II

104TH CONGRESS

2D SESSION S. 1923

To establish a Pension ProSave system which improves the retirement income

security of millions of American workers by encouraging employers to

make pension contributions on behalf of employees, by facilitating pension

portability, by preserving and increasing retirement savings, and by simplifying pension law.

IN THE SENATE OF THE UNITED STATES

JUNE 28, 1996

Mr. BINGAMAN (for himself and Mr. JEFFORDS) introduced the following bill;

which was read twice and referred to the Committee on Labor and

Human Resources

A BILL

To establish a Pension ProSave system which improves the

retirement income security of millions of American workers by encouraging employers to make pension contributions on behalf of employees, by facilitating pension portability, by preserving and increasing retirement savings,

and by simplifying pension law.

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.

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

5 ‘‘Pension ProSave Act’’.
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1 (b) TABLE OF CONTENTS.—

Sec. 1. Short title; table of contents.

TITLE I—PENSION PROSAVE PLANS

Sec. 101. Establishment of Pension ProSave Plans.

TITLE II—ESTABLISHMENT OF PENSION PROSAVE SYSTEM

Subtitle A—Definitions

Sec. 201. Definitions.

Subtitle B—Establishment of Pension ProSave System

PART I—IN GENERAL

Sec. 211. Establishment of Pension ProSave system.

PART II—CONTRIBUTIONS AND DISTRIBUTIONS

Sec. 221. Contributions to Pension ProSave Accounts.

Sec. 222. Requirements relating to distributions.

Sec. 223. Loan requirements.

PART III—CLEARINGHOUSE INVESTMENTS

Sec. 231. Investment options.

PART IV—ADMINISTRATIVE PROVISIONS; FIDUCIARY RESPONSIBILITIES

Sec. 241. Accounting and information.

Sec. 242. Administrative costs.

Sec. 243. Fiduciary responsibilities; liability and penalties; bonding; investigative authority.

PART V—EFFECTIVE DATE

Sec. 251. Effective date.

TITLE III—PENSION PORTABILITY CLEARINGHOUSE

Sec. 301. Establishment of Pension Portability Clearinghouse.

Sec. 302. Board of directors.

Sec. 303. Pension Portability Clearinghouse Advisory Council.

TITLE IV—SIMPLIFIED DEFINED BENEFIT PLANS

Sec. 401. Simplified method for complying with pension requirements.
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1 TITLE I—PENSION PROSAVE

2 PLANS

3 SEC. 101. ESTABLISHMENT OF PENSION PROSAVE PLANS.

4 (a) IN GENERAL.—Subchapter D of chapter 1 of the

5 Internal Revenue Code of 1986 (relating to deferred com6 pensation, etc.) is amended by adding at the end the fol7 lowing new part:

8 ‘‘PART III—PENSION PROSAVE PLANS

‘‘Sec. 431. Easy access for all employers.

‘‘Sec. 432. Pension ProSave Plans.

9 ‘‘SEC. 431. EASY ACCESS FOR ALL EMPLOYERS.

10 ‘‘(a) UNIVERSAL ELIGIBILITY.—Any employer may

11 establish a Pension ProSave Plan for the benefit of its

12 employees.

13 ‘‘(b) SIMPLIFIED ENROLLMENT AND ADMINISTRA14 TION.—

15 ‘‘(1) ESTABLISHMENT.—An employer may es16 tablish a Pension ProSave Plan simply by—

17 ‘‘(A) completing an enrollment form de18 scribed in subsection (c), and

19 ‘‘(B) submitting such form to the Pension

20 Portability Clearinghouse in the manner pro21 vided under the Pension ProSave Act.

22 ‘‘(2) EASE OF ADMINISTRATION.—An employer

23 establishing a Pension ProSave Plan may make em24 ployer and employee contributions, changes in em-
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1 ployees participating under the plan, and changes in

2 elections made under section 432 in the same man3 ner as under paragraph (1).

4 ‘‘(c) SIMPLIFIED FORMS.—

5 ‘‘(1) PLAN DOCUMENT.—The Pension Port6 ability Clearinghouse shall establish a model form

7 for purposes of paragraph (1)(A)—

8 ‘‘(A) which is written in a clear and easily

9 understandable manner,

10 ‘‘(B) the completion of which by an em11 ployer will constitute the establishment of a

12 Pension ProSave Plan, and

13 ‘‘(C) which contains only such requests for

14 information as are necessary for the establish15 ment of the plan.

16 ‘‘(2) OTHER FORMS.—The Pension Portability

17 Clearinghouse shall develop such model forms for

18 purposes of subsection (b)(2) as are necessary to en19 able an employer to easily administer a Pension

20 ProSave Plan.

21 ‘‘(3) AVAILABILITY.—The Pension Portability

22 Clearinghouse shall make available to all employers

23 the forms developed under this section, and shall in24 clude with such forms easy to understand explana25 tory materials.
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1 ‘‘SEC. 432. PENSION PROSAVE PLANS.

2 ‘‘(a) TREATMENT OF PLAN.—Except as otherwise

3 provided in this part, a Pension ProSave Plan shall be

4 treated in the same manner as a plan which is described

5 in section 401(a) and which includes a trust described in

6 section 501(a).

7 ‘‘(b) PENSION PROSAVE PLAN DEFINED.—For pur8 poses of this title, the term ‘Pension ProSave Plan’ means

9 a plan—

10 ‘‘(1) which is established by an employer for the

11 exclusive benefit of its employees and their bene12 ficiaries,

13 ‘‘(2) under which the only contributions which

14 may be made are contributions to Pension ProSave

15 Accounts established on behalf of such employees,

16 and

17 ‘‘(3) which meets—

18 ‘‘(A) the contribution requirements of sub19 section (c),

20 ‘‘(B) the vesting requirements of sub21 section (d),

22 ‘‘(C) the distribution and loan require23 ments of subsection (e), and

24 ‘‘(D) the reporting requirements of sub25 section (f).

26 ‘‘(c) CONTRIBUTION REQUIREMENTS.—
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1 ‘‘(1) IN GENERAL.—The requirements of this

2 subsection are met if the only contributions under

3 the plan on behalf of any employee are—

4 ‘‘(A) nonelective contributions described in

5 paragraph (2), and

6 ‘‘(B) elective employee contributions de7 scribed in paragraph (3).

8 ‘‘(2) NONELECTIVE CONTRIBUTIONS.—

9 ‘‘(A) IN GENERAL.—A Pension ProSave

10 Plan shall require an employer to make nonelec11 tive contributions equal to 1 percent of com12 pensation for each eligible employee.

13 ‘‘(B) ELECTION TO INCREASE CONTRIBU14 TIONS.—

15 ‘‘(i) IN GENERAL.—A plan shall not

16 fail to meet the requirements of subpara17 graph (A) merely because, pursuant to the

18 terms of the plan, an employer may elect

19 a uniform rate of nonelective contributions

20 in excess of 1 percent.

