I 

109TH CONGRESS 

1ST SESSION H. R. 1961 

To amend the Internal Revenue Code of 1986 to expand pension coverage 

and savings opportunities and to provide other pension reforms. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 28, 2005 

Mr. CARDIN introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Education and the Workforce, 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 to expand 

pension coverage and savings opportunities and to provide other pension reforms. 

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 Preservation and Savings Expansion Act of 

6 2005’’. 

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend-
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1 ment or repeal is expressed in terms of an amendment 

2 to, or repeal of, a section or other provision, the reference 

3 shall be considered to be made to a section or other provi4 sion of the Internal Revenue Code of 1986. 

5 (c) TABLE OF CONTENTS.—The table of contents of 

6 this Act is as follows: 

Sec. 1. Short title; table of contents. 

TITLE I—MAKING TODAY’S RETIREMENT SAVINGS 

OPPORTUNITIES PERMANENT 

Sec. 101. Pensions and individual retirement arrangement provisions of Economic Growth and Tax Relief Reconciliation Act of 2001 made 

permanent. 

Sec. 102. Saver’s credit made permanent. 

TITLE II—BUILDING AND PRESERVING RETIREMENT ASSETS 

AND ENHANCING PORTABILITY 

Sec. 201. Expansion of Saver’s credit. 

Sec. 202. Faster vesting of employer nonelective contributions. 

Sec. 203. Allow rollovers by nonspouse beneficiaries of certain retirement plan 

distributions. 

Sec. 204. Enhancing portability of after-tax amounts. 

Sec. 205. IRA eligibility for the disabled. 

Sec. 206. Exclusion of certain qualified annuity payments. 

Sec. 207. Exclusion of certain nonqualified annuity payments. 

Sec. 208. Facilitation under fiduciary rules of certain rollovers and annuity distributions. 

Sec. 209. Increasing participation through automatic contribution arrangements. 

Sec. 210. Facilitating longevity insurance. 

Sec. 211. Direct payment of tax refunds to individual retirement plans. 

Sec. 212. Treatment of qualified retirement planning services. 

Sec. 213. Repeal of combined plan deduction limit. 

TITLE III—EXPANDING SMALL BUSINESS RETIREMENT PLAN 

COVERAGE AND MAKING THE ELECTIVE DEFERRAL RULES 

SIMPLER AND MORE UNIFORM 

Sec. 301. Allow additional nonelective contributions to SIMPLE Plans. 

Sec. 302. Conform matching contribution rules for SIMPLE IRAs and SIMPLE 401(k)s. 

Sec. 303. Uniform catch-up contribution rule. 

Sec. 304. Uniform definition of compensation. 

Sec. 305. Uniform withdrawal rules. 

Sec. 306. Allow level dollar contributions to SEPs. 

Sec. 307. Tax treatment of certain nontrade or business SEP contributions. 

Sec. 308. Allow certain plan transfers and mergers. 
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TITLE IV—EXPANDING RETIREMENT SAVINGS FOR TAX-EXEMPT 

ORGANIZATION AND GOVERNMENT EMPLOYEES 

Sec. 401. Waiver of 10 percent early withdrawal penalty tax on certain distributions of pension plans for public safety employees. 

Sec. 402. Clarifications regarding purchase of permissive service credit. 

Sec. 403. Eligibility for participation in retirement plans. 

Sec. 404. Clarification of minimum distribution rules. 

Sec. 405. Church plan rule. 

Sec. 406. Clarification of treatment of Indian tribal governments. 

Sec. 407. Deferral agreements. 

Sec. 408. Plans maintained by State or local governments. 

Sec. 409. Clarification of treatment of section 403(b) programs. 

TITLE V—SIMPLIFICATION AND EQUITY 

Sec. 501. Updating and simplifying the minimum distribution rules. 

Sec. 502. Clarification of catch-up contributions. 

Sec. 503. Treatment of unclaimed benefits. 

Sec. 504. Allow direct rollovers from retirement plans to Roth IRA. 

Sec. 505. Reform excise tax on excess contributions. 

Sec. 506. Intermediate sanctions for inadvertent failures. 

Sec. 507. Clarification of substantially equal periodic payment rule. 

Sec. 508. Clarification of treatment of distributions of annuity contracts. 

Sec. 509. Golden parachute excise tax to apply to excessive employee remuneration paid by corporation after declaration of bankruptcy. 

Sec. 510. Differential pay. 

Sec. 511. Excess benefit plans. 

Sec. 512. Tax treatment of employee contributions to contributory defined benefit plans. 

Sec. 513. Protecting older, longer service participants. 

Sec. 514. Clarification regarding elective deferrals. 

Sec. 515. Reform of the minimum participation rule. 

Sec. 516. Repeal of optional treatment of elective deferrals as Roth contributions. 

TITLE VI—IMPROVEMENTS IN PENSION SECURITY 

Sec. 601. Periodic pension benefits statements. 

Sec. 602. Inapplicability of relief from fiduciary liability during blackout periods. 

Sec. 603. Diversification requirements for defined contribution plans that hold 

employer securities. 

Sec. 604. Effective dates and related rules. 

TITLE VII—OTHER TAX PROVISIONS RELATING TO PENSIONS 

Sec. 701. Reporting simplification. 

Sec. 702. Improvement of Employee Plans Compliance Resolution System. 

Sec. 703. Extension of moratorium on application of certain nondiscrimination 

rules to all governmental plans. 

Sec. 704. Notice and consent period regarding distributions. 

Sec. 705. Qualified group legal services plans. 

Sec. 706. Tax-free distributions from individual retirement plans for charitable 

purposes. 
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TITLE VIII—MISCELLANEOUS PROVISIONS 

Sec. 801. Provisions relating to plan amendments. 

1 TITLE I—MAKING TODAY’S RE2 TIREMENT SAVINGS OPPOR3 TUNITIES PERMANENT 

4 SEC. 101. PENSIONS AND INDIVIDUAL RETIREMENT AR5 RANGEMENT PROVISIONS OF ECONOMIC 

6 GROWTH AND TAX RELIEF RECONCILIATION 

7 ACT OF 2001 MADE PERMANENT. 

8 (a) IN GENERAL.—Section 901 of the Economic 

9 Growth and Tax Relief Reconciliation Act of 2001 is 

10 amended by adding at the end the following new sub11 section: 

12 ‘‘(c) EXCEPTION.—Subsections (a) and (b) shall not 

13 apply to the provisions of, and amendments made by, sub14 titles (A) through (F) of title VI (relating to pension and 

15 individual retirement arrangement provisions).’’. 

16 (b) CONFORMING AMENDMENTS.—Section 901(b) of 

17 such Act is amended— 

18 (1) by striking ‘‘and the Employee Retirement 

19 Income Security Act of 1974’’ in the text, and 

20 (2) by striking ‘‘OF CERTAIN LAWS’’ in the 

21 heading. 

22 SEC. 102. SAVER’S CREDIT MADE PERMANENT. 

23 (a) IN GENERAL.—Section 25B of the Internal Rev24 enue Code of 1986 (relating to elective deferrals and IRA 
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1 contributions by certain individuals) is amended by strik2 ing subsection (h). 

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

4 this section shall apply to taxable years beginning after 

5 December 31, 2005. 

6 TITLE II—BUILDING AND PRE7 SERVING RETIREMENT AS8 SETS AND ENHANCING PORT9 ABILITY 

10 SEC. 201. EXPANSION OF SAVER’S CREDIT. 

11 (a) EXPANSION.—The table contained in subsection 

12 (b) of section 25B of the Internal Revenue Code of 1986 

13 (relating to applicable percentage) is amended to read as 

14 follows: 

Adjusted Gross Income 

Joint return Head of Household All other cases Applicable 

precentage Over Not over Over Not over Over Not over 

$30,000 $22,500 $15,000 50 

30,000 40,000 22,500 30,000 15,000 20,000 20 

40,000 50,00 30,000 37,500 20,000 25,000 10 

50,000 37,500 25,000 0 

15 (b) ADJUSTMENT FOR INFLATION.—Section 25B (as 

16 amended by subsection (a)) of such Code is further 

17 amended by redesignating subsection (h) as subsection (i) 

18 and by inserting after subsection (g) the following new 

19 subsection: 

20 ‘‘(h) ADJUSTMENT FOR INFLATION.— 
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1 ‘‘(1) IN GENERAL.—In the case of any taxable 

2 year beginning after December 31, 2008, each dollar 

3 amount in the table contained in subsection (b) in 

4 the columns under the heading ‘All other cases’ shall 

5 be increased by an amount equal to— 

6 ‘‘(A) such dollar amount, multiplied by 

7 ‘‘(B) the cost-of-living adjustment deter8 mined under section 1(f)(3) for such calendar 

9 year by substituting ‘calendar year 2007’ for 

10 ‘calendar year 1992’ in subparagraph (B) 

11 thereof. 

12 If any increase under the preceding sentence is not 

13 a multiple of $1,000, such increase shall be rounded 

14 to the nearest multiple of $1,000. 

15 ‘‘(2) ADJUSTMENT OF AMOUNTS RELATING TO

16 JOINT RETURN AND HEAD OF HOUSEHOLD.—In the 

17 case of any taxable year beginning after December 

18 31, 2008— 

19 ‘‘(A) there shall be substituted for each 

20 dollar amount in the table contained in sub21 section (b) in the columns under the heading 

22 ‘Joint return’ a dollar amount equal to twice 

23 the corresponding dollar amount in such table 

24 in the columns under the heading ‘All other 

25 cases’ (as increased under paragraph (1)), and 
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1 ‘‘(B) there shall be substituted for each 

2 dollar amount in the table contained in sub3 section (b) in the columns under the heading 

4 ‘Head of household’ a dollar amount equal to 

11 5 ⁄2 times the corresponding dollar amount in 

6 such table in the columns under the heading 

7 ‘All other cases’ (as increased under paragraph 

8 (1)).’’. 

9 (c) TESTING PERIOD.—Subparagraph (B) of section 

10 25B(d)(2) of such Code is amended to read as follows: 

11 ‘‘(B) TESTING PERIOD.—For purposes of 

12 subparagraph (A), the testing period, with re13 spect to a taxable year, is the period which in14 cludes— 

15 ‘‘(i) such taxable year, and 

16 ‘‘(ii) the 3 preceding taxable years.’’. 

17 (d) TREATMENT AS REFUNDABLE.— 

18 (1) CREDIT MOVED TO SUBPART RELATING TO

19 REFUNDABLE CREDIT.— 

20 (A) IN GENERAL.—Section 25B of such 

21 Code, as amended by this Act, is hereby moved 

22 to subpart C of part IV of subchapter A of 

23 chapter 1 (relating to refundable credits) and 

24 inserted after section 35. 

25 (B) TECHNICAL AMENDMENTS.— 
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1 (i) Section 36 of such Code is redesig2 nated as section 37. 

3 (ii) Section 25B of such Code (as 

4 moved by subparagraph (A)) is redesig5 nated as section 36. 

6 (iii) The table of sections for subpart 

7 A of such part is amended by striking the 

8 item relating to section 25B. 

9 (iv) The table of sections for subpart 

10 C of such part is amended by redesig11 nating the item relating to section 36 as 

12 an item relating to section 37 and by in13 serting after section 35 the following new 

14 item: 

‘‘Sec. 36. Elective deferrals and IRA contributions by certain individuals.’’. 

15 (2) MANDATORY DEPOSIT INTO QUALIFIED AC16 COUNT.— 

17 (A) NO REDUCTION OF TAX.—Subsection 

18 (a) of section 36 of such Code, as moved and 

19 redesignated by paragraph (1), is amended by 

20 striking ‘‘credit against the tax imposed by this 

21 subtitle’’ and inserting ‘‘tax credit’’. 

22 (B) DEPOSIT INTO QUALIFIED AC23 COUNT.—Subsection (g) of section 36 of such 

24 Code, as moved and redesignated by paragraph 

25 (1), is amended to read as follows: 
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1 ‘‘(g) DEPOSIT INTO QUALIFIED ACCOUNT.— 

2 ‘‘(1) IN GENERAL.—Any amount allowed as a 

3 tax credit under subsection (a) shall not be allowed 

4 as a credit against any tax imposed by this subtitle 

5 but instead shall be treated as an overpayment 

6 under section 6401(b) and— 

7 ‘‘(A) shall be paid on behalf of the indi8 vidual taxpayer to an applicable retirement plan 

9 designated by the individual to be invested in a 

10 manner designated by the individual, except 

11 that in the case of a joint return, each spouse 

12 shall be entitled to designate an applicable re13 tirement plan and investments with respect to 

14 payments attributable to such spouse, or 

15 ‘‘(B) in the case of taxpayer who does not 

16 properly designate an applicable retirement plan 

17 in a timely manner or who designates an appli18 cable retirement plan that does not accept such 

19 amount in a timely manner, shall be paid or 

20 credited on behalf of the individual taxpayer in 

21 a manner determined under rules prescribed by 

22 the Secretary that provide treatment com23 parable to the treatment under subparagraph 

24 (A). 
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1 ‘‘(2) APPLICABLE RETIREMENT PLAN.—For 

2 purposes of this subsection, the term ‘applicable re3 tirement plan’ means a plan that elects to accept de4 posits under this subsection and that is described in 

5 clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B) 

6 or in section 408A(b). 

7 ‘‘(3) TREATMENT OF DIRECT PAYMENTS.—All 

8 amounts paid under this subsection shall be treated 

9 for purposes of this title as income attributable to a 

10 Roth IRA contribution in the case of a payment to 

11 an individual retirement plan.’’. 

12 (3) REGULATION AND PROMOTION.—Section 36 

13 of such Code, as amended and redesignated by this 

14 section, is amended by adding at the end the fol15 lowing new subsection: 

16 ‘‘(h) REGULATION AND PROMOTION.—The Secretary 

17 may prescribe such regulations and other guidance as may 

18 be necessary or appropriate to carry out this section. The 

19 Secretary shall also take such steps as he determines nec20 essary and appropriate to increase public awareness of the 

21 credit provided under this section.’’. 

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

23 this section shall apply to taxable years beginning after 

24 December 31, 2006. 
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1 SEC. 202. FASTER VESTING OF EMPLOYER NONELECTIVE 

2 CONTRIBUTIONS. 

3 (a) AMENDMENTS TO THE INTERNAL REVENUE

4 CODE OF 1986.— 

5 (1) IN GENERAL.—Paragraph (2) of section 

6 411(a) of the Internal Revenue Code of 1986 (relat7 ing to employer contributions) is amended to read as 

8 follows: 

9 ‘‘(2) EMPLOYER CONTRIBUTIONS.— 

10 ‘‘(A) DEFINED BENEFIT PLANS.— 

11 ‘‘(i) IN GENERAL.—In the case of a 

12 defined benefit plan, a plan satisfies the 

13 requirements of this paragraph if it satis14 fies the requirements of clause (ii) or (iii). 

15 ‘‘(ii) 5-YEAR VESTING.—A plan satis16 fies the requirements of this clause if an 

17 employee who has completed at least 5 

18 years of service has a nonforfeitable right 

19 to 100 percent of the employee’s accrued 

20 benefit derived from employer contribu21 tions. 

22 ‘‘(iii) 3 TO 7 YEAR VESTING.—A plan 

23 satisfies the requirements of this clause if 

24 an employee has a nonforfeitable right to 

25 a percentage of the employee’s accrued 
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1 benefit derived from employer contribu2 tions determined under the following table: 

The nonforfeitable 

‘‘Years of service percentage is: 

3 ......................................................................................................... 20

4 ......................................................................................................... 40

5 ......................................................................................................... 60

6 ......................................................................................................... 80

7 or more ........................................................................................... 100. 

3 ‘‘(B) DEFINED CONTRIBUTION PLANS.— 

4 ‘‘(i) IN GENERAL.—In the case of a 

5 defined contribution plan, a plan satisfies 

6 the requirements of this paragraph if it 

7 satisfies the requirements of clause (ii) or 

8 (iii). 

9 ‘‘(ii) 3-YEAR VESTING.—A plan satis10 fies the requirements of this clause if an 

11 employee who has completed at least 3 

12 years of service has a nonforfeitable right 

13 to 100 percent of the employee’s accrued 

14 benefit derived from employer contribu15 tions. 

16 ‘‘(iii) 2 TO 6 YEAR VESTING.—A plan 

17 satisfies the requirements of this clause if 

18 an employee has a nonforfeitable right to 

19 a percentage of the employee’s accrued 

20 benefit derived from employer contribu21 tions determined under the following table: 
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The nonforfeitable 

‘‘Years of service percentage is: 

2 ......................................................................................................... 20

3 ......................................................................................................... 40

4 ......................................................................................................... 60

5 ......................................................................................................... 80

6 ......................................................................................................... 100.’’. 

1 (2) CONFORMING AMENDMENT.—Section 

2 411(a) of such Code (relating to general rule for 

3 minimum vesting standards) is amended by striking 

4 paragraph (12). 

5 (b) AMENDMENTS TO THE EMPLOYEE RETIREMENT

6 INCOME SECURITY ACT OF 1974.— 

7 (1) IN GENERAL.—Paragraph (2) of section 

8 203(a) of the Employee Retirement Income Security 

9 Act of 1974 (29 U.S.C. 1053(a)(2)) is amended to 

10 read as follows: 

11 ‘‘(2)(A)(i) In the case of a defined benefit plan, 

12 a plan satisfies the requirements of this paragraph 

13 if it satisfies the requirements of clause (ii) or (iii). 

14 ‘‘(ii) A plan satisfies the requirements of this 

15 clause if an employee who has completed at least 5 

16 years of service has a nonforfeitable right to 100 

17 percent of the employee’s accrued benefit derived 

18 from employer contributions. 

19 ‘‘(iii) A plan satisfies the requirements of this 

20 clause if an employee has a nonforfeitable right to 

21 a percentage of the employee’s accrued benefit de-
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1 rived from employer contributions determined under 

2 the following table: 

The nonforfeitable 

‘‘Years of service percentage is: 

3 ......................................................................................................... 20

4 ......................................................................................................... 40

5 ......................................................................................................... 60

6 ......................................................................................................... 80

7 or more ........................................................................................... 100. 

3 ‘‘(B)(i) In the case of an individual account 

4 plan, a plan satisfies the requirements of this para5 graph if it satisfies the requirements of clause (ii) or 

6 (iii). 

7 ‘‘(ii) A plan satisfies the requirements of this 

8 clause if an employee who has completed at least 3 

9 years of service has a nonforfeitable right to 100 

10 percent of the employee’s accrued benefit derived 

11 from employer contributions. 

12 ‘‘(iii) A plan satisfies the requirements of this 

13 clause if an employee has a nonforfeitable right to 

14 a percentage of the employee’s accrued benefit de15 rived from employer contributions determined under 

16 the following table: 

The nonforfeitable 

‘‘Years of service percentage is: 

2 ......................................................................................................... 20

3 ......................................................................................................... 40

4 ......................................................................................................... 60

5 ......................................................................................................... 80

6 ......................................................................................................... 100.’’. 
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1 (2) CONFORMING AMENDMENT.—Section 

2 203(a) of such Act is amended by striking para3 graph (4). 

4 (c) EFFECTIVE DATES.— 

5 (1) IN GENERAL.—Except as provided in para6 graph (2), the amendments made by this section 

7 shall apply to contributions for plan years beginning 

8 after December 31, 2005. 

9 (2) COLLECTIVE BARGAINING AGREEMENTS.— 

10 In the case of a plan maintained pursuant to one or 

11 more collective bargaining agreements between em12 ployee representatives and one or more employers 

13 ratified before the date of the enactment of this Act, 

14 the amendments made by this section shall not apply 

15 to contributions on behalf of employees covered by 

16 any such agreement for plan years beginning before 

17 the earlier of— 

18 (A) the later of— 

19 (i) the date on which the last of such 

20 collective bargaining agreements termi21 nates (determined without regard to any 

22 extension thereof on or after such date of 

23 the enactment); or 

24 (ii) January 1, 2006; or 

25 (B) January 1, 2008. 
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1 (3) SERVICE REQUIRED.—With respect to any 

2 plan, the amendments made by this section shall not 

3 apply to any employee before the date that such em4 ployee has 1 hour of service under such plan in any 

5 plan year to which the amendments made by this 

6 section apply. 

7 SEC. 203. ALLOW ROLLOVERS BY NONSPOUSE BENE8 FICIARIES OF CERTAIN RETIREMENT PLAN 

9 DISTRIBUTIONS. 

10 (a) IN GENERAL.— 

11 (1) QUALIFIED PLANS.—Section 402(c) of the 

12 Internal Revenue Code of 1986 (relating to rollovers 

13 from exempt trusts) is amended by adding at the 

14 end the following new paragraph: 

15 ‘‘(11) DISTRIBUTIONS TO INHERITED INDI16 VIDUAL RETIREMENT PLAN OF NONSPOUSE BENE17 FICIARY.— 

18 ‘‘(A) IN GENERAL.—If, with respect to any 

19 portion of a distribution from an eligible retire20 ment plan of a deceased employee, a direct 

21 trustee-to-trustee transfer is made to an indi22 vidual retirement plan described in clause (i) or 

23 (ii) of paragraph (8)(B) established for the pur24 poses of receiving the distribution on behalf of 

25 an individual who is a designated beneficiary 
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1 (as defined by section 401(a)(9)(E)) of the em2 ployee and who is not the surviving spouse of 

3 the employee— 

4 ‘‘(i) the transfer shall be treated as an 

5 eligible rollover distribution for purposes of 

6 this subsection, 

7 ‘‘(ii) the individual retirement plan 

8 shall be treated as an inherited individual 

9 retirement account or individual retirement 

10 annuity (within the meaning of section 

11 408(d)(3)(C)) for purposes of this title, 

12 and 

13 ‘‘(iii) section 401(a)(9)(B) (other than 

14 clause (iv) thereof) shall apply to such 

15 plan. 

16 ‘‘(B) CERTAIN TRUSTS TREATED AS BENE17 FICIARIES.—For purposes of this paragraph, to 

18 the extent provided in rules prescribed by the 

19 Secretary, a trust maintained for the benefit of 

20 one or more designated beneficiaries shall be 

21 treated in the same manner as a trust des22 ignated beneficiary.’’. 

23 (2) SECTION 403(a) PLANS.—Subparagraph 

24 (B) of section 403(a)(4) of such Code (relating to 
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1 rollover amounts) is amended by inserting ‘‘and 

2 (11)’’ after ‘‘(7)’’. 

3 (3) SECTION 403(b) PLANS.—Subparagraph 

4 (B) of section 403(b)(8) of such Code (relating to 

5 rollover amounts) is amended by striking ‘‘and (9)’’ 

6 and inserting ‘‘, (9), and (11)’’. 

7 (4) SECTION 457 PLANS.—Subparagraph (B) of 

8 section 457(e)(16) of such Code (relating to rollover 

9 amounts) is amended by striking ‘‘and (9)’’ and in10 serting ‘‘, (9), and (11)’’. 

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

12 this section shall apply to distributions after December 31, 

13 2005. 

14 SEC. 204. ENHANCING PORTABILITY OF AFTER-TAX 

15 AMOUNTS. 

16 (a) ROLLOVERS BETWEEN QUALIFIED PLANS AND

17 SECTION 403(b) PLANS.—Subparagraph (A) of section 

18 402(c)(2) of such Code (relating to maximum amount 

19 which may be rolled over) is amended by striking ‘‘and 

20 which’’ and inserting ‘‘or to an annuity contract described 

21 in section 403(b) and such plan or contract’’. 

22 (b) ROLLOVERS TO DEFINED BENEFIT PLANS.— 

23 Subparagraph (A) of section 402(c)(2) of such Code (re24 lating to maximum amount which may be rolled over) is 
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1 amended by striking ‘‘which is a part of a plan which is 

2 a defined contribution plan and’’. 

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

4 subsection (a) shall apply to taxable years beginning after 

5 December 31, 2005. 

6 SEC. 205. IRA ELIGIBILITY FOR THE DISABLED. 

7 (a) IN GENERAL.—Subsection (f) of section 219 of 

8 the Internal Revenue Code of 1986 (relating to other defi9 nitions and special rules) is amended by adding at the end 

10 the following: 

11 ‘‘(8) SPECIAL RULE FOR CERTAIN DISABLED

12 INDIVIDUALS.—In the case of an individual— 

13 ‘‘(A) who is disabled (within the meaning 

14 of section 72(m)(7)), and 

15 ‘‘(B) who has not attained the applicable 

16 age (as defined in section 401(a)(9)(H)) before 

17 the close of the taxable year, 

18 subparagraph (B) of subsection (b)(1) shall not 

19 apply.’’. 

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

21 this section shall apply to taxable years beginning after 

22 December 31, 2005. 

23 SEC. 206. EXCLUSION OF CERTAIN QUALIFIED ANNUITY 

24 PAYMENTS. 

25 (a) IN GENERAL.— 
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1 (1) QUALIFIED PLANS.—Subsection (e) of sec2 tion 402 of the Internal Revenue Code of 1986 (re3 lating to exempt trusts) is amended by adding at the 

4 end the following new paragraph: 

5 ‘‘(7) EXCLUSION OF PERCENTAGE OF LIFETIME

6 ANNUITY PAYMENTS.— 

7 ‘‘(A) IN GENERAL.—In the case of a life8 time annuity payment to a qualified distributee 

9 from a qualified trust (within the meaning of 

10 subsection (c)(8)(A)) maintained in connection 

11 with a defined contribution plan, gross income 

12 shall not include 10 percent of the amount oth13 erwise includible in gross income (determined 

14 without regard to this paragraph). 

15 ‘‘(B) 5-YEAR LIMITATION.—Subparagraph 

16 (A) shall apply to a qualified distributee only in 

17 the first 5 taxable years in which the qualified 

18 distributee receives lifetime annuity payments 

19 for the entire taxable year. For purposes of this 

20 subparagraph, all lifetime annuity payments re21 ceived by a qualified distributee shall be taken 

22 into account to the extent that such payments 

23 are subject to this paragraph or to rules similar 

24 to the rules of this paragraph (other than sec25 tions 72(b)(5) and 101(d)(4)). 
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1 ‘‘(C) LIMITATION.— 

2 ‘‘(i) IN GENERAL.—With respect to 

3 any qualified distributee, subparagraph (A) 

4 shall not apply to any lifetime annuity pay5 ment to the extent that the portion of such 

6 payment includible in gross income, when 

7 added to the portion of all previous and si8 multaneous lifetime annuity payments that 

9 was included in gross income and that was 

10 paid to such qualified distributee during 

11 the taxable year, exceeds 50 percent of the 

12 applicable amount for such year under sec13 tion 415(c)(1)(A). For purposes of the pre14 ceding sentence, the portion of lifetime an15 nuity payments includible in gross income 

16 shall be determined without regard to sub17 paragraph (A). 

18 ‘‘(ii) AGGREGATION RULE.—For pur19 poses of this subparagraph, all lifetime an20 nuity payments received by a qualified dis21 tributee shall be taken into account to the 

22 extent that such payments are subject to 

23 this paragraph or to rules similar to the 

24 rules of this paragraph (other than sec25 tions 72(b)(5) and 101(d)(4)). 
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1 ‘‘(D) DEFINITIONS.—For purposes of this 

2 paragraph— 

3 ‘‘(i) LIFETIME ANNUITY PAYMENT.— 

4 ‘‘(I) IN GENERAL.—The term 

5 ‘lifetime annuity payment’ means a 

6 distribution which is a part of a series 

7 of substantially equal periodic pay8 ments (made not less frequently than 

9 annually) made over the life of the 

10 qualified distributee or the joint lives 

11 of the qualified distributee and the 

12 qualified distributee’s designated ben13 eficiary. 

14 ‘‘(II) CERTAIN FLUCTUATING

15 PAYMENTS.—Annuity payments shall 

16 not fail to be treated as part of a se17 ries of substantially equal periodic 

18 payments merely because the amount 

19 of the periodic payments may vary in 

20 accordance with investment experi21 ence, reallocations among investment 

22 options, actuarial gains or losses, cost 

23 of living indices, a constant percent24 age (not less than zero) applied not 
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1 less frequently than annually, or simi2 lar fluctuating criteria. 

3 ‘‘(III) CERTAIN CHANGES IN THE

4 MODE OF PAYMENT.—Annuity pay5 ments shall not fail to be treated as 

6 part of a series of substantially equal 

7 periodic payments merely because the 

8 period between each such payment is 

9 lengthened or shortened, but only if at 

10 all times such period is not longer 

11 than one year. 

