I 

109TH CONGRESS 

1ST SESSION H. R. 1508 

To amend the Internal Revenue Code of 1986 and the Employee Retirement 

Income Security Act of 1974 to facilitate automatic enrollment in 401(k) 

plans, and for related purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 6, 2005 

Mr. EMANUEL (for himself, Mr. COOPER, Ms. HARMAN, Mr. VAN HOLLEN, 

Ms. WASSERMAN SCHULTZ, and Mr. BECERRA) introduced the following 

bill; which was referred to the Committee on Education and the Workforce, and in addition to the Committee on Ways and Means, for a period 

to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee 

concerned 

A BILL 

To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to facilitate automatic enrollment in 401(k) plans, and for related purposes. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘401(k) Automatic En5 rollment Act of 2005’’. 
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1 SEC. 2. AUTOMATIC ENROLLMENT ARRANGEMENTS. 

2 (a) IN GENERAL.—Section 401(k) of such Code is 

3 amended by adding at the end the following new para4 graph: 

5 ‘‘(13) AUTOMATIC ENROLLMENT ARRANGE6 MENTS.— 

7 ‘‘(A) IN GENERAL.—If the requirements of 

8 subparagraphs (B) through (F) are met, a cash 

9 or deferred arrangement shall not fail to be 

10 treated as satisfying the requirements of para11 graph (2)(A) merely because elective deferrals 

12 (as defined in section 402(g)(3)) are contrib13 uted on behalf of eligible employees to a trust 

14 under the plan of which such arrangement is a 

15 part without an affirmative election by the em16 ployee to make such contributions. 

17 ‘‘(B) ELECTION OUT.—The requirements 

18 of this subparagraph are met if the employee 

19 may elect to receive any future amount of the 

20 contributions described in subparagraph (A) di21 rectly in cash in lieu of such contributions. 

22 ‘‘(C) AMOUNT OF CONTRIBUTIONS.—The 

23 requirements of this subparagraph are met if 

24 the contributions described in subparagraph (A) 

25 are made in an amount equal to— 
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1 ‘‘(i) in the case of an employee with 

2 respect to whom an election is in effect 

3 under subparagraph (B), zero, 

4 ‘‘(ii) in the case of an employee who 

5 makes an affirmative election regarding 

6 the specific amount of such contributions 

7 (expressed either as a percentage or as a 

8 dollar amount of compensation), such 

9 amount, and 

10 ‘‘(iii) in the case of any other em11 ployee, such percentage or dollar amount 

12 of compensation as is specified under the 

13 plan for purposes of this paragraph, 

14 provided that is subparagraphs (A) and (B) 

15 apply to fewer than all eligible employees, the 

16 automatic enrollment arrangement shall be 

17 treated as applying to such employees and to 

18 the employees who are described in clauses (i) 

19 and (ii). 

20 ‘‘(D) INVESTMENT OF CONTRIBUTIONS.— 

21 The requirements of this subparagraph are met 

22 if the contributions described in subparagraph 

23 (A) are not invested in qualifying employer se24 curities (as defined in section 4975(e)(8)) or 

25 qualifying employer real property (as defined in 
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1 section 407(d)(4) of the Employee Retirement 

2 Income Security Act of 1974) unless such in3 vestment is affirmatively elected by the em4 ployee. 

5 ‘‘(E) TIME OF CONTRIBUTIONS.—The re6 quirements of this subparagraph are met if the 

7 contributions described in subparagraph (A) 

8 with respect to any employee begin not later 

9 than the date described in section 410(a)(4) 

10 with respect to such employee. 

11 ‘‘(F) NOTICE.—The requirements of this 

12 subparagraph are met if the employer provides 

13 notice, as follows: 

14 ‘‘(i) IN GENERAL.—The administrator 

15 of a plan which includes an automatic en16 rollment arrangement (determined without 

17 regard to this subparagraph) shall, within 

18 a reasonable period before the first day of 

19 each plan year, give to each employee to 

20 whom an automatic enrollment arrange21 ment applies for such plan year notice of 

22 the employee’s rights and obligations under 

23 the arrangement which— 
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1 ‘‘(I) is sufficiently accurate and 

2 comprehensive to apprise the employee 

3 of such rights and obligations, and 

4 ‘‘(II) is written in a manner cal5 culated to be understood by the aver6 age employee to whom the arrange7 ment applies. 

