which (but for subsection (b)(5)) would have been 
includible in the qualified distributee’s gross income 
if the modification had been in effect at all times, 
plus interest for the deferral period at the under-
payment rate established under section 6621. 
‘‘(2) DEFERRAL PERIOD.—For purposes of this 
subparagraph, the term ‘deferral period’ means the 
period beginning with the taxable year in which 
(without regard to subsection (b)(5)) the payment 
would have been includible in gross income and end-
ing with the taxable year in which the modification 
described in paragraph (1) occurs.’’. 
(2) LIFE INSURANCE DEATH BENEFITS.—
(A) IN GENERAL.—Section 101(d) of such 
Code (relating to life insurance proceeds) is 
amended by adding at the end the following 
new paragraph: 
‘‘(4) EXCLUSION FOR LIFETIME ANNUITY PAY-
MENTS.—
‘‘(A) 
IN
GENERAL.—In 
the 
case 
of 
amounts to which this subsection applies, gross 
income shall not include 10 percent of the 
amount otherwise includible in gross income 
(determined without regard to this paragraph).
‘‘(B) RULES
OF
SECTION
72(b)(5) TO 
APPLY.—For purposes of this paragraph, rules 
similar to the rules of section 72(b)(5) and sec-
tion 72(x) shall apply, substituting the term 
‘beneficiary of the life insurance contract’ for 
the term ‘annuitant’ wherever it appears, and 
substituting the term ‘life insurance contract’ 
for the term ‘annuity contract’ wherever it ap-
pears.’’. 
(B) CONFORMING
AMENDMENT.—Section 
101(d)(1) of such Code is amended by adding 
‘‘or paragraph (4) of this subsection’’ following 
‘‘to the extent not excluded by the preceding 
sentence’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions made after Decem-
ber 31, 2005. 
SEC. 209. INCREASING PARTICIPATION THROUGH AUTO-
MATIC CONTRIBUTION ARRANGEMENTS. 
(a) IN GENERAL.—Section 401(k) of the Internal 
Revenue Code of 1986 (relating to cash or deferred ar-
rangement) is amended by adding at the end the following 
new paragraph: 
‘‘(13) 
NONDISCRIMINATION
REQUIREMENTS 
FOR AUTOMATIC CONTRIBUTION TRUSTS.—
‘‘(A) IN GENERAL.—A cash or deferred ar-
rangement shall be treated as meeting the re-
quirements of paragraph (3)(A)(ii) if such ar-
rangement constitutes an automatic contribu-
tion trust. 
‘‘(B) AUTOMATIC CONTRIBUTION TRUST.—
‘‘(i) For purposes of this paragraph, 
the term ‘automatic contribution trust’ 
means an arrangement—
‘‘(I) under which each employee 
eligible to participate in the arrange-
ment is treated as having elected to 
have the employer make elective con-
tributions in an amount equal to the 
applicable percentage of compensation 
until the employee affirmatively elects 
not to have such contributions made 
or affirmatively elects to make elective 
contributions at a specified level, and 
‘‘(II) which meets the other re-
quirements of this paragraph. 
Subclause (I) of this clause shall not apply 
to any employee who was eligible to par-
ticipate in the arrangement (or a prede-
cessor arrangement) immediately before
the first date on which the arrangement is 
an automatic contribution trust. The elec-
tion treated as having been made under 
subclause (I) shall cease to apply to com-
pensation paid after the effective date of 
the affirmative election by the employee. 
‘‘(ii) For purposes of this subpara-
graph, with respect to an employee, the 
term ‘applicable percentage’ means the 
percentage determined under the arrange-
ment that is—
‘‘(I) at least 3 percent as of the 
first date that the election described 
in clause (i)(I) is in effect with re-
spect to the employee, 
‘‘(II) at least 4 percent by a date 
that is not later than the first day of 
the second plan year beginning after 
the date described in subclause (I), 
‘‘(III) at least 5 percent by a 
date that is not later than the first 
day of the third plan year beginning 
after the date described in subclause 
(I),
‘‘(IV) at least 6 percent by a 
date that is no later than the first day 
of the fourth plan year beginning 
after the date described in subclause 
(I), 
‘‘(V) at least 7 percent by a date 
that is not later than the first day of 
the fifth plan year beginning after the 
date described in subclause (I), 
‘‘(VI) at least 8 percent by a 
date that is no later than the first day 
of the sixth plan year beginning after 
the date described in subclause (I), 
and 
‘‘(VII) applied uniformly with re-
spect to similarly situated employees. 
