rived from employer contributions determined under 
the following table: 
The nonforfeitable 
‘‘Years of service 
percentage is: 
3 .........................................................................................................
4 .........................................................................................................
5 .........................................................................................................
6 .........................................................................................................
7 or more ...........................................................................................
100. 
‘‘(B)(i) In the case of an individual account 
plan, a plan satisfies the requirements of this para-
graph if it satisfies the requirements of clause (ii) or 
(iii). 
‘‘(ii) A plan satisfies the requirements of this 
clause if an employee who has completed at least 3 
years of service has a nonforfeitable right to 100 
percent of the employee’s accrued benefit derived 
from employer contributions. 
‘‘(iii) A plan satisfies the requirements of this 
clause if an employee has a nonforfeitable right to 
a percentage of the employee’s accrued benefit de-
rived from employer contributions determined under 
the following table: 
The nonforfeitable 
‘‘Years of service 
percentage is: 
2 .........................................................................................................
3 .........................................................................................................
4 .........................................................................................................
5 .........................................................................................................
6 .........................................................................................................
100.’’.
(2) 
CONFORMING
AMENDMENT.—Section 
203(a) of such Act is amended by striking para-
graph (4). 
(c) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to contributions for plan years beginning 
after December 31, 2005. 
(2) COLLECTIVE BARGAINING AGREEMENTS.— 
In the case of a plan maintained pursuant to one or 
more collective bargaining agreements between em-
ployee representatives and one or more employers 
ratified before the date of the enactment of this Act, 
the amendments made by this section shall not apply 
to contributions on behalf of employees covered by 
any such agreement for plan years beginning before 
the earlier of— 
(A) the later of— 
(i) the date on which the last of such 
collective bargaining agreements termi-
nates (determined without regard to any 
extension thereof on or after such date of 
the enactment); or 
(ii) January 1, 2006; or 
(B) January 1, 2008.
(3) SERVICE REQUIRED.—With respect to any 
plan, the amendments made by this section shall not 
apply to any employee before the date that such em-
ployee has 1 hour of service under such plan in any 
plan year to which the amendments made by this 
section apply. 
SEC. 203. ALLOW ROLLOVERS BY NONSPOUSE BENE-
FICIARIES OF CERTAIN RETIREMENT PLAN 
DISTRIBUTIONS. 
(a) IN GENERAL.— 
(1) QUALIFIED PLANS.—Section 402(c) of the 
Internal Revenue Code of 1986 (relating to rollovers 
from exempt trusts) is amended by adding at the 
end the following new paragraph: 
‘‘(11) DISTRIBUTIONS
TO
INHERITED
INDI-
VIDUAL RETIREMENT PLAN OF NONSPOUSE BENE-
FICIARY.— 
‘‘(A) IN GENERAL.—If, with respect to any 
portion of a distribution from an eligible retire-
ment plan of a deceased employee, a direct 
trustee-to-trustee transfer is made to an indi-
vidual retirement plan described in clause (i) or 
(ii) of paragraph (8)(B) established for the pur-
poses of receiving the distribution on behalf of 
an individual who is a designated beneficiary
(as defined by section 401(a)(9)(E)) of the em-
ployee and who is not the surviving spouse of 
the employee— 
‘‘(i) the transfer shall be treated as an 
eligible rollover distribution for purposes of 
this subsection, 
‘‘(ii) the individual retirement plan 
shall be treated as an inherited individual 
retirement account or individual retirement 
annuity (within the meaning of section 
408(d)(3)(C)) for purposes of this title, 
and 
‘‘(iii) section 401(a)(9)(B) (other than 
clause (iv) thereof) shall apply to such 
plan. 
‘‘(B) CERTAIN TRUSTS TREATED AS BENE-
FICIARIES.—For purposes of this paragraph, to 
the extent provided in rules prescribed by the 
Secretary, a trust maintained for the benefit of 
one or more designated beneficiaries shall be 
treated in the same manner as a trust des-
ignated beneficiary.’’. 
(2) SECTION
403(a) 
PLANS.—Subparagraph 
(B) of section 403(a)(4) of such Code (relating to
rollover amounts) is amended by inserting ‘‘and 
(11)’’ after ‘‘(7)’’. 
(3) SECTION
403(b) PLANS.—Subparagraph 
(B) of section 403(b)(8) of such Code (relating to 
rollover amounts) is amended by striking ‘‘and (9)’’ 
and inserting ‘‘, (9), and (11)’’. 
(4) SECTION 457 PLANS.—Subparagraph (B) of 
section 457(e)(16) of such Code (relating to rollover 
amounts) is amended by striking ‘‘and (9)’’ and in-
serting ‘‘, (9), and (11)’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions after December 31, 
2005. 
SEC. 
204. 
ENHANCING 
PORTABILITY 
OF 
AFTER-TAX 
AMOUNTS. 
(a) ROLLOVERS BETWEEN QUALIFIED PLANS AND 
SECTION 403(b) PLANS.—Subparagraph (A) of section 
402(c)(2) of such Code (relating to maximum amount 
which may be rolled over) is amended by striking ‘‘and 
which’’ and inserting ‘‘or to an annuity contract described 
in section 403(b) and such plan or contract’’. 
(b) ROLLOVERS TO DEFINED BENEFIT PLANS.— 
Subparagraph (A) of section 402(c)(2) of such Code (re-
lating to maximum amount which may be rolled over) is
amended by striking ‘‘which is a part of a plan which is 
a defined contribution plan and’’. 
(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2005. 
SEC. 205. IRA ELIGIBILITY FOR THE DISABLED. 
(a) IN GENERAL.—Subsection (f) of section 219 of 
the Internal Revenue Code of 1986 (relating to other defi-
nitions and special rules) is amended by adding at the end 
the following: 
‘‘(8) SPECIAL
RULE
FOR
CERTAIN
DISABLED 
INDIVIDUALS.—In the case of an individual— 
‘‘(A) who is disabled (within the meaning 
of section 72(m)(7)), and 
‘‘(B) who has not attained the applicable 
age (as defined in section 401(a)(9)(H)) before 
the close of the taxable year, 
subparagraph (B) of subsection (b)(1) shall not 
apply.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2005. 
SEC. 206. EXCLUSION OF CERTAIN QUALIFIED ANNUITY 
PAYMENTS. 
(a) IN GENERAL.—
(1) QUALIFIED PLANS.—Subsection (e) of sec-
tion 402 of the Internal Revenue Code of 1986 (re-
lating to exempt trusts) is amended by adding at the 
end the following new paragraph: 
‘‘(7) EXCLUSION OF PERCENTAGE OF LIFETIME 
ANNUITY PAYMENTS.— 
‘‘(A) IN GENERAL.—In the case of a life-
time annuity payment to a qualified distributee 
from a qualified trust (within the meaning of 
subsection (c)(8)(A)) maintained in connection 
with a defined contribution plan, gross income 
shall not include 10 percent of the amount oth-
erwise includible in gross income (determined 
without regard to this paragraph). 
‘‘(B) 5-YEAR LIMITATION.—Subparagraph 
(A) shall apply to a qualified distributee only in 
the first 5 taxable years in which the qualified 
distributee receives lifetime annuity payments 
for the entire taxable year. For purposes of this 
subparagraph, all lifetime annuity payments re-
ceived by a qualified distributee shall be taken 
into account to the extent that such payments 
are subject to this paragraph or to rules similar 
to the rules of this paragraph (other than sec-
tions 72(b)(5) and 101(d)(4)).
‘‘(C) LIMITATION.— 
‘‘(i) IN
GENERAL.—With respect to 
any qualified distributee, subparagraph (A) 
shall not apply to any lifetime annuity pay-
ment to the extent that the portion of such 
payment includible in gross income, when 
added to the portion of all previous and si-
multaneous lifetime annuity payments that 
was included in gross income and that was 
paid to such qualified distributee during 
the taxable year, exceeds 50 percent of the 
applicable amount for such year under sec-
tion 415(c)(1)(A). For purposes of the pre-
ceding sentence, the portion of lifetime an-
nuity payments includible in gross income 
shall be determined without regard to sub-
paragraph (A). 
‘‘(ii) AGGREGATION RULE.—For pur-
poses of this subparagraph, all lifetime an-
nuity payments received by a qualified dis-
tributee shall be taken into account to the 
extent that such payments are subject to 
this paragraph or to rules similar to the 
rules of this paragraph (other than sec-
tions 72(b)(5) and 101(d)(4)).
‘‘(D) DEFINITIONS.—For purposes of this 
paragraph— 
‘‘(i) LIFETIME ANNUITY PAYMENT.— 
‘‘(I) IN
GENERAL.—The term 
‘lifetime annuity payment’ means a 
distribution which is a part of a series 
of substantially equal periodic pay-
ments (made not less frequently than 
annually) made over the life of the 
qualified distributee or the joint lives 
of the qualified distributee and the 
qualified distributee’s designated ben-
eficiary. 
‘‘(II) 
CERTAIN
FLUCTUATING 
PAYMENTS.—Annuity payments shall 
not fail to be treated as part of a se-
ries of substantially equal periodic 
payments merely because the amount 
of the periodic payments may vary in 
accordance with investment experi-
ence, reallocations among investment 
options, actuarial gains or losses, cost 
of living indices, a constant percent-
age (not less than zero) applied not
less frequently than annually, or simi-
lar fluctuating criteria. 
