167 
options which meet the requirements 
of subparagraph (D), or 
‘‘(II) with respect to any em-
ployer security allocated to an applica-
ble individual’s account during any 
plan year, such applicable individual 
may elect to direct the plan to divest 
such employer security after a date 
which is not later than 3 years after 
the end of such plan year and to rein-
vest an equivalent amount in other in-
vestment options which meet the re-
quirements of subparagraph (D). 
‘‘(ii) APPLICABLE
INDIVIDUAL
WITH 
BENEFIT
BASED
ON
YEARS
OF
SERV-
ICE.—For purposes of clause (i), an appli-
cable individual has a benefit based on 3 
years of service if such individual would be 
an applicable individual if only participants 
in the plan who have completed at least 3 
years of service (as determined under sec-
tion 411(a)) were referred to in subpara-
graph (E)(ii)(I). 
‘‘(D) INVESTMENT OPTIONS.—The require-
ments of this subparagraph are met if—
168 
‘‘(i) the plan offers not less than 3 in-
vestment options, other than employer se-
curities, to which an applicable individual 
may direct the proceeds from the divest-
ment of employer securities pursuant to 
this paragraph, each of which is diversified 
and has materially different risk and re-
turn characteristics, and 
‘‘(ii) the plan permits the applicable 
individual to choose from any of the invest-
ment options made available under the 
plan to which such proceeds may be so di-
rected, subject to such restrictions as may 
be provided by the plan limiting such 
choice to periodic, reasonable opportunities 
occurring no less frequently than on a 
quarterly basis. 
‘‘(E) DEFINITIONS AND RULES.—For pur-
poses of this paragraph— 
‘‘(i) APPLICABLE DEFINED CONTRIBU-
TION PLAN.—The term ‘applicable defined 
contribution plan’ means any defined con-
tribution plan, except that such term does 
not include an employee stock ownership 
plan (within the meaning of section
169 
4975(e)(7)) unless there are any contribu-
tions to such plan (or earnings thereon) 
held within such plan that are subject to 
subsection (k)(3) or (m)(2). 
‘‘(ii) APPLICABLE
INDIVIDUAL.—The 
term ‘applicable individual’ means— 
‘‘(I) any participant in the plan, 
and 
‘‘(II) any beneficiary of a partici-
pant referred to in clause (i) who has 
an account under the plan with re-
spect to which the beneficiary is enti-
tled to exercise the rights of the par-
ticipant. 
‘‘(iii) 
ELECTIVE
DEFERRAL.—The 
term ‘elective deferral’ means an employer 
contribution 
described 
in 
section 
402(g)(3)(A) (as in effect on the date of 
the enactment of this paragraph). 
‘‘(iv) 
EMPLOYER
SECURITY.—The 
term ‘employer security’ shall have the 
meaning given such term by section 
407(d)(1) of the Employee Retirement In-
come Security Act of 1974 (as in effect on
170 
the date of the enactment of this para-
graph). 
‘‘(v) EMPLOYEE
STOCK
OWNERSHIP 
PLAN.—The term ‘employee stock owner-
ship plan’ shall have the same meaning 
given to such term by section 4975(e)(7) 
of the Internal Revenue Code of 1986 (as 
in effect on the date of the enactment of 
this paragraph). 
‘‘(vi) ELECTIONS.—Elections under 
this paragraph may be made not less fre-
quently than quarterly. 
‘‘(F) EXCEPTION
WHERE
THERE
IS
NO 
READILY
TRADABLE
STOCK.—This paragraph 
shall not apply if there is no class of stock 
issued by the employer that is readily tradable 
on an established securities market (or in such 
other circumstances as may be determined 
jointly by the Secretary of the Treasury and the 
Secretary of Labor in regulations). 
‘‘(G) TRANSITION RULE.— 
‘‘(i) IN GENERAL.—In the case of any 
defined contribution plan which, on the ef-
fective date of this subsection, holds em-
ployer securities of any class that were ac-
171 
quired before such date and on which there 
is a restriction on diversification otherwise 
precluded by this paragraph, this para-
graph shall apply to such securities of such 
class held in any plan year only with re-
spect to the number of such securities 
equal to the applicable percentage of the 
total number of such securities of such 
class held on such date. 
