I 

108TH CONGRESS 

2D SESSION H. R. 5398

To amend the Internal Revenue Code of 1986 to improve the retirement 

security of American families. 

IN THE HOUSE OF REPRESENTATIVES 

NOVEMBER 19, 2004

Mr. ANDREWS introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to improve 

the retirement security of American families.

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 AND TABLE OF CONTENTS. 

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

5 ‘‘Retirement Enhancement Revenue Act of 2004’’. 

6 (b) TABLE OF CONTENTS.—The table of contents is 

7 as follows:

Sec. 1. Short title and table of contents. 

TITLE I—PUBLIC EMPLOYEE PENSION PLANS 

Sec. 101. New qualification requirements for public employee pension plans. 

TITLE II—PENSION IMPROVEMENTS 
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Sec. 201. Automatic enrollment of all employees in 401(k) plans. 

Sec. 202. Diversification requirements for defined contribution plans that hold 

employer securities. 

Sec. 203. Improvements in simplified employee pensions. 

Sec. 204. Pension integration rules. 

Sec. 205. Increase to age 75 for beginning mandatory distributions. 

Sec. 206. Restrictions on exclusion of unionized employees from participation in 

401(k) plans. 

Sec. 207. Removal of $5,000 limit on plans subject to automatic rollover upon 

mandatory distribution. 

TITLE III—TAX CREDITS TO PROMOTE PENSION COVERAGE 

Sec. 301. Savers credit made refundable and permanent. 

Sec. 302. Credit for qualified pension plan contributions of small employers. 

Sec. 303. Notice. 

TITLE IV—IMPROVED PENSION PROTECTIONS FOR WOMEN 

Sec. 401. Modifications of joint and survivor annuity requirements. 

Sec. 402. Entitlement of divorced spouses to railroad retirement annuities independent of actual entitlement of employee. 

Sec. 403. Extension of tier II railroad retirement benefits to surviving former 

spouses pursuant to divorce agreements. 

TITLE V—DEFINED BENEFIT PLANS WHICH INCLUDE 

QUALIFIED CASH OR DEFERRED ARRANGEMENTS 

Sec. 501. Defined benefit plan with deferred compensation arrangement in a 

single plan. 

Sec. 502. Defined benefit accruals satisfy 401(k) safe harbor. 

Sec. 503. Additional accruals under defined benefit plan provided as matching 

contributions. 

Sec. 504. Limitation on deductions where combination of defined contribution 

plan and defined benefit plan. 

Sec. 505. Conforming amendments to the Employee Retirement Income Security Act of 1974. 

TITLE VI—ADDITIONAL AMENDMENTS 

Sec. 601. Exemption from prohibited transaction rules for certain aborted 

emergent transactions. 

Sec. 602. Loans from retirement plans for health insurance and job training expenses. 

Sec. 603. Treatment of unclaimed benefits. 

Sec. 604. Income averaging of corrected civil service annuity benefit payments. 

Sec. 605. Prohibited transaction exemption for the provision of investment advice. 

Sec. 606. Increase in deductible contributions to single-employer defined benefit 

plan upon payment of increased premium to the Pension Benefit Guaranty Corporation. 

Sec. 607. Exemption from prohibited transaction rules for certain aborted 

emergent transactions. 

Sec. 608. Pension benefit information. 

Sec. 609. Permanency of transition rule in Retirement Protection Act of 1994. 

TITLE VII—GENERAL PROVISIONS 
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Sec. 701. General effective date. 

Sec. 702. Plan amendments.

1 TITLE I—PUBLIC EMPLOYEE 

2 PENSION PLANS 

3 SEC. 101. NEW QUALIFICATION REQUIREMENTS FOR PUB4 LIC EMPLOYEE PENSION PLANS. 

5 (a) IN GENERAL.—Subsection (a) of section 401 of 

6 the Internal Revenue Code of 1986 (relating to require7 ments for qualification) is amended by inserting after 

8 paragraph (34) the following new paragraph: 

9 ‘‘(35) PUBLIC EMPLOYEE PENSION PLANS.—A 

10 trust forming a part of a public employee pension 

11 plan (as defined in section 420C(a)(9)) shall not 

12 constitute a qualified trust under this section unless 

13 the requirements of subpart F of this part are met 

14 in connection with such plan. 

15 (b) REQUIREMENTS.—Part I of subchapter D of 

16 chapter 1 of such Code (relating to pension, profit-shar17 ing, stock bonus plans, etc.) is amended by inserting after 

18 subpart E the following new subpart: 

19 ‘‘Subpart F—Public Employee Pension Plans

‘‘Sec. 420A. Reporting and disclosure requirements. 

‘‘Sec. 420B. Review by qualified review boards of changes in employer contributions. 

‘‘Sec. 420C. Definitions and coverage.

20 ‘‘SEC. 420A. REPORTING AND DISCLOSURE REQUIREMENTS. 

21 ‘‘(a) IN GENERAL.—A public employee pension plan 

22 does not meet the requirements of section 401(a)(35) un-
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1 less the terms of the plan include the requirements of this 

2 section. 

3 ‘‘(b) REQUIRED DISCLOSURES.—The plan shall pro4 vide that, within 210 days after the close of each plan 

5 year, the administrator of the plan shall furnish to each 

6 participant, and to each beneficiary receiving benefits 

7 under the plan—

8 ‘‘(1) a statement of the assets and liabilities of 

9 the plan aggregated by categories and valued at 

10 their current value, and the same data displayed in 

11 comparative form for the end of the previous plan 

12 year, 

13 ‘‘(2) a statement of receipts and disbursements 

14 during the preceding 12-month period aggregated by 

15 general sources and applications, 

16 ‘‘(3) a report containing—

17 ‘‘(A) a description of all investments and 

18 assets of the plan, including their value, 

19 ‘‘(B) the names and positions of all of the 

20 trustees of the plan, and the time remaining be21 fore the expiration of their term, 

22 ‘‘(C) a description of the method of trustee 

23 selection, 
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1 ‘‘(D) a description of any changes in in2 vestment policy of the plan during the fiscal 

3 year, 

4 ‘‘(E) an evaluation of the long-term sol5 vency of the plan, including the number of par6 ticipants and beneficiaries and a summary of 

7 their benefits, and a projection of the amount 

8 of benefits expected to be paid for the fifth, 

9 tenth, and fifteenth plan year following the date 

10 of the publication of the report, and 

11 ‘‘(F) the percentage which the current 

12 value of the assets of the plan is of the current 

13 liability under the plan, and 

14 ‘‘(4) any other material as is necessary to fairly 

15 summarize the latest annual report. 

16 Such information shall be written and calculated to be un17 derstood by the average plan participant, and shall be suf18 ficiently accurate and comprehensive to reasonably apprise 

19 such participants and beneficiaries of their rights and obli20 gations under the plan. 

21 ‘‘(c) AVAILABILITY OF PLAN DOCUMENTS FOR EX22 AMINATION.—The plan shall provide that the adminis23 trator shall make copies of the plan description and the 

24 latest annual report and the bargaining agreement, trust 

25 agreement, contract, or other instruments under which the 
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1 plan was established or is operated available for examina2 tion by any plan participant or beneficiary in the principal 

3 office of the administrator and in such other places as may 

4 be necessary to make available all pertinent information 

5 to all participants (including such places as the Secretary 

6 may prescribe by regulations). 

7 ‘‘(d) AVAILABILITY OF INFORMATION UPON RE8 QUEST.—The plan shall provide that the administrator 

9 shall, upon written request of any participant or bene10 ficiary, furnish a copy of the latest annual report, any ter11 minal report, the bargaining agreement, trust agreement, 

12 contract, or other instruments under which the plan is es13 tablished or operated. The administrator may make a rea14 sonable charge to cover the cost of furnishing such com15 plete copies. The Secretary may by regulation prescribe 

16 the maximum amount which will constitute a reasonable 

17 charge under the preceding sentence. 

18 ‘‘SEC. 420B. REVIEW BY QUALIFIED REVIEW BOARDS OF 

19 CHANGES IN EMPLOYER CONTRIBUTIONS. 

20 ‘‘(a) IN GENERAL.—A public employee pension plan 

21 does not meet the requirements of section 401(a)(35) un22 less, under the plan, changes in employer contributions are 

23 subject to review by a qualified review board established 

24 for the plan as provided in this section. For purposes of 
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1 this section, the term ‘qualified review board’ means a 

2 board—

3 ‘‘(1) whose membership is determined under the 

4 law of the principal State in accordance with sub5 section (b), and 

6 ‘‘(2) whose powers are determined under the 

7 law of the principal State in accordance with sub8 section (c). 

9 ‘‘(b) MEMBERSHIP.—

10 ‘‘(1) IN GENERAL.—The membership of a quali11 fied review board established for a plan shall consist 

12 of 3 members selected from among individuals who, 

13 by means of their education and experience, have 

14 demonstrated expertise in the area of pension fund 

15 management, as follows: 

16 ‘‘(A) one member is appointed by the Gov17 ernor of the State, 

18 ‘‘(B) one member is selected by the partici19 pants in the plan, by means of an election held 

20 in such form and manner as shall be prescribed 

21 in regulations of the Secretary, and 

22 ‘‘(C) one member is selected jointly by the 

23 Governor and by a representative of partici24 pants in the plan (from a certified list of pen-
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1 sion experts established in accordance with 

2 paragraph (2)). 

3 Each member of the board shall have 1 vote. Mem4 bers of the board shall serve for such equivalent 

5 terms as shall be prescribed under the law of the 

6 principal State. 

7 ‘‘(2) CERTIFIED LIST OF EXPERTS.—The Gov8 ernor of the State shall, for purposes of paragraph 

9 (1)(C), establish and maintain with respect to each 

10 public employee pension plan (for which such State 

11 is the principal State) a certified list of pension ex12 perts meeting the requirements for membership on 

13 the qualified review board. Individuals may be in14 cluded on such list only by agreement between the 

15 Governor of the State and a representative elected 

16 by participants in the plan, entered into by means 

17 of collective bargaining in such form and manner as 

18 shall be prescribed in regulations of the Secretary. 

19 ‘‘(c) POWERS.—The board shall be treated as a quali20 fied review board for purposes of this section with respect 

21 to any public employee pension plan (for which such State 

22 is the principal State) only if the powers of such board 

23 under the law of the principal State include review by the 

24 board, for approval or disapproval by the board, of any 
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1 change in the terms of such plan, as a necessary pre2 requisite for such change to take effect, if—

3 ‘‘(1) such change would have the effect of 

4 changing levels of employer contributions to the 

5 plan, and 

6 ‘‘(2) such review is requested, in such form and 

7 manner as shall be prescribed in regulations of the 

8 Secretary, by—

9 ‘‘(A) at least one-third of the total number 

10 of trustees of any trust fund forming a part of 

11 the plan, or 

12 ‘‘(B) the head of any employee organiza13 tion representing at least 20 percent of the 

14 total number of active participants in the plan. 

15 The board may be treated as a qualified review board for 

16 purposes of this section only if, under the law of the prin17 cipal State, any such change submitted to such review by 

18 the board may take effect only upon approval of the 

19 change by the board. 

20 ‘‘SEC. 420C. DEFINITIONS AND COVERAGE. 

21 ‘‘(a) DEFINITIONS.—For purposes of this subpart—

22 ‘‘(1) ADMINISTRATOR.—The term ‘adminis23 trator’ means—

24 ‘‘(A) the board of trustees, retirement 

25 board, or similar person with administrative re-
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1 sponsibilities in connection with a plan, or any 

2 other person specifically so designated in con3 nection with any requirement of this subpart by 

4 the terms of the instrument or instruments 

5 under which the plan is operated, including but 

6 not limited to the law of any State or of any 

7 political subdivision of any State, or 

8 ‘‘(B) in any case in which there is no per9 son described in subparagraph (A) in connec10 tion with the plan, the plan sponsor. 

11 ‘‘(2) BENEFICIARY.—The term ‘beneficiary’ 

12 means a person designated by a participant, or by 

13 the terms of a public employee pension plan, who is 

14 or may become entitled to a benefit thereunder. 

15 ‘‘(3) CURRENT LIABILITY.—The term ‘current 

16 liability’ has the meaning provided in section 

17 302(d)(7) of the Employee Retirement Income Secu18 rity Act of 1974. 

19 ‘‘(4) EMPLOYEE.—The term ‘employee’ means 

20 any individual employed by an employer, employer 

21 representative, or other person required to make em22 ployer contributions under the plan. 

23 ‘‘(5) EMPLOYEE ORGANIZATION.—The term 

24 ‘employee organization’ means any labor union or 

25 any organization of any kind, or any agency or em-
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1 ployee representation committee, association, group, 

2 or plan, in which employees participate and which 

3 exists for the purpose, in whole or in part, of dealing 

4 with employers or employer representatives con5 cerning a public employee pension plan or other 

6 matters incidental to employment relationships; or 

7 any employees’ beneficiary association organized for 

8 the purpose, in whole or in part, of establishing such 

9 a plan. 

10 ‘‘(6) EMPLOYER.—The term ‘employer’ 

11 means—

12 ‘‘(A) the government of any State or of 

13 any political subdivision of a State, 

14 ‘‘(B) any agency or instrumentality of a 

15 government referred to in subparagraph (A), or 

16 ‘‘(C) any agency or instrumentality of two 

17 or more governments referred to in subpara18 graph (A). 

19 ‘‘(7) EMPLOYER CONTRIBUTION.—The term 

20 ‘employer contribution’ means any contribution to a 

21 public employee pension plan other than a contribu22 tion made by a participant in the plan. 

23 ‘‘(8) EMPLOYER REPRESENTATIVE.—The term 

24 ‘employer representative’ means—
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1 ‘‘(A) any group or association consisting, 

2 in whole or in part, of employers acting, in con3 nection with a public employee pension plan, for 

4 an employer, or 

5 ‘‘(B) any person acting, in connection with 

6 a public employee pension plan, indirectly in the 

7 interest of an employer or of a group or asso8 ciation described in subparagraph (A). 

9 ‘‘(9) PUBLIC EMPLOYEE PENSION PLAN.—The 

10 terms ‘public employee pension plan’ and ‘plan’ 

11 mean any plan, fund, or program which was here12 tofore or is hereafter established or maintained, in 

13 whole or in part, by an employer, an employer rep14 resentative, or an employee organization, or by a 

15 combination thereof, to the extent that by its express 

16 terms or as a result of surrounding circumstances 

17 such plan, fund, or program—

18 ‘‘(A) provides retirement income to em19 ployees, or 

20 ‘‘(B) results in a deferral of income by em21 ployees for periods extending to the termination 

22 of covered employment or beyond, 

23 regardless of the method of calculating the contribu24 tions made to the plan, the method of calculating 
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1 the benefits under the plan, or the method of distrib2 uting benefits from the plan. 

3 ‘‘(10) PRINCIPAL STATE.—The term ‘principal 

4 State’ means, for any plan year with respect to a 

5 public employee pension plan, the State in which, as 

6 of the beginning of such plan year, the largest per7 centage of the participants of the plan employed in 

8 any single State is employed. 

9 ‘‘(11) GOVERNOR.—The term ‘Governor’ 

10 means, in connection with a public employee pension 

11 plan, the Governor (or equivalent official) of the 

12 principal State. 

13 ‘‘(12) PARTICIPANT.—The term ‘participant’ 

14 means any individual who is or may become eligible 

15 to receive a benefit of any type from a public em16 ployee pension plan or whose beneficiaries may be el17 igible to receive any such benefit. 

18 ‘‘(13) PERSON.—The term ‘person’ means a 

19 State, a political subdivision of a State, any agency 

20 or instrumentality of a State or a political subdivi21 sion of a State, an individual, a partnership, a joint 

22 venture, a corporation, a mutual company, a joint23 stock company, a trust, an estate, an unincorporated 

24 organization, an association, or an employee organi25 zation. 
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1 ‘‘(14) PLAN SPONSOR.—The term ‘plan spon2 sor’ means—

3 ‘‘(A) in the case of a plan established or 

4 maintained solely for employees of a single em5 ployer, such employer, 

6 ‘‘(B) in the case of a plan established or 

7 maintained by an employee organization, the 

8 employee organization, or 

9 ‘‘(C) in the case of a plan established or 

10 maintained by two or more employers or jointly 

11 by one or more employers and one or more em12 ployee organizations, the association, com13 mittee, board of trustees, or other similar group 

14 of representatives of the parties who establish 

15 or maintain the plan. 

16 ‘‘(15) PLAN YEAR.—The term ‘plan year’ 

17 means, with respect to a plan, the calendar, policy, 

18 or fiscal year on which the records of the plan are 

19 kept. 

20 ‘‘(16) STATE.—The term ‘State’ means any 

21 State of the United States, the District of Columbia, 

22 the Commonwealth of Puerto Rico, the Virgin Is23 lands, American Samoa, and Guam. 

24 ‘‘(b) COVERAGE.—
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1 ‘‘(1) IN GENERAL.—Except as provided in para2 graph (2), this subpart shall apply to any public em3 ployee pension plan. 

4 ‘‘(2) EXCEPTIONS FROM COVERAGE.—The pro5 visions of this subpart shall not apply to—

6 ‘‘(A) any employee benefit plan described 

7 in section 4(a) of the Employee Retirement In8 come Security Act of 1974 (29 U.S.C. 

9 1003(a)), which is not exempt under section 

10 4(b)(1) of such Act (29 U.S.C. 1003(b)(1)), 

11 ‘‘(B) any plan which is unfunded and is 

12 maintained by an employer or employer rep13 resentative primarily for the purpose of pro14 viding deferred compensation for a select group 

15 of management or highly compensated employ16 ees, 

17 ‘‘(C) any arrangement which would be a 

18 severance pay arrangement, as defined in regu19 lations of the Secretary of Labor under section 

20 3(2)(B)(i) of the Employee Retirement Income 

21 Security Act of 1974 (29 U.S.C. 

22 1002(2)(B)(i)), if the employer were an em23 ployer within the meaning of section 3(5) of 

24 such Act (29 U.S.C. 1002(5)), 
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1 ‘‘(D) any agreement to the extent it is a 

2 coverage agreement entered into pursuant to 

3 section 218 of the Social Security Act (42 

4 U.S.C. 418), 

5 ‘‘(E) any individual retirement account or 

6 any individual retirement annuity within the 

7 meaning of section 408, or a retirement bond 

8 within the meaning of section 409, 

9 ‘‘(F) any plan described in section 401(d), 

10 ‘‘(G) any individual account plan con11 sisting of an annuity contract described in sec12 tion 403(b), 

13 ‘‘(H) any eligible State deferred compensa14 tion plan, as defined in section 457(b), or 

15 ‘‘(I) any plan maintained solely for the 

16 purpose of complying with applicable workers’ 

17 compensation laws or disability insurance 

18 laws.’’. 