‘‘(III) CERTAIN CHANGES IN THE 
MODE
OF
PAYMENT.—Annuity pay-
ments shall not fail to be treated as 
part of a series of substantially equal 
periodic payments merely because the 
period between each such payment is 
lengthened or shortened, but only if at 
all times such period is not longer 
than one year. 
‘‘(IV) 
PERMITTED
REDUC-
TIONS.—Annuity payments shall not 
fail to be treated as part of series of 
substantially equal periodic payments 
merely because, in the case of an an-
nuity payable over the joint lives of 
the qualified distributee and the quali-
fied distributee’s designated bene-
ficiary, the amounts paid after the 
death of the qualified distributee or 
the qualified distributee’s designated 
beneficiary are less than the amounts 
payable during their joint lives.
‘‘(V) CERTAIN CONTRACT BENE-
FITS.—The availability of a commuta-
tion benefit or other feature permit-
ting acceleration of annuity payments 
(or a modification of the period dur-
ing which such a benefit is available), 
a minimum period of payments cer-
tain, or a minimum amount to be paid 
in any event shall not affect the treat-
ment of a distribution as a lifetime 
annuity payment. 
‘‘(VI) TRUST PAYMENTS.—In the 
case of lifetime annuity payments 
being made to a qualified trust, pay-
ments by the qualified trust to a 
qualified distributee of the entire 
amount received by the qualified trust 
with respect to the qualified dis-
tributee shall constitute lifetime annu-
ity payments. 
‘‘(ii) QUALIFIED DISTRIBUTEE.—The 
term ‘qualified distributee’ means the em-
ployee, the surviving spouse of the em-
ployee, and an alternate payee who is the 
spouse or former spouse of the employee.
‘‘(E) RECAPTURE TAX.— 
‘‘(i) IN GENERAL.—If— 
‘‘(I) a an amount is not includ-
ible in gross income by reason of sub-
paragraph (A), and 
‘‘(II) the series of payments of 
which such payment is a part is sub-
sequently modified (other than by rea-
son of death or disability) so that 
some or all future payments are not 
lifetime annuity payments, 
the qualified distributee’s gross income for 
the first taxable year in which such modi-
fication occurs shall be increased by an 
amount, determined under rules prescribed 
by the Secretary, equal to the amount 
which (but for subparagraph (A)) would 
have been includible in the qualified 
distributee’s gross income if the modifica-
tion had been in effect at all times, plus in-
terest for the deferral period at the under-
payment rate established under section 
6621. 
‘‘(ii) DEFERRAL
PERIOD.—For pur-
poses of this subparagraph, the term ‘de-
ferral period’ means the period beginning 
with the taxable year in which (without re-
gard to subparagraph (A)) the payment 
would have been includible in gross income 
and ending with the taxable year in which 
the modification described in clause (i)(II) 
occurs. 
‘‘(F) PHASEOUT OF EXCLUSION.— 
‘‘(i) IN
GENERAL.—In any taxable 
year, the exclusion from gross income for 
any qualified distributee under this para-
graph and under rules similar to the rules 
of this paragraph (other than sections 
72(b)(5) and 101(d)(4)) shall not exceed 
the income-adjusted limit. 
‘‘(ii) INCOME-ADJUSTED LIMIT.—For 
purposes of this subparagraph, the income- 
adjusted limit shall be— 
‘‘(I) 10 percent of the limitation 
described in subparagraph (C), re-
duced (but not below zero) by 
‘‘(II) the amount determined 
under clause (iii). 
‘‘(iii) AMOUNT
DETERMINED.—The 
amount determined under this clause shall
be the amount which bears the same ratio 
to the amount described in clause (ii)(I) 
as— 
‘‘(I) the excess of the taxpayer’s 
adjusted gross income for such tax-
able year over the applicable dollar 
amount, bears to 
‘‘(II) $15,000 ($30,000 for a 
joint return). 
‘‘(iv) LIMITATION
ON
REDUCTION.— 
The income-adjusted limit shall not be re-
duced below $200 by clause (ii)(II) unless 
(without regard to this clause) such limit is 
reduced to zero. 
‘‘(v) ROUNDING RULE.—Any income- 
adjusted limit determined under this sub-
paragraph which is not a multiple of $10 
shall be rounded to the next lowest mul-
tiple of $10. 
‘‘(vi) ADJUSTED GROSS INCOME.—For 
purposes of this subparagraph, adjusted 
gross income of any taxpayer shall be de-
termined in the same manner as under sec-
tion 408A(c)(3)(C)(i) except that section
408A(c)(3)(C)(i)(II) shall not apply for 
this purpose. 
‘‘(vii) APPLICABLE DOLLAR LIMIT.— 
For purposes of this subparagraph, the ap-
plicable dollar amount is— 
‘‘(I) in the case of a taxpayer fil-
ing a joint return, an amount equal to 
twice the amount in effect under sub-
clause (II), 
‘‘(II) in the case of any other 
taxpayer (other than a married indi-
vidual 
filing 
a 
separate 
return), 
$60,000, and 
‘‘(III) in the case of a married 
individual filing a separate return, 
zero. 
‘‘(viii) SPECIAL RULE FOR MARRIED 
INDIVIDUALS
FILING
SEPARATELY
AND 
LIVING
APART.—Section 219(g)(4) shall 
apply for purposes of this subparagraph. 
‘‘(ix) 
COST-OF-LIVING
ADJUST-
MENT.—In the case of taxable years begin-
ning after December 31, 2006, the Sec-
retary shall adjust the $60,000 amount in 
clause (vii)(II) at the same time and in the
same manner as under section 415(d), ex-
cept that the base period shall be the cal-
endar quarter beginning July 1, 2005, and 
any increase under this clause which is not 
a multiple of $5,000 shall be rounded to 
the next lowest multiple of $5,000. 
‘‘(G) INVESTMENT IN THE CONTRACT.— 
For purposes of section 72, the investment in 
the contract shall be determined without regard 
to this paragraph.’’. 
(2) SECTION 403(a) PLANS.—Paragraph (4) of 
section 403(a) of such Code (relating to qualified 
annuity plans) is amended by adding at the end the 
following new subparagraph: 
‘‘(C) EXCLUSION
OF
PERCENTAGE
OF 
LIFETIME ANNUITY PAYMENTS.—Rules similar 
to the rules of section 402(e)(7) shall apply to 
distributions under any annuity contract to 
which this subsection applies.’’. 
(3) SECTION 403(b) PLANS.—Section 403(b) of 
such Code (relating to purchased annuities) is 
amended by adding at the end the following new 
paragraph: 
‘‘(14) EXCLUSION OF PERCENTAGE OF LIFE-
TIME
ANNUITY
PAYMENTS.—Rules similar to the
rules of section 402(e)(7) shall apply to distributions 
under any annuity contract or custodial account to 
which this subsection applies.’’. 
(4) IRAS.—Section 408(d) of such Code (relat-
ing to tax treatment of distributions) is amended by 
adding at the end the following new paragraph: 
‘‘(8) EXCLUSION OF PERCENTAGE OF LIFETIME 
ANNUITY PAYMENTS.—Rules similar to the rules of 
section 402(e)(7) shall apply to distributions out of 
an individual retirement plan.’’. 
(5) SECTION
457
PLANS.—Section 457(e) of 
such Code (relating to special rules for deferred 
compensation plans) is amended by adding at the 
end the following new paragraph: 
‘‘(18) EXCLUSION OF PERCENTAGE OF LIFE-
TIME
ANNUITY
PAYMENTS.—Rules similar to the 
rules of section 402(e)(7) shall apply to distributions 
from an eligible deferred compensation plan of an el-
igible employer described in subsection (e)(1)(A).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions made after Decem-
ber 31, 2005. 
SEC. 207. EXCLUSION OF CERTAIN NONQUALIFIED ANNU-
ITY PAYMENTS. 
(a) IN GENERAL.—
(1) NONQUALIFIED ANNUITIES.— 
(A) IN GENERAL.—Section 72(b) of the In-
ternal Revenue Code of 1986 (relating to annu-
ities) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(5) EXCLUSION OF PERCENTAGE OF LIFETIME 
ANNUITY PAYMENTS.— 
‘‘(A) IN GENERAL.—In the case of a life-
time annuity payment to a qualified distributee, 
gross income shall not include 10 percent of the 
amount otherwise includible in gross income 
(determined without regard to this paragraph). 
‘‘(B) 5-YEAR LIMITATION.—Subparagraph 
(A) shall apply to a qualified distributee only in 
the first 5 taxable years in which the qualified 
distributee receives lifetime annuity payments 
for the entire taxable year. For purposes of this 
subparagraph, all lifetime annuity payments re-
ceived by a qualified distributee shall be taken 
into account to the extent that such payments 
are subject to this paragraph or to the rules of 
section 101(d)(4). 
‘‘(C) INVESTMENT
IN
THE
CONTRACT.— 
For purposes of this section, the investment in
the contract shall be determined without regard 
to this paragraph (5). 
‘‘(D) LIMITATION.— 
‘‘(i) IN
GENERAL.—With respect to 
any qualified distributee, subparagraph (A) 
shall not apply to any lifetime annuity pay-
ment to the extent that the portion of such 
payment that is includible in income, when 
added to the portion of all previous and si-
multaneous lifetime annuity payments that 
was included in gross income and that was 
paid to such qualified distributee during 
the taxable year, exceeds 50 percent of the 
applicable amount for such year under sec-
tion 415(c)(1)(A). For purposes of the pre-
ceding sentence, the portion of lifetime an-
nuity payments includible in gross income 
shall be determined without regard to sub-
paragraph (A). 