12 ‘‘(IV) PERMITTED REDUC13 TIONS.—Annuity payments shall not 

14 fail to be treated as part of series of 

15 substantially equal periodic payments 

16 merely because, in the case of an an17 nuity payable over the joint lives of 

18 the qualified distributee and the quali19 fied distributee’s designated bene20 ficiary, the amounts paid after the 

21 death of the qualified distributee or 

22 the qualified distributee’s designated 

23 beneficiary are less than the amounts 

24 payable during their joint lives. 
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1 ‘‘(V) CERTAIN CONTRACT BENE2 FITS.—The availability of a commuta3 tion benefit or other feature permit4 ting acceleration of annuity payments 

5 (or a modification of the period dur6 ing which such a benefit is available), 

7 a minimum period of payments cer8 tain, or a minimum amount to be paid 

9 in any event shall not affect the treat10 ment of a distribution as a lifetime 

11 annuity payment. 

12 ‘‘(VI) TRUST PAYMENTS.—In the 

13 case of lifetime annuity payments 

14 being made to a qualified trust, pay15 ments by the qualified trust to a 

16 qualified distributee of the entire 

17 amount received by the qualified trust 

18 with respect to the qualified dis19 tributee shall constitute lifetime annu20 ity payments. 

21 ‘‘(ii) QUALIFIED DISTRIBUTEE.—The 

22 term ‘qualified distributee’ means the em23 ployee, the surviving spouse of the em24 ployee, and an alternate payee who is the 

25 spouse or former spouse of the employee. 
25 

•HR 1961 IH 

1 ‘‘(E) RECAPTURE TAX.— 

2 ‘‘(i) IN GENERAL.—If— 

3 ‘‘(I) a an amount is not includ4 ible in gross income by reason of sub5 paragraph (A), and 

6 ‘‘(II) the series of payments of 

7 which such payment is a part is sub8 sequently modified (other than by rea9 son of death or disability) so that 

10 some or all future payments are not 

11 lifetime annuity payments, 

12 the qualified distributee’s gross income for 

13 the first taxable year in which such modi14 fication occurs shall be increased by an 

15 amount, determined under rules prescribed 

16 by the Secretary, equal to the amount 

17 which (but for subparagraph (A)) would 

18 have been includible in the qualified 

19 distributee’s gross income if the modifica20 tion had been in effect at all times, plus in21 terest for the deferral period at the under22 payment rate established under section 

23 6621. 

24 ‘‘(ii) DEFERRAL PERIOD.—For pur25 poses of this subparagraph, the term ‘de-
26 

•HR 1961 IH 

1 ferral period’ means the period beginning 

2 with the taxable year in which (without re3 gard to subparagraph (A)) the payment 

4 would have been includible in gross income 

5 and ending with the taxable year in which 

6 the modification described in clause (i)(II) 

7 occurs. 

8 ‘‘(F) PHASEOUT OF EXCLUSION.— 

9 ‘‘(i) IN GENERAL.—In any taxable 

10 year, the exclusion from gross income for 

11 any qualified distributee under this para12 graph and under rules similar to the rules 

13 of this paragraph (other than sections 

14 72(b)(5) and 101(d)(4)) shall not exceed 

15 the income-adjusted limit. 

16 ‘‘(ii) INCOME-ADJUSTED LIMIT.—For 

17 purposes of this subparagraph, the income18 adjusted limit shall be— 

19 ‘‘(I) 10 percent of the limitation 

20 described in subparagraph (C), re21 duced (but not below zero) by 

22 ‘‘(II) the amount determined 

23 under clause (iii). 

24 ‘‘(iii) AMOUNT DETERMINED.—The 

25 amount determined under this clause shall 
27 

•HR 1961 IH 

1 be the amount which bears the same ratio 

2 to the amount described in clause (ii)(I) 

3 as— 

4 ‘‘(I) the excess of the taxpayer’s 

5 adjusted gross income for such tax6 able year over the applicable dollar 

7 amount, bears to 

8 ‘‘(II) $15,000 ($30,000 for a 

9 joint return). 

10 ‘‘(iv) LIMITATION ON REDUCTION.— 

11 The income-adjusted limit shall not be re12 duced below $200 by clause (ii)(II) unless 

13 (without regard to this clause) such limit is 

14 reduced to zero. 

15 ‘‘(v) ROUNDING RULE.—Any income16 adjusted limit determined under this sub17 paragraph which is not a multiple of $10 

18 shall be rounded to the next lowest mul19 tiple of $10. 

20 ‘‘(vi) ADJUSTED GROSS INCOME.—For 

21 purposes of this subparagraph, adjusted 

22 gross income of any taxpayer shall be de23 termined in the same manner as under sec24 tion 408A(c)(3)(C)(i) except that section 
28 

•HR 1961 IH 

1 408A(c)(3)(C)(i)(II) shall not apply for 

2 this purpose. 

3 ‘‘(vii) APPLICABLE DOLLAR LIMIT.— 

4 For purposes of this subparagraph, the ap5 plicable dollar amount is— 

6 ‘‘(I) in the case of a taxpayer fil7 ing a joint return, an amount equal to 

8 twice the amount in effect under sub9 clause (II), 

10 ‘‘(II) in the case of any other 

11 taxpayer (other than a married indi12 vidual filing a separate return), 

13 $60,000, and 

14 ‘‘(III) in the case of a married 

15 individual filing a separate return, 

16 zero. 

17 ‘‘(viii) SPECIAL RULE FOR MARRIED

18 INDIVIDUALS FILING SEPARATELY AND

19 LIVING APART.—Section 219(g)(4) shall 

20 apply for purposes of this subparagraph. 

21 ‘‘(ix) COST-OF-LIVING ADJUST22 MENT.—In the case of taxable years begin23 ning after December 31, 2006, the Sec24 retary shall adjust the $60,000 amount in 

25 clause (vii)(II) at the same time and in the 
29 

•HR 1961 IH 

1 same manner as under section 415(d), ex2 cept that the base period shall be the cal3 endar quarter beginning July 1, 2005, and 

4 any increase under this clause which is not 

5 a multiple of $5,000 shall be rounded to 

6 the next lowest multiple of $5,000. 

7 ‘‘(G) INVESTMENT IN THE CONTRACT.— 

8 For purposes of section 72, the investment in 

9 the contract shall be determined without regard 

10 to this paragraph.’’. 

11 (2) SECTION 403(a) PLANS.—Paragraph (4) of 

12 section 403(a) of such Code (relating to qualified 

13 annuity plans) is amended by adding at the end the 

14 following new subparagraph: 

15 ‘‘(C) EXCLUSION OF PERCENTAGE OF

16 LIFETIME ANNUITY PAYMENTS.—Rules similar 

17 to the rules of section 402(e)(7) shall apply to 

18 distributions under any annuity contract to 

19 which this subsection applies.’’. 

20 (3) SECTION 403(b) PLANS.—Section 403(b) of 

21 such Code (relating to purchased annuities) is 

22 amended by adding at the end the following new 

23 paragraph: 

24 ‘‘(14) EXCLUSION OF PERCENTAGE OF LIFE25 TIME ANNUITY PAYMENTS.—Rules similar to the 
30 

•HR 1961 IH 

1 rules of section 402(e)(7) shall apply to distributions 

2 under any annuity contract or custodial account to 

3 which this subsection applies.’’. 

4 (4) IRAS.—Section 408(d) of such Code (relat5 ing to tax treatment of distributions) is amended by 

6 adding at the end the following new paragraph: 

7 ‘‘(8) EXCLUSION OF PERCENTAGE OF LIFETIME

8 ANNUITY PAYMENTS.—Rules similar to the rules of 

9 section 402(e)(7) shall apply to distributions out of 

10 an individual retirement plan.’’. 

11 (5) SECTION 457 PLANS.—Section 457(e) of 

12 such Code (relating to special rules for deferred 

13 compensation plans) is amended by adding at the 

14 end the following new paragraph: 

15 ‘‘(18) EXCLUSION OF PERCENTAGE OF LIFE16 TIME ANNUITY PAYMENTS.—Rules similar to the 

17 rules of section 402(e)(7) shall apply to distributions 

18 from an eligible deferred compensation plan of an el19 igible employer described in subsection (e)(1)(A).’’. 

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

21 this section shall apply to distributions made after Decem22 ber 31, 2005. 

23 SEC. 207. EXCLUSION OF CERTAIN NONQUALIFIED ANNU24 ITY PAYMENTS. 

25 (a) IN GENERAL.— 
31 

•HR 1961 IH 

1 (1) NONQUALIFIED ANNUITIES.— 

2 (A) IN GENERAL.—Section 72(b) of the In3 ternal Revenue Code of 1986 (relating to annu4 ities) is amended by adding at the end the fol5 lowing new paragraph: 

6 ‘‘(5) EXCLUSION OF PERCENTAGE OF LIFETIME

7 ANNUITY PAYMENTS.— 

8 ‘‘(A) IN GENERAL.—In the case of a life9 time annuity payment to a qualified distributee, 

10 gross income shall not include 10 percent of the 

11 amount otherwise includible in gross income 

12 (determined without regard to this paragraph). 

13 ‘‘(B) 5-YEAR LIMITATION.—Subparagraph 

14 (A) shall apply to a qualified distributee only in 

15 the first 5 taxable years in which the qualified 

16 distributee receives lifetime annuity payments 

17 for the entire taxable year. For purposes of this 

18 subparagraph, all lifetime annuity payments re19 ceived by a qualified distributee shall be taken 

20 into account to the extent that such payments 

21 are subject to this paragraph or to the rules of 

22 section 101(d)(4). 

23 ‘‘(C) INVESTMENT IN THE CONTRACT.— 

24 For purposes of this section, the investment in 
32 

•HR 1961 IH 

1 the contract shall be determined without regard 

2 to this paragraph (5). 

3 ‘‘(D) LIMITATION.— 

4 ‘‘(i) IN GENERAL.—With respect to 

5 any qualified distributee, subparagraph (A) 

6 shall not apply to any lifetime annuity pay7 ment to the extent that the portion of such 

8 payment that is includible in income, when 

9 added to the portion of all previous and si10 multaneous lifetime annuity payments that 

11 was included in gross income and that was 

12 paid to such qualified distributee during 

13 the taxable year, exceeds 50 percent of the 

14 applicable amount for such year under sec15 tion 415(c)(1)(A). For purposes of the pre16 ceding sentence, the portion of lifetime an17 nuity payments includible in gross income 

18 shall be determined without regard to sub19 paragraph (A). 

20 ‘‘(ii) AGGREGATION RULE.—For pur21 poses of this subparagraph, all lifetime an22 nuity payments received by a qualified dis23 tributee shall be taken into account to the 

24 extent that such payments are subject to 
33 

•HR 1961 IH 

1 this paragraph or to the rules of section 

2 101(d)(4). 

3 ‘‘(E) PHASEOUT OF EXCLUSION.— 

4 ‘‘(i) IN GENERAL.—In any taxable 

5 year, the exclusion from gross income for 

6 any qualified distributee under this para7 graph and under the rules of section 

8 101(d)(4) shall not exceed the income-ad9 justed limit. 

10 ‘‘(ii) INCOME-ADJUSTED LIMIT.—For 

11 purposes of this subparagraph, the income12 adjusted limit shall be— 

13 ‘‘(I) 10 percent of the limitation 

14 described in subparagraph (D), re15 duced (but not below zero) by 

16 ‘‘(II) the amount determined 

17 under clause (iii). 

18 ‘‘(iii) AMOUNT DETERMINED.—The 

19 amount determined under this clause shall 

20 be the amount which bears the same ratio 

21 to the amount described in clause (ii)(I) 

22 as— 

23 ‘‘(I) the excess of the taxpayer’s 

24 adjusted gross income for such tax-
34 

•HR 1961 IH 

1 able year over the applicable dollar 

2 amount bears to 

3 ‘‘(II) $15,000 ($30,000 for a 

4 joint return). 

5 ‘‘(iv) LIMITATION ON REDUCTION.— 

6 The income-adjusted limit shall not be re7 duced below $200 by clause (ii)(II) unless 

8 (without regard to this clause) such limit is 

9 reduced to zero. 

10 ‘‘(v) ROUNDING RULE.—Any income 

11 adjusted limit determined under this sub12 paragraph which is not a multiple of $10 

13 shall be rounded to the next lowest mul14 tiple of $10. 

15 ‘‘(vi) ADJUSTED GROSS INCOME.—For 

16 purposes of this subparagraph, adjusted 

17 gross income of any taxpayer shall be de18 termined in the same manner as under sec19 tion 408A(c)(3)(C)(i) except that section 

20 408A(c)(3)(C)(i)(II) shall not apply for 

21 this purpose. 

22 ‘‘(vii) APPLICABLE DOLLAR LIMIT.— 

23 For purposes of this subparagraph, the ap24 plicable dollar amount is— 
35 

•HR 1961 IH 

1 ‘‘(I) in the case of a taxpayer fil2 ing a joint return, an amount equal to 

3 twice the amount in effect under sub4 clause (II), 

5 ‘‘(II) in the case of any other 

6 taxpayer (other than a married indi7 vidual filing a separate return), 

8 $60,000, and 

9 ‘‘(III) in the case of a married 

10 individual filing a separate return, 

11 zero. 

12 ‘‘(viii) SPECIAL RULE FOR MARRIED

13 INDIVIDUALS FILING SEPARATELY AND

14 LIVING APART.—Section 219(g)(4) shall 

15 apply for purposes of this subparagraph. 

16 ‘‘(ix) COST-OF-LIVING ADJUST17 MENT.—In the case of taxable years begin18 ning after December 31, 2006, the Sec19 retary shall adjust the $60,000 amount in 

20 clause (vii)(II) at the same time and in the 

21 same manner as under section 415(d), ex22 cept that the base period shall be the cal23 endar quarter beginning July 1, 2005, and 

24 any increase under this clause which is not 
36 

•HR 1961 IH 

1 a multiple of $5,000 shall be rounded to 

2 the next lowest multiple of $5,000.’’. 

3 (B) DEFINITIONS.—Section 72(c) of such 

4 Code is amended by adding at the end the fol5 lowing new paragraphs: 

6 ‘‘(5) LIFETIME ANNUITY PAYMENT.— 

7 ‘‘(A) IN GENERAL.—For purposes of sub8 section (b)(5), the term ‘lifetime annuity pay9 ment’ means a distribution from an annuity 

10 contract (as defined in paragraph (7)) that is a 

11 part of a series of substantially equal periodic 

12 payments— 

13 ‘‘(i) made not less frequently than an14 nually over the life of the qualified dis15 tributee or the joint lives of the qualified 

16 distributee and the qualified distributee’s 

17 designated beneficiary, and 

18 ‘‘(ii) that would satisfy the require19 ments of section 408(b)(3) if the annuity 

20 contract were treated as an individual re21 tirement annuity. 

22 ‘‘(B) EXCEPTIONS.— 

23 ‘‘(i) CERTAIN FLUCTUATING PAY24 MENTS.—Annuity payments shall not fail 

25 to be treated as part of a series of substan-
37 

•HR 1961 IH 

1 tially equal periodic payments merely be2 cause the amount of the periodic payments 

3 may vary in accordance with investment 

4 experience, reallocations among investment 

5 options, actuarial gains or losses, cost of 

6 living indices, a constant percentage (not 

7 less than zero) applied not less frequently 

8 than annually, or similar fluctuating cri9 teria. 

10 ‘‘(ii) CERTAIN CHANGES IN THE MODE

11 OF PAYMENTS.—Annuity payments shall 

12 not fail to be treated as part of a series of 

13 substantially equal periodic payments 

14 merely because the period between each 

15 such payment is lengthened or shortened, 

16 but only if at all times such period is no 

17 longer than one year. 

18 ‘‘(iii) PERMITTED REDUCTIONS.—An19 nuity payments shall not fail to be treated 

20 as part of a series of substantially equal 

21 periodic payments merely because, in the 

22 case of an annuity payable over the joint 

23 lives of the qualified distributee and the 

24 qualified distributee’s designated bene25 ficiary, the amounts paid after the death of 
38 

•HR 1961 IH 

1 the qualified distributee or the qualified 

2 distributee’s designated beneficiary are less 

3 than the amounts payable during their 

4 joint lives. 

5 ‘‘(iv) CERTAIN CONTRACT BENE6 FITS.—The availability of a commutation 

7 benefit or other feature permitting accel8 eration of annuity payments (or modifica9 tion of the period during which such a ben10 efit is available), a minimum period of pay11 ments certain, or a minimum amount to be 

12 paid in any event shall not affect the treat13 ment of a distribution as a lifetime annuity 

14 payment. 

15 ‘‘(v) ELIGIBLE RETIREMENT PLANS.— 

16 Payments from an eligible retirement plan 

17 (within the meaning of section 402(c)(8)) 

18 shall not be treated as lifetime annuity 

19 payments. 

20 ‘‘(6) QUALIFIED DISTRIBUTEE.— 

21 ‘‘(A) IN GENERAL.—For purposes of sub22 section (b)(5), the term ‘qualified distributee’ 

23 means an annuitant, the surviving spouse of an 

24 annuitant, or an alternate payee of an annu25 itant under the contract. 
39 

•HR 1961 IH 

1 ‘‘(B) ALTERNATE PAYEE DEFINED.—For 

2 purposes of this paragraph, the term ‘alternate 

3 payee’ means any spouse or former spouse of 

4 an annuitant under the contract who is recog5 nized by a domestic relations order as having a 

6 right to receive all, or a portion of, the benefits 

7 payable under the contract with respect to such 

8 annuitant. For purposes of the preceding sen9 tence, the term ‘domestic relations order’ means 

10 any judgment, decree, or order (including ap11 proval of a property settlement agreement) that 

12 relates to the provision of child support, ali13 mony payments, or marital property rights to a 

14 spouse or former spouse of an annuitant under 

15 the contract and is made pursuant to a State 

16 domestic relations law (including community 

17 property law). 

18 ‘‘(7) ANNUITY CONTRACT.—For purposes of 

19 subsections (b)(5), (c)(5), and (w), the term ‘annuity 

20 contract’— 

21 ‘‘(A) means a commercial annuity within 

22 the meaning of section 3405(e)(6), other than 

23 an endowment or life insurance contract, and 

24 ‘‘(B) does not include any annuity contract 

25 that is a qualified funding asset (as defined in 
40 

•HR 1961 IH 

1 section 130(d)), but without regard to whether 

2 there is a qualified assignment.’’. 

3 (C) RECAPTURE TAX.—Section 72 of such 

4 Code is amended by redesignating subsection 

5 (w) as subsection (x) and inserting after sub6 section (v) the following new subsection (w): 

7 ‘‘(w) RECAPTURE TAX.— 

8 ‘‘(1) IN GENERAL.—If— 

9 ‘‘(A) an amount is not includible in gross 

10 income by reason of subsection (b)(5) (relating 

11 to lifetime annuity payments), and 

12 ‘‘(B) the series of payments of which such 

13 payment is a part is subsequently modified 

14 (other than by reason of death or disability) so 

15 that some or all future payments are not life16 time annuity payments, 

17 the qualified distributee’s gross income for the first 

18 taxable year in which such modification occurs shall 

19 be increased by an amount, determined under rules 

20 prescribed by the Secretary, equal to the amount 

21 which (but for subsection (b)(5)) would have been 

22 includible in the qualified distributee’s gross income 

23 if the modification had been in effect at all times, 

24 plus interest for the deferral period at the under25 payment rate established under section 6621. 
41 

•HR 1961 IH 

1 ‘‘(2) DEFERRAL PERIOD.—For purposes of this 

2 subparagraph, the term ‘deferral period’ means the 

3 period beginning with the taxable year in which 

4 (without regard to subsection (b)(5)) the payment 

5 would have been includible in gross income and end6 ing with the taxable year in which the modification 

7 described in paragraph (1) occurs.’’. 

8 (2) LIFE INSURANCE DEATH BENEFITS.— 

9 (A) IN GENERAL.—Section 101(d) of such 

10 Code (relating to life insurance proceeds) is 

11 amended by adding at the end the following 

12 new paragraph: 

13 ‘‘(4) EXCLUSION FOR LIFETIME ANNUITY PAY14 MENTS.— 

15 ‘‘(A) IN GENERAL.—In the case of 

16 amounts to which this subsection applies, gross 

17 income shall not include 10 percent of the 

18 amount otherwise includible in gross income 

19 (determined without regard to this paragraph). 

20 ‘‘(B) RULES OF SECTION 72(B)(5) TO

21 APPLY.—For purposes of this paragraph, rules 

22 similar to the rules of section 72(b)(5) and sec23 tion 72(w) shall apply, substituting the term 

24 ‘beneficiary of the life insurance contract’ for 

25 the term ‘annuitant’ wherever it appears, and 
42 

•HR 1961 IH 

1 substituting the term ‘life insurance contract’ 

2 for the term ‘annuity contract’ wherever it ap3 pears.’’. 

4 (B) CONFORMING AMENDMENT.—Section 

5 101(d)(1) of such Code is amended by adding 

6 ‘‘or paragraph (4) of this subsection’’ following 

7 ‘‘to the extent not excluded by the preceding 

8 sentence’’. 

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

10 this section shall apply to distributions made after Decem11 ber 31, 2005. 

12 SEC. 208. FACILITATION UNDER FIDUCIARY RULES OF CER13 TAIN ROLLOVERS AND ANNUITY DISTRIBU14 TIONS. 

15 (a) IN GENERAL.—Section 404(c) of the Employee 

16 Retirement Income Security Act of 1974 (29 U.S.C. 

17 1104(c)) is amended by adding at the end the following 

18 new paragraph: 

19 ‘‘(4)(A) In the case of a pension plan which makes 

20 a transfer under section 401(a)(31)(A) of the Internal 

21 Revenue Code of 1986 to an individual retirement plan 

22 (as defined in section 7701(a)(37) of such Code) in con23 nection with a participant or beneficiary or makes a dis24 tribution to a participant or beneficiary of an annuity con25 tract described in subparagraph (B), the participant or 
43 

•HR 1961 IH 

1 beneficiary shall, for purposes of paragraph (1), be treated 

2 as exercising control over the transfer or distribution if— 

3 ‘‘(i) the participant or beneficiary elected such 

4 transfer or distribution, and 

5 ‘‘(ii) in connection with such election, the par6 ticipant or beneficiary was given an opportunity to 

7 elect any other individual retirement plan (in the 

8 case of a transfer) or any other annuity contract de9 scribed in subparagraph (B) (in the case of a dis10 tribution). 

11 ‘‘(B) An annuity contract is described in this sub12 paragraph if it provides, either on an immediate or de13 ferred basis, a series of substantially equal periodic pay14 ments (not less frequently than annually) for the life of 

15 the participant or beneficiary or the joint lives of the par16 ticipant or beneficiary and such individual’s designated 

17 beneficiary. Annuity payments shall not fail to be treated 

18 as part of a series of substantially equal periodic payments 

19 merely because the amount of the periodic payments may 

20 vary in accordance with investment experience, realloca21 tions among investment options, actuarial gains or losses, 

22 cost of living indices, a constant percentage (not less than 

23 zero) applied not less frequently than annually, or similar 

24 fluctuating criteria. Annuity payments shall not fail to be 

25 treated as part of a series of substantially equal periodic 
44 

•HR 1961 IH 

1 payments merely because the period between each such 

2 payment is lengthened or shortened, but only if at all 

3 times such period is not longer than one year. The avail4 ability of a commutation benefit or other feature permit5 ting acceleration of annuity payments (or a modification 

6 of the period during which such a benefit is available), 

7 a minimum period of payments certain, or a minimum 

8 amount to be paid in any event shall not affect the treat9 ment of an annuity contract as an annuity contract de10 scribed in this subparagraph. 

11 ‘‘(C) Under regulations prescribed by the Secretary, 

12 this paragraph shall apply without regard to whether the 

13 particular individual retirement plan receiving the transfer 

14 or the particular annuity contract being distributed is spe15 cifically identified by the pension plan as available to the 

16 participant or beneficiary. 

17 ‘‘(D) Notwithstanding the preceding provisions of 

18 this paragraph, paragraph (1)(B) shall not apply with re19 spect to liability under section 406 in connection with the 

20 specific identification of any individual retirement plan or 

21 annuity contract as being available to the participant or 

22 beneficiary.’’. 

23 (b) EFFECTIVE DATE AND RELATED RULES.— 
45 

•HR 1961 IH 

1 (1) EFFECTIVE DATE.—The amendment made 

2 by this section shall take effect on the date of the 

3 enactment of this Act. 

4 (2) ISSUANCE OF FINAL REGULATIONS.—Final 

5 regulations under section 404(c)(4) of the Employee 

6 Retirement Income Security Act of 1974 (added by 

7 this section) shall be issued no later than 1 year 

8 after the date of the enactment of this Act. 

9 SEC. 209. INCREASING PARTICIPATION THROUGH AUTO10 MATIC CONTRIBUTION ARRANGEMENTS. 

11 (a) IN GENERAL.—Section 401(k) of the Internal 

12 Revenue Code of 1986 (relating to cash or deferred ar13 rangement) is amended by adding at the end the following 

14 new paragraph: 

15 ‘‘(13) NONDISCRIMINATION REQUIREMENTS

16 FOR AUTOMATIC CONTRIBUTION TRUSTS.— 

17 ‘‘(A) IN GENERAL.—A cash or deferred ar18 rangement shall be treated as meeting the re19 quirements of paragraph (3)(A)(ii) if such ar20 rangement constitutes an automatic contribu21 tion trust. 

22 ‘‘(B) AUTOMATIC CONTRIBUTION TRUST.— 

23 ‘‘(i) For purposes of this paragraph, 

24 the term ‘automatic contribution trust’ 

25 means an arrangement— 
46 

•HR 1961 IH 

1 ‘‘(I) under which each employee 

2 eligible to participate in the arrange3 ment is treated as having elected to 

4 have the employer make elective con5 tributions in an amount equal to the 

6 applicable percentage of compensation 

7 until the employee affirmatively elects 

8 not to have such contributions made 

9 or affirmatively elects to make elective 

10 contributions at a specified level, and 

11 ‘‘(II) which meets the other re12 quirements of this paragraph. 

13 Subclause (I) of this clause shall not apply 

14 to any employee who was eligible to par15 ticipate in the arrangement (or a prede16 cessor arrangement) immediately before 

17 the first date on which the arrangement is 

18 an automatic contribution trust. The elec19 tion treated as having been made under 

20 subclause (I) shall cease to apply to com21 pensation paid after the affirmative elec22 tion by the employee. 

23 ‘‘(ii) For purposes of this subpara24 graph, with respect to an employee, the 

25 term ‘‘applicable percentage’’ means the 
47 

•HR 1961 IH 

1 percentage determined under the arrange2 ment that is— 

3 ‘‘(I) at least 3 percent as of the 

4 first date that the election described 

5 in clause (i)(I) is in effect with re6 spect to the employee, 

7 ‘‘(II) at least 4 percent by a date 

8 that is not later than the first day of 

9 the second plan year beginning after 

10 the date described in subclause (I), 

11 ‘‘(III) at least 5 percent by a 

12 date that is not later than the first 

13 day of the third plan year beginning 

14 after the date described in subclause 

15 (I), 

16 ‘‘(IV) at least 6 percent by a 

17 date that is no later than the first day 

18 of the fourth plan year beginning 

19 after the date described in subclause 

20 (I), 

21 ‘‘(V) at least 7 percent by a date 

22 that is not later than the first day of 

23 the fifth plan year beginning after the 

24 date described in subclause (I), 
48 

•HR 1961 IH 

1 ‘‘(VI) at least 8 percent by a 

2 date that is no later than the first day 

3 of the fifth plan year beginning after 

4 the date described in subclause (I), 

5 and 

6 ‘‘(VII) applied uniformly with re7 spect to similarly situated employees. 

8 ‘‘(C) PARTICIPATION.— 

9 ‘‘(i) Except as provided in clause (ii), 

10 an arrangement meets the requirements of 

11 this subparagraph for any year if, during 

12 the plan year or the preceding plan year, 

13 elective contributions are made on behalf 

14 of at least 70 percent of employees other 

15 than highly compensated employees eligible 

16 to participate in the arrangement. 

