I 

110TH CONGRESS 

2D SESSION H. R. 5543 

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

Income Security Act of 1974 to increase the retirement security of 

women and small business owners, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 6, 2008 

Mr. ALLEN (for himself, Mr. ENGLISH of Pennsylvania, and Ms. BERKLEY) 

introduced the following bill; which was referred to the Committee on 

Ways and Means, and in addition to the Committee on Education and 

Labor, for a period to be subsequently determined by the Speaker, in 

each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to increase the retirement security of women and small business owners, and for other purposes. 

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

3 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; 

4 TABLE OF CONTENTS. 

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

6 ‘‘Women’s Retirement Security Act of 2008’’. 

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1 (b) AMENDMENT OF 1986 CODE.—Except as other2 wise expressly provided, whenever in this Act an amend3 ment or repeal is expressed in terms of an amendment 

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

5 shall be considered to be made to a section or other provi6 sion of the Internal Revenue Code of 1986. 

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

8 this Act is as follows: 

Sec. 1. Short title; amendment of 1986 Code; table of contents. 

TITLE I—PROVISIONS TO INCREASE RETIREMENT SAVINGS 

Subtitle A—Employee Access to Retirement Savings at Work 

Sec. 101. Employees not covered by qualified retirement plans or arrangements 

entitled to participate in payroll deposit IRA arrangements. 

Sec. 102. Credit for small employers maintaining payroll deposit IRA arrangements. 

Sec. 103. Establishment of automatic IRAs. 

Sec. 104. Establishment of TSP II Board. 

Subtitle B—Other Provisions 

Sec. 111. Modifications to computation of saver’s credit; saver’s credit made refundable. 

Sec. 112. Qualified cash or deferred arrangements must allow long-term employees working more than 500 but less than 1,000 hours per 

year to participate. 

Sec. 113. Transfers of unused benefits of health flexible spending arrangement 

to certain retirement plans. 

Sec. 114. Computation of limits on IRA and Roth IRA contributions. 

TITLE II—PROVISIONS PROVIDING FOR PRESERVATION OF 

INCOME 

Sec. 201. Exclusion of certain qualified annuity payments. 

Sec. 202. Exclusion for lifetime annuity payments. 

Sec. 203. Joint study of application of spousal consent rules to defined contribution plans. 

Sec. 204. Facilitating longevity insurance. 

TITLE III—PROVISIONS ENSURING EQUITY IN DIVORCE 

Sec. 301. Special rules relating to treatment of qualified domestic relations orders. 

Sec. 302. Elimination of current connection requirement under Railroad Retirement Act for certain survivors. 

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Sec. 303. Permitting divorced spouses and widows and widowers to remarry 

after turning 60 without a penalty under Railroad Retirement 

Act. 

TITLE IV—PROVISIONS TO IMPROVE FINANCIAL LITERACY 

Sec. 401. Grants to community-based taxpayer clinics to provide retirement 

savings advice. 

Sec. 402. Treatment of qualified retirement planning services. 

Sec. 403. Retirement handbook and retirement readiness checklist. 

TITLE V—INCENTIVES FOR SMALL BUSINESSES TO ESTABLISH 

AND MAINTAIN RETIREMENT PLANS FOR EMPLOYEES 

Sec. 501. Credit for qualified pension plan contributions of small employers. 

Sec. 502. Deduction for pension contributions allowed in computing net earnings from self-employment. 

Sec. 503. Exemption of deferral-only qualified cash or deferred arrangements 

from top-heavy plan rules. 

Sec. 504. Extension of time for small pension plans to adopt required plan 

qualification amendments. 

TITLE VI—PROVISIONS RELATING TO LONG-TERM CARE 

INSURANCE 

Sec. 601. Treatment of premiums on qualified long-term care insurance contracts. 

Sec. 602. Credit for taxpayers with long-term care needs. 

Sec. 603. Additional consumer protections for long-term care insurance. 

Sec. 604. Treatment of exchanges of long-term care insurance contracts. 

1 TITLE I—PROVISIONS TO IN2 CREASE RETIREMENT SAV3 INGS 

4 Subtitle A—Employee Access to 

5 Retirement Savings at Work 

6 SEC. 101. EMPLOYEES NOT COVERED BY QUALIFIED RE7 TIREMENT PLANS OR ARRANGEMENTS ENTI8 TLED TO PARTICIPATE IN PAYROLL DEPOSIT 

9 IRA ARRANGEMENTS. 

10 (a) IN GENERAL.—Subpart A of part I of subchapter 

11 A of chapter 1 (relating to pension, profit-sharing, stock 

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1 bonus plans, etc.) is amended by inserting after section 

2 408A the following new section: 

3 ‘‘SEC. 408B. RIGHT TO PAYROLL DEPOSIT IRA ARRANGE4 MENTS AT WORK. 

5 ‘‘(a) REQUIREMENT TO PROVIDE PAYROLL DEPOSIT

6 IRA ARRANGEMENT.—Each employer (other than an em7 ployer described in subsection (e)) shall provide to each 

8 applicable employee of the employer for any calendar year 

9 the opportunity to participate in a payroll deposit IRA ar10 rangement which meets the requirements of this section. 

11 ‘‘(b) PAYROLL DEPOSIT IRA ARRANGEMENT.—For 

12 purposes of this section— 

13 ‘‘(1) IN GENERAL.—The term ‘payroll deposit 

14 IRA arrangement’ means a written arrangement of 

15 an employer— 

16 ‘‘(A) under which an applicable employee 

17 eligible to participate in the arrangement may 

18 elect to contribute to an individual retirement 

19 plan established by or on behalf of the employee 

20 by having the employer make periodic direct de21 posit or other payroll deposit payments (includ22 ing electronic payments) to the plan by payroll 

23 deduction, and 

24 ‘‘(B) which meets the requirements of 

25 paragraph (2). 

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1 ‘‘(2) ADMINISTRATIVE REQUIREMENTS.—The 

2 requirements of this paragraph are met with respect 

3 to any payroll deposit IRA arrangement if— 

4 ‘‘(A) the employer must make the pay5 ments elected under paragraph (1)(A) on or be6 fore the later of— 

7 ‘‘(i) the due date for the deposit of 

8 tax required to be deducted and withheld 

9 under chapter 24 (relating to collection of 

10 income tax at source on wages) for the 

11 payroll period to which such payments re12 late, or 

13 ‘‘(ii) the 30th day following the last 

14 day of the month with respect to which the 

15 payments are to be made, 

16 ‘‘(B) subject to a requirement for reason17 able notice, an employee may elect to terminate 

18 participation in the arrangement at any time 

19 during a calendar year, except that if an em20 ployee so terminates, the arrangement may pro21 vide that the employee may not elect to resume 

22 participation until the beginning of the next cal23 endar year, 

24 ‘‘(C) each employee eligible to participate 

25 may elect, during the 60-day period or other pemstockstill on PROD1PC66 with BILLS

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1 riod specified by the Secretary before the begin2 ning of any calendar year (and during the 60- 

3 day period or other period specified by the Sec4 retary before the first day the employee is eligi5 ble to participate), to participate in the ar6 rangement, or to modify the employee’s election 

7 under the arrangement (including the amounts 

8 subject to the arrangement and the manner in 

9 which such amounts are invested), for such 

10 year, 

11 ‘‘(D) the employer provides— 

12 ‘‘(i) immediately before the beginning 

13 of each period described in subparagraph 

14 (C), a notice to each employee of the em15 ployee’s opportunity to make the election 

16 and the maximum amount which may be 

17 contributed to an individual retirement 

18 plan on an annual basis, and 

19 ‘‘(ii) if the arrangement includes an 

20 automatic enrollment arrangement, the no21 tices required under subsection (h) with re22 spect to the automatic enrollment arrange23 ment, 

24 ‘‘(E) subject to subsection (f), the arrange25 ment provides that an employee may elect to 

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1 have contributions made to any individual re2 tirement plan specified by the employee, and 

3 ‘‘(F) if the arrangement does not include 

4 an automatic enrollment arrangement— 

5 ‘‘(i) the arrangement requires the em6 ployer to take all reasonable actions to so7 licit from all employees eligible to partici8 pate in the arrangement an explicit elec9 tion to either participate or not to partici10 pate in the arrangement, and 

11 ‘‘(ii) the arrangement provides that if 

12 an employee fails to make an explicit elec13 tion under clause (i) within the time pre14 scribed under the arrangement, the em15 ployee will be treated as having made an 

16 election to participate in the arrangement 

17 (and amounts shall be invested on behalf 

18 of the participant) in the same manner as 

19 if the arrangement had included an auto20 matic enrollment arrangement under sub21 section (g). 

22 ‘‘(c) APPLICABLE EMPLOYEE DEFINED; RELATED

23 DEFINITIONS AND RULES.—For purposes of this sec24 tion— 

25 ‘‘(1) APPLICABLE EMPLOYEE.— 

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1 ‘‘(A) IN GENERAL.—The term ‘applicable 

2 employee’ means, with respect to any calendar 

3 year, any employee— 

4 ‘‘(i) who was not eligible under a 

5 qualified plan or arrangement maintained 

6 by the employer for service for the pre7 ceding calendar year, and 

8 ‘‘(ii) with respect to whom it is rea9 sonable to expect that the employee will 

10 not be eligible during the calendar year 

11 under such a qualified plan or arrange12 ment. 

13 ‘‘(B) SPECIAL RULES.—For purposes of 

14 subparagraph (A)(i)— 

15 ‘‘(i) ELIGIBILITY.—An employee shall 

16 be treated as eligible under a plan for a 

17 preceding calendar year if, as of the last 

18 day of the last plan year ending in the pre19 ceding calendar year, the employee has sat20 isfied the plan’s eligibility requirements. 

21 ‘‘(ii) EXCLUDED PLANS.—A qualified 

22 plan or arrangement shall not be taken 

23 into account under this paragraph if— 

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1 ‘‘(I) the plan or arrangement is 

2 frozen as of the first day of the pre3 ceding calendar year, or 

4 ‘‘(II) in the case of a plan or ar5 rangement under which the only con6 tributions are discretionary on the 

7 part of the sponsor, there has not 

8 been an employer contribution made 

9 to the plan or arrangement for the 2- 

10 plan-year period ending with the last 

11 plan year ending in the second pre12 ceding calendar year and it is not rea13 sonable to assume that an employer 

14 contribution will be made for the plan 

15 year ending in the preceding calendar 

16 year. 

17 ‘‘(2) EXCLUDABLE EMPLOYEES.—An employer 

18 may elect to exclude from treatment as applicable 

19 employees under paragraph (1)— 

20 ‘‘(A) employees described in section 

21 410(b)(3), 

22 ‘‘(B) employees who have not attained the 

23 age of 18 before the beginning of the calendar 

24 year, 

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1 ‘‘(C) employees who have not completed at 

2 least 3 months of service with the employer, 

3 ‘‘(D) in the case of an employer that main4 tains a qualified plan or arrangement which 

5 generally excludes employees who have not sat6 isfied the eligibility requirements described in 

7 section 410(a)(1)(A) (without regard to section 

8 410(a)(1)(B)), employees who have not yet sat9 isfied such requirements, 

10 ‘‘(E) employees who are eligible to make 

11 salary reduction contributions under an ar12 rangement which meets the requirements of 

13 section 403(b), and 

14 ‘‘(F) all employees of the employer if the 

15 employer maintains an arrangement described 

16 in section 408(p). 

17 ‘‘(3) QUALIFIED PLAN OR ARRANGEMENT.— 

18 The term ‘qualified plan or arrangement’ means a 

19 plan, contract, pension, or trust described in section 

20 219(g)(5). 

21 ‘‘(4) EXCEPTION FOR EMPLOYEES OF GOVERN22 MENTS AND CHURCHES.—The term ‘applicable em23 ployee’ shall not include an employee of— 

24 ‘‘(A) a government or entity described in 

25 section 414(d), or 

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1 ‘‘(B) a church or a convention or associa2 tion of churches which is exempt from tax 

3 under section 501, including any employee de4 scribed in section 414(e)(3)(B). 

5 ‘‘(5) DESIGNATION OF APPLICABLE EMPLOY6 EES.—The Secretary shall issue guidelines for deter7 mining the class or classes of employees to be cov8 ered by a payroll deposit IRA arrangement. Such 

9 guidelines shall provide that if an employer elects 

10 under paragraph (2) to exclude employees from the 

11 arrangement, the employer shall specify the classi12 fication or categories of employees who are not so 

13 covered. 

14 ‘‘(d) PAYROLL DEPOSIT IRA CONTRIBUTIONS

15 TREATED LIKE OTHER CONTRIBUTIONS TO INDIVIDUAL

16 RETIREMENT PLANS.— 

17 ‘‘(1) TAX TREATMENT UNAFFECTED.—The fact 

18 that a contribution to an individual retirement plan 

19 is made on behalf of an employee under a payroll de20 posit IRA arrangement instead of being made di21 rectly by the employee shall not affect the deduct22 ibility or other tax treatment of the contribution or 

23 of other amounts under this title. 

24 ‘‘(2) PAYROLL SAVINGS CONTRIBUTIONS TAKEN

25 INTO ACCOUNT.—Any contribution made on behalf 

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1 of an employee under a payroll deposit IRA arrange2 ment shall be taken into account in applying the lim3 itations on contributions to individual retirement 

4 plans and the other provisions of this title applicable 

5 to individual retirement plans as if the contribution 

6 had been made directly by the employee. 

7 ‘‘(e) EXCEPTION FOR CERTAIN SMALL AND NEW

8 EMPLOYERS.— 

9 ‘‘(1) IN GENERAL.—The requirements of this 

10 section shall not apply for any calendar year to an 

11 employer if— 

12 ‘‘(A) the employer did not have more than 

13 10 employees who received at least $5,000 of 

14 compensation from the employer for the pre15 ceding calendar year, or 

16 ‘‘(B) was not in existence at all times dur17 ing the 2 preceding calendar years and did not 

18 have more than 100 employees who received at 

19 least $5,000 of compensation from the employer 

20 on any day during either of the 2 preceding cal21 endar years. 

22 ‘‘(2) OPERATING RULES.—In determining the 

23 number of employees for purposes of this sub24 section— 

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1 ‘‘(A) any rule applicable in determining the 

2 number of employees for purposes of section 

3 408(p)(2)(C) shall be applicable under this sub4 section, 

5 ‘‘(B) all members of the same family 

6 (within the meaning of section 318(a)(1)) shall 

7 be treated as 1 individual, and 

8 ‘‘(C) any reference to an employer shall in9 clude a reference to any predecessor employer. 

10 ‘‘(f) DEPOSITS TO INDIVIDUAL RETIREMENT PLANS

11 OTHER THAN THOSE SELECTED BY EMPLOYEE.— 

12 ‘‘(1) IN GENERAL.—An employer shall not be 

13 treated as failing to satisfy the requirements of this 

14 section or any other provision of this title merely be15 cause the employer makes all contributions (or all 

16 contributions on behalf of employees who do not 

17 specify an individual retirement plan, trustee, or 

18 issuer to receive the contributions) to individual re19 tirement plans specified in paragraph (2) or (4). 

20 ‘‘(2) PLANS OF A DESIGNATED TRUSTEE OR

21 ISSUER.—An employer may elect to have contribu22 tions for all applicable employees participating in a 

23 payroll deposit IRA arrangement made to individual 

24 retirement plans of a designated trustee or issuer 

25 under the arrangement. The preceding sentence 

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1 shall not apply unless each participant is notified in 

2 writing that the participant’s balance may be trans3 ferred without cost or penalty to another individual 

4 retirement plan established by or on behalf of the 

5 participant. 

6 ‘‘(3) PAYROLL TAX DEPOSIT PROCEDURE.—The 

7 Secretary, in consultation with the TSP II Board, 

8 shall establish a procedure under which an em9 ployer— 

10 ‘‘(A) may include with each deposit of tax 

11 required to be deducted and withheld under 

12 chapter 24 the aggregate amounts, for the pe13 riod covered by the deposit, which applicable 

14 employees have designated under subsection 

15 (b)(1)(A) (or are deemed to have designated 

16 under subsection (b)(2)(F)(ii) or under an auto17 matic enrollment arrangement described in sub18 section (g)) for contribution to individual retire19 ment plans, established on behalf of the employ20 ees under paragraph (4), and 

21 ‘‘(B) specifies, in such manner as the Sec22 retary may prescribe, the following information 

23 for each applicable employee for whom a con24 tribution is to be made: 

25 ‘‘(i) The employee’s name and TIN. 

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1 ‘‘(ii) The amount of the contribution. 

2 ‘‘(iii) The investment options selected 

3 by the employee (or deemed to have been 

4 selected by the employee under such auto5 matic enrollment arrangement) and the 

6 amount of the contribution allocated to 

7 each option. 

8 ‘‘(4) ESTABLISHMENT AND MAINTENANCE OF

9 ACCOUNTS UNDER PAYROLL TAX DEPOSIT PROCE10 DURE.— 

11 ‘‘(A) IN GENERAL.—Subject to the provi12 sions of this section and section 408C, the TSP 

13 II Board shall provide for the establishment 

14 and maintenance of individual retirement plans 

15 (including automatic IRAs) into which contribu16 tions may be deposited under paragraph (3). To 

17 the maximum extent practicable, the TSP II 

18 Board shall— 

19 ‘‘(i) enter into contracts with persons 

20 eligible to be trustees of individual retire21 ment plans under section 408 to establish 

22 such plans, to provide the investment 

23 funds and investment management, and to 

24 provide notice, record keeping, and other 

25 administrative services, and 

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1 ‘‘(ii) ensure that the costs of invest2 ment management and administration are 

3 kept to a minimum, including through con4 sideration of the use of investments which 

5 involve passive management and which 

6 seek to replicate the performance of a por7 tion of the market. 

