II 

110TH CONGRESS 

1ST SESSION S. 1288 

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 SENATE OF THE UNITED STATES 

MAY 3, 2007 

Mr. SMITH (for himself, Mr. CONRAD, Mr. KERRY, Mr. BINGAMAN, and Ms. 

SNOWE) introduced the following bill; which was read twice and referred 

to the Committee on Finance 

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 2007’’. 

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amendVerDate Aug 31 2005 00:14 May 05, 2007 Jkt 059200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1288.IS S1288

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1 ment or repeal is expressed in terms of an amendment 

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

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

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

6 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. 

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

after turning 60 without a penalty under Railroad Retirement 

Act. 

Sec. 304. Repeal of jurisdictional requirement for court to treat military retirement pay as property of the military member and spouse. 


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Sec. 305. Modification of reductions in disposable retired pay for payments in 

compliance with court orders. 

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. 

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 

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

13 408A the following new section: 


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1 ‘‘SEC. 408B. RIGHT TO PAYROLL DEPOSIT IRA ARRANGE2 MENTS AT WORK. 

3 ‘‘(a) REQUIREMENT TO PROVIDE PAYROLL DEPOSIT

4 IRA ARRANGEMENT.—Each employer (other than an em5 ployer described in subsection (e)) shall provide to each 

6 applicable employee of the employer for any calendar year 

7 the opportunity to participate in a payroll deposit IRA ar8 rangement which meets the requirements of this section. 

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

10 purposes of this section— 

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

12 IRA arrangement’ means a written arrangement of 

13 an employer— 

14 ‘‘(A) under which an applicable employee 

15 eligible to participate in the arrangement may 

16 elect to contribute to an individual retirement 

17 plan established by or on behalf of the employee 

18 by having the employer make periodic direct de19 posit or other payroll deposit payments (includ20 ing electronic payments) to the plan by payroll 

21 deduction, and 

22 ‘‘(B) which meets the requirements of 

23 paragraph (2). 

24 ‘‘(2) ADMINISTRATIVE REQUIREMENTS.—The 

25 requirements of this paragraph are met with respect 

26 to any payroll deposit IRA arrangement if— 


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1 ‘‘(A) the employer must make the pay2 ments elected under paragraph (1)(A) on or be3 fore the later of— 

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

5 tax required to be deducted and withheld 

6 under chapter 24 (relating to collection of 

7 income tax at source on wages) for the 

8 payroll period to which such payments re9 late, or 

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

11 day of the month with respect to which the 

12 payments are to be made, 

13 ‘‘(B) subject to a requirement for reason14 able notice, an employee may elect to terminate 

15 participation in the arrangement at any time 

16 during a calendar year, except that if an em17 ployee so terminates, the arrangement may pro18 vide that the employee may not elect to resume 

19 participation until the beginning of the next cal20 endar year, 

21 ‘‘(C) each employee eligible to participate 

22 may elect, during the 60-day period or other pe23 riod specified by the Secretary before the begin24 ning of any calendar year (and during the 60- 

25 day period or other period specified by the SecVerDate Aug 31 2005 00:14 May 05, 2007 Jkt 059200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1288.IS S1288

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1 retary before the first day the employee is eligi2 ble to participate), to participate in the ar3 rangement, or to modify the employee’s election 

4 under the arrangement (including the amounts 

5 subject to the arrangement and the manner in 

6 which such amounts are invested), for such 

7 year, 

8 ‘‘(D) the employer provides— 

9 ‘‘(i) immediately before the beginning 

10 of each period described in subparagraph 

11 (C), a notice to each employee of the em12 ployee’s opportunity to make the election 

13 and the maximum amount which may be 

14 contributed to an individual retirement 

15 plan on an annual basis, and 

16 ‘‘(ii) if the arrangement includes an 

17 automatic enrollment arrangement, the no18 tices required under subsection (h) with re19 spect to the automatic enrollment arrange20 ment, 

21 ‘‘(E) subject to subsection (f), the arrange22 ment provides that an employee may elect to 

23 have contributions made to any individual re24 tirement plan specified by the employee, and 


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

2 an automatic enrollment arrangement— 

3 ‘‘(i) the arrangement requires the em4 ployer to take all reasonable actions to so5 licit from all employees eligible to partici6 pate in the arrangement an explicit elec7 tion to either participate or not to partici8 pate in the arrangement, and 

9 ‘‘(ii) the arrangement provides that if 

10 an employee fails to make an explicit elec11 tion under clause (i) within the time pre12 scribed under the arrangement, the em13 ployee will be treated as having made an 

14 election to participate in the arrangement 

15 (and amounts shall be invested on behalf 

16 of the participant) in the same manner as 

17 if the arrangement had included an auto18 matic enrollment arrangement under sub19 section (g). 

20 ‘‘(c) APPLICABLE EMPLOYEE DEFINED; RELATED

21 DEFINITIONS AND RULES.—For purposes of this sec22 tion— 

23 ‘‘(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 2007.’’. 

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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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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 2008, 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 2007’ for ‘calendar year 1992’ in sub20 paragraph (B) thereof. 


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•S 1288 IS

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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•S 1288 IS

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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•S 1288 IS

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 2007’’ 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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•S 1288 IS

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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•S 1288 IS

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, 2007. 

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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•S 1288 IS

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.—Section 401(k) (relating 

10 to cash or deferred arrangements), as amended by 

11 section 902 of the Pension Protection Act of 2006, 

12 is amended by adding at the end the following new 

13 paragraph: 

14 ‘‘(14) SPECIAL RULES FOR PARTICIPATION RE15 QUIREMENT FOR LONG-TERM, PART-TIME WORK16 ERS.—For purposes of paragraph (2)(D)(ii)— 

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

18 Paragraph (2)(D)(ii) shall not apply to an em19 ployee unless the employee has met the require20 ment of section 410(a)(1)(A)(i) by the close of 

21 the last of the 12-month periods described in 

22 such paragraph. 

23 ‘‘(B) NONDISCRIMINATION AND TOP24 HEAVY RULES NOT TO APPLY.— 


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•S 1288 IS

1 ‘‘(i) NONDISCRIMINATION RULES.—In 

2 the case of employees who are eligible to 

3 participate in the arrangement solely by 

4 reason of paragraph (2)(D)(ii)— 

5 ‘‘(I) notwithstanding subsection 

6 (a)(4), an employer shall not be re7 quired to make nonelective or match8 ing contributions on behalf of such 

9 employees even if such contributions 

10 are made on behalf of other employees 

11 eligible to participate in the arrange12 ment, and 

13 ‘‘(II) an employer may elect to 

14 exclude such employees from the ap15 plication of paragraph (3) and sub16 section (m)(2). 

17 ‘‘(ii) TOP-HEAVY RULES.—An em18 ployer may elect to exclude all employees 

19 who are eligible to participate in a plan 

20 maintained by the employer solely by rea21 son of paragraph (2)(D)(ii) from— 

22 ‘‘(I) the determination of whether 

23 the plan is a top-heavy plan under 

24 section 416, and 


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•S 1288 IS

1 ‘‘(II) if the plan is a top-heavy 

2 plan under such section, the applica3 tion of the vesting and benefit re4 quirements under subsections (b) and 

5 (c) of such section. 

6 ‘‘(iii) VESTING.—For purposes of de7 termining whether an employee described 

8 in clause (i) has a nonforfeitable right to 

9 employer contributions (other than con10 tributions described in paragraph 

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

12 12-month period for which the employee 

13 has at least 500 hours of service shall be 

14 treated as a year of service. 

15 ‘‘(iv) EMPLOYEES WHO BECOME

16 FULL-TIME EMPLOYEES.—This subpara17 graph shall cease to apply to any employee 

18 after the date on which the employee meets 

19 the requirements of section 

20 410(a)(1)(A)(ii) without regard to para21 graph (2)(D)(ii). 

