II

106TH CONGRESS

1ST SESSION S. 476

To enhance and protect retirement savings.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 25, 1999

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

to the Committee on Finance

A BILL

To enhance and protect retirement savings.

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.

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

5 ‘‘Comprehensive Pension and Retirement Security Act of

6 1999’’.

7 (b) TABLE OF CONTENTS.—

Sec. 1. Short title.

TITLE I—RESTRICTIONS ON LOANS FROM QUALIFIED

RETIREMENT PLANS

Sec. 101. Qualified employer plans prohibited from making loans through credit

cards and other intermediaries.
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Sec. 102. Loans from qualified employer plans treated as distributions unless

used to purchase a first home, to pay higher education or financially devastating medical expenses, or during periods of

unemployment.

TITLE II—PROMOTION OF AVAILABILITY OF PRIVATE PENSIONS

UPON RETIREMENT

Sec. 201. Availability of defined contribution plan option for participants in defined benefit plans.

Sec. 202. Timely investment of plan contributions.

Sec. 203. Increase in penalty for early distributions from pension plans.

TITLE III—GROUP HEALTH PLANS

Sec. 301. Advance notice of material reductions in covered services under group

health plans.

TITLE IV—APPLICATION OF CERTAIN PROHIBITED

TRANSACTIONS RULES FOR 401(K) PLANS

Sec. 401. Certain prohibited transactions applied to 401(k) plans.

TITLE V—RETIREMENT SAVINGS AND SECURITY

Sec. 500. Amendment of ERISA.

Subtitle A—Portability

Sec. 501. Missing participants.

Subtitle B—Enhanced Security

CHAPTER 1—GENERAL PROVISIONS

Sec. 511. Multiemployer plan benefits guaranteed.

Sec. 512. Reversion report.

Sec. 513. Full funding limitation for multiemployer plans.

Sec. 514. Prohibited transactions.

Sec. 515. Substantial owner benefits.

CHAPTER 2—ERISA ENFORCEMENT

Sec. 521. Short title.

Sec. 522. Repeal of limited scope audit.

Sec. 523. Reporting and enforcement requirements for employee benefit plans.

Sec. 524. Additional requirements for qualified public accountants.

Sec. 525. Clarification of civil penalty for breach of fiduciary responsibility.

TITLE VI—EXPANDED INDIVIDUAL RETIREMENT ACCOUNTS TO

INCREASE COVERAGE AND PORTABILITY

Subtitle A—Retirement Savings Incentives

Sec. 601. Increase in income limitations.

Sec. 602. Coordination of IRA deduction limit with elective deferral limit.

Subtitle B—Distributions and Investments
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Sec. 611. Distributions from IRAs may be used without additional tax to pay

financially devastating medical expenses, or by the unemployed.

Sec. 612. Contributions must be held at least 5 years in certain cases.

1 TITLE I—RESTRICTIONS ON

2 LOANS FROM QUALIFIED RE3 TIREMENT PLANS

4 SEC. 101. QUALIFIED EMPLOYER PLANS PROHIBITED FROM

5 MAKING LOANS THROUGH CREDIT CARDS

6 AND OTHER INTERMEDIARIES.

7 (a) IN GENERAL.—Subsection (a) of section 401 of

8 the Internal Revenue Code of 1986 is amended by adding

9 after paragraph (34) the following new paragraph:

10 ‘‘(35) PROHIBITION OF LOANS THROUGH CRED11 IT CARDS AND OTHER INTERMEDIARIES.—A trust

12 shall not constitute a qualified trust under this sec13 tion if the plan makes any loan to any beneficiary

14 under the plan through the use of any credit card

15 or any other intermediary.’’.

16 (b) EFFECTIVE DATE.—The amendment made by

17 subsection (a) shall apply to plan years beginning after

18 the date of the enactment of this Act.
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1 SEC. 102. LOANS FROM QUALIFIED EMPLOYER PLANS

2 TREATED AS DISTRIBUTIONS UNLESS USED

3 TO PURCHASE A FIRST HOME, TO PAY HIGH4 ER EDUCATION OR FINANCIALLY DEVASTAT5 ING MEDICAL EXPENSES, OR DURING PERI6 ODS OF UNEMPLOYMENT.

7 (a) IN GENERAL.—Subsection (p) of section 72 of the

8 Internal Revenue Code of 1986 (relating to loans treated

9 as distributions) is amended by redesignating paragraphs

10 (3), (4), and (5) as paragraphs (4), (5), and (6), respec11 tively, and by inserting after paragraph (2) the following

12 new paragraph:

13 ‘‘(3) EXCEPTION ONLY TO APPLY TO CERTAIN

14 LOANS.—Paragraph (2) shall apply to any loan only

15 if such loan is—

16 ‘‘(A) a qualified first-time homebuyer loan

17 (as defined in paragraph (7)),

18 ‘‘(B) a qualified higher education loan (as

19 defined in paragraph (8)),

20 ‘‘(C) a qualified medical expense loan (as

21 defined in paragraph (9)), or

22 ‘‘(D) a qualified unemployment loan (as

23 defined in paragraph (10)).’’.

24 (b) DEFINITIONS.—Subsection (p) of section 72 of

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

26 new paragraphs:
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1 ‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER

2 LOAN.—

3 ‘‘(A) IN GENERAL.—For purposes of para4 graph (3), the term ‘qualified first-time home5 buyer loan’ means any loan received by an indi6 vidual to the extent the amount of the loan is

7 used within a reasonable period to pay qualified

8 acquisition costs with respect to a principal res9 idence of a first-time homebuyer who is such in10 dividual, the spouse of such individual, or any

11 child, grandchild, or ancestor of such individual

12 or the individual’s spouse.

13 ‘‘(B) FIRST-TIME HOMEBUYER; DATE OF

14 ACQUISITION; PRINCIPAL RESIDENCE; QUALI15 FIED ACQUISITION COSTS.—For purposes of

16 this paragraph, the terms ‘first-time home17 buyer’, ‘date of acquisition’, ‘principal resi18 dence’, and ‘qualified acquisition costs’ have the

19 same meaning as when such terms are used in

20 subsection (t)(8).

21 ‘‘(8) QUALIFIED HIGHER EDUCATION LOAN.—

22 For purposes of paragraph (3)—

23 ‘‘(A) IN GENERAL.—The term ‘qualified

24 higher education loan’ means any loan received

25 by an individual to the extent the amount of the
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1 loan is used within a reasonable period to pay

2 qualified higher education expenses (as defined

3 in section 529(e)(3)) for education furnished

4 to—

5 ‘‘(i) the individual,

6 ‘‘(ii) the individual’s spouse, or

7 ‘‘(iii) any child (as defined in section

8 151(c)(3)), grandchild, or ancestor of the

9 individual or the individual’s spouse,

10 at an eligible educational institution (as defined

11 in section 529(e)(5)).

12 ‘‘(B) COORDINATION WITH SAVINGS BOND

13 PROVISIONS.—The amount of the qualified

14 higher education expenses (as so defined) for

15 any taxable year shall be reduced by any

16 amount excludable from gross income under

17 section 135.