17 ‘‘(ii) An arrangement (other than a 

18 successor arrangement) shall be treated as 

19 meeting the requirements of this subpara20 graph with respect to the first plan year in 

21 which the arrangement is effective. 

22 ‘‘(D) MATCHING OR NONELECTIVE CON23 TRIBUTIONS.—The requirements of this sub24 paragraph are met if, under the arrangement, 

25 the employer— 
49 

•HR 1961 IH 

1 ‘‘(i) makes matching contributions on 

2 behalf of each employee who is not a highly 

3 compensated employee in an amount equal 

4 to 50 percent of the elective contributions 

5 of the employee to the extent such elective 

6 contributions do not exceed 6 percent of 

7 compensation, or 

8 ‘‘(ii) is required, without regard to 

9 whether the employee makes an elective 

10 contribution or employee contribution, to 

11 make a contribution to a defined contribu12 tion plan on behalf of each employee who 

13 is not a highly compensated employee and 

14 who is eligible to participate in the ar15 rangement in an amount equal to at least 

16 2 percent of the employee’s compensation. 

17 The rules of clauses (ii) and (iii) of paragraph 

18 (12)(B) shall apply for purposes of clause (i). 

19 The rules of clause (ii) of paragraph (12)(E) 

20 shall apply for purposes of clauses (i) and (ii). 

21 ‘‘(E) VESTING.—The requirements of this 

22 subparagraph are met if an employee who has 

23 completed at least 2 years of service (within the 

24 meaning of section 411(a)) has a nonforfeitable 

25 right to 100 percent of the employee’s accrued 
50 

•HR 1961 IH 

1 benefit derived from employer contributions 

2 taken into account in determining whether the 

3 requirements of subparagraph (D) are met. 

4 ‘‘(F) NOTICE REQUIREMENTS.— 

5 ‘‘(i) IN GENERAL.—The requirements 

6 of this subparagraph are met if the re7 quirements of clauses (ii) and (iii) are met. 

8 ‘‘(ii) REASONABLE PERIOD TO MAKE

9 ELECTION.—The requirements of this 

10 clause are met if each employee to whom 

11 subparagraph (B)(i) applies— 

12 ‘‘(I) receives a notice explaining 

13 the employee’s right under the ar14 rangement to elect not to have elective 

15 contributions made on the employee’s 

16 behalf, and 

17 ‘‘(II) has a reasonable period of 

18 time after receipt of such notice and 

19 before the first elective contribution is 

20 made to make such election. 

21 ‘‘(iii) ANNUAL NOTICE OF RIGHTS

22 AND OBLIGATIONS.—The requirements of 

23 this clause are met if each employee eligi24 ble to participate in the arrangement is, 

25 within a reasonable period before any year, 
51 

•HR 1961 IH 

1 given notice of the employee’s rights and 

2 obligations under the arrangement. 

3 The requirements of clauses (i) and (ii) of para4 graph (12)(D) shall be met with respect to the 

5 notices described in clauses (ii) and (iii) of this 

6 subparagraph.’’. 

7 (b) MATCHING CONTRIBUTIONS.—Section 401(m) of 

8 such Code (relating to nondiscrimination test for matching 

9 contributions and employee contributions) is amended by 

10 redesignating paragraph (12) as paragraph (13) and by 

11 inserting after paragraph (11) the following new para12 graph: 

13 ‘‘(12) ALTERNATIVE METHOD FOR AUTOMATIC

14 CONTRIBUTION TRUSTS.— 

15 ‘‘(A) IN GENERAL.—A defined contribution 

16 plan shall be treated as meeting the require17 ments of paragraph (2) with respect to match18 ing contributions if the plan— 

19 ‘‘(i) meets the contribution require20 ments of subparagraphs (B)(i) and (D) of 

21 subsection (k)(13), 

22 ‘‘(ii) meets the participation require23 ments of subsection (k)(13)(C), 
52 

•HR 1961 IH 

1 ‘‘(iii) meets the vesting and notice re2 quirements of subparagraphs (E) and (F) 

3 of subsection (k)(13), and 

4 ‘‘(iv) meets the requirements of para5 graph (11)(B). 

6 ‘‘(B) MATCHING CONTRIBUTIONS.—An an7 nuity contract under section 403(b) shall be 

8 treated as meeting the requirements of para9 graph (2) with respect to matching contribu10 tions if such contract meets requirements simi11 lar to the requirements under subparagraph 

12 (A).’’. 

13 (c) EXCLUSION FROM DEFINITION OF TOP-HEAVY

14 PLANS.— 

15 (1) ELECTIVE CONTRIBUTION RULE.—Clause 

16 (i) of section 416(g)(4)(H) of such Code is amended 

17 by inserting ‘‘or 401(k)(13)’’ after ‘‘section 

18 401(k)(12)’’. 

19 (2) MATCHING CONTRIBUTION RULE.—Clause 

20 (ii) of section 416(g)(4)(H) of such Code is amended 

21 by inserting ‘‘or 401(m)(12)’’ after ‘‘section 

22 401(m)(11)’’. 

23 (d) DEFINITION OF COMPENSATION.— 

24 (1) BASE PAY OR RATE OF PAY.—The Sec25 retary of the Treasury shall, by no later than De-
53 

•HR 1961 IH 

1 cember 31, 2006, modify Treasury Regulation sec2 tion 1.414(s)–1(d)(3) to facilitate the use of the safe 

3 harbors in section 401(k)(12), 401(k)(13), 

4 401(m)(11), and 401(m)(12) of the Internal Rev5 enue Code of 1986, and in Treasury Regulation sec6 tion 1.401(a)(4)–3(b) by plans that use base pay or 

7 rate of pay in determining contributions or benefits. 

8 Such facilitation shall include increased flexibility in 

9 satisfying section 414(s) of such Code in situations 

10 where the amount of overtime compensation payable 

11 in a year can vary significantly. 

12 (2) APPLICATION OF REQUIREMENTS TO SEPA13 RATE PAYROLL PERIODS.—Not later than December 

14 31, 2005, the Secretary of the Treasury shall issue 

15 rules under subparagraphs (B)(i) and (D)(i) of sec16 tion 401(k)(13) of such Code and under clause (i) 

17 of section 401(m)(12)(A) of such Code that, effec18 tive for plan years beginning after December 31, 

19 2005, permit such requirements to be applied sepa20 rately to separate payroll periods based on rules 

21 similar to the rules described in Proposed Treasury 

22 Regulation sections 1.401(k)–3(c)(5)(ii) and 

23 1.401(m)–3(d)(4). 
54 

•HR 1961 IH 

1 (e) SECTION 403(B) CONTRACTS.—Paragraph (11) 

2 of section 401(m) of such Code is amended by adding at 

3 the end the following: 

4 ‘‘(C) SECTION 403(B) CONTRACTS.—An an5 nuity contract under section 403(b) shall be 

6 treated as meeting the requirements of para7 graph (2) with respect to matching contribu8 tions if such contract meets requirements simi9 lar to the requirements under subparagraph 

10 (A).’’. 

11 (f) INVESTMENTS AND PREEMPTION.— 

12 (1) CONTROL DEEMED TO HAVE BEEN EXER13 CISED WITH RESPECT TO AMOUNT OF AUTOMATIC

14 CONTRIBUTIONS.—Section 404(c) of the Employee 

15 Retirement Income Security Act of 1974 (29 U.S.C. 

16 1104(c)) (as amended by this Act) is amended by 

17 adding at the end the following new paragraphs: 

18 ‘‘(5)(A) A participant in an individual account plan 

19 shall, for purposes of paragraph (1), be treated as exer20 cising control over the assets in the account with respect 

21 to the amount of contributions made under an automatic 

22 contribution arrangement. 

23 ‘‘(B) For purposes this paragraph, the term ‘auto24 matic contribution arrangement’ means an arrangement— 
55 

•HR 1961 IH 

1 ‘‘(i) which meets the requirements of subpara2 graph (C), 

3 ‘‘(ii) under which a participant may elect to 

4 have the employer make payments as contributions 

5 under the plan on behalf of the participant, or to the 

6 participant directly in cash, 

7 ‘‘(iii) under which the participant is treated as 

8 having elected to have the employer make such con9 tributions in an amount equal to a uniform percent10 age of compensation provided under the plan until 

11 the participant affirmatively elects not to have such 

12 contributions made (or affirmatively elects to have 

13 such contributions made at a different percentage), 

14 and 

15 ‘‘(iv) under which contributions described in 

16 clause (iii) are invested in accordance with regula17 tions prescribed by the Secretary, which regulations 

18 shall provide for the investment of a portion of the 

19 contributions in a diversified investment vehicle that 

20 is intended to provide long-term capital appreciation. 

21 ‘‘(C)(i) The administrator of an individual account 

22 plan shall, within a reasonable period before each plan 

23 year, give to each employee to whom an automatic con24 tribution arrangement applies for such plan year notice 
56 

•HR 1961 IH 

1 of the employee’s rights and obligations under the ar2 rangement which— 

3 ‘‘(I) is sufficiently accurate and comprehensive 

4 to appraise the employee of such rights and obliga5 tions, and 

6 ‘‘(II) is written in a manner calculated to be 

7 understood by the average employee to whom the ar8 rangement applies. 

9 ‘‘(ii) A notice shall not be treated as meeting the re10 quirements of clause (i) with respect to an employee un11 less— 

12 ‘‘(I) the notice includes a notice explaining the 

13 employee’s right under the arrangement to elect not 

14 to have elective contributions made on the employ15 ee’s behalf (or to elect to have such contributions 

16 made at a different percentage), 

17 ‘‘(II) the employee has a reasonable period of 

18 time after receipt of the notice described in sub19 clause (I) and before the first elective contribution 

20 is made to make such election, and 

21 ‘‘(III) the notice explains how contributions 

22 made under the arrangement will be invested in the 

23 absence of any investment election by the employee. 

24 ‘‘(6)(A) A participant in an individual account plan 

25 shall, for purposes of paragraph (1), be treated as exer-
57 

•HR 1961 IH 

1 cising control over the assets in the account with respect 

2 to contributions described in subparagraph (B). 

3 ‘‘(B) Contributions are described in this subpara4 graph (B) if— 

5 ‘‘(i) such contributions are not described in 

6 paragraph (5), 

7 ‘‘(ii) the administrator of the plan satisfies 

8 rules similar to the rules of paragraph (5)(C) (ex9 cept that the notice shall relate to the employee’s 

10 right to make a different investment election), and 

11 ‘‘(iii) such contributions are invested pursuant 

12 to the regulations under paragraph (5)(B)(iv).’’. 

13 (2) PREEMPTION OF CONFLICTING STATE REG14 ULATION.—Section 514(b) of such Act (29 U.S.C. 

15 1144(b)) is amended— 

16 (A) by redesignating paragraph (9) as 

17 paragraph (10); and 

18 (B) by inserting after paragraph (8) the 

19 following new paragraph: 

20 ‘‘(9) Notwithstanding any other provision of this sec21 tion, any law of a State which would directly or indirectly 

22 prohibit or restrict the inclusion in any plan of an auto23 matic contribution arrangement (as defined in section 

24 404(c)(4)(B)) shall be superseded. The Secretary may 

25 prescribe regulations which would establish minimum 
58 

•HR 1961 IH 

1 standards that such arrangements would be required to 

2 satisfy in order for this paragraph to apply.’’. 

3 (g) CORRECTIVE DISTRIBUTIONS.—Section 414 (re4 lating to definitions and special rules) is amended by add5 ing at the end the following new subsection: 

6 ‘‘(y) AUTOMATIC CONTRIBUTION ARRANGEMENTS.— 

7 ‘‘(1) IN GENERAL.—For purposes of this title, 

8 the amount of any corrective distribution from a 

9 plan shall be treated as if such amount had never 

10 been held in such plan and shall be treated as a pay11 ment of compensation from the employer maintain12 ing the plan to the employee receiving such distribu13 tion. 

14 ‘‘(2) CORRECTIVE DISTRIBUTION.—For pur15 poses of this subsection, the term ‘corrective dis16 tribution’ means a distribution from an applicable 

17 employer plan of all amounts attributable to an erro18 neous automatic contribution. 

19 ‘‘(3) ERRONEOUS AUTOMATIC CONTRIBU20 TION.—For purposes of this subsection, the term 

21 ‘erroneous automatic contribution’ means an elective 

22 contribution made on behalf of an employee under 

23 any applicable employer plan pursuant to a plan pro24 vision treating the employee as having elected to 

25 have the employer make such elective contribution 
59 

•HR 1961 IH 

1 until the employee affirmatively elects not to have 

2 such contribution made or affirmatively elects to 

3 make contributions at a specified level, if the fol4 lowing requirements are satisfied— 

5 ‘‘(A) within the applicable period, the em6 ployee notifies the plan administrator that the 

7 employee had not known that the elective con8 tribution would be made and that the employee 

9 would not have elected to have such contribu10 tion made, and 

11 ‘‘(B) the sum of the elective contributions 

12 that are treated as erroneous automatic con13 tributions with respect to an employee does not 

14 exceed $500. 

15 ‘‘(4) APPLICABLE EMPLOYER PLAN.—For pur16 poses of this subsection, the term ‘applicable em17 ployer plan’ has the meaning described in subsection 

18 (v)(6)(A) except that the term shall not include an 

19 eligible deferred compensation plan maintained by 

20 an eligible employer described in section 

21 457(e)(1)(B). 

22 ‘‘(5) APPLICABLE PERIOD.—For purposes of 

23 this subsection, with respect to an employee, the 

24 term ‘applicable period’ means the three month pe25 riod that begins on the first date that an amount is 
60 

•HR 1961 IH 

1 withheld from compensation payable to the employee 

2 in order to make a plan contribution pursuant to a 

3 plan provision described in paragraph (3).’’. 

4 (h) EFFECTIVE DATE.— 

5 (1) IN GENERAL.—Except as provided by para6 graph (2), the amendments made by this section 

7 shall apply to plan years beginning after December 

8 31, 2005. 

9 (2) SECTION 403(b) CONTRACTS.—The amend10 ments made by subsection (e) shall apply to years 

11 beginning after December 31, 1998. 

12 (3) REGULATIONS.—Final regulations under 

13 section 404(c)(5)(B)(iv) of the Employee Retirement 

14 Income Security Act of 1974 (added by this section) 

15 shall be issued no later than 6 months after the date 

16 of enactment of this Act. 

17 SEC. 210. FACILITATING LONGEVITY INSURANCE. 

18 (a) IN GENERAL.—Paragraph (9) of section 401(a) 

19 of the Internal Revenue Code of 1986, as amended by this 

20 Act, is amended by inserting after subparagraph (H) the 

21 following new subparagraph: 

22 ‘‘(I) LONGEVITY INSURANCE.— 

23 ‘‘(i) IN GENERAL.—For purposes of 

24 this paragraph, any value attributable to 

25 longevity insurance shall be disregarded in 
61 

•HR 1961 IH 

1 determining the value of an employee’s in2 terest under a plan prior to the first date 

3 that payments are made under the lon4 gevity insurance. 

5 ‘‘(ii) LONGEVITY INSURANCE DE6 FINED.—For purposes of this subpara7 graph, the term ‘longevity insurance’ 

8 means an annuity payable on behalf of the 

9 employee under which— 

10 ‘‘(I) payments commence not 

11 later than 12 months following the 

12 calendar month in which the employee 

13 attains age 85 (or would have at14 tained age 85), 

15 ‘‘(II) payments are made in sub16 stantially equal periodic payments 

17 (not less frequently than annually) 

18 over the life of the employee or the 

19 joint lives of the employee and the 

20 employee’s designated beneficiary, 

21 taking into account the rules of clause 

22 (i)(II) of section 402(e)(7)(D), except 

23 as otherwise provided in subclause 

24 (III), 
62 

•HR 1961 IH 

1 ‘‘(III) prior to the death of the 

2 employee, the annuity does not make 

3 available any commutation benefit, 

4 cash surrender value, or other similar 

5 feature, and 

6 ‘‘(IV) except as provided in rules 

7 prescribed by the Secretary, in the 

8 case of an employee’s death prior to 

9 the date that payments commence, the 

10 value of any death benefits paid may 

11 not exceed the premiums paid for 

12 such annuity, plus interest com13 pounded annually at 3 percent. 

14 ‘‘(iii) ADJUSTING AGE.—For purposes 

15 of clause (ii)(I), the Secretary shall annu16 ally increase age 85 to reflect increases in 

17 life expectancy (as determined by the Sec18 retary) that occur on or after January 1, 

19 2006, except that any such increased age 

20 which is not a whole number shall be 

21 rounded to the next lower whole number.’’. 

22 (b) RULES.—Not later than one year after the date 

23 of enactment of this Act, the Secretary of the Treasury 

24 shall prescribe rules under which all or a portion of a par25 ticipant’s benefits under any plan described in section 
63 

•HR 1961 IH 

1 402(c)(8)(B) of the Internal Revenue Code of 1986 may 

2 be treated as longevity insurance under the rules of section 

3 401(a)(9)(I) of such Code. 

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

5 this section shall apply to years beginning after December 

6 31, 2006. 

7 SEC. 211. DIRECT PAYMENT OF TAX REFUNDS TO INDI8 VIDUAL RETIREMENT PLANS. 

9 (a) IN GENERAL.—Paragraph (3) of section 219(f) 

10 of the Internal Revenue Code of 1986 is amended to read 

11 as follows: 

12 ‘‘(3) TIME WHEN CONTRIBUTIONS MADE.— 

13 ‘‘(A) IN GENERAL.—Except as provided in 

14 subparagraph (B), for purposes of this sub15 section, a taxpayer shall be deemed to have 

16 made a contribution to an individual retirement 

17 plan on the last day of the preceding taxable 

18 year if the contribution is made on account of 

19 such taxable year and is made not later than 

20 the time prescribed by law for filing the return 

21 for such taxable year (not including extensions 

22 thereof). 

23 ‘‘(B) DIRECT PAYMENT OF TAX REFUNDS

24 TO INDIVIDUAL RETIREMENT PLANS.— 
64 

•HR 1961 IH 

1 ‘‘(i) IN GENERAL.—To the extent pro2 vided in rules prescribed by the Secretary, 

3 a tax refund owed to a taxpayer and paid 

4 directly to an individual retirement plan 

5 shall be deemed a contribution made by 

6 the taxpayer— 

7 ‘‘(I) on the last day of the tax8 able year to which such refund re9 lates, and 

10 ‘‘(II) on account of the taxable 

11 year to which such refund relates. 

12 ‘‘(ii) LIMITATION.—This subpara13 graph (B) shall not apply to a tax refund 

14 unless such refund is shown on a return 

15 filed not later than the time prescribed by 

16 law for filing the return for the taxable 

17 year to which such refund relates (not in18 cluding extensions thereof). 

19 ‘‘(iii) DIRECT PAYMENT.—For pur20 poses of this subparagraph, a tax refund is 

21 paid directly to an individual retirement 

22 plan if it is paid in the form of a direct 

23 transfer from the Secretary to the trustee 

24 or issuer of the individual retirement plan. 
65 

•HR 1961 IH 

1 ‘‘(iv) TAX REFUND.—For purposes of 

2 this subparagraph, the term ‘tax refund’ 

3 means a refund of an internal revenue tax 

4 or credit.’’. 

5 (b) REGULATIONS.— 

6 (1) IN GENERAL.—Not later than 1 year after 

7 the date of enactment of this Act, the Secretary of 

8 the Treasury shall issue rules which permit a tax9 payer— 

10 (A) to elect to have all or any portion of 

11 a tax refund owed to the taxpayer paid directly 

12 to a Roth IRA, or, if the Secretary determines 

13 that such direct payments are reasonably ad14 ministrable, to individual retirement plans 

15 which are not Roth IRAs, 

16 (B) to specify the individual retirement 

17 plan to which such tax refund is to be paid 

18 (and the investment option in which such tax 

19 refund is to be invested), and 

20 (C) to the extent provided in rules pre21 scribed by the Secretary, to specify the taxable 

22 year on account of which such payment is 

23 made, 

24 except that the Secretary may require that the 

25 amount subject to such an election exceed a dollar 
66 

•HR 1961 IH 

1 threshold determined by the Secretary as necessary 

2 or appropriate to ensure the administrability of such 

3 elections. 

4 (2) INFORMATION.—The Secretary may require 

5 that the taxpayer provide, and agree to the disclo6 sure of, any information necessary to pay the tax re7 fund to the individual retirement plan specified by 

8 the taxpayer. 

9 (3) SPECIAL RULE.—The Secretary may pro10 vide that if, for any reason, the trustee or issuer 

11 does not accept payment of a tax refund, the tax re12 fund shall instead be paid as if the taxpayer had not 

13 elected a direct payment to an individual retirement 

14 plan. 

15 (c) CONFORMING AMENDMENTS.— 

16 (1) Paragraph (3) of section 408(o) of such 

17 Code is amended by striking ‘‘rule’’ and inserting 

18 ‘‘rules’’. 

19 (2) Paragraph (7) of section 408A(c) of such 

20 Code is amended by striking ‘‘rule’’ and inserting 

21 ‘‘rules’’. 

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

23 this section shall be effective for tax returns filed after 

24 final rules implementing the amendments made by this 

25 section are prescribed. 
67 

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1 SEC. 212. TREATMENT OF QUALIFIED RETIREMENT PLAN2 NING SERVICES. 

3 (a) IN GENERAL.—Subsection (m) of section 132 

4 (defining qualified retirement services) is amended by add5 ing at the end the following new paragraph: 

6 ‘‘(4) NO CONSTRUCTIVE RECEIPT.—No amount 

7 shall be included in the gross income of any em8 ployee solely because the employee may choose be9 tween any qualified retirement planning services pro10 vided by a qualified investment advisor and com11 pensation which would otherwise be includible in the 

12 gross income of such employee. The preceding sen13 tence shall apply to highly compensated employees 

14 only if the choice described in such sentence is avail15 able on substantially the same terms to each mem16 ber of the group of employees normally provided 

17 education and information regarding the employer’s 

18 qualified employer plan.’’. 

19 (b) CONFORMING AMENDMENTS.— 

20 (1) Section 403(b)(3)(B) is amended by insert21 ing ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

22 (2) Section 414(s)(2) is amended by inserting 

23 ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

24 (3) Section 415(c)(3)(D)(ii) is amended by in25 serting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 
68 

•HR 1961 IH 

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

2 this section shall apply to taxable years beginning after 

3 December 31, 2005. 

4 SEC. 213. REPEAL OF COMBINED PLAN DEDUCTION LIMIT. 

5 (a) IN GENERAL.—Paragraph (7) of section 404(a) 

6 of such Code (relating to limitations on deductions where 

7 combination of defined contribution plan and defined ben8 efit plan) is amended by adding at the end the following: 

9 ‘‘(D) EXEMPTION.—This paragraph shall 

10 not apply to contributions by any employer if 

11 such employer or any member of such employ12 er’s controlled group (within the meaning of 

13 section 412(l)(8)(C)) maintains a defined ben14 efit plan that is covered by title IV of the Em15 ployee Retirement Income Security Act of 

16 1974.’’. 

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

18 this section shall apply to contributions for taxable years 

19 beginning after December 31, 2005. 
69 

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1 TITLE III—EXPANDING SMALL 

2 BUSINESS RETIREMENT PLAN 

3 COVERAGE AND MAKING THE 

4 ELECTIVE DEFERRAL RULES 

5 SIMPLER AND MORE UNI6 FORM 

7 SEC. 301. ALLOW ADDITIONAL NONELECTIVE CONTRIBU8 TIONS TO SIMPLE PLANS. 

9 (a) IN GENERAL.— 

10 (1) MODIFICATION TO DEFINITION.—Subpara11 graph (A) of section 408(p)(2) of the Internal Rev12 enue Code of 1986 (defining qualified salary reduc13 tion arrangement) is amended by striking ‘‘and’’ at 

14 the end of clause (iii), by redesignating clause (iv) 

15 as clause (v), and by inserting after clause (iii) the 

16 following new clause: 

17 ‘‘(iv) the employer may make nonelec18 tive contributions of a uniform percentage 

19 (up to 10 percent) of compensation for 

20 each employee who is eligible to participate 

21 in the arrangement and who has at least 

22 $5,000 of compensation from the employer 

23 for the year, and’’. 

24 (2) LIMITATION.—Subparagraph (A) of section 

25 408(p)(2) of such Code (defining qualified salary reduc-
70 

•HR 1961 IH 

1 tion arrangement) is amended by adding at the end the 

2 following: ‘‘The compensation taken into account under 

3 clause (iv) for any year shall not exceed the limitation in 

4 effect for such year under section 401(a)(17).’’. 

5 (b) CONFORMING AMENDMENTS.— 

6 (1) Section 408(p)(2)(A)(v) of such Code, as re7 designated by subsection (a), is amended by striking 

8 ‘‘or (iii)’’ and inserting ‘‘, (iii), or (iv)’’. 

9 (2) Paragraph (8) of section 408(p) of such 

10 Code is amended by inserting ‘‘, the employer con11 tribution actually made under paragraph (2)(A)(iv) 

12 of this subsection,’’ after ‘‘paragraph (2)(A)(ii) of 

13 this subsection’’. 

14 (3) Section 401(k)(11)(B)(i) of such Code is 

15 amended by striking ‘‘and’’ at the end of subclause 

16 (II), by redesignating subclause (III) as subclause 

17 (IV), and by inserting after subclause (II) the fol18 lowing new subclause: 

19 ‘‘(III) the employer may make 

20 nonelective contributions of a uniform 

21 percentage (up to 10 percent) of com22 pensation for each employee who is el23 igible to participate in the arrange24 ment and who has at least $5,000 of 
71 

•HR 1961 IH 

1 compensation from the employer for 

2 the year, and’’ 

3 (4) Section 401(k)(11)(B)(i)(IV) of such Code, 

4 as redesignated by paragraph (2), is amended by 

5 striking ‘‘or (II)’’ and inserting ‘‘, (II), or (III)’’. 

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

7 this section shall apply to years beginning after December 

8 31, 2005. 

9 SEC. 302. CONFORM MATCHING CONTRIBUTION RULES FOR 

10 SIMPLE IRAS AND SIMPLE 401(K)S. 

11 (a) IN GENERAL.—Subclause (II) of section 

12 401(k)(11)(B)(i) of the Internal Revenue Code of 1986 

13 (relating to general rule for contribution requirements) is 

14 amended by striking ‘‘3 percent’’ and inserting ‘‘the appli15 cable percentage (as defined in section 408(p)(2)(C)(ii))’’. 

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

17 this section shall apply to years beginning after December 

18 31, 2005. 

19 SEC. 303. UNIFORM CATCH-UP CONTRIBUTION RULE. 

20 (a) IN GENERAL.—Clause (iii) of section 

21 414(v)(6)(A) of the Internal Revenue Code of 1986 is 

22 amended to read as follows: 

23 ‘‘(iii) an eligible deferred compensa24 tion plan (as defined in section 457(b)), 

25 and’’. 
72 

•HR 1961 IH 

1 (b) CONFORMING AMENDMENT.—Paragraph (18) of 

2 section 457(e) of such Code is amended by striking ‘‘and 

3 who is a participant in an eligible deferred compensation 

4 plan of an employer described in paragraph (1)(A)’’. 

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

6 this section shall apply to years beginning after December 

7 31, 2005. 

8 SEC. 304. UNIFORM DEFINITION OF COMPENSATION. 

9 (a) COMPENSATION.— 

10 (1) IN GENERAL.—Subparagraph (A) of section 

11 415(c)(3) of the Internal Revenue Code of 1986 is 

12 amended to read as follows: 

13 ‘‘(A) IN GENERAL.—The term ‘partici14 pant’s compensation’ means wages (as defined 

15 by section 3401(a)) and all other payments of 

16 compensation to an employee by his employer 

17 (in the course of the employer’s trade or busi18 ness) for the year for which the employer is re19 quired to furnish the employee a written state20 ment under section 6041(d), 6051(a)(3), or 

21 6052. In accordance with rules prescribed by 

22 the Secretary, compensation shall be deter23 mined without regard to any rules under section 

24 3401(a) that limit the remuneration included in 
73 

•HR 1961 IH 

1 wages based on the nature or location of the 

2 employment or the services performed.’’. 

