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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5292 Introduced in House (IH)]

108th CONGRESS
  2d Session
                                H. R. 5292

To amend title I of the Employee Retirement Income Security Act of 1974 
  and the Internal Revenue Code of 1986 to limit the availability of 
 benefits under an employer's nonqualified deferred compensation plans 
   in the event that any of the employer's defined pension plans are 
    subjected to a distress or PBGC termination in connection with 
   bankruptcy reorganization or a conversion to a cash balance plan.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                            October 8, 2004

 Mr. George Miller of California (for himself, Mr. Hoeffel, Mr. Payne, 
 Mr. Grijalva, Mr. Owens, Mrs. McCarthy of New York, Mr. Doggett, Mr. 
Bishop of New York, Mr. Davis of Illinois, Mr. Van Hollen, Mr. Andrews, 
Mr. Kucinich, and Mr. Tierney) introduced the following bill; which was 
   referred to the Committee on Education and the Workforce, and in 
    addition to the Committee on Ways and Means, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
  of such provisions as fall within the jurisdiction of the committee 
                               concerned

_______________________________________________________________________

                                 A BILL

 
To amend title I of the Employee Retirement Income Security Act of 1974 
  and the Internal Revenue Code of 1986 to limit the availability of 
 benefits under an employer's nonqualified deferred compensation plans 
   in the event that any of the employer's defined pension plans are 
    subjected to a distress or PBGC termination in connection with 
   bankruptcy reorganization or a conversion to a cash balance plan.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Pension Fairness Act of 2004''.

SEC. 1. FINDINGS AND PURPOSE.

    (a) Findings.--The Congress finds as follows:
            (1) The pension system sponsored by private employers is in 
        a weakened state due to economic recession and heightened 
        global competition.
            (2) Employers increasingly are terminating or reducing the 
        benefits provided under traditional defined benefit pension 
        plans.
            (3) Over 44,000,000 workers, retirees, and their families 
        depend on defined benefit pension plans as a critical component 
        of their retirement security in addition to Social Security.
            (4) Defined benefit pension plans are currently estimated 
        to be underfunded up to a total of $400,000,000,000, and the 
        Pension Benefit Guaranty Corporation, the agency that insures 
        traditional pensions, had a 2003 deficit of over 
        $10,000,000,000.
            (5) The Congress in enacting the Employee Retirement Income 
        Security Act of 1974 intended employers to adequately fund 
        their pension plans and did not intend for the Pension Benefit 
        Guaranty Corporation to be used as a means for restructuring 
        companies to escape their unfunded pension liabilities.
            (6) Cash balance pension plans were created to reduce 
        traditional defined benefit pension obligations without 
        statutory authorization, and adequate standards do not exist to 
        adequately protect the pensions of pension plan participants, 
        particularly older participants.
            (7) Corporate executives often preserve or enhance 
        executive pension and other employee benefits at the same time 
        the benefits of non-highly paid employees are reduced.
    (b) Purpose.--It is the purpose of this Act to better protect the 
retirement benefits afforded to workers and retirees by protecting the 
solvency of the Pension Benefit Guaranty Corporation and ensuring 
equitable treatment of corporate executives as compared to treatment 
provided to other employees when restructuring employers shift unfunded 
pension liabilities onto the Pension Benefit Guaranty Corporation or 
convert to cash balance pension plans without adequately protecting the 
retirement security of older workers.

SEC. 2. TERMINATION FAIRNESS STANDARD FOR NONQUALIFIED DEFERRED 
              COMPENSATION PLANS IN CONNECTION WITH A PENSION PLAN 
              TERMINATION BASED ON BANKRUPTCY REORGANIZATION OR IN 
              CONNECTION WITH A CONVERSION OF A PLAN TO A CASH BALANCE 
              PLAN.

