II

107TH CONGRESS

1ST SESSION S. 1386

To amend the Internal Revenue Code of 1986 to provide for the equitable

operation of welfare benefit plans for employees, and for other purposes.

IN THE SENATE OF THE UNITED STATES

AUGUST 3, 2001

Mr. SANTORUM introduced the following bill; which was read twice and

referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

for the equitable operation of welfare benefit plans for

employees, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS; AMEND4 MENT TO 1986 CODE.

5 (a) SHORT TITLE.—This Act may be cited as the

6 ‘‘Employee Welfare Benefit Equity Act of 2001’’.

7 (b) TABLE OF CONTENTS.—The table of contents is

8 as follows:

Sec. 1. Short title; table of contents; amendment to 1986 Code.

TITLE I—CERTAIN WELFARE BENEFIT PLANS
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Sec. 101. Modification of definition of ten-or-more employer plans.

Sec. 102. Clarification of deduction limits for certain collectively bargained

plans.

Sec. 103. Clarification of standards for section 501(c)(9) approval.

Sec. 104. Tax shelter provisions not to apply.

Sec. 105. Effective dates.

TITLE II—ENFORCEMENT PROVISIONS

Sec. 201. Clarification of section 4976.

Sec. 202. Effective date.

1 (c) AMENDMENT OF 1986 CODE.—Except as other2 wise expressly provided, whenever in this Act an amend3 ment or repeal is expressed in terms of an amendment

4 to, or a repeal of, a section or other provision, the ref5 erence shall be considered to be made to a section or other

6 provision of the Internal Revenue Code of 1986.

7 TITLE I—CERTAIN WELFARE

8 BENEFIT PLANS

9 SEC. 101. MODIFICATION OF DEFINITION OF TEN-OR-MORE

10 EMPLOYER PLANS.

11 (a) ADDITIONAL REQUIREMENTS.—Paragraph

12 (6)(B) of section 419A(f) (relating to the exception for

13 10 or more employer plans) is amended by striking ‘‘and’’

14 at the end of clause (i), by striking the period at the end

15 of clause (ii) and inserting a comma, and by adding at

16 the end the following new clauses:

17 ‘‘(iii) which meets the requirements of

18 section 505(b)(1) with respect to all bene19 fits provided by the plan,
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1 ‘‘(iv) which has obtained a favorable

2 determination from the Secretary that

3 such plan (or a predecessor plan) is an or4 ganization described in section 501(c)(9),

5 and

6 ‘‘(v) under which no severance pay

7 benefit is provided.’’

8 (b) CLARIFICATION OF EXPERIENCE RATING.—

9 (1) IN GENERAL.—Paragraph (6)(A) of section

10 419A(f) (relating to the exception for 10 or more

11 employer plans) is amended by striking the second

12 sentence and inserting the following: ‘‘The preceding

13 sentence shall not apply to any plan which is an ex14 perience-rated plan.’’

15 (2) EXPERIENCE-RATED PLAN.—Section

16 419A(f)(6) is amended by adding at the end the fol17 lowing new subparagraph:

18 ‘‘(C) EXPERIENCE-RATED PLAN.—For

19 purposes of this paragraph—

20 ‘‘(i) IN GENERAL.—The term ‘experi21 ence-rated plan’ means a plan which deter22 mines contributions by individual employ23 ers on the basis of actual gain or loss expe24 rience.
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1 ‘‘(ii) EXCEPTION FOR GUARANTEED

2 BENEFIT PLAN.—

3 ‘‘(I) IN GENERAL.—The term

4 ‘experience-rated plan’ shall not in5 clude a guaranteed benefit plan.

6 ‘‘(II) GUARANTEED BENEFIT

7 PLAN.—The term ‘guaranteed benefit

8 plan’ means a plan the benefits of

9 which are funded with insurance con10 tracts or are otherwise determinable

11 and payable to a participant without

12 reference to, or limitation by, the

13 amount of contributions to the plan

14 attributable to any contributing em15 ployer. A plan shall not fail to be

16 treated as a guaranteed benefit plan

17 solely because benefits may be limited

18 or denied in the event a contributing

19 employer fails to pay premiums or as20 sessments required by the plan as a

21 condition of continued participation.’’

22 (c) SINGLE PLAN REQUIREMENT.—Section

23 419A(f)(6), as amended by subsections (a) and (b), is

24 amended—
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1 (1) by striking ‘‘means a plan’’ in subparagraph

2 (B) and inserting ‘‘means a single plan’’, and

3 (2) by adding at the end the following:

4 ‘‘(D) SINGLE PLAN.—For purposes of this

5 paragraph, the term ‘single plan’ means a writ6 ten plan or series of related written plans the

7 terms of which provide that—

8 ‘‘(i) all assets of the plan or plans,

9 whether maintained under 1 or more

10 trusts, accounts, or other arrangements

11 and without regard to the method of ac12 counting of the plan or plans, are available

13 to pay benefits of all participants without

14 regard to the participant’s contributing

15 employer, and

16 ‘‘(ii) the method of accounting of the

17 plan or plans may not operate to limit or

18 reduce the benefits payable to a participant

19 at any time before the withdrawal of the

20 participant’s employer from the plan or the

21 termination of any benefit arrangement

22 under the plan.’’
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1 SEC. 102. CLARIFICATION OF DEDUCTION LIMITS FOR CER2 TAIN COLLECTIVELY BARGAINED PLANS.