8 ‘‘(B) PAYROLL DEPOSIT FEATURES.—The 

9 TSP II Board shall establish procedures so that 

10 contributions may be made to individual retire11 ment plans (including automatic IRAs) under 

12 paragraph (3) without undue administrative or 

13 paperwork requirements on participating em14 ployers. Such procedures shall ensure that only 

15 1 such plan may be established for each TIN. 

16 ‘‘(C) LIMITATION ON ROLLOVERS.—If— 

17 ‘‘(i) any amount is paid or distributed 

18 out of an individual retirement plan estab19 lished under this paragraph, and 

20 ‘‘(ii) such amount is paid into an indi21 vidual retirement plan which was not es22 tablished under this paragraph, 

23 the payment described in clause (ii) shall be 

24 treated as a rollover contribution for purposes 

25 of section 408(d)(3) if and only if the balance 

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1 to the credit of the individual in such individual 

2 retirement plan or arrangement immediately be3 fore the payment described in clause (i) was at 

4 least $15,000. 

5 ‘‘(g) COORDINATION WITH AUTOMATIC ENROLL6 MENT AND OTHER DEFAULT ELECTION PROVISIONS.— 

7 ‘‘(1) IN GENERAL.—Contributions under a pay8 roll deposit IRA arrangement may be made pursuant 

9 to an automatic enrollment arrangement. 

10 ‘‘(2) AUTOMATIC ENROLLMENT ARRANGE11 MENT.—The term ‘automatic enrollment arrange12 ment’ means an arrangement under a payroll deposit 

13 IRA arrangement and subject to rules prescribed by 

14 the Secretary— 

15 ‘‘(A) under which an individual may elect 

16 to have the employer make payments as con17 tributions to an individual account plan on be18 half of the individual, or to the individual di19 rectly in cash, 

20 ‘‘(B) under which the individual is treated 

21 as having elected to have the employer make 

22 such contributions in an amount equal to a 

23 specified percentage of compensation or dollar 

24 amount until the individual specifically elects 

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1 cally elects to have such contributions made at 

2 a different percentage or in a different 

3 amount), and 

4 ‘‘(C) which meets notice requirements sub5 stantially similar to those described in section 

6 414(w)(4). 

7 ‘‘(3) DEFAULT INVESTMENTS.—If an employee 

8 is deemed under an automatic enrollment arrange9 ment to have made an election to participate in a 

10 payroll deposit IRA arrangement— 

11 ‘‘(A) the employee shall be deemed to have 

12 made an election to make contributions in the 

13 amount specified in paragraph (4), 

14 ‘‘(B) such contributions shall be trans15 ferred to— 

16 ‘‘(i) an automatic IRA, or 

17 ‘‘(ii) if the employer has made an elec18 tion under subsection (f)(2), to an indi19 vidual retirement plan of the designated 

20 trustee or issuer but only if the require21 ments of subparagraph (C) are met with 

22 respect to such individual retirement plan, 

23 and 

24 ‘‘(C) such contributions shall be invested 

25 as provided in paragraph (5). 

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1 ‘‘(4) AMOUNT OF CONTRIBUTIONS.— 

2 ‘‘(A) IN GENERAL.—The amount specified 

3 in this paragraph is 3 percent of compensation. 

4 ‘‘(B) AUTHORITY OF BOARD TO PROVIDE

5 FOR ANNUAL INCREASES.—The TSP II Board 

6 may by regulation provide for annual increases 

7 in the percentage of compensation an employee 

8 is deemed to have elected under paragraph (2) 

9 but in no event shall the percentage of com10 pensation an employee is deemed to have elect11 ed exceed 8 percent. 

12 ‘‘(C) CONTRIBUTION LIMIT.—The con13 tributions under paragraph (2) on behalf of an 

14 employee for any calendar year shall not exceed 

15 the dollar limits applicable to the employee for 

16 the calendar year under section 219 or 408A. 

17 ‘‘(5) INVESTMENT IN LIFE CYCLE FUND OR

18 OTHER INVESTMENTS SPECIFIED BY THE BOARD.— 

19 Amounts contributed under paragraph (3) shall be 

20 invested in— 

21 ‘‘(A) a life cycle fund similar to the life 

22 cycle funds offered under the Thrift Savings 

23 Fund established under subchapter III of chap24 ter 84 of title 5, United States Code, or 

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1 ‘‘(B) such other investment or investments 

2 as the TSP II Board specifies in regulations 

3 (which shall be promulgated after taking into 

4 account, but not necessarily conforming to, reg5 ulations prescribed by the Secretary of Labor 

6 under section 404(c)(5) of the Employee Retire7 ment Income Security Act of 1974) and which 

8 entails asset allocation and extensive diversifica9 tion. 

10 ‘‘(6) COORDINATION WITH WITHHOLDING.— 

11 The Secretary shall modify the withholding exemp12 tion certificate under section 3402(f) so that any no13 tice and election requirements with respect to an 

14 automatic enrollment arrangement which is part of 

15 a payroll deposit IRA arrangement may be met 

16 through the use of such certificate. 

17 ‘‘(h) MODEL NOTICE.—The Secretary, in consulta18 tion with the TSP II Board, shall— 

19 ‘‘(1) provide a model notice, written in a man20 ner calculated to be understandable to the average 

21 worker, that is simple for employers to use— 

22 ‘‘(A) to notify employees of the require23 ment under this section for the employer to pro24 vide certain employees with the opportunity to 

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1 participate in a payroll deposit IRA arrange2 ment, and 

3 ‘‘(B) to satisfy the requirements of sub4 section (b)(2)(D), 

5 ‘‘(2) provide uniform forms for enrollment, in6 cluding automatic enrollment, in a payroll deposit 

7 IRA arrangement, and 

8 ‘‘(3) establish a web site or other electronic 

9 means for small employers to access and use to ob10 tain information on payroll deposit IRA arrange11 ments and to obtain required notices and forms. 

12 ‘‘(i) CROSS REFERENCE.—For provision preempting 

13 conflicting State laws, see section 2(g) of the Women’s Re14 tirement Security Act of 2008.’’. 

15 (b) NOTICE OF AVAILABILITY OF INVESTMENT

16 GUIDELINES.—Section 408(i) (relating to reports) is 

17 amended by adding at the end the following new sentence: 

18 ‘‘Any report furnished under paragraph (2) to an indi19 vidual shall include notice of the availability of, and meth20 ods of acquiring, the basic investment guidelines prepared 

21 by the Secretary of Labor.’’. 

22 (c) DEVELOPMENT OF BASIC INVESTMENT GUIDE23 LINES.— 

24 (1) IN GENERAL.—The Secretary of Labor 

25 shall, in consultation with the Secretary of Treasury, 

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1 develop and publish basic guidelines for investing for 

2 retirement. Except as otherwise provided by the Sec3 retary of Labor, such guidelines shall include— 

4 (A) information on the benefits of diver5 sification, 

6 (B) information on the essential dif7 ferences, in terms of risk and return, between 

8 various pension plan investments, including 

9 stocks, bonds, mutual funds, and money market 

10 investments, 

11 (C) information on how an individual’s 

12 pension plan investment allocations may differ 

13 depending on the individual’s age and years to 

14 retirement and on other factors determined by 

15 the Secretary of Labor, 

16 (D) sources of information where individ17 uals may learn more about pension rights, indi18 vidual investing, and investment advice, and 

19 (E) such other information related to indi20 vidual investing as the Secretary of Labor de21 termines appropriate. 

22 (2) CALCULATION INFORMATION.—The guide23 lines under paragraph (1) shall include addresses for 

24 Internet sites and worksheets which a participant or 

25 beneficiary in a pension plan may use to calculate— 

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1 (A) the retirement age value of the partici2 pant’s or beneficiary’s nonforfeitable pension 

3 benefits under the plan (expressed as an annu4 ity amount and determined by reference to var5 ied historical annual rates of return and annu6 ity interest rates), and 

7 (B) other important amounts relating to 

8 retirement savings, including the amount which 

9 a participant or beneficiary would be required 

10 to save annually to provide a retirement income 

11 equal to various percentages of their current 

12 salary (adjusted for expected growth prior to 

13 retirement). 

14 (3) PUBLIC COMMENT.—The Secretary of 

15 Labor shall provide at least 90 days for public com16 ment on proposed guidelines before publishing the 

17 final guidelines. 

18 (4) RULES RELATING TO GUIDELINES.—The 

19 guidelines under paragraph (1)— 

20 (A) shall be written in a manner calculated 

21 to be understood by the average plan partici22 pant, and 

23 (B) may be delivered in written, electronic, 

24 or other appropriate manner to the extent such 

25 manner would ensure that the guidelines are 

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1 reasonably accessible to participants and bene2 ficiaries. 

3 (d) PENALTY FOR FAILURE TO PROVIDE ACCESS TO

4 PAYROLL SAVINGS ARRANGEMENTS.—Chapter 43 (relat5 ing to qualified pension, etc., plans) is amended by adding 

6 at the end the following new section: 

7 ‘‘SEC. 4980H. REQUIREMENTS FOR EMPLOYERS TO PRO8 VIDE EMPLOYEES ACCESS TO PAYROLL DE9 POSIT IRA ARRANGEMENTS. 

10 ‘‘(a) GENERAL RULE.—There is hereby imposed a 

11 tax on any failure by an employer to meet the require12 ments of subsection (d) for a calendar year. 

13 ‘‘(b) AMOUNT.— 

14 ‘‘(1) IN GENERAL.—The amount of the tax im15 posed by subsection (a) on any failure for any cal16 endar year shall be $100 with respect to each em17 ployee to whom such failure relates. 

18 ‘‘(2) TAX NOT TO APPLY WHERE FAILURE NOT

19 DISCOVERED AND REASONABLE DILIGENCE EXER20 CISED.—No tax shall be imposed by subsection (a) 

21 on any failure during any period for which it is es22 tablished to the satisfaction of the Secretary that the 

23 employer subject to liability for the tax did not know 

24 that the failure existed and exercised reasonable dili25 gence to meet the requirements of subsection (d). In 

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1 no event shall the tax be imposed with respect to 

2 any failure that ends before the expiration of 90 

3 days after the employer has responded or has had a 

4 reasonable opportunity to respond to a request for 

5 confirmation of compliance under subsection (c). 

6 ‘‘(3) TAX NOT TO APPLY TO FAILURES COR7 RECTED WITHIN 30 DAYS.—No tax shall be imposed 

8 by subsection (a) on any failure if— 

9 ‘‘(A) the employer subject to liability for 

10 the tax under subsection (a) exercised reason11 able diligence to meet the requirements of sub12 section (d), and 

13 ‘‘(B) the employer provides the payroll de14 posit IRA arrangement described in section 

15 408B to each employee eligible to participate in 

16 the arrangement by the end of the 30-day pe17 riod beginning on the first date the employer 

18 knew, or exercising reasonable diligence would 

19 have known, that such failure existed. 

20 ‘‘(4) WAIVER BY SECRETARY.—In the case of a 

21 failure which is due to reasonable cause and not to 

22 willful neglect, the Secretary may waive part or all 

23 of the tax imposed by subsection (a) to the extent 

24 that the payment of such tax would be excessive or 

25 otherwise inequitable relative to the failure involved. 

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1 ‘‘(c) PROCEDURES FOR NOTICE.—Not later than 6 

2 months after the date of the enactment of this section, 

3 the Secretary shall prescribe and implement procedures 

4 for obtaining from employers confirmation that such em5 ployers are in compliance with the requirements of sub6 section (d). The Secretary, in the Secretary’s discretion, 

7 may prescribe that the confirmation shall be obtained on 

8 an annual or less frequent basis, and may use for this 

9 purpose the annual report or quarterly report for employ10 ment taxes, or such other means as the Secretary may 

11 deem advisable. 

12 ‘‘(d) REQUIREMENT TO PROVIDE EMPLOYEE ACCESS

13 TO PAYROLL DEPOSIT IRA ARRANGEMENTS.—The re14 quirements of this subsection are met if the employer 

15 meets the requirements of section 408B.’’. 

16 (e) COORDINATION WITH ERISA FIDUCIARY DU17 TIES.—Section 404(c)(2) of Employee Retirement Income 

18 Security Act of 1974 (29 U.S.C. 1104(c)(2)) is amend19 ed— 

20 (1) by inserting ‘‘or an individual retirement 

21 plan designated by the employer under section 408B 

22 of such Code’’ after ‘‘1986’’, 

23 (2) by inserting ‘‘(7 days after notice has been 

24 given to an employee that an individual retirement 

25 plan has been established on behalf of the employee 

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1 under section 408B of such Code)’’ after ‘‘estab2 lished’’ in subparagraph (C), and 

3 (3) by inserting ‘‘or with respect to an indi4 vidual retirement plan designated by an employer 

5 under section 408B of such Code’’ after ‘‘arrange6 ment’’ in the last sentence. 

7 (f) CONFORMING AMENDMENTS.— 

8 (1) The table of sections for subpart A of part 

9 I of subchapter A of chapter 1 is amended by insert10 ing after the item relating to section 408A the fol11 lowing new item: 

‘‘Sec. 408B. Right to payroll deposit IRA arrangements at work.’’. 

12 (2) The table of sections for chapter 43 is 

13 amended by adding at the end the following new 

14 item: 

‘‘Sec. 4980H. Requirements for employers to provide employees access to payroll deposit IRA arrangements.’’. 

15 (g) PREEMPTION OF CONFLICTING STATE LAWS.— 

16 The amendments made by this section shall supersede any 

17 law of a State that would directly or indirectly prohibit 

18 or restrict the establishment or operation of a payroll de19 posit IRA arrangement meeting the requirements of sec20 tion 408B of the Internal Revenue Code of 1986 (includ21 ing the inclusion in any such arrangement of an automatic 

22 enrollment arrangement as defined in section 408B(g) of 

23 such Code). 

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1 (h) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to calendar years beginning after 

3 December 31, 2008. 

4 SEC. 102. CREDIT FOR SMALL EMPLOYERS MAINTAINING 

5 PAYROLL DEPOSIT IRA ARRANGEMENTS. 

6 (a) IN GENERAL.—Subpart D of part IV of sub7 chapter A of chapter 1 (relating to business related cred8 its) is amended by adding at the end the following new 

9 section: 

10 ‘‘SEC. 45O. SMALL EMPLOYER PAYROLL DEPOSIT IRA AR11 RANGEMENT COSTS. 

12 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

13 in the case of an eligible employer maintaining a payroll 

14 deposit IRA arrangement meeting the requirements of sec15 tion 408B (without regard to whether or not the employer 

16 is required to maintain the arrangement), the small em17 ployer payroll deposit IRA arrangement cost credit deter18 mined under this section for any taxable year is the 

19 amount determined under subsection (b). 

20 ‘‘(b) AMOUNT OF CREDIT.— 

21 ‘‘(1) IN GENERAL.—The amount of the credit 

22 determined under this section for any taxable year 

23 with respect to an eligible employer shall be equal to 

24 the lesser of— 

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1 ‘‘(A) $25 multiplied by the number of ap2 plicable employees (within the meaning of sec3 tion 408B(c)) for whom contributions are made 

4 under the payroll deposit IRA arrangement re5 ferred to in subsection (a) for the calendar year 

6 in which the taxable year begins, or 

7 ‘‘(B) $250. 

8 ‘‘(2) DURATION OF CREDIT.—No credit shall be 

9 determined under this section for any taxable year 

10 other than a taxable year which begins in the first 

11 2 calendar years in which the eligible employer 

12 maintains a payroll deposit IRA arrangement meet13 ing the requirements of section 408B. 

14 ‘‘(3) COORDINATION WITH SMALL EMPLOYER

15 STARTUP CREDIT.—No credit shall be allowed under 

16 this section for any taxable year if a credit is deter17 mined under section 45E for the taxable year. 

18 ‘‘(c) ELIGIBLE EMPLOYER.—For purposes of this 

19 section, the term ‘eligible employer’ means, with respect 

20 to any calendar year in which the taxable year begins, an 

21 employer which maintains a payroll deposit IRA arrange22 ment meeting the requirements of section 408B and 

23 which, on each day during the preceding calendar year, 

24 had no more than 100 employees.’’. 

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1 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI2 NESS CREDIT.—Section 38(b) (defining current year busi3 ness credit) is amended by striking ‘‘plus’’ at the end of 

4 paragraph (30), by striking the period at the end of para5 graph (31) and inserting ‘‘, plus’’, and by adding at the 

6 end the following new paragraph: 

7 ‘‘(32) in the case of an eligible employer (as de8 fined in section 45O(c)) maintaining a payroll de9 posit IRA arrangement meeting the requirements of 

10 section 408B, the small employer payroll deposit 

11 IRA arrangement cost credit determined under sec12 tion 45O(a).’’ 

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

14 for subpart D of part IV of subchapter A of chapter 1 

15 is amended by adding at the end the following new item: 

‘‘Sec. 45O. Small employer payroll deposit IRA arrangement costs.’’. 

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

17 this section shall apply to taxable years beginning after 

18 December 31, 2008. 

19 SEC. 103. ESTABLISHMENT OF AUTOMATIC IRAS. 

20 (a) IN GENERAL.—Subpart A of part I of subchapter 

21 A of chapter 1 (relating to pension, profit-sharing, stock 

22 bonus plans, etc.), as amended by section 101, is amended 

23 by inserting after section 408B the following new section: 

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1 ‘‘SEC. 408C. AUTOMATIC IRAS. 

2 ‘‘(a) GENERAL RULE.—An automatic IRA shall be 

3 treated for purposes of this title in the same manner as 

4 an individual retirement plan. An automatic IRA may also 

5 be treated as a Roth IRA for purposes of this title if it 

6 meets the requirements of section 408A. 

