I 

109TH CONGRESS 

1ST SESSION H. R. 1960

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. PORTMAN 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) TABLE OF CONTENTS.—The table of contents of 

8 this Act is as follows:
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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. Retirement savings account. 

Sec. 202. Expansion of Saver’s credit. 

Sec. 203. Faster vesting of employer nonelective contributions. 

Sec. 204. Allow rollovers by nonspouse beneficiaries of certain retirement plan 

distributions. 

Sec. 205. Enhancing portability of after-tax amounts. 

Sec. 206. IRA eligibility for the disabled. 

Sec. 207. Exclusion of certain qualified annuity payments and facilitation of 

such payments and rollovers. 

Sec. 208. Exclusion of certain nonqualified annuity payments. 

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. Uniform availability of designated RSA contributions. 

Sec. 309. Allow certain plan transfers and mergers. 

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. 
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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 RSA. 

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. 

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. 

TITLE VIII—MISCELLANEOUS PROVISIONS 

Sec. 801. Provisions relating to plan amendments.
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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. RETIREMENT SAVINGS ACCOUNT. 

11 (a) RETIREMENT SAVINGS ACCOUNT.—

12 (1) NAME CHANGED FROM ROTH IRA, ETC.—

13 (A) IN GENERAL.—The Internal Revenue 

14 Code of 1986 is amended—

15 (i) by striking ‘‘a’’ each place it imme16 diately precedes ‘‘Roth’’ and inserting 

17 ‘‘an’’, 

18 (ii) by striking ‘‘Roth IRA’’ and 

19 ‘‘Roth IRAs’’ each place such terms appear 

20 and inserting ‘‘RSA’’ and ‘‘RSAs’’, respec21 tively, and 

22 (iii) by striking ‘‘Roth contribution’’, 

23 ‘‘Roth contributions’’, ‘‘Roth account’’ and 

24 ‘‘Roth accounts’’ each place such terms ap25 pear and inserting ‘‘RSA contribution’’, 
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1 ‘‘RSA contributions’’, ‘‘RSA account’’, and 

2 ‘‘RSA accounts’’, respectively. 

3 (B) RSA DEFINED.—Subsection (a) of sec4 tion 7701 of such Code is amended by adding 

5 at the end the following paragraph: 

6 ‘‘(48) RSA.—The term ‘RSA’ means a retire7 ment savings account described in section 408A.’’. 

8 (2) UNIVERSAL AVAILABILITY.—Subsection (c) 

9 of section 408A is amended—

10 (A) by striking paragraph (3), and 

11 (B) by redesignating paragraphs (4), (5), 

12 (6), and (7) as paragraphs (3), (4), (5), and 

13 (6), respectively. 

14 (3) REPEAL OF 5-YEAR RULE.—Paragraph (2) 

15 of section 408A(d) of such Code is amended by 

16 striking subparagraph (B) and redesignating sub17 paragraph (C) as subparagraph (B). 

18 (4) INCOME OVER 4 YEARS.—Clause (iii) of sec19 tion 408A(d)(3)(A) of such Code is amended by 

20 striking ‘‘January 1, 1999’’ and inserting ‘‘after De21 cember 31, 2005, and before January 1, 2007’’. 

22 (5) ORDERING RULE.—Subparagraph (B) of 

23 section 408A(d)(4) of such Code is amended to read 

24 as follows: 
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1 ‘‘(B) ORDERING RULES.—For purposes of 

2 applying this section and section 72 to any dis3 tribution from an RSA, such distribution shall 

4 be treated as made—

5 ‘‘(i) from income attributable to con6 tributions to the RSA to the extent that 

7 the amount of such distribution, when 

8 added to all previous distributions from the 

9 RSA, does not exceed the aggregate in10 come attributable to contributions to the 

11 RSA, and 

12 ‘‘(ii) to the extent that such distribu13 tion exceeds such income, from contribu14 tions in the following order: 

15 ‘‘(I) Contributions other than 

16 qualified rollover contributions to 

17 which paragraph (3) applies. 

18 ‘‘(II) Qualified rollover contribu19 tions to which paragraph (3) applies 

20 on a first-in, first-out basis. 

21 For purposes of this subparagraph, income at22 tributable to contributions to the RSA shall in23 clude income that is attributable to contribu24 tions to another RSA or to a designated RSA 

25 account and that is rolled over into the RSA.’’. 
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1 (b) CONFORMING AMENDMENTS.—

2 (1) Paragraph (2) of section 402A(d) of such 

3 Code is amended by striking subparagraph (B) and 

4 by redesignating subparagraph (C) as subparagraph 

5 (B). 

6 (2) Subsection (d) of section 402A of such Code 

7 is amended by adding at the end the following: 

8 ‘‘(5) ORDERING RULES.—For purposes of ap9 plying section 72 to any distribution from a partici10 pant’s designated RSA account, such distribution 

11 shall be treated as made from income attributable to 

12 contributions to the designated RSA account to the 

13 extent that the amount of such distribution, when 

14 added to all previous distributions from the des15 ignated RSA account, does not exceed the aggregate 

16 income attributable to contributions to the des17 ignated RSA account. For purposes of this para18 graph, income attributable to contributions to a des19 ignated RSA account shall include income that is at20 tributable to contributions to another such account 

21 or to an RSA and that is rolled over into the des22 ignated RSA account.’’. 

23 (3) Subparagraph (B) of section 4973(f)(1) and 

24 subparagraph (B) of section 4973(f)(2) of such Code 
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1 are each amended by striking ‘‘sections 408A(c)(2) 

2 and (c)(3)’’ and inserting ‘‘section 408A(c)(2)’’. 

3 (c) EFFECTIVE DATES.—

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

5 this section shall apply to years beginning after De6 cember 31, 2005. 

7 (2) SPECIAL RULE.—The amendment made by 

8 subsection (a)(5) shall only apply to the extent that 

9 distributions from RSAs exceed the amount of con10 tributions to such RSAs that have been made but 

11 not distributed as of December 31, 2005. 

12 SEC. 202. EXPANSION OF SAVER’S CREDIT. 

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

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

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

16 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 50,000 30,000 37,500 20,000 25,000 10

50,000 37,500 25,000 0’’. 

17 (b) ADJUSTMENT FOR INFLATION.—Section 25B of 

18 such Code (as amended by subsection (a)) is further 

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

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

21 subsection: 
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1 ‘‘(h) ADJUSTMENT FOR INFLATION.— 

2 ‘‘(1) IN GENERAL.—In the case of any taxable 

3 year beginning after December 31, 2008, each dollar 

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

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

6 be increased by an amount equal to— 

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

8 ‘‘(B) the cost-of-living adjustment deter9 mined under section 1(f)(3) for such calendar 

10 year by substituting ‘calendar year 2007’ for 

11 ‘calendar year 1992’ in subparagraph (B) 

12 thereof. 

13 If any increase under the preceding sentence is not 

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

15 to the nearest multiple of $1,000. 

16 ‘‘(2) ADJUSTMENT OF AMOUNTS RELATING TO

17 JOINT RETURN AND HEAD OF HOUSEHOLD.—In the 

18 case of any taxable year beginning after December 

19 31, 2008— 

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

21 dollar amount in the table contained in sub22 section (b) in the columns under the heading 

23 ‘Joint return’ a dollar amount equal to twice 

24 the corresponding dollar amount in such table 
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1 in the columns under the heading ‘All other 

2 cases’ (as increased under paragraph (1)), and 

3 ‘‘(B) there shall be substituted for each 

4 dollar amount in the table contained in sub5 section (b) in the columns under the heading 

6 ‘Head of household’ a dollar amount equal to 

11 7 ⁄2 times the corresponding dollar amount in 

8 such table in the columns under the heading 

9 ‘All other cases’ (as increased under paragraph 

10 (1)).’’. 

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

12 25B(d)(2) of such Code is amended to read as follows: 

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

14 subparagraph (A), the testing period, with re15 spect to a taxable year, is the period which in16 cludes— 

17 ‘‘(i) such taxable year, and 

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

19 (d) TREATMENT AS REFUNDABLE.— 

20 (1) CREDIT MOVED TO SUBPART RELATING TO

21 REFUNDABLE CREDIT.— 

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

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

24 to subpart C of part IV of subchapter A of 
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1 chapter 1 (relating to refundable credits) and 

2 inserted after section 35. 

3 (B) TECHNICAL AMENDMENTS.— 

4 (i) Section 36 of such Code is redesig5 nated as section 37. 

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

7 moved by subparagraph (A)) is redesig8 nated as section 36. 

9 (iii) The table of sections for subpart 

10 A of such part is amended by striking the 

11 item relating to section 25B. 

12 (iv) The table of sections for subpart 

13 C of such part is amended by redesig14 nating the item relating to section 36 as 

15 an item relating to section 37 and by in16 serting after section 35 the following new 

17 item: 

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

18 (2) MANDATORY DEPOSIT INTO QUALIFIED AC19 COUNT.— 

20 (A) NO REDUCTION OF TAX.—Subsection 

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

22 redesignated by paragraph (1), is amended by 

23 striking ‘‘credit against the tax imposed by this 

24 subtitle’’ and inserting ‘‘tax credit’’. 
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1 (B) DEPOSIT INTO QUALIFIED AC2 COUNT.—Subsection (g) of section 36 of such 

3 Code, as moved and redesignated by paragraph 

4 (1), is amended to read as follows: 

5 ‘‘(g) DEPOSIT INTO QUALIFIED ACCOUNT.— 

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

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

8 as a credit against any tax imposed by this subtitle 

9 but instead shall be treated as an overpayment 

10 under section 6401(b) and— 

11 ‘‘(A) shall be paid on behalf of the indi12 vidual taxpayer to an applicable retirement plan 

13 designated by the individual to be invested in a 

14 manner designated by the individual, except 

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

16 shall be entitled to designate an applicable re17 tirement plan and investments with respect to 

18 payments attributable to such spouse, or 

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

20 properly designate an applicable retirement plan 

21 in a timely manner or who designates an appli22 cable retirement plan that does not accept such 

23 amount in a timely manner, shall be paid or 

24 credited on behalf of the individual taxpayer in 

25 a manner determined under rules prescribed by 
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1 the Secretary that provides treatment com2 parable to the treatment under subparagraph 

3 (A). 

4 ‘‘(2) APPLICABLE RETIREMENT PLAN.—For 

5 purposes of this subsection, the term ‘applicable re6 tirement plan’ means a plan that elects to accept de7 posits under this subsection and that is described in 

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

9 or in section 408A(b). 

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

11 amounts paid under this subsection shall be treated 

12 for purposes of this title as income attributable to— 

13 ‘‘(A) an RSA contribution in the case of a 

14 payments to an individual retirement plan, or 

15 ‘‘(B) a designated RSA contribution in the 

16 case of a payment to an applicable retirement 

17 plan described in section 402A(e).’’. 

18 (e) REGULATION AND PROMOTION.—Section 36 of 

19 such Code, as amended and redesignated by this section, 

20 is amended by adding at the end the following new sub21 section: 

22 ‘‘(i) REGULATION AND PROMOTION.—The Secretary 

23 may prescribe such regulations and other guidance as may 

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

25 Secretary shall also take such steps as he determines nec-
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1 essary and appropriate to increase public awareness of the 

2 credit provided under this section.’’. 

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

4 this section shall apply to taxable years beginning after 

5 December 31, 2006. 

6 SEC. 203. FASTER VESTING OF EMPLOYER NONELECTIVE 

7 CONTRIBUTIONS. 

8 (a) AMENDMENTS TO THE INTERNAL REVENUE

9 CODE OF 1986.— 

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

11 411(a) of the Internal Revenue Code of 1986 (relat12 ing to employer contributions) is amended to read as 

13 follows: 

14 ‘‘(2) EMPLOYER CONTRIBUTIONS.— 

15 ‘‘(A) DEFINED BENEFIT PLANS.— 

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

17 defined benefit plan, a plan satisfies the 

18 requirements of this paragraph if it satis19 fies the requirements of clause (ii) or (iii). 

20 ‘‘(ii) 5-YEAR VESTING.—A plan satis21 fies the requirements of this clause if an 

22 employee who has completed at least 5 

23 years of service has a nonforfeitable right 

24 to 100 percent of the employee’s accrued 
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1 benefit derived from employer contribu2 tions. 

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

4 satisfies the requirements of this clause if 

5 an employee has a nonforfeitable right to 

6 a percentage of the employee’s accrued 

7 benefit derived from employer contribu8 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. 

9 ‘‘(B) DEFINED CONTRIBUTION PLANS.— 

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

11 defined contribution plan, a plan satisfies 

12 the requirements of this paragraph if it 

13 satisfies the requirements of clause (ii) or 

14 (iii). 

15 ‘‘(ii) 3-YEAR VESTING.—A plan satis16 fies the requirements of this clause if an 

17 employee who has completed at least 3 

18 years of service has a nonforfeitable right 

19 to 100 percent of the employee’s accrued 

20 benefit derived from employer contribu21 tions. 
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1 ‘‘(iii) 2 TO 6 YEAR VESTING.—A plan 

2 satisfies the requirements of this clause if 

3 an employee has a nonforfeitable right to 

4 a percentage of the employee’s accrued 

5 benefit derived from employer contribu6 tions determined under the following table: 

The nonforfeitable 

‘‘Years of service percentage is: 

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

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

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

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

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

7 (2) CONFORMING AMENDMENT.—Section 

8 411(a) of such Code (relating to general rule for 

9 minimum vesting standards) is amended by striking 

10 paragraph (12). 

11 (b) AMENDMENTS TO THE EMPLOYEE RETIREMENT

12 INCOME SECURITY ACT OF 1974.— 

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

14 203(a) of the Employee Retirement Income Security 

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

16 read as follows: 

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

18 a plan satisfies the requirements of this paragraph 

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

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

21 clause if an employee who has completed at least 5 

22 years of service has a nonforfeitable right to 100 
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1 percent of the employee’s accrued benefit derived 

2 from employer contributions. 

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

4 clause if an employee has a nonforfeitable right to 

5 a percentage of the employee’s accrued benefit de6 rived from employer contributions determined under 

7 the following table: 

The nonforfeitable 

‘‘Years of service percentage is: 

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

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

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

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

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

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

9 plan, a plan satisfies the requirements of this para10 graph if it satisfies the requirements of clause (ii) or 

11 (iii). 

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

13 clause if an employee who has completed at least 3 

14 years of service has a nonforfeitable right to 100 

15 percent of the employee’s accrued benefit derived 

16 from employer contributions. 

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

18 clause if an employee has a nonforfeitable right to 

19 a percentage of the employee’s accrued benefit de20 rived from employer contributions determined under 

21 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 

2 203(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 
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1 extension thereof on or after such date of 

2 the enactment); or 

3 (ii) January 1, 2006; or 

4 (B) January 1, 2008. 

5 (3) SERVICE REQUIRED.—With respect to any 

6 plan, the amendments made by this section shall not 

7 apply to any employee before the date that such em8 ployee has 1 hour of service under such plan in any 

9 plan year to which the amendments made by this 

10 section apply. 

11 SEC. 204. ALLOW ROLLOVERS BY NONSPOUSE BENE12 FICIARIES OF CERTAIN RETIREMENT PLAN 

13 DISTRIBUTIONS. 

14 (a) IN GENERAL.— 

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

16 Internal Revenue Code of 1986 (relating to rollovers 

17 from exempt trusts) is amended by adding at the 

18 end the following new paragraph: 

19 ‘‘(11) DISTRIBUTIONS TO INHERITED INDI20 VIDUAL RETIREMENT PLAN OF NONSPOUSE BENE21 FICIARY.— 

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

23 portion of a distribution from an eligible retire24 ment plan of a deceased employee, a direct 

25 trustee-to-trustee transfer is made to an indi-
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1 vidual retirement plan described in clause (i) or 

2 (ii) of paragraph (8)(B) established for the pur3 poses of receiving the distribution on behalf of 

4 an individual who is a designated beneficiary 

5 (as defined by section 401(a)(9)(E)) of the em6 ployee and who is not the surviving spouse of 

7 the employee— 

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

9 eligible rollover distribution for purposes of 

10 this subsection, 

11 ‘‘(ii) the individual retirement plan 

12 shall be treated as an inherited individual 

13 retirement account or individual retirement 

14 annuity (within the meaning of section 

15 408(d)(3)(C)) for purposes of this title, 

16 and 

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

18 clause (iv) thereof) shall apply to such 

19 plan. 

20 ‘‘(B) CERTAIN TRUSTS TREATED AS BENE21 FICIARIES.—For purposes of this paragraph, to 

22 the extent provided in rules prescribed by the 

23 Secretary, a trust maintained for the benefit of 

24 one or more designated beneficiaries shall be 
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1 treated in the same manner as a trust des2 ignated beneficiary.’’. 

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

4 (B) of section 403(a)(4) of such Code (relating to 

5 rollover amounts) is amended by inserting ‘‘and 

6 (11)’’ after ‘‘(7)’’. 

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

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

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

10 and inserting ‘‘, (9), and (11)’’. 

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

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

13 amounts) is amended by striking ‘‘and (9)’’ and in14 serting ‘‘, (9), and (11)’’. 

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

16 this section shall apply to distributions after December 31, 

17 2005. 

18 SEC. 205. ENHANCING PORTABILITY OF AFTER-TAX 

19 AMOUNTS. 

20 (a) ROLLOVERS BETWEEN QUALIFIED PLANS AND

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

22 402(c)(2) of such Code (relating to maximum amount 

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

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

25 in section 403(b) and such plan or contract’’. 
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1 (b) ROLLOVERS TO DEFINED BENEFIT PLANS.— 

2 Subparagraph (A) of section 402(c)(2) of such Code (re3 lating to maximum amount which may be rolled over) is 

4 amended by striking ‘‘which is a part of a plan which is 

5 a defined contribution plan and’’. 

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

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

8 December 31, 2005. 

9 SEC. 206. IRA ELIGIBILITY FOR THE DISABLED. 

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

11 the Internal Revenue Code of 1986 (relating to other defi12 nitions and special rules) is amended by adding at the end 

13 the following: 

14 ‘‘(8) SPECIAL RULE FOR CERTAIN DISABLED

15 INDIVIDUALS.—In the case of an individual— 

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

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

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

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

20 the close of the taxable year, 

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

22 apply.’’. 

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

24 this section shall apply to taxable years beginning after 

25 December 31, 2005. 
24

•HR 1960 IH 

1 SEC. 207. EXCLUSION OF CERTAIN QUALIFIED ANNUITY 

2 PAYMENTS AND FACILITATION OF SUCH PAY3 MENTS AND ROLLOVERS. 

4 (a) IN GENERAL.—

5 (1) QUALIFIED PLANS.—Subsection (e) of sec6 tion 402 of the Internal Revenue Code of 1986 (re7 lating to exempt trusts) is amended by adding at the 

8 end the following new paragraph: 

9 ‘‘(7) EXCLUSION OF PERCENTAGE OF LIFETIME

10 ANNUITY PAYMENTS.—

11 ‘‘(A) IN GENERAL.—In the case of a life12 time annuity payment to a qualified distributee 

13 from a qualified trust (within the meaning of 

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

15 with a defined contribution plan, gross income 

16 shall not include 10 percent of the amount oth17 erwise includible in gross income (determined 

18 without regard to this paragraph). 

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

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

21 the first 5 taxable years in which the qualified 

22 distributee receives lifetime annuity payments 

23 for the entire taxable year. For purposes of this 

24 subparagraph, all lifetime annuity payments re25 ceived by a qualified distributee shall be taken 

26 into account to the extent that such payments 
25

•HR 1960 IH 

1 are subject to this paragraph or to rules similar 

2 to the rules of this paragraph (other than sec3 tions 72(b)(5) and 101(d)(4)). 

4 ‘‘(C) LIMITATION.—

5 ‘‘(i) IN GENERAL.—With respect to 

6 any qualified distributee, subparagraph (A) 

7 shall not apply to any lifetime annuity pay8 ment to the extent that the portion of such 

9 payment includible in gross income, when 

10 added to the portion of all previous and si11 multaneous lifetime annuity payments that 

12 was included in gross income and that was 

13 paid to such qualified distributee during 

14 the taxable year, exceeds 50 percent of the 

15 applicable amount for such year under sec16 tion 415(c)(1)(A). For purposes of the pre17 ceding sentence, the portion of lifetime an18 nuity payments includible in gross income 

19 shall be determined without regard to sub20 paragraph (A). 

21 ‘‘(ii) AGGREGATION RULE.—For pur22 poses of this subparagraph, all lifetime an23 nuity payments received by a qualified dis24 tributee shall be taken into account to the 

25 extent that such payments are subject to 
26

•HR 1960 IH 

1 this paragraph or to rules similar to the 

2 rules of this paragraph (other than sec3 tions 72(b)(5) and 101(d)(4)). 

4 ‘‘(D) DEFINITIONS.—For purposes of this 

5 paragraph—

6 ‘‘(i) LIFETIME ANNUITY PAYMENT.—

7 ‘‘(I) IN GENERAL.—The term 

8 ‘lifetime annuity payment’ means a 

9 distribution which is a part of a series 

10 of substantially equal periodic pay11 ments (made not less frequently than 

12 annually) made over the life of the 

13 qualified distributee or the joint lives 

14 of the qualified distributee and the 

15 qualified distributee’s designated ben16 eficiary. 

17 ‘‘(II) CERTAIN FLUCTUATING

18 PAYMENTS.—Annuity payments shall 

19 not fail to be treated as part of a se20 ries of substantially equal periodic 

21 payments merely because the amount 

22 of the periodic payments may vary in 

23 accordance with investment experi24 ence, reallocations among investment 

25 options, actuarial gains or losses, cost 
27

•HR 1960 IH 

1 of living indices, a constant percent2 age (not less than zero) applied not 

3 less frequently than annually, or simi4 lar fluctuating criteria. 

5 ‘‘(III) CERTAIN CHANGES IN THE

6 MODE OF PAYMENT.—Annuity pay7 ments shall not fail to be treated as 

8 part of a series of substantially equal 

9 periodic payments merely because the 

10 period between each such payment is 

11 lengthened or shortened, but only if at 

12 all times such period is not longer 

13 than one year. 

14 ‘‘(IV) PERMITTED REDUC15 TIONS.—Annuity payments shall not 

16 fail to be treated as part of a series 

17 of substantially equal periodic pay18 ments merely because, in the case of 

19 an annuity payable over the lives of 

20 the qualified distributee and the quali21 fied distributee’s designated bene22 ficiary, the amounts paid after the 

23 death of the qualified distributee or 

24 the qualified distributee’s designated 
28

•HR 1960 IH 

1 beneficiary are less than the amounts 

2 payable during their joint lives. 

3 ‘‘(V) CERTAIN CONTRACT BENE4 FITS.—The availability of a commuta5 tion benefit or other feature permit6 ting acceleration of annuity payments 

7 (or a modification of the period dur8 ing which such a benefit is available), 

9 a minimum period of payments cer10 tain, or a minimum amount to be paid 

11 in any event shall not affect the treat12 ment of a distribution as a lifetime 

13 annuity payment. 

14 ‘‘(VI) TRUST PAYMENTS.—In the 

15 case of lifetime annuity payments 

16 being made to a qualified trust, pay17 ments by the qualified trust to a 

18 qualified distributee of the entire 

19 amount received by the qualified trust 

20 with respect to the qualified dis21 tributee shall constitute lifetime annu22 ity payments. 

23 ‘‘(VII) QUALIFIED DOMESTIC RE24 LATIONS ORDERS.—Annuity payments 

25 shall not fail to be treated as a series 
29

•HR 1960 IH 

1 of substantially equal periodic pay2 ments merely because the payments 

3 are reduced on account of a qualified 

4 domestic relations order (within the 

5 meaning of section 414(p)) that be6 comes effective after the commence7 ment of the annuity payments. 

8 ‘‘(ii) QUALIFIED DISTRIBUTEE.—The 

9 term ‘qualified distributee’ means the em10 ployee, the surviving spouse of the em11 ployee, and an alternate payee who is the 

12 spouse or former spouse of the employee. 

13 ‘‘(E) RECAPTURE TAX.—

14 ‘‘(i) IN GENERAL.—If—

15 ‘‘(I) an amount is not includible 

16 in gross income by reason of subpara17 graph (A), and 

18 ‘‘(II) the series of payments of 

19 which such payment is a part is sub20 sequently modified (other than by rea21 son of death or disability) so that 

22 some or all future payments are not 

23 lifetime annuity payments, 

24 the qualified distributee’s gross income for 

25 the first taxable year in which such modi-
30

•HR 1960 IH 

1 fication occurs shall be increased by an 

2 amount, determined under rules prescribed 

3 by the Secretary, equal to the amount 

4 which (but for subparagraph (A)) would 

5 have been includible in the qualified 

6 distributee’s gross income if the modifica7 tion had been in effect at all times, plus in8 terest for the deferral period at the under9 payment rate established under section 

10 6621. 

11 ‘‘(ii) DEFERRAL PERIOD.—For pur12 poses of this subparagraph, the term ‘de13 ferral period’ means the period beginning 

14 with the taxable year in which (without re15 gard to subparagraph (A)) the payment 

16 would have been includible in gross income 

17 and ending with the taxable year in which 

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

19 occurs. 

20 ‘‘(F) PHASEOUT OF EXCLUSION.—

21 ‘‘(i) IN GENERAL.—In any taxable 

22 year, the exclusion from gross income for 

23 any qualified distributee under this para24 graph and under rules similar to the rules 

25 of this paragraph (other than sections 
31

•HR 1960 IH 

1 72(b)(5) and 101(d)(4)) shall not exceed 

2 the income-adjusted limit. 

3 ‘‘(ii) INCOME-ADJUSTED LIMIT.—For 

4 purposes of this subparagraph, the income5 adjusted limit shall be—

6 ‘‘(I) 10 percent of the limitation 

7 described in subparagraph (C), re8 duced (but not below zero) by 

9 ‘‘(II) the amount determined 

10 under clause (iii). 

