II 

109TH CONGRESS 

1ST SESSION S. 861 

To amend the Internal Revenue Code of 1986 to provide transition funding 

rules for certain plans electing to cease future benefit accruals, and 

for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 20, 2005 

Mr. ISAKSON (for himself and Mr. ROCKEFELLER) 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 to provide 

transition funding rules for certain plans electing to 

cease future benefit accruals, 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 ‘‘Employee Pension 

5 Preservation Act of 2005’’. 
2 

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1 SEC. 2. TRANSITION FUNDING RULES FOR CERTAIN PLANS 

2 THAT ARE AMENDED TO CEASE FUTURE BEN3 EFIT ACCRUALS. 

4 (a) AMENDMENT OF 1986 CODE.—Section 412 of the 

5 Internal Revenue Code of 1986 is amended by adding at 

6 the end the following new subsection: 

7 ‘‘(o) TRANSITION FUNDING STANDARDS FOR CER8 TAIN PLANS THAT ARE AMENDED TO PERMANENTLY

9 CEASE FUTURE BENEFIT ACCRUALS.— 

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

11 provision of this section, if an eligible plan elects to 

12 have this subsection apply— 

13 ‘‘(A) the plan shall maintain a transition 

14 funding standard account for each applicable 

15 plan year, 

16 ‘‘(B) the accumulated funding deficiency of 

17 the plan for any applicable plan year for pur18 poses of this section and section 4971 shall be 

19 determined by using the transition funding 

20 standard account rather than the funding 

21 standard account used without regard to this 

22 subsection, and 

23 ‘‘(C) except as provided in paragraph (6), 

24 the transition funding standard account shall be 

25 credited and charged solely as provided in this 
3 

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1 subsection and without regard to the require2 ments of subsection (b), (d), (e), (f), (g), or (l). 

3 ‘‘(2) ELIGIBLE PLAN.—For purposes of this 

4 subsection— 

5 ‘‘(A) IN GENERAL.—The term ‘eligible 

6 plan’ means a plan (other than multiemployer 

7 plan) to which this section applies— 

8 ‘‘(i) which is sponsored by an applica9 ble employer (as defined in subsection 

10 (l)(12)(C)(i)), and 

11 ‘‘(ii) with respect to which the re12 quirements of subparagraphs (B) and (C) 

13 are met. 

14 ‘‘(B) ACCRUAL RESTRICTIONS.—The re15 quirements of this subparagraph are met if, ef16 fective as of the first day of the first applicable 

17 plan year and at all times thereafter, the plan 

18 provides that, except to the extent required 

19 under section 401(a) or as provided in para20 graph (4)(C), a participant will not receive any 

21 credit for any purpose under the plan for serv22 ice with, or for compensation earned from, the 

23 employer (or any member of the employer’s 

24 controlled group (within the meaning of sub25 section (1)(8)(C))) on or after such first day. 
4 

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1 ‘‘(C) RESTRICTION ON AMENDMENTS IN2 CREASING LIABILITIES.—The requirements of 

3 this subparagraph are met if, at any time dur4 ing the period beginning on the date of the en5 actment of this subsection and ending on the 

6 day before the first day of the first applicable 

7 plan year, no amendment to the plan has been 

8 adopted which increases the liabilities of the 

9 plan by reason of any increase in benefits, any 

10 change in the accrual of benefits, or any change 

11 in the rate at which benefits become nonforfeit12 able under the plan. This subparagraph shall 

13 not apply to any plan amendment described in 

14 clause (i) or (ii) of subsection (l)(12)(B). 

15 ‘‘(3) ELECTIONS AND RELATED TERMS.— 

16 ‘‘(A) IN GENERAL.—A plan sponsor shall 

17 make the election under paragraph (1) at such 

18 time and in such manner as the Secretary may 

19 prescribe. Such election, once made, is irrev20 ocable without the consent of the Secretary. 

21 ‘‘(B) YEARS FOR WHICH ELECTION

22 MADE.— 

23 ‘‘(i) IN GENERAL.—The plan sponsor 

24 may select the first plan year to which the 

25 election under paragraph (1) applies from 
5 

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1 among plan years ending after the date of 

2 the election. The election shall apply to 

3 such plan year and all subsequent years. 

4 ‘‘(ii) ELECTION OF NEW PLAN

5 YEAR.—The plan sponsor may specify a 

6 new plan year in the election under para7 graph (1) and the plan year of the plan 

8 may be changed to such new plan year 

9 without the approval of the Secretary. 