8 ‘‘(ii) REQUIREMENTS.— A notice shall 

9 not be treated as meeting the requirements 

10 of clause (i) with respect to an employee 

11 unless— 

12 ‘‘(I) the notice includes an expla13 nation of the employee’s right under 

14 the arrangement to elect not to have 

15 elective contributions made on the em16 ployee’s behalf (or to elect to have 

17 such contributions made at a different 

18 percentage or rate than that specified 

19 as the automatic enrollment contribu20 tion percentage), including how and 

21 when such elections may be made, 

22 ‘‘(II) the employee has a reason23 able period of time, after receipt of 

24 the notice and before the first elective 

25 contribution is made on the employ-
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1 ee’s behalf pursuant to automatic en2 rollment, to make such election, 

3 ‘‘(III) the notice describes any 

4 employer matching contributions or 

5 other employer contributions available 

6 under the arrangement, and 

7 ‘‘(IV) the notice explains how 

8 contributions made under the ar9 rangement will be invested in the ab10 sence of any investment election by 

11 the employee. 

12 ‘‘(G) UNWIND DISTRIBUTIONS.— 

13 ‘‘(i) IN GENERAL.—An automatic en14 rollment arrangement shall not fail to be 

15 treated as a qualified cash or deferred ar16 rangement merely because the plan allows 

17 an employee to opt out retroactively to the 

18 beginning of the plan year and make an 

19 unwind distribution during such plan year 

20 if such employee is not eligible to make 

21 elective contributions to the plan during 

22 the remainder of the plan year after the 

23 date of such distribution. This clause shall 

24 not apply more than once with respect to 

25 any employee of an employer. 
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1 ‘‘(ii) TAX TREATMENT OF DISTRIBU2 TION.—An unwind distribution shall be in3 cludible in the gross income of the em4 ployee. No tax shall be imposed under sec5 tion 72(t) on any such distribution. 

6 ‘‘(iii) UNWIND DISTRIBUTION DE7 FINED.—For purposes of this subpara8 graph, the term ‘unwind distribution’ 

9 means a distribution to a participant who 

10 is not a highly compensated employee (as 

11 defined in section 414(q)) of contributions 

12 described in subparagraph (A) (and earn13 ings attributable thereto) from an auto14 matic enrollment arrangement in which the 

15 account balance of the participant imme16 diately before such distribution does not 

17 exceed the greater of— 

18 ‘‘(I) $400, or 

19 ‘‘(II) the amount of such con20 tributions made in connection with 

21 not more than the first 4 payroll peri22 ods following the application of sub23 paragraph (A) to the participant. 

24 ‘‘(iv) EMPLOYER MATCHING CON25 TRIBUTIONS.—In the case of any unwind 
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1 distribution, employer matching contribu2 tions shall be forfeited or subject to such 

3 other treatment as the Secretary may pre4 scribe through regulations or other guid5 ance. 

6 ‘‘(v) UNWOUND CONTRIBUTIONS NOT

7 TAKEN INTO ACCOUNT.—Contributions at8 tributable to an unwind distribution shall 

9 not be taken into account for purposes of 

10 paragraph (3). 

11 ‘‘(H) AUTOMATIC OR AFFIRMATIVELY

12 ELECTED INCREASE IN CONTRIBUTION

13 AMOUNTS.—An automatic enrollment arrange14 ment shall not fail to be treated as a qualified 

15 cash or deferred arrangement merely because 

16 the plan— 

17 ‘‘(i) permits eligible employees to elect 

18 to have the percentage or dollar amount 

19 described in subparagraph (C)(iii) auto20 matically increased from time to time in 

21 the future by a specified percentage or dol22 lar amount of compensation based on such 

23 factors as increases in compensation, pas24 sage of time, or increases in years of serv25 ice or participation, or 
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1 ‘‘(ii) provides for one or more of the 

2 increases described in clause (i) to occur 

3 automatically unless the eligible employee 

4 elects otherwise, 

5 provided that, in the case of either clause (i) or 

6 (ii), the employee may elect to stop such in7 creases with respect to any future contributions. 