22 ‘‘(C) EXCEPTION FOR EMPLOYEES UNDER

23 COLLECTIVELY BARGAINED PLANS, ETC.—Para24 graph (2)(D)(ii) shall not apply to employees 

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


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•S 1288 IS

1 ‘‘(D) SPECIAL RULES.— 

2 ‘‘(i) TIME OF PARTICIPATION.—The 

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

4 employee eligible to participate in an ar5 rangement solely by reason of paragraph 

6 (2)(D)(ii). 

7 ‘‘(ii) 12-MONTH PERIODS.—12-month 

8 periods shall be determined in the same 

9 manner as under the last sentence of sec10 tion 410(a)(3)(A).’’. 

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

12 this section shall apply to plan years beginning after De13 cember 31, 2008, except that, for purposes of section 

14 401(k)(2)(D)(ii) of the Internal Revenue Code of 1986 (as 

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

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

17 SEC. 113. TRANSFERS OF UNUSED BENEFITS OF HEALTH 

18 FLEXIBLE SPENDING ARRANGEMENT TO 

19 CERTAIN RETIREMENT PLANS. 

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

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

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

23 after subsection (g) the following: 

24 ‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH

25 BENEFITS.— 


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•S 1288 IS

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

2 a plan or other arrangement shall not fail to be 

3 treated as a cafeteria plan solely because qualified 

4 benefits of a participant under such plan include a 

5 health flexible spending arrangement under which 

6 not more than $500 of unused health benefits may 

7 be contributed on behalf of the participant to— 

8 ‘‘(A) a qualified retirement plan (as de9 fined in section 4974(c)), or 

10 ‘‘(B) an eligible deferred compensation 

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

12 by an eligible employer described in section 

13 457(e)(1)(A). 

14 ‘‘(2) TREATMENT OF CONTRIBUTION OF UN15 USED HEALTH BENEFITS.— 

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

17 title, contributions described in paragraph (1) 

18 shall be treated as elective contributions made 

19 pursuant to an election by the participant be20 tween such contributions and compensation 

21 which would otherwise be includible in the gross 

22 income of the employee. 

23 ‘‘(B) EXCLUSION OR DEDUCTION.—Con24 tributions described in paragraph (1) shall be 

25 excluded from gross income, or included in 


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•S 1288 IS

1 gross income and allowed as a deduction, to the 

2 same extent that elective contributions would be 

3 so treated under this title. 

4 ‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE5 MENT.—For purposes of this subsection, the term 

6 ‘health flexible spending arrangement’ means a flexi7 ble spending arrangement (as defined in section 

8 106(c)) which is a qualified benefit and only permits 

9 reimbursement for expenses for medical care (as de10 fined in section 213(d)(1) without regard to sub11 paragraphs (C) and (D) thereof). 

12 ‘‘(4) UNUSED HEALTH BENEFITS.—For pur13 poses of this subsection, the term ‘unused health 

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

15 excess of— 

16 ‘‘(A) the maximum amount of reimburse17 ment allowable to the participant with respect 

18 to a plan year under a health flexible spending 

19 arrangement, taking into account any election 

20 by the participant, over 

21 ‘‘(B) the actual amount of reimbursement 

22 with respect to such year under such arrange23 ment.’’. 

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

25 shall prescribe such rules as are appropriate to carry out 


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•S 1288 IS

1 the purposes of the amendments made by this section. 

2 Such rules may permit elections by plan sponsors with re3 spect to the year to which the contributions relate and may 

4 provide for special treatment for purposes of applying the 

5 requirements applicable to such contributions. 

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

7 subsection (a) shall apply to years beginning after Decem8 ber 31, 2007. 

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

10 CONTRIBUTIONS. 

11 (a) CERTAIN WAGE REPLACEMENT INCOME TREAT12 ED AS COMPENSATION.— 

13 (1) WAGE REPLACEMENT INCOME.—Section 

14 219(f) (relating to other definitions and special 

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

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

17 the following new paragraph: 

18 ‘‘(8) TREATMENT OF CERTAIN WAGE REPLACE19 MENT INCOME AS COMPENSATION.— 

20 ‘‘(A) IN GENERAL.—Notwithstanding para21 graph (1), applicable wage replacement income 

22 not otherwise treated as compensation shall be 

23 treated as compensation for purposes of this 

24 section. 


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•S 1288 IS

1 ‘‘(B) APPLICABLE WAGE REPLACEMENT

2 INCOME.—For purposes of this paragraph, the 

3 term ‘applicable wage replacement income’ 

4 means any amount received by an individual— 

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

6 having become disabled, 

7 ‘‘(ii) as unemployment compensation 

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

9 ‘‘(iii) under workmen’s compensation 

10 acts, or 

11 ‘‘(iv) which constitutes wage replace12 ment income under regulations prescribed 

13 by the Secretary.’’. 

14 (2) CERTAIN EXCLUDABLE AMOUNTS MAY BE

15 TAKEN INTO ACCOUNT FOR PURPOSES OF ROTH

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

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

18 new flush sentence: 

19 ‘‘In determining the maximum amount under sub20 paragraph (A), subsections (b)(1)(B) and (c) of sec21 tion 219 shall be applied by taking into account 

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

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


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1 (3) EFFECTIVE DATE.—The amendments made 

2 by this subsection shall apply to taxable years begin3 ning after December 31, 2007. 

4 (b) COMPUTATION OF MAXIMUM IRA DEDUCTION

5 FOR ROTH IRAS USING COMPENSATION FROM 2 PRE6 CEDING TAXABLE YEARS.— 

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

8 treatment of contributions) is amended by adding at 

9 the end the following new paragraph: 

10 ‘‘(8) COMPENSATION FROM PRECEDING 2

11 YEARS MAY BE TAKEN INTO ACCOUNT.— 

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

13 for purposes of paragraph (2) to take into ac14 count any unused compensation from the 2 tax15 able years immediately preceding the taxable 

16 year. 

17 ‘‘(B) UNUSED COMPENSATION.—For pur18 poses of this paragraph, the term ‘unused com19 pensation’ means with respect to an individual 

20 for any taxable year the compensation includ21 ible in the individual’s gross income for the tax22 able year reduced by the sum of— 

23 ‘‘(i) the amount allowed as a deduc24 tion under 219(a) to such individual for 

25 such taxable year, 


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•S 1288 IS

1 ‘‘(ii) the amount of any designated 

2 nondeductible contribution (as defined in 

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

4 for such taxable year, 

5 ‘‘(iii) the amount of any contribution 

6 on behalf of such individual to a Roth IRA 

7 under this section for such taxable year, 

8 and 

9 ‘‘(iv) the amount of compensation in10 cludible in such individual’s gross income 

11 for such taxable year taken into account 

12 under section 219(c) in determining the 

13 limitation under section 219 or paragraph 

14 (2) for the individual’s spouse. 

15 ‘‘(C) APPLICATION TO SPECIAL RULE FOR

16 MARRIED INDIVIDUALS.—Under rules pre17 scribed by the Secretary, in applying section 

18 219(c) for any taxable year for purposes of ap19 plying paragraph (2)(A), unused compensation 

20 of an individual or an individual’s spouse for 

21 the 2 taxable years immediately preceding the 

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

23 (2) EFFECTIVE DATE.—The amendment made 

24 by this subsection shall apply to taxable years begin25 ning after December 31, 2007, but unused comVerDate Aug 31 2005 00:14 May 05, 2007 Jkt 059200 PO 00000 Frm 00053 Fmt 6652 Sfmt 6201 E:\BILLS\S1288.IS S1288

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1 pensation for taxable years beginning before Janu2 ary 1, 2008, may be taken into account for taxable 

3 years beginning after December 31, 2007. 