11 ‘‘(iii) AMOUNT DETERMINED.—The 

12 amount determined under this clause shall 

13 be the amount which bears the same ratio 

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

15 as—

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

17 adjusted gross income for such tax18 able year over the applicable dollar 

19 amount, bears to 

20 ‘‘(II) $15,000 ($30,000 for a 

21 joint return). 

22 ‘‘(iv) LIMITATION ON REDUCTION.—

23 The income-adjusted limit shall not be re24 duced below $200 by clause (ii)(II) unless 
32

•HR 1960 IH 

1 (without regard to this clause) such limit is 

2 reduced to zero. 

3 ‘‘(v) ROUNDING RULE.—Any income4 adjusted limit determined under this sub5 paragraph which is not a multiple of $10 

6 shall be rounded to the next lowest mul7 tiple of $10. 

8 ‘‘(vi) ADJUSTED GROSS INCOME.—For 

9 purposes of this subparagraph, adjusted 

10 gross income of any taxpayer shall be de11 termined in the same manner as under sec12 tion 219(g)(3) except that any amount in13 cluded in income under section 408A(d)(3) 

14 shall not be taken into account. 

15 ‘‘(vii) APPLICABLE DOLLAR LIMIT.—

16 For purposes of this subparagraph, the ap17 plicable dollar amount is—

18 ‘‘(I) in the case of a taxpayer fil19 ing a joint return, an amount equal to 

20 twice the amount in effect under sub21 clause (II), 

22 ‘‘(II) in the case of any other 

23 taxpayer (other than a married indi24 vidual filing a separate return), 

25 $60,000, and 
33

•HR 1960 IH 

1 ‘‘(III) in the case of a married 

2 individual filing a separate return, 

3 zero. 

4 ‘‘(viii) SPECIAL RULE FOR MARRIED

5 INDIVIDUALS FILING SEPARATELY AND

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

7 apply for purposes of this subparagraph. 

8 ‘‘(ix) COST-OF-LIVING ADJUST9 MENT.—In the case of taxable years begin10 ning after December 31, 2006, the Sec11 retary shall adjust the $60,000 amount in 

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

13 same manner as under section 415(d), ex14 cept that the base period shall be the cal15 endar quarter beginning July 1, 2005, and 

16 any increase under this clause which is not 

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

18 the next lowest multiple of $5,000. 

19 ‘‘(G) INVESTMENT IN THE CONTRACT.—

20 For purposes of section 72, the investment in 

21 the contract shall be determined without regard 

22 to this paragraph.’’. 

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

24 section 403(a) of such Code (relating to qualified 
34

•HR 1960 IH 

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

2 following new subparagraph: 

3 ‘‘(C) EXCLUSION OF PERCENTAGE OF

4 LIFETIME ANNUITY PAYMENTS.—Rules similar 

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

6 distributions under any annuity contract to 

7 which this subsection applies.’’. 

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

9 such Code (relating to purchased annuities) is 

10 amended by adding at the end the following new 

11 paragraph: 

12 ‘‘(14) EXCLUSION OF PERCENTAGE OF LIFE13 TIME ANNUITY PAYMENTS.—Rules similar to the 

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

15 under any annuity contract or custodial account to 

16 which this subsection applies.’’. 

17 (4) IRAS.—Section 408(d) of such Code (relat18 ing to tax treatment of distributions) is amended by 

19 adding at the end the following new paragraph: 

20 ‘‘(8) EXCLUSION OF PERCENTAGE OF LIFETIME

21 ANNUITY PAYMENTS.—Rules similar to the rules of 

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

23 an individual retirement plan.’’. 

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

25 such Code (relating to special rules for deferred 
35

•HR 1960 IH 

1 compensation plans) is amended by adding at the 

2 end the following new paragraph: 

3 ‘‘(18) EXCLUSION OF PERCENTAGE OF LIFE4 TIME ANNUITY PAYMENTS.—Rules similar to the 

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

6 from an eligible deferred compensation plan of an el7 igible employer described in subsection (e)(1)(A).’’. 

8 (b) FACILITATION OF CERTAIN ROLLOVERS AND AN9 NUITY DISTRIBUTIONS.—Section 404(c) of the Employee 

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

11 1104(c)) is amended by adding at the end the following 

12 new paragraph: 

13 ‘‘(7)(A) In the case of a pension plan which makes 

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

15 Revenue Code of 1986 to an individual retirement plan 

16 (as defined in section 7701(a)(37) of such Code) in con17 nection with a participant or beneficiary or makes a dis18 tribution to a participant or beneficiary of an annuity con19 tract described in subparagraph (B), the participant or 

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

21 as exercising control over the transfer or distribution if—

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

23 transfer or distribution, and 

24 ‘‘(ii) in connection with such election, the par25 ticipant or beneficiary was given an opportunity to 
36

•HR 1960 IH 

1 elect any other individual retirement plan (in the 

2 case of a transfer) or any other annuity contract de3 scribed in subparagraph (B) (in the case of a dis4 tribution). 

5 ‘‘(B) An annuity contract is described in this sub6 paragraph if it provides, either on an immediate or de7 ferred basis, a series of substantially equal periodic pay8 ments (not less frequently than annually) for the life of 

9 the participant or beneficiary or the joint lives of the par10 ticipant or beneficiary and such individual’s designated 

11 beneficiary. Annuity payments shall not fail to be treated 

12 as part of a series of substantially equal periodic payments 

13 merely because the amount of the periodic payments may 

14 vary in accordance with investment experience, realloca15 tions among investment options, actuarial gains or losses, 

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

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

18 fluctuating criteria. Annuity payments shall not fail to be 

19 treated as part of a series of substantially equal periodic 

20 payments merely because the period between each such 

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

22 times such period is not longer than one year. The avail23 ability of a commutation benefit or other feature permit24 ting acceleration of annuity payments (or a modification 

25 of the period during which such a benefit is available), 
37

•HR 1960 IH 

1 a minimum period of payments certain, or a minimum 

2 amount to be paid in any event shall not affect the treat3 ment of an annuity contract as an annuity contract de4 scribed in this subparagraph. 

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

6 this paragraph shall apply without regard to whether the 

7 particular individual retirement plan receiving the transfer 

8 or the particular annuity contract being distributed is spe9 cifically identified by the pension plan as available to the 

10 participant or beneficiary. 

11 ‘‘(D) Notwithstanding the preceding provisions of 

12 this paragraph, paragraph (1)(B) shall not apply with re13 spect to liability under section 406 in connection with the 

14 specific identification of any individual retirement plan or 

15 annuity contract as being available to the participant or 

16 beneficiary.’’. 

17 (c) EFFECTIVE DATE.—

18 (1) EXCLUSION.—The amendments made by 

19 subsection (a) shall apply to distributions after De20 cember 31, 2005. 

21 (2) FACILITATION.—The amendments made by 

22 subsection (b) shall take effect on the date of enact23 ment of this Act. 

24 (3) ISSUANCE OF FINAL REGULATIONS.—Final 

25 regulations under section 404(c)(7) of the Employee 
38

•HR 1960 IH 

1 Retirement Income Security Act of 1974 (added by 

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

3 after the date of the enactment of this Act. 

4 SEC. 208. EXCLUSION OF CERTAIN NONQUALIFIED ANNU5 ITY PAYMENTS. 

6 (a) IN GENERAL.—

7 (1) NONQUALIFIED ANNUITIES.—

8 (A) IN GENERAL.—Section 72(b) of the In9 ternal Revenue Code of 1986 (relating to annu10 ities) is amended by adding at the end the fol11 lowing new paragraph: 

12 ‘‘(5) EXCLUSION OF PERCENTAGE OF LIFETIME

13 ANNUITY PAYMENTS.—

14 ‘‘(A) IN GENERAL.—In the case of a life15 time annuity payment to a qualified distributee, 

16 gross income shall not include 10 percent of the 

17 amount otherwise includible in gross income 

18 (determined without regard to this paragraph). 

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

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

21 the first 5 taxable years in which the qualified 

22 distributee receives lifetime annuity payments 

23 for the entire taxable year. For purposes of this 

24 subparagraph, all lifetime annuity payments re25 ceived by a qualified distributee shall be taken 
39

•HR 1960 IH 

1 into account to the extent that such payments 

2 are subject to this paragraph or to the rules of 

3 section 101(d)(4). 

4 ‘‘(C) INVESTMENT IN THE CONTRACT.—

5 For purposes of this section, the investment in 

6 the contract shall be determined without regard 

7 to this paragraph (5). 

8 ‘‘(D) LIMITATION.—

9 ‘‘(i) IN GENERAL.—With respect to 

10 any qualified distributee, subparagraph (A) 

11 shall not apply to any lifetime annuity pay12 ment to the extent that the portion of such 

13 payment that is includible in income, when 

14 added to the portion of all previous and si15 multaneous lifetime annuity payments that 

16 was included in gross income and that was 

17 paid to such qualified distributee during 

18 the taxable year, exceeds 50 percent of the 

19 applicable amount for such year under sec20 tion 415(c)(1)(A). For purposes of the pre21 ceding sentence, the portion of lifetime an22 nuity payments includible in gross income 

23 shall be determined without regard to sub24 paragraph (A). 
40

•HR 1960 IH 

1 ‘‘(ii) AGGREGATION RULE.—For pur2 poses of this subparagraph, all lifetime an3 nuity payments received by a qualified dis4 tributee shall be taken into account to the 

5 extent that such payments are subject to 

6 this paragraph or to the rules of section 

7 101(d)(4). 

8 ‘‘(E) 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 the rules of section 

13 101(d)(4) shall not exceed the income-ad14 justed limit. 

15 ‘‘(ii) INCOME-ADJUSTED LIMIT.—For 

16 purposes of this subparagraph, the income17 adjusted limit shall be—

18 ‘‘(I) 10 percent of the limitation 

19 described in subparagraph (D), re20 duced (but not below zero) by 

21 ‘‘(II) the amount determined 

22 under clause (iii). 

23 ‘‘(iii) AMOUNT DETERMINED.—The 

24 amount determined under this clause shall 

25 be the amount which bears the same ratio 
41

•HR 1960 IH 

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

2 as—

3 ‘‘(I) the excess of the taxpayer’s 

4 adjusted gross income for such tax5 able year over the applicable dollar 

6 amount, bears to 

7 ‘‘(II) $15,000 ($30,000 for a 

8 joint return). 

9 ‘‘(iv) LIMITATION ON REDUCTION.—

10 The income-adjusted limit shall not be re11 duced below $200 by clause (ii)(II) unless 

12 (without regard to this clause) such limit is 

13 reduced to zero. 

14 ‘‘(v) ROUNDING RULE.—Any income 

15 adjusted limit determined under this sub16 paragraph which is not a multiple of $10 

17 shall be rounded to the next lowest mul18 tiple of $10. 

19 ‘‘(vi) ADJUSTED GROSS INCOME.—For 

20 purposes of this subparagraph, adjusted 

21 gross income of any taxpayer shall be de22 termined in the same manner as under sec23 tion 219(g)(3) except that any amount in24 cluded in income under section 408A(d)(3) 

25 shall not be taken into account. 
42

•HR 1960 IH 

1 ‘‘(vii) APPLICABLE DOLLAR LIMIT.—

2 For purposes of this subparagraph, the ap3 plicable dollar amount is—

4 ‘‘(I) in the case of a taxpayer fil5 ing a joint return, an amount equal to 

6 twice the amount in effect under sub7 clause (II), 

8 ‘‘(II) in the case of any other 

9 taxpayer (other than a married indi10 vidual filing a separate return), 

11 $60,000, and 

12 ‘‘(III) in the case of a married 

13 individual filing a separate return, 

14 zero. 

15 ‘‘(viii) SPECIAL RULE FOR MARRIED

16 INDIVIDUALS FILING SEPARATELY AND

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

18 apply for purposes of this subparagraph. 

19 ‘‘(ix) COST-OF-LIVING ADJUST20 MENT.—In the case of taxable years begin21 ning after December 31, 2006, the Sec22 retary shall adjust the $60,000 amount in 

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

24 same manner as under section 415(d), ex25 cept that the base period shall be the cal-
43

•HR 1960 IH 

1 endar quarter beginning July 1, 2005, and 

2 any increase under this clause which is not 

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

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

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

6 Code is amended by adding at the end the fol7 lowing new paragraphs: 

8 ‘‘(5) LIFETIME ANNUITY PAYMENT.—

9 ‘‘(A) IN GENERAL.—For purposes of sub10 section (b)(5), the term ‘lifetime annuity pay11 ment’ means a distribution from an annuity 

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

13 part of a series of substantially equal periodic 

14 payments—

15 ‘‘(i) made not less frequently than an16 nually over the life of the qualified dis17 tributee or the joint lives of the qualified 

18 distributee and the qualified distributee’s 

19 designated beneficiary, and 

20 ‘‘(ii) that would satisfy the require21 ments of section 408(b)(3) if the annuity 

22 contract were treated as an individual re23 tirement annuity. 

24 ‘‘(B) EXCEPTIONS.—
44

•HR 1960 IH 

1 ‘‘(i) CERTAIN FLUCTUATING PAY2 MENTS.—Annuity payments shall not fail 

3 to be treated as part of a series of substan4 tially equal periodic payments merely be5 cause the amount of the periodic payments 

6 may vary in accordance with investment 

7 experience, reallocations among investment 

8 options, actuarial gains or losses, cost of 

9 living indices, a constant percentage (not 

10 less than zero) applied not less frequently 

11 than annually, or similar fluctuating cri12 teria. 

13 ‘‘(ii) CERTAIN CHANGES IN THE MODE

14 OF PAYMENTS.—Annuity payments shall 

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

16 substantially equal periodic payments 

17 merely because the period between each 

18 such payment is lengthened or shortened, 

19 but only if at all times such period is no 

20 longer than one year. 

21 ‘‘(iii) PERMITTED REDUCTIONS.—An22 nuity payments shall not fail to be treated 

23 as part of a series of substantially equal 

24 periodic payments merely because, in the 

25 case of an annuity payable over the lives of 
45

•HR 1960 IH 

1 the qualified distributee and the qualified 

2 distributee’s designated beneficiary, the 

3 amounts paid after the death of the quali4 fied distributee or the qualified 

5 distributee’s designated beneficiary are less 

6 than the amounts payable during their 

7 joint lives. 

8 ‘‘(iv) CERTAIN CONTRACT BENE9 FITS.—The availability of a commutation 

10 benefit or other feature permitting accel11 eration of annuity payments (or modifica12 tion of the period during which such a ben13 efit is available), a minimum period of pay14 ments certain, or a minimum amount to be 

15 paid in any event shall not affect the treat16 ment of a distribution as a lifetime annuity 

17 payment. 

18 ‘‘(v) ELIGIBLE RETIREMENT PLANS.—

19 Payments from an eligible retirement plan 

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

21 shall not be treated as lifetime annuity 

22 payments. 

23 ‘‘(6) QUALIFIED DISTRIBUTEE.—

24 ‘‘(A) IN GENERAL.—For purposes of sub25 section (b)(5), the term ‘qualified distributee’ 
46

•HR 1960 IH 

1 means an annuitant, the surviving spouse of an 

2 annuitant, or an alternate payee of an annu3 itant under the contract. 

4 ‘‘(B) ALTERNATE PAYEE DEFINED.—For 

5 purposes of this paragraph, the term ‘alternate 

6 payee’ means any spouse or former spouse of 

7 an annuitant under the contract who is recog8 nized by a domestic relations order as having a 

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

10 payable under the contract with respect to such 

11 annuitant. For purposes of the preceding sen12 tence, the term ‘domestic relations order’ means 

13 any judgment, decree, or order (including ap14 proval of a property settlement agreement) that 

15 relates to the provision of child support, ali16 mony payments, or marital property rights to a 

17 spouse or former spouse of an annuitant under 

18 the contract and is made pursuant to a State 

19 domestic relations law (including community 

20 property law). 

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

22 subsections (b)(5), (c)(5), and (x), the term ‘annuity 

23 contract’—
47

•HR 1960 IH 

1 ‘‘(A) means a commercial annuity within 

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

3 an endowment or life insurance contract, and 

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

5 that is a qualified funding asset (as defined in 

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

7 there is a qualified assignment.’’. 

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

9 Code is amended by redesignating subsection 

10 (x) as subsection (y) and inserting after sub11 section (w) the following new subsection: 

12 ‘‘(x) RECAPTURE TAX.—

13 ‘‘(1) IN GENERAL.—If—

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

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

16 to lifetime annuity payments), and 

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

18 payment is a part is subsequently modified 

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

20 that some or all future payments are not life21 time annuity payments, 

22 the qualified distributee’s gross income for the first 

23 taxable year in which such modification occurs shall 

24 be increased by an amount, determined under rules 

25 prescribed by the Secretary, equal to the amount 
48

•HR 1960 IH 

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

2 includible in the qualified distributee’s gross income 

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

4 plus interest for the deferral period at the under5 payment rate established under section 6621. 

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

7 subparagraph, the term ‘deferral period’ means the 

8 period beginning with the taxable year in which 

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

10 would have been includible in gross income and end11 ing with the taxable year in which the modification 

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

13 (2) LIFE INSURANCE DEATH BENEFITS.—

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

15 Code (relating to life insurance proceeds) is 

16 amended by adding at the end the following 

17 new paragraph: 

18 ‘‘(4) EXCLUSION FOR LIFETIME ANNUITY PAY19 MENTS.—

20 ‘‘(A) IN GENERAL.—In the case of 

21 amounts to which this subsection applies, gross 

22 income shall not include 10 percent of the 

23 amount otherwise includible in gross income 

24 (determined without regard to this paragraph). 
49

•HR 1960 IH 

1 ‘‘(B) RULES OF SECTION 72(b)(5) TO

2 APPLY.—For purposes of this paragraph, rules 

3 similar to the rules of section 72(b)(5) and sec4 tion 72(x) shall apply, substituting the term 

5 ‘beneficiary of the life insurance contract’ for 

6 the term ‘annuitant’ wherever it appears, and 

7 substituting the term ‘life insurance contract’ 

8 for the term ‘annuity contract’ wherever it ap9 pears.’’. 

10 (B) CONFORMING AMENDMENT.—Section 

11 101(d)(1) of such Code is amended by adding 

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

13 ‘‘to the extent not excluded by the preceding 

14 sentence’’. 

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

16 this section shall apply to distributions made after Decem17 ber 31, 2005. 

18 SEC. 209. INCREASING PARTICIPATION THROUGH AUTO19 MATIC CONTRIBUTION ARRANGEMENTS. 

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

21 Revenue Code of 1986 (relating to cash or deferred ar22 rangement) is amended by adding at the end the following 

23 new paragraph: 

24 ‘‘(13) NONDISCRIMINATION REQUIREMENTS

25 FOR AUTOMATIC CONTRIBUTION TRUSTS.—
50

•HR 1960 IH 

1 ‘‘(A) IN GENERAL.—A cash or deferred ar2 rangement shall be treated as meeting the re3 quirements of paragraph (3)(A)(ii) if such ar4 rangement constitutes an automatic contribu5 tion trust. 

6 ‘‘(B) AUTOMATIC CONTRIBUTION TRUST.—

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

8 the term ‘automatic contribution trust’ 

9 means an arrangement—

10 ‘‘(I) under which each employee 

11 eligible to participate in the arrange12 ment is treated as having elected to 

13 have the employer make elective con14 tributions in an amount equal to the 

15 applicable percentage of compensation 

16 until the employee affirmatively elects 

17 not to have such contributions made 

18 or affirmatively elects to make elective 

19 contributions at a specified level, and 

20 ‘‘(II) which meets the other re21 quirements of this paragraph. 

22 Subclause (I) of this clause shall not apply 

23 to any employee who was eligible to par24 ticipate in the arrangement (or a prede25 cessor arrangement) immediately before 
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•HR 1960 IH 

1 the first date on which the arrangement is 

2 an automatic contribution trust. The elec3 tion treated as having been made under 

4 subclause (I) shall cease to apply to com5 pensation paid after the effective date of 

6 the affirmative election by the employee. 

7 ‘‘(ii) For purposes of this subpara8 graph, with respect to an employee, the 

9 term ‘applicable percentage’ means the 

10 percentage determined under the arrange11 ment that is—

12 ‘‘(I) at least 3 percent as of the 

13 first date that the election described 

14 in clause (i)(I) is in effect with re15 spect to the employee, 

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

17 that is not later than the first day of 

18 the second plan year beginning after 

19 the date described in subclause (I), 

20 ‘‘(III) at least 5 percent by a 

21 date that is not later than the first 

22 day of the third plan year beginning 

23 after the date described in subclause 

24 (I), 
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•HR 1960 IH 

1 ‘‘(IV) at least 6 percent by a 

2 date that is no later than the first day 

3 of the fourth plan year beginning 

4 after the date described in subclause 

5 (I), 

6 ‘‘(V) at least 7 percent by a date 

7 that is not later than the first day of 

8 the fifth plan year beginning after the 

9 date described in subclause (I), 

10 ‘‘(VI) at least 8 percent by a 

11 date that is no later than the first day 

12 of the sixth plan year beginning after 

13 the date described in subclause (I), 

14 and 

15 ‘‘(VII) applied uniformly with re16 spect to similarly situated employees. 

17 ‘‘(C) PARTICIPATION.—

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

19 an arrangement meets the requirements of 

20 this subparagraph for any year if, during 

21 the plan year or the preceding plan year, 

22 elective contributions are made on behalf 

23 of at least 70 percent of the employees eli24 gible to participate in the arrangement 

25 other than—
53

•HR 1960 IH 

1 ‘‘(I) highly compensated employ2 ees, and 

3 ‘‘(II) employees who were eligible 

4 to participate in the arrangement (or 

5 a predecessor arrangement) imme6 diately before the first date on which 

7 the arrangement is an automatic con8 tribution trust. 

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

10 successor arrangement) shall be treated as 

11 meeting the requirements of this subpara12 graph with respect to the first plan year in 

13 which the arrangement is effective. 

14 ‘‘(D) MATCHING OR NONELECTIVE CON15 TRIBUTIONS.—

16 ‘‘(i) IN GENERAL.—The requirements 

17 of this subparagraph are met if, under the 

18 arrangement, the employer—

19 ‘‘(I) makes matching contribu20 tions on behalf of each employee who 

21 is not a highly compensated employee 

22 in an amount equal to 50 percent of 

23 the elective contributions of the em24 ployee to the extent such elective con-
54

•HR 1960 IH 

1 tributions do not exceed 6 percent of 

2 compensation, or 

3 ‘‘(II) is required, without regard 

4 to whether the employee makes an 

5 elective contribution or employee con6 tribution, to make a contribution to a 

7 defined contribution plan on behalf of 

8 each employee who is not a highly 

9 compensated employee and who is eli10 gible to participate in the arrange11 ment in an amount equal to at least 

12 2 percent of the employee’s compensa13 tion. 

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

15 (12)(B) shall apply for purposes of subclause 

16 (I). The rules of clause (ii) of paragraph 

17 (12)(E) shall apply for purposes of subclauses 

18 (I) and (II). 

19 ‘‘(ii) OTHER PLANS.—An arrange20 ment shall be treated as meeting the re21 quirements under clause (i) if any other 

22 plan maintained by the employer meets 

23 such requirements with respect to employ24 ees eligible under the arrangement. 
55

•HR 1960 IH 

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

2 subparagraph are met if an employee who has 

3 completed at least 2 years of service (within the 

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

5 right to 100 percent of the employee’s accrued 

6 benefit derived from employer contributions 

7 taken into account in determining whether the 

8 requirements of subparagraph (D) are met. 

9 ‘‘(F) NOTICE REQUIREMENTS.—

10 ‘‘(i) IN GENERAL.—The requirements 

11 of this subparagraph are met if the re12 quirements of clauses (ii) and (iii) are met. 

13 ‘‘(ii) REASONABLE PERIOD TO MAKE

14 ELECTION.—The requirements of this 

15 clause are met if each employee to whom 

16 subparagraph (B)(i) applies—

17 ‘‘(I) receives a notice explaining 

18 the employee’s right under the ar19 rangement to elect not to have elective 

20 contributions made on the employee’s 

21 behalf and how contributions made 

22 under the arrangement will be in23 vested in the absence of any invest24 ment election by the employee, and 
56

•HR 1960 IH 

1 ‘‘(II) has a reasonable period of 

2 time after receipt of such notice and 

3 before the first elective contribution is 

4 made to make either such election. 

5 ‘‘(iii) ANNUAL NOTICE OF RIGHTS

6 AND OBLIGATIONS.—The requirements of 

7 this clause are met if each employee eligi8 ble to participate in the arrangement is, 

9 within a reasonable period before any year, 

10 given notice of the employee’s rights and 

11 obligations under the arrangement. 

12 The requirements of clauses (i) and (ii) of para13 graph (12)(D) shall be met with respect to the 

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

15 subparagraph.’’. 

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

17 such Code (relating to nondiscrimination test for matching 

18 contributions and employee contributions) is amended by 

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

20 inserting after paragraph (11) the following new para21 graph: 

22 ‘‘(12) ALTERNATIVE METHOD FOR AUTOMATIC

23 CONTRIBUTION TRUSTS.—

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

25 plan shall be treated as meeting the require-
57

•HR 1960 IH 

1 ments of paragraph (2) with respect to match2 ing contributions if the plan—

3 ‘‘(i) meets the contribution require4 ments of subparagraphs (B)(i) and (D) of 

5 subsection (k)(13), 

6 ‘‘(ii) meets the participation require7 ments of subsection (k)(13)(C), 

8 ‘‘(iii) meets the vesting and notice re9 quirements of subparagraphs (E) and (F) 

10 of subsection (k)(13), and 

11 ‘‘(iv) meets the requirements of para12 graph (11)(B). 

13 ‘‘(B) MATCHING CONTRIBUTIONS.—An an14 nuity contract under section 403(b) shall be 

15 treated as meeting the requirements of para16 graph (2) with respect to matching contribu17 tions if such contract meets requirements simi18 lar to the requirements under subparagraph 

19 (A).’’. 