3 (2) CERTAIN PICKED UP CONTRIBUTIONS.— 

4 Subparagraph (D) of section 415(c)(3) of such Code 

5 is amended by striking ‘‘and’’ at the end of clause 

6 (i), redesignating clause (ii) as clause (iii), and in7 serting after clause (i) the following: 

8 ‘‘(ii) any employee contributions that 

9 are picked up under section 414(h)(2), 

10 and’’. 

11 (3) FIVE-YEAR RULE.—Subparagraph (E) of 

12 section 415(c)(3) of such Code is amended to read 

13 as follows: 

14 ‘‘(E) FIVE-YEAR RULE.—In the case of an 

15 annuity contract described in section 403(b), at 

16 the election of the employer maintaining the ar17 rangement, the term ‘participant’s compensa18 tion’ shall not be determined for the year but 

19 shall be determined for the most recent period 

20 (ending not later than the close of the year) 

21 which constitutes a year of service and which 

22 precedes the year by no more than five years. 

23 For purposes of the preceding sentence, under 

24 rules prescribed by the Secretary, a year of 

25 service shall be a full year of full-time service 
74 

•HR 1961 IH 

1 as an employee (or a combination of more than 

2 one year of part-year or part-time service).’’. 

3 (4) APPLICABILITY.—Paragraph (3) of section 

4 415(c) of such Code is amended by striking ‘‘For 

5 purposes of paragraph (1)—’’ and inserting ‘‘For 

6 purposes of this section—’’. 

7 (b) 403(b) PLANS.— 

8 (1) IN GENERAL.—Subsection (b) of section 

9 403 of such Code is amended by striking paragraphs 

10 (3) and (4). 

11 (2) CONFORMING AMENDMENTS.— 

12 (A) Clauses (i) and (ii) of section 

13 414(e)(5)(B) of such Code are amended to read 

14 as follows: 

15 ‘‘(i) the minister’s compensation 

16 under section 415(c)(3) shall be deter17 mined by reference to the minister’s earned 

18 income (within the meaning of section 

19 401(c)(2)) from such ministry rather than 

20 the amount of compensation which is re21 ceived from an employer, and 

22 ‘‘(ii) the years (and portions of years) 

23 in which such minister was a self-employed 

24 individual (within the meaning of section 

25 401(c)(1)(B)) with respect to such min-
75 

•HR 1961 IH 

1 istry shall be included for purposes of sec2 tion 415(c)(3)(E).’’. 

3 (B) Paragraph (7) of section 414(u) of 

4 such Code is amended by striking ‘‘403(b)(3), 

5 415(c)(3),’’ and inserting ‘‘415(c)(3)’’. 

6 (C) Subparagraph (C) of section 415(c)(7) 

7 of such Code is amended by striking ‘‘includible 

8 compensation determined under section 

9 403(b)(3)’’ and inserting ‘‘compensation deter10 mined under section 415(c)(3)’’. 

11 (c) SIMPLIFIED EMPLOYEE PENSIONS.—Subpara12 graph (A) of section 402(h)(2) of such Code is amended 

13 to read as follows: 

14 ‘‘(A) 25 percent of the compensation (with15 in the meaning of section 415(c)(3), except that 

16 for purposes of this subsection, amounts de17 scribed in section 6051(a)(3) shall be deter18 mined without regard to section 3401(a)(3)) 

19 from such employer for the year, or’’. 

20 (d) SIMPLE PLANS.—Subparagraph (A) of section 

21 408(p)(6) of such Code is amended to read as follows: 

22 ‘‘(A) COMPENSATION.—The term ‘com23 pensation’ has the same meaning as the term 

24 ‘participant’s compensation’ (as defined in sec25 tion 415(c)(3)), except that for purposes of this 
76 

•HR 1961 IH 

1 subsection, amounts described in section 

2 6051(a)(3) shall be determined without regard 

3 to section 3401(a)(3).’’. 

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

5 this section shall apply to years beginning after December 

6 31, 2005. 

7 SEC. 305. UNIFORM WITHDRAWAL RULES. 

8 (a) IN GENERAL.—Section 414 of the Internal Rev9 enue Code of 1986 is amended by adding at the end the 

10 following: 

11 ‘‘(w) DISTRIBUTABLE EVENT.—For purposes of this 

12 part— 

13 ‘‘(1) IN GENERAL.—The term ‘distributable 

14 event’ means with respect to a participant— 

‘‘(A) attainment of age 591 15 ⁄2, 

16 ‘‘(B) death, 

17 ‘‘(C) disability (within the meaning of sec18 tion 72(m)(7)), 

19 ‘‘(D) severance from employment, 

20 ‘‘(E) hardship, or 

21 ‘‘(F) termination of the plan without the 

22 establishment or maintenance of a successor 

23 plan (other than an employee stock ownership 

24 plan as defined in section 4975(e)(7)). 

25 ‘‘(2) SPECIAL RULES.— 
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1 ‘‘(A) Subparagraphs (A) and (E) of para2 graph (1) shall not apply to a defined contribu3 tion plan to which section 412 applies. 

4 ‘‘(B) Paragraph (1)(E) shall only apply to 

5 amounts described in clauses (i) or (ii) of sec6 tion 415(c)(3)(D) (without regard to earnings 

7 attributable to such amounts). 

8 ‘‘(C) Paragraph (1)(F) shall not apply to 

9 a plan described in subsection (v)(6)(A)(ii) un10 less the employer maintaining such plan elects 

11 to maintain the plan pursuant to a plan docu12 ment. Under rules prescribed by the Secretary, 

13 a plan described in subsection (v)(6)(A)(ii) may 

14 be treated as terminated without regard to 

15 whether all assets of the plan are distributed. 

16 ‘‘(D)(i) Paragraph (1)(F) shall not apply 

17 to an employee unless the employee receives a 

18 lump sum distribution by reason of the termi19 nation. 

20 ‘‘(ii) For purposes of this subparagraph, 

21 the determination of whether a distribution is a 

22 lump sum distribution shall be made under sec23 tion 402(e)(4)(D) (without regard to subclauses 

24 (I), (II), (III), and (IV) of clause (i) thereof) 

25 or, in the case of plans not described in such 
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1 section, under similar rules. Such term includes 

2 a distribution that consists in whole or in part 

3 of an annuity contract.’’. 

4 (b) 401(k) PLANS.— 

5 (1) Clause (i) of section 401(k)(2)(B) of such 

6 Code is amended to read as follows: 

7 ‘‘(i) may not be distributable to par8 ticipants or other beneficiaries earlier than 

9 the occurrence of a distributable event, 

10 and’’. 

11 (2) Section 401(k) of such Code is amended by 

12 striking paragraph (10). 

13 (3) The last sentence of subparagraph (C) of 

14 section 401(k)(7) of such Code is amended to read 

15 as follows: ‘‘For purposes of this section, the term 

16 ‘hardship distribution’ means a distribution de17 scribed in section 414(w)(1)(E) (taking section 

18 414(w)(2)(B) into account but without regard to 

19 section 414(w)(2)(A)). 

20 (c) 403(b) PLANS.— 

21 (1) Clause (ii) of section 403(b)(7)(A) of such 

22 Code is amended to read as follows: 

23 ‘‘(ii) under the custodial account, no 

24 such amounts may be paid or made avail-
79 

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1 able to any distributee before the occur2 rence of a distributable event.’’. 

3 (2) Paragraph (11) of section 403(b) of such 

4 Code is amended by striking ‘‘may be paid only’’ 

5 and all that follows and inserting ‘‘may be paid only 

6 upon the occurrence of a distributable event.’’. 

7 (d) ELIGIBLE DEFERRED COMPENSATION PLANS.— 

8 (1) Subparagraph (A) of section 457(d)(1) of 

9 such Code is amended to read as follows: 

10 ‘‘(A) under the plan amounts will not be 

11 made available to participants or beneficiaries 

12 earlier than the occurrence of a distributable 

13 event,’’. 

14 (2) Paragraph (1) of section 457(a) of such 

15 Code is amended to read as follows: 

16 ‘‘(1) IN GENERAL.—Any amount of compensa17 tion deferred under an eligible deferred compensa18 tion plan, and any income attributable to the 

19 amounts so deferred, shall be includible in gross in20 come only for the taxable year in which such com21 pensation or other income is paid to the participant 

22 or other beneficiary.’’. 

23 (3) Subsection (d) of section 457 of such Code 

24 is amended by striking paragraph (3). 
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1 (4) Paragraph (9) of section 457(e) of such 

2 Code is amended to read as follows: 

3 ‘‘(9) SMALL BENEFITS NOT TREATED AS MADE

4 AVAILABLE BY REASON OF CERTAIN ELECTIONS.— 

5 For purposes of subsection (d)(1)(A), the total 

6 amount payable to a participant under an eligible 

7 deferred compensation plan shall not be treated as 

8 made available merely because the participant may 

9 elect to receive such amount (or the plan may dis10 tribute such amount without the participant’s con11 sent) if— 

12 ‘‘(A) the portion of such amount which is 

13 not attributable to rollover contributions (as de14 fined in section 411(a)(11)(D)) does not exceed 

15 the dollar limit under section 411(a)(11)(A), 

16 and 

17 ‘‘(B) such amount may be distributed only 

18 if— 

19 ‘‘(i) no amount has been deferred 

20 under the plan with respect to such partici21 pant during the 2-year period ending on 

22 the date of the distribution, and 

23 ‘‘(ii) there has been no prior distribu24 tion under the plan to such participant to 

25 which this subparagraph applied.’’. 
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1 (e) HARDSHIP DEFINITION.— 

2 (1) IN GENERAL.—Within 180 days after the 

3 date of enactment of this Act, the Secretary of the 

4 Treasury shall issue rules under which, except as 

5 provided in paragraph (2), the determination of 

6 whether a participant has had a hardship for pur7 poses of section 414(w)(1)(E) of the Internal Rev8 enue Code of 1986 shall be made pursuant to Treas9 ury Regulation section 1.401(k)–1(d)(3), as such 

10 section is and amended from time to time by the 

11 Secretary. 

12 (2) BENEFICIARIES.—Within 180 days after 

13 the date of enactment of this Act, the Secretary of 

14 the Treasury shall modify the rules for determining 

15 whether a participant has had a hardship for pur16 poses of section 414(w)(1)(E) of such Code. Pursu17 ant to such modification, any event, such as a med18 ical expense, that would constitute a hardship if it 

19 occurred with respect to a participant’s spouse or 

20 dependent (as defined in section 152 of such Code) 

21 shall, to the extent permitted under a plan, con22 stitute a hardship if it occurs with respect to a per23 son who is a beneficiary with respect to the partici24 pant under the plan. 

25 (f) EFFECTIVE DATE.— 
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1 (1) IN GENERAL.—Except as provided in para2 graph (2), the amendments made by this section 

3 shall apply to years beginning after December 31, 

4 2005. 

5 (2) SPECIAL RULE.—In the case of amounts at6 tributable to contributions to an eligible deferred 

7 compensation plan (as defined in section 457(b) of 

8 the Internal Revenue Code of 1986) made before the 

9 first day of the first year beginning after December 

10 31, 2005, withdrawals of such amounts from such a 

11 plan may be permitted upon unforeseeable emer12 gency (as defined under section 457(d)(1)(A)(iii) of 

13 such Code, as in effect on the day before the enact14 ment of this Act). 

15 SEC. 306. ALLOW LEVEL DOLLAR CONTRIBUTIONS TO SEPS. 

16 (a) IN GENERAL.—Subparagraph (C) of section 

17 408(k)(3) of the Internal Revenue Code of 1986 (relating 

18 to contributions must bear uniform relationship to total 

19 compensation) is amended by inserting before the period 

20 at the end the following: ‘‘or unless such contributions are 

21 a uniform dollar amount on behalf of each such em22 ployee.’’. 

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

24 this section shall apply to years beginning after December 

25 31, 2005. 
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1 SEC. 307. TAX TREATMENT OF CERTAIN NONTRADE OR 

2 BUSINESS SEP CONTRIBUTIONS. 

3 (a) IN GENERAL.—Subparagraph (B) of section 

4 4972(c)(6) of the Internal Revenue Code of 1986 (relating 

5 to exceptions) is amended— 

6 (1) by striking ‘‘408(p) or’’ and inserting 

7 ‘‘408(p),’’, and 

8 (2) by inserting after ‘‘401(k)(11))’’ the fol9 lowing: ‘‘, or a simplified employee pension (within 

10 the meaning of section 408(k))’’. 

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

12 this section shall apply to years beginning after December 

13 31, 2005. 

14 SEC. 308. ALLOW CERTAIN PLAN TRANSFERS AND MERG15 ERS. 

16 (a) AMENDMENT TO THE INTERNAL REVENUE CODE

17 OF 1986.— 

18 (1) IN GENERAL.—Section 414 of the Internal 

19 Revenue Code of 1986 (relating to definitions and 

20 special rules) is amended by adding at the end the 

21 following new subsection: 

22 ‘‘(x) CERTAIN PLAN TRANSFERS AND MERGERS.— 

23 ‘‘(1) IN GENERAL.—Under rules prescribed by 

24 the Secretary, no amount shall be includible in gross 

25 income by reason of— 
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1 ‘‘(A) a transfer of all or a portion of the 

2 account balance of a participant or beneficiary, 

3 whether or not vested, from a defined contribu4 tion plan described in section 401(a) or section 

5 403(a) of an employer to an annuity contract 

6 described in section 403(b) of the same em7 ployer, 

8 ‘‘(B) a transfer of all or a portion of the 

9 account balance of a participant or beneficiary, 

10 whether or not vested, from an annuity contract 

11 described in section 403(b) of an employer to a 

12 defined contribution plan described in section 

13 401(a) or section 403(a) of the same employer, 

14 or 

15 ‘‘(C) a merger of a defined contribution 

16 plan described in section 401(a) or section 

17 403(a) of an employer with an annuity contract 

18 described in section 403(b) of the same em19 ployer, 

20 so long as the transfer or merger does not cause a 

21 reduction in the vested benefit or total benefit (in22 cluding non-vested benefit) of any participant or 

23 beneficiary. A plan or contract shall not fail to be 

24 considered to be described in sections 401(a), 

25 403(a), or 403(b) (as applicable) merely because 
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1 such plan or contract engages in a transfer or merg2 er described in this paragraph. 

3 ‘‘(2) DISTRIBUTIONS.—Amounts transferred or 

4 merged pursuant to paragraph (1) shall be subject 

5 to the requirements of paragraphs (3) and (4) and 

6 to the distribution requirements under sections 

7 401(a), 403(a), or 403(b) applicable to the trans8 feree or merged plan. 

9 ‘‘(3) SPOUSAL CONSENT AND ANTI-CUTBACK

10 PROTECTION.—In the case of a transfer or merger 

11 described in paragraph (1), amounts in the trans12 feree or merged plan that are attributable to the 

13 transferor or predecessor plan shall— 

14 ‘‘(A)(i) be subject to section 401(a)(11) or 

15 section 205 of the Employee Retirement Income 

16 Security Act of 1974 to the extent that such 

17 sections applied to such amounts in the trans18 feror or predecessor plan, or 

19 ‘‘(ii) be required to satisfy the require20 ments of section 401(a)(11)(B)(iii)(I) or section 

21 205(b)(1)(C)(i) of the Employee Retirement In22 come Security Act of 1974 to the extent that 

23 such sections applied to such amounts in the 

24 transferor or predecessor plan, and 
86 

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1 ‘‘(B) be treated as subject to section 

2 411(d)(6) and section 204(g) of the Employee 

3 Retirement Income Security Act of 1974 to the 

4 extent that such amounts were subject to such 

5 sections in the transferor or predecessor plan. 

6 ‘‘(4) SPECIAL RULES.—Under rules prescribed 

7 by the Secretary, to the extent amounts transferred 

8 or merged pursuant to paragraph (1) were otherwise 

9 entitled to grandfather treatment under the trans10 feror or predecessor plan, such amounts (and income 

11 or loss attributable thereto) shall remain entitled to 

12 such treatment under the transferee or merged plan. 

13 The rules prescribed by the Secretary shall require 

14 that such amounts be separately accounted for by 

15 the transferee or merged plan. For purposes of this 

16 paragraph, ‘grandfather treatment’ shall mean spe17 cial treatment under the Internal Revenue Code of 

18 1986 that is provided for prior benefits, prior peri19 ods of time, or certain individuals in connection with 

20 a change in the applicable law. 

21 ‘‘(5) CONSENT.—In the case of a qualified trust 

22 described in section 401(a) or 403(a) and an annu23 ity contract described in section 403(b) with respect 

24 to which transfers may be made only with the con25 sent of a participant or beneficiary pursuant to the 
87 

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1 terms of such trust or contract or pursuant to appli2 cable law, such consent requirement shall apply 

3 without regard to this subsection. Nothing in this 

4 subsection shall affect the application of contract or 

5 plan terms otherwise applicable in the case of a 

6 withdrawal from the contract or plan.’’. 

7 (2) AGGREGATION.—Paragraph (2) of section 

8 414(t) of such Code is amended by inserting 

9 ‘‘414(x),’’ after ‘‘274(j),’’. 

10 (b) AMENDMENT TO THE EMPLOYEE RETIREMENT

11 INCOME SECURITY ACT OF 1974.—Section 4 of the Em12 ployee Retirement Income Security Act of 1974 (29 

13 U.S.C. 1003) is amended by adding at the end the fol14 lowing new subsection: 

15 ‘‘(d) This title shall apply to any plan or contract de16 scribed in section 414(x) of the Internal Revenue Code 

17 of 1986 to the extent necessary to comply with the re18 quirements of such section.’’. 

19 (c) EFFECTIVE DATE.— 

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

21 this section shall apply to transfers or mergers in 

22 years beginning after the Secretary of the Treasury 

23 prescribes rules under section 414(x) of the Internal 

24 Revenue Code of 1986. 
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1 (2) RULES.—The Secretary of the Treasury 

2 shall issue rules under section 414(x) of the Internal 

3 Code of 1986 within 1 year after the date of enact4 ment of this Act. 

5 TITLE IV—EXPANDING RETIRE6 MENT SAVINGS FOR TAX-EX7 EMPT ORGANIZATION AND 

8 GOVERNMENT EMPLOYEES 

9 SEC. 401. WAIVER OF 10 PERCENT EARLY WITHDRAWAL 

10 PENALTY TAX ON CERTAIN DISTRIBUTIONS 

11 OF PENSION PLANS FOR PUBLIC SAFETY EM12 PLOYEES. 

13 (a) IN GENERAL.—Subsection (t) of section 72 of the 

14 Internal Revenue Code of 1986 (relating to subsection not 

15 to apply to certain distributions) is amended by adding 

16 at the end the following new paragraph: 

17 ‘‘(10) DISTRIBUTIONS TO QUALIFIED PUBLIC

18 SAFETY EMPLOYEES IN GOVERNMENTAL PLANS.— 

19 ‘‘(A) IN GENERAL.—In the case of a dis20 tribution to a qualified public safety employee 

21 from a governmental plan (within the meaning 

22 of section 414(d)) which is a defined benefit 

23 plan, paragraph (2)(A)(v) shall be applied by 

24 substituting ‘age 50’ for ‘age 55’. 
89 

•HR 1961 IH 

1 ‘‘(B) QUALIFIED PUBLIC SAFETY EM2 PLOYEE.—For purposes of this paragraph, the 

3 term ‘qualified public safety employee’ means 

4 any employee of a State or political subdivision 

5 of a State who provides police protection, fire6 fighting services, or emergency medical services 

7 for any area within the jurisdiction of such 

8 State or political subdivision.’’. 

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

10 this section shall apply to distributions after the date of 

11 the enactment of this Act. 

12 SEC. 402. CLARIFICATIONS REGARDING PURCHASE OF PER13 MISSIVE SERVICE CREDIT. 

14 (a) IN GENERAL.—Subparagraph (A) of section 

15 457(e)(17) of the Internal Revenue Code of 1986 (relating 

16 to trustee-to-trustee transfers to purchase permissive serv17 ice credit), and subparagraph (A) of section 403(b)(13) 

18 (relating to trustee-to-trustee transfers to purchase per19 missive service credit), are both amended by striking ‘‘sec20 tion 415(n)(3)(A)’’ and inserting ‘‘section 415(n)(3) 

21 (without regard to subparagraphs (B) and (C) thereof)’’. 

22 (b) DISTRIBUTION REQUIREMENTS.—Section 

23 457(e)(17) and section 403(b)(13) of such Code are both 

24 amended by adding at the end the following sentence: 

25 ‘‘Amounts transferred under this paragraph shall be dis-
90 

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1 tributed solely in accordance with section 401(a) as appli2 cable to such defined benefit plan.’’. 

3 (c) SERVICE CREDIT.—Clause (ii) of section 

4 415(n)(3)(A) of such Code is amended to read as follows: 

5 ‘‘(ii) which relates to benefits with re6 spect to which such participant is not oth7 erwise entitled, and’’. 

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

9 this section shall take effect as if included in the amend10 ments made by section 647 of the Economic Growth and 

11 Tax Relief Reconciliation Act of 2001. 

12 SEC. 403. ELIGIBILITY FOR PARTICIPATION IN RETIRE13 MENT PLANS. 

14 An individual shall not be precluded from partici15 pating in an eligible deferred compensation plan by reason 

16 of having received a distribution under section 457(e)(9) 

17 of the Internal Revenue Code of 1986, as in effect prior 

18 to the enactment of the Small Business Job Protection 

19 Act of 1996. 

20 SEC. 404. CLARIFICATION OF MINIMUM DISTRIBUTION 

21 RULES. 

22 The Secretary of the Treasury shall issue regulations 

23 under which a governmental plan (as defined in section 

24 414(d) of the Internal Revenue Code of 1986) shall, for 

25 all years to which section 401(a)(9) of such Code applies 
91 

•HR 1961 IH 

1 to such plan, be treated as having complied with such sec2 tion 401(a)(9) if such plan complies with a reasonable 

3 good faith interpretation of such section 401(a)(9). 

4 SEC. 405. CHURCH PLAN RULE. 

5 (a) IN GENERAL.—Paragraph (11) of section 415(b) 

6 of the Internal Revenue Code of 1986 is amended by add7 ing at the end the following: ‘‘Subparagraph (B) of para8 graph (1) shall not apply to a plan maintained by an orga9 nization described in section 3121(w)(3)(A) except with 

10 respect to highly compensated benefits. For purposes of 

11 this paragraph, the term ‘highly compensated benefits’ 

12 means any benefits accrued for an employee in any year 

13 on or after the first year in which such employee is a high14 ly compensated employee (as defined in section 414(q)) 

15 of the organization described in section 3121(w)(3)(A). 

16 For purposes of applying paragraph (1)(B) to highly com17 pensated benefits, all benefits of the employee otherwise 

18 taken into account (without regard to this paragraph) 

19 shall be taken into account.’’. 

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

21 this section shall apply to plan years beginning after De22 cember 31, 2005. 

23 SEC. 406. CLARIFICATION OF TREATMENT OF INDIAN TRIB24 AL GOVERNMENTS. 

25 (a) DEFINITION OF GOVERNMENTAL PLAN.— 
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1 (1) AMENDMENT TO INTERNAL REVENUE CODE

2 OF 1986.—Section 414(d) of the Internal Revenue 

3 Code of 1986 (definition of governmental plan) is 

4 amended by adding at the end thereof the following 

5 new sentence: ‘‘The term ‘governmental plan’ also 

6 includes a plan established or maintained for its em7 ployees by an Indian tribal government (as defined 

8 in section 7701(a)(40)), a subdivision of an Indian 

9 tribal government (determined in accordance with 

10 section 7871(d)), an agency or instrumentality of an 

11 Indian tribal government or a subdivision thereof, or 

12 an entity established under tribal, Federal, or State 

13 law which is wholly owned or controlled by any of 

14 the foregoing.’’. 

15 (2) AMENDMENT TO EMPLOYEE RETIREMENT

16 INCOME SECURITY ACT OF 1974.—Section 3(32) of 

17 the Employee Retirement Income Security Act of 

18 1974 (29 U.S.C. 1002(32)) is amended by adding at 

19 the end the following new sentence: ‘‘The term ‘gov20 ernmental plan’ also includes a plan established or 

21 maintained for its employees by an Indian tribal 

22 government (as defined in section 7701(a)(40) of the 

23 Internal Revenue Code of 1986), a subdivision of an 

24 Indian tribal government (determined in accordance 

25 with section 7871(d) of such Code), an agency or in-
93 

•HR 1961 IH 

1 strumentality of an Indian tribal government or sub2 division thereof, or an entity established under trib3 al, Federal, or State law which is wholly owned or 

4 controlled by any of the foregoing.’’. 

5 (b) CLARIFICATION OF TREATMENT OF INDIAN

6 TRIBAL GOVERNMENTS.— 

7 (1) AMENDMENTS TO INTERNAL REVENUE

8 CODE OF 1986.— 

9 (A) POLICE AND FIREFIGHTERS.—Sub10 paragraph (H) of section 415(b)(2) of the In11 ternal Revenue Code of 1986 (defining partici12 pant) is amended— 

13 (i) in clause (i) by striking ‘‘State or 

14 political subdivision’’ and inserting ‘‘State, 

15 Indian tribal government (as defined in 

16 section 7701(a)(40)), or any political sub17 division’’, and 

18 (ii) in clause (ii)(I) by striking ‘‘State 

19 or political subdivision’’ both places it ap20 pears and inserting ‘‘State, Indian tribal 

21 government (as so defined), or any political 

22 subdivision’’. 

23 (B) STATE AND LOCAL GOVERNMENT

24 PLANS.— 
94 

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1 (i) IN GENERAL.—Subparagraph (A) 

2 of section 415(b)(10) of such Code (relat3 ing to limitation to equal accrued benefit) 

4 is amended— 

5 (I) by inserting ‘‘, Indian tribal 

6 government (as defined in section 

7 7701(a)(40)),’’ after ‘‘State’’, 

8 (II) by inserting ‘‘any’’ before 

9 ‘‘political subdivision’’, and 

10 (III) by inserting ‘‘any of’’ before 

11 ‘‘the foregoing’’. 

12 (ii) CONFORMING AMENDMENT.—The 

13 heading for paragraph (10) of section 

14 415(b) of such Code is amended to read as 

15 follows: 

16 ‘‘(10) SPECIAL RULE FOR STATE, INDIAN TRIB17 AL, AND LOCAL GOVERNMENT PLANS.—’’. 

18 (C) GOVERNMENT PICK UP CONTRIBU19 TIONS.—Paragraph (2) of section 414(h) of 

20 such Code (relating to designation by units of 

21 government) is amended by striking ‘‘State or 

22 political subdivision’’ and inserting ‘‘State, In23 dian tribal government (as defined in section 

24 7701(a)(40)), or any political subdivision’’. 
95 

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1 (D) DISTRIBUTIONS TO PUBLIC SAFETY

2 EMPLOYEES.—Subparagraph (B) of section 

3 72(t)(10) of such Code, as added by this Act, 

4 is amended— 

5 (i) by striking ‘‘State or political sub6 division of a State’’ and inserting ‘‘State, 

7 Indian tribal government (as defined in 

8 section 7701(a)(4)), or political subdivision 

9 thereof’’, and 

10 (ii) by striking ‘‘such State or political 

11 subdivision’’ and inserting ‘‘such State, In12 dian tribal government (as defined in sec13 tion 7701(a)(4)), or political subdivision 

14 thereof’’. 

15 (2) AMENDMENTS TO EMPLOYEE RETIREMENT

16 INCOME SECURITY ACT OF 1974.—Section 4021(b) of 

17 the Employee Retirement Income Security Act of 

18 1974 (29 U.S.C. 1321(b)) is amended— 

19 (A) in paragraph (12), by striking ‘‘or’’ at 

20 the end; 

21 (B) in paragraph (13), by striking ‘‘plan.’’ 

22 and inserting ‘‘plan; or’’; and 

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

24 paragraph: 
96 

•HR 1961 IH 

1 ‘‘(14) established and maintained for its em2 ployees by an Indian tribal government (as defined 

3 in section 7701(a)(40) of the Internal Revenue Code 

4 of 1986), a subdivision of an Indian tribal govern5 ment (determined in accordance with section 

6 7871(d) of such Code), an agency or instrumentality 

7 of an Indian tribal government or subdivision there8 of, or an entity established under tribal, Federal, or 

9 State law which is wholly owned or controlled by any 

10 of the foregoing.’’. 

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

12 this section shall apply to years beginning before, on, or 

13 after the date of the enactment of this Act. 

