II 

109TH CONGRESS 

1ST SESSION S. 875 

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

Income Security Act of 1974 to increase participation in section 401(k) 

plans through automatic contribution trusts, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 21, 2005 

Mr. BINGAMAN (for himself, Ms. SNOWE, Mr. LIEBERMAN, and Mr. OBAMA) 

introduced the following bill; which was read twice and referred to the 

Committee on Finance 

A BILL

To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to increase participation in section 401(k) plans through 

automatic contribution trusts, and for other purposes.

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Save More for Retire5 ment Act of 2005’’. 
2

•S 875 IS

1 SEC. 2. INCREASING PARTICIPATION IN CASH OR DE2 FERRED PLANS THROUGH AUTOMATIC CON3 TRIBUTION ARRANGEMENTS. 

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

5 Revenue Code of 1986 (relating to cash or deferred ar6 rangement) is amended by adding at the end the following 

7 new paragraph: 

8 ‘‘(13) NONDISCRIMINATION REQUIREMENTS

9 FOR AUTOMATIC CONTRIBUTION TRUSTS.— 

10 ‘‘(A) IN GENERAL.—A cash or deferred ar11 rangement shall be treated as meeting the re12 quirements of paragraph (3)(A)(ii) if such ar13 rangement constitutes an automatic contribu14 tion trust. 

15 ‘‘(B) AUTOMATIC CONTRIBUTION TRUST.— 

16 ‘‘(i) IN GENERAL.—For purposes of 

17 this paragraph, the term ‘automatic con18 tribution trust’ means an arrangement— 

19 ‘‘(I) except as provided in clauses 

20 (ii) and (iii), under which each em21 ployee eligible to participate in the ar22 rangement is treated as having elected 

23 to have the employer make elective 

24 contributions in an amount equal to 

25 the applicable percentage of the em26 ployee’s compensation, and 
3

•S 875 IS

1 ‘‘(II) which meets the require2 ments of subparagraphs (C), (D), (E), 

3 and (F). 

4 ‘‘(ii) EXCEPTION FOR EXISTING EM5 PLOYEES.—In the case of any employee— 

6 ‘‘(I) who was eligible to partici7 pate in the arrangement (or a prede8 cessor arrangement) immediately be9 fore the first date on which the ar10 rangement is an automatic contribu11 tion trust, and 

12 ‘‘(II) whose rate of contribution 

13 immediately before such first date was 

14 less than the applicable percentage for 

15 the employee, 

16 clause (i)(I) shall not apply to such em17 ployee until the date which is 1 year after 

18 such first date (or such earlier date as the 

19 employee may elect). 

20 ‘‘(iii) ELECTION OUT.—Each em21 ployee eligible to participate in the ar22 rangement may specifically elect not to 

23 have contributions made under clause (i), 

24 and such clause shall cease to apply to 
4

•S 875 IS

1 compensation paid on or after the effective 

2 date of the election. 

3 ‘‘(iv) APPLICABLE PERCENTAGE.—

4 For purposes of this subparagraph— 

5 ‘‘(I) IN GENERAL.—The term 

6 ‘applicable percentage’ means, with 

7 respect to any employee, the percent8 age (not less than 3 percent) deter9 mined under the arrangement. 

10 ‘‘(II) INCREASE IN PERCENT11 AGE.—In the case of the second plan 

12 year beginning after the first date on 

13 which the election under clause (i)(I) 

14 is in effect with respect to the em15 ployee and any succeeding plan year, 

16 the applicable percentage shall be a 

17 percentage (not greater than 10 per18 cent or such higher percentage speci19 fied by the plan) equal to the sum of 

20 the applicable percentage for the em21 ployee as of the close of the preceding 

22 plan year plus 1 percentage point (or 

23 such higher percentage specified by 

24 the plan). A plan may elect to provide 

25 that, in lieu of any increase under the 
5

•S 875 IS

1 preceding sentence, the increase in the 

2 applicable percentage required under 

3 this subclause shall occur after each 

4 increase in compensation an employee 

5 receives on or after the first day of 

6 such second plan year and that the 

7 applicable percentage after each such 

8 increase in compensation shall be 

9 equal to the applicable percentage for 

10 the employee immediately before such 

11 increase in compensation plus 1 per12 centage point (or such higher percent13 age specified by the plan). 