7 ‘‘(b) AUTOMATIC IRA.—For purposes of this section, 

8 the term ‘automatic IRA’ means an individual retirement 

9 plan (as defined in section 7701(a)(37)) which meets the 

10 investment and fee requirements under the regulations 

11 under subsection (c). 

12 ‘‘(c) INVESTMENT AND FEE REQUIREMENTS.— 

13 ‘‘(1) IN GENERAL.—The TSP II Board, in con14 sultation with the Secretary and the Secretary of 

15 Labor, shall, not later than 1 year after the date of 

16 the enactment of this section, prescribe regulations 

17 which set forth the requirements of this subsection 

18 which an individual retirement plan must meet in 

19 order to be treated as an automatic IRA. 

20 ‘‘(2) INVESTMENT OPTIONS.—The regulations 

21 under paragraph (1) shall provide that an automatic 

22 IRA shall allow the individual on whose behalf the 

23 individual retirement plan is established to invest 

24 contributions to, and earnings of, the plan in all of 

25 the following investment options: 

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1 ‘‘(A) Options which are similar to all in2 vestment options which are available (at the 

3 time the plan is established) to a participant in 

4 the Thrift Savings Fund established under sub5 chapter III of chapter 84 of title 5, United 

6 States Code. 

7 ‘‘(B) Any other investment option specified 

8 in the regulations. 

9 Such regulations shall specify which of the invest10 ment options shall be treated as default investment 

11 options for purposes of section 408B(g)(5). 

12 ‘‘(3) INVESTMENT FEES.— 

13 ‘‘(A) IN GENERAL.—The regulations under 

14 paragraph (1) shall provide that an automatic 

15 IRA shall not charge any investment fees 

16 which, in the aggregate, are not reasonable (as 

17 determined under such regulations). 

18 ‘‘(B) INVESTMENT FEES.—For purposes of 

19 this paragraph, the term ‘investment fees’ in20 cludes any fee, commission, asset management 

21 fee, compensation for services, or any other 

22 charge or fee specified in the regulations under 

23 paragraph (1) which is imposed with respect to 

24 the automatic IRA.’’. 

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1 (b) STUDIES OF SPOUSAL CONSENT REQUIREMENTS

2 AND PROMOTION OF CERTAIN LIFETIME INCOME AR3 RANGEMENTS.— 

4 (1) IN GENERAL.—The Secretary of the Treas5 ury and the Secretary of Labor shall jointly conduct 

6 a separate study of the feasibility and desirability of 

7 each of the following: 

8 (A) Extending to automatic IRAs spousal 

9 consent requirements similar to, or based on, 

10 those that apply under the Federal employees’ 

11 Thrift Savings Plan, including consideration of 

12 whether modifications of such requirements are 

13 necessary to apply them to automatic IRAs. 

14 (B) Promoting the use of low-cost annu15 ities, longevity insurance, or other guaranteed 

16 lifetime income arrangements in automatic 

17 IRAs, including consideration of— 

18 (i) appropriate means of arranging 

19 for, or encouraging, individuals to receive 

20 at least a portion of their distributions in 

21 some form of low-cost guaranteed lifetime 

22 income, and 

23 (ii) issues presented by possible addi24 tional differences in, or uniformity of, pro25 visions governing different IRAs. 

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1 (2) REPORT.—Not later than 18 months after 

2 the date of the enactment of this Act, the Secre3 taries shall report the results of each study con4 ducted under subsection (a), together with any rec5 ommendations for legislative changes, to the Com6 mittees on Finance and Health, Education, Labor, 

7 and Pensions of the Senate and the Committees on 

8 Ways and Means and Education and Labor of the 

9 House of Representatives. 

10 (c) MANDATORY TRANSFERS.—Section 

11 401(a)(31)(B) is amended— 

12 (1) by inserting ‘‘(including an automatic 

13 IRA)’’ after ‘‘individual retirement plan’’ each place 

14 it appears, and 

15 (2) by adding at the end the following new sen16 tence: ‘‘Any amount so transferred (and any earn17 ings thereon) shall be invested in a default invest18 ment described in section 408B(g)(5).’’ 

19 (d) CLERICAL AMENDMENT.—The table of sections 

20 for subpart A of part I of subchapter A of chapter 1 is 

21 amended by inserting after the item relating to section 

22 408B the following new item: 

‘‘Sec. 408C. Automatic IRAs.’’. 

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

24 this section shall apply to calendar years beginning on or 

25 after the date on which proposed and temporary or final 

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1 regulations described in section 408C(c) of the Internal 

2 Revenue Code of 1986 (as added by this Act) are issued. 

3 SEC. 104. ESTABLISHMENT OF TSP II BOARD. 

4 (a) ESTABLISHMENT.—There is established in the ex5 ecutive branch of the Government a TSP II Board. The 

6 board shall be established and maintained in the same 

7 manner as the Federal Retirement Thrift Investment 

8 Board under subchapter VII of chapter 84 of title 5, 

9 United States Code. 

10 (b) EXECUTIVE DIRECTOR.—The TSP II Board shall 

11 appoint an Executive Director in a similar manner and 

12 with similar functions as the Executive Director of the 

13 Federal Retirement Thrift Investment Board under sec14 tion 8474 of title 5, United States Code. 

15 (c) DUTIES OF BOARD.—The TSP II Board shall es16 tablish policies and procedures for— 

17 (1) establishment and maintenance of individual 

18 retirement plans under section 408B(f)(3) of the In19 ternal Revenue Code of 1986, 

20 (2) the investment and management of con21 tributions to such individual retirement plans, 

22 (3) the amount of contributions, and the invest23 ment of such contributions, under automatic con24 tribution arrangements under section 408B(g) of 

25 such Code, including the designation of investment 

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1 funds in which such contributions may be invested, 

2 and 

3 (4) the establishment of automatic IRAs under 

4 section 408C of such Code, including the issuance of 

5 regulations under subsection (c) of such section. 

6 (d) BEST PRACTICES.—The TSP II Board shall, on 

7 a continual basis, prescribe and encourage best practices 

8 (including cost efficiencies and innovations) in enrollment, 

9 investment, distribution, and other procedures or arrange10 ments relating to retirement savings and investment. In 

11 carrying out its responsibilities under this section, the 

12 TSP II Board may implement (by contract or otherwise) 

13 pilot projects to help assess the efficacy and workability 

14 of specific practices and arrangements. 

15 (e) EXPANSION OF USE OF IRAS BY SELF-EM16 PLOYED AND OTHER INDIVIDUALS.—The TSP II Board 

17 shall establish procedures to disseminate information 

18 (through use of the Internet and other appropriate means) 

19 to facilitate and encourage— 

20 (1) the use by self-employed and other individ21 uals of automatic debit and similar arrangements for 

22 investment in individual retirement plans, including 

23 automatic IRAs, 

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1 (2) efforts by voluntary associations to promote 

2 savings in individual retirement plans, including 

3 automatic IRAs, by their members and others, and 

4 (3) the direct deposit of Federal and State in5 come tax refunds in individual retirement plans, in6 cluding automatic IRAs. 

7 (f) EXCLUSIVE INTEREST.—The members of the 

8 TSP II Board shall discharge their responsibilities solely 

9 in the interest of participants and beneficiaries under indi10 vidual retirement plans described in section 408B of the 

11 Internal Revenue Code of 1986. 

12 (g) OTHER PROVISIONS MADE APPLICABLE.—The 

13 provisions of subsections (f)(3), (g), (i), and (j) of section 

14 8472 of title 5, United States Code, shall apply to the 

15 TSP II Board. 

16 Subtitle B—Other Provisions 

17 SEC. 111. MODIFICATIONS TO COMPUTATION OF SAVER’S 

18 CREDIT; SAVER’S CREDIT MADE REFUND19 ABLE. 

20 (a) IN GENERAL.—Section 25B(b) (defining applica21 ble percentage), as amended by section 833 of the Pension 

22 Protection Act of 2006, is amended to read as follows: 

23 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of 

24 this section— 

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1 ‘‘(1) IN GENERAL.—The applicable percentage 

2 is 50 percent reduced (but not below zero) by 1 per3 centage point for each phaseout amount by which 

4 the taxpayer’s adjusted gross income for the taxable 

5 year exceeds the threshold amount. 

6 ‘‘(2) PHASEOUT AMOUNT; THRESHOLD

7 AMOUNT.—The phaseout amount and the threshold 

8 amount shall be determined as follows: 

‘‘In the case of: 

The 

phaseout 

amount 

is: 

The 

threshold 

amount 

is: 

A joint return ......................................................... $200 $50,000

A head of household return .................................... $150 $37,500

Any other return ..................................................... $100 $25,000. 

9 ‘‘(3) INFLATION ADJUSTMENT.— 

10 ‘‘(A) JOINT RETURNS.—In the case of any 

11 taxable year beginning in a calendar year after 

12 2009, the $50,000 amount under paragraph (2) 

13 shall be increased by an amount equal to— 

14 ‘‘(i) such dollar amount, multiplied by 

15 ‘‘(ii) the cost-of-living adjustment de16 termined under section 1(f)(3) for the cal17 endar year in which the taxable year be18 gins, determined by substituting ‘calendar 

19 year 2008’ for ‘calendar year 1992’ in sub20 paragraph (B) thereof. 

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1 Any increase determined under the preceding 

2 sentence shall be rounded to the nearest mul3 tiple of $500. 

4 ‘‘(B) OTHER RETURNS.—In the case of 

5 any taxable year for which there is an increase 

6 under subparagraph (A)— 

7 ‘‘(i) the $37,500 under paragraph (2) 

8 shall be increased to an amount equal to 

9 75 percent of the amount determined 

10 under subparagraph (A), and 

11 ‘‘(ii) the $25,000 amount under para12 graph (2) shall be increased to an amount 

13 equal to 50 percent of the amount deter14 mined under subparagraph (A).’’. 

15 (b) CREDIT MADE REFUNDABLE.— 

16 (1) TRANSFER OF CREDIT TO REFUNDABLE

17 CREDITS.— 

18 (A) IN GENERAL.—Section 25B, as 

19 amended by subsection (a), is hereby moved to 

20 subpart C of part IV of subchapter A of chap21 ter 1 (relating to refundable credits) and in22 serted after section 35. 

23 (B) CONFORMING AMENDMENTS.— 

24 (i) Section 24(b)(3)(B) is amended by 

25 striking ‘‘and 25B’’. 

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1 (ii) Section 25(e)(1)(C)(ii) is amended 

2 by striking ‘‘, 25B’’. 

3 (iii) Section 25D(c)(2) is amended by 

4 striking ‘‘24, and 25B’’ and inserting ‘‘and 

5 24’’. 

6 (iv) Section 26(a)(1) is amended by 

7 striking ‘‘24, and 25B’’ and inserting ‘‘and 

8 24’’. 

9 (v) Section 25B, as moved by sub10 paragraph (A), is redesignated as section 

11 36. 

12 (vi) Section 904(i) is amended by 

13 striking ‘‘24, and 25B’’ and inserting ‘‘ 

14 and 24’’. 

15 (vii) Section 1400C(d)(2) is amended 

16 by striking ‘‘, 25B’’. 

17 (viii) The table of sections for subpart 

18 C of part IV of subchapter A of chapter 1 

19 is amended by striking the item relating to 

20 section 36 and inserting the following: 

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

‘‘Sec. 37. Overpayments of tax.’’. 

21 (ix) The table of sections for subpart 

22 A of part IV of subchapter A of chapter 1 

23 is amended by striking the item relating to 

24 section 25B. 

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1 (x) Section 1324 of title 31, United 

2 States Code, is amended by inserting ‘‘, or 

3 enacted by the Women’s Retirement Secu4 rity Act of 2008’’ before the period at the 

5 end. 

6 (2) MANDATORY DEPOSIT INTO QUALIFIED AC7 COUNT.— 

8 (A) NO REDUCTION OF TAX.—Subsection 

9 (a) of section 36, as moved and redesignated by 

10 paragraph (1), is amended by striking ‘‘credit 

11 against the tax imposed by this subtitle’’ and 

12 inserting ‘‘tax credit’’. 

13 (B) DEPOSIT INTO QUALIFIED AC14 COUNT.—Subsection (g) of section 36, as moved 

15 and redesignated by paragraph (1), is amended 

16 to read as follows: 

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

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

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

20 as a credit against any tax imposed by this subtitle 

21 but instead shall be treated as an overpayment 

22 under section 6401(b) and— 

23 ‘‘(A) shall be paid on behalf of the indi24 vidual taxpayer to an applicable retirement plan 

25 designated by the individual to be invested in a 

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1 manner designated by the individual, except 

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

3 shall be entitled to designate an applicable re4 tirement plan and investments with respect to 

5 payments attributable to such spouse, or 

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

7 properly designate an applicable retirement plan 

8 in a timely manner or who designates an appli9 cable retirement plan that does not accept such 

10 amount in a timely manner, shall be paid or 

11 credited on behalf of the individual taxpayer in 

12 a manner determined under rules prescribed by 

13 the Secretary that provides treatment com14 parable to the treatment under subparagraph 

15 (A). 

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

17 purposes of this subsection, the term ‘applicable re18 tirement plan’ means a plan that elects to accept de19 posits under this subsection and that is described in 

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

21 or in section 408A(b). 

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

23 amounts paid under this subsection shall be treated 

24 for purposes of this title as income attributable to— 

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1 ‘‘(A) a Roth IRA contribution in the case 

2 of a payments to an individual retirement plan, 

3 or 

4 ‘‘(B) a designated Roth contribution in the 

5 case of a payment to an applicable retirement 

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

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

8 this section shall apply to taxable years beginning after 

9 December 31, 2008. 

10 SEC. 112. QUALIFIED CASH OR DEFERRED ARRANGEMENTS 

11 MUST ALLOW LONG-TERM EMPLOYEES 

12 WORKING MORE THAN 500 BUT LESS THAN 

13 1,000 HOURS PER YEAR TO PARTICIPATE. 

14 (a) PARTICIPATION REQUIREMENT.— 

15 (1) IN GENERAL.—Subparagraph (D) of section 

16 401(k)(2) (defining qualified cash or deferred ar17 rangement) is amended to read as follows: 

18 ‘‘(D) which does not require, as a condi19 tion of participation in the arrangement, that 

20 an employee complete a period of service with 

21 the employer (or employers) maintaining the 

22 plan extending beyond the close of the earlier 

23 of— 

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1 ‘‘(i) the period permitted under sec2 tion 410(a)(1) (determined without regard 

3 to subparagraph (B)(i) thereof), or 

4 ‘‘(ii) subject to the provisions of para5 graph (14), the first period of 3 consecu6 tive 12-month periods during each of which 

7 the employee has at least 500 hours of 

8 service.’’. 

9 (2) SPECIAL RULES.—Subsection (k) of section 

10 401 (relating to cash or deferred arrangements) is 

11 amended by adding at the end the following new 

12 paragraph: 

13 ‘‘(14) SPECIAL RULES FOR PARTICIPATION RE14 QUIREMENT FOR LONG-TERM, PART-TIME WORK15 ERS.—For purposes of paragraph (2)(D)(ii)— 

16 ‘‘(A) AGE REQUIREMENT MUST BE MET.— 

17 Paragraph (2)(D)(ii) shall not apply to an em18 ployee unless the employee has met the require19 ment of section 410(a)(1)(A)(i) by the close of 

20 the last of the 12-month periods described in 

21 such paragraph. 

22 ‘‘(B) NONDISCRIMINATION AND TOP23 HEAVY RULES NOT TO APPLY.— 

24 ‘‘(i) NONDISCRIMINATION RULES.—In 

25 the case of employees who are eligible to 

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1 participate in the arrangement solely by 

2 reason of paragraph (2)(D)(ii)— 

3 ‘‘(I) notwithstanding subsection 

4 (a)(4), an employer shall not be re5 quired to make nonelective or match6 ing contributions on behalf of such 

7 employees even if such contributions 

8 are made on behalf of other employees 

9 eligible to participate in the arrange10 ment, and 

11 ‘‘(II) an employer may elect to 

12 exclude such employees from the ap13 plication of paragraph (3) and sub14 section (m)(2). 

15 ‘‘(ii) TOP-HEAVY RULES.—An em16 ployer may elect to exclude all employees 

17 who are eligible to participate in a plan 

18 maintained by the employer solely by rea19 son of paragraph (2)(D)(ii) from— 

20 ‘‘(I) the determination of whether 

21 the plan is a top-heavy plan under 

22 section 416, and 

23 ‘‘(II) if the plan is a top-heavy 

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1 quirements under subsections (b) and 

2 (c) of such section. 

3 ‘‘(iii) VESTING.—For purposes of de4 termining whether an employee described 

5 in clause (i) has a nonforfeitable right to 

6 employer contributions (other than con7 tributions described in paragraph 

8 (3)(D)(i)) under the arrangement, each 

9 12-month period for which the employee 

10 has at least 500 hours of service shall be 

11 treated as a year of service. 

12 ‘‘(iv) EMPLOYEES WHO BECOME

13 FULL-TIME EMPLOYEES.—This subpara14 graph shall cease to apply to any employee 

15 after the date on which the employee meets 

16 the requirements of section 

17 410(a)(1)(A)(ii) without regard to para18 graph (2)(D)(ii). 

19 ‘‘(C) EXCEPTION FOR EMPLOYEES UNDER

20 COLLECTIVELY BARGAINED PLANS, ETC.—Para21 graph (2)(D)(ii) shall not apply to employees 

22 described in section 410(b)(3). 

23 ‘‘(D) SPECIAL RULES.— 

24 ‘‘(i) TIME OF PARTICIPATION.—The 

25 rules of section 410(a)(4) shall apply to an 

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1 employee eligible to participate in an ar2 rangement solely by reason of paragraph 

3 (2)(D)(ii). 

