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103D CONGRESS

1ST SESSION H. R. 2502

To amend the Internal Revenue Code of 1986 and title I of the Employee

Retirement Income Security Act of 1974 with regard to pension integration, participation, and vesting requirements, to provide for division of

pension benefits upon divorce unless otherwise provided in qualified domestic relations orders, to provide for studies relating to cost-of-living

adjustments and pension portability, and to clarify the continued availability, under provisions governing domestic relations orders, of remedies

relating to matters treated in such orders entered before 1985.

IN THE HOUSE OF REPRESENTATIVES

JUNE 23, 1993

Mrs. KENNELLY introduced the following bill; which was referred jointly to

the Committees on Ways and Means and Education and Labor

A BILL

To amend the Internal Revenue Code of 1986 and title

I of the Employee Retirement Income Security Act of

1974 with regard to pension integration, participation,

and vesting requirements, to provide for division of pension benefits upon divorce unless otherwise provided in

qualified domestic relations orders, to provide for studies

relating to cost-of-living adjustments and pension portability, and to clarify the continued availability, under

provisions governing domestic relations orders, of remedies relating to matters treated in such orders entered

before 1985.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Pension Reform Act

5 of 1993’’.

6 SEC. 2. PENSION INTEGRATION RULES.

7 (a) APPLICABILITY OF NEW INTEGRATION RULES

8 EXTENDED TO ALL EXISTING ACCRUED BENEFITS.—

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

10 Tax Reform Act of 1986 (relating to effective date of ap11 plication of nondiscrimination rules to integrated plans)

12 (100 Stat. 2440), effective for plan years beginning after

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

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

15 apply to benefits attributable to plan years beginning on

16 or before December 31, 1988.

17 (b) INTEGRATION DISALLOWED FOR SIMPLIFIED

18 EMPLOYEE PENSIONS.—

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

20 408(k)(3) of the Internal Revenue Code of 1986 (re21 lating to permitted disparity under rules limiting

22 discrimination under simplified employee pensions)

23 is repealed.
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1 (2) CONFORMING AMENDMENT.—Subparagraph

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

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

4 (3) EFFECTIVE DATE.—The amendments made

5 by this subsection shall apply with respect to taxable

6 years beginning on or after January 1, 1993.

7 (c) EVENTUAL REPEAL OF INTEGRATION RULES.—

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

9 2002—

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

11 401(a)(5) of the Internal Revenue Code of 1986 (re12 lating to pension integration exceptions under non13 discrimination requirements for qualification) are re14 pealed, and subparagraph (E) of such section

15 401(a)(5) is redesignated as subparagraph (C); and

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

17 (relating to nondiscriminatory coordination of de18 fined contribution plans with OASDI) is repealed.

19 SEC. 3. APPLICATION OF MINIMUM COVERAGE REQUIRE20 MENTS WITH RESPECT TO SEPARATE LINES

21 OF BUSINESS.

22 (a) IN GENERAL.—Subsection (b) of section 410 of

23 the Internal Revenue Code of 1986 (relating to minimum

24 coverage requirements) is amended—
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1 (1) in paragraph (1), by striking ‘‘A trust’’ and

2 inserting ‘‘In any case in which the employer with

3 respect to a plan is treated, under section 414(r), as

4 operating separate lines of business for a plan year,

5 a trust’’, and by inserting ‘‘for such plan year’’ after

6 ‘‘requirements’’; and

7 (2) by redesignating paragraphs (3) through

8 (6) as paragraphs (4) through (7), respectively and

9 by inserting after paragraph (2) the following new

10 paragraph:

11 ‘‘(3) SPECIAL RULE WHERE EMPLOYER OPER12 ATES SINGLE LINE OF BUSINESS.—In any case in

13 which the employer with respect to a plan is not

14 treated, under section 414(r), as operating separate

15 lines of business for a plan year, a trust shall not

16 constitute a qualified trust under section 401(a) un17 less such trust is designated by the employer as part

18 of a plan which benefits all employees of the em19 ployer.’’.

20 (b) LIMITATION ON LINE OF BUSINESS EXCEP21 TION.—Paragraph (6) of section 410(b) of such Code (as

22 redesignated by subsection (a)(2) of this section) is

23 amended by inserting ‘‘other than paragraph (1)(A)’’ after

24 ‘‘this subsection’’.
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1 SEC. 4. ELIMINATION OF SPECIAL VESTING RULE FOR MUL2 TIEMPLOYER PLANS.