21 ‘‘(ii) TIME FOR ELECTION.—A plan

22 may provide that an election under clause

23 (i) may be made—

24 ‘‘(I) for a year only if notice is

25 given to all eligible employees within a
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1 reasonable period before the 60-day

2 period referred to in paragraph

3 (5)(B),

4 ‘‘(II) at any time during a year

5 only if such notice is given at least 30

6 days before the first day of the first

7 month for which the election is to

8 take effect, or

9 ‘‘(III) within 45 days of the close

10 of the year only if such notice is given

11 before such 45th day.

12 ‘‘(C) ELECTION TO DECREASE CONTRIBU13 TIONS.—

14 ‘‘(i) IN GENERAL.—A plan shall not

15 fail to meet the requirements of subpara16 graph (A) merely because, pursuant to the

17 terms of the plan, an employer may elect

18 for any year to suspend nonelective con19 tributions or to elect a uniform rate of con20 tributions of less than 1 percent. Such

21 election may be made only if notice is

22 given to all eligible employees within a rea23 sonable period of time before the 60-day

24 period referred to in paragraph (5)(B).
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1 ‘‘(ii) LIMITATION.—An employer may

2 not elect a lower percentage under clause

3 (i), or to suspend nonelective contributions,

4 for any year if that election would result in

5 nonelective contributions being lower than

6 1 percent in more than 2 of the years in

7 the 5-year period ending with such year.

8 For purposes of the preceding sentence,

9 nonelective contributions for any year prior

10 to the establishment of the Pension

11 ProSave Plan shall be treated as 1 percent.

12 ‘‘(D) MAXIMUM AMOUNT.—The plan shall

13 provide that an employer may not make non14 elective contributions on behalf of an eligible

15 employee for any year in excess of $5,000.

16 ‘‘(3) ELECTIVE CONTRIBUTIONS.—

17 ‘‘(A) IN GENERAL.—A Pension ProSave

18 Plan shall allow each eligible employee to make

19 elective contributions for any year in an amount

20 equal to the greater of—

21 ‘‘(i) an amount equal to twice the

22 nonelective contributions of the employer

23 for such year on behalf of the employee, or

24 ‘‘(ii) $2,000.

25 ‘‘(B) TIMING OF CONTRIBUTIONS.—
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1 ‘‘(i) IN GENERAL.—Except as pro2 vided in clause (ii), contributions under

3 subparagraph (A) shall be expressed as a

4 percentage of compensation and shall be

5 made by an employer as provided in para6 graph (5)(A)(i).

7 ‘‘(ii) CATCH UP CONTRIBUTIONS.—If

8 the maximum amount which may be con9 tributed under subparagraph (A) exceeds

10 the elective contributions made under

11 clause (i) for any plan year, an employee

12 may make elective contributions in an

13 amount equal to such excess (or any por14 tion thereof) not later than the due date

15 (including extensions) for the return of tax

16 for the taxable year within which the plan

17 year ends. Such contributions shall be

18 made in such manner as the Pension Port19 ability Clearinghouse may provide.

20 ‘‘(C) MAXIMUM AMOUNT.—The plan shall

21 provide that an employee may not make elective

22 contributions for any year in excess of $5,000.

23 ‘‘(D) NO CONSTRUCTIVE RECEIPT.—For

24 purposes of section 402(e)(3), contributions

25 under this paragraph shall be treated in the
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1 same manner as contributions under a qualified

2 cash or deferred arrangement under section

3 401(k).

4 ‘‘(4) INFLATION ADJUSTMENT.—In the case of

5 plan years beginning in a calendar year after 1996,

6 each of the $5,000 amounts contained in this sub7 section shall be increased by the product of such

8 amount and the percentage (if any) by which the

9 CPI for the preceding calendar year exceeds the CPI

10 for 1995. For purposes of this paragraph, the CPI

11 for any calendar year shall be determined under sec12 tion 1(f)(4).

13 ‘‘(5) ADMINISTRATIVE REQUIREMENTS.—

14 ‘‘(A) TIME CONTRIBUTIONS REQUIRED TO

15 BE MADE.—

16 ‘‘(i) ELECTIVE CONTRIBUTIONS.—The

17 terms of a Pension ProSave Plan shall re18 quire an employer to make all elective con19 tributions under paragraph (3) (other than

20 subparagraph (B)(ii) thereof) not later

21 than the date on which such contributions

22 would otherwise be required to be made

23 under title I of the Employee Retirement

24 Income Security Act of 1974 if such con25 tributions were elective contributions under
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1 a qualified cash or deferred arrangement

2 under section 401(k).

3 ‘‘(ii) NONELECTIVE CONTRIBU4 TIONS.—

5 ‘‘(I) IN GENERAL.—The terms of

6 a Pension ProSave Plan shall require

7 an employer to make all nonelective

8 contributions under paragraph (2) not

9 later than the close of the 45-day pe10 riod following the last day of the cal11 endar quarter for which the contribu12 tions are to be made.

13 ‘‘(II) CONTRIBUTIONS AFTER

14 YEAR-END.—For purposes of this sub15 section, a contribution on account of a

16 year which is made within 45 days (or

17 within a period prescribed by the Sec18 retary) after the close of the year

19 shall be deemed to have been made on

20 the last day of such year.

21 ‘‘(B) EMPLOYEE ELECTIONS.—The terms

22 of a Pension ProSave Plan shall provide that—

23 ‘‘(i) an employee may elect to termi24 nate elective contributions described in

25 paragraph (3) at any time during the year,
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1 except that, if the employer so elects, the

2 employee may not resume participation

3 until the first day of the next year (or such

4 earlier time as provided by the plan), and

5 ‘‘(ii) each employee eligible to partici6 pate—

7 ‘‘(I) may elect, during the 60-day

8 period before the beginning of any

9 year, to make elective contributions,

10 or to modify the amount of elective

11 contributions, for such year,

12 ‘‘(II) may elect, within 30 days

13 of becoming eligible to participate in

14 the plan, to make elective contribu15 tions for the year,

16 ‘‘(III) may elect, within 30 days

17 of receiving notice under paragraph

18 (2)(B) of an increase in nonelective

19 contributions, to modify the amount

20 of elective contributions, and

21 ‘‘(IV) may elect, not later than

22 the due date described in paragraph

23 (3)(B)(ii), to make the elective con24 tributions described in such para25 graph.
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1 ‘‘(d) VESTING REQUIREMENTS.—A Pension ProSave

2 Plan meets the requirements of this subsection only if the

3 employee’s rights to nonelective and elective contributions

4 under subsection (c) are nonforfeitable. The rules of sec5 tion 401(k)(4) shall apply for purposes of this subsection.