19 TITLE II—PENSION 

20 IMPROVEMENTS 

21 SEC. 201. AUTOMATIC ENROLLMENT OF ALL EMPLOYEES IN 

22 401(K) PLANS. 

23 (a) IN GENERAL.—Subparagraph (A) of section 

24 401(m)(11) of the Internal Revenue Code of 1986 (relat25 ing to additional alternative method of satisfying non-
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1 discrimination tests) is amended by striking ‘‘and’’ at the 

2 end of clause (ii), by striking the period at the end of 

3 clause (iii) and inserting ‘‘, and’’, and by inserting after 

4 clause (iii) the following new clause: 

5 ‘‘(iv) meets the requirements of sub6 paragraph (C).’’. 

7 (b) MINIMUM COVERAGE REQUIREMENTS.—Para8 graph (11) of section 401(m) of such Code is amended 

9 by adding at the end the following new subparagraph: 

10 ‘‘(C) MINIMUM COVERAGE REQUIRE11 MENTS.—The requirements of this subpara12 graph are met if—

13 ‘‘(i) the plan meets the requirements 

14 of section 410(b), or 

15 ‘‘(ii) the plan is offered to all eligible 

16 employees. 

17 For purposes of clause (ii) a plan shall be treat18 ed as offered to an eligible employee if, under 

19 the plan, employer contributions are made on 

20 the employee’s behalf under the plan, unless, 

21 pursuant to an election by the employee, pay22 ments are made to the employee directly in cash 

23 in lieu of such employer contributions.’’. 

24 (c) PREEMPTION OF STATE LAW.—The amendments 

25 made by this section supersede any provision of a statute, 
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1 regulation, or rule of a State or political subdivision of 

2 a State that would otherwise require an employer to obtain 

3 an employee’s consent before making a deduction from the 

4 wages of such employee. 

5 (d) GUIDELINES FOR MEETING FIDUCIARY RE6 QUIREMENTS.—Section 404(a) of the Employee Retire7 ment Income Security Act of 1974 (29 U.S.C. 1104(a)) 

8 is amended by adding at the end the following new para9 graph: 

10 ‘‘(3)(A) The Secretary shall prescribe by regulation 

11 guidelines for compliance with the requirements of the di12 versification requirement of paragraph (1)(C) and the pru13 dence requirement (to the extent that it requires diver14 sification) of paragraph (1)(B) in the case of plans which 

15 are treated as in compliance with the requirements of sec16 tion 401(m)(2) of the Internal Revenue Code of 1986 sole17 ly by reason of compliance with the requirements of sec18 tion 401(m)(11) of such Code. Such guidelines shall con19 sist of criteria for meeting a standard of well-balanced and 

20 highly diversified investment of plan assets. Compliance 

21 with such guidelines shall be deemed compliance with such 

22 requirements. 

23 ‘‘(B) The criteria prescribed by the Secretary pursu24 ant to subparagraph (A) shall include at least the fol25 lowing: 
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1 ‘‘(i) sufficiently limited investment of plan as2 sets in securities issued by any single issuer (other 

3 than in obligations issued by, or guaranteed as to 

4 both principal and interest by, the Government of 

5 the United States); 

6 ‘‘(ii) sufficient diversification of investment 

7 among and within asset classes, which shall include 

8 at least sufficient diversification measured as be9 tween stocks and bonds, sufficient diversification 

10 measured as among varieties of stock categorized by 

11 large capitalization, medium capitalization, and 

12 small capitalization, and sufficient diversification 

13 measured as between investment funds focused on 

14 growth and investment funds focused on income; 

15 and 

16 ‘‘(iii) adequate prospects for a reasonable rate 

17 of return on the investment, together with adequate 

18 assurance against loss of principal and minimization 

19 of fees and other associated costs chargeable to par20 ticipants.’’. 

21 SEC. 202. DIVERSIFICATION REQUIREMENTS FOR DEFINED 

22 CONTRIBUTION PLANS THAT HOLD EM23 PLOYER SECURITIES. 

24 (a) IN GENERAL.—Subsection (a) of section 401 of 

25 the Internal Revenue Code of 1986 (relating to require-
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1 ments for qualification), as amended by this Act, is fur2 ther amended by inserting after paragraph (35) the fol3 lowing new paragraph: 

4 ‘‘(36) DIVERSIFICATION REQUIREMENTS FOR

5 DEFINED CONTRIBUTION PLANS THAT HOLD EM6 PLOYER SECURITIES.—

7 ‘‘(A) IN GENERAL.—In the case of a de8 fined contribution plan described in this sub9 section that includes a trust which is exempt 

10 from tax under section 501(a) and which holds 

11 employer securities that are readily tradable on 

12 an established securities market, such trust 

13 shall not constitute a qualified trust under this 

14 section unless such plan meets the requirements 

15 of subparagraphs (B) and (C). 

16 ‘‘(B) ELECTIVE DEFERRALS INVESTED IN

17 EMPLOYER SECURITIES.—

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

19 portion of the account attributable to elec20 tive deferrals which is invested in employer 

21 securities, a plan meets the requirements 

22 of this subparagraph if each applicable in23 dividual in such plan may elect to direct 

24 the plan to divest any portion of such secu25 rities in the individual’s account and to re-
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1 invest an equivalent amount in other in2 vestment options which meet the require3 ments of subparagraph (D). The preceding 

4 sentence shall apply to the extent that the 

5 amount attributable to reinvested portion 

6 exceeds the amount to which a prior elec7 tion under this subparagraph or paragraph 

8 (28) applies. 

9 ‘‘(ii) APPLICABLE INDIVIDUAL.—For 

10 purposes of this subparagraph, the term 

11 ‘applicable individual’ means—

12 ‘‘(I) any participant in the plan, 

13 ‘‘(II) any beneficiary who is an 

14 alternate payee (within the meaning 

15 of section 414(p)(8)) under an appli16 cable qualified domestic relations 

17 order (within the meaning of section 

18 414(p)(1)(A)), and 

19 ‘‘(III) any beneficiary of a de20 ceased participant or alternate payee. 

21 ‘‘(C) OTHER EMPLOYER CONTRIBU22 TIONS.—

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

24 portion of the account attributable to em25 ployer contributions (other than elective 
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1 deferrals) which is invested in employer se2 curities, a plan meets the requirements of 

3 this subparagraph if each qualified partici4 pant in the plan may elect to direct the 

5 plan to divest any portion of such securi6 ties in the participant’s account and to re7 invest an equivalent amount in other in8 vestment options which meet the require9 ments of subparagraph (E). The preceding 

10 sentence shall apply to the extent that the 

11 amount attributable to such reinvested 

12 portion exceeds the amount to which a 

13 prior election under this subparagraph or 

14 paragraph (28) applies. 

15 ‘‘(ii) QUALIFIED PARTICIPANT.—For 

16 purposes of this subparagraph, the term 

17 ‘qualified participant’ means—

18 ‘‘(I) any participant in the plan 

19 who has completed at least 3 years of 

20 service (as determined under section 

21 411(a)) under the plan, 

22 ‘‘(II) any beneficiary who, with 

23 respect to a participant who met the 

24 service requirement in subclause (I), 

25 is an alternate payee (within the 
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1 meaning of section 414(p)(8)) under 

2 an applicable qualified domestic rela3 tions order (within the meaning of 

4 section 414(p)(1)(A)), and 

5 ‘‘(III) any beneficiary of a de6 ceased participant who met the service 

7 requirement in subclause (I) or alter8 nate payee described in subclause (II). 

9 ‘‘(D) INVESTMENT OPTIONS.—The require10 ments of this subparagraph are met if the plan 

11 offers not less than 3 investment options (not 

12 inconsistent with regulations prescribed by the 

13 Secretary) other than employer securities. 

14 ‘‘(E) PRESERVATION OF AUTHORITY OF

15 PLAN TO LIMIT INVESTMENT.—Nothing in this 

16 paragraph shall be construed to limit the au17 thority of a plan to impose limitations on the 

18 portion of plan assets in any account which 

19 may be invested in employer securities. 

20 ‘‘(F) OTHER DEFINITIONS AND RULES.—

21 For purposes of this paragraph—

22 ‘‘(i) EMPLOYER SECURITIES.—The 

23 term ‘employer securities’ shall have the 

24 meaning given such term by section 
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1 407(d)(1) of the Employee Retirement In2 come Security Act of 1974. 

3 ‘‘(ii) ELECTIVE DEFERRALS.—For 

4 purposes of this subparagraph, the term 

5 ‘elective deferrals’ means an employer con6 tribution described in section 402(g)(3)(A) 

7 and any employee contribution. 

8 ‘‘(iii) ELECTION.—Elections under 

9 this paragraph shall be not less frequently 

10 than quarterly. 

11 ‘‘(iv) EMPLOYEE STOCK OWNERSHIP

12 PLAN.—The term ‘employee stock owner13 ship plan’ shall have the same meaning 

14 given to such term by section 4975(e)(7).’’. 

15 (b) CONFORMING AMENDMENTS.—

16 (1) Section 401(a)(28) of such Code is amended 

17 by adding at the end the following new subpara18 graph: 

19 ‘‘(D) APPLICATION.—This paragraph shall 

20 not apply with respect to employer securities 

21 which are readily tradable on an established se22 curities market.’’. 

23 (2) Section 409(h)(7) of such Code is amended 

24 by inserting at the end ‘‘or subparagraph (B) or (C) 

25 of section 401(a)(36)’’. 
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1 (3) Section 4975(e)(7) of such Code is amended 

2 by adding at the end the following new sentence: ‘‘A 

3 plan shall not fail to be treated as an employee stock 

4 ownership plan merely because the plan meets the 

5 requirements of section 401(a)(36) (or provides 

6 greater diversification rights) or because participants 

7 in such plan exercise diversification rights under 

8 such section (or greater diversification rights avail9 able under the plan).’’. 

10 (4) Section 4980(c)(3)(A) of such Code is 

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

12 inserting ‘‘if the requirements of subparagraphs (B) 

13 and (C) are met.’’. 

14 (5) Section 407 of the Employee Retirement In15 come Security Act of 1974 (29 U.S.C. 1107) is 

16 amended by adding at the end the following new 

17 subsection: 

18 ‘‘(g) Notwithstanding section 408(e) or any other 

19 provision of this title, an individual account plan may not 

20 include provisions that do not meet the requirements of 

21 section 401(a)(36)(B) of the Internal Revenue Code of 

22 1986.’’. 
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1 SEC. 203. IMPROVEMENTS IN SIMPLIFIED EMPLOYEE PEN2 SIONS. 

3 (a) PARTICIPATION REQUIREMENTS.—Paragraph (2) 

4 of section 408(k) of the Internal Revenue Code of 1986 

5 (relating to participation requirements) is amended—

6 (1) in subparagraph (A), by adding ‘‘and’’ at 

7 the end, and 

8 (2) by striking subparagraphs (B) and (C) and 

9 inserting the following: 

10 ‘‘(B) has completed at least 3 years of 

11 service (as defined in section 411(a)(5)) for the 

12 employer.’’. 

13 (b) NONDISCRIMINATION RULES.—Subparagraph 

14 (C) of section 408(k)(3) of such Code (requiring contribu15 tion to bear uniform relationship to total compensation) 

16 is amended—

17 (1) in the heading, by striking ‘‘MUST BEAR

18 UNIFORM RELATIONSHIP TO TOTAL COMPENSATION’’ 

19 and inserting ‘‘MUST BE UNIFORM’’, and 

20 (2) by inserting after ‘‘unless contributions 

21 thereto’’ the following: ‘‘are uniform for all employ22 ees maintaining a simplified employee pension or’’. 

23 (c) CONSENT TO PARTICIPATION NOT REQUIRED.—

24 Paragraph (2) of section 408(k) of such Code (relating 

25 to participation requirements) is amended by adding at 

26 the end the following new flush sentence: ‘‘An employer 
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1 may establish and maintain a simplified employee pension 

2 for an employee without the employee’s consent.’’. 

3 (d) SEPARATE TREATMENT OF CONTRIBUTIONS TO

4 SIMPLIFIED EMPLOYEE PENSIONS.—Subsection (h) of 

5 section 404 of such Code is amended by striking para6 graphs (2) and (3) and inserting the following new para7 graph: 

8 ‘‘(2) LIMITATION BASED ON COMBINATION OF

9 PLANS INAPPLICABLE.—Contributions to a sim10 plified employee pension shall not be taken into ac11 count for purposes of subsection (a)(7).’’. 

12 (e) JOINT AND SURVIVOR ANNUITY REQUIRE13 MENTS.—Section 408(k) of such Code is amended—

14 (1) by redesignating paragraph (9) as para15 graph (10), and 

16 (2) by inserting after paragraph (8) the fol17 lowing new paragraph: 

18 ‘‘(9) JOINT AND SURVIVOR ANNUITY REQUIRE19 MENTS.—Requirements similar to the requirements 

20 of section 401(a)(11) shall apply with respect to an21 nuities purchased with amounts distributed from 

22 simplified employee pensions.’’. 

23 (f) ANNUAL REPORTING REQUIREMENTS FOR SIM24 PLIFIED EMPLOYEE PENSIONS.—Paragraph (1) of section 
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1 408(l) of such Code (relating to simplified employer re2 ports) is amended to read as follows: 

3 ‘‘(1) IN GENERAL.—The Secretary shall require 

4 by regulations that an employer who makes a con5 tribution on behalf of an employee to a simplified 

6 employee pension shall provide simplified annual re7 ports. The reports required by this subsection shall 

8 be filed in such manner, and information with re9 spect to such contributions shall be furnished to the 

10 employee in such manner, as may be required by 

11 regulations, except that such reports shall include 

12 information sufficient to allow the employee to deter13 mine that the simplified employee pension is in com14 pliance with the requirements of this section.’’. 

15 (g) DEDUCTIBILITY OF CONTRIBUTIONS TO SIM16 PLIFIED EMPLOYEE PENSIONS IN CONNECTION WITH

17 DOMESTIC SERVICE.—

18 (1) IN GENERAL.—Section 404 of such Code 

19 (relating to deductions for contributions of an em20 ployer to an employee’s trust or annuity plan and 

21 compensation under a deferred-payment plan) is 

22 amended by adding at the end the following new 

23 subsection: 
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1 ‘‘(o) DEDUCTIBILITY OF CONTRIBUTIONS TO SIM2 PLIFIED EMPLOYEE PENSIONS IN CONNECTION WITH

3 DOMESTIC SERVICE.—

4 ‘‘(1) IN GENERAL.—Solely for purposes of sub5 section (a), contributions by an employer to a sim6 plified employee pension of an employee in connec7 tion with service constituting domestic service em8 ployment shall be treated as if such contributions 

9 would otherwise be deductible under section 162 but 

10 for subsection (a). 

11 ‘‘(2) DOMESTIC SERVICE EMPLOYMENT.—For 

12 purposes of paragraph (1), the term ‘domestic serv13 ice employment’ means domestic service in a private 

14 home of the employer (within the meaning of the 

15 last sentence of section 3510(c)) in any case in 

16 which taxes are imposed by chapter 21 or 23 on re17 muneration paid for such service.’’. 

18 (2) EFFECTIVE DATE.—The amendment made 

19 by this subsection shall apply to taxable years begin20 ning after December 31, 2004. 

21 SEC. 204. PENSION INTEGRATION RULES. 

22 (a) APPLICABILITY OF NEW INTEGRATION RULES

23 EXTENDED TO ALL EXISTING ACCRUED BENEFITS.—

24 Notwithstanding subsection (c)(1) of section 1111 of the 

25 Tax Reform Act of 1986 (relating to effective date of ap-
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1 plication of nondiscrimination rules to integrated plans) 

2 (100 Stat. 2440), effective for plan years beginning after 

3 the date of the enactment of this Act, the amendments 

4 made by subsection (a) of such section 1111 shall also 

5 apply to benefits attributable to plan years beginning on 

6 or before December 31, 1988. 

7 (b) INTEGRATION DISALLOWED FOR SIMPLIFIED

8 EMPLOYEE PENSIONS.—

9 (1) IN GENERAL.—Subparagraph (D) of section 

10 408(k)(3) of the Internal Revenue Code of 1986 (re11 lating to permitted disparity under rules limiting 

12 discrimination under simplified employee pensions) 

13 is repealed. 

14 (2) CONFORMING AMENDMENT.—Subparagraph 

15 (C) of such section 408(k)(3) is amended by striking 

16 ‘‘and except as provided in subparagraph (D),’’. 

17 (3) EFFECTIVE DATE.—The amendments made 

18 by this subsection shall apply with respect to taxable 

19 years beginning on or after January 1, 2005. 

20 (c) EVENTUAL REPEAL OF INTEGRATION RULES.—

21 Effective for plan years beginning on or after January 1, 

22 2006—

23 (1) subparagraphs (C) and (D) of section 

24 401(a)(5) of the Internal Revenue Code of 1986 (re25 lating to pension integration exceptions under non-
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1 discrimination requirements for qualification) are re2 pealed, and subparagraphs (E), (F), and (G) of such 

3 section 401(a)(5) are redesignated as subparagraphs 

4 (C), (D), and (E), respectively, and 

5 (2) subsection (l) of section 401 of such Code 

6 (relating to permitted disparity in plan contributions 

7 or benefits) is repealed. 

8 SEC. 205. INCREASE TO AGE 75 FOR BEGINNING MANDA9 TORY DISTRIBUTIONS. 

10 (a) QUALIFIED PENSION PLANS.—Subparagraph (C) 

11 of section 401(a)(9) of the Internal Revenue Code of 1986 

12 (relating to required distributions) is amended by striking 

‘‘age 701 13 ⁄2’’ each place it appears and inserting ‘‘the appli14 cable age’’. 