3 Paragraph (5) of section 419A(f) (relating to the de4 ductions limits for certain collectively bargained plans) is

5 amended by adding at the end the following flush sen6 tences:

7 ‘‘Subparagraph (B) shall not apply to any plan

8 maintained pursuant to an agreement between em9 ployee representatives and 1 or more employers un10 less the taxpayer applies for, and the Secretary

11 issues, a determination that such agreement is a

12 bona fide collective bargaining agreement and that

13 the welfare benefits provided under the agreement

14 were the subject of good faith bargaining between

15 employee representatives and such employer or em16 ployers. The Secretary may issue regulations to

17 carry out the purposes of the preceding sentence.’’

18 SEC. 103. CLARIFICATION OF STANDARDS FOR SECTION

19 501(c)(9) APPROVAL.

20 Section 505 is amended by adding at the end the fol21 lowing new subsection:

22 ‘‘(d) CLARIFICATION OF STANDARDS FOR EXEMP23 TION.—

24 ‘‘(1) MEMBERSHIP.—An organization shall not

25 fail to be treated as an organization described in

26 paragraph (9) of section 501(c) solely because its
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1 membership includes employees or other allowable

2 participants who—

3 ‘‘(A) reside or work in different geographic

4 locales, or

5 ‘‘(B) do not work in the same industrial or

6 employment classification.

7 ‘‘(2) FUNDING.—An organization described in

8 paragraph (9) or (20) of section 501(c) shall not be

9 treated as discriminatory solely because life insur10 ance or other benefits provided by the organization

11 are funded with different types of products, con12 tracts, investments, or other funding methods of

13 varying costs, but only if the plan under which such

14 benefits are provided meets the requirements of sub15 section (b).’’

16 SEC. 104. TAX SHELTER PROVISIONS NOT TO APPLY.

17 Section 419 (relating to treatment of funded welfare

18 benefit plans) is amended by adding at the end the fol19 lowing:

20 ‘‘(h) TAX SHELTER RULES NOT TO APPLY.—For

21 purposes of this title, a welfare benefit fund meeting all

22 applicable requirements of this title shall not be treated

23 as a tax shelter or corporate tax shelter.’’
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1 SEC. 105. EFFECTIVE DATES.

2 (a) IN GENERAL.—The amendments made by this

3 title shall apply to contributions to a welfare benefit fund

4 made after the date of the enactment of this Act.

5 (b) TAX SHELTER RULES.—The amendment made

6 by section 104 shall take effect as if included in the

7 amendments made by section 1028 of the Taxpayer Relief

8 Act of 1997.

9 TITLE II—ENFORCEMENT

10 PROVISIONS

11 SEC. 201. CLARIFICATION OF SECTION 4976.

12 Section 4976 (relating to excise taxes with respect to

13 funded welfare benefit plans) is amended to read as fol14 lows:

15 ‘‘SEC. 4976. TAXES WITH RESPECT TO FUNDED WELFARE

16 BENEFIT PLANS.

17 ‘‘(a) IMPOSITION OF TAX.—

18 ‘‘(1) GENERAL RULE.—If—

19 ‘‘(A) an employer maintains a welfare ben20 efit fund, and

21 ‘‘(B) there is—

22 ‘‘(i) a disqualified benefit provided or

23 funded during any taxable year, or

24 ‘‘(ii) a premature termination of such

25 plan,
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1 there is hereby imposed on such employer a tax in

2 the amount determined under paragraph (2).

3 ‘‘(2) AMOUNT OF TAX.—The amount of the tax

4 imposed by paragraph (1) shall be equal to—

5 ‘‘(A) in the case of a taxable event under

6 paragraph (1)(B)(i), 100 percent of—

7 ‘‘(i) the amount of the disqualified

8 benefit provided, or

9 ‘‘(ii) the amount of the funding of the

10 disqualified benefit, and

11 ‘‘(B) in the case of a taxable event under

12 paragraph (1)(B)(ii), 100 percent of all con13 tributions to the fund before the termination.