14 SEC. 407. DEFERRAL AGREEMENTS. 

15 (a) IN GENERAL.—Paragraph (4) of section 457(b) 

16 of the Internal Revenue Code of 1986 is amended by add17 ing the following after ‘‘month’’: ‘‘or, in the case of a plan 

18 of an eligible employer described in subsection (e)(1)(A), 

19 before the date on which the compensation is currently 

20 available’’. 

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

22 this section shall apply to years beginning after December 

23 31, 2005. 
97 

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1 SEC. 408. PLANS MAINTAINED BY STATE OR LOCAL GOV2 ERNMENTS. 

3 (a) IN GENERAL.—Subparagraph (F) of section 

4 415(b)(2) of the Internal Revenue Code of 1986 is amend5 ed to read as follows: 

6 ‘‘(F) PLANS MAINTAINED BY STATE OR

7 LOCAL GOVERNMENTS.— 

8 ‘‘(i) IN GENERAL.—In the case of a 

9 governmental plan (within the meaning of 

10 section 414(d)) maintained by a State of 

11 local government or political subdivision 

12 thereof (or agency or instrumentality 

13 thereof), subparagraph (C) shall be applied 

14 as if the following sentence were added at 

15 the end: ‘The reduction under this sub16 paragraph shall not reduce the limitation 

17 of paragraph (l)(A) below (i) $130,000 if 

18 the benefit begins at or after age 55, or 

19 (ii) if the benefit begins before age 55, the 

20 equivalent of the $130,000 limitation at 

21 age 55.’’’. 

22 (b) COST-OF-LIVING ADJUSTMENTS.— 

23 (1) PLANS MAINTAINED BY STATE OR LOCAL

24 GOVERNMENTS.—Paragraph (1) of section 415(d) of 

25 such Code is amended by striking ‘‘and’’ at the end 

26 of subparagraph (B), by redesignating subparagraph 
98 

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1 (C) as subparagraph (D), and by inserting after sub2 paragraph (B) the following new subparagraph: 

3 ‘‘(C) the $130,000 amount in subsection 

4 (b)(2)(F), and’’. 

5 (2) BASE PERIOD.—Paragraph (3) of section 

6 415(d) of such Code is amended by redesignating 

7 subparagraph (D) as subparagraph (E) and by in8 serting after subparagraph (C) the following new 

9 subparagraph: 

10 ‘‘(D) $130,000 AMOUNT.—The base period 

11 taken into account for purposes of paragraph 

12 (l)(C) is the calendar quarter beginning July 1, 

13 2005.’’. 

14 (3) ROUNDING RULE RELATING TO DEFINED

15 BENEFIT PLANS.—Subparagraph (B) of section 

16 415(d)(4) of such Code is amended to read as fol17 lows: 

18 ‘‘(B) $130,000 AND $40,000 AMOUNTS.— 

19 Any increase under subparagraph (C) or (D) of 

20 paragraph (1) which is not a multiple of $1,000 

21 shall be rounded to the next lowest multiple of 

22 $1,000.’’. 

23 (4) CONFORMING AMENDMENT.—Subparagraph 

24 (E) of section 415(d)(3) of such Code (as amended 
99 

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1 by paragraph (2)) is amended by striking ‘‘para2 graph (l)(C)’’ and inserting ‘‘paragraph (l)(D)’’. 

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

4 this section shall apply to years beginning after December 

5 31, 2005. 

6 SEC. 409. CLARIFICATION OF TREATMENT OF SECTION 

7 403(b) PROGRAMS. 

8 (a) ADMINISTRATION.—The Secretary of the Treas9 ury shall not issue any rules which would impose materi10 ally greater burdens and responsibilities on employers with 

11 respect to the administration of a program described in 

12 section 403(b) of the Internal Revenue Code of 1986 than 

13 are imposed as of the date of enactment of this Act. 

14 (b) TRANSFERS.—Under rules prescribed by the Sec15 retary of the Treasury, participants shall be permitted to 

16 directly transfer all or part of their interest in a section 

17 403(b) annuity contract or custodial account to another 

18 section 403(b) annuity contract or custodial account with19 out violating the prohibitions against in-service with20 drawals in sections 403(b)(7) and 403(b)(11) of such 

21 Code. These rules shall be consistent with the principles 

22 of Revenue Ruling 90–24. 

23 (c) PROPOSED REGULATIONS.—The Secretary of the 

24 Treasury shall not finalize proposed regulations published 
100 

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1 on November 15, 2004, unless such regulations reflect the 

2 requirements of this section. 

3 (d) EFFECTIVE DATE.—The provisions of this sec4 tion shall take effect on the date of enactment of this Act. 

5 TITLE V—SIMPLIFICATION AND 

6 EQUITY 

7 SEC. 501. UPDATING AND SIMPLIFYING THE MINIMUM DIS8 TRIBUTION RULES. 

9 (a) REQUIRED DISTRIBUTIONS.— 

10 (1) INCREASE IN AGE FOR REQUIRED BEGIN11 NING DATE.—Clauses (i) and (ii) of section 

12 401(a)(9)(C) of the Internal Revenue Code of 1986 

13 (relating to required beginning date) are amended by 

striking ‘‘age 701 14 ⁄2’’ each place it appears and in15 serting ‘‘the applicable age’’. 

16 (2) MANDATORY DISTRIBUTION AGE.—Para17 graph (9) of section 401(a) of such Code (relating 

18 to required distributions) is amended by inserting at 

19 the end the following new subparagraph: 

20 ‘‘(H) APPLICABLE AGE.— 

21 ‘‘(i) IN GENERAL.—For purposes of 

22 this paragraph, the applicable age shall be 

701 23 ⁄2, adjusted pursuant to clause (ii). 

24 ‘‘(ii) ADJUSTMENT.—The Secretary 

25 shall increase the applicable age annually 
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1 in a manner proportional to increases in 

2 life expectancy (as determined by the Sec3 retary) that occur on or after January 1, 

4 2005, except that no adjustment shall be 

5 made until the applicable age as adjusted 

6 would equal or exceed age 72. Any applica7 ble age which is not a whole number shall 

8 be rounded to the next lower whole num9 ber.’’. 

10 (3) SPOUSE BENEFICIARIES.—Subclause (I) of 

11 section 401(a)(9)(B)(iv) of such Code (relating to 

12 special rule for surviving spouse of employee) is 

amended by striking ‘‘age 701 13 ⁄2’’ and inserting ‘‘the 

14 applicable age’’. 

15 (4) ACTUARIAL ADJUSTMENT OF BENEFIT

16 UNDER DEFINED BENEFIT PLAN.—Clause (iii) of 

17 section 401(a)(9)(C) of such Code (relating to actu18 arial adjustment) is amended to read as follows: 

19 ‘‘(iii) ACTUARIAL ADJUSTMENT.— 

20 ‘‘(I) IN GENERAL.—In the case 

21 of a defined benefit plan, an employ22 ee’s accrued benefit shall be actuari23 ally increased to take into account the 

24 period after the applicable date during 
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1 which the employee was not receiving 

2 any benefits under the plan. 

3 ‘‘(II) APPLICABLE DATE.—For 

4 purposes of clause (I), the term ‘appli5 cable date’ means April 1 of the cal6 endar year following the calendar year 

7 in which the employee attains age 

701 8 ⁄2.’’. 

9 (b) REDUCTION IN EXCISE TAX.—Subsection (a) of 

10 section 4974 of such Code (relating to excise tax on cer11 tain accumulations in qualified retirement plans) is 

12 amended by striking ‘‘50 percent’’ and inserting ‘‘25 per13 cent’’. 

14 (c) SIMPLIFICATION FOR INDIVIDUALS.— 

15 (1) IN GENERAL.—Section 408(a) of such Code 

16 is amended by redesignating subsection (r) as sub17 section (s) and by inserting after subsection (q) the 

18 following subsection— 

19 ‘‘(r) MINIMUM DISTRIBUTION EXEMPTION FOR

20 SMALL ACCOUNTS.— 

21 ‘‘(1) IN GENERAL.—Subsections (a)(6) and 

22 (b)(3) shall not apply to the individual retirement 

23 accounts and individual retirement annuities of an 

24 individual described in paragraph (2). 

25 ‘‘(2) INDIVIDUALS AFFECTED.— 
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1 ‘‘(A) IN GENERAL.—An individual is de2 scribed in this paragraph for a taxable year if, 

3 as of the last day of the preceding taxable year, 

4 the individual’s vested interest in all affected 

5 retirement plans has a combined value that 

6 does not exceed $100,000. 

7 ‘‘(B) LIFE ANNUITY RULE.—For purposes 

8 of subparagraph (A), an individual’s vested in9 terest in an affected retirement plan shall not 

10 be taken into account to the extent that such 

11 interest has been used to purchase an annuity 

12 contract under which payments described in 

13 section 402(e)(7)(D)(i) are made. 

14 ‘‘(3) AFFECTED RETIREMENT PLANS.— 

15 ‘‘(A) IN GENERAL.—With respect to an in16 dividual, the term ‘affected retirement plan’ 

17 means any plan described in paragraph (3), (4), 

18 or (5) of section 4974(c), other than a Roth 

19 IRA. 

20 ‘‘(B) SPECIAL RULE.—A plan described in 

21 section 4974(c)(3) shall not be treated as an af22 fected retirement plan with respect to an indi23 vidual for any year prior to the first year for 

24 which a distribution would be required under 
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1 section 403(b)(10) (without regard to this sub2 section). 

3 ‘‘(4) LIMITATION ON TOTAL REQUIRED DIS4 TRIBUTIONS.—Under rules prescribed by the Sec5 retary, in the case of an individual not described in 

6 paragraph (2), the total amount required to be dis7 tributed under subsections (a)(6) and (b)(3), in com8 bination with the total amount required to be dis9 tributed under section 403(b)(10), shall not exceed 

10 the excess of the combined value of the individual’s 

11 vested interest in all affected retirement plans over 

12 $100,000. 

13 ‘‘(5) COST-OF-LIVING ADJUSTMENT.—The Sec14 retary shall adjust the $100,000 amount in para15 graphs (2) and (4) at the same time and in the 

16 same manner as under section 415(d), except that 

17 the base period shall be the calendar quarter ending 

18 September 30, 2005.’’. 

19 (2) PARALLEL RULE FOR SECTION 403(b) 

20 PLANS.—Paragraph (10) of section 403(b) of such 

21 Code is amended by adding at the end the following: 

22 ‘‘For purposes of applying the requirements of this 

23 paragraph, rules similar to the rules of section 

24 408(r) shall apply.’’. 

25 (3) CONFORMING AMENDMENTS.— 
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1 (A) Paragraph (6) of section 408(a) of 

2 such Code is amended by striking ‘‘Under regu3 lations’’ and inserting ‘‘Except as provided in 

4 subsection (r), under regulations’’. 

5 (B) Paragraph (3) of section 408(b) of 

6 such Code is amended by striking ‘‘Under regu7 lations’’ and inserting ‘‘Except as provided in 

8 subsection (r), under regulations’’. 

9 (d) EFFECTIVE DATE.— 

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

12 shall apply to years beginning after December 31, 

13 2006. 

14 (2) TRANSITION.—A plan shall not be treated 

15 as failing to meet the requirements of section 

16 401(a)(9) of the Internal Revenue Code of 1986 

17 merely because, in years beginning after December 

18 31, 2004, no distribution is made to an employee be19 fore the employee’s required beginning date, as de20 termined in accordance with the amendments made 

21 by this section. 

22 SEC. 502. CLARIFICATION OF CATCH-UP CONTRIBUTIONS. 

23 (a) EXCEPTION TO NONDISCRIMINATION RULES.— 

24 (1) IN GENERAL.—Paragraph (4) of section 

25 414(v) of the Internal Revenue Code of 1986 (relat-
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1 ing to application of nondiscrimination rules) is 

2 amended by redesignating subparagraph (B) as sub3 paragraph (C) and by inserting after subparagraph 

4 (A) the following new subparagraph: 

5 ‘‘(B) EXCEPTION.—An applicable employer 

6 plan shall not fail to satisfy the requirements of 

7 this subparagraph solely because another appli8 cable employer plan maintained by the employer 

9 that is qualified under Puerto Rico law does not 

10 provide for additional elective deferrals under 

11 this subsection.’’. 

12 (2) EXCEPTION TO AGGREGATION RULES.— 

13 Subparagraph (C) of section 414(v)(4) of such Code, 

14 as redesignated by paragraph (1), is amended by 

15 adding at the end the following new sentence: ‘‘In 

16 addition, employees described in section 410(b)(3) 

17 shall be excluded from consideration. For any year 

18 in which an employer complies with section 410(b) 

19 on the basis of separate lines of business pursuant 

20 to section 410(b)(5), the employer may apply sub21 paragraph (A) for such year separately with respect 

22 to employees in each separate line of business.’’. 

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

24 this section shall take effect as if included in section 
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1 631(a) of the Economic Growth and Tax Relief Reconcili2 ation Act of 2001. 

3 SEC. 503. TREATMENT OF UNCLAIMED BENEFITS. 

4 (a) AMENDMENTS TO INTERNAL REVENUE CODE OF

5 1986.— 

6 (1) AMENDMENT TO SECTION 401(a)(34).— 

7 Section 401(a)(34) of the Internal Revenue Code of 

8 1986 (relating to benefits of missing participants) is 

9 amended to read as follows: 

10 ‘‘(34) UNCLAIMED BENEFITS.—A trust forming 

11 part of a plan shall not be treated as failing to con12 stitute a qualified trust under this section merely be13 cause the plan of which such trust is a part treats 

14 unclaimed benefits in a manner that satisfies the re15 quirements of section 414(y).’’. 

16 (2) AMENDMENT TO SECTION 414.—Section 414 

17 of such Code (relating to definitions and special 

18 rules) (as amended by this Act) is amended by add19 ing at the end the following new subsection: 

20 ‘‘(y) UNCLAIMED BENEFITS.— 

21 ‘‘(1) IN GENERAL.—A plan meets the require22 ments of this subsection only if— 

23 ‘‘(A) ONGOING PLANS.—In the case of an 

24 ongoing plan, the plan provides for one or more 
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1 of the following with respect to unclaimed bene2 fits: 

3 ‘‘(i) In the case of an unclaimed ben4 efit to which section 401(a)(31)(B) applies, 

5 a transfer under section 401(a)(31)(B). 

6 ‘‘(ii) A transfer to the Pension Benefit 

7 Guaranty Corporation, in accordance with 

8 section 4050(e) of the Employee Retire9 ment Income Security Act of 1974. 

10 ‘‘(iii) Any other treatment permitted 

11 under rules prescribed by the Secretary. 

12 ‘‘(B) TERMINATED PLANS.—In the case of 

13 a terminated plan, the plan provides for the fol14 lowing with respect to unclaimed benefits: 

15 ‘‘(i) DEFINED BENEFIT PLANS.—In 

16 the case of a defined benefit plan, one or 

17 more of the following: 

18 ‘‘(I) In the case of an unclaimed 

19 benefit to which section 401(a)(31)(B) 

20 applies, a transfer under section 

21 401(a)(31)(B). 

22 ‘‘(II) A transfer of the unclaimed 

23 benefit to another defined benefit plan 

24 maintained by the employer. 
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1 ‘‘(III) The purchase of an annu2 ity contract to provide for an individ3 ual’s unclaimed benefit. 

4 ‘‘(IV) A transfer to the Pension 

5 Benefit Guaranty Corporation in ac6 cordance with section 4050(a) or 

7 4050(e) (as applicable) of the Em8 ployee Retirement Income Security 

9 Act of 1974. 

10 ‘‘(V) Any other treatment per11 mitted under rules prescribed by the 

12 Secretary. 

13 ‘‘(ii) DEFINED CONTRIBUTION

14 PLANS.—In the case of a defined contribu15 tion plan, one or more of the following: 

16 ‘‘(I) In the case of an unclaimed 

17 benefit to which section 401(a)(31)(B) 

18 applies, a transfer under section 

19 401(a)(31)(B). 

20 ‘‘(II) A transfer of the unclaimed 

21 benefit to another defined contribution 

22 plan maintained by the employer. 

23 ‘‘(III) The purchase of an annu24 ity contract to provide for an individ25 ual’s unclaimed benefit. 
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1 ‘‘(IV) A transfer to the Pension 

2 Benefit Guaranty Corporation in ac3 cordance with section 4050(d) or 

4 4050(e) (as applicable) of the Em5 ployee Retirement Income Security 

6 Act of 1974. 

7 ‘‘(V) Any other treatment per8 mitted under rules prescribed by the 

9 Secretary. 

10 ‘‘(2) TREATMENT OF TRANSFERS TO PENSION

11 BENEFIT GUARANTY CORPORATION.— 

12 ‘‘(A) TRANSFERS TO PBGC.—Amounts 

13 transferred from a plan to the Pension Benefit 

14 Guaranty Corporation pursuant to paragraph 

15 (1) shall be treated as a transfer under section 

16 401(a)(31)(A). 

17 ‘‘(B) DISTRIBUTIONS FROM PBGC.—Ex18 cept as provided in rules prescribed by the Sec19 retary, amounts distributed by the Pension 

20 Benefit Guaranty Corporation shall be treated 

21 as distributed by an individual retirement plan 

22 under section 408(d) (without regard to para23 graphs (4), (5) and (7) thereof). Rules similar 

24 to the rules of section 402(c)(4) shall apply. 
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1 ‘‘(3) DEFINITIONS.—For purposes of this sub2 section— 

3 ‘‘(A) UNCLAIMED BENEFIT.—The term 

4 ‘unclaimed benefit’ means— 

5 ‘‘(i) any benefit of a participant or 

6 beneficiary which is distributable under the 

7 terms of the plan to the participant or ben8 eficiary, if the distribution of the benefit 

9 has not commenced within 1 year after the 

10 later of the date on which the benefit first 

11 became so distributable or the participant’s 

12 severance from employment; 

13 ‘‘(ii) any benefit or other amount of a 

14 participant or beneficiary which is distrib15 utable under the terms of the plan with re16 spect to a missing participant; or 

17 ‘‘(iii) any benefit to which section 

18 401(a)(31)(B) applies or would apply if 

19 subclause (I) of section 401(a)(31)(B)(i) 

20 did not require the distribution to exceed 

21 $1,000. 

22 A benefit otherwise described in clause (i) shall 

23 not be treated as an unclaimed benefit under 

24 clause (i) if the participant or beneficiary elects 

25 not to have such treatment apply. Any such 
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1 participant or beneficiary shall be given reason2 able notice of the opportunity to make such an 

3 election. If the participant or beneficiary fails to 

4 make such an election within a reasonable pe5 riod specified in the notice, any subsequent elec6 tion shall not be given effect and the benefit 

7 shall be treated as an unclaimed benefit. A no8 tice mailed to the last known address of the 

9 participant or beneficiary shall be treated as a 

10 notice to the participant or beneficiary for pur11 poses of this paragraph. 

12 ‘‘(B) ONGOING PLAN.—The term ‘ongoing 

13 plan’ means any plan which has neither termi14 nated nor is in the process of terminating. 

15 ‘‘(C) TERMINATED PLAN.—The term ‘ter16 minated plan’ means any plan which has termi17 nated or is in the process of terminating. 

18 ‘‘(D) MISSING PARTICIPANT.—The term 

19 ‘missing participant’ shall have the meaning 

20 given to such term by section 4050(b)(1) of the 

21 Employee Retirement Income Security Act of 

22 1974.’’. 

23 (3) CONFORMING AMENDMENT.—Subparagraph 

24 (B) of section 401(a)(31) of such Code is amended 

25 by adding at the end the following: 
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1 ‘‘(iii) OTHER PERMITTED TRANS2 FERS.—A plan administrator shall be 

3 treated as having complied with the re4 quirements of this subparagraph if such 

5 plan administrator complies with the re6 quirements of section 414(y).’’. 

7 (b) AMENDMENTS TO EMPLOYEE RETIREMENT IN8 COME SECURITY ACT OF 1974.— 

9 (1) IN GENERAL.—Subsection (b) of section 

10 4050 of the Employee Retirement Income Security 

11 Act of 1974 (29 U.S.C. 1350) is amended by adding 

12 at the end the following paragraph: 

13 ‘‘(3) UNCLAIMED BENEFIT.—The term ‘un14 claimed benefit’ means— 

15 ‘‘(A) any benefit of a participant or bene16 ficiary which is distributable under the terms of 

17 the plan to the participant or beneficiary, if the 

18 distribution of the benefit has not commenced 

19 within 1 year after the later of the date on 

20 which the benefit first became so distributable 

21 or the participant’s severance from employment; 

22 ‘‘(B) any benefit or other amount of a par23 ticipant or beneficiary which is distributable 

24 under the terms of the plan with respect to a 

25 missing participant; or 
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1 ‘‘(C) any benefit to which section 

2 401(a)(31)(B) of the Internal Revenue Code of 

3 1986 applies or would apply if subclause (I) of 

4 section 401(a)(31)(B)(i) of such Code did not 

5 require the distribution to exceed $1,000. 

6 A benefit otherwise described in subparagraph (A) 

7 shall not be treated as an unclaimed benefit under 

8 subparagraph (A) if the participant or beneficiary 

9 elects not to have such treatment apply. Any such 

10 participant or beneficiary shall be given reasonable 

11 notice of the opportunity to make such an election. 

12 If the participant or beneficiary fails to make such 

13 an election within a reasonable period specified in 

14 the notice, any subsequent election shall not be given 

15 effect and the benefit shall be treated as an un16 claimed benefit. A notice mailed to the last known 

17 address of the participant or beneficiary shall be 

18 treated as a notice to the participant or beneficiary 

19 for purposes of this paragraph.’’. 

20 (2) OTHER AMENDMENTS.—Section 4050 of 

21 such Act is amended by redesignating subsection (c) 

22 as subsection (f) and by inserting after subsection 

23 (b) the following new subsections: 

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

25 shall prescribe rules similar to the rules in subsection (a) 
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1 for multiemployer plans covered by this title that termi2 nate under section 4041A. 

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

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

5 administrator of a plan described in paragraph (4) 

6 may elect to transfer a missing participant’s benefits 

7 to the corporation upon termination of the plan. 

8 ‘‘(2) INFORMATION TO THE CORPORATION.—To 

9 the extent provided in regulations, the plan adminis10 trator of a plan described in paragraph (4) shall, 

11 upon termination of the plan, provide the corpora12 tion information with respect to the benefits of a 

13 missing participant if the plan transfers such bene14 fits— 

15 ‘‘(A) to the corporation, or 

16 ‘‘(B) to an entity other than the corpora17 tion or a plan described in paragraph (4)(B)(ii). 

18 ‘‘(3) PAYMENT BY THE CORPORATION.—If ben19 efits of a missing participant were transferred to the 

20 corporation under paragraph (1), the corporation 

21 shall, upon location of the participant or beneficiary, 

22 pay to the participant or beneficiary the amount 

23 transferred (or the appropriate survivor benefit) ei24 ther— 

25 ‘‘(A) in a single sum (plus interest), or 
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1 ‘‘(B) in such other form as is specified in 

2 regulations of the corporation. 

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

4 in this paragraph if— 

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

6 meaning of section 3(2))— 

7 ‘‘(i) to which the provisions of this 

8 section do not apply (without regard to 

9 this subsection), and 

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

11 paragraphs (2) through (11) of section 

12 4021(b), and 

13 ‘‘(B) at the time the assets are to be dis14 tributed upon termination, the plan— 

15 ‘‘(i) has missing participants, and 

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

17 of assets to pay the benefits of all missing 

18 participants to another pension plan (with19 in the meaning of section 3(2)). 

20 ‘‘(5) CERTAIN PROVISIONS NOT TO

21 APPLY.—Subsections (a)(1) and (a)(3) shall not 

22 apply to a plan described in paragraph (4). 

23 ‘‘(e) UNCLAIMED BENEFITS.— 

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

25 administrator of a plan described in paragraph (6) 
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1 may elect to transfer unclaimed benefits to the cor2 poration. 

3 ‘‘(2) INFORMATION TO THE CORPORATION.— 

4 The corporation may impose such conditions on 

5 transfers of unclaimed benefits to the corporation as 

6 the corporation determines are necessary to facilitate 

7 administration of this subsection and are not incon8 sistent with the purposes of this subsection. Such 

9 conditions may include requirements that the trans10 ferring plan provide to the corporation specified in11 formation and documentation. 

12 ‘‘(3) PAYMENT TO THE CORPORATION.—With 

13 respect to any participant, any transfer of an un14 claimed benefit to the corporation shall— 

15 ‘‘(A) in the case of a defined benefit plan, 

16 be a transfer of the participant’s designated 

17 benefit, or 

18 ‘‘(B) in the case of an individual account 

19 plan, be a transfer of the participant’s vested 

20 account balance under the plan. 

21 ‘‘(4) PAYMENT BY THE CORPORATION.—Subject 

22 to such reasonable restrictions as may be prescribed 

23 in regulations of the corporation (relating to invest24 ment limitations and otherwise)— 
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1 ‘‘(A) unclaimed benefits of a participant or 

2 beneficiary which are transferred to the cor3 poration pursuant to this subsection shall be 

4 distributed by the corporation to the participant 

5 or beneficiary not later than upon application 

6 filed by the participant or beneficiary with the 

7 corporation in such form and manner as may 

8 be prescribed in regulations of the corporation, 

9 and 

10 ‘‘(B) such benefits shall— 

11 ‘‘(i) in the case of an individual ac12 count plan, be paid in a single sum (plus 

13 interest) or in such other form as is speci14 fied in regulations of the corporation, or 

15 ‘‘(ii) in the case of a defined benefit 

16 plan, be paid— 

17 ‘‘(I) in an amount based on the 

18 designated benefit and the assump19 tions prescribed by the corporation at 

20 the time that the corporation received 

21 the benefit, and 

22 ‘‘(II) in a form determined under 

23 regulations of the corporation. 

24 ‘‘(5) NOTICE.—Any transfer of unclaimed bene25 fits of a participant or beneficiary to the corporation 
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1 pursuant to this subsection may occur only after 

2 reasonable advance notice of such transfer is pro3 vided by the plan administrator to the participant or 

4 beneficiary. The plan administrator shall also pro5 vide to the participant or beneficiary notice of any 

6 such transfer not later than 30 days after the date 

7 of the transfer. Notice mailed to the last known ad8 dress of the participant or beneficiary shall be treat9 ed as a notice to the participant or beneficiary for 

10 purposes of this paragraph. Any such notice shall in11 clude information regarding procedures for obtaining 

12 the distribution of benefits from the corporation in 

13 accordance with paragraph (4). 

14 ‘‘(6) PLANS DESCRIBED.—A plan is described 

15 in this paragraph if the plan is a pension plan (with16 in the meaning of section 3(2)— 

17 ‘‘(A)(i) which has neither terminated nor is 

18 in the process of terminating, or 

19 ‘‘(ii) in the case of an unclaimed benefit to 

20 which section 401(a)(31)(B) of the Internal 

21 Revenue Code of 1986 applies (other than an 

22 unclaimed benefit of a missing participant), 

23 which has terminated or is in the process of ter24 minating, and 
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1 ‘‘(B) which is not a plan described in para2 graphs (2) through (11) of section 4021(b). 

3 ‘‘(7) CERTAIN PROVISIONS NOT TO APPLY.— 

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

5 plan described in paragraph (6).’’. 

6 (3) CONFORMING AMENDMENT.—Section 

7 4021(b) of such Act (29 U.S.C. 1321(b)(1)) is 

8 amended by striking ‘‘This’’ and inserting ‘‘Except 

9 to the extent provided in subsections (d) and (e) of 

10 section 4050, this’’. 

11 (c) ESCHEAT LAWS SUPERSEDED.—Section 514(b) 

12 of the Employee Retirement Income Security Act of 1974 

13 (29 U.S.C. 1144 (b) (as amended by this Act) is further 

14 amended— 

15 (1) by redesignating paragraph (10) as para16 graph (11), and 

17 (2) by inserting after paragraph (9) the fol18 lowing new paragraph: 

19 ‘‘(10) Any escheat or similar law of any State 

20 shall be superseded to the extent inconsistent with 

21 any transfer or other treatment of unclaimed bene22 fits (as defined in section 4050(b)(3)) permitted 

23 under the Internal Revenue Code of 1986.’’. 