15 (b) APPLICABLE AGE.—Subparagraph (C) of section 

16 401(a)(9) of such Code is amended by adding at the end 

17 the following new clause: 

18 ‘‘(v) APPLICABLE AGE.—

19 ‘‘(I) IN GENERAL.—For purposes 

20 of this clause, the term applicable age 

21 shall be determined in accordance 

22 with the following table:

Applicable 

‘‘Calendar year: age: 

2005 ......................................................................................... 71

2006 ......................................................................................... 72

2007 ......................................................................................... 73

2008 ......................................................................................... 74

2009 and each calendar year thereafter .................................. 75.
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1 ‘‘(II) ELECTION TO USE AGE OF

2 SPOUSE.—For purposes of this sub3 paragraph, an employee who files a 

4 joint return for a taxable year may 

5 elect to substitute the age of the em6 ployee’s spouse for his age.’’. 

7 (c) INDIVIDUAL RETIREMENT ACCOUNTS.—Para8 graph (1) of section 219(d) of such Code is amended—

(1) by striking ‘‘age 701 9 ⁄2’’ in the text and in10 serting ‘‘the applicable age (as defined in section 

11 401(a)(9)(C)(v))’’, and 

(2) by striking ‘‘AGE 701 12 ⁄2’’ in the heading and 

13 inserting ‘‘THE APPLICABLE AGE’’. 

14 (d) ROTH IRA’S.—Paragraph (4) of section 408A(c) 

15 of such Code is amended—

(1) by striking ‘‘age 701 16 ⁄2’’ in the text and in17 serting ‘‘the applicable age (as defined in section 

18 401(a)(9)(C)(v))’’, and 

(2) by striking ‘‘AGE 701 19 ⁄2’’ in the heading and 

20 inserting ‘‘THE APPLICABLE AGE’’. 

21 SEC. 206. RESTRICTIONS ON EXCLUSION OF UNIONIZED 

22 EMPLOYEES FROM PARTICIPATION IN 401(K) 

23 PLANS. 

24 Paragraph (4) of section 401(k) of the Internal Rev25 enue Code of 1986 (relating to other requirements) is 
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•HR 5398 IH 

1 amended by adding at the end the following new subpara2 graph: 

3 ‘‘(D) BENEFITS SUBJECT OF BAR4 GAINING.—A cash or deferred arrangement of 

5 any employer shall not be treated as a qualified 

6 cash or deferred arrangement if any employee 

7 of such employer—

8 ‘‘(i) who is described in section 

9 410(b)(3)(A), and 

10 ‘‘(ii) who is not eligible to benefit 

11 under the arrangement, 

12 is not otherwise covered under an employee 

13 pension benefit plan (as defined in section 

14 3(2)(A) of the Employee Retirement Income 

15 Security Act of 1974) which is maintained for 

16 employees of such employer pursuant to an 

17 agreement which the Secretary of Labor finds 

18 to be a collective bargaining agreement between 

19 employee representatives and one or more em20 ployers and which is qualified under section 

21 401(a).’’. 
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1 SEC. 207. REMOVAL OF $5,000 LIMIT ON PLANS SUBJECT TO 

2 AUTOMATIC ROLLOVER UPON MANDATORY 

3 DISTRIBUTION. 

4 Section 401(a)(31)(B) of the Internal Revenue Code 

5 of 1986 (relating to certain mandatory distributions) is 

6 amended—

7 (1) in clause (i), by striking ‘‘In case of a trust 

8 which is part of an eligible plan, such trust’’ and in9 serting ‘‘A trust’’, 

10 (2) in clause (i)(I), by striking ‘‘in excess of 

11 $1,000’’, and 

12 (3) by striking clause (ii) and inserting the fol13 lowing new clause: 

14 ‘‘(ii) DISTRIBUTION DESCRIBED.—A 

15 distribution from a plan is described in 

16 this clause if such distribution is an imme17 diate distribution of the entire nonforfeit18 able accrued benefit of the participant and 

19 is in excess of $1,000.’’. 

20 TITLE III—TAX CREDITS TO 

21 PROMOTE PENSION COVERAGE 

22 SEC. 301. SAVERS CREDIT MADE REFUNDABLE AND PERMA23 NENT. 

24 (a) SAVERS CREDIT MADE REFUNDABLE.—

25 (1) IN GENERAL.—The Internal Revenue Code 

26 of 1986 is amended by redesignating section 25B as 
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1 section 35A and by moving such section after section 

2 35 in subpart C of part IV of subchapter A of chap3 ter 1 of such Code (relating to refundable credits). 

4 (2) CONFORMING AMENDMENTS.—

5 (A) Section 35A of such Code, as so redes6 ignated, is amended by striking subsection (g) 

7 and redesignating subsection (h) as subsection 

8 (g). 

9 (B) Subparagraph (B) of section 24(b)(3) 

10 of such Code is amended by striking ‘‘sections 

11 23 and 25B’’ and inserting ‘‘section 23’’. 

12 (C) Subparagraph (C) of section 25(e)(1) 

13 of such Code is amended by striking ‘‘25B,’’. 

14 (D) Each of the following provisions of 

15 such Code are amended by striking ‘‘24, and 

16 25B’’ and inserting ‘‘and 24’’: 

17 (i) Section 26(a)(1). 

18 (ii) Section 904(h). 

19 (iii) Section 1400C(d). 

20 (E) Paragraph (2) of section 1324(b) of 

21 title 31, United States Code, is amended by in22 serting ‘‘or 35A’’ after ‘‘section 35’’. 

23 (F) The table of sections for subpart A of 

24 part IV of subchapter A of chapter 1 of the In-
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1 ternal Revenue Code of 1986 is amended by 

2 striking the item relating to section 25B. 

3 (G) The table of sections for subpart C of 

4 part IV of subchapter A of chapter 1 of such 

5 Code is amended by inserting after the item re6 lating to section 35 the following new item:

‘‘Sec. 35A. Elective deferrals and IRA contributions by certain individuals.’’.

7 (b) SAVERS CREDIT MADE PERMANENT.—

8 (1) IN GENERAL.—Section 35A of the Internal 

9 Revenue Code of 1986, as amended by this section, 

10 is amended by striking subsection (g). 

11 (2) REPEAL OF EGTRRA SUNSET.—Title IX of 

12 the Economic Growth and Tax Relief Reconciliation 

13 Act of 2001 shall not apply to section 618 of such 

14 Act. 

15 SEC. 302. CREDIT FOR QUALIFIED PENSION PLAN CON16 TRIBUTIONS OF SMALL EMPLOYERS. 

17 (a) IN GENERAL.—Subpart D of part IV of sub18 chapter A of chapter 1 of the Internal Revenue Code of 

19 1986 (relating to business related credits) is amended by 

20 adding at the end the following new section: 

21 ‘‘SEC. 45G. SMALL EMPLOYER PENSION PLAN CONTRIBU22 TIONS. 

23 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

24 in the case of an eligible employer, the small employer pen25 sion plan contribution credit determined under this section 
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1 for any taxable year is an amount equal to 50 percent 

2 of the amount which would (but for subsection (f)(1)) be 

3 allowed as a deduction under section 404 for such taxable 

4 year for qualified employer contributions made to any 

5 qualified retirement plan on behalf of any nonhighly com6 pensated employee. 

7 ‘‘(b) CREDIT LIMITED TO 3 YEARS.—The credit al8 lowable by this section shall be allowed only with respect 

9 to the period of 3 taxable years beginning with the taxable 

10 year in which the qualified retirement plan becomes effec11 tive. 

12 ‘‘(c) QUALIFIED EMPLOYER CONTRIBUTION.—For 

13 purposes of this section—

14 ‘‘(1) DEFINED CONTRIBUTION PLANS.—In the 

15 case of a defined contribution plan, the term ‘quali16 fied employer contribution’ means the amount of 

17 nonelective and matching contributions to the plan 

18 made by the employer on behalf of any nonhighly 

19 compensated employee to the extent such amount 

20 does not exceed 3 percent of such employee’s com21 pensation from the employer for the year. 

22 ‘‘(2) DEFINED BENEFIT PLANS.—In the case of 

23 a defined benefit plan, the term ‘qualified employer 

24 contribution’ means the amount of employer con25 tributions to the plan made on behalf of any non-
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1 highly compensated employee to the extent that the 

2 accrued benefit of such employee derived from such 

3 contributions for the year do not exceed the equiva4 lent (as determined under regulations prescribed by 

5 the Secretary and without regard to contributions 

6 and benefits under the Social Security Act) of 3 per7 cent of such employee’s compensation from the em8 ployer for the year. 

9 ‘‘(d) QUALIFIED RETIREMENT PLAN.—

10 ‘‘(1) IN GENERAL.—The term ‘qualified retire11 ment plan’ means any plan described in section 

12 401(a) which includes a trust exempt from tax 

13 under section 501(a) if the plan meets—

14 ‘‘(A) the contribution requirements of 

15 paragraph (2), 

16 ‘‘(B) the vesting requirements of para17 graph (3), and 

18 ‘‘(C) the distributions requirements of 

19 paragraph (4). 

20 ‘‘(2) CONTRIBUTION REQUIREMENTS.—

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

22 this paragraph are met if, under the plan—

23 ‘‘(i) the employer is required to make 

24 nonelective contributions of at least 1 per25 cent of compensation (or the equivalent 
39

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1 thereof in the case of a defined benefit 

2 plan) for each nonhighly compensated em3 ployee who is eligible to participate in the 

4 plan, and 

5 ‘‘(ii) except in the case of a defined 

6 benefit plan, allocations of nonelective em7 ployer contributions are either in equal dol8 lar amounts for all employees covered by 

9 the plan or bear a uniform relationship to 

10 the total compensation, or the basic or reg11 ular rate of compensation, of the employ12 ees covered by the plan. 

13 ‘‘(B) COMPENSATION LIMITATION.—The 

14 compensation taken into account under sub15 paragraph (A) for any year shall not exceed the 

16 limitation in effect for such year under section 

17 401(a)(17). 

18 ‘‘(3) VESTING REQUIREMENTS.—The require19 ments of this paragraph are met if the plan satisfies 

20 the requirements of subparagraph (A) or (B). 

21 ‘‘(A) 3-YEAR VESTING.—A plan satisfies 

22 the requirements of this subparagraph if an em23 ployee who has completed at least 3 years of 

24 service has a nonforfeitable right to 100 percent 
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1 of the employee’s accrued benefit derived from 

2 employer contributions. 

3 ‘‘(B) 5-YEAR GRADED VESTING.—A plan 

4 satisfies the requirements of this subparagraph 

5 if an employee has a nonforfeitable right to a 

6 percentage of the employee’s accrued benefit de7 rived from employer contributions determined 

8 under the following table:

The nonforfeitable 

‘‘Years of service: percentage is: 

1 ......................................................................................................... 20

2 ......................................................................................................... 40

3 ......................................................................................................... 60

4 ......................................................................................................... 80

5 or more ........................................................................................... 100.

9 ‘‘(4) DISTRIBUTION REQUIREMENTS.—

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

11 subparagraph (B), the requirements of this 

12 paragraph are met if, under the plan—

13 ‘‘(i) in the case of a profit-sharing or 

14 stock bonus plan, amounts are distribut15 able only as provided in section 

16 401(k)(2)(B), and 

17 ‘‘(ii) in the case of a pension plan, 

18 amounts are distributable subject to the 

19 limitations applicable to other distributions 

20 from the plan. 

21 ‘‘(B) DISTRIBUTIONS WITHIN 5 YEARS

22 AFTER SEPARATION, ETC.—In no event shall a 
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1 plan meet the requirements of this paragraph 

2 unless, under the plan, amounts distributed—

3 ‘‘(i) after separation from service or 

4 severance from employment, and 

5 ‘‘(ii) within 5 years after the date of 

6 the earliest employer contribution to the 

7 plan, 

8 may be distributed only in a direct trustee-to9 trustee transfer to a plan having the same dis10 tribution restrictions as the distributing plan. 

11 ‘‘(e) OTHER DEFINITIONS.—For purposes of this 

12 section—

13 ‘‘(1) ELIGIBLE EMPLOYER.—The term ‘eligible 

14 employer’ has the meaning given such term by sec15 tion 408(p)(2)(C)(i). 

16 ‘‘(2) NONHIGHLY COMPENSATED EMPLOY17 EES.—The term ‘highly compensated employee’ has 

18 the meaning given such term by section 414(q) (de19 termined without regard to section 414(q)(1)(B)(ii)). 

20 ‘‘(f) SPECIAL RULES.—

21 ‘‘(1) DISALLOWANCE OF DEDUCTION.—No de22 duction shall be allowed for that portion of the quali23 fied employer contributions paid or incurred for the 

24 taxable year which is equal to the credit determined 

25 under subsection (a). 
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1 ‘‘(2) ELECTION NOT TO CLAIM CREDIT.—This 

2 section shall not apply to a taxpayer for any taxable 

3 year if such taxpayer elects to have this section not 

4 apply for such taxable year. 

5 ‘‘(g) RECAPTURE OF CREDIT ON FORFEITED CON6 TRIBUTIONS.—If any accrued benefit which is forfeitable 

7 by reason of subsection (d)(3) is forfeited, the employer’s 

8 tax imposed by this chapter for the taxable year in which 

9 the forfeiture occurs shall be increased by 35 percent of 

10 the employer contributions from which such benefit is de11 rived to the extent such contributions were taken into ac12 count in determining the credit under this section. 

13 ‘‘(h) REGULATIONS.—The Secretary shall prescribe 

14 such regulations as may be appropriate to carry out the 

15 purposes of this section, including regulations to prevent 

16 the abuse of the purposes of this section through the use 

17 of multiple plans. 

18 ‘‘(i) TERMINATION.—This section shall not apply to 

19 any plan established after December 31, 2012.’’. 

20 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI21 NESS CREDIT.—Section 38(b) of such Code (defining cur22 rent year business credit) is amended by striking ‘‘plus’’ 

23 at the end of paragraph (13), by striking the period at 

24 the end of paragraph (14) and inserting ‘‘, plus’’, and by 

25 adding at the end the following new paragraph: 
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•HR 5398 IH 

1 ‘‘(16) in the case of an eligible employer (as de2 fined in section 45G(e)), the small employer pension 

3 plan contribution credit determined under section 

4 45G(a).’’. 

5 (c) CONFORMING AMENDMENTS.—

6 (1) Section 39(d) of such Code is amended by 

7 adding at the end the following new paragraph: 

8 ‘‘(11) NO CARRYBACK OF SMALL EMPLOYER

9 PENSION PLAN CONTRIBUTION CREDIT BEFORE JAN10 UARY 1, 2002.—No portion of the unused business 

11 credit for any taxable year which is attributable to 

12 the small employer pension plan contribution credit 

13 determined under section 45G may be carried back 

14 to a taxable year beginning before January 1, 

15 2005.’’. 

16 (2) Subsection (c) of section 196 of such Code 

17 is amended by striking ‘‘and’’ at the end of para18 graph (9), by striking the period at the end of para19 graph (10) and inserting ‘‘, and’’, and by adding at 

20 the end the following new paragraph: 

21 ‘‘(11) the small employer pension plan contribu22 tion credit determined under section 45G(a).’’. 

23 (3) The table of sections for subpart D of part 

24 IV of subchapter A of chapter 1 of such Code is 
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1 amended by adding at the end the following new 

2 item:

‘‘Sec 45G. Small employer pension plan contributions.’’.

3 (d) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to contributions paid or incurred 

5 in taxable years beginning after December 31, 2004. 

6 SEC. 303. NOTICE. 

7 The Secretary of the Treasury shall establish an on8 going program, in coordination with employers, under 

9 which the Secretary shall ensure that employees and other 

10 affected individuals remain fully and effectively notified of 

11 the availability of tax credits under sections 35, 35A, and 

12 45G of the Internal Revenue Code of 1986. 

13 TITLE IV—IMPROVED PENSION 

14 PROTECTIONS FOR WOMEN 

15 SEC. 401. MODIFICATIONS OF JOINT AND SURVIVOR ANNU16 ITY REQUIREMENTS. 

17 (a) AMOUNT OF ANNUITY.—

18 (1) OPTION TO ELECT QUALIFIED ALTER19 NATIVE JOINT AND SURVIVOR ANNUITY FORM OF

20 BENEFIT UPON WAIVER OF QUALIFIED JOINT AND

21 SURVIVOR ANNUITY FORM OF BENEFIT.—Section 

22 417(a)(1)(A) of the Internal Revenue Code of 1986 

23 is amended to read as follows: 

24 ‘‘(A) under the plan, each participant—
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1 ‘‘(i) may elect at any time during the 

2 applicable election period to waive the 

3 qualified joint and survivor annuity form 

4 of benefit, 

5 ‘‘(ii) may elect at any time during the 

6 applicable election period to waive the 

7 qualified preretirement survivor annuity 

8 form of benefit, 

9 ‘‘(iii) may elect at any time during the 

10 applicable election period, in any case in 

11 which the qualified joint and survivor an12 nuity form of benefit is not provided by 

13 reason of a waiver under clause (i), to be 

14 provided a qualified alternative joint and 

15 survivor annuity form of benefit, and 

16 ‘‘(iv) may revoke any such election at 

17 any time during the applicable election pe18 riod, and’’. 

19 (2) QUALIFIED ALTERNATIVE JOINT AND SUR20 VIVOR ANNUITY DEFINED.—Section 417 of such 

21 Code is amended by adding at the end the following 

22 new subsection: 

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 alternative joint and sur3 vivor annuity’ 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 (deter7 mined under paragraph (2)) of (and not greater 

8 than 100 percent of) the amount of the annuity 

9 which is payable during the joint lives of the 

10 participant and the spouse, and 

11 ‘‘(B) which is the actuarial equivalent of a 

12 single annuity for the life of the participant. 

13 Such term also includes any annuity form having the 

14 effect of an annuity described in the preceding sen15 tence. 

16 ‘‘(2) APPLICABLE PERCENTAGE.—

17 ‘‘(A) IN GENERAL.—For purposes of para18 graph (1)—

19 ‘‘(i) if the base survivor annuity per20 centage is less than 75 percent, the appli21 cable percentage is 75 percent, and 

22 ‘‘(ii) if the base survivor annuity per23 centage is equal to at least 75 percent, the 

24 applicable percentage is 50 percent. 
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•HR 5398 IH 

1 ‘‘(B) SURVIVOR ANNUITY PERCENTAGE.—

2 For purposes of subparagraph (A), the term 

3 ‘survivor annuity percentage’ means the per4 centage which the survivor annuity under the 

5 plan’s qualified joint and survivor annuity form 

6 of benefit bears to the annuity payable during 

7 the joint lives of the participant and the spouse 

8 under such form of benefit.’’. 