8 ‘‘(I) REGULATIONS AND REPORTING.—The 

9 Secretary is authorized to prescribe regulations 

10 or other administrative guidance to carry out 

11 this paragraph, including— 

12 ‘‘(i) simplified methods of reporting 

13 and otherwise implementing the unwind of 

14 tax consequences and plan qualification 

15 consequences in order to simplify those 

16 consequences for participants and plan 

17 sponsors, and 

18 ‘‘(ii) simplified methods for plan ad19 ministrators to implement automatic en20 rollment arrangements and any provisions 

21 necessary to prevent abuse in connection 

22 with such arrangements.. 

23 ‘‘(J) AUTOMATIC ENROLLMENT ARRANGE24 MENT.—For purposes of this paragraph, the 

25 term ‘automatic enrollment arrangement’ 
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1 means an arrangement to which subparagraph 

2 (A) applies.’’. 

3 (b) SAFE HARBOR AUTOMATIC ENROLLMENT AR4 RANGEMENTS UNDER SIMPLE RETIREMENT AC5 COUNTS.— 

6 (1) Clause (i) of section 408(p)(2)(A) of such 

7 Code is amended by adding at the end the following 

8 new flush language: 

9 ‘‘but only if such arrangement is an auto10 matic enrollment arrangement (as defined 

11 in section 401(k)(13)) that meets the re12 quirements of subclauses (I), (IV), and (V) 

13 of section 401(k)(12)(G)(i) (applied in the 

14 case of such subclause (V) by substituting 

15 ‘‘3 percent’’ for ‘‘minimum contribution 

16 percentage’’ therein), ’’. 

17 (2) Subsection (p) of section 408 of such Code 

18 (relating to simple retirement accounts) is amended 

19 by adding at the end the following new paragraph: 

20 ‘‘(10) SAFE HARBOR AUTOMATIC ENROLLMENT

21 ARRANGEMENTS.—Under regulations prescribed by 

22 the Secretary, rules similar to the rules of section 

23 401(k)(13) shall apply for purposes of this sub24 section, provided that the Secretary may adapt such 

25 rules as he determines to be necessary or advisable 
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1 to take into account the differences between the pro2 visions of section 401(k) and this subsection.’’. 

3 (c) AUTOMATIC ENROLLMENT ARRANGEMENTS

4 UNDER 403(b) PLANS.—Subsection (b) of section 403 of 

5 such Code (relating to taxability of beneficiary under an6 nuity purchased by section 501(c)(3) organization or pub7 lic school) is amended by adding at the end the following 

8 new paragraph: 

9 ‘‘(14) AUTOMATIC ENROLLMENT ARRANGE10 MENTS.—Under regulations prescribed by the Sec11 retary, rules similar to the rules of section 

12 401(k)(13) shall apply for purposes of this sub13 section, provided that the Secretary may adapt such 

14 rules as he determines to be necessary or advisable 

15 to take into account the differences between the pro16 visions of section 401(k) and this subsection.’’. 

17 (d) AUTOMATIC ENROLLMENT ARRANGEMENTS

18 UNDER SECTION 457 PLANS.—Subsection (e) of section 

19 457 of such Code is amended by adding at the end the 

20 following new paragraph: 

21 ‘‘(19) AUTOMATIC ENROLLMENT ARRANGE22 MENTS.—Under regulations prescribed by the Sec23 retary, rules similar to the rules of section 

24 401(k)(13) shall apply for purposes of this section, 

25 provided that the Secretary may adapt such rules as 
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1 he determines to be necessary or advisable to take 

2 into account the differences between the provisions 

3 of section 401(k) and this section.’’. 