6 ‘‘(e) SPECIAL DISTRIBUTION AND LOAN RULES.—A

7 Pension ProSave Plan meets the requirements of this sub8 section only if, under the terms of the plan, distributions

9 and loans may be made only in accordance with the provi10 sions of sections 222 and 223 of the Pension ProSave Act.

11 ‘‘(f) REPORTING REQUIREMENTS.—

12 ‘‘(1) NO EMPLOYER REPORTS.—Except as pro13 vided in this subsection, no report shall be required

14 under this chapter by an employer maintaining a

15 Pension ProSave Plan.

16 ‘‘(2) SUMMARY DESCRIPTION.—The Pension

17 Portability Clearinghouse shall each year prepare,

18 and provide to the employer maintaining the plan, a

19 summary plan description meeting the requirements

20 of section 102 of the Employee Retirement Income

21 Security Act of 1974.

22 ‘‘(3) EMPLOYEE NOTIFICATION.—The employer

23 shall notify each employee immediately before the

24 period for which an election may be made of the em25 ployee’s opportunity to make such election. Such no-
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1 tice shall include a copy of the summary plan de2 scription described in paragraph (2) and shall indi3 cate the level of employer nonelective contributions

4 which will be made for the year (or portion thereof)

5 for which the election may be made. This paragraph

6 shall not apply to an election under subsection

7 (c)(3)(B)(ii).

8 ‘‘(g) DEFINITIONS AND SPECIAL RULES.—For pur9 poses of this subsection—

10 ‘‘(1) COMPENSATION.—

11 ‘‘(A) IN GENERAL.—The term ‘compensa12 tion’ has the meaning given such term by sec13 tion 414(q)(3).

14 ‘‘(B) SELF-EMPLOYED INDIVIDUALS.—

15 Notwithstanding subparagraph (A), in the case

16 of an employee within the meaning of section

17 401(c)(1), compensation under section

18 414(q)(3) shall be determined without regard to

19 paragraph (2)(A) (v) and (vi) of section 401(c).

20 ‘‘(2) EMPLOYEE.—The term ‘employee’ includes

21 an employee as defined in section 401(c)(1).

22 ‘‘(3) ELIGIBLE EMPLOYEE.—

23 ‘‘(A) IN GENERAL.—The term ‘eligible em24 ployee’ means, with respect to any year, any

25 employee who—
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1 ‘‘(i) completed 6 months of service

2 with the employer at any time during such

3 year, and

4 ‘‘(ii) attained 21 years of age during

5 such year.

6 A plan may provide a uniform shorter period of

7 service or lower age to apply in lieu of those

8 under the preceding sentence.

9 ‘‘(B) EXCLUDABLE EMPLOYEES.—An em10 ployer may elect not to treat employees de11 scribed in section 410(b)(3) as eligible employ12 ees.

13 ‘‘(4) PLAN YEAR.—The term ‘plan year’ means

14 the calendar year.’’

15 (b) DEDUCTIBILITY.—Section 404 of the Internal

16 Revenue Code of 1986 (relating to deductions for con17 tributions of an employer) is amended by adding at the

18 end the following new subsection:

19 ‘‘(m) SPECIAL RULES FOR PENSION PROSAVE

20 PLANS.—

21 ‘‘(1) IN GENERAL.—Employer contributions to

22 a Pension ProSave Account under a Pension

23 ProSave Plan (within the meaning of section 432)

24 shall be treated as if they are made to a plan subject

25 to the requirements of this section. Employer deduc-
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1 tions for such contributions shall be subject to the

2 following limitations:

3 ‘‘(A) Contributions made for a calendar

4 year are deductible for the taxable year of the

5 employer with or within which the calendar year

6 ends.

7 ‘‘(B) Contributions shall be treated for

8 purposes of this subsection as if they were

9 made for a calendar year if such contributions

10 are made on account of such calendar year.

11 ‘‘(C) The amount deductible in a taxable

12 year for a Pension ProSave Account shall not

13 exceed the maximum amount which may be

14 contributed pursuant to section 432(c), and

15 shall be deductible without regard to the

16 amount contributed under any other plan sub17 ject to this section.

18 ‘‘(2) EFFECT ON STOCK BONUS AND PROFIT19 SHARING TRUST.—For any taxable year for which

20 the employer has a deduction under paragraph (1),

21 the otherwise applicable limitations in subsection

22 (a)(3)(A) with respect to a stock bonus or profit23 sharing trust maintained by the same employer shall

24 be reduced by the amount of the allowable deduction

25 under paragraph (1).
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1 ‘‘(3) COORDINATION WITH SUBSECTION

2 (a)(7).—For purposes of applying the limitation of

3 subsection (a)(7) with respect to a plan to which this

4 section applies (other than a Pension ProSave Plan),

5 a Pension ProSave Plan shall be treated as if it were

6 a separate stock bonus or profit-sharing trust of the

7 employer maintaining the plan.’’

8 (c) INCREASE IN EXCLUSION FOR ELECTIVE DEFER9 RALS.—

10 (1) IN GENERAL.—Section 402(g)(1) of the In11 ternal Revenue Code of 1986 is amended by adding

12 at the end the following new sentence: ‘‘The limita13 tion under the preceding sentence shall be increased

14 by the amount of the elective deferrals described in

15 paragraph (3)(D) for the taxable year.’’

16 (2) ELECTIVE DEFERRAL.—Section 402(g)(3)

17 of such Code is amended by striking ‘‘and’’ at the

18 end of subparagraph (B), by striking the period at

19 the end of subparagraph (C) and inserting ‘‘, and’’,

20 and by adding after subparagraph (C) the following

21 new subparagraph:

22 ‘‘(D) any elective employee contribution

23 under section 432(c).’’

24 (d) CONFORMING AMENDMENTS.—
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1 (1) Subsections (b) and (c) of section 414 of

2 the Internal Revenue Code of 1986 are each amend3 ed by striking ‘‘and 416’’ and inserting ‘‘416, and

4 432’’.

5 (2) Section 414 (m)(4)(B) and (n)(3)(B) of

6 such Code are each amended by striking ‘‘and 416’’

7 and inserting ‘‘416, and 432’’.

8 (3) Section 415(a)(2) of such Code is amended

9 by adding at the end the following new flush sen10 tence:

11 ‘‘A Pension ProSave Plan described in section 432 shall

12 not be subject to this section, except that if an employer

13 that maintains such plan also maintains 1 or more plans,

14 annuities, or accounts subject to this section, such plan

15 shall be taken into account in determining whether any

16 such other plans, annuities, or accounts satisfy the re17 quirements of this section.’’

18 (4) The table of parts for subchapter D of

19 chapter 1 of such Code is amended by inserting

20 after the item relating to part II the following new

21 item:

‘‘Part III. Pension ProSave Plans.’’