9 (b) EXEMPTION IN THE CASE OF PLANS OFFERING

10 FULLY SUBSIDIZED QUALIFIED JOINT AND SURVIVOR

11 ANNUITIES.—Section 417(a)(5) of the Internal Revenue 

12 Code of 1986 is amended—

13 (1) by redesignating subparagraph (B) as sub14 paragraph (C), and 

15 (2) by inserting after subparagraph (A) the fol16 lowing new subparagraph: 

17 ‘‘(B) QUALIFIED ALTERNATIVE JOINT AND SUR18 VIVOR ANNUITIES.—The requirements of this subsection 

19 shall not apply with respect to the qualified alternative 

20 joint and survivor annuity form of benefit if the plan fully 

21 subsidizes the costs of the qualified joint and survivor an22 nuity form of benefit.’’. 

23 (c) ILLUSTRATION REQUIREMENT.—Section 

24 417(a)(3)(A)(i) of the Internal Revenue Code of 1986 is 

25 amended to read as follows: 
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1 ‘‘(i) the terms and conditions of the qualified 

2 joint and survivor annuity form of benefit offered by 

3 the plan, the terms and conditions of the qualified 

4 preretirement survivor annuity form of benefit of5 fered by the plan, and the terms and conditions of 

6 the qualified alternative joint and survivor annuity 

7 form of benefit offered by the plan, accompanied by 

8 an illustration of the benefits under each such form 

9 of benefit for the particular participant and spouse 

10 and an acknowledgement form to be signed by the 

11 participant and the spouse that they have read and 

12 considered the illustration before any election is 

13 made pursuant to clause (i) or (ii) of subsection 

14 (c)(1)(A).’’. 

15 (d) RULE OF CONSTRUCTION.—For purposes of sec16 tion 411(d)(6) of the Internal Revenue Code of 1986, a 

17 plan shall not be treated as having decreased the accrued 

18 benefit of a participant solely by reason of the adoption 

19 of a plan amendment under which a qualified alternative 

20 joint and survivor annuity form of benefit is added to the 

21 plan in accordance with section 417(a)(1)(A)(ii) of such 

22 Code (as amended by this section). 
49

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1 SEC. 402. ENTITLEMENT OF DIVORCED SPOUSES TO RAIL2 ROAD RETIREMENT ANNUITIES INDE3 PENDENT OF ACTUAL ENTITLEMENT OF EM4 PLOYEE. 

5 (a) IN GENERAL.—Section 2 of the Railroad Retire6 ment Act of 1974 (45 U.S.C. 231a) is amended—

7 (1) in subsection (c)(4)(i), by striking ‘‘(A) is 

8 entitled to an annuity under subsection (a)(1) and 

9 (B)’’; and 

10 (2) in subsection (e)(5), by striking ‘‘or di11 vorced wife’’ the second place it appears. 

12 (b) EFFECTIVE DATE.—The amendments made by 

13 this section shall take effect 1 year after the date of the 

14 enactment of this Act. 

15 SEC. 403. EXTENSION OF TIER II RAILROAD RETIREMENT 

16 BENEFITS TO SURVIVING FORMER SPOUSES 

17 PURSUANT TO DIVORCE AGREEMENTS. 

18 (a) IN GENERAL.—Section 5 of the Railroad Retire19 ment Act of 1974 (45 U.S.C. 231d) is amended by adding 

20 at the end the following: 

21 ‘‘(d) Notwithstanding any other provision of law, the 

22 payment of any portion of an annuity computed under sec23 tion 3(b) to a surviving former spouse in accordance with 

24 a court decree of divorce, annulment, or legal separation 

25 or the terms of any court-approved property settlement 

26 incident to any such court decree shall not be terminated 
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1 upon the death of the individual who performed the service 

2 with respect to which such annuity is so computed unless 

3 such termination is otherwise required by the terms of 

4 such court decree.’’

5 (b) EFFECTIVE DATE.—The amendment made by 

6 this section shall take effect 1 year after the date of the 

7 enactment of this Act. 

8 TITLE V—DEFINED BENEFIT 

9 PLANS WHICH INCLUDE 

10 QUALIFIED CASH OR DE11 FERRED ARRANGEMENTS 

12 SEC. 501. DEFINED BENEFIT PLAN WITH DEFERRED COM13 PENSATION ARRANGEMENT IN A SINGLE 

14 PLAN. 

15 (a) DEFINED BENEFIT PLAN PERMITTED TO HAVE

16 401(K) ARRANGEMENT.—

17 (1) IN GENERAL.—Paragraphs (1) and (2) of 

18 section 401(k) of the Internal Revenue Code of 1986 

19 are both amended by striking ‘‘or a rural cooperative 

20 plan’’ and inserting ‘‘, a rural cooperative plan, or 

21 a defined benefit plan’’. 

22 (2) ADJUSTMENT OF 401(K) RULES.—Section 

23 401(k) of such Code is amended—
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1 (A) in paragraph (2)(B)(i)(III), by striking 

2 ‘‘in the case of a profit-sharing or stock bonus 

3 plan,’’, 

4 (B) in paragraph (2)(B)(i)(IV), by striking 

5 ‘‘to a profit-sharing or stock bonus plan’’, and 

6 (C) in paragraph (10)(A), by inserting be7 fore the period at the end the following: ‘‘or a 

8 defined benefit plan that includes a qualified 

9 cash or deferred arrangement’’. 

10 (b) QUALIFIED CASH OR DEFERRED ARRANGEMENT

11 UNDER DEFINED BENEFIT PLAN SATISFIES DEFINITELY

12 DETERMINABLE BENEFIT REQUIREMENT.—Subsection 

13 (a) of section 401 of such Code is amended by inserting 

14 after paragraph (34) the following new paragraph: 

15 ‘‘(35) QUALIFIED CASH OR DEFERRED AR16 RANGEMENT UNDER DEFINED BENEFIT PLAN SATIS17 FIES DEFINITELY DETERMINABLE BENEFIT RE18 QUIREMENT.—A trust forming part of a defined 

19 benefit plan shall not be treated as failing to con20 stitute a qualified trust merely because such plan in21 cludes a qualified cash or deferred arrangement.’’. 

22 (c) CLARIFICATION OF EXTENT TO WHICH DEFINED

23 CONTRIBUTION AND DEFINED BENEFIT RULES APPLY.—
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1 (1) TREATMENT AS DEFINED BENEFIT PLAN.—

2 Subsection (j) of section 414 of such Code is amend3 ed to read as follows: 

4 ‘‘(j) DEFINED BENEFIT PLAN.—For purposes of this 

5 part—

6 ‘‘(1) IN GENERAL.—The term ‘defined benefit 

7 plan’ means any plan which is not a defined con8 tribution plan. 

9 ‘‘(2) PLANS INCLUDING QUALIFIED CASH AND

10 DEFERRED ARRANGEMENTS.—Except as otherwise 

11 provided in this title—

12 ‘‘(A) a pension plan which provides bene13 fits other than benefits described in subsection 

14 (i) shall not be treated as a ‘defined contribu15 tion plan’ on the basis of the inclusion in the 

16 plan of a qualified cash or deferred arrange17 ment, and 

18 ‘‘(B) any such pension plan which includes 

19 such an arrangement shall be treated as a sin20 gle plan.’’. 

21 (2) SPECIAL RULES.—Subsection (k) of section 

22 414 of such Code is amended—

23 (A) by redesignating paragraphs (1), (2), 

24 and (3), as subparagraphs (A), (B), and (C), 
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1 respectively, and by moving such subparagraphs 

2 2 ems to the right, 

3 (B) by striking ‘‘A defined benefit plan’’ 

4 and inserting the following: 

5 ‘‘(1) PLANS WITH SEPARATE ACCOUNTS.—A 

6 defined benefit plan’’, and 

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

8 paragraph: 

9 ‘‘(2) PLANS WITH CASH OR DEFERRED AR10 RANGEMENTS.—In the case of a defined benefit plan 

11 which includes a qualified cash or deferred arrange12 ment—

13 ‘‘(A) rules similar to the rules of subpara14 graphs (A), (B), and (C) of paragraph (1) shall 

15 apply, 

16 ‘‘(B) for purposes of section 401(a)(4) (re17 lating to nondiscrimination testing), section 

18 401(a)(9) (relating to required distributions), 

19 section 401(a)(26) (relating to additional par20 ticipation requirements), section 401(a)(31) (re21 lating to direct transfer of eligible rollover dis22 tributions), section 404 (relating to deduction 

23 for contributions of an employer to an employ24 ees’ trust or annuity plan and compensation 

25 under a deferred-payment plan), section 412 
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1 (relating to minimum funding standards), sec2 tion 414(l) (relating to merger and consolida3 tions of plans or transfers of plan assets), and 

4 section 416 (relating to special rules for top5 heavy plans), such plan shall be treated as con6 sisting of a defined contribution plan to the ex7 tent benefits are attributable to such arrange8 ment and as a defined benefit plan with respect 

9 to the remaining portion of benefits under the 

10 plan, and 

11 ‘‘(C) for purposes of sections 411(a)(11) 

12 and 417(e), the present value of the portion of 

13 the benefit attributable to such arrangement 

14 shall be treated as being the fair market value 

15 of such arrangement.’’. 

16 (d) APPLICATION OF PRE-TERMINATION RESTRIC17 TIONS.—The Secretary of the Treasury shall amend 

18 Treasury Regulation section 1.401(a)(4)–5(b) to provide 

19 that, in the case of a defined benefit plan which includes 

20 a qualified cash or deferred arrangement—

21 (1) the provisions of such section shall not 

22 apply to such arrangement, and 

23 (2) the assets attributable to such arrangement 

24 shall be disregarded in applying the requirements of 

25 such section to such plan. 
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1 (e) TREATMENT AS SINGLE PLAN FOR INFORMATION

2 REPORTING.—Subsection (a) of section 6058 of such Code 

3 is amended by adding at the end the following: ‘‘For pur4 poses of the preceding sentence, a defined benefit plan 

5 which includes a qualified cash or deferred arrangement 

6 shall be treated as a single plan.’’. 

7 (f) RULES FOR INCOME TAX DEDUCTION.—

8 (1) TREATMENT OF CASH OR DEFERRED AR9 RANGEMENT AS SEPARATE PROFIT SHARING

10 PLAN.—Subparagraph (A) of section 404(a)(3) of 

11 such Code is amended by adding at the end the fol12 lowing new clause: 

13 ‘‘(vi) For purposes of this subpara14 graph, employer contributions made with 

15 respect to a qualified cash or deferred ar16 rangement which is part of a defined ben17 efit plan shall be treated in the same man18 ner as contributions to a stock bonus or 

19 profit-sharing plan.’’. 

20 (2) SPECIAL DEDUCTION LIMIT FOR DEFINED

21 BENEFIT PLAN.—Paragraph (1) of section 404(a) is 

22 amended by redesignating subparagraphs (E) and 

23 (F) as subparagraphs (F) and (G), respectively, and 

24 by inserting after subparagraph (D) the following 

25 new subparagraph: 
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1 ‘‘(E) SPECIAL RULE FOR DEFINED BEN2 EFIT PLANS WITH QUALIFIED CASH OR DE3 FERRED ARRANGEMENTS.—In the case of a de4 fined benefit plan which includes a qualified 

5 cash or deferred arrangement, the maximum 

6 amount deductible under this section (notwith7 standing any other limitation under this para8 graph) with respect to such plan shall not be 

9 less than the full funding limitation that would 

10 be determined under section 412(c)(7)(A) if 

11 130 percent of the amount determined clause 

12 (i) of such section were substituted for the 

13 amount otherwise determined under clause 

14 (i).’’. 

15 (g) ALLOWABLE REDUCTIONS IN RATE OF BENEFIT

16 ACCRUAL.—Subsection (e) of section 4980F of such Code 

17 is amended by adding at the end the following new para18 graph: 

19 ‘‘(6) EXCEPTION FOR QUALIFIED CASH OR DE20 FERRED ARRANGEMENTS.—A plan shall not be 

21 treated as failing to meet the requirements of para22 graph (1) merely because of a reduction in, or elimi23 nation of, any contributions to a qualified cash or 

24 deferred arrangement which is part of such plan.’’. 
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1 (h) DEFINED BENEFIT FUNDING STANDARDS NOT

2 TO APPLY TO QUALIFIED CASH OR DEFERRED ARRANGE3 MENTS.—Subsection (h) of section 412 of such Code is 

4 amended by striking ‘‘or’’ at the end of paragraph (5), 

5 by striking the period at the end of paragraph (6) and 

6 inserting ‘‘, or’’, and by inserting after paragraph (6) the 

7 following new paragraph: 

8 ‘‘(7) any qualified cash or deferred arrangement 

9 which is part of a defined benefit plan.’’. 

10 (i) INCLUSION IN CAFETERIA PLAN.—Subparagraph 

11 (B) of section 125(d)(2) of such Code is amended by strik12 ing ‘‘or rural cooperative plan (within the meaning of sec13 tion 401(k)(7))’’ and inserting ‘‘rural cooperative plan 

14 (within the meaning of section 401(k)(7)), or a defined 

15 benefit plan’’. 

16 (j) VESTING REQUIREMENTS.—Section 411(a) is 

17 amended by adding the following new paragraph: 

18 ‘‘(13) FASTER VESTING FOR ACCRUALS UNDER

19 DEFINED BENEFIT PLANS WITH CASH OR DEFERRED

20 ARRANGEMENTS.—In the case of a defined benefit 

21 plan which includes a qualified cash or deferred ar22 rangement, benefit accruals and employer contribu23 tions (other than elective deferrals, as defined in sec24 tion 401(m)(4)) shall be treated as matching con25 tributions for purposes of paragraph (12).’’. 
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1 (k) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to plan years beginning after De3 cember 31, 2005. 

4 SEC. 502. DEFINED BENEFIT ACCRUALS SATISFY 401(K) 

5 SAFE HARBOR. 

6 (a) IN GENERAL.—Paragraph (12) of section 401(k) 

7 of the Internal Revenue Code of 1986 is amended—

8 (1) in subparagraph (A)(i) by inserting ‘‘or the 

9 benefit accrual requirements of subparagraph (D)’’ 

10 after ‘‘or (C)’’, and 

11 (2) by redesignating subparagraphs (D), (E), 

12 and (F) as subparagraphs (E), (F), and (G), respec13 tively, and by inserting after subparagraph (C) the 

14 following new subparagraph: 

15 ‘‘(D) BENEFIT ACCRUALS.—

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

17 of this subparagraph are met if the re18 quirements of clause (ii) or (iii) are met. 

19 ‘‘(ii) TRADITIONAL FORMULA.—

20 ‘‘(I) IN GENERAL.—The require21 ments of this clause are met if, under 

22 the arrangement, the employer is re23 quired, without regard to whether the 

24 employee makes an elective contribu25 tion or employee contribution, to pro-
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1 vide an accrual under a defined ben2 efit plan on behalf of each employee 

3 who is not a highly compensated em4 ployee and who is eligible to partici5 pate in the arrangement. Such accrual 

6 shall be for each year in which the 

7 participant is eligible for the arrange8 ment, and the plan is satisfying the 

9 requirements of this subparagraph, in 

10 an amount equal to at least 1 percent 

11 of average compensation multiplied by 

12 years of service, payable as a life an13 nuity commencing at age 65. The plan 

14 may cap the cumulative benefit ac15 crued under such formula to an 

16 amount that is not less than 20 per17 cent of average compensation. 

18 ‘‘(II) AVERAGE COMPENSA19 TION.—For purposes of subclause (I), 

20 the term ‘average compensation’ 

21 means the average compensation (as 

22 defined by section 414(s)) received by 

23 the participant during the testing pe24 riod. The plan may define the testing 

25 period as all years of service of the 
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1 participant, as a period of consecutive 

2 years of service of the participant 

3 which produces the highest average 

4 compensation, or as a period of con5 secutive years of service which in6 cludes the last year of service of the 

7 participant. The testing period shall 

8 not include fewer than 3 years of serv9 ice except in the case of participants 

10 with fewer than 3 years of service. 

11 ‘‘(III) YEARS OF SERVICE.—For 

12 purposes of this clause, a year of serv13 ice shall be determined under para14 graphs (4), (5), and (6) of section 

15 411(a), except the plan need not in16 clude as a year of service any year of 

17 service ending in a plan year that 

18 began before the employee became a 

19 participant in the plan, or any year of 

20 service that begins in a plan year in 

21 which the participant dies, has a sev22 erance from employment, or becomes 

23 disabled (within the meaning of sec24 tion 72(m)(7)). 
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1 ‘‘(IV) ADJUSTMENTS FOR EARLY

2 AND LATE RETIREMENT.—The 

3 amount determined under subclause 

4 (I) shall be adjusted actuarially if 

5 benefits under the plan commence 

6 later than age 65. Such amount may 

7 (but is not required to) be adjusted 

8 for early retirement if benefits com9 mence (or normal retirement age is) 

10 earlier than age 65. 

11 ‘‘(iii) CASH BALANCE FORMULA.—

12 ‘‘(I) IN GENERAL.—The require13 ments of this clause are met if, under 

14 the arrangement, the employer is re15 quired, without regard to whether the 

16 employee makes an elective contribu17 tion or employee contribution, to pro18 vide a hypothetical allocation under a 

19 cash balance plan on behalf of each 

20 employee who is not a highly com21 pensated employee and who is eligible 

22 to participate in the arrangement in 

23 any year in an amount which is not 

24 less than the product of the average 

25 compensation of the employee (within 
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1 the meaning of clause (ii)(II), multi2 plied by the cash balance contribution 

3 percentage with respect to such em4 ployee. 

5 ‘‘(II) CASH BALANCE CONTRIBU6 TION PERCENTAGE.—For purposes of 

7 subclause (I), the term ‘cash balance 

8 contribution percentage’ means, with 

9 respect to any employee, 2 percent if 

10 such employee has not attained age 

11 31, 4 percent if such employee has at12 tained age 31 but has not attained 

13 age 40, 6 percent if such employee 

14 has attained age 40 but has not at15 tained age 50, and 8 percent if such 

16 employee has attained age 50. 