4 ‘‘(ii) 12-MONTH PERIODS.—12-month 

5 periods shall be determined in the same 

6 manner as under the last sentence of sec7 tion 410(a)(3)(A).’’. 

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

9 this section shall apply to plan years beginning after De10 cember 31, 2008, except that, for purposes of section 

11 401(k)(2)(D)(ii) of the Internal Revenue Code of 1986 (as 

12 added by such amendments), 12-month periods beginning 

13 before January 1, 2009, shall not be taken into account. 

14 SEC. 113. TRANSFERS OF UNUSED BENEFITS OF HEALTH 

15 FLEXIBLE SPENDING ARRANGEMENT TO 

16 CERTAIN RETIREMENT PLANS. 

17 (a) IN GENERAL.—Section 125 (relating to cafeteria 

18 plans) is amended by redesignating subsections (h) and 

19 (i) as subsections (i) and (j), respectively, and by inserting 

20 after subsection (g) the following: 

21 ‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH

22 BENEFITS.— 

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

24 a plan or other arrangement shall not fail to be 

25 treated as a cafeteria plan solely because qualified 

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1 benefits of a participant under such plan include a 

2 health flexible spending arrangement under which 

3 not more than $500 of unused health benefits may 

4 be contributed on behalf of the participant to— 

5 ‘‘(A) a qualified retirement plan (as de6 fined in section 4974(c)), or 

7 ‘‘(B) an eligible deferred compensation 

8 plan (as defined in section 457(b)) maintained 

9 by an eligible employer described in section 

10 457(e)(1)(A). 

11 ‘‘(2) TREATMENT OF CONTRIBUTION OF UN12 USED HEALTH BENEFITS.— 

13 ‘‘(A) IN GENERAL.—For purposes of this 

14 title, contributions described in paragraph (1) 

15 shall be treated as elective contributions made 

16 pursuant to an election by the participant be17 tween such contributions and compensation 

18 which would otherwise be includible in the gross 

19 income of the employee. 

20 ‘‘(B) EXCLUSION OR DEDUCTION.—Con21 tributions described in paragraph (1) shall be 

22 excluded from gross income, or included in 

23 gross income and allowed as a deduction, to the 

24 same extent that elective contributions would be 

25 so treated under this title. 

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1 ‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE2 MENT.—For purposes of this subsection, the term 

3 ‘health flexible spending arrangement’ means a flexi4 ble spending arrangement (as defined in section 

5 106(c)) which is a qualified benefit and only permits 

6 reimbursement for expenses for medical care (as de7 fined in section 213(d)(1) without regard to sub8 paragraphs (C) and (D) thereof). 

9 ‘‘(4) UNUSED HEALTH BENEFITS.—For pur10 poses of this subsection, the term ‘unused health 

11 benefits’ means, with respect to a participant, the 

12 excess of— 

13 ‘‘(A) the maximum amount of reimburse14 ment allowable to the participant with respect 

15 to a plan year under a health flexible spending 

16 arrangement, taking into account any election 

17 by the participant, over 

18 ‘‘(B) the actual amount of reimbursement 

19 with respect to such year under such arrange20 ment.’’. 

21 (b) SPECIAL RULES.—The Secretary of the Treasury 

22 shall prescribe such rules as are appropriate to carry out 

23 the purposes of the amendments made by this section. 

24 Such rules may permit elections by plan sponsors with re25 spect to the year to which the contributions relate and may 

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1 provide for special treatment for purposes of applying the 

2 requirements applicable to such contributions. 

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

4 subsection (a) shall apply to years beginning after Decem5 ber 31, 2008. 

6 SEC. 114. COMPUTATION OF LIMITS ON IRA AND ROTH IRA 

7 CONTRIBUTIONS. 

8 (a) CERTAIN WAGE REPLACEMENT INCOME TREAT9 ED AS COMPENSATION.— 

10 (1) WAGE REPLACEMENT INCOME.—Section 

11 219(f) (relating to other definitions and special 

12 rules) is amended by redesignating paragraph (8) as 

13 paragraph (9) and by inserting after paragraph (7) 

14 the following new paragraph: 

15 ‘‘(8) TREATMENT OF CERTAIN WAGE REPLACE16 MENT INCOME AS COMPENSATION.— 

17 ‘‘(A) IN GENERAL.—Notwithstanding para18 graph (1), applicable wage replacement income 

19 not otherwise treated as compensation shall be 

20 treated as compensation for purposes of this 

21 section. 

22 ‘‘(B) APPLICABLE WAGE REPLACEMENT

23 INCOME.—For purposes of this paragraph, the 

24 term ‘applicable wage replacement income’ 

25 means any amount received by an individual— 

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1 ‘‘(i) as the result of the individual 

2 having become disabled, 

3 ‘‘(ii) as unemployment compensation 

4 (as defined in section 85(b)), 

5 ‘‘(iii) under workmen’s compensation 

6 acts, or 

7 ‘‘(iv) which constitutes wage replace8 ment income under regulations prescribed 

9 by the Secretary.’’. 

10 (2) CERTAIN EXCLUDABLE AMOUNTS MAY BE

11 TAKEN INTO ACCOUNT FOR PURPOSES OF ROTH

12 IRAS.—Section 408A(c)(2) (relating to contribution 

13 limit) is amended by adding at the end the following 

14 new flush sentence: 

15 ‘‘In determining the maximum amount under sub16 paragraph (A), subsections (b)(1)(B) and (c) of sec17 tion 219 shall be applied by taking into account 

18 compensation described in section 219(f)(8) without 

19 regard to whether it is includible in gross income.’’. 

20 (3) EFFECTIVE DATE.—The amendments made 

21 by this subsection shall apply to taxable years begin22 ning after December 31, 2008. 

23 (b) COMPUTATION OF MAXIMUM IRA DEDUCTION

24 FOR ROTH IRAS USING COMPENSATION FROM 2 PRE25 CEDING TAXABLE YEARS.— 

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1 (1) IN GENERAL.—Section 408A(c) (relating to 

2 treatment of contributions) is amended by adding at 

3 the end the following new paragraph: 

4 ‘‘(8) COMPENSATION FROM PRECEDING 2

5 YEARS MAY BE TAKEN INTO ACCOUNT.— 

6 ‘‘(A) IN GENERAL.—A taxpayer may elect 

7 for purposes of paragraph (2) to take into ac8 count any unused compensation from the 2 tax9 able years immediately preceding the taxable 

10 year. 

11 ‘‘(B) UNUSED COMPENSATION.—For pur12 poses of this paragraph, the term ‘unused com13 pensation’ means with respect to an individual 

14 for any taxable year the compensation includ15 ible in the individual’s gross income for the tax16 able year reduced by the sum of— 

17 ‘‘(i) the amount allowed as a deduc18 tion under 219(a) to such individual for 

19 such taxable year, 

20 ‘‘(ii) the amount of any designated 

21 nondeductible contribution (as defined in 

22 section 408(o)) on behalf of such individual 

23 for such taxable year, 

24 ‘‘(iii) the amount of any contribution 

25 on behalf of such individual to a Roth IRA 

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1 under this section for such taxable year, 

2 and 

3 ‘‘(iv) the amount of compensation in4 cludible in such individual’s gross income 

5 for such taxable year taken into account 

6 under section 219(c) in determining the 

7 limitation under section 219 or paragraph 

8 (2) for the individual’s spouse. 

9 ‘‘(C) APPLICATION TO SPECIAL RULE FOR

10 MARRIED INDIVIDUALS.—Under rules pre11 scribed by the Secretary, in applying section 

12 219(c) for any taxable year for purposes of ap13 plying paragraph (2)(A), unused compensation 

14 of an individual or an individual’s spouse for 

15 the 2 taxable years immediately preceding the 

16 taxable year may be taken into account.’’. 

17 (2) EFFECTIVE DATE.—The amendment made 

18 by this subsection shall apply to taxable years begin19 ning after December 31, 2008, but unused com20 pensation for taxable years beginning before Janu21 ary 1, 2009, may be taken into account for taxable 

22 years beginning after December 31, 2008. 

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1 TITLE II—PROVISIONS PRO2 VIDING FOR PRESERVATION 

3 OF INCOME 

4 SEC. 201. EXCLUSION OF CERTAIN QUALIFIED ANNUITY 

5 PAYMENTS. 

6 (a) EXCLUSION.— 

7 (1) QUALIFIED PLANS.—Section 402(e) (relat8 ing to exempt trusts) is amended by adding at the 

9 end the following new paragraph: 

10 ‘‘(7) EXCLUSION OF PERCENTAGE OF LIFETIME

11 ANNUITY PAYMENTS.— 

12 ‘‘(A) IN GENERAL.—In the case of a life13 time annuity payment to a qualified distributee 

14 from a qualified trust (within the meaning of 

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

16 with a defined contribution plan, gross income 

17 shall not include 10 percent of the amount oth18 erwise includible in gross income (determined 

19 without regard to this paragraph). For pur20 poses of this paragraph, payments from an an21 nuity contract distributed by the qualified trust 

22 shall be treated as payments from the qualified 

23 trust. 

24 ‘‘(B) LIMITATION.— 

25 ‘‘(i) IN GENERAL.—If— 

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1 ‘‘(I) the aggregate amount of 

2 lifetime annuity payments to the dis3 tributee during the taxable year which 

4 are includible in gross income (deter5 mined without regard to this para6 graph) and which are subject to this 

7 paragraph or to rules similar to the 

8 rules of this paragraph (other than 

9 section 72(b)(5) or 101(d)(4)), ex10 ceeds 

11 ‘‘(II) 50 percent of the applicable 

12 amount for the taxable year under 

13 section 415(a), 

14 then the aggregate amount otherwise ex15 cludable under subparagraph (A) for the 

16 taxable year shall be reduced by 10 percent 

17 of the portion of such excess which is allo18 cable under clause (ii) to payments which 

19 are subject to this paragraph. 

20 ‘‘(ii) ALLOCATION RULE.—Any excess 

21 described in clause (i) for any taxable year 

22 shall be allocated ratably among all life23 time annuity payments to the qualified dis24 tributee described in clause (i)(I). 

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1 ‘‘(C) DEFINITIONS.—For purposes of this 

2 paragraph— 

3 ‘‘(i) LIFETIME ANNUITY PAYMENT.— 

4 ‘‘(I) IN GENERAL.—Except as 

5 provided in this clause, the term ‘life6 time annuity payment’ means a dis7 tribution from an annuity contract 

8 which is a part of a series of substan9 tially equal periodic payments (not 

10 less frequently than annually) made 

11 over the life of the qualified dis12 tributee or the joint lives of the quali13 fied distributee and the qualified 

14 distributee’s designated beneficiary. 

15 For purposes of this paragraph, the 

16 term ‘annuity contract’ means a com17 mercial annuity (as defined in section 

18 3405(e)(6)), other than an endowment 

19 or life insurance contract. 

20 ‘‘(II) CERTAIN FLUCTUATING

21 PAYMENTS.—Annuity payments shall 

22 not fail to be treated as part of a se23 ries of substantially equal periodic 

24 payments merely because the amount 

25 of the periodic payments may vary in 

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1 accordance with investment experi2 ence, reallocations among investment 

3 options, actuarial gains or losses, cost 

4 of living indices, a constant percent5 age (not less than zero) applied not 

6 less frequently than annually, or simi7 lar fluctuating criteria. 

8 ‘‘(III) CERTAIN CHANGES IN THE

9 MODE OF PAYMENT.—Annuity pay10 ments shall not fail to be treated as 

11 part of a series of substantially equal 

12 periodic payments merely because the 

13 period between each such payment is 

14 lengthened or shortened, but only if at 

15 all times such period is not longer 

16 than 1 year. 

17 ‘‘(IV) PERMITTED REDUC18 TIONS.—Annuity payments shall not 

19 fail to be treated as part of a series 

20 of substantially equal periodic pay21 ments merely because, in the case of 

22 an annuity payable over the lives of 

23 the qualified distributee and the quali24 fied distributee’s designated bene25 ficiary, the amounts paid after the 

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1 death of the qualified distributee or 

2 the qualified distributee’s designated 

3 beneficiary are less than the amounts 

4 payable during their joint lives. 

5 ‘‘(V) CERTAIN CONTRACT BENE6 FITS.—The availability of a commuta7 tion benefit or other feature permit8 ting acceleration of annuity payments 

9 (or a modification of the period dur10 ing which such a benefit is available), 

11 a minimum period of payments or a 

12 minimum amount to be paid in any 

13 event shall not affect the treatment of 

14 a distribution as a lifetime annuity 

15 payment. 

16 ‘‘(VI) TRUST PAYMENTS.—In the 

17 case of lifetime annuity payments 

18 being made to a qualified trust, pay19 ments by the qualified trust to a 

20 qualified distributee of the entire 

21 amount received by the qualified trust 

22 with respect to the qualified dis23 tributee shall constitute lifetime annu24 ity payments if such payments are 

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1 made within a reasonable period after 

2 receipt by the qualified trust. 

3 ‘‘(VII) QUALIFIED DOMESTIC RE4 LATIONS ORDERS.—Annuity payments 

5 shall not fail to be treated as a series 

6 of substantially equal periodic pay7 ments merely because the payments 

8 are reduced on account of a qualified 

9 domestic relations order (within the 

10 meaning of section 414(p)) that be11 comes effective after the commence12 ment of the annuity payments. 

13 ‘‘(ii) QUALIFIED DISTRIBUTEE.—The 

14 term ‘qualified distributee’ means the em15 ployee, the surviving spouse of the em16 ployee, and an alternate payee who is the 

17 spouse or former spouse of the employee. 

18 ‘‘(D) RECAPTURE TAX.— 

19 ‘‘(i) IN GENERAL.—If— 

20 ‘‘(I) an amount is not includible 

21 in gross income by reason of subpara22 graph (A), and 

23 ‘‘(II) the series of payments of 

24 which such payment is a part is sub25 sequently modified (other than by reamstockstill on PROD1PC66 with BILLS

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1 son of death or disability) so that 

2 some or all future payments are not 

3 lifetime annuity payments, 

4 the qualified distributee’s gross income for 

5 the first taxable year in which such modi6 fication occurs shall be increased by an 

7 amount, determined under rules prescribed 

8 by the Secretary, equal to the amount 

9 which (but for subparagraph (A)) would 

10 have been includible in the qualified 

11 distributee’s gross income if the modifica12 tion had been in effect at all times, plus in13 terest for the deferral period at the under14 payment rate established under section 

15 6621. 

16 ‘‘(ii) DEFERRAL PERIOD.—For pur17 poses of this subparagraph, the term ‘de18 ferral period’ means, with respect to any 

19 amount, the period beginning with the tax20 able year in which (without regard to sub21 paragraph (A)) the amount would have 

22 been includible in gross income and ending 

23 with the taxable year in which the modi24 fication described in clause (i)(II) occurs. 

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1 ‘‘(E) INVESTMENT IN THE CONTRACT.— 

2 For purposes of section 72, the investment in 

3 the contract shall be determined without regard 

4 to this paragraph.’’. 

5 (2) QUALIFIED ANNUITY PLANS.—Section 

6 403(a) (relating to qualified annuity plans) is 

7 amended by adding at the end the following new 

8 paragraph: 

9 ‘‘(6) EXCLUSION OF PERCENTAGE OF LIFETIME

10 ANNUITY PAYMENTS.—Rules similar to the rules of 

11 section 402(e)(7) shall apply to distributions under 

12 any annuity contract to which this subsection ap13 plies.’’. 

14 (3) PURCHASED ANNUITIES.—Section 403(b) 

15 (relating to purchased annuities) is amended by add16 ing at the end the following new paragraph: 

17 ‘‘(14) EXCLUSION OF PERCENTAGE OF LIFE18 TIME ANNUITY PAYMENTS.—Rules similar to the 

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

20 under any annuity contract or custodial account to 

21 which this subsection applies.’’. 

22 (4) IRAS.—Section 408(d) (relating to tax 

23 treatment of distributions), as amended by section 

24 1201 of the Pension Protection Act of 2006, is 

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1 amended by adding at the end the following new 

2 paragraph: 

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

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

6 out of an individual retirement plan.’’. 

7 (5) SECTION 457 PLANS.—Section 457(e) (relat8 ing to special rules for deferred compensation plans) 

9 is amended by adding at the end the following new 

10 paragraph: 

11 ‘‘(19) EXCLUSION OF PERCENTAGE OF LIFE12 TIME ANNUITY PAYMENTS.—Rules similar to the 

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

14 from an eligible deferred compensation plan of an el15 igible employer described in subsection (e)(1)(A).’’. 

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

17 this section shall apply to distributions made after Decem18 ber 31, 2008. 

19 SEC. 202. EXCLUSION FOR LIFETIME ANNUITY PAYMENTS. 

20 (a) LIFETIME ANNUITY PAYMENTS UNDER ANNUITY

21 CONTRACTS.—Section 72(b) (relating to exclusion ratio) 

22 is amended by adding at the end the following new para23 graph: 

24 ‘‘(5) EXCLUSION FOR LIFETIME ANNUITY PAY25 MENTS.— 

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1 ‘‘(A) IN GENERAL.—In the case of lifetime 

2 annuity payments received as an annuity under 

3 1 or more annuity contracts in any taxable 

4 year, gross income shall not include the lesser 

5 of— 

6 ‘‘(i) 50 percent of the portion of the 

7 lifetime annuity payments which (without 

8 regard to this paragraph) is includible in 

9 gross income under this section for the 

10 taxable year, or 

11 ‘‘(ii) $20,000. 