‘‘(ii) AGGREGATION RULE.—For pur-
poses of this subparagraph, all lifetime an-
nuity payments received by a qualified dis-
tributee shall be taken into account to the 
extent that such payments are subject to
this paragraph or to the rules of section 
101(d)(4). 
‘‘(E) PHASEOUT OF EXCLUSION.— 
‘‘(i) IN
GENERAL.—In any taxable 
year, the exclusion from gross income for 
any qualified distributee under this para-
graph and under the rules of section 
101(d)(4) shall not exceed the income-ad-
justed limit. 
‘‘(ii) INCOME-ADJUSTED LIMIT.—For 
purposes of this subparagraph, the income- 
adjusted limit shall be— 
‘‘(I) 10 percent of the limitation 
described in subparagraph (D), re-
duced (but not below zero) by 
‘‘(II) the amount determined 
under clause (iii). 
‘‘(iii) AMOUNT
DETERMINED.—The 
amount determined under this clause shall 
be the amount which bears the same ratio 
to the amount described in clause (ii)(I) 
as— 
‘‘(I) the excess of the taxpayer’s 
adjusted gross income for such tax-
able year over the applicable dollar 
amount bears to 
‘‘(II) $15,000 ($30,000 for a 
joint return). 
‘‘(iv) LIMITATION
ON
REDUCTION.— 
The income-adjusted limit shall not be re-
duced below $200 by clause (ii)(II) unless 
(without regard to this clause) such limit is 
reduced to zero. 
‘‘(v) ROUNDING
RULE.—Any income 
adjusted limit determined under this sub-
paragraph which is not a multiple of $10 
shall be rounded to the next lowest mul-
tiple of $10. 
‘‘(vi) ADJUSTED GROSS INCOME.—For 
purposes of this subparagraph, adjusted 
gross income of any taxpayer shall be de-
termined in the same manner as under sec-
tion 408A(c)(3)(C)(i) except that section 
408A(c)(3)(C)(i)(II) shall not apply for 
this purpose. 
‘‘(vii) APPLICABLE DOLLAR LIMIT.— 
For purposes of this subparagraph, the ap-
plicable dollar amount is—
‘‘(I) in the case of a taxpayer fil-
ing a joint return, an amount equal to 
twice the amount in effect under sub-
clause (II), 
‘‘(II) in the case of any other 
taxpayer (other than a married indi-
vidual 
filing 
a 
separate 
return), 
$60,000, and 
‘‘(III) in the case of a married 
individual filing a separate return, 
zero. 
‘‘(viii) SPECIAL RULE FOR MARRIED 
INDIVIDUALS
FILING
SEPARATELY
AND 
LIVING
APART.—Section 219(g)(4) shall 
apply for purposes of this subparagraph. 
‘‘(ix) 
COST-OF-LIVING
ADJUST-
MENT.—In the case of taxable years begin-
ning after December 31, 2006, the Sec-
retary shall adjust the $60,000 amount in 
clause (vii)(II) at the same time and in the 
same manner as under section 415(d), ex-
cept that the base period shall be the cal-
endar quarter beginning July 1, 2005, and 
any increase under this clause which is not
a multiple of $5,000 shall be rounded to 
the next lowest multiple of $5,000.’’. 
(B) DEFINITIONS.—Section 72(c) of such 
Code is amended by adding at the end the fol-
lowing new paragraphs: 
‘‘(5) LIFETIME ANNUITY PAYMENT.— 
‘‘(A) IN GENERAL.—For purposes of sub-
section (b)(5), the term ‘lifetime annuity pay-
ment’ means a distribution from an annuity 
contract (as defined in paragraph (7)) that is a 
part of a series of substantially equal periodic 
payments— 
‘‘(i) made not less frequently than an-
nually over the life of the qualified dis-
tributee or the joint lives of the qualified 
distributee and the qualified distributee’s 
designated beneficiary, and 
‘‘(ii) that would satisfy the require-
ments of section 408(b)(3) if the annuity 
contract were treated as an individual re-
tirement annuity. 
‘‘(B) EXCEPTIONS.— 
‘‘(i) CERTAIN
FLUCTUATING
PAY-
MENTS.—Annuity payments shall not fail 
to be treated as part of a series of substan-
tially equal periodic payments merely be-
cause the amount of the periodic payments 
may vary in accordance with investment 
experience, reallocations among investment 
options, actuarial gains or losses, cost of 
living indices, a constant percentage (not 
less than zero) applied not less frequently 
than annually, or similar fluctuating cri-
teria. 
‘‘(ii) CERTAIN CHANGES IN THE MODE 
OF
PAYMENTS.—Annuity payments shall 
not fail to be treated as part of a series of 
substantially 
equal 
periodic 
payments 
merely because the period between each 
such payment is lengthened or shortened, 
but only if at all times such period is no 
longer than one year. 
‘‘(iii) PERMITTED REDUCTIONS.—An-
nuity payments shall not fail to be treated 
as part of a series of substantially equal 
periodic payments merely because, in the 
case of an annuity payable over the joint 
lives of the qualified distributee and the 
qualified distributee’s designated bene-
ficiary, the amounts paid after the death of
the qualified distributee or the qualified 
distributee’s designated beneficiary are less 
than the amounts payable during their 
joint lives. 
‘‘(iv) 
CERTAIN
CONTRACT
BENE-
FITS.—The availability of a commutation 
benefit or other feature permitting accel-
eration of annuity payments (or modifica-
tion of the period during which such a ben-
efit is available), a minimum period of pay-
ments certain, or a minimum amount to be 
paid in any event shall not affect the treat-
ment of a distribution as a lifetime annuity 
payment. 
‘‘(v) ELIGIBLE RETIREMENT PLANS.— 
Payments from an eligible retirement plan 
(within the meaning of section 402(c)(8)) 
shall not be treated as lifetime annuity 
payments. 
‘‘(6) QUALIFIED DISTRIBUTEE.— 
‘‘(A) IN GENERAL.—For purposes of sub-
section (b)(5), the term ‘qualified distributee’ 
means an annuitant, the surviving spouse of an 
annuitant, or an alternate payee of an annu-
itant under the contract.
‘‘(B) ALTERNATE PAYEE DEFINED.—For 
purposes of this paragraph, the term ‘alternate 
payee’ means any spouse or former spouse of 
an annuitant under the contract who is recog-
nized by a domestic relations order as having a 
right to receive all, or a portion of, the benefits 
payable under the contract with respect to such 
annuitant. For purposes of the preceding sen-
tence, the term ‘domestic relations order’ means 
any judgment, decree, or order (including ap-
proval of a property settlement agreement) that 
relates to the provision of child support, ali-
mony payments, or marital property rights to a 
spouse or former spouse of an annuitant under 
the contract and is made pursuant to a State 
domestic relations law (including community 
property law). 
‘‘(7) ANNUITY
CONTRACT.—For purposes of 
subsections (b)(5), (c)(5), and (w), the term ‘annuity 
contract’— 
‘‘(A) means a commercial annuity within 
the meaning of section 3405(e)(6), other than 
an endowment or life insurance contract, and 
‘‘(B) does not include any annuity contract 
that is a qualified funding asset (as defined in
section 130(d)), but without regard to whether 
there is a qualified assignment.’’. 
(C) RECAPTURE TAX.—Section 72 of such 
Code is amended by redesignating subsection 
(w) as subsection (x) and inserting after sub-
section (v) the following new subsection (w): 
‘‘(w) RECAPTURE TAX.— 
‘‘(1) IN GENERAL.—If— 
‘‘(A) an amount is not includible in gross 
income by reason of subsection (b)(5) (relating 
to lifetime annuity payments), and 
‘‘(B) the series of payments of which such 
payment is a part is subsequently modified 
(other than by reason of death or disability) so 
that some or all future payments are not life-
time annuity payments, 
the qualified distributee’s gross income for the first 
taxable year in which such modification occurs shall 
be increased by an amount, determined under rules 
prescribed by the Secretary, equal to the amount 
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(w) 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. 208. FACILITATION UNDER FIDUCIARY RULES OF CER-
TAIN ROLLOVERS AND ANNUITY DISTRIBU-
TIONS. 
(a) IN GENERAL.—Section 404(c) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 
1104(c)) is amended by adding at the end the following 
new paragraph: 
‘‘(4)(A) In the case of a pension plan which makes 
a transfer under section 401(a)(31)(A) of the Internal 
Revenue Code of 1986 to an individual retirement plan 
(as defined in section 7701(a)(37) of such Code) in con-
nection with a participant or beneficiary or makes a dis-
tribution to a participant or beneficiary of an annuity con-
tract described in subparagraph (B), the participant or
beneficiary shall, for purposes of paragraph (1), be treated 
as exercising control over the transfer or distribution if— 
‘‘(i) the participant or beneficiary elected such 
transfer or distribution, and 
‘‘(ii) in connection with such election, the par-
ticipant or beneficiary was given an opportunity to 
elect any other individual retirement plan (in the 
case of a transfer) or any other annuity contract de-
scribed in subparagraph (B) (in the case of a dis-
tribution). 