17 ‘‘(III) CASH BALANCE PLAN DE18 FINED.—For purposes of subclause 

19 (I), a cash balance plan is a defined 

20 benefit plan that defines an employ21 ee’s benefits by reference to the em22 ployee’s hypothetical account. Such 

23 hypothetical account is determined by 

24 reference, first, to hypothetical con25 tribution allocations, and, second, to 
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1 hypothetical interest credits (on an 

2 annual or more frequent basis). The 

3 right to future interest credits are de4 termined without regard to future 

5 service. 

6 ‘‘(IV) NO PREDECESSOR DE7 FINED BENEFIT PLAN.—The require8 ments of this clause shall not be treat9 ed as met if, during the 3-year period 

10 immediately preceding the effective 

11 date of a cash balance plan meeting 

12 the requirements of subclause (I), the 

13 employer (or any related employer, 

14 within the meaning of subsection (b), 

15 (c), (m), or (o) of section 414), main16 tained a defined benefit plan that was 

17 not a cash balance plan and which 

18 benefited any participant who is a 

19 participant in the plan which meets 

20 the requirements of subclause (I).’’. 

21 (b) CONFORMING AMENDMENTS.—

22 (1) Section 401(k)(12)(A)(ii) of such Code is 

23 amended by striking ‘‘subparagraph (D)’’ and in24 serting ‘‘subparagraph (E)’’. 
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1 (2) Section 401(k)(12)(F)(i) of such Code (as 

2 redesignated by subsection (a)) is amended by add3 ing at the end the following: ‘‘An arrangement shall 

4 not be treated as meeting the requirements of sub5 paragraph (D) of this paragraph unless the require6 ments of paragraph (2)(B) are met with respect to 

7 the benefit accruals provided pursuant to subpara8 graph (D) of this paragraph.’’. 

9 (3) Section 401(k)(12)(F)(ii) of such Code (as 

10 redesignated by subsection (a)) is amended—

11 (A) by striking ‘‘subparagraph (B) or (C)’’ 

12 the first place it appears and inserting ‘‘sub13 paragraph (B), (C), or (D)’’, and 

14 (B) by inserting ‘‘and benefit accruals 

15 under subparagraph (D)’’ after ‘‘subparagraph 

16 (B) or (C)’’ the second place it appears. 

17 (4) Section 416(g)(4)(H) of such Code is 

18 amended to read as follows: 

19 ‘‘(H) CASH OR DEFERRED ARRANGEMENTS

20 USING ALTERNATIVE METHODS OF MEETING

21 NONDISCRIMINATION REQUIREMENTS.—

22 ‘‘(i) IN GENERAL.—The term ‘top23 heavy plan’ shall not include a plan de24 scribed in clause (ii) or (iii). 
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1 ‘‘(ii) DEFINED CONTRIBUTION

2 PLAN.—The plan described in this clause 

3 is a defined contribution plan which con4 sists solely of—

5 ‘‘(I) a cash or deferred arrange6 ment which meets the requirements of 

7 section 401(k)(12), and 

8 ‘‘(II) matching contributions with 

9 respect to which the requirements of 

10 section 401(m)(11) are met. 

11 ‘‘(iii) DEFINED BENEFIT PLAN.— The 

12 plan described in this clause is a defined 

13 benefit plan which consists exclusively of 

14 one or more—

15 ‘‘(I) cash or deferred arrange16 ments which meet the requirements of 

17 section 401(k)(12), and 

18 ‘‘(II) qualified matching accruals, 

19 as described in section 401(m)(12). 

20 If, but for this subparagraph, a plan would be 

21 treated as a top-heavy plan because it is a 

22 member of an aggregation group which is a top23 heavy group, contributions or benefits under the 

24 plan may be taken into account in determining 

25 whether any other plan in the group meets the 
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1 requirements of subsection (c) and, a plan 

2 meeting the requirements of section 

3 401(k)(12)(D) shall be deemed to satisfy the 

4 requirements of subsection (c).’’. 

5 (5) SPECIAL RULE FOR PLAN WITH MULTIPLE

6 ACCRUAL FORMULAS.—Paragraph (1) of section 

7 411(b) of such Code is amended by adding at the 

8 end the following new subparagraph: 

9 ‘‘(I) MULTIPLE FORMULAS.—

10 ‘‘(i) IN GENERAL.—If a defined ben11 efit plan contains multiple accrual for12 mulas, the requirements of this paragraph 

13 may be satisfied separately for each for14 mula. 

15 ‘‘(ii) CERTAIN BENEFIT ACCRUALS

16 TREATED AS MULTIPLE ACCRUALS TREAT17 ED AS MULTIPLE ACCRUAL FORMULAS.—

18 For purposes of this subparagraph, a plan 

19 has multiple accrual formulas if a partici20 pant’s accrued benefit is determined either 

21 as the greater of the benefit determined 

22 under two or more separate formulas or as 

23 the sum of the benefit determined under 

24 two or more separate formulas. 
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1 ‘‘(iii) CERTAIN FORMULAS TREATED

2 AS SEPARATE ACCRUAL FORMULAS.—For 

3 purposes of clause (i), the benefit formulas 

4 described in section 401(k)(12)(D) and 

5 section 401(m)(12) shall be treated as sep6 arate from the minimum benefit formula 

7 described in section 416(c)(1).’’. 

8 (c) EFFECTIVE DATE.—

9 (1) IN GENERAL.—Except as provided in para10 graph (2), the amendments made by this section 

11 shall apply to years beginning after December 31, 

12 2005. 

13 (2) CASH BALANCE FORMULA.—Section 

14 401(k)(12)(D)(iii) of the Internal Revenue Code of 

15 1986, as added by subsection (a)(2), shall not apply 

16 to plan years beginning before the effective date of 

17 an Act which provides for the application of section 

18 411(b)(1)(H) of such Code to cash balance plans. 

19 SEC. 503. ADDITIONAL ACCRUALS UNDER DEFINED BEN20 EFIT PLAN PROVIDED AS MATCHING CON21 TRIBUTIONS. 

22 (a) CERTAIN ARRANGEMENTS UNDER DEFINED

23 BENEFIT PLAN SATISFY DEFINITELY DETERMINABLE

24 BENEFIT REQUIREMENT.—Paragraph (35) of section 

25 401(a) of the Internal Revenue Code of 1986 (as added 
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1 by section 2(b)) is amended by inserting ‘‘or qualified 

2 matching accruals (as defined in subsection (m)(12))’’ be3 fore the period at the end. 

4 (b) MATCHING ACCRUALS.—Subsection (m) of sec5 tion 401 of such Code is amended by redesignating para6 graph (12) as paragraph (13) and by inserting after para7 graph (11) the following new paragraph: 

8 ‘‘(12) SPECIAL RULES RELATING TO QUALIFIED

9 MATCHING ACCRUALS UNDER A DEFINED BENEFIT

10 PLAN.—For purposes of this section—

11 ‘‘(A) QUALIFIED MATCHING ACCRUAL.—

12 The term ‘qualified matching accrual’ means an 

13 amount funded by an employer in the form of 

14 a benefit accrual under a defined benefit plan 

15 to match elective deferrals under a qualified 

16 cash or deferred arrangement which is part of 

17 such plan and which meets the formula require18 ments of subparagraph (B). The benefit accrual 

19 shall be determined under a nondiscretionary 

20 formula set forth in the defined benefit plan. 

21 For purposes of determining such benefit ac22 crual, the amount of elective deferrals taken 

23 into account under such formula may be limited 

24 under the plan. 
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1 ‘‘(B) FORMULA REQUIREMENTS.—A ben2 efit accrual meets the requirements of this sub3 paragraph if such accrual is a hypothetical con4 tribution that is added to a participant’s hypo5 thetical account balance, the amount of which is 

6 determined, in accordance with the matching 

7 accrual formula set forth in the plan, with ref8 erence to the amount of the elective deferrals 

9 made by the participant for the plan year to a 

10 qualified cash or deferred arrangement which is 

11 part of the defined benefit plan. Matching ac12 cruals under the formula may vary with age or 

13 other employment-related factors. 

14 ‘‘(C) COORDINATE WITH EMPLOYER CON15 TRIBUTIONS.—For purposes of paragraph (4), 

16 the term ‘employer contributions’ shall not in17 clude any amount contributed by an employer 

18 to a defined benefit plan for the purpose of 

19 funding any qualified matching accruals. 

20 ‘‘(D) SAFE HARBOR FORMULA.—A quali21 fied matching accrual formula shall be deemed 

22 to satisfy subsection (a)(4) if it satisfies the re23 quirements of clauses (i) and (ii). 

24 ‘‘(i) ELECTIVE DEFERRALS AT OR

25 ABOVE MAXIMUM MATCHABLE RATE.—For 
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1 an employee who makes elective deferrals 

2 at or above the maximum matchable rate, 

3 the qualified matching benefit accrual for 

4 the plan year is a hypothetical allocation 

5 under a cash balance plan (as defined in 

6 section 401(k)(12)(D)(iii)(III)) that equals 

7 a percentage (not greater than 4 percent) 

8 of compensation (as defined in section 

9 414(s)). 

10 ‘‘(ii) ELECTIVE DEFERRALS BELOW

11 MAXIMUM MATCHABLE RATE.—For em12 ployees who make elective deferrals at a 

13 rate that is below the maximum matchable 

14 rate, the qualified matching benefit accrual 

15 for such plan year shall be prorated. The 

16 plan may prorate the qualified benefit ac17 crual on the basis of whole percentages, 

18 and the plan may require that an employ19 ee’s elective deferrals be stated as whole 

20 percentages. 

21 ‘‘(iii) MAXIMUM MATCHABLE RATE.—

22 For purposes of this subparagraph, the 

23 maximum matchable rate must be a speci24 fied percentage of compensation which 

25 does not exceed 4 percent.’’. 
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1 (c) EXCEPTION TO BENEFIT CONTINGENCY RULE.—

2 Subparagraph (A) of section 401(k)(4) of such Code is 

3 amended by inserting ‘‘or qualified matching accruals (as 

4 defined in subsection (m)(12)’’ after ‘‘section 401(m))’’. 

5 (d) FORFEITURES BY REASON OF EXCESS DEFER6 RAL.—Subparagraph (G) of section 411(a)(3) of the Code 

7 is amended by adding at the end the following: ‘‘A rule 

8 similar to the rule of the preceding sentence shall apply 

9 with respect to qualified matching accruals (as defined in 

10 section 401(m)(12)).’’

11 (e) ACCRUED BENEFIT REQUIREMENT WITH RE12 SPECT TO MATCHING ACCRUALS.—Paragraph (1) of sec13 tion 411(b) of such Code is amended by adding at the 

14 end the following new subparagraph: 

15 ‘‘(J) In the case of qualified matching ac16 cruals (as defined in section 401(m)(12)), the 

17 requirements for accrued benefits set forth in 

18 subparagraphs (A) through (H) of this sub19 section shall be applied on the basis of the rate 

20 of matching accruals available to participants, 

21 without regard to the actual elective deferrals 

22 made by participants.’’. 

23 (f) PARTICIPATION REQUIREMENTS WITH RESPECT

24 TO QUALIFIED MATCHING ACCRUALS.—Paragraph (26) 

25 of section 401(a) of such Code is amended by redesig-
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1 nating subparagraph (I) as subparagraph (J), and by in2 serting after subparagraph (H) the following new subpara3 graph: 

4 ‘‘(I) SPECIAL TESTING RULES FOR QUALI5 FIED MATCHING ACCRUALS.—

6 ‘‘(i) If a defined benefit plan includes 

7 qualified matching accruals (as defined in 

8 section 401(m)(12)), the rules in clauses 

9 (ii) and (iii) shall apply. 

10 ‘‘(ii) QUALIFIED MATCHING ACCRUALS

11 ONLY BENEFIT FORMULA.—If the only 

12 benefit formula in the defined benefit plan 

13 is a qualified matching accrual formula, 

14 the requirements of this paragraph shall be 

15 applied by treating a participant’s annual 

16 benefit accrual as the maximum accrual 

17 that was available to the participant for 

18 the plan year, regardless of whether the 

19 maximum matchable elective deferrals were 

20 actually made by the participant. If the 

21 qualified matching accrual formula applies 

22 to elective deferrals in excess of 6 percent 

23 of compensation, then the requirements of 

24 this paragraph must be applied by taking 
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1 into account the actual matching accruals 

2 earned by participants for the plan year. 

3 ‘‘(iii) MULTIPLE FORMULAS.—If the 

4 defined benefit plan includes one or more 

5 benefit formulas in addition to a qualified 

6 matching accrual formula, the employer 

7 may elect to apply clause (ii) to the quali8 fied matching accrual formulas only if the 

9 requirements of this paragraph are satis10 fied separately with respect to the benefit 

11 accruals that are determined without re12 gard to the qualified matching accrual for13 mula.’’. 

14 (g) REGULATIONS FOR MEETING NONDISCRIMINA15 TION REQUIREMENTS.—

16 (1) IN GENERAL.—The Secretary of the Treas17 ury shall prescribe regulations on ways in which 

18 qualified matching accruals (as defined by section 

19 401(m)(12) of the the Internal Revenue Code of 

20 1986, as added by this section) that do not satisfy 

21 the formula requirements of section 401(m)(12)(D) 

22 of such Code (as enacted by subsection (b) of this 

23 section) can satisfy the nondiscrimination require24 ments of section 401(a)(4) of such Code. The regu-
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1 lations may prescribe safe harbor formulas in addi2 tion to those prescribed by section 401(m)(12)(D). 

3 (2) TEMPORARY AND FINAL FORM.—The Sec4 retary shall prescribe the regulations required by 

5 paragraph (1) in temporary form not later than 6 

6 months after the effective date of this section and in 

7 final form not later than 18 months after the effec8 tive date of this section. 

9 (h) PLAN YEARS BEGINNING BEFORE ISSUANCE OF

10 REGULATIONS.—For plan years beginning prior to the 

11 date the regulations described in subsection (g) are issued 

12 in final form, a plan’s qualified matching accrual formula 

13 must satisfy a reasonable, good faith, interpretation of 

14 section 401(a)(4) of such Code. 

15 (i) EFFECTIVE DATE.—The amendments made by 

16 this section shall be effective for plan years beginning after 

17 the effective date of the Act described in section 3(c)(2). 

18 SEC. 504. LIMITATION ON DEDUCTIONS WHERE COMBINA19 TION OF DEFINED CONTRIBUTION PLAN AND 

20 DEFINED BENEFIT PLAN. 

21 (a) ELECTIVE DEFERRALS.—Clause (ii) of section 

22 404(a)(7)(C) of the Internal Revenue Code of 1986 (relat23 ing to elective deferrals) is amended to read as follows: 

24 ‘‘(ii) ELECTIVE DEFERRALS.—For 

25 purposes of this paragraph, an employee 
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1 shall not be treated as a beneficiary of a 

2 defined contribution plan for a taxable 

3 year if the only employer contributions 

4 made on behalf of such employee for the 

5 taxable year are elective deferrals (as de6 fined in section 402(g)(3)).’’. 

7 (b) LIMITATION NOT APPLICABLE TO DEFINED BEN8 EFIT PLANS WITH CASH OR DEFERRED ARRANGE9 MENT.—Subparagraph (C) of section 404(a)(7) is amend10 ed by adding at the end the following: 

11 ‘‘(iii) DEFINED BENEFIT PLAN WITH

12 CASH OR DEFERRED ARRANGEMENT.—For 

13 purposes of this paragraph, an employee 

14 shall not be treated as a beneficiary of a 

15 defined contribution plan for a taxable 

16 year merely because the employee is a ben17 eficiary of a cash or deferred arrangement 

18 which is part of a defined benefit plan for 

19 such year.’’. 

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

21 this section shall apply to years beginning after December 

22 31, 2005. 
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1 SEC. 505. CONFORMING AMENDMENTS TO THE EMPLOYEE 

2 RETIREMENT INCOME SECURITY ACT OF 

3 1974. 

4 (a) DEFINITION.—Section 3 of the Employee Retire5 ment Income Security Act of 1974 (29 U.S.C. 1002) is 

6 amended by adding at the end the following new para7 graph: 

8 ‘‘(42) The term ‘qualified cash or deferred arrange9 ment’ has the meaning provided such term in section 

10 401(k)(2) of the Internal Revenue Code of 1986. ’’. 

11 (b) GENERAL RULES REGARDING TREATMENT OF

12 PENSION PLANS INCLUDING QUALIFIED CASH OR DE13 FERRED ARRANGEMENTS.—Section 3(35) of such Act (29 

14 U.S.C. 1002(35)) is amended—

15 (1) by redesignating subparagraphs (A) and 

16 (B) as clauses (i) and (ii), respectively; 

17 (2) by inserting ‘‘(A)’’ after ‘‘(35)’’; and 

18 (3) by adding at the end the following new sub19 paragraph: 

20 ‘‘(B)(i) Except as provided in this title—

21 ‘‘(I) a pension plan which provides benefits 

22 other than benefits described in paragraph (34) 

23 shall not be treated as an ‘individual account 

24 plan’ or a ‘defined contribution plan’ on the 

25 basis of the inclusion in the plan of a qualified 

26 cash or deferred arrangement, and 
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1 ‘‘(II) any such pension plan which includes 

2 such an arrangement shall be treated as a sin3 gle plan. 

4 ‘‘(ii) Any pension plan which provides benefits other 

5 than benefits described in paragraph (34) and which in6 cludes a qualified cash or deferred arrangement—

7 ‘‘(I) for purposes of section 202, shall be treat8 ed as an individual account plan or a defined con9 tribution plan; 

10 ‘‘(II) for purposes of section 203, shall be treat11 ed as an individual account plan or defined contribu12 tion plan to the extent benefits are attributable to 

13 such arrangement and as a defined benefit plan with 

14 respect to the remaining portion of benefits under 

15 the plan, and 

16 ‘‘(III) for purposes of sections 406, 407, and 

17 408, shall, in any case in which the arrangement (if 

18 treated as a separate plan) would be an eligible indi19 vidual account plan (as defined in section 

20 407(d)(3)), be treated as an individual account plan 

21 or defined contribution plan with respect to assets 

22 attributable to such arrangement and as a defined 

23 benefit plan with respect to the remaining assets of 

24 the plan, and shall, in any other case, be treated as 

25 a single defined benefit plan.’’. 
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1 (c) VALUATION OF BENEFITS ATTRIBUTABLE TO

2 SEPARATE ACCOUNTS.—

3 (1) RESTRICTIONS ON IMMEDIATE DISTRIBU4 TION.—Section 203(e) of such Act (29 U.S.C. 