14 ‘‘(b) DISQUALIFIED BENEFIT.—For purposes of sub15 section (a)—

16 ‘‘(1) IN GENERAL.—The term ‘disqualified ben17 efit’ means—

18 ‘‘(A) any post-retirement medical benefit

19 or life insurance benefit provided with respect

20 to a key employee if a separate account is re21 quired to be established for such employee

22 under section 419A(d) and such payment is not

23 from such account,

24 ‘‘(B) any post-retirement medical benefit

25 or life insurance benefit provided or funded
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1 with respect to an individual in whose favor dis2 crimination is prohibited unless the plan meets

3 the requirements of section 505(b) with respect

4 to such benefit (whether or not such require5 ments apply to such plan), and

6 ‘‘(C) any portion of a welfare benefit fund

7 reverting to the benefit of the employer.

8 ‘‘(2) EXCEPTION FOR COLLECTIVE BARGAINING

9 PLANS.—Paragraph (1)(B) shall not apply to any

10 plan maintained pursuant to an agreement between

11 employee representatives and 1 or more employers if

12 the Secretary finds that such agreement is a collec13 tive bargaining agreement and that the benefits re14 ferred to in paragraph (1)(B) were the subject of

15 good faith bargaining between such employee rep16 resentatives and such employer or employers.

17 ‘‘(3) EXCEPTION FOR NONDEDUCTIBLE CON18 TRIBUTIONS.—Paragraph (1)(C) shall not apply to

19 any amount attributable to a contribution to the

20 fund which is not allowable as a deduction under

21 section 419 for the taxable year or any prior taxable

22 year (and such contribution shall not be included in

23 any carryover under section 419(d)).

24 ‘‘(4) EXCEPTION FOR CERTAIN AMOUNTS

25 CHARGED AGAINST EXISTING RESERVE.—Subpara-
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1 graphs (A) and (B) of paragraph (1) shall not apply

2 to post-retirement benefits charged against an exist3 ing reserve for post-retirement medical or life insur4 ance benefits (as defined in section 512(a)(3)(E)) or

5 charged against the income on such reserve.

6 ‘‘(c) PREMATURE TERMINATION.—For purposes of

7 subsection (a)—

8 ‘‘(1) IN GENERAL.—The term ‘premature ter9 mination’ means a termination event which occurs

10 on or before the date which is 6 years after the first

11 contribution to a welfare benefit fund which benefits

12 any highly compensated employee.

13 ‘‘(2) EXCEPTION FOR INSOLVENCY, ETC.—

14 Paragraph (1) shall not apply to any termination

15 event which occurs by reason of the insolvency of the

16 employer or for such other reasons as the Secretary

17 may by regulation determine are not likely to result

18 in abuse.

19 ‘‘(3) TERMINATION EVENT.—For purposes of

20 this subsection—

21 ‘‘(A) IN GENERAL.—The term ‘termination

22 event’ means—

23 ‘‘(i) the termination of a welfare ben24 efit fund,
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1 ‘‘(ii) the withdrawal of an employer

2 from a welfare benefit fund to which more

3 than 1 employer contributes, or

4 ‘‘(iii) any other action which is de5 signed to cause, directly or indirectly, a

6 distribution of any asset from a welfare

7 benefit fund to a highly compensated em8 ployee.

9 ‘‘(B) EXCEPTION FOR BONA FIDE BENE10 FITS.—Subparagraph (A) shall not apply to any

11 bona fide benefit (other than a severance ben12 efit) paid from a welfare benefit fund which is

13 available to all employees on a nondiscrim14 inatory basis and payable pursuant to the terms

15 of a written plan.

16 ‘‘(d) DEFINITIONS.—For purposes of this section—

17 ‘‘(1) IN GENERAL.—Except as otherwise pro18 vided, the terms used in this section shall have the

19 same respective meanings as when used in subpart

20 D of part I of subchapter D of chapter 1.

21 ‘‘(2) POST-RETIREMENT BENEFIT.—

22 ‘‘(A) IN GENERAL.—The term ‘post-retire23 ment benefit’ means any benefit or distribution

24 which is reasonably determined to be paid, pro-
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1 vided, or made available to a participant on or

2 after normal retirement age.

3 ‘‘(B) NORMAL RETIREMENT AGE.—The

4 term ‘normal retirement age’ shall have the

5 same meaning given the term in section 3(24)

6 of the Employee Retirement Income Security

7 Act of 1974, but in no event shall such date be

8 later than the latest normal retirement age de9 fined in any qualified retirement plan of the

10 employer maintaining the welfare benefit fund

11 which benefits such individual.

12 ‘‘(C) PRESUMPTION IN THE CASE OF PER13 MANENT LIFE INSURANCE.—In the case of a

14 welfare benefit fund which provides a life insur15 ance benefit for an employee, any contributions

16 to the fund for life insurance benefits in excess

17 of the cumulative projected cost of providing

18 the employee permanent whole life insurance,

19 calculated on the basis level premiums for each

20 for each year before a normal retirement age,

21 shall be treated as funding a post-retirement

22 benefit.’’
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1 SEC. 202. EFFECTIVE DATE.

2 The amendments made by this title shall apply to

3 benefits provided, and terminations occurring, after the

4 date of the enactment of this Act.

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