4 TITLE II—PROVISIONS PRO5 VIDING FOR PRESERVATION 

6 OF INCOME 

7 SEC. 201. EXCLUSION OF CERTAIN QUALIFIED ANNUITY 

8 PAYMENTS. 

9 (a) EXCLUSION.— 

10 (1) QUALIFIED PLANS.—Section 402(e) (relat11 ing to exempt trusts) is amended by adding at the 

12 end the following new paragraph: 

13 ‘‘(7) EXCLUSION OF PERCENTAGE OF LIFETIME

14 ANNUITY PAYMENTS.— 

15 ‘‘(A) IN GENERAL.—In the case of a life16 time annuity payment to a qualified distributee 

17 from a qualified trust (within the meaning of 

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

19 with a defined contribution plan, gross income 

20 shall not include 10 percent of the amount oth21 erwise includible in gross income (determined 

22 without regard to this paragraph). For pur23 poses of this paragraph, payments from an an24 nuity contract distributed by the qualified trust 


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•S 1288 IS

1 shall be treated as payments from the qualified 

2 trust. 

3 ‘‘(B) LIMITATION.— 

4 ‘‘(i) IN GENERAL.—If— 

5 ‘‘(I) the aggregate amount of 

6 lifetime annuity payments to the dis7 tributee during the taxable year which 

8 are includible in gross income (deter9 mined without regard to this para10 graph) and which are subject to this 

11 paragraph or to rules similar to the 

12 rules of this paragraph (other than 

13 section 72(b)(5) or 101(d)(4)), ex14 ceeds 

15 ‘‘(II) 50 percent of the applicable 

16 amount for the taxable year under 

17 section 415(a), 

18 then the aggregate amount otherwise ex19 cludable under subparagraph (A) for the 

20 taxable year shall be reduced by 10 percent 

21 of the portion of such excess which is allo22 cable under clause (ii) to payments which 

23 are subject to this paragraph. 

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

25 described in clause (i) for any taxable year 


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•S 1288 IS

1 shall be allocated ratably among all life2 time annuity payments to the qualified dis3 tributee described in clause (i)(I). 

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

5 paragraph— 

6 ‘‘(i) LIFETIME ANNUITY PAYMENT.— 

7 ‘‘(I) IN GENERAL.—Except as 

8 provided in this clause, the term ‘life9 time annuity payment’ means a dis10 tribution from an annuity contract 

11 which is a part of a series of substan12 tially equal periodic payments (not 

13 less frequently than annually) made 

14 over the life of the qualified dis15 tributee or the joint lives of the quali16 fied distributee and the qualified 

17 distributee’s designated beneficiary. 

18 For purposes of this paragraph, the 

19 term ‘annuity contract’ means a com20 mercial annuity (as defined in section 

21 3405(e)(6)), other than an endowment 

22 or life insurance contract. 

23 ‘‘(II) CERTAIN FLUCTUATING

24 PAYMENTS.—Annuity payments shall 

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1 ries of substantially equal periodic 

2 payments merely because the amount 

3 of the periodic payments may vary in 

4 accordance with investment experi5 ence, reallocations among investment 

6 options, actuarial gains or losses, cost 

7 of living indices, a constant percent8 age (not less than zero) applied not 

9 less frequently than annually, or simi10 lar fluctuating criteria. 

11 ‘‘(III) CERTAIN CHANGES IN THE

12 MODE OF PAYMENT.—Annuity pay13 ments shall not fail to be treated as 

14 part of a series of substantially equal 

15 periodic payments merely because the 

16 period between each such payment is 

17 lengthened or shortened, but only if at 

18 all times such period is not longer 

19 than 1 year. 

20 ‘‘(IV) PERMITTED REDUC21 TIONS.—Annuity payments shall not 

22 fail to be treated as part of a series 

23 of substantially equal periodic pay24 ments merely because, in the case of 

25 an annuity payable over the lives of 


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•S 1288 IS

1 the qualified distributee and the quali2 fied distributee’s designated bene3 ficiary, the amounts paid after the 

4 death of the qualified distributee or 

5 the qualified distributee’s designated 

6 beneficiary are less than the amounts 

7 payable during their joint lives. 

8 ‘‘(V) CERTAIN CONTRACT BENE9 FITS.—The availability of a commuta10 tion benefit or other feature permit11 ting acceleration of annuity payments 

12 (or a modification of the period dur13 ing which such a benefit is available), 

14 a minimum period of payments or a 

15 minimum amount to be paid in any 

16 event shall not affect the treatment of 

17 a distribution as a lifetime annuity 

18 payment. 

19 ‘‘(VI) TRUST PAYMENTS.—In the 

20 case of lifetime annuity payments 

21 being made to a qualified trust, pay22 ments by the qualified trust to a 

23 qualified distributee of the entire 

24 amount received by the qualified trust 

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1 tributee shall constitute lifetime annu2 ity payments if such payments are 

3 made within a reasonable period after 

4 receipt by the qualified trust. 

5 ‘‘(VII) QUALIFIED DOMESTIC RE6 LATIONS ORDERS.—Annuity payments 

7 shall not fail to be treated as a series 

8 of substantially equal periodic pay9 ments merely because the payments 

10 are reduced on account of a qualified 

11 domestic relations order (within the 

12 meaning of section 414(p)) that be13 comes effective after the commence14 ment of the annuity payments. 

15 ‘‘(ii) QUALIFIED DISTRIBUTEE.—The 

16 term ‘qualified distributee’ means the em17 ployee, the surviving spouse of the em18 ployee, and an alternate payee who is the 

19 spouse or former spouse of the employee. 

20 ‘‘(D) RECAPTURE TAX.— 

21 ‘‘(i) IN GENERAL.—If— 

22 ‘‘(I) an amount is not includible 

23 in gross income by reason of subpara24 graph (A), and 


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•S 1288 IS

1 ‘‘(II) the series of payments of 

2 which such payment is a part is sub3 sequently modified (other than by rea4 son of death or disability) so that 

5 some or all future payments are not 

6 lifetime annuity payments, 

7 the qualified distributee’s gross income for 

8 the first taxable year in which such modi9 fication occurs shall be increased by an 

10 amount, determined under rules prescribed 

11 by the Secretary, equal to the amount 

12 which (but for subparagraph (A)) would 

13 have been includible in the qualified 

14 distributee’s gross income if the modifica15 tion had been in effect at all times, plus in16 terest for the deferral period at the under17 payment rate established under section 

18 6621. 

19 ‘‘(ii) DEFERRAL PERIOD.—For pur20 poses of this subparagraph, the term ‘de21 ferral period’ means, with respect to any 

22 amount, the period beginning with the tax23 able year in which (without regard to sub24 paragraph (A)) the amount would have 

25 been includible in gross income and ending 


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•S 1288 IS

1 with the taxable year in which the modi2 fication described in clause (i)(II) occurs. 

3 ‘‘(E) INVESTMENT IN THE CONTRACT.— 

4 For purposes of section 72, the investment in 

5 the contract shall be determined without regard 

6 to this paragraph.’’. 

7 (2) QUALIFIED ANNUITY PLANS.—Section 

8 403(a) (relating to qualified annuity plans) is 

9 amended by adding at the end the following new 

10 paragraph: 

11 ‘‘(6) EXCLUSION OF PERCENTAGE OF LIFETIME

12 ANNUITY PAYMENTS.—Rules similar to the rules of 

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

14 any annuity contract to which this subsection ap15 plies.’’. 

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

17 (relating to purchased annuities) is amended by add18 ing at the end the following new paragraph: 

19 ‘‘(14) EXCLUSION OF PERCENTAGE OF LIFE20 TIME ANNUITY PAYMENTS.—Rules similar to the 

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

22 under any annuity contract or custodial account to 

23 which this subsection applies.’’. 

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

25 treatment of distributions), as amended by section 


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•S 1288 IS

1 1201 of the Pension Protection Act of 2006, is 

2 amended by adding at the end the following new 

3 paragraph: 

4 ‘‘(10) EXCLUSION OF PERCENTAGE OF LIFE5 TIME ANNUITY PAYMENTS.—Rules similar to the 

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

7 out of an individual retirement plan.’’. 