12 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—In 

13 the case of taxable years beginning after De14 cember 31, 2009, the $20,000 amount in sub15 paragraph (A)(ii) shall be increased by an 

16 amount equal to— 

17 ‘‘(i) such dollar amount, multiplied by 

18 ‘‘(ii) the cost-of-living adjustment de19 termined under section 1(f)(3) for the cal20 endar year in which the taxable year be21 gins, determined by substituting ‘calendar 

22 year ø2008¿’ for ‘calendar year 1992’ in 

23 subparagraph (B) thereof. 

24 If any amount as increased under the preceding 

25 sentence is not a multiple of $500, such amount 

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1 shall be rounded to the next lower multiple of 

2 $500. 

3 ‘‘(C) APPLICATION OF PARAGRAPH.—Sub4 paragraph (A) shall not apply to— 

5 ‘‘(i) any amount received under an eli6 gible deferred compensation plan (as de7 fined in section 457(b)) or under a quali8 fied retirement plan (as defined in section 

9 4974(c)), 

10 ‘‘(ii) any amount paid under an annu11 ity contract which is received by the bene12 ficiary under the contract— 

13 ‘‘(I) after the death of the annu14 itant in the case of payments de15 scribed in subsection (c)(5)(A)(ii)(III), 

16 unless the beneficiary is the surviving 

17 spouse of the annuitant, or 

18 ‘‘(II) after the death of the annu19 itant and joint annuitant in the case 

20 of payments described in subsection 

21 (c)(5)(A)(ii)(IV), unless the bene22 ficiary is the surviving spouse of the 

23 last to die of the annuitant and the 

24 joint annuitant, or 

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1 ‘‘(iii) any annuity contract that is a 

2 qualified funding asset (as defined in sec3 tion 130(d)), but without regard to wheth4 er there is a qualified assignment. 

5 ‘‘(D) INVESTMENT IN THE CONTRACT.— 

6 For purposes of this section, the investment in 

7 the contract shall be determined without regard 

8 to this paragraph.’’. 

9 (b) DEFINITIONS.—Section 72(c) is amended by add10 ing at the end the following new paragraph: 

11 ‘‘(5) LIFETIME ANNUITY PAYMENT.— 

12 ‘‘(A) IN GENERAL.—For purposes of sub13 section (b)(5), the term ‘lifetime annuity pay14 ment’ means any amount received as an annu15 ity under any portion of an annuity contract, 

16 but only if— 

17 ‘‘(i) the only person (or persons in the 

18 case of payments described in subclause 

19 (II) or (IV) of clause (ii)) legally entitled 

20 (by operation of the contract, a trust, or 

21 other legally enforceable means) to receive 

22 such amount during the life of the annu23 itant or joint annuitant is such annuitant 

24 or joint annuitant, and 

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1 ‘‘(ii) such amount is part of a series 

2 of substantially equal periodic payments 

3 made not less frequently than annually 

4 over— 

5 ‘‘(I) the life of the annuitant, 

6 ‘‘(II) the lives of the annuitant 

7 and a joint annuitant, but only if the 

8 annuitant is the spouse of the joint 

9 annuitant as of the annuity starting 

10 date or the difference in age between 

11 the annuitant and joint annuitant is 

12 15 years or less, 

13 ‘‘(III) the life of the annuitant 

14 with a minimum period of payments 

15 or with a minimum amount that must 

16 be paid in any event, or 

17 ‘‘(IV) the lives of the annuitant 

18 and a joint annuitant with a minimum 

19 period of payments or with a min20 imum amount that must be paid in 

21 any event, but only if the annuitant is 

22 the spouse of the joint annuitant as of 

23 the annuity starting date or the dif24 ference in age between the annuitant 

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1 and joint annuitant is 15 years or 

2 less. 

3 ‘‘(iii) EXCEPTIONS.—For purposes of 

4 clause (ii), annuity payments shall not fail 

5 to be treated as part of a series of substan6 tially equal periodic payments— 

7 ‘‘(I) because the amount of the 

8 periodic payments may vary in accord9 ance with investment experience, re10 allocations among investment options, 

11 actuarial gains or losses, cost-of-living 

12 indices, a constant percentage (not 

13 less than zero) applied not less fre14 quently than annually, or similar fluc15 tuating criteria, 

16 ‘‘(II) due to the existence of, or 

17 modification of the duration of, a pro18 vision in the contract permitting a 

19 lump-sum withdrawal after the annu20 ity starting date, or 

21 ‘‘(III) because the period between 

22 each such payment is lengthened or 

23 shortened, but only if at all times 

24 such period is no longer than 1 cal25 endar year. 

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1 ‘‘(B) ANNUITY CONTRACT.—For purposes 

2 of subparagraph (A) and subsections (b)(5) and 

3 (x), the term ‘annuity contract’ means a com4 mercial annuity (as defined by section 

5 3405(e)(6)), other than an endowment or life 

6 insurance contract. 

7 ‘‘(C) MINIMUM PERIOD OF PAYMENTS.— 

8 For purposes of subparagraph (A), the min9 imum period of payments is a guaranteed term 

10 of payments which does not exceed the greater 

11 of— 

12 ‘‘(i) 10 years, or 

13 ‘‘(ii) the life expectancy of— 

14 ‘‘(I) the annuitant as of the an15 nuity starting date, in the case of life16 time annuity payments described in 

17 subparagraph (A)(ii)(III), or 

18 ‘‘(II) the annuitant and joint an19 nuitant as of the annuity starting 

20 date, in the case of lifetime annuity 

21 payments described in subparagraph 

22 (A)(ii)(IV). 

23 For purposes of this subparagraph, life expect24 ancy shall be computed with reference to the ta25 bles prescribed by the Secretary under paramstockstill on PROD1PC66 with BILLS

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1 graph (3). For purposes of subsection 

2 (x)(1)(C)(ii), the permissible minimum period of 

3 payments shall be determined as of the annuity 

4 starting date and reduced by one for each sub5 sequent year. 

6 ‘‘(D) MINIMUM AMOUNT THAT MUST BE

7 PAID IN ANY EVENT.—For purposes of subpara8 graph (A), the minimum amount that must be 

9 paid in any event is an amount payable to the 

10 designated beneficiary under an annuity con11 tract which is in the nature of a refund and 

12 does not exceed the greater of the amount ap13 plied to produce the lifetime annuity payments 

14 under the contract or the amount, if any, avail15 able for withdrawal under the contract on the 

16 date of death.’’. 

17 (c) RECAPTURE TAX FOR LIFETIME ANNUITY PAY18 MENTS.—Section 72 is amended by redesignating sub19 section (x) as subsection (y) and by inserting after sub20 section (x) the following new subsection: 

21 ‘‘(x) RECAPTURE TAX FOR MODIFICATIONS TO OR

22 REDUCTIONS IN LIFETIME ANNUITY PAYMENTS.— 

23 ‘‘(1) IN GENERAL.—If— 

24 ‘‘(A) any amount received under an annu25 ity contract is excluded from income by reason 

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1 of subsection (b)(5) (relating to lifetime annuity 

2 payments) for any taxable year, and 

3 ‘‘(B) a recapture event described in para4 graph (2) occurs in any subsequent taxable 

5 year, 

6 then gross income for the first taxable year in which 

7 the recapture event occurs shall be increased by the 

8 recapture amount. 

9 ‘‘(2) RECAPTURE EVENT.—For purposes of 

10 paragraph (1), a recapture event occurs if— 

11 ‘‘(A) the series of payments under an an12 nuity contract is subsequently modified so any 

13 future payments are not lifetime annuity pay14 ments, 

15 ‘‘(B) after the date of receipt of the first 

16 lifetime annuity payment under the contract an 

17 annuitant receives a lump sum and thereafter is 

18 to receive annuity payments in a reduced 

19 amount under the contract, or 

20 ‘‘(C) after the date of receipt of the first 

21 lifetime annuity payment under the contract the 

22 dollar amount of any subsequent annuity pay23 ment is reduced and a lump sum is not paid in 

24 connection with the reduction, unless such re25 duction is— 

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1 ‘‘(i) due to an event described in sub2 section (c)(5)(A)(iii), or 

3 ‘‘(ii) due to the addition of, or in4 crease in, a minimum period of payments 

5 (within the meaning of subsection 

6 (c)(5)(C)) or a minimum amount that 

7 must be paid in any event (within the 

8 meaning of subsection (c)(5)(D)). 

9 ‘‘(3) RECAPTURE AMOUNT.— 

10 ‘‘(A) IN GENERAL.—For purposes of this 

11 subsection, the recapture amount shall be the 

12 amount, determined under rules prescribed by 

13 the Secretary, equal to the amount which (but 

14 for subsection (b)(5)) would have been includ15 ible in the taxpayer’s gross income if the modi16 fication or reduction described in subparagraph 

17 (A), (B), or (C) of paragraph (2) had been in 

18 effect at all times, plus interest for the deferral 

19 period at the underpayment rate established by 

20 section 6621. 

21 ‘‘(B) DEFERRAL PERIOD.—For purposes 

22 of this subsection, the term ‘deferral period’ 

23 means, with respect to any amount, the period 

24 beginning with the taxable year in which (with25 out regard to subsection (b)(5)) the amount 

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1 would have been includible in gross income and 

2 ending with the taxable year in which the modi3 fication or reduction described in subparagraph 

4 (A), (B), or (C) of paragraph (2) occurs. 

5 ‘‘(4) EXCEPTIONS TO RECAPTURE TAX.—Para6 graph (1) shall not apply in the case of any recap7 ture event which occurs because an annuitant— 

8 ‘‘(A) dies or becomes disabled (within the 

9 meaning of subsection (m)(7)), 

10 ‘‘(B) becomes a chronically ill individual 

11 within the meaning of section 7702B(c)(2), or 

12 ‘‘(C) encounters hardship.’’. 

13 (d) LIFETIME DISTRIBUTIONS OF LIFE INSURANCE

14 DEATH BENEFITS.— 

15 (1) IN GENERAL.—Section 101(d) (relating to 

16 payment of life insurance proceeds at a date later 

17 than death) is amended by adding at the end the fol18 lowing new paragraph: 

19 ‘‘(4) EXCLUSION FOR LIFETIME ANNUITY PAY20 MENTS.— 

21 ‘‘(A) IN GENERAL.—In the case of 

22 amounts to which this subsection applies, gross 

23 income for any taxable year shall not include 

24 the lesser of— 

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1 ‘‘(i) 50 percent of the portion of life2 time annuity payments which (without re3 gard to this paragraph) is includible in 

4 gross income under this section, or 

5 ‘‘(ii) the amount in effect under sec6 tion 72(b)(5)(A)(ii) for the taxable year. 

7 ‘‘(B) RULES OF SECTION 72(b)(5) TO

8 APPLY.—For purposes of this paragraph, rules 

9 similar to the rules of section 72(b)(5) and sec10 tion 72(x) shall apply, except that the term 

11 ‘beneficiary of the life insurance contract’ shall 

12 be substituted for the term ‘annuitant’ each 

13 place it appears, and the term ‘life insurance 

14 contract’ shall be substituted for the term ‘an15 nuity contract’ each place it appears.’’. 

16 (2) CONFORMING AMENDMENT.—Section 

17 101(d)(1) is amended by inserting ‘‘or paragraph 

18 (4)’’ after ‘‘to the extent not excluded by the pre19 ceding sentence’’. 

20 (e) EFFECTIVE DATE.— 

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

22 this section shall apply to amounts received in cal23 endar years beginning after the date of the enact24 ment of this Act. 

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1 (2) SPECIAL RULE FOR EXISTING CON2 TRACTS.—In the case of a contract in force on the 

3 date of the enactment of this Act that does not sat4 isfy the requirements of section 72(c)(5)(A) of the 

5 Internal Revenue Code of 1986 (as added by this 

6 section), or requirements similar to such section 

7 72(c)(5)(A) in the case of a life insurance contract, 

8 any modification to such contract (including a 

9 change in ownership) or to the payments under such 

10 contract that is made to satisfy the requirements of 

11 such section (or similar requirements) shall not re12 sult in the recognition of any gain or loss, any 

13 amount being included in gross income, or any addi14 tion to tax that otherwise might result from such 

15 modification, but only if the modification is com16 pleted before the date which is 2 years after the date 

17 of the enactment of this Act. 

18 SEC. 203. JOINT STUDY OF APPLICATION OF SPOUSAL CON19 SENT RULES TO DEFINED CONTRIBUTION 

20 PLANS. 

21 (a) STUDY.—The Secretary of Labor and the Sec22 retary of the Treasury shall jointly conduct a study of the 

23 feasibility and desirability of extending the application of 

24 the requirements of section 205 of the Employee Retire25 ment Income Security Act of 1974 and sections 

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1 401(a)(11) and 417 of the Internal Revenue Code of 1986 

2 (relating to spousal consent requirements) to defined con3 tribution plans to which such requirements do not apply. 

4 Such study shall include consideration of any modifica5 tions of such requirements that are necessary to apply 

6 such requirements to such plans. 

7 (b) REPORT.—Not later than 2 years after the date 

8 of the enactment of this Act, the Secretaries shall report 

9 the results of the study, together with any recommenda10 tions for legislative changes, to the Committees on Fi11 nance and Health, Education, Labor, and Pensions of the 

12 Senate and the Committees on Ways and Means and Edu13 cation and Labor of the House of Representatives. 

14 SEC. 204. FACILITATING LONGEVITY INSURANCE. 

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

16 is amended by inserting after subparagraph (G) the fol17 lowing new subparagraph: 

18 ‘‘(H) LONGEVITY INSURANCE.— 

19 ‘‘(i) IN GENERAL.—For purposes of 

20 this paragraph, any value attributable to 

21 longevity insurance shall be disregarded in 

22 determining the value of an employee’s in23 terest under a plan prior to the first date 

24 that payments are made under the lon25 gevity insurance. 

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1 ‘‘(ii) LONGEVITY INSURANCE DE2 FINED.—For purposes of this subpara3 graph, the term ‘longevity insurance’ 

4 means an annuity payable on behalf of the 

5 employee under which— 

6 ‘‘(I) payments commence not 

7 later than 12 months following the 

8 calendar month in which the employee 

9 attains age 85 (or would have at10 tained age 85), 

11 ‘‘(II) payments are made in sub12 stantially equal periodic payments 

13 (not less frequently than annually) 

14 over the life of the employee or the 

15 joint lives of the employee and the 

16 employee’s designated beneficiary, 

17 taking into account the rules of clause 

18 (i) of section 402(e)(7)(D), except as 

19 otherwise provided in subclause (III) 

20 of such section, 

21 ‘‘(III) prior to the death of the 

22 employee, the annuity does not make 

23 available any commutation benefit, 

24 cash surrender value, or other similar 

25 feature, and 

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1 ‘‘(IV) except as provided in rules 

2 prescribed by the Secretary, in the 

3 case of an employee’s death prior to 

4 the date that payments commence, the 

5 value of any death benefits paid may 

6 not exceed the premiums paid for 

7 such annuity, plus interest com8 pounded annually at 3 percent. 

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

10 of clause (ii)(I), the Secretary shall annu11 ally increase age 85 to reflect increases in 

12 life expectancy (as determined by the Sec13 retary) that occur on or after January 1, 

14 2008, except that any such increased age 

15 which is not a whole number shall be 

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

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

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

19 shall prescribe rules under which all or a portion of a par20 ticipant’s benefits under any plan described in section 

21 402(c)(8)(B) of the Internal Revenue Code of 1986 may 

22 be treated as longevity insurance under the rules of section 

23 401(a)(9)(H) of such Code. 

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

2 this section shall apply to years beginning after December 

3 31, 2008. 

4 TITLE III—PROVISIONS 

5 ENSURING EQUITY IN DIVORCE 

6 SEC. 301. SPECIAL RULES RELATING TO TREATMENT OF 

7 QUALIFIED DOMESTIC RELATIONS ORDERS. 

8 (a) PRESERVATION OF ASSETS.— 

9 (1) AMENDMENT OF 1986 CODE.—Section 

10 414(p) is amended by redesignating paragraph (13) 

11 as paragraph (14) and by inserting after paragraph 

12 (12) the following new paragraph: 

13 ‘‘(13) PRESERVATION OF ASSETS.— 

14 ‘‘(A) IN GENERAL.—If a spouse or former 

15 spouse of a participant notifies a plan in writ16 ing that— 

17 ‘‘(i) an action is pending pursuant to 

18 a State domestic relations law (including a 

19 community property law), and 

20 ‘‘(ii) all or a portion of the benefits 

21 payable with respect to the participant 

22 under the plan are a subject of such ac23 tion, 

24 and includes with the notice evidence of the 

25 pendency of the action, the plan administrator 

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1 shall, during the segregation period, separately 

2 account for 50 percent of such benefits. Any 

3 amounts so separately accounted for may not 

4 be distributed by the plan during the segrega5 tion period. 

6 ‘‘(B) SEGREGATION PERIOD.—For pur7 poses of subparagraph (A), the term ‘segrega8 tion period’ means the period— 

9 ‘‘(i) beginning on the date of the re10 ceipt of the notice, and 

11 ‘‘(ii) ending as of the close of the 90- 

12 day period beginning on such date (or, if 

13 earlier, the date of receipt of a domestic 

14 relations order with respect to the partici15 pant and the spouse or former spouse or 

16 the date the action is no longer pending). 

17 The segregation period shall be extended for 1 

18 or more additional periods described in the pre19 ceding sentence upon notice by the spouse or 

20 former spouse that the action described in sub21 paragraph (A) is still pending as of the close of 

22 any prior segregation period.’’ 

