II 

Calendar No. 516 

108TH CONGRESS 

2D SESSION S. 2424 

[Report No. 108–266] 

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

Income Security Act of 1974 to protect the retirement security of American workers by ensuring that pension assets are adequately diversified 

and by providing workers with adequate access to, and information 

about, their pension plans, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

MAY 14, 2004 

Mr. GRASSLEY, from the Committee on Finance, reported the following 

original bill; which was read twice and placed on the calendar 

A BILL 

To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to protect the retirement security of American workers by ensuring that pension assets are adequately diversified and 

by providing workers with adequate access to, and information about, their pension plans, 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, 
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1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

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

3 ‘‘National Employee Savings and Trust Equity Guarantee 

4 Act of 2004’’. 

5 (b) TABLE OF CONTENTS.— 

Sec. 1. Short title; table of contents. 

TITLE I—DIVERSIFICATION OF PENSION PLAN ASSETS 

Sec. 101. Defined contribution plans required to provide employees with freedom to invest their plan assets. 

Sec. 102. Notice of freedom to divest employer securities or real property. 

TITLE II—INFORMATION TO ASSIST PENSION PLAN 

PARTICIPANTS 

Sec. 201. Periodic pension benefit statements. 

Sec. 202. Defined contribution plans required to provide adequate investment 

education to participants. 

Sec. 203. Material information relating to investment in employer securities. 

Sec. 204. Fiduciary rules for plan sponsors designating independent investment 

advisers. 

Sec. 205. Treatment of qualified retirement planning services. 

TITLE III—PROTECTION OF PENSION PLAN PARTICIPANTS 

Sec. 301. Notice to participants or beneficiaries of blackout periods. 

TITLE IV—OTHER PROVISIONS RELATING TO PENSIONS 

Subtitle A—Provisions Relating to Pension Plan Funding 

PART I—REPLACEMENT OF INTEREST RATE ON 30-YEAR TREASURY

SECURITIES

Sec. 401. Replacement of 30-year Treasury rate for purposes of funding and 

PBGC premium rates. 

Sec. 402. Replacement of 30-year Treasury rate for calculating lump-sum distributions. 

Sec. 403. Section 415 limitation on defined benefit plans. 

PART II—OTHER PROVISIONS

Sec. 406. Deficit reduction contribution. 

Sec. 407. Deduction limits for plan contributions. 

Sec. 408. Benefit limitations for certain financially distressed plans. 

Sec. 409. Updating deduction rules for combination of plans. 

Subtitle B—Improvements in Portability and Distribution Rules 

Sec. 411. Clarifications regarding purchase of permissive service credit. 

Sec. 412. Allow rollover of after-tax amounts in annuity contracts. 

Sec. 413. Clarification of minimum distribution rules. 
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Sec. 414. Waiver of 10 percent early withdrawal penalty tax on certain distributions of pension plans for public safety employees. 

Sec. 415. Allow rollovers by nonspouse beneficiaries of certain retirement plan 

distributions. 

Sec. 416. Faster vesting of employer nonelective contributions. 

Sec. 417. Allow direct rollovers from retirement plans to Roth IRAs. 

Sec. 418. Elimination of higher penalty on certain simple plan distributions. 

Sec. 419. Simple plan portability. 

Sec. 420. Eligibility for participation in retirement plans. 

Sec. 421. Transfers to the PBGC. 

Subtitle C—Administrative Provisions 

Sec. 431. Employee Plans Compliance Resolution System. 

Sec. 432. Extension to all governmental plans of moratorium on application of 

certain nondiscrimination rules applicable to State and local 

plans. 

Sec. 433. Notice and consent period regarding distributions. 

Sec. 434. Reporting simplification. 

Sec. 435. Missing participants. 

Sec. 436. Reduced PBGC premium for new plans of small employers. 

Sec. 437. Reduction of additional PBGC premium for new and small plans. 

Sec. 438. Authorization for PBGC to pay interest on premium overpayment refunds. 

Sec. 439. Substantial owner benefits in terminated plans. 

Sec. 440. Voluntary early retirement incentive and employment retention plans 

maintained by local educational agencies and other entities. 

Sec. 441. Acceleration of computation of benefits attributable to recoveries of 

employer liability. 

Sec. 442. Multiemployer plan funding and solvency notices. 

Sec. 443. No reduction in unemployment compensation as a result of pension 

rollovers. 

Sec. 444. Withholding on distributions from governmental section 457 plans. 

Sec. 445. Minimum cost requirements. 

Subtitle D—Studies 

Sec. 451. Joint study on revitalizing defined benefit plans. 

Sec. 452. Study on floor-offset ESOPs. 

Subtitle E—Other Provisions 

Sec. 461. Allowance of catchup payments. 

Sec. 462. Treatment of distributions by ESOPs with respect to S corporation 

stock. 

Sec. 463. Transfer of excess pension assets to multiemployer health plan. 

Subtitle F—Plan Amendments 

Sec. 471. Provisions relating to plan amendments. 

TITLE V—PROVISIONS RELATING TO EXECUTIVES AND STOCK 

OPTIONS 

Subtitle A—Provisions Relating to Executives 
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Sec. 501. Repeal of 1978 Revenue Act limitation on Secretary of the Treasury’s 

authority to determine year of inclusion of amounts under private deferred compensation plans. 

Sec. 502. Treatment of nonqualified deferred compensation plans. 

Sec. 503. Prohibition on deferral of gain from the exercise of stock options and 

restricted stock gains through deferred compensation arrangements. 

Sec. 504. Increase in withholding from supplemental wage payments in excess 

of $1,000,000. 

Subtitle B—Stock Options 

Sec. 511. Exclusion of incentive stock options and employee stock purchase 

plan stock options from wages. 

Sec. 512. Treatment of sale of stock acquired pursuant to exercise of stock options to comply with conflict-of-interest requirements. 

TITLE VI—WOMEN’S PENSION PROTECTION 

Sec. 600. Short title. 

Subtitle A—Study of Spousal Consent for Distributions From Defined 

Contribution Plans 

Sec. 601. Joint study of application of spousal consent rules to defined contribution plans. 

Subtitle B—Division of Pension Benefits Upon Divorce 

Sec. 611. Regulations on time and order of issuance of domestic relations orders. 

Subtitle C—Railroad Retirement 

Sec. 621. Entitlement of divorced spouses to railroad retirement annuities independent of actual entitlement of employee. 

Sec. 622. Extension of tier II railroad retirement benefits to surviving former 

spouses pursuant to divorce agreements. 

Subtitle D—Modifications of Joint and Survivor Annuity Requirements 

Sec. 631. Requirement for additional survivor annuity option. 

TITLE VII—TAX COURT PENSION AND COMPENSATION 

Sec. 700. Amendment of 1986 Code. 

Sec. 701. Annuities for survivors of Tax Court judges who are assassinated. 

Sec. 702. Cost-of-living adjustments for Tax Court judicial survivor annuities. 

Sec. 703. Life insurance coverage for Tax Court judges. 

Sec. 704. Cost of life insurance coverage for Tax Court judges age 65 or over. 

Sec. 705. Modification of timing of lump-sum payment of judges’ accrued annual leave. 

Sec. 706. Participation of Tax Court judges in the Thrift Savings Plan. 

Sec. 707. Exemption of teaching compensation of retired judges from limitation 

on outside earned income. 

Sec. 708. General provisions relating to magistrate judges of the Tax Court. 

Sec. 709. Annuities to surviving spouses and dependent children of magistrate 

judges of the Tax Court. 
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Sec. 710. Retirement and annuity program. 

Sec. 711. Incumbent magistrate judges of the Tax Court. 

Sec. 712. Provisions for recall. 

Sec. 713. Effective date. 

TITLE VIII—OTHER PROVISIONS 

Subtitle A—General Provisions 

Sec. 801. Certain postsecondary educational benefits provided by an employer 

to children of employees excludable from gross income under 

educational assistance programs. 

Sec. 802. Exclusion for payments to individuals under National Health Service 

Corps loan repayment program and certain State loan repayment programs. 

Sec. 803. Exclusion for group legal services. 

Sec. 804. Transfer of excess funds from black lung disability trusts to United 

Mine Workers of America Combined Benefit Fund. 

Subtitle B—Revenue Provisions 

Sec. 811. Application of basis rules to nonresident aliens. 

Sec. 812. Treatment of death benefits from corporate-owned life insurance. 

Sec. 813. Reporting of taxable mergers and acquisitions. 

1 TITLE I—DIVERSIFICATION OF 

2 PENSION PLAN ASSETS 

3 SEC. 101. DEFINED CONTRIBUTION PLANS REQUIRED TO 

4 PROVIDE EMPLOYEES WITH FREEDOM TO IN5 VEST THEIR PLAN ASSETS. 

6 (a) AMENDMENTS OF INTERNAL REVENUE CODE.— 

7 (1) QUALIFICATION REQUIREMENT.—Section 

8 401(a) of the Internal Revenue Code of 1986 (relat9 ing to qualified pension, profit-sharing, and stock 

10 bonus plans) is amended by inserting after para11 graph (34) the following new paragraph: 

12 ‘‘(35) DIVERSIFICATION REQUIREMENTS FOR

13 CERTAIN DEFINED CONTRIBUTION PLANS.— 

14 ‘‘(A) IN GENERAL.—A trust which is part 

15 of an applicable defined contribution plan shall 
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1 not be treated as a qualified trust unless the 

2 plan meets the diversification requirements of 

3 subparagraphs (B), (C), and (D). 

4 ‘‘(B) EMPLOYEE CONTRIBUTIONS AND

5 ELECTIVE DEFERRALS INVESTED IN EMPLOYER

6 SECURITIES OR REAL PROPERTY.—In the case 

7 of the portion of an applicable individual’s ac8 count attributable to employee contributions 

9 and elective deferrals which is invested in em10 ployer securities or employer real property, a 

11 plan meets the requirements of this subpara12 graph if the applicable individual may elect to 

13 direct the plan to divest any such securities or 

14 real property and to reinvest an equivalent 

15 amount in other investment options meeting the 

16 requirements of subparagraph (D). 

17 ‘‘(C) EMPLOYER CONTRIBUTIONS IN18 VESTED IN EMPLOYER SECURITIES OR REAL

19 PROPERTY.—In the case of the portion of the 

20 account attributable to employer contributions 

21 other than elective deferrals which is invested in 

22 employer securities or employer real property, a 

23 plan meets the requirements of this subpara24 graph if each applicable individual who— 
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1 ‘‘(i) is a participant who has com2 pleted at least 3 years of service, or 

3 ‘‘(ii) is a beneficiary of a participant 

4 described in clause (i) or of a deceased 

5 participant, 

6 may elect to direct the plan to divest any such 

7 securities or real property and to reinvest an 

8 equivalent amount in other investment options 

9 meeting the requirements of subparagraph (D). 

10 ‘‘(D) INVESTMENT OPTIONS.— 

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

12 of this subparagraph are met if the plan 

13 offers not less than 3 investment options, 

14 other than employer securities or employer 

15 real property, to which an applicable indi16 vidual may direct the proceeds from the di17 vestment of employer securities or em18 ployer real property pursuant to this para19 graph, each of which is diversified and has 

20 materially different risk and return charac21 teristics. 

22 ‘‘(ii) TREATMENT OF CERTAIN RE23 STRICTIONS AND CONDITIONS.— 

24 ‘‘(I) TIME FOR MAKING INVEST25 MENT CHOICES.—A plan shall not be 
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1 treated as failing to meet the require2 ments of this subparagraph merely be3 cause the plan limits the time for di4 vestment and reinvestment to peri5 odic, reasonable opportunities occur6 ring no less frequently than quarterly. 

7 ‘‘(II) CERTAIN RESTRICTIONS

8 AND CONDITIONS NOT ALLOWED.— 

9 Except as provided in regulations, a 

10 plan shall not meet the requirements 

11 of this subparagraph if the plan im12 poses restrictions or conditions with 

13 respect to the investment of employer 

14 securities or employer real property 

15 which are not imposed on the invest16 ment of other assets of the plan. This 

17 subclause shall not apply to any re18 strictions or conditions imposed by 

19 reason of the application of securities 

20 laws. 

21 ‘‘(E) APPLICABLE DEFINED CONTRIBU22 TION PLAN.—For purposes of this paragraph— 

23 ‘‘(i) IN GENERAL.—The term ‘applica24 ble defined contribution plan’ means any 
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1 defined contribution plan which holds any 

2 publicly traded employer securities. 

3 ‘‘(ii) EXCEPTION FOR CERTAIN

4 ESOPS.—Such term does not include an 

5 employee stock ownership plan if— 

6 ‘‘(I) there are no contributions to 

7 such plan (or earnings thereunder) 

8 which are held within such plan and 

9 are subject to subsection (k) or (m), 

10 and 

11 ‘‘(II) such plan is a separate plan 

12 for purposes of section 414(l) with re13 spect to any other defined benefit plan 

14 or defined contribution plan main15 tained by the same employer or em16 ployers. 

17 ‘‘(iii) EXCEPTION FOR ONE PARTICI18 PANT PLANS.—Such term does not include 

19 a one-participant retirement plan. 

20 ‘‘(iv) ONE-PARTICIPANT RETIREMENT

21 PLAN.—For purposes of clause (iii), the 

22 term ‘one-participant retirement plan’ 

23 means a retirement plan that— 

24 ‘‘(I) on the first day of the plan 

25 year covered only one individual (or 
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1 the individual and the individual’s 

2 spouse) and the individual owned 100 

3 percent of the plan sponsor (whether 

4 or not incorporated), or covered only 

5 one or more partners (or partners and 

6 their spouses) in the plan sponsor, 

7 ‘‘(II) meets the minimum cov8 erage requirements of section 410(b) 

9 without being combined with any 

10 other plan of the business that covers 

11 the employees of the business, 

12 ‘‘(III) does not provide benefits 

13 to anyone except the individual (and 

14 the individual’s spouse) or the part15 ners (and their spouses), 

16 ‘‘(IV) does not cover a business 

17 that is a member of an affiliated serv18 ice group, a controlled group of cor19 porations, or a group of businesses 

20 under common control, and 

21 ‘‘(V) does not cover a business 

22 that uses the services of leased em23 ployees (within the meaning of section 

24 414(n)). 
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1 For purposes of this clause, the term ‘part2 ner’ includes a 2-percent shareholder (as 

3 defined in section 1372(b)) of an S cor4 poration. 

5 ‘‘(F) CERTAIN PLANS TREATED AS HOLD6 ING PUBLICLY TRADED EMPLOYER SECURI7 TIES.— 

8 ‘‘(i) IN GENERAL.—Except as pro9 vided in regulations or in clause (ii), a plan 

10 holding employer securities which are not 

11 publicly traded employer securities shall be 

12 treated as holding publicly traded employer 

13 securities if any employer corporation, or 

14 any member of a controlled group of cor15 porations which includes such employer 

16 corporation, has issued a class of stock 

17 which is a publicly traded employer secu18 rity. 

19 ‘‘(ii) EXCEPTION FOR CERTAIN CON20 TROLLED GROUPS WITH PUBLICLY TRAD21 ED SECURITIES.—Clause (i) shall not 

22 apply to a plan if— 

23 ‘‘(I) no employer corporation, or 

24 parent corporation of an employer cor-
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1 poration, has issued any publicly trad2 ed employer security, and 

3 ‘‘(II) no employer corporation, or 

4 parent corporation of an employer 

5 corporation, has issued any special 

6 class of stock which grants particular 

7 rights to, or bears particular risks for, 

8 the holder or issuer with respect to 

9 any corporation described in clause (i) 

10 which has issued any publicly traded 

11 employer security. 

12 ‘‘(iii) DEFINITIONS.—For purposes of 

13 this subparagraph, the term— 

14 ‘‘(I) ‘controlled group of corpora15 tions’ has the meaning given such 

16 term by section 1563(a), except that 

17 ‘50 percent’ shall be substituted for 

18 ‘80 percent’ each place it appears, 

19 ‘‘(II) ‘employer corporation’ 

20 means a corporation which is an em21 ployer maintaining the plan, and 

22 ‘‘(III) ‘parent corporation’ has 

23 the meaning given such term by sec24 tion 424(e). 
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1 ‘‘(G) OTHER DEFINITIONS.—For purposes 

2 of this paragraph— 

3 ‘‘(i) APPLICABLE INDIVIDUAL.—The 

4 term ‘applicable individual’ means— 

5 ‘‘(I) any participant in the plan, 

6 and 

7 ‘‘(II) any beneficiary who has an 

8 account under the plan with respect to 

9 which the beneficiary is entitled to ex10 ercise the rights of a participant. 

11 ‘‘(ii) ELECTIVE DEFERRAL.—The 

12 term ‘elective deferral’ means an employer 

13 contribution described in section 

14 402(g)(3)(A). 

15 ‘‘(iii) EMPLOYER SECURITY.—The 

16 term ‘employer security’ has the meaning 

17 given such term by section 407(d)(1) of 

18 the Employee Retirement Income Security 

19 Act of 1974. 

20 ‘‘(iv) EMPLOYER REAL PROPERTY.— 

21 The term ‘employer real property’ has the 

22 meaning given such term by section 

23 407(d)(2) of the Employee Retirement In24 come Security Act of 1974. 
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1 ‘‘(v) EMPLOYEE STOCK OWNERSHIP

2 PLAN.—The term ‘employee stock owner3 ship plan’ has the meaning given such 

4 term by section 4975(e)(7). 

5 ‘‘(vi) PUBLICLY TRADED EMPLOYER

6 SECURITIES.—The term ‘publicly traded 

7 employer securities’ means employer secu8 rities which are readily tradable on an es9 tablished securities market. 

10 ‘‘(vii) YEAR OF SERVICE.—The term 

11 ‘year of service’ has the meaning given 

12 such term by section 411(a)(5). 

13 ‘‘(H) TRANSITION RULE FOR SECURITIES

14 OR REAL PROPERTY ATTRIBUTABLE TO EM15 PLOYER CONTRIBUTIONS.— 

16 ‘‘(i) RULES PHASED IN OVER 3

17 YEARS.— 

18 ‘‘(I) IN GENERAL.—In the case 

19 of the portion of an account to which 

20 subparagraph (C) applies and which 

21 consists of employer securities or em22 ployer real property acquired in a plan 

23 year beginning before January 1, 

24 2004, subparagraph (C) shall only 

25 apply to the applicable percentage of 
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1 such securities or real property. This 

2 subparagraph shall be applied sepa3 rately with respect to each class of se4 curities and employer real property. 

5 ‘‘(II) EXCEPTION FOR CERTAIN

6 PARTICIPANTS AGED 55 OR OVER.— 

7 Subclause (I) shall not apply to an 

8 applicable individual who is a partici9 pant who has attained age 55 and 

10 completed at least 3 years of service 

11 before the first plan year beginning 

12 after December 31, 2003. 

13 ‘‘(ii) APPLICABLE PERCENTAGE.—For 

14 purposes of clause (i), the applicable per15 centage shall be determined as follows: 

‘‘Plan year to which subparagraph (C) applies: The applicable percentage is: 

1st ............................................................................................ 33 percent

2d ............................................................................................. 66 percent

3d and following ....................................................................... 100 percent.’’ 

16 (2) CONFORMING AMENDMENTS.— 

17 (A) Section 401(a)(28)(B) of such Code 

18 (relating to additional requirements relating to 

19 employee stock ownership plans) is amended by 

20 adding at the end the following new clause: 

21 ‘‘(v) EXCEPTION.—This subparagraph 

22 shall not apply to an applicable defined 
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1 contribution plan (as defined in paragraph 

2 (35)(E)).’’ 

3 (B) Section 409(h)(7) of such Code is 

4 amended by inserting ‘‘or subparagraph (B) or 

5 (C) of section 401(a)(35)’’ before the period at 

6 the end. 

7 (C) Section 4980(c)(3)(A) of such Code is 

8 amended by striking ‘‘if—’’ and all that follows 

9 and inserting ‘‘if the requirements of subpara10 graphs (B), (C), and (D) are met.’’ 

11 (b) AMENDMENTS OF ERISA.—Section 204 of the 

12 Employee Retirement Income Security Act of 1974 (29 

13 U.S.C. 1054) is amended by redesignating subsection (j) 

14 as subsection (k) and by inserting after subsection (i) the 

15 following new subsection: 

16 ‘‘(j) DIVERSIFICATION REQUIREMENTS FOR CERTAIN

17 INDIVIDUAL ACCOUNT PLANS.— 

18 ‘‘(1) IN GENERAL.—An applicable individual ac19 count plan shall meet the diversification require20 ments of paragraphs (2), (3), and (4). 

21 ‘‘(2) EMPLOYEE CONTRIBUTIONS AND ELEC22 TIVE DEFERRALS INVESTED IN EMPLOYER SECURI23 TIES OR REAL PROPERTY.—In the case of the por24 tion of an applicable individual’s account attrib25 utable to employee contributions and elective defer-
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1 rals which is invested in employer securities or em2 ployer real property, a plan meets the requirements 

3 of this paragraph if the applicable individual may 

4 elect to direct the plan to divest any such securities 

5 or real property and to reinvest an equivalent 

6 amount in other investment options meeting the re7 quirements of paragraph (4). 

8 ‘‘(3) EMPLOYER CONTRIBUTIONS INVESTED IN

9 EMPLOYER SECURITIES OR REAL PROPERTY.—In the 

10 case of the portion of the account attributable to 

11 employer contributions other than elective deferrals 

12 which is invested in employer securities or employer 

13 real property, a plan meets the requirements of this 

14 paragraph if each applicable individual who— 

15 ‘‘(A) is a participant who has completed at 

16 least 3 years of service, or 

17 ‘‘(B) is a beneficiary of a participant de18 scribed in subparagraph (A) or of a deceased 

19 participant, 

20 may elect to direct the plan to divest any such secu21 rities or real property and to reinvest an equivalent 

22 amount in other investment options meeting the re23 quirements of paragraph (4). 

24 ‘‘(4) INVESTMENT OPTIONS.— 
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1 ‘‘(A) IN GENERAL.—The requirements of 

2 this paragraph are met if the plan offers not 

3 less than 3 investment options, other than em4 ployer securities or employer real property, to 

5 which an applicable individual may direct the 

6 proceeds from the divestment of employer secu7 rities or employer real property pursuant to this 

8 subsection, each of which is diversified and has 

9 materially different risk and return characteris10 tics. 

11 ‘‘(B) TREATMENT OF CERTAIN RESTRIC12 TIONS AND CONDITIONS.— 

13 ‘‘(i) TIME FOR MAKING INVESTMENT

14 CHOICES.—A plan shall not be treated as 

15 failing to meet the requirements of this 

16 paragraph merely because the plan limits 

17 the time for divestment and reinvestment 

18 to periodic, reasonable opportunities occur19 ring no less frequently than quarterly. 

20 ‘‘(ii) CERTAIN RESTRICTIONS AND

21 CONDITIONS NOT ALLOWED.—Except as 

22 provided in regulations, a plan shall not 

23 meet the requirements of this paragraph if 

24 the plan imposes restrictions or conditions 

25 with respect to the investment of employer 
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1 securities or employer real property which 

2 are not imposed on the investment of other 

3 assets of the plan. This subparagraph shall 

4 not apply to any restrictions or conditions 

5 imposed by reason of the application of se6 curities laws. 

7 ‘‘(5) APPLICABLE INDIVIDUAL ACCOUNT

8 PLAN.—For purposes of this subsection— 

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

10 individual account plan’ means any individual 

11 account plan (as defined in section 3(34)) which 

12 holds any publicly traded employer securities. 

13 ‘‘(B) EXCEPTION FOR CERTAIN ESOPS.— 

14 Such term does not include an employee stock 

15 ownership plan if— 

16 ‘‘(i) there are no contributions to such 

17 plan (or earnings thereunder) which are 

18 held within such plan and are subject to 

19 subsection (k) or (m) of section 401 of the 

20 Internal Revenue Code of 1986, and 

21 ‘‘(ii) such plan is a separate plan (for 

22 purposes of section 414(l) of such Code) 

23 with respect to any other defined benefit 

24 plan or individual account plan maintained 

25 by the same employer or employers. 
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1 ‘‘(C) EXCEPTION FOR ONE PARTICIPANT

2 PLANS.—Such term shall not include a one-par3 ticipant retirement plan (as defined in section 

4 101(i)(8)(B)). 

5 ‘‘(D) CERTAIN PLANS TREATED AS HOLD6 ING PUBLICLY TRADED EMPLOYER SECURI7 TIES.— 

8 ‘‘(i) IN GENERAL.—Except as pro9 vided in regulations or in clause (ii), a plan 

10 holding employer securities which are not 

11 publicly traded employer securities shall be 

12 treated as holding publicly traded employer 

13 securities if any employer corporation, or 

14 any member of a controlled group of cor15 porations which includes such employer 

16 corporation, has issued a class of stock 

17 which is a publicly traded employer secu18 rity. 

19 ‘‘(ii) EXCEPTION FOR CERTAIN CON20 TROLLED GROUPS WITH PUBLICLY TRAD21 ED SECURITIES.—Clause (i) shall not 

22 apply to a plan if— 

23 ‘‘(I) no employer corporation, or 

24 parent corporation of an employer 
21 

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1 corporation, has issued any publicly 

2 traded employer security, and 

3 ‘‘(II) no employer corporation, or 

4 parent corporation of an employer 

5 corporation, has issued any special 

6 class of stock which grants particular 

7 rights to, or bears particular risks for, 

8 the holder or issuer with respect to 

9 any corporation described in clause (i) 

10 which has issued any publicly traded 

11 employer security. 

12 ‘‘(iii) DEFINITIONS.—For purposes of 

13 this subparagraph, the term— 

14 ‘‘(I) ‘controlled group of corpora15 tions’ has the meaning given such 

16 term by section 1563(a) of the Inter17 nal Revenue Code of 1986, except 

18 that ‘50 percent’ shall be substituted 

19 for ‘80 percent’ each place it appears, 

20 ‘‘(II) ‘employer corporation’ 

21 means a corporation which is an em22 ployer maintaining the plan, and 

23 ‘‘(III) ‘parent corporation’ has 

24 the meaning given such term by sec25 tion 424(e) of such Code. 
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1 ‘‘(6) OTHER DEFINITIONS.—For purposes of 

2 this paragraph— 

3 ‘‘(A) APPLICABLE INDIVIDUAL.—The term 

4 ‘applicable individual’ means— 

5 ‘‘(i) any participant in the plan, and 

6 ‘‘(ii) any beneficiary who has an ac7 count under the plan with respect to which 

8 the beneficiary is entitled to exercise the 

9 rights of a participant. 

10 ‘‘(B) ELECTIVE DEFERRAL.—The term 

11 ‘elective deferral’ means an employer contribu12 tion described in section 402(g)(3)(A) of the In13 ternal Revenue Code of 1986. 

14 ‘‘(C) EMPLOYER SECURITY.—The term 

15 ‘employer security’ has the meaning given such 

16 term by section 407(d)(1). 

17 ‘‘(D) EMPLOYER REAL PROPERTY.—The 

18 term ‘employer real property’ has the meaning 

19 given such term by section 407(d)(2). 

20 ‘‘(E) EMPLOYEE STOCK OWNERSHIP

21 PLAN.—The term ‘employee stock ownership 

22 plan’ has the meaning given such term by sec23 tion 4975(e)(7) of such Code. 

24 ‘‘(F) PUBLICLY TRADED EMPLOYER SECU25 RITIES.—The term ‘publicly traded employer 
23 

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1 securities’ means employer securities which are 

2 readily tradable on an established securities 

3 market. 

4 ‘‘(G) YEAR OF SERVICE.—The term ‘year 

5 of service’ has the meaning given such term by 

6 section 203(b)(2). 

7 ‘‘(7) TRANSITION RULE FOR SECURITIES OR

8 REAL PROPERTY ATTRIBUTABLE TO EMPLOYER CON9 TRIBUTIONS.— 

10 ‘‘(A) RULES PHASED IN OVER 3 YEARS.— 

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

12 portion of an account to which paragraph 

13 (3) applies and which consists of employer 

14 securities or employer real property ac15 quired in a plan year beginning before 

16 January 1, 2004, paragraph (3) shall only 

17 apply to the applicable percentage of such 

18 securities or real property. This subpara19 graph shall be applied separately with re20 spect to each class of securities and em21 ployer real property. 

22 ‘‘(ii) EXCEPTION FOR CERTAIN PAR23 TICIPANTS AGED 55 OR OVER.—Clause (i) 

24 shall not apply to an applicable individual 

25 who is a participant who has attained age 
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1 55 and completed at least 3 years of service 

2 before the first plan year beginning after 

3 December 31, 2003. 

4 ‘‘(B) APPLICABLE PERCENTAGE.—For 

5 purposes of subparagraph (A), the applicable 

6 percentage shall be determined as follows: 

‘‘Plan year to which paragraph (3) applies: The applicable percentage is: 

1st ............................................................................................ 33 percent

2d ............................................................................................. 66 percent

3d and following ....................................................................... 100 percent.’’ 

7 (c) EFFECTIVE DATES.— 

8 (1) IN GENERAL.—Except as provided in para9 graphs (2) and (3), the amendments made by this 

10 section shall apply to plan years beginning after De11 cember 31, 2003. 

12 (2) SPECIAL RULE FOR COLLECTIVELY BAR13 GAINED AGREEMENTS.—In the case of a plan main14 tained pursuant to 1 or more collective bargaining 

15 agreements between employee representatives and 1 

16 or more employers ratified on or before the date of 

17 the enactment of this Act, paragraph (1) shall be 

18 applied to benefits pursuant to, and individuals cov19 ered by, any such agreement by substituting for 

20 ‘‘December 31, 2003’’ the earlier of— 

21 (A) the later of— 

22 (i) December 31, 2004, or 
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1 (ii) the date on which the last of such 

2 collective bargaining agreements termi3 nates (determined without regard to any 

4 extension thereof after such date of enact5 ment), or 

6 (B) December 31, 2005. 

7 (3) SPECIAL RULE FOR CERTAIN EMPLOYER SE8 CURITIES HELD IN AN ESOP.— 

9 (A) IN GENERAL.—In the case of employer 

10 securities to which this paragraph applies, the 

11 amendments made by this section shall apply to 

12 plan years beginning after the earlier of— 

13 (i) December 31, 2006, or 

14 (ii) the first date on which the fair 

15 market value of such securities exceeds the 

16 guaranteed minimum value described in 

17 subparagraph (B)(ii). 

18 (B) APPLICABLE SECURITIES.—This para19 graph shall apply to employer securities which 

20 are attributable to employer contributions other 

21 than elective deferrals, and which, on Sep22 tember 17, 2003— 

23 (i) consist of preferred stock, and 

24 (ii) are within an employee stock own25 ership plan (as defined in section 
26 

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1 4975(e)(7) of the Internal Revenue Code 

2 of 1986), the terms of which provide that 

3 the value of the securities cannot be less 

4 than the guaranteed minimum value speci5 fied by the plan on such date. 

6 (C) COORDINATION WITH TRANSITION

7 RULE.—In applying section 401(a)(35)(H) of 

8 the Internal Revenue Code of 1986 and section 

9 204(j)(7) of the Employee Retirement Income 

10 Security Act of 1974 (as added by this section) 

11 to employer securities to which this paragraph 

12 applies, the applicable percentage shall be de13 termined without regard to this paragraph. 

14 SEC. 102. NOTICE OF FREEDOM TO DIVEST EMPLOYER SE15 CURITIES OR REAL PROPERTY. 

16 (a) AMENDMENTS OF INTERNAL REVENUE CODE.— 

17 (1) EXCISE TAX.—Chapter 43 of the Internal 

18 Revenue Code of 1986 (relating to qualified pension, 

19 etc., plans) is amended by adding at the end the fol20 lowing new section: 

21 ‘‘SEC. 4980H. FAILURE OF CERTAIN DEFINED CONTRIBU22 TION PLANS TO PROVIDE NOTICE OF FREE23 DOM TO DIVEST EMPLOYER SECURITIES. 

24 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed 

25 a tax on the failure of a defined contribution plan to meet 
27 

•S 2424 PCS 

1 the requirements of subsection (e) with respect to any par2 ticipant or beneficiary. 

3 ‘‘(b) AMOUNT OF TAX.— 

4 ‘‘(1) IN GENERAL.—The amount of the tax im5 posed by subsection (a) on any failure with respect 

6 to any participant or beneficiary shall be $100 for 

7 each day in the noncompliance period with respect to 

8 the failure. 

9 ‘‘(2) NONCOMPLIANCE PERIOD.—For purposes 

10 of this section, the term ‘noncompliance period’ 

11 means, with respect to any failure, the period begin12 ning on the date the failure first occurs and ending 

13 on the date the notice to which the failure relates is 

14 provided or the failure is otherwise corrected. 

15 ‘‘(c) LIMITATIONS ON AMOUNT OF TAX.— 

16 ‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT

17 DISCOVERED AND REASONABLE DILIGENCE EXER18 CISED.—No tax shall be imposed by subsection (a) 

19 on any failure during any period for which it is es20 tablished to the satisfaction of the Secretary that 

21 any person subject to liability for tax under sub22 section (d) did not know that the failure existed and 

23 exercised reasonable diligence to meet the require24 ments of subsection (e). 
28 

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1 ‘‘(2) TAX NOT TO APPLY TO FAILURES COR2 RECTED WITHIN 30 DAYS.—No tax shall be imposed 

3 by subsection (a) on any failure if— 

4 ‘‘(A) any person subject to liability for the 

5 tax under subsection (d) exercised reasonable 

6 diligence to meet the requirements of subsection 

7 (e), and 

8 ‘‘(B) such person provides the notice de9 scribed in subsection (e) during the 30-day pe10 riod beginning on the first date such person 

11 knew, or exercising reasonable diligence should 

12 have known, that such failure existed. 

13 ‘‘(3) OVERALL LIMITATION FOR UNINTEN14 TIONAL FAILURES.— 

15 ‘‘(A) IN GENERAL.—If the person subject 

16 to liability for tax under subsection (d) exer17 cised reasonable diligence to meet the require18 ments of subsection (e), the tax imposed by 

19 subsection (a) for failures during the taxable 

20 year of the employer (or, in the case of a multi21 employer plan, the taxable year of the trust 

22 forming part of the plan) shall not exceed 

23 $500,000. For purposes of the preceding sen24 tence, all multiemployer plans of which the 
29 

•S 2424 PCS 

1 same trust forms a part shall be treated as 1 

2 plan. 

3 ‘‘(B) TAXABLE YEARS IN THE CASE OF

4 CERTAIN CONTROLLED GROUPS.—For purposes 

5 of this paragraph, if all persons who are treated 

6 as a single employer for purposes of this section 

7 do not have the same taxable year, the taxable 

8 years taken into account shall be determined 

9 under principles similar to the principles of sec10 tion 1561. 

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

12 failure which is due to reasonable cause and not to 

13 willful neglect, the Secretary may waive part or all 

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

15 that the payment of such tax would be excessive or 

16 otherwise inequitable relative to the failure involved. 

17 ‘‘(d) LIABILITY FOR TAX.—The following shall be lia18 ble for the tax imposed by subsection (a): 

19 ‘‘(1) In the case of a plan not described in 

20 paragraph (2), the employer. 

21 ‘‘(2) In the case of a multiemployer plan, the 

22 plan. 

23 ‘‘(e) NOTICE OF RIGHT TO DIVEST.—Not later than 

24 30 days before the first date on which an applicable indi25 vidual of an applicable defined contribution plan is eligible 
30 

•S 2424 PCS 

1 to exercise the right under section 401(a)(35) to direct 

2 the proceeds from the divestment of employer securities 

3 or employer real property with respect to any type of con4 tribution, the plan administrator shall provide to such in5 dividual a notice— 

6 ‘‘(1) setting forth such right under such sec7 tion, and 

8 ‘‘(2) describing the importance of diversifying 

9 the investment of retirement account assets. 

10 The notice required by this subsection shall be written in 

11 a manner calculated to be understood by the average plan 

12 participant and may be delivered in written, electronic, or 

13 other appropriate form to the extent that such form is rea14 sonably accessible to the applicable individual. 

15 ‘‘(f) DEFINITIONS.—Any term used in this section 

16 which is also used in section 401(a)(35) shall have the 

17 meaning given such term by section 401(a)(35).’’ 

18 (2) AGGREGATION.—Section 414(t) of such 

19 Code is amended by striking ‘‘or 4980B’’ and insert20 ing ‘‘4980B, or 4980H’’. 

21 (3) CLERICAL AMENDMENT.—The table of sec22 tions for chapter 43 of such Code is amended by 

23 adding at the end the following new item: 

‘‘Sec. 4980H. Failure of certain defined contribution plans to provide notice of freedom to divest employer securities.’’ 

24 (b) AMENDMENTS OF ERISA.— 
31 

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1 (1) IN GENERAL.—Section 104 of the Employee 

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

3 1024) is amended by redesignating subsection (d) as 

4 subsection (e) and by inserting after subsection (c) 

5 the following new subsection: 

6 ‘‘(d) NOTICE OF RIGHT TO DIVEST.—Not later than 

7 30 days before the first date on which an applicable indi8 vidual of an applicable individual account plan is eligible 

9 to exercise the right under section 204(j) to direct the pro10 ceeds from the divestment of employer securities or em11 ployer real property with respect to any type of contribu12 tion, the administrator shall provide to such individual a 

13 notice— 

14 ‘‘(1) setting forth such right under such sec15 tion, and 

16 ‘‘(2) describing the importance of diversifying 

17 the investment of retirement account assets. 

18 The notice required by this subsection shall be written in 

19 a manner calculated to be understood by the average plan 

20 participant and may be delivered in written, electronic, or 

21 other appropriate form to the extent that such form is rea22 sonably accessible to the applicable individual.’’ 

23 (2) PENALTIES.—Section 502(c)(7) of the Em24 ployee Retirement Income Security Act of 1974 (29 
32 

•S 2424 PCS 

1 U.S.C. 1132(c)(7)) is amended by inserting ‘‘or sec2 tion 104(d)’’ after ‘‘section 101(i)’’. 

3 (c) MODEL NOTICE.—The Secretary of Labor shall, 

4 within 180 days after the date of the enactment of this 

5 subsection, prescribe a model notice for purposes of satis6 fying the requirements of the amendments made by this 

7 section. 

8 (d) EFFECTIVE DATES.— 

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

10 this section shall apply to plan years beginning after 

11 December 31, 2003. 

12 (2) TRANSITION RULE.—If notice under section 

13 4980H(e) of the Internal Revenue Code of 1986 or 

14 section 104(d) of the Employee Retirement Income 

15 Security Act of 1974 (as added by this section) 

16 would otherwise be required to be provided before 

17 the 90th day after the date of the enactment of this 

18 Act, such notice shall not be required to be provided 

19 until such 90th day. 

20 TITLE II—INFORMATION TO AS21 SIST PENSION PLAN PARTICI22 PANTS 

23 SEC. 201. PERIODIC PENSION BENEFIT STATEMENTS. 

24 (a) AMENDMENTS OF INTERNAL REVENUE CODE.— 
33 

•S 2424 PCS 

1 (1) EXCISE TAX.—Chapter 43 of the Internal 

2 Revenue Code of 1986 (relating to qualified pension, 

3 etc., plans), as amended by this Act, is amended by 

4 adding at the end the following new section: 

5 ‘‘SEC. 4980I. FAILURE OF CERTAIN PENSION PLANS TO PRO6 VIDE REQUIRED INFORMATION. 

7 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed 

8 a tax on the failure of an applicable pension plan to meet 

9 the requirements of subsection (e) with respect to any par10 ticipant or beneficiary. 

11 ‘‘(b) AMOUNT OF TAX.— 

12 ‘‘(1) IN GENERAL.—The amount of the tax im13 posed by subsection (a) on any failure with respect 

14 to any participant or beneficiary shall be $100 for 

15 each day in the noncompliance period with respect to 

16 the failure. 

17 ‘‘(2) NONCOMPLIANCE PERIOD.—For purposes 

18 of this section, the term ‘noncompliance period’ 

19 means, with respect to any failure, the period begin20 ning on the date the failure first occurs and ending 

21 on the date the statement to which the failure re22 lates is provided or the failure is otherwise corrected. 

23 ‘‘(c) LIMITATIONS ON AMOUNT OF TAX.— 

24 ‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT

25 DISCOVERED AND REASONABLE DILIGENCE EXER-
34 

•S 2424 PCS 

1 CISED.—No tax shall be imposed by subsection (a) 

2 on any failure during any period for which it is es3 tablished to the satisfaction of the Secretary that 

4 any person subject to liability for tax under sub5 section (d) did not know that the failure existed and 

6 exercised reasonable diligence to meet the require7 ments of subsection (e). 

8 ‘‘(2) TAX NOT TO APPLY TO FAILURES COR9 RECTED WITHIN 30 DAYS.—No tax shall be imposed 

10 by subsection (a) on any failure if— 

11 ‘‘(A) any person subject to liability for the 

12 tax under subsection (d) exercised reasonable 

13 diligence to meet the requirements of subsection 

14 (e), and 

15 ‘‘(B) such person provides the statement 

16 described in subsection (e) during the 30-day 

17 period beginning on the first date such person 

18 knew, or exercising reasonable diligence should 

19 have known, that such failure existed. 