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

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

17 of this subparagraph are met if, under the 

18 arrangement, the employer— 

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

21 is not a highly compensated employee 

22 in an amount equal to 50 percent of 

23 the elective contributions of the em24 ployee to the extent such elective con-
6

•S 875 IS

1 tributions do not exceed 7 percent of 

2 compensation; or 

3 ‘‘(II) is required, without regard 

4 to whether the employee makes an 

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

7 defined contribution plan on behalf of 

8 each employee who is not a highly 

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

12 3 percent of the employee’s compensa13 tion, 

14 The rules of clauses (ii) and (iii) of para15 graph (12)(B) shall apply for purposes of 

16 subclause (I). The rules of paragraph 

17 (12)(E)(ii) shall apply for purposes of sub18 clauses (I) and (II). 

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

22 plan maintained by the employer meets 

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

25 ‘‘(D) NOTICE REQUIREMENTS.— 
7

•S 875 IS

1 ‘‘(i) IN GENERAL.—The requirements 

2 of this subparagraph are met if the re3 quirements of clauses (ii) and (iii) are met. 

4 ‘‘(ii) REASONABLE PERIOD TO MAKE

5 ELECTION.—The requirements of this 

6 clause are met if each employee to whom 

7 subparagraph (B)(i) applies— 

8 ‘‘(I) receives a notice explaining 

9 the employee’s right under the ar10 rangement to elect not to have elective 

11 contributions made on the employee’s 

12 behalf, and how contributions made 

13 under the arrangement will be in14 vested in the absence of any invest15 ment election by the employee, and 

16 ‘‘(II) has a reasonable period of 

17 time after receipt of such notice and 

18 before the first elective contribution is 

19 made to make such election. 

20 ‘‘(iii) ANNUAL NOTICE OF RIGHTS

21 AND OBLIGATIONS.—The requirements of 

22 this clause are met if each employee eligi23 ble to participate in the arrangement is, 

24 within a reasonable period before any year 

25 (or if the plan elects to change the applica-
8

•S 875 IS

1 ble percentage after any increase in com2 pensation, before the increase), given no3 tice of the employee’s rights and obliga4 tions under the arrangement. 

5 The requirements of clauses (i) and (ii) of para6 graph (12)(D) shall be met with respect to the 

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

8 subparagraph. 

9 ‘‘(E) PARTICIPATION, WITHDRAWAL, AND

10 VESTING REQUIREMENTS.—The requirements 

11 of this subparagraph are met if— 

12 ‘‘(i) the arrangement requires that 

13 each employee eligible to participate in the 

14 arrangement (determined without regard 

15 to any minimum service requirement other16 wise applicable under section 410(a) or the 

17 plan) commences participation in the ar18 rangement no later than the 1st day of the 

19 1st calendar quarter following the date on 

20 which employee first becomes so eligible, 

21 ‘‘(ii) the withdrawal requirements of 

22 paragraph (2)(B) are met with respect to 

23 all employer contributions (including 

24 matching and elective contributions) taken 

25 into account in determining whether the 
9

•S 875 IS

1 arrangement meets the requirements of 

2 subparagraph (C), and 

3 ‘‘(iii) the arrangement requires that 

4 an employee’s right to the accrued benefit 

5 derived from employer contributions de6 scribed in clause (ii) (other than elective 

7 contributions) is nonforfeitable after the 

8 employee has completed— 

9 ‘‘(I) at least 1 year of service, or 

10 ‘‘(II) in the case of an employee 

11 who is eligible to participate in the ar12 rangement as of the first day on 

13 which the employee begins employ14 ment with the employer maintaining 

15 the arrangement, at least 2 years of 

16 service. 

17 ‘‘(F) CERTAIN WITHDRAWALS MUST BE

18 ALLOWED.— 

19 ‘‘(i) IN GENERAL.—Notwithstanding 

20 any other provision of this subsection, the 

21 requirements of this subparagraph are met 

22 if the arrangement allows employees to 

23 elect to withdraw elective contributions de24 scribed in subparagraph (B)(i) (and earn25 ings attributable thereto) from the cash or 
10

•S 875 IS

1 deferred arrangement in accordance with 

2 the provisions of this subparagraph. 

3 ‘‘(ii) TIME FOR MAKING ELECTION.—

4 Clause (i) shall not apply to an election by 

5 an employee unless the election is made no 

6 later than the close of the latest of the fol7 lowing payroll periods occurring after the 

8 first payroll period to which the automatic 

9 enrollment system applies to the employee: 

10 ‘‘(I) The payroll period in which 

11 the aggregate elective contributions 

12 made under subparagraph (B)(i) first 

13 exceed $500. 

14 ‘‘(II) The second payroll period 

15 following such first payroll period. 

16 ‘‘(III) The first payroll period 

17 which begins at least one month after 

18 the close of the first payroll period to 

19 which the automatic enrollment sys20 tem applies. 