18 ‘‘(9) QUALIFIED MEDICAL EXPENSE LOAN.—

19 The term ‘qualified medical expense loan’ means any

20 loan received by an individual to the extent the

21 amount of the loan does not exceed the amount al22 lowable as a deduction under section 213 to the indi23 vidual for amounts paid during the taxable year for

24 medical care (determined without regard to whether
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1 the taxpayer itemizes deductions for such taxable

2 year).

3 ‘‘(10) QUALIFIED UNEMPLOYMENT LOAN.—The

4 term ‘qualified unemployment loan’ means any loan

5 to an individual after separation from employment,

6 if—

7 ‘‘(A) such individual has received unem8 ployment compensation for 12 consecutive

9 weeks under any Federal or State unemploy10 ment compensation law by reason of such sepa11 ration, and

12 ‘‘(B) such loan is received during any tax13 able year during which such unemployment

14 compensation is paid or the succeeding taxable

15 year.

16 To the extent provided in regulations, a self-em17 ployed individual shall be treated as meeting the re18 quirements of subparagraph (A) if, under Federal or

19 State law, the individual would have received unem20 ployment compensation but for the fact the individ21 ual was self-employed.’’.

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

23 this section shall apply to loans made after the date of

24 the enactment of this Act with respect to expenses paid

25 after such date (in tax years ending after such date).
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1 TITLE II—PROMOTION OF AVAIL2 ABILITY OF PRIVATE PEN3 SIONS UPON RETIREMENT

4 SEC. 201. AVAILABILITY OF DEFINED CONTRIBUTION PLAN

5 OPTION FOR PARTICIPANTS IN DEFINED

6 BENEFIT PLANS.

7 (a) AMENDMENT TO THE EMPLOYEE RETIREMENT

8 INCOME SECURITY ACT OF 1974.—Section 206 of the

9 Employee Retirement Income Security Act of 1974 (29

10 U.S.C. 1056) is amended by adding at the end the follow11 ing new subsection:

12 ‘‘(g) AVAILABILITY OF DEFINED CONTRIBUTION

13 PLAN OPTION FOR PARTICIPANTS IN DEFINED BENEFIT

14 PLANS.—

15 ‘‘(1) IN GENERAL.—Each defined benefit plan

16 to which an employer makes contributions shall pro17 vide (in such form and manner as may be provided

18 in regulations prescribed jointly by the Secretary

19 and the Secretary of the Treasury) for an oppor20 tunity for each participant employed by such em21 ployer to elect, in lieu of coverage under the defined

22 benefit plan and before any election made by the em23 ployee under such plan pursuant to subsection (c),

24 coverage under a defined contribution plan main25 tained in whole or in part by the participant’s em-
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1 ployer. An employer making contributions to a de2 fined benefit plan shall maintain for his employees

3 a defined contribution plan to the extent necessary

4 to provide for coverage under such defined contribu5 tion plan pursuant to elections under this sub6 section.

7 ‘‘(2) REQUIRED LEVEL OF CONTRIBUTIONS.—

8 The requirements of paragraph (1) shall not be

9 treated as met unless the defined contribution plan

10 with respect to which an election is made under

11 paragraph (1) provides for contributions (other than

12 employee contributions (if any)) at least equivalent

13 to the contributions (other than employee contribu14 tions (if any)) provided for under the terms of the

15 defined benefit plan.

16 ‘‘(3) REQUIRED ELECTION PERIOD.—The re17 quirements of paragraph (1) shall not be treated as

18 met unless the defined benefit plan provides that an

19 election under paragraph (1) may be made at any

20 time during the 90-day period beginning with the

21 later of—

22 ‘‘(A) the commencement of the first plan

23 year to which this subsection applies, or

24 ‘‘(B) the commencement of the employee’s

25 service under the plan.’’.
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1 (b) AMENDMENTS TO THE INTERNAL REVENUE

2 CODE OF 1986.—Subsection (a) of section 401 of the In3 ternal Revenue Code of 1986 (relating to requirements for

4 qualification), as amended by section 101, is amended by

5 inserting after paragraph (35) the following new para6 graph:

7 ‘‘(36) AVAILABILITY OF DEFINED CONTRIBU8 TION PLAN OPTION FOR PARTICIPANTS IN DEFINED

9 BENEFIT PLANS.—

10 ‘‘(A) IN GENERAL.—A trust forming a

11 part of a defined benefit plan to which an em12 ployer makes contributions shall not constitute

13 a qualified trust under this section unless—

14 ‘‘(i) the plan provides (in such form

15 and manner as may be provided in regula16 tions prescribed jointly by the Secretary

17 and the Secretary of Labor) for an oppor18 tunity for each participant employed by

19 such employer to elect, in lieu of coverage

20 under the defined benefit plan and before

21 any election made by the employee under

22 such plan pursuant to section 417, cov23 erage under a defined contribution plan

24 maintained in whole or in part by the par25 ticipant’s employer, and
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1 ‘‘(ii) the defined benefit plan provides

2 that each employer making contributions

3 to the plan maintains for his employees a

4 defined contribution plan to the extent nec5 essary to provide for coverage under such

6 defined contribution plan pursuant to elec7 tions under this paragraph.

8 ‘‘(B) REQUIRED LEVEL OF CONTRIBU9 TIONS.—The requirements of subparagraph (A)

10 shall not be treated as met unless the defined

11 contribution plan with respect to which an elec12 tion is made under subparagraph (A) provides

13 for contributions (other than employee contribu14 tions (if any)) at least equivalent to the con15 tributions (other than employee contributions

16 (if any)) provided for under the terms of the

17 defined benefit plan.

18 ‘‘(C) REQUIRED ELECTION PERIOD.—The

19 requirements of subparagraph (A) shall not be

20 treated as met unless the defined benefit plan

21 provides that an election under subparagraph

22 (A) may be made at any time during the 90-

23 day period beginning with the later of—
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1 ‘‘(i) the commencement of the first

2 plan year to which this paragraph applies,

3 or

4 ‘‘(ii) the commencement of the em5 ployee’s service under the plan.’’.

6 (c) EFFECTIVE DATES.—

7 (1) GENERAL RULE.—The amendments made

8 by this section shall apply to plan years beginning

9 after December 31, 1999.

10 (2) SPECIAL RULE FOR COLLECTIVE BARGAIN11 ING AGREEMENTS.—In the case of a defined benefit

12 plan maintained pursuant to one or more collective

13 bargaining agreements between employee organiza14 tions and one or more employers ratified before the

15 date of the enactment of this Act, the amendments

16 made by this section shall not apply to plan years

17 beginning before the later of—

18 (A) the date on which the last of the col19 lective bargaining agreements relating to the

20 plan terminates (determined without regard to

21 any extension thereof agreed to after the date

22 of the enactment of this Act), or

23 (B) January 1, 2001.

24 For purposes of subparagraph (A), any plan amend25 ment made pursuant to a collective bargaining
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1 agreement relating to the plan which amends the

2 plan solely to conform to any requirement added by

3 this section shall not be treated as a termination of

4 such collective bargaining agreement.

