I 
108TH CONGRESS 
1ST SESSION 
H. R. 518
To amend the Internal Revenue Code of 1986 to increase portability among 
retirement plans. 
IN THE HOUSE OF REPRESENTATIVES 
JANUARY 31, 2003
Mr. POMEROY introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committee on Edu-
cation and the Workforce, for a period to be subsequently determined by 
the Speaker, in each case for consideration of such provisions as fall with-
in the jurisdiction of the committee concerned 
A BILL 
To amend the Internal Revenue Code of 1986 to increase 
portability among retirement plans.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; 
TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Retirement Account Portability Improvement Act of 
2003’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents. 
Sec. 2. Allow rollovers to spouse’s retirement plans. 
Sec. 3. Rollovers by nonspouse beneficiaries. 
Sec. 4. Facilitation under fiduciary rules of certain rollovers and annuity dis-
tributions. 
Sec. 5. Faster vesting of employer nonelective contributions. 
Sec. 6. Allow direct rollovers from retirement plans to Roth IRAs. 
Sec. 7. Rollover of after-tax amounts in annuity contracts. 
Sec. 8. Elimination of higher penalty on certain SIMPLE distributions. 
Sec. 9. SIMPLE plan portability. 
Sec. 10. Clarifications regarding purchase of permissive service credit. 
Sec. 11. Certain rollovers of benefits permitted. 
Sec. 12. Disposition of unused health benefits in cafeteria plans and flexible 
spending arrangements.
SEC. 2. ALLOW ROLLOVERS TO SPOUSE’S RETIREMENT 
PLANS. 
(a) EXEMPT TRUSTS.—Paragraph (9) of section 
402(c) (relating to rollover where spouse receives distribu-
tion after death of employee) is amended—
(1) by inserting ‘‘or transferred by the employee 
to the spouse’’ after ‘‘after the employee’s death’’ in 
the text, and 
(2) by amending the heading to read as follows: 
‘‘ROLLOVER
WHERE
SPOUSE
OF
EMPLOYEE
RE-
CEIVES DISTRIBUTION.—’’.
(b) IRAS.—Paragraph (3) of section 408(d) (relating 
to rollover contributions) is amended by adding at the end 
the following: 
‘‘(J) 
ROLLOVERS
TO
SPOUSE’S
AC-
COUNT.—For purposes of this paragraph, rules 
similar to the rules of section 402(c)(9) shall 
apply, except that the term ‘individual’ shall be 
applied in lieu of ‘employee’.’’. 
(c) EMPLOYEE ANNUITIES.—Subparagraph (B) of 
section 403(a)(4) (relating to rollover amounts) is amend-
ed by inserting ‘‘and (9)’’ after ‘‘through (7)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after the date 
of the enactment of this Act.
SEC. 3. ROLLOVERS BY NONSPOUSE BENEFICIARIES. 
(a) IN GENERAL.—
(1) QUALIFIED PLANS.—Section 402(c) (relat-
ing to rollovers from exempt trusts) is amended by 
adding at the end the following new paragraph: 
‘‘(11) ROLLOVER
WHERE
NONSPOUSE
BENE-
FICIARY RECEIVES DISTRIBUTION AFTER DEATH OF 
EMPLOYEE.—
‘‘(A) IN GENERAL.—If any distribution at-
tributable to an employee is paid to a des-
ignated beneficiary (as defined by section
401(a)(9)(E)) other than the surviving spouse 
of the employee after the employee’s death, the 
preceding provisions of this subsection shall 
apply to such distribution in the same manner 
as if the designated beneficiary were the em-
ployee, except that only a plan described in 
clause (i) or (ii) of paragraph (8)(B) that is es-
tablished in the name of the employee for the 
benefit of the designated beneficiary shall be 
treated as an eligible retirement plan with re-
spect to such distribution. 