20 ‘‘(3) OVERALL LIMITATION FOR UNINTEN21 TIONAL FAILURES.— 

22 ‘‘(A) IN GENERAL.—If the person subject 

23 to liability for tax under subsection (d) exer24 cised reasonable diligence to meet the require25 ments of subsection (e), the tax imposed by 
35 

•S 2424 PCS 

1 subsection (a) for failures during the taxable 

2 year of the employer (or, in the case of a multi3 employer plan, the taxable year of the trust 

4 forming part of the plan) shall not exceed 

5 $500,000. For purposes of the preceding sen6 tence, all multiemployer plans of which the same 

7 trust forms a part shall be treated as 1 plan. 

8 ‘‘(B) TAXABLE YEARS IN THE CASE OF

9 CERTAIN CONTROLLED GROUPS.—For purposes 

10 of this paragraph, if all persons who are treated 

11 as a single employer for purposes of this section 

12 do not have the same taxable year, the taxable 

13 years taken into account shall be determined 

14 under principles similar to the principles of sec15 tion 1561. 

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

17 failure which is due to reasonable cause and not to 

18 willful neglect, the Secretary may waive part or all 

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

20 that the payment of such tax would be excessive or 

21 otherwise inequitable relative to the failure involved. 

22 ‘‘(d) LIABILITY FOR TAX.—The following shall be lia23 ble for the tax imposed by subsection (a): 

24 ‘‘(1) In the case of a plan not described in 

25 paragraph (2) or (3), the employer. 
36 

•S 2424 PCS 

1 ‘‘(2) In the case of a multiemployer plan, the 

2 plan. 

3 ‘‘(3) In the case of an arrangement described in 

4 subsection (e)(4), the person required to provide the 

5 statement under subsection (e). 

6 ‘‘(e) REQUIREMENTS TO PROVIDE PENSION BEN7 EFIT STATEMENTS.— 

8 ‘‘(1) REQUIREMENTS.— 

9 ‘‘(A) DEFINED CONTRIBUTION PLAN.— 

10 The administrator of an applicable pension plan 

11 which is a defined contribution plan shall fur12 nish a pension benefit statement described in 

13 paragraph (2)— 

14 ‘‘(i) at least once each calendar quar15 ter to a participant or beneficiary who has 

16 the right to direct the investment of assets 

17 in his or her account under the plan, 

18 ‘‘(ii) at least once each calendar year 

19 to a participant or beneficiary who has his 

20 or her own account under the plan but who 

21 does not have the right to direct the invest22 ment of assets in that account, and 

23 ‘‘(iii) upon written request to a plan 

24 beneficiary who is not a participant or ben25 eficiary described in clause (i) or (ii), ex-
37 

•S 2424 PCS 

1 cept that this subparagraph shall apply to 

2 only 1 request during any 12-month pe3 riod. 

4 ‘‘(B) DEFINED BENEFIT PLAN.—The ad5 ministrator of an applicable pension plan which 

6 is a defined benefit plan shall furnish a pension 

7 benefit statement described in paragraph (2)— 

8 ‘‘(i) at least once every 3 years to 

9 each participant who has a nonforfeitable 

10 accrued benefit and who is employed by 

11 the employer maintaining the plan at the 

12 time the statement is to be furnished, and 

13 ‘‘(ii) to a participant or beneficiary of 

14 the plan upon written request, except that 

15 this clause shall apply to only 1 request 

16 during any 12-month period. 

17 Information furnished under clause (i) to a par18 ticipant may be based on reasonable estimates 

19 determined under regulations prescribed by the 

20 Secretary of Labor, in consultation with the 

21 Pension Benefit Guaranty Corporation. 

22 ‘‘(2) STATEMENTS.— 

23 ‘‘(A) IN GENERAL.—A pension benefit 

24 statement furnished under paragraph (1)— 
38 

•S 2424 PCS 

1 ‘‘(i) shall indicate, on the basis of the 

2 latest available information— 

3 ‘‘(I) the total benefits accrued, 

4 and 

5 ‘‘(II) the nonforfeitable pension 

6 benefits, if any, which have accrued, 

7 or the earliest date on which benefits 

8 will become nonforfeitable, 

9 ‘‘(ii) shall include an explanation of 

10 any permitted disparity under section 

11 401(l) or any floor-offset arrangement that 

12 may be applied in determining any accrued 

13 benefits described in clause (i), 

14 ‘‘(iii) shall be written in a manner cal15 culated to be understood by the average 

16 plan participant, and 

17 ‘‘(iv) may be delivered in written, elec18 tronic, or other appropriate form to the ex19 tent such form is reasonably accessible to 

20 the participant or beneficiary. 

21 ‘‘(B) ADDITIONAL INFORMATION.—In the 

22 case of a defined contribution plan, any pension 

23 benefit statement under clause (i) or (ii) of 

24 paragraph (1)(A) shall include— 
39 

•S 2424 PCS 

1 ‘‘(i) the value of each investment to 

2 which assets in the individual account have 

3 been allocated, determined as of the most 

4 recent valuation date under the plan, in5 cluding the value of any assets held in the 

6 form of employer securities or employer 

7 real property, without regard to whether 

8 such securities or real property were con9 tributed by the plan sponsor or acquired at 

10 the direction of the plan or of the partici11 pant or beneficiary, and 

12 ‘‘(ii) in the case of a pension benefit 

13 statement under paragraph (1)(A)(i)— 

14 ‘‘(I) an explanation of any limita15 tions or restrictions on any right of 

16 the participant or beneficiary under 

17 the plan to direct an investment, and 

18 ‘‘(II) a notice that investments in 

19 any individual account may not be 

20 adequately diversified if the value of 

21 any investment in the account exceeds 

22 20 percent of the fair market value of 

23 all investments in the account. 

24 ‘‘(C) ALTERNATIVE NOTICE.—The require25 ments of subparagraph (A)(i)(II) are met if, at 
40 

•S 2424 PCS 

1 least annually and in accordance with require2 ments of the Secretary of Labor, the plan— 

3 ‘‘(i) updates the information described 

4 in such paragraph which is provided in the 

5 pension benefit statement, or 

6 ‘‘(ii) provides in a separate statement 

7 such information as is necessary to enable 

8 a participant or beneficiary to determine 

9 their nonforfeitable vested benefits. 

10 ‘‘(3) DEFINED BENEFIT PLANS.— 

11 ‘‘(A) ALTERNATIVE NOTICE.—In the case 

12 of a defined benefit plan, the requirements of 

13 paragraph (1)(B)(i) shall be treated as met 

14 with respect to a participant if at least once 

15 each year the administrator provides to the par16 ticipant notice of the availability of the pension 

17 benefit statement and the ways in which the 

18 participant may obtain such statement. Such 

19 notice may be delivered in written, electronic, or 

20 other appropriate form to the extent such form 

21 is reasonably accessible to the participant. 

22 ‘‘(B) YEARS IN WHICH NO BENEFITS AC23 CRUE.—The Secretary may provide that years 

24 in which no employee or former employee bene25 fits (within the meaning of section 410(b)) 
41 

•S 2424 PCS 

1 under the plan need not be taken into account 

2 in determining the 3-year period under para3 graph (1)(B)(i). 

4 ‘‘(4) SPECIAL RULE FOR CERTAIN ANNU5 ITIES.—In the case of an annuity contract or custo6 dial account described in section 403(b) which is not 

7 a plan established or maintained by the employer, 

8 the pension benefit statement under this subsection 

9 shall be furnished by the issuer of the contract, the 

10 custodian of the account, or such other person as is 

11 specified by the Secretary. 

12 ‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur13 poses of this section— 

14 ‘‘(1) APPLICABLE PENSION PLAN.—The term 

15 ‘applicable pension plan’ means a plan described in 

16 clause (i), (ii), or (iv) of section 219(g)(5)(A) other 

17 than a one-participant retirement plan (as defined in 

18 section 401(a)(35)(E)(iv)). 

19 ‘‘(2) EXCEPTION FOR GOVERNMENT AND

20 CHURCH PLANS.—This section shall not apply to any 

21 governmental or church plan. For purposes of this 

22 paragraph, the terms ‘governmental plan’ and 

23 ‘church plan’ have the meanings given such terms by 

24 section 414.’’ 
42 

•S 2424 PCS 

1 (2) AGGREGATION.—Section 414(t) of such 

2 Code, as amended by this Act, is amended by strik3 ing ‘‘or 4980H’’ and inserting ‘‘4980H, or 4980I’’. 

4 (3) CLERICAL AMENDMENT.—The table of sec5 tions for chapter 43 of such Code, as amended by 

6 this Act, is amended by adding at the end the fol7 lowing new item: 

‘‘Sec. 4980I. Failure of certain pension plans to provide required information.’’ 

8 (b) AMENDMENTS OF ERISA.— 

9 (1) IN GENERAL.—Section 105(a) of the Em10 ployee Retirement Income Security Act of 1974 (29 

11 U.S.C. 1025(a)) is amended to read as follows: 

12 ‘‘(a) REQUIREMENTS TO PROVIDE PENSION BEN13 EFIT STATEMENTS.— 

14 ‘‘(1) REQUIREMENTS.— 

15 ‘‘(A) INDIVIDUAL ACCOUNT PLAN.—The 

16 administrator of an individual account plan 

17 (other than a one-participant retirement plan 

18 described in section 101(i)(8)(B)) shall furnish 

19 a pension benefit statement— 

20 ‘‘(i) at least once each calendar quar21 ter to a participant or beneficiary who has 

22 the right to direct the investment of assets 

23 in his or her account under the plan, 

24 ‘‘(ii) at least once each calendar year 

25 to a participant or beneficiary who has his 
43 

•S 2424 PCS 

1 or her own account under the plan but 

2 does not have the right to direct the invest3 ment of assets in that account, and 

4 ‘‘(iii) upon written request to a plan 

5 beneficiary not described in clause (i) or 

6 (ii). 

7 ‘‘(B) DEFINED BENEFIT PLAN.—The ad8 ministrator of a defined benefit plan (other 

9 than a one-participant retirement plan de10 scribed in section 101(i)(8)(B)) shall furnish a 

11 pension benefit statement— 

12 ‘‘(i) at least once every 3 years to 

13 each participant with a nonforfeitable ac14 crued benefit and who is employed by the 

15 employer maintaining the plan at the time 

16 the statement is to be furnished, and 

17 ‘‘(ii) to a participant or beneficiary of 

18 the plan upon written request. 

19 Information furnished under clause (i) to a par20 ticipant may be based on reasonable estimates 

21 determined under regulations prescribed by the 

22 Secretary, in consultation with the Pension 

23 Benefit Guaranty Corporation. 

24 ‘‘(2) STATEMENTS.— 
44 

•S 2424 PCS 

1 ‘‘(A) IN GENERAL.—A pension benefit 

2 statement under paragraph (1)— 

3 ‘‘(i) shall indicate, on the basis of the 

4 latest available information— 

5 ‘‘(I) the total benefits accrued, 

6 and 

7 ‘‘(II) the nonforfeitable pension 

8 benefits, if any, which have accrued, 

9 or the earliest date on which benefits 

10 will become nonforfeitable, 

11 ‘‘(ii) shall include an explanation of 

12 any permitted disparity under section 

13 401(l) of the Internal Revenue Code of 

14 1986 or any floor-offset arrangement that 

15 may be applied in determining any accrued 

16 benefits described in clause (i), 

17 ‘‘(iii) shall be written in a manner cal18 culated to be understood by the average 

19 plan participant, and 

20 ‘‘(iv) may be delivered in written, elec21 tronic, or other appropriate form to the ex22 tent such form is reasonably accessible to 

23 the participant or beneficiary. 

24 ‘‘(B) ADDITIONAL INFORMATION.—In the 

25 case of an individual account plan, any pension 
45 

•S 2424 PCS 

1 benefit statement under clause (i) or (ii) of 

2 paragraph (1)(A) shall include— 

3 ‘‘(i) the value of each investment to 

4 which assets in the individual account have 

5 been allocated, determined as of the most 

6 recent valuation date under the plan, in7 cluding the value of any assets held in the 

8 form of employer securities or employer 

9 real property, without regard to whether 

10 such securities or real property were con11 tributed by the plan sponsor or acquired at 

12 the direction of the plan or of the partici13 pant or beneficiary, and 

14 ‘‘(ii) in the case of a pension benefit 

15 statement under paragraph (1)(A)(i)— 

16 ‘‘(I) an explanation of any limita17 tions or restrictions on any right of 

18 the participant or beneficiary under 

19 the plan to direct an investment, and 

20 ‘‘(II) a notice that investments in 

21 any individual account may not be 

22 adequately diversified if the value of 

23 any investment in the account exceeds 

24 20 percent of the fair market value of 

25 all investments in the account. 
46 

•S 2424 PCS 

1 ‘‘(C) ALTERNATIVE NOTICE.—The require2 ments of subparagraph (A)(i)(II) are met if, at 

3 least annually and in accordance with require4 ments of the Secretary, the plan— 

5 ‘‘(i) updates the information described 

6 in such paragraph which is provided in the 

7 pension benefit statement, or 

8 ‘‘(ii) provides in a separate statement 

9 such information as is necessary to enable 

10 a participant or beneficiary to determine 

11 their nonforfeitable vested benefits. 

12 ‘‘(3) DEFINED BENEFIT PLANS.— 

13 ‘‘(A) ALTERNATIVE NOTICE.—In the case 

14 of a defined benefit plan, the requirements of 

15 paragraph (1)(B)(i) shall be treated as met 

16 with respect to a participant if at least once 

17 each year the administrator provides to the par18 ticipant notice of the availability of the pension 

19 benefit statement and the ways in which the 

20 participant may obtain such statement. Such 

21 notice may be delivered in written, electronic, or 

22 other appropriate form to the extent such form 

23 is reasonably accessible to the participant. 

24 ‘‘(B) YEARS IN WHICH NO BENEFITS AC25 CRUE.—The Secretary may provide that years 
47 

•S 2424 PCS 

1 in which no employee or former employee bene2 fits (within the meaning of section 410(b) of 

3 the Internal Revenue Code of 1986) under the 

4 plan need not be taken into account in deter5 mining the 3-year period under paragraph 

6 (1)(B)(i).’’ 

7 (2) CONFORMING AMENDMENTS.— 

8 (A) Section 105 of the Employee Retire9 ment Income Security Act of 1974 (29 U.S.C. 

10 1025) is amended by striking subsection (d). 

11 (B) Section 105(b) of such Act (29 U.S.C. 

12 1025(b)) is amended to read as follows: 

13 ‘‘(b) LIMITATION ON NUMBER OF STATEMENTS.—In 

14 no case shall a participant or beneficiary of a plan be enti15 tled to more than 1 statement described in subparagraph 

16 (A)(iii) or (B)(ii) of subsection (a)(1), whichever is appli17 cable, in any 12-month period.’’ 

18 (C) Section 502(c)(1) of such Act (29 

19 U.S.C. 1132(c)(1)) is amended by striking ‘‘or 

20 section 101(f)’’ and inserting ‘‘section 101(f), 

21 or section 105(a)’’. 

22 (c) MODEL STATEMENTS.—The Secretary of Labor 

23 shall, within 180 days after the date of the enactment of 

24 this section, develop 1 or more model benefit statements 

25 that are written in a manner calculated to be understood 
48 

•S 2424 PCS 

1 by the average plan participant and that may be used by 

2 plan administrators in complying with the requirements 

3 of section 4980H of the Internal Revenue Code of 1986 

4 and section 105 of the Employee Retirement Income Secu5 rity Act of 1974. 

6 (d) EFFECTIVE DATE.— 

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

8 this section shall apply to plan years beginning after 

9 December 31, 2004. 

10 (2) SPECIAL RULE FOR COLLECTIVELY BAR11 GAINED AGREEMENTS.—In the case of a plan main12 tained pursuant to 1 or more collective bargaining 

13 agreements between employee representatives and 1 

14 or more employers ratified on or before the date of 

15 the enactment of this Act, paragraph (1) shall be 

16 applied to benefits pursuant to, and individuals cov17 ered by, any such agreement by substituting for 

18 ‘‘December 31, 2004’’ the earlier of— 

19 (A) the later of— 

20 (i) December 31, 2005, or 

21 (ii) the date on which the last of such 

22 collective bargaining agreements termi23 nates (determined without regard to any 

24 extension thereof after such date of enact25 ment), or 
49 

•S 2424 PCS 

1 (B) December 31, 2006. 

2 SEC. 202. DEFINED CONTRIBUTION PLANS REQUIRED TO 

3 PROVIDE ADEQUATE INVESTMENT EDU4 CATION TO PARTICIPANTS. 

5 (a) EXCISE TAX ON FAILURE OF CERTAIN DEFINED

6 CONTRIBUTION PLANS TO PROVIDE ADEQUATE INVEST7 MENT INFORMATION.— 

8 (1) IN GENERAL.—Section 4980I(e)(1)(A) of 

9 the Internal Revenue Code of 1986, as added by sec10 tion 201, is amended by adding at the end the fol11 lowing new flush sentence: 

12 ‘‘In addition to the pension benefit statement, 

13 the administrator shall furnish at least once 

14 each year to each participant or beneficiary who 

15 has the right to direct the investment of assets 

16 in his or her account the model form relating 

17 to basic investment guidelines as provided in 

18 paragraph (5).’’ 

19 (2) BASIC INVESTMENT GUIDELINES.—Section 

20 4980I(e) of such Code, as so added, is amended by 

21 adding at the end the following new paragraph: 

22 ‘‘(5) BASIC INVESTMENT GUIDELINES.— 

23 ‘‘(A) IN GENERAL.—The Secretary shall, 

24 in consultation with the Secretary of Labor, de25 velop and make available to defined contribu-
50 

•S 2424 PCS 

1 tion plans for distribution under paragraph 

2 (1)(A) a model form containing basic guidelines 

3 for investing for retirement. Except as other4 wise provided by the Secretary, such guidelines 

5 shall include— 

6 ‘‘(i) information on the benefits of di7 versification, 

8 ‘‘(ii) information on the essential dif9 ferences, in terms of risk and return, of 

10 pension plan investments, including stocks, 

11 bonds, mutual funds, and money market 

12 investments, 

13 ‘‘(iii) information on how an individ14 ual’s pension plan investment allocations 

15 may differ depending on the individual’s 

16 age and years to retirement and on other 

17 factors determined by the Secretary, 

18 ‘‘(iv) sources of information where in19 dividuals may learn more about pension 

20 rights, individual investing, and investment 

21 advice, and 

22 ‘‘(v) such other information related to 

23 individual investing as the Secretary deter24 mines appropriate. 
51 

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1 ‘‘(B) CALCULATION INFORMATION.—The 

2 model form under subparagraph (A) shall in3 clude addresses for Internet sites, and a work4 sheet, which a participant or beneficiary may 

5 use to calculate— 

6 ‘‘(i) the retirement age value of the 

7 participant’s or beneficiary’s nonforfeitable 

8 pension benefits under the plan (expressed 

9 as an annuity amount and determined by 

10 reference to varied historical annual rates 

11 of return and annuity interest rates), and 

12 ‘‘(ii) other important amounts relating 

13 to retirement savings, including the 

14 amount which a participant or beneficiary 

15 would be required to save annually to pro16 vide a retirement income equal to various 

17 percentages of their current salary (ad18 justed for expected growth prior to retire19 ment). 

20 The Secretary of Labor shall develop an Inter21 net site which an individual may use in making 

22 such calculations and the address for such site 

23 shall be included with the form. 

24 ‘‘(C) PUBLIC COMMENT.—The Secretary 

25 shall provide at least 90 days for public com-
52 

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1 ment before publishing final notice of the model 

2 form. 

3 ‘‘(D) RULES RELATING TO FORM AND

4 STATEMENT.—The model form under subpara5 graph (A)— 

6 ‘‘(i) shall be written in a manner cal7 culated to be understood by the average 

8 plan participant, and 

9 ‘‘(ii) may be delivered in written, elec10 tronic, or other appropriate form to the ex11 tent such form is reasonably accessible to 

12 participants and beneficiaries.’’ 

13 (3) CONFORMING AMENDMENTS.—Section 

14 4980I of such Code is amended— 

15 (A) by adding at the end of subsection 

16 (c)(3) the following new subparagraph: 

17 ‘‘(C) SEPARATE APPLICATION.—This para18 graph shall be applied separately to failures to 

19 meet the requirements of subsection (e)(1)(A) 

20 to provide pension benefit statements and fail21 ures to meet the requirements of subsection 

22 (e)(1)(A) to provide model forms containing 

23 basic investment guidelines.’’; 

24 (B) by inserting ‘‘or model form’’ after 

25 ‘‘statement’’ in subsection (d)(3); and 
53 

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1 (C) by inserting ‘‘or model form containing 

2 basic investment guidelines’’ after ‘‘statement’’ 

3 in subsection (e)(4). 

4 (b) ADEQUATE INVESTMENT EDUCATION.— 

5 (1) IN GENERAL.—Section 104 of the Employee 

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

7 1024), as amended by section 102, is amended by 

8 redesignating subsection (e) as subsection (f) and by 

9 inserting after subsection (d) the following new sub10 section: 

11 ‘‘(e) BASIC INVESTMENT GUIDELINES.— 

12 ‘‘(1) IN GENERAL.—The administrator of an in13 dividual account plan (other than a one-participant 

14 retirement plan described in section 101(i)(8)(B)) 

15 shall furnish at least once each year to each partici16 pant or beneficiary who has the right to direct the 

17 investment of assets in his or her account the model 

18 form relating to basic investment guidelines which is 

19 described in paragraph (2). 

20 ‘‘(2) MODEL FORM.— 

21 ‘‘(A) IN GENERAL.—The Secretary of the 

22 Treasury, in consultation with the Secretary, 

23 shall develop and make available to individual 

24 account plans for distribution under paragraph 

25 (1) a model form containing basic guidelines for 
54 

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1 investing for retirement. Except as otherwise 

2 provided by the Secretary of the Treasury, such 

3 guidelines shall include— 

4 ‘‘(i) information on the benefits of di5 versification, 

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

8 pension plan investments, including stocks, 

9 bonds, mutual funds, and money market 

10 investments, 

11 ‘‘(iii) information on how an individ12 ual’s pension plan investment allocations 

13 may differ depending on the individual’s 

14 age and years to retirement and on other 

15 factors determined by the Secretary of the 

16 Treasury, 

17 ‘‘(iv) sources of information where in18 dividuals may learn more about pension 

19 rights, individual investing, and investment 

20 advice, and 

21 ‘‘(v) such other information related to 

22 individual investing as the Secretary of the 

23 Treasury determines appropriate. 

24 ‘‘(B) CALCULATION INFORMATION.—The 

25 model form under subparagraph (A) shall in-
55 

•S 2424 PCS 

1 clude addresses for Internet sites, and a work2 sheet, which a participant or beneficiary may 

3 use to calculate— 

4 ‘‘(i) the retirement age value of the 

5 participant’s or beneficiary’s nonforfeitable 

6 pension benefits under the plan (expressed 

7 as an annuity amount and determined by 

8 reference to varied historical annual rates 

9 of return and annuity interest rates), and 

10 ‘‘(ii) other important amounts relating 

11 to retirement savings, including the 

12 amount which a participant or beneficiary 

13 would be required to save annually to pro14 vide a retirement income equal to various 

15 percentages of their current salary (ad16 justed for expected growth prior to retire17 ment). 

18 The Secretary shall develop an Internet site which an indi19 vidual may use in making such calculations and the ad20 dress for such site shall be included with the form. 

21 ‘‘(3) RULES RELATING TO FORM AND STATE22 MENT.—The model form under paragraph (2)— 

23 ‘‘(A) shall be written in a manner cal24 culated to be understood by the average plan 

25 participant, and 
56 

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1 ‘‘(B) may be delivered in written, elec2 tronic, or other appropriate form to the extent 

3 such form is reasonably accessible to partici4 pants and beneficiaries.’’ 

5 (2) ENFORCEMENT.—Section 502(c)(7) of such 

6 Act (29 U.S.C. 1132(c)(7)), as amended by section 

7 102, is amended by striking ‘‘section 104(d)’’ and 

8 inserting ‘‘subsection (d) or (e) of section 104’’. 

9 (c) EFFECTIVE DATE.— 

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

11 this section shall apply to plan years beginning after 

12 December 31, 2004. 

13 (2) SPECIAL RULE FOR COLLECTIVELY BAR14 GAINED AGREEMENTS.—In the case of a plan main15 tained pursuant to 1 or more collective bargaining 

16 agreements between employee representatives and 1 

17 or more employers ratified on or before the date of 

18 the enactment of this Act, paragraph (1) shall be 

19 applied to benefits pursuant to, and individuals cov20 ered by, any such agreement by substituting for 

21 ‘‘December 31, 2004’’ the earlier of— 

22 (A) the later of— 

23 (i) December 31, 2005, or 

24 (ii) the date on which the last of such 

25 collective bargaining agreements termi-
57 

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1 nates (determined without regard to any 

2 extension thereof after such date of enact3 ment), or 

4 (B) December 31, 2006. 

5 SEC. 203. MATERIAL INFORMATION RELATING TO INVEST6 MENT IN EMPLOYER SECURITIES. 

7 (a) AMENDMENTS OF INTERNAL REVENUE CODE.— 

8 (1) IN GENERAL.—Section 4980H(e) of the In9 ternal Revenue Code of 1986, as added by section 

10 102, is amended— 

11 (A) by striking ‘‘(e) NOTICE OF RIGHT TO

12 DIVEST.—Not’’ and inserting: 

13 ‘‘(e) NOTICE REQUIREMENTS.— 

14 ‘‘(1) NOTICE OF RIGHT TO DIVEST.—Not’’, 

15 (B) by redesignating paragraphs (1) and 

16 (2) as subparagraphs (A) and (B) and adjust17 ing all margins accordingly, and 

18 (C) by adding at the end the following new 

19 paragraph: 

20 ‘‘(2) MATERIAL INFORMATION.— 

21 ‘‘(A) IN GENERAL.—The administrator of 

22 a defined contribution plan (other than a one23 participant retirement plan) shall provide to 

24 each participant and beneficiary who has the 

25 right to direct the investment of assets in his or 
58 

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1 her account in employer securities with all re2 ports, proxy statements, and other communica3 tions regarding investment of such assets in 

4 employer securities to the extent that such re5 ports, statements, and communications are re6 quired to be provided by the plan sponsor to in7 vestors in connection with such an investment 

8 under applicable securities laws. Such reports, 

9 statements, and communications may be deliv10 ered in written, electronic, or other appropriate 

11 form to the extent such form is reasonably ac12 cessible to participants and beneficiaries. 

13 ‘‘(B) PLAN SPONSOR.—If any information 

14 required to be provided under paragraph (1) is 

15 maintained by the plan sponsor, the plan spon16 sor shall transmit such information to the plan 

17 administrator.’’ 

18 (2) CONFORMING AMENDMENTS.— 

19 (A) Section 4980H(c)(3) of such Code, as 

20 so added, is amended by adding at the end the 

21 following new subparagraph: 

22 ‘‘(C) SEPARATE APPLICATION.—This para23 graph shall be applied separately for failures to 

24 meet the requirements of subsection (e)(1) and 
59 

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1 failures to meet the requirements of subsection 

2 (e)(2).’’ 

3 (B)(i) The heading for section 4980H of 

4 such Code, as so added, is amended by striking 

5 ‘‘NOTICE OF FREEDOM TO DIVEST EM6 PLOYER SECURITIES’’ and inserting ‘‘INFOR7 MATION REGARDING INVESTMENT IN EM8 PLOYER SECURITIES’’. 

9 (ii) The item relating to section 4980H in 

10 the table of sections for chapter 43 of such 

11 Code, as so added, is amended by striking ‘‘no12 tice of freedom to divest employer securities’’ 

13 and inserting ‘‘information regarding invest14 ment in employer securities’’. 

15 (b) AMENDMENTS OF ERISA.— 

16 (1) IN GENERAL.—Section 104 of the Employee 

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

18 1024) as amended by sections 102 and 202, is 

19 amended by redesignating subsection (f) as sub20 section (g) and by inserting after subsection (e) the 

21 following new subsection: 

22 ‘‘(f) PROVIDING OF MATERIAL INFORMATION.— 

23 ‘‘(1) IN GENERAL.—The administrator of an in24 dividual account plan (other than a one-participant 

25 retirement plan described in section 101(i)(8)(B)) 
60 

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1 shall provide to each participant and beneficiary who 

2 has the right to direct the investment of assets in 

3 his or her account in employer securities with all re4 ports, proxy statements, and other communications 

5 regarding investment of such assets in employer se6 curities to the extent that such reports, statements, 

7 and communications are required to be provided by 

8 the plan sponsor to investors in connection with such 

9 an investment under applicable securities laws. Such 

10 reports, statements, and communications may be de11 livered in written, electronic, or other appropriate 

12 form to the extent such form is reasonably accessible 

13 to participants and beneficiaries. 

14 ‘‘(2) PLAN SPONSOR.—If any information re15 quired to be provided under paragraph (1) is main16 tained by the plan sponsor, the plan sponsor shall 

17 transmit such information to the plan adminis18 trator.’’ 

19 (2) ENFORCEMENT.—Section 502 of such Act 

20 (29 U.S.C. 1132) is amended— 

21 (A) in subsection (a)(6), by striking ‘‘(6), 

22 or (7)’’ and inserting ‘‘(6), (7), or (8)’’; 

23 (B) by redesignating paragraph (8) of sub24 section (c) as paragraph (9); and 
61 

•S 2424 PCS 

1 (C) by inserting after paragraph (7) of 

2 subsection (c) the following new paragraph: 

3 ‘‘(8) The Secretary may assess a civil penalty against 

4 any person of up to $1,000 a day from the date of the 

5 person’s failure or refusal to comply with the requirements 

6 of section 104(f) until such failure or refusal is corrected.’’ 

7 (c) EFFECTIVE DATE.— 

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

9 this section shall apply to plan years beginning after 

10 December 31, 2003. 

11 (2) SPECIAL RULE FOR COLLECTIVELY BAR12 GAINED AGREEMENTS.—In the case of a plan main13 tained pursuant to 1 or more collective bargaining 

14 agreements between employee representatives and 1 

15 or more employers ratified on or before the date of 

16 the enactment of this Act, paragraph (1) shall be 

17 applied to benefits pursuant to, and individuals cov18 ered by, any such agreement by substituting for 

19 ‘‘December 31, 2003’’ the earlier of— 

20 (A) the later of— 

21 (i) December 31, 2004, or 

22 (ii) the date on which the last of such 

23 collective bargaining agreements termi24 nates (determined without regard to any 
62 

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1 extension thereof after such date of enact2 ment), or 

3 (B) December 31, 2005. 

4 SEC. 204. FIDUCIARY RULES FOR PLAN SPONSORS DESIG5 NATING INDEPENDENT INVESTMENT ADVIS6 ERS. 

7 (a) IN GENERAL.—Section 404 of the Employee Re8 tirement Income Security Act of 1974 (29 U.S.C. 1104) 

9 is amended by adding at the end the following new sub10 section: 

11 ‘‘(e) INDEPENDENT INVESTMENT ADVISER.— 

12 ‘‘(1) IN GENERAL.—In the case of an individual 

13 account plan which permits a plan participant or 

14 beneficiary to direct the investment of the assets in 

15 his or her account, if a plan sponsor or other person 

16 who is a fiduciary designates and monitors a quali17 fied investment adviser pursuant to the requirements 

18 of paragraph (3), such fiduciary— 

19 ‘‘(A) shall be deemed to have satisfied the 

20 requirements under this section for the prudent 

21 designation and periodic review of an investment 

22 adviser with whom the plan sponsor or other 

23 person who is a fiduciary enters into an arrange24 ment for the provision of advice referred to in 

25 section 3(21)(A)(ii), 
63 

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1 ‘‘(B) shall not be liable under this section 

2 for any loss, or by reason of any breach, with 

3 respect to the provision of investment advice 

4 given by such adviser to any plan participant or 

5 beneficiary, and 

6 ‘‘(C) shall not be liable for any co-fiduciary 

7 liability under subsections (a)(2) and (b) of sec8 tion 405 with respect to the provision of invest9 ment advice given by such adviser to any plan 

10 participant or beneficiary. 

11 ‘‘(2) QUALIFIED INVESTMENT ADVISER.— 

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

13 subsection, the term ‘qualified investment ad14 viser’ means, with respect to a plan, a person— 

15 ‘‘(i) who is a fiduciary of the plan by 

16 reason of the provision of investment ad17 vice by such person to a plan participant 

18 or beneficiary; 

19 ‘‘(ii) who— 

20 ‘‘(I) is registered as an invest21 ment adviser under the Investment 

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

23 1 et seq.), 

24 ‘‘(II) is registered as an invest25 ment adviser under the laws of the 
64 

•S 2424 PCS 

1 State in which such adviser maintains 

2 the principal office and place of busi3 ness of such adviser, but only if such 

4 State laws are consistent with section 

5 203A of the Investment Advisers Act 

6 of 1940 (15 U.S.C. 80b–3a), 

7 ‘‘(III) is a bank or similar finan8 cial institution referred to in section 

9 408(b)(4), 

10 ‘‘(IV) is an insurance company 

11 qualified to do business under the 

12 laws of a State, or 

13 ‘‘(V) is any other comparably 

14 qualified entity which satisfies such 

15 criteria as the Secretary determines 

16 appropriate, consistent with the pur17 poses of this subsection, and 

18 ‘‘(iii) who meets the requirements of 

19 subparagraph (B). 

20 ‘‘(B) ADVISER REQUIREMENTS.—The re21 quirements of this subparagraph are met if 

22 every individual employed (or otherwise com23 pensated) by a person described in subpara24 graph (A)(ii) who provides investment advice on 
65 

•S 2424 PCS 

1 behalf of such person to any plan participant or 

2 beneficiary is— 

3 ‘‘(i) an individual described in sub4 clause (I) of subparagraph (A)(ii), 

5 ‘‘(ii) an individual described in sub6 clause (II) of subparagraph (A)(ii), but 

7 only if such State has an examination re8 quirement to qualify for registration, 

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

10 under the Securities Exchange Act of 1934 

11 (15 U.S.C. 78a et seq.), 

12 ‘‘(iv) a registered representative as de13 scribed in section 3(a)(18) of the Securi14 ties Exchange Act of 1934 (15 U.S.C. 

15 78c(a)(18)) or section 202(a)(17) of the 

16 Investment Advisers Act of 1940 (15 

17 U.S.C. 80b–2(a)(17)), or 

18 ‘‘(v) any other comparably qualified 

19 individual who satisfies such criteria as the 

20 Secretary determines appropriate, con21 sistent with the purposes of this sub22 section. 

23 ‘‘(3) VERIFICATION REQUIREMENTS.—The re24 quirements of this paragraph are met if— 
66 

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1 ‘‘(A) the plan sponsor or other person who 

2 is a fiduciary in designating a qualified invest3 ment adviser receives at the time of the des4 ignation, and annually thereafter, a written 

5 verification from the qualified investment ad6 viser that the investment adviser— 

7 ‘‘(i) is and remains a qualified invest8 ment adviser, 

9 ‘‘(ii) acknowledges that the investment 

10 adviser is a fiduciary with respect to the 

11 plan and is solely responsible for its invest12 ment advice, 

13 ‘‘(iii) has reviewed the plan documents 

14 (including investment options) and has de15 termined that its relationship with the plan 

16 and the investment advice provided to any 

17 plan participant or beneficiary, including 

18 any fees or other compensation it will re19 ceive, will not constitute a violation of sec20 tion 406, 

21 ‘‘(iv) will, in providing investment ad22 vice to any participant or beneficiary, con23 sider any employer securities or employer 

24 real property allocated to his or her ac25 count, and 
67 

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1 ‘‘(v) has the necessary insurance cov2 erage (as determined by the Secretary) for 

3 any claim by any plan participant or bene4 ficiary, 

5 ‘‘(B) the plan sponsor or other person who 

6 is a fiduciary in designating a qualified invest7 ment adviser reviews the documents described 

8 in paragraph (4) provided by such adviser and 

9 determines that there is no material reason not 

10 to enter into an arrangement for the provision 

11 of advice by such qualified investment adviser, 

12 and 

13 ‘‘(C) the plan sponsor or other person who 

14 is a fiduciary in designating a qualified invest15 ment adviser, within 30 days of having informa16 tion brought to its attention that the invest17 ment adviser is no longer qualified or that a 

18 substantial number of plan participants or 

19 beneficiaries have raised concerns about the 

20 services being provided by the investment ad21 viser— 

22 ‘‘(i) investigates such information and 

23 concerns, and 

24 ‘‘(ii) determines that there is no mate25 rial reason not to continue the designation 
68 

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1 of the adviser as a qualified investment ad2 viser. 

3 ‘‘(4) DOCUMENTATION.—A qualified investment 

4 adviser shall provide the following documents to the 

5 plan sponsor or other person who is a fiduciary in 

6 designating the adviser: 

7 ‘‘(A) The contract with the plan sponsor or 

8 other person who is a fiduciary for the services 

9 to be provided by the investment adviser to the 

10 plan participants and beneficiaries. 

11 ‘‘(B) A disclosure as to any fees or other 

12 compensation that will be received by the in13 vestment adviser for the provision of such in14 vestment advice and as to any fees and other 

15 compensation that will be received as a result of 

16 a participant’s investment election. 

17 ‘‘(C) The Uniform Application for Invest18 ment Adviser Registration as filed with the Se19 curities and Exchange Commission or a sub20 stantially similar disclosure application as de21 termined by and filed with the Secretary. 

22 ‘‘(5) TREATMENT AS FIDUCIARY.—Any quali23 fied investment adviser that acknowledges it is a fi24 duciary pursuant to paragraph (3)(A)(ii) shall be 

25 deemed a fiduciary under this part with respect to 
69 

•S 2424 PCS 

1 the provision of investment advice to a plan partici2 pant or beneficiary.’’ 

3 (b) FIDUCIARY LIABILITY.—Section 404(c)(1)(B) of 

4 such Act is amended by inserting ‘‘(other than a qualified 

5 investment adviser)’’ after ‘‘fiduciary’’. 

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

7 this section shall apply with respect to investment advisers 

8 designated after the date of the enactment of this Act. 

9 SEC. 205. TREATMENT OF QUALIFIED RETIREMENT PLAN10 NING SERVICES. 

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

12 the Internal Revenue Code of 1986 (defining qualified re13 tirement services) is amended by adding at the end the 

14 following new paragraph: 

15 ‘‘(4) NO CONSTRUCTIVE RECEIPT.— 

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

17 included in the gross income of any employee 

18 solely because the employee may choose between 

19 any qualified retirement planning services pro20 vided by an eligible investment advisor and 

21 compensation which would otherwise be includ22 ible in the gross income of such employee. The 

23 preceding sentence shall apply to highly com24 pensated employees only if the choice described 

25 in such sentence is available on substantially 
70 

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1 the same terms to each member of the group of 

2 employees normally provided education and in3 formation regarding the employer’s qualified 

4 employer plan. 

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

6 which may be excluded under subparagraph (A) 

7 with respect to any employee for any taxable 

8 year shall not exceed $1,000. 

9 ‘‘(C) ELIGIBLE INVESTMENT ADVISER.— 

10 For purposes of this paragraph, the term ‘eligi11 ble investment adviser’ means, with respect to 

12 a plan, a person— 

13 ‘‘(i) who— 

14 ‘‘(I) is registered as an invest15 ment adviser under the Investment 

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

17 1 et seq.), 

18 ‘‘(II) is registered as an invest19 ment adviser under the laws of the 

20 State in which such adviser maintains 

21 the principal office and place of busi22 ness of such adviser, but only if such 

23 State laws are consistent with section 

24 203A of the Investment Advisers Act 

25 of 1940 (15 U.S.C. 80b–3a), 
71 

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1 ‘‘(III) is a bank or similar finan2 cial institution referred to in section 

3 408(b)(4), 

4 ‘‘(IV) is an insurance company 

5 qualified to do business under the 

6 laws of a State, or 

7 ‘‘(V) is any other comparably 

8 qualified entity which satisfies such 

9 criteria as the Secretary determines 

10 appropriate, consistent with the pur11 poses of this subsection, and 

12 ‘‘(ii) who meets the requirements of 

13 subparagraph (D). 

14 ‘‘(D) ADVISER REQUIREMENTS.—The re15 quirements of this subparagraph are met if 

16 every individual employed (or otherwise com17 pensated) by a person described in subpara18 graph (C)(i) who provides investment advice on 

19 behalf of such person to any plan participant or 

20 beneficiary is— 

21 ‘‘(i) an individual described in sub22 clause (I) of subparagraph (C)(i), 

23 ‘‘(ii) an individual described in sub24 clause (II) of subparagraph (C)(i), but 
72 

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1 only if such State has an examination re2 quirement to qualify for registration, 

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

4 under the Securities Exchange Act of 1934 

5 (15 U.S.C. 78a et seq.), 

6 ‘‘(iv) a registered representative as de7 scribed in section 3(a)(18) of the Securi8 ties Exchange Act of 1934 (15 U.S.C. 