21 ‘‘(iii) AMOUNT OF DISTRIBUTION.—

22 Clause (i) shall not apply to any election 

23 by an employee unless the amount of any 

24 distribution by reason of the election is 

25 equal to the amount of elective contribu-
11

•S 875 IS

1 tions made with respect to the first payroll 

2 period to which the automatic enrollment 

3 system applies to the employee and any 

4 succeeding payroll period beginning before 

5 the effective date of the election (and earn6 ings attributable thereto). 

7 ‘‘(iv) TREATMENT OF DISTRIBU8 TION.—In the case of any distribution to 

9 an employee pursuant to an election under 

10 clause (i)— 

11 ‘‘(I) the amount of such distribu12 tion shall be includible in the gross in13 come of the employee for the taxable 

14 year of the employee in which the dis15 tribution is made, and 

16 ‘‘(II) no tax shall be imposed 

17 under section 72(t) with respect to the 

18 distribution. 

19 ‘‘(v) EMPLOYER MATCHING CON20 TRIBUTIONS.—In the case of any distribu21 tion to an employee by reason of an elec22 tion under clause (i), employer matching 

23 contributions shall be forfeited or subject 

24 to such other treatment as the Secretary 

25 may prescribe.’’ 
12

•S 875 IS

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

2 the Internal Revenue Code of 1986 (relating to non3 discrimination test for matching contributions and em4 ployee contributions) is amended by redesignating para5 graph (12) as paragraph (13) and by inserting after para6 graph (11) the following new paragraph: 

7 ‘‘(12) ALTERNATE METHOD FOR AUTOMATIC

8 CONTRIBUTION TRUSTS.—A defined contribution 

9 plan shall be treated as meeting the requirements of 

10 paragraph (2) with respect to matching contribu11 tions if the plan— 

12 ‘‘(A) meets the contribution requirements 

13 of subparagraphs (B)(i) and (C) of subsection 

14 (k)(13); 

15 ‘‘(B) meets the notice requirements of sub16 paragraph (D) of subsection (k)(13); and 

17 ‘‘(C) meets the requirements of paragraph 

18 (11)(B) (ii) and (iii).’’. 

19 (c) EXCLUSION FROM DEFINITION OF TOP-HEAVY

20 PLANS.— 

21 (1) ELECTIVE CONTRIBUTION RULE.—Clause 

22 (i) of section 416(g)(4)(H) of the Internal Revenue 

23 Code of 1986 is amended by inserting ‘‘or 

24 401(k)(13)’’ after ‘‘section 401(k)(12)’’. 
13

•S 875 IS

1 (2) MATCHING CONTRIBUTION RULE.—Clause 

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

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

4 401(m)(11)’’. 

5 (d) DEFINITION OF COMPENSATION.— 

6 (1) BASE PAY OR RATE OF PAY.—The Sec7 retary of the Treasury shall, no later than December 

8 31, 2006, modify Treasury Regulation section 

9 1.414(s)–1(d)(3) to facilitate the use of the safe har10 bors in sections 401(k)(12), 401(k)(13), 

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

14 rate of pay in determining contributions or benefits. 

15 Such modifications shall include increased flexibility 

16 in satisfying section 414(s) of such Code in any case 

17 where the amount of overtime compensation payable 

18 in a year can vary significantly. 

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

21 31, 2006, the Secretary of the Treasury shall issue 

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

24 of section 401(m)(12)(A) of such Code that, effec25 tive for plan years beginning after December 31, 
14

•S 875 IS

1 2006, permit such requirements to be applied sepa2 rately to separate payroll periods based on rules 

3 similar to the rules described in Treasury Regulation 

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

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

6 section 401(m) of the Internal Revenue Code of 1986 is 

7 amended by adding at the end the following: 

8 ‘‘(C) SECTION 403(b) CONTRACTS.—An 

9 annuity contract under section 403(b) shall be 

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

14 (A).’’. 

15 (f) PREEMPTION OF CONFLICTING STATE REGULA16 TION.—Section 514 of the Employee Retirement Income 

17 Security of 1974 (29 U.S.C. 1144) is amended by insert18 ing at the end the following new subsection: 

19 ‘‘(e) AUTOMATIC CONTRIBUTION ARRANGEMENTS.— 

20 ‘‘(1) IN GENERAL.—Notwithstanding any other 

21 provision of this section, any law of a State shall be 

22 superseded if it would directly or indirectly prohibit 

23 or restrict the inclusion in any plan of an eligible 

24 automatic contribution arrangement. 
15

•S 875 IS

1 ‘‘(2) ELIGIBLE AUTOMATIC CONTRIBUTION AR2 RANGEMENT.—For purposes of this subsection, the 

3 term ‘eligible automatic contribution arrangement’ 

4 means an arrangement— 

5 ‘‘(A) under which a participant may elect 

6 to have the employer make payments as con7 tributions under the plan on behalf of the par8 ticipant, or to the participant directly in cash, 

9 ‘‘(B) under which the participant is treated 

10 as having elected to have the employer make 

11 such contributions in an amount equal to a uni12 form percentage of compensation provided 

13 under the plan until the participant specifically 

14 elects not to have such contributions made (or 

15 specifically elects to have such contributions 

16 made at a different percentage), 

17 ‘‘(C) under which contributions described 

18 in subparagraph (B) are invested in accordance 

19 with regulations prescribed by the Secretary 

20 under section 404(c)(4), and 

21 ‘‘(D) which meets the requirements of 

22 paragraph (3). 