5 SEC. 202. TIMELY INVESTMENT OF PLAN CONTRIBUTIONS.

6 (a) IN GENERAL.—Section 404 of the Employee Re7 tirement Income Security Act of 1974 (29 U.S.C. 1104)

8 is amended by adding at the end the following new sub9 section:

10 ‘‘(e) Any failure, by a person who is a fiduciary with

11 respect to a pension plan and who has discretionary au12 thority respecting investment of amounts contributed to

13 the plan, to ensure that amounts contributed to the plan

14 are invested, in accordance with the terms of the plan and

15 this title, before 15 days after the calendar month in which

16 such amounts are received by the plan, shall be treated

17 as a breach of fiduciary duties under the plan.’’.

18 (b) EFFECTIVE DATE.—The amendment made by

19 subsection (a) shall apply with respect to plan years begin20 ning on December 31, 1999.

21 SEC. 203. INCREASE IN ADDITIONAL TAX FOR EARLY DIS22 TRIBUTIONS FROM PENSION PLANS.

23 (a) IN GENERAL.—Paragraph (1) of section 72(t) of

24 the Internal Revenue Code of 1986 (relating to imposition

25 of additional tax) is amended to read as follows:
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1 ‘‘(1) IMPOSITION OF ADDITIONAL TAX.—If any

2 portion of an amount a taxpayer receives from a

3 qualified retirement plan (as defined in section

4 4974(c)) is (without regard to this paragraph) in5 cludible in gross income—

6 ‘‘(A) the taxpayer’s tax under this chapter

7 for the taxable year in which such amount is re8 ceived shall be increased by an amount equal to

9 such portion, and

10 ‘‘(B) such portion shall not be includible in

11 gross income.’’

12 (b) CONFORMING AMENDMENT.—Paragraph (6) of

13 section 72(t) of such Code is repealed.

14 (c) EFFECTIVE DATE.—The amendment made by

15 this section shall apply to distributions after December 31,

16 1999.

17 TITLE III—GROUP HEALTH

18 PLANS

19 SEC. 301. ADVANCE NOTICE OF MATERIAL REDUCTIONS IN

20 COVERED SERVICES UNDER GROUP HEALTH

21 PLANS.

22 (a) ADVANCE NOTICE.—

23 (1) IN GENERAL.—Section 104(b)(1) of the

24 Employee Retirement Income Security Act of 1974

25 is amended—
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1 (A) by redesignating subparagraphs (A)

2 and (B) as clauses (i) and (ii), respectively,

3 (B) by striking ‘‘(1) The administrator’’

4 and inserting ‘‘(1)(A) The administrator’’,

5 (C) by striking ‘‘The administrator’’ the

6 second place it appears and inserting the follow7 ing:

8 ‘‘(B) The administrator’’,

9 (D) by striking ‘‘If there is a modification’’

10 and inserting the following:

11 ‘‘(C) If there is a modification’’, and

12 (E) by adding at the end the following new

13 subparagraph:

14 ‘‘(D) Notwithstanding subparagraph (C), if there is

15 a modification or change described in section 102(a)(1)

16 in covered services or benefits provided in the case of a

17 group health plan (as defined in section 706(a)(1)) relat18 ing to retiree health benefits, a summary description of

19 such modification or change shall be furnished to partici20 pants, beneficiaries, and the Secretary not later than 180

21 days before the effective date of the modification or

22 change. In any case in which an individual first becomes

23 a participant under a group health plan during any such

24 180-day period with respect to such a modification or

25 change or (in the case of any other beneficiary under the
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1 plan) first receives benefits under the plan during such

2 180-day period, the requirements of the preceding sen3 tence may be met by providing the summary description

4 of such modification or change not later than the date on

5 which such individual first becomes a participant or such

6 other beneficiary first receives benefits under the plan.’’.

7 (2) DETERMINATION BY SECRETARY.—Section

8 104 of the Employee Retirement Income Security

9 Act of 1974 (29 U.S.C. 1024) is further amended by

10 redesignating subsection (d) as subsection (e) and by

11 inserting after subsection (c) the following new sub12 section:

13 ‘‘(d) A change or modification in covered services or

14 benefits provided in the case of a group health plan relat15 ing to retiree health benefits that is subject to the require16 ments of subsection (b)(1)(D) may not take effect until

17 after the Secretary determines that such change or modi18 fication does not violate the plan, including collective bar19 gaining agreements.’’.

20 (3) CIVIL PENALTY.—Section 502(c)(1) of such

21 Act (29 U.S.C. 1132(c)(1)) is amended by striking

22 ‘‘or section 101(e)(1)’’ and inserting ‘‘, section

23 101(e)(1), or section 104(b)(1)(D)’’.

24 (b) ENFORCEMENT.—
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1 (1) REQUIREMENTS.—Section 4980B of the In2 ternal Revenue Code of 1986 is amended by redesig3 nating subsection (g) as subsection (h) and by in4 serting after subsection (f) the following new sub5 section:

6 ‘‘(g) NOTICE OF CHANGE OR MODIFICATION IN

7 HEALTH BENEFITS.—

8 ‘‘(1) IN GENERAL.—A group health plan meets

9 the requirements of this subsection if—

10 ‘‘(A) the plan sponsor complies with sec11 tion 104(b)(1)(D) of the Employee Retirement

12 Income Security Act of 1974 (relating to pro13 viding advance notice of modification or change

14 in retiree health benefits provided under a

15 group health plan), and

16 ‘‘(B) such modification or change in retiree

17 health benefits in a group health plan takes ef18 fect after the Secretary of Labor makes the de19 termination required by section 104(d) of such

20 Act that such change or modification does not

21 violate the plan, including collective bargaining

22 agreements.

23 ‘‘(2) NONCOMPLIANCE PERIOD.—For the pur24 poses of subsection (b), the noncompliance period

25 with respect to this subsection shall be determined
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1 without regard to paragraph (2)(B)(ii) of subsection

2 (b).’’

3 (2) CONFORMING AMENDMENTS.—

4 (A) Subsection (a) of section 4980B of

5 such Code is amended by striking ‘‘subsection

6 (f)’’ and inserting ‘‘subsections (f) and (g)’’.

7 (B) Clause (iv)(II) of section

8 4980B(f)(2)(B) of such Code is amended by

9 striking ‘‘subsection (g)(1)(D)’’ and inserting

10 ‘‘subsection (h)(1)(D)’’.

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

12 this section shall apply with respect to plan years ending

13 after January 1, 1999.

14 TITLE IV—APPLICATION OF CER15 TAIN PROHIBITED TRANS16 ACTIONS RULES FOR 401(k)

17 PLANS

18 SEC. 401. CERTAIN PROHIBITED TRANSACTIONS APPLIED

19 TO 401(k) PLANS.

20 (a) IN GENERAL.—Paragraph (3) of section 407(d)

21 of the Employee Retirement Income Security Act of 1974

22 (29 U.S.C. 1107(d)) is amended by adding at the end the

23 following new sentence: ‘‘Such term also excludes an indi24 vidual account plan that includes a qualified cash or de25 ferred arrangement described in section 401(k) of the In-
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1 ternal Revenue Code of 1986, if such plan, together with

2 all other individual account plans maintained by the em3 ployer, owns more than 10 percent of the assets owned

4 by all pension plans maintained by the employer. For pur5 poses of the preceding sentence, the assets of such plan

6 subject to participant control (within the meaning of sec7 tion 404(c)) shall not be taken into account.’’.