‘‘(B) An annuity contract is described in this sub-
paragraph if it provides, either on an immediate or de-
ferred basis, a series of substantially equal periodic pay-
ments (not less frequently than annually) for the life of 
the participant or beneficiary or the joint lives of the par-
ticipant or beneficiary and such individual’s designated 
beneficiary. Annuity payments shall not fail to be treated 
as part of a series of substantially equal periodic payments 
merely because the amount of the periodic payments may 
vary in accordance with investment experience, realloca-
tions among investment options, actuarial gains or losses, 
cost of living indices, a constant percentage (not less than 
zero) applied not less frequently than annually, or similar 
fluctuating criteria. Annuity payments shall not fail to be 
treated as part of a series of substantially equal periodic
payments merely because the period between each such 
payment is lengthened or shortened, but only if at all 
times such period is not longer than one year. The avail-
ability of a commutation benefit or other feature permit-
ting acceleration of annuity payments (or a modification 
of the period during which such a benefit is available), 
a minimum period of payments certain, or a minimum 
amount to be paid in any event shall not affect the treat-
ment of an annuity contract as an annuity contract de-
scribed in this subparagraph. 
‘‘(C) Under regulations prescribed by the Secretary, 
this paragraph shall apply without regard to whether the 
particular individual retirement plan receiving the transfer 
or the particular annuity contract being distributed is spe-
cifically identified by the pension plan as available to the 
participant or beneficiary. 
‘‘(D) Notwithstanding the preceding provisions of 
this paragraph, paragraph (1)(B) shall not apply with re-
spect to liability under section 406 in connection with the 
specific identification of any individual retirement plan or 
annuity contract as being available to the participant or 
beneficiary.’’. 
(b) EFFECTIVE DATE AND RELATED RULES.—
(1) EFFECTIVE DATE.—The amendment made 
by this section shall take effect on the date of the 
enactment of this Act. 
(2) ISSUANCE OF FINAL REGULATIONS.—Final 
regulations under section 404(c)(4) of the Employee 
Retirement Income Security Act of 1974 (added by 
this section) shall be issued no later than 1 year 
after the date of the enactment of this Act. 
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 affirmative elec-
tion 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 fifth 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 employees other 
than highly compensated employees eligible 
to participate in the arrangement. 
‘‘(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.—The requirements of this sub-
paragraph are met if, under the arrangement, 
the employer—
‘‘(i) makes matching contributions 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 employee to the extent such elective 
contributions do not exceed 6 percent of 
compensation, or 
‘‘(ii) is required, without regard to 
whether the employee makes an elective 
contribution or employee contribution, to 
make a contribution to a defined contribu-
tion plan on behalf of each employee who 
is not a highly compensated employee and 
who is eligible to participate in the ar-
rangement in an amount equal to at least 
2 percent of the employee’s compensation. 
The rules of clauses (ii) and (iii) of paragraph 
(12)(B) shall apply for purposes of clause (i). 
The rules of clause (ii) of paragraph (12)(E) 
shall apply for purposes of clauses (i) and (ii). 
‘‘(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 
‘‘(II) has a reasonable period of 
time after receipt of such notice and 
before the first elective contribution is 
made to make 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-
ments of paragraph (2) with respect to match-
ing contributions if the plan— 
‘‘(i) meets the contribution require-
ments of subparagraphs (B)(i) and (D) of 
subsection (k)(13), 
‘‘(ii) meets the participation require-
ments of subsection (k)(13)(C),
‘‘(iii) meets the vesting and notice re-
quirements of subparagraphs (E) and (F) 
of subsection (k)(13), and 
‘‘(iv) meets the requirements of para-
graph (11)(B). 
‘‘(B) MATCHING CONTRIBUTIONS.—An an-
nuity contract under section 403(b) shall be 
treated as meeting the requirements of para-
graph (2) with respect to matching contribu-
tions if such contract meets requirements simi-
lar to the requirements under subparagraph 
(A).’’. 
(c) EXCLUSION FROM DEFINITION OF TOP-HEAVY 
PLANS.— 
(1) ELECTIVE
CONTRIBUTION
RULE.—Clause 
(i) of section 416(g)(4)(H) of such Code is amended 
by 
inserting 
‘‘or 
401(k)(13)’’ 
after 
‘‘section 
401(k)(12)’’. 
(2) MATCHING
CONTRIBUTION
RULE.—Clause 
(ii) of section 416(g)(4)(H) of such Code is amended 
by 
inserting 
‘‘or 
401(m)(12)’’ 
after 
‘‘section 
401(m)(11)’’. 
(d) DEFINITION OF COMPENSATION.— 
(1) BASE
PAY
OR
RATE
OF
PAY.—The Sec-
retary of the Treasury shall, by no later than De-
cember 31, 2006, modify Treasury Regulation sec-
tion 1.414(s)–1(d)(3) to facilitate the use of the safe 
harbors 
in 
section 
401(k)(12), 
401(k)(13), 
401(m)(11), and 401(m)(12) of the Internal Rev-
enue Code of 1986, and in Treasury Regulation sec-
tion 1.401(a)(4)–3(b) by plans that use base pay or 
rate of pay in determining contributions or benefits. 
Such facilitation shall include increased flexibility in 
satisfying section 414(s) of such Code in situations 
where the amount of overtime compensation payable 
in a year can vary significantly. 
(2) APPLICATION OF REQUIREMENTS TO SEPA-
RATE PAYROLL PERIODS.—Not later than December 
31, 2005, the Secretary of the Treasury shall issue 
rules under subparagraphs (B)(i) and (D)(i) of sec-
tion 401(k)(13) of such Code and under clause (i) 
of section 401(m)(12)(A) of such Code that, effec-
tive for plan years beginning after December 31, 
2005, permit such requirements to be applied sepa-
rately to separate payroll periods based on rules 
similar to the rules described in Proposed Treasury 
Regulation 
sections 
1.401(k)–3(c)(5)(ii) 
and 
1.401(m)–3(d)(4).
(e) SECTION 403(B) CONTRACTS.—Paragraph (11) 
of section 401(m) of such Code is amended by adding at 
the end the following: 
‘‘(C) SECTION 403(B) CONTRACTS.—An an-
nuity contract under section 403(b) shall be 
treated as meeting the requirements of para-
graph (2) with respect to matching contribu-
tions if such contract meets requirements simi-
lar to the requirements under subparagraph 
(A).’’. 
(f) INVESTMENTS AND PREEMPTION.— 
(1) CONTROL DEEMED TO HAVE BEEN EXER-
CISED WITH RESPECT TO AMOUNT OF AUTOMATIC 
CONTRIBUTIONS.—Section 404(c) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 
1104(c)) (as amended by this Act) is amended by 
adding at the end the following new paragraphs: 
‘‘(5)(A) A participant in an individual account plan 
shall, for purposes of paragraph (1), be treated as exer-
cising control over the assets in the account with respect 
to the amount of contributions made under an automatic 
contribution arrangement. 
‘‘(B) For purposes this paragraph, the term ‘auto-
matic contribution arrangement’ means an arrangement—
‘‘(i) which meets the requirements of subpara-
graph (C), 
‘‘(ii) under which a participant may elect to 
have the employer make payments as contributions 
under the plan on behalf of the participant, or to the 
participant directly in cash, 
‘‘(iii) under which the participant is treated as 
having elected to have the employer make such con-
tributions in an amount equal to a uniform percent-
age of compensation provided under the plan until 
the participant affirmatively elects not to have such 
contributions made (or affirmatively elects to have 
such contributions made at a different percentage), 
and 
‘‘(iv) under which contributions described in 
clause (iii) are invested in accordance with regula-
tions prescribed by the Secretary, which regulations 
shall provide for the investment of a portion of the 
contributions in a diversified investment vehicle that 
is intended to provide long-term capital appreciation. 
‘‘(C)(i) The administrator of an individual account 
plan shall, within a reasonable period before each plan 
year, give to each employee to whom an automatic con-
tribution arrangement applies for such plan year notice
of the employee’s rights and obligations under the ar-
rangement which— 
‘‘(I) is sufficiently accurate and comprehensive 
to appraise the employee of such rights and obliga-
tions, and 
‘‘(II) is written in a manner calculated to be 
understood by the average employee to whom the ar-
rangement applies. 
‘‘(ii) A notice shall not be treated as meeting the re-
quirements of clause (i) with respect to an employee un-
less— 
‘‘(I) the notice includes a notice explaining the 
employee’s right under the arrangement to elect not 
to have elective contributions made on the employ-
ee’s behalf (or to elect to have such contributions 
made at a different percentage), 
‘‘(II) the employee has a reasonable period of 
time after receipt of the notice described in sub-
clause (I) and before the first elective contribution 
is made to make such election, and 
‘‘(III) the notice explains how contributions 
made under the arrangement will be invested in the 
absence of any investment election by the employee. 
‘‘(6)(A) A participant in an individual account plan 
shall, for purposes of paragraph (1), be treated as exer-
cising control over the assets in the account with respect 
to contributions described in subparagraph (B). 
‘‘(B) Contributions are described in this subpara-
graph (B) if— 
‘‘(i) such contributions are not described in 
paragraph (5), 
‘‘(ii) the administrator of the plan satisfies 
rules similar to the rules of paragraph (5)(C) (ex-
cept that the notice shall relate to the employee’s 
right to make a different investment election), and 
‘‘(iii) such contributions are invested pursuant 
to the regulations under paragraph (5)(B)(iv).’’. 
(2) PREEMPTION OF CONFLICTING STATE REG-
ULATION.—Section 514(b) of such Act (29 U.S.C. 
1144(b)) is amended— 
(A) by redesignating paragraph (9) as 
paragraph (10); and 
(B) by inserting after paragraph (8) the 
following new paragraph: 
‘‘(9) Notwithstanding any other provision of this sec-
tion, any law of a State which would directly or indirectly 
prohibit or restrict the inclusion in any plan of an auto-
matic contribution arrangement (as defined in section 
404(c)(4)(B)) shall be superseded. The Secretary may 
prescribe regulations which would establish minimum
standards that such arrangements would be required to 
satisfy in order for this paragraph to apply.’’. 