23 ‘‘(3) NOTICE REQUIREMENTS.— 

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

25 an individual account plan shall, within a rea-
16

•S 875 IS

1 sonable period before each plan year, give to 

2 each employee to whom an arrangement de3 scribed in paragraph (2) applies for such plan 

4 year notice of the employee’s rights and obliga5 tions under the arrangement which— 

6 ‘‘(i) is sufficiently accurate and com7 prehensive to apprise the employee of such 

8 rights and obligations, and 

9 ‘‘(ii) is written in a manner calculated 

10 to be understood by the average employee 

11 to whom the arrangement applies. 

12 ‘‘(B) TIME AND FORM OF NOTICE.—A no13 tice shall not be treated as meeting the require14 ments of subparagraph (A) with respect to an 

15 employee unless— 

16 ‘‘(i) the notice includes a notice ex17 plaining the employee’s right under the ar18 rangement to elect not to have elective con19 tributions made on the employee’s behalf 

20 (or to elect to have such contributions 

21 made at a different percentage), 

22 ‘‘(ii) the employee has a reasonable 

23 period of time after receipt of the notice 

24 described in clause (i) and before the first 
17

•S 875 IS

1 elective contribution is made to make such 

2 election, and 

3 ‘‘(iii) the notice explains how contribu4 tions made under the arrangement will be 

5 invested in the absence of any investment 

6 election by the employee.’’. 

7 (g) EFFECTIVE DATE.— 

8 (1) IN GENERAL.—Except as provided by para9 graph (2), the amendments made by this section 

10 shall apply to plan years beginning after December 

11 31, 2005. 

12 (2) SECTION 403(b) CONTRACTS.—The amend13 ments made by subsection (e) shall apply to years 

14 ending after the date of the enactment of this Act. 

15 SEC. 3. TREATMENT OF INVESTMENT OF ASSETS BY PLAN 

16 WHERE PARTICIPANT FAILS TO EXERCISE IN17 VESTMENT ELECTION. 

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

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

20 1104(c)) is amended by adding at the end the following 

21 new paragraph: 

22 ‘‘(4) DEFAULT INVESTMENT ARRANGE23 MENTS.— 

24 ‘‘(A) IN GENERAL.—For purposes of para25 graph (1), a participant in an individual ac-
18

•S 875 IS

1 count plan meeting the notice requirements of 

2 subparagraph (B) shall be treated as exercising 

3 control over the assets in the account with re4 spect to the amount of contributions and earn5 ings which, in the absence of an investment 

6 election by the participant, are invested by the 

7 plan in accordance with regulations prescribed 

8 by the Secretary. The regulations under this 

9 subparagraph shall provide guidance on the ap10 propriateness of designating default investments 

11 that include a mix of asset classes consistent 

12 with long-term capital appreciation. 

13 ‘‘(B) NOTICE REQUIREMENTS.— 

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

15 of this subparagraph are met if each par16 ticipant— 

17 ‘‘(I) receives, within a reasonable 

18 period of time before each plan year, 

19 a notice explaining the employee’s 

20 right under the plan to designate how 

21 contributions and earnings will be in22 vested and explaining how, in the ab23 sence of any investment election by 

24 the participant, such contributions 

25 and earnings will be invested, and 
19

•S 875 IS

1 ‘‘(II) has a reasonable period of 

2 time after receipt of such notice and 

3 before the beginning of the plan year 

4 to make such designation. 

5 ‘‘(ii) FORM OF NOTICE.—The require6 ments of clauses (i) and (ii) of section 

7 401(k)(12)(D) of the Internal Revenue 

8 Code of 1986 shall be met with respect to 

9 the notices described in this subpara10 graph.’’. 

11 (b) EFFECTIVE DATE.— 

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

13 this section shall apply to plan years beginning after 

14 December 31, 2005. 

15 (2) REGULATIONS.—Final regulations under 

16 section 404(c)(4)(A) of the Employee Retirement In17 come Security Act of 1974 (as added by this section) 

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

19 of the enactment of this Act.

Æ