4 (e) 401(k) PLAN MATCHING SAFE HARBOR WITH

5 AUTOMATIC ENROLLMENT.— 

6 (1) IN GENERAL.—Clause (i) of section 

7 401(k)(12)(B) of such Code is amended to read as 

8 follows: 

9 ‘‘(i) IN GENERAL.—The requirements 

10 of this subparagraph are met if— 

11 ‘‘(I) the arrangement is an auto12 matic enrollment arrangement (as de13 fined in paragraph (13)) which meets 

14 the requirements of subparagraph 

15 (G), and 

16 ‘‘(II) under the arrangement, the 

17 employer makes matching contribu18 tions on behalf of each employee who 

19 is not a highly compensated employee 

20 in an amount equal to 50 percent of 

21 the elective contributions of the em22 ployee to the extent that such elective 

23 contributions do not exceed 6 percent 

24 of the employee’s compensation.’’. 
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1 (2) IN GENERAL.—Paragraph (12) of section 

2 401(k) of such Code (relating to alternative methods 

3 of meeting nondiscrimination requirements) is 

4 amended by adding at the end the following new 

5 subparagraph: 

6 ‘‘(G) AUTOMATIC ENROLLMENT.— 

7 ‘‘(i) IN GENERAL.—An automatic en8 rollment arrangement meets the require9 ments of this subparagraph if— 

10 ‘‘(I) elective contributions are 

11 made under the arrangement with re12 spect to each eligible employee (other 

13 than employees with respect to whom 

14 an election is in effect under para15 graph (13)(B)) for such year, 

16 ‘‘(II) any election under subpara17 graph (B) or (C)(ii) of paragraph (13) 

18 remains in effect with respect to any 

19 employee for a period of 3 years un20 less the plan provides for a shorter pe21 riod or unless the employee makes a 

22 new election thereunder or has elected 

23 an automatic increase in the employ24 ee’s contribution percentage, 
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1 ‘‘(III) 85 percent or more of eli2 gible employees participated in the ar3 rangement at any time during the 

4 previous plan year (unless the em5 ployer has reason to know that such 

6 time is not representative of participa7 tion during such year), and 

8 ‘‘(IV) the plan specifies a per9 centage for purposes of paragraph 

10 (13)(C)(iii) which is equal to the min11 imum contribution percentage, which 

12 shall not apply to any employee de13 scribed in clause (i) or (ii) of para14 graph (13)(C), and which may be fur15 ther increased in accordance with 

16 paragraph (13)(H)(i). 

17 ‘‘(ii) MINIMUM CONTRIBUTION PER18 CENTAGE.—For purposes of this subpara19 graph, the term ‘minimum contribution 

20 percentage’ means, with respect to the first 

21 plan year for which an employee was eligi22 ble to participate, a percentage of not less 

23 than 3 percent, and with respect to any 

24 subsequent plan year, a percentage equal 

25 to such percentage for the first plan year 
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1 increased by either 1 percent or 2 percent 

2 for each subsequent plan year (as the plan 

3 may provide), except as provided in clauses 

4 (iii) and (iv). 

5 ‘‘(iii) 9 PERCENT LIMITATION.—The 

6 minimum contribution percentage shall not 

7 exceed 9 percent for any plan year. 

8 ‘‘(iv) LIMITATION BASED ON IN9 CREASE IN EMPLOYEE COMPENSATION.— 

10 With respect to any plan year beginning 

11 after the first plan year for which such em12 ployee was eligible to participate in the 

13 plan, the minimum contribution percentage 

14 with respect to such employee shall not ex15 ceed the sum of the minimum contribution 

16 percentage with respect to such employee 

17 for the prior plan year, plus the percentage 

18 increase in the employee’s compensation 

19 with respect to the current plan year (as 

20 determined under the plan and consistent 

21 with such requirements as the Secretary 

22 may provide). 

23 ‘‘(v) REGULATIONS.—The Secretary 

24 may provide for alternative or simplified 

25 methods of compliance with any provision 
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1 of this subparagraph as the Secretary de2 termines to be necessary or advisable to 

3 simplify plan administration or prevent 

4 abuse, including simplified methods of ad5 ministering automatic enrollment and 

6 automatic contribution percentage in7 creases for employees who are not newly 

8 eligible employees.’’. 