8 (b) EFFECTIVE DATE; TRANSITION RULE.—

9 (1) EFFECTIVE DATE.—Except as provided in

10 paragraph (2), the amendment made by this section

11 shall apply to plans on and after the date of the en12 actment of this Act.

13 (2) TRANSITION RULE FOR PLANS HOLDING

14 EXCESS SECURITIES OR PROPERTY.—In the case of

15 a plan which on the date of the enactment of this

16 Act has holdings of employer securities and employer

17 real property (as defined in section 407(d) of the

18 Employee Retirement Income Security Act of 1974

19 (29 U.S.C. 1107(d)) in excess of the amount speci20 fied in such section 407, the amendment made by

21 this section shall apply to any acquisition of such se22 curities and property on or after such date of enact23 ment, but shall not apply to the specific holdings

24 which constitute such excess during the period of

25 such excess.
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1 TITLE V—RETIREMENT SAVINGS

2 AND SECURITY

3 SEC. 500. AMENDMENT OF ERISA.

4 Except as otherwise expressly provided, whenever in

5 this title an amendment or repeal is expressed in terms

6 of an amendment to, or repeal of, a section or other provi7 sion, the reference shall be considered to be made to a

8 section or other provision of the Employee Retirement In9 come Security Act of 1974.

10 Subtitle A—Portability

11 SEC. 501. MISSING PARTICIPANTS.

12 (a) IN GENERAL.—Section 4050 (29 U.S.C. 1350)

13 is amended by redesignating subsection (c) as subsection

14 (e) and by inserting after subsection (b) the following new

15 subsections:

16 ‘‘(c) MULTIEMPLOYER PLANS.—The corporation

17 shall prescribe rules similar to the rules in subsection (a)

18 for multiemployer plans covered by this title that termi19 nate under section 4041A.

20 ‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.—

21 ‘‘(1) TRANSFER TO CORPORATION.—The plan

22 administrator of a plan described in paragraph (4)

23 may elect to transfer a missing participant’s benefits

24 to the corporation upon termination of the plan.
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1 ‘‘(2) INFORMATION TO THE CORPORATION.—To

2 the extent provided in regulations, the plan adminis3 trator of a plan described in paragraph (4) shall,

4 upon termination of the plan, provide the corpora5 tion information with respect to benefits of a miss6 ing participant if the plan transfers such benefits—

7 ‘‘(A) to the corporation, or

8 ‘‘(B) to an entity other than the corpora9 tion or a plan described in paragraph (4)(B)(ii).

10 ‘‘(3) PAYMENT BY THE CORPORATION.—If ben11 efits of a missing participant were transferred to the

12 corporation under paragraph (1), the corporation

13 shall, upon location of the participant or beneficiary,

14 pay to the participant or beneficiary the amount

15 transferred (or the appropriate survivor benefit)

16 either—

17 ‘‘(A) in a single sum (plus interest), or

18 ‘‘(B) in such other form as is specified in

19 regulations of the corporation.

20 ‘‘(4) PLANS DESCRIBED.—A plan is described

21 in this paragraph if—

22 ‘‘(A) the plan is a pension plan (within the

23 meaning of section 3(2))—
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1 ‘‘(i) to which the provisions of this

2 section do not apply (without regard to

3 this subsection), and

4 ‘‘(ii) which is not a plan described in

5 paragraphs (2) through (11) of section

6 4021(b), and

7 ‘‘(B) at the time the assets are to be dis8 tributed upon termination, the plan—

9 ‘‘(i) has missing participants, and

10 ‘‘(ii) has not provided for the transfer

11 of assets to pay the benefits of all missing

12 participants to another pension plan (with13 in the meaning of section 3(2)).

14 ‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.—

15 Subsections (a)(1) and (a)(3) shall not apply to a

16 plan described in paragraph (4).’’.

17 (b) CONFORMING AMENDMENTS.—

18 (1) Section 206(f) (29 U.S.C. 1056(f)) is

19 amended—

20 (A) by striking ‘‘title IV’’ and inserting

21 ‘‘section 4050’’, and

22 (B) by striking ‘‘the plan shall provide

23 that’’.

24 (2) Section 401(a)(34) of the Internal Revenue

25 Code of 1986 (relating to benefits of missing partici-
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1 pants on plan termination) is amended by striking

2 ‘‘title IV’’ and inserting ‘‘section 4050’’.

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

4 this section shall apply to distributions made after final

5 regulations implementing subsections (c) and (d) of sec6 tion 4050 of the Employee Retirement Income Security

7 Act of 1974 (as added by subsection (a)), respectively, are

8 prescribed.

9 Subtitle B—Enhanced Security

10 CHAPTER 1—GENERAL PROVISIONS

11 SEC. 511. MULTIEMPLOYER PLAN BENEFITS GUARANTEED.

12 (a) IN GENERAL.—Section 4022A(c) (29 U.S.C.

13 1322a(c)) is amended—

14 (1) by striking ‘‘$5’’ each place it appears in

15 paragraph (1) and inserting ‘‘$11’’,

16 (2) by striking ‘‘$15’’ in paragraph (1) and in17 serting ‘‘$33’’, and

18 (3) by striking paragraphs (2), (5), and (6) and

19 by redesignating paragraphs (3) and (4) as para20 graphs (2) and (3), respectively.

21 (b) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to any multiemployer plan that has

23 not received financial assistance (within the meaning of

24 section 4261 of the Employee Retirement Income Security
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1 Act of 1974) within the 1-year period ending on the date

2 of the enactment of this Act.

3 SEC. 512. REVERSION REPORT.

4 (a) IN GENERAL.—Section 4008 (29 U.S.C. 1308)

5 is amended by adding at the end the following new sub6 section:

7 ‘‘(b) REVERSION REPORT.—As soon as practicable

8 after the close of each fiscal year, the Secretary of Labor

9 (acting in the Secretary’s capacity as chairman of the cor10 poration’s board) shall transmit to the President and the

11 Congress a report providing information on plans from

12 which residual assets were distributed to employers pursu13 ant to section 4044(d).’’

14 (b) CONFORMING AMENDMENT.—Section 4008 (29

15 U.S.C. 1308) is amended by striking ‘‘SEC. 4008.’’ and

16 inserting ‘‘SEC. 4008. (a) ANNUAL REPORT.—’’.

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

18 this section shall apply to fiscal years beginning after Sep19 tember 30, 1999.

20 SEC. 513. FULL FUNDING LIMITATION FOR MULTIEM21 PLOYER PLANS.

22 (a) FULL-FUNDING LIMITATION.—Section

23 302(c)(7)(C) (29 U.S.C. 1082(c)(7)(C)) is amended—

24 (1) by inserting ‘‘or in the case of a multiem25 ployer plan,’’ after ‘‘paragraph (6)(B),’’, and
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1 (2) by inserting ‘‘AND MULTIEMPLOYER PLANS’’

2 after ‘‘PARAGRAPH (6)(B)’’ in the heading thereof.

3 (b) VALUATION.—Section 302(c)(9) (29 U.S.C.

4 1082(c)(9)) is amended by inserting ‘‘(3 years in the case

5 of a multiemployer plan)’’ after ‘‘year’’.

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

7 this section shall apply to plan years beginning after De8 cember 31, 1998.