5 1053(e)) is amended by adding at the end the fol6 lowing new paragraph: 

7 ‘‘(5) In the case of a defined benefit plan which pro8 vides a benefit derived from employer contributions (in9 cluding elective deferrals (as defined in section 402(g)(3) 

10 of the Internal Revenue Code of 1986)) under a qualified 

11 cash or deferred arrangement which is maintained under 

12 such plan, for purposes of this subsection, the present 

13 value of the portion of the benefit attributable to such ar14 rangement shall be deemed to be an amount equal to the 

15 fair market value of such arrangement.’’. 

16 (2) SURVIVOR BENEFITS.—Section 205 of such 

17 Act (29 U.S.C. 1055) is amended—

18 (A) by redesignating subsection (l) as sub19 section (m); and 

20 (B) by inserting after subsection (k) the 

21 following new subsection: 

22 ‘‘(l) In the case of a defined benefit plan which pro23 vides a benefit derived from employer contributions (in24 cluding elective deferrals (as defined in section 402(g)(3) 

25 of the Internal Revenue Code of 1986)) under a qualified 
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1 cash or deferred arrangement which is maintained under 

2 such plan, for purposes of this section, the present value 

3 of the portion of the benefit attributable to such arrange4 ment shall be deemed to be an amount equal to the fair 

5 market value of such arrangement.’’. 

6 (d) ALLOWABLE REDUCTIONS IN RATE OF BENEFIT

7 ACCRUAL.—Section 204(h) of such Act (29 U.S.C. 

8 1054(h)) is amended by adding at the end the following 

9 new paragraph: 

10 ‘‘(10) A plan shall not be treated as failing to meet 

11 the requirements of this subsection merely because of a 

12 reduction in, or elimination of, any contributions to a 

13 qualified cash or deferred arrangement which is part of 

14 such plan.’’. 

15 (e) APPLICATION OF MINIMUM FUNDING STAND16 ARD.—

17 (1) EXCEPTION FROM STANDARD.—Section 

18 301(a) of such Act (29 U.S.C. 1081(a)) is amended 

19 by adding at the end the following new paragraph: 

20 ‘‘(11) any qualified cash or deferred arrange21 ment which is part of a defined benefit plan.’’. 

22 (2) CONTINUED APPLICATION OF STANDARD TO

23 OTHER PORTION OF DEFINED BENEFIT PLAN.—Sec24 tion 302(c) of such Act (29 U.S.C. 1082(c)) is 
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1 amended by adding at the end the following new 

2 paragraph: 

3 ‘‘(13) CONTINUED APPLICATION OF STANDARD

4 TO OTHER PORTION OF DEFINED BENEFIT PLAN.—

5 This section shall be applied to a defined benefit 

6 plan by disregarding the value of the trust attrib7 utable to any qualified cash or deferred arrange8 ment.’’. 

9 (f) VESTING REQUIREMENTS.—Section 203(a)(3) of 

10 such Act (29 U.S.C. 1053(a)(3)(F)) is amended by adding 

11 at the end the following new subparagraph: 

12 ‘‘(G) FASTER VESTING FOR ACCRUALS UNDER

13 DEFINED BENEFIT PLANS WITH CASH OR DEFERRED

14 ARRANGEMENTS.—In the case of a defined benefit 

15 plan which includes a qualified cash or deferred ar16 rangement, the rules described in subparagraph (F) 

17 shall be applied to benefit accruals under such plan 

18 and to matching contributions and nonelective con19 tributions made under such arrangement.’’

20 (g) APPLICATION OF ACCRUAL RULES WITH RE21 GARD TO QUALIFIED MATCHING ACCRUALS.—Section 

22 204(b)(1) of such Act (29 U.S.C. 1054(b)(1)) is amended 

23 by adding at the end the following new subparagraph: 

24 ‘‘(I) In the case of qualified matching accruals (as 

25 defined in section 401(m)(12) of the Internal Revenue 
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1 Code of 1986), the requirements for accrued benefits set 

2 forth in subparagraphs (A) through (H) of this paragraph 

3 shall be applied on the basis of the rate of such qualified 

4 matching accruals available to participants, without re5 gard to the actual elective deferrals made by partici6 pants.’’. 

7 (h) MULTIPLE ACCRUAL FORMULAS.—Section 

8 204(b)(1) of such Act (as amended by subsection (g)) is 

9 further amended by adding at the end the following new 

10 subparagraph: 

11 ‘‘(J)(i) If a defined benefit plan contains multiple ac12 crual formulas, the requirements of this paragraph may 

13 be satisfied separately for each formula. 

14 ‘‘(ii) For purposes of this subparagraph, a plan has 

15 multiple accrual formulas if a participant’s accrued benefit 

16 is determined either as the greater of the benefit deter17 mined under two or more separate formulas or as the sum 

18 of the benefit determined under two or more separate for19 mulas. 

20 ‘‘(iii) For purposes of clause (i), the benefit formulas 

21 described in section 401(k)(12)(D) and section 

22 401(m)(12) of the Internal Revenue Code of 1986 shall 

23 be treated as separate from the minimum benefit formula 

24 described in section 416(c)(1) of such Code.’’. 
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1 (i) FORFEITURES BY REASON OF EXCESS DEFER2 RAL.—Subparagraph (F) of section 203(a)(3) of such Act 

3 (29 U.S.C. 1053(a)(3)(F)) is amended by adding at the 

4 end the following: ‘‘A rule similar to the rule of the pre5 ceding sentence shall apply with respect to qualified 

6 matching accruals (as defined in section 401(m)(12) of the 

7 Internal Revenue Code of 1986).’’

8 (j) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to plan years beginning after De10 cember 31, 2005. 

11 TITLE VI—ADDITIONAL 

12 AMENDMENTS 

13 SEC. 601. EXEMPTION FROM PROHIBITED TRANSACTION 

14 RULES FOR CERTAIN ABORTED EMERGENT 

15 TRANSACTIONS. 

16 (a) IN GENERAL.—Section 4975(c) of the Internal 

17 Revenue Code of 1986 is amended by adding at the end 

18 the following new paragraph: 

19 ‘‘(7) SPECIAL RULE FOR CERTAIN ABORTED

20 EMERGENT TRANSACTIONS.—

21 ‘‘(A) IN GENERAL.—Pursuant to regula22 tions issued by the Secretary, if—

23 ‘‘(i) in the case of a qualifying trans24 action between an employee benefit plan 

25 and an eligible person which would, but for 
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1 this paragraph, be in violation of a restric2 tion imposed by paragraph (1), the eligible 

3 person submits to the Secretary, not later 

4 than 60 days after the date of the trans5 action, an application for an exemption 

6 under paragraph (2) from such restriction 

7 in the case of such transaction, 

8 ‘‘(ii) the Secretary determines not to 

9 grant the exemption, and 

10 ‘‘(iii) the transaction is reversed with11 in 60 days after the date of the Secretary’s 

12 determination, 

13 then the transaction shall be exempted under 

14 paragraph (2) from treatment as a violation of 

15 such restriction. 

16 ‘‘(B) QUALIFYING TRANSACTION.—The 

17 term ‘qualifying transaction’ means, in connec18 tion with an eligible person, a transaction be19 tween an employee benefit plan and such eligi20 ble person constituting the purchase or sale of 

21 a financial product, if— 

22 ‘‘(i) prior to engaging in the trans23 action, the plan acquires from the eligible 

24 person a sufficient guarantee, consisting of 

25 a letter of credit or other form of written 
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1 guarantee, issued by a bank or similar fi2 nancial institution (other than the eligible 

3 person requesting the exemption or an af4 filiate) regulated and supervised by, and 

5 subject to periodic examination by, an 

6 agency of a State or of the Federal Gov7 ernment, in a stated amount equal, as of 

8 the close of business on the day preceding 

9 the transaction, to not less than 100 per10 cent of the amount of plan assets involved 

11 in the transaction, plus interest on that 

12 amount at a rate determined by the parties 

13 to the transaction, or in the absence of 

14 such determination, an interest rate equal 

15 to the underpayment rate defined in sec16 tion 6621(a)(2), 

17 ‘‘(ii) the eligible person receives in 

18 such transaction not more than reasonable 

19 compensation, 

20 ‘‘(iii) such transaction is expressly ap21 proved by an independent fiduciary who 

22 has investment authority with respect to 

23 the plan assets involved in the transaction, 

24 and 
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1 ‘‘(iv) immediately after the acquisition 

2 of the financial product—

3 ‘‘(I) the fair market value of such 

4 financial product does not exceed 1 

5 percent of the fair market value of the 

6 assets of the plan, and 

7 ‘‘(II) the aggregate fair market 

8 value of all outstanding financial 

9 products acquired by the plan from 

10 the eligible person pursuant to this 

11 subsection does not exceed 5 percent 

12 of the fair market value of the assets 

13 of the plan. 

14 ‘‘(C) SUFFICIENT GUARANTEE.—A guar15 antee referred to in subparagraph (B) is ‘suffi16 cient’ if such guarantee is irrevocable and, 

17 under the terms of the guarantee, if the Sec18 retary determines not to grant the exemption, 

19 the plan has the unconditional right to apply 

20 the amounts under the guarantee to any losses 

21 suffered and to the payment of interest deter22 mined under the terms of the transaction. A 

23 guarantee shall not be treated as failing to be 

24 ‘sufficient’ solely because, under the terms of 

25 the guarantee, if the Secretary grants the ex-
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1 emption, the guarantee may expire without any 

2 payments made to the plan. 

3 ‘‘(D) ELIGIBLE PERSON.—The term ‘eligi4 ble person’ means a person that—

5 ‘‘(i) consists of—

6 ‘‘(I) a bank as defined in section 

7 202(a)(2) of the Investment Advisers 

8 Act of 1940, 

9 ‘‘(II) an investment adviser reg10 istered under the Investment Advisers 

11 Act of 1940, 

12 ‘‘(III) an insurance company 

13 which is qualified to do business in 

14 more than one State, or 

15 ‘‘(IV) a broker-dealer registered 

16 under the Securities Exchange Act of 

17 1934, 

18 ‘‘(ii) has shareholders’ or partners’ eq19 uity in excess of $1,000,000, and 

20 ‘‘(iii) is not described in section 411 

21 of the Employee Retirement Income Secu22 rity Act of 1974 (29 U.S.C. 1111).’’. 

23 (b) EFFECTIVE DATE.—The amendment made by 

24 this section shall apply with respect to transactions occur25 ring after December 31, 2005. 
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1 SEC. 602. LOANS FROM RETIREMENT PLANS FOR HEALTH 

2 INSURANCE AND JOB TRAINING EXPENSES. 

3 (a) QUALIFICATION REQUIREMENT FOR PENSION

4 PLANS.—Paragraph (13) of section 401(a) of the Internal 

5 Revenue Code of 1986 (relating to assignment and alien6 ation) is amended by adding at the end the following new 

7 subparagraph: 

8 ‘‘(E) LOANS FROM RETIREMENT PLANS

9 FOR HEALTH INSURANCE AND JOB TRAINING

10 EXPENSES.—Notwithstanding subparagraph 

11 (A), a trust shall not constitute a qualified 

12 trust under this section unless the plan of 

13 which such trust is a part provides that a par14 ticipant or beneficiary who is involuntarily sepa15 rated from employment may, on the date of 

16 such separation, obtain a loan from the plan 

17 the proceeds of which are to be used within 6 

18 months after the date of such loan—

19 ‘‘(i) for payments for insurance which 

20 constitutes medical care for the taxpayer 

21 and the taxpayer’s spouse and dependents, 

22 or 

23 ‘‘(ii) for job training expenses.’’. 

24 (b) PROHIBITED TRANSACTION EXEMPTION.—Sec25 tion 4975(d) of such Code (relating to exemptions from 

26 tax on prohibited transactions) is amended by striking 
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1 ‘‘or’’ at the end of paragraph (14), by striking the period 

2 at the end of paragraph (15) and inserting ‘‘; or’’, and 

3 by inserting after paragraph (15) the following new para4 graph: 

5 ‘‘(16) any loan—

6 ‘‘(A) from an individual retirement plan 

7 for the payment of health insurance premiums 

8 or job training expenses that is a qualified loan 

9 (as defined in section 408 of the Employee Re10 tirement Income Security Act of 1974), or 

11 ‘‘(B) made by the plan to a disqualified 

12 person who is a participant or beneficiary of the 

13 plan if such loan—

14 ‘‘(i) is for the payment of health in15 surance premiums or job training ex16 penses, and 

17 ‘‘(ii) meets the requirements of sec18 tion 401(a)(13)(E).’’. 

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

20 this section shall apply to loans made after the effective 

21 date specified in section 501. 

22 SEC. 603. TREATMENT OF UNCLAIMED BENEFITS. 

23 (a) IN GENERAL.—Section 401(a)(34) of the Internal 

24 Revenue Code of 1986 (relating to benefits of missing par25 ticipants) is amended to read as follows: 
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1 ‘‘(34) UNCLAIMED BENEFITS.—A trust forming 

2 part of a plan shall not be treated as failing to con3 stitute a qualified trust under this section merely be4 cause the plan of which such trust is a part treats 

5 unclaimed benefits in a manner that satisfies the re6 quirements of section 414(w).’’. 

7 (b) REQUIREMENTS.—Section 414 of such Code (re8 lating to definitions and special rules) is amended by add9 ing at the end the following new subsection: 

10 ‘‘(w) UNCLAIMED BENEFITS.—

11 ‘‘(1) IN GENERAL.—A plan meets the require12 ments of this subsection only if—

13 ‘‘(A) ONGOING PLANS.—In the case of an 

14 ongoing plan, the plan provides for one or more 

15 of the following with respect to unclaimed bene16 fits: 

17 ‘‘(i) In the case of an unclaimed ben18 efit to which section 401(a)(31)(B) applies, 

19 a transfer under section 401(a)(31)(B). 

20 ‘‘(ii) A transfer to the Pension Benefit 

21 Guaranty Corporation, in accordance with 

22 section 4050(e) of the Employee Retire23 ment Income Security Act of 1974. 

24 ‘‘(iii) Any other treatment permitted 

25 under rules prescribed by the Secretary. 
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1 ‘‘(B) TERMINATED PLANS.—In the case of 

2 a terminated plan, the plan provides for the fol3 lowing with respect to unclaimed benefits: 

4 ‘‘(i) DEFINED BENEFIT PLANS.—In 

5 the case of a defined benefit plan, one or 

6 more of the following: 

7 ‘‘(I) In the case of an unclaimed 

8 benefit to which section 401(a)(31)(B) 

9 applies, a transfer under section 

10 401(a)(31)(B). 

11 ‘‘(II) A transfer of the unclaimed 

12 benefit to another defined benefit plan 

13 maintained by the employer. 

14 ‘‘(III) The purchase of an annu15 ity contract to provide for an individ16 ual’s unclaimed benefit. 

17 ‘‘(IV) A transfer to the Pension 

18 Benefit Guaranty Corporation in ac19 cordance with section 4050(a) or 

20 4050(e) (as applicable) of the Em21 ployee Retirement Income Security 

22 Act of 1974. 

23 ‘‘(V) Any other treatment per24 mitted under rules prescribed by the 

25 Secretary. 
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1 ‘‘(ii) DEFINED CONTRIBUTION

2 PLANS.—In the case of a defined contribu3 tion plan, one or more of the following: 

4 ‘‘(I) In the case of an unclaimed 

5 benefit to which section 401(a)(31)(B) 

6 applies, a transfer under section 

7 401(a)(31)(B). 

8 ‘‘(II) A transfer of the unclaimed 

9 benefit to another defined contribution 

10 plan maintained by the employer. 

11 ‘‘(III) The purchase of an annu12 ity contract to provide for an individ13 ual’s unclaimed benefit. 

14 ‘‘(IV) A transfer to the Pension 

15 Benefit Guaranty Corporation in ac16 cordance with section 4050(d) or 

17 4050(e) (as applicable) of the Em18 ployee Retirement Income Security 

19 Act of 1974. 

20 ‘‘(V) Any other treatment per21 mitted under rules prescribed by the 

22 Secretary. 

23 ‘‘(2) TREATMENT OF TRANSFERS TO PENSION

24 BENEFIT GUARANTY CORPORATION.—
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1 ‘‘(A) TRANSFERS TO PBGC.—Amounts 

2 transferred from a plan to the Pension Benefit 

3 Guaranty Corporation pursuant to paragraph 

4 (1) shall be treated as a transfer under section 

5 401(a)(31)(A). 

6 ‘‘(B) DISTRIBUTIONS FROM PBGC.—Ex7 cept as provided in rules prescribed by the Sec8 retary, amounts distributed by the Pension 

9 Benefit Guaranty Corporation shall be treated 

10 as distributed by an individual retirement plan 

11 under section 408(d) (without regard to para12 graphs (4), (5) and (7) thereof). Rules similar 

13 to the rules of section 402(c)(4) shall apply. 

14 ‘‘(3) DEFINITIONS.—For purposes of this sub15 section—

16 ‘‘(A) UNCLAIMED BENEFIT.—The term 

17 ‘unclaimed benefit’ means—

18 ‘‘(i) any benefit of a participant or 

19 beneficiary which is distributable under the 

20 terms of the plan to the participant or ben21 eficiary, if the distribution of the benefit 

22 has not commenced within 1 year after the 

23 later of the date on which the benefit first 

24 became so distributable or the participant’s 

25 severance from employment; 
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1 ‘‘(ii) any benefit or other amount of a 

2 participant or beneficiary which is distrib3 utable under the terms of the plan with re4 spect to a missing participant, or 

5 ‘‘(iii) any benefit to which section 

6 401(a)(31)(B) applies or would apply if 

7 subclause (I) of section 401(a)(31)(B)(i) 

8 did not require the distribution to exceed 

9 $1,000. 