22 (e) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to years beginning after December

24 31, 1996.
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1 TITLE II—ESTABLISHMENT OF

2 PENSION PROSAVE SYSTEM

3 Subtitle A—Definitions

4 SEC. 201. DEFINITIONS.

5 For purposes of this Act—

6 (1) ADVISORY COUNCIL.—The term ‘‘Advisory

7 Council’’ means the Pension Portability Clearing8 house Advisory Council established under section

9 303.

10 (2) BOARD.—The term ‘‘Board’’ means the

11 board of directors of the Pension Portability Clear12 inghouse.

13 (3) CHAIRMAN.—The term ‘‘Chairman’’ means

14 the chairman of the board of directors of the Pen15 sion Portability Clearinghouse.

16 (4) CLEARINGHOUSE.—The term ‘‘Clearing17 house’’ means the Pension Portability Clearinghouse

18 established under section 301.

19 (5) PENSION PROSAVE PLAN.—The term ‘‘Pen20 sion ProSave Plan’’ has the meaning given such

21 term by section 432 of the Internal Revenue Code

22 of 1986.
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1 Subtitle B—Establishment of

2 Pension ProSave System

3 PART I—IN GENERAL

4 SEC. 211. ESTABLISHMENT OF PENSION PROSAVE SYSTEM.

5 The Board shall by regulation establish a system of

6 Pension ProSave Accounts under which—

7 (1) employers and employees may make con8 tributions on behalf of employees under a Pension

9 ProSave Plan,

10 (2) individuals may make qualified rollover con11 tributions to Pension ProSave Accounts,

12 (3) amounts in the Pension ProSave Accounts

13 are invested as provided in this title, and

14 (4) loans and distributions of amounts in the

15 Pension ProSave Accounts are made as provided in

16 this title.

17 PART II—CONTRIBUTIONS AND DISTRIBUTIONS

18 SEC. 221. CONTRIBUTIONS TO PENSION PROSAVE AC19 COUNTS.

20 (a) IN GENERAL.—The system established under sec21 tion 211 shall provide that the only contributions made

22 to a Pension ProSave Account are—

23 (1) contributions under a Pension ProSave

24 Plan, or

25 (2) qualified rollover contributions.
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1 (b) PLAN CONTRIBUTIONS.—The system established

2 under section 211 shall provide to the maximum extent

3 feasible that contributions under a Pension ProSave Plan

4 are made in such a manner as provides all employers with

5 a simple, cost-effective way of making such contributions.

6 (c) QUALIFIED ROLLOVER CONTRIBUTIONS.—For

7 purposes of this title—

8 (1) IN GENERAL.—The term ‘‘qualified rollover

9 contribution’’ means—

10 (A) the transfer to a Pension ProSave Ac11 count, within 60 days of receipt, of any eligible

12 rollover distribution described in section 402(c)

13 or 403(a)(4) of the Internal Revenue Code of

14 1986, or

15 (B) any direct trustee-to-trustee transfer

16 described in section 401(a)(31) of such Code

17 from a qualified trust to a Pension ProSave Ac18 count.

19 (2) COORDINATION WITH TAX CODE.—For pur20 poses of the Internal Revenue Code of 1986, a Pen21 sion ProSave Account shall be treated as an eligible

22 retirement plan under section 402(c)(8)(B) of such

23 Code.

24 SEC. 222. REQUIREMENTS RELATING TO DISTRIBUTIONS.

25 (a) TIME FOR DISTRIBUTIONS.—
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1 (1) IN GENERAL.—The system established

2 under section 211 shall provide that amounts in a

3 Pension ProSave Account may not be distributed to

4 participants or beneficiaries earlier than—

5 (A) the death or disability of the partici6 pant, or

(B) the attainment of age 591 7 ⁄2.

8 (2) MANDATORY DISTRIBUTIONS.—Notwith9 standing paragraph (1), the provisions of section

10 401(a)(9) of the Internal Revenue Code of 1986

11 shall apply to a Pension ProSave Account.

12 (b) FORMS OF DISTRIBUTIONS.—

13 (1) IN GENERAL.—The system established

14 under section 211 shall provide for distributions in

15 such forms as the Board may provide, except that

16 the Board shall provide for—

17 (A) a life annuity,

18 (B) a joint and survivor annuity,

19 (C) an annuity for a term certain, and

20 (D) a lump-sum distribution.

21 (2) SURVIVOR ANNUITIES; SPOUSAL CON22 SENT.—The provisions of section 401(a)(11) of the

23 Internal Revenue Code of 1986 shall apply to dis24 tributions from a Pension ProSave Account.
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1 (3) ISSUERS.—Annuities under this subsection

2 shall be provided through persons authorized under

3 applicable State laws to provide such annuities. The

4 Board may limit the maximum amount of annuities

5 issued by any 1 person.

6 SEC. 223. LOAN REQUIREMENTS.

7 (a) IN GENERAL.—The system established under sec8 tion 211 shall provide that a participant may obtain a loan

9 of amounts in a Pension ProSave Account.

10 (b) LIMITATIONS.—Loans under subsection (a)—

11 (1) may be made only for the purposes de12 scribed in subsection (c),

13 (2) may not in the aggregate exceed the portion

14 of the balance to the credit of the account attrib15 utable to elective employee contributions (and earn16 ings allocable thereto), and

17 (3) shall be subject to the same terms and con18 ditions as similar loans provided by private lenders.

19 (c) LOAN PURPOSES.—Loans may be made under

20 subsection (a)—

21 (1) for the payment of acquisition costs of a

22 principal residence of the participant or the partici23 pant’s spouse, child, or grandchild, but only if the

24 individual had no present ownership interest in a

25 principal residence during the prior 2 years,
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1 (2) for tuition, fees, books, supplies, and equip2 ment, and reasonable living expenses while away

3 from home, required for the enrollment or attend4 ance of the participant or the participant’s spouse,

5 child, or grandchild at an eligible educational insti6 tution (as defined in section 135(c)(3) of the Inter7 nal Revenue Code of 1986),

8 (3) if the participant during the calendar year

9 or the preceding calendar year received unemploy10 ment compensation for 12 consecutive weeks under

11 any Federal or State law, and

12 (4) for medical expenses of the participant, the

13 participant’s spouse, child, or grandchild, or any an14 cestor of the participant or spouse, but only if a de15 duction is allowed with respect to such expenses

16 under section 213 of such Code.

17 PART III—CLEARINGHOUSE INVESTMENTS

18 SEC. 231. INVESTMENT OPTIONS.

19 (a) IN GENERAL.—The Board shall, pursuant to the

20 system established under section 211, enter into arrange21 ments, on a competitive basis, with qualified professional

22 asset managers to provide individuals with the opportunity

23 to invest sums in a Pension ProSave Account in each of

24 the funds described in subsection (b).

25 (b) TYPE OF FUNDS.—
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1 (1) IN GENERAL.—The funds described in the

2 subsection are the following:

3 (A) A fixed income investment fund.

4 (B) An equity fund.