9 SEC. 514. PROHIBITED TRANSACTIONS.

10 (a) IN GENERAL.—Section 502(i) (29 U.S.C.

11 1132(i)) is amended by striking ‘‘5 percent’’ and inserting

12 ‘‘10 percent’’.

13 (b) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to prohibited transactions occur15 ring after the date of enactment of this Act.

16 SEC. 515. SUBSTANTIAL OWNER BENEFITS.

17 (a) MODIFICATION OF PHASE-IN OF GUARANTEE.—

18 Subparagraphs (B) and (C) of section 4022(b)(5) (29

19 U.S.C. 1322(b)(5)) are amended to read as follows:

20 ‘‘(B) For purposes of this title, the term ‘majority

21 owner’ has the same meaning as substantial owner under

22 subparagraph (A), except that subparagraph (A) shall be

23 applied by substituting ‘50 percent or more’ for ‘more

24 than 10 percent’ each place it appears.
26

•S 476 IS

1 ‘‘(C) In the case of a participant who is a majority

2 owner, the amount of benefits guaranteed under this sec3 tion shall not exceed the product of—

4 ‘‘(i) a fraction (not to exceed 1) the numerator

5 of which is the number of years from the later of the

6 effective date or the adoption date of the plan to the

7 termination date, and the denominator of which is

8 30, and

9 ‘‘(ii) the amount of the majority owner’s month10 ly benefits guaranteed under subsection (a) (as lim11 ited by paragraph (3) of this subsection).’’.

12 (b) MODIFICATION OF ALLOCATION OF ASSETS.—

13 (1) Section 4044(a)(4)(B) (29 U.S.C.

14 1344(a)(4)(B)) is amended by striking ‘‘section

15 4022(b)(5)’’ and inserting ‘‘section 4022(b)(5)(C)’’.

16 (2) Section 4044(b) (29 U.S.C. 1344(b)) is

17 amended—

18 (A) by striking ‘‘(5)’’ in paragraph (2) and

19 inserting ‘‘(4), (5),’’, and

20 (B) by redesignating paragraphs (3)

21 through (6) as paragraphs (4) through (7), re22 spectively, and by inserting after paragraph (2)

23 the following new paragraph:

24 ‘‘(3) If assets available for allocation under

25 paragraph (4) of subsection (a) are insufficient to
27

•S 476 IS

1 satisfy in full the benefits of all individuals who are

2 described in that paragraph, the assets shall be allo3 cated first to benefits described in subparagraph (A)

4 of that paragraph. Any remaining assets shall then

5 be allocated to subparagraph (B). If assets allocated

6 to subparagraph (B) are insufficient to satisfy in full

7 the benefits in that subparagraph, the assets shall

8 be allocated pro rata among individuals on the basis

9 of the present value (as of the termination date) of

10 their respective benefits described in that subpara11 graph.’’.

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

13 this section shall apply to plan terminations—

14 (1) under section 4041(c) of the Employee Re15 tirement Income Security Act of 1974 (29 U.S.C.

16 1341(c)) with respect to which notices of intent to

17 terminate are provided under section 4041(a)(2) of

18 such Act (29 U.S.C. 1341(a)(2)) on or after the

19 date of the enactment of this Act, or

20 (2) under section 4042 of such Act (29 U.S.C.

21 1342) with respect to which proceedings are insti22 tuted by the corporation on or after such date.
28

•S 476 IS

1 CHAPTER 2—ERISA ENFORCEMENT

2 SEC. 521. SHORT TITLE.

3 This chapter may be cited as the ‘‘Pension Audit Im4 provement Act of 1999’’.

5 SEC. 522. REPEAL OF LIMITED SCOPE AUDIT.

6 (a) IN GENERAL.—Section 103(a)(3) (29 U.S.C.

7 1023(a)(3)) is amended by striking subparagraph (C) and

8 by redesignating subparagraph (D) as subparagraph (C).

9 (b) CONFORMING AMENDMENTS.—

10 (1) Section 103(a)(3)(A) (29 U.S.C.

11 1023(a)(3)(A)) is amended by striking ‘‘Except as

12 provided in subparagraph (C), the’’ and inserting

13 ‘‘The’’.

14 (2) Section 104(a)(5)(A) (29 U.S.C.

15 1024(a)(5)(A)) is amended by striking ‘‘section

16 103(a)(3)(D)’’ and inserting ‘‘section 103(a)(3)(C)’’.

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

18 this section shall apply with respect to opinions required

19 under section 103(a)(3)(A) of the Employee Retirement

20 Income Security Act of 1974 for plan years beginning on

21 or after January 1 of the calendar year following the date

22 of the enactment of this Act.
29

•S 476 IS

1 SEC. 523. REPORTING AND ENFORCEMENT REQUIREMENTS

2 FOR EMPLOYEE BENEFIT PLANS.

3 (a) IN GENERAL.—Part 1 of subtitle B of title I (29

4 U.S.C. 1021 et seq.) is amended—

5 (1) by redesignating section 111 as section 112,

6 and

7 (2) by inserting after section 110 the following

8 new section:

9 ‘‘DIRECT REPORTING OF CERTAIN EVENTS

10 ‘‘SEC. 111. (a) REQUIRED NOTIFICATIONS.—

11 ‘‘(1) NOTIFICATIONS BY PLAN ADMINIS12 TRATOR.—The administrator of an employee benefit

13 plan shall, within 5 business days after the adminis14 trator determines that there is evidence (or after the

15 administrator is notified under paragraph (2)) that

16 an irregularity may have occurred with respect to

17 the plan—

18 ‘‘(A) notify the Secretary of the irregular19 ity in writing; and

20 ‘‘(B) furnish a copy of such notification to

21 the accountant who is currently engaged under

22 section 103(a)(3)(A).

23 ‘‘(2) NOTIFICATIONS BY ACCOUNTANT.—

24 ‘‘(A) IN GENERAL.—An accountant en25 gaged by the administrator of an employee ben26 efit plan under section 103(a)(3)(A) shall, with-
30

•S 476 IS

1 in 5 business days after the accountant in con2 nection with such engagement determines that

3 there is evidence that an irregularity may have

4 occurred with respect to the plan—

5 ‘‘(i) notify the plan administrator of

6 the irregularity in writing; or

7 ‘‘(ii) if the accountant determines that

8 there is evidence that the irregularity may

9 have involved an individual who is the plan

10 administrator or who is a senior official of

11 the plan administrator, notify the Sec12 retary of the irregularity in writing.

13 ‘‘(B) NOTIFICATION UPON FAILURE OF

14 PLAN ADMINISTRATOR TO NOTIFY.—If an ac15 countant who has provided notification to the

16 plan administrator pursuant to subparagraph

17 (A)(i) does not receive a copy of the administra18 tor’s notification to the Secretary required

19 under paragraph (1)(B) within the 5-business

20 day period specified therein, the accountant

21 shall furnish to the Secretary a copy of the ac22 countant’s notification made to the plan admin23 istrator on the next business day following such

24 period.