    Section 206 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1056) is amended by adding at the end the following new 
subsection:
    ``(g) Termination Fairness Standard for Nonqualified Deferred 
Compensation Plans in Connection With a Pension Plan Termination Based 
on Bankruptcy Reorganization or in Connection With a Conversion of a 
Pension Plan to a Cash Balance Plan.--
            ``(1) In general.--In any case in which a corporation is a 
        plan sponsor of a defined benefit plan with respect to which a 
        plan amendment is adopted that has the effect of--
                    ``(A) implementing a distress termination of the 
                plan under section 4041(c) based on bankruptcy 
                reorganization or a termination of the plan initiated 
                by the Pension Benefit Guaranty Corporation under 
                section 4042 based on bankruptcy reorganization, in any 
                case in which the plan is not sufficient for guaranteed 
                benefits (within the meaning of section 4041(d)(2)) as 
                of the proposed termination date, or
                    ``(B) converting such plan to a cash balance plan, 
                in any case in which the amendment--
                            ``(i) results in a significant reduction in 
                        the rate of future benefit accruals (within the 
                        meaning of section 204(h)(1)) of participants 
                        with at least 10 years of service under the 
                        plan, or
                            ``(ii) does not provide for an election by 
                        affected participants with at least 10 years of 
                        service under the plan (and their 
                        beneficiaries) to retain coverage under the 
                        terms of the plan as in effect immediately 
                        prior to the amendment,
        any covered deferred compensation plan established or 
        maintained by such plan sponsor after the date of the adoption 
        of such plan amendment shall meet the termination fairness 
        standard of this subsection with respect to such plan 
        amendment.
            ``(2) Termination fairness standard.--A covered deferred 
        compensation plan established or maintained by a plan sponsor 
        described in paragraph (1) meets the termination fairness 
        standard of this subsection with respect to a plan amendment 
        described in paragraph (1) if, during the 5-year period 
        beginning on the date of the adoption of such plan amendment--
                    ``(A) no amount of deferred compensation accrues to 
                a disqualified individual under the terms of such 
                covered deferred compensation plan (irrespective of 
                whether the accrual in deferred compensation is 
                expressed in the form of a promise, a guarantee, or any 
                other representation), and
                    ``(B) in the case of a covered deferred 
                compensation plan established during or after the 1-
                year period preceding the notice date (or any amendment 
                to a covered deferred compensation plan if such 
                amendment is adopted during or after such 1-year 
                period), no distribution of accrued deferred 
                compensation is made under such plan (or such 
                amendment) to a disqualified individual.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Cash balance plan.--
                            ``(i) In general.--The term `cash balance 
                        plan' means a defined benefit plan under which 
                        the accrued benefit is expressed to 
                        participants and beneficiaries as an amount 
                        other than an annual benefit commencing at 
                        normal retirement age.
                            ``(ii) Regulations to include similar or 
                        other hybrid plans.--The Secretary shall issue 
                        regulations which provide that a defined 
                        benefit plan (or any portion of such a plan) 
                        which has an effect similar to a plan described 
                        in clause (i) shall be treated as a cash 
                        balance plan. Such regulations may provide that 
                        if a plan sponsor represents in communications 
                        to participants and beneficiaries that a plan 
                        amendment results in a plan being described in 
                        the preceding sentence, such plan shall be 
                        treated as a cash balance plan.
                    ``(B) Notice date.--The term `notice date' means, 
                with respect to an amendment described in paragraph 
                (1)--
                            ``(i) in the case of a distress termination 
                        under section 4041(d), the date of the advance 
                        notice of intent to terminate provided pursuant 
                        to section 4041(a)(2),
                            ``(ii) in the case of a termination 
                        initiated by the Pension Benefit Guaranty 
                        Corporation under section 4042, the date of the 
                        application to the court under section 4042(c), 
                        and
                            ``(iii) in the case of a conversion to a 
                        cash balance plan, the date of the adoption of 
                        the amendment.
                    ``(C) Covered deferred compensation plan.--
                            ``(i) In general.--The term `covered 
                        deferred compensation plan' means any plan 
                        providing for the deferral of compensation of a 
                        disqualified individual, whether or not--
                                    ``(I) compensation of the 
                                disqualified individual which is 
                                deferred under such plan is subject to 
                                substantial risk of forfeiture,
                                    ``(II) the disqualified 
                                individual's rights to the compensation 
                                deferred under the plan are no greater 