23 (2) AMENDMENT OF ERISA.—Section 206(d)(3) 

24 of the Employee Retirement Income Security Act of 

25 1974 (29 U.S.C. 1056(d)(3)) is amended by redesigmstockstill on PROD1PC66 with BILLS

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1 nating subparagraph (N) as subparagraph (O) and 

2 by inserting after subparagraph (M) the following 

3 new subparagraph: 

4 ‘‘(N) PRESERVATION OF ASSETS.— 

5 ‘‘(i) IN GENERAL.—If a spouse or 

6 former spouse of a participant notifies a 

7 plan in writing that— 

8 ‘‘(I) an action is pending pursu9 ant to a State domestic relations law 

10 (including a community property law), 

11 and 

12 ‘‘(II) all or a portion of the bene13 fits payable with respect to the partic14 ipant under the plan are a subject of 

15 such action, 

16 and includes with the notice evidence of 

17 the pendency of the action, the plan ad18 ministrator shall, during the segregation 

19 period, separately account for 50 percent 

20 of such benefits. Any amounts so sepa21 rately accounted for may not be distributed 

22 by the plan during the segregation period. 

23 ‘‘(ii) SEGREGATION PERIOD.—For 

24 purposes of clause (i), the term ‘segrega25 tion period’ means the period— 

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1 ‘‘(I) beginning on the date of the 

2 receipt of the notice, and 

3 ‘‘(II) ending as of the close of the 

4 90-day period beginning on such date 

5 (or, if earlier, the date of receipt of a 

6 domestic relations order with respect 

7 to the participant and the spouse or 

8 former spouse or the date the action 

9 is no longer pending). 

10 The segregation period shall be extended 

11 for 1 or more additional periods described 

12 in the preceding sentence upon notice by 

13 the spouse or former spouse that the ac14 tion described in clause (i) is still pending 

15 as of the close of any prior segregation pe16 riod.’’ 

17 (b) PENALTY FOR FAILURE TO PROVIDE INFORMA18 TION REGARDING ALTERNATE PAYEES.—Section 502(c) 

19 of the Employee Retirement Income Security Act of 1974 

20 (29 U.S.C. 1132(c)) is amended by redesignating para21 graph (8) as paragraph (9) and by inserting after para22 graph (7) the following new paragraph: 

23 ‘‘(8) FAILURE TO PROVIDE INFORMATION RE24 GARDING ALTERNATE PAYEES.—The Secretary may 

25 assess a civil penalty against any plan administrator 

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1 of up to $100 a day from the date of the plan ad2 ministrator’s failure or refusal to provide the infor3 mation the plan administrator is required to provide 

4 under regulations under this Act to prospective al5 ternative payees under a domestic relations order 

6 under section 206(d)(3) or to the Secretary or any 

7 representative of a prospective alternative payee in 

8 connection with such an order.’’ 

9 (c) ALLOCATION OF PLAN EXPENSES IN COMPLYING

10 WITH DOMESTIC RELATIONS ORDERS.— 

11 (1) AMENDMENT OF 1986 CODE.—Section 

12 414(p), as amended by subsection (a), is amended 

13 by redesignating paragraph (14) as paragraph (15) 

14 and by inserting after paragraph (13) the following 

15 new paragraph: 

16 ‘‘(14) ALLOCATION OF EXPENSES.—Any ex17 penses incurred by a plan with respect to compliance 

18 with the requirements of this subsection shall not be 

19 allocated to an individual participant but rather 

20 shall be allocated among all participants on the basis 

21 of the relative value of each participant’s share of 

22 the assets of the plan, on the basis of a flat amount 

23 per participant, or on any other reasonable basis 

24 provided for under the plan.’’. 

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1 (2) AMENDMENT OF ERISA.—Section 206(d)(3) 

2 of the Employee Retirement Income Security Act of 

3 1974 (29 U.S.C. 1056(d)(3)), as amended by sub4 section (a), is amended by redesignating subpara5 graph (O) as subparagraph (P) and by inserting 

6 after subparagraph (N) the following new subpara7 graph: 

8 ‘‘(O) ALLOCATION OF EXPENSES.—Any 

9 expenses incurred by a plan with respect to 

10 compliance with the requirements of this para11 graph shall not be allocated to an individual 

12 participant but rather shall be allocated among 

13 all participants on the basis of the relative value 

14 of each participant’s share of the assets of the 

15 plan, on the basis of a flat amount per partici16 pant, or on any other reasonable basis provided 

17 for under the plan.’’. 

18 SEC. 302. ELIMINATION OF CURRENT CONNECTION RE19 QUIREMENT UNDER RAILROAD RETIREMENT 

20 ACT FOR CERTAIN SURVIVORS. 

21 (a) IN GENERAL.—Section 2(d)(1) of the Railroad 

22 Retirement Act of 1974 (45 U.S.C. 231a(d)(1)), in the 

23 matter preceding paragraph (i), is amended by inserting 

24 ‘‘, except with respect to survivors described in paragraph 

25 (i), (ii), or (v),’’ after ‘‘December 31, 1995) and’’. 

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1 (b) EFFECTIVE DATES.— 

2 (1) IN GENERAL.—The amendment made by 

3 subsection (a) shall take effect on the date of enact4 ment of this Act. 

5 (2) RETROACTIVE APPLICATION TO CERTAIN

6 SURVIVORS.—If a survivor of a deceased employee 

7 would be entitled to an annuity by reason of the 

8 amendment made by subsection (a) but for the fact 

9 that the employee died before the date of the enact10 ment of this Act, the survivor shall be entitled to 

11 such an annuity but only with respect to annuity 

12 payments for months beginning on or after such 

13 date. Appropriate adjustments shall be made in an14 nuity payments of other individuals to reflect any 

15 annuity payable by reason of this paragraph. 

16 SEC. 303. PERMITTING DIVORCED SPOUSES AND WIDOWS 

17 AND WIDOWERS TO REMARRY AFTER TURN18 ING 60 WITHOUT A PENALTY UNDER RAIL19 ROAD RETIREMENT ACT. 

20 (a) IN GENERAL.— 

21 (1) DIVORCED SPOUSE.—Section 2(c)(4) of the 

22 Railroad Retirement Act of 1974 (45 U.S.C. 

23 231a(c)(4) is amended by adding at the end the fol24 lowing new sentence: ‘‘For purposes of paragraph 

25 (ii)(B), if a divorced wife marries after attaining age 

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1 60, such marriage shall be deemed not to have oc2 curred.’’ 

3 (2) WIDOWS AND WIDOWERS.—Section 

4 2(d)(1)(v) of the Railroad Retirement Act of 1974 

5 (45 U.S.C. 231a(d)(1)(v)) is amended by adding at 

6 the end the following new sentence: ‘‘For purposes 

7 of this paragraph, if a widow marries after attaining 

8 age 60, such marriage shall be deemed not to have 

9 occurred.’’ 

10 (b) EFFECTIVE DATES.— 

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

12 this section shall take effect on the date of enact13 ment of this Act. 

14 (2) RETROACTIVE APPLICATION.—If a divorced 

15 wife, widow, or widower would be entitled to an an16 nuity by reason of the amendments made by this 

17 section but for the fact the individual was married 

18 before the date of the enactment of this Act, the in19 dividual shall be entitled to such an annuity but only 

20 with respect to annuity payments for months begin21 ning on or after such date. Appropriate adjustments 

22 shall be made in annuity payments of other individ23 uals to reflect any annuity payable by reason of this 

24 paragraph. 

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1 TITLE IV—PROVISIONS TO 

2 IMPROVE FINANCIAL LITERACY 

3 SEC. 401. GRANTS TO COMMUNITY-BASED TAXPAYER CLIN4 ICS TO PROVIDE RETIREMENT SAVINGS AD5 VICE. 

6 (a) IN GENERAL.—Section 7526 (relating to low-in7 come taxpayer clinics) is amended by adding at the end 

8 the following: 

9 ‘‘(d) ADDITIONAL GRANTS FOR RETIREMENT SAV10 INGS ADVICE.— 

11 ‘‘(1) MAKING OF GRANTS.—The Secretary may, 

12 subject to the availability of appropriated funds, 

13 make grants to qualified low-income taxpayer clinics 

14 to provide retirement savings counseling to low-in15 come taxpayers. 

16 ‘‘(2) USE OF GRANT FUNDS.—Grants under 

17 paragraph (1) shall be used to— 

18 ‘‘(A) develop the infrastructure necessary 

19 to carry out retirement savings counseling for 

20 low-income taxpayers, including the develop21 ment of software to assist low-income taxpayers 

22 in beginning a retirement savings program, 

23 monitoring their savings behavior, and taking 

24 advantage of tax benefits provided under this 

25 title to assist in retirement savings, 

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1 ‘‘(B) develop partnerships with certified fi2 nancial planners and other financial experts to 

3 assist in carrying out the retirement savings 

4 program, and 

5 ‘‘(C) train advisors to assist low-income 

6 taxpayers with retirement savings. 

7 ‘‘(3) CRITERIA FOR AWARDS.—The provisions 

8 of subsection (c)(4) shall apply in determining 

9 whether to make a grant under paragraph (1). 

10 ‘‘(4) LIMITATIONS AND SPECIAL RULES.— 

11 ‘‘(A) AGGREGATE LIMITATION.—Unless 

12 otherwise provided by specific appropriations, 

13 the Secretary shall not allocate more than 

14 $25,000,000 per year (exclusive of costs of ad15 ministering the program) to grants under para16 graph (1). 

17 ‘‘(B) LIMITATION ON ANNUAL GRANTS TO

18 A CLINIC.—The aggregate amount of grants 

19 which may be made under paragraph (1) to a 

20 clinic for a year shall not exceed $100,000. 

21 ‘‘(C) MULTI-YEAR GRANTS.—The provi22 sions of subsection (c)(3) shall apply to grants 

23 under paragraph (1). 

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1 ‘‘(D) ADDITIONAL AMOUNTS.—Grants 

2 under paragraph (1) shall be in addition to any 

3 grants under subsection (a).’’ 

4 (b) CONFORMING AMENDMENTS.— 

5 (1) Section 7526(c) (relating to special rules 

6 and limitations) is amended by striking ‘‘this sec7 tion’’ each place it appears and inserting ‘‘subsection 

8 (a)’’. 

9 (2) Section 7526(c)(3) is amended by inserting 

10 ‘‘under subsection (a)’’ after ‘‘award’’. 

11 (c) AUTHORIZATION OF APPROPRIATIONS.—There is 

12 authorized to be appropriated for each fiscal year begin13 ning after September 30, 2008, $25,000,000 to carry out 

14 the provisions of this section. 

15 SEC. 402. TREATMENT OF QUALIFIED RETIREMENT PLAN16 NING SERVICES. 

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

18 (defining qualified retirement services) is amended by add19 ing at the end the following new paragraph: 

20 ‘‘(4) NO CONSTRUCTIVE RECEIPT.— 

21 ‘‘(A) IN GENERAL.—No amount shall be 

22 included in the gross income of any employee 

23 solely because the employee may choose between 

24 any qualified retirement planning services pro25 vided by an eligible investment advisor and 

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1 compensation which would otherwise be includ2 ible in the gross income of such employee. The 

3 preceding sentence shall apply to highly com4 pensated employees only if the choice described 

5 in such sentence is available on substantially 

6 the same terms to each member of the group of 

7 employees normally provided education and in8 formation regarding the employer’s qualified 

9 employer plan. 

10 ‘‘(B) LIMITATION.—The maximum amount 

11 which may be excluded under subparagraph (A) 

12 with respect to any employee for any taxable 

13 year shall not exceed $1,000. 

14 ‘‘(C) ELIGIBLE INVESTMENT ADVISER.— 

15 For purposes of this paragraph, the term ‘eligi16 ble investment adviser’ means, with respect to 

17 a plan, a person— 

18 ‘‘(i) who— 

19 ‘‘(I) is registered as an invest20 ment adviser under the Investment 

21 Advisers Act of 1940 (15 U.S.C. 80b– 

22 1 et seq.), 

23 ‘‘(II) is registered as an invest24 ment adviser under the laws of the 

25 State in which such adviser maintains 

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1 the principal office and place of busi2 ness of such adviser, but only if such 

3 State laws are consistent with section 

4 203A of the Investment Advisers Act 

5 of 1940 (15 U.S.C. 80b–3a), 

6 ‘‘(III) is a bank or similar finan7 cial institution referred to in section 

8 408(b)(4), 

9 ‘‘(IV) is an insurance company 

10 qualified to do business under the 

11 laws of a State, or 

12 ‘‘(V) is any other comparably 

13 qualified entity which satisfies such 

14 criteria as the Secretary determines 

15 appropriate, consistent with the pur16 poses of this subsection, and 

17 ‘‘(ii) who meets the requirements of 

18 subparagraph (D). 

19 ‘‘(D) ADVISER REQUIREMENTS.—The re20 quirements of this subparagraph are met if 

21 every individual employed (or otherwise com22 pensated) by a person described in subpara23 graph (C)(i) who provides investment advice on 

24 behalf of such person to any plan participant or 

25 beneficiary is— 

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1 ‘‘(i) an individual described in sub2 clause (I) of subparagraph (C)(i), 

3 ‘‘(ii) an individual described in sub4 clause (II) of subparagraph (C)(i), but 

5 only if such State has an examination re6 quirement to qualify for registration, 

7 ‘‘(iii) registered as a broker or dealer 

8 under the Securities Exchange Act of 1934 

9 (15 U.S.C. 78a et seq.), 

10 ‘‘(iv) a registered representative as de11 scribed in section 3(a)(18) of the Securi12 ties Exchange Act of 1934 (15 U.S.C. 

13 78c(a)(18)) or section 202(a)(17) of the 

14 Investment Advisers Act of 1940 (15 

15 U.S.C. 80b–2(a)(17)), or 

16 ‘‘(v) any other comparably qualified 

17 individual who satisfies such criteria as the 

18 Secretary determines appropriate, con19 sistent with the purposes of this para20 graph. 

21 ‘‘(E) TERMINATION.—This paragraph 

22 shall not apply to taxable years beginning after 

23 December 31, 2012.’’. 

24 (b) CONFORMING AMENDMENTS.— 

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1 (1) Section 403(b)(3)(B) is amended by insert2 ing ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

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

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

5 (3) Section 415(c)(3)(D)(ii) is amended by in6 serting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

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

8 this section shall apply to taxable years beginning after 

9 December 31, 2008. 

10 SEC. 403. RETIREMENT HANDBOOK AND RETIREMENT 

11 READINESS CHECKLIST. 

12 (a) IN GENERAL.—Section 704 of the Social Security 

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

14 subsection: 

15 ‘‘(f) RETIREMENT INFORMATION.— 

16 ‘‘(1) IN GENERAL.—The Commissioner, in con17 sultation with the Social Security Advisory Board, 

18 shall prepare— 

19 ‘‘(A) the financial reference handbook de20 scribed in paragraph (2), and 

21 ‘‘(B) the retirement readiness checklist de22 scribed in paragraph (3). 

23 ‘‘(2) FINANCIAL REFERENCE HANDBOOK.—The 

24 handbook described in this paragraph is a pamphlet 

25 which— 

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1 ‘‘(A) includes definitions of basic financial 

2 terms, 

3 ‘‘(B) contains a listing of financial issues 

4 and problems facing individuals who are retir5 ing and explanations of methods of dealing with 

6 the issues and problems, and 

7 ‘‘(C) is in a form readily understandable 

8 by the average retiree. 

9 ‘‘(3) READINESS CHECKLIST.—The checklist 

10 described in this paragraph is a list of questions that 

11 individuals need to consider in preparation for re12 tirement, including the following: 

13 ‘‘(A) What annual income will the indi14 vidual need in retirement? 

15 ‘‘(B) How many years will the individual 

16 live in retirement? 

17 ‘‘(C) What will be the cost of Medicare 

18 premiums? 

19 ‘‘(D) What will be the cost of insurance 

20 necessary to supplement Medicare? 

21 ‘‘(E) How will savings be invested in re22 tirement? 

23 ‘‘(F) How will taxes affect your retirement 

24 income? 

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1 The checklist will include answers to the questions 

2 or directions as to where information is available to 

3 answer the questions. All information shall be in a 

4 form readily understandable to the average recipient 

5 of the checklist. 

6 ‘‘(4) REVISIONS.—The Commissioner shall peri7 odically revise and update the handbook and check8 list prepared under this subsection. 

9 ‘‘(5) DISTRIBUTION OF MATERIALS.— 

10 ‘‘(A) HANDBOOK.—The financial reference 

11 handbook described in paragraph (2) shall be 

12 included with materials provided to an indi13 vidual when the individual first applies for ben14 efits under title II and such other times as the 

15 Commissioner determines appropriate. 

16 ‘‘(B) CHECKLIST.—The retirement readi17 ness checklist described in paragraph (3) shall 

18 be included with an individual’s annual social 

19 security account statement provided under sec20 tion 1143.’’. 

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

22 this section shall take effect on the date of the enactment 

23 of this Act, but the handbooks and checklists required to 

24 be provided by such amendment shall be provided on or 

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1 after January 1, 2010 (or such earlier date as the Com2 missioner of Social Security may provide). 

3 TITLE V—INCENTIVES FOR 

4 SMALL BUSINESSES TO ES5 TABLISH AND MAINTAIN RE6 TIREMENT PLANS FOR EM7 PLOYEES 

8 SEC. 501. CREDIT FOR QUALIFIED PENSION PLAN CON9 TRIBUTIONS OF SMALL EMPLOYERS. 

10 (a) IN GENERAL.—Subpart D of part IV of sub11 chapter A of chapter 1 (relating to business related cred12 its), as amended by section 102, is amended by adding 

13 at the end the following new section: 

14 ‘‘SEC. 45P. SMALL EMPLOYER PENSION PLAN CONTRIBU15 TIONS. 

16 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

17 in the case of an eligible employer, the small employer pen18 sion plan contribution credit determined under this section 

19 for any taxable year is an amount equal to 50 percent 

20 of the amount which would (but for subsection (f)(1)) be 

21 allowed as a deduction under section 404 for such taxable 

22 year for qualified employer contributions made to any 

23 qualified retirement plan on behalf of any employee who 

24 is not a highly compensated employee. 