8 (5) SECTION 457 PLANS.—Section 457(e) (relat9 ing to special rules for deferred compensation plans) 

10 is amended by adding at the end the following new 

11 paragraph: 

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

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

15 from an eligible deferred compensation plan of an el16 igible employer described in subsection (e)(1)(A).’’. 

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

18 this section shall apply to distributions made after Decem19 ber 31, 2007. 

20 SEC. 202. EXCLUSION FOR LIFETIME ANNUITY PAYMENTS. 

21 (a) LIFETIME ANNUITY PAYMENTS UNDER ANNUITY

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

23 is amended by adding at the end the following new para24 graph: 


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•S 1288 IS

1 ‘‘(5) EXCLUSION FOR LIFETIME ANNUITY PAY2 MENTS.— 

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

4 annuity payments received as an annuity under 

5 1 or more annuity contracts in any taxable 

6 year, gross income shall not include the lesser 

7 of— 

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

9 lifetime annuity payments which (without 

10 regard to this paragraph) is includible in 

11 gross income under this section for the 

12 taxable year, or 

13 ‘‘(ii) $20,000. 

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

15 the case of taxable years beginning after De16 cember 31, 2008, the $20,000 amount in sub17 paragraph (A)(ii) shall be increased by an 

18 amount equal to— 

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

20 ‘‘(ii) the cost-of-living adjustment de21 termined under section 1(f)(3) for the cal22 endar year in which the taxable year be23 gins, determined by substituting ‘calendar 

24 year 2007’ for ‘calendar year 1992’ in sub25 paragraph (B) thereof. 


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•S 1288 IS

1 If any amount as increased under the preceding 

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

3 shall be rounded to the next lower multiple of 

4 $500. 

5 ‘‘(C) APPLICATION OF PARAGRAPH.—Sub6 paragraph (A) shall not apply to— 

7 ‘‘(i) any amount received under an eli8 gible deferred compensation plan (as de9 fined in section 457(b)) or under a quali10 fied retirement plan (as defined in section 

11 4974(c)), 

12 ‘‘(ii) any amount paid under an annu13 ity contract which is received by the bene14 ficiary under the contract— 

15 ‘‘(I) after the death of the annu16 itant in the case of payments de17 scribed in subsection (c)(5)(A)(ii)(III), 

18 unless the beneficiary is the surviving 

19 spouse of the annuitant, or 

20 ‘‘(II) after the death of the annu21 itant and joint annuitant in the case 

22 of payments described in subsection 

23 (c)(5)(A)(ii)(IV), unless the bene24 ficiary is the surviving spouse of the 


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•S 1288 IS

1 last to die of the annuitant and the 

2 joint annuitant, or 

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

4 qualified funding asset (as defined in sec5 tion 130(d)), but without regard to wheth6 er there is a qualified assignment. 

7 ‘‘(D) INVESTMENT IN THE CONTRACT.— 

8 For purposes of this section, the investment in 

9 the contract shall be determined without regard 

10 to this paragraph.’’. 

11 (b) DEFINITIONS.—Section 72(c) is amended by add12 ing at the end the following new paragraph: 

13 ‘‘(5) LIFETIME ANNUITY PAYMENT.— 

14 ‘‘(A) IN GENERAL.—For purposes of sub15 section (b)(5), the term ‘lifetime annuity pay16 ment’ means any amount received as an annu17 ity under any portion of an annuity contract, 

18 but only if— 

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

20 case of payments described in subclause 

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

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

23 other legally enforceable means) to receive 

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•S 1288 IS

1 itant or joint annuitant is such annuitant 

2 or joint annuitant, and 

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

4 of substantially equal periodic payments 

5 made not less frequently than annually 

6 over— 

7 ‘‘(I) the life of the annuitant, 

8 ‘‘(II) the lives of the annuitant 

9 and a joint annuitant, but only if the 

10 annuitant is the spouse of the joint 

11 annuitant as of the annuity starting 

12 date or the difference in age between 

13 the annuitant and joint annuitant is 

14 15 years or less, 

15 ‘‘(III) the life of the annuitant 

16 with a minimum period of payments 

17 or with a minimum amount that must 

18 be paid in any event, or 

19 ‘‘(IV) the lives of the annuitant 

20 and a joint annuitant with a minimum 

21 period of payments or with a min22 imum amount that must be paid in 

23 any event, but only if the annuitant is 

24 the spouse of the joint annuitant as of 

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•S 1288 IS

1 ference in age between the annuitant 

2 and joint annuitant is 15 years or 

3 less. 

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

5 clause (ii), annuity payments shall not fail 

6 to be treated as part of a series of substan7 tially equal periodic payments— 

8 ‘‘(I) because the amount of the 

9 periodic payments may vary in accord10 ance with investment experience, re11 allocations among investment options, 

12 actuarial gains or losses, cost-of-living 

13 indices, a constant percentage (not 

14 less than zero) applied not less fre15 quently than annually, or similar fluc16 tuating criteria, 

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

18 modification of the duration of, a pro19 vision in the contract permitting a 

20 lump-sum withdrawal after the annu21 ity starting date, or 

22 ‘‘(III) because the period between 

23 each such payment is lengthened or 

24 shortened, but only if at all times 


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•S 1288 IS

1 such period is no longer than 1 cal2 endar year. 

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

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

5 (x), the term ‘annuity contract’ means a com6 mercial annuity (as defined by section 

7 3405(e)(6)), other than an endowment or life 

8 insurance contract. 

9 ‘‘(C) MINIMUM PERIOD OF PAYMENTS.— 

10 For purposes of subparagraph (A), the min11 imum period of payments is a guaranteed term 

12 of payments which does not exceed the greater 

13 of— 

14 ‘‘(i) 10 years, or 

15 ‘‘(ii) the life expectancy of— 

16 ‘‘(I) the annuitant as of the an17 nuity starting date, in the case of life18 time annuity payments described in 

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

20 ‘‘(II) the annuitant and joint an21 nuitant as of the annuity starting 

22 date, in the case of lifetime annuity 

23 payments described in subparagraph 

24 (A)(ii)(IV). 


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1 For purposes of this subparagraph, life expect2 ancy shall be computed with reference to the ta3 bles prescribed by the Secretary under para4 graph (3). For purposes of subsection 

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

6 payments shall be determined as of the annuity 

7 starting date and reduced by one for each sub8 sequent year. 

9 ‘‘(D) MINIMUM AMOUNT THAT MUST BE

10 PAID IN ANY EVENT.—For purposes of subpara11 graph (A), the minimum amount that must be 

12 paid in any event is an amount payable to the 

13 designated beneficiary under an annuity con14 tract which is in the nature of a refund and 

15 does not exceed the greater of the amount ap16 plied to produce the lifetime annuity payments 

17 under the contract or the amount, if any, avail18 able for withdrawal under the contract on the 

19 date of death.’’. 

20 (c) RECAPTURE TAX FOR LIFETIME ANNUITY PAY21 MENTS.—Section 72 is amended by redesignating sub22 section (x) as subsection (y) and by inserting after sub23 section (x) the following new subsection: 

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

25 REDUCTIONS IN LIFETIME ANNUITY PAYMENTS.— 


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1 ‘‘(1) IN GENERAL.—If— 

2 ‘‘(A) any amount received under an annu3 ity contract is excluded from income by reason 

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

5 payments) for any taxable year, and 

6 ‘‘(B) a recapture event described in para7 graph (2) occurs in any subsequent taxable 

8 year, 

9 then gross income for the first taxable year in which 

10 the recapture event occurs shall be increased by the 

11 recapture amount. 