9 (f) EFFECTIVE DATES.— 

10 (1) IN GENERAL.—Except as provided in para11 graphs (2) and (3), the amendments made by this 

12 section shall apply to plan years beginning after De13 cember 31, 2005. 

14 (2) QUALIFYING EMPLOYER SECURITIES AND

15 REAL PROPERTY.—In the case of a plan that, as of 

16 January 1, 2005, uses an automatic enrollment ar17 rangement that does not comply with subparagraph 

18 (D) of section 401(k)(13) of the Internal Revenue 

19 Code of 1986, as amended by this section, such sub20 paragraph shall apply to plan years beginning after 

21 December 31, 2006. 

22 (3) ALTERNATIVE METHODS OF MEETING NON23 DISCRIMINATION REQUIREMENTS.—In the case of a 

24 plan to which section 401(k)(12)(B) or section 

25 408(p)(2) (other than subparagraph (B) thereof) of 
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1 the Internal Revenue Code of 1986 applies on Janu2 ary 1, 2005, the amendments made by this section 

3 shall apply to plan years beginning after December 

4 31, 2007. 

5 SEC. 3. PREEMPTION OF STATE LAWS PRECLUDING AUTO6 MATIC ENROLLMENT OR AUTOMATIC ROLL7 OVERS. 

8 (a) IN GENERAL.—Section 514 of the Employee Re9 tirement Income Security Act of 1974 (29 U.S.C. 

10 1144(b)) is amended— 

11 (1) by redesignating subsection (d) as sub12 section (e); and 

13 (2) by inserting after subsection (c) the fol14 lowing new subsection: 

15 ‘‘(d) The provisions of this title shall supersede any 

16 and all State laws insofar as they may preclude, or have 

17 the effect of precluding— 

18 ‘‘(1) the establishment or operation of, or mak19 ing of contributions to, a pension plan under an 

20 automatic enrollment arrangement (as defined in 

21 section 401(k)(13) of the Internal Revenue Code of 

22 1986), or 

23 ‘‘(2) a distribution described in section 

24 401(a)(31)(B) of such Code or the establishment or 

25 operation of an individual retirement plan (as de-
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1 fined in section 7701(a)(37) of the Internal Revenue 

2 Code of 1986) allowing receipt of such distribu3 tions.’’. 

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

5 this section shall apply with respect to actions (described 

6 in paragraph (1) or (2) of section 514(d) of the Employee 

7 Retirement Income Security Act of 1974 (added by this 

8 section)) taken before, on, or after the date of the enact9 ment of this Act. 

10 SEC. 4. LIMITATION OF FIDUCIARY RESPONSIBILITIES 

11 WITH RESPECT TO AUTOMATIC ROLLOVER. 

12 (a) IN GENERAL.—Section 404(c)(3) of the Em13 ployee Retirement Income Security Act of 1974 (29 

14 U.S.C. 1104(c)(3)) is amended to read as follows: 

15 ‘‘(3) In the case of a pension plan which makes a 

16 transfer to an individual retirement account or annuity 

17 (described in section 408 of the Internal Revenue Code 

18 of 1986) of a designated trustee or issuer under section 

19 401(a)(31)(B) of such Code— 

20 ‘‘(A) the duties described in subsections (a) and 

21 (b) shall not apply to the assets in the account or 

22 annuity except for the initial investment of such as23 sets in the account or annuity, and 

24 ‘‘(B) a fiduciary of the plan shall have no re25 sponsibility for any losses attributable to such initial 
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1 investment (or any other investment in the account 

2 or annuity) which occur after— 

3 ‘‘(i) the earliest of— 

4 ‘‘(I) an affirmative election by the 

5 owner of the account or annuity among in6 vestment options, 

7 ‘‘(II) a rollover of all or a portion of 

8 the amount to another individual retire9 ment account or annuity or to an employer 

10 plan or simple retirement account; or 

11 ‘‘(III) 1 year after the transfer is 

12 made, or 

13 ‘‘(ii) a transfer which is made in a manner 

14 consistent with guidance provided by the Sec15 retary.’’ 

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

17 this section shall apply with respect to transactions occur18 ring on or after January 1, 2006. 