(g) CORRECTIVE DISTRIBUTIONS.—Section 414 (re-
lating to definitions and special rules) is amended by add-
ing at the end the following new subsection: 
‘‘(y) AUTOMATIC CONTRIBUTION ARRANGEMENTS.— 
‘‘(1) IN GENERAL.—For purposes of this title, 
the amount of any corrective distribution from a 
plan shall be treated as if such amount had never 
been held in such plan and shall be treated as a pay-
ment of compensation from the employer maintain-
ing the plan to the employee receiving such distribu-
tion. 
‘‘(2) CORRECTIVE
DISTRIBUTION.—For pur-
poses of this subsection, the term ‘corrective dis-
tribution’ means a distribution from an applicable 
employer plan of all amounts attributable to an erro-
neous automatic contribution. 
‘‘(3) 
ERRONEOUS
AUTOMATIC
CONTRIBU-
TION.—For purposes of this subsection, the term 
‘erroneous automatic contribution’ means an elective 
contribution made on behalf of an employee under 
any applicable employer plan pursuant to a plan pro-
vision treating the employee as having elected to 
have the employer make such elective contribution
until the employee affirmatively elects not to have 
such contribution made or affirmatively elects to 
make contributions at a specified level, if the fol-
lowing requirements are satisfied— 
‘‘(A) within the applicable period, the em-
ployee notifies the plan administrator that the 
employee had not known that the elective con-
tribution would be made and that the employee 
would not have elected to have such contribu-
tion made, and 
‘‘(B) the sum of the elective contributions 
that are treated as erroneous automatic con-
tributions with respect to an employee does not 
exceed $500. 
‘‘(4) APPLICABLE EMPLOYER PLAN.—For pur-
poses of this subsection, the term ‘applicable em-
ployer plan’ has the meaning described in subsection 
(v)(6)(A) except that the term shall not include an 
eligible deferred compensation plan maintained by 
an 
eligible 
employer 
described 
in 
section 
457(e)(1)(B). 
‘‘(5) APPLICABLE
PERIOD.—For purposes of 
this subsection, with respect to an employee, the 
term ‘applicable period’ means the three month pe-
riod that begins on the first date that an amount is
withheld from compensation payable to the employee 
in order to make a plan contribution pursuant to a 
plan provision described in paragraph (3).’’. 
(h) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided by para-
graph (2), the amendments made by this section 
shall apply to plan years beginning after December 
31, 2005. 
(2) SECTION 403(b) CONTRACTS.—The amend-
ments made by subsection (e) shall apply to years 
beginning after December 31, 1998. 
(3) REGULATIONS.—Final regulations under 
section 404(c)(5)(B)(iv) of the Employee Retirement 
Income Security Act of 1974 (added by this section) 
shall be issued no later than 6 months after the date 
of enactment of this Act. 
SEC. 210. FACILITATING LONGEVITY INSURANCE. 
(a) IN GENERAL.—Paragraph (9) of section 401(a) 
of the Internal Revenue Code of 1986, as amended by this 
Act, is amended by inserting after subparagraph (H) the 
following new subparagraph: 
‘‘(I) LONGEVITY INSURANCE.— 
‘‘(i) IN
GENERAL.—For purposes of 
this paragraph, any value attributable to 
longevity insurance shall be disregarded in
determining the value of an employee’s in-
terest under a plan prior to the first date 
that payments are made under the lon-
gevity insurance. 
‘‘(ii) 
LONGEVITY
INSURANCE
DE-
FINED.—For purposes of this subpara-
graph, the term ‘longevity insurance’ 
means an annuity payable on behalf of the 
employee under which— 
‘‘(I) payments commence not 
later than 12 months following the 
calendar month in which the employee 
attains age 85 (or would have at-
tained age 85), 
‘‘(II) payments are made in sub-
stantially equal periodic payments 
(not less frequently than annually) 
over the life of the employee or the 
joint lives of the employee and the 
employee’s 
designated 
beneficiary, 
taking into account the rules of clause 
(i)(II) of section 402(e)(7)(D), except 
as otherwise provided in subclause 
(III),
‘‘(III) prior to the death of the 
employee, the annuity does not make 
available any commutation benefit, 
cash surrender value, or other similar 
feature, and 
‘‘(IV) except as provided in rules 
prescribed by the Secretary, in the 
case of an employee’s death prior to 
the date that payments commence, the 
value of any death benefits paid may 
not exceed the premiums paid for 
such annuity, plus interest com-
pounded annually at 3 percent. 
‘‘(iii) ADJUSTING AGE.—For purposes 
of clause (ii)(I), the Secretary shall annu-
ally increase age 85 to reflect increases in 
life expectancy (as determined by the Sec-
retary) that occur on or after January 1, 
2006, except that any such increased age 
which is not a whole number shall be 
rounded to the next lower whole number.’’. 
(b) RULES.—Not later than one year after the date 
of enactment of this Act, the Secretary of the Treasury 
shall prescribe rules under which all or a portion of a par-
ticipant’s benefits under any plan described in section
402(c)(8)(B) of the Internal Revenue Code of 1986 may 
be treated as longevity insurance under the rules of section 
401(a)(9)(I) of such Code. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2006. 
SEC. 211. DIRECT PAYMENT OF TAX REFUNDS TO INDI-
VIDUAL RETIREMENT PLANS. 
(a) IN GENERAL.—Paragraph (3) of section 219(f) 
of the Internal Revenue Code of 1986 is amended to read 
as follows: 
‘‘(3) TIME WHEN CONTRIBUTIONS MADE.— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), for purposes of this sub-
section, a taxpayer shall be deemed to have 
made a contribution to an individual retirement 
plan on the last day of the preceding taxable 
year if the contribution is made on account of 
such taxable year and is made not later than 
the time prescribed by law for filing the return 
for such taxable year (not including extensions 
thereof). 
‘‘(B) DIRECT PAYMENT OF TAX REFUNDS 
TO INDIVIDUAL RETIREMENT PLANS.—
‘‘(i) IN GENERAL.—To the extent pro-
vided in rules prescribed by the Secretary, 
a tax refund owed to a taxpayer and paid 
directly to an individual retirement plan 
shall be deemed a contribution made by 
the taxpayer— 
‘‘(I) on the last day of the tax-
able year to which such refund re-
lates, and 
‘‘(II) on account of the taxable 
year to which such refund relates. 
‘‘(ii) 
LIMITATION.—This 
subpara-
graph (B) shall not apply to a tax refund 
unless such refund is shown on a return 
filed not later than the time prescribed by 
law for filing the return for the taxable 
year to which such refund relates (not in-
cluding extensions thereof). 
‘‘(iii) DIRECT
PAYMENT.—For pur-
poses of this subparagraph, a tax refund is 
paid directly to an individual retirement 
plan if it is paid in the form of a direct 
transfer from the Secretary to the trustee 
or issuer of the individual retirement plan.
‘‘(iv) TAX REFUND.—For purposes of 
this subparagraph, the term ‘tax refund’ 
means a refund of an internal revenue tax 
or credit.’’. 
(b) REGULATIONS.— 
(1) IN GENERAL.—Not later than 1 year after 
the date of enactment of this Act, the Secretary of 
the Treasury shall issue rules which permit a tax-
payer— 
(A) to elect to have all or any portion of 
a tax refund owed to the taxpayer paid directly 
to a Roth IRA, or, if the Secretary determines 
that such direct payments are reasonably ad-
ministrable, to individual retirement plans 
which are not Roth IRAs, 
(B) to specify the individual retirement 
plan to which such tax refund is to be paid 
(and the investment option in which such tax 
refund is to be invested), and 
(C) to the extent provided in rules pre-
scribed by the Secretary, to specify the taxable 
year on account of which such payment is 
made, 
except that the Secretary may require that the 
amount subject to such an election exceed a dollar
threshold determined by the Secretary as necessary 
or appropriate to ensure the administrability of such 
elections. 
(2) INFORMATION.—The Secretary may require 
that the taxpayer provide, and agree to the disclo-
sure of, any information necessary to pay the tax re-
fund to the individual retirement plan specified by 
the taxpayer. 
(3) SPECIAL RULE.—The Secretary may pro-
vide that if, for any reason, the trustee or issuer 
does not accept payment of a tax refund, the tax re-
fund shall instead be paid as if the taxpayer had not 
elected a direct payment to an individual retirement 
plan. 
(c) CONFORMING AMENDMENTS.— 
(1) Paragraph (3) of section 408(o) of such 
Code is amended by striking ‘‘rule’’ and inserting 
‘‘rules’’. 
(2) Paragraph (7) of section 408A(c) of such 
Code is amended by striking ‘‘rule’’ and inserting 
‘‘rules’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall be effective for tax returns filed after 
final rules implementing the amendments made by this 
section are prescribed.
SEC. 212. TREATMENT OF QUALIFIED RETIREMENT PLAN-
NING SERVICES. 