20 (c) EXCLUSION FROM DEFINITION OF TOP-HEAVY

21 PLANS.—

22 (1) ELECTIVE CONTRIBUTION RULE.—Clause 

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

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

25 401(k)(12)’’. 
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•HR 1960 IH 

1 (2) MATCHING CONTRIBUTION RULE.—Clause 

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

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

4 401(m)(11)’’. 

5 (d) DEFINITION OF COMPENSATION.—

6 (1) BASE PAY OR RATE OF PAY.—The Sec7 retary of the Treasury shall, by no later than De8 cember 31, 2006, modify Treasury Regulation sec9 tion 1.414(s)–1(d)(3) to facilitate the use of the safe 

10 harbors in sections 401(k)(12), 401(k)(13), 

11 401(m)(11), and 401(m)(12) of the Internal Rev12 enue Code of 1986, and in Treasury Regulation sec13 tion 1.401(a)(4)–3(b) by plans that use base pay or 

14 rate of pay in determining contributions or benefits. 

15 Such facilitation shall include increased flexibility in 

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

17 where the amount of overtime compensation payable 

18 in a year can vary significantly. 

19 (2) APPLICATION OF REQUIREMENTS TO SEPA20 RATE PAYROLL PERIODS.—Not later than December 

21 31, 2005, the Secretary of the Treasury shall issue 

22 rules under subparagraphs (B)(i) and (D)(i) of sec23 tion 401(k)(13) of such Code and under clause (i) 

24 of section 401(m)(12)(A) of such Code that, effec25 tive for plan years beginning after December 31, 
59

•HR 1960 IH 

1 2005, permit such requirements to be applied sepa2 rately to separate payroll periods based on rules 

3 similar to the rules described in Treasury Regulation 

4 sections 1.401(k)–3(c)(5)(ii) and 1.401(m)–3(d)(4). 

5 (e) SECTION 403(b) CONTRACTS.—Paragraph (11) of 

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

7 end the following: 

8 ‘‘(C) SECTION 403(b) CONTRACTS.—An 

9 annuity contract under section 403(b) shall be 

10 treated as meeting the requirements of para11 graph (2) with respect to matching contribu12 tions if such contract meets requirements simi13 lar to the requirements under subparagraph 

14 (A).’’. 

15 (f) INVESTMENTS AND PREEMPTION.—

16 (1) CONTROL DEEMED TO HAVE BEEN EXER17 CISED WITH RESPECT TO AMOUNT OF AUTOMATIC

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

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

20 1104(c)) (as amended by this Act) is amended by 

21 adding at the end the following new paragraphs: 

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

23 shall, for purposes of paragraph (1), be treated as exer24 cising control over the assets in the account with respect 
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•HR 1960 IH 

1 to the amount of contributions made under an automatic 

2 contribution arrangement. 

3 ‘‘(B) For purposes this paragraph, the term ‘auto4 matic contribution arrangement’ means an arrangement—

5 ‘‘(i) which meets the requirements of subpara6 graph (C), 

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

8 have the employer make payments as contributions 

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

10 participant directly in cash, 

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

12 having elected to have the employer make such con13 tributions in an amount equal to a specified percent14 age of compensation provided under the plan until 

15 the participant affirmatively elects not to have such 

16 contributions made (or affirmatively elects to have 

17 such contributions made at a different percentage), 

18 and 

19 ‘‘(iv) under which contributions described in 

20 clause (iii) are invested in accordance with regula21 tions prescribed by the Secretary, which regulations 

22 shall provide for the investment of the contributions 

23 in one or more diversified funds that include invest24 ments that provide long-term capital appreciation 

25 and investments that provide preservation of capital. 
61

•HR 1960 IH 

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

2 plan shall, within a reasonable period before each plan 

3 year, give to each employee to whom an automatic con4 tribution arrangement applies for such plan year notice 

5 of the employee’s rights and obligations under the ar6 rangement which—

7 ‘‘(I) is sufficiently accurate and comprehensive 

8 to apprise the employee of such rights and obliga9 tions, and 

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

11 understood by the average employee to whom the ar12 rangement applies. 

13 ‘‘(ii) A notice shall not be treated as meeting the re14 quirements of clause (i) with respect to an employee un15 less—

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

17 employee’s right under the arrangement to elect not 

18 to have elective contributions made on the employ19 ee’s behalf (or to elect to have such contributions 

20 made at a different percentage), 

21 ‘‘(II) 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 and 
62

•HR 1960 IH 

1 ‘‘(III) the employee has a reasonable period of 

2 time after receipt of the notice described in sub3 clauses (I) and (II) and before the first elective con4 tribution is made to make either such election. 

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

6 shall, for purposes of paragraph (1), be treated as exer7 cising control over the assets in the account with respect 

8 to contributions described in subparagraph (B). 

9 ‘‘(B) Contributions are described in this subpara10 graph (B) if—

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

12 paragraph (5), 

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

14 rules similar to the rules of paragraph (5)(C) (ex15 cept that the notice shall relate to the employee’s 

16 right to make a different investment election), and 

17 ‘‘(iii) such contributions are invested pursuant 

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

19 (2) PREEMPTION OF CONFLICTING STATE REG20 ULATION.—Section 514(b) of such Act (29 U.S.C. 

21 1144(b)) is amended—

22 (A) by redesignating paragraph (9) as 

23 paragraph (10); and 

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

25 following new paragraph: 
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•HR 1960 IH 

1 ‘‘(9) Notwithstanding any other provision of this sec2 tion, any law of a State which would directly or indirectly 

3 prohibit or restrict the inclusion in any plan of an auto4 matic contribution arrangement (as defined in section 

5 404(c)(5)(B)) shall be superseded. The Secretary may 

6 prescribe regulations which would establish minimum 

7 standards that such arrangements would be required to 

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

9 (g) CORRECTIVE DISTRIBUTIONS.—

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

11 Revenue Code of 1986 (relating to definitions and 

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

13 following new subsection: 

14 ‘‘(bb) AUTOMATIC CONTRIBUTION ARRANGE15 MENTS.—

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

17 the amount of any corrective distribution from a 

18 plan shall be treated as if such amount had never 

19 been held in such plan and shall be treated as a pay20 ment of compensation from the employer maintain21 ing the plan to the employee receiving such distribu22 tion. 

23 ‘‘(2) CORRECTIVE DISTRIBUTION.—For pur24 poses of this subsection, the term ‘corrective dis25 tribution’ means a distribution from an applicable 
64

•HR 1960 IH 

1 employer plan of all amounts attributable to an erro2 neous automatic contribution. 

3 ‘‘(3) ERRONEOUS AUTOMATIC CONTRIBU4 TION.—For purposes of this subsection, the term 

5 ‘erroneous automatic contribution’ means an elective 

6 contribution made on behalf of an employee under 

7 any applicable employer plan pursuant to a plan pro8 vision treating the employee as having elected to 

9 have the employer make such elective contribution 

10 until the employee affirmatively elects not to have 

11 such contribution made or affirmatively elects to 

12 make contributions at a specified level, if the fol13 lowing requirements are satisfied—

14 ‘‘(A) within the applicable period, the em15 ployee notifies the plan administrator that the 

16 employee elects to have the elective contribution 

17 treated as an erroneous automatic contribution, 

18 and 

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

20 that are treated as erroneous automatic con21 tributions with respect to an employee does not 

22 exceed $500. 

23 ‘‘(4) APPLICABLE EMPLOYER PLAN.—For pur24 poses of this subsection, the term ‘applicable em25 ployer plan’ has the meaning described in subsection 
65

•HR 1960 IH 

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

2 eligible deferred compensation plan maintained by 

3 an eligible employer described in section 

4 457(e)(1)(B). 

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

6 this subsection, with respect to an employee, the 

7 term ‘applicable period’ means the three month pe8 riod that begins on the first date that an amount is 

9 withheld from compensation payable to the employee 

10 in order to make a plan contribution pursuant to a 

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

12 (2) VESTING CONFORMING AMENDMENTS.—

13 (A) INTERNAL REVENUE CODE OF 1986.—

14 (i) Section 411(a)(3)(G) of such Code 

15 is amended by inserting ‘‘an erroneous 

16 automatic contribution under section 

17 414(bb),’’ after ‘‘402(g)(2)(A),’’. 

18 (ii) The heading of section 

19 411(a)(3)(G) of such Code is amended by 

20 inserting ‘‘OR ERRONEOUS AUTOMATIC

21 CONTRIBUTION’’ before the period. 

22 (iii) Section 401(k)(8)(E) of such 

23 Code is amended by inserting ‘‘an erro24 neous automatic contribution under section 

25 414(bb),’’ after ‘‘402(g)(2)(A),’’. 
66

•HR 1960 IH 

1 (iv) The heading of section 

2 401(k)(8)(E) of such Code is amended by 

3 inserting ‘‘OR ERRONEOUS AUTOMATIC

4 CONTRIBUTION’’ before the period. 

5 (B) EMPLOYEE RETIREMENT INCOME SE6 CURITY ACT OF 1974.—Section 203(a)(3)(F) of 

7 the Employee Retirement Income Security Act 

8 of 1974 (29 U.S.C. 1053(a)(3)(F)) is amended 

9 by inserting ‘‘an erroneous automatic contribu10 tion under section 414(bb) of such Code,’’ after 

11 ‘‘402(g)(2)(A) of such Code,’’. 

12 (h) EFFECTIVE DATE.—

13 (1) IN GENERAL.—Except as provided by para14 graph (2), the amendments made by this section 

15 shall apply to plan years beginning after December 

16 31, 2005. 

17 (2) SECTION 403(b) CONTRACTS.—The amend18 ments made by subsection (e) shall apply to years 

19 beginning after December 31, 1998. 

20 (3) REGULATIONS.—Final regulations under 

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

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

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

24 of enactment of this Act. 
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1 SEC. 210. FACILITATING LONGEVITY INSURANCE. 

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

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

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

5 following new subparagraph: 

6 ‘‘(I) LONGEVITY INSURANCE.—

7 ‘‘(i) IN GENERAL.—For purposes of 

8 this paragraph, any value attributable to 

9 longevity insurance shall be disregarded in 

10 determining the value of an employee’s in11 terest under a plan prior to the first date 

12 that payments are made under the lon13 gevity insurance. 

14 ‘‘(ii) LONGEVITY INSURANCE DE15 FINED.—For purposes of this subpara16 graph, the term ‘longevity insurance’ 

17 means an annuity payable on behalf of the 

18 employee under which—

19 ‘‘(I) payments commence not 

20 later than 12 months following the 

21 calendar month in which the employee 

22 attains age 85 (or would have at23 tained age 85), 

24 ‘‘(II) payments are made in sub25 stantially equal periodic payments 

26 (not less frequently than annually) 
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•HR 1960 IH 

1 over the life of the employee or the 

2 joint lives of the employee and the 

3 employee’s designated beneficiary, 

4 taking into account the rules of clause 

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

6 as otherwise provided in subclause 

7 (III), 

8 ‘‘(III) prior to the death of the 

9 employee, the annuity does not make 

10 available any commutation benefit, 

11 cash surrender value, or other similar 

12 feature, and 

13 ‘‘(IV) except as provided in rules 

14 prescribed by the Secretary, in the 

15 case of an employee’s death prior to 

16 the date that payments commence, the 

17 value of any death benefits paid may 

18 not exceed the premiums paid for 

19 such annuity, plus interest com20 pounded annually at 3 percent. 

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

22 of clause (ii)(I), the Secretary shall annu23 ally increase age 85 to reflect increases in 

24 life expectancy (as determined by the Sec25 retary) that occur on or after January 1, 
69

•HR 1960 IH 

1 2006, except that any such increased age 

2 which is not a whole number shall be 

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

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

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

6 shall prescribe rules under which all or a portion of a par7 ticipant’s benefits under any plan described in section 

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

9 be treated as longevity insurance under the rules of section 

10 401(a)(9)(I) of such Code. 

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

12 this section shall apply to years beginning after December 

13 31, 2006. 

14 SEC. 211. DIRECT PAYMENT OF TAX REFUNDS TO INDI15 VIDUAL RETIREMENT PLANS. 

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

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

18 as follows: 

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

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

21 subparagraph (B), for purposes of this sub22 section, a taxpayer shall be deemed to have 

23 made a contribution to an individual retirement 

24 plan on the last day of the preceding taxable 

25 year if the contribution is made on account of 
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•HR 1960 IH 

1 such taxable year and is made not later than 

2 the time prescribed by law for filing the return 

3 for such taxable year (not including extensions 

4 thereof). 

5 ‘‘(B) DIRECT PAYMENT OF TAX REFUNDS

6 TO INDIVIDUAL RETIREMENT PLANS.—

7 ‘‘(i) IN GENERAL.—To the extent pro8 vided in rules prescribed by the Secretary, 

9 a tax refund owed to a taxpayer and paid 

10 directly to an individual retirement plan 

11 shall be deemed a contribution made by 

12 the taxpayer—

13 ‘‘(I) on the last day of the tax14 able year to which such refund re15 lates, and 

16 ‘‘(II) on account of the taxable 

17 year to which such refund relates. 

18 ‘‘(ii) LIMITATION.—This subpara19 graph (B) shall not apply to a tax refund 

20 unless such refund is shown on a return 

21 filed not later than the time prescribed by 

22 law for filing the return for the taxable 

23 year to which such refund relates (not in24 cluding extensions thereof). 
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1 ‘‘(iii) DIRECT PAYMENT.—For pur2 poses of this subparagraph, a tax refund is 

3 paid directly to an individual retirement 

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

5 transfer from the Secretary to the trustee 

6 or issuer of the individual retirement plan. 

7 ‘‘(iv) TAX REFUND.—For purposes of 

8 this subparagraph, the term ‘tax refund’ 

9 means a refund of an internal revenue tax 

10 or credit.’’. 

11 (b) REGULATIONS.—

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

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

14 the Treasury shall issue rules which permit a tax15 payer—

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

17 a tax refund owed to the taxpayer paid directly 

18 to an RSA, or, if the Secretary determines that 

19 such direct payments are reasonably admin20 istrable, to individual retirement plans which 

21 are not RSAs, 

22 (B) to specify the individual retirement 

23 plan to which such tax refund is to be paid 

24 (and the investment option in which such tax 

25 refund is to be invested), and 
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•HR 1960 IH 

1 (C) to the extent provided in rules pre2 scribed by the Secretary, to specify the taxable 

3 year on account of which such payment is 

4 made, 

5 except that the Secretary may require that the 

6 amount subject to such an election exceed a dollar 

7 threshold determined by the Secretary as necessary 

8 or appropriate to ensure the administrability of such 

9 elections. 

10 (2) INFORMATION.—The Secretary may require 

11 that the taxpayer provide, and agree to the disclo12 sure of, any information necessary to pay the tax re13 fund to the individual retirement plan specified by 

14 the taxpayer. 

15 (3) SPECIAL RULE.—The Secretary may pro16 vide that if, for any reason, the trustee or issuer 

17 does not accept payment of a tax refund, the tax re18 fund shall instead be paid as if the taxpayer had not 

19 elected a direct payment to an individual retirement 

20 plan. 

21 (c) CONFORMING AMENDMENTS.—

22 (1) Paragraph (3) of section 408(o) of the In23 ternal Revenue Code of 1986 is amended by striking 

24 ‘‘rule’’ and inserting ‘‘rules’’. 
73

•HR 1960 IH 

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

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

3 ‘‘rules’’. 

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

5 this section shall be effective for tax returns filed after 

6 final rules implementing the amendments made by this 

7 section are prescribed. 

8 SEC. 212. TREATMENT OF QUALIFIED RETIREMENT PLAN9 NING SERVICES. 

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

11 the Internal Revenue Code of 1986 (defining qualified re12 tirement services) is amended by adding at the end the 

13 following new paragraph: 

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

15 shall be included in the gross income of any em16 ployee solely because the employee may choose be17 tween any qualified retirement planning services pro18 vided by a qualified investment advisor and com19 pensation which would otherwise be includible in the 

20 gross income of such employee. The preceding sen21 tence shall apply to highly compensated employees 

22 only if the choice described in such sentence is avail23 able on substantially the same terms to each mem24 ber of the group of employees normally provided 
74

•HR 1960 IH 

1 education and information regarding the employer’s 

2 qualified employer plan.’’. 

3 (b) CONFORMING AMENDMENTS.—

4 (1) Section 403(b)(3)(B) of such Code is 

5 amended by inserting ‘‘132(m)(4),’’ after 

6 ‘‘132(f)(4),’’. 

7 (2) Section 414(s)(2) of such Code is amended 

8 by inserting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

9 (3) Section 415(c)(3)(D)(ii) of such Code is 

10 amended by inserting ‘‘132(m)(4),’’ after 

11 ‘‘132(f)(4),’’. 

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

13 this section shall apply to taxable years beginning after 

14 December 31, 2005. 

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

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

17 of the Internal Revenue Code of 1986 (relating to limita18 tions on deductions where combination of defined con19 tribution plan and defined benefit plan) is amended by 

20 adding at the end the following: 

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

22 not apply to contributions by any employer if 

23 such employer or any member of such employ24 er’s controlled group (within the meaning of 

25 section 412(l)(8)(C)) maintains a defined ben-
75

•HR 1960 IH 

1 efit plan that is covered by title IV of the Em2 ployee Retirement Income Security Act of 

3 1974.’’. 

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

5 this section shall apply to contributions for taxable years 

6 beginning after December 31, 2005. 

7 TITLE III—EXPANDING SMALL 

8 BUSINESS RETIREMENT PLAN 

9 COVERAGE AND MAKING THE 

10 ELECTIVE DEFERRAL RULES 

11 SIMPLER AND MORE UNI12 FORM 

13 SEC. 301. ALLOW ADDITIONAL NONELECTIVE CONTRIBU14 TIONS TO SIMPLE PLANS. 

15 (a) IN GENERAL.—

16 (1) MODIFICATION TO DEFINITION.—Subpara17 graph (A) of section 408(p)(2) of the Internal Rev18 enue Code of 1986 (defining qualified salary reduc19 tion arrangement) is amended by striking ‘‘and’’ at 

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

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

22 following new clause: 

23 ‘‘(iv) the employer may make nonelec24 tive contributions of a uniform percentage 

25 (up to 10 percent) of compensation for 
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1 each employee who is eligible to participate 

2 in the arrangement and who has at least 

3 $5,000 of compensation from the employer 

4 for the year, and’’. 

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

6 408(p)(2) of such Code (defining qualified salary re7 duction arrangement) is amended by adding at the 

8 end the following: ‘‘The compensation taken into ac9 count under clause (iv) for any year shall not exceed 

10 the limitation in effect for such year under section 

11 401(a)(17).’’. 

12 (b) CONFORMING AMENDMENTS.—

13 (1) Section 408(p)(2)(A)(v) of such Code, as re14 designated by subsection (a), is amended by striking 

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

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

17 Code is amended by inserting ‘‘, the employer con18 tribution actually made under paragraph (2)(A)(iv) 

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

20 this subsection’’. 

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

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

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

24 (IV), and by inserting after subclause (II) the fol25 lowing new subclause: 
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•HR 1960 IH 

1 ‘‘(III) the employer may make 

2 nonelective contributions of a uniform 

3 percentage (up to 10 percent) of com4 pensation for each employee who is el5 igible to participate in the arrange6 ment and who has at least $5,000 of 

7 compensation from the employer for 

8 the year, and’’

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

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

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

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

13 this section shall apply to years beginning after December 

14 31, 2005. 

15 SEC. 302. CONFORM MATCHING CONTRIBUTION RULES FOR 

16 SIMPLE IRAS AND SIMPLE 401(k)S. 

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

18 401(k)(11)(B)(i) of the Internal Revenue Code of 1986 

19 (relating to general rule for contribution requirements) is 

20 amended by striking ‘‘3 percent’’ and inserting ‘‘the appli21 cable percentage (as defined in section 408(p)(2)(C)(ii))’’. 

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

23 this section shall apply to years beginning after December 

24 31, 2005. 
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1 SEC. 303. UNIFORM CATCH-UP CONTRIBUTION RULE. 

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

3 414(v)(6)(A) of the Internal Revenue Code of 1986 is 

4 amended to read as follows: 

5 ‘‘(iii) an eligible deferred compensa6 tion plan (as defined in section 457(b)), 

7 and’’. 

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

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

10 who is a participant in an eligible deferred compensation 

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

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

13 this section shall apply to years beginning after December 

14 31, 2005. 

15 SEC. 304. UNIFORM DEFINITION OF COMPENSATION. 

16 (a) COMPENSATION.—

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

18 415(c)(3) of the Internal Revenue Code of 1986 is 

19 amended to read as follows: 

20 ‘‘(A) IN GENERAL.—The term ‘partici21 pant’s compensation’ means wages (as defined 

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

23 compensation to an employee by his employer 

24 (in the course of the employer’s trade or busi25 ness) for the year for which the employer is re26 quired to furnish the employee a written state-
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•HR 1960 IH 

1 ment under section 6041(d), 6051(a)(3), or 

2 6052. In accordance with rules prescribed by 

3 the Secretary, compensation shall be deter4 mined without regard to any rules under section 

5 3401(a) that limit the remuneration included in 

6 wages based on the nature or location of the 

7 employment or the services performed.’’. 

8 (2) CERTAIN PICKED UP CONTRIBUTIONS.—

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

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

11 (i), redesignating clause (ii) as clause (iii), and in12 serting after clause (i) the following: 

13 ‘‘(ii) any employee contributions that 

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

15 and’’. 

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

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

18 as follows: 

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

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

21 the election of the employer maintaining the ar22 rangement, the term ‘participant’s compensa23 tion’ shall not be determined for the year but 

24 shall be determined for the most recent period 

25 (ending not later than the close of the year) 
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1 which constitutes a year of service and which 

2 precedes the year by no more than five years. 

3 For purposes of the preceding sentence, under 

4 rules prescribed by the Secretary, a year of 

5 service shall be a full year of full-time service 

6 as an employee (or a combination of more than 

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

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

9 415(c) of such Code is amended by striking ‘‘For 

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

11 purposes of this section—’’. 

12 (b) 403(b) PLANS.—

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

14 403 of such Code is amended by striking paragraphs 

15 (3) and (4). 

16 (2) CONFORMING AMENDMENTS.—

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

18 414(e)(5)(B) of such Code are amended to read 

19 as follows: 

20 ‘‘(i) the minister’s compensation 

21 under section 415(c)(3) shall be deter22 mined by reference to the minister’s earned 

23 income (within the meaning of section 

24 401(c)(2)) from such ministry rather than 
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1 the amount of compensation which is re2 ceived from an employer, and 

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

4 in which such minister was a self-employed 

5 individual (within the meaning of section 

6 401(c)(1)(B)) with respect to such min7 istry shall be included for purposes of sec8 tion 415(c)(3)(E).’’. 

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

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

11 415(c)(3),’’ and inserting ‘‘415(c)(3)’’. 

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

13 of such Code is amended by striking ‘‘includible 

14 compensation determined under section 

15 403(b)(3)’’ and inserting ‘‘compensation deter16 mined under section 415(c)(3)’’. 

17 (c) SIMPLIFIED EMPLOYEE PENSIONS.—Subpara18 graph (A) of section 402(h)(2) of such Code is amended 

19 to read as follows: 

20 ‘‘(A) 25 percent of the compensation (with21 in the meaning of section 415(c)(3), except that 

22 for purposes of this subsection, amounts de23 scribed in section 6051(a)(3) shall be deter24 mined without regard to section 3401(a)(3)) 

25 from such employer for the year, or’’. 
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1 (d) SIMPLE PLANS.—Subparagraph (A) of section 

2 408(p)(6) of such Code is amended to read as follows: 

3 ‘‘(A) COMPENSATION.—The term ‘com4 pensation’ has the same meaning as the term 

5 ‘participant’s compensation’ (as defined in sec6 tion 415(c)(3)), except that for purposes of this 

7 subsection, amounts described in section 

8 6051(a)(3) shall be determined without regard 

9 to section 3401(a)(3).’’. 

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

11 this section shall apply to years beginning after December 

12 31, 2005. 

13 SEC. 305. UNIFORM WITHDRAWAL RULES. 

14 (a) IN GENERAL.—Section 414 of the Internal Rev15 enue Code of 1986 is amended by adding at the end the 

16 following: 

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

18 part—

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

20 event’ means with respect to a participant—

‘‘(A) attainment of age 591 21 ⁄2, 

22 ‘‘(B) death, 

23 ‘‘(C) disability (within the meaning of sec24 tion 72(m)(7)), 

25 ‘‘(D) severance from employment, 
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•HR 1960 IH 

1 ‘‘(E) hardship, or 

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

3 establishment or maintenance of a successor 

4 plan (other than an employee stock ownership 

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

6 ‘‘(2) SPECIAL RULES.—

7 ‘‘(A) Subparagraphs (A) and (E) of para8 graph (1) shall not apply to a defined contribu9 tion plan to which section 412 applies. 

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

11 amounts described in clauses (i) or (ii) of sec12 tion 415(c)(3)(D) (without regard to earnings 

13 attributable to such amounts). 

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

15 a plan described in subsection (v)(6)(A)(ii) un16 less the employer maintaining such plan elects 

17 to maintain the plan pursuant to a plan docu18 ment. Under rules prescribed by the Secretary, 

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

20 be treated as terminated without regard to 

21 whether all assets of the plan are distributed. 

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

23 to an employee unless the employee receives a 

24 lump sum distribution by reason of the termi25 nation. 
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1 ‘‘(ii) For purposes of this subparagraph, 

2 the determination of whether a distribution is a 

3 lump sum distribution shall be made under sec4 tion 402(e)(4)(D) (without regard to subclauses 

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

6 or, in the case of plans not described in such 

7 section, under similar rules. Such term includes 

8 a distribution that consists in whole or in part 

9 of an annuity contract.’’. 

10 (b) 401(k) PLANS.—

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

12 Code is amended to read as follows: 

13 ‘‘(i) may not be distributable to par14 ticipants or other beneficiaries earlier than 

15 the occurrence of a distributable event, 

16 and’’. 