‘‘(ii) APPLICABLE PERCENTAGE.—For 
purposes of clause (i), the applicable per-
centage shall be as follows: 
‘‘Plan years for which provisions 
are effective: 
Applicable percentage: 
1st plan year ......................................................................................
2nd plan year .....................................................................................
3rd plan year ......................................................................................
4th plan year ......................................................................................
5th plan year or thereafter ................................................................
100. 
‘‘(iii) ELECTIVE DEFERRALS TREATED 
AS SEPARATE PLAN NOT INDIVIDUAL AC-
COUNT PLAN.—For purposes of clause (i), 
the applicable percentage shall be 100 per-
cent with respect to— 
‘‘(I) employee contributions to a 
plan under which any portion attrib-
utable to elective deferrals is treated 
as a separate plan under section 
407(b)(2) of the Employee Retirement
172 
Income Security Act of 1974 as of the 
date of the enactment of this para-
graph, and 
‘‘(II) such elective deferrals. 
‘‘(iv) CONTRIBUTIONS HELD WITHIN 
AN
ESOP.—In the case of contributions 
(other than elective deferrals and employee 
contributions) held within an employee 
stock ownership plan, in the case of the 1st 
and 2nd plan years referred to in the table 
in clause (ii), the applicable percentage 
shall be the greater of the amount deter-
mined under clause (ii) or the percentage 
determined under paragraph (28) (deter-
mined as if paragraph (28) applied to a 
plan described in this paragraph). 
‘‘(v) 
COORDINATION
WITH
PRIOR 
ELECTIONS
UNDER
PARAGRAPH
(28).—In 
any case in which a divestiture of invest-
ment in employer securities of any class 
held by an employee stock ownership plan 
prior to the effective date of this para-
graph was undertaken pursuant to an elec-
tion under paragraph (28) prior to such 
date, the applicable percentage (as deter-
173 
mined without regard to this clause) in 
connection with such securities shall be re-
duced to the extent necessary to account 
for the amount to which such election ap-
plied. 
‘‘(H) REGULATIONS.—The Secretary shall 
prescribe regulations under this paragraph in 
consultation with the Secretary of Labor.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 401(a)(28) of such Code is 
amended by adding at the end the following 
new subparagraph: 
‘‘(D) APPLICATION.—This paragraph shall 
not apply to a plan to which paragraph (35) ap-
plies.’’. 
(B) Section 409(h)(7) of such Code is 
amended by inserting before the period at the 
end ‘‘or subparagraph (B) or (C) of section 
401(a)(35)’’. 
(C) Section 4980(c)(3)(A) of such Code is 
amended by striking ‘‘if—’’ and all that follows 
and inserting ‘‘if the requirements of subpara-
graphs (B), (C), and (D) are met.’’. 
(c) EFFECTIVE DATE.—
174 
(1) IN GENERAL.—Except as provided in para-
graph (2) and section 604, the amendments made by 
this section shall apply to plan years beginning after 
December 31, 2005, and with respect to employer 
securities allocated to accounts before, on, or after 
the date of the enactment of this Act. 
(2) EXCEPTION.—The amendments made by 
this section shall not apply to employer securities 
held by an employee stock ownership plan which are 
acquired before January 1, 1987. 
SEC. 604. EFFECTIVE DATES AND RELATED RULES. 
(a) IN GENERAL.—Except as otherwise provided in 
the preceding provisions of this title or in subsection (c), 
the amendments made by this title shall apply with respect 
to plan years beginning on or after the general effective 
date. 
(b) GENERAL EFFECTIVE DATE.—For purposes of 
this section, the term ‘‘general effective date’’ means the 
date which is 1 year after the date of the enactment of 
this Act. 