9 78c(a)(18)) or section 202(a)(17) of the 

10 Investment Advisers Act of 1940 (15 

11 U.S.C. 80b–2(a)(17)), or 

12 ‘‘(v) any other comparably qualified 

13 individual who satisfies such criteria as the 

14 Secretary determines appropriate, con15 sistent with the purposes of this para16 graph. 

17 ‘‘(E) TERMINATION.—This paragraph 

18 shall not apply to taxable years beginning after 

19 December 31, 2009.’’ 

20 (b) CONFORMING AMENDMENTS.— 

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

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

23 ‘‘132(f)(4),’’. 

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

25 by inserting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 
73 

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

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

3 ‘‘132(f)(4),’’. 

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

5 this section shall apply to taxable years beginning after 

6 December 31, 2004. 

7 TITLE III—PROTECTION OF 

8 PENSION PLAN PARTICIPANTS 

9 SEC. 301. NOTICE TO PARTICIPANTS OR BENEFICIARIES OF 

10 BLACKOUT PERIODS. 

11 (a) AMENDMENTS OF INTERNAL REVENUE CODE.— 

12 (1) EXCISE TAX.— 

13 (A) IN GENERAL.—Chapter 43 of the In14 ternal Revenue Code of 1986 (relating to quali15 fied pension, etc., plans), as amended by this 

16 Act, is amended by adding at the end the fol17 lowing new section: 

18 ‘‘SEC. 4980J. FAILURE OF CERTAIN DEFINED CONTRIBU19 TION PLANS TO PROVIDE NOTICE OF BLACK20 OUT PERIODS. 

21 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed 

22 a tax on the failure of any defined contribution plan to 

23 which this section applies to meet the requirements of sub24 section (e) with respect to any participant or beneficiary. 

25 ‘‘(b) AMOUNT OF TAX.— 
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1 ‘‘(1) IN GENERAL.—The amount of the tax im2 posed by subsection (a) on any failure with respect 

3 to any participant or beneficiary shall be $100 for 

4 each day in the noncompliance period with respect to 

5 the failure. 

6 ‘‘(2) NONCOMPLIANCE PERIOD.—For purposes 

7 of this section, the term ‘noncompliance period’ 

8 means, with respect to any failure, the period begin9 ning on the date the failure first occurs and ending 

10 on the date the notice to which the failure relates is 

11 provided or the failure is otherwise corrected. 

12 ‘‘(c) LIMITATIONS ON AMOUNT OF TAX.— 

13 ‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT

14 DISCOVERED AND REASONABLE DILIGENCE EXER15 CISED.—No tax shall be imposed by subsection (a) 

16 on any failure during any period for which it is es17 tablished to the satisfaction of the Secretary that 

18 any person subject to liability for tax under sub19 section (d) did not know that the failure existed and 

20 exercised reasonable diligence to meet the require21 ments of subsection (e). 

22 ‘‘(2) TAX NOT TO APPLY TO FAILURES COR23 RECTED AS SOON AS REASONABLY PRACTICABLE.— 

24 No tax shall be imposed by subsection (a) on any 

25 failure if— 
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1 ‘‘(A) any person subject to liability for the 

2 tax under subsection (d) exercised reasonable 

3 diligence to meet the requirements of subsection 

4 (e), and 

5 ‘‘(B) such person provides the notice de6 scribed in subsection (e) as soon as reasonably 

7 practicable after the first date such person 

8 knew, or exercising reasonable diligence should 

9 have known, that such failure existed. 

10 ‘‘(3) OVERALL LIMITATION FOR UNINTEN11 TIONAL FAILURES.— 

12 ‘‘(A) IN GENERAL.—If the person subject 

13 to liability for tax under subsection (d) exer14 cised reasonable diligence to meet the require15 ments of subsection (e), the tax imposed by 

16 subsection (a) for failures during the taxable 

17 year of the employer (or, in the case of a multi18 employer plan, the taxable year of the trust 

19 forming part of the plan) shall not exceed 

20 $500,000. For purposes of the preceding sen21 tence, all multiemployer plans of which the 

22 same trust forms a part shall be treated as 1 

23 plan. 

24 ‘‘(B) TAXABLE YEARS IN THE CASE OF

25 CERTAIN CONTROLLED GROUPS.—For purposes 
76 

•S 2424 PCS 

1 of this paragraph, if all persons who are treated 

2 as a single employer for purposes of this section 

3 do not have the same taxable year, the taxable 

4 years taken into account shall be determined 

5 under principles similar to the principles of sec6 tion 1561. 

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

8 failure which is due to reasonable cause and not to 

9 willful neglect, the Secretary may waive part or all 

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

11 that the payment of such tax would be excessive or 

12 otherwise inequitable relative to the failure involved. 

13 ‘‘(d) LIABILITY FOR TAX.—The following shall be lia14 ble for the tax imposed by subsection (a): 

15 ‘‘(1) In the case of a plan not described in 

16 paragraph (2) or (3), the employer. 

17 ‘‘(2) In the case of a multiemployer plan, the 

18 plan. 

19 ‘‘(3) In the case of an arrangement described in 

20 subsection (e)(1)(B), the person required to provide 

21 the notice under subsection (e). 

22 ‘‘(e) NOTICE OF BLACKOUT PERIODS TO PARTICI23 PANT OR BENEFICIARY UNDER DEFINED CONTRIBUTION

24 PLAN.— 

25 ‘‘(1) IN GENERAL.— 
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1 ‘‘(A) DUTIES OF PLAN ADMINISTRATOR.— 

2 In advance of the commencement of any black3 out period with respect to a defined contribu4 tion plan, the plan administrator shall notify 

5 the plan participants and beneficiaries who are 

6 affected by such action in accordance with this 

7 subsection. 

8 ‘‘(B) SPECIAL RULE FOR CERTAIN ANNU9 ITIES.—In the case of an annuity contract or 

10 custodial account described in section 403(b) 

11 which is not a plan established or maintained 

12 by the employer, the notice shall be furnished 

13 by the issuer of the contract, the custodian of 

14 the account, or such other person as is specified 

15 by the Secretary. 

16 ‘‘(2) NOTICE REQUIREMENTS.— 

17 ‘‘(A) IN GENERAL.—The notices described 

18 in paragraph (1) shall be written in a manner 

19 calculated to be understood by the average plan 

20 participant and shall include— 

21 ‘‘(i) the reasons for the blackout pe22 riod, 

23 ‘‘(ii) an identification of the invest24 ments and other rights affected, 
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1 ‘‘(iii) the expected beginning date and 

2 length of the blackout period, 

3 ‘‘(iv) in the case of investments af4 fected, a statement that the participant or 

5 beneficiary should evaluate the appro6 priateness of their current investment deci7 sions in light of their inability to direct or 

8 diversify assets credited to their accounts 

9 during the blackout period, and 

10 ‘‘(v) such other matters as the Sec11 retary of Labor may require by regulation. 

12 ‘‘(B) NOTICE TO PARTICIPANTS AND

13 BENEFICIARIES.—Except as otherwise provided 

14 in this subsection, notices described in para15 graph (1) shall be furnished to all participants 

16 and beneficiaries under the plan to whom the 

17 blackout period applies at least 30 days in ad18 vance of the blackout period. 

19 ‘‘(C) EXCEPTION TO 30-DAY NOTICE RE20 QUIREMENT.—In any case in which— 

21 ‘‘(i) a deferral of the blackout period 

22 would violate the requirements of subpara23 graph (A) or (B) of section 404(a)(1) of 

24 the Employee Retirement Income Security 
79 

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1 Act of 1974, and a fiduciary of the plan 

2 reasonably so determines in writing, or 

3 ‘‘(ii) the inability to provide the 30- 

4 day advance notice is due to events that 

5 were unforeseeable or circumstances be6 yond the reasonable control of the plan ad7 ministrator, and a fiduciary of the plan 

8 reasonably so determines in writing, 

9 subparagraph (B) shall not apply, and the no10 tice shall be furnished to all participants and 

11 beneficiaries under the plan to whom the black12 out period applies as soon as reasonably pos13 sible under the circumstances unless such a no14 tice in advance of the termination of the black15 out period is impracticable. 

16 ‘‘(D) WRITTEN NOTICE.—The notice re17 quired to be provided under this subsection 

18 shall be in writing, except that such notice may 

19 be in electronic or other form to the extent that 

20 such form is reasonably accessible to the recipi21 ent. 

22 ‘‘(E) NOTICE TO ISSUERS OF EMPLOYER

23 SECURITIES SUBJECT TO BLACKOUT PERIOD.— 

24 In the case of any blackout period in connection 

25 with a defined contribution plan, the plan ad-
80 

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1 ministrator shall provide timely notice of such 

2 blackout period to the issuer of any employer 

3 securities subject to such blackout period. 

4 ‘‘(3) EXCEPTION FOR BLACKOUT PERIODS

5 WITH LIMITED APPLICABILITY.—In any case in 

6 which the blackout period applies only to 1 or more 

7 participants or beneficiaries in connection with a 

8 merger, acquisition, divestiture, or similar trans9 action involving the plan or plan sponsor and occurs 

10 solely in connection with becoming or ceasing to be 

11 a participant or beneficiary under the plan by reason 

12 of such merger, acquisition, divestiture, or trans13 action, the requirement of this subsection that the 

14 notice be provided to all participants and bene15 ficiaries shall be treated as met if the notice required 

16 under paragraph (1) is provided to such participants 

17 or beneficiaries to whom the blackout period applies 

18 as soon as reasonably practicable. 

19 ‘‘(4) CHANGES IN LENGTH OF BLACKOUT PE20 RIOD.—If, following the furnishing of the notice pur21 suant to this subsection, there is a change in the be22 ginning date or length of the blackout period (speci23 fied in such notice pursuant to paragraph 

24 (2)(A)(iii)), the administrator shall provide affected 

25 participants and beneficiaries notice of the change as 
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1 soon as reasonably practicable. In relation to the ex2 tended blackout period, such notice shall meet the 

3 requirements of paragraph (2)(D) and shall specify 

4 any material change in the matters referred to in 

5 clauses (i) through (v) of paragraph (2)(A). 

6 ‘‘(5) REGULATORY EXCEPTIONS.—The Sec7 retary of Labor may provide by regulation for addi8 tional exceptions to the requirements of this sub9 section which the Secretary of Labor determines are 

10 in the interests of participants and beneficiaries. 

11 ‘‘(6) GUIDANCE AND MODEL NOTICES.—The 

12 Secretary of Labor shall issue guidance and model 

13 notices which meet the requirements of this sub14 section. 

15 ‘‘(7) BLACKOUT PERIOD.—For purposes of this 

16 subsection— 

17 ‘‘(A) IN GENERAL.—The term ‘blackout 

18 period’ means, in connection with a defined con19 tribution plan, any period for which any ability 

20 of participants or beneficiaries under the plan, 

21 which is otherwise available under such plan, to 

22 direct or diversify assets credited to their ac23 counts, to obtain loans from the plan, or to ob24 tain distributions from the plan is temporarily 

25 suspended, limited, or restricted, if such sus-
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1 pension, limitation, or restriction is for any pe2 riod of more than 3 consecutive business days. 

3 ‘‘(B) EXCLUSIONS.—The term ‘blackout 

4 period’ does not include a suspension, limita5 tion, or restriction— 

6 ‘‘(i) which occurs by reason of the ap7 plication of the securities laws (as defined 

8 in section 3(a)(47) of the Securities Ex9 change Act of 1934), 

10 ‘‘(ii) which is a change to the plan 

11 which provides for a regularly scheduled 

12 suspension, limitation, or restriction which 

13 is disclosed to participants or beneficiaries 

14 through any summary of material modi15 fications, any materials describing specific 

16 investment alternatives under the plan, or 

17 any changes thereto, or 

18 ‘‘(iii) which applies only to 1 or more 

19 individuals, each of whom is the partici20 pant, an alternate payee (as defined in sec21 tion 414(p)(8)), or any other beneficiary 

22 pursuant to a qualified domestic relations 

23 order (as defined in section 414(p)(1)(A)). 

24 ‘‘(8) DEFINED CONTRIBUTION PLAN TO WHICH

25 SECTION APPLIES.— 
83 

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

2 this paragraph, this section applies to any de3 fined contribution plan described in clause (i), 

4 (ii), or (iv) of section 219(g)(5)(A). 

5 ‘‘(B) EXCEPTION FOR ONE-PARTICIPANT

6 RETIREMENT PLAN.—This section shall not 

7 apply to a one-participant retirement plan (as 

8 defined in section 401(a)(35)(E)(iv)). 

9 ‘‘(C) EXCEPTION FOR GOVERNMENTAL

10 AND CHURCH PLANS.—This section shall not 

11 apply to governmental and church plans. For 

12 purposes of this subparagraph, the terms ‘gov13 ernmental plan’ and ‘church plan’ have the 

14 meanings given such terms by section 414.’’ 

15 (B) AGGREGATION.—Section 414(t) of 

16 such Code, as amended by this Act, is amended 

17 by striking ‘‘or 4980I’’ and inserting ‘‘4980I, or 

18 4980J’’. 

19 (C) CLERICAL AMENDMENT.—The table of 

20 sections for chapter 43 of such Code is amend21 ed by adding at the end the following new item: 

‘‘Sec. 4980J. Failure of applicable defined contribution plan to provide notice 

of blackout periods.’’ 

22 (2) EFFECTIVE DATE.—The amendments made 

23 by this subsection shall apply to failures after the 

24 date of the enactment of this Act. 
84 

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1 (b) AMENDMENTS OF ERISA.— 

2 (1) IN GENERAL.—Section 101(i) of the Em3 ployee Retirement Income Security Act of 1974 (29 

4 U.S.C. 1021(i)) is amended— 

5 (A) by striking ‘‘the terms of’’ in para6 graph (7)(A), 

7 (B) by striking clause (i) of paragraph 

8 (8)(B) and inserting: 

9 ‘‘(i) on the first day of the plan 

10 year— 

11 ‘‘(I) covered only one individual 

12 (or the individual and the individual’s 

13 spouse) and the individual owned 100 

14 percent of the plan sponsor (whether 

15 or not incorporated), or 

16 ‘‘(II) covered only one or more 

17 partners (or partners and their 

18 spouses) in the plan sponsor,’’, 

19 (C) by striking ‘‘employer’’ and ‘‘employ20 er’s’’ in paragraph (8)(B)(iii) and inserting ‘‘in21 dividual’’ and ‘‘individual’s’’, respectively, 

22 (D) by striking ‘‘leases employees’’ in 

23 paragraph (8)(B)(v) and inserting ‘‘uses the 

24 services of leased employees (within the mean-
85 

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1 ing of section 414(n) of the Internal Revenue 

2 Code of 1986)’’, and 

3 (E) by adding at the end of paragraph 

4 (8)(B) the following flush sentence: 

5 ‘‘For purposes of this paragraph, an individual 

6 shall be treated as a partner if the individual is 

7 so treated under section 401(a)(35)(E)(iv) of 

8 the Internal Revenue Code of 1986.’’ 

9 (2) EFFECTIVE DATE.—The amendments made 

10 by this subsection shall take effect as if included in 

11 the provisions of section 306 of Public Law 107–204 

12 (116 Stat. 745 et seq.). 

13 TITLE IV—OTHER PROVISIONS 

14 RELATING TO PENSIONS 

15 Subtitle A—Provisions Relating to 

16 Pension Plan Funding 

17 PART I—REPLACEMENT OF INTEREST RATE ON 

18 30-YEAR TREASURY SECURITIES 

19 SEC. 401. REPLACEMENT OF 30-YEAR TREASURY RATE FOR 

20 PURPOSES OF FUNDING AND PBGC PREMIUM 

21 RATES. 

22 (a) AMENDMENTS OF INTERNAL REVENUE CODE.— 

23 (1) IN GENERAL.—Section 412(b)(5)(B) of the 

24 Internal Revenue Code of 1986 is amended to read 

25 as follows: 
86 

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1 ‘‘(B) DETERMINATION OF CURRENT LI2 ABILITY.—Notwithstanding subsection (c)(3), a 

3 plan’s current liability (including for purposes 

4 of determining a plan’s required contribution 

5 under subsection (l)) for any plan year shall be 

6 determined— 

7 ‘‘(i) in the case of plan years begin8 ning in 2004, 2005, or 2006, by using an 

9 interest rate determined in accordance with 

10 the rules prescribed under subsection 

11 (o)(1), 

12 ‘‘(ii) in the case of plan years begin13 ning in 2007, 2008, 2009, or 2010, by 

14 using the phase-in yield curve method (as 

15 defined in subsection (o)(3)), and 

16 ‘‘(iii) in the case of plan years begin17 ning after 2010, by using the yield curve 

18 method (as defined in subsection (o)(2)).’’ 

19 (2) RULES RELATING TO CURRENT LIABILITY

20 DETERMINATIONS.—Section 412 of such Code is 

21 amended by adding at the end the following new 

22 subsection: 

23 ‘‘(o) RULES RELATING TO CURRENT LIABILITY DE24 TERMINATIONS.—For purposes of subsection (b)(5)(B)— 
87 

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1 ‘‘(1) RULES RELATING TO INTEREST RATES

2 FOR 2004–2006.— 

3 ‘‘(A) DETERMINATION OF RATE.— 

4 ‘‘(i) IN GENERAL.—If any rate of in5 terest used under the plan to determine 

6 cost is not within the permissible range, 

7 the plan shall establish a new rate of inter8 est within the permissible range. 

9 ‘‘(ii) PERMISSIBLE RANGE.—For pur10 poses of clause (i), the term ‘permissible 

11 range’ means a rate of interest which is 

12 not more than, and not more than 10 per13 cent below, the weighted average of con14 servative long-term corporate bond rates 

15 during the 4-year period ending on the last 

16 day before the beginning of the plan year. 

17 ‘‘(B) CONSERVATIVE LONG-TERM COR18 PORATE BOND RATES.—The Secretary shall, by 

19 regulation, prescribe a method for periodically 

20 determining conservative long-term corporate 

21 bond rates for purposes of this paragraph. Such 

22 rates shall reflect rates of interest on amounts 

23 invested in high-quality, long-term corporate 

24 bonds and shall be based on the use of 1 or 
88 

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1 more indices, as determined from time to time 

2 by the Secretary. 

3 ‘‘(2) YIELD CURVE METHOD.—For purposes of 

4 this subsection, the yield curve method is a method 

5 under which current liability is determined— 

6 ‘‘(A) by using interest rates drawn from a 

7 yield curve which is prescribed by the Secretary 

8 and which reflects high-quality corporate bonds, 

9 and 

10 ‘‘(B) by matching the timing of the ex11 pected benefit payments under the plan to the 

12 interest rates on such yield curve. 

13 The Secretary shall publish any yield curve pre14 scribed under this paragraph and the method by 

15 which the yield curve was established. 

16 ‘‘(3) PHASE-IN YIELD CURVE METHOD.— 

17 ‘‘(A) IN GENERAL.—The current liability 

18 under the phase-in yield curve method shall be 

19 equal to the sum of— 

20 ‘‘(i) the applicable percentage of cur21 rent liability determined under the yield 

22 curve method described in paragraph (2), 

23 and 

24 ‘‘(ii) the product of the current liabil25 ity determined by using the interest rate 
89 

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1 rules described in paragraph (1) and a per2 centage equal to 100 percent minus the ap3 plicable percentage. 

4 ‘‘(B) APPLICABLE PERCENTAGE.—For 

5 purposes of subparagraph (A), the applicable 

6 percentage shall be determined in accordance 

7 with the following table: 

‘‘In the case of years The applicable 

beginning in— percentage is—

2007 ......................................................................................... 20

2008 ......................................................................................... 40

2009......................................................................................... 60

2010 ......................................................................................... 80. 

8 ‘‘(4) SIMPLIFIED METHODS.— 

9 ‘‘(A) ESTABLISHMENT BY SECRETARY.— 

10 The Secretary shall prescribe 1 or more sim11 plified methods under which current liability 

12 can be determined by substituting any such 

13 method for the yield curve method for purposes 

14 of paragraphs (2) and (3). 

15 ‘‘(B) USE OF SIMPLIFIED METHOD.—A 

16 plan (other than a multiemployer plan) may use 

17 a simplified method established under subpara18 graph (A) if, on each day during the preceding 

19 plan year, the plan had no more than 100 par20 ticipants. The aggregation rule under sub21 section (l)(6)(C) shall apply for purposes of this 

22 subparagraph.’’ 
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1 (3) ADDITIONAL FUNDING REQUIREMENTS.— 

2 Section 412(l)(7)(C)(i) of such Code is amended to 

3 read as follows: 

4 ‘‘(i) CURRENT LIABILITY.—Current li5 ability under this subsection for any plan 

6 year shall be determined under the rules or 

7 method provided under subsection (b)(5) 

8 for the plan year.’’ 

9 (b) AMENDMENTS OF ERISA.— 

10 (1) IN GENERAL.—Section 302(b)(5)(B) of the 

11 Employee Retirement Income Security Act of 1974 

12 (29 U.S.C. 1082(b)(5)(B)) is amended to read as 

13 follows: 

14 ‘‘(B) DETERMINATION OF CURRENT LI15 ABILITY.—Notwithstanding subsection (c)(3), a 

16 plan’s current liability (including for purposes 

17 of determining a plan’s required contribution 

18 under subsection (d)) for any plan year shall be 

19 determined— 

20 ‘‘(i) in the case of plan years begin21 ning in 2004, 2005, or 2006, by using an 

22 interest rate determined in accordance with 

23 the rules prescribed under subsection 

24 (h)(1), 
91 

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1 ‘‘(ii) in the case of plan years begin2 ning in 2007, 2008, 2009, or 2010, by 

3 using the phase-in yield curve method (as 

4 defined in subsection (h)(3)), and 

5 ‘‘(iii) in the case of plan years begin6 ning after 2010, by using the yield curve 

7 method (as defined in subsection (h)(2)).’’ 

8 (2) RULES RELATING TO CURRENT LIABILITY

9 DETERMINATIONS.—Section 302 of such Act (29 

10 U.S.C. 1082) is amended by redesignating sub11 section (h) as subsection (i) and by inserting after 

12 subsection (g) the following new subsection: 

13 ‘‘(h) RULES RELATING TO CURRENT LIABILITY DE14 TERMINATIONS.—For purposes of subsection (b)(5)(B)— 

15 ‘‘(1) RULES RELATING TO INTEREST RATES

16 FOR 2004–2006.— 

17 ‘‘(A) DETERMINATION OF RATE.— 

18 ‘‘(i) IN GENERAL.—If any rate of in19 terest used under the plan to determine 

20 cost is not within the permissible range, 

21 the plan shall establish a new rate of inter22 est within the permissible range. 

23 ‘‘(ii) PERMISSIBLE RANGE.—For pur24 poses of clause (i), the term ‘permissible 

25 range’ means a rate of interest which is 
92 

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1 not more than, and not more than 10 per2 cent below, the weighted average of con3 servative long-term corporate bond rates 

4 during the 4-year period ending on the last 

5 day before the beginning of the plan year. 

6 ‘‘(B) CONSERVATIVE LONG-TERM COR7 PORATE BOND RATES.—The Secretary of the 

8 Treasury shall, by regulation, prescribe a meth9 od for periodically determining conservative 

10 long-term corporate bond rates for purposes of 

11 this paragraph. Such rates shall reflect rates of 

12 interest on amounts invested in high-quality, 

13 long-term corporate bonds and shall be based 

14 on the use of 1 or more indices, as determined 

15 from time to time by the Secretary of the 

16 Treasury. 

17 ‘‘(2) YIELD CURVE METHOD.—For purposes of 

18 this subsection, the yield curve method is a method 

19 under which current liability is determined— 

20 ‘‘(A) by using interest rates drawn from a 

21 yield curve which is prescribed by the Secretary 

22 of the Treasury and which reflects high-quality 

23 corporate bonds, and 
93 

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1 ‘‘(B) by matching the timing of the ex2 pected benefit payments under the plan to the 

3 interest rates on such yield curve. 

4 The Secretary of the Treasury shall publish any 

5 yield curve prescribed under this paragraph and the 

6 method by which the yield curve was established. 

7 ‘‘(3) PHASE-IN YIELD CURVE METHOD.— 

8 ‘‘(A) IN GENERAL.—The current liability 

9 under the phase-in yield curve method shall be 

10 equal to the sum of— 

11 ‘‘(i) the applicable percentage of cur12 rent liability determined under the yield 

13 curve method described in paragraph (2), 

14 and 

15 ‘‘(ii) the product of the current liabil16 ity determined by using the interest rate 

17 rules described in paragraph (1) and a per18 centage equal to 100 percent minus the ap19 plicable percentage. 

20 ‘‘(B) APPLICABLE PERCENTAGE.—For 

21 purposes of subparagraph (A), the applicable 

22 percentage shall be determined in accordance 

23 with the following table: 

‘‘In the case of years The applicable 

beginning in— percentage is—

2007 ......................................................................................... 20

2008 ......................................................................................... 40
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‘‘In the case of years The applicable 

beginning in— percentage is—

2009......................................................................................... 60

2010 ......................................................................................... 80. 

1 ‘‘(4) SIMPLIFIED METHODS.— 

2 ‘‘(A) ESTABLISHMENT BY SECRETARY.— 

3 The Secretary of the Treasury shall prescribe 1 

4 or more simplified methods under which current 

5 liability can be determined by substituting any 

6 such method for the yield curve method for pur7 poses of paragraphs (2) and (3). 

8 ‘‘(B) USE OF SIMPLIFIED METHOD.—A 

9 plan (other than a multiemployer plan) may use 

10 a simplified method established under subpara11 graph (A) if, on each day during the preceding 

12 plan year, the plan had no more than 100 par13 ticipants. The aggregation rule under sub14 section (d)(6)(C) shall apply for purposes of 

15 this subparagraph.’’ 

16 (3) ADDITIONAL FUNDING REQUIREMENTS.— 

17 Section 302(d)(7)(C)(i) of such Act (29 U.S.C. 

18 1082(d)(7)(C)(i)) is amended to read as follows: 

19 ‘‘(i) CURRENT LIABILITY.—Current li20 ability under this subsection for any plan 

21 year shall be determined under the rules or 

22 method provided under subsection (b)(5) 

23 for the plan year.’’ 
95 

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1 (4) PBGC PREMIUM RATES.— 

2 (A) IN GENERAL.—Section 

3 4006(a)(3)(E)(iii)(II) of such Act (29 U.S.C. 

4 1306(a)(3)(E)(iii)(II)) is amended to read as 

5 follows: 

6 ‘‘(II) For purposes of deter7 mining unfunded current liability 

8 under subclause (I), current liability 

9 for any plan year shall be determined 

10 under the rules or method provided 

11 under section 302(b)(5) for the plan 

12 year, except that for purposes of plan 

13 years beginning in 2004, 2005, or 

14 2006, the interest rate used shall be 

15 the conservative long-term corporate 

16 bond rate for the month preceding the 

17 month in which the plan year begins. 

18 For purposes of the preceding sen19 tence, a plan may, in lieu of the yield 

20 curve method, use a simplified method 

21 under section 302(h)(4) in applying 

22 paragraph (2) or (3) of section 

23 302(h).’’ 

24 (B) CONFORMING AMENDMENTS.—Section 

25 4006(a)(3)(E)(iii) of such Act (29 U.S.C. 
96 

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1 1306(a)(3)(E)(iii)) is amended by striking sub2 clauses (III), (IV), and (V). 

3 (c) CONFORMING CHANGES REGARDING QUARTERLY

4 CONTRIBUTIONS.— 

5 (1) AMENDMENT OF INTERNAL REVENUE

6 CODE.—Section 412(m)(1)(B) of the Internal Rev7 enue Code of 1986 (relating to quarterly contribu8 tions) is amended by striking ‘‘(including adjust9 ments under subsection (b)(5)(B))’’. 

10 (2) AMENDMENT OF ERISA.—Section 

11 302(e)(1)(B) of the Employee Retirement Income 

12 Security Act of 1974 (29 U.S.C. 1082(e)(1)(B)) is 

13 amended by striking ‘‘(including adjustments under 

14 subsection (b)(5)(B))’’. 

15 (d) EFFECTIVE DATES.— 

16 (1) IN GENERAL.—Except as provided in para17 graphs (2) and (3), the amendments made by this 

18 section shall apply to plan years beginning after De19 cember 31, 2003. 

20 (2) LOOKBACK RULES.—For purposes of apply21 ing subsections (d)(9)(B) and (e)(1) of section 302 

22 of the Employee Retirement Income Security Act of 

23 1974 and subsections (l)(9)(B) and (m)(1) of section 

24 412 of the Internal Revenue Code of 1986 to plan 

25 years beginning after December 31, 2003, the 
97 

•S 2424 PCS 

1 amendments made by this section may be applied as 

2 if such amendments had been in effect for all prior 

3 plan years. The Secretary of the Treasury may pre4 scribe simplified assumptions which may be used in 

5 applying the amendments made by this section to 

6 such prior plan years. 

7 SEC. 402. REPLACEMENT OF 30-YEAR TREASURY RATE FOR 

8 CALCULATING LUMP-SUM DISTRIBUTIONS. 

9 (a) AMENDMENTS OF INTERNAL REVENUE CODE.— 

10 Section 417(e)(3)(A) of the Internal Revenue Code of 

11 1986 (relating to determination of present value) is 

12 amended— 

13 (1) by striking ‘‘and the applicable interest 

14 rate.’’ in clause (i) and inserting ‘‘and by using— 

15 ‘‘(I) the phase-in yield curve 

16 method in the case of plan years be17 ginning in 2007, 2008, 2009, or 

18 2010, and 

19 ‘‘(II) the yield curve method for 

20 years beginning after 2010.’’, and 

21 (2) by striking subclause (II) of clause (ii) and 

22 inserting: 

23 ‘‘(II) YIELD CURVE METHODS.— 

24 The terms ‘yield curve method’ and 

25 ‘phase-in yield curve method’ have the 
98 

•S 2424 PCS 

1 meanings given such terms by para2 graphs (2) and (3) of section 412(o), 

3 respectively, except that each such 

4 paragraph shall be applied by sub5 stituting ‘present value’ for ‘current 

6 liability’ and in applying paragraph 

7 (3)(A)(ii) of section 412(o), the an8 nual rate of interest on 30-year 

9 Treasury securities shall be sub10 stituted for the interest rate under 

11 section 412(o)(1). A plan may, in lieu 

12 of the yield curve method, use a sim13 plified method under section 

14 412(o)(4) for purposes of applying 

15 such paragraphs.’’ 

16 (b) AMENDMENTS OF ERISA.—Section 205(g)(3)(A) 

17 of the Employee Retirement Income Security Act of 1974 

18 (29 U.S.C. 1055(g)(3)) is amended— 

19 (1) by striking ‘‘and the applicable interest 

20 rate.’’ in clause (i) and inserting ‘‘and by using— 

21 ‘‘(I) the phase-in yield curve 

22 method in the case of plan years be23 ginning in 2007, 2008, 2009, or 

24 2010, and 
99 

•S 2424 PCS 

1 ‘‘(II) the yield curve method for 

2 years beginning after 2010.’’, and 

3 (2) by striking subclause (II) of clause (ii) and 

4 inserting: 

5 ‘‘(II) YIELD CURVE METHODS.— 

6 The terms ‘yield curve method’ and 

7 ‘phase-in yield curve method’ have the 

8 meanings given such terms by para9 graphs (2) and (3) of section 302(h), 

10 respectively, except that each such 

11 paragraph shall be applied by sub12 stituting ‘present value’ for ‘current 

13 liability’ and in applying paragraph 

14 (3)(A)(ii) of section 302(h), the an15 nual rate of interest on 30-year 

16 Treasury securities shall be sub17 stituted for the interest rate under 

18 section 302(h)(1). A plan may, in lieu 

19 of the yield curve method, use a sim20 plified method under section 

21 302(h)(4) for purposes of applying 

22 such paragraphs.’’ 

23 (c) EFFECTIVE DATES.— 
100 

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

2 this section shall apply to plan years beginning after 

3 December 31, 2006. 

4 (2) SPECIAL RULE FOR CERTAIN OPTIONAL

5 BENEFITS.—If— 

6 (A) for the last plan year of a plan begin7 ning in 2003, the plan provides that the appli8 cable interest rate under section 417(e)(3) of 

9 the Internal Revenue Code of 1986 and section 

10 205(g)(3) of Employee Retirement Income Se11 curity Act of 1974 shall be used for purposes 

12 of determining the amount of a benefit (other 

13 than the accrued benefit) to which such sections 

14 417(e)(3) and 205(g)(3) do not apply, and 

15 (B) such plan is amended to provide that 

16 a rate other than the applicable interest rate 

17 shall be used for such purposes and the first 

18 plan year for which such amendment is effective 

19 begins no later than January 1, 2007, 

20 such plan shall not fail to meet the requirements of 

21 section 411(d)(6) of the Internal Revenue Code of 

22 1986 and section 204(g) of Employee Retirement 

23 Income Security Act of 1974 by reason of such 

24 amendment. 
101 

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1 SEC. 403. SECTION 415 LIMITATION ON DEFINED BENEFIT 

2 PLANS. 

3 (a) IN GENERAL.—Section 415(b)(2)(E)(ii) of the 

4 Internal Revenue Code of 1986 (relating to limitation on 

5 certain assumptions) is amended to read as follows: 

6 ‘‘(ii) For purposes of adjusting any 

7 benefit under subparagraph (B) for any 

8 form of benefit subject to section 

9 417(e)(3), ‘5.5 percent’ shall be sub10 stituted for ‘5 percent’ in clause (i).’’ 

11 (b) EFFECTIVE DATES.— 

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

13 this section shall apply to years beginning after De14 cember 31, 2003. 

15 (2) TRANSITION RULE FOR 2004 AND 2005.—In 

16 the case of any year beginning in 2004 or 2005, the 

17 amendment made by this section shall not apply if 

18 a greater benefit would be permitted if section 

19 415(b)(2)(E)(ii) of such Code were applied without 

20 regard to the amendment. 

21 PART II—OTHER PROVISIONS 

22 SEC. 406. DEFICIT REDUCTION CONTRIBUTION. 

23 (a) AMENDMENT OF 1986 CODE.—Section 

24 412(l)(12) of the Internal Revenue Code of 1986 (relating 

25 to applicability of subsection) is amended to read as fol26 lows: 
102 

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1 ‘‘(12) EXCEPTION FOR PLANS MEETING RE2 QUIREMENTS IN 2000.—If this subsection did not 

3 apply to any plan year of a plan beginning in 2000 

4 (determined without regard to paragraph (6)), this 

5 subsection shall not apply to such plan for any plan 

6 year beginning in 2004, 2005, or 2006.’’ 

7 (b) AMENDMENT OF ERISA.—Section 302(d)(12) of 

8 the Employee Retirement Income Security Act of 1974 

9 (29 U.S.C. 1082(d)(9)) is amended to read as follows: 

10 ‘‘(12) EXCEPTION FOR PLANS MEETING RE11 QUIREMENTS IN 2000.—If this subsection did not 

12 apply to any plan year of a plan beginning in 2000 

13 (determined without regard to paragraph (6)), this 

14 subsection shall not apply to such plan for any plan 

15 year beginning in 2004, 2005, or 2006.’’ 

16 SEC. 407. DEDUCTION LIMITS FOR PLAN CONTRIBUTIONS. 

17 (a) IN GENERAL.—Clause (i) of section 404(a)(1)(D) 

18 of the Internal Revenue Code of 1986 (relating to special 

19 rule in case of certain plans) is amended by striking ‘‘sec20 tion 412(l)’’ and inserting ‘‘section 412(l)(8)(A), except 

21 that section 412(l)(8)(A) shall be applied for purposes of 

22 this clause by substituting ‘130 percent of current liability’ 

23 for ‘the current liability’ in clause (i).’’ 
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1 (b) CONFORMING AMENDMENT.—Section 404(a)(1) 

2 of the Internal Revenue Code of 1986 is amended by strik3 ing subparagraph (F). 

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

5 this section shall apply to years beginning after December 

6 31, 2003. 

7 SEC. 408. BENEFIT LIMITATIONS FOR CERTAIN FINAN8 CIALLY DISTRESSED PLANS. 

9 (a) INTERNAL REVENUE CODE OF 1986.—Section 

10 401(a) of the Internal Revenue Code of 1986 (relating to 

11 qualified pension, profit-sharing, and stock bonus plans), 

12 as amended by this Act, is amended by adding after para13 graph (35) the following new paragraph: 

14 ‘‘(36) BENEFIT LIMITATIONS FOR CERTAIN FI15 NANCIALLY DISTRESSED PLANS.— 

16 ‘‘(A) IN GENERAL.—Notwithstanding any 

17 other provision of this part, if a defined benefit 

18 plan to which the requirements of section 412(l) 

19 apply is a financially distressed plan for any 

20 plan year, a trust forming part of the plan shall 

21 not be treated as a qualified trust under this 

22 section unless— 

23 ‘‘(i) no amendment to the plan takes 

24 effect during the plan year if such amend25 ment increases liabilities of the plan by 
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1 reason of increases in benefits, any change 

2 in the accrual of benefits, or any change in 

3 the rate at which benefits become non4 forfeitable, 

5 ‘‘(ii) notwithstanding any other provi6 sion of the plan— 

7 ‘‘(I) the accrued benefit, any 

8 death or disability benefit, and any so9 cial security supplement described in 

10 the last sentence of section 411(a)(9) 

11 of each participant are frozen at the 

12 amount of such benefit or supplement 

13 as of the end of the preceding plan 

14 year, determined without regard to 

15 any plan amendment adopted during 

16 the preceding plan year which in17 creased any such benefit or supple18 ment and determined after the appli19 cation of this subclause, and 

20 ‘‘(II) all other benefits provided 

21 under the plan are eliminated, 

22 but only to the extent the freezing or elimi23 nation of such benefits would have been 

24 permitted under section 411(d)(6) if they 

25 had been implemented by a plan amend-
105 

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1 ment adopted at the end of the preceding 

2 plan year, and 

3 ‘‘(iii) no payments described in para4 graph (32)(B) are made to any participant 

5 or beneficiary whose annuity starting date 

6 occurs during the plan year. 

7 Clause (iii) shall apply to any plan year begin8 ning after such plan year and before the 1st 

9 plan year following such plan year for which the 

10 plan is not a financially distressed plan. 

11 ‘‘(B) SPECIAL RULES IF FUNDING IN12 CREASES TO AT LEAST 50 PERCENT.—If a plan 

13 is a financially distressed plan for any plan year 

14 but the funded current liability percentage as of 

15 the beginning of the preceding plan year is at 

16 least 50 percent— 

17 ‘‘(i) an amendment described in sub18 paragraph (A)(i) may take effect but only 

19 if the funded current liability percentage 

20 as of the end of the plan year is projected 

21 (taking into the account the effect of the 

22 amendment) to be at least 50 percent, and 

23 ‘‘(ii) the requirements of subpara24 graph (A)(ii) shall not apply with respect 
106 

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1 to the plan year or any preceding plan 

2 year. 

3 ‘‘(C) SPECIAL RULES.—For purposes of 

4 this paragraph— 

5 ‘‘(i) IMPERMISSIBLE AMENDMENTS.— 

6 If a plan adopts an amendment in violation 

7 of subparagraph (A)(i) or (B)(i), the provi8 sions of the plan shall be applied without 

9 regard to the amendment. 

10 ‘‘(ii) COLLECTIVELY BARGAINED

11 PLANS.—In the case of a plan maintained 

12 pursuant to a collective bargaining agree13 ment between employee representatives 

14 and the employer and in effect before the 

15 beginning of the first plan year of any con16 tinuous period of 1 or more plan years for 

17 which a plan is a financially distressed 

18 plan, this paragraph shall not be applied to 

19 benefits pursuant to, and individuals cov20 ered by, such agreement for plan years be21 ginning before the date on which such col22 lective bargaining agreement terminates 

23 (determined without regard to any exten24 sion thereof). 
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1 ‘‘(D) FINANCIALLY DISTRESSED PLAN.— 

2 For purposes of this paragraph— 

3 ‘‘(i) IN GENERAL.—A plan shall be 

4 treated as a financially distressed plan for 

5 any plan year if— 

6 ‘‘(I) the plan sponsor during any 

7 2 of the 5 plan years immediately pre8 ceding such plan year has an out9 standing debt instrument which is 

10 rated speculative grade or lower by 1 

11 or more nationally recognized statis12 tical rating organizations for cor13 porate bonds, and 

14 ‘‘(II) the funded current liability 

15 percentage of the plan as of the begin16 ning of the plan year preceding such 

17 plan year is less than 50 percent. 

18 The Secretary shall prescribe rules for the 

19 application of subclause (I) in cases where 

20 outstanding debt instruments of the plan 

21 sponsor are not rated. 

22 ‘‘(ii) FINANCIAL STATUS MUST IM23 PROVE FOR AT LEAST 5 YEARS.— 

24 ‘‘(I) IN GENERAL.—Notwith25 standing clause (i), if a plan is treated 
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1 under clause (i) as a financially dis2 tressed plan for 1 or more plan years, 

3 the plan shall continue to be treated 

4 as a financially distressed plan for 

5 subsequent plan years beginning be6 fore the first plan year after the close 

7 of the first period described in sub8 clause (II). 

9 ‘‘(II) 5-YEAR PERIOD.—A period 

10 described in this subparagraph is a 5- 

11 consecutive-plan year period if during 

12 each of the 5 plan years in the period 

13 the plan sponsor did not have an out14 standing debt obligation described in 

15 clause (i)(I) or during each of such 5 

16 plan years the plan was not described 

17 in clause (i)(II). 