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

18 striking paragraph (10). 

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

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

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

22 ‘hardship distribution’ means a distribution de23 scribed in section 414(w)(1)(E) (taking section 

24 414(w)(2)(B) into account but without regard to 

25 section 414(w)(2)(A)). 
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1 (c) 403(b) PLANS.—

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

3 Code is amended to read as follows: 

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

5 such amounts may be paid or made avail6 able to any distributee before the occur7 rence of a distributable event.’’. 

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

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

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

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

12 (d) ELIGIBLE DEFERRED COMPENSATION PLANS.—

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

14 such Code is amended to read as follows: 

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

16 made available to participants or beneficiaries 

17 earlier than the occurrence of a distributable 

18 event,’’. 

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

20 Code is amended to read as follows: 

21 ‘‘(1) IN GENERAL.—Any amount of compensa22 tion deferred under an eligible deferred compensa23 tion plan, and any income attributable to the 

24 amounts so deferred, shall be includible in gross in25 come only for the taxable year in which such com-
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•HR 1960 IH 

1 pensation or other income is paid to the participant 

2 or other beneficiary.’’. 

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

4 is amended by striking paragraph (3). 

5 (4) Paragraph (9) of section 457(e) of such 

6 Code is amended to read as follows: 

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

8 AVAILABLE BY REASON OF CERTAIN ELECTIONS.—

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

10 amount payable to a participant under an eligible 

11 deferred compensation plan shall not be treated as 

12 made available merely because the participant may 

13 elect to receive such amount (or the plan may dis14 tribute such amount without the participant’s con15 sent) if—

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

17 not attributable to rollover contributions (as de18 fined in section 411(a)(11)(D)) does not exceed 

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

20 and 

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

22 if—

23 ‘‘(i) no amount has been deferred 

24 under the plan with respect to such partici-
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1 pant during the 2-year period ending on 

2 the date of the distribution, and 

3 ‘‘(ii) there has been no prior distribu4 tion under the plan to such participant to 

5 which this subparagraph applied.’’. 

6 (e) HARDSHIP DEFINITION.—

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

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

9 Treasury shall issue rules under which, except as 

10 provided in paragraph (2), the determination of 

11 whether a participant has had a hardship for pur12 poses of section 414(w)(1)(E) of the Internal Rev13 enue Code of 1986 shall be made pursuant to Treas14 ury Regulation section 1.401(k)–1(d)(3), as such 

15 section is amended from time to time by the Sec16 retary. 

17 (2) BENEFICIARIES.—Within 180 days after 

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

19 the Treasury shall modify the rules for determining 

20 whether a participant has had a hardship for pur21 poses of section 414(w)(1)(E) of such Code. Pursu22 ant to such modification, any event, such as a med23 ical expense, that would constitute a hardship if it 

24 occurred with respect to a participant’s spouse or 

25 dependent (as defined in section 152 of such Code) 
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•HR 1960 IH 

1 shall, to the extent permitted under a plan, con2 stitute a hardship if it occurs with respect to a per3 son who is a beneficiary with respect to the partici4 pant under the plan. 

5 (f) EFFECTIVE DATE.—

6 (1) IN GENERAL.—Except as provided in para7 graph (2), the amendments made by this section 

8 shall apply to years beginning after December 31, 

9 2005. 

10 (2) SPECIAL RULE.—In the case of amounts at11 tributable to contributions to an eligible deferred 

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

13 the Internal Revenue Code of 1986) made before the 

14 first day of the first year beginning after December 

15 31, 2005, withdrawals of such amounts from such a 

16 plan may be permitted upon unforeseeable emer17 gency (as defined under section 457(d)(1)(A)(iii) of 

18 such Code, as in effect on the day before the enact19 ment of this Act). 

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

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

22 408(k)(3) of the Internal Revenue Code of 1986 (relating 

23 to contributions must bear uniform relationship to total 

24 compensation) is amended by inserting before the period 

25 at the end the following: ‘‘or unless such contributions are 
89

•HR 1960 IH 

1 a uniform dollar amount on behalf of each such em2 ployee.’’. 

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

4 this section shall apply to years beginning after December 

5 31, 2005. 

6 SEC. 307. TAX TREATMENT OF CERTAIN NONTRADE OR 

7 BUSINESS SEP CONTRIBUTIONS. 

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

9 4972(c)(6) of the Internal Revenue Code of 1986 (relating 

10 to exceptions) is amended—

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

12 ‘‘408(p),’’, and 

13 (2) by inserting after ‘‘401(k)(11))’’ the fol14 lowing: ‘‘, or a simplified employee pension (within 

15 the meaning of section 408(k))’’. 

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

17 this section shall apply to years beginning after December 

18 31, 2005. 

19 SEC. 308. UNIFORM AVAILABILITY OF DESIGNATED RSA 

20 CONTRIBUTIONS. 

21 (a) IN GENERAL.—Paragraph (1) of section 402A(e) 

22 of the Internal Revenue Code of 1986 is amended by strik23 ing ‘‘and’’ at the end of subparagraph (A), by striking 

24 the period at the end of subparagraph (B) and inserting 
90

•HR 1960 IH 

1 ‘‘, and’’, and by adding at the end the following subpara2 graphs: 

3 ‘‘(C) an eligible deferred compensation 

4 plan under section 457 of an eligible employer 

5 described in section 457(e)(1)(A), and 

6 ‘‘(D) an annuity plan described in section 

7 403(a).’’. 

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

9 this section shall apply to taxable years beginning after 

10 December 31, 2005. 

11 SEC. 309. ALLOW CERTAIN PLAN TRANSFERS AND MERG12 ERS. 

13 (a) AMENDMENT TO THE INTERNAL REVENUE CODE

14 OF 1986.—

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

16 Revenue Code of 1986 (relating to definitions and 

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

18 following new subsection: 

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

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

21 the Secretary, no amount shall be includible in gross 

22 income by reason of—

23 ‘‘(A) a transfer of all or a portion of the 

24 account balance of a participant or beneficiary, 

25 whether or not vested, from a defined contribu-
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1 tion plan described in section 401(a) or section 

2 403(a) of an employer to an annuity contract 

3 described in section 403(b) of the same em4 ployer, 

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

6 account balance of a participant or beneficiary, 

7 whether or not vested, from an annuity contract 

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

9 defined contribution plan described in section 

10 401(a) or section 403(a) of the same employer, 

11 or 

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

13 plan described in section 401(a) or section 

14 403(a) of an employer with an annuity contract 

15 described in section 403(b) of the same em16 ployer, 

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

18 reduction in the vested benefit or total benefit (in19 cluding non-vested benefit) of any participant or 

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

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

22 403(a), or 403(b) (as applicable) merely because 

23 such plan or contract engages in a transfer or merg24 er described in this paragraph. 
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•HR 1960 IH 

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

2 merged pursuant to paragraph (1) shall be subject 

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

4 to the distribution requirements under sections 

5 401(a), 403(a), or 403(b) applicable to the trans6 feree or merged plan. 

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

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

9 described in paragraph (1), amounts in the trans10 feree or merged plan that are attributable to the 

11 transferor or predecessor plan shall—

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

13 section 205 of the Employee Retirement Income 

14 Security Act of 1974 to the extent that such 

15 sections applied to such amounts in the trans16 feror or predecessor plan, or 

17 ‘‘(ii) be required to satisfy the require18 ments of section 401(a)(11)(B)(iii)(I) or section 

19 205(b)(1)(C)(i) of the Employee Retirement In20 come Security Act of 1974 to the extent that 

21 such sections applied to such amounts in the 

22 transferor or predecessor plan, and 

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

24 411(d)(6) and section 204(g) of the Employee 

25 Retirement Income Security Act of 1974 to the 
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•HR 1960 IH 

1 extent that such amounts were subject to such 

2 sections in the transferor or predecessor plan. 

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

4 by the Secretary, to the extent amounts transferred 

5 or merged pursuant to paragraph (1) were otherwise 

6 entitled to grandfather treatment under the trans7 feror or predecessor plan, such amounts (and income 

8 or loss attributable thereto) shall remain entitled to 

9 such treatment under the transferee or merged plan. 

10 The rules prescribed by the Secretary shall require 

11 that such amounts be separately accounted for by 

12 the transferee or merged plan. For purposes of this 

13 paragraph, ‘grandfather treatment’ shall mean spe14 cial treatment under the Internal Revenue Code of 

15 1986 that is provided for prior benefits, prior peri16 ods of time, or certain individuals in connection with 

17 a change in the applicable law. 

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

19 described in section 401(a) or 403(a) and an annu20 ity contract described in section 403(b) with respect 

21 to which transfers may be made only with the con22 sent of a participant or beneficiary pursuant to the 

23 terms of such trust or contract or pursuant to appli24 cable law, such consent requirement shall apply 

25 without regard to this subsection. Nothing in this 
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1 subsection shall affect the application of contract or 

2 plan terms otherwise applicable in the case of a 

3 withdrawal from the contract or plan.’’. 

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

5 414(t) of such Code is amended by inserting 

6 ‘‘414(x),’’ after ‘‘274(j),’’. 

7 (b) AMENDMENT TO THE EMPLOYEE RETIREMENT

8 INCOME SECURITY ACT OF 1974.—Section 4 of the Em9 ployee Retirement Income Security Act of 1974 (29 

10 U.S.C. 1003) is amended by adding at the end the fol11 lowing new subsection: 

12 ‘‘(d) This title shall apply to any plan or contract de13 scribed in section 414(x) of the Internal Revenue Code 

14 of 1986 to the extent necessary to comply with the re15 quirements of such section.’’. 

16 (c) EFFECTIVE DATE.—

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

18 this section shall apply to transfers or mergers in 

19 years beginning after the Secretary of the Treasury 

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

21 Revenue Code of 1986. 

22 (2) RULES.—The Secretary of the Treasury 

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

24 Code of 1986 within 1 year after the date of enact25 ment of this Act. 
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1 TITLE IV—EXPANDING RETIRE2 MENT SAVINGS FOR TAX-EX3 EMPT ORGANIZATION AND 

4 GOVERNMENT EMPLOYEES 

5 SEC. 401. WAIVER OF 10 PERCENT EARLY WITHDRAWAL 

6 PENALTY TAX ON CERTAIN DISTRIBUTIONS 

7 OF PENSION PLANS FOR PUBLIC SAFETY EM8 PLOYEES. 

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

10 Internal Revenue Code of 1986 (relating to subsection not 

11 to apply to certain distributions) is amended by adding 

12 at the end the following new paragraph: 

13 ‘‘(10) DISTRIBUTIONS TO QUALIFIED PUBLIC

14 SAFETY EMPLOYEES IN GOVERNMENTAL PLANS.—

15 ‘‘(A) IN GENERAL.—In the case of a dis16 tribution to a qualified public safety employee 

17 from a governmental plan (within the meaning 

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

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

20 substituting ‘age 50’ for ‘age 55’. 

21 ‘‘(B) QUALIFIED PUBLIC SAFETY EM22 PLOYEE.—For purposes of this paragraph, the 

23 term ‘qualified public safety employee’ means 

24 any employee of a State or political subdivision 

25 of a State who provides police protection, fire-
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•HR 1960 IH 

1 fighting services, or emergency medical services 

2 for any area within the jurisdiction of such 

3 State or political subdivision.’’. 

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

5 this section shall apply to distributions after the date of 

6 the enactment of this Act. 

7 SEC. 402. CLARIFICATIONS REGARDING PURCHASE OF PER8 MISSIVE SERVICE CREDIT. 

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

10 457(e)(17) of the Internal Revenue Code of 1986 (relating 

11 to trustee-to-trustee transfers to purchase permissive serv12 ice credit), and subparagraph (A) of section 403(b)(13) 

13 of such Code (relating to trustee-to-trustee transfers to 

14 purchase permissive service credit), are both amended by 

15 striking ‘‘section 415(n)(3)(A)’’ and inserting ‘‘section 

16 415(n)(3) (without regard to subparagraphs (B) and (C) 

17 thereof)’’. 

18 (b) DISTRIBUTION REQUIREMENTS.—Section 

19 457(e)(17) and section 403(b)(13) of such Code are both 

20 amended by adding at the end the following sentence: 

21 ‘‘Amounts transferred under this paragraph shall be dis22 tributed solely in accordance with section 401(a) as appli23 cable to such defined benefit plan.’’. 

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

25 415(n)(3)(A) of such Code is amended to read as follows: 
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•HR 1960 IH 

1 ‘‘(ii) which relates to benefits with re2 spect to which such participant is not oth3 erwise entitled, and’’. 

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

5 this section shall take effect as if included in the amend6 ments made by section 647 of the Economic Growth and 

7 Tax Relief Reconciliation Act of 2001. 

8 SEC. 403. ELIGIBILITY FOR PARTICIPATION IN RETIRE9 MENT PLANS. 

10 An individual shall not be precluded from partici11 pating in an eligible deferred compensation plan by reason 

12 of having received a distribution under section 457(e)(9) 

13 of the Internal Revenue Code of 1986, as in effect prior 

14 to the enactment of the Small Business Job Protection 

15 Act of 1996. 

16 SEC. 404. CLARIFICATION OF MINIMUM DISTRIBUTION 

17 RULES. 

18 The Secretary of the Treasury shall issue regulations 

19 under which a governmental plan (as defined in section 

20 414(d) of the Internal Revenue Code of 1986) shall, for 

21 all years to which section 401(a)(9) of such Code applies 

22 to such plan, be treated as having complied with such sec23 tion 401(a)(9) if such plan complies with a reasonable 

24 good faith interpretation of such section 401(a)(9). 
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1 SEC. 405. CHURCH PLAN RULE. 

2 (a) IN GENERAL.—Paragraph (11) of section 415(b) 

3 of the Internal Revenue Code of 1986 is amended by add4 ing at the end the following: ‘‘Subparagraph (B) of para5 graph (1) shall not apply to a plan maintained by an orga6 nization described in section 3121(w)(3) except with re7 spect to highly compensated benefits. For purposes of this 

8 paragraph, the term ‘highly compensated benefits’ means 

9 any benefits accrued for an employee in any year on or 

10 after the first year in which such employee is a highly com11 pensated employee (as defined in section 414(q)) of the 

12 organization described in section 3121(w)(3). For pur13 poses of applying paragraph (1)(B) to highly compensated 

14 benefits, all benefits of the employee otherwise taken into 

15 account (without regard to this paragraph) shall be taken 

16 into account.’’. 

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

18 this section shall apply to plan years beginning after De19 cember 31, 2005. 

20 SEC. 406. CLARIFICATION OF TREATMENT OF INDIAN TRIB21 AL GOVERNMENTS. 

22 (a) DEFINITION OF GOVERNMENTAL PLAN.—

23 (1) AMENDMENT TO INTERNAL REVENUE CODE

24 OF 1986.—Section 414(d) of the Internal Revenue 

25 Code of 1986 (definition of governmental plan) is 

26 amended by adding at the end thereof the following 
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•HR 1960 IH 

1 new sentence: ‘‘The term ‘governmental plan’ also 

2 includes a plan established or maintained for its em3 ployees by an Indian tribal government (as defined 

4 in section 7701(a)(40)), a subdivision of an Indian 

5 tribal government (determined in accordance with 

6 section 7871(d)), an agency or instrumentality of an 

7 Indian tribal government or a subdivision thereof, or 

8 an entity established under tribal, Federal, or State 

9 law which is wholly owned or controlled by any of 

10 the foregoing.’’. 

11 (2) AMENDMENT TO EMPLOYEE RETIREMENT

12 INCOME SECURITY ACT OF 1974.—Section 3(32) of 

13 the Employee Retirement Income Security Act of 

14 1974 (29 U.S.C. 1002(32)) is amended by adding at 

15 the end the following new sentence: ‘‘The term ‘gov16 ernmental plan’ also includes a plan established or 

17 maintained for its employees by an Indian tribal 

18 government (as defined in section 7701(a)(40) of the 

19 Internal Revenue Code of 1986), a subdivision of an 

20 Indian tribal government (determined in accordance 

21 with section 7871(d) of such Code), an agency or in22 strumentality of an Indian tribal government or sub23 division thereof, or an entity established under trib24 al, Federal, or State law which is wholly owned or 

25 controlled by any of the foregoing.’’. 
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1 (b) CLARIFICATION OF TREATMENT OF INDIAN

2 TRIBAL GOVERNMENTS.—

3 (1) AMENDMENTS TO INTERNAL REVENUE

4 CODE OF 1986.—

5 (A) POLICE AND FIREFIGHTERS.—Sub6 paragraph (H) of section 415(b)(2) of the In7 ternal Revenue Code of 1986 (defining partici8 pant) is amended—

9 (i) in clause (i) by striking ‘‘State or 

10 political subdivision’’ and inserting ‘‘State, 

11 Indian tribal government (as defined in 

12 section 7701(a)(40)), or any political sub13 division’’, and 

14 (ii) in clause (ii)(I) by striking ‘‘State 

15 or political subdivision’’ both places it ap16 pears and inserting ‘‘State, Indian tribal 

17 government (as so defined), or any political 

18 subdivision’’. 

19 (B) STATE AND LOCAL GOVERNMENT

20 PLANS.—

21 (i) IN GENERAL.—Subparagraph (A) 

22 of section 415(b)(10) of such Code (relat23 ing to limitation to equal accrued benefit) 

24 is amended—
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1 (I) by inserting ‘‘, Indian tribal 

2 government (as defined in section 

3 7701(a)(40)),’’ after ‘‘State’’, 

4 (II) by inserting ‘‘any’’ before 

5 ‘‘political subdivision’’, and 

6 (III) by inserting ‘‘any of’’ before 

7 ‘‘the foregoing’’. 

8 (ii) CONFORMING AMENDMENT.—The 

9 heading for paragraph (10) of section 

10 415(b) of such Code is amended to read as 

11 follows: 

12 ‘‘(10) SPECIAL RULE FOR STATE, INDIAN TRIB13 AL, AND LOCAL GOVERNMENT PLANS.—’’. 

14 (C) GOVERNMENT PICK UP CONTRIBU15 TIONS.—Paragraph (2) of section 414(h) of 

16 such Code (relating to designation by units of 

17 government) is amended by striking ‘‘State or 

18 political subdivision’’ and inserting ‘‘State, In19 dian tribal government (as defined in section 

20 7701(a)(40)), or any political subdivision’’. 

21 (D) DISTRIBUTIONS TO PUBLIC SAFETY

22 EMPLOYEES.—Subparagraph (B) of section 

23 72(t)(10) of such Code, as added by this Act, 

24 is amended—
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1 (i) by striking ‘‘State or political sub2 division of a State’’ and inserting ‘‘State, 

3 Indian tribal government (as defined in 

4 section 7701(a)(4)), or political subdivision 

5 thereof’’, and 

6 (ii) by striking ‘‘such State or political 

7 subdivision’’ and inserting ‘‘such State, In8 dian tribal government (as defined in sec9 tion 7701(a)(4)), or political subdivision 

10 thereof’’. 

11 (2) AMENDMENTS TO EMPLOYEE RETIREMENT

12 INCOME SECURITY ACT OF 1974.—Section 4021(b) of 

13 the Employee Retirement Income Security Act of 

14 1974 (29 U.S.C. 1321(b)) is amended—

15 (A) in paragraph (12), by striking ‘‘or’’ at 

16 the end; 

17 (B) in paragraph (13), by striking ‘‘plan.’’ 

18 and inserting ‘‘plan; or’’; and 

19 (C) by adding at the end the following new 

20 paragraph: 

21 ‘‘(14) established and maintained for its em22 ployees by an Indian tribal government (as defined 

23 in section 7701(a)(40) of the Internal Revenue Code 

24 of 1986), a subdivision of an Indian tribal govern25 ment (determined in accordance with section 
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1 7871(d) of such Code), an agency or instrumentality 

2 of an Indian tribal government or subdivision there3 of, or an entity established under tribal, Federal, or 

4 State law which is wholly owned or controlled by any 

5 of the foregoing.’’. 

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

7 this section shall apply to years beginning before, on, or 

8 after the date of the enactment of this Act. 

9 SEC. 407. DEFERRAL AGREEMENTS. 

10 (a) IN GENERAL.—Paragraph (4) of section 457(b) 

11 of the Internal Revenue Code of 1986 is amended by add12 ing the following after ‘‘month’’: ‘‘or, in the case of a plan 

13 of an eligible employer described in subsection (e)(1)(A), 

14 before the date on which the compensation is currently 

15 available’’. 

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

17 this section shall apply to years beginning after December 

18 31, 2005. 

19 SEC. 408. PLANS MAINTAINED BY STATE OR LOCAL GOV20 ERNMENTS. 

21 (a) IN GENERAL.—Subparagraph (F) of section 

22 415(b)(2) of the Internal Revenue Code of 1986 is amend23 ed to read as follows: 

24 ‘‘(F) PLANS MAINTAINED BY STATE OR

25 LOCAL GOVERNMENTS.—
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1 ‘‘(i) IN GENERAL.—In the case of a 

2 governmental plan (within the meaning of 

3 section 414(d)) maintained by a State of 

4 local government or political subdivision 

5 thereof (or agency or instrumentality 

6 thereof), subparagraph (C) shall be applied 

7 as if the following sentence were added at 

8 the end: ‘The reduction under this sub9 paragraph shall not reduce the limitation 

10 of paragraph (l)(A) below (i) $130,000 if 

11 the benefit begins at or after age 55, or 

12 (ii) if the benefit begins before age 55, the 

13 equivalent of the $130,000 limitation at 

14 age 55.’ ’’. 

15 (b) COST-OF-LIVING ADJUSTMENTS.—

16 (1) PLANS MAINTAINED BY STATE OR LOCAL

17 GOVERNMENTS.—Paragraph (1) of section 415(d) of 

18 such Code is amended by striking ‘‘and’’ at the end 

19 of subparagraph (B), by redesignating subparagraph 

20 (C) as subparagraph (D), and by inserting after sub21 paragraph (B) the following new subparagraph: 

22 ‘‘(C) the $130,000 amount in subsection 

23 (b)(2)(F), and’’. 

24 (2) BASE PERIOD.—Paragraph (3) of section 

25 415(d) of such Code is amended by redesignating 
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1 subparagraph (D) as subparagraph (E) and by in2 serting after subparagraph (C) the following new 

3 subparagraph: 

4 ‘‘(D) $130,000 AMOUNT.—The base period 

5 taken into account for purposes of paragraph 

6 (l)(C) is the calendar quarter beginning July 1, 

7 2005.’’. 

8 (3) ROUNDING RULE RELATING TO DEFINED

9 BENEFIT PLANS.—Subparagraph (B) of section 

10 415(d)(4) of such Code is amended to read as fol11 lows: 

12 ‘‘(B) $130,000 AND $40,000 AMOUNTS.—

13 Any increase under subparagraph (C) or (D) of 

14 paragraph (1) which is not a multiple of $1,000 

15 shall be rounded to the next lowest multiple of 

16 $1,000.’’. 

17 (4) CONFORMING AMENDMENT.—Subparagraph 

18 (E) of section 415(d)(3) of such Code (as amended 

19 by paragraph (2)) is amended by striking ‘‘para20 graph (l)(C)’’ and inserting ‘‘paragraph (l)(D)’’. 

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

22 this section shall apply to years beginning after December 

23 31, 2005. 
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1 SEC. 409. CLARIFICATION OF TREATMENT OF SECTION 

2 403(b) PROGRAMS. 

3 (a) ADMINISTRATION.—The Secretary of the Treas4 ury shall not issue any rules which would impose materi5 ally greater burdens and responsibilities on employers with 

6 respect to the administration of a program described in 

7 section 403(b) of the Internal Revenue Code of 1986 than 

8 are imposed as of the date of enactment of this Act. 

9 (b) TRANSFERS.—Under rules prescribed by the Sec10 retary of the Treasury, participants shall be permitted to 

11 directly transfer all or part of their interest in a section 

12 403(b) annuity contract or custodial account to another 

13 section 403(b) annuity contract or custodial account with14 out violating the prohibitions against in-service with15 drawals in sections 403(b)(7) and 403(b)(11) of such 

16 Code. These rules shall be consistent with the principles 

17 of Revenue Ruling 90–24. 

18 (c) PROPOSED REGULATIONS.—The Secretary of the 

19 Treasury shall not finalize proposed regulations published 

20 on November 15, 2004, unless such regulations reflect the 

21 requirements of this section. 

22 (d) EFFECTIVE DATE.—The provisions of this sec23 tion shall take effect on the date of enactment of this Act. 
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1 TITLE V—SIMPLIFICATION AND 

2 EQUITY 

3 SEC. 501. UPDATING AND SIMPLIFYING THE MINIMUM DIS4 TRIBUTION RULES. 

5 (a) REQUIRED DISTRIBUTIONS.—

6 (1) INCREASE IN AGE FOR REQUIRED BEGIN7 NING DATE.—Clauses (i) and (ii) of section 

8 401(a)(9)(C) of the Internal Revenue Code of 1986 

9 (relating to required beginning date) are amended by 

striking ‘‘age 701 10 ⁄2’’ each place it appears and in11 serting ‘‘the applicable age’’. 

12 (2) MANDATORY DISTRIBUTION AGE.—Para13 graph (9) of section 401(a) of such Code (relating 

14 to required distributions) is amended by inserting at 

15 the end the following new subparagraph: 

16 ‘‘(H) APPLICABLE AGE.—

17 ‘‘(i) IN GENERAL.—For purposes of 

18 this paragraph, the applicable age shall be 

701 19 ⁄2, adjusted pursuant to clause (ii). 

20 ‘‘(ii) ADJUSTMENT.—The Secretary 

21 shall increase the applicable age annually 

22 in a manner proportional to increases in 

23 life expectancy (as determined by the Sec24 retary) that occur on or after January 1, 

25 2005, except that no adjustment shall be 
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•HR 1960 IH 

1 made until the applicable age as adjusted 

2 would equal or exceed age 72. Any applica3 ble age which is not a whole number shall 

4 be rounded to the next lower whole num5 ber.’’. 