25 ‘‘(3) IRREGULARITY DEFINED.—
31

•S 476 IS

1 ‘‘(A) For purposes of this subsection, the

2 term ‘irregularity’ means—

3 ‘‘(i) a theft, embezzlement, or a viola4 tion of section 664 of title 18, United

5 States Code (relating to theft or embezzle6 ment from an employee benefit plan);

7 ‘‘(ii) an extortion or a violation of sec8 tion 1951 of such title 18 (relating to in9 terference with commerce by threats or vi10 olence);

11 ‘‘(iii) a bribery, a kickback, or a viola12 tion of section 1954 of such title 18 (relat13 ing to offer, acceptance, or solicitation to

14 influence operations of an employee benefit

15 plan);

16 ‘‘(iv) a violation of section 1027 of

17 such title 18 (relating to false statements

18 and concealment of facts in relation to em19 ployer benefit plan records); or

20 ‘‘(v) a violation of section 411, 501, or

21 511 of this title (relating to criminal viola22 tions).

23 ‘‘(B) The term ‘irregularity’ shall not in24 clude any act or omission described in this

25 paragraph involving less than $1,000 unless
32

•S 476 IS

1 there is reason to believe that the act or omis2 sion may bear on the integrity of plan manage3 ment.

4 ‘‘(b) NOTIFICATION UPON TERMINATION OF EN5 GAGEMENT OF ACCOUNTANT.—

6 ‘‘(1) NOTIFICATION BY PLAN ADMINIS7 TRATOR.—Within 5 business days after the termi8 nation of an engagement for auditing services under

9 section 103(a)(3)(A) with respect to an employee

10 benefit plan, the administrator of such plan shall—

11 ‘‘(A) notify the Secretary in writing of

12 such termination, giving the reasons for such

13 termination; and

14 ‘‘(B) furnish the accountant whose engage15 ment was terminated with a copy of the notifi16 cation sent to the Secretary.

17 ‘‘(2) NOTIFICATION BY ACCOUNTANT.—If the

18 accountant referred to in paragraph (1)(B) has not

19 received a copy of the administrator’s notification to

20 the Secretary as required under paragraph (1)(B),

21 or if the accountant disagrees with the reasons given

22 in the notification of termination of the engagement

23 for auditing services, the accountant shall notify the

24 Secretary in writing of the termination, giving the
33

•S 476 IS

1 reasons for the termination, within 10 business days

2 after the termination of the engagement.

3 ‘‘(c) DETERMINATION OF PERIODS REQUIRED FOR

4 NOTIFICATION.—In determining whether a notification re5 quired under this section with respect to any act or omis6 sion has been made within the required number of busi7 ness days—

8 ‘‘(1) the day on which such act or omission be9 gins shall not be included; and

10 ‘‘(2) Saturdays, Sundays, and legal holidays

11 shall not be included.

12 For purposes of this subsection, the term ‘legal holiday’

13 means any Federal legal holiday and any other day ap14 pointed as a holiday by the State in which the person re15 sponsible for making the notification principally conducts

16 his business.

17 ‘‘(d) IMMUNITY FOR GOOD FAITH NOTIFICATION.—

18 Except as provided in this Act, no accountant or plan ad19 ministrator shall be liable to any person for any finding,

20 conclusion, or statement made in any notification made

21 pursuant to subsection (a)(2) or (b)(2), or pursuant to any

22 regulations issued thereunder, if such finding, conclusion,

23 or statement is made in good faith.’’

24 (b) CIVIL PENALTY.—
34

•S 476 IS

1 (1) IN GENERAL.—Section 502(c) (29 U.S.C.

2 1132(c)) is amended by redesignating paragraph (7)

3 as paragraph (8) and by inserting after paragraph

4 (6) the following new paragraph:

5 ‘‘(7)(A) The Secretary may assess a civil penalty of

6 up to $100,000 against any administrator who fails to

7 provide the Secretary with any notification as required

8 under section 111.

9 ‘‘(B) The Secretary may assess a civil penalty of up

10 to $100,000 against any accountant who knowingly and

11 willfully fails to provide the Secretary with any notification

12 as required under section 111.’’

13 (2) CONFORMING AMENDMENT.—Section

14 502(a)(6) (29 U.S.C. 1132(a)(6)) is amended by

15 striking ‘‘or (6)’’ and inserting ‘‘(6), or (7)’’.

16 (c) CLERICAL AMENDMENTS.—

17 (1) Section 514(d) (29 U.S.C. 1144(d)) is

18 amended by striking ‘‘111’’ and inserting ‘‘112’’.

19 (2) The table of contents in section 1 is amend20 ed by striking the item relating to section 111 and

21 inserting the following new items:

‘‘Sec. 111. Direct reporting of certain events.

‘‘Sec. 112. Repeal and effective date.’’

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

23 this section shall apply with respect to any irregularity or

24 termination of engagement described in such amendments
35

•S 476 IS

1 only if the 5-day period described in such amendments in

2 connection with such irregularity or termination com3 mences at least 90 days after the date of the enactment

4 of this Act.

5 SEC. 524. ADDITIONAL REQUIREMENTS FOR QUALIFIED

6 PUBLIC ACCOUNTANTS.

7 (a) IN GENERAL.—Section 103(a)(3)(C) (29 U.S.C.

8 1023(a)(3)(C)), as redesignated by section 522, is

9 amended—

10 (1) by inserting ‘‘(i)’’ after ‘‘(C)’’,

11 (2) by inserting ‘‘, with respect to any engage12 ment of an accountant under subparagraph (A)’’

13 after ‘‘means’’,

14 (3) by redesignating clauses (i), (ii), and (iii) as

15 subclauses (I), (II), and (III), respectively,

16 (4) by striking the period at the end of sub17 clause (III) (as so redesignated) and inserting a

18 semicolon,

19 (5) by adding after subclause (III) (as so redes20 ignated), and flush with clause (i), the following:

21 ‘‘but only if such person meets the requirements of clauses

22 (ii) and (iii) with respect to such engagement.’’, and

23 (6) by adding at the end the following new

24 clauses:
36

•S 476 IS

1 ‘‘(ii) A person meets the requirements of this clause

2 with respect to an engagement of such person as an ac3 countant under subparagraph (A) if such person—

4 ‘‘(I) has in operation an appropriate internal

5 quality control system;

6 ‘‘(II) has undergone a qualified external quality

7 control review of the person’s accounting and audit8 ing practices, including such practices relevant to

9 employee benefit plans (if any), during the 3-year

10 period immediately preceding such engagement; and

11 ‘‘(III) has completed, within the 2-year period

12 immediately preceding such engagement, at least 80

13 hours of continuing education or training which con14 tributes to the accountant’s professional proficiency,

15 at least 20 hours of which have been completed dur16 ing the 1-year period immediately preceding the en17 gagement, and at least 16 hours of which relate to

18 employee benefit plan matters.

19 ‘‘(iii) A person meets the requirements of this clause

20 with respect to an engagement of such person as an ac21 countant under subparagraph (A) if such person meets

22 such additional requirements and qualifications of regula23 tions which the Secretary deems necessary to ensure the

24 quality of plan audits.
37

•S 476 IS

1 ‘‘(iv) For purposes of clause (ii)(II), an external qual2 ity control review shall be treated as qualified with respect

3 to a person referred to in clause (ii) if—

4 ‘‘(I) such review is performed in accordance

5 with the requirements of external quality control re6 view programs of recognized auditing standard-set7 ting bodies, as determined under regulations of the

8 Secretary; and

9 ‘‘(II) in the case of any such person who has,

10 during the peer review period, conducted one or

11 more previous audits of employee benefit plans, such

12 review includes the review of an appropriate number

13 (determined as provided in such regulations, but in

14 no case less than one) of plan audits in relation to

15 the scale of such person’s auditing practice.