(a) IN GENERAL.—Subsection (m) of section 132 
(defining qualified retirement services) is amended by add-
ing at the end the following new paragraph: 
‘‘(4) NO CONSTRUCTIVE RECEIPT.—No amount 
shall be included in the gross income of any em-
ployee solely because the employee may choose be-
tween any qualified retirement planning services pro-
vided by a qualified investment advisor and com-
pensation which would otherwise be includible in the 
gross income of such employee. The preceding sen-
tence shall apply to highly compensated employees 
only if the choice described in such sentence is avail-
able on substantially the same terms to each mem-
ber of the group of employees normally provided 
education and information regarding the employer’s 
qualified employer plan.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 403(b)(3)(B) is amended by insert-
ing ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 
(2) Section 414(s)(2) is amended by inserting 
‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 
(3) Section 415(c)(3)(D)(ii) is amended by in-
serting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’.
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2005. 
SEC. 213. REPEAL OF COMBINED PLAN DEDUCTION LIMIT. 
(a) IN GENERAL.—Paragraph (7) of section 404(a) 
of such Code (relating to limitations on deductions where 
combination of defined contribution plan and defined ben-
efit plan) is amended by adding at the end the following: 
‘‘(D) EXEMPTION.—This paragraph shall 
not apply to contributions by any employer if 
such employer or any member of such employ-
er’s controlled group (within the meaning of 
section 412(l)(8)(C)) maintains a defined ben-
efit plan that is covered by title IV of the Em-
ployee Retirement Income Security Act of 
1974.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contributions for taxable years 
beginning after December 31, 2005.
TITLE 
III—EXPANDING 
SMALL 
BUSINESS RETIREMENT PLAN 
COVERAGE AND MAKING THE 
ELECTIVE DEFERRAL RULES 
SIMPLER 
AND 
MORE 
UNI-
FORM 
SEC. 301. ALLOW ADDITIONAL NONELECTIVE CONTRIBU-
TIONS TO SIMPLE PLANS. 
(a) IN GENERAL.— 
(1) MODIFICATION TO DEFINITION.—Subpara-
graph (A) of section 408(p)(2) of the Internal Rev-
enue Code of 1986 (defining qualified salary reduc-
tion arrangement) is amended by striking ‘‘and’’ at 
the end of clause (iii), by redesignating clause (iv) 
as clause (v), and by inserting after clause (iii) the 
following new clause: 
‘‘(iv) the employer may make nonelec-
tive contributions of a uniform percentage 
(up to 10 percent) of compensation for 
each employee who is eligible to participate 
in the arrangement and who has at least 
$5,000 of compensation from the employer 
for the year, and’’. 
(2) LIMITATION.—Subparagraph (A) of section 
408(p)(2) of such Code (defining qualified salary reduc-
tion arrangement) is amended by adding at the end the 
following: ‘‘The compensation taken into account under 
clause (iv) for any year shall not exceed the limitation in 
effect for such year under section 401(a)(17).’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 408(p)(2)(A)(v) of such Code, as re-
designated by subsection (a), is amended by striking 
‘‘or (iii)’’ and inserting ‘‘, (iii), or (iv)’’. 
(2) Paragraph (8) of section 408(p) of such 
Code is amended by inserting ‘‘, the employer con-
tribution actually made under paragraph (2)(A)(iv) 
of this subsection,’’ after ‘‘paragraph (2)(A)(ii) of 
this subsection’’. 
(3) Section 401(k)(11)(B)(i) of such Code is 
amended by striking ‘‘and’’ at the end of subclause 
(II), by redesignating subclause (III) as subclause 
(IV), and by inserting after subclause (II) the fol-
lowing new subclause: 
‘‘(III) the employer may make 
nonelective contributions of a uniform 
percentage (up to 10 percent) of com-
pensation for each employee who is el-
igible to participate in the arrange-
ment and who has at least $5,000 of
compensation from the employer for 
the year, and’’ 
(4) Section 401(k)(11)(B)(i)(IV) of such Code, 
as redesignated by paragraph (2), is amended by 
striking ‘‘or (II)’’ and inserting ‘‘, (II), or (III)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2005. 
SEC. 302. CONFORM MATCHING CONTRIBUTION RULES FOR 
SIMPLE IRAS AND SIMPLE 401(K)S. 
(a) 
IN
GENERAL.—Subclause 
(II) 
of 
section 
401(k)(11)(B)(i) of the Internal Revenue Code of 1986 
(relating to general rule for contribution requirements) is 
amended by striking ‘‘3 percent’’ and inserting ‘‘the appli-
cable percentage (as defined in section 408(p)(2)(C)(ii))’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to years beginning after December 
31, 2005. 
SEC. 303. UNIFORM CATCH-UP CONTRIBUTION RULE. 
(a) 
IN
GENERAL.—Clause 
(iii) 
of 
section 
414(v)(6)(A) of the Internal Revenue Code of 1986 is 
amended to read as follows: 
‘‘(iii) an eligible deferred compensa-
tion plan (as defined in section 457(b)), 
and’’.
(b) CONFORMING AMENDMENT.—Paragraph (18) of 
section 457(e) of such Code is amended by striking ‘‘and 
who is a participant in an eligible deferred compensation 
plan of an employer described in paragraph (1)(A)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2005. 
SEC. 304. UNIFORM DEFINITION OF COMPENSATION. 
(a) COMPENSATION.— 
(1) IN GENERAL.—Subparagraph (A) of section 
415(c)(3) of the Internal Revenue Code of 1986 is 
amended to read as follows: 
‘‘(A) IN
GENERAL.—The term ‘partici-
pant’s compensation’ means wages (as defined 
by section 3401(a)) and all other payments of 
compensation to an employee by his employer 
(in the course of the employer’s trade or busi-
ness) for the year for which the employer is re-
quired to furnish the employee a written state-
ment under section 6041(d), 6051(a)(3), or 
6052. In accordance with rules prescribed by 
the Secretary, compensation shall be deter-
mined without regard to any rules under section 
3401(a) that limit the remuneration included in
wages based on the nature or location of the 
employment or the services performed.’’. 
(2) CERTAIN
PICKED
UP
CONTRIBUTIONS.— 
Subparagraph (D) of section 415(c)(3) of such Code 
is amended by striking ‘‘and’’ at the end of clause 
(i), redesignating clause (ii) as clause (iii), and in-
serting after clause (i) the following: 
‘‘(ii) any employee contributions that 
are picked up under section 414(h)(2), 
and’’. 
(3) FIVE-YEAR
RULE.—Subparagraph (E) of 
section 415(c)(3) of such Code is amended to read 
as follows: 
‘‘(E) FIVE-YEAR RULE.—In the case of an 
annuity contract described in section 403(b), at 
the election of the employer maintaining the ar-
rangement, the term ‘participant’s compensa-
tion’ shall not be determined for the year but 
shall be determined for the most recent period 
(ending not later than the close of the year) 
which constitutes a year of service and which 
precedes the year by no more than five years. 
For purposes of the preceding sentence, under 
rules prescribed by the Secretary, a year of 
service shall be a full year of full-time service
as an employee (or a combination of more than 
one year of part-year or part-time service).’’. 
(4) APPLICABILITY.—Paragraph (3) of section 
415(c) of such Code is amended by striking ‘‘For 
purposes of paragraph (1)—’’ and inserting ‘‘For 
purposes of this section—’’. 
(b) 403(b) PLANS.— 
(1) IN
GENERAL.—Subsection (b) of section 
403 of such Code is amended by striking paragraphs 
(3) and (4). 
(2) CONFORMING AMENDMENTS.— 
(A) Clauses (i) and (ii) of section 
414(e)(5)(B) of such Code are amended to read 
as follows: 
‘‘(i) 
the 
minister’s 
compensation 
under section 415(c)(3) shall be deter-
mined by reference to the minister’s earned 
income (within the meaning of section 
401(c)(2)) from such ministry rather than 
the amount of compensation which is re-
ceived from an employer, and 
‘‘(ii) the years (and portions of years) 
in which such minister was a self-employed 
individual (within the meaning of section 
401(c)(1)(B)) with respect to such min-
istry shall be included for purposes of sec-
tion 415(c)(3)(E).’’. 
(B) Paragraph (7) of section 414(u) of 
such Code is amended by striking ‘‘403(b)(3), 
415(c)(3),’’ and inserting ‘‘415(c)(3)’’. 
(C) Subparagraph (C) of section 415(c)(7) 
of such Code is amended by striking ‘‘includible 
compensation 
determined 
under 
section 
403(b)(3)’’ and inserting ‘‘compensation deter-
mined under section 415(c)(3)’’. 
(c) SIMPLIFIED EMPLOYEE PENSIONS.—Subpara-
graph (A) of section 402(h)(2) of such Code is amended 
to read as follows: 
‘‘(A) 25 percent of the compensation (with-
in the meaning of section 415(c)(3), except that 
for purposes of this subsection, amounts de-
scribed in section 6051(a)(3) shall be deter-
mined without regard to section 3401(a)(3)) 
from such employer for the year, or’’. 
(d) SIMPLE PLANS.—Subparagraph (A) of section 
408(p)(6) of such Code is amended to read as follows: 
‘‘(A) COMPENSATION.—The term ‘com-
pensation’ has the same meaning as the term 
‘participant’s compensation’ (as defined in sec-
tion 415(c)(3)), except that for purposes of this
subsection, 
amounts 
described 
in 
section 
6051(a)(3) shall be determined without regard 
to section 3401(a)(3).’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2005. 
SEC. 305. UNIFORM WITHDRAWAL RULES. 
(a) IN GENERAL.—Section 414 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the 
following: 
‘‘(w) DISTRIBUTABLE EVENT.—For purposes of this 
part— 
‘‘(1) IN
GENERAL.—The term ‘distributable 
event’ means with respect to a participant— 
‘‘(A) attainment of age 591⁄2, 
‘‘(B) death, 
‘‘(C) disability (within the meaning of sec-
tion 72(m)(7)), 
‘‘(D) severance from employment, 
‘‘(E) hardship, or 
‘‘(F) termination of the plan without the 
establishment or maintenance of a successor 
plan (other than an employee stock ownership 
plan as defined in section 4975(e)(7)). 