24 (d) EFFECTIVE DATES AND RELATED RULES.— 
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1 (1) IN GENERAL.—The amendments made by 

2 subsections (a) and (b) shall apply to years begin3 ning after December 31, 2006. 

4 (2) REGULATIONS.—The Pension Benefit Guar5 anty Corporation shall issue regulations necessary to 

6 carry out the amendments made by subsection (b) 

7 not later than December 31, 2006. 

8 (3) ESCHEAT LAWS SUPERSEDED.—The 

9 amendment made by subsection (c) shall apply as of 

10 the date of enactment of this Act. 

11 SEC. 504. ALLOW DIRECT ROLLOVERS FROM RETIREMENT 

12 PLANS TO ROTH IRA. 

13 (a) IN GENERAL.—Subsection (e) of section 408A of 

14 the Internal Revenue Code of 1986 (defining qualified roll15 over contribution) is amended to read as follows: 

16 ‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For 

17 purposes of this section, the term ‘qualified rollover con18 tribution’ means a rollover contribution— 

19 ‘‘(1) to a Roth IRA from another such account, 

20 ‘‘(2) from an eligible retirement plan, but only 

21 if— 

22 ‘‘(A) in the case of an individual retire23 ment plan, such rollover contribution meets the 

24 requirements of section 408(d)(3), and 
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1 ‘‘(B) in the case of any eligible retirement 

2 plan (as defined in section 402(c)(8)(B) other 

3 than clauses (i) and (ii) thereof), such rollover 

4 contribution meets the requirements of section 

5 402(c), 403(b)(8), or 457(e)(16), as applicable. 

6 For purposes of section 408(d)(3)(B), there shall be dis7 regarded any qualified rollover contribution from an indi8 vidual retirement plan (other than a Roth IRA) to a Roth 

9 IRA.’’. 

10 (b) CONFORMING AMENDMENTS.— 

11 (1) Section 408A(c)(3)(B) of such Code is 

12 amended— 

13 (A) in the text by striking ‘‘individual re14 tirement plan’’ and inserting ‘‘an eligible retire15 ment plan (as defined by section 

16 402(c)(8)(B))’’, and 

17 (B) in the heading by striking ‘‘IRA’’ and 

18 inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 

19 (2) Section 408A(d)(3) of such Code is amend20 ed— 

21 (A) in subparagraph (A) by striking ‘‘sec22 tion 408(d)(3)’’ inserting ‘‘sections 402(c), 

23 403(b)(8), 408(d)(3), and 457(e)(16)’’, 

24 (B) in subparagraph (B) by striking ‘‘indi25 vidual retirement plan’’ and inserting ‘‘eligible 
123 

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1 retirement plan (as defined by section 

2 402(c)(8)(B))’’, 

3 (C) in subparagraph (D) by striking ‘‘or 

4 6047’’ after ‘‘408(i)’’, 

5 (D) in subparagraph (D) by striking ‘‘or 

6 both’’ and inserting ‘‘persons subject to section 

7 6047(d)(1), or all of the foregoing persons’’, 

8 and 

9 (E) in the heading by striking ‘‘IRA’’ and 

10 inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 

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

12 this section shall apply to distributions after December 31, 

13 2005. 

14 SEC. 505. REFORM EXCISE TAX ON EXCESS CONTRIBU15 TIONS. 

16 (a) EXPANSION OF CORRECTIVE DISTRIBUTION PE17 RIOD.—Subsection (f) of section 4979 of the Internal Rev18 enue Code of 1986 is amended— 

(1) in paragraph (1) by striking ‘‘21 19 ⁄2 months’’ 

20 and inserting ‘‘6 months’’, and 

(2) in the heading by striking ‘‘21 21 ⁄2 MONTHS’’ 

22 and inserting ‘‘6 MONTHS’’. 

23 (b) YEAR OF INCLUSION.—Paragraph (2) of section 

24 4972(f) of such Code is amended to read as follows: 
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1 ‘‘(2) YEAR OF INCLUSION.—Any amount dis2 tributed as provided in paragraph (1) shall be treat3 ed as earned and received by the recipient in his tax4 able year in which such distributions were made.’’. 

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

6 this section shall apply to years beginning after December 

7 31, 2005. 

8 SEC. 506. INTERMEDIATE SANCTIONS FOR INADVERTENT 

9 FAILURES. 

10 (a) IN GENERAL.—Section 401(a) of the Internal 

11 Revenue Code of 1986 (relating to qualified pension, prof12 it-sharing, and stock bonus plans) is amended by inserting 

13 after paragraph (34) the following: 

14 ‘‘(35) PROTECTION FROM DISQUALIFICATION

15 UPON TIMELY CORRECTION OR PAYMENT OF FINE.— 

16 A trust shall not fail to constitute a qualified trust 

17 under this section if the plan of which such trust is 

18 a part has made good faith efforts to meet the re19 quirements of this section, has inadvertently failed 

20 to satisfy 1 or more of such requirements, and ei21 ther— 

22 ‘‘(A) substantially corrects (to the extent 

23 possible) such failure before the date the plan 

24 becomes subject to a plan examination for the 
125 

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1 applicable year (as determined under rules pre2 scribed by the Secretary), or 

3 ‘‘(B) substantially corrects (to the extent 

4 possible) such failure on or after such date. 

5 If the plan satisfies the requirement under subpara6 graph (B), the Secretary may require the sponsoring 

7 employer to make a payment to the Secretary in an 

8 amount that does not exceed an amount that bears 

9 a reasonable relationship to the severity of the plan’s 

10 failure to satisfy the requirements of this section.’’. 

11 (b) APPLICATION TO CASH OR DEFERRED ARRANGE12 MENTS.—Section 401(k) of such Code is amended by in13 serting after paragraph (13) the following new paragraph: 

14 ‘‘(14) PROTECTION FROM DISQUALIFICATION.— 

15 Rules similar to the rules set forth in section 

16 401(a)(35) shall apply for purposes of determining 

17 whether a cash or deferred arrangement is a quali18 fied cash or deferred arrangement.’’. 

19 (c) APPLICATION TO SECTION 403(b) ANNUITY CON20 TRACTS.—Section 403(b) of such Code is amended by in21 serting after paragraph (12) the following: 

22 ‘‘(13) CORRECTION OF ERRORS.—For purposes 

23 of determining whether the exclusion from gross in24 come under paragraph (1) is applicable to an em25 ployee for any taxable year, rules similar to the rules 
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1 set forth in section 401(a)(35) shall apply to any an2 nuity contract purchased under this subsection or 

3 any plan established to meet the requirements of 

4 this subsection.’’. 

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

6 this section shall take effect on the date of enactment of 

7 this Act. 

8 SEC. 507. CLARIFICATION OF SUBSTANTIALLY EQUAL PERI9 ODIC PAYMENT RULE. 

10 (a) IN GENERAL.—Paragraph (4) of section 72(t) of 

11 the Internal Revenue Code of 1986 (relating to change 

12 in substantially equal payments) is amended by inserting 

13 at the end the following new subparagraphs: 

14 ‘‘(C) ROLLOVERS TO SUBSEQUENT

15 PLAN.—If— 

16 ‘‘(i) payments satisfying paragraph 

17 (2)(A)(iv) are being made from a qualified 

18 retirement plan, 

19 ‘‘(ii) a transfer or a rollover from the 

20 qualified retirement plan is made to an21 other qualified retirement plan of all or a 

22 portion of the taxpayer’s benefit under the 

23 transferor plan, and 

24 ‘‘(iii) distributions from the transferor 

25 and transferee plans would in combination 
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1 continue to satisfy paragraph (2)(A)(iv) if 

2 made only from the transferor plan, 

3 such transfer or rollover shall not be treated as 

4 a modification under subparagraph (A)(ii) and 

5 compliance with paragraph (2)(A)(iv) shall be 

6 determined on the basis of the combined dis7 tributions described in clause (iii). 

8 ‘‘(D) INTEREST RATE.—Any reasonable in9 terest rate may be used in determining whether 

10 payments are substantially equal under para11 graph (2)(A)(iv).’’. 

12 (b) EFFECTIVE DATES.— 

13 (1) ROLLOVERS.—Section 72(t)(4)(C) of the 

14 Internal Revenue Code of 1986, as added by sub15 section (a), shall apply to transfers and rollovers 

16 after the date of enactment of this Act. 

17 (2) INTEREST RATE.—Section 72(t)(4)(D) of 

18 such Code, as so added, shall apply to series of pay19 ments commencing on or after the date of enactment 

20 of this Act. 

21 SEC. 508. CLARIFICATION OF TREATMENT OF DISTRIBU22 TIONS OF ANNUITY CONTRACTS. 

23 (a) IN GENERAL.—Clause (i) of section 402(e)(4)(D) 

24 of the Internal Revenue Code of 1986 is amended by add25 ing after ‘‘section 401(c)(1).’’ the following: ‘‘A distribu-
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1 tion of an annuity contract from a trust or annuity plan 

2 referred to in the first sentence of this clause may be 

3 treated as a part of a lump sum distribution.’’. 

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

5 this section shall take effect as if included in section 

6 1401(b)(1) of the Small Business Job Protection Act of 

7 1996. 

8 SEC. 509. GOLDEN PARACHUTE EXCISE TAX TO APPLY TO 

9 EXCESSIVE EMPLOYEE REMUNERATION PAID 

10 BY CORPORATION AFTER DECLARATION OF 

11 BANKRUPTCY. 

12 (a) IN GENERAL.—Section 4999 of the Internal Rev13 enue Code of 1986 (relating to golden parachute pay14 ments) is amended by redesignating subsection (c) as sub15 section (d) and by inserting after subsection (b) the fol16 lowing new subsection: 

17 ‘‘(c) TAX ON EXCESSIVE EMPLOYEE REMUNERATION

18 IN THE CASE OF BANKRUPTCY.— 

19 ‘‘(1) IN GENERAL.—There is hereby imposed a 

20 tax on any person who is a covered employee equal 

21 to 50 percent of any payment of excessive employee 

22 remuneration from a corporation which becomes a 

23 debtor in a title 11 or similar case (as defined in 

24 section 368(a)(3)(A) of this title, but not including 

25 a case under chapter 12 of title 11, United States 
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1 Code). The tax imposed under subsection (a) shall 

2 not apply to the extent that a tax is imposed under 

3 this subsection. 

4 ‘‘(2) SPECIAL RULES RELATING TO EXCESSIVE

5 EMPLOYEE REMUNERATION.—For purposes of this 

6 subsection— 

7 ‘‘(A) EXCESS EMPLOYEE REMUNERATION

8 DEFINED.—The term ‘excess employee remu9 neration’ means remuneration paid directly or 

10 indirectly to a covered employee during the 

11 bankruptcy period— 

12 ‘‘(i) for which a deduction is not al13 lowed under chapter 1 by reason of the ap14 plication of section 162(m) or would not be 

15 allowed if section 162(m) applied to the 

16 covered employee at the time of payment, 

17 or 

18 ‘‘(ii) in the case of remuneration to a 

19 covered employee of a corporation that is 

20 not a publicly held corporation described in 

21 section 162(m)(2), that exceeds 

22 $1,000,000, other than remuneration that 

23 meets requirements similar to the stand24 ards for performance-based compensation 

25 under section 162(m)(4)(C). 
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1 ‘‘(B) Such term shall not include— 

2 ‘‘(i) remuneration that, on the date 

3 immediately prior to the beginning of the 

4 bankruptcy period, was payable to the cov5 ered employee under a binding obligation 

6 and not subject to a substantial risk of for7 feiture, 

8 ‘‘(ii) remuneration attributable to con9 tributions to or benefits from an excess re10 tirement plan to the extent that such plan 

11 is maintained solely for the purpose of pro12 viding benefits to employees in excess of 

13 the limitations imposed by 1 or more of 

14 sections 401(a)(17), 401(k), 401(m), and 

15 415, 

16 ‘‘(iii) contributions to or benefits from 

17 a qualified employer plan (as defined in 

18 section 132(m)), or 

19 ‘‘(iv) any payment that is avoided or 

20 approved by a bankruptcy trustee. 

21 ‘‘(C) BANKRUPTCY PERIOD.—The term 

22 ‘bankruptcy period’ means any time during the 

23 period beginning 2 years before the date on 

24 which the corporation becomes a debtor de25 scribed in paragraph (1) and ending on the 
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1 date such corporation ceases to be such a debt2 or. 

3 ‘‘(D) COVERED EMPLOYEE.—The term 

4 ‘covered employee’— 

5 ‘‘(i) has the meaning given such term 

6 by section 162(m)(3), except that such 

7 term shall include an individual who is not 

8 a covered employee under section 

9 162(m)(3) for the taxable year in which 

10 such remuneration is paid but who pre11 viously was a covered employee within the 

12 meaning of section 162(m)(3) during the 

13 bankruptcy period, and 

14 ‘‘(ii) with respect to an employee of a 

15 corporation that is not subject to section 

16 162(m), includes any employee of such cor17 poration who would be subject to the re18 quirement described in section 

19 162(m)(3)(B) (as modified by this para20 graph) if such corporation were a publicly 

21 held corporation (as defined in section 

22 162(m)(2)). 

23 ‘‘(E) 100 PERCENT TAX FOR GROSS UP

24 PAYMENTS.—Subsection (b) shall be applied by 

25 substituting ‘100 percent’ for ‘50 percent’ to 
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1 the extent that any payment is made during the 

2 bankruptcy period that is contingent upon a tax 

3 being imposed under this section. 

4 ‘‘(F) CHANGE IN OWNERSHIP CONTIN5 GENCY NOT TO APPLY.—Subsection (b) shall be 

6 applied without regard to clause (i) of section 

7 280G(b)(2)(A).’’. 

8 (b) EFFECTIVE DATE.—The amendment made this 

9 section shall apply to payments received after the date of 

10 the enactment of this Act with respect to any title 11 or 

11 similar case (as defined in section 4999(c) of the Internal 

12 Revenue Code of 1986) commenced after such date. 

13 SEC. 510. DIFFERENTIAL PAY. 

14 (a) INCOME TAX WITHHOLDING.—Section 3401 of 

15 the Internal Revenue Code of 1986 (relating to defini16 tions) is amended by adding at the end the following new 

17 subsection: 

18 ‘‘(i) DIFFERENTIAL WAGE PAYMENTS TO ACTIVE

19 DUTY MEMBERS OF THE UNIFORMED SERVICES.— 

20 ‘‘(1) IN GENERAL.—For purposes of subsection 

21 (a), any differential way payment shall be treated as 

22 a payment of wages by an employer to an employee. 

23 ‘‘(2) DIFFERENTIAL WAGE PAYMENTS.—For 

24 purposes of paragraph (1), the term ‘differential way 

25 payment’ means any payment which— 
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1 ‘‘(A) is made by an employer to an indi2 vidual with respect to any period during which 

3 the individual is performing service in the uni4 formed services while on active duty for a pe5 riod of more than 30 days, and 

6 ‘‘(B) represents all or a portion of the 

7 wages the individual would have received from 

8 the employer if the individual were performing 

9 service for the employer.’’. 

10 (b) RETIREMENT PLANS.— 

11 (1) IN GENERAL.—Section 414(u) of the Inter12 nal Revenue Code of 1986 (relating to special rules 

13 relating to veterans’ reemployment rights under 

14 USERRA) is amended by adding at the end the fol15 lowing new paragraph: 

16 ‘‘(11) TREATMENT OF DIFFERENTIAL WAGE

17 PAYMENTS.— 

18 ‘‘(A) IN GENERAL.—Except as provided in 

19 this paragraph, for purposes of applying this 

20 title to a plan to which this subsection ap21 plies— 

22 ‘‘(i) an individual receiving a differen23 tial wage payment shall be treated as an 

24 employee of the employer making the pay25 ment, 
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1 ‘‘(ii) the differential wage payment 

2 shall be treated as compensation, and 

3 ‘‘(iii) the plan shall not be treated as 

4 failing to meet the requirements of any 

5 provision described in paragraph (1)(C) by 

6 reason of the treatment described in 

7 clauses (i) and (ii). 

8 ‘‘(B) SPECIAL RULE FOR DISTRIBU9 TIONS.— 

10 ‘‘(i) IN GENERAL.—Notwithstanding 

11 subparagraph (A)(i), for purposes of sub12 section (w)(1)(D), an individual shall be 

13 treated as having been severed from em14 ployment during any period the individual 

15 is performing service in the uniformed 

16 services described in section 3401(i)(2)(A). 

17 ‘‘(ii) LIMITATION.—If an individual 

18 elects to receive a distribution by reason of 

19 clause (i), the plan shall provide that the 

20 individual may not make an elective defer21 ral or employee contribution during the 6- 

22 month period beginning on the date of the 

23 distribution. 

24 ‘‘(C) NONDISCRIMINATION REQUIRE25 MENT.—Subparagraph (A)(iii) shall apply only 
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1 if all employees of an employer (as determined 

2 under subsections (b), (c), (m), and (o)) per3 forming service in the uniformed services de4 scribed in section 3401(i)(2)(A) are entitled to 

5 receive differential wage payments on reason6 ably equivalent terms and, if eligible to partici7 pate in a plan maintained by the employer, to 

8 have contributions made to such plan based on 

9 the payments on reasonably equivalent terms. 

10 For purposes of applying this subparagraph, 

11 the provisions of paragraphs (3), (4), and (5) of 

12 section 410(b) shall apply. 

13 ‘‘(D) DIFFERENTIAL WAGE PAYMENT.— 

14 For purposes of this paragraph, the term ‘dif15 ferential wage payment’ has the meaning given 

16 such term by section 3401(i)(2).’’. 

17 (2) CONFORMING AMENDMENT.—The heading 

18 for section 414(u) of such Code is amended by in19 serting ‘‘and to Differential Wage Payments to 

20 Members on Active Duty’’ after ‘‘USERRA’’. 

21 (c) DIFFERENTIAL WAGE PAYMENTS TREATED AS

22 COMPENSATION FOR INDIVIDUAL RETIREMENT PLANS.— 

23 Section 219(f)(1) of the Internal Revenue Code of 1986 

24 (defining compensation) is amended by adding at the end 

25 the following new sentence: ‘‘The term ‘compensation’ in-
136 

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1 cludes any differential wage payments (as defined in sec2 tion 3401(i)(2)).’’. 

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

4 this section shall apply to years beginning after December 

5 31, 2005. 

6 SEC. 511. EXCESS BENEFIT PLANS. 

7 (a) IN GENERAL.—Section 3(36) of the Employee 

8 Retirement Income Security Act of 1974 (29 U.S.C. 

9 1002(36)) is amended to read as follows: 

10 ‘‘(36) The term ‘excess benefit plan’ means a 

11 plan, without regard to whether such plan is funded, 

12 maintained by an employer solely for the purpose of 

13 providing benefits to employees in excess of any limi14 tation imposed by section 401(a)(17), 

15 401(k)(3)(A)(ii), 401(m)(2), or 415 of the Internal 

16 Revenue Code of 1986. To the extent that a sepa17 rable part of a plan (as determined by the Secretary 

18 of Labor) maintained by an employer is maintained 

19 for such purpose, that part shall be treated as a sep20 arate plan which is an excess benefit plan.’’. 

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

22 this section shall apply to plan years beginning after De23 cember 31, 2005. 
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1 SEC. 512. TAX TREATMENT OF EMPLOYEE CONTRIBUTIONS 

2 TO CONTRIBUTORY DEFINED BENEFIT 

3 PLANS. 

4 (a) AMENDMENT TO THE INTERNAL REVENUE CODE

5 OF 1986.—Subsection (e) of section 402 of the Internal 

6 Revenue Code of 1986 (relating to other rules applicable 

7 to exempt trusts) is amended by adding at the end the 

8 following new paragraph: 

9 ‘‘(8) MANDATORY EMPLOYEE CONTRIBUTIONS

10 TO DEFINED BENEFIT PLANS.— 

11 ‘‘(A) IN GENERAL.—Qualified mandatory 

12 employee contributions shall not be includible in 

13 gross income for the taxable year of such con14 tribution. 

15 ‘‘(B) QUALIFIED MANDATORY EMPLOYEE

16 CONTRIBUTIONS.—For purposes of subpara17 graph (A), the term ‘qualified mandatory em18 ployee contributions’ means employee contribu19 tions made pursuant to the terms of a defined 

20 benefit plan described in subparagraph (C) in 

21 effect on January 1, 2003 (determined without 

22 regard to any plan amendment made after such 

23 date), which— 

24 ‘‘(i) are mandatory contributions (as 

25 defined in section 411(c)(2)(C)), and 
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1 ‘‘(ii) do not exceed 2 percent of com2 pensation (within the meaning of section 

3 415(c)(3)). 

4 ‘‘(C) DEFINED BENEFIT PLAN DE5 SCRIBED.—For purposes of subparagraph (B), 

6 a defined benefit plan is described in this sub7 paragraph if such plan— 

8 ‘‘(i) requires employee contributions 

9 as a condition of participation in such 

10 plan, 

11 ‘‘(ii) allows an employee to make a 

12 one-time irrevocable election to participate 

13 in the plan, 

14 ‘‘(iii) does not provide for employee 

15 contributions with respect to which a sepa16 rate account is maintained and treated as 

17 a defined contribution plan under section 

18 414(k), and 

19 ‘‘(iv) is not a governmental plan 

20 (within the meaning of section 414(d)).’’. 

21 (b) WITHHOLDING.—Subsection (a) of section 3401 

22 of such Code (defining wages) is amended by striking ‘‘or’’ 

23 at the end of paragraph (20), by striking the period at 

24 the end of paragraph (21) and inserting ‘‘; or’’, and by 
139 

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1 inserting after paragraph (21) the following new para2 graph: 

3 ‘‘(22) for any payment made to or for the ben4 efit of an employee if at the time of such payment 

5 it is reasonable to believe that the employee will be 

6 able to exclude such payment from income as a 

7 qualified mandatory employee contribution under 

8 section 402(e)(8).’’. 

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

10 this section shall apply to contributions made in years be11 ginning after December 31, 2005. 

12 SEC. 513. PROTECTING OLDER, LONGER SERVICE PARTICI13 PANTS. 

14 (a) PROTECTION OF OLDER, LONGER SERVICE PAR15 TICIPANTS IN DEFINED BENEFIT PLANS.— 

16 (1) Not later than one year after the date of 

17 the enactment of this Act, the Secretary of the 

18 Treasury shall amend section 1.401(a)(4)–4 of the 

19 Treasury Regulations (as in effect on the date of the 

20 enactment of this Act) to permit a plan to provide 

21 benefits, rights, and features to a closed class of 

22 grandfathered participants, provided that such class 

23 of participants satisfies the requirements of such 

24 section as of the date that the class of participants 

25 was closed. Such section as amended shall ensure 
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1 that participants who have been grandfathered 

2 under a former defined benefit plan formula may 

3 continue to receive all benefits, rights, and features 

4 under that formula, including early retirement bene5 fits. 

6 (2) Not later than one year after the date of 

7 the enactment of this Act, the Secretary of the 

8 Treasury shall amend section 1.401(a)(4)– 

9 8(b)(1)(iii)(D) of the Treasury Regulations (as in ef10 fect on the date of the enactment of this Act) to per11 mit a defined contribution plan to provide make 

12 whole contributions to a closed class of participants 

13 whose defined benefit plan accruals have been re14 duced or eliminated, provided that such class of par15 ticipants satisfies section 410(b)(2)(A)(i) of the In16 ternal Revenue Code of 1986 as of the date that the 

17 class of participants was closed. 

18 (b) EFFECTIVE DATE.—This provisions of this sec19 tion shall take effect on the date of the enactment of this 

20 Act. 

21 SEC. 514. CLARIFICATION REGARDING ELECTIVE DEFER22 RALS. 

23 (a) IN GENERAL.—Not later than 6 months after the 

24 date of enactment of this Act, the Secretary of the Treas-
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1 ury shall issue rules clarifying that employees who have 

2 had a severance from employment may make— 

3 (1) elective deferrals described in section 

4 402(g)(3)(A), (B), or (C) of the Internal Revenue 

5 Code of 1986 (other than elective deferrals under 

6 section 401(k)(11) of such Code), 

7 (2) elective contributions under an eligible de8 ferred compensation plan described in section 457(b) 

9 of such Code, and 

10 (3) to the extent provided by the Secretary, 

11 elective deferrals described in section 402(g)(3)(D) 

12 or 401(k)(11) of such Code. 

13 Such rules shall only permit such contributions or defer14 rals with respect to payments of bona fide accumulated 

15 sick leave, accumulated vacation pay, severance, or back 

16 pay. The Secretary may apply such other conditions on 

17 such contributions or deferrals as are necessary or appro18 priate to carry out the purposes of this section. 

19 (b) TREATMENT OF DEFERRALS.—Except as other20 wise determined by the Secretary to be necessary to carry 

21 out the purposes of this section, the rules described in sub22 section (a) shall provide that the contributions or deferrals 

23 shall, for purposes of section 457 of such Code and sub24 chapter D of chapter 1 of subtitle A of such Code, be 
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1 treated as contributions or deferrals made on behalf of ac2 tive employees, not on behalf of former employees. 

3 (c) EFFECTIVE DATE.—The provisions of this section 

4 shall take effect on the date of enactment of this Act. 

5 SEC. 515. REFORM OF THE MINIMUM PARTICIPATION RULE. 

6 (a) IN GENERAL.—Subparagraph (I) of section 

7 401(a)(26) of the Internal Revenue Code of 1986 (relating 

8 to additional participation requirements) is amended by 

9 adding at the end the following: ‘‘Not later than December 

10 31, 2006, the Secretary shall issue final regulations under 

11 which this paragraph may be applied separately to bona 

12 fide separate subsidiaries or divisions.’’. 

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

14 subsection (a) shall take effect on the date of enactment 

15 of this Act. 

16 SEC. 516. REPEAL OF OPTIONAL TREATMENT OF ELECTIVE 

17 DEFERRALS AS ROTH CONTRIBUTIONS. 

18 (a) IN GENERAL.—Section 402A of the Internal Rev19 enue Code of 1986 (relating to optional treatment of elec20 tive deferrals as Roth contributions) is hereby repealed 

21 and the table of sections for part I of subchapter D of 

22 chapter 1 of such Code is amended by striking the item 

23 relating to section 402A. 

24 (b) CONFORMING AMENDMENTS.— 
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1 (1) Section 402(g)(1)(A) of such Code is 

2 amended by striking the last sentence. 

3 (2) Section 402(c)(8)(B) of such Code is 

4 amended by striking the last sentence. 

5 (3) Section 6051(a)(8) of such Code is amended 

6 by striking ‘‘, including the amount of designated 

7 Roth contributions (as defined in section 402A)’’. 

8 (4) Section 6047 of such Code is amended by 

9 striking subsection (f) and redesignating subsection 

10 (g) as subsection (f). 

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

12 this section shall take effect on the date of the enactment 

13 of this Act. 

14 TITLE VI—IMPROVEMENTS IN 

15 PENSION SECURITY 

16 SEC. 601. PERIODIC PENSION BENEFITS STATEMENTS. 

17 (a) AMENDMENTS TO THE EMPLOYEE RETIREMENT

18 INCOME SECURITY ACT OF 1974.— 

19 (1) REQUIREMENTS.— 

20 (A) IN GENERAL.—Section 105(a) of the 

21 Employee Retirement Income Security Act of 

22 1974 (29 U.S.C. 1025(a)) is amended to read 

23 as follows: 

24 ‘‘(a)(1)(A) The administrator of an individual ac25 count plan shall furnish a pension benefit statement— 
144 

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1 ‘‘(i) to each plan participant at least annually, 

2 ‘‘(ii) to each plan beneficiary upon written re3 quest, and 

4 ‘‘(iii) in the case of an applicable individual ac5 count plan, to each individual who is a plan partici6 pant or beneficiary and who has a right to direct in7 vestments, at least quarterly. 

8 ‘‘(B) The administrator of a defined benefit plan 

9 shall furnish a pension benefit statement— 

10 ‘‘(i) at least once every 3 years to each partici11 pant with a nonforfeitable accrued benefit who is 

12 employed by the employer maintaining the plan at 

13 the time the statement is furnished to participants, 

14 and 

15 ‘‘(ii) to a plan participant or plan beneficiary of 

16 the plan upon written request. 

17 Information furnished under clause (i) to a participant 

18 may be based on reasonable estimates determined under 

19 regulations prescribed by the Secretary, in consultation 

20 with the Pension Benefit Guaranty Corporation. 