10 A benefit otherwise described in clause (i) shall 

11 not be treated as an unclaimed benefit under 

12 clause (i) if the participant or beneficiary elects 

13 not to have such treatment apply. Any such 

14 participant or beneficiary shall be given reason15 able notice of the opportunity to make such an 

16 election. If the participant or beneficiary fails to 

17 make such an election within a reasonable pe18 riod specified in the notice, any subsequent elec19 tion shall not be given effect and the benefit 

20 shall be treated as an unclaimed benefit. A no21 tice mailed to the last known address of the 

22 participant or beneficiary shall be treated as a 

23 notice to the participant or beneficiary for pur24 poses of this paragraph. 
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1 ‘‘(B) ONGOING PLAN.—The term ‘ongoing 

2 plan’ means any plan which has neither termi3 nated nor is in the process of terminating. 

4 ‘‘(C) TERMINATED PLAN.—The term ‘ter5 minated plan’ means any plan which has termi6 nated or is in the process of terminating. 

7 ‘‘(D) MISSING PARTICIPANT.—The term 

8 ‘missing participant’ shall have the meaning 

9 given to such term by section 4050(b)(1) of the 

10 Employee Retirement Income Security Act of 

11 1974.’’. 

12 (c) CONFORMING AMENDMENT.—Subparagraph (B) 

13 of section 401(a)(31) of such Code is amended by adding 

14 at the end the following: 

15 ‘‘(iii) OTHER PERMITTED TRANS16 FERS.—A plan administrator shall be 

17 treated as having complied with the re18 quirements of this subparagraph if such 

19 plan administrator complies with the re20 quirements of section 414(w).’’. 

21 SEC. 604. INCOME AVERAGING OF CORRECTED CIVIL SERV22 ICE ANNUITY BENEFIT PAYMENTS. 

23 (a) IN GENERAL.—Part I of subchapter Q of chapter 

24 1 of the Internal Revenue Code of 1986 (relating to in-
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1 come averaging) is amended by inserting after section 

2 1301 the following new section: 

3 ‘‘SEC. 1302. AVERAGING OF CORRECTED CIVIL SERVICE AN4 NUITY BENEFIT PAYMENTS. 

5 ‘‘(a) IN GENERAL.—Unless the taxpayer elects not 

6 to have this section apply for a taxable year, any corrected 

7 civil service annuity benefit payment includable in gross 

8 income for such taxable year (without regard to this sec9 tion) shall be so included ratably over the 5-taxable year 

10 period beginning with such taxable year. 

11 ‘‘(b) CORRECTED CIVIL SERVICE ANNUITY BENEFIT

12 PAYMENT.—For purposes of subsection (a), the term ‘cor13 rected civil service annuity benefit payment’ means with 

14 respect to an individual the sum of—

15 ‘‘(1) the lump sum payment awarded by reason 

16 of a court order, or decision of the Merit Systems 

17 Protection Board, under which the individual is enti18 tled to receive an amount equal to all or any part 

19 of an annuity not paid to the individual as a result 

20 of an erroneous application or interpretation of sub21 chapter III of chapter 83 or chapter 84 of title 5, 

22 United States Code, or any other provision of law 

23 (or any rule or regulation relating thereto), plus 
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1 ‘‘(2) interest on the amount described in para2 graph (1) awarded under section 7704 of title 5, 

3 United States Code. 

4 ‘‘(c) ANNUITY.—For purposes of subsection (b), the 

5 term ‘annuity’ has the meaning given to such term by sec6 tion 7704(c) of title 5, United States Code. 

7 ‘‘(d) FINALITY OF ELECTION.—An election under 

8 subsection (a) with respect to a corrected civil service an9 nuity benefit payment for a taxable year may not be 

10 changed after the due date of the return for such taxable 

11 year.’’. 

12 (b) CLERICAL AMENDMENT.—The table of sections 

13 for part I of subchapter Q of chapter 1 of such Code is 

14 amended by inserting after the item relating to section 

15 1301 the following new item:

‘‘Sec. 1302. Averaging of corrected civil service annuity benefit payments.’’.

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

17 this section shall apply to payments received after Decem18 ber 31, 2004. 

19 SEC. 605. PROHIBITED TRANSACTION EXEMPTION FOR THE 

20 PROVISION OF INVESTMENT ADVICE. 

21 (a) PROHIBITED TRANSACTION EXEMPTION.—Sub22 section (d) of section 4975 of the Internal Revenue Code 

23 of 1986 (relating to exemptions from tax on prohibited 

24 transactions), as amended by this Act, is further amend25 ed—
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1 (1) in paragraph (15), by striking ‘‘or’’ at the 

2 end, 

3 (2) in paragraph (16), by striking the period at 

4 the end and inserting ‘‘; or’’, and 

5 (3) by adding at the end the following new 

6 paragraph: 

7 ‘‘(17) any transaction described in subsection 

8 (f)(7)(A) in connection with the provision of invest9 ment advice described in subsection (e)(3)(B), in 

10 any case in which—

11 ‘‘(A) the plan provides for individual ac12 counts and permits a participant or beneficiary 

13 to exercise control over assets in his or her ac14 count, 

15 ‘‘(B) the advice is qualified investment ad16 vice provided to a participant or beneficiary of 

17 the plan by a fiduciary adviser in connection 

18 with any sale, acquisition, or holding of a secu19 rity or other property for purposes of invest20 ment of plan assets, and 

21 ‘‘(C) the requirements of subsection 

22 (f)(7)(B) are met in connection with each in23 stance of the provision of the advice.’’. 

24 (b) TRANSACTIONS ALLOWED AND RELATED RE25 QUIREMENTS.—Subsection (f) of such section 4975 (relat-
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1 ing to other definitions and special rules) is amended by 

2 adding at the end the following new paragraph: 

3 ‘‘(7) INVESTMENT ADVICE PROVIDED BY FIDU4 CIARY ADVISERS.—

5 ‘‘(A) ALLOWABLE TRANSACTIONS.—The 

6 transactions referred to in subsection (d)(16), 

7 in connection with the provision of investment 

8 advice by a fiduciary adviser, are the following: 

9 ‘‘(i) the provision of the advice to the 

10 participant or beneficiary, 

11 ‘‘(ii) the sale, acquisition, or holding 

12 of a security or other property (including 

13 any lending of money or other extension of 

14 credit associated with the sale, acquisition, 

15 or holding of a security or other property) 

16 pursuant to the advice, and 

17 ‘‘(iii) the direct or indirect receipt of 

18 fees or other compensation by the fiduciary 

19 adviser or an affiliate thereof (or any em20 ployee, agent, or registered representative 

21 of the fiduciary adviser or affiliate) in con22 nection with the provision of the advice. 

23 ‘‘(B) REQUIREMENTS FOR EXEMPTION

24 FROM PROHIBITED TRANSACTIONS WITH RE25 SPECT TO PROVISION OF INVESTMENT AD-
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1 VICE.—The requirements of this subparagraph 

2 (referred to in subsection (d)(16)(C)) are met 

3 in connection with the provision of qualified in4 vestment advice provided to a participant or 

5 beneficiary of an employee benefit plan by a fi6 duciary adviser with respect to the plan in con7 nection with any sale, acquisition, or holding of 

8 a security or other property for purposes of in9 vestment of amounts held by the plan, if the re10 quirements of the following clauses are met: 

11 ‘‘(i) WRITTEN DISCLOSURES.—At a 

12 time contemporaneous with the provision 

13 of the advice in connection with the sale, 

14 acquisition, or holding of the security or 

15 other property, the fiduciary adviser shall 

16 provide to the recipient of the advice a 

17 clear and conspicuous notification, written 

18 in a manner to be reasonably understood 

19 by the average plan participant pursuant 

20 to regulations which shall be prescribed by 

21 the Secretary (including mathematical ex22 amples), of the following: 

23 ‘‘(I) INTERESTS HELD BY THE

24 FIDUCIARY ADVISER.—Any interest of 

25 the fiduciary adviser in, or any affili-
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1 ation or contractual relationship of 

2 the fiduciary adviser (or affiliates 

3 thereof) with any third party having 

4 an interest in, the security or other 

5 property. 

6 ‘‘(II) RELATED FEES OR COM7 PENSATION IN CONNECTION WITH

8 THE PROVISION OF THE ADVICE.—All 

9 fees or other compensation relating to 

10 the advice (including fees or other 

11 compensation itemized with respect to 

12 each security or other property with 

13 respect to which the advice is pro14 vided) that the fiduciary adviser (or 

15 any affiliate thereof) is to receive (in16 cluding compensation provided by any 

17 third party) in connection with the 

18 provision of the advice or in connec19 tion with the sale, acquisition, or hold20 ing of the security or other property. 

21 ‘‘(III) ONGOING FEES OR COM22 PENSATION IN CONNECTION WITH

23 THE SECURITY OR PROPERTY IN24 VOLVED.—All fees or other compensa25 tion that the fiduciary adviser (or any 
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1 affiliate thereof) is to receive, on an 

2 ongoing basis, in connection with any 

3 security or other property with respect 

4 to which the fiduciary adviser gives 

5 the advice. 

6 ‘‘(IV) APPLICABLE LIMITATIONS

7 ON SCOPE OF ADVICE.—Any limita8 tion placed (in accordance with the re9 quirements of this subsection) on the 

10 scope of the advice to be provided by 

11 the fiduciary adviser with respect to 

12 the sale, acquisition, or holding of the 

13 security or other property. 

14 ‘‘(V) TYPES OF SERVICES GEN15 ERALLY OFFERED.—The types of 

16 services offered by the fiduciary ad17 viser in connection with the provision 

18 of qualified investment advice by the 

19 fiduciary adviser. 

20 ‘‘(VI) FIDUCIARY STATUS OF

21 THE FIDUCIARY ADVISER.—That the 

22 fiduciary advisor is a fiduciary of the 

23 plan. 

24 ‘‘(ii) DISCLOSURE BY FIDUCIARY AD25 VISER IN ACCORDANCE WITH APPLICABLE
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1 SECURITIES LAWS.—The fiduciary adviser 

2 shall provide appropriate disclosure, in 

3 connection with the sale, acquisition, or 

4 holding of the security or other property, 

5 in accordance with all applicable securities 

6 laws. 

7 ‘‘(iii) TRANSACTION OCCURRING SOLE8 LY AT DIRECTION OF RECIPIENT OF AD9 VICE.—The sale, acquisition, or holding of 

10 the security or other property shall occur 

11 solely at the direction of the recipient of 

12 the advice. 

13 ‘‘(iv) REASONABLE COMPENSATION.—

14 The compensation received by the fiduciary 

15 adviser and affiliates thereof in connection 

16 with the sale, acquisition, or holding of the 

17 security or other property shall be reason18 able. 

19 ‘‘(v) ARM’S LENGTH TRANSACTION.—

20 The terms of the sale, acquisition, or hold21 ing of the security or other property shall 

22 be at least as favorable to the plan as an 

23 arm’s length transaction would be. 

24 ‘‘(C) CONTINUED AVAILABILITY OF INFOR25 MATION FOR AT LEAST 1 YEAR.—The require-
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1 ments of subparagraph (B)(i) shall be deemed 

2 not to have been met in connection with the ini3 tial or any subsequent provision of advice de4 scribed in subparagraph (B) if, at any time 

5 during the 1-year period following the provision 

6 of the advice, the fiduciary adviser fails to 

7 maintain the information described in sub8 clauses (I) through (IV) of subparagraph (B)(i) 

9 in currently accurate form or to make the infor10 mation available, upon request and without 

11 charge, to the recipient of the advice. 

12 ‘‘(D) EVIDENCE OF COMPLIANCE MAIN13 TAINED FOR AT LEAST 6 YEARS.—A fiduciary 

14 adviser referred to in subparagraph (B) who 

15 has provided advice referred to in such subpara16 graph shall, for a period of not less than 6 

17 years after the provision of the advice, maintain 

18 any records necessary for determining whether 

19 the requirements of the preceding provisions of 

20 this paragraph and of subsection (d)(16) have 

21 been met. A transaction prohibited under sub22 section (c)(1) shall not be considered to have 

23 occurred solely because the records are lost or 

24 destroyed prior to the end of the 6-year period 
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1 due to circumstances beyond the control of the 

2 fiduciary adviser. 

3 ‘‘(E) MODEL DISCLOSURE FORMS.—The 

4 Secretary shall prescribe regulations setting 

5 forth model disclosure forms to assist fiduciary 

6 advisers in complying with the disclosure re7 quirements of under this paragraph. 

8 ‘‘(F) ANNUAL REVIEWS BY THE SEC9 RETARY.—The Secretary shall conduct annual 

10 reviews of randomly selected fiduciary advisers 

11 providing qualified investment advice to partici12 pants and beneficiaries. In the case of each re13 view, the Secretary shall review the following: 

14 ‘‘(i) COMPLIANCE BY ADVICE COM15 PUTER MODELS WITH GENERALLY ACCEPT16 ED INVESTMENT MANAGEMENT PRIN17 CIPLES.—The extent to which advice com18 puter models employed by the fiduciary ad19 viser comply with generally accepted in20 vestment management principles. 

21 ‘‘(ii) COMPLIANCE WITH DISCLOSURE

22 REQUIREMENTS.—The extent to which dis23 closures provided by the fiduciary adviser 

24 have complied with the requirements of 

25 this subsection. 
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1 ‘‘(iii) EXTENT OF VIOLATIONS.—The 

2 extent to which any violations of fiduciary 

3 duties have occurred in connection with the 

4 provision of the advice. 

5 ‘‘(iv) EXTENT OF REPORTED COM6 PLAINTS.—The extent to which complaints 

7 to relevant agencies have been made in 

8 connection with the provision of the advice. 

9 Any proprietary information obtained by the 

10 Secretary shall be treated as confidential. 

11 ‘‘(G) DUTY OF CONFLICTED FIDUCIARY

12 ADVISER TO PROVIDE FOR ALTERNATIVE INDE13 PENDENT ADVICE.—

14 ‘‘(i) IN GENERAL.—In connection with 

15 any qualified investment advice provided 

16 by a fiduciary adviser to a participant or 

17 beneficiary regarding any security or other 

18 property, if the fiduciary adviser—

19 ‘‘(I) has an interest in the secu20 rity or other property, or 

21 ‘‘(II) has an affiliation or con22 tractual relationship with any third 

23 party that has an interest in the secu24 rity or other property, 
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1 the requirements of subparagraph (B) 

2 shall be treated as not met in connection 

3 with the advice unless the fiduciary adviser 

4 has arranged, as an alternative to the ad5 vice that would otherwise be provided by 

6 the fiduciary advisor, for qualified invest7 ment advice with respect to the security or 

8 other property provided by at least one al9 ternative investment adviser meeting the 

10 requirements of clause (ii). 

11 ‘‘(ii) INDEPENDENCE AND QUALIFICA12 TIONS OF ALTERNATIVE INVESTMENT AD13 VISER.—Any alternative investment adviser 

14 whose qualified investment advice is ar15 ranged for by a fiduciary adviser pursuant 

16 to clause (i)—

17 ‘‘(I) shall have no material inter18 est in, and no material affiliation or 

19 contractual relationship with any third 

20 party having a material interest in, 

21 the security or other property with re22 spect to which the investment adviser 

23 is providing the advice, and 

24 ‘‘(II) shall meet the requirements 

25 of a fiduciary adviser under subpara-
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1 graph (H)(i), except that an alter2 native investment adviser may not be 

3 a fiduciary of the plan other than in 

4 connection with the provision of the 

5 advice. 

6 ‘‘(iii) SCOPE AND FEES OF ALTER7 NATIVE INVESTMENT ADVICE.—Any quali8 fied investment advice provided pursuant 

9 to this subparagraph by an alternative in10 vestment adviser shall be of the same type 

11 and scope, and provided under the same 

12 terms and conditions (including no addi13 tional charge to the participant or bene14 ficiary), as apply with respect to the quali15 fied investment advice to be provided by 

16 the fiduciary adviser. 

17 ‘‘(H) FIDUCIARY ADVISER DEFINED.—For 

18 purposes of this paragraph and subsection 

19 (d)(16)—

20 ‘‘(i) IN GENERAL.—The term ‘fidu21 ciary adviser’ means, with respect to a 

22 plan, a person who—

23 ‘‘(I) is a fiduciary of the plan by 

24 reason of the provision of qualified in-
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1 vestment advice by such person to a 

2 participant or beneficiary, 

3 ‘‘(II) meets the qualifications of 

4 clause (ii), and 

5 ‘‘(III) meets the additional re6 quirements of clause (iii). 

7 ‘‘(ii) QUALIFICATIONS.—A person 

8 meets the qualifications of this clause if 

9 such person—

10 ‘‘(I) is registered as an invest11 ment adviser under the Investment 

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

13 1 et seq.), 

14 ‘‘(II) if not registered as an in15 vestment adviser under such Act by 

16 reason of section 203A(a)(1) of such 

17 Act (15 U.S.C. 80b–3a(a)(1)), is reg18 istered under the laws of the State in 

19 which the fiduciary maintains its prin20 cipal office and place of business, and, 

21 at the time the fiduciary last filed the 

22 registration form most recently filed 

23 by the fiduciary with such State in 

24 order to maintain the fiduciary’s reg25 istration under the laws of such State, 
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1 also filed a copy of such form with the 

2 Secretary, 

3 ‘‘(III) is registered as a broker or 

4 dealer under the Securities Exchange 

5 Act of 1934 (15 U.S.C. 78a et seq.), 

6 ‘‘(IV) is a bank or similar finan7 cial institution referred to in sub8 section (d)(4), 

9 ‘‘(V) is an insurance company 

10 qualified to do business under the 

11 laws of a State, or 

12 ‘‘(VI) is any other comparable 

13 entity which satisfies such criteria as 

14 the Secretary determines appropriate. 

15 ‘‘(iii) ADDITIONAL REQUIREMENTS

16 WITH RESPECT TO CERTAIN EMPLOYEES

17 OR OTHER AGENTS OF CERTAIN ADVIS18 ERS.—A person meets the additional re19 quirements of this clause if every indi20 vidual who is employed (or otherwise com21 pensated) by such person and whose scope 

22 of duties includes the provision of qualified 

23 investment advice on behalf of such person 

24 to any participant or beneficiary is—
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1 ‘‘(I) a registered representative of 

2 such person, 

3 ‘‘(II) an individual described in 

4 subclause (I), (II), or (III) of clause 

5 (ii), or 

6 ‘‘(III) such other comparable 

7 qualified individual as may be des8 ignated in regulations of the Sec9 retary. 

