employer attacks on the right to organize and strong labor laws have severely 

depressed the number of newly unionized employers and employees 

to help support these plans. 

For these reasons, it is critical that the Congress pass reform to 

give plans the flexibility to employ their greatest strengths—collective bargaining and joint trusteeships—to formulate their own solutions to funding problems. Unfairly denied meaningful relief in last 

year’s temporary pension reform legislation, many multiemployer 

pension plans remain in trouble, facing funding obligation triggers 

which pose a risk to the viability of both the plans and their participating employers. According to the Segal Company consulting 

firm, approximately 30% of multiemployer plans are facing a funding deficiency by the end of the decade.21

The multiemployer pension reform provisions of H.R. 2830 are 

crafted from proposals offered by a coalition of labor and management representatives in the multiemployer plan community. These 

proposals are the result of good-faith negotiations by the stakeholders of this system. They come from the plans, the businesses, 

and the unions which are best situated to understand the problems 

they face and the real-world consequences of any changes in the 

law. The adoption of proposals from such a deliberative, cooperative 

process is markedly different from H.R. 2830’s approach to single 

employer pension funding reform, the economic impact of which remains unknown. The multiemployer provisions reflect an approach 

based on shared commitments and sacrifices and are designed to 

277 

22 U.S. Senate Committee on Finance, Hearing on Pension Reform Legislation, June 30, 1999. 

empower labor and management with the tools necessary to return 

their plans to sound financial footing. 

H.R. 2830’s multiemployer pension reform is a step in the right 

direction which the Democratic Minority supports. The Minority 

urges Congress to continue working with the stakeholders of the 

multiemployer community as the bill proceeds through the legislative process and take care not to create unintended problems for 

well-functioning plans. We support adjustments and improvements 

where necessary to ensure the continued viability of multiemployer 

pension plans and delivery of promised benefits. 

H.R. 2830 REDUCES OLDER WORKERS’ PENSIONS UNDER CASH BALANCE

PLANS

The Chairman’s mark to H.R. 2830 added provisions that effectively legalize what are known as ‘‘cash balance pension plans’’ without protecting the millions of older workers who have and 

would have their pension benefits reduced by such plans. Under 

H.R. 2830, as ordered reported out of Committee, cash balance 

plans would be legal, under ERISA and the Internal Revenue Code 

(IRC), if younger and older workers with identical characteristics 

of wages and service are provided the same accrued benefit. The 

provision requires cash balance plans to comply with all of the defined benefit pension plan rules except for the rule on accrual of 

benefits where they could use the 401(k) rule. This change permits 

cash balance plans to freeze older workers benefits under the traditional plan and replace it with a lower benefit. The change would 

permit employers to change the rules at the end of the game when 

older workers have no time or bargaining power to protect their retirement benefits. The privatization of Social Security, attack on 

defined benefit plans, and legalization of cash balance plans are all 

part of a systematic attack on and effort to reduce the retirement 

security of middle class workers. 

Cash balance plans were created by the consulting industry during the 1980s to compete with the growth of 401(k) plans. Congress 

did not know much about these plans, and neither ERISA nor the 

Code recognizes them. The Internal Revenue Service (IRS) gave informal approval to some aspects of these plans, but did not alert 

Congress to the legal issues that were brought to its attention in 

the early 1990’s. Cash balance plans grew slowly, but their adoption sped up rapidly during the mid-to-late 1990’s. The strong stock 

market had created overfunded pension plans and employers were 

interested in reaping the surplus funds without being subject to existing excise taxes on overfunded pension plan terminations. 

In 1999, IBM sought to convert its defined benefit plan to cash 

balance and its workers appealed to the media and Congress to oppose the conversion. The Wall Street Journal ran a detailed series 

of articles on how cash balance plans could harm workers’ retirement benefits. Congress held hearings and several members of 

Congress asked the General Accounting Office (GAO) to investigate.22 The Clinton Administration also responded to the public 

outcry and imposed a moratorium on IRS approval of conversions. 