10 ‘‘(C) APPLICABLE PLAN YEAR.—The term 

11 ‘applicable plan year’ means each plan year to 

12 which the election under paragraph (1) applies 

13 under subparagraph (A). 

14 ‘‘(4) CHARGES TO THE ACCOUNT.— 

15 ‘‘(A) IN GENERAL.—In the case of any ap16 plicable plan year during the amortization pe17 riod, the transition funding standard account 

18 shall be charged with the amount necessary to 

19 amortize the unfunded liability of the plan, de20 termined as of the first day of the plan year, 

21 in equal annual installments (until fully amor22 tized) over the remainder of the amortization 

23 period. Such charge shall be separately deter24 mined for each applicable plan year. 
6 

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1 ‘‘(B) YEARS AFTER AMORTIZATION PE2 RIOD.—In the case of an applicable plan year 

3 beginning after the amortization period, the 

4 transition funding standard account shall be 

5 charged with the unfunded liability determined 

6 as of the first day of the plan year. 

7 ‘‘(C) CURRENT FUNDING OF OTHERWISE

8 PROHIBITED CREDITS.—Notwithstanding para9 graph (2)(C), a plan may provide credit for any 

10 applicable plan year which is otherwise prohib11 ited under such paragraph, but the transition 

12 funding standard account for the plan year 

13 shall be charged with the entire amount of the 

14 expected increase in unfunded accrued liability 

15 (determined under the unit credit funding 

16 method) due to benefits accruing during the 

17 plan year which are attributable to such credit. 

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

19 subsection— 

20 ‘‘(i) UNFUNDED LIABILITY.—The 

21 term ‘unfunded liability’ means the un22 funded accrued liability under the plan, de23 termined under the unit credit funding 

24 method. 
7 

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1 ‘‘(ii) AMORTIZATION PERIOD.—The 

2 term ‘amortization period’ means the 25- 

3 plan year period beginning with the first 

4 applicable plan year. 

5 ‘‘(5) CREDIT TO ACCOUNT.—The transition 

6 funding standard account for any applicable plan 

7 year shall be credited with the amount considered 

8 contributed by the employer to or under the plan for 

9 the plan year. 

10 ‘‘(6) OTHER RULES RELATING TO TRANSITION

11 FUNDING STANDARD ACCOUNT.—In the case of any 

12 transition funding standard account— 

13 ‘‘(A) the provisions of subsection (c) (other 

14 than paragraph (7)) shall apply, 

15 ‘‘(B) interest on underpayments, if any, 

16 shall be charged at the rate determined under 

17 subsection (b), 

18 ‘‘(C) in determining credits and charges to 

19 the transition funding standard account for the 

20 first applicable plan year, all existing amortiza21 tion bases and any credit balances shall be re22 duced to zero, and 

23 ‘‘(D) in determining credits and charges to 

24 the transition funding standard account for any 
8 

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1 applicable plan year, the value of plan assets 

2 shall be equal to their fair market value.’’ 

3 (b) AMENDMENT OF EMPLOYEE RETIREMENT IN4 COME SECURITY ACT OF 1974.—Section 302 of the Em5 ployee Retirement Income Security Act of 1974 is amend6 ed by adding at the end the following new subsection: 

7 ‘‘(i) TRANSITION FUNDING STANDARDS FOR CER8 TAIN PLANS THAT ARE AMENDED TO PERMANENTLY

9 CEASE FUTURE BENEFIT ACCRUALS.— 

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

11 provision of this section, if an eligible plan elects to 

12 have this subsection apply— 

13 ‘‘(A) the plan shall maintain a transition 

14 funding standard account for each applicable 

15 plan year, 

16 ‘‘(B) the accumulated funding deficiency of 

17 the plan for any applicable plan year for pur18 poses of this section and section 4971 of the In19 ternal Revenue Code of 1986 shall be deter20 mined by using the transition funding standard 

21 account rather than the funding standard ac22 count used without regard to this subsection, 

23 and 

24 ‘‘(C) except as provided in paragraph (6), 

25 the transition funding standard account shall be 
9 

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1 credited and charged solely as provided in this 

2 subsection and without regard to the require3 ments of subsection (b) or (d) of this section or 

4 section 303, 304, 305, 306, or 307. 