(c) SPECIAL RULE FOR COLLECTIVELY BARGAINED 
PLANS.—In the case of a plan maintained pursuant to 1 
or more collective bargaining agreements between em-
ployee representatives and 1 or more employers ratified 
on or before the date of the enactment of this Act, sub-
175 
section (a) shall be applied to benefits pursuant to, and 
individuals covered by, any such agreement by substituting 
for ‘‘the general effective date’’ the date of the commence-
ment of the first plan year beginning on or after the ear-
lier of— 
(1) the later of— 
(A) the date which is 1 year after the gen-
eral effective date, or 
(B) the date on which the last of such col-
lective bargaining agreements terminates (de-
termined without regard to any extension there-
of after the date of the enactment of this Act), 
or 
(2) the date which is 2 years after the general 
effective date. 
TITLE VII—OTHER TAX PROVI-
SIONS 
RELATING 
TO 
PEN-
SIONS 
SEC. 701. REPORTING SIMPLIFICATION. 
(a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR 
OWNERS AND THEIR SPOUSES.— 
(1) IN GENERAL.—The Secretary of the Treas-
ury and the Secretary of Labor shall modify the re-
quirements for filing annual returns with respect to 
one-participant retirement plans to ensure that such
176 
plans with assets of $250,000 or less as of the close 
of the plan year need not file a return for that year. 
(2) ONE-PARTICIPANT RETIREMENT PLAN DE-
FINED.—For purposes of this subsection, the term 
‘‘one-participant retirement plan’’ means a retire-
ment plan with respect to which the following re-
quirements are met: 
(A) on the first day of the plan year— 
(i) the plan covered only one indi-
vidual (or the individual and the individ-
ual’s spouse) and the individual owned 100 
percent of the plan sponsor (whether or 
not incorporated), or 
(ii) the plan covered only one or more 
partners (or partners and their spouses) in 
the plan sponsor; 
(B) the plan meets the minimum coverage 
requirements of section 410(b) of the Internal 
Revenue Code of 1986 without being combined 
with any other plan of the business that covers 
the employees of the business; 
(C) the plan does not provide benefits to 
anyone except the individual (and the individ-
ual’s spouse) or the partners (and their 
spouses);
177 
(D) the plan does not cover a business that 
is a member of an affiliated service group, a 
controlled group of corporations, or a group of 
businesses under common control; and 
(E) the plan does not cover a business that 
leases employees. 
(3) OTHER DEFINITIONS.—Terms used in para-
graph (2) which are also used in section 414 of the 
Internal Revenue Code of 1986 shall have the re-
spective meanings given such terms by such section. 
(4) EFFECTIVE DATE.—The provisions of this 
subsection shall apply to plan years beginning on or 
after January 1, 2005. 
(b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR 
PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case 
of plan years beginning after December 31, 2006, the Sec-
retary of the Treasury and the Secretary of Labor shall 
provide for the filing of a simplified annual return for any 
retirement plan which covers less than 25 employees on 
the first day of a plan year and which meets the require-
ments described in subparagraphs (B), (D), and (E) of 
subsection (a)(2).
178 
SEC. 702. IMPROVEMENT OF EMPLOYEE PLANS COMPLI-
ANCE RESOLUTION SYSTEM. 
The Secretary of the Treasury shall continue to up-
date and improve the Employee Plans Compliance Resolu-
tion System (or any successor program) giving special at-
tention to— 
(1) increasing the awareness and knowledge of 
small employers concerning the availability and use 
of the program; 
(2) taking into account special concerns and 
circumstances that small employers face with respect 
to compliance and correction of compliance failures; 
(3) extending the duration of the self-correction 
period under the Self-Correction Program for signifi-
cant compliance failures; 
(4) expanding the availability to correct insig-
nificant compliance failures under the Self-Correc-
tion Program during audit; and 
(5) assuring that any tax, penalty, or sanction 
that is imposed by reason of a compliance failure is 
not excessive and bears a reasonable relationship to 
the nature, extent, and severity of the failure. 
The Secretary of the Treasury shall have full authority 
to effectuate the foregoing and to implement the Employee 
Plans Compliance Resolution System (or any successor 
program) and any other employee plans correction poli-