19 SEC. 5. AUTOMATIC OR DEFAULT INVESTMENTS. 

20 (a) IN GENERAL.—Section 404 of the Employee Re21 tirement Income Security Act of 1974 (29 U.S.C. 1104) 

22 is amended by adding at the end the following new sub23 section: 

24 ‘‘(e)(1) A fiduciary with respect to an individual ac25 count plan shall be deemed to have satisfied the require-
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1 ments of subsection (a)(1)(B) with respect to the plan, 

2 in connection with any qualifying automatic investment 

3 under the plan, to the extent those requirements pertain 

4 to asset allocation as between equity instruments or in5 vestments and debt instruments or investments and to 

6 such further extent as may be specified by the Secretary 

7 in administrative guidance of general applicability. 

8 ‘‘(2) For purposes of this subsection, the term ‘quali9 fying automatic investment’ means, in connection with a 

10 participant in a plan, an investment of assets constituting 

11 some or all of the participant’s accrued benefit under the 

12 plan in a form of investment specified by the plan, in any 

13 case in which— 

14 ‘‘(A) such assets— 

15 ‘‘(i) are attributable to employer contribu16 tions (and earnings thereon) made pursuant to 

17 an automatic enrollment arrangement (as de18 fined in section 401(k)(13) of the Internal Rev19 enue Code of 1986), 

20 ‘‘(ii) are attributable to distributions de21 scribed in section 401(a)(31)(B) of such Code, 

22 or 

23 ‘‘(iii) have been identified by the Secretary 

24 as appropriate for automatic investment, 
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1 ‘‘(B) the plan provides for investment of such 

2 assets in such form of investment unless, in lieu 

3 thereof, alternative forms of investments, which are 

4 also made available to the participant under the 

5 terms of the plan, are selected by the participant, 

6 ‘‘(C) the plan provides, under such form of in7 vestment, for investment of such assets under con8 straints designed to— 

9 ‘‘(i) limit the risk associated with the in10 vestment portfolio to a reasonable level of risk 

11 while seeking to maximize return consistent 

12 with that level of risk, or 

13 ‘‘(ii) minimize risk while seeking a reason14 able expected return, and 

15 ‘‘(D) the expenses associated with the invest16 ment meet the standards of paragraph (3). 

17 ‘‘(3)(A) The expenses associated with an investment 

18 meet the standards of this paragraph if they do not exceed 

19 reasonable expenses. Such expenses shall not be treated 

20 as exceeding reasonable expenses solely because the ex21 penses in any year (excluding expenses for acquisition of 

22 the investment) exceed the investment returns for that 

23 year and cause a reduction in principal. 

24 ‘‘(B) For purposes of subparagraph (A), the term ‘ex25 pense’ means any fee, charge, commission, load, or other 
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1 cost or expense associated with the investment (including 

2 cost of acquisition, establishment, maintenance, surrender, 

3 or termination of the investment and any other cost of 

4 managing or administering the investment) to the extent 

5 borne by participants. 

6 ‘‘(C) The expenses associated with an individual re7 tirement plan (as defined in section 7701(a)(37) of the 

8 Internal Revenue Code of 1986) shall not be treated as 

9 meeting the standards of this paragraph if such expenses 

10 exceed the expenses normally charged by the trustee or 

11 custodian of a comparable individual retirement plan es12 tablished to receive rollover contributions (as defined in 

13 section 408(d)(3) of such Code) which are not distribu14 tions described in section 401(a)(31)(B) of such Code. 

15 ‘‘(4) The requirements of paragraph (2)(C) shall be 

16 treated as satisfied with respect to investments provided 

17 for by a plan to the extent such investments consist of— 

18 ‘‘(A) a balanced portfolio comprised of both eq19 uity investments and either stable value or fixed in20 come investments provided by a financial institution 

21 (or similar financial entity) that is regulated by the 

22 United States or a State in any case in which— 

23 ‘‘(i) the equity investments are broad-based 

24 index funds or, to the extent permitted by the 

25 Secretary under regulations, guidelines, or 
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1 other administrative guidance, actively managed 

2 funds that are broadly diversified so as to mini3 mize the risk of large losses, and 

4 ‘‘(ii) the stable value or fixed income in5 vestments— 

6 ‘‘(I) are designed to comprise at least 

7 20 percent of the total (measured in terms 

8 of fair market value), and 

9 ‘‘(II) are either diversified to minimize 

10 the risk of large losses or are obligations 

11 (which may include inflation-protected obli12 gations) issued by the United States, or 

13 ‘‘(B) stable value investments. 