In 2000, the GAO reported that older workers could lose up to 50% 

278 

23GAO, Implications of Conversions to Cash Balance Plans, September 2000. 24 H.R. 2902, the Pension Benefits Protection and Preservation Act of 1999; S. 1300 and S. 

1600, The Older Workers’ Pension Protection Act, 106th Congress. 25 Economic Growth and Tax Relief Reconciliation Act of 2001, P.L. 107–16. 

of their benefits under a cash balance conversion.23 In response, 

Reps. Sanders and Miller and Senator Harkin introduced legislation to require plans to protect workers over age 40 or with 10 or 

more years of service a choice between the old and new plans.24

One of the reasons the cash balance controversy was so explosive 

was the way these plans were marketed and publicized. Employees 

were often led to believe that the change was either a neutral 

change or an improvement in the pension plan. Because the old 

plan expressed benefits in the form of a monthly payment at age 

65 and the cash balance plan expressed benefits as a current bank 

account amount, workers did not know, and employers intentionally did not tell them, which benefit was greater. Many employers never clearly explained to workers that early retirement subsidies were being eliminated or benefits frozen through a practice 

known as ‘‘wearaway’’. When some workers did figure out that 

their benefits were being cut, they felt deeply betrayed. Congress 

did amend the law in 2001 to require employers to explain to workers the relative value of a change in benefits, but this change occurred only after the moratorium on cash balance approvals was 

imposed.25

In 2001, the Bush Administration issued proposed regulations 

that would have legalized the plans, but a bipartisan majority of 

Congress pressured the Administration to withdraw the proposed 

regulations through a series of letters, meetings and riders to the 

Treasury Department appropriations acts. Secretary of the Treasury John Snow promised that the Treasury Department would reconsider the issue and protect older workers. On several occasions, 

Secretary Snow recalled his own experience at the CSX Corp, 

where the company gave its workers a choice of plans. In its 

FY2005 budget proposal, the Administration asked Congress to 

pass legislation to protect all workers for 5 years after a conversion. 

Cash balance plans hurt older workers in several ways. First, 

they lose benefits under the old plan because the traditional plan 

is frozen at a lower rate of salary and years of service. Under the 

traditional plan, older workers earn the bulk of their benefits at 

the end of their work service. Second, under the cash balance plan 

workers earn benefits at a flatter rate yet older workers do not 

have time to earn significant benefits under the new plan. Some 

cash balance plans prevent older workers from earning any new 

benefits by offsetting their new benefits by their old earned benefits (known as ‘‘wearaway’’). Finally, cash balance plans may eliminate early retirement options to which older workers otherwise 

would have been eligible. 

A new GAO report to be issued in the coming weeks will further 

report on the losses to older workers under cash balance plans. The 

GAO surveyed over 100 actual plans and workers and found that 

workers of almost all ages lose benefits under a cash balance plan. 

Over 80% of 30 year-olds and almost all workers over age 40 lose 

benefits under a converted cash balance plan unless they are 

279 

26 Cooper v. IBM, 274 F. Supp.2d 1010 (S.D. Ill. 2003). 27Members S. Davis, Holt, Kind, McCarthy, and Wu voted in Committee to retain the provisions on investment advice. 28 U.S. Department of Labor, Preliminary Private Pension Plan Bulletin Abstract of 2000 

Form 5500 Annual Report, July 2005. 

grandfathered into the former plan. Despite employer claims that 

cash balance plans benefit younger workers, the GAO found that 

40% of younger workers never vest a right to benefits under the 

plan. The GAO report also documents the weaknesses and biases 

of the so-called ‘‘independent’’ research on cash balance plans promoted by the Majority and employers. 

Numerous lawsuits are pending in the courts. Workers lost several cases and settled others, but won the largest case against IBM 

at the district court level.26 The IBM case is pending appeal in the 

7th circuit. Other cases are awaiting trial. 