5 (C) A government securities investment

6 fund.

7 (D) A small business capitalization fund.

8 (E) A public infrastructure fund.

9 (F) An international equity fund.

10 (2) OTHER FUNDS.—The Board may provide

11 for other funds which the Board determines appro12 priate, including a common stock index investment

13 fund.

14 (c) ASSET MANAGERS.—

15 (1) IN GENERAL.—The Board may select more

16 than one qualified professional asset manager for

17 each type of fund described in subsection (b).

18 (2) ASSET ALLOCATION.—The Board may place

19 limits on the amount which may be allocated to any

20 qualified professional asset manager to the extent

21 the Board determines necessary to prevent undue

22 impact on any financial market or undue risk to

23 participants.

24 (3) DEFINITION.—For purposes of this title,

25 the term ‘‘qualified professional asset manager’’ has
26

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1 the meaning given such term by section 8438(a)(7)

2 of title 5, United States Code.

3 (d) PARTICIPANT ELECTIONS.—

4 (1) IN GENERAL.—The system established

5 under section 211 shall provide that an individual on

6 whose behalf a Pension ProSave Account is estab7 lished may—

8 (A) elect the investment funds into which

9 contributions to the account are to be invested,

10 and

11 (B) elect to transfer contributions (and

12 earnings) from one fund to another.

13 (2) TIME AND METHOD.—

14 (A) TIME.—Such system shall provide

15 that—

16 (i) any election under paragraph

17 (1)(A) shall be effective on the first day of

18 the month following the month in which

19 the election was made, and

20 (ii) any election under paragraph

21 (1)(B) shall be effective on the first busi22 ness day following the election.

23 (B) METHOD.—Any election shall be made

24 in the manner provided by the system, except
27

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1 that the Board shall seek to ensure elections

2 may be made in a simple, timely manner.

3 (3) LIMITATION.—Any election under this sub4 section shall be subject to the asset allocation limita5 tion under subsection (c)(2).

6 PART IV—ADMINISTRATIVE PROVISIONS;

7 FIDUCIARY RESPONSIBILITIES

8 SEC. 241. ACCOUNTING AND INFORMATION.

9 (a) ESTABLISHMENT OF ACCOUNTS.—

10 (1) IN GENERAL.—The system established

11 under section 211 shall provide for the establishment

12 and maintenance of a Pension ProSave Account for

13 each individual—

14 (A) for whom contributions are made to

15 the Clearinghouse under a Pension ProSave

16 Plan, or

17 (B) who transfers amounts, or on whose

18 behalf amounts are transferred, to the Clearing19 house in a qualified rollover contribution.

20 (2) ALLOCATIONS AND REDUCTIONS TO AC21 COUNT.—Such system shall provide for—

22 (A) the allocation to each account of an

23 amount equal to a pro rata share of the net

24 earnings and net losses from each investment of

25 sums in such account, and
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•S 1923 IS

1 (B) a reduction in each such account for

2 the account’s appropriate share of the adminis3 trative expenses to be paid out.

4 (3) EXAMINATION OF ACCOUNTS.—

5 (A) IN GENERAL.—The Clearinghouse

6 shall annually engage, on behalf of all individ7 uals for whom an account is maintained, an

8 independent qualified public accountant (within

9 the meaning of section 103(a)(3)(D) of the Em10 ployee Retirement Income Security Act of

11 1974) who shall conduct an examination of all

12 accounts and other books and records main13 tained in the administration of this title as the

14 accountant considers necessary to make the de15 termination under subparagraph (B). The ex16 amination shall be conducted in accordance

17 with generally accepted auditing standards and

18 shall involve such tests of the accounts, books,

19 and records as the public accountant considers

20 necessary.

21 (B) DETERMINATION OF COMPLIANCE.—

22 The public accountant conducting an examina23 tion under subparagraph (A) shall determine

24 whether the accounts, books, and records re25 ferred to in such paragraph have been main-
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•S 1923 IS

1 tained in conformity with generally accepted ac2 counting principles applied on a basis consistent

3 with the manner in which such principles were

4 applied during the examination conducted dur5 ing the preceding year. The public accountant

6 shall transmit to the Board and the Comptrol7 ler General of the United States a report on

8 such examination and determination.

9 (C) RELIANCE.—In making a determina10 tion under subparagraph (B), a public account11 ant may rely on the correctness of any actuarial

12 matter certified by an enrolled actuary if the

13 public accountant states his reliance in the re14 port to the Board.

15 (b) ERISA REPORTING AND DISCLOSURE REQUIRE16 MENTS.—The Pension Portability Clearinghouse shall

17 meet the reporting and disclosure requirements of title I

18 of the Employee Retirement Income Security Act of 1974

19 with respect to each Pension ProSave Plan establishing

20 Pension ProSave Accounts on behalf of participants in

21 such plan.

22 (c) ADDITIONAL INFORMATION.—

23 (1) IN GENERAL.—The system established

24 under section 211 shall provide for the furnishing of

25 information to employers and employees of the op-
30

•S 1923 IS

1 portunity of establishing Pension ProSave Plans and

2 of transferring amounts to Pension ProSave Ac3 counts.

4 (2) ACCOUNT PARTICIPANTS.—

5 (A) IN GENERAL.—Such system shall pro6 vide that each individual for whom an account

7 is maintained shall be periodically furnished

8 with—

9 (i) a statement relating to the individ10 ual’s account, and

11 (ii) a summary description of the in12 vestment options under the account and an

13 evaluation of such option during the 5-year

14 period preceding the evaluation.

15 (B) ACCOUNT VALUATION.—Such system

16 shall also provide that each individual for whom

17 an account is established shall be entitled, upon

18 request, to a daily valuation of amounts in each

19 fund described in section 231(b) in order to en20 able the individual to make an election to trans21 fer such amounts between funds.

22 (3) INVESTMENT INFORMATION.—The Clearing23 house shall also make available to employees infor24 mation on how to make informed investment deci25 sions and how to achieve retirement objectives.
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1 (4) INFORMATION NOT INVESTMENT ADVICE.—

2 Information provided under this subsection shall not

3 be treated as investment advice for purposes of any

4 Federal or State law.

5 SEC. 242. ADMINISTRATIVE COSTS.

6 (a) IN GENERAL.—Any expense incurred by the

7 Clearinghouse, the Board, or the Advisory Council in car8 rying out their functions under this Act shall be paid first

9 from the earnings of the funds in Pension ProSave Ac10 counts and then from balances in such accounts.

11 (b) ALLOCATION.—Expenses under subsection (a)

12 shall be allocated to each Pension ProSave Account in the

13 manner provided under section 241.