18 ‘‘(E) FUNDED CURRENT LIABILITY PER19 CENTAGE.—For purposes of this paragraph, the 

20 term ‘funded current liability percentage’ has 

21 the meaning given such term by section 

22 412(l)(8)(B), except that the current liability 

23 used in computing such percentage shall be de24 termined by only taking into account vested 

25 benefits and by using the interest rate described 
109 

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1 in section 4006(a)(3)(E)(iii)(II) of the Em2 ployee Retirement Income Security Act of 1974 

3 and the fair market value of the plan assets.’’ 

4 (b) EMPLOYEE RETIREMENT INCOME SECURITY ACT

5 OF 1974.— 

6 (1) IN GENERAL.—Section 206 of the Employee 

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

8 1056) is amended by adding at the end the following 

9 new subsection: 

10 ‘‘(g) BENEFIT LIMITATIONS FOR CERTAIN FINAN11 CIALLY DISTRESSED PLANS.— 

12 ‘‘(1) IN GENERAL.—Notwithstanding any other 

13 provision of this part, if a defined benefit plan to 

14 which the requirements of section 302(d) apply is a 

15 financially distressed plan for any plan year— 

16 ‘‘(A) no amendment to the plan shall take 

17 effect during the plan year if such amendment 

18 increases liabilities of the plan by reason of in19 creases in benefits, any change in the accrual of 

20 benefits, or any change in the rate at which 

21 benefits become nonforfeitable, 

22 ‘‘(B) notwithstanding any other provision 

23 of the plan— 

24 ‘‘(i) the accrued benefit, any death or 

25 disability benefit, and any social security 
110 

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1 supplement described in the last sentence 

2 of section 3(22) of each participant shall 

3 be frozen at the amount of such benefit or 

4 supplement as of the end of the preceding 

5 plan year, determined without regard to 

6 any plan amendment adopted during the 

7 preceding plan year which increased any 

8 such benefit or supplement and determined 

9 after the application of this clause, and 

10 ‘‘(ii) all other benefits provided under 

11 the plan shall be eliminated, 

12 but only to the extent the freezing or elimi13 nation of such benefits would have been per14 mitted under section 204(g) if they had been 

15 implemented by a plan amendment adopted at 

16 the end of the preceding plan year, and 

17 ‘‘(C) the plan may not make any payments 

18 described in section 206(e)(2) to any partici19 pant or beneficiary whose annuity starting date 

20 occurs during the plan year. 

21 Subparagraph (C) shall apply to any plan year be22 ginning after such plan year and before the 1st plan 

23 year following such plan year for which the plan is 

24 not a financially distressed plan. 
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1 ‘‘(2) SPECIAL RULES IF FUNDING INCREASES

2 TO AT LEAST 50 PERCENT.—If a plan is a financially 

3 distressed plan for any plan year but the funded 

4 current liability percentage as of the beginning of 

5 the preceding plan year is at least 50 percent— 

6 ‘‘(A) an amendment described in para7 graph (1)(A) may take effect but only if the 

8 funded current liability percentage as of the end 

9 of the plan year is projected (taking into the ac10 count the effect of the amendment) to be at 

11 least 50 percent, and 

12 ‘‘(B) the requirements of paragraph (1)(B) 

13 shall not apply with respect to the plan year or 

14 any preceding plan year. 

15 ‘‘(3) SPECIAL RULES.—For purposes of this 

16 subsection— 

17 ‘‘(A) IMPERMISSIBLE AMENDMENTS.—If a 

18 plan adopts an amendment in violation of para19 graph (1)(A) or (2)(A), the provisions of the 

20 plan shall be applied without regard to the 

21 amendment. 

22 ‘‘(B) COLLECTIVELY BARGAINED PLANS.— 

23 In the case of a plan maintained pursuant to a 

24 collective bargaining agreement between em25 ployee representatives and the employer and in 
112 

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1 effect before the beginning of the first plan year 

2 of any continuous period of 1 or more plan 

3 years for which a plan is a financially distressed 

4 plan, this paragraph shall not be applied to 

5 benefits pursuant to, and individuals covered 

6 by, such agreement for plan years beginning be7 fore the date on which such collective bar8 gaining agreement terminates (determined with9 out regard to any extension thereof). 

10 ‘‘(4) NOTICE REQUIREMENTS.— 

11 ‘‘(A) IN GENERAL.—The plan adminis12 trator of a plan which is a financially distressed 

13 plan for any year shall, at least 45 days before 

14 the beginning of the plan year, notify each plan 

15 participant or beneficiary, each labor organiza16 tion representing such participants or bene17 ficiaries, and the Pension Benefit Guaranty 

18 Corporation that— 

19 ‘‘(i) the plan is treated as a financially 

20 distressed plan for purposes of this sub21 section and the reasons why it is so treat22 ed, and 

23 ‘‘(ii) the restrictions applicable to the 

24 plan under this subsection for the plan 

25 year. 
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1 The Secretary of the Treasury may provide for 

2 the coordination of the notice under this sub3 section with the notice under section 204(h). 

4 ‘‘(B) FORM AND MANNER.—Any notice 

5 under subparagraph (A)— 

6 ‘‘(i) shall be provided in a form and 

7 manner prescribed by the Secretary of the 

8 Treasury, 

9 ‘‘(ii) shall be written in a manner so 

10 as to be understood by the average plan 

11 participant, and 

12 ‘‘(iii) may be provided in written, elec13 tronic, or other appropriate form to the ex14 tent such form is reasonably accessible to 

15 persons to whom the notice is required to 

16 be provided. 

17 ‘‘(5) FINANCIALLY DISTRESSED PLAN.—For 

18 purposes of this subsection— 

19 ‘‘(A) IN GENERAL.—A plan shall be treat20 ed as a financially distressed plan for any plan 

21 year if— 

22 ‘‘(i) the plan sponsor during any 2 of 

23 the 5 plan years immediately preceding 

24 such plan year has an outstanding debt in25 strument which is rated speculative grade 
114 

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1 or lower by 1 or more nationally recognized 

2 statistical rating organizations for cor3 porate bonds, and 

4 ‘‘(ii) the funded current liability per5 centage of the plan as of the beginning of 

6 the plan year preceding such plan year is 

7 less than 50 percent. 

8 The Secretary of the Treasury shall prescribe 

9 rules for the application of clause (i) in cases 

10 where outstanding debt instruments of the plan 

11 sponsor are not rated. 

12 ‘‘(B) FINANCIAL STATUS MUST IMPROVE

13 FOR AT LEAST 5 YEARS.— 

14 ‘‘(i) IN GENERAL.—Notwithstanding 

15 subparagraph (A), if a plan is treated 

16 under subparagraph (A) as a financially 

17 distressed plan for 1 or more plan years, 

18 the plan shall continue to be treated as a 

19 financially distressed plan for subsequent 

20 plan years beginning before the first plan 

21 year after the close of the first period de22 scribed in clause (ii). 

23 ‘‘(ii) 5-YEAR PERIOD.—A period de24 scribed in this clause is any 5-consecutive25 plan year period if during each of the 5 
115 

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1 plan years in the period the plan sponsor 

2 did not have an outstanding debt instru3 ment described in subparagraph (A)(i) or 

4 during each of such 5 plan years the plan 

5 was not described in subparagraph (A)(ii). 

6 ‘‘(6) FUNDED CURRENT LIABILITY PERCENT7 AGE.—For purposes of this subsection the term 

8 ‘funded current liability percentage’ has the meaning 

9 given such term by section 302(d)(8)(B), except that 

10 the current liability used in computing such percent11 age shall be determined by only taking into account 

12 vested benefits and by using the interest rate de13 scribed in section 4006(a)(3)(E)(iii)(II) and the fair 

14 market value of the plan assets.’’ 

15 (2) ENFORCEMENT.—Section 502(c)(3) of such 

16 Act (29 U.S.C. 1132(c)(3)) is amended by inserting 

17 ‘‘206(g)(4) or’’ before ‘‘302(d)(12)(E)’’. 

18 (c) FUNDING RECOMMENDATIONS.—The Secretary 

19 of the Treasury shall, not later than December 31, 2004, 

20 submit to the Committees on Ways and Means and Edu21 cation and the Workforce of the House of Representatives 

22 and the Committees on Finance and Health, Education, 

23 Labor, and Pensions of the Senate the Secretary’s rec24 ommendations for future changes to the pension plan 

25 funding requirements to strengthen the funded status of 
116 

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1 pension plans, including recommendations relating to the 

2 disclosure by pension plans of their funded status. 

3 (d) EFFECTIVE DATES.— 

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

5 this section shall apply to plan years beginning after 

6 December 31, 2006. 

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

8 shall, not later than December 31, 2005, publish 

9 such rules as are necessary to carry out the amend10 ments made by this section. 

11 (3) COLLECTIVE BARGAINING AGREEMENTS.— 

12 In the case of a plan maintained pursuant to 1 or 

13 more collective bargaining agreements between em14 ployee representatives and 1 or more employers rati15 fied by the date of the enactment of this Act, the 

16 amendments made by this section shall not apply to 

17 employees covered by any such agreement for plan 

18 years beginning before the later of— 

19 (A) the date on which the last of such col20 lective bargaining agreements terminates (de21 termined without regard to any extension there22 of on or after such date of enactment); or 

23 (B) January 1, 2007. 
117 

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1 SEC. 409. UPDATING DEDUCTION RULES FOR COMBINA2 TION OF PLANS. 

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

4 404(a)(7) of the Internal Revenue Code of 1986 (relating 

5 to limitation on deductions where combination of defined 

6 contribution plan and defined benefit plan) is amended by 

7 adding after clause (ii) the following new clause: 

8 ‘‘(iii) LIMITATION.—In the case of 

9 employer contributions to 1 or more de10 fined contribution plans, this paragraph 

11 shall only apply to the extent that such 

12 contributions exceed 6 percent of the com13 pensation otherwise paid or accrued during 

14 the taxable year to the beneficiaries under 

15 such plans. For purposes of this clause, 

16 amounts carried over from preceding tax17 able years under subparagraph (B) shall 

18 be treated as employer contributions to 1 

19 or more defined contributions to the extent 

20 attributable to employer contributions to 

21 such plans in such preceding taxable 

22 years.’’ 

23 (b) CONFORMING AMENDMENT.—Subparagraph (A) 

24 of section 4972(c)(6) of such Code (relating to nondeduct25 ible contributions) is amended to read as follows: 
118 

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1 ‘‘(A) so much of the contributions to 1 or 

2 more defined contribution plans which are not 

3 deductible when contributed solely because of 

4 section 404(a)(7) as does not exceed the 

5 amount of contributions described in section 

6 401(m)(4)(A).’’ 

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

8 this section shall apply to contributions for taxable years 

9 beginning after December 31, 2004. 

10 Subtitle B—Improvements in 

11 Portability and Distribution Rules 

12 SEC. 411. CLARIFICATIONS REGARDING PURCHASE OF PER13 MISSIVE SERVICE CREDIT. 

14 (a) IN GENERAL.—Section 415(n) of the Internal 

15 Revenue Code of 1986 (relating to special rules for the 

16 purchase of permissive service credit) is amended— 

17 (1) by striking ‘‘employee’’ in paragraph (1) 

18 and inserting ‘‘participant’’, and 

19 (2) by adding at the end of paragraph (3)(A) 

20 the following new flush sentence: 

21 ‘‘Such term may include service credit for peri22 ods for which there is no performance of serv23 ice, and notwithstanding clause (ii), may in24 clude service credited in order to provide an in-
119 

•S 2424 PCS 

1 creased benefit for service credit which a partic2 ipant is receiving under the plan.’’ 

3 (b) SPECIAL RULES FOR TRUSTEE-TO-TRUSTEE

4 TRANSFERS.—Section 415(n)(3) of such Code is amended 

5 by adding at the end the following new subparagraph: 

6 ‘‘(D) SPECIAL RULES FOR TRUSTEE-TO7 TRUSTEE TRANSFERS.—In the case of a trust8 ee-to-trustee transfer to which section 

9 403(b)(13)(A) or 457(e)(17)(A) applies (with10 out regard to whether the transfer is made be11 tween plans maintained by the same em12 ployer)— 

13 ‘‘(i) the limitations of subparagraph 

14 (B) shall not apply in determining whether 

15 the transfer is for the purchase of permis16 sive service credit, and 

17 ‘‘(ii) the distribution rules applicable 

18 under this title to the defined benefit gov19 ernmental plan to which any amounts are 

20 so transferred shall apply to such amounts 

21 and any benefits attributable to such 

22 amounts.’’ 

23 (c) NONQUALIFIED SERVICE.—Section 415(n)(3) of 

24 such Code is amended— 
120 

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1 (1) by striking ‘‘permissive service credit attrib2 utable to nonqualified service’’ each place it appears 

3 in subparagraph (B) and inserting ‘‘nonqualified 

4 service credit’’, 

5 (2) by striking so much of subparagraph (C) as 

6 precedes clause (i) and inserting: 

7 ‘‘(C) NONQUALIFIED SERVICE CREDIT.— 

8 For purposes of subparagraph (B), the term 

9 ‘nonqualified service credit’ means permissive 

10 service credit other than that allowed with re11 spect to—’’, and 

12 (3) by striking ‘‘elementary or secondary edu13 cation (through grade 12), as determined under 

14 State law’’ and inserting ‘‘elementary or secondary 

15 education (through grade 12), or a comparable level 

16 of education, as determined under the applicable law 

17 of the jurisdiction in which the service was per18 formed’’. 

19 (d) EFFECTIVE DATES.— 

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

21 subsections (a) and (c) shall take effect as if in22 cluded in the amendments made by section 1526 of 

23 the Taxpayer Relief Act of 1997. 

24 (2) SUBSECTION (b).—The amendments made 

25 by subsection (b) shall take effect as if included in 
121 

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1 the amendments made by section 647 of the Eco2 nomic Growth and Tax Relief Reconciliation Act of 

3 2001. 

4 SEC. 412. ALLOW ROLLOVER OF AFTER-TAX AMOUNTS IN 

5 ANNUITY CONTRACTS. 

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

7 402(c)(2) (maximum amount which may be rolled over) 

8 is amended— 

9 (1) by striking ‘‘which is part of a plan which 

10 is a defined contribution plan and which agrees to 

11 separately account’’ and inserting ‘‘or to an annuity 

12 contract described in section 403(b) and such trust 

13 or contract provides for separate accounting’’; and 

14 (2) by inserting ‘‘(and earnings thereon)’’ after 

15 ‘‘so transferred’’. 

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

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

18 December 31, 2004. 

19 SEC. 413. CLARIFICATION OF MINIMUM DISTRIBUTION 

20 RULES. 

21 The Secretary of the Treasury shall issue regulations 

22 under which a governmental plan (as defined in section 

23 414(d) of the Internal Revenue Code of 1986) shall, for 

24 all years to which section 401(a)(9) of such Code applies 

25 to such plan, be treated as having complied with such sec-
122 

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1 tion 401(a)(9) if such plan complies with a reasonable 

2 good faith interpretation of such section 401(a)(9). 

3 SEC. 414. WAIVER OF 10 PERCENT EARLY WITHDRAWAL 

4 PENALTY TAX ON CERTAIN DISTRIBUTIONS 

5 OF PENSION PLANS FOR PUBLIC SAFETY EM6 PLOYEES. 

7 (a) IN GENERAL.—Section 72(t) of the Internal Rev8 enue Code of 1986 (relating to subsection not to apply 

9 to certain distributions) is amended by adding at the end 

10 the following new paragraph: 

11 ‘‘(10) DISTRIBUTIONS TO QUALIFIED PUBLIC

12 SAFETY EMPLOYEES IN GOVERNMENTAL PLANS.— 

13 ‘‘(A) IN GENERAL.—In the case of a dis14 tribution to a qualified public safety employee 

15 from a governmental plan (within the meaning 

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

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

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

19 ‘‘(B) QUALIFIED PUBLIC SAFETY EM20 PLOYEE.—For purposes of this paragraph, the 

21 term ‘qualified public safety employee’ means 

22 any employee of a State or political subdivision 

23 of a State who provides police protection, fire24 fighting services, or emergency medical services 
123 

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1 for any area within the jurisdiction of such 

2 State or political subdivision.’’ 

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

4 this section shall apply to distributions after the date of 

5 the enactment of this Act. 

6 SEC. 415. ALLOW ROLLOVERS BY NONSPOUSE BENE7 FICIARIES OF CERTAIN RETIREMENT PLAN 

8 DISTRIBUTIONS. 

9 (a) IN GENERAL.— 

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

11 Internal Revenue Code of 1986 (relating to rollovers 

12 from exempt trusts) is amended by adding at the 

13 end the following new paragraph: 

14 ‘‘(11) DISTRIBUTIONS TO INHERITED INDI15 VIDUAL RETIREMENT PLAN OF NONSPOUSE BENE16 FICIARY.— 

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

18 portion of a distribution from an eligible retire19 ment plan of a deceased employee, a direct 

20 trustee-to-trustee transfer is made to an indi21 vidual retirement plan described in clause (i) or 

22 (ii) of paragraph (8)(B) established for the pur23 poses of receiving the distribution on behalf of 

24 an individual who is a designated beneficiary 

25 (as defined by section 401(a)(9)(E)) of the em-
124 

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1 ployee and who is not the surviving spouse of 

2 the employee— 

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

4 eligible rollover distribution for purposes of 

5 this subsection, 

6 ‘‘(ii) the individual retirement plan 

7 shall be treated as an inherited individual 

8 retirement account or individual retirement 

9 annuity (within the meaning of section 

10 408(d)(3)(C)) for purposes of this title, 

11 and 

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

13 clause (iv) thereof) shall apply to such 

14 plan. 

15 ‘‘(B) CERTAIN TRUSTS TREATED AS BENE16 FICIARIES.—For purposes of this paragraph, to 

17 the extent provided in rules prescribed by the 

18 Secretary, a trust maintained for the benefit of 

19 one or more designated beneficiaries shall be 

20 treated in the same manner as a designated 

21 beneficiary.’’ 

22 (2) SECTION 403(a) PLANS.—Subparagraph (B) 

23 of section 403(a)(4) of such Code (relating to roll24 over amounts) is amended by inserting ‘‘and (11)’’ 

25 after ‘‘(7)’’. 
125 

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

2 of section 403(b)(8) of such Code (relating to roll3 over amounts) is amended by striking ‘‘and (9)’’ and 

4 inserting ‘‘, (9), and (11)’’. 

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

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

7 amounts) is amended by striking ‘‘and (9)’’ and in8 serting ‘‘, (9), and (11)’’. 

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

10 this section shall apply to distributions after December 31, 

11 2004. 

12 SEC. 416. FASTER VESTING OF EMPLOYER NONELECTIVE 

13 CONTRIBUTIONS. 

14 (a) AMENDMENTS TO THE INTERNAL REVENUE

15 CODE OF 1986.— 

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

17 411(a) of the Internal Revenue Code of 1986 (relat18 ing to employer contributions) is amended to read as 

19 follows: 

20 ‘‘(2) EMPLOYER CONTRIBUTIONS.— 

21 ‘‘(A) DEFINED BENEFIT PLANS.— 

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

23 defined benefit plan, a plan satisfies the 

24 requirements of this paragraph if it satis25 fies the requirements of clause (ii) or (iii). 
126 

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1 ‘‘(ii) 5-YEAR VESTING.—A plan satis2 fies the requirements of this clause if an 

3 employee who has completed at least 5 

4 years of service has a nonforfeitable right 

5 to 100 percent of the employee’s accrued 

6 benefit derived from employer contribu7 tions. 

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

9 satisfies the requirements of this clause if 

10 an employee has a nonforfeitable right to 

11 a percentage of the employee’s accrued 

12 benefit derived from employer contribu13 tions determined under the following table: 

The nonforfeitable 

‘‘Years of service: percentage is:

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

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

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

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

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

14 ‘‘(B) DEFINED CONTRIBUTION PLANS.— 

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

16 defined contribution plan, a plan satisfies 

17 the requirements of this paragraph if it 

18 satisfies the requirements of clause (ii) or 

19 (iii). 

20 ‘‘(ii) 3-YEAR VESTING.—A plan satis21 fies the requirements of this clause if an 

22 employee who has completed at least 3 
127 

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1 years of service has a nonforfeitable right 

2 to 100 percent of the employee’s accrued 

3 benefit derived from employer contribu4 tions. 

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

6 satisfies the requirements of this clause if 

7 an employee has a nonforfeitable right to 

8 a percentage of the employee’s accrued 

9 benefit derived from employer contribu10 tions determined under the following table: 

The nonforfeitable 

‘‘Years of service: percentage is:

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

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

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

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

6 or more ...................................................................... 100.’’ 

11 (2) CONFORMING AMENDMENT.—Section 

12 411(a) of such Code (relating to general rule for 

13 minimum vesting standards) is amended by striking 

14 paragraph (12). 

15 (b) AMENDMENTS TO THE EMPLOYEE RETIREMENT

16 INCOME SECURITY ACT OF 1974.— 

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

18 203(a) of the Employee Retirement Income Security 

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

20 read as follows: 
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1 ‘‘(2)(A)(i) In the case of a defined benefit plan, 

2 a plan satisfies the requirements of this paragraph 

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

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

5 clause if an employee who has completed at least 5 

6 years of service has a nonforfeitable right to 100 

7 percent of the employee’s accrued benefit derived 

8 from employer contributions. 

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

10 clause if an employee has a nonforfeitable right to 

11 a percentage of the employee’s accrued benefit de12 rived from employer contributions determined under 

13 the following table: 

The nonforfeitable 

‘‘Years of service: percentage is:

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

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

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

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

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

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

15 plan, a plan satisfies the requirements of this para16 graph if it satisfies the requirements of clause (ii) or 

17 (iii). 

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

19 clause if an employee who has completed at least 3 

20 years of service has a nonforfeitable right to 100 

21 percent of the employee’s accrued benefit derived 

22 from employer contributions. 
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1 ‘‘(iii) A plan satisfies the requirements of this 

2 clause if an employee has a nonforfeitable right to 

3 a percentage of the employee’s accrued benefit de4 rived from employer contributions determined under 

5 the following table: 

The nonforfeitable 

‘‘Years of service: percentage is:

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

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

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

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

6 or more ...................................................................... 100.’’ 

6 (2) CONFORMING AMENDMENT.—Section 

7 203(a) of such Act is amended by striking para8 graph (4). 

9 (c) EFFECTIVE DATES.— 

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

12 shall apply to contributions for plan years beginning 

13 after December 31, 2004. 

14 (2) COLLECTIVE BARGAINING AGREEMENTS.— 

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

16 more collective bargaining agreements between em17 ployee representatives and one or more employers 

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

19 the amendments made by this section shall not apply 

20 to contributions on behalf of employees covered by 

21 any such agreement for plan years beginning before 

22 the earlier of— 
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1 (A) the later of— 

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

3 collective bargaining agreements termi4 nates (determined without regard to any 

5 extension thereof on or after such date of 

6 the enactment); or 

7 (ii) January 1, 2005; or 

8 (B) January 1, 2007. 

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

10 plan, the amendments made by this section shall not 

11 apply to any employee before the date that such em12 ployee has 1 hour of service under such plan in any 

13 plan year to which the amendments made by this 

14 section apply. 

15 SEC. 417. ALLOW DIRECT ROLLOVERS FROM RETIREMENT 

16 PLANS TO ROTH IRAS. 

17 (a) IN GENERAL.—Subsection (e) of section 408A of 

18 the Internal Revenue Code of 1986 (defining qualified roll19 over contribution) is amended to read as follows: 

20 ‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For 

21 purposes of this section, the term ‘qualified rollover con22 tribution’ means a rollover contribution— 

23 ‘‘(1) to a Roth IRA from another such account, 

24 ‘‘(2) from an eligible retirement plan, but only 

25 if— 
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1 ‘‘(A) in the case of an individual retire2 ment plan, such rollover contribution meets the 

3 requirements of section 408(d)(3), and 

4 ‘‘(B) in the case of any eligible retirement 

5 plan (as defined in section 402(c)(8)(B) other 

6 than clauses (i) and (ii) thereof), such rollover 

7 contribution meets the requirements of section 

8 402(c), 403(b)(8), or 457(e)(16), as applicable. 

9 For purposes of section 408(d)(3)(B), there shall be dis10 regarded any qualified rollover contribution from an indi11 vidual retirement plan (other than a Roth IRA) to a Roth 

12 IRA.’’ 

13 (b) CONFORMING AMENDMENTS.— 

14 (1) Section 408A(c)(3)(B) of such Code is 

15 amended— 

16 (A) in the text by striking ‘‘individual re17 tirement plan’’ and inserting ‘‘an eligible retire18 ment plan (as defined by section 

19 402(c)(8)(B))’’, and 

20 (B) in the heading by striking ‘‘IRA’’ and 

21 inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 

22 (2) Section 408A(d)(3) of such Code is amend23 ed— 
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1 (A) in subparagraph (A), by striking ‘‘sec2 tion 408(d)(3)’’ inserting ‘‘sections 402(c), 

3 403(b)(8), 408(d)(3), and 457(e)(16)’’, 

4 (B) in subparagraph (B), by striking ‘‘in5 dividual retirement plan’’ and inserting ‘‘eligible 

6 retirement plan (as defined by section 

7 402(c)(8)(B))’’, 

8 (C) in subparagraph (D), by inserting ‘‘or 

9 6047’’ after ‘‘408(i)’’, 

10 (D) in subparagraph (D), by striking ‘‘or 

11 both’’ and inserting ‘‘persons subject to section 

12 6047(d)(1), or all of the foregoing persons’’, 

13 and 

14 (E) in the heading, by striking ‘‘IRA’’ and 

15 inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 

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

17 this section shall apply to distributions after December 31, 

18 2004. 

19 SEC. 418. ELIMINATION OF HIGHER PENALTY ON CERTAIN 

20 SIMPLE PLAN DISTRIBUTIONS. 

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

22 Internal Revenue Code of 1986 (relating to 10-percent ad23 ditional tax on early distributions from qualified retire24 ment plans), as amended by section 414, is amended by 

25 striking paragraph (6) and redesignating paragraphs (7), 
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1 (8), (9), and (10) as paragraphs (6), (7), (8), and (9), 

2 respectively. 

3 (b) CONFORMING AMENDMENTS.— 

4 (1) Section 72(t)(2)(E) of such Code is amend5 ed by striking ‘‘paragraph (7)’’ and inserting ‘‘para6 graph (6)’’. 

7 (2) Section 72(t)(2)(F) of such Code is amend8 ed by striking ‘‘paragraph (8)’’ and inserting ‘‘para9 graph (7)’’. 

10 (3) Section 408(d)(3)(G) of such Code is 

11 amended by striking ‘‘applies’’ and inserting ‘‘ap12 plied on the day before the date of the enactment of 

13 the National Employee Savings and Trust Equity 

14 Guarantee Act of 2004)’’. 

15 (4) Section 457(a)(2) of such Code is amended 

16 by striking ‘‘section 72(t)(9)’’ and inserting ‘‘section 

17 72(t)(8)’’. 

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

19 this section shall apply to years beginning after December 

20 31, 2004. 

21 SEC. 419. SIMPLE PLAN PORTABILITY. 

22 (a) REPEAL OF LIMITATION.—Paragraph (3) of sec23 tion 408(d) of the Internal Revenue Code of 1986 (relat24 ing to rollover contributions), as amended by this Act, is 

25 amended by striking subparagraph (G) and redesignating 
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1 subparagraphs (H) and (I) as subparagraphs (G) and (H), 

2 respectively. 

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

4 this section shall apply to years beginning after December 

5 31, 2004. 

6 SEC. 420. ELIGIBILITY FOR PARTICIPATION IN RETIRE7 MENT PLANS. 

8 An individual shall not be precluded from partici9 pating in an eligible deferred compensation plan by reason 

10 of having received a distribution under section 457(e)(9) 

11 of the Internal Revenue Code of 1986, as in effect prior 

12 to the enactment of the Small Business Job Protection 

13 Act of 1996. 

14 SEC. 421. TRANSFERS TO THE PBGC. 

15 (a) MANDATORY DISTRIBUTIONS TO PBGC.—Clause 

16 (i) of section 401(a)(31)(B) of the Internal Revenue Code 

17 of 1986 (relating to general rule for certain mandatory 

18 distributions) is amended by inserting ‘‘to the Pension 

19 Benefit Guaranty Corporation in accordance with section 

20 4050(e) of the Employee Retirement Income Security Act 

21 of 1974 or’’ after ‘‘such transfer’’. 

22 (b) TAX TREATMENT OF DISTRIBUTIONS.—Subpara23 graph (B) of section 401(a)(31) of such Code is amended 

24 by adding at the end the following new clause: 
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1 ‘‘(iii) INCOME TAX TREATMENT OF

2 TRANSFERS TO PBGC.—For purposes of 

3 determining the income tax treatment re4 lating to transfers to the Pension Benefit 

5 Guaranty Corporation under clause (i)— 

6 ‘‘(I) the transfer of amounts to 

7 the Pension Benefit Guaranty Cor8 poration pursuant to clause (i) shall 

9 be treated as a transfer to an indi10 vidual retirement plan under such 

11 clause, and 

12 ‘‘(II) the distribution of such 

13 amounts from the Pension Benefit 

14 Guaranty Corporation shall be treated 

15 as a distribution from an individual 

16 retirement plan.’’ 

17 (c) MISSING PARTICIPANTS AND BENEFICIARIES.— 

18 Section 4050 of the Employee Retirement Income Security 

19 Act of 1974 (29 U.S.C. 1350), as amended by section 435, 

20 is amended by redesignating subsection (e) as subsection 

21 (f) and by inserting after subsection (d) the following new 

22 subsection: 

23 ‘‘(e) INVOLUNTARY CASHOUTS.— 

24 ‘‘(1) PAYMENT BY THE CORPORATION.—If ben25 efits under a plan described in paragraph (3) were 
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1 transferred to the corporation under section 

2 401(a)(31)(B) of the Internal Revenue Code of 

3 1986, the corporation shall, upon application filed by 

4 the participant or beneficiary with the corporation in 

5 such form and manner as may be prescribed in regu6 lations of the corporation, pay to the participant or 

7 beneficiary the amount transferred (or the appro8 priate survivor benefit) either— 

9 ‘‘(A) in a single sum (plus interest), or 

10 ‘‘(B) in such other form as is specified in 

11 regulations of the corporation. 

12 ‘‘(2) INFORMATION TO THE CORPORATION.—To 

13 the extent provided in regulations, the plan adminis14 trator of a plan described in paragraph (3) shall, 

15 upon a transfer of benefits to the corporation under 

16 section 401(a)(31)(B) of such Code, provide the cor17 poration information with respect to benefits of the 

18 participant or beneficiary so transferred. 

19 ‘‘(3) PLANS DESCRIBED.—A plan is described 

20 in this paragraph if the plan is a pension plan (with21 in the meaning of section 3(2))— 

22 ‘‘(A) which provides for mandatory dis23 tributions under section 401(a)(31)(B) of the 

24 Internal Revenue Code of 1986, and 
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1 ‘‘(B) which is not a plan described in para2 graphs (2) through (11) of section 4021(b). 

3 ‘‘(4) CERTAIN PROVISIONS NOT TO APPLY.— 

4 Subsections (a)(1) and (a)(3) shall not apply to a 

5 plan described in paragraph (3).’’ 

6 (d) EFFECTIVE DATES.— 

7 (1) INTERNAL REVENUE CODE PROVISIONS.— 

8 The amendments made by subsections (a) and (b) 

9 shall take effect as if included in the amendments 

10 made by section 657 of the Economic Growth and 

11 Tax Relief Reconciliation Act of 2001. 

12 (2) EMPLOYEE RETIREMENT INCOME SECURITY

13 ACT OF 1974 PROVISIONS.—The amendments made 

14 by subsection (c) shall apply to distributions made 

15 after final regulations implementing subsection (e) 

16 of section 4050 of the Employee Retirement Income 

17 Security Act of 1974 (as added by subsection (c)) 

18 are prescribed. 

19 (3) REGULATIONS.—The Pension Benefit Guar20 anty Corporation shall issue regulations necessary to 

21 carry out the amendments made by subsection (c) 

22 not later than December 31, 2004. 
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1 Subtitle C—Administrative 

2 Provisions 

3 SEC. 431. EMPLOYEE PLANS COMPLIANCE RESOLUTION 

4 SYSTEM. 

5 (a) IN GENERAL.—The Secretary of the Treasury 

6 shall have full authority to establish and implement the 

7 Employee Plans Compliance Resolution System (or any 

8 successor program) and any other employee plans correc9 tion policies, including the authority to waive income, ex10 cise, or other taxes to ensure that any tax, penalty, or 

11 sanction is not excessive and bears a reasonable relation12 ship to the nature, extent, and severity of the failure. 

13 (b) IMPROVEMENTS.—The Secretary of the Treasury 

14 shall continue to update and improve the Employee Plans 

15 Compliance Resolution System (or any successor pro16 gram), giving special attention to— 

17 (1) increasing the awareness and knowledge of 

18 small employers concerning the availability and use 

19 of the program; 

20 (2) taking into account special concerns and 

21 circumstances that small employers face with respect 

22 to compliance and correction of compliance failures; 

23 (3) extending the duration of the self-correction 

24 period under the Self-Correction Program for signifi25 cant compliance failures; 
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1 (4) expanding the availability to correct insig2 nificant compliance failures under the Self-Correc3 tion Program during audit; and 

4 (5) assuring that any tax, penalty, or sanction 

5 that is imposed by reason of a compliance failure is 

6 not excessive and bears a reasonable relationship to 

7 the nature, extent, and severity of the failure. 

8 SEC. 432. EXTENSION TO ALL GOVERNMENTAL PLANS OF 

9 MORATORIUM ON APPLICATION OF CERTAIN 

10 NONDISCRIMINATION RULES APPLICABLE TO 

11 STATE AND LOCAL PLANS. 

12 (a) IN GENERAL.—The following provisions are each 

13 amended by striking ‘‘maintained by a State or local gov14 ernment or political subdivision thereof (or agency or in15 strumentality thereof)’’: 

16 (1) Section 401(a)(5)(G) of the Internal Rev17 enue Code of 1986. 

18 (2) Section 401(a)(26)(H) of such Code. 

19 (3) Section 401(k)(3)(G) of such Code. 

20 (4) Section 1505(d)(2) of the Taxpayer Relief 

21 Act of 1997. 

22 (b) CONFORMING AMENDMENTS.— 

23 (1) The heading for section 401(a)(5)(G) of 

24 such Code is amended to read as follows: ‘‘GOVERN25 MENTAL PLANS.—’’. 
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1 (2) The heading for section 401(a)(26)(H) of 

2 such Code is amended to read as follows: ‘‘EXCEP3 TION FOR GOVERNMENTAL PLANS.—’’. 

4 (3) Section 401(k)(3)(G) of such Code is 

5 amended by inserting ‘‘GOVERNMENTAL PLANS.—’’ 

6 after ‘‘(G)’’. 

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

8 this section shall apply to plan years beginning after De9 cember 31, 2004. 

10 SEC. 433. NOTICE AND CONSENT PERIOD REGARDING DIS11 TRIBUTIONS. 

12 (a) EXPANSION OF PERIOD.— 

13 (1) AMENDMENT OF INTERNAL REVENUE

14 CODE.— 

15 (A) IN GENERAL.—Section 417(a)(6)(A) of 

16 the Internal Revenue Code of 1986 is amended 

17 by striking ‘‘90-day’’ and inserting ‘‘180-day’’. 

18 (B) MODIFICATION OF REGULATIONS.— 

19 The Secretary of the Treasury shall modify the 

20 regulations under sections 402(f), 411(a)(11), 

21 and 417 of the Internal Revenue Code of 1986 

22 by substituting ‘‘180 days’’ for ‘‘90 days’’ each 

23 place it appears in Treasury Regulations sec24 tions 1.402(f)–1, 1.411(a)–11(c), and 1.417(e)– 

25 1(b). 
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1 (2) AMENDMENT OF ERISA.— 

2 (A) IN GENERAL.—Section 205(c)(7)(A) of 

3 the Employee Retirement Income Security Act 

4 of 1974 (29 U.S.C. 1055(c)(7)(A)) is amended 

5 by striking ‘‘90-day’’ and inserting ‘‘180-day’’. 

6 (B) MODIFICATION OF REGULATIONS.— 

7 The Secretary of the Treasury shall modify the 

8 regulations under part 2 of subtitle B of title 

9 I of the Employee Retirement Income Security 

10 Act of 1974 relating to sections 203(e) and 205 

11 of such Act by substituting ‘‘180 days’’ for ‘‘90 

12 days’’ each place it appears. 

13 (3) EFFECTIVE DATE.—The amendments and 

14 modifications made or required by this subsection 

15 shall apply to years beginning after December 31, 

16 2004. 

17 (b) NOTIFICATION OF RIGHT TO DEFER.— 

18 (1) IN GENERAL.—The Secretary of the Treas19 ury shall modify the regulations under section 

20 411(a)(11) of the Internal Revenue Code of 1986 

21 and under section 205 of the Employee Retirement 

22 Income Security Act of 1974 to provide that the de23 scription of a participant’s right, if any, to defer re24 ceipt of a distribution shall also describe the con25 sequences of failing to defer such receipt. 
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1 (2) EFFECTIVE DATE.— 

2 (A) IN GENERAL.—The modifications re3 quired by paragraph (1) shall apply to years be4 ginning after December 31, 2004. 

5 (B) REASONABLE NOTICE.—A plan shall 

6 not be treated as failing to meet the require7 ments of section 411(a)(11) of such Code or 

8 section 205 of such Act with respect to any de9 scription of consequences described in para10 graph (1) made within 90 days after the Sec11 retary of the Treasury issues the modifications 

12 required by paragraph (1) if the plan adminis13 trator makes a reasonable attempt to comply 

14 with such requirements. 

15 SEC. 434. REPORTING SIMPLIFICATION. 

16 (a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

17 OWNERS AND THEIR SPOUSES.— 

18 (1) IN GENERAL.—The Secretary of the Treas19 ury and the Secretary of Labor shall modify the re20 quirements for filing annual returns with respect to 

21 one-participant retirement plans to ensure that such 

22 plans with assets of $250,000 or less as of the close 

23 of the plan year need not file a return for that year. 

24 (2) ONE-PARTICIPANT RETIREMENT PLAN DE25 FINED.—For purposes of this subsection, the term 
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1 ‘‘one-participant retirement plan’’ means a retire2 ment plan with respect to which the following re3 quirements are met: 

4 (A) on the first day of the plan year— 

5 (i) the plan covered only one indi6 vidual (or the individual and the individ7 ual’s spouse) and the individual owned 100 

8 percent of the plan sponsor (whether or 

9 not incorporated), or 

10 (ii) the plan covered only one or more 

11 partners (or partners and their spouses) in 

12 the plan sponsor; 

13 (B) the plan meets the minimum coverage 

14 requirements of section 410(b) of the Internal 

15 Revenue Code of 1986 without being combined 

16 with any other plan of the business that covers 

17 the employees of the business; 

18 (C) the plan does not provide benefits to 

19 anyone except the individual (and the individ20 ual’s spouse) or the partners (and their 

21 spouses); 

22 (D) the plan does not cover a business that 

23 is a member of an affiliated service group, a 

24 controlled group of corporations, or a group of 

25 businesses under common control; and 
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1 (E) the plan does not cover a business that 

2 uses the services of leased employees (within 

3 the meaning of section 414(n) of such Code). 

4 For purposes of this paragraph, the term ‘‘partner’’ 

5 includes a 2-percent shareholder (as defined in sec6 tion 1372(b) of such Code) of an S corporation. 

7 (3) OTHER DEFINITIONS.—Terms used in para8 graph (2) which are also used in section 414 of the 

9 Internal Revenue Code of 1986 shall have the re10 spective meanings given such terms by such section. 

11 (4) EFFECTIVE DATE.—The provisions of this 

12 subsection shall apply to plan years beginning on or 

13 after January 1, 2004. 

14 (b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

15 PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case 

16 of plan years beginning after December 31, 2004, the Sec17 retary of the Treasury and the Secretary of Labor shall 

18 provide for the filing of a simplified annual return for any 

19 retirement plan which covers less than 25 employees on 

20 the first day of a plan year and which meets the require21 ments described in subparagraphs (B), (D), and (E) of 

22 subsection (a)(2). 

23 SEC. 435. MISSING PARTICIPANTS. 

24 (a) IN GENERAL.—Section 4050 of the Employee Re25 tirement Income Security Act of 1974 (29 U.S.C. 1350) 
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1 is amended by redesignating subsection (c) as subsection 

2 (e) and by inserting after subsection (b) the following new 

3 subsections: 

4 ‘‘(c) MULTIEMPLOYER PLANS.—The corporation 

5 shall prescribe rules similar to the rules in subsection (a) 

6 for multiemployer plans covered by this title that termi7 nate under section 4041A. 

8 ‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.— 

9 ‘‘(1) TRANSFER TO CORPORATION.—The plan 

10 administrator of a plan described in paragraph (4) 

11 may elect to transfer a missing participant’s benefits 

12 to the corporation upon termination of the plan. 