‘‘(C) PARTICIPATION.—
‘‘(i) Except as provided in clause (ii), 
an arrangement meets the requirements of 
this subparagraph for any year if, during 
the plan year or the preceding plan year, 
elective contributions are made on behalf 
of at least 70 percent of the employees eli-
gible to participate in the arrangement 
other than—
‘‘(I) highly compensated employ-
ees, and 
‘‘(II) employees who were eligible 
to participate in the arrangement (or 
a predecessor arrangement) imme-
diately before the first date on which 
the arrangement is an automatic con-
tribution trust. 
‘‘(ii) An arrangement (other than a 
successor arrangement) shall be treated as 
meeting the requirements of this subpara-
graph with respect to the first plan year in 
which the arrangement is effective. 
‘‘(D) MATCHING
OR
NONELECTIVE
CON-
TRIBUTIONS.—
‘‘(i) IN GENERAL.—The requirements 
of this subparagraph are met if, under the 
arrangement, the employer—
‘‘(I) makes matching contribu-
tions on behalf of each employee who 
is not a highly compensated employee 
in an amount equal to 50 percent of 
the elective contributions of the em-
ployee to the extent such elective con-
tributions do not exceed 6 percent of 
compensation, or 
‘‘(II) is required, without regard 
to whether the employee makes an 
elective contribution or employee con-
tribution, to make a contribution to a 
defined contribution plan on behalf of 
each employee who is not a highly 
compensated employee and who is eli-
gible to participate in the arrange-
ment in an amount equal to at least 
2 percent of the employee’s compensa-
tion. 
The rules of clauses (ii) and (iii) of paragraph 
(12)(B) shall apply for purposes of subclause 
(I). The rules of clause (ii) of paragraph 
(12)(E) shall apply for purposes of subclauses 
(I) and (II). 
‘‘(ii) OTHER
PLANS.—An arrange-
ment shall be treated as meeting the re-
quirements under clause (i) if any other 
plan maintained by the employer meets 
such requirements with respect to employ-
ees eligible under the arrangement.
‘‘(E) VESTING.—The requirements of this 
subparagraph are met if an employee who has 
completed at least 2 years of service (within the 
meaning of section 411(a)) has a nonforfeitable 
right to 100 percent of the employee’s accrued 
benefit derived from employer contributions 
taken into account in determining whether the 
requirements of subparagraph (D) are met. 
‘‘(F) NOTICE REQUIREMENTS.—
‘‘(i) IN GENERAL.—The requirements 
of this subparagraph are met if the re-
quirements of clauses (ii) and (iii) are met. 
‘‘(ii) REASONABLE PERIOD TO MAKE 
ELECTION.—The 
requirements 
of 
this 
clause are met if each employee to whom 
subparagraph (B)(i) applies—
‘‘(I) receives a notice explaining 
the employee’s right under the ar-
rangement to elect not to have elective 
contributions made on the employee’s 
behalf and how contributions made 
under the arrangement will be in-
vested in the absence of any invest-
ment election by the employee, and
‘‘(II) has a reasonable period of 
time after receipt of such notice and 
before the first elective contribution is 
made to make either such election. 
‘‘(iii) ANNUAL
NOTICE
OF
RIGHTS 
AND OBLIGATIONS.—The requirements of 
this clause are met if each employee eligi-
ble to participate in the arrangement is, 
within a reasonable period before any year, 
given notice of the employee’s rights and 
obligations under the arrangement. 
The requirements of clauses (i) and (ii) of para-
graph (12)(D) shall be met with respect to the 
notices described in clauses (ii) and (iii) of this 
subparagraph.’’. 
(b) MATCHING CONTRIBUTIONS.—Section 401(m) of 
such Code (relating to nondiscrimination test for matching 
contributions and employee contributions) is amended by 
redesignating paragraph (12) as paragraph (13) and by 
inserting after paragraph (11) the following new para-
graph: 
‘‘(12) ALTERNATIVE METHOD FOR AUTOMATIC 
CONTRIBUTION TRUSTS.—
‘‘(A) IN GENERAL.—A defined contribution 
plan shall be treated as meeting the require-