14 SEC. 243. FIDUCIARY RESPONSIBILITIES; LIABILITY AND

15 PENALTIES; BONDING; INVESTIGATIVE AU16 THORITY.

17 Except as provided by the Secretary of Labor in regu18 lations, the provisions of sections 8477, 8478, 8478a, and

19 8479(a) of title 5, United States Code, shall apply to the

20 Clearinghouse in the same manner as such provisions

21 apply to the Thrift Savings Fund.

22 PART V—EFFECTIVE DATE

23 SEC. 251. EFFECTIVE DATE.

24 The Pension ProSave system established under this

25 subtitle shall take effect on the first day of the sixth
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1 month following the month in which final regulations de2 scribed in section 211 are published in the Federal Reg3 ister.

4 TITLE III—PENSION

5 PORTABILITY CLEARINGHOUSE

6 SEC. 301. ESTABLISHMENT OF PENSION PORTABILITY

7 CLEARINGHOUSE.

8 (a) ESTABLISHMENT.—There is established within

9 the executive branch of the Government a body corporate

10 to be known as the Pension Portability Clearinghouse.

11 (b) ADMINISTRATION.—In carrying out its duties

12 under this Act, the Clearinghouse shall be administered

13 by the Chairman in accordance with policies established

14 by the Board.

15 (c) POWERS.—In carrying out its duties under this

16 Act—

17 (1) IN GENERAL.—The Clearinghouse shall

18 have the powers conferred on a nonprofit corpora19 tion under the District of Columbia Nonprofit Cor20 poration Act (chapter 5 of title 29 of the District of

21 Columbia Code (section 29–501 et seq.)).

22 (2) SPECIFIC POWERS.—The Clearinghouse

23 shall have—

24 (A) the specific powers granted to it by

25 this Act, and
33

•S 1923 IS

1 (B) powers identical to the powers con2 ferred on the Pension Benefit Guaranty Cor3 poration under paragraphs (1) through (8) of

4 section 4002(b) of the Employee Retirement In5 come Security Act of 1974 (29 U.S.C.

6 1302(b)).

7 (d) TREATMENT AS QUALIFIED TRUST.—For pur8 poses of the Internal Revenue Code of 1986—

9 (1) the Clearinghouse shall be treated in the

10 same manner as a trust described in section 401(a)

11 of such Code which is exempt from taxation under

12 section 501(a) of such Code, and

13 (2) any contribution to, or distribution from,

14 the Clearinghouse shall be treated in the same man15 ner as contributions to, or distributions from, such

16 a trust.

17 SEC. 302. BOARD OF DIRECTORS.

18 (a) APPOINTMENT.—The board of directors of the

19 Pension Portability Clearinghouse shall be composed of 5

20 members appointed by the President, of whom 1 shall be

21 designated by the President as Chairman.

22 (b) ADVICE AND CONSENT.—Appointments under

23 subsection (a) shall be made by and with the advice and

24 consent of the Senate.
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1 (c) EXPERTISE.—Members of the Board shall have

2 substantial experience, training, and expertise in the man3 agement of financial investments and pension benefit

4 plans.

5 (d) TERMS.—

6 (1) IN GENERAL.—A member of the Board

7 shall be appointed for a term of 3 years, except that

8 of the members first appointed—

9 (A) the Chairman shall be appointed for a

10 term of 3 years,

11 (B) 2 members shall be appointed for a

12 term of 2 years, and

13 (C) 2 members shall be appointed for a

14 term of 1 year.

15 (2) VACANCIES.—A vacancy on the Board shall

16 be filled in the same manner in which the original

17 appointment was made. Any individual so appointed

18 shall serve for the unexpired term of the member re19 placed.

20 (3) SUCCESSORS REQUIRED.—The term of any

21 member shall not expire before the date on which

22 the member’s successor takes office.

23 (e) GENERAL DUTIES AND POWERS.—

24 (1) GENERAL RULE.—The Board shall—
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1 (A) establish policies for the establishment

2 and management of the system described in

3 section 211,

4 (B) establish policies for the investment

5 and management of the amounts in Pension

6 ProSave Accounts,

7 (C) review the performance of investments

8 made for the Clearinghouse, and

9 (D) review and approve the budgets of the

10 Clearinghouse and the Board.

11 (2) OVERSIGHT OF CLEARINGHOUSE.—The

12 Board may—

13 (A) provide for the hiring of employees of

14 the Clearinghouse, including the appointment of

15 the Executive Director,

16 (B) direct the Executive Director to take

17 such actions as the Board considers necessary

18 to carry out the provisions of this Act,

19 (C) upon the concurring votes of 4 mem20 bers of the Board, remove the Executive Direc21 tor for cause, and

22 (D) take such other actions as may be nec23 essary to carry out the functions of the Board.

24 (3) RESPONSIBILITIES.—
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1 (A) IN GENERAL.—The members of the

2 Board shall discharge their responsibilities sole3 ly in the interests of participants and bene4 ficiaries under Pension ProSave Accounts.

5 (B) INVESTMENTS.—The Board may not

6 direct the Clearinghouse to invest or cause to be

7 invested any sums in a specific asset or to dis8 pose or cause to be disposed of any specific

9 asset.

10 (4) INVESTMENT POLICIES.—Any investment

11 policies adopted under paragraph (1)(B) shall pro12 vide for—

13 (A) prudent investments suitable for accu14 mulating funds for payment of retirement in15 come, and

16 (B) low administrative costs.

17 (5) BUDGETS.—The Board shall prepare and

18 submit to the President, and, at the same time, to

19 the appropriate committees of Congress, an annual

20 budget of the expenses and other items relating to

21 the Board which shall be included as a separate item

22 in the budget required to be transmitted to the Con23 gress under section 1105 of title 31, United States

24 Code.
37

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1 (6) LEGISLATIVE RECOMMENDATIONS.—The

2 Board may submit to the President, and, at the

3 same time, shall submit to each House of Congress,

4 any legislative recommendations of the Board relat5 ing to any of its functions under this Act or any

6 other provision of law.

7 (f) ADMINISTRATIVE PROVISIONS.—

8 (1) MEETINGS.—The Board shall meet not less

9 than once during each month and at additional

10 times at the call of the Chairman.

11 (2) QUORUMS.—

12 (A) IN GENERAL.—The Board shall per13 form its duties and exercise its powers on a ma14 jority vote of a quorum of the Board.

15 (B) VACANCY.—A vacancy on the Board

16 shall not impair the authority of a quorum of

17 the Board to perform its duties and exercise its

18 powers.

19 (C) QUORUM.—3 members of the Board

20 shall constitute a quorum for the transaction of

21 business.

22 (3) COMPENSATION.—

23 (A) IN GENERAL.—Each member of the

24 Board who is not an officer or employee of the

25 Federal Government shall be compensated at
38

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1 the daily rate of basic pay for level IV of the

2 Executive Schedule under title 5, United States

3 Code, for each day such member is performing

4 the duties of the Board.