                                than the rights of a general creditor 
                                of the plan sponsor,
                                    ``(III) all amounts set aside 
                                (directly or indirectly) for purposes 
                                of paying the deferred compensation 
                                (including income), and all income 
                                attributable to such amounts, remain 
                                (until made available to the 
                                disqualified individual or other 
                                beneficiary) solely the property of the 
                                plan sponsor (without being restricted 
                                to the provision of benefits under the 
                                plan),
                                    ``(IV) the amounts referred to in 
                                subclause (III) are available to 
                                satisfy the claims of the plan 
                                sponsor's general creditors at all 
                                times (not merely after bankruptcy or 
                                insolvency), and
                                    ``(V) some or all of the 
                                compensation of the disqualified 
                                individual which is deferred under such 
                                plan is guaranteed by an insurance 
                                company, insurance service, or other 
                                similar organization.
                            ``(ii) Exception for qualified plans.--Such 
                        term shall not include a plan that is--
                                    ``(I) described in section 
                                219(g)(5)(A) of the Internal Revenue 
                                Code of 1986, or
                                    ``(II) an eligible deferred 
                                compensation plan (as defined in 
                                section 457(b) of such Code) of an 
                                eligible employer described in section 
                                457(e)(1)(A) of such Code.
                            ``(iii) Plan includes arrangements, etc.--
                        For purposes of this subparagraph, the term 
                        `plan' includes any agreement or arrangement.
                    ``(D) Disqualified individual.--The term 
                `disqualified individual' means a director or executive 
                officer of the plan sponsor.
                    ``(E) Termination based on bankruptcy 
                reorganization.--A termination of a plan which is a 
                distress termination under section 4041(c) or a 
                termination instituted by the Pension Benefit Guaranty 
                Corporation under section 4042 is `based on bankruptcy 
                reorganization' if such termination is based in whole 
                or in part on the filing, by or against any person who 
                is a contributing sponsor of such plan or a member of 
                such sponsor's controlled group, of a petition seeking 
                reorganization in a case under title 11, United States 
                Code, or under any similar law of a State or political 
                subdivision of a State (or such a case in which 
                liquidation is sought has been converted to a case in 
                which reorganization is sought).
                    ``(F) Title iv terminology.--Any term used in this 
                subsection which is defined in section 4001(a) shall 
                have the meaning provided such term in section 4001(a).
            ``(4) Special rules.--
                    ``(A) Coordinated benefits.--If the benefits of 2 
                or more defined benefit plans established or maintained 
                by an employer are coordinated in such a manner as to 
                have the effect of the adoption of an amendment 
                described in paragraph (1), the sponsor of the defined 
                benefit plan or plans providing for such coordination 
                shall be treated as having adopted such a plan 
                amendment as of the date such coordination begins.
                    ``(B) Multiple amendments.--The Secretary shall 
                issue regulations to prevent the avoidance of the 
                purposes of this subsection through the use of 2 or 
                more plan amendments rather than a single amendment.
                    ``(C) Controlled groups, etc.--For purposes of this 
                subsection, all persons treated as a single employer 
                under subsection (b), (c), (m), or (o) of section 414 
                of the Internal Revenue Code of 1986 shall be treated 
                as 1 employer.
                    ``(D) Treatment of earnings.--References to 
                deferred compensation shall be treated as including 
                references to income attributable to such compensation 
                or such income.
            ``(5) Coordination.--The Secretary and the Secretary of the 
        Treasury shall ensure, through the execution of an interagency 
        memorandum of understanding among such Secretaries, that 
        regulations, rulings, and interpretations issued by such 
        Secretaries relating to the same matter over which both such 
        Secretaries have responsibility under this subsection and 
        section 4980H of the Internal Revenue Code of 1986 are 
        administered so as to have the same effect at all times.
            ``(6) Effect of waiver granted by secretary of the 
        treasury.--To the extent that any requirement of the 
        termination fairness standard of section 4980H(b) of the 
        Internal Revenue Code of 1986 is waived by the Secretary of the 
        Treasury with respect to any disqualified individual under 
        section 4980H(h) of such Code in the case of any plan amendment 
        having the effect of a termination described in paragraph 
        (1)(A) of this subsection, such requirement under the 
        termination fairness standard of paragraph (2) of this 
        subsection shall not apply with respect to such individual in 
        the case of such plan amendment.''.