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

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

14 ‘‘(A) the series of payments under an an15 nuity contract is subsequently modified so any 

16 future payments are not lifetime annuity pay17 ments, 

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

19 lifetime annuity payment under the contract an 

20 annuitant receives a lump sum and thereafter is 

21 to receive annuity payments in a reduced 

22 amount under the contract, or 

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

24 lifetime annuity payment under the contract the 

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•S 1288 IS

1 ment is reduced and a lump sum is not paid in 

2 connection with the reduction, unless such re3 duction is— 

4 ‘‘(i) due to an event described in sub5 section (c)(5)(A)(iii), or 

6 ‘‘(ii) due to the addition of, or in7 crease in, a minimum period of payments 

8 (within the meaning of subsection 

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

10 must be paid in any event (within the 

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

12 ‘‘(3) RECAPTURE AMOUNT.— 

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

14 subsection, the recapture amount shall be the 

15 amount, determined under rules prescribed by 

16 the Secretary, equal to the amount which (but 

17 for subsection (b)(5)) would have been includ18 ible in the taxpayer’s gross income if the modi19 fication or reduction described in subparagraph 

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

21 effect at all times, plus interest for the deferral 

22 period at the underpayment rate established by 

23 section 6621. 

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

25 of this subsection, the term ‘deferral period’ 


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•S 1288 IS

1 means, with respect to any amount, the period 

2 beginning with the taxable year in which (with3 out regard to subsection (b)(5)) the amount 

4 would have been includible in gross income and 

5 ending with the taxable year in which the modi6 fication or reduction described in subparagraph 

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

8 ‘‘(4) EXCEPTIONS TO RECAPTURE TAX.—Para9 graph (1) shall not apply in the case of any recap10 ture event which occurs because an annuitant— 

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

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

13 ‘‘(B) becomes a chronically ill individual 

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

15 ‘‘(C) encounters hardship.’’. 

16 (d) LIFETIME DISTRIBUTIONS OF LIFE INSURANCE

17 DEATH BENEFITS.— 

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

19 payment of life insurance proceeds at a date later 

20 than death) is amended by adding at the end the fol21 lowing new paragraph: 

22 ‘‘(4) EXCLUSION FOR LIFETIME ANNUITY PAY23 MENTS.— 

24 ‘‘(A) IN GENERAL.—In the case of 

25 amounts to which this subsection applies, gross 


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1 income for any taxable year shall not include 

2 the lesser of— 

3 ‘‘(i) 50 percent of the portion of life4 time annuity payments which (without re5 gard to this paragraph) is includible in 

6 gross income under this section, or 

7 ‘‘(ii) the amount in effect under sec8 tion 72(b)(5)(A)(ii) for the taxable year. 

9 ‘‘(B) RULES OF SECTION 72(b)(5) TO

10 APPLY.—For purposes of this paragraph, rules 

11 similar to the rules of section 72(b)(5) and sec12 tion 72(x) shall apply, except that the term 

13 ‘beneficiary of the life insurance contract’ shall 

14 be substituted for the term ‘annuitant’ each 

15 place it appears, and the term ‘life insurance 

16 contract’ shall be substituted for the term ‘an17 nuity contract’ each place it appears.’’. 

18 (2) CONFORMING AMENDMENT.—Section 

19 101(d)(1) is amended by inserting ‘‘or paragraph 

20 (4)’’ after ‘‘to the extent not excluded by the pre21 ceding sentence’’. 

22 (e) EFFECTIVE DATE.— 

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

24 this section shall apply to amounts received in calVerDate Aug 31 2005 00:14 May 05, 2007 Jkt 059200 PO 00000 Frm 00073 Fmt 6652 Sfmt 6201 E:\BILLS\S1288.IS S1288

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1 endar years beginning after the date of the enact2 ment of this Act. 

3 (2) SPECIAL RULE FOR EXISTING CON4 TRACTS.—In the case of a contract in force on the 

5 date of the enactment of this Act that does not sat6 isfy the requirements of section 72(c)(5)(A) of the 

7 Internal Revenue Code of 1986 (as added by this 

8 section), or requirements similar to such section 

9 72(c)(5)(A) in the case of a life insurance contract, 

10 any modification to such contract (including a 

11 change in ownership) or to the payments under such 

12 contract that is made to satisfy the requirements of 

13 such section (or similar requirements) shall not re14 sult in the recognition of any gain or loss, any 

15 amount being included in gross income, or any addi16 tion to tax that otherwise might result from such 

17 modification, but only if the modification is com18 pleted before the date which is 2 years after the date 

19 of the enactment of this Act. 

20 SEC. 203. JOINT STUDY OF APPLICATION OF SPOUSAL CON21 SENT RULES TO DEFINED CONTRIBUTION 

22 PLANS. 

23 (a) STUDY.—The Secretary of Labor and the Sec24 retary of the Treasury shall jointly conduct a study of the 

25 feasibility and desirability of extending the application of 


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1 the requirements of section 205 of the Employee Retire2 ment Income Security Act of 1974 and sections 

3 401(a)(11) and 417 of the Internal Revenue Code of 1986 

4 (relating to spousal consent requirements) to defined con5 tribution plans to which such requirements do not apply. 

6 Such study shall include consideration of any modifica7 tions of such requirements that are necessary to apply 

8 such requirements to such plans. 

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

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

11 the results of the study, together with any recommenda12 tions for legislative changes, to the Committees on Fi13 nance and Health, Education, Labor, and Pensions of the 

14 Senate and the Committees on Ways and Means and Edu15 cation and Labor of the House of Representatives. 

16 SEC. 204. FACILITATING LONGEVITY INSURANCE. 

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

18 is amended by inserting after subparagraph (G) the fol19 lowing new subparagraph: 

20 ‘‘(H) LONGEVITY INSURANCE.— 

21 ‘‘(i) IN GENERAL.—For purposes of 

22 this paragraph, any value attributable to 

23 longevity insurance shall be disregarded in 

24 determining the value of an employee’s in25 terest under a plan prior to the first date 


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1 that payments are made under the lon2 gevity insurance. 

3 ‘‘(ii) LONGEVITY INSURANCE DE4 FINED.—For purposes of this subpara5 graph, the term ‘longevity insurance’ 

6 means an annuity payable on behalf of the 

7 employee under which— 

8 ‘‘(I) payments commence not 

9 later than 12 months following the 

10 calendar month in which the employee 

11 attains age 85 (or would have at12 tained age 85), 

13 ‘‘(II) payments are made in sub14 stantially equal periodic payments 

15 (not less frequently than annually) 

16 over the life of the employee or the 

17 joint lives of the employee and the 

18 employee’s designated beneficiary, 

19 taking into account the rules of clause 

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

21 otherwise provided in subclause (III) 

22 of such section, 

23 ‘‘(III) prior to the death of the 

24 employee, the annuity does not make 

25 available any commutation benefit, 


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1 cash surrender value, or other similar 

2 feature, and 

3 ‘‘(IV) except as provided in rules 

4 prescribed by the Secretary, in the 

5 case of an employee’s death prior to 

6 the date that payments commence, the 

7 value of any death benefits paid may 

8 not exceed the premiums paid for 

9 such annuity, plus interest com10 pounded annually at 3 percent. 

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

12 of clause (ii)(I), the Secretary shall annu13 ally increase age 85 to reflect increases in 

14 life expectancy (as determined by the Sec15 retary) that occur on or after January 1, 

16 2006, except that any such increased age 

17 which is not a whole number shall be 

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

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

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

21 shall prescribe rules under which all or a portion of a par22 ticipant’s benefits under any plan described in section 

23 402(c)(8)(B) of the Internal Revenue Code of 1986 may 

24 be treated as longevity insurance under the rules of section 

25 401(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 

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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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•S 1288 IS

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 SEC. 304. REPEAL OF JURISDICTIONAL REQUIREMENT FOR 

2 COURT TO TREAT MILITARY RETIREMENT 

3 PAY AS PROPERTY OF THE MILITARY MEM4 BER AND SPOUSE. 

5 (a) IN GENERAL.—Section 1408(c) of title 10, 

6 United States Code, is amended by striking paragraph (4). 

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

8 this section shall apply to final decrees issued on or after 

9 the date of the enactment of this Act. 