3 (a) INTERNAL REVENUE CODE AMENDMENT.—Para4 graph (2) of section 411(a) of the Internal Revenue Code

5 of 1986 (relating to minimum vesting standards) is

6 amended—

7 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

8 and inserting ‘‘subparagraph (A) or (B)’’; and

9 (2) by striking subparagraph (C).

10 (b) ERISA AMENDMENT.—Paragraph (2) of section

11 203(a)(2) of the Employee Retirement Income Security

12 Act of 1974 (29 U.S.C. 1053(a)(2)) is amended—

13 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

14 and inserting ‘‘subparagraph (A) or (B)’’; and

15 (2) by striking subparagraph (C).

16 SEC. 5. DIVISION OF PENSION BENEFITS UPON DIVORCE.

17 (a) AMENDMENTS TO THE INTERNAL REVENUE

18 CODE OF 1986.—

19 (1) IN GENERAL.—Subsection (a) of section

20 401 of the Internal Revenue Code of 1986 (relating

21 to requirements for qualification) is amended—

22 (A) by inserting after paragraph (31) the

23 following new paragraph:

24 ‘‘(32) DIVISION OF PENSION BENEFITS UPON

25 DIVORCE.—
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1 ‘‘(A) IN GENERAL.—In the case of a di2 vorce of a participant in a pension plan from a

3 spouse who is, immediately before the divorce,

4 a beneficiary under the plan, a trust forming a

5 part of such plan shall not constitute a quali6 fied trust under this section unless the plan

7 provides that at least 50 percent of the marital

8 share of the accrued benefit of the participant

9 under the plan ceases to be an accrued benefit

10 of such participant and becomes an accrued

11 benefit of such divorced spouse, determined and

12 payable upon the earlier of the retirement of

13 the participant, the participant’s death, or the

14 termination of the plan, except to the extent

15 that a qualified domestic relations order in con16 nection with such divorce provides otherwise.

17 ‘‘(B) LIMITATION.—Subparagraph (A)

18 shall not be construed—

19 ‘‘(i) to require a plan to provide any

20 type or form of benefit, or any option, not

21 otherwise provided under the plan,

22 ‘‘(ii) to require the plan to provide in23 creased benefits (determined on the basis

24 of actuarial value),
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1 ‘‘(iii) to require the payment of bene2 fits to the divorced spouse which are re3 quired to be paid to another individual in

4 accordance with this paragraph or pursu5 ant to a domestic relations order previously

6 determined to be a qualified domestic rela7 tions order, or

8 ‘‘(iv) to require payment of benefits to

9 the divorced spouse in the form of a quali10 fied joint and survivor annuity to the di11 vorced spouse and his or her subsequent

12 spouse.

13 ‘‘(C) DEFINITIONS.—For purposes of this

14 paragraph—

15 ‘‘(i) DOMESTIC RELATIONS ORDER;

16 QUALIFIED DOMESTIC RELATIONS

17 ORDER.—The terms ‘domestic relations

18 order’ and ‘qualified domestic relations

19 order’ shall have the meanings provided in

20 section 414(p).

21 ‘‘(ii) MARITAL SHARE.—The term

22 ‘marital share’ means, in connection with

23 an accrued benefit under a pension plan,

24 the product derived by multiplying—
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1 ‘‘(I) the actuarial present value

2 of the accrued benefit, by

3 ‘‘(II) a fraction, the numerator of

4 which is the period of time, during the

5 marriage between the spouse and the

6 participant in the plan, which con7 stitutes creditable service by the par8 ticipant under the plan, and the de9 nominator of which is the total period

10 of time which constitutes creditable

11 service by the participant under the

12 plan.

13 ‘‘(iii) QUALIFIED JOINT AND SURVI14 VOR ANNUITY.—The term ‘qualified joint

15 and survivor annuity’ has the meaning pro16 vided in section 417(b).

17 ‘‘(D) REGULATIONS.—In prescribing regu18 lations under this paragraph, the Secretary

19 shall consult with the Secretary of Labor.’’; and

20 (B) in the last sentence, by striking ‘‘and

21 (20)’’ and inserting ‘‘(20), and (32)’’.