‘‘(B) SPECIAL RULES.—
‘‘(i) DEATH
OF
EMPLOYEE
BEFORE 
ENTIRE INTEREST DISTRIBUTED.—An eli-
gible retirement plan that receives a trans-
fer described in this paragraph shall, with 
respect to amounts attributable to such 
transferred amount, be subject to rules 
similar to clauses (ii) and (iii) of section 
401(a)(9)(B). 
‘‘(ii) DISTRIBUTIONS ATTRIBUTED TO 
EMPLOYEE.—For purposes of this sub-
section, any distribution from the eligible 
retirement plan of amounts attributable to 
such transferred amount shall be treated
(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 employee or the joint lives of the employee and the 
employee’s designated beneficiary. Annuity payments shall 
not fail to be treated as part of a series of substantially 
equal periodic payments because the amount of the peri-
odic payments may vary in accordance with investment ex-
perience, reallocations among investment options, actu-
arial gains or losses, cost of living indices, or similar fluc-
tuating criteria. The availability of a commutation benefit, 
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. 5. FASTER VESTING OF EMPLOYER NONELECTIVE 
CONTRIBUTIONS. 
(a) AMENDMENTS
TO
THE INTERNAL REVENUE 
CODE OF 1986.—
(1) IN
GENERAL.—Paragraph (2) of section 
411(a) (relating to employer contributions) is 
amended to read as follows: 
‘‘(2) EMPLOYER CONTRIBUTIONS.—
‘‘(A) DEFINED BENEFIT PLANS.—
‘‘(i) IN GENERAL.—In the case of a 
defined benefit plan, a plan satisfies the 
requirements of this paragraph if it satis-
fies the requirements of clause (ii) or (iii). 
‘‘(ii) 5-YEAR VESTING.—A plan satis-
fies the requirements of this clause if an 
employee who has completed at least 5 
years of service has a nonforfeitable right 
to 100 percent of the employee’s accrued 
benefit derived from employer contribu-
tions. 
‘‘(iii) 3 TO 7 YEAR VESTING.—A plan 
satisfies the requirements of this clause if 
an employee has a nonforfeitable right to
a percentage of the employee’s accrued 
benefit derived from employer contribu-
tions determined under the following table:
The nonforfeitable 
‘‘Years of service: 
percentage is:
3 ...................................................................................
4 ...................................................................................
5 ...................................................................................
6 ...................................................................................
7 or more ......................................................................
100.
‘‘(B) DEFINED CONTRIBUTION PLANS.—
‘‘(i) IN GENERAL.—In the case of a 
defined contribution plan, a plan satisfies 
the requirements of this paragraph if it 
satisfies the requirements of clause (ii) or 
(iii). 
‘‘(ii) 3-YEAR VESTING.—A plan satis-
fies 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 contribu-
tions. 
‘‘(iii) 2 TO 6 YEAR VESTING.—A plan 
satisfies the requirements of this clause if 
an employee has a nonforfeitable right to 
a percentage of the employee’s accrued 
benefit derived from employer contribu-
tions determined under the following table:
The nonforfeitable 
‘‘Years of service: 
percentage is:
2 ...................................................................................
3 ...................................................................................
4 ...................................................................................
5 ...................................................................................
6 ...................................................................................
100.’’.
(2) 
CONFORMING
AMENDMENT.—Section 
411(a) (relating to general rule for minimum vesting 
standards) is amended by striking paragraph (12). 
(b) AMENDMENTS TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—
(1) IN
GENERAL.—Paragraph (2) of section 
203(a) of the Employee Retirement Income Security 
Act of 1974 (29 U.S.C. 1053(a)(2)) is amended to 
read as follows: 
‘‘(2)(A)(i) In the case of a defined benefit plan, 
a plan satisfies the requirements of this paragraph 
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 5 
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:
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, 2003. 
(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 by 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, 2004; 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. 6. ALLOW DIRECT ROLLOVERS FROM RETIREMENT 
PLANS TO ROTH IRAS. 