10 SEC. 305. MODIFICATION OF REDUCTIONS IN DISPOSABLE 

11 RETIRED PAY FOR PAYMENTS IN COMPLI12 ANCE WITH COURT ORDERS. 

13 (a) IN GENERAL.—Section 1408(d) of title 10, 

14 United States Code, is amended by adding at the end the 

15 following new paragraph: 

16 ‘‘(8) Notwithstanding subsection (a)(4) or 

17 (e)(1), if the disposable retired pay of a member is 

18 reduced under subparagraph (B) of subsection 

19 (a)(4) as a result of a waiver required to receive 

20 compensation under title 38, or is reduced under 

21 subparagraph (C) of subsection (a)(4), the Secretary 

22 concerned shall pay (subject to any other limitation 

23 under this section) to the spouse or former spouse 

24 the lesser of — 


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1 ‘‘(A) the amount payable under the final 

2 court order from the disposable retired pay (de3 termined without regard to such reductions), or 

4 ‘‘(B) 100 percent of the disposable retired 

5 pay (determined after such reductions).’’ 

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

7 this section shall apply to payments of disposable retired 

8 pay attributable to periods beginning on or after the date 

9 of the enactment of this Act with respect to final court 

10 orders issued on, before, or after such date. 

11 TITLE IV—PROVISIONS TO 

12 IMPROVE FINANCIAL LITERACY 

13 SEC. 401. GRANTS TO COMMUNITY-BASED TAXPAYER CLIN14 ICS TO PROVIDE RETIREMENT SAVINGS AD15 VICE. 

16 (a) IN GENERAL.—Section 7526 (relating to low-in17 come taxpayer clinics) is amended by adding at the end 

18 the following: 

19 ‘‘(d) ADDITIONAL GRANTS FOR RETIREMENT SAV20 INGS ADVICE.— 

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

22 subject to the availability of appropriated funds, 

23 make grants to qualified low-income taxpayer clinics 

24 to provide retirement savings counseling to low-in25 come taxpayers. 


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

2 paragraph (1) shall be used to— 

3 ‘‘(A) develop the infrastructure necessary 

4 to carry out retirement savings counseling for 

5 low-income taxpayers, including the develop6 ment of software to assist low-income taxpayers 

7 in beginning a retirement savings program, 

8 monitoring their savings behavior, and taking 

9 advantage of tax benefits provided under this 

10 title to assist in retirement savings, 

11 ‘‘(B) develop partnerships with certified fi12 nancial planners and other financial experts to 

13 assist in carrying out the retirement savings 

14 program, and 

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

16 taxpayers with retirement savings. 

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

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

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

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

21 ‘‘(A) AGGREGATE LIMITATION.—Unless 

22 otherwise provided by specific appropriations, 

23 the Secretary shall not allocate more than 

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1 ministering the program) to grants under para2 graph (1). 

3 ‘‘(B) LIMITATION ON ANNUAL GRANTS TO

4 A CLINIC.—The aggregate amount of grants 

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

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

7 ‘‘(C) MULTI-YEAR GRANTS.—The provi8 sions of subsection (c)(3) shall apply to grants 

9 under paragraph (1). 

10 ‘‘(D) ADDITIONAL AMOUNTS.—Grants 

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

12 grants under subsection (a).’’ 

13 (b) CONFORMING AMENDMENTS.— 

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

15 and limitations) is amended by striking ‘‘this sec16 tion’’ each place it appears and inserting ‘‘subsection 

17 (a)’’. 

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

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

20 (c) AUTHORIZATION OF APPROPRIATIONS.—There is 

21 authorized to be appropriated for each fiscal year begin22 ning after September 30, 2007, $25,000,000 to carry out 

23 the provisions of this section. 


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1 SEC. 402. TREATMENT OF QUALIFIED RETIREMENT PLAN2 NING SERVICES. 

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

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

6 ‘‘(4) NO CONSTRUCTIVE RECEIPT.— 

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

8 included in the gross income of any employee 

9 solely because the employee may choose between 

10 any qualified retirement planning services pro11 vided by an eligible investment advisor and 

12 compensation which would otherwise be includ13 ible in the gross income of such employee. The 

14 preceding sentence shall apply to highly com15 pensated employees only if the choice described 

16 in such sentence is available on substantially 

17 the same terms to each member of the group of 

18 employees normally provided education and in19 formation regarding the employer’s qualified 

20 employer plan. 

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

22 which may be excluded under subparagraph (A) 

23 with respect to any employee for any taxable 

24 year shall not exceed $1,000. 

25 ‘‘(C) ELIGIBLE INVESTMENT ADVISER.— 

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1 ble investment adviser’ means, with respect to 

2 a plan, a person— 

3 ‘‘(i) who— 

4 ‘‘(I) is registered as an invest5 ment adviser under the Investment 

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

7 1 et seq.), 

8 ‘‘(II) is registered as an invest9 ment adviser under the laws of the 

10 State in which such adviser maintains 

11 the principal office and place of busi12 ness of such adviser, but only if such 

13 State laws are consistent with section 

14 203A of the Investment Advisers Act 

15 of 1940 (15 U.S.C. 80b–3a), 

16 ‘‘(III) is a bank or similar finan17 cial institution referred to in section 

18 408(b)(4), 

19 ‘‘(IV) is an insurance company 

20 qualified to do business under the 

21 laws of a State, or 

22 ‘‘(V) is any other comparably 

23 qualified entity which satisfies such 

24 criteria as the Secretary determines 


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1 appropriate, consistent with the pur2 poses of this subsection, and 

3 ‘‘(ii) who meets the requirements of 

4 subparagraph (D). 

5 ‘‘(D) ADVISER REQUIREMENTS.—The re6 quirements of this subparagraph are met if 

7 every individual employed (or otherwise com8 pensated) by a person described in subpara9 graph (C)(i) who provides investment advice on 

10 behalf of such person to any plan participant or 

11 beneficiary is— 

12 ‘‘(i) an individual described in sub13 clause (I) of subparagraph (C)(i), 

14 ‘‘(ii) an individual described in sub15 clause (II) of subparagraph (C)(i), but 

16 only if such State has an examination re17 quirement to qualify for registration, 

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

19 under the Securities Exchange Act of 1934 

20 (15 U.S.C. 78a et seq.), 

21 ‘‘(iv) a registered representative as de22 scribed in section 3(a)(18) of the Securi23 ties Exchange Act of 1934 (15 U.S.C. 

24 78c(a)(18)) or section 202(a)(17) of the 


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•S 1288 IS

1 Investment Advisers Act of 1940 (15 

2 U.S.C. 80b–2(a)(17)), or 

3 ‘‘(v) any other comparably qualified 

4 individual who satisfies such criteria as the 

5 Secretary determines appropriate, con6 sistent with the purposes of this para7 graph. 

8 ‘‘(E) TERMINATION.—This paragraph 

9 shall not apply to taxable years beginning after 

10 December 31, 2012.’’. 

11 (b) CONFORMING AMENDMENTS.— 

12 (1) Section 403(b)(3)(B) is amended by insert13 ing ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

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

15 ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

16 (3) Section 415(c)(3)(D)(ii) is amended by in17 serting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 

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

19 this section shall apply to taxable years beginning after 

20 December 31, 2007. 

21 SEC. 403. RETIREMENT HANDBOOK AND RETIREMENT 

22 READINESS CHECKLIST. 

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

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

25 subsection: 


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•S 1288 IS

1 ‘‘(f) RETIREMENT INFORMATION.— 

2 ‘‘(1) IN GENERAL.—The Commissioner, in con3 sultation with the Social Security Advisory Board, 

4 shall prepare— 

5 ‘‘(A) the financial reference handbook de6 scribed in paragraph (2), and 

7 ‘‘(B) the retirement readiness checklist de8 scribed in paragraph (3). 