16 The Secretary shall issue the regulations under subclause

17 (I) no later than December 31, 1999.’’

18 (b) EFFECTIVE DATES.—

19 (1) IN GENERAL.—Except as provided in para20 graph (2), the amendments made by this section

21 shall apply with respect to plan years beginning on

22 or after the date which is 3 years after the date of

23 the enactment of this Act.

24 (2) RESTRICTIONS ON CONDUCTING EXAMINA25 TIONS.—Clause (iii) of section 103(a)(3)(C) of the
38

•S 476 IS

1 Employee Retirement Income Security Act of 1974

2 (as added by subsection (a)(6)) shall take effect on

3 the date of enactment of this Act.

4 SEC. 525. CLARIFICATION OF CIVIL PENALTY FOR BREACH

5 OF FIDUCIARY RESPONSIBILITY.

6 (a) IMPOSITION AND AMOUNT OF PENALTY MADE

7 DISCRETIONARY.—Section 502(l)(1) (29 U.S.C.

8 1132(l)(1)) is amended—

9 (1) by striking ‘‘shall’’ and inserting ‘‘may’’,

10 and

11 (2) by striking ‘‘equal to’’ and inserting ‘‘not

12 greater than’’.

13 (b) APPLICABLE RECOVERY AMOUNT.—Section

14 502(l)(2) (29 U.S.C. 1132(l)(2)) is amended to read as

15 follows:

16 ‘‘(2) For purposes of paragraph (1), the term ‘appli17 cable recovery amount’ means any amount which is recov18 ered from (or on behalf of) any fiduciary or other person

19 with respect to a breach or violation described in para20 graph (1) on or after the 30th day following receipt by

21 such fiduciary or other person of written notice from the

22 Secretary of the violation, whether paid voluntarily or by

23 order of a court in a judicial proceeding instituted by the

24 Secretary under subsection (a)(2) or (a)(5). The Secretary
39

•S 476 IS

1 may, in the Secretary’s sole discretion, extend the 30-day

2 period described in the preceding sentence.’’

3 (c) OTHER RULES.—Section 502(l) (29 U.S.C.

4 1132(l)) is amended by adding at the end the following

5 new paragraphs:

6 ‘‘(5) A person shall be jointly and severally liable for

7 the penalty described in paragraph (1) to the same extent

8 that such person is jointly and severally liable for the ap9 plicable recovery amount on which the penalty is based.

10 ‘‘(6) No penalty shall be assessed under this sub11 section unless the person against whom the penalty is as12 sessed is given notice and opportunity for a hearing with

13 respect to the violation and applicable recovery amount.’’

14 (d) EFFECTIVE DATES.—

15 (1) IN GENERAL.—The amendments made by

16 this section shall apply to any breach of fiduciary re17 sponsibility or other violation of part 4 of subtitle B

18 of title I of the Employee Retirement Income Secu19 rity Act of 1974 occurring on or after the date of

20 enactment of this Act.

21 (2) TRANSITION RULE.—In applying the

22 amendment made by subsection (b) (relating to ap23 plicable recovery amount), a breach or other viola24 tion occurring before the date of the enactment of

25 this Act which continues after the 180th day after
40

•S 476 IS

1 such date (and which may have been discontinued

2 at any time during its existence) shall be treated as

3 having occurred after such date of enactment.

4 TITLE VI—EXPANDED INDIVID5 UAL RETIREMENT ACCOUNTS

6 TO INCREASE COVERAGE AND

7 PORTABILITY

8 Subtitle A—Retirement Savings

9 Incentives

10 SEC. 601. INCREASE IN INCOME LIMITATIONS.

11 (a) IN GENERAL.—Clauses (i) and (ii) of subpara12 graph (B) of section 219(g)(3) of the Internal Revenue

13 Code of 1986 (relating to adjusted gross income) are

14 amended to read as follows:

15 ‘‘(i) In the case of a taxpayer filing a

16 joint return:

‘‘For taxable years beginning in: The applicable

dollar amount is:

1999 ....................................................................... $60,000

2000 ....................................................................... $70,000

2001 and thereafter .............................................. $80,000.

17 ‘‘(ii) In the case of any other taxpayer

18 (other than a married individual filing a

19 separate return):

‘‘For taxable years beginning in: The applicable

dollar amount is:

1999 ....................................................................... $35,000

2000 ....................................................................... $45,000

2001 and thereafter .............................................. $50,000.’’
41

•S 476 IS

1 (b) PHASEOUT OF LIMITATIONS.—Clause (ii) of sec2 tion 219(g)(2)(A) is amended—

3 (1) by striking ‘‘$10,000’’ and inserting ‘‘an

4 amount equal to 10 times the dollar amount applica5 ble for the taxable year under subsection (b)(1)(A)’’,

6 and

7 (2) by striking ‘‘($20,000 in the case of a joint

8 return for a taxable year beginning after 2006)’’.

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

10 this section shall apply to taxable years beginning after

11 December 31, 1998.

12 SEC. 602. COORDINATION OF IRA DEDUCTION LIMIT WITH

13 ELECTIVE DEFERRAL LIMIT.

14 (a) IN GENERAL.—Section 219(b) of the Internal

15 Revenue Code of 1986 (relating to maximum amount of

16 deduction) is amended by adding at the end the following

17 new paragraph:

18 ‘‘(5) COORDINATION WITH ELECTIVE DEFER19 RAL LIMIT.—The amount determined under para20 graph (1) or subsection (c) with respect to any indi21 vidual for any taxable year shall not exceed the ex22 cess (if any) of—

23 ‘‘(A) the limitation applicable for the tax24 able year under section 402(g)(1), over
42

•S 476 IS

1 ‘‘(B) the elective deferrals (as defined in

2 section 402(g)(3)) of such individual for such

3 taxable year.’’

4 (b) CONFORMING AMENDMENT.—Section 219(c) of

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

6 new paragraph:

7 ‘‘(3) CROSS REFERENCE.—

‘‘For reduction in paragraph (2) amount, see subsection (b)(5).’’

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

9 this section shall apply to taxable years beginning after

10 December 31, 1998.

11 Subtitle B—Distributions and

12 Investments

13 SEC. 611. DISTRIBUTIONS FROM IRAS MAY BE USED WITH14 OUT ADDITIONAL TAX TO PAY FINANCIALLY

15 DEVASTATING MEDICAL EXPENSES, OR BY

16 THE UNEMPLOYED.

17 (a) CERTAIN LINEAL DESCENDANTS AND ANCES18 TORS TREATED AS DEPENDENTS AND LONG-TERM CARE

19 SERVICES TREATED AS MEDICAL CARE.—Subparagraph

20 (B) of section 72(t)(2) of the Internal Revenue Code of

21 1986 (relating to medical expenses) is amended by strik22 ing ‘‘medical care’’ and all that follows and inserting

23 ‘‘medical care determined—
43

•S 476 IS

1 ‘‘(i) without regard to whether the

2 employee itemizes deductions for such tax3 able year, and

4 ‘‘(ii) in the case of an individual re5 tirement plan—

6 ‘‘(I) by treating such employee’s

7 dependents as including all children,

8 grandchildren, and ancestors of the

9 employee or such employee’s spouse

10 and

11 ‘‘(II) by treating qualified long12 term care services (as defined in para13 graph (9)) as medical care for pur14 poses of this subparagraph.’’