5 ‘‘(2) ELIGIBLE PLAN.—For purposes of this 

6 subsection— 

7 ‘‘(A) IN GENERAL.—The term ‘eligible 

8 plan’ means a plan (other than multiemployer 

9 plan) to which this section applies— 

10 ‘‘(i) which is sponsored by an applica11 ble employer (as defined in subsection 

12 (d)(12)(C)(i)), and 

13 ‘‘(ii) with respect to which the re14 quirements of subparagraphs (B) and (C) 

15 are met. 

16 ‘‘(B) ACCRUAL RESTRICTIONS.—The re17 quirements of this subparagraph are met if, ef18 fective as of the first day of the first applicable 

19 plan year and at all times thereafter, the plan 

20 provides that, except to the extent required 

21 under part 2 or as provided in paragraph 

22 (4)(C), a participant will not receive any credit 

23 for any purpose under the plan for service with, 

24 or for compensation earned from, the employer 

25 (or any member of the employer’s controlled 
10 

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1 group (within the meaning of subsection 

2 (d)(8)(C))) on or after such first day. 

3 ‘‘(C) RESTRICTION ON AMENDMENTS IN4 CREASING LIABILITIES.—The requirements of 

5 this subparagraph are met if, at any time dur6 ing the period beginning on the date of the en7 actment of this subsection and ending on the 

8 day before the first day of the first applicable 

9 plan year, no amendment to the plan has been 

10 adopted which increases the liabilities of the 

11 plan by reason of any increase in benefits, any 

12 change in the accrual of benefits, or any change 

13 in the rate at which benefits become nonforfeit14 able under the plan. This subparagraph shall 

15 not apply to any plan amendment described in 

16 clause (i) or (ii) of subsection (d)(12)(B). 

17 ‘‘(3) ELECTIONS AND RELATED TERMS.— 

18 ‘‘(A) IN GENERAL.—A plan sponsor shall 

19 make the election under paragraph (1) at such 

20 time and in such manner as the Secretary may 

21 prescribe. Such election, once made, is irrev22 ocable without the consent of the Secretary of 

23 the Treasury. 

24 ‘‘(B) YEARS FOR WHICH ELECTION

25 MADE.— 
11 

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1 ‘‘(i) IN GENERAL.—The plan sponsor 

2 may select the first plan year to which the 

3 election under paragraph (1) applies from 

4 among plan years ending after the date of 

5 the election. The election shall apply to 

6 such plan year and all subsequent years. 

7 ‘‘(ii) ELECTION OF NEW PLAN

8 YEAR.—The plan sponsor may specify a 

9 new plan year in the election under para10 graph (1) and the plan year of the plan 

11 may be changed to such new plan year 

12 without the approval of the Secretary of 

13 the Treasury. 

14 ‘‘(C) APPLICABLE PLAN YEAR.—For pur15 poses of this subsection, the term ‘applicable 

16 plan year’ means each plan year to which the 

17 election under paragraph (1) applies under sub18 paragraph (A). 

19 ‘‘(4) CHARGES TO THE ACCOUNT.— 

20 ‘‘(A) IN GENERAL.—In the case of any ap21 plicable plan year during the amortization pe22 riod, the transition funding standard account 

23 shall be charged with the amount necessary to 

24 amortize the unfunded liability of the plan, de25 termined as of the first day of the plan year, 
12 

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1 in equal annual installments (until fully amor2 tized) over the remainder of the amortization 

3 period. Such charge shall be separately deter4 mined for each applicable plan year. 

5 ‘‘(B) YEARS AFTER AMORTIZATION PE6 RIOD.—In the case of an applicable plan year 

7 beginning after the amortization period, the 

8 transition funding standard account shall be 

9 charged with the unfunded liability determined 

10 as of the first day of the plan year. 

11 ‘‘(C) CURRENT FUNDING OF OTHERWISE

12 PROHIBITED CREDITS.—Notwithstanding para13 graph (2)(C), a plan may provide credit for any 

14 applicable plan year which is otherwise prohib15 ited under such paragraph, but the transition 

16 funding standard account for the plan year 

17 shall be charged with the entire amount of the 

18 expected increase in unfunded accrued liability 

19 (determined under the unit credit funding 

20 method) due to benefits accruing during the 

21 plan year which are attributable to such credit. 

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

23 subsection— 

24 ‘‘(i) UNFUNDED LIABILITY.—The 

25 term ‘unfunded liability’ means the un-
13 

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1 funded accrued liability under the plan, de2 termined under the unit credit funding 

3 method. 

4 ‘‘(ii) AMORTIZATION PERIOD.—The 

5 term ‘amortization period’ means the 25- 

6 plan year period beginning with the first 

7 applicable plan year. 