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

10 handbook described in this paragraph is a pamphlet 

11 which— 

12 ‘‘(A) includes definitions of basic financial 

13 terms, 

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

15 and problems facing individuals who are retir16 ing and explanations of methods of dealing with 

17 the issues and problems, and 

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

19 by the average retiree. 

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

21 described in this paragraph is a list of questions that 

22 individuals need to consider in preparation for re23 tirement, including the following: 

24 ‘‘(A) What annual income will the indi25 vidual need in retirement? 


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

2 live in retirement? 

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

4 premiums? 

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

6 necessary to supplement Medicare? 

7 ‘‘(E) How will savings be invested in re8 tirement? 

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

10 income? 

11 The checklist will include answers to the questions 

12 or directions as to where information is available to 

13 answer the questions. All information shall be in a 

14 form readily understandable to the average recipient 

15 of the checklist. 

16 ‘‘(4) REVISIONS.—The Commissioner shall peri17 odically revise and update the handbook and check18 list prepared under this subsection. 

19 ‘‘(5) DISTRIBUTION OF MATERIALS.— 

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

21 handbook described in paragraph (2) shall be 

22 included with materials provided to an indi23 vidual when the individual first applies for ben24 efits under title II and such other times as the 

25 Commissioner determines appropriate. 


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1 ‘‘(B) CHECKLIST.—The retirement readi2 ness checklist described in paragraph (3) shall 

3 be included with an individual’s annual social 

4 security account statement provided under sec5 tion 1143.’’. 

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

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

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

9 be provided by such amendment shall be provided on or 

10 after January 1, 2009 (or such earlier date as the Com11 missioner of Social Security may provide). 

12 TITLE V—INCENTIVES FOR 

13 SMALL BUSINESSES TO ES14 TABLISH AND MAINTAIN RE15 TIREMENT PLANS FOR EM16 PLOYEES 

17 SEC. 501. CREDIT FOR QUALIFIED PENSION PLAN CON18 TRIBUTIONS OF SMALL EMPLOYERS. 

19 (a) IN GENERAL.—Subpart D of part IV of sub20 chapter A of chapter 1 (relating to business related cred21 its), as amended by section 102, is amended by adding 

22 at the end the following new section: 


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1 ‘‘SEC. 45P. SMALL EMPLOYER PENSION PLAN CONTRIBU2 TIONS. 

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

4 in the case of an eligible employer, the small employer pen5 sion plan contribution credit determined under this section 

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

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

8 allowed as a deduction under section 404 for such taxable 

9 year for qualified employer contributions made to any 

10 qualified retirement plan on behalf of any employee who 

11 is not a highly compensated employee. 

12 ‘‘(b) CREDIT LIMITED TO 3 YEARS.—The credit al13 lowable by this section shall be allowed only with respect 

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

15 taxable year for which a credit is allowable with respect 

16 to a plan under this section. 

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

18 purposes of this section— 

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

20 case of a defined contribution plan, the term ‘quali21 fied employer contribution’ means the amount of 

22 nonelective and matching contributions to the plan 

23 made by the employer on behalf of any employee 

24 who is not a highly compensated employee to the ex25 tent such amount does not exceed 3 percent of such 


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1 employee’s compensation from the employer for the 

2 year. 

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

4 a defined benefit plan, the term ‘qualified employer 

5 contribution’ means the amount of employer con6 tributions to the plan made on behalf of any em7 ployee who is not a highly compensated employee to 

8 the extent that the accrued benefit of such employee 

9 derived from employer contributions for the year 

10 does not exceed the equivalent (as determined under 

11 regulations prescribed by the Secretary and without 

12 regard to contributions and benefits under the Social 

13 Security Act) of 3 percent of such employee’s com14 pensation from the employer for the year. 

15 ‘‘(d) QUALIFIED RETIREMENT PLAN.— 

16 ‘‘(1) IN GENERAL.—The term ‘qualified retire17 ment plan’ means any plan described in section 

18 401(a) which includes a trust exempt from tax 

19 under section 501(a), any simplified pension (as de20 fined in section 408(k)), or any simple retirement 

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

22 requirements are met with respect to such plan, pen23 sion, or account: 

24 ‘‘(A) The contribution requirements of 

25 paragraph (2). 


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1 ‘‘(B) The vesting requirements of para2 graph (3). 

3 ‘‘(C) The distribution requirements of 

4 paragraph (4). 

5 The contribution and vesting requirements of para6 graphs (2) and (3) shall be treated as met in the 

7 case of a simple retirement account under a quali8 fied salary reduction arrangement (as defined in sec9 tion 408(p)(2)) or a cash or deferred arrangement 

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

11 ‘‘(2) CONTRIBUTION REQUIREMENTS.— 

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

13 this paragraph are met if, under the plan— 

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

15 nonelective contributions of at least 1 per16 cent of compensation (or the equivalent 

17 thereof in the case of a defined benefit 

18 plan) for each employee who is not a high19 ly compensated employee who is eligible to 

20 participate in the plan, and 

21 ‘‘(ii) allocations of nonelective em22 ployer contributions, in the case of a de23 fined contribution plan, are either in equal 

24 dollar amounts for all employees covered 

25 by the plan or bear a uniform relationship 


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1 to the total compensation, or the basic or 

2 regular rate of compensation, of the em3 ployees covered by the plan (and an equiv4 alent requirement is met with respect to a 

5 defined benefit plan). 

6 ‘‘(B) COMPENSATION LIMITATION.—The 

7 compensation taken into account under sub8 paragraph (A) for any year shall not exceed the 

9 limitation in effect for such year under section 

10 401(a)(17). 

11 ‘‘(3) VESTING REQUIREMENTS.—The require12 ments of this paragraph are met if the plan satisfies 

13 the requirements of either of the following subpara14 graphs: 

15 ‘‘(A) 3-YEAR VESTING.—A plan satisfies 

16 the requirements of this subparagraph if an em17 ployee who has completed at least 3 years of 

18 service has a nonforfeitable right to 100 percent 

19 of the employee’s accrued benefit derived from 

20 employer contributions. 

21 ‘‘(B) 5-YEAR GRADED VESTING.—A plan 

22 satisfies the requirements of this subparagraph 

23 if an employee has a nonforfeitable right to a 

24 percentage of the employee’s accrued benefit deVerDate Aug 31 2005 00:14 May 05, 2007 Jkt 059200 PO 00000 Frm 00100 Fmt 6652 Sfmt 6201 E:\BILLS\S1288.IS S1288

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1 rived from employer contributions determined 

2 under the following table: 

The nonforfeitable 

‘‘Years of service: percentage is: 

1 ......................................................................................................... 20

2 ......................................................................................................... 40

3 ......................................................................................................... 60

4 ......................................................................................................... 80

5 ......................................................................................................... 100. 

3 ‘‘(4) DISTRIBUTION REQUIREMENTS.—In the 

4 case of a profit-sharing or stock bonus plan, the re5 quirements of this paragraph are met if, under the 

6 plan, qualified employer contributions are distribut7 able only as provided in section 401(k)(2)(B). 

8 ‘‘(e) OTHER DEFINITIONS.—For purposes of this 

9 section— 

10 ‘‘(1) ELIGIBLE EMPLOYER.— 

11 ‘‘(A) IN GENERAL.—The term ‘eligible em12 ployer’ means, with respect to any year, an em13 ployer which has no more than 25 employees 

14 who received at least $5,000 of compensation 

15 from the employer for the preceding year. 

16 ‘‘(B) REQUIREMENT FOR NEW QUALIFIED

17 EMPLOYER PLANS.—Such term shall not in18 clude an employer if, during the 3-taxable year 

19 period immediately preceding the first taxable 

20 year for which the credit under this section is 

21 otherwise allowable for a qualified employer 

22 plan of the employer, the employer or any memVerDate Aug 31 2005 00:14 May 05, 2007 Jkt 059200 PO 00000 Frm 00101 Fmt 6652 Sfmt 6201 E:\BILLS\S1288.IS S1288

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1 ber of any controlled group including the em2 ployer (or any predecessor of either) established 

3 or maintained a qualified employer plan with 

4 respect to which contributions were made, or 

5 benefits were accrued, for substantially the 

6 same employees as are in the qualified employer 

7 plan. 