13 ‘‘(2) INFORMATION TO THE CORPORATION.—To 

14 the extent provided in regulations, the plan adminis15 trator of a plan described in paragraph (4) shall, 

16 upon termination of the plan, provide the corpora17 tion information with respect to benefits of a miss18 ing participant if the plan transfers such benefits— 

19 ‘‘(A) to the corporation, or 

20 ‘‘(B) to an entity other than the corpora21 tion or a plan described in paragraph (4)(B)(ii). 

22 ‘‘(3) PAYMENT BY THE CORPORATION.—If ben23 efits of a missing participant were transferred to the 

24 corporation under paragraph (1), the corporation 

25 shall, upon location of the participant or beneficiary, 
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1 pay to the participant or beneficiary the amount 

2 transferred (or the appropriate survivor benefit) ei3 ther— 

4 ‘‘(A) in a single sum (plus interest), or 

5 ‘‘(B) in such other form as is specified in 

6 regulations of the corporation. 

7 ‘‘(4) PLANS DESCRIBED.—A plan is described 

8 in this paragraph if— 

9 ‘‘(A) the plan is a pension plan (within the 

10 meaning of section 3(2))— 

11 ‘‘(i) to which the provisions of this 

12 section do not apply (without regard to 

13 this subsection), and 

14 ‘‘(ii) which is not a plan described in 

15 paragraphs (2) through (11) of section 

16 4021(b), and 

17 ‘‘(B) at the time the assets are to be dis18 tributed upon termination, the plan— 

19 ‘‘(i) has missing participants, and 

20 ‘‘(ii) has not provided for the transfer 

21 of assets to pay the benefits of all missing 

22 participants to another pension plan (with23 in the meaning of section 3(2)). 
147 

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1 ‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.— 

2 Subsections (a)(1) and (a)(3) shall not apply to a 

3 plan described in paragraph (4).’’ 

4 (b) CONFORMING AMENDMENTS.—Section 206(f) of 

5 such Act (29 U.S.C. 1056(f)) is amended— 

6 (1) by striking ‘‘title IV’’ and inserting ‘‘section 

7 4050’’; and 

8 (2) by striking ‘‘the plan shall provide that,’’. 

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

10 this section shall apply to distributions made after final 

11 regulations implementing subsections (c) and (d) of sec12 tion 4050 of the Employee Retirement Income Security 

13 Act of 1974 (as added by subsection (a)), respectively, are 

14 prescribed. 

15 SEC. 436. REDUCED PBGC PREMIUM FOR NEW PLANS OF 

16 SMALL EMPLOYERS. 

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

18 4006(a)(3) of the Employee Retirement Income Security 

19 Act of 1974 (29 U.S.C. 1306(a)(3)(A)) is amended— 

20 (1) in clause (i), by inserting ‘‘other than a new 

21 single-employer plan (as defined in subparagraph 

22 (F)) maintained by a small employer (as so de23 fined),’’ after ‘‘single-employer plan,’’, 

24 (2) in clause (iii), by striking the period at the 

25 end and inserting ‘‘, and’’, and 
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1 (3) by adding at the end the following new 

2 clause: 

3 ‘‘(iv) in the case of a new single-employer plan 

4 (as defined in subparagraph (F)) maintained by a 

5 small employer (as so defined) for the plan year, $5 

6 for each individual who is a participant in such plan 

7 during the plan year.’’ 

8 (b) DEFINITION OF NEW SINGLE-EMPLOYER

9 PLAN.—Section 4006(a)(3) of the Employee Retirement 

10 Income Security Act of 1974 (29 U.S.C. 1306(a)(3)) is 

11 amended by adding at the end the following new subpara12 graph: 

13 ‘‘(F)(i) For purposes of this paragraph, a single-em14 ployer plan maintained by a contributing sponsor shall be 

15 treated as a new single-employer plan for each of its first 

16 5 plan years if, during the 36-month period ending on the 

17 date of the adoption of such plan, the sponsor or any 

18 member of such sponsor’s controlled group (or any prede19 cessor of either) did not establish or maintain a plan to 

20 which this title applies with respect to which benefits were 

21 accrued for substantially the same employees as are in the 

22 new single-employer plan. 

23 ‘‘(ii)(I) For purposes of this paragraph, the term 

24 ‘small employer’ means an employer which on the first day 

25 of any plan year has, in aggregation with all members of 
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1 the controlled group of such employer, 100 or fewer em2 ployees. 

3 ‘‘(II) In the case of a plan maintained by two or more 

4 contributing sponsors that are not part of the same con5 trolled group, the employees of all contributing sponsors 

6 and controlled groups of such sponsors shall be aggregated 

7 for purposes of determining whether any contributing 

8 sponsor is a small employer.’’ 

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

10 this section shall apply to plans first effective after Decem11 ber 31, 2004. 

12 SEC. 437. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR 

13 NEW AND SMALL PLANS. 

14 (a) NEW PLANS.—Subparagraph (E) of section 

15 4006(a)(3) of the Employee Retirement Income Security 

16 Act of 1974 (29 U.S.C. 1306(a)(3)(E)) is amended by 

17 adding at the end the following new clause: 

18 ‘‘(v) In the case of a new defined benefit plan, the 

19 amount determined under clause (ii) for any plan year 

20 shall be an amount equal to the product of the amount 

21 determined under clause (ii) and the applicable percent22 age. For purposes of this clause, the term ‘applicable per23 centage’ means— 

24 ‘‘(I) 0 percent, for the first plan year. 

25 ‘‘(II) 20 percent, for the second plan year. 
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1 ‘‘(III) 40 percent, for the third plan year. 

2 ‘‘(IV) 60 percent, for the fourth plan year. 

3 ‘‘(V) 80 percent, for the fifth plan year. 

4 For purposes of this clause, a defined benefit plan (as de5 fined in section 3(35)) maintained by a contributing spon6 sor shall be treated as a new defined benefit plan for each 

7 of its first 5 plan years if, during the 36-month period 

8 ending on the date of the adoption of the plan, the sponsor 

9 and each member of any controlled group including the 

10 sponsor (or any predecessor of either) did not establish 

11 or maintain a plan to which this title applies with respect 

12 to which benefits were accrued for substantially the same 

13 employees as are in the new plan.’’ 

14 (b) SMALL PLANS.—Paragraph (3) of section 

15 4006(a) of the Employee Retirement Income Security Act 

16 of 1974 (29 U.S.C. 1306(a)), as amended by section 

17 436(b), is amended— 

18 (1) by striking ‘‘The’’ in subparagraph (E)(i) 

19 and inserting ‘‘Except as provided in subparagraph 

20 (G), the’’, and 

21 (2) by inserting after subparagraph (F) the fol22 lowing new subparagraph: 

23 ‘‘(G)(i) In the case of an employer who has 25 or 

24 fewer employees on the first day of the plan year, the addi25 tional premium determined under subparagraph (E) for 
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1 each participant shall not exceed $5 multiplied by the 

2 number of participants in the plan as of the close of the 

3 preceding plan year. 

4 ‘‘(ii) For purposes of clause (i), whether an employer 

5 has 25 or fewer employees on the first day of the plan 

6 year is determined by taking into consideration all of the 

7 employees of all members of the contributing sponsor’s 

8 controlled group. In the case of a plan maintained by two 

9 or more contributing sponsors, the employees of all con10 tributing sponsors and their controlled groups shall be ag11 gregated for purposes of determining whether the 25-or12 fewer-employees limitation has been satisfied.’’ 

13 (c) EFFECTIVE DATES.— 

14 (1) SUBSECTION (a).—The amendments made 

15 by subsection (a) shall apply to plans first effective 

16 after December 31, 2004. 

17 (2) SUBSECTION (b).—The amendments made 

18 by subsection (b) shall apply to plan years beginning 

19 after December 31, 2004. 

20 SEC. 438. AUTHORIZATION FOR PBGC TO PAY INTEREST ON 

21 PREMIUM OVERPAYMENT REFUNDS. 

22 (a) IN GENERAL.—Section 4007(b) of the Employ23 ment Retirement Income Security Act of 1974 (29 U.S.C. 

24 1307(b)) is amended— 
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1 (1) by striking ‘‘(b)’’ and inserting ‘‘(b)(1)’’, 

2 and 

3 (2) by inserting at the end the following new 

4 paragraph: 

5 ‘‘(2) The corporation is authorized to pay, subject to 

6 regulations prescribed by the corporation, interest on the 

7 amount of any overpayment of premium refunded to a des8 ignated payor. Interest under this paragraph shall be cal9 culated at the same rate and in the same manner as inter10 est is calculated for underpayments under paragraph (1).’’ 

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

12 subsection (a) shall apply to interest accruing for periods 

13 beginning not earlier than the date of the enactment of 

14 this Act. 

15 SEC. 439. SUBSTANTIAL OWNER BENEFITS IN TERMINATED 

16 PLANS. 

17 (a) MODIFICATION OF PHASE-IN OF GUARANTEE.— 

18 Section 4022(b)(5) of the Employee Retirement Income 

19 Security Act of 1974 (29 U.S.C. 1322(b)(5)) is amended 

20 to read as follows: 

21 ‘‘(5)(A) For purposes of this paragraph, the term 

22 ‘majority owner’ means an individual who, at any time 

23 during the 60-month period ending on the date the deter24 mination is being made— 
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1 ‘‘(i) owns the entire interest in an unincor2 porated trade or business, 

3 ‘‘(ii) in the case of a partnership, is a partner 

4 who owns, directly or indirectly, 50 percent or more 

5 of either the capital interest or the profits interest 

6 in such partnership, or 

7 ‘‘(iii) in the case of a corporation, owns, directly 

8 or indirectly, 50 percent or more in value of either 

9 the voting stock of that corporation or all the stock 

10 of that corporation. 

11 For purposes of clause (iii), the constructive ownership 

12 rules of section 1563(e) of the Internal Revenue Code of 

13 1986 shall apply (determined without regard to section 

14 1563(e)(3)(C)). 

15 ‘‘(B) In the case of a participant who is a majority 

16 owner, the amount of benefits guaranteed under this sec17 tion shall equal the product of— 

18 ‘‘(i) a fraction (not to exceed 1) the numerator 

19 of which is the number of years from the later of the 

20 effective date or the adoption date of the plan to the 

21 termination date, and the denominator of which is 

22 10, and 

23 ‘‘(ii) the amount of benefits that would be guar24 anteed under this section if the participant were not 

25 a majority owner.’’ 
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1 (b) MODIFICATION OF ALLOCATION OF ASSETS.— 

2 (1) Section 4044(a)(4)(B) of the Employee Re3 tirement Income Security Act of 1974 (29 U.S.C. 

4 1344(a)(4)(B)) is amended by striking ‘‘section 

5 4022(b)(5)’’ and inserting ‘‘section 4022(b)(5)(B)’’. 

6 (2) Section 4044(b) of such Act (29 U.S.C. 

7 1344(b)) is amended— 

8 (A) by striking ‘‘(5)’’ in paragraph (2) and 

9 inserting ‘‘(4), (5),’’, and 

10 (B) by redesignating paragraphs (3) 

11 through (6) as paragraphs (4) through (7), re12 spectively, and by inserting after paragraph (2) 

13 the following new paragraph: 

14 ‘‘(3) If assets available for allocation under 

15 paragraph (4) of subsection (a) are insufficient to 

16 satisfy in full the benefits of all individuals who are 

17 described in that paragraph, the assets shall be allo18 cated first to benefits described in subparagraph (A) 

19 of that paragraph. Any remaining assets shall then 

20 be allocated to benefits described in subparagraph 

21 (B) of that paragraph. If assets allocated to such 

22 subparagraph (B) are insufficient to satisfy in full 

23 the benefits described in that subparagraph, the as24 sets shall be allocated pro rata among individuals on 

25 the basis of the present value (as of the termination 
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1 date) of their respective benefits described in that 

2 subparagraph.’’ 

3 (c) CONFORMING AMENDMENTS.— 

4 (1) Section 4021 of the Employee Retirement 

5 Income Security Act of 1974 (29 U.S.C. 1321) is 

6 amended— 

7 (A) in subsection (b)(9), by striking ‘‘as 

8 defined in section 4022(b)(6)’’, and 

9 (B) by adding at the end the following new 

10 subsection: 

11 ‘‘(d) For purposes of subsection (b)(9), the term ‘sub12 stantial owner’ means an individual who, at any time dur13 ing the 60-month period ending on the date the determina14 tion is being made— 

15 ‘‘(1) owns the entire interest in an unincor16 porated trade or business, 

17 ‘‘(2) in the case of a partnership, is a partner 

18 who owns, directly or indirectly, more than 10 per19 cent of either the capital interest or the profits inter20 est in such partnership, or 

21 ‘‘(3) in the case of a corporation, owns, directly 

22 or indirectly, more than 10 percent in value of either 

23 the voting stock of that corporation or all the stock 

24 of that corporation. 
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1 For purposes of paragraph (3), the constructive ownership 

2 rules of section 1563(e) of the Internal Revenue Code of 

3 1986 shall apply (determined without regard to section 

4 1563(e)(3)(C)).’’ 

5 (2) Section 4043(c)(7) of such Act (29 U.S.C. 

6 1343(c)(7)) is amended by striking ‘‘section 

7 4022(b)(6)’’ and inserting ‘‘section 4021(d)’’. 

8 (d) EFFECTIVE DATES.— 

9 (1) IN GENERAL.—Except as provided in para10 graph (2), the amendments made by this section 

11 shall apply to plan terminations— 

12 (A) under section 4041(c) of the Employee 

13 Retirement Income Security Act of 1974 (29 

14 U.S.C. 1341(c)) with respect to which notices 

15 of intent to terminate are provided under sec16 tion 4041(a)(2) of such Act (29 U.S.C. 

17 1341(a)(2)) after December 31, 2004, and 

18 (B) under section 4042 of such Act (29 

19 U.S.C. 1342) with respect to which proceedings 

20 are instituted by the corporation after such 

21 date. 

22 (2) CONFORMING AMENDMENTS.—The amend23 ments made by subsection (c) shall take effect on 

24 January 1, 2005. 
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1 SEC. 440. VOLUNTARY EARLY RETIREMENT INCENTIVE AND 

2 EMPLOYMENT RETENTION PLANS MAIN3 TAINED BY LOCAL EDUCATIONAL AGENCIES 

4 AND OTHER ENTITIES. 

5 (a) VOLUNTARY EARLY RETIREMENT INCENTIVE

6 PLANS.— 

7 (1) TREATMENT AS PLAN PROVIDING SEVER8 ANCE PAY.—Section 457(e)(11) of the Internal Rev9 enue Code of 1986 (relating to certain plans ex10 cluded) is amended by adding at the end the fol11 lowing new subparagraph: 

12 ‘‘(D) CERTAIN VOLUNTARY EARLY RETIRE13 MENT INCENTIVE PLANS.— 

14 ‘‘(i) IN GENERAL.—If an applicable 

15 voluntary early retirement incentive plan— 

16 ‘‘(I) makes payments or supple17 ments as an early retirement benefit, 

18 a retirement-type subsidy, or a benefit 

19 described in the last sentence of sec20 tion 411(a)(9), and 

21 ‘‘(II) such payments or supple22 ments are made in coordination with 

23 a defined benefit plan which is de24 scribed in section 401(a) and includes 

25 a trust exempt from tax under section 

26 501(a) and which is maintained by an 
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1 eligible employer described in para2 graph (1)(A) or by an education asso3 ciation described in clause (ii)(II), 

4 such applicable plan shall be treated for 

5 purposes of subparagraph (A)(i) as a bona 

6 fide severance pay plan with respect to 

7 such payments or supplements to the ex8 tent such payments or supplements could 

9 otherwise have been provided under such 

10 defined benefit plan (determined as if sec11 tion 411 applied to such defined benefit 

12 plan). 

13 ‘‘(ii) APPLICABLE VOLUNTARY EARLY

14 RETIREMENT INCENTIVE PLAN.—For pur15 poses of this subparagraph, the term ‘ap16 plicable voluntary early retirement incen17 tive plan’ means a voluntary early retire18 ment incentive plan maintained by— 

19 ‘‘(I) a local educational agency 

20 (as defined in section 9101 of the Ele21 mentary and Secondary Education 

22 Act of 1965 (20 U.S.C. 7801)), or 

23 ‘‘(II) an education association 

24 which principally represents employees 

25 of 1 or more agencies described in 
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1 subclause (I) and which is described 

2 in section 501(c) (5) or (6) and ex3 empt from tax under section 501(a).’’ 

4 (2) AGE DISCRIMINATION IN EMPLOYMENT

5 ACT.—Section 4(l)(1) of the Age Discrimination in 

6 Employment Act of 1967 (29 U.S.C. 623(l)(1)) is 

7 amended— 

8 (A) by inserting ‘‘(A)’’ after ‘‘(1)’’, 

9 (B) by redesignating subparagraphs (A) 

10 and (B) as clauses (i) and (ii), respectively, 

11 (C) by redesignating clauses (i) and (ii) of 

12 subparagraph (B) (as in effect before the 

13 amendments made by subparagraph (B)) as 

14 subclauses (I) and (II), respectively, and 

15 (D) by adding at the end the following: 

16 ‘‘(B) A voluntary early retirement incen17 tive plan that— 

18 ‘‘(i) is maintained by— 

19 ‘‘(I) a local educational agency 

20 (as defined in section 9101 of the Ele21 mentary and Secondary Education 

22 Act of 1965 (20 U.S.C. 7801), or 

23 ‘‘(II) an education association 

24 which principally represents employees 

25 of 1 or more agencies described in 
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1 subclause (I) and which is described 

2 in section 501(c) (5) or (6) of the In3 ternal Revenue Code of 1986 and ex4 empt from taxation under section 

5 501(a) of such Code, and 

6 ‘‘(ii) makes payments or supplements 

7 described in subclauses (I) and (II) of sub8 paragraph (A)(ii) in coordination with a 

9 defined benefit plan (as so defined) main10 tained by an eligible employer described in 

11 section 457(e)(1)(A) of such Code or by an 

12 education association described in clause 

13 (i)(II), 

14 shall be treated solely for purposes of subpara15 graph (A)(ii) as if it were a part of the defined 

16 benefit plan with respect to such payments or 

17 supplements. Payments or supplements under 

18 such a voluntary early retirement incentive plan 

19 shall not constitute severance pay for purposes 

20 of section 4(l)(2) of the Age Discrimination in 

21 Employment Act (29 U.S.C. 623(l)(2)).’’ 

22 (b) EMPLOYMENT RETENTION PLANS.— 

23 (1) IN GENERAL.—Section 457(f)(2) of the In24 ternal Revenue Code of 1986 (relating to exceptions) 

25 is amended by striking ‘‘and’’ at the end of subpara-
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1 graph (D), by striking the period at the end of sub2 paragraph (E) and inserting ‘‘, and’’, and by adding 

3 at the end the following: 

4 ‘‘(F) that portion of any applicable employ5 ment retention plan described in paragraph (4) 

6 with respect to any participant.’’ 

7 (2) DEFINITIONS AND RULES RELATING TO EM8 PLOYMENT RETENTION PLANS.—Section 457(f) of 

9 such Code is amended by adding at the end the fol10 lowing new paragraph: 

11 ‘‘(4) EMPLOYMENT RETENTION PLANS.—For 

12 purposes of paragraph (2)(F)— 

13 ‘‘(A) IN GENERAL.—The portion of an ap14 plicable employment retention plan described in 

15 this paragraph with respect to any participant 

16 is that portion of the plan which provides bene17 fits payable to the participant not in excess of 

18 twice the applicable dollar limit determined 

19 under subsection (e)(15). 

20 ‘‘(B) OTHER RULES.— 

21 ‘‘(i) LIMITATION.—Paragraph (2)(F) 

22 shall only apply to the portion of the plan 

23 described in subparagraph (A) for years 

24 preceding the year in which such portion is 
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1 paid or otherwise made available to the 

2 participant. 

3 ‘‘(ii) TREATMENT.—A plan shall not 

4 be treated for purposes of this title as pro5 viding for the deferral of compensation for 

6 any year with respect to the portion of the 

7 plan described in subparagraph (A). 

8 ‘‘(C) APPLICABLE EMPLOYMENT RETEN9 TION PLAN.—The term ‘applicable employment 

10 retention plan’ means an employment retention 

11 plan maintained by— 

12 ‘‘(i) a local educational agency (as de13 fined in section 9101 of the Elementary 

14 and Secondary Education Act of 1965 (20 

15 U.S.C. 7801), or 

16 ‘‘(ii) an education association which 

17 principally represents employees of 1 or 

18 more agencies described in clause (i) and 

19 which is described in section 501(c) (5) or 

20 (6) and exempt from taxation under sec21 tion 501(a). 

22 ‘‘(D) EMPLOYMENT RETENTION PLAN.— 

23 The term ‘employment retention plan’ means a 

24 plan to pay, upon termination of employment, 

25 compensation to an employee of a local edu-
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1 cational agency or education association de2 scribed in subparagraph (C) for purposes of— 

3 ‘‘(i) retaining the services of the em4 ployee, or 

5 ‘‘(ii) rewarding such employee for the 

6 employee’s service with 1 or more such 

7 agencies or associations.’’ 

8 (c) COORDINATION WITH ERISA.—Section 3(2)(B) 

9 of the Employee Retirement Income Security Act of 1974 

10 (29 U.S.C. 1002(2)(B)) is amended by adding at the end 

11 the following: ‘‘An applicable voluntary early retirement 

12 incentive plan (as defined in section 457(e)(11)(D)(ii) of 

13 the Internal Revenue Code of 1986) making payments or 

14 supplements described in section 457(e)(11)(D)(i) of such 

15 Code, and an applicable employment retention plan (as de16 fined in section 457(f)(4)(C) of such Code) making pay17 ments of benefits described in section 457(f)(4)(A) of such 

18 Code, shall, for purposes of this title, be treated as a wel19 fare plan (and not a pension plan) with respect to such 

20 payments and supplements.’’ 

21 (d) EFFECTIVE DATES.— 

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

23 this Act shall take effect on the date of the enact24 ment of this Act. 
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1 (2) TAX AMENDMENTS.—The amendments 

2 made by subsections (a)(1) and (b) shall apply to 

3 taxable years ending after the date of the enactment 

4 of this Act. 

5 (3) ERISA AMENDMENTS.—The amendment 

6 made by subsection (c) shall apply to plan years 

7 ending after the date of the enactment of this Act. 

8 (4) CONSTRUCTION.—Nothing in the amend9 ments made by this section shall alter or affect the 

10 construction of the Internal Revenue Code of 1986, 

11 the Employee Retirement Income Security Act of 

12 1974, or the Age Discrimination in Employment Act 

13 of 1967 as applied to any plan, arrangement, or con14 duct to which such amendments do not apply. 

15 SEC. 441. ACCELERATION OF COMPUTATION OF BENEFITS 

16 ATTRIBUTABLE TO RECOVERIES OF EM17 PLOYER LIABILITY. 

18 (a) MODIFICATION OF AVERAGE RECOVERY PER19 CENTAGE OF OUTSTANDING AMOUNT OF BENEFIT LI20 ABILITIES PAYABLE BY CORPORATION TO PARTICIPANTS

21 AND BENEFICIARIES.—Section 4022(c)(3)(B)(ii) of the 

22 Employee Retirement Income Security Act of 1974 (29 

23 U.S.C. 1322(c)(3)(B)(ii)) is amended to read as follows: 

24 ‘‘(ii) notices of intent to terminate 

25 were provided (or in the case of a termi-
165 

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1 nation by the corporation, a notice of de2 termination under section 4042 was 

3 issued) during the 5-Federal fiscal year pe4 riod ending with the third fiscal year pre5 ceding the fiscal year in which occurs the 

6 date of the notice of intent to terminate 

7 (or the notice of determination under sec8 tion 4042) with respect to the plan termi9 nation for which the recovery ratio is being 

10 determined.’’ 

11 (b) VALUATION OF SECTION 4062(c) LIABILITY FOR

12 DETERMINING AMOUNTS PAYABLE BY CORPORATION TO

13 PARTICIPANTS AND BENEFICIARIES.—Section 4044 of the 

14 Employee Retirement Income Security Act of 1974 (29 

15 U.S.C. 1362) is amended by adding at the end the fol16 lowing new subsection: 

17 ‘‘(e) VALUATION OF SECTION 4062(c) LIABILITY FOR

18 DETERMINING AMOUNTS PAYABLE BY CORPORATION TO

19 PARTICIPANTS AND BENEFICIARIES.— 

20 ‘‘(1) IN GENERAL.—In the case of a terminated 

21 plan, the value of the recovery of liability under sec22 tion 4062(c) allocable as a plan asset under this sec23 tion for purposes of determining the amount of ben24 efits payable by the corporation shall be determined 

25 by multiplying— 
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1 ‘‘(A) the amount of liability under section 

2 4062(c) as of the termination date of the plan, 

3 by 

4 ‘‘(B) the applicable section 4062(c) recov5 ery ratio. 

6 ‘‘(2) SECTION 4062(c) RECOVERY RATIO.—For 

7 purposes of this subsection— 

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

9 subparagraph (C), the term ‘section 4062(c) re10 covery ratio’ means the average, determined 

11 with respect to prior plan terminations de12 scribed in subparagraph (B), of the ratio 

13 which— 

14 ‘‘(i) the value of the recovery under 

15 section 4062(c) determined by the corpora16 tion in connection with any such prior ter17 mination, bears to 

18 ‘‘(ii) the amount of liability under sec19 tion 4062(c) with respect to such plans as 

20 of the termination date in connection with 

21 any such prior termination. 

22 ‘‘(B) PRIOR TERMINATIONS.—A plan ter23 mination described in this subparagraph is a 

24 termination with respect to which— 
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1 ‘‘(i) the value of recoveries under sec2 tion 4062(c) have been determined by the 

3 corporation, and 

4 ‘‘(ii) notices of intent to terminate 

5 were provided (or in the case of a termi6 nation by the corporation, a notice of de7 termination under section 4042 was 

8 issued) during the 5-Federal fiscal year pe9 riod ending with the third fiscal year pre10 ceding the fiscal year in which occurs the 

11 date of the notice of intent to terminate 

12 (or the notice of determination under sec13 tion 4042) with respect to the plan termi14 nation for which the recovery ratio is being 

15 determined. 

16 ‘‘(C) EXCEPTION.—In the case of a termi17 nated plan with respect to which the out18 standing amount of benefit liabilities exceeds 

19 $20,000,000, the term ‘section 4062(c) recovery 

20 ratio’ means, with respect to the termination of 

21 such plan, the ratio of— 

22 ‘‘(i) the value of the recoveries on be23 half of the plan under section 4062(c), to 

24 ‘‘(ii) the amount of the liability owed 

25 under section 4062(c) as of the date of 
168 

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1 plan termination to the trustee appointed 

2 under section 4042 (b) or (c). 

3 ‘‘(3) SUBSECTION NOT TO APPLY.—This sub4 section shall not apply with respect to the deter5 mination of— 

6 ‘‘(A) whether the amount of outstanding 

7 benefit liabilities exceeds $20,000,000, or 

8 ‘‘(B) the amount of any liability under sec9 tion 4062 to the corporation or the trustee ap10 pointed under section 4042 (b) or (c). 

11 ‘‘(4) DETERMINATIONS.—Determinations under 

12 this subsection shall be made by the corporation. 

13 Such determinations shall be binding unless shown 

14 by clear and convincing evidence to be unreasonable.’’ 

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

16 this section shall apply for any termination for which no17 tices of intent to terminate are provided (or in the case 

18 of a termination by the corporation, a notice of determina19 tion under section 4042 is issued) on or after the date 

20 which is 30 days after the date of enactment of this sec21 tion. 
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1 SEC. 442. MULTIEMPLOYER PLAN FUNDING AND SOLVENCY 

2 NOTICES. 

3 (a) IN GENERAL.—Section 101(f) of the Employee 

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

5 1021(f)) is amended to read as follows: 

6 ‘‘(f) MULTIEMPLOYER DEFINED BENEFIT PLAN

7 FUNDING AND SOLVENCY NOTICES.— 

8 ‘‘(1) IN GENERAL.—The administrator of a de9 fined benefit plan which is a multiemployer plan 

10 shall provide to each plan participant and bene11 ficiary, to each labor organization representing such 

12 participants or beneficiaries, and to each employer 

13 that has an obligation to contribute under the 

14 plan— 

15 ‘‘(A) a plan funding notice for each plan 

16 year, and 

17 ‘‘(B) if, for any plan year, the value of the 

18 plan’s assets is less than an amount equal to 5 

19 times the amount of benefit payments, a multi20 employer plan solvency notice. 

21 ‘‘(2) INFORMATION CONTAINED IN NOTICES.— 

22 ‘‘(A) IDENTIFYING INFORMATION.—Each 

23 notice required under paragraph (1) shall con24 tain identifying information, including the name 

25 of the plan, the address and phone number of 

26 the plan administrator and the plan’s principal 
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1 administrative officer, each plan sponsor’s em2 ployer identification number, and the plan num3 ber of the plan. 

4 ‘‘(B) SPECIFIC INFORMATION RELATING

5 TO FUNDING NOTICE.—A plan funding notice 

6 under paragraph (1)(A) shall include— 

7 ‘‘(i) a statement as to whether the 

8 plan’s funded current liability percentage 

9 (as defined in section 302(d)(9)(C)) for the 

10 plan year to which the notice relates is at 

11 least 100 percent (and, if not, the actual 

12 percentage), and 

13 ‘‘(ii) a general description of the bene14 fits under the plan which are eligible to be 

15 guaranteed by the Pension Benefit Guar16 anty Corporation, along with an expla17 nation of the limitations on the guarantee 

18 and the circumstances under which such 

19 limitations apply. 

20 ‘‘(C) SPECIFIC INFORMATION RELATING TO

21 SOLVENCY NOTICE.—A plan solvency notice 

22 under paragraph (1)(B) shall include— 

23 ‘‘(i) a statement of the value of the 

24 plan’s assets, the amount of benefit pay25 ments, and the ratio of the assets to the 
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1 payments for the plan year to which the 

2 notice relates, 

3 ‘‘(ii) a summary of the rules gov4 erning insolvent multiemployer plans, in5 cluding the limitations on benefit payments 

6 and any potential benefit reductions and 

7 suspensions (and the potential effects of 

8 such limitations, reductions, and suspen9 sions on the plan), and 

10 ‘‘(iii) a general description of the ben11 efits under the plan which are eligible to be 

12 guaranteed by the Pension Benefit Guar13 anty Corporation, along with an expla14 nation of the limitations on the guarantee 

15 and the circumstances under which such 

16 limitations apply. 

17 ‘‘(D) OTHER INFORMATION.—Each notice 

18 under paragraph (1) shall include any addi19 tional information which the plan administrator 

20 elects to include. 

21 ‘‘(3) TIME FOR PROVIDING NOTICE.—Any no22 tice under paragraph (1) shall be provided no later 

23 than two months after the deadline (including exten24 sions) for filing the annual report for the plan year 

25 to which the notice relates and may be issued to-
172 

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1 gether with another document, including the sum2 mary annual report required under section 

3 104(b)(3). The notices under paragraph (1) (A) and 

4 (B) for any plan year may be provided together. 

5 ‘‘(4) FORM AND MANNER.—Any notice under 

6 paragraph (1)— 

7 ‘‘(A) shall be provided in a form and man8 ner prescribed in regulations of the Pension 

9 Benefit Guaranty Corporation, 

10 ‘‘(B) shall be written in a manner so as to 

11 be understood by the average plan participant, 

12 and 

13 ‘‘(C) may be provided in written, elec14 tronic, or other appropriate form to the extent 

15 such form is reasonably accessible to plan par16 ticipants and beneficiaries.’’ 

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

18 this section shall apply to plan years beginning after De19 cember 31, 2005. 

20 SEC. 443. NO REDUCTION IN UNEMPLOYMENT COMPENSA21 TION AS A RESULT OF PENSION ROLLOVERS. 

22 (a) IN GENERAL.—Section 3304(a) of the Internal 

23 Revenue Code of 1986 (relating to requirements for State 

24 unemployment laws) is amended by adding at the end the 

25 following new flush sentence: 
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1 ‘‘Compensation shall not be reduced under paragraph (15) 

2 for any pension, retirement or retired pay, annuity, or 

3 similar payment which is not includible in gross income 

4 of the individual for the taxable year in which paid because 

5 it was part of a rollover distribution.’’ 

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

7 this section shall apply to weeks beginning on or after the 

8 date of the enactment of this Act. 

9 SEC. 444. WITHHOLDING ON DISTRIBUTIONS FROM GOV10 ERNMENTAL SECTION 457 PLANS. 

11 (a) IN GENERAL.—Section 641(f) of the Economic 

12 Growth and Tax Relief Reconciliation Act of 2001 is 

13 amended by adding at the end the following new para14 graph: 

15 ‘‘(4) TRANSITION RULE FOR CERTAIN GOVERN16 MENTAL PLANS.—In the case of distributions from 

17 an eligible deferred compensation plan of an em18 ployer described in section 457(e)(1)(A) of the Inter19 nal Revenue Code of 1986 which are made after De20 cember 31, 2001, and which are part of a series of 

21 distributions which— 

22 ‘‘(A) began before January 1, 2002, and 

23 ‘‘(B) are payable for 10 years or less, 
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1 the Internal Revenue Code of 1986 may be applied 

2 to such distributions without regard to the amend3 ments made by subsection (a)(1)(D).’’ 

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

5 subsection (a) shall take effect as if included in the provi6 sions of section 641 of the Economic Growth and Tax Re7 lief Reconciliation Act of 2001. 

8 SEC. 445. MINIMUM COST REQUIREMENTS. 

9 (a) IN GENERAL.—Section 420(c)(3)(E) of the Inter10 nal Revenue Code of 1986 is amended by adding at the 

11 end the following new clause: 

12 ‘‘(ii) INSIGNIFICANT COST REDUC13 TIONS PERMITTED.—An employer shall not 

14 be treated as failing to meet the require15 ments of this paragraph for any taxable 

16 year if, in lieu of any reduction of retiree 

17 health coverage permitted under the regu18 lations prescribed under clause (i), the em19 ployer reduces applicable employer cost by 

20 an amount not in excess of the reduction 

21 in costs which would have occurred if the 

22 employer had made the maximum permis23 sible reduction in retiree health coverage 

24 under such regulations. In applying such 

25 regulations to any subsequent taxable year, 
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1 any reduction in applicable employer cost 

2 under this clause shall be treated as if it 

3 were an equivalent reduction in retiree 

4 health coverage.’’ 

5 (b) CONFORMING AMENDMENT.—Section 

6 420(c)(3)(E) of such Code is amended by striking ‘‘The 

7 Secretary’’ and inserting: 

8 ‘‘(i) IN GENERAL.—The Secretary’’. 

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

10 this section shall apply to taxable years ending after the 

11 date of the enactment of this Act. 

12 Subtitle D—Studies 

13 SEC. 451. JOINT STUDY ON REVITALIZING DEFINED BEN14 EFIT PLANS. 

15 (a) STUDY.—As soon as practicable after the date of 

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

17 the Secretary of Labor, and the Executive Director of the 

18 Pension Benefit Guaranty Corporation shall jointly under19 take a study on ways to revitalize interest in defined ben20 efit plans among employers. In conducting such study, the 

21 Secretaries and the Executive Director shall consider— 

22 (1) ways to encourage the establishment of de23 fined benefit plans by small- and mid-sized employ24 ers, 
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1 (2) ways to encourage the continued mainte2 nance of defined benefit plans by larger employers, 

3 and 

4 (3) legislative proposals to accomplish the objec5 tives described in paragraphs (1) and (2). 

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

7 of the enactment of this Act, the Secretaries and the Exec8 utive Director shall report the results of the study, to9 gether with any recommendations for legislative changes, 

10 to the Committees on Ways and Means and Education and 

11 the Workforce of the House of Representatives and the 

12 Committees on Finance and Health, Education, Labor, 

13 and Pensions of the Senate. 

14 SEC. 452. STUDY ON FLOOR-OFFSET ESOPS. 

15 (a) STUDY.—As soon as practicable after the date of 

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

17 and the Pension Benefit Guaranty Corporation shall un18 dertake a study to determine the number of floor-offset 

19 employee stock ownership plans still in existence and the 

20 extent to which such plans pose a risk to plan participants 

21 or beneficiaries and to the Corporation. Such study shall 

22 consider legislative proposals to address such risks. 

23 (b) REPORT.—Not later than 1 year after the date 

24 of the enactment of this Act, the Secretary and the Cor25 poration shall report the results of the study, together 
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1 with any recommendations for legislative changes, to the 

2 Committees on Ways and Means and Education and the 

3 Workforce of the House of Representatives and the Com4 mittees on Finance and Health, Education, Labor, and 

5 Pensions of the Senate. 

6 Subtitle E—Other Provisions 

7 SEC. 461. ALLOWANCE OF CATCHUP PAYMENTS. 

8 (a) IN GENERAL.—Section 219(b)(5) of the Internal 

9 Revenue Code of 1986 (relating to deductible amount) is 

10 amended by redesignating subparagraph (C) as subpara11 graph (D) and by inserting after subparagraph (B) the 

12 following new subparagraph: 

13 ‘‘(C) CATCHUP CONTRIBUTIONS FOR CER14 TAIN INDIVIDUALS.— 

15 ‘‘(i) IN GENERAL.—In the case of an 

16 eligible individual who elects to make a 

17 qualified retirement contribution in addi18 tion to the deductible amount determined 

19 under subparagraph (A)— 

20 ‘‘(I) the deductible amount for 

21 any taxable year shall be increased by 

22 an amount equal to 3 times the appli23 cable amount determined under sub24 paragraph (B) for such taxable year, 

25 and 
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1 ‘‘(II) subparagraph (B) shall not 

2 apply. 

3 ‘‘(ii) ELIGIBLE INDIVIDUAL.—For 

4 purposes of this subparagraph, the term 

5 ‘eligible individual’ means, with respect to 

6 any taxable year, any individual who was a 

7 qualified participant in a qualified cash or 

8 deferred arrangement (as defined in sec9 tion 401(k)) of an employer described in 

10 clause (ii) under which the employer 

11 matched at least 50 percent of the employ12 ee’s contributions to such arrangement 

13 with stock of such employer. 

14 ‘‘(iii) EMPLOYER DESCRIBED.—An 

15 employer is described in this clause if, in 

16 any taxable year preceding the taxable year 

17 described in clause (ii)— 

18 ‘‘(I) such employer (or any con19 trolling corporation of such employer) 

20 was a debtor in a case under title 11 

21 of the United States Code, or similar 

22 Federal or State law, and 

23 ‘‘(II) such employer (or any other 

24 person) was subject to an indictment 
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1 or conviction resulting from business 

2 transactions related to such case. 

3 ‘‘(iv) QUALIFIED PARTICIPANT.—For 

4 purposes of clause (ii), the term ‘qualified 

5 participant’ means any eligible individual 

6 who was a participant in the cash or de7 ferred arrangement described in clause (i) 

8 on the date that is 6 months before the fil9 ing of the case described in clause (iii). 

10 ‘‘(v) TERMINATION.—This subpara11 graph shall not apply to taxable years be12 ginning after December 31, 2008.’’ 

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

14 this section shall apply to taxable years beginning after 

15 December 31, 2003. 

16 SEC. 462. TREATMENT OF DISTRIBUTIONS BY ESOPS WITH 

17 RESPECT TO S CORPORATION STOCK. 

18 (a) IN GENERAL.—Section 4975(d) of the Internal 

19 Revenue Code of 1986 is amended by adding at the end 

20 the following new flush sentences: 

21 ‘‘A plan shall not be treated as violating the requirements 

22 of section 401, 409, or subsection (e)(7), or as engaging 

23 in a prohibited transaction for purposes of paragraph (3), 

24 merely by reason of any distribution described in section 

25 1368(a) with respect to S corporation stock which con-
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1 stitutes qualifying employer securities if the distribution 

2 is, in accordance with the plan provisions, used to make 

3 payments on a loan described in paragraph (3) the pro4 ceeds of which were used to acquire the qualifying em5 ployer securities (whether or not allocated to participants). 

6 The preceding sentence shall not apply in the case of a 

7 distribution which is paid with respect to any employer 

8 security which is allocated to a participant unless the plan 

9 provides that employer securities with a fair market value 

10 of not less than the amount of such distribution are allo11 cated to such participant for the year which (but for the 

12 preceding sentence) such distribution would have been al13 located to such participant.’’ 

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

15 this section shall take effect on January 1, 1998. 

16 SEC. 463. TRANSFER OF EXCESS PENSION ASSETS TO MUL17 TIEMPLOYER HEALTH PLAN. 

18 (a) IN GENERAL.—Section 420(e) of the Internal 

19 Revenue Code of 1986 (relating to definitions and special 

20 rules) is amended by adding at the end the following new 

21 paragraph: 

22 ‘‘(5) APPLICATION TO MULTIEMPLOYER

23 PLAN.—In the case of any plan to which section 

24 404(c) applies (or any successor plan primarily cov-
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1 ering employees in the building and construction in2 dustry)— 

3 ‘‘(A) the prohibition under subsection (a) 

4 on the application of this section to a multiem5 ployer plan shall not apply, and 

6 ‘‘(B) this section shall be applied to any 

7 such plan— 

8 ‘‘(i) by treating any reference in this 

9 section to an employer as a reference to all 

10 employers maintaining the plan (or, if ap11 propriate, the plan sponsor), and 

12 ‘‘(ii) in accordance with such modi13 fications of this section (and the provisions 

14 of this title and the Employee Retirement 

15 Income Security Act of 1974 relating to 

16 this section) as the Secretary determines 

17 appropriate to reflect the fact the plan is 

18 not maintained by a single employer.’’ 