5 (B) TRAVEL AND PER DIEM.—A member

6 of the Board shall be paid travel, per diem, and

7 other necessary expenses under subchapter I of

8 chapter 57 of title 5, United States Code, while

9 traveling away from such member’s home or

10 regular place of business in the performance of

11 the duties of the Board.

12 (4) EXECUTIVE DIRECTOR.—

13 (A) APPOINTMENT.—The chief executive

14 officer of the Clearinghouse shall be the Execu15 tive Director appointed under subsection (e).

16 (B) DUTIES.—The Executive Director

17 shall—

18 (i) carry out policies established by

19 the Board, and

20 (ii) administer the Clearinghouse, in21 cluding—

22 (I) appointing such personnel as

23 may be necessary to carry out the du24 ties of the Clearinghouse,
39

•S 1923 IS

1 (II) subject to approval by the

2 Board, procure the services of experts

3 and consultants, and

4 (III) pay compensation and other

5 expenses of the Clearinghouse from

6 funds in the Clearinghouse.

7 SEC. 303. PENSION PORTABILITY CLEARINGHOUSE ADVI8 SORY COUNCIL.

9 (a) APPOINTMENT.—There is hereby established the

10 Pension Portability Clearinghouse Advisory Council which

11 shall consist of 15 members appointed by the President,

12 from among individuals who have substantial experience,

13 training, and expertise in the management of financial in14 vestments and pension benefit plans, including representa15 tives of—

16 (1) the insurance industry,

17 (2) the fields of accounting, actuarial science,

18 and investment counseling and management,

19 (3) mutual funds,

20 (4) organized labor, small plan sponsors, pen21 sion advocacy organizations, and retiree groups, and

22 (5) the general public.

23 (b) TERMS.—
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1 (1) IN GENERAL.—A member of the Advisory

2 Council shall be appointed for a term of 3 years, ex3 cept that of the members first appointed—

4 (A) 5 shall be appointed for a term of 3

5 years,

6 (B) 5 shall be appointed for a term of 2

7 years, and

8 (C) 5 shall be appointed for a term of 1

9 year.

10 (2) VACANCIES.—A vacancy on the Advisory

11 Council shall be filled in the same manner in which

12 the original appointment was made. Any individual

13 so appointed shall serve for the unexpired term of

14 the member replaced.

15 (3) SUCCESSOR REQUIRED.—The term of any

16 member shall not expire before the date on which

17 the member’s successor takes office.

18 (c) ACTIONS.—The Advisory Council shall act by res19 olution of a majority of its members.

20 (d) DUTIES.—The Advisory Council shall—

21 (1) advise the Board on the establishment of

22 the Pension ProSave system under title II,

23 (2) advise the Board on matters relating to—
41

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1 (A) investment policies for the Clearing2 house, including standards for limiting amounts

3 administered by any asset manager, and

4 (B) the administration of this Act, and

5 (3) perform such other duties as the Board may

6 request.

7 TITLE IV—SIMPLIFIED DEFINED

8 BENEFIT PLANS

9 SEC. 401. SIMPLIFIED METHOD FOR COMPLYING WITH PEN10 SION REQUIREMENTS.

11 (a) GENERAL RULE.—Subpart B of part I of sub12 chapter D of chapter 1 of the Internal Revenue Code of

13 1986 is amended by adding at the end the following new

14 section:

15 ‘‘SEC. 417A. SIMPLIFIED METHOD FOR COMPLYING WITH

16 PENSION REQUIREMENTS.

17 ‘‘(a) GENERAL RULE.—An employer is entitled to the

18 benefits of this section for any year if—

19 ‘‘(1) such employer maintains a qualified sim20 plified defined contribution plan during such year,

21 and

22 ‘‘(2) such employer maintains a qualified sim23 plified defined benefit plan during such year.

24 ‘‘(b) BENEFITS OF SECTION.—If an employer is enti25 tled to the benefits of this section for any year—
42

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1 ‘‘(1) INCREASE IN PERMITTED COMPENSA2 TION.—In applying sections 401(a)(17) and 404(l)

3 to the qualified simplified defined contribution plan

4 and the qualified simplified defined benefit plan, the

5 dollar limitation contained in such sections shall be

6 $200,000. The Secretary shall adjust the $200,000

7 amount contained in the preceding sentence at the

8 same time and in the same manner as the adjust9 ment under section 401(a)(17)(B).

10 ‘‘(2) MODIFICATION OF FUNDING RULES.—

11 ‘‘(A) INCREASE IN FULL FUNDING LIMITA12 TION.—The full funding limitation for the

13 qualified simplified defined benefit plan shall be

14 determined under section 412(c)(7)(A) as if

15 such section did not include subclause (I) of

16 clause (i) thereof (relating to 150 percent of

17 current liability).

18 ‘‘(B) WAIVER OF QUARTERLY CONTRIBU19 TION REQUIREMENTS.—Section 412(m) shall

20 not apply to the qualified simplified defined

21 benefit plan.

22 ‘‘(3) WAIVER OF CERTAIN DISCRIMINATION

23 RULES.—The requirements of section 401(k)(3)

24 shall be treated as satisfied with respect to any cash

25 or deferred arrangement maintained by the employer
43

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1 during such year and the requirements of section

2 401(m) shall be treated as satisfied with respect to

3 any plan maintained by the employer during such

4 year.

5 ‘‘(4) COMBINED LIMIT WAIVED.—The require6 ments of section 415(e) shall be treated as satisfied

7 with respect to the qualified simplified defined con8 tribution plan and the qualified simplified defined

9 benefit plan.

10 ‘‘(5) OTHER REQUIREMENTS DEEMED SATIS11 FIED.—The requirements of the following provisions

12 shall be treated as satisfied with respect to the

13 qualified simplified defined contribution plan and the

14 qualified simplified defined benefit plan:

15 ‘‘(A) Section 401(a)(4).

16 ‘‘(B) Section 401(a)(26).

17 ‘‘(C) Section 401(l).

18 ‘‘(D) Subsections (a) and (b) of section

19 410.

20 ‘‘(E) Subsection (b) of section 411.

21 ‘‘(F) Section 416.

22 ‘‘(c) SIMPLIFIED DEFINED CONTRIBUTION PLAN.—

23 ‘‘(1) IN GENERAL.—A defined contribution plan

24 is a qualified simplified defined contribution plan

25 if—
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1 ‘‘(A) all employees of the employer (not ex2 cluded pursuant to paragraph (2)) are eligible

3 to participate in such plan,

4 ‘‘(B) the employer contribution for each

5 year for each participant in the plan is a uni6 form percentage (which is not less than 3 per7 cent) of such participant’s compensation (within

8 the meaning of section 414(s)),

9 ‘‘(C) such plan provides that each em10 ployee covered by the plan has a nonforfeitable

11 right to 100 percent of such employee’s accrued

12 benefit derived from employer contributions,

13 and

14 ‘‘(D) the balance to the credit of the em15 ployee under such plan—

16 ‘‘(i) except as required by section

17 401(a)(9), may not be distributed earlier

18 than separation from service, death, or dis19 ability, and

20 ‘‘(ii) in the case of any distribution

21 other than by reason of death, such dis22 tribution may be made only in the form

23 of—
45

•S 1923 IS

1 ‘‘(I) an annuity for the life of the

2 employee (or a joint and survivor an3 nuity as provided in section 417), or

4 ‘‘(II) a direct trustee-to-trustee

5 transfer as provided in section

6 401(a)(31).