14 For purposes of this paragraph, the term ‘stable value in15 vestments’ means investments provided by a financial in16 stitution regulated by the United States or a State that 

17 are designed to preserve principal and provide a reason18 able rate of return, whether or not guaranteed, which may 

19 include investments designed to maintain a stable dollar 

20 value equal to the original value of the investment. The 

21 Secretary may prescribe regulations or other administra22 tive guidance prescribing the manner in which the require23 ments of paragraph (A)(i) may be applied taking into ac24 count classes of investment determined on the basis of in25 vestment in large, intermediate, or small capitalization 
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1 funds, funds of varying styles (such as growth funds or 

2 value funds), or funds consisting of, or not consisting of, 

3 foreign or international securities. 

4 ‘‘(5) An investment otherwise described in the pre5 ceding provisions of this subsection shall not be treated 

6 as failing to be a qualifying automatic investment solely 

7 by reason of: 

8 ‘‘(A) the availability to the participant under 

9 the terms of the plan of alternative forms of invest10 ment which meet the requirements of subsection 

11 (c)(1) or are managed by an independent investment 

12 manager; 

13 ‘‘(B) the extent to which provisions of the plan 

14 are or are not directed toward limiting the risk of 

15 loss of principal under such investment or promoting 

16 long-term capital appreciation; 

17 ‘‘(C) any change or variation in the percentages 

18 of equity and stable value investments included in 

19 the investment portfolio or other aspects of the con20 stituent investments to the extent such change or 

21 variation is based on: 

22 ‘‘(i) automatic rebalancing or variable in23 vestment returns prior to periodic rebalancing, 

24 ‘‘(ii) the participant’s age, or 
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1 ‘‘(iii) other factors relating to the partici2 pant’s situation, such as years until retirement, 

3 other retirement plan coverage, financial situa4 tion, or investment preferences expressed to the 

5 plan by the participant; or 

6 ‘‘(D) the extent to which such investment con7 sists of interests in real estate or real-estate-based 

8 investments, if such interests are broadly diversified 

9 and do not comprise more than 10 percent of the eq10 uity portion of the total investment of plan assets. 

11 ‘‘(6)(A) Notwithstanding paragraph (1), the require12 ments of subsection (a)(1)(C) shall not be treated as satis13 fied in connection with any qualifying automatic invest14 ment unless such investment (other than the stable value 

15 portion thereof) is designed so that no more than 0.5 per16 cent of the total fair market value of the assets invested 

17 are invested in securities issued by, or interests in the 

18 property of, any single person. 

19 ‘‘(B) For purposes of subparagraph (A), any person 

20 and all affiliates thereof shall be treated as a single per21 son. A corporation is an affiliate of a person if such cor22 poration is a member of any controlled group of corpora23 tions (as defined in section 1563(a) of the Internal Rev24 enue Code of 1986, except that ‘applicable percentage’ 

25 shall be substituted for ‘80 percent’ wherever the latter 
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1 percentage appears in such section) of which person is a 

2 member. For purposes of the preceding sentence, the term 

3 ‘applicable percentage’ means 50 percent, or such lower 

4 percentage as the Secretary may prescribe by regulation. 

5 A person other than a corporation shall be treated as an 

6 affiliate of any other person to the extent provided in regu7 lations of the Secretary. Regulations under this subpara8 graph shall be prescribed only after consultation and co9 ordination with the Secretary of the Treasury. 