19 (b) AMENDMENTS OF ERISA.— 

20 (1) Section 101(e)(3) of the Employee Retire21 ment Income Security Act of 1974 (29 U.S.C. 

22 1021(e)(3)) is amended by striking ‘‘Pension Fund23 ing Equity Act of 2004’’ and inserting ‘‘National 

24 Employee Savings and Trust Equity Guarantee Act 

25 of 2004’’. 
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1 (2) Section 403(c)(1) of such Act (29 U.S.C. 

2 1103(c)(1)) is amended by striking ‘‘Pension Fund3 ing Equity Act of 2004’’ and inserting ‘‘National 

4 Employee Savings and Trust Equity Guarantee Act 

5 of 2004’’. 

6 (3) Section 408(b)(13) of such Act (29 U.S.C. 

7 1108(b)(13)) is amended by striking ‘‘Pension 

8 Funding Equity Act of 2004’’ and inserting ‘‘Na9 tional Employee Savings and Trust Equity Guar10 antee Act of 2004’’. 

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

12 this section shall apply to transfers made in taxable years 

13 beginning after December 31, 2004. 

14 Subtitle F—Plan Amendments 

15 SEC. 471. PROVISIONS RELATING TO PLAN AMENDMENTS. 

16 (a) IN GENERAL.—If this section applies to any plan 

17 or contract amendment— 

18 (1) such plan or contract shall be treated as 

19 being operated in accordance with the terms of the 

20 plan during the period described in subsection 

21 (b)(2)(A), and 

22 (2) except as provided by the Secretary of the 

23 Treasury, such plan shall not fail to meet the re24 quirements of section 411(d)(6) of the Internal Rev25 enue Code of 1986 and section 204(g) of the Em-
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1 ployee Retirement Income Security Act of 1974 by 

2 reason of such amendment. 

3 (b) AMENDMENTS TO WHICH SECTION APPLIES.— 

4 (1) IN GENERAL.—This section shall apply to 

5 any amendment to any plan or annuity contract 

6 which is made— 

7 (A) pursuant to any amendment made by 

8 this Act or the Economic Growth and Tax Re9 lief Reconciliation Act of 2001, or pursuant to 

10 any regulation issued by the Secretary of the 

11 Treasury or the Secretary of Labor under such 

12 Acts, and 

13 (B) on or before the last day of the first 

14 plan year beginning on or after January 1, 

15 2006, or such later date as the Secretary of the 

16 Treasury may prescribe. 

17 In the case of a governmental plan (as defined in 

18 section 414(d) of the Internal Revenue Code of 

19 1986), subparagraph (B) shall be applied by sub20 stituting the date which is 2 years after the date 

21 otherwise applied under subparagraph (B). 

22 (2) CONDITIONS.—This section shall not apply 

23 to any amendment unless— 

24 (A) during the period— 
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1 (i) beginning on the date the legisla2 tive or regulatory amendment described in 

3 paragraph (1)(A) takes effect (or in the 

4 case of a plan or contract amendment not 

5 required by such legislative or regulatory 

6 amendment, the effective date specified by 

7 the plan), and 

8 (ii) ending on the date described in 

9 paragraph (1)(B) (or, if earlier, the date 

10 the plan or contract amendment is adopt11 ed), 

12 the plan or contract is operated as if such plan 

13 or contract amendment were in effect; and 

14 (B) such plan or contract amendment ap15 plies retroactively for such period. 
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1 TITLE V—PROVISIONS RELAT2 ING TO EXECUTIVES AND 

3 STOCK OPTIONS 

4 Subtitle A—Provisions Relating to 

5 Executives 

6 SEC. 501. REPEAL OF 1978 REVENUE ACT LIMITATION ON 

7 SECRETARY OF THE TREASURY’S AUTHORITY 

8 TO DETERMINE YEAR OF INCLUSION OF 

9 AMOUNTS UNDER PRIVATE DEFERRED COM10 PENSATION PLANS. 

11 (a) REPEAL.—Section 132 of the Revenue Act of 

12 1978 (Public Law 95–600) is repealed. 

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

14 this section shall apply to taxable years beginning after 

15 the date of the enactment of this Act. 

16 SEC. 502. TREATMENT OF NONQUALIFIED DEFERRED COM17 PENSATION PLANS. 

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

19 D of chapter 1 is amended by adding at the end the fol20 lowing new section: 

21 ‘‘SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED 

22 COMPENSATION UNDER NONQUALIFIED DE23 FERRED COMPENSATION PLANS. 

24 ‘‘(a) RULES RELATING TO CONSTRUCTIVE RE25 CEIPT.— 
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1 ‘‘(1) IN GENERAL.— 

2 ‘‘(A) GROSS INCOME INCLUSION.—If at 

3 any time during a taxable year a nonqualified 

4 deferred compensation plan— 

5 ‘‘(i) fails to meet the requirements of 

6 paragraphs (2), (3), (4), and (5), or 

7 ‘‘(ii) is not operated in accordance 

8 with such requirements, 

9 all compensation deferred under the plan for 

10 the taxable year and all preceding taxable years 

11 shall be includible in gross income for the tax12 able year to the extent not subject to a substan13 tial risk of forfeiture and not previously in14 cluded in gross income. 

15 ‘‘(B) INTEREST AND ADDITIONAL TAX

16 PAYABLE WITH RESPECT TO PREVIOUSLY DE17 FERRED COMPENSATION.— 

18 ‘‘(i) IN GENERAL.—If compensation is 

19 required to be included in gross income 

20 under subparagraph (A) for a taxable year, 

21 the tax imposed by this chapter for the 

22 taxable year of inclusion shall be increased 

23 by the sum of— 

24 ‘‘(I) the amount of interest deter25 mined under clause (ii), and 
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1 ‘‘(II) an amount equal to 10 per2 cent of the compensation which is re3 quired to be included in gross income. 

4 ‘‘(ii) INTEREST.—For purposes of 

5 clause (i), the interest determined under 

6 this clause for any taxable year is the 

7 amount of interest at the underpayment 

8 rate on the underpayments that would have 

9 occurred had the deferred compensation 

10 been includible in gross income for the tax11 able year in which first deferred or, if later, 

12 the first taxable year in which such deferred 

13 compensation is not subject to a substantial 

14 risk of forfeiture. 

15 ‘‘(2) DISTRIBUTIONS.— 

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

17 this paragraph are met if the plan provides that 

18 compensation deferred under the plan may not 

19 be distributed earlier than— 

20 ‘‘(i) except as provided in subpara21 graph (B)(i), separation from service (as 

22 determined by the Secretary), 

23 ‘‘(ii) the date the participant becomes 

24 disabled (within the meaning of subpara25 graph (C)), 
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1 ‘‘(iii) death, 

2 ‘‘(iv) a specified time (or pursuant to 

3 a fixed schedule) specified under the plan 

4 as of the date of the deferral of such com5 pensation, 

6 ‘‘(v) to the extent provided by the 

7 Secretary, a change in the ownership or ef8 fective control of the corporation, or in the 

9 ownership of a substantial portion of the 

10 assets of the corporation, or 

11 ‘‘(vi) the occurrence of an unforesee12 able emergency. 

13 ‘‘(B) SPECIAL RULES.— 

14 ‘‘(i) SEPARATION FROM SERVICE OF

15 SPECIFIED EMPLOYEES.—In the case of 

16 specified employees, the requirement of 

17 subparagraph (A)(i) is met only if distribu18 tions may not be made earlier than 6 

19 months after the date of separation from 

20 service. For purposes of the preceding sen21 tence, a specified employee is a key em22 ployee (as defined in section 416(i)) of a 

23 corporation the stock in which is publicly 

24 traded on an established securities market 

25 or otherwise. 
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1 ‘‘(ii) CHANGES IN OWNERSHIP OR

2 CONTROL.—In the case of a participant 

3 who is subject to the requirements of sec4 tion 16(a) of the Securities Exchange Act 

5 of 1934, the requirement of subparagraph 

6 (A)(v) is met only if distributions may not 

7 be made earlier than 1 year after the date 

8 of the change in ownership or effective 

9 control. 

10 ‘‘(iii) UNFORESEEABLE EMER11 GENCY.—For purposes of subparagraph 

12 (A)(vi)— 

13 ‘‘(I) IN GENERAL.—The term 

14 ‘unforeseeable emergency’ means a se15 vere financial hardship to the partici16 pant or beneficiary resulting from a 

17 sudden and unexpected illness or acci18 dent of the participant or beneficiary, 

19 the participant’s or beneficiary’s 

20 spouse, or the participant’s or bene21 ficiary’s dependent (as defined in sec22 tion 152(a)), loss of the participant’s 

23 or beneficiary’s property due to cas24 ualty, or other similar extraordinary 

25 and unforeseeable circumstances aris-
190 

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1 ing as a result of events beyond the 

2 control of the participant or bene3 ficiary. 

4 ‘‘(II) LIMITATION ON DISTRIBU5 TIONS.—The requirement of subpara6 graph (A)(vi) is met only if, as deter7 mined under regulations of the Sec8 retary, the amounts distributed with 

9 respect to an emergency do not exceed 

10 the amounts necessary to satisfy such 

11 emergency plus amounts necessary to 

12 pay taxes reasonably anticipated as a 

13 result of the distribution, after taking 

14 into account the extent to which such 

15 hardship is or may be relieved through 

16 reimbursement or compensation by in17 surance or otherwise or by liquidation 

18 of the participant’s or beneficiary’s as19 sets (to the extent the liquidation of 

20 such assets would not itself cause se21 vere financial hardship). 

22 ‘‘(C) DISABLED.—For purposes of sub23 paragraph (A)(ii), a participant shall be consid24 ered disabled if the participant— 
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1 ‘‘(i) is unable to engage in any sub2 stantial gainful activity by reason of any 

3 medically determinable physical or mental 

4 impairment which can be expected to result 

5 in death or can be expected to last for a 

6 continuous period of not less than 12 

7 months, or 

8 ‘‘(ii) is, by reason of any medically de9 terminable physical or mental impairment 

10 which can be expected to result in death or 

11 can be expected to last for a continuous 

12 period of not less than 12 months, receiv13 ing income replacement benefits for a pe14 riod of not less than 3 months under an 

15 accident and health plan covering employ16 ees of the participant’s employer. 

17 ‘‘(3) INVESTMENT OPTIONS.—The requirements 

18 of this paragraph are met if the plan provides that 

19 the investment options a participant may elect under 

20 the plan— 

21 ‘‘(A) are comparable to the investment op22 tions which a participant may elect under the 

23 defined contribution plan of the employer 

24 which— 
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1 ‘‘(i) meets the requirement of section 

2 401(a) and includes a trust exempt from 

3 taxation under section 501(a), and 

4 ‘‘(ii) has the fewest investment op5 tions, or 

6 ‘‘(B) if there is no such defined contribu7 tion plan, meet such requirements as the Sec8 retary may prescribe (including requirements 

9 limiting such options to permissible investment 

10 options specified by the Secretary). 

11 ‘‘(4) ACCELERATION OF BENEFITS.—The re12 quirements of this paragraph are met if the plan 

13 does not permit the acceleration of the time or 

14 schedule of any payment under the plan, except as 

15 provided by the Secretary in regulations. 

16 ‘‘(5) ELECTIONS.— 

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

18 this paragraph are met if the requirements of 

19 subparagraphs (B) and (C) are met. 

20 ‘‘(B) INITIAL DEFERRAL DECISION.—The 

21 requirements of this subparagraph are met if 

22 the plan provides that compensation for services 

23 performed during a taxable year may be de24 ferred at the participant’s election only if the 

25 election to defer such compensation is made 
193 

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1 during the preceding taxable year or at such 

2 other time as provided in regulations. In the 

3 case of the first year in which a participant be4 comes eligible to participate in the plan, such 

5 election may be made with respect to services to 

6 be performed subsequent to the election within 

7 30 days after the date the participant becomes 

8 eligible to participate in such plan. 

9 ‘‘(C) CHANGES IN TIME AND FORM OF DIS10 TRIBUTION.—The requirements of this subpara11 graph are met if, in the case of a plan which 

12 permits under a subsequent election a delay in 

13 a payment or a change in the form of pay14 ment— 

15 ‘‘(i) the plan requires that such elec16 tion may not take effect until at least 12 

17 months after the date on which the elec18 tion is made, 

19 ‘‘(ii) in the case an election related to 

20 a payment not described in clause (ii), (iii), 

21 or (vi) of paragraph (2)(A), the plan re22 quires that the first payment with respect 

23 to which such election is made be deferred 

24 for a period of not less than 5 years from 
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1 the date such payment would otherwise 

2 have been made, and 

3 ‘‘(iii) the plan requires that any elec4 tion related to a payment described in 

5 paragraph (2)(A)(iv) may not be made less 

6 than 12 months prior to the date of the 

7 first scheduled payment under such para8 graph. 

9 A plan shall be treated as failing to meet the 

10 requirements of this subparagraph if the plan 

11 permits more than 1 subsequent election to 

12 delay any payment. 

13 ‘‘(b) RULES RELATING TO FUNDING.— 

14 ‘‘(1) OFFSHORE PROPERTY IN A TRUST.—In 

15 the case of assets set aside (directly or indirectly) in 

16 a trust (or other arrangement determined by the 

17 Secretary) for purposes of paying deferred com18 pensation under a nonqualified deferred compensa19 tion plan, such assets shall be treated for purposes 

20 of section 83 as property transferred in connection 

21 with the performance of services whether or not such 

22 assets are available to satisfy claims of general credi23 tors— 

24 ‘‘(A) at the time set aside if such assets 

25 are located outside of the United States, or 
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1 ‘‘(B) at the time transferred if such assets 

2 are subsequently transferred outside of the 

3 United States. 

4 This paragraph shall not apply to assets located in 

5 a foreign jurisdiction if substantially all of the serv6 ices to which the nonqualified deferred compensation 

7 relates are performed in such jurisdiction. 

8 ‘‘(2) EMPLOYER’S FINANCIAL HEALTH.—In the 

9 case of a nonqualified deferred compensation plan, 

10 there is a transfer of property within the meaning 

11 of section 83 as of the earlier of— 

12 ‘‘(A) the date on which the plan first pro13 vides that assets will become restricted to the 

14 provision of benefits under the plan in connec15 tion with a change in the employer’s financial 

16 health, or 

17 ‘‘(B) the date on which assets are so re18 stricted. 

19 ‘‘(3) INCOME INCLUSION FOR OFFSHORE

20 TRUSTS AND EMPLOYER’S FINANCIAL HEALTH.—For 

21 each taxable year that assets treated as transferred 

22 under this subsection remain set aside in a trust or 

23 other arrangement subject to paragraph (1) or (2), 

24 any increase in value in, or earnings with respect to, 

25 such assets shall be treated as an additional transfer 
196 

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1 of property under this subsection (to the extent not 

2 previously included in income). 

3 ‘‘(4) INTEREST ON TAX LIABILITY PAYABLE

4 WITH RESPECT TO TRANSFERRED PROPERTY.— 

5 ‘‘(A) IN GENERAL.—If amounts are re6 quired to be included in gross income by reason 

7 of paragraph (1) or (2) for a taxable year, the 

8 tax imposed by this chapter for such taxable 

9 year shall be increased by the sum of— 

10 ‘‘(i) the amount of interest determined 

11 under subparagraph (B), and 

12 ‘‘(ii) an amount equal to 10 percent of 

13 the amounts required to be included in 

14 gross income. 

15 ‘‘(B) INTEREST.—For purposes of sub16 paragraph (A), the interest determined under 

17 this subparagraph for any taxable year is the 

18 amount of interest at the underpayment rate on 

19 the underpayments that would have occurred 

20 had the amounts so required to be included in 

21 gross income by paragraph (1) or (2) been in22 cludible in gross income for the taxable year in 

23 which first deferred or, if later, the first taxable 

24 year in which such amounts are not subject to 

25 a substantial risk of forfeiture. 
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1 ‘‘(c) NO INFERENCE ON EARLIER INCOME INCLU2 SION.—Nothing in this section shall be construed to pre3 vent the inclusion of amounts in gross income under any 

4 other provision of this chapter or any other rule of law 

5 earlier than the time provided in this section. Any amount 

6 included in gross income under this section shall not be 

7 required to be included in gross income under any other 

8 provision of this chapter or any other rule of law later 

9 than the time provided in this section. 

10 ‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.— 

11 For purposes of this section— 

12 ‘‘(1) NONQUALIFIED DEFERRED COMPENSA13 TION PLAN.—The term ‘nonqualified deferred com14 pensation plan’ means any plan that provides for the 

15 deferral of compensation, other than— 

16 ‘‘(A) a qualified employer plan, and 

17 ‘‘(B) any bona fide vacation leave, sick 

18 leave, compensatory time, disability pay, or 

19 death benefit plan. 

20 ‘‘(2) QUALIFIED EMPLOYER PLAN.—The term 

21 ‘qualified employer plan’ means— 

22 ‘‘(A) any plan, contract, pension, account, 

23 or trust described in subparagraph (A) or (B) 

24 of section 219(g)(5), and 
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1 ‘‘(B) any eligible deferred compensation 

2 plan (within the meaning of section 457(b)) of 

3 an employer described in section 457(e)(1)(A). 

4 ‘‘(3) PLAN INCLUDES ARRANGEMENTS, ETC.— 

5 The term ‘plan’ includes any agreement or arrange6 ment, including an agreement or arrangement that 

7 includes one person. 

8 ‘‘(4) SUBSTANTIAL RISK OF FORFEITURE.—The 

9 rights of a person to compensation are subject to a 

10 substantial risk of forfeiture if such person’s rights 

11 to such compensation are conditioned upon the fu12 ture performance of substantial services by any indi13 vidual. 

14 ‘‘(5) TREATMENT OF EARNINGS.—References to 

15 deferred compensation shall be treated as including 

16 references to income (whether actual or notional) at17 tributable to such compensation or such income. 

18 ‘‘(e) REGULATIONS.—The Secretary shall prescribe 

19 such regulations as may be necessary or appropriate to 

20 carry out the purposes of this section, including regula21 tions— 

22 ‘‘(1) providing for the determination of 

23 amounts of deferral in the case of a nonqualified de24 ferred compensation plan which is a defined benefit 

25 plan, 
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1 ‘‘(2) relating to changes in the ownership and 

2 control of a corporation or assets of a corporation 

3 for purposes of subsection (a)(2)(A)(v), 

4 ‘‘(3) exempting arrangements from the applica5 tion of subsection (b) if such arrangements will not 

6 result in an improper deferral of United States tax 

7 and will not result in assets being effectively beyond 

8 the reach of creditors, 

9 ‘‘(4) defining financial health for purposes of 

10 subsection (b)(2), and 

11 ‘‘(5) disregarding a substantial risk of for12 feiture in cases where necessary to carry out the 

13 purposes of this section.’’ 

14 (b) APPLICATION OF GOLDEN PARACHUTE PAYMENT

15 PROVISIONS.—Section 280G of such Code (relating to 

16 golden parachute payments) is amended by redesignating 

17 subsection (e) as subsection (f) and by inserting after sub18 section (d) the following new subsection: 

19 ‘‘(e) SPECIAL RULES FOR CERTAIN PAYMENTS FROM

20 NONQUALIFIED DEFERRED COMPENSATION PLANS.— 

21 ‘‘(1) IN GENERAL.—Notwithstanding any other 

22 provision of this section, an applicable payment shall 

23 be treated as an excess parachute payment for pur24 poses of this section and section 4999. 
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1 ‘‘(2) COORDINATION WITH OTHER PAY2 MENTS.— 

3 ‘‘(A) APPLICABLE PAYMENTS WHICH ARE

4 PARACHUTE PAYMENTS.—If any applicable pay5 ment is a parachute payment (determined with6 out regard to subsection (b)(2)(A)(ii)), then, ex7 cept as provided in paragraph (4), this section 

8 shall be applied to such payment in the same 

9 manner as if this subsection had not been en10 acted. 

11 ‘‘(B) APPLICABLE PAYMENTS WHICH ARE

12 NOT PARACHUTE PAYMENTS.—An applicable 

13 payment not described in subparagraph (A) 

14 shall be taken into account in determining 

15 whether any payment described in subpara16 graph (A) or any payment which is not an ap17 plicable payment is a parachute payment under 

18 subsection (b)(2). 

19 ‘‘(C) COORDINATION.—If the application 

20 of this paragraph results in an excess parachute 

21 payment, any tax under section 4999 on the ex22 cess parachute payment shall be in addition to 

23 the tax imposed by reason of paragraph (1). 

24 ‘‘(3) APPLICABLE PAYMENT.—For purposes of 

25 this subsection, the term ‘applicable payment’ means 
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1 any distribution (including any distribution treated 

2 as a parachute payment without regard to this sub3 section) from a nonqualified deferred compensation 

4 plan (as defined in section 409A(d)) which is 

5 made— 

6 ‘‘(A) to a participant who is subject to the 

7 requirements of section 16(a) of the Securities 

8 Exchange Act of 1934, and 

9 ‘‘(B) during the 1-year period following a 

10 change in the ownership or effective control of 

11 the corporation or in the ownership of a substan12 tial portion of the assets of the corporation. 

13 Such terms shall not include any distribution by rea14 son of the death of the participant or the participant 

15 becoming disabled (within the meaning of section 

16 409A(a)(2)(C)). 

17 ‘‘(4) NO DOUBLE COUNTING.—Under regula18 tions, proper adjustments shall be made in the appli19 cation of this subsection to prevent a deduction from 

20 being disallowed more than once.’’ 

21 (c) W–2 FORMS.— 

22 (1) IN GENERAL.—Subsection (a) of section 

23 6051 (relating to receipts for employees) is amended 

24 by striking ‘‘and’’ at the end of paragraph (11), by 

25 striking the period at the end of paragraph (12) and 
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1 inserting ‘‘, and’’, and by inserting after paragraph 

2 (12) the following new paragraph: 

3 ‘‘(13) the total amount of deferrals under a 

4 nonqualified deferred compensation plan (within the 

5 meaning of section 409A(d)).’’ 

6 (2) THRESHOLD.—Subsection (a) of section 

7 6051 is amended by adding at the end the following: 

8 ‘‘In the case of the amounts required to be shown 

9 by paragraph (13), the Secretary may (by regula10 tion) establish a minimum amount of deferrals below 

11 which paragraph (13) does not apply.’’ 

12 (d) CONFORMING AND CLERICAL AMENDMENTS.— 

13 (1) Section 414(b) is amended by inserting 

14 ‘‘409A,’’ after ‘‘408(p),’’. 

15 (2) Section 414(c) is amended by inserting 

16 ‘‘409A,’’ after ‘‘408(p),’’. 

17 (3) The table of sections for such subpart A is 

18 amended by adding at the end the following new 

19 item: 

‘‘Sec. 409A. Inclusion in gross income of deferred compensation 

under nonqualified deferred compensation plans.’’ 

20 (e) EFFECTIVE DATE.— 

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

22 this section shall apply to amounts deferred in tax23 able years beginning after December 31, 2004. 
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1 (2) EARNINGS ATTRIBUTABLE TO AMOUNT PRE2 VIOUSLY DEFERRED.—The amendments made by 

3 this section shall apply to earnings on deferred com4 pensation only to the extent that such amendments 

5 apply to such compensation. 

6 (f) GUIDANCE RELATING TO CHANGE OF OWNER7 SHIP OR CONTROL.—Not later than 90 days after the date 

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

9 shall issue guidance on what constitutes a change in own10 ership or effective control for purposes of section 409A 

11 of the Internal Revenue Code of 1986, as added by this 

12 section. 

13 (g) GUIDANCE RELATING TO TERMINATION OF CER14 TAIN EXISTING ARRANGEMENTS.—Not later than 90 days 

15 after the date of the enactment of this Act, the Secretary 

16 of the Treasury shall issue guidance providing a limited 

17 period during which an individual participating in a non18 qualified deferred compensation plan adopted on or before 

19 December 31, 2004, may, without violating the require20 ments of paragraphs (2), (3), (4), and (5) of section 

21 409A(a) of the Internal Revenue Code of 1986 (as added 

22 by this section), terminate participation or cancel an out23 standing deferral election with regard to amounts earned 

24 after December 31, 2004, if such amounts are includible 

25 in income as earned. 
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1 SEC. 503. PROHIBITION ON DEFERRAL OF GAIN FROM THE 

2 EXERCISE OF STOCK OPTIONS AND RE3 STRICTED STOCK GAINS THROUGH DE4 FERRED COMPENSATION ARRANGEMENTS. 

5 (a) IN GENERAL.—Section 83 (relating to property 

6 transferred in connection with performance of services) is 

7 amending by adding at the end the following new sub8 section: 

9 ‘‘(i) PROHIBITION ON ADDITIONAL DEFERRAL

10 THROUGH DEFERRED COMPENSATION ARRANGE11 MENTS.—Except as provided by the Secretary, if a tax12 payer exchanges— 

13 ‘‘(1) an option to purchase employer securi14 ties— 

15 ‘‘(A) to which subsection (a) applies, or 

16 ‘‘(B) which is described in subsection 

17 (e)(3), or 

18 ‘‘(2) employer securities or any other property 

19 based on employer securities transferred to the tax20 payer, 

21 for a right to receive future payments, then, notwith22 standing any other provision of this title, there shall be 

23 included in gross income for the taxable year of the ex24 change an amount equal to the present value of such right 

25 (or such other amount as the Secretary may specify). For 
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1 purposes of this subsection, the term ‘employer securities’ 

2 includes any security issued by the employer.’’ 

3 (b) CONTROLLED GROUP RULES.—Section 414(t)(2) 

4 is amended by inserting ‘‘83(i),’’ after ‘‘79,’’. 

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

6 this section shall apply to any exchange after December 

7 31, 2004. 

8 SEC. 504. INCREASE IN WITHHOLDING FROM SUPPLE9 MENTAL WAGE PAYMENTS IN EXCESS OF 

10 $1,000,000. 

11 (a) IN GENERAL.—If an employer elects under 

12 Treasury Regulation 31.3402(g)–1 to determine the 

13 amount to be deducted and withheld from any supple14 mental wage payment by using a flat percentage rate, the 

15 rate to be used in determining the amount to be so de16 ducted and withheld shall not be less than 28 percent (or 

17 the corresponding rate in effect under section 1(i)(2) of 

18 the Internal Revenue Code of 1986 for taxable years be19 ginning in the calendar year in which the payment is 

20 made). 

21 (b) SPECIAL RULE FOR LARGE PAYMENTS.— 

22 (1) IN GENERAL.—Notwithstanding subsection 

23 (a), if the supplemental wage payment, when added 

24 to all such payments previously made by the em25 ployer to the employee during the calendar year, ex-
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1 ceeds $1,000,000, the rate used with respect to such 

2 excess shall be equal to the maximum rate of tax in 

3 effect under section 1 of such Code for taxable years 

4 beginning in such calendar year. 

5 (2) AGGREGATION.—All persons treated as a 

6 single employer under subsection (a) or (b) of sec7 tion 52 of the Internal Revenue Code of 1986 shall 

8 be treated as a single employer for purposes of this 

9 subsection. 

10 (c) CONFORMING AMENDMENT.—Section 13273 of 

11 the Revenue Reconciliation Act of 1993 (Public Law 103– 

12 66) is repealed. 

13 (d) EFFECTIVE DATE.—The provisions of, and the 

14 amendment made by, this section shall apply to payments 

15 made after December 31, 2003. 

16 Subtitle B—Stock Options 

17 SEC. 511. EXCLUSION OF INCENTIVE STOCK OPTIONS AND 

18 EMPLOYEE STOCK PURCHASE PLAN STOCK 

19 OPTIONS FROM WAGES. 

20 (a) EXCLUSION FROM EMPLOYMENT TAXES.— 

21 (1) SOCIAL SECURITY TAXES.— 

22 (A) Section 3121(a) of the Internal Rev23 enue Code of 1986 (relating to definition of 

24 wages) is amended by striking ‘‘or’’ at the end 

25 of paragraph (20), by striking the period at the 
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1 end of paragraph (21) and inserting ‘‘; or’’, and 

2 by inserting after paragraph (21) the following 

3 new paragraph: 

4 ‘‘(22) remuneration on account of— 

5 ‘‘(A) a transfer of a share of stock to any 

6 individual pursuant to an exercise of an incen7 tive stock option (as defined in section 422(b)) 

8 or under an employee stock purchase plan (as 

9 defined in section 423(b)), or 

10 ‘‘(B) any disposition by the individual of 

11 such stock.’’ 

12 (B) Section 209(a) of the Social Security 

13 Act is amended by striking ‘‘or’’ at the end of 

14 paragraph (17), by striking the period at the 

15 end of paragraph (18) and inserting ‘‘; or’’, and 

16 by inserting after paragraph (18) the following 

17 new paragraph: 

18 ‘‘(19) Remuneration on account of— 

19 ‘‘(A) a transfer of a share of stock to any 

20 individual pursuant to an exercise of an incen21 tive stock option (as defined in section 422(b) 

22 of the Internal Revenue Code of 1986) or under 

23 an employee stock purchase plan (as defined in 

24 section 423(b) of such Code), or 
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1 ‘‘(B) any disposition by the individual of 

2 such stock.’’ 

3 (2) RAILROAD RETIREMENT TAXES.—Sub4 section (e) of section 3231 of such Code is amended 

5 by adding at the end the following new paragraph: 

6 ‘‘(12) QUALIFIED STOCK OPTIONS.—The term 

7 ‘compensation’ shall not include any remuneration 

8 on account of— 

9 ‘‘(A) a transfer of a share of stock to any 

10 individual pursuant to an exercise of an incen11 tive stock option (as defined in section 422(b)) 

12 or under an employee stock purchase plan (as 

13 defined in section 423(b)), or 

14 ‘‘(B) any disposition by the individual of 

15 such stock.’’ 

16 (3) UNEMPLOYMENT TAXES.—Section 3306(b) 

17 of such Code (relating to definition of wages) is 

18 amended by striking ‘‘or’’ at the end of paragraph 

19 (17), by striking the period at the end of paragraph 

20 (18) and inserting ‘‘; or’’, and by inserting after 

21 paragraph (18) the following new paragraph: 

22 ‘‘(19) remuneration on account of— 

23 ‘‘(A) a transfer of a share of stock to any 

24 individual pursuant to an exercise of an incen25 tive stock option (as defined in section 422(b)) 
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1 or under an employee stock purchase plan (as 

2 defined in section 423(b)), or 

3 ‘‘(B) any disposition by the individual of 

4 such stock.’’ 

5 (b) WAGE WITHHOLDING NOT REQUIRED ON DIS6 QUALIFYING DISPOSITIONS.—Section 421(b) of the Inter7 nal Revenue Code of 1986 (relating to effect of disquali8 fying dispositions) is amended by adding at the end the 

9 following new sentence: ‘‘No amount shall be required to 

10 be deducted and withheld under chapter 24 with respect 

11 to any increase in income attributable to a disposition de12 scribed in the preceding sentence.’’ 

13 (c) WAGE WITHHOLDING NOT REQUIRED ON COM14 PENSATION WHERE OPTION PRICE IS BETWEEN 85 PER15 CENT AND 100 PERCENT OF VALUE OF STOCK.—Section 

16 423(c) of the Internal Revenue Code of 1986 (relating to 

17 special rule where option price is between 85 percent and 

18 100 percent of value of stock) is amended by adding at 

19 the end the following new sentence: ‘‘No amount shall be 

20 required to be deducted and withheld under chapter 24 

21 with respect to any amount treated as compensation under 

22 this subsection.’’ 
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1 SEC. 512. TREATMENT OF SALE OF STOCK ACQUIRED PUR2 SUANT TO EXERCISE OF STOCK OPTIONS TO 

3 COMPLY WITH CONFLICT-OF-INTEREST RE4 QUIREMENTS. 

5 (a) IN GENERAL.—Section 421 of the Internal Rev6 enue Code of 1986 (relating to general rules for certain 

7 stock options) is amended by adding at the end the fol8 lowing new subsection: 

9 ‘‘(d) CERTAIN SALES TO COMPLY WITH CONFLICT10 OF-INTEREST REQUIREMENTS.—If— 

11 ‘‘(1) a share of stock is transferred to an eligi12 ble person (as defined in section 1043(b)(1)) pursu13 ant to such person’s exercise of an option to which 

14 this part applies, and 

15 ‘‘(2) such share is disposed of by such person 

16 pursuant to a certificate of divestiture (as defined in 

17 section 1043(b)(2)), 

18 such disposition shall be treated as meeting the require19 ments of section 422(a)(1) or 423(a)(1), whichever is ap20 plicable.’’ 

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

22 this section shall apply to sales after the date of the enact23 ment of this Act. 
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1 TITLE VI—WOMEN’S PENSION 

2 PROTECTION 

3 SEC. 600. SHORT TITLE. 

4 This title may be cited as the ‘‘Women’s Pension Pro5 tection Act of 2004’’. 

6 Subtitle A—Study of Spousal Con7 sent for Distributions From De8 fined Contribution Plans 

9 SEC. 601. JOINT STUDY OF APPLICATION OF SPOUSAL CON10 SENT RULES TO DEFINED CONTRIBUTION 

11 PLANS. 

12 (a) STUDY.—The Secretary of Labor and the Sec13 retary of the Treasury shall jointly conduct a study of the 

14 feasibility and desirability of extending the application of 

15 the requirements of section 205 of the Employee Retire16 ment Income Security Act of 1974 and sections 

17 401(a)(11) and 417 of the Internal Revenue Code of 1986 

18 (relating to spousal consent requirements) to defined con19 tribution plans to which such requirements do not apply. 

20 Such study shall include consideration of— 

21 (1) any modifications of such requirements that 

22 are necessary to apply such requirements to such 

23 plans, and 
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1 (2) the feasibility of providing notice and spous2 al consent in 1 or more electronic forms that are ca3 pable of authentication. 

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

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

6 the results of the study, together with any recommenda7 tions for legislative changes, to the Committees on Ways 

8 and Means and Education and the Workforce of the 

9 House of Representatives and the Committees on Finance 

10 and Health, Education, Labor, and Pensions of the Sen11 ate. 

12 Subtitle B—Division of Pension 

13 Benefits Upon Divorce 

14 SEC. 611. REGULATIONS ON TIME AND ORDER OF 

15 ISSUANCE OF DOMESTIC RELATIONS OR16 DERS. 

17 Not later than 1 year after the date of the enactment 

18 of this Act, the Secretary of Labor shall issue regulations 

19 under section 206(d)(3) of the Employee Retirement Secu20 rity Act of 1974 and section 414(p) of the Internal Rev21 enue Code of 1986 which clarify that— 

22 (1) a domestic relations order otherwise meet23 ing the requirements to be a qualified domestic rela24 tions order, including the requirements of section 

25 206(d)(3)(D) of such Act and section 414(p)(3) of 
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1 such Code, shall not fail to be treated as a qualified 

2 domestic relations order solely because— 

3 (A) the order is issued after, or revises, an4 other domestic relations order or qualified do5 mestic relations order; or 

6 (B) of the time at which it is issued; and 

7 (2) any order described in paragraph (1) shall 

8 be subject to the same requirements and protections 

9 which apply to qualified domestic relations orders, 

10 including the provisions of section 206(d)(3)(H) of 

11 such Act and section 414(p)(7) of such Code. 

12 Subtitle C—Railroad Retirement 

13 SEC. 621. ENTITLEMENT OF DIVORCED SPOUSES TO RAIL14 ROAD RETIREMENT ANNUITIES INDE15 PENDENT OF ACTUAL ENTITLEMENT OF EM16 PLOYEE. 

17 (a) IN GENERAL.—Section 2 of the Railroad Retire18 ment Act of 1974 (45 U.S.C. 231a) is amended— 

19 (1) in subsection (c)(4)(i), by striking ‘‘(A) is 

20 entitled to an annuity under subsection (a)(1) and 

21 (B)’’; and 

22 (2) in subsection (e)(5), by striking ‘‘or di23 vorced wife’’ the second place it appears. 
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1 (b) EFFECTIVE DATE.—The amendments made by 

2 this section shall take effect 1 year after the date of the 

3 enactment of this Act. 

4 SEC. 622. EXTENSION OF TIER II RAILROAD RETIREMENT 

5 BENEFITS TO SURVIVING FORMER SPOUSES 

6 PURSUANT TO DIVORCE AGREEMENTS. 

7 (a) IN GENERAL.—Section 5 of the Railroad Retire8 ment Act of 1974 (45 U.S.C. 231d) is amended by adding 

9 at the end the following: 

10 ‘‘(d) Notwithstanding any other provision of law, the 

11 payment of any portion of an annuity computed under sec12 tion 3(b) to a surviving former spouse in accordance with 

13 a court decree of divorce, annulment, or legal separation 

14 or the terms of any court-approved property settlement 

15 incident to any such court decree shall not be terminated 

16 upon the death of the individual who performed the service 

17 with respect to which such annuity is so computed unless 

18 such termination is otherwise required by the terms of 

19 such court decree.’’ 

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

21 this section shall take effect 1 year after the date of the 

22 enactment of this Act. 
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1 Subtitle D—Modifications of Joint 

2 and Survivor Annuity Require3 ments 

4 SEC. 631. REQUIREMENT FOR ADDITIONAL SURVIVOR AN5 NUITY OPTION. 

6 (a) AMENDMENTS TO ERISA.— 

7 (1) ELECTION OF SURVIVOR ANNUITY.—Section 

8 205(c)(1)(A) of the Employee Retirement Income 

9 Security Act of 1974 (29 U.S.C. 1055(c)(1)(A)) is 

10 amended— 

11 (A) in clause (i), by striking ‘‘, and’’ and 

12 inserting a comma; 

13 (B) by redesignating clause (ii) as clause 

14 (iii); and 

15 (C) by inserting after clause (i) the fol16 lowing: 

17 ‘‘(ii) if the participant elects a waiver 

18 under clause (i), may elect the qualified op19 tional survivor annuity at any time during the 

20 applicable election period, and’’. 

21 (2) DEFINITION.—Section 205(d) of such Act 

22 (29 U.S.C. 1055(d)) is amended— 

23 (A) by inserting ‘‘(1)’’ after ‘‘(d)’’; 
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1 (B) by redesignating paragraphs (1) and 

2 (2) as subparagraphs (A) and (B), respectively; 

3 and 

4 (C) by adding at the end the following: 

5 ‘‘(2)(A) For purposes of this section, the term ‘quali6 fied optional survivor annuity’ means an annuity— 

7 ‘‘(i) for the life of the participant with a sur8 vivor annuity for the life of the spouse which is equal 

9 to the applicable percentage of the amount of the an10 nuity which is payable during the joint lives of the 

11 participant and the spouse, and 

12 ‘‘(ii) which is the actuarial equivalent of a sin13 gle annuity for the life of the participant. 

14 Such term also includes any annuity in a form having the 

15 effect of an annuity described in the preceding sentence. 

16 ‘‘(B)(i) For purposes of subparagraph (A), if the sur17 vivor annuity percentage— 

18 ‘‘(I) is less than 75 percent, the applicable per19 centage is 75 percent, and 

20 ‘‘(II) is greater than or equal to 75 percent, the 

21 applicable percentage is 50 percent. 

22 ‘‘(ii) For purposes of clause (i), the term ‘survivor 

23 annuity percentage’ means the percentage which the sur24 vivor annuity under the plan’s qualified joint and survivor 
217 

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1 annuity bears to the annuity payable during the joint lives 

2 of the participant and the spouse.’’ 

3 (3) NOTICE.—Section 205(c)(3)(A)(i) of such 

4 Act (29 U.S.C. 1055(c)(3)(A)(i)) is amended by in5 serting ‘‘and of the qualified optional survivor annu6 ity’’ after ‘‘annuity’’. 

7 (b) AMENDMENTS TO INTERNAL REVENUE CODE.— 

8 (1) ELECTION OF SURVIVOR ANNUITY.—Section 

9 417(a)(1)(A) of the Internal Revenue Code of 1986 

10 is amended— 

11 (A) in clause (i), by striking ‘‘, and’’ and 

12 inserting a comma; 

13 (B) by redesignating clause (ii) as clause 

14 (iii); and 

15 (C) by inserting after clause (i) the fol16 lowing: 

17 ‘‘(ii) if the participant elects a waiver 

18 under clause (i), may elect the qualified op19 tional survivor annuity at any time during the 

20 applicable election period, and’’. 

21 (2) DEFINITION.—Section 417 of such Code is 

22 amended by adding at the end the following: 

23 ‘‘(i) DEFINITION OF QUALIFIED OPTIONAL SUR24 VIVOR ANNUITY.— 
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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, the term ‘qualified optional survivor annuity’ 

3 means an annuity— 

4 ‘‘(A) for the life of the participant with a 

5 survivor annuity for the life of the spouse which 

6 is equal to the applicable percentage of the 

7 amount of the annuity which is payable during 

8 the joint lives of the participant and the spouse, 

9 and 

10 ‘‘(B) which is the actuarial equivalent of a 

11 single annuity for the life of the participant. 