22 (2) CONFORMING AMENDMENTS.—

23 (A) Subparagraph (B) of section

24 401(a)(13) of such Code (relating to special

25 rules for domestic relations orders) is amended
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1 by inserting ‘‘or if such creation, assignment, or

2 recognition pursuant to such order is necessary

3 for compliance with the requirements of para4 graph (32)’’ before the period.

5 (B) Subsection (p) of section 414 of such

6 Code (defining qualified domestic relations or7 ders) is amended—

8 (i) in paragraph (3)(C), by inserting

9 ‘‘or to a divorced spouse of the participant

10 in connection with a previously occurring

11 divorce as required under section

12 401(a)(32)’’ before the period; and

13 (ii) in paragraph (7)(C), by striking

14 ‘‘if there had been no order’’ and inserting

15 ‘‘in accordance with section 401(a)(32) as

16 if there had been no qualified domestic re17 lations order’’.

18 (b) AMENDMENTS TO THE EMPLOYEE RETIREMENT

19 INCOME SECURITY ACT OF 1974.—

20 (1) IN GENERAL.—Section 206 of Employee

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

22 1056) is amended by adding at the end the following

23 new subsection:

24 ‘‘(e)(1) In the case of a divorce of a participant in

25 a pension plan from a spouse who is, immediately before
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1 the divorce, a beneficiary under the plan, the plan shall

2 provide that at least 50 percent of the marital share of

3 the accrued benefit of the participant under the plan

4 ceases to be an accrued benefit of such participant and

5 becomes an accrued benefit of such divorced spouse, deter6 mined and payable upon the earlier of the retirement of

7 the participant, the participant’s death, or the termination

8 of the plan, except to the extent that a qualified domestic

9 relations order in connection with such divorce provides

10 otherwise.

11 ‘‘(2) Paragraph (1) shall not be construed—

12 ‘‘(A) to require a plan to provide any type or

13 form of benefit, or any option, not otherwise pro14 vided under the plan,

15 ‘‘(B) to require the plan to provide increased

16 benefits (determined on the basis of actuarial value),

17 ‘‘(C) to require the payment of benefits to the

18 divorced spouse which are required to be paid to an19 other individual in accordance with this subsection

20 or pursuant to a domestic relation order previously

21 determined to be a qualified domestic relations

22 order, or

23 ‘‘(D) to require payment of benefits to the di24 vorced spouse in the form of a joint and survivor an-
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1 nuity to the divorced spouse and his or her subse2 quent spouse.

3 ‘‘(3) For purposes of this subsection—

4 ‘‘(A) The terms ‘domestic relations order’ and

5 ‘qualified domestic relations order’ shall have the

6 meanings provided in subsection (d)(3)(B).

7 ‘‘(B) The term ‘marital share’ means, in con8 nection with an accrued benefit under a pension

9 plan, the product derived by multiplying—

10 ‘‘(i) the actuarial present value of the ac11 crued benefit, by

12 ‘‘(ii) a fraction—

13 ‘‘(I) the numerator of which is the pe14 riod of time, during the marriage between

15 the spouse and the participant in the plan,

16 which constitutes creditable service by the

17 participant under the plan, and

18 ‘‘(II) the denominator of which is the

19 total period of time which constitutes cred20 itable service by the participant under the

21 plan.

22 ‘‘(C) The term ‘qualified joint and survivor an23 nuity’ shall have the meaning provided in section

24 205(d).
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1 ‘‘(4) In prescribing regulations under this subsection,

2 the Secretary shall consult with the Secretary of the

3 Treasury.’’.

4 (2) CONFORMING AMENDMENTS.—Section

5 206(d) of such Act (29 U.S.C. 1056(d)) is amend6 ed—

7 (A) in the first sentence of paragraph (3),

8 by inserting ‘‘or if such creation, assignment, or

9 recognition pursuant to such order is necessary

10 for compliance with the requirements of sub11 section (e)’’ before the period;

12 (B) in paragraph (3)(D)(iii), by inserting

13 ‘‘or to a divorced spouse of the participant in

14 connection with a previously occurring divorce

15 as required under subsection (e)’’ before the pe16 riod; and

17 (C) in paragraph (3)(H)(iii), by striking

18 ‘‘if there had been no order’’ and inserting ‘‘in

19 accordance with subsection (e) as if there had

20 been no qualified domestic relations order’’.