(a) IN GENERAL.—Subsection (e) of section 408A 
(defining qualified rollover contribution) is amended to 
read as follows: 
‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For 
purposes of this section, the term ‘qualified rollover con-
tribution’ means a rollover contribution—
‘‘(1) to a Roth IRA from another such account, 
‘‘(2) from an eligible retirement plan, but only 
if—
‘‘(A) in the case of an individual retire-
ment plan, such rollover contribution meets the 
requirements of section 408(d)(3), and 
‘‘(B) in the case of any eligible retirement 
plan (as defined in section 402(c)(8)(B) other 
than clauses (i) and (ii) thereof), such rollover 
contribution meets the requirements of section 
402(c), 403(b)(8), or 457(e)(16), as applicable.
For purposes of section 408(d)(3)(B), there shall be dis-
regarded any qualified rollover contribution from an indi-
vidual retirement plan (other than a Roth IRA) to a Roth 
IRA.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 408A(c)(3)(B) is amended—
(A) in the text by striking ‘‘individual re-
tirement plan’’ and inserting ‘‘an eligible retire-
ment 
plan 
(as 
defined 
by 
section 
402(c)(8)(B))’’, and 
(B) in the heading by striking ‘‘IRA’’ and 
inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 
(2) Section 408A(d)(3) is amended—
(A) in subparagraph (A) by striking ‘‘sec-
tion 408(d)(3)’’ inserting ‘‘sections 402(c), 
403(b)(8), 408(d)(3), and 457(e)(16)’’, 
(B) in subparagraph (B) by striking ‘‘indi-
vidual retirement plan’’ and inserting ‘‘eligible 
retirement 
plan 
(as 
defined 
by 
section 
402(c)(8)(B))’’, 
(C) in subparagraph (D) by striking ‘‘or 
6047’’ after ‘‘408(i)’’, 
(D) in subparagraph (D) by striking ‘‘or 
both’’ and inserting ‘‘persons subject to section
6047(d)(1), or all of the foregoing persons’’, 
and 
(E) in the heading by striking ‘‘IRA’’ and 
inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions after December 31, 
2003. 
SEC. 7. ROLLOVER OF AFTER-TAX AMOUNTS IN ANNUITY 
CONTRACTS. 
(a) IN GENERAL.—Subparagraph (A) of section 
402(c)(2) (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) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 8. ELIMINATION OF HIGHER PENALTY ON CERTAIN 
SIMPLE DISTRIBUTIONS. 
(a) IN GENERAL.—Subsection (t) of section 72 (re-
lating to 10-percent additional tax on early distributions 
from qualified retirement plans) is amended by striking 
paragraph (6) and redesignating paragraphs (7), (8), and 
(9) as paragraphs (6), (7), and (8), respectively. 
(b) CONFORMING AMENDMENTS.—
(1) Section 72(t)(2)(E) is amended by striking 
‘‘paragraph (7)’’ and inserting ‘‘paragraph (6)’’. 
(2) Section 72(t)(2)(F) is amended by striking 
‘‘paragraph (8)’’ and inserting ‘‘paragraph (7)’’. 
(3) Section 408(d)(3)(G) is amended by insert-
ing by striking ‘‘applies’’ and inserting ‘‘applied on 
the day before the date of the enactment of Retire-
ment Account Portability Improvement Act of 
2003)’’. 
(4) Section 457(a)(2) is amended by striking 
‘‘section 72(t)(9)’’ and inserting ‘‘section 72(t)(8)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2003. 
SEC. 9. SIMPLE PLAN PORTABILITY. 
(a) REPEAL OF LIMITATION.—Paragraph (3) of sec-
tion 408(d) (relating to rollover contributions) is amended 
by striking subparagraph (G) and redesignating subpara-
graphs (H), (I), and (J) as subparagraphs (G), (H), and 
(I), respectively. 
(b) Section 402(c)(8)(B) is amended by adding at the 
end the following new sentence: ‘‘Individual retirement ac-
counts and individual retirement annuities described in 
clauses (i) and (ii) shall be treated as eligible retirement 
plans without regard to whether they are part of a sim-
plified employee pension (within the meaning of section 
408(k)) or a simplified retirement account (within the 
meaning of section 408(p)).’’. 