15 (b) DEFINITION OF LONG-TERM CARE SERVICES.—

16 Section 72(t) of such Code is amended by adding at the

17 end the following new paragraph:

18 ‘‘(9) QUALIFIED LONG-TERM CARE SERVICES.—

19 For purposes of paragraph (2)(B)—

20 ‘‘(A) IN GENERAL.—The term ‘qualified

21 long-term care services’ means necessary diag22 nostic, curing, mitigating, treating, preventive,

23 therapeutic, and rehabilitative services, and

24 maintenance and personal care services (wheth-
44

•S 476 IS

1 er performed in a residential or nonresidential

2 setting) which—

3 ‘‘(i) are required by an individual dur4 ing any period the individual is an inca5 pacitated individual (as defined in subpara6 graph (B)),

7 ‘‘(ii) have as their primary purpose—

8 ‘‘(I) the provision of needed as9 sistance with 1 or more activities of

10 daily living (as defined in section

11 7702B(c)(2)(B)), or

12 ‘‘(II) protection from threats to

13 health and safety due to severe cog14 nitive impairment, and

15 ‘‘(iii) are provided pursuant to a con16 tinuing plan of care prescribed by a li17 censed professional (as defined in subpara18 graph (C)).

19 ‘‘(B) INCAPACITATED INDIVIDUAL.—The

20 term ‘incapacitated individual’ means any indi21 vidual who—

22 ‘‘(i) is unable to perform, without sub23 stantial assistance from another individual

24 (including assistance involving cueing or
45

•S 476 IS

1 substantial supervision), at least 2 activi2 ties of daily living (as so defined), or

3 ‘‘(ii) has severe cognitive impairment

4 as defined by the Secretary in consultation

5 with the Secretary of Health and Human

6 Services.

7 Such term shall not include any individual oth8 erwise meeting the requirements of the preced9 ing sentence unless, within the preceding 12-

10 month period, a licensed professional has cer11 tified that such individual meets such require12 ments.

13 ‘‘(C) LICENSED PROFESSIONAL.—The

14 term ‘licensed professional’ means—

15 ‘‘(i) a physician or registered profes16 sional nurse, or

17 ‘‘(ii) any other individual who meets

18 such requirements as may be prescribed by

19 the Secretary after consultation with the

20 Secretary of Health and Human Services.

21 ‘‘(D) CERTAIN SERVICES NOT IN22 CLUDED.—The term ‘qualified long-term care

23 services’ shall not include any services provided

24 to an individual—
46

•S 476 IS

1 ‘‘(i) by a relative (directly or through

2 a partnership, corporation, or other entity)

3 unless the relative is a licensed professional

4 with respect to such services, or

5 ‘‘(ii) by a corporation or partnership

6 which is related (within the meaning of

7 section 267(b) or 707(b)) to the individual.

8 For purposes of this subparagraph, the term

9 ‘relative’ means an individual bearing a rela10 tionship to the individual which is described in

11 paragraphs (1) through (8) of section 152(a).’’

12 (c) DISTRIBUTIONS FOR CERTAIN UNEMPLOYED IN13 DIVIDUALS.—Paragraph (2) of section 72(t) of the Inter14 nal Revenue Code of 1986 is amended by adding at the

15 end the following new subparagraph:

16 ‘‘(G) DISTRIBUTIONS TO UNEMPLOYED IN17 DIVIDUALS.—A distribution from an individual

18 retirement plan to an individual after separa19 tion from employment, if—

20 ‘‘(i) such individual has received un21 employment compensation for 12 consecu22 tive weeks under any Federal or State un23 employment compensation law by reason of

24 such separation, and
47

•S 476 IS

1 ‘‘(ii) such distributions are made dur2 ing any taxable year during which such un3 employment compensation is paid or the

4 succeeding taxable year.’’

5 (d) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to payments and distributions after

7 December 31, 1998.

8 SEC. 612. CONTRIBUTIONS MUST BE HELD AT LEAST 5

9 YEARS IN CERTAIN CASES.

10 (a) IN GENERAL.—Section 72(t) of the Internal Rev11 enue Code of 1986 (relating to 10-percent additional tax

12 on early distributions from qualified retirement plans), as

13 amended by section 611(b), is amended by adding at the

14 end the following new paragraph:

15 ‘‘(10) CERTAIN CONTRIBUTIONS MUST BE HELD

16 5 YEARS.—

17 ‘‘(A) IN GENERAL.—Paragraph (2)(A)(i)

18 shall not apply to any amount distributed out

19 of an individual retirement plan (other than a

20 Roth IRA) which is allocable to contributions

21 made to the plan during the 5-year period end22 ing on the date of such distribution (and earn23 ings on such contributions).

24 ‘‘(B) ORDERING RULE.—For purposes of

25 this paragraph—
48

•S 476 IS

1 ‘‘(i) FIRST-IN, FIRST-OUT RULE.—

2 Distributions shall be treated as having

3 been made—

4 ‘‘(I) first from the earliest con5 tribution (and earnings allocable

6 thereto) remaining in the account at

7 the time of the distribution, and

8 ‘‘(II) then from other contribu9 tions (and earnings allocable thereto)

10 in the order in which made.

11 ‘‘(ii) ALLOCATION OF EARNINGS.—

12 Earnings shall be allocated to contribu13 tions in such manner as the Secretary may

14 prescribe.

15 ‘‘(iii) AGGREGATIONS OF CONTRIBU16 TIONS.—Except as provided by the Sec17 retary, for purposes of this

18 subparagraph—

19 ‘‘(I) all contributions made dur20 ing the same taxable year may be

21 treated as 1 contribution, and

22 ‘‘(II) all contributions made be23 fore the first day of the 5-year period

24 ending on the day before any distribu25 tion may be treated as 1 contribution.
49

•S 476 IS

1 ‘‘(C) SPECIAL RULE FOR ROLLOVERS.—

2 ‘‘(i) PENSION PLANS.—Subparagraph

3 (A) shall not apply to distributions out of

4 an individual retirement plan which are al5 locable to rollover contributions to which

6 section 402(c), 403(a)(4), or 403(b)(8) ap7 plied.

8 ‘‘(ii) CONTRIBUTION PERIOD.—For

9 purposes of subparagraph (A), amounts

10 shall be treated as having been held by a

11 plan during any period such contributions

12 were held (or are treated as held under

13 this clause) by any individual retirement

14 plan from which transferred.

15 ‘‘(D) ROTH IRA.—For rules applicable to

16 Roth IRAs under section 408A, see subsection

17 (d)(3)(F) of such section.’’

18 (b) EFFECTIVE DATE.—The amendment made by

19 this section shall apply to contributions (and earnings allo20 cable thereto) which are made after December 31, 1998.

Æ