‘‘(2) SPECIAL RULES.—
‘‘(A) Subparagraphs (A) and (E) of para-
graph (1) shall not apply to a defined contribu-
tion plan to which section 412 applies. 
‘‘(B) Paragraph (1)(E) shall only apply to 
amounts described in clauses (i) or (ii) of sec-
tion 415(c)(3)(D) (without regard to earnings 
attributable to such amounts). 
‘‘(C) Paragraph (1)(F) shall not apply to 
a plan described in subsection (v)(6)(A)(ii) un-
less the employer maintaining such plan elects 
to maintain the plan pursuant to a plan docu-
ment. Under rules prescribed by the Secretary, 
a plan described in subsection (v)(6)(A)(ii) may 
be treated as terminated without regard to 
whether all assets of the plan are distributed. 
‘‘(D)(i) Paragraph (1)(F) shall not apply 
to an employee unless the employee receives a 
lump sum distribution by reason of the termi-
nation. 
‘‘(ii) For purposes of this subparagraph, 
the determination of whether a distribution is a 
lump sum distribution shall be made under sec-
tion 402(e)(4)(D) (without regard to subclauses 
(I), (II), (III), and (IV) of clause (i) thereof) 
or, in the case of plans not described in such
section, under similar rules. Such term includes 
a distribution that consists in whole or in part 
of an annuity contract.’’. 
(b) 401(k) PLANS.— 
(1) Clause (i) of section 401(k)(2)(B) of such 
Code is amended to read as follows: 
‘‘(i) may not be distributable to par-
ticipants or other beneficiaries earlier than 
the occurrence of a distributable event, 
and’’. 
(2) Section 401(k) of such Code is amended by 
striking paragraph (10). 
(3) The last sentence of subparagraph (C) of 
section 401(k)(7) of such Code is amended to read 
as follows: ‘‘For purposes of this section, the term 
‘hardship distribution’ means a distribution de-
scribed in section 414(w)(1)(E) (taking section 
414(w)(2)(B) into account but without regard to 
section 414(w)(2)(A)). 
(c) 403(b) PLANS.— 
(1) Clause (ii) of section 403(b)(7)(A) of such 
Code is amended to read as follows: 
‘‘(ii) under the custodial account, no 
such amounts may be paid or made avail-
able to any distributee before the occur-
rence of a distributable event.’’. 
(2) Paragraph (11) of section 403(b) of such 
Code is amended by striking ‘‘may be paid only’’ 
and all that follows and inserting ‘‘may be paid only 
upon the occurrence of a distributable event.’’. 
(d) ELIGIBLE DEFERRED COMPENSATION PLANS.— 
(1) Subparagraph (A) of section 457(d)(1) of 
such Code is amended to read as follows: 
‘‘(A) under the plan amounts will not be 
made available to participants or beneficiaries 
earlier than the occurrence of a distributable 
event,’’. 
(2) Paragraph (1) of section 457(a) of such 
Code is amended to read as follows: 
‘‘(1) IN GENERAL.—Any amount of compensa-
tion deferred under an eligible deferred compensa-
tion plan, and any income attributable to the 
amounts so deferred, shall be includible in gross in-
come only for the taxable year in which such com-
pensation or other income is paid to the participant 
or other beneficiary.’’. 
(3) Subsection (d) of section 457 of such Code 
is amended by striking paragraph (3).
(4) Paragraph (9) of section 457(e) of such 
Code is amended to read as follows: 
‘‘(9) SMALL BENEFITS NOT TREATED AS MADE 
AVAILABLE BY REASON OF CERTAIN ELECTIONS.— 
For purposes of subsection (d)(1)(A), the total 
amount payable to a participant under an eligible 
deferred compensation plan shall not be treated as 
made available merely because the participant may 
elect to receive such amount (or the plan may dis-
tribute such amount without the participant’s con-
sent) if— 
‘‘(A) the portion of such amount which is 
not attributable to rollover contributions (as de-
fined in section 411(a)(11)(D)) does not exceed 
the dollar limit under section 411(a)(11)(A), 
and 
‘‘(B) such amount may be distributed only 
if— 
‘‘(i) no amount has been deferred 
under the plan with respect to such partici-
pant during the 2-year period ending on 
the date of the distribution, and 
‘‘(ii) there has been no prior distribu-
tion under the plan to such participant to 
which this subparagraph applied.’’.
(e) HARDSHIP DEFINITION.— 
(1) IN GENERAL.—Within 180 days after the 
date of enactment of this Act, the Secretary of the 
Treasury shall issue rules under which, except as 
provided in paragraph (2), the determination of 
whether a participant has had a hardship for pur-
poses of section 414(w)(1)(E) of the Internal Rev-
enue Code of 1986 shall be made pursuant to Treas-
ury Regulation section 1.401(k)–1(d)(3), as such 
section is and amended from time to time by the 
Secretary. 
(2) BENEFICIARIES.—Within 180 days after 
the date of enactment of this Act, the Secretary of 
the Treasury shall modify the rules for determining 
whether a participant has had a hardship for pur-
poses of section 414(w)(1)(E) of such Code. Pursu-
ant to such modification, any event, such as a med-
ical expense, that would constitute a hardship if it 
occurred with respect to a participant’s spouse or 
dependent (as defined in section 152 of such Code) 
shall, to the extent permitted under a plan, con-
stitute a hardship if it occurs with respect to a per-
son who is a beneficiary with respect to the partici-
pant under the plan. 
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to years beginning after December 31, 
2005. 
(2) SPECIAL RULE.—In the case of amounts at-
tributable to contributions to an eligible deferred 
compensation plan (as defined in section 457(b) of 
the Internal Revenue Code of 1986) made before the 
first day of the first year beginning after December 
31, 2005, withdrawals of such amounts from such a 
plan may be permitted upon unforeseeable emer-
gency (as defined under section 457(d)(1)(A)(iii) of 
such Code, as in effect on the day before the enact-
ment of this Act). 
SEC. 306. ALLOW LEVEL DOLLAR CONTRIBUTIONS TO SEPS. 
(a) IN GENERAL.—Subparagraph (C) of section 
408(k)(3) of the Internal Revenue Code of 1986 (relating 
to contributions must bear uniform relationship to total 
compensation) is amended by inserting before the period 
at the end the following: ‘‘or unless such contributions are 
a uniform dollar amount on behalf of each such em-
ployee.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to years beginning after December 
31, 2005.
SEC. 307. TAX TREATMENT OF CERTAIN NONTRADE OR 
BUSINESS SEP CONTRIBUTIONS. 
(a) IN GENERAL.—Subparagraph (B) of section 
4972(c)(6) of the Internal Revenue Code of 1986 (relating 
to exceptions) is amended— 
(1) by striking ‘‘408(p) or’’ and inserting 
‘‘408(p),’’, and 
(2) by inserting after ‘‘401(k)(11))’’ the fol-
lowing: ‘‘, or a simplified employee pension (within 
the meaning of section 408(k))’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2005. 
SEC. 308. ALLOW CERTAIN PLAN TRANSFERS AND MERG-
ERS. 
(a) AMENDMENT TO THE INTERNAL REVENUE CODE 
OF 1986.— 
(1) IN GENERAL.—Section 414 of the Internal 
Revenue Code of 1986 (relating to definitions and 
special rules) is amended by adding at the end the 
following new subsection: 
‘‘(x) CERTAIN PLAN TRANSFERS AND MERGERS.— 
‘‘(1) IN GENERAL.—Under rules prescribed by 
the Secretary, no amount shall be includible in gross 
income by reason of—
‘‘(A) a transfer of all or a portion of the 
account balance of a participant or beneficiary, 
whether or not vested, from a defined contribu-
tion plan described in section 401(a) or section 
403(a) of an employer to an annuity contract 
described in section 403(b) of the same em-
ployer, 
‘‘(B) a transfer of all or a portion of the 
account balance of a participant or beneficiary, 
whether or not vested, from an annuity contract 
described in section 403(b) of an employer to a 
defined contribution plan described in section 
401(a) or section 403(a) of the same employer, 
or 
‘‘(C) a merger of a defined contribution 
plan described in section 401(a) or section 
403(a) of an employer with an annuity contract 
described in section 403(b) of the same em-
ployer, 
so long as the transfer or merger does not cause a 
reduction in the vested benefit or total benefit (in-
cluding non-vested benefit) of any participant or 
beneficiary. A plan or contract shall not fail to be 
considered to be described in sections 401(a), 
403(a), or 403(b) (as applicable) merely because
such plan or contract engages in a transfer or merg-
er described in this paragraph. 
‘‘(2) DISTRIBUTIONS.—Amounts transferred or 
merged pursuant to paragraph (1) shall be subject 
to the requirements of paragraphs (3) and (4) and 
to the distribution requirements under sections 
401(a), 403(a), or 403(b) applicable to the trans-
feree or merged plan. 