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1 ‘‘(b) CREDIT LIMITED TO 3 YEARS.—The credit al2 lowable by this section shall be allowed only with respect 

3 to the period of 3 taxable years beginning with the first 

4 taxable year for which a credit is allowable with respect 

5 to a plan under this section. 

6 ‘‘(c) QUALIFIED EMPLOYER CONTRIBUTION.—For 

7 purposes of this section— 

8 ‘‘(1) DEFINED CONTRIBUTION PLANS.—In the 

9 case of a defined contribution plan, the term ‘quali10 fied employer contribution’ means the amount of 

11 nonelective and matching contributions to the plan 

12 made by the employer on behalf of any employee 

13 who is not a highly compensated employee to the ex14 tent such amount does not exceed 3 percent of such 

15 employee’s compensation from the employer for the 

16 year. 

17 ‘‘(2) DEFINED BENEFIT PLANS.—In the case of 

18 a defined benefit plan, the term ‘qualified employer 

19 contribution’ means the amount of employer con20 tributions to the plan made on behalf of any em21 ployee who is not a highly compensated employee to 

22 the extent that the accrued benefit of such employee 

23 derived from employer contributions for the year 

24 does not exceed the equivalent (as determined under 

25 regulations prescribed by the Secretary and without 

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1 regard to contributions and benefits under the Social 

2 Security Act) of 3 percent of such employee’s com3 pensation from the employer for the year. 

4 ‘‘(d) QUALIFIED RETIREMENT PLAN.— 

5 ‘‘(1) IN GENERAL.—The term ‘qualified retire6 ment plan’ means any plan described in section 

7 401(a) which includes a trust exempt from tax 

8 under section 501(a), any simplified pension (as de9 fined in section 408(k)), or any simple retirement 

10 account (as defined in section 408(p) if the following 

11 requirements are met with respect to such plan, pen12 sion, or account: 

13 ‘‘(A) The contribution requirements of 

14 paragraph (2). 

15 ‘‘(B) The vesting requirements of para16 graph (3). 

17 ‘‘(C) The distribution requirements of 

18 paragraph (4). 

19 The contribution and vesting requirements of para20 graphs (2) and (3) shall be treated as met in the 

21 case of a simple retirement account under a quali22 fied salary reduction arrangement (as defined in sec23 tion 408(p)(2)) or a cash or deferred arrangement 

24 meeting the requirements of section 401(k)(11). 

25 ‘‘(2) CONTRIBUTION REQUIREMENTS.— 

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1 ‘‘(A) IN GENERAL.—The requirements of 

2 this paragraph are met if, under the plan— 

3 ‘‘(i) the employer is required to make 

4 nonelective contributions of at least 1 per5 cent of compensation (or the equivalent 

6 thereof in the case of a defined benefit 

7 plan) for each employee who is not a high8 ly compensated employee who is eligible to 

9 participate in the plan, and 

10 ‘‘(ii) allocations of nonelective em11 ployer contributions, in the case of a de12 fined contribution plan, are either in equal 

13 dollar amounts for all employees covered 

14 by the plan or bear a uniform relationship 

15 to the total compensation, or the basic or 

16 regular rate of compensation, of the em17 ployees covered by the plan (and an equiv18 alent requirement is met with respect to a 

19 defined benefit plan). 

20 ‘‘(B) COMPENSATION LIMITATION.—The 

21 compensation taken into account under sub22 paragraph (A) for any year shall not exceed the 

23 limitation in effect for such year under section 

24 401(a)(17). 

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1 ‘‘(3) VESTING REQUIREMENTS.—The require2 ments of this paragraph are met if the plan satisfies 

3 the requirements of either of the following subpara4 graphs: 

5 ‘‘(A) 3-YEAR VESTING.—A plan satisfies 

6 the requirements of this subparagraph if an em7 ployee who has completed at least 3 years of 

8 service has a nonforfeitable right to 100 percent 

9 of the employee’s accrued benefit derived from 

10 employer contributions. 

11 ‘‘(B) 5-YEAR GRADED VESTING.—A plan 

12 satisfies the requirements of this subparagraph 

13 if an employee has a nonforfeitable right to a 

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

16 under the following table: 

The nonforfeitable 

‘‘Years of service: percentage is: 

1 ......................................................................................................... 20

2 ......................................................................................................... 40

3 ......................................................................................................... 60

4 ......................................................................................................... 80

5 ......................................................................................................... 100. 

17 ‘‘(4) DISTRIBUTION REQUIREMENTS.—In the 

18 case of a profit-sharing or stock bonus plan, the re19 quirements of this paragraph are met if, under the 

20 plan, qualified employer contributions are distribut21 able only as provided in section 401(k)(2)(B). 

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1 ‘‘(e) OTHER DEFINITIONS.—For purposes of this 

2 section— 

3 ‘‘(1) ELIGIBLE EMPLOYER.— 

4 ‘‘(A) IN GENERAL.—The term ‘eligible em5 ployer’ means, with respect to any year, an em6 ployer which has no more than 25 employees 

7 who received at least $5,000 of compensation 

8 from the employer for the preceding year. 

9 ‘‘(B) REQUIREMENT FOR NEW QUALIFIED

10 EMPLOYER PLANS.—Such term shall not in11 clude an employer if, during the 3-taxable year 

12 period immediately preceding the first taxable 

13 year for which the credit under this section is 

14 otherwise allowable for a qualified employer 

15 plan of the employer, the employer or any mem16 ber of any controlled group including the em17 ployer (or any predecessor of either) established 

18 or maintained a qualified employer plan with 

19 respect to which contributions were made, or 

20 benefits were accrued, for substantially the 

21 same employees as are in the qualified employer 

22 plan. 

23 ‘‘(2) HIGHLY COMPENSATED EMPLOYEE.—The 

24 term ‘highly compensated employee’ has the meanmstockstill on PROD1PC66 with BILLS

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1 ing given such term by section 414(q) (determined 

2 without regard to section 414(q)(1)(B)(ii)). 

3 ‘‘(f) SPECIAL RULES.— 

4 ‘‘(1) DISALLOWANCE OF DEDUCTION.—No de5 duction shall be allowed for that portion of the quali6 fied employer contributions paid or incurred for the 

7 taxable year which is equal to the credit determined 

8 under subsection (a). 

9 ‘‘(2) ELECTION NOT TO CLAIM CREDIT.—This 

10 section shall not apply to a taxpayer for any taxable 

11 year if such taxpayer elects to have this section not 

12 apply for such taxable year. 

13 ‘‘(3) AGGREGATION RULES.—All persons treat14 ed as a single employer under subsection (a) or (b) 

15 of section 52, or subsection (n) or (o) of section 414, 

16 shall be treated as one person. All eligible employer 

17 plans shall be treated as 1 eligible employer plan. 

18 ‘‘(g) RECAPTURE OF CREDIT ON FORFEITED CON19 TRIBUTIONS.— 

20 ‘‘(1) IN GENERAL.—Except as provided in para21 graph (2), if any accrued benefit which is forfeitable 

22 by reason of subsection (d)(3) is forfeited, the em23 ployer’s tax imposed by this chapter for the taxable 

24 year in which the forfeiture occurs shall be increased 

25 by 35 percent of the employer contributions from 

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1 which such benefit is derived to the extent such con2 tributions were taken into account in determining 

3 the credit under this section. 

4 ‘‘(2) REALLOCATED CONTRIBUTIONS.—Para5 graph (1) shall not apply to any contribution which 

6 is reallocated by the employer under the plan to em7 ployees who are not highly compensated employees.’’. 

8 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI9 NESS CREDIT.—Section 38(b) (defining current year busi10 ness credit), as amended by section 102, is amended by 

11 striking ‘‘and’’ at the end of paragraph (31), by striking 

12 the period at the end of paragraph (32) and inserting ‘‘, 

13 and’’, and by adding at the end the following new para14 graph: 

15 ‘‘(33) in the case of an eligible employer (as de16 fined in section 45P(e)), the small employer pension 

17 plan contribution credit determined under section 

18 45P(a).’’. 

19 (c) CONFORMING AMENDMENTS.— 

20 (1) Subsection (c) of section 196 is amended by 

21 striking ‘‘and’’ at the end of paragraph (12), by 

22 striking the period at the end of paragraph (13) and 

23 inserting ‘‘, and’’, and by adding at the end the fol24 lowing new paragraph: 

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1 ‘‘(14) the small employer pension plan contribu2 tion credit determined under section 45P(a).’’. 

3 (2) The table of sections for subpart D of part 

4 IV of subchapter A of chapter 1, as amended by sec5 tion 102, is amended by adding at the end the fol6 lowing new item: 

‘‘Sec. 45P. Small employer pension plan contributions.’’. 

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

8 this section shall apply to contributions paid or incurred 

9 in taxable years beginning after December 31, 2008. 

10 SEC. 502. DEDUCTION FOR PENSION CONTRIBUTIONS AL11 LOWED IN COMPUTING NET EARNINGS FROM 

12 SELF-EMPLOYMENT. 

13 (a) IN GENERAL.—Section 1402(a) (defining net 

14 earnings from self-employment) is amended by striking 

15 ‘‘and’’ at the end of paragraph (15), by striking the period 

16 at the end of paragraph (16) and inserting ‘‘, and’’, and 

17 by inserting after paragraph (16) the following new para18 graph: 

19 ‘‘(17) any deduction allowed under section 404 

20 by reason of section 404(a)(8)(C) shall be allowed, 

21 except that the amount of such deduction shall be 

22 determined without regard to this paragraph.’’. 

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

24 this section shall apply to taxable years beginning after 

25 December 31, 2008. 

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1 SEC. 503. EXEMPTION OF DEFERRAL-ONLY QUALIFIED 

2 CASH OR DEFERRED ARRANGEMENTS FROM 

3 TOP-HEAVY PLAN RULES. 

4 (a) IN GENERAL.—Section 416(g) (defining top5 heavy plan) is amended by adding at the end the following 

6 new paragraph: 

7 ‘‘(5) EXCEPTION FOR DEFERRAL-ONLY CASH

8 OR DEFERRED ARRANGEMENTS.—In the case of a 

9 plan which consists solely of a qualified cash or de10 ferred arrangement (as defined in section 401(k)(2)) 

11 under which no amounts may be contributed other 

12 than elective deferrals (as defined in section 

13 402(g)(3)), such plan shall not be treated as a top14 heavy plan.’’. 

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

16 this section shall apply to years beginning after December 

17 31, 2008. 

18 SEC. 504. EXTENSION OF TIME FOR SMALL PENSION PLANS 

19 TO ADOPT REQUIRED PLAN QUALIFICATION 

20 AMENDMENTS. 

21 (a) IN GENERAL.—In the case of an eligible small 

22 plan for which a remedial amendment period is established 

23 under Internal Revenue Procedure 2005–66 (or any regu24 lation, revenue ruling, revenue procedure, or guidance pro25 viding for a similar period), no amendment to the plan 

26 necessary for the plan to meet the qualification requiremstockstill on PROD1PC66 with BILLS

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1 ments under the Internal Revenue Code of 1986 shall be 

2 required before the close of such period. 

3 (b) ADDITIONAL REQUIREMENTS.—Subsection (a) 

4 shall not apply to an eligible small plan unless— 

5 (1) any amendment described in subsection (a) 

6 applies retroactively to the period during which such 

7 amendment would otherwise have been required to 

8 be in effect, 

9 (2) the plan is operated during the period de10 scribed in paragraph (1) as if the amendment were 

11 in effect, and 

12 (3) the plan meets such requirements as the 

13 Secretary of the Treasury may prescribe to ensure 

14 that the Secretary, the Secretary of Labor, employ15 ers maintaining the plan, and participants and bene16 ficiaries of the plan are adequately notified of the 

17 terms of the plan actually in effect during a plan 

18 year. 

19 (c) ELIGIBLE SMALL PLAN.—For purposes of this 

20 section— 

21 (1) IN GENERAL.—The term ‘‘eligible small 

22 plan’’ means a plan which, as of the beginning of a 

23 remedial amendment or similar period described in 

24 subsection (a), had 100 or fewer participants. For 

25 purposes of this paragraph, all defined benefit plans 

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1 which are single-employer plans and are maintained 

2 by the same employer (or any member of such em3 ployer’s controlled group) shall be treated as 1 plan, 

4 but only participants with respect to such employer 

5 or member shall be taken into account. 

6 (2) APPLICATION OF CERTAIN RULES IN DE7 TERMINATION OF PLAN SIZE.—For purposes of this 

8 subsection— 

9 (A) PLANS NOT IN EXISTENCE IN PRE10 CEDING YEAR.—In the case of the first plan 

11 year of any plan, subparagraph (B) shall apply 

12 to such plan by taking into account the number 

13 of participants that the plan is reasonably ex14 pected to have on days during such first plan 

15 year. 

16 (B) PREDECESSORS.—Any reference in 

17 paragraph (1) to an employer shall include a 

18 reference to any predecessor of such employer. 

19 (d) EFFECTIVE DATE.—This section shall apply to 

20 amendments required to be adopted for plan years begin21 ning after December 31, 2007. 

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1 TITLE VI—PROVISIONS RELAT2 ING TO LONG-TERM CARE IN3 SURANCE 

4 SEC. 601. TREATMENT OF PREMIUMS ON QUALIFIED LONG5 TERM CARE INSURANCE CONTRACTS. 

6 (a) IN GENERAL.—Part VII of subchapter B of chap7 ter 1 of the Internal Revenue Code of 1986 (relating to 

8 additional itemized deductions) is amended by redesig9 nating section 224 as section 225 and by inserting after 

10 section 223 the following new section: 

11 ‘‘SEC. 224. PREMIUMS ON QUALIFIED LONG-TERM CARE IN12 SURANCE CONTRACTS. 

13 ‘‘(a) IN GENERAL.—In the case of an individual, 

14 there shall be allowed as a deduction an amount equal to 

15 the applicable percentage of the amount of eligible long16 term care premiums (as defined in section 213(d)(10)) 

17 paid during the taxable year for coverage for the taxpayer 

18 and the taxpayer’s spouse and dependents under a quali19 fied long-term care insurance contract (as defined in sec20 tion 7702B(b)). 

21 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of 

22 subsection (a), the applicable percentage shall be deter23 mined in accordance with the following table: 

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‘‘For taxable years beginning The applicable 

in calendar year— percentage is—

2008................................................................................................... 25

2009 ................................................................................................... 35

2010 ................................................................................................... 65

2011 or thereafter .............................................................................. 100. 

1 ‘‘(c) COORDINATION WITH OTHER DEDUCTIONS.— 

2 Any amount paid by a taxpayer for any qualified long3 term care insurance contract to which subsection (a) ap4 plies shall not be taken into account in computing the 

5 amount allowable to the taxpayer as a deduction under 

6 section 162(l) or 213(a).’’. 

7 (b) LONG-TERM CARE INSURANCE PERMITTED TO

8 BE OFFERED UNDER CAFETERIA PLANS AND FLEXIBLE

9 SPENDING ARRANGEMENTS.— 

10 (1) CAFETERIA PLANS.—The last sentence of 

11 section 125(f) of such Code (defining qualified bene12 fits) is amended by inserting before the period at the 

13 end ‘‘; except that such term shall include the pay14 ment of premiums for any qualified long-term care 

15 insurance contract (as defined in section 7702B) to 

16 the extent the amount of such payment does not ex17 ceed the eligible long-term care premiums (as de18 fined in section 213(d)(10)) for such contract’’. 

19 (2) FLEXIBLE SPENDING ARRANGEMENTS.— 

20 Section 106 of such Code (relating to contributions 

21 by an employer to accident and health plans) is 

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1 amended by striking subsection (c) and redesig2 nating subsection (d) as subsection (c). 

3 (c) CONFORMING AMENDMENTS.— 

4 (1) Section 62(a) of such Code is amended by 

5 inserting before the last sentence at the end the fol6 lowing new paragraph: 

7 ‘‘(22) PREMIUMS ON QUALIFIED LONG-TERM

8 CARE INSURANCE CONTRACTS.—The deduction al9 lowed by section 224.’’. 

10 (2) Sections 223(b)(4)(B), 223(d)(4)(C), 

11 223(f)(3)(B), 3231(e)(11), 3306(b)(18), 

12 3401(a)(22), 4973(g)(1), and 4973(g)(2)(B)(i) of 

13 such Code are each amended by striking ‘‘section 

14 106(d)’’ and inserting ‘‘section 106(c)’’. 

15 (3) Section 6041 of such Code is amended— 

16 (A) in subsection (f)(1) by striking ‘‘(as 

17 defined in section 106(c)(2))’’, and 

18 (B) by adding at the end the following new 

19 subsection: 

20 ‘‘(h) FLEXIBLE SPENDING ARRANGEMENT DE21 FINED.—For purposes of this section, a flexible spending 

22 arrangement is a benefit program which provides employ23 ees with coverage under which— 

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1 ‘‘(1) specified incurred expenses may be reim2 bursed (subject to reimbursement maximums and 

3 other reasonable conditions), and 

4 ‘‘(2) the maximum amount of reimbursement 

5 which is reasonably available to a participant for 

6 such coverage is less than 500 percent of the value 

7 of such coverage. 

8 In the case of an insured plan, the maximum amount rea9 sonably available shall be determined on the basis of the 

10 underlying coverage.’’. 

11 (4) The table of sections for part VII of sub12 chapter B of chapter 1 of such Code is amended by 

13 striking the last item and inserting the following 

14 new items: 

‘‘Sec. 224. Premiums on qualified long-term care insurance contracts. 

‘‘Sec. 225. Cross reference’’. 