6 (3) SPOUSE BENEFICIARIES.—Subclause (I) of 

7 section 401(a)(9)(B)(iv) of such Code (relating to 

8 special rule for surviving spouse of employee) is 

amended by striking ‘‘age 701 9 ⁄2’’ and inserting ‘‘the 

10 applicable age’’. 

11 (4) ACTUARIAL ADJUSTMENT OF BENEFIT

12 UNDER DEFINED BENEFIT PLAN.—Clause (iii) of 

13 section 401(a)(9)(C) of such Code (relating to actu14 arial adjustment) is amended to read as follows: 

15 ‘‘(iii) ACTUARIAL ADJUSTMENT.—

16 ‘‘(I) IN GENERAL.—In the case 

17 of a defined benefit plan, an employ18 ee’s accrued benefit shall be actuari19 ally increased to take into account the 

20 period after the applicable date during 

21 which the employee was not receiving 

22 any benefits under the plan. 

23 ‘‘(II) APPLICABLE DATE.—For 

24 purposes of clause (I), the term ‘appli25 cable date’ means April 1 of the cal-
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1 endar year following the calendar year 

2 in which the employee attains age 

701 3 ⁄2.’’. 

4 (b) REDUCTION IN EXCISE TAX.—Subsection (a) of 

5 section 4974 of such Code (relating to excise tax on cer6 tain accumulations in qualified retirement plans) is 

7 amended by striking ‘‘50 percent’’ and inserting ‘‘25 per8 cent’’. 

9 (c) SIMPLIFICATION FOR INDIVIDUALS.—

10 (1) IN GENERAL.—Section 408(a) of such Code 

11 is amended by redesignating subsection (r) as sub12 section (s) and by inserting after subsection (q) the 

13 following subsection—

14 ‘‘(r) MINIMUM DISTRIBUTION EXEMPTION FOR

15 SMALL ACCOUNTS.—

16 ‘‘(1) IN GENERAL.—Subsections (a)(6) and 

17 (b)(3) shall not apply to the individual retirement 

18 accounts and individual retirement annuities of an 

19 individual described in paragraph (2). 

20 ‘‘(2) INDIVIDUALS AFFECTED.—

21 ‘‘(A) IN GENERAL.—An individual is de22 scribed in this paragraph for a taxable year if, 

23 as of the last day of the preceding taxable year, 

24 the individual’s vested interest in all affected 
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1 retirement plans has a combined value that 

2 does not exceed $100,000. 

3 ‘‘(B) LIFE ANNUITY RULE.—For purposes 

4 of subparagraph (A), an individual’s vested in5 terest in an affected retirement plan shall not 

6 be taken into account to the extent that such 

7 interest has been used to purchase an annuity 

8 contract under which payments described in 

9 section 402(e)(7)(D)(i) are made. 

10 ‘‘(3) AFFECTED RETIREMENT PLANS.—

11 ‘‘(A) IN GENERAL.—With respect to an in12 dividual, the term ‘affected retirement plan’ 

13 means any plan described in paragraph (3), (4), 

14 or (5) of section 4974(c), other than an RSA. 

15 ‘‘(B) SPECIAL RULE.—A plan described in 

16 section 4974(c)(3) shall not be treated as an af17 fected retirement plan with respect to an indi18 vidual for any year prior to the first year for 

19 which a distribution would be required under 

20 section 403(b)(10) (without regard to this sub21 section). 

22 ‘‘(4) LIMITATION ON TOTAL REQUIRED DIS23 TRIBUTIONS.—Under rules prescribed by the Sec24 retary, in the case of an individual not described in 

25 paragraph (2), the total amount required to be dis-
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1 tributed under subsections (a)(6) and (b)(3), in com2 bination with the total amount required to be dis3 tributed under section 403(b)(10), shall not exceed 

4 the excess of the combined value of the individual’s 

5 vested interest in all affected retirement plans over 

6 $100,000. 

7 ‘‘(5) COST-OF-LIVING ADJUSTMENT.—The Sec8 retary shall adjust the $100,000 amount in para9 graphs (2) and (4) at the same time and in the 

10 same manner as under section 415(d), except that 

11 the base period shall be the calendar quarter ending 

12 September 30, 2005.’’. 

13 (2) PARALLEL RULE FOR SECTION 403(b) 

14 PLANS.—Paragraph (10) of section 403(b) of such 

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

16 ‘‘For purposes of applying the requirements of this 

17 paragraph, rules similar to the rules of section 

18 408(r) shall apply.’’. 

19 (3) CONFORMING AMENDMENTS.—

20 (A) Paragraph (6) of section 408(a) of 

21 such Code is amended by striking ‘‘Under regu22 lations’’ and inserting ‘‘Except as provided in 

23 subsection (r), under regulations’’. 

24 (B) Paragraph (3) of section 408(b) of 

25 such Code is amended by striking ‘‘Under regu-
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1 lations’’ and inserting ‘‘Except as provided in 

2 subsection (r), under regulations’’. 

3 (d) EFFECTIVE DATE.—

4 (1) IN GENERAL.—Except as provided in para5 graph (2), the amendments made by this section 

6 shall apply to years beginning after December 31, 

7 2005. 

8 (2) TRANSITION.—A plan shall not be treated 

9 as failing to meet the requirements of section 

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

11 merely because, in years beginning after December 

12 31, 2005, no distribution is made to an employee be13 fore the employee’s required beginning date, as de14 termined in accordance with the amendments made 

15 by this section. 

16 SEC. 502. CLARIFICATION OF CATCH-UP CONTRIBUTIONS. 

17 (a) EXCEPTION TO NONDISCRIMINATION RULES.—

18 (1) IN GENERAL.—Paragraph (4) of section 

19 414(v) of the Internal Revenue Code of 1986 (relat20 ing to application of nondiscrimination rules) is 

21 amended by redesignating subparagraph (B) as sub22 paragraph (C) and by inserting after subparagraph 

23 (A) the following new subparagraph: 

24 ‘‘(B) EXCEPTION.—An applicable employer 

25 plan shall not fail to satisfy the requirements of 
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1 this subparagraph solely because another appli2 cable employer plan maintained by the employer 

3 that is qualified under Puerto Rico law does not 

4 provide for additional elective deferrals under 

5 this subsection.’’. 

6 (2) EXCEPTION TO AGGREGATION RULES.—

7 Subparagraph (C) of section 414(v)(4) of such Code, 

8 as redesignated by paragraph (1), is amended by 

9 adding at the end the following new sentence: ‘‘In 

10 addition, employees described in section 410(b)(3) 

11 shall be excluded from consideration. For any year 

12 in which an employer complies with section 410(b) 

13 on the basis of separate lines of business pursuant 

14 to section 410(b)(5), the employer may apply sub15 paragraph (A) for such year separately with respect 

16 to employees in each separate line of business.’’. 

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

18 this section shall take effect as if included in section 

19 631(a) of the Economic Growth and Tax Relief Reconcili20 ation Act of 2001. 

21 SEC. 503. TREATMENT OF UNCLAIMED BENEFITS. 

22 (a) AMENDMENTS TO INTERNAL REVENUE CODE OF

23 1986.—

24 (1) AMENDMENT TO SECTION 401(a)(34).—

25 Section 401(a)(34) of the Internal Revenue Code of 
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1 1986 (relating to benefits of missing participants) is 

2 amended to read as follows: 

3 ‘‘(34) UNCLAIMED BENEFITS.—A trust forming 

4 part of a plan shall not be treated as failing to con5 stitute a qualified trust under this section merely be6 cause the plan of which such trust is a part treats 

7 unclaimed benefits in a manner that satisfies the re8 quirements of section 414(y).’’. 

9 (2) AMENDMENT TO SECTION 414.—Section 414 

10 of such Code (relating to definitions and special 

11 rules) (as amended by this Act) is amended by add12 ing at the end the following new subsection: 

13 ‘‘(y) UNCLAIMED BENEFITS.—

14 ‘‘(1) IN GENERAL.—A plan meets the require15 ments of this subsection only if—

16 ‘‘(A) ONGOING PLANS.—In the case of an 

17 ongoing plan, the plan provides for one or more 

18 of the following with respect to unclaimed bene19 fits: 

20 ‘‘(i) In the case of an unclaimed ben21 efit to which section 401(a)(31)(B) applies, 

22 a transfer under section 401(a)(31)(B). 

23 ‘‘(ii) A transfer to the Pension Benefit 

24 Guaranty Corporation, in accordance with 
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1 section 4050(e) of the Employee Retire2 ment Income Security Act of 1974. 

3 ‘‘(iii) Any other treatment permitted 

4 under rules prescribed by the Secretary. 

5 ‘‘(B) TERMINATED PLANS.—In the case of 

6 a terminated plan, the plan provides for the fol7 lowing with respect to unclaimed benefits: 

8 ‘‘(i) DEFINED BENEFIT PLANS.—In 

9 the case of a defined benefit plan, one or 

10 more of the following: 

11 ‘‘(I) In the case of an unclaimed 

12 benefit to which section 401(a)(31)(B) 

13 applies, a transfer under section 

14 401(a)(31)(B). 

15 ‘‘(II) A transfer of the unclaimed 

16 benefit to another defined benefit plan 

17 maintained by the employer. 

18 ‘‘(III) The purchase of an annu19 ity contract to provide for an individ20 ual’s unclaimed benefit. 

21 ‘‘(IV) A transfer to the Pension 

22 Benefit Guaranty Corporation in ac23 cordance with section 4050(a) or 

24 4050(e) (as applicable) of the Em-
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1 ployee Retirement Income Security 

2 Act of 1974. 

3 ‘‘(V) Any other treatment per4 mitted under rules prescribed by the 

5 Secretary. 

6 ‘‘(ii) DEFINED CONTRIBUTION

7 PLANS.—In the case of a defined contribu8 tion plan, one or more of the following: 

9 ‘‘(I) In the case of an unclaimed 

10 benefit to which section 401(a)(31)(B) 

11 applies, a transfer under section 

12 401(a)(31)(B). 

13 ‘‘(II) A transfer of the unclaimed 

14 benefit to another defined contribution 

15 plan maintained by the employer. 

16 ‘‘(III) The purchase of an annu17 ity contract to provide for an individ18 ual’s unclaimed benefit. 

19 ‘‘(IV) A transfer to the Pension 

20 Benefit Guaranty Corporation in ac21 cordance with section 4050(d) or 

22 4050(e) (as applicable) of the Em23 ployee Retirement Income Security 

24 Act of 1974. 
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1 ‘‘(V) Any other treatment per2 mitted under rules prescribed by the 

3 Secretary. 

4 ‘‘(2) TREATMENT OF TRANSFERS TO PENSION

5 BENEFIT GUARANTY CORPORATION.—

6 ‘‘(A) TRANSFERS TO PBGC.—Amounts 

7 transferred from a plan to the Pension Benefit 

8 Guaranty Corporation pursuant to paragraph 

9 (1) shall be treated as a transfer under section 

10 401(a)(31)(A). 

11 ‘‘(B) DISTRIBUTIONS FROM PBGC.—Ex12 cept as provided in rules prescribed by the Sec13 retary, amounts distributed by the Pension 

14 Benefit Guaranty Corporation shall be treated 

15 as distributed by an individual retirement plan 

16 under section 408(d) (without regard to para17 graphs (4), (5) and (7) thereof). Rules similar 

18 to the rules of section 402(c)(4) shall apply. 

19 ‘‘(3) DEFINITIONS.—For purposes of this sub20 section—

21 ‘‘(A) UNCLAIMED BENEFIT.—The term 

22 ‘unclaimed benefit’ means—

23 ‘‘(i) any benefit of a participant or 

24 beneficiary which is distributable under the 

25 terms of the plan to the participant or ben-
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1 eficiary, if the distribution of the benefit 

2 has not commenced within 1 year after the 

3 later of the date on which the benefit first 

4 became so distributable or the participant’s 

5 severance from employment; 

6 ‘‘(ii) any benefit or other amount of a 

7 participant or beneficiary which is distrib8 utable under the terms of the plan with re9 spect to a missing participant; or 

10 ‘‘(iii) any benefit to which section 

11 401(a)(31)(B) applies or would apply if 

12 subclause (I) of section 401(a)(31)(B)(i) 

13 did not require the distribution to exceed 

14 $1,000. 

15 A benefit otherwise described in clause (i) shall 

16 not be treated as an unclaimed benefit under 

17 clause (i) if the participant or beneficiary elects 

18 not to have such treatment apply. Any such 

19 participant or beneficiary shall be given reason20 able notice of the opportunity to make such an 

21 election. If the participant or beneficiary fails to 

22 make such an election within a reasonable pe23 riod specified in the notice, any subsequent elec24 tion shall not be given effect and the benefit 

25 shall be treated as an unclaimed benefit. A no-
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1 tice mailed to the last known address of the 

2 participant or beneficiary shall be treated as a 

3 notice to the participant or beneficiary for pur4 poses of this paragraph. 

5 ‘‘(B) ONGOING PLAN.—The term ‘ongoing 

6 plan’ means any plan which has neither termi7 nated nor is in the process of terminating. 

8 ‘‘(C) TERMINATED PLAN.—The term ‘ter9 minated plan’ means any plan which has termi10 nated or is in the process of terminating. 

11 ‘‘(D) MISSING PARTICIPANT.—The term 

12 ‘missing participant’ shall have the meaning 

13 given to such term by section 4050(b)(1) of the 

14 Employee Retirement Income Security Act of 

15 1974.’’. 

16 (3) CONFORMING AMENDMENT.—Subparagraph 

17 (B) of section 401(a)(31) of such Code is amended 

18 by adding at the end the following: 

19 ‘‘(iii) OTHER PERMITTED TRANS20 FERS.—A plan administrator shall be 

21 treated as having complied with the re22 quirements of this subparagraph if such 

23 plan administrator complies with the re24 quirements of section 414(y).’’. 
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1 (b) AMENDMENTS TO EMPLOYEE RETIREMENT IN2 COME SECURITY ACT OF 1974.—

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

4 4050 of the Employee Retirement Income Security 

5 Act of 1974 (29 U.S.C. 1350) is amended by adding 

6 at the end the following paragraph: 

7 ‘‘(3) UNCLAIMED BENEFIT.—The term ‘un8 claimed benefit’ means—

9 ‘‘(A) any benefit of a participant or bene10 ficiary which is distributable under the terms of 

11 the plan to the participant or beneficiary, if the 

12 distribution of the benefit has not commenced 

13 within 1 year after the later of the date on 

14 which the benefit first became so distributable 

15 or the participant’s severance from employment; 

16 ‘‘(B) any benefit or other amount of a par17 ticipant or beneficiary which is distributable 

18 under the terms of the plan with respect to a 

19 missing participant; or 

20 ‘‘(C) any benefit to which section 

21 401(a)(31)(B) of the Internal Revenue Code of 

22 1986 applies or would apply if subclause (I) of 

23 section 401(a)(31)(B)(i) of such Code did not 

24 require the distribution to exceed $1,000. 
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1 A benefit otherwise described in subparagraph (A) 

2 shall not be treated as an unclaimed benefit under 

3 subparagraph (A) if the participant or beneficiary 

4 elects not to have such treatment apply. Any such 

5 participant or beneficiary shall be given reasonable 

6 notice of the opportunity to make such an election. 

7 If the participant or beneficiary fails to make such 

8 an election within a reasonable period specified in 

9 the notice, any subsequent election shall not be given 

10 effect and the benefit shall be treated as an un11 claimed benefit. A notice mailed to the last known 

12 address of the participant or beneficiary shall be 

13 treated as a notice to the participant or beneficiary 

14 for purposes of this paragraph.’’. 

15 (2) OTHER AMENDMENTS.—Section 4050 of 

16 such Act is amended by redesignating subsection (c) 

17 as subsection (f) and by inserting after subsection 

18 (b) the following new subsections: 

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

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

21 for multiemployer plans covered by this title that termi22 nate under section 4041A. 

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

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

25 administrator of a plan described in paragraph (4) 
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1 may elect to transfer a missing participant’s benefits 

2 to the corporation upon termination of the plan. 

3 ‘‘(2) INFORMATION TO THE CORPORATION.—To 

4 the extent provided in regulations, the plan adminis5 trator of a plan described in paragraph (4) shall, 

6 upon termination of the plan, provide the corpora7 tion information with respect to the benefits of a 

8 missing participant if the plan transfers such bene9 fits—

10 ‘‘(A) to the corporation, or 

11 ‘‘(B) to an entity other than the corpora12 tion or a plan described in paragraph (4)(B)(ii). 

13 ‘‘(3) PAYMENT BY THE CORPORATION.—If ben14 efits of a missing participant were transferred to the 

15 corporation under paragraph (1), the corporation 

16 shall, upon location of the participant or beneficiary, 

17 pay to the participant or beneficiary the amount 

18 transferred (or the appropriate survivor benefit) ei19 ther—

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

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

22 regulations of the corporation. 

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

24 in this paragraph if—
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1 ‘‘(A) the plan is a pension plan (within the 

2 meaning of section 3(2))—

3 ‘‘(i) to which the provisions of this 

4 section do not apply (without regard to 

5 this subsection), and 

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

7 paragraphs (2) through (11) of section 

8 4021(b), and 

9 ‘‘(B) at the time the assets are to be dis10 tributed upon termination, the plan—

11 ‘‘(i) has missing participants, and 

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

13 of assets to pay the benefits of all missing 

14 participants to another pension plan (with15 in the meaning of section 3(2)). 

16 ‘‘(5) CERTAIN PROVISIONS NOT TO

17 APPLY.—Subsections (a)(1) and (a)(3) shall not 

18 apply to a plan described in paragraph (4). 

19 ‘‘(e) UNCLAIMED BENEFITS.—

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

21 administrator of a plan described in paragraph (6) 

22 may elect to transfer unclaimed benefits to the cor23 poration. 

24 ‘‘(2) INFORMATION TO THE CORPORATION.—

25 The corporation may impose such conditions on 
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1 transfers of unclaimed benefits to the corporation as 

2 the corporation determines are necessary to facilitate 

3 administration of this subsection and are not incon4 sistent with the purposes of this subsection. Such 

5 conditions may include requirements that the trans6 ferring plan provide to the corporation specified in7 formation and documentation. 

8 ‘‘(3) PAYMENT TO THE CORPORATION.—With 

9 respect to any participant, any transfer of an un10 claimed benefit to the corporation shall—

11 ‘‘(A) in the case of a defined benefit plan, 

12 be a transfer of the participant’s designated 

13 benefit, or 

14 ‘‘(B) in the case of an individual account 

15 plan, be a transfer of the participant’s vested 

16 account balance under the plan. 

17 ‘‘(4) PAYMENT BY THE CORPORATION.—Subject 

18 to such reasonable restrictions as may be prescribed 

19 in regulations of the corporation (relating to invest20 ment limitations and otherwise)—

21 ‘‘(A) unclaimed benefits of a participant or 

22 beneficiary which are transferred to the cor23 poration pursuant to this subsection shall be 

24 distributed by the corporation to the participant 

25 or beneficiary not later than upon application 
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1 filed by the participant or beneficiary with the 

2 corporation in such form and manner as may 

3 be prescribed in regulations of the corporation, 

4 and 

5 ‘‘(B) such benefits shall—

6 ‘‘(i) in the case of an individual ac7 count plan, be paid in a single sum (plus 

8 interest) or in such other form as is speci9 fied in regulations of the corporation, or 

10 ‘‘(ii) in the case of a defined benefit 

11 plan, be paid—

12 ‘‘(I) in an amount based on the 

13 designated benefit and the assump14 tions prescribed by the corporation at 

15 the time that the corporation received 

16 the benefit, and 

17 ‘‘(II) in a form determined under 

18 regulations of the corporation. 

19 ‘‘(5) NOTICE.—Any transfer of unclaimed bene20 fits of a participant or beneficiary to the corporation 

21 pursuant to this subsection may occur only after 

22 reasonable advance notice of such transfer is pro23 vided by the plan administrator to the participant or 

24 beneficiary. The plan administrator shall also pro25 vide to the participant or beneficiary notice of any 
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1 such transfer not later than 30 days after the date 

2 of the transfer. Notice mailed to the last known ad3 dress of the participant or beneficiary shall be treat4 ed as a notice to the participant or beneficiary for 

5 purposes of this paragraph. Any such notice shall in6 clude information regarding procedures for obtaining 

7 the distribution of benefits from the corporation in 

8 accordance with paragraph (4). 

9 ‘‘(6) PLANS DESCRIBED.—A plan is described 

10 in this paragraph if the plan is a pension plan (with11 in the meaning of section 3(2)—

12 ‘‘(A)(i) which has neither terminated nor is 

13 in the process of terminating, or 

14 ‘‘(ii) in the case of an unclaimed benefit to 

15 which section 401(a)(31)(B) of the Internal 

16 Revenue Code of 1986 applies (other than an 

17 unclaimed benefit of a missing participant), 

18 which has terminated or is in the process of ter19 minating, and 

20 ‘‘(B) which is not a plan described in para21 graphs (2) through (11) of section 4021(b). 

22 ‘‘(7) CERTAIN PROVISIONS NOT TO APPLY.—

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

24 plan described in paragraph (6).’’. 
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1 (3) CONFORMING AMENDMENT.—Section 

2 4021(b) of such Act (29 U.S.C. 1321(b)(1)) is 

3 amended by striking ‘‘This’’ and inserting ‘‘Except 

4 to the extent provided in subsections (d) and (e) of 

5 section 4050, this’’. 

6 (c) ESCHEAT LAWS SUPERSEDED.—Section 514(b) 

7 of the Employee Retirement Income Security Act of 1974 

8 (29 U.S.C. 1144 (b) (as amended by this Act) is further 

9 amended—

10 (1) by redesignating paragraph (10) as para11 graph (11), and 

12 (2) by inserting after paragraph (9) the fol13 lowing new paragraph: 

14 ‘‘(10) Any escheat or similar law of any State 

15 shall be superseded to the extent inconsistent with 

16 any transfer or other treatment of unclaimed bene17 fits (as defined in section 4050(b)(3)) permitted 

18 under the Internal Revenue Code of 1986.’’. 

19 (d) EFFECTIVE DATES AND RELATED RULES.—

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

21 subsections (a) and (b) shall apply to years begin22 ning after December 31, 2006. 

23 (2) REGULATIONS.—The Pension Benefit Guar24 anty Corporation shall issue regulations necessary to 
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1 carry out the amendments made by subsection (b) 

2 not later than December 31, 2006. 

3 (3) ESCHEAT LAWS SUPERSEDED.—The 

4 amendment made by subsection (c) shall apply as of 

5 the date of enactment of this Act. 

6 SEC. 504. ALLOW DIRECT ROLLOVERS FROM RETIREMENT 

7 PLANS TO RSA. 

8 (a) IN GENERAL.—Subsection (e) of section 408A of 

9 the Internal Revenue Code of 1986 (defining qualified roll10 over contribution) is amended to read as follows: 

11 ‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For 

12 purposes of this section, the term ‘qualified rollover con13 tribution’ means a rollover contribution—

14 ‘‘(1) to an RSA from another such account, 

15 ‘‘(2) from an eligible retirement plan, but only 

16 if—

17 ‘‘(A) in the case of an individual retire18 ment plan, such rollover contribution meets the 

19 requirements of section 408(d)(3), and 

20 ‘‘(B) in the case of any eligible retirement 

21 plan (as defined in section 402(c)(8)(B) other 

22 than clauses (i) and (ii) thereof), such rollover 

23 contribution meets the requirements of section 

24 402(c), 403(b)(8), or 457(e)(16), as applicable. 
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1 For purposes of section 408(d)(3)(B), there shall be dis2 regarded any qualified rollover contribution from an indi3 vidual retirement plan (other than an RSA) to an RSA.’’. 

4 (b) CONFORMING AMENDMENTS.—Section 

5 408A(d)(3) of such Code is amended—

6 (1) in subparagraph (A) by striking ‘‘section 

7 408(d)(3)’’ inserting ‘‘sections 402(c), 403(b)(8), 

8 408(d)(3), and 457(e)(16)’’, 

9 (2) in subparagraph (B) by striking ‘‘individual 

10 retirement plan’’ and inserting ‘‘eligible retirement 

11 plan (as defined by section 402(c)(8)(B))’’, 

12 (3) in subparagraph (D) by striking ‘‘or 6047’’ 

13 after ‘‘408(i)’’, 

14 (4) in subparagraph (D) by striking ‘‘or both’’ 

15 and inserting ‘‘persons subject to section 

16 6047(d)(1), or all of the foregoing persons’’, and 

17 (5) in the heading by striking ‘‘IRA’’ and insert18 ing ‘‘ELIGIBLE RETIREMENT PLAN’’. 

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

20 this section shall apply to distributions after December 31, 

21 2005. 
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1 SEC. 505. REFORM EXCISE TAX ON EXCESS CONTRIBU2 TIONS. 

3 (a) EXPANSION OF CORRECTIVE DISTRIBUTION PE4 RIOD.—Subsection (f) of section 4979 of the Internal Rev5 enue Code of 1986 is amended—

(1) in paragraph (1) by striking ‘‘21 6 ⁄2 months’’ 

7 and inserting ‘‘6 months’’, and 

(2) in the heading by striking ‘‘21 8 ⁄2 MONTHS’’ 

9 and inserting ‘‘6 MONTHS’’. 

10 (b) YEAR OF INCLUSION.—Paragraph (2) of section 

11 4979(f) of such Code is amended to read as follows: 

12 ‘‘(2) YEAR OF INCLUSION.—Any amount dis13 tributed as provided in paragraph (1) shall be treat14 ed as earned and received by the recipient in his tax15 able year in which such distributions were made.’’. 

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

17 this section shall apply to years beginning after December 

18 31, 2005. 