SEC. 3. EXCISE TAX ON FUNDING NONQUALIFIED DEFERRED COMPENSATION PLANS 
              IN THE EVENT OF A PENSION PLAN TERMINATION BASED ON 
              BANKRUPTCY REORGANIZATION OR A CONVERSION OF A PENSION 
              PLAN TO A CASH BALANCE PLAN.

    (a) In General.--Chapter 43 of the Internal Revenue Code of 1986 
(relating to qualified pension, etc., plans) is amended by adding at 
the end the following new section:

``SEC. 4980H. FUNDING NONQUALIFIED DEFERRED COMPENSATION PLANS IN THE 
              EVENT OF A PENSION PLAN TERMINATION BASED ON BANKRUPTCY 
              REORGANIZATION OR A CONVERSION OF A PENSION PLAN TO A 
              CASH BALANCE PLAN.

    ``(a) Imposition of Tax.--In any case in which a corporation is a 
plan sponsor of a defined benefit plan with respect to which an plan 
amendment is adopted that has the effect of--
            ``(1) implementing a distress termination of the plan under 
        section 4041(c) of the Employee Retirement Income Security Act 
        of 1974 based on bankruptcy reorganization or a termination of 
        the plan initiated by the Pension Benefit Guaranty Corporation 
        under section 4042 of such Act based on bankruptcy 
        reorganization, in any case in which the plan is not sufficient 
        for guaranteed benefits (within the meaning of section 
        4041(d)(2) of such Act) as of the proposed termination date, or
            ``(2) converting such plan to a cash balance plan, in any 
        case in which the amendment--
                    ``(A) results in a significant reduction in the 
                rate of future benefit accruals (within the meaning of 
                section 4980F(e)(1)) of participants with at least 10 
                years of service under the plan, or
                    ``(B) does not provide for an election by affected 
                participants with at least 10 years of service under 
                the plan (and their beneficiaries) to retain coverage 
                under the terms of the plan as in effect immediately 
                prior to the amendment,
there is hereby imposed a tax on any failure to meet the termination 
fairness standard of subsection (b) with respect to such plan 
amendment.
    ``(b) Termination Fairness Standard.--A covered deferred 
compensation plan established or maintained by a plan sponsor described 
in subsection (a) meets the termination fairness standard of this 
subsection with respect to a plan amendment described in subsection (a) 
if, during the 5-year period beginning on the date of the adoption of 
such plan amendment--
            ``(1) no amount of deferred compensation accrues to a 
        disqualified individual under the terms of such covered 
        deferred compensation plan (irrespective of whether the accrual 
        in deferred compensation is expressed in the form of a promise, 
        a guarantee, or any other representation), and
            ``(2) in the case of a covered deferred compensation plan 
        established during or after the 1-year period preceding the 
        notice date (or any amendment to a covered deferred 
        compensation plan if such amendment is adopted during or after 
        such 1-year period), no distribution of accrued deferred 
        compensation is made under such plan (or such amendment) to a 
        disqualified individual.
    ``(c) Amount of Tax.--The amount of the tax imposed by subsection 
(a) shall be equal to the amount of the accrual described in subsection 
(b)(1) comprising the failure or the distribution described in 
subsection (b)(2) comprising the failure.
    ``(d) Liability for Tax.--The plan sponsor shall be liable for the 
tax imposed by this section.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Cash balance plan.--
                    ``(A) In general.--The term `cash balance plan' 
                means a defined benefit plan under which the accrued 
                benefit is expressed to participants and beneficiaries 
                as an amount other than an annual benefit commencing at 
                normal retirement age.
                    ``(B) Regulations to include similar or other 
                hybrid plans.--The Secretary shall issue regulations 
                which provide that a defined benefit plan (or any 
                portion of such a plan) which has an effect similar to 
                a plan described in subparagraph (A) shall be treated 
                as a cash balance plan. Such regulations may provide 
                that if a plan sponsor represents in communications to 
                participants and beneficiaries that a plan amendment 
                results in a plan being described in the preceding 
                sentence, such plan shall be treated as a cash balance 
                plan.
            ``(2) Notice date.--The term `notice date' means with 
        respect to an amendment described in subsection (a)--
                    ``(A) in the case of a distress termination under 
                section 4041(d) of the Employee Retirement Income 
                Security Act of 1974, the date of the advance notice of 
                intent to terminate provided pursuant to section 
                4041(a)(2) of such Act,
                    ``(B) in the case of a termination initiated by the 
                Pension Benefit Guaranty Corporation under section 4042 
                of such Act, the date of the application to the court 
                under section 4042(c) of such Act, and
                    ``(C) in the case of a conversion to a cash balance 
                plan, the date of the adoption of the amendment.
            ``(3) Covered deferred compensation plan.--
                    ``(A) In general.--The term `covered deferred 
                compensation plan' means any plan providing for the 
                deferral of compensation of a disqualified individual, 
                whether or not--
                            ``(i) compensation of the disqualified 
                        individual which is deferred under such plan is 
                        subject to substantial risk of forfeiture,
                            ``(ii) the disqualified individual's rights 
                        to the compensation deferred under the plan are 
                        no greater than the rights of a general 
                        creditor of the plan sponsor,
                            ``(iii) all amounts set aside (directly or 
                        indirectly) for purposes of paying the deferred 
                        compensation, and all income attributable to 
                        such amounts, remain (until made available to 
                        the participant or other beneficiary) solely 