‘‘(3) SPOUSAL
CONSENT
AND
ANTI-CUTBACK 
PROTECTION.—In the case of a transfer or merger 
described in paragraph (1), amounts in the trans-
feree or merged plan that are attributable to the 
transferor or predecessor plan shall— 
‘‘(A)(i) be subject to section 401(a)(11) or 
section 205 of the Employee Retirement Income 
Security Act of 1974 to the extent that such 
sections applied to such amounts in the trans-
feror or predecessor plan, or 
‘‘(ii) be required to satisfy the require-
ments of section 401(a)(11)(B)(iii)(I) or section 
205(b)(1)(C)(i) of the Employee Retirement In-
come Security Act of 1974 to the extent that 
such sections applied to such amounts in the 
transferor or predecessor plan, and
‘‘(B) be treated as subject to section 
411(d)(6) and section 204(g) of the Employee 
Retirement Income Security Act of 1974 to the 
extent that such amounts were subject to such 
sections in the transferor or predecessor plan. 
‘‘(4) SPECIAL RULES.—Under rules prescribed 
by the Secretary, to the extent amounts transferred 
or merged pursuant to paragraph (1) were otherwise 
entitled to grandfather treatment under the trans-
feror or predecessor plan, such amounts (and income 
or loss attributable thereto) shall remain entitled to 
such treatment under the transferee or merged plan. 
The rules prescribed by the Secretary shall require 
that such amounts be separately accounted for by 
the transferee or merged plan. For purposes of this 
paragraph, ‘grandfather treatment’ shall mean spe-
cial treatment under the Internal Revenue Code of 
1986 that is provided for prior benefits, prior peri-
ods of time, or certain individuals in connection with 
a change in the applicable law. 
‘‘(5) CONSENT.—In the case of a qualified trust 
described in section 401(a) or 403(a) and an annu-
ity contract described in section 403(b) with respect 
to which transfers may be made only with the con-
sent of a participant or beneficiary pursuant to the
terms of such trust or contract or pursuant to appli-
cable law, such consent requirement shall apply 
without regard to this subsection. Nothing in this 
subsection shall affect the application of contract or 
plan terms otherwise applicable in the case of a 
withdrawal from the contract or plan.’’. 
(2) AGGREGATION.—Paragraph (2) of section 
414(t) of such Code is amended by inserting 
‘‘414(x),’’ after ‘‘274(j),’’. 
(b) AMENDMENT TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—Section 4 of the Em-
ployee Retirement Income Security Act of 1974 (29 
U.S.C. 1003) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(d) This title shall apply to any plan or contract de-
scribed in section 414(x) of the Internal Revenue Code 
of 1986 to the extent necessary to comply with the re-
quirements of such section.’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to transfers or mergers in 
years beginning after the Secretary of the Treasury 
prescribes rules under section 414(x) of the Internal 
Revenue Code of 1986.
(2) RULES.—The Secretary of the Treasury 
shall issue rules under section 414(x) of the Internal 
Code of 1986 within 1 year after the date of enact-
ment of this Act. 
TITLE IV—EXPANDING RETIRE-
MENT SAVINGS FOR TAX-EX-
EMPT 
ORGANIZATION 
AND 
GOVERNMENT EMPLOYEES 
SEC. 401. WAIVER OF 10 PERCENT EARLY WITHDRAWAL 
PENALTY TAX ON CERTAIN DISTRIBUTIONS 
OF PENSION PLANS FOR PUBLIC SAFETY EM-
PLOYEES. 
(a) IN GENERAL.—Subsection (t) of section 72 of the 
Internal Revenue Code of 1986 (relating to subsection not 
to apply to certain distributions) is amended by adding 
at the end the following new paragraph: 
‘‘(10) DISTRIBUTIONS
TO
QUALIFIED
PUBLIC 
SAFETY EMPLOYEES IN GOVERNMENTAL PLANS.— 
‘‘(A) IN GENERAL.—In the case of a dis-
tribution to a qualified public safety employee 
from a governmental plan (within the meaning 
of section 414(d)) which is a defined benefit 
plan, paragraph (2)(A)(v) shall be applied by 
substituting ‘age 50’ for ‘age 55’.
‘‘(B) QUALIFIED
PUBLIC
SAFETY
EM-
PLOYEE.—For purposes of this paragraph, the 
term ‘qualified public safety employee’ means 
any employee of a State or political subdivision 
of a State who provides police protection, fire-
fighting services, or emergency medical services 
for any area within the jurisdiction of such 
State or political subdivision.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to distributions after the date of 
the enactment of this Act. 
SEC. 402. CLARIFICATIONS REGARDING PURCHASE OF PER-
MISSIVE SERVICE CREDIT. 
(a) IN GENERAL.—Subparagraph (A) of section 
457(e)(17) of the Internal Revenue Code of 1986 (relating 
to trustee-to-trustee transfers to purchase permissive serv-
ice credit), and subparagraph (A) of section 403(b)(13) 
(relating to trustee-to-trustee transfers to purchase per-
missive service credit), are both amended by striking ‘‘sec-
tion 415(n)(3)(A)’’ and inserting ‘‘section 415(n)(3) 
(without regard to subparagraphs (B) and (C) thereof)’’. 
(b) 
DISTRIBUTION
REQUIREMENTS.—Section 
457(e)(17) and section 403(b)(13) of such Code are both 
amended by adding at the end the following sentence: 
‘‘Amounts transferred under this paragraph shall be dis-
tributed solely in accordance with section 401(a) as appli-
cable to such defined benefit plan.’’. 
(c) SERVICE
CREDIT.—Clause 
(ii) 
of 
section 
415(n)(3)(A) of such Code is amended to read as follows: 
‘‘(ii) which relates to benefits with re-
spect to which such participant is not oth-
erwise entitled, and’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as if included in the amend-
ments made by section 647 of the Economic Growth and 
Tax Relief Reconciliation Act of 2001. 
SEC. 403. ELIGIBILITY FOR PARTICIPATION IN RETIRE-
MENT PLANS. 
An individual shall not be precluded from partici-
pating in an eligible deferred compensation plan by reason 
of having received a distribution under section 457(e)(9) 
of the Internal Revenue Code of 1986, as in effect prior 
to the enactment of the Small Business Job Protection 
Act of 1996. 
SEC. 404. CLARIFICATION OF MINIMUM DISTRIBUTION 
RULES. 
The Secretary of the Treasury shall issue regulations 
under which a governmental plan (as defined in section 
414(d) of the Internal Revenue Code of 1986) shall, for 
all years to which section 401(a)(9) of such Code applies
to such plan, be treated as having complied with such sec-
tion 401(a)(9) if such plan complies with a reasonable 
good faith interpretation of such section 401(a)(9). 
SEC. 405. CHURCH PLAN RULE. 
(a) IN GENERAL.—Paragraph (11) of section 415(b) 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following: ‘‘Subparagraph (B) of para-
graph (1) shall not apply to a plan maintained by an orga-
nization described in section 3121(w)(3)(A) except with 
respect to highly compensated benefits. For purposes of 
this paragraph, the term ‘highly compensated benefits’ 
means any benefits accrued for an employee in any year 
on or after the first year in which such employee is a high-
ly compensated employee (as defined in section 414(q)) 
of the organization described in section 3121(w)(3)(A). 
For purposes of applying paragraph (1)(B) to highly com-
pensated benefits, all benefits of the employee otherwise 
taken into account (without regard to this paragraph) 
shall be taken into account.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to plan years beginning after De-
cember 31, 2005. 
SEC. 406. CLARIFICATION OF TREATMENT OF INDIAN TRIB-
AL GOVERNMENTS. 
(a) DEFINITION OF GOVERNMENTAL PLAN.—
(1) AMENDMENT TO INTERNAL REVENUE CODE 
OF 1986.—Section 414(d) of the Internal Revenue 
Code of 1986 (definition of governmental plan) is 
amended by adding at the end thereof the following 
new sentence: ‘‘The term ‘governmental plan’ also 
includes a plan established or maintained for its em-
ployees by an Indian tribal government (as defined 
in section 7701(a)(40)), a subdivision of an Indian 
tribal government (determined in accordance with 
section 7871(d)), an agency or instrumentality of an 
Indian tribal government or a subdivision thereof, or 
an entity established under tribal, Federal, or State 
law which is wholly owned or controlled by any of 
the foregoing.’’. 
(2) AMENDMENT TO EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—Section 3(32) of 
the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1002(32)) is amended by adding at 
the end the following new sentence: ‘‘The term ‘gov-
ernmental plan’ also includes a plan established or 
maintained for its employees by an Indian tribal 
government (as defined in section 7701(a)(40) of the 
Internal Revenue Code of 1986), a subdivision of an 
Indian tribal government (determined in accordance 
with section 7871(d) of such Code), an agency or in-
strumentality of an Indian tribal government or sub-
division thereof, or an entity established under trib-
al, Federal, or State law which is wholly owned or 
controlled by any of the foregoing.’’. 
(b) CLARIFICATION
OF TREATMENT
OF INDIAN 
TRIBAL GOVERNMENTS.— 
(1) AMENDMENTS
TO
INTERNAL
REVENUE 
CODE OF 1986.— 
(A) POLICE
AND
FIREFIGHTERS.—Sub-
paragraph (H) of section 415(b)(2) of the In-
ternal Revenue Code of 1986 (defining partici-
pant) is amended— 
(i) in clause (i) by striking ‘‘State or 
political subdivision’’ and inserting ‘‘State, 
Indian tribal government (as defined in 
section 7701(a)(40)), or any political sub-
division’’, and 
(ii) in clause (ii)(I) by striking ‘‘State 
or political subdivision’’ both places it ap-
pears and inserting ‘‘State, Indian tribal 
government (as so defined), or any political 
subdivision’’. 
(B) STATE
AND
LOCAL
GOVERNMENT 
PLANS.—