21 SEC. 6. EFFECTIVE DATES.

22 (a) IN GENERAL.—Except as provided in subsection

23 (b), the amendments made by this Act, other than section

24 2, shall apply with respect to plan years beginning on or

25 after January 1, 1994, and the amendments made by sec-
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1 tion 5 shall apply only with respect to divorces becoming

2 final in such plan years.

3 (b) SPECIAL RULE FOR COLLECTIVELY BARGAINED

4 PLANS.—In the case of a plan maintained pursuant to 1

5 or more collective bargaining agreements between em6 ployee representatives and 1 or more employers ratified

7 on or before the date of the enactment of this Act, sub8 section (a) shall be applied to benefits pursuant to, and

9 individuals covered by, any such agreement by substituting

10 for ‘‘January 1, 1994’’ the date of the commencement of

11 the first plan year beginning on or after the earlier of—

12 (1) the later of—

13 (A) January 1, 1994, or

14 (B) the date on which the last of such col15 lective bargaining agreements terminates (de16 termined without regard to any extension there17 of after the date of the enactment of this Act),

18 or

19 (2) January 1, 1996.

20 (c) PLAN AMENDMENTS.—If any amendment made

21 by this Act requires an amendment to any plan, such plan

22 amendment shall not be required to be made before the

23 first plan year beginning on or after January 1, 1994, if—

24 (1) during the period after such amendment

25 made by this Act takes effect and before such first
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1 plan year, the plan is operated in accordance with

2 the requirements of such amendment made by this

3 Act, and

4 (2) such plan amendment applies retroactively

5 to the period after such amendment made by this

6 Act takes effect and such first plan year.

7 A plan shall not be treated as failing to provide definitely

8 determinable benefits or contributions, or to be operated

9 in accordance with the provisions of the plan, merely be10 cause it operates in accordance with this subsection.

11 SEC. 7. STUDY ON COST-OF-LIVING ADJUSTMENTS UNDER

12 PRIVATE PENSION PLANS.

13 (a) STUDY BY GENERAL ACCOUNTING OFFICE.—As

14 soon as possible after the date of the enactment of this

15 Act, the Comptroller General of the United States, in ac16 cordance with the authority provided under section

17 11016(d) of the Single-Employer Pension Plan Amend18 ments Act of 1986 (100 Stat. 275), shall undertake a

19 thorough study with respect to alternative methods of re20 quiring employee pension benefit plans to provide cost-of21 living and other adjustments to benefits payable under

22 such plans.

23 (b) MATTERS TO BE STUDIED.—The Comptroller

24 General, in carrying out the study provided for in this sec25 tion, shall address, analyze, and report specifically on—
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1 (1) the effect inflation is having and may be ex2 pected to have on women receiving private pension

3 benefits as either plan participants or beneficiaries,

4 (2) the number of plans which provide for cost5 of-living or other adjustments to benefits,

6 (3) the manner in which plans providing for

7 such adjustments determine when, and for whom, an

8 adjustment will be made,

9 (4) the frequency with which other plans make

10 cost-of-living and other benefit adjustments, and

11 how the determination to make such adjustments is

12 made,

13 (5) the possible application of funds currently

14 available for employer reversions for cost-of-living

15 and other benefit adjustments, and

16 (6) the costs incurred in requiring such adjust17 ments to benefits.

18 (c) REPORT.—Not later than 2 years after the date

19 of the enactment of this Act, the Comptroller General shall

20 submit to the Committee on Ways and Means and the

21 Committee on Education and Labor of the House of Rep22 resentatives and the Committee on Finance and the Com23 mittee on Labor and Human Resources of the Senate a

24 report of the findings of the study provided for by this
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1 section, together with any recommendations the Comptrol2 ler General considers appropriate.

3 SEC. 8. STUDY ON PENSION PORTABILITY.

4 (a) STUDY BY GENERAL ACCOUNTING OFFICE.—As

5 soon as possible after the date of the enactment of this

6 Act, the Comptroller General of the United States, in ac7 cordance with the authority provided under section

8 11016(d) of the Single-Employer Pension Plan Amend9 ments Act of 1986 (100 Stat. 275), shall undertake a

10 thorough study with respect to alternative pension port11 ability mechanisms, including mechanisms for promoting

12 portability of benefits, credited service, and current values

13 of cash distributions, for preserving and enhancing the

14 real value of deferred vested pension benefits.