7 ‘‘(2) CERTAIN EXCLUSIONS PERMITTED.—For

8 purposes of paragraph (1), an employee may be ex9 cluded until such employee has completed 6 months

10 of service for the employer.

11 ‘‘(3) INCLUSION OF PENSION PROSAVE PLAN.—

12 A Pension ProSave Plan shall be treated as a quali13 fied simplified defined contribution plan for purposes

14 of this section for any year if the employer’s rate of

15 nonelective contributions under section 432(c)(2) for

16 such year is not less than 3 percent.

17 ‘‘(d) SIMPLIFIED DEFINED BENEFIT PLAN.—

18 ‘‘(1) IN GENERAL.—A defined benefit plan is a

19 qualified simplified defined benefit plan if—

20 ‘‘(A) all employees of the employer (not ex21 cluded pursuant to paragraph (3)) are eligible

22 to participate in such plan, and

23 ‘‘(B) the accrued benefit derived from em24 ployer contributions for each participant, when

25 expressed as an annual retirement benefit, is
46

•S 1923 IS

1 equal to the required benefit determined under

2 paragraph (2).

3 ‘‘(2) AMOUNT OF REQUIRED BENEFIT.—

4 ‘‘(A) IN GENERAL.—The required benefit

5 determined under this paragraph is an amount

6 equal to the product of—

7 ‘‘(i) the plan’s qualified accrual rate

8 multiplied by the number of years of serv9 ice with the employer, and

10 ‘‘(ii) the participant’s average com11 pensation for the testing period.

12 ‘‘(B) QUALIFIED ACCRUAL RATE.—For

13 purposes of subparagraph (A):

14 ‘‘(i) A plan’s qualified accrual rate is

15 the uniform accrual rate set forth in such

16 plan so long as such rate exceeds 0.5 per17 cent.

18 ‘‘(ii) A plan may provide that the ac19 crual rate with respect to so much of the

20 participant’s average compensation for the

21 testing period as does not exceed covered

22 compensation (as defined in section

23 401(l)(5)(E)) shall be less than the accrual

24 rate for compensation above covered com25 pensation (as so defined) so long as such
47

•S 1923 IS

1 difference is not greater than 1 percentage

2 point. Nothing in the preceding sentence

3 shall be construed as permitting an accrual

4 rate of less than 0.5 percent.

5 ‘‘(C) YEARS OF SERVICE.—For purposes of

6 this paragraph, years of service shall be deter7 mined under the rules of paragraphs (4), (5),

8 and (6) of section 411(a).

9 ‘‘(D) ANNUAL RETIREMENT BENEFIT.—

10 For purposes of this paragraph, the term ‘an11 nual retirement benefit’ means a benefit pay12 able annually in the form of a single life annu13 ity (with no ancillary benefits) beginning at the

14 normal retirement age under the plan.

15 ‘‘(E) TESTING PERIOD.—For purposes of

16 this paragraph—

17 ‘‘(i) IN GENERAL.—A participant’s

18 testing period shall be the period of years

19 (not less than 3 nor exceeding 5) during

20 which the participant has the greatest ag21 gregate compensation from the employer.

22 ‘‘(ii) YEAR MUST BE INCLUDED IN

23 YEAR OF SERVICE.—The years taken into

24 account under clause (i) shall be properly
48

•S 1923 IS

1 adjusted for years not included in a year of

2 service.

3 ‘‘(3) EXCLUDED EMPLOYEES.—For purposes of

4 this subsection—

5 ‘‘(A) IN GENERAL.—The employer may ex6 clude—

7 ‘‘(i) employees who have not com8 pleted 6 months of service,

9 ‘‘(ii) employees who normally work

less than 171 10 ⁄2 hours per week,

11 ‘‘(iii) employees who normally work

12 during not more than 6 months during the

13 year,

14 ‘‘(iv) employees who have not attained

15 age 21, and

16 ‘‘(v) employees who are included in a

17 unit of employees covered by an agreement

18 which the Secretary of Labor finds to be a

19 collective bargaining agreement between

20 employee representatives and the employer.

21 ‘‘(B) EMPLOYEES COVERED BY EXISTING

22 DEFINED BENEFIT PLAN.—The employer may

23 exclude employees who are covered under an24 other defined benefit plan maintained by the

25 employer if—
49

•S 1923 IS

1 ‘‘(i) such plan was in existence on the

2 date of the enactment of this section, and

3 ‘‘(ii) such plan meets the applicable

4 requirements of this part without regard to

5 this section.

6 The employer may exclude employees under the

7 preceding sentence only if all employees de8 scribed in the preceding sentence are so ex9 cluded.

10 ‘‘(C) SPECIAL RULE.—If accruals under

11 any defined benefit plan referred to in subpara12 graph (B) cease and the employees covered by

13 such defined benefit plan are covered by an14 other plan which would otherwise qualify under

15 this subsection, such other plan shall not be

16 treated as meeting the requirements of this sub17 section unless, in determining the annual retire18 ment benefit of each such employee under the

19 plan referred to in subparagraph (B), such em20 ployee’s average compensation for the testing

21 period (determined by treating such plans as 1

22 plan) is used.

23 ‘‘(e) SPECIAL RULES.—

24 ‘‘(1) AGGREGATION RULES.—All employees

25 treated as employed by a single employer under sub-
50

•S 1923 IS

1 sections (a) and (b) of section 414 shall be so treat2 ed for purposes of this section.

3 ‘‘(2) INTEGRATION WITH SOCIAL SECURITY NOT

4 PERMITTED.—Except as provided in subsection

5 (d)(2)(B), a plan shall not be treated as meeting the

6 requirements of subsection (c) or (d) unless such

7 plan meets such requirements without taking into

8 account contributions or benefits under chapter 2

9 (relating to tax on self-employment income), chapter

10 21 (relating to Federal Insurance Contribution Act),

11 title II of the Social Security Act, or any other Fed12 eral or State law.’’

13 (b) CLERICAL AMENDMENT.—The table of sections

14 for subpart B of part I of subchapter B of chapter 1 of

15 such Code is amended by adding at the end the following

16 new item:

‘‘Sec. 417A. Simplified method for complying with pension requirements.’’

17 (c) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to years to which section 432 of

19 the Internal Revenue Code of 1986 (as added by title I)

20 applies.

Æ