10 ‘‘(I) ADDITIONAL DEFINITIONS.—For pur11 poses of this paragraph and subsection 

12 (d)(16)—

13 ‘‘(i) QUALIFIED INVESTMENT AD14 VICE.—The term ‘qualified investment ad15 vice’ means, in connection with a partici16 pant or beneficiary, investment advice re17 ferred to in subsection (e)(3)(B) which—

18 ‘‘(I) consists of an individualized 

19 recommendation to the participant or 

20 beneficiary with respect to the pur21 chase, sale, or retention of securities 

22 or other property for the individual 

23 account of the participant or bene24 ficiary, in accordance with generally 
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1 accepted investment management 

2 principles, and 

3 ‘‘(II) takes into account all in4 vestment options under the plan. 

5 ‘‘(ii) AFFILIATE.—The term ‘affiliate’ 

6 of another entity means an affiliated per7 son of such entity (as defined in section 

8 2(a)(3) of the Investment Company Act of 

9 1940 (15 U.S.C. 80a–2(a)(3))). 

10 ‘‘(iii) REGISTERED REPRESENTA11 TIVE.—The term ‘registered representa12 tive’ of another entity means a person de13 scribed in section 3(a)(18) of the Securi14 ties Exchange Act of 1934 (15 U.S.C. 

15 78c(a)(18)) (substituting such entity for 

16 the broker or dealer referred to in such 

17 section) or a person described in section 

18 202(a)(17) of the Investment Advisers Act 

19 of 1940 (15 U.S.C. 80b–2(a)(17)) (sub20 stituting such entity for the investment ad21 viser referred to in such section).’’. 

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

23 this section shall apply with respect to advice referred to 

24 in section 4975(e)(3)(B) of the Internal Revenue Code of 

25 1986 provided on or after January 1, 2005. 
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1 SEC. 606. INCREASE IN DEDUCTIBLE CONTRIBUTIONS TO 

2 SINGLE-EMPLOYER DEFINED BENEFIT PLAN 

3 UPON PAYMENT OF INCREASED PREMIUM TO 

4 THE PENSION BENEFIT GUARANTY COR5 PORATION. 

6 (a) INCREASE IN DEDUCTIBLE CONTRIBUTIONS.—

7 Paragraph (1) of section 404(a) of the Internal Revenue 

8 Code of 1986 (relating to deduction for contributions to 

9 pension trusts) is amended—

10 (1) by redesignating subparagraph (E) as sub11 paragraph (F); and 

12 (2) by inserting after subparagraph (D) the fol13 lowing new subparagraph: 

14 ‘‘(E) SPECIAL RULE IN THE EVENT OF

15 PAYMENT OF INCREASED PBGC PREMIUM WITH

16 RESPECT TO SINGLE-EMPLOYER DEFINED BEN17 EFIT PLAN.—In any case in which the Sec18 retary—

19 ‘‘(i) receives certification by the plan 

20 administrator of a single-employer defined 

21 benefit plan that the increased premium 

22 authorized under section 4006(a)(3)(F) of 

23 the Employee Retirement Income Security 

24 Act of 1974 has been paid for any plan 

25 year, and 
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1 ‘‘(ii) receives certification of such pay2 ment from the Pension Benefit Guaranty 

3 Corporation, 

4 the maximum amount deductible under the lim5 itations of this paragraph for such plan year 

6 shall not be less than 150 percent of current li7 ability determined under section 412(l).’’. 

8 (b) ELECTION OF PAYMENT OF INCREASED PRE9 MIUM.—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) The corporation shall provide for payment of the 

14 premium for any plan year for basic benefits guaranteed 

15 under this title with respect to a single-employer plan for 

16 any plan year at an increased annual rate equal to $24.70 

17 in any case in which such payment is accompanied by cer18 tification by the contributing sponsor or plan adminis19 trator that such payment is made for purposes of in20 creased deductibility of contributions for such plan year 

21 under section 404(a)(1)(E) of the Internal Revenue Code 

22 of 1986. The Corporation shall promptly certify receipt 

23 of any premium at the increased annual rate provided for 

24 under this subparagraph to the Secretary of the Treas25 ury.’’. 
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1 SEC. 607. EXEMPTION FROM PROHIBITED TRANSACTION 

2 RULES FOR CERTAIN ABORTED EMERGENT 

3 TRANSACTIONS. 

4 (a) IN GENERAL.—Section 4975(c) of the Internal 

5 Revenue Code of 1986 is amended by adding at the end 

6 the following new paragraph: 

7 ‘‘(7) SPECIAL RULE FOR CERTAIN ABORTED

8 EMERGENT TRANSACTIONS.—

9 ‘‘(A) IN GENERAL.—Pursuant to regula10 tions issued by the Secretary, if—

11 ‘‘(i) in the case of a qualifying trans12 action between an employee benefit plan 

13 and an eligible person which would, but for 

14 this paragraph, be in violation of a restric15 tion imposed by paragraph (1), the eligible 

16 person submits to the Secretary, not later 

17 than 60 days after the date of the trans18 action, an application for an exemption 

19 under paragraph (2) from such restriction 

20 in the case of such transaction, 

21 ‘‘(ii) the Secretary determines not to 

22 grant the exemption, and 

23 ‘‘(iii) the transaction is reversed with24 in 60 days after the date of the Secretary’s 

25 determination, 
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1 then the transaction shall be exempted under 

2 paragraph (2) from treatment as a violation of 

3 such restriction. 

4 ‘‘(B) QUALIFYING TRANSACTION.—The 

5 term ‘qualifying transaction’ means, in connec6 tion with an eligible person, a transaction be7 tween an employee benefit plan and such eligi8 ble person constituting the purchase or sale of 

9 a financial product, if— 

10 ‘‘(i) prior to engaging in the trans11 action, the plan acquires from the eligible 

12 person a sufficient guarantee, consisting of 

13 a letter of credit or other form of written 

14 guarantee, issued by a bank or similar fi15 nancial institution (other than the eligible 

16 person requesting the exemption or an af17 filiate) regulated and supervised by, and 

18 subject to periodic examination by, an 

19 agency of a State or of the Federal Gov20 ernment, in a stated amount equal, as of 

21 the close of business on the day preceding 

22 the transaction, to not less than 100 per23 cent of the amount of plan assets involved 

24 in the transaction, plus interest on that 

25 amount at a rate determined by the parties 
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1 to the transaction, or in the absence of 

2 such determination, an interest rate equal 

3 to the underpayment rate defined in sec4 tion 6621(a)(2), 

5 ‘‘(ii) the eligible person receives in 

6 such transaction not more than reasonable 

7 compensation, 

8 ‘‘(iii) such transaction is expressly ap9 proved by an independent fiduciary who 

10 has investment authority with respect to 

11 the plan assets involved in the transaction, 

12 and 

13 ‘‘(iv) immediately after the acquisition 

14 of the financial product—

15 ‘‘(I) the fair market value of such 

16 financial product does not exceed 1 

17 percent of the fair market value of the 

18 assets of the plan, and 

19 ‘‘(II) the aggregate fair market 

20 value of all outstanding financial 

21 products acquired by the plan from 

22 the eligible person pursuant to this 

23 subsection does not exceed 5 percent 

24 of the fair market value of the assets 

25 of the plan. 
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1 ‘‘(C) SUFFICIENT GUARANTEE.—A guar2 antee referred to in subparagraph (B) is ‘suffi3 cient’ if such guarantee is irrevocable and, 

4 under the terms of the guarantee, if the Sec5 retary determines not to grant the exemption, 

6 the plan has the unconditional right to apply 

7 the amounts under the guarantee to any losses 

8 suffered and to the payment of interest deter9 mined under the terms of the transaction. A 

10 guarantee shall not be treated as failing to be 

11 ‘sufficient’ solely because, under the terms of 

12 the guarantee, if the Secretary grants the ex13 emption, the guarantee may expire without any 

14 payments made to the plan. 

15 ‘‘(D) ELIGIBLE PERSON.—The term ‘eligi16 ble person’ means a person that—

17 ‘‘(i) consists of—

18 ‘‘(I) a bank as defined in section 

19 202(a)(2) of the Investment Advisers 

20 Act of 1940, 

21 ‘‘(II) an investment adviser reg22 istered under the Investment Advisers 

23 Act of 1940, 
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1 ‘‘(III) an insurance company 

2 which is qualified to do business in 

3 more than one State, or 

4 ‘‘(IV) a broker-dealer registered 

5 under the Securities Exchange Act of 

6 1934, 

7 ‘‘(ii) has shareholders’ or partners’ eq8 uity in excess of $1,000,000, and 

9 ‘‘(iii) is not described in section 411 

10 of the Employee Retirement Income Secu11 rity Act of 1974 (29 U.S.C. 1111).’’. 

12 (b) EFFECTIVE DATE.—The amendment made by 

13 this section shall apply with respect to transactions occur14 ring after December 31, 2005. 

15 SEC. 608. PENSION BENEFIT INFORMATION. 

16 (a) IN GENERAL.—Chapter 43 of the Internal Rev17 enue Code of 1986 (relating to qualified pension, etc., 

18 plans) is amended by adding at the end the following new 

19 section: 

20 ‘‘SEC. 4980G. FAILURE OF APPLICABLE PLANS TO PROVIDE 

21 NOTICE OF GENERALLY ACCEPTED INVEST22 MENT PRINCIPLES. 

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

24 a tax on the failure of any applicable pension plan to meet 
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1 the requirements of subsection (e) with respect to any ap2 plicable individual. 

3 ‘‘(b) AMOUNT OF TAX.—The amount of the tax im4 posed by subsection (a) on any failure with respect to any 

5 applicable individual shall be $100 for each day in the 

6 noncompliance period with respect to such failure. 

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

8 ‘‘(1) 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 notice de16 scribed in subsection (e) during the 30-day pe17 riod beginning on the first date such person 

18 knew, or exercising reasonable diligence should 

19 have known, that such failure existed. 

20 ‘‘(2) 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) and paragraph (1) is 
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1 not otherwise applicable, the tax imposed by 

2 subsection (a) for failures during the taxable 

3 year of the employer (or, in the case of a multi4 employer plan, the taxable year of the trust 

5 forming part of the plan) shall not exceed 

6 $500,000. For purposes of the preceding sen7 tence, all multiemployer plans of which the 

8 same trust forms a part shall be treated as 1 

9 plan. 

10 ‘‘(B) TAXABLE YEARS IN THE CASE OF

11 CERTAIN CONTROLLED GROUPS.—For purposes 

12 of this paragraph, if all persons who are treated 

13 as a single employer for purposes of this section 

14 do not have the same taxable year, the taxable 

15 years taken into account shall be determined 

16 under principles similar to the principles of sec17 tion 1561. 

18 ‘‘(3) WAIVER BY SECRETARY.—In the case of a 

19 failure which is due to reasonable cause and not to 

20 willful neglect, the Secretary may waive part or all 

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

22 that the payment of such tax would be excessive or 

23 otherwise inequitable relative to the failure involved. 

24 ‘‘(d) LIABILITY FOR TAX.—The following shall be lia25 ble for the tax imposed by subsection (a): 
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1 ‘‘(1) In the case of a plan other than a multi2 employer plan, the employer. 

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

4 plan. 

5 ‘‘(e) NOTICE OF GENERALLY ACCEPTED INVEST6 MENT PRINCIPLES.—

7 ‘‘(1) IN GENERAL.—The plan administrator of 

8 an applicable pension plan shall provide notice of 

9 generally accepted investment principles, including 

10 principles of risk management and diversification, to 

11 each applicable individual. 

12 ‘‘(2) NOTICE.—The notice required by para13 graph (1) shall be written in a manner calculated to 

14 be understood by the average plan participant and 

15 shall provide sufficient information (as determined 

16 in accordance with rules or other guidance adopted 

17 by the Secretary) to allow applicable individuals to 

18 understand generally accepted investment principles, 

19 including principles of risk management and diver20 sification. 

21 ‘‘(3) TIMING OF NOTICE.—The notice required 

22 by paragraph (1) shall be provided upon enrollment 

23 of the applicable individual in such plan and at least 

24 once per plan year thereafter. 
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1 ‘‘(4) FORM AND MANNER OF NOTICE.—The no2 tice required by paragraph (1) shall be in writing, 

3 except that such notice may be in electronic or other 

4 form to the extent that such form is reasonably ac5 cessible to the applicable individual. 

6 ‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur7 poses of this section—

8 ‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘ap9 plicable individual’ means with respect to an applica10 ble pension plan—

11 ‘‘(A) any participant in the applicable pen12 sion plan, 

13 ‘‘(B) any beneficiary who is an alternate 

14 payee (within the meaning of section 414(p)(8)) 

15 under an applicable qualified domestic relations 

16 order (within the meaning of section 

17 414(p)(1)(A)), and 

18 ‘‘(C) any beneficiary of a deceased partici19 pant or alternate payee described in subpara20 graph (A) or (B), as the case may be, 

21 who has an accrued benefit under the plan and who 

22 is entitled to direct the investment (or hypothetical 

23 investment) of some or all of such accrued benefit. 

24 ‘‘(2) APPLICABLE PENSION PLAN.—The term 

25 ‘applicable pension plan’ means—
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1 ‘‘(A) a plan described in section 

2 219(g)(5)(A) (other than in clause (iii) thereof), 

3 and 

4 ‘‘(B) an eligible deferred compensation 

5 plan (as defined in section 457(b)) of an eligible 

6 employer described in section 457(e)(1)(A), 

7 which permits any participant to direct the invest8 ment of some or all of his account in the plan or 

9 under which the accrued benefit of any participant 

10 depends in whole or in part on hypothetical invest11 ments directed by the participant.’’. 

12 (b) CLERICAL AMENDMENT.—The table of sections 

13 for chapter 43 of such Code is amended by adding at the 

14 end the following new item:

‘‘Sec. 4980G. Failure of applicable plans to provide notice of generally accepted 

investment principles.’’.

15 (c) EFFECTIVE DATE.—

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

17 this section shall take effect 60 days after the adop18 tion of rules or other guidance to carry out the 

19 amendments made by this section, which shall in20 clude a model notice of generally accepted invest21 ment principles, including principles of risk manage22 ment and diversification. 

23 (2) MODEL INVESTMENT PRINCIPLES.—For 

24 purposes of paragraph (1), not later than 120 days 
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1 after the date of the enactment of this Act, the Sec2 retary of the Treasury, in consultation with the Sec3 retary of Labor, shall issue rules or other guidance 

4 and a model notice which meets the requirements of 

5 section 4980G of the Internal Revenue Code of 1986 

6 (as added by this section). 

7 SEC. 609. PERMANENCY OF TRANSITION RULE IN RETIRE8 MENT PROTECTION ACT OF 1994. 

9 (a) TRANSITION RULE MADE PERMANENT.—Section 

10 769(c) of the Retirement Protection Act of 1994 (26 

11 U.S.C. 412 note) is amended—

12 (1) in the heading, by striking ‘‘TRANSITION’’; 

13 and 

14 (2) in paragraph (1), by striking ‘‘transition’’ 

15 and by striking ‘‘for any plan year beginning after 

16 1996 and before 2010’’. 

17 (b) SPECIAL RULES.—Paragraph (2) of section 

18 769(c) of the Retirement Protection Act of 1994 is amend19 ed to read as follows: 

20 ‘‘(2) SPECIAL RULES.—The rules described in 

21 this paragraph are as follows: 

22 ‘‘(A) For purposes of section 412(l)(9)(A) 

23 of the Internal Revenue Code of 1986 and sec24 tion 302(d)(9)(A) of the Employee Retirement 

25 Income Security Act of 1974, the funded cur-
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1 rent liability percentage for any plan year shall 

2 be treated as not less than 90 percent. 

3 ‘‘(B) For purposes of section 412(m) of 

4 the Internal Revenue Code of 1986 and section 

5 302(e) of the Employee Retirement Income Se6 curity Act of 1974, the funded current liability 

7 percentage for any plan year shall be treated as 

8 not less than 100 percent. 

9 ‘‘(C) For purposes of determining un10 funded vested benefits under section 

11 4006(a)(3)(E)(iii) of the Employee Retirement 

12 Income Security Act of 1974, the mortality 

13 table shall be the mortality table used by the 

14 plan.’’. 

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

16 this section shall apply to plan years beginning after De17 cember 31, 2004. 

18 TITLE VII—GENERAL 

19 PROVISIONS 

20 SEC. 701. GENERAL EFFECTIVE DATE. 

21 (a) IN GENERAL.—Except as otherwise provided in 

22 this Act, and subject to subsection (b), the amendments 

23 made by this Act shall apply with respect to plan years 

24 beginning on or after January 1, 2005. 
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1 (b) SPECIAL RULE FOR COLLECTIVELY BARGAINED

2 PLANS.—In the case of a plan maintained pursuant to 1 

3 or more collective bargaining agreements between em4 ployee representatives and 1 or more employers ratified 

5 on or before the date of the enactment of this Act, sub6 section (a) shall be applied to benefits pursuant to, and 

7 individuals covered by, any such agreement by substituting 

8 for ‘‘January 1, 2005’’ the date of the commencement of 

9 the first plan year beginning on or after the earlier of—

10 (1) the later of—

11 (A) January 1, 2006, or 

12 (B) the date on which the last of such col13 lective bargaining agreements terminates (de14 termined without regard to any extension there15 of after the date of the enactment of this Act), 

16 or 

17 (2) January 1, 2007. 

18 SEC. 702. PLAN AMENDMENTS. 

19 If any amendment made by this Act requires an 

20 amendment to any plan, such plan amendment shall not 

21 be required to be made before the first plan year beginning 

22 on or after January 1, 2007, if—

23 (1) during the period after such amendment 

24 made by this Act takes effect and before such first 

25 plan year, the plan is operated in accordance with 
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1 the requirements of such amendment made by this 

2 Act, and 

3 (2) such plan amendment applies retroactively 

4 to the period after such amendment made by this 

5 Act takes effect and such first plan year.

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