15 (b) MATTERS TO BE STUDIED.—The Comptroller

16 General, in carrying out the study provided for in this sec17 tion, shall address, analyze, and report specifically on—

18 (1) the types of possible portability mechanisms

19 for both defined benefit plans and defined contribu20 tion plans,

21 (2) the manner in which, and extent to which,

22 each mechanism would preserve and enhance the

23 real value of deferred vested benefits,

24 (3) the most effective ways to ensure that re25 tirement money will be used for retirement,
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1 (4) the measures necessary to be taken to effec2 tively ensure that the joint and survivor annuity

3 form of benefit will be preserved,

4 (5) the existing rules under the Employee Re5 tirement Income Security Act of 1974, the Internal

6 Revenue Code of 1986, and other applicable provi7 sions of law which can be considered portability

8 mechanisms, their effectiveness, and the frequency

9 of their use, and

10 (6) the costs of establishing effective portability

11 mechanisms for both defined benefit plans and de12 fined contribution plans.

13 (c) REPORT.—Not later than 2 years after the date

14 of the enactment of this Act, the Comptroller General shall

15 submit to the Committee on Ways and Means and the

16 Committee on Education and Labor of the House of Rep17 resentatives and the Committee on Finance and the Com18 mittee on Labor and Human Resources of the Senate a

19 report of the findings of the study provided for by this

20 section, together with any recommendations the Comptrol21 ler General considers appropriate.
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1 SEC. 9. CLARIFICATION OF CONTINUED AVAILABILITY OF

2 REMEDIES RELATING TO MATTERS TREATED

3 IN DOMESTIC RELATIONS ORDERS ENTERED

4 BEFORE 1985.

5 (a) IN GENERAL.—In any case in which—

6 (1) under a prior domestic relations order en7 tered before January 1, 1985, in an action for di8 vorce—

9 (A) the right of a spouse under a pension

10 plan to an accrued benefit under such plan was

11 not divided between spouses,

12 (B) any right of a spouse with respect to

13 such an accrued benefit was waived without the

14 informed consent of such spouse, or

15 (C) the right of a spouse as a participant

16 under a pension plan to an accrued benefit

17 under such plan was divided so that the other

18 spouse received less than such other spouse’s

19 pro rata share of the accrued benefit under the

20 plan, or

21 (2) a court of competent jurisdiction determines

22 that any further action is appropriate with respect

23 to any matter to which a prior domestic relations

24 order entered before such date applies,

25 nothing in the provisions of section 104, 204, or 303 of

26 the Retirement Equity Act of 1984 (Public Law 98–397)
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1 or the amendments made thereby shall be construed to

2 require or permit the treatment, for purposes of such pro3 visions, of a domestic relations order, which is entered on

4 or after the date of the enactment of this Act and which

5 supercedes, amends the terms of, or otherwise affects such

6 prior domestic relations order, as other than a qualified

7 domestic relations order solely because such prior domestic

8 relations order was entered before January 1, 1985.

9 (b) DEFINITIONS.—For purposes of this section—

10 (1) IN GENERAL.—Terms used in this section

11 which are defined in section 3 of the Employee Re12 tirement Income Security Act of 1974 (29 U.S.C.

13 1002) shall have the meanings provided such terms

14 by such section.

15 (2) PRO RATA SHARE.—The term ‘‘pro rata

16 share’’ of a spouse means, in connection with an ac17 crued benefit under a pension plan, 50 percent of

18 the product derived by multiplying—

19 (A) the actuarial present value of the ac20 crued benefit, by

21 (B) a fraction—

22 (i) the numerator of which is the pe23 riod of time, during the marriage between

24 the spouse and the participant in the plan,
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1 which constitutes creditable service by the

2 participant under the plan, and

3 (ii) the denominator of which is the

4 total period of time which constitutes cred5 itable service by the participant under the

6 plan.

7 (3) PLAN.—All pension plans in which a person

8 has been a participant shall be treated as one plan

9 with respect to such person.

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