15 (d) EFFECTIVE DATES.— 

16 (1) IN GENERAL.—Except as provided in para17 graph (2), the amendments made by this section 

18 shall apply to taxable years beginning after Decem19 ber 31, 2007. 

20 (2) CAFETERIA PLANS AND FLEXIBLE SPEND21 ING ARRANGEMENTS.—The amendments made by 

22 subsection (b) shall apply to taxable years beginning 

23 after December 31, 2009. 

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1 SEC. 602. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE 

2 NEEDS. 

3 (a) IN GENERAL.—Subpart A of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of 

5 1986 (relating to nonrefundable personal credits) is 

6 amended by inserting after section 25D the following new 

7 section: 

8 ‘‘SEC. 25E. CREDIT FOR TAXPAYERS WITH LONG-TERM 

9 CARE NEEDS. 

10 ‘‘(a) ALLOWANCE OF CREDIT.— 

11 ‘‘(1) IN GENERAL.—There shall be allowed as a 

12 credit against the tax imposed by this chapter for 

13 the taxable year an amount equal to the applicable 

14 credit amount multiplied by the number of applica15 ble individuals with respect to whom the taxpayer is 

16 an eligible caregiver for the taxable year. 

17 ‘‘(2) APPLICABLE CREDIT AMOUNT.—For pur18 poses of paragraph (1), the applicable credit amount 

19 shall be determined in accordance with the following 

20 table: 

‘‘For taxable years beginning The applicable 

in calendar year— credit amount is—

2008.................................................................................. $1,000

2009 .................................................................................. 1,500

2010 .................................................................................. 2,000

2011 .................................................................................. 2,500

2012 or thereafter ............................................................. 3,000. 

21 ‘‘(b) LIMITATION BASED ON ADJUSTED GROSS IN22 COME.— 

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1 ‘‘(1) IN GENERAL.—The amount of the credit 

2 allowable under subsection (a) shall be reduced (but 

3 not below zero) by $100 for each $1,000 (or fraction 

4 thereof) by which the taxpayer’s modified adjusted 

5 gross income exceeds the threshold amount. For 

6 purposes of the preceding sentence, the term ‘modi7 fied adjusted gross income’ means adjusted gross in8 come increased by any amount excluded from gross 

9 income under section 911, 931, or 933. 

10 ‘‘(2) THRESHOLD AMOUNT.—For purposes of 

11 paragraph (1), the term ‘threshold amount’ means— 

12 ‘‘(A) $150,000 in the case of a joint re13 turn, and 

14 ‘‘(B) $75,000 in any other case. 

15 ‘‘(3) INDEXING.—In the case of any taxable 

16 year beginning in a calendar year after 2008, each 

17 dollar amount contained in paragraph (2) shall be 

18 increased by an amount equal to the product of— 

19 ‘‘(A) such dollar amount, and 

20 ‘‘(B) the medical care cost adjustment de21 termined under section 213(d)(10)(B)(ii) for 

22 the calendar year in which the taxable year be23 gins, determined by substituting ‘August 2007’ 

24 for ‘August 1996’ in subclause (II) thereof. 

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1 If any increase determined under the preceding sen2 tence is not a multiple of $50, such increase shall 

3 be rounded to the next lowest multiple of $50. 

4 ‘‘(c) DEFINITIONS.—For purposes of this section— 

5 ‘‘(1) APPLICABLE INDIVIDUAL.— 

6 ‘‘(A) IN GENERAL.—The term ‘applicable 

7 individual’ means, with respect to any taxable 

8 year, any individual who has been certified, be9 fore the due date for filing the return of tax for 

10 the taxable year (without extensions), by a phy11 sician (as defined in section 1861(r)(1) of the 

12 Social Security Act) as being an individual with 

13 long-term care needs described in subparagraph 

14 (B) for a period— 

15 ‘‘(i) which is at least 180 consecutive 

16 days, and 

17 ‘‘(ii) a portion of which occurs within 

18 the taxable year. 

19 Notwithstanding the preceding sentence, a cer20 tification shall not be treated as valid unless it 

is made within the 391 21 ⁄2 month period ending 

22 on such due date (or such other period as the 

23 Secretary prescribes). 

24 ‘‘(B) INDIVIDUALS WITH LONG-TERM CARE

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1 paragraph if the individual meets any of the fol2 lowing requirements: 

3 ‘‘(i) The individual is at least 6 years 

4 of age and— 

5 ‘‘(I) is unable to perform (with6 out substantial assistance from an7 other individual) at least 3 activities 

8 of daily living (as defined in section 

9 7702B(c)(2)(B)) due to a loss of 

10 functional capacity, or 

11 ‘‘(II) requires substantial super12 vision to protect such individual from 

13 threats to health and safety due to se14 vere cognitive impairment and is un15 able to preform, without reminding or 

16 cuing assistance, at least 1 activity of 

17 daily living (as so defined) or to the 

18 extent provided in regulations pre19 scribed by the Secretary (in consulta20 tion with the Secretary of Health and 

21 Human Services), is unable to engage 

22 in age appropriate activities. 

23 ‘‘(ii) The individual is at least 2 but 

24 not 6 years of age and is unable due to a 

25 loss of functional capacity to perform 

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1 (without substantial assistance from an2 other individual) at least 2 of the following 

3 activities: eating, transferring, or mobility. 

4 ‘‘(iii) The individual is under 2 years 

5 of age and requires specific durable med6 ical equipment by reason of a severe health 

7 condition or requires a skilled practitioner 

8 trained to address the individual’s condi9 tion to be available if the individual’s par10 ents or guardians are absent. 

11 ‘‘(2) ELIGIBLE CAREGIVER.— 

12 ‘‘(A) IN GENERAL.—A taxpayer shall be 

13 treated as an eligible caregiver for any taxable 

14 year with respect to the following individuals: 

15 ‘‘(i) The taxpayer. 

16 ‘‘(ii) The taxpayer’s spouse. 

17 ‘‘(iii) An individual with respect to 

18 whom the taxpayer is allowed a deduction 

19 under section 151 for the taxable year. 

20 ‘‘(iv) An individual who would be de21 scribed in clause (iii) for the taxable year 

22 if section 152(d)(1)(B) were applied by 

23 substituting for the exemption amount an 

24 amount equal to the sum of the exemption 

25 amount, the standard deduction under secmstockstill on PROD1PC66 with BILLS

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1 tion 63(c)(2)(C), and any additional stand2 ard deduction under section 63(c)(3) which 

3 would be applicable to the individual if 

4 clause (iii) applied. 

5 ‘‘(v) An individual who would be de6 scribed in clause (iii) for the taxable year 

7 if— 

8 ‘‘(I) the requirements of subpara9 graph (B) are met with respect to the 

10 individual in lieu of the support test 

11 of section 152(c)(1)(D) or 

12 152(d)(1)(C), as the case may be, and 

13 ‘‘(II) in the case of an individual 

14 who is not a qualifying child (as de15 fined in section 152(d)) for the tax16 able year, the requirements of clause 

17 (iv) are met with respect to the indi18 vidual. 

19 ‘‘(B) RESIDENCY TEST.—The require20 ments of this subparagraph are met if an indi21 vidual has as his principal place of abode the 

22 home of the taxpayer and— 

23 ‘‘(i) in the case of an individual who 

24 is an ancestor or descendant of the tax25 payer or the taxpayer’s spouse, is a memmstockstill on PROD1PC66 with BILLS

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1 ber of the taxpayer’s household for over 

2 half the taxable year, or 

3 ‘‘(ii) in the case of any other indi4 vidual, is a member of the taxpayer’s 

5 household for the entire taxable year. 

6 ‘‘(C) SPECIAL RULES WHERE MORE THAN

7 1 ELIGIBLE CAREGIVER.— 

8 ‘‘(i) IN GENERAL.—If more than 1 in9 dividual is an eligible caregiver with re10 spect to the same applicable individual for 

11 taxable years ending with or within the 

12 same calendar year, a taxpayer shall be 

13 treated as the eligible caregiver if each 

14 such individual (other than the taxpayer) 

15 files a written declaration (in such form 

16 and manner as the Secretary may pre17 scribe) that such individual will not claim 

18 such applicable individual for the credit 

19 under this section. 

20 ‘‘(ii) NO AGREEMENT.—If each indi21 vidual required under clause (i) to file a 

22 written declaration under clause (i) does 

23 not do so, the individual with the highest 

24 adjusted gross income shall be treated as 

25 the eligible caregiver. 

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1 ‘‘(iii) MARRIED INDIVIDUALS FILING

2 SEPARATELY.—In the case of married indi3 viduals filing separately, the determination 

4 under this subparagraph as to whether the 

5 husband or wife is the eligible caregiver 

6 shall be made under the rules of clause (ii) 

7 (whether or not one of them has filed a 

8 written declaration under clause (i)). 

9 ‘‘(d) IDENTIFICATION REQUIREMENT.—No credit 

10 shall be allowed under this section to a taxpayer with re11 spect to any applicable individual unless the taxpayer in12 cludes the name and taxpayer identification number of 

13 such individual, and the identification number of the phy14 sician certifying such individual, on the return of tax for 

15 the taxable year. 

16 ‘‘(e) TAXABLE YEAR MUST BE FULL TAXABLE

17 YEAR.—Except in the case of a taxable year closed by rea18 son of the death of the taxpayer, no credit shall be allow19 able under this section in the case of a taxable year cov20 ering a period of less than 12 months.’’. 

21 (b) CONFORMING AMENDMENTS.— 

22 (1) Section 6213(g)(2) of such Code is amend23 ed by striking ‘‘and’’ at the end of subparagraph 

24 (L), by striking the period at the end of subpara25 graph (M) and inserting ‘‘, and’’, and by inserting 

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1 after subparagraph (M) the following new subpara2 graph: 

3 ‘‘(N) an omission of a correct TIN or phy4 sician identification required under section 

5 25E(d) (relating to credit for taxpayers with 

6 long-term care needs) to be included on a re7 turn.’’. 

8 (2) The table of sections for subpart A of part 

9 IV of subchapter A of chapter 1 of such Code is 

10 amended by inserting after the item relating to sec11 tion 25D the following new item: 

‘‘Sec. 25E. Credit for taxpayers with long-term care needs’’. 

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

13 this section shall apply to taxable years beginning after 

14 December 31, 2007. 

15 SEC. 603. ADDITIONAL CONSUMER PROTECTIONS FOR 

16 LONG-TERM CARE INSURANCE. 

17 (a) ADDITIONAL PROTECTIONS APPLICABLE TO

18 LONG-TERM CARE INSURANCE.—Subparagraphs (A) and 

19 (B) of section 7702B(g)(2) of the Internal Revenue Code 

20 of 1986 (relating to requirements of model regulation and 

21 Act) are amended to read as follows: 

22 ‘‘(A) IN GENERAL.—The requirements of 

23 this paragraph are met with respect to any con24 tract if such contract meets— 

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1 ‘‘(i) MODEL REGULATION.—The fol2 lowing requirements of the model regula3 tion: 

4 ‘‘(I) Section 6A (relating to guar5 anteed renewal or noncancellability), 

6 other than paragraph (5) thereof, and 

7 the requirements of section 6B of the 

8 model Act relating to such section 6A. 

9 ‘‘(II) Section 6B (relating to pro10 hibitions on limitations and exclu11 sions) other than paragraph (7) there12 of. 

13 ‘‘(III) Section 6C (relating to ex14 tension of benefits). 

15 ‘‘(IV) Section 6D (relating to 

16 continuation or conversion of cov17 erage). 

18 ‘‘(V) Section 6E (relating to dis19 continuance and replacement of poli20 cies). 

21 ‘‘(VI) Section 7 (relating to unin22 tentional lapse). 

23 ‘‘(VII) Section 8 (relating to dis24 closure), other than sections 8F, 8G, 

25 8H, and 8I thereof. 

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1 ‘‘(VIII) Section 11 (relating to 

2 prohibitions against post-claims un3 derwriting). 

4 ‘‘(IX) Section 12 (relating to 

5 minimum standards). 

6 ‘‘(X) Section 13 (relating to re7 quirement to offer inflation protec8 tion). 

9 ‘‘(XI) Section 25 (relating to pro10 hibition against preexisting conditions 

11 and probationary periods in replace12 ment policies or certificates). 

13 ‘‘(XII) The provisions of section 

14 26 relating to contingent nonforfeiture 

15 benefits, if the policyholder declines 

16 the offer of a nonforfeiture provision 

17 described in paragraph (4). 

18 ‘‘(ii) MODEL ACT.—The following re19 quirements of the model Act: 

20 ‘‘(I) Section 6C (relating to pre21 existing conditions). 

22 ‘‘(II) Section 6D (relating to 

23 prior hospitalization). 

24 ‘‘(III) The provisions of section 8 

25 relating to contingent nonforfeiture 

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1 benefits, if the policyholder declines 

2 the offer of a nonforfeiture provision 

3 described in paragraph (4). 

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

5 paragraph— 

6 ‘‘(i) MODEL PROVISIONS.—The terms 

7 ‘model regulation’ and ‘model Act’ mean 

8 the long-term care insurance model regula9 tion, and the long-term care insurance 

10 model Act, respectively, promulgated by 

11 the National Association of Insurance 

12 Commissioners (as adopted as of October 

13 2000). 

14 ‘‘(ii) COORDINATION.—Any provision 

15 of the model regulation or model Act listed 

16 under clause (i) or (ii) of subparagraph 

17 (A) shall be treated as including any other 

18 provision of such regulation or Act nec19 essary to implement the provision. 

20 ‘‘(iii) DETERMINATION.—For pur21 poses of this section and section 4980C, 

22 the determination of whether any require23 ment of a model regulation or the model 

24 Act has been met shall be made by the 

25 Secretary.’’. 

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1 (b) EXCISE TAX.—Paragraph (1) of section 

2 4980C(c) of the Internal Revenue Code of 1986 (relating 

3 to requirements of model provisions) is amended to read 

4 as follows: 

5 ‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.— 

6 ‘‘(A) MODEL REGULATION.—The following 

7 requirements of the model regulation must be 

8 met: 

9 ‘‘(i) Section 9 (relating to required 

10 disclosure of rating practices to consumer). 

11 ‘‘(ii) Section 14 (relating to applica12 tion forms and replacement coverage). 

13 ‘‘(iii) Section 15 (relating to reporting 

14 requirements). 

15 ‘‘(iv) Section 22 (relating to filing re16 quirements for marketing). 

17 ‘‘(v) Section 23 (relating to standards 

18 for marketing), including inaccurate com19 pletion of medical histories, other than 

20 paragraphs (1), (6), and (9) of section 

21 23C. 

22 ‘‘(vi) Section 24 (relating to suit23 ability). 

24 ‘‘(vii) Section 29 (relating to standard 

25 format outline of coverage). 

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1 ‘‘(viii) Section 30 (relating to require2 ment to deliver shopper’s guide). 

3 The requirements referred to in clause (vi) shall 

4 not include those portions of the personal work5 sheet described in Appendix B relating to con6 sumer protection requirements not imposed by 

7 section 4980C or 7702B. 

8 ‘‘(B) MODEL ACT.—The following require9 ments of the model Act must be met: 

10 ‘‘(i) Section 6F (relating to right to 

11 return). 

12 ‘‘(ii) Section 6G (relating to outline of 

13 coverage). 

14 ‘‘(iii) Section 6H (relating to require15 ments for certificates under group plans). 

16 ‘‘(iv) Section 6J (relating to policy 

17 summary). 

18 ‘‘(v) Section 6K (relating to monthly 

19 reports on accelerated death benefits). 

20 ‘‘(vi) Section 7 (relating to incontest21 ability period). 

22 ‘‘(C) DEFINITIONS.—For purposes of this 

23 paragraph, the terms ‘model regulation’ and 

24 ‘model Act’ have the meanings given such terms 

25 by section 7702B(g)(2)(B).’’. 

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

2 this section shall apply to policies issued more than 1 year 

3 after the date of the enactment of this Act. 

4 SEC. 604. TREATMENT OF EXCHANGES OF LONG-TERM 

5 CARE INSURANCE CONTRACTS. 

6 (a) IN GENERAL.—Subsection (a) of section 1035 of 

7 the Internal Revenue Code of 1986 (relating to exchanges 

8 of insurance policies) is amended by striking the period 

9 at the end of paragraph (3) and inserting ‘‘; or’’ and by 

10 adding at the end the following new paragraph: 

11 ‘‘(4) a qualified long-term care insurance con12 tract for another qualified long-term care insurance 

13 contract.’’. 

14 (b) QUALIFIED LONG-TERM CARE INSURANCE CON15 TRACT.—Subsection (b) of section 1035 of such Code (re16 lating to definitions) is amended by adding at the end the 

17 following new paragraph: 

18 ‘‘(4) QUALIFIED LONG-TERM CARE INSURANCE

19 CONTRACT.—The term ‘qualified long-term care in20 surance contract’ means— 

21 ‘‘(A) any qualified long-term care insur22 ance contract (as defined in section 7702B), 

23 and 

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1 ‘‘(B) any contract which is treated as such 

2 by section 321(f)(2) of the Health Insurance 

3 Portability and Accountability Act of 1996.’’. 

4 (c) EFFECTIVE DATE.— 

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

6 this section shall apply to exchanges after December 

7 31, 1997. 

8 (2) WAIVER OF LIMITATIONS.—If the credit or 

9 refund of any overpayment of tax with respect to a 

10 taxable year ending before the date of the enactment 

11 of this Act resulting from the application of section 

12 1035(a)(4) of the Internal Revenue Code of 1986, as 

13 added by this section, is prevented at any time by 

14 the operation of any law or rule of law (including res 

15 judicata), such credit or refund may nevertheless be 

16 allowed or made if the claim therefor is filed before 

17 the close of the 1-year period beginning on the date 

18 of the enactment of this Act. 

Æ 

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