Committee Ranking Member Miller offered an amendment in 

Committee to provide basic protections for older workers who are 

unfairly impacted when employers convert their traditional defined 

benefit plan to a cash balance plan. Under the Miller amendment, 

workers who are at least 40 years old and who have at least 10 

years of service must be given a choice between the benefits of the 

traditional plan or the benefits of the cash balance plan. This rule 

would not require employers to maintain two separate plans—but 

only two formulas for calculating benefits. Hundreds of companies 

have offered their workers a similar choice, including the Federal 

Government, CSX, Honeywell, Eaton and others. The Miller 

amendment reflected the best practices of the industry in this relatively uncharted area for ERISA. The Committee rejected the Miller amendment on a party-line vote. 

H.R. 2830, as amended, would simply deny all of these concerns 

and effectively legalize the plans without any protections for older 

workers. The provision would permit employers to reduce older 

workers’ pensions without any requirements that protect their 

promised pensions; millions of older workers would lose needed retirement benefits if this provision were to be enacted. The Minority 

believes the law can be modified to recognize cash balance plans in 

a way that is fair to all employees. Both the Senate Committees 

on Health, Education, Labor and Pensions and Finance have 

passed provisions, on a bipartisan basis, which would establish 

minimum protections for older workers and minimum standards for 

cash balance plans. This Committee should do no less. 

H.R. 2830 ENCOURAGES CONFLICTED PENSION INVESTMENT ADVICE

Many of the Democratic members of the Committee have concerns about H.R. 2830’s provision to amend ERISA’s longstanding 

prohibition on conflicts of interest and permit certain ‘‘fiduciary advisors’’ to provide self-interested investment advice to pension plan 

participants when selecting among investment options for their retirement savings.27

The private pension system is changing—defined benefit plans 

now cover 20 million active participants and definded contribution, 

primarily 401(k) plans, cover almost 50 million active participants.28 As 401(k) plans emerge as the dominant form of retirement savings for workers, it is becoming clearer that 401(k) plans 

280 

29W. Gale, J.M. Iwry, P. Orszag, ‘‘Automatic 401 (k): A Simple Way to Strengthen Retirement 

Savings’’, The Retirement Security Project, 2005. 30Defined Contribution Survey, Plan Sponsor, 2004. 31 J. Brown and S. Weisbenner, ‘‘What are the effects of Portfolio Choice on Retirement Wealth 

Outcomes?’’, presented at the 2005 Annual Retirement Research Center Conference, August 11, 

2005. 32W. Gale, J.M. Iwry, P. Orszag, ‘‘Automatic 401(k): A Simple Way to Strengthen Retirement 

Savings’’, The Retirement Security Project, 2005. 33S. 875, the Save More for Retirement Act; H.R. 1508, the 401(k) Automatic Enrollment Act 

of 2005 (109th Cong.). 

need to be restructured to meet workers’ long term retirement 

needs. There is a growing consensus that the 401(k) plan rules 

need to be updated to encourage automatic enrollment (to get more 

workers in plans), automatic escalation of contributions (to get 

workers saving at adequate levels), automatic default investment 

options (to get workers in well managed investments), and automatic rollover (to retain workers’ savings until retirement). 

Automatic enrollment is a key example. 401(k) plans generally 

require individuals to affirmatively elect to join the plan. Because 

of the affirmative election requirement, over 1⁄4 of workers fail to 

elect, often simply due to inertia. Several reports have documented 

studies showing that when workers are automatically enrolled in 

a 401(k) plan, participation jumps from an average of 75% to 85– 95%.29

Similar behavior patterns exist with respect to 401(k) investment 

behavior. Almost all employer sponsored 401(k) plans select a variety of investment options amongst which participants must allocate 

their and usually their employer’s contributions. The average 

401(k) plan provides more than 10 investment options.30 Numerous 

studies have concluded that both financially and not-financially 

knowledgeable participants do not know how or want to be solely 

responsible for the investment of their retirement savings. Studies 

also have shown that excessive investment choices actually negatively affect investment returns.31 When participants are offered 

automatic default investments or are offered automatic investment 

as a plan investment option, again participants overwhelmingly select or retain automatic investment.32

In the 109th Congress a number of bills have been introduced by 

Democrats and Republicans that would improve the way 401(k) 

plans are offered and structured by encouraging automatic enrollment and investment, These bills represent the best opportunity to 

address 401(k) investment issues.33

Under H.R. 2830, pension plan administrators would be able to 

contract with ‘‘fiduciary advisors’’ to provide investment advice to 

pension plan participants. The definition of investment advisor includes not only certified securities investment brokers, but also insurance agents who need not be licensed investment advisors. 