21 ‘‘(2) A pension benefit statement under paragraph 

22 (1)— 

23 ‘‘(A) shall indicate, on the basis of the latest 

24 available information— 

25 ‘‘(i) the total benefits accrued, and 
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1 ‘‘(ii) the nonforfeitable pension benefits, if 

2 any, which have accrued, or the earliest date on 

3 which benefits will become nonforfeitable, 

4 ‘‘(B) shall be written in a manner calculated to 

5 be understood by the average plan participant, and 

6 ‘‘(C) may be provided in written form or in 

7 electronic or other appropriate form to the extent 

8 that such form is reasonably accessible to the recipi9 ent. 

10 ‘‘(3)(A) In the case of a defined benefit plan, the re11 quirements of paragraph (1)(B)(i) shall be treated as met 

12 with respect to a participant if the administrator, at least 

13 once each year, provides the participant with notice, at 

14 the participant’s last known address, of the availability of 

15 the pension benefit statement and the ways in which the 

16 participant may obtain such statement. Such notice shall 

17 be provided in written, electronic, or other appropriate 

18 form, and may be included with other communications to 

19 the participant if done in a manner reasonably designed 

20 to attract the attention of the participant. 

21 ‘‘(B) The Secretary may provide that years in which 

22 no employee or former employee benefits (within the 

23 meaning of section 410(b) of the Internal Revenue Code 

24 of 1986) under the plan need not be taken into account 
146 

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1 in determining the 3-year period under paragraph 

2 (1)(B)(i).’’. 

3 (B) CONFORMING AMENDMENTS.— 

4 (i) Section 105 of the Employee Re5 tirement Income Security Act of 1974 (29 

6 U.S.C. 1025) is amended by striking sub7 section (d). 

8 (ii) Section 105(b) of such Act (29 

9 U.S.C. 1025(b)) is amended to read as fol10 lows: 

11 ‘‘(b) In no case shall a participant or beneficiary of 

12 a plan be entitled to more than one statement described 

13 in clause (i) or (ii) of subsection (a)(1)(A) or clause (i) 

14 or (ii) of subsection (a)(1)(B), whichever is applicable, in 

15 any 12-month period. If such report is required under sub16 section (a) to be furnished at least quarterly, the require17 ments of the preceding sentence shall be applied with re18 spect to each quarter in lieu of the 12-month period.’’. 

19 (2) INFORMATION REQUIRED FROM APPLICA20 BLE INDIVIDUAL ACCOUNT PLANS.—Section 105 of 

21 such Act (as amended by paragraph (1)) is amended 

22 further by adding at the end the following new sub23 section: 

24 ‘‘(d)(1) The statements required to be provided at 

25 least quarterly under subsection (a)(1)(A)(iii) in the case 
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1 of applicable individual account plans shall include (to2 gether with the information required in subsection (a)) the 

3 following: 

4 ‘‘(A) the value of each investment to which as5 sets in the individual account have been allocated, 

6 determined as of the most recent valuation date 

7 under the plan, including the value of any assets 

8 held in the form of employer securities, without re9 gard to whether such securities were contributed by 

10 the plan sponsor or acquired at the direction of the 

11 plan or of the participant or beneficiary, 

12 ‘‘(B) an explanation, written in a manner cal13 culated to be understood by the average plan partici14 pant, of any limitations or restrictions on the right 

15 of the participant or beneficiary to direct an invest16 ment, and 

17 ‘‘(C) an explanation, written in a manner cal18 culated to be understood by the average plan partici19 pant, of the importance, for the long-term retire20 ment security of participants and beneficiaries, of a 

21 well-balanced and diversified investment portfolio, 

22 including a discussion of the risk of holding more 

23 than 25 percent of a portfolio in the security of any 

24 one entity, such as employer securities. 
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1 ‘‘(2) The Secretary shall issue guidance and model 

2 notices which meet the requirements of this subsection.’’. 

3 (3) DEFINITION OF APPLICABLE INDIVIDUAL

4 ACCOUNT PLAN.—Section 3 of such Act (29 U.S.C. 

5 1002) is amended by adding at the end the following 

6 new paragraph: 

7 ‘‘(42)(A) The term ‘applicable individual account 

8 plan’ means any individual account plan, except that such 

9 term does not include an employee stock ownership plan 

10 (within the meaning of section 4975(e)(7) of the Internal 

11 Revenue Code of 1986) unless there are any contributions 

12 to such plan (or earnings thereunder) held within such 

13 plan that are subject to subsection (k)(3) or (m)(2) of sec14 tion 401 of the Internal Revenue Code of 1986. Such term 

15 shall not include a one-participant retirement plan. 

16 ‘‘(B) The term ‘one-participant retirement plan’ 

17 means a pension plan with respect to which the following 

18 requirements are met: 

19 ‘‘(i) on the first day of the plan year— 

20 ‘‘(I) the plan covered only one individual 

21 (or the individual and the individual’s spouse) 

22 and the individual owned 100 percent of the 

23 plan sponsor (whether or not incorporated), or 
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1 ‘‘(II) the plan covered only one or more 

2 partners (or partners and their spouses) in the 

3 plan sponsor; 

4 ‘‘(ii) the plan meets the minimum coverage re5 quirements of section 410(b) of the Internal Rev6 enue Code of 1986 (as in effect on the date of the 

7 enactment of this paragraph) without being com8 bined with any other plan of the business that covers 

9 the employees of the business; 

10 ‘‘(iii) the plan does not provide benefits to any11 one except the individual (and the individual’s 

12 spouse) or the partners (and their spouses); 

13 ‘‘(iv) the plan does not cover a business that is 

14 a member of an affiliated service group, a controlled 

15 group of corporations, or a group of businesses 

16 under common control; and 

17 ‘‘(v) the plan does not cover a business that 

18 leases employees.’’. 

19 (4) CIVIL PENALTIES FOR FAILURE TO PRO20 VIDE QUARTERLY BENEFIT STATEMENTS.—Section 

21 502 of such Act (29 U.S.C. 1132) is amended— 

22 (A) in subsection (a)(6), by striking ‘‘(6), 

23 or (7)’’ and inserting ‘‘(6), (7), or (8)’’; 

24 (B) by redesignating paragraph (8) of sub25 section (c) as paragraph (9); and 
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1 (C) by inserting after paragraph (7) of 

2 subsection (c) the following new paragraph: 

3 ‘‘(8) The Secretary may assess a civil penalty against 

4 any plan administrator of up to $1,000 a day for each 

5 day on which the plan administrator has failed to comply 

6 with the requirements of clause (iii) of section 

7 105(a)(1)(A) and has not corrected such failure by pro8 viding the required pension benefit statements to the af9 fected participants and beneficiaries.’’. 

10 (5) MODEL STATEMENTS.—The Secretary of 

11 Labor shall, not later than 180 days after the date 

12 of the enactment of this Act, issue initial guidance 

13 and a model benefit statement, written in a manner 

14 calculated to be understood by the average plan par15 ticipant, that may be used by plan administrators in 

16 complying with the requirements of section 105 of 

17 the Employee Retirement Income Security Act of 

18 1974. Not later than 75 days after the date of the 

19 enactment of this Act, the Secretary shall promul20 gate interim final rules necessary to carry out the 

21 amendments made by this subsection. 

22 (b) AMENDMENTS TO THE INTERNAL REVENUE

23 CODE OF 1986.— 

24 (1) PROVISION OF INVESTMENT EDUCATION

25 NOTICES TO PARTICIPANTS IN CERTAIN PLANS.— 
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1 Section 414 of the Internal Revenue Code of 1986 

2 (relating to definitions and special rules) is amended 

3 by adding at the end the following: 

4 ‘‘(aa) PROVISION OF INVESTMENT EDUCATION NO5 TICES TO PARTICIPANTS IN CERTAIN PLANS.— 

6 ‘‘(1) IN GENERAL.—The plan administrator of 

7 an applicable pension plan shall provide to each ap8 plicable individual an investment education notice 

9 described in paragraph (2) at the time of the enroll10 ment of the applicable individual in the plan and not 

11 less often than annually thereafter. 

12 ‘‘(2) INVESTMENT EDUCATION NOTICE.—An in13 vestment education notice is described in this para14 graph if such notice contains— 

15 ‘‘(A) an explanation, for the long-term re16 tirement security of participants and bene17 ficiaries, of generally accepted investment prin18 ciples, including principles of risk management 

19 and diversification, and 

20 ‘‘(B) a discussion of the risk of holding 

21 substantial portions of a portfolio in the secu22 rity of any one entity, such as employer securi23 ties. 

24 ‘‘(3) UNDERSTANDABILITY.—Each notice re25 quired by paragraph (1) shall be written in a man-
152 

•HR 1961 IH 

1 ner calculated to be understood by the average plan 

2 participant and shall provide sufficient information 

3 (as determined in accordance with guidance provided 

4 by the Secretary) to allow recipients to understand 

5 such notice. 

6 ‘‘(4) FORM AND MANNER OF NOTICES.—The 

7 notices required by this subsection shall be in writ8 ing, except that such notices may be in electronic or 

9 other form (or electronically posted on the plan’s 

10 website) to the extent that such form is reasonably 

11 accessible to the applicable individual. 

12 ‘‘(5) DEFINITIONS.—For purposes of this sub13 section— 

14 ‘‘(A) APPLICABLE INDIVIDUAL.—The term 

15 ‘applicable individual’ means— 

16 ‘‘(i) any participant in the applicable 

17 pension plan, 

18 ‘‘(ii) any beneficiary who is an alter19 nate payee (within the meaning of section 

20 414(p)(8)) under a qualified domestic rela21 tions order (within the meaning of section 

22 414(p)(1)(A)), and 

23 ‘‘(iii) any beneficiary of a deceased 

24 participant or alternate payee. 
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•HR 1961 IH 

1 ‘‘(B) APPLICABLE PENSION PLAN.—The 

2 term ‘applicable pension plan’ means— 

3 ‘‘(i) a plan described in clause (i), (ii), 

4 or (iv) of section 219(g)(5)(A), and 

5 ‘‘(ii) an eligible deferred compensation 

6 plan (as defined in section 457(b)) of an 

7 eligible employer described in section 

8 457(e)(1)(A), 

9 which permits any participant to direct the in10 vestment of some or all of his account in the 

11 plan or under which the accrued benefit of any 

12 participant depends in whole or in part on hy13 pothetical investments directed by the partici14 pant. Such term shall not include a one-partici15 pant retirement plan or a plan to which section 

16 105 of the Employee Retirement Income Secu17 rity Act of 1974 applies. 

18 ‘‘(C) ONE-PARTICIPANT RETIREMENT

19 PLAN DEFINED.—The term ‘one-participant re20 tirement plan’ means a retirement plan with re21 spect to which the following requirements are 

22 met: 

23 ‘‘(i) on the first day of the plan 

24 year— 
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•HR 1961 IH 

1 ‘‘(I) the plan covered only one in2 dividual (or the individual and the in3 dividual’s spouse) and the individual 

4 owned 100 percent of the plan spon5 sor (whether or not incorporated), or 

6 ‘‘(II) the plan covered only one 

7 or more partners (or partners and 

8 their spouses) in the plan sponsor; 

9 ‘‘(ii) the plan meets the minimum cov10 erage requirements of 410(b) without 

11 being combined with any other plan of the 

12 business that covers the employees of the 

13 business; 

14 ‘‘(iii) the plan does not provide bene15 fits to anyone except the individual (and 

16 the individual’s spouse) or the partners 

17 (and their spouses); 

18 ‘‘(iv) the plan does not cover a busi19 ness that is a member of an affiliated serv20 ice group, a controlled group of corpora21 tions, or a group of businesses under com22 mon control; and 

23 ‘‘(v) the plan does not cover a busi24 ness that leases employees. 
155 

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1 ‘‘(6) CROSS REFERENCE.—For provisions relat2 ing to penalty for failure to provide the notice re3 quired by this section, see section 6652(m).’’. 

4 (2) PENALTY FOR FAILURE TO PROVIDE NO5 TICE.—Section 6652 of such Code (relating to fail6 ure to file certain information returns, registration 

7 statements, etc.) is amended by redesignating sub8 section (m) as subsection (n) and by inserting after 

9 subsection (l) the following new subsection: 

10 ‘‘(m) FAILURE TO PROVIDE INVESTMENT EDU11 CATION NOTICES TO PARTICIPANTS IN CERTAIN

12 PLANS.—In the case of each failure to provide a written 

13 explanation as required by section 414(aa) with respect 

14 to an applicable individual (as defined in such section), 

15 at the time prescribed therefor, unless it is shown that 

16 such failure is due to reasonable cause and not to willful 

17 neglect, there shall be paid, on notice and demand of the 

18 Secretary and in the same manner as tax, by the person 

19 failing to provide such notice, an amount equal to $100 

20 for each such failure, but the total amount imposed on 

21 such person for all such failures during any calendar year 

22 shall not exceed $50,000.’’. 
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1 SEC. 602. INAPPLICABILITY OF RELIEF FROM FIDUCIARY 

2 LIABILITY DURING BLACKOUT PERIODS. 

3 (a) IN GENERAL.—Section 404(c) of the Employee 

4 Retirement Income Security Act of 1974 (29 U.S.C. 

5 1104(c)) is amended by adding at the end the following 

6 new paragraph: 

7 ‘‘(4)(A) Paragraph (1)(B) shall not apply in connec8 tion with the direction or diversification of assets credited 

9 to the account of any participant or beneficiary during a 

10 blackout period if, by reason of the imposition of such 

11 blackout period, the ability of such participant or bene12 ficiary to direct or diversify such assets is suspended, lim13 ited, or restricted. 

14 ‘‘(B) If the fiduciary authorizing a blackout period 

15 meets the requirements of this title in connection with au16 thorizing such blackout period, no person who is a fidu17 ciary shall be liable under this title for any loss occurring 

18 during the blackout period as a result of any exercise by 

19 the participant or beneficiary of control over assets in his 

20 or her account prior to the blackout period. Matters to 

21 be considered in determining whether a fiduciary has met 

22 the requirements of this title include whether such fidu23 ciary— 

24 ‘‘(i) has considered the reasonableness of the 

25 expected length of the blackout period, 
157 

•HR 1961 IH 

1 ‘‘(ii) has provided the notice required under sec2 tion 101(i)(2), and 

3 ‘‘(iii) has acted in accordance with the require4 ments of subsection (a) in determining whether to 

5 enter into the blackout period. 

6 ‘‘(C) If a blackout period arises in connection with 

7 a change in the investment options offered under the plan, 

8 a participant or beneficiary shall be deemed to have exer9 cised control over the assets in his or her account prior 

10 to the blackout period, if, after reasonable notice of the 

11 change in investment options is given to such participant 

12 or beneficiary before such blackout period, assets in the 

13 account of the participant or beneficiary are transferred— 

14 ‘‘(i) to plan investment options in accordance 

15 with the affirmative election of the participant or 

16 beneficiary, or 

17 ‘‘(ii) in any case in which there is no such elec18 tion, in the manner set forth in such notice. 

19 ‘‘(D) Any imposition of any limitation or restriction 

20 that may govern the frequency of transfers between invest21 ment vehicles shall not be treated as the imposition of a 

22 blackout period to the extent such limitation or restriction 

23 is disclosed to participants or beneficiaries through the 

24 summary plan description or materials describing specific 

25 investment alternatives under the plan. 
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1 ‘‘(E) For purposes of this paragraph, the term ‘black2 out period’ has the meaning given such term by section 

3 101(i)(7).’’. 

4 (b) GUIDANCE.—The Secretary of Labor shall, on or 

5 before December 31, 2006, issue interim final regulations 

6 providing guidance on how plan sponsors or any other af7 fected fiduciaries can satisfy their fiduciary responsibilities 

8 during any blackout period during which the ability of a 

9 participant or beneficiary to direct the investment of as10 sets in his or her individual account is suspended. 

11 SEC. 603. DIVERSIFICATION REQUIREMENTS FOR DEFINED 

12 CONTRIBUTION PLANS THAT HOLD EM13 PLOYER SECURITIES. 

14 (a) AMENDMENT TO THE EMPLOYEE RETIREMENT

15 INCOME SECURITY ACT OF 1974.—Section 204 of the 

16 Employee Retirement Income Security Act of 1974 (29 

17 U.S.C. 1054) is amended— 

18 (1) by redesignating subsection (j) as sub19 section (k); and 

20 (2) by inserting after subsection (i) the fol21 lowing new subsection: 

22 ‘‘(j) DIVERSIFICATION REQUIREMENTS FOR INDI23 VIDUAL ACCOUNT PLANS THAT HOLD EMPLOYER SECU24 RITIES.— 
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•HR 1961 IH 

1 ‘‘(1) IN GENERAL.—An applicable individual ac2 count plan shall meet the requirements of para3 graphs (2) and (3). 

4 ‘‘(2) EMPLOYEE CONTRIBUTIONS AND ELEC5 TIVE DEFERRALS INVESTED IN EMPLOYER SECURI6 TIES.—In the case of the portion of the account at7 tributable to employee contributions and elective de8 ferrals which is invested in employer securities, a 

9 plan meets the requirements of this paragraph if 

10 each applicable individual may elect to direct the 

11 plan to divest any such securities in the individual’s 

12 account and to reinvest an equivalent amount in 

13 other investment options which meet the require14 ments of paragraph (4). 

15 ‘‘(3) EMPLOYER CONTRIBUTIONS INVESTED IN

16 EMPLOYER SECURITIES.— 

17 ‘‘(A) IN GENERAL.—In the case of the por18 tion of the account attributable to employer 

19 contributions (other than elective deferrals to 

20 which paragraph (2) applies) which is invested 

21 in employer securities, a plan meets the require22 ments of this paragraph if, under the plan— 

23 ‘‘(i) each applicable individual with a 

24 benefit based on 3 years of service may 

25 elect to direct the plan to divest any such 
160 

•HR 1961 IH 

1 securities in the individual’s account and 

2 to reinvest an equivalent amount in other 

3 investment options which meet the require4 ments of paragraph (4), or 

5 ‘‘(ii) with respect to any employer se6 curity allocated to an applicable individ7 ual’s account during any plan year, such 

8 applicable individual may elect to direct 

9 the plan to divest such employer security 

10 after a date which is not later than 3 years 

11 after the end of such plan year and to re12 invest an equivalent amount in other in13 vestment options which meet the require14 ments of paragraph (4). 

15 ‘‘(B) APPLICABLE INDIVIDUAL WITH BEN16 EFIT BASED ON 3 YEARS OF SERVICE.—For 

17 purposes of subparagraph (A), an applicable in18 dividual has a benefit based on 3 years of serv19 ice if such individual would be an applicable in20 dividual if only participants in the plan who 

21 have completed at least 3 years of service (as 

22 determined under section 203(b)) were referred 

23 to in paragraph (5)(B)(i). 

24 ‘‘(4) INVESTMENT OPTIONS.—The requirements 

25 of this paragraph are met if— 
161 

•HR 1961 IH 

1 ‘‘(A) the plan offers not less than 3 invest2 ment options, other than employer securities, to 

3 which an applicable individual may direct the 

4 proceeds from the divestment of employer secu5 rities pursuant to this subsection, each of which 

6 is diversified and has materially different risk 

7 and return characteristics, and 

8 ‘‘(B) the plan permits the applicable indi9 vidual to choose from any of the investment op10 tions made available under the plan to which 

11 such proceeds may be so directed, subject to 

12 such restrictions as may be provided by the 

13 plan limiting such choice to periodic, reasonable 

14 opportunities occurring no less frequently than 

15 on a quarterly basis. 

16 ‘‘(5) DEFINITIONS AND RULES.—For purposes 

17 of this subsection— 

18 ‘‘(A) APPLICABLE INDIVIDUAL ACCOUNT

19 PLAN.—The term ‘applicable individual account 

20 plan’ means any individual account plan, except 

21 that such term does not include an employee 

22 stock ownership plan (within the meaning of 

23 section 4975(e)(7) of the Internal Revenue 

24 Code of 1986) unless there are any contribu25 tions to such plan (or earnings thereon) held 
162 

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1 within such plan that are subject to subsection 

2 (k)(3) or (m)(2) of section 401 of the Internal 

3 Revenue Code of 1986. 

4 ‘‘(B) APPLICABLE INDIVIDUAL.—The term 

5 ‘applicable individual’ means— 

6 ‘‘(i) any participant in the plan, and 

7 ‘‘(ii) any beneficiary of a participant 

8 referred to in clause (i) who has an ac9 count under the plan with respect to which 

10 the beneficiary is entitled to exercise the 

11 rights of the participant. 

12 ‘‘(C) ELECTIVE DEFERRAL.—The term 

13 ‘elective deferral’ means an employer contribu14 tion described in section 402(g)(3)(A) of the In15 ternal Revenue Code of 1986 (as in effect on 

16 the date of the enactment of this subsection). 

17 ‘‘(D) EMPLOYER SECURITY.—The term 

18 ‘employer security’ shall have the meaning 

19 given such term by section 407(d)(1) of this 

20 Act (as in effect on the date of the enactment 

21 of this subsection). 

22 ‘‘(E) EMPLOYEE STOCK OWNERSHIP

23 PLAN.—The term ‘employee stock ownership 

24 plan’ shall have the same meaning given to 

25 such term by section 4975(e)(7) of the Internal 
163 

•HR 1961 IH 

1 Revenue Code of 1986 (as in effect on the date 

2 of the enactment of this subsection). 

3 ‘‘(F) ELECTIONS.—Elections under this 

4 subsection may be made not less frequently 

5 than quarterly. 

6 ‘‘(6) EXCEPTION WHERE THERE IS NO READILY

7 TRADABLE STOCK.—This subsection shall not apply 

8 if there is no class of stock issued by the employer 

9 (or by a corporation which is an affiliate of the em10 ployer (as defined in section 407(d)(7))) that is 

11 readily tradable on an established securities market 

12 (or in such other circumstances as may be deter13 mined jointly by the Secretary of Labor and the Sec14 retary of the Treasury in regulations). 

15 ‘‘(7) TRANSITION RULE.— 

16 ‘‘(A) IN GENERAL.—In the case of any in17 dividual account plan which, on the first day of 

18 the first plan year to which this subsection ap19 plies, holds employer securities of any class that 

20 were acquired before such date and on which 

21 there is a restriction on diversification otherwise 

22 precluded by this subsection, this subsection 

23 shall apply to such securities of such class held 

24 in any plan year only with respect to the num25 ber of such securities equal to the applicable 
164 

•HR 1961 IH 

1 percentage of the total number of such securi2 ties of such class held on such date. 

3 ‘‘(B) APPLICABLE PERCENTAGE.—For 

4 purposes of subparagraph (A), the applicable 

5 percentage shall be as follows: 

‘‘Plan years for which provisions 

are effective: 

Applicable percentage: 

1st plan year ...................................................................................... 20

2nd plan year ..................................................................................... 40

3rd plan year ...................................................................................... 60

4th plan year ...................................................................................... 80

5th plan year or thereafter ................................................................ 100. 

6 ‘‘(C) ELECTIVE DEFERRALS TREATED AS

7 SEPARATE PLAN NOT INDIVIDUAL ACCOUNT

8 PLAN.—For purposes of subparagraph (A), the 

9 applicable percentage shall be 100 percent with 

10 respect to— 

11 ‘‘(i) employee contributions to a plan 

12 under which any portion attributable to 

13 elective deferrals is treated as a separate 

14 plan under section 407(b)(2) as of the date 

15 of the enactment of this paragraph, and 

16 ‘‘(ii) such elective deferrals. 

17 ‘‘(D) COORDINATION WITH PRIOR ELEC18 TIONS.—In any case in which a divestiture of 

19 investment in employer securities of any class 

20 held by an employee stock ownership plan prior 

21 to the effective date of this subsection was un22 dertaken pursuant to other applicable Federal 
165 

•HR 1961 IH 

1 law prior to such date, the applicable percent2 age (as determined without regard to this sub3 paragraph) in connection with such securities 

4 shall be reduced to the extent necessary to ac5 count for the amount to which such election ap6 plied. 

7 ‘‘(8) REGULATIONS.—The Secretary of the 

8 Treasury shall prescribe regulations under this sub9 section in consultation with the Secretary of 

10 Labor.’’. 

11 (b) AMENDMENTS TO THE INTERNAL REVENUE

12 CODE OF 1986.— 

13 (1) IN GENERAL.—Section 401(a) of the Inter14 nal Revenue Code of 1986 (relating to requirements 

15 for qualification) is amended by inserting after para16 graph (34) the following new paragraph: 

17 ‘‘(35) DIVERSIFICATION REQUIREMENTS FOR

18 DEFINED CONTRIBUTION PLANS THAT HOLD EM19 PLOYER SECURITIES.— 

20 ‘‘(A) IN GENERAL.—An applicable defined 

21 contribution plan shall meet the requirements 

22 of subparagraphs (B) and (C). 

23 ‘‘(B) EMPLOYEE CONTRIBUTIONS AND

24 ELECTIVE DEFERRALS INVESTED IN EMPLOYER

25 SECURITIES.—In the case of the portion of the 
166 

•HR 1961 IH 

1 account attributable to employee contributions 

2 and elective deferrals which is invested in em3 ployer securities, a plan meets the requirements 

4 of this subparagraph if each applicable indi5 vidual in such plan may elect to direct the plan 

6 to divest any such securities in the individual’s 

7 account and to reinvest an equivalent amount 

8 in other investment options which meet the re9 quirements of subparagraph (D). 

10 ‘‘(C) EMPLOYER CONTRIBUTIONS IN11 VESTED IN EMPLOYER SECURITIES.— 

12 ‘‘(i) IN GENERAL.—In the case of the 

13 portion of the account attributable to em14 ployer contributions (other than elective 

15 deferrals to which subparagraph (B) ap16 plies) which is invested in employer securi17 ties, a plan meets the requirements of this 

18 subparagraph if, under the plan— 

19 ‘‘(I) each applicable individual 

20 with a benefit based on 3 years of 

21 service may elect to direct the plan to 

22 divest any such securities in the indi23 vidual’s account and to reinvest an 

24 equivalent amount in other investment 
167 

•HR 1961 IH 

1 options which meet the requirements 

2 of subparagraph (D), or 

3 ‘‘(II) with respect to any em4 ployer security allocated to an applica5 ble individual’s account during any 

6 plan year, such applicable individual 

7 may elect to direct the plan to divest 

8 such employer security after a date 

9 which is not later than 3 years after 

10 the end of such plan year and to rein11 vest an equivalent amount in other in12 vestment options which meet the re13 quirements of subparagraph (D). 

14 ‘‘(ii) APPLICABLE INDIVIDUAL WITH

15 BENEFIT BASED ON 3 YEARS OF SERV16 ICE.—For purposes of clause (i), an appli17 cable individual has a benefit based on 3 

18 years of service if such individual would be 

19 an applicable individual if only participants 

20 in the plan who have completed at least 3 

21 years of service (as determined under sec22 tion 411(a)) were referred to in subpara23 graph (E)(ii)(I). 

24 ‘‘(D) INVESTMENT OPTIONS.—The require25 ments of this subparagraph are met if— 
168 

•HR 1961 IH 

1 ‘‘(i) the plan offers not less than 3 in2 vestment options, other than employer se3 curities, to which an applicable individual 

4 may direct the proceeds from the divest5 ment of employer securities pursuant to 

6 this paragraph, each of which is diversified 

7 and has materially different risk and re8 turn characteristics, and 

9 ‘‘(ii) the plan permits the applicable 

10 individual to choose from any of the invest11 ment options made available under the 

12 plan to which such proceeds may be so di13 rected, subject to such restrictions as may 

14 be provided by the plan limiting such 

15 choice to periodic, reasonable opportunities 

16 occurring no less frequently than on a 

17 quarterly basis. 

18 ‘‘(E) DEFINITIONS AND RULES.—For pur19 poses of this paragraph— 

20 ‘‘(i) APPLICABLE DEFINED CONTRIBU21 TION PLAN.—The term ‘applicable defined 

22 contribution plan’ means any defined con23 tribution plan, except that such term does 

24 not include an employee stock ownership 

25 plan (within the meaning of section 
169 

•HR 1961 IH 

1 4975(e)(7)) unless there are any contribu2 tions to such plan (or earnings thereon) 

3 held within such plan that are subject to 

4 subsection (k)(3) or (m)(2). 