8 ‘‘(5) CREDIT TO ACCOUNT.—The transition 

9 funding standard account for any applicable plan 

10 year shall be credited with the amount considered 

11 contributed by the employer to or under the plan for 

12 the plan year. 

13 ‘‘(6) OTHER RULES RELATING TO TRANSITION

14 FUNDING STANDARD ACCOUNT.—In the case of any 

15 transition funding standard account— 

16 ‘‘(A) the provisions of subsection (c) (other 

17 than paragraph (7)) shall apply, 

18 ‘‘(B) interest on underpayments, if any, 

19 shall be charged at the rate determined under 

20 subsection (b), 

21 ‘‘(C) in determining credits and charges to 

22 the transition funding standard account for the 

23 first applicable plan year, all existing amortiza24 tion bases and any credit balances shall be re25 duced to zero, and 
14 

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1 ‘‘(D) in determining credits and charges to 

2 the transition funding standard account for any 

3 applicable plan year, the value of plan assets 

4 shall be equal to their fair market value.’’. 

5 (c) AMENDMENT TO QUALIFICATION RULES.—Sec6 tion 401(a) of the Internal Revenue Code of 1986 is 

7 amended by inserting after paragraph (34) the following 

8 new paragraph: 

9 ‘‘(35) SUCCESSOR PLANS TO CERTAIN PLANS.— 

10 If a plan to which section 412(o) applies is main11 tained by an employer that establishes or maintains 

12 1 or more other defined benefit plans, and such 

13 other plans in combination provide benefit accruals 

14 to any substantial number of successor employees, 

15 the Secretary may, in the Secretary’s discretion, de16 termine that any trust of which any other such plan 

17 is a part does not constitute a qualified trust under 

18 this subsection unless all benefit obligations of the 

19 plan to which section 412(o) applies have been satis20 fied. For purposes of this paragraph, the term ‘suc21 cessor employee’ means any employee who is or was 

22 covered by the plan to which section 412(o) applies 

23 and any employee who performs substantially the 

24 same type of work with respect to the same business 

25 operations as an employee covered by such plan.’’ 
15 

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1 (d) PBGC LIABILITY LIMITED.—Section 4022(b) of 

2 the Employee Retirement Income Security Act of 1974 is 

3 amended by adding at the end the following new para4 graph: 

5 ‘‘(8) For any plan that terminates at a time 

6 when the special funding requirements under section 

7 302(i) and section 412(o) of the Internal Revenue 

8 Code of 1986 apply to such plan, paragraphs (1), 

9 (3), and (7) shall be applied as if the plan had ter10 minated on the first day of the first applicable plan 

11 year described in such sections.’’ 

12 (e) LIMITATION ON DEDUCTIONS UNDER CERTAIN

13 PLANS.— 

14 (1) SPECIAL RULES.—Section 404(a)(1)(D) of 

15 the Internal Revenue Code of 1986 is amended by 

16 adding at the end the following new clause: 

17 ‘‘(v) PLANS TO WHICH SECTION 412(O)

18 APPLIES.—In the case of a plan to which 

19 section 412(o) applies, the maximum 

20 amount deductible under the limitations of 

21 this paragraph shall be the amount paid 

22 into such plan for such plan year.’’ 

23 (2) COMBINED PLANS.—Section 404(a)(7)(C) 

24 of the Internal Revenue Code of 1986 is amended by 

25 adding at the end the following new clause: 
16 

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1 ‘‘(iii) PLANS TO WHICH SECTION

2 412(O) APPLIES.—Contributions to a plan 

3 to which section 412(o) applies shall be 

4 disregarded in applying this paragraph.’’ 

5 (f) NOTICE.—In the case of a plan amendment adopt6 ed in order to comply with section 412(o)(2)(B) of the 

7 Internal Revenue Code of 1986 and with section 

8 302(i)(2)(B) of the Employee Retirement Income Security 

9 Act of 1974, any notice required under section 4980F(e) 

10 of such Code or section 204(h) of such Act shall be subject 

11 to the timing rules applicable to multiemployer plans 

12 under Treasury Regulation section 54.4980F–1 Q/A–9 (or 

13 any successor provision). This subsection shall not apply 

14 to any plan unless such plan is— 

15 (1) described in section 412(o) of such Code 

16 and section 302(i) of such Act, and 

17 (2) maintained pursuant to one or more collec18 tive bargaining agreements between employee rep19 resentatives and one or more employers. 

20 (g) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to plan years ending after the date 

22 of the enactment of this Act. 

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