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to years beginning after December 
31, 2003. 
SEC. 10. CLARIFICATIONS REGARDING PURCHASE OF PER-
MISSIVE SERVICE CREDIT. 
(a) IN GENERAL.—Subparagraph (A) of section 
457(e)(17) (relating to trustee-to-trustee transfers to pur-
chase permissive service credit), and subparagraph (A) of 
section 403(b)(13) (relating to trustee-to-trustee transfers 
to purchase permissive service credit), are both amended 
by striking ‘‘section 415(n)(3)(A)’’ and inserting ‘‘section 
415(n)(3) (without regard to subparagraphs (B) and (C) 
thereof)’’. 
(b) TRANSFERS MAY BE FROM ANY GOVERNMENTAL 
PLAN.—Section 457(e)(17), and section 403(b)(13), are 
both amended by inserting ‘‘from any governmental plan 
(as so defined)’’ after ‘‘414(d))’’. 
(c) 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. 11. CERTAIN ROLLOVERS OF BENEFITS PERMITTED. 
(a) IN GENERAL.—Paragraph (10) of section 457(e) 
is amended—
(1) by striking ‘‘A participant’’ and inserting 
‘‘(A) EXCLUSION
FROM
INCOME.—A participant’’, 
and 
(2) by adding at the end the following: 
‘‘(B) TRANSFERS PERMITTED.—A transfer 
from one such plan to another such plan of the 
entire benefit of one or more participants shall 
not fail to be permitted solely because all assets 
of the transferor plan are not transferred to the 
transferee plan.’’. 
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2003. 
(2) SPECIAL RULE.—An individual shall not be 
precluded from participating 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 en-
actment of the Small Business Job Protection Act of 
1996.
SEC. 12. DISPOSITION OF UNUSED HEALTH BENEFITS IN 
CAFETERIA PLANS AND FLEXIBLE SPENDING 
ARRANGEMENTS. 
(a) IN GENERAL.—Section 125 (relating to cafeteria 
plans) is amended by redesignating subsections (h) and 
(i) as subsections (i) and (j), respectively, and by inserting 
after subsection (g) the following: 
‘‘(h) CARRYFORWARDS OR PAYMENTS OF CERTAIN 
UNUSED HEALTH BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this title, 
a plan or other arrangement shall not fail to be 
treated as a cafeteria plan solely because qualified 
benefits under such plan include a health flexible 
spending arrangement under which not more than 
$500 of unused health benefits may be contributed 
on behalf of an employee to a qualified retirement 
plan (as defined in section 4974(c)) or an eligible 
deferred compensation plan (as defined in section 
457(b)). 
‘‘(2) CONTRIBUTION OF UNUSED HEALTH BEN-
EFITS ON BEHALF OF EMPLOYEE.—For purposes of 
this title, contributions on behalf of an employee de-
scribed in paragraph (1) shall be treated as elective 
contributions made pursuant to a choice by the em-
ployee between such contributions and compensation 
which would otherwise be includible in the gross in-
come of the employee. Contributions described in 
paragraph (1) shall be excluded from the gross in-
come of the employee, or included in the gross in-
come of the employee and allowed as a deduction by 
the employee, to the extent that elective contribu-
tions would be treated in that manner under this 
title. 
‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE-
MENT.—For purposes of this subsection, the term 
‘health flexible spending arrangement’ means a flexi-
ble spending arrangement (as defined in section 
106(c)) that is a qualified benefit and only permits 
reimbursement for expenses for medical care (as de-
fined in section 213(d)(1) (without regard to sub-
paragraphs (C) and (D) thereof). 
‘‘(4) UNUSED
HEALTH
BENEFITS.—For pur-
poses of this subsection, with respect to an em-
ployee, the term ‘unused health benefits’ means the 
excess of—
‘‘(A) the maximum amount of reimburse-
ment allowable to the employee during a plan 
year under a health flexible spending arrange-
ment, taking into account any election by the 
employee, over
‘‘(B) the actual amount of reimbursement 
during such year under such arrangement.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2003.
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