19 SEC. 506. INTERMEDIATE SANCTIONS FOR INADVERTENT 

20 FAILURES. 

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

22 Revenue Code of 1986 (relating to qualified pension, prof23 it-sharing, and stock bonus plans) is amended by inserting 

24 after paragraph (35) the following: 

25 ‘‘(36) PROTECTION FROM DISQUALIFICATION

26 UPON TIMELY CORRECTION OR PAYMENT OF FINE.—
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1 A trust shall not fail to constitute a qualified trust 

2 under this section if the plan of which such trust is 

3 a part has made good faith efforts to meet the re4 quirements of this section, has inadvertently failed 

5 to satisfy 1 or more of such requirements, and ei6 ther—

7 ‘‘(A) substantially corrects (to the extent 

8 possible) such failure before the date the plan 

9 becomes subject to a plan examination for the 

10 applicable year (as determined under rules pre11 scribed by the Secretary), or 

12 ‘‘(B) substantially corrects (to the extent 

13 possible) such failure on or after such date. 

14 If the plan satisfies the requirement under subpara15 graph (B), the Secretary may require the sponsoring 

16 employer to make a payment to the Secretary in an 

17 amount that does not exceed an amount that bears 

18 a reasonable relationship to the severity of the plan’s 

19 failure to satisfy the requirements of this section.’’. 

20 (b) APPLICATION TO CASH OR DEFERRED ARRANGE21 MENTS.—Section 401(k) of such Code is amended by in22 serting after paragraph (13) the following new paragraph: 

23 ‘‘(14) PROTECTION FROM DISQUALIFICATION.—

24 Rules similar to the rules set forth in section 

25 401(a)(36) shall apply for purposes of determining 
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1 whether a cash or deferred arrangement is a quali2 fied cash or deferred arrangement.’’. 

3 (c) APPLICATION TO SECTION 403(b) ANNUITY CON4 TRACTS.—Section 403(b) of such Code is amended by in5 serting after paragraph (12) the following: 

6 ‘‘(13) CORRECTION OF ERRORS.—For purposes 

7 of determining whether the exclusion from gross in8 come under paragraph (1) is applicable to an em9 ployee for any taxable year, rules similar to the rules 

10 set forth in section 401(a)(36) shall apply to any an11 nuity contract purchased under this subsection or 

12 any plan established to meet the requirements of 

13 this subsection.’’. 

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

15 this section shall take effect on the date of enactment of 

16 this Act. 

17 SEC. 507. CLARIFICATION OF SUBSTANTIALLY EQUAL PERI18 ODIC PAYMENT RULE. 

19 (a) IN GENERAL.—Paragraph (4) of section 72(t) of 

20 the Internal Revenue Code of 1986 (relating to change 

21 in substantially equal payments) is amended by inserting 

22 at the end the following new subparagraphs: 

23 ‘‘(C) ROLLOVERS TO SUBSEQUENT

24 PLAN.—If—
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1 ‘‘(i) payments satisfying paragraph 

2 (2)(A)(iv) are being made from a qualified 

3 retirement plan, 

4 ‘‘(ii) a transfer or a rollover from the 

5 qualified retirement plan is made to an6 other qualified retirement plan of all or a 

7 portion of the taxpayer’s benefit under the 

8 transferor plan, and 

9 ‘‘(iii) distributions from the transferor 

10 and transferee plans would in combination 

11 continue to satisfy paragraph (2)(A)(iv) if 

12 made only from the transferor plan, 

13 such transfer or rollover shall not be treated as 

14 a modification under subparagraph (A)(ii) and 

15 compliance with paragraph (2)(A)(iv) shall be 

16 determined on the basis of the combined dis17 tributions described in clause (iii). 

18 ‘‘(D) INTEREST RATE.—Any reasonable in19 terest rate may be used in determining whether 

20 payments are substantially equal under para21 graph (2)(A)(iv).’’. 

22 (b) EFFECTIVE DATES.—

23 (1) ROLLOVERS.—Section 72(t)(4)(C) of the 

24 Internal Revenue Code of 1986, as added by sub-
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1 section (a), shall apply to transfers and rollovers 

2 after the date of enactment of this Act. 

3 (2) INTEREST RATE.—Section 72(t)(4)(D) of 

4 such Code, as so added, shall apply to series of pay5 ments commencing on or after the date of enactment 

6 of this Act. 

7 SEC. 508. CLARIFICATION OF TREATMENT OF DISTRIBU8 TIONS OF ANNUITY CONTRACTS. 

9 (a) IN GENERAL.—Clause (i) of section 402(e)(4)(D) 

10 of the Internal Revenue Code of 1986 is amended by add11 ing after ‘‘section 401(c)(1).’’ the following: ‘‘A distribu12 tion of an annuity contract from a trust or annuity plan 

13 referred to in the first sentence of this clause may be 

14 treated as a part of a lump sum distribution.’’. 

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

16 this section shall take effect as if included in section 

17 1401(b)(1) of the Small Business Job Protection Act of 

18 1996. 

19 SEC. 509. GOLDEN PARACHUTE EXCISE TAX TO APPLY TO 

20 EXCESSIVE EMPLOYEE REMUNERATION PAID 

21 BY CORPORATION AFTER DECLARATION OF 

22 BANKRUPTCY. 

23 (a) IN GENERAL.—Section 4999 of the Internal Rev24 enue Code of 1986 (relating to golden parachute pay25 ments) is amended by redesignating subsection (c) as sub-
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1 section (d) and by inserting after subsection (b) the fol2 lowing new subsection: 

3 ‘‘(c) TAX ON EXCESSIVE EMPLOYEE REMUNERATION

4 IN THE CASE OF BANKRUPTCY.—

5 ‘‘(1) IN GENERAL.—There is hereby imposed a 

6 tax on any person who is a covered employee equal 

7 to 50 percent of any payment of excessive employee 

8 remuneration from a corporation which becomes a 

9 debtor in a title 11 or similar case (as defined in 

10 section 368(a)(3)(A) of this title, but not including 

11 a case under chapter 12 of title 11, United States 

12 Code). The tax imposed under subsection (a) shall 

13 not apply to the extent that a tax is imposed under 

14 this subsection. 

15 ‘‘(2) SPECIAL RULES RELATING TO EXCESSIVE

16 EMPLOYEE REMUNERATION.—For purposes of this 

17 subsection—

18 ‘‘(A) EXCESS EMPLOYEE REMUNERATION

19 DEFINED.—The term ‘excess employee remu20 neration’ means remuneration paid directly or 

21 indirectly to a covered employee during the 

22 bankruptcy period—

23 ‘‘(i) for which a deduction is not al24 lowed under chapter 1 by reason of the ap25 plication of section 162(m) or would not be 
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•HR 1960 IH 

1 allowed if section 162(m) applied to the 

2 covered employee at the time of payment, 

3 or 

4 ‘‘(ii) in the case of remuneration to a 

5 covered employee of a corporation that is 

6 not a publicly held corporation described in 

7 section 162(m)(2), that exceeds 

8 $1,000,000, other than remuneration that 

9 meets requirements similar to the stand10 ards for performance-based compensation 

11 under section 162(m)(4)(C). 

12 ‘‘(B) Such term shall not include—

13 ‘‘(i) remuneration that, on the date 

14 immediately prior to the beginning of the 

15 bankruptcy period, was payable to the cov16 ered employee under a binding obligation 

17 and not subject to a substantial risk of for18 feiture, 

19 ‘‘(ii) remuneration attributable to con20 tributions to or benefits from an excess re21 tirement plan to the extent that such plan 

22 is maintained solely for the purpose of pro23 viding benefits to employees in excess of 

24 the limitations imposed by 1 or more of 
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1 sections 401(a)(17), 401(k), 401(m), and 

2 415, 

3 ‘‘(iii) contributions to or benefits from 

4 a qualified employer plan (as defined in 

5 section 132(m)), or 

6 ‘‘(iv) any payment that is avoided or 

7 approved by a bankruptcy trustee. 

8 ‘‘(C) BANKRUPTCY PERIOD.—The term 

9 ‘bankruptcy period’ means any time during the 

10 period beginning 2 years before the date on 

11 which the corporation becomes a debtor de12 scribed in paragraph (1) and ending on the 

13 date such corporation ceases to be such a debt14 or. 

15 ‘‘(D) COVERED EMPLOYEE.—The term 

16 ‘covered employee’—

17 ‘‘(i) has the meaning given such term 

18 by section 162(m)(3), except that such 

19 term shall include an individual who is not 

20 a covered employee under section 

21 162(m)(3) for the taxable year in which 

22 such remuneration is paid but who pre23 viously was a covered employee within the 

24 meaning of section 162(m)(3) during the 

25 bankruptcy period, and 
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1 ‘‘(ii) with respect to an employee of a 

2 corporation that is not subject to section 

3 162(m), includes any employee of such cor4 poration who would be subject to the re5 quirement described in section 

6 162(m)(3)(B) (as modified by this para7 graph) if such corporation were a publicly 

8 held corporation (as defined in section 

9 162(m)(2)). 

10 ‘‘(E) 100 PERCENT TAX FOR GROSS UP

11 PAYMENTS.—Subsection (b) shall be applied by 

12 substituting ‘100 percent’ for ‘50 percent’ to 

13 the extent that any payment is made during the 

14 bankruptcy period that is contingent upon a tax 

15 being imposed under this section. 

16 ‘‘(F) CHANGE IN OWNERSHIP CONTIN17 GENCY NOT TO APPLY.—Subsection (b) shall be 

18 applied without regard to clause (i) of section 

19 280G(b)(2)(A).’’. 

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

21 section shall apply to payments received after the date of 

22 the enactment of this Act with respect to any title 11 or 

23 similar case (as defined in section 4999(c) of the Internal 

24 Revenue Code of 1986) commenced after such date. 
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1 SEC. 510. DIFFERENTIAL PAY. 

2 (a) INCOME TAX WITHHOLDING.—Section 3401 of 

3 the Internal Revenue Code of 1986 (relating to defini4 tions) is amended by adding at the end the following new 

5 subsection: 

6 ‘‘(i) DIFFERENTIAL WAGE PAYMENTS TO ACTIVE

7 DUTY MEMBERS OF THE UNIFORMED SERVICES.—

8 ‘‘(1) IN GENERAL.—For purposes of subsection 

9 (a), any differential wage payment shall be treated 

10 as a payment of wages by an employer to an em11 ployee. 

12 ‘‘(2) DIFFERENTIAL WAGE PAYMENTS.—For 

13 purposes of paragraph (1), the term ‘differential 

14 wage payment’ means any payment which—

15 ‘‘(A) is made by an employer to an indi16 vidual with respect to any period during which 

17 the individual is performing service in the uni18 formed services while on active duty for a pe19 riod of more than 30 days, and 

20 ‘‘(B) represents all or a portion of the 

21 wages the individual would have received from 

22 the employer if the individual were performing 

23 service for the employer.’’. 

24 (b) RETIREMENT PLANS.—

25 (1) IN GENERAL.—Section 414(u) of the Inter26 nal Revenue Code of 1986 (relating to special rules 
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•HR 1960 IH 

1 relating to veterans’ reemployment rights under 

2 USERRA) is amended by adding at the end the fol3 lowing new paragraph: 

4 ‘‘(11) TREATMENT OF DIFFERENTIAL WAGE

5 PAYMENTS.—

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

7 this paragraph, for purposes of applying this 

8 title to a plan to which this subsection ap9 plies—

10 ‘‘(i) an individual receiving a differen11 tial wage payment shall be treated as an 

12 employee of the employer making the pay13 ment, 

14 ‘‘(ii) the differential wage payment 

15 shall be treated as compensation, and 

16 ‘‘(iii) the plan shall not be treated as 

17 failing to meet the requirements of any 

18 provision described in paragraph (1)(C) by 

19 reason of the treatment described in 

20 clauses (i) and (ii). 

21 ‘‘(B) SPECIAL RULE FOR DISTRIBU22 TIONS.—

23 ‘‘(i) IN GENERAL.—Notwithstanding 

24 subparagraph (A)(i), for purposes of sub25 section (w)(1)(D), an individual shall be 
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1 treated as having been severed from em2 ployment during any period the individual 

3 is performing service in the uniformed 

4 services described in section 3401(i)(2)(A). 

5 ‘‘(ii) LIMITATION.—If an individual 

6 elects to receive a distribution by reason of 

7 clause (i), the plan shall provide that the 

8 individual may not make an elective defer9 ral or employee contribution during the 6-

10 month period beginning on the date of the 

11 distribution. 

12 ‘‘(C) NONDISCRIMINATION REQUIRE13 MENT.—Subparagraph (A)(iii) shall apply only 

14 if all employees of an employer (as determined 

15 under subsections (b), (c), (m), and (o)) per16 forming service in the uniformed services de17 scribed in section 3401(i)(2)(A) are entitled to 

18 receive differential wage payments on reason19 ably equivalent terms and, if eligible to partici20 pate in a plan maintained by the employer, to 

21 have contributions made to such plan based on 

22 the payments on reasonably equivalent terms. 

23 For purposes of applying this subparagraph, 

24 the provisions of paragraphs (3), (4), and (5) of 

25 section 410(b) shall apply. 
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1 ‘‘(D) DIFFERENTIAL WAGE PAYMENT.—

2 For purposes of this paragraph, the term ‘dif3 ferential wage payment’ has the meaning given 

4 such term by section 3401(i)(2).’’. 

5 (2) CONFORMING AMENDMENT.—The heading 

6 for section 414(u) of such Code is amended by in7 serting ‘‘and to Differential Wage Payments to 

8 Members on Active Duty’’ after ‘‘USERRA’’. 

9 (c) DIFFERENTIAL WAGE PAYMENTS TREATED AS

10 COMPENSATION FOR INDIVIDUAL RETIREMENT PLANS.—

11 Section 219(f)(1) of the Internal Revenue Code of 1986 

12 (defining compensation) is amended by adding at the end 

13 the following new sentence: ‘‘The term ‘compensation’ in14 cludes any differential wage payments (as defined in sec15 tion 3401(i)(2)).’’. 

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

17 this section shall apply to years beginning after December 

18 31, 2005. 

19 SEC. 511. EXCESS BENEFIT PLANS. 

20 (a) IN GENERAL.—Section 3(36) of the Employee 

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

22 1002(36)) is amended to read as follows: 

23 ‘‘(36) The term ‘excess benefit plan’ means a 

24 plan, without regard to whether such plan is funded, 

25 maintained by an employer solely for the purpose of 
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•HR 1960 IH 

1 providing benefits to employees in excess of any limi2 tation imposed by section 401(a)(17), 

3 401(k)(3)(A)(ii), 401(m)(2), or 415 of the Internal 

4 Revenue Code of 1986. To the extent that a sepa5 rable part of a plan (as determined by the Secretary 

6 of Labor) maintained by an employer is maintained 

7 for such purpose, that part shall be treated as a sep8 arate plan which is an excess benefit plan.’’. 

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

10 this section shall apply to plan years beginning after De11 cember 31, 2005. 

12 SEC. 512. TAX TREATMENT OF EMPLOYEE CONTRIBUTIONS 

13 TO CONTRIBUTORY DEFINED BENEFIT 

14 PLANS. 

15 (a) AMENDMENT TO THE INTERNAL REVENUE CODE

16 OF 1986.—Subsection (e) of section 402 of the Internal 

17 Revenue Code of 1986 (relating to other rules applicable 

18 to exempt trusts) is amended by adding at the end the 

19 following new paragraph: 

20 ‘‘(8) MANDATORY EMPLOYEE CONTRIBUTIONS

21 TO DEFINED BENEFIT PLANS.—

22 ‘‘(A) IN GENERAL.—Qualified mandatory 

23 employee contributions shall not be includible in 

24 gross income for the taxable year of such con25 tribution. 
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1 ‘‘(B) QUALIFIED MANDATORY EMPLOYEE

2 CONTRIBUTIONS.—For purposes of subpara3 graph (A), the term ‘qualified mandatory em4 ployee contributions’ means employee contribu5 tions made pursuant to the terms of a defined 

6 benefit plan described in subparagraph (C) in 

7 effect on January 1, 2003 (determined without 

8 regard to any plan amendment made after such 

9 date), which—

10 ‘‘(i) are mandatory contributions (as 

11 defined in section 411(c)(2)(C)), and 

12 ‘‘(ii) do not exceed 2 percent of com13 pensation (within the meaning of section 

14 415(c)(3)). 

15 ‘‘(C) DEFINED BENEFIT PLAN DE16 SCRIBED.—For purposes of subparagraph (B), 

17 a defined benefit plan is described in this sub18 paragraph if such plan—

19 ‘‘(i) requires employee contributions 

20 as a condition of participation in such 

21 plan, 

22 ‘‘(ii) allows an employee to make a 

23 one-time irrevocable election to participate 

24 in the plan, 
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1 ‘‘(iii) does not provide for employee 

2 contributions with respect to which a sepa3 rate account is maintained and treated as 

4 a defined contribution plan under section 

5 414(k), and 

6 ‘‘(iv) is not a governmental plan 

7 (within the meaning of section 414(d)).’’. 

8 (b) WITHHOLDING.—Subsection (a) of section 3401 

9 of such Code (defining wages) is amended by striking ‘‘or’’ 

10 at the end of paragraph (20), by striking the period at 

11 the end of paragraph (21) and inserting ‘‘; or’’, and by 

12 inserting after paragraph (21) the following new para13 graph: 

14 ‘‘(22) for any payment made to or for the ben15 efit of an employee if at the time of such payment 

16 it is reasonable to believe that the employee will be 

17 able to exclude such payment from income as a 

18 qualified mandatory employee contribution under 

19 section 402(e)(8).’’. 

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

21 this section shall apply to contributions made in years be22 ginning after December 31, 2005. 
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1 SEC. 513. PROTECTING OLDER, LONGER SERVICE PARTICI2 PANTS. 

3 (a) PROTECTION OF OLDER, LONGER SERVICE PAR4 TICIPANTS IN DEFINED BENEFIT PLANS.—

5 (1) Not later than one year after the date of 

6 the enactment of this Act, the Secretary of the 

7 Treasury shall amend section 1.401(a)(4)–4 of the 

8 Treasury Regulations (as in effect on the date of the 

9 enactment of this Act) to permit a plan to provide 

10 benefits, rights, and features to a closed class of 

11 grandfathered participants, provided that such class 

12 of participants satisfies the requirements of such 

13 section as of the date that the class of participants 

14 was closed. Such section as amended shall ensure 

15 that participants who have been grandfathered 

16 under a former defined benefit plan formula may 

17 continue to receive all benefits, rights, and features 

18 under that formula, including early retirement bene19 fits. 

20 (2) Not later than one year after the date of 

21 the enactment of this Act, the Secretary of the 

22 Treasury shall amend section 1.401(a)(4)–

23 8(b)(1)(iii)(D) of the Treasury Regulations (as in ef24 fect on the date of the enactment of this Act) to per25 mit a defined contribution plan to provide make 

26 whole contributions to a closed class of participants 
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•HR 1960 IH 

1 whose defined benefit plan accruals have been re2 duced or eliminated, provided that such class of par3 ticipants satisfies section 410(b)(2)(A)(i) of the In4 ternal Revenue Code of 1986 as of the date that the 

5 class of participants was closed. 

6 (b) EFFECTIVE DATE.—This provisions of this sec7 tion shall take effect on the date of the enactment of this 

8 Act. 

9 SEC. 514. CLARIFICATION REGARDING ELECTIVE DEFER10 RALS. 

11 (a) IN GENERAL.—Not later than 6 months after the 

12 date of enactment of this Act, the Secretary of the Treas13 ury shall issue rules clarifying that employees who have 

14 had a severance from employment may make—

15 (1) elective deferrals described in section 

16 402(g)(3)(A), (B), or (C) of the Internal Revenue 

17 Code of 1986 (other than elective deferrals under 

18 section 401(k)(11) of such Code), 

19 (2) elective contributions under an eligible de20 ferred compensation plan described in section 457(b) 

21 of such Code, and 

22 (3) to the extent provided by the Secretary, 

23 elective deferrals described in section 402(g)(3)(D) 

24 or 401(k)(11) of such Code. 
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1 Such rules shall only permit such contributions or defer2 rals with respect to payments of bona fide accumulated 

3 sick leave, accumulated vacation pay, severance, or back 

4 pay. The Secretary may apply such other conditions on 

5 such contributions or deferrals as are necessary or appro6 priate to carry out the purposes of this section. 

7 (b) TREATMENT OF DEFERRALS.—Except as other8 wise determined by the Secretary to be necessary to carry 

9 out the purposes of this section, the rules described in sub10 section (a) shall provide that the contributions or deferrals 

11 shall, for purposes of section 457 of such Code and sub12 chapter D of chapter 1 of subtitle A of such Code, be 

13 treated as contributions or deferrals made on behalf of ac14 tive employees, not on behalf of former employees. 

15 (c) EFFECTIVE DATE.—The provisions of this section 

16 shall take effect on the date of enactment of this Act. 

17 SEC. 515. REFORM OF THE MINIMUM PARTICIPATION RULE. 

18 (a) IN GENERAL.—Subparagraph (I) of section 

19 401(a)(26) of the Internal Revenue Code of 1986 (relating 

20 to additional participation requirements) is amended by 

21 adding at the end the following: ‘‘Not later than December 

22 31, 2006, the Secretary shall issue final regulations under 

23 which this paragraph may be applied separately to bona 

24 fide separate subsidiaries or divisions.’’. 
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1 (b) EFFECTIVE DATE.—The amendment made by 

2 subsection (a) shall take effect on the date of enactment 

3 of this Act. 

4 TITLE VI—IMPROVEMENTS IN 

5 PENSION SECURITY 

6 SEC. 601. PERIODIC PENSION BENEFITS STATEMENTS. 

7 (a) AMENDMENTS TO THE EMPLOYEE RETIREMENT

8 INCOME SECURITY ACT OF 1974.—

9 (1) REQUIREMENTS.—

10 (A) IN GENERAL.—Section 105(a) of the 

11 Employee Retirement Income Security Act of 

12 1974 (29 U.S.C. 1025(a)) is amended to read 

13 as follows: 

14 ‘‘(a)(1)(A) The administrator of an individual ac15 count plan shall furnish a pension benefit statement—

16 ‘‘(i) to each plan participant at least annually, 

17 ‘‘(ii) to each plan beneficiary upon written re18 quest, and 

19 ‘‘(iii) in the case of an applicable individual ac20 count plan, to each individual who is a plan partici21 pant or beneficiary and who has a right to direct in22 vestments, at least quarterly. 

23 ‘‘(B) The administrator of a defined benefit plan 

24 shall furnish a pension benefit statement—
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1 ‘‘(i) at least once every 3 years to each partici2 pant with a nonforfeitable accrued benefit who is 

3 employed by the employer maintaining the plan at 

4 the time the statement is furnished to participants, 

5 and 

6 ‘‘(ii) to a plan participant or plan beneficiary of 

7 the plan upon written request. 

8 Information furnished under clause (i) to a participant 

9 may be based on reasonable estimates determined under 

10 regulations prescribed by the Secretary, in consultation 

11 with the Pension Benefit Guaranty Corporation. 

12 ‘‘(2) A pension benefit statement under paragraph 

13 (1)—

14 ‘‘(A) shall indicate, on the basis of the latest 

15 available information—

16 ‘‘(i) the total benefits accrued, and 

17 ‘‘(ii) the nonforfeitable pension benefits, if 

18 any, which have accrued, or the earliest date on 

19 which benefits will become nonforfeitable, 

20 ‘‘(B) shall be written in a manner calculated to 

21 be understood by the average plan participant, and 

22 ‘‘(C) may be provided in written form or in 

23 electronic or other appropriate form to the extent 

24 that such form is reasonably accessible to the recipi25 ent. 
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1 ‘‘(3)(A) In the case of a defined benefit plan, the re2 quirements of paragraph (1)(B)(i) shall be treated as met 

3 with respect to a participant if the administrator, at least 

4 once each year, provides the participant with notice, at 

5 the participant’s last known address, of the availability of 

6 the pension benefit statement and the ways in which the 

7 participant may obtain such statement. Such notice shall 

8 be provided in written, electronic, or other appropriate 

9 form, and may be included with other communications to 

10 the participant if done in a manner reasonably designed 

11 to attract the attention of the participant. 

12 ‘‘(B) The Secretary may provide that years in which 

13 no employee or former employee benefits (within the 

14 meaning of section 410(b) of the Internal Revenue Code 

15 of 1986) under the plan need not be taken into account 

16 in determining the 3-year period under paragraph 

17 (1)(B)(i).’’. 

18 (B) CONFORMING AMENDMENTS.—

19 (i) Section 105 of the Employee Re20 tirement Income Security Act of 1974 (29 

21 U.S.C. 1025) is amended by striking sub22 section (d). 

23 (ii) Section 105(b) of such Act (29 

24 U.S.C. 1025(b)) is amended to read as fol25 lows: 
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1 ‘‘(b) In no case shall a participant or beneficiary of 

2 a plan be entitled to more than one statement described 

3 in clause (i) or (ii) of subsection (a)(1)(A) or clause (i) 

4 or (ii) of subsection (a)(1)(B), whichever is applicable, in 

5 any 12-month period. If such report is required under sub6 section (a) to be furnished at least quarterly, the require7 ments of the preceding sentence shall be applied with re8 spect to each quarter in lieu of the 12-month period.’’. 

9 (2) INFORMATION REQUIRED FROM APPLICA10 BLE INDIVIDUAL ACCOUNT PLANS.—Section 105 of 

11 such Act (as amended by paragraph (1)) is amended 

12 further by adding at the end the following new sub13 section: 

14 ‘‘(d)(1) The statements required to be provided at 

15 least quarterly under subsection (a)(1)(A)(iii) in the case 

16 of applicable individual account plans shall include (to17 gether with the information required in subsection (a)) the 

18 following: 

19 ‘‘(A) the value of each investment to which as20 sets in the individual account have been allocated, 

21 determined as of the most recent valuation date 

22 under the plan, including the value of any assets 

23 held in the form of employer securities, without re24 gard to whether such securities were contributed by 
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1 the plan sponsor or acquired at the direction of the 

2 plan or of the participant or beneficiary, 

3 ‘‘(B) an explanation, written in a manner cal4 culated to be understood by the average plan partici5 pant, of any limitations or restrictions on the right 

6 of the participant or beneficiary to direct an invest7 ment, and 

8 ‘‘(C) an explanation, written in a manner cal9 culated to be understood by the average plan partici10 pant, of the importance, for the long-term retire11 ment security of participants and beneficiaries, of a 

12 well-balanced and diversified investment portfolio, 

13 including a discussion of the risk of holding more 

14 than 25 percent of a portfolio in the security of any 

15 one entity, such as employer securities. 