                        the property of the (without being restricted 
                        to the provision of benefits under the plan),
                            ``(iv) the amounts referred to in clause 
                        (iii) are available to satisfy the claims of 
                        the plan sponsor's general creditors at all 
                        times (not merely after bankruptcy or 
                        insolvency), and
                            ``(v) some or all of the compensation of 
                        the disqualified individual which is deferred 
                        under such plan is guaranteed by an insurance 
                        company, insurance service, or other similar 
                        organization.
                    ``(B) Exception for qualified plans.--Such term 
                shall not include a plan that is--
                            ``(i) described in section 219(g)(5)(A), or
                            ``(ii) an eligible deferred compensation 
                        plan (as defined in section 457(b)) of an 
                        eligible described in section 457(e)(1)(A).
                    ``(C) Plan includes arrangements, etc.--For 
                purposes of this paragraph, the term `plan' includes 
                any agreement or arrangement.
            ``(4) Disqualified individual.--The term `disqualified 
        individual' means a director or executive officer of the plan 
        sponsor.
            ``(5) Termination based on bankruptcy reorganization.--A 
        termination of a plan which is a distress termination under 
        section 4041(c) or a termination instituted by the Pension 
        Benefit Guaranty Corporation under section 4042 is `based on 
        bankruptcy reorganization' if such termination is based in 
        whole or in part on the filing, by or against any person who is 
        a contributing sponsor of such plan or a member of such 
        sponsor's controlled group, of a petition seeking 
        reorganization in a case under title 11, United States Code, or 
        under any similar law of a State or political subdivision of a 
        State (or such a case in which liquidation is sought has been 
        converted to a case in which reorganization is sought).
            ``(6) Title iv terminology.--Any term used in this section 
        which is defined in section 4001(a) of the Employee Retirement 
        Income Security Act of 1974 shall have the meaning provided 
        such term in such section 4001(a).
    ``(f) Special Rules.--
            ``(1) Coordinated benefits.--If the benefits of 2 or more 
        defined benefit plans established or maintained by an are 
        coordinated in such a manner as to have the effect of the 
        adoption of an amendment described in subsection (a), the 
        sponsor of the defined benefit plan or plans providing for such 
        coordination shall be treated as having adopted such a plan 
        amendment as of the date such coordination begins.
            ``(2) Multiple amendments.--The Secretary shall issue 
        regulations to prevent the avoidance of the purposes of this 
        section through the use of 2 or more plan amendments rather 
        than a single amendment.
            ``(3) Controlled groups, etc.--For purposes of this 
        section, all persons treated as a single employer under 
        subsection (b), (c), (m), or (o) of section 414 shall be 
        treated as 1 employer.
            ``(4) Treatment of earnings.--References to deferred 
        compensation shall be treated as including references to income 
        attributable to such compensation or such income.
    ``(g) Coordination.--The Secretary and the Secretary of Labor shall 
ensure, through the execution of an interagency memorandum of 
understanding among such Secretaries, that regulations, rulings, and 
interpretations issued by such Secretaries relating to the same matter 
over which both such Secretaries have responsibility under this section 
and section 206(g) of the Employee Retirement Income Security Act of 
1974 are administered so as to have the same effect at all times.
    ``(h) Waiver.--
            ``(1) In general.--In the case of any plan amendment having 
        the effect of a termination described in subsection (a)(1), the 
        Secretary may waive the application of any requirement of the 
        termination fairness standard of subsection (b) with respect to 
        any disqualified individual who first commences service for the 
        plan sponsor after the notice date with respect to such plan 
        amendment. The Secretary may grant any such waiver in the case 
        of any such plan amendment with respect to any such 
        disqualified individual only after consultation with the 
        Pension Benefit Guaranty Corporation. The Secretary shall 
        promptly notify the Secretary of Labor of any such waiver 
        granted by the Secretary.
            ``(2) Requirements for waiver.--A waiver may be granted 
        under paragraph (1) only--
                    ``(A) upon the filing with the Secretary by the 
                plan sponsor of an application for such waiver, in such 
                form and manner as shall be prescribed in regulations 
                of the Secretary,
                    ``(B) upon a showing, to the satisfaction of the 
                Secretary, that such waiver is a business necessity for 
                the plan sponsor, as determined under such regulations, 
                and is in the best interest of plan participants and 
                beneficiaries, as determined under such regulations, 
                and
                    ``(C) after the participants, in such form and 
                manner as shall be provided in such regulations, have 
                been notified of the filing of the application for the 
                waiver and have been provided a reasonable opportunity 
                to provide in advance comments to the Secretary 
                regarding the proposed waiver.''.
    (b) Clerical Amendment.--The table of sections for chapter 43 of 
such Code is amended by adding at the end the following new item:

``4980H. Funding nonqualified deferred compensation plans in the event 
                            of a pension plan termination based on 
                            bankruptcy reorganization or a conversion 
                            of a pension plan to a cash balance 
                            plan.''.

SEC. 4. EFFECTIVE DATE.

    The amendments made by this Act shall apply to plan amendments 
adopted on or after October 8, 2004.
                                 <all>
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