I 

108TH CONGRESS 

2D SESSION H. R. 5290 

To amend title I of the Employee Retirement Income Security Act of 1974 

and the Internal Revenue Code of 1986 to provide a reasonable correction 

period for certain security and commodity transactions under the prohibited transaction rules. 

IN THE HOUSE OF REPRESENTATIVES 

OCTOBER 8, 2004 

Mr. SAM JOHNSON of Texas (for himself, Mr. BOEHNER, Mr. GEORGE MILLER of California, Mr. PORTMAN, and Mr. ANDREWS) 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 provide a reasonable correction period for certain 

security and commodity transactions under the prohibited transaction rules. 

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. CORRECTION PERIOD FOR CERTAIN TRANS2 ACTIONS INVOLVING SECURITIES AND COM3 MODITIES. 

4 (a) AMENDMENT OF EMPLOYEE RETIREMENT IN5 COME SECURITY ACT OF 1974.—Section 408(b) of the 

6 Employee Retirement Income Security Act of 1974 (29 

7 U.S.C. 1108(b)) is amended by adding at the end the fol8 lowing new paragraph: 

9 ‘‘(14)(A) Except as provided in subparagraphs 

10 (B) and (C), a transaction described in section 

11 406(a) in connection with the acquisition, holding, 

12 or disposition of any security or commodity, if the 

13 transaction is corrected before the end of the correc14 tion period. 

15 ‘‘(B) Subparagraph (A) does not apply to any 

16 transaction between a plan and a plan sponsor or its 

17 affiliates that involves the acquisition or sale of an 

18 employer security (as defined in section 407(d)(1)) 

19 or the acquisition, sale, or lease of employer real 

20 property (as defined in section 407(d)(2)). 

21 ‘‘(C) In the case of any fiduciary or other party 

22 in interest (or any other person knowingly partici23 pating in such transaction), subparagraph (A) does 

24 not apply to any transaction if, at the time the 

25 transaction occurs, such fiduciary or party in inter26 est (or other person) knew (or reasonably should 
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1 have known) that the transaction would (without re2 gard to this paragraph) constitute a violation of sec3 tion 406(a). 

4 ‘‘(D) For purposes of this paragraph, the term 

5 ‘correction period’ means, in connection with a fidu6 ciary or party in interest (or other person knowingly 

7 participating in the transaction), the 14-day period 

8 beginning on the date on which such fiduciary or 

9 party in interest (or other person) discovers, or rea10 sonably should have discovered, that the transaction 

11 would (without regard to this paragraph) constitute 

12 a violation of section 406(a). 

13 ‘‘(E) For purposes of this paragraph— 

14 ‘‘(i) The term ‘security’ has the meaning 

15 given such term by section 475(c)(2) of the In16 ternal Revenue Code of 1986 (without regard to 

17 subparagraph (F)(iii) and the last sentence 

18 thereof). 

19 ‘‘(ii) The term ‘commodity’ has the mean20 ing given such term by section 475(e)(2) of 

21 such Code (without regard to subparagraph 

22 (D)(iii) thereof). 

23 ‘‘(iii) The term ‘correct’ means, with re24 spect to a transaction, to undo the transaction 

25 to the extent possible, but in any case to make 
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1 good to the plan or affected account any losses 

2 resulting from the transaction and to restore to 

3 the plan or affected account any profits made 

4 through the use of assets of the plan.’’. 

5 (b) AMENDMENT OF INTERNAL REVENUE CODE OF

6 1986.— 

7 (1) IN GENERAL.—Subsection (d) of section 

8 4975 of the Internal Revenue Code of 1986 (relating 

9 to exemptions) is amended by striking ‘‘or’’ at the 

10 end of paragraph (14), by striking the period at the 

11 end of paragraph (15) and inserting ‘‘, or’’, and by 

12 adding at the end the following new paragraph: 

13 ‘‘(16) except as provided in subsection (f)(7), a 

14 transaction described in subparagraph (A), (B), (C), 

15 or (D) of subsection (c)(1) in connection with the 

16 acquisition, holding, or disposition of any security or 

17 commodity, if the transaction is corrected before the 

18 end of the correction period.’’. 

19 (2) SPECIAL RULES RELATING TO CORRECTION

20 PERIOD.—Subsection (f) of section 4975 of such 

21 Code (relating to other definitions and special rules) 

22 is amended by adding at the end the following new 

23 paragraph: 

24 ‘‘(7) CORRECTION PERIOD.— 
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1 ‘‘(A) IN GENERAL.—For purposes of sub2 section (d)(16), the term ‘correction period’ 

3 means the 14-day period beginning on the date 

4 on which the disqualified person discovers, or 

5 reasonably should have discovered, that the 

6 transaction would (without regard to this para7 graph and subsection (d)(16)) constitute a pro8 hibited transaction. 

9 ‘‘(B) EXCEPTIONS.— 

10 ‘‘(i) EMPLOYER SECURITIES.—Sub11 section (d)(16) does not apply to any 

12 transaction between a plan and a plan 

13 sponsor or its affiliates that involves the 

14 acquisition or sale of an employer security 

15 (as defined in section 407(d)(1)) or the ac16 quisition, sale, or lease of employer real 

17 property (as defined in section 407(d)(2)). 

18 ‘‘(ii) KNOWING PROHIBITED TRANS19 ACTION.—In the case of any disqualified 

20 person, subsection (d)(16) does not apply 

21 to a transaction if, at the time the trans22 action is entered into, the disqualified per23 son knew (or reasonably should have 

24 known) that the transaction would (with-
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1 out regard to this paragraph) constitute a 

2 prohibited transaction. 

3 ‘‘(C) ABATEMENT OF TAX WHERE THERE

4 IS A CORRECTION.—If a transaction is not 

5 treated as a prohibited transaction by reason of 

6 subsection (d)(16), then no tax under sub7 section (a) and (b) shall be assessed with re8 spect to such transaction, and if assessed the 

9 assessment shall be abated, and if collected 

10 shall be credited or refunded as an overpay11 ment. 

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

13 paragraph and subsection (d)(16)— 

14 ‘‘(i) SECURITY.—The term ‘security’ 

15 has the meaning given such term by sec16 tion 475(c)(2) (without regard to subpara17 graph (F)(iii) and the last sentence there18 of). 

19 ‘‘(ii) COMMODITY.—The term ‘com20 modity’ has the meaning given such term 

21 by section 475(e)(2) (without regard to 

22 subparagraph (D)(iii) thereof). 

23 ‘‘(iii) CORRECT.—The term ‘correct’ 

24 means, with respect to a transaction, to 

25 undo the transaction to the extent possible, 
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1 but in any case to make good to the plan 

2 or affected account any losses resulting 

3 from the transaction and to restore to the 

4 plan or affected account any profits made 

5 through the use of assets of the plan.’’. 

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

7 this section shall apply to any transaction which the fidu8 ciary or disqualified person discovers, or reasonably should 

9 have discovered, after the date of the enactment of this 

10 Act constitutes a prohibited transaction. 

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