16 ‘‘(2) The Secretary shall issue guidance and model 

17 notices which meet the requirements of this subsection.’’. 

18 (3) DEFINITION OF APPLICABLE INDIVIDUAL

19 ACCOUNT PLAN.—Section 3 of such Act (29 U.S.C. 

20 1002) is amended by adding at the end the following 

21 new paragraph: 

22 ‘‘(42)(A) The term ‘applicable individual account 

23 plan’ means any individual account plan, except that such 

24 term does not include an employee stock ownership plan 

25 (within the meaning of section 4975(e)(7) of the Internal 
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1 Revenue Code of 1986) unless there are any contributions 

2 to such plan (or earnings thereunder) held within such 

3 plan that are subject to subsection (k)(3) or (m)(2) of sec4 tion 401 of the Internal Revenue Code of 1986. Such term 

5 shall not include a one-participant retirement plan. 

6 ‘‘(B) The term ‘one-participant retirement plan’ 

7 means a pension plan with respect to which the following 

8 requirements are met: 

9 ‘‘(i) on the first day of the plan year—

10 ‘‘(I) the plan covered only one individual 

11 (or the individual and the individual’s spouse) 

12 and the individual owned 100 percent of the 

13 plan sponsor (whether or not incorporated), or 

14 ‘‘(II) the plan covered only one or more 

15 partners (or partners and their spouses) in the 

16 plan sponsor; 

17 ‘‘(ii) the plan meets the minimum coverage re18 quirements of section 410(b) of the Internal Rev19 enue Code of 1986 (as in effect on the date of the 

20 enactment of this paragraph) without being com21 bined with any other plan of the business that covers 

22 the employees of the business; 

23 ‘‘(iii) the plan does not provide benefits to any24 one except the individual (and the individual’s 

25 spouse) or the partners (and their spouses); 
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1 ‘‘(iv) the plan does not cover a business that is 

2 a member of an affiliated service group, a controlled 

3 group of corporations, or a group of businesses 

4 under common control; and 

5 ‘‘(v) the plan does not cover a business that 

6 leases employees.’’. 

7 (4) CIVIL PENALTIES FOR FAILURE TO PRO8 VIDE QUARTERLY BENEFIT STATEMENTS.—Section 

9 502 of such Act (29 U.S.C. 1132) is amended—

10 (A) in subsection (a)(6), by striking ‘‘(6), 

11 or (7)’’ and inserting ‘‘(6), (7), or (8)’’; 

12 (B) by redesignating paragraph (8) of sub13 section (c) as paragraph (9); and 

14 (C) by inserting after paragraph (7) of 

15 subsection (c) the following new paragraph: 

16 ‘‘(8) The Secretary may assess a civil penalty against 

17 any plan administrator of up to $1,000 a day for each 

18 day on which the plan administrator has failed to comply 

19 with the requirements of clause (iii) of section 

20 105(a)(1)(A) and has not corrected such failure by pro21 viding the required pension benefit statements to the af22 fected participants and beneficiaries.’’. 

23 (5) MODEL STATEMENTS.—The Secretary of 

24 Labor shall, not later than 180 days after the date 

25 of the enactment of this Act, issue initial guidance 
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1 and a model benefit statement, written in a manner 

2 calculated to be understood by the average plan par3 ticipant, that may be used by plan administrators in 

4 complying with the requirements of section 105 of 

5 the Employee Retirement Income Security Act of 

6 1974. Not later than 75 days after the date of the 

7 enactment of this Act, the Secretary shall promul8 gate interim final rules necessary to carry out the 

9 amendments made by this subsection. 

10 (b) AMENDMENTS TO THE INTERNAL REVENUE

11 CODE OF 1986.—

12 (1) PROVISION OF INVESTMENT EDUCATION

13 NOTICES TO PARTICIPANTS IN CERTAIN PLANS.—

14 Section 414 of the Internal Revenue Code of 1986 

15 (relating to definitions and special rules) is amended 

16 by adding at the end the following: 

17 ‘‘(aa) PROVISION OF INVESTMENT EDUCATION NO18 TICES TO PARTICIPANTS IN CERTAIN PLANS.—

19 ‘‘(1) IN GENERAL.—The plan administrator of 

20 an applicable pension plan shall provide to each ap21 plicable individual an investment education notice 

22 described in paragraph (2) at the time of the enroll23 ment of the applicable individual in the plan and not 

24 less often than annually thereafter. 
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1 ‘‘(2) INVESTMENT EDUCATION NOTICE.—An in2 vestment education notice is described in this para3 graph if such notice contains—

4 ‘‘(A) an explanation, for the long-term re5 tirement security of participants and bene6 ficiaries, of generally accepted investment prin7 ciples, including principles of risk management 

8 and diversification, and 

9 ‘‘(B) a discussion of the risk of holding 

10 substantial portions of a portfolio in the secu11 rity of any one entity, such as employer securi12 ties. 

13 ‘‘(3) UNDERSTANDABILITY.—Each notice re14 quired by paragraph (1) shall be written in a man15 ner calculated to be understood by the average plan 

16 participant and shall provide sufficient information 

17 (as determined in accordance with guidance provided 

18 by the Secretary) to allow recipients to understand 

19 such notice. 

20 ‘‘(4) FORM AND MANNER OF NOTICES.—The 

21 notices required by this subsection shall be in writ22 ing, except that such notices may be in electronic or 

23 other form (or electronically posted on the plan’s 

24 website) to the extent that such form is reasonably 

25 accessible to the applicable individual. 
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1 ‘‘(5) DEFINITIONS.—For purposes of this sub2 section—

3 ‘‘(A) APPLICABLE INDIVIDUAL.—The term 

4 ‘applicable individual’ means—

5 ‘‘(i) any participant in the applicable 

6 pension plan, 

7 ‘‘(ii) any beneficiary who is an alter8 nate payee (within the meaning of section 

9 414(p)(8)) under a qualified domestic rela10 tions order (within the meaning of section 

11 414(p)(1)(A)), and 

12 ‘‘(iii) any beneficiary of a deceased 

13 participant or alternate payee. 

14 ‘‘(B) APPLICABLE PENSION PLAN.—The 

15 term ‘applicable pension plan’ means—

16 ‘‘(i) a plan described in clause (i), (ii), 

17 or (iv) of section 219(g)(5)(A), and 

18 ‘‘(ii) an eligible deferred compensation 

19 plan (as defined in section 457(b)) of an 

20 eligible employer described in section 

21 457(e)(1)(A), 

22 which permits any participant to direct the in23 vestment of some or all of his account in the 

24 plan or under which the accrued benefit of any 

25 participant depends in whole or in part on hy-
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1 pothetical investments directed by the partici2 pant. Such term shall not include a one-partici3 pant retirement plan or a plan to which section 

4 105 of the Employee Retirement Income Secu5 rity Act of 1974 applies. 

6 ‘‘(C) ONE-PARTICIPANT RETIREMENT

7 PLAN DEFINED.—The term ‘one-participant re8 tirement plan’ means a retirement plan with re9 spect to which the following requirements are 

10 met: 

11 ‘‘(i) on the first day of the plan 

12 year—

13 ‘‘(I) the plan covered only one in14 dividual (or the individual and the in15 dividual’s spouse) and the individual 

16 owned 100 percent of the plan spon17 sor (whether or not incorporated), or 

18 ‘‘(II) the plan covered only one 

19 or more partners (or partners and 

20 their spouses) in the plan sponsor; 

21 ‘‘(ii) the plan meets the minimum cov22 erage requirements of 410(b) without 

23 being combined with any other plan of the 

24 business that covers the employees of the 

25 business; 
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1 ‘‘(iii) the plan does not provide bene2 fits to anyone except the individual (and 

3 the individual’s spouse) or the partners 

4 (and their spouses); 

5 ‘‘(iv) the plan does not cover a busi6 ness that is a member of an affiliated serv7 ice group, a controlled group of corpora8 tions, or a group of businesses under com9 mon control; and 

10 ‘‘(v) the plan does not cover a busi11 ness that leases employees. 

12 ‘‘(6) CROSS REFERENCE.—For provisions relat13 ing to penalty for failure to provide the notice re14 quired by this section, see section 6652(m).’’. 

15 (2) PENALTY FOR FAILURE TO PROVIDE NO16 TICE.—Section 6652 of such Code (relating to fail17 ure to file certain information returns, registration 

18 statements, etc.) is amended by redesignating sub19 section (m) as subsection (n) and by inserting after 

20 subsection (l) the following new subsection: 

21 ‘‘(m) FAILURE TO PROVIDE INVESTMENT EDU22 CATION NOTICES TO PARTICIPANTS IN CERTAIN

23 PLANS.—In the case of each failure to provide a written 

24 explanation as required by section 414(aa) with respect 

25 to an applicable individual (as defined in such section), 
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•HR 1960 IH 

1 at the time prescribed therefor, unless it is shown that 

2 such failure is due to reasonable cause and not to willful 

3 neglect, there shall be paid, on notice and demand of the 

4 Secretary and in the same manner as tax, by the person 

5 failing to provide such notice, an amount equal to $100 

6 for each such failure, but the total amount imposed on 

7 such person for all such failures during any calendar year 

8 shall not exceed $50,000.’’. 

9 SEC. 602. INAPPLICABILITY OF RELIEF FROM FIDUCIARY 

10 LIABILITY DURING BLACKOUT PERIODS. 

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

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

13 1104(c)) is amended by adding at the end the following 

14 new paragraph: 

15 ‘‘(4)(A) Paragraph (1)(B) shall not apply in connec16 tion with the direction or diversification of assets credited 

17 to the account of any participant or beneficiary during a 

18 blackout period if, by reason of the imposition of such 

19 blackout period, the ability of such participant or bene20 ficiary to direct or diversify such assets is suspended, lim21 ited, or restricted. 

22 ‘‘(B) If the fiduciary authorizing a blackout period 

23 meets the requirements of this title in connection with au24 thorizing such blackout period, no person who is a fidu25 ciary shall be liable under this title for any loss occurring 
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•HR 1960 IH 

1 during the blackout period as a result of any exercise by 

2 the participant or beneficiary of control over assets in his 

3 or her account prior to the blackout period. Matters to 

4 be considered in determining whether a fiduciary has met 

5 the requirements of this title include whether such fidu6 ciary—

7 ‘‘(i) has considered the reasonableness of the 

8 expected length of the blackout period, 

9 ‘‘(ii) has provided the notice required under sec10 tion 101(i)(2), and 

11 ‘‘(iii) has acted in accordance with the require12 ments of subsection (a) in determining whether to 

13 enter into the blackout period. 

14 ‘‘(C) If a blackout period arises in connection with 

15 a change in the investment options offered under the plan, 

16 a participant or beneficiary shall be deemed to have exer17 cised control over the assets in his or her account prior 

18 to the blackout period, if, after reasonable notice of the 

19 change in investment options is given to such participant 

20 or beneficiary before such blackout period, assets in the 

21 account of the participant or beneficiary are transferred—

22 ‘‘(i) to plan investment options in accordance 

23 with the affirmative election of the participant or 

24 beneficiary, or 
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•HR 1960 IH 

1 ‘‘(ii) in any case in which there is no such elec2 tion, in the manner set forth in such notice. 

3 ‘‘(D) Any imposition of any limitation or restriction 

4 that may govern the frequency of transfers between invest5 ment vehicles shall not be treated as the imposition of a 

6 blackout period to the extent such limitation or restriction 

7 is disclosed to participants or beneficiaries through the 

8 summary plan description or materials describing specific 

9 investment alternatives under the plan. 

10 ‘‘(E) For purposes of this paragraph, the term ‘black11 out period’ has the meaning given such term by section 

12 101(i)(7).’’. 

13 (b) GUIDANCE.—The Secretary of Labor shall, on or 

14 before December 31, 2006, issue interim final regulations 

15 providing guidance on how plan sponsors or any other af16 fected fiduciaries can satisfy their fiduciary responsibilities 

17 during any blackout period during which the ability of a 

18 participant or beneficiary to direct the investment of as19 sets in his or her individual account is suspended. 

20 SEC. 603. DIVERSIFICATION REQUIREMENTS FOR DEFINED 

21 CONTRIBUTION PLANS THAT HOLD EM22 PLOYER SECURITIES. 

23 (a) AMENDMENT TO THE EMPLOYEE RETIREMENT

24 INCOME SECURITY ACT OF 1974.—Section 204 of the 
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1 Employee Retirement Income Security Act of 1974 (29 

2 U.S.C. 1054) is amended—

3 (1) by redesignating subsection (j) as sub4 section (k); and 

5 (2) by inserting after subsection (i) the fol6 lowing new subsection: 

7 ‘‘(j) DIVERSIFICATION REQUIREMENTS FOR INDI8 VIDUAL ACCOUNT PLANS THAT HOLD EMPLOYER SECU9 RITIES.—

10 ‘‘(1) IN GENERAL.—An applicable individual ac11 count plan shall meet the requirements of para12 graphs (2) and (3). 

13 ‘‘(2) EMPLOYEE CONTRIBUTIONS AND ELEC14 TIVE DEFERRALS INVESTED IN EMPLOYER SECURI15 TIES.—In the case of the portion of the account at16 tributable to employee contributions and elective de17 ferrals which is invested in employer securities, a 

18 plan meets the requirements of this paragraph if 

19 each applicable individual may elect to direct the 

20 plan to divest any such securities in the individual’s 

21 account and to reinvest an equivalent amount in 

22 other investment options which meet the require23 ments of paragraph (4). 

24 ‘‘(3) EMPLOYER CONTRIBUTIONS INVESTED IN

25 EMPLOYER SECURITIES.—
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1 ‘‘(A) IN GENERAL.—In the case of the por2 tion of the account attributable to employer 

3 contributions (other than elective deferrals to 

4 which paragraph (2) applies) which is invested 

5 in employer securities, a plan meets the require6 ments of this paragraph if, under the plan—

7 ‘‘(i) each applicable individual with a 

8 benefit based on 3 years of service may 

9 elect to direct the plan to divest any such 

10 securities in the individual’s account and 

11 to reinvest an equivalent amount in other 

12 investment options which meet the require13 ments of paragraph (4), or 

14 ‘‘(ii) with respect to any employer se15 curity allocated to an applicable individ16 ual’s account during any plan year, such 

17 applicable individual may elect to direct 

18 the plan to divest such employer security 

19 after a date which is not later than 3 years 

20 after the end of such plan year and to re21 invest an equivalent amount in other in22 vestment options which meet the require23 ments of paragraph (4). 

24 ‘‘(B) APPLICABLE INDIVIDUAL WITH BEN25 EFIT BASED ON 3 YEARS OF SERVICE.—For 
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•HR 1960 IH 

1 purposes of subparagraph (A), an applicable in2 dividual has a benefit based on 3 years of serv3 ice if such individual would be an applicable in4 dividual if only participants in the plan who 

5 have completed at least 3 years of service (as 

6 determined under section 203(b)) were referred 

7 to in paragraph (5)(B)(i). 

8 ‘‘(4) INVESTMENT OPTIONS.—The requirements 

9 of this paragraph are met if—

10 ‘‘(A) the plan offers not less than 3 invest11 ment options, other than employer securities, to 

12 which an applicable individual may direct the 

13 proceeds from the divestment of employer secu14 rities pursuant to this subsection, each of which 

15 is diversified and has materially different risk 

16 and return characteristics, and 

17 ‘‘(B) the plan permits the applicable indi18 vidual to choose from any of the investment op19 tions made available under the plan to which 

20 such proceeds may be so directed, subject to 

21 such restrictions as may be provided by the 

22 plan limiting such choice to periodic, reasonable 

23 opportunities occurring no less frequently than 

24 on a quarterly basis. 
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1 ‘‘(5) DEFINITIONS AND RULES.—For purposes 

2 of this subsection—

3 ‘‘(A) APPLICABLE INDIVIDUAL ACCOUNT

4 PLAN.—The term ‘applicable individual account 

5 plan’ means any individual account plan, except 

6 that such term does not include an employee 

7 stock ownership plan (within the meaning of 

8 section 4975(e)(7) of the Internal Revenue 

9 Code of 1986) unless there are any contribu10 tions to such plan (or earnings thereon) held 

11 within such plan that are subject to subsection 

12 (k)(3) or (m)(2) of section 401 of the Internal 

13 Revenue Code of 1986. 

14 ‘‘(B) APPLICABLE INDIVIDUAL.—The term 

15 ‘applicable individual’ means—

16 ‘‘(i) any participant in the plan, and 

17 ‘‘(ii) any beneficiary of a participant 

18 referred to in clause (i) who has an ac19 count under the plan with respect to which 

20 the beneficiary is entitled to exercise the 

21 rights of the participant. 

22 ‘‘(C) ELECTIVE DEFERRAL.—The term 

23 ‘elective deferral’ means an employer contribu24 tion described in section 402(g)(3)(A) of the In-
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•HR 1960 IH 

1 ternal Revenue Code of 1986 (as in effect on 

2 the date of the enactment of this subsection). 

3 ‘‘(D) EMPLOYER SECURITY.—The term 

4 ‘employer security’ shall have the meaning 

5 given such term by section 407(d)(1) of this 

6 Act (as in effect on the date of the enactment 

7 of this subsection). 

8 ‘‘(E) EMPLOYEE STOCK OWNERSHIP

9 PLAN.—The term ‘employee stock ownership 

10 plan’ shall have the same meaning given to 

11 such term by section 4975(e)(7) of the Internal 

12 Revenue Code of 1986 (as in effect on the date 

13 of the enactment of this subsection). 

14 ‘‘(F) ELECTIONS.—Elections under this 

15 subsection may be made not less frequently 

16 than quarterly. 

17 ‘‘(6) EXCEPTION WHERE THERE IS NO READILY

18 TRADABLE STOCK.—This subsection shall not apply 

19 if there is no class of stock issued by the employer 

20 (or by a corporation which is an affiliate of the em21 ployer (as defined in section 407(d)(7))) that is 

22 readily tradable on an established securities market 

23 (or in such other circumstances as may be deter24 mined jointly by the Secretary of Labor and the Sec25 retary of the Treasury in regulations). 
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1 ‘‘(7) TRANSITION RULE.— 

2 ‘‘(A) IN GENERAL.—In the case of any in3 dividual account plan which, on the first day of 

4 the first plan year to which this subsection ap5 plies, holds employer securities of any class that 

6 were acquired before such date and on which 

7 there is a restriction on diversification otherwise 

8 precluded by this subsection, this subsection 

9 shall apply to such securities of such class held 

10 in any plan year only with respect to the num11 ber of such securities equal to the applicable 

12 percentage of the total number of such securi13 ties of such class held on such date. 

14 ‘‘(B) APPLICABLE PERCENTAGE.—For 

15 purposes of subparagraph (A), the applicable 

16 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. 

17 ‘‘(C) ELECTIVE DEFERRALS TREATED AS

18 SEPARATE PLAN NOT INDIVIDUAL ACCOUNT

19 PLAN.—For purposes of subparagraph (A), the 

20 applicable percentage shall be 100 percent with 

21 respect to— 
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1 ‘‘(i) employee contributions to a plan 

2 under which any portion attributable to 

3 elective deferrals is treated as a separate 

4 plan under section 407(b)(2) as of the date 

5 of the enactment of this paragraph, and 

6 ‘‘(ii) such elective deferrals. 

7 ‘‘(D) COORDINATION WITH PRIOR ELEC8 TIONS.—In any case in which a divestiture of 

9 investment in employer securities of any class 

10 held by an employee stock ownership plan prior 

11 to the effective date of this subsection was un12 dertaken pursuant to other applicable Federal 

13 law prior to such date, the applicable percent14 age (as determined without regard to this sub15 paragraph) in connection with such securities 

16 shall be reduced to the extent necessary to ac17 count for the amount to which such election ap18 plied. 

19 ‘‘(8) REGULATIONS.—The Secretary of the 

20 Treasury shall prescribe regulations under this sub21 section in consultation with the Secretary of 

22 Labor.’’. 

23 (b) AMENDMENTS TO THE INTERNAL REVENUE

24 CODE OF 1986.—
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1 (1) IN GENERAL.—Section 401(a) of the Inter2 nal Revenue Code of 1986 (relating to requirements 

3 for qualification) is amended by inserting after para4 graph (34) the following new paragraph: 

5 ‘‘(35) DIVERSIFICATION REQUIREMENTS FOR

6 DEFINED CONTRIBUTION PLANS THAT HOLD EM7 PLOYER SECURITIES.—

8 ‘‘(A) IN GENERAL.—An applicable defined 

9 contribution plan shall meet the requirements 

10 of subparagraphs (B) and (C). 

11 ‘‘(B) EMPLOYEE CONTRIBUTIONS AND

12 ELECTIVE DEFERRALS INVESTED IN EMPLOYER

13 SECURITIES.—In the case of the portion of the 

14 account attributable to employee contributions 

15 and elective deferrals which is invested in em16 ployer securities, a plan meets the requirements 

17 of this subparagraph if each applicable indi18 vidual in such plan may elect to direct the plan 

19 to divest any such securities in the individual’s 

20 account and to reinvest an equivalent amount 

21 in other investment options which meet the re22 quirements of subparagraph (D). 

23 ‘‘(C) EMPLOYER CONTRIBUTIONS IN24 VESTED IN EMPLOYER SECURITIES.—
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1 ‘‘(i) IN GENERAL.—In the case of the 

2 portion of the account attributable to em3 ployer contributions (other than elective 

4 deferrals to which subparagraph (B) ap5 plies) which is invested in employer securi6 ties, a plan meets the requirements of this 

7 subparagraph if, under the plan—

8 ‘‘(I) each applicable individual 

9 with a benefit based on 3 years of 

10 service may elect to direct the plan to 

11 divest any such securities in the indi12 vidual’s account and to reinvest an 

13 equivalent amount in other investment 

14 options which meet the requirements 

15 of subparagraph (D), or 

16 ‘‘(II) with respect to any em17 ployer security allocated to an applica18 ble individual’s account during any 

19 plan year, such applicable individual 

20 may elect to direct the plan to divest 

21 such employer security after a date 

22 which is not later than 3 years after 

23 the end of such plan year and to rein24 vest an equivalent amount in other in-
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1 vestment options which meet the re2 quirements of subparagraph (D). 

3 ‘‘(ii) APPLICABLE INDIVIDUAL WITH

4 BENEFIT BASED ON 3 YEARS OF SERV5 ICE.—For purposes of clause (i), an appli6 cable individual has a benefit based on 3 

7 years of service if such individual would be 

8 an applicable individual if only participants 

9 in the plan who have completed at least 3 

10 years of service (as determined under sec11 tion 411(a)) were referred to in subpara12 graph (E)(ii)(I). 

13 ‘‘(D) INVESTMENT OPTIONS.—The require14 ments of this subparagraph are met if—

15 ‘‘(i) the plan offers not less than 3 in16 vestment options, other than employer se17 curities, to which an applicable individual 

18 may direct the proceeds from the divest19 ment of employer securities pursuant to 

20 this paragraph, each of which is diversified 

21 and has materially different risk and re22 turn characteristics, and 

23 ‘‘(ii) the plan permits the applicable 

24 individual to choose from any of the invest25 ment options made available under the 
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1 plan to which such proceeds may be so di2 rected, subject to such restrictions as may 

3 be provided by the plan limiting such 

4 choice to periodic, reasonable opportunities 

5 occurring no less frequently than on a 

6 quarterly basis. 

7 ‘‘(E) DEFINITIONS AND RULES.—For pur8 poses of this paragraph—

9 ‘‘(i) APPLICABLE DEFINED CONTRIBU10 TION PLAN.—The term ‘applicable defined 

11 contribution plan’ means any defined con12 tribution plan, except that such term does 

13 not include an employee stock ownership 

14 plan (within the meaning of section 

15 4975(e)(7)) unless there are any contribu16 tions to such plan (or earnings thereon) 

17 held within such plan that are subject to 

18 subsection (k)(3) or (m)(2). 

19 ‘‘(ii) APPLICABLE INDIVIDUAL.—The 

20 term ‘applicable individual’ means—

21 ‘‘(I) any participant in the plan, 

22 and 

23 ‘‘(II) any beneficiary of a partici24 pant referred to in clause (i) who has 

25 an account under the plan with re-
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1 spect to which the beneficiary is enti2 tled to exercise the rights of the par3 ticipant. 

4 ‘‘(iii) ELECTIVE DEFERRAL.—The 

5 term ‘elective deferral’ means an employer 

6 contribution described in section 

7 402(g)(3)(A) (as in effect on the date of 

8 the enactment of this paragraph). 

9 ‘‘(iv) EMPLOYER SECURITY.—The 

10 term ‘employer security’ shall have the 

11 meaning given such term by section 

12 407(d)(1) of the Employee Retirement In13 come Security Act of 1974 (as in effect on 

14 the date of the enactment of this para15 graph). 

16 ‘‘(v) EMPLOYEE STOCK OWNERSHIP

17 PLAN.—The term ‘employee stock owner18 ship plan’ shall have the same meaning 

19 given to such term by section 4975(e)(7) 

20 of the Internal Revenue Code of 1986 (as 

21 in effect on the date of the enactment of 

22 this paragraph). 