12 Such term also includes any annuity in a form hav13 ing the effect of an annuity described in the pre14 ceding sentence. 

15 ‘‘(2) APPLICABLE PERCENTAGE.— 

16 ‘‘(A) IN GENERAL.—For purposes of para17 graph (1), if the survivor annuity percentage— 

18 ‘‘(i) is less than 75 percent, the appli19 cable percentage is 75 percent, and 

20 ‘‘(ii) is greater than or equal to 75 

21 percent, the applicable percentage is 50 

22 percent. 

23 ‘‘(B) SURVIVOR ANNUITY PERCENTAGE.— 

24 For purposes of subparagraph (A), the term 

25 ‘survivor annuity percentage’ means the per-
219 

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1 centage which the survivor annuity under the 

2 plan’s qualified joint and survivor annuity bears 

3 to the annuity payable during the joint lives of 

4 the participant and the spouse.’’ 

5 (3) NOTICE.—Section 417(a)(3)(A)(i) of such 

6 Code is amended by inserting ‘‘and of the qualified 

7 optional survivor annuity’’ after ‘‘annuity’’. 

8 (c) EFFECTIVE DATES.— 

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

10 this section shall apply to plan years beginning after 

11 December 31, 2004. 

12 (2) SPECIAL RULE FOR COLLECTIVELY BAR13 GAINED PLANS.—In the case of a plan maintained 

14 pursuant to 1 or more collective bargaining agree15 ments between employee representatives and 1 or 

16 more employers ratified on or before the date of the 

17 enactment of this Act, the amendments made by this 

18 section shall apply to the first plan year beginning 

19 on or after the earlier of— 

20 (A) the later of— 

21 (i) January 1, 2005, or 

22 (ii) the date on which the last of such 

23 collective bargaining agreements termi24 nates (determined without regard to any 
220 

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1 extension thereof after the date of enact2 ment of this Act), or 

3 (B) January 1, 2006. 

4 TITLE VII—TAX COURT PENSION 

5 AND COMPENSATION 

6 SEC. 700. AMENDMENT OF 1986 CODE. 

7 Except as otherwise expressly provided, whenever in 

8 this title an amendment or repeal is expressed in terms 

9 of an amendment to, or repeal of, a section or other provi10 sion, the reference shall be considered to be made to a 

11 section or other provision of the Internal Revenue Code 

12 of 1986. 

13 SEC. 701. ANNUITIES FOR SURVIVORS OF TAX COURT 

14 JUDGES WHO ARE ASSASSINATED. 

15 (a) ELIGIBILITY IN CASE OF DEATH BY ASSASSINA16 TION.—Subsection (h) of section 7448 (relating to annu17 ities to surviving spouses and dependent children of 

18 judges) is amended to read as follows: 

19 ‘‘(h) ENTITLEMENT TO ANNUITY.— 

20 ‘‘(1) IN GENERAL.— 

21 ‘‘(A) ANNUITY TO SURVIVING SPOUSE.—If 

22 a judge described in paragraph (2) is survived 

23 by a surviving spouse but not by a dependent 

24 child, there shall be paid to such surviving 

25 spouse an annuity beginning with the day of the 
221 

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1 death of the judge or following the surviving 

2 spouse’s attainment of the age of 50 years, 

3 whichever is the later, in an amount computed 

4 as provided in subsection (m). 

5 ‘‘(B) ANNUITY TO CHILD.—If such a judge 

6 is survived by a surviving spouse and a depend7 ent child or children, there shall be paid to such 

8 surviving spouse an immediate annuity in an 

9 amount computed as provided in subsection (m), 

10 and there shall also be paid to or on behalf of 

11 each such child an immediate annuity equal to 

12 the lesser of— 

13 ‘‘(i) 10 percent of the average annual 

14 salary of such judge (determined in accord15 ance with subsection (m)), or 

16 ‘‘(ii) 20 percent of such average an17 nual salary, divided by the number of such 

18 children. 

19 ‘‘(C) ANNUITY TO SURVIVING DEPENDENT

20 CHILDREN.—If such a judge leaves no surviving 

21 spouse but leaves a surviving dependent child or 

22 children, there shall be paid to or on behalf of 

23 each such child an immediate annuity equal to 

24 the lesser of— 
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1 ‘‘(i) 20 percent of the average annual 

2 salary of such judge (determined in accord3 ance with subsection (m)), or 

4 ‘‘(ii) 40 percent of such average an5 nual salary, divided by the number of such 

6 children. 

7 ‘‘(2) COVERED JUDGES.—Paragraph (1) applies 

8 to any judge electing under subsection (b)— 

9 ‘‘(A) who dies while a judge after having 

10 rendered at least 5 years of civilian service com11 puted as prescribed in subsection (n), for the 

12 last 5 years of which the salary deductions pro13 vided for by subsection (c)(1) or the deposits 

14 required by subsection (d) have actually been 

15 made or the salary deductions required by the 

16 civil service retirement laws have actually been 

17 made, or 

18 ‘‘(B) who dies by assassination after hav19 ing rendered less than 5 years of civilian service 

20 computed as prescribed in subsection (n) if, for 

21 the period of such service, the salary deductions 

22 provided for by subsection (c)(1) or the deposits 

23 required by subsection (d) have actually been 

24 made. 

25 ‘‘(3) TERMINATION OF ANNUITY.— 
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1 ‘‘(A) IN THE CASE OF A SURVIVING

2 SPOUSE.—The annuity payable to a surviving 

3 spouse under this subsection shall be terminable 

4 upon such surviving spouse’s death or such sur5 viving spouse’s remarriage before attaining age 

6 55. 

7 ‘‘(B) IN THE CASE OF A CHILD.—The an8 nuity payable to a child under this subsection 

9 shall be terminable upon (i) the child attaining 

10 the age of 18 years, (ii) the child’s marriage, or 

11 (iii) the child’s death, whichever first occurs, ex12 cept that if such child is incapable of self-sup13 port by reason of mental or physical disability 

14 the child’s annuity shall be terminable only 

15 upon death, marriage, or recovery from such 

16 disability. 

17 ‘‘(C) IN THE CASE OF A DEPENDENT

18 CHILD AFTER DEATH OF SURVIVING SPOUSE.— 

19 In case of the death of a surviving spouse of a 

20 judge leaving a dependent child or children of 

21 the judge surviving such spouse, the annuity of 

22 such child or children shall be recomputed and 

23 paid as provided in paragraph (1)(C). 

24 ‘‘(D) RECOMPUTATION.—In any case in 

25 which the annuity of a dependent child is termi-
224 

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1 nated under this subsection, the annuities of 

2 any remaining dependent child or children, 

3 based upon the service of the same judge, shall 

4 be recomputed and paid as though the child 

5 whose annuity was so terminated had not sur6 vived such judge. 

7 ‘‘(4) SPECIAL RULE FOR ASSASSINATED

8 JUDGES.—In the case of a survivor or survivors of 

9 a judge described in paragraph (2)(B), there shall be 

10 deducted from the annuities otherwise payable under 

11 this section an amount equal to— 

12 ‘‘(A) the amount of salary deductions pro13 vided for by subsection (c)(1) that would have 

14 been made if such deductions had been made 

15 for 5 years of civilian service computed as pre16 scribed in subsection (n) before the judge’s 

17 death, reduced by 

18 ‘‘(B) the amount of such salary deductions 

19 that were actually made before the date of the 

20 judge’s death.’’ 

21 (b) DEFINITION OF ASSASSINATION.—Section 

22 7448(a) (relating to definitions) is amended by adding at 

23 the end the following new paragraph: 

24 ‘‘(8) The terms ‘assassinated’ and ‘assassina25 tion’ mean the killing of a judge that is motivated 
225 

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1 by the performance by that judge of his or her offi2 cial duties.’’ 

3 (c) DETERMINATION OF ASSASSINATION.—Sub4 section (i) of section 7448 is amended— 

5 (1) by striking the subsection heading and in6 serting the following: 

7 ‘‘(i) DETERMINATIONS BY CHIEF JUDGE.— 

8 ‘‘(1) DEPENDENCY AND DISABILITY.—’’, 

9 (2) by moving the text 2 ems to the right, and 

10 (3) by adding at the end the following new 

11 paragraph: 

12 ‘‘(2) ASSASSINATION.—The chief judge shall 

13 determine whether the killing of a judge was an as14 sassination, subject to review only by the Tax Court. 

15 The head of any Federal agency that investigates 

16 the killing of a judge shall provide information to 

17 the chief judge that would assist the chief judge in 

18 making such a determination.’’ 

19 (d) COMPUTATION OF ANNUITIES.—Subsection (m) 

20 of section 7448 is amended— 

21 (1) by striking the subsection heading and in22 serting the following: 

23 ‘‘(m) COMPUTATION OF ANNUITIES.— 

24 ‘‘(1) IN GENERAL.—’’, 

25 (2) by moving the text 2 ems to the right, and 
226 

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1 (3) by adding at the end the following new 

2 paragraph: 

3 ‘‘(2) ASSASSINATED JUDGES.—In the case of a 

4 judge who is assassinated and who has served less 

5 than 3 years, the annuity of the surviving spouse of 

6 such judge shall be based upon the average annual 

7 salary received by such judge for judicial service.’’ 

8 (e) OTHER BENEFITS.—Section 7448 is amended by 

9 adding at the end the following: 

10 ‘‘(u) OTHER BENEFITS.—In the case of a judge who 

11 is assassinated, an annuity shall be paid under this section 

12 notwithstanding a survivor’s eligibility for or receipt of 

13 benefits under chapter 81 of title 5, United States Code, 

14 except that the annuity for which a surviving spouse is 

15 eligible under this section shall be reduced to the extent 

16 that the total benefits paid under this section and chapter 

17 81 of that title for any year would exceed the current sal18 ary for that year of the office of the judge.’’ 

19 SEC. 702. COST-OF-LIVING ADJUSTMENTS FOR TAX COURT 

20 JUDICIAL SURVIVOR ANNUITIES. 

21 (a) IN GENERAL.—Subsection (s) of section 7448 

22 (relating to annuities to surviving spouses and dependent 

23 children of judges) is amended to read as follows: 

24 ‘‘(s) INCREASES IN SURVIVOR ANNUITIES.—Each 

25 time that an increase is made under section 8340(b) of 
227 

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1 title 5, United States Code, in annuities payable under 

2 subchapter III of chapter 83 of that title, each annuity 

3 payable from the survivors annuity fund under this section 

4 shall be increased at the same time by the same percent5 age by which annuities are increased under such section 

6 8340(b).’’ 

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

8 this section shall apply with respect to increases made 

9 under section 8340(b) of title 5, United States Code, in 

10 annuities payable under subchapter III of chapter 83 of 

11 that title, taking effect after the date of the enactment 

12 of this Act. 

13 SEC. 703. LIFE INSURANCE COVERAGE FOR TAX COURT 

14 JUDGES. 

15 (a) IN GENERAL.—Section 7447 (relating to retire16 ment of judges) is amended by adding at the end the fol17 lowing new subsection: 

18 ‘‘(j) LIFE INSURANCE COVERAGE.—For purposes of 

19 chapter 87 of title 5, United States Code (relating to life 

20 insurance), any individual who is serving as a judge of 

21 the Tax Court or who is retired under this section is 

22 deemed to be an employee who is continuing in active em23 ployment.’’ 

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

25 this section shall apply to any individual serving as a judge 
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1 of the United States Tax Court or to any retired judge 

2 of the United States Tax Court on the date of the enact3 ment of this Act. 

4 SEC. 704. COST OF LIFE INSURANCE COVERAGE FOR TAX 

5 COURT JUDGES AGE 65 OR OVER. 

6 Section 7472 (relating to expenditures) is amended 

7 by inserting after the first sentence the following new sen8 tence: ‘‘Notwithstanding any other provision of law, the 

9 Tax Court is authorized to pay on behalf of its judges, 

10 age 65 or over, any increase in the cost of Federal Em11 ployees’ Group Life Insurance imposed after April 24, 

12 1999, including any expenses generated by such payments, 

13 as authorized by the chief judge in a manner consistent 

14 with such payments authorized by the Judicial Conference 

15 of the United States pursuant to section 604(a)(5) of title 

16 28, United States Code.’’ 

17 SEC. 705. MODIFICATION OF TIMING OF LUMP-SUM PAY18 MENT OF JUDGES’ ACCRUED ANNUAL LEAVE. 

19 (a) IN GENERAL.—Section 7443 (relating to mem20 bership of the Tax Court) is amended by adding at the 

21 end the following new subsection: 

22 ‘‘(h) LUMP-SUM PAYMENT OF JUDGES’ ACCRUED

23 ANNUAL LEAVE.—Notwithstanding the provisions of sec24 tions 5551 and 6301 of title 5, United States Code, when 

25 an individual subject to the leave system provided in chap-
229 

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1 ter 63 of that title is appointed by the President to be 

2 a judge of the Tax Court, the individual shall be entitled 

3 to receive, upon appointment to the Tax Court, a lump4 sum payment from the Tax Court of the accumulated and 

5 accrued current annual leave standing to the individual’s 

6 credit as certified by the agency from which the individual 

7 resigned.’’ 

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

9 this section shall apply to any judge of the United States 

10 Tax Court who has an outstanding leave balance on the 

11 date of the enactment of this Act and to any individual 

12 appointed by the President to serve as a judge of the 

13 United States Tax Court after such date. 

14 SEC. 706. PARTICIPATION OF TAX COURT JUDGES IN THE 

15 THRIFT SAVINGS PLAN. 

16 (a) IN GENERAL.—Section 7447 (relating to retire17 ment of judges), as amended by this Act, is amended by 

18 adding at the end the following new subsection: 

19 ‘‘(k) THRIFT SAVINGS PLAN.— 

20 ‘‘(1) ELECTION TO CONTRIBUTE.— 

21 ‘‘(A) IN GENERAL.—A judge of the Tax 

22 Court may elect to contribute to the Thrift Sav23 ings Fund established by section 8437 of title 

24 5, United States Code. 
230 

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1 ‘‘(B) PERIOD OF ELECTION.—An election 

2 may be made under this paragraph only during 

3 a period provided under section 8432(b) of title 

4 5, United States Code, for individuals subject to 

5 chapter 84 of such title. 

6 ‘‘(2) APPLICABILITY OF TITLE 5 PROVISIONS.— 

7 Except as otherwise provided in this subsection, the 

8 provisions of subchapters III and VII of chapter 84 

9 of title 5, United States Code, shall apply with re10 spect to a judge who makes an election under para11 graph (1). 

12 ‘‘(3) SPECIAL RULES.— 

13 ‘‘(A) AMOUNT CONTRIBUTED.—The 

14 amount contributed by a judge to the Thrift 

15 Savings Fund in any pay period shall not ex16 ceed the maximum percentage of such judge’s 

17 basic pay for such period as allowable under 

18 section 8440f of title 5, United States Code. 

19 Basic pay does not include any retired pay paid 

20 pursuant to this section. 

21 ‘‘(B) CONTRIBUTIONS FOR BENEFIT OF

22 JUDGE.—No contributions may be made for the 

23 benefit of a judge under section 8432(c) of title 

24 5, United States Code. 
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1 ‘‘(C) APPLICABILITY OF SECTION 8433(b)

2 OF TITLE 5 WHETHER OR NOT JUDGE RE3 TIRES.—Section 8433(b) of title 5, United 

4 States Code, applies with respect to a judge 

5 who makes an election under paragraph (1) and 

6 who either— 

7 ‘‘(i) retires under subsection (b), or 

8 ‘‘(ii) ceases to serve as a judge of the 

9 Tax Court but does not retire under sub10 section (b). 

11 Retirement under subsection (b) is a separation 

12 from service for purposes of subchapters III 

13 and VII of chapter 84 of that title. 

14 ‘‘(D) APPLICABILITY OF SECTION

15 8351(b)(5) OF TITLE 5.—The provisions of sec16 tion 8351(b)(5) of title 5, United States Code, 

17 shall apply with respect to a judge who makes 

18 an election under paragraph (1). 

19 ‘‘(E) EXCEPTION.—Notwithstanding sub20 paragraph (C), if any judge retires under this 

21 section, or resigns without having met the age 

22 and service requirements set forth under sub23 section (b)(2), and such judge’s nonforfeitable 

24 account balance is less than an amount that the 

25 Executive Director of the Office of Personnel 
232 

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1 Management prescribes by regulation, the Exec2 utive Director shall pay the nonforfeitable ac3 count balance to the participant in a single pay4 ment.’’ 

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

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

7 of this Act, except that United States Tax Court judges 

8 may only begin to participate in the Thrift Savings Plan 

9 at the next open season beginning after such date. 

10 SEC. 707. EXEMPTION OF TEACHING COMPENSATION OF 

11 RETIRED JUDGES FROM LIMITATION ON 

12 OUTSIDE EARNED INCOME. 

13 (a) IN GENERAL.—Section 7447 (relating to retire14 ment of judges), as amended by this Act, is amended by 

15 adding at the end the following new subsection: 

16 ‘‘(l) TEACHING COMPENSATION OF RETIRED

17 JUDGES.—For purposes of the limitation under section 

18 501(a) of the Ethics in Government Act of 1978 (5 U.S.C. 

19 App.), any compensation for teaching approved under sec20 tion 502(a)(5) of such Act shall not be treated as outside 

21 earned income when received by a judge of the Tax Court 

22 who has retired under subsection (b) for teaching per23 formed during any calendar year for which such a judge 

24 has met the requirements of subsection (c), as certified 

25 by the chief judge of the Tax Court.’’ 
233 

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

2 this section shall apply to any individual serving as a re3 tired judge of the United States Tax Court on or after 

4 the date of the enactment of this Act. 

5 SEC. 708. GENERAL PROVISIONS RELATING TO MAG6 ISTRATE JUDGES OF THE TAX COURT. 

7 (a) TITLE OF SPECIAL TRIAL JUDGE CHANGED TO

8 MAGISTRATE JUDGE OF THE TAX COURT.—The heading 

9 of section 7443A is amended to read as follows: 

10 ‘‘SEC. 7443A. MAGISTRATE JUDGES OF THE TAX COURT.’’

11 (b) APPOINTMENT, TENURE, AND REMOVAL.—Sub12 section (a) of section 7443A is amended to read as follows: 

13 ‘‘(a) APPOINTMENT, TENURE, AND REMOVAL.— 

14 ‘‘(1) APPOINTMENT.—The chief judge may, 

15 from time to time, appoint and reappoint magistrate 

16 judges of the Tax Court for a term of 8 years. The 

17 magistrate judges of the Tax Court shall proceed 

18 under such rules as may be promulgated by the Tax 

19 Court. 

20 ‘‘(2) REMOVAL.—Removal of a magistrate 

21 judge of the Tax Court during the term for which 

22 he or she is appointed shall be only for incom23 petency, misconduct, neglect of duty, or physical or 

24 mental disability, but the office of a magistrate 

25 judge of the Tax Court shall be terminated if the 
234 

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1 judges of the Tax Court determine that the services 

2 performed by the magistrate judge of the Tax Court 

3 are no longer needed. Removal shall not occur unless 

4 a majority of all the judges of the Tax Court concur 

5 in the order of removal. Before any order of removal 

6 shall be entered, a full specification of the charges 

7 shall be furnished to the magistrate judge of the Tax 

8 Court, and he or she shall be accorded by the judges 

9 of the Tax Court an opportunity to be heard on the 

10 charges.’’ 

11 (c) SALARY.—Section 7443A(d) (relating to salary) 

12 is amended by striking ‘‘90’’ and inserting ‘‘92’’. 

13 (d) EXEMPTION FROM FEDERAL LEAVE PROVI14 SIONS.—Section 7443A is amended by adding at the end 

15 the following new subsection: 

16 ‘‘(f) EXEMPTION FROM FEDERAL LEAVE PROVI17 SIONS.— 

18 ‘‘(1) IN GENERAL.—A magistrate judge of the 

19 Tax Court appointed under this section shall be ex20 empt from the provisions of subchapter I of chapter 

21 63 of title 5, United States Code. 

22 ‘‘(2) TREATMENT OF UNUSED LEAVE.— 

23 ‘‘(A) AFTER SERVICE AS MAGISTRATE

24 JUDGE.—If an individual who is exempted 

25 under paragraph (1) from the subchapter re-
235 

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1 ferred to in such paragraph was previously sub2 ject to such subchapter and, without a break in 

3 service, again becomes subject to such sub4 chapter on completion of the individual’s service 

5 as a magistrate judge, the unused annual leave 

6 and sick leave standing to the individual’s cred7 it when such individual was exempted from this 

8 subchapter is deemed to have remained to the 

9 individual’s credit. 

10 ‘‘(B) COMPUTATION OF ANNUITY.—In 

11 computing an annuity under section 8339 of 

12 title 5, United States Code, the total service of 

13 an individual specified in subparagraph (A) who 

14 retires on an immediate annuity or dies leaving 

15 a survivor or survivors entitled to an annuity 

16 includes, without regard to the limitations im17 posed by subsection (f) of such section 8339, 

18 the days of unused sick leave standing to the 

19 individual’s credit when such individual was ex20 empted from subchapter I of chapter 63 of title 

21 5, United States Code, except that these days 

22 will not be counted in determining average pay 

23 or annuity eligibility. 

24 ‘‘(C) LUMP SUM PAYMENT.—Any accumu25 lated and current accrued annual leave or vaca-
236 

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1 tion balances credited to a magistrate judge as 

2 of the date of the enactment of this subsection 

3 shall be paid in a lump sum at the time of sepa4 ration from service pursuant to the provisions 

5 and restrictions set forth in section 5551 of title 

6 5, United States Code, and related provisions re7 ferred to in such section.’’ 

8 (e) CONFORMING AMENDMENTS.— 

9 (1) The heading of subsection (b) of section 

10 7443A is amended by striking ‘‘SPECIAL TRIAL

11 JUDGES’’ and inserting ‘‘MAGISTRATE JUDGES OF

12 THE TAX COURT’’. 

13 (2) Section 7443A(b) is amended by striking 

14 ‘‘special trial judges of the court’’ and inserting 

15 ‘‘magistrate judges of the Tax Court’’. 

16 (3) Subsections (c) and (d) of section 7443A 

17 are amended by striking ‘‘special trial judge’’ and 

18 inserting ‘‘magistrate judge of the Tax Court’’ each 

19 place it appears. 

20 (4) Section 7443A(e) is amended by striking 

21 ‘‘special trial judges’’ and inserting ‘‘magistrate 

22 judges of the Tax Court’’. 

23 (5) Section 7456(a) is amended by striking 

24 ‘‘special trial judge’’ each place it appears and in25 serting ‘‘magistrate judge’’. 
237 

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1 (6) Subsection (c) of section 7471 is amend2 ed— 

3 (A) by striking the subsection heading and 

4 inserting ‘‘MAGISTRATE JUDGES OF THE TAX

5 COURT.—’’, and 

6 (B) by striking ‘‘special trial judges’’ and 

7 inserting ‘‘magistrate judges’’. 

8 SEC. 709. ANNUITIES TO SURVIVING SPOUSES AND DE9 PENDENT CHILDREN OF MAGISTRATE 

10 JUDGES OF THE TAX COURT. 

11 (a) DEFINITIONS.—Section 7448(a) (relating to defi12 nitions), as amended by this Act, is amended by redesig13 nating paragraphs (5), (6), (7), and (8) as paragraphs (7), 

14 (8), (9), and (10), respectively, and by inserting after 

15 paragraph (4) the following new paragraphs: 

16 ‘‘(5) The term ‘magistrate judge’ means a judi17 cial officer appointed pursuant to section 7443A, in18 cluding any individual receiving an annuity under 

19 section 7443B, or chapters 83 or 84, as the case 

20 may be, of title 5, United States Code, whether or 

21 not performing judicial duties under section 7443C. 

22 ‘‘(6) The term ‘magistrate judge’s salary’ 

23 means the salary of a magistrate judge received 

24 under section 7443A(d), any amount received as an 

25 annuity under section 7443B, or chapters 83 or 84, 
238 

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1 as the case may be, of title 5, United States Code, 

2 and compensation received under section 7443C.’’ 

3 (b) ELECTION.—Subsection (b) of section 7448 (re4 lating to annuities to surviving spouses and dependent 

5 children of judges) is amended— 

6 (1) by striking the subsection heading and in7 serting the following: 

8 ‘‘(b) ELECTION.— 

9 ‘‘(1) JUDGES.—’’, 

10 (2) by moving the text 2 ems to the right, and 

11 (3) by adding at the end the following new 

12 paragraph: 

13 ‘‘(2) MAGISTRATE JUDGES.—Any magistrate 

14 judge may by written election filed with the chief 

15 judge bring himself or herself within the purview of 

16 this section. Such election shall be filed not later 

17 than the later of 6 months after— 

18 ‘‘(A) 6 months after the date of the enact19 ment of this paragraph, 

20 ‘‘(B) the date the judge takes office, or 

21 ‘‘(C) the date the judge marries.’’ 

22 (c) CONFORMING AMENDMENTS.— 

23 (1) The heading of section 7448 is amended by 

24 inserting ‘‘AND MAGISTRATE JUDGES’’ after 

25 ‘‘JUDGES’’. 
239 

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1 (2) The item relating to section 7448 in the 

2 table of sections for part I of subchapter C of chap3 ter 76 is amended by inserting ‘‘and magistrate 

4 judges’’ after ‘‘judges’’. 

5 (3) Subsections (c)(1), (d), (f), (g), (h), (j), 

6 (m), (n), and (u) of section 7448, as amended by 

7 this Act, are each amended— 

8 (A) by inserting ‘‘or magistrate judge’’ 

9 after ‘‘judge’’ each place it appears other than 

10 in the phrase ‘‘chief judge’’, and 

11 (B) by inserting ‘‘or magistrate judge’s’’ 

12 after ‘‘judge’s’’ each place it appears. 

13 (4) Section 7448(c) is amended— 

14 (A) in paragraph (1), by striking ‘‘Tax 

15 Court judges’’ and inserting ‘‘Tax Court judi16 cial officers’’, 

17 (B) in paragraph (2)— 

18 (i) in subparagraph (A), by inserting 

19 ‘‘and section 7443A(d)’’ after ‘‘(a)(4)’’, 

20 and 

21 (ii) in subparagraph (B), by striking 

22 ‘‘subsection (a)(4)’’ and inserting ‘‘sub23 sections (a)(4) and (a)(6)’’. 

24 (5) Section 7448(g) is amended by inserting 

25 ‘‘or section 7443B’’ after ‘‘section 7447’’ each place 
240 

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1 it appears, and by inserting ‘‘or an annuity’’ after 

2 ‘‘retired pay’’. 

3 (6) Section 7448(j)(1) is amended— 

4 (A) in subparagraph (A), by striking 

5 ‘‘service or retired’’ and inserting ‘‘service, re6 tired’’, and by inserting ‘‘, or receiving any an7 nuity under section 7443B or chapters 83 or 84 

8 of title 5, United States Code,’’ after ‘‘section 

9 7447’’, and 

10 (B) in the last sentence, by striking ‘‘sub11 sections (a) (6) and (7)’’ and inserting ‘‘para12 graphs (8) and (9) of subsection (a)’’. 

13 (7) Section 7448(m)(1), as amended by this 

14 Act, is amended— 

15 (A) by inserting ‘‘or any annuity under 

16 section 7443B or chapters 83 or 84 of title 5, 

17 United States Code’’ after ‘‘7447(d)’’, and 

18 (B) by inserting ‘‘or 7443B(m)(1)(B) after 

19 ‘‘7447(f)(4)’’. 

20 (8) Section 7448(n) is amended by inserting 

21 ‘‘his years of service pursuant to any appointment 

22 under section 7443A,’’ after ‘‘of the Tax Court,’’. 

23 (9) Section 3121(b)(5)(E) is amended by in24 serting ‘‘or magistrate judge’’ before ‘‘of the United 

25 States Tax Court’’. 
241 

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1 (10) Section 210(a)(5)(E) of the Social Secu2 rity Act is amended by inserting ‘‘or magistrate 

3 judge’’ before ‘‘of the United States Tax Court’’. 

4 SEC. 710. RETIREMENT AND ANNUITY PROGRAM. 

5 (a) RETIREMENT AND ANNUITY PROGRAM.—Part I 

6 of subchapter C of chapter 76 is amended by inserting 

7 after section 7443A the following new section: 

8 ‘‘SEC. 7443B. RETIREMENT FOR MAGISTRATE JUDGES OF 

9 THE TAX COURT. 

10 ‘‘(a) RETIREMENT BASED ON YEARS OF SERVICE.— 

11 A magistrate judge of the Tax Court to whom this section 

12 applies and who retires from office after attaining the age 

13 of 65 years and serving at least 14 years, whether continu14 ously or otherwise, as such magistrate judge shall, subject 

15 to subsection (f), be entitled to receive, during the remain16 der of the magistrate judge’s lifetime, an annuity equal 

17 to the salary being received at the time the magistrate 

18 judge leaves office. 

19 ‘‘(b) RETIREMENT UPON FAILURE OF REAPPOINT20 MENT.—A magistrate judge of the Tax Court to whom 

21 this section applies who is not reappointed following the 

22 expiration of the term of office of such magistrate judge 

23 and who retires upon the completion of the term shall, 

24 subject to subsection (f), be entitled to receive, upon at25 taining the age of 65 years and during the remainder of 
242 

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1 such magistrate judge’s lifetime, an annuity equal to that 

2 portion of the salary being received at the time the mag3 istrate judge leaves office which the aggregate number of 

4 years of service, not to exceed 14, bears to 14, if— 

5 ‘‘(1) such magistrate judge has served at least 

6 1 full term as a magistrate judge, and 

7 ‘‘(2) not earlier than 9 months before the date 

8 on which the term of office of such magistrate judge 

9 expires, and not later than 6 months before such 

10 date, such magistrate judge notified the chief judge 

11 of the Tax Court in writing that such magistrate 

12 judge was willing to accept reappointment to the po13 sition in which such magistrate judge was serving. 

14 ‘‘(c) SERVICE OF AT LEAST 8 YEARS.—A magistrate 

15 judge of the Tax Court to whom this section applies and 

16 who retires after serving at least 8 years, whether continu17 ously or otherwise, as such a magistrate judge shall, sub18 ject to subsection (f), be entitled to receive, upon attaining 

19 the age of 65 years and during the remainder of the mag20 istrate judge’s lifetime, an annuity equal to that portion 

21 of the salary being received at the time the magistrate 

22 judge leaves office which the aggregate number of years 

23 of service, not to exceed 14, bears to 14. Such annuity 

shall be reduced by 1 24 ⁄6 of 1 percent for each full month 

25 such magistrate judge was under the age of 65 at the time 
243 

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1 the magistrate judge left office, except that such reduction 

2 shall not exceed 20 percent. 

3 ‘‘(d) RETIREMENT FOR DISABILITY.—A magistrate 

4 judge of the Tax Court to whom this section applies, who 

5 has served at least 5 years, whether continuously or other6 wise, as such a magistrate judge and who retires or is re7 moved from office upon the sole ground of mental or phys8 ical disability shall, subject to subsection (f), be entitled 

9 to receive, during the remainder of the magistrate judge’s 

10 lifetime, an annuity equal to 40 percent of the salary being 

11 received at the time of retirement or removal or, in the 

12 case of a magistrate judge who has served for at least 10 

13 years, an amount equal to that proportion of the salary 

14 being received at the time of retirement or removal which 

15 the aggregate number of years of service, not to exceed 

16 14, bears to 14. 

17 ‘‘(e) COST-OF-LIVING ADJUSTMENTS.—A magistrate 

18 judge of the Tax Court who is entitled to an annuity under 

19 this section is also entitled to a cost-of-living adjustment 

20 in such annuity, calculated and payable in the same man21 ner as adjustments under section 8340(b) of title 5, 

22 United States Code, except that any such annuity, as in23 creased under this subsection, may not exceed the salary 

24 then payable for the position from which the magistrate 

25 judge retired or was removed. 
244 

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1 ‘‘(f) ELECTION; ANNUITY IN LIEU OF OTHER ANNU2 ITIES.— 

3 ‘‘(1) IN GENERAL.—A magistrate judge of the 

4 Tax Court shall be entitled to an annuity under this 

5 section if the magistrate judge elects an annuity 

6 under this section by notifying the chief judge of the 

7 Tax Court not later than the later of— 

8 ‘‘(A) 5 years after the magistrate judge of 

9 the Tax Court begins judicial service, or 

10 ‘‘(B) 5 years after the date of the enact11 ment of this subsection. 

12 Such notice shall be given in accordance with proce13 dures prescribed by the Tax Court. 

14 ‘‘(2) ANNUITY IN LIEU OF OTHER ANNUITY.— 

15 A magistrate judge who elects to receive an annuity 

16 under this section shall not be entitled to receive— 

17 ‘‘(A) any annuity to which such magistrate 

18 judge would otherwise have been entitled under 

19 subchapter III of chapter 83, or under chapter 

20 84 (except for subchapters III and VII), of title 

21 5, United States Code, for service performed as 

22 a magistrate or otherwise, 

23 ‘‘(B) an annuity or salary in senior status 

24 or retirement under section 371 or 372 of title 

25 28, United States Code, 
245 

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1 ‘‘(C) retired pay under section 7447, or 

2 ‘‘(D) retired pay under section 7296 of 

3 title 38, United States Code. 

4 ‘‘(3) COORDINATION WITH TITLE 5.—A mag5 istrate judge of the Tax Court who elects to receive 

6 an annuity under this section— 

7 ‘‘(A) shall not be subject to deductions and 

8 contributions otherwise required by section 

9 8334(a) of title 5, United States Code, 

10 ‘‘(B) shall be excluded from the operation 

11 of chapter 84 (other than subchapters III and 

12 VII) of such title 5, and 

13 ‘‘(C) is entitled to a lump-sum credit under 

14 section 8342(a) or 8424 of such title 5, as the 

15 case may be. 

16 ‘‘(g) CALCULATION OF SERVICE.—For purposes of 

17 calculating an annuity under this section— 

18 ‘‘(1) service as a magistrate judge of the Tax 

19 Court to whom this section applies may be credited, 

20 and 

21 ‘‘(2) each month of service shall be credited as 

1 22 ⁄12 of a year, and the fractional part of any month 

23 shall not be credited. 

24 ‘‘(h) COVERED POSITIONS AND SERVICE.—This sec25 tion applies to any magistrate judge of the Tax Court or 
246 

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1 special trial judge of the Tax Court appointed under this 

2 subchapter, but only with respect to service as such a mag3 istrate judge or special trial judge after a date not earlier 

than 91 4 ⁄2 years before the date of the enactment of this 

5 subsection. 

6 ‘‘(i) PAYMENTS PURSUANT TO COURT ORDER.— 

7 ‘‘(1) IN GENERAL.—Payments under this sec8 tion which would otherwise be made to a magistrate 

9 judge of the Tax Court based upon his or her service 

10 shall be paid (in whole or in part) by the chief judge 

11 of the Tax Court to another person if and to the ex12 tent expressly provided for in the terms of any court 

13 decree of divorce, annulment, or legal separation, or 

14 the terms of any court order or court-approved prop15 erty settlement agreement incident to any court de16 cree of divorce, annulment, or legal separation. Any 

17 payment under this paragraph to a person bars re18 covery by any other person. 

19 ‘‘(2) REQUIREMENTS FOR PAYMENT.—Para20 graph (1) shall apply only to payments made by the 

21 chief judge of the Tax Court after the date of re22 ceipt by the chief judge of written notice of such de23 cree, order, or agreement, and such additional infor24 mation as the chief judge may prescribe. 
247 

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1 ‘‘(3) COURT DEFINED.—For purposes of this 

2 subsection, the term ‘court’ means any court of any 

3 State, the District of Columbia, the Commonwealth 

4 of Puerto Rico, Guam, the Northern Mariana Is5 lands, or the Virgin Islands, and any Indian tribal 

6 court or courts of Indian offense. 

7 ‘‘(j) DEDUCTIONS, CONTRIBUTIONS, AND DEPOS8 ITS.— 

9 ‘‘(1) DEDUCTIONS.—Beginning with the next 

10 pay period after the chief judge of the Tax Court re11 ceives a notice under subsection (f) that a mag12 istrate judge of the Tax Court has elected an annu13 ity under this section, the chief judge shall deduct 

14 and withhold 1 percent of the salary of such mag15 istrate judge. Amounts shall be so deducted and 

16 withheld in a manner determined by the chief judge. 

17 Amounts deducted and withheld under this sub18 section shall be deposited in the Treasury of the 

19 United States to the credit of the Tax Court Judi20 cial Officers’ Retirement Fund. Deductions under 

21 this subsection from the salary of a magistrate judge 

22 shall terminate upon the retirement of the mag23 istrate judge or upon completion of 14 years of serv24 ice for which contributions under this section have 

25 been made, whether continuously or otherwise, as 
248 

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1 calculated under subsection (g), whichever occurs 

2 first. 

3 ‘‘(2) CONSENT TO DEDUCTIONS; DISCHARGE OF

4 CLAIMS.—Each magistrate judge of the Tax Court 

5 who makes an election under subsection (f) shall be 

6 deemed to consent and agree to the deductions from 

7 salary which are made under paragraph (1). Pay8 ment of such salary less such deductions (and any 

9 deductions made under section 7448) is a full and 

10 complete discharge and acquittance of all claims and 

11 demands for all services rendered by such magistrate 

12 judge during the period covered by such payment, 

13 except the right to those benefits to which the mag14 istrate judge is entitled under this section (and sec15 tion 7448). 

16 ‘‘(k) DEPOSITS FOR PRIOR SERVICE.—Each mag17 istrate judge of the Tax Court who makes an election 

18 under subsection (f) may deposit, for service performed 

19 before such election for which contributions may be made 

20 under this section, an amount equal to 1 percent of the 

21 salary received for that service. Credit for any period cov22 ered by that service may not be allowed for purposes of 

23 an annuity under this section until a deposit under this 

24 subsection has been made for that period. 
249 

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1 ‘‘(l) INDIVIDUAL RETIREMENT RECORDS.—The 

2 amounts deducted and withheld under subsection (j), and 

3 the amounts deposited under subsection (k), shall be cred4 ited to individual accounts in the name of each magistrate 

5 judge of the Tax Court from whom such amounts are re6 ceived, for credit to the Tax Court Judicial Officers’ Re7 tirement Fund. 

8 ‘‘(m) ANNUITIES AFFECTED IN CERTAIN CASES.— 

9 ‘‘(1) 1-YEAR FORFEITURE FOR FAILURE TO

10 PERFORM JUDICIAL DUTIES.—Subject to paragraph 

11 (3), any magistrate judge of the Tax Court who re12 tires under this section and who fails to perform ju13 dicial duties required of such individual by section 

14 7443C shall forfeit all rights to an annuity under 

15 this section for a 1-year period which begins on the 

16 1st day on which such individual fails to perform 

17 such duties. 

18 ‘‘(2) PERMANENT FORFEITURE OF RETIRED

19 PAY WHERE CERTAIN NON-GOVERNMENT SERVICES

20 PERFORMED.—Subject to paragraph (3), any mag21 istrate judge of the Tax Court who retires under this 

22 section and who thereafter performs (or supervises 

23 or directs the performance of) legal or accounting 

24 services in the field of Federal taxation for the indi25 vidual’s client, the individual’s employer, or any of 
250 

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1 such employer’s clients, shall forfeit all rights to an 

2 annuity under this section for all periods beginning 

3 on or after the first day on which the individual per4 forms (or supervises or directs the performance of) 

5 such services. The preceding sentence shall not apply 

6 to any civil office or employment under the Govern7 ment of the United States. 

8 ‘‘(3) FORFEITURES NOT TO APPLY WHERE IN9 DIVIDUAL ELECTS TO FREEZE AMOUNT OF ANNU10 ITY.— 

11 ‘‘(A) IN GENERAL.—If a magistrate judge 

12 of the Tax Court makes an election under this 

13 paragraph— 

14 ‘‘(i) paragraphs (1) and (2) (and sec15 tion 7443C) shall not apply to such mag16 istrate judge beginning on the date such 

17 election takes effect, and 

18 ‘‘(ii) the annuity payable under this 

19 section to such magistrate judge, for peri20 ods beginning on or after the date such 

21 election takes effect, shall be equal to the 

22 annuity to which such magistrate judge is 

23 entitled on the day before such effective 

24 date. 
251 

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1 ‘‘(B) ELECTION REQUIREMENTS.—An elec2 tion under subparagraph (A)— 

3 ‘‘(i) may be made by a magistrate 

4 judge of the Tax Court eligible for retire5 ment under this section, and 

6 ‘‘(ii) shall be filed with the chief judge 

7 of the Tax Court. 

8 Such an election, once it takes effect, shall be 

9 irrevocable. 

10 ‘‘(C) EFFECTIVE DATE OF ELECTION.— 

11 Any election under subparagraph (A) shall take 

12 effect on the first day of the first month fol13 lowing the month in which the election is made. 

14 ‘‘(4) ACCEPTING OTHER EMPLOYMENT.—Any 

15 magistrate judge of the Tax Court who retires under 

16 this section and thereafter accepts compensation for 

17 civil office or employment under the United States 

18 Government (other than for the performance of 

19 functions as a magistrate judge of the Tax Court 

20 under section 7443C) shall forfeit all rights to an 

21 annuity under this section for the period for which 

22 such compensation is received. For purposes of this 

23 paragraph, the term ‘compensation’ includes retired 

24 pay or salary received in retired status. 