8 ‘‘(2) HIGHLY COMPENSATED EMPLOYEE.—The 

9 term ‘highly compensated employee’ has the mean10 ing given such term by section 414(q) (determined 

11 without regard to section 414(q)(1)(B)(ii)). 

12 ‘‘(f) SPECIAL RULES.— 

13 ‘‘(1) DISALLOWANCE OF DEDUCTION.—No de14 duction shall be allowed for that portion of the quali15 fied employer contributions paid or incurred for the 

16 taxable year which is equal to the credit determined 

17 under subsection (a). 

18 ‘‘(2) ELECTION NOT TO CLAIM CREDIT.—This 

19 section shall not apply to a taxpayer for any taxable 

20 year if such taxpayer elects to have this section not 

21 apply for such taxable year. 

22 ‘‘(3) AGGREGATION RULES.—All persons treat23 ed as a single employer under subsection (a) or (b) 

24 of section 52, or subsection (n) or (o) of section 414, 


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1 shall be treated as one person. All eligible employer 

2 plans shall be treated as 1 eligible employer plan. 

3 ‘‘(g) RECAPTURE OF CREDIT ON FORFEITED CON4 TRIBUTIONS.— 

5 ‘‘(1) IN GENERAL.—Except as provided in para6 graph (2), if any accrued benefit which is forfeitable 

7 by reason of subsection (d)(3) is forfeited, the em8 ployer’s tax imposed by this chapter for the taxable 

9 year in which the forfeiture occurs shall be increased 

10 by 35 percent of the employer contributions from 

11 which such benefit is derived to the extent such con12 tributions were taken into account in determining 

13 the credit under this section. 

14 ‘‘(2) REALLOCATED CONTRIBUTIONS.—Para15 graph (1) shall not apply to any contribution which 

16 is reallocated by the employer under the plan to em17 ployees who are not highly compensated employees.’’. 

18 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI19 NESS CREDIT.—Section 38(b) (defining current year busi20 ness credit) , as amended by section 102, is amended by 

21 striking ‘‘and’’ at the end of paragraph (31), by striking 

22 the period at the end of paragraph (32) and inserting ‘‘, 

23 and’’, and by adding at the end the following new para24 graph: 


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1 ‘‘(33) in the case of an eligible employer (as de2 fined in section 45P(e)), the small employer pension 

3 plan contribution credit determined under section 

4 45P(a).’’. 

5 (c) CONFORMING AMENDMENTS.— 

6 (1) Subsection (c) of section 196 is amended by 

7 striking ‘‘and’’ at the end of paragraph (12), by 

8 striking the period at the end of paragraph (13) and 

9 inserting ‘‘, and’’, and by adding at the end the fol10 lowing new paragraph: 

11 ‘‘(14) the small employer pension plan contribu12 tion credit determined under section 45P(a).’’. 

13 (2) The table of sections for subpart D of part 

14 IV of subchapter A of chapter 1, as amended by sec15 tion 102, is amended by adding at the end the fol16 lowing new item: 

‘‘Sec. 45P. Small employer pension plan contributions.’’. 

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

18 this section shall apply to contributions paid or incurred 

19 in taxable years beginning after December 31, 2007. 

20 SEC. 502. DEDUCTION FOR PENSION CONTRIBUTIONS AL21 LOWED IN COMPUTING NET EARNINGS FROM 

22 SELF-EMPLOYMENT. 

23 (a) IN GENERAL.—Section 1402(a) (defining net 

24 earnings from self-employment) is amended by striking 

25 ‘‘and’’ at the end of paragraph (15), by striking the period 


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1 at the end of paragraph (16) and inserting ‘‘, and’’, and 

2 by inserting after paragraph (16) the following new para3 graph: 

4 ‘‘(17) any deduction allowed under section 404 

5 by reason of section 404(a)(8)(C) shall be allowed, 

6 except that the amount of such deduction shall be 

7 determined without regard to this paragraph.’’. 

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

9 this section shall apply to taxable years beginning after 

10 December 31, 2007. 

11 SEC. 503. EXEMPTION OF DEFERRAL-ONLY QUALIFIED 

12 CASH OR DEFERRED ARRANGEMENTS FROM 

13 TOP-HEAVY PLAN RULES. 

14 (a) IN GENERAL.—Section 416(g) (defining top15 heavy plan) is amended by adding at the end the following 

16 new paragraph: 

17 ‘‘(5) EXCEPTION FOR DEFERRAL-ONLY CASH

18 OR DEFERRED ARRANGEMENTS.—In the case of a 

19 plan which consists solely of a qualified cash or de20 ferred arrangement (as defined in section 401(k)(2)) 

21 under which no amounts may be contributed other 

22 than elective deferrals (as defined in section 

23 402(g)(3)), such plan shall not be treated as a top24 heavy plan.’’. 


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

2 this section shall apply to years beginning after December 

3 31, 2007. 

4 SEC. 504. EXTENSION OF TIME FOR SMALL PENSION PLANS 

5 TO ADOPT REQUIRED PLAN QUALIFICATION 

6 AMENDMENTS. 

7 (a) IN GENERAL.—In the case of an eligible small 

8 plan for which a remedial amendment period is established 

9 under Internal Revenue Procedure 2005–66 (or any regu10 lation, revenue ruling, revenue procedure, or guidance pro11 viding for a similar period), no amendment to the plan 

12 necessary for the plan to meet the qualification require13 ments under the Internal Revenue Code of 1986 shall be 

14 required before the close of such period. 

15 (b) ADDITIONAL REQUIREMENTS.—Subsection (a) 

16 shall not apply to an eligible small plan unless— 

17 (1) any amendment described in subsection (a) 

18 applies retroactively to the period during which such 

19 amendment would otherwise have been required to 

20 be in effect, 

21 (2) the plan is operated during the period de22 scribed in paragraph (1) as if the amendment were 

23 in effect, and 

24 (3) the plan meets such requirements as the 

25 Secretary of the Treasury may prescribe to ensure 


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1 that the Secretary, the Secretary of Labor, employ2 ers maintaining the plan, and participants and bene3 ficiaries of the plan are adequately notified of the 

4 terms of the plan actually in effect during a plan 

5 year. 

6 (c) ELIGIBLE SMALL PLAN.—For purposes of this 

7 section— 

8 (1) IN GENERAL.—The term ‘‘eligible small 

9 plan’’ means a plan which, as of the beginning of a 

10 remedial amendment or similar period described in 

11 subsection (a), had 100 or fewer participants. For 

12 purposes of this paragraph, all defined benefit plans 

13 which are single-employer plans and are maintained 

14 by the same employer (or any member of such em15 ployer’s controlled group) shall be treated as 1 plan, 

16 but only participants with respect to such employer 

17 or member shall be taken into account. 

18 (2) APPLICATION OF CERTAIN RULES IN DE19 TERMINATION OF PLAN SIZE.—For purposes of this 

20 subsection— 

21 (A) PLANS NOT IN EXISTENCE IN PRE22 CEDING YEAR.—In the case of the first plan 

23 year of any plan, subparagraph (B) shall apply 

24 to such plan by taking into account the number 

25 of participants that the plan is reasonably exVerDate Aug 31 2005 00:14 May 05, 2007 Jkt 059200 PO 00000 Frm 00107 Fmt 6652 Sfmt 6201 E:\BILLS\S1288.IS S1288

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1 pected to have on days during such first plan 

2 year. 

3 (B) PREDECESSORS.—Any reference in 

4 paragraph (1) to an employer shall include a 

5 reference to any predecessor of such employer. 

6 (d) EFFECTIVE DATE.—This section shall apply to 

7 amendments required to be adopted for plan years begin8 ning after December 31, 2007. 

Æ 


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