23 ‘‘(vi) ELECTIONS.—Elections under 

24 this paragraph may be made not less fre25 quently than quarterly. 
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1 ‘‘(F) EXCEPTION WHERE THERE IS NO

2 READILY TRADABLE STOCK.—This paragraph 

3 shall not apply if there is no class of stock 

4 issued by the employer that is readily tradable 

5 on an established securities market (or in such 

6 other circumstances as may be determined 

7 jointly by the Secretary of the Treasury and the 

8 Secretary of Labor in regulations). 

9 ‘‘(G) TRANSITION RULE.—

10 ‘‘(i) IN GENERAL.—In the case of any 

11 defined contribution plan which, on the ef12 fective date of this subsection, holds em13 ployer securities of any class that were ac14 quired before such date and on which there 

15 is a restriction on diversification otherwise 

16 precluded by this paragraph, this para17 graph shall apply to such securities of such 

18 class held in any plan year only with re19 spect to the number of such securities 

20 equal to the applicable percentage of the 

21 total number of such securities of such 

22 class held on such date. 

23 ‘‘(ii) APPLICABLE PERCENTAGE.—For 

24 purposes of clause (i), the applicable per25 centage shall be as follows:
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‘‘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. 

1 ‘‘(iii) ELECTIVE DEFERRALS TREATED

2 AS SEPARATE PLAN NOT INDIVIDUAL AC3 COUNT PLAN.—For purposes of clause (i), 

4 the applicable percentage shall be 100 per5 cent with respect to— 

6 ‘‘(I) employee contributions to a 

7 plan under which any portion attrib8 utable to elective deferrals is treated 

9 as a separate plan under section 

10 407(b)(2) of the Employee Retirement 

11 Income Security Act of 1974 as of the 

12 date of the enactment of this para13 graph, and 

14 ‘‘(II) such elective deferrals. 

15 ‘‘(iv) CONTRIBUTIONS HELD WITHIN

16 AN ESOP.—In the case of contributions 

17 (other than elective deferrals and employee 

18 contributions) held within an employee 

19 stock ownership plan, in the case of the 1st 

20 and 2nd plan years referred to in the table 

21 in clause (ii), the applicable percentage 

22 shall be the greater of the amount deter-
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1 mined under clause (ii) or the percentage 

2 determined under paragraph (28) (deter3 mined as if paragraph (28) applied to a 

4 plan described in this paragraph). 

5 ‘‘(v) COORDINATION WITH PRIOR

6 ELECTIONS UNDER PARAGRAPH (28).—In 

7 any case in which a divestiture of invest8 ment in employer securities of any class 

9 held by an employee stock ownership plan 

10 prior to the effective date of this para11 graph was undertaken pursuant to an elec12 tion under paragraph (28) prior to such 

13 date, the applicable percentage (as deter14 mined without regard to this clause) in 

15 connection with such securities shall be re16 duced to the extent necessary to account 

17 for the amount to which such election ap18 plied. 

19 ‘‘(H) REGULATIONS.—The Secretary shall 

20 prescribe regulations under this paragraph in 

21 consultation with the Secretary of Labor.’’. 

22 (2) CONFORMING AMENDMENTS.—

23 (A) Section 401(a)(28) of such Code is 

24 amended by adding at the end the following 

25 new subparagraph: 
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1 ‘‘(D) APPLICATION.—This paragraph shall 

2 not apply to a plan to which paragraph (35) ap3 plies.’’. 

4 (B) Section 409(h)(7) of such Code is 

5 amended by inserting before the period at the 

6 end ‘‘or subparagraph (B) or (C) of section 

7 401(a)(35)’’. 

8 (C) Section 4980(c)(3)(A) of such Code is 

9 amended by striking ‘‘if—’’ and all that follows 

10 and inserting ‘‘if the requirements of subpara11 graphs (B), (C), and (D) are met.’’. 

12 (c) EFFECTIVE DATE.—

13 (1) IN GENERAL.—Except as provided in para14 graph (2) and section 604, the amendments made by 

15 this section shall apply to plan years beginning after 

16 December 31, 2005, and with respect to employer 

17 securities allocated to accounts before, on, or after 

18 the date of the enactment of this Act. 

19 (2) EXCEPTION.—The amendments made by 

20 this section shall not apply to employer securities 

21 held by an employee stock ownership plan which are 

22 acquired before January 1, 1987. 

23 SEC. 604. EFFECTIVE DATES AND RELATED RULES. 

24 (a) IN GENERAL.—Except as otherwise provided in 

25 the preceding provisions of this title or in subsection (c), 
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1 the amendments made by this title shall apply with respect 

2 to plan years beginning on or after the general effective 

3 date. 

4 (b) GENERAL EFFECTIVE DATE.—For purposes of 

5 this section, the term ‘‘general effective date’’ means the 

6 date which is 1 year after the date of the enactment of 

7 this Act. 

8 (c) SPECIAL RULE FOR COLLECTIVELY BARGAINED

9 PLANS.—In the case of a plan maintained pursuant to 1 

10 or more collective bargaining agreements between em11 ployee representatives and 1 or more employers ratified 

12 on or before the date of the enactment of this Act, sub13 section (a) shall be applied to benefits pursuant to, and 

14 individuals covered by, any such agreement by substituting 

15 for ‘‘the general effective date’’ the date of the commence16 ment of the first plan year beginning on or after the ear17 lier of—

18 (1) the later of—

19 (A) the date which is 1 year after the gen20 eral effective date, or 

21 (B) the date on which the last of such col22 lective bargaining agreements terminates (de23 termined without regard to any extension there24 of after the date of the enactment of this Act), 

25 or 
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1 (2) the date which is 2 years after the general 

2 effective date. 

3 TITLE VII—OTHER TAX PROVI4 SIONS RELATING TO PEN5 SIONS 

6 SEC. 701. REPORTING SIMPLIFICATION. 

7 (a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

8 OWNERS AND THEIR SPOUSES.—

9 (1) IN GENERAL.—The Secretary of the Treas10 ury and the Secretary of Labor shall modify the re11 quirements for filing annual returns with respect to 

12 one-participant retirement plans to ensure that such 

13 plans with assets of $250,000 or less as of the close 

14 of the plan year need not file a return for that year. 

15 (2) ONE-PARTICIPANT RETIREMENT PLAN DE16 FINED.—For purposes of this subsection, the term 

17 ‘‘one-participant retirement plan’’ means a retire18 ment plan with respect to which the following re19 quirements are met: 

20 (A) on the first day of the plan year—

21 (i) the plan covered only one indi22 vidual (or the individual and the individ23 ual’s spouse) and the individual owned 100 

24 percent of the plan sponsor (whether or 

25 not incorporated), or 
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1 (ii) the plan covered only one or more 

2 partners (or partners and their spouses) in 

3 the plan sponsor; 

4 (B) the plan meets the minimum coverage 

5 requirements of section 410(b) of the Internal 

6 Revenue Code of 1986 without being combined 

7 with any other plan of the business that covers 

8 the employees of the business; 

9 (C) the plan does not provide benefits to 

10 anyone except the individual (and the individ11 ual’s spouse) or the partners (and their 

12 spouses); 

13 (D) the plan does not cover a business that 

14 is a member of an affiliated service group, a 

15 controlled group of corporations, or a group of 

16 businesses under common control; and 

17 (E) the plan does not cover a business that 

18 leases employees. 

19 (3) OTHER DEFINITIONS.—Terms used in para20 graph (2) which are also used in section 414 of the 

21 Internal Revenue Code of 1986 shall have the re22 spective meanings given such terms by such section. 

23 (4) EFFECTIVE DATE.—The provisions of this 

24 subsection shall apply to plan years beginning on or 

25 after January 1, 2005. 
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1 (b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

2 PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case 

3 of plan years beginning after December 31, 2006, the Sec4 retary of the Treasury and the Secretary of Labor shall 

5 provide for the filing of a simplified annual return for any 

6 retirement plan which covers less than 25 employees on 

7 the first day of a plan year and which meets the require8 ments described in subparagraphs (B), (D), and (E) of 

9 subsection (a)(2). 

10 SEC. 702. IMPROVEMENT OF EMPLOYEE PLANS COMPLI11 ANCE RESOLUTION SYSTEM. 

12 The Secretary of the Treasury shall continue to up13 date and improve the Employee Plans Compliance Resolu14 tion System (or any successor program) giving special at15 tention to—

16 (1) increasing the awareness and knowledge of 

17 small employers concerning the availability and use 

18 of the program; 

19 (2) taking into account special concerns and 

20 circumstances that small employers face with respect 

21 to compliance and correction of compliance failures; 

22 (3) extending the duration of the self-correction 

23 period under the Self-Correction Program for signifi24 cant compliance failures; 
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1 (4) expanding the availability to correct insig2 nificant compliance failures under the Self-Correc3 tion Program during audit; and 

4 (5) assuring that any tax, penalty, or sanction 

5 that is imposed by reason of a compliance failure is 

6 not excessive and bears a reasonable relationship to 

7 the nature, extent, and severity of the failure. 

8 The Secretary of the Treasury shall have full authority 

9 to effectuate the foregoing and to implement the Employee 

10 Plans Compliance Resolution System (or any successor 

11 program) and any other employee plans correction poli12 cies, including the authority to waive income, excise, or 

13 other taxes to ensure that any tax, penalty, or sanction 

14 is not excessive and bears a reasonable relationship to the 

15 nature, extent, and severity of the failure. 

16 SEC. 703. EXTENSION OF MORATORIUM ON APPLICATION 

17 OF CERTAIN NONDISCRIMINATION RULES TO 

18 ALL GOVERNMENTAL PLANS. 

19 (a) IN GENERAL.—

20 (1) Subparagraph (G) of section 401(a)(5) and 

21 subparagraph (G) of section 401(a)(26) of the Inter22 nal Revenue Code of 1986 are each amended by 

23 striking ‘‘section 414(d))’’ and all that follows and 

24 inserting ‘‘section 414(d)).’’. 
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1 (2) Subparagraph (G) of section 401(k)(3) of 

2 such Code and paragraph (2) of section 1505(d) of 

3 the Taxpayer Relief Act of 1997 (26 U.S.C. 401 

4 note) are each amended by striking ‘‘maintained by 

5 a State or local government or political subdivision 

6 thereof (or agency or instrumentality thereof)’’. 

7 (b) CONFORMING AMENDMENTS.—

8 (1) The heading for subparagraph (G) of sec9 tion 401(a)(5) of such Code is amended to read as 

10 follows: ‘‘GOVERNMENTAL PLANS.—’’. 

11 (2) The heading for subparagraph (G) of sec12 tion 401(a)(26) of such Code is amended to read as 

13 follows: ‘‘EXCEPTION FOR GOVERNMENTAL PLANS.—

14 ’’. 

15 (3) Subparagraph (G) of section 401(k)(3) of 

16 such Code is amended by inserting ‘‘GOVERN17 MENTAL PLANS.—’’ after ‘‘(G)’’. 

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

19 this section shall apply to years beginning after December 

20 31, 2005. 

21 SEC. 704. NOTICE AND CONSENT PERIOD REGARDING DIS22 TRIBUTIONS. 

23 (a) EXPANSION OF PERIOD.—

24 (1) AMENDMENT OF INTERNAL REVENUE

25 CODE.—
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1 (A) IN GENERAL.—Subparagraph (A) of 

2 section 417(a)(6) of the Internal Revenue Code 

3 of 1986 is amended by striking ‘‘90-day’’ and 

4 inserting ‘‘180-day’’. 

5 (B) MODIFICATION OF REGULATIONS.—

6 The Secretary of the Treasury shall modify the 

7 regulations under sections 402(f), 411(a)(11), 

8 and 417 of the Internal Revenue Code of 1986 

9 to substitute ‘‘180 days’’ for ‘‘90 days’’ each 

10 place it appears in Treasury Regulations sec11 tions 1.402(f)–1, 1.411(a)–11(c), and 1.417(e)–

12 1(b). 

13 (2) AMENDMENT OF ERISA.—

14 (A) IN GENERAL.—Section 205(c)(7)(A) of 

15 the Employee Retirement Income Security Act 

16 of 1974 (29 U.S.C. 1055(c)(7)(A)) is amended 

17 by striking ‘‘90-day’’ and inserting ‘‘180-day’’. 

18 (B) MODIFICATION OF REGULATIONS.—

19 The Secretary of the Treasury shall modify the 

20 regulations under part 2 of subtitle B of title 

21 I of the Employee Retirement Income Security 

22 Act of 1974 to the extent that they relate to 

23 sections 203(e) and 205 of such Act to sub24 stitute ‘‘180 days’’ for ‘‘90 days’’ each place it 

25 appears. 
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1 (3) EFFECTIVE DATE.—The amendments made 

2 by paragraphs (1)(A) and (2)(A) and the modifica3 tions required by paragraphs (1)(B) and (2)(B) 

4 shall apply to years beginning after December 31, 

5 2005. 

6 (b) CONSENT REGULATION INAPPLICABLE TO CER7 TAIN DISTRIBUTIONS.—

8 (1) IN GENERAL.—The Secretary of the Treas9 ury shall modify the regulations under section 

10 411(a)(11) of the Internal Revenue Code of 1986 

11 and under section 205 of the Employee Retirement 

12 Income Security Act of 1974 to provide that the de13 scription of a participant’s right, if any, to defer re14 ceipt of a distribution shall also describe the con15 sequences of failing to defer such receipt. 

16 (2) EFFECTIVE DATE.—

17 (A) IN GENERAL.—The modifications re18 quired by paragraph (1) shall apply to years be19 ginning after December 31, 2005. 

20 (B) REASONABLE NOTICE.—In the case of 

21 any description of such consequences made be22 fore the date that is 90 days after the date on 

23 which the Secretary of the Treasury issues a 

24 safe harbor description under paragraph (1), a 

25 plan shall not be treated as failing to satisfy the 
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1 requirements of section 411(a)(11) of such 

2 Code or section 205 of such Act by reason of 

3 the failure to provide the information required 

4 by the modifications made under paragraph (1) 

5 if the Administrator of such plan makes a rea6 sonable attempt to comply with such require7 ments. 

8 SEC. 705. QUALIFIED GROUP LEGAL SERVICES PLANS. 

9 (a) IN GENERAL.—Subsection (e) of section 120 of 

10 the Internal Revenue Code of 1986 is amended to read 

11 as follows: 

12 ‘‘(e) APPLICATION OF SECTION.—This section and 

13 section 501(c)(20) shall apply to taxable years begin14 ning—

15 ‘‘(1) after December 31, 1976, and before July 

16 1, 1992, and 

17 ‘‘(2) after December 31, 2005, and before Jan18 uary 1, 2009.’’. 

19 (b) INCREASE IN MAXIMUM EXCLUSION.—The last 

20 sentence of section 120(a) of such Code is amended by 

21 striking ‘‘$70’’ and inserting ‘‘$150’’. 

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

23 this section shall apply to taxable years beginning after 

24 December 31, 2005. 
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1 SEC. 706. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE2 TIREMENT PLANS FOR CHARITABLE PUR3 POSES. 

4 (a) IN GENERAL.—Subsection (d) of section 408 of 

5 the Internal Revenue Code of 1986 (relating to individual 

6 retirement accounts) is amended by adding at the end the 

7 following new paragraph: 

8 ‘‘(8) DISTRIBUTIONS FOR CHARITABLE PUR9 POSES.—

10 ‘‘(A) IN GENERAL.—No amount shall be 

11 includible in gross income by reason of a quali12 fied charitable distribution. 

13 ‘‘(B) QUALIFIED CHARITABLE DISTRIBU14 TION.—For purposes of this paragraph, the 

15 term ‘qualified charitable distribution’ means 

16 any distribution from an individual retirement 

17 plan other than a plan described in subsection 

18 (k) or (p) of section 408—

19 ‘‘(i) which is made on or after the 

20 date that the individual for whose benefit 

21 the plan is maintained has attained age 

701 22 ⁄2, and 

23 ‘‘(ii) which is made directly by the 

24 trustee—

25 ‘‘(I) to an organization described 

26 in section 170(c), or 
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1 ‘‘(II) to a split-interest entity. 

2 A distribution shall be treated as a qualified 

3 charitable distribution only to the extent that 

4 the distribution would be includible in gross in5 come without regard to subparagraph (A) and, 

6 in the case of a distribution to a split-interest 

7 entity, only if no person holds an income inter8 est in the amounts in the split-interest entity 

9 attributable to such distribution other than one 

10 or more of the following: the individual for 

11 whose benefit such plan is maintained, the 

12 spouse of such individual, or any organization 

13 described in section 170(c). 

14 ‘‘(C) CONTRIBUTIONS MUST BE OTHER15 WISE DEDUCTIBLE.—For purposes of this para16 graph—

17 ‘‘(i) DIRECT CONTRIBUTIONS.—A dis18 tribution to an organization described in 

19 section 170(c) shall be treated as a quali20 fied charitable distribution only if a deduc21 tion for the entire distribution would be al22 lowable under section 170 (determined 

23 without regard to subsection (b) thereof 

24 and this paragraph). 
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1 ‘‘(ii) SPLIT-INTEREST GIFTS.—A dis2 tribution to a split-interest entity shall be 

3 treated as a qualified charitable distribu4 tion only if a deduction for the entire value 

5 of the interest in the distribution for the 

6 use of an organization described in section 

7 170(c) would be allowable under section 

8 170 (determined without regard to sub9 section (b) thereof and this paragraph). 

10 ‘‘(D) APPLICATION OF SECTION 72.—Not11 withstanding section 72, in determining the ex12 tent to which a distribution is a qualified chari13 table distribution, the entire amount of the dis14 tribution shall be treated as includible in gross 

15 income without regard to subparagraph (A) to 

16 the extent that such amount does not exceed 

17 the aggregate amount which would have been so 

18 includible if all amounts distributed from all in19 dividual retirement plans were treated as 1 con20 tract under paragraph (2)(A) for purposes of 

21 determining the inclusion of such distribution 

22 under section 72. Proper adjustments shall be 

23 made in applying section 72 to other distribu24 tions in such taxable year and subsequent tax25 able years. 
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1 ‘‘(E) SPECIAL RULES FOR SPLIT-INTEREST

2 ENTITIES.—

3 ‘‘(i) CHARITABLE REMAINDER

4 TRUSTS.—Notwithstanding section 664(b), 

5 distributions made from a trust described 

6 in subparagraph (G)(i) shall be treated as 

7 ordinary income in the hands of the bene8 ficiary to whom is paid the annuity de9 scribed in section 664(d)(1)(A) or the pay10 ment described in section 664(d)(2)(A). 

11 ‘‘(ii) POOLED INCOME FUNDS.—No 

12 amount shall be includible in the gross in13 come of a pooled income fund (as defined 

14 in subparagraph (G)(ii)) by reason of a 

15 qualified charitable distribution to such 

16 fund, and all distributions from the fund 

17 which are attributable to qualified chari18 table distributions shall be treated as ordi19 nary income to the beneficiary. 

20 ‘‘(iii) CHARITABLE GIFT ANNU21 ITIES.—Qualified charitable distributions 

22 made for a charitable gift annuity shall not 

23 be treated as an investment in the con24 tract. 
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1 ‘‘(F) DENIAL OF DEDUCTION.—Qualified 

2 charitable distributions shall not be taken into 

3 account in determining the deduction under sec4 tion 170. 

5 ‘‘(G) SPLIT-INTEREST ENTITY DEFINED.—

6 For purposes of this paragraph, the term ‘split7 interest entity’ means—

8 ‘‘(i) a charitable remainder annuity 

9 trust or a charitable remainder unitrust 

10 (as such terms are defined in section 

11 664(d)) which must be funded exclusively 

12 by qualified charitable distributions, 

13 ‘‘(ii) a pooled income fund (as defined 

14 in section 642(c)(5)), but only if the fund 

15 accounts separately for amounts attrib16 utable to qualified charitable distributions, 

17 and 

18 ‘‘(iii) a charitable gift annuity (as de19 fined in section 501(m)(5)).’’. 

20 (b) MODIFICATIONS RELATING TO INFORMATION RE21 TURNS BY CERTAIN TRUSTS.—

22 (1) RETURNS.—Section 6034 of such Code (re23 lating to returns by trusts described in section 

24 4947(a)(2) or claiming charitable deductions under 

25 section 642(c)) is amended to read as follows: 
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1 ‘‘SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 

2 4947(a)(2) OR CLAIMING CHARITABLE DEDUC3 TIONS UNDER SECTION 642(c). 

4 ‘‘(a) TRUSTS DESCRIBED IN SECTION 4947(a)(2).—

5 Every trust described in section 4947(a)(2) shall furnish 

6 such information with respect to the taxable year as the 

7 Secretary may by forms or regulations require. 

8 ‘‘(b) TRUSTS CLAIMING A CHARITABLE DEDUCTION

9 UNDER SECTION 642(c).—

10 ‘‘(1) IN GENERAL.—Every trust not required to 

11 file a return under subsection (a) but claiming a de12 duction under section 642(c) for the taxable year 

13 shall furnish such information with respect to such 

14 taxable year as the Secretary may by forms or regu15 lations prescribe, including—

16 ‘‘(A) the amount of the deduction taken 

17 under section 642(c) within such year, 

18 ‘‘(B) the amount paid out within such year 

19 which represents amounts for which deductions 

20 under section 642(c) have been taken in prior 

21 years, 

22 ‘‘(C) the amount for which such deductions 

23 have been taken in prior years but which has 

24 not been paid out at the beginning of such year, 
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1 ‘‘(D) the amount paid out of principal in 

2 the current and prior years for the purposes de3 scribed in section 642(c), 

4 ‘‘(E) the total income of the trust within 

5 such year and the expenses attributable thereto, 

6 and 

7 ‘‘(F) a balance sheet showing the assets, li8 abilities, and net worth of the trust as of the 

9 beginning of such year. 

10 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not 

11 apply to a trust for any taxable year if—

12 ‘‘(A) all the net income for such year, de13 termined under the applicable principles of the 

14 law of trusts, is required to be distributed cur15 rently to the beneficiaries, or 

16 ‘‘(B) the trust is described in section 

17 4947(a)(1).’’. 

18 (2) INCREASE IN PENALTY RELATING TO FIL19 ING OF INFORMATION RETURN BY SPLIT-INTEREST

20 TRUSTS.—Paragraph (2) of section 6652(c) of such 

21 Code (relating to returns by exempt organizations 

22 and by certain trusts) is amended by adding at the 

23 end the following new subparagraph: 

24 ‘‘(C) SPLIT-INTEREST TRUSTS.—In the 

25 case of a trust which is required to file a return 
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1 under section 6034(a), subparagraphs (A) and 

2 (B) of this paragraph shall not apply and para3 graph (1) shall apply in the same manner as if 

4 such return were required under section 6033, 

5 except that—

6 ‘‘(i) the 5 percent limitation in the 

7 second sentence of paragraph (1)(A) shall 

8 not apply, 

9 ‘‘(ii) in the case of any trust with 

10 gross income in excess of $250,000, the 

11 first sentence of paragraph (1)(A) shall be 

12 applied by substituting ‘$100’ for ‘$20’, 

13 and the second sentence thereof shall be 

14 applied by substituting ‘$50,000’ for 

15 ‘$10,000’, and 

16 ‘‘(iii) the third sentence of paragraph 

17 (1)(A) shall be disregarded. 

18 In addition to any penalty imposed on the trust 

19 pursuant to this subparagraph, if the person re20 quired to file such return knowingly fails to file 

21 the return, such penalty shall also be imposed 

22 on such person who shall be personally liable 

23 for such penalty.’’. 

24 (3) CONFIDENTIALITY OF NONCHARITABLE

25 BENEFICIARIES.—Subsection (b) of section 6104 of 
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1 such Code (relating to inspection of annual informa2 tion returns) is amended by adding at the end the 

3 following new sentence: ‘‘In the case of a trust which 

4 is required to file a return under section 6034(a), 

5 this subsection shall not apply to information re6 garding beneficiaries which are not organizations de7 scribed in section 170(c).’’. 

8 (c) EFFECTIVE DATES.—

9 (1) SUBSECTION (a).—The amendment made 

10 by subsection (a) shall apply to distributions made 

11 after December 31, 2005. 

12 (2) SUBSECTION (b).—The amendments made 

13 by subsection (b) shall apply to returns for taxable 

14 years beginning after December 31, 2005. 

15 TITLE VIII—MISCELLANEOUS 

16 PROVISIONS 

17 SEC. 801. PROVISIONS RELATING TO PLAN AMENDMENTS. 

18 (a) IN GENERAL.—If this section applies to any plan 

19 or contract amendment—

20 (1) such plan or contract shall be treated as 

21 being operated in accordance with the terms of the 

22 plan during the period described in subsection 

23 (b)(2)(A), and 

24 (2) except as provided by the Secretary of the 

25 Treasury, such plan shall not fail to meet the re-
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1 quirements of section 411(d)(6) of the Internal Rev2 enue Code of 1986 and section 204(g) of the Em3 ployee Retirement Income Security Act of 1974 by 

4 reason of such amendment. 

5 (b) AMENDMENTS TO WHICH SECTION APPLIES.—

6 (1) IN GENERAL.—This section shall apply to 

7 any amendment to any plan or annuity contract 

8 which is made—

9 (A) pursuant to any amendment made by 

10 this Act or title VI of the Economic Growth and 

11 Tax Relief Reconciliation Act of 2001, or pur12 suant to any regulation issued by the Secretary 

13 of the Treasury or the Secretary of Labor 

14 under this Act or such title VI, and 

15 (B) on or before the last day of the first 

16 plan year beginning on or after January 1, 

17 2008. 

18 In the case of a governmental plan (as defined in 

19 section 414(d) of the Internal Revenue Code of 

20 1986), this paragraph shall be applied by sub21 stituting ‘‘2010’’ for ‘‘2008’’. 

22 (2) CONDITIONS.—This section shall not apply 

23 to any amendment unless—

24 (A) during the period—
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1 (i) beginning on the date the legisla2 tive or regulatory amendment described in 

3 paragraph (1)(A) takes effect (or in the 

4 case of a plan or contract amendment not 

5 required by such legislative or regulatory 

6 amendment, the effective date specified by 

7 the plan), and 

8 (ii) ending on the date described in 

9 paragraph (1)(B) (or, if earlier, the date 

10 the plan or contract amendment is adopt11 ed), 

12 the plan or contract is operated as if such plan 

13 or contract amendment were in effect; and 

14 (B) such plan or contract amendment ap15 plies retroactively for such period.

Æ