Many advisors would entice plans to offer investment advice by not 

charging a separate fee for advice, thus making it appear ‘‘free’’. 

Advisors would then be free to contact participants by email, 

phone, in writing or in person and offer them investment advice. 

The advisor would be required to notify the participant ‘‘at the time 

advice is selected’’ that the advisor receives a fee or other compensation for his or her advice. This notice need not be provided 

in advance so the participant has time to think about it and possibly decide not to receive the advice. The disclosure can be buried 

281 

34Press Releases, Office of New York State Attorney General, April 28, 2003, March 15, 2004, 

January 31, 2005. 35SEC, Staff Report on Current Examinations of Select Pension Consultants, p. 7, May 16, 

2005. 

in voluminous documents. There is no requirement that the disclosure be prominently displayed or that the participant signifies, in 

writing, that he or she has read and agreed to the disclosure. Once 

a participant receives advice, he or she would have limited recourse 

to show improper advice. 

Further, H.R. 2830’s investment advice provisions have been 

superceded by market actions. Every major investment firm has 

contracted with an independent advice firm to offer advice services. 

We also have learned much in the past few years about the dangers of conflicts of interest in the investment markets. Almost all 

of New York Attorney General Elliott Spitzer’s litigation was 

against investment firms for conflicts of interest that harmed investors. Notably, in 2003, Attorney General Spitzer reached a $1.4 

billion settlement against 10 investment houses in which they 

agreed to prevent future conflicts, in 2004, settled conflict charges 

with 2 financial service firms for $675 million and in 2005, settled 

similar charges for $850 million.34

A 2005 Securities and Exchange Commission report found rampant conflicts in the pension consulting industry. One of the major 

findings of the SEC was that ‘‘[m]oney managers appear to have 

relationships with multiple consultants, appear to purchase overlapping products from more than one consultant, and are recommended by those consultants to plan sponsors. It appears that 

many money managers do not disclose their relationships with consultants to their pension plan clients to whom they are recommended . . .’’ The SEC recommended several changes in pension industry policies and procedures to ‘‘eliminate or mitigate conflicts of interest’’.35

For these reasons, many believe the investment advice provisions 

of the bill should be reconsidered. Two amendments were offered 

to amend HR 2830’s rollback of worker protections against conflicted investment advice. First, Member Tierney offered an amendment to strike the investment advice language from the bill. Second, Subcommittee on Employer-Employee Relations Ranking 

Member Andrews offered a compromise amendment that would 

have permitted self-interested investment advice provided that an 

independent advice option also was provided so that participants 

have a choice. The Majority opposed both amendments. 

In conclusion, our private pension system is in crisis and the bill 

passed by the Majority in many ways represents a missed opportunity to stabilize and revitalize the system. If we want to encourage employers to maintain defined benefit plans, then the law must 

recognize and support their ability to do so in a way that is fair 

to both employers and workers. Millions of workers are depending 

on employer provided benefits for their retirement security. Congress must protect this promise. 

George Miller, Bobby Scott, Timothy Bishop, Dale E. Kildee, Ruben Hinojosa, Chris Van Hollen, Major R. 

Owens, Lynn Woolsey, Donald M. Payne, David Wu, 

Robert Andrews, John F. Tierney, Tim Ryan, Raul 

282 

M. Grijalva, Betty McCollum, Danny K. Davis, Dennis J. Kucinich, Susan Davis, Carolyn McCarthy, 

Ron Kind, Rush Holt. 

Æ