5 ‘‘(ii) APPLICABLE INDIVIDUAL.—The 

6 term ‘applicable individual’ means— 

7 ‘‘(I) any participant in the plan, 

8 and 

9 ‘‘(II) any beneficiary of a partici10 pant referred to in clause (i) who has 

11 an account under the plan with re12 spect to which the beneficiary is enti13 tled to exercise the rights of the par14 ticipant. 

15 ‘‘(iii) ELECTIVE DEFERRAL.—The 

16 term ‘elective deferral’ means an employer 

17 contribution described in section 

18 402(g)(3)(A) (as in effect on the date of 

19 the enactment of this paragraph). 

20 ‘‘(iv) EMPLOYER SECURITY.—The 

21 term ‘employer security’ shall have the 

22 meaning given such term by section 

23 407(d)(1) of the Employee Retirement In24 come Security Act of 1974 (as in effect on 
170 

•HR 1961 IH 

1 the date of the enactment of this para2 graph). 

3 ‘‘(v) EMPLOYEE STOCK OWNERSHIP

4 PLAN.—The term ‘employee stock owner5 ship plan’ shall have the same meaning 

6 given to such term by section 4975(e)(7) 

7 of the Internal Revenue Code of 1986 (as 

8 in effect on the date of the enactment of 

9 this paragraph). 

10 ‘‘(vi) ELECTIONS.—Elections under 

11 this paragraph may be made not less fre12 quently than quarterly. 

13 ‘‘(F) EXCEPTION WHERE THERE IS NO

14 READILY TRADABLE STOCK.—This paragraph 

15 shall not apply if there is no class of stock 

16 issued by the employer that is readily tradable 

17 on an established securities market (or in such 

18 other circumstances as may be determined 

19 jointly by the Secretary of the Treasury and the 

20 Secretary of Labor in regulations). 

21 ‘‘(G) TRANSITION RULE.— 

22 ‘‘(i) IN GENERAL.—In the case of any 

23 defined contribution plan which, on the ef24 fective date of this subsection, holds em25 ployer securities of any class that were ac-
171 

•HR 1961 IH 

1 quired before such date and on which there 

2 is a restriction on diversification otherwise 

3 precluded by this paragraph, this para4 graph shall apply to such securities of such 

5 class held in any plan year only with re6 spect to the number of such securities 

7 equal to the applicable percentage of the 

8 total number of such securities of such 

9 class held on such date. 

10 ‘‘(ii) APPLICABLE PERCENTAGE.—For 

11 purposes of clause (i), the applicable per12 centage shall be as follows: 

‘‘Plan years for which provisions 

are effective: 

Applicable percentage: 

1st plan year ...................................................................................... 20

2nd plan year ..................................................................................... 40

3rd plan year ...................................................................................... 60

4th plan year ...................................................................................... 80

5th plan year or thereafter ................................................................ 100. 

13 ‘‘(iii) ELECTIVE DEFERRALS TREATED

14 AS SEPARATE PLAN NOT INDIVIDUAL AC15 COUNT PLAN.—For purposes of clause (i), 

16 the applicable percentage shall be 100 per17 cent with respect to— 

18 ‘‘(I) employee contributions to a 

19 plan under which any portion attrib20 utable to elective deferrals is treated 

21 as a separate plan under section 

22 407(b)(2) of the Employee Retirement 
172 

•HR 1961 IH 

1 Income Security Act of 1974 as of the 

2 date of the enactment of this para3 graph, and 

4 ‘‘(II) such elective deferrals. 

5 ‘‘(iv) CONTRIBUTIONS HELD WITHIN

6 AN ESOP.—In the case of contributions 

7 (other than elective deferrals and employee 

8 contributions) held within an employee 

9 stock ownership plan, in the case of the 1st 

10 and 2nd plan years referred to in the table 

11 in clause (ii), the applicable percentage 

12 shall be the greater of the amount deter13 mined under clause (ii) or the percentage 

14 determined under paragraph (28) (deter15 mined as if paragraph (28) applied to a 

16 plan described in this paragraph). 

17 ‘‘(v) COORDINATION WITH PRIOR

18 ELECTIONS UNDER PARAGRAPH (28).—In 

19 any case in which a divestiture of invest20 ment in employer securities of any class 

21 held by an employee stock ownership plan 

22 prior to the effective date of this para23 graph was undertaken pursuant to an elec24 tion under paragraph (28) prior to such 

25 date, the applicable percentage (as deter-
173 

•HR 1961 IH 

1 mined without regard to this clause) in 

2 connection with such securities shall be re3 duced to the extent necessary to account 

4 for the amount to which such election ap5 plied. 

6 ‘‘(H) REGULATIONS.—The Secretary shall 

7 prescribe regulations under this paragraph in 

8 consultation with the Secretary of Labor.’’. 

9 (2) CONFORMING AMENDMENTS.— 

10 (A) Section 401(a)(28) of such Code is 

11 amended by adding at the end the following 

12 new subparagraph: 

13 ‘‘(D) APPLICATION.—This paragraph shall 

14 not apply to a plan to which paragraph (35) ap15 plies.’’. 

16 (B) Section 409(h)(7) of such Code is 

17 amended by inserting before the period at the 

18 end ‘‘or subparagraph (B) or (C) of section 

19 401(a)(35)’’. 

20 (C) Section 4980(c)(3)(A) of such Code is 

21 amended by striking ‘‘if—’’ and all that follows 

22 and inserting ‘‘if the requirements of subpara23 graphs (B), (C), and (D) are met.’’. 

24 (c) EFFECTIVE DATE.— 
174 

•HR 1961 IH 

1 (1) IN GENERAL.—Except as provided in para2 graph (2) and section 604, the amendments made by 

3 this section shall apply to plan years beginning after 

4 December 31, 2005, and with respect to employer 

5 securities allocated to accounts before, on, or after 

6 the date of the enactment of this Act. 

7 (2) EXCEPTION.—The amendments made by 

8 this section shall not apply to employer securities 

9 held by an employee stock ownership plan which are 

10 acquired before January 1, 1987. 

11 SEC. 604. EFFECTIVE DATES AND RELATED RULES. 

12 (a) IN GENERAL.—Except as otherwise provided in 

13 the preceding provisions of this title or in subsection (c), 

14 the amendments made by this title shall apply with respect 

15 to plan years beginning on or after the general effective 

16 date. 

17 (b) GENERAL EFFECTIVE DATE.—For purposes of 

18 this section, the term ‘‘general effective date’’ means the 

19 date which is 1 year after the date of the enactment of 

20 this Act. 

21 (c) SPECIAL RULE FOR COLLECTIVELY BARGAINED

22 PLANS.—In the case of a plan maintained pursuant to 1 

23 or more collective bargaining agreements between em24 ployee representatives and 1 or more employers ratified 

25 on or before the date of the enactment of this Act, sub-
175 

•HR 1961 IH 

1 section (a) shall be applied to benefits pursuant to, and 

2 individuals covered by, any such agreement by substituting 

3 for ‘‘the general effective date’’ the date of the commence4 ment of the first plan year beginning on or after the ear5 lier of— 

6 (1) the later of— 

7 (A) the date which is 1 year after the gen8 eral effective date, or 

9 (B) the date on which the last of such col10 lective bargaining agreements terminates (de11 termined without regard to any extension there12 of after the date of the enactment of this Act), 

13 or 

14 (2) the date which is 2 years after the general 

15 effective date. 

16 TITLE VII—OTHER TAX PROVI17 SIONS RELATING TO PEN18 SIONS 

19 SEC. 701. REPORTING SIMPLIFICATION. 

20 (a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

21 OWNERS AND THEIR SPOUSES.— 

22 (1) IN GENERAL.—The Secretary of the Treas23 ury and the Secretary of Labor shall modify the re24 quirements for filing annual returns with respect to 

25 one-participant retirement plans to ensure that such 
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1 plans with assets of $250,000 or less as of the close 

2 of the plan year need not file a return for that year. 

3 (2) ONE-PARTICIPANT RETIREMENT PLAN DE4 FINED.—For purposes of this subsection, the term 

5 ‘‘one-participant retirement plan’’ means a retire6 ment plan with respect to which the following re7 quirements are met: 

8 (A) on the first day of the plan year— 

9 (i) the plan covered only one indi10 vidual (or the individual and the individ11 ual’s spouse) and the individual owned 100 

12 percent of the plan sponsor (whether or 

13 not incorporated), or 

14 (ii) the plan covered only one or more 

15 partners (or partners and their spouses) in 

16 the plan sponsor; 

17 (B) the plan meets the minimum coverage 

18 requirements of section 410(b) of the Internal 

19 Revenue Code of 1986 without being combined 

20 with any other plan of the business that covers 

21 the employees of the business; 

22 (C) the plan does not provide benefits to 

23 anyone except the individual (and the individ24 ual’s spouse) or the partners (and their 

25 spouses); 
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1 (D) the plan does not cover a business that 

2 is a member of an affiliated service group, a 

3 controlled group of corporations, or a group of 

4 businesses under common control; and 

5 (E) the plan does not cover a business that 

6 leases employees. 

7 (3) OTHER DEFINITIONS.—Terms used in para8 graph (2) which are also used in section 414 of the 

9 Internal Revenue Code of 1986 shall have the re10 spective meanings given such terms by such section. 

11 (4) EFFECTIVE DATE.—The provisions of this 

12 subsection shall apply to plan years beginning on or 

13 after January 1, 2005. 

14 (b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

15 PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case 

16 of plan years beginning after December 31, 2006, the Sec17 retary of the Treasury and the Secretary of Labor shall 

18 provide for the filing of a simplified annual return for any 

19 retirement plan which covers less than 25 employees on 

20 the first day of a plan year and which meets the require21 ments described in subparagraphs (B), (D), and (E) of 

22 subsection (a)(2). 
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1 SEC. 702. IMPROVEMENT OF EMPLOYEE PLANS COMPLI2 ANCE RESOLUTION SYSTEM. 

3 The Secretary of the Treasury shall continue to up4 date and improve the Employee Plans Compliance Resolu5 tion System (or any successor program) giving special at6 tention to— 

7 (1) increasing the awareness and knowledge of 

8 small employers concerning the availability and use 

9 of the program; 

10 (2) taking into account special concerns and 

11 circumstances that small employers face with respect 

12 to compliance and correction of compliance failures; 

13 (3) extending the duration of the self-correction 

14 period under the Self-Correction Program for signifi15 cant compliance failures; 

16 (4) expanding the availability to correct insig17 nificant compliance failures under the Self-Correc18 tion Program during audit; and 

19 (5) assuring that any tax, penalty, or sanction 

20 that is imposed by reason of a compliance failure is 

21 not excessive and bears a reasonable relationship to 

22 the nature, extent, and severity of the failure. 

23 The Secretary of the Treasury shall have full authority 

24 to effectuate the foregoing and to implement the Employee 

25 Plans Compliance Resolution System (or any successor 

26 program) and any other employee plans correction poli-
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1 cies, including the authority to waive income, excise, or 

2 other taxes to ensure that any tax, penalty, or sanction 

3 is not excessive and bears a reasonable relationship to the 

4 nature, extent, and severity of the failure. 

5 SEC. 703. EXTENSION OF MORATORIUM ON APPLICATION 

6 OF CERTAIN NONDISCRIMINATION RULES TO 

7 ALL GOVERNMENTAL PLANS. 

8 (a) IN GENERAL.— 

9 (1) Subparagraph (G) of section 401(a)(5) and 

10 subparagraph (H) of section 401(a)(26) of the In11 ternal Revenue Code of 1986 are each amended by 

12 striking ‘‘section 414(d))’’ and all that follows and 

13 inserting ‘‘section 414(d)).’’. 

14 (2) Subparagraph (G) of section 401(k)(3) and 

15 paragraph (2) of section 1505(d) of the Taxpayer 

16 Relief Act of 1997 (26 U.S.C. 401 note) are each 

17 amended by striking ‘‘maintained by a State or local 

18 government or political subdivision thereof (or agen19 cy or instrumentality thereof)’’. 

20 (b) CONFORMING AMENDMENTS.— 

21 (1) The heading for subparagraph (G) of sec22 tion 401(a)(5) of such Code is amended to read as 

23 follows: ‘‘GOVERNMENTAL PLANS.—’’. 

24 (2) The heading for subparagraph (H) of sec25 tion 401(a)(26) of such Code is amended to read as 
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1 follows: ‘‘EXCEPTION FOR GOVERNMENTAL PLANS.— 

2 ’’. 

3 (3) Subparagraph (G) of section 401(k)(3) of 

4 such Code is amended by inserting ‘‘GOVERN5 MENTAL PLANS.—’’ after ‘‘(G)’’. 

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

7 this section shall apply to years beginning after December 

8 31, 2005. 

9 SEC. 704. NOTICE AND CONSENT PERIOD REGARDING DIS10 TRIBUTIONS. 

11 (a) EXPANSION OF PERIOD.— 

12 (1) AMENDMENT OF INTERNAL REVENUE

13 CODE.— 

14 (A) IN GENERAL.—Subparagraph (A) of 

15 section 417(a)(6) of the Internal Revenue Code 

16 of 1986 is amended by striking ‘‘90-day’’ and 

17 inserting ‘‘180-day’’. 

18 (B) MODIFICATION OF REGULATIONS.— 

19 The Secretary of the Treasury shall modify the 

20 regulations under sections 402(f), 411(a)(11), 

21 and 417 of the Internal Revenue Code of 1986 

22 to substitute ‘‘180 days’’ for ‘‘90 days’’ each 

23 place it appears in Treasury Regulations sec24 tions 1.402(f)–1, 1.411(a)–11(c), and 1.417(e)– 

25 1(b). 
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1 (2) AMENDMENT OF ERISA.— 

2 (A) IN GENERAL.—Section 205(c)(7)(A) of 

3 the Employee Retirement Income Security Act 

4 of 1974 (29 U.S.C. 1055(c)(7)(A)) is amended 

5 by striking ‘‘90-day’’ and inserting ‘‘180-day’’. 

6 (B) MODIFICATION OF REGULATIONS.— 

7 The Secretary of the Treasury shall modify the 

8 regulations under part 2 of subtitle B of title 

9 I of the Employee Retirement Income Security 

10 Act of 1974 to the extent that they relate to 

11 sections 203(e) and 205 of such Act to sub12 stitute ‘‘180 days’’ for ‘‘90 days’’ each place it 

13 appears. 

14 (3) EFFECTIVE DATE.—The amendments made 

15 by paragraphs (1)(A) and (2)(A) and the modifica16 tions required by paragraphs (1)(B) and (2)(B) 

17 shall apply to years beginning after December 31, 

18 2005. 

19 (b) CONSENT REGULATION INAPPLICABLE TO CER20 TAIN DISTRIBUTIONS.— 

21 (1) IN GENERAL.—The Secretary of the Treas22 ury shall modify the regulations under section 

23 411(a)(11) of the Internal Revenue Code of 1986 

24 and under section 205 of the Employee Retirement 

25 Income Security Act of 1974 to provide that the de-
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1 scription of a participant’s right, if any, to defer re2 ceipt of a distribution shall also describe the con3 sequences of failing to defer such receipt. 

4 (2) EFFECTIVE DATE.— 

5 (A) IN GENERAL.—The modifications re6 quired by paragraph (1) shall apply to years be7 ginning after December 31, 2005. 

8 (B) REASONABLE NOTICE.—In the case of 

9 any description of such consequences made be10 fore the date that is 90 days after the date on 

11 which the Secretary of the Treasury issues a 

12 safe harbor description under paragraph (1), a 

13 plan shall not be treated as failing to satisfy the 

14 requirements of section 411(a)(11) of such 

15 Code or section 205 of such Act by reason of 

16 the failure to provide the information required 

17 by the modifications made under paragraph (1) 

18 if the Administrator of such plan makes a rea19 sonable attempt to comply with such require20 ments. 

21 SEC. 705. QUALIFIED GROUP LEGAL SERVICES PLANS. 

22 (a) IN GENERAL.—Subsection (e) of section 120 of 

23 the Internal Revenue Code of 1986 is amended to read 

24 as follows: 
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1 ‘‘(e) APPLICATION OF SECTION.—This section and 

2 section 501(c)(20) shall apply to taxable years begin3 ning— 

4 ‘‘(1) after December 31, 1976, and before July 

5 1, 1992, and 

6 ‘‘(2) after December 31, 2005, and before Jan7 uary 1, 2009.’’. 

8 (b) INCREASE IN MAXIMUM EXCLUSION.—The last 

9 sentence of section 120(a) is amended by striking ‘‘$70’’ 

10 and inserting ‘‘$150’’. 

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

12 this section shall apply to taxable years beginning after 

13 December 31, 2005. 

14 SEC. 706. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE15 TIREMENT PLANS FOR CHARITABLE PUR16 POSES. 

17 (a) IN GENERAL.—Subsection (d) of section 408 of 

18 the Internal Revenue Code of 1986 (relating to individual 

19 retirement accounts) is amended by adding at the end the 

20 following new paragraph: 

21 ‘‘(8) DISTRIBUTIONS FOR CHARITABLE PUR22 POSES.— 

23 ‘‘(A) IN GENERAL.—No amount shall be 

24 includible in gross income by reason of a quali25 fied charitable distribution. 
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1 ‘‘(B) QUALIFIED CHARITABLE DISTRIBU2 TION.—For purposes of this paragraph, the 

3 term ‘qualified charitable distribution’ means 

4 any distribution from an individual retirement 

5 plan other than a plan described in subsection 

6 (k) or (p) of section 408— 

7 ‘‘(i) which is made on or after the 

8 date that the individual for whose benefit 

9 the plan is maintained has attained age 

701 10 ⁄2, and 

11 ‘‘(ii) which is made directly by the 

12 trustee— 

13 ‘‘(I) to an organization described 

14 in section 170(c), or 

15 ‘‘(II) to a split-interest entity. 

16 A distribution shall be treated as a qualified 

17 charitable distribution only to the extent that 

18 the distribution would be includible in gross in19 come without regard to subparagraph (A) and, 

20 in the case of a distribution to a split-interest 

21 entity, only if no person holds an income inter22 est in the amounts in the split-interest entity 

23 attributable to such distribution other than one 

24 or more of the following: the individual for 

25 whose benefit such plan is maintained, the 
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1 spouse of such individual, or any organization 

2 described in section 170(c). 

3 ‘‘(C) CONTRIBUTIONS MUST BE OTHER4 WISE DEDUCTIBLE.—For purposes of this para5 graph— 

6 ‘‘(i) DIRECT CONTRIBUTIONS.—A dis7 tribution to an organization described in 

8 section 170(c) shall be treated as a quali9 fied charitable distribution only if a deduc10 tion for the entire distribution would be al11 lowable under section 170 (determined 

12 without regard to subsection (b) thereof 

13 and this paragraph). 

14 ‘‘(ii) SPLIT-INTEREST GIFTS.—A dis15 tribution to a split-interest entity shall be 

16 treated as a qualified charitable distribu17 tion only if a deduction for the entire value 

18 of the interest in the distribution for the 

19 use of an organization described in section 

20 170(c) would be allowable under section 

21 170 (determined without regard to sub22 section (b) thereof and this paragraph). 

23 ‘‘(D) APPLICATION OF SECTION 72.—Not24 withstanding section 72, in determining the ex25 tent to which a distribution is a qualified chari-
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1 table distribution, the entire amount of the dis2 tribution shall be treated as includible in gross 

3 income without regard to subparagraph (A) to 

4 the extent that such amount does not exceed 

5 the aggregate amount which would have been so 

6 includible if all amounts distributed from all in7 dividual retirement plans were treated as 1 con8 tract under paragraph (2)(A) for purposes of 

9 determining the inclusion of such distribution 

10 under section 72. Proper adjustments shall be 

11 made in applying section 72 to other distribu12 tions in such taxable year and subsequent tax13 able years. 

14 ‘‘(E) SPECIAL RULES FOR SPLIT-INTEREST

15 ENTITIES.— 

16 ‘‘(i) CHARITABLE REMAINDER

17 TRUSTS.—Notwithstanding section 664(b), 

18 distributions made from a trust described 

19 in subparagraph (G)(i) shall be treated as 

20 ordinary income in the hands of the bene21 ficiary to whom is paid the annuity de22 scribed in section 664(d)(1)(A) or the pay23 ment described in section 664(d)(2)(A). 

24 ‘‘(ii) POOLED INCOME FUNDS.—No 

25 amount shall be includible in the gross in-
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1 come of a pooled income fund (as defined 

2 in subparagraph (G)(ii)) by reason of a 

3 qualified charitable distribution to such 

4 fund, and all distributions from the fund 

5 which are attributable to qualified chari6 table distributions shall be treated as ordi7 nary income to the beneficiary. 

8 ‘‘(iii) CHARITABLE GIFT ANNU9 ITIES.—Qualified charitable distributions 

10 made for a charitable gift annuity shall not 

11 be treated as an investment in the con12 tract. 

13 ‘‘(F) DENIAL OF DEDUCTION.—Qualified 

14 charitable distributions shall not be taken into 

15 account in determining the deduction under sec16 tion 170. 

17 ‘‘(G) SPLIT-INTEREST ENTITY DEFINED.— 

18 For purposes of this paragraph, the term ‘split19 interest entity’ means— 

20 ‘‘(i) a charitable remainder annuity 

21 trust or a charitable remainder unitrust 

22 (as such terms are defined in section 

23 664(d)) which must be funded exclusively 

24 by qualified charitable distributions, 
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1 ‘‘(ii) a pooled income fund (as defined 

2 in section 642(c)(5)), but only if the fund 

3 accounts separately for amounts attrib4 utable to qualified charitable distributions, 

5 and 

6 ‘‘(iii) a charitable gift annuity (as de7 fined in section 501(m)(5)).’’. 

8 (b) MODIFICATIONS RELATING TO INFORMATION RE9 TURNS BY CERTAIN TRUSTS.— 

10 (1) RETURNS.—Section 6034 of such Code (re11 lating to returns by trusts described in section 

12 4947(a)(2) or claiming charitable deductions under 

13 section 642(c)) is amended to read as follows: 

14 ‘‘SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 

15 4947(a)(2) OR CLAIMING CHARITABLE DEDUC16 TIONS UNDER SECTION 642(c). 

17 ‘‘(a) TRUSTS DESCRIBED IN SECTION 4947(a)(2).— 

18 Every trust described in section 4947(a)(2) shall furnish 

19 such information with respect to the taxable year as the 

20 Secretary may by forms or regulations require. 

21 ‘‘(b) TRUSTS CLAIMING A CHARITABLE DEDUCTION

22 UNDER SECTION 642(c).— 

23 ‘‘(1) IN GENERAL.—Every trust not required to 

24 file a return under subsection (a) but claiming a de25 duction under section 642(c) for the taxable year 
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1 shall furnish such information with respect to such 

2 taxable year as the Secretary may by forms or regu3 lations prescribe, including— 

4 ‘‘(A) the amount of the deduction taken 

5 under section 642(c) within such year, 

6 ‘‘(B) the amount paid out within such year 

7 which represents amounts for which deductions 

8 under section 642(c) have been taken in prior 

9 years, 

10 ‘‘(C) the amount for which such deductions 

11 have been taken in prior years but which has 

12 not been paid out at the beginning of such year, 

13 ‘‘(D) the amount paid out of principal in 

14 the current and prior years for the purposes de15 scribed in section 642(c), 

16 ‘‘(E) the total income of the trust within 

17 such year and the expenses attributable thereto, 

18 and 

19 ‘‘(F) a balance sheet showing the assets, li20 abilities, and net worth of the trust as of the 

21 beginning of such year. 

22 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not 

23 apply to a trust for any taxable year if— 

24 ‘‘(A) all the net income for such year, de25 termined under the applicable principles of the 
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1 law of trusts, is required to be distributed cur2 rently to the beneficiaries, or 

3 ‘‘(B) the trust is described in section 

4 4947(a)(1).’’. 

5 (2) INCREASE IN PENALTY RELATING TO FIL6 ING OF INFORMATION RETURN BY SPLIT-INTEREST

7 TRUSTS.—Paragraph (2) of section 6652(c) of such 

8 Code (relating to returns by exempt organizations 

9 and by certain trusts) is amended by adding at the 

10 end the following new subparagraph: 

11 ‘‘(C) SPLIT-INTEREST TRUSTS.—In the 

12 case of a trust which is required to file a return 

13 under section 6034(a), subparagraphs (A) and 

14 (B) of this paragraph shall not apply and para15 graph (1) shall apply in the same manner as if 

16 such return were required under section 6033, 

17 except that— 

18 ‘‘(i) the 5 percent limitation in the 

19 second sentence of paragraph (1)(A) shall 

20 not apply, 

21 ‘‘(ii) in the case of any trust with 

22 gross income in excess of $250,000, the 

23 first sentence of paragraph (1)(A) shall be 

24 applied by substituting ‘$100’ for ‘$20’, 

25 and the second sentence thereof shall be 
191 

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1 applied by substituting ‘$50,000’ for 

2 ‘$10,000’, and 

3 ‘‘(iii) the third sentence of paragraph 

4 (1)(A) shall be disregarded. 

5 In addition to any penalty imposed on the trust 

6 pursuant to this subparagraph, if the person re7 quired to file such return knowingly fails to file 

8 the return, such penalty shall also be imposed 

9 on such person who shall be personally liable 

10 for such penalty.’’. 

11 (3) CONFIDENTIALITY OF NONCHARITABLE

12 BENEFICIARIES.—Subsection (b) of section 6104 of 

13 such Code (relating to inspection of annual informa14 tion returns) is amended by adding at the end the 

15 following new sentence: ‘‘In the case of a trust which 

16 is required to file a return under section 6034(a), 

17 this subsection shall not apply to information re18 garding beneficiaries which are not organizations de19 scribed in section 170(c).’’. 

20 (c) EFFECTIVE DATES.— 

21 (1) SUBSECTION (a).—The amendment made by 

22 subsection (a) shall apply to distributions made after 

23 December 31, 2005. 
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1 (2) SUBSECTION (b).—The amendments made 

2 by subsection (b) shall apply to returns for taxable 

3 years beginning after December 31, 2005. 

4 TITLE VIII—MISCELLANEOUS 

5 PROVISIONS 

6 SEC. 801. PROVISIONS RELATING TO PLAN AMENDMENTS. 

7 (a) IN GENERAL.—If this section applies to any plan 

8 or contract amendment— 

9 (1) such plan or contract shall be treated as 

10 being operated in accordance with the terms of the 

11 plan during the period described in subsection 

12 (b)(2)(A), and 

13 (2) except as provided by the Secretary of the 

14 Treasury, such plan shall not fail to meet the re15 quirements of section 411(d)(6) of the Internal Rev16 enue Code of 1986 and section 204(g) of the Em17 ployee Retirement Income Security Act of 1974 by 

18 reason of such amendment. 

19 (b) AMENDMENTS TO WHICH SECTION APPLIES.— 

20 (1) IN GENERAL.—This section shall apply to 

21 any amendment to any plan or annuity contract 

22 which is made— 

23 (A) pursuant to any amendment made by 

24 this Act or title VI of the Economic Growth and 

25 Tax Relief Reconciliation Act of 2001, or pur-
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1 suant to any regulation issued by the Secretary 

2 of the Treasury or the Secretary of Labor 

3 under this Act or such title VI, and 

4 (B) on or before the last day of the first 

5 plan year beginning on or after January 1, 

6 2008. 

7 In the case of a governmental plan (as defined in 

8 section 414(d) of the Internal Revenue Code of 

9 1986), this paragraph shall be applied by sub10 stituting ‘‘2010’’ for ‘‘2008’’. 

11 (2) CONDITIONS.—This section shall not apply 

12 to any amendment unless— 

13 (A) during the period— 

14 (i) beginning on the date the legisla15 tive or regulatory amendment described in 

16 paragraph (1)(A) takes effect (or in the 

17 case of a plan or contract amendment not 

18 required by such legislative or regulatory 

19 amendment, the effective date specified by 

20 the plan), and 

21 (ii) ending on the date described in 

22 paragraph (1)(B) (or, if earlier, the date 

23 the plan or contract amendment is adopt24 ed), 
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1 the plan or contract is operated as if such plan 

2 or contract amendment were in effect; and 

3 (B) such plan or contract amendment ap4 plies retroactively for such period. 

Æ