10 ‘‘(7) The Secretary shall issue regulations or other 

11 administrative guidance specifying the manner in which 

12 investments under independent professional investment 

13 management pursuant to sections 402(c)(3) and 403(a)(2) 

14 and other qualifying automatic investments may serve as 

15 the default investment arrangement with respect to some 

16 or all plan assets without adversely affecting plan compli17 ance with this part, as governed by subsection (c)(1) with 

18 respect to assets over which participants or beneficiaries 

19 exercise control. 

20 ‘‘(8)(A) The Secretary may issue regulations or other 

21 administrative guidance for compliance with the require22 ments of this subsection which are consistent with the pro23 visions of this subsection. Compliance with such regula24 tions or guidance shall be deemed to be compliance with 

25 the requirements of this subsection. Such regulations or 
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1 guidance may express compliance in terms of percentages 

2 of assets under management, flat dollar amounts, or other 

3 factors. 

4 ‘‘(B) The regulations issued pursuant to subpara5 graph (A) may include procedures for granting conditional 

6 or unconditional exemptions of investments, classes of in7 vestments, investment managers, or classes of investment 

8 managers from all or part of the requirements of this sub9 section. Such procedures shall be similar to the procedures 

10 applicable under section 408(a) and subject to the same 

11 standards and limitations as apply under section 408(a). 

12 Such exemptions may include, in the case of qualifying 

13 automatic investments, relief from, or simplified methods 

14 of compliance with, the requirements of subparagraphs 

15 (B) and (C) of subsection (a)(1) and the provisions of sub16 section (c).’’. 

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

18 this section shall apply with respect to investments made 

19 on or after January 1, 2005 (irrespective of the extent 

20 to which the Secretary of Labor has issued regulations, 

21 guidelines, or other administrative guidance pursuant to 

22 section 404(e) of the Employee Retirement Income Secu23 rity Act of 1974 (added by this section)). 
28 

•HR 1508 IH 

1 SEC. 6. MODIFICATION OF NOTICE REQUIREMENTS APPLI2 CABLE TO ALTERNATIVE METHODS OF MEET3 ING NONDISCRIMINATION REQUIREMENTS 

4 FOR MATCHING CONTRIBUTIONS. 

5 (a) SEMI-ANNUAL NOTICE REQUIREMENT.—Sub6 paragraph (D) of section 401(k)(12) of the Internal Rev7 enue Code of 1986 (relating to notice requirement) is 

8 amended by striking ‘‘year,’’ and inserting ‘‘year and dur9 ing the 6th or 7th month of such year,’’. 

10 (b) NOTICE NOT REQUIRED FOR NONELECTIVE CON11 TRIBUTIONS.—Clause (ii) of section 401(k)(12)(A) of such 

12 Code (relating to general rule for alternative methods of 

13 meeting nondiscrimination requirements) is amended by 

14 inserting ‘‘in the case of matching contributions described 

15 in subparagraph (B),’’ before ‘‘meets’’. 

16 (c) TECHNICAL CORRECTION.—Section 

17 401(k)(12)(D) of such Code is amended by striking ‘‘ap18 praise’’ and inserting ‘‘apprise’’. 

19 (d) EFFECTIVE DATE.— 

20 (1) NOTICE.—The amendments made by sub21 section (a) shall apply to plan years beginning after 

22 December 31, 2006. 

23 (2) NONELECTIVE CONTRIBUTIONS.—The 

24 amendments made by subsection (b) shall apply to 

25 plan years beginning after December 31, 2005. 
29 

•HR 1508 IH 

1 SEC. 7. REPORT ON LOW-COST INDIVIDUAL RETIREMENT 

2 PLANS. 

3 After public comment and appropriate consultation 

4 with private sector representatives, the Secretary of the 

5 Treasury and the Secretary of Labor shall, not later than 

6 December 31, 2005, jointly submit to Congress a report 

7 containing their findings and recommendations regarding 

8 the availability of, and means of promoting and encour9 aging the provision of, low-cost individual retirement plans 

10 (as defined in section 7701(a)(37) of the Internal Revenue 

11 Code of 1986), or similar retirement savings and invest12 ment vehicles, which are suitable for the preservation and 

13 maintenance of smaller retirement benefits or accounts on 

14 a widespread and portable basis and for large numbers 

15 of moderate- and lower-income individuals. 

Æ