25 ‘‘(n) LUMP-SUM PAYMENTS.— 
252 

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1 ‘‘(1) ELIGIBILITY.— 

2 ‘‘(A) IN GENERAL.—Subject to paragraph 

3 (2), an individual who serves as a magistrate 

4 judge of the Tax Court and— 

5 ‘‘(i) who leaves office and is not re6 appointed as a magistrate judge of the Tax 

7 Court for at least 31 consecutive days, 

8 ‘‘(ii) who files an application with the 

9 chief judge of the Tax Court for payment 

10 of a lump-sum credit, 

11 ‘‘(iii) is not serving as a magistrate 

12 judge of the Tax Court at the time of fil13 ing of the application, and 

14 ‘‘(iv) will not become eligible to re15 ceive an annuity under this section within 

16 31 days after filing the application, 

17 is entitled to be paid the lump-sum credit. Pay18 ment of the lump-sum credit voids all rights to 

19 an annuity under this section based on the serv20 ice on which the lump-sum credit is based, until 

21 that individual resumes office as a magistrate 

22 judge of the Tax Court. 

23 ‘‘(B) PAYMENT TO SURVIVORS.—Lump24 sum benefits authorized by subparagraphs (C), 

25 (D), and (E) of this paragraph shall be paid to 
253 

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1 the person or persons surviving the magistrate 

2 judge of the Tax Court and alive on the date 

3 title to the payment arises, in the order of prec4 edence set forth in subsection (o) of section 376 

5 of title 28, United States Code, and in accord6 ance with the last 2 sentences of paragraph (1) 

7 of that subsection. For purposes of the pre8 ceding sentence, the term ‘judicial official’ as 

9 used in subsection (o) of such section 376 shall 

10 be deemed to mean ‘magistrate judge of the 

11 Tax Court’ and the terms ‘Administrative Of12 fice of the United States Courts’ and ‘Director 

13 of the Administrative Office of the United 

14 States Courts’ shall be deemed to mean ‘chief 

15 judge of the Tax Court’. 

16 ‘‘(C) PAYMENT UPON DEATH OF JUDGE

17 BEFORE RECEIPT OF ANNUITY.—If a mag18 istrate judge of the Tax Court dies before re19 ceiving an annuity under this section, the lump20 sum credit shall be paid. 

21 ‘‘(D) PAYMENT OF ANNUITY REMAIN22 DER.—If all annuity rights under this section 

23 based on the service of a deceased magistrate 

24 judge of the Tax Court terminate before the 
254 

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1 total annuity paid equals the lump-sum credit, 

2 the difference shall be paid. 

3 ‘‘(E) PAYMENT UPON DEATH OF JUDGE

4 DURING RECEIPT OF ANNUITY.—If a magistrate 

5 judge of the Tax Court who is receiving an an6 nuity under this section dies, any accrued annu7 ity benefits remaining unpaid shall be paid. 

8 ‘‘(F) PAYMENT UPON TERMINATION.—Any 

9 accrued annuity benefits remaining unpaid on 

10 the termination, except by death, of the annuity 

11 of a magistrate judge of the Tax Court shall be 

12 paid to that individual. 

13 ‘‘(G) PAYMENT UPON ACCEPTING OTHER

14 EMPLOYMENT.—Subject to paragraph (2), a 

15 magistrate judge of the Tax Court who forfeits 

16 rights to an annuity under subsection (m)(4) 

17 before the total annuity paid equals the lump18 sum credit shall be entitled to be paid the dif19 ference if the magistrate judge of the Tax 

20 Court files an application with the chief judge 

21 of the Tax Court for payment of that dif22 ference. A payment under this subparagraph 

23 voids all rights to an annuity on which the pay24 ment is based. 

25 ‘‘(2) SPOUSES AND FORMER SPOUSES.— 
255 

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1 ‘‘(A) IN GENERAL.—Payment of the lump2 sum credit under paragraph (1)(A) or a pay3 ment under paragraph (1)(G)— 

4 ‘‘(i) may be made only if any current 

5 spouse and any former spouse of the mag6 istrate judge of the Tax Court are notified 

7 of the magistrate judge’s application, and 

8 ‘‘(ii) shall be subject to the terms of 

9 a court decree of divorce, annulment, or 

10 legal separation, or any court or court ap11 proved property settlement agreement inci12 dent to such decree, if— 

13 ‘‘(I) the decree, order, or agree14 ment expressly relates to any portion 

15 of the lump-sum credit or other pay16 ment involved, and 

17 ‘‘(II) payment of the lump-sum 

18 credit or other payment would extin19 guish entitlement of the magistrate 

20 judge’s spouse or former spouse to 

21 any portion of an annuity under sub22 section (i). 

23 ‘‘(B) NOTIFICATION.—Notification of a 

24 spouse or former spouse under this paragraph 

25 shall be made in accordance with such proce-
256 

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1 dures as the chief judge of the Tax Court shall 

2 prescribe. The chief judge may provide under 

3 such procedures that subparagraph (A)(i) may 

4 be waived with respect to a spouse or former 

5 spouse if the magistrate judge establishes to the 

6 satisfaction of the chief judge that the where7 abouts of such spouse or former spouse cannot 

8 be determined. 

9 ‘‘(C) RESOLUTION OF 2 OR MORE OR10 DERS.—The chief judge shall prescribe proce11 dures under which this paragraph shall be ap12 plied in any case in which the chief judge re13 ceives 2 or more orders or decrees described in 

14 subparagraph (A). 

15 ‘‘(3) DEFINITION.—For purposes of this sub16 section, the term ‘lump-sum credit’ means the 

17 unrefunded amount consisting of— 

18 ‘‘(A) retirement deductions made under 

19 this section from the salary of a magistrate 

20 judge of the Tax Court, 

21 ‘‘(B) amounts deposited under subsection 

22 (k) by a magistrate judge of the Tax Court cov23 ering earlier service, and 

24 ‘‘(C) interest on the deductions and depos25 its which, for any calendar year, shall be equal 
257 

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1 to the overall average yield to the Tax Court 

2 Judicial Officers’ Retirement Fund during the 

3 preceding fiscal year from all obligations pur4 chased by the Secretary during such fiscal year 

5 under subsection (o); but does not include inter6 est— 

7 ‘‘(i) if the service covered thereby ag8 gregates 1 year or less, or 

9 ‘‘(ii) for the fractional part of a 

10 month in the total service. 

11 ‘‘(o) TAX COURT JUDICIAL OFFICERS’ RETIREMENT

12 FUND.— 

13 ‘‘(1) ESTABLISHMENT.—There is established in 

14 the Treasury a fund which shall be known as the 

15 ‘Tax Court Judicial Officers’ Retirement Fund’. 

16 Amounts in the Fund are authorized to be appro17 priated for the payment of annuities, refunds, and 

18 other payments under this section. 

19 ‘‘(2) INVESTMENT OF FUND.—The Secretary 

20 shall invest, in interest bearing securities of the 

21 United States, such currently available portions of 

22 the Tax Court Judicial Officers’ Retirement Fund as 

23 are not immediately required for payments from the 

24 Fund. The income derived from these investments 

25 constitutes a part of the Fund. 
258 

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1 ‘‘(3) UNFUNDED LIABILITY.— 

2 ‘‘(A) IN GENERAL.—There are authorized 

3 to be appropriated to the Tax Court Judicial 

4 Officers’ Retirement Fund amounts required to 

5 reduce to zero the unfunded liability of the 

6 Fund. 

7 ‘‘(B) UNFUNDED LIABILITY.—For pur8 poses of subparagraph (A), the term ‘unfunded 

9 liability’ means the estimated excess, deter10 mined on an annual basis in accordance with 

11 the provisions of section 9503 of title 31, 

12 United States Code, of the present value of all 

13 benefits payable from the Tax Court Judicial 

14 Officers’ Retirement Fund over the sum of— 

15 ‘‘(i) the present value of deductions to 

16 be withheld under this section from the fu17 ture basic pay of magistrate judges of the 

18 Tax Court, plus 

19 ‘‘(ii) the balance in the Fund as of the 

20 date the unfunded liability is determined. 

21 ‘‘(p) PARTICIPATION IN THRIFT SAVINGS PLAN.— 

22 ‘‘(1) ELECTION TO CONTRIBUTE.— 

23 ‘‘(A) IN GENERAL.—A magistrate judge of 

24 the Tax Court who elects to receive an annuity 

25 under this section or under section 711 of the 
259 

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1 National Employee Savings and Trust Equity 

2 Guarantee Act of 2004 may elect to contribute 

3 an amount of such individual’s basic pay to the 

4 Thrift Savings Fund established by section 

5 8437 of title 5, United States Code. 

6 ‘‘(B) PERIOD OF ELECTION.—An election 

7 may be made under this paragraph only during 

8 a period provided under section 8432(b) of title 

9 5, United States Code, for individuals subject to 

10 chapter 84 of such title. 

11 ‘‘(2) APPLICABILITY OF TITLE 5 PROVISIONS.— 

12 Except as otherwise provided in this subsection, the 

13 provisions of subchapters III and VII of chapter 84 

14 of title 5, United States Code, shall apply with re15 spect to a magistrate judge who makes an election 

16 under paragraph (1). 

17 ‘‘(3) SPECIAL RULES.— 

18 ‘‘(A) AMOUNT CONTRIBUTED.—The 

19 amount contributed by a magistrate judge to 

20 the Thrift Savings Fund in any pay period shall 

21 not exceed the maximum percentage of such 

22 judge’s basic pay for such pay period as allow23 able under section 8440f of title 5, United 

24 States Code. 
260 

•S 2424 PCS 

1 ‘‘(B) CONTRIBUTIONS FOR BENEFIT OF

2 JUDGE.—No contributions may be made for the 

3 benefit of a magistrate judge under section 

4 8432(c) of title 5, United States Code. 

5 ‘‘(C) APPLICABILITY OF SECTION 8433(b)

6 OF TITLE 5.—Section 8433(b) of title 5, United 

7 States Code, applies with respect to a mag8 istrate judge who makes an election under para9 graph (1) and— 

10 ‘‘(i) who retires entitled to an imme11 diate annuity under this section (including 

12 a disability annuity under subsection (d) of 

13 this section) or section 711 of the National 

14 Employee Savings and Trust Equity Guar15 antee Act of 2004, 

16 ‘‘(ii) who retires before attaining age 

17 65 but is entitled, upon attaining age 65, 

18 to an annuity under this section or section 

19 711 of the National Employee Savings and 

20 Trust Equity Guarantee Act of 2004, or 

21 ‘‘(iii) who retires before becoming en22 titled to an immediate annuity, or an an23 nuity upon attaining age 65, under this 

24 section or section 711 of the National Em-
261 

•S 2424 PCS 

1 ployee Savings and Trust Equity Guar2 antee Act of 2004. 

3 ‘‘(D) SEPARATION FROM SERVICE.—With 

4 respect to a magistrate judge to whom this sub5 section applies, retirement under this section or 

6 section 711 of the National Employee Savings 

7 and Trust Equity Guarantee Act of 2004 is a 

8 separation from service for purposes of sub9 chapters III and VII of chapter 84 of title 5, 

10 United States Code. 

11 ‘‘(4) DEFINITIONS.—For purposes of this sub12 section, the terms ‘retirement’ and ‘retire’ include 

13 removal from office under section 7443A(a)(2) on 

14 the sole ground of mental or physical disability. 

15 ‘‘(5) OFFSET.—In the case of a magistrate 

16 judge who receives a distribution from the Thrift 

17 Savings Fund and who later receives an annuity 

18 under this section, that annuity shall be offset by an 

19 amount equal to the amount which represents the 

20 Government’s contribution to that person’s Thrift 

21 Savings Account, without regard to earnings attrib22 utable to that amount. Where such an offset would 

23 exceed 50 percent of the annuity to be received in 

24 the first year, the offset may be divided equally over 
262 

•S 2424 PCS 

1 the first 2 years in which that person receives the 

2 annuity. 

3 ‘‘(6) EXCEPTION.—Notwithstanding clauses (i) 

4 and (ii) of paragraph (3)(C), if any magistrate judge 

5 retires under circumstances making such magistrate 

6 judge eligible to make an election under subsection 

7 (b) of section 8433 of title 5, United States Code, 

8 and such magistrate judge’s nonforfeitable account 

9 balance is less than an amount that the Executive 

10 Director of the Office of Personnel Management pre11 scribes by regulation, the Executive Director shall 

12 pay the nonforfeitable account balance to the partici13 pant in a single payment.’’ 

14 (b) CONFORMING AMENDMENT.—The table of sec15 tion for part I of subchapter C of chapter 76 is amended 

16 by inserting after the item relating to section 7443A the 

17 following new item: 

‘‘Sec. 7443B. Retirement for magistrate judges of the Tax 

Court.’’ 

18 SEC. 711. INCUMBENT MAGISTRATE JUDGES OF THE TAX 

19 COURT. 

20 (a) RETIREMENT ANNUITY UNDER TITLE 5 AND

21 SECTION 7443B OF THE INTERNAL REVENUE CODE OF

22 1986.—A magistrate judge of the United States Tax 

23 Court in active service on the date of the enactment of 

24 this Act shall, subject to subsection (b), be entitled, in lieu 
263 

•S 2424 PCS 

1 of the annuity otherwise provided under the amendments 

2 made by this title, to— 

3 (1) an annuity under subchapter III of chapter 

4 83, or under chapter 84 (except for subchapters III 

5 and VII), of title 5, United States Code, as the case 

6 may be, for creditable service before the date on 

7 which service would begin to be credited for pur8 poses of paragraph (2), and 

9 (2) an annuity calculated under subsection (b) 

10 or (c) and subsection (g) of section 7443B of the In11 ternal Revenue Code of 1986, as added by this Act, 

12 for any service as a magistrate judge of the United 

13 States Tax Court or special trial judge of the United 

14 States Tax Court but only with respect to service as 

15 such a magistrate judge or special trial judge after 

a date not earlier than 91 16 ⁄2 years prior to the date 

17 of the enactment of this Act (as specified in the elec18 tion pursuant to subsection (b)) for which deduc19 tions and deposits are made under subsections (j) 

20 and (k) of such section 7443B, as applicable, with21 out regard to the minimum number of years of serv22 ice as such a magistrate judge of the United States 

23 Tax Court, except that— 

24 (A) in the case of a magistrate judge who 

25 retired with less than 8 years of service, the an-
264 

•S 2424 PCS 

1 nuity under subsection (c) of such section 

2 7443B shall be equal to that proportion of the 

3 salary being received at the time the magistrate 

4 judge leaves office which the years of service 

5 bears to 14, subject to a reduction in accord6 ance with subsection (c) of such section 7443B 

7 if the magistrate judge is under age 65 at the 

8 time he or she leaves office, and 

9 (B) the aggregate amount of the annuity 

10 initially payable on retirement under this sub11 section may not exceed the rate of pay for the 

12 magistrate judge which is in effect on the day 

13 before the retirement becomes effective. 

14 (b) FILING OF NOTICE OF ELECTION.—A magistrate 

15 judge of the United States Tax Court shall be entitled to 

16 an annuity under this section only if the magistrate judge 

17 files a notice of that election with the chief judge of the 

18 United States Tax Court specifying the date on which 

19 service would begin to be credited under section 7443B 

20 of the Internal Revenue Code of 1986, as added by this 

21 Act, in lieu of chapter 83 or chapter 84 of title 5, United 

22 States Code. Such notice shall be filed in accordance with 

23 such procedures as the chief judge of the United States 

24 Tax Court shall prescribe. 
265 

•S 2424 PCS 

1 (c) LUMP-SUM CREDIT UNDER TITLE 5.—A mag2 istrate judge of the United States Tax Court who makes 

3 an election under subsection (b) shall be entitled to a 

4 lump-sum credit under section 8342 or 8424 of title 5, 

5 United States Code, as the case may be, for any service 

6 which is covered under section 7443B of the Internal Rev7 enue Code of 1986, as added by this Act, pursuant to that 

8 election, and with respect to which any contributions were 

9 made by the magistrate judge under the applicable provi10 sions of title 5, United States Code. 

11 (d) RECALL.—With respect to any magistrate judge 

12 of the United States Tax Court receiving an annuity under 

13 this section who is recalled to serve under section 7443C 

14 of the Internal Revenue Code of 1986, as added by this 

15 Act— 

16 (1) the amount of compensation which such re17 called magistrate judge receives under such section 

18 7443C shall be calculated on the basis of the annu19 ity received under this section, and 

20 (2) such recalled magistrate judge of the United 

21 States Tax Court may serve as a reemployed annu22 itant to the extent otherwise permitted under title 5, 

23 United States Code. 

24 Section 7443B(m)(4) of the Internal Revenue Code of 

25 1986, as added by this Act, shall not apply with respect 
266 

•S 2424 PCS 

1 to service as a reemployed annuitant described in para2 graph (2). 

3 SEC. 712. PROVISIONS FOR RECALL. 

4 (a) IN GENERAL.—Part I of subchapter C of chapter 

5 76, as amended by this Act, is amended by inserting after 

6 section 7443B the following new section: 

7 ‘‘SEC. 7443C. RECALL OF MAGISTRATE JUDGES OF THE TAX 

8 COURT. 

9 ‘‘(a) RECALLING OF RETIRED MAGISTRATE

10 JUDGES.—Any individual who has retired pursuant to sec11 tion 7443B or the applicable provisions of title 5, United 

12 States Code, upon reaching the age and service require13 ments established therein, may at or after retirement be 

14 called upon by the chief judge of the Tax Court to perform 

15 such judicial duties with the Tax Court as may be re16 quested of such individual for any period or periods speci17 fied by the chief judge; except that in the case of any such 

18 individual— 

19 ‘‘(1) the aggregate of such periods in any 1 cal20 endar year shall not (without such individual’s con21 sent) exceed 90 calendar days, and 

22 ‘‘(2) such individual shall be relieved of per23 forming such duties during any period in which ill24 ness or disability precludes the performance of such 

25 duties. 
267 

•S 2424 PCS 

1 Any act, or failure to act, by an individual performing ju2 dicial duties pursuant to this subsection shall have the 

3 same force and effect as if it were the act (or failure to 

4 act) of a magistrate judge of the Tax Court. 

5 ‘‘(b) COMPENSATION.—For the year in which a pe6 riod of recall occurs, the magistrate judge shall receive, 

7 in addition to the annuity provided under the provisions 

8 of section 7443B or under the applicable provisions of title 

9 5, United States Code, an amount equal to the difference 

10 between that annuity and the current salary of the office 

11 to which the magistrate judge is recalled. The annuity of 

12 the magistrate judge who completes that period of service, 

13 who is not recalled in a subsequent year, and who retired 

14 under section 7443B, shall be equal to the salary in effect 

15 at the end of the year in which the period of recall oc16 curred for the office from which such individual retired. 

17 ‘‘(c) RULEMAKING AUTHORITY.—The provisions of 

18 this section may be implemented under such rules as may 

19 be promulgated by the Tax Court.’’ 

20 (b) CONFORMING AMENDMENT.—The table of sec21 tions for part I of subchapter C of chapter 76, as amended 

22 by this Act, is amended by inserting after the item relating 

23 to section 7443B the following new item: 

‘‘Sec. 7443C. Recall of magistrate judges of the Tax Court.’’ 
268 

•S 2424 PCS 

1 SEC. 713. EFFECTIVE DATE. 

2 Except as otherwise provided, the amendments made 

3 by this title shall take effect on the date of the enactment 

4 of this Act. 

5 TITLE VIII—OTHER PROVISIONS 

6 Subtitle A—General Provisions 

7 SEC. 801. CERTAIN POSTSECONDARY EDUCATIONAL BENE8 FITS PROVIDED BY AN EMPLOYER TO CHIL9 DREN OF EMPLOYEES EXCLUDABLE FROM 

10 GROSS INCOME UNDER EDUCATIONAL AS11 SISTANCE PROGRAMS. 

12 (a) IN GENERAL.—Section 127 of the Internal Rev13 enue Code of 1986 (relating to educational assistance pro14 grams) is amended by redesignating subsection (d) as sub15 section (e), and inserting after subsection (c) the fol16 lowing: 

17 ‘‘(d) POST SECONDARY EDUCATIONAL BENEFITS

18 PROVIDED TO CHILDREN OF EMPLOYEES.— 

19 ‘‘(1) IN GENERAL.—For purposes of this sec20 tion, educational assistance provided by the employer 

21 to a child (as defined in section 151(c)(3)) of an em22 ployee of such employer pursuant to an educational 

23 assistance program shall be treated as educational 

24 assistance provided for the exclusive benefit of the 

25 employee. 
269 

•S 2424 PCS 

1 ‘‘(2) DOLLAR LIMITATIONS.—The amount ex2 cluded from the gross income of the employee by 

3 reason of paragraph (1) for a taxable year with re4 spect to amounts provided to each child of such em5 ployee shall not exceed $1,000. 

6 ‘‘(3) LIMITATION ON EDUCATIONAL ASSIST7 ANCE.—Paragraph (1) shall only apply to expenses 

8 paid or incurred in connection with the enrollment 

9 or attendance of a child of an employee at an edu10 cational institution described in section 529(e)(5). 

11 ‘‘(4) TERMINATION.—This subsection shall not 

12 apply to taxable years beginning after December 31, 

13 2005.’’ 

14 (b) NO EXEMPTION FOR EMPLOYMENT TAXES.— 

15 (1) IN GENERAL.—Each of the following provi16 sions of the Internal Revenue Code of 1986 are 

17 amended by inserting ‘‘(without regard to subsection 

18 (d))’’ after ‘‘127’’: 

19 (A) Section 3121(a)(18). 

20 (B) Section 3231(e)(6). 

21 (C) Section 3306(b)(13). 

22 (2) SOCIAL SECURITY ACT.—Section 209(a)(15) 

23 of the Social Security Act is amended by inserting 

24 ‘‘(without regard to subsection (d))’’ after ‘‘127’’. 
270 

•S 2424 PCS 

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

2 this section shall apply to taxable years beginning after 

3 December 31, 2004. 

4 SEC. 802. EXCLUSION FOR PAYMENTS TO INDIVIDUALS 

5 UNDER NATIONAL HEALTH SERVICE CORPS 

6 LOAN REPAYMENT PROGRAM AND CERTAIN 

7 STATE LOAN REPAYMENT PROGRAMS. 

8 (a) IN GENERAL.—Section 108(f) of the Internal 

9 Revenue Code of 1986 (relating to student loans) is 

10 amended by adding at the end the following new para11 graph: 

12 ‘‘(4) PAYMENTS UNDER NATIONAL HEALTH

13 SERVICE CORPS LOAN REPAYMENT PROGRAM AND

14 CERTAIN STATE LOAN REPAYMENT PROGRAMS.—In 

15 the case of an individual, gross income shall not in16 clude any amount received under section 338B(g) of 

17 the Public Health Service Act or under a State pro18 gram described in section 338I of such Act.’’ 

19 (b) TREATMENT FOR PURPOSES OF EMPLOYMENT

20 TAXES.—Each of the following provisions of the Internal 

21 Revenue Code of 1986 is amended by inserting 

22 ‘‘108(f)(4),’’ after ‘‘74(c),’’: 

23 (1) Section 3121(a)(20). 

24 (2) Section 3231(e)(5). 

25 (3) Section 3306(b)(16). 
271 

•S 2424 PCS 

1 (4) Section 3401(a)(19). 

2 (5) Section 209(a)(17) of the Social Security 

3 Act. 

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

5 this section shall apply to amounts received by an indi6 vidual in taxable years beginning after December 31, 

7 2004. 

8 SEC. 803. EXCLUSION FOR GROUP LEGAL SERVICES. 

9 (a) ALLOWANCE OF EXCLUSION.—Section 120(e) of 

10 the Internal Revenue Code of 1986 (relating to termi11 nation) is amended to read as follows: 

12 ‘‘(e) APPLICATION.—This section and section 

13 501(c)(20) shall apply to taxable years beginning after 

14 December 31, 2004, and before January 1, 2006.’’ 

15 (b) REPEAL OF LIMITATION.—Section 120(a) of such 

16 Code is amended by striking the last sentence. 

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

18 this section shall apply to taxable years beginning after 

19 December 31, 2004. 

20 SEC. 804. TRANSFER OF EXCESS FUNDS FROM BLACK LUNG 

21 DISABILITY TRUSTS TO UNITED MINE WORK22 ERS OF AMERICA COMBINED BENEFIT FUND. 

23 (a) IN GENERAL.—So much of section 501(c)(21)(C) 

24 of the Internal Revenue Code of 1986 (relating to black 
272 

•S 2424 PCS 

1 lung disability trusts) as precedes the last sentence is 

2 amended to read as follows: 

3 ‘‘(C) Payments described in subparagraph 

4 (A)(i)(IV) may be made from such trust during 

5 a taxable year only to the extent that the aggre6 gate amount of such payments during such tax7 able year does not exceed the excess (if any), as 

8 of the close of the preceding taxable year, of— 

9 ‘‘(i) the fair market value of the as10 sets of the trust, over 

11 ‘‘(ii) 110 percent of the present value 

12 of the liability described in subparagraph 

13 (A)(i)(I) of such person.’’ 

14 (b) TRANSFER.—Section 9705 of such Code (relating 

15 to transfer) is amended by adding at the end the following 

16 new subsection: 

17 ‘‘(c) TRANSFER FROM BLACK LUNG DISABILITY

18 TRUSTS.— 

19 ‘‘(1) IN GENERAL.—The Secretary shall trans20 fer each fiscal year to the Fund from the general 

21 fund of the Treasury an amount which the Secretary 

22 estimates to be the additional amounts received in 

23 the Treasury for that fiscal year by reason of the 

24 amendment made by section 804(a) of the National 

25 Employee Savings and Trust Equity Guarantee Act 
273 

•S 2424 PCS 

1 of 2004. The Secretary shall adjust the amount 

2 transferred for any year to the extent necessary to 

3 correct errors in any estimate for any prior year. 

4 ‘‘(2) USE OF FUNDS.—Any amount transferred 

5 to the Combined Fund under paragraph (1) shall be 

6 used to proportionately reduce the unassigned bene7 ficiary premium under section 9704(a)(3) of each 

8 assigned operator for the plan year in which trans9 ferred.’’ 

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

11 this section shall apply to taxable years beginning after 

12 December 31, 2002. 

13 Subtitle B—Revenue Provisions 

14 SEC. 811. APPLICATION OF BASIS RULES TO NONRESIDENT 

15 ALIENS. 

16 (a) IN GENERAL.—Section 72 of the Internal Rev17 enue Code of 1986 (relating to annuities and certain pro18 ceeds of endowment and life insurance contracts) is 

19 amended by redesignating subsection (w) as subsection (x) 

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

21 subsection: 

22 ‘‘(w) APPLICATION OF BASIS RULES TO NON23 RESIDENT ALIENS.— 

24 ‘‘(1) IN GENERAL.—Notwithstanding any other 

25 provision of this section, for purposes of determining 
274 

•S 2424 PCS 

1 the portion of any distribution which is includible in 

2 gross income of a distributee who is a citizen or resi3 dent of the United States, the investment in the con4 tract shall not include any applicable nontaxable 

5 contributions or applicable nontaxable earnings. 

6 ‘‘(2) APPLICABLE NONTAXABLE CONTRIBU7 TION.—For purposes of this subsection, the term 

8 ‘applicable nontaxable contribution’ means any em9 ployer or employee contribution— 

10 ‘‘(A) which was made with respect to com11 pensation— 

12 ‘‘(i) for labor or personal services per13 formed by an employee who, at the time 

14 the labor or services were performed, was 

15 a nonresident alien for purposes of the 

16 laws of the United States in effect at such 

17 time, and 

18 ‘‘(ii) which is treated as from sources 

19 without the United States, and 

20 ‘‘(B) which was not subject to income tax 

21 under the laws of the United States or any for22 eign country. 

23 ‘‘(3) APPLICABLE NONTAXABLE EARNINGS.— 

24 For purposes of this subsection, the term ‘applicable 

25 nontaxable earnings’ means earnings— 
275 

•S 2424 PCS 

1 ‘‘(A) which are paid or accrued with re2 spect to any employer or employee contribution 

3 which was made with respect to compensation 

4 for labor or personal services performed by an 

5 employee, 

6 ‘‘(B) with respect to which the employee 

7 was at the time the earnings were paid or ac8 crued a nonresident alien for purposes of the 

9 laws of the United States, and 

10 ‘‘(C) which were not subject to income tax 

11 under the laws of the United States or any for12 eign country. 

13 ‘‘(4) REGULATIONS.—The Secretary shall pre14 scribe such regulations as may be necessary to carry 

15 out the provisions of this subsection, including regu16 lations treating contributions and earnings as not 

17 subject to tax under the laws of any foreign country 

18 where appropriate to carry out the purposes of this 

19 subsection.’’ 

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

21 this section shall apply to distributions on or after the date 

22 of the enactment of this Act. 
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1 SEC. 812. TREATMENT OF DEATH BENEFITS FROM COR2 PORATE-OWNED LIFE INSURANCE. 

3 (a) IN GENERAL.—Section 101 of the Internal Rev4 enue Code of 1986 (relating to certain death benefits) is 

5 amended by adding at the end the following new sub6 section: 

7 ‘‘(j) TREATMENT OF CERTAIN EMPLOYER-OWNED

8 LIFE INSURANCE CONTRACTS.— 

9 ‘‘(1) GENERAL RULE.—In the case of an em10 ployer-owned life insurance contract, the amount ex11 cluded from gross income of an applicable policy12 holder by reason of paragraph (1) of subsection (a) 

13 shall not exceed an amount equal to the sum of the 

14 premiums and other amounts paid by the policy15 holder for the contract. 

16 ‘‘(2) EXCEPTIONS.—In the case of an employer17 owned life insurance contract with respect to which 

18 the notice and consent requirements of paragraph 

19 (4) are met, paragraph (1) shall not apply to any of 

20 the following: 

21 ‘‘(A) EXCEPTIONS BASED ON INSURED’S

22 STATUS.—Any amount received by reason of 

23 the death of an insured who, with respect to an 

24 applicable policyholder— 
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1 ‘‘(i) was an employee at any time dur2 ing the 12-month period before the in3 sured’s death, or 

4 ‘‘(ii) is, at the time the contract is 

5 issued— 

6 ‘‘(I) a director, 

7 ‘‘(II) a highly compensated em8 ployee within the meaning of section 

9 414(q) (without regard to paragraph 

10 (1)(B)(ii) thereof), or 

11 ‘‘(III) a highly compensated indi12 vidual within the meaning of section 

13 105(h)(5), except that ‘35 percent’ 

14 shall be substituted for ‘25 percent’ in 

15 subparagraph (C) thereof. 

16 ‘‘(B) EXCEPTION FOR AMOUNTS PAID TO

17 INSURED’S HEIRS.—Any amount received by 

18 reason of the death of an insured to the ex19 tent— 

20 ‘‘(i) the amount is paid to a member 

21 of the family (within the meaning of sec22 tion 267(c)(4)) of the insured, any indi23 vidual who is the designated beneficiary of 

24 the insured under the contract (other than 

25 the applicable policyholder), a trust estab-
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1 lished for the benefit of any such member 

2 of the family or designated beneficiary, or 

3 the estate of the insured, or 

4 ‘‘(ii) the amount is used to purchase 

5 an equity (or capital or profits) interest in 

6 the applicable policyholder from any person 

7 described in clause (i). 

8 ‘‘(3) EMPLOYER-OWNED LIFE INSURANCE CON9 TRACT.— 

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

11 subsection, the term ‘employer-owned life insur12 ance contract’ means a life insurance contract 

13 which— 

14 ‘‘(i) is owned by a person engaged in 

15 a trade or business and under which such 

16 person (or a related person described in 

17 subparagraph (B)(ii)) is directly or indi18 rectly a beneficiary under the contract, and 

19 ‘‘(ii) covers the life of an insured who 

20 is an employee with respect to the trade or 

21 business of the applicable policyholder on 

22 the date the contract is issued. 

23 For purposes of the preceding sentence, if cov24 erage for each insured under a master contract 

25 is treated as a separate contract for purposes of 
279 

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1 sections 817(h), 7702, and 7702A, coverage for 

2 each such insured shall be treated as a separate 

3 contract. 

4 ‘‘(B) APPLICABLE POLICYHOLDER.—For 

5 purposes of this subsection— 

6 ‘‘(i) IN GENERAL.—The term ‘applica7 ble policyholder’ means, with respect to 

8 any employer-owned life insurance con9 tract, the person described in subpara10 graph (A)(i) which owns the contract. 

11 ‘‘(ii) RELATED PERSONS.—The term 

12 ‘applicable policyholder’ includes any per13 son which— 

14 ‘‘(I) bears a relationship to the 

15 person described in clause (i) which is 

16 specified in section 267(b) or 

17 707(b)(1), or 

18 ‘‘(II) is engaged in trades or 

19 businesses with such person which are 

20 under common control (within the 

21 meaning of subsection (a) or (b) of 

22 section 52). 

23 ‘‘(4) NOTICE AND CONSENT REQUIREMENTS.— 

24 The notice and consent requirements of this para-
280 

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1 graph are met if, before the issuance of the contract, 

2 the employee— 

3 ‘‘(A) is notified in writing that the applica4 ble policyholder intends to insure the employee’s 

5 life and the maximum face amount for which 

6 the employee could be insured at the time the 

7 contract was issued, 

8 ‘‘(B) provides written consent to being in9 sured under the contract and that such cov10 erage may continue after the insured terminates 

11 employment, and 

12 ‘‘(C) is informed in writing that an appli13 cable policyholder will be a beneficiary of any 

14 proceeds payable upon the death of the em15 ployee. 

16 ‘‘(5) DEFINITIONS.—For purposes of this sub17 section— 

18 ‘‘(A) EMPLOYEE.—The term ‘employee’ in19 cludes an officer, director, and highly com20 pensated employee (within the meaning of sec21 tion 414(q)). 

22 ‘‘(B) INSURED.—The term ‘insured’ 

23 means, with respect to an employer-owned life 

24 insurance contract, an individual covered by the 

25 contract who is a United States citizen or resi-
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1 dent. In the case of a contract covering the 

2 joint lives of 2 individuals, references to an in3 sured include both of the individuals.’’. 

4 (b) REPORTING REQUIREMENTS.—Subpart A of part 

5 III of subchapter A of chapter 61 of the Internal Revenue 

6 Code of 1986 (relating to information concerning persons 

7 subject to special provisions) is amended by inserting after 

8 section 6039H the following new section: 

9 ‘‘SEC. 6039I. RETURNS AND RECORDS WITH RESPECT TO 

10 EMPLOYER-OWNED LIFE INSURANCE CON11 TRACTS. 

12 ‘‘(a) IN GENERAL.—Every applicable policyholder 

13 owning 1 or more employer-owned life insurance contracts 

14 issued after the date of the enactment of this section shall 

15 file a return (at such time and in such manner as the 

16 Secretary shall by regulations prescribe) showing for each 

17 year such contracts are owned— 

18 ‘‘(1) the number of employees of the applicable 

19 policyholder at the end of the year, 

20 ‘‘(2) the number of such employees insured 

21 under such contracts at the end of the year, 

22 ‘‘(3) the total amount of insurance in force at 

23 the end of the year under such contracts, 

24 ‘‘(4) the name, address, and taxpayer identifica25 tion number of the applicable policyholder and the 
282 

•S 2424 PCS 

1 type of business in which the policyholder is en2 gaged, and 

3 ‘‘(5) that the applicable policyholder has a valid 

4 consent for each insured employee (or, if all such 

5 consents are not obtained, the number of insured em6 ployees for whom such consent was not obtained). 

7 ‘‘(b) RECORDKEEPING REQUIREMENT.—Each appli8 cable policyholder owning 1 or more employer-owned life 

9 insurance contracts during any year shall keep such 

10 records as may be necessary for purposes of determining 

11 whether the requirements of this section and section 

12 101(j) are met. 

13 ‘‘(c) DEFINITIONS.—Any term used in this section 

14 which is used in section 101(j) shall have the same mean15 ing given such term by section 101(j).’’. 

16 (c) CONFORMING AMENDMENTS.— 

17 (1) Paragraph (1) of section 101(a) of the In18 ternal Revenue Code of 1986 is amended by striking 

19 ‘‘and subsection (f)’’ and inserting ‘‘subsection (f), 

20 and subsection (j)’’. 

21 (2) The table of sections for subpart A of part 

22 III of subchapter A of chapter 61 of such Code is 

23 amended by inserting after the item relating to sec24 tion 6039H the following new item: 

‘‘Sec. 6039I. Returns and records with respect to employerowned life insurance contracts.’’ 
283 

•S 2424 PCS 

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

2 this section shall apply to life insurance contracts issued 

3 after the date of the enactment of this Act, except for a 

4 contract issued after such date pursuant to an exchange 

5 described in section 1035 of the Internal Revenue Code 

6 of 1986 for a contract issued on or prior to that date. 

7 For purposes of the preceding sentence, any material in8 crease in the death benefit or other material change shall 

9 cause the contract to be treated as a new contract except 

10 that, in the case of a master contract (within the meaning 

11 of section 264(f)(4)(E) of such Code), the addition of cov12 ered lives shall be treated as a new contract only with re13 spect to such additional covered lives. 

14 SEC. 813. REPORTING OF TAXABLE MERGERS AND ACQUISI15 TIONS. 

16 (a) IN GENERAL.—Subpart B of part III of sub17 chapter A of chapter 61 is amended by inserting after sec18 tion 6043 the following new section: 

19 ‘‘SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS. 

20 ‘‘(a) IN GENERAL.—The acquiring corporation in any 

21 taxable acquisition shall make a return (according to the 

22 forms or regulations prescribed by the Secretary) setting 

23 forth— 

24 ‘‘(1) a description of the acquisition, 
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1 ‘‘(2) the name and address of each shareholder 

2 of the acquired corporation who is required to recog3 nize gain (if any) as a result of the acquisition, 

4 ‘‘(3) the amount of money and the fair market 

5 value of other property transferred to each such 

6 shareholder as part of such acquisition, and 

7 ‘‘(4) such other information as the Secretary 

8 may prescribe. 

9 To the extent provided by the Secretary, the requirements 

10 of this section applicable to the acquiring corporation shall 

11 be applicable to the acquired corporation and not to the 

12 acquiring corporation. 

13 ‘‘(b) NOMINEE REPORTING.—Any person who holds 

14 stock as a nominee for another person shall furnish in the 

15 manner prescribed by the Secretary to such other person 

16 the information provided by the corporation under sub17 section (d). 

18 ‘‘(c) TAXABLE ACQUISITION.—For purposes of this 

19 section, the term ‘taxable acquisition’ means any acquisi20 tion by a corporation of stock in or property of another 

21 corporation if any shareholder of the acquired corporation 

22 is required to recognize gain (if any) as a result of such 

23 acquisition. 

24 ‘‘(d) STATEMENTS TO BE FURNISHED TO SHARE25 HOLDERS.—Every person required to make a return under 
285 

•S 2424 PCS 

1 subsection (a) shall furnish to each shareholder whose 

2 name is required to be set forth in such return a written 

3 statement showing— 

4 ‘‘(1) the name, address, and phone number of 

5 the information contact of the person required to 

6 make such return, 

7 ‘‘(2) the information required to be shown on 

8 such return with respect to such shareholder, and 

9 ‘‘(3) such other information as the Secretary 

10 may prescribe. 

11 The written statement required under the preceding sen12 tence shall be furnished to the shareholder on or before 

13 January 31 of the year following the calendar year during 

14 which the taxable acquisition occurred.’’. 

15 (b) ASSESSABLE PENALTIES.— 

16 (1) Subparagraph (B) of section 6724(d)(1) 

17 (defining information return) is amended by redesig18 nating clauses (ii) through (xviii) as clauses (iii) 

19 through (xix), respectively, and by inserting after 

20 clause (i) the following new clause: 

21 ‘‘(ii) section 6043A(a) (relating to re22 turns relating to taxable mergers and ac23 quisitions),’’. 

24 (2) Paragraph (2) of section 6724(d) (relating 

25 to definitions) is amended by redesignating subpara-
286 

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1 graphs (F) through (BB) as subparagraphs (G) 

2 through (CC), respectively, and by inserting after 

3 subparagraph (E) the following new subparagraph: 

4 ‘‘(F) subsections (b) and (d) of section 

5 6043A (relating to returns relating to taxable 

6 mergers and acquisitions).’’. 

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

8 for subpart B of part III of subchapter A of chapter 61 

9 is amended by inserting after the item relating to section 

10 6043 the following new item: 

‘‘Sec. 6043A. Returns relating to taxable mergers and acquisitions.’’ 

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

12 this section shall apply to acquisitions after the date of 

13 the enactment of this Act. 

Calendar No. 516 

108TH CONGRESS 

2D SESSION S. 2424 

[Report No. 108–266] 

A BILL 

To amend the Internal Revenue Code of 1986 and 

their pension plans, and for other purposes. with adequate access to, and information about, adequately diversified and by providing workers ican workers by ensuring that pension assets are 1974 to protect the retirement security of Amerthe Employee Retirement Income Security Act of 

MAY 14